<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
SHIRE PHARMACEUTICALS GROUP PLC
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Ordinary Shares, 5 pence nominal value per share
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
254,707,924
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
$15.98*
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$4,070,232,625
----------------------------------------------------------
(5) Total fee paid:
$814,047
----------------------------------------------------------
* Based on the average of the high and low prices for the
ordinary shares as reported on the London Stock Exchange
on January 10, 2001.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
SHIRE PHARMACEUTICALS GROUP PLC
EAST ANTON, ANDOVER
HAMPSHIRE SP10 5RG
PROXY STATEMENT FOR THE
EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
SOLICITATION AND REVOCATION OF PROXIES
The Board of Directors of Shire Pharmaceuticals Group plc (the "Company") is
soliciting the accompanying proxy for use at the extraordinary general meeting
of shareholders to be held at 35 New Broad Street, London, EC2M 1SQ, England, on
- , 2001 at 3:00 p.m., local time. If a proxy is received at least
48 hours before the meeting, as indicated below, the shares represented by it
will, on a poll, be voted unless the proxy is revoked by written notice prior to
the meeting. If matters other than those set forth in the accompanying Notice of
Extraordinary General Meeting are presented at the meeting for action, the proxy
holders will vote the proxies as they think fit. The approximate date on which a
definitive proxy statement and the accompanying proxy will first be mailed to
shareholders is , 2001.
At the extraordinary general meeting, you will be asked to consider and vote
upon a proposal to approve the merger of Shire and BioChem Pharma Inc.
("BioChem") under the terms of a plan of arrangement. We will issue up to
254,707,924 ordinary shares in exchange for all of the outstanding BioChem
shares (and assuming all existing BioChem shareholders exchange their BioChem
shares for ordinary shares pursuant to the merger and excluding any shares to be
issued pursuant to the exercise of options under the BioChem Stock Option Plans
or other rights).
At the extraordinary general meeting, you will also be asked to approve a
special resolution increasing the Directors' power, for a period of 5 years from
the date of the passing of the resolution, to allot securities within the limits
of the authorised share capital for cash free of pre-emption rights up to a
nominal amount of L - . This action does not relate to the merger.
SEE "RISK FACTORS" BEGINNING ON PAGE OF THIS PROXY STATEMENT FOR A
DISCUSSION OF CERTAIN MATTERS YOU SHOULD CONSIDER BEFORE VOTING FOR OR AGAINST
THE APPROVAL AND ADOPTION OF THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS PROXY
STATEMENT WHICH HIGHLIGHTS THE KEY ASPECTS OF THE MERGER. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU ARE URGED TO READ AND CONSIDER CAREFULLY ALL OF THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND IN THE
ANNEXES ATTACHED TO THIS PROXY STATEMENT.
REFERENCES TO "$" OR "DOLLARS" HEREIN ARE TO US DOLLARS, UNLESS OTHERWISE
SPECIFIED.
A TABLE OF CONTENTS FOR THIS PROXY STATEMENT APPEARS AT THE BACK OF THIS
DOCUMENT.
GENERAL
This Proxy Statement relates to the proposed merger of Shire and BioChem,
under the terms of a plan of arrangement. A copy of the merger agreement is
attached as Annex A to this Proxy Statement and a copy of the plan of
arrangement is attached as Annex B to this Proxy Statement. In the merger,
BioChem shareholders will be entitled to receive, for each BioChem share, Shire
ADSs, Shire ordinary shares or, in the case of Canadian residents, shares of
3829341 Canada Inc., a wholly-owned subsidiary of Shire, which we refer to as
Exchangeco. Each ADS represents three ordinary shares. We will issue between
1.5678 and 2.3517 ordinary shares for each BioChem share. The exchange ratio
will be determined based on the average trading price of the ADSs for the
fifteen consecutive trading days ending three days before the date the merger is
consummated.
THE COMPANIES
SHIRE PHARMACEUTICALS GROUP PLC
East Anton
Andover
Hampshire SP10 5RG
ENGLAND
Telephone: (44)1-264-333-455
We are an international specialty pharmaceutical company with a strategic
focus on four therapeutic areas:
- central nervous system disorders;
- oncology/haematology;
- metabolic diseases; and
- gastroenterology.
We have a sales and marketing infrastructure with a broad portfolio of
products, with our own direct marketing capability in the US, Canada, the UK,
the Republic of Ireland, France, Germany, Italy and Spain and with plans to add
Japan by 2004. We also cover other significant pharmaceutical markets indirectly
through distributors and sales coverage continues to grow.
BIOCHEM PHARMA INC.
275 Armand-Frappier Blvd.
Laval, Quebec
Canada H7V 4A7
Telephone: (450) 978-7899
BioChem is an international specialty pharmaceutical company dedicated to
the development and commercialization of innovative products for the prevention
and treatment of human diseases, with a focus on infectious diseases and cancer.
BioChem's first therapeutic product, 3TC/Epivir, has become the cornerstone of
HIV infection/AIDS combination therapies, most recently being launched as part
of GlaxoSmithKline's Trizivir triple combination product. A second therapeutic
product, Zeffix, an oral treatment for chronic hepatitis B, is currently being
introduced in key markets worldwide by GlaxoSmithKline, BioChem's partner for
the development and commercialization of both 3TC/Epivir and Zeffix.
THE MERGER AND THE MERGER AGREEMENT
The merger agreement provides for the combination of Shire and BioChem in a
transaction in which each BioChem shareholder (other than BioChem shareholders
who properly
2
<PAGE>
dissent to the merger) will have the choice of receiving as consideration for
each share of BioChem:
- a number of ordinary shares equal to the exchange ratio;
- a number of exchangeable shares equal to the exchange ratio divided by three
issued by Exchangeco which are exchangeable into ordinary shares or ADSs, at a
rate of one exchangeable share for three ordinary shares or one exchangeable
share for one ADS;
- a number of ADSs equal to the exchange ratio divided by three; or
- a combination of the above.
Only shareholders of BioChem that are Canadian residents have the option of
receiving exchangeable shares for their shares of BioChem.
The exchangeable shares will be issued by Exchangeco, a corporation
incorporated under the CANADA BUSINESS CORPORATIONS ACT, which is a wholly-owned
subsidiary of Shire, and will be listed on the Toronto Stock Exchange. Holders
of the exchangeable shares will be entitled to dividend and other rights that
are, as nearly as practicable, economically equivalent to those of ordinary
shares. Through a voting trust and by means of special voting shares in Shire
held by the trustee, holders of the exchangeable shares will, in effect, be
entitled to vote at general meetings of Shire. See "The Merger
Agreement--Conversion of BioChem Shares."
EXCHANGE RATIO
The number of ordinary shares into which each share of BioChem shall be
converted shall be determined as follows:
<TABLE>
<CAPTION>
IF THE ADS PRICE IS: THE EXCHANGE RATIO SHALL BE:
--------------------- ----------------------------
<S> <C>
less than or equal to 2.3517
$47.20
greater than $47.20 determined by dividing
and less than $70.80 $37.00 by the ADS price and
multiplying by three
equal to or greater 1.5678
than $70.80
</TABLE>
If a BioChem shareholder elects, or in certain circumstances, we will provide
such shareholder with one-third of an ADS or one-third of an exchangeable share
for each ordinary share such shareholder would be entitled to receive based on
the exchange ratio. See "The Merger Agreement--Exchange Ratio."
