<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
WARNER CHILCOTT PUBLIC LIMITED COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(I) and 0-11.
(1) Title of each class of securities to which transaction applies:
American Depositary Shares, representing Ordinary Shares, nominal value
$0.05 each;
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
Up to 17,000,000 ordinary shares of Warner Chilcott Public Limited
Company
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $7.81
(Pursuant to Rules 14a-6(i)(1) and 0-11(a)(4) and (c)(1) under the
Exchange Act, the per unit price was determined by calculating the
average of the high and low prices reported in the London Stock
Exchange of ordinary shares of Galen Holdings PLC as of May 23, 2000).
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $331,925,000
(The proposed maximum aggregate value of the transaction was calculated
by multiplying (i) the total number of Warner Chilcott Ordinary Shares
identified in item (2) above, (ii) 2.5 (which represents the number of
Galen ordinary shares that will be paid for each Warner Chilcott
ordinary share) and (iii) the per unit price identified in item (3)
above).
------------------------------------------------------------------------
(5) Total fee paid: $66,385.00
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
[WARNER CHILCOTT, INC. LOGO]
Warner Chilcott Public Limited Company
Lincoln House
Lincoln Place
Dublin 2, Ireland
, 2000
Dear Shareholder:
Holders of record of ordinary shares, nominal value U.S.$0.05 per share, of
Warner Chilcott Public Limited Company, a public limited company incorporated
under the laws of the Republic of Ireland, are cordially invited to attend a
meeting, referred to as the court meeting, convened by direction of the High
Court of Ireland (the "High Court") and an extraordinary general meeting, at
which shareholders will all be asked to vote on the proposals under which Galen
Holdings PLC, a public limited company incorporated under the laws of Northern
Ireland, will become the owner of 100% of Warner Chilcott's outstanding ordinary
shares and deferred shares, referred to as the transaction, under the scheme of
arrangement set out in a transaction agreement, dated as of May 4, 2000, between
Warner Chilcott and Galen.
Upon completion of the transaction:
- all issued and outstanding ordinary shares of Warner Chilcott (other than
shares held by Galen or any of its subsidiaries) will be canceled and the
holders thereof will receive 2.5 ordinary shares of 10p each in the
ordinary share capital of Galen, referred to as the per share
consideration, in consideration for each ordinary share so canceled;
- all issued and outstanding deferred shares of Warner Chilcott will be
canceled and the holder thereof will receive one ordinary share of 10p in
the ordinary share capital of Galen; and
- upon reduction of the share capital of Warner Chilcott created by the
cancelation of the ordinary shares and the deferred shares as described
above, the share capital of Warner Chilcott will be increased to its
former amount by the creation of a number of new ordinary shares and new
deferred shares equal to the number of ordinary shares and deferred
shares canceled as above, which will be allotted and issued, credited as
fully paid, to Galen, and Warner Chilcott will become a wholly owned
subsidiary of Galen.
Our board of directors has determined by a unanimous vote of disinterested
directors and by a unanimous vote of all directors that the scheme is fair to,
and in the best interests of, Warner Chilcott and its shareholders. In making
this decision, the board of directors considered, among other things, the
written opinion, dated May 3, 2000, of Credit Suisse First Boston, to the effect
that, as of that date and based upon and subject to the matters described in the
opinion, the per share consideration to be offered to the holders of Warner
Chilcott ordinary shares and American Depositary Shares (other than Galen and
its affiliates) under the scheme, is fair to those shareholders from a financial
point of view. As a result of the foregoing, our board of directors has approved
the transaction agreement and the scheme.
WARNER CHILCOTT'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN
FAVOR OF THE SCHEME, THE REDUCTION OF WARNER CHILCOTT'S SHARE CAPITAL AND
CERTAIN OTHER MATTERS PROPOSED IN, OR RELATED TO, THE SCHEME AT THE COURT
MEETING AND THE EXTRAORDINARY GENERAL MEETING.
<PAGE> 3
The transaction cannot be completed unless the scheme, the reduction of
share capital and such other matters are approved by the requisite votes of our
shareholders. Therefore, we have convened the meetings for our shareholders to
vote on the scheme, the reduction of share capital and these other matters.
The date and place of the meetings are , 2000 at
LINCOLN HOUSE
LINCOLN PLACE, DUBLIN 2,
IRELAND
The court meeting will be held at 10:00 a.m., local time. The extraordinary
general meeting will be held at 10:15 a.m., local time (or as soon thereafter as
the court meeting has concluded or been adjourned).
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE RELEVANT
MEETINGS, PLEASE TAKE THE TIME TO VOTE BY COMPLETING AND MAILING THE ENCLOSED
PROXY CARDS TO US. Proxy cards are enclosed for shareholders with this proxy
statement. If you have any questions, please feel free to contact our investor
relations department at 973-442-3200.
PLEASE DO NOT SEND YOUR SHARE CERTIFICATES AT THIS TIME. IF THE TRANSACTION
IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
SHARE CERTIFICATES.
IF YOU HOLD YOUR INTEREST IN SHARES THROUGH THE ADR PROGRAM, YOU ARE NOT
ENTITLED TO ATTEND AND VOTE AT THE RELEVANT MEETINGS. HOWEVER, YOUR VOTE AS AN
ADR HOLDER IS STILL VERY IMPORTANT TO US. PLEASE VOTE BY COMPLETING AND MAILING
THE ENCLOSED PROXY CARD FOR ADR HOLDERS. Should you have any questions with
respect to the procedure described herein, please call The Bank of New York at
1-800-507-9357.
This proxy statement is provided (1) in connection with the furnishing of
proxies for use at the meetings and at any adjournments of the meetings and (2)
in compliance with the directions of the High Court in accordance with Section
202 of the Companies Act, 1963. This proxy statement provides you with
information about the transaction agreement and the scheme. In addition, you may
obtain information about Warner Chilcott from documents filed with the U.S.
Securities and Exchange Commission and information about Galen from documents
filed with the Registrar of Companies in Northern Ireland. We encourage you to
read this entire document carefully.
Sincerely,
--------------------------------------
James G. Andress
Chairman and
Chief Executive Officer
Proxy statement dated , 2000 and first mailed to Warner Chilcott's
shareholders on or about , 2000.
<PAGE> 4
THE HIGH COURT
2000 NO. COS
IN THE MATTER OF WARNER CHILCOTT PUBLIC LIMITED COMPANY
-AND-
IN THE MATTER OF THE COMPANIES ACT, 1963
NOTICE IS HEREBY GIVEN that, by an order dated , 2000 made in
the above matter, the Court has directed a meeting to be convened of the holders
of Ordinary Shares of Warner Chilcott Public Limited Company ("Warner Chilcott")
for the purpose of considering and, if thought fit, approving (with or without
modification) a Scheme of Arrangement proposed to be made between Warner
Chilcott and the holders of the Scheme Shares (as defined in the said Scheme of
Arrangement) and that such meeting will be held at Lincoln House, Lincoln Place,
Dublin 2, Ireland, on , 2000 at 10:00 a.m., at which place and time
all holders of Ordinary Shares are requested to attend.
A copy of the said Scheme of Arrangement and a copy of the statement
required to be furnished pursuant to Section 202 of the Companies Act, 1963 are
incorporated in the document of which this notice forms a part.
Holders of Ordinary Shares of Warner Chilcott who are entitled to attend
the meeting may vote in person at the meeting or they may appoint another person
as their proxy to attend and vote in their stead. A proxy need not be a member
of Warner Chilcott. A form of proxy for use at the meeting is enclosed with this
notice.
In the case of joint holders, the vote of the senior who tenders a vote,
whether in person or by proxy, will be accepted to the exclusion of the votes of
the other joint holder(s) and for this purpose seniority will be determined by
the order in which the names stand in Warner Chilcott's register of members in
respect of the relevant joint holdings.
It is requested that forms appointing proxies be lodged with the Secretary
of Warner Chilcott at its registered office, Lincoln House, Lincoln Place,
Dublin 2, Ireland, not less than 48 hours before the time appointed for the
meeting but, if forms are not so lodged, they may be handed to the Chairman at
the meeting.
By the said order, the Court has appointed James G. Andress or, failing
him, David G. Kelly to act as Chairman of the meeting and has directed the
Chairman to report the result of the meeting to the Court.
The said Scheme of Arrangement will be subject to the subsequent sanction
of the Court.
Dated , 2000
MCCANN FITZGERALD
2 Harbourmaster Place
International Financial Services Centre
Dublin 1
Solicitors for Warner Chilcott
<PAGE> 5
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTICE OF EXTRAORDINARY GENERAL MEETING
Notice is hereby given that an Extraordinary General Meeting of the holders
of ordinary shares of Warner Chilcott Public Limited Company ("Warner Chilcott")
will be held at Lincoln House, Lincoln Place, Dublin 2, Ireland, on
, 2000 at 10:15 a.m. (or as soon thereafter as the meeting of the
holders of the ordinary shares of U.S. $0.05 of Warner Chilcott (other than
Galen-held Warner Ordinary Shares as defined in the Scheme referred to in the
resolution set out below) convened for 10:00 a.m. on the same day and at the
same place, by an order of the High Court, shall have concluded or been
adjourned) for the purpose of considering and, if thought fit, passing the
following resolution, which will be proposed as a special resolution:
SPECIAL RESOLUTION
THAT:
(i) for the purpose of giving effect to the Scheme of Arrangement
dated , 2000 (the "Scheme") between Warner Chilcott PLC
("Warner Chilcott") and the holders of Warner Ordinary Shares (other than
Galen-held Warner Ordinary Shares) and Warner Deferred Shares (each as
defined in the Scheme) (a copy of which has been produced to this meeting
and for the purposes of identification has been signed by the chairman of
this meeting) in its original form or with or subject to any modification,
addition or condition approved by the High Court:
(a) the share capital of Warner Chilcott be reduced by canceling
all the Scheme Shares (as defined in the Scheme);
(b) forthwith and contingent on such reduction of capital taking
effect:
(1) the share capital of Warner Chilcott be increased to its
former amount by the creation of such number of new ordinary shares
of U.S. $0.05 each and new deferred shares of IR[pound sterling]1
each as shall equal the number of the Scheme Ordinary Shares and the
Scheme Deferred Shares respectively (each as defined in the Scheme);
and
(2) the credit arising in the books of account of Warner
Chilcott as a result of the cancelation of the Scheme Ordinary Shares
(as defined in the Scheme) be applied in paying up in full at par the
new ordinary shares referred to in subparagraph (b)(1) above and the
credit arising in the books of Warner Chilcott as a result of the
cancelation of the Scheme Deferred Shares be applied in paying up in
full at par the new deferred shares referred to in subparagraph
(b)(1) above, such new ordinary shares and new deferred shares to be
allotted and issued, credited as fully paid, to Galen Holdings PLC
and/or its nominee(s); and
(c) the directors of Warner Chilcott be hereby authorized pursuant
to and in accordance with Section 20 of the Companies (Amendment) Act,
1983 to give effect to this resolution and accordingly to effect the
allotment of the new ordinary shares and new deferred shares referred to
in subparagraph (b)(2) above, provided that (i) this authority shall
expire on , 2000, (ii) the maximum aggregate nominal amounts
of shares which may be allotted hereunder shall be amounts equivalent to
the respective nominal amounts of the Scheme Ordinary Shares and the
Scheme Deferred Shares and (iii) this authority shall be without
prejudice to any other authority under the said Section 20 previously
granted before the date on which this resolution is passed; and
(ii) subject to the Scheme becoming effective, the articles of
association of Warner Chilcott be amended by the adoption and inclusion of
the following new article 135:
"Shares not subject to Scheme of Arrangement
(a) In this Article, references to the "Scheme" are to the Scheme
of Arrangement dated , 2000 between the Company and the
holders of Warner Ordinary Shares (other than
<PAGE> 6
Galen-held Warner Ordinary Shares) and Warner Deferred Shares under
Section 201 of the Companies Act, 1963 and terms defined in the Scheme
shall have the same meanings in this Article.
(b) If the Company issues any Ordinary Shares (other than to Galen
Holdings PLC ("Galen") or any subsidiary undertaking of Galen or anyone
acting on behalf of Galen or any subsidiary undertaking of Galen) after
the commencement of the meeting of holders of Ordinary Shares convened
by direction of the High Court pursuant to the said Section 201 and in
relation to the Scheme and prior to 5:00 p.m. on the day before the
Hearing Date, such Ordinary Shares shall be subject to the terms of the
Scheme and the holder or holders of such Ordinary Shares shall be bound
by the Scheme accordingly.
(c) If any Ordinary Shares, other than Scheme Shares, are allotted
or issued to any person (a "new member") (other than to Galen or any
subsidiary undertaking of Galen or anyone acting on behalf of Galen or
any subsidiary undertaking of Galen) at or after 5:00 p.m. on the day
before the Hearing Date, they will, provided that the Scheme has become
effective, be immediately transferred to Galen in consideration of and
conditional on the issue to the new member in accordance with the Per
Share Consideration of Galen Shares for the Ordinary Shares in the
Company transferred, being Galen Shares which rank pari passu with all
other Galen Shares for the time being in issue and ranking for any
dividends or distributions made, paid or declared thereon following the
date on which the transfer of the Ordinary Shares in the Company is
executed.
(d) To give effect to any such transfer required by this Article,
the Company may appoint any person to execute a form of transfer on
behalf of the new member and any other holder of the relevant Ordinary
Shares in favor of Galen and to agree for and on behalf of the new
member to become a member of Galen. Pending the registration of Galen as
the holder of any share to be transferred pursuant to this Article,
Galen shall be empowered to appoint a person nominated by the Directors
to act as attorney on behalf of each holder of the share in accordance
with such directions as Galen may give in relation to any dealings with
or disposal of such share (or any interest therein), exercising any
rights attached thereto or receiving any distribution or other benefit
accruing or payable in respect thereof and the registered holders of
such share shall exercise all rights attaching thereto in accordance
with the directions of Galen but not otherwise."
Dated , 2000
By Order of the Board
David G. Kelly
Company Secretary
Registered Office:
Lincoln House
Lincoln Place
Dublin 2, Ireland
Registered in Ireland No. 191050
Notes to Notice of Extraordinary General Meeting:
1. A shareholder entitled to attend and vote at the extraordinary
general meeting is entitled to appoint a proxy to attend, speak and vote
instead of that shareholder. A proxy need not be a shareholder of Warner
Chilcott.
2. Shareholders are invited to complete and return the form of proxy
which accompanies this document. Lodgement of the form of proxy will not
prevent shareholders from attending and voting in person at the
extraordinary general meeting.
<PAGE> 7
3. To be valid, the form of proxy and, if relevant, the authority
under which it is signed, or a copy of that authority certified by a notary
or solicitor, must be received by the secretary of Warner Chilcott at its
registered office, Lincoln House, Lincoln Place, Dublin 2, Ireland, by
10:15 a.m. on , 2000. Please post it in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE
SCHEME, THE REDUCTION OF WARNER CHILCOTT'S CAPITAL AND THE OTHER MATTERS TO BE
PROPOSED AT THE MEETINGS.
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE RELEVANT MEETING. NO POSTAGE
NEED BE AFFIXED TO THE ENCLOSED PROXY CARD(S) IF MAILED IN IRELAND.
PLEASE DO NOT SEND YOUR SHARE CERTIFICATES AT THIS TIME. IF THE TRANSACTION
IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
SHARE CERTIFICATES.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY SECURITIES
AUTHORITY OF IRELAND OR ANY STATE OR OTHER JURISDICTION HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE> 8
COMPLIANCE WITH APPLICABLE LAWS
Warner Chilcott is incorporated under and governed by the laws of the
Republic of Ireland. The procedure which Warner Chilcott is adopting in order to
seek shareholders' approval of the scheme, the reduction of Warner Chilcott's
share capital and certain other matters is governed by sections 201 and 202 of
the Companies Act, 1963, which is part of the laws of the Republic of Ireland.
Section 202 requires, among other things, that Warner Chilcott must send to all
shareholders, along with notices summoning the necessary meetings, a statement
explaining the effect of the scheme being proposed and describing any material
interests of the directors of Warner Chilcott (in their capacities as directors,
shareholder or creditors or otherwise) and any effects which the scheme will
have upon them which are different from the effects which it will have on others
affected by the scheme. For purposes of compliance with section 202 of the
Companies Act, 1963, the following sections of the attached proxy statement are
included, among other reasons, in order to comply with the particular
requirements of section 202(1)(a) and your attention is specifically drawn to
them for that purpose:
Questions and Answers about the transaction (pages v to vii)
Summary (pages I-1 to I-10)
Risk Factors (pages I-11 to I-18)
The Proposed Transaction (pages I-20 to I-28)
Interests of Warner Chilcott's Executive Officers and Directors in the
Transaction (pages I-75 to I-78)
The Transaction Agreement and the Scheme (pages I-79 to I-84)
Description of Galen Share Capital (pages III-5 to III-11)
Comparison of Warner Chilcott/Galen Shareholder Rights (pages III-12 to
III-14).
For the purpose of complying with the securities laws of the United States
(where Warner Chilcott's ordinary shares in the form of American Depositary
Shares, or ADSs, evidenced by American Depositary Receipts, or ADRs, are traded
on the Nasdaq National Market), this proxy statement has been prepared in
accordance with the requirements of those laws and the requirements of the U.S.
Securities and Exchange Commission. The scheme itself is set out in Annex B.
Warner Chilcott advises shareholders that the entire proxy statement should
therefore be treated by them as the statement for the purposes of section 202
and it urges them to study it in order to understand both what is being proposed
and the circumstances in which the proposal is made.
For purposes of satisfying the requirements of the UK Listing Authority,
attached as Annex D is a copy of a document comprising listing particulars that
have been prepared by Galen in accordance with the listing rules made under part
IV of the UK Financial Services Act, 1986.
<PAGE> 9
TABLE OF CONTENTS
CHAPTER ONE
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THE TRANSACTION............................................. vi
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION................. vi
SUMMARY..................................................... I-1
The Companies............................................. I-1
The Transaction Agreement and the Scheme.................. I-1
Reasons for the Transaction............................... I-2
Our Recommendation to Shareholders........................ I-2
What You Will Receive..................................... I-2
The Meetings.............................................. I-2
Shareholders Entitled to Vote............................. I-2
Quorum Requirements....................................... I-3
Votes Required............................................ I-3
Effect of Abstentions and Broker Non-votes................ I-3
Requirements as to Proxies................................ I-3
The Transaction Agreement and the Scheme.................. I-4
Interests of Certain Persons in the Transaction........... I-4
Conditions to the Transaction............................. I-4
Termination of the Transaction Agreement and Abandonment
of the Scheme.......................................... I-4
Fairness Opinion.......................................... I-5
The High Court Sanction Hearing........................... I-5
Regulatory Filings and Approvals.......................... I-5
Effective Time of the Transaction......................... I-5
U.S. Federal Income Tax Consequences...................... I-5
Irish Tax Consequences.................................... I-6
Accounting Treatment...................................... I-6
Termination Fee and Expenses.............................. I-6
No Appraisal Rights....................................... I-6
Surrender of Share Certificates........................... I-6
Certain Effects of the Transaction........................ I-6
Summary Financial Data for Warner Chilcott................ I-7
Summary Financial Data for Galen.......................... I-8
Summary Unaudited Combined Pro Forma Data................. I-10
RISK FACTORS................................................ I-12
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... I-20
THE PROPOSED TRANSACTION.................................... I-21
Background of the Transaction............................. I-21
Warner Chilcott's Reasons for Supporting the
Transaction............................................ I-24
The High Court Sanction Hearing........................... I-25
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i
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Effective Time of the Transaction......................... I-26
Regulatory Filings and Approvals.......................... I-26
Accounting Treatment...................................... I-26
Federal Securities Law Consequences....................... I-26
Stock Market Listing...................................... I-27
No Right to Dissent....................................... I-27
Surrender of Share Certificates........................... I-27
Tax Considerations........................................ I-27
Issuance of ordinary shares of Galen in consideration for
cancelation of Ordinary Shares and Deferred Shares..... I-28
THE COMPANIES............................................... I-30
Description of Warner Chilcott's Business................. I-30
Warner Chilcott Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... I-41
Description of Galen's Business........................... I-48
Galen Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... I-61
OPINION OF CREDIT SUISSE FIRST BOSTON....................... I-69
INTERESTS OF WARNER CHILCOTT'S EXECUTIVE OFFICERS AND
DIRECTORS IN THE TRANSACTION.............................. I-75
Galen's Arrangements With Directors and Executive Officers
of Warner Chilcott..................................... I-75
Ownership of Ordinary Shares; Share Options............... I-76
Indemnification; Directors and Officer's Insurance........ I-80
THE TRANSACTION AGREEMENT AND THE SCHEME.................... I-81
General................................................... I-81
Cancellation and Allotment of Shares...................... I-81
Representations and Warranties............................ I-81
Certain Covenants......................................... I-81
Access to Information..................................... I-82
Other Actions............................................. I-82
No Solicitation........................................... I-82
Related Matters After the Transaction..................... I-83
Stock Options and Employee Benefits....................... I-84
Indemnification........................................... I-84
Conditions................................................ I-84
Termination............................................... I-85
Termination Fees and Expenses............................. I-86
</TABLE>
ii
<PAGE> 11
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CHAPTER TWO
FINANCIAL DATA.............................................. II-1
Selected Historical Consolidated Financial Data of Warner
Chilcott............................................... II-1
Selected Historical Consolidated Financial Data of
Galen.................................................. II-3
Selected Historical Consolidated Financial Data of
Galen -- U.S. GAAP..................................... II-5
Unaudited Pro Forma Consolidated Condensed Financial
Statements of Galen.................................... II-6
Unaudited Pro Forma Consolidated Profit and Loss Account
for the Year Ended September 30, 1999.................. II-7
Unaudited Pro Forma Consolidated Profit and Loss Account
for the Six Months ended March 31, 2000................ II-8
Unaudited Pro Forma Consolidated Balance Sheet as at March
31, 2000............................................... II-9
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Data......................................... II-10
Comparative Per Share Data -- Unaudited................... II-14
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND VOTING................... III-1
General................................................... III-1
Matters to be Considered at the Meetings.................. III-1
Board Recommendation of Warner Chilcott................... III-2
Shareholders Entitled To Vote............................. III-2
Voting Securities......................................... III-2
Quorum.................................................... III-2
Votes Required............................................ III-2
No Appraisal Rights....................................... III-3
Voting; Proxies; Revocation of Proxies.................... III-3
Solicitation of Proxies................................... III-4
DESCRIPTION OF GALEN SHARE CAPITAL.......................... III-5
COMPARISON OF WARNER CHILCOTT/GALEN SHAREHOLDER RIGHTS...... III-12
DESCRIPTION OF GALEN ADSs AND ADRs.......................... III-15
American Depository Shares and American Depository
Receipts............................................... III-15
Deposit, Transfer and Withdrawal.......................... III-15
Dividends, Other Distributions and Rights................. III-16
Changes Affecting Deposited Shares........................ III-18
Record Dates.............................................. III-18
Voting of Deposited Securities............................ III-18
Reports and Other Communications.......................... III-20
Amendment and Termination of the Deposit Agreement........ III-21
Charges of Depository..................................... III-21
Liability of Owner for Taxes.............................. III-22
General................................................... III-22
Governing Law............................................. III-23
</TABLE>
iii
<PAGE> 12
<TABLE>
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CHAPTER FOUR
ADDITIONAL INFORMATION FOR SHAREHOLDERS..................... IV-1
Market Price Information.................................. IV-1
Dividend History.......................................... IV-1
Currencies and Exchange Rates............................. IV-2
Where You Can Find More Information....................... IV-2
CHAPTER FIVE
FINANCIAL INFORMATION....................................... F-1
WARNER CHILCOTT PUBLIC LIMITED COMPANY
Audited Consolidated Financial Statements:
Independent Auditors' Report................................ F-2
Statement of Independent Chartered Accountants.............. F-3
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
Financial Statement Schedule: Valuation and Qualifying
Accounts.................................................. F-24
Consolidated Financial Statements (unaudited):
Consolidated Balance Sheet as of March 31, 2000............. F-25
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999............................. F-26
Consolidated Statements of Cash Flows for Three Months Ended
March 31, 2000 and 1999................................... F-27
Notes to the Unaudited Consolidated Financial Statements.... F-28
OVCON AND ESTRACE CREAM PRODUCTS OF APOTHECON (A SUBSIDIARY
OF BRISTOL-MYERS SQUIBB COMPANY)
Independent Auditors' Report................................ F-34
Historical Statements of Net Sales and Product Contribution
for the Years Ended December 31, 1999, 1998 and 1997...... F-35
Notes to the Historical Statements of Net Sales and Product
Contribution.............................................. F-36
GALEN HOLDINGS PUBLIC LIMITED COMPANY
Independent Auditors' Report................................ F-38
Consolidated Profit and Loss Accounts....................... F-39
Reconciliation of Movements in Shareholders' Funds.......... F-40
Consolidated Statement of Total Recognized Gains and
Losses.................................................... F-40
Cumulative Foreign Currency Translation Differences......... F-40
Consolidated Balance Sheets................................. F-41
Consolidated Cash Flow Statements........................... F-42
Notes to the Accounts....................................... F-43
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
BARTHOLOMEW RHODES LIMITED (A SUBSIDIARY OF GALEN)
Report of the Auditors...................................... F-79
Profit and Loss Account for the Year Ended March 31, 1999... F-81
Cash Flow Statement for the Year Ended March 31, 1999....... F-82
Notes to the Financial Statements........................... F-83
</TABLE>
Annex A -- Transaction Agreement
Annex B -- Scheme of Arrangement
Annex C -- Opinion of Credit Suisse First Boston
Annex D -- Listing Particulars
v
<PAGE> 14
CHAPTER ONE
THE TRANSACTION
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
<TABLE>
<S> <C>
Q. WHAT WILL HAPPEN IN THE PROPOSED TRANSACTION?
A. Galen Holdings PLC will acquire Warner Chilcott PLC under a
scheme of arrangement. Warner Chilcott will become a wholly
owned subsidiary of Galen. Following the completion of the
transaction, Warner Chilcott's shareholders will no longer
own any interest in Warner Chilcott. Please read pages I-21
to I-29 for a description of the transaction.
Q: WHAT IS A SCHEME OF ARRANGEMENT?
A. A scheme of arrangement is a court sanctioned and
shareholder-approved transaction under Irish law in which
the High Court of Ireland must determine the fairness of the
proposed transaction to the affected shareholders.
Q: WHAT WILL I RECEIVE UNDER THE TRANSACTION?
A: Under the transaction, Warner Chilcott's ordinary
shareholders will receive 2.5 Galen ordinary shares for each
Warner Chilcott ordinary share. Holders of Warner Chilcott
American Depositary Receipts, or ADRs, representing Warner
Chilcott American Depositary Shares, or ADSs, will receive
Galen ADRs, representing Galen ADSs. Each Galen ADS will
represent four Galen ordinary shares. As a result, each
holder of Warner ADRs will receive 0.625 Galen ADRs for each
Warner ADR. There will be no adjustment to the rate of
exchange as a result of changes in the relative trading
values of Warner Chilcott or Galen shares prior to approval
of the scheme.
Q. WHY HAVE WE DECIDED TO BE ACQUIRED?
A. The board of directors and management of Warner Chilcott
believe that the transaction will benefit the combined
company and its customers and employees in a manner that we
could not achieve on our own. Our board of directors
believes that the transaction is in the best interests of
our shareholders because, among other factors, it offered a
premium over the historical trading price of our ordinary
shares.
Please read the more detailed description of our reasons for
the transaction on pages I-21 to I-25.
Q: WHAT ARE THE MEETINGS?
A: The court meeting is a meeting of Warner Chilcott
shareholders, which has been convened at the direction of
the High Court of Ireland for the purpose of considering,
and, if thought fit, approving the scheme. The extraordinary
general meeting has been convened by Warner Chilcott for the
purpose of considering and, if thought fit, approving the
reduction of Warner Chilcott's share capital and certain
other matters proposed in, or incidental to, the scheme.
Q: WHEN AND WHERE WILL THE MEETINGS TAKE PLACE?
A: The court meeting and the extraordinary general meeting are
scheduled to take place at 10:00 a.m. and 10:15 a.m.,
respectively, local time (or, in the case of the
extraordinary general meeting, as soon thereafter as the
court meeting has concluded or been adjourned), on
, 2000, at Lincoln House, Lincoln Place, Dublin
2, Ireland.
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
Q: CAN I ATTEND THE MEETINGS?
A: Holders of record of ordinary shares are entitled to attend and vote at the court meeting and the
extraordinary general meeting either in person or by proxy. Holders of ADRs, representing Warner Chilcott
ordinary shares, are not entitled to attend the meetings but may vote as described below.
Q. WHAT DO I NEED TO DO NOW?
A. After you carefully read this document, please complete, sign, date and mail your proxy card(s) in the
enclosed return envelope as soon as possible. That way, your shares can be represented at the meetings. We
cannot complete the transaction unless:
- the scheme is approved at the court meeting by a majority in number, representing 75% of the aggregate par
value, of the holders of Warner Chilcott ordinary shares present and voting in person or by proxy; and
- the reduction of share capital is approved by not less than 75% of the votes cast by the holders of Warner
Chilcott ordinary shares at the extraordinary general meeting.
YOUR VOTES ARE VERY IMPORTANT.
OUR BOARD OF DIRECTORS RECOMMENDS THAT ORDINARY SHAREHOLDERS VOTE FOR APPROVAL OF THE SCHEME, THE REDUCTION OF
SHARE CAPITAL AND RELATED MATTERS.
Q. WHICH PROXY CARD DO I FILL IN?
A. Holders of record of ordinary shares should complete both the blue and white proxy cards. Holders of ADRs
should complete the proxy card which will be sent to them by the Bank of New York as depository for the ADRs.
Q: WHAT DO HOLDERS OF ADRs NEED TO DO TO VOTE THEIR SHARES?
A: Holders of ADRs are not entitled to attend the meetings. However, Warner Chilcott has made arrangements with
the Bank of New York, as depositary for the ADRs, so that ADR holders will receive materials from the Bank of
New York explaining the transaction. These materials will include forms of instructions to the Bank of New
York for voting the ordinary shares represented by the ADRs at the court meeting and the extraordinary
general meeting. These materials will also advise ADR holders who wish to attend the court meeting and the
extraordinary general meeting what steps to take in order to present their ADRs to the depositary for
cancelation and delivery of ordinary shares so as to become record holders of ordinary shares prior to those
meetings. This will include completing the proxy card in relation to the ADRs referred to above.
Q: WHAT DO SHAREHOLDERS WHO HAVE SENT IN PROXY CARDS DO IF THEY WANT TO CHANGE THEIR VOTE?
A: Holders of ordinary shares may revoke or change their vote by:
- voting in person at the relevant meeting;
- delivering a subsequently dated proxy to Warner Chilcott's registered office at least 48 hours prior to the
advertised time of the relevant meeting, or in the case of the court meeting, delivered to the chairman of
the meeting at that meeting; or
- delivering a written revocation of such proxy, provided that the revocation must be received at Warner
Chilcott's registered office not less than one hour prior to the advertised time of the relevant meeting.
Q: IF MY ADRs ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will instruct the depositary how to vote your ordinary shares represented by ADRs for you only if
you provide instructions to your broker on how to vote. You should instruct your broker how to vote,
following the directions provided by your broker. Without instructions, your broker will not be able to
instruct the depositary how to vote your ordinary shares represented by ADRs.
</TABLE>
vii
<PAGE> 16
<TABLE>
<CAPTION>
Q: IF I HAVE PHYSICAL ORDINARY SHARE CERTIFICATES, SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
<S> <C>
A: No. If the transaction is approved, you will receive written instructions for exchanging
your share certificates.
Q: WHEN AND WHERE WILL THE HIGH COURT SANCTION HEARING TAKE PLACE?
A: At this time, it is not possible to say on what date the hearing will take place but it is
expected to take place in September. The precise date of the hearing will be advertised
when it is fixed by the High Court. The hearing will take place at the Four Courts, Dublin
7, the Republic of Ireland.
Q: CAN I ATTEND THE HIGH COURT SANCTION HEARING?
A: All holders of ordinary shares and of deferred shares are entitled to attend and be heard
at the hearing in person or through a professional lawyer.
Q: WHEN DO YOU EXPECT TO COMPLETE THE TRANSACTION?
A: We are working to complete the transaction as quickly as possible following shareholder
approval. However, in addition to shareholder approval, we must also obtain judicial and
regulatory approvals or exemptions, including sanctioning of the scheme by the High Court
and U.S. and Irish antitrust approvals or waivers. We hope to obtain the required approvals
or exemptions in time to complete the transaction by , 2000.
Q: WHAT ARE THE U.S. FEDERAL TAX CONSEQUENCES OF THE TRANSACTION TO ME?
A: Your receipt of shares in the capital of Galen that are delivered to you in consideration
for the cancelation of your ordinary shares (or your ADRs) pursuant to the scheme will not
be taxable in the United States.
Q: WHAT ARE THE IRISH TAX CONSEQUENCES OF THE TRANSACTION TO ME?
A: The receipt of shares in the capital of Galen in consideration for the cancelation of
ordinary shares or deferred shares will not give rise to Irish capital gains tax.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: For additional information about the transaction, including information about how to
complete and return your blue and white proxy cards, please contact Warner Chilcott's
investor relations department at 973-442-3200. For additional information about Galen,
please contact its investor relations department at 44-28-3833-4974. Should you have any
questions with respect to the procedures to be followed in relation to Warner Chilcott
ADRs, please call The Bank of New York at 1-800-507-9357.
</TABLE>
viii
<PAGE> 17
SUMMARY
This summary highlights selected information from this proxy statement and
does not contain all of the information that is important to you. To understand
the transaction and the scheme fully and for a more complete description of the
terms of the transaction and the scheme, you should read carefully this entire
document and the documents to which we have referred you. We have included page
references parenthetically to direct you to a more complete description of the
topics presented in this summary.
THE COMPANIES
WARNER CHILCOTT PLC (SEE PAGES I-30 TO I-40)
Lincoln House
Lincoln Place
Dublin 2, Ireland
Warner Chilcott develops and markets branded prescription pharmaceutical
products in the United States. Our primary area of focus is the large and
growing women's health therapeutic category. We also participate in the
cardiology and dermatology categories. Through our national sales force of
approximately 260 representatives, we market branded pharmaceutical products
directly to physician specialists across the country; including
obstetrician/gynecologists, urologists, cardiologists, dermatologists, and
high-prescribing primary care physicians. We have an experienced management team
with significant pharmaceutical industry expertise, specifically in the
marketing of prescription pharmaceutical brands.
GALEN HOLDINGS PLC (SEE PAGES I-48 TO I-60)
Seagoe Industrial Estate
Craigavon, Northern Ireland
Galen Holdings PLC is an integrated pharmaceutical company, based in
Northern Ireland. Galen develops, manufactures and supplies branded prescription
pharmaceutical products in the UK and Ireland, and provides ethical
pharmaceutical services to the pharmaceutical industry in both Europe and the
United States.
THE TRANSACTION AGREEMENT AND THE SCHEME
Under the scheme and the transaction agreement, all issued and outstanding
ordinary shares of Warner Chilcott (other than shares held by Galen or any of
its subsidiaries) will be canceled and the holders thereof will receive 2.5
ordinary shares of Galen in consideration for each ordinary share so canceled,
and all issued and outstanding deferred shares will be canceled and the holder
will receive one ordinary share of Galen. Upon reduction of Warner Chilcott's
capital by the cancelation of the ordinary shares and the deferred shares, the
share capital of Warner Chilcott will be increased by the creation of a number
of new ordinary shares and new deferred shares equal to the number of shares
canceled and these new shares will be allotted and issued, credited as fully
paid, to Galen. If Warner Chilcott issues any ordinary shares (other than to
Galen or anyone acting on behalf of Galen) after the commencement of the meeting
of holders of ordinary shares convened by direction of the High Court and in
relation to the scheme and prior to 5:00 p.m. on the day before the Hearing
Date, such ordinary shares shall be subject to the terms of the scheme and the
holder or holders of such ordinary shares shall be bound by the scheme
accordingly. As a result of the transaction, Warner Chilcott will become a
wholly owned subsidiary of Galen.
In addition, Warner Chilcott and Galen have agreed that they will use their
reasonable best efforts to implement arrangements whereby the outstanding Warner
Chilcott options and warrants will be modified to become options and warrants to
acquire the number of whole ordinary shares of Galen equal to the number of
ordinary shares that were issuable upon exercise of the Warner Chilcott option
or warrant immediately prior to the effective time of the transaction multiplied
by the per share consideration, rounded down to the nearest whole number of
ordinary shares of Galen. The per share exercise price of ordinary shares of
Galen issuable upon exercise of these Galen options and warrants will be equal
to the exercise price per share at which the Warner Chilcott option or warrant
was exercisable immediately prior to the effective time of the transaction
I-1
<PAGE> 18
divided by the per share consideration, rounded up to the nearest whole cent.
After conversion, the other terms and conditions of the Galen options and
warrants will be the same as the terms and conditions of the Warner Chilcott
options and warrants, except that, in accordance with the terms of the Warner
Chilcott options and warrants, the Galen options and warrants will be fully
vested and exercisable.
REASONS FOR THE TRANSACTION (SEE PAGE I-24)
You should review the factors that our board of directors considered when
deciding whether to approve the transaction. Our board of directors believes
that the transaction is fair to and in the best interests of our shareholders
because, among other factors, it offers a premium over the trading price of the
ADRs representing our ordinary shares. The board of directors and management
also believe that the transaction will benefit the combined company and its
customers and employees in a manner that we could not achieve on our own.
OUR RECOMMENDATION TO SHAREHOLDERS (SEE PAGE III-2)
Our board of directors believes that the transaction is fair to and in the
best interests of our shareholders and recommends that you vote to approve the
scheme, the reduction of Warner Chilcott's share capital and other matters to be
proposed at the meetings.
WHAT YOU WILL RECEIVE (SEE PAGE I-81)
Following completion of the transaction, holders of Warner Chilcott
ordinary shares will receive 2.5 ordinary shares of 10p each in the capital of
Galen in consideration for each Warner Chilcott ordinary share you own; and
holders of Warner Chilcott options and warrants will be entitled to Galen
options and warrants as described in this proxy statement. If you hold Warner
Chilcott ADRs, you will receive 0.625 Galen ADRs in consideration for each
Warner Chilcott ADR. Each Galen ADR, representing a Galen ADS, will in turn
represent four Galen ordinary shares at 10p each in the share capital of Galen.
There will be no adjustment to the rate of exchange as a result of changes in
the relative values of Warner Chilcott or Galen shares prior to approval of the
Scheme.
THE MEETINGS (SEE PAGES III-1 TO III-4)
The court meeting and the extraordinary general meeting are being held at
Lincoln House, Lincoln Place, Dublin 2, Ireland, on , 2000 and are
scheduled for 10:00 a.m., and 10:15 a.m., local time, respectively (or, in the
case of the extraordinary general meeting, as soon thereafter as the relevant
preceding meeting has been concluded or adjourned). At the court meeting,
shareholders will be asked to approve the scheme. At the extraordinary general
meeting, shareholders will be asked to approve the reduction of Warner
Chilcott's share capital and certain other matters proposed in, or related to,
the scheme.
SHAREHOLDERS ENTITLED TO VOTE (SEE PAGE III-2)
Each holder of record of ordinary shares is entitled to vote in person or
by proxy at the court meeting and will have one vote for each ordinary share
held by him.
Roger Boissonneault and Paul Herendeen have entered into employment
agreements with Warner Chilcott, Inc. conditional upon completion of the
transaction under which they will receive, among other things, options to
purchase ordinary shares of Galen. James Andress has entered into a separation
agreement conditional upon completion of the transaction. Roger Boissonneault,
Paul Herendeen and James Andress, each an executive officer of Warner Chilcott,
are referred to in this proxy statement as excluded officers. Accordingly, the
interests of the excluded officers, each of whom owns ADRs, differ or may differ
from those of other persons owning ordinary shares or ADRs, and the excluded
officers have therefore agreed to instruct the depositary not to exercise the
voting rights attaching to the ordinary shares represented by the ADRs owned by
them and have agreed to be bound by the scheme in respect of those shares. For
more information,
I-2
<PAGE> 19
please see the section entitled "Interests of Warner Chilcott's Executive
Officers and Directors in the Transaction."
Each holder of record of ordinary shares is entitled to vote in person or
by proxy at the extraordinary general meeting. On a show of hands, each
shareholder will have one vote, and on a poll each shareholder will have one
vote for each ordinary share held by him.
The holders of record of deferred shares have agreed separately to be bound
by the scheme.
QUORUM REQUIREMENTS (SEE PAGE III-2)
Warner Chilcott has been advised by McCann FitzGerald, its Irish counsel,
that, unless the High Court decides that the circumstances justify a different
quorum, two holders of record of ordinary shares entitled to vote at the
relevant meeting, each appearing in person or by proxy, will constitute a quorum
for the transaction of business at the court meeting.
Three holders of record of ordinary shares, each appearing in person or
represented by proxy, and holding not less than one-third of the outstanding
ordinary shares, will constitute a quorum for the transaction of business at the
extraordinary general meeting.
VOTES REQUIRED (SEE PAGES III-2 TO III-3)
Court meeting. In order to complete the transaction, the scheme must be
approved at the court meeting by a majority in number, representing 75% of the
total par value of Warner Chilcott's ordinary share capital, of those holders of
ordinary shares present and voting in person or by proxy. The custodian for the
depositary is the shareholder of record in respect of those ordinary shares
represented by ADRs.
Extraordinary general meeting. In order to complete the transaction, the
resolution to be proposed at the extraordinary general meeting must be approved
by not less than 75% of the votes cast at the extraordinary general meeting by
the holders of ordinary shares present in person or by proxy. The custodian for
the depositary is the shareholder of record in respect of those ordinary shares
represented by ADRs.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES (SEE PAGE III-3)
Holders of shares that abstain from voting such shares and holders of ADRs
that instruct the depositary not to vote the shares represented by ADSs which
their ADRs evidence as to a particular matter will not have such shares counted
as votes in favor of such matter, and such shares will also not be counted as
shares voted on such matter and may not count towards a quorum on such matter.
Accordingly, such abstentions will have no effect on the voting on the matters
presented for approval by the shareholders at either of the meetings.
REQUIREMENTS AS TO PROXIES (SEE PAGES III-3 TO III-4)
To be valid, the proxy cards for both of the meetings must be deposited not
less than 48 hours prior to the time appointed for the holding of that meeting
with the Secretary of Warner Chilcott at its registered office, Lincoln House,
Lincoln Place, Dublin 2, Ireland. Holders of ordinary shares submitting proxy
cards for the court meeting, may alternatively deliver the proxy cards to the
chairman of the meeting at such meeting.
Any proxy may be revoked at any time by a holder of ordinary shares before
its being voted by:
- voting in person at the relevant meeting (although mere personal
attendance at the relevant meeting will not constitute a revocation of a
proxy);
- delivery of a subsequently dated proxy, provided that such subsequently
dated proxy must be received at the above office not less than 48 hours
prior to the time appointed for holding of the relevant meeting, or, in
the case of the court meeting, delivered to the chairman of the meeting
at that meeting; or
- delivery of a written revocation of such proxy, provided that such
revocation must be received at the above office not less than one hour
prior to the time appointed for the holding of the relevant meeting.
I-3
<PAGE> 20
THE TRANSACTION AGREEMENT AND THE SCHEME (SEE PAGES I-81 TO I-86)
The transaction agreement is attached as Annex A and the scheme is attached
as Annex B. We encourage you to read the transaction agreement and the scheme as
they are the legal documents that, subject to the High Court, govern the
transaction.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION (SEE PAGES I-75 TO I-80)
In considering the recommendation of the Warner Chilcott board of directors
to approve the transaction, you should be aware that a number of executive
officers and directors of Warner Chilcott will receive benefits as a result of
the transaction that will be in addition to or different from the benefits that
Warner Chilcott shareholders receive generally. Roger Boissonneault and Paul
Herendeen, executive officers of Warner Chilcott, have entered into employment
agreements with Warner Chilcott, Inc. conditional upon completion of the
transaction which provide for certain benefits and the grant of options to
purchase ordinary shares of Galen. James Andress, an executive officer of Warner
Chilcott, has entered into a separation agreement under which Galen has agreed
to make severance payments, pursuant to the terms of his existing employment
agreement with Warner Chilcott, which payments are conditional upon completion
of the transaction. All employees of Warner Chilcott, including certain
executive officers and directors will receive Galen options in exchange for
Warner Chilcott options. These options will become fully vested upon completion
of the transaction.
CONDITIONS TO THE TRANSACTION (SEE PAGES I-84 TO I-85)
Completion of the transaction depends upon satisfaction of a number of
conditions including, among others, the following:
- approval of the transaction, the scheme and other matters by our
shareholders;
- approval of the transaction by Galen's shareholders;
- absence of any injunction or legal restraint prohibiting the transaction;
- obtaining required judicial, governmental and other regulatory
authorizations, consents, orders, approvals of or declarations or filings
with, or expiration or waiver of waiting periods imposed by any
governmental entity or any applicable jurisdiction or exemptions,
including the sanctioning of the scheme and the confirmation of the
reduction of Warner Chilcott's capital by the High Court;
- Warner Chilcott being reasonably satisfied as to the U.S. federal income
tax treatment of the transaction;
- listing of the new Galen ADRs on the Nasdaq National Market; and
- absence of any material adverse change affecting either Warner Chilcott
or Galen.
Some of the conditions to the completion of the transaction may be waived
by the party entitled to the benefit of the condition.
TERMINATION OF THE TRANSACTION AGREEMENT AND ABANDONMENT OF THE SCHEME (SEE PAGE
I-86)
Warner Chilcott and Galen can jointly agree to terminate the transaction
agreement and abandon the scheme at any time. Either party may also terminate
the transaction agreement and abandon the scheme under a number of
circumstances, including, among others:
- if any court or governmental entity has taken action, which is final and
binding, to prohibit the transaction;
- if either Warner Chilcott's or Galen's board of directors withdraws or
adversely modifies its recommendation to its respective shareholders;
- if the shareholders of Warner Chilcott or Galen fail to approve the
matters mentioned above by October 31, 2000;
I-4
<PAGE> 21
- if either Warner Chilcott or Galen breaches any representation, warranty
or covenant contained in the transaction agreement which has a material
adverse effect;
- if Warner Chilcott fails to obtain the sanction of the High Court of the
scheme; and
- if any court or governmental entity issues, enacts, promulgates or
expenses any order, judgment, decree, injunction or ruling prohibiting
the transaction which is final and nonappealable.
In addition, subject to certain conditions, Warner Chilcott may terminate
the transaction agreement and abandon the scheme to enter into a superior
proposal.
FAIRNESS OPINION (SEE PAGES I-69 TO I-74)
In deciding to approve the transaction, our board of directors considered,
among other things, the opinion of Credit Suisse First Boston Corporation, its
financial advisor, as to the fairness, from a financial point of view, of the
consideration that ordinary shareholders (other than Galen and its affiliates)
will receive in the transaction. A copy of the opinion is attached as Annex C
and is also discussed on pages I-69 to I-74. We encourage you to read this
opinion.
THE HIGH COURT SANCTION HEARING (SEE PAGE I-25)
The hearing by the High Court of Warner Chilcott's application for the
sanction of the scheme and the confirmation of the proposed reduction of capital
will take place on a day which will be appointed by the High Court. All holders
of ordinary shares and of deferred shares are entitled to attend and be heard at
the hearing in person or through a professional lawyer. Any person proposing to
make submissions or put forward evidence to the High Court at the hearing will
be requested to advise Warner Chilcott's Irish lawyers in advance. Warner
Chilcott intends to notify members of the public of a date by which notification
should be made in due course. In any event, the date stated should be shortly
before the date of the hearing. The High Court may announce its decision
immediately after the hearing or may defer this until a date to be announced
later.
REGULATORY FILINGS AND APPROVALS (SEE PAGE I-26)
In order to complete the transaction, both Galen and Warner Chilcott must
make certain filings and receive authorizations from various governmental
agencies. These include, but are not limited to:
- the sanctioning of the scheme by the High Court after a hearing on the
fairness of the transaction;
- the expiration or termination of the applicable waiting period under the
U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976; and
- to the extent applicable, written clearance from the Irish Minister for
Enterprise, Trade and Employment under the Mergers, Takeovers and
Monopolies (Control) Act, 1978, as amended.
It is possible that some of these governmental authorities may impose
conditions for granting approval. We cannot predict whether we will obtain all
of the required regulatory approvals within the time frame contemplated by the
transaction agreement or without burdensome conditions.
EFFECTIVE TIME OF THE TRANSACTION (SEE PAGE I-26)
The transaction will occur upon delivery to the Registrar of Companies in
Dublin, Ireland, of a copy of the final order of the High Court sanctioning the
scheme and confirming the reduction of Warner Chilcott's capital, and the
registration by the Registrar of the order confirming the reduction of Warner
Chilcott's capital.
U.S. FEDERAL INCOME TAX CONSEQUENCES (SEE PAGES I-27 TO I-28)
Warner Chilcott intends that the transaction will be treated as a tax-free
reorganization. If it qualifies as a reorganization, U.S. holders will not
recognize a gain or loss as a result of the consummation of the transaction and
the receipt of ordinary shares of Galen in exchange for their ordinary shares or
deferred shares.
I-5
<PAGE> 22
IRISH TAX CONSEQUENCES (SEE PAGES I-28 TO I-29)
The receipt of ordinary shares of Galen in consideration for the
cancelation of ordinary shares or deferred shares will not give rise to Irish
capital gains tax.
ACCOUNTING TREATMENT (SEE PAGE I-26)
Galen intends for the transaction to be treated as a purchase for
accounting purposes under both U.K. GAAP and U.S. GAAP.
TERMINATION FEE AND EXPENSES (SEE PAGE I-86)
We have agreed to reimburse Galen's costs and expenses up to $4.25 million:
- if our board of directors withdraws or modifies in a manner adverse to
Galen its recommendation of the transaction and the scheme;
- if we terminate the transaction agreement to enter into a superior
proposal;
- if the fairness opinion given to us by Credit Suisse First Boston is
withdrawn; or
- if our shareholders, subject to conditions, do not approve the
transaction and the scheme by October 31, 2000.
We have also agreed to pay Galen $4.25 million as a termination fee,
reduced by the amount of any of Galen's costs and expenses paid by us, if we
terminate the transaction agreement for the above reasons, other than failing to
obtain our shareholders' approval for the transaction and the scheme.
Galen has agreed to reimburse our costs and expenses up to $4.25 million:
- if the shareholders of Galen do not approve the transaction; or
- if the board of directors of Galen withdraws or modifies in a manner
adverse to Warner Chilcott its recommendation of the transaction.
In addition, Galen has agreed to pay us $4.25 million as a termination fee,
reduced by the amount of any of our costs and expenses paid by Galen, if Galen
terminates the transaction agreement due to Galen's board of directors
withdrawing or modifying its recommendation of the transaction.
NO APPRAISAL RIGHTS (SEE PAGE I-27)
Under Irish law, after the effective time of the scheme you will not have a
right to dissent and obtain payment of the "fair value" for, or otherwise seek a
court appraisal of the value of, your Warner Chilcott shares.
SURRENDER OF SHARE CERTIFICATES (SEE PAGE I-27)
Following the effective time of the transaction, Galen will cause a letter
of transmittal to be mailed to all holders of ordinary shares. Certificates
should not be surrendered until the letter of transmittal is received, fully
completed and returned by such holder as instructed in the letter of
transmittal.
CERTAIN EFFECTS OF THE TRANSACTION (SEE PAGES III-12 TO III-14)
Upon completion of the transaction, holders of Warner Chilcott's ordinary
shares and deferred shares will become shareholders of Galen. The internal
affairs of Galen are governed by the Companies (Northern Ireland) Order 1996, as
amended, and its memorandum and articles of association. The transaction will
result in certain differences in the rights of holders of Warner Chilcott
ordinary shares and deferred shares.
I-6
<PAGE> 23
SUMMARY FINANCIAL DATA FOR WARNER CHILCOTT
The following table presents summary financial and other data with respect
to Warner Chilcott Public Limited Company and subsidiaries and has been derived
from the audited consolidated financial statements of Warner Chilcott Public
Limited Company and its subsidiaries for the years ended December 31, 1999, 1998
and 1997 and the unaudited consolidated financial statements as of March 31,
2000 and for the three months ended March 31, 2000 and 1999 included elsewhere
herein. These financial statements have been prepared in accordance with U.S.
GAAP. The information set forth below should be read together with the other
information contained under the captions "Selected Consolidated Financial Data,"
"Management's Discussion's and Analysis of Financial Condition and Results of
Operations," and Warner Chilcott Public Limited Company and its subsidiaries'
consolidated financial statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- THREE MONTHS ENDED
FOR YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -----------------------
1997 1998 1999(1) 1999 2000(2)
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 75,827 $ 64,894 $ 74,035 $ 21,048 $ 26,079
--------- ---------- ---------- ---------- ----------
Costs and expenses
Cost of goods sold.................. 62,863 34,230 27,704 8,449 6,127
Selling, general and
administrative................... 23,618 41,709 46,409 12,111 12,647
Depreciation and amortization....... 5,458 5,621 5,520 1,412 2,421
Research and development............ 6,526 3,241 3,100 841 469
--------- ---------- ---------- ---------- ----------
Total costs and expenses.............. 98,465 84,801 82,733 22,813 21,664
--------- ---------- ---------- ---------- ----------
Operating income (loss)............... $ (22,638) $ (19,907) $ (8,698) $ (1,765) $ 4,415
========= ========== ========== ========== ==========
Net income (loss)..................... $ (28,374) $ (20,297) $ (6,701) $ (1,997) $ 581
========= ========== ========== ========== ==========
Net income (loss) per ordinary share--
diluted............................. $ (3.39) $ (1.64) $ (0.54) $ (0.16) $ 0.05
========= ========== ========== ========== ==========
Weighted average ordinary shares
outstanding -- diluted.............. 8,359,623 12,366,808 12,367,706 12,366,808 12,726,250
========= ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
2000
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 36,112
Working capital............................................. 50,715
Total assets................................................ 311,174
Working capital facility.................................... --
Long-term debt.............................................. 196,370
Shareholders' equity........................................ 100,177
</TABLE>
- ---------------
(1) Includes the gain on the sale of the Vectrin(R) branded minocycline product
in September 1999.
(2) Included in net income (loss) for the three months ended March 31, 2000 is
an extraordinary loss of $731,000 related to the repayment of certain debt.
I-7
<PAGE> 24
SUMMARY FINANCIAL DATA FOR GALEN
The following table presents consolidated summary financial and other data
with respect to Galen and has been derived from the audited consolidated
financial statements of Galen for the years ended September 30, 1997, 1998 and
1999 and the unaudited consolidated financial statements as of March 31, 2000
and for the six months ended March 31, 1999 and 2000 included elsewhere herein.
The financial statements have been prepared in accordance with U.K. GAAP which
differs in certain respects from U.S. GAAP. See Note 33 to Galen's consolidated
financial statements for a summary of the main differences between U.K. GAAP and
U.S. GAAP.
You should read the summary data set out below in conjunction with "Galen's
Management's Discussion and Analysis of Financial Condition and Results of
Operations," the pro forma financial information and the audited consolidated
financial statements and notes thereto set out on page F-38 and thereafter.
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
YEAR ENDED SEPTEMBER 30 ENDED MARCH 31
------------------------------------- ---------------------------
1997 1998 1999 1999(1) 1999 2000 2000(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Turnover................................ L39,252 L48,867 L67,010 $98,692 L31,050 L42,446 $62,514
------- ------- ------- ------- ------- ------- -------
Operating profit:
Before exceptional item and goodwill
amortisation.......................... 10,498 14,067 19,361 28,515 9,389 12,044 17,738
Exceptional item(2)..................... -- 2,731 -- -- -- -- --
Goodwill amortisation................... -- -- (671) (988) -- (901) (1,327)
------- ------- ------- ------- ------- ------- -------
Total operating profit.................. 10,498 11,336 18,690 27,527 9,389 11,143 16,411
Gain on disposal of intangible asset.... 750 -- -- -- -- -- --
Investment income....................... 446 1,507 925 1,362 622 747 1,100
Interest payable and similar charges.... (348) (939) (1,210) (1,782) (565) (644) (948)
------- ------- ------- ------- ------- ------- -------
Profit before taxation.................. 11,346 11,904 18,405 27,107 9,446 11,246 16,563
Taxation on profit on ordinary
activities............................ 2,948 3,580 4,396 6,475 2,246 2,499 3,681
------- ------- ------- ------- ------- ------- -------
Profit after taxation................... 8,398 8,324 14,009 20,632 7,200 8,747 12,883
Minority interests...................... -- (12) (19) (28) 13 (39) (57)
------- ------- ------- ------- ------- ------- -------
Profit for the financial period......... 8,398 8,312 13,990 20,604 7,213 8,708 12,825
Dividends............................... 427 1,535 1,915 2,820 640 910 1,340
------- ------- ------- ------- ------- ------- -------
Retained profit for the period.......... L 7,971 L 6,777 L12,075 $17,784 L 6,573 L 7,798 $11,485
======= ======= ======= ======= ======= ======= =======
Earnings per share...................... 8.0p 7.1p 12.0p 17.7c 6.2p 7.2p 10.6c
Diluted earnings per share.............. 8.0p 7.1p 12.0p 17.7c 6.2p 7.2p 10.6c
Dividend per share...................... 0.3p 1.3p 1.6p 2.4c 0.5p 0.7p 1.0c
======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Translated solely for the reader from British pounds into U.S. dollars at
the Noon Buying Rate on May 23, 2000 of L1.00 = $1.4728.
(2) The exceptional item in 1998 related to the abortive costs of the proposed
acquisition of Ferring AB.
I-8
<PAGE> 25
<TABLE>
<CAPTION>
AT MARCH 31, 2000
-------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... L 38,327 $ 56,448
Working capital............................................. 39,676 58,435
Total assets................................................ 176,392 259,790
Long-term debt.............................................. 28,700 42,269
Shareholders' equity........................................ 112,461 165,633
</TABLE>
I-9
<PAGE> 26
SUMMARY UNAUDITED PRO FORMA DATA
The following summary unaudited pro forma data reflects the acquisition by
Galen of Bartholomew Rhodes Limited and certain of its subsidiaries during the
year ended September 30, 1999, the placing made by Galen in November 1999 (the
"Galen placing"), the product acquisitions and note issuance completed by Warner
in February 2000 (the "Warner transactions") and the proposed acquisition by
Galen of Warner in a transaction to be accounted for as a purchase. For a more
detailed discussion of this pro forma financial data, see the section titled
"Unaudited Pro Forma Condensed Financial Data."
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED
PRO FORMA CONSOLIDATED US GAAP
US GAAP FOR THE SIX MONTHS
FOR THE YEAR ENDED ENDED
SEPTEMBER 30, 1999 MARCH 31, 2000
----------------------- -----------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Turnover....................................... L146,821 $216,238(1)(2) L 79,071 $116,456(1)(2)
Cost of sales.................................. (53,514) (78,815) (29,382) (43,274)
-------- -------- -------- --------
Gross profit................................... 93,307 137,423 49,689 73,182
Net operating expenses......................... (67,291) (99,106) (34,019) (50,103)
-------- -------- -------- --------
Operating profit/(loss)........................ 26,016 38,317 15,670 23,079
Gain/(loss) on fixed asset disposals........... 1,266 1,865 -- --
Investment income.............................. 1,314 1,935 1,034 1,522
Interest payable............................... (17,038) (25,094) (8,592) (12,654)
-------- -------- -------- --------
Profit/(loss) before tax....................... 11,558 17,023 8,112 11,947
Tax............................................ (5,617) (8,273) (2,936) (4,324)
-------- -------- -------- --------
Profit/(loss) after tax........................ 5,941 8,750 5,176 7,623
Minority interests............................. (19) (28) (39) (57)
-------- -------- -------- --------
Profit/(loss) for the financial year........... L 5,922 $ 8,722 L 5,137 $ 7,566
======== ======== ======== ========
Basic earnings per share....................... 4.0p 5.9c 3.4p 5.0c
Diluted earnings per share..................... 3.3p 4.9c 2.8p 4.1c
Shares used in computing basic earnings per
share (thousands)............................ 147,306 147,306 151,518 151,518
Shares used in computing diluted earnings per
share (thousands)............................ 177,913 177,913 183,685 183,685
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT
MARCH 31, 2000
-------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... L 48,012 $ 70,712
Working capital(3).......................................... (63,108) (92,945)
Total assets................................................ 485,508 715,056
Long-term debt.............................................. 21,173 31,184
Shareholders' equity........................................ 290,392 427,689
</TABLE>
- ---------------
(1) Translated solely for the reader from British pounds into U.S. dollars at
the Noon Buying Rate on May 23, 2000, of L1.00 = $1.4728.
(2) On May 4, 2000, Warner Chilcott and Galen issued a joint press release
announcing the transaction and setting forth certain pro forma financial
data. A copy of such press release was filed with the Securities and
Exchange Commission by both of Galen and Warner Chilcott on May 4, 2000,
pursuant to Rule 425 under the Securities Act and Rule 14a-12 under the
Exchange Act.
I-10
<PAGE> 27
The pro forma financial data in such press release indicated pro forma
turnover in the year ended September 30, 1999, of approximately $233
million for the combined company. In deriving such number, the profit
and loss account of Warner Chilcott was translated into pounds sterling
at a rate of $1.6295 = L1.00, the average exchange rate ruling during
the twelve-month period ended September 30, 1999. The pounds sterling
pro forma turnover was then translated back into U.S. dollars using the
same ratio.
Since May 4, 2000, the pound has weakened against the dollar. Pursuant
to Rule 3-20 of Regulation S-X, the convenience translation provided
above is as of a more recent date (May 23, 2000) rather than the balance
sheet date due to the recent weakening of the pound against the dollar.
If the convenience translation provided above had been made using the
rate of L1.00 = $1.6295 (the same rate that the Warner Chilcott numbers
were converted into pounds), turnover for the year ended September 30,
1999 and the six-month period ended March 31, 2000 would have been
$239.2 million and $128.8 million, respectively.
(3)Long term liabilities in Warner Chilcott's balance sheet at March 31, 2000,
includes $200 million in principal amount of senior notes issued by Warner
Chilcott on February 15, 2000 which are repurchasable upon a change of
control. The acquisition of Warner Chilcott by Galen represents such a change
in control. The liability has been reclassified as current in the pro forma
balance sheet at a purchase price equal to 101% of the principal amount in
accordance with the terms of the notes. As a result, pro forma working
capital is negative due to this reclassification. Should such repurchase be
required, Galen will replace the liability with currently unutilized
long-term bank facilities and additional long-term financing, the terms of
which are currently being finalized by Galen.
I-11
<PAGE> 28
RISK FACTORS
The following risk factors relating to the transaction and the ownership of
ordinary shares in the capital of Galen should be considered carefully by
shareholders and in addition to the other information contained in this proxy
statement.
RISKS RELATING TO THE TRANSACTION
Benefits of the Combination May Not be Realized.
The combination of Galen and Warner Chilcott involves the integration of
separate companies. The difficulties of combining the companies' operations
include:
- the necessity of coordinating geographically separated organizations;
- integrating and retaining personnel with diverse business backgrounds;
and
- any inability to secure regulatory approval for, and gain market
acceptance of, products in development including, without limitation,
products using Galen's intravaginal ring, or IVR, drug delivery system.
The process of integrating operations could cause an interruption of, or
loss of momentum in, the activities of one or more of the combined company's
businesses and the loss of key personnel. The diversion of management's
attention and any delays or difficulties encountered in connection with the
transaction and the integration of the two companies' operations could have a
material adverse effect on the business, results of operations, financial
condition or prospects of the combined company after the transaction.
The Value of Galen Ordinary Shares Received Will Fluctuate.
The market price of Galen ordinary shares is subject to fluctuation. The
per share consideration was fixed as of the close of business on May 3, 2000,
the date that the transaction agreement was executed by Warner Chilcott and
Galen. Therefore, the market prices of Galen ordinary shares when the
transaction is completed may vary from their market prices at the date of this
document and at the date of shareholder meetings of Galen and Warner
shareholders. For example, during the 12 month period ended May 24, 2000, the
most recent practical date prior to the mailing of this proxy statement, Galen
ordinary shares traded within a range from a low of 485p to a high of 765p, and
ended the period at 530p, and Warner Chilcott ADRs traded within a range from a
low of 6 5/8 to a high of 21 1/4 and ended that period at 17 7/8. See "Market
Price Information" for more detailed share price information.
These variations may be the result of various factors including:
(i) changes in the business, operations or prospects of Galen, Warner
Chilcott and of the combined company;
(ii) governmental and/or litigation developments and/or regulatory
considerations;
(iii) market assessments as to whether and when the transaction will
be completed;
(iv) the timing of the transaction;
(v) governmental action affecting the pharmaceutical industry
generally; and
(vi) general market and economic conditions, including, without
limitation, currency fluctuation.
The transaction may not be completed until a period of time has passed
after the Galen and Warner Chilcott shareholder meetings. At the time of their
respectable shareholder meetings, Galen and Warner Chilcott shareholders will
not know the exact value of the Galen ordinary shares that will be issued in
connection with the transaction.
Shareholders are urged to obtain current market quotations for Galen
ordinary shares and Warner Chilcott ADRs.
I-12
<PAGE> 29
Conditions to Completion of the Transaction May Not Be Met.
Completion of the transaction is subject to a number of conditions,
including High Court approval of the scheme, antitrust and competition authority
approvals and shareholder approval of the transaction. In the event that these
conditions are not met or the transaction is not completed, Warner Chilcott may,
under the terms of the transaction agreement, be required to pay Galen up to
$4.25 million. In addition, Warner Chilcott has incurred expenses in connection
with the transaction which may not be recouped in the event that the transaction
is not completed. The combined effect of the inability to realize the benefits
of the transaction and the payment of the termination fee to Galen and other
fees and expenses in connection with the transaction could have a material
adverse effect on Warner Chilcott's business, results of operations and future
business prospects.
No Prior Market for American Depositary Shares representing Galen's Ordinary
Shares in the United States -- You cannot be sure that an active trading market
will develop for the Galen American Depositary Receipts you will receive in the
transaction.
Galen's ordinary shares do not currently trade in the United States. Under
the transaction agreement, Galen is obligated to list American Depositary
Receipts, or ADRs, representing Galen American Depositary Shares, or ADSs, which
in turn represent Galen ordinary shares on the Nasdaq National Market. The
liquidity of Galen's American Depositary Shares will depend on the number of
holders of Galen's American Depositary Shares, the performance of the combined
company, the market for similar securities, the interest of securities dealers
in making a market in Galen's American Depositary Shares and other factors. A
liquid trading market may not develop for Galen's American Depositary Shares.
RISKS RELATING TO GALEN AND THE COMBINED COMPANY
Warner Chilcott has a history of operating losses. We cannot assure you that the
combined company will be profitable or that it will be able to maintain
profitability.
Warner Chilcott has a history of operating losses. Through December 31,
1999, Warner Chilcott had an accumulated deficit of approximately $110.3
million. The consolidated company's continued ability to achieve revenue growth
and profitability will depend upon, among other things:
- the success of the products recently acquired from Bristol-Myers Squibb;
- continuation of Warner Chilcott's current marketing alliance with
Schering-Plough;
- completing development of the combined company's proposed products;
- ability to secure regulatory approval for and gain market acceptance of
Galen's IVR drug delivery system;
- raising sufficient funds to finance the combined company's activities;
and
- success of the combined company's current product portfolio.
Dependence on Schering-Plough Agreement -- The combined company will continue to
depend on Warner Chilcott's promotion agreement with Schering-Plough for a part
of the combined company's revenues.
Warner Chilcott has a sales and marketing agreement under which Warner
Chilcott's sales force promotes branded products for Schering-Plough. Revenue
generated under this agreement represented approximately 24% of Warner
Chilcott's gross revenues for the year ended December 31, 1999 (or approximately
7% for such period on a pro forma basis, which pro forma adjustment takes into
account both the proposed transaction with Galen and Warner Chilcott's recent
acquisition of products from Bristol-Myers Squibb). Warner Chilcott's agreement
with Schering-Plough will expire on December 31, 2000, unless renewed upon
mutual agreement. Further, this agreement includes a change of control provision
which allows Schering-Plough to terminate the agreement if the transaction is
completed. The termination or lack of
I-13
<PAGE> 30
renewal of this agreement could have a material adverse impact on the combined
company's revenues and business.
Manufacturing and Supply -- If the combined company has problems with any of the
companies who manufacture products for it or its suppliers of raw materials, the
combined company's profit margin and its ability to deliver products could be
adversely affected.
During the year ended September 30, 1999, the combined company contracted
with third parties for approximately 66% of its pro forma product manufacturing
requirements, including the branded pharmaceutical products Warner Chilcott
acquired from Bristol-Myers Squibb. Accordingly, the combined company will be
dependent upon its contract manufacturers to comply with regulatory requirements
and to keep its facilities in good working order. To ensure compliance, the
combined company will conduct quality assurance audits of its contract
manufacturers, and examine sites and batch records and other documents to
determine compliance with FDA, the UK Medicines Control Agency ("MCA") and other
regulatory requirements and our specifications. However, the management of the
combined company cannot assure you that these contract manufacturers will be
able to manufacture its products without interruption, that its suppliers will
comply with their obligations under supply agreements with the combined company,
or that the combined company will have adequate remedies for any breach. In the
event a supplier suffers an event that would render it unable to manufacture its
product requirements for a sustained period, the resulting delay could have a
material adverse effect on the combined company.
The principal components used in the combined company's products are active
and inactive pharmaceutical ingredients and certain packaging materials. Some
components may be available only from sole-source suppliers. In addition, the
FDA, MCA and other regulatory bodies must approve suppliers of some ingredients
for the combined company's products. The development and regulatory approval of
the combined company's products are dependent upon its ability to procure active
ingredients and packaging materials from FDA and MCA approved sources. FDA and
MCA approval of a new supplier would be required if, for example, active
ingredients or such packaging materials were no longer available from the
initially approved source. The qualification of a new supplier could potentially
delay the manufacture of the drug involved. Arrangements with foreign suppliers
are subject to certain additional risks, including the availability of
governmental clearances, export duties, political instability, currency
fluctuations and restrictions on the transfer of funds.
Although the management of the combined company considers the sources of
supply of the combined company to be adequate, and to date, no significant
difficulty has been encountered in obtaining product materials, the combined
company cannot assure you that it will continue to be able to obtain materials
as required or at reasonable prices. An extended inability to obtain materials
or significant price increases that cannot be passed on to customers could have
a material adverse effect on the combined company.
In addition, in connection with Warner Chilcott's recent acquisition of
products from Bristol-Myers Squibb, Warner Chilcott entered into transitional
support and supply agreements with Bristol-Myers Squibb under which
Bristol-Myers Squibb agreed to sell to Warner Chilcott, and Warner Chilcott
agreed to purchase from Bristol-Myers Squibb, substantially all of Warner
Chilcott's requirements for the acquired products. However, Bristol-Myers
Squibb's obligations to supply Warner Chilcott are qualified and subject to
conditions (such as the occurrence of a force majeure). Warner Chilcott's
remedies in the event of a failure to supply will not completely insure the risk
of loss in such event.
The combined company will have restrictive debt instruments outstanding at
Warner Chilcott.
Warner Chilcott has $200.0 million in principal amount of senior notes due
2008 outstanding. Under the terms of the transaction, Warner Chilcott will
become a wholly-owned subsidiary of Galen. Under the terms of the indenture
governing the senior notes, upon consummation of the transaction Warner Chilcott
will be required to offer to redeem the senior notes at 101% of their principal
amount from the holders of the senior notes for an aggregate cash consideration
of $202.0 million. In the event the holders of the senior notes do not choose to
require Warner Chilcott to redeem their senior notes, the senior notes will
remain outstanding. The
I-14
<PAGE> 31
indenture for the senior notes contains various provisions that will continue to
limit Warner Chilcott's operations on a stand-alone basis by restricting its
ability to:
- incur additional debt and issue preferred stock;
- pay dividends and make other distributions;
- prepay debt;
- make investments and other restricted payments;
- enter into sale and leaseback transactions;
- create liens;
- sell assets; and
- enter into certain transactions with affiliates (including Galen).
These restrictions on Galen's ability to operate the Warner Chilcott
business in accordance with its discretion could have a material adverse effect
on Galen's business and Galen's ability to integrate Warner Chilcott into the
consolidated company.
For further discussion on the redemption provisions associated with the
senior notes, see "Warner Chilcott Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The combined company's ethical pharmaceutical services division is reliant on
continued outsourcing trends.
The combined company derived 19.3% of its pro forma revenue in the year
ended September 30, 1999, from ethical pharmaceutical services to other
pharmaceutical companies. Although this market has grown in recent years, we
cannot assure you that this trend will continue. At present there is significant
consolidation of pharmaceutical companies and we cannot be certain that this
will not have a negative effect on the outsourcing of ethical pharmaceutical
services in general and those provided by the ethical pharmaceutical services
division in particular. In addition changes in regulations by the FDA, MDA and
other regulatory agencies may impact on the overall requirements for clinical
trials which in turn could affect the revenues of the combined company.
The combined company may be unsuccessful in managing the growth of its business
or integrating new product acquisitions.
In order to effectively manage acquisitions, the combined company will be
required to maintain adequate operational, financial and management information
systems and motivate and effectively manage an increasing number of employees.
The future success of the combined company will depend in part on its ability to
retain or hire qualified employees to operate its business efficiently in
accordance with applicable regulatory standards. If management of the combined
company is unable to manage these changes effectively and integrate acquisitions
successfully, these changes and acquisitions could materially and adversely
affect the business, financial condition and results of operations of the
combined company.
The combined company's failure to be reimbursed by third-party payers or pricing
pressures by managed care organizations could decrease its revenues.
The combined company's commercial success in producing, marketing and
selling products will depend, in part, on the availability of adequate
reimbursement from third-party health care payers, such as government bodies and
agencies, including the UK National Health Service (the "NHS"), and private
health insurers and managed care organizations. Third-party payers are
increasingly challenging the pricing of medical products and services. The price
paid for prescription medicines by the UK NHS is determined by the
Pharmaceutical Price Regulation Scheme (PPRS). On the current PPRS coming into
effect, pharmaceuticals supplied to the NHS were cut in price by 4.5% on
average. Such prices may not be increased again until January 1, 2001. The
management of the combined company cannot assure you that reimbursement will be
available to enable the
I-15
<PAGE> 32
combined company to achieve market acceptance of its products or to maintain
price levels sufficient to realize an appropriate return on its investment in
product acquisition and development. If adequate reimbursement levels are not
provided, the business, financial condition and results of operations of the
combined company could be materially and adversely affected. The market for the
combined company's products may be limited by actions of third-party payers. For
example, many managed health care organizations are now controlling the
pharmaceutical products that are on their formulary lists. The resulting
competition among pharmaceutical companies to place their products on these
formulary lists has created a trend of downward pricing pressure in the
industry. The management of the combined company cannot assure you that the
combined company's products will be included on the formulary lists of managed
care organizations or that downward pricing pressures in the industry generally
will not negatively impact its operations. Further, a number of U.S. legislative
and regulatory proposals aimed at changing the health care system have been
proposed. While management of the combined company cannot predict whether any
such proposals will be adopted or the effect such proposals may have on the
combined company's business, the pending nature of such proposals, as well as
the adoption of any proposal, may exacerbate industry-wide pricing pressures and
could have a material adverse effect on the financial condition or results of
operations of the combined company.
The combined company may be unable to obtain government approval for, or comply
with government regulations relating to, its products.
The clinical development, manufacture, marketing and sale of pharmaceutical
products is subject to extensive supranational, national, state and local
regulation. The management of the combined company cannot predict the extent to
which the combined company may be affected by legislative and other regulatory
actions and developments concerning various aspects of its operations, its
products and the health care field generally. The combined company will be, as
other drug companies manufacturing or marketing drugs are, required to obtain
approval from the FDA, the MCA and other regulatory bodies based upon
pre-clinical testing, manufacturing chemistry and control data, bioavailability
and other clinical data before marketing most drug products. The generation of
the required data is regulated by the FDA, the MCA and other regulatory bodies
and can be time-consuming and expensive without assurance that the results will
be adequate to justify approval.
The management of the combined company cannot assure you that the combined
company's current and future FDA and MCA filings which it will file with respect
to its future proposed products will be approved in a timely manner, if at all,
or that it can meet other regulatory requirements for its future proposed
products. Even if the combined company is successful in obtaining all required
premarketing approvals, postmarketing requirements and/or its inability or
failure to comply with other regulations could result in suspension or
limitation of approvals. Additionally, the management of the combined company
cannot predict the extent to which the combined company may be affected by
legislative and regulatory developments concerning its products and the health
care field generally. New governmental regulation may adversely effect the
operations or competitive position of the combined company.
Exchange exposure
A reduction in the value of the U.S. dollar could reduce the earnings of
the combined company. Changes in exchange rates, particularly those between the
U.S. dollar and pound Sterling will affect the combined company's results of
operations. For the six months ended March 31, 2000, approximately 32.3% of
Galen's revenue was earned in U.S. dollars while approximately 21.6% of Galen's
expenses were in U.S. dollars. Any material decrease in the value of the U.S.
dollar compared to the pound could reduce the earnings of the combined company
by decreasing the value of revenues relative to Galen's expenses.
Reliance on Trademarks, Patents and Other Intellectual Property -- The inability
of the combined company to protect its trademarks, service marks, trade names,
patents and trade secrets could adversely affect its business.
Due to the branded product focus of the combined company, the management of
the combined company considers its trademarks valuable assets. Therefore, the
combined company plans to actively manage its
I-16
<PAGE> 33
trademark portfolio, maintain long-standing trademarks and obtain trademark
registrations for new brands. The combined company will police its trademark
portfolio against infringement. However, the management of the combined company
cannot assure you that these efforts will be successful or that it will have
adequate remedies for any breach.
The combined company will also rely on patents, trade secrets and
proprietary knowledge. It will generally seek to protect these items by filing
applications for patents on certain inventions, enforcing its legal rights
against third parties that it believes may infringe its intellectual property
rights, and entering into confidentiality, non-disclosure and assignment of
invention of agreements with its employees, consultants, licensees and other
companies. The management of the combined company cannot assure you, however,
that its patent applications will result in issued patents, that it will be
successful in enforcing its legal rights against third party infringers, that
its confidentiality, non-disclosure and assignment of invention agreements will
not be breached and that it will have adequate remedies for any such breach, or
that its trade secrets will not otherwise become known by competitors.
Reliance on Key Personnel -- the loss of the services of any members of the
senior management team or scientific staff of the combined company could
adversely affect its business.
The combined company will be dependent on the continued services of the
principal members of its scientific, sales and management staffs. The loss of
the services of these individuals might impede the achievement of the combined
company's acquisition and development objectives. The combined company will face
intense competition for personnel from other companies, academic institutions,
government entities, and other organizations. Although the management of the
combined company believes that the combined company will be adequately staffed
in key positions and that it will be successful in retaining skilled, highly
qualified and experienced management, operational and scientific personnel, the
management of the combined company cannot assure you that it will be able to
attract and retain qualified personnel on acceptable terms. Three Warner
Chilcott executives have employment agreements providing that they may terminate
their employment agreements and receive eighteen months base salary plus
benefits in the event of a change of control. The loss of key personnel, or the
combined company's inability to attract and retain additional, highly skilled
employees, could have a material adverse effect on the business, results or
operations and financial conditions of the combined company.
Enforcement of Legal Process Outside the United States - It may be difficult for
investors to effect service and enforce legal process against the combined
company.
A majority of the directors and senior executives of the combined company
are not residents of the United States. Many of the assets of such persons and
of the combined company are located outside the United States. As a result, it
may not be possible to effect service of process within the United States upon
such persons or the combined company or to enforce against them judgments of
U.S. courts predicated upon civil liability provisions of the U.S. federal or
state securities laws.
The following discussion with respect to the enforceability of certain U.S.
court judgments in Northern Ireland is based upon advice provided to the
combined company by its counsel, L'Estrange & Brett. The United States and
Northern Ireland currently do not have a treaty providing for the reciprocal
recognition and enforcement of judgments (other than arbitration awards) in
civil and commercial matters. Consequently, a final judgment for payment
rendered by any federal or state court in the United States based on civil
liability, whether or not predicated solely upon U.S. federal securities laws,
would not automatically be enforceable in Northern Ireland. In order to enforce
any U.S. judgment in Northern Ireland, proceedings must be initiated by way of
common law action before a court of competent jurisdiction in Northern Ireland.
In such common law action, an court in Northern Ireland generally will not
(subject to the following sentence) reinvestigate the merits of the original
matter decided by a U.S. court and will order summary judgment on the basis that
there is no defense to the claim for payment. The entry of an enforcement order
by a court in Northern Ireland is conditional upon the following: (a) the U.S.
court had jurisdiction over the original proceeding; (b) the judgment is final
and conclusive on the merits and is for a definite sum of money; (c) the
judgment does not contravene the public policy of Northern Ireland; (d) the
judgment is not for a tax, penalty or fine arrived at
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by doubling, trebling or otherwise multiplying a sum assessed as compensation
for the loss or damage sustained; and (e) the judgment has not been obtained by
fraud or in breach of the principles of natural justice. Subject to the
foregoing, holders of ordinary shares or ADRs of Galen may be able to enforce in
Northern Ireland judgments in civil and commercial matters obtained from U.S.
federal or state courts; however, there can be no assurance that such judgments
will be enforceable. In addition, there is doubt as to whether a court in
Northern Ireland would accept jurisdiction and impose civil liability in an
original action predicated solely upon U.S. federal securities laws.
The combined company will appoint CT Corporation System, 1633 Broadway, New
York, NY 10019, as the combined company's agent for service of process in any
suit, action or proceeding with respect to this transaction, and for actions
brought under federal or state securities laws brought in any U.S. federal or
state court located in The City of New York, Borough of Manhattan, and that the
combined company will submit to such jurisdiction and the laying of venue in any
such court.
RISKS RELATED TO THE INDUSTRY
An Increase In Product Liability Claims or Product Recalls Could Harm the
Business of the Combined Company.
The development, manufacture, testing, marketing and sale of pharmaceutical
products entail significant risk of product liability claims or recalls. The
combined company's products are, in the substantial majority of cases, designed
to affect important bodily functions and processes. Unforseen side-effects
caused by or manufacturing defects inherent in the products sold by the combined
company could result in exacerbation of a patient's condition, further
deterioration of the patient's condition or even death. The occurrence of such
an event could result in product liability claims and/or recall of one or more
of the combined company's products. Claims may be brought by individuals seeking
relief for themselves or, in certain jurisdictions, by groups seeking to
represent a class.
Product liability insurance coverage is expensive, can be difficult to
obtain and may not be available in the future on acceptable terms, if at all.
There can be no assurance that the combined company's product liability
insurance will cover all the future liabilities it might incur in connection
with the development, manufacture or sale of its current and potential products.
In addition, the combined company may not continue to be able to obtain
insurance on satisfactory terms or in adequate amounts. A successful claim or
claims brought against the combined company, in excess of available insurance
coverage could have a material adverse effect on the combined company. Moreover,
product liability claims or product recalls in the future could, regardless of
their outcome, have a material adverse effect on the combined company's
business, results of operations and reputation and on its ability to obtain and
retain customers for its products. Furthermore, the combined company could be
rendered insolvent if it does not have sufficient financial resources to satisfy
any liability resulting from such a claim or to fund the legal defense of such a
claim.
Product recalls may be issued at our discretion or at the discretion of the
FDA, MCA, other government agencies or other companies having regulatory
authority for pharmaceutical sales. Management of the combined company cannot
assure you that product recalls will not occur in the future. Any product recall
could materially adversely affect the combined company's business, financial
condition and results of operations.
The combined company is subject to intense competition in its industry.
The pharmaceutical industry is highly competitive. The combined company's
branded products are in competition with brands marketed by other pharmaceutical
companies including large, fully integrated concerns with financial, marketing,
legal and product development resources substantially greater than that of the
combined company.
The combined company's branded pharmaceutical products are or may become
subject to competition from generic equivalents. There is no proprietary
protection for some of the branded pharmaceutical products the combined company
sells. Generic substitutes for some of its branded pharmaceutical products are
sold by
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other pharmaceutical companies which claim that their products provide
equivalent therapeutic benefits at a lower cost. In addition, governmental and
other pressure to reduce pharmaceutical costs may result in physicians
prescribing products for which there are generic substitutes. Increased
competition from the sale of generic pharmaceutical products may cause a
decrease in revenue from the combined company's branded products and could have
a material adverse effect on the business, financial condition and results of
operations of the combined company.
As the pharmaceutical industry is characterized by rapid product
development and technological change, the combined company's pharmaceutical
products could be rendered obsolete or made uneconomical by the development of
new pharmaceuticals to treat the conditions addressed by the combined company's
products, technological advances affecting the cost of production, or marketing
or pricing actions by one or more of the combined company's competitors. The
combined company's business, results of operations and financial condition could
be materially adversely affected by any one or more of these developments. The
combined company's competitors may also be able to complete the regulatory
process for new products before we are able to do so and, therefore, may begin
to market their products in advance of our products. The management of the
combined company believes that competition among both branded and generic
pharmaceuticals aimed at the markets identified by it will be based on, among
other things, product efficacy, safety, reliability, availability and price.
There can be no assurance that developments by others will not render any
product or technology the combined company produces or may produce obsolete or
otherwise non-competitive.
The pharmaceutical industry is also characterized by frequent litigation.
The combined company may find it necessary to initiate or defend lawsuits to
enforce its rights and to determine the scope and validity of the proprietary
rights of others. Litigation can be costly and time-consuming, and the combined
company cannot assure you that the combined company's litigation expenses will
not be significant in the future or that the outcome of such litigation will be
favorable to the combined company.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this proxy statement may constitute
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides certain safe harbor protections for forward-looking statements in order
to encourage companies to provide prospective information about their
businesses. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements which are other than statements of historical
facts.
Galen and Warner Chilcott desire to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and are
including this cautionary statement in connection with such safe harbor
legislation. This proxy statement, any Form 10-K, Form 10-Q, Current Report on
Form 8-K filed by Warner Chilcott with the Commission or any other written or
oral statements made by or on behalf of Galen or Warner Chilcott may include
forward-looking statements which reflect Galen's or Warner Chilcott's current
views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intends," "estimate," "forecast," "project"
and similar expressions identify forward-looking statements.
The forward-looking statements set forth or incorporated by reference in
this Proxy Statement are based upon various assumptions, many of which are
based, in turn, upon further assumptions, including without limitation,
management's examination of historical operating trends, data contained in
Warner Chilcott's or Galen's records and other data available from third
parties. Although Galen and Warner Chilcott believe that such assumptions were
reasonable when made, because such assumptions are inherently subject to
significant uncertainties and contingencies which are difficult or impossible to
predict and are beyond Warner Chilcott's and Galen's control, there can be no
assurance, and no representation or warranty is made, that the expectations,
beliefs or projections will result or be achieved or accomplished. In addition
to the other important factors and matters discussed elsewhere herein and in the
documents incorporated by reference herein, important factors that, in the view
of Warner Chilcott, could cause actual results to different materially from
those discussed in the forward-looking statements include completion of the
transactions describe herein, the achievement of the anticipated levels of
profitability, growth, cost and synergy, the timely development and acceptance
of new products, the impact of competitive pricing, the ability to obtain
necessary regulatory approvals, the impact of general business and global
economic conditions and other important factors described from time to time in
the reports filed with the Commission by Warner Chilcott.
None of Galen, Warner Chilcott nor any of their respective agents,
employees or advisors intend or have any duty or obligation to supplement,
amend, update or revise any of the forward-looking statements contained or
incorporated by reference in this proxy statement.
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THE PROPOSED TRANSACTION
BACKGROUND OF THE TRANSACTION
The transaction with Galen grew out of Warner Chilcott's interest in
Galen's intravaginal ring, or IVR, technology. The IVR may be used as a delivery
vehicle for a wide range of medicines for certain women's health issues. Warner
Chilcott's President, Mr. Boissonneault, while employed by Warner-Lambert, had
pursued the development of the IVR with Galen and its then partner Roussel
Laboratories for use in contraception in 1991 and 1992.
In June 1996, Mr. Boissonneault made a presentation to Dr. King, Galen's
Chief Executive Officer and Galen's Executive Chairman, Dr. Allen McClay, in
which he described Warner Chilcott's plan to build a women's healthcare focused
sales and marketing organization in the United States. At this meeting, Mr.
Boissonneault presented a U.S. marketing plan for Galen's beta estradiol IVR and
attempted to acquire the U.S. marketing rights to the product. Mr. Boissonneault
was told that Warner Chilcott would be considered as a potential marketing
partner when the beta estradiol IVR was closer to commercialization.
In September 1998, Mr. Boissonneault updated Drs. King and McClay regarding
Warner Chilcott's progress and expressed continued strong interest in licensing
the U.S. marketing rights to the beta estradiol IVR. Galen's position at that
time was that no decision would be made as to a marketing partner until the IVR
was closer to commercialization.
In May 1999, Dr. King and Mr. Boissonneault met in Dublin, Ireland for the
purpose of again discussing the possibility of Warner Chilcott licensing the
U.S. marketing rights to the IVR. At this meeting, Dr. King stated that Galen
was not interested in licensing the IVR to Warner Chilcott, but rather was
interested in exploring a possible combination with Warner Chilcott as a means
of expanding Galen's operations into the United States. Following that meeting,
the three management members of Warner Chilcott's board of directors, Mr.
Andress, Chairman and Chief Executive Officer, Mr. Boissonneault and Mr.
Herendeen, Executive Vice President and Chief Financial Officer, discussed the
situation and concluded that it would not be in the best interest of Warner
Chilcott's shareholders to enter into negotiations with Galen due to the then
current market value of Warner Chilcott and what were believed to be the
near-term prospects of increasing Warner Chilcott's value. Dr. King's primary
concern at that time was that any transaction with Warner Chilcott would be
dilutive to Galen as Warner Chilcott was not profitable.
On January 11, 2000, Dr. King and Mr. Geoffrey Elliott, Galen's Chief
Financial Officer, met with Mr. Boissonneault and Mr. Herendeen to explore a
possible business combination. Dr. King noted that Warner Chilcott had reduced
its quarterly cash losses (net loss after adding back depreciation and
amortization) to near the break-even point and that the ability to construct a
business combination was becoming more promising. Dr. King expressed Galen's
strong interest in pursuing a possible combination of the two companies in the
future.
On January 18, 2000 Warner Chilcott convened a special meeting of its board
of directors for the primary purpose of reviewing the company's progress on the
transaction to acquire the Estrace(R) and Ovcon(R) brands from Bristol-Myers
Squibb. At that meeting, the board of directors was apprised by Messrs. Andress,
Boissonneault and Herendeen of Galen's interest in exploring a possible
combination of Galen and Warner Chilcott. After a discussion of Galen's
strengths and weaknesses and the merits of a possible transaction, the board of
directors authorized Messrs. Andress, Boissonneault and Herendeen to negotiate
with Galen. Notwithstanding the board of directors' interest in pursuing a
possible transaction with Galen, the board of directors was unanimous in its
view that any negotiations with Galen should be put on hold so as not to divert
management's attention away from negotiating and completing the transaction with
Bristol-Myers Squibb.
On January 25, 2000 Warner Chilcott announced that it had entered into an
agreement to acquire the Estrace(R) and Ovcon(R) brands from Bristol-Myers
Squibb. Dr. King expressed the view to Mr. Boissonneault that the acquisition by
Warner Chilcott of these products provided the basis upon which a transaction
was possible.
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From January 30, 2000 to February 5, 2000, a number of telephone calls took
place between Dr. King and Mr. Boissonneault, Dr. King and Mr. Herendeen, and
Mr. Elliott and Mr. Herendeen. Galen wished to explore means by which Galen
could provide Warner Chilcott with funding to complete the acquisition of the
Estrace(R) cream and Ovcon(R) brands without concluding a high yield note
offering. Generally, Galen's proposal was that it would consider providing
funding to Warner Chilcott provided that the companies immediately enter into
merger negotiations. These discussions were halted due to Messrs. Boissonneault
and Herendeen's unwillingness to jeopardize the timing or completion of the
Bristol-Myers Squibb transaction or to entertain a transaction that obligated
Warner Chilcott to enter into exclusive negotiations.
