<PAGE>
EXHIBIT 2.2
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt as to the action you should take, you are recommended to seek your own
advice from your stockbroker, bank manager, solicitor, accountant or other
independent financial adviser duly authorised under the Financial Services Act
1986 immediately.
If you have sold or otherwise transferred all your shares in Bradford Particle
Design plc, please forward this document, the Drag Along Notice, the
accompanying Form of Acceptance and reply-paid envelope at once to the purchaser
or transferee or to the bank, stockbroker or other agent through whom the sale
or transfer was effected, for transmission to the purchaser or transferee.
However, such documents should not be forwarded or transmitted in or into the
United States, Canada, Australia or Japan or into any other jurisdiction if to
do so would constitute a violation of the relevant laws in such other
jurisdiction. See paragraph 6 of Part B of Appendix I to this document.
The Offer is not being made, directly or indirectly, in or into, or by use of
the mails of, or by any means of instrumentality (including, without limitation,
telephonically or electronically) of interstate or foreign commerce of, or any
facilities of a national securities exchange of, the United States, Canada,
Australia or Japan and the Offer cannot be accepted by any such use, means,
instrumentality or facility, or from or within any of those countries.
Accordingly, this document and the accompanying Form of Acceptance are not being
mailed and should not be forwarded, distributed or sent in, into or from any of
those countries. All persons (including, without limitation, nominees, trustees
or custodians) who would, or otherwise intend to, forward this document and the
accompanying Form of Acceptance to any jurisdiction outside the United Kingdom
should read the further information contained on pages 33 to 44 of this document
and should seek appropriate advice before taking any action.
The shareholders of Bradford Particle Design plc are strongly urged to read and
consider carefully this document in its entirety, including the matters referred
to under "Information regarding Inhale Therapeutic Systems, Inc.: Risk factors"
on pages 87 to 94 of this document.
--------------------------------------------------------------------------------
RECOMMENDED OFFER
by
CAZENOVE & CO.
on behalf of
INHALE THERAPEUTIC SYSTEMS, INC.
for
BRADFORD PARTICLE DESIGN PLC
--------------------------------------------------------------------------------
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY SECURITIES
COMMISSION OF ANY STATE OF THE UNITED STATES HAS APPROVED OR DISAPPROVED OF THE
SECURITIES OFFERED ON BEHALF OF INHALE THERAPEUTIC SYSTEMS, INC. OR DETERMINED
IF THIS DOCUMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENCE.
No steps have been taken to enable the New Inhale Shares to be offered in
compliance with applicable securities laws of Japan. No prospectus or listing
particulars in relation to the New Inhale Shares have been lodged with, or
registered by, the Australian Securities Commission. Furthermore, the relevant
clearances have not been and will not be obtained from the securities commission
of any province of Canada. Accordingly, the New Inhale Shares may not (except
pursuant to an exemption under such laws) be offered, sold, resold or delivered,
directly or indirectly, in, into or from the United States, Canada, Australia or
Japan or to, or for the account or benefit of, or a person in, or resident in,
the United States, Canada, Australia or Japan or any other jurisdiction in which
the Offer would constitute a violation of the relevant laws, or require
registration thereof, in such jurisdiction.
This document should be read in conjunction with the accompanying Form of
Acceptance.
Cazenove & Co., who are regulated in the United Kingdom by The Securities and
Futures Authority Limited, are acting exclusively for Inhale Therapeutic
Systems, Inc. and for no one else in connection with the Offer and will not be
responsible to anyone other than Inhale Therapeutic Systems, Inc. for providing
the protections afforded to customers of Cazenove & Co. or for providing advice
in relation to the Offer or any matter referred to herein.
1
<PAGE>
KPMG Corporate Finance, a division of KPMG which is authorised by the Institute
of Chartered Accountants in England and Wales to carry on investment business,
is acting exclusively for Bradford Particle Design plc and for no one else in
connection with the Offer and will not be responsible to anyone other than
Bradford Particle Design plc for providing the protections afforded to clients
of KPMG Corporate Finance or for giving advice in relation to the Offer or any
matter referred to herein.
A letter from the Chairman of Bradford Particle Design plc containing the
recommendation of the Board of Directors of Bradford Particle Design plc is set
out on pages 7 to 11 of this document.
TO ACCEPT THE OFFER, ACCEPTANCES SHOULD BE DESPATCHED AS SOON AS POSSIBLE AND,
IN ANY EVENT, SO AS TO BE RETURNED BY POST OR BY HAND (DURING NORMAL BUSINESS
HOURS) TO LLOYDS TSB REGISTRARS, THE CAUSEWAY, WORTHING, WEST SUSSEX, BN99 6DA
NO LATER THAN 3.00 P.M. ON 11 JANUARY 2001. THE PROCEDURE FOR ACCEPTANCE OF THE
OFFER IS SET OUT ON PAGES 19 TO 21 AND IN THE ACCOMPANYING FORM OF ACCEPTANCE.
2
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Definitions.................................................................4
Part 1 - Letter of Recommendation from the Chairman of Bradford.............7
1. Introduction.......................................................7
2. Summary terms of the offer.........................................7
3. Inhale.............................................................8
4. Background to and reasons for recommending the Offer...............8
5. Irrevocable Undertakings...........................................9
6. Compulsory acquisition.............................................9
7. Registration.......................................................10
8. Bradford Share Option Schemes......................................10
9. Management and employees of Bradford...............................10
10. Taxation...........................................................11
11. Action to be taken.................................................11
12. Conclusion.........................................................11
13. Recommendation.....................................................11
Part 2 - Letter from Cazenove & Co..........................................12
1. Introduction.......................................................12
2. The Offer..........................................................12
3. Financial effects of acceptance....................................14
4. Background to and reasons for the Offer............................15
5. Information on the Inhale Group....................................15
6. Information on Bradford............................................16
7. Current trading and prospects......................................17
8. United Kingdom taxation............................................17
9. Procedure for acceptance of the Offer..............................19
10. Settlement.........................................................21
11. Action to be taken.................................................22
12. Further information................................................22
Appendix I - Conditions and Further Terms of the Offer......................23
Appendix II - Financial Information in relation to Inhale...................45
Appendix III - Financial Information in relation to Bradford................60
Appendix IV - Additional Information........................................71
</TABLE>
3
<PAGE>
DEFINITIONS
The following definitions apply throughout this document, unless the context
requires otherwise.
<TABLE>
<S> <C>
"Articles" the articles of association of Bradford
adopted on 28 September 2000
"Australia" the Commonwealth of Australia, its states,
possessions and territories and all areas
subject to its jurisdiction and any
political sub-division thereof
"Bradford" Bradford Particle Design plc
"Bradford Directors" the directors of Bradford whose names are
set out in paragraph 2(b) of Appendix IV of
this document
"Bradford Shareholders" holders of Bradford Shares
"Bradford Share Option Schemes" the Bradford Approved Employee Share Option
Scheme, the Bradford Unapproved Employee
Share Option Scheme (including options
granted under the Enterprise Management
Incentive schedule to that scheme) and the
Option Agreement between the Company and
Joseph Bohan
"Bradford Shares" the existing unconditionally allotted or
issued and fully paid ordinary shares of 10
pence each and the existing unconditionally
allotted or issued and fully paid A ordinary
shares of 10 pence each in the capital of
Bradford and any further such shares which
are unconditionally allotted or issued prior
to the date on which the Offer closes (or
such earlier date, not being earlier than
the date on which the Offer becomes or is
declared unconditional as to acceptances or,
if later, 11 January 2001 as Inhale may,
subject to the City Code, determine)
including shares issued as a result of the
exercise of options under the Bradford Share
Option Schemes or otherwise
"Called Shareholders" the Bradford Shareholders other than the
Selling Shareholders
"Canada" Canada, its provinces and territories and
all areas subject to its jurisdiction and
any political sub-division thereof
"Cazenove" Cazenove & Co.
"CGT" capital gains tax
"City Code" or "the Code" The City Code on Takeovers and Mergers
"Closing Price" the closing Nasdaq market price of Inhale
Shares, as shown on the Bloomberg stock
quotation system
"Companies Act" or "Act" the Companies Act 1985, as amended
"Directors" or "Board" the Inhale Directors
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
"Dollars" or "$" United States dollars
"Drag Along Notice" the drag along notice issued by the Selling
Shareholders, being a notice issued pursuant
to and in accordance with Article 12.4 of
the Articles
"Enlarged Issued Share Capital" the issued share capital of Inhale assuming
(i) full acceptance of the Offer, (ii) no
further issue of shares by either Inhale or
Bradford and (iii) no exercise of options
over shares in either Inhale or Bradford
"FDA" United States Food and Drug Administration
"Form of Acceptance" the form of acceptance and authority which
accompanies this document relating to the
Offer
"Form S-3 Registration Statement" the registration statement on Form S-3
relating to the New Inhale Shares to be
filed by Inhale with the SEC under the US
Securities Act
"Inhale" or the "Company" Inhale Therapeutic Systems, Inc.
"Inhale Directors" the directors of Inhale whose names are set
out in paragraph 2(a) of Appendix IV of this
document
"Inhale Shareholders" holders of Inhale Shares
"Inhale Shares" common stock of US$0.0001 each in the
capital of Inhale
"Inhale Share Option Schemes" the Employee Stock Purchase Plan, the 2000
Equity Incentive Plan, the 1994 Non-Employee
Directors' Stock Option Plan and the 2000
Non-Officer Equity Incentive Plan
"Inhale Group" or the "Group" Inhale and its subsidiary and associated
undertakings
"Japan" Japan, its possessions and territories and
all areas subject to its jurisdiction and
any political sub-division thereof
"KPMG Corporate Finance" a division of KPMG which is authorised by
the Institute of Chartered Accountants in
England and Wales to carry on investment
business
"Major Shareholders" collectively, Gwynfor Humphreys, Mazen
Hanna, Peter York and the University of
Bradford
"Nasdaq" the Nasdaq National Market tier of the
Nasdaq Stock Market affiliated with the
United States National Association of
Securities Dealers, Inc
"New Inhale Shareholders" those Bradford Shareholders who become
Inhale Shareholders by acceptance of New
Inhale Shares pursuant to the terms of the
Offer
"New Inhale Shares" the new Inhale Shares to be issued, credited
as fully paid, pursuant to the Offer
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
"Offer" the recommended offer being made by Cazenove
on behalf of Inhale to acquire the Bradford
Shares on and subject to the terms and
conditions set out in this document and the
Form of Acceptance
"Optionholders" holders of options granted under any of the
Bradford Share Option Schemes
"Overseas Shareholders" holders of Bradford Shares who are resident
in, or nationals or citizens of, countries
other than the United Kingdom or who are
nominees of or custodians, trustees or
guardians for, residents in, or nationals or
citizens of, countries other than the United
Kingdom
"Panel" The Panel on Takeovers and Mergers
"SEC" the Securities and Exchange Commission in
the United States
"Selling Shareholders" collectively, Gwynfor Owen Humphreys, Mazen
Hanna, Peter York, the University of
Bradford and 3i Group plc
"UK" the United Kingdom of Great Britain and
Northern Ireland
"US" or "United States" the United States of America, its
possessions and territories, any state of
the United States and the District of
Columbia and all other areas subject to the
jurisdiction of the United States
"US Person" a US person as defined in Regulation S of
the US Securities Act
"US Securities Act" the United States Securities Act of 1933, as
amended, and the rules thereunder
"Wider Inhale Group" Inhale, its subsidiaries and any companies
in which Inhale or any of its subsidiaries
has a direct or indirect interest in 20 per
cent. or more of the voting capital
</TABLE>
Amounts denominated in Dollars in this document have been translated into
sterling at the rate of L1=$ 1.4789 (the "Exchange Rate").
Unless otherwise stated in this document, references to times are references to
Greenwich Mean Time.
6
<PAGE>
PART 1:
LETTER OF RECOMMENDATION FROM THE CHAIRMAN OF BRADFORD
BRADFORD PARTICLE DESIGN PLC
<TABLE>
<CAPTION>
DIRECTORS: REGISTERED OFFICE:
<S> <C> <C>
Sir C J Benson CHAIRMAN 69 Listerhills Science Park
Dr G O Humphreys MANAGING DIRECTOR Campus Road
Prof P York DEPUTY CHAIRMAN AND CHIEF SCIENTIST Bradford
Mrs C J Nicholson FINANCE DIRECTOR West Yorkshire
Dr M H Hanna PRINCIPAL SCIENTIST BD7 1HR
Mr N J Andrew NON-EXECUTIVE DIRECTOR
Registered Number: 2998064
21 December 2000
</TABLE>
TO BRADFORD SHAREHOLDERS AND, FOR INFORMATION ONLY, TO PARTICIPANTS IN THE
BRADFORD SHARE OPTION SCHEMES
Dear Shareholder,
RECOMMENDED OFFER FOR BRADFORD PARTICLE DESIGN PLC
1. INTRODUCTION
The boards of Inhale and Bradford have reached agreement on the terms of a
recommended offer to be made by Cazenove, on behalf of Inhale, to acquire the
entire issued and to be issued share capital of Bradford. I am writing to
explain the background to the Offer and the reasons why your board is
unanimously recommending that the Offer should be accepted by Bradford
Shareholders.
The formal Offer is set out in the letter from Cazenove on pages 12 to 22 of
this document.
2. SUMMARY TERMS OF THE OFFER
The Offer, which is subject to the conditions and further terms set out in
Appendix I to this document, is made on the following basis:
FOR EACH BRADFORD SHARE 1.8354 NEW INHALE SHARES AND L6.6146 IN CASH
Based on the Closing Price of Inhale Shares on 20 December 2000 (the latest
practicable date prior to the publication of this document) and the Exchange
Rate, the Offer values each Bradford Share at approximately L66.18, and
the whole of the existing issued share capital of Bradford (assuming no exercise
of outstanding options under the Bradford Share Option Schemes and no further
issue of Bradford Shares) at approximately L135 million.
Because the number of New Inhale Shares to be received under the Offer is fixed,
the value of the Offer will vary with changes in the price of Inhale Shares.
You should bear in mind that the sterling value of any investment in the Inhale
Shares and of any dividend income from that investment (payable in Dollars and
subject to US withholding tax) will be affected by the Dollar to sterling
exchange rate.
7
<PAGE>
Other risks associated with Inhale, the holding of Inhale Shares and the Offer
are set out in the section "Information regarding Inhale Therapeutic Systems,
Inc.: risk factors" on pages 87 to 93 of this document.
The New Inhale Shares will be issued credited as fully paid, free from all
liens, equities, charges, encumbrances, rights of pre-emption and other third
party rights or interests attaching to them and will rank PARI PASSU in all
respects with the existing Inhale Shares, including the right to receive and
retain all dividends and other distributions declared, made or paid after 20
December 2000. The cash consideration will be paid in sterling by cheque or by
electronic funds transfer.
The Bradford Shares which are the subject of the Offer will be acquired by
Inhale under the Offer fully paid and free from all liens, equities, charges,
encumbrances, rights of pre-emption and other third party rights or interests
attaching to them and together with all rights now or hereafter attaching to
them, including the right to receive and retain all dividends and other
distributions declared, made or paid after 20 December 2000.
3. INHALE
Inhale is a US registered corporation which is developing a deep-lung drug
delivery system. Founded in 1990, its shares are listed on Nasdaq. Inhale is
developing a number of drug products which utilise its proprietary delivery
system in collaboration with pharmaceutical and biotechnology corporate
partners. Further information in relation to Inhale is set out in section 5 of
the letter from Cazenove, on pages 15 to 16 of this document and financial
information on Inhale is included in Appendix II of this document.
4. BACKGROUND TO AND REASONS FOR RECOMMENDING THE OFFER
In September 2000, Bradford raised L4 million in private equity financing.
The proceeds of this fund-raising were intended to be used to finance the
continuing development of its business and to provide a strong capital base.
Subsequently, during Bradford's routine contacts with Inhale, the Bradford
Directors pursued discussions with Inhale in relation to Inhale making an offer
for the Bradford Shares as a possible alternative to the continued pursuit of
Bradford's independent development.
The Bradford Directors believe that the Offer from Inhale will enable Bradford
to further its main strategic aims, namely:
- the further exploitation of the SEDS-TM- (Solution Enhanced Distribution
by Supercritical fluids) technology;
- the development of Bradford's current key product opportunities through
to clinical applications in collaboration with industry partners;
- the scaling-up of its manufacturing process; and
- the strengthening of its management and personnel resources.
The Bradford Directors believe that the Offer will considerably assist Bradford
in seeking to achieve these strategic aims by giving access to additional
resources and capabilities, including:
- knowledge sharing - technical synergies should provide an increased range
of product opportunities and the complementary skills of both
organisations should assist in the transition from pre-clinical
laboratory studies to clinical trials;
- continued technical focus - Inhale has confirmed to the Bradford
Directors its intention to allow Bradford to continue its focus on the
successful exploitation of the SEDS-TM- technology;
- regulatory infrastructure - Inhale has experience, in collaboration with
its partners, in developing products through manufacturing and clinical
evaluation and this experience will assist Bradford in the development of
Bradford's systems and collaborative products;
8
<PAGE>
- geographical synergy - completion of the Offer will provide Inhale with
access to Bradford's academic and research facilities and network,
particularly in the UK, whilst Inhale's existing operations will provide
Bradford with a significant US presence which is of importance to
prospective US customers;
- critical mass - the combined resources and scale of Inhale and Bradford
acting together will provide a stronger and broader drug delivery
capability for larger pharmaceutical customers;
- complementary culture - the two management teams have a similar culture
and share a clear vision for the potential of, and the methods of
exploiting, Bradford's technology; and
- financial resources - Inhale has substantial cash resources and potential
access to the US capital markets.
The Bradford Directors believe that the Offer represents a good opportunity to
share the potential benefits arising from the combination of Bradford and
Inhale.
The Inhale Directors believe that applications of Bradford's technology outside
of the pharmaceutical area should be evaluated and pursued where significant
potential value is identified, provided that such exploitation does not detract
from the pharmaceutical focus and the effort required is consistent with the
potential opportunity.
5. IRREVOCABLE UNDERTAKINGS
The Bradford Directors have irrevocably undertaken to accept the Offer in
respect of their entire beneficial holdings of Bradford Shares, amounting to
1,351,565 Bradford Shares, representing approximately 66.11 per cent. of the
current issued share capital of Bradford. These irrevocable undertakings remain
binding should a higher competing offer be made by a third party for Bradford.
Inhale has also received further irrevocable undertakings to accept the Offer
from other Bradford shareholders in respect of 543,492 Bradford Shares, in
aggregate, representing approximately 26.58 per cent. of Bradford's issued share
capital. These irrevocable undertakings remain binding should a higher competing
offer be made by a third party for Bradford.
Inhale has therefore received irrevocable undertakings to accept the Offer in
respect of, 1,895,057 Bradford Shares, representing approximately 92.69 per
cent. of the current issued share capital of Bradford.
Details of the irrevocable undertakings appear on pages 73 and 74 of this
document.
6. COMPULSORY ACQUISITION
Under the Articles, if the holders of, in aggregate, not less than 75 per cent.
of the Bradford Shares propose to sell their Bradford Shares to a BONA FIDE
third party purchaser, those shareholders have the right to require the other
Bradford Shareholders to sell their Bradford Shares to that purchaser on the
same terms as required by the Articles. The Bradford Directors believe that it
is in the interests of Bradford Shareholders for the registration of the New
Inhale Shares, as described below, to be completed as quickly as possible once
the Offer has been declared unconditional in all respects. In order to assist
Inhale to achieve registration of the New Inhale Shares as quickly as possible,
the Bradford Directors have asked the Selling Shareholders to exercise their
rights under the Articles and, specifically, to serve the Drag Along Notice to
compel all of the other Bradford Shareholders to transfer their Bradford Shares
to Inhale more quickly than would otherwise be the case if Inhale were to use
the statutory compulsory acquisition procedure available to it under the
Companies Act 1985. The Selling Shareholders, who collectively hold, in
aggregate, 92.69 per cent. of the Bradford Shares, have therefore irrevocably
undertaken to accept the Offer and will exercise this right in relation to the
Offer so as to require Called Shareholders to sell the Bradford Shares which
they respectively hold to Inhale on the terms set out in this document and in
the terms of the Form of Acceptance. In this regard, the Called
9
<PAGE>
Shareholders are referred to the Drag Along Notice from the Selling Shareholders
which accompanies this document.
Completion of the sale of the Bradford Shares held by the Called Shareholders
will occur on the date on which the Offer is declared unconditional in all
respects irrespective of whether the Called Shareholders have at that time
accepted the Offer.
7. REGISTRATION
The New Inhale Shares will initially be issued as "restricted securities" under
the US Securities Act and will not become freely tradeable until the Form S-3
Registration Statement referred to below becomes effective and the New Inhale
Shares are listed on Nasdaq. Until this occurs, the New Inhale Shares will be
subject to certain dealing restrictions, including a restriction on any sales
within one year of acquisition, and thereafter sales will only be permitted
subject to certain conditions. Details of the dealing restrictions are set out
on pages 38 to 44 of this document.
Inhale has agreed to use reasonable endeavours to achieve, and intends to seek
pursuant to the Form S-3 Registration Statement, the registration of the New
Inhale Shares within ninety days of the filing of the Form S-3 Registration
Statement with the SEC.
Once the Form S-3 Registration Statement has become effective, the New Inhale
Shares will be freely tradeable for so long as the S-3 Registration Statement is
not subsequently suspended. Bradford Shareholders (other than 3i Group plc
("3i")) who wish to sell under the Form S-3 Registration Statement are required
to give Inhale not less than three days advance notice of any proposed sale of
the New Inhale Shares to ensure that the S-3 Registration Statement has not or
is not likely to be suspended. The S-3 Registration Statement may be suspended
if Inhale determines, in good faith, that it is in the best interest of Inhale
and its shareholders to defer disclosure of non-public information until such
information has reached a more advanced state. During a period of suspension
sales under the Form S-3 Registration Statement in the New Inhale Shares will be
suspended. After two years the potential constraints on tradeability imposed by
the Form S-3 Registration Statement referred to above cease to apply. Bradford
Shareholders are referred to paragraph 2 of the letter from Cazenove and, in
particular, paragraphs (q) to (u) in Part C of Appendix 1 of this document which
include certain warranties and indemnities to be given by Bradford Shareholders
as a result of the registration of the New Inhale Shares.
8. BRADFORD SHARE OPTION SCHEMES
The Offer extends to any Bradford Shares unconditionally allotted or issued
whilst the Offer remains open for acceptance (or by such earlier date as Inhale
may, subject to the City Code, decide) including those so unconditionally
allotted or issued pursuant to the exercise of options under the Bradford Share
Option Schemes.
HOLDERS OF OPTIONS IN RESPECT OF BRADFORD SHARES SHOULD CONSIDER CAREFULLY, IF
THEIR OPTIONS ARE, OR BECOME, EXERCISABLE WHETHER TO EXERCISE THOSE OPTIONS IN
ORDER TO BE ABLE TO ACCEPT THE OFFER. OPTIONHOLDERS WILL BE SENT INFORMATION IN
RELATION TO THE CONSEQUENCES OF EXERCISING THEIR OPTIONS AND OF ACCEPTING THE
OFFER IN DUE COURSE. THE BOARD OF BRADFORD RECOMMENDS THAT OPTIONHOLDERS SHOULD
CAREFULLY READ AND CONSIDER THIS INFORMATION BEFORE EXERCISING THEIR OPTIONS.
If the Offer becomes or is declared unconditional in all respects, Inhale
intends to make appropriate proposals to Optionholders in due course.
9. MANAGEMENT AND EMPLOYEES OF BRADFORD
The board of Inhale has confirmed that the existing employment rights, including
pension rights, of the management and employees of Bradford will be fully
safeguarded.
Following completion of the Offer, Inhale has informed the board of Bradford
that it intends to extend the opportunity to participate in employee incentive
arrangements, similar to those presently enjoyed by Inhale employees, to current
and future employees of Bradford.
10
<PAGE>
Following the Offer being declared unconditional in all respects, Inhale intends
to review the composition of the board of directors of Bradford.
10. TAXATION
Your attention is drawn to the paragraph headed "United Kingdom taxation" in the
letter from Cazenove set out on pages 17 to 19 of this document. Any Bradford
Shareholder who has any doubt about his own tax position or who is subject to
taxation in any jurisdiction, other than the UK, is strongly recommended to
consult an independent professional adviser immediately.
11. ACTION TO BE TAKEN
Your attention is drawn to the letter from Cazenove, the Appendices to this
document and to the Form of Acceptance which set out the terms of the Offer and
the procedure for its acceptance.
IN ORDER TO ACCEPT THE OFFER, YOU SHOULD COMPLETE AND RETURN THE ENCLOSED FORM
OF ACCEPTANCE IN ACCORDANCE WITH THE INSTRUCTIONS PRINTED ON IT, SO AS TO BE
RECEIVED BY LLOYDS TSB REGISTRARS, THE CAUSEWAY, WORTHING, WEST SUSSEX, BN99 6DA
AS SOON AS POSSIBLE, BUT IN ANY EVENT NOT LATER THAN 3.00 P.M. ON 11 JANUARY
2001. A reply-paid envelope is enclosed for your use if you are posting your
documents in the United Kingdom.
IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURE FOR THE ACCEPTANCE OF THE OFFER, OR
IF YOU REQUIRE ASSISTANCE WITH COMPLETION OF THE FORM OF ACCEPTANCE, PLEASE
CONTACT LLOYDS TSB REGISTRARS, THE CAUSEWAY, WORTHING, WEST SUSSEX, BN99 6DA
(TEL: 0870 600 2027).
12. CONCLUSION
The Bradford Directors, who have been so advised by KPMG Corporate Finance,
consider that the terms of the Offer are fair and reasonable so far as the
Bradford Shareholders are concerned. In providing advice to the Bradford
Directors, KPMG Corporate Finance has taken into account the Bradford Directors'
commercial assessments.
13. RECOMMENDATION
Your directors unanimously recommend shareholders to accept the Offer, as they
have irrevocably undertaken to do in respect of their own beneficial holdings
amounting to 1,351,565 Bradford Shares, representing approximately 66.11 per
cent. of the current issued share capital of Bradford.
As with any investment in shares of a company involved in developing innovative
technologies, including Bradford, acceptance of the Offer and the acquisition of
New Inhale Shares involves a high degree of risk. Bradford Shareholders should
note that the New Inhale Shares will only be freely tradeable after the Form S-3
Registration Statement becomes effective. Even after the Form S-3 Registration
Statement has become effective it is possible that certain restrictions on the
sale of New Inhale Shares may be imposed including, for example, if the
registration of Inhale Shares is suspended.
Bradford Shareholders should also note that the New Inhale Shares may well be
volatile and their sterling value will be subject to any currency movements.
Bradford Shareholders should have regard to the factors referred to in
"Information regarding Inhale: Risk Factors" on pages 87 to 94 of this document
when making investment decisions with respect to Inhale Shares.
Yours faithfully
Sir Christopher J Benson
Chairman
11
<PAGE>
PART 2
[LOGO]
12 Tokenhouse Yard
London EC2R 7AN
21 December 2000
TO BRADFORD SHAREHOLDERS AND, FOR INFORMATION ONLY, TO PARTICIPANTS IN THE
BRADFORD SHARE OPTION SCHEMES
Dear Sir or Madam,
RECOMMENDED OFFER FOR BRADFORD
1. INTRODUCTION
The boards of Inhale and of Bradford have reached agreement on the terms of a
recommended offer to be made by Cazenove, on behalf of Inhale, to acquire the
entire issued and to be issued share capital of Bradford. This document contains
the formal offer by Cazenove, on behalf of Inhale, and also contains certain
other information in relation to Inhale and to Bradford.
A Form of Acceptance and a reply-paid envelope to be used for the purpose of
accepting the Offer are also enclosed.
Your attention is also drawn to the letter from the Chairman of Bradford on
page 7 of this document which explains why the Bradford Directors consider that
the terms of the Offer are fair and reasonable and why they are unanimously
recommending Bradford Shareholders to accept the Offer.
The directors of Bradford have irrevocably undertaken to accept the Offer in
respect of their entire beneficial holdings of Bradford Shares, amounting to
1,351,565 Bradford Shares, representing approximately 66.11 per cent. of the
current issued share capital of Bradford. These undertakings remain binding
should a higher competing offer be made by a third party for Bradford.
Inhale has also received further irrevocable undertakings to accept the Offer
from other Bradford Shareholders in respect of 543,492 Bradford Shares,
representing approximately 26.58 per cent. of the current issued share capital
of Bradford. These undertakings remain binding should a higher competing offer
be made by a third party for Bradford.
Inhale has therefore received irrevocable undertakings to accept the Offer in
respect of 1,895,057 Bradford Shares, representing approximately 92.69 per cent.
of the current issued share capital of Bradford.
Details of the irrevocable undertakings appear on pages 73 and 74 of this
document.
2. THE OFFER
12
<PAGE>
On behalf of Inhale, we hereby offer to acquire, on the terms and subject to the
conditions set out or referred to in this document and in the Form of
Acceptance, all of the issued and to be issued share capital of Bradford on the
following basis:
FOR EACH BRADFORD SHARE 1.8354 NEW INHALE SHARES AND L6.6146 IN CASH
and so in proportion for any other number of Bradford Shares held.
Based on the Closing Price of Inhale Shares on 20 December 2000 (the latest
practicable date prior to the publication of this document) and on the
Illustrative Exchange Rate, the Offer values each Bradford Share at
approximately L66.18, and the whole of the issued share capital of
Bradford (assuming no exercise of outstanding options under the Bradford Share
Option Schemes and no further issue of Bradford Shares) at approximately
L135 million.
Fractions of New Inhale Shares will not be allotted to Bradford Shareholders.
The financial effects of acceptance of the Offer and the bases of these
calculations are set out in paragraph 3 below.
Full acceptance of the Offer by Bradford Shareholders (assuming no further issue
of shares by Bradford and no exercise of options under the Bradford Share Option
Schemes) would result in the issue of approximately 3,752,406 New Inhale Shares
(representing approximately 7.3 per cent. of the Enlarged Issued Share Capital).
In order to provide liquidity to the Bradford Shareholders wishing to sell their
New Inhale Shares issued pursuant to the Offer, application will be made by
Inhale for the New Inhale Shares to be admitted to listing on Nasdaq in the
United States by the filing of a Nasdaq Shares Market Notification Form for
Listing of Additional Shares. Inhale Shares are listed on Nasdaq under the
symbol "INHL". It is expected that the listing will be effective on the first
trading day following the day on which the Form S-3 Registration Statement
becomes effective. The New Inhale Shares will initially be issued as "restricted
securities" under the US Securities Act and will become freely tradeable when
the Form S-3 Registration Statement becomes effective, save where a Bradford
Shareholder has entered into an agreement with Inhale to restrict the transfer
of New Inhale Shares or otherwise as required by legislation.
Inhale will, at its expense, file the Form S-3 Registration Statement with the
SEC not later than 14 days after the later of the date on which the Offer is
declared unconditional in all respects and the date upon which Bradford provides
Inhale (or its advisers) with the necessary financial and other information
required to file the Form S-3 Registration Statement in respect of Bradford to
enable it to prepare the relevant financial statements therefor. The Form S-3
Registration Statement will cover re-sales of the New Inhale Shares by the New
Inhale Shareholders, subject to the New Inhale Shareholder providing sufficient
information to Inhale to enable Inhale to include that shareholder's New Inhale
Shares in the Form S-3 Registration Statement or any amendment or supplement
thereto. Inhale will use its reasonable endeavours to cause the Form S-3
Registration Statement to become effective as soon as is practicable, but in any
event within ninety days after the date on which the Form S-3 Registration
Statement is filed with the SEC.
Inhale will keep the Form S-3 Registration Statement effective for two years
following the date on which it first becomes effective and will supply a copy of
the prospectus contained within the Form S-3 Registration Statement to each
Bradford Shareholder. Thereafter, it is anticipated that Bradford Shareholders
would be able to sell their New Inhale Shares pursuant to the exemptions from
registration contained in the US Securities Act. Further details regarding the
Form S-3 Registration Statement are set out in Part C of Appendix I on pages 38
to 44 of this document. However, the above is a general guide only and holders
of New Inhale Shares should consult their own independent professional adviser
in relation to the sale of New Inhale Shares.
The Major Shareholders and Inhale have entered into a lock-up agreement whereby
such shareholders agree to accept certain restrictions on the disposal of the
New Inhale Shares they receive pursuant to the Offer. The lock up agreement
provides that the Major Shareholders may not collectively sell or
13
<PAGE>
otherwise transfer more than 25 per cent. of their New Inhale Shares in any
ninety-day period during the period of one year after the first date of
settlement of the consideration to be paid by Inhale to any Major Shareholder
after the Offer is declared unconditional in all respects. Details of this
agreement are set out on page 82 of Appendix IV of this document.