THE EXCHANGEABLE SHARES
The exchangeable shares will be securities of Exchangeco that are, as nearly
as practicable, economically equivalent to ordinary shares. The holders of
exchangeable shares will have the following rights:
- the right to exchange their shares for ordinary shares on a one-for-three
basis as discussed in the following paragraph;
- the right to exchange their shares for the ADSs on a one-for-one basis as
discussed in the following paragraph;
- the right to receive dividends, on a per share basis, in amounts (or property
in the case of non-cash dividends) which are three times more than, and which
are payable at the same time as, dividends declared on the ordinary shares;
- the right, in effect, to vote at all shareholder meetings at which Shire
shareholders are entitled to vote by means of the special voting shares
referred to above; and
3
<PAGE>
- the right to participate, upon a liquidation event of Shire, on a pro rata
basis with the holders of ordinary shares in the distribution of assets of
Shire, through the automatic exchange of exchangeable shares for ordinary
shares.
Holders of the exchangeable shares will be entitled, generally, at any time
following the effective time, upon delivery of a certificate representing
exchangeable shares and a duly executed notice of retraction, to require
Exchangeco to redeem any or all of their exchangeable shares for ordinary shares
or ADSs (at the option of the holder).
The exchangeable shares will, in effect, have no separate economic or voting
rights in Exchangeco, except as required by law or contract.
Subject to applicable law and a right of redemption, on the redemption date,
all of the outstanding exchangeable shares will be redeemed by Exchangeco or
otherwise acquired by an affiliate of Shire for a price payable in ordinary
shares or ADSs (at the option of the holder).
The redemption date will be no earlier than the 10th anniversary of the
effective date. However, in certain circumstances, Exchangeco has the right to
require a redemption of the exchangeable shares prior to the 10th anniversary of
the effective date. An early redemption may occur upon:
- there being fewer than 3,000,000 exchangeable shares outstanding (other than
exchangeable shares held by Shire and its affiliates);
- the occurrence of a merger, amalgamation, tender offer, sale or other similar
transaction involving Shire; or
- the occurrence of certain events which entitle the holders of exchangeable
shares to vote as shareholders of Exchangeco.
THE EXTRAORDINARY GENERAL MEETING
DATE, TIME, PLACE AND PURPOSE
The meeting will be held at 35 New Broad Street, London, EC2M 1SQ, England,
on - , 2001, at 3:00 p.m., local time, to consider and vote on the merger
proposal and a special resolution, which is unrelated to the merger, regarding
an increase in our directors' power to allot securities for cash free of
pre-emption rights. See "The Extraordinary General Meeting--Date, Time, Place
and Purpose."
RECORD DATE; SHARES ENTITLED TO VOTE
Only shareholders of record at the close of business on - , 2001 are
entitled to vote at the meeting. On that date, there were [ - ] shares
outstanding and entitled to vote which were held by approximately [ - ]
holders of record, of which [ - ] were held in the name of Guarantee Nominees
Limited, as nominee for the Depositary. Each registered holder of ordinary
shares present in person at the meeting is entitled to one vote on a show of
hands, and every holder present in person or by proxy shall, upon a poll, have
one vote for each ordinary share held by the holder. See "The Extraordinary
General Meeting--Record Date; Voting Rights; Voting at the Meeting."
REQUIRED VOTE
A quorum for the extraordinary general meeting will exist if two or more
Shire shareholders are present in person or by proxy and entitled to vote. If
there is a quorum, a majority of the votes cast at the extraordinary general
meeting must be cast in favor of the ordinary resolution put to the meeting for
the merger to be approved. Voters who hold ordinary shares as nominees will not
have discretionary authority to vote their ordinary shares in the absence of
instructions from their beneficial owners.
REVOCABILITY OF PROXIES
Before the vote at the extraordinary general meeting, a shareholder may
revoke his or her proxy by depositing at our registered office, not less than
48 hours before the time of the extraordinary general meeting, a later-dated
proxy relating to the same shares or by depositing at the registered office a
written notice of revocation bearing a date later than the date of the proxy or
by attending the
4
<PAGE>
extraordinary general meeting and voting in person.
BENEFITS OF THE MERGER
The principal benefits of the merger are expected to be:
- DIVERSIFICATION. The revenue growth of the combined Shire and BioChem entity
(the "Enlarged Group") will be driven not only by Shire's key marketed
products, Adderall, Pentasa, Agrylin and Carbatrol, and by BioChem's Second
Look and Fluviral, but also by the sales achieved by two of the world's
foremost pharmaceutical companies in GlaxoSmithKline in respect of 3TC/Epivir,
Combivir, Trizivir and Zeffix, and Johnson and Johnson in respect of Reminyl.
In addition, the Enlarged Group expects Foznol to become a key contributor to
revenue growth when regulatory approvals, which are expected in early 2002,
are obtained.
- INCREASED FINANCIAL RESOURCES. At December 31, 2000, Shire had indebtedness of
approximately $ - and cash and investments of approximately $ - while
BioChem had indebtedness of approximately $ - and approximately $ - in
cash and investments. With pro forma revenues of $ - and net income of
$ - for 2000 the directors and proposed directors expect to have greatly
enhanced cash with which to finance the Enlarged Group's development and
research activities. Shire will be required to either obtain consent to the
merger from its bank lenders under the credit facility entered into at the
time of Shire's merger with Roberts Pharmaceutical Corporation in 1999 or
repay the amount outstanding under the credit facility. Shire has not yet
determined whether to seek consent or repay the amount outstanding.
For purposes of this document, financial information on BioChem has been
adjusted to consolidate CliniChem and exclude exceptional items.
- A BROADENED AND STRENGTHENED PIPELINE. The Enlarged Group will have 24
products in development of which 12 will be in pre-clinical and Phase I
development, and 12 will be in full clinical development or registration. This
will strengthen the product pipeline in the areas of oncology/haematology and
CNS with a total of 15 products in development in these areas and will broaden
the pipeline of products in development by the inclusion of 5 products in the
areas of anti-virals and vaccines.
- LEVERAGE FROM COMPLEMENTARY SKILLS AND OPERATIONS. The Enlarged Group will
have a direct marketing capability in seven of the eight major pharmaceutical
markets in the world. The Enlarged Group will benefit from the application of
existing development capabilities to the enlarged product pipeline and the
direct marketing of these products through its own specialist sales forces.
The directors and proposed directors expect the Enlarged Group's lead
optimisation activities and network of business and academic relations to
provide a regular source of development candidates to supplement its research
activities.
- OPERATING SYNERGIES. The directors and proposed directors of Shire believe
that the merger will result in certain operating synergies in the following
areas:
- Review of research and development activities: cost savings and future
cost avoidance are expected to result from: establishment of a budget for
the Enlarged Group; review of the Enlarged Group's requirements for new
research and development projects; a thorough review of the Enlarged
Group's research and development portfolio; and the use by the Enlarged
Group of Shire's development capabilities;
- Financing: the Enlarged Group's net cash and ability to generate further
cash will enable it to discharge its indebtedness to its bank lenders, if
it chooses, which would result in a net reduction in financing costs of
approximately $3 million in a full year; and
- Re-organisation of business activities: the re-organisation of
administrative, service
5
<PAGE>
and other functions of the Canadian operations of the Enlarged Group may
give rise to operating synergies for the Enlarged Group.