On February 15, 2000 Warner Chilcott issued $200 million principal amount
of high yield notes and acquired the Estrace(R) and Ovcon(R) assets from
Bristol-Myers Squibb. With the acquisition completed, Messrs. Boissonneault and
Herendeen arranged a meeting with Dr. King and Mr. Elliott to discuss a possible
transaction. A confidentiality agreement was executed on February 17, 2000 and a
meeting occurred at Warner Chilcott's U.S. offices in Rockaway, New Jersey. A
thorough discussion of the strategic benefits of combining the companies took
place. Messrs. Boissonneault and Herendeen indicated to Dr. King that they would
discuss a possible transaction with Warner Chilcott's board of directors, but
that they would only be willing to do so if Galen's expectation regarding the
relative values of the companies was in an acceptable range. Dr. King agreed to
communicate a preliminary proposal after consultation with Galen's board of
directors.
From February 19, 2000 to February 27, 2000, the frequency and intensity of
the discussions increased culminating in Dr. King making an oral proposal to
Messrs. Boissonneault and Herendeen for consideration by Warner Chilcott's board
of directors.
On February 28, 2000, Warner Chilcott convened a regularly scheduled
meeting of its board of directors. As an agenda item at that meeting Mr.
Herendeen outlined the oral proposal communicated by Dr. King. Mr. Herendeen
reported that the three management members of the board, Messrs. Andress,
Boissonneault and Herendeen, were generally in favor of pursuing a transaction
with Galen and requested authorization to enter into negotiations. The board of
directors formed a committee of disinterested directors to oversee any
discussions and/or negotiations between the companies. The committee was
comprised of the three members of Warner Chilcott's audit committee, Mr. James
Bloem (chairman of the committee), Mr. Thomas Lynch and Mr. David Pinkerton. The
board of directors also agreed that if a transaction were to be pursued, then
Warner Chilcott would formally retain Credit Suisse First Boston as its
financial advisor.
On March 1 and March 2, 2000, Messrs. Boissonneault and Herendeen met in
Rockaway, New Jersey with Dr. King and Mr. Elliott to exchange additional
information regarding both companies and to discuss the prospective organization
of the combined companies.
On March 9, 2000, Warner Chilcott convened a special meeting of the board
of directors to discuss, in detail, Galen's expression of interest and the
strategic rationale for combining the two companies. Galen proposed the
acquisition of all of the outstanding shares of Warner Chilcott in exchange for
newly issued Galen shares at a fixed exchange ratio. Under Galen's proposal, two
members of Warner Chilcott's senior management team, Messrs. Boissonneault and
Herendeen, would hold top level executive positions in the combined enterprise,
Mr. Boissonneault as Chief Executive Officer and Mr. Herendeen as Executive Vice
President. Both Mr. Boissonneault and Mr. Herendeen would join the board of
directors of Galen, which would be expanded to nine members. The members of
Warner Chilcott's board of directors determined that they were unanimously in
favor of continuing negotiations with Galen and outlined the general terms under
which the board of directors would support a transaction. Following a
discussion, the board of directors authorized Messrs. Andress, Boissonneault and
Herendeen to continue the process with Galen, provided that the special
committee of Warner Chilcott's disinterested directors, Messrs. Bloem
(chairman), Lynch and Pinkerton, take an active role in overseeing the
negotiations. Management was directed to formally retain Credit Suisse First
Boston as Warner Chilcott's financial advisor and to ensure that Credit Suisse
First Boston kept members of the special committee apprised of all developments.
On March 14, 2000, Warner Chilcott held a meeting of the special committee
and included all of its advisors in its Rockaway, New Jersey offices. Mr. Bloem
chaired the meeting. The purpose of this meeting
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was to discuss issues of structure, taxation, financial accounting, legal and
regulatory requirements and timelines. Advisors present included Warner
Chilcott's General Counsel, Beth Hecht, financial advisor, Credit Suisse First
Boston, outside Irish counsel, outside UK counsel, outside U.S. counsel,
auditors and tax consultants. During the meeting, a variety of possible
transaction structures were discussed with the objective of identifying the
structure that would maximize the value of a possible transaction to Warner
Chilcott's shareholders.
On March 22, 2000, Mr. Herendeen and Mr. Andress convened a meeting of the
special committee together with certain of the company's advisors for the
purpose of reviewing the status of the transaction. All of the members of the
special committee were in attendance. At this meeting, the advisors outlined for
the special committee the terms of the transaction as proposed by Galen. Mr.
Herendeen, taking into account the advice of the company's advisors, expressed
concern over the exchange ratio, the existence and magnitude of a break-up fee
and the nature of any representations and warranties, and outlined a strategy to
attempt to address the concerns. Messrs. Andress and Herendeen, supported by the
special committee, outlined the terms under which Warner Chilcott would be
willing to continue to pursue a combination with Galen. Credit Suisse First
Boston was directed to discuss such terms with Galen's financial advisor,
Merrill Lynch International.
Between March 22 and March 27, Credit Suisse First Boston continued
negotiations with Merrill Lynch International and obtained oral confirmation
that the revised terms proposed by Warner Chilcott were generally acceptable to
Galen. On March 28, Messrs. Boissonneault and Herendeen and Ms. Hecht met in
London with Warner Chilcott's outside UK and U.S. counsel and Credit Suisse
First Boston for the purpose of organizing legal and business due diligence
activities. On March 29, Dr. King and Mr. Elliott made a presentation in London
to Messrs. Boissonneault, Herendeen, Ms. Hecht and Warner Chilcott's outside
advisors. Following the presentation, Dr. King and Mr. Elliott answered
questions and agreed to provide additional information as requested by various
parties.
On March 29 and 30, Messrs. Boissonneault and Herendeen and a
representative of Credit Suisse First Boston visited several of Galen's
facilities in Northern Ireland and continued to conduct business due diligence.
During the same period, Warner Chilcott, Galen and their respective outside
legal advisors initiated due diligence reviews of the contents of each others'
data rooms set up at their U.K. law firms. On March 30, Messrs. Boissonneault
and Herendeen made a presentation to members of Galen's senior management,
members of Galen's board of directors and Galen's advisors to provide them with
a more thorough understanding of Warner Chilcott's historical performance and
strategy.
From March 30 through April 13, negotiations continued between the
companies and their respective advisors. Several issues arose as to the form of
the proposed transaction. The most significant issue was Warner Chilcott's
position that structuring the transaction as a scheme of arrangement under Irish
law would provide the best structure for tax-free treatment for the holders of
Warner Chilcott shares. On April 13, Galen agreed to move forward under a scheme
of arrangement. The other material issue that was the subject of extensive
negotiation was Galen's proposal that Warner Chilcott pay a break-up fee if the
proposed transaction was not completed.
On April 14, a special meeting of the Warner Chilcott board of directors
took place in New York City to review the status of the transaction with Galen.
At this meeting, the company's Irish and outside U.S. counsel made presentations
outlining the directors' obligations under both Irish and U.S. law. Credit
Suisse First Boston also made a financial presentation to the board of
directors. The board of directors was unanimous in its support for the
transaction provided that the remaining open issues were satisfactorily
addressed in the transaction agreement.
On April 28, a special meeting of the board of directors was held
telephonically. Prior to the meeting, a draft of the transaction agreement was
provided to all of the members of the board of directors. The draft circulated
was not final, as it contained a number of open issues such as the amount of a
break fee. Ms. Hecht reviewed the provisions of the transaction agreement with
the directors. The board of directors then discussed the terms of the
transaction agreement and agreed to meet again when the agreement was in final
form.
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On May 3, 2000, a special meeting of the board of directors was held
telephonically. Prior to the meeting, a near final draft of the transaction
agreement was provided to all members of the board of directors. Warner
Chilcott's U.S. counsel, Kirkland & Ellis, led a detailed discussion of the
principal terms of the agreement and identified the few issues that remained to
be resolved before the agreement could be executed. The board of directors
discussed the agreement and parameters for resolving the open issues. Next,
Credit Suisse First Boston provided an update of its previous presentation and
delivered its written opinion, dated May 3, 2000, to the effect that, as of that
date and based upon and subject to the matters described in the opinion, the per
share consideration to be offered to the holders of Warner Chilcott ordinary
shares and Warner Chilcott ADR's (other than Galen and its affiliates) under the
scheme is fair to those holders from a financial point of view. The board of
directors then discussed Credit Suisse First Boston's presentation. After the
board of directors had the opportunity to have their questions answered, the
Chairman, Mr. Andress, polled the board of directors as to their vote on the
proposed transaction. At the request of the board of directors, the proposed
resolutions authorizing the transaction were read aloud. Mr. Boissonneault was
authorized to resolve the open issues within the ranges discussed by the board
of directors. Upon a motion by Mr. Lynch, seconded by Mr. Bloem, the resolutions
were approved by a unanimous vote of the board.
During the evening of May 3, Mr. Boissonneault resolved the open issues on
the transaction within the ranges authorized by the Warner Chilcott board of
directors. Early in the morning of May 4, Mr. Boissonneault and Dr. King
executed the final transaction agreement between the companies.
WARNER CHILCOTT'S REASONS FOR SUPPORTING THE TRANSACTION
Warner Chilcott's board of directors determined by a unanimous vote of all
of its directors that the exchange of all Warner Chilcott shares for Galen
shares is fair to, and in the best interests of, Warner Chilcott and its
shareholders and by such votes has approved the transaction agreement and the
scheme of arrangement. Accordingly, the board of directors recommends that
shareholders vote in favor of the scheme and the other matters to be proposed at
the extraordinary general meeting.
In reaching its determination, the board of directors considered a number
of factors, including, but not limited to, the following:
(1) Our business, financial condition, earnings and prospects and the
competitive environment facing us, which helped the directors evaluate the
merits and risks associated with our continuing as an independent entity,
whether the transaction is in the best interests of our company and whether
it is an appropriate time to engage in the proposed transaction;
(2) Galen's prospects in combination with our company, particularly
the improved visibility of its longer-term plans -- for the U.S. branded
products business, access to a pipeline of proprietary products in
development -- and for Galen's product development activities, the ability
to retain control over the U.S. commercialization of its pipeline and
thereby retain a greater economic stake in the potential success of its
developed products;
(3) The expectation that the combined company, due to its greater
scale, will be positioned to accelerate our growth through increased flow
of acquisition and licensing opportunities and improved access to the
capital to complete such transactions;
(4) The historical market prices and trading information with respect
to the Warner Chilcott ADRs;
(5) The fact that, based on the closing price of Galen's ordinary
shares as of May 3, 2000, the 2.5 shares of Galen stock to be issued in
consideration of each ordinary share represented: (a) a premium of 33% over
the $18.00 closing price of the ADRs on the Nasdaq National Market on May
3, 2000, the last trading day prior to the public announcement of the
execution of the transaction agreement and (ii) a premium of approximately
57% over the average closing price of the ADRs over the 30 trading days
preceding the announcement, which led the directors to conclude that the
transaction would provide an opportunity for shareholders to receive a
premium to current and recent trading prices for the ordinary shares;
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(6) The opportunity for option holders to participate in the equity of
the combined company through the conversion of Warner Chilcott options into
Galen options;
(7) The expectation that the transaction will be tax-free to our
shareholders;
(8) The likelihood that the transaction will be approved by Galen's
shareholders and the relevant regulatory authorities;
(9) The terms and conditions of the transaction agreement and the
scheme, including the amount and form of the consideration to be received
by our shareholders and option holders and the conditions to the closing of
the transaction, which led the directors to conclude that there was a high
probability of the transaction being consummated; and
(10) The presentation of Credit Suisse First Boston to the board,
including their oral opinion dated May 3, 2000 to the effect that, as of
the date of that date and based upon and subject to the matters described
therein, the per share consideration to be offered to the holders of Warner
Chilcott ordinary shares and Warner Chilcott ADRs, (other than Galen and
its affiliates) under the scheme was fair to such holders from a financial
point of view.
The above discussion of the information and factors considered by our board
of directors is not meant to be exhaustive, but includes the most significant
factors considered by the board. Our board did not quantify or attach any
particular weight to the factors that it considered in reaching its
determination that the transaction agreement and the scheme are fair to and in
the best interests of our company. As a result of its consideration of the
factors described above, and other relevant considerations, the board determined
by a unanimous vote of all of the directors that the transaction agreement and
the scheme are fair to and in the best interests of our company and its
shareholders and approved both the transaction agreement and the scheme. In
considering the recommendation of our board of directors with respect to the
transaction, shareholders should be aware that the interests of certain
directors and executive officers are or may be different from the interests of
our company and its shareholders generally. The board was aware of these
interests and took these interests into account in approving the transaction
agreement and the scheme.
THE HIGH COURT SANCTION HEARING
The hearing by the High Court of Warner Chilcott's application for the
sanction of the scheme and the confirmation of the proposed reduction of share
capital will take place on a day which will be appointed by the High Court
following a separate application for that purpose. At the same time as the High
Court appoints the day for hearing, it will direct how the date of the hearing
should be advertised. Warner Chilcott will propose that such advertising should
be placed in the legal notices sections (or similar available alternative
sections) in the Wall Street Journal and The Irish Times newspapers. All holders
of ordinary shares and of deferred shares are entitled to attend and be heard at
the hearing in person or through a professional lawyer. Submissions and
arguments to the High Court are generally made orally, but any facts other than
those expressed in Warner Chilcott's own documents which a person wishes to put
forward must be put forward as evidence in the form of a sworn written statement
(an affidavit being the standard form for this in Irish practice). Any person
proposing to make submissions or put forward evidence to the High Court at the
hearing will be requested to advise Warner Chilcott's Irish lawyers in advance
and they in turn will advise the High Court. Individuals may make these
submissions personally or by a professional lawyer entitled to appear in the
High Court of Ireland (a solicitor or barrister in Irish practice).
The hearing will take place on the advertised date or on adjourned dates
then fixed by the High Court. The High Court will consider the submissions and
evidence presented to it so as to establish whether the requirements of Irish
law and Warner Chilcott's corporate constitution, its memorandum and articles of
association, so far as these are applicable, have been complied with, whether
the necessary majorities of Warner Chilcott's shareholders of record have voted
in favor of approving the scheme and the resolution for the reduction of Warner
Chilcott's share capital, and whether the scheme and reduction of capital are
fair and reasonable in all the circumstances. The High Court may announce its
decision immediately after the hearing or may defer this until a date to be
announced later.
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<PAGE> 42
EFFECTIVE TIME OF THE TRANSACTION
The transaction will become effective upon delivery to the Registrar of
Companies in Dublin, Ireland, of a copy of the final order of the High Court
sanctioning the scheme and confirming the reduction of Warner Chilcott's
capital, and the registration by the Registrar of the order confirming the
reduction of Warner Chilcott's capital.
REGULATORY FILINGS AND APPROVALS
In addition to the High Court proceedings described elsewhere in this
document, the obligation of each party to fulfill its respective obligations
under the transaction agreement is subject to obtaining the prior approval or
consent of the following governmental agencies:
Under the Irish Mergers, Takeovers and Monopolies (Control) Act, 1978, as
amended, the transaction may not be completed until notifications have been
given and certain information has been furnished to the Minister for Enterprise,
Trade and Employment and either the Minister has stated in writing that she does
not intend to make an order under Section 9 of that Act with respect to the
transaction or the relevant period within the meaning of Section 6 of that Act
has elapsed. Galen and Warner Chilcott filed the appropriate notification forms
and information with the Minister on May 16, 2000.
Under the HSR Act and the rules promulgated thereunder by the U.S. Federal
Trade Commission, or FTC, the transaction may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice and specified
waiting period requirements have been satisfied or approval granted.
At any time before or after completion of the transaction, the antitrust
authorities described above could take such action under their respective
antitrust laws as they deem necessary or desirable in the public interest,
including seeking to enjoin the completion of the transaction or seeking
divestiture of assets of Galen or Warner Chilcott. In addition, at any time
after the completion of the transaction, any state could take such action under
its antitrust laws as it deems necessary or desirable in the public interest.
Such action could include seeking to enjoin the completion of the transaction or
seeking divestiture of assets of Galen or Warner Chilcott. Private parties may
also seek to take legal action under the antitrust laws under certain
circumstances.
Based on information available to them, Galen and Warner Chilcott believe
that the transaction can be effected in compliance with European Union, Irish
and United States federal and state antitrust laws. However, there can be no
assurance that a challenge to the completion of the transaction on antitrust
grounds will not be made or that, if such a challenge were made, Galen and
Warner Chilcott would prevail or would not be required to accept certain
conditions, including the divestiture of assets and/or commitments as to future
business practices and other matters in order to complete the transaction.
ACCOUNTING TREATMENT
Galen intends for the transaction to be treated as a purchase for
accounting purposes under both U.K. GAAP and U.S. GAAP.
FEDERAL SECURITIES LAW CONSEQUENCES
All ordinary shares in the capital of Galen received by shareholders of
Warner Chilcott in the transaction will be issued pursuant to an exemption from
registration under Section 3(a)(10) under the U.S. Securities Act of 1933, as
amended. Galen is seeking a "no-action letter" from the U.S. Securities and
Exchange Commission confirming the availability of such exemption and that the
Galen ordinary shares will not be deemed to be "restricted securities" within
the meaning of Rule 144(a)(3) of the U.S. Securities Act. Ordinary shares of
Galen received by persons deemed to be affiliates of Warner Chilcott prior to
the transaction may be resold by them in the U.S. only in transactions permitted
by the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 in the case of such persons who become affiliates of Galen) or
otherwise in compliance with or under an exemption from) the registration
requirements of the
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<PAGE> 43
U.S. Securities Act. Persons deemed to be affiliates of Warner Chilcott or Galen
are those individuals or entities that control, are controlled by, or are under
common control with, such party and generally include executive officers and
directors of such party as well as certain principal shareholders of such party.
STOCK MARKET LISTING
It is a condition to the transaction that ADRs representing Galen ordinary
shares to be issued in the scheme be approved for quotation on the Nasdaq
National Market. An application will be filed for listing the new Galen ADRs on
the Nasdaq National Market in due course.
NO RIGHT TO DISSENT
If the shareholders of Warner Chilcott approve the scheme and the reduction
of Warner Chilcott's capital, and the High Court sanctions the scheme and
confirms the reduction of Warner Chilcott's capital, then, subject to the scheme
becoming effective in accordance with its terms, each of Warner Chilcott's
ordinary shares and deferred shares will be automatically deemed canceled and in
consideration therefor holders of those ordinary shares will receive the number
of ordinary shares in the capital of Galen determined by the per share
consideration and holders of those deferred shares will receive one ordinary
share of Galen. No holder of any ordinary shares or deferred shares of Warner
Chilcott will have a right under law of the Republic of Ireland to dissent or
obtain the "full value" of, or otherwise seek a court appraisal of the value of,
such securities.
SURRENDER OF SHARE CERTIFICATES
Following the effective time of the transaction, Galen will cause a letter
of transmittal to be mailed to all holders of ordinary shares containing
instructions for surrendering their certificates representing ordinary shares.
Certificates should not be surrendered until the letter of transmittal is
received, fully completed and returned by such holder as instructed in the
letter of transmittal.
TAX CONSIDERATIONS
United States federal income tax consequences
The following discussion summarizes the U.S. federal income tax
consequences to holders of the receipt of ordinary shares of Galen in
consideration for the cancelation of ordinary shares and deferred shares, as
described in the transaction agreement. The discussion is based on the U.S.
Internal Revenue Code of 1986, as amended, Treasury regulations, judicial
decisions and published positions of the IRS, all as in effect on the date
hereof, and all of which are subject to change, possibly with retroactive
effect. This discussion does not address all aspects of U.S. federal income
taxation (including potential application of the alternative minimum tax) that
may be relevant to a particular shareholder or option holder based on such
holder's particular circumstances and does not address any aspect of state,
local or non-U.S. tax laws. Further, with respect to the discussion of ordinary
shares and deferred shares, this summary generally considers only U.S. Holders
that hold their ordinary shares as capital assets (generally, assets held for
investment) and may not apply to all shareholders. In particular, the discussion
may not apply to shareholders (1) who acquired their ordinary shares pursuant to
the exercise of employee stock options or other compensation arrangements with
Warner Chilcott; (2) who are subject to special tax treatment under the Code
(such as broker-dealers, insurance companies, tax-exempt organizations,
financial institutions, and regulated investment companies); (3) who hold the
ordinary shares as part of a "straddle," "hedge," or "conversion transaction,"
or to holders whose functional currency is not the U.S. dollar; (4) who own, or
have owned, directly, indirectly, or through attribution, currently or during
the past five years, 10% or more of the ordinary shares; or (5) who are certain
expatriates or former long-term residents of the United States.
For purposes of this discussion, a "U.S. Holder" is any holder of ordinary
shares or deferred shares of Warner Chilcott who is (1) a citizen or resident of
the United States; (2) a corporation or other entity taxable as a corporation
organized under the laws of the United States or of any state thereof or the
District of Columbia; (3) an estate the income of which is included in gross
income for U.S. federal income tax purposes
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regardless of source; (4) a trust, if a U.S. court is able to exercise primary
supervision over its administration and one or more U.S. persons have the
authority to control all of its substantial decisions; or (5) any other person
who is subject to U.S. federal income tax on a net income basis with respect to
the ordinary shares or deferred shares. In the case of a holder of ordinary
shares or deferred shares that is a partnership for U.S. federal income tax
purposes, each partner of such partnership will take into account its allocable
share of income or loss from the ordinary shares or deferred shares, and will
take such income or loss into account under the rules of taxation applicable to
such partner, taking into account the activities of the partnership and the
partner.
ISSUANCE OF ORDINARY SHARES OF GALEN IN CONSIDERATION FOR CANCELATION OF
ORDINARY SHARES AND DEFERRED SHARES
Kirkland & Ellis is acting as counsel to Warner Chilcott in connection with
the transaction. Warner Chilcott expects to receive an opinion of Kirkland &
Ellis that the scheme will constitute a reorganization within the meaning of
Section 368(a) of the Code. This opinion will be based on factual
representations of Warner Chilcott and Galen which are customarily given in
transactions of this type.
Based on the conditions and assumptions referred to above, as a result of
the scheme qualifying as a reorganization, no gain or loss will be recognized by
U.S. Holders of ordinary shares or deferred shares solely as the result of the
cancelation of their ordinary shares or deferred shares in consideration for
shares of Galen pursuant to the scheme. The aggregate tax basis of the ordinary
shares of Galen received pursuant to the scheme will be the same as the
aggregate tax basis of the ordinary shares or deferred shares canceled in
consideration therefor under the scheme. The holding period of the ordinary
shares of Galen received will include the holding period of the ordinary shares
or deferred shares canceled in consideration therefor pursuant to the scheme. A
U.S. Holder who is a "5% shareholder" of Galen in accordance with applicable
Treasury Regulations under Section 367(a) of the Code will qualify for the
treatment described in this paragraph only if such U.S. Holder files a gain
recognition agreement with the IRS.
Neither Warner Chilcott nor Galen has requested a ruling from the IRS with
regard to any of the U.S. federal income tax consequences of the transaction,
and the IRS is not precluded from successfully asserting that the cancelation of
ordinary shares or deferred shares under to the scheme is not a reorganization,
contrary to the opinion of counsel.
A successful IRS challenge to the reorganization status of the scheme would
result in a U.S. Holder of ordinary shares or deferred shares recognizing a
taxable gain or loss with respect to each ordinary share or deferred share
canceled equal to the difference between (1) the fair market value, as of the
time of the completion of the scheme, of the ordinary shares of Galen received
and (2) the U.S. Holder's basis in the ordinary shares or deferred shares
canceled. In that event a U.S. Holder's basis in the ordinary shares of Galen
received in the scheme would equal its fair market value as of the time of the
completion of the scheme and the U.S. Holder's holding period for that stock
will begin on the day after the day of the completion of the scheme.
Provided the completion of the scheme qualifies as a reorganization,
neither Warner Chilcott nor Galen will recognize gain or loss as the result of
the scheme.
Tax Consequences in the Republic of Ireland
The following summary is general in character and is based on certain
aspects of current law, regulations, rulings and decisions and practice in the
Republic of Ireland, all of which are subject to change. Any such change may be
applied retroactively and may adversely affect the summary. This summary does
not address all possible tax consequences relating to the scheme. Attention is
drawn to the fact that the summary is not comprehensive and that shareholders
and option holders should consider their individual situation with their usual
tax adviser.
The receipt of ordinary shares of Galen in consideration for the
cancelation of ordinary shares or deferred shares will not give rise to capital
gains tax in the Republic of Ireland. Holders of ordinary shares or deferred
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shares will be treated as having acquired the ordinary shares of Galen on the
same date and for the same cost as the ordinary shares or deferred shares.
THE TAX DISCUSSION DESCRIBED ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES AND THE NUMBER OF
DIFFERENT JURISDICTIONS INVOLVED IN THIS TRANSACTION, SHAREHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
SCHEME, INCLUDING THE APPLICATION TO THEM OF ANY PENDING LEGISLATION, TAX
REPORTING REQUIREMENTS, THE ALTERNATIVE MINIMUM TAX AND THE EFFECTS OF
APPLICABLE NATIONAL, STATE OR LOCAL INCOME OR OTHER TAX LAWS.
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THE COMPANIES
DESCRIPTION OF WARNER CHILCOTT'S BUSINESS
OVERVIEW
Warner Chilcott develops and markets branded prescription pharmaceutical
products in the United States. Our primary area of focus is the large and
growing women's health therapeutic category. We also participate in the
cardiology and dermatology categories. Through our national sales force of
approximately 260 representatives, we market branded pharmaceutical products
directly to physician specialists across the country including
obstetrician/gynecologists, urologists, cardiologists, dermatologists, and
high-prescribing primary care physicians. We have an experienced management team
with significant pharmaceutical industry expertise, specifically in the
marketing of prescription pharmaceutical brands.
An important part of our strategy is to acquire established branded
pharmaceutical products and to increase their sales through enhanced promotion
targeted to high-prescribing physicians. We also internally develop branded
products as well as product line extensions for our existing products such as
new formulations, dosages or new indications. Line extensions are particularly
valuable because they may enable us to extend the growth potential of our
brands.
On January 26, 2000, we entered into an agreement with Bristol-Myers Squibb
to acquire three branded pharmaceutical products for aggregate consideration, as
adjusted, of $175.1 million. We completed this transaction on February 15, 2000.
The products we acquired through that transaction are:
- Estrace(R) vaginal cream, an estrogen replacement therapy product, with
net sales of $21.4 million for the year ended December 31, 1999; and
- Ovcon(R) and Ovcon(R) 50, two oral contraceptives, with net sales
totaling $28.6 million for the year ended December 31, 1999.
We acquired Estrace(R) cream and Ovcon(R) brands because they are
proprietary brands with solid growth prospects competing in two important
segments of the women's health market, which is our area of strategic focus and
strength. Our goal is to increase the value of both brands through increased
promotional support, product repositioning and the development of line
extensions. We believe that both brands will respond to the higher level of
promotional support that we have been using since March 1999 and will continue
to use to support the products relative to BMS's efforts over the last several
years.
INDUSTRY OVERVIEW
Prescription drug expenditures are the fastest growing component of health
care expenditures in the United States. The U.S. Health Care Financing
Administration estimates that pharmaceuticals currently account for
approximately 6.5% of U.S. health care expenditures, and are expected to
increase to 8% by 2007. Estimated U.S. pharmaceutical sales for 1998 were
approximately $75 billion, and HCFA projects continued sales increases at an
average annual growth rate of approximately 10% through 2007, compared to an
average annual growth rate of approximately 7% for total health care costs
during this period. Factors underlying this increase in prescription drug
expenditures include:
- increases in research and development expenditures by drug manufacturers,
resulting in many new drug introductions;
- a shorter FDA approval cycle for new pharmaceuticals;
- high prices for new "blockbuster" drugs;
- an aging population; and
- increased demand for prescription drugs due to increased disease
awareness by patients, effective direct-to-consumer advertising by drug
manufacturers and a growing reliance on medication in lieu of lifestyle
changes.
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In recent years, the pharmaceutical industry has been characterized by
consolidation which has increased the level of sales necessary for an individual
product to justify active marketing and promotion from large pharmaceutical
companies. For example, for the year ended December 31, 1998, the additional
sales required for 1% sales growth for large global pharmaceutical companies
such as Merck & Co., Johnson & Johnson and Novartis Pharmaceuticals, a
subsidiary of Novartis AG, are $269 million, $237 million and $231 million,
respectively. We believe that large pharmaceutical companies have begun to focus
their marketing efforts on drugs with annual sales in excess of $250 million,
newer or novel drugs which have the potential for high volume sales and products
which fit within core therapeutic or marketing priorities. As a result, major
pharmaceutical companies increasingly have sought to divest small or non-
strategic product lines that can be profitable for emerging pharmaceutical
companies, like us, to manufacture and market.
THE HORMONE REPLACEMENT MARKET
In the U.S., hormone replacement therapy market is an approximately $2.5
billion. Estrogen drug products and estrogens in combination with progestins
used for the treatment of symptoms associated with menopause make up the vast
majority of the market.
Vaginal hormone replacement is a sub-segment of the overall hormone
replacement market and is comprised of products that deliver estrogen directly
to the vaginal tissue. We estimate this market to be roughly $100 million.
According to the U.S. Bureau of the Census, there are over 30 million women over
the age of 55 in the United States. Many of these women are candidates for
vaginal estrogen replacement therapy. We expect continued growth in the market
for vaginal estrogen preparations due to the rising number of postmenopausal
women, increased life expectancy and a general increase in awareness of the
benefits of estrogen replacement therapy. Estrogen based vaginal creams are
currently indicated in the treatment of vulval and vaginal atrophy, a common
symptom in post-menopausal women.
THE ORAL CONTRACEPTIVE MARKET
In the U.S., oral contraceptives are a $1.8 billion market. The total
market, measured in dollars, grew 12.1% in 1999 compared with 1997. Oral
contraceptives are used by over 90 million women worldwide and have been shown
to produce safe and effective contraception. The vast majority of the market is
composed of oral contraceptive pills consisting of estrogen combined with a
progestin.
Ovcon(R) 35 competes in the low-dose segment of the market, which is
comprised of products with 30 to 35 micrograms of estrogen. These low-dose oral
contraceptives comprise roughly 79% of the total market. The low-dose segment
grew 5.8% in the first half of 1999 compared with 1998. The low-dose segment
further breaks down into two sub-segments: the monophasics, including Ovcon(R)
35, that maintain the same ratio of progestin and estrogen throughout the cycle;
and the multiphasics that have a changing ratio throughout the cycle. The
monophasics market has been declining while the multiphasics have contributed to
the overall market growth. We believe that the recent increase in the low-dose
multiphasic sub-segment and the decline in the low-dose monophasics is due in
large part to the major competitors in the oral contraceptive market (Ortho
McNeil/Johnson & Johnson and Wyeth-Ayerst/AHP) placing their primary promotional
emphasis on their newer, multiphasic offerings.
SALES AND MARKETING
We market branded pharmaceutical products that we believe will benefit from
promotional activities directed toward physician specialists. We have a sales
and marketing infrastructure which includes approximately 260 sales
representatives dedicated to promoting and marketing branded pharmaceutical
products. We believe we have the fourth largest sales force targeted to
promoting women's health products to obstetrician/ gynecologists in the U.S.
We began building our sales organization in 1997. By the end of 1998, we
had established a sales organization of approximately 260 professionals as well
as the infrastructure to support and manage our sales efforts. We intend to
augment our sales organization as needed to support the promotion of our
existing and future branded products. We believe that our sales force at its
present size provides us with adequate resources
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to execute the promotional plans for the branded products discussed in this
prospectus, including those acquired from BMS.
Our marketing strategy is to promote our branded products to high volume
prescribing physicians through our targeted specialty sales forces. We focus our
sales force by employing precision marketing techniques, including comprehensive
internal analysis of actual prescription data. We use this data to identify and
target physicians that are likely to produce the greatest return on our
promotional efforts. While part of Warner-Lambert, members of our senior
management team were pioneers in utilizing precision marketing methods and have
brought the benefits of their experience to Warner Chilcott. Precision marketing
techniques help us to target physicians, measure the effectiveness of our
promotional efforts and evaluate the skill of our individual sales
representatives.
Generally, the physicians we target tend to be specialists concentrated in
metropolitan areas and within larger group practices. This concentration enables
us to use our 260 person sales force to achieve greater reach and frequency. Our
seasoned representatives have developed relationships with physicians in the
segments we target.
Our management team has instituted a number of programs related to
compensation, incentives and professional advancement in order to keep our sales
representatives motivated with respect to their marketing efforts. Our sales
representatives are regularly reviewed and ranked based on a number of key
factors of performance. Those rankings are then taken into account in
determining base compensation, performance bonuses and professional advancement.
The programs have proven effective in motivating our sales representatives and
in identifying exceptional employees whose skills warrant advancement to
supervisory/management roles within our sales organization.
We endeavor to supply our sales forces with a full complement of support
materials to assist in their efforts to promote and position our products. We
believe that our sales representatives and the packaging, sample kits, visual
aids and other collateral sales materials that we have developed for use by our
sales representatives are of a level of quality, professionalism and
sophistication that positions us to successfully compete with much larger
pharmaceutical concerns.
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BRANDED PRODUCTS
We market a portfolio of branded products primarily in the women's health,
cardiology and dermatology segments. The following table identifies our branded
product marketing and development activities.
<TABLE>
<CAPTION>
THERAPEUTIC
PRODUCT APPLICATION STATUS
- -------------- -------------------- --------------------------------------------------
<S> <C> <C>
WOMEN'S HEALTH
NataFort(R) Prenatal Vitamin Developed in-house, launched in December 1997
NataChew(TM) Chewable Prenatal Developed in-house, launched in November 1999
Vitamin
Pyridium(R) Urinary Tract Acquired rights from Warner-Lambert in June 1997
Analgesic
Pyridium Urinary Tract Acquired rights from Warner-Lambert in June 1997,
Plus(R) Analgesic/ continued development in-house and launched in
Antispasmodic March 1999
Estrace(R) Estrogen Replacement Began promoting in March 1999 under promotion
Cream agreement, acquired rights from Bristol-Myers
Squibb in February 2000
Ovcon(R) 35 Oral Contraceptive Began promoting in March 1999 under promotion
agreement, acquired rights from Bristol-Myers
Squibb in February 2000
Ovcon(R) 50 Oral Contraceptive Acquired rights from Bristol-Myers Squibb in
February 2000
Mandelamine(R) Antibacterial Acquired from Warner-Lambert in June 1997
CARDIOLOGY
LoCholest(R) Lipid Regulation Licensed from Eon, launched in 1997
K-Dur(R) Potassium Supplement Began promoting in July 1998 under agreement with
Schering-Plough
Nitro-Dur(R) Angina Began promoting in January 1999 under agreement
with Schering-Plough
DERMATOLOGY
Doryx(R) Antibiotic Acquired from Warner-Lambert in June 1997
Lotrisone(R) Antifungal/Anti- Began promoting in January 1999 under agreement
inflammatory with Schering-Plough
Eryc(R) Antibiotic Acquired from Warner-Lambert in June 1997
</TABLE>
WOMEN'S HEALTH PRODUCTS
We are marketing and developing prescription products for the treatment and
support of women's health. The following provides a more detailed description of
such products:
NataFort(R)
In December 1997 we launched NataFort(R), a prescription strength prenatal
vitamin designed to improve patient compliance by virtue of its relatively small
tablet size. After only two years of marketing, today more new prescriptions are
filled in the United States for NataFort(R) than for any other prenatal vitamin.
In developing NataFort(R), we performed market research that indicated that the
most important ingredients that physicians seek in a prenatal vitamin are folic
acid and iron. Meanwhile, patients expressed a strong negative reaction to the
size of the tablets which reduced patient compliance. Prenatal vitamins tend to
be large due to
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the inclusion of calcium in their formulation. Although thought to be less
important than folic acid or iron, calcium was traditionally included in
prenatal vitamins before the introduction of NataFort(R). In addition, the
absorption of iron may be inhibited by the presence of calcium. Our solution was
to formulate NataFort(R) with folic acid and iron but without calcium. As such,
NataFort(R) tablets are smaller than competing vitamins and, due to the absence
of calcium, potentially allow for improved iron absorption. Prenatal vitamins
are grandfathered drugs and therefore not subject to FDA pre-market clearance
requirements.
NataChew(TM)
NataChew(TM) is a prescription strength chewable prenatal vitamin which was
developed internally and launched in November 1999. NataChew(TM) is a wildberry
flavored chewable tablet that provides ten essential vitamins, including folic
acid, and iron. The product was designed to enhance patient compliance by using
a pleasant-tasting chewable format. We licensed proprietary taste masking
technology to overcome the unpleasant taste of iron. The difficulty in taste
masking iron has been the primary obstacle to the introduction of chewable
vitamin alternatives for pregnant women.
Pyridium(R) and Pyridium Plus(R)
Pyridium(R) is an orally active urinary tract analgesic agent that helps
relieve urinary pain, burning, urgency and frequency related to urinary tract
infections. Pyridium Plus(R), a line extension of Pyridium(R), was introduced by
Warner-Lambert Company in 1980. We reintroduced Pyridium Plus(R) in March 1999.
The product is positioned to capitalize on the brand equity associated with the
Pyridium(R) trademark but is intended for patients with irritative bladder
conditions. Our efforts in marketing Pyridium Plus(R) have helped us establish
solid relationships with high-volume prescribing urologists.
Estrace(R) Cream
Estrace(R) vaginal cream is a hormone replacement therapy for the treatment
of vaginal and vulval atrophy. We began promoting Estrace(R) cream in March 1999
under an agreement with Bristol-Myers Squibb. In February 2000, we acquired the
rights to this product. Estrace(R) cream contains beta-estradiol as its active
ingredient.
Ovcon(R) 35
Ovcon(R) 35 is an oral contraceptive composed of norethindrone and ethinyl
estradiol. It was introduced by Bristol-Myers Squibb in 1978 and we began
promoting the product in March 1999 under an agreement with Bristol-Myers
Squibb. In February 2000, we acquired the rights to this product.
Ovcon(R) 50
Ovcon(R) 50 is an oral contraceptive composed of norethindrone and ethinyl
estradiol. It was introduced by Bristol-Myers Squibb in 1975 and we began
promoting the product in March 1999 under an agreement with Bristol-Myers
Squibb. In February 2000, we acquired the rights to this product.
CARDIOLOGY PRODUCTS
We market and develop prescription products for the treatment of angina
pectoris and lipid disorders. The following provides a more detailed description
of such products.
LoCholest(R)
LoCholest(R) powder is a resin that acts as a cholesterol-lowering agent
and is intended for oral administration. Patients take LoCholest(R) by mixing it
with milk, fruit juice, water or another beverage of their choice.
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K-Dur(R)
K-Dur(R) is an immediately dispersing extended-release oral dosage form of
potassium chloride that is used for the prevention and treatment of hypokalemia
(abnormally low potassium concentration in the blood). Hypokalemia can be caused
by a number of conditions including the use of diuretics. We promote K-Dur(R)
under an agreement with Schering-Plough.
Nitro-Dur(R)
Nitro-Dur(R) transdermal patch is an organic nitrate formulation used for
the treatment of angina pectoris due to coronary artery disease. The product
comes in five different dosages and is designed to provide continuous
controlled-release of nitroglycerin through intact skin. We promote Nitro-Dur(R)
under an agreement with Schering-Plough.
DERMATOLOGY PRODUCTS
We market and develop prescription products for the treatment of acne and
other dermatological conditions. The following provides a more detailed
description of such products.
Doryx(R)
Doryx(R), our proprietary brand of doxycycline, is an orally administered
antibiotic capsule containing enteric-coated pellets of doxycycline hyclate. It
may be a useful adjunctive therapy in the treatment of severe acne. Doryx(R) was
introduced in 1986 by Warner-Lambert. We acquired Doryx(R) in July 1997. In
September 1999 we repositioned the product for the dermatology segment and
directed our dermatology sales force to promote Doryx(R) to targeted physicians.
Lotrisone(R) Cream
Lotrisone(R) cream contains a combination of clotrimazole, USP, a synthetic
antifungal agent, and betamethasone dipropionate, USP, a synthetic
corticosteroid for dermatological use. It is indicated for the topical treatment
of certain dermal infections. We promote Lotrisone(R) under an agreement with
Schering-Plough.
Eryc(R)
Eryc(R), our brand of erythromycin, is an orally administered antibiotic
capsule containing enteric-coated pellets of erythromycin that protect the
erythromycin base from inactivation by gastric acidity. Dermatologists often
prescribe erythromycin as a lower cost alternative to minocycline and for
patients for whom tetracycline and penicillin derivatives are contraindicated.
Eryc(R) was introduced in 1981 by Warner-Lambert. We began selling Eryc(R) in
the first half of 1998.
COLLABORATIVE RELATIONSHIPS
In July 1998, we became responsible for developing and executing
promotional plans to improve the market performance of two Schering-Plough
brands: IMDUR(R), a long-acting nitrate for patients with angina, and K-Dur(R),
a potassium supplement. Under the original agreement with Schering-Plough, we
were compensated based on the market performance of both brands relative to
fixed sales targets. This agreement proved to be very rewarding financially and
was an important element in reducing our operating losses in the third and
fourth calendar quarters of 1998.
In January 1999, we modified our agreement with Schering-Plough, changing
the mix of products promoted by us to include K-Dur(R), NitroDur(R), a
nitroglycerine patch for angina and Lotrisone(R), an
antifungal/anti-inflammatory corticosteroid cream. This agreement generated
consistent revenue for us through the first three quarters of 1999, although at
lower levels than were earned under the original agreement.
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In November 1999, we again modified the terms of our agreement with
Schering-Plough. We will continue to promote the same three products, K-Dur(R),
NitroDur(R) and Lotrisone(R), through the year 2000. The agreement was changed
to provide a more direct link between our performance in influencing the market
share of the promoted brands and our compensation. We expect the current
arrangement with Schering-Plough to be a meaningful and consistent contributor
to our revenues during the year 2000.
PRODUCT DEVELOPMENT
Branded pharmaceutical products are marketed under proprietary brand names
and through programs designed to attract the loyalty of prescribing physicians.
Our current portfolio and development pipeline of branded products are targeted
at the fast-growing women's health category. We also maintain a presence in the
cardiology and dermatology segments. These segments are large and afford
attractive growth opportunities.
Through our in-house expertise in product development and regulatory
affairs and collaborations with corporate partners, we identify opportunities to
develop and launch additional branded pharmaceutical products. Our strategy is
to pursue products that represent improvements to existing pharmaceuticals
rather than creating new chemical entities. Improvements to existing products
generally involve less development and regulatory risk and shorter time lines
from concept to market. Where appropriate, we plan to utilize the expertise of
our collaborators in the development of new branded products. In our evaluation
of prospective product development projects, we expect to maintain a strong bias
towards projects that have the ability to produce meaningful financial results
in the near-term.
We also use our in-house expertise, as well as the technology and expertise
of our corporate collaborators, to develop improvements and line extensions for
existing and future branded products. Enhancements may take the form of modified
formulations, novel delivery methods or alternative dosages. Modifications of
existing products are expected to enable us to extend the proprietary position,
and therefore the value, of our various brands.
GENERIC PRODUCTS
Consistent with the launch of our branded product initiative to primarily
focus our business efforts on branded pharmaceutical products, we have
significantly decreased our generic product line to less than ten at December
31, 1999 from over seventy generics two years ago. We intend to continue to
reduce or eliminate our generic pharmaceutical business.
CUSTOMERS
Our customers include the nation's leading pharmaceutical wholesalers, drug
distributors and chain drug stores. We also sell certain products in the
government sector, both on the U.S. federal and state levels. Our three largest
customers are McKesson HBOC, Cardinal Health and Bergen Brunswig. During 1999,
McKesson HBOC accounted for approximately $11 million, or 21%, of our net sales,
Cardinal Health accounted for approximately $7 million, or 13% of our net sales,
and Bergen Brunswig accounted for approximately $5 million, or 9%, of our net
sales.
We derived 24% of our 1999 revenue from our agreement with Schering-Plough
under which we promote three Schering-Plough products.
TRADEMARKS, PATENTS AND PROPRIETARY RIGHTS
Due to our branded product focus, we consider our trademarks valuable
assets and actively manage our trademark portfolio, maintaining long-standing
trademarks as well as obtaining trademark registrations for new brands. We
police our trademark portfolio against infringement but there can be no
assurance that these efforts will be successful or that we will have adequate
remedies for any breach.
We believe that licenses from certain of our strategic collaborators to
patent rights relating to our products, as well as the technologies and
processes used to formulate and manufacture these products, are important to our
business. The success of these products may depend, in part, upon our ability
and the ability
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of our strategic collaborators to protect these patent rights. There can be no
assurance that we or our strategic collaborators will succeed in protecting
these patent rights, or that any patents or licenses will (a) protect us against
competitors with similar technologies, (b) not be infringed upon or designed
around by others, (c) not be challenged by others and held to be invalid or
unenforceable, or (d) not be terminated by a licensor pursuant to various terms
in such licenses or due to any breach.
We also rely on trade secrets and proprietary knowledge, which we generally
seek to protect by confidentiality, non-disclosure and assignment of invention
agreements with our employees, consultants, licensees and other companies. There
can be no assurance, however, that these agreements will not be breached, that
we will have adequate remedies for any breach or that our trade secrets will not
otherwise become known by competitors. In addition, there can be no assurance
that the aforementioned persons will not claim rights to intellectual property
arising out of their work.
COMPETITION
The pharmaceutical industry is highly competitive. Our branded products are
in competition with brands marketed by other pharmaceutical companies including
large, fully integrated concerns with financial, marketing, legal and product
development resources substantially greater than ours.
Our branded pharmaceutical products are or may become subject to
competition from generic equivalents. There is no proprietary protection for
some of the branded pharmaceutical products we sell. Generic substitutes for
some of our branded pharmaceutical products are sold by other pharmaceutical
companies which claim that their products provide equivalent therapeutic
benefits at a lower cost. In addition, governmental and other pressure to reduce
pharmaceutical costs may result in physicians prescribing products for which
there are generic substitutes. Increased competition from the sale of generic
pharmaceutical products may cause a decrease in revenue from our branded
products and could have a material adverse effect on our business, financial
condition and results of operations.
As the pharmaceutical industry is characterized by rapid product
development and technological change, our pharmaceutical products could be
rendered obsolete or made uneconomical by the development of new pharmaceuticals
to treat the conditions addressed by our products, technological advances
affecting the cost of production, or marketing or pricing actions by one or more
of our competitors. Our business, results of operations and financial condition
could be materially adversely affected by any one or more of these developments.
Our competitors may also be able to complete the regulatory process for new
products before we are able to do so and, therefore, may begin to market their
products in advance of our products. We believe that competition among both
branded and generic pharmaceuticals aimed at the markets identified by us will
be based on, among other things, product efficacy, safety, reliability,
availability and price. There can be no assurance that developments by others
will not render any product or technology we produce or may produce obsolete or
otherwise non-competitive.
GOVERNMENT REGULATION
FDA Requirements
The research, development and commercial activities relating to branded and
generic prescription pharmaceutical products are subject to extensive regulation
by U.S. and foreign governmental authorities. Certain pharmaceutical products
are subject to rigorous preclinical testing and clinical trials and to other
approval requirements by the FDA in the United States under the Federal Food,
Drug and Cosmetic Act and the Public Health Services Act and by comparable
agencies in most foreign countries.
The FDCA, the Public Health Act, the Controlled Substances Act, and other
federal statutes and regulations govern or influence all aspects of our
business. All pharmaceutical marketers are directly or indirectly (through third
parties) subject to regulations that cover the manufacture, testing, storage,
labeling, documentation/record keeping, approval, advertising, promotion, sale,
warehousing, and distribution of pharmaceutical drug products. Non-compliance
with applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures, injunctive actions and criminal
prosecutions. In
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addition, administrative or judicial actions can result in the recall of
products, and the total or partial suspension of manufacture and/or
distribution. The government can also refuse to approve pending applications or
supplements to approved applications. The FDA also has the authority to withdraw
approvals of drugs in accordance with statutory due process procedures.
FDA approval is required before any dosage form of any new unapproved drug,
including a generic equivalent of a previously approved drug, can be marketed.
Certain drugs are not considered by the FDA to be "new" drugs and fall outside
of the typical FDA pre-marketing approval process. These drugs, referred to as
"grandfathered" products, generally were in use prior to the enactment of the
FDCA. Several of our products are being marketed in reliance upon their status
as grandfathered drugs. In addition, we have identified grandfathered drugs as a
potential source of opportunities to develop and launch new products. The FDA
has expressed the view that all prescription drugs should ultimately be subject
to pre-market clearance requirements. If the FDA adopts this stance it could
potentially affect products currently, or proposed to be, marketed as
grandfathered drugs. We cannot assure you that the FDA will not challenge the
grandfathered status of drugs including those marketed by the Company.
We cannot assure you that approval for our products will be granted by the
FDA on a timely basis, if at all. Even after approval is granted, we may be
required to undertake further studies to provide additional data on safety.
Also, the FDA regulations require post-marketing reporting of adverse drug
events of the drug product. The FDA may, at any time, take action to modify and
restrict the drug's product labeling or withdraw approval of the product, should
new information come to light about the safety of the drug product.
The FDA regulates post-marketing advertising and promotional activities to
assure that these activities are being conducted in conformity with statutory
and regulatory requirements. Failure to adhere to these requirements can result
in regulatory actions that could have an adverse effect on our business, results
of operations, and financial condition.
Manufacturers of marketed drugs must comply with current Good Manufacturing
Practice regulations and other applicable laws and regulations required by the
FDA, the Environmental Protection Agency and other regulatory agencies. Failure
to do so could lead to sanctions, which may include an injunction suspending
manufacturing, the seizure of drug products and the refusal to approve
additional marketing applications. We rely and will in the future continue to
rely upon third parties for the manufacture of our products. We seek to ensure
that any third party with whom we contract for product manufacturing will comply
with these regulations and laws. The FDA conducts periodic inspections to ensure
compliance with these rules. However, there can be no assurance that any such
third parties will be found to be in compliance with current standards. Any such
non-compliance could result in a temporary or permanent interruption in the
development and testing of our planned products or in the marketing of approved
products, as well as increased costs. Non-compliance could have a material
adverse effect on our business, results of operations and financial condition.
OTHER REGULATION
The Prescription Drug Marketing Act, which amends various sections of the
FDCA, imposes requirements and limitations upon drug sampling and prohibits
states from licensing wholesale distributors of prescription drugs unless the
state licensing program meets certain federal guidelines that include, among
other things, state licensing of wholesale distributors of prescription drugs
under federal guidelines that include minimum standards for storage, handling
and record keeping. In addition, the PDMA sets forth civil and criminal
penalties for violations of these and other provisions. Various sections of the
PDMA are still being implemented by the FDA and the states. Nevertheless, if we
or our distributors fail to comply with the requirements of the PDMA, such
failure could have a material adverse effect on our business, results of
operations and financial condition.
Medicaid, Medicare and other reimbursement legislation or programs govern
reimbursement levels, including requiring that all pharmaceutical companies
rebate to individual states a percentage of their revenues arising from
Medicaid-reimbursed drug sales. We believe that the federal and/or state
governments
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may continue to enact measures in the future aimed at reducing the cost of drugs
to the public. We cannot predict the nature of such measures or their impact on
our profitability.
We are subject to federal, state and local laws of general applicability,
such as laws regulating working conditions. In addition, we may be subject to
some liability for compliance with environmental laws by third party
manufacturers of our products. Compliance with such general laws and
environmental laws is not expected to have a material effect on our earnings,
cash requirements or competitive position in the foreseeable future. However, we
cannot assure you that changes to, or compliance with such laws will not have a
material effect on our earnings, cash requirements or competitive position.
Products marketed outside of the United States that are manufactured in the
United States are subject to certain FDA regulations, as well as regulation by
the country in which the products are sold. While we do not currently have plans
to market our products in other countries, we may do so from time to time.
MANUFACTURING AND SUPPLY
We contract with third parties for our entire product manufacturing
requirements and most of our products are manufactured by a single source.
Accordingly, we are dependent upon our contract manufacturers to comply with
regulatory requirements and to keep their facilities in good working order. To
ensure such compliance we conduct quality assurance audits of the contract
manufacturer's sites and batch records and other documents are examined to
determine compliance with FDA requirements and our specifications. However,
there can be no assurance that these contract manufacturers will be able to
manufacture our products without interruption, that these suppliers will comply
with their obligations under supply agreements with us, or that we will have
adequate remedies for any breach. In the event a supplier suffers an event that
would render it unable to manufacture our product requirements for a sustained
period, the resulting delay could have a material adverse effect on us.
The principal components used in our products are active and inactive
pharmaceutical ingredients and certain packaging materials. Certain components
may be available only from sole-source suppliers. In addition, the FDA must
approve suppliers of certain ingredients for our products. The development and
regulatory approval of our products are dependent upon our ability to procure
active ingredients and packaging materials from FDA approved sources. FDA
approval of a new supplier would be required if, for example, active ingredients
or such packaging materials were no longer available from the initially approved
source. The qualification of a new supplier could potentially delay the
manufacture of the drug involved. Arrangements with foreign suppliers are
subject to certain additional risks, including the availability of governmental
clearances, export duties, political instability, currency fluctuations and
restrictions on the transfer of funds.
Although we consider our sources of supply to be adequate, and to date, no
significant difficulty has been encountered in obtaining product materials,
there can be no assurance that we will continue to be able to obtain materials
as required or at reasonable prices. An extended inability to obtain materials
or significant price increases that cannot be passed on to customers could have
a material adverse effect on us.
PRODUCT LIABILITY
Product liability suits by consumers represent a continuing risk to firms
in the pharmaceutical industry. Although we carry product liability insurance,
we believe that no reasonable amount of insurance can fully protect against all
such risks due to the inherent risks associated with the production of
pharmaceuticals for human consumption. See "Risk Factors -- An increase in
product liability claims or product recalls could harm our business."
SEASONALITY
Our business, taken as a whole, is not materially affected by seasonal
factors.
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PERSONNEL
As of December 31, 1999, we had 313 full-time employees. None of our
employees are covered by a collective bargaining agreement. We believe that our
employee relations are satisfactory.
PROPERTIES
Our principal executive offices are located in Dublin, Ireland. In addition
our U.S. subsidiary, Warner Chilcott, Inc., leases approximately 24,000 square
feet in Rockaway, New Jersey under a lease that expires in 2004.
LEGAL PROCEEDINGS
Warner Chilcott is involved in litigation relating to claims arising out of
its operations in the normal course of business, including product liability
claims. In the opinion of Warner Chilcott's management, the litigation in which
Warner Chilcott is currently involved, individually and in the aggregate, is not
material to Warner Chilcott's business, financial condition or results of
operations.
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WARNER CHILCOTT
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
proxy statement. See "Risk Factors" for trends and uncertainties known to us
that could cause reported financial information to differ materially from future
results.
OVERVIEW
Warner Chilcott is a developer and marketer of branded prescription
pharmaceutical products in the United States. Our primary area of focus is the
large and growing women's health and urology therapeutic categories. We also
participate in the cardiology and dermatology categories. Through our national
sales force of over 260 representatives, we market branded pharmaceutical
products directly to physician specialists including obstetrician/gynecologists,
urologists, cardiologists and high-prescribing general/family practitioners. We
have an experienced management team with significant pharmaceutical industry
expertise, specifically in the marketing of prescription pharmaceutical brands.
An important part of our business strategy is to acquire established
branded pharmaceutical products and to increase their sales through enhanced
promotion targeted to high-prescribing physicians. We also internally develop
branded products as well as product line extensions for our existing products,
such as new formulations, dosages or new indications. Line extensions are
particularly valuable to us because they may enable us to extend the growth
potential of our brands.
We currently market a portfolio of branded products including: Natafort(R),
a prescription prenatal vitamin designed to improve patient compliance by virtue
of its smaller size relative to competing products; NataChew(TM), a prescription
strength chewable prenatal vitamin; Estrace(R), a hormone replacement vaginal
cream; Ovcon(R) 35 and Ovcon(R) 50, two oral contraceptives; Pyridium Plus(R),
an orally active urinary tract analgesic antispasmodic agent used for irritative
bladder conditions; Doryx(R), a broad spectrum antibiotic; LoCholest(R), a lipid
regulator for the reduction of LDL cholesterol levels; K-Dur(R), a sustained
release potassium supplement; Nitro-Dur(R), a nitroglycerin patch for the
treatment of angina; and Lotrisone(R), a topical combination
antifungal/corticosteroid. NataFort(R), NataChew(TM), Estrace(R), Ovcon(R) 35,
Ovcon(R) 50, Pyridium Plus(R), Doryx(R) and LoCholest(R) are products owned by
us; K-Dur(R), Nitro-Dur(R), and Lotrisone(R) are products owned by
Schering-Plough and promoted by us under an agreement with Schering-Plough.
As a result of our efforts to expand our branded products sales, gross
margins improved from 17.1% for the year ended December 31, 1997 to 28.5% for
the year ended December 31, 1998, to 43.0% for the year ended December 31, 1999
and from 39.1% for the three months ended March 31, 1999 to 65.1% for the three
months ended March 31, 2000. Branded products generally generate significantly
higher gross margins than generic products.
During the period from 1997 to the present, as part of our strategic plan,
we invested heavily in building our sales force. As a result, our selling,
general and administrative expenses increased significantly as a percentage of
our revenues. We began to build our sales force in early 1997 and ended that
year with 175 professionals. By the end of 1998 we had over 260 sales
representatives, and we ended 1999 with a sales force similar in size.
RECENT DEVELOPMENT
On February 15, 2000 we completed the acquisition of three branded
pharmaceutical products from Bristol-Myers Squibb for aggregate consideration,
as adjusted, of $175.1 million. The acquired products were: Estrace(R) cream, an
estrogen replacement therapy product, and Ovcon(R) 35 and Ovcon(R) 50, two oral
contraceptives. We financed the acquisition of the three products through the
sale on February 15, 2000 of $200.0 million of 12 5/8% senior notes due 2008.
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We have been promoting Estrace(R) cream and Ovcon(R) 35 since March 1999
under a promotion agreement with Bristol-Myers Squibb. As a result, we do not
expect to increase the size of our sales force, marketing or administrative
groups to support the acquisition of these brands.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 and 1999
Our first quarter total revenues of $26.1 million increased $5.0 million,
or 23.9%, as compared to the prior year period. During both the first quarter of
2000 and 1999 our revenues were generated from three sources: (1) sales of our
branded products, (2) marketing alliances, and (3) sales of generic products.
The driving force behind the increase in revenues was higher sales of branded
products, which increased 70.7% as compared to 1999.
Our branded product sales increased $5.9 million to $14.2 million from $8.3
million in the first quarter 1999. Combined sales of NataFort(R) and
NataChew(TM), our prenatal multi-vitamin lines, increased significantly from
1999. NataChew(TM), our chewable prenatal vitamin, was launched late in 1999.
Doryx(R) sales were also significantly higher in the current quarter as compared
to 1999. In February 2000 we acquired three branded pharmaceutical products from
Bristol-Myers Squibb for a purchase price of $175.1 million. The products
acquired were Estrace(R) cream Ovcon(R) 35 and Ovcon(R) 50. Sales of these newly
acquired branded products are included in our reported branded sales for the
first quarter 2000, and contributed $4.0 million of the increase in branded
product sales as compared to 1999. Sales of generic products of $3.4 million
declined $2.2 million, or 39.5%, from $5.6 million as we continued our planned
exit from this low-margin business.
Gross profit on product sales increased $6.0 million to $11.4 million, as
compared with $5.4 million in the first quarter of 1999, driven by a $3.7
million increase in total product sales and a significant improvement in the
average gross profit margin on those sales. Gross margin increased from 39.1% in
the year-ago quarter to 65.1% in the first quarter of 2000 due to the high
margins earned on the three products acquired from Bristol-Myers Squibb during
the quarter and high-margin branded products accounting for a greater percentage
of total product sales.
Marketing alliance and other revenue totaled $8.5 million in the quarter,
up $1.4 million, or 19.0%, from $7.2 million in 1999. In the first quarter of
2000, this revenue was generated from three sources: (1) royalties under our
promotion agreement with Schering Plough Corporation, (2) milestone and
royalties under our license agreement with Elan Corporation, plc for an extended
release nifedipine product, and (3) milestone and royalties under our agreement
with Medicis Pharmaceutical Corp. relating to a 75mg minocycline product. Under
the agreement with Schering Plough, we earn a fixed royalty plus incentive
amounts based upon the market share performance of three branded products:
K-Dur(R), Lotrisone(R) and Nitro-Dur(R). During the first quarter of 2000 we
earned incentive amounts on K-Dur(R) and Lotrisone(R). In March 2000 the
extended release nifedipine product received FDA approval and was launched in
the United States. The approval triggered a $2.0 million payment to us and with
the launch we began to accrue a royalty based upon U.S. net sales of the
nifedipine product. Also during the quarter, we achieved certain milestones
related to the 75mg minocycline product and continued to earn royalties based
upon Medicis' sales of the product. In the first quarter of 1999, marketing
alliance and other revenue was predominately comprised of royalties earned under
our promotion agreement with Schering Plough, $3.0 million earned by us as part
of our licensing of the extended release nifedipine product to Elan and a modest
royalty related to our promotion of two products, Estrace(R) cream and Ovcon(R)
35, for Bristol Myers Squibb.
Selling, general and administrative expenses of $12.6 million were 4.4%
higher than the $12.1 million incurred in the first quarter of 1999.
Administrative expenses were essentially flat compared with the prior year while
selling costs rose $0.5 million. Our field sales force was approximately the
same size in the first quarter of 2000 as in the year ago quarter. The increase
in selling cost was primarily the result of additional promotional expenses
incurred in support of the three products acquired from Bristol Myers Squibb
during the quarter and high sampling activity related to the launch of
NataChew(TM). Depreciation and amortization of $2.4 million was $1.0 million
higher than in the first quarter of 1999 primarily due to the amortization of
the intangible assets associated with the acquired Estrace(R) and Ovcon(R)
brands.
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Research and development costs of $0.5 million were down $0.3 million as
compared with the first quarter of 1999. The decrease in spending was due to the
timing of costs associated with the development of a 75mg minocycline product.
We incurred nearly $0.4 million of such costs in the first quarter of 1999. The
project was completed in the third quarter of 1999 and, accordingly, we did not
incur any costs on this project in the first quarter of 2000. The 75mg
minocycline project was successful and the FDA approved the product in September
1999. That approval triggered milestone and royalties included in marketing
alliance and other revenue beginning in the third quarter of 1999 and continuing
into 2000 as discussed above. We continue to focus on product development
projects with near-term revenue potential and relatively low finding
requirements including, for example, line extensions of our branded products.
Interest income of $0.6 million was consistent with the prior year period.
Interest expense of $3.7 million increased $2.9 million as compared to the prior
year period. This increase was primarily due to the interest expense related to
the issuance in mid-February 2000 of $200 million of 12 5/8% senior notes due
2008. Interest expense related to our working capital credit facility decreased
$0.3 million due to our lower outstanding balance in the current quarter.
Following the issuance of the senior notes, borrowings under our working capital
credit facility during the remainder of the quarter were minimal. Also in
mid-February 2000 we prepaid the outstanding principal balance due on our senior
subordinated discount notes due 2001. Due to this early redemption, related
interest expense for the first quarter 2000 was $0.2 million lower than the
interest expense in the 1999 period. The extraordinary expense item of $0.7
million includes the $0.5 million penalty we incurred in connection with early
redemption of the senior subordinated discount notes, and the write-off of
deferred financing costs.
For the first quarter of 2000 we posted our first quarterly net income of
$0.6 million, or $0.05 per ordinary share on a diluted basis. This is an
improvement of $2.6 million compared to a net loss of $2.0 million, or $0.16 per
ordinary share on a diluted basis, for the same period in 1999. Improved gross
profit on product sales and increased revenues from marketing alliances more
than offset the increased costs associated with our newly acquired Estrace(R)
and Ovcon(R) brands. Income before the extraordinary item was $1.3 million, or
$0.10 per ordinary share on a diluted basis.
Year ended December 31, 1999 and 1998
Total revenue for the year ended December 31, 1999 was $74.0 million
compared to $64.9 million for the year ended December 31, 1998, an increase of
$9.1 million or 14.1%. The increase in revenue was comprised of an $18.3 million
increase in branded product sales and an $8.4 million increase in market
alliance and other revenue, offset by a decline in generic product sales of
$17.6 million.
Sales of branded products more than doubled to $34.8 million as compared to
$16.4 million in 1998. NataFort(R) and Doryx(R) sales increased significantly
over the prior year. The launch of two branded products during 1999, Pyridium
Plus(R) and NataChew(TM) also contributed to the improved branded product sales.
Although we sold Vectrin(R) in September 1999 and recorded less than nine
month's sales, Vectrin(R) sales in the year ended December 31, 1999 were
comparable with the full year's sales recorded in 1998. Generic product sales of
$13.8 million decreased $17.6 million, or 56.2%, from $31.4 million in 1998 as
we continued our planned exit from this low-margin business.
Gross profit on product sales increased $7.3 million to $20.9 million from
$13.6 million in 1998 due to a significant improvement in gross profit margin.
Gross profit margin on product sales was 43.0% in 1999 as compared to 28.5% in
1998. This improvement reflects our expanded branded product portfolio,
increased branded product sales and the planned decline in lower-margin generic
product activities.
Marketing alliance and other revenue of $25.4 million increased $8.4
million, or 49.3%, from $17.0 million in 1998. Part of this increase was the
result of us licensing our rights to an extended-release nifedipine product to
Elan in exchange for $7.0 million of payments in 1999. We began to earn
additional milestone and royalty revenues under the nifedipine license agreement
in March 2000 when the FDA approved the product. Revenue earned under our
promotion agreement with Schering-Plough increased in 1999 as compared to 1998.
However, we began promoting products for Schering-Plough in the third quarter of
1998 and, therefore, earned royalties from this activity for only half of 1998
compared to a full year in 1999. Also contributing to
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the overall increase in marketing alliance and other revenue were
royalty/milestone revenues generated in connection with our sale of the
Vectrin(R) product line in September 1999. These increases were slightly offset
by a decline in royalty revenue we earned associated with a product called
IS5MN. We licensed our rights to this product to Elan in late 1998 and
terminated the agreement in early 1999 as significant generic competition
reduced the value of the agreement to a nominal amount.
Selling, general and administrative expenses increased $4.7 million, or
11.3%, to $46.4 million as compared to $41.7 million in 1998. Costs related to
the expansion of our sales force from an average of 155 representatives in 1998
to over 260 in 1999 were the main factor contributing to the increased spending
level over 1998. Advertising and promotion expenses increased $0.4 million due
to marketing efforts for two products launched in 1999, Pyridium Plus(R) and
NataChew(TM), substantially offset by decreased promotion for our existing
products. General and administrative expenses in 1999 were consistent with 1998.
Increased spending to strengthen our administrative staff was offset by
decreased consulting and outside service costs. A major factor in the decline of
legal costs in 1999 compared with 1998 was the reduction in legal fees related
to litigation of a patent claim associated with the extended-release nifedipine
product. We licensed our rights to the nifedipine product to Elan in the first
quarter of 1999 and were not responsible for litigation costs thereafter.
Research and development costs of $3.1 million were consistent with 1998 as
we continued to focus on development projects with near-term revenue potential
and relatively low funding requirements including, for example, line extensions
of our branded products. Interest income of $2.3 million declined $0.4 million
due to slightly lower investment results. Overall interest expense of $3.0 was
consistent with 1998. Increased interest costs related to our senior
subordinated discount notes were offset by decreased interest costs related to
our working capital credit facility. Our average borrowings under our credit
facility declined compared with 1998 due to increased working capital efficiency
and the proceeds from the sale of the Vectrin(R) product assets in September
1999.
In September 1999 we recognized a gain of $2.7 million on the sale of our
Vectrin(R) minocycline HCL product line. At closing, we received $11.0 million
of cash in exchange for all the tangible and intangible assets associated with
the Vectrin(R) brand including inventory, samples and the related abbreviated
new drug application (ANDA). Under terms of the agreement, we also received
rights to possible royalty and milestone payments. Beginning in the fourth
quarter of 1999 we began to earn both royalties and milestone payments and those
amounts are included under the caption "Marketing alliance and other revenue".
The net loss for the year ended December 31, 1999 decreased $13.6 million
to $6.7 million as compared to $20.3 million for the prior year. Improved gross
profit on product sales, increased marketing alliance and other revenue and the
gain recognized on the sale of the Vectrin(R) product line significantly
exceeded the increase in field selling costs. Basic and diluted loss per
ordinary share for the year decreased to ($0.54) from ($1.64) on a similar
number of shares outstanding.
Years Ended December 31, 1998 and 1997
Our total revenue for the year ended December 31, 1998 declined 14.4% to
$64.9 million from $75.8 million for the year ended December 31, 1997. Our sales
of branded products during the year increased 97.5% to $16.4 million from $8.3
million for the prior year. This increase was due to our launch of NataFort(R)
and increased sales of both Vectrin(R) and Doryx(R) partly offset by a decline
in sales of LoCholest(R). We began selling NataFort(R) in December 1997;
however, meaningful sales of the product began in the first quarter of 1998. We
de-emphasized LoCholest(R) in mid 1998 in anticipation of the promotion
agreement with Schering-Plough. Sales of non-differentiated generic products
during 1998 declined $36.1 million or 53.5% to $31.4 million due to the
out-licensing of our generic minocycline product to Barr Laboratories beginning
in the fourth quarter of 1997 and decreased emphasis on generic products in
favor of our branded offerings.
We generated gross profit on product sales of $13.6 million for the year
ended December 31, 1998 as compared to $13.0 million for the year 1997. Our
gross margin for branded and generic products sales increased from 17.1% to
28.5% during the year ended December 31, 1998. Our improved gross margins
reflect our increased focus on higher-margin branded products and this
improvement would have been greater if not
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for unfavorable inventory adjustments associated with our non-differentiated
generic business and returns of short-dated branded goods during the year.
Revenues from marketing alliances totaled $17.0 million for the year and
included revenues from the promotion of Imdur(R) and K-Dur(R) for
Schering-Plough, earnings from our license of rights to IS5MN and royalties on
sales of generic minocycline under an agreement with Barr Laboratories. Revenues
from the marketing alliance with Schering-Plough for Imdur(R) were negatively
impacted during the fourth quarter of 1998 due to generic product competition.
This generic competition also affected the royalties the Company earned on sales
of IS5MN.
Selling, general and administrative expenses totaled $41.7 million for the
year compared to $23.6 million in 1997, an increase of 76.6%. The most
significant factor contributing to the increase was the expansion of our sales
force. The sales force averaged 155 sales representatives in 1998 compared with
less than 40 in 1997. Advertising and promotion expenses increased by $0.5
million as we aggressively promoted three products during 1998 and only two
during 1997. General and administrative expenses increased by $3.5 million
compared with the prior year, $1.7 million related to additions made to
strengthen the administrative staff and $1.7 million due to significant
increases in legal costs related to litigation of our FDA filings for two
complex generic products, an extended-release nifedipine product and terazosin.
Research and development expenses for the year were down from $6.5 million
in 1997 to $3.2 million in 1998. Our R&D strategy shifted in mid 1997 to focus
on development projects with near-term revenue potential and relatively low
funding requirements including, for example, line extensions of our branded
products.
Interest income increased from $1.5 million in 1997 to $2.6 million in 1998
due to the interest income earned on the net proceeds from our IPO and related
financings in August of 1997. Interest expense in the year decreased to $3.0
million as compared to $7.3 million in 1997. This favorable result reflects the
exchange and conversion of $49.5 million of senior subordinated discount notes
into ordinary shares in June 1997.
The net result of the factors outlined above was that the net loss for the
year ended December 31, 1998 decreased by 28.5% to $20.3 million as compared to
a net loss of $28.4 million for the year 1997. Increased sales of branded
products combined with revenue from marketing alliances more than offset the
increased costs of our sales force and increased administrative expense. Basic
and diluted loss per ordinary share for the year decreased to ($1.64) on 12.4
million shares from ($3.39) on 8.4 million shares. The increase in the weighted
average ordinary shares outstanding reflects the issuance of ordinary shares in
connection with our initial public offering in August 1997 and related
financings, and the exchange and conversion of senior subordinated discount
notes for ordinary shares.
LIQUIDITY AND CAPITAL RESOURCES
The first quarter of 2000 is the first reporting period in which we
generated a positive cash flow. Our cash flow (which we define as net
income/loss plus depreciation and amortization) in the quarter was $3.0 million
as compared with a cash outflow of $0.6 million in the first quarter of 1999.
This improvement was the result of sales growth from the acquisition of the
Estrace(R) cream and Ovcon(R) brands, sales growth for our existing products and
increased gross profit margins on product sales. Offsetting some of these gains
were modest increases in our selling expenses, mainly for promotion of our
expanded portfolio of products, and increased interest costs associated with the
financing of the acquisition of the Estrace(R) and Ovcon(R) brands.
The most significant event during the quarter was the acquisition of the
Estrace(R) cream and Ovcon(R) brands from Bristol-Myers Squibb for an initial
purchase price of $180.0 million. The acquisition was funded through the
issuance by Warner Chilcott, Inc., our wholly owned U.S. operating subsidiary,
of $200.0 million face amount of 12 5/8% senior notes at discount of $3.7
million to yield 13.0%. Interest payments on the senior notes are due
semi-annually in arrears on each February 15th and August 15th beginning August
15th 2000. Warner Chilcott, plc, the parent company of Warner Chilcott, Inc.
unconditionally guaranteed the senior notes on a senior basis.
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Proceeds from the issuance of the senior notes, net of the discount and an
estimated $8.0 million of transaction expenses, were approximately $188.3
million. The net proceeds, together with some of our cash on hand, were used:
(i) to acquire the Estrace(R) and Ovcon(R) brands, (ii) to prepay all $10.5
million of the senior subordinated discount notes due 2001, plus a prepayment
penalty of $0.5 million on those notes and (iii) to repay amounts outstanding
under our working capital facility.
On February 28, 2000 Warner Chilcott, Inc. amended its working capital
facility to reduce the maximum amount available from $30.0 million to $10.0
million. In connection with the amendment of the working capital facility the
parent company, Warner Chilcott, plc, unconditionally guaranteed Warner
Chilcott, Inc.'s obligation under the working capital facility. At March 31,
2000 no amounts were outstanding under the working capital facility. We intend
to utilize the working capital facility to provide for short-term liquidity
requirements and expect average borrowings under the facility to be modest.
In March 2000 the purchase price we paid for the Estrace(R) and Ovcon(R)
brands was reduced by $4.9 million from $180.0 million to $175.1 million. Under
the terms of the asset purchase agreement the purchase price was subject to
downward adjustment based on estimates of the amount of inventory of the
acquired brands held by wholesalers and distributors as of January 31, 2000. The
$4.9 million adjustment was recorded as of March 31, 2000 and on April 13, 2000
we received payment of that amount from Bristol-Myers Squibb.
The acquisition of the Estrace(R) and Ovcon(R) brands was accounted for as
a purchase and the $175.1 million purchase price was allocated as follows:
$168.0 million to intangible assets identified with the brands and $7.1 million
to goodwill. No hard assets were acquired in the transaction. Both the
intangible assets and goodwill are being amortized over 20 years, their
estimated useful lives.
Our investment in adjusted working capital (current assets other than cash
and equivalents minus current liabilities) increased from $5.5 million at
December 31, 1999 to $14.6 million at March 31, 2000. Accounts receivable
increased by $10.2 million due to several factors including: (1) the increased
level of sales activity, (2) our granting of extended terms to ensure that
NataChew(TM) obtained adequate distribution in its launch phase, (3) the timing
of amounts earned under our license agreements with Elan and Medicis, and (4)
the inclusion at March 31st of the $4.9 million receivable from Bristol-Myers
Squibb arising from the adjustment to the purchase price described above.
Inventories increased $2.1 million mainly due to the purchase of inventory to
support the sales of Estrace(R) cream and Ovcon(R), but also reflecting the
higher investment in inventory required to support the growth in sales of our
other products. Current liabilities increased $3.7 million from December 31,
1999 due to the interest accrual for the 12 5/8% senior notes and the timing of
purchases of inventory to support our sales growth, which were offset in part by
a decrease in our incentive plan accrual. We accrue the cost of our incentive
plans throughout the year with the payout made in the first quarter of the
following year. Accordingly, the incentive accrual is near its peak at year-end.
We ended the quarter with $36.1 million of cash on hand as compared with
$51.0 million at December 31, 1999. We became profitable and cash flow positive
from operations during the quarter and expect to continue to be profitable and
cash flow positive. We intend to fund our future liquidity needs through a
combination of cash generated from operations, cash balances on hand and
availability under our working capital facility. We believe that these sources
will be sufficient to fund our anticipated working capital needs for the
foreseeable future. However, in the event that we make significant future
acquisitions, we may be required to raise additional funds through the issuance
of additional debt or equity securities.
As a result of the consummation of the transaction, the holders of Warner
Chilcott's senior notes will have the right to require Warner Chilcott to
repurchase their notes at a purchase price of 101% of their par value. There are
$200.0 million in principal amount of senior notes outstanding. While this
obligation will not be triggered until the consummation of the transaction,
Warner Chilcott will potentially be required to repurchase the senior notes for
an aggregate cash consideration of $202.0 million. Under the transaction
agreement, Galen is required to ensure that Warner Chilcott has sufficient
financial resources with which to repurchase all of the senior notes in the
event the senior note holders require Warner Chilcott to repurchase their senior
notes in connection with the completion of the transaction. Galen intends to
have sufficient cash and available borrowings to satisfy such repurchase
obligation if the senior note holders require Warner
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Chilcott to repurchase their senior notes and is in discussions with certain
financial institutions to provide additional debt financing to Galen, if
required.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1999 we had available net operating loss carryforwards for
United States Federal income tax reporting purposes of approximately $62 million
which begins expiring in 2011. At December 31, 1999 we had net operating loss
carryforwards for state income tax reporting purposes of approximately $40
million which expire at various dates. Ultimate utilization or availability of
such net operating losses and certain deferred tax assets may be limited if a
significant change in ownership occurs, as defined by rules enacted with the
United States Tax Reform Act of 1986. We did not pay any Federal income taxes in
1999, 1998 or 1997.
INFLATION
Inflation had no material impact on our operations during the year ended
December 31, 1999 or during the three months ended March 31, 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which becomes effective for our financial
statements beginning January 1, 2001. SFAS No. 133 requires a company to
recognize all derivative instruments as assets or liabilities in its balance
sheet and measures them at fair value. We do not expect the adoption of this
Statement to have a material impact on our financial statements.
In December 1999 the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 requires us to adopt its guidance not later than the second quarter of
its fiscal year beginning after December 15, 1999 through a cumulative effect of
a change in accounting principle calculated as of January 1, 2000. We do not
expect adoption of this standard to have a material impact on our financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our exposure in market risk of financial
instruments contains forward-looking statements. Actual results may differ
materially from those described.
Our holdings of financial instruments are comprised of U.S. corporate debt,
foreign corporate debt, U.S. and state government debt, foreign
government/agency guaranteed debt, bank deposits and certificates of deposit,
and commercial paper. All such instruments are classified as securities
available for sale. We do not invest in portfolio equity securities or
commodities or use financial derivatives for trading purposes. Our debt security
portfolio represents funds held temporarily pending use in our business and
operations. We manage these funds accordingly. We seek reasonable assuredness of
the safety of principal and market liquidity by investing in rated fixed income
securities while at the same time seeking to achieve a favorable rate of return.
Our market risk exposure consists principally of exposure to changes in interest
rates. Our holdings are also exposed to the risks of changes in the credit
quality of issuers. We invest in the shorter-end of the maturity spectrum, and
at March 31, 2000 100% of such holdings matured in one year or less.
Our senior notes bear interest at a fixed rate of 12 5/8% per annum, paid
semi-annually. They mature in 2008, but are not redeemable at the option of
Warner Chilcott until 2004. At such time, they will be redeemable at a premium.
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DESCRIPTION OF GALEN'S BUSINESS
OVERVIEW
Galen Holdings PLC is an integrated pharmaceutical company, based in
Northern Ireland. Galen develops, manufactures and supplies branded prescription
pharmaceutical products, and provides ethical pharmaceutical services to the
pharmaceutical industry in both Europe and the United States.
Galen's research and development activity focuses on the development of
proprietary drug delivery applications and technologies. Galen has a pipeline of
several proprietary products in development for the women's healthcare market
including an intravaginal ring ("IVR") drug delivery system that is designed to
deliver a consistent dose of a range of medicines over extended periods of time.
Galen's ethical pharmaceutical products business, which includes Galen's
research and development activities, focuses on the analgesia, gastroenterology,
respiratory and anti-infectives therapeutic areas. This business manufacturers
and markets prescription medicines to healthcare professionals in these areas.
In addition, it manufactures and supplies intravenous and other sterile
solutions primarily for human use.
Galen's strength in developing innovative formulations to create a strong
prescription base in targeted markets is enhanced by work carried out on new
drug delivery systems, in particular the IVR. The IVR's mechanism of drug
delivery demonstrates a number of benefits, including pharmacokinetic and
compliance-related, over current methods. The IVR is capable of releasing one or
more drugs at a constant rate, eliminating the peaks and troughs of levels of
drug in the blood which characterize traditional forms of drug delivery, such as
tablets and transdermal patches. The IVR system is effective for up to three
months and can be inserted and removed by the patient.
The ethical pharmaceutical services business supplies and distributes
clinical trial materials internationally, operates a drug reconciliation
business and designs and programs computer-based interactive voice response
systems to permit the more efficient management of the clinical trials process
for international pharmaceutical and biotechnology companies. This services
business also provides a "bench-to-pilot-scale" specialty chemical synthesis
service for research-based pharmaceutical businesses through its chemical
synthesis division which comprises SynGal and QuChem Ltd., a 76%-owned
subsidiary of Galen based at The Queen's University of Belfast.
Galen reports on a fiscal year ended September 30. For fiscal 1999, Galen
reported turnover of [pound sterling] 67.0 million, representing an increase of
37.1% over annual turnover of [pound sterling] 48.9 million for fiscal 1998. In
fiscal 1999, the ethical pharmaceutical products business reported turnover of
[pound sterling] 38.6 million, which represented a 19.0% increase over the
previous financial year and accounted for 57.6% of Galen's turnover from
continuing operations. In fiscal 1999, the ethical pharmaceutical services
business reported turnover of [pound sterling] 28.4 million, which represented a
73% increase over the previous financial year.
HISTORY AND OWNERSHIP
Galen Holdings PLC is a public limited liability company which is organized
under the laws of Northern Ireland. Galen was floated on the London Stock
Exchange in July 1997 and the Dublin Stock Exchange in September 1997. Prior to
flotation, Galen was wholly-owned by Dr. Allen McClay, Dr. John King and Mr.
Geoffrey Elliott, directors of Galen. These three individuals along with the
Galen Employee Trust currently have aggregate holdings representing 52.5% of
Galen's current issued share capital. In addition, The McClay Trust, of which
Messrs. McClay, King and Elliott are trustees, holds 2.3% of Galen's issued
share capital. The McClay Trust is independent of Galen and is intended to
promote research and academic studies in Chemistry and Pharmacy at The Queen's
University of Belfast.
The original prescription pharmaceutical marketing operation established by
Dr. Allen McClay in 1968 has developed into an integrated pharmaceutical company
both organically and by acquisition. Galen established production activities in
1977 when the manufacturing facility at Craigavon, Northern Ireland became
operational. In 1988, Galen acquired control of Ivex, which comprises the
sterile solutions division of Galen. Galen began its involvement in the
manufacture of controlled-release IVRs in 1989. Clinical trials
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services (CTS) were offered to other pharmaceutical companies for the first time
in 1989, when Galen established the CTS division. In 1997, Galen expanded its
clinical trials service operations with the establishment of a CTS facility in
Pennsylvania through Galen Incorporated, a US subsidiary. This was Galen's first
pharmaceutical services facility in the United States and was opened to meet the
needs of an increasingly global marketplace.
Galen commenced construction of its chemical synthesis division (SynGal) in
1996. SynGal commenced trading in 1999 and recently began operating from a new,
specially constructed facility at Craigavon, Northern Ireland.
In 1997, Galen acquired 76% of QuChem Ltd., a custom chemical synthesis
company operated in partnership with The Queen's University of Belfast. QuChem
Ltd carries out contract chemical research, including route and process
optimisation, custom synthesis and chemical analysis and is also part of its
chemical synthesis services division.
During fiscal 1999, Galen acquired a drug reconciliation business of J Dana
Associates Inc. and Interactive Clinical Technologies Inc. ("ICTI") in New
Jersey in order to expand its customer base, strengthen existing services and
extend the range of services offered by CTS in the United States. ICTI presently
operates from the east and west coast of the United States and established an
operation outside London recently to service the European market. Also, during
this period, Galen acquired the Bartholomew Rhodes group of companies, which
provides Galen with further products in the analgesic, respiratory and
cardiovascular areas.
BUSINESS LINES AND ORGANIZATION
Galen's ethical pharmaceutical products business operates through two
manufacturing divisions, the Galen division and the sterile solutions division.
The Galen division manufactures and markets prescription medicines in the United
Kingdom and Ireland across a number of therapeutic areas, including analgesia,
gastroenterology, respiratory, cardiovascular and anti-infectives. The sterile
solutions division manufactures a range of specialized sterile products and
supplies them, primarily to third party pharmaceutical companies.
Galen's ethical pharmaceutical services business comprises the CTS
division, which includes CTS operations in Europe and the United States and
ICTI, and the chemical synthesis division comprising SynGal and QuChem Ltd. CTS,
with operations in Northern Ireland and the United States, offers a global
service to pharmaceutical companies which outsource the manufacture, packaging
and distribution of both active products and placebos to targeted clinical trial
patients. ICTI uses computer-based interactive voice response systems to permit
more efficient management of the clinical trials process. SynGal offers
pilot-plant scale custom synthesis service of specialized pharmaceutical and
other high technology chemicals. SynGal's services are complemented by those of
QuChem Ltd., which carries out developmental and bench-scale custom synthesis
work.
ETHICAL PHARMACEUTICAL PRODUCTS
Galen Division
The Galen division manufactures and markets branded and non-branded
prescription medicines and provides specialized manufactured products under
contract for other pharmaceutical companies. Prescription medicine and
speciality manufacturing developed during fiscal 1999 through the purchase of
the products of the Bartholomew Rhodes group of companies which provide products
in the analgesic, respiratory and cardiovascular therapeutic categories. In
addition to manufacturing facilities for tablet, capsule and non-sterile liquid
formulations, the Galen division has two dedicated antibiotic suites for the
production of cephalosporin and penicillin products. These facilities, situated
at Craigavon, Northern Ireland, are approved by the UK Medicines Control Agency
("MCA").
The Galen division sells over 50 products, primarily in the United Kingdom
and Ireland, and has a developing export business. The marketed product range is
focused on the analgesia, gastroenterology,
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respiratory and anti-infectives therapeutic areas, which account for
approximately 40 of the Galen division's products.
Analgesic Products. The Galen division markets twelve products in this
area. Major analgesic products include:
<TABLE>
<CAPTION>
BRAND NAME CHEMICAL NAME(S) INDICATION
- ---------- -------------------------------------------------- -----------------------
<S> <C> <C>
Kapake(R) Tablets paracetamol 500mg/codeine phosphate 30mg Moderate to severe pain
Kapake(R) Insts(R) paracetamol 500mg/codeine phosphate 30mg Moderate to severe pain
Tramake(R) Capsules tramadol hydrochloride 50mg Moderate to severe pain
Tramake(R) Insts(R) tramadol hydrochloride 50mg and 100mg Moderate to severe pain
DF118(R) Tablets* dihydrocodeine tartrate 30mg Moderate to severe pain
Paramol(R) Tablets* paracetamol 500mg/dihydrocodeine tartrate 10mg Mild to moderate pain
</TABLE>
- ---------------
* These Trademarks are used in Ireland with the permission of Glaxo Wellcome.
Kapake(R) and Tramake(R) account for the majority of Galen's sales in the
analgesic therapeutic area. Kapake(R) accounted for [pound sterling] 8.2 million
($12.1 million) of turnover for fiscal 1999 (12.3% of annual turnover) compared
to [pound sterling] 7.9 million for fiscal 1998 (16.3% of annual turnover). In
the same periods Tramake(R) accounted for [pound sterling] 0.7 million ($1.0
million) and [pound sterling] 0.4 million of Galen sales respectively. The Galen
division's approach to the analgesic market is to provide products based on
established active ingredients to treat pain of varying severity. Major line
extension formulations for Kapake(R) and for Tramake(R) have been launched
recently in the United Kingdom and are in the final stages of registration in
Ireland. A novel controlled-release combination analgesic for the treatment of
night pain and arthritis is currently in registration in the United Kingdom with
its launch expected in 2001.
In the year ended December 31, 1999, the UK market for non-narcotic
analgesic products was worth approximately L185.6 million ($273.4 million),
which represented a growth rate of 14% over 1998. Galen is ranked sixth (in
terms of sales) out of the companies servicing this market in the United
Kingdom.
A number of products compete with Kapake(R) and Tramake(R), including
Solpadol, Tylex and Zydel.
Gastroenterology. The Galen division markets eight gastroenterology
products. The primary focus for Galen in this market is in the prescription
laxative sector, which, in the year ended December 31, 1999, was worth
approximately [pound sterling] 66.1 million ($97.4 million) in the United
Kingdom. Galen is ranked third out of the companies servicing the laxative
sector in the United Kingdom. The Galen division's strategy in this sector is to
provide both bulk forming and stimulant laxative products. Major
gastroenterological products include:
<TABLE>
<CAPTION>
BRAND NAME CHEMICAL NAME(S) INDICATION
- ---------- ------------------------------- -------------------------------
<S> <C> <C>
Manevac(R) granular laxative Relief of constipation
Ailax(R) danthron liquid formulation Relief of constipation
Capsuvac(R) danthron solid formulation Relief of constipation
Ursogal(R) Tablets and Capsules ursodeoxycholic acid Treatment of gallstones
</TABLE>
Respiratory Products. The Galen division markets twelve respiratory products.
Major respiratory products include:
<TABLE>
<CAPTION>
BRAND NAME INDICATION
---------- ----------------------------
<S> <C>
Galenphol(R) linctus and Galcodine(R)
linctus Relief of unproductive cough
Galpseud(R) linctus and tablets Systemic nasal decongestant
</TABLE>
Although these respiratory products have been particularly important to the
Galen division over the past fifteen years they represented only 2.9% of fiscal
1999 sales. Galen does not anticipate further growth of product sales and is not
planning development of any new products in this therapeutic area.
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In the year ended December 31, 1999, the UK market for respiratory
products, in the sectors where Galen markets products, was worth approximately
[pound sterling] 9.1 million ($13.4 million). Galen is ranked first out of the
companies servicing the prescription cough sedative sector and second out of the
companies servicing the systemic nasal decongestant sector in the United
Kingdom.
Several companies produce respiratory products which compete with Galen's
product portfolio in this therapeutic area, including Warner Lambert, Wyeth and
Boehringer Ingelheim.
Anti-infective Products. Galen has two dedicated antibiotic suites for the
manufacture and development of cephalosporin and penicillin products. Whilst the
Galen division markets these products in the United Kingdom and Ireland, its
principal marketing focus is predominantly the European market. Galen's sales of
cephalosporin and penicillin antibiotics were [pound sterling] 4.2 million (or
$6.2 million) in fiscal 1999, an increase of 84% over sales in the same period
in 1998.
In the year ended December 31, 1999, the antibiotic market in the United
Kingdom for broad spectrum penicillins and cephalosporins was worth
approximately [pound sterling] 95.1 million ($140.0 million).
Sterile Solutions Division
The sterile solutions division manufactures and supplies intravenous and
other sterile solutions, primarily for human use. A sterile manufacturing
facility at Larne, Northern Ireland includes in-house manufacturing facilities
for flexible PVC bags, which contain the solutions, in volumes from 50 ml to 5
liters.
The focus of the division is on the development and manufacture of
specialized products, chiefly for sales to third party pharmaceutical companies.
Examples of such products include solutions for use in dialysis,
haemofiltration, blood fractionation and eye surgery. Customers of the sterile
solutions division include multinational pharmaceutical companies such as Ciba
Vision Ophthalmics, Gambro, Haemonetics and Hospal. Galen plans to expand the
sterile solutions division by targeting market segments in order to maximize the
return from the division's technology base.
The sterile solutions division has recently withdrawn from the supply of
commodity intravenous infusions to the British National Health Service, which
was historically its largest market.