The New Inhale Shares will be issued credited as fully paid, free from all
liens, equities, charges, encumbrances, rights of pre-emption and other third
party rights or interests attaching to them and will rank PARI PASSU in all
respects with the existing Inhale Shares, including the right to receive and
retain all dividends and other distributions declared, made or paid after
20 December 2000. Full details of the rights attaching to Inhale Shares are set
out on pages 81 to 84 of this document.
The Bradford Shares which are the subject of the Offer will be acquired by
Inhale under the Offer fully paid and free from all liens, equities, charges,
encumbrances, rights of pre-emption and other third party rights or interests
attaching to them and together with all rights now or hereafter attaching to
them, including the right to receive and retain all dividends and other
distributions declared, made or paid after 20 December 2000.
The Offer is subject to the conditions and certain further terms set out in
Appendix I to this document and in the Form of Acceptance. The provisions
relating to acceptance and settlement are set out on pages 19 to 22 of this
document and in the Form of Acceptance.
TO ACCEPT THE OFFER, YOU SHOULD RETURN THE FORM OF ACCEPTANCE, TOGETHER WITH ALL
OTHER REQUISITE DOCUMENTS, AS SOON AS POSSIBLE AND IN ANY EVENT SO AS TO BE
RECEIVED BY LLOYDS TSB REGISTRARS, THE CAUSEWAY, WORTHING, WEST SUSSEX BN99 6DA
NOT LATER THAN 3.00 P.M. ON 11 JANUARY 2001. THE PROCEDURE FOR ACCEPTANCE OF THE
OFFER IS SET OUT IN PARAGRAPH 12 BELOW, IN SECTION C OF APPENDIX I TO THIS
DOCUMENT AND IN THE FORM OF ACCEPTANCE.
3. FINANCIAL EFFECTS OF ACCEPTANCE
The following tables show, for illustrative purposes only and on the bases and
assumptions set out in the notes below, the financial effects of acceptance on
capital value and gross income for a holder of 1 Bradford Share, if the Offer
becomes or is declared unconditional in all respects:
<TABLE>
<S> <C> <C> <C>
(a) INCREASE IN CAPITAL VALUE
Notes
Cash consideration L6.61 ($9.78)
Market value of 1.8354 New (i) L59.57 ($88.10)
Inhale Shares. -------
Total value L66.18 ($97.88)
September 2000 subscription value (ii) L17.70 ($26.18)
of 1 Bradford Share -------
Increase in capital value L48.48 ($71.70)
--------
This represents an increase of 274 %
--------
(b) INCREASE IN INCOME
Notes
Gross income from cash consideration (iii) L0.31 ($0.46)
Gross dividend income from 1.8354 New (iv) Nil
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
Inhale Shares --------
Total gross income L0.31 ($0.46)
Gross dividend income from 1 Bradford (v) Nil
Share --------
Increase in gross income (vi) L0.31 ($0.46)
</TABLE>
NOTES
(i) The market value of New Inhale Shares is based on the closing
price of Inhale Shares on 20 December 2000, the last dealing day
prior to the date of this document.
(ii) The subscription value of Bradford Shares is based on the price of
L17.70 per share payable by subscribers under the offer for
subscription made by Bradford in September 2000. As Bradford
Shares are not quoted on any exchange and there is effectively no
market in the shares, this comparison is illustrative only and is
not necessarily representative of the current market value of
Bradford Shares.
(iii) The income on the cash consideration has been calculated on the
assumption that the cash is re-invested to yield approximately
4.71 per cent. gross per annum, being the given yield shown by the
FTSE Actuaries Government Securities yield indices for British
Government securities of maturities of 15 years on 20 December
2000.
(iv) Inhale has not, historically, paid dividends.
(v) Bradford has not, historically, paid dividends.
(vi) No account has been taken of any liability to taxation.
4. BACKGROUND TO AND REASONS FOR THE OFFER
Inhale has a long term-goal of becoming the leading company focused on drug
delivery. Inhale intends to achieve this goal by continuing to focus on
pulmonary delivery of macromolecules while at the same time exploiting its core
strengths in inhalation, small and macromolecule formulations, and powder
technologies to enter large, non-commodity markets. Inhale intends to do this by
developing or acquiring platform technologies.
The acquisition of Bradford will expand Inhale's technology beyond inhalation
to oral, injectable and other delivery applications while at the same time
strengthening its inhalation and powder technology base. It also broadens its
corporate partnerships.
Bradford is a leader in the field of supercritical fluid processing technology
for producing pharmaceutical powders. SEDS-TM- allows the controlled formation
of particles of a pure and consistent nature in a one-step manufacturing
process. This process can be applied to small molecules, peptides and proteins
for oral, injectable, inhalation and other delivery methods.
The advantages of SEDS-TM- over other alternative methods of particle production
may include better performance, (in terms of stability, dispensability and
bioavailability), faster and lower risk formulation development and reduced
cost.
Bradford is currently working with 15 major pharmaceutical companies (including
Glaxo Wellcome, AstraZeneca and Bristol-Myers Squibb) on 24 different compounds.
The Inhale Directors believe that applications of Bradford's technology outside
of the pharmaceutical area should be evaluated and pursued where significant
potential value is identified, provided that such exploitation does not detract
from the pharmaceutical focus and the effort required is consistent with the
potential opportunity.
Inhale does not expect the acquisition of Bradford to have a significant impact
on Inhale's timescale to profitability.
5. INFORMATION ON THE INHALE GROUP
15
<PAGE>
Inhale is a US biotechnology company. Inhale is pioneering drug delivery systems
to deliver a range of inhaleable drugs, including peptides, proteins and small
molecules, to the deep lung for treatment of systemic and respiratory diseases.
Inhale's Inhance-TM- drug delivery platform combines innovations in powder
technology and inhaling devices to enable efficient and reproducible delivery of
inhaled drugs. Inhale has development partnerships with several major
pharmaceutical and biotechnology companies, including Pfizer Inc., Aventis
Behring U.S., a division of Aventis S.A., Biogen Inc. and Eli Lilly & Company.
Inhale's most advanced programme is inhaled insulin, sponsored by Pfizer, which
is in Phase III human clinical trials. Inhale also has early stage feasibility
and research collaborations with several other companies and has tested eight
drugs in human clinical trials.
Currently there are approximately 35 macromolecule drugs marketed in the United
States and about 120 other such drugs in human clinical trials. Sales of the top
15 genetically engineered protein drugs (a subset of macromolecule drugs) were
estimated at $15.6 billion worldwide in 1999. Most of these drugs are currently
delivered by injection. Injections are undesirable for numerous reasons
including patient discomfort, inconvenience and risk of infection. Poor patient
acceptance of, and compliance with, injectable therapies can lead to increased
incidence of medical complications and higher disease management costs.
Alternatives to injection such as oral, transdermal and nasal delivery have to
date been shown generally to be commercially unattractive due to low natural
bioavailability - the amount of drug absorbed from the delivery site into the
bloodstream relative to injection. As an alternative to the invasiveness of
injection Inhale believes that a deep lung inhalation delivery system could
expand the market for macromolecule drug therapies by increasing patient
acceptance and improving compliance and may enable new therapeutic uses of
certain macromolecule drugs.
Inhale is creating a proprietary technology platform integrating customised
formulation, dry powder processing and packaging with proprietary inhalation to
enable efficient, reproducible delivery of macromolecule drugs for systemic and
local lung indications. For specific drug products, Inhale formulates and
processes bulk drugs supplied by collaborative partners into dry powders which
are packaged into individual dosing units referred to as blisters. The blisters
are designed to be loaded into Inhale's device, which patients then activate to
inhale the aerosolized drugs. Inhale has developed an inhalation device that is
being used several times per day for several months in outpatient trials for
insulin. In addition, Inhale has demonstrated room temperature stability for a
year or more for a number of macromolecule drugs, and has scaled-up Inhale's
powder processing and packaging for late stage clinical trials and small scale
commercial production for certain drugs.
In addition to Pfizer's sponsorship of Inhale's inhaleable insulin program,
Inhale has active pulmonary delivery development programs with Biogen for
AVONEX-Registered Trademark-, an interferon beta drug used in the treatment of
Multiple Sclerosis, Aventis Behring for an alpha-1 antitryspin proteinase
inhibitor being used for treatment of genetic emphysema; and Lilly for
Forte-TM-, parathyroid hormone, or PRH 1-34 being developed for the treatment of
osteoporosis. These and other ongoing projects in various stages of research,
formulation and clinical development have been selected as focus programs by
Inhale because it believes its approach may have significant advantages over
current therapies. Inhale generally seeks to commercialise products which it
develops with a collaborative partner and believes that its partnering strategy
should enable it to reduce the investment required to develop a large and
diversified potential product portfolio.
On 6 September 2000, Inhale announced its re-initiation with Eli Lilly and
Company ("Lilly") of the development and Licence Agreement of an inhaled
formulation of Forteo-TM- recombinant parathyroid hormone (PTH). On this same
date, Inhale also announced that Lilly had decided to discontinue work on an
unspecified inhaleable protein product that was in pre-clinical development with
Inhale.
Inhale is listed on Nasdaq in the United States. Based on the Closing Price of
$48.00 (L32.46) the market capitalisation of Inhale on 20 December 2000
(the latest practicable date prior to the issue of this document) was
approximately $2.36 billion (L1.56 billion).
For the nine months ended 30 September 2000, Inhale reported consolidated
turnover of $38.5 million (L26.0 million) (1999: $28.3 million
(L19.1 million)) and a consolidated net loss for the period of $57.8
million (L39.1 million loss) (1999: $18.3 million loss (L12.4
million loss)). As at 30 September 2000, Inhale had consolidated net assets of
$154.2 million (L104.3 million) (1999: $99.1 million (L67.0
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<PAGE>
million)). For the year ended 31 December 1999, Inhale reported consolidated
turnover of $41.4 million (L28.0 million) (1998: $21.8 million)
(L14.7 million) and a consolidated net loss for the period of $38.4
million (L26.0 million) (1998: $18.4 million loss) (L12.4 million
loss)). As at 31 December 1999, Inhale had consolidated net assets of $86.6
million (L58.6 million) (1998: $115.9 million (L78.4 million)).
Further financial information on Inhale is included in Appendix II to this
document.
6. INFORMATION ON BRADFORD
The company was formed in December 1994 by the University of Bradford and three
of the Bradford Directors, Professor Peter York, Dr Gwyn Humphreys and Dr Mazen
Hanna, to exploit SEDS-TM- technology. Patented technology based on SEDS-TM-
arose from work funded by Glaxo Research and Development Limited, part of Glaxo
Wellcome.
SEDS-TM- uses the medium of supercritical fluid to enable the controlled
formation of particles directly from solution. The pharmaceutical industry
currently produces most solid-form dry fine powders by the multi-stage process
of solvent crystallisation, filtration, drying and milling. SEDS-TM- was
developed with the aim of overcoming many of the problems inherent in this
process by producing superior particles in a single step. The Bradford Directors
believe that this technique should ensure a better, more consistent end-product
with less wastage and a longer shelf life.
Initial patent applications in respect of SEDS-TM- were filed by the University
of Bradford and Glaxo Group Limited in 1993 and 1994. Bradford commenced trading
in April 1995 and was granted exclusive licences by the University of Bradford
in respect of the initial patent applications which were assigned to Bradford in
1998.
As at 20 December 2000, 15 collaboration and feasibility study agreements are in
place, most with major pharmaceutical companies, as well as one "technology
co-operation" agreement. Bradford's strategy is to gain an in-depth knowledge of
the SEDS-TM- technology and its possible applications while seeking to scale-up
the technology for commercial use. Through the strategic arrangements with
pharmaceutical companies, its own research and development and its close
relationship with the University of Bradford, Bradford has been able to develop
the SEDS-TM- technology further, resulting in Bradford applying for additional
patents.
For the year ended 31 May 2000 Bradford reported turnover of L615,420
(year ended 31 May 1999 - L1,305,780) giving a loss after tax of
L1,130,154 (year ended 31 May 1999 - profit of L71,871). Net assets
as at 31 May 2000 were L374,582 (31 May 1999 - L333,994).
Further financial information on Bradford is included in Appendix III to this
document.
7. CURRENT TRADING AND PROSPECTS
INHALE
Inhale continues to invest heavily in its growth. For the nine months ended 30
September 2000 there was significant investment in the scale-up of technologies
for current partnered projects, the continuing development of Inhale's global
manufacturing capabilities in order to support Phase III inhaleable insulin
clinical trials and commercial production. Investment was also increased in
internally funded research and development projects for next-generation
products. Inhale expects research, development and process development spending
to increase over the next few years as Inhale continues to expand its
development efforts under collaborative agreements and scales up its commercial
manufacturing facility.
BRADFORD
Since the end of the most recent financial year ended 31 May 2000 the trading of
Bradford has continued in line with management's previous expectations. In
particular, a very significant development contract has been entered into with a
major overseas pharmaceutical company and significant upfront
17
<PAGE>
payments have already been received. A further private equity financing of
L4 million was completed in September 2000.
8. UNITED KINGDOM TAXATION
The following paragraphs, which are intended as a general guide only, are based
on current legislation and Inland Revenue practice. They summarise certain
limited aspects of the United Kingdom taxation treatment of Bradford
Shareholders who accept the Offer. The information relates only to the position
of Bradford Shareholders who hold their Bradford Shares as investments, are the
absolute beneficial owners of their Bradford Shares and (except to the extent
that express reference to the position of persons resident outside the United
Kingdom is made) are resident or ordinarily resident in the United Kingdom for
tax purposes. It may not apply to certain classes of shareholder.
IF YOU ARE IN ANY DOUBT AS TO YOUR TAX POSITION OR IF YOU ARE SUBJECT TO
TAXATION IN ANY JURISDICTION OTHER THAN THE UNITED KINGDOM, YOU SHOULD CONSULT
AN APPROPRIATE PROFESSIONAL ADVISER WITHOUT DELAY.
(a) TAXATION OF CAPITAL GAINS
Liability to United Kingdom taxation on capital gains ("CGT") will
depend on the individual circumstances of Bradford Shareholders.
Bradford Shareholders should note that clearance has been sought
from the Inland Revenue under the provisions of Section 707 Income
and Corporation Taxes Act 1988 and under the provisions of Section
138 Taxation of Chargeable Gains Act 1992 in respect of the Offer.
The Offer is not conditional on these clearances being obtained.
(i) CASH
To the extent that a Bradford Shareholder receives
cash under the Offer, this will constitute a part
disposal of his Bradford Shares for CGT purposes.
This means that only a proportion of the original
cost to the Bradford Shareholder of acquiring the
Bradford Shares can be taken into account in
calculating the gain on the part disposal. This may,
depending on the Bradford Shareholder's individual
circumstances, give rise to a liability to CGT.
(ii) INHALE SHARES
Any Bradford Shareholder who (either alone or
together with persons connected with him) does not
hold more than 5 per cent. of, or of any class of,
shares in Bradford will be treated as not having
made a disposal of his Bradford Shares for CGT
purposes to the extent that he receives Inhale
Shares in exchange for his Bradford Shares. The New
Inhale Shares will be treated as the same asset as
the Bradford Shares, acquired by the Bradford
Shareholder at the same time and for the same
consideration as the Bradford Shares were acquired.
A Bradford Shareholder who is resident or ordinarily
resident in the UK will be subject to tax on
chargeable gains arising on the disposal of Inhale
Shares. Any chargeable gain or allowable loss which
arises on a disposal by the Bradford Shareholder of
the New Inhale Shares will be calculated taking into
account the original cost to the Bradford
Shareholder of acquiring the Bradford Shares for
which the New Inhale Shares were received in
exchange. Indexation allowance will be available on
that cost (when calculating a chargeable gain but
not an allowable loss) in respect of the period of
ownership of the Bradford Shares up to April 1998.
Thereafter, taper relief may be available to reduce
any chargeable gain.
If clearance under Section 138 Taxation of
Chargeable Gains Act 1992 is granted, the same
treatment will apply to the other Bradford
Shareholders.
18
<PAGE>
(b) ENTERPRISE INVESTMENT SCHEME
Bradford will cease to be a qualifying company for enterprise
investment scheme ("EIS") purposes as a result of the Offer. All
of the reliefs attaching to Bradford Shares issued under the EIS
will be withdrawn and any benefits of income tax relief or CGT
deferral relief already obtained as a result of the EIS by certain
Bradford Shareholders will be clawed-back by the Inland Revenue.
Interest will run on the clawback of the income tax relief from
the date that the Offer becomes unconditional in all respects.
Where income tax is clawed-back by the Inland Revenue, the CGT
treatment outlined in paragraph (a) above will apply.
(c) STAMP DUTY AND STAMP DUTY RESERVE TAX
No stamp duty or stamp duty reserve tax will be payable by
Bradford Shareholders as a result of accepting the Offer.
(d) SHARE OPTIONS
Special tax provisions may apply to Bradford Shareholders who have
acquired or acquire their Bradford Shares by exercising options
under the Bradford Share Option Schemes, including provisions
imposing a charge to UK income tax on the exercise of options.
(e) TAXATION OF DIVIDENDS ON THE INHALE SHARES
(i) WITHHOLDING TAX
The US / UK Double Taxation Convention restricts
withholding tax on dividends paid by Inhale to UK resident
individuals and corporates controlling, directly or
indirectly, less than 10 per cent. of the voting Shares of
Inhale to a maximum of 15 per cent. of the gross dividend
paid. A claim for tax to be withheld at the reduced treaty
rate must be made on Internal Revenue Service Form 1001
(Ownership, Exemption or Reduced Rate Certificate) by the
Inhale Shareholder receiving the dividend in order for the
reduced rate to apply.
(ii) TAXATION OF DIVIDENDS RECEIVED
An individual holder of Inhale Shares who is resident in
the United Kingdom and receives a dividend from Inhale will
be liable to United Kingdom income tax ("income tax")
calculated on the gross dividend paid. A tax credit in
respect of any US tax withheld on such dividend will be
available to offset the liability to income tax of such a
holder of Inhale Shares in respect of the dividend. Such a
holder of Inhale Shares whose income is within the starting
rate or basic rate tax bands will be subject to income tax
on the gross dividend at the rate of 10 per cent. less any
tax credit in respect of US withholding tax. The higher
rate of income tax in respect of dividend income is 32.5
per cent. so that a holder of Inhale Shares whose income is
subject to higher rate income tax will be subject to income
tax on the gross dividend at the rate of 32.5 per cent.
less any tax credit in respect of US withholding tax.
Special rules apply to individuals not domiciled in the
United Kingdom.
A corporate holder of New Inhale Shares which is resident
in the United Kingdom and which receives a dividend from
Inhale will be liable to United Kingdom corporation tax on
income calculated on the gross dividend paid. A tax credit
in respect of any US tax withheld on such dividend will be
available to offset the liability to income tax of such a
holder of Inhale Shares in respect of the dividend.
19
<PAGE>
(f) INHERITANCE TAX
Where an individual who is neither domiciled nor deemed to be
domiciled in the United Kingdom holds New Inhale Shares, he will
not be subject to United Kingdom inheritance tax ("inheritance
tax") on the value of the Inhale Shares. Where an individual who
is either domiciled or deemed to be domiciled in the United
Kingdom holds New Inhale Shares, the value of the New Inhale
Shares will form part of that individual's estate for inheritance
tax purposes and there may be a liability to inheritance tax on
the death of, or on a gift or disposal at an undervalue of the New
Inhale Shares by, that individual.
9. PROCEDURE FOR ACCEPTANCE OF THE OFFER
This section should be read together with the notes on the Form of
Acceptance. The instructions on the Form of Acceptance are deemed to be
part of the terms of the Offer.
(a) COMPLETION OF THE FORM OF ACCEPTANCE
To accept the Offer, you must complete Boxes 1 and 3 and, if
appropriate, Box 4 and/or Box 5 of the Form of Acceptance. In all
cases, you must sign Box 2 of the Form of Acceptance in the
presence of a witness who should also sign, in accordance with the
instructions printed thereon.
(b) TO ACCEPT THE OFFER IN RESPECT OF FEWER THAN ALL YOUR BRADFORD
SHARES
To accept the Offer in respect of fewer than all your Bradford
Shares you must insert in Box 1 on the Form of Acceptance such
lesser number of Bradford Shares in respect of which you wish to
accept the Offer in accordance with the instructions printed
thereon. Your attention is drawn, however, to the paragraph headed
"Compulsory acquisition" in the letter from the Chairman of
Bradford set out on pages 7 to 11 of this document. You should
then follow the procedure set out in paragraph (a) above in
respect of such lesser number of Bradford Shares. If you do not
insert a number in Box 1, or if you insert a number greater than
your registered holding of Bradford Shares, you will be deemed to
have accepted the Offer in respect of your entire holding of
Bradford Shares.
(c) RETURN OF THE FORM OF ACCEPTANCE
To accept the Offer, the completed and signed Form of Acceptance
must be returned, either by post or (during normal business hours)
by hand to Lloyds TSB Registrars, The Causeway, Worthing, West
Sussex BN99 6DA as soon as possible, BUT IN ANY EVENT SO AS TO BE
RECEIVED NOT LATER THAN 3.00 P.M. (LONDON TIME) ON 11 JANUARY
2001. The completed Form of Acceptance should be accompanied by
the share certificate(s) for your Bradford Shares and/or other
document(s) of title. A reply-paid envelope (valid for posting
only in the UK) is enclosed for your convenience. No
acknowledgement of receipt of documents will be given.
Any Form of Acceptance received in an envelope postmarked in the
United States, Canada, Australia or Japan or otherwise appearing
to Inhale or to any of its agents to have been sent from any of
those countries will not constitute a valid acceptance of the
Offer.
For further information for overseas shareholders, see paragraph
(f) below and paragraph 6 of Part B of Appendix I of this
document.
(d) SHARE CERTIFICATES NOT READILY AVAILABLE OR LOST
If your share certificate(s) and/or other document(s) of title
is/are not readily available or is/are lost, the Form of
Acceptance should nevertheless be completed, signed and returned
as stated above SO AS TO ARRIVE NOT LATER THAN 3.00 P.M. ON
11 JANUARY 2001, together with any share certificate(s) and/or
other document(s) of title that you have available,
20
<PAGE>
accompanied by a letter stating that the balance will follow or
that you have lost one or more of your share certificate(s) and/or
other document(s) of title. You should then arrange for the
relevant share certificate(s) and/or other document(s) of title to
be forwarded as soon as they become available. No acknowledgement
of receipt of documents will be given. In the case of lost
certificates, you should then write as soon as possible to Walker
Morris, reference IMG, Kings Court, 12 King Street, Leeds LS1 2HL,
requesting a letter of indemnity for lost share certificate(s)
and/or other document(s) of title, which, when completed in
accordance with the instructions given, should be returned to
Lloyds TSB Registrars at the address stated above.
(e) VALIDITY OF ACCEPTANCES
Without prejudice to Parts B and C of Appendix I of this document,
Inhale and Cazenove each reserve the right, subject to the terms
of the Offer and the City Code, to treat as valid in whole or part
any acceptance of the Offer which is not entirely in order or
which is not accompanied by the relevant share certificate(s)
and/or other document(s) of title. In that event, the
consideration payable in respect of such acceptances under the
Offer will not be paid or issued (as the case may be) until after
the relevant acceptance has been perfected and the relevant share
certificate(s) and/or other document(s) of title or indemnities
satisfactory to Inhale have been received.
(f) OVERSEAS SHAREHOLDERS
The attention of Bradford Shareholders who are citizens or
residents of jurisdictions outside the UK is drawn to paragraph 6
of Part B and paragraph 1(b) of Part C of Appendix I of this
document and to the relevant provisions of the Form of Acceptance.
The Offer is not being made, directly or indirectly, in or into,
or by the use of the mails of, or by any means of instrumentality
(including, without limitation, telephonically or electronically)
or interstate or foreign commerce of or any facilities of a
national securities exchange of the United States, Canada,
Australia or Japan. Subject to paragraph 6 of Part B of Appendix I
this document, any accepting Bradford Shareholder who is unable to
give the warranties set out in paragraph 1(b) of Part C of
Appendix I of this document will be deemed not to have validly
accepted the Offer.
THE AVAILABILITY OF THE OFFER TO PERSONS NOT RESIDENT IN THE UK
MAY BE AFFECTED BY LAWS OF THE RELEVANT JURISDICTIONS. OVERSEAS
SHAREHOLDERS SHOULD INFORM THEMSELVES OF, AND OBSERVE, ANY
APPLICABLE LEGAL OR REGULATORY REQUIREMENTS. IF YOU ARE IN ANY
DOUBT ABOUT YOUR POSITION, YOU SHOULD CONSULT YOUR PROFESSIONAL
ADVISER IN THE RELEVANT TERRITORY WITHOUT DELAY.
(g) GENERAL
If you are in any doubt as to the procedure for acceptance, please
contact Lloyds TSB Registrars on 0870 600 2027.
10. SETTLEMENT
Subject to the Offer becoming or being declared unconditional in all
respects, and provided that the Form of Acceptance, share certificate(s)
and/or other document(s) of title are in order, (except as provided in
paragraph 6 of Part B of Appendix I of this document in the case of
certain Overseas Shareholders) settlement of the consideration will be
effected:
(i) in the case of acceptances of the Offer received, complete in all
respects, by the date on which the Offer becomes or is declared
unconditional in all respects, within 14 days of such date; and
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(ii) in the case of Bradford Shares held by the Called Shareholders
acquired by Inhale on the date on which the Offer becomes or is
declared unconditional in all respects pursuant to the Drag Along
Notice, within 14 days of such date; and
in each case, in the following manner.
Cheques for any cash consideration due will be despatched (but not into
the United States, Canada, Australia or Japan) by first class post (or by
such other method as may be approved by the Panel). All such cash
payments will be made in pounds sterling by cheque drawn on a branch of a
UK clearing bank or by an electronic funds transfer.
In relation to New Inhale Shares to be issued in certificated form
pursuant to the Offer, temporary documents of title will not be issued
pending the despatch by post of definitive certificates for such New
Inhale Shares by Inhale's transfer agent. The New Inhale Shares will
initially be issued as "restricted securities" under the US Securities
Act and will become freely tradeable when the Form S-3 Registration
Statement becomes effective and the New Inhale Shares are listed on
Nasdaq.
If the Offer lapses or is not declared unconditional in all respects, the
Form of Acceptance, share certificate(s) and/or other document(s) of
title will be returned by post (or by such other method as may be
approved by the Panel) within 14 days of the Offer lapsing, to the person
or agent whose name and address outside the United States, Canada,
Australia or Japan is set out in Box 5 of the Form of Acceptance or, if
none is set out, to the first named holder at his registered address
outside the United States, Canada, Australia or Japan.
All mandates and other instructions in force relating to holdings of
Bradford Shares will, unless and until revoked, continue to remain in
force in relation to payment and notices by Inhale in respect of New
Inhale Shares. All documents and remittances sent out by or from Bradford
Shareholders or their appointed agents will be sent at their own risk.
11. ACTION TO BE TAKEN
YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE FORM OF ACCEPTANCE IN THE
REPLY-PAID ENVELOPE ENCLOSED AS SOON AS POSSIBLE AND, IN ANY EVENT, SO AS
TO BE RECEIVED BY POST OR (DURING NORMAL BUSINESS HOURS) BY HAND NO LATER
THAN 3.00 P.M. (LONDON TIME) ON 11 JANUARY 2001 BY LLOYDS TSB REGISTRARS
AT THE CAUSEWAY, WOTHING, WEST SUSSEX BN99 6DA.
12. FURTHER INFORMATION
Your attention is drawn to further information contained in the
appendices to this document.
Yours faithfully,
/s/ Cazenove & Co.
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APPENDIX I
CONDITIONS AND FURTHER TERMS OF THE OFFER
PART A - CONDITIONS OF THE OFFER
The Offer complies with the applicable rules and regulations of the City Code,
is governed by English law and is subject to the jurisdiction of the courts of
England and to the terms and conditions set out below, and in the Form of
Acceptance.
The Offer is subject to the following conditions:
(a) valid acceptances being received (and not, where permitted, withdrawn) by
not later than 3.00 p.m. (London time) on 11 January 2001 (or such later
time(s) and/or date(s) as Inhale may, subject to the rules of the City
Code, decide) in respect of not less than 90 per cent. (or such lesser
percentage as Inhale may decide) in nominal value of the Bradford Shares
to which the Offer relates, provided that this condition will not be
satisfied unless Inhale or any of its wholly-owned subsidiaries shall
have acquired or agreed to acquire (pursuant to the Offer or otherwise)
Bradford Shares carrying in aggregate more than 50 per cent. of the
voting rights then normally exercisable at a general meeting of Bradford
including for this purpose (except to the extent otherwise agreed with
the Panel) any such voting rights attaching to any Bradford Shares that
are unconditionally allotted or issued before the Offer becomes or is
declared unconditional as to acceptances and whether pursuant to any
outstanding subscription or conversion rights or options or otherwise.
For the purposes of this condition: (i) Bradford Shares which have been
unconditionally allotted shall be deemed to carry the voting rights they
will carry upon their being entered in the register of members of
Bradford; and (ii) the expression "Bradford Shares to which the Offer
relates" means (a) Bradford Shares unconditionally allotted or issued on
or before the date of this document, and (b) Bradford Shares
unconditionally allotted or issued after the date this Offer is made but
before the time at which the Offer ceases to be open for acceptance (or
such earlier date, not being earlier than the date upon which the Offer
becomes unconditional as to acceptances, or if later, 11 January 2001, as
Inhale may, subject to the City Code, decide) but excluding any Bradford
Shares which, on the date the Offer is made, are held or (otherwise than
under a contract as is described in Section 428(5) Companies Act 1985)
contracted to be acquired by Inhale and/or its associates (within the
meaning of Section 430E Companies Act 1985);
(b) no relevant authority having withdrawn or refused to renew, or threatened
to withdraw or to refuse to renew, any licence or permission or having
instituted, implemented or taken, or threatened to take any other action,
the effect of which would adversely affect the business, assets,
prospects or profits of Bradford, and no such licences or permissions
terminating or otherwise becoming invalid as a result of the Offer or its
implementation, the effect of which would adversely affect the business,
assets, prospects or profits of Bradford;
(c) no relevant authority in any jurisdiction having intervened in any way
which would or would be likely to:
(i) make the Offer, or its implementation, or the acquisition by
Inhale or by any member of the Wider Inhale Group of any or all
Bradford Shares, or control of Bradford by Inhale, void, illegal
or unenforceable, or otherwise directly or indirectly, restrict,
prohibit, materially delay or otherwise interfere with the Offer,
its implementation or such proposed acquisition by such member of
the Wider Inhale Group of, or impose additional material
conditions or obligations with respect to, or otherwise
materially challenge, the Offer, its implementation, or the
acquisition of any or all Bradford Shares or control of Bradford
by Inhale or such member of the Wider Inhale Group (as the case
may be);
(ii) require or prevent the divestiture by the Wider Inhale Group or
by Bradford of all or any portion of their respective businesses,
assets or properties or impose any additional
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material limitations on the ability of any of them to conduct
their respective businesses or to own their respective assets or
property or any part of them;
(iii) impose any limitation on the ability of any member of the Wider
Inhale Group to acquire, directly or indirectly, or to hold or
exercise effectively all or any rights of ownership of Bradford
Shares held or owned by it;
(iv) result in a delay in the ability of any member of the Wider
Inhale Group, or render any member of the Wider Inhale Group
unable, to acquire some or all of the Bradford Shares;
(v) otherwise materially and adversely affect the business, profits
or prospects of Bradford or of any member of the Wider Inhale
Group (to a material extent in the context of the Wider Inhale
Group or of Bradford (as the case may be));
(vi) require any member of the Wider Inhale Group or Bradford to
acquire or offer to acquire any Bradford Shares or other
securities (or the equivalent) in Bradford owned by any third
party;
(vii) result in Bradford ceasing to be able to carry on business under
the name which it presently does so; or
(viii) require any member of the Wider Inhale Group to dispose of any
shares or other securities (or the equivalent) in Bradford or the
Wider Inhale Group;
(d) all necessary filings in connection with the Offer or the acquisition by
any member of the Wider Inhale Group of any shares in, or control of,
Bradford having been made and all appropriate waiting periods (including
any extensions of them) under any applicable legislation or regulations
in any jurisdiction having expired, lapsed or been terminated and no
notice of any intention to revoke any of the same having been received,
in each case as may be necessary in connection with the Offer or the
acquisition by any member of the Wider Inhale Group of any shares in, or
control of, Bradford, and all authorisations, waivers, orders,
recognitions, grants, consents, clearances, confirmations, licences,
permissions and approvals necessary or appropriate for or in respect of
the Offer or the proposed acquisition of Bradford Shares by any member of
the Wider Inhale Group or control of Bradford by the Wider Inhale Group
having been obtained in terms and in a form reasonably satisfactory to
Inhale from all relevant authorities or (without prejudice to the
generality of the foregoing) from any persons or bodies with whom any
member of the Wider Inhale Group has entered into contractual
arrangements, and all such authorisations, orders, recognitions, grants,
consents, clearances, confirmations, licences, permissions and approvals
together with all authorisations, waivers, orders, grants, recognitions,
confirmations, consents, licences, permissions, approvals and
determinations necessary for Bradford to carry on its business remaining
in full force and effect and all filings necessary for such purpose
having been made at the time the Offer becomes or is declared otherwise
unconditional and there being no intimation of any intention to revoke or
amend or not to renew the same in connection with the Offer under the
laws or regulations of any jurisdiction and all necessary statutory or
regulatory obligations in any jurisdiction having been complied with;
(e) save as fairly disclosed to Inhale before 21 December 2000 there being no
provision of any arrangement, agreement licence, permit, franchise or
other instrument to which Bradford or any partnership or company in which
Bradford is interested (an "associate") is a party or by or to which
Bradford or any associate or any of their respective assets may be bound
or be subject which should reasonably be expected, in consequence of the
Offer or the proposed acquisition of Bradford Shares by Inhale, to result
in:
(i) any moneys borrowed by or any other indebtedness, actual or
contingent, of Bradford or any such associate becoming repayable
or capable of being declared repayable immediately or prior to
the stated repayment date in such arrangement, agreement or
instrument or the ability of Bradford or such associate to incur
any indebtedness being withdrawn or inhibited;
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(ii) the creation of any mortgage, charge or other security interest
over the whole or any part of the business, property or assets of
Bradford or any such associate or any such security (whenever
arising or having arisen) becoming enforceable;
(iii) any such arrangement, agreement, licence, permit, franchise or
instrument being terminated or adversely modified or any action
of an adverse nature being taken or onerous obligation arising
thereunder;
(iv) any assets or interests of Bradford or any such associate being
or falling to be disposed of or charged, or any right arising
under which any such asset or interest could be required to be
disposed of or charged, otherwise than in the ordinary course of
business;
(v) the respective financial or trading position, profits and
prospects of Bradford or any such associate being prejudiced or
adversely affected;
(vi) the interests or business of Bradford or any such associate in or
with any other person, firm or company (or any arrangements
relating to such interests or business) being adversely affected;
or
(vii) Bradford or any such associate ceasing to be able to carry on
business under any name under which it presently does so;
(f) save as fairly disclosed to Inhale before 21 December 2000 Bradford not
having, since 31 May 2000.