There will be a substantial one time charge in the [second] quarter of 2001
of between [$ - ] and [$ - ] arising from the costs of the merger and in
connection with the restructuring of the Enlarged Group's combined operations.
Taking into account the opportunity for synergies referred to above and
excluding the one time charge, the Shire Board believes the merger will be
accretive to earnings for Shire shareholders twelve months after the Closing.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On December 10, 2000, our board of directors unanimously approved the merger
agreement and the merger as being in our best interests and the best interests
of our shareholders. Our board of directors, which has received financial advice
from Deutsche Bank, considers that the merger is in our best interests and the
best interests of our shareholders as a whole. In providing advice to our board
of directors, Deutsche Bank has placed reliance on our board's commercial
assessment of the merger.
Our board of directors unanimously recommends that our shareholders vote in
favor of the resolutions being proposed at the extraordinary general meeting, as
they intend to do in respect of shareholdings in which they are interested,
which amount in aggregate to - ordinary shares, representing approximately
- per cent of the issued share capital.
REASONS FOR THE MERGER
Our board of directors believes that the merger brings together two
publicly-traded specialty pharmaceutical companies with complementary strengths,
activities and competencies. We have built effective research and development
functions, an effective sales and marketing organisation in the US and UK and
have established and are expanding our functions in Canada and certain leading
European markets. BioChem has built an outstanding scientific operation through
which it has generated a pipeline of projects focused in three discrete
specialty categories: oncology, vaccines and anti-virals.
OPINION OF FINANCIAL ADVISOR
In deciding to approve the merger, our board of directors considered the
opinion of its financial advisor, Deutsche Bank, that the exchange ratio was
fair to our shareholders from a financial point of view.
The full text of the written opinion of Deutsche Bank, which presents
assumptions made, matters considered, procedures followed and the scope of the
review undertaken, is attached to this Proxy Statement as Annex D. The written
opinion of Deutsche Bank is not a recommendation as to how you should vote in
regard to the approval of the merger. We encourage you to read the opinion of
Deutsche Bank in its entirety.
APPRAISAL RIGHTS
Under English law, holders of ordinary shares will have no appraisal rights
in connection with the merger.
ANTICIPATED ACCOUNTING TREATMENT
The merger is intended to qualify as a "pooling of interests" transaction
under US GAAP, which means that the companies will be treated as if they had
always been combined.
CONDITIONS TO THE MERGER
The merger will not be completed unless a number of conditions are waived or
satisfied. These include:
- approval of the merger and other transactions contemplated by the merger
agreement by the requisite vote of our shareholders and BioChem's
shareholders;
- there must be no order, injunction, decree or judgment in effect that
materially restrains or prohibits the merger and there must be no pending or
threatened proceeding by a governmental authority questioning the validity or
legality of the merger;
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<PAGE>
- both we and BioChem must receive letters from our respective independent
accountants concurring with management's view regarding the applicability of
"pooling of interests" accounting under US GAAP; and
- the ordinary shares to be issued in the merger must be admitted to the
Official List of the United Kingdom Listing Authority and to trading on the
London Stock Exchange, the ADSs must be approved for listing on Nasdaq and the
exchangeable shares must be approved for listing on The Toronto Stock
Exchange.
EFFECTIVE TIME OF THE MERGER
The merger will be completed as soon as practicable after all shareholder
approvals have been obtained and all other conditions to the merger have been
satisfied or waived and, in any event, not later than May 31, 2001.
TERMINATION AND PAYMENT OF BREAK FEES
The merger agreement may be terminated by mutual written consent of us and
BioChem at any time prior to the effective date of the merger. In addition,
either we or BioChem may terminate the merger agreement if the effective date
shall not have occurred on or before May 31, 2001 or if certain governmental
approvals have not been obtained.
The merger agreement may be terminated by us upon the occurrence of any of
the following events:
- BioChem's shareholders do not approve the merger;
- the board of directors of BioChem fails to recommend approval of the merger to
its shareholders or adversely modifies or qualifies or withdraws its
recommendation; or
- a breach by BioChem of any representation, covenant or agreement which results
in a failure of certain conditions to closing set forth in the merger
agreement (subject to a 20 business day cure period).
The merger agreement may be terminated by BioChem upon the occurrence of any
of the following events:
- our shareholders do not approve the merger;
- our board of directors fails to recommend approval of the merger to our
shareholders or adversely modifies or qualifies or withdraws its
recommendation; or
- a breach by us or Exchangeco of any representation, warranty, covenant or
agreement which results in the failure of certain conditions to closing set
forth in the merger agreement (subject to a 20 business day cure period).
BioChem may also terminate the merger agreement, among other things, if it
determines that a proposal to acquire BioChem is more favorable from a financial
point of view to its shareholders than the transaction with Shire. If this
occurs, BioChem will become obligated to pay us a break fee of $110 million.
BioChem will also have to pay us this break fee in other circumstances. If
BioChem terminates the merger agreement because Shire has failed to recommend
approval of the merger to its shareholders or Shire has adversely modified or
qualified or withdrawn its recommendation, then Shire will become obligated to
pay BioChem a break fee of $40 million.
See "The Merger Agreement--Termination and Payment of Break Fees."
THE OPTION AGREEMENT
Concurrently with the execution of the merger agreement, we entered into an
option agreement with BioChem, dated as of December 10, 2000. In accordance with
the terms of the option agreement, BioChem granted us an option to purchase
shares representing up to 19.9% of the outstanding shares of BioChem as of
December 8, 2000 (on an undiluted basis) at a price per share in cash equal to
$37.00 exercisable in the event that we are entitled to a termination fee under
the merger agreement. In the event the option is exercised, there is a limit as
to the maximum total compensation that we may receive from the termination fee
under the merger agreement and
7
<PAGE>
any consideration from the sale of BioChem shares acquired from the exercise of
the option. See "The Option Agreement."
GOVERNMENTAL AND REGULATORY MATTERS
US antitrust laws prohibit the merger from being completed until the
transaction has been notified to the Antitrust Division of the Department of
Justice and the Federal Trade Commission and a required waiting period has
expired. On January 12, 2001 we filed the required notification and report forms
with the Antitrust Division and the FTC. The required waiting period will expire
on February 11, 2001.
In the UK, the Secretary of State can refer any qualifying merger situation
to the Competition Commission for investigation as to whether the merger may be
expected to operate against the public interest. The merger is a qualifying
merger situation for the purposes of UK law. There is no obligation to obtain
prior clearance of a qualifying merger in the UK. However, if a qualifying
merger is completed without prior clearance being given, there is a risk that
the merger may subsequently be referred to the Competition Commission and that
divestitures might ultimately be required.
In Canada, the merger is subject to review by the Minister of Industry
Canada, who must make a determination as to whether the transaction is likely to
be of "net benefit to Canada." We submitted an application for review on
January 12, 2001. The merger also constitutes a notifiable transaction under the
COMPETITION ACT (Canada).