RESEARCH AND PRODUCT DEVELOPMENT
During fiscal 1999 Galen invested [pound sterling] 4.0 million in research
and development, a 30.0% increase on the previous year. Galen's research and
development activities are centered on its ethical pharmaceutical products
business. Research and development at Galen is directed towards the development
of proprietary products rather than new chemical entity research. Galen has a
dual research and development strategy based on the development of controlled
release technology (such as the IVR) and other drug delivery systems and the
development and co-development of products to grow Galen's core prescription
business in the United Kingdom and Ireland and specialty manufacture.
Galen markets a number of products that it has co-developed with companies
such as Ciba Vision, Gambro and Haemonetics. These specialty manufactured
products have allowed Galen to broaden the range of products that it offers,
particularly sterile products.
Research
Galen coordinates its research and development of products through a
scientific department that serves pharmaceutical and clinical research groups.
Pharmaceutical development is carried out in Northern Ireland at dedicated
facilities at Larne, Northern Ireland (IVR applications and sterile fluids) and
Craigavon, Northern Ireland (oral and topical dosage forms). In addition, Galen
has developed close links with the School of Pharmacy at The Queen's University
of Belfast, with which it has jointly established a pharmaceutical drug delivery
technology laboratory for research on new drug delivery systems.
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Current drug delivery research and development is focused on developing IVR
applications, oral controlled release products and proprietary topical drug
delivery technology based on the enhanced skin penetrative properties of
eutectic mixtures of pharmacologically active agents.
Research and Development Portfolio
Intravaginal Drug Delivery. Intravaginal drug delivery is an example of
transmucosal administration which is a relatively unexploited form of drug
delivery system. In late 1989, Galen became involved in the manufacture of the
IVR. The IVR consists of a silicone ring in which a core containing an active
drug is embedded. The size of the core determines the rate at which the drug is
released, and the use of multiple cores can provide simultaneous release of more
than one drug. The IVR is capable of releasing drug(s) at a constant (zero
order) rate which removes the peaks and troughs in blood level(s) that can be
associated with conventional forms of delivery such as tablets and transdermal
patches. Vaginal delivery also avoids the first pass metabolism which can
inhibit or preclude oral dosing as a method of administration. The IVR can be
used for up to three months and does not require specialist fitting. It
therefore offers a considerable compliance benefit over existing prescribed
therapies.
Galen has dedicated facilities for the production of injection-molded IVRs,
both for its own supply and for contract manufacture.
Hormone Replacement Therapy. The menopause occurs in all women, either
naturally or after a hysterectomy. It is associated with a decrease in estradiol
production and is characterized in the short term by symptoms such as hot
flushes and in the long term by an increased risk of both osteoporosis and
cardiovascular disease. Hormone replacement therapy (HRT) aims to restore blood
(plasma) estradiol levels to average pre-menopausal levels to relieve menopausal
symptoms. Typically, in unhysterectomized women, a progestogen is also
administered continuously or cyclically to ensure the protection of the uterine
endometrium against the adverse effects of estradiol. Current therapy consists
of tablets and gels for daily administration, transdermal patches which can be
used for up to one week and estradiol implants which, although suitable for
long-term treatment, require surgical insertion.
Currently available oral and transdermal products typically produce mean
estradiol plasma levels of up to 300pmol/l to provide effective control of
menopausal symptoms. Continuous mean estradiol plasma levels of estradiol in
excess of 300pmol/l for prolonged periods are normally achieved with
subcutaneous implants which must be surgically inserted. Although implants
produce more consistent day-to-day estradiol plasma levels when compared to
transdermal patches, there is a gradual decay in estradiol plasma levels over
the period of use. Galen has developed an IVR capable of achieving estradiol
plasma levels up to, and in excess of, 300pmol/l for a period of up to three
months.
IVR Products. Galen currently has three HRT IVR products in development:
- Estradiol Only Replacement Therapy. Phase III trials have been completed
in Europe and have commenced in the United States. The Phase III
evaluation began with two pivotal multi-center trials in the United
Kingdom. The first trial, carried out in approximately 120 menopausal
patients, demonstrated the effectiveness of IVRs delivering 50mg and 100
mg of estradiol per day in controlling vasomotor symptoms, including hot
flushes, in comparison with standard oral treatment. The same centers are
also conducting a second trial to assess the benefit of the IVR in the
prevention of osteoporosis and in reducing indicator factors for
cardiovascular disease. This trial will cover over 100 patients and is
expected to be completed in early 2001. Galen has filed applications for
UK marketing authorizations following completion of the first trial and
these applications are now under evaluation by the Medicines Control
Agency (MCA). A third Phase III trial to gather additional data for a
U.S. filing is underway. Results from this third trial are expected in
late 2000 with a target of late 2000 for an NDA application.
- Opposed Hormone Replacement Therapy (estradiol/progestogen). This
product is intended to reduce the risk of endometrial hyperplasia (or
more serious pathology) which is an undesirable consequence of estradiol
only therapy in women with an intact womb. A Phase II dose finding study
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has been completed with an estradiol/progestogen releasing IVR. The Phase
III program for this product is in its initial phase. Galen currently
anticipates filing for marketing authorizations in the United States and
United Kingdom in 2002, with filings in the rest of Europe to be made the
following year.
- Testosterone Releasing IVR. Galen's third IVR product is being developed
to deliver systemic doses of testosterone. Deficiency of testosterone in
post-menopausal women has been associated with adverse psychosexual
effects. Galen's testosterone IVR is aimed at addressing the problems of
those patients where an augmentation of sexual motivation is required.
The IVR offers a more convenient delivery system for this hormone than
existing treatments such as implants. Galen is currently developing the
methodology for the clinical evaluation of this product prior to a Phase
II dose ranging study.
The intellectual property associated with these treatments is the subject
of two international patents, one of which has been approved with the second
having completed PCT examination in September 1999. Galen's IVR products will
make available to physicians a new and alternative method for hormone
replacement therapy which is currently dominated by oral and transdermal patch
products. The current global market for HRT products is estimated to be worth
approximately $2.0 billion.
Other IVR Developments. The pharmaceutical research team (at the School of
Pharmacy, The Queen's University of Belfast) is developing an IVR releasing
oxybutynin indicated for the treatment of urinary incontinence. IVRs containing
antimicrobials for the local treatment of vaginal infections, including sexually
transmitted diseases, are also under investigation. Both of these products are
currently in pharmaceutical development.
In conjunction with the Population Council, New York, Galen is contributing
to the pharmaceutical development of an estrogen/progestogen contraceptive
product based on their injection molding manufacturing technology. The
Population Council has completed Phase II clinical trials for this product.
Topical Drug Delivery. Galen has a patent pending for topical compositions
containing a eutectic mixture of pharmacologically active agents. Eutectics are
mixtures of chemicals in which the constituents are in proportions which ensure
that their melting point is depressed. This technology is directed towards
topical products with significantly enhanced penetrative properties. The first
application of this technology is in early pharmaceutical development and will
focus on an improved topical formulation of an anti-inflammatory drug. Galen has
filed patent applications for this technology which received PCT approval in
September 1999.
Other Drug Delivery Projects. Galen also actively develops new ethical
products and line extensions of existing products, including the development of
a number of oral controlled release products, which are in pre-clinical
development and are in the analgesic therapeutic area.
Ethical Pharmaceutical Services
In the year ended September 30, 1999, Galen's ethical pharmaceutical
services business reported turnover of L28.4 million (or $41.8 million), which
represented a 73.0% increase over the previous financial year and 42.3% of
Galen's total sales from continuing operations. The ethical pharmaceutical
services business was established in response to the trend among multi-national
pharmaceutical companies to outsource specialized research and development
series such as clinical trials' supplies and custom chemical synthesis. The
ethical pharmaceutical services business consists of the Clinical Trial Services
(CTS) division and the chemical synthesis division.
The acquisition of the drug reconciliation business of J Dana Associates
Inc. and ICTI during fiscal 1999 has given Galen the opportunity to strengthen
existing services offered and expand its customer base.
Clinical Trials Services
CTS division. Pharmaceutical companies are increasingly outsourcing
specialist activities due in part to a substantial rise in the research and
development investment necessary to develop pharmaceutical products and
increased pressure to control healthcare costs. The CTS division was established
to provide clinical trials
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services to pharmaceutical companies which choose to outsource the manufacture,
packaging and distribution of both active drugs and placebos to targeted
clinical trial patients.
As a dedicated provider of these specialist services, ensuring that the
exacting cGMP requirements for the manufacture and distribution of clinical
trials are met fully, the CTS division offers an integrated international
solution to pharmaceutical companies. Initially, the CTS division was
established to meet clients' needs in the United Kingdom. However, it has
expanded rapidly to market its dedicated clinical trials services to the
healthcare industry in Europe and the United States.
The CTS division offers a full-range of clinical trials services typically
outsourced by multinational pharmaceutical companies, including the design,
manufacture, packaging and distribution of patient packs for clinical trials to
specific investigator centers around the world. The CTS division is able to
manufacture active and placebo tablets and capsules to the customer's
specification, ensuring that the placebo formulation is identical in appearance
to the active formulation. Design and manufacture of patient wallets is customer
specific and includes the capability to produce randomized and multi-lingual,
patient-specific labels. The CTS division also offers analytical services,
including stability testing in FDA compliant facilities, complete analytical
testing and release and analytical method development.
The CTS division has conducted outsourced clinical trials work for a large
majority of the top 20 international pharmaceutical companies. The CTS
division's major clients include Glaxo Wellcome, Janssen, Pfizer and AstraZeneca
as well as major contract research organizations and a number of virtual and
biotech organizations.
Galen also has a CTS manufacturing operation in Pennsylvania, where it
offers specialized clinical trials services to pharmaceutical companies in the
United States. With this facility and Galen's UK facility it offers a
coordinated international service to clients which are increasingly establishing
international clinical trials. In 1998 Galen acquired the drug reconciliation
business of J Dana Associates Inc. to further strengthen its CTS offering in the
United States by providing services relating to drug returns from clinical
trials including drug reconciliation accountability, storage and destruction.
Development program. The CTS division's development program is aimed at
enhancing the services it offers, in particular, through process improvement and
service extension by means of implementing new technologies, including an
interactive voice response system ("IVRS") for clinical trials inventory
management. In 1999 Galen acquired Interactive Clinical Technologies Inc.
("ICTI") in New Jersey to complement and further strengthen the IVRS
capabilities of its CTS business. ICTI's technological developments are designed
to enable their clients to manage drug supplies efficiently and collect
real-time patient enrolment data.
Chemical Synthesis
Galen formed the chemical synthesis division in response to the increasing
demand from pharmaceutical companies for small capacity manufacturing facilities
required for the manufacture of kilogram quantities of development compound.
Cost reduction measures at many pharmaceutical companies have resulted in a
shortage of capacity. Consequently many pharmaceutical companies have
increasingly used facilities available from third party suppliers, rather than
commit their own capital to develop similar facilities internally. In addition
to the increasing trend among pharmaceutical companies to outsource many phases
of drug development, many emerging biopharmaceutical and biotechnology companies
tend to have a high degree of dependence on third party contractors for
provision of development services in order to permit them to focus their
resources on discovery research.
The chemical synthesis division works to meet the needs of these companies
for pilot-plant scale custom chemical synthesis and is well-placed to offer
manufacturing services for active pharmaceutical ingredients required for
toxicological investigation as well as pre-clinical and early clinical studies.
SynGal operates from a newly operational, specially constructed cGMP facility at
Craigavon and will provide a range of additional services, including analytical
method development and quality control of raw materials, in-process
intermediates and finished products.
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QuChem Ltd. In 1997 Galen acquired 76% of QuChem Ltd to offer a
complementary service to SynGal. QuChem Ltd was formed by The Queen's University
of Belfast in 1992 to offer a range of contract development services
incorporating the use of complex chemical technologies, process research and
development, custom synthesis and structure determination. Based at the School
of Chemistry at The Queen's University of Belfast, QuChem Ltd is able to access
a range of analytical techniques not normally available to small, research and
development based companies. The current client list at QuChem Ltd includes
companies from the pharmaceutical, biopharmaceutical, agrochemical, flavor and
fragrances industries. QuChem Ltd has particular expertise in enantiospecific
synthesis, organophosphorus chemistry, oxidations and clean, environmentally
friendly chemistry. In January 1999 Galen completed a L1.3m ($1.9 million)
investment in new laboratory facilities at The Queen's University of Belfast.
PRODUCTION FACILITIES AND OPERATIONS
Galen operates from modern dedicated facilities based at three sites in
Northern Ireland and one in Pennsylvania.
Ethical Pharmaceutical Products
Galen's manufacturing facilities are located at two sites that total in
excess of 30 acres. Galen's facility at Craigavon manufactures all the tablets,
capsules, and non-sterile liquid formulations, as well as sacheting powders and
granules. Dedicated suites for the manufacture of cephalosporin and penicillin
antibiotic products are also located at Craigavon, as are pharmaceutical
research and development laboratories. Galen's tablet facility at Craigavon was
given the approval recommendation by the FDA's inspectors in June 1999.
Galen is currently implementing a strategic plan for expansion of the
products and services manufacturing capacity at Craigavon and the US over the
next three years. To assist with this expansion, the Industrial Development
Board for Northern Ireland will be providing selective financial support to
Galen totalling L10.3 million ($15.2 million) for its continuing expansion in
Northern Ireland.
Galen's administration, regulatory compliance activities, sales and
marketing and distribution activities are based at the Craigavon site. As at
April 2000, approximately 410 employees worked at the Craigavon site.
Galen has an 80,000 sq. ft. facility at Larne, Northern Ireland for the
manufacture of its sterile product range. Further manufacturing efficiencies
have been achieved through the establishment of an in-house suite to manufacture
unfilled PVC bags. The Larne facility also houses some pharmaceutical research
and development facilities and Galen's dedicated facility for the manufacture of
IVRs. The facility has the capacity to produce in excess of 3 million IVRs
annually. As at April 2000, approximately 160 people were employed at the Larne
site.
All existing facilities used in Galen's ethical pharmaceutical products
business, which together extend to approximately 300,000 sq. ft., are approved
by the MCA.
In addition to the sites at Craigavon and Larne, Galen has jointly
established a pharmaceutical drug delivery technology laboratory at the School
of Pharmacy at The Queen's University of Belfast.
Ethical Pharmaceutical Services
In early 1998 Galen invested L9.2 million in the construction of an
additional CTS facility at Craigavon of approximately 100,000 sq. ft. A
complementary 102,000 sq. ft. CTS facility in Pennsylvania has been established
to service the US market and offer a coordinated service with CTS in the United
Kingdom for international clinical trials. As major pharmaceutical companies are
increasingly developing products on an international basis, Galen management
believes this co-ordinated service is a key strength, permitting the CTS
operations to compete more effectively in this rapidly developing business.
The CTS division offers a full-range of clinical trial services, including
manufacture of active and placebo products, design and production of clinical
trial packs, and world-wide distribution to investigator sites. Design and
manufacture of customer specific tooling for trial packs is undertaken by
TechniGal, Galen's specialized
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engineering subsidiary, at dedicated facilities at Craigavon. This internal
capability reduces significantly the lead-times for customers and management
believes it provides a key competitive strength to Galen.
ICTI provides interactive voice response systems ("IVRS") for clinical
trials management from its bases in Princeton, New Jersey and San Francisco.
SynGal operates from a 28,000 sq. ft. facility at the Craigavon site. This
newly constructed facility incorporates the latest processes in custom chemical
synthesis. The SynGal facility comprises a cGMP pilot plant scale production,
quality control and research and development laboratories, plant service areas
and staff offices. QuChem Ltd's laboratories are situated at the School of
Chemistry at The Queen's University of Belfast and enable Galen to provide a
comprehensive research and development service and bench-scale production to
customers requiring custom chemical synthesis.
As at April 2000 approximately 380 people were employed within the ethical
pharmaceutical services operations at Craigavon with a further 200 employed at
the CTS facility in Pennsylvania and a further 50 employed by ICTI in the US.
DISTRIBUTION
Ethical Pharmaceutical Products
The ethical pharmaceutical products business has two marketing groups, one
covering the United Kingdom and Ireland and the other covering speciality
manufacture and export.
United Kingdom and Ireland. The ethical pharmaceuticals products business
has a sales and marketing operation in the United Kingdom and Ireland consisting
of a director of sales and marketing, a sales director, two divisional managers,
ten regional business managers and approximately 55 representatives supported by
a marketing and administrative staff of ten. The sales force directly contacts
general practitioners, community pharmacists and hospital staff throughout the
United Kingdom and Ireland. In the year ended December 31, 1999, approximately
1.96 million prescriptions were written for Galen's products, ranking it twenty
seventh of the 246 companies supplying prescription medicines in the United
Kingdom.
Galen intends to utilise this sales force for the marketing of any HRT
products launched in the United Kingdom and Ireland. In anticipation of the
approval of the first IVR product to be launched in the United Kingdom during
2000, Galen has initiated the creation of a marketing infrastructure to
establish the IVR prelaunch program.
Speciality Manufacture and Export. The Galen division and the sterile
solutions division have a dedicated specialty manufacture and export marketing
group which comprises a divisional director and three key account
representatives. This marketing group is responsible for obtaining contracts
under which Galen manufactures and, in certain instances, develops products for
third party pharmaceutical and healthcare companies. The ethical pharmaceutical
products business exports products to more than 40 countries.
Ethical Pharmaceutical Services
CTS Divisions. The CTS divisions in Europe and the US markets their
services to the clinical trials departments and the medical departments of
multinational pharmaceutical companies, contract research organizations and
biotech organizations based in Europe.
Chemical Synthesis Division. SynGal has its own commercial manager who is
responsible for marketing operations. SynGal and QuChem Ltd. are targeting
customers who have decision making responsibility for the outsourcing of
activities which multinational pharmaceutical and biotech companies
traditionally performed in their own research and development departments.
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TRADEMARKS, PATENTS AND PROPRIETARY RIGHTS
Patents
Protection of intellectual property, patents and trademarks is a key
company strategy for projects and products of significant business importance.
The patenting strategy for the estradiol IVR (which also covers the
technology used in the opposed IVR) has been to obtain a short-term Irish patent
and then file for global protection using the PCT procedure together with
national applications in certain countries which are not party to the PCT. The
priority date for this program is December 19, 1994. The PCT application was
filed in December 1995. Following a favorable World Intellectual Property
Organization preliminary assessment, the patent received approval to go to grant
in the United States and Europe in the first half of 1998. Patents have now been
granted for the estradiol IVR in the United States, Australia, New Zealand,
South Africa, Ireland, Singapore and by the European Patent Office. In addition,
this patent is pending in several other countries including Japan, India and
China.
Galen lodged a further international filing (PCT) in May 1998 for an IVR
dealing with the administration of testosterone by this route. A favourable
examination report has now been received and patent grant is expected in the
United States and Europe by early 2001.
A patent application relating to the enhanced mutual topical absorption of
eutectic mixtures of pharmacologically active compounds was submitted for
international filing (PCT) in May 1998. A favourable examination report has now
been received and patent grant is expected in the United States and Europe by
early 2001.
Trademarks
It is Galen's policy to protect its trademarks, where appropriate, in all
areas where it operates.
GOVERNMENT REGULATION
Pharmaceutical companies like Galen operating in the United Kingdom are
subject to regulatory controls governing the marketing development, manufacture,
labelling, supply and marketing of its products.
Obtaining A Marketing Authorization
No pharmaceutical product may be marketed in the European Union without a
marketing authorization. The UK Medicines Act 1968 (the "Medicines Act") governs
applications for marketing authorizations for human use in the United Kingdom.
The Medicines Act implements detailed European Union directives on the licensing
of pharmaceuticals in the United Kingdom. Each time new legislation is
introduced at the European level, it is implemented in the United Kingdom
pursuant to the Medicines Act. As a result, the core rules in force in the
United Kingdom are the same as those in force in other states within the
European Union. In addition, individual countries within the European Union may
implement additional national legislation relating to, for example, specific
labelling requirements or in areas where there is no existing European Union
directive.
Registration Systems. Three principal systems exist in the European Union
for registering pharmaceutical products: the national system, the mutual
recognition system and the centralized system.
The national system involves the submission of a marketing authorizations
application to one member state of the European Union. Where a company wishes to
make applications for marketing authorizations in more than one European Union
state, the mutual recognition system described below must be used.
The mutual recognition system involves a marketing authorization
application initially directed to one national regulatory authority. As soon as
one member state has given approval for marketing, this decision is circulated
to other member states nominated by the applicant. There is a specified
timetable for this procedure which includes an arbitration process for resolving
disputes and for arriving at a final decision. Such decision is legally binding
both on the applicant and on the European Union member states involved. The
arbitration
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process may significantly lengthen the time from initial application to approval
in all nominated member states. The results of such process may impose
limitations not just on the marketing authorization applied for, but also
marketing authorizations obtained prior to the arbitration process.
The centralized system is a process for which there is a single
application, a single evaluation and a single authorization for a medicinal
product. This system applies only to certain types of application (compulsory
for certain biotechnology products and optional for certain other products,
including new chemical entities not previously authorized in the European Union,
medicinal products administered by significantly innovative and novel delivery
systems and significant new indications for existing products). The process is
administered by the EMEA (described below). A marketing authorization which is
granted following the centralized procedure is recognised in all European Union
member states. As with the mutual recognition system, a specific timetable is
specified for evaluation of the application, including allowances for appeals.
The European Agency for the Evaluation of Medicinal Products was
established by Council Regulation EEC No. 2309/93 of July 1993 with effect from
January 1, 1995 ("EMEA"). The EMEA is responsible for co-ordinating the
evaluation and supervision of medicinal products for both human and veterinary
use across the European Union. On the basis of the EMEA's opinion, the European
Commission authorizes the marketing of a product approved by the centralized
system and arbitrates between member states of the European Union on other
medicinal products submitted under the mutual recognition system. The EMEA
comprises a management board, two committees of scientific experts responsible
for preparing the EMEA's opinion and a permanent secretariat.
Criteria Assessed in Obtaining a Marketing Authorization. European
Directive 65/65/EEC, as amended, sets out the basic principles for the
regulation of marketing of medicinal products within the European Union. The
criteria for the grant of a marketing authorization are quality, safety and
efficacy. In order to demonstrate these criteria, a wide range of information
and data are required to be submitted to the relevant regulatory authority.
Article 4(8) of the directive requires, as a general rule, that any application
for a marketing authorization must be accompanied by, among other things, the
results of:
(a) physico-chemical, biological or microbiological tests (directed
principally at establishing the quality of the product);
(b) pharmacological and toxicological tests (directed principally at
establishing the safety of the product); and
(c) clinical trials (studies in humans directed at establishing efficacy
and safety in humans when used for the specified indications).
The quality of the product is determined by laboratory studies and tests.
These verify both the chemical constitution and stability of the product as well
as the manufacturing processes used.
The safety of the product is initially determined by studies to show
matters such as toxicity, the effect on reproductive potential, adverse effects
on genes, whether the product has the ability to cause cancer, how the product
is distributed within the body, how quickly the body eliminates the product and
the products inter-reaction with other body chemicals.
The efficacy and safety of the product in use are derived from clinical
trials in volunteers and patients. Clinical trials are generally classified into
Phase I and IV although there are not always distinct divisions between each
phase.
Phase I clinical trials are normally conducted in healthy human volunteers.
The purpose of the trial is to obtain a preliminary evaluation of a product's
safety, its pharmacokinetic profile and its biological effect on humans.
In Phase II clinical trials, the product is assessed for its short-term
safety and preliminary efficacy in a limited number of patients. Later Phase II
trials may be comparative (e.g. comparing the product with a placebo). The
appropriate dose ranges and regimens for Phase III (safety and efficacy) trials
are also determined during this phase.
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It is during Phase III clinical trials that a comprehensive evaluation of
safety and efficacy of the product takes place in larger patient groups. The
pattern and profile of the more frequent adverse reactions are investigated in
detail and special features of the product are explored.
Phase IV clinical trials are studies performed after a marketing
authorization has been granted. They are designed to monitor drug use in the
normal patient population. These studies are usually larger in scale and focus
on efficacy in clinical practice and side-effects.
In certain well-defined situations, the results of pharmacological and
toxicological tests on clinical trials do not have to be provided, thus allowing
for "abridged" applications. Directive 65/65/EEC provides for abridged
applications in three defined cases:
(a) an essentially similar medicinal product to one which has already
been authorized in the European Union member state and for which
consent has been given for reference to the first applicant's data;
or
(b) where the constituent or constituents of the medicinal product have
a well-established medicinal use, with recognised efficacy and
safety demonstrated by detailed references to published literature;
or
(c) a medicinal product which is essentially similar to a medicinal
product which has been authorized in the European Union for six
years (or ten for some member states of the European Union) and is
marketed in the member state concerned where consent to refer to the
first applicant's data has not been given.
The European Union have formulated numerous guidelines which provide
guidance on existing European directives relating to safety, quality and
efficacy. In addition, Galen, operates within a system of good practice
procedures which are standards by which laboratory studies, manufacturing
procedures, clinical trials and regulatory processes are conducted.
A marketing authorization may be submitted when appropriate data is
available. The submission of an application to a regulatory authority does not
guarantee that a license to market the product will be granted by that
regulatory authority. Furthermore, each regulatory authority may impose its own
requirements and may refuse to grant or may require additional data before
granting an approval, even though the relevant product may have been approved by
authorities in other countries. The time taken to obtain approvals in individual
countries varies, but can take from a few months to several years from the date
of application. The trend over the years has been towards greater regulation.
Marketing authorizations are granted subject to certain generally applicable
conditions and may also be subject to product-specific restrictions determined
by regulatory authorities.
Maintenance of Marketing Authorizations
A marketing authorization is granted for five years and is renewable for
five year periods thereafter. However, regulatory authorities have the power to
amend, suspend or revoke a marketing authorization at any time if they are no
longer satisfied as to the product's safety, quality or efficacy. In addition,
the holder of the marketing authorization retains obligations to ensure that the
product keeps pace with the state of scientific and technical knowledge in terms
of its production and control and to review and report adverse events to the
relevant authority. As a result, the holder of a marketing authorization may
also seek to amend that marketing authorization. Any changes made to the
authorization must be approved by the relevant regulatory authority by way of
variation applications before the changes can be implemented by the holder of
the marketing authorization.
THE ROLE OF THE UK NATIONAL HEALTH SERVICE ("NHS")
Pharmaceutical products with a marketing authorization and requiring a
prescription in order to be dispensed may be prescribed other than through the
NHS but the vast majority of prescription only medicines are prescribed under
NHS prescriptions. The price the NHS pays for the products prescribed is
determined by the PPRS (described below).
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The NHS has recently instituted an evaluation process for new technologies
and products to assess such technologies cost effectiveness. Technologies and
products for review are selected by the Department of Health and assessed by the
Appraisals Board of the National Institute for Clinical Excellence, a body of
clinicians and scientific experts, on the basis of representations made by the
manufacturer of the relevant new technology or product.
Its is highly unlikely that a product which is not recommended by the
appraisals board as being cost effective will be prescribed in significant
numbers via the NHS.
PHARMACEUTICAL PRICE REGULATION SCHEME ("PPRS")
All companies that sell products to the NHS may elect to join the PPRS and
in practice almost all companies which sell products to the NHS do elect to join
the scheme. The PPRS is administered by the UK Department of Health and the
scheme operates for a five year period from October 1, 1999. Under the scheme,
companies are permitted to earn a return on capital employed on products sold to
the NHS. In order to determine the return on capital employed, a company
supplying the NHS is required to supply certain financial information to the
regulatory authority each year. The amount and detail of the financial
information required is determined by a company's level of sales to the NHS,
however, the Department of Health has the right to call for a full financial
return from any company within the scheme if the circumstances appear to warrant
it.
On the current PPRS coming into effect pharmaceuticals supplied to the NHS
were cut in price by 4.5% on average. Such prices may not be increased again
until January 1, 2001. After that date prices may be increased by agreement with
the UK Department of Health if the company requesting the increase has a return
on capital employed for the current and subsequent financial year of less than
8.5% per annum, though such price increases may not provide a return on capital
employed to that company of more than 13.6%. If the Department of Health
considers a company's return on capital employed exceeds 29.4%, it will
negotiate with the company in respect of price reductions on existing products
sold to the NHS and/or delays or restitution in proposed price increases of
products sold to the NHS and/or repayments of that amount of past profits which
the Department of Health considers the return on capital employment threshold.
PERSONNEL
The Galen group employed an average of 1,029 employees for the twelve
months ended 30 September 1999, including employees at the CTS and ICTI
facilities in the US, of which 133 employees were involved in the administration
of the Galen group compared to an average of 788 persons in the prior year of
which 112 employees were involved in the administration of the Galen group.
LEGAL PROCEEDINGS
Galen is not involved in any legal or arbitration proceedings which they
consider material to the Galen business, its financial condition or results of
operations.
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GALEN
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of Galen should be read in conjunction with the selected financial
information of Galen, the consolidated financial statements for the years 1997,
1998, 1999 and for the six-month periods ended March 31, 2000 and 1999, together
with the notes to the consolidated financial statements, as well as the business
description included in this document. The financial data analyzed in this
discussion has been prepared in accordance with UK GAAP.
U.K. GAAP differs in certain significant respects from U.S. GAAP. For a
discussion of the principal differences between U.K. GAAP and U.S. GAAP as they
relate to Galen, and a reconciliation of profit and loss and equity
shareholders' funds to U.S. GAAP, see note 33 to the Galen consolidated
financial statements.
The 1990s have marked a period of significant growth for Galen. In fiscal
1997 (the year in which the group floated on the London Stock Exchange) group
revenues from continuing operations were L39.3 million. By fiscal 1999 revenues
had increased by 70.7% to L67.0 million. For the six months to March 2000
revenues were L42.4 million representing an increase of 36.5% over the
corresponding period in fiscal 1999.
This period showed significant growth in the ethical pharmaceutical
services business in particular. Revenues for the six months March 2000 were
L19.3 million compared to L10.4 million for the full fiscal year ended September
1997. This resulted largely from an expansion of the clinical trial services
division in Europe through the investment in a dedicated CTS facility in
Northern Ireland, an expansion in to the North American market through the
creation of a facility in the United States and the acquisition of ICTI. These
facilities allowed the division to take advantage of a trend towards outsourcing
of elements of clinical trials by multi-national pharmaceutical companies,
bio-tech companies and virtual companies along with a growth in overall research
and development expenditures in the pharmaceutical industry. During the same
period the chemical synthesis business was established to provide bench to pilot
scale chemical synthesis for research based pharmaceutical companies. Total
assets of the ethical pharmaceutical services business rose from L23.9 million
at September 30, 1997 to L75.8 million at March 31, 2000.
Over the same period the ethical pharmaceutical products business also grew
significantly with revenues increasing from L28.9 million in fiscal 1997 to
L38.6 million in fiscal 1999. Over this period this division also invested
significant funds and effort in to the development of the IVR.
The following tables show Galen's results and profit and loss accounts as a
percentage of total turnover for fiscal 1997, 1998 and 1999 and the six-month
periods ended March 31, 1999 and 2000:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
FISCAL 1997 FISCAL 1998 FISCAL 1999 MARCH 31, 1999 MARCH 31, 2000
----------- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Turnover.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 50.5 47.8 48.6 48.0 51.3
Operating expenses........ 22.8 23.4 22.5 21.8 20.3
----- ----- ----- ----- -----
Operating profit before
goodwill and
exceptional items.... 26.7 28.8 28.9 30.2 28.4
Exceptional items....... 1.9 (5.6) -- -- --
Goodwill amortization... -- -- 1.0 -- 2.1
----- ----- ----- ----- -----
Operating profit.......... 28.6 23.2 27.9 30.2 26.3
Net interest(expense)/
increase................ 0.3 1.2 (0.4) 0.2 0.2
Corporation tax........... 7.5 7.4 6.6 7.2 5.9
----- ----- ----- ----- -----
NET INCOME................ 21.4% 17.0% 20.9% 23.2% 20.6%
===== ===== ===== ===== =====
</TABLE>
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COMPARISON OF SIX-MONTH PERIOD ENDED MARCH 31, 1999 AND MARCH 31, 2000.
Turnover
Galen's total turnover increased by 36.7% from L31.0 million in the
six-month period ended March 31, 1999 to L42.4 million in the six-month period
ended March 31, 2000.
Turnover of the ethical pharmaceutical products business increased 22.3%
from L18.9 million in the six-month period ended March 31, 1999 to L23.2 million
in the six-month period ended March 31, 2000. The increase in ethical
pharmaceutical products turnover was achieved despite the enforced price
reduction of 4% for NHS medicines in the UK under the Pharmaceutical Price
Regulation Scheme (PPRS). The increase was due in part to the consolidation of
the products from the acquisition of Bartholomew Rhodes in fiscal 1999. Progress
was also made in the core therapeutic areas of analgesics, gastrointestinal,
respiratory, cardiovascular and antibiotics. In addition sterile solutions
division revenues increased by 19.9% from the corresponding period to March 1999
as a result of the strategy to focus on the development and production of
specialized products for third party pharmaceutical companies. The ethical
pharmaceutical products division accounted for 54.7% of Galen's turnover in the
six-month period ended March 31, 2000 compared to 61.0% of Galen's turnover in
the six-month period ended March 31, 1999.
Turnover of the ethical pharmaceutical services business increased 59.2%
from L12.1 million in the six-month period ended March 31, 1999 to L19.3 million
in the six-month period ended March 31, 2000. The increase in ethical
pharmaceutical services turnover was partly attributable to the inclusion of
revenues from ICTI for the six months but also reflected the underlying growth
of the CTS division in the United States. Revenues in the chemical synthesis
division also increased from L0.8 million in the six months to March 1999 to
L1.8 million in the six months to March 2000. The ethical pharmaceutical
services business accounted for 45.3% of Galen's turnover in the six-month
period ended March 31, 2000 compared to 39.0% of Galen's turnover in the
six-month period ended March 31, 1999.
Geographically, Galen's turnover in the United Kingdom increased 26.8% from
the six-month period ended March 31, 1999 to the six-month period ended March
31, 2000. North American turnover increased by 50.1%, with turnover in the rest
of the world increasing 47.4%.
Cost of sales
Cost of sales increased 46.0% from L14.9 million in the six-month period
ended March 31, 1999 to L21.8 million in the six-month period ended March 31,
2000. This represented an increase in cost of sales as a proportion of turnover
from 48.0% to 51.3%. This was mainly attributable to the PPRS price reduction
referred to above which impacted on gross margins.
Operating expenses
Operating expenses before goodwill amortization increased 27.9% from L6.8
million in the six-month period ended March 31, 1999 to L8.6 million in the
six-month period ended March 31, 2000. As a percentage of total turnover,
operating expenses before goodwill amortization decreased from 21.8% in the
six-month period ended March 31, 1999 to 20.4% in the six-month period ended
March 31, 2000.
Distribution costs increased 30.3% from L3.2 million in the six-month
period ended March 31, 1999 to L4.2 million in the six-month period ended March
31, 2000. The increase was broadly in line with the increase in revenues.
Administration costs increased 19.8% from L4.4 million in the six-month
period ended March 31, 1999 to L5.3 million in the six-month period ended March
31, 2000. The increase was due principally to the growth in revenues and
increased investment in research and development.
Operating profit
Galen's operating profit before goodwill amortization increased 28.3% from
L9.4 million in the six-month period ended March 31, 1999 to L12.0 million in
the six-month period ended March 31, 2000. The major
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element of the growth in operating profit came from the ethical pharmaceutical
services part of the group with an increase in operating profit of 40.5%. This
is a result of the investment in this part of the group in recent years in both
the clinical trial services division and in the chemical synthesis division.
Net interest expense
Net interest expense remained relatively constant at L0.1 million. This was
a result of L36.9 million of funding being raised by a placing of shares
approximately matching the investment in capital expenditure and acquisitions
over the period
Corporation tax
Galen's corporation tax in the six-month period ended March 31, 2000 was
L2.5 million (an effective rate of 22.2% calculated as the ratio of taxation
results from ordinary activities) compared to L2.2 million in the six-month
period ended March 31, 1999 (an effective rate of 23.8%). The decrease in
Galen's effective tax rate resulted from the effect of capital allowances
relating to the capital investments which reduced taxable income and also the
reduction in the United Kingdom corporation tax rate.
Net income
As a result of the foregoing, net income in the six-month period ended
March 31, 2000 was 21.5% higher, at L8.7 million, than in the six-month period
ended March 31, 1999.
COMPARISON OF YEAR ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998.
Turnover
Galen's total turnover increased 37.1% from L48.9 million in fiscal 1998 to
L67.0 million in fiscal 1999.
Turnover of the ethical pharmaceutical products business increased 19.0%
from L32.5 million in fiscal 1998 to L38.6 million in fiscal 1999. The increase
in ethical pharmaceutical products business turnover was principally due the
21.1% increase in turnover attributable to the Galen products division (which
includes the effect of the purchase of the products of the Bartholomew Rhodes
group of companies). The increase in turnover attributable to the ethical
pharmaceutical products business would have been 15.2% if such acquisition had
not occurred. Following a decline in the sterile solutions division's turnover
in fiscal 1998 after the withdrawal from the intravenous fluid market, fiscal
1999 saw the division recommence modest growth with turnover increasing by 10.5%
to L7.2 million. This growth was fuelled by higher margin specialty
manufacturing projects sold to both existing and new customers. The ethical
pharmaceutical products business accounted for 57.6% of Galen's turnover in
fiscal 1999 compared to 66.4% of Galen's turnover in fiscal 1998.
Turnover of the ethical pharmaceutical services business increased 73.0%
from L16.4 million in fiscal 1998 to L28.4 million in fiscal 1999. This
represents an overall growth of 174% since the flotation of Galen in 1997. The
increase in ethical pharmaceutical services turnover was mainly attributable to
a 65.1% increase in the clinical trials division turnover from L15.9 million in
fiscal 1998 to L26.2 million in fiscal 1999 and a 308.6% increase in chemical
synthesis division turnover from L0.5 million in fiscal 1998 to L2.2 million in
fiscal 1999. The growth in the clinical trials division turnover was primarily
attributable to growth in the United States and, to a lesser extent, continued
growth for clinical trial services in Europe. The ethical pharmaceutical
services business accounted for 42.3% of Galen's turnover in fiscal 1999
compared to 33.6% of Galen's turnover in fiscal 1998.
Geographically, Galen's turnover in the United Kingdom increased 16.4% from
fiscal 1998 to fiscal 1999. North American turnover increased by 118.3%, with
turnover in the rest of the world increasing 29.9%.
Cost of sales
Cost of sales increased 39.5% from L23.3 million in fiscal 1998 to L32.6
million in the fiscal 1999. This was mainly attributable to the increase in
turnover.
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Operating expenses
Operating expenses before goodwill and exceptional items increased 31.6%
from L11.5 million in fiscal 1998 to L15.1 million in fiscal 1999. As a
percentage of total turnover, operating expenses decreased from 23.5% in fiscal
1998 to 22.5% in fiscal 1999.
Distribution and administration expenses increased by 28.8% and 27.5% from
L5.3 million and L7.5 million respectively in fiscal 1998 to L6.8 million and
L9.6 million in fiscal 1999. This increase is primarily attributable to the
increased turnover.
Research and development costs increased 30.0% from L3.1 million in fiscal
1998 to L4.0 million in fiscal 1999. The increase was due principally to
investment in clinical trials for the IVR products, including completion of the
European phase III clinical development and lodging of a marketing authorization
in the United Kingdom for the estradiol IVR and completion of a phase II dose
ranging study on the estradiol/ progestrogen IVR. Galen believes research and
development expenditures will increase next year as the HRT development program
moves towards the market place and large global phase III studies are initiated.
Operating profit
Galen's operating profit before goodwill amortization and exceptional items
increased 37.6% from L14.1 million in fiscal 1998 to L19.4 million in fiscal
1999. This excludes the L2.7 million of exceptional costs recognized in fiscal
1998 for the aborted merger with Ferring Pharmaceuticals. The increase was
broadly in line with growth in revenues. Operating profit before goodwill
amortization or exceptional items of the Galen division increased from L8.0
million in fiscal 1998 to L9.7 million in fiscal 1999 as turnover,
administration and distribution costs rose broadly in line with the increase in
turnover. Operating profit before goodwill of the clinical trial services
division increased from L5.5 million in fiscal 1998 to L9.3 million in fiscal
1999 also as turnover, administration and distribution costs rose broadly in
line with the increase in turnover.
Net interest expense
Net interest expense increased 28.9% from L0.9 million in fiscal 1998
compared to L1.2 million in fiscal 1999. The increase resulted principally from
the investment in acquisitions of L23.7 million and capital expenditure of L10.6
million during fiscal 1999 partially offset by the generation of cash from
operating activities.
Corporation tax
Galen's corporation tax in fiscal 1999 was L4.4 million (an effective rate
of 23.0% calculated as the ratio of taxation results from ordinary activities)
compared to L3.6 million in fiscal 1998 (an effective rate of 24.5%). The
decrease in Galen's effective tax rate resulted from the reduction in the United
Kingdom corporate tax rate and the continuing level of capital expenditure.
Net income
As a result of the foregoing, net income in fiscal 1999 was 68.3% higher,
at L14.0 million, than in fiscal 1998. These results encouraged the Board to
recommend the payment of a final dividend of 1.10p per share, an increase of
25.0%, making a total for the year of 1.65p per share compared to 1.32p in
fiscal 1998.
COMPARATIVE RESULTS OF OPERATIONS, FISCAL 1998 VERSUS FISCAL 1997
Turnover
Galen's total turnover increased 24.5% from L39.3 million in fiscal 1997 to
L48.9 million in fiscal 1998.
Turnover of the ethical pharmaceutical products business increased 12.3%
from L28.9 million in fiscal 1997 to L32.5 million in fiscal 1998. The increase
in ethical pharmaceutical products business turnover was partially due to the
introduction of line extensions for Kapake(R) and Tramake(R). However, this was
partially offset by a 9.9% decline in turnover in the Sterile Solutions division
due to the decision to withdraw Sterile
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Solutions from the United Kingdom National Health Service commodity IV fluid
market. In addition, turnover from sales of seasonal respiratory products were
affected by a reduced level of demand during a particularly mild winter. The
ethical pharmaceutical products business accounted for 66.4% of Galen's turnover
in fiscal 1998 compared to 73.6% of Galen's turnover in fiscal 1997.
Turnover of the ethical pharmaceutical services business increased 58.4%
from L10.4 million in fiscal 1997 to L16.4 million in fiscal 1998. The increase
in ethical pharmaceutical services turnover was mainly attributable to a 53.2%
increase in turnover to L15.9 million from the core clinical trials services
division. This increase was the result of the new facility at Craigavon becoming
fully operational in the second half of the year and the facility in the United
States completing its first full year of trading. The ethical pharmaceutical
services business accounted for 33.6% of Galen's turnover in fiscal 1998
compared to 26.4% of Galen's turnover in fiscal 1997.
Geographically, Galen's turnover in the United Kingdom increased 4.7% from
fiscal 1997 to fiscal 1998. North American turnover increased by 346.6%, with
turnover in the rest of the world increasing 19.4%.
Cost of sales
Cost of sales increased 17.7% from L19.8 million in fiscal 1997 to L23.3
million in fiscal 1998. This was mainly attributable to the growth in revenues.
Gross margins increased by 2.7% to 52.2% from 49.5% mainly as a result of
increased margins in the clinical trial division as revenues increased.
Operating expenses
Operating expenses before goodwill amortization and exceptional items
increased 28.4% from L8.9 million in fiscal 1997 to L11.5 million in fiscal
1998. As a percentage of total turnover, operating expenses increased from 22.7%
in fiscal 1997 to 23.5% in fiscal 1998.
Distribution expenses increased 22.2% from L4.3 million in fiscal 1997 to
L5.3 million in fiscal 1998 as revenues increased. Administration costs
increased 33.2% from L5.7 million in fiscal 1997 to L7.5 million in fiscal 1998
also largely as a result of the increase in revenues. Research and development
costs increased 34.6% from L2.3 million in fiscal 1997 to L3.1 million in fiscal
1998. The increase was due principally to completion of phase III clinical
trials for the estradiol IVR in Europe.
Operating profit
Galen's operating profit before goodwill amortization and exceptional items
increased 34.0% from L10.5 million in fiscal 1997 to L14.1 million in fiscal
1998. This increase was largely due the increase in turnover associated with the
clinical trial services division. Operating profit of the clinical trial
services division increased from L2.9 million in fiscal 1997 to L5.5 million in
fiscal 1998 as a result of becoming fully operational at our new facility in
Northern Ireland in the second half of the year and our facility near
Philadelphia, USA completing its first year's trading. The increase in operating
profit was offset in large part by the L2.7 million of exceptional costs
recognized in fiscal 1998 for the aborted merger with Ferring Pharmaceuticals.
Net interest expense
Net interest expense increased 169.8% from L0.3 million in fiscal 1997
compared to L0.9 million in fiscal 1998. The increase resulted principally from
capital expenditure of L18.9 million in fiscal 1998 and L25.3 million in fiscal
1997 partially offset by L31.9 million raised as part of the initial public
offering.
Corporation tax
Galen's corporation tax in fiscal 1998 before the impact of the exceptional
items was L3.6 million (an effective rate of 24.5% calculated as the ratio of
taxation results from ordinary activities) compared to L2.9 million in fiscal
1997 (an effective rate of 27.8%). The increase in Galen's effective tax rate
resulted from the reduction in the UK corporate tax rate and the continuing
level of capital expenditure.
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Net income
As a result of the foregoing, net income in fiscal 1998 was 1.0% lower, at
L8.4 million, than in fiscal 1997. Earnings per share before the exceptional
item were 9.50p. These results encouraged the Board to recommend the payment of
a final dividend of 0.88p per share, making a total for the year of 1.32p per
share compared to 0.367p during 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations before exceptional items increased by 26.0% to
L7.9 million in the six-month period ended March 31, 2000 compared to L6.3
million in the six-month period ended March 31, 1999. Investment in tangible and
intangible fixed assets during the six-month period ended March 31, 2000 was
L7.5 million. A further L1.9 million of cash was invested in acquisitions during
the six-month period ended March 31, 2000 as payment of deferred consideration
relating to the acquisition of ICTI. This compares to L4.5 million which was
invested in capital expenditure on tangible fixed assets during the six months
ending March 31, 1999 and L0.4 million which was paid to acquire J Dana
Associates Inc. during this period. Working capital also increased by a total of
L5.6 million between September 30, 1999 and March 31, 2000 as a result of the
growth in the business.
Cash flow from operations before exceptional items increased by 16.8% to
L16.7 million in fiscal 1999 compared to L14.3 million in fiscal 1998 and L8.8
million in fiscal 1997. Investment in tangible and intangible fixed assets
during fiscal 1999 was L10.6 million. A further L23.7 million of cash was
invested in acquisitions during fiscal 1999. During fiscal 1998, L19.0 million
was invested in capital expenditure on tangible fixed assets with a further
L25.3 million invested during fiscal 1997. Working capital also increased by a
total of L5.7 million between September 30, 1996 and September 30, 1999 as a
result of the growth in the business.
These investments and increased working capital requirements were partially
funded by net cash inflows from operating activities and from the receipt of
L31.9 million of cash (net of expenses) of the placing as part of the initial
public offering in 1997 along with increased bank borrowings.
Galen received L1.1 million of grants from certain government bodies in the
six-month period ended March 31, 2000 compared to L0.5 million in the six-month
period ended March 31, 1999. Galen received L0.6 million of grants from certain
government bodies in fiscal 1999 compared to L1.7 million in fiscal 1998 and
L2.0 million in fiscal 1997. Galen has obtained grant assistance for capital
expenditure and for research and development. Galen continues to receive
assistance for current projects and remains eligible for assistance for future
projects.
At March 31, 2000, Galen held cash of L38.2 million compared to L17.0
million at March 31, 1999 and had total bank borrowings of L27.7 million, an
increase of L14.8 million from the level at March 31, 1999 of L12.9 million. In
addition, Galen had a maximum possible liability of L10.6 million for contingent
consideration relating to the acquisition of ICTI. This gave a net cash position
of L10.5 million compared to a net cash position of L4.1 million at March 31,
1999. This includes a U.S. dollar loan of L15.0 million which is being used to
finance the development of CTS and ICTI in the United States. It is intended
that this loan will be repaid from earnings in the United States.
At September 30, 1999 Galen held cash of L6.4 million compared to L16.2
million at September 30, 1998 and had total bank borrowings of L28.2 million, an
increase of L16.3 million from the level at September 30, 1998 of L12.1 million.
In addition Galen had U.S. dollar liabilities of L1.8 million in relation
to deferred consideration and a maximum potential liability of L10.3 million in
respect of contingent consideration relating to the acquisition of ICTI.
Committed investment at September 30, 1999 was L6.2 million. This will not
only allow for the completion of the capital projects, but will also provide for
ongoing capital investment to ensure that Galen's facilities are able to
accommodate the expansion plans without disruption.
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At March 31, 2000, Galen had undrawn committed bank facilities of L5.2
million from the Bank of Ireland and First Union National Bank.
At March 31, 2000, Galen's net assets had risen by 79.1% to L112.5 million
compared to L62.8 million at March 31, 1999. The increase was as a result of
growth in the business.
At September 30, 1999, Galen's net assets had risen by 21.2% to L68.2
million compared to L56.2 million at September 30, 1998. Net assets had
increased by 13.5% the previous year from L49.5 million at September 30, 1997.
The increase in both years was as a result of growth in the business.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which Galen is exposed are:
- Interest rates on debt; and
- Foreign exchange rates.
The following risk management discussion and the estimated amounts
generated form analytical techniques are forward-looking statements of market
risk assuming certain market conditions occur. Actual results in the future may
differ materially from these projected results due to actual developments in the
global financial markets.
INTEREST RATES
Galen manages debt and overall financing strategies centrally using a
combination of short and long term loans with either fixed or variable rates.
Currently Galen does not hedge exposure to interest rate fluctuations through
the use of derivative instruments.
Based on variable rate debt levels including higher purchase liabilities at
September 30, 1999 of L27.3 million, a one percent change in interest rates
would impact net interest expense by approximately L0.3m per annum. Fixed rate
bank debt outstanding at September 30, 1999 with a book value of L0.9 million
has been excluded from the above interest sensitivity analysis.
FOREIGN EXCHANGE
Most of the revenues generated and expenses incurred during the six month
periods ended March 31, 2000 and 1999 and the fiscal years 1999, 1998 and 1997
were denominated in the functional currency of the country in which they were
generated. To the extent that Galen has expanded and continues to expand its
operations in the United States revenues and expenses will continue to be
generated in the local currency. Galen intends to use foreign currency cash
flows to pay similarly denominated expenses to the extent available, although it
cannot be certain that it will be able to implement this strategy.
Galen has no foreign currency option contracts at March 31, 2000. To date
Galen has not extensively used foreign currency hedging transactions because its
exposure to foreign exchange fluctuations has been limited. Capital investment
in the United States has been funded by U.S. dollar borrowings as a hedge
against foreign currency movements. Galen intends to use foreign currency
hedging more extensively in the future, but cannot give assurances that the use
of such instruments will effectively limit its exposure.
Operating in international markets involves exposure to movements in
currency exchange rates that typically affect economic growth, inflation,
interest rates, governmental actions and other factors. The sensitivity analysis
presented below does not take account of the possibility that rates in the
currencies of different countries can move in opposite directions and that gains
from one category may or may not be offset by losses from another category.
Operations outside the United Kingdom generated approximately 14.3% of
Galen's profit before interest for the six month period ended March 31, 2000 and
11.0% of Galen's profit before interest for fiscal 1999. The increase was due,
in part, to the inclusion of ICTI's results in such period. The change in
currency exchange rate which would have the greatest impact on translating
Galen's international operating profit is with the U.S. dollar.
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Galen estimates that a 10% adverse change between the British pound and the
U.S. dollar would have impacted reported operating results for fiscal 1999 by
approximately L0.2 million. The potential exposure has not changed significantly
in the six months ended March 31, 2000. As part of the development of our U.S.
operations, Galen has borrowed in U.S. dollars to hedge against future revenue
streams.
Galen's total U.S. dollar borrowing at March 31, 2000 was L15.0 million in
bank debt with a further L10.6 million in contingent consideration denominated
in U.S. dollars. A 10% adverse movement between the British pound and U.S.
dollar would increase bank debt by approximately L1.5 million and contingent
consideration by L1.1 million, respectively.
Galen's total U.S. dollar borrowing at September 30, 1999 was L11.2 million
in bank debt with a further L1.8 million in deferred consideration and L10.3
million in contingent consideration denominated in U.S. dollars.
INFLATION
Inflation had no material impact on the group's operations during the six
month periods ended March 31, 2000 and 1999 and fiscal 1999, 1998 or 1997.
U.S. GAAP RECONCILIATION
Galen's consolidated financial statements have been prepared in accordance
with U.K. GAAP. U.K. GAAP as applied by Galen differs in certain significant
respects from U.S. GAAP. See note 33 to the Galen consolidated financial
statements for a reconciliation of Galen's profit and loss and equity
shareholders' funds to U.S. GAAP.
Under U.S. GAAP, Galen's profit for the financial period ended March 31,
2000 and 1999 was L8.2 million and L6.6 million respectively. Galen's profit for
the years ended September 30, 1999 and 1998 was L11.7 million and L7.2 million
respectively. Galen's U.S. GAAP profit differed from U.K. GAAP profit
principally as a result of differences in accounting for business combinations,
capitalization of interest, deferred taxation and share compensation expense.
See note 33 to the Galen consolidated financial statements for a more detailed
description of the differences between Galen's accounting policies under U.K.
GAAP and those that would be required under U.S. GAAP.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued FAS
133, "Accounting for Derivative Instruments and Hedging Activities." FAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing standards. FAS 133 is effective
for fiscal years beginning after June 15, 1999, but earlier application is
permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998.
Upon initial application, all derivatives are required to be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. In addition, all hedging relationships must be reassessed and
documented pursuant to the provisions of FAS 133. Subsequent to the issuance of
FAS 133, the FASB issued FAS 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133,"
which defers the effective date of FAS 133 to periods beginning after June 15,
2000. Galen is currently evaluating the likely impact of the adoption of FAS 133
on its results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which summarizes certain of the SEC staff views in applying
generally accepted accounting principles to revenue recognition in financial
statements. Galen adopted SAB 101 in these financial statements. Such adoption
had no impact on Galen's financial statements.
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OPINION OF CREDIT SUISSE FIRST BOSTON
Credit Suisse First Boston has acted as financial advisor to Warner
Chilcott in connection with the business combination. Warner Chilcott selected
Credit Suisse First Boston based on Credit Suisse First Boston's experience,
expertise and familiarity with Warner Chilcott and its business. Credit Suisse
First Boston is an internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, Warner Chilcott
requested that Credit Suisse First Boston evaluate the fairness, from a
financial point of view, to the holders of Warner Chilcott ordinary shares,
including those represented by Warner Chilcott ADRs, of the consideration to be
received by such holders pursuant to the scheme of arrangement. On May 3, 2000,
the date on which the Warner Chilcott board approved the transaction agreement,
including the scheme, Credit Suisse First Boston rendered to the Warner Chilcott
Board of Directors a written opinion to the effect that, as of that date and
based on and subject to the matters described in the opinion, the exchange ratio
to be offered to the holders of Warner Chilcott ordinary shares and Warner
Chilcott ADRs (other than Galen and its affiliates), pursuant to the scheme was
fair to such holders from a financial point of view.
THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION, DATED MAY 3,
2000, TO THE WARNER CHILCOTT BOARD OF DIRECTORS, WHICH SETS FORTH THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX C AND IS INCORPORATED BY REFERENCE INTO THIS
PROXY STATEMENT. HOLDERS OF WARNER CHILCOTT ORDINARY SHARES AND WARNER CHILCOTT
ADRS ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. CREDIT SUISSE
FIRST BOSTON'S OPINION IS ADDRESSED TO THE WARNER CHILCOTT BOARD OF DIRECTORS
AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF
VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED SCHEME OR ANY RELATED
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF WARNER
CHILCOTT ORDINARY SHARES OR WARNER CHILCOTT ADRS AS TO ANY MATTER RELATING TO
THE SCHEME.
In arriving at its opinion, Credit Suisse First Boston reviewed a draft of
the transaction agreement provided to it on May 2, 2000 and publicly available
business and financial information relating to Warner Chilcott and Galen. Credit
Suisse First Boston also reviewed other information relating to Warner Chilcott
and Galen, including financial forecasts, that Warner Chilcott and Galen
provided to or discussed with Credit Suisse First Boston, and met with the
managements of Warner Chilcott and Galen to discuss the businesses and prospects
of Warner Chilcott and Galen.
Credit Suisse First Boston also considered financial and stock market data
of Warner Chilcott and Galen and compared those data with similar data for other
publicly held companies in businesses similar to Warner Chilcott and Galen, and
considered, to the extent publicly available, the financial terms of other
business combinations and other transactions recently effected. Credit Suisse
First Boston also considered other information, financial studies, analyses and
investigations and financial, economic and market criteria which Credit Suisse
First Boston deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information
provided to or otherwise reviewed by it and relied on that information being
complete and accurate in all material respects. With respect to the financial
forecasts, Credit Suisse First Boston assumed that such forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Warner Chilcott and Galen as to the future
financial performance of Warner Chilcott and Galen. Credit Suisse First Boston
also assumed, with Warner Chilcott's consent, that the scheme of arrangement
would be treated as a tax-free reorganization for federal income tax purposes.
Credit Suisse First Boston was not requested to, and did not, make an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of Warner Chilcott or Galen, and was not furnished with any
evaluations or appraisals. Credit Suisse First Boston's opinion was necessarily
based on information
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available to it, and financial, economic, market and other conditions as they
existed and could be evaluated, on the date of its opinion. Credit Suisse First
Boston did not express any opinion as to the actual value of the Galen ordinary
shares or Galen ADRs when issued pursuant to the scheme or the prices at which
the Galen ordinary shares or Galen ADRs will trade or otherwise be transferable
after the business combination. In connection with its engagement, Credit Suisse
First Boston was not requested to, and did not, solicit third party indications
of interest in acquiring all or any part of Warner Chilcott. Although Credit
Suisse First Boston evaluated the exchange ratio from a financial point of view,
Credit Suisse First Boston was not requested to, and did not, recommend the
specific consideration payable pursuant to the scheme, which consideration was
determined between Warner Chilcott and Galen. No other limitations were imposed
on Credit Suisse First Boston with respect to the investigations made or
procedures followed by Credit Suisse First Boston in rendering its opinion.
In preparing its opinion to the Warner Chilcott Board of Directors, as to
the fairness, from a financial point of view, of the exchange ratio to be
offered to the holders of Warner Chilcott ordinary shares, including those
represented by Warner Chilcott ADRs, Credit Suisse First Boston performed a
variety of financial and comparative analyses, including those described below.
The summary of Credit Suisse First Boston's analyses described below is not a
complete description of the analyses underlying its opinion. The preparation of
a fairness opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, a fairness opinion is not readily susceptible to summary
description. In arriving at its opinion, Credit Suisse First Boston made
qualitative judgments as to the significance and relevance of each analysis and
factors considered by it. Accordingly, Credit Suisse First Boston believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Warner
Chilcott and Galen. No company, transaction or business used in Credit Suisse
First Boston's analyses as a comparison is identical to Warner Chilcott or Galen
or the proposed business combination, nor is an evaluation of the results of
those analyses entirely mathematical; rather the analyses involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the acquisition, public trading or other
values of the companies, business segments or transactions being analyzed.
The estimates contained in Credit Suisse First Boston's analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Credit Suisse First Boston's
analyses and estimates are inherently subject to substantial uncertainty.
Credit Suisse First Boston's opinion and financial analyses were only one
of many factors considered by the Warner Chilcott Board of Directors in its
evaluation of the proposed business combination and should not be viewed as
determinative of the views of the Warner Chilcott Board of Directors or
management of Warner Chilcott with respect to the exchange ratio or the proposed
business combination.
The following is a summary of the material analyses underlying Credit
Suisse First Boston's opinion dated May 3, 2000 delivered to the Warner Chilcott
Board of Directors. In connection with its opinion, Credit Suisse First Boston,
among other things, performed the following analyses with respect to Warner
Chilcott and Galen and derived an implied exchange ratio reference range from
such analyses.
WARNER CHILCOTT FINANCIAL ANALYSES
Discounted Cash Flow Analyses. Credit Suisse First Boston performed
discounted cash flow analyses on Warner Chilcott in order to estimate the
present value of the unlevered after-tax free cash flows of Warner Chilcott for
the period from July 1, 2000 through 2005, based upon projected financial
information provided to
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Credit Suisse First Boston by the management of Warner Chilcott. Ranges of
terminal values for the discounted cash flow analysis were estimated using
multiples of terminal year 2005 earnings before interest, taxes, depreciation
and amortization, commonly known as EBITDA, of 8.0x to 10.0x. Credit Suisse
First Boston then discounted to present value the free cash flow streams and
terminal values using discount rates of 11.0% to 13.0%. The discount rate range
was selected based on a weighted average cost of capital analysis.
Credit Suisse First Boston also derived terminal values for the discounted
cash flow analysis using perpetuity cash flow growth rates ranging from 1% to
4%. Credit Suisse First Boston then discounted to present value the free cash
flow streams and terminal values using discount rates of 11.0% to 13.0%.
Based on the discounted cash flow analyses Credit Suisse First Boston
developed an enterprise value reference range of $350 million to $440 million
for Warner Chilcott, or an equity value reference range of $13.30 to $19.61 per
Warner Chilcott ordinary share or Warner Chilcott ADR.
Based on the foregoing analysis and the discounted cash flow analysis of
Galen described below, Credit Suisse First Boston developed an implied exchange
ratio reference range of 1.453x to 1.704x, as compared to the exchange ratio in
the proposed business combination of 2.500x.
Selected Companies Analysis. Credit Suisse First Boston compared
financial, operating and stock market data for Warner Chilcott with
corresponding data of the following selected companies placing emphasis on
companies identified as in the process of transforming from marketing low-margin
generic pharmaceuticals to marketing branded products obtained either through
acquisition or internal development:
<TABLE>
<CAPTION>
TRANSFORMING GENERICS COMPANIES ESTABLISHED GROWTH COMPANIES
- ------------------------------- ----------------------------
<S> <C>
- - K-V Pharmaceutical Company - King Pharmaceuticals, Inc.
- - Barr Laboratories, Inc. - Jones Pharma Incorporated
- - Watson Pharmaceuticals, Inc. - Medicis Pharmaceuticals Corporation
- Shire Pharmaceuticals plc
</TABLE>
Credit Suisse First Boston reviewed enterprise values, calculated as equity
market value, plus total debt, preferred stock and minority interests, less cash
and cash equivalents, of the selected companies as multiples of the last 12
months revenue, estimated EBITDA for 2000 and 2001, and estimated earnings
before interest and taxes, commonly known as EBIT, for 2000 and 2001. Credit
Suisse First Boston also reviewed equity values of the selected companies as
multiples of estimated 2000 and 2001 earnings per share. Credit Suisse First
Boston then applied a range of selected multiples derived from the selected
companies to the corresponding financial data of Warner Chilcott. All multiples
were based on closing stock prices on May 2, 2000. Estimated financial data for
the selected companies were based on publicly available research analysts'
estimates and estimated financial data for Warner Chilcott were based on
internal estimates of Warner Chilcott management.
Based on the selected companies analysis, Credit Suisse First Boston
developed an enterprise value reference range of $350 million to $420 million
for Warner Chilcott, or an equity value reference range of $13.30 to $18.21 per
Warner Chilcott ordinary share or Warner Chilcott ADR.
Based on the foregoing analysis and the selected companies analysis of
Galen described below, Credit Suisse First Boston developed an implied exchange
ratio reference range of 1.832x to 1.849x, as compared to the exchange ratio in
the proposed business combination of 2.500x.
Selected Mergers and Acquisitions Analysis. Using publicly available
information, Credit Suisse First Boston analyzed the purchase prices and implied
transaction multiples paid or proposed to be paid in the following selected
merger and acquisition transactions involving pharmaceutical companies with a
sales and marketing focus and pharmaceutical companies with a research and
development focus.
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SELECTED SALES AND MARKETING COMPANY TRANSACTIONS
Acquiror
- Celltech Chiroscience
- Teva Pharmaceuticals
- Watson Pharmaceuticals, Inc.
- Amersham International
- Rhone-Poulenc Rorer, Inc.
- BASF AG
Target
- Medeva plc
- Copley Pharmaceutical, Inc.
- Royce Laboratories
- Sorin Diagnostics SpA
- Fisons plc
- Boots Pharmaceuticals
SELECTED RESEARCH AND DEVELOPMENT COMPANY TRANSACTIONS
Acquiror
- King Pharmaceuticals, Inc.
- Shire Pharmaceuticals Group, plc
- Abbot Labs
- Shering AG
- Teva Pharmaceuticals
- Sandoz AG
Target
- Medco Research
- Roberts Pharmaceuticals
- Alza
- Leiras
- Biocraft Laboratories
- Roferm SpA
Credit Suisse First Boston reviewed enterprise purchase price transaction
values, calculated as the amount paid in the transaction for the equity of the
target company, plus total debt, preferred stock and minority interests, less
cash and cash equivalents, of the selected transactions as multiples of latest
12 months revenue and EBITDA. Credit Suisse First Boston also reviewed the
equity purchase price of the selected transactions as multiples of latest 12
months net income. Credit Suisse First Boston then applied a range of selected
multiples derived from the selected transactions to corresponding financial data
of Warner Chilcott. All multiples for the selected transactions were based on
financial information available at the time of the announcement of the relevant
transaction.
Based on the selected mergers and acquisitions analysis, Credit Suisse
First Boston developed an enterprise value reference range of $450 million to
$500 million for Warner Chilcott, or an equity value reference range of $20.31
to $23.82 per Warner Chilcott ordinary share or Warner Chilcott ADR.
GALEN FINANCIAL ANALYSES
Discounted Cash Flow Analyses. Credit Suisse First Boston performed
discounted cash flow analyses on Galen in order to estimate the present value of
the unlevered after-tax free cash flows of Galen for the period from July 1,
2000 through 2004, based on publicly available analysts estimates of Galen's
future financial performance. Ranges of terminal values for the discounted cash
flow analysis were estimated using multiples of terminal year 2004, EBITDA, of
17.0x to 20.0x. Credit Suisse First Boston then discounted to present value the
free cash flow streams and terminal values using discount rates of 8.0% to
10.0%. The discount rate range was selected based on a weighted average cost of
capital analysis.
Credit Suisse First Boston also derived terminal values for the discounted
cash flow analysis using perpetuity cash flow growth rates ranging from 2% to
4%. Credit Suisse First Boston then discounted to present value the free cash
flow streams and terminal values using discounted rates of 8.0% to 10.0%.
Based on the discounted cash flow analyses Credit Suisse First Boston
developed an enterprise value reference range of $1,200 million to $1,500
million for Galen, or an equity value reference range of $9.15 to $11.51 per
Galen ordinary share.
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Selected Companies Analysis. Credit Suisse First Boston compared
financial, operating and stock market data for Galen with corresponding data of
the following selected U.K. and U.S. specialty pharmaceutical companies:
U.K. SPECIALTY PHARMACEUTICAL COMPANIES
- - Bioglan Pharmaceuticals Limited
- - Goldshield Group
- - Shire Pharmaceuticals plc
- - Celltech Group, plc
U.S. SPECIALTY PHARMACEUTICAL COMPANIES
- - King Pharmaceutical, Inc.
- - Jones Pharma Incorporated
- - Medicia Pharmaceuticals Corporation
Credit Suisse First Boston reviewed enterprise values of the selected companies
as multiples of the latest 12 months revenue, estimated EBITDA for 2000 and
2001, and estimated EBIT for 2000 and 2001. Credit Suisse First Boston also
reviewed equity values of the selected companies as multiples of estimated 2000
and 2001 earnings per share. Credit Suisse First Boston then applied a range of
selected multiples derived from the selected companies to Galen's latest twelve
months revenue, estimated 2000 and 2001 EBITDA, and 2000 and 2001 net income.
All multiples were based on closing stock prices on May 2, 2000. Estimated
financial data for the selected companies and Galen were based on publicly
available research analysts' estimates.
Based on the selected companies analysis, Credit Suisse First Boston
developed an enterprise value reference range of $950 million to $1,300 million
for Galen, or an equity value reference range of $7.19 to $9.94 per Galen
ordinary share.
HISTORICAL EXCHANGE RATIO ANALYSIS
Credit Suisse First Boston performed an exchange ratio analysis comparing
the average daily closing prices for Warner Chilcott ADSs and Galen ordinary
shares over various time periods leading up to May 2, 2000, and the exchange
ratio in the proposed business combination. This comparison yielded an implied
exchange ratio reference range of 1.096x to 1.744x and an implied premium
reference range of 43.3% to 128.1%, as indicated in the following table:
<TABLE>
<CAPTION>
IMPLIED PREMIUM AT
PERIOD IMPLIED EXCHANGE RATIO PROPOSED EXCHANGE RATIO
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
May 2, 2000................................ 1.744x 43.3%
Preceding 5 trading days................... 1.687x 48.2%
Preceding 10 trading days.................. 1.603x 56.0%
Preceding 15 trading days.................. 1.503x 66.3%
Preceding 30 trading days.................. 1.458x 71.5%
Preceding 90 trading days.................. 1.348x 85.5%
One year preceding......................... 1.096x 128.1%
</TABLE>
AGGREGATE REFERENCE RANGE
Based on the valuation methodologies described above, Credit Suisse First
Boston derived an aggregate implied exchange ratio reference range of 2.008x to
2.222x, as compared to the exchange ratio in the proposed business combination
of 2.500x.
MERGER CONSEQUENCES ANALYSIS
Credit Suisse First Boston analyzed the potential pro forma effect of the
business combination on the reported earnings per share and cash earnings per
share of Galen in calendar years 2000 and 2001, based on internal estimates of
the management of Warner Chilcott and publicly available analyst's estimates for
Galen. This analysis indicated that the business combination would be accretive
to the cash earnings per share of Galen, and dilutive to the reported earnings
per share of Galen in calendar years 2000 and 2001. The actual results achieved
by the combined company may vary from projected results and the variations may
be material.
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OTHER FACTORS
In the course of preparing its opinion, Credit Suisse First Boston
considered other information and data, including the historical trading
characteristics of Warner Chilcott ADRs and Galen ordinary shares over the
twelve months ended May 2, 2000.
MISCELLANEOUS
Pursuant to the terms of Credit Suisse First Boston's engagement, Warner
Chilcott has agreed to pay Credit Suisse First Boston an opinion fee of $500,000
payable upon delivery of its fairness opinion and a transaction fee for its
financial advisory services payable upon completion of the business combination
equal to the greater of 1.0% of the equity consideration payable in connection
with the business combination and $3.75 million. The opinion fee will be
creditable against the transaction fee. Assuming the business combination was
completed on , 2000, the aggregate amount payable to Credit
Suisse First Boston in connection with its services as financial advisor would
have been approximately million. Warner Chilcott also has agreed to
reimburse Credit Suisse First Boston for all of its out-of-pocket expenses,
including the fees and expenses for legal counsel and any other advisor retained
by Credit Suisse First Boston, and to indemnify Credit Suisse First Boston and
related persons and entities against liabilities, including liabilities under
the federal securities laws, arising out of Credit Suisse First Boston's
engagement.
Credit Suisse First Boston and its affiliates have in the past provided
financial services to Warner Chilcott unrelated to the proposed business
combination, for which services Credit Suisse First Boston and its affiliates
have received compensation. In the ordinary course of business, Credit Suisse
First Boston and its affiliates may actively trade the debt and equity
securities of both Warner Chilcott and Galen for their own accounts and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in such securities.
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INTERESTS OF WARNER CHILCOTT'S EXECUTIVE
OFFICERS AND DIRECTORS IN THE TRANSACTION
In considering the recommendation of the board of directors with respect to
the scheme, shareholders of Warner Chilcott should be aware that some executive
officers and directors of Warner Chilcott have interests in the transaction that
may be substantial or in addition to the interests of shareholders of Warner
Chilcott generally. As noted below, Roger Boissonneault and Paul Herendeen, each
an executive officer of Warner Chilcott, have entered into employment agreements
with Warner Chilcott, Inc. conditional upon completion of the transaction under
which they will receive, among other things, options to purchase ordinary shares
of Galen. James Andress, an executive officer of Warner Chilcott, has entered
into a separation agreement conditional upon completion of the transaction.
Accordingly, the interests of these officers, each of whom owns ADSs, differ or
may differ from those of other persons owning ordinary shares or ADSs, and these
officers have therefore agreed to instruct the depositary not to exercise the
voting rights attaching to the ordinary shares represented by the ADSs owned by
them and have agreed to be bound by the scheme in respect of those shares. The
disinterested directors of the board and the board of directors were aware of
these interests and considered them, among other factors, in approving the
transaction agreement and the scheme. The interests are summarized below.
GALEN'S ARRANGEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS OF WARNER CHILCOTT
Separation Agreement
James Andress, who currently serves as President and Chief Executive
Officer, as well as a director, of Warner Chilcott has decided that upon
completion of the transaction, he will retire from employment with Warner
Chilcott. Mr. Andress and Warner Chilcott are currently parties to an employment
agreement dated August 1, 1999, which according to its terms will expire on
December 31, 2002, unless extended.
Under a Separation Agreement and Mutual Release between Warner Chilcott and
Mr. Andress, Mr. Andress is entitled to receive $350,000 as a severance payment,
representing his current annual base salary. Mr. Andress is also entitled under
the terms of this agreement to receive an aggregate amount which is expected to
be approximately $675,000 in consideration for his release of any actual or
potential claims against Warner Chilcott, as well as for an extension of
non-compete covenants contained in his current employment agreement and for
amounts payable under the terms of a consultancy agreement to be entered into
between Mr. Andress and Galen prior to the effective date of the transaction.
Mr. Andress will be entitled to continue his participation in Warner Chilcott's
health plan, at Warner Chilcott's expense, for a period of up to eighteen months
or until he becomes entitled to Medicare, whichever is sooner. In the event that
any of the payments made to Mr. Andress are determined to be subject to an
excise tax under the Internal Revenue Code, Warner Chilcott has agreed to
reimburse Mr. Andress for the amount of this excise tax. In addition Mr. Andress
is entitled to receive options over 375,000 Galen ordinary shares in
consideration of waiving his right to receive options to purchase 150,000
ordinary shares in Warner Chilcott.
Board of Directors of Galen
Galen's Board of Directors currently consists of seven directors. Under
their new employment agreements, Messrs. Boissonneault and Herendeen will each
serve as a director of Galen, subject to Galen shareholder approval following
completion of the transaction.
Management Positions in Galen to be Filled by Current Executives and Directors
of Warner Chilcott Upon Completion of the Transaction
Roger M. Boissonneault and Paul Herendeen have each entered into an
Employment Agreement as of May 4, 2000. Each employment agreement will be
effective upon the completion of the transaction and shall continue until
terminated. Roger M. Boissonneault will serve as Chief Executive Officer of
Galen. Paul Herendeen will serve as Executive Vice President and Director of
Business Development of Galen.
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The new employment agreements executed by Messrs. Boissonneault and
Herendeen are similar in many material respects to their existing employment
agreements with Warner Chilcott dated August 1, 1999. Their base salaries remain
unchanged from the current amounts paid to them by Warner Chilcott: Mr.
Boissonneault will continue to receive $285,000 per year and Mr. Herendeen will
continue to receive $270,000 per year. In addition, the new employment
agreements have not changed either executive's cash bonus eligibility amounts:
both will continue to be eligible to receive an annual cash bonus in a target
amount equal to 50% of their base salary. Similarly, Messrs. Boissonneault and
Herendeen will continue to be entitled to participate on a basis comparable to
other key executives in any benefit plan, incentive compensation plan or program
for which key executives are or will become eligible. There are certain terms of
their new employment agreements which differ from their current ones. Under the
new employment agreements, both executives would receive twelve months severance
in the event of a termination without cause, instead of the eighteen months
provided for in their current employment agreements. In the event of a change in
control, both would receive eighteen months severance.
In consideration for Messrs. Boissonneault's and Herendeen's forfeiture of
potential Warner Chilcott options, and other covenants and obligations contained
in their current employment agreements, including the right to terminate their
employment with Warner Chilcott and receive eighteen months base salary and
benefits 60 days after close of the transaction, Messrs. Boissonneault and
Herendeen will each receive a signing bonus and, provided that each of them are
still employed within the Galen group of companies upon the first anniversary of
the completion of the transaction, a retention bonus. The aggregate value of
these bonuses is expected to be approximately $450,000 for each of Messrs.
Boissonneault and Herendeen. In addition, each of Messrs. Boissonneault and
Herendeen will be granted new options over 250,000 shares in Galen, in
consideration of waving their rights to receive options to purchase 100,000
ordinary shares in Warner Chilcott.
Each of Messrs. Boissonneault's and Herendeen's employment agreements
contains non-competition and non-solicitation provisions.
OWNERSHIP OF ORDINARY SHARES; SHARE OPTIONS
As of May 19, 2000, directors and executive officers of Warner Chilcott
owned an aggregate of 2,058,615 Warner Chilcott ordinary shares, including
options and warrants to purchase 1,353,831 Warner Chilcott ordinary shares
exercisable within 60 days.
The following table sets forth information, as of May 19, 2000, regarding
beneficial ownership of Warner Chilcott ordinary shares, as well as the
estimated beneficial ownership of Galen ordinary shares following completion of
the transaction (based on beneficial ownership as of May 19, 2000, by each
current Warner Chilcott Director and named executive officer, and by all
directors and executive officers of Warner Chilcott as a group.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING PERCENT OF
NUMBER OF WARNER CHILCOTT NUMBER OF OUTSTANDING
WARNER CHILCOTT ORDINARY SHARES GALEN ORDINARY GALEN ORDINARY
ORDINARY SHARES BEFORE SHARES AFTER SHARES AFTER
BEFORE THE COMPLETION OF COMPLETION OF COMPLETION OF
BENEFICIAL OWNER TRANSACTION(21) THE TRANSACTION(1) THE TRANSACTION(2) THE TRANSACTION
- ---------------- --------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
5% SHAREHOLDERS
Elan Corporation, plc............... 2,631,290(3) 20.87%(3) 6,578,225 4.16%
Lincoln House, Lincoln Place
Dublin 2, Ireland
William H. Gates III................ 1,518,039(4) 12.21%(4) 3,795,098 2.40%
2365 Carillon Point
Kirkland, WA 98033
Warner-Lambert Company.............. 1,130,158(5) 8.35%(5) 2,825,395 1.75%
201 Tabor Road
Morris Plains, NJ 07950
</TABLE>
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<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING PERCENT OF
NUMBER OF WARNER CHILCOTT NUMBER OF OUTSTANDING
WARNER CHILCOTT ORDINARY SHARES GALEN ORDINARY GALEN ORDINARY
ORDINARY SHARES BEFORE SHARES AFTER SHARES AFTER
BEFORE THE COMPLETION OF COMPLETION OF COMPLETION OF
BENEFICIAL OWNER TRANSACTION(21) THE TRANSACTION(1) THE TRANSACTION(2) THE TRANSACTION
- ---------------- --------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Wellington Management Company % %
LLP........................ 955,100 7.70 2,387,750 1.50
75 State Street
Boston, MA 02109
Halisol S.A.(6) ............. 801,343 6.45% 2,003,358 1.27%
112 Avenue Kleber
75116 Paris
France
Kopp Investment Advisors, % %
Inc. ...................... 650,600 5.25 1,626,500 1.03
7701 France Avenue South
Suite 500
Edina, MN 55435
DIRECTORS
James G. Andress(8).......... 645,000(7) 4.99%(7) 1,531,250(22) *%(22)
Roger M. Boissonneault(9).... 302,938(7) 2.41%(7) 698,750(22) *%(22)
Paul S. Herendeen(10)........ 266,875(7) 2.13%(7) 606,250(22) *%(22)
James H. Bloem(11)........... 6,875 * 50,000 *%
Harold H. Chefitz(12)........ 24,181 * 87,795 *%
Bruce L. Downey(13).......... 7,875 * 52,500 *%
Arthur F. Haney(14).......... 20,000 * 75,000 *%
Thomas G. Lynch(15).......... 73,506 * 211,108 *%
David B. Pinkerton(16)(18)... 16,595 * 68,830 *%
Didier Voydeville(17)........ 2,500 * 37,500 *%
NON-DIRECTOR NAMED EXECUTIVE
OFFICERS
Norma A. Enders(19).......... 110,313(7) *(7) 200,000(22) *%(22)
Beth P. Hecht(20)............ 94,251(7) *(7) 238,753(22) *%(22)
</TABLE>
- ---------------
* less than 1%.
(1) Figures are based upon 12,400,461 shares outstanding as of May 19, 2000.
The figures assume exercise by only the shareholder or group named in each
row of all warrants and/or options for the purchase of ADRs held by such
shareholder or group which are exerciseable within 60 days of May 19, 2000.
(2) Figures are based on: (a) all outstanding options and warrants vest and
become immediately exercisable upon completion of the transaction and (b)
the assumption that all Warner Chilcott ordinary shares, options and
warrants outstanding as of May 19, 2000, are converted at the per share
consideration of 2.5 Galen ordinary shares for every one Warner Chilcott
ordinary share outstanding.
(3) Amount shown represents the aggregate number of: (a) 2,426,768 ADRs, and
(b) 204,522 ordinary shares subject to warrants which are currently
exercisable; both (a) and (b) held by Elan International Services, Ltd.
(4) Amount shown represents the aggregate number of: (a) 1,484,441 ADRSs, and
(b) 33,598 ordinary shares subject to warrants which are currently
exercisable; both (a) and (b) held by Mr. Gates and Castle Gate, LLC.
(5) Based on 1,130,158 ordinary shares subject to warrants which are currently
exerciseable, held by Warner-Lambert Company.
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(6) Amount shown represents the aggregate number of (a) 773,825 ADRs (b) 15,018
ordinary shares subject to warrants which are currently exercisable and (c)
12,500 options and warrants which are currently exercisable; (a) and (b)
held by Halisol, S.A. and its Chairwoman Madam Nicole Bru, who was a
director of Warner Chilcott until 1999 and (c) held by Madam Bru
personally.
(7) Amounts shown include ordinary shares held by an entity formed by selected
members of senior management, including the named executives. The amount
shown for each named shareholder includes the number of shares held by such
entity in which such named shareholder has a pecuniary interest. Such
ordinary shares were acquired from Elan Corporation as announced on January
8, 1999. The entity, and not the named persons, has the sole power to vote
such shares.
(8) Amount shown includes 512,500 ordinary shares issuable upon exercise of
currently exercisable options and warrants.
(9) Amount shown includes 178,438 ordinary shares issuable upon exercise of
currently exercisable options and warrants.
(10) Amount shown includes 144,375 ordinary shares issuable upon exercise of
currently exercisable options and warrants.
(11) Amount shown represents 6,875 ordinary shares issuable upon exercise of
currently exercisable options.
(12) Amount shown includes 14,181 ordinary shares issuable upon exercise of
currently exercisable options and warrants.
(13) Amount shown includes 6,875 ordinary shares issuable upon exercise of
currently exercisable options. Excludes (a) 250,000 ADSs; and (b) 62,500
ordinary shares subject to warrants which are currently exercisable, both
(a) and (b) held by Barr Laboratories of which Mr. Downey serves as
Chairman, Chief Executive Officer and President. Mr. Downey disclaims
beneficial ownership of ADSs and shares in (a) and (b).
(14) Amount shown represents 20,000 ordinary shares issuable upon exercise of
currently exercisable options.
(15) Amount shown includes 14,675 ordinary shares issuable upon exercise of
currently exercisable warrants and options. Excludes 2,631,290 ordinary
shares, including warrants, owned by Elan (see footnote 2 above). Mr.
Lynch, who serves as a director of Warner Chilcott is Executive Vice
President and Chief Financial Officer of Elan. Accordingly, Mr. Lynch may
be deemed to share voting and dispositive power as to the shares held by
Elan. Mr. Lynch disclaims beneficial ownership of such shares.
(16) Amount shown includes 14,133 ordinary shares issuable upon exercise of
currently exercisable options and warrants.
(17) Amount shown includes 2,500 ordinary shares issuable upon exercise of
currently exercisable options.
(18) Excludes (a) 496,120 ADSs; and (b) 7,056 ordinary shares subject to
warrants which are currently exercisable: both (a) and (b) held by National
Union Fire Insurance Company of Pittsburgh of which Mr. Pinkerton serves as
Vice President. Mr. Pinkerton disclaims beneficial ownership of these
shares.
(19) Amount shown includes 65,313 ordinary shares issuable upon exercise of
currently exercisable options.
(20) Amount shown includes 63,750 ordinary shares issuable upon exercise of
currently exercisable options.
(21) The following table shows the interests of each director and officer named
in the table above in the equity share capital of Warner Chilcott in the
form of options granted under the Warner Chilcott, plc Incentive Share
Option Scheme adopted in April 1997. The Incentive Share Option Scheme, as
amended, provides for the grant of options to officers, directors,
employees, consultants and members of Warner Chilcott's medical advisory
board. The option price is the fair market value at the date of grant. All
options are granted for no consideration. Unless otherwise stated below,
options vest quarterly over four years on a calendar quarter basis and
expire on the earlier of ten years from the date of grant or after a
specified period following the participant's separation from Warner
Chilcott. All options become fully
I-78
<PAGE> 95
vested if Warner Chilcott undergoes a change in control. The proposed
transaction with Galen would constitute a change in control.
<TABLE>
<CAPTION>
NUMBER OF
WARNER CHILCOTT
DIRECTORS ORDINARY SHARES EXERCISE PRICE DATE OF GRANT
--------- --------------- -------------- -------------
<S> <C> <C> <C>
James G. Andress.......................... 50,000 $ 9.77 1/23/1998
50,000 $ 8.125 2/10/1999
Roger M. Boissoneault..................... 25,000 $ 9.77 1/23/1998
40,000 $ 8.125 2/10/1999
60,000 $7.0625 8/13/1999
Paul S. Herendeen......................... 30,000 $ 8.125 2/10/1999
James H. Bloem............................ 10,000 $ 9.77 1/23/1998
5,000 $ 7.875 6/3/1999
5,000 $ 20.00 5/16/2000
Harold H. Chefitz......................... 5,000 $ 9.77 1/23/1998
5,000 $ 7.875 6/3/1999
5,000 $ 20.00 5/16/2000
Bruce L. Downey........................... 10,000 $ 9.77 1/23/1998
5,000 $ 7.875 6/3/1999
5,000 $ 20.00 5/16/2000
Arthus F. Haney, M.D...................... 20,000(a) $ 8.125 6/30/1999
10,000 $ 20.00 5/16/2000
Thomas G. Lynch........................... 5,000 $ 9.77 1/23/1998
5,000 $ 7.875 6/3/1999
5,000 $ 20.00 5/16/2000
David B. Pinkerton........................ 5,000 $ 9.77 1/23/1998
5,000 $ 7.875 6/3/1999
5,000 $ 20.00 5/16/2000
Didier Voydeville......................... 10,000 $ 7.875 6/3/1999
5,000 $ 20.00 5/16/2000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
NON-DIRECTOR NAMED WARNER CHILCOTT
EXECUTIVE OFFICERS ORDINARY SHARES EXERCISE PRICE DATE OF GRANT
------------------ --------------- -------------- -------------
<S> <C> <C> <C>
Norma A. Enders........................... 35,000 $ 20.00(b) 4/3/1997
10,000 $ 9.77 1/23/1998
15,000 $ 8.125 2/10/1999
20,000 $ 15.50(a) 2/28/2000
Beth P. Hecht............................. 75,000 $ 6.75(c) 12/31/1998
20,000 $ 15.50(a) 2/28/2000
</TABLE>
- ---------------
(a) Options are currently fully exercisable.
(b) Options vest quarterly over four years beginning July 1, 1996.
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<PAGE> 96
(c) One-third of the options vested at the time of grant and the remaining
options vest quarterly over four years beginning January 1, 1999.
The following table shows the interests of each director and officer named
in the table above in the equity share capital of Warner Chilcott in the
form of compensatory warrants granted. Warrants granted with a vesting
provision become fully exercisable if Warner Chilcott undergoes a change of
control. The proposed transaction with Galen would constitute a change in
control.
<TABLE>
<CAPTION>
NUMBER OF
WARNER CHILCOTT
DIRECTORS ORDINARY SHARES EXERCISE PRICE DATE OF GRANT
--------- --------------- -------------- -------------
<S> <C> <C> <C>
James G. Andress.......................... 100,000 $ 1.00(a) 3/31/1997
400,000 $20.00(a) 3/31/1997
Roger M. Boissoneault..................... 30,000 $ 1.00(a) 3/31/1997
120,000 $20.00(a) 3/31/1997
Paul S. Herendeen......................... 10,000 $20.00(b) 6/28/1996
200,000 $ 9.77(c) 2/3/1998
Thomas G. Lynch........................... 10,000 $20.00(b) 6/28/1996
Harold N. Chefitz......................... 10,000 $20.00(b) 6/28/1996
David B. Pinkerton........................ 10,000 $20.00(b) 6/28/1996
</TABLE>
- ---------------
(a) Warrants vest quarterly over four years beginning on October 1, 1996.
(b) Warrants were fully vested at the time of grant.
(c) Warrants vest quarterly over four years beginning on January 1, 1998.
(22) Amounts shown do not include the conversion of ordinary shares of Warner
Chilcott, formed by selected members of senior management, including the
named executives (the amounts of which are included in the calculation of
beneficial ownership of ordinary shares of Warner Chilcott for the
following individuals: James G. Andress, Roger M. Boissonneault, Paul S.
Herendeen, Norma A. Enders and Beth P. Hecht).
INDEMNIFICATION; DIRECTOR'S AND OFFICER'S INSURANCE
Galen is obligated, for at least six years after the completion of the
transaction, to maintain in effect Warner Chilcott's current director's and
officers's liability insurance (or a substitute policy or policies not less
advantageous to the beneficiaries of the current policies) covering acts and
omissions occurring prior to the completion of the transaction. Galen is also
obligated to extend for a period of not less than six years from the date of the
completion of the transaction, all rights to indemnification now existing in
favor of any director of Warner Chilcott or its subsidiaries (including but not
limited to Warner Chilcott, Inc.) as provided in their respective charters or
by-laws or, in an agreement between an indemnified party and Warner Chilcott or
one of its subsidiaries (including, but not limited to, Warner Chilcott, Inc.).
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<PAGE> 97
THE TRANSACTION AGREEMENT AND THE SCHEME
The following is a summary of the material terms of the transaction
agreement and the scheme. This summary does not purport to be complete and is
qualified in its entirety by the transaction agreement and the scheme, which are
attached to this proxy statement as Annex A and Annex B. We have not filed with
the commission all exhibits or other agreements referred to in the transaction
agreement or the scheme.
GENERAL
The transaction agreement provides that, following approval by the
shareholders of Warner Chilcott and the sanctioning of the scheme and
confirmation of the reduction of Warner Chilcott's share capital by the High
Court, all of the issued ordinary shares and deferred shares of Warner Chilcott
will be canceled and the holders thereof will be allotted a number of ordinary
shares of Galen as set out below.
CANCELLATION AND ALLOTMENT OF SHARES
Upon the scheme becoming effective, the share capital of Warner Chilcott
will be reduced by the cancelation of Warner Chilcott's ordinary shares and
deferred shares, and the holders of the ordinary shares and deferred shares will
be allotted ordinary shares of Galen. In consideration for the cancelation of
the ordinary shares and deferred shares, Galen will issue 2.5 shares of Galen to
the holders of ordinary shares for each ordinary share outstanding at the
effective time of the transaction, and one ordinary share of Galen jointly to
the holders of deferred shares.
No fractional ordinary shares of Galen will be issued to any holder of
ordinary shares. The number of ordinary shares to be allocated and issued to the
relevant holders will be rounded down to the next whole ordinary share of Galen.
REPRESENTATIONS AND WARRANTIES
In the transaction agreement, Warner Chilcott makes representations and
warranties about itself and its subsidiaries, including the following: (a) due
incorporation, valid existence and good standing and certain similar corporate
matters; (b) capital structure; (c) the authorization, execution, delivery and
enforceability of the transaction agreement and related matters; (d) consents
and approvals; (e) documents and financial statements filed with the Commission
and the accuracy of information contained therein; (f) information provided for
public documents; (g) the absence of certain material adverse changes or events;
(h) possession of necessary permits and compliance with charters and by-laws;
(i) tax matters; (j) litigation; (k) certain agreements relating to employee
share plans; (l) employee benefit plans; (m) labor matters; (n) intellectual
property; (o) environmental matters; (p) insurance; (q) the Credit Suisse First
Boston fairness opinion; (r) finders or brokers fees; (s) real property; (t)
material contracts; (u) compliance with laws and (v) Warner Chilcott approvals.