(i) made any alterations to its memorandum or articles of
association;
(ii) issued or agreed to or authorised or proposed the issue of
additional shares of any class, or securities convertible into,
or rights, warrants or options to subscribe for or acquire, any
such shares or convertible securities save for options granted,
and the issue of shares pursuant to the exercise of options
granted, on or before 21 December 2000 under the Bradford Share
Option Schemes;
(iii) recommended, declared, paid or made or proposed to declare, pay
or make any bonus, dividend or other distribution, whether
payable in cash or otherwise;
(iv) authorised, proposed or announced an intention to authorise or
propose any merger or acquisition, demerger, disposal or transfer
of assets (other than in the ordinary course of trading);
(v) authorised, proposed or announced its intention to authorise or
propose any change to its share or loan capital (save for any
Bradford Shares allotted upon the exercise of options granted on
or before 21 December 2000 under the Bradford Share Option
Schemes);
(vi) acquired, disposed of or transferred, mortgaged or encumbered any
assets or any right, title or interest in any asset (save in the
ordinary course of trading) which in any such case is adverse to,
and material for, Bradford;
(vii) issued or proposed the issue of any debentures or (save in the
ordinary course of business) incurred any indebtedness or
contingent liability which in any such case is adverse to, and
material for, Bradford;
(viii) entered into any arrangement, agreement, transaction or
commitment (whether in respect of capital expenditure, trading
obligations or otherwise) which is of a loss making, long term,
onerous or unusual nature or which involves or could involve an
obligation of such a nature of magnitude which in any such case
is adverse to, and material for, Bradford;
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(ix) implemented, authorised, proposed or announced its intention to
implement or enter into any reconstruction, amalgamation,
commitment, scheme or other transaction or arrangement otherwise
than in the ordinary course of trading;
(x) entered into or varied the terms of any service agreement or
agreement for services with any director of Bradford;
(xi) purchased any of its own shares or other securities convertible
into or exchangeable for its own shares;
(xii) proposed any voluntary winding-up;
(xiii) waived or comprised any claim which is adverse to, and material
for, Bradford;
(xiv) terminated or varied the terms of any agreement or arrangement
between Bradford and any other person in a manner which would or
might be expected to have a material adverse effect on the
position or prospects of Bradford;
(xv) entered into any arrangement, agreement or commitment or passed
any resolution with respect to any of the transactions, matters
or events referred to in this paragraph (f); or
(xvi) made or authorised or proposed or announced an intention to
propose any material change in its loan capital;
(xvii) entered into any contract, transaction or arrangement which is or
is likely to be restrictive in a material respect on the business
of any member of the Wider Inhale Group or of Bradford; or
(xviii) proposed, agreed to provide or modified the terms of any share
option scheme, incentive scheme or other benefit relating to the
employment or termination of employment of any person employed by
Bradford which is adverse to, and material for, Bradford;
(g) save as fairly disclosed to Inhale before 21 December 2000, since
31 May 2000:
(i) there having been no adverse change in the business, assets,
financial or trading position or profits or prospects of
Bradford;
(ii) no litigation, arbitration proceedings, prosecution or other
legal proceedings having been threatened, announced, intimated or
instituted by or remaining outstanding against Bradford (whether
as plaintiff, defendant or otherwise);
(iii) there having been no receiver or administrative receiver
appointed over any of the assets of Bradford or any analogous
proceedings or steps having taken place under the laws of any
jurisdiction and there having been no petition presented for the
administration of Bradford or any equivalent proceedings or steps
taken under the laws of any other jurisdiction;
(iv) no claim being made, and no circumstance having arisen which
might lead to a claim being made, under the insurance of Bradford
which would or might reasonably be expected to have an effect on
Bradford;
(v) no material investigation by and relevant authority having been
threatened in writing, announced, implemented or instituted or
remaining outstanding in respect of Bradford; or
(vi) no provision or contingent liability having arisen or become
apparent which might be likely in either case to have an adverse
effect on Bradford; and
(h) save as fairly disclosed to Inhale before 21 December 2000 Inhale not
having discovered that:
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(i) the financial, business or other information publicly disclosed
at any time by or on behalf of Bradford contains a
misrepresentation of a material fact or omits to state a material
fact necessary to make the information contained therein not
materially misleading;
(ii) Bradford has not complied with all applicable legislation or
regulations of any jurisdiction with regard to the disposal,
spillage, leak or emission of any waste or hazardous substances,
which non-compliance would be likely to give rise to any material
liability (whether actual or contingent) on the part of Bradford;
(iii) there has been a disposal, spillage or leak of waste or hazardous
substances on, or an emission of waste or hazardous substances
from any property, now or previously owned, occupied or made use
of by Bradford which would be likely to give rise to any material
liability (whether actual or contingent) on the part of Bradford;
(iv) there is any material liability (whether actual or contingent) to
make good, repair, re-instate or clean up any property now or
previously owned, occupied or made use of by Bradford under any
environmental legislation, regulation or order of any government,
quasi-government, state or local government, supranational,
statutory or regulatory body, court, agency or association or any
other person or body in any jurisdiction;
(v) circumstances exist (whether as a result of the making of the
Offer or otherwise):
(a) which would be likely to result in any relevant authority
instituting; or
(b) whereby Inhale or Bradford would be likely to be required
to institute,
an environmental audit or to take any other steps which would in
any such case be likely to result in any actual or contingent
material liability to make good, repair, reinstate, or clean up
any property now or previously owned, occupied or made use of by
Bradford; or
(vi) circumstances exist whereby a person or class of persons would be
likely to have any material claim or claims in respect of any
product, service or process of manufacture or materials used
therein now or previously manufactured, sold or carried out by
Bradford.
For the purposes of these conditions: (a) "relevant authority" means any
government, government department or governmental, quasi-governmental,
supranational, statutory, regulatory or investigative body, court, trade
agency, association, institution, professional or environmental
association or any other person or body whatsoever in any jurisdiction;
(b) a relevant authority shall be regarded as having "intervened" if it
has instituted, implemented, threatened or decided to take any action,
proceedings, suit, investigation or enquiry, or made, enacted or proposed
any statute, regulation, decision or order, or taken any measures or
other steps and "intervene" shall be construed accordingly; and (c)
"authorisations" means authorisations, orders, grants, recognitions,
confirmations, consents, licences, clearances, permissions and approvals.
Inhale reserves the right (but shall be under no obligation) to waive all
or any of conditions (b) to (h) both inclusive, in whole or in part.
Except with the consent of the Panel, the Offer will lapse, unless
conditions (b) to (h) both inclusive are fulfilled or, if capable of
waiver, waived or, where appropriate, have been determined by Inhale in
its opinion to be or to remain satisfied by midnight on, the 21st day
after the later of the first closing date of the Offer and the date on
which condition (a) is satisfied. Inhale shall be under no obligation to
waive or treat as satisfied any of conditions (b) to (h) both inclusive
by a date earlier than the latest date specified above for the
satisfaction thereof notwithstanding that the other conditions of the
Offer may at such earlier date have been waived or fulfilled and that
there are at such earlier date no circumstances indicating that the
relevant condition may not be capable of satisfaction. If the Offer
lapses, the Offer will cease to be capable of further acceptance and
Inhale, Cazenove and holders of Bradford Shares shall thereupon cease to
be bound by prior acceptances.
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If Inhale is required by the Panel to make an offer or offers for
Bradford Shares under the provisions of Rule 9 of the City Code, Inhale
may make such alterations to the terms and conditions of the Offer,
including condition (a) above, as are necessary to comply with the
provisions of that Rule.
The Bradford Shares which are the subject of the Offer will be acquired
by Inhale fully paid and free from all liens, equities, charges,
encumbrances, rights of pre-emption and other third party rights or
interests of any nature attaching to them and together with all rights
attaching to them, including the right to receive and retain all
dividends and other distributions declared, paid or made after 21
December 2000.
PART B - FURTHER TERMS OF THE OFFER
The following further terms apply, unless the context otherwise requires, to the
Offer. Except where the context otherwise requires, any references in this Part
B and Part C of this Appendix I and in the Form of Acceptance to:
(a) the "Offer" shall mean the Offer and any revision or variation thereof or
extension thereto;
(b) "the Offer becoming unconditional" shall include references to the Offer
being declared unconditional;
(c) "the Offer becoming unconditional" or "the Offer becoming or being
declared unconditional" shall be construed as the Offer becoming or being
declared unconditional as to acceptances in accordance with paragraph
(a) of Part A of this Appendix I, whether or not any other condition of
the Offer remains to be fulfilled;
(d) the "acceptance condition" shall mean the condition as to acceptances set
out in paragraph (a) of Part A of this Appendix I; and
(e) "acceptances of the Offer" shall include deemed acceptances of the Offer.
1. ACCEPTANCE PERIOD
(a) The Offer will initially be open for acceptance until 3:00 p.m. on 11
January 2001. Although no revision is envisaged, if the Offer is revised,
it will remain open for acceptance for a period of at least 14 days from
the date on which written notification of the revision is posted to
Bradford Shareholders (or such other period as may be permitted by the
Panel). Except with the consent of the Panel, no such written
notification may be posted after 5 February 2001, or, if later, the date
falling 14 days prior to the last date on which the Offer is able to
become unconditional.
(b) The Offer, whether revised or not shall not (except with the consent of
the Panel) be capable of becoming unconditional after midnight on
19 February 2001 (or any earlier time and/or date beyond which Inhale has
stated, and has not withdrawn such statement, that the Offer will not be
extended) nor of being kept open after that time unless it has previously
become unconditional. However, Inhale reserves the right, with the
permission of the Panel, to extend the Offer to a later time(s) and/or
date(s). Except with the consent of the Panel, Inhale may not, for the
purpose of determining whether the acceptance condition has been
satisfied, take into account acceptances of the Offer received or
purchases of shares made unless all relevant documentation is received by
Lloyds TSB Registrars no later than 1:00 p.m. on 19 February 2001 (or any
earlier time and/or date beyond which Inhale has stated that the Offer
will not be extended and in respect of which it has not withdrawn that
statement) or, if the Offer is so extended, only such later time(s)
and/or date(s) as Inhale, with the permission of the Panel, may
determine. If the latest time at which the Offer may become unconditional
is extended beyond midnight on 19 February 2001, acceptances received and
purchases made in respect of which the relevant documents are received by
Lloyds TSB Registrars after 1.00 p.m. on the relevant date may (except
where the City Code otherwise permits) only be taken into account with
the agreement of the Panel.
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(c) If the Offer becomes or is declared unconditional, the Offer will remain
open for acceptance for not less than 14 days from the date on which it
would otherwise have expired. If the Offer has become unconditional and
it is stated that the Offer will remain open until further notice, then
not less than 14 days' written notice will be given prior to the closing
of the Offer to those Bradford Shareholders who have not accepted the
Offer.
(d) If a competitive situation (as determined by the Panel) arises after
Inhale has made a "no increase" and/or a "no extension" statement in
relation to the Offer, Inhale may (if it specifically reserved the right
to do so at the time such statement was made or otherwise with the
consent of the Panel), withdraw such statement provided it complies with
the requirements of the City Code and, in particular, that it announces
such withdrawal as soon as possible and, in any event, within four
business days after the announcement of the competing offer or
competitive situation and notifies Bradford Shareholders in writing
thereof (or, in the case of Bradford Shareholders with registered
addresses outside the UK, or whom Inhale knows to be nominees, trustees
or custodians holding Bradford Shares for such persons, by an
announcement in the UK) at the earliest practicable opportunity and any
Bradford Shareholders who accepted the Offer after the date of any "no
increase" and/or a "no extension" statement are given a right of
withdrawal described in paragraph 3 below.
(e) Inhale may (if, having reserved the right to do so at the time a
statement is made) choose not to be bound by the terms of a "no increase"
or a "no extension" statement if the statement would otherwise prevent
the posting of an increased or improved offer which is recommended for
acceptance by the board of Bradford or in other circumstances permitted
by the Panel.
(f) Unless otherwise determined by the Panel, Inhale shall be entitled (but
shall not be bound) at any particular time to decide that the acceptance
condition is then satisfied taking account only of those Bradford Shares
which have been unconditionally allotted or issued before that time and
written notice of the allotment or issue of which, containing all
relevant details, has been received before that time by Lloyds TSB
Registrars on behalf of Inhale from Bradford or its agents at the address
specified in sub-paragraph 3(a) of this Part B. Telex, e-mail, facsimile
or other electronic transmission will not be sufficient.
2. ANNOUNCEMENTS
(a) Without prejudice to sub-paragraph 3(a) of this Part B, on the business
day (the "Relevant Day") immediately following the day on which the Offer
is due to expire or become unconditional or is revised or extended, as
the case may be, (or such later time(s) or date(s) as the Panel may
agree), Inhale will make an appropriate announcement of the position of
the Offer. Such announcement will (unless otherwise permitted by the
Panel) also state (as nearly as practicable) the total number of Bradford
Shares and rights over Bradford Shares:
(i) for which acceptances of the Offer have been received (and to
what extent such acceptances have been received from persons
acting in concert with Inhale for the purposes of the Offer);
(ii) acquired or agreed to be acquired by or on behalf of Inhale (or
by persons acting in concert with Inhale for the purposes of the
Offer) during the Offer Period; and
(iii) held by or on behalf of Inhale (or by persons acting in concert
with Inhale for the purposes of the Offer) prior to the Offer
Period,
and will specify the percentage of Bradford's share capital represented
by each of these figures.
Except with the consent of the Panel, on 19 February 2001 or such other
date beyond which Inhale has stated that the Offer will not be extended,
Inhale shall make an announcement by 5.00 p.m. that same day as to
whether the Offer is unconditional or has lapsed. Such an announcement
will, where practicable, include the information specified in (i) to
(iii) above, but in
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any event will include such of that information as is then available to
Inhale in the light of acceptances then counted.
(b) Any decision to extend the time and/or date by which the acceptance
condition has to be fulfilled may be made at any time up to, and will be
announced not later than, on the Relevant Day (or such later time(s)
and/or date(s) as the Panel may agree) and the announcement will state
the next expiry date (unless the Offer is unconditional, in which case a
statement may instead be made that the Offer will remain open until
further notice).
(c) In computing the number of Bradford Shares represented by acceptances and
purchases there may, at the discretion of Inhale, be included or excluded
for announcement purposes, subject to sub-paragraph 5(k) of this Part B,
acceptances and purchases not in all respects in order or subject to
verification.
(d) In this Part B of Appendix I, references to the making of an announcement
by or the giving of notice by or on behalf of Inhale include the release
of an announcement to the press by Inhale, public relations consultants
or by Cazenove and/or the posting by Inhale or by Cazenove of a written
notice to the Bradford Shareholders.
3. RIGHTS OF WITHDRAWAL
(a) If Inhale, having announced the Offer to be unconditional, fails to
comply by 3.30 p.m. on the Relevant Day (or such later time(s) and/or
date(s) as the Panel may agree) with any of the other relevant
requirements specified in sub-paragraph 2(a) of this Part B, an accepting
Bradford Shareholder may (unless the Panel otherwise agrees) immediately
thereafter withdraw his acceptance(s) of the Offer by written notice
signed by such Bradford Shareholder (or his or her agent duly appointed
in writing and evidence of whose appointment reasonably satisfactory to
Inhale or Cazenove is produced with the notice) and received either by
post or by hand (during normal business hours) by Lloyds TSB Registrars,
The Causeway, Worthing, West Sussex BN99 6DA. Subject to sub-paragraph
1(b) of this Part B, this right of withdrawal may be terminated not less
than eight days after the Relevant Day by Inhale confirming, if such be
the case, that the Offer is still unconditional and complying with the
other requirements specified in sub-paragraph 2(a) of this Part B. If any
such confirmation is given, the first period of 14 days referred to in
sub-paragraph 1(c) of this Part B will run from the date of such
confirmation and compliance.
(b) If by 3:00 p.m. on 01 February 2001 (or such later time(s) and/or date(s)
as the Panel may agree) the Offer has not become unconditional, an
accepting Bradford Shareholder (or his or her agent duly appointed in
writing and evidence of whose appointment reasonably satisfactory to
Inhale or Cazenove is produced with the notice) may withdraw his
acceptance(s) at any time thereafter by written notice received by Lloyds
TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DA on behalf of
Inhale at the address and in the manner referred to in sub-paragraph 3(a)
of this Part B, until the earlier of:
(i) the time when the Offer becomes unconditional; and
(ii) the final time for lodgement of acceptances of the Offer which
can be taken into account in accordance with sub-paragraph 1(b)
of this Part B.
(c) If a "no increase" and/or a "no extension" statement has been withdrawn
in accordance with sub-paragraph 1(c) of this Part B, any Bradford
Shareholder who accepts the Offer after such statement is made may
withdraw that acceptance thereafter in the manner referred to in
sub-paragraph 3(a) of this Part B not later than the eighth day after the
posting of written notice of such withdrawal to Bradford Shareholders.
(d) Except as provided by this paragraph 3 of this Part B, acceptances and
elections shall be irrevocable.
(e) In this paragraph 3, "written notice" (including any letter of
appointment, direction or authority) means notice in writing bearing the
original signature(s) of the relevant accepting Bradford
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Shareholder(s) or his/their agent(s) or attorney duly appointed in
writing (evidence of whose appointment is produced with the notice in a
form reasonably satisfactory to Inhale or Cazenove). Telex, e-mail,
facsimile or other electronic transmission or copies will not be
sufficient to constitute written notice. No notice which is postmarked
in, or otherwise appears to Inhale or its agents to have been sent from,
the United States, Canada, Australia or Japan will be treated as valid.
4. ACCEPTANCES AND PURCHASES
Except as otherwise agreed by the Panel:
(a) an acceptance of the Offer shall not be treated as valid for the purposes
of the acceptance condition unless the requirements of Note 4 and, if
applicable, Note 6 of Rule 10 of the City Code are satisfied in respect
of it;
(b) a purchase of Bradford Shares by Inhale or its nominee(s) or (if Inhale
is required by the Panel to make an offer for Bradford Shares under
Rule 9 of the City Code) any person acting in concert with it or its or
their nominees will only be treated as valid for the purposes of the
acceptance condition if the requirements of Note 5 and, if applicable,
Note 6 of Rule 10 of the City Code are satisfied in respect of it; and
(c) before the Offer may become unconditional, Lloyds TSB Registrars must
have issued a certificate to Inhale and/or to Cazenove which states the
number of Bradford Shares in respect of which acceptances have been
received and which comply with paragraph 4(a) of this Part B, and the
number of Bradford Shares otherwise acquired, whether before or during
the Offer Period, which comply with paragraph 4(b) of this Part B. Copies
of such certificate will be sent to the Panel and to the financial
advisers of Bradford as soon as possible after issue.
5. GENERAL
(a) Save with the consent of the Panel, the Offer will lapse unless all
conditions have been satisfied or (if capable of waiver) waived or, where
appropriate, have been determined by Inhale to be or remain satisfied by
midnight on 01 February 2001 or on the date which is 21 days after the
date on which the Offer becomes unconditional, whichever is the later, or
such later date as Inhale may, with the consent of the Panel, decide. In
such a case the Offer shall cease to be capable of further acceptance,
and Inhale, Cazenove and Bradford Shareholders shall thereupon cease to
be bound by prior acceptances.
(b) The expression "Offer Period" when used in this document means, in
relation to the Offer, the period commencing on the date of this document
and ending on whichever of the following times shall be the latest:
(i) 3:00 p.m. on 11 January 2001;
(ii) the time and date at which the Offer lapses; and
(iii) the time and date at which the Offer becomes unconditional.
(c) Except with the consent of the Panel, settlement of the consideration to
which any Bradford Shareholder is entitled under the Offer will be
implemented in full in accordance with the terms of the Offer without
regard to any lien, right of set-off, counterclaim or other analogous
right to which Inhale or Cazenove may otherwise be, or claim to be,
entitled as against any such Bradford Shareholder and will be paid within
14 days of the later of the date on which the Offer becomes or is
declared unconditional in all respects, or 14 days after receipt of a
valid and complete acceptance, whichever is the later, and will be
effected in the manner described in paragraph 10 of the letter from
Cazenove contained in this document. No consideration will be sent to an
address in the United States, Canada, Australia or Japan.
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(d) The Offer will lapse (unless otherwise agreed by the Panel) if, in
relation to the Offer or any matter arising therefrom there is a
referral to the Competition Commission before the later of 3.00 p.m. on
11 January 2001 and the time and date when the Offer becomes or is
declared unconditional. If the Offer so lapses, it shall cease to be
capable of further acceptance and Inhale and Cazenove and accepting
Bradford Shareholders shall thereupon cease to be bound by Forms of
Acceptance delivered before the time when the Offer so lapses.
(e) The terms, provisions, instructions and authorities contained in or
deemed to be incorporated in the Form of Acceptance constitute part of
the terms of the Offer. Words and expressions defined in this Offer
Document have the same meanings when used in the Form of Acceptance
unless the context otherwise requires. The provisions of Part C below
shall be deemed to be incorporated in and form part of the Form of
Acceptance.
(f) The Offer and the Form of Acceptance and all acceptances of the Offer and
elections in respect thereof and all contracts made pursuant to the Offer
and action taken or deemed to be taken under any of the foregoing shall
be governed by and construed in accordance with English law and subject
to the jurisdiction of the Courts of England. No parties other than
Inhale or Bradford Shareholders shall have any right under the Contracts
(Rights of Third Parties) Act 1999 to enforce any term of the Offer.
(g) Execution by or on behalf of a Bradford Shareholder of a Form of
Acceptance will constitute his submission, in relation to all matters
arising out of the Offer and the Form of Acceptance, to the jurisdiction
of the Courts of England and the relevant shareholder's agreement that
nothing shall limit the right of Inhale or Cazenove to bring any action,
suit or proceeding arising out of or in connection with the Offer and the
Form of Acceptance in any other manner permitted by law or in any court
of competent jurisdiction.
(h) All references in this Offer Document and in the Form of Acceptance to 11
January 2001 shall (except in sub-paragraph 5(b) of this Part B and
except where the context otherwise requires) be deemed, if the expiry
date of the Offer be extended, to refer to the expiry date of the Offer
as so extended.
(i) Any omission or failure (or decision not) to despatch the Offer Document
and/or the Form of Acceptance or any notice required to be despatched
under the terms of the Offer to, or any failure to receive the same by,
any person to whom the Offer is being made shall not invalidate the Offer
in any way or create any implication that the Offer has not been made to
any Bradford Shareholder, and any such person to whom the Offer Document,
the Form of Acceptance and any related documents have not been despatched
or who has not received such documents may, subject to the provisions of
paragraph 6 of this Part B, collect copies of such documents from Lloyds
TSB Registrars at the address set out in paragraph 3(a) of this Part B
during normal business hours.
(j) Inhale and Cazenove reserve the right to notify Bradford Shareholders
regarding any matter, including the making of the Offer, to all or any
Bradford Shareholders with a registered address outside the United
Kingdom or whom Bradford knows to be a nominee, trustee or custodian
holding Bradford Shares for persons outside the United Kingdom (including
an evening paper circulated in London), by announcement or paid
advertisement in a daily newspaper published and circulated in the United
Kingdom, or any part thereof, in which event such notice shall be deemed
to have been sufficiently given, notwithstanding any failure by any such
shareholder(s) to receive or see such notice, and all references in this
document to notice or the provision of information in writing by or on
behalf of Inhale and/or Cazenove and/or their respective agents shall be
construed accordingly.
(k) Without prejudice to any other provisions of this Part B, Inhale and
Cazenove reserve the right to treat acceptances of the Offer as valid if
not entirely in order or not accompanied by the relevant share
certificate(s) and/or other relevant document(s) of title or if received
by or on behalf of either of them at any place or places or in any manner
which may be otherwise than as set out herein or in the Form of
Acceptance.
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(l) All powers of attorney, appointment of agents and authorities on the
terms conferred by or referred to in this Appendix I or in the Form of
Acceptance are given by way of security for the performance of the
obligations of the Bradford Shareholder concerned and are irrevocable in
accordance with Section 4 of the Powers of Attorney Act 1971 except in
the circumstances where the grantor of such power of attorney,
appointment or authority is entitled to withdraw his acceptance in
accordance with paragraph 3 of this Part B and duly does so.
(m) No acknowledgement of receipt of any Form of Acceptance, share
certificate(s) or other document(s) will be given by or on behalf of
Inhale. All communications, notices, certificates, documents of title and
remittances to be delivered by or sent to or from Bradford Shareholders
(or their designated agent(s)) will be delivered by or sent to or from
them (or their designated agents(s)) at their own risk.
(n) If the Offer does not become unconditional in all respects, or lapses,
the Form of Acceptance, share certificate(s) and other document(s) of
title will be returned by post (or by such other method as may be
approved by the Panel) within 14 days of the Offer lapsing, at the risk
of the person entitled thereto, to the person or agent whose name and
address outside the United States, Canada, Australia or Japan is set out
in Box 5 on the Form of Acceptance or, if none is set out, to the
first-named holder at his registered address outside the United States,
Canada, Australia or Japan provided that no such documents will be sent
to an address in the United States, Canada, Australia or Japan.
(o) The Bradford Shares which are the subject of the Offer will be acquired
fully paid and free from all liens, equities, charges, rights of
pre-emption and other third party rights or interests of any nature and
together with all rights attaching thereto, including the right to
receive all dividends and other distributions declared, paid or made
after 21 December 2000.
(p) The Offer is made at 3:00 p.m. on 21 December 2000 and is capable of
acceptance from and after that time. Copies of this document, the Form of
Acceptance and of any related documents are available at Lloyds TSB
Registrars from that time at the address set out in paragraph 3(a) of
this Part B. The Offer is being made by means of this document.
(q) Inhale reserves the right to make such alterations, additions or
modifications to the terms of the Offer as may be necessary or desirable
to give effect to any purported acceptance of the Offer provided such
alterations, additions or modifications are consistent with the
requirements of the City Code or are otherwise made with the consent of
the Panel.
(r) All references in this Appendix I to statutory provisions shall include a
statute or statutory provision which amends, consolidates or replaces the
same (whether before or after the date hereof).
(s) The Offer extends to those persons not resident in the United Kingdom to
whom this document, the Form of Acceptance and any related documents may
not be despatched or by whom any such documents may not be received. Any
such persons may collect copies of those documents from Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex BN99 6DA.
(t) Fractional entitlements to New Inhale Shares will not be allotted or
issued to Bradford Shareholders who accept the Offer (including Bradford
Shareholders who are deemed to accept the Offer).
(u) The Offer extends to all Bradford Shares in issue and to any further
Bradford Shares unconditionally allotted or issued prior to the date on
which the Offer closes (or such earlier date, as Inhale may, subject to
the City Code, decide).
6. OVERSEAS SHAREHOLDERS
(a) The making of the Offer in, or to persons resident in or nationals of or
citizens of jurisdictions outside the United Kingdom or who are, or were,
nominees of, or custodians or trustees or
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guardians for, citizens or nationals of such jurisdictions ("Overseas
Shareholders") may be prohibited or affected by the laws of the relevant
overseas jurisdiction. Overseas Shareholders should inform themselves
about and observe any applicable legal requirements. It is the
responsibility of any Overseas Shareholder wishing to accept the Offer to
satisfy himself/herself as to the full observance of the laws of the
relevant jurisdiction in connection therewith, including the obtaining of
any governmental, exchange control or other consents which may be
required, the compliance with other necessary formalities and the payment
of any issue, transfer or other taxes or duties due in such jurisdiction.
Any Overseas Shareholder will be responsible for payment of any issue,
transfer or other taxes or other requisite payments by whomsoever payable
and Inhale and Cazenove and any person acting on their behalf shall be
fully indemnified and held harmless by such Overseas Shareholder for any
such issue, transfer or other taxes or other payments as Inhale or
Cazenove and any person acting on their behalf may be required to pay.
(b) In particular, the Offer is not being made, directly or indirectly, in or
into, or by the use of the mails of or by any means or instrumentality
(including without limitation, telephonically or electronically) of
interstate of foreign commerce of, or any facility of a national
securities exchange of, the United States, Canada, Australia or Japan.
The Offer cannot be accepted by any such use, means, instrumentality or
facility from or within the United States, Canada, Australia or Japan.
This document, the Form of Acceptance or any related document are not
being and must not be mailed or otherwise forwarded, distributed or sent
in or into the United States, Canada, Australia or Japan, including
(without limitation) to Bradford Shareholders with registered addresses
in the United States, Canada, Australia or Japan, to participants in the
Bradford Share Option Schemes or to persons who are trustees, nominees or
custodians holding Bradford Shares for such persons (each, a "Restricted
Overseas Person"). Persons receiving such documents (including, without
limitation, trustees, nominees or custodians) should not distribute or
send them in, into or from the United States, Canada, Australia or Japan
for any purpose directly or indirectly in connection with the Offer and
so doing may invalidate any purported acceptance of the Offer. Envelopes
containing Form(s) of Acceptance, evidence of title or other documents
relating to the Offer should not be postmarked in the United States,
Canada, Australia or Japan or otherwise despatched from the United
States, Canada, Australia or Japan and all acceptors must provide
addresses outside the United States, Canada, Australia or Japan for the
receipt of the consideration to which they are entitled under the Offer,
or for the return of Form(s) of Acceptance, share certificate(s) for
Bradford Shares and/or other document(s) of title in relation to Bradford
Shares.
(c) A Bradford Shareholder will be deemed not to have accepted the Offer if:
(i) he does not give the representations and warranties set out in
paragraph 1(b) of Part C below and puts "YES" in Box 4 of the
Form of Acceptance;
(ii) having completed Box 3 of the Form of Acceptance with a
registered address in the United States, Canada, Australia or
Japan, he does not insert in Box 5 of the Form of Acceptance the
name and address of a person or agent outside the United States,
Canada, Australia or Japan to whom he wishes the consideration to
which he is entitled under the Offer to be sent;
(iii) he inserts in Box 5 of the Form of Acceptance the name and
address of a person or agent in the United States, Canada,
Australia or Japan to whom he wishes the consideration to which
he is entitled under the Offer to be sent; or
(iv) in any case, the Form of Acceptance received from him is received
in an envelope postmarked in, or which otherwise appears to
Inhale or its agents to have been sent from the United States,
Canada, Australia or Japan.
Inhale reserves the right, in its sole discretion, to investigate, in
relation to any acceptance, whether the representations and warranties
set out in paragraph 1(b) of Part C below given by any Bradford
Shareholder are correct and, if such investigation is made and, as a
result, Inhale
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<PAGE>
cannot satisfy itself that such representations and warranties are true
and correct, such acceptance will not be treated as valid.