We are working to obtain the required regulatory approvals and consents.
However, there can be no assurance as to when or whether any of these approvals
and consents will be obtained or the terms and conditions that may be imposed by
such approvals and consents. See "The Merger--Governmental Regulation."
COURT APPROVAL
An arrangement under the CANADA BUSINESS CORPORATIONS ACT, such as this
transaction, requires approval by the Superior Court of Quebec. BioChem will
obtain an interim order providing for the calling and holding of the meeting of
the BioChem shareholders and other procedural matters. A hearing to obtain a
final order of the Superior Court of Quebec approving the arrangement is
scheduled to take place in the Superior Court of Quebec, the day preceding the
closing of this arrangement, subject to approval of the merger by the requisite
vote of our shareholders and BioChem's shareholders. Relying on this court
order, the issuance of ordinary shares, ADSs and exchangeable shares will be
exempt and will not require registration under the US Securities Act of 1933.
See "The Transaction--Court Approval of the Arrangement and Completion of the
Transaction."
SPECIAL RESOLUTION
At our shareholder's meeting, you will be asked to approve a special
resolution increasing the directors' power, for a period of 5 years from the
date of the passing of the resolution, to allot securities within the limits of
the authorised share capital for cash free of pre-emption rights up to a nominal
amount of [ - ].
Under English law, we would typically ask you to take this action at one of
our future annual general meetings. However, as a matter of convenience, you
will be asked to take this action at our Shareholder's Meeting. This action does
not relate to the merger.
8
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF SHIRE
SUMMARY FINANCIAL DATA
The following summary financial information of Shire for each of the fiscal
periods up through and including the year ended December 31, 1999 has been
derived from Shire's audited consolidated financial statements and the notes to
these financial statements incorporated by reference into this Proxy Statement.
Summary financial information for the nine month periods to September 30, 1999
and 2000 has been derived from Shire's unaudited consolidated financial
statements for the nine months to September 30, 2000 also incorporated by
reference into this Proxy Statement.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997(1) 1997(1)/(2) 1997(1) 1998(1)
---------- ---------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER ORDINARY SHARE AND PER ADS AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues............. $143,537 $ 147,842 $112,804 $191,554 $308,984
Operating (loss)/
income............. (23,557) (125,116) (4,435) (85,841) 23,236
(Loss)/income before
income taxes....... (24,416) (119,209) (4,058) (82,732) 23,563
Net (loss)/income.... (23,705) (106,994) (4,366) (84,152) 20,572
Basic net
(loss)/income per
ordinary share..... (0.23) (0.74) (0.02) (0.45) 0.09
Basic net
(loss)/income per
ADS................ (0.69) (2.23) (0.06) (1.36) 0.26
Fully diluted net
(loss)/ income per
ordinary share..... (0.23) (0.74) (0.02) (0.45) 0.08
Fully diluted net
(loss)/ income per
ADS................ (0.69) (2.23) (0.06) (1.36) 0.25
Weighted average
ordinary shares
outstanding--basic... 102,560 143,786 203,316 185,153 234,045
Weighted average
ordinary shares
outstanding--fully
diluted............ 102,560 143,786 203,316 185,153 242,806
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1999(1) 2000
------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER ORDINARY SHARE AND PER ADS AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues............. $401,532 $297,143 $380,605
Operating (loss)/
income............. (76,068) 51,588 67,796
(Loss)/income before
income taxes....... (78,936) 49,577 63,610
Net (loss)/income.... (94,998) 28,968 38,318
Basic net
(loss)/income per
ordinary share..... (0.39) 0.12 0.15
Basic net
(loss)/income per
ADS................ (1.16) 0.36 0.46
Fully diluted net
(loss)/ income per
ordinary share..... (0.39) 0.12 0.15
Fully diluted net
(loss)/ income per
ADS................ (1.16) 0.35 0.44
Weighted average
ordinary shares
outstanding--basic... 244,699 241,978 251,191
Weighted average
ordinary shares
outstanding--fully
diluted............ 244,699 249,506 259,640
</TABLE>
<TABLE>
<CAPTION>
AS AT AS AT AS AT AS AT AS AT AS AT
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996(1) 1997(1) 1997(1) 1998(1) 1999 1999(1)
---------- ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........ $ 54,552 $ 110,099 $ 59,917 $ 52,973 $ 54,082 $ 36,603
Other current
assets............. 71,417 84,297 123,871 193,325 197,224 248,404
Long term assets..... 251,803 238,995 482,498 627,307 636,457 658,313
Total assets......... 377,772 433,391 666,286 873,605 887,763 943,320
Current
liabilities........ 74,809 54,805 70,542 81,288 172,820 104,061
Long term debt,
including capital
lease
obligations........ 11,377 7,630 25,636 126,774 126,314 125,188
Other long term
liabilities........ 11,104 3,412 3,492 2,229 1,345 2,282
Shareholders'
equity............. 280,482 367,544 566,616 663,314 587,284 711,789
Total liabilities and
shareholders'
equity............. 377,772 433,391 666,286 873,605 887,763 943,320
<CAPTION>
AS AT
SEPTEMBER 30,
2000
-------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........ $160,524
Other current
assets............. 159,674
Long term assets..... 596,086
Total assets......... 916,284
Current
liabilities........ 108,315
Long term debt,
including capital
lease
obligations........ 126,413
Other long term
liabilities........ 422
Shareholders'
equity............. 681,134
Total liabilities and
shareholders'
equity............. 916,284
</TABLE>
NOTES
1. The results for the years ended June 30, 1996 and 1997, the six months ended
December 31, 1997, the years ended December 31, 1997 and 1998 and the nine
month period ended September 30, 1999 and the financial position as at June
30, 1996 and 1997, December 31, 1997 and 1998 and September 30, 1999 have
been restated to include the results of Roberts Pharmaceutical Corporation
the merger with whom was accounted for as a pooling of interests in
accordance with APB16, Accounting for Business Combinations.