In the transaction agreement, Galen makes representations and warranties
about itself and its subsidiaries, including the following: (a) due
incorporation, valid existence and good standing and certain similar corporate
matters; (b) capital structure; (c) the authorization, execution, delivery and
enforceability of the transaction agreement and related matters; (d) consents
and approvals; (e) public documents and the accuracy of the information
contained therein; (f) information provided for public documents; (g) the
absence of certain material adverse changes or events; (h) possession of
necessary permits and compliance with charters and by-laws; (i) tax matters; (j)
litigation; (k) certain agreements relating to employee share plans; (l) labor
matters; (m) intellectual property; (n) environmental matters; (o) insurance;
(p) Galen shareholder approval; (q) finders or brokers fees; (r) real property;
(s) material contracts; and (t) compliance with laws.
CERTAIN COVENANTS
Under the transaction agreement, Warner Chilcott and Galen have agreed that
from the date of the transaction agreement to the effective time of the
transaction, except as set forth in the transaction agreement
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<PAGE> 98
or as otherwise agreed to in writing by the other party, Warner Chilcott and
Galen and their subsidiaries will, among other things:
- carry on their businesses in the ordinary course;
- use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties and keep available the
services of their present officers and employees;
- not amend their memorandum or articles of association or by-laws; and
- amend the terms of any outstanding securities;
- merge with any other entity; and
- abide by certain customary restrictions on and requirements with respect
to, among others: (1) the issuance, pledge or transfer of any shares or
assets, (2) the creations of liens, (3) the making of loans, (4) the
declaration or payment of dividends, (5) splitting, redeeming or
repurchasing shares, (6) substantial transactions and dispositions and
(7) the incurrence of debt.
Warner Chilcott, in addition to the above restrictions, has also agreed to
abide by certain requirements in relation to (1) capital expenditure, (2)
employee benefit plans and other employment arrangements, (3) tax and accounting
matters, (4) breach of any warranty, (5) waiver or compromise of claims and
proceedings, (6) winding up, dissolution or reorganization, and (7) insurance.
In addition to the covenants above, the parties have also agreed on the
following matters, among others:
ACCESS TO INFORMATION
Upon reasonable notice and except as may otherwise be required by law, both
Warner Chilcott and Galen will provide each other and their respective
representatives with full access during normal business hours to their offices
and other facilities and to their respective books and records, subject to
limited exceptions. Further, both Warner Chilcott and Galen will provide each
other and their respective representatives with financial and operating data and
other information with respect to the respective businesses of Warner Chilcott
and Galen and their subsidiaries as Galen or Warner Chilcott, as the case may
be, may reasonably request, subject to limited exceptions.
OTHER ACTIONS
The transaction agreement provides that both Warner Chilcott and Galen will
use their respective reasonable best efforts to take, or cause to be taken, all
action and to do, or cause to be done, as promptly as practicable all things
necessary, proper, desirable or advisable to complete the transaction and the
other transactions contemplated by the scheme and the transaction agreement.
This includes the obtaining of any necessary government or other regulatory
consents.
NO SOLICITATION
Warner Chilcott also agreed to certain restrictions concerning any
competing transaction, which is defined in the transaction agreement as any
proposal with respect to any recapitalization, merger, consolidation or other
business combination involving Warner Chilcott, or acquisition of any capital or
any material portion of the assets of Warner Chilcott and its subsidiaries.
Specifically, Warner Chilcott agreed, among other things, that during the term
of the transaction agreement, or if sooner until the date upon which the
transaction agreement is terminated:
- neither Warner Chilcott nor any of its subsidiaries, directors, officers,
employees, agents or representatives, will, directly or indirectly,
solicit, initiate or furnish or disclose non-public information in
furtherance of any inquiries or make any proposal with respect to any
competing transaction, or negotiate or otherwise engage in discussions
with any person with respect to any competing transaction, or enter into
any agreement, arrangement or understanding requiring Warner Chilcott to
abandon, terminate or fail to complete the transaction;
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<PAGE> 99
- neither the board of directors of Warner Chilcott nor any committee of
the board of directors will withdraw or modify, or propose publicly to
withdraw or modify in a manner adverse to Galen, their recommendation of
the transaction and the scheme;
- neither the board of directors of Warner Chilcott nor any committee of
the board of directors will approve or recommend, or propose publicly to
approve or recommend, any competing transaction, unless the board of
directors, after having been advised, determines in good faith that
failure to do so would be likely to result in a breach of its fiduciary
duties under applicable law; and
- to advise Galen immediately of the receipt, directly or indirectly, of
any inquiries, discussions, negotiations or proposals relating to a
competing transaction provided that Warner Chilcott does not need to
provide Galen with the identity of any third party involved in any such
competing transaction unless and until the board of directors of Warner
Chilcott proposes to withdraw or modify its recommendation of the
transaction, or to approve or recommend any competing transaction.
Warner Chilcott also agreed, together with its subsidiaries, directors,
officers, employees, agents and representatives to cease with immediate effect
on signing the agreement, all existing activities, discussions and negotiations
with any third parties with respect to any competing transaction.
However, prior to the hearing of the petition for the court's sanction of
the scheme, Warner Chilcott may furnish information to, and negotiate or
otherwise engage in discussions with, any party who initiates contact with
Warner Chilcott regarding a competing transaction provided that the board of
directors of Warner Chilcott determines in good faith, after being advised by
its outside counsel and independent financial advisor, that failing to consider
and cooperate with a third party regarding such a competing transaction would be
likely to constitute a breach of their fiduciary duties under applicable law.
In the event that Warner Chilcott's board of directors receives a proposal
for a competing transaction that it determines in good faith is reasonably
capable of being completed, taking into account all legal, financial, regulatory
and other aspects of the proposal and which would, if completed, result in a
transaction determined by a majority of the members of the board of directors,
in good faith, to be more favorable to Warner Chilcott's shareholders than the
transaction and the scheme, referred to as a superior proposal, then the board
of directors of Warner Chilcott may, subject to the terms set out below,
terminate the transaction agreement.
Warner Chilcott must notify Galen of any intention to take any action in
relation to a superior proposal, together with the material terms and conditions
of, and the identity of the person making, any superior proposal. Warner
Chilcott has agreed, for a period of five business days following receipt by
Galen of any such notice, not to proceed in any way with the superior proposal.
During this period Galen may either present to Warner Chilcott a revised
proposal, or give notice to Warner Chilcott that it does not intend to revise
its current proposal with respect to the transaction. Any revised proposal from
Galen must be considered by the board of directors of Warner Chilcott, and if
determined by a majority of the members of the board of directors, in good faith
after receiving advice from Warner Chilcott's independent financial advisor, to
be more favorable to Warner Chilcott's shareholders than the superior proposal,
after taking into account all legal, financial, regulatory and other aspects of
the proposal, then Warner Chilcott and its subsidiaries, directors, officers,
employees, agents and representatives must cease all activities, discussions and
negotiations with any party with respect to the superior proposal. If the
revised proposal is determined by Warner Chilcott's board of directors to be
less favorable than the superior proposal, or if Galen does not make a revised
proposal, then Warner Chilcott may terminate the transaction agreement and
proceed with the superior proposal.
RELATED MATTERS AFTER THE TRANSACTION
At the effective time of the transaction, Warner Chilcott will become a
wholly owned subsidiary of Galen. Galen will own 100% of the issued share
capital of Warner Chilcott. After the effective time of the transaction, all
ordinary shares of Warner Chilcott represented by ADSs and evidenced by ADRs
will cease to be listed on the Nasdaq National Market. Galen will use its
reasonable best efforts to cause the ordinary shares of Galen to be issued as
consideration under the transaction to be listed for trading on the Nasdaq
National Market at the effective time of the transaction.
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<PAGE> 100
STOCK OPTIONS AND EMPLOYEE BENEFITS
Warner Chilcott and Galen have agreed that they will use their reasonable
best efforts to implement arrangements whereby the outstanding Warner Chilcott
options and warrants will be modified to become options and warrants to acquire
the number of whole ordinary shares of Galen equal to the number of ordinary
shares that were issuable upon exercise of the Warner Chilcott option or warrant
immediately prior to the effective time of the transaction multiplied by the per
share consideration, rounded down to the nearest whole number of ordinary shares
of Galen. The per share exercise price of ordinary shares of Galen issuable upon
exercise of these Galen options and warrants will be equal to the exercise price
per share at which the Warner Chilcott option or warrant was exercisable
immediately prior to the effective time of the transaction divided by the per
share consideration, rounded up to the nearest whole cent. After conversion, the
substitute options will continue to be subject to the provisions of the existing
Warner Chilcott share plans and in accordance with the terms of those plans, the
substitute options will become fully vested.
For a period of one year following the effective time of the transaction,
Galen has agreed to provide to the employees of Warner Chilcott and its
subsidiaries who become employees of Galen as of the effective time of the
transaction broad-based employee benefit plans and arrangements which are in the
reasonable opinion of Galen no less favorable, in the aggregate, to those
employees than the benefits currently provided by Warner Chilcott and its
subsidiaries to those employees.
INDEMNIFICATION
All rights to indemnification now existing in favor of a director or
officer of Warner Chilcott, as in effect on the date of the transaction
agreement, with respect to matters occurring through the transaction, shall
survive the transaction and continue in full force and effect for a period of
six years from the transaction. In addition, under the transaction agreement,
for not less than six years after the transaction, Galen has agreed to maintain
in effect the current policies of directors' and officers' liability insurance
maintained by Warner Chilcott; provided, that (1) Galen may substitute policies
containing terms and conditions which are not less advantageous, to such parties
and (2) Galen will not be required to pay an annual premium in excess of 300% of
the last annual premium paid by Warner Chilcott.
CONDITIONS
The respective obligations of Galen and Warner Chilcott to complete the
transaction is subject to the satisfaction or waiver on or prior to the
effective date of the transaction of the following conditions:
- the absence of any judgment, order, decree, statute, law, ordinance, rule
or regulation by any court or other governmental entity of competent
jurisdiction or other legal restraint or prohibition (1) imposing or
seeking to impose material limitations on the ability of Galen to acquire
or hold or to exercise full rights of ownership of any ordinary shares of
Warner Chilcott; (2) imposing or seeking to impose material limitations
on the ability of Galen and its affiliates to combine, operate or control
the business and assets of Warner Chilcott; (3) imposing or seeking to
impose other material sanctions, damages, or liabilities directly arising
out of the transaction on Galen or Warner Chilcott; (4) requiring or
seeking to require divestiture by Galen of all or any material portion of
the business, assets or property of Warner Chilcott; or (5) preventing
the completion of the transaction;
- the absence of any action or proceeding instituted, proposed or
threatened by any governmental entity seeking to prevent completion of
the transaction, asserting the illegality of the transaction or the
transaction agreement or seeking material damages directly arising out of
the transactions contemplated thereby;
- the expiration or termination of the applicable waiting period under the
U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976;
- to the extent applicable, written clearance from the Irish Minister for
Enterprise, Trade and Employment under the Mergers, Takeovers and
Monopolies (Control) Act, 1978, as amended;
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<PAGE> 101
- the absence of any action by the Department of Justice or Federal Trade
Commission or any foreign or supranational agency or entity charged with
enforcement of antitrust laws that are applicable to the transactions
contemplated by the transaction agreement;
- Warner Chilcott and Galen shareholders have approved the transaction, and
in the case of Warner Chilcott, also the scheme;
- the scheme has been approved, and the capital reduction of Warner
Chilcott has been confirmed, by the High Court;
- the Galen American Depositary Shares to be issued under the scheme must
be listed for trading on the Nasdaq National Market; and
- the new ordinary shares of Galen to be issued under the scheme must be
admitted to trading to the official list of the London Stock Exchange.
The obligation of Warner Chilcott to complete the transaction is further
subject to the satisfaction or waiver of the following conditions:
- the representations and warranties of Galen must be true, complete and
correct in all material respects both when made on and as of the
effective time of the transaction, as if made at and as of such time;
- Galen must perform or comply with, in all material respects, all its
obligations under the transaction agreement;
- the absence of any change, condition, event or development that would
result in a material adverse affect on Galen; and
- Warner Chilcott must be reasonably satisfied that the transaction will be
treated for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code;
- unless prevented by laws or regulations, Messrs. Boissonneault and
Herendeen must be appointed to the board of directors of Galen with
effect from the effective time of the transaction.
The obligation of Galen to complete the transaction is further subject to
the satisfaction or waiver of the following conditions:
- the representations and warranties of Warner Chilcott must be true,
complete and correct in all material respects both when made and on and
as of the effective time of the transaction, as if made at and as of such
time;
- Warner Chilcott must perform or comply with in all material respects all
its obligations under the transaction agreement; and
- the absence of any change, condition, event or development that would
result in a material adverse effect on Warner Chilcott.
TERMINATION
The transaction agreement provides that either Warner Chilcott or Galen may
terminate the transaction agreement and abandon the scheme, whether before or
after approval of the scheme by Warner Chilcott's shareholders or sanction of
the scheme by the High Court, as follows:
- by mutual written consent;
- if any court or governmental entity issues, enacts, promulgates or
expenses any order, judgment, decree, injunction, ruling or taken any
other action prohibiting the transaction, and such order, judgment,
decree, injunction, ruling or other action becomes final and
nonappealable;
- if either Warner Chilcott's or Galen's board of directors withdraws or
modifies in a manner adverse to Galen or Warner Chilcott, as the case may
be, its recommendation of the transaction to its respective shareholders,
or publicly discloses its intention to change such recommendation;
I-85
<PAGE> 102
- if either Warner Chilcott or Galen breaches any representation, warranty
or covenant contained in the transaction agreement which has a material
adverse effect;
- if either Warner Chilcott or Galen fail to obtain their requisite
shareholder approval by October 31, 2000;
- subject to certain conditions, if Warner Chilcott receives a proposal for
a competing transaction that the board of directors of Warner Chilcott
considers in good faith to be reasonably capable of being completed and
to be a superior proposal;
- if there occurs a change, condition, event or development that
constitutes a material adverse effect on either Warner Chilcott or Galen;
and
- by Warner Chilcott if Credit Suisse First Boston withdraws its fairness
opinion.
TERMINATION FEES AND EXPENSES
If the transaction agreement is terminated
(1) by Galen if Warner Chilcott's board of directors withdraws or
modifies in a manner adverse to Galen its recommendation of the transaction
and the scheme,
(2) by Warner Chilcott if, subject to conditions, it receives a
superior proposal,
(3) by Warner Chilcott if the fairness opinion given to Warner
Chilcott by Credit Suisse is withdrawn, or
(4) by Galen if Warner Chilcott does not, subject to conditions,
obtain its shareholder approval of the transaction and the scheme on or
prior to October 31, 2000,
then, in each case, Warner Chilcott must reimburse Galen on demand for all
reasonable and documented costs and expenses incurred by Galen in connection
with the transaction agreement and the transactions contemplated thereby up to a
maximum aggregate amount of $4.25 million.
If the transaction agreement is terminated by either Warner Chilcott or
Galen at a time when Galen is entitled to terminate the transaction agreement
under paragraphs 1, 2 or 3 above, Warner Chilcott must also pay to Galen a
termination fee of $4.25 million in cash, such payment to be made promptly, but
in no event later than the fifth business day following any such termination.
Provided, however, that the termination fee will be reduced by the aggregate
amount of any costs and expenses paid by Warner Chilcott to Galen as described
above.
Notwithstanding any of the foregoing, if the transaction agreement is
terminated by Warner Chilcott because
(1) Galen does not obtain its shareholder approval of the transaction
on or prior to October 31, 2000, or
(2) Galen's board of directors withdraws or modifies in a manner
adverse to Warner Chilcott its recommendation of the transaction,
then Galen must reimburse Warner Chilcott on demand for all reasonable and
documented costs and expenses incurred by Warner Chilcott in connection with the
transaction agreement and the transactions contemplated thereby up to a maximum
aggregate amount of $4.25 million.
In addition, if the transaction agreement is terminated by Warner Chilcott
under paragraph 2 above, Galen must also pay to Warner Chilcott a termination
fee of $4.25 million as described above.
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<PAGE> 103
CHAPTER TWO
FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF WARNER CHILCOTT
Set forth below is selected consolidated financial data of Warner Chilcott
Public Limited Company and its subsidiaries at the dates and for the periods
indicated. The selected consolidated statements of operations data for the years
ended December 31, 1999 and 1998 and the selected balance sheet data as of
December 31, 1999 and 1998 were derived from the historical financial statements
of Warner Chilcott Public Limited Company and its subsidiaries that were audited
by KPMG LLP and appear elsewhere herein. The selected consolidated statements of
operations data for the year ended December 31, 1997 was derived from the
historical financial statements of Warner Chilcott Public Limited Company and
subsidiaries that were audited by KPMG Chartered Accountants and appear
elsewhere herein. The selected consolidated statements of operations data for
the years ended December 31, 1996 and 1995 and the selected balance sheet data
as of December 31, 1997, 1996 and 1995 were derived from audited historical
statements of Warner Chilcott Public Limited Company and subsidiaries that do
not appear elsewhere herein. The selected consolidated financial data as of and
for the three months ended March 31, 2000 and 1999 are unaudited and, in our
opinion, contain all adjustments, consisting only of normal, recurring accruals,
which are necessary for a fair statement of the results of those periods.
Results for the three months ended March 31, 2000 are not necessarily indicative
of results that may be expected for the entire year. The above described
financial statements have been prepared in accordance with U.S. GAAP.
The selected financial data set forth below should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the audited consolidated
financial statements and accompanying notes included elsewhere in this proxy
statement.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000(4)
---------- ---------- ---------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1).................... $ 48 $ 62,734 $ 75,827 $ 64,894 $ 74,035 $ 21,048 $ 26,079
---------- ---------- ---------- ----------- ----------- ----------- -----------
Costs and expenses
Cost of goods sold........... -- 53,367 62,863 34,230 27,704 8,449 6,127
Selling, general and
administrative............. 1,934 10,373 23,618 41,709 46,409 12,111 12,647
Depreciation and
amortization............... 14 3,419 5,458 5,621 5,520 1,412 2,421
Research and development..... 7,434 10,915 6,526 3,241 3,100 841 469
One-time charge -- acquired
in-process research and
development(2)............. -- 16,000 -- -- -- -- --
---------- ---------- ---------- ----------- ----------- ----------- -----------
Total costs and expenses....... 9,382 94,074 98,465 84,801 82,733 22,813 21,664
---------- ---------- ---------- ----------- ----------- ----------- -----------
Operating income (loss)........ (9,334) (31,340) (22,638) (19,907) (8,698) (1,765) 4,415
---------- ---------- ---------- ----------- ----------- ----------- -----------
Net interest income
(expense).................... 1,560 (7,999) (5,736) (390) (747) (232) (3,103)
Gain on sale of assets(3)...... -- -- -- -- 2,744 -- --
---------- ---------- ---------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item........... (7,774) (39,339) (28,374) (20,297) (6,701) (1,997) 1,312
Net income (loss).............. $ (7,774) $ (39,339) $ (28,374) $ (20,297) $ (6,701) $ (1,997) $ 581
========== ========== ========== =========== =========== =========== ===========
Net income (loss) per ordinary
share -- diluted............. $ (3.17) $ (9.62) $ (3.39) $ (1.64) $ (0.54) $ (0.16) $ 0.05
========== ========== ========== =========== =========== =========== ===========
Weighted average ordinary
shares outstanding --
diluted...................... 2,454,710 4,807,210 8,359,623 12,366,808 12,367,706 12,366,808 12,726,250
========== ========== ========== =========== =========== =========== ===========
</TABLE>
II-1
<PAGE> 104
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------- AT MARCH 31,
1995 1996 1997 1998 1999 2000
------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $21,055 $ 2,663 $ 52,786 $ 43,133 $ 50,954 $ 36,112
Working capital............................. 20,107 10,498 51,770 58,901 56,465 50,715
Total assets................................ 21,575 123,668 171,737 157,017 132,462 311,174
Working capital debt........................ -- 18,200 14,511 20,393 12,098 --
Long-term debt.............................. -- 53,204 7,902 8,897 10,476 196,370
Shareholders' equity........................ $20,366 $ 28,183 $124,646 $104,943 $ 98,984 $100,177
</TABLE>
- ---------------
(1) The increase in revenue from 1995 to 1996 reflects our acquisition, in March
1996, of the Warner Chilcott division from Warner-Lambert Company.
(2) Represents the writeoff of acquired in-process research and development
related to the acquisition of the Warner Chilcott division in 1996.
(3) Represents the gain on the sale of our Vectrin(R) branded minocycline
product in September 1999.
(4) Included in net income for the three months ended March 31, 2000 is an
extraordinary loss of $731,000 (or $.06 per diluted share) related to the
repayment of certain debt.
II-2
<PAGE> 105
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GALEN
The following selected consolidated financial data insofar as it relates to
each of the years 1995 through 1999, has been derived from annual financial
statements, including the consolidated balance sheets at September 30, 1998 and
1999 and the related consolidated statement of profit and loss for the three
years ended September 30, 1999 and notes thereto appearing elsewhere herein. The
selected consolidated financial data for the six months ended March 31, 1999 and
2000 are derived from the unaudited financial statements also appearing herein.
The financial statements have been prepared in accordance with U.K. GAAP which
differs in certain respects from U.S. GAAP. See note 33 to Galen's consolidated
financial statements for a summary of the main differences between U.K. GAAP and
U.S. GAAP.
You should read the data set out below in conjunction with "Galen's
Management's Discussion and Analysis of Financial Condition and Results of
Operations", the pro forma financial information and the audited consolidated
financial statements and notes thereto set out on page F-38 and thereafter.
PROFIT AND LOSS ACCOUNT DATA IN ACCORDANCE WITH UK GAAP
<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
YEAR ENDED SEPTEMBER 30 MARCH 31
---------------------------------------------------------- ---------------------------
1995 1996 1997 1998 1999 1999(1) 1999 2000 2000(1)
------- ------- -------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Turnover
Continuing operations........... L23,312 L31,068 L 39,252 L48,867 L67,010 $98,692 L31,050 L42,446 $62,514
Discontinued operations(2)...... 33,906 43,797 -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------- ------- -------
Total turnover.................. 57,218 74,865 39,252 48,867 67,010 98,692 31,050 42,446 62,514
------- ------- -------- ------- ------- ------- ------- ------- -------
Operating profit
Continuing operations:
Before exceptional item and
goodwill amortisation......... 3,867 7,493 10,498 14,067 19,361 28,515 9,389 12,044 17,738
Exceptional item(3)............. -- -- -- (2,731) -- -- -- -- --
Goodwill amortisation........... -- -- -- -- (671) (988) -- (901) (1,327)
Discontinued operations......... 1,690 1,457 -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------- ------- -------
Total operating profit.......... 5,557 8,950 10,498 11,336 18,690 27,527 9,389 11,143 16,411
Gain on disposal of intangible
asset......................... -- -- 750 -- -- -- -- -- --
Investment income............... -- -- 446 1,507 925 1,362 622 747 1,100
Interest payable and similar
charges....................... (389) (440) (348) (939) (1,210) (1,782) (565) (644) (948)
------- ------- -------- ------- ------- ------- ------- ------- -------
Profit before taxation.......... 5,168 8,510 11,346 11,904 18,405 27,107 9,446 11,246 16,563
Taxation on profit on ordinary
activities.................... 1,377 2,303 2,948 3,580 4,396 6,475 2,246 2,499 3,681
------- ------- -------- ------- ------- ------- ------- ------- -------
Profit after taxation........... 3,791 6,207 8,398 8,324 14,009 20,632 7,200 8,747 12,882
Minority interests.............. -- -- -- (12) (19) (28) 13 (39) (57)
------- ------- -------- ------- ------- ------- ------- ------- -------
Profit for the financial
period........................ 3,791 6,207 8,398 8,312 13,990 20,604 7,213 8,708 12,825
Dividends....................... -- 5,522(2) 427 1,535 1,915 2,820 640 910 1,340
------- ------- -------- ------- ------- ------- ------- ------- -------
Retained profit for the
period........................ L 3,791 L 685 L 7,971 L 6,777 L12,075 $17,784 L 6,573 L7,798 $11,485
======= ======= ======== ======= ======= ======= ======= ======= =======
Earnings per share.............. 3.8p 6.2p 8.0p 7.1p 12.0p 17.7c 6.2p 7.2p 10.6c
Diluted earnings per share...... 3.8p 6.2p 8.0p 7.1p 12.0p 17.7c 6.2p 7.2p 10.6c
Dividend per share.............. -- -- 0.3p 1.3p 1.6p 2.4c 0.5p 0.7p 1.0c
======= ======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Translated solely for the reader from British pounds into U.S. dollars at
the Noon Buying Rate on May 23, 2000 of L1.00 = $1.4728.
(2) Discontinued operations relate to the Connors Chemists retail chemist
business in Northern Ireland which was demerged from the Group on August 30,
1996 to allow Galen to focus on its pharmaceutical businesses. The dividend
in 1996 was a demerger dividend comprising the net assets of Connors
Chemists at the date of demerger.
(3) The exceptional item in 1998 related to the abortive costs of the proposed
acquisition of Ferring AB.
II-3
<PAGE> 106
BALANCE SHEET DATA OF GALEN IN ACCORDANCE WITH U.K. GAAP
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30 AS AT MARCH 31
----------------------------------------------------------- -----------------------------
1995 1996 1997 1998 1999 1999(1) 1999 2000 2000(1)
------- ------- ------- ------- -------- -------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed assets:
Intangible assets...... L 326 L 453 L 434 L 401 L 35,337 $ 52,044 L 774 L 34,974 $ 51,510
Tangible assets........ 13,641 15,117 40,835 57,154 65,173 95,987 61,014 73,343 108,019
------- ------- ------- ------- -------- -------- ------- -------- --------
13,967 15,570 41,269 57,555 100,510 148,031 61,788 108,317 159,529
------- ------- ------- ------- -------- -------- ------- -------- --------
Current assets:
Stocks................. 10,735 2,901 4,338 4,811 8,829 13,003 5,558 10,781 15,878
Debtors................ 7,729 6,456 9,123 12,402 15,826 23,309 13,412 19,057 28,067
Cash at bank and in
hand(2)............. 217 138 22,251 16,213 6,351 9,354 17,042 38,237 56,316
------- ------- ------- ------- -------- -------- ------- -------- --------
18,681 9,495 35,712 33,426 31,006 45,666 36,012 68,075 100,261
Creditors: amounts
falling due within one
year................... 16,095 6,695 10,449 17,317 27,112 39,931 17,416 28,399 41,826
------- ------- ------- ------- -------- -------- ------- -------- --------
Net current assets....... 2,586 2,800 25,263 16,109 3,894 5,735 18,596 39,676 58,435
------- ------- ------- ------- -------- -------- ------- -------- --------
Total assets less current
liabilities............ 16,553 18,370 66,532 73,664 104,404 153,766 80,384 147,993 217,964
Creditors: amounts
falling due after more
than one year.......... 2,716 2,767 11,373 10,746 29,981 44,156 10,946 28,700 42,269
Provision for liabilities
and charges:
Deferred taxation...... 347 -- -- -- -- -- -- -- --
Deferred income.......... 2,613 4,041 5,625 6,691 6,270 9,234 6,677 6,762 9,959
------- ------- ------- ------- -------- -------- ------- -------- --------
Net assets............... L10,877 L11,562 L49,534 L56,227 L 68,153 $100,376 L62,761 L112,531 $165,736
======= ======= ======= ======= ======== ======== ======= ======== ========
Capital and reserves:
Called up share
capital............. 133 133 12,127 12,127 12,127 17,861 12,127 12,727 18,744
Share premium
account............. 1,367 1,367 19,377 19,264 19,264 28,372 19,264 55,031 81,050
Profit and loss
account............. 9,377 10,062 18,030 24,824 36,731 54,097 31,371 44,703 65,839
------- ------- ------- ------- -------- -------- ------- -------- --------
Equity shareholders'
funds.................. 10,877 11,562 49,534 56,215 68,122 100,330 62,762 112,461 165,633
Minority
interests -- equity.... -- -- -- 12 31 46 (1) 70 103
------- ------- ------- ------- -------- -------- ------- -------- --------
L10,877 L11,562 L49,534 L56,227 L 68,153 $100,376 L62,761 L112,531 $165,736
======= ======= ======= ======= ======== ======== ======= ======== ========
</TABLE>
- ---------------
(1) Translated solely for the reader from British pounds into U.S. dollars at
the Noon Buying Rate on May 23, 2000 of L1.00 = $1.4728.
(2) In July 1997 net proceeds of L30.0 million were raised in connection with
admission to the Official List of the London Stock Exchange.
II-4
<PAGE> 107
SELECTED CONSOLIDATED FINANCIAL DATA OF GALEN -- US GAAP
CONSOLIDATED PROFIT AND LOSS ACCOUNT DATA
<TABLE>
<CAPTION>
YEAR TO SIX MONTHS TO
SEPTEMBER 30 MARCH 31
----------------- -----------------
1998 1999 1999 2000
------ ------- ------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Profit............................................. L7,217 L11,683 L6,592 L 8,193
Basic earnings per share........................... 6.2p 10.0p 5.7p 6.8p
Diluted earnings per share......................... 6.2p 10.0p 5.7p 6.8p
====== ======= ====== ========
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS AT
AS AT SEPTEMBER 30 MARCH 31
------------------- --------
1998 1999 2000
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total assets.............................................. L92,059 L132,755 L177,805
Equity shareholders' funds................................ L54,266 L 64,921 L108,415
======= ======== ========
</TABLE>
II-5
<PAGE> 108
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements reflect the acquisition by Galen of Bartholomew Rhodes Limited and
certain of its subsidiaries during the year ended September 30, 1999, the
placing made by Galen in November 1999 (the "Galen placing"), the product
acquisitions and note issuance completed by Warner Chilcott in February 2000
(the "Warner transactions") and the proposed acquisition by Galen of Warner
Chilcott in a transaction to be accounted for as a purchase.
The unaudited pro forma consolidated profit and loss account is derived
from the historical consolidated profit and loss accounts of Galen for the year
ended September 30, 1999 and the six-month period ended March 31, 2000 which
includes Bartholomew Rhodes from the actual acquisition date of June 4, 1999
combined with the historical unaudited profit and loss account of Bartholomew
Rhodes from October 1, 1998 to the date of acquisition and the historical profit
and loss accounts of Warner Chilcott for the year ended December 31, 1999 and
the six-month period ended March 31, 2000.
The unaudited pro forma consolidated profit and loss account gives effect
to the acquisition of Bartholomew Rhodes, the Galen placing, the Warner
transactions and the acquisition of Warner Chilcott as if they had occurred on
October 1, 1998.
The operations of Warner Chilcott for the three months ended December 31,
1999 resulting in turnover and net loss of L10,878,000 ($16,021,118) and
L832,000 ($1,225,370) respectively have been included in the pro forma
consolidated profit and loss accounts for the year ended September 30, 1999 and
for the six-month period ended March 31, 2000.
The unaudited pro forma condensed balance sheet as at March 31, 2000 is
based on the individual balance sheets of Galen and Warner Chilcott appearing
elsewhere in this document and presents the combined financial position as at
March 31, 2000 as if the acquisition of Warner Chilcott had occurred on March
31, 2000.
The unaudited pro forma adjustments reflect estimates made by Galen based
on available information and certain assumptions that Galen believes to be
reasonable. The unaudited pro forma consolidated condensed financial statements
is provided for illustrative purposes only and does not purport to represent
what Galen's results of operations or financial condition would actually have
been, had the various transactions in fact occurred on such date, nor does it
purport to project the results of operations or financial condition of Galen for
any future period or date.
The unaudited pro forma consolidated condensed financial statements should
be read in conjunction with the audited consolidated financial statements and
accompanying notes of Galen, Bartholomew Rhodes and Warner Chilcott which are
included elsewhere herein.
II-6
<PAGE> 109
UNAUDITED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
BARTHOLOMEW
RHODES
GALEN GALEN HISTORICAL WARNER CHILCOTT
HISTORICAL HISTORICAL US GAAP HISTORICAL
UK GAAP US GAAP FOR THE US GAAP
YEAR YEAR PERIOD FROM YEAR
ENDED ENDED OCT. 1, 1998 ENDED WARNER
SEPT. 30, US GAAP SEPT. 30, TO JUNE 4, DEC. 31, CHILCOTT
1999 ADJUSTMENTS(1) 1999 1999(2) 1999(3) TRANSACTIONS(4)
---------- -------------- ---------- ----------------- --------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Turnover....................... L 67,010 L -- L 67,010 L 3,163 L 45,751 L 30,897
Cost of sales.................. (32,558) -- (32,558) (2,662) (17,120) (1,174)
-------- ------- -------- ------- -------- --------
Gross profit................... 34,452 -- 34,452 501 28,631 29,723
Net operating expenses......... (15,762) (277) (16,039) (2,537) (34,006) (7,750)
-------- ------- -------- ------- -------- --------
Operating profit/(loss)........ 18,690 (277) 18,413 (2,036) (5,375) 21,973
Gain/(loss) on fixed asset
disposals..................... -- -- -- (430) 1,696 --
Investment income.............. 925 -- 925 -- 1,399 (284)
Interest payable............... (1,210) 671 (539) (498) (1,861) (14,559)
-------- ------- -------- ------- -------- --------
Profit/(loss) before tax....... 18,405 394 18,799 (2,964) (4,141) 7,130
Tax............................ (4,396) (1,680) (6,076) 369 -- --
-------- ------- -------- ------- -------- --------
Profit/(loss) after tax........ 14,009 (1,286) 12,723 (2,595) (4,141) 7,130
Minority interests............. (19) -- (19) -- -- --
-------- ------- -------- ------- -------- --------
Profit/(loss) for the financial
year before non-recurring
charges....................... L 13,990 L(1,286) L 12,704 L(2,595) L (4,141) L 7,130
======== ======= ======== ======= ======== ========
Basic earnings per share....... 12.0p
Diluted earnings per share..... 12.0p
Shares used in computing basic
earnings per share
(thousands)................... 116,329
Shares used in computing
diluted earnings per share
(thousands)................... 116,621
========
<CAPTION>
PRO FORMA PRO FORMA
CONSOLIDATED CONSOLIDATED
GALEN US GAAP US GAAP
ACQUISITION OF FOR THE YEAR FOR THE YEAR
WARNER CHILCOTT ENDED ENDED
PURCHASE GALEN SEPT. 30, SEPT. 30,
ADJUSTMENTS(5) PLACING(6) 1999 1999(7)
--------------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Turnover....................... L -- L -- L146,821 $216,238(8)
Cost of sales.................. -- -- (53,514) (78,815)
------- ----- -------- --------
Gross profit................... -- -- 93,307 137,423
Net operating expenses......... (6,959)(f) -- (67,291) (99,106)
------- ----- -------- --------
Operating profit/(loss)........ (6,959) -- 26,016 38,317
Gain/(loss) on fixed asset
disposals..................... -- -- 1,266 1,865
Investment income.............. (726)(g) -- 1,314 1,935
Interest payable............... -- 419 (17,038) (25,094)
------- ----- -------- --------
Profit/(loss) before tax....... (7,685) 419 11,558 17,023
Tax............................ 218 (128) (5,617) (8,273)
------- ----- -------- --------
Profit/(loss) after tax........ (7,467) 291 5,941 8,750
Minority interests............. -- -- (19) (28)
------- ----- -------- --------
Profit/(loss) for the financial
year before non-recurring
charges....................... L(7,467) L 291 L 5,922 $ 8,722
======= ===== ======== ========
Basic earnings per share....... 4.0p 5.9c
Diluted earnings per share..... 3.3p 4.9c
Shares used in computing basic
earnings per share
(thousands)................... 147,306 147,306
Shares used in computing
diluted earnings per share
(thousands)................... 177,913 177,913
======== ========
</TABLE>
II-7
<PAGE> 110
UNAUDITED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
GALEN GALEN WARNER
HISTORICAL HISTORICAL CHILCOTT GALEN
UK GAAP US GAAP US GAAP ACQUISITION
SIX MONTHS SIX MONTHS SIX MONTHS OF WARNER
ENDED ENDED ENDED CHILCOTT
MAR. 31, US GAAP MAR. 31, MAR. 31, PURCHASE
2000 ADJUSTMENTS(1) 2000 2000(9) ADJUSTMENTS(5)
---------- -------------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Turnover............. L 42,446 L -- L 42,446 L 36,625 L --
Cost of sales........ (21,758) -- (21,758) (7,624) --
-------- ----- -------- -------- --------
Gross profit......... 20,688 -- 20,688 29,001 --
Net operating
expenses........... (9,545) (188) (9,733) (20,806) (3,480)(f)
-------- ----- -------- -------- --------
Operating
profit/(loss)...... 11,143 (188) 10,955 8,195 (3,480)
Investment income.... 747 -- 747 650 (363)(g)
Interest payable..... (644) 202 (442) (8,208) --
-------- ----- -------- -------- --------
Profit/(loss) before
tax................ 11,246 14 11,260 637 (3,843)
Tax.................. (2,499) (529) (3,028) -- 109
-------- ----- -------- -------- --------
Profit/(loss) after
tax................ 8,747 (515) 8,232 637 (3,734)
Minority interests... (39) -- (39) -- --
-------- ----- -------- -------- --------
Profit/(loss) for the
financial year
before non-
recurring charges.. L 8,708 L(515) L 8,193 L 637 L (3,734)
======== ===== ======== ======== ========
Basic earnings per
share.............. 7.2p
Diluted earnings per
share.............. 7.2p
Shares used in
computing basic
earnings per share
(thousands)........ 120,541
Shares used in
computing diluted
earnings per share
(thousands)........ 120,975
========
<CAPTION>
PRO FORMA PRO FORMA
CONSOLIDATED CONSOLIDATED
US GAAP US GAAP
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED ENDED
GALEN MAR. 31, MAR. 31,
PLACING(6) 2000 2000(7)
---------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Turnover............. L -- L 79,071 $116,456(8)
Cost of sales........ -- (29,382) (43,274)
---- -------- --------
Gross profit......... -- 49,689 73,182
Net operating
expenses........... -- (34,019) (50,103)
---- -------- --------
Operating
profit/(loss)...... -- 15,670 23,079
Investment income.... -- 1,034 1,522
Interest payable..... 58 (8,592) (12,654)
---- -------- --------
Profit/(loss) before
tax................ 58 8,112 11,947
Tax.................. (17) (2,936) (4,324)
---- -------- --------
Profit/(loss) after
tax................ 41 5,176 7,623
Minority interests... -- (39) (57)
---- -------- --------
Profit/(loss) for the
financial year
before non-
recurring charges.. L 41 L 5,137 $ 7,566
==== ======== ========
Basic earnings per
share.............. 3.4p 5.0c
Diluted earnings per
share.............. 2.8p 4.1c
Shares used in
computing basic
earnings per share
(thousands)........ 151,518 151,518
Shares used in
computing diluted
earnings per share
(thousands)........ 183,685 183,685
======== ========
</TABLE>
II-8
<PAGE> 111
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2000
<TABLE>
<CAPTION>
WARNER
GALEN GALEN CHILCOTT GALEN
HISTORICAL HISTORICAL HISTORICAL ACQUISITION
UKGAAP US GAAP US GAAP OF WARNER
AS AT AS AT AS AT CHILCOTT PRO FORMA PRO FORMA
MAR. 31, US GAAP MAR. 31, MAR. 31, PURCHASE CONSOLIDATED CONSOLIDATED
2000 ADJUSTMENTS(1) 2000 2000(10) ADJUSTMENTS(5) US GAAP US GAAP(7)
---------- -------------- ---------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED ASSETS:
Intangible
assets........... L 34,974 L(10,834) L 24,140 L 153,692 L134,009(a) L 311,841 $459,279
Tangible assets.... 73,343 1,918 75,261 706 -- 75,967 111,884
-------- -------- -------- --------- -------- --------- --------
108,317 (8,916) 99,401 154,398 134,009 387,808 571,163
-------- -------- -------- --------- -------- --------- --------
CURRENT ASSETS:
Stocks............. 10,781 -- 10,781 3,853 1,492 16,126 23,751
Debtors............ 19,057 -- 19,057 14,505 -- 33,562 49,430
Cash at bank and in
hand............. 38,237 -- 38,237 22,681 (12,906)(b) 48,012 70,712
-------- -------- -------- --------- -------- --------- --------
68,075 -- 68,075 41,039 (11,414) 97,700 143,893
Creditors: amounts
falling due
within one
year............. (28,399) 3,646 (24,753) (9,187) (126,868) (160,808) (236,838)
-------- -------- -------- --------- -------- --------- --------
NET CURRENT ASSETS/
(LIABILITIES)...... 39,676 3,646 43,322 31,852 (138,282) (63,108) (92,945)
-------- -------- -------- --------- -------- --------- --------
TOTAL ASSETS LESS
CURRENT
LIABILITIES........ 147,993 (5,270) 142,723 186,250 (4,273) 324,700 478,218
Creditors: amounts
falling due after
more than one
year............. (28,700) 7,527 (21,173) (123,333) 123,333 (21,173) (31,184)
Deferred
taxation......... -- (6,303) (6,303) -- -- (6,303) (9,283)
Deferred income.... (6,762) -- (6,762) -- -- (6,762) (9,959)
-------- -------- -------- --------- -------- --------- --------
NET ASSETS........... L112,531 L (4,046) L108,485 L 62,917 L119,060 L 290,462 $427,792
======== ======== ======== ========= ======== ========= ========
CAPITAL AND RESERVES:
Called up share
capital.......... L 12,727 L -- L 12,727 L 417 L 2,681(c) L 15,825 $ 23,307
Share premium/other
reserves......... 55,031 -- 55,031 131,397 62,929(d) 249,357 367,253
Profit and loss
account.......... 44,703 (4,046) 40,657 (68,897) 53,450(e) 25,210 37,129
-------- -------- -------- --------- -------- --------- --------
EQUITY SHAREHOLDERS'
FUNDS.............. 112,461 (4,046) 108,415 62,917 119,060 290,392 427,689
MINORITY INTERESTS --
EQUITY............. 70 -- 70 -- -- 70 103
-------- -------- -------- --------- -------- --------- --------
L112,531 L (4,046) L108,485 L 62,917 L119,060 L 290,462 $427,792
======== ======== ======== ========= ======== ========= ========
</TABLE>
II-9
<PAGE> 112
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL DATA
NOTE 1
U.K. GAAP differs in certain respects from U.S. GAAP. A summary of the
significant differences as they affect Galen are set out in note 33 to the
historical consolidated financial statements of Galen included elsewhere herein.
The proforma consolidated profit and loss account for the year ended September
30, 1999 in accordance with U.S. GAAP excludes the charge of L1,021,000 in
respect of acquired in-process research and development as this is a
non-recurring charge relating to the Bartholomew Rhodes acquisition.
NOTE 2
<TABLE>
<CAPTION>
BARTHOLOMEW
RHODES
HISTORICAL
BARTHOLOMEW US GAAP
RHODES FOR PERIOD
HISTORICAL FROM
UK GAAP OCT. 1, 1998
YEAR ENDED ADJUSTMENTS ADJUSTMENTS TO
MAR. 31, 1999 (A) (B)(C) JUNE 4, 1999
------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Turnover.................................. L 4,328 L(1,165) L -- L 3,163
Cost of sales............................. (2,679) 17 -- (2,662)
------- ------- ------- -------
Gross profit.............................. 1,649 (1,148) -- 501
Net operating expenses.................... (2,795) 927 (669) (2,537)
------- ------- ------- -------
Operating (loss)/profit................... (1,146) (221) (669) (2,036)
Loss on fixed asset disposals............. -- (430) -- (430)
Interest payable.......................... (30) (1) (467) (498)
------- ------- ------- -------
(Loss)/profit before tax.................. (1,176) (652) (1,136) (2,964)
Tax....................................... 363 (136) 142 369
------- ------- ------- -------
(Loss)/profit after tax................... L (813) L (788) L (994) L(2,595)
======= ======= ======= =======
</TABLE>
- ---------------
(a) Adjustments are made to the historical audited statements of operations of
Bartholomew Rhodes for the 12 months ended March 31, 1999 to exclude the
results of operations for the six months ended September 30, 1998 and to add
the results of operations for the period April 1, 1999 to June 4, 1999
(b) Adjustments have been included to reflect the impact on Galen group results
had the acquisition of Bartholomew Rhodes taken place on October 1, 1998.
These adjustments represent increased amortization of goodwill, additional
interest costs and related taxation.
(c) There are no U.S. GAAP adjustments relating to the results of Bartholomew
Rhodes for the period from October 1, 1998 through June 4, 1999.
NOTE 3
The historical results of Warner Chilcott for the year ended December 31,
1999 have been calculated from the U.S. dollar audited financial statements of
Warner Chilcott for that period. The results have been translated from U.S.
dollars to pounds sterling using the average rate for the year of U.S.$1.6182 =
L1.00.
No adjustment has been made to recognize income tax expense in relation to
Warner Chilcott in preparing the pro forma statements. As of December 31, 1999,
Warner Chilcott had net operating loss carryforwards of $62.0 million for U.S.
federal income tax purposes and $40.0 million for state income tax purposes. The
pro forma financial statements assume that the pre-tax pro forma income would be
offset by the utilization of these tax losses.
II-10
<PAGE> 113
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL DATA -- (CONTINUED)
Once Warner Chilcott's net operating loss carry forwards are fully utilized
for financial reporting purposes, Warner Chilcott will be required to recognize
income tax expense at the then current effective tax rate.
NOTE 4
These adjustments, in the column headed "Warner Chilcott transactions,"
relate to the acquisition on February 15, 2000 by Warner Chilcott of three
branded pharmaceutical products from Bristol Myers Squibb for $175.1 million,
the issue contemporaneously of $200 million in principal amount of senior notes,
the repayment of amounts outstanding under their existing working capital
facility, the redemption of remaining senior subordinated discount notes due
2001 and the closing of a new senior credit facility. The unaudited pro forma
consolidated profit and loss account for the year ended September 30, 1999 gives
effect to the above transactions as if they had occurred on October 1, 1998.
NOTE 5
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
(a) Excess purchase price (see below)....................... L158,293
Warner historical goodwill eliminated................... (19,119)
Deferred financing costs eliminated..................... (5,165)
--------
L134,009
========
</TABLE>
Excess purchase price arising on the acquisition is calculated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Consideration (see below)............................... L204,656
Estimated expenses of the acquisition................... 11,022
Less estimated proportion of expenses relating to
registration of shares................................... (5,348)
--------
210,330
Less fair value of net assets of Warner Chilcott at
March 31, 2000........................................... (52,037)
--------
Excess purchase price................................... L158,293
========
</TABLE>
Consideration consists of L178,272,000 ($262,559,002) representing
30,976,826 shares of Galen valued at L5.755 per share, which represents the
average closing share price of Galen shares traded on the London Stock
Exchange for the five days before and after the announcement of the
transaction on May 4, 2000, to be issued in exchange for the 12,390,730
outstanding shares of Warner Chilcott as of March 31, 2000, together with
an amount of L24,500,000 ($36,083,600) representing the fair value of Galen
share options which are to be exchanged for Warner Chilcott options and
warrants and L1,884,000 ($2,774,755) representing severance and other
charges arising as a result of the acquisition.
II-11
<PAGE> 114
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL DATA -- (CONTINUED)
Galen's preliminary allocation of the estimated purchase price to assets
purchased is as follows:
<TABLE>
<CAPTION>
WARNER
HISTORICAL FAIR VALUE
US GAAP OF WARNER
AS AT PRELIMINARY NET ASSETS
MARCH 31 FAIR VALUE AT MARCH 31
2000 ADJUSTMENTS 2000 NOTES
---------- ----------- ----------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Goodwill....................................... L 19,119 L (19,119) L --
Other intangible assets........................ 134,573 (5,165) 129,408
In process research and development............ -- 15,447 15,447
--------- --------- --------
153,692 (8,837) 144,855
Tangible assets................................ 706 -- 706
--------- --------- --------
154,398 (8,837) 145,561
--------- --------- --------
Stocks......................................... 3,853 1,492 5,345
Other net current assets/(liabilities)......... 27,999 (126,868) (98,869) (h)
--------- --------- -------- -----
Net current assets/(liabilities)............... 31,852 (125,376) (93,524)
--------- --------- --------
Total assets less current liabilities.......... 186,250 (134,213) 52,037
Creditors: amounts falling due after more than
one
year........................................... (123,333) 123,333 -- (h)
--------- --------- --------
Net assets..................................... L 62,917 L (10,880) L 52,037
========= ========= ========
</TABLE>
Under purchase accounting, the total purchase price will be allocated to
Warner Chilcott's assets and liabilities based on their relative fair
values. Allocations above are preliminary and are subject to completion of
valuations as of the date of the consummation of the acquisition.
Valuations of specifically identifiable intangible assets and in-process
research and development are in progress. Consequently, the actual
allocation of the purchase price could differ from that presented above.
(b) Reflects the estimated expenses of the acquisition, severance and other
charges arising as a result of the acquisition.
(c) Reflects the elimination of the share capital of Warner Chilcott, L417,000
($614,158) and the issue of Galen shares as consideration, at par value
L3,098,000 ($4,562,734).
(d) Reflects the elimination of share premium and other reserves of Warner
Chilcott, L131,397,000 ($193,521,502) and the addition to share premium and
other reserves on issue of Galen shares and options as consideration,
L194,326,000 ($286,203,333).
(e) Reflects the elimination of the profit and loss account deficit of Warner
Chilcott and the write-off of Warner Chilcott in-process research and
development.
(f) Reflects the amortisation of excess purchase price arising on the
acquisition (net of Warner Chilcott historical goodwill eliminated) on a
straight-line basis over 20 years. The pro forma consolidated profit and
loss account excludes any charge in respect of acquired in-process research
and development as this is a non-recurring charge relating to the
acquisition of Warner Chilcott.
(g) Reflects the reduction in investment income from cash used for transaction
expenses incurred.
(h) Long term liabilities in Warner Chilcott's balance sheet at March 31, 2000,
includes $200 million in principal amount of senior notes issued by Warner
Chilcott on February 15, 2000 which are repurchasable upon a change of
control. The acquisition of Warner Chilcott by Galen represents such a
change in control. The liability has been reclassified as current in the pro
forma balance sheet at a purchase price equal to 101% of the principal
amount in accordance with the terms of the notes. Should such repurchase be
required, Galen intends to replace the liability with currently unutilized
long-term bank facilities and additional long-term financing, the terms of
which are currently being negotiated by Galen.
II-12
<PAGE> 115
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL DATA -- (CONTINUED)
NOTE 6
This adjustment relates to the placing on November 25, 1999 of 6,000,000
new ordinary Galen shares of 10p each at a premium of L6.05 per share. Total
proceeds, net of costs, amounted to L36,385,464 ($53,588,511). The adjustment to
the consolidated pro forma profit and loss accounts represents the interest
saving on borrowings eliminated by the proceeds, as if the proceeds had been
received on October 1, 1998.
NOTE 7
Represents the translation of the pro forma consolidated financial
information solely for the convenience of the reader at the noon buying rate for
cable transfers of the Federal Reserve Bank of New York on May 23, 2000 of
U.S.$1.4728 = L1.00.
NOTE 8
On May 4, 2000, Warner Chilcott and Galen issued a joint press release
announcing the transaction and setting forth certain pro forma financial data. A
copy of such press release was filed with the Securities and Exchange Commission
by both of Galen and Warner Chilcott on May 4, 2000, pursuant to Rule 425 under
the Securities Act and Rule 14a-12 under the Exchange Act.
The pro forma financial data in such press release indicated pro forma
turnover in the year ended September 30, 1999, of approximately $233 million for
the combined company. In deriving such number, the profit and loss account of
Warner Chilcott was translated into pounds sterling at a rate of $1.6295 =
L1.00, the average exchange rate ruling during the twelve-month period ended
September 30, 1999. The pounds sterling pro forma turnover was then translated
back into U.S. dollars using the same ratio.
Since May 4, 2000, the pound has weakened against the dollar. Pursuant to
Rule 3-20 of Regulation S-X, the convenience translation provided above is as of
a more recent date (May 23, 2000) rather than the balance sheet date due to the
recent weakening of the pound against the dollar. If the convenience translation
provided above had been made using the rate of L1.00 = $1.6295 (the same rate
that the Warner Chilcott numbers were converted into pounds), turnover for the
year ended September 30, 1999 and the six-month period ended March 31, 2000
would have been $239.2 million and $128.8 million, respectively.
NOTE 9
The results of Warner Chilcott for the six months ended March 31, 2000 have
been derived from a combination of their unaudited results for the quarter ended
December 31, 1999 and their unaudited results for the quarter ended March 31,
2000. The combined amounts have been adjusted to reflect the impact on Warner
Chilcott results had the Warner transactions (referred to in 4 above) taken
place on October 1, 1998.
No adjustment has been made to recognize income tax expense in relation to
Warner Chilcott in preparing the pro forma statements. As of December 31, 1999,
Warner Chilcott had net operating loss carryforwards of $62.0 million for U.S.
federal income tax purposes and $40.0 million for state income tax purposes. The
pro forma financial statements assume that the pre-tax pro forma income would be
offset by the utilization of these tax losses.
Once Warner Chilcott's net operating loss carry forwards are fully utilized
for financial reporting purposes, Warner Chilcott will be required to recognize
income tax expense at the then current effective tax rate.
NOTE 10
The historical unaudited balance sheet of Warner at March 31, 2000 has been
translated from U.S. dollars to Pounds sterling using the noon buying rate on
March 31, 2000 of U.S.$1.5922 = L1.00.
II-13
<PAGE> 116
COMPARATIVE PER SHARE DATA -- UNAUDITED
The following tabulation reflects (a) the historical earnings, dividends
and book value per share of Galen shares in comparison with the pro forma
earnings, dividends and book value per share after giving effect to the proposed
acquisition of Warner Chilcott and (b) the historical net loss and book value
per share of Warner Chilcott common stock in comparison with the equivalent pro
forma net profit and book value per share attributable to 2.5 shares of Galen
ordinary shares which will be received for each share of Warner Chilcott. The
information presented in this tabulation should be read in conjunction with the
pro forma combined financial statements and the separate financial statements of
the respective companies and the notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------
GALEN PRO FORMA WARNER CHILCOTT
HISTORICAL WARNER CHILCOTT COMBINED EQUIVALENT
UK GALEN HISTORICAL US PRO FORMA
GAAP US GAAP US GAAP GAAP US GAAP
PENCE PENCE PENCE PENCE PENCE
---------- ------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Basic earnings/(loss) per
ordinary share.............. 12.0 10.0 (33.4) 4.0 10.0
Diluted earnings/(loss) per
ordinary share.............. 12.0 10.0 (33.4) 3.3 8.3
Dividends declared per
ordinary share.............. 1.6 1.6 -- 1.6 4.0
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX MONTHS ENDED MARCH 31, 2000
------------------------------------------------------------------------
GALEN PRO FORMA WARNER CHILCOTT
HISTORICAL WARNER CHILCOTT COMBINED EQUIVALENT
UK GALEN HISTORICAL US PRO FORMA
GAAP US GAAP US GAAP GAAP US GAAP
PENCE PENCE PENCE PENCE PENCE
---------- ------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Basic earnings/(loss) per
ordinary share.............. 7.2 6.8 (6.8) 3.4 8.5
Diluted earnings/(loss) per
ordinary share.............. 7.2 6.8 (6.2) 2.8 7.0
Dividends declared per
ordinary share.............. 0.7 0.7 -- 0.7 1.7
Book value per ordinary
share....................... 88.4 85.l 499.8 228.2 571.0
</TABLE>
II-14
<PAGE> 117
CHAPTER THREE
INFORMATION ABOUT THE MEETINGS AND VOTING
GENERAL
The transaction is to be effected principally by means of a scheme of
arrangement under Section 201 of the Companies Act, 1963. The scheme will
require the approval of the holders of ordinary shares at the court meeting.
This meeting is being held at the direction of the High Court of Ireland. The
transaction also requires the approval of the holders of ordinary shares at the
extraordinary general meeting of the reduction of Warner Chilcott's share
capital and certain other matters proposed in or incidental to the scheme.
This proxy statement is being furnished to holders of ordinary shares,
including those represented by ADSs by directions given to the depositary, and
holders of deferred shares: (1) for the purposes of soliciting proxies by and on
behalf of Warner Chilcott's board of directors for use at the court meeting and
the extraordinary general meeting to be held at 10:00 a.m. and 10:15 a.m.
respectively, local time (or, in the case of the extraordinary general meeting,
as soon thereafter as the court meeting has concluded or been adjourned), on
, 2000, and at any adjournment thereof and (2) to explain the effect
of the scheme and to describe any material interests of the directors of Warner
Chilcott, whether as directors, shareholders, creditors or otherwise, and any
effects which the scheme will have upon them which are different from the
effects which it will have on others affected by the scheme. This proxy
statement and the accompanying notices and proxy cards are first being mailed on
or about , 2000 to holders of ordinary shares, including those
represented by ADRs, whose names appear on Warner Chilcott's register of
shareholders at the time of mailing.
The obligations of Warner Chilcott and Galen to complete the transaction
are subject to, among other things, the condition that the shareholders of
Warner Chilcott, by the requisite votes thereof, approve the scheme and the
other matters to be proposed at the meetings.
The board of directors is not aware of any matters other than those
described in the notices of the meetings transmitted with this proxy statement
that may be brought before the meetings.
HOLDERS OF WARNER CHILCOTT'S ORDINARY SHARES ARE REQUESTED PROMPTLY TO
COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING SHAREHOLDERS' PROXY CARDS IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
HOLDERS OF WARNER CHILCOTT'S ORDINARY SHARES SHOULD NOT FORWARD ANY
CERTIFICATES REPRESENTING ORDINARY SHARES WITH THEIR PROXY CARDS. IN THE EVENT
THE TRANSACTION IS COMPLETED, CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE
WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL WHICH WILL BE SENT TO
SHAREHOLDERS PROMPTLY AFTER THE COMPLETION OF THE TRANSACTION.
MATTERS TO BE CONSIDERED AT THE MEETINGS
The court meeting has been convened to consider and, if thought fit, to
approve the scheme.
The extraordinary general meeting has been convened to consider and, if
thought fit, pass a special resolution to approve the reduction of Warner
Chilcott's capital and the subsequent creation and issuance by Warner Chilcott
of new shares to Galen in accordance with the scheme.
It is also proposed, as part of the resolution to be considered at the
extraordinary general meeting, to amend Warner Chilcott's articles of
association to ensure that ordinary shares issued upon the exercise of options
or otherwise between the commencement of the court meeting and 5:00 p.m. on the
day before the final court order is made will be subject to the scheme. It is
also proposed to amend Warner Chilcott's articles of association so that any
ordinary shares issued to any person (other than Galen, its subsidiary
undertakings or any person on behalf of them) at or after 5:00 p.m. on the day
before the final court order is made will be automatically exchanged for
ordinary shares of Galen on the same terms as under the scheme. Part (ii) of the
resolution set out in the notice of the extraordinary general meeting included
in this document seeks shareholder approval for such amendments.
III-1
<PAGE> 118
BOARD RECOMMENDATION OF WARNER CHILCOTT
The board of directors has determined by a unanimous vote of its
disinterested directors and a unanimous vote of all of its directors that the
transaction is fair to, and in the best interests of, Warner Chilcott and its
shareholders and has approved the transaction and the scheme. ACCORDINGLY, THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE SCHEME, THE
REDUCTION OF WARNER CHILCOTT'S SHARE CAPITAL AND THE OTHER MATTERS TO BE
PROPOSED AT THE MEETINGS.
SHAREHOLDERS ENTITLED TO VOTE
Each holder of record of ordinary shares is entitled to vote either in
person or by proxy at the court meeting and will have one vote for each ordinary
share held by him. Voting will be by way of a poll.
Roger Boissonneault and Paul Herendeen, each an executive officer of Warner
Chilcott, have entered into employment agreements with Warner Chilcott, Inc.
conditional upon completion of the transaction under which they will receive,
among other things, options to purchase ordinary shares of Galen. James Andress,
an executive officer of Warner Chilcott, has entered into a separation agreement
conditional upon completion of the transaction. Accordingly, the interests of
the excluded officers, each of whom owns ADRs, differ or may differ from those
of other persons owning ordinary shares, or ADRs, and the excluded officers have
therefore agreed to instruct the depositary not to exercise the voting rights
attaching to the ordinary shares represented by the ADRs owned by them and have
agreed to be bound by the scheme in respect of those shares.
Each holder of record of ordinary shares is entitled to vote in person or
by proxy and at the extraordinary general meeting. On a show of hands, each
shareholder will have one vote, and on a poll each shareholder will have one
vote for each ordinary share held by him.
The holders of deferred shares have agreed separately to be bound by the
scheme with respect to those shares.
VOTING SECURITIES
As of the close of business on May 19, 2000, there were outstanding and
entitled to vote an aggregate of 12,400,461 ordinary shares and 30,000 deferred
shares of Warner Chilcott.
QUORUM
The Companies Act 1963 does not specify the quorum for the transaction of
business at the court meeting. However, Warner Chilcott has been advised by
McCann FitzGerald, its Irish counsel, that, unless the High Court decides that
the circumstances justify a different quorum, two holders of record of ordinary
shares entitled to vote at the meeting, each appearing in person or by proxy,
will constitute a quorum for the transaction of business at the court meeting.
Three holders of record of ordinary shares, each appearing in person or
represented by proxy, holding not less than one-third of the outstanding
ordinary shares will constitute a quorum for the transaction of business at the
extraordinary general meeting.
VOTES REQUIRED
In order to complete the transaction, the affirmative vote of shareholders
is required at the court meeting and the extraordinary general meeting.
The scheme must be approved at the court meeting by a majority in number,
representing 75% in aggregate par value, of those holders or ordinary shares
present and voting in person or by proxy. The custodian for the depositary is
the shareholder of record in respect of those ordinary shares represented by
ADRs.
III-2
<PAGE> 119
As of May 19, 2000, executive officers, directors (other than the excluded
officers) beneficially owned an aggregate of 325,284 ordinary shares, or
approximately 2.62% of the outstanding ordinary shares.
The resolution to be proposed at the extraordinary general meeting must, in
order to be passed, be approved by not less than 75% of the votes cast at the
extraordinary general meeting by the holders of ordinary shares. The custodian
for the depositary is the shareholder of record in respect of those ordinary
shares represented by ADRs.
Holders of shares that abstain from voting such shares and holders of ADRs
that instruct the depositary not to vote the shares represented by ADRs which
their ADRs evidence as to a particular matter will not have such shares counted
as votes in favor of such matter, and such shares will also not be counted as
shares voted on such matter and may not count towards a quorum on such matter.
Accordingly, such abstentions will have no effect on the voting on the matters
presented for approval by the shareholders at any of the meetings.
NO APPRAISAL RIGHTS
If the shareholders of Warner Chilcott approve the scheme and the reduction
of Warner Chilcott's share capital in accordance with the scheme, and the High
Court sanctions the scheme and confirms the reduction of Warner Chilcott's
capital, then, subject to the scheme becoming effective in accordance with its
terms, each of Warner Chilcott's ordinary shares and deferred shares will be
automatically deemed canceled and in consideration therefore holders of those
ordinary shares will receive the number of ordinary shares of Galen determined
by the per share consideration and holders of the deferred shares will receive
one ordinary share of Galen. No holder of any of Warner Chilcott's ordinary
shares or deferred shares will have a right under Irish law to dissent or obtain
the "full value" of, or otherwise seek a court appraisal of the value of, Warner
Chilcott shares.
VOTING; PROXIES; REVOCATION OF PROXIES
In the case of each meeting, votes may be given either personally or by
proxy. In the case of the court meeting, each shareholder present in person or
by proxy will be entitled to one vote for each ordinary share held by him. In
the case of the extraordinary general meeting, voting will be by way of a show
of hands unless a poll is demanded; on a show of hands each holder of ordinary
shares present in person or by proxy will have one vote but so that no
individual can have more than one vote, and on a poll each holder of ordinary
shares will have one vote for each share held by him. Where there is an equality
of votes at the extraordinary general meeting, the chairman of the meeting is
entitled to a casting vote in addition to any other vote he may have.
To be valid, proxy forms for any of the meetings must be deposited not less
than 48 hours prior to the time appointed for the holding of that meeting with
the Secretary of Warner Chilcott at its registered office, Lincoln House,
Lincoln Place, Dublin 2, Ireland, or alternatively, in the case of the court
meeting, delivered to the chairman of the court meeting. Any proxy may be
revoked at any time by a shareholder before it is voted by:
- voting in person at the relevant meeting (although mere personal
attendance at the relevant meeting will not constitute a revocation of a
proxy);
- delivery of a subsequently dated proxy to either of the above offices,
provided that such subsequently dated proxy must be received at the above
office not less than 48 hours prior to the time appointed for holding of
the relevant meeting or, in the case of the court meeting, delivered to
the chairman of the court meeting; or
- delivery of written revocation of such proxy, provided that such
revocation must be received at either of the above office not less than
one hour prior to the time appointed for the holding of the relevant
meeting.
The custodian for the depositary is the shareholder of record in respect of
those ordinary shares represented by ADRs. Warner Chilcott has requested the
depositary, and the depositary is required pursuant
III-3
<PAGE> 120
to Warner Chilcott's agreement with the depositary, to mail to all owners of
ADRs evidencing ADSs of Warner Chilcott, or a notice, the form of which notice
will be in the sole discretion of the depositary, containing:
- the information included in the notice of meeting received by the
depositary from Warner Chilcott;
- a statement that the owners as of the close of business on a specified
record date will be entitled, subject to any applicable provision of
Irish law and of the memorandum and articles of association of Warner
Chilcott, to instruct the depositary as to the exercise of the voting
rights, if any, pertaining to the amount of ordinary shares or other
deposited securities represented by their respective ADRs; and
- a statement as to the manner in which such instructions may be given,
including an express indication that instructions may be given or deemed
given to the depositary to give a discretionary proxy to a person
designated by Warner Chilcott, as described in the next paragraph.
Upon the written request of an owner, received on or before the date
established by the depositary for such purpose, the depositary will endeavor,
insofar as practicable, to vote or cause to be voted the amount of ordinary
shares or other deposited securities represented by the ADRs evidenced by such
owner's ADRs in accordance with the nondiscretionary instructions set forth in
such request. Accordingly, pursuant to Warner Chilcott's memorandum and articles
of association and applicable Irish law, the depositary will cause its
authorized representative to attend the extraordinary general meeting and call
for a poll as instructed in accordance with clause (c) above for the purpose of
effecting such vote. The depositary will not vote or attempt to exercise the
right to vote that attaches to the ordinary shares or other depositary
securities, other than in accordance with such instructions received.
SOLICITATION OF PROXIES
Warner Chilcott will bear the costs of soliciting proxies in the
accompanying forms from shareholders. In addition to soliciting proxies by mail,
directors, officers and employees of Warner Chilcott, without receiving
additional compensation therefor, may solicit proxies by telephone, by telegram
or in person. Arrangements will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of ordinary shares (or ADRs) held of record by such persons,
and Warner Chilcott will reimburse such brokerage firms, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith.
III-4
<PAGE> 121
DESCRIPTION OF GALEN SHARE CAPITAL
The following is a summary of provisions contained in the articles of
association of Galen, statutory laws of Northern Ireland and the regulations of
the UK Listing Authority and London Stock Exchange in relation to the rights
attaching to the ordinary share capital of Galen.
This summary is not intended to provide a complete discussion of all
matters which will affect the rights of holders of Galen ordinary shares and is
qualified in its entirety by reference to the laws of Northern Ireland and other
laws and rules referred to in this summary.
SHAREHOLDER MEETINGS
Under Northern Ireland law, a company must in each year hold a general
meeting of its shareholders as its annual general meeting. Any other general
meetings are called extraordinary general meetings. Under Northern Ireland law,
an extraordinary general meeting of shareholders may be called either by the
board of directors whenever they think fit or (notwithstanding any contrary
provision in the company's articles of association) by shareholders holding at
least 10% of the paid-up share capital of the company carrying the right to vote
at general meetings.
Three types of resolution may be proposed at a general meeting of
shareholders of a Northern Ireland company. An ordinary resolution requires the
approval of a majority vote of those present and voting at a general meeting of
which 14 clear days' notice has been given. An extraordinary resolution requires
the approval of a 75% majority vote of those present and voting at a meeting of
which 14 clear days' notice has been given. A special resolution requires the
approval of a 75% majority vote of those present and voting at a general meeting
of which 21 clear days' notice has been given. The term "clear days' notice"
means calendar days and excludes the date of mailing, the deemed date of receipt
of such notice (which, according to Galen's articles of association, if sent by
first class mail means the day following such mailing) and the date of the
meeting itself.
"Extraordinary resolutions" are relatively unusual and are confined to
certain matters out of the ordinary course of business such as a proposal to
wind up the affairs of the company. Proposals which are the subject of "special
resolutions" are proposals to change the name of a company, to reduce its issued
share capital, to change the rights of shareholders, to permit the company to
issue new shares for cash without applying the shareholders' pre-emptive rights,
to amend the company's objects (purpose clause) or its articles of association
and to carry out certain other matters where the company's articles of
association or the law require a special resolution. All other proposals
relating to the ordinary course of the company's business, such as the election
of directors, would be the subject of an "ordinary resolution".
Under Galen's articles, the quorum for a general meeting of shareholders is
two shareholders present in person or by proxy and entitled to vote at the
meeting. Under its articles, Galen is not required to give notice of general
meetings or other matters to a shareholder who has no registered address within
the United Kingdom unless that shareholder has supplied Galen with an address
within the United Kingdom for that purpose.
VOTING RIGHTS
The voting rights of shareholders of a Northern Ireland company at general
meetings of the company are governed primarily by its articles of association.
Under Galen's articles, subject to any special rights or restrictions attaching
to any shares, on a show of hands every shareholder present in person has one
vote, and on a poll every shareholder present in person or by proxy has one vote
for each share held by him. A body corporate which is a shareholder will be
deemed present at a general meeting if its authorized representative attends the
meeting.
Under Galen's articles, a resolution put to the vote of a general meeting
will be decided on a show of hands unless a poll (which is a vote by the number
of shares held rather than by a show of hands) is demanded before or on the
declaration of the result of the show of hands. Shareholders have a statutory
right to demand a poll at a general meeting in certain circumstances. Under
Galen's articles, a poll may be demanded at any general meeting by the chairman
of the meeting, by at least three shareholders present in person or by proxy
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and entitled to vote, by a shareholder or shareholders present in person or by
proxy and representing not less than 10% of the total voting rights of all the
shareholders having the right to vote at the meeting, or by a shareholder or
shareholders present in person or by proxy holding shares conferring a right to
vote at the meeting, being shares on which an aggregate sum has been paid up
equal to not less than 10% of the total sum paid up on all shares conferring
that right.
ACTIONS BY WRITTEN CONSENT
Galen's articles of association provide that a resolution in writing signed
by or on behalf of all the shareholders entitled to vote at general meetings
will be as effective as if the resolution had been passed at a general meeting
of the company.
SOURCE AND PAYMENT OF DIVIDENDS
Under Northern Ireland law, a company may pay dividends and make certain
other permissible distributions of the company's assets on its ordinary shares
only out of its distributable profits (namely, its accumulated, realized profit
so far as not previously utilise by distribution or capitalization, less
accumulated, realized losses so far as not previously written off in a reduction
or reorganization of capital) and not out of share capital or share premium
(paid -in surplus). In addition, a public company such as Galen may make a
distribution at any time only if, at that time and immediately after such
distribution, the amount of its net assets is not less than the aggregate of its
called-up (namely, its issued and paid-up) share capital and undistributable
reserves. Under Galen's articles, subject to applicable law, the shareholders
may by ordinary resolution declare dividends in accordance with the respective
rights of shareholders, but no dividend may exceed the amount recommended by the
board of Galen. In addition, subject to applicable law, if the distributable
profits of Galen justify such payments, its board of directors may from time to
time pay such interim dividends as the board sees fit. The board may, if
previously authorized by an ordinary resolution, offer holders of Galen ordinary
shares the right to elect to receive Galen ordinary shares, credited as fully
paid, instead of cash in respective of any dividend specified in such authority.
All unclaimed dividends may be invested or otherwise made use of for the benefit
of Galen until claimed. Dividends unclaimed for a period of twelve years or more
after being declared or becoming due for payment will be forfeited and will
revert to Galen.
AMENDMENT OF GOVERNING INSTRUMENTS
Under Northern Ireland law, the provisions of a company's memorandum of
association as to its name and its objects (namely, its purposes) and any of the
provisions of its articles of association (subject to any limitations in its
memorandum) may be amended by a special resolution, although certain alterations
of its share capital may be effected by ordinary resolution. In the case of an
amendment made to a company's objects, the holders of at least 15% of the
company's issued shares who did not vote in favour of the amendment may apply to
the court for the cancelation of the amendment.
Under Northern Ireland law, where a company has more than one class of
shares, amendments of its memorandum or articles of association which affect the
rights of the holders of any class of shares may, depending on the rights
attaching to that class and the nature of the amendments, also require approval
of an extraordinary resolution passed at a separate general meeting of the
shareholders of that class, although an amendment so approved will be subject to
confirmation by the court if the holders of at least 15 % of the shares of that
class apply to the court for the cancelation of the amendment.
PRE-EMPTIVE RIGHTS
Under Northern Ireland law, the issue for cash of equity securities -- this
means (i) shares which with respect to dividends or capital carry a right to
participate beyond a specified amount or (ii) rights to subscribe for, or to
convert securities into, such shares -- must be offered in the first instance to
the existing holders of such shares in proportion to the respective nominal
values of their holdings, unless a special resolution to the contrary has been
passed at a general meeting of shareholders. As is the custom of many United
Kingdom
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companies listed on the London Stock Exchange, at its annual general meeting
each year Galen proposes a resolution to authorise its board of directors, until
its next annual general meeting, to allot equity securities for cash up to a
certain aggregate nominal value otherwise than pro rata to its existing
shareholders. On February 22, 2000, the shareholders of Galen passed such a
resolution to authorise the board of directors to exercise the powers of the
company to allot equity securities up to an aggregate nominal value of L636,333
or by way of rights. This authorization expires on February 21, 2005.
RIGHTS OF INSPECTION
Except when closed in accordance with Northern Ireland law, the register of
shareholders and index of names of shareholders of a Northern Ireland public
company may be inspected during business hours by its shareholders without
charge and by other persons upon payment of a charge, and copies may be obtained
on payment of a charge. The shareholders of a Northern Ireland public company
may, without charge, also inspect during business hours the minutes of meetings
of the shareholders and obtain copies upon payment of a charge. The published
annual accounts of a Northern Ireland company are required to be laid before the
shareholders in general meeting and a shareholder is entitled to a copy of such
accounts. However, a listed public company is entitled, in certain
circumstances, to send to those of its shareholders not wising to receive full
accounts summary financial statements in lieu of such full accounts. The
shareholders are not entitled to inspect the accounting records of a company or
the minutes of meetings of directors.
Certain other registers required to be kept by a Northern Ireland company
are open to public inspection during business hours, including the register of
directors and secretaries, the register of director's interests in shares and
debentures, the register of charges, the register of debenture holders and the
register of interests in shares. Service contracts of directors of the company,
which have an unexpired term of at least twelve months or which cannot be
terminated by the company within twelve months without payment of compensation,
must be available for inspection by members during business hours. Rights of
inspection during business hours mean that the company must make the register,
index or document available for inspection for not less than two hours during
the period between 9:00 a.m. and 5:00 p.m. on each business day. The rules of
the UK Listing Authority require the service contracts of directors to be open
for inspection at certain times for periods longer then two hours.
BOARD OF DIRECTORS
Under Northern Ireland law, a public company must have at least two
directors. Under Galen's articles, subject to variation by ordinary resolution
the number of its directors must not be less than two or more than ten. The
Galen articles provide that one third of the directors or, if their number is
three or a multiple of three, then the number nearest to but not exceeding one
third, shall retire from office at each annual general meeting of Galen. Any
director retiring by rotation or otherwise will be eligible for re-election.
Subject to the articles, the company by ordinary resolution or the board may at
any time appoint a person to be a director, either to fill a casual vacancy or
as an additional director; a director so appointed by the board will hold office
only until the next annual general meeting and will not be taken into account in
determining the directors who are to retire by rotation at that meeting. No
person other than a director retiring at the meeting will, unless recommended by
the board, be eligible for appointment as a director at any general meeting
unless not less than seven nor more than forty-two days before the meeting a
notice, signed by a shareholder, of his intention to propose that person for
appointment, and also a notice signed by that person of his willingness to be
appointed, have been delivered to Galen's registered office.
REMOVAL OF DIRECTORS
Shareholders of a Northern Ireland company have a statutory right to remove
a director by ordinary resolution of which special notice (28 clear days) has
been given to the company, irrespective of the provisions of the company's
articles of association. Such removal would be without prejudice to any claim
such director might have for damages for breach of any contract of service
between him and the company. Under Galen's articles, a director may be removed
from office in a number of circumstances, including where his resignation is
requested by at least 75% of the other directors.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Northern Ireland law does not permit a company to indemnify a director or
an officer of the company or any person employed by the company as auditor
against any liability which by virtue of any rule of law would otherwise attach
to him in respect of negligence, default, breach of duty or breach of trust in
relation to the company, except liability incurred by such director, officer or
auditor in defending any legal proceedings (whether civil or criminal) in which
judgment is given in his favour or in which he is acquitted or in certain
incidences where, although he is liable, the court finds that such director,
officer or auditor acted honestly and reasonably and that having regard to all
the circumstances he ought fairly to be excused and relief is granted by the
court. Galen's articles provide that directors and officers of Galen will be
entitled to indemnification in respect of those liabilities.
RIGHTS OF REDEMPTION AND PURCHASE
Under Northern Ireland law, a company may issue redeemable shares if
authorized by its articles of association. Such shares may be redeemed only if
fully paid and, in the case of public company, only out of distributable profits
or the proceeds of a new issue of shares made for the purpose of the redemption.
Except as mentioned below, any premium payable on redemption must be paid out of
distributable profits of the company. Any amount payable on redemption of any
redeemable shares in excess of their par value may be paid out of the proceeds
of a fresh issue of shares up to an amount equal to whichever is the lesser of
the aggregate of the premiums received by the company on the issue of those
shares and the amount of the company's share premium account as at the time of
the redemption, including any sum transferred to that account in respect of
premiums on the new issue. Where redeemable shares are redeemed wholly out of
distributable profits, the amount by which the par value of the company's issued
share capital is diminished must be transferred to a reserve known as the
capital redemption reserve, which is generally treated as paid-up share capital.
Where shares are redeemed wholly or partly out of the proceeds of a new issue of
shares and the aggregate amount of the those proceeds is less than the aggregate
nominal value of the shares redeemed, the amount of that difference must be
transferred to the capital redemption reserve. Shares redeemed are treated as
canceled on redemption.
Under Northern Ireland law, a company may purchase its own shares,
including any redeemable shares, if authorized by its articles of association
and provided that the purchase has been previously approved by an ordinary
resolution in the case of an on-market purchase or a special resolution in other
cases. The above rules relating to redemption of redeemable shares apply also to
purchases by a company of its own shares. Galen's articles authorise it to issue
redeemable shares and to purchase its own shares. The London Stock Exchange, on
which the Galen ordinary shares are listed, requires that purchases within a
period of twelve months of 15% or more of a Company's share capital must be made
way of a tender or partial offer to all shareholders, in the case of a tender
offer, at a stated maximum price or a fixed price. Notice of a tender offer must
be given by advertising in two United Kingdom national newspapers at least 7
days before the offer closes. Purchases below the 15% threshold may be made
through the market in the ordinary way at a price not more than 5% above the
average of the market values of the shares for the 5 trading days before the
purchase or by way of an off-market purchase negotiated with one or more
shareholders.
At the last annual general meeting of Galen held on February 22, 2000
shareholders authorised the company to make market purchases of its own shares
up to a maximum aggregate nominal value of L19,089,997 or, if less, 15% of the
company's issued share capital. This authorisation expires on the earlier
conclusion of Galen's annual general meeting to be held in respect of fiscal
2000 and May 22, 2001.
SHAREHOLDERS' VOTES ON CERTAIN MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS
In the case of a company such as Galen whose shares are listed on the
London Stock Exchange, shareholder approval will usually be required under the
listing rules of the UK Listing Authority for an acquisition or disposal by it,
if the net assets of the company or business to be acquired or disposed of
represent 25% or more of its net asset value or 25% or more to its value on the
basis of any of the other criteria prescribed by those rules. Where the size of
the acquisition or disposal falls below that level, certain
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information may nevertheless be required to be published or circulated to
shareholders. Under those rules, shareholder approval may also be required for
an acquisition or disposal of assets between a listed company and certain
parties including (i) directors of the company or its subsidiaries, (ii) persons
entitled to exercise 10% or more of the voting rights at general meetings of the
company or of its holding company or of any subsidiary of its holding company or
(iii) any associate of the persons at (i) or (ii). Such persons will not be
permitted to vote at the relevant general meeting.
Northern Ireland law provides for schemes of arrangement, which are
arrangements or compromises between a company and any class of its shareholders
(or any class of its creditors) and used for certain types of mergers,
amalgamations or reconstruction. They require the approval at a special meeting
of the company of a majority in number, representing 75% in value, of the
shareholders of the relevant class voting at the meeting either in person or
proxy, and also the sanction of the court. Once so approved and sanctioned, all
shareholders of the relevant class are bound by the terms of the scheme; a
dissenting shareholder would have no rights comparable to the dissenters' rights
described below.
Under another procedure authorized by Northern Ireland law, one public
company may acquire all the assets and liabilities of another public company in
exchange for the issue of shares to the shareholders in the acquired company
which will subsequently be dissolved. This procedure requires the approval of a
special resolution of each company and the sanction of the court. In this case,
a shareholder in either company who votes against the relevant special
resolution will have dissenters' rights and may require the acquiring company to
acquire his shares for cash.
In the United Kingdom, acquisitions of companies are commonly effected by
way of a "takeover bid", meaning an offer addressed to the shareholders of a
company to acquire, for cash or securities, shares of that company with a view
to giving the offeror voting control of the company. Under Northern Ireland law,
where a takeover offer is made for the shares of a company incorporated in
Northern Ireland and, within four months after the date of the offer the offeror
has acquired or contracted to acquire at least 90% in value of the shares to
which the offer relates (excluding the shares held on the date of the offer by
the offeror), the offeror may, before the expiry of 6 months from the date of
the offer, by notice require shareholders who have not accepted the offer to
transfer their shares on the terms of the offer. A dissenting shareholder may
apply to the court within 6 weeks after the date of that notice objecting to the
transfer or its proposed terms. The court is unlikely (in the absence of fraud
or oppression) to exercise its discretion to order that the transfer should not
take effect, but it may specify such terms for the transfer as it thinks fit. A
minority shareholder is also entitled in these circumstances to require the
offeror to acquire his shares on the terms of the offer.
REGULATION OF TAKEOVERS
Takeovers of public companies such as Galen which are incorporated in the
United Kingdom are regulated by the City Code on Takeovers and Mergers,
consisting of non-statutory rules not enforceable at law which are administered
by the Panel on Takeovers and Mergers, a body comprising representatives of
certain City of London financial and professional institutions which oversees
the conduct of such takeovers. One of the provisions of the City Code is to the
effect that (i) when any person. acquires, whether by a series of transactions
over a period of time or not, shares which (taken together with shares held or
acquired by persons acting in concert with him) carry 30% or more of the voting
rights of the public company or (ii) when any person, together with persons
acting in concert with him, holds not less than 30% but not more than 50% of the
voting rights and such person, or any person acting in concert with him,
acquires in any period of 12 months additional shares carrying voting rights,
that person must, unless the Panel agrees otherwise, make an offer for all of
the equity shares of the company (whether voting or non-voting) for cash, or for
a non-cash consideration accompanied by a cash alternative, at not less then the
highest price paid for the relevant shares by that person or persons acting in
concert with him during the 12 months preceding the offer.
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RIGHTS OF APPRAISAL
Northern Ireland law does not provide generally for appraisal rights.
However, dissenting shareholders are entitled to make application to the court
in the circumstances described under "Shareholders' Votes on Certain Mergers,
Acquisitions and Other Transactions" above.
SHAREHOLDER SUITS
Under Northern Ireland law, a shareholder of a company generally has no
right to sue in the name of the company; when a wrong has been done to or
against the company, the proper plaintiff is normally the company itself. There
are exceptions in the case of fraud on minority shareholders or where the act
complained of is illegal or ultra vires. Northern Ireland law permits an
individual shareholder to apply for a court order where the company's affairs
are being or have been conducted in a manner unfairly prejudicial to the
interest of one or more of the shareholders (including himself) or when any
actual or proposed act or omission of the company is or would be so prejudicial.
When granting relief a court has wide discretion and may authorise civil
proceedings to be brought in the name of the company by a shareholder on such
terms as the court may direct. Except in these limited respects, Northern
Ireland law does not permit class action law suits by shareholders on behalf of
the company or on behalf of other shareholders.
DISCLOSURE OF INTERESTS
Under Northern Ireland law, a person (including a company and other legal
entities) who acquires an interest or becomes aware that he has acquired an
interest of 3% or more of any class of shares comprised in a public company's
"relevant share capital" (which, for these purposes, means that company's issued
share capital carrying rights to vote in all circumstances at general meetings
of the company) is obliged to notify that company of his interest within two
business days (that is, excluding Saturdays, Sundays or bank holidays in
Northern Ireland) after becoming so interested or so aware. Thereafter any
changes in such interest of at least 1% calculated as required by the
legislation or which reduce such interest below 3% must be notified to the
company. The Galen ordinary shares are "relevant share capital" for this
purpose. Failure to comply with any of these notification obligations will be a
criminal offence, and the Department of Enterprise, Trade and Investment in
Northern Ireland may impose in respect of the relevant shares restrictions of
the type referred to in the last paragraph of this section.
In addition, Northern Ireland law provides that a public company may by
notice in writing (an "Article 220 Notice") require a person whom the company
knows or has reasonable cause to believe to be, or to have been at any time
during the three years immediately preceding the date on which the notice is
issued, interested in shares comprised in the company's "relevant share capital"
to confirm that fact or (as the case may be) to indicate whether or not that is
the case, and, where he holds or has during the relevant time held an interest
in such shares, to give such further information as may be required relating to
his interest and any other interest in the shares of which he is aware. The
disclosure must be made within such reasonable period as may be specified in the
relevant notice (which may, depending on the circumstances, be as short as one
or two days). For the purposes of the above obligations, the interest of a
person in shares means any kind of interest in shares, including interests in
any shares (i) in which his spouse, or his child or stepchild under the age of
18 is interested, (ii) in which a corporate body is interested if either (a)
that corporate body is or its directors are accustomed to act in accordance with
that person's directions or instructions or (b) that person controls one-third
or more of the voting power of that corporate body or (iii) in which another
party is interested in shares if that person and that other party are parties to
a "concert party" agreement under the relevant legislation (being an agreement
which provides for one or more parties to it to acquire interests in shares of a
particular public company, which imposes obligations or restrictions an any one
or more of the parties as to the use, retention or disposal of such interests
acquired pursuant to such agreement) and any interest in the company's shares is
in fact acquired by any of the parties pursuant to the agreement. The holding of
a Galen ADR evidencing a Galen ADS would generally constitute an interest in the
underlying Galen ordinary share capital.
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Where an Article 220 notice is served by a company on a person who is or
was interested in shares of the company and that person fails to give the
company any information required by the notice within the time specified in the
notice, the company may apply to the court for an order directing that the
shares in question be subject to restrictions prohibiting, amongst other things,
any transfer of those shares, the exercise of voting rights in respect of such
shares, the issue of further shares in respect of such shares and, other than in
a liquidation, payments, including dividends, in respect of such shares. A
person who fails to fulfil the obligations described above will commit a
criminal offence. In addition, in the event of any such failure, under its
articles of association Galen may, without application to the court, prohibit
the exercise of voting rights in respect of such shares, may refuse to register
any transfer of such shares and may retain any dividend or other money held by
Galen in respect of those shares.
LISTING REQUIREMENTS OF THE UK LISTING AUTHORITY
In addition to Northern Ireland company legislation and the provisions of
its articles of association, Galen is subject to the listing rules made by the
UK Listing Authority under section 142 of the UK Financial Services Act 1986 and
in particular to the continuing obligations under those rules. These rules
(already referred to under "Shareholders' Votes on Certain Mergers, Acquisitions
and Other Transactions" above) require a company listed on a relevant investment
exchange (which expression includes the London Stock Exchange), to notify the UK
Listing Authority without delay (a) of any major new developments in that
company's sphere of activity which are not public knowledge and which may lead
to a substantial movement in the price of its listed securities or, in the case
of a company with debt securities, may significantly affect its ability to meet
its commitments; and (b) of all relevant information which is not public
knowledge concerning a change in the company's financial condition, the
performance of its business or the company's expectation as to its performance,
which, if made public, would be likely to lead to a substantial movement in the
price of its listed securities. The Admissions Standards of the London Stock
Exchange have similar provisions which require the company to make a
simultaneous notification of such matters to the London Stock Exchange. The
listed company must ensure equality of treatment for all shareholders who are in
the same position and, where its securities are listed on more than one stock
exchange, must ensure that equivalent information is made available to the
market on each exchange on which its securities are listed. The listing rules
also oblige listed companies to send certain information to shareholders,
including details in relation to certain acquisitions, disposals, takeovers,
mergers and offers made by or in respect of the company.
In addition to the above requirements, a company is required to inform the
UK Listing Authority of certain notifications received by the company concerning
persons holding an interest of 3% or more of the company's share capital, any
changes in its board of directors, any purchase or redemption by the company of
its own shares, any changes in directors' interests in the shares or debentures
of the company, and any changes in the capital structure of the company. The
Admissions Standards of the London Stock Exchange have similar provisions which
require the company to make a simultaneous notification of such matters to the
London Stock Exchange.
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COMPARISON OF WARNER CHILCOTT/GALEN SHAREHOLDER RIGHTS
As a result of the transaction, holders of ordinary shares of Warner
Chilcott, a public limited company incorporated in the Republic of Ireland, will
receive ordinary shares of Galen, a public limited company incorporated in
Northern Ireland. The following is a summary of material differences between the
rights of holders of Galen ordinary shares and the rights of holders of Warner
Chilcott ordinary shares which arise from differences between the corporate laws
of Northern Ireland and those of the Republic of Ireland as well as from
differences between the governing instruments of the two companies, namely,
Galen's memorandum and articles of association and Warner Chilcott's memorandum
and articles of association.
This summary, which should be read in conjunction with "Description of the
Share Capital of Galen" above, is not intended to be complete and is qualified
in its entirety by reference to the laws of Northern Ireland and of the Republic
of Ireland (and other laws or rules referred to herein), Galen's memorandum and
articles of association and Warner Chilcott's memorandum and articles of
association.
SHAREHOLDER MEETINGS
The position under Irish law and Warner Chilcott's articles of association
on general meetings of shareholders and types of shareholder resolutions is
substantially similar to that described under "Description of the Share Capital
of Galen" above, except that under Irish law the concept of an "extraordinary
resolution" does not exist and under Warner Chilcott's articles the quorum
required for a general meeting is three shareholders present in person or by
proxy being holders of not less than one-third of the issued ordinary shares,
and Warner Chilcott is required to give notices of meetings and other matters to
all shareholders, wherever their registered addresses.
VOTING RIGHTS
The position on shareholders' voting rights under Irish law and Warner
Chilcott's articles of association is substantially similar to that described
under "Description of the Share Capital of Galen" above, except that in Ireland
proxies have a statutory right to vote on a show of hands as well as on a poll,
and, under Warner Chilcott's articles, any shareholder present in person or by
proxy and having the right to vote at a meeting may demand a poll.
ACTIONS BY WRITTEN CONSENT
Under both Northern Ireland law and Irish law, a company's articles of
association may provide that a resolution in writing signed by or on behalf of
all the shareholders entitled to vote at general meetings will be as effective
as if the resolution had been passed at a general meeting of the company. Unlike
Warner Chilcott's articles, Galen's articles contain such provision.