(d) If, in connection with the making of the Offer, notwithstanding the
restrictions described above, any person (including, without limitation,
custodians, nominees and trustees), whether pursuant to a contractual or
legal obligation or otherwise, sends, forwards or otherwise distributes
this document, the Form of Acceptance or any related document in, into or
from the United States, Canada, Australia or Japan or uses the mails of,
or any means or instrumentality (including, without limitation, facsimile
transmission, telex and telephone or interstate or foreign commerce of,
or any facility of a national securities exchange of the United States,
Canada, Australia or Japan in connection with such action such persons
should:
(i) inform the recipient of such fact;
(ii) explain to the recipient that such action may invalidate any
purported acceptance of the Offer by the recipient; and
(iii) draw the attention of the recipient to this paragraph 6.
(e) Notwithstanding the restrictions described above, Inhale will retain the
right to permit the Offer to be accepted if, in its sole discretion, it
is satisfied that the transaction in question is exempt from or not
subject to the legislation or regulation giving rise to the restriction
in question.
(f) The provisions of this paragraph 6 and/or any other terms of the Offer
relating to Overseas Shareholders may be waived, varied or modified as
regards (a) specific Bradford Shareholder(s) or on a general basis by
Inhale in its absolute discretion. Subject as aforesaid, the provisions
of this paragraph 6 shall have precedence over any terms of the Offer
which are inconsistent therewith. References in this paragraph 6 to a
Bradford Shareholder shall include the person or persons executing a Form
of Acceptance and in the event of more than one person executing a Form
of Acceptance, the provisions of this paragraph shall apply to them
jointly and to each of them.
(g) Neither Inhale or Cazenove or any of their respective advisers or any
person acting on behalf of any of them shall have any liability to any
person for any loss or alleged loss arising from any decision as to the
treatment of acceptances of the Offer on any of the bases set out above
or otherwise in connection therewith.
OVERSEAS SHAREHOLDERS SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY
APPLICABLE LEGAL OR REGULATORY REQUIREMENTS. IF YOU ARE IN ANY DOUBT
ABOUT YOUR POSITION YOU SHOULD CONSULT YOUR PROFESSIONAL ADVISER IN THE
RELEVANT TERRITORY.
PART C - FORM OF ACCEPTANCE
1. Each Bradford Shareholder by whom, or on whose behalf, a Form of
Acceptance is executed and received by Lloyds TSB Registrars or by or on
behalf of Inhale or Cazenove irrevocably undertakes, represents, warrants
and agrees to and with Inhale and Cazenove, so as to bind such
shareholder, such shareholder's personal representatives, heirs,
successors and assigns, to the following effect:
(a) that the execution of a Form of Acceptance (whether or not any
boxes therein are completed) shall constitute:
(i) an acceptance of the Offer in respect of the number of
Bradford Shares inserted or deemed to be inserted in
Box 1 of the Form of Acceptance and if no number of
Bradford Shares is inserted in Box 1 or a number greater
than the relevant Bradford Shareholder's holding of
Bradford Shares is there inserted, here shall be deemed
to have been inserted in Box 1 the greatest of:
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(a) the relevant Bradford Shareholder's entire holding
of Bradford Shares as disclosed by the register of
members made available to Lloyds TSB Registrars
prior to the time the relevant Form of Acceptance
is processed by them;
(b) the relevant Bradford Shareholder's entire holding
of Bradford Shares as disclosed by the register of
members made available to Lloyds TSB Registrars
prior to the latest time for receipt of the Form
of Acceptance which can be taken into account in
determining whether the Offer is unconditional;
and
(c) the number of Bradford Shares in respect of which
certificates or an indemnity in lieu thereof is
received; and
(ii) an undertaking to execute any further documents and give
any further assurances which may be required to enable
Inhale to obtain the full benefit of this Part C and/or
to perfect any of the authorities to be given thereunder,
in each case on and subject to the terms and conditions set out
in this Offer Document and the Form of Acceptance and, subject
only to the rights of withdrawal set out in paragraph 3 of Part B
of this Appendix I, each such acceptance shall be irrevocable:
(b) (i) unless "No" is put in Box 4 of the Form of Acceptance,
such shareholder has not received or sent copies or
originals of this document, the Form of Acceptance or any
related offering documents in, into or from the United
States, Canada, Australia or Japan and has not otherwise
utilised in connection with the Offer, directly or
indirectly, the use of mails of, or any means or
instrumentality (including, without limitation, facsimile
transmission, telex and telephone) of interstate or
foreign commerce of, or any facility of a national
securities exchange of, the United States, Canada,
Australia or Japan and was outside the United States,
Canada, Australia and Japan when the Form of Acceptance
was sent and at the time of accepting the Offer; and is
not an agent or fiduciary acting on a non-discretionary
basis for a principal, unless such agent or fiduciary is
an authorised employee of such principal or such
principal has given all instructions with respect to the
Offer from outside the United States, Canada, Australia
and Japan;
(ii) if such accepting Bradford Shareholder is not resident in
the UK he has observed the laws of all relevant
territories, obtained any requisite governmental or other
consents, complied with all requisite formalities and
paid any issue, transfer or other taxes due for him, in
connection with such acceptance, in any territory and
that he has not taken or omitted to take any action which
will or may result in Inhale, Cazenove or any other
person acting in breach of the legal or regulatory
requirements of any territory in connection with the
Offer or his acceptance thereof;
(c) that he is the beneficial owner of the number of Bradford Shares
inserted or deemed to be inserted in Box I of the Form of
Acceptance or, if he is not, that he is irrevocably and
unconditionally entitled to transfer such Bradford Shares and the
entire beneficial interest therein will be acquired under the
Offer with full title guarantee on and subject to the terms and
conditions set out or referred to in this document and the Form
of Acceptance;
(d) that the Bradford Shares in respect of which the Offer is
accepted or deemed to be accepted are fully paid up and are sold
free from all liens, equitable interests, charges, restrictions
(including restrictions imposed by law), third party rights and
encumbrances and together with all rights now or hereafter
attaching thereto, including voting rights and the right to all
dividends and other distributions hereafter declared, paid or
made after 21 December 2000;
(e) that the execution of the Form of Acceptance constitutes, subject
to the Offer becoming unconditional in all respects in accordance
with its terms and to the accepting Bradford Shareholder not
having validly withdrawn his acceptance, the irrevocable separate
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appointment of Inhale and/or any of its directors and/or Cazenove
and/or any of its partners as such Bradford Shareholder's
attorney and/or agent, and an irrevocable instruction to the
attorney and/or agent to complete and execute all or any form(s)
of transfer and/or other document(s) at the attorney's and/or
agent's discretion in relation to the Bradford Shares referred to
in sub-paragraph 1(a)(i) of this Part C in respect of which an
accepting Bradford Shareholder has not validly withdrawn his
acceptance (the "Acceptance Shares") in favour of Inhale or such
other person(s) as Inhale may direct and to deliver such form(s)
of transfer and/or other document(s) at the discretion of the
agent and/or attorney together with the share certificate(s)
and/or other document(s) of title relating to such Acceptance
Shares, for registration within six months of the Offer becoming
unconditional in all respects and to execute all such other
documents and do all such other acts and things as may, in the
opinion of such agent and/or attorney, be necessary or expedient
for the purposes of, or in connection with, the acceptance of the
Offer and to vest in Inhale or its nominee(s) the Acceptance
Shares;
(f) that the execution of the Form of Acceptance constitutes, subject
to the Offer becoming or being declared unconditional in all
respects in accordance with its terms and to the accepting
Bradford Shareholder not having validly withdraw his acceptance,
an irrevocable authority to request:
(i) Bradford or its agents to procure the registration of the
transfer of the Bradford Shares pursuant to the Offer,
and, if applicable, the delivery of the share
certificate(s) and/or other document(s) of title in
respect thereof to Inhale or as it may direct;
(ii) Inhale or its agents to procure that such Bradford
Shareholder's name is entered on the share certificate of
Inhale in respect of New Inhale Shares to which such
shareholder becomes entitled under the Offer (subject to
the provisions of Inhale's certificate of incorporation
and bylaws);
(iii) Inhale or its agents to procure the despatch by post (or
by such other method as may be approved by the Panel) of
the document(s) of title for any New Inhale Shares to
which an accepting Bradford Shareholder becomes entitled
pursuant to such Bradford Shareholder's acceptance of the
Offer, at the risk of such Bradford Shareholder, to the
person whose name and address is set out in Box 5 of the
Form of Acceptance or, if none is set out, to the
first-named holder at such holder's registered address,
or otherwise as such Bradford Shareholder may elect,
provided in each case that this is outside the United
States, Canada, Australia or Japan; and
(iv) Inhale to pay the cash consideration in respect of the
relevant Bradford Shares to the relevant Bradford
Shareholder;
(g) that the execution of the Form of Acceptance constitutes separate
authority to Inhale and/or its directors and/or Cazenove and/or
its partners and/or their respective agents and the irrevocable
appointment of Inhale and/or its partners and/or Cazenove and/or
its directors as such shareholders' attorney and agent within the
terms of paragraph 5(l) of Part B of this Appendix I in respect
of those Bradford Shares in respect of which the Offer has been
accepted and such acceptance has not been validly withdrawn;
(h) that Inhale shall be entitled, after the Offer has become
unconditional in all respects (or if the Offer would become or be
declared unconditional in all respects or lapse immediately upon
the outcome of the resolution in question or if the Panel
otherwise gives its consent) and pending registration, to direct
the exercise of any votes and any or all other rights and
privileges (including the right to requisition the convening of a
general meeting of Bradford or of any class of its shareholders)
attaching to any Bradford Shares in respect of which the Offer
has been accepted and such acceptance has not been validly
withdrawn and with regard to any such Bradford Shares, the
execution of the Form of Acceptance will constitute an authority
to Bradford from such Bradford Shareholder to send any notice,
warrant or other document or communication (including the share
certificate(s) and/or other
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document(s) of title which may be required to be sent to him (as
a member of Bradford) to Inhale at its registered office or such
other address nominated by Inhale, and an authority to Inhale or
any person appointed by Inhale to sign any consent to short
notice of a general or separate class meeting on his behalf
and/or execute a form of proxy in respect of such Bradford Shares
appointing and/or to appoint any person determined by Inhale to
attend general meetings and separate class meetings of Bradford
or its members or any of them (and any adjournment thereof) and
to exercise the votes attaching to such Bradford Shares on his
behalf, where relevant, such votes to be cast so far as possible
to satisfy any outstanding condition of the Offer, and will also
(subject as aforesaid) constitute the agreement of such Bradford
Shareholder not to exercise any such rights without the consent
of Inhale and the irrevocable undertaking of such shareholder not
to appoint a proxy for or to attend any such general meetings or
separate class meetings;
(i) that he will deliver to Lloyds TSB Registrars at the address
given in paragraph 3(a) of Part B of this Appendix I his share
certificate(s) and or other document(s) of title in respect of
the Bradford Shares referred to in sub-paragraph 1(a)(i) of this
Part C held by him or an indemnity acceptable to Inhale in lieu
thereof, as soon as possible and in any event within six months
of the Offer becoming or being declared unconditional in all
respects;
(j) that the execution of the Form of Acceptance constitutes his
irrevocable submission, in relation to all matters arising out of
the Offer and the Form of Acceptance, to the jurisdiction of the
courts of England;
(k) that if he accepts the Offer and does not validly withdraw such
acceptance, he shall do all such acts and things as in the
opinion of Inhale shall be necessary or expedient to vest in
Inhale or its nominee(s) the Acceptance Shares;
(l) that on execution the Form of Acceptance shall take effect as a
deed;
(m) that the terms of this Part C and the Offer generally shall be
incorporated in and form part of the Form of Acceptance, which
shall be read and construed accordingly;
(n) that, if he accepts the Offer, he shall do all such acts and
things as shall be necessary or expedient to vest in Inhale or
its subsidiaries or nominees or such other persons as it may
decide the Bradford Shares aforesaid;
(o) that he agrees to ratify each and every act or thing which may be
done or effected by Inhale and/or any of its directors and/or
Cazenove and/or any of its partners and/or Lloyds TSB Registrars
or their respective agents of Bradford or its agents, as the case
may be, in the proper exercise of any of his or its powers and/or
authorities hereunder;
(p) that he undertakes, if any provisions of Part B of this Appendix
I or this Part C shall in any way be unenforceable, invalid or
not operate so as to afford Inhale and/or Cazenove and/or Lloyds
TSB Registrars and/or their respective agents the full benefit of
the authorities expressed be given herein, with all practicable
speed to do all such acts and things and execute all such
documents as may required or desired to enable Inhale and/or any
of its directors and/or Cazenove and/or any of its partners
and/or Lloyds TSB Registrars to secure the full benefit of the
authorities and powers of attorney conferred by or referred to in
Part B of this Appendix I or this Part C;
(q) that, notwithstanding any other provision contained in the Offer,
he understands that there may be periods during which the board
of Inhale may determine, in good faith, that it is in the best
interest of Inhale and its shareholders to defer disclosure of
non-public information until such information has reached a more
advanced stage and that during such periods sales of New Inhale
Shares and the effectiveness of any Form S-3 Registration
Statement relating to New Inhale Shares may be suspended or
delayed, he agrees to provide not less than three days advance
notice of any proposed sale by him of any New Inhale Shares
(to Inhale: attention General Counsel - facsimile number:
001 650 631 3150) and that upon
38
<PAGE>
receipt of any notice from Inhale of the development of any
material non-public information, he will forthwith discontinue
his disposition of New Inhale Shares pursuant to the Form S-3
Registration Statement relating to such New Inhale Shares until
he receives a copy of an appropriately supplemented or amended
prospectus contained within an amended Form S-3 Registration
Statement and, if so directed by Inhale, he will use his best
efforts to deliver to Inhale all copies, other than permanent
file copies then in his possession, of the prospectus relating to
such New Inhale Shares current at the time of receipt of such
notice; provided that, any period of suspension or delay of sales
of New Inhale Shares pursuant to the Form S-3 Registration
Statement shall not exceed ninety days in any twelve month
period, and he acknowledges and agrees that:
(i) in consideration of the provision of at least three days
advance written notice of any proposed sale by a Bradford
Shareholder to Inhale in the manner described above,
Inhale agrees to indemnify and hold harmless each
Bradford Shareholder, their respective partners,
directors and officers, and each other person, if any,
who controls any such shareholder within the meaning of
Section 15 of the US Securities Act (each such person
being referred to herein as a "Bradford Covered Person"),
against any losses, claims, damages or liabilities, joint
or several, to which such Bradford Covered Person may be
or become subject under the US Securities Act, the US
Exchange Act 1934 (the "Exchange Act"), any other
securities or other law of any jurisdiction, common law
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of any material
fact contained or incorporated by reference in any
registration statement under the US Securities Act, any
preliminary prospectus or final prospectus included
therein, or any related summary prospectus, or any
amendment or supplement thereto, or any document
incorporated by reference therein, or (b) any omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse
such Bradford Covered Person for any legal or any other
expenses incurred by it in connection with investigating
or defending any such loss, claim, damage, liability,
action or proceeding; provided further, however, that
Inhale shall not be liable to any Bradford Covered Person
in any such case in which the requisite notice to Inhale
prior to any transaction that is the subject of such
loss, claim, damage, liability, action or proceeding has
not been provided, or for any such loss, claim, damage,
liability, action or proceeding to the extent that it
arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus,
amendment or supplement or incorporated document, in
reliance upon and in conformity with written information
furnished to Inhale by or on behalf of such Bradford
Covered Person expressly for inclusion therein; provided
further, that this indemnity shall not apply to amounts
paid in settlement of any such loss, claim, damage or
liability if such settlement is effected without the
consent of Inhale (not to be unreasonably withheld);
(ii) in consideration of the making of the Offer by Inhale,
each Bradford Shareholder that offers or sells any New
Inhale Shares pursuant to the Form S-3 Registration
Statement hereby agrees to indemnify and hold harmless
Inhale, its directors and officers, and each other
person, if any, who controls Inhale within the meaning of
Section 15 of the US Securities Act (each such person
being referred to herein as a "Inhale Covered Person",
and together with the Bradford Covered Person, the
"Covered Persons")), against any losses, claims, damages
or liabilities, joint or several, to which such Inhale
Covered Person may be or become subject under the US
Securities Act, the Exchange Act, any other securities or
other law of any jurisdiction, common law or otherwise,
insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out
of or are based upon (a) any untrue statement or alleged
untrue statement of any material fact contained or
incorporated by reference in any registration statement
under the US Securities
39
<PAGE>
Act, any preliminary prospectus or final prospectus
included therein, or any related summary prospectus, or
any amendment or supplement thereto, or any document
incorporated by reference therein, or (b) any omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, in each case, to the
extent that it arises out of or is based upon an untrue
statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any
such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement or incorporated
document, in reliance upon and in conformity with written
information furnished to Inhale by or on behalf of such
Bradford Shareholder expressly for inclusion therein, and
will reimburse such Inhale Covered Person for any legal
or any other expenses incurred by it in connection with
investigating or defending any such loss, claim, damage,
liability, action or proceeding, provided, however, that
this indemnity shall not apply to amounts paid in
settlement of any such loss, claim, damage or liability
if such settlement is effected without the consent of
such Bradford Shareholder (not to be unreasonably
withheld);
(iii) promptly after receipt by a Covered Person of notice of
the commencement of any action or proceeding involving a
claim of the type referred to sub-paragraphs (i) and (ii)
of this paragraph (q), such Covered Person will, if a
claim in respect thereof is to be made against any
indemnifying party, give written notice to such
indemnifying party of the commencement of such action;
provided, however, that the failure of any Covered Person
to give notice to such indemnifying party as provided
herein shall not relieve such indemnifying party of its
obligations under this paragraph (q), except and solely
to the extent that such indemnifying party is actually
prejudiced by such failure to give notice. In case any
such action is brought against a Covered Person, the
indemnifying party will be entitled to participate in and
to assume the defence thereof to the extent that it may
wish, and after notice from the indemnifying party to
such Covered Person of its election so to assume the
defence thereof, the indemnifying party will not be
liable to such Covered Person for any legal or other
expenses subsequently incurred by the latter in
connection with the defence thereof; provided, however,
that (a) if the Covered Person in good faith determines
that there may be a conflict between the positions of the
indemnifying party and the Covered Person in conducting
the defence of such action or that there may be defences
available to such Covered Person different from or in
addition to those available to the indemnifying party,
then counsel for the Covered Person shall conduct the
defence to the extent reasonably determined by such
counsel to be necessary to protect the interests of the
Covered Person and the indemnifying party shall employ
separate counsel for its own defence, (b) in any event,
the Covered Person shall be entitled to have counsel
chosen by such Covered Person participate in, but not
conduct, the defence and (the indemnifying party shall
bear the legal expenses incurred in connection with the
conduct of, and the participation in, the defence solely
as referred to in clause (a)). Without the consent of a
Covered Person, the indemnifying party will not consent
to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Covered
Person of a release from all liability in respect to such
claim or litigation;
(iv) If the indemnification provided for in the foregoing is
unavailable to a party that would have been a Covered
Person in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect
thereof) referred to therein, then the indemnifying party
shall, in lieu of indemnifying such Covered Person,
contribute to the amount paid or payable by such Covered
Person as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one
hand and such Covered Person on the other in connection
with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or
proceedings in respect thereof). The relative fault shall
be determined
40
<PAGE>
by reference to whether the untrue or alleged untrue
statement of a material fact or the omission or alleged
omission to state a material fact relates to information
supplied by the indemnifying party or such Covered
Person. The parties agree that it would not be just and
equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method
of allocation which does not take account of the
equitable considerations referred to in the preceding
sentence. The amount paid or payable by a contributing
party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect
thereof) referred to above in this Section shall include
any legal or other expenses reasonably incurred by such
Covered Person in connection with investigating or
defending any such action or claim. No Person guilty of
fraudulent misrepresentation (within the meaning of
Section 11(f) of the US Securities Act) shall be entitled
to contribution from any person who was not guilty of
such fraudulent misrepresentation; and
(v) notwithstanding the foregoing, in no event shall the
aggregate amount that any Bradford Shareholder is
required to pay pursuant to the preceding sub-paragraphs
(ii), (iii) and (iv) exceed the aggregate net proceeds
received by such Bradford Shareholder with respect to the
New Inhale Shares disposed of by him pursuant to the Form
S-3 Registration Statement;
(r) that it is a condition precedent to the obligations of Inhale to
take any action with respect to such shareholder pursuant to the
Form S-3 Registration Statement that he shall furnish to Inhale
such information regarding himself, the New Inhale Shares held by
him and the intended method of disposition of such securities as
shall be required to effect the registration of his New Inhale
Shares on the Form S-3 Registration Statement or any amendment or
supplement thereto;
(s) that (unless he holds `A' ordinary shares, in which case
paragraph (u) below shall apply in place of this paragraph (s)
and paragraph (t) below) he understands that the New Inhale
Shares received by him in the sale of such shares pursuant to the
Offer have not been registered under the US Securities Act, that
the New Inhale Shares will be issued by Inhale and transferred by
Inhale in reliance on one or more of the exemptions from
registration contained in Section 4(2) of the US Securities Act
and/or Regulation D or Regulation S thereunder based in part upon
his representations contained in this document and that the
issuance of such New Inhale Shares have not been approved or
reviewed by the SEC or any other governmental body. The
representations and warranties in this paragraph (s) and in
paragraphs (t) and (u) are made by him solely for the purpose of
supporting one or more exemptions from registration of the sale
of the New Inhale Shares under the US Securities Act and
otherwise to comply with the requirements of applicable
securities laws, and do not adversely affect any rights of his
under the Offer or otherwise (except with regard to the exemption
from registration under which the New Inhale Shares are offered
and sold to the Bradford Shareholders):
(i) he is acquiring the New Inhale Shares for his own account
for investment only, and not with a view towards their
distribution, and is not acquiring such shares as a
nominee or agent; nor for the account or benefit of any
US person and further represents that he does not have
any contract, agreement or understanding with any person
to sell, transfer or grant participations to any person
in the United States or to a US person, or for any
hedging transaction with any person in the United States
or to a United States resident, with respect to any of
the New Inhale Shares;
(ii) he acknowledges and agrees that the New Inhale Shares
must be held indefinitely unless such shares are resold
in accordance with the provisions of Regulation S or
pursuant to a subsequent registration under the US
Securities Act, or an exemption from such registration is
available. He further agrees not to engage in hedging
transactions with regard to the New Inhale Shares unless
in compliance with the US Securities Act. He has been
advised or is aware of the provisions of Rule 144 made
41
<PAGE>
pursuant to the US Securities Act as in effect from time
to time, which permit limited resale of shares purchased
in a private placement transaction subject to the
satisfaction of certain conditions, including among other
things: the availability of certain current public
information about the issuer, the resale occurring
following the required holding period under Rule 144, and
the number of shares being sold during any three-month
period not exceeding specified limitations. He also
understands that no sale may be made under Rule 144
during the first year he holds the New Inhale Shares and
that thereafter, any such sale must also comply with the
other requirements of Rule 144 summarised above; and
(iii) if the Bradford Shareholder is an individual, then he
resides in the United Kingdom. If the Bradford
Shareholder is a corporation, limited liability company
or other entity, then the offices of the Bradford
Shareholder in which its investment decision was made is
located in the United Kingdom;
(t) that he agrees not to make any disposition of all or any portion
of the Inhale Shares unless and until:
(i) there is in effect a Form S-3 Registration Statement
under the US Securities Act covering such proposed
disposition and such disposition is made in accordance
with such Form S-3 Registration Statement; or
(ii) such disposition is made in accordance with Regulation S
under the US Securities Act;
(iii) in any other transaction exempt from registration under
the US Securities Act, that he shall have notified Inhale
of the proposed disposition in the case of a disposition
pursuant to Rule 144 and, excluding dispositions
complying with Rule 144, he shall have furnished Inhale
with a detailed statement of the circumstances
surrounding the proposed disposition; and
(iv) if reasonably requested by Inhale or Inhale's counsel,
that he shall have furnished Inhale and Inhale's counsel
(which counsel may be counsel to Inhale) with an opinion
of counsel, reasonably satisfactory to Inhale and
Inhale's counsel, that such disposition will not require
registration of such shares under the US Securities Act.
It is agreed that Inhale will not require opinions of
counsel for transactions made pursuant to Rule 144 except
in unusual circumstances.
(v) Notwithstanding the provisions in paragraphs (ii), (iii)
and (iv) above, no such Form S-3 Registration Statement
or opinion of counsel shall be necessary for a transfer
by a Bradford Shareholder which is (a) a partnership to
its partners or former partners in accordance with
partnership interests, (b) a corporation to its
shareholders in accordance with their interest in the
corporation, (c) a limited liability company to its
members or former members in accordance with their
interest in the limited liability company, or (d) to the
Bradford Shareholder's family member or trusts
exclusively for the benefit of an individual Bradford
Shareholder; provided that in each case the transferee
will be subject to the term of the Offer to the same
extent as if he were an original Bradford Shareholders
hereunder.
(vi) Each certificate representing New Inhale Shares shall
(unless otherwise permitted by the provisions of the
Offer) be stamped or otherwise imprinted with a legend
substantially similar to one or both of the following (in
addition to any legend required under applicable state
securities laws):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS
THE COMPANY HAS
42
<PAGE>
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED".
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN
ACQUIRED PURSUANT TO REGULATION S OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH, PURSUANT
TO A REGISTRATION UNDER THE ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION. THE ISSUER OF
THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. IN ADDITION, NO
HEDGING TRANSACTION MAY BE CONDUCTED WITH RESPECT TO
THESE SECURITIES UNLESS SUCH TRANSACTION IS IN
COMPLIANCE WITH THE ACT".
Inhale agrees to procure the reissuance by or on behalf
of Inhale of unlegended certificates at the request of
any holder thereof if the holder shall have obtained an
opinion of counsel (which counsel may be counsel to
Inhale) reasonably acceptable to Inhale and Inhale's
counsel to the effect that the securities proposed to be
disposed of may lawfully be so disposed of without
registration, qualification or legend, provided that
Inhale will not usually require opinions of counsel if
the securities represented by such certificates have been
held by such holder for a period of at least two years
and such holder is not an "Affiliate", as defined under
the US Securities Act.
Any legend endorsed on an instrument pursuant to
applicable securities laws and the stop-transfer
instructions with respect to such securities shall be
removed upon receipt by Inhale of an order of the
appropriate blue sky authority authorising such removal.
(u) that, if he holds `A' ordinary shares in Bradford, then in
respect of such `A' ordinary shares and ordinary shares in the
share capital of Bradford held by him, he understands that the
New Inhale Shares received by him in the sale of such shares
pursuant to the Offer have not been registered under the US
Securities Act, that the New Inhale Shares will be issued by
Inhale and transferred by Inhale in reliance on one or more of
the exemptions from registration contained in Section 4(2) of the
US Securities Act and/or Regulation D thereunder based in part
upon his representations contained in this document and that the
issuance of such New Inhale Shares has not been approved or
reviewed by the SEC or any other government body. The
representations and warranties in this paragraph (u) are made by
him solely for the purpose of supporting one or more exemptions
from registration of the sale of the New Inhale Shares under the
US Securities Act and otherwise to comply with the requirements
of applicable securities laws, and do not adversely affect any
rights of his under the Offer or otherwise (except with regard to
the exemption from registration under which the New Inhale Shares
are offered and sold to the Bradford Shareholders):
(i) he is aware of Inhale's business affairs and financial
condition and is capable of evaluating the merits and
risks of the investment in the New Inhale Shares. He is
purchasing the New Inhale Shares for investment for his
own account only and not with a view to, or for resale in
connection with, any "distribution" thereof within the
meaning of the US Securities Act.
(ii) he understands that the New Inhale Shares have not been
registered under the US Securities Act by reason of a
specific exemption therefrom, which exemption
43
<PAGE>
depends upon, among other things, the bona fide nature
of his investment intent as expressed herein.
(iii) he further acknowledges and understands that the New
Inhale Shares must be held indefinitely unless the New
Inhale Shares are subsequently registered under the US
Securities Act or an exemption from such registration is
available. Such Bradford Shareholder understands that the
certificate evidencing the New Inhale Shares will be
imprinted with a legend which prohibits the transfer of
the New Inhale Shares unless such New Inhale Shares are
registered or such registration is not required in the
opinion of counsel for Inhale.
(iv) he is familiar with the provisions of Rule 144 under the
US Securities Act, as in effect from time to time, which,
in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly,
from the issuer thereof (or from an affiliate of such
issuer), in a non-public offering subject to the
satisfaction of certain conditions. He further
understands that the New Inhale Shares may be resold by
such Bradford Shareholder in certain limited
circumstances subject to the provisions of Rule 144,
which requires, among other things: (a) the availability
of certain public information about Inhale and (b) the
resale occurring following the required holding period
under Rule 144 after such Bradford Shareholder has
purchased, and made full payment of (within the meaning
of Rule 144), the securities to be sold.
(v) he further understands that at the time he wishes to sell
the New Inhale Shares there may be no public market upon
which to make such a sale, and that, even if such a
public market then exists, Inhale may not be satisfying
the current public information requirements of Rule 144,
and that, in such event, such Bradford Shareholder would
be precluded from selling the New Inhale Shares under
Rule 144 even if the minimum holding period requirement
had been satisfied.
(vi) he represents that he is an "accredited investor" as that
term is defined in Rule 501 of Regulation D promulgated
by the SEC under the US Securities Act.
(vii) he agrees not to make any disposition of all or any
portion of the New Inhale Shares unless and until:
(a) there is then in effect a Form S-3 Registration
Statement under the US Securities Act covering
such proposed disposition and such disposition is
made in accordance with such Form S-3 Registration
Statement; or
(b) (i) he shall have notified Inhale of the
proposed disposition and, excluding
dispositions complying with Rule 144, he
shall have furnished Inhale with a
detailed statement of the circumstances
surrounding the proposed disposition, and
(ii) if reasonably requested by Inhale or
Inhale's counsel, he shall have furnished
Inhale and Inhale's counsel with an
opinion of counsel (which counsel may be
counsel to Inhale), reasonably acceptable
to Inhale and Inhale's counsel, that such
disposition will not require registration
of such shares under the US Securities
Act. It is agreed that Inhale will not
usually require opinions of counsel for
transactions made pursuant to Rule 144
except in unusual circumstances
and provided that he will not be required to provide
Inhale with the prior written notice referred to in the
first sentence of paragraph (q) above in relation to the
proposed sale by him of New Inhale Shares pursuant to the
Form S-3 Registration Statement and even in the absence
of providing such notice, he shall be entitled to the
benefits of the indemnities in clauses (i) through (v) of
such paragraph (q), provided further, he agrees that
Inhale shall have fulfilled its obligation to notify him
of any suspension or delay of the effectiveness of the
Form S-3 Registration Statement pursuant to
44
<PAGE>
such paragraph (q) by the delivery of a notice in writing
addressed to him either by hand, by registered mail, by
courier or by facsimile to the address or facsimile
telephone number set forth on such Bradford Shareholder's
Form of Acceptance or such other address or facsimile
telephone number as shall have been previously notified
in writing to Inhale (attention: General Counsel), and
that save as aforesaid, the provisions of paragraph (q)
shall be applicable to him.
(viii) he understands that each certificate representing New
Inhale Shares shall be stamped or otherwise imprinted
with a legend substantially similar to the following (in
addition to any legend required under applicable state
securities laws):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED."
Inhale agrees to procure the re-issuance by Inhale of unlegended
certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be
counsel to Inhale) reasonably acceptable to Inhale and Inhale's
counsel to the effect that the securities proposed to be disposed
of may lawfully be so disposed of without registration,
qualification or legend, PROVIDED THAT, Inhale will not usually
require opinions of counsel if the securities represented by such
certificates have been held by the holder for at least two years
and such holder is not an "Affiliate" as defined under the US
Securities Act. Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer
instructions with respect to such securities shall be removed
upon receipt by Inhale of an order of the appropriate blue sky
authority authorising such removal.
2. References in this Part C to a Bradford Shareholder shall include
references to the person or persons executing a Form of Acceptance and in
the event of more than one person executing a Form of Acceptance the
provisions of this Part C shall apply to them jointly and to each of
them.
45
<PAGE>
APPENDIX II
FINANCIAL INFORMATION RELATING TO THE INHALE GROUP
A. NATURE OF FINANCIAL INFORMATION
The summarised information contained in this Appendix for each of the years
ended 31 December 1997, 1998 and 1999 is extracted from the published audited
consolidated financial statements of Inhale. Inhale's auditors made unqualified
reports on the financial statements for each of the three years ended 31
December 1997, 1998 and 1999. Except as indicated below, such financial
statements were, in relation to audited matters, prepared in conformity with
U.S. generally accepted accounting principles. Such U.S. principles can differ
in significant respects from UK generally accepted accounting principles. The
Notes to the Financial Statements speak as at 31 December 1999 and by reference
to the financial year ended 31 December 1999. The only exception is the
information in Note 8. Except as expressly stated in Note 8 and then by
reference only to any later date expressly stated in Note 8, the information in
this Appendix II should not be treated or relied on as up-dated to any later
date.