2. During 1997, Shire changed its fiscal year end from June 30, to December 31.
9
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF BIOCHEM
SUMMARY FINANCIAL DATA
The following summary financial information of BioChem for each of the
fiscal periods up through and including the year ended December 31, 1999 has
been derived from BioChem's audited consolidated financial statements and the
notes to such financial statements incorporated by reference into this Proxy
Statement. Summary financial information for the nine month period to September
30, 1999 and 2000 has been derived from BioChem's unaudited consolidated
financial statements. The selected financial data has been prepared using
Canadian and U.S. GAAP, which differ in certain respects. The principal
differences between Canadian GAAP and U.S. GAAP are summarized in note 22 to
BioChem's 1999 audited consolidated financial statements incorporated by
reference into this Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
CANADIAN GAAP
Revenues............................ 29,007 89,735 162,860 224,965 290,275
Earnings/(loss) from continuing
operations........................ (12,269) 27,722 77,680 117,898 167,199
Net income/(loss)................... (4,967) 33,394 79,838 114,774 149,102
Basic earnings/(loss) per common
share(1)
--continuing operations............. (0.13) 0.26 0.72 1.09 1.59
--net income........................ (0.05) 0.31 0.74 1.06 1.42
Fully diluted earnings/(loss) per
common share(1)
--continuing operations............. (0.13) 0.26 0.72 1.09 1.57
--net income........................ (0.05) 0.31 0.74 1.06 1.41
Weighted average number of common
shares outstanding
--basic............................. 97,044 106,485 108,153 108,443 105,313
--fully diluted..................... 102,467 110,709 114,229 115,174 111,945
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE INFORMATION)
U.S. GAAP
Revenues............................ 148,277 209,934 275,921
Earnings/(loss) from continuing
operations........................ 77,680 (8,299) 156,763
Net income/(loss)................... 77,173 (10,063) 139,013
Basic earnings/(loss) per common
share (1)
--continuing operations............. 0.72 (0.08) 1.49
--net income........................ 0.71 (0.09) 1.32
Fully diluted earnings/(loss) per
common share (1)
--continuing operations............. 0.71 (0.08) 1.49
--net income........................ 0.70 (0.09) 1.32
Weighted average number of common
shares outstanding
--basic............................. 108,153 108,443 105,313
--fully diluted..................... 109,815 110,447 106,974
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
------------- -------------
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE INFORMATION)
<S> <C> <C>
INCOME STATEMENT DATA:
CANADIAN GAAP
Revenues............................ 201,764 230,728
Earnings/(loss) from continuing
operations........................ 99,054 254,454
Net income/(loss)................... 97,957 254,454
Basic earnings/(loss) per common
share(1)
--continuing operations............. 0.93 2.51
--net income........................ 0.92 2.51
Fully diluted earnings/(loss) per
common share(1)
--continuing operations............. 0.93 2.43
--net income........................ 0.92 2.43
Weighted average number of common
shares outstanding
--basic............................. 106,746 101,199
--fully diluted..................... 113,373 107,946
(IN THOUSANDS OF CANADIAN
DOLLARS EXCEPT PER SHARE
INFORMATION)
U.S. GAAP
Revenues............................ 192,667 208,824
Earnings/(loss) from continuing
operations........................ 89,229 255,330
Net income/(loss)................... 88,493 255,330
Basic earnings/(loss) per common
share (1)
--continuing operations............. 0.84 2.52
--net income........................ 0.83 2.52
Fully diluted earnings/(loss) per
common share (1)
--continuing operations............. 0.82 2.48
--net income........................ 0.82 2.48
Weighted average number of common
shares outstanding
--basic............................. 106,746 101,199
--fully diluted..................... 108,450 102,868
</TABLE>
<TABLE>
<CAPTION>
AS AT AS AT AS AT AS AT
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998
------------ ------------ ------------ ------------
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
CANADIAN GAAP
Total assets.................. 286,922 573,191 659,191 632,562
Long term debt excluding
current portion............. 11,021 14,282 11,914 12,470
Shareholders' equity.......... 134,594 415,832 498,068 478,621
(IN THOUSANDS OF CANADIAN DOLLARS)
U.S. GAAP
Total assets.................. 655,565 627,428
Long term debt excluding
current portion............. 11,914 12,470
Shareholders' equity.......... 494,367 473,487
<CAPTION>
AS AT AS AT AS AT
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 2000
------------ ------------- -------------
(IN THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
CANADIAN GAAP
Total assets.................. 624,717 571,542 811,610
Long term debt excluding
current portion............. 124,614 126,542 8,550
Shareholders' equity.......... 376,864 330,639 637,144
(IN THOUSANDS OF CANADIAN DOLLARS)
U.S. GAAP
Total assets.................. 612,196 563,874 801,923
Long term debt excluding
current portion............. 124,614 126,542 8,550
Shareholders' equity.......... 364,343 322,971 627,457
</TABLE>
NOTES
1. The data stated above reflects a two-for-one common stock split which took
effect on April 7, 1997.
2. No cash dividends were declared during these periods.
10
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial statements give effect
to the proposed merger of Shire and BioChem as a pooling of interests under U.S.
GAAP. The unaudited pro forma condensed balance sheet presents the combined
financial position of Shire and BioChem as of September 30, 2000 assuming that
the proposed merger has occurred as of September 30, 2000. The unaudited pro
forma statements for the years ended December 31, 1999, 1998 and 1997 and for
the nine months ended September 30, 2000 reflect the combination of the
historical results of operations of Shire and BioChem, along with certain
adjustments necessary to conform accounting policies of the two companies. Such
pro forma information is based upon the historical financial statements of Shire
and BioChem and has been prepared to illustrate the effects of the merger. In
calculating the Shire/ BioChem pro forma information, an average ADS trading
price in the range $47.20 to $70.80 has been assumed. You should read the pro
forma combined financial data in conjunction with the historical financial
statements of Shire and BioChem incorporated into this Proxy Statement by
reference. The pro forma combined financial data are presented for illustrative
purposes only and are not necessarily indicative of any future results of
operations or the results that might have occurred if the merger had actually
occurred on the indicated dates.
11
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SHIRE BIOCHEM
---------- ---------------------------------------------------------------- SHIRE BIOCHEM
ACCOUNTING PRO FORMA
CANADIAN CANADIAN U.S. GAAP POLICY --------------
U.S. GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS U.S. GAAP U.S. GAAP
$'000 CAN$'000(1) $'000(2) $'000(3)/(4) $'000(6) $'000 $'000
---------- ------------ -------- ------------ ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue.................... 380,605 230,728 141,568 -- (29,225) 112,343 492,948
Operating expenses............... (312, 809) (103,350) (68,407) (3,424) 11 (71,820) (384,629)
Operating income/(loss).......... 67,796 127,378 73,161 (3,424) (29,214) 40,523 108,319
Interest income.................. 4,264 -- 7,842 -- 1,151 8,993 13,257
Interest expense................. (8,563) -- (3,100) -- -- (3,100) (11,663)
Other income/(expenses), net..... 113 141,220 102,381 4,019 -- 106,400 106,513
Income/(loss) before income
taxes.......................... 63,610 268,598 180,284 595 (28,063) 152,816 216,426
Income taxes..................... (25,292) (11,989) (7,224) -- 473 (6,751) (32,043)
Share of loss of company subject
to significant influence....... -- (2,155) -- -- -- -- --
Net income/(loss) from continuing
operations..................... 38,318 254,454 173,060 595 (27,590) 146,065 184,383