SOURCE AND PAYMENT OF DIVIDENDS
The position under Irish law and Warner Chilcott's articles in relation to
payment and source of dividends is substantially similar to that described under
"Description of the Share Capital of Galen" above.
AMENDMENT OF GOVERNING INSTRUMENTS
Under Northern Ireland law, the provisions of a company's memorandum of
association as to its name and its objects (namely, its purposes) and any of the
provisions of its articles of association (subject to any limitations in its
memorandum) may be amended by a special resolution, although certain alterations
of its share capital may be effected by ordinary resolution. In the case of an
amendment made to a company's objects, the holders of at least 15% of the
company's issued shares who did not vote in favour of the amendment may apply to
the court for the cancelation of the amendment. The position under Irish law is
similar except that in the case of an amendment to the objects of a company, the
holders of at least 10% of the company's issued share capital are entitled to
apply to the court for the cancelation of the amendment.
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Under Northern Ireland law, where a company has more than one class of
shares, amendments of its memorandum or articles of association which affect the
rights of the holders of any class of shares may, depending on the rights
attaching to that class and the nature of the amendments, also require approval
of an extraordinary resolution passed at a separate general meeting of the
shareholders of that class, although an amendment so approved will be subject to
confirmation by the court if the holders of at least 15 % of the shares of that
class apply to the court for the cancelation of the amendment. The position
under Irish law is similar, except that the approval required at such a separate
general meeting of the shareholders of the class in question would be by special
resolution, and the holders of at least 10% of the shares of that class would be
entitled to apply to the court for cancelation of an amendment so approved.
PRE-EMPTIVE RIGHTS
The position under Irish law concerning pre-emption rights of shareholders
is substantially similar to that set out in "Description of the Share Capital of
Galen" above. As Warner Chilcott shares have not been listed on the London Stock
Exchange or the Irish Stock Exchange, Warner Chilcott has customarily at its
annual general meeting each year proposed a resolution to disapply pre-emptive
rights in respect of all allotments of equity securities that may be made prior
to the next annual general meeting.
RIGHTS OF INSPECTION
The position under Irish law in relation to entitlement to financial
statements and inspection of registers and directors' service agreements is
substantially similar to that described in "Description of the Share Capital of
Galen" above. However, Irish law does not entitle a company to send summary
financial statements instead of full accounts to any shareholder. The obligation
under Irish law to make directors' service contracts available for inspection
applies only to contracts which have an unexpired term of at least three years
or which cannot be terminated by the company within the next three years without
payment of compensation.
BOARD OF DIRECTORS
The position under Irish law and Warner Chilcott's articles on the board of
directors and the appointment and retirement of directors is substantially
similar to that described in "Description of the Share Capital of Galen" above,
except that under those articles the maximum number of directors is twelve.
REMOVAL OF DIRECTORS
The position on the removal of directors under Irish law and Warner
Chilcott's articles is similar to that described in "Description of the Share
Capital of Galen" above, except that under those articles a request made to a
director by the other directors that he resign would, in order to be effective,
have to be made by all of them.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The position under Irish law and Warner Chilcott's articles is
substantially similar to that set out in "Description of the Share Capital of
Galen" above.
RIGHTS OF REDEMPTION AND PURCHASE
Under Irish law and Warner Chilcott's articles, the position regarding the
issue by a company of redeemable shares and the purchase of its own shares is
substantially the same in relation to "Rights of Redemption and Purchase" as set
out in "Description of the Share Capital of Galen", except that shares redeemed
or purchased out of distributable profit may, instead of being canceled
immediately, be kept as treasury shares which the company may subsequently
re-issue or cancel. Warner Chilcott has never issued redeemable shares or
purchased its own shares, and would be entitled to make on-market purchases of
its own shares only if its shares were listed on the Irish Stock Exchange.
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SHAREHOLDERS' VOTES ON CERTAIN MERGERS, ACQUISITIONS AND OTHER TRANSACTIONS
The position under Irish law on the matters referred to in the section
headed "Shareholders' Votes on Certain Mergers, Acquisitions and Other
Transactions" in "Description of the Share Capital of Galen" is substantially
similar, except that in a takeover bid for an Irish company the offeror will
become entitled to issue compulsory acquisition notices to the dissenting
shareholders upon acquiring at least 80% in value of the shares to which the
offer relates.
REGULATION OF TAKEOVERS
Takeovers of public companies such as Galen which are incorporated in the
United Kingdom are regulated by the City Code on Takeovers and Mergers,
consisting of non-statutory rules not enforceable at law which are administered
by the Panel on Takeovers and Mergers, a body comprising representatives of
certain City of London financial and professional institutions which oversees
the conduct of such takeovers.
Takeovers of Irish public companies whose shares are listed on the Irish
Stock Exchange are supervised by the Irish Takeover Panel pursuant to the Irish
Takeover Panel Act, 1997 by reference to certain statutory principles and
certain statutory rules similar to the principles and rules contained in the
City Code. As Warner Chilcott's shares are not listed on the Irish Stock
Exchange, a takeover of Warner Chilcott is not subject to supervision by the
Irish Takeover Panel.
SHAREHOLDER SUITS
The position under Irish law in relation to the above matters is
substantially similar to that set out in the section headed "Shareholder Suits"
in "Description of the Share Capital of Galen".
DISCLOSURE OF INTERESTS
The position under Irish law on the matters referred to in the section
headed "Disclosure of Interests" in "Description of the Share Capital of Galen"
is substantially similar, except that an interest of 5%, rather than 3%, is the
threshold level for disclosure, disclosure must be made within five rather than
two business days, and a person who fails to make due disclosure will
automatically become unable to enforce by legal action any right or interest in
respect of the relevant shares. The Warner Chilcott articles of association do
not contain any additional provisions relating to such disclosure.
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DESCRIPTION OF GALEN ADSS AND ADRS
The following is a summary of material provisions of the deposit agreement
to be entered into by Galen and The Bank of New York, as depositary, the
registered holders of ADRs and the owners of a beneficial interest in book-entry
ADRs pursuant to which the ADSs are to be issued.
This summary is not complete and is subject to and qualified in its
entirety by reference to the deposit agreement, including the form of ADR which
will be filed as an exhibit to the Form F-6. Terms used in this section and not
otherwise defined have the meanings set forth in the deposit agreement. Copies
of the deposit agreement and the Articles of Association of Galen are available
for inspection at the Corporate Trust Office of the depositary, currently
located at 1 Wall Street, New York, New York.
AMERICAN DEPOSITORY SHARES AND AMERICAN DEPOSITORY RECEIPTS
ADRs evidencing ADSs are issuable by the depositary pursuant to the deposit
agreement. Each ADS will represent four ordinary shares or evidence the right to
receive four ordinary shares and any and all other securities, cash and property
received by the depositary or the custodian in respect thereof and at such time
held under the deposit agreement (together, "deposited securities"). Only
persons in whose names ADRs are registered on the books of the depositary will
be treated by the depositary and Galen as registered holders of ADRs.
DEPOSIT, TRANSFER AND WITHDRAWAL
The depositary has agreed, subject to the terms and conditions of the
deposit agreement, that upon delivery to the custodian of ordinary shares, or
evidence of rights to receive ordinary shares accompanied by any of the
appropriate instruments of transfer, or endorsement in a form satisfactory to
the custodian, the depositary will, upon payment of the fees, charges and taxes
provided in the deposit agreement, execute and deliver at its corporate trust
office to, or upon the written order of, the person or persons named in the
notice of the custodian delivered to the depositary or requested by the person
depositing such ordinary shares with the depositary, an ADR or ADRs, registered
in the name or names of such person or persons, and evidencing any authorized
number of ADSs requested by such person or persons.
Upon surrender at the corporate trust office of the depositary of an ADR
for the purpose of withdrawal of the deposited securities represented by the
ADSs evidenced by the ADR, and upon payment of the fees of the depositary for
the surrender of ADRs, governmental charges and taxes provided in the deposit
agreement, and subject to the terms and conditions of the deposit agreement, the
registered holder of the ADRs will be entitled to delivery, to him or upon his
order, of the amount of deposited securities or evidence of ownership of and
title to the deposited securities at the time represented by the ADS or ADSs
evidenced by such ADR. The forwarding of share certificates, other securities,
property, cash and other document of title for such delivery will be at the risk
and expense of the registered holder.
No ordinary share will be accepted for deposit unless accompanied by
evidence satisfactory to the depositary that any necessary approval has been
granted by the governmental body in the United Kingdom, if any, which is then
performing the function of the regulation of currency exchange.
Subject to the terms and conditions of the deposit agreement and any
limitations established by the depositary, the depositary may execute and
deliver ADRs prior to the receipt of ordinary shares, known as a pre-release,
and deliver ordinary shares upon the receipt and cancelation of ADRs which have
been pre-released whether or not such cancelation is prior to the termination of
such pre-release or the depositary knows such ADR has been pre-released. Each
pre-release must be:
(1) preceded or accompanied by a written representation from the
person to whom the ADRs or ordinary shares are to be delivered that such
person, or its customer, owns the ordinary shares or ADRs to be remitted,
as the case may be;
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(2) at all times fully collateralized with cash or such other
collateral as the depositary deems appropriate;
(3) terminable by the depositary on not more than three business days'
notice; and
(4) subject to such further indemnities and credit regulations as the
depositary deems appropriate.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
Subject to any restrictions imposed by the law of the United Kingdom,
regulations or applicable permits, the depositary or the custodian is required,
whenever the depositary or the custodian shall receive any cash dividend or
other cash distribution to convert or cause to be converted into dollars, to the
extent that in its judgment it can do so on a reasonable basis and can transfer
the resulting dollars to the United States, all cash dividends and other cash
distributions denominated in a currency other than dollars, including pounds
sterling, that it receives in respect of the deposited securities, and to
distribute, as promptly as practicable, the resulting dollar amount net of
reasonable and customary expenses incurred by the depositary in converting such
foreign currency, to the owners entitled thereto, in proportion to the number of
ADSs representing such deposited securities evidenced by ADRs held by them.
If the depositary determines that in its judgment any foreign currency
received by the depositary or the custodian cannot be converted on a reasonable
basis into dollars transferable to the United States, or if any approval or
license of any government or agency thereof which is required for such
conversion is denied or in the opinion of the depositary is not obtainable, or
if any such approval or license is not obtained within a reasonable period as
determined by the depositary, the depositary may distribute the foreign currency
received by the depositary or the custodian to, or in its discretion may hold
such foreign currency uninvested and without liability for interest thereon for
the respective accounts of, the registered holders of ADRs entitled to receive
the same. If any such conversion of foreign currency, in whole or in part,
cannot be effected for distribution to some of the registered holders of ADRs
entitled thereto, the depositary may in its discretion make such conversion and
distribution in dollars to the extent permissible to the owners entitled
thereto, and may distribute the balance of the foreign currency received by the
depositary to, or hold such balance uninvested and without liability for
interest thereon for, the respective accounts of, the registered holders of ADRs
entitled thereto.
If Galen declares a dividend in, or free distribution of, ordinary shares,
the depositary may distribute to the registered holders of outstanding ADRs
entitled thereto, in proportion to the number of ADSs evidenced by the ADRs held
by them, respectively, additional ADRs evidencing an aggregate number of ADSs
that represents the amount of ordinary shares received as such dividend or free
distribution, subject to the terms and conditions of the deposit agreement with
respect to the deposit of ordinary shares and the issuance of ADSs evidenced by
ADRs, including the withholding of any tax or other governmental charge and the
payment of fees of the depositary. The depositary may withhold any such
distribution of ADRs if it has not received satisfactory assurances from Galen
that such distribution does not require registration under the Securities Act or
is exempt from registration thereunder. In lieu of delivering ADRs for
fractional ADSs in any such case, the depositary will sell the amount of
ordinary shares represented by the aggregate of such fractions and distribute
the net proceeds in accordance with the deposit agreement. If additional ADRs
are not so distributed, each ADS will then represent the additional ordinary
shares distributed upon the deposited securities represented thereby.
If Galen offers or causes to be offered to the holders of any deposited
securities any rights to subscribe for additional ordinary shares or any rights
of any other nature, the depositary will have discretion as to the procedure to
be followed in making such rights available to any registered holder of ADRs or
in disposing of such rights for the benefit of any registered holder of ADRs and
making the net proceeds available to such registered bolder or, if by the terms
of such rights offering or for any other reason, the depositary may not either
make such rights available to any registered holders of ADRs or dispose of such
rights and make the net proceeds available to such registered holders, then the
depositary shall allow the rights to lapse; provided, however, if at the time of
the offering of any rights the depositary determines in its discretion, that it
is lawful and feasible to make such rights available to all or certain
registered holders but not to other registered
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holders, the depositary may distribute to any registered holder to whom it
determines the distribution to be lawful and feasible, in proportion to the
number of ADSs held by such registered holder, warrants or other instruments in
such form as it deems appropriate. If the depositary determines in its
discretion that it is not lawful and feasible to make such rights available to
all or certain registered holders, it may sell the rights, warrants or other
instruments in proportion to the number of ADSs held by the registered holders
to whom it has determined it may not lawfully or feasibly make such rights
available, and allocate the net proceeds of such sales for the account of such
registered holders otherwise entitled to such rights, warrants or other
instruments, upon an averaged or other practical basis without regard to any
distinctions among such registered holders because of exchange restrictions or
the date of delivery of any ADR or otherwise. The depositary will not be
responsible for any failure to determine that it may be lawful or feasible to
make such rights available to registered holders in general or any registered
holder or registered holders in particular.
In circumstances in which rights would not otherwise be distributed, if a
registered holder of ADRs requests the distribution of warrants or other
instruments in order to exercise the rights allocable to the ADSs of such a
registered holder, the depositary will make such rights available to such a
registered bolder upon written notice from Galen to the depositary that:
(1) Galen has elected in its sole discretion to permit such rights to
be exercised; and
(2) such a registered holder has executed such documents as Galen has
determined in its sole discretion are required under applicable law.
If the depositary has distributed warrants or other instrument for rights
to all or certain registered holders, then upon:
(1) instruction pursuant to such warrants or other instruments to the
depositary from such registered holders to exercise such rights;
(2) payment by such registered holder to the depositary for the
account of such a registered holder of an amount equal to the purchase
price of the ordinary shares to be received in exercise of the rights; and
(3) payment of the fees and expenses of the depositary as provided in
the deposit agreement and any other charges as set forth in such warrants
or other instruments, the depositary will, on behalf of such registered
holders, exercise the rights and purchase the ordinary shares, and Galen
shall cause the ordinary shares so purchased to be delivered to the
depositary on behalf of such registered holder.
As agent for such registered holder, the depositary will cause the ordinary
shares so purchased to be deposited, and will execute and deliver ADRs to such
registered holder, pursuant to the deposit agreement.
The depositary will not offer rights to registered holders unless both the
rights and the securities to which such rights relate are either exempt from
registration under the Securities Act with respect to a distribution to all
registered holders or are so registered thereunder; provided, that nothing in
the deposit agreement will create any obligation on the part of Galen to file a
registration statement with respect to such rights or underlying securities or
to endeavor to have such a registration statement declared effective. If a
registered holder of ADRs requests the distribution of warrants or other
instruments, notwithstanding that there has been no such registration under the
Securities Act, the depositary will not effect such distribution unless it has
received an opinion from legal counsel in the United States reasonably
acceptable to the depositary for Galen upon which the depositary may rely that
such distribution to such registered bolder is exempt from such registration.
The depositary will not be responsible for any failure to determine that it may
be lawful or feasible to make such rights available to registered holders in
general or any registered holder in particular.
Whenever the depositary or the custodian receives any distribution other
than cash, ordinary shares or rights in respect of the deposited securities, the
depositary will cause the securities or property received by it to be
distributed to the registered holders entitled thereto, after deduction or upon
payment of any fees and expenses of the depositary or any taxes or other
governmental charges, in proportion to their holdings, respectively, in any
manner that the depositary may deem equitable and practicable for accomplishing
such distribution; provided, however, that if in the opinion of the depositary
such distribution cannot be made
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proportionately among the registered holders entitled thereto, or if for any
other reason, including, but not limited to, any requirement that Galen or the
depositary withhold an amount on account of taxes or other governmental charges
or that such securities must be registered under the Securities Act in order to
be distributed to registered holders or owners of a beneficial interest in
book-entry ADRs, the depositary deems such distribution not to be feasible, the
depositary may adopt such method as it may deem equitable and practicable for
the purposes of effecting such distribution, including, but not limited to, the
public or private sale of the securities or property thus received, or any part
thereof, and the net proceeds of any such sale, net of the fees and expenses of
the depositary, will be distributed by the depositary to the registered holders
entitled thereto as in the case of a distribution received in cash.
If the depositary determines that any distribution of property, including
ordinary shares and rights to subscribe therefor, is subject to any taxes or
other governmental charges which the depositary is obligated to withhold, the
depositary may, by public or private sale, dispose of all or a portion of such
property in such amounts and in such manner as the depositary deems necessary
and practicable to pay such taxes or charges and the depositary will distribute
the net proceeds of any such sale after deduction of such taxes or charges to
the registered holder of ADRs entitled thereto in proportion to the number of
ADSs held by them respectively.
CHANGES AFFECTING DEPOSITED SHARES
Upon any change in nominal value, split-up, consolidation or any other
reclassification of deposited securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting Galen or to
which it is a party, any securities which shall be received by the depositary or
custodian in exchange for, in conversion of, or in respect of deposited
securities will be treated as new deposited securities under the deposit
agreement, and the ADSs will then represent, in addition to the existing
deposited securities, the right to receive the new deposited securities so
received in exchange or conversion, unless additional ADRs are delivered
pursuant to the following sentence. In any such case the depositary may execute
and deliver additional ADRs as in the case of a dividend in ordinary shares, or
call for the surrender of outstanding ADRs to be exchanged for new ADRs
specifically describing such new deposited securities.
RECORD DATES
Whenever any cash dividend or other cash distribution shall become payable
or any distribution other than cash shall be made, or whenever rights shall be
issued with respect to the deposited securities, or whenever for any reason the
depositary causes a change in the number of ordinary shares that are represented
by each ADS, or whenever the depositary shall receive notice of any meeting of
holders of ordinary shares or other deposited securities, or whenever the
depositary shall find it necessary or convenient, the depositary will fix a
record date which shall be the record date, if any, established by Galen for
such purpose, or, if different, as close thereto as practicable:
(1) for the determination of the registered holders of ADRs who will
be:
(a) entitled to receive such dividend, distribution or rights, or
the net proceeds of the sale thereof; or
(b) entitled to give instructions for the exercise of voting rights
at any such meeting, or
(2) on or after which each ADS will represent the changed number of
ordinary shares, each of the foregoing subject to the provisions of the
deposit agreement.
VOTING OF DEPOSITED SECURITIES
Upon receipt of notice of any meeting of holders of ordinary shares or
other deposited securities, if requested in writing by Galen, the depositary
shall, as soon as practicable thereafter, mail to the registered
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holders of ADRs a notice, the form of which notice shall be in the sole
discretion of the depositary, which shall contain:
(1) all of the information contained in such notice of meeting
received by the depositary from Galen;
(2) a statement that the registered holders of ADRs as of the close of
business on a specified record date will be entitled, subject to any
applicable provision of English law and of the Memorandum and Articles of
Association of Galen, to instruct the depositary as to the exercise of the
voting rights, if any, pertaining to the amount of ordinary shares or other
deposited securities represented by their respective ADSs;
(3) a statement that registered holders of ADRs who instruct the
depositary as to the exercise of their voting rights will be deemed to have
instructed the depositary or its authorized representative to call for a
poll with respect to each matter for which such instructions are given,
subject to any applicable provisions of English law and of the Memorandum
and Articles of Association of Galen; and
(4) if applicable, a statement as to the manner in which such
instructions may be given, including an express indication that
instructions may be given or deemed given in accordance with the last
sentence of this paragraph if no instruction is received, to the depositary
to give a discretionary proxy to a person designated by Galen.
Upon the written request of a registered holder on such record date,
received on or before the date established by the depositary for such purpose,
the depositary shall endeavor, insofar as practicable, to vote or cause to be
voted the amount of shares or other deposited securities represented by the ADSs
evidenced by such ADR in accordance with the instructions set forth in such
request. Accordingly, pursuant to Galen's Memorandum and Articles of Association
and applicable English law, the depositary will cause its authorized
representative to attend each meeting of holders of shares and call for a poll
as instructed in accordance with clause (3) above for the purpose of effecting
such vote. The depositary shall not vote or attempt to exercise the right to
vote that attaches to the shares or other deposited securities, other than in
accordance with such instructions or deemed instructions.
The deposit agreement provides that if no instructions are received by the
depositary from any registered holder of ADRs with respect to any of the
deposited securities represented by the ADSs evidenced by such registered
holder's ADRs on or before the date established by the depositary for such
purpose, the depositary will deem such registered holder to have instructed the
depositary to give a discretionary proxy to a person designated by Galen with
respect to such deposited securities and the depositary will give a
discretionary proxy to a person designated by Galen to vote such deposited
securities; provided, that no such instructions will be deemed given and no such
discretionary proxy will be given when Galen notifies the depositary, and Galen
agrees to provide such notice as promptly as practicable in writing, that the
matter to be voted upon is one of the following:
(1) is a matter that has not been submitted to shareholders by means
of a proxy statement comparable to that specified in Schedule 14-A of the
Securities and Exchange Commission;
(2) is the subject of a counter-solicitation, or is part of a proposal
made by a shareholder which is being opposed by management;
(3) relates to a merger or consolidation, except when Galen's proposal
is to merge with its own wholly-owned subsidiary, provided its shareholders
dissenting thereto do not have rights of appraisal;
(4) involves rights of appraisal;
(5) authorizes mortgaging of property;
(6) authorizes or creates indebtedness or increases the authorized
amount of indebtedness;
(7) authorizes or creates preferred shares or increases the authorized
amount of existing preferred shares;
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(8) alters the terms or conditions of any shares of Galen's stock then
outstanding or existing indebtedness;
(9) involves waiver or modification of preemptive rights, except when
Galen's proposal is to waive such rights with respect to ordinary shares
being offered pursuant to stock option or purchase plans involving the
additional issuance of not more than 10% of Galen's outstanding ordinary
shares;
(10) alters voting provisions or the proportionate voting power of a
class of shares, or the number of its votes per share, except where
cumulative voting provisions govern the number of votes per share for
election of directors and Galen's proposal involves a change in the number
of its directors by not more than 10% or not more than one;
(11) changes existing quorum requirements with respect to shareholder
meetings;
(12) authorizes issuance of ordinary shares, or options to purchase
ordinary shares, to directors, officers, or employees in an amount which
exceeds 10% of the total amount of the class outstanding, and when no plan
is amended to extend its duration, Galen shall factor into the calculation
the number of ordinary shares that remain available for issuance, the
number of ordinary shares subject to outstanding options and any ordinary
shares being added; should there be more than one plan being considered at
the same meeting, all ordinary shares are aggregated;
(13) authorizes (a) a new profit-sharing or special remuneration plan,
or a new retirement plan, the annual cost of which will amount to more than
10% of average annual income before taxes for the preceding five years, or
(b) the amendment of an existing plan which would bring its costs above 10%
of such average annual income before taxes and should there be more than
one plan being considered at the same meeting, all costs are aggregated;
exceptions may be made in cases of retirement plans based on agreement or
negotiations with labor unions or which have been or are to be approved by
such unions and any related retirement plan for benefit of non-union
employees having terms substantially equivalent to the terms of such
union-negotiated plan, which is submitted for action of stockholders
concurrently with such union-negotiated plan;
(14) changes the purposes of powers of Galen to an extent which would
permit it to change a materially different line of business and it is
Galen' s stated intention to make such a change;
(15) authorizes the acquisition of property, assets, or a company,
where the consideration to be given has a fair value of 20% or more of the
market value of the previously outstanding shares;
(16) authorizes the sale or other disposition of assets or earning
power of 20% or more of those existing prior to the transaction;
(17) authorizes a transaction not in the ordinary course of business
in which an officer, director or substantial security holder has a direct
or indirect interest; or
(18) reduces earned surplus by 51% or more, or reduces earned surplus
to an amount less than the aggregate of three years' ordinary share
dividends computed at the current dividend rate.
There can be no assurance that the registered holder of ADRs generally or
any bolder in particular will receive the notice described in this paragraph
sufficiently prior to the date established by the depositary for the receipt of
instructions to ensure that the depositary will in fact receive such
instructions on or before such date.
REPORTS AND OTHER COMMUNICATIONS
The depositary will make available for inspection by registered holders of
ADRs at its corporate trust office any reports and communications, including
proxy soliciting material received from Galen, which are both (1) received by
the depositary as the holder of the deposited securities and (2) made generally
available to the holders of such ordinary shares or other deposited securities
by Galen. The depositary will also send to the registered holders of ADRs copies
of such reports and communications furnished by Galen pursuant to the deposit
agreement.
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Any such reports and communications furnished to the depositary by Galen
will be furnished in English when so required pursuant to any regulations of the
Securities and Exchange Commission.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of ADRs and any provisions of the deposit agreement may at any
time and from time to time be amended by agreement between Galen and the
depositary deemed necessary or desirable without the consent of the registered
holders of ADRs or owners of a beneficial interest in book-entry ADRs; provided,
however, that any amendment that imposes or increases any fees or charges, other
than taxes and other governmental charges, registration fees, cable, telex or
facsimile transmission costs, delivery costs or other such expenses, or which
otherwise prejudices any substantial existing right of registered holders of
ADRs, will not take effect with respect to outstanding ADRs until the expiration
of 30 days after notice of any amendment given to the registered holders of
outstanding ADRs. Every registered holder, at the time any amendment becomes
effective, will be deemed, by continuing to hold such ADR, to consent and agree
to such amendment and to be bound by the deposit agreement as amended thereby.
In no event will such amendment impair the right of the registered holder of any
ADR to surrender such ADR and receive therefor the deposited securities
represented thereby, except to comply with mandatory provisions of applicable
law.
The depositary will at any time at the direction of Galen terminate the
deposit agreement by mailing notice of such termination to the owners of the
ADRs then outstanding at least 90 days prior to the date fixed in such notice
for such termination. The depositary may likewise terminate the deposit
agreement by mailing notice of such termination to Galen and the registered
holders of all ADRs outstanding if, at any time after 90 days have expired after
the depositary has delivered to Galen a written notice of its election to resign
and a successor depositary has not been appointed and accepted such appointment,
in accordance with the terms of the deposit agreement. If any ADRs remain
outstanding after the date of termination of the deposit agreement, the
depositary thereafter shall discontinue the registration of transfers of ADRs,
will suspend the distribution of dividends to the registered holders thereof and
will not give any further notices or perform any further acts under the deposit
agreement, except the collection of dividends and other distributions pertaining
to the deposited securities, the sale of rights and other property and the
delivery of other deposited securities, together with any dividends or other
distributions received with respect thereto and the net proceeds of the sale of
any rights or other property, in exchange for surrendered ADRs, after deducting,
in each case, the fee of the depositary for the surrender of an ADR and other
expenses set forth in the deposit agreement and any applicable taxes or
governmental charges. At any time after the expiration of one year from the date
of termination, the depositary may sell the deposited securities then held
thereunder and hold uninvested the net proceeds of such sale, together with any
other cash, unsegregated and without liability for interest, for the pro rata
benefit of the registered holders of ADRs that have not theretofore surrendered
their ADRs, such registered holders thereupon becoming general creditors of the
depositary with respect to such net proceeds. After making such sale, the
depositary will be discharged from all obligations under the deposit agreement,
except to account for net proceeds and other cash, after deducting, in each
case, the fee of the depositary and other expenses set forth in the deposit
agreement for the surrender of an ADR and any applicable taxes or other
governmental charges.
CHARGES OF DEPOSITARY
The depositary will charge any party depositing or withdrawing ordinary
shares or any party surrendering ADRs or to whom ADRs are issued, including,
without limitation, issuance pursuant to a stock dividend or stock split
declared by Galen or an exchange of stock regarding the ADRs or deposited
securities or a distribution of ADRs pursuant to the deposit agreement, where
applicable:
(1) a fee not in excess of $5.00 per 100 ADSs, or portion thereof, for
the execution and delivery of ADRs pursuant to the deposit agreement, and
the surrender of ADRs pursuant to the deposit agreement;
(2) taxes and other governmental charges;
(3) such registration fees as may from time to time be in effect for
the registration of transfers of shares generally on the share register of
Galen or foreign registrar and applicable to transfers of shares to
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the name of the depositary or its nominee or the custodian or its nominee
on the making of deposits or withdrawals;
(4) such cable, telex and facsimile transmission expenses as are
expressly provided in the deposit agreement;
(5) such expenses as are incurred by the depositary in the conversion
of foreign currency pursuant to the deposit agreement;
(6) a fee not in excess of $0.02 per ADS, or portion thereof, for any
distribution of proceeds of a sale of shares, rights or property made
pursuant to the deposit agreement;
(7) a fee for the distribution of securities pursuant to the deposit
agreement, such fee being in an amount equal to the fee for the execution
and delivery of ADS s referred to above which would have been charged as a
result of the deposit of such securities, for purposes of this clause 7
treating all such securities as if they were ordinary shares, but which
securities are instead distributed by the depositary to registered holders
of ADRs; and
(8) a fee not in excess of $1.50 per certificate for an ADR or ADRs
for transfers made pursuant to the deposit agreement.
The depositary may, subject to the provisions of the deposit agreement, own
and deal in any class of securities of Galen and its affiliates and in ADRs.
LIABILITY OF OWNER FOR TAXES
If any tax or other governmental charge shall become payable by the
custodian or the depositary with respect to any ADR or any deposited securities
represented by any ADRs, such tax or other governmental charge will be payable
by the registered holder of an ADR or owner of a beneficial interest in
book-entry ADRs to the depositary. The depositary may refuse to effect any
transfer of such ADR or any withdrawal of deposited securities evidenced by such
ADR until such payment is made, and may withhold any dividends or other
distributions, or may sell for the account of the registered holder of an ADR or
owner of a beneficial interest in book-entry ADRs thereof any part or all of the
deposited securities evidenced by such ADR and may apply such dividends, other
distributions or the proceeds of any such sale to pay any such tax or other
governmental charge and the registered holder of an ADR or owner of a beneficial
interest in book-entry ADRs will remain liable for any deficiency.
GENERAL
Neither the depositary nor Galen nor any of their respective directors,
employees, agents or affiliates will be liable to any registered holder of an
ADR or owner of a beneficial interest in book-entry ADRs, if by reason of any
provision of any present or future law or regulation of the United States, the
United Kingdom or any other country, or of any other governmental or regulatory
authority or stock exchange, or by reason of any provision, present or future,
of the Memorandum and Articles of Association of Galen, or by reason of any
provision of any securities issued or distributed by Galen, or any offering or
distribution thereof, or by reason of any act of God or war or other
circumstances beyond its control, the depositary or Galen shall be prevented,
delayed or forbidden from, or be subject to any civil or criminal penalty on
account of, doing or performing any act or thing which by the terms of the
deposit agreement or deposited securities it is provided will be done or
performed; nor will the depositary or Galen or any of their respective
directors, employees, agents or affiliates incur any liability to any registered
holder of an ADR or owner of a beneficial interest in book-entry ADRs by reason
of any nonperformance or delay, caused as aforesaid, in the performance of any
act or thing which by the terms of the deposit agreement it is provided will or
may be done or performed, or by reason of any exercise of, or failure to
exercise, any discretion provided for under the deposit agreement Where, by the
terms of a distribution pursuant to the deposit agreement or an offering or
distribution pursuant to the deposit agreement, or for any other reason, such
distribution or offering may not be made available to registered holders of
ADRs, and the depositary may not dispose of such distribution or offering on
behalf of such
III-22
<PAGE> 139
registered holders of ADRs and make the net proceeds available to such
registered holders of ADRs, then the depositary will not make such distribution
or offering, and will allow the rights, if applicable, to lapse.
Galen and the depositary assume no obligation nor will they be subject to
any liability under the deposit agreement to registered holders of ADRs or
owners of a beneficial interest in book-entry ADRs, except that they agree to
perform their respective obligations specifically set forth under the deposit
agreement without negligence or bad faith.
The depositary will keep books at its corporate trust office for the
registration and transfer of ADRs, which at all reasonable times will be open
for inspection by the registered holders of ADRs, provided that such inspection
will not be for the purpose of communication with registered holders of ADRs in
the interest of a business or object other than the business of Galen or a
matter related to the deposit agreement or the ADRs. The ADRs are transferable
on the books of the depositary, provided that the depositary may close the
transfer books at any time or from time to time when deemed expedient by it in
connection with the performance of its duties under the deposit agreement. As a
condition precedent to the execution and delivery, registration of transfer,
split-up, combination or surrender of any ADR or withdrawal of any deposited
securities, the depositary, the custodian or the registrar may require payment
from the person presenting the ADR or the depositor of the ordinary shares of a
sum sufficient to reimburse it for any tax or other governmental charge and any
stock, transfer or registration fee with respect thereto, including any such tax
or charge and fee with respect to ordinary shares being deposited or withdrawn,
and payment of any applicable fees payable by the registered holders of ADRs and
owners of beneficial interests in book-entry ADRs. The depositary may refuse to
deliver ADRs, to register the transfer of any ADR or to make any distribution
on, or related to, ordinary shares until it has received such proof of
citizenship or residence, exchange control approval, or other information as it
may deem necessary or proper. The delivery, transfer, registration of transfer
of outstanding ADRs and surrender of ADRs generally may be suspended or refused
during any period when the transfer books of the depositary are closed or if any
such action is deemed necessary or advisable by the depositary or Galen at any
time or from time to time.
The depositary may appoint one or more co-transfer agents for the purpose
of effecting transfers, combinations and split-ups of ADRs at designated
transfer offices on behalf of the depositary In carrying out its functions, a
co-transfer agent may require evidence of authority and compliance with
applicable laws and other requirements by registered holders of ADRs or persons
entitled to ADRs and will be entitled to protection and indemnity to the same
extent as the depositary.
GOVERNING LAW
The deposit agreement is governed by the laws of the State of New York.
III-23
<PAGE> 140
CHAPTER FOUR
ADDITIONAL INFORMATION FOR SHAREHOLDERS
MARKET PRICE INFORMATION
Warner Chilcott's ordinary shares are quoted on the Nasdaq National Market
in the form of American Depositary Shares, which are evidenced by American
Depositary Receipts under the symbol "WCRX." The ordinary shares are not traded
on the Irish Stock Exchange or any other exchange. The deferred shares are not
traded on any exchange.
Galen's ordinary shares are listed on the London Stock Exchange under the
symbol "GAL," and on the Irish Stock Exchange under the symbol "GAL."
The following table sets forth the high and low sales prices per share of:
- Warner Chilcott's ADRs for the periods indicated; and
- Galen's ordinary stock,
as quoted on the Nasdaq National Market and the London Stock Exchange,
respectively, for the periods indicated.
<TABLE>
<CAPTION>
WARNER CHILCOTT
ORDINARY SHARES GALEN ORDINARY SHARES
-------------------- -----------------------------------
HIGH LOW HIGH LOW
------- ------- --------------- --------------
($) ($) (L) ($) (L) ($)
<S> <C> <C> <C> <C> <C> <C>
1998:
First Quarter............... 12.5000 9.5000 5.235 7.710 3.455 5.089
Second Quarter.............. 12.6250 9.2500 5.275 7.769 4.150 6.112
Third Quarter(1)............ 11.5000 5.8750 4.375 6.444 4.375 6.444
Fourth Quarter.............. 10.2500 5.5000 4.975 7.327 3.375 4.971
1999:
First Quarter............... 9.7500 4.7500 5.450 8.027 4.475 6.591
Second Quarter.............. 9.0000 5.6250 5.425 7.990 4.650 6.849
Third Quarter............... 8.7500 7.0000 5.775 8.505 4.850 6.701
Fourth Quarter.............. 10.1875 7.6250 6.675 9.831 5.050 7.438
2000:
First Quarter............... 17.5625 8.3750 7.650 11.267 5.050 7.438
Second Quarter (through May
24, 2000)................ 20.6875 12.1250 6.925 10.199 5.175 7.622
</TABLE>
- ---------------
(1) During this period, the ordinary shares of Galen were suspended from trading
on the London Stock Exchange following the announcement of an intended
merger with Ferring Pharmaceuticals in accordance with the listing rules of
the London Stock Exchange.
On May 3, 2000, the last trading day before public announcement of the
execution of the transaction, the closing mid-market price of Warner Chilcott's
ADRs was $18.00 per share and the closing mid-market price of Galen's ordinary
shares was 612.5p ($9.58) per share, as quoted on the Nasdaq National Market and
the London Stock Exchange, respectively. On May 24, 2000, the closing price of
Warner Chilcott's ADRs was $17.875 per share and the closing mid-market price of
Galen's ordinary shares was 530p per share.
DIVIDEND HISTORY
Warner Chilcott has not declared or paid any cash dividends on its share
capital for the periods presented. Galen has paid total dividends of L0,
L979,000 ($1,441,871) and L1,648,000, ($2,427,174) in each of its fiscal years
ended September 30, 1997, 1998 and 1999. ANY DETERMINATION TO PAY DIVIDENDS IN
THE FUTURE WILL BE AT
IV-1
<PAGE> 141
THE DISCRETION OF THE GALEN BOARD OF DIRECTORS AND WILL BE DEPENDENT UPON
GALEN'S RESULTS OF OPERATIONS, FINANCIAL CONDITION, CAPITAL EXPENDITURES,
WORKING CAPITAL REQUIREMENTS, ANY CONTRACTUAL RESTRICTIONS AND OTHER FACTORS
DEEMED RELEVANT BY ITS BOARD OF DIRECTORS.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR WARNER
CHILCOTT'S ADRS AND GALEN'S ORDINARY SHARES.
CURRENCIES AND EXCHANGE RATES
Galen publishes its financial statements in pounds sterling. Warner
Chilcott publishes its financial statements in US Dollars. In this proxy
statement, references to "pounds sterling", "L", "p" or "pence" are to the
currency of the United Kingdom, and references to "US Dollars", "$" or "c" are
to the currency of the United States. Where this proxy statement contains
translations of pound sterling amounts into US dollar amounts, solely for your
convenience, unless otherwise indicated, the translations have been made at
L1.00 = $1.4728, which was the noon buying rate in The City of New York for
cable transfers in pounds sterling as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate") on May 23, 2000. You
should not construe these translations as representations that the pound
sterling amounts actually represent such US dollar amounts or could have been or
could be converted into US dollars at the rates indicated or at any other rates.
The table below sets forth, for the periods and dates indicated,
information concerning the noon buying rates for pounds sterling expressed in US
dollars per pound. Fluctuations in the exchange rate between the pound sterling
and the US dollar will affect, among other things, the US dollar equivalent of
the pound price of the shares of the London Stock Exchange, which is likely to
affect the market price of the ADSs.
<TABLE>
<CAPTION>
END
OF
YEAR ENDED DECEMBER 31, HIGH LOW PERIOD AVERAGE(1) PERIOD
- ----------------------- ---- ---- ----------------- ------
<S> <C> <C> <C> <C>
1995............................................... 1.53 1.64 1.55 1.58
1996............................................... 1.50 1.71 1.57 1.71
1997............................................... 1.58 1.71 1.64 1.65
1998............................................... 1.62 1.72 1.66 1.66
1999............................................... 1.55 1.68 1.61 1.61
2000 (to May 23, 2000)............................. 1.48 1.65 1.57 1.48
</TABLE>
(1) The average of the exchange rates on the last day of each month during
the applicable period.
WHERE YOU CAN FIND MORE INFORMATION
Warner Chilcott files annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K and other information with the
Commission. You may read and copy any reports, statements or other information
that Warner Chilcott files at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Such filings are also available to the public from commercial document
retrieval services. Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
Washington, D.C. 20549. In addition, Warner Chilcott is required to file
electronic versions of such material with the Commission through the
Commission's Electronic Data and Gathering, Analysis and Retrieval (EDGAR)
system. The Commission maintains a World Wide Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Warner
Chilcott ADRs are quoted on the Nasdaq National Market under the symbol "WCRX".
Galen files their annual report and accounts, interim financial statements
and other information with the Registrar of Companies in Northern Ireland. Such
filings are available to the public from commercial document retrieval services.
Copies of such material can also be obtained at prescribed rates from Companies
House, Belfast, Northern Ireland.
IV-2
<PAGE> 142
Warner Chilcott has supplied all information contained in this proxy
statement relating to Warner Chilcott, and Galen has supplied all such
information relating to Galen.
Documents that we make reference to herein are available from us without
charge, excluding all exhibits unless we have specifically made reference to an
exhibit in this proxy statement. Shareholders may obtain such documents by
requesting them in writing or by telephone at the following addresses:
<TABLE>
<S> <C>
Warner Chilcott PLC Galen Holdings PLC
80 Corporate Centre Seagoe Industrial Estate
100 Enterprise Drive Craigavon
Suite 280 Northern Ireland BT63 5UA
Rockaway Attention: Company Secretary
New Jersey 07866
Attention: Investor Relations
</TABLE>
If you would like to request documents from us, please do so by
, 2000 to receive them before the meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE MATTERS BROUGHT BEFORE THE
MEETINGS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED , 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THE PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN SUCH
DATE, AND NEITHER THE MAILING OF THE PROXY STATEMENT TO THE SHAREHOLDERS NOR THE
COMPLETION OF THE TRANSACTION SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
IV-3
<PAGE> 143
CHAPTER FIVE
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WARNER CHILCOTT PUBLIC LIMITED COMPANY
Audited Consolidated Financial Statements:
Independent Auditors' Report................................ F-2
Statement of Independent Chartered Accountants.............. F-3
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
Financial Statement Schedule: Valuation and Qualifying
Accounts.................................................. F-24
Consolidated Financial Statements (unaudited):
Consolidated Balance Sheet as of March 31, 2000............. F-25
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999............................. F-26
Consolidated Statements of Cash Flows for Three Months Ended
March 31, 2000 and 1999................................... F-27
Notes to the Unaudited Consolidated Financial Statements.... F-28
OVCON AND ESTRACE CREAM PRODUCTS OF APOTHECON (A SUBSIDIARY
OF BRISTOL-MYERS SQUIBB COMPANY)
Independent Auditors' Report................................ F-34
Historical Statements of Net Sales and Product Contribution
for the Years Ended December 31, 1999, 1998 and 1997...... F-35
Notes to the Historical Statements of Net Sales and Product
Contribution.............................................. F-36
GALEN HOLDINGS PUBLIC LIMITED COMPANY
Independent Auditors' Report................................ F-38
Consolidated Profit and Loss Accounts....................... F-39
Reconciliation of Movements in Shareholders' Funds.......... F-40
Consolidated Statement of Total Recognized Gains and
Losses.................................................... F-40
Cumulative Foreign Currency Translation Differences......... F-40
Consolidated Balance Sheets................................. F-41
Consolidated Cash Flow Statements........................... F-42
Notes to the Accounts....................................... F-43
BARTHOLOMEW RHODES LIMITED (A SUBSIDIARY OF GALEN)
Report of the Auditors...................................... F-79
Profit and Loss Account for the Year Ended March 31, 1999... F-81
Cash Flow Statement for the Year Ended March 31, 1999....... F-82
Notes to the Financial Statements........................... F-83
</TABLE>
F-1
<PAGE> 144
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Warner Chilcott Public Limited Company
We have audited the accompanying consolidated balance sheets of Warner
Chilcott Public Limited Company and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years then ended. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Warner
Chilcott Public Limited Company and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for the years
then ended in conformity with United States generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Short Hills, New Jersey
February 22, 2000
F-2
<PAGE> 145
STATEMENT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Directors and Shareholders of
Warner Chilcott Public Limited Company
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Warner Chilcott Public Limited Company
and subsidiaries for the year ended December 31, 1997. In connection with our
audit of the consolidated financial statements, we have also audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Warner Chilcott Public Limited Company and subsidiaries for the year
ended December 31, 1997, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, based on our audit, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG
Chartered Accountants
Dublin, Ireland
February 24, 1998
F-3
<PAGE> 146
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 50,954 $ 43,133
Accounts receivable, net............................... 11,526 18,050
Inventories............................................ 4,025 13,099
Prepaid expense and other assets....................... 915 7,403
--------- --------
Total current assets.............................. 67,420 81,685
--------- --------
Fixed Assets:
Equipment, furniture and fixtures, net................. 1,177 1,076
Intangible assets, net.................................... 63,865 74,256
--------- --------
Total assets...................................... $ 132,462 $157,017
========= ========
LIABILITIES
Current Liabilities:
Accounts payable....................................... $ 3,204 $ 8,833
Accrued liabilities.................................... 7,438 6,254
Due to Elan Corporation, plc and subsidiaries.......... 262 7,697
--------- --------
Total current liabilities......................... 10,904 22,784
--------- --------
Other Liabilities:
Working capital facility............................... 12,098 20,393
Long-term debt......................................... 10,476 8,897
--------- --------
Total liabilities................................. 33,478 52,074
--------- --------
SHAREHOLDERS' EQUITY
Ordinary Shares, par value $.05 per share; 50,000,000
shares authorized, 12,377,034 shares issued and
outstanding at December 31, 1999, and 12,366,808 issued
and outstanding at December 31, 1998................... 619 618
Deferred Shares, par value IRL1 per share; 30,000 shares
authorized, 30,000 shares issued and outstanding at
December 31, 1999 and December 31, 1998................ 45 45
Additional paid-in capital................................ 209,062 208,939
Accumulated deficit....................................... (110,279) (103,578)
Deferred compensation..................................... (463) (1,081)
--------- --------
Total shareholders' equity........................ 98,984 104,943
--------- --------
Total liabilities and shareholders' equity........ $ 132,462 $157,017
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 147
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Branded product sales.............................. $ 34,813 $ 16,440 $ 8,322
Generic product sales.............................. 13,767 31,405 67,505
Marketing alliance and other revenue............... 25,455 17,049 --
----------- ----------- ----------
Total revenues............................. 74,035 64,894 75,827
----------- ----------- ----------
OPERATING EXPENSES
Cost of goods sold................................. 27,704 34,230 62,863
Selling, general and administrative................ 46,409 41,709 23,618
Depreciation and amortization...................... 5,520 5,621 5,458
Research and development........................... 3,100 3,241 6,526
----------- ----------- ----------
Total operating expenses................... 82,733 84,801 98,465
----------- ----------- ----------
OPERATING LOSS....................................... (8,698) (19,907) (22,638)
----------- ----------- ----------
OTHER INCOME (EXPENSE)
Interest income.................................... 2,264 2,622 1,524
Interest expense................................... (3,011) (3,012) (7,260)
Gain on sale of assets............................. 2,744 -- --
----------- ----------- ----------
Total other income (expense)............... 1,997 (390) (5,736)
----------- ----------- ----------
LOSS BEFORE TAXES.................................... (6,701) (20,297) (28,374)
----------- ----------- ----------
Income taxes......................................... -- -- --
----------- ----------- ----------
NET LOSS............................................. $ (6,701) $ (20,297) $ (28,374)
=========== =========== ==========
Net loss per ordinary share
Basic and Diluted.................................. $ (0.54) $ (1.64) $ (3.39)
=========== =========== ==========
Weighted average ordinary shares outstanding......... 12,367,706 12,366,808 8,359,623
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 148
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DEFERRED ADDITIONAL
NUMBER OF SHARE SHARE PAID-IN ACCUMULATED DEFERRED
SHARES CAPITAL CAPITAL CAPITAL DEFICIT COMPENSATION TOTAL
---------- ------- -------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996....... 4,764,563 $238 $45 $ 82,807 $ (54,907) $ -- $ 28,183
Stock issued for cash............ 4,775,000 239 -- 82,267 -- -- 82,506
Issue expenses................... -- -- -- (7,918) -- -- (7,918)
Conversion of senior subordinated
notes into ordinary shares..... 2,827,245 141 -- 49,336 -- -- 49,477
Stock compensation............... -- -- -- 2,470 -- (2,470) --
Stock compensation expense....... -- -- -- -- -- 772 772
Net loss......................... -- -- -- -- (28,374) -- (28,374)
---------- ---- --- -------- --------- ------- --------
BALANCE AT DECEMBER 31, 1997....... 12,366,808 618 45 208,962 (83,281) (1,698) 124,646
Issue expenses................... -- -- -- (23) -- -- (23)
Stock compensation expense....... -- -- -- -- -- 617 617
Net loss......................... -- -- -- -- (20,297) -- (20,297)
---------- ---- --- -------- --------- ------- --------
BALANCE AT DECEMBER 31, 1998....... 12,366,808 $618 $45 $208,939 $(103,578) $(1,081) $104,943
Stock option/warrant exercises
and miscellaneous capital...... 10,226 1 -- 39 -- -- 40
Stock compensation expense....... -- -- -- 84 -- 618 702
Net loss......................... -- -- -- -- (6,701) -- (6,701)
---------- ---- --- -------- --------- ------- --------
BALANCE AT DECEMBER 31, 1999....... 12,377,034 $619 $45 $209,062 $(110,279) $ (463) $ 98,984
========== ==== === ======== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 149
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (6,701) $(20,297) $(28,374)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization......................... 5,520 5,621 5,458
Accretion of loan discount............................ -- 995 4,174
Deferred financing cost write-off..................... -- -- 1,069
Stock compensation expense............................ 702 617 772
(Gain) loss on sale of assets......................... (2,744) -- 98
Notes issued in lieu of cash interest payments........ 1,579 -- --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, prepaid
expense and other assets......................... 12,562 (3,455) (1,326)
Decrease in inventories............................. 6,396 3,076 7,125
(Decrease) increase in accounts payable and accrued
liabilities...................................... (4,445) (4,324) 5,327
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 12,869 (17,767) (5,677)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets............................. 11,000 -- 1,168
Purchase of intangible assets............................ -- -- (12,389)
Purchase of fixed assets................................. (358) (175) (495)
-------- -------- --------
Net cash provided by (used in) investing
activities..................................... 10,642 (175) (11,716)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Working capital facility (repayment) proceeds, net....... (8,295) 20,393 --
Short-term debt repayment................................ -- (14,511) (2,343)
(Repayment) proceeds -- Elan Corporation, plc............ (7,435) 2,430 (4,729)
Net proceeds from issuance of share capital.............. 40 (23) 74,588
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (15,690) 8,289 67,516
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 7,821 (9,653) 50,123
Cash and cash equivalents, beginning of year............. 43,133 52,786 2,663
-------- -------- --------
Cash and cash equivalents, end of year................... $ 50,954 $ 43,133 $ 52,786
======== ======== ========
Cash paid for interest................................... $ 1,328 $ 1,542 $ 1,395
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 150
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
1. GENERAL
Warner Chilcott Public Limited Company ("Warner Chilcott" or the "Company")
is an Irish company with operations in Dublin, Ireland and Rockaway, NJ, USA.
The Company's consolidated financial statements include the financial statements
for Warner Chilcott Public Limited Company and all of its subsidiaries and are
prepared in U.S. dollars in conformity with United States generally accepted
accounting principles.
The Company is engaged in the development, marketing, sale and distribution
of branded prescription pharmaceutical products in the United States. Warner
Chilcott's primary focus is the women's health care market, with a continued
presence in the cardiology and dermatology markets. All of the Company's branded
products are promoted by the Company's sales force. The Company manages and
operates its business as one segment and the majority of its operating revenues
were generated in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed in the preparation of the accompanying
consolidated financial statements are in conformity with generally accepted
accounting principles in the United States.
(a) Basis of consolidation
The consolidated financial statements include the accounts of Warner
Chilcott Public Limited Company and its subsidiaries. Significant intercompany
transactions and balances have been eliminated.
(b) Estimates and assumptions
The preparation of financial statements in accordance with United States
generally accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
(c) Financial instruments
The Company considers all liquid interest-earning investments with original
maturities of ninety days or less to be cash equivalents. Investments with
maturities between ninety days and one year are considered short-term
investments. Cash and short-term investments are stated at cost plus accrued
interest, which approximates market value. From time to time, the Company
pledges cash and equivalents as collateral for borrowings under its working
capital facility. (See Note 8)
(d) Inventories
Inventories are valued at the lower of cost or market. Cost is determined
principally on the basis of first-in, first-out or standards, which approximate
average cost.
(e) Equipment, furniture and fixtures
Equipment, furniture and fixtures are stated at cost, net of accumulated
depreciation. Depreciation is computed on the straight-line basis over the
estimated useful lives of the various assets (primarily five years or the life
of the lease or leasehold improvement).
F-8
<PAGE> 151
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(f) Intangible assets
Purchased goodwill and other intangible assets resulting from business
acquisitions are carried at cost and are amortized over their estimated useful
lives, which range between 5 and 20 years. Where events or circumstances are
present which indicate that the carrying amount of an intangible asset may not
be recoverable, the Company estimates the future undiscounted cash flows
expected to result from use of the asset and its eventual disposition. Where
future undiscounted cash flow is less than the carrying amount of the asset, the
Company will recognize an impairment loss. Otherwise, no loss is recognized.
(g) Revenue recognition
Revenue from sales is recognized upon shipment of product to the customer.
The Company warrants products against defects and for specific quality
standards, permitting the return of products under certain circumstances. Sales
are recorded net of deductions for cash discounts, sales returns, customer
rebates and pricing adjustments. Revenue from marketing alliances is recognized
when earned under the terms of the associated contracts.
(h) Research and development
Research and development costs are expensed as incurred.
(i) Foreign currency transactions
The Company's financial statements are prepared in U.S. dollars. In
general, the Company's operating and other business transactions are denominated
in U.S. dollars. Accordingly, the Company's exposure to currency fluctuations is
limited. Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than U.S. dollars are included
in the results of operations as incurred.
(j) Income taxes
Corporation tax is provided on the results for the year. The Company
applies Statement of Financial Accounting Standard ("SFAS") No. 109 "Accounting
for Income Taxes," which requires deferred tax assets and liabilities to be
recognized for future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled.
(k) Stock based compensation
The Company grants stock options for fixed numbers of shares to employees
and directors generally with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants to
employees and directors in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations,
and includes appropriate disclosures as required by SFAS No. 123, "Accounting
for Stock-Based Compensation."
(l) Impairment of long-lived assets and long-lived assets to be disposed of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" requires that long-lived assets and certain
identifiable intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
F-9
<PAGE> 152
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
not be recoverable. The application of this Statement did not have any impact on
the Company's consolidated financial statements.
(m) Net loss per ordinary share
The Company calculates net loss per ordinary share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share." Net loss and weighted average
shares outstanding used for computing diluted loss per share were the same as
that used for computing basic loss per share for each of the years ended
December 31, 1999, 1998 and 1997. Stock options and warrants have not been
included in the calculation since the inclusion of such shares would be
antidilutive (See Notes 9 and 10).
(n) Comprehensive income
SFAS No. 130, "Reporting Comprehensive Income" defines comprehensive income
as the total change in shareholders' equity during the period other than from
transactions with shareholders. For the Company, comprehensive loss is comprised
solely of net loss.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Trade receivables........................................... $ 5,823 $10,189
Marketing alliance receivables.............................. 6,044 8,869
Other non-trade receivables................................. 1,082 559
------- -------
12,949 19,617
Less allowance for doubtful accounts........................ 1,423 1,567
------- -------
$11,526 $18,050
======= =======
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------ -------
<S> <C> <C>
Raw materials............................................... $ 17 $ 1,897
Finishing supplies.......................................... 3 3
Work-in-process............................................. 957 932
Finished goods.............................................. 3,936 11,597
------ -------
4,913 14,429
Less reserve for obsolescence............................... 888 1,330
------ -------
$4,025 $13,099
====== =======
</TABLE>
F-10
<PAGE> 153
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
5. EQUIPMENT, FURNITURE AND FIXTURES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Equipment, furniture and fixtures........................... $1,924 $1,565
Less accumulated depreciation............................... 747 489
------ ------
$1,177 $1,076
====== ======
</TABLE>
Depreciation expense amounted to $258, $247 and $179 for the years ended
December 31, 1999, 1998 and 1997, respectively.
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Goodwill.................................................... $29,624 $29,624
Tradename and other intangibles............................. 52,189 58,389
------- -------
81,813 88,013
Less accumulated amortization............................... 17,948 13,757
------- -------
$63,865 $74,256
======= =======
</TABLE>
Amortization expense amounted to $5,262, $5,374 and $5,279 for the years
ended December 31, 1999, 1998, and 1997, respectively.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each material class of financial instrument:
Cash, cash equivalents and accounts receivable carrying amount
approximates fair value due to the short-term maturities of these
instruments.
Other creditors and due to Elan carrying amount approximates fair
value due to the short term maturities of these instruments.
Long-term debt and working capital facility carrying amount
approximates fair value based on market comparables.
The Company invests its cash in U.S. government securities and debt
instruments of financial institutions and corporations with investment grade
credit ratings. The Company has established guidelines relative to
diversification and maturities that are designed to help ensure safety and
liquidity.
8. DEBT
Working Capital Facility
On March 30, 1998 Warner Chilcott, Inc., the Company's U.S. operating
subsidiary ("WCI"), entered into a $30,000 revolving credit facility and
security agreement with a syndicate of banks led by PNC Business Credit ("the
"PNC facility"). The facility expires in March 2001. The PNC facility replaced a
facility provided by Bankers Trust Commercial Corporation.
F-11
<PAGE> 154
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
The PNC facility is collateralized by substantially all of the assets of
WCI including cash balances, accounts receivable, inventory, fixed assets and
other intangible assets. Availability under the credit facility is based upon
the balances of qualified collateral, primarily accounts receivable, inventory
and certain cash balances. Under the credit agreement, WCI is required to
maintain a minimum balance of shareholders' equity. At December 31, 1999 the
Company was in compliance with the covenants of the PNC facility. Warner
Chilcott, plc, Warner Chilcott Ireland Limited, and Warner Chilcott Limited
(Bermuda) have also pledged certain assets and financial support for the
facility.
Interest on outstanding borrowings accrues at either PNC's Base Rate or
LIBOR plus one and three-quarter percent. In addition, the Company pays a
commitment fee equal to three-eighths of one percent on the unused portion of
the facility. Interest expense related to the PNC and predecessor credit
facilities in 1999, 1998 and 1997, including commitment fees, were $1,592,
$1,735 and $1,761, respectively.
Senior Subordinated Discount Notes
In April 1996 WCI issued $69,000 principal amount of Senior Subordinated
Discount Notes ("Notes") due 2001 at a 30% discount to the principal amount.
Gross proceeds to WCI amounted to $48,300, which were utilized to fund the
acquisition of the Warner-Lambert division. The Notes are unsecured and rank
subordinate in right of payment to all senior indebtedness of WCI. The Notes are
redeemable at the option of WCI, in whole or in part, at any time prior to
maturity at redemption prices equal to 105% of the principal amount of the Notes
plus accrued interest. The discount on the Notes was amortized to interest
expense at a rate of 14.8%, compounded semi-annually.
In June 1997 the Company offered all holders of the Notes the right to
exchange Notes for newly issued Convertible Senior Subordinated Discount Notes
("the Convertible Notes") and detachable warrants to purchase Ordinary Shares of
the Company. The holders of 87% of the principal amount of the Notes accepted
the offer and the Company issued $49,477 of Convertible Notes and detachable
warrants in exchange for $49,477 of Notes. The conversion price for the
Convertible Notes, the number of shares subject to the detachable warrants and
the exercise price of the warrants were ultimately determined by the price at
which the Company sold shares in its IPO in August 1997. Following the exchange,
the Company exercised an option to convert the Convertible Notes into Ordinary
Shares. The net result of the exchange of Notes for Convertible Notes and
detachable warrants and the subsequent conversion of the Convertible Notes into
shares was that the Company issued 2,827,245 Ordinary Shares and warrants to
purchase an aggregate 141,362 Ordinary Shares exercisable at $17.50 per share.
At October 25, 1998 the discount on the Notes was fully amortized and the
Notes were carried at 100% of their principal amount. Beginning October 25,
1998, interest began to accrue on the Notes at a rate of 16.8% per annum paid
semi-annually on each April 30th and October 31st. At its sole discretion, the
Company may issue additional Notes in lieu of cash payment of any or all
interest due on the Notes. The Company issued additional Notes in payment of the
interest installments due April 30, 1999 and October 31, 1999.
The table below shows the components of long-term debt as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- ------
<S> <C> <C>
Principal, beginning of year................................ $ 8,897 $6,228
Accreted interest........................................... -- 2,669
Notes issued for interest payments.......................... 1,579 --
------- ------
$10,476 $8,897
======= ======
</TABLE>
F-12
<PAGE> 155
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
9. SHARE CAPITAL
Ordinary Shares
In August 1997 the Company completed its initial public offering (the
"IPO") selling 3,500,000 shares at an issue price of $17.50 per Ordinary Share.
Concurrent with the IPO, Barr Laboratories Inc. purchased 250,000 Ordinary
Shares in a private placement at an issue price of $16.275 per share that
equated to the IPO issue price net of underwriting discounts and commissions.
Also, at the time of the IPO, Elan Corporation, plc exercised a warrant to
purchase 500,000 Ordinary Shares at a price of $16.00 per share. In September
1997 the underwriters of the Company's IPO exercised an option to cover
over-allotments and purchased an additional 525,000 Ordinary Shares from the
Company at a price of $17.50 per share less underwriting discounts and
commissions. The net proceeds to the Company of the IPO and related financings
totaled $74,588.
In 1997 the Company issued 2,827,245 Ordinary Shares and 141,362 detachable
warrants in exchange for Convertible Senior Subordinated Discount Notes (See
Note 8).
Deferred Shares
Holders of Deferred Shares will not be entitled to receive dividends or to
receive notice of or be represented at shareholder meetings of the Company or to
vote at such meetings. On liquidation or a winding up of the Company the holders
of Deferred Shares will be entitled to receive the par value of the Deferred
Shares after the holders of the Ordinary Shares have received the par value of
the Ordinary Shares but shall not be entitled to otherwise participate in the
assets which are available for distribution.
Warrants Issued In Connection With Financing Activities
The Company from time to time has issued warrants in connection with
various financing activities.
On September 30, 1997 the Company issued a five-year warrant to Elan to
purchase 150,000 Ordinary Shares at an exercise price of $22.75 per share in
conjunction with bridge financing for the purchase of five products from
Warner-Lambert Company.
In connection with Barr's purchase of shares at the time of the IPO, the
Company issued to Barr a warrant to purchase up to 250,000 Ordinary Shares
exercisable at $16.275 per share. The warrant becomes exercisable as to 62,500
shares during four one-year periods beginning on each of the first, second,
third and fourth anniversaries of the IPO. If Barr does not exercise, in full,
its right to purchase the 62,500 shares during any one-year period, such portion
of the warrant expires. At December 31, 1999, this warrant entitled Barr to
purchase 187,500 shares and was exercisable as to 62,500 shares.
In connection with the acquisition of the Warner-Lambert division in 1996,
the Company issued a warrant to Warner-Lambert Company for $672. This warrant
entitles Warner-Lambert to purchase 1,130,158 Ordinary Shares of the Company for
an aggregate of $18,003. This warrant is exercisable through January 31, 2001.
Other Warrants
During 1996 100,000 warrants were issued to an individual who was, at the
time, an officer and director of the Company. The exercise price of $20.00 per
share was equal to the estimated fair value of the shares on the date of the
grant. The warrants are exercisable through June 28, 2001.
F-13
<PAGE> 156
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
Other
In December 1998 Elan Corporation, plc, contributed 600,000 shares of the
Company's stock to an entity formed by it and selected members of senior
management of the Company. Under the terms of the transaction, Elan retained the
right to 100% of the proceeds from the sale of the shares at a price up to
$11.50 per share, and certain additional proceeds from the sale of these shares
at higher amounts.
During 1999 warrants for the purchase of a total of 410,189 Ordinary Shares
expired. A warrant for the purchase of 10,000 Ordinary Shares at an exercise
price of $0.05 was exercised in 1999.
10. STOCK OPTIONS AND COMPENSATORY WARRANTS
Incentive Share Option Scheme
In April 1997 the Company adopted an Incentive Share Option Scheme for
officers, directors and employees that provides for stock options. In June 1999
the Scheme was amended to provide for grants to consultants and members of the
Company's medical advisory board. The option exercise price is the fair market
value at the date of grant. Options generally vest over four years and expire on
the earlier of ten years from the date of grant or after a specified period
following the participant's separation from the Company. At December 31, 1999
options for 1,384,413 shares were outstanding under the Scheme, 115,243 shares
were available for future grants and 545,687 were exercisable.
Warrants Issued to Officers and Directors
The Company has issued warrants to certain executives and to directors that
are not governed by the Incentive Share Option Scheme. These warrants are
described below:
In June 1996 the Company issued warrants to directors to purchase up to an
aggregate 60,000 Ordinary Shares at an exercise price of $20.00 per share. The
exercise price on the date of grant was equal to the estimated fair value of the
shares on that date. The warrants are exercisable through June 28, 2001.
In March 1997 the Company issued warrants to two executives pursuant to
employment agreements approved by the Board of Directors. The warrants allow the
executives to purchase up to an aggregate 650,000 shares (520,000 at an exercise
price of $20.00 per share and 130,000 at an exercise price of $1.00 per share).
These warrants become exercisable ratably over 16 quarterly periods which began
October 1, 1996, but would be immediately exercisable in full if the Company
undergoes a change of control. The warrants expire on the earlier of October 31,
2006 or after a specified period following the termination of the executive's
employment with the Company. The difference between the estimated fair value of
the shares on the date of grant ($20.00) and the $1.00 per share exercise price
was recorded as deferred compensation expense totaling $2,470 on the date of
grant and is being amortized over the vesting period. Compensation expense
charged against income in respect of these warrants was $618, $617 and $772 for
the years ended December 31, 1999, 1998 and 1997.
In February 1998 the Company issued a warrant to an executive pursuant to
an employment agreement approved by the Board of Directors. The warrant allows
the executive to purchase up to 200,000 Ordinary Shares at an exercise price of
$9.77 per share. The exercise price on the date of grant was equal to the fair
market value of the shares on that date. The warrant becomes exercisable (vests)
over 16 quarterly periods that began January 1, 1998, but would be immediately
exercisable in full if the Company undergoes a change of control. The warrant
expires on the earlier of February 3, 2008 or after a specified period following
the termination of the executive's employment with the Company.
F-14
<PAGE> 157
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
Options outstanding under the Scheme and warrants issued to officers and
directors are summarized below:
<TABLE>
<CAPTION>
PRICE PER SHARE
--------------------------
WEIGHTED
SHARES RANGE AVERAGE
--------- -------------- --------
<S> <C> <C> <C>
Balance at December 31, 1996................... 60,000 $20.00 $20.00
Granted...................................... 926,750 $1.00 - $20.00 $17.33
Exercised.................................... -- -- --
Cancelled.................................... (7,500) $20.00 $20.00
--------- -------------- ------
Balance at December 31, 1997................... 979,250 $1.00 - $20.00 $17.48
Granted...................................... 748,450 $6.00 - $ 9.88 $ 9.22
Exercised.................................... -- -- --
Cancelled.................................... (18,250) $9.77 - $20.00 $14.70
--------- -------------- ------
Balance at December 31, 1998 1,709,450 $1.00 - $20.00 $13.89
Granted...................................... 628,575 $7.00 - $10.19 $ 7.82
Exercised.................................... (344) $6.75 - $ 8.13 $ 6.99
Cancelled.................................... (43,268) $6.75 - $20.00 $ 9.14
--------- -------------- ------
Balance at December 31, 1999................... 2,294,413 $1.00 - $20.00 $12.32
========= ============== ======
Exercisable at December 31, 1999............... 1,233,812 $1.00 - $20.00 $14.60
========= ============== ======
</TABLE>
Following is option and warrant data at December 31, 1999 by exercise price
range:
<TABLE>
<CAPTION>
$1.00 TO $6.00 TO $10.00 TO
EXERCISE PRICE RANGE $5.99 $10.00 $20.00 TOTAL
- -------------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Number of shares subject to options
and warrants....................... 130,000 1,305,863 858,550 2,294,413
Weighted average exercise price...... $1.00 $8.54 $19.78 $12.32
Weighted average remaining
contractual life (years)........... 6.75 8.70 6.60 7.80
Number of exercisable options and
warrants........................... 105,625 418,843 709,344 1,233,812
Weighted average exercise price of
exercisable options and warrants... $1.00 $8.90 $20.00 $14.60
-------- ---------- -------- ----------
</TABLE>
The Company applies APB Opinion No. 25 in accounting for option grants
under its Incentive Share Option scheme and the issuance of warrants to officers
and directors. Accordingly, no compensation cost has been recorded in the
Consolidated Statement of Operations for stock options or warrants granted at
exercise prices at least equal to fair market value on the date of grant. Had
the Company determined compensation cost based on the fair value of options and
warrants issued at the grant date under SFAS No. 123, the Company's net loss and
net loss per ordinary share would have been increased to the pro forma amounts
indicated below.
F-15
<PAGE> 158
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
AS REPORTED
Net loss.......................................... $(6,701) $(20,297) $(28,374)
Basic and diluted net loss per ordinary share..... $ (0.54) $ (1.64) $ (3.39)
PRO FORMA
Net loss.......................................... $(8,756) $(22,767) $(30,817)
Basic and diluted net loss per ordinary share..... $ (0.71) $ (1.84) $ (3.69)
</TABLE>
The per share weighted-average fair value of options and warrants granted
during 1999, 1998 and 1997 was $2.23, $4.54 and $5.53, respectively, using the
Black-Scholes option pricing model. Values were estimated using a weighted
average life of 2.5, 3.0 and 3.6 years in 1999, 1998 and 1997, no expected
dividend yield in any year, volatility of 38.8% in 1999, 72.8% in 1998 and 25.6%
in 1997, and risk free interest rates of 5.4 %, 4.6% and 6.0% in 1999, 1998 and
1997, respectively.
11. 401(k) SAVINGS PLAN
In April 1996 Warner Chilcott adopted a 401(k) savings plan that provides
eligible employees with the option to defer amounts not in excess of 15% of his
or her compensation. The Company makes matching contributions to the plan on
behalf of all participants who make elective deferrals. The Company contributes
and allocates to each participant's account matching contributions equal to 50%
of up to 6% of the participant's contributions. The Company's contributions vest
at 25% per year up to 100% at the participant's completion of four years of
employment.
The Company's contributions recognized for the years ended December 31,
1999, 1998 and 1997 were $375, $174 and $59, respectively.
12. SALE OF VECTRIN(R)
In September 1999 the Company completed the sale of its Vectrin(R) product
line including certain inventory, samples and the related FDA approval, and
received $11,000 in cash at closing. The Company reported a pre-tax gain of
$2,744 from the sale that is included in the Statement of Operations under the
caption "Other income -- Gain on sale of assets". As part of the sale and
purchase agreement, the Company will also receive royalties and milestone
payments based on certain future events. Royalty and milestone revenues from
this agreement are included in the Statement of Operations under the caption
"Marketing alliance and other revenue". Vectrin(R) net sales were recognized by
the Company until the date of sale and, such net sales amounted to $3,236 for
the year ended December 31, 1999. Net sales for the years ended December 31,
1998 and 1997 amounted to $3,799 and $2,902, respectively.
13. ELAN AGREEMENTS
In March 1999 the Company reached a binding agreement with Elan
Corporation, plc ("Elan") under which Elan agreed to acquire Warner Chilcott's
marketing rights to an extended-release nifedipine product. Under terms of the
agreement, as of March 31, 1999 Elan was obligated to make a non-refundable
payment, which was received, of $3,000 to Warner Chilcott and such amount was
recorded as revenue in the first quarter of 1999 under the caption "Marketing
alliance and other revenue". In June 1999 the Company executed the definitive
agreement licensing the extended-release nifedipine product to Elan and received
an additional $4,000 that was recorded as revenue in the second quarter of 1999.
Under the agreement, additional license fees would be due to Warner Chilcott
upon the completion of certain milestones including FDA approval of the pending
ANDA for the product. Warner Chilcott would also be entitled to receive
royalties
F-16
<PAGE> 159
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
based upon revenues derived from the product. As of December 31, 1999 the
Company had not earned any additional fees or royalties from this agreement.
Also in March 1999 the Company reached a binding agreement with Elan under
which Elan re-acquired the marketing rights to an isosorbide-5-mononitrate
product ("IS5MN-PM") that Elan had been developing for Warner Chilcott. Under
terms of the agreement, as of March 31, 1999, Elan was obligated to make a
payment to Warner Chilcott in an amount equal to Warner Chilcott's remaining
contractual obligation relating to the development of IS5MN-PM. Such amount had
been carried by Warner Chilcott as an asset in "Prepaid expense and other
assets" and as a liability in "Due to Elan Corporation, plc and subsidiaries".
In concluding this transaction and reducing both the related asset and
liability, Warner Chilcott did not recognize an income statement effect.
14. TAXES
The Company operates in Ireland and the United States and is subject to
various taxes on income in both jurisdictions. Although the Company is currently
generating losses, tax relief may be available to offset future taxable
earnings. However, there can be no assurance that such relief will be available
to the Company.
SFAS No. 109 requires, among other things, recognition of future tax
benefits measured at enacted rates attributable to temporary differences between
financial statement and income tax basis of assets and liabilities and to tax
net operating losses if realization of such benefits were more likely than not.
Under SFAS No. 109, the Company's deferred tax assets as of December 31, 1999
and 1998 are estimated as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward........................... $ 23,428 $ 18,026
Amortization of intangibles............................... 5,256 5,329
Disqualified interest carryforward........................ 826 826
Other, net................................................ (1,630) (252)
-------- --------
Subtotal............................................... 27,880 23,929
Valuation allowance....................................... (27,880) (23,929)
-------- --------
Net deferred tax asset................................. $ -- $ --
======== ========
</TABLE>
At December 31, 1999 the Company had available net operating loss
carryforwards for United States Federal income tax reporting purposes of
approximately $62,000 which begins expiring in 2011. At December 31, 1999, the
Company had net operating loss carryforwards for state income tax reporting
purposes of approximately $40,000 which expire at various dates. Ultimate
utilization or availability of such net operating losses and certain deferred
tax assets may be limited if a significant change in ownership occurs, as
defined by rules enacted with the United States Tax Reform Act of 1986. The
Company did not pay any Federal income taxes in 1999, 1998 or 1997.
15. SIGNIFICANT CONCENTRATIONS
Significant customers/revenue sources
In 1999 the Company derived 24% of its total revenue from the promotion of
several products under an agreement with Schering Corporation. The Company's
sales force promotes these Schering products to a targeted physician population
and in turn receives a fee based on the market performance of the products. The
agreement expires in December 2000 but may be terminated sooner by either party
under certain circum-
F-17
<PAGE> 160
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
stances. Amounts earned by the Company under the promotion agreement are paid on
a quarterly basis within 45 days of the end of each calendar quarter. At
December 31, 1999 $5,555 of the Company's accounts receivable balance represents
amounts due from Schering.
The Company distributes its pharmaceutical products through wholesalers,
distributors and direct to certain retailers. The following table shows
significant customer sales as a percentage of total sales:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................. 21% 17% 12%
Customer B.................................................. 13% 12% 7%
Customer C.................................................. 9% 10% 15%
</TABLE>
Credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of short-term investments and
accounts receivable. The Company's short-term investments consist of
interest-bearing securities issued by investment grade entities and exposure to
any one entity is limited.
Trade receivables are primarily due from wholesalers, distributors, major
retailers of pharmaceutical products, and multi-national pharmaceutical
companies located in the United States. The Company completes ongoing credit
evaluations of its customers and sales made on credit are generally not
collateralized. The following table shows significant trade receivables as a
percentage of total accounts receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Customer A.................................................. 10% 11%
Customer B.................................................. 0% 10%
Customer C.................................................. 6% 9%
</TABLE>
16. COMMITMENTS AND CONTINGENCIES
Leases
The Company has various operating leases for the rental of office space and
sales force vehicles and equipment. Future minimum rental commitments for
operating leases with non-cancellable terms in excess of one year are as
follows:
MINIMUM RENTAL PAYMENTS
<TABLE>
<S> <C>
2000........................................................ $ 532
2001........................................................ 538
2002........................................................ 543
2003........................................................ 548
2004........................................................ 38
Thereafter.................................................. --
------
Total............................................. $2,199
------
</TABLE>
Rent expense under operating leases during the years ended 1999, 1998 and
1997 was $2,124, $571, and $206, respectively.
F-18
<PAGE> 161
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
Employment Agreements
The Company has employment agreements with six of its executives. The
agreements provide for minimum salary levels as well as incentive bonuses that
are payable if specified management goals are attained. The agreements also
contain provisions that would entitle each executive to severance payments based
upon their then current base salary in the event of termination other than for
"cause" as defined in the agreements. The maximum contingent liability for such
severance payments at December 31, 1999 totalled $1,770.
17. RELATED PARTIES
The Company has ongoing business dealings with three companies, as
described below, that are related parties. The Company employs certain
procedures to ensure that transactions with these parties take place on terms no
more favorable than could be obtained from unrelated third parties.
Elan Corporation, plc.
At December 31, 1999 Elan Corporation, plc ("Elan") and its subsidiaries
held 19.6% of the Company's outstanding ADSs, representing Ordinary Shares,
(excluding shares that are part of the transaction described in Note 9). Mr.
Thomas G. Lynch, Executive Vice President, Chief Financial Officer and a member
of the Board of Directors of Elan, serves on the Company's Board of Directors.
Although the companies did not have a product development relationship at
December 31, 1999, they have had such relationships prior to this date and may
have similar relationships in the future (see Note 13). Also, Elan provides
certain administrative and support services to the Company for a fee.
The Company incurred research and development costs charged by Elan of
$4,083 in the year ended December 31, 1997. No research and development costs
were charged by Elan in 1999 and 1998. The Company recorded administrative and
support fees charged by Elan of $237, $326 and $583 in the years ended December
31, 1999, 1998 and 1997. Amounts billed to the Company by Elan for
administrative services are due within 30 days of receipt of invoice.
Barr Laboratories, Inc.
In 1997 the Company entered into an agreement under which Barr
Laboratories, Inc. ("Barr") distributed minocycline capsules manufactured under
the Company's ANDA. Royalties from this agreement of $63, $94 and $262 were
included in the Company's financial results for the years ended December 31,
1999, 1998 and 1997, respectively. This agreement was mutually terminated in
1998. Barr holds 250,000 of the Company's Ordinary Shares and a warrant to
purchase an additional 187,500 shares. Mr. Bruce Downey, the Chairman, President
and Chief Executive Officer of Barr, serves on Warner Chilcott's Board of
Directors.
Boron-LePore Group, Inc.
Boron-LePore Group, Inc. ("Boron-LePore") provides a range of services to
the Company including providing contract sales personnel, recruitment of sales
representatives and certain sample data record keeping. Mr. Roger Boissonneault,
the President and Chief Operating Officer of Warner Chilcott, serves on the
Board of Boron-LePore. For the years ended December 31, 1999, 1998 and 1997 fees
of $2,232, $5,654 and $2,160, respectively, were charged by Boron-LePore and
expensed to operations.
F-19
<PAGE> 162
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
18. CONSOLIDATING SCHEDULE
Following are consolidation schedules reflecting Balance Sheet and
Statement of Operations information for the Company as of December 31, 1999 and
1998, and for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT LABORATORIES
WARNER (BERMUDA), WARNER IRELAND ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. LTD. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
BALANCE SHEET INFORMATION:
ASSETS
Cash and cash equivalents............ $ 44 $29,021 $ 21,889 $ -- $ -- $ 50,954
Accounts receivable.................. -- -- 11,351 175 -- 11,526
Inventories.......................... -- -- 4,025 -- -- 4,025
Other assets......................... 64 -- 851 -- -- 915
-------- ------- -------- ------ --------- --------
Total current assets.......... 108 29,021 38,116 175 -- 67,420
-------- ------- -------- ------ --------- --------
Long-term assets..................... -- -- 61,242 3,800 -- 65,042
Investment in subsidiaries........... 161,938 -- -- -- (161,938) --
-------- ------- -------- ------ --------- --------
Total assets.................. $162,046 $29,021 $ 99,358 $3,975 $(161,938) $132,462
======== ======= ======== ====== ========= ========
LIABILITIES AND EQUITY
Current liabilities.................. $ 261 $ -- $ 10,431 $ 212 $ -- $ 10,904
Inter-company accounts............... (3,574) 7,506 (4,941) 1,009 -- --
Working capital facility............. -- -- 12,098 -- -- 12,098
Long-term debt....................... -- -- 10,476 -- -- 10,476
Shareholders' equity................. 165,359 21,515 71,294 2,754 (161,938) 98,984
-------- ------- -------- ------ --------- --------
Total liabilities and
shareholders' equity........ $162,046 $29,021 $ 99,358 $3,975 $(161,938) $132,462
======== ======= ======== ====== ========= ========
STATEMENT OF OPERATIONS INFORMATION:
REVENUES
Product sales........................ $ -- $ -- $ 48,580 $ -- $ -- $ 48,580
Marketing alliance and other
revenue............................ -- -- 18,546 7,101 (192) 25,455
-------- ------- -------- ------ --------- --------
Total revenues................ -- -- 67,126 7,101 (192) 74,035
-------- ------- -------- ------ --------- --------
OPERATING EXPENSES
Cost of goods sold................... -- -- 27,704 -- -- 27,704
Selling, general & administration ... 1,359 6 44,649 395 -- 46,409
Dep. & amortization.................. 6 -- 5,202 312 -- 5,520
Research and development............. -- -- 356 2,936 (192) 3,100
-------- ------- -------- ------ --------- --------
Total operating expenses...... 1,365 6 77,911 3,643 (192) 82,733
-------- ------- -------- ------ --------- --------
Interest income (expense), net......... -- 1,437 (2,184) -- -- (747)
Gain on sale of assets................. -- -- 2,744 -- -- 2,744
Income taxes........................... -- -- -- -- -- --
-------- ------- -------- ------ --------- --------
NET LOSS............................... $ (1,365) $ 1,431 $(10,225) $3,458 $ -- $ (6,701)
======== ======= ======== ====== ========= ========
</TABLE>
F-20
<PAGE> 163
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT LABORATORIES
WARNER (BERMUDA), WARNER IRELAND ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. LTD. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
BALANCE SHEET INFORMATION:
ASSETS
Cash and cash equivalents............ $ 7 $27,160 $ 15,953 $ 13 $ -- $ 43,133
Accounts receivable.................. -- 291 16,834 925 -- 18,050
Inventories.......................... -- -- 13,099 -- -- 13,099
Other assets......................... 94 2 2,807 4,500 -- 7,403
-------- ------- -------- ------ --------- --------
Total current assets.......... 101 27,453 48,693 5,438 -- 81,685
-------- ------- -------- ------ --------- --------
Long-term assets..................... -- -- 71,220 4,112 -- 75,332
Investment in subsidiaries........... 146,949 -- -- -- (146,949) --
-------- ------- -------- ------ --------- --------
Total assets.................. $147,050 $27,453 $119,913 $9,550 $(146,949) $157,017
======== ======= ======== ====== ========= ========
LIABILITIES AND EQUITY
Current liabilities.................. $ 569 $ -- $ 14,389 $7,826 $ -- $ 22,784
Inter-company accounts............... (19,502) 22,358 (5,283) 2,427 -- --
Working capital facility............. -- -- 20,393 -- -- 20,393
Long-term debt....................... -- -- 8,897 -- -- 8,897
Shareholders' equity................. 165,983 5,095 81,517 (703) (146,949) 104,943
-------- ------- -------- ------ --------- --------
Total liabilities and
shareholders' equity........ $147,050 $27,453 $119,913 $9,550 $(146,949) $157,017
======== ======= ======== ====== ========= ========
STATEMENT OF OPERATIONS INFORMATION:
REVENUES
Product sales........................ $ -- $ -- $ 47,845 $ -- $ -- $ 47,845
Marketing alliance and other
revenue............................ -- -- 16,484 750 (185) 17,049
-------- ------- -------- ------ --------- --------
Total revenues................ -- -- 64,329 750 (185) 64,894
-------- ------- -------- ------ --------- --------
OPERATING EXPENSES
Cost of goods sold................... -- -- 34,230 -- -- 34,230
Selling, general & administration ... 2,741 10 38,360 598 -- 41,709
Dep. & amortization.................. 234 -- 5,311 76 -- 5,621
Research and development............. 2,316 -- 330 780 (185) 3,241
-------- ------- -------- ------ --------- --------
Total operating expenses...... 5,291 10 78,231 1,454 (185) 84,801
-------- ------- -------- ------ --------- --------
Interest income (expense), net......... -- 2,143 (2,533) -- -- (390)
Income taxes........................... -- -- -- -- -- --
-------- ------- -------- ------ --------- --------
NET LOSS............................... $ (5,291) $ 2,133 $(16,435) $ (704) $ -- $(20,297)
======== ======= ======== ====== ========= ========
</TABLE>
F-21
<PAGE> 164
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT PHARMA-
WARNER (BERMUDA), WARNER CEUTICAL ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. CORP. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
STATEMENT OF OPERATIONS INFORMATION:
REVENUES
Product sales........................ $ -- $ -- $ 75,827 $ -- $ -- $ 75,827
-------- ------- -------- ------ --------- --------
Total revenues................ -- -- 75,827 -- -- 75,827
-------- ------- -------- ------ --------- --------
OPERATING EXPENSES
Cost of goods sold................... -- -- 62,863 -- -- 62,863
Selling, general & administration ... 2,720 23 20,791 84 -- 23,618
Dep. & amortization.................. 10 409 5,039 -- -- 5,458
Research and development............. 5,054 -- 1,472 -- -- 6,526
-------- ------- -------- ------ --------- --------
Total operating expenses...... 7,784 432 90,165 84 -- 98,465
-------- ------- -------- ------ --------- --------
Interest income (expense), net......... 40 1,228 (7,004) -- -- (5,736)
Income taxes........................... -- -- -- -- -- --
-------- ------- -------- ------ --------- --------
NET LOSS............................... $ (7,744) $ 796 $(21,342) $ (84) $ -- $(28,374)
======== ======= ======== ====== ========= ========
</TABLE>
19. SUBSEQUENT EVENTS
Product Acquisitions
On February 15, 2000 the Company completed the acquisition of three branded
pharmaceutical products from Bristol-Myers Squibb Company ("BMS") for a purchase
price of $180,000. The purchase price is subject to downward adjustment under
certain circumstances. The products acquired were Estrace(R) cream, Ovcon(R) 35
and Ovcon(R) 50. Unaudited revenues for these products in total were estimated
to be approximately $50,000 in 1999. In connection with the acquisition, WCI
entered into transitional support and supply agreements with BMS under which BMS
will supply WCI with its requirements for Estrace(R) cream, Ovcon(R) 35 and
Ovcon(R) 50 for a period up to 10 years. The Company acquired all of the
intangible assets associated with the three products including the trademarks,
regulatory files, manufacturing know-how and other intellectual property. The
acquisition of the products will be accounted for as a purchase. Under purchase
accounting, the purchase price will be allocated to the tangible and intangible
assets acquired based upon their respective fair values as of the purchase date
in accordance with Accounting Principle Board Opinion No. 16. The final purchase
price and allocation of the purchase price have not been determined. However, a
preliminary allocation of the $180,000 purchase price based upon current
estimates resulted in $168,000 being allocated to intangible assets associated
with the products, primarily the product rights, and $12,000 to goodwill. There
were no tangible assets acquired. The Company will amortize the acquired
intangible assets over 20 years, their estimated useful life.
Issuance of Senior Notes
The Company financed the acquisition of the BMS products discussed above
through the sale of senior notes by WCI. On February 15, 2000 WCI issued
$200,000 of 12 5/8% senior notes due 2008 at a discount of $3,664 to yield 13%.
Interest payments on the senior notes are due semi-annually in arrears on each
February 15th and August 15th beginning August 15, 2000. Proceeds from the
issuance of the senior notes, net of the discount and estimated transaction
expenses, were approximately $186,300. The senior notes will be shown on the
Company's balance sheet net of the discount. The discount and transaction fees
will be
F-22
<PAGE> 165
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
amortized to interest expense over the eight-year term of the senior notes. The
senior notes are unconditionally guaranteed by Warner Chilcott, plc, WCI's
parent company.
Other Transactions
In connection with the sale of the 12 5/8% senior notes, on February 14,
2000 the Company prepaid all $10,476 of the senior subordinated discount notes
outstanding at a redemption price equal to 105% of the principal amount
outstanding. The redemption premium of $524 will be recognized as an
extraordinary loss in the first quarter of the year 2000.
Also in connection with the sale of the 12 5/8% senior notes, on February
18, 2000 the Company prepaid all amounts outstanding under its senior secured
working capital facility. On February 28, 2000 the Company amended its working
capital facility to reduce the maximum amount available to $10,000 from its
previous $30,000 and to extend the life of the agreement for two years under
terms substantially the same as were in place under the previous facility.
F-23
<PAGE> 166
WARNER CHILCOTT PUBLIC LIMITED COMPANY
FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT WRITE-OFF'S BALANCE
BEGINNING OF ADDITIONAL AGAINST END OF
PERIOD RESERVES RESERVES PERIOD
------------ ---------- ----------- -------
<S> <C> <C> <C> <C>
1999:
Allowance for doubtful accounts.................. $1,567 $ 22 $ (166) $1,423
Reserve for inventory obsolescence............... $1,330 $2,320 $(2,762) $ 888
1998:
Allowance for doubtful accounts.................. $1,519 $ 50 $ (2) $1,567
Reserve for inventory obsolescence............... $ 471 $1,672 $ (813) $1,330
1997:
Allowance for doubtful accounts.................. $2,030 -- $ (511) $1,519
Reserve for inventory obsolescence............... $1,331 $ 790 $(1,650) $ 471
</TABLE>
F-24
<PAGE> 167
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
2000
---------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 36,112
Accounts receivable, net............................... 21,753
Inventories............................................ 6,135
Prepaid expense and other assets....................... 1,342
---------
Total current assets................................. 65,342
---------
Fixed Assets:
Equipment, furniture and fixtures, net................. 1,124
Intangible assets, net.................................... 236,484
Other assets.............................................. 8,224
---------
Total assets......................................... $ 311,174
=========
LIABILITIES
Current Liabilities:
Accounts payable....................................... $ 5,733
Accrued liabilities.................................... 8,722
Due to Elan Corporation, plc and subsidiaries.......... 172
---------
Total current liabilities............................ 14,627
---------
Other Liabilities:
Working capital facility............................... --
Long-term debt......................................... 196,370
---------
Total liabilities.................................... 210,997
---------
SHAREHOLDERS' EQUITY
Ordinary Shares, par value $.05 per share; 50,000,000
shares authorized, 12,390,730 shares issued and
outstanding at March 31, 2000.......................... 619
Deferred Shares, par value IRL1 per share; 30,000 shares
authorized, 30,000 shares issued and outstanding at
March 31, 2000......................................... 45
Additional paid-in capital................................ 209,520
Accumulated deficit....................................... (109,698)
Deferred compensation..................................... (309)
---------
Total shareholders' equity............................. 100,177
---------
Total liabilities and shareholders' equity........... $ 311,174
=========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE> 168
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Branded product sales..................................... $ 14,168 $ 8,300
Generic product sales..................................... 3,367 5,566
Marketing alliance and other revenue...................... 8,544 7,182
---------- ----------
Total revenues......................................... 26,079 21,048
---------- ----------
OPERATING EXPENSES
Cost of goods sold........................................ 6,127 8,449
Selling, general and administrative....................... 12,647 12,111
Depreciation and amortization............................. 2,421 1,412
Research and development.................................. 469 841
---------- ----------
Total operating expenses............................... 21,664 22,813
---------- ----------
OPERATING INCOME (LOSS)..................................... 4,415 (1,765)
---------- ----------
OTHER INCOME (EXPENSE)
Interest income........................................... 565 539
Interest expense.......................................... (3,668) (771)
---------- ----------
Total other income (expense)........................... (3,103) (232)
---------- ----------
INCOME (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM........... 1,312 (1,997)
---------- ----------
Income taxes................................................ -- --
---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... 1,312 (1,997)
---------- ----------
Extraordinary item.......................................... (731) --
---------- ----------
NET INCOME (LOSS)........................................... $ 581 $ (1,997)
========== ==========
EARNINGS (LOSS) PER SHARE:
Basic
Income (loss) before extraordinary item................... $ 0.11 $ (0.16)
Extraordinary item........................................ $ (0.06) $ --
Net income (loss)......................................... $ 0.05 $ (0.16)
========== ==========
Diluted Income (loss) before extraordinary item............. $ 0.10 $ (0.16)
Extraordinary item........................................ $ (0.05) $ --
Net income (loss)......................................... $ 0.05 $ (0.16)
========== ==========
WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING:
Basic..................................................... 12,382,742 12,366,808
========== ==========
Diluted................................................... 12,726,250 12,366,808
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-26
<PAGE> 169
WARNER CHILCOTT PUBLIC LIMITED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 581 $(1,997)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization.......................... 2,421 1,412
Amortization on senior notes........................... 33 --
Deferred financing cost write-off...................... 207 --
Stock compensation expense............................. 495 155
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, prepaid
expense and other assets............................ (10,853) 11,121
(Increase) decrease in inventories................... (2,110) 2,053
Increase (decrease) in accounts payable and accrued
liabilities......................................... 3,813 (1,602)
Decrease in due to/from Elan Corporation, plc and
subsidiaries........................................ (90) (9,060)
--------- -------
Net cash (used in) provided by operating
activities...................................... (5,503) 2,082
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of branded products from Bristol-Myers Squibb.... (175,054) --
Purchase of fixed assets.................................. (26) (54)
--------- -------
Net cash used in investing activities.................. (175,080) (54)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Working capital facility repayment, net................... (12,098) (2,200)
Proceeds from issuance of senior notes due 2008........... 196,337 --
Redemption of senior subordinated discount notes due
2001................................................... (10,476) --
Increase in other assets.................................. (8,139) --
Net proceeds from issuance of share capital -- stock
option exercises....................................... 117 --
--------- -------
Net cash provided by (used in) financing activities.... 165,741 (2,200)
--------- -------
Net decrease in cash and cash equivalents................... (14,842) (172)
Cash and cash equivalents, beginning of period............ 50,954 43,133
--------- -------
Cash and cash equivalents, end of period.................. $ 36,112 $42,961
========= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-27
<PAGE> 170
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Certain information and footnote
disclosure normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The statements should be read in
conjunction with the accounting policies and notes to the consolidated financial
statements included in Warner Chilcott Public Limited Company's (the "Company")
1999 Annual Report on Form 10-K.
The Company is an Irish public limited company with operations in Dublin,
Ireland and Rockaway, NJ, USA. The Company's financial statements include the
financial statements for Warner Chilcott Public Limited Company and all of its
subsidiaries and are prepared in U.S. dollars in conformity with United States
generally accepted accounting principles.