B. GROUP BALANCE SHEET
The consolidated balance sheet of the Inhale Group, which is extracted without
material adjustment from its published audited accounts for the financial year
ended 31 December 1999, is set out below:
<TABLE>
<CAPTION>
31 DECEMBER,
1999
$'000
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,430
Short-term investments 104,755
Accounts receivable 1,756
Other current assets 7,377
---------
Total current assets 147,318
Property and equipment, net 63,852
Investment in Alliance Pharmaceutical Corp. 6,328
Other assets 9,308
---------
$ 226,806
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,374
Accrued liabilities 6,849
Deferred revenue 4,811
Tenant improvement loan - current portion 45
---------
Total current liabilities 25,079
Tenant improvement loan 4,895
Convertible subordinated debentures 108,450
Accrued rent 1,753
Commitments (See Note 4)
Stockholders' equity:
Preferred stock, 10,000 shares authorised, no shares
issued or outstanding --
Common stock, $0.0001 par value; 300,000 shares
authorised; 34,452 shares and 33,848 shares issued and
outstanding at December 31, 1999 and 1998, respectively 3
Capital in excess of par value 181,153
Deferred compensation (1,530)
Accumulated deficit (94,466)
Accumulated other comprehensive gain/(loss) 1,469
Total stockholders' equity 86,629
---------
$ 226,806
=========
</TABLE>
46
<PAGE>
C. STATEMENT OF OPERATIONS
The consolidated statements of operations of the Inhale Group, which are
extracted without material adjustment from its published audited accounts for
the three financial years ended 31 December 1997, 1998 and 1999, are set out
below:
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER,
1999 1998 1997
$'000 $'000 $'000
<S> <C> <C> <C>
Contract research revenue $ 41,358 $ 21,795 $ 16,249
Operating costs and expenses:
Research and development 64,083 35,398 23,645
General and administrative 7,869 8,387 6,328
Acquired in-process research and development 9,890 -- --
--------- --------- ---------
Total operating costs and expenses 81,842 43,785 29,973
--------- --------- ---------
Loss from operations (40,484) (21,990) (13,724)
Interest income 4,111 3,904 3,807
Interest expense (2,075) (270) (66)
--------- --------- ---------
Net loss $ (38,448) $ (18,356) $ (9,983)
Basic and diluted net loss per share $ (1.13) $ (0.58) $ (0.36)
Shares used in computing basic and diluted net
loss per share 34,016 31,438 27,584
</TABLE>
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN DEFERRED ACCUMULATED ACCUMULATED TOTAL
OTHER STOCK
SHARES PAR EXCESS OF COMPENSATION DEFICIT COMPREHENSIVE HOLDERS'
VALUE PAR VALUE GAIN/(LOSS) EQUITY
'000 $'000 $'000 $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 33,848 $3 $172,846 $ (931) $(56,018) $ (19) $115,881
Issuance of common stock to Alliance 360 -- 5,000 -- -- -- 5,000
Common stock issued upon exercise of
stock options, net of costs 244 -- 1,545 -- -- -- 1,545
Compensation in connection with
stock options granted to consultants -- -- 798 -- -- -- 798
Deferred compensation -- -- 964 (964) -- -- --
Amortisation of deferred
compensation -- -- -- 365 -- -- 365
Unrealised gain on
available-for-sale securities -- -- -- -- -- 1,488 1,488
Net loss -- -- -- -- (38,448) -- (38,448)
-- -- -- -- -------- -- --------
Comprehensive loss -- -- -- -- -- -- (36,960)
-- -- -- -- -- -- --------
Balance at December 31, 1999 34,452 $3 $181,153 $(1,530) $(94,466) $1,469 $ 86,629
====== == ======== ======= ======== ====== ========
</TABLE>
47
<PAGE>
D. CASH FLOW ANALYSIS
The consolidated cash flow statement of the Inhale Group, which is extracted
without material adjustment from its published audited accounts for the
financial year ended 31 December 1999, is set out below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
$'000
<S> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net loss $ (38,448)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortisation 6,889
Amortisation of deferred compensation 365
Issuance of common stock for services 798
Issuance of common stock and stock options in
connection with licensing agreements --
Acquired in-process research and
development 9,890
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, other
current assets, and other assets (8,004)
Increase (decrease) in accounts payable and accrued
liabilities 12,724
Increase (decrease) in deferred revenue 452
---------
Net cash (used in) provided by operating activities (15,334)
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of PulmoSphere-TM- technology (15,288)
Purchases of short-term investments (122,481)
Sales of short-term investments 28,658
Maturities of short-term investments 47,174
Purchases of property and equipment, net (20,502)
---------
Net cash used in investing activities (82,439)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of convertible subordinated debentures, net 104,806
Payments of loan and capital lease and obligations (64)
Proceeds from tenant improvement loan --
Issuance of common stock, net of issuance costs 1,545
---------
Net cash provided by financing activities 106,287
Net increase (decrease) in cash and cash equivalents 8,514
Cash and cash equivalents at beginning of year 24,916
---------
Cash and cash equivalents at end of year $ 33,430
=========
</TABLE>
48
<PAGE>
E. NOTES TO FINANCIAL STATEMENTS
"NOTE 1 -- ORGANISATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANISATION AND BASIS OF PRESENTATION
Inhale was incorporated in the State of California in July 1990 and
reincorporated in the State of Delaware in July 1998. Since inception, Inhale
has been engaged in the development of a system to deliver drugs to the
bloodstream through the lungs by inhaling a powdered version of the drug. The
system is applicable to a wide range of peptides, proteins and other molecules.
Inhale expects increasing losses over the next several years as research and
development and manufacturing scale-up efforts continue, and as Inhale expands
its facilities for commercial manufacturing. Management plans to continue to
finance Inhale primarily through issuances of equity or debt securities,
research and development contract revenue, and in the longer term, revenue from
product sales and royalties.
Inhale's Board of Directors approved a two-for-one stock split which was
effected as a 100% common stock dividend on 22 August, 2000 for stockholders of
record as of 1 August, 2000. The stockholders also increased the number of
authorised shares of common stock to 300,000,000 at the annual meeting of the
stockholders. All share and per share amounts in these annual financial
statements have been retroactively restated.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires 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
reporting period. Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND INVESTMENTS
Inhale considers all highly liquid investments with a maturity from date of
purchase of three months or less to be cash equivalents. Cash and cash
equivalents include demand deposits held in banks and interest-bearing money
market funds. All other liquid investments are classified as short-term
investments. Short-term investments consist of federal and municipal government
securities, repurchase agreements or corporate commercial paper with A1 or P1
short-term ratings and A or better long-term ratings with remaining maturities
at date of purchase of greater than 90 days and less than one year. Inhale
limits its concentration of risk by diversifying its investments among a variety
of industries and issuers. Inhale has experienced no material losses on its
investments.
At 31 December, 1999, all short-term investments are designated as
available-for-sale and are carried at fair value, with material unrealised gains
and losses, if any, reported in stockholders' equity. The amortised cost of
securities is adjusted for amortisation of material premiums and accretion of
discounts to maturity. Such amortisation, if any, is included in interest
income. Realised gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities, if any, are included in
interest income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.
The following is a summary of available-for-sale debt securities as of 31
December, 1999:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
GROSS GROSS
UNREALISED UNREALISED ESTIMATED
COST GAINS LOSSES FAIR VALUE
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies $81,692 $108 -- $81,800
U.S. corporate commercial paper 41,081 33 -- 41,114
Repurchase agreements, secured by U.S.
Government securities 3,845 -- -- 3,845
Other 7,872 -- -- 7,872
----------
49
<PAGE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
GROSS GROSS
UNREALISED UNREALISED ESTIMATED
COST GAINS LOSSES FAIR VALUE
$'000 $'000 $'000 $'000
-------------------------
<S> <C> <C> <C> <C>
$134,490 $141 -- $134,631
------------------------- -- ----------
Amounts included in cash and cash
equivalents 29,822 54 -- 29,876
Amounts included in short-term investments $104,668 $87 -- $104,755
-------- --- --- --------
$134,490 $141 -- $134,631
======= ==== === ========
</TABLE>
The gross realised losses and gains on the sale of debt securities
available-for-sale during the year ended 31 December, 1999 were not material. At
31 December, 1999 the average portfolio duration was approximately five months,
and the contractual maturity of any single investment did not exceed eleven
months at 31 December, 1999.
The estimated fair value amounts have been determined by Inhale using available
market information and appropriate valuation methodologies. However, market data
must be interpreted to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
Inhale could realise in a current market exchange.
Inhale owns common stock in one technology company. These shares of Alliance
Pharmaceutical Corp. ("Alliance") are accounted for as long-term
available-for-sale securities. Due to restrictions on the sale of this stock,
Inhale carried that portion of its investment in Alliance that can be sold
within one year at market value, with material unrealised gains and losses, if
any, reported in stockholders' equity.
That portion which cannot be sold within one year is carried at cost.
PROPERTY AND EQUIPMENT
Property and equipment consist of the following at 31 December:
<TABLE>
<CAPTION>
1999
$'000
<S> <C>
Laboratory and other equipment $24,317
Leasehold improvements 47,101
Land 7,443
---------
78,861
---------
Less accumulated depreciation and amortisation (15,009)
---------
$63,852
=========
</TABLE>
Property and equipment are stated at cost. Major renewals and improvements are
capitalised, while maintenance and repairs are expensed when incurred. Other
equipment are depreciated using the straight-line method over estimated useful
lives of four to seven years. Manufacturing equipment is depreciated using the
straight-line method over its useful life estimated to be ten years. Leasehold
improvements and assets acquired under capital leases are amortised using the
straight-line method over the shorter of an estimated useful life of fifteen
years or the term of the lease.
Interest is capitalised in connection with the construction of leasehold
improvements to Inhale's manufacturing facility in San Carlos, California. The
capitalised interest is recorded as part of the asset to which it relates and is
amortised over the asset's estimated useful life. In 1999 Inhale had no
capitalised interest cost.
COMPREHENSIVE GAIN/LOSS
Effective 1 January, 1998, Inhale adopted the Financial Accounting Standards
Board's ("FASB") Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). Inhale's other component of comprehensive
gain/loss includes only unrealised gains and losses on securities held as
available-for-sale and is shown in the Statement of Stockholders' Equity. Inhale
has no other material components of other comprehensive loss and accordingly the
comprehensive loss is the same as net loss for all periods.
50
<PAGE>
REVENUE RECOGNITION
Contract revenue from collaborative research agreements is recorded when earned
as the related costs are incurred. Payments received which are related to future
performance are deferred and recognised as revenue when earned over future
performance periods. In accordance with contract terms, upfront and milestone
payments from collaborative research agreements are considered reimbursements
for costs incurred under the agreements, and accordingly, are generally
recognised based on actual efforts expended over the remaining terms of the
agreements. Inhale's research revenue is derived primarily from clients in the
pharmaceutical industry. Contract research revenue from three partners
represented 71%, 10% and 9% of Inhale's revenue in 1999. Three partners
accounted for 51%, 22% and 18% of Inhale's revenue in 1998 and 47%, 25% and 21%
of Inhale's revenue in 1997. Costs of contract research revenue approximate such
revenue and are included in research and development expenses.
STOCK-BASED COMPENSATION
As permitted by the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), Inhale continues
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations in accounting for
its employee stock option plans. Under APB 25, if the exercise price of Inhale's
employee stock options equals or exceeds the fair market value of the underlying
stock on the date of grant as determined by the closing price of Inhale's common
stock as quoted on the Nasdaq stock market, no compensation expense is
recognised. See Note 5 for pro forma disclosures required by FAS 123.
RESEARCH AND DEVELOPMENT AGREEMENTS
Inhale performs research and development for others pursuant to feasibility
agreements and development and license agreements. Under the feasibility
agreements, Inhale generally is reimbursed for the cost of work performed.
Feasibility agreements are designed to evaluate the applicability of Inhale's
technologies to a particular molecule and therefore are generally completed in
less than one year. Under Inhale's development and license agreements, the
partner companies receive an exclusive license to develop, use and sell a dry
powder formulation and a suitable delivery device to be developed by Inhale for
one of the partner's macromolecule drugs. Under these development agreements,
Inhale will be reimbursed for development costs and may also be entitled to
milestone payments when and if certain development milestones are achieved. All
of Inhale's research and development agreements are generally cancellable by the
partner without significant financial penalty to the partner.
ACCOUNTING FOR INCOME TAXES
Inhale accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the
liability method is used in accounting for income taxes.
NET LOSS PER SHARE
In accordance with Financial Accounting Standard No. 128, basic and diluted net
loss per share has been computed using the weighted average number of shares of
common stock outstanding during the period. Had Inhale been in a net income
position, diluted earnings per share would have included the following
outstanding options, warrants and convertible debentures:
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER,
1999 1998 1997
'000 '000 '000
<S> <C> <C> <C>
Warrants 40 40 40
Options 9,106 6,326 4,702
Convertible debentures 6,776 -- --
------ ---- ----
Total 15,922 6,366 4,742
====== ===== =====
</TABLE>
SEGMENT INFORMATION
51
<PAGE>
Effective 1 January, 1998, Inhale adopted the FASB's Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 superseded FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Management has organised Inhale's business in one operating segment which
includes activities related to the development of systems for the pulmonary
delivery of macromolecule drugs. Inhale's operations and all of its assets are
presently located in the United States and Inhale derives all of its revenues
within the United States.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
NOTE 2 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
Inhale performs research and development for others pursuant to feasibility
agreements and development and license agreements. Under the feasibility
agreements, Inhale generally is reimbursed for the cost of work performed.
Feasibility agreements are designed to evaluate the applicability of Inhale's
technologies to a particular molecule and therefore are generally completed in
less than one year. Under Inhale's development and license agreements, the
partner companies reserve an exclusive license to develop, use and sell a dry
powder formulation and a suitable delivery device to be developed by Inhale for
one of the partner's macromolecule drugs. Under these development agreements,
Inhale will be reimbursed for development costs and may also be entitled to
milestone payments when and if certain development milestones are achieved. All
of Inhale's research and development agreements are generally cancellable by the
partner without significant financial penalty to the partner.
In February 1999, Inhale entered into a collaborative agreement with Biogen
to develop pulmonary delivery for Biogen's AVONEX-Registered Trademark-, a
drug used in the treatment of Multiple Sclerosis. Under the terms of the
agreement, Inhale will receive royalties on product sales, an up-front
signing fee, and up to an estimated $25 million in research and development
funding and potential progress payments. Biogen will provide bulk
AVONEX-Registered Trademark- to Inhale for formulation into a dry powder
which is stable at room temperature. Inhale will manufacture and package the
dry powder and supply inhalation devices. Biogen will be responsible for
clinical trials, marketing and commercialisation. Inhale recognised revenue
of $2.2 million under this agreement in 1999.
In December 1997, Inhale entered into a collaboration agreement with Eli Lilly
and Company ("Lilly") to develop pulmonary delivery for an undisclosed protein
based on Inhale's deep-lung drug delivery system for macromolecules. Under the
terms of the agreement, Inhale will receive funding of up to $20 million in
research, development and progress payments. Lilly will receive global
commercialisation rights for the pulmonary delivery of the products with Inhale
receiving royalties on any marketed products. Inhale will manufacture packaged
powders for and supply devices to Lilly. Under this agreement Inhale recognised
revenue of $1.2 million in 1999 and $0.9 million in 1998. No revenue was
recognised under this agreement in 1997.
In January 1997, Inhale executed a collaboration agreement with Lilly to develop
pulmonary delivery for parathyroid hormone ("PTH"). Under the terms of the
agreement, Inhale will receive funding of up to $20 million of research and
development and progress payments. Lilly will receive global commercialisation
rights for the pulmonary delivery of the products with Inhale receiving
royalties on any marketed products. Inhale will manufacture packaged powders for
and supply devices to Lilly. Under this agreement, Inhale recognised revenue of
$3.8 million and $3.4 million in 1998 and 1997, respectively. In late 1998,
unexpected observations from a long-term test in rats of the injectable version
of parathyroid hormone led Lilly to suspend further clinical development of the
injectable and pulmonary versions of PTH pending further analysis.
52
<PAGE>
In December 1996, Inhale entered into a collaborative agreement with Aventis
Behring to develop a pulmonary formulation of alpha-1 proteinase inhibitor to
treat patients with alpha-1 antitrypsin deficiency, or genetic emphysema. Under
the terms of the collaboration, Aventis Behring will receive commercialisation
rights worldwide excluding Japan and Inhale will receive royalties on product
sales, an up-front signing fee and up to an estimated $15 million in research
and development funding and milestone payments. Aventis Behring will manufacture
the active ingredient for use in Inhale's delivery device. Inhale will
manufacture and package the dry powder and supply inhalation devices to Aventis
Behring for commercialisation and marketing. Under this agreement, Inhale
recognised revenue of $3.9 million, $1.6 million and $0.9 million in 1999, 1998
and 1997, respectively.
In March 1996, Inhale entered into a collaboration agreement with Baxter
Healthcare Corporation ("Baxter") to use Inhale's dry powder pulmonary delivery
system as a technology platform for developing and launching therapeutic
products. In connection with the collaboration, Baxter made a $20 million equity
investment in Inhale at a 25% premium to the market price of Inhale stock at the
time of the investment. Baxter received worldwide commercialisation rights in
exchange for up to an estimated $60 million in research and development funding
and milestone payments for four molecules. In October 1998, Inhale announced
that it had reached an agreement with Baxter to amend their collaborative
agreement to facilitate signing a new corporate partner to fund further
development and commercialisation of the undisclosed compound that had been
their focus since April, 1998. Baxter's obligations under this amendment expired
in September, 1999. As a result, rights to the compounds reverted to Inhale and
are now available for other partnering opportunities. Inhale recognised revenues
associated with this program of $4.3 million, $4.0 million and $4.1 million in
1999, 1998, and 1997, respectively.
In January 1995, Inhale entered into a collaborative development and license
agreement with Pfizer Inc. ("Pfizer") to develop pulmonary delivery for Inhale
insulin based on Inhale's deep-lung delivery system for macromolecules. Under
the terms of the agreement, Inhale will receive funding consisting of initial
fees, research and development and progress payments. Upon execution of the
agreement Pfizer purchased $5.0 million of Inhale common stock. In addition, in
October 1996, Pfizer purchased an additional $5.0 million of Inhale common
stock. Pfizer will receive global commercialisation rights for the pulmonary
delivery of the products with Inhale receiving royalties on any marketed
products. Inhale will manufacture Inhale insulin for, and supply devices to
Pfizer. Under this agreement Inhale recognised revenue of $29.5 million, $11.1
million and $7.6 million in 1999, 1998 and 1997, respectively.
Costs associated with research and development activities attributable to these
agreements are expected to approximate the revenues recognised.
NOTE 3 -- ACQUISITION OF PULMOSPHERE-TM- TECHNOLOGY
In November 1999, Inhale concluded an agreement with Alliance Pharmaceutical
Corp. to acquire Alliance's PulmoSphere-TM- particle and particle processing
technology for use in respiratory drug delivery. Under the terms of the
agreement, Inhale received the rights to PulmoSphere-TM- technology, other
related assets and Alliance stock valued at $5.0 million in exchange for
$15.0 million in cash and $5.0 million of Inhale stock. The purchase price,
including $387,000 of acquisition costs, has been allocated to assets
acquired and to in-process research and development, which has been charged
as an expense on the Statement of Operations for the year ended 31 December,
1999. Inhale's investment in Alliance and the assets acquired in connection
with the PulmoSphere-TM- acquisition are recorded at their fair market value
at acquisition as follows:
<TABLE>
<CAPTION>
$'000
<S> <C>
Property and equipment, net....................... $200
Acquired in-process research and development charged
to operations at December 31, 1999................ 9,890
Intellectual property, net........................ 3,171
Assembled workforce............................... 96
Goodwill.......................................... 2,030
-----
Total cash purchase consideration................. 15,387
Common stock of Alliance.......................... 5,000
-----
Total purchase consideration...................... $20,387
=======
</TABLE>
53
<PAGE>
Goodwill and other intangible assets are being amortised over seven years.
The purchased research and development was identified and valued through
extensive interviews and discussions with appropriate management and scientific
personnel and the analysis of data provided by Alliance regarding the
PulmoSphere-TM- technology, its stage of development at the time of acquisition,
the importance of the technology to Inhale's overall development plan, and the
projected incremental cash flows from the projects when completed and any
associated risks. Associated risks include the uncertainties in overcoming
significant technological risks, acquiring FDA approval and establishing
commercial viability.
NOTE 4 -- COMMITMENTS, LONG-TERM DEBT AND TENANT IMPROVEMENT LOAN
As of 31 December, 1999, Inhale had $108,450,000 aggregate principal amount of
6 3/4% Convertible Subordinated Debentures ("the Debentures") which will mature
on 13 October, 2006 and are convertible into shares of Inhale's common stock at
a conversion price of $16.00375 per share, subject to adjustment in certain
circumstances. The Debentures are redeemable in part or in all at the option of
Inhale on or after 13 October, 2002. Interest is payable semi-annually on 13
April and 13 October. The Debentures are unsecured subordinated obligations
which rank junior in right of payment to all of Inhale's existing and future
Senior Debt. Inhale had approximately $4.9 million of Senior Debt outstanding at
31 December, 1999. Costs relating to the issuance of the Debentures are recorded
as long-term assets and are being amortised over the term of the debt (see Note
8).
Inhale leases its office and laboratory facilities under several arrangements
expiring through the year 2012. Rent expense was approximately $2,484,000,
$1,777,000 and $1,106,000 for the years ended 31 December, 1999, 1998 and 1997,
respectively. In November 1997, Inhale received from the landlord of its
facility in San Carlos, California a loan of $5.0 million to fund a portion of
the cost of improvements made to the facility. The loan bears interest at 9.46%
per annum, and principal and interest payments are payable monthly over the
ten-year loan term with a balloon payment of $4.5 million at the end of the
tenth year. The loan is recorded on the balance sheet as a tenant improvement
loan.
Future non-cancellable commitments under operating leases and the tenant
improvement loan at 31 December, 1999 are as follows:
<TABLE>
<CAPTION>
TENANT
OPERATING IMPROVEMENT
LEASES LOAN
YEARS ENDING 31 DECEMBER, $'000 $'000
<S> <C> <C>
2000 $1,841 $510
2001 2,028 503
2002 2,136 503
2003 1,792 503
2004 1,713 503
2005 and thereafter $14,484 $5,974
------- -------
Total minimum payments required $23,994 $8,496
------- -------
Less amount representing
interest (3,556)
Present value of future payments 4,940
Less current portion (45)
------
Non-current portion $4,895
=======
</TABLE>
NOTE 5 -- STOCKHOLDERS' EQUITY
COMMON STOCK
EMPLOYEE STOCK PURCHASE PLAN
In February 1994, Inhale's Board adopted the Employee Stock Purchase Plan (the
"Purchase Plan"). Under the Purchase Plan, 300,000 shares of common stock have
been reserved for purchase by Inhale's employees pursuant to section 423(b) of
the Internal Revenue Code of 1986. As of 31 December, 1999, no shares of common
stock have been issued under the Purchase Plan.
STOCK OPTION PLANS
54
<PAGE>
2000 EQUITY INCENTIVE PLAN
Inhale's 2000 Equity Incentive Plan (the "Equity Incentive Plan") was adopted by
the Board in February 1994. The Equity Incentive Plan is an amendment and
restatement of Inhale's 1994 Equity Incentive Plan. The purpose of the Equity
Incentive Plan is to attract and retain qualified personnel, to provide
additional incentives to employees, officers, consultants and employee directors
of Inhale and to promote the success of Inhale's business. Pursuant to the
Equity Incentive Plan, Inhale may grant or issue incentive stock options to
employees and officers and non-qualified stock options, stock bonuses and rights
to acquire restricted stock to consultants, employees, officers and employee
directors. Options granted to non-employees are recorded at fair value based on
the fair value measurement criteria of FAS 123.
The maximum term of a stock option under the Equity Incentive Plan is ten years,
but if the holder of the option at the time of grant has voting power of more
than 10% of Inhale's outstanding capital stock, the maximum term of an incentive
stock option is five years. The exercise price of incentive stock options
granted under the Equity Incentive Plan must be at least equal to 100% (or 110%
with respect to holders of more than 10% of the voting power of Inhale's
outstanding capital stock) of the fair market value of the stock subject to the
option on the date of the grant. The exercise price of non-qualified stock
options, and the purchase price of restricted stock awards, granted under the
Equity Incentive Plan are determined by the Board.
The Equity Incentive Plan may be amended at any time by the Board, although
certain amendments would require shareholder approval. The Equity Incentive Plan
will terminate in February 2010 unless earlier terminated by the Board.
1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 1994, Inhale's Board adopted the 1994 Non-Employee Directors' Stock
Option Plan (the "Non-Employee Directors' Stock Option Plan") under which
options to purchase up to 400,000 shares of Inhale's common stock at the then
fair market value may be granted to Inhale's non-employee directors. As of 31
December, 1999, options on 69,600 shares had been exercised and options to
purchase 204,132 shares were exercisable.
2000 NON-OFFICER EQUITY INCENTIVE PLAN
Inhale's 2000 Non-Officer Equity Incentive Plan (the "2000 Plan") was adopted by
the Board in August 1998. The 2000 Plan is an amendment and restatement of
Inhale's 1998 Non-Officer Equity Incentive Plan. The purpose of the 2000 Plan is
to attract and retain qualified personnel, to provide additional incentives to
employees and consultants who are neither officers nor directors and to promote
the success of Inhale's business. Pursuant to the 2000 Plan, Inhale may grant or
issue non-qualified stock options, stock bonuses and rights to acquire
restricted stock to employees and consultants who are neither officers or
directors of Inhale.
The maximum term of a stock option under the 2000 Plan is ten years. The
exercise price of stock options, and the purchase price of restricted stock
awards granted under the 2000 Plan are determined by the Board. The 2000 Plan
may be amended by the Board at any time.
A summary of activity under the Equity Incentive Plan, the Non-Employee
Directors' Stock Option Plan and the 2000 Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED-
OPTIONS AVERAGE
AVAILABLE NUMBER EXERCISE PRICE EXERCISE PRICE
FOR GRANT OF SHARES PER SHARE PER SHARE
`000 `000
<S> <C> <C> <C> <C>
Balance at 31 December, 1998 3,042 6,326 $0.01-17.63 $9.24
Shares authorised 2,500 -- -- --
Options granted (3,150) 3,150 0.01-20.94 13.58
Options exercised -- (248) 0.01-17.06 6.30
Options cancelled 122 (122) 5.01-17.06 13.23
------ ---- ----------- ------
55
<PAGE>
Balance at 31 December, 1999 2,514 9,106 $0.01-20.94 $10.76
====== ===== =========== ======
</TABLE>
At 31 December, 1999, options were exercisable to purchase approximately
3,022,968 at a weighted-average exercise price of $7.46 per share.
Weighted average fair value of options granted during the year ended 31
December, 1999, was $14.17. The following table provides information regarding
Inhale's stock option plans as of 31 December, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED-
AVERAGE
WEIGHTED-AVERAGE REMAINING OPTIONS EXERCISABLE
RANGE OF NUMBER EXERCISE PRICE CONTRACTUAL LIFE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES (IN THOUSANDS) PER SHARE (IN YEARS) (IN THOUSANDS) EXERCISE PRICE
PER SHARE
<S> <C> <C> <C> <C> <C>
$ 0.01- 3.88 1,190 $1.91 5.03 992 $ 2.21
4.44- 6.00 908 5.05 5.60 544 5.06
7.13- 9.82 1,486 8.78 6.90 598 8.46
10.94-16.19 5,310 14.01 9.00 818 13.83
17.07-20.94 212 17.60 8.10 70 17.42
------------ ----- ----- ---- ----- -------
$ 0.01-20.94 9,106 $10.76 7.80 3,022 $ 7.46
============ ===== ===== ==== ===== =======
</TABLE>
In 1999, Inhale granted 134,200 options to employees and consultants with
exercise prices below the market price of the stock on the grant date. The
weighted-average exercise price and weighted-average fair value of these options
as of 31 December, 1999 were $0.01 and $13.94, respectively.
Pro forma information regarding net income and earnings per share is required by
FAS 123, which also requires that the information be determined as if Inhale has
accounted for its employee stock options granted subsequent to 31 December, 1994
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Risk-free interest rate 5.6% 4.8% 5.7%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor 0.600 0.700 0.578
Weighted average expected life 5 years 5 years 6 years
</TABLE>
The Black-Scholes options valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because Inhale's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. However, Inhale has
presented the pro forma net loss and pro forma basic and diluted net loss per
common share using the assumptions noted above.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortised to expense over the options' vesting period, generally five years.
Inhale's pro forma information follows (in thousands except for earnings per
share):
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER,
1999 1998 1997
<S> <C> <C> <C>
Pro forma net loss $(48,077) $(24,325) $(13,168)
Pro forma basic and diluted net loss per common share $ (1.42) $ (0.78) $ (0.48)
</TABLE>
Because FAS 123 is applicable only to options granted subsequent to 31 December,
1994, the pro forma effect of the statement will not be fully reflected until
approximately the year 2000.
WARRANTS
In October 1996 Inhale issued two warrants to purchase a total of 40,000 shares
of Common Stock
56
<PAGE>
(20,000 shares each) at a price of $6.56 per share in connection
with a facility lease. The warrants expire in October 2006 and were both
outstanding and exercisable at 31 December, 1999.
STOCK COMPENSATION
Inhale recorded deferred compensation of approximately $964,000 during the year
ended 31 December, 1999. Deferred compensation of $576,000 had been recorded in
the year ended 31 December, 1998. These amounts represent the difference between
the exercise price and the deemed fair market value of certain of Inhale's stock
options granted in these periods and are being amortised to expense over the
three-year vesting period of the options.
RESERVED SHARES
A total of 11,660,216 shares of common stock have been reserved for issuance at
31 December, 1999 for Inhale's equity incentive plans and the warrants.
NOTE 6 -- INCOME TAXES
As of 31 December, 1999, Inhale had federal and state net operating loss
carryforwards of approximately $82,000,000 and $10,600,000, respectively. Inhale
also had federal and state research and other tax credit carryforwards of
approximately $2,000,000 and $2,100,000, respectively. The federal and state net
operating loss and credit carryforwards will expire at various dates beginning
in 2000 through 2019 if not utilised.
Utilisation of the federal and state net operating loss and credit carryforwards
may be subject to a substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilisation.
Significant components of Inhale's deferred tax assets for federal and state
income taxes as of 31 December are as follows:
<TABLE>
<CAPTION>
1999
--------
$'000
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $28,500
Research and other credits 3,700
Capitalised research expenses 1,600
Deferred revenue 1,900
Depreciation 1,300
Other 2,100
-----
Total deferred tax assets 39,100
Valuation allowance for deferred tax assets $(39,100)
--------
Net deferred tax assets --
==
</TABLE>
Because of Inhale's lack of earnings history, the deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance increased by
$14,500,000 during the year ended 31 December, 1999.
NOTE 7 -- STATEMENT OF CASH FLOWS DATA
<TABLE>
<CAPTION>
1999
----
$'000
<S> <C>
Supplemental disclosure of cash flows information:
Interest paid $ 470
------
Supplemental schedule of non-cash investing and financing
activities:
Deferred compensation related to the issuance of
certain stock options $ 964
------
Issuance of common stock to Alliance $5,000
------
Issuance of common stock and options in connection with
licensing agreement --
======
</TABLE>
NOTE 8 -- SUBSEQUENT EVENTS (UNAUDITED)
57
<PAGE>
In February 2000, Inhale received $222.4 million in net proceeds from the
issuance of $230.0 million aggregate principal amount of convertible
subordinated notes to certain qualified institutional buyers under Rule 144A of
the Securities Act of 1933, as amended. Interest on the notes accrues at a rate
of 5% per year, subject to adjustment in certain circumstances. The notes will
mature in 2007 and are convertible into shares of Inhale's common stock at a
conversion price of $38.355 per share, subject to adjustment in certain
circumstances.
In February 2000, Inhale entered into privately negotiated agreements with
certain holders of its outstanding 6 3/4% convertible subordinated debentures
privately placed in October and November 1999, providing for the conversioN of
approximately $94.2 million aggregate principal amount of the outstanding
debentures in exchange for cash payments of approximately $16.2 million in the
aggregate. As a result of these transactions, the $94.2 million of convertible
debentures were converted into approximately 5.9 million shares of Inhale common
stock. Inhale will no longer have interest payment obligations on the debentures
that were converted.
RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER, 2000
On 23 October, 2000, Inhale released its results for the nine months ended 30
September, 2000. The information included below has been extracted from the text
of that announcement.
"(Nasdaq: INHL) today announced its financial results for the third quarter
ended September 30, 2000. Inhale reported contract research revenue of $14.1
million for the three months ended September 30, 2000, compared to $10.6 million
in the same period in 1999. For the nine months ended September 30, 2000,
contract research revenue was $38.5 million, compared to $28.3 million during
the first nine months of 1999. The increase in revenue reported is due primarily
to continuing increases in activity under Inhale's existing collaborative
agreements.