Earnings/(loss) from continuing
operations per ordinary share
--basic.......................... $0.15 CAN$2.51 -- -- -- $1.44
--diluted........................ $0.15 CAN$2.43 -- -- -- $1.42
Weighted average ordinary shares
outstanding
--basic.......................... 251,191 101,199 -- -- -- 101,199
--diluted........................ 259,640 107,946 -- (5,078) -- 102,868
Pro forma information based on
exchange ratio of 1.8814 (7),
(8)
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $0.42
--diluted........................ $0.41
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 441,586
--diluted........................ 453,176
Pro forma information based on
exchange ratio of 2.3517
Pro forma earnings/(loss)from
continuing operations per
ordinary share
--basic.......................... $0.38
--diluted........................ $0.37
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 489,180
--diluted........................ 501,555
Pro forma information based on
exchange ratio of 1.5678
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $0.45
--diluted........................ $0.44
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 409,850
--diluted........................ 420,917
</TABLE>
12
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHIRE BIOCHEM
---------- ---------------------------------------------------------------- SHIRE BIOCHEM
ACCOUNTING PRO FORMA
CANADIAN CANADIAN U.S. GAAP POLICY --------------
U.S. GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS U.S. GAAP U.S. GAAP
$'000 CAN$'000(1) $'000(2) $'000(3)/(4) $'000(6) $'000 $'000
---------- ------------ -------- ------------ ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue.................... 401,532 290,275 185,694 -- (49,973) 135,721 537,253
Operating expenses............... (477,600) (135,166) (93,179) (3,128) -- (96,307) (573,907)
Operating income/(loss).......... (76,068) 155,109 92,515 (3,128) (49,973) 39,414 (36,654)
Interest income.................. 7,349 -- 5,066 -- 3,542 8,608 15,957
Interest expense................. (9,742) -- (1,902) -- -- (1,902) (11,644)
Other income/(expenses), net..... (475) 24,181 23,122 (3,896) -- 19,226 18,751
Income/(loss) before income
taxes.......................... (78,936) 179,290 118,801 (7,024) (46,431) 65,346 (13,590)
Income taxes..................... (16,062) (12,091) (6,500) -- 899 (5,601) (21,663)
Net income/(loss) from continuing
operations..................... (94,998) 167,199 112,301 (7,024) (45,532) 59,745 (35,253)
Earnings/(loss) from continuing
operations per ordinary share
--basic.......................... $(0.39) CAN$1.59 -- -- -- $0.57
--diluted........................ $(0.39) CAN$1.57 -- -- -- $0.56
Weighted average ordinary shares
outstanding
--basic.......................... 244,699 105,313 -- -- -- 105,313
--diluted........................ 244,699 111,945 -- (4,971) -- 106,974
Pro forma information based on
exchange ratio of 1.8814 (7),
(8)
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $(0.08)
--diluted........................ $(0.08)
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 442,834
--diluted........................ 442,834
Pro forma information based on
exchange ratio of 2.3517
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $(0.07)
--diluted........................ $(0.07)
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 492,363
--diluted........................ 492,363
Pro forma information based on
exchange ratio of 1.5678
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $(0.09)
--diluted........................ $(0.09)
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 409,808
--diluted........................ 409,808
</TABLE>
13
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHIRE BIOCHEM
--------- ---------------------------------------------------------------- SHIRE BIOCHEM
ACCOUNTING PRO FORMA
U.S. CANADIAN CANADIAN U.S. GAAP POLICY U.S. --------------
GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS GAAP U.S. GAAP
$'000 CAN$'000(1) $'000(2) $'000(3)/(4) $'000(6) $'000 $'000
--------- ------------ --------- ------------ ---------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue.................... 308,984 224,965 141,493 -- (14,572) 126,921 435,905
Operating expenses............... (285,748) (99,016) (68,054) -- -- (68,054) (353,802)
Operating income/(loss).......... 23,236 125,949 73,439 -- (14,572) 58,867 82,103
Interest income.................. 6,398 -- 6,654 -- 2,673 9,327 15,725
Interest expense................. (6,511) -- (137) -- -- (137) (6,648)
Other income/(expenses), net..... 440 -- 4,661 (85,090) -- (80,429) (79,989)
Income/(loss) before income
taxes.......................... 23,563 125,949 84,617 (85,090) (11,899) (12,372) 11,191
Income taxes..................... (2,991) (9,479) (5,131) -- 457 (4,674) (7,665)
Non-controlling interest......... -- 1,428 -- -- -- -- --
Net income/(loss) from continuing
operations..................... 20,572 117,898 79,486 (85,090) (11,442) (17,046) 3,526
Earnings/(loss) from continuing
operations per ordinary share
--basic.......................... $0.09 CAN$1.09 -- -- -- $(0.16)
--diluted(9)..................... $0.08 CAN$1.09 -- -- -- $(0.16)
Weighted average ordinary shares
outstanding
--basic.......................... 234,045 108,443 -- -- -- 108,443
--diluted(9)..................... 242,806 115,174 -- -- -- 108,443
Pro forma information based on
exchange ratio of 1.8814
(7),(8)
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $0.01
--diluted........................ $0.01
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 438,069
--diluted........................ 446,831
Pro forma information based on
exchange ratio of 2.3517
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $0.01
--diluted........................ $0.01
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 489,069
--diluted........................ 497,831
Pro forma information based on
exchange ratio of 1.5678
Pro forma earnings/(loss) from
continuing operations per
ordinary share
--basic.......................... $0.01
--diluted........................ $0.01
Pro forma weighted average
ordinary shares outstanding
--basic.......................... 404,061
--diluted........................ 412,823
</TABLE>
14
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHIRE BIOCHEM
SHIRE BIOCHEM PRO FORMA
--------- ---------------------------------------------------------------- --------------
ACCOUNTING
U.S. CANADIAN CANADIAN U.S. GAAP POLICY U.S.
GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS GAAP U.S. GAAP
$'000 CAN$'000(1) $'000(2) $'000(3)/(4) $'000(6) $'000 $'000
--------- ------------ --------- ------------ ---------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue............... 191,554 162,860 107,102 -- -- 107,102 298,656
Operating expenses.......... (277,395) (76,382) (56,922) -- -- (56,922) (334,317)
Operating income/(loss)..... (85,841) 86,478 50,180 -- -- 50,180 (35,661)
Interest income............. 6,547 -- 7,555 -- -- 7,555 14,102
Interest expense............ (964) -- (370) -- -- (370) (1,334)
Other income/(expenses),
net....................... (2,474) -- 410 -- -- 410 (2,064)
Income/(loss) before income
taxes..................... (82,732) 86,478 57,775 -- -- 57,775 (24,957)
Income taxes................ (1,420) (4,000) (1,660) -- -- (1,660) (3,080)
Non-controlling interest.... -- 1,797 -- -- -- -- --
Share of loss of company
subject to significant
influence................. -- (6,595) -- -- -- -- --
Net income/(loss) from
continuing operations..... (84,152) 77,680 56,115 -- -- 56,115 (28,037)
Earnings/(loss) from
continuing operations per
ordinary share
--basic..................... $(0.45) CAN$0.72 -- -- -- $0.52
--diluted................... $(0.45) CAN$0.72 -- -- -- $0.51
Weighted average ordinary
shares outstanding
--basic..................... 185,153 108,153 -- -- -- 108,153
--diluted................... 185,153 114,229 -- (4,414) -- 109,815
Pro forma information based
on exchange ratio of
1.8814 (7), (8)
Pro forma earnings/(loss)
from continuing operations
per ordinary share
--basic..................... $(0.07)
--diluted................... $(0.07)
Pro forma weighted average
ordinary shares
outstanding
--basic..................... 388,632
--diluted................... 388,632
Pro forma information based