In the opinion of management, the financial statements reflect all
adjustments necessary for a fair statement of the operations for the interim
periods presented.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
principally on the basis of first-in, first-out or standards that approximate
average cost.
<TABLE>
<CAPTION>
MARCH 31,
2000
---------
<S> <C>
Raw materials............................................... $ 17
Finishing supplies.......................................... 19
Work in process............................................. 678
Finished goods.............................................. 5,839
------
6,553
Less: Reserves for obsolescence............................. 418
------
Inventories............................................... $6,135
======
</TABLE>
3. DEBT
Issuance of Senior Notes Due 2008
On February 15, 2000 Warner Chilcott, Inc., the Company's wholly-owned U.S.
operating subsidiary ("WCI"), issued $200,000 of 12 5/8% senior notes due 2008
at a discount of $3,663 to yield 13% (the "Notes"). Interest payments on the
Notes are due semi-annually in arrears on each February 15th and August 15th
beginning August 15, 2000. Proceeds from the issuance of the Notes, net of the
discount and estimated transaction expenses, were approximately $188,300, and
were utilized to fund the acquisition of the three branded pharmaceutical
products from Bristol-Myers Squibb (see note 4). The Notes are included in the
Company's Balance Sheet net of the discount. The discount and transaction fees
are being amortized to interest expense over the eight-year term of the Notes.
The Notes are unconditionally guaranteed by Warner Chilcott, plc, WCI's parent
company.
On or after February 15, 2004 the Notes are redeemable at the option of
WCI, in whole or part, prior to maturity at redemption prices which decrease
annually and range from 106.3125% to 100% of the principal amount of the Notes
plus accrued interest. In addition, before February 15, 2003 up to 35% of the
aggregate principal amount of the Notes are redeemable at the option of WCI from
the proceeds of one or more public
F-28
<PAGE> 171
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
equity offerings of the Company at a redemption price of 112.625% plus accrued
interest. If the Company were to undergo a change of control, each Note holder
would have the right to require that WCI repurchase the Notes at a purchase
price equal to 101% of the principal amount plus accrued interest. The Note
indenture limits the Company's ability to incur or guarantee additional debt, as
well as pay dividends or distributions on, or redeem or repurchase, capital
stock.
Redemption of Senior Subordinated Discount Notes Due 2001
On February 14, 2000 the Company prepaid all $10,476 of the senior
subordinated discount notes outstanding at a redemption price equal to 105% of
the principal amount outstanding. The redemption premium of $524 and the
write-off of the deferred financing costs of $93 associated with theses notes
are included in the extraordinary item in the Company's Statement of Operations
for the three months ended March 31, 2000.
Amendment to Working Capital Credit Facility
On February 18, 2000 WCI prepaid all amounts outstanding under its senior
secured working capital credit facility. On February 28, 2000 WCI amended its
credit facility to reduce the maximum amount available to $10,000 from $30,000
and to extend the expiration date to February 2, 2002. Warner Chilcott, plc
unconditionally guaranteed WCI's obligation under the amended credit facility.
Other terms of the amended credit facility, provided by PNC Business Credit, are
substantially the same as the previous credit facility. The write-off of the
deferred financing costs of $114 associated with the previous credit facility is
included in the extraordinary item in the Company's Statement of Operations for
the three months ended March 31, 2000.
4. PRODUCT ACQUISITIONS
On February 15, 2000 the Company completed the acquisition of three branded
pharmaceutical products from Bristol-Myers Squibb Company ("BMS") for a purchase
price of $175,054. The products acquired were Estrace(R) cream, Ovcon(R) 35 and
Ovcon(R) 50. In connection with the acquisition, the Company entered into
transitional support and supply agreements with BMS under which BMS will supply
the Company with its requirements for Estrace(R) cream, Ovcon(R) 35 and Ovcon(R)
50 for a period of up to 10 years. The Company acquired all of the intangible
assets associated with the three products including the trademarks, regulatory
files, manufacturing know-how and other intellectual property. The acquisition
of the products is being accounted for as a purchase. Under purchase accounting,
the purchase price is allocated to the tangible and intangible assets acquired
based upon their respective fair values as of the purchase date in accordance
with Accounting Principles Board Opinion No. 16. The allocation of the purchase
price for the branded pharmaceutical products from BMS resulted in an allocation
of $168,000 to the products and $7,054 to goodwill, as there were no tangible
assets acquired. The acquired intangible assets are being amortized over 20
years, their estimated useful life.
The following unaudited pro forma information has been prepared as if the
February 2000 acquisition of the products, the issuance of the senior notes due
2008, the early redemption of senior subordinated discount notes due 2001 and
the prepayment of amounts outstanding under the working capital credit facility
(see note 3) had occurred on January 1, 1999 and does not include cost savings
expected from the transactions. The unaudited pro forma information does not
purport to represent our consolidated results of operations that would have been
achieved had the transaction to which pro forma effect is given been consummated
as the date or period indicated.
F-29
<PAGE> 172
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
2000 1999
-------------------- --------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Revenues.......................................... $26,079 $26,379 $21,048 $32,788
Income (Loss) before extraordinary item........... $ 1,312 $(2,535) $(1,997) $ 316
Earnings (Loss) per share -- before extraordinary
item -- Basic................................... $ 0.11 $ (0.20) $ (0.16) $ 0.03
Earnings (Loss) per share -- before extraordinary
item -- Diluted................................. $ 0.10 $ (0.20) $ (0.16) $ 0.03
</TABLE>
5. SCHERING PLOUGH AGREEMENT
During the three months ended March 31, 2000 the Company derived 15% of its
total revenue from the promotion of certain branded pharmaceutical products on
behalf of Schering-Plough. The Company's sales force promotes these
Schering-Plough products to a targeted physician population and in turn receives
a fee based on the market performance of the products. The agreement under which
the Company promotes these products expires in December 2000 but may be
terminated sooner by either party under certain circumstances. Revenue from this
arrangement is included in the Statement of Operations under the caption
"Marketing alliance and other revenue."
6. ELAN AGREEMENTS
In March 1999 the Company reached a binding agreement with Elan
Corporation, plc ("Elan") under which Elan agreed to acquire the Company's
marketing rights to an extended-release nifedipine product. Under terms of the
agreement, as of March 31, 1999 Elan was obligated to make a non-refundable
payment, which was received, of $3,000 to the Company and such amount was
recorded as revenue in the first quarter of 1999 under the caption "Marketing
alliance and other revenue." In June 1999 the Company executed the definitive
agreement licensing the extended-release nifedipine product to Elan and received
an additional $4,000 that was recorded as revenue in the second quarter of 1999.
Under the agreement, additional license fees may be earned by the Company upon
the completion of certain milestones including FDA approval of the pending ANDA
for the product. The Company is also entitled to receive royalties based upon
revenues derived from the product. Other than the $7,000 described above, the
Company earned no additional fees or royalties under this agreement during the
year ended December 31, 1999. During the three months ended March 31, 2000 the
Company earned a milestone payment of $2,000 upon the FDA approval of the ANDA
for the product and $600 in royalty fees, both of which are included under the
caption "Marketing alliance and other revenue."
7. SALE OF VECTRIN(R)
During September 1999 the Company completed the sale of its Vectrin(R)
product line including certain inventory, samples and the related FDA approval,
and received $11,000 in cash at closing. The Company reported a pre-tax gain of
$2,744 from the sale. As part of the sale and purchase agreement, the Company is
also entitled to receive royalties and milestone payments based on certain
future events. During the three months ended March 31, 2000 the Company earned
milestone and royalty payments totaling $2,044. Both the milestone and royalty
revenues are included in the Statement of Operations under the caption
"Marketing alliance and other revenue."
F-30
<PAGE> 173
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
8. NET INCOME (LOSS) PER ORDINARY SHARE
Basic net income (loss) per ordinary share has been computed by dividing
net income available to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period. Diluted net income per ordinary
share is computed by adjusting the weighted average number of ordinary shares
outstanding during the period for all potentially dilutive ordinary shares
outstanding during the period, and adjusting net income for any changes in
income or loss that would result from the conversion of such potential ordinary
shares.
The amount of dilution attributable to share options and warrants issued by
the Company is computed under the treasury stock method and depends on the
average market price of the Company's ordinary shares for the period. For the
three months ended March 31, 2000 an additional 343,508 shares were added to the
weighted average number of ordinary shares outstanding in computing diluted
earnings per share. Net income used for computing diluted earnings per share was
the same as that used for computing basic earnings per share for the three
months ended March 31, 2000. Net loss and weighted average shares outstanding
used for computing basic and diluted loss per share for the three months ended
March 31, 1999 were the same. Stock options and warrants were not included in
the diluted calculation since the inclusion of such shares would be
antidilutive.
9. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". Comprehensive income is defined as the total change in
shareholders' equity during the period other than from transactions with
shareholders. For the Company, comprehensive loss is comprised solely of net
loss.
10. CONTINGENCIES
The Company is involved in various legal proceedings of a nature considered
normal to its business including patent litigation, product liability and other
matters. In the event of the adverse outcome of these proceedings, resulting
liabilities are either covered by insurance, established reserves or, in the
opinion of management, would not have a material adverse effect on the financial
condition or results of operations of the Company.
11. UNITED STATES FEDERAL INCOME TAXES
The Company operates in Ireland and the United States and is subject to
various taxes on income in both jurisdictions. The Company's wholly-owned United
States subsidiary, Warner Chilcott, Inc., is a United States corporation and, as
such, is subject to United States taxation. Ultimate utilization or availability
of net operating losses and certain deferred tax assets may be limited if a
significant change in ownership occurs, as defined by rules enacted with the
United States Tax Reform Act of 1986. The Company did not accrue a liability for
Federal or State income taxes in the three months ended March 31, 2000 as a
result of the anticipated utilization of these net operating loss carryforwards.
F-31
<PAGE> 174
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
12. CONSOLIDATING SCHEDULE
Following are consolidating schedules reflecting Balance Sheet and
Statement of Operations information for the Company as of March 31, 2000, and
for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT LABORATORIES
WARNER (BERMUDA), WARNER IRELAND ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. LTD. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, 2000
BALANCE SHEET INFORMATION:
ASSETS
Cash and cash
equivalents............ $ 17 $ 6,066 $ 30,029 $ -- $ -- $ 36,112
Accounts receivable....... -- -- 20,978 775 -- 21,753
Inventories............... -- -- 6,135 -- -- 6,135
Other assets.............. 45 -- 1,297 -- 1,342
-------- -------- -------- ------ --------- --------
Total current assets... 62 6,066 58,439 775 -- 65,342
-------- -------- -------- ------ --------- --------
Long-term assets.......... -- -- 242,109 3,723 -- 245,832
Investment in
subsidiaries........... 185,594 -- -- -- (185,594) --
-------- -------- -------- ------ --------- --------
Total assets........... $185,656 $ 6,066 $300,548 $4,498 $(185,594) $311,174
======== ======== ======== ====== ========= ========
LIABILITIES AND EQUITY
Current liabilities....... $ 257 $ -- $ 14,258 $ 112 $ -- $ 14,627
Inter-company accounts.... 19,947 (15,676) (3,893) (378) -- --
Working capital
facility............... -- -- -- -- -- --
Long-term debt............ -- -- 196,370 -- -- 196,370
Shareholders' equity...... 165,452 21,742 93,813 4,764 (185,594) 100,177
-------- -------- -------- ------ --------- --------
Total liabilities and
shareholders'
equity............... $185,656 $ 6,066 $300,548 $4,498 $(185,594) $311,174
======== ======== ======== ====== ========= ========
STATEMENT OF OPERATIONS
INFORMATION:
REVENUES
Product sales............. $ -- $ -- $ 17,535 $ -- $ -- $ 17,535
Marketing alliance and
other revenue.......... -- -- 5,975 2,600 (31) 8,544
-------- -------- -------- ------ --------- --------
Total revenues......... -- -- 23,510 2,600 (31) 26,079
-------- -------- -------- ------ --------- --------
OPERATING EXPENSES
Cost of goods sold........ -- -- 6,127 -- -- 6,127
Selling, general &
admin.................. 499 6 12,105 37 -- 12,647
Depreciation and
amortization........... -- -- 2,343 78 -- 2,421
Research and
development............ -- -- 24 476 (31) 469
-------- -------- -------- ------ --------- --------
Total operating
expenses............. 499 6 20,599 591 (31) 21,664
-------- -------- -------- ------ --------- --------
</TABLE>
F-32
<PAGE> 175
WARNER CHILCOTT PUBLIC LIMITED COMPANY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
WARNER
WARNER CHILCOTT
CHILCOTT LABORATORIES
WARNER (BERMUDA), WARNER IRELAND ELIMINATION
CHILCOTT, PLC LTD. CHILCOTT, INC. LTD. ENTRIES CONSOLIDATED
------------- ---------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income (expense),
net.................... -- 234 (3,337) -- -- (3,103)
Income taxes.............. -- -- -- -- -- --
Extraordinary item........ -- -- (731) -- -- (731)
-------- -------- -------- ------ --------- --------
NET INCOME (LOSS)...... $ (499) $ 228 $ (1,157) $2,009 $ -- $ 581
======== ======== ======== ====== ========= ========
MARCH 31, 1999
STATEMENT OF OPERATIONS
INFORMATION:
REVENUES
Product sales.......... $ -- $ -- $ 13,866 $ -- $ -- $ 13,866
Marketing alliance and
other revenue........ -- -- 3,853 3,379 (50) 7,182
-------- -------- -------- ------ --------- --------
Total revenues......... -- -- 17,719 3,379 (50) 21,048
-------- -------- -------- ------ --------- --------
OPERATING EXPENSES
Cost of goods sold........ -- -- 8,449 -- -- 8,449
Selling, general &
admin.................. 270 6 11,487 348 -- 12,111
Depreciation and
amortization........... -- -- 1,334 78 1,412
Research and
development............ -- -- 131 760 (50) 841
-------- -------- -------- ------ --------- --------
Total operating
expenses............. 270 6 21,401 1,186 (50) 22,813
-------- -------- -------- ------ --------- --------
Interest income (expense),
net.................... -- 349 (581) -- -- (232)
Income taxes.............. -- -- -- -- -- --
-------- -------- -------- ------ --------- --------
NET INCOME (LOSS)...... $ (270) $ 343 $ (4,263) $2,193 $ -- $ (1,997)
======== ======== ======== ====== ========= ========
</TABLE>
13. SUBSEQUENT EVENT
On May 4, 2000 the Company entered into an agreement with Galen Holdings,
plc under which the Company would be acquired by Galen Holdings, plc. The
acquisition would be effected through a scheme of arrangement under the laws of
the Republic of Ireland. Under the agreement Galen Holdings, plc proposes to
issue 2.5 new Galen ordinary shares for each of the Company's ordinary shares.
The acquisition is subject to various conditions, including, among other things,
sanction by the High Court of Ireland, regulatory approval, approval by the
Company's and Galen's shareholders and Galen obtaining a listing of its shares,
in American Depositary Share form, on NASDAQ.
The proposed transaction with Galen would constitute a change of control
under the 12 5/8% senior note indenture. Accordingly, holders of the $200,000
face amount of senior notes would have the right to require that WCI repurchase
the senior notes at a purchase price equal to 101% of the principal amount plus
accrued interest (see note 3).
F-33
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Warner Chilcott Public Limited Company
We have audited the accompanying historical statements of net sales and
product contribution for the years ended December 31, 1999, 1998 and 1997, of
the Ovcon and Estrace Cream product lines (the "Products") of Apothecon, a
subsidiary of Bristol-Myers Squibb Company. These historical statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these historical statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the historical statements of net
sales and product contribution are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in these historical statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the historical statements. We believe
that our audits provide a reasonable basis for our opinion.
As described in Note 2, the accompanying historical statement of net sales
and product contribution attributable to the Products are not intended to be a
complete presentation of the Ovcon and Estrace Cream financial position or
results of operations.
In our opinion, the historical statements referred to above present fairly,
in all material respects, the net sales and product contribution of the Products
as described in Note 2 for the years ended December 31, 1999, 1998 and 1997, in
conformity with United States generally accepted accounting principles.
KPMG
Short Hills, New Jersey
March 31, 2000
F-34
<PAGE> 177
OVCON AND ESTRACE CREAM PRODUCTS OF APOTHECON
(A SUBSIDIARY OF BRISTOL-MYERS SQUIBB COMPANY)
HISTORICAL STATEMENTS OF NET SALES AND PRODUCT CONTRIBUTION
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net sales................................................... $49,998 $68,696 $62,225
Cost of goods sold.......................................... 2,613 4,173 2,889
Distribution................................................ 613 728 606
Marketing................................................... 1,861 837 842
Promotion................................................... 1,314 588 631
------- ------- -------
Product contribution................................... $43,597 $62,370 $57,257
------- ------- -------
</TABLE>
See accompanying notes to historical statements of net sales and product
contribution.
F-35
<PAGE> 178
OVCON AND ESTRACE CREAM PRODUCTS OF APOTHECON
(A SUBSIDIARY OF BRISTOL-MYERS SQUIBB COMPANY)
NOTES TO THE HISTORICAL STATEMENTS OF NET SALES AND PRODUCT CONTRIBUTION
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Ovcon and Estrace Cream (the "Products") are manufactured and marketed by
Apothecon, a subsidiary of Bristol-Myers Squibb Company ("BMS"). Ovcon is an
oral contraceptive and is indicated for the prevention of pregnancy. Estrace
Cream is a hormone replacement vaginal cream. The Products are sold primarily
through distributors in the United States. The Products were acquired by Warner
Chilcott, plc (WC) on February 15, 2000.
2. BASIS OF PRESENTATION
The accompanying historical statements present the combined net sales and
product contribution of the Products. These historical statements include all
the adjustments necessary for a fair presentation of the net sales and product
contribution of the Products. These historical statements set forth the net
sales and operational expenses attributable to the Products and do not purport
to represent all the costs, expenses and resultant operating earnings or
complete financial statements associated with a stand alone, separate entity.
The statements of net sales and product contribution include amounts
attributable to the manufacture, distribution, marketing and promotion of the
Products. Net sales include gross sales less product specific sales returns,
cash discounts, government rebates, and certain other customer discounts.
Inventories are valued at average cost, not in excess of market value.
In January of 1999, BMS entered into a co-promotion agreement to expand
promotion of the Products to physicians. Fees relating to this agreement were
$716 in 1999 and are classified in marketing expense.
3. NET SALES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Gross sales................................................. $57,171 $75,348 $70,284
Returns................................................... 3,384 3,137 4,977
Cash discounts............................................ 1,279 1,679 1,472
Government rebates........................................ 482 709 540
Other customer discounts.................................. 2,028 1,127 1,070
------- ------- -------
Net sales................................................... $49,998 $68,696 $62,225
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales
Ovcon..................................................... $28,566 $48,394 $47,852
Estrace Cream............................................. 21,432 20,302 14,373
------- ------- -------
$49,998 $68,696 $62,225
------- ------- -------
Product contribution
Ovcon..................................................... $24,982 $43,519 $43,699
Estrace Cream............................................. 18,615 18,851 13,558
------- ------- -------
$43,597 $62,370 $57,257
------- ------- -------
</TABLE>
F-36
<PAGE> 179
OVCON AND ESTRACE CREAM PRODUCTS OF APOTHECON
(A SUBSIDIARY OF BRISTOL-MYERS SQUIBB COMPANY)
NOTES TO THE HISTORICAL STATEMENTS OF NET SALES AND PRODUCT
CONTRIBUTION -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
Sales are recorded when goods are shipped. Returns in 1997 include a
voluntary recall relating to Ovcon packaging.
There were four customers individually accounting for more than 10% of the
Products' gross sales in all periods presented. In the aggregate these customers
accounted for approximately 65% -- 85% of total gross sales.
F-37
<PAGE> 180
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Galen Holdings PLC
We have audited the accompanying consolidated balance sheets of Galen
Holdings PLC and subsidiaries ("the Company") as at 30 September 1999 and 1998
and the related consolidated profit and loss accounts, consolidated cashflow
statements, consolidated reconciliation of movements in shareholders' funds and
consolidated statements of total recognised gains and losses for each of the
years in the three year period ended 30 September 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom, which are substantially consistent with those in
the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Galen
Holdings PLC and subsidiaries as of 30 September 1999 and 1998 and the results
of their operations and their cash flows for each of the years in the three year
period ended 30 September 1999 in conformity with generally accepted accounting
principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States. Application of accounting principles generally accepted in
the United States would have affected results of operations for both of the
years in the two year period ended 30 September 1999, and shareholders' funds as
at 30 September 1999 and 1998 to the extent summarised in Note 33 to the
consolidated financial statements.
PRICEWATERHOUSECOOPERS
Chartered Accountants and Registered
Auditors
Belfast
Northern Ireland
17 November 1999 except as to Note 33
which is as of 17 April 2000
F-38
<PAGE> 181
GALEN HOLDINGS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
SIX MONTHS TO 31 MARCH YEAR TO 30 SEPTEMBER
-------------------------- ------------------------
NOTES 2000 2000 1999 1999 1998 1997
----- ------ ------- ------- ------ ------ ------
$'000 L'000 L'000 L'000 L'000 L'000
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C> <C>
TURNOVER
Continuing operations.................. 62,514 42,446 31,050 64,247 48,867 39,252
Acquisitions........................... -- -- -- 2,763 -- --
-- ------ ------- ------- ------ ------ ------
TOTAL TURNOVER......................... 2 62,514 42,446 31,050 67,010 48,867 39,252
COST OF SALES.......................... 3 32,045 21,758 14,902 32,558 23,334 19,826
-- ------ ------- ------- ------ ------ ------
GROSS PROFIT........................... 3 30,469 20,688 16,148 34,452 25,533 19,426
-- ------ ------- ------- ------ ------ ------
NET OPERATING EXPENSES................. 12,731 8,644 6,759 15,091 11,466 8,928
Exceptional item....................... 3 -- -- -- -- 2,731 --
Goodwill amortisation.................. 1,327 901 -- 671 -- --
-- ------ ------- ------- ------ ------ ------
TOTAL NET OPERATING EXPENSES........... 3 14,058 9,545 6,759 15,762 14,197 8,928
-- ------ ------- ------- ------ ------ ------
OPERATING PROFIT
CONTINUING OPERATIONS:
Before exceptional item and goodwill
amortisation......................... 17,738 12,044 9,389 18,679 14,067 10,498
Exceptional item....................... -- -- -- -- 2,731 --
-- ------ ------- ------- ------ ------ ------
17,738 12,044 9,389 18,679 11,336 10,498
Acquisitions........................... -- -- -- 682 -- --
Goodwill amortisation.................. (1,327) (901) -- (671) -- --
-- ------ ------- ------- ------ ------ ------
TOTAL OPERATING PROFIT 16,411 11,143 9,389 18,690 11,336 10,498
Gain on disposal of intangible fixed
asset................................ 4 -- -- -- -- -- 750
Investment income...................... 5 1,100 747 622 925 1,507 446
-- ------ ------- ------- ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE
INTEREST 17,511 11,890 10,011 19,615 12,843 11,694
Interest payable and similar charges... 6 948 644 565 1,210 939 348
-- ------ ------- ------- ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION...................... 7 16,563 11,246 9,446 18,405 11,904 11,346
Taxation on profit on ordinary
activities........................... 9 3,681 2,499 2,246 4,396 3,580 2,948
-- ------ ------- ------- ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES AFTER
TAXATION 12,882 8,747 7,200 14,009 8,324 8,398
Minority interests..................... 23 (57) (39) 13 (19) (12) --
-- ------ ------- ------- ------ ------ ------
PROFIT FOR THE FINANCIAL PERIOD 12,825 8,708 7,213 13,990 8,312 8,398
Dividends.............................. 10 1,340 910 640 1,915 1,535 427
-- ------ ------- ------- ------ ------ ------
RETAINED PROFIT FOR THE PERIOD......... 22 11,485 7,798 6,573 12,075 6,777 7,971
== ====== ======= ======= ====== ====== ======
EARNINGS PER SHARE..................... 11 10.6C 7.2P 6.2P 12.0P 7.1P 8.0P
ADJUSTED EARNINGS PER SHARE............ 11 10.6C 7.2P 6.2P 12.0P 9.5P 8.0P
IIMR EARNINGS PER SHARE................ 11 11.8C 8.0P 6.2P 12.6P 7.1P 7.4P
DILUTED EARNINGS PER SHARE............. 11 10.6C 7.2P 6.2P 12.0P 7.1P 8.0P
</TABLE>
- ---------------
All activities relate to continuing operations.
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE> 182
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
SIX MONTHS TO 31 MARCH YEAR TO 30 SEPTEMBER
--------------------------------- --------------------------
2000 2000 1999 1999 1998 1997
------- --------- --------- ------ ------ ------
$'000 L'000 L'000 L'000 L'000 L'000
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
Opening shareholders' funds..... 100,330 68,122 56,215 56,215 49,534 11,562
Share issue including premium
(net of costs)................ 53,561 36,367 -- -- (113) 30,004
Profit for the financial
period........................ 12,825 8,708 7,213 13,990 8,312 8,398
Dividends....................... (1,340) (910) (640) (1,915) (1,535) (427)
Exchange difference............. 257 174 (26) (168) 17 (3)
------- ------- --------- ------ ------ ------
CLOSING SHAREHOLDERS' FUNDS..... 165,633 112,461 62,762 68,122 56,215 49,534
======= ======= ========= ====== ====== ======
</TABLE>
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
SIX MONTHS TO 31 MARCH YEAR TO 30 SEPTEMBER
-------------------------- --------------------------
2000 2000 1999 1999 1998 1997
------ ------ ------ ------ ------ ------
$'000 L'000 L'000 L'000 L'000 L'000
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
Profit for the financial period...... 12,825 8,708 7,213 13,990 8,312 8,398
Translation differences on foreign
currency net investments........... 256 174 (26) (168) 17 (3)
------ ------ ------ ------ ------ ------
Total recognised gains and losses
relating to the year............... 13,081 8,882 7,187 13,822 8,329 8,395
====== ====== ====== ====== ====== ======
</TABLE>
CUMULATIVE FOREIGN CURRENCY TRANSLATION DIFFERENCES
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
At 1 October 1996........................................... --
Difference arising in year.................................. (3)
----
At 1 October 1997........................................... (3)
Difference arising in year.................................. 17
----
At 1 October 1998........................................... 14
Difference arising in year.................................. (168)
----
At 30 September 1999........................................ (154)
====
Unaudited At 1 October 1999................................. (154)
Difference arising in period................................ 174
----
Unaudited At 31 March 2000.................................. 20
====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE> 183
GALEN HOLDINGS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT 31 MARCH AS AT 30 SEPTEMBER
------------------ -------------------
NOTES 2000 2000 1999 1998
----- ------- ------- -------- -------
$'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets............................ 12 51,510 34,974 35,337 401
Tangible assets.............................. 13 108,020 73,343 65,173 57,154
-- ------- ------- ------- ------
-- 159,530 108,317 100,510 57,555
-- ------- ------- ------- ------
Current assets:
Stocks....................................... 15 15,878 10,781 8,829 4,811
Debtors...................................... 16 28,067 19,057 15,826 12,402
Cash at bank and in hand..................... 56,315 38,237 6,351 16,213
-- ------- ------- ------- ------
100,260 68,075 31,006 33,426
Creditors: amounts falling due within one
year....................................... 17 41,826 28,399 27,112 17,317
-- ------- ------- ------- ------
Net current assets........................... 58,434 39,676 3,894 16,109
-- ------- ------- ------- ------
Total assets less current liabilities........ 217,964 147,993 104,404 73,664
Creditors: amounts falling due after more
than one year.............................. 18 42,269 28,700 29,981 10,746
Deferred income.............................. 20 9,959 6,762 6,270 6,691
-- ------- ------- ------- ------
Net assets................................... 165,736 112,531 68,153 56,227
== ======= ======= ======= ======
Capital and reserves
Called up share capital...................... 21 18,744 12,727 12,127 12,127
Share premium account........................ 22 81,050 55,031 19,264 19,264
Profit and loss account...................... 22 65,839 44,703 36,731 24,824
-- ------- ------- ------- ------
Equity shareholders' funds................... 165,633 112,461 68,122 56,215
Minority interests -- equity................. 23 103 70 31 12
-- ------- ------- ------- ------
165,736 112,531 68,153 56,227
== ======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE> 184
GALEN HOLDINGS PLC
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS TO 31 MARCH YEAR TO 30 SEPTEMBER
---------------------------------- -----------------------------
2000 2000 1999 1999 1998 1997
$'000 L'000 L'000 L'000 L'000 L'000
-------- --------- --------- ------- ------- -------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING
ACTIVITIES BEFORE EXCEPTIONAL ITEM
(NOTE 25).......................... 11,656 7,914 6,283 16,654 14,258 8,781
EXCEPTIONAL ABORTIVE ACQUISITION
COSTS.............................. -- -- -- (2,692) -- --
-------- -------- ------ ------- ------- -------
NET CASH INFLOW FROM OPERATING
ACTIVITIES......................... 11,656 7,914 6,283 13,962 14,258 8,781
-------- -------- ------ ------- ------- -------
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE
Interest paid........................ (947) (643) (455) (1,057) (838) (342)
Interest paid on hire purchase
agreements......................... (22) (15) (12) (26) (6) (5)
Interest received.................... 451 306 546 724 1,323 195
-------- -------- ------ ------- ------- -------
(518) (352) 79 (359) 479 (152)
-------- -------- ------ ------- ------- -------
Taxation
UK Corporation tax paid.............. (1,507) (1,023) (133) (3,584) (2,822) (1,880)
-------- -------- ------ ------- ------- -------
Capital expenditure
Purchase of tangible fixed assets.... (11,021) (7,483) (4,507) (10,604) (18,977) (25,267)
Sale of tangible fixed assets........ 46 31 -- 15 19 1
Sale of intangible fixed assets...... -- -- -- -- -- 750
Purchase of intangible fixed
assets............................. -- -- -- (100) -- (13)
Government grants received........... 1,639 1,113 449 566 1,682 2,020
-------- -------- ------ ------- ------- -------
(9,336) (6,339) (4,058) (10,123) (17,276) (22,509)
-------- -------- ------ ------- ------- -------
Acquisitions
Purchase of subsidiary
undertakings....................... (2,772) (1,882) (399) (23,709) -- --
Net borrowings acquired with
subsidiary undertakings............ -- -- -- (6) -- --
-------- -------- ------ ------- ------- -------
(2,772) (1,882) (399) (23,715) -- --
-------- -------- ------ ------- ------- -------
Equity dividends paid................ (2,062) (1,400) (1,067) (1,648) (979) --
-------- -------- ------ ------- ------- -------
Net cash (outflow)/inflow before
management of liquid resources and
financing.......................... (4,539) (3,082) 705 (25,467) (6,340) (15,760)
-------- -------- ------ ------- ------- -------
Management of liquid resources
(Increase)/decrease/in short-term
deposits........................... (45,287) (30,749) -- 11,500 3,000 (20,000)
-------- -------- ------ ------- ------- -------
Financing
Issue of ordinary share capital (net
of expenses)....................... 53,561 36,367 -- -- (113) 30,004
Loans (repaid)/obtained net.......... (3,183) (2,161) 225 14,627 469 8,566
Principal repayment under hire
purchase agreements................ (182) (124) (101) (207) (55) (4)
-------- -------- ------ ------- ------- -------
50,196 34,082 124 14,420 301 38,566
-------- -------- ------ ------- ------- -------
Increase/(decrease) in cash in the
period............................. 370 251 829 453 (3,039) 2,806
======== ======== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE> 185
NOTES TO THE ACCOUNTS
1 PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
group accounting policies, which have been applied consistently, is set out
below.
Basis of accounting
The financial statements are prepared in accordance with the historical
cost convention.
Changes in accounting presentation
FRS 13 'Derivatives and other financial instruments; disclosures' came into
effect for the 1999 financial statements and the relevant disclosure is included
in Note 18. The Group did not have derivative financial instruments at any time
during the financial year; the disclosure is limited therefore to primary
financial instruments.
FRS 14 'Earnings per share' has been adopted and consequently basic and
diluted earnings per share have been calculated in accordance with the new
methodology. Comparative basic and diluted earnings per share have been
re-calculated on the same basis. Dividend income arising on shares in the
Employee Benefit Trust which was previously included in investment income is now
deducted from the aggregate of dividends paid and proposed. Comparative amounts
have been restated.
Basis of consolidation
The consolidated financial statements incorporate the financial statements
of the Company and each of its subsidiaries for the three years ended 30
September 1999. The results of subsidiaries sold or acquired are included in the
consolidated profit and loss account up to, or from, the date control passes.
Intra-group transactions are eliminated fully on consolidation.
Goodwill
Goodwill arising on consolidation, representing the excess of the fair
value of the purchase consideration over the fair value of the identifiable net
assets acquired, is accounted for as an asset and amortised over its useful
economic life. This has been assessed as 5 to 20 years in relation to goodwill
arising on the various acquisitions.
Turnover
Turnover represents the invoiced value of goods and services supplied by
the group exclusive of VAT, and is net of sales returns, trade discounts and
rebates. Revenue is recognised upon shipment of product, which is when title to
the product is transferred to the customer, or upon completion of services to
the customer.
Stocks
Stocks are valued at the lower of cost and net realisable value. Cost is
determined on a first in, first out basis and includes transport and handling
costs. In the case of manufactured products, cost includes all direct
expenditure and overheads, based on the normal level of activity. Where
necessary, provision is made for obsolete, slow moving and defective stocks.
Research and development
Expenditure on research and development is written off in the year in which
it is incurred.
F-43
<PAGE> 186
NOTES TO THE ACCOUNTS -- (CONTINUED)
Intangible assets
Product licences acquired are capitalised and amortised over their
estimated useful economic lives, not exceeding 15 years.
Deferred taxation
Tax deferred or accelerated is accounted for in respect of all material
timing differences to the extent that it is probable that a liability or asset
will crystallise.
Pension costs
Retirement benefits are provided for employees by a defined contribution
pension scheme whereby the assets of the scheme are held separately from those
of the group in an independently administered scheme. Contributions are charged
against profits as they become due.
Revenue grants
Revenue grants relating to research and development expenditure are
credited to profit and loss account as a reduction of net operating expenses in
the period of receipt. Employment grants are similarly credited in the period in
which the expenditure is incurred.
Capital grants
Capital grants are treated as deferred income and then credited to revenue
over the expected useful lives of the related assets.
Tangible fixed assets
The cost of tangible fixed assets is their purchase cost together with any
incidental expenses of acquisition.
No depreciation is charged on land. For all other tangible assets,
depreciation is calculated on a straight line basis to write off the cost over
their useful lives. The rates used are:-
<TABLE>
<S> <C>
Buildings................................................ 2%
Plant and machinery...................................... 10%
Motor vehicles........................................... 25%
Fixtures and fittings.................................... 10% - 20%
</TABLE>
Hire purchase and finance leases
Assets acquired under hire purchase contracts and finance lease agreements
are recorded in the balance sheet as tangible fixed assets and depreciated over
the shorter of their estimated useful lives and the hire term. Future
instalments under such contracts, net of finance charges, are included within
creditors. Rentals payable are apportioned between the finance element, which is
charged to the profit and loss account as interest, and the capital element,
which reduces the outstanding obligation for future instalments.
Operating leases
Costs in respect of operating leases are charged on a straight line basis
over the lease term.
Foreign currencies
Assets, liabilities, revenues and costs denominated in foreign currencies
are recorded at the rate of exchange ruling at the date of the transactions,
monetary assets and liabilities at the balance sheet date are
F-44
<PAGE> 187
NOTES TO THE ACCOUNTS -- (CONTINUED)
translated at the year end rate of exchange. All exchange differences thus
arising are reported as part of the results for the year. Differences on
exchange arising from the retranslation of the opening net investment in
subsidiary companies are taken to reserves.
2 SEGMENTAL ANALYSIS
Geographical analysis
<TABLE>
<CAPTION>
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
---------------- --------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
L'000 L'000 L'000 L'000 L'000
------ ------ ------ ------ ------
UNAUDITED
<S> <C> <C> <C> <C> <C>
SALES BY DESTINATION
UK............................................ 22,033 17,370 37,186 31,941 30,518
North America................................. 13,729 9,144 19,359 8,870 1,986
Rest of World................................. 6,684 4,536 10,465 8,056 6,748
------ ------ ------ ------ ------
42,446 31,050 67,010 48,867 39,252
====== ====== ====== ====== ======
The above analysis includes the following
amount relating to acquisitions:
UK............................................ -- -- 1,260 -- --
North America................................. -- -- 1,503 -- --
------ ------ ------ ------ ------
-- -- 2,763 -- --
====== ====== ====== ====== ======
SALES BY ORIGIN
UK............................................ 33,307 25,428 54,577 42,880 37,648
North America................................. 8,570 5,149 11,548 5,164 711
Rest of World................................. 569 473 885 823 893
------ ------ ------ ------ ------
42,446 31,050 67,010 48,867 39,252
====== ====== ====== ====== ======
The above analysis includes the following
amounts relating to acquisitions:
UK............................................ -- -- 1,260 -- --
North America................................. -- -- 1,503 -- --
------ ------ ------ ------ ------
-- -- 2,763 -- --
====== ====== ====== ====== ======
</TABLE>
F-45
<PAGE> 188
NOTES TO THE ACCOUNTS -- (CONTINUED)
Geographical analysis of Group's profit before taxation by territory of
origin
<TABLE>
<CAPTION>
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
---------------- --------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
L'000 L'000 L'000 L'000 L'000
------ ------ ------ ------ ------
UNAUDITED
<S> <C> <C> <C> <C> <C>
UK............................................ 10,186 9,013 17,461 12,113 12,183
North America................................. 1,832 998 2,154 730 (490)
Rest of World................................. (128) -- -- -- 1
------ ------ ------ ------ ------
Profit before interest........................ 11,890 10,011 19,615 12,843 11,694
Interest payable.............................. (644) (565) (1,210) (939) (348)
------ ------ ------ ------ ------
Profit before taxation........................ 11,246 9,446 18,405 11,904 11,346
====== ====== ====== ====== ======
The above analysis includes the following
amounts relating to acquisitions:
UK............................................ -- -- 344 -- --
North America................................. -- -- 338 -- --
------ ------ ------ ------ ------
Profit before interest........................ -- -- 682 -- --
Interest payable.............................. -- -- -- -- --
------ ------ ------ ------ ------
Profit before taxation........................ -- -- 682 -- --
====== ====== ====== ====== ======
</TABLE>
Geographical analysis of net assets
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
AS AT 31 MARCH --------------------------
2000 1999 1998 1997
-------------- ------ ------ ------
L'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C>
UK................................................ 111,009 67,280 56,557 49,860
North America..................................... 1,648 871 (332) (328)
Rest of World..................................... (126) 2 2 2
------- ------ ------ ------
Net operating assets.............................. 112,531 68,153 56,227 49,534
======= ====== ====== ======
The above analysis includes the following amounts
relating to acquisitions:
UK................................................ -- 119 -- --
North America..................................... -- 881 -- --
------- ------ ------ ------
Net assets........................................ -- 1,000 -- --
======= ====== ====== ======
</TABLE>
F-46
<PAGE> 189
NOTES TO THE ACCOUNTS -- (CONTINUED)
Geographical analysis of total assets
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
AS AT 31 MARCH ---------------------------
2000 1999 1998 1997
-------------- ------- ------ ------
L'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C>
UK............................................... 138,530 98,091 77,487 66,626
North America.................................... 36,788 32,347 12,960 10,214
Rest of World.................................... 1,074 1,078 534 141
------- ------- ------ ------
Total assets..................................... 176,392 131,516 90,981 76,981
======= ======= ====== ======
The above analysis includes the following amounts
relating to acquisitions:
UK............................................... -- 968 -- --
North America.................................... -- 1,065 -- --
------- ------- ------ ------
Total assets..................................... -- 2,033 -- --
======= ======= ====== ======
</TABLE>
For internal financial reporting purposes, operating results are analysed
into two businesses; pharmaceutical products and pharmaceutical services.
Pharmaceutical products comprise prescription and sterile products, Galen and
Sterile Solutions divisions respectively. Pharmaceutical services comprise
clinical trials services and chemical synthesis services divisions. The
divisions are summarised as follows:
ETHICAL PHARMACEUTICAL PRODUCTS
Galen division
The Galen pharmaceutical division manufactures and markets prescription
medicines to healthcare professionals in key therapy areas: analgesics,
antibiotics, gastrointestinal, respiratory and cardiovascular. Research and
development is focused on applications of drug delivery technology for
international exploitation.
Sterile Solutions division
The Sterile Solutions division manufactures and supplies intravenous and
other sterile solutions, primarily for human use. The sterile manufacturing
facility contains a suite for the production of flexible PVC pouches and
provides a strong base for the speciality manufacturing business.
ETHICAL PHARMACEUTICAL SERVICES
Clinical Trial Services division
Clinical Trial Services (CTS) designs, manufactures and compiles patient
packs for use in clinical trials, which are then distributed worldwide. From its
state-of-the-art facilities in Craigavon and Pennsylvania, CTS provides a global
service to many multinational pharmaceutical companies.
Interactive Clinical Technologies Inc. (ICTI) provides interactive voice
response systems (IVRS) for clinical trials' management from its bases in
Lambertville (New Jersey), San Francisco and Maidenhead (United Kingdom). ICTI's
technological developments enable clients to efficiently manage drug supplies
and collect real-time patient enrolment data.
Chemical Synthesis Services division
SynGal operates a current Good Manufacturing Practice (cGMP) custom
chemical development service for the pharmaceutical and related chemicals
industry. From its facility at Craigavon, SynGal manufactures highly active
pharmaceutical ingredients (APIs), intermediates and fine chemicals to pilot
plant scale.
F-47
<PAGE> 190
NOTES TO THE ACCOUNTS -- (CONTINUED)
QuChem offers a complementary service to SynGal, providing laboratory scale
research in pharmaceutical chemistry. QuChem is based at Queen's University
Belfast, where there are established links in to an extensive technology base.
ANALYSIS OF THE GROUP'S TURNOVER BY CLASS OF BUSINESS
<TABLE>
<CAPTION>
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
---------------- --------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
L'000 L'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C> <C>
Pharmaceutical products
Galen....................................... 18,958 15,425 31,389 25,915 21,635
Sterile Solutions........................... 4,207 3,511 7,227 6,541 7,256
------ ------ ------ ------ ------
23,165 18,936 38,616 32,456 28,891
------ ------ ------ ------ ------
Pharmaceutical services
Clinical Trial Services..................... 17,480 11,347 26,204 15,875 10,361
Chemical Synthesis.......................... 1,801 767 2,190 536 --
------ ------ ------ ------ ------
19,281 12,114 28,394 16,411 10,361
------ ------ ------ ------ ------
42,446 31,050 67,010 48,867 39,252
====== ====== ====== ====== ======
</TABLE>
Analysis of the Group's profit before taxation by class of business
<TABLE>
<CAPTION>
PHARMACEUTICAL PRODUCTS PHARMACEUTICAL SERVICES
----------------------- -----------------------
STERILE CLINICAL CHEMICAL
GALEN SOLUTIONS TRIALS SYNTHESIS TOTAL
------- ---------- -------- --------- ------
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
YEAR TO 30 SEPTEMBER 1999
Turnover................................ 31,389 7,227 26,204 2,190 67,010
Cost of sales........................... 14,031 4,714 12,089 1,724 32,558
------ ----- ------ ----- ------
Gross profit............................ 17,358 2,513 14,115 466 34,452
Net operating expenses.................. 7,979 1,529 5,182 1,072 15,762
------ ----- ------ ----- ------
Operating profit........................ 9,379 984 8,933 (606) 18,690
------ ----- ------ ----- ------
Investment income....................... -- -- -- -- 925
------
Profit before interest.................. -- -- -- -- 19,615
------
Interest payable........................ -- -- -- -- 1,210
------
Profit before taxation.................. -- -- -- -- 18,405
======
</TABLE>
F-48
<PAGE> 191
NOTES TO THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
PHARMACEUTICAL PRODUCTS PHARMACEUTICAL SERVICES
----------------------- -----------------------
STERILE CLINICAL CHEMICAL
GALEN SOLUTIONS TRIALS SYNTHESIS TOTAL
------- ---------- -------- --------- ------
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
YEAR TO 30 SEPTEMBER 1998
Turnover................................ 25,915 6,541 15,875 536 48,867
Cost of sales........................... 11,437 3,779 7,718 400 23,334
------ ----- ------ ----- ------
Gross profit............................ 14,478 2,762 8,157 136 25,533
Net operating expenses.................. 9,188 1,813 2,679 517 14,197
------ ----- ------ ----- ------
Operating profit........................ 5,290 949 5,478 (381) 11,336
------ ----- ------ ----- ------
Investment income....................... -- -- -- -- 1,507
Profit before interest.................. -- -- -- -- 12,843
Interest payable........................ -- -- -- -- 939
Profit before taxation.................. -- -- -- -- 11,904
YEAR TO 30 SEPTEMBER 1997
Turnover................................ 21,635 7,256 10,361 -- 39,252
Cost of sales........................... 9,367 4,805 5,542 112 19,826
------ ----- ------ ----- ------
Gross profit............................ 12,268 2,451 4,819 (112) 19,426
Net operating expenses.................. 5,289 1,509 1,928 202 8,928
------ ----- ------ ----- ------
Operating profit........................ 6,979 942 2,891 (314) 10,498
------ ----- ------ ----- ------
Gain on asset disposal.................. -- -- -- -- 750
Investment income....................... -- -- -- -- 446
Profit before interest.................. -- -- -- -- 11,694
Interest payable........................ -- -- -- -- 348
Profit before taxation.................. -- -- -- -- 11,346
UNAUDITED
SIX MONTHS TO 31 MARCH 2000
Turnover................................ 18,958 4,207 17,480 1,801 42,446
Cost of sales........................... 9,174 2,702 8,735 1,147 21,758
------ ----- ------ ----- ------
Gross profit............................ 9,784 1,505 8,745 654 20,688
Net operating expenses.................. 5,117 692 3,105 631 9,545
------ ----- ------ ----- ------
Operating profit........................ 4,667 813 5,640 23 11,143
------ ----- ------ ----- ------
Investment income....................... -- -- -- -- 747
Profit before interest.................. -- -- -- -- 11,890
Interest payable........................ -- -- -- -- 644
Profit before taxation.................. -- -- -- -- 11,246
</TABLE>
F-49
<PAGE> 192
NOTES TO THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
PHARMACEUTICAL PRODUCTS PHARMACEUTICAL SERVICES
----------------------- -----------------------
STERILE CLINICAL CHEMICAL
GALEN SOLUTIONS TRIALS SYNTHESIS TOTAL
------- ---------- -------- --------- ------
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
UNAUDITED
SIX MONTHS TO 31 MARCH 1999
Turnover................................ 15,425 3,511 11,347 767 31,050
Cost of sales........................... 7,077 2,338 4,714 773 14,902
------ ----- ------ ----- ------
Gross profit............................ 8,348 1,173 6,633 (6) 16,148
Net operating expenses.................. 3,468 696 2,098 497 6,759
------ ----- ------ ----- ------
Operating profit........................ 4,880 477 4,535 (503) 9,389
Investment income....................... -- -- -- -- 622
Profit before interest.................. -- -- -- -- 10,011
Interest payable........................ -- -- -- -- 565
Profit before taxation.................. -- -- -- -- 9,446
</TABLE>
Analysis of the Group's net assets by class of business
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
AS AT 31 MARCH --------------------------
2000 1999 1998 1997
-------------- ------ ------ ------
L'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C>
Pharmaceutical products
Galen........................................... 87,712 49,745 46,398 45,233
Sterile Solutions............................... 6,717 5,757 4,776 3,781
Pharmaceutical services
Clinical Trials................................. 16,807 12,522 5,002 520
Chemical Synthesis.............................. 1,295 129 51 --
------- ------ ------ ------
112,531 68,153 56,227 49,534
======= ====== ====== ======
</TABLE>
Analysis of the Group's total assets by class of business
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
AS AT 31 MARCH ---------------------------
2000 1999 1998 1997
-------------- ------- ------ ------
L'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C>
Pharmaceutical products
Galen.......................................... 88,457 54,608 42,690 45,320
Sterile Solutions.............................. 12,078 11,303 10,063 7,803
Pharmaceutical services
Clinical Trials................................ 59,701 50,286 25,380 18,246
Chemical Synthesis............................. 16,156 15,319 12,848 5,612
------- ------- ------ ------
176,392 131,516 90,981 76,981
======= ======= ====== ======
</TABLE>
RELIANCE ON MAJOR CUSTOMERS (10% OR MORE OF REVENUE)
In the year ended 30 September 1999 revenue from one customer amounted to
11.3% of consolidated revenue. No single customer exceeded 10% of consolidated
revenue in the years ended 30 September 1998 and 1997. Amounts outstanding from
the major customer at 30 September 1999 totalled [pound sterling] 2,915,000.
F-50
<PAGE> 193
NOTES TO THE ACCOUNTS -- (CONTINUED)
RELIANCE ON MAJOR PRODUCTS
Sales of one pharmaceutical product, Kapake(R), in the year ended 30
September 1999 represented 12.3% of consolidated turnover (1998: 16.3%, 1997:
14.2%).
3 COST OF SALES, GROSS PROFIT AND NET OPERATING EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
---------------- --------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
[POUND STERLING] '000
UNAUDITED
<S> <C> <C> <C> <C> <C>
Turnover...................................... 42,446 31,050 67,010 48,867 39,252
Cost of sales................................. 21,758 14,902 32,558 23,334 19,826
------ ------ ------ ------ ------
Gross profit.................................. 20,688 16,148 34,452 25,533 19,426
------ ------ ------ ------ ------
Distribution costs............................ 4,215 3,234 6,766 5,254 4,300
------ ------ ------ ------ ------
Administrative expenses before exceptional
item........................................ 5,298 4,423 9,616 7,544 5,664
Exceptional administrative expenses........... -- -- -- 2,731 --
Goodwill amortisation......................... 901 -- 671 -- --
------ ------ ------ ------ ------
Total administrative expenses................. 6,199 4,423 10,287 10,275 5,664
------ ------ ------ ------ ------
Other operating income........................ (869) (898) (1,291) (1,332) (1,036)
------ ------ ------ ------ ------
Net operating expenses........................ 9,545 6,759 15,762 14,197 8,928
------ ------ ------ ------ ------
Group operating profit........................ 11,143 9,389 18,690 11,336 10,498
====== ====== ====== ====== ======
</TABLE>
The exceptional item in 1998 related to the abortive costs of the proposed
acquisition of Ferring AB.
Cost of sales, gross profit, distribution costs and administrative expenses
include, in respect of subsidiary undertakings acquired during 1999, [pound
sterling] 1,320,000, [pound sterling] 1,443,000, [pound sterling] 22,000 and
[pound sterling] 739,000 respectively.
4 GAIN ON DISPOSAL OF INTANGIBLE FIXED ASSETS
This gain in 1997 related to the disposal of the business and assets,
including goodwill and know-how, in relation to a catheter-care product.
The taxation charge relating to this gain was [pound sterling] 124,000.
5 INVESTMENT INCOME
<TABLE>
<CAPTION>
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
-------------- -----------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -----
[POUND STERLING] '000
UNAUDITED
<S> <C> <C> <C> <C> <C>
Interest on bank deposits.............................. 747 622 925 1,507 446
=== === === ===== ===
</TABLE>
F-51
<PAGE> 194
NOTES TO THE ACCOUNTS -- (CONTINUED)
6 INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
-------------- -----------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -----
[POUND STERLING] '000
UNAUDITED
<S> <C> <C> <C> <C> <C>
On bank loans and overdrafts........................... 629 553 1,184 933 343
On hire purchase agreements............................ 15 12 26 6 5
--- --- ----- --- ---
644 565 1,210 939 348
=== === ===== === ===
</TABLE>
7 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
YEAR TO 30 SEPTEMBER
-----------------------
1999 1998 1997
----- ----- -----
[POUND STERLING] '000
<S> <C> <C> <C>
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION IS AFTER
CHARGING:
Depreciation -- tangible fixed assets -- owned.............. 2,940 1,952 1,298
-- hire purchase and
lease................. 86 45 21
-- intangible fixed assets.................... 36 33 32
Amortisation of goodwill.................................... 671 -- --
Auditors' remuneration -- for audit......................... 35 27 25
-- other services.................. 58 214 12
Research and development expenditure........................ 3,978 3,059 2,273
Hire of plant and machinery -- operating leases............. 359 270 271
Hire of other assets -- operating leases.................... 237 69 53
----- ----- -----
and after crediting:
Transfer from capital grants reserve........................ 987 616 436
Revenue grants.............................................. 1,291 1,331 1,036
----- ----- -----
</TABLE>
AUDITORS' REMUNERATION -- OTHER SERVICES
The 1999 total includes [pound sterling] 12,000 in relation to consultancy
(1998: [pound sterling] Nil, 1997: [pound sterling] Nil)) with the balance
consisting of taxation services and grants certification. The 1998 amount
included [pound sterling] 203,000 for due diligence services relating to the
aborted acquisition.
The auditors also received remuneration during 1999 for due diligence
services totalling [pound sterling] 18,000.
The auditors also received remuneration during 1997 for due diligence
services related to the flotation totalling [pound sterling] 175,000.
8 DIRECTORS' EMOLUMENTS AND EMPLOYEE INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
[POUND STERLING] '000
<S> <C> <C> <C>
DIRECTORS' EMOLUMENTS
Aggregate emoluments........................................ 655 502 440
Company pension contributions to defined contribution
schemes................................................... 59 57 56
=== === ===
</TABLE>
Retirement benefits are accruing to three Directors (1998: three, 1997:
three) under the Group's defined contribution schemes.
F-52
<PAGE> 195
NOTES TO THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
HIGHEST PAID DIRECTOR
Aggregate emoluments........................................ 226 167 156
Company pension contributions to defined contribution
schemes................................................... 25 25 25
=== === ===
</TABLE>
Details of individual Directors' emoluments for the year ended 30 September
1999 are as follows:
<TABLE>
<CAPTION>
AJ MCCLAY JA KING RG ELLIOTT AD ARMSTRONG TOTAL
--------- ------- ---------- ------------ -----
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
EXECUTIVE DIRECTORS
Salary................................. 50 195 150 105 500
Bonus.................................. -- 20 20 20 60
Benefits............................... 8 11 11 5 35
Pension contributions.................. -- 25 25 9 59
-- --- --- --- ---
1999 TOTAL............................. 58 251 206 139 654
== === === === ===
1998 total (including pension
contributions)....................... 56 192 165 98 511
== === === === ===
1998 pension contributions............. -- 25 25 7 57
== === === === ===
</TABLE>
<TABLE>
<CAPTION>
FEES FEES FEES
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
NON-EXECUTIVE DIRECTORS
HA Ennis.................................................... 20 20 18
D Gibbons................................................... 20 20 12
MG Carter................................................... 20 8 --
-- -- --
60 48 30
== == ==
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
EMPLOYEE INFORMATION
Average monthly number of persons (including Executive
Directors) employed by the Group during the year was:
Administration staff........................................ 133 112 87
Other staff................................................. 896 676 564
------ ------ -----
1,029 788 651
====== ====== =====
Staff costs (for the above period): L'000 L'000 L'000
Wages and salaries.......................................... 16,550 11,285 8,324
Social security costs....................................... 1,483 1,222 710
Other pension costs......................................... 373 191 137
------ ------ -----
18,406 12,698 9,171
====== ====== =====
</TABLE>
F-53
<PAGE> 196
NOTES TO THE ACCOUNTS -- (CONTINUED)
9 TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEAR TO 30 SEPTEMBER
-----------------------
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
United Kingdom corporation tax at 30.5% (1998: 31%, 1997:
32%)
Current..................................................... 4,396 3,584 2,971
Adjustment to previous year................................. -- (4) (23)
----- ----- -----
4,396 3,580 2,948
===== ===== =====
</TABLE>
TAX RECONCILIATION TO UK STATUTORY RATE
The table below reconciles the UK statutory rate tax charge to the Group's
tax on profit on ordinary activities:
<TABLE>
<CAPTION>
YEAR TO 30 SEPTEMBER
--------------------------
1999 1998 1997
------ ------ ------
L'000 L'000 L'000
<S> <C> <C> <C>
Profit on ordinary activities before taxation............... 18,405 11,904 11,346
------ ------ ------
Tax charge at UK statutory rate of 30.5% for 1999 (31% for
1998, 32% for 1997)....................................... 5,613 3,690 3,630
Timing differences not recognised on excess of tax
allowances over depreciation.............................. (1,529) (1,351) (1,052)
Non taxable grant transfers................................. (301) (129) (106)
Amortisation of goodwill and intangible fixed assets not
allowable................................................. 216 10 10
Abortive acquisition costs not allowable.................... -- 846 --
Other....................................................... 397 514 466
------ ------ ------
Tax on profit on ordinary activities........................ 4,396 3,580 2,948
====== ====== ======
</TABLE>
10 DIVIDENDS
<TABLE>
<CAPTION>
YEAR TO 30 SEPTEMBER
-----------------------
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
Final dividend proposed of 1.10p per share (1998: 0.88p,
1997: 0.367p)............................................. 1,334 1,067 445
Interim dividend paid of 0.55p per share (1998: 0.44p)...... 667 534 --
----- ----- ---
Total ordinary dividends on equity shares................... 2,001 1,601 445
Less amounts in respect of shares held by Galen Employee
Benefit Trust............................................. 86 66 18
----- ----- ---
1,915 1,535 427
===== ===== ===
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS TO
31 MARCH
--------------
2000 1999
----- -----
L'000 L'000
<S> <C> <C>
Interim dividend proposed of 0.69p per share (1999: 0.55p
per share)................................................ 844 640
Adjustment to previous period............................... 66 --
---- ----
L910 640
==== ====
</TABLE>
F-54
<PAGE> 197
NOTES TO THE ACCOUNTS -- (CONTINUED)
the calculation uses the weighted average number of ordinary shares as
determined for the basic calculation. The FRS also requires that the additional
EPS is reconciled to the basic EPS required by the standard and that the reasons
for calculating the additional EPS are explained.
ADJUSTED EARNINGS PER SHARE figures reflecting the results before the
impact of abortive acquisition costs have been calculated in addition to the
earnings per share required by FRS 14, since in the opinion of the Directors,
this will allow the shareholders to gain a clearer understanding of underlying
trading performance of the Group.
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
-------------- -----------------------------------
2000 1999 1999 1998 1997
----- ----- --------- --------- ---------
PENCE PENCE PENCE
PENCE PENCE PER SHARE PER SHARE PER SHARE
<S> <C> <C> <C> <C> <C>
Earnings per ordinary share.................... 7.2 6.2 12.0 7.1 8.0
Adjustment in relation to loss arising from
abortive acquisition costs................... -- -- -- 2.4 --
--- --- ---- --- ----
Adjusted earnings per share.................... 7.2 6.2 12.0 9.5 8.0
=== === ==== === ====
</TABLE>
HEADLINE EARNINGS PER SHARE, a measure recommended by the Institute of
Investment Management and Research (the "IIMR") adjusts standard earnings per
share to eliminate items of a capital nature.
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
-------------- -----------------------------------
2000 1999 1999 1998 1997
----- ----- --------- --------- ---------
PENCE PENCE PENCE
PENCE PENCE PER SHARE PER SHARE PER SHARE
<S> <C> <C> <C> <C> <C>
Earnings per ordinary share.................... 7.2 6.2 12.0 7.1 8.0
Goodwill amortisation.......................... 0.8 -- 0.6 -- --
Gain on asset disposal......................... -- -- -- -- (0.6)
--- --- ---- --- ----
IIMR earnings per share........................ 8.0 6.2 12.6 7.1 7.4
=== === ==== === ====
</TABLE>
DILUTED EARNINGS PER SHARE is calculated on profit for the financial period
and on an adjusted number of shares reflecting the number of dilutive shares
under option as follows:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS TO 31 MARCH 2000 SIX MONTHS TO 31 MARCH 1999 YEAR TO 30 SEPTEMBER 1999
------------------------------ ------------------------------ ------------------------------
NUMBER OF EPS NUMBER OF EPS NUMBER OF EPS
EARNINGS SHARES PENCE EARNINGS SHARES PENCE EARNINGS SHARES PENCE
-------- ----------- ----- -------- ----------- ----- -------- ----------- -----
L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS............ 8,708 120,540,888 7.2 7,213 116,316,829 6.2 13,990 116,329,438 12.0
Effect of dilutive
securities-
options............ 434,519 260,201 291,604
----- ----------- --- ----- ----------- --- ------ ----------- ----
Diluted EPS.......... 8,708 120,975,407 7.2 7,213 116,577,030 6.2 13,990 116,621,042 12.0
===== =========== === ===== =========== === ====== =========== ====
</TABLE>
F-55
<PAGE> 198
NOTES TO THE ACCOUNTS -- (CONTINUED)
12 INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PRODUCT
GOODWILL LICENCES TOTAL
-------- -------- ------
L'000 L'000 L'000
<S> <C> <C> <C>
Cost
At 1 October 1997........................................... -- 490 490
Additions................................................... -- -- --
------ --- ------
At 1 October 1998........................................... -- 490 490
Additions................................................... 35,543 100 35,643
------ --- ------
At 30 September 1999........................................ 35,543 590 36,133
------ --- ------
Depreciation
At 1 October 1997........................................... -- 56 56
Charge for year............................................. -- 33 33
------ --- ------
At 1 October 1998........................................... -- 89 89
Charge for year............................................. 671 36 707
------ --- ------
At 30 September 1999........................................ 671 125 796
------ --- ------
Net book value
At 30 September 1999........................................ 34,872 465 35,337
====== === ======
At 30 September 1998........................................ -- 401 401
====== === ======
</TABLE>
F-56
<PAGE> 199
NOTES TO THE ACCOUNTS -- (CONTINUED)
13 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LAND
AND PLANT AND FIXTURES MOTOR
BUILDINGS MACHINERY AND FITTINGS VEHICLES TOTAL
--------- --------- ------------ -------- ------
[POUND STERLING] '000
<S> <C> <C> <C> <C> <C>
COST
At 1 October 1997......................... 27,973 14,597 4,276 336 47,182
Currency adjustment....................... (329) (57) (65) (5) (456)
Additions................................. 11,211 4,539 2,961 78 18,789
Disposals................................. -- -- -- (44) (44)
------ ------ ----- --- ------
At 1 October 1998......................... 38,855 19,079 7,172 365 65,471
Currency adjustment....................... 263 62 70 4 399
Acquisitions.............................. -- -- 181 -- 181
Additions................................. 2,822 6,030 1,602 42 10,496
Disposals................................. -- -- -- (28) (28)
------ ------ ----- --- ------
AT 30 SEPTEMBER 1999...................... 41,940 25,171 9,025 383 76,519
------ ------ ----- --- ------
DEPRECIATION
At 1 October 1997......................... 691 4,596 920 140 6,347
Currency adjustment....................... (1) (1) (1) (1) (4)
Charge for year........................... 220 1,080 629 68 1,997
Eliminated on disposal.................... -- -- -- (23) (23)
------ ------ ----- --- ------
At 1 October 1998......................... 910 5,675 1,548 184 8,317
Currency adjustment....................... 4 3 6 1 14
Charge for year........................... 482 1,495 976 73 3,026
Eliminated on disposal.................... -- -- -- (11) (11)
------ ------ ----- --- ------
AT 30 SEPTEMBER 1999...................... 1,396 7,173 2,530 247 11,346
------ ------ ----- --- ------
NET BOOK VALUE
AT 30 SEPTEMBER 1999...................... 40,544 17,998 6,495 136 65,173
====== ====== ===== === ======
At 30 September 1998...................... 37,945 13,404 5,624 181 57,154
====== ====== ===== === ======
</TABLE>
The net book value of tangible fixed assets includes an amount of L663,114
(1998: L612,853) in respect of assets held under hire purchase agreements.
Land and buildings at net book value comprise:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
[POUND STERLING] '000
<S> <C> <C>
Freehold property........................................... 22,195 21,006
Long leasehold property..................................... 18,349 16,939
------ ------
40,544 37,945
====== ======
</TABLE>
F-57
<PAGE> 200
NOTES TO THE ACCOUNTS -- (CONTINUED)
14 GROUP UNDERTAKINGS
Subsidiary undertakings whose results or financial position, in the opinion
of the directors, principally affected the figures of the group are as follows:
<TABLE>
<CAPTION>
SUBSIDIARY COUNTRY OF INCORPORATION
- ---------- ------------------------
<S> <C>
Galen Limited Northern Ireland
Quchem Limited Northern Ireland
Galen Chemicals Limited Republic of Ireland
Galen Incorporated United States of America
Bartholomew Rhodes Limited Great Britain
Interactive Clinical Technologies Inc United States of America
</TABLE>
15 STOCKS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
AS AT 31 MARCH -------------------
2000 1999 1998
-------------- ------- -------
L'000 L'000 L'000
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and consumables............................... 5,642 5,673 3,623
Finished goods.............................................. 5,139 3,156 1,188
------ ----- -----
10,781 8,829 4,811
====== ===== =====
</TABLE>
16 DEBTORS
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
------------------
1999 1998
------- -------
L'000 L'000
<S> <C> <C>
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Advance corporation tax recoverable......................... -- 267
------ ------
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors............................................... 14,744 10,804
Less amounts provided for doubtful debts.................... (287) (365)
------ ------
14,457 10,439
Other debtors............................................... 658 1,248
Prepayments and accrued income.............................. 711 448
------ ------
15,826 12,135
------ ------
15,826 12,402
------ ------
</TABLE>
PROVISIONS FOR DOUBTFUL DEBTS
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
At beginning of year........................................ 365 324 184
Profit and loss account (credit)/charge..................... (5) 65 140
Amounts utilised and other movements........................ (73) (24) --
--- --- ---
AT END OF YEAR.............................................. 287 365 324
=== === ===
</TABLE>
F-58
<PAGE> 201
NOTES TO THE ACCOUNTS -- (CONTINUED)
17 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
------------------
1999 1998
------- -------
L'000 L'000
<S> <C> <C>
Bank loans and overdrafts................................... 8,663 1,559
Obligations under hire purchase agreements.................. 217 181
Trade creditors............................................. 7,125 4,104
Corporation tax............................................. 4,203 3,959
Other taxation and social security.......................... 1,124 620
Other creditors............................................. 1,026 1,671
Accruals and deferred income................................ 1,597 4,156
Dividend proposed........................................... 1,334 1,067
Deferred consideration (Note 26)............................ 1,823 --
------ ------
27,112 17,317
====== ======
</TABLE>
18 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
------------------
1999 1998
------- -------
L'000 L'000
<S> <C> <C>
Bank loans.................................................. 19,134 10,114
Obligations under hire purchase contracts................... 193 307
Other creditors............................................. 325 325
Contingent consideration (Note 26).......................... 10,329 --
------ ------
29,981 10,746
====== ======
</TABLE>
<TABLE>
<CAPTION>
AS AT 30 SEPTEMBER
------------------
1999 1998
------- -------
L'000 L'000
<S> <C> <C>
BANK LOANS
REPAYABLE AS FOLLOWS:
In one year or less......................................... 7,477 1,559
Between one and two years................................... 4,040 1,873
Between two and five years.................................. 10,486 5,064
In five years or more....................................... 4,608 3,177
------ ------
26,611 11,673
====== ======
</TABLE>
The terms of bank loans which are partly repayable in more than five years
are as follows:-
- 9.06% fixed rate loan repayable over ten years by equal quarterly
instalments.
- Libor plus 0.75% variable rate loan repayable over seven years by equal
quarterly instalments
Circular and cross guarantees and indemnities are in place in relation to
certain group banking facilities.
F-59
<PAGE> 202
NOTES TO THE ACCOUNTS -- (CONTINUED)
HIRE PURCHASE AND FINANCE LEASE AGREEMENTS
<TABLE>
<CAPTION>
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
THE NET HIRE PURCHASE OBLIGATIONS TO WHICH THE GROUP IS
COMMITTED ARE:
In one year or less......................................... 248 204
Between one and two years................................... 177 204
Between two and three years................................. 25 142
Between three and four years................................ 20 --
Between four and five years................................. 1 --
Less interest element....................................... (61) (62)
=== ===
410 488
=== ===
</TABLE>
FINANCIAL INSTRUMENTS
The Group's financial instruments comprise borrowings, its cash and liquid
resources, and other current assets and liabilities that arise directly from its
operations. The main purpose of these financial instruments is to raise finance
for the Group's operations.
The Group has not entered into derivatives transactions during the year as
interest rate and currency risks arising from the Group's operations and its
sources of finance to date have not been significant.
GROUP POLICY
The main risks arising from the Group's financial instruments are interest
rate risk, liquidity risk and foreign currency risk. The Board reviews and
agrees policies for managing each of these risks and they are summarised below.
These policies have remained unchanged from the previous year.
Interest rate risk
The Group finances its operations through a mixture of retained profits and
bank borrowings. The Group borrows in the desired currencies at both fixed and
floating rates of interest. As the Group's balance sheet has until recently been
ungeared there has not been a need to use interest rate swaps or other
derivative instruments to manage the risk. At the year-end 3 per cent of the
Group's borrowings were at fixed rates.
Liquidity risk
As regards liquidity, the Group's policy is to maintain a balanced spread
of maturity to ensure continuity of funding. At 30 September 1999, 69 per cent
of the Group's borrowings were due to mature in more than 2 years and 21 per
cent in more than five years. Short-term flexibility is achieved by overdraft
facilities.
Foreign currency risk
The Group's overseas subsidiaries operate in the USA and their revenues and
expenses are denominated exclusively in US dollars. As the net assets of these
subsidiaries have not been material in group terms no financial instruments have
been used to hedge the net investment against movements in the US
dollar/sterling exchange rate. This exposure will continue to be monitored as
the scale of the Group's overseas operations expands in the coming years.
All sales of the UK businesses are denominated in sterling.
INTEREST RATE RISK PROFILE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Short-term debtors and creditors have been excluded from all the following
disclosures.
F-60
<PAGE> 203
NOTES TO THE ACCOUNTS -- (CONTINUED)
Financial assets
The Group's financial assets, other than short-term debtors consist of
sterling cash deposits and cash at bank.
At 30 September 1999 sterling cash deposits amounted to L5,500,000. These
comprise deposits placed on money markets at 3 month rolling rates. Cash at bank
which at the year end amounted to L850,000 is held in sterling and US dollars.
FINANCIAL LIABILITIES
The interest rate profile of the Group's financial liabilities at 30
September 1999 was:
<TABLE>
<CAPTION>
FLOATING FIXED FINANCIAL
RATE RATE LIABILITIES
FINANCIAL FINANCIAL ON WHICH NO
TOTAL LIABILITIES LIABILITIES INTEREST IS PAID
------ ----------- ----------- ----------------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
CURRENCY
Sterling......................................... 17,291 16,088 878 325
US dollar........................................ 23,393 11,241 -- 12,152
------ ------ --- ------
Total............................................ 40,684 27,329 878 12,477
====== ====== === ======
</TABLE>
<TABLE>
<CAPTION>
FIXED FINANCIAL
RATE FIXED RATE LIABILITIES
FINANCIAL FINANCIAL ON WHICH NO
LIABILITIES LIABILITIES INTEREST IS PAID
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE PERIOD FOR AVERAGE PERIOD
INTEREST WHICH RATE IS UNTIL MATURITY
RATE % FIXED YEARS YEARS
----------- ------------------ ----------------
<S> <C> <C> <C>
CURRENCY
Sterling............................................. 9 10 --
US dollar............................................ -- -- 2
-- -- --
</TABLE>
The floating rate financial liabilities comprise:
- sterling denominated bank borrowings and overdrafts that bear interest at
rates based on LIBOR, and
- US dollar denominated bank borrowings that bear interest at rates based
on LIBOR.
CURRENCY EXPOSURES
Group companies do not normally carry monetary assets and liabilities in
currencies other than their local currency. Forward foreign exchange contracts
are used when required to hedge specific future purchases. The only currency
exposure at 30 September 1999 arises from the group's net investment in its USA
subsidiaries, and gains and losses arising on net investments overseas are
recognised in the statement of total recognised gains and losses.
F-61
<PAGE> 204
NOTES TO THE ACCOUNTS -- (CONTINUED)
MATURITY OF FINANCIAL LIABILITIES
The maturity profile of the group's financial liabilities, other than
short-term creditors and accruals at 30 September 1999 was as follows:
<TABLE>
<CAPTION>
FINANCE OTHER
BANK LEASES/HIRE FINANCIAL
DEBT PURCHASE LIABILITIES TOTAL
------ ----------- ----------- ------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
In one year or less, or on demand.................... 8,663 218 1,823 10,704
In more than one year but not more than two years.... 4,040 164 3,873 8,077
In more than two years but not more than five
years.............................................. 10,486 29 6,456 16,971
In more than five years.............................. 4,608 -- -- 4,608
------ --- ------ ------
27,797 411 12,152 40,360
====== === ====== ======
</TABLE>
Other financial liabilities relate to deferred and contingent consideration
in relation to acquisitions.
BORROWING FACILITIES
The Group has undrawn committed borrowing facilities. The facilities
available, but undrawn, at 30 September 1999 in respect of which all conditions
precedent had been met were as follows:
<TABLE>
<CAPTION>
L'000
------
<S> <C>
Expiring in one year or less................................ 11,658
======
</TABLE>
FAIR VALUES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Set out below is a comparison by category of book values and fair values of
the Group's financial assets and liabilities as at 30 September 1999.
<TABLE>
<CAPTION>
BOOK FAIR
VALUE VALUE
------ ------
L'000 L'000
<S> <C> <C>
PRIMARY FINANCIAL INSTRUMENTS HELD OR ISSUED TO FINANCE THE
GROUP'S OPERATIONS
Short-term borrowings....................................... 8,881 8,881
Long-term borrowings........................................ 19,327 20,205
Other financial liabilities................................. 12,152 11,657
Financial assets............................................ 6,350 6,350
====== ======
</TABLE>
The fair values shown above have been assessed by calculating discounted
cash flows that would arise if the commitments at 30 September 1999 had been
entered into at market rates at that time.
F-62
<PAGE> 205
NOTES TO THE ACCOUNTS -- (CONTINUED)
Debt maturities at 30 September 1999 were as follows:
<TABLE>
<CAPTION>
UNSECURED UNSECURED UNSECURED
STERLING US DOLLAR STERLING
BANK DEBT BANK DEBT BANK DEBT TOTAL
--------------- --------------- ------------ ------
(VARIABLE RATE) (VARIABLE RATE) (FIXED RATE) L'000
L'000 L'000 L'000
<S> <C> <C> <C> <C>
Due within one year......................... 6,941 1,606 116 8,663
From one to two years....................... 2,612 1,302 126 4,040
From two to three years..................... 2,486 1,302 138 3,926
From three to four years.................... 2,111 1,302 151 3,564
From four to five years..................... 1,528 1,302 166 2,996
After five years............................ -- 4,427 181 4,608
------ ------ --- ------
15,678 11,241 878 27,797
====== ====== === ======
</TABLE>
19 DEFERRED TAXATION
Deferred taxation provided in the financial statements, and the amount
unprovided of the total potential liability, are as follows:
<TABLE>
<CAPTION>
PROVISION AMOUNTS
MADE UNPROVIDED
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
GROUP
Excess of tax allowances over depreciation.................. -- -- 5,323 3,827
== == ===== =====
</TABLE>
The extent of the group's budgeted capital expenditure means that
depreciation on qualifying fixed assets will not exceed capital allowances
claimed in the foreseeable future and on these grounds no deferred taxation
provision is deemed necessary by the directors.
20 DEFERRED INCOME
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
GOVERNMENT GRANTS
At 1 October 1997........................................... 5,625
Receivable in the year...................................... 1,682
Released to profit and loss account......................... (616)
-----
At 1 October 1998........................................... 6,691
Receivable in the year...................................... 566
Released to profit and loss account......................... (987)
-----
At 30 September 1999........................................ 6,270
=====
</TABLE>
F-63
<PAGE> 206
NOTES TO THE ACCOUNTS -- (CONTINUED)
21 CALLED-UP SHARE CAPITAL
<TABLE>
<CAPTION>
AS AT 31 MARCH AS AT 30 SEPTEMBER
------------------ ------------------
2000 1999 1998 1997
-------- ------ ------- -------
L'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C>
AUTHORISED
170,000,000 ordinary shares of 10p each............... 17,000 17,000 17,000 17,000
-------- ------ ------ ------
ALLOTTED, CALLED-UP AND FULLY PAID
127,266,652 (1999, 1998 and 1997:
121,266,652) ordinary shares of 10p each.............. 12,727 12,127 12,127 12,127
-------- ------ ------ ------
</TABLE>
22 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
SHARE PROFIT
PREMIUM AND LOSS
ACCOUNT ACCOUNT
------- --------
L'000 L'000
<S> <C> <C>
At 1 October 1996........................................... 1,367 10,062
Arising on share issue...................................... 29,773 --
Issue costs................................................. (1,896) --
Bonus issue capitalisation.................................. (9,867) --
Retained profit for the year................................ -- 7,971
Exchange differences arising on consolidation............... -- (3)
------ ------
At 1 October 1997........................................... 19,377 18,030
1997 share issue costs...................................... (113) --
Retained profit for the year................................ -- 6,777
Exchange differences arising on consolidation............... -- 17
------ ------
At 1 October 1998........................................... 19,264 24,824
Retained profit for the year................................ -- 12,075
Exchange differences arising on consolidation............... -- (168)
------ ------
At 30 September 1999........................................ 19,264 36,731
====== ======
UNAUDITED
At 1 October 1999........................................... 19,264 36,731
Arising on share issue (see Note 32)........................ 36,300 --
Issue costs................................................. (533) --
Retained profit for the period.............................. -- 7,798
Exchange differences arising on consolidation............... -- 174
------ ------
AT 31 MARCH 2000............................................ 55,031 44,703
====== ======
</TABLE>
On 10 July 1997 21,266,666 new ordinary shares of 10p each were issued by
way of a placing at a price of 150p, representing a premium of 140p over their
nominal value. By way of a bonus issue on capitalisation of L9,866,666 of the
share premium account, 98,666,656 ordinary shares were allotted, credited as
fully paid on the basis of 74 ordinary shares for every one ordinary share held
prior to the placing.
F-64
<PAGE> 207
NOTES TO THE ACCOUNTS -- (CONTINUED)
SHARE OPTION SCHEMES
The following share option schemes were established in 1997:
The Galen Approved Executive Share Option Scheme
The Galen Unapproved Executive Share Option Scheme
The Galen Savings Related Share Option Scheme
The Galen Inc Employee Stock Purchase Plan
Details of options issued during the year are as follows:
<TABLE>
<CAPTION>
AT OPTIONS OPTIONS AT
1 OCTOBER GRANTED EXERCISED 30 SEPTEMBER EXERCISE EXERCISE
1998 IN YEAR IN YEAR 1999 PRICE PERIOD
--------- ------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Unapproved scheme
-- 25,003 -- 25,003 L3.60 2001-2008
-- 112,123 -- 112,123 L3.925 2001-2008
L4.475 2002-2009
Approved scheme
-- 74,997 -- 74,997 L3.60 2001-2008
-- 14,583 -- 14,583 L3.925 2001-2008
-- 20,109 -- 20,109 L4.475 2002-2009
-- ------- -- ------- ------ ---------
</TABLE>
The following options were outstanding under the Galen Savings Related
Share Option Scheme at 30 September 1999:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EARLIEST
OPTIONS PRICE EXERCISE DATE
- --------- -------- -------------
<S> <C> <C>
198,347 L2.56 2001
123,848 L3.38 2002
162,773 L2.56 2003
60,095 L3.38 2004
======= ===== ====
</TABLE>
THE GALEN EMPLOYEE BENEFIT TRUST
The Galen Holdings PLC Employee Benefit Trust was established in June 1997.
The trustee is Galen Trustees Limited, a subsidiary of Galen Holdings PLC. It is
a discretionary trust for the benefit of employees and former employees of the
group, including directors, and may be used inter alia, to meet obligations
under the Executive Share Option Schemes, the Savings Related Share Option
Scheme, or any other share scheme established by any group company. Dividends
have not been waived by the Trust. Dividend income is included in the group's
profit and loss account by way of reduction of the total dividend charge. Dr
McClay, who cannot be a beneficiary of the Trust, gifted 5,000,262 ordinary
shares to the Trust on its establishment. At the year end the 4,922,481 (1998:
5,000,262) shares held by the Trust were valued at L26,458,335 (1998:
L21,876,146). Other income and costs of the Trust are incorporated into the
financial statements where applicable. Cash held by the Trust totalled L131,456
and L27,768 at 30 September 1999 and 1998 respectively.
F-65
<PAGE> 208
NOTES TO THE ACCOUNTS -- (CONTINUED)
23 MINORITY INTERESTS
<TABLE>
<CAPTION>
L'000
-----
<S> <C>
At 1 October 1997........................................... --
Profit and loss account................................... 12
--
At 1 October 1998........................................... 12
Profit and loss account................................... 19
--
At 30 September 1999........................................ 31
==
</TABLE>
24 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
L'000 L'000 L'000
<S> <C> <C> <C>
Increase/(decrease) in cash in the period................... 453 (3,039) 2,806
Cash (inflow)/outflow from movement in liquid resources..... (11,500) (3,000) 20,000
Cash inflow from increase in debt and hire purchase
financing................................................. (14,420) (414) (8,562)
------- ------ ------
Change in net funds resulting from cash flows............... (25,467) (6,453) 14,244
Exchange movement........................................... (311) 417 --
New hire purchase agreements................................ (80) (506) (39)
Lease obligations assumed on acquisition.................... (49) -- --
------- ------ ------
Movement in net funds in the year........................... (25,907) (6,542) 14,205
Net funds/(debt) at beginning of year....................... 4,051 10,593 (3,612)
------- ------ ------
NET (DEBT)/FUNDS AT END OF YEAR............................. (21,856) 4,051 10,593
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
LOANS
LOANS LESS GREATER HIRE NET
CASH AT BANK ST THAN THAN PURCHASE FUNDS/
ANALYSIS OF NET FUNDS/(DEBT) BANK OVERDRAFTS DEPOSITS 1 YEAR 1 YEAR OBLIGATIONS (DEBT)
- ---------------------------- ------- ---------- -------- ---------- ------- ----------- -------
L'000 L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C> <C>
At 1 October 1996............. 138 (693) -- (611) (2,442) (4) (3,612)
Cash flow................... 2,113 693 20,000 14 (8,580) 4 14,244
Other non cash movement..... -- -- -- -- -- (39) (39)
------ ------ ------- ------ ------- ---- -------
At 1 October 1997............. 2,251 -- 20,000 (597) (11,022) (39) 10,593
Cash flow................... (2,251) (788) (3,000) (962) 493 55 (6,453)
Exchange movement........... -- -- -- -- 415 2 417
Other non cash movement..... -- -- -- -- -- (506) (506)
------ ------ ------- ------ ------- ---- -------
At 1 October 1998............. -- (788) 17,000 (1,559) (10,114) (488) 4,051
Cash flow................... 851 (398) (11,500) (5,885) (8,742) 207 (25,467)
Exchange movement........... -- -- -- (33) (278) -- (311)
Acquisitions................ -- -- -- -- -- (49) (49)
Other non-cash movement..... -- -- -- -- -- (80) (80)
------ ------ ------- ------ ------- ---- -------
AT 30 SEPTEMBER 1999.......... 851 (1,186) 5,500 (7,477) (19,134) (410) (21,856)
====== ====== ======= ====== ======= ==== =======
</TABLE>
Other non-cash movements relates to new hire purchase agreements incepted.
F-66
<PAGE> 209
NOTES TO THE ACCOUNTS -- (CONTINUED)
25 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
L'000 L'000 L'000
<S> <C> <C> <C>
Operating profit............................................ 18,690 11,336 10,498
Depreciation of tangible fixed assets....................... 3,026 1,997 1,319
Amortisation of intangible fixed assets..................... 707 33 32
Capital grants release...................................... (987) (616) (436)
Loss on sale of tangible fixed assets....................... 3 1 3
Increase in stocks.......................................... (3,714) (474) (1,436)
Increase in debtors......................................... (1,879) (2,873) (2,287)
Increase in creditors....................................... 1,050 4,802 1,091
Exchange difference......................................... (242) 52 (3)
------ ------ ------
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 16,654 14,258 8,781
====== ====== ======
</TABLE>
26 ACQUISITIONS
Details of the fair value of assets and liabilities of companies acquired
during the year ended 30 September 1999 are set out below together with the
resultant amount of goodwill arising. Goodwill is being written off over periods
ranging from 5 years to 20 years maximum. All purchases have been accounted for
as acquisitions. The most significant acquisitions were those of Bartholomew
Rhodes Limited and Interactive Clinical Technologies Inc ("ICTI").
The Bartholomew Rhodes acquisition provided additional products in the
analgesic, respiratory and cardiovascular categories. ICTI provides interactive
voice response systems (IVRS) for clinical trials' management from its bases in
Princeton (New Jersey) and San Francisco. ICTI's technological developments
enable clients to efficiently manage drugs supplies and collect real-time
patient enrolment data. The other acquisition related to the purchase of J Dana
Inc, a company which provides returned drug accountability and destruction
services.
<TABLE>
<CAPTION>
BARTHOLOMEW
RHODES ICTI J DANA TOTAL
----------- -------- ------ ------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Tangible fixed assets............................... -- 170 11 181
Stocks.............................................. 304 -- -- 304
Debtors............................................. 1,191 399 23 1,613
Cash/(overdrafts)................................... (218) 209 3 (6)
Creditors........................................... (1,802) (211) (13) (2,026)
Taxation............................................ 301 -- -- 301
Lease obligations................................... -- (49) -- (49)
------ ------ --- ------
Net assets acquired................................. (224) 518 24 318
Goodwill............................................ 20,315 14,838 390 35,543
------ ------ --- ------
Consideration....................................... 20,091 15,356 414 35,861
====== ====== === ======
Consideration satisfied by:
Cash (including costs of acquisitions).............. 20,091 3,204 414 23,709
Deferred consideration (payable January 2000)....... -- 1,823 -- 1,823
Contingent consideration............................ -- 10,329 -- 10,329
------ ------ --- ------
20,091 15,356 414 35,861
====== ====== === ======
</TABLE>
F-67
<PAGE> 210
NOTES TO THE ACCOUNTS -- (CONTINUED)
A proportion of the goodwill from the Bartholomew Rhodes acquisition
calculated above relates specifically to product licenses and brand names. The
estimated useful life of such intangible assets is 20 years, the period over
which goodwill is being amortised.
Under FRS 11 "Impairment of fixed assets and goodwill" an impairment review
of goodwill and intangible assets is required to be carried out at the end of
the first full financial year following their acquisition. Post-acquisition
performance will be compared with forecasts and a review undertaken of
unexpected adverse events or changes in circumstances that throw doubt on the
recoverability of the capitalised goodwill or intangible assets.
The contingent consideration in relation to the ICTI acquisition is payable
upon the achievement of certain minimum targets and represents the total amount
payable in respect of the period from 1 October 1999 to 30 September 2001.
Payments would be made on 31 January 2001 and 31 January 2002 respectively.
Initial estimates of the contingent consideration will be revised as further and
more certain information becomes available with corresponding adjustments to
goodwill.
From the beginning of their respective latest financial years, 1 April 1999
for Bartholomew Rhodes Limited and 1 January 1999 for ICTI, to their respective
dates of acquisition, 4 June 1999 and 30 April 1999, the after tax results were
(pound sterling)1,194,000 loss and (pound sterling)38,000 loss respectively.
The respective results of Bartholomew Rhodes Limited and ICTI for their
previous full financial years to 31 March 1999 and 31 December 1998 respectively
were (pound sterling)813,000 loss and (pound sterling)442,000 profit.
The post-acquisition turnover and operating profit of Bartholomew Rhodes
Limited and ICTI are as follows:
<TABLE>
<CAPTION>
BARTHOLOMEW
RHODES LTD ICTI
----------- -----
L'000 L'000
<S> <C> <C>
Turnover........................................ 1,260 1,162
Operating profit................................ 344 298
===== =====
</TABLE>
The operations of the acquired businesses did not have a material effect on
the Group cash flow in the year.
The following unaudited pro forma information presents the results of
operations of the Group as if the acquisitions of Bartholomew Rhodes, ICTI and J
Dana had taken place on 1 October 1997.
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortisation
expense as a result of goodwill, increased interest expense on acquisition debt
and related taxation adjustments. They do not purport to be indicative of the
results of operations that actually would have resulted had the combination
occurred on 1 October 1997, or of future results of operations of the
consolidated entities.
<TABLE>
<CAPTION>
YEAR TO
30 SEPTEMBER
----------------
1999 1998
------ ------
L'000 L'000
(UNAUDITED)
<S> <C> <C>
Turnover........................................... 71,139 55,137
Profit for the financial year...................... 10,766 5,541
Earnings per share................................. 9.25p 4.77p
====== ======
</TABLE>
F-68
<PAGE> 211
NOTES TO THE ACCOUNTS -- (CONTINUED)
27 CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
There exists a contingent liability to repay certain capital and revenue
grants received from the Industrial Development Board for Northern Ireland if
future employment levels fall below specified levels. The directors do not
anticipate any repayment falling due under the terms on which the grants were
received.
28 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
GROUP GROUP
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Capital expenditure that has been contracted for but has not
been provided for in the financial statements............. 6,150 3,360
===== =====
</TABLE>
29 FINANCIAL COMMITMENTS
At 30 September 1999 the Group had annual commitments under non-cancellable
operating leases as follows:
<TABLE>
<CAPTION>
LAND LAND
AND AND
BUILDINGS OTHER BUILDINGS OTHER
1999 1999 1998 1998
--------- ----- --------- -----
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Expiring within one year................................. 66 76 5 49
Expiring between one and two years....................... -- 177 -- 125
Expiring between two and five years...................... 208 60 -- 80
Expiring in over five years.............................. 105 -- 9 --
--- --- -- ---
379 313 14 254
=== === == ===
</TABLE>
30 RELATED PARTIES
The company has taken advantage of the exemption under Financial Reporting
Standard 8 "Related party disclosures" (FRS8) not to disclose related party
transactions between wholly owned group undertakings which are eliminated on
consolidation.