For the three months ended September 30, 2000, Inhale reported a net loss of
$13.2 million or $(0.31) per share. The results for the third quarter, excluding
a charge for non-cash compensation, was a net loss of $12.2 million or $(0.29)
per share. Inhale's net loss during the corresponding period of 1999 was $7.0
million or $(0.21) per share. The non-cash compensation charge recorded during
the three month period ended September 30, 2000 of $1.0 million or $(0.02) per
share was associated with the accounting for stock options.
For the nine months ended September 30, 2000 Inhale reported a net loss of $57.8
million or $(1.42) per share. Excluding the charges described below, Inhale's
results would be a net loss of $35.1 million or $(0.86) per share. The results
exclude a one-time net interest charge of $15.2 million $(0.37) per share
incurred during the first quarter as a premium to convert $98.7 million of
debentures into approximately 6.2 million shares of common stock, a one-time
charge of $2.3 million or $(0.06) per share resulting from purchased in-process
research and development, and $5.2 million or $(0.13) per share resulting from
non-cash compensation charges. Inhale's net loss for the corresponding period of
1999 was $18.3 million or $(0.54) per share.
The increase in expenses and net operating loss in the first nine months of 2000
as compared to the prior year is primarily attributed to increased spending
related to the scale-up of technologies and the continuing development of global
manufacturing capabilities in order to support Phase III Inhaleable insulin
trials and commercial production.
INCYTE CEO ROY A. WHITFIELD JOINS INHALE BOARD OF DIRECTORS
Inhale also announced today the appointment of Roy A. Whitfield, CEO of Incyte
Genomics, Inc., as a new member of Inhale's Board of Directors. Mr. Whitfield is
replacing Mark Gabrielson who is retiring from Inhale's Board. "Mark was one of
our early venture capital investors, and we appreciate the support and guidance
that he has provided us as we have grown Inhale," said Robert Chess, Chairman,
Inhale.
58
<PAGE>
Mr. Whitfield pioneered the genomic information business by co-founding Incyte
in 1991. With more than 20 years of experience, he has a varied and extensive
background in innovative business strategy development and execution. Mr.
Whitfield is also a member of the Board of Directors for Aurora Biosciences
Corp. and the Biotechnology Industry Organization (BIO). A native of Crewe,
England, Mr. Whitfield earned a bachelor's degree in mathematics from Oxford
University and an MBA with distinction from Stanford University.
"We are excited about Roy joining our board. At Incyte, he has built one of the
pioneering companies in the genomics field. Roy's experience in strategy
development and creative partnering arrangements will prove valuable to Inhale
as we continue to grow our company," concluded Chess.
REAL ESTATE TRANSACTION
Inhale also announced today the completion of a build-to-suit lease transaction
involving property purchased by Inhale two years ago across the street from its
current headquarters facility. Inhale has sold, transferred and contributed its
interest in this property along with the improvements to a partnership venture,
in which Inhale is a 49% limited partner, that will lease back the building to
Inhale. The transaction could provide up to $51 million of financing for capital
improvements. The building on this site will provide additional laboratory and
office space for Inhale. Inhale's headquarters address will not change. Terms of
the transaction can be reviewed in the Form 8-K filed with the Securities and
Exchange Commission.
FINANCING TRANSACTIONS
On 17 October, Inhale completed its previously announced offering of $200
million of 3.5% convertible subordinated notes. The terms of the notes are as
set forth in the announcement of the offering filed with the Securities and
Exchange Commission on Form 8-K.
Inhale also today announced that it has entered into privately negotiated
agreements with certain holders of its outstanding 5% convertible subordinated
notes privately placed in February 2000, and as of this date have secured
agreements to convert approximately $105 million of the notes into 2.7 million
shares of common stock. The cost to convert these notes is estimated at $16
million.
Inhale is pioneering drug delivery systems to easily deliver a range of
inhaleable drugs, including peptides, proteins and small molecules, to the deep
lung for treatment of systemic and respiratory diseases. Inhale's Inhance-TM-
drug delivery platform technology combines innovations in powder technology and
inhaling devices to enable efficient and reproducible delivery of inhaleable
drugs. Inhale has development partnerships with several major pharmaceutical and
biotechnology companies, including Pfizer, Aventis Behring (formerly Centeon),
Biogen and Lilly. Inhale's most advanced program is inhaleable insulin,
sponsored by Pfizer, which is in Phase III human clinical trials.
This release contains forward-looking statements that reflect management's
current views as to Inhale's future products, product developments,
manufacturing scale-up, and other future events and operations. These
forward-looking statements involve uncertainties and other risks that are
detailed in Inhale's reports and other filings with the Securities and Exchange
Commission, including its Form 10-K and 10-KA for the year ending Dec. 31, 1999.
Actual results could differ materially from these forward-looking statements."
59
<PAGE>
INHALE
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPT 30, DECEMBER 31,
- 2000 - 1999.
(UNAUDITED)
*
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term
investments $ 280,914 $ 138,185
Other current assets 7,730 9,133
---------- ---------
Total current assets 288,644 147,318
Property and equipment, net 101,472 63,852
Equity Investment in Alliance Pharmaceutical
Corp. 16,314 6,328
Deposits and other assets 13,895 9,308
---------- ---------
$ 420,325 $ 226,806
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 17,158 $ 20,268
Deferred revenue 4,361 4,811
---------- ---------
Total current liabilities 21,519 25,079
Convertible subordinated debentures 237,760 108,450
Accrued rent 2,010 1,753
Other long-term liabilities 4,867 4,895
Stockholders' equity:
Common stock 296,738 181,156
Deferred compensation (2,081) (1,530)
Accumulated other comprehensive gain 11,772 1,469
Accumulated deficit (152,260) (94,466)
---------- ---------
Total stockholders' equity 154,169 86,629
---------- ---------
$ 420,325 $ 226,806
========== =========
</TABLE>
----------
(*) The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements.
INHALE
CONDENSED STATEMENTS OF OPERATIONS
(In thousands except per share information)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(UNAUDITED) (UNAUDITED)
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Contract research revenue $ 14,061 $ 10,628 $ 38,483 $ 28,285
Operating costs and expenses:
Research and development 26,933 16,084 74,797 43,413
General and administrative 3,066 2,177 9,696 5,374
Purchased in-process research and development -- 2,292
-------- -------- -------- --------
Total operating costs and expenses 29,999 18,261 86,785 48,787
-------- -------- -------- --------
Loss from operations (15,938) (7,633) (48,302) (20,502)
-------- -------- -------- --------
Other income 752 -- 752 --
Interest income/(expense), net 1,971 588 (10,244) 2,228
-------- -------- -------- --------
Net loss $(13,215) $ (7,045) $(57,794) $(18,274)
======== ======== ======== ========
Basic and diluted net loss per common share $ (0.31) $ (0.21) $ (1.42) $ (0.54)
======== ======== ======== ========
Shares used in computing basic and diluted
net loss per common share 42,266 34,000 40,742 33,920"
======== ======== ======== ========
</TABLE>
60
<PAGE>
APPENDIX III
FINANCIAL INFORMATION RELATING TO BRADFORD
The financial information contained in this Appendix III is extracted without
material adjustment from the audited accounts of Bradford for the years ended 31
May 2000, 31 May 1999 and 31 May 1998.
The financial information contained in this Appendix III does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
Statutory accounts for the three years ended 31 May 2000, on which unqualified
audit reports have been given by the Company's auditors, have been delivered to
the Registrar of Companies.
PROFIT AND LOSS ACCOUNT
The profit and loss accounts for the three financial years ended 31 May 2000 are
set out below:
<TABLE>
<CAPTION>
NOTE YEAR ENDED Year ended Year ended
31 MAY 2000 31 May 1999 31 May 1998
L L L
<S> <C> <C> <C> <C>
Turnover 2 615,420 1,305,780 1,025,980
Other operating income 3 36,673 96,614 62,226
Raw materials and consumables (137,131) (94,126) (151,843)
Staff costs:
Wages and salaries (748,829) (434,056) (314,286)
Social security costs (68,861) (38,424) (27,971)
Other pension costs (99,805) (60,476) (46,223)
Depreciation (168,606) (165,506) (125,429)
Other operating charges (639,143) (520,621) (358,606)
------- ------- -------
OPERATING (LOSS)/PROFIT 4 (1,210,282) 89,185 63,848
Interest receivable and similar income 7 4,358 5,670 15,011
Interest payable and similar charges 7 (13,209) - -
------- ------- -------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION (1,219,133) 94,855 78,859
Tax on (loss)/profit on ordinary activities 8 88,979 (22,984) (18,485)
------- ------- -------
RETAINED (LOSS)/PROFIT FOR THE FINANCIAL YEAR (1,130,154) 71,871 60,374
======= ======= =======
</TABLE>
61
<PAGE>
BALANCE SHEET
The balance sheet for the year ended 31 May 2000 is set out below:
<TABLE>
<CAPTION>
NOTES 2000
L L
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 9 1,196,764
CURRENT ASSETS
Debtors 10 171,446
--------
171,446
CREDITORS: amounts falling due within one year 11 (993,628)
--------
NET CURRENT (LIABILITIES)/ASSETS (822,182)
--------
TOTAL ASSETS LESS CURRENT LIABILITIES 374,582
Provisions for liabilities and charges 12 -
--------
NET ASSETS 374,582
========
CAPITAL AND RESERVES
Called up equity share capital 13 181,851
Share premium account 14 1,143,891
Profit and loss account 14 (951,160)
--------
EQUITY SHAREHOLDERS' FUNDS 15 374,582
========
</TABLE>
62
<PAGE>
CASH FLOW STATEMENT
The cash flow statement for the year ended 31 May 2000 is set out below:
<TABLE>
<CAPTION>
NOTE 2000
L
<S> <C> <C>
Net cash outflow from operating activities (659,494)
Returns on investments and servicing of finance 18 (349)
Taxation (12,085)
Capital expenditure 18 (964,633)
-------
Cash outflow before use of liquid resources and financing (1,636,561)
Financing 18 1,170,741
-------
Decrease in cash (465,820)
=======
</TABLE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
NOTE 2000
L
<S> <C> <C>
Decrease in cash (465,820)
Overdraft at 1 June 1999 (174,992)
-------
OVERDRAFT AT 31 MAY 2000 19 (640,812)
=======
</TABLE>
RECONCILIATION OF OPERATING (LOSS)/PROFIT TO
NET CASH OUTFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
2000
L
<S> <C>
Operating loss (1,210,282)
Depreciation charge 168,606
Decrease in provisions -
Decrease in debtors 328,677
Increase in creditors 53,505
-------
Net cash outflow from operating activities (659,494)
=======
</TABLE>
63
<PAGE>
NOTES TO THE ACCOUNTS
1 ACCOUNTING POLICIES
The following accounting policies have been applied consistently in
dealing with items which are considered material in relation to the
company's financial statements.
BASIS OF PREPARATION
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules.
TURNOVER
Turnover comprises the invoiced value of equipment sold, receipts in
respect of the granting of licence rights together with collaboration,
consultancy and similar payments.
GRANTING OF LICENCE RIGHTS
Receipts in respect of the granting of licence rights or options to
purchase licence rights to industry partners or other third parties are
recognised in the profit and loss account in the year in which they are
receivable.
COLLABORATION, CONSULTANCY AND SIMILAR PAYMENTS
Amounts receivable from industry partners in relation to contributions to
research activities or specific technology applications are recognised in
the profit and loss account over the period of collaboration in order to
match the expenditure profile.
GRANT INCOME
Grants are recognised in the profit and loss account so as to match them
with the expenditure towards which they are intended to contribute
providing the conditions for their receipt have been complied with.
RESEARCH AND DEVELOPMENT EXPENDITURE
Research and development expenditure is written off to the profit and
loss account in the year in which it is incurred.
64
<PAGE>
DEPRECIATION
Depreciation is provided by the company to write off the cost less
estimated residual value of tangible fixed assets by equal instalments
over their estimated useful economic lives, as follows:
Leasehold improvements - Lease term
Research plant and equipment - 2 - 9 years
Office equipment - 3 years
No depreciation is provided on assets in the course of construction.
TAXATION
The charge for taxation is based on the profit for the year and takes
into account taxation deferred because of timing differences between the
treatment of certain items for taxation and accounting purposes.
Provision is made for deferred tax only to the extent that it is probable
that an actual liability will crystallise in the foreseeable future.
WARRANTY PROVISIONS
Where a warranty is provided in relation to prototype and test equipment
sold, provision is made for the commitment on each specific sale, having
regard to the level of innovation in the product.
PENSIONS
The company operates a self administered defined contribution scheme for
its executive directors. Contributions are charged to the profit and loss
account when payable.
The company also operates a defined contribution scheme for other staff.
Contributions are independently administered by an insurance company and
are charged to the profit and loss account when payable.
65
<PAGE>
2 TURNOVER
The geographical analysis of turnover, which arises from the principal
activities of the company is as follows:
Analysis of turnover by geographical market:
<TABLE>
<CAPTION>
2000 1999 1998
L L L
<S> <C> <C> <C>
United Kingdom 438,881 743,111 362,271
Other Europe 95,925 449,176 663,709
USA 59,014 93,493 -
Asia 21,600 20,000 -
-------- ------- -------
615,420 1,305,780 1,025,980
======== ======= =======
</TABLE>
Analysis of turnover by category:
<TABLE>
<CAPTION>
2000 1999 1998
L L L
<S> <C> <C> <C>
Equipment sales 45,850 - 274,313
Collaboration, consultancy and similar payments 562,070 675,780 251,667
Granting of licences 7,500 630,000 500,000
-------- ------- -------
615,420 1,305,780 1,025,980
======== ======= =======
</TABLE>
3 OTHER OPERATING INCOME
<TABLE>
<CAPTION>
2000 1999 1998
L L L
<S> <C> <C> <C>
Grant income 36,673 96,356 60,474
Other - 258 1,752
-------- ------- -------
36,673 96,614 62,226
======== ======= =======
</TABLE>
4 OPERATING (LOSS)/PROFIT
<TABLE>
<CAPTION>
2000 1999 1998
L L L
<S> <C> <C> <C>
OPERATING (LOSS)/PROFIT IS STATED AFTER CHARGING:
Auditors' remuneration:
Audit 12,000 12,000 4,500
Other services 3,600 3,450 2,500
Operating lease rentals:
Property 64,343 44,004 33,720
Motor vehicles - 15,469 18,496
Depreciation 168,606 165,506 125,428
======== ======= =======
</TABLE>
66
<PAGE>
5 DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
2000 1999 1998
L L L
<S> <C> <C> <C>
Remuneration 264,958 150,249 134,046
Pension contributions 47,155 31,850 28,567
-------- -------- --------
312,113 182,099 162,613
======== ======== ========
</TABLE>
6 STAFF NUMBERS
The average number of persons employed by the company (including
directors) during the year, was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Research and administration 25 15 10
======== ======== ========
</TABLE>
7 INTEREST
<TABLE>
<CAPTION>
2000 1999 1998
L L L
<S> <C> <C> <C>
Bank interest receivable 4,358 5,670 15,011
Bank interest payable (13,209) - -
-------- -------- --------
(8,851) 5,670 15,011
======== ======== ========
</TABLE>
8 TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
2000 1999 1998
L L L
<S> <C> <C> <C>
Corporation tax @ 20% (1999 and 1998: 21%)
- current year (12,085) 13,250 5,050
- prior year (1,165) (2,128) (432)
Deferred tax
- current year (75,207) 10,156 13,867
- prior year (522) 1,706 -
-------- -------- --------
(88,979) 22,984 18,485
======== ======== ========
</TABLE>
Tax losses available to be set off against future profits of the company
amount to approximately L2,200,000 (1999 and 1998: Lnil).
67
<PAGE>
9 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
ASSETS IN THE RESEARCH OFFICE TOTAL
COURSE OF PLANT AND EQUIPMENT
CONSTRUCTION EQUIPMENT
L L L L
<S> <C> <C> <C> <C>
COST
At beginning of year 47,361 672,814 36,216 756,391
Additions 861,851 73,721 51,151 986,723
------- ------- ------- -------
At end of year 909,212 746,535 87,367 1,743,114
------- ------- ------- -------
DEPRECIATION
At beginning of year - 351,009 26,735 377,744
Charge for year - 154,929 13,677 168,606
------- ------- ------- -------
At end of year - 505,938 40,412 546,350
------- ------- ------- -------
NET BOOK AMOUNT
AT 31 MAY 2000 909,212 240,597 46,955 1,196,764
======= ======= ======= =======
</TABLE>
10 DEBTORS
<TABLE>
<CAPTION>
2000
L
<S> <C>
Trade debtors 111,153
Other debtors 20,511
Prepayments and accrued income 39,782
-------
171,446
=======
</TABLE>
68
<PAGE>
11 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
2000
L
<S> <C>
Bank loans and overdrafts 640,812
Trade creditors 118,062
Other creditors, including other taxation 24,323
and social security
Accruals and deferred income 210,431
-------
993,628
=======
</TABLE>
12 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
DEFERRED
TAX
L
<S> <C>
At 1 June 1999 75,729
Credit in the year (75,729)
-------
At 31 May 2000 -
=======
</TABLE>
13 CALLED UP EQUITY SHARE CAPITAL
<TABLE>
<CAPTION>
2000 1999 2000 1999
Number Number L L
<S> <C> <C> <C> <C>
AUTHORISED
Ordinary shares of L1 each - 10,000 - 10,000
"A" shares of L1 each 1 - 1 -
Ordinary shares of 10p each 1,899,990 - 189,999 -
======= ======= ------- -------
190,000 10,000
======= =======
<CAPTION>
ALLOTTED, CALLED UP AND FULLY PAID
Number Number L L
<S> <C> <C> <C> <C>
Ordinary shares of L1 each - 1,000 - 1,000
"A" shares of L1 each 1 - 1 -
Ordinary shares of 10p each 1,818,500 - 181,850 -
======= ======= ------- -------
181,851 1,000
======= =======
</TABLE>
On 22 July 1999, a special resolution was passed subdividing each
ordinary share of L1 each in the issued and authorised but unissued share
capital of the company into ten ordinary shares of 10 pence each.
On 22 July 1999, a special resolution was passed to increase the
authorised share capital of the company to L190,000, divided into
1,899,990 10p ordinary shares and one "A" share of L1 each.
69
<PAGE>
13 CALLED UP EQUITY SHARE CAPITAL (CONTINUED)
On 22 July 1999, a special resolution was passed under which L169,000 of
the company's profit and loss account was capitalised and 1,690,000
ordinary shares of 10 pence each were allotted and issued, credited as
paid up in full, to the shareholders of the company in proportion to
their existing shareholdings.
Following the issue of an offer for subscription in July 1999, the
company issued 118,500 ordinary shares of 10p each at a price of L10 per
share, raising L1,185,000 less expenses.
14 RESERVES
<TABLE>
<CAPTION>
SHARE PREMIUM PROFIT AND LOSS
ACCOUNT ACCOUNT
L L
<S> <C> <C>
At 1 June 1999 - 332,994
Capitalisation of reserves (note 13) - (169,000)
Transfer of prior year expenses on share issue (15,000) 15,000
Retained loss for financial year - (1,130,154)
Premium on shares issued during the year (net of current year 1,158,891 -
expenses)
------- -------
AT 31 MAY 2000 1,143,891 (951,160)
======= =======
</TABLE>
15 RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
2000
L
<S> <C>
Opening shareholders' funds 333,994
Retained loss for the financial year (1,130,154)
New equity share capital subscribed (net of current year expenses) 1,170,742
-------
CLOSING SHAREHOLDERS' FUNDS 374,582
=======
</TABLE>
16 COMMITMENTS
Capital commitments authorised and contracted for at the balance sheet
date but not provided for within the accounts amounted to Lnil.
Annual commitments under non-cancellable operating leases are as follows:
<TABLE>
<CAPTION>
2000
L
<S> <C>
PROPERTY LEASES TERMINATING:
Within one year 9,126
In one to two years -
In the second to the fifth years inclusive 14,777
After five years 51,075
=======
</TABLE>
70
<PAGE>
17 POST BALANCE SHEET EVENT
Since 31 May 2000, a contract has been signed for a licence agreement
with a major US pharmaceutical company, which will trigger an upfront
licence fee of L1.9m, payable in October 2000.
18 GROSS CASH FLOW
<TABLE>
<CAPTION>
2000
L
<S> <C>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 4,358
Interest paid (4,707)
-------
(349)
=======
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets (964,633)
========
FINANCING
New equity share capital subscribed 1,185,000
Expenses paid in connection with share issues (14,259)
-------
1,170,741
=======
</TABLE>
19 ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
At 1 June 1999 Cash flow AT 31 MAY 2000
L L L
<S> <C> <C> <C>
Overdrafts (174,992) (465,820) (640,812)
======= ======= =======
</TABLE>
20 RELATED PARTY TRANSACTIONS
During the year ended 31 May 2000 the University of Bradford, which has
an interest in the share capital of Bradford, charged Bradford L36,000
for research activities and L38,034 for salary costs. Bradford also made
sales of L63,332 to the University of Bradford.
During the year ended 31 May 1999 the University of Bradford, which has
an interest in the share capital of Bradford, charged Bradford L36,000
(1998: L36,000) for research activities and L43,442 (1998: L40,544) for
salary costs. Bradford also received management fees of Lnil (1998:
L2,500) from, and made sales of L10,113 (1998: L3,000) to the University
of Bradford.
71
<PAGE>
APPENDIX IV
ADDITIONAL INFORMATION
1. RESPONSIBILITY FOR INFORMATION IN THIS DOCUMENT
(a) The Inhale Directors, whose names are set out in paragraph 2(a)
below, accept responsibility for the information contained in this
document other than that relating to Bradford, the Bradford
Directors and members of their immediate families, related trusts
and controlled companies. To the best of the knowledge and belief
of the Inhale Directors (who have taken all reasonable care to
ensure that such is the case), the information contained in this
document for which they are responsible is in accordance with the
facts and does not omit anything likely to affect the import of
such information.
(b) The Bradford Directors, whose names are set out in paragraph 2(b)
below, accept responsibility for the information contained in this
document relating to Bradford, the Bradford Directors and members
of their immediate families, related trusts and controlled
companies. To the best of the knowledge and belief of the Bradford
Directors (who have taken all reasonable care to ensure that such
is the case), the information contained in this document for which
they are responsible is in accordance with the facts and does not
omit anything likely to affect the import of such information.
2. DIRECTORS
(a) The directors of Inhale are:
<TABLE>
<S> <C>
Robert B. Chess (Chairman)
Ajit S. Gill (President and Chief Executive Officer)
James B. Glavin (Director)
Irwin Lerner (Director)
John S. Patton (Director, Vice President)
Melvin Perelman (Director)
Roy A. Whitfield (Director)
</TABLE>
In addition, the following are executive officers of Inhale:
<TABLE>
<S> <C>
Stephen L. Hurst (General Counsel and Secretary)
Brigid A. Makes (Vice President of Finance and Administration and Chief
Financial Officer)
</TABLE>
The business address of each of such director is 150 Industrial
Road, San Carlos, California 94070-6256.
ROBERT B. CHESS has served as Chairman of the Board since April
1999. Mr Chess served as Co-Chief Executive Officer from August
1998 to April 2000. Mr Chess served as President from December
1991 to August 1998 and as Chief Executive Officer from May 1992
to September 1998. Mr Chess was appointed as a Director in May
1992. From September 1990 until October 1991, he was an Associated
Deputy Director in the White House Office of Policy Development.
In March 1987, Mr Chess co-founded Penederm Incorporated, a
topical determatological drug delivery company, and served as its
President until February 1989. He left Penederm in October 1989.
Prior to co-founding Penederm, Mr Chess held management positions
at Intel Corp., a semiconductor manufacturer, and Metaphor, a
computer software company (acquired by International Business
Machines). Mr Chess holds a BS in Engineering from the California
Institute of Technology and an MBA from the Harvard Business
School.
AJIT S. GILL has served as Chief Executive Officer since April
2000, as President since April 1999, and as a Director since April
1998. Mr Gill served as Co-Chief Executive Officer
72
<PAGE>
from August 1998 to April 2000. Mr Gill served as Chief Operating
Officer from October 1996 to August 1998 and Chief Financial
Officer from January 1993 until October 1996. Before joining
Inhale, Mr Gill was Vice-President and General Manager of Kodak's
Interactive Systems division. Mr Gill has served as Chief
Financial Officer for TRW-Fujitsu, Director of Business
Development for Visicorp, and as start-up President for three high
technology companies. He has an MS in Electrical Engineering from
the University of Nebraska, and holds an MBA from the University
of Western Ontario.
JAMES B. GLAVIN has been a director since May 1993. Mr Glavin is
Chairman of the Board of The Immune Response Corporation, a
biotechnology company. He was President and Chief Executive
Officer of the Immune Response Corporation from 1987 until
September 1994. From 1987 to 1990, Mr Glavin served as Chairman of
the Board of Smith Laboratories, Inc. and was President and Chief
Executive Officer from 1985 to 1989. From 1983 to 1985 he served
as Chairman of the Board of Genetic Systems Corporation, a
biotechnology company, and as its President and Chief Executive
Officer from 1981 to 1983. Mr Glavin is a director of The Meridian
Fund and Avanir Pharmaceuticals.
IRWIN LERNER has been a Director since April 1999. Mr Lerner
served as Chairman of the Board of Directors and of the Executive
Committee of Hoffmann-La Roche Inc., a pharmaceutical and
healthcare company from January 1993 until his retirement in
September 1993, and from 1980 to December 1992 also served as
President and Chief Executive Officer. Since September 1995, Mr
Lerner has served on the Board of Medarex Inc, a monoclonal
antibodies products company, and became Chairman of the Board in
May 1997. Mr Lerner served as the Chairman of the Board of Sequana
Therapeutics Inc., a biotechnology company, from May 1995 until
Sequana merged with Arris Pharmaceuticals Inc., a pharmaceutical
company, to form Axys Pharmaceuticals, Inc. in January 1998 and
has served on the Board of Axys since then. Mr Lerner served for
12 years on the Board of the Pharmaceutical Manufacturers'
Association where he chaired the Association's FDA Issues
Committee. Mr Lerner received a B.S and an MBA from Rutgers
University. He is currently Distinguished Executive-in-Residence
at Rutgers University Graduate School of Management. Mr Lerner is
also a director of Public Service Enterprise Group Incorporated, a
diversified public utility holding company, Humana Inc., a
healthcare company, Covance, Inc., a contract drug development
company, and V.I. Technologies, Inc., a blood products company.
JOHN S PATTON, PH.D, a co-founder of Inhale has been Vice
President, Research since December 1991 and a Director since July
1990. He served as President of Inhale from its incorporation in
July 1990 to December 1991. From 1985 to 1990, Dr Patton was a
Project Team Leader with Genentech, Inc., a biotechnology company,
where he headed their non-invasive drug delivery activities. Dr.
Patton was on the faculty of the Marine Science and Microbiology
Departments at the University of Georgia from 1979 to 1985, where
he was granted tenure in 1984. Dr. Patton received a BS in Zoology
and Biochemistry from Pennsylvania State University, an MS from
the University of Rhode Island, a PhD in Biology from the
University of California, San Diego and received post doctorate
fellowships from Harvard Medical School and the University of
Lund, Sweden both in biomedicine.
MELVIN PERELMAN, PhD has been a Director since January 1996. Dr
Perelman spent 36 years at Eli Lilly & Company, most recently as
Executive Vice-President and President of Lilly Research
Laboratories, a position which he held from 1986 until his
retirement in 1993. Dr Perelman served as President of Lilly
International from 1976 until 1986. He was a member of the Board
of Directors of Lilly from 1976 until 1993. Dr Perelman is a
member of the Board of Directors of Immusol, Inc. and of The
Immune Response Corporation.
ROY A. WHITFIELD has been a Director since August 2000. Mr
Whitfield is a member of the Board of Directors of Incyte
Genomics, Inc., a genomic information company, which he co-founded
in 1991, and since June 1993 has served as Chief Executive
Officer. He also served as President of Incyte from June 1991
until January 1997 and as Treasurer from
73
<PAGE>
April 1991 until October 1995. From 1984 to 1989, Mr Whitfield
held senior operating and business development positions with
Technicon Instruments Corporation, a medical instrumentation
company, and its predecessor company, CooperBiomedical Inc, a
biotechnology and medical diagnostics company. Prior to his work
at Technicon, Mr Whitfield spent seven years with the Boston
Consulting Group's international consulting practice. Mr Whitfield
received a BS in mathematics from Oxford University and an MBA
from Stanford University. Mr Whitfield also serves as a director
of Aurora Biosciences Corp, a biotechnology company, and the
Biotechnology Industry Organisation (BIO).
STEPHEN L HURST has been General Counsel and Secretary since
August 1998. Mr Hurst served as Vice President, Intellectual
Property and Licensing from March 1994 to August 1998. From July
1990 to February 1994, Mr Hurst was in private law practice and
consulted with COR Therapeutics, Inc, a biotechnology company, on
intellectual property and business development issues. From
November 1987 to June 1990, he was the Campus Patent Coordinator
for the University of California, San Francisco. He also worked as
an Associate Counsel at Townsend & Townsend, a San Francisco based
law firm. He received a BS degree in Environmental Science from
the University of California at Berkeley and his JD from Golden
Gate University in San Francisco.
BRIGID A. MAKES has served as Vice President of Finance and
Administration and Chief Financial Officer since June 1999. From
1998 until joining Inhale, Ms Makes served as Vice President,
Chief Financial Officer and Treasurer for Oravax, Inc, a life
sciences company. From 1992 to 1998, Ms Makes served in various
management positions for Haemonetics Corporation, a developer of
automated blood processing systems, including from 1995 to 1998,
Vice President Finance, Chief Financial Officer and Treasurer. Ms
Makes holds a Bachelor of Commerce degree from McGill University
in Finance and International Business and an MBA from Bentley
College.
(b) The directors of Bradford are:
<TABLE>
<S> <C>
Nicholas Andrew (Non-executive Director)
Sir Christopher Benson (Chairman)
Mazen Hanna (Principal Scientist)
Gwynfor Humphreys (Managing Director)
Carole Nicholson (Finance Director)
Peter York (Deputy Chairman and Chief Scientist)
</TABLE>
The business address of each such director is 69 Listerhills
Science Park, Campus Road, Bradford, West Yorkshire BD7 1HR.
3. IRREVOCABLE UNDERTAKINGS
Irrevocable undertakings to accept the Offer have been given in respect
of, in aggregate, 1,895,057 Bradford Shares, representing approximately
92.69 per cent. of the current issued share capital of Bradford. These
undertakings remain binding should a higher competing offer be made for
Bradford. The undertakings also apply to any other Bradford Shares
attributable to or derived from such shares while the Offer remains open
for acceptance.
<TABLE>
<CAPTION>
NAME OF REGISTERED NUMBER OF BRADFORD SHARES NUMBER OF BRADFORD SHARES UNDER
BRADFORD SHAREHOLDER OPTION
<S> <C> <C>
Gwynfor Humphreys 442,000 ordinary shares 1,817
Peter York 442,000 ordinary shares 1,817
Mazen Hanna 442,000 ordinary shares 1,817
University of Bradford 374,000 ordinary shares 0
74
<PAGE>
3i Group plc 127,119 A ordinary shares 0
3i Group plc 42,373 ordinary shares 0
Christopher Benson 20,000 ordinary shares 2,994
Carole Nicholson 5,565 ordinary shares 2,556
TOTAL 1,895,057 11,001
</TABLE>
4. SHAREHOLDINGS AND DEALINGS
(a) Definitions:
In this paragraph:
(i) "disclosure period" means the period commencing on 13
November 1999 (being the date 12 months prior to
commencement of the Offer Period) and ending on 20 December
2000 (being the latest practicable date before the posting
of this document);
(ii) "relevant securities" means Bradford Shares and/or
securities convertible into, rights to subscribe for,
options (including traded options) in respect of, and
derivatives referenced to Bradford Shares and securities in
Inhale;
(iii) references to an "associate" are to:
(a) Subsidiaries and associated companies of Inhale or,
as the case may be, Bradford and companies of which
any such subsidiaries or associated companies are
associated companies;
(b) Banks, financial and other professional advisers
(including stockbrokers) to Inhale or, as the case
may be, Bradford or a company covered in paragraph
(a) above, including persons controlling, controlled
by or under the same control as such banks,
financial or other professional advisers;
(c) the Inhale Directors or, as the case may be,
Bradford Directors and the directors of any company
covered in paragraph (a) above (together, in each
case, with their close relatives and related
trusts); and
(d) the pension funds of Inhale or, as the case may be,
Bradford or a company covered in paragraph (a)
above;
(iv) "derivative" includes any financial product whose value, in
whole or in part, is determined directly or indirectly by
reference to the price of an underlying security but which
does not include the possibility of delivery of such
underlying securities;
(v) references to a "bank" do not apply to a bank whose sole
relationship with Inhale or Bradford or a company covered
in paragraph (iii)(a) above is the provision of normal
commercial banking services or such activities in
connection with the Offer as handling acceptances and other
registration work; and
(vi) ownership or control of 20 per cent. or more of the equity
share capital of a company is regarded as the test of
"associated company" status and "control" means a holding,
or aggregate holdings, of shares carrying 30 per cent. or
more of the voting rights attributable to the share capital
of a company which are currently exercisable at a general
meeting, irrespective of whether the holding or holdings
give(s) DE FACTO control.