on exchange ratio of
2.3517
Pro forma earnings/(loss)
from continuing operations
per ordinary share
--basic..................... $(0.06)
--diluted................... $(0.06)
Pro forma weighted average
ordinary shares
outstanding
--basic..................... 439,496
--diluted................... 439,496
Pro forma information based
on exchange ratio of
1.5678
Pro forma earnings/(loss)
from continuing operations
per ordinary share
--basic..................... $(0.08)
--diluted................... $(0.08)
Pro forma weighted average
ordinary shares
outstanding
--basic..................... 354,715
--diluted................... 354,715
</TABLE>
15
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS AT SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
SHIRE BIOCHEM
SHIRE BIOCHEM PRO FORMA
---------- ----------- ACCOUNTING --------------
CANADIAN CANADIAN U.S. GAAP POLICY
U.S. GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS U.S. GAAP U.S. GAAP
$'000 CAN$'000 $'000 $'000 (5) $'000 (6) $'000 $'000
---------- --------- --------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and current investments........ 169,663 403,214 267,571 -- 12,882 280,453 450,116
Accounts receivable, net............ 89,630 79,104 52,552 -- -- 52,552 142,182
Inventories, net.................... 38,665 4,117 2,733 -- -- 2,733 41,398
Other current assets................ 22,240 2,505 1,663 -- 2,757 4,420 26,660
Total current assets................ 320,198 488,940 324,519 -- 15,639 340,158 660,356
Property, plant and equipment,
net............................... 28,649 151,526 82,171 (2,706) -- 79,465 108,114
Intangible assets, net.............. 538,255 16,585 29,865 (3,722) -- 26,143 564,398
Other assets........................ 29,182 154,559 101,305 -- (5,929) 95,376 124,558
Total assets........................ 916,284 811,610 537,860 (6,428) 9,710 541,142 1,457,426
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long term
debt.............................. 1,412 120,624 80,042 -- -- 80,042 81,454
Accounts payable and accrued
expenses.......................... 77,828 45,292 30,091 -- 3,792 33,883 111,711
Other current liabilities........... 29,075 -- -- -- -- -- 29,075
Total current liabilities........... 108,315 165,916 110,133 -- 3,792 113,925 222,240
Long term debt, including capital
lease obligations................. 126,413 8,550 5,673 -- -- 5,673 132,086
Other long term liabilities......... 422 -- -- -- -- -- 422
Shareholders' equity................ 681,134 637,144 422,054 (6,428) 5,918 421,544 1,102,678
Total liabilities and shareholders'
equity............................ 916,284 811,610 537,860 (6,428) 9,710 541,142 1,457,426
</TABLE>
------------------------------
NOTES
1. The Canadian GAAP condensed financial information presented in thousands of
Canadian dollars as of and for the nine months ended September 30, 2000 has
been derived from the uanaudited consolidated financial statements of
BioChem. The Canadian GAAP condensed financial information presented in
thousands of Canadian dollars for the years ended December 31, 1997, 1998
and 1999 has been derived from the audited consolidated financial statements
of BioChem, incorporated by reference into this Proxy Statement.
2. The Canadian GAAP condensed financial information presented in thousands of
Canadian dollars has been translated to U.S. dollars in the following
manner:
- Assets and liabilities have been translated using exchange rates at the
end of each reporting period.
- Revenues and expenses were translated at the average exchange rates
prevailing during the period.
- Share capital balances have been translated at historical rates in effect
at the time the capital transactions occurred.
- Cumulative translation gains and losses are reported as a separate
component of shareholders' equity.
16
<PAGE>
All translations were calculated using the following weighted average and
period end exchange rates:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
U.S. DOLLARS PER C$1.00 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 2000
----------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
--weighted average........... 0.7223 0.6743 0.6730 0.6794
--period end................. 0.6997 0.6534 0.6929 0.6636
</TABLE>
------------------------------
(i) For the translation of CliniChem, the translation for the period ended
December 31, 1998 is 0.6582.
3. Adjustments reflecting the differences between Canadian GAAP and U.S. GAAP
are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 2000
$'000 $'000 $'000 $'000
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Deferred charges (a)................. -- -- (3,128) (3,424)
Share of loss in a company subject to
significant influence (b).......... -- -- (3,496) 3,528
Deferred foreign exchange losses
(c)................................ -- (86) (400) 491
Loss on disposal of a long term
investment (d)..................... -- (85,004) -- --
------- ------- ------ ------
(85,090) (7,024) 595
</TABLE>
(a) Deferred charges
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), issued by the AICPA states that the costs of start-up
activities should be expensed as incurred. Pursuant to SOP 98-05, the
unamortized deferred charges consisting primarily of start-up costs have
been written off in the income statement under the caption "operating
expenses".
Adjustments (b) through (d) below appear in the pro forma income statements
under the caption "other income/(expenses), net".
(b) Share of loss in a company subject to significant influence
Under U.S. GAAP, the total investment in North American Vaccine Inc. (NAVA)
is reduced by $3,128,000 for the year ended December 31, 1999 in accordance
with requirements of the Emerging Issues Task Force 98-13 on accounting by
an equity method investor for investee losses when the investor has loans to
and investments in other securities of the investee. This adjustment was
reversed in the nine months ended September 30, 2000 as the investment in
NAVA was disposed of.
(c) Deferred foreign exchange losses
Under Canadian GAAP, unrealized foreign exchange gains and losses arising on
the translation of long-term monetary items are deferred and amortized over
the life of the item. Under U.S. GAAP, these gains and losses are included
in current period earnings as they arise.
(d) Loss on disposal of a long-term investment
Under U.S.GAAP, the distribution of CliniChem's Class A shares is reduced by
$85,004,000 and an equivalent loss on disposal of a long-term investment is
recorded.
4. Weighted average shares
Under Canadian GAAP, fully diluted earnings per share assumes that all the
outstanding options at the end of the year have been exercised at the
beginning of the year or at the date granted, if granted during the year,
and proceeds from the exercise of options have been used for investments.
Under U.S. GAAP, diluted earnings per share is calculated based on the
assumption that the options have been exercised at the beginning of the year
or at the date granted, if granted during the year, and proceeds from the
exercise of options were used at the beginning of the year or at the date
granted to acquire common shares of the company at the average market price.
5. Adjustments to expense the accumulated costs of deferred charges as
described in 3 (a) and (c) above.
6. Adjustments to reflect the realignment of BioChem's accounting policies to
conform with those of Shire under U.S. GAAP.
In 1998, BioChem spun-off to its shareholders its investment in CliniChem
Development, Inc. In connection with this spin-off, BioChem retained rights
in CliniChem, including that BioChem had an option to reacquire all shares
in CliniChem at any time. Under EITF 99-16, this transaction would result in
CliniChem continuing to be consolidated by BioChem as BioChem would have
significant continuing involvement in the operations of CliniChem. However,
at the time that CliniChem was spun-off, EITF 99-16 had not been issued and
BioChem elected to deconsolidate CliniChem, an acceptable accounting
principle at that time. The management of Shire believe that their
accounting policies would have required Shire to continue to consolidate
CliniChem, also an acceptable accounting alternative at the date of spin-off
and a policy that
17
<PAGE>
conforms with the later guidance issued under EITF 99-16.