By virtue of the shareholdings of the Directors in Connors Chemists Limited
until 13 March 1998, that Company was a related party of Galen Holdings PLC and
its subsidiaries as defined by FRS 8. The following transactions were conducted
with Connors Chemists Limited during the period:
<TABLE>
<CAPTION>
1998 1997
----- -----
L'000 L'000
<S> <C> <C>
Sales....................................................... 50 68
Recharge of costs........................................... 46 145
Purchases................................................... 2 308
== ===
</TABLE>
Plant and machinery amounting to L72,000 (1998: L140,000) was acquired
during the year on an arm's length basis from a company whose directors are
members of the close family of a subsidiary company director.
31 ULTIMATE CONTROLLING PARTIES
The ultimate controlling parties at 30 September 1999, as defined by FRS8,
are the executive directors who together hold 60.3% (1998: 62.5%, 1997: 64.3%)
of the issued share capital.
F-69
<PAGE> 212
NOTES TO THE ACCOUNTS -- (CONTINUED)
32 SUBSEQUENT EVENTS (UNAUDITED)
On 25 November 1999 6,000,000 new ordinary shares of 10p each were placed
at a premium of (pound sterling)6.05 per share. Total proceeds, net of costs,
amounted to (pound sterling)36,385,464.
On May 4, 2000, the Company entered into an agreement with Warner Chilcott
PLC under which the Company would acquire Warner Chilcott through a scheme of
arrangement under the laws of the Republic of Ireland. The Company proposes to
issue 2.5 new ordinary shares for each of Warner Chilcott's ordinary shares. The
acquisition is subject to various conditions including, among other things,
sanction by the High Court of Ireland, regulatory approval, approval by the
Company's and Warner Chilcott's shareholders and the Company obtaining a listing
of its shares, in American Depositary share form, on the Nasdaq National Market.
33 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
(1) PROFIT FOR THE FINANCIAL YEAR AND SHAREHOLDERS' FUNDS
The Group financial statements are prepared in accordance with UK GAAP
which differs in certain significant respects from US GAAP. The effect of the US
GAAP adjustments to profit for the financial period and equity shareholders'
funds are set out in the tables below:
<TABLE>
<CAPTION>
6 MONTHS TO YEAR TO
31 MARCH 30 SEPTEMBER
---------------- ----------------
NOTES 2000 1999 1999 1998
----- ----- ------- ------ ------
L'000 L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C> <C>
(a) RECONCILIATION OF PROFIT FOR THE FINANCIAL
YEAR TO US GAAP
Profit for the financial period under UK
GAAP....................................... 8,708 7,213 13,990 8,312
US GAAP adjustments:
Amortisation of goodwill...................... (i) 258 -- 215 --
In-process research and development........... (i) 26 -- (1,004) --
Capitalisation of interest.................... (ii) 191 224 649 681
Deferred taxation............................. (iii) (472) (580) (1,496) (1,402)
Compensation expense.......................... (iv) (461) (208) (487) (163)
Deferred tax effect of US GAAP adjustments.... (57) (57) (184) (211)
----- ------- ------ ------
Profit for the financial period under US
GAAP....................................... 8,193 6,592 11,683 7,217
===== ======= ====== ======
Basic earnings per share under US GAAP........ (vi) 6.8p 5.7p 10.0p 6.2p
===== ===== ======= ====== ======
Diluted earnings per share under US GAAP...... (vi) 6.8p 5.7p 10.0p 6.2p
===== ===== ======= ====== ======
</TABLE>
F-70
<PAGE> 213
NOTES TO THE ACCOUNTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS AT
31 MARCH AS AT 30 SEPTEMBER
--------- ------------------
2000 1999 1998
--------- ------- -------
L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C> <C> <C>
(b) EFFECT ON EQUITY SHAREHOLDERS' FUNDS OF
DIFFERENCES BETWEEN UK GAAP AND US GAAP:
Equity shareholders' funds under UK GAAP...... 112,461 68,122 56,215
US GAAP ADJUSTMENTS:
Amortisation of goodwill...................... (i) 473 215 --
In-process research and development........... (i) (978) (1,004) --
Capitalisation of interest.................... (ii) 1,918 1,727 1,078
Deferred taxation............................. (iii) (5,728) (5,256) (3,760)
Employee benefit trust........................ (v) (7,384) (7,384) (7,500)
Share premium account......................... (v) 7,384 7,384 7,500
Deferred tax effect of US GAAP adjustments.... (575) (518) (334)
Dividends..................................... (viii) 844 1,334 1,067
------- ------ ------
Equity shareholders' funds under US GAAP...... 108,415 64,620 54,266
======= ====== ======
</TABLE>
(i) BUSINESS COMBINATIONS
(a) Amortisation of goodwill
Under UK GAAP, at 30 September 1999 an amount of (pound sterling)10,329,000
is included within creditors representing the maximum contingent consideration
payable to the former shareholders of ICTI and this amount is included in
goodwill on acquisition. Under US GAAP amounts related to contingent
consideration are only included when the contingency is resolved.
(b) In-process research and development
Under US GAAP the amount of purchase consideration allocated to in-process
research and development is written off immediately to profit and loss account.
Among the factors considered in determining the amount of the allocation of the
purchase price to in-process research and development were various factors such
as estimating the stage of development of each in-process research and
development project at the date of acquisition, estimating cash flows resulting
from the expected revenues generated from such projects, and discounting the net
cash flows, in addition to other assumptions. Under UK GAAP this amount, which
would be allocated to in-process research and development under US GAAP, would
be included within goodwill. The adjustment for in-process research and
development is net of the related amortisation expense recorded under UK GAAP.
(ii) CAPITALISATION OF INTEREST
Under UK GAAP, companies may choose whether or not to capitalise finance
costs on fixed assets that take a substantial period of time to bring into
service. US GAAP requires interest incurred as part of the cost of constructing
fixed assets to be capitalised and amortised over the life of the asset.
(iii) DEFERRED TAXATION
Under UK GAAP, provision for deferred tax is only required to the extent
that it is probable that a taxation liability or asset will crystallise, in the
foreseeable future, as a result of timing differences between taxable profit and
accounting profit. Provision is made at known rates of tax.
F-71
<PAGE> 214
NOTES TO THE ACCOUNTS -- (CONTINUED)
Under US GAAP, full provision for deferred tax is required to the extent
that accounting profit differs from taxable profit due to temporary differences.
Provision is made at future enacted rates. A valuation adjustment is made
against deferred tax assets where it is more likely than not that some portion
will not be realised.
The following table summarises deferred tax liabilities and assets on a US
GAAP basis:
<TABLE>
<CAPTION>
AS AT
AS AT 30 SEPTEMBER
31 MARCH --------------
2000 1999 1998
--------- ----- -----
L'000 L'000 L'000
UNAUDITED
<S> <C> <C> <C>
DEFERRED TAX LIABILITY:
Accelerated capital allowances.............................. 5,795 5,323 3,827
DEFERRED TAX ASSET:
Trading losses.............................................. (67) (67) (67)
----- ----- -----
5,728 5,256 3,760
Deferred tax on US GAAP adjustments......................... 575 518 334
----- ----- -----
6,303 5,774 4,094
===== ===== =====
</TABLE>
Based on an assessment of all available evidence including the group's
current business plans, no valuation adjustment has been made against the
deferred tax asset in relation to trading losses.
(iv) SHARE COMPENSATION EXPENSE
Under UK GAAP no cost has been accrued in relation to share options awarded
to employees since the exercise price is equivalent to the market value at the
date of grant.
Under US GAAP the company has elected to follow APB 25. Under APB 25
compensation cost on variable option awards in which the number of options
exercisable is not known at the date of grant is calculated as the difference
between the option price and the market price at the end of the reporting
period. This cost is amortised over the period from the date the options are
granted to the date they are first exercisable, that is, the vesting date. In
determining the costs of benefits arising from stock compensation plans,
companies may adopt either the intrinsic value method (APB 25) or a fair value
method (FAS 123). Had compensation costs been determined in accordance with FAS
123, net profit and basic and diluted earnings per share would have been as
follows:
<TABLE>
<CAPTION>
YEAR TO
30 SEPTEMBER
---------------
1999 1998
------ -----
L'000 L'000
<S> <C> <C>
Net profit under US GAAP as reported........................ 11,683 7,217
Compensation cost adjustment................................ 169 83
------ -----
Proforma profit............................................. 11,852 7,300
====== =====
NET PROFIT PER ORDINARY SHARE UNDER US GAAP
As reported................................................. 10.0p 6.2p
Proforma -- Basic........................................... 10.2p 6.3p
-- Diluted......................................... 10.2p 6.3p
------ -----
</TABLE>
F-72
<PAGE> 215
NOTES TO THE ACCOUNTS -- (CONTINUED)
Under FAS 123 the compensation cost is based on the fair value of the
options at the date of grant using the Black-Scholes option pricing model and
the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
30 SEPTEMBER
------------------
1999 1998
------- -------
<S> <C> <C>
Life of option.............................................. 3.9 yrs 3.9 yrs
Dividend yield.............................................. 0.32% 0.32%
Risk-free interest rate..................................... 4.8% 6.5%
Price volatility............................................ 30% 30%
------- -------
</TABLE>
(v) EMPLOYEE BENEFIT TRUST
Under UK GAAP, shares held by the Employee Benefit Trust are recorded as
fixed asset investments with zero cost. Under US GAAP, those shares are regarded
as treasury stock and recorded as a contra equity account within equity
shareholders' funds at the date of contribution.
(vi) EARNINGS PER SHARE
YEARS TO 30 SEPTEMBER 1999 AND 1998
Earnings per share is based on profit for the financial year under US GAAP
as calculated above and on 116,329,438 ordinary shares (1998: 116,266,390) the
weighted average number of ordinary shares in issue during the year, excluding
those held in the employee trust. Diluted earnings per share is calculated on
profit for the financial year under US GAAP as calculated above and on an
adjusted number of shares of 116,389,609 (1998: 116,266,390) reflecting the
number of dilutive shares under option.
UNAUDITED 6 MONTHS TO 31 MARCH 2000 AND 1999
Earnings per share is based on profit for the financial period under US
GAAP as calculated above and on 120,540,888 ordinary shares (1999: 116,266,829)
the weighted average number of ordinary shares in issue during the period,
excluding those held in the employee trust. Diluted earnings per share is
calculated on profit for the financial period under US GAAP as calculated above
and on an adjusted number of shares of 120,975,407 (1999: 116,577,030)
reflecting the number of dilutive shares under option.
(vii) PRESENTATION OF EXCEPTIONAL ITEMS
Under UK GAAP exceptional items are items which derive from events or
transactions that fall within the ordinary activities of the reporting entity
and which individually or, if of a similar type, in aggregate, need to be
disclosed by virtue of their size or incidence. Under US GAAP only items which
are deemed unusual in nature and infrequent in occurrence (not reasonably
expected to recur in the foreseeable future) qualify for presentation as
"extraordinary" items. They are presented below income before extraordinary
items in the profit and loss account. Under US GAAP, abortive merger costs in
this case does not meet the criteria for presentation as an extraordinary item.
(viii) DIVIDENDS
Under UK GAAP, final ordinary dividends are recognised in the financial
year in respect of which they are recommended by the Board of Directors for
approval by shareholders. Under US GAAP, such dividends are not recognised until
they are formally declared by the Board of Directors.
(2) CONSOLIDATED CASH FLOW STATEMENT
The Group Consolidated Cash Flow Statement is prepared in accordance with
United Kingdom Financial Reporting Standard 1 "FRS 1 (Revised 1996)", whose
objective and principles are similar to those set out in SFAS No. 95, "Statement
of Cash Flows". The principal differences between the standards relate to
classification. Under FRS 1 (Revised 1996), the Company presents its cash flows
for (a) operating activities,
F-73
<PAGE> 216
NOTES TO THE ACCOUNTS -- (CONTINUED)
(b) returns on investments and servicing of finance, (c) taxation, (d) capital
expenditure and financial investment, (e) acquisitions, (f) dividends paid, (g)
management of liquid resources and (h) financing. SFAS No. 95 requires only
three categories of cash flow activity being (a) operating, (b) investing and
(c) financing.
Cash flows from taxation and returns on investments and servicing of
finance under FRS 1 (Revised 1996) would be included as operating activities
under SFAS No. 95, capital expenditure and financial investment and acquisitions
and disposals would be included as investing activities, and dividends paid
would be included as a financing activity under SFAS No. 95. Under FRS 1
(Revised 1996) cash comprises cash in hand and deposits repayable on demand,
less overdrafts repayable on demand, and liquid resources comprise current asset
investments held as readily disposable stores of value. Under SFAS No. 95 cash
equivalents, comprising short-term highly liquid investments, generally with
original maturities of three months or less, are grouped together with cash.
Short-term borrowings repayable on demand would not be included within cash and
cash equivalents and movements on those borrowings would be included in
financing activities.
Set out below, for illustrative purposes, is a summary consolidated cash
flow statement under U.S. GAAP.
<TABLE>
<CAPTION>
UNAUDITED
6 MONTHS TO
31 MARCH YEAR TO 30 SEPTEMBER
---------------- -----------------------------
2000 1999 1999 1998 1997
------ ------ ------- ------- -------
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities............................... 6,539 6,229 10,019 11,915 6,749
Net cash used in investing activities...... (8,221) (4,457) (33,838) (17,275) (22,509)
Net cash provided by financing
activities............................... 31,580 (1,730) 13,170 109 37,873
------ ------ ------- ------- -------
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS.............................. 29,898 42 (10,649) (5,251) 22,113
Cash and cash equivalents at beginning of
period................................... 6,351 17,000 17,000 22,251 138
------ ------ ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................... 36,249 17,042 6,351 17,000 22,251
====== ====== ======= ======= =======
</TABLE>
(3) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued FAS
133, "Accounting for Derivative Instruments and Hedging Activities". FAS 133
establishes a new model for accounting for derivatives and hedging activities
and supersedes and amends a number of existing standards. FAS 133 is effective
for fiscal years beginning after June 15, 1999, but earlier application is
permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998.
Upon initial application, all derivatives are required to be recognised in the
statement of financial position as either assets or liabilities and measured at
fair value. In addition, all hedging relationships must be reassessed and
documented pursuant to the provisions of FAS 133. Subsequent to the issuance of
FAS 133, the FASB issued FAS 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133",
which defers the effective date of FAS 133 to periods beginning after June 15,
2000. The Group is currently evaluating the likely impact of the adoption of FAS
133 on its results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which summarizes certain of the SEC staff views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company adopted SAB 101 in these financial statements. Such
adoption had no impact on the Company's financial statements.
F-74
<PAGE> 217
BARTHOLOMEW RHODES LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 MARCH 1999
F-75
<PAGE> 218
BARTHOLOMEW RHODES LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1999
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
Report of the directors..................................... F-77
Report of the auditors...................................... F-79
Principal accounting policies............................... F-80
Profit and loss account..................................... F-81
Cash flow statement......................................... F-82
Notes to the financial statements........................... F-83
</TABLE>
F-76
<PAGE> 219
BARTHOLOMEW RHODES LIMITED
REPORT OF THE DIRECTORS
The directors present their report together with financial statements for
the year ended 31 March 1999.
PRINCIPAL ACTIVITY
The company is principally engaged in the sale of generic pharmaceutical
products.
BUSINESS REVIEW
The directors are satisfied with the performance of the company for the
year and its position at the year end. They are cautiously optimistic for the
forthcoming period.
There was a loss for the year after taxation amounting to L813,155. The
directors do not recommend payment of a dividend and the loss of L813,155 has
therefore been transferred to reserves.
DIRECTORS
The present membership of the Board is set out below. Both directors served
throughout the year.
The interests of the directors in the shares of the company at 1 April 1998
and at 31 March 1999, were as follows:
<TABLE>
<CAPTION>
NUMBER
------
<S> <C>
Dr D J Burston.............................................. 99
Mrs L F Burston............................................. 1
</TABLE>
DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for maintaining proper accounting records,
for safeguarding the assets of the company and for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
F-77
<PAGE> 220
BARTHOLOMEW RHODES LIMITED
REPORT OF THE DIRECTORS
YEAR 2000 COMPLIANCE
The company reviewed its computer systems for the impact of the Year 2000
date change, prepared an action plan to address the issue and carried out all
necessary measures. All systems have continued to operate properly over the Year
2000 date change and through any roll-over procedures that occurred at a later
date.
The issue is complex, and no business can guarantee that there will be no
Year 2000 problems. As all businesses are dependent on the compliance of their
major customers, suppliers and other trading partners, any impact that has
occurred on their systems will affect the company's business to a greater or
lesser extent.
ON BEHALF OF THE BOARD
F-78
<PAGE> 221
REPORT OF THE AUDITORS TO THE MEMBERS OF
BARTHOLOMEW RHODES LIMITED
We have audited the financial statements on pages F-80 to F-86 which have
been prepared under the accounting policies set out on pages F-80 and F-81.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-77 the directors are responsible for the preparation
of financial statements. It is our responsibility to form an independent
opinion, based on our audit, on those statements and to report our opinion to
you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
company's loss for the year ended 31 March 1999.
GRANT THORNTON
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
KETTERING
F-79
<PAGE> 222
BARTHOLOMEW RHODES LIMITED
PRINCIPAL ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial statements have been prepared under the historical cost
convention.
The principal accounting policies of the company have remained unchanged
from the previous year and are set out below.
Turnover
Turnover is the total amount receivable by the company for goods supplied
and services provided, excluding VAT and trade discounts.
DEPRECIATION
Depreciation is calculated to write down the cost of all motor vehicles by
the reducing balance method and all other tangible fixed assets by the straight
line method over their expected useful lives. The rates generally applicable
are:
<TABLE>
<S> <C>
Motor vehicles.......................................... 25%
Office equipment........................................ 33 1/3%
Computer equipment...................................... 33 1/3%
Laboratory equipment.................................... 15%
</TABLE>
TRADEMARK AND LICENCE EXPENDITURE
Trademark and licence expenditure is charged to profits in the period in
which it is incurred.
Stocks
Stocks are stated at the lower of cost and net realisable value.
Deferred Taxation
Deferred tax is provided for using the tax rates estimated to arise when
the timing differences reverse and is accounted for to the extent that it is
probable that a liability or asset will crystallise. Unprovided deferred tax is
disclosed as a contingent liability.
Leased Assets
Assets held under finance leases and hire purchase contracts are
capitalised in the balance sheet and depreciated over their expected useful
lives. The interest element of leasing payments represents a constant proportion
of the capital balance outstanding and is charged to the profit and loss account
over the period of the lease.
All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on a straight-line basis
over the lease term.
CONTRIBUTIONS TO PENSION FUNDS
Defined contribution scheme
The pension costs charged against profits represent the amount of the
contributions payable to the scheme in respect of the accounting period.
F-80
<PAGE> 223
BARTHOLOMEW RHODES LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1999
<TABLE>
<CAPTION>
1999
NOTE L
---- ----------
<S> <C> <C>
TURNOVER.................................................... 1 4,328,098
Cost of sales............................................... 2,678,660
-- ----------
Gross profit................................................ 1,649,438
Other operating income and charges.......................... 2 2,794,959
-- ----------
OPERATING LOSS.............................................. 6 (1,145,521)
Net interest................................................ 3 30,634
-- ----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION................. 1 (1,176,155)
Tax on loss on ordinary activities.......................... 5 363,000
-- ----------
LOSS TRANSFERRED TO RESERVES................................ (813,155)
== ==========
</TABLE>
There were no recognised gains or losses other than the loss for the financial
year.
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-81
<PAGE> 224
BARTHOLOMEW RHODES LIMITED
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 1999
<TABLE>
<CAPTION>
1999
NOTE L
---- --------
<S> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 6 356,665
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................... 1,941
Interest paid............................................... (28,707)
Finance lease interest paid................................. (3,868)
--------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (30,634)
--------
TAXATION.................................................... (220,000)
--------
CAPITAL EXPENDITURE
Purchase of tangible fixed assets........................... (657,364)
Sale of tangible fixed assets............................... 42,000
--------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE................... (615,364)
--------
FINANCING
Capital element of finance lease rentals.................... 7 (50,311)
--------
NET CASH OUTFLOW FROM FINANCING............................. (50,311)
--------
DECREASE IN CASH............................................ 8 (559,644)
========
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-82
<PAGE> 225
BARTHOLOMEW RHODES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1999
1. TURNOVER AND LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION.
The turnover and loss before taxation are attributable to one activity, the
sale of generic pharmaceutical products.
2. THE LOSS ON ORDINARY ACTIVITIES IS STATED AFTER:
<TABLE>
<CAPTION>
1999
L
-------
<S> <C>
Auditors' remuneration...................................... 5,000
Depreciation:
Tangible fixed assets, owned................................ 61,562
Other operating lease rentals............................... 177,461
=======
</TABLE>
OTHER OPERATING INCOME AND CHARGES
<TABLE>
<CAPTION>
1999
L
---------
<S> <C>
Administrative expenses..................................... 3,008,253
Other operating income...................................... (213,294)
---------
2,794,959
=========
</TABLE>
3. NET INTEREST
<TABLE>
<CAPTION>
1999
L
------
<S> <C>
On bank overdraft........................................... 28,707
Finance charges in respect of finance leases................ 3,868
------
32,575
Other interest receivable and similar income................ (1,941)
------
30,634
======
</TABLE>
4. DIRECTORS AND EMPLOYEES
Staff costs during the year were as follows:
<TABLE>
<CAPTION>
1999
L
-------
<S> <C>
Wages and salaries.......................................... 472,003
Social security costs....................................... 26,106
Other pension costs......................................... 143,208
-------
641,317
=======
</TABLE>
The average number of employees of the company during the year was 12.
F-83
<PAGE> 226
BARTHOLOMEW RHODES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1999 -- (CONTINUED)
Remuneration in respect of directors was as follows:
<TABLE>
<CAPTION>
1999
L
--------
<S> <C>
Emoluments.................................................. 14,842
Pension contributions to money purchase pension schemes..... 140,000
--------
154,842
========
</TABLE>
During the year 1 director participated in money purchase pension schemes.
5. TAX ON LOSS ON ORDINARY ACTIVITIES
The tax credit represents:
<TABLE>
<CAPTION>
1999
L
--------
<S> <C>
Corporation tax at 31%...................................... (409,000)
Deferred tax................................................ 46,000
--------
(363,000)
========
</TABLE>
6. NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1999
L
----------
<S> <C>
Operating loss.............................................. (1,145,521)
Depreciation................................................ 61,562
Loss on sale of tangible fixed assets....................... 2,459
Decrease in stocks.......................................... 82,848
Decrease in debtors......................................... 1,286,586
Increase in creditors....................................... 68,731
----------
Net cash inflow from operating activities................... 356,665
==========
</TABLE>
7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
1999
L
--------
<S> <C>
Decrease in cash in the year................................ (559,644)
Cash outflow from finance leases............................ 50,311
--------
Movement in net debt in the year............................ (509,333)
Net debt at 1 April 1998.................................... (325,015)
--------
Net debt at 31 March 1999................................... (834,348)
========
</TABLE>
F-84
<PAGE> 227
BARTHOLOMEW RHODES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1999 -- (CONTINUED)
8. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT AT
1 APRIL 1998 CASH FLOW 31 MARCH 1999
L L L
------------ --------- -------------
<S> <C> <C> <C>
Cash in hand and at bank............................... -- 2,395 2,395
Overdraft.............................................. (274,704) (562,039) (836,743)
-------- -------- --------
(274,704) (559,644) (834,348)
Finance leases......................................... (50,311) 50,311 --
-------- -------- --------
(325,015) (509,333) (834,348)
======== ======== ========
</TABLE>
9. CAPITAL COMMITMENTS
The company had no capital commitments at 31 March 1999.
10. FINANCIAL COMMITMENTS
At the year end the company were committed until February 2001 to pay Mrs M
A Ross a monthly business consultancy fee of (pound sterling)4,167.
11. CONTINGENT LIABILITIES
The company has given an unlimited guarantee for the banking facilities of
Dallas Burston Healthcare Limited. At 31 March 1999 the guaranteed borrowings
amounted to (pound sterling)nil.
There were no other contingent liabilities at 31 March 1999.
12. PENSIONS
Defined contribution scheme
The company operates a defined contribution pension scheme for the benefit
of certain employees and directors. The assets of the scheme are administered by
trustees in a fund independant from those of the company.
13. LEASING COMMITMENTS
Operating lease payments amounting to (pound sterling)227,461 are due
within one year. The leases to which these amounts relate expire as follows:
<TABLE>
<CAPTION>
1999
LAND
AND
BUILDINGS
L
---------
<S> <C>
Between one and five years.................................. 100,000
In five years or more....................................... 127,461
-------
227,461
=======
</TABLE>
F-85
<PAGE> 228
BARTHOLOMEW RHODES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1999 -- (CONTINUED)
14. TRANSACTIONS WITH RELATED PARTIES
During the year the company traded with the following companies, all of
which are controlled and owned in majority/entirety by Dr D J Burston:
Ashbourne Pharmaceuticals Limited:
Sales and purchases were made during the year of (pound sterling)104,114
and (pound sterling)535,937 respectively.
Fixed asset purchases were made during the year of (pound sterling)181,116.
In addition, expenses of (pound sterling)806,030 were recharged from
Ashbourne Pharmaceuticals Limited during the year.
Dallas Burston Investment Properties and Dallas Burton Estates Limited:
Rental payments were made during the year of (pound sterling)119,484.
At the year end the following balances were outstanding with the above
companies:
<TABLE>
<CAPTION>
AMOUNTS RECEIVABLE AMOUNTS PAYABLE
1999 1999
L L
------------------ ---------------
<S> <C> <C>
Ashbourne Pharmaceuticals Limited 2,189 93,240
Dallas Burston Estates Limited 75,010 8,364
Dallas Burston Healthcare Limited 60,000 0
Dallas Burston Investment Properties 0 16,667
</TABLE>
The company also sold motor vehicles to Dr D J Burston during the year for
(pound sterling)101,894 which had a net book value of (pound sterling)104,351.
15. CONTROLLING RELATED PARTY
The ultimate controlling related party of the company is Dr D J Burston as
a result of his interest in the shares of the company.
F-86
<PAGE> 229
ANNEX A
TRANSACTION AGREEMENT
BY AND AMONG
GALEN HOLDINGS PLC
AND
WARNER CHILCOTT PLC
------------------------
MAY 4, 2000
------------------------
<PAGE> 230
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE ACQUISITION, INCLUDING THE SCHEME....................... 2
ARTICLE II ADS EXCHANGE................................................ 6
ARTICLE III OPTIONS AND WARRANTS........................................ 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF WARNER.................... 6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF GALEN..................... 16
ARTICLE VI COVENANTS................................................... 23
ARTICLE VII CONDITIONS.................................................. 31
ARTICLE VIII TERMINATION; AMENDMENTS; WAIVER............................. 34
ARTICLE IX MISCELLANEOUS............................................... 36
ARTICLE X DEFINITIONS................................................. 38
</TABLE>
i
<PAGE> 231
TRANSACTION AGREEMENT
This TRANSACTION AGREEMENT (this "Agreement") dated as of May 4, 2000 is
entered into by Galen Holdings PLC, a Northern Ireland public limited company
("Galen"), and Warner Chilcott, PLC, an Irish public limited company ("Warner").
WHEREAS, the respective Boards of Directors of Galen and Warner have
approved the combination of the businesses of Galen and Warner on the terms and
subject to the conditions set forth in this Agreement and the Scheme; and
WHEREAS, Galen has received executed Employment Agreements in form and
substance satisfactory to Galen;
WHEREAS, such combination is proposed to be effected, subject to the
sanction of the High Court of Ireland (the "Court"), by means of a scheme of
arrangement in substantially the form attached hereto as Exhibit A (the
"Scheme") under Section 201 of the Companies Act, 1963, of Ireland (the "Irish
Companies Act"), whereby (i) all of the ordinary shares of US$0.05 each in the
capital of Warner ("Warner Shares"), excluding any Warner Shares held by or on
behalf of Galen or any Subsidiary of Galen (as more particularly described in
the Scheme, "Scheme Shares"), will be cancelled in consideration for the issue
to the holders of Scheme Shares of a number of new ordinary shares of 10p each
in the capital of Galen ("Galen Shares") determined as set forth herein and (ii)
the reserve arising on cancellation of the Scheme Shares will be applied to pay
up in full an issue of new shares in Warner to Galen, such that Warner will
become a wholly-owned subsidiary of Galen; and it is proposed that, in
conjunction with the Scheme, certain amendments will be made to the Articles of
Association of Warner (the "Amendments") so as to ensure that any Warner Shares
issued after the Effective Time (as defined in the Scheme) other than to Galen
or its nominee will be exchanged for Galen Shares on the same basis as under the
Scheme, and that arrangements will be made under which Options (as defined
herein) may be converted into options to acquire Galen Shares upon the terms and
subject to the conditions set forth herein and in accordance with the relevant
laws;
WHEREAS, Warner has previously (i) deposited Warner Shares with The Bank of
New York (the "Depositary") and (ii) caused the Depositary to issue American
Depositary Shares, each representing one Warner Share (the "Warner ADS's") in
respect thereof; and
WHEREAS, Galen intends to (i) deposit Galen Shares with the Depositary and
(ii) cause the Depositary to issue American Depositary Shares (the "Galen ADSs")
in respect thereof; and
WHEREAS, under the terms of the Scheme, holders of Scheme Shares (including
the Scheme Shares represented by the Warner ADSs) will receive 2.5 Galen Shares
for each Warner Share subject to adjustment as provided by the Scheme (as more
particularly defined in the Scheme the "Per Share Consideration"); and
WHEREAS, the parties intend to enter into arrangements whereby holders of
Warner ADSs representing Scheme Shares will receive Galen ADSs in respect of the
Per Share Consideration for such Scheme Shares; and
WHEREAS, the Boards of Directors of Galen and Warner have approved the
acquisition of Warner by Galen pursuant to the Scheme (the "Acquisition") and
the other transactions contemplated hereby (collectively the "Transactions"), in
accordance with the laws of Ireland ("Irish Law") and upon the terms and subject
to the conditions set forth in this Agreement; and
WHEREAS under the terms of the Scheme all the issued Deferred Shares in the
capital of Warner will be cancelled in consideration of the issue of one new
Galen Share; and
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Warner to enter into this Agreement, certain shareholders of Galen
have entered into shareholder agreements (each, a "Galen Shareholder Agreement")
in the form attached hereto as Annex A, pursuant to which, among other things,
such shareholders have agreed, pursuant to the terms thereof, to support, and
vote their Galen Shares in favor of, the Transactions; and
1
<PAGE> 232
WHEREAS, Galen and Warner desire to make certain representations,
warranties, covenants and agreements in connection with the Transactions and
also to prescribe various conditions to the implementation of the Scheme set
forth herein; and
WHEREAS, for U.S. federal income tax purposes, the parties expect that the
Transactions will qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the U.S. Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, certain capitalized terms used in this Agreement have the meaning
as set forth or referred to in Article X hereof.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Galen
and Warner agree as follows:
ARTICLE I -- THE ACQUISITION, INCLUDING THE SCHEME
SECTION 1.01 Implementation of the Scheme.
(a) Warner and Galen shall take all such steps and actions reasonably
within their respective powers and shall prepare, execute, agree, settle,
publish and/or announce (and use their reasonable best efforts to procure to be
prepared, executed, agreed, settled, published and announced), all such
documents as may be necessary or appropriate for the implementation of the
Scheme and the Transactions in accordance with the terms and conditions of this
Agreement and the requirements of applicable law, the United States Securities
and Exchange Commission ("SEC"), the UK Listing Authority (as hereinafter
defined), the London Stock Exchange ("LSE"), the Nasdaq National Market
("Nasdaq") and the Court. The parties shall respectively use their reasonable
best efforts to cause the Effective Date (as defined in the Scheme) to occur on
or before August 31, 2000. Notwithstanding the foregoing, if the Effective Date
does not occur on or before August 31, 2000, the parties shall use their
respective reasonable best efforts to cause the Effective Date to occur as soon
as practicable thereafter. In any event, the parties shall comply with any time
limits which may be specified in the Final Court Order.
(b) (i) As promptly as practicable after the date of this Agreement, Warner
shall prepare a Proxy Statement (the "Proxy Statement") complying with all
requirements of applicable law, the Court and the SEC and without limitation
containing:
(1) the text of the Scheme;
(2) an explanatory statement in relation to the Scheme as required
by Irish Law;
(3) a notice convening a meeting or meetings of holders of Warner
Shares pursuant to an order of the Court for the purpose of voting on
the Scheme (such meetings, including any adjournment thereof, being the
"Court Meeting");
(4) a notice convening an extraordinary general meeting of Warner
for the purpose of voting on a Special Resolution ("the Warner EGM
Resolution") to approve the reduction and cancellation of capital of
Warner (the "Capital Reduction") and creation and issue of new Warner
Shares to Galen contemplated by the Scheme and the Amendments (such
meeting, including any adjournment thereof, being the "Warner EGM");
(5) such other information as may be required by the SEC, Nasdaq,
the Court or applicable law.
(ii) Warner shall give Galen and its advisers all reasonable
opportunity to review and comment on drafts of and approve the final forms
of drafts, and final forms of all documents to be filed with the Court,
including those documents referred to in paragraph (b)(i) of this Section
1.01, prior to the filing thereof by Warner (such approval not to be
unreasonably withheld or delayed) and will duly take account of any
comments thereon made by Galen and its advisers. Warner shall consult with
Galen regarding the conduct of all court proceedings and shall advise
Galen's counsel of the dates of any hearings.
2
<PAGE> 233
(c) Galen shall be represented in the Court by solicitors or counsel on the
hearing of the Petition and any other hearings, and shall give such
undertakings, subject to the Scheme becoming effective, as are required by the
Court for the purposes of assuring the Court that Galen shall perform those acts
which the Scheme provides that it shall perform.
(d) The Proxy Statement will set forth, and Warner hereby represents, that
the Board of Directors of Warner (the "Warner Board") at a meeting duly called
and held, has (i) determined that the Scheme is fair to and in the best
interests of Warner and Warner Shareholders; and (ii) recommended approval by
Warner Shareholders of the Scheme and the Warner EGM Resolution (such
recommendation to the Warner Shareholders being referred to as the "Warner Board
Recommendation" and references to the Warner Board Recommendation herein to
include, where the context so allows, a recommendation against any proposed
adjournment of the Court Meeting or the Warner EGM other than due to practical
difficulties); provided, however, that the Warner Board recommendation may be
withdrawn, modified or amended to the extent that the Warner Board determines in
good faith, after taking due account of advice from its outside counsel as to
legal matters and from its independent financial adviser as to financial
matters, that its fiduciary duties would be likely to require it to do so.
Warner further represents that Credit Suisse First Boston Corporation ("CSFB")
has delivered to the Warner Board its written opinion to the effect that, as of
the date thereof, the Per Share Consideration to be offered to the holders of
Warner Shares and Warner ADSs (other than Galen and its affiliates) pursuant to
the Scheme is fair to such holders from a financial point of view.
(e) On the terms and subject to the conditions of this Agreement, Warner
shall promptly take or cause to be taken such steps as are within its power and
necessary or reasonably required to implement the Scheme, including the
following:
(i) Warner shall issue proceedings requesting the Court to order that
the Court Meeting be convened;
(ii) upon the giving by the Court of any directions in that respect,
and the Proxy Statement and related forms of proxy for use at the Court
Meeting and the Warner EGM being approved (to the extent required) by the
Court, Warner shall, in accordance with the directions of the Court,
promptly dispatch the Proxy Statement and proxy forms to the Warner
Shareholders and thereafter publish and/or post the requisite
advertisements and such other documents and information as the Court may
approve or direct from time to time in connection with the implementation
of the Scheme in accordance with applicable law;
(iii) (subject to the attendance of a quorum) Warner shall hold the
Court Meeting and the Warner EGM and, provided the necessary resolutions
are duly passed at such meetings (by the requisite votes required under
Section 201(3) of the Irish Companies Act ("Section 201"), in the case of
the Court Meeting) promptly after such vote has been taken present a
petition or petitions (the "Petition") and issue a notice of motion for
directions and file any grounding affidavits required requesting the Court
to issue directions in relation to the date to be fixed for the hearing of
the Petition and for an order of the Court directing the manner of
advertisement of the hearing of the Petition and for such further and other
orders as the Court deems fit. Warner shall as soon as practicable
thereafter proceed with the Petition for the purpose of obtaining an order
or orders of the Court (the "Final Court Order") sanctioning the Scheme and
confirming the Capital Reduction; and
(iv) within three business days after the perfection of the Final
Court Order, Warner shall cause a copy of the Final Court Order and the
minute required by Section 75 of the Irish Companies Act to be duly
delivered to the Registrar of Companies in Ireland and obtain from such
Registrar a certificate of registration in relation to the Capital
Reduction.
(f) Warner hereby represents and warrants to Galen that the Proxy Statement
will comply in all material respects with the provisions of applicable federal
securities laws, and on the date filed with the SEC, on the date first
published, sent or given to Warner's stockholders and on the date of the Warner
EGM, shall not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they
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were made, not misleading (provided that for the purposes of this Agreement
Warner makes no representation or warranty with respect to any information
concerning Galen and its Subsidiaries supplied by Galen for inclusion in the
Proxy Statement). Warner and Galen agree promptly to correct any information
provided by either of them for use in the Proxy Statement if and to the extent
that it shall have become false or misleading, and Warner further agrees to take
all steps necessary to cause the Proxy Statement as so corrected to be filed
with the SEC and to be disseminated to the holders of the Warner Shares, in each
case, as and to the extent required by applicable federal securities law.
(g) As promptly as practicable after the date hereof, Galen and Warner
shall prepare and file with the SEC (i) either a "no action" request letter
seeking an exemption from the registration requirements of the Securities Act
with respect to Galen Shares to be issued under the Scheme or (ii) at Galen's
discretion or in the event that a "no action" request letter is denied or
withdrawn a registration statement meeting, in all material respects, the
requirements of Form F-4 under the Securities Act, in which the Proxy Statement
will be included as part of a proxy statement/prospectus (in substantially the
form mailed to Warner's shareholders, the "PS/P") and in either case any other
documents required or mutually agreed by Galen and Warner to be necessary to
discharge their respective obligations under United States and Irish securities
laws, in connection with the Transactions. Galen hereby represents and warrants
that the PS/P shall not include any untrue statement (provided that for the
purposes of this Agreement Galen makes no representation or warranty with
respect to any information concerning Warner and its subsidiaries supplied by
Warner) of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading. The written statements
supplied by Warner specifically for inclusion in the PS/P shall not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading. Galen and
Warner shall use all commercially reasonable efforts to have such Form F-4
declared effective under the Securities Act as promptly as practicable after
filing. Galen shall also take any action required to be taken under any
applicable provincial or state securities laws (including United States "Blue
Sky" laws) in connection with the issuance of the Galen Shares in the
Acquisition; provided, however, that neither Galen nor Warner shall be required
to register or qualify as a foreign corporation or to take any action that would
subject it to service of process in any jurisdiction where any such entity is
not now so subject.
(h) Each of Warner and Galen shall use its reasonable best efforts to cause
all conditions precedent set forth herein to be fulfilled and to avoid the
occurrence of, or cure, any event which may prevent such conditions precedent
set forth herein from being fulfilled.
SECTION 1.02 Additional Actions and Undertakings.
(a) Galen agrees to be bound by, and allot and issue Galen Shares pursuant
to, the Scheme upon its becoming effective and upon and subject to the terms and
conditions of this Agreement to cooperate fully with Warner in providing such
information and executing such documents and taking such other actions
reasonably within Galen's power as may be necessary or desirable for the purpose
of giving effect to the Scheme.
(b) As promptly as practicable following the date of this Agreement, Galen
shall file with the SEC a registration statement on Form 20-F (the "Registration
Statement") under the U.S. Securities Exchange Act of 1934 (the "Exchange Act").
Galen hereby represents and warrants to Warner that the Registration Statement
and all information concerning Galen and its Subsidiaries supplied by Galen for
inclusion in the Proxy Statement will comply in all material respects with the
provisions of applicable federal securities laws, and on the date filed with the
SEC, on the date first published, sent or given to Warner Shareholders, shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading (provided that for the purposes of this Agreement Galen
makes no representation or warranty with respect to any information concerning
Warner and its Subsidiaries supplied by Warner for inclusion in the Registration
Statement). Each of Galen and Warner agrees promptly to correct any information
provided by it for use in the Proxy Statement or the Registration Statement, if
and to the extent that it shall have become false or misleading in any material
respect and Galen further agrees to take all steps
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necessary to cause the Registration Statement as so corrected to be filed with
the SEC, in each case, as and to the extent required by applicable federal
securities laws.
(c) Galen shall, as soon as practicable after the date of this Agreement
and in accordance with applicable law and regulations, including without
limitation the listing rules made pursuant to the Financial Services Act 1986
(the "Listing Rules"):
(i) duly convene and hold an extraordinary general meeting (such
meeting, including any adjournment thereof, being the "Galen Meeting") of
holders of Galen Shares (the "Galen Shareholders"), for the purpose of
considering and voting upon (among other things) an ordinary resolution to
(A) approve this Agreement and the Transactions; (B) increase the
authorized share capital of Galen to create additional Galen Shares; and
(C) authorize the directors of Galen to allot Galen Shares pursuant to the
Scheme and the Transactions and to take such other actions, if any, as may
be necessary to give effect to this Agreement, the Scheme and the
Transactions (the passing of such a resolution by a majority of the votes
cast at the Galen Meeting being referred to in this Agreement as the "Galen
Shareholder Approval");
(ii) prepare and submit to the competent authority for listing in the
United Kingdom for purposes of Part IV of the Financial Services Act 1986
(the "UK Listing Authority" or "UKLA") for approval a document or documents
comprising (A) a class one circular to Galen Shareholders (or such other
document as may be required by the UKLA), including a notice convening the
Galen Meeting and (B) listing particulars in respect of the new Galen
Shares to be issued pursuant to the Scheme, in each case containing all
information required by applicable law and the Listing Rules (such document
or documents collectively the "Listing Particulars");
(iii) give Warner and its advisers all reasonable opportunity to
review and comment on drafts of the Listing Particulars before such drafts
are submitted to the UKLA, duly take account of any comments made thereon
in relation to information on Warner and in relation to the Transactions
and, to the extent reasonably practicable, provide copies of comments from
the UKLA thereon to Warner and its advisers as soon as practicable after
the same are received;
(iv) subject to final approval by the UKLA, procure that the Listing
Particulars are duly delivered to the Registrar of Companies in Northern
Ireland, published in accordance with applicable law and the Listing Rules
and dispatched to Galen Shareholders in a manner sufficient to give lawful
notice of the Galen Meeting;
(v) apply for admission of the Galen Shares to be issued pursuant to
the Transactions to trading on the LSE in accordance with the LSE's
Admission and Disclosure Standards for Listed Companies, or other relevant
requirements, as applicable.
Without prejudice to any right it may have to terminate this Agreement, Galen
shall, if necessary under applicable law and the Listing Rules, promptly publish
supplementary Listing Particulars and, if required by the UKLA or the LSE or
applicable law, re-solicit votes of Galen Shareholders in support of the
Transactions. The provisions of paragraphs (c)(ii) to (iv) above shall apply in
the same manner in relation to any supplementary listing particulars and for
purposes of this Agreement references to the Listing Particulars shall where
appropriate include any such supplementary listing particulars.
(d) Galen shall include in the Listing Particulars the recommendation of
the Board of Directors of Galen (the "Galen Board") to Galen Shareholders to
vote in favor of the resolutions to be proposed at the Galen Meeting referred to
in Section 1.02(c)(i) (such recommendation to the Galen Shareholders being
referred to as the "Galen Board Recommendation" and references to the Galen
Board Recommendation herein to include, where the context so allows, a
recommendation against any proposed adjournment of the Court Meeting or the
Galen EGM other than due to practical difficulties); provided, however, that
such recommendation may be withdrawn, modified or amended to the extent the
Galen Board determines, in good faith, after taking due account of advice from
its outside counsel as to legal matters and from its independent financial
advisers as to financial matters, that its fiduciary duties would be likely to
require it to do so.
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(e) Warner shall cooperate with Galen in the preparation of the Listing
Particulars and provide in a timely manner such information about Warner and its
subsidiaries and the directors, employees, business, prospects and finances
thereof as may be necessary or reasonably requested in connection therewith.
ARTICLE II -- ADS EXCHANGE
Prior to the posting of the Proxy Statement to Warner Shareholders, Warner and
Galen shall, so far as lies within their respective powers, take such actions
and enter into such agreements or arrangements with the Depositary, on terms
reasonably satisfactory to Warner and Galen, as may be necessary or appropriate
to provide for holders of Warner ADSs to receive (at no additional cost to such
holders) whole Galen ADSs representing (as nearly as practicable) the number of
Galen Shares comprised in the consideration received by the Depositary in
respect of the Scheme Shares represented by their Warner ADSs in accordance with
reasonable and customary exchange procedures for securities traded on Nasdaq.
ARTICLE III -- OPTIONS AND WARRANTS
SECTION 3.01. Warner and Galen shall use their respective reasonable best
efforts to implement arrangements whereby each and every option and warrant to
purchase Warner Shares granted under the Warner Option Plan or pursuant to any
other arrangement adopted by the Warner Board to provide options, warrants or
other rights to acquire share capital of Warner (in any such case an "Option")
which is outstanding prior to the Effective Time shall be adjusted or otherwise
modified so as to become, with effect from the Effective Time, an option,
warrant or other such right as aforesaid to acquire such number of Galen Shares
(a "Substitute Option") at such exercise price per Galen Share as shall be
determined by applying the following formulae:
Every one Warner share subject to an Option immediately prior to the
Effective Time shall be multiplied by the Per Share Consideration (rounded down
to the nearest whole number, if necessary) and the exercise price per Warner
Share immediately prior to the Effective Time shall be divided by the Per Share
Consideration (rounded up to the nearest cent) and except as provided above in
this Section 3.01, each Substitute Option shall after the Effective Time
continue to be subject to the provisions of the Warner Option Plan and shall be
exercisable upon the same terms and conditions as were applicable under the
Warner Option Plan immediately prior to the Effective Time. It is the intention
of the parties that the above formulae shall be applied in a manner consistent
with Section 424(a) of the Code. Galen shall take all corporate action necessary
to reserve for issuance a sufficient number of Galen Shares for delivery upon
exercise of Substitute Options. Promptly following the Effective Time, Galen
shall file a registration statement on Form S-8 or another appropriate form with
respect to the Galen Shares subject to such options and shall use its reasonable
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
With respect to those individuals who subsequent to the Transactions will be
subject to the reporting requirements under Section 16(a) of the Exchange Act,
where applicable, to the extent that the arrangements referred to in Section
3.01 are implemented Galen shall cause its Board of Directors to specifically
approve the transactions in this Article III and shall administer options in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act to the
extent the Warner Option Plan complied with such rule prior to the Transactions.
SECTION 3.02. Warner shall procure that no amendments shall be made to the
Warner Option Plan other than as reasonably necessary to effect the provisions
of Section 3.01 above.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF WARNER
Except as disclosed in the letter delivered to Galen concurrently herewith
and designated therein as the Warner Disclosure Letter (the "Warner Disclosure
Letter"), in each case with specific reference to the
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Section to which exception is taken, and except as disclosed in the Warner SEC
Documents, Warner hereby represents and warrants to Galen as follows:
SECTION 4.01 Corporate Organization.
(a) Warner is a public limited company duly incorporated and validly
existing under the laws of Ireland. Warner has the corporate power and authority
to own or lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have or is not likely to have with due regard to
all circumstances a Material Adverse Effect on Warner. As used in this
Agreement, the term "Material Adverse Effect" means, with respect to Galen or
Warner, as the case may be, a material adverse effect on (i) the business,
operations, results of operations or financial condition of such party and its
Subsidiaries taken as a whole or (ii) the ability of such party to consummate
the transactions contemplated hereby. As used in this Agreement, the word
"Subsidiary" means any corporation, partnership, limited liability company,
joint venture or other legal entity of which Galen or Warner, as the case may be
(either alone or through or together with any other Subsidiary), (A) owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation, partnership, limited
liability company, joint venture or other legal entity, (B) is a general
partner, trustee or other entity or person performing similar functions or (C)
has control (as defined in Rule 405 under the Securities Act). For all purposes
of this Agreement, a "wholly-owned Subsidiary" shall be deemed to include those
entities which, for regulatory or other local law purposes, have issued nominal
ownership interests to persons other than Warner or Galen or their respective
Subsidiaries. True and complete copies of the Memorandum and Articles of
Association (the "Warner Memorandum and Articles") of Warner, as in effect as of
the date of this Agreement, have previously been made available by Warner to
Galen.
(b) The only Subsidiaries of Warner are those listed in Section 4.01(b) of
the Warner Disclosure Letter. Each Warner Subsidiary (i) is duly organized and
validly existing under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing (where applicable) in all
jurisdictions (whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have or be likely to
have a Material Adverse Effect on Warner and (iii) has all requisite corporate
power and authority to own or lease its properties and assets and to carry on
its business as now conducted.
(c) Save as disclosed in Section 4.01(c) of the Warner Disclosure Letter
the minute books of Warner are fully up-to-date and accurately reflect in all
material respects all material corporate actions held or taken since January 1,
1999 of its shareholders and Board of Directors (including committees of the
Board of Directors of Warner).
SECTION 4.02 Capitalization.
(a) The authorized share capital of Warner consists of 50,000,000 shares of
Warner Shares, of which, as of April 30, 2000, 12,391,827 shares were issued and
outstanding and (ii) 30,000 Deferred Shares, par value one Irish punt per share,
of Warner (the "Warner Deferred Shares"), all of which, as of April 30, 2000,
were designated, issued and outstanding. All of the issued and outstanding
Warner Shares have been duly authorized and validly issued and are fully paid,
non-assessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of April 30, 2000, except pursuant to the
terms of options issued pursuant to the Warner Incentive Share Option Scheme
(the "Warner Option Plan") and Options and Warrants listed in Section 4.02 of
the Warner Disclosure Letter, Warner does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase, transfer, sale or issuance of any
Warner Shares or any other equity securities of Warner or any securities
representing the right to purchase or otherwise receive any Warner Shares or
Warner Deferred Shares. As of April 30, 2000, no Warner Shares are reserved for
issuance, except for 1,573,707 Warner Shares reserved for issuance upon exercise
of share options granted pursuant to the Warner Option Plan (the "Warner Stock
Options") and the 2,619,023 Warner Shares reserved for issuance under the
Warrants
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described in Section 4.02 of the Warner Disclosure Letter. Save as referred to
in Section 4.02 of the Warner Disclosure Letter since December 31, 1999, Warner
has not issued any shares in its capital or any securities convertible into or
exercisable for any shares in its capital, other than pursuant to the exercise
of Warner Stock Options granted prior to such date.
(b) Warner owns, directly or indirectly, all of the issued and outstanding
shares in its capital or other equity ownership interests of each of the Warner
Subsidiaries as set forth in Section 4.02(b) of the Warner Disclosure Letter,
free and clear of any Liens other than as set forth in Section 4.02(b) of the
Warner Disclosure Letter, and all of such shares or equity ownership interests
are duly authorized and validly issued and are fully paid, non-assessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof. No Warner Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares in its capital or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares in its capital or any other equity security of
such Subsidiary.
SECTION 4.03 Authority; No Violation.
(a) Subject to passing of the resolutions to be proposed at the Court
Meeting and the Warner EGM and to the issue of the Final Court Order and
registration thereof by the Registrar of Companies in Ireland, Warner has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby, and no other corporate
proceedings on the part of Warner are necessary to approve and adopt this
Agreement and to consummate the transactions contemplated hereby. Without
prejudice to any other provisions of this Agreement, the consummation of the
transactions contemplated hereby has been duly and validly approved and declared
advisable by the Warner Board. This Agreement has been duly and validly executed
and delivered by Warner and (assuming due authorization, execution and delivery
by Galen of this Agreement) constitutes a valid and binding obligation of
Warner, enforceable against Warner in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by Warner nor the
consummation by Warner of the transactions contemplated hereby, nor compliance
by Warner with any of the terms or provisions hereof, will (i) violate any
provision of the Warner Memorandum and Articles or similar bylaw/organizational
documents of its Subsidiaries or (ii) assuming that the consents and approvals,
filings or waiting times referred to in Section 4.04 are duly obtained, made or
elapsed respectively (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Warner or any of its
Subsidiaries or any of their respective properties or assets, or (y) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Warner or any of its Subsidiaries under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture or other agreement,
instrument for borrowed money, any guarantee of any agreement or instrument for
borrowed money or any license, lease or any other agreement or instrument
("Material Agreement") to which Warner or any of its Subsidiaries is a party, or
by which they or any of their respective properties or assets may be bound or
affected, except (in the case of clause (y) above) for such violations,
conflicts, breaches or defaults which, either individually or in the aggregate,
will not have and is not likely to have a Material Adverse Effect on Warner.
SECTION 4.04 Consents and Approvals. Except (i) in connection, or in
compliance, with the provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) for the filing of any required
applications or notices with any state or foreign agencies and approval of such
applications and notices (the "State and Foreign Approvals"), (iii) in
connection with applicable requirements of the Mergers Act, (iv) for such
filings and approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states or Nasdaq in connection with the
issuance or listing of the shares of Galen Shares pursuant to this Agreement,
(v) for the approval of this Agreement by the requisite vote of the shareholders
of Galen, (vi) in connection, or in compliance, with the Securities Act or
Exchange Act, and (vii) the passing of the resolutions to be proposed at the
Court Meeting and the Warner EGM and
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the issue of the Final Court Order and registration thereof by the Registrar of
Companies in Ireland, no consents or approvals of or filings or registrations
with any court, administrative agency or commission or other governmental
authority or instrumentality (each a "Governmental Entity") or with any third
party are necessary in connection with (A) the execution and delivery by Warner
of this Agreement and (B) the consummation by Warner of the Transaction and the
other transactions contemplated by this Agreement, failure at which to make or
obtain could not reasonably be expected to have a Material Adverse Effect on
Warner or impair or delay the ability of either party to consummate the
Transactions contemplated hereby.
SECTION 4.05 SEC Documents and Other Reports. Warner has filed all
required documents with the SEC since January 1, 1999 (the "Warner SEC
Documents"). As of their respective dates, the Warner SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and, at the respective times they were filed,
none of the Warner SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The consolidated financial
statements (including, in each case, any notes thereto) of Warner included in
the Warner SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto as of their respective dates of filing, were
prepared in accordance with generally accepted accounting principles "U.S.
GAAP") (except, in the case of the unaudited statements, as permitted by
Regulation S-X) applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto) and fairly
presented in all material respects the consolidated financial position of Warner
and its consolidated Subsidiaries as of the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
Except as disclosed in the Warner SEC Documents or as required by U.S. GAAP,
Warner has not, since December 31, 1999, made any change in the accounting
practices or policies applied in the preparation of its financial statements.
SECTION 4.06 Registration Statement; Listing Particulars
(a) None of the information supplied or to be supplied by Warner for
inclusion or incorporation by reference in the Registration Statement at the
time it becomes effective under the Exchange Act, or the Registration Statement
on Form F-4 (if filed) at the time it becomes effective under the Securities
Act, will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
(b) All the information supplied or to be supplied by Warner for inclusion
in the Listing Particulars (and any supplementary listing particulars required
to be published) on the date the Listing Particulars (or, if applicable,
supplementary listing particulars) are first mailed to shareholders of Galen and
at the time of the Galen Meeting to vote on the approval of the Transactions
will be true and accurate in all material respects, will not be misleading in
any material respect, and will not omit any information known or which could on
reasonable enquiry have been known to the directors of Warner the omission of
which would make them misleading in any material respect.
SECTION 4.07 Absence of Certain Changes or Events. Except as disclosed in
the Warner SEC Documents filed prior to the date of this Agreement or in Section
4.07 of the Warner Disclosure Letter and except for the Transactions, since
December 31, 1999, (A) Warner and its Subsidiaries have not incurred any
material liability or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not in
the ordinary course of business or that would have a Material Adverse Effect on
Warner, (B) Warner and its Subsidiaries have not sustained any loss or
interference with their business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had or
that would have or is likely to have a Material Adverse Effect on Warner, (C)
there has been no change in the capital stock of Warner and no dividend or
distribution of any kind declared, paid or made by Warner on any class of its
stock, (D) there has not been (y) any granting by Warner or any of its
Subsidiaries to any executive officer or material modification of any severance
or termination benefits or (z) any entry or purported entry by Warner or any of
its Subsidiaries into or material
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modification of any employment, severance or termination agreement with any such
executive officer, (E) Warner and its Subsidiaries have not prepared or filed
any Tax Return (as defined in Section 4.09) inconsistent in any material respect
with past practice or, on any such Tax Return, taken any position, made any
election, or adopted any method that is inconsistent with positions taken,
elections made or methods used in preparing or filing similar Tax Returns in
prior periods, and (F) there has been no other event causing a Material Adverse
Effect on Warner, nor any development that would, individually or in the
aggregate, have or be likely to have a Material Adverse Effect on Warner. Set
forth in Section 4.07 of the Warner Disclosure Letter is a description of any
material changes, between December 31, 1999 and the date of this Agreement
(excluding any intervening fluctuations between such dates), to the amount and
terms of the indebtedness of Warner and its Subsidiaries as described in
Warner's Annual Report on Form 10-K for the year ended December 31, 1999, as
filed with the SEC (other than any changes in, or the incurrence of,
indebtedness of Warner or any of its Subsidiaries with a principal amount not in
excess of US$1,000,000).
SECTION 4.08 Permits and Compliance. Each of Warner and its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
charters, easements, variances, exceptions, consents, certificates, approvals
and orders of any Governmental Entity (collectively, "Permits") necessary for
Warner or any of its Subsidiaries to own, lease and operate its properties or to
carry on its business as it is now being conducted (the "Warner Permits"),
except where the failure to have any of the Warner Permits would not,
individually or in the aggregate, have or be likely to have a Material Adverse
Effect on Warner, and, as of the date of this Agreement, no suspension or
cancellation of any of the Warner Permits is pending or, to the Knowledge of
Warner, threatened, except where the suspension or cancellation of any of the
Warner Permits, individually or in the aggregate, would not have or be likely to
have a Material Adverse Effect on Warner. Neither Warner nor any of its
Subsidiaries is in violation of (i) its charter, by-laws or equivalent
documents, (ii) any applicable law, ordinance, administrative or governmental
rule or regulation or (iii) any order, decree or judgment of any Governmental
Entity having jurisdiction over Warner or any of its Subsidiaries, except, in
the case of clauses (i), (ii) and (iii), for any violations that, individually
or in the aggregate, would not have or be likely to have a Material Adverse
Effect on Warner. "Knowledge of Warner" means the knowledge (after reasonable
investigation) of Roger Boissoneault, Paul Herendeen, Beth Hecht or Norma
Enders.
SECTION 4.09 Tax Matters. Except as otherwise set forth in Section 4.09
of the Warner Disclosure Letter, (i) Warner and each of its Subsidiaries have
filed all federal, and all material state, local, foreign and provincial, Tax
Returns required to have been filed or appropriate extensions therefor have been
properly obtained, and to the Knowledge of Warner such Tax Returns are correct
and complete, except to the extent that any failure to so file or any failure to
be correct and complete, individually or in the aggregate, would not have or be
likely to have a Material Adverse Effect on Warner; (ii) all Taxes shown to be
due on such Tax Returns have been timely paid or extensions for payment have
been properly obtained, or such Taxes are being timely and properly contested
and any such contests do not contemplate payment of Taxes in excess of
US$100,000 (in aggregate), (iii) Warner and each of its Subsidiaries have
complied in all material respects with all rules and regulations relating to the
withholding of Taxes except to the extent that any failure to comply with such
rules and regulations, individually or in the aggregate, would not have or be
likely to have a Material Adverse Effect on Warner; (iv) neither Warner nor any
of its Subsidiaries has waived any statute of limitations in respect of its
Taxes which waiver is currently in effect; (v) no issues have been raised in
writing by the relevant taxing authority in connection with the examination of
the Tax Returns referred to in clause (i) are currently pending; and (vi) all
deficiencies asserted or assessments made as a result of any examination of such
Tax Returns by any taxing authority have been paid in full. To the Knowledge of
Warner, the representations set forth in the proposed form of the Warner tax
certificate provided by Warner to Galen, if made on the date hereof (assuming
the Acquisition were consummated on the date hereof), would be true and correct.
Warner has not been a United States real property holding corporation within the
meaning of Code Section 897(c)(2) during the applicable period (relative to the
Closing) specified in Code Section 897(c)(1)(A)(ii). For purposes of this
Agreement, "Tax Return" means any return, report or similar statement (including
the attached schedules) required to be filed with respect to any Tax, including
any information return, claim for refund, amended return or declaration of
estimated Tax.
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SECTION 4.10 Actions and Proceedings. Except as set forth in the Warner
SEC Documents filed prior to the date of this Agreement, there are no
outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving Warner or any of its Subsidiaries, or
against or involving any of the directors, officers or employees of Warner or
any of its Subsidiaries, as such, any of its or their properties, assets or
business or any Warner Plan that, individually or in the aggregate, would have
or be likely to have a Material Adverse Effect on Warner. Except as set forth in
Section 4.10 of the Warner Disclosure Letter, as of the date of this Agreement,
there are no actions, suits or claims or legal, administrative or arbitrative
proceedings or investigations pending or, to the Knowledge of Warner, threatened
against or involving Warner or any of its Subsidiaries or any of its or their
directors, officers or employees as such, or any of its or their properties,
assets or business or any Warner Plan that, individually or in the aggregate,
would have or be likely to have a Material Adverse Effect on Warner. There are
no actions, suits, labor disputes or other litigation, legal or administrative
proceedings or governmental investigations pending or, to the Knowledge of
Warner, threatened against or affecting Warner or any of its Subsidiaries or any
of its or their officers, directors or employees, as such, or any of its or
their properties, assets or business relating to the transactions contemplated
by this Agreement which would have a Material Adverse Effect on Warner.
SECTION 4.11 Certain Agreements. Except as set forth in Section 4.11 of
the Warner Disclosure Letter: (i) neither Warner nor any of its Subsidiaries is
a party to any oral or written agreement or plan, including any employment
agreement, severance agreement, retention agreement, stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, the vesting of the benefits of which
will be accelerated, or which will become payable or which at the participant's
or holder's option may become payable, due to or by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will, or may at the option of the holder or participant, be calculated
on the basis of any of the transactions contemplated by this Agreement; and (ii)
no holder of any option to purchase Warner Shares, or Warner Shares granted in
connection with the performance of services for Warner or its Subsidiaries, is
or will be entitled to receive cash from Warner or any Subsidiary in lieu of or
in exchange for such option or shares as a result of the transactions
contemplated by this Agreement.
SECTION 4.12 ERISA.
(a) Section 4.12(a)(X) of Warner Disclosure Letter contains a list of each
Warner Plan. With respect to each Warner Plan, Warner has made available to
Galen a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the IRS, (ii) such Warner Plan and all amendments thereto, (iii) each
trust agreement, insurance contract or administration agreement relating to such
Warner Plan, (iv) the most recent summary plan description for each Warner Plan
for which a summary plan description is required, (v) the most recent actuarial
report or valuation relating to a Warner Plan subject to Title IV of the
Employee Retirement Income Security Act of 1974 and the regulations promulgated
thereunder ("ERISA"), (vi) the most recent determination letter, if any, issued
by the IRS with respect to any Warner Plan intended to be qualified under
Section 401(a) of the Code, (vii) any request for a determination currently
pending before the IRS and (viii) all correspondence with the IRS, the
Department of Labor or the Pension Benefit Guaranty Corporation relating to any
outstanding controversy. Each Warner Plan complies with ERISA, the Code and all
other applicable statutes and governmental rules and regulations, except any
failure to comply as would not have or be likely to have, individually or in the
aggregate, a Material Adverse Effect on Warner. Except as set forth in Section
2.12(a)(Y) of the Warner Disclosure Letter, (i) no "reportable event" (within
the meaning of Section 4043 of ERISA) has occurred within the past three years
with respect to any Warner Plan which could result in liability to Warner, (ii)
neither Warner nor any of its ERISA Affiliates (as hereinafter defined) has
withdrawn from any Warner Multiemployer Plan (as hereinafter defined) at any
time or instituted, or is currently considering taking, any action to do so, and
(iii) no action has been taken, or is currently being considered, to terminate
any Warner Plan subject to Title IV of ERISA.
(b) There has been no failure to make any contribution or pay any amount
due to any Warner Plan as required by Section 412 of the Code, Section 302 of
ERISA, or the terms of any such Plan, and no Warner Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived.
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(c) With respect to Warner Plans, no event has occurred and, to the
Knowledge of Warner, there exists no condition or set of circumstances in
connection with which Warner or any of its ERISA Affiliates would be subject to
any liability under the terms of such Warner Plans, ERISA, the Code or any other
applicable law which has had, or would have or be likely to have, individually
or in the aggregate, a Material Adverse Effect on Warner. Except as listed on
Section 2.12(c) of the Warner Disclosure Letter, all Warner Plans that are
intended to be qualified under Section 401(a) of the Code have been determined
by the IRS to be so qualified, or a timely application for such determination is
now pending or will be filed on a timely basis and, except as listed on Section
2.12(c) of the Warner Disclosure Letter, to the Knowledge of Warner there is no
reason why any Warner Plan is not so qualified in operation. Neither Warner nor
any of its ERISA Affiliates has been notified by any Warner Multiemployer Plan
that such Warner Multiemployer Plan is currently in reorganization or insolvency
under and within the meaning of Section 4241 or 4245 of ERISA or that such
Warner Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA. To the Knowledge of Warner, neither the termination of
any Warner Multiemployer Plan nor the complete or partial withdrawal by Warner
or any of its ERISA Affiliates from any Warner Multiemployer Plan would result
in any liability of Warner or any of its ERISA Affiliates that would have or be
likely to have, individually or in the aggregate, a Material Adverse Effect on
Warner. Except as set forth in Section 2.12(c) of the Warner Disclosure Letter,
neither Warner nor any of its ERISA Affiliates has any liability or obligation
under any welfare plan to provide life insurance or medical benefits after
termination of employment to any employee or dependent other than as required by
(i) Part 6 of Title I of ERISA or (ii) the laws of a jurisdiction outside the
United States.
(d) As used in this Agreement, (i) "Warner Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Warner Multiemployer Plan (as
hereinafter defined))), "Welfare Plan" means a welfare plan as defined in
Section 3(1) of ERISA, or any material bonus, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, vacation, severance, death benefit, insurance or other
plan, arrangement or understanding, in each case established or maintained or
contributed to by Warner or any of its ERISA Affiliates or as to which Warner or
any of its ERISA Affiliates or otherwise may have any liability, whether or not
covered by ERISA (other than a Warner Ex-U.S. Pension Plan (as hereinafter
defined)), (ii) "Warner Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which Warner or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may have any
liability, and (iii) with respect to any person, "ERISA Affiliate" means any
corporation or trade or business (whether or not incorporated) which is under
common control, or otherwise would be considered a single employer with such
person pursuant to Section 414(b), (c), (m) or (o) of the Code and the
regulations promulgated thereunder or pursuant to Section 4001(b) of ERISA and
the regulations promulgated thereunder.
(e) Section 4.12(e) of the Warner Disclosure Letter contains a list of each
Warner Ex-U.S. Pension Plan (as hereinafter defined) and Warner has provided to
Galen a copy of any written plan document. Except as would not have, nor be
likely to have, individually or in the aggregate, a Material Adverse Effect on
Warner, each such plan has been maintained in compliance with all applicable
laws, orders and regulations, and the fair market value of the assets of each
such plan which is intended to be a funded Warner Ex-U.S. Pension Plan or
arrangement equals or exceeds the value of the accrued benefits. As used in this
Agreement, the term "Warner Ex-U.S. Pension Plan" shall mean any arrangement
(other than a Warner Plan) providing retirement pension benefits that is
established or maintained by Warner or any Subsidiary for the benefit of
employees who are or were employed outside the United States.
(f) Section 4.12(f) of the Warner Disclosure Letter contains a list, as of
the date of this Agreement, of all (i) severance and employment agreements with
officers of Warner and each ERISA Affiliate, (ii) severance programs and
policies of Warner with or relating to its employees and (iii) plans, programs,
agreements and other arrangements of Warner with or relating to its employees
which contain change of control or similar provisions, in each case involving a
severance or employment agreement or arrangement with an individual officer or
employee, only to the extent such agreement or arrangement provides for minimum
annual payments in excess of US$100,000. Warner has provided to Galen a true and
complete copy of each of the foregoing.
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SECTION 4.13 Labor Matters. Except as disclosed in Section 4.13 of the
Warner Disclosure Letter, neither Warner nor any of its Subsidiaries is party to
any collective bargaining agreement or other labor agreement with any union or
labor organization and no union or labor organization has been recognized by
Warner or any of its Subsidiaries as an exclusive bargaining representative for
employees of Warner or any of its Subsidiaries. Neither Warner nor any of its
Subsidiaries is the subject of any material proceeding asserting that it or any
of its Subsidiaries has committed an unfair labor practice or is seeking to
compel it to bargain with any labor union or labor organization nor is there
pending or, to the Knowledge of Warner, threatened, nor has there been for the
past three years, any labor strike, dispute, walkout, work stoppage, slow-down
or lockout involving it or any of its Subsidiaries, except in each case as would
not, individually or in the aggregate, have or be likely to have a Material
Adverse Effect on Warner.
SECTION 4.14 Intellectual Property. Except as set forth in Section 4.14
of the Warner Disclosure Letter, Warner and its Subsidiaries own or have a
valid, enforceable right to use free from any encumbrances, other than those
that would not have or be likely to have a Material Adverse Effect on Warner,
all patents, patent applications, patent disclosure, patent rights, trademarks,
trade names, service marks, trade secrets, trade dress, corporate names, logos
and slogans (and all translations, adaptations, derivations and combinations of
the foregoing), design rights, database rights, copyrights, inventions,
know-how, confidential information processes, procedures, customer and supplier
lists, computer data, databases, documentation and software (including but not
limited to source code and executable code), domain names, applications for
registration or registrations of any of the foregoing and other proprietary
intellectual property rights (collectively, "Intellectual Property Rights")
necessary to conduct the business of Warner and its Subsidiaries, taken as a
whole, except where the failure to have such Intellectual Property Rights,
individually or in the aggregate, would not have or be likely to have a Material
Adverse Effect on Warner. Except as set forth in Section 4.14 of the Warner
Disclosure Letter, neither Warner nor any of its Subsidiaries has infringed any
Intellectual Property Rights of any third party other than any infringements
that, individually or in the aggregate, would not have a or be likely to have
Material Adverse Effect on Warner. Neither Warner nor its Subsidiaries are aware
of any infringement or misappropriation by any person with respect to the
Intellectual Property Rights owned or used by Warner or its Subsidiaries other
than any such infringement or misappropriation that would not have or be likely
to have a Material Adverse Effect on Warner. All Intellectual Property Rights
owned or used by Warner or its Subsidiaries as of the date hereof will be owned
or available for use by Warner and its Subsidiaries on terms and conditions
immediately following the Effective Date that are not materially different from
those existing prior to the Effective Date.
SECTION 4.15 Environmental and Safety Matters.
(a) Except as set forth in Section 4.15 of the Warner Disclosure Letter,
the operations of Warner and Subsidiaries have complied and are in compliance
with all applicable federal, state, local, regional and foreign laws, rules and
regulations, orders, decrees, common law, judgments, permits and licenses
relating to public and worker health and safety (collectively, "Worker Safety
Laws") and relating to the protection, regulation or clean-up of the indoor and
outdoor environment and activities or conditions related thereto, including,
without limitation, those relating to the generation, handling, disposal,
transportation or release of hazardous or toxic materials, substances, wastes,
pollutants and contaminants including, without limitation, asbestos, petroleum,
radon and polychlorinated biphenyls (collectively, "Environmental Laws"), except
for any violations that, individually or in the aggregate, have not had, and
would not have, a Material Adverse Effect on Warner. To the best of Warner's
Knowledge with respect to properties and assets of Warner including any
previously owned, leased or operated properties or assets, there are no past,
present or reasonably anticipated future events, conditions, circumstances,
activities, practices, incidents, actions or plans of Warner or any of its
predecessors or Subsidiaries that would interfere with or prevent compliance or
continued compliance with or give rise to any liabilities or investigatory,
corrective or remedial obligations under applicable Worker Safety Laws or
Environmental Laws, other than any such interference, prevention, liability or
obligation that, individually or in the aggregate, has not had, and would not
have, a Material Adverse Effect on Warner.
(b) Except as set forth in Section 4.15 of the Warner Disclosure Letter,
Warner and its Subsidiaries have not caused or permitted so far as Warner is
aware any property or asset including any previously owned property or asset, to
use, generate, manufacture, refine, transport, treat, store, handle, dispose,
transfer or
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process hazardous or toxic materials, substances, wastes, pollutants or
contaminants, except in material compliance with all Environmental Laws and
Worker Safety Laws, other than any such activity that, individually or in the
aggregate, has not had, and would not have, a Material Adverse Effect on Warner.
Warner and its Subsidiaries have not reported to any Governmental Entity, or
been notified by any Governmental Entity of the existence of, any material
violation of an Environmental Law or any release, discharge or emission of any
hazardous or toxic materials, substances, wastes, pollutants or contaminants,
other than any such violation, release, discharge or emission that, individually
or in the aggregate, has not had, and would not have, a Material Adverse Effect
on Warner.
(c) With respect to Warner, neither this Agreement nor the consummation of
the transactions that are the subject of this Agreement will result in any
obligations for transfer of permits under Environment Laws or Worker Safety Laws
site investigation or cleanup, or notification to or consent of any Governmental
Entity or third party, pursuant to any transfer of permits under Environment
Laws or Workers Safety Laws Environmental Laws or contract, other than any such
obligations that, individually or in the aggregate, would not have a Material
Adverse Effect on Warner.
(d) This Section sets forth the sole representations and warranties of
Warner with respect to all matters arising under Environmental Laws and Worker
Safety Laws.
SECTION 4.16 Insurance. Warner and its Subsidiaries have in effect
insurance coverage with reputable insurers, which in respect of amounts,
premiums, types and risks insured, constitutes reasonably adequate coverage
against all risks customarily insured against by companies of comparable size
and with similar operations.
SECTION 4.17 Opinion of Financial Advisor. Warner has received the
written opinion of CSFB to the effect that, as of the date thereof, the
consideration to be offered to the holders of Warner Shares and Warner ADSs
(other than Galen and its affiliates) pursuant to the Scheme is fair to such
holders from a financial point of view, a copy of which opinion has been
delivered to Galen.
SECTION 4.18 Broker's Fees. Except as set forth in the engagement letter
agreement between Warner and CSFB, a true and complete copy of which has
previously been provided to Galen, neither Warner nor any Warner Subsidiary nor
any of their respective officers or directors has employed any broker or finder
or incurred any liability for any broker's fees, commissions or finder's fees in
connection with the Transactions or related transactions contemplated by this
Agreement.
SECTION 4.19 Real Property.
(a) Section 4.19(a) of the Warner Disclosure Letter lists each material
parcel of real property owned by Warner or any of its Subsidiaries (the "Warner
Owned Property"). Warner or its applicable Subsidiary has good and marketable
fee simple title in and to all of the Warner Owned Property, subject to no Liens
that would have a Material Adverse Effect on Warner or materially impair
Warner's rights to or ability to use any such property, except as described on
Section 4.19(a) of the Warner Disclosure Letter ("Permitted Liens"). Except as
set forth in Schedule 4.19(a) of the Warner Disclosure Letter, (i) Warner or any
of its Subsidiaries has not leased or otherwise granted to any Person the right
to use or occupy such Warner Owned Property or any portion thereof; (ii) other
than the right of Galen pursuant to this Agreement, there are no outstanding
options, rights of first offer or rights of first refusal to purchase such
Warner Owned Property or any portion thereof or interest therein, and (iii)
Warner or Subsidiary is not a party to any agreement or option to purchase any
real property or interest therein relating to the business of Warner.
The term "Permitted Liens" shall mean with respect to each owned real
property and leased property of either Warner or Galen ("Real Property"): (A)
real estate taxes, assessments and other governmental levies, fees or charges
imposed with respect to such Real Property which are not due and payable as of
the Effective Time or which are being contested by appropriate proceedings; (B)
mechanics liens and similar liens for labor, materials or supplies provided with
respect to such Real Property incurred in the ordinary course of business for
amounts which are not delinquent and which would not, individually or in the
aggregate, have a material adverse effect on the business or which are being
contested by appropriate proceedings; (C) zoning, building codes and other land
use Laws regulating the use or occupancy of such Real Property or the activities
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conducted thereon which are imposed by any governmental authority having
jurisdiction over such Real Property which are not violated by the current use
or occupancy of such Real Property or the operation of the business or any
violation of which would not have a material adverse effect on the business; (D)
easements, covenants, conditions, restrictions and other similar matters
affecting title to such Real Property and other title defects which do not
materially impair the use or occupancy of such Real Property or the operation of
the business.
(b) Section 4.19(b) of the Warner Disclosure Letter sets forth a list of
all material leases, subleases and other occupancy agreements, including all
amendments, extensions and other modifications (the "Warner Leases") for real
property (the "Warner Leased Property"; the Warner Owned Property and the Warner
Leased Property collectively the "Warner Real Property") to which Warner or any
of its Subsidiaries is a party. Warner or its applicable Subsidiary has a good
and valid leasehold interest in and to all of the Warner Leased Property,
subject to no Liens except Permitted Liens as described in Section 4.19(b) of
the Warner Disclosure Letter. Each Warner Lease is in full force and effect and
is enforceable in accordance with its terms. There exists no default or
condition which, with the giving of notice, the passage of time or both, could
become a default under any Warner Lease in any case, that would have a Material
Adverse Effect on Warner or materially impair Warner's rights to or ability to
use any such property. Warner has previously delivered to Galen true and
complete copies of all the Warner Leases. Except as described on Section 4.19(b)
of the Warner Disclosure Letter, no consent, waiver, approval or authorization
is required from the landlord under any Warner Lease as a result of the
execution of this Agreement or the consummation of the transactions contemplated
hereby the failure to obtain would have a Material Adverse Effect on Warner or
materially impair Warner's rights to or ability to use any such property.
(c) Real Property Used in The Business. The Warner Owned Property
identified in Schedule 4.19(a) and the Warner Leased Property identified in
Schedule 4.19(b) comprise all of the real property used or intended to be used
in, or otherwise related to, the Warner business.
SECTION 4.20 Material Contracts. There have been made available to Galen,
its affiliates and their representatives true and complete copies of all of the
following contracts to which Warner or any of its Subsidiaries is a party or by
which any of them is bound (collectively, the "Warner Material Contracts"): (i)
contracts with any current officer or director of Warner or any of its
Subsidiaries; (ii) contracts for the sale of any of the assets of Warner or any
of its Subsidiaries other than in the ordinary course of business or for the
grant to any person of any preferential rights to purchase any of its assets
other than inventory in the ordinary course of business; (iii) contracts
containing covenants of Warner or any of its Subsidiaries not to compete in any
line of business or with any person in any geographical area or covenants of any
other person not to compete with Warner or any of its Subsidiaries in any line
of business or in any geographical area; (iv) material indentures, credit
agreements, mortgages, promissory notes, and all contracts relating to the
borrowing of money; and (v) all other agreements contracts or instruments which,
in the reasonable opinion of Warner, are material to Warner or any of its
Subsidiaries. Except as set forth in Section 4.20 of the Warner Disclosure
Letter or as would not have or be likely to have a Material Adverse Effect on
Warner, all of the Warner Material Contracts are in full force and effect and
are the legal, valid and binding obligation of Warner or its Subsidiaries,
enforceable against them in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors, rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Except as set forth
in Section 4.20 of the Warner Disclosure Letter, neither Warner nor any
Subsidiary is in default in any material respect under any Warner Material
Contract nor, to the Knowledge of Warner, is any other party to any Warner
Material Contract in default thereunder in any material respect except, in each
case, for those defaults that, individually or in the aggregate, would not have
or be likely to have a Material Adverse Effect on Warner.
SECTION 4.21 Compliance with Laws. Warner has conducted its business and
operations in compliance with, and obtained all permits, licenses and other
authorizations required under, all applicable laws, rules, regulations, orders,
ordinances, judgments and decrees of all governmental authorities (foreign,
federal, state and local) (collectively "Laws") including, where applicable, all
requirements imposed by the U.S. Food and Drug Administration (the "FDA"),
except for such non-compliance which Warner does not reasonably
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expect would have or would be likely to have a Material Adverse Effect. To the
Knowledge of Warner, Warner has not within the past 24 months received written
notice of any non-compliance with respect to, or potential liability under, any
Laws, which has not been satisfied or otherwise resolved, and there are no
circumstances to the Knowledge of Warner which are reasonably likely to give
rise to any such non-compliance except for such non-compliance which Warner does
not reasonably expect would have a Material Adverse Effect.
SECTION 4.22 Warner Approvals. The approval of the Scheme by Warner
Shareholders at the Court Meeting and the passing of the Warner EGM Resolution
and the sanction of the Scheme by the Court are the only actions required by
law, the Warner Memorandum and Articles or otherwise in order for Warner to
consummate the Transactions and the other transactions contemplated by this
Agreement.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF GALEN
Except as disclosed in the letter delivered to Warner concurrently herewith
and designated therein as the Galen Disclosure Letter (the "Galen Disclosure
Letter"), in each case with specific reference to the Section to which exception
is taken, and except as disclosed in the Galen Public Documents Galen hereby
represents and warrants to Warner as follows:
SECTION 5.01 Corporate Organization.
(a) Galen is a public limited company duly incorporated and validly
existing under the laws of Northern Ireland. Galen has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have or is not likely to have with due
regard to all circumstances a Material Adverse Effect on Galen. True and
complete copies of the Memorandum and Articles of Association (the "Galen
Memorandum and Articles") of Galen, as in effect as of the date of this
Agreement, have previously been made available by Galen to Warner.
(b) The only Subsidiaries of Warner or those listed in Section 6.01(b) of
the Galen Disclosure Letter. Each Galen Subsidiary (i) is duly organized and
validly existing under the laws of its jurisdiction of organization, (ii) is
duly qualified to do business and in good standing (where applicable) in all
jurisdictions (whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have or would be
likely to have a Material Adverse Effect on Galen and (iii) has all requisite
corporate power and authority to own or lease its properties and assets and to
carry on its business as now conducted.
(c) The minute books of Galen are fully up-to-date and accurately reflect
in all material respects all material corporate actions held or taken since
January 1, 1999 of its shareholders and Board of Directors (including committees
of the Board of Directors of Galen).
SECTION 5.02 Capitalization.
(a) The authorized share capital of Galen consists of (i) 170,000,000 Galen
Shares, of which, as of the date hereof, 127,266,652 shares are issued and
outstanding. All of the issued and outstanding Galen Shares have been duly
authorized and validly issued and are fully paid and non-assessable with no
personal liability attaching to the ownership thereof. As of the date of this
Agreement, except pursuant to the terms of options granted pursuant to the Galen
Approved Executive Share Option Scheme, the Galen Unapproved Executive Share
Option Scheme, the Galen Savings Related Share Option Scheme and The Galen Inc.
Employee Stock Purchase Plan (the "Galen Stock Plans") and (ii) this Agreement,
Galen does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase, transfer, sale or issuance of any Galen Shares or any other equity
securities of Galen or any securities representing the right to purchase or
otherwise receive any Galen Shares. As of the date of this Agreement, no Galen
Shares are reserved for issuance, except for 407,424 Galen Shares reserved for
issuance upon exercise of stock options issued pursuant to the Galen Stock
Plans. Since September 30, 1999, and
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except for the issue of 6,000,000 new Galen Shares announced on 25 November 1999
Galen has not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock, other than
pursuant to the exercise of employee stock options granted prior to such date.
(b) Subject to all approvals required to be sought under the terms of this
Agreement Galen owns, directly or indirectly, all of the issued and outstanding
shares in its capital or other equity ownership interests of each of the Galen
Subsidiaries as set forth in Section 5.02(b) of the Galen Disclosure Letter,
free and clear of any Liens other than as set forth in Section 5.02(b) of the
Galen Disclosure Letter, and all of such shares or equity ownership interests
are duly authorized and validly issued and are fully paid, non-assessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof.
No Galen Subsidiary is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares in its capital or any other equity security
of such Subsidiary or any securities representing the right to purchase or
otherwise receive any shares in its capital or any other equity security of such
Subsidiary.
SECTION 5.03 Authority; No Violation.
(a) Subject to all approvals required to be sought under the term of this
Agreement, Galen has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Galen. No corporate proceedings on the part of Galen,
other than the Galen Shareholder Approval and the passing of a resolution or
resolutions of the directors of Galen to allot the new Galen Shares to be issued
pursuant to this Agreement, are necessary to approve and adopt this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Galen and (assuming due
authorization, execution and delivery by Warner of this Agreement) constitutes a
valid and binding obligation of Galen, enforceable against Galen in accordance
with its terms.
(b) Neither the execution and delivery of this Agreement by Galen nor the
consummation by Galen of the transactions contemplated hereby or thereby, nor
compliance by Galen with any of the terms or provisions hereof, will (i) violate
any provision of the Galen Memorandum and Articles or similar
bylaw/organizational document of its Subsidiaries or (ii) assuming that the
consents and approvals, filings or waiting times referred to in Section 5.04 are
duly obtained, made or elapsed respectively (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Galen or any of its Subsidiaries or any of their respective
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) will
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any Lien
upon any of the respective properties or assets of Galen or any of its
Subsidiaries under, any of the terms, conditions or provisions of any Material
Agreement to which Galen or any of its Subsidiaries is a party, or by which they
or any of their respective properties or assets may be bound or affected, except
(in the case of clause (y) above) for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, will not have and is
not likely to have a Material Adverse Effect on Galen.
SECTION 5.04 Consents and Approvals. Except (i) in connection, or in
compliance, with the provisions of the HSR Act, (ii) for the filing of any
required State and Foreign Approvals, (iii) in connection with the Securities
Act or the Exchange Act (including the filing with the SEC of the Proxy
Statement and the Registration Statement), (iv) the approval of the Listing
Particulars (and any supplementary listing particulars required to be published
by Galen) by the UKLA, the agreement of the UKLA to admit the new Galen Shares
to the Official List, the consent of the LSE to admit the new Galen Shares to
trading and the filing of the Listing Particulars (and any supplementary listing
particulars required to be published by Galen) with the Registrar of Companies
in Northern Ireland, (v) for such filings and approvals as are required to be
made or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance or listing of Galen Shares pursuant to this
Agreement, (vi) in connection with the applicable Requirements of the Mergers
Act, and (vii) for the Galen Shareholder Approval, no consents or approvals of
or filings or
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registrations with any Governmental Entity or with any third party are necessary
in connection with (A) the execution and delivery by Galen of this Agreement and
(B) the consummation by Galen of the Transactions and the other transactions
contemplated by this Agreement, failure of which to make or obtain would not
reasonably be expected to have a Material Adverse Effect on Galen or impair or
delay the ability of either party to consummate the Transactions contemplated
hereby.
SECTION 5.05 Public Documents and Other Reports. Galen has duly published
and delivered to the LSE all documents and announcements required by the Listing
Rules and the listing rules of the ISE since December 31, 1997 (collectively the
"Galen Public Documents"). As of their respective dates, the Galen Public
Documents complied in all material respects with applicable law, including,
without limitation, the Companies (Northern Ireland) Order 1986 (as amended),
the Financial Services Act 1986 (as amended) and the Listing Rules as to the
form and content of the Galen Public Documents and, at the respective times they
were issued, none of the Galen Public Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements (including, in each case, any notes thereto) of Galen
included in the Galen Public Documents complied as to form in all material
respects with applicable law and all applicable financial reporting standards
and generally accepted accounting principles and practices in the United Kingdom
("U.K. GAAP") applied on a consistent basis during the periods involved (except
as may be indicated therein or in the notes thereto) and fairly presented in all
material respects the consolidated financial position of Galen and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
Except as disclosed in the Galen Public Documents or as required by U.K. GAAP or
any reconciliation to US GAAP, Galen has not, since September 30, 1998, made any
change in the accounting practices or policies applied in the preparation of its
financial statements.
SECTION 5.06 Registration Statement; Listing Particulars.
(a) The Registration Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the Registration Statement
on Form F-4 of which the PS/P forms a part, if any, will comply as to form in
all material respects with the provisions of the Securities Act.
(b) The Listing Particulars when published will contain all such
information as investors and their professional advisors would reasonably
require and reasonably expect to find there, for the purpose of making an
informed assessment of the assets and liabilities, financial position, profits
and losses and prospects of Galen as enlarged by the Transactions and of the
rights attaching to the Galen Shares to be issued pursuant to this Agreement,
having regard to the matters referred to in Section 146(3) of the Financial
Services Act 1986. All statements of fact contained in the Listing Particulars
will be true and accurate in all material respects, will not be misleading in
any material respect, and will not omit any information known or which could on
reasonable enquiry have been known to the directors of Galen the omission of
which would make them misleading in any material respect. All expressions of
opinion, intention or expectation on the part of the directors of Galen
contained therein will be made on reasonable grounds after appropriate enquiry
and accurately reflect the views honestly held by them. Notwithstanding anything
in this paragraph 5.06 Galen makes no representation or warranty with respect to
any information concerning Warner and its Subsidiaries supplied by Warner for
inclusion in the Listing Particulars.
SECTION 5.07 Absence of Certain Changes or Events. Except as disclosed in
the Galen Public Documents filed prior to the date of this Agreement, since
September 30, 1999, (A) Galen and its Subsidiaries have not incurred any
material liability or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not in
the ordinary course of business or that would have or is likely to have a
Material Adverse Effect on Galen, (B) Galen and its Subsidiaries have not
sustained any loss or interference with their business or properties from fire,
flood, windstorm, accident or other calamity (whether or not covered by
insurance) that has had or that would have or is likely to have a Material
Adverse Effect on Galen, (C) there has been no change in the capital stock of
Galen and
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no dividend or distribution of any kind declared, paid or made by Galen on any
class of its stock, (D) there has not been (y) any granting by Galen or any of
its Subsidiaries to any executive officer or material modification of any
severance or termination benefits or (z) any entry or purported entry by Galen
or any of its Subsidiaries into or material modification of any employment,
severance or termination agreement with any such executive officer, (E) Galen
and its Subsidiaries have not prepared or filed any Tax Return inconsistent in
any material respect with past practice or, on any such Tax Return, taken any
position, made any election, or adopted any method that is inconsistent with
positions taken, elections made or methods used in preparing or filing similar
Tax Returns in prior periods, and (F) there has been no other event causing a
Material Adverse Effect on Galen, nor any development that would, individually
or in the aggregate, have a Material Adverse Effect on Galen. Set forth in
Section 5.07 of Galen Disclosure Letter is a description of any material
changes, between December 31, 1999 and the date of this Agreement (excluding any
intervening fluctuations between such dates), to the amount and terms of the
indebtedness of Galen and its Subsidiaries as described in Galen's Annual Report
and Accounts for the financial year ended 30 September 1999 (other than any
changes in, or the incurrence of, indebtedness of Galen or any of its
Subsidiaries with a principal amount not in excess of US$1,000,000) other than
changes required by the transactions contemplated by this Agreement.
SECTION 5.08 Permits and Compliance. Except as set forth in Section 5.08
of the Galen Disclosure Letter, each of Galen and its Subsidiaries is in
possession of all Permits necessary for Galen or any of its Subsidiaries to own,
lease and operate its properties or to carry on its business as it is now being
conducted (the "Galen Permits"), except where the failure to have any of the
Galen Permits would not, individually or in the aggregate, have or is likely to
have or is likely to have a Material Adverse Effect on Galen, and, as of the
date of this Agreement, no suspension or cancellation of any of the Galen
Permits is pending or, to the Knowledge of Galen, threatened, except where the
suspension or cancellation of any of the Galen Permits, individually or in the
aggregate, would not have or is likely to have a Material Adverse Effect on
Galen. Neither Galen nor any of its Subsidiaries is in violation of (i) its
charter, bylaws or equivalent documents, (ii) any applicable law, ordinance,
administrative or governmental rule or regulation or (iii) any order, decree or
judgment of any Governmental Entity having jurisdiction over Galen or any of its
Subsidiaries, except, in the case of clauses (i), (ii) and (iii), for any
violations that, individually or in the aggregate, would not have or is likely
to have a Material Adverse Effect on Galen. "Knowledge of Galen" means the
knowledge (after reasonable investigation), of Allen McClay, John King, Geoffrey
Elliott, Stephen Campbell and Clare Gilligan.