75
<PAGE>
(b) Inhale
(i) As at the close of business on 20 December 2000 (being the
latest practicable date prior to the posting of this
document), the interests (all of which are beneficial) in
the share capital of Inhale of the Inhale Directors, their
immediate families and related trusts which would have been
notified to Inhale pursuant to Sections 324 or 328 of the
Act if Inhale were subject thereto and which would be
required to be entered in the register maintained under the
provisions of Section 325 of the Act and the interests of
connected persons (within the meaning of Section 346 of the
Act) in the share capital of Inhale, which would if such
connected persons were directors of Inhale be required to
be disclosed or notified under the above sections of the
Act, and the existence of which was known to or could with
reasonable diligence have been ascertained by the directors
of Inhale, are set out below. The figures stated give
effect to the two-for one stock split effected by Inhale on
22 August 2000.
<TABLE>
<CAPTION>
NAME NO. OF RELEVANT SECURITIES
<S> <C>
Robert B. Chess 346,420 ordinary shares of common stock
Ajit S. Gill 47,700 ordinary shares of common stock
James B. Glavin Nil
Irwin Lerner Nil
Melvin Perelman Nil
John S. Patton 400,340 ordinary shares of common stock
Roy A. Whitfield Nil
</TABLE>
NOTES
(i) The figure stated above in respect of Ajit S. Gill
includes 26,100 shares of common stock held by the
Gill Trust.
(ii) The figure stated above in respect of John S. Patton
includes 396,008 ordinary shares of common stock
held by the Patton Revocable Trust, and 4,332
ordinary shares of common stock held by children of
Mr Patton.
(ii) As at the close of business on 20 December 2000 (being the
latest practicable date before the posting of this
document), the following options over Inhale Shares had
been granted to the Inhale Directors pursuant to the Inhale
Share Option Schemes and remained outstanding. The figures
stated give effect to the two-for one stock split effected
by Inhale on 22 August 2000.
<TABLE>
<CAPTION>
DIRECTOR NO. OF INHALE DATE OF GRANT EXERCISE EXERCISE PERIOD
SHARES PRICE
UNDER OPTION
<S> <C> <C> <C> <C>
Robert B. Chess
2000 Equity Incentive Plan
432 31.01.94 $2.7778 31.01.94 - 31.01.04
11,886 31.01.94 $2.7778 31.01.94 - 31.01.04
31,506 18.01.95 $4.5625 18.01.95 - 18.01.05
6,507 18.01.95 $4.5625 18.01.95 - 18.01.05
26,582 18.01.95 $4.5625 18.01.95 - 18.01.05
17,983 18.01.95 $4.5625 18.01.95 - 18.01.05
19,752 23.01.96 $5.0625 23.01.96 - 23.01.06
36,248 23.01.96 $5.0625 23.01.96 - 23.01.06
538 07.01.97 $8.0625 07.01.97 - 07.01.07
10,738 28.01.97 $9.3125 28.01.97 - 28.01.07
20,062 28.01.97 $9.3125 28.01.97 - 28.01.07
6,504 18.08.98 $15.3750 18.08.98 - 18.08.08
63,496 18.08.98 $15.3750 18.08.98 - 18.08.08
1,818 18.08.98 $15.3750 18.08.98 - 18.08.08
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR NO. OF INHALE DATE OF GRANT EXERCISE EXERCISE PERIOD
SHARES PRICE
UNDER OPTION
<S> <C> <C> <C> <C>
21,630 18.08.98 $15.3750 18.08.98 - 18.08.08
81,268 23.02.99 $14.2500 23.02.99 - 23.02.09
3,334 23.02.99 $14.2500 23.02.99 - 23.02.09
5,504 14.01.00 $27.6875 14.01.00 - 14.01.10
41,162 14.01.00 $27.6875 14.01.00 - 14.01.10
271,297 14.01.00 $27.6875 14.01.00 - 14.01.10
-------
678,247
Ajit S. Gill
2000 Equity Incentive Plan
19,756 06.01.94 $0.2778 06.01.94 - 06.01.04
54,556 28.01.94 $1.3889 28.01.94 - 28.01.04
32,400 31.01.94 $2.7778 31.01.94 - 31.01.04
18,000 16.06.94 $3.1250 16.06.94 - 16.06.04
9,904 18.01.95 $4.5625 18.01.95 - 18.01.05
4,896 18.01.95 $4.5625 18.01.95 - 18.01.05
27,992 18.01.95 $4.5625 18.01.95 - 18.01.05
8 18.01.95 $4.5625 18.01.95 - 18.01.05
9,776 23.01.96 $5.0625 23.01.96 - 23.01.06
7,334 23.01.96 $5.0625 23.01.96 - 23.01.06
19,626 23.01.96 $5.0625 23.01.96 - 23.01.06
6,374 23.01.96 $5.0625 23.01.96 - 23.01.06
1,000 07.01.97 $8.0625 07.01.97 - 07.01.07
8,180 07.01.97 $8.0625 07.01.97 - 07.01.07
64,954 07.01.97 $8.0625 07.01.97 - 07.01.07
7,584 28.01.97 $9.3125 28.01.97 - 28.01.07
10,616 28.01.97 $9.3125 28.01.97 - 28.01.07
30,000 18.08.98 $15.3750 18.08.98 - 18.08.08
6,840 18.08.98 $15.3750 18.08.98 - 18.08.08
63,160 18.08.98 $15.3750 18.08.98 - 18.08.08
3,334 23.02.99 $14.2500 23.02.99 - 23.02.09
96,666 23.02.99 $14.2500 23.02.99 - 23.02.09
5,506 14.01.00 $27.6875 14.01.00 - 14.01.10
64,494 14.01.00 $27.6875 14.01.00 - 14.01.10
280,000 14.01.00 $27.6875 14.01.00 - 14.01.10
-------
852,956
JAMES B. GLAVIN
2000 Equity Incentive Plan 34,600 01.06.98 $15.2500 01.06.98 - 01.06.08
60,000 06.06.00 $42.5000 06.06.00 - 06.06.10
------
94,600
IRWIN LERNER
2000 Equity Incentive Plan
40,000 27.04.99 $14.5000 27.04.99 - 27.04.09
------
40,000
JOHN S. PATTON
2000 Equity Incentive Plan
19,756 06.01.94 $0.2778 06.01.94 - 06.01.04
97,200 31.01.94 $2.7778 31.01.94 - 31.01.04
18,000 18.01.95 $4.5625 18.01.95 - 18.01.05
12,538 18.01.95 $4.5625 18.01.95 - 15.01.05
1,062 18.01.95 $4.5625 18.01.95 - 18.01.05
18,000 23.01.96 $5.0625 18.01.95 - 18.01.05
16,646 23.01.96 $5.0625 23.01.96 - 23.01.06
23,354 23.01.96 $5.0625 23.01.96 - 23.01.06
1,000 07.01.97 $8.0625 23.01.96 - 23.01.06
13,070 28.01.97 $9.3125 07.01.97 - 07.01.07
930 28.01.97 $9.3125 28.01.97 - 28.01.07
2,450 18.08.98 $13.8125 28.01.97 - 28.01.07
97,550 18.08.98 $13.8125 18.08.98 - 18.08.08
6,836 18.08.98 $15.3750 18.08.98 - 18.08.08
21,164 18.08.98 $15.3750 18.08.98 - 18.08.08
12,000 18.08.98 $15.3750 18.08.98 - 18.08.08
7,016 23.02.99 $14.2500 23.02.99 - 23.02.09
20,984 23.02.99 $14.2500 23.02.99 - 23.02.09
77
<PAGE>
<CAPTION>
DIRECTOR NO. OF INHALE DATE OF GRANT EXERCISE EXERCISE PERIOD
SHARES PRICE
UNDER OPTION
<S> <C> <C> <C> <C>
19,600 14.01.00 $27.6875 14.01.00 -14.01.10
---------
409,156
Melvin Perelman
2000 Equity Incentive Plan
20,000 01.06.98 $15.2500 01.06.98 - 01.06.08
60,000 08.06.99 $13.4380 08.06.99 - 08.06.09
------
80,000
Roy A. Whitfield
2000 Equity Incentive Plan
60,000 22.08.00 $44.875 22.08.00 - 22.08.10
------
60,000
</TABLE>
78
<PAGE>
(iii) The following dealings for value in Inhale Shares
(including the grant or exercise of options under the
Inhale Share Option Schemes) by the Inhale Directors, their
immediate families and related trusts have taken place
during the disclosure period. Unless otherwise indicated by
an "*", the figures stated give effect to the two-for one
stock split effected by Inhale on 22 August 2000.
<TABLE>
<CAPTION>
NAME DATE NATURE OF TRANSACTION NUMBER OF PRICE PER SHARE
RELEVANT
SECURITIES
<S> <C> <C> <C> <C>
Robert B. Chess
14 January 2000 Grant of options 46,666 $27.6875
14 January 2000 Grant of options 280,000 $27.6875
10 February 2000 Sale of common stock 8,800* $81.6406*
14 February 2000 Exercise of options 58,400 $2.7778
17 February 2000 Sale of common stock 20,000* $96.375*
18 February 2000 Sale of common stock 20,000* $101.634*
25 February 2000 Sale of common stock 5,000* $95.531*
25 February 2000 Sale of common stock 5,000* $96.708*
28 February 2000 Exercise of options 24,000 $2.7778
3 March 2000 Stock bonus award of 10,000* Nil
common stock
15 June 2000 Sale of common stock 15,000* $80.50*
15 June 2000 Sale of common stock 7,500* $81.00*
16 June 2000 Sale of common stock 2,500* $82.00*
21 June 2000 Exercise of options 38,000 $2.7778
21 June 2000 Exercise of options 12,000 $4.5625
26 October 2000 Gift of common stock 15,000 Nil
26 October 2000 Sale of common stock 34,575 $46.25
27 October 2000 Exercise of options 310 $2.7778
27 October 2000 Exercise of options 4,656 $4.5625
27 October 2000 Exercise of options 9,529 $4.5625
27 October 2000 Exercise of options 385 $8.0625
27 October 2000 Exercise of options 5,460 $15.375
27 October 2000 Exercise of options 12,832 $14.25
27 October 2000 Exercise of options 7,253 $27.6875
2 November 2000 Sale of common stock 5,000 $55.00
3 November 2000 Sale of common stock 1,916 $54.50
8 November 2000 Exercise of options 62 $2.7778
8 November 2000 Exercise of options 931 $4.5625
8 November 2000 Exercise of options 1,906 $4.5625
8 November 2000 Exercise of options 77 $8.0625
8 November 2000 Exercise of options 1,092 $15.375
8 November 2000 Exercise of options 2,566 $14.25
8 November 2000 Exercise of options 1,450 $27.6875
Ajit S. Gill
14 January 2000 Grant of options 70,000 $27.6875
14 January 2000 Grant of options 280,000 $27.6875
10 February 2000 Sale of common stock 10,000* $81.64*
11 February 2000 Exercise of options 40,000 $0.0278
11 February 2000 Sale of Common Stock 10,000* $81.64*
14 February 2000 Sale of common stock 10,000* $80.25*
15 February 2000 Sale of common stock 10,000* $80.687*
16 February 2000 Sale of common stock 10,000* 80.203*
18 February 2000 Sale of common stock 20,000* $101.634*
22 February 2000 Exercise of options 24,800 $0.0278
22 February 2000 Exercise of options 35,444 $1.3889
22 February 2000 Exercise of options 22,890 $5.0625
22 February 2000 Exercise of options 16,866 $8.0625
25 February 2000 Sale of common stock 25,000* $96.708*
25 February 2000 Sale of common stock 5,000* $95.531*
3 March 2000 Stock bonus award of 10,000* Nil
common stock
31 May 2000 Gift of common stock 800* Nil
79
<PAGE>
John S. Patton
14 January 2000 Grant of options 19,600 $27.6875*
10 February 2000 Gift of common stock 1,998* Nil
10 February 2000 Sale of common stock 10,000* $80.00-$84.250*
10 February 2000 Sale of common stock 700* $80.00*
10 February 2000 Sale of common stock 240* $82.625 - $82.75*
10 February 2000 Sale of common stock 440* $82.25*
11 February 2000 Sale of common stock 10,000* $81.00 - $83.8125*
14 February 2000 Sale of common stock 10,000* $79.00-$81.00*
15 February 2000 Sale of common stock 10,000* $79.875 - $81.00*
16 February 2000 Sale of common stock 10,000* $80.625 - $83.875*
18 February 2000 Sale of common stock 10,000* $103.56250*
$109.00*
22 February 2000 Sale of common stock 10,000* $85.25 - $103.75*
3 November 2000 Sale of common stock 50,000* $51.25 - $52.6250*
James B. Glavin
10 February 2000 Exercise of options 20,000 $0.1111
10 February 2000 Sale of common stock 20,000 $42.0294
11 February 2000 Exercise of options 4,000 $0.1111
11 February 2000 Sale of common stock 4.000 $41.1850
11 February 2000 Exercise of options 16,000 $2.7778
11 February 2000 Sale of common stock 16,000 $41.1850
14 February 2000 Exercise of options 2,000 $2.7778
14 February 2000 Sale of common stock 2,000 $39.7813
14 February 2000 Exercise of options 14,400 $3.7500
14 February 2000 Sale of common stock 14,400 $39.7813
14 February 2000 Exercise of options 3,600 $3.8125
14 February 2000 Sale of common stock 3,600 $39.7813
15 February 2000 Exercise of options 10,000 $3.8125
15 February 2000 Sale of common stock 10,000 $40.0625
18 February 2000 Exercise of options 800 $3.8125
18 February 2000 Sale of common stock 800 $50.0000
18 February 2000 Exercise of options 19,200 $8.7500
18 February 2000 Sale of common stock 19,200 $50.0000
6 June 2000 Grant of options 60,000 $42.50
16 August 2000 Sale of common stock 5,499* $83.3745*
17 August 2000 Sale of common stock 500* $86.0000*
16 November 2000 Exercise of options 5,400 $15.2500
16 November Sale of common stock 5,400 $49.7500
2000
16 November 2000 Exercise of options 9,600 $8.7500
16 November 2000 Sale of common stock 9,600 $49.7500
Melvin Perelman
24 August 2000 Exercise of options 4,800 $5.0625
24 August 2000 Sale of common stock 4,800 $50.5108
24 August 2000 Exercise of options 28,800 $8.7500
24 August 2000 Sale of common stock 28,800 $50.5108
22 August 2000 Grant of options 60,000 $44.875
Roy A. Whitfield
22 August 2000 Grant of options 60,000 $44.875
</TABLE>
(iv) Certain partners of Cazenove (or persons connected with
them) have an interest in, in aggregate, 26,635 Bradford
Shares. Of these Bradford Shares, 13,400 were subscribed
for in the offer for subscription on 24 October 2000.
(v) Save as disclosed below the Inhale Directors are not aware
of, nor have they received notice of, any person who, was
as at 01 December 2000 (being the last
80
<PAGE>
business day prior to publication of this document),
directly or indirectly interested in five per cent. or more
of the share capital of Inhale.
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER NUMBER OF SHARES (`000) PERCENTAGE HELD
<S> <C> <C>
Franklin Advisers, Inc. 6,717 14.85%
Putnam Investment 4,041 8.93%
Management, Inc.
Invesco Funds Group 3,063 6.77%
Baxter International 2,671 5.91%
T Rowe Price Associates, 2,557 5.65%
Inc.
Capital Research and 2,440,000 5.39%
Management
</TABLE>
The shareholders listed above are all institutional
shareholders, except for Baxter which is a listed
healthcare group. None of these shareholders are connected
to Inhale.
(c) Bradford
(i) As at the close of business on 20 December 2000 (being the
latest practicable date prior to the posting of this
document), the interests in the share capital of Bradford
of the Bradford Directors, their immediate families and
related trusts which have been notified to Bradford
pursuant to Section 324 or 328 of the Act and which were
required to be entered in the register maintained under the
provisions of Section 325 of the Act and the interests of
connected persons (within the meaning of Section 346 of the
Act) in the share capital of Bradford, which would if such
connected persons were directors of Bradford be required to
be disclosed or notified under the above sections of the
Act, and the existence of which was known to or could with
reasonable diligence have been ascertained by the directors
of Bradford, are set out below:
<TABLE>
<CAPTION>
NAME NO. OF RELEVANT SECURITIES
<S> <C>
Gwynfor Humphreys 442,000 ordinary shares
Peter York 442,000 ordinary shares
Mazen Hanna 442,000 ordinary shares
Christopher Benson 20,000 ordinary shares
Carole Nicholson 5,565 ordinary shares
Nicholas Andrew Nil
</TABLE>
(ii) As at the close of business on 20 December 2000 (being the
latest practicable date before the posting of this
document), the following options over Bradford Shares had
been granted to the Bradford Directors pursuant to the
Bradford Share Option Schemes and remained outstanding:
<TABLE>
<CAPTION>
DIRECTOR NO. OF BRADFORD DATE OF GRANT EXERCISE EXERCISE PERIOD
SHARES UNDER PRICE
OPTION
<S> <C> <C> <C> <C>
Gwynfor Humphreys 1,817 27.10.00 L10.00 (1)
Peter York 1,817 27.10.00 L10.00 (1)
Mazen Hanna 1,817 27.10.00 L10.00 (1)
Christopher Benson 2,994 13.10.99 L10.00 (1)
</TABLE>
81
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Carole Nicholson 2,556 5.11.99 L10.00 (1)
Nicholas Andrew Nil
</TABLE>
NOTE: (1) All of the options are exercisable after the
occurrence of certain specified events ("Exit Events") but
before the tenth anniversary of the date of grant. The Exit
Events include Bradford obtaining a lisitng of its shares,
the nine year and six month anniversary of the date of
grant of the relevant options or a third party obtaining
control of Bradford (within the meaning of Section 840
Income and Corporation Taxes Act 1988).
(iii) The following dealings for value in Bradford Shares
(including the grant or exercise of options under the
Bradford Share Option Schemes) by the Bradford Directors,
their immediate families and related trusts have taken
place during the disclosure period:
<TABLE>
<CAPTION>
NAME DATE NATURE OF NUMBER OF PRICE PER SHARE
TRANSACTION RELEVANT
SECURITIES
<S> <C> <C> <C> <C>
Gwynfor 27.10.00 Rollover of options 1,817 Nil
Humphreys
Peter York 27.10.00 Rollover of options 1,817 Nil
Mazen Hanna 27.10.00 Rollover of options 1,817 Nil
Christopher 24.10.00 Subscription 5,000 L17.70
Benson
Carole Nicholson 24.10.00 Subscription 565 L17.70
Carole Nicholson 27.10.00 Rollover of options 2,556 Nil
</TABLE>
(iv) At the close of business on 20 December 2000 (being the
last practicable date prior to the publication of this
document), the following associate of Bradford (as defined
in paragraph 4(a)(iii) above) (but excluding exempt market
makers), owned or controlled the following Bradford Shares:
(a) Walker Morris Trustees Limited and certain partners in
Walker Morris have an interest in, in aggregate, 3,007
Bradford Shares.
(v) Neither Inhale nor any of the Inhale Directors has any
holdings or dealings in the relevant securities of
Bradford.
(vi) Save as aforementioned, neither Cazenove nor any connected
company has any holdings or dealings in relevant securities
of Inhale or Bradford.
(d) General
(i) Save as disclosed above, neither Inhale nor any of its
subsidiaries, nor any of the Inhale Directors nor any member of
their immediate families nor related trusts, nor any person deemed
to be acting in concert with Inhale, nor any person who has
irrevocably committed itself to accept the Offer, nor any person
with whom Inhale or any person acting in concert with Inhale has
any arrangement of the kind referred to in paragraph (iv) below
owns or controls or (in the case of the Inhale Directors, their
immediate families and related trusts) is interested, directly or
indirectly, in any relevant securities nor has any such person
dealt for value in any relevant securities during the disclosure
period.
(ii) Save as disclosed above, neither Bradford nor any of its
subsidiaries, nor any of the Bradford Directors, nor any member of
their immediate families nor related trust, owns, controls or (in
the case of the Bradford Directors, their immediate families and
related
82
<PAGE>
trusts) is interested, directly or indirectly, in any relevant
securities, nor has any such persons dealt for value in any
relevant securities during the disclosure period.
(iii) Save as disclosed above and so far as Bradford is aware, no bank,
stockbroker, financial or other professional adviser (other than
an exempt market maker) to Bradford or any subsidiary of Bradford
or any associated company of Bradford, nor any person controlling,
controlled by, or under the same control as such bank,
stockbroker, financial or other professional adviser, nor any
pension fund of Bradford or any of its subsidiaries, nor any
person whose investments are managed on a discretionary basis by
fund managers (other than exempt fund managers) connected with
Bradford, nor any person with whom Bradford or any of its
associates has any arrangement of the kind referred to in
paragraph (iv) below owns, controls or is interested, directly or
indirectly, in any relevant securities, nor has any such person
dealt for value in any relevant securities during the disclosure
period.
(iv) Save for the irrevocable undertakings referred to in paragraph 3
above, as at the close of business on 20 December 2000 (being the
latest practicable date prior to the posting of this document), no
arrangement exists between any person and Inhale, Bradford or any
associate of Inhale or Bradford in relation to relevant securities
including, in addition to any indemnity or option arrangement, any
agreement or understanding, formal or informal, of whatever
nature, relating to relevant securities, which may constitute an
inducement to deal or refrain from dealing.
5. RIGHTS ATTACHING TO INHALE SHARES - SUMMARY OF BYLAWS AND CERTIFICATE OF
INCORPORATION
The following description of Inhale Shares and certain provisions of
Inhale's certificate of incorporation and bylaws is a summary and is
qualified in its entirety by the provisions of Inhale's certificate of
incorporation and bylaws.
Inhale's authorised share capital consists of 300,000,000 shares of
common stock, and 10,000,000 shares of preferred stock.
(a) Rights attaching to Inhale Shares
COMMON SHARES
As of 19 December 2000, the last practicable date prior to the date of
this document, there were 47,325,046 shares of Inhale's common stock
outstanding. The holders of common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
shareholders. The holders of common stock are not entitled to cumulative
voting rights with respect to the election of directors and, as a
consequence, minority stockholders are not able to elect directors on the
basis of their votes alone. Subject to preferences that may be applicable
to any shares of preferred stock issued in the future, holders of common
stock are entitled to receive rateably such dividends as may be declared
by the directors out of funds legally available therefor. In the event of
a liquidation, dissolution or winding up of Inhale, holders of common
stock are entitled to share rateably in all assets remaining after
payment of liabilities and the liquidation preference of any of then
outstanding preferred stock. Holders of common stock have no pre-emptive
rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable
to the common stock.
PREFERRED SHARES
The Board has the authority, without further action by the stockholders,
to issue up to 10,000,000 shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without
any further vote or action by stockholders. The issuance of preferred
stock could adversely affect the voting power of holders of common stock
and the likelihood that such holders will receive dividend payments and
payments upon liquidation and
83
<PAGE>
could have the effect of delaying, deferring or preventing a change in
control. The Board has no present plans to issue any shares of preferred
stock.
REGISTRATION
The New Inhale Shares received by accepting Bradford Shareholders
pursuant to this Offer will be included for registration with the SEC
upon the filing by Inhale of the Form S-3 Registration Statement.
In order for the New Inhale Shares to become freely tradeable, the US
Securities Act requires that Inhale prepare a registration statement for
the New Inhale Shares for filing with the SEC. The Form S-3 Registration
Statement allows Inhale to incorporate by reference information from
prior filings with the SEC under the Securities Exchange Act of 1934. The
SEC staff will determine whether or not to review the Form S-3
Registration Statement for compliance with SEC rules before the Form S-3
Registration Statement becomes effective.
Once the SEC completes its review, if any, of the Form S-3 Registration
Statement, it will be declared effective and upon the listing of the New
Inhale Shares on the Nasdaq National Market, such shares will be freely
tradable save where a Bradford Shareholder has entered into an agreement
with Inhale to restrict the transfer of New Inhale Shares or otherwise as
required by legislation.
(b) Summary of Inhale's bylaws and certificate of incorporation
The bylaws of Inhale were adopted pursuant to a vote of the Board on 3
June 1998 and approval by the shareholders of Inhale on 3 June 1998.
Inhale's certificate of incorporation was filed with the Office of the
Secretary of State of Delaware on 3 June 1998 and a certificate of
amendment of the amended certificate of incorporation was filed on 6 June
2000.
VOTING RIGHTS
For the purpose of determining those stockholders entitled to vote at any
stockholder meeting, except as otherwise provided by law, only persons
whose names and shares stand on the stock records of Inhale on the record
date, as provided in Inhale's bylaws, are entitled to vote. Every person
entitled to vote will have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with the
state law of Delaware. An agent so appointed does not need to be a
stockholder. No proxy may be voted after three (3) years from its date of
creation unless the proxy provides for a longer period.
If shares or other securities having voting power stand of record in the
names of two (2) or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety,
or otherwise, or if two (2) or more persons have the same fiduciary
relationship respecting the same shares, unless Inhale's Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting will have the
following effect: (a) if only one (1) votes, his act binds all; (b) if
more than one (1) votes, the act of the majority so voting binds all; (c)
if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply under Delaware law for relief.
DIVIDENDS
Dividends upon the capital stock of Inhale, subject to the provisions of
the certificate of incorporation, if any, may be declared by the Board
pursuant to law at any regular or special meeting. Dividends may be paid
in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation.
TRANSFER OF SHARES
84
<PAGE>
Transfers of record of shares of stock of Inhale can be made only upon
its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
Inhale has the power to enter into and perform any agreement with any
number of stockholders of any one or more classes of stock of Inhale to
restrict the transfer of shares of stock of Inhale of any one or more
classes owned by such stockholders in any manner not prohibited by the
General Corporation Law of Delaware.
85
<PAGE>
VARIATION OF RIGHTS
Notwithstanding other provisions of Inhale's certificate of incorporation
or any provision of law which might otherwise permit a lesser vote or no
vote (but in addition to any affirmative vote of the holders of any
particular class or series of Inhale's capital stock as required by law,
the certificate of incorporation or any Preferred Stock Designation), the
affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the voting power of all of the then-outstanding
shares of Inhale's voting capital stock, voting together as a single
class, is required to alter, amend or repeal Article V (election, removal
and replacement of directors, amendment or alteration to the bylaws,
advance notice to stockholders of director nominations), Article VI
(directors' liability), and Article VII (reservation of right to amend,
alter, change or repeal any provision contained in the certificate of
incorporation) of Inhale's certificate of incorporation.
ALTERATION OF CAPITAL
Subject to any limitations imposed by law and the approval of a majority
of the outstanding capital stock of Inhale, the Board may, by ordinary
resolution, increase its share capital, consolidate and divide all or any
of its share capital into shares of a larger amount than its existing
shares, sub-divide its shares into shares of smaller amounts, determine
that, as between the shares resulting from such a sub-division, any of
them may have any preference or advantage as compared with the others,
cancel shares which, at the date of the passing of the resolution, have
not been taken or agreed to be taken by any person and diminish the
amount of its share capital by the amount of the shares so cancelled.
Subject to any limitations imposed by law and shareholder vote, the Board
may by special resolution reduce Inhale's share capital, any capital
redemption reserve and any share premium account, in any way. Subject to
any limitations imposed by law, Inhale may purchase its own shares
(including redeemable shares).
ISSUE OF SHARES
Subject to any limitations imposed by law and without prejudice to any
rights attached to any existing shares, any share may be issued with such
rights or restrictions as the Board may by ordinary resolution determine.
Subject to any limitations imposed by law, any share may be issued which
is, or is liable to be, redeemed at the option of Inhale or the holder in
accordance with Inhale's bylaws and certificate of incorporation.
DIRECTORS
The management of the business and the conduct of the affairs of Inhale
are vested in its Board. The number of directors which constitutes the
whole Board can be fixed exclusively by one or more resolutions adopted
by the Board. If elected for any cause, the directors can not be elected
at an annual meeting, they should be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that
purpose as provided for in the bylaws.
The directors need not be shareholders of Inhale.
Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the directors
are divided into three classes designated Class 1, Class II and Class
III, respectively. Each class is elected for a full term of three years
upon which such term will expire. At each succeeding annual meeting of
stockholders, a subsequent class of directors will be elected for a full
term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
Any vacancies on the Board resulting from death, resignation,
disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors
will, unless the Board determines by resolution that any such vacancies
or newly created directorships are to be filled by stockholders, may be
filled only by the affirmative vote of a majority of the directors then
in office, even though appointed by less than a quorum of the Board. Any
director elected in accordance with the preceding sentence may hold
office for the remainder
86
<PAGE>
of the full term of the director for which the vacancy was created or
occurred and until such director's successor is elected and qualified. A
vacancy in the Board will be deemed to exist under the bylaws in the case
of the death, removal or resignation of any director.
Any director may resign at any time by delivering his written resignation
to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board. When one or more directors resigns from the Board
of Directors, effective at a future date, a majority of the directors
then in office, including those who have so resigned, will have power to
fill such vacancy or vacancies, and any director so chosen may hold
office for the unexpired portion of the term of the director whose place
will be vacated and until his successor can be duly elected and
qualified.
No director may be removed without cause. Subject to any limitations
imposed by law, the Board or any individual director may be removed from
office at any time with cause by the affirmative vote of the holders of a
majority of the outstanding capital stock of Inhale.
The bylaws of Inhale provide for the Board to meet via regular meetings,
special meetings and telephonic meetings. The annual meeting of the Board
must be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board is necessary and such meeting may be held for
the purpose of electing officers and transacting such other business as
may lawfully come before it. Notice of the time and place of all special
meetings of the Board must be given before the date and time of the
meeting as described in the bylaws. However, any action required or
permitted to be taken at any meeting of the Board or of any committee
thereof may be taken without a meeting if all members of the Board or
such committee consent thereto in writing.
Except with respect to indemnification questions arising under the
bylaws, a quorum of the Board will consist of a majority of the exact
number of directors fixed from time to time by the Board in accordance
with the certificate of incorporation. At each meeting of the Board at
which a quorum is present, all questions and business must be determined
by the affirmative vote of a majority of the directors present, unless a
different vote is required by law.
Directors are entitled to such compensation for their services as
approved by the Board.
EXECUTIVE COMMITTEE
The Board may appoint an Executive Committee to consist of one or more
members of the Board. The Executive Committee, to the extent permitted by
law and provided in the resolution of the Board has and may exercise all
the powers and authority of the Board in the management of the business
and affairs of Inhale. The Board may, from time to time, appoint such
other committees as may be permitted by law.
INDEMNIFICATION
At the discretion of the Board of Directors, Inhale has the power to
indemnify its directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law.
EXECUTION OF CORPORATE INSTRUMENTS
The Board may, in its discretion, determine the method and designate a
signatory officer or officers, or other person or persons, to execute on
behalf of Inhale any corporate instrument or document or to enter into
contracts on behalf of Inhale, except where otherwise provided by law,
and such execution or signature will be binding upon Inhale.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of Inhale or in special accounts of Inhale must be signed by
such person or persons as authorized by the Board.
LOST CERTIFICATES
87
<PAGE>
A new certificate or certificates may be issued in place of any
certificate or certificates theretofore issued by Inhale alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen,
or destroyed.
6. MARKET QUOTATIONS
The following table shows the closing price for Inhale Shares on the
first business day of each month from 3 July 2000 to 1 December and on 13
November 2000 (being the business day prior to the commencement of the
Offer Period) and on 20 December 2000 (being the latest practicable date
prior to the posting of this document):
<TABLE>
<CAPTION>
DATE INHALE SHARES
($)
<S> <C>
3 July 2000 50.031*
1 August 2000 43.656*
1 September 2000 50.125
2 October 2000 50.875
1 November 2000 53.875
13 November 2000 46.688
1 December 2000 43.000
20 December 2000 48.000
</TABLE>
*Adjusted for a two-for one share split on 23 August 2000
7. MATERIAL CONTRACTS
(a) The following contracts, not being contracts entered into in the
ordinary course of business, have been entered into by members of
the Inhale Group since 21 December 1998 and are, or may be,
material:
(i) A Contribution Agreement dated 14 September 2000 between
(1) Inhale and (2) SCIMED PROP III in which Inhale sold,
transferred and contributed its land and construction in
progress in San Carlos to a special purpose entity for a 49
per cent. limited partnership interest and additional
consideration valued at approximately $14.4 million. This
additional consideration consists of approximately $10.2
million in cash, a promissory note in the principal amount
of $3.0 million and a right to receive an additional $1.2
million as reimbursement for the previously incurred
completed construction costs. Concurrently, Inhale leased
the property back for a period of 16 years, with a 10 year
option and a second eight year option to extend the lease.