The adjustments listed below represent the effects from:
(a) consolidating the financial position and results of operations of CliniChem,
and
(b) eliminating intercompany licensing revenues and costs.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999 2000
$'000 $'000 $'000 $'000
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Total revenue....................... -- (14,572) (49,973) (29,225)
Operating expenses.................. -- -- -- 11
Operating income/(loss)............. -- (14,572) (49,973) (29,214)
Interest income..................... -- 2,673 3,542 1,151
Income/(loss) before income taxes... -- (11,899) (46,431) (28,063)
Income taxes........................ -- 457 899 473
Net income/(loss) from continuing
operations........................ -- (11,442) (45,532) (27,590)
</TABLE>
These adjustments have been derived from the financial results of CliniChem
as follows:
<TABLE>
<CAPTION>
U.S. GAAP
CANADIAN GAAP CANADIAN GAAP ALIGNMENTS U.S.GAAP
INCOME STATEMENT DATA: CAN$'000 $'000 * $'000 $'000
---------------------- --------------- --------------- ---------- ---------
<S> <C> <C> <C> <C>
Period ended December 31, 1998
Total revenue........................................ 4,061 2,673 (2,673) --
Operating expenses................................... (21,379) (14,072) (500) (14,572)
Operating (loss)..................................... (17,318) (11,399) (3,173) (14,572)
Interest income...................................... -- -- 2,673 2,673
(Loss) before income taxes........................... (17,318) (11,399) (500) (11,899)
Income taxes......................................... (66) (43) 500 457
Net (loss)........................................... (17,384) (11,442) -- (11,442)
Year ended December 31, 1999
Total revenue........................................ 5,262 3,541 (3,541) --
Operating expenses................................... (72,917) (49,073) (900) (49,973)
Operating (loss)..................................... (67,655) (45,532) (4,441) (49,973)
Interest income...................................... -- -- 3,542 3,542
(Loss) before income taxes........................... (67,655) (45,532) (899) (46,431)
Income taxes......................................... -- -- 899 899
Net (loss)........................................... (67,655) (45,532) -- (45,532)
Nine months ended September 30, 2000
Total revenue........................................ 1,710 1,162 (1,151) 11
Operating expenses................................... (42,319) (28,752) (473) (29,225)
Operating (loss)..................................... (40,609) (27,590) (1,624) (29,214)
Interest income...................................... -- -- 1,151 1,151
(Loss) before income taxes........................... (40,609) (27,590) (473) (28,063)
Income taxes......................................... -- -- 473 473
Net (loss)........................................... (40,609) (27,590) -- (27,590)
</TABLE>
<TABLE>
<CAPTION>
CANADIAN CANADIAN
BALANCE SHEET DATA: GAAP GAAP U.S.GAAP
AS AT SEPTEMBER 30, 2000 CAN$'000 $'000 * $'000
------------------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and current investments.............................. 19,413 12,882 12,882
Other current assets...................................... 4,154 2,757 2,757
Accounts payable and accrued expenses..................... 5,714 3,792 3,792
Shareholders' equity...................................... 17,853 11,847 11,847
</TABLE>
In addition, as a result of the consolidation of the CliniChem figures
stated above, the investment shown in the financial statements of BioChem
within the caption "other assets" needs to be reversed. The value of this
adjustment is $5,929,000.
*Translation of Canadian dollars into U.S. dollars has been performed
according to the method set out in note 2 above.
18
<PAGE>
7. Pro forma weighted average ordinary shares have been calculated using the
exchange ratios of 1.8814, 2.3517 and 1.5678 which are the mid, highest and
lowest number of ordinary shares that can be issued for each BioChem share
under the terms of the merger agreement. Earnings per share information is
presented under the three scenarios to demonstrate the effect of the
exchange ratio on the pro forma results.
8. The exchange ratio of 1.8814 has been calculated by dividing an ADS price
per share of $37.00 by $59.00, which represents the mid range price, and
multiplying the result by three as per the terms of the merger agreement.
9. The calculation of weighted average number of shares for the years ended
December 31, 1999 and 1997 does not include potentially dilutive stock
options because their inclusion would be anti-dilutive in a loss making
year.
10. The unaudited pro forma combined income statement does not reflect costs
expected to be incurred by Shire and BioChem directly related to the merger
as these costs will not have a continuing impact on the financial results.
The costs attributable to professional fees, UK stamp duty tax levied on the
value of the Shire ordinary shares issued under the merger agreement and the
distribution of proxy materials are estimated at $[ ] million.
11. Refinancing of debt has not been reflected in the unaudited pro forma
combined income statements and balance sheet. Shire has not yet determined
whether to seek consent or to repay the amount outstanding.
19
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents certain historical per share data for Shire and
BioChem and unaudited pro forma and equivalent pro forma combined per share data
to reflect the consummation of the merger based upon the historical financial
results of Shire and BioChem presented under U.S. GAAP and the conversion of
each BioChem share into 0.6271 ADSs (the exchange ratio as of December 11, 2000
divided by three). The pro forma data are not necessarily indicative of actual
or future operating results or of the financial position that would have
occurred or will occur upon consummation of the merger. The data presented below
should be read in conjunction with the separate historical consolidated
financial statements of Shire and BioChem which are incorporated into this Proxy
Statement by reference.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------
SHIRE BIOCHEM PRO FORMA BIOCHEM EQUIVALENT
HISTORICAL HISTORICAL(1) COMBINED PRO FORMA(2)
---------- ------------- --------- ------------------
<S> <C> <C> <C> <C>
Basic earnings per ordinary share........... $0.15 $1.44 $0.42 $0.79
Diluted earnings per ordinary share......... 0.15 1.42 0.41 0.77
Basic earnings per ADS...................... 0.46 -- 1.25 2.36
Diluted earnings per ADS.................... 0.44 -- 1.22 2.30
Book value per ordinary share(3)............ 2.67 4.16 2.47 4.65
Book value per ADS.......................... 8.00 -- 7.42 13.95
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------
SHIRE BIOCHEM PRO FORMA BIOCHEM EQUIVALENT
HISTORICAL HISTORICAL(1) COMBINED PRO FORMA(2)
---------- ------------- --------- ------------------
<S> <C> <C> <C> <C>
Basic earnings per ordinary share.......... $(0.39) $0.57 $(0.08) $(0.15)
Diluted earnings per ordinary share........ (0.39) 0.56 (0.08) (0.15)
Basic earnings per ADS..................... (1.16) -- (0.24) (0.45)
Diluted earnings per ADS................... (1.16) -- (0.24) (0.45)
Book value per ordinary share(3)........... 2.40 2.50 1.93 3.63
Book value per ADS......................... 7.21 -- 5.79 10.90
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
SHIRE BIOCHEM PRO FORMA BIOCHEM EQUIVALENT
HISTORICAL HISTORICAL(1) COMBINED PRO FORMA(2)
---------- ------------- --------- ------------------
<S> <C> <C> <C> <C>
Basic earnings per ordinary share........... $0.09 $(0.16) $0.01 $0.01
Diluted earnings per ordinary share......... 0.08 (0.16) 0.01 0.01
Basic earnings per ADS...................... 0.26 -- 0.02 0.04
Diluted earnings per ADS.................... 0.25 -- 0.02 0.04
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
SHIRE BIOCHEM PRO FORMA BIOCHEM EQUIVALENT
HISTORICAL HISTORICAL(1) COMBINED PRO FORMA(2)
---------- ------