SECTION 5.09 Tax Matters. Except as otherwise set forth in Section 5.09
of the Galen Disclosure Letter, Galen and each of its Subsidiaries have filed
all UK and federal, and all material state, local, foreign and provincial, Tax
Returns required to have been filed or appropriate extensions therefor have been
properly obtained, and to the Knowledge of Galen such Tax Returns are correct
and complete, except to the extent that any failure to so file or any failure to
be correct and complete, individually or in the aggregate, would not have or is
likely to have a Material Adverse Effect on Galen; (ii) all Taxes shown to be
due on such Tax Returns have been timely paid or extensions for payment have
been properly obtained, or such Taxes are being timely and properly contested
and any such contests do not contemplate payment of Taxes in excess of
US$100,000 (in aggregate), (iii) Galen and each of its Subsidiaries have
complied in all material respects with all rules and regulations relating to the
withholding of Taxes except to the extent that any failure to comply with such
rules and regulations, individually or in the aggregate, would not have or is
likely to have a Material Adverse Effect on Galen; (iv) neither Galen nor any of
its Subsidiaries has waived any statute of limitations in respect of its Taxes
which waiver is currently in effect; (v) no issues that have been raised in
writing by the relevant taxing authority in connection with the examination of
the Tax Returns referred to in clause (i) are currently pending; and (vi) all
deficiencies asserted or assessments made as a result of any examination of such
Tax Returns by any taxing authority have been paid in full. To the Knowledge of
Galen, the representations set forth in the proposed form of the Galen tax
certificate provided by Galen to Warner, if made on the date hereof (assuming
the Acquisition were consummated on the date hereof), would be true and correct.
SECTION 5.10 Actions and Proceedings. Except as set forth in Section 5.10
of the Galen Disclosure Letter and in the Galen Public Documents filed prior to
the date of this Agreement, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against or involving
Galen or
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any of its Subsidiaries, or against or involving any of the directors, officers
or employees of Galen or any of its Subsidiaries, as such, any of its or their
properties, assets or business or any Galen Plan that, individually or in the
aggregate, would have or is likely to have a Material Adverse Effect on Galen.
As of the date of this Agreement, there are no actions, suits or claims or
legal, administrative or arbitrative proceedings or investigations pending or,
to the Knowledge of Galen, threatened against or involving Galen or any of its
Subsidiaries or any of its or their directors, officers or employees as such, or
any of its or their properties, assets or business or any Galen Plan that,
individually or in the aggregate, would have or be likely to have a Material
Adverse Effect on Galen. There are no actions, suits, labor disputes or other
litigation, legal or administrative proceedings or governmental investigations
pending or, to the Knowledge of Galen, threatened against or affecting Galen or
any of its Subsidiaries or any of its or their officers, directors or employees,
as such, or any of its or their properties, assets or business relating to the
transactions contemplated by this Agreement which would have or is likely to
have a Material Adverse Effect on Galen.
SECTION 5.11 Certain Agreements. Except as set forth in Section 5.11 of
Galen Disclosure Letter, neither Galen nor any of its Subsidiaries is a party to
any oral or written agreement or plan, including any employment agreement,
severance agreement, retention agreement, stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, the vesting of the benefits of which will be
accelerated, or which will become payable or which at the participant's or
holder's option may become payable, due to or by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will, or may at the option of the holder or participant, be calculated
on the basis of any of the transactions contemplated by this Agreement. No
holder of any option to purchase shares of Galen Shares, or shares of Galen
Shares granted in connection with the performance of services for Galen or its
Subsidiaries, is or will be entitled to receive cash from Galen or any
Subsidiary in lieu of or in exchange for such option or shares as a result of
the transactions contemplated by this Agreement.
SECTION 5.12 Labor Matters. Except as disclosed in Section 5.12 of the
Galen Disclosure Letter, neither Galen nor any of its Subsidiaries is party to
any collective bargaining agreement or other labor agreement with any union or
labor organization and no union or labor organization has been recognized by
Galen or any of its Subsidiaries as an exclusive bargaining representative for
employees of Galen or any of its Subsidiaries. Other than as described in
Section 5.12 of the Galen Disclosure Letter, neither Galen nor any of its
Subsidiaries is the subject of any material proceeding asserting that it or any
of its Subsidiaries has committed an unfair labor practice or seeking to compel
it to bargain with any labor union or labor organization nor is there pending
or, to the Knowledge of Galen, threatened, nor has there been for the past three
years, any labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving it or any of its Subsidiaries, except in each case as would not,
individually or in the aggregate, have or is likely to have a Material Adverse
Effect on Galen.
SECTION 5.13 Intellectual Property. Except as set forth in Section 5.13
of the Galen Disclosure Letter, Galen and its Subsidiaries own, possess all
right, title and interest in and to, or have a valid, enforceable right to use
free from any Liens or encumbrances, other than those that would not have or is
likely to have or be likely to have a Material Adverse Effect on Galen, the
Intellectual Property Rights in the intra-vaginal ring technology and all other
Intellectual Property Rights necessary to conduct the business of Galen and its
Subsidiaries, taken as a whole, except where the failure to have such
Intellectual Property Rights, individually or in the aggregate, would not have
or is likely to have or be likely to have a Material Adverse Effect on Galen.
Neither Galen nor any of its Subsidiaries has infringed, misappropriated or
otherwise conflicts with any Intellectual Property Rights of any third party
other than any infringements that, individually or in the aggregate, would not
have or is likely to have a Material Adverse Effect on Galen. Neither Galen nor
its Subsidiaries are aware of any infringement, misappropriation or conflict by
any person with respect to the Intellectual Property Rights owned or used by
Galen or its Subsidiaries other than any such infringement, misappropriation or
conflict that would not have a Material Adverse Effect on Galen. All
Intellectual Property Rights owned or used by Galen or its Subsidiaries as of
the closing hereof will be owned or available for use by Galen and its
Subsidiaries on terms and conditions immediately following the Effective Time
that are not materially different from those existing prior to the closing. The
Intellectual Property Rights owned or used by
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Galen are valid and enforceable, none of the Intellectual Property Rights has
been misused, and no claim by any other party contesting the validity,
enforceability, use or ownership of any of Intellectual Property Rights owned or
used by Galen is currently outstanding or is threatened. No loss or expiration
of any of the Intellectual Property Rights owned or used by Galen is threatened,
pending or reasonably foreseeable.
SECTION 5.14 Environmental and Safety Matters.
(a) Except as set forth in Section 5.14 of the Galen Disclosure Letter, the
operations of Galen and Subsidiaries have complied and are in compliance with
all Worker Safety Laws and Environmental Laws, except for any violations that,
individually or in the aggregate, have not had, and would not have, a Material
Adverse Effect on Galen. To Galen's knowledge with respect to properties, and
assets of Galen, including any previously owned, leased or operated properties
or assets except as set forth in Section 5.14 of the Galen Disclosure Letter,
there are no past or present events, conditions, circumstances, activities,
practices, incidents, actions or plans of Galen or any of its predecessors or
Subsidiaries that would interfere with or prevent compliance or continued
compliance with or give rise to any liabilities or investigatory, corrective or
remedial obligations under applicable Worker Safety Laws or Environmental Laws,
other than any such interference, prevention, liability or obligation that,
individually or in the aggregate, has not had, and would not have, a Material
Adverse Effect on Galen.
(b) Except as set forth in Section 5.14 of the Galen Disclosure Letter,
Galen and Subsidiaries have not caused or permitted to Galen's knowledge any
property or asset, including any previously owned property or asset, to use,
generate, manufacture, refine, transport, treat, store, handle, dispose,
transfer or process hazardous or toxic materials, substances, wastes, pollutants
or contaminants, except in material compliance with all Environmental Laws and
Worker Safety Laws, other than any such activity that, individually or in the
aggregate, has not had, and would not have, a Material Adverse Effect on Galen.
Except as set forth in Section 5.14 of the Galen Disclosure Letter, Galen and
its Subsidiaries have not reported to any Governmental Entity, or been notified
by any Governmental Entity of the existence of, any material violation of an
Environmental Law or any release, discharge or emission of any hazardous or
toxic materials, substances, wastes, pollutants or contaminants, other than any
such violation, release, discharge or emission that, individually or in the
aggregate, has not had, and would not have, a Material Adverse Effect on Galen.
(c) With respect to Galen, neither this Agreement nor the consummation of
the transactions that are the subject of this Agreement will result in any
obligations for transfer of permits under Environmental Laws or Worker Safety
Laws site investigation or cleanup, or notification to or consent of any
Governmental Entity or third party, pursuant to Environmental Laws or contract,
other than any such obligations that, individually or in the aggregate, would
not have, a Material Adverse Effect on Galen.
(d) This Section sets forth the sole representations and warranties of
Galen with respect to all matters arising under Environmental Laws and Worker
Safety Laws.
SECTION 5.15 Insurance. Galen and its Subsidiaries have in effect
insurance coverage with reputable insurers, which in respect of amounts,
premiums, types and risks insured, constitutes reasonably adequate coverage
against all risks customarily insured against by companies of comparable size
and with similar operations.
SECTION 5.16 Required Vote of Galen Shareholders. The Galen Shareholders
Approval is the only vote of the shareholders of Galen required by law, the
Galen Memorandum and Articles or otherwise in order for Galen to consummate the
Transactions and the other transactions contemplated by this Agreement. Without
prejudice to the provisions of Section 1.02(d), the Board of Directors of Galen
has approved this Agreement and the Transactions and has resolved to recommend
that the shareholders of Galen approve the Agreement and the Transactions.
SECTION 5.17 Broker's Fees. Except as set forth in the engagement letter
agreement between Galen and Merrill Lynch & Co. and ABN Amro Hoare Govett, a
true and complete copy of which has previously been provided to Warner, neither
Galen nor any Galen Subsidiary nor any of their respective officers or directors
has employed any broker or finder or incurred any liability for any broker's
fees, commissions or finder's fees in connection with the Acquisition or related
transactions contemplated by this Agreement.
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SECTION 5.18 Real Property.
(a) Section 5.18(a) of the Galen Disclosure Letter lists each parcel of
real property owned by Galen or any of its Subsidiaries (the "Galen Owned
Property"). Galen or its applicable Subsidiary has good and marketable fee
simple title in and to all of the Galen Owned Property, subject to no Liens that
would have a Material Adverse Effect on Galen or materially impair Galen's
rights to or ability to use any such property, except Permitted Liens, as
described on Section 5.18(a) of the Galen Disclosure Letter. Except as set forth
in Schedule 5.18(a) of the Galen Disclosure Letter, (i) Galen or any of its
Subsidiaries has not leased or otherwise granted to any Person the right to use
or occupy such Galen Owned Property or any portion thereof; (ii) other than the
right of Galen pursuant to this Agreement, there are no outstanding options,
rights of first offer or rights of first refusal to purchase such Galen Owned
Property or any portion thereof or interest therein, and (iii) Galen or
Subsidiary is not a party to any agreement or option to purchase any real
property or interest therein relating to the business of Galen.
(b) Section 5.18(b) of the Galen Disclosure Letter sets forth a list of all
material leases, subleases and other occupancy agreements, including all
amendments, extensions and other modifications (the "Galen Leases") for real
property (the "Galen Leased Property"; the Galen Owned Property and the Galen
Leased Property collectively the "Galen Real Property") to which Galen or any of
its Subsidiaries is a party. Galen or its applicable Subsidiary has a good and
valid leasehold interest in and to all of the Galen Leased Property, subject to
no Liens except Permitted Liens, as described in Section 5.18(b) of the Galen
Disclosure Letter. Each Galen Lease is in full force and effect and is
enforceable in accordance with its terms. There exists no default or condition
which, with the giving of notice, the passage of time or both, could become a
default under any Galen Lease in any case, that would have a Material Adverse
Effect on Galen or materially impair Galen's rights to or ability to use any
such property. Except as described on Section 5.18(b) of the Galen Disclosure
Letter, no consent, waiver, approval or authorization is required from the
landlord under any Galen Lease as a result of the execution of this Agreement or
the consummation of the transactions contemplated hereby the failure to obtain
would have a Material Adverse Effect on Galen or materially impair Galen's
rights to or ability to use any such property.
(c) Real Property Used in The Business. The Galen Owned Property identified
in Schedule 5.18(a) and the Galen Leased Property identified in Schedule 5.18(b)
comprise all of the real property used or intended to be used in, or otherwise
related to, the Galen business.
SECTION 5.19 Material Contracts. Except as set forth in Section 5.19 of
the Galen Disclosure Letter, there have been made available to Warner, its
affiliates and their representatives true and complete copies of all of the
following contracts to which Galen or any of its Subsidiaries is a party or by
which any of them is bound (collectively, the "Galen Material Contracts"): (i)
contracts with any current officer or director of Galen or key employee of any
of its material Subsidiaries; (ii) contracts for the sale of any of the assets
of Galen or any of its Subsidiaries other than in the ordinary course of
business or for the grant to any person of any preferential rights to purchase
any of its assets other than inventory in the ordinary course of business; (iii)
contracts containing covenants of Galen or any of its Subsidiaries not to
compete in any line of business or with any person in any geographical area or
covenants of any other person not to compete with Galen or any of its
Subsidiaries in any line of business or in any geographical area; (iv) material
indentures, credit agreements, mortgages, promissory notes, and all contracts
relating to the borrowing of money; (v) contracts or agreement relating to the
licensing of Intellectual Property Rights by Galen to another party or by
another party to Galen, all other contracts or agreements affecting Galen's
ability to use or disclose any Intellectual Property Rights; and (vi) all other
agreements contracts or instruments which, in the reasonable opinion of Galen,
are material to Galen or any of its Subsidiaries, except as set forth in Section
5.19 of the Galen Disclosure Letter. Except as set forth or as would not have a
Material Adverse Effect on Galen, all of the Galen Material Contracts are in
full force and effect and are the legal, valid and binding obligation of Galen
or its Subsidiaries, enforceable against them in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors, rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity). Except as
set forth in Section 5.19 of the Galen Disclosure Letter, neither Galen nor any
Subsidiary is in default in any material respect under any Galen Material
Contract nor,
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to the Knowledge of Galen, is any other party to any Galen Material Contract in
default thereunder in any material respect except, in each case, for those
defaults that, individually or in the aggregate, would not have a Material
Adverse Effect on Galen.
SECTION 5.20 Compliance with Laws. Galen has conducted its business and
operations in compliance with, and obtained all permits, licenses and other
authorizations required under, all Laws, including, without limitation, all
requirements imposed by the FDA and comparable foreign regulatory authorities,
including, where applicable, the Medicines Act 1968 and the rules made and
marketing authorizations granted thereunder and the regulations of the UK
Department of Health governing the sale of products to the National Health
Service, except for such non-compliance which Galen does not reasonably expect
would have or be likely to have a Material Adverse Effect. To the Knowledge of
Galen, Galen has not within the past 24 months received written notice of any
non-compliance with respect to, or potential liability under, any Laws, which
has not been satisfied or otherwise resolved, except for such non-compliance
which Galen does not reasonably expect would have or would be likely to have a
Material Adverse Effect and there are no circumstances to the Knowledge of Galen
which are reasonably likely to give rise to any such non-compliance.
ARTICLE VI -- COVENANTS
SECTION 6.01 Conduct of Warner. Warner agrees that from the date hereof
until the Effective Time, except as set forth in Section 6.01 of the Warner
Disclosure Letter or as otherwise expressly contemplated by this Agreement or
required to effect the Scheme or complete the Transactions or with the prior
written consent of Galen, Warner and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their reasonable best efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, except as set forth in
the Warner Disclosure Letter or as expressly contemplated by this Agreement,
without the prior written consent of Galen (such consent not to be unreasonably
withheld or delayed), Warner will not, and will not permit any of its
Subsidiaries to:
(a) adopt or propose any change in the Warner Memorandum and Articles
or equivalent documents;
(b) amend any material term of any outstanding security of Warner or
any of its Subsidiaries;
(c) merge or consolidate or announce its intention to merge or
consolidate with any Person;
(d) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, (i) any
shares in the capital of Warner or any of its Subsidiaries (other than the
issuance of shares by a wholly-owned Subsidiary of Warner to Warner or
another wholly-owned Subsidiary of Warner), or securities convertible or
exchangeable or exercisable for any shares in such capital, or any options,
warrants or other rights of any kind to acquire any shares in such capital
or such convertible or exchangeable securities, or any stock appreciation
rights or limited stock appreciation rights, or any other ownership
interest of Warner or any of its Subsidiaries or (ii) except in the
ordinary course of business and in a manner consistent with past practice,
any property or assets (tangible or intangible) (including, without
limitation, by merger, consolidation, spin-off or other dispositions of
stock or assets) of Warner or any of its Subsidiaries, except in the case
of either clause (i) or (ii) (A) the issuance of Warner Shares upon the
exercise of stock options issued pursuant to the Warner Option Plan prior
to the date hereof, (B) the award of options in connection with new
employee hires in the ordinary course of business and consistent with past
practice; provided, however, that no such new employee shall receive
options to purchase more than 5,000 Warner Shares, (C) pursuant to existing
obligations under contracts or agreements in force at the date of this
Agreement and set forth in Section 6.01 of the Warner Disclosure Letter and
(D) sales or other dispositions of property and assets of Warner and its
Subsidiaries in an aggregate amount that does not exceed US$1,000,000;
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(e) create or incur any material Lien on any asset (tangible or
intangible) other than in the ordinary course of business and consistent
with past practice;
(f) make any material loan, advance or capital contributions to or
investments in any Person other than loans, advances or capital
contributions to or investments in wholly owned Subsidiaries of Warner made
in the ordinary course and consistent with past practices;
(g) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its share capital (except for dividends paid by any direct or
indirect wholly-owned Subsidiary of Warner to Warner or to any other direct
or indirect wholly-owned Subsidiary of Warner) or enter into any agreement
with respect to the voting of its share capital;
(h) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(i) (i) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any interest in any Person
or any division thereof (other than a wholly-owned Subsidiary) or any
assets, other than acquisitions of assets in the ordinary course of
business and consistent with past practice, (ii) incur any indebtedness for
borrowed money or guarantee such indebtedness of another Person, or issue
or sell any debt securities or warrants or other rights to acquire any debt
security of Warner or any of its Subsidiaries, except for (A) indebtedness
for borrowed money incurred in the ordinary course of business and
consistent with past practice or in connection with transactions otherwise
permitted under this Section 6.01, (B) other indebtedness for borrowed
money with a maturity of not more than one year in a principal amount not,
in the aggregate, in excess of US$5,000,000, and (C) other indebtedness for
borrowed money incurred under Warner's credit agreement for working capital
purposes only, (iii) terminate, cancel, waive any rights under or request
any material change in, or agree to any material change in, any material
contract or agreement of Warner or, except in connection with transactions
permitted under this Section 6.01(i), enter into any contract or agreement
material to the business, results of operations or financial condition of
Warner and its Subsidiaries, taken as a whole, in either case other than in
the ordinary course of business and consistent with past practice, (v) make
or authorize any capital expenditure, other than capital expenditures that
are not, in the aggregate, in excess of US$1,500,000 taken as a whole or
(v) enter into or amend any contract, agreement, commitment or arrangement
that, if fully performed, would not be permitted under this Section
6.01(i);
(j) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice or except as required by changes in U.S. GAAP;
(k) make any material Tax election or take any position on any Tax
Return filed on or after the date of this Agreement or adopt any method
therefor that is inconsistent with elections made, positions taken or
methods used in preparing or filing similar Tax Returns in prior periods;
(l) except as may be required by contractual commitments or corporate
policies with respect to severance or termination pay in existence on the
date hereof, (i) increase the compensation payable or to become payable to
its officers or employees (except for increases in the ordinary course of
business and consistent with past practice in salaries or wages of
employees of Warner or any of its Subsidiaries), (ii) establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee, except as contemplated by this Agreement or
to the extent required by applicable law or the terms of a collective
bargaining agreement, (iii) increase the benefits payable under any
existing severance or termination pay policies or employment or other
agreements or (iv) take any affirmative action to accelerate the vesting of
any stock-based compensation;
(m) take any action that would, individually or in the aggregate,
reasonably be expected to make any representation and warranty of Warner
hereunder untrue in any material respect at, or as of any time prior to,
the Closing;
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(n) take or propose any corporate action for its winding-up,
dissolution or reorganization of for the appointment of a receiver,
administrator, administrative receiver, trustee or similar officer of all
or any of its assets and revenues;
(o) waive or compromise any claim or proceedings involving equitable
relief (other than in the ordinary course of business) which is material to
Warner and its Subsidiaries taken as a whole; or
(p) save for any amendments required by the relevant insurers,
maintain in all material respects all insurance policies listed in Section
6.01 of the Warner Disclosure Letter on the same terms and at the same
level of insurance cover as those prevailing at the date of this Agreement;
(q) agree or commit to do any of the foregoing.
SECTION 6.02 Conduct of Galen. Galen agrees that from the date hereof
until the Effective Time, except as set forth in Section 6.02 of the Galen
Disclosure Letter or as otherwise expressly contemplated by this Agreement or as
may be necessary or desirable to effect the Transactions or with the prior
written consent of Warner, Galen and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their reasonable best efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, except as set forth in
the Galen Disclosure Letter or as expressly contemplated by this Agreement,
without the prior written consent of Warner (such consent not to be unreasonably
withheld or delayed), Galen will not, and will not permit any of its
Subsidiaries to:
(a) adopt or propose any change in the Galen Memorandum and Articles
or equivalent documents;
(b) amend any material term of any outstanding security of Galen or
any of its Subsidiaries;
(c) merge or consolidate or announce its intention to merger or
consolidate with any Person;
(d) issue, sell, dispose of, grant, transfer, or authorize the
issuance, sale, disposal, grant or transfer of more than 10% of its issued
share capital at the date of this document (other than the issuance of
shares by a wholly-owned Subsidiary of Galen to Galen or another
wholly-owned Subsidiary of Galen), or securities convertible or
exchangeable or exercisable for any shares in such capital, or any options,
warrants or other rights of any kind to acquire any shares in such capital
or such convertible or exchangeable securities, or any stock appreciation
rights or limited stock appreciation rights, or any other ownership
interest of Galen or any of its Subsidiaries except (A) the issuance of
Galen Shares upon the exercise of stock options issued pursuant to the
Galen Stock Plans prior to the date hereof, (B) the award of options in
connection with new employee hires in the ordinary course of business and
consistent with practice; provided, however, that no such new employee
shall receive options to purchase more than 5,000 Galen Shares; and (C)
pursuant to existing obligations under contracts or agreements in force at
the date of this Agreement;
(e) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its share capital (except for dividends paid by any direct or
indirect wholly-owned Subsidiary of Galen to Galen or to any other direct
or indirect wholly-owned Subsidiary of Galen and except for any interim or
final cash dividend(s) (as applicable) not materially inconsistent with the
principles and practices applied by Galen in relation to the dividends paid
in respect of the financial year ended September 30, 1999, or enter into
any agreement with respect to the voting of its share capital;
(f) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its share capital;
(g) enter into any agreement or arrangement with any Person (other
than a wholly-owned Subsidiary) for the purchase or acquisition of any
stock or assets, other than acquisitions of stocks or assets in the
ordinary course of business and consistent with past practice and any other
acquisitions for consideration that (i) is, in the aggregate, in excess of
US$25,000,000; or (ii) would not be able to be
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financed by way of Galen's own internal resources available and subsisting
as at the date of this Agreement provided that any proceeds receivable
pursuant to an issue of shares allowed pursuant to this section 6.02 shall
be treated for the purposes of this sub-section (ii) as internal financial
resources available and subsisting;
(h) take any action that would, individually or in the aggregate,
reasonably be expected to make any representation and warranty of Galen
hereunder untrue in any material respect at, or as of any time prior to,
the Effective Time.
(i) agree or commit to do any of the foregoing.
SECTION 6.03 Access to Information.
(a) From the date of this Agreement until the Effective Time, Warner will,
and will cause its Subsidiaries, and each of their respective officers,
directors, counsel, advisors and representatives (collectively, the "Warner
Representatives") to, give Galen and its officers, employees, counsel, advisors
and representatives (collectively, the "Galen Representatives") full access
(subject, however, to existing confidentiality and similar non-disclosure
obligations and the preservation of attorney client and work product privileges
or any further confidentiality assurances which may be required to update or
extend existing confidentiality agreements between the parties in order to
protect Warner's legitimate business interests), during normal business hours,
to the offices and other facilities and to the books and records of Warner and
its Subsidiaries and will cause the Warner Representatives to furnish Galen and
the Galen Representatives to the extent available with such financial and
operating data and such other information with respect to the business and
operations of Warner and its Subsidiaries as Galen may from time to time
reasonably request provided that Galen shall demonstrate to the Warner
Representatives a legitimate interest or purpose in relation to the consummation
of the Transactions for access to such information. Prior to the Closing,
neither Galen nor the Galen Representatives shall contact or in any manner
communicate with the employees, customers, lessors and suppliers of Warner and
its Subsidiaries with respect to any matter related to the transaction
contemplated hereby, except with the prior consent of Warner.
(b) From the date of this Agreement until the Effective Time, Galen will,
and will cause its Subsidiaries, and each Galen Representative to, give Warner
and the Warner Representatives full access (subject, however, to existing
confidentiality and similar non-disclosure obligations and the preservation of
attorney client and work product privileges or any further confidentiality
assurances which may be required to update or extend existing confidentiality
agreements between the parties in order to protect Galen's legitimate business
interests), during normal business hours, to the offices and other facilities
and to the books and records of Galen and its Subsidiaries and will cause the
Galen Representatives to furnish Warner and the Warner Representatives to the
extent available with such financial and operating data and such other
information with respect to the business and operations of Galen and its
Subsidiaries as Warner may from time to time reasonably request, provided that
Warner shall demonstrate to the Galen Representatives a legitimate interest or
purpose in relation to the consummation of the Transactions for access to such
information. Prior to the Closing, neither Warner nor the Warner Representatives
shall contact or in any manner communicate with the employees, customers,
lessors and suppliers of Galen and its Subsidiaries with respect to any matter
related to the transaction contemplated hereby, except with the prior consent of
Galen.
SECTION 6.04 Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided and to applicable
legal requirements, each of the parties hereto agrees to use reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done (consistent with the fiduciary duties of the Board of Directors of Warner
and Galen under applicable law), and to assist and cooperate with the other
parties hereto in doing, as promptly as practicable, all things necessary,
proper, desirable or advisable under applicable laws and regulations to ensure
that the conditions set forth in Article VII are satisfied and to consummate and
make effective the transactions contemplated by the Scheme and this Agreement.
(b) If at any time prior to the Closing any event or circumstance relating
to either Warner or Galen or any of their respective Subsidiaries, should be
discovered by Warner or Galen, as the case may be, and which
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should be set forth in an amendment or supplement to the Proxy Statement or the
Registration Statement or the Listing Particulars, the discovering party will
promptly inform the other party of such event or circumstance. If at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, including the execution of additional
instruments, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
SECTION 6.05 Consents.
(a) Each of the parties will use its reasonable best efforts to obtain as
promptly as practicable all consents of any Governmental Entity or any other
person required in connection with, and waivers of any violations that may be
caused by, the consummation of the transactions contemplated by the this
Agreement. Warner and Galen shall promptly prepare and file as soon as
practicable after the date hereof all documents required to be filed (i) with
the United States Federal Trade Commission and the Department of Justice in
order to comply with the HSR Act and (ii) any other documents which are required
under any non-United States laws regulating competition, antitrust, investment
or exchange controls. Warner and Galen shall promptly furnish all materials
thereafter required in connection therewith.
(b) In furtherance and not in limitation of the foregoing, Galen and Warner
shall use their respective best efforts to resolve such objections, if any, as
may be asserted with respect to the transactions contemplated by this Agreement
under any antitrust, competition or trade regulatory laws, rules or regulations
of any domestic or foreign government or governmental authority or any
multinational authority ("Antitrust Laws"). If any suit is instituted
challenging any of the transactions contemplated by this Agreement as violative
of any Antitrust Law, Galen shall use its reasonable best efforts to take such
action as may be required (a) by the applicable government or governmental or
multinational authority (including, without limitation, the Antitrust Division
of the United States Department of Justice, the Federal Trade Commission, the
Irish Department of Enterprise, Trade and Employment or the Competition
Authority of Ireland in order to resolve such objections or (b) by any domestic
or foreign court or similar tribunal, in any suit brought by a private party or
governmental or multinational authority challenging the transactions
contemplated by this Agreement as violative of any Antitrust Law, in order to
avoid the entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order that has the effect of preventing the
consummation of any of such transactions, provided always that, for the
avoidance of doubt, Galen shall not be obliged by this Section 6.05 to hold
separate or divest any businesses, product lines or assets of Galen or Warner or
any of their Subsidiaries or to agree to do so or to undertake to any such
bodies so to do.
(c) Any party hereto shall promptly inform the others of any material
communication from the United States Federal Trade Commission, the Department of
Justice or any other domestic or foreign government or governmental or
multinational authority regarding any of the transactions contemplated by this
Agreement. If any party or any affiliate thereof receives a request for
additional information or documentary material from any such government or
authority with respect to the transactions contemplated by this Agreement, then
such party will endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other party, an
appropriate response in compliance with such request. Galen will advise Warner
promptly in respect of any understandings, undertakings or agreements (oral or
written) which Galen proposes to make or enter into with the Federal Trade
Commission, the Department of Justice, or any other domestic or foreign
government or governmental or multinational authority in connection with the
transactions contemplated by this Agreement.
SECTION 6.06 Public Announcements. The initial press release with respect
to the execution of this Agreement shall be a joint press release acceptable to
Warner and Galen. Thereafter, so long as this Agreement is in effect, Warner and
Galen shall consult with each other before issuing any press release or
otherwise making any public statements with respect to the Transactions or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law, Nasdaq, the LSE
or the ISE if it has used all reasonable best efforts to consult with the other
party.
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SECTION 6.07 Employee Benefit Arrangements. Galen agrees that it will
honor, or cause Warner to honor, all obligations under employee arrangements
(the "Employee Arrangements") to which Warner or any of its Subsidiaries is
presently a party which are listed in the Employee Arrangements Schedule.
Notwithstanding the foregoing, from and after the Effective Time, subject to the
remaining provisions of this Section 6.07, Galen shall have the right to amend,
modify, alter or terminate any Employee Arrangements of Warner; provided, that
any such action shall not in the reasonable opinion of Galen adversely affect
the rights of any employees or other beneficiaries which shall have arisen (1)
under the Warner Option Plan; (2) under any Employee Arrangement prior to such
amendment, modification, alteration or termination; or (3) under any agreement
which requires the consent of the employee or any other party or beneficiary for
amendment, modification, alteration or termination, without obtaining such
consent. Notwithstanding the foregoing, for a period of one year following the
Effective Time, Galen shall continue to provide to employees of Warner and its
Subsidiaries (excluding employees covered by collective bargaining agreements)
broad-based employee benefit plans and arrangements which are in the aggregate
in the reasonable opinion of Galen no less favorable than those provided to such
employees as of the date hereof, provided always that nothing in this section
shall obligate Galen to continue (or procure to be continued) the employment of
any particular employee or employees during such period. Solely for purposes of
eligibility and vesting under Employee Arrangements (including without
limitation plans or programs of Galen and its affiliates after the Closing), all
service with Warner or any of its Subsidiaries or their predecessors prior to
the Closing shall be treated as service with Galen and its affiliates.
SECTION 6.08 Indemnification.
(a) Galen agrees that all rights to indemnification now existing in favor
of any director or officer of Warner and its Subsidiaries (the "Indemnified
Parties") as provided in their respective charters or by-laws or, in an
agreement between an Indemnified Party and Warner or one of its Subsidiaries,
shall survive the Transactions and shall continue in full force and effect for a
period of not less than six years from the Effective Time; provided, that in the
event any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until final disposition of any and all such claims. After the Effective Time,
Galen agrees to cause Warner to honor all rights to indemnification referred to
in the preceding sentence. Without limitation of the foregoing, in the event any
such Indemnified Party is or becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter, including, without
limitation, the transactions contemplated by this Agreement, occurring prior to,
and including, the Effective Time, Warner will cause to be paid in accordance
with the applicable charters, by-laws and agreements, as incurred such
Indemnified Party's legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith. Galen shall pay
all reasonable expenses, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other obligations provided for
in this Section 6.08 subject to the limitations of Northern Ireland law to the
extent applicable.
(b) Galen agrees that Warner shall cause to be maintained in effect for not
less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by Warner; provided,
that Galen may substitute therefor other policies not less advantageous (other
than to a de minimus extent) to the beneficiaries of the current policies and
provided that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time; and
provided, further, that Galen shall not be required to pay an annual premium in
excess of 300% of the last annual premium paid by Warner prior to the date
hereof and if Galen is unable to obtain the insurance required by this Section
6.08(b) it shall obtain as much comparable insurance as possible for an annual
premium equal to such maximum amount.
(c) Galen, unless prevented by laws or regulations in any relevant
jurisdiction, LSE, UKLA or SEC, shall take, prior to the Effective Time, all
appropriate actions within their remit to appoint to the Galen Board Messrs.
Boissoneault and Herendeen with effect from the Effective Time, provided that
neither of these individuals nor Warner shall have taken any action or omitted
to fulfill any obligation which would result in the termination of his
Employment Agreement or affect the ability of his Employment Agreement to become
unconditional. Galen further agrees (to the extent permitted by law) to
indemnify and hold harmless Roger
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Boissonneault and Paul Herendeen against and in respect of all actions, claims,
liabilities and losses which they may suffer or incur as persons responsible for
the Listing Particulars to the same extent as Galen is permitted under
applicable law to indemnify its existing directors.
(d) Galen agrees that with effect from the publication of the Listing
Particulars it will procure that Roger Boissonneault and Paul Herendeen shall be
covered by Galen's existing Directors and Officers liability insurance policy in
respect of liabilities as proposed Directors of Galen to the same extent as
Galen's existing Directors are so covered.
SECTION 6.09 Notification of Certain Matters. Galen and Warner shall
promptly notify each other of (a) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (i) to cause any representation or
warranty of any party hereto contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time or (ii) to cause any material covenant, condition or agreement of
any party hereto under this Agreement not to be complied with or satisfied in
all material respects and (b) any failure of any party hereto to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder in any material respect; provided, however, that no such
notification shall affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder .
SECTION 6.10 No Solicitation; Termination Right.
(a) Warner agrees that, during the term of this Agreement or, if sooner,
until the date upon which this Agreement is terminated, it shall not, and shall
not authorize or permit any of its Subsidiaries or any of its or its
Subsidiaries' directors, officers, employees, agents or representatives,
directly or indirectly, to solicit, initiate, or furnish or disclose non-public
information in furtherance of, any inquiries or the making of any proposal with
respect to any recapitalization, merger, consolidation or other business
combination involving Warner, or acquisition of any capital (other than upon
exercise of the Options or Warrants which are outstanding as of the date hereof)
or any material portion of the assets (except for acquisition of assets in the
ordinary course of business consistent with past practice) of Warner and its
Subsidiaries, or any combination of the foregoing (a "Competing Transaction"),
or negotiate, or otherwise engage in discussions with any person (other than
Galen or their respective directors, officers, employees, agents and
representatives) with respect to any Competing Transaction or enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Acquisition or any other transactions contemplated by
this Agreement; provided, that prior to the hearing of the Petition, and having
complied with Section 6.10(b) hereof, Warner may furnish information to, and
negotiate or otherwise engage in discussions with, any party who initiates
contact with Warner regarding a Competing Transaction if and so long as the
Board of Directors of Warner determines in good faith, after being advised as to
legal matters by its outside counsel and as to financial matters from its
independent financial adviser, that failing to consider and cooperate with such
other party regarding such Competing Transaction would be likely to constitute a
breach of the fiduciary duties of the Board under applicable law.
(b) Warner shall, and shall cause its Subsidiaries, directors, officers,
employees, agents and representatives immediately to cease all existing
activities, discussions and negotiations with any parties conducted heretofore
with respect to any Competing Transaction. Warner agrees that neither the Board
of Directors nor any committee thereof will, during the period referenced in the
first sentence of Subsection (a), (A) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Galen, the Warner Board
Recommendation, or (B) approve or recommend, or propose publicly to approve or
recommend, any Competing Transaction, unless the Board of Directors of Warner
(after being advised as referred to in Section 6.10(a) hereof) determines in
good faith that failure to do so would be likely to result in breach of its
fiduciary duties under applicable law. During the period referenced in the first
sentence of Subsection (a), Warner shall immediately advise Galen orally (so far
as is reasonably practicable) and in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals relating
to a Competing Transaction, such advice to include the material terms and
details thereof (so far as then known to Warner), provided that, for the
avoidance of doubt, Warner shall not be obliged to disclose the identity of any
third party involved in any such possible Competing Transaction unless and until
notice is given by Warner pursuant to
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sub-section (d) of this Section 6.10 of an intention to take any action referred
to in (A) or (B) above in connection with such Competing Proposal. Warner will
keep Galen reasonably informed of the status and details (including amendments
or proposed amendments)of any such inquiries, discussions, negotiations or
proposals relating to a Competing Transaction.
(c) Notwithstanding the foregoing, in the event that the Warner Board
receives a proposal for a Competing Transaction that it determines in good faith
is reasonably capable of being completed, taking into account all legal,
financial, regulatory and other aspects of the proposal and which would, if
completed, result in a transaction (involving at least 50% of the Warner Shares
in issue and/or 50% of the assets of Warner and its Subsidiaries as the case may
be) which is determined by a majority of the members of the Warner Board (being,
where relevant, a majority of those members who shall be disinterested in the
proposal), in good faith (after receiving advice from Warner's independent
financial adviser that the proposal for a Competing Transaction is more
favorable to the Warner Shareholders, from a financial point of view, than the
Scheme and the Transactions), to be more favorable to Warner Shareholders than
the Scheme and the Transactions (a "Superior Proposal"), the Warner Board may
terminate this Agreement pursuant to Section 8.01(e)hereof and may take any of
the actions described in sub-section (A) and (B) in Section 6.10(b) above in
relation to the Superior Proposal and enter into a letter of intent,
agreement-in-principle, acquisition agreement or other similar agreement, but in
any case only after complying with the provisions of sub-section (d) below.
(d) At such time as Warner intends to take any action as set forth in
Section 6.10(b) (A) or (B) in relation to a Superior Proposal, Warner shall
provide to Galen written notice advising Galen that the Warner Board is prepared
to accept a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior Proposal
and confirming that such proposal is capable of creating a legally binding
agreement upon Termination of this Agreement. Until the expiry of a period of
five Business Days following receipt of such written notice (the "Period of
First Refusal") or, if earlier, until receipt of a Refusal Notice, Warner hereby
undertakes not to proceed in any way with the Superior Proposal, including
taking any action as set out in clause 6.10(b)(A) or (B) above. During this
period, Galen shall be able to (A) present in writing to Warner a revised
proposal (capable of creating a legally binding amendment to this Agreement upon
acceptance by Warner within the Period of First Refusal) to continue with the
Acquisition (the "Revised Proposal") or (B) present in writing to Warner notice
that Galen does not intend to revise the current proposals as set out in this
Agreement in response to notice of such Superior Proposal (the "Refusal
Notice"). On receipt of the Revised Proposal Warner shall procure that a meeting
of the Warner Board shall consider the terms thereof. In the event that the
Revised Proposal is determined by a majority of the members of the Warner Board
(being, where relevant, a majority of such members who shall be disinterested in
the Superior Proposal) in good faith (after receiving advice from Warner's
independent financial adviser that the Revised Proposal is more favorable to
Warner Shareholders, from a financial point of view, than the Superior Proposal)
to be more favorable to Warner's shareholders than the Superior Proposal, taking
into account all legal, financial, regulatory and other aspects of the proposal,
Warner undertakes to and to procure that its subsidiaries, directors, officers,
employees, agents and representatives shall cease all existing activities,
discussions and negotiations with any party with respect to the Superior
Proposal ) save that the provisions of this Section 6.10 shall apply ab initio
in relation to any proposed amendment to such Superior Proposal). Otherwise, (x)
in the event that the Revised Proposal is determined (on the same bases as
stated in the previous sentence) by the Warner Board to be less favorable than
the Superior Proposal, or (y) in the event that a Refusal Notice is served on
Warner, or (z) on the expiry of the Period of First Refusal without service of a
Revised Proposal or a Refusal Notice, Warner shall be entitled to terminate this
agreement as provided by Section 6.10(c) above and to proceed with any such
actions as set forth in clause 6.10(b)(A) and (B) above.
SECTION 6.11 Termination of Scheme. Galen hereby covenants and agrees
that in the event that this Agreement is terminated, Galen will provide all such
reasonable cooperation to Warner in relation to any steps reasonably necessary
to or appropriate in connection with the abandonment of the Scheme.
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SECTION 6.12 Additional Action.
(a) If the Irish Takeover Panel Act, 1997 (Takeover) Rules, 1997 or any
other takeover statute ("Takeover Statute") shall become applicable to the
transactions contemplated hereby, Warner and Galen and the members of their
respective Boards of Directors of Warner, subject to their respective fiduciary
duties, shall grant such approvals and take such actions as are necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby (which shall include the provision
by Warner and its directors and officers of all suitable assistance and
information which may be necessary to or reasonably requested by Galen in
connection with the preparation of any offer document required to be published
by the Irish Takeover Panel, which shall be given in a prompt fashion) and
otherwise act to eliminate or minimize the effects of such Takeover Statute on
the transactions contemplated hereby.
(b) Galen shall ensure that Warner shall have access to sufficient funds
which may be required pursuant to any rights of the holders of Warner's
outstanding 12 5/8% Senior Notes due 2008 (the "Notes") triggered by the
entering into by Warner of the Transactions and, to the extent required by the
terms of the Notes, will, with effect from the Effective Time, comply, or cause
Warner to comply, in all respects with Warner's obligations under the indenture
governing the Notes.
(c) Galen shall use its reasonable best efforts to cause the Galen ADSs to
be listed for trading on Nasdaq at the Effective Time.
(d) Prior to the Effective Time Galen shall procure the adoption of a new
share option scheme for the benefit of US employees on terms mutually acceptable
to it and Warner (in each case acting reasonably) which scheme shall have due
regard to the requirements of both US and UK law, regulation, custom and
practice.
ARTICLE VII -- CONDITIONS
SECTION 7.01 Conditions. The obligations of the parties to effect the
Scheme are subject to the satisfaction (or, to the extent permitted by Section
7.02 or 7.03, waiver) of each of the conditions set out in this Section 7.01 and
in Sections 7.02 and 7.03 on or before the earlier of the Effective Time or 5
p.m. on December 29, 2000 (the "Outside Date").
(a) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect or pending (i) imposing or seeking to
impose material limitations on the ability of Galen to acquire or hold or
to exercise full rights of ownership of any Warner Shares; (ii) imposing or
seeking to impose material limitations on the ability of Galen and its
Affiliates to combine, operate or control the business and assets of
Warner; (iii) imposing or seeking to impose other material sanctions,
damages, or liabilities directly arising out of the Transactions on Galen
or Warner; (iv) requiring or seeking to require divestiture by Galen of all
or any material portion of the business, assets or property of Warner; or
(v) preventing the consummation of the Transactions.
(b) Governmental Action. No action or proceeding shall be instituted,
proposed or threatened by any Governmental Entity seeking to prevent
consummation of the Acquisition, asserting the illegality of the
Acquisition or this Agreement or seeking material damages directly arising
out of the transactions contemplated hereby which continues to be
outstanding.
(c) Galen Shareholder Approval. The Galen Shareholder Approval shall
have been obtained.
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(d) Antitrust Laws.
(i) The waiting period applicable to the consummation of the
Transactions under the HSR Act and any applicable foreign or
supranational Antitrust Laws shall have expired or been terminated; and
(ii) no action by the Department of Justice or Federal Trade
Commission or any foreign or supranational agency or entity charged with
enforcement of Antitrust Laws that are applicable to the transactions
contemplated hereby challenging or seeking to enjoin the consummation of
the Transactions shall have been instituted and be pending; and
(iii) to the extent that the Irish Mergers, Takeovers and
Monopolies (Control) Act, 1978 as amended (the "Mergers Act") is
applicable, the Minister for Enterprise, Trade and Employment of Ireland
shall have stated in writing, pursuant to Section 7(a) of the Mergers
Act, that he/she does not intend to make an order under Section 9 of the
Act in relation to the Acquisition or, in the event of the said Minister
making an order under Section 9 prohibiting the implementation of the
Scheme except on conditions specified in the said order, Galen in its
absolute discretion having decided to accept such conditions or, in the
event of no order under that section being made and the said Minster not
stating in writing that he/she does not intend to make such an order,
the relevant period within the meaning of Section 6 of that Act having
elapsed.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing or prohibiting the consummation of the Transactions
or materially limiting or restricting Galen's conduct or operation of the
business of Warner after the relevant Closing shall have been issued and be
in effect, nor shall any proceeding brought by a domestic administrative
agency or commission or other domestic Governmental Entity, seeking any of
the foregoing be pending; nor shall any action have been taken or any
statute, rule, regulation or order have been enacted, entered or enforced
or be deemed applicable to the Transactions which makes the consummation of
the Transactions illegal or prevents or prohibits the Transactions.
(f) Warner Shareholder and Court Approvals.
(i) Approval of the Scheme in substantially the form attached as
Annex A by a majority in number representing three-fourths in value of
the holders of Scheme Shares present and voting, either in person or by
proxy, at the Court Meeting;
(ii) the Warner EGM Resolution (as described in Section 1.01(b))
being duly passed as a special resolution at the Warner EGM;
(iii) the Scheme in substantially the form attached as Annex A
being sanctioned by the Court (without modification save as agreed by
Warner and Galen) and the Capital Reduction being confirmed by the
Court; and
(iv) an official copy of the Final Court Order and the minute of
the Capital Reduction of capital being duly delivered to the Registrar
of Companies in Ireland for registration and such Registrar issuing a
certificate of registration in relation to the Capital Reduction.
(g) Effective Registration Statement. The Registration Statement shall
and if filed, the Registration Statement on Form F-4, have been declared
effective by the SEC and no stop order suspending its effectiveness shall
have been issued by the SEC and no proceedings for that purpose shall have
been initiated or, to the Knowledge of Galen or Warner, threatened by the
SEC, and all necessary approvals under blue sky laws relating to the
issuance or trading of the Galen Shares and the Galen ADSs to be issued to
the Warner Shareholders in connection with the Transactions shall have been
received.
(h) Nasdaq Listing. The Galen ADSs shall be listed for trading on
Nasdaq;
(i) UK Admission. The UKLA shall have agreed to admit the new Galen
Shares to be issued pursuant to the Scheme to the Official List of the UKLA
and the LSE shall have agreed to admit such
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shares to trading as referred to in section 1.02(c)(v), such agreements
shall not have been revoked or withdrawn and, no event shall have occurred
which will or may reasonably be expected to result in such agreements being
revoked or withdrawn.
SECTION 7.02 Conditions to the Obligations of Warner. The
obligations of Warner to implement the Scheme are subject to the
satisfaction or waiver by Warner of the following further conditions:
(a) each of the representations and warranties of Galen contained in
this Agreement shall be true, complete and correct in all material respects
both when made and on and as of the Effective Time as if made at and as of
the Effective Time (other than representations and warranties which address
matters only as of a certain date which shall be true, complete and correct
as of such certain date) and Warner shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of Galen to such
effect;
(b) Galen shall have performed or complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time and Warner shall have received
a certificate of an officer of Galen to that effect;
(c) there shall not have occurred any change, condition, event or
development that would result in a Material Adverse Effect on Galen;
(d) Warner shall be reasonably satisfied that the Transactions will
constitute a reorganization within the meaning of Section 368(a)(1)(B) of
the Code and that no gain or loss will be recognized by Warner Shareholders
for U.S. federal income tax purposes upon exchange of their Warner Shares
as set forth herein; and
(e) Galen, unless prevented by laws or regulations in any relevant
jurisdiction, LSE, UKLA or SEC, shall have taken, all appropriate actions
within their remit to appoint to the Galen Board Messrs. Boissoneault and
Herendeen with effect from the Effective Time, provided that neither of
these individuals nor Warner shall have taken any action or omitted to
fulfill any obligation which would result in the termination of his
Employment Agreement or affect the ability of his Employment Agreement to
become unconditional.
SECTION 7.03 Conditions to the Obligations of Galen. The obligations
of Galen to effect the Acquisition are subject to the satisfaction or
waiver by Galen of the following further conditions:
(a) each of the representations and warranties of Warner contained in
this Agreement shall be true, complete and correct in all material respects
both when made and on and as of the Closing as if made at and as of the
Closing (other than representations and warranties which address matters
only as of a certain date which shall be true, complete and correct as of
such certain date) and Galen shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of Warner to such effect;
(b) Warner shall have performed or complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time and Galen shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
Warner to that effect;
(c) there shall not have occurred any change, condition, event or
development that would result in a Material Adverse Effect on Warner;
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ARTICLE VIII -- TERMINATION; AMENDMENTS; WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the
Scheme and the Transactions may be abandoned at any time prior to the
making of the Final Court Order:
(a) by the mutual written consent of Galen and Warner;
(b) by Warner or Galen pursuant to the relevant provisions of this
Section 8.01, provided, however, that neither Warner or Galen may terminate
this Agreement pursuant to this Section 8.01 if such party shall have
materially breached this Agreement.
(c) by Galen or Warner if any court or other Governmental Entity shall
have issued, enacted, entered, promulgated or enforced any order, judgment,
decree, injunction, or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Transactions and such order,
judgment, decree, injunction, ruling or other action shall have become
final and nonappealable; provided, that the party seeking to terminate the
Agreement shall have used its reasonable best efforts to remove or lift
such order, decree or ruling;
(d) by Galen if the Warner Board shall have withdrawn or modified in a
manner adverse to Galen, or refrained from making the Warner Board
Recommendation, or shall have publicly disclosed its intention to change
such recommendation, unless Warner is at such time entitled to terminate
this Agreement pursuant to any of sub-sections (e),(f), or (k) of this
Section 8.01;
(e) by Warner, pursuant to and in accordance with Section 6.10(c) and
(d);
(f) by Warner in the event of any breach of the covenants and/or
representations and warranties of Galen contained in this Agreement which
has a Material Adverse Effect on Galen (and for this purpose a breach of
representation/warranty shall be regarded as having a Material Adverse
Effect on Galen if the actual state of affairs, when compared to the
position as represented/warranted, amounts to a change having such a
Material Adverse Effect) ;
(g) by Warner if the Galen Shareholder Approval has not been obtained
on or prior to October 31, 2000;
(h) by Warner if the Galen Board shall have withdrawn or modified in a
manner adverse to Warner, or refrained from making the Galen Board
Recommendation, or shall have publicly disclosed its intention to change
such recommendation, unless Galen is at such time entitled to terminate
this Agreement pursuant to any of sub-sections (i), (j)or (l) of this
Section 8.01;
(i) by Galen in the event of any breach of the covenants and/or
representations and warranties of Warner contained in this Agreement which
has a material adverse effect on Warner (and for this purpose a breach of
representation/warranty shall be regarded as having a Material Adverse
Effect on Warner if the actual state of affairs, when compared to the
position as represented/warranted, amounts to a change having such a
Material Adverse Effect);
(j) by Galen if the Warner Shareholder approval as referred to in
Section 7.01 (f) (i) and (ii) has not occurred on or prior to October 31,
2000;
(k) by Warner if (otherwise than as referred to in sub-section (f) of
this Section 8.01), there shall have occurred a change, condition, event or
development that would constitute a Material Adverse Effect on Galen;
(l) by Galen if (otherwise than as referred to in sub-section (i) of
this Section 8.01), there shall have occurred a change, condition, event or
development that would constitute a Material Adverse Effect on Warner; and
(m) by Warner if CSFB shall have withdrawn its written fairness
opinion referred to in Section 1.01(d) hereof.
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In the event that the Scheme does not become effective as a result of a failure
of any of the conditions set forth in Article VII hereof to be satisfied or
(where applicable) waived, within the time provided by Article VII, this
Agreement shall terminate automatically. For the avoidance of doubt, if this
Agreement terminates pursuant to this provision due to non-satisfaction or
(where applicable) waiver of the Galen Shareholder approval condition set forth
in Section 7.01(c) (unless Galen is at the time entitled to terminate this
Agreement pursuant to any of sub-sections 8.01(i) or (l)), or the Warner
Shareholder approval conditions set forth in Section 7.01(f)(i) and (ii) (unless
Warner is at the time entitled to terminate this Agreement pursuant to
sub-section 8.01(f) or (k)), such termination shall be treated in the same
manner as if notice of termination had been given pursuant to Section 8.01(g) or
(j), as the case may be and the corresponding provisions of Section 8.02(c) or,
as the case may be, (e) shall apply accordingly.
SECTION 8.02 Effect of Termination; Fees and Expenses.
(a) In the event of the termination of this Agreement pursuant to Section
8.01, this Agreement shall forthwith become void and have no effect without any
liability on the part of any party or its directors, officers or shareholders,
other than as provided by this Section 8.02 and Sections 6.06, 8.03 and 8.04 and
Articles IX and X, which shall survive any such termination. In the event of
such termination, the provisions of this Section 8.02 shall constitute the sole
and exclusive remedies of the parties, provided always that nothing contained in
this Section 8.02 shall relieve any party from liability for any breach of this
Agreement or the Confidentiality Agreement. Following such termination the sole
remedy for breach of this Agreement (other than Section 6.06) shall lie in
damages, provided that if it shall be judicially determined that termination of
this Agreement was caused by an intentional breach of this Agreement, then in
addition to damages for such breach, the party so found to have intentionally
breached this Agreement shall indemnify and hold harmless the other party for
its respective costs, fees and expenses of its counsel, accountants, financial
advisers and other experts and advisers incident to negotiation and preparation
of this Agreement.
(b) The prevailing party in any legal action undertaken to enforce this
Agreement or any provision hereof shall be entitled to recover from the other
party the costs and expenses (including attorneys' and expert witness fees)
incurred in connection with such action.
(c) Notwithstanding any provision in this Agreement to the contrary, if
this Agreement terminates pursuant to Section 8.01(d), (e), or (unless Warner is
at the time entitled to terminate this Agreement pursuant to sub-section (f) or
(k) of Section 8.01) (m), Warner shall pay to Galen on demand a sum equivalent
to the reasonable and documented costs and expenses incurred by Galen in
connection with this Agreement and all matters provided for or referred to
herein, including but not limited to the fees and expenses of its lawyers and
merchant banking advisors and any value added tax or similar tax on any such
costs and expenses (which shall include any fees payable in respect of the
facility arrangement put in place by Galen prior to the date of this Agreement
pursuant to its obligations under section 6.13(c) of this Agreement), provided
that the aggregate amount payable pursuant to this Section 8.02(c) shall not
exceed US$4.25 million. The provisions of this sub-section (c) shall also apply
if this Agreement terminates pursuant to Section 8.01(j) (unless, the average of
the closing middle market prices for one Galen Share as reflected by the London
Stock Exchange Daily Official List for the three Business Days prior to the date
of the Court Meeting and the Warner EGM (or the later of the two if different)
is less than or equal to 75% of the average of such closing middle market prices
for the 3 Business Days ended May 3, 2000).
(d) Notwithstanding any other provision in this Agreement to the contrary,
if this Agreement is terminated by Warner or Galen (as the case may be) pursuant
to Section 8.01(d), (e) or (unless Warner is at the time entitled to terminate
this Agreement pursuant to sub-section (f) or (k) of Section 8.01) (m), Warner
shall pay to Galen the sum of US$4.25 million (the "Termination Fee") in cash,
such payment to be made promptly, but in no event later than the fifth Business
Day following any such termination; provided, however, that any amount payable
under this Section 8.02(d) shall be reduced by the aggregate amount required to
be paid by Warner pursuant to Section 8.02(c) above.
(e) (i) Notwithstanding any provision in this Agreement to the contrary, if
this Agreement terminates pursuant to Section 8.01(g) or (h) (unless Galen is at
the time entitled to terminate this Agreement pursuant to sub-section (i) or (l)
of Section 8.01), Galen shall pay to Warner on demand a sum equivalent to the
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reasonable and documented costs and expenses incurred by Warner in connection
with this Agreement and all matters provided for or referred to herein,
including but not limited to the fees and expenses of its lawyers and merchant
banking advisors and any value added tax or similar tax on any such costs and
expenses, provided that the aggregate amount payable pursuant to this Section
8.02(e) shall not exceed US$4.25 million.
(ii) In addition, if this Agreement terminates pursuant to Section 8.01(h)
(except as referred to in Section 8.02 (e)(i)) then Galen shall pay to Warner
such additional amount if any as, when added to the sum referred to in Section
8.02(e)(i) shall be equal to the Termination Fee.
(f) If both parties are entitled to terminate this Agreement in accordance
with Section 8.01(g) or (j) (as applicable) then, notwithstanding any provision
of this Section 8.02, neither party will be obligated to pay any of the expenses
of the other party or the Termination Fee.
(g) The parties acknowledge that the agreements contained in Sections
8.02(c), (d) and (e) hereof are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Galen, on
the one hand, and Warner, on the other, would not enter into this Agreement.
Accordingly, if a party fails promptly to pay the amounts due pursuant to this
Section 8.02, (i) the party failing so to pay shall pay interest on such amounts
at the prime rate announced by the Chase Manhattan Bank, in effect on the date
the Termination Fee (or fees and expenses) were due to be paid in accordance
with this Agreement, and (ii) if in order to obtain such payment a party
commences a suit or takes other action which results in a judgment or other
binding determination against such party for the fees and expenses in Sections
8.02(c) or 8.02(e) hereof or the Termination Fee, the non-paying party shall
also pay to the party entitled to receive payment thereunder (as the case may
be) its costs and expenses (including reasonable attorneys' fees) in connection
with such suit, together with interest payable under the preceding clause (i).
SECTION 8.03 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
SECTION 8.04 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein by any other party or in
any document, certificate or writing delivered pursuant hereto by any other
party or (iii) waive compliance with any of the agreements of any other party or
with any conditions to its own obligations. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX -- MISCELLANEOUS
SECTION 9.01 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement, or past breaches thereof,
shall not survive beyond the Effective Time. Notwithstanding the foregoing, the
covenants set forth herein shall survive the Effective Time indefinitely (except
to the extent a shorter period of time is explicitly specified therein).
SECTION 9.02 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred to
herein) and the confidentiality agreements entered into by the parties prior to
the date of this Agreement, constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder will be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the other party. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
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SECTION 9.03 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
SECTION 9.04 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
<TABLE>
<S> <C>
If to Galen: Galen Holdings Plc
Seagoe Industrial Estate
Craigavon
Northern Ireland
BT63 5UA
Attention: Company Secretary
Fax: 00 44 1762-331-500
with copies to: Ashurst Morris Crisp
Broadwalk House
5 Appold Street
London EC2A 2HA
Attention: Steven Fox
Fax: 00 44-207-972-7990 and:
99 Bishopsgate
London EC2M 3XF
Attention: Mark Stegemoeller
Fax: 00 44-207-374-4460
If to Warner: Warner Chilcott, PLC
Rockaway
NJ 07868
USA
Attention: General Counsel
Fax: 001-973-442-3316 with a
copy to:
153 East 53rd Street
New York
NY 10022-4675
Attention: Frederick Tanne
Fax: 001-212-446-4900 and
10 Norwich Street
London EC4A 1BD
Attention: Mary Leth
Fax: 00 44-207-831-9607
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof or otherwise.
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SECTION 9.06 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.07 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 9.08 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except with respect
to Sections 6.06 and 6.07 nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.09 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
ARTICLE X -- DEFINITIONS
SECTION 10.01 Certain Definitions. As used in this Agreement unless the
context requires otherwise:
"ADRs" shall mean American Depositary Receipts.
"Affiliate", as applied to any person, shall mean any other person
directly or indirectly controlling, controlled by, or under common control
with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through
the ownership of voting securities, by contract or otherwise.
"Acquisition" has the meaning given thereto in the preamble hereof.
"Agreement" has the meaning given thereto in the preamble hereof.
"Amendments" has the meaning given thereto in the preamble hereof.
"Antitrust Laws" has the meaning given thereto in Section 6.05(b)
hereof.
"Business Day" means any day other than a Saturday, Sunday or public
holiday in New York or the United Kingdom.
"Capital Reduction" has the meaning given thereto in Section 1.01(b).
"Code" has the meaning given thereto in the preamble hereof.
"Competing Transaction" has the meaning given thereto in Section
6.10(a) hereof.
"Confidentiality Agreement" has the meaning given thereto in Section
9.02(a) hereof.
"Court" has the meaning given thereto in the preamble hereof.
"Court Meeting" has the meaning given thereto in Section 1.01(b)
hereof.
"CSFB" has the meaning given thereto in Section 1.01(d) hereof.
"Depositary" has the meaning given thereto in the preamble hereof.
"Effective Date" has the meaning given thereto in the Scheme.
"Effective Time" has the meaning given thereto in the Scheme.
"Employee Arrangements" has the meaning given thereto in Section 6.07
hereof.
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"Employment Agreements" means employment agreements and option
rollover agreements between Galen or one of its Subsidiaries and each of
(i) Roger M. Boissonneault and (ii) Paul Herendeen, together with a
severance agreement between Mr Andress and Warner or one of its
subsidiaries in respect of Mr Andress's current employment contract with
Warner;
"Environmental Laws" has the meaning given thereto in Section 4.15
hereof.
"ERISA" has the meaning given thereto in Section 4.12(a) hereof.
"ERISA Affiliate" has the meaning given thereto in Section 4.12(d)
hereof.
"Exchange Act" has the meaning given thereto in Section 1.02(b)
hereof.
"FDA" has the meaning given thereto in Section 4.21 hereof.
"Final Court Order" has the meaning given thereto in Section 1.01(e)
hereof.
"Galen" has the meaning given thereto in the preamble hereof.
"Galen ADSs" has the meaning given thereto in the preamble hereof.
"Galen Board" has the meaning given thereto in Section 1.02(e) hereof.
"Galen Board Recommendation" has the meaning given thereto in Section
1.02(d) hereof.
"Galen Disclosure Letter" has the meaning given thereto in Article V
hereof.
"Galen Leases" has the meaning given thereto in Section 5.18(b)
hereof.
"Galen Material Contracts" has the meaning given thereto in Section
5.19 hereof.
"Galen Meeting" has the meaning given thereto in Section 1.02(c)
hereof.
"Galen Memorandum and Articles" has the meaning given thereto in
Section 5.01(a) hereof.
"Galen Owned Property" has the meaning given thereto in Section
5.18(a) hereof.
"Galen Permits" has the meaning given thereto in Section 5.08 hereof.
"Galen Public Documents" has the meaning given thereto in Section 5.05
hereof.
"Galen Representatives" has the meaning given thereto in Section 6.03
hereof.
"Galen Shareholders" has the meaning given thereto in Section 1.02(c)
hereof.
"Galen Shares" has the meaning given thereto in the preamble hereof.
"Galen Shareholder Agreement" has the meaning given thereto in the
preamble hereof.
"Galen Shareholder Approval" has the meaning given thereto in Section
1.02(c) hereof.
"Galen Stock Plans" has the meaning given thereto in Section 5.02(a)
hereof.
"Governmental Entity" has the meaning given thereto in Section 4.04
hereof.
"HSR Act" has the meaning given thereto in Section 4.04 hereof.
"Indemnified Parties" has the meaning given thereto in Section 6.08(a)
hereof.
"Intellectual Property Rights" has the meaning given thereto in
Section 4.14 hereof.
"Ireland" unless preceded by the word "Northern" means the Republic of
Ireland and "Irish" shall be construed accordingly.
"Irish Companies Act" has the meaning given thereto in the preamble
hereof.
"Irish Law" has the meaning given thereto in the preamble hereof.
"IRS" means the US Internal Revenue Service.
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"ISE" means the Irish Stock Exchange.
"Knowledge of Galen" has the meaning given thereto in Section 5.08
hereof.
"Knowledge of Warner" has the meaning given thereto in Section 4.08
hereof.
"Laws" has the meaning given thereto in Section 4.21 hereof.
"Liens" means liens, security interests, options, rights of first
refusal, easements, mortgages, charges, pledges, deeds of trust,
rights-of-way, restrictions, encroachments, licenses, leases, permits,
security agreements, or any other encumbrances, restrictions or limitations
on the use of real or personal property, whether or not they constitute
specific or floating charges.
"Listing Particulars" has the meaning given thereto in Section 1.02(c)
hereof.
"Listing Rules" has the meaning given thereto in Section 1.02(c)
hereof.
"LSE" has the meaning given thereto in Section 1.01(a) hereof.
"Material Adverse Effect" has the meaning given thereto in Section
4.01(a) hereof.
"Material Agreement" has the meaning given thereto in Section 4.03(b)
hereof.
"Mergers Act" has the meaning given thereto in Section 7.01(d) hereof.
"Nasdaq" has the meaning given thereto in Section 1.01(a) hereof.
"Notes" has the meaning given thereto in Section 6.12(c).
"Option" has the meaning given thereto in Section 3.01 hereof.
"Outside Date" has the meaning given thereto in Section 7.01.
"Pension Plan" has the meaning given thereto in Section 4.12(d)
hereof.
"Period of First Refusal" has the meaning given thereto in Section
6.10(d).
"Permits" has the meaning given thereto in Section 4.08 hereof.
"Permitted Liens" has the meaning given thereto in Section 4.19(a)
hereof.
"Per Share Consideration" has the meaning given thereto in the
preamble hereof.
"Person" or "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act ).
"Petition" has the meaning given thereto in Section 1.01(e) hereof.
"Proxy Statement" has the meaning given thereto in Section 1.01 (b)
hereof.
"PS/P" has the meaning given thereto in Section 1.01(g) hereof.
"Refusal Notice" has the meaning given thereto in Section 6.10(d).
"Registration Statement" has the meaning given thereto in Section
1.02(b) hereof.
"Restraints" has the meaning given thereto in Section 7.01(a) hereof.
"Scheme" has the meaning given thereto in the preamble hereof.
"Scheme Shareholders" shall mean the registered holders of the Scheme
Shares as at the Scheme Record Time (and in relation to any time after the
Effective Time, the persons who were the registered holders of the Scheme
Shares as at such time, notwithstanding the cancellation of the Scheme
Shares).
"Scheme Shares" has the meaning given thereto in the Scheme.
"SEC" has the meaning given thereto in Section 1.01(a) hereof.
40
<PAGE> 271
"Section 201" has the meaning given thereto in Section 1.01(e) hereof.
"Securities Act" shall mean the U.S. Securities Act of 1933.
"State and Foreign Approvals" has the meaning given thereto in Section
4.04 hereof.
"Subsidiary" or "Subsidiaries" has the meaning given thereto in
Section 4.01 hereof.
"Substitute Option" has the meaning given thereto in Section 3.01
hereof.
"Superior Proposal" has the meaning given thereto in Section 6.10(c).
"Takeover Statute" has the meaning given thereto in Section 6.12(a).
"Taxes" mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest penalty, or addition thereto, whether
disputed or not.
"Tax Return" has the meaning given thereto in Section 4.09 hereof.
"Termination Fee" has the meaning given thereto in Section 8.02(d)
hereof.
"Transactions" has the meaning given thereto in the preamble hereof.
"U.K. GAAP" has the meaning given thereto in Section 5.05 hereof.
"U.K. Listing Authority" or "UKLA" has the meaning given thereto in
Section 1.02(c) hereof.
"U.S. GAAP" has the meaning given thereto in Section 4.05 hereof.
"Warrants" means the warrants to buy Warner Shares listed in Section
4.02(a) of the Warner Disclosure Letter.
"Warner" has the meaning given thereto in the preamble hereof.
"Warner ADSs" has the meaning given thereto in the preamble hereof.
"Warner Board" has the meaning given thereto in Section 1.01(d)
hereof.
"Warner Board Recommendation" has the meaning given thereto in Section
1.01(d) hereof.
"Warner Deferred Shares" has the meaning given thereto in Section
4.02(a) hereof.
"Warner Disclosure Letter" has the meaning given thereto in Article IV
hereof.
"Warner EGM" has the meaning given thereto in Section 1.01(b) hereof.
"Warner EGM Resolution" has the meaning given thereto in Section
1.01(b) hereof.
"Warner Ex-U.S. Pension Plan" has the meaning given thereto in Section
4.12(e) hereof.
"Warner Leased Property" has the meaning given thereto in Section
4.19(b) hereof.
"Warner Leases" has the meaning given thereto in Section 4.19(b)
hereof.
"Warner Material Contracts" has the meaning given thereto in Section
4.20 hereof.
"Warner Memorandum and Articles" has the meaning given thereto in
Section 4.01(a) hereof.
"Warner Multiemployer Plan" has the meaning given thereto in Section
4.12(d) hereof.
"Warner Option Plan" has the meaning given thereto in Section 4.02(a)
hereof.
"Warner Owned Property" has the meaning given thereto in Section
4.19(a) hereof.
41
<PAGE> 272
"Warner Permits" has the meaning given thereto in Section 4.08 hereof.
"Warner Plan" has the meaning given thereto in Section 4.12(d) hereof.
"Warner Real Property" has the meaning given thereto in Section
4.19(b) hereof.
"Warner Representatives" has the meaning given thereto in Section
6.03(a) hereof.
"Warner SEC Documents" has the meaning given thereto in Section 4.05
hereof.
"Warner Shareholders" means holders of Warner Shares.
"Warner Shares" has the meaning given thereto in the preamble hereof.
"Warner Stock Options" has the meaning given thereto in Section 4.02
hereof.
"Welfare Plans" has the meaning given thereto in Section 4.12(d)
hereof.
"Wholly-owned Subsidiary" has the meaning given thereto in Section
4.01(a) hereof.
"Worker Safety Laws" has the meaning given thereto in Section 4.15
hereof.
42
<PAGE> 273
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
GALEN HOLDINGS, PLC
By: /s/ JOHN KING
------------------------------------
Name: Dr. John King
Title: CEO
WARNER PUBLIC LIMITED COMPANY
By: /s/ ROGER M. BOISSONNEAULT
------------------------------------
Name: Roger M. Boissonneault
Title: COO
43
<PAGE> 274
ANNEX B
THE HIGH COURT
2000 NO. COS
IN THE MATTER OF WARNER CHILCOTT PUBLIC LIMITED COMPANY
AND
IN THE MATTER OF THE COMPANIES ACT, 1963
------------------------
SCHEME OF ARRANGEMENT
(UNDER SECTION 201 OF THE COMPANIES ACT, 1963)
BETWEEN
WARNER CHILCOTT PUBLIC LIMITED COMPANY
AND
THE HOLDERS OF WARNER ORDINARY SHARES
(OTHER THAN GALEN-HELD WARNER ORDINARY SHARES)
AND WARNER DEFERRED SHARES
(EACH AS HEREINAFTER DEFINED)
<PAGE> 275
PRELIMINARY
In this Scheme, unless inconsistent with the subject or context, the
following expressions bear the following meanings:
"business day" a day (other than a Saturday or Sunday) on
which banks are open for business in Dublin,
London and New York;
"Court" the High Court of Ireland;
"Court Meeting" the meeting of holders of Warner Ordinary
Shares (other than holders of Galen-held Warner
Ordinary Shares) convened by direction of the
Court pursuant to section 201 of the Companies
Act, 1963, including any adjournment thereof;
"Effective Date" the date on which the Scheme becomes effective
in accordance with its terms;
"Effective Time" the time on the Effective Date at which the
Scheme becomes effective in accordance with its
terms;
"Galen" Galen Holdings Public Limited Company, a public
limited company incorporated in Northern
Ireland on 23 August 1991 under the Companies
(Northern Ireland) Order 1986 (as amended),
with registered number 25836;
"Galen Shares" ordinary shares of 10p each in the capital of
Galen;
"Galen-held Warner Shares" Warner Ordinary Shares held by or on behalf of
Galen or any subsidiary undertaking of Galen;
"Hearing Date" the date on which the Order is made;
"holder" a registered holder and includes any person(s)
entitled by transmission;
"Ireland" the Republic of Ireland;
"New Galen Shares" the meaning given to that expression in Clause
2(A);
"New Warner Shares" the meaning given to that expression in Clause
1(B)(i);
"Order" the order of the Court sanctioning the Scheme
under section 201 of the Companies Act, 1963;
"Per Share Consideration" the meaning given to that expression in Clause
2(A);
"Relevant Holders" holders of Scheme Shares whose names appear in
the register of members of Warner at the Scheme
Record Time;
"Scheme" this scheme in its present form or with or
subject to any modification, addition or
condition approved or imposed by the Court;
"Scheme Deferred Share" Warner Deferred Shares which constitute Scheme
Shares;
"Scheme Ordinary Shares" Warner Ordinary Shares which constitute Scheme
Shares;
"Scheme Record Time" 5.00 p.m. on the business day immediately
preceding the Effective Date;
"Scheme Shares" (i) the Warner Ordinary Shares (excluding any
Galen-held Warner Ordinary Shares) and the
Warner Deferred Shares in issue at the date
of this document; and
B-1
<PAGE> 276
(ii) any Warner Ordinary Shares (excluding any
Galen-held Warner Ordinary Shares) issued
after the date of this document and prior
to the commencement of the Court Meeting
or issued after the commencement of the
Court Meeting and prior to 5.00 p.m. on
the day before the Hearing Date on terms
that the original or any subsequent holder
thereof shall be bound by the Scheme;
"subsidiary undertaking" a subsidiary undertaking as that term is
defined in Regulation 4 of the European
Communities (Companies: Group Accounts)
Regulations, 1992;
"United Kingdom" the United Kingdom of Great Britain and
Northern Ireland;
"United States" the United States of America;
"Warner" Warner Chilcott Public Limited Company, a
public limited company incorporated in the
Republic of Ireland on 7 July 1992 under the
Companies Acts, 1963 to 1990, with registered
number 191050;
"Warner Deferred Shares" deferred shares of IR(pound sterling)1 each in
the capital of Warner;
"Warner Ordinary Shares" ordinary shares of $0.05 each in the capital of
Warner;
"$" United States dollars;
"(pound sterling)" and "p" pounds and pence sterling;
"IR(pound sterling)" and "IR" Irish pounds and pence.
(D) The authorized share capital of Warner is US$2,500,000 and IR(pound
sterling)30,000 divided into 50,000,000 Warner Ordinary Shares and 30,000 Warner
Deferred Shares of which as at close of business on 2000 (the last
practicable date before publication of this document) Warner Ordinary
Shares and 30,000 Warner Deferred Shares were in issue and were fully paid or
credited as fully paid and the remainder of the Warner Ordinary Shares were
unissued.
(C) The authorized share capital of Galen is (pound sterling)17,000,000
divided into 170,000,000 Galen Shares of which as at close of business on
2000 (the last practicable date before publication of this document) Galen
Shares were in issue and were fully paid or credited as fully paid and the
remainder of the Galen Shares were unissued.
(D) Galen holds one Warner Ordinary Share and no Warner Deferred Shares.
(E) The holders of the 30,000 issued Warner Deferred Shares have agreed to
be bound by the Scheme.
(F) James Andress, Roger M. Boissonneault and Paul Herendeen (the "Excluded
Officers"), being officers of Warner, have beneficial interests in 132,500,
124,500 and 122,500 Warner Ordinary Shares respectively; and each of the
Excluded Officers has agreed to procure that the voting rights attaching to the
Warner Ordinary Shares in which he has an interest will not be exercised at the
Court Meeting and that such shares shall not be represented at that meeting and
has further agreed in respect of those shares that, subject to the Scheme
becoming effective as described in Clause 5(A), he will be bound by the Scheme
and he will execute and do or procure to be executed and done all such
documents, acts and things as may be necessary to be executed or done by him for
the purpose of giving effect to the Scheme.
(G) Galen has agreed to appear by Counsel on the hearing of the petition to
sanction the Scheme and to undertake to the Court that, subject to the Scheme
having become effective, it will be bound thereby and will execute and do or
procure to be executed and done all such documents, acts and things as may be
necessary or desirable to be executed or done by it for the purpose of giving
effect to the Scheme.
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<PAGE> 277
THE SCHEME
1. Cancellation of Scheme Shares
(A) At the Effective Time, the share capital of Warner shall be
reduced by the cancelation and extinguishment of the Scheme Shares.
(B) Forthwith and contingently upon the reduction of capital referred
to in Clause 1(A) taking effect:
(i) the share capital of Warner shall be increased to its former
amount by the creation of such number of new Warner Ordinary Shares and
new Warner Deferred Shares (collectively "New Warner Shares") as shall
equal the number of Scheme Ordinary Shares and Scheme Deferred Shares
respectively, such New Warner Shares to confer the same respective
rights and be subject to the same respective restrictions as the Scheme
Shares of the same class; and
(ii) Warner shall apply the reserves arising as a result of the
cancelation of the Scheme Ordinary Shares and the Scheme Deferred Shares
in paying up in full at par the new Warner Ordinary Shares and the new
Warner Deferred Shares respectively which are referred to in Clause
1(b)(i) above and which shall be allotted and issued credited as fully
paid to Galen and/or its nominee(s).
2. Consideration for the cancelation of Scheme Shares
(A) In consideration for the cancelation of the Scheme Shares and the
issue to Galen of the new Warner Shares, Galen shall allot and issue new
Galen Shares credited as fully paid ("New Galen Shares") to and amongst the
Relevant Holders of Scheme Shares on the following basis:
(i) for each Scheme Ordinary Share, 2.5 New Galen Shares (the "Per
Share Consideration");
provided that no fractional New Galen Shares shall be issued to any such
Relevant Holder of Scheme Ordinary Shares and if but for this provision any
such Relevant Holder would be entitled to a fractional New Galen Share such
fractional entitlement shall be rounded down to a whole share which shall
be allotted and issued to such Relevant Holder; and
(ii) for all the Scheme Deferred Shares, one New Galen Share which
shall be allotted and issued to the holders of the Scheme Deferred
Shares jointly;
(B) If, between 4 May 2000 and the Effective Time, Galen Shares shall
be changed into a different number of shares or a different class of shares
by reason of any reclassification, consolidation, subdivision or
cancelation or if a capitalization issue of shares to the holders of Galen
Shares shall be declared with a record date within such period (in any such
case a "Galen Share Adjustment"), then the Per Share Consideration shall be
adjusted appropriately so as to maintain the respective proportional
interests of holders of Scheme Ordinary Shares in the outstanding Galen
Shares in effect immediately prior to the Galen Share Adjustment.
(C) If, between 4 May 2000 and the Effective Time, the Warner Ordinary
Shares shall be changed into a different number of shares or a different
class of shares by reason of any reclassification, consolidation,
subdivision or cancelation (other than the cancelation contemplated by
Clause 1) or if a capitalization issue of shares to the holders of Warner
Ordinary Shares (other than the issue of New Warner Shares contemplated by
Clause 1(B)(ii)) shall be declared with a record date within such period
(in any such case a "Warner Share Adjustment"), then the Per Share
Consideration shall be adjusted appropriately so as to maintain the
proportional interests of holders of Scheme Ordinary Shares in the
outstanding Galen Shares in effect immediately prior to the Warner Share
Adjustment.
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<PAGE> 278
3. Allotment and issue of New Galen Shares
(A) The New Galen Shares shall rank pari passu with all other Galen
Shares in issue on the Effective Date and shall rank for all dividends or
distributions made, paid or declared thereon by reference to a record date
following the Effective Date.
(B) Immediately after the Scheme becomes effective, Galen shall make
all such allotments of and shall issue such New Galen Shares as are
required to be issued by it to give effect to the Scheme to the persons
respectively entitled thereto. The New Galen Shares to which the Relevant
Holders are entitled shall be issued in certificated form and, provided
that such shares are still held in certificated form immediately prior to
the dispatch of such certificates, share certificates for those shares
shall be dispatched, shall be within 14 days of the Effective Date.
(C) All deliveries of notices and documents of title required to be
made by the Scheme shall be effected by posting the same in pre-paid
envelopes addressed to the persons respectively entitled thereto at their
respective addresses as appearing in the relevant register of members (or,
in the case of joint holders, to the address of that one of the joint
holders whose name stands first in the said register of members in respect
of the joint holding) immediately prior to the date of their dispatch or to
such other addresses (if any) as such persons may respectively direct in
writing.
(D) Neither Warner nor Galen shall be responsible for any loss or
delay in the transmission of the documents of title posted in accordance
with Clause 3(C) which shall be posted at the risk of the addressee.
(E) Prior to the issue of share certificates representing New Galen
Shares to Relevant Holders pursuant to Clause 3(B), such Relevant Holders
wishing to register transfers of the New Galen Shares issued to them
pursuant to the Scheme will be required to produce their existing
certificates representing Scheme Shares to Galen's registrar. After the
issue of such certificates representing New Galen Shares, every Relevant
Holder who has not already produced his or her existing certificates to
Galen's registrar shall be bound on the request of Warner to deliver up to
Warner, or to any person appointed by Warner to receive the same, the
existing certificate(s) for his or her Scheme Shares, which will have
ceased to be of value, for cancelation.
(F) All New Galen Shares issued upon cancelation of the Scheme Shares
in accordance with Clause 2 shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Scheme Shares.
(G) Neither Galen nor Warner shall be liable to any Relevant Holder
for any New Galen Shares or cash delivered to a public official in
compliance with any law permitting attachment of money or property or
similar law.
4. Payment mandates
Each mandate in force at the Effective Time relating to the payment of
dividends on any Scheme Shares and other instructions given to Warner by
holders of Warner Ordinary Shares shall, unless and until revoked, be
deemed as from the Effective Time to be an effective mandate or instruction
to Galen in relation to the corresponding of New Galen Shares to be
allotted and issued pursuant to the Scheme.
5. Operation of the Scheme
(A) The Scheme shall become effective as soon as an office copy of the
Order shall have been duly delivered by Warner to the Registrar of
Companies in Ireland for registration and an office copy of the order of
the Court under section 74 of the Companies Act, 1963 confirming the
reduction of capital provided for by the Scheme and a copy of the minute
required by section 75 of that Act shall have been duly delivered by Warner
to the Registrar of Companies for registration and registered by him.
(B) Unless the Scheme shall become effective on or before 29 December
2000 or such later date, if any, as Warner and Galen may agree and the
Court may allow, the Scheme shall never become effective.
B-4
<PAGE> 279
(C) Warner and Galen may but neither shall be required to consent
jointly on behalf of all persons concerned to any modification of or
addition to the Scheme or to any condition which the Court may approve or
impose.
6. Costs
Warner is authorized and permitted to pay all of its costs and
expenses relating to the negotiation, preparation and implementation of the
Scheme.
, 2000.
B-5
<PAGE> 280
ANNEX C
OPINION OF CREDIT SUISSE FIRST BOSTON
<PAGE> 281
May 3, 2000
Board of Directors
Warner Chilcott Public Limited Company
Lincoln House, Lincoln Place
Dublin 2, Ireland
Gentlemen:
You have asked us to advise you with respect to the fairness to the holders
of the outstanding ordinary shares of US$0.05 each in the share capital (the
"Company Ordinary Shares") of Warner Chilcott Public Limited Company, a Republic
of Ireland public limited company (the "Company"), including those Company
Ordinary Shares represented by American Depositary Shares of the Company
("Company ADSs"), from a financial point of view, of the consideration to be
received by such holders pursuant to the scheme of arrangement (the "Scheme")
under Section 201 of the Companies Act, 1963, of Ireland, contemplated by the
terms of the Transaction Agreement (draft provided to us by the Company on May
2, 2000, the "Transaction Agreement"), to be entered into between the Company
and Galen Holdings, PLC, a Northern Ireland public limited company (the
"Acquiror").
Upon the terms and subject to the conditions set forth in the Transaction
Agreement and subject to the terms and conditions thereof, pursuant to the
Scheme each Company Ordinary Share, including Company Ordinary Shares
represented by Company ADSs, in issue at the date fixed by the Scheme for such
purpose, excluding any Company Ordinary Shares held by or on behalf of the
Acquiror, will be canceled in consideration for new ordinary shares of 10p in
the capital of the Acquiror (the "Acquiror Ordinary Shares"), and the Company
will become a wholly owned subsidiary of the Acquiror. Under the terms of the
Scheme, holders of Company Ordinary Shares will receive 2.50 Acquiror Ordinary
Shares for each Company Ordinary Share, and holders of Company ADSs will receive
2.50 American Depository Shares (the "Acquiror ADSs") representing 2.50 Acquiror
Ordinary Shares for each Company ADS, subject to adjustment as provided by the
Scheme (such 2.50-for-one exchange ratios offered in the foregoing clause are
referred to herein collectively, as the "Exchange Ratio"). We understand that
the Scheme is subject to approval by the holders of Company Ordinary Shares at a
meeting to be held pursuant to an order of the High Court of Ireland (the
"Court"). We also understand that the Scheme is also subject to being sanctioned
by the Court and other conditions set forth in more detail in the Transaction
Agreement.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as the Transaction Agreement and we have assumed that the definitive,
executed agreement will not vary in any material respect from the Transaction
Agreement. We have also reviewed certain other information, including financial
forecasts, provided to us by the Company and the Acquiror, and have met with the
Company's and the Acquiror's management to discuss the business and prospects of
the Company and the Acquiror.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared those data with similar data for
other publicly held companies in businesses similar to the Company and the
Acquiror, and we have considered the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and the Acquiror's management as to the future financial performance
of the Company and the Acquiror. You also have informed us, and we have assumed,
that the Scheme will be treated as a tax-free reorganization for federal income
tax purposes. In addition, we have not been requested to make, and have not
made, an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company or the Acquiror, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and
C-1
<PAGE> 282
other conditions as they exist and can be evaluated on the date hereof. We are
not expressing any opinion as to the actual value of the Acquiror Ordinary
Shares or the Acquiror ADSs when issued to the holders of Company Ordinary
Shares and Company ADSs, as the case may be, pursuant to the Scheme or the
prices at which such Acquiror Ordinary Shares or Acquiror ADSs will trade
subsequent to the issuance thereof pursuant to the Scheme. We were not requested
to, and did not, solicit third party indications of interest in acquiring all or
any part of the Company.
We have acted as financial advisor to the Board of Directors in connection
with the Scheme and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Scheme. In the past, we have
performed certain investment banking services for the Company and have received
customary fees for such services. In the ordinary course of our business, we and
our affiliates may actively trade the debt and equity securities of both the
Company and the Acquiror for our and such affiliates' own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the transactions contemplated
by the Transaction Agreement, including the Scheme, and does not constitute a
recommendation to any holder of Company Ordinary Shares or Company ADSs as to
whether or not such holder should vote to approve the Scheme or otherwise.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio to be offered to the holders of Company Ordinary
Shares and Company ADSs (other than the Acquiror and its affiliates), pursuant
to the Scheme is fair to such holders from a financial point of view.
Sincerely,
CREDIT SUISSE FIRST BOSTON CORPORATION
C-2
<PAGE> 283
[PROXY CARD]
THE HIGH COURT
2000 NO.________
IN THE MATTER OF WARNER CHILCOTT PLC AND IN THE MATTER OF
THE COMPANIES ACT, 1963
FORM OF PROXY FOR VOTING AT THE MEETING OF HOLDERS OF ORDINARY SHARES IN
WARNER CHILCOTT PLC
THIS FORM OF PROXY IS BEING FURNISHED IN ACCORDANCE WITH THE DIRECTIONS OF
THE HIGH COURT
I/We*
- ----------------------------------------------------------------
of*
- -------------------------------------------------------------------
being a holder(s) of ordinary shares in the Warner Chilcott PLC appoint the
chairman of the meeting+
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
as my/our proxy to vote on my/our behalf at the meeting of holders of ordinary
shares convened by the Court to be held on , 2000 and at any
adjournment thereof for the purpose of considering and, if thought fit,
approving (with or without modification) a proposed Scheme of Arrangement to
effect the transaction of the Company with Galen Holdings PLC, a copy of which
is sent with the notice convening the meeting and is described in the Company's
proxy statement dated , 2000.
I/We instruct my/our proxy to vote on the resolution to approve the Scheme
of Arrangement as indicated below:
<TABLE>
<S> <C> <C>
For Against Abstain
[ ] [ ] [ ]
(Please tick the appropriate box)
</TABLE>
Unless otherwise instructed, the proxy will vote or abstain as he or she
thinks fit. IF THE CHAIRMAN OF THE MEETING IS APPOINTED PROXY AND IS NOT
OTHERWISE INSTRUCTED, THE CHAIRMAN IS LIKELY TO VOTE IN FAVOR OF THE RESOLUTION.
- ------------------------------------------------------------------
Please sign here
- ------------------------------------------------------------------ /2000
Date
- ---------------
* Insert your full name(s) and address in block capitals.
+ If you wish to appoint as your proxy a person other than the chairman of the
meeting, strike out the reference to the chairman of the meeting, and insert
the name and address of that other person.
(1) A holder of ordinary shares is entitled to appoint a proxy to attend, speak
and vote at the meeting instead of that holder. A proxy need not be a
shareholder of the Company. Completion and return of this form will not
preclude you from attending and voting at the meeting in person.
(2) This form must be signed by the appointer or his/her attorney duly
authorized in writing or, if the appointer is a corporation, the form must
be executed under its common seal or be signed by a duly authorized officer.
(3) To be valid, this form (together with the authority, if any, under which it
was signed, or a copy of that authority certified by a notary or any
practising lawyer) must be lodged with the Secretary of Warner Chilcott at
its Registered Offices, Lincoln House, Lincoln Place, Dublin 2, Ireland, no
later than 10:00 a.m., local time, on , 2000, although forms
which have not been so deposited may be validly delivered to the chairman of
the meeting at the meeting.
(4) In the case of joint holders, only the vote of the senior holder who tenders
a vote will be accepted. For this purpose, seniority is determined by the
order in which the joint holders' names appear in the register.
<PAGE> 284
[PROXY CARD]
WARNER CHILCOTT PLC
FORM OF PROXY FOR VOTING ON SPECIAL RESOLUTION AT EXTRAORDINARY GENERAL
MEETING OF WARNER CHILCOTT PLC
THIS FORM OF PROXY IS BEING FURNISHED IN ACCORDANCE WITH THE DIRECTIONS OF
WARNER CHILCOTT PLC'S BOARD OF DIRECTORS
I/We*
- ----------------------------------------------------------------
of*
- -------------------------------------------------------------------
being a holder(s) of ordinary shares in Warner Chilcott PLC hereby appoint the
chairman of the meeting+
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
as my/our proxy to vote on my/our behalf at the extraordinary general meeting of
Warner Chilcott PLC to be held on , and at any adjournment
thereof.
I/We instruct my/our proxy to vote as indicated below on the special
resolution to reduce the Company's share capital and to amend the Company's
articles of association in connection with the transaction of the Company with
Galen Holdings PLC as set forth in the notice of extraordinary general meeting:
<TABLE>
<S> <C> <C>
For Against Abstain
[ ] [ ] [ ]
(Please tick the appropriate box)
</TABLE>
Unless otherwise instructed, the proxy will vote or abstain as he or she
thinks fit. IF THE CHAIRMAN OF THE MEETING IS APPOINTED PROXY AND IS NOT OTHER
WISE INSTRUCTED, THE CHAIRMAN IS LIKELY TO VOTE IN FAVOR OF THE RESOLUTION.
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Please sign here
- ------------------------------------------------------------------ 2000
Date
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* Insert your full name(s) and address in block capitals.
+ If you wish to appoint as your proxy a person other than the chairman of the
meeting, strike out the reference to the chairman of the meeting, and insert
the name and address of that other person.
NOTES
(1) A holder of ordinary shares is entitled to appoint a proxy to attend, speak
and vote at the meeting instead of that holder. A proxy need not be a
shareholder of the Company. Completion and return of this form will not
preclude you from attending and voting at the meeting in person.
(2) This form must be signed by the appointer or his/her attorney duly
authorized in writing or, if the appointer is a corporation, the form must
be executed under its common seal or be signed by a duly authorized officer.
(3) To be valid, this form (together with the authority, if any, under which it
was signed, or a copy of that authority certified by a notary or any
practising lawyer) must be lodged with the Secretary of Warner Chilcott at
its Registered Office, Lincoln House, Lincoln Place, Dublin 2, Ireland, no
later than 10.15 a.m., local time, on , 2000.
(4) In the case of joint holders, only the vote of the senior holder who tenders
a vote will be accepted. For this purpose, seniority is determined by the
order in which the joint holders' names appear in the register.