The present value of the total lease obligations
approximates $46.2 million and will be incrementally
recorded as a liability. Inhale has an option to buy out
the special purpose entity or increase its ownership
percentage at various times during the lease period.
(ii) A Walk-Away Agreement dated 21 December 2000 between (1)
Inhale and (2) Bradford under which Inhale agreed, subject
to certain conditions, to pay the sum of $150,000 to
Bradford in respect of its professional and other costs if
an offer document in respect of the Offer were not posted
to Bradford shareholders by 31 December 2000. Inhale
further agreed and undertook that, subject to the
aforementioned conditions, if such offer document were not
posted before 31 December 2000, the maximum amount payable
in respect of such costs should be increased by $1,500 per
day until the earlier of the date agreed by the parties for
the posting of the Offer Document or the date on which
Inhale serves written notice
88
<PAGE>
terminating negotiations with Bradford in relation to the
Offer up to an aggregate amount of $225,000.
(iii) A Lock-Up Agreement dated 21 December 2000 between (1)
Inhale, (2) Gwynfor Humphreys, (3) Peter York, (4) Mazen
Hanna and (5) The University of Bradford, under which
Gwynfor Humphreys, Peter York, Mazen Hanna and the
University of Bradford agreed to observe certain
restrictions on the sale or other disposition of any New
Inhale Shares which they would acquire pursuant to the
Offer.
Save as disclosed above, no other contracts have been entered into
by any company in the Inhale Group, not being contracts entered
into in the ordinary course of business, which are or may be
material, during the period beginning two years before the
commencement of the Offer Period.
(b) The following contracts, not being contracts entered into in the
ordinary course of business, have been entered into by Bradford
since 21 December 1998 and are, or may be, material:
(i) An Investment Agreement dated 25 September 2000 between (1)
Bradford, (2) The Bradford Directors and (3) 3i, under
which 3i agreed to subscribe for 127,119 A ordinary shares
of 10 pence each in Bradford and 42,373 ordinary shares of
10 pence each in Bradford at L17.70 per share. Bradford and
certain of the Bradford Directors gave warranties to 3i in
respect of the financial and trading position of Bradford.
(ii) The Walk-Away Agreement described in sub-paragraph 7(a)(ii)
above.
(iii) A Deed of Termination dated 21 December 2000 between (1)
Bradford, (2) the Bradford Directors and (3) 3i,
terminating the Investment Agreement referred to in
sub-paragraph (i) above with effect from the date upon
which the Offer unconditional in all respects.
8. DIRECTORS' SERVICE AGREEMENTS AND ARRANGEMENTS WITH DIRECTORS
Save as disclosed below, none of the directors of Bradford has a service
contract with any member of the Bradford Group where such contract has
more than 12 months to run. Except as set out below, none of the
arrangements referred to below have been entered into or amended during
the six months prior to the date of this document.
(i) Under the terms of a Service Agreement dated 1 July 1999, Gwynfor
Humphreys is employed as the managing director of Bradford. The
Agreement is for a fixed term of 3 years, and is terminable on 12
months' notice by either party expiring at any time on or after 30
June 2002. Under the Agreement, Gwynfor Humphreys is entitled to a
salary of L100,000 per annum. This was increased on 1 July 2000 to
L130,000 per annum. In addition, Bradford makes an annual payment
equal to 25 per cent. of his annual salary to the
self-administered Bradford pension scheme.
Gwynfor Humphreys has agreed to enter into a new Service Agreement
with Bradford subject to the Offer being declared unconditional in
all respects. The new agreement will be for a fixed term of 4
years, after which it will be terminable by either party on 12
months notice. It will entitle Gwynfor Humphreys to a salary of
L127,500 per annum, plus a variable salary of up to L42,500 per
annum depending on the performance of Bradford. In addition,
Bradford will make an annual payment equal to 10 per cent. of his
salary to the Bradford self-administered pension scheme.
(ii) Under the terms of a Service Agreement dated 1 July 1999, Peter
York is employed as the deputy chairman and chief scientist of
Bradford. The agreement has a fixed term of 3 years, and is
terminable on 12 months' notice by either party at any time on or
after 30 June 2002. Under the Agreement, Peter York is entitled to
a salary of L60,000 per annum.
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This was increased on 1 July 2000 to L80,000 per annum. Bradford
makes an annual payment equal to 25 per cent. of his annual salary
to the self-administered Bradford pension scheme. Peter York also
has an employment contract with the University of Bradford. He is
paid a salary by the University as a full time employee and
Bradford reimburses the University for time that Peter York spends
on company business.
Peter York has agreed to enter in a new Service Agreement with
Bradford subject to the Offer being declared unconditional in all
respects. The agreement will be for a fixed term of 4 years, after
which it will be terminable by either party on 12 months notice.
It will entitle Peter York to a salary of L90,000 per annum, plus
a variable salary of up to L30,000 per annum depending on the
performance of Bradford. In addition, Bradford will make an annual
payment equal to 10 per cent. of his salary to the Bradford
self-administered pension scheme. Peter York will also continue to
be employed by the University of Bradford, and Bradford will
continue to reimburse the University for time that Peter York
spends on the business of Bradford.
(iii) Under the terms of a Service Agreement dated 3 July 1999 Mazen
Hanna is employed as a principal scientist by Bradford. The
Agreement is for a fixed term of 3 years, and is terminable by
either party on 12 months' notice, expiring at any time on or
after 30 June 2002. Under the Agreement, Mazen Hanna is entitled
to a salary of L52,000 per annum. In addition, Bradford makes an
annual payment equal to 10 per cent. of his annual salary into the
self-administered Bradford pension scheme.
(iv) Under the terms of a Service Agreement dated 1 January 2000,
Carole Nicholson was employed as an executive director of
Bradford. The agreement is for a fixed term of 3 years, and is
terminable by either party on 12 months' notice, expiring at any
time after 31 December 2002. Under the Agreement, Carole Nicholson
is entitled to a salary of L33,000 per annum. This was increased
to L36,000 on 1 July 2000. In addition, Bradford makes an annual
payment equal to 10 per cent. of her annual salary to the
self-administered Bradford pension scheme.
(v) Under the terms of an Agreement dated 1 July 1999, Sir Christopher
Benson is engaged as chairman of Bradford. The Agreement is for a
fixed term of 3 years, and is terminable by either party on 12
months' notice, expiring at any time on or after 30 June 2002.
Under the Agreement, Sir Christopher Benson is entitled to a fee
of L30,000 per annum.
(vi) Under the terms of a letter dated 8 March 2000, Bradford appointed
Nicholas Andrew as a non-executive director at a fee of L5,000 per
annum. The letter does not provide for any specific terms or
notice provision. On 1 July 2000 the fee payable was increased to
L20,000 per annum.
9. MATERIAL CHANGES
(a) Save as disclosed in this document, since 30 September 2000, the
date to which the most recent published unaudited accounts of the
Inhale Group were made up, there has been no material change in
the financial or trading position of Inhale.
(b) Save as disclosed in this document, since 31 May 2000, the date to
which the most recent published audited accounts of Bradford were
made up, there has been no material change in the financial or
trading position of Bradford.
10. BASES OF CALCULATION AND SOURCES OF INFORMATION
(a) Unless otherwise stated, the information concerning Inhale is
extracted from the Inhale financial information set out in this
document as at 31 December 1999 and for the years ended 31
December 1998 and 31 December 1997 or has been extracted, without
material adjustment, from the audited financial statements of
Inhale included in its Form 10-K for the
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year ended 31 December 1999 filed with the SEC. The unqualified
audit opinion of Ernst & Young LL.P, independent auditors of
Inhale, is also included in such Form 10-K.
(b) The Inhale information set out in this document at 31 December
1999 and for the nine month period ended 30 September 2000 has
been extracted, without material adjustment from the unaudited
financial statements of Inhale included in its Form 10-Q for the
quarter ended 30 September 2000 filed with the SEC.
(c) Unless otherwise stated, the information concerning Bradford is
extracted without material adjustment from the audited accounts of
Bradford for the years ended 31 May 1998, 1999 and 2000.
(d) The Closing Price of Inhale Shares is derived from the Bloomberg
Stock Quotation System for the relevant dates.
11. INFORMATION REGARDING INHALE THERAPEUTIC SYSTEMS, INC.: RISK FACTORS
THE SUMMARY BELOW CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. INHALE'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING RISKS RELATING TO: (a) THE INTEGRATION OF INHALE AND
BRADFORD; (b) THE RESPECTIVE BUSINESSES OF INHALE AND BRADFORD INCLUDING RISKS
RELATING TO THE RESEARCH AND DEVELOPMENT OF PRODUCTS AND PRODUCT CANDIDATES,
REGULATORY AND GOVERNMENTAL APPROVALS, THE TIMING AND SCOPE OF TECHNOLOGICAL
ADVANCES AND THE OVERALL CONDITION OF THE BIOTECHNOLOGY INDUSTRY; AND (c) OTHER
MATTERS SET OUT IN THIS PARAGRAPH AND ELSEWHERE IN THIS DOCUMENT. IN ADDITION TO
THE OTHER INFORMATION IN THIS DOCUMENT, THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY BY THE BRADFORD SHAREHOLDERS IN DETERMINING WHETHER OR NOT
TO ACCEPT THE OFFER.
INHALE IS AN EARLY STAGE COMPANY AND DOES NOT KNOW IF ITS DEEP LUNG DRUG
DELIVERY SYSTEM IS COMMERCIALLY FEASIBLE
Inhale is in an early stage of development. There is a risk that Inhale's deep
lung delivery technology will not be commercially feasible. Even if Inhale's
deep lung delivery technology is commercially feasible, it may not be
commercially accepted across a range of macromolecules and small molecule drugs.
Inhale has tested eight deep lung delivery formulations in humans, but many of
its potential formulations have not been tested in humans.
Many of the underlying drug compounds contained in Inhale's deep lung
formulations have been tested in humans by other companies using alternative
delivery routes. Inhale's potential products require extensive research,
development and pre-clinical (animal) and clinical (human) testing. Inhale's
potential products also may involve lengthy regulatory review before they can be
sold. Inhale does not know if, and cannot assure that, any of its potential
products will prove to be safe and effective or meet regulatory standards. There
is a risk that any of Inhale's potential products will not be able to be
produced in commercial quantities at acceptable cost or marketed successfully.
Inhale's failure to achieve technical feasibility, demonstrate safety, achieve
clinical efficacy, obtain regulatory approval or, together with partners,
successfully market products will negatively impact its revenues and results of
operations.
INHALE DOES NOT KNOW IF ITS DEEP LUNG DRUG DELIVERY SYSTEM IS EFFICIENT
Inhale may not be able to achieve the total system efficiency needed to be
competitive with alternative routes of delivery. Total system efficiency is
determined by the amount of drug loss during manufacture, in the delivery
device, in reaching the site of absorption, and during absorption from that site
into the bloodstream. Deep lung bioavailability is the percentage of a drug that
is absorbed into the bloodstream when that drug is delivered directly to the
lungs as compared to injection. Bioavailability is the initial screen for
whether deep lung delivery of any systemic drug is commercially feasible. Inhale
would not consider a drug to be a good candidate for development and
commercialisation if its drug loss is excessive at any one stage or cumulatively
in the manufacturing and delivery process or if its deep lung bioavailability is
too low.
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INHALE DOES NOT KNOW IF ITS DEEP LUNG DRUG FORMULATIONS ARE STABLE
Inhale may not be able to identify and produce powdered versions of drugs that
retain the physical and chemical properties needed to work with its delivery
device. Formulation stability is the physical and chemical stability of the drug
over time and under various storage, shipping and usage conditions. Formulation
stability will vary with each deep lung formulation and the type and amount of
ingredients that are used in the formulation. Problems with powdered drug
stability would negatively impact Inhale's ability to develop and market its
potential products or obtain regulatory approval.
INHALE DOES NOT KNOW IF ITS DRUG DELIVERY SYSTEM IS SAFE
Inhale may not be able to prove potential products to be safe. Inhale's products
require lengthy laboratory, animal and human testing. Most of Inhale's potential
products are in preclinical testing or the early stage of human testing. If
Inhale finds that any product is not safe, it will not be able to commercialise
the product. The safety of Inhale's deep lung formulations will vary with each
drug and the ingredients used in its formulation.
INHALE DOES NOT KNOW IF ITS DEEP LUNG DRUG DELIVERY SYSTEM PROVIDES CONSISTENT
DOSES OF MEDICINE
Inhale may not be able to provide reproducible dosages of stable formulations
sufficient to achieve clinical or commercial success. Reproducible dosing is the
ability to deliver a consistent and predictable amount of drug into the
bloodstream over time both for a single patient and across patient groups.
Reproducible dosing requires the development of:
- an inhalation device that consistently delivers predictable amounts of
dry powder formulations to the deep lung;
- accurate unit dose packaging of dry powder formulations; and
- moisture resistant packaging.
Inhale may not be able to develop reproducible dosing of any potential product.
The failure to do so means that Inhale would not consider it a good candidate
for development and commercialisation.
INHALE DEPENDS ON CORPORATE PARTNERS FOR REGULATORY APPROVALS AND
COMMERCIALISATION OF ITS PRODUCTS
Because Inhale is in the business of developing technology for delivering drugs
to the lungs and licensing this technology to companies that make and sell
drugs, it does not have the people and other resources to do the following
things:
- make bulk drugs to be used as medicines;
- design and carry out large scale clinical studies;
- prepare and file documents necessary to obtain government approval to
sell a given drug product; and
- market and sell its potential products when and if they are approved.
When Inhale signs a collaborative development agreement or licence agreement to
develop a product with a drug company, the drug company agrees to do some or all
of the things described above. If Inhale's partner fails to do any of these
things, Inhale cannot complete the development of the potential product.
INHALE MAY NOT OBTAIN REGULATORY APPROVAL FOR ITS POTENTIAL PRODUCTS ON A TIMELY
BASIS, OR AT ALL
The identification of potential products, their progress through development and
clinical works, the obtaining of regulatory approvals or authorisations before
marketing, manufacture and/or distribution is not certain or a formality There
is a risk that Inhale will not obtain regulatory approval for its products on
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a timely basis, or at all. Inhale's potential products must undergo rigorous
laboratory, animal and human testing and an extensive review process mandated by
the FDA and equivalent foreign authorities. This process generally takes a
number of years and requires the expenditure of substantial resources although
the time required for completing such testing and obtaining such approvals is
uncertain. Inhale has not submitted any of its products to the FDA for marketing
approval. Inhale has no experience in obtaining such regulatory approval.
In addition, Inhale may encounter delays or rejections based upon changes in FDA
policy, including policy relating to current good manufacturing practice
compliance, or "cGMP," during the period of product development. Inhale may
encounter similar delays in other countries.
Even if regulatory approval of a product is granted, the approval may limit the
indicated uses for which Inhale may market its product. In addition, Inhale's
marketed product, its manufacturing facilities and Inhale, as the manufacturer,
will be subject to continual review and periodic inspections. Later discovery
from such review and inspection of previously unknown problems may result in
restrictions on Inhale's product or on itself, including withdrawal of its
product from the market. The failure to obtain timely regulatory approval of
Inhale's products, any product marketing limitations or a product withdrawal
would negatively impact its revenues and results of operations.
INHALE DOES NOT KNOW IF ITS TECHNOLOGIES CAN BE INTEGRATED SUCCESSFULLY TO BRING
PRODUCTS TO MARKET
Inhale may not be able to integrate all of the relevant technologies to provide
a deep lung drug delivery system. Inhale's integrated approach to systems
development relies upon several different but related technologies:
- dry powder formulations;
- dry powder processing technology;
- dry powder packaging technology; and
- a deep lung delivery device.
At the same time, Inhale must:
- establish collaborations with partners;
- perform laboratory and clinical testing of potential products; and
- scale-up Inhale's manufacturing processes.
Inhale must accomplish all of these steps without delaying any aspect of
technology development. Any delay in any one component of Inhale's products or
business development activities could delay its ability to develop, obtain
approval of or market therapeutic products using its deep lung delivery
technology.
INHALE MAY NOT BE ABLE TO MANUFACTURE ITS POTENTIAL PRODUCTS IN COMMERCIAL
QUANTITIES
POWDER PROCESSING. Inhale has no experience manufacturing products for
commercial purposes. Inhale has only performed powder processing on the small
scale needed for testing formulations and for early stage and larger clinical
trials. Inhale may encounter manufacturing and control problems as it attempts
to scale-up powder processing facilities. Inhale may not be able to achieve such
scale-up in a timely manner or at a commercially reasonable cost, if at all.
Inhale's failure to solve any of these problems could delay or prevent late
stage clinical testing and commercialisation of its products and could
negatively impact its revenues and results of operations.
To date, Inhale has relied primarily on one particular method of powder
processing. There is a risk that this technology will not work with all drugs or
that the cost of drug production will preclude the commercial viability of
certain drugs. Additionally, there is a risk that any alternative powder
processing
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methods Inhale may pursue will not be commercially practical for aerosol drugs
or that Inhale will not have, or be able to acquire the rights to use, such
alternative methods.
POWDER PACKAGING. Inhale's fine particle powders and small quantity packaging
require special handling. Inhale has designed and qualified automated filling
equipment for small and moderate quantity packaging of fine powders. Inhale
faces significant technical challenges in scaling-up an automated filling system
that can handle the small dose and particle sizes of its powders in commercial
quantities. There is a risk that Inhale will not be able to scale-up its
automated filling equipment in a timely manner or at commercially reasonable
costs. Any failure or delay in such scale-up would delay product development or
bar commercialisation of Inhale's products and would negatively impact Inhale's
revenues and results of operations.
INHALATION DEVICES. Inhale faces many technical challenges in further developing
its inhalation devices to work with a broad range of drugs, to produce such
devices in sufficient quantities and to adapt the devices to different powder
formulations. There is a risk that Inhale will not successfully achieve any of
these things. Inhale's failure to overcome any of these challenges would
negatively impact its revenues and results of operations.
For late stage clinical trials and initial commercial production, Inhale intends
to use one or more contract manufacturers to produce its drug delivery devices.
There is a risk that Inhale will not be able to enter into or maintain
arrangements with any potential contract manufacturers or effectively scale-up
production of its drug delivery devices through contract manufacturers that it
identifies. Inhale's failure to do so would negatively impact its revenues and
results of operations.
INHALE DEPENDS ON SOLE OR EXCLUSIVE SUPPLIERS FOR ITS INHALATION DEVICE AND BULK
DRUGS
Inhale plans to subcontract the manufacture of its pulmonary delivery devices
before commercial production of its products. Inhale has identified contract
manufacturers that it believes have the technical capabilities and production
capacity to manufacture its devices and which can meet the requirements of good
manufacturing practices. Inhale cannot assure that it will be able to obtain and
maintain satisfactory contract manufacturing on commercially acceptable terms,
if at all. Inhale's dependence on third parties for the manufacture of its
inhalation devices may negatively impact its cost of goods and Inhale's ability
to develop and commercialise products on a timely and competitive basis.
Inhale obtains the bulk drugs it uses to formulate and manufacture the dry
powders for Inhale's deep lung delivery systems from sole or exclusive sources
of supply. For example, with respect to Inhale's source of bulk insulin, it has
entered into a collaborative agreement with Pfizer which has, in turn, entered
into an agreement with Aventis to manufacture biosynthetic recombinant insulin.
Under the terms of their agreement, Pfizer and Aventis agreed to construct a
jointly-owned manufacturing plant in Frankfurt, Germany. Until its completion,
Pfizer will provide Inhale with insulin from Aventis' existing plant. If
Inhale's sole or exclusive source suppliers fail to provide bulk drugs in
sufficient quantities when required, its revenues and results of operations will
be negatively impacted.
INHALE DOES NOT KNOW IF THE MARKET WILL ACCEPT ITS DEEP LUNG DRUG DELIVERY
SYSTEM
The commercial success of Inhale's potential products depends upon market
acceptance by health care providers, third-party payers like health insurance
companies and Medicare in the US, and patients. Inhale's products under
development use a new method of drug delivery and there is a risk that its
potential products will not be accepted by the market. Market acceptance will
depend on many factors, including:
- the safety and efficacy results of our clinical trials;
- favourable regulatory approval and product labelling;
- the frequency of product use;
- the availability of third-party reimbursement;
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- the availability of alternative technologies; and
- the price of our products relative to alternative technologies.
There is a risk that health care providers, patients or third-party payers will
not accept Inhale's deep lung drug delivery system. If the market does not
accept Inhale's potential products, its revenues and results of operations would
be significantly and negatively impacted.
IF INHALE'S PRODUCTS ARE NOT COST EFFECTIVE, GOVERNMENT AND PRIVATE INSURANCE
PLANS WILL NOT PAY FOR ITS PRODUCTS
In both US domestic and foreign markets, sales of Inhale's products under
development will depend in part upon the availability of reimbursement from
third-party payers, such as government health administration authorities,
managed care providers, private health insurers and other organisations. In
addition, such third-party payers are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
Legislation and regulations affecting the pricing of pharmaceuticals may change
before Inhale's proposed products are approved for marketing. Adoption of such
legislation and regulations could further limit reimbursement for medical
products. A government or third-party payer decision not to provide adequate
coverage and reimbursements for Inhale's products would limit market acceptance
of such products.
INHALE EXPECTS TO OPERATE AT A LOSS FOR THE FORESEEABLE FUTURE AND MAY NEVER
ACHIEVE PROFITABILITY
Inhale has never been profitable and, up to September 30, 2000, had incurred a
cumulative deficit of approximately $152.3 million (unaudited). Inhale expects
to continue to incur substantial and increasing losses over at least the next
several years as it expands its research and development efforts, testing
activities and manufacturing operations, and as it further expands its late
stage clinical and early commercial production facility. All of Inhale's
potential products are in research or in the early stages of development except
for its insulin collaboration. Inhale has generated no revenues from approved
product sales. Inhale's revenues to date have consisted primarily of payments
under short-term research and feasibility agreements and development contracts.
To achieve and sustain profitable operations, Inhale must, alone or with others,
successfully develop, obtain regulatory approval for, manufacture, introduce,
market and sell products using its deep lung drug delivery system. There is a
risk that Inhale will not generate sufficient product or contract research
revenue to become profitable or to sustain profitability. Inhale does not
anticipate paying dividends for the foreseeable future.
INHALE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE
Inhale may need additional capital to fund its current operating plan, which is
expected to change as a result of many factors, or any future operating plan and
it may need additional funding for its current or any future operating plan
sooner than anticipated. In addition, Inhale may choose to raise additional
capital due to market conditions or strategic considerations, even if it
believes it has sufficient funds for its current or future operating plan. To
the extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities could result in
dilution to Inhale's Shareholders.
Inhale has no credit facility or other committed sources of capital. To the
extent operating and capital resources are insufficient to meet future
requirements, Inhale will have to raise additional funds to continue the
development and commercialisation of its technologies. Such funds may not be
available on favourable terms, or at all. In particular, Inhale's substantial
leverage may limit its ability to obtain additional financing. If adequate funds
are not available on reasonable terms, Inhale may be required to curtail
operations significantly or to obtain funds by entering into financing, supply
or collaboration agreements on unattractive terms. Inhale's inability to raise
capital could negatively impact its business.
IF INHALE FAILS TO MANAGE ITS GROWTH EFFECTIVELY, ITS BUSINESS MAY SUFFER
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Inhale's ability to commercialise its products, achieve its expansion
objectives, manage its growth effectively and satisfy its commitments under its
collaboration agreements depends on a variety of factors. Key factors include
Inhale's ability to develop products internally, enter into strategic
partnerships with collaborators, attract and retain skilled employees and
effectively expand Inhale's internal Organization to accommodate anticipated
growth including integration of any potential businesses that it may acquire,
including Bradford. If Inhale is unable to manage growth effectively, there
could be a material adverse effect on its business, financial condition and
results of operations.
FOREIGN EXCHANGE RATE FLUCTUATIONS
Assuming the acquisition of Bradford, Inhale's consolidated results of
operations may be affected by fluctuations in the value of local currencies, and
it may be exposed to foreign currency exchange risks.
INHALE'S PATENTS MAY NOT PROTECT ITS PRODUCTS AND ITS PRODUCTS MAY INFRINGE
THIRD-PARTY PATENT RIGHTS
Inhale has filed patent applications covering certain aspects of its device,
powder processing technology, and powder formulations and deep lung route of
delivery for certain molecules, and it plans to file additional patent
applications. Inhale currently has 93 issued U.S. and foreign patents that cover
certain aspects of its technology and it has a number of patent applications
pending. There is a risk that any of the patents applied for will not issue, or
that any patents that issue or have issued will not be valid and enforceable.
Enforcing Inhale's patent rights would be time consuming and costly.
Inhale's access or its partners' access to the drugs to be formulated will
affect its ability to develop and commercialise its technology. Many drugs,
including powder formulations of certain drugs that are presently under
development by Inhale, are subject to issued and pending U.S. and foreign
patents that may be owned by its competitors. Inhale knows that there are issued
patents and pending patent applications relating to the deep lung delivery of
large molecule drugs, including several for which it is developing deep lung
delivery formulations. This situation is highly complex, and the ability of any
one company, including Inhale, to commercialise a particular drug is
unpredictable.
Inhale intends generally to rely on the ability of its partners to provide
access to the drugs that are to be formulated by it for deep lung delivery.
There is a risk that Inhale's partners will not be able to provide access to
such drug candidates. Even if such access is provided, there is a risk that
Inhale's partners or itself will be accused of, or determined to be, infringing
a third-party's patent rights and will be prohibited from working with the drug
or be found liable for damages that may not be subject to indemnification. Any
such restriction on access to drug candidates or liability for damages would
negatively impact Inhale's revenues and results of operations.
INHALE'S COMPETITORS MAY DEVELOP AND SELL BETTER DRUG DELIVERY SYSTEMS
Inhale is aware of other companies engaged in developing and commercialising
drug delivery systems, including pulmonary, enhanced injectable and other drug
delivery systems. Many of these companies have greater research and development
capabilities, experience, manufacturing, marketing, financial and managerial
resources than Inhale does and represent significant competition for us.
Acquisitions of or collaborations with competing drug delivery companies by
large pharmaceutical companies could enhance Inhale's competitors' financial,
marketing and other resources. Accordingly, Inhale's competitors may succeed in
developing competing technologies, obtaining regulatory approval for products or
gaining market acceptance before Inhale. Developments by others could make
Inhale's products or technologies uncompetitive or obsolete. Inhale's
competitors may introduce products or processes competitive with or superior to
Inhale's.
INVESTORS SHOULD BE AWARE OF INDUSTRY-WIDE RISKS
In addition to the risks associated specifically with Inhale's business
described above, investors should also be aware of general risks associated with
drug development and the pharmaceutical industry. These include, but are not
limited to:
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- changes in and compliance with government regulations;
- handling of hazardous materials;
- hiring and retaining qualified people; and
- the ability to obtain insurance against product liability claims.
INHALE EXPECTS ITS STOCK PRICE TO REMAIN VOLATILE
Inhale's stock price is volatile. In the twelve-month period ending 20 December
2000, based on closing prices on the Nasdaq National Market, the price of Inhale
Shares ranged from $20.8438 to $63.3125. Inhale expects it to remain volatile. A
variety of factors may have a significant effect on the market price of Inhale's
common stock, including:
- fluctuations in its operating results;
- announcements of technological innovations or new therapeutic products;
- announcement or termination of collaborative relationships by Inhale or
its competitors;
- governmental regulation;
- clinical trial results or progress, or product development delays;
- developments in patent or other proprietary rights;
- public concern as to the safety of drug formulations developed by Inhale
or others; and
- general market conditions.
Any litigation brought against Inhale as a result of this volatility could
result in substantial costs and a diversion of its management's attention and
resources, which could negatively impact its financial condition, revenues and
results of operations.
INHALE'S INDEBTEDNESS HAS INCREASED SUBSTANTIALLY AND MAY RESULT IN FUTURE
LIQUIDITY PROBLEMS
As of 30 September 2000, Inhale had approximately $242.6 million in long-term
debt, and in October 2000, in connection with Inhale's build-to-suit lease
transaction, Inhale incurred an additional incremental lease liability, the
present value of which is approximately $46.2 million. Subsequent to Inhale's
quarter ending 30 September 2000, Inhale entered into privately negotiated
agreements with certain holders of its outstanding 5.0 per cent. convertible
subordinated notes due 2007 providing for the conversion of their notes into
shares of common stock in exchange for a cash payment. Approximately $168.6
million aggregate principal amount of outstanding notes was converted into
approximately 4.4 million shares of common stock for cash payments of
approximately $25.5 million. The October 2000 issuance of the 3.5 per cent.
convertible subordinated notes due 2007 increased Inhale's long-term debt by
approximately $230.0 million. This additional indebtedness has and will continue
to impact Inhale by:
- significantly increasing Inhale's interest expense and related debt
service costs;
- making it more difficult to obtain additional financing; and
- constraining Inhale's ability to react quickly in an unfavourable
economic climate.
Currently, Inhale is not generating sufficient cash flow from operations to
satisfy the annual debt service payments that will be required as a result of
the sale of the notes. This may require Inhale to use a portion of the proceeds
from the sale of the notes to pay interest or borrow additional funds or sell
additional equity to meet Inhale's debt service obligations. If Inhale is unable
to satisfy its debt service requirements, substantial liquidity problems could
result, which would negatively impact Inhale's future prospects.
12. GENERAL
(a) Save as disclosed in this Appendix IV, no agreement, arrangement or
understanding (including any compensation arrangement) exists between
Inhale or any person acting in concert with Inhale for the purposes of
the Offer and any of the directors, recent directors, shareholders or
recent shareholders of Bradford having any connection with or dependence
on the Offer.
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(b) Save as disclosed herein, no proposal exists in connection with the Offer
that any payment or other benefit shall be made or given by Inhale or any
person acting in concert with Inhale for the purpose of the Offer to any
director of Bradford as compensation for loss of office, or as
consideration for, or in connection with, his retirement from office.
(c) There is no agreement, arrangement or understanding whereby the legal or
beneficial ownership of any of the Bradford Shares to be acquired by
Inhale pursuant to the Offer will be transferred to any other person save
that Inhale reserves the right to transfer any Bradford Shares acquired
to any member of the Inhale Group.
(d) Settlement of the consideration to which any Bradford Shareholder is
entitled under the Offer will be implemented in full in accordance with
the terms of the Offer without regard to any lien, right of set-off,
counterclaim or other analogous right to which Inhale may otherwise be,
or claim to be, entitled against such shareholder.
(e) Cazenove has given and has not withdrawn its consent to the issue of this
document with the inclusion herein of the references to its name in the
form and context in which they appear.
(f) KPMG Corporate Finance has given and has not withdrawn its written
consent to the issue of this document with the inclusion of the
references to its name in the form and context in which they appear.
(g) KPMG Corporate Finance is a division of KPMG which is authorised by the
Institute of Chartered Accountants in England and Wales to carry on
investment business. The principal place of business is 8 Salisbury
Square, London, EC4Y 8BB where a list of partners' names is open to
inspection.
(h) Inhale and Bradford have agreed certain arrangements in connection with
the Offer whereby Inhale would pay Bradford certain sums if the Offer
does not occur in certain circumstances. Details of these arrangements
are summarised in paragraph 7 above.
(i) Inhale does not intend that the payment of interest on, repayment of, or
security for any liability (contingent or otherwise) in connection with
the Offer will depend to any significant extent on the business of
Bradford.
(j) The total emoluments of the Directors of Inhale will not be varied as a
consequence of the proposed acquisition of Bradford or by any other
associated transaction.
(k) It is estimated that full acceptance of the Offer in cash (assuming the
full exercise of options under the Bradford Share Option Scheme) would
require the payment by Inhale of a maximum amount of approximately L14.5
million in cash. Cazenove is satisfied that the necessary financial
resources are available to Inhale to satisfy full acceptance of the Offer
in cash. The funds required to make the cash payment under the Offer will
come from Inhale's own cash resources.
13. DOCUMENTS FOR INSPECTION
Copies of the following documents will be available for inspection during
usual business hours on any weekday (Saturdays and public holidays
excepted) at the offices of Simmons & Simmons, City Point, One Ropemaker
Street, London EC2Y 9SS while the Offer remains open for acceptance:
(a) the certificate of incorporation and bylaws of Inhale;
(b) the memorandum and articles of association of Bradford;
(c) the published audited accounts of Inhale for the financial years
ended 31 December 1998 and 31 December 1999;
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(d) the published audited accounts of Bradford for the financial years
ended 31 May 1999 and 31 May 2000;
(e) the material contracts of Inhale and its subsidiaries referred to
in paragraph 7(a) above;
(f) the material contracts of Bradford referred to in paragraph 7(b)
above;
(g) the service agreements and proposed changes thereto of the
directors of Bradford referred to in paragraph 8 above;
(h) the written consents referred to in paragraph 12 above;
(i) the irrevocable undertakings to accept the Offer given by the
persons referred to in paragraph 3 above; and
(j) this document, the Form of Acceptance and the Drag Along Notice.
21 DECEMBER 2000
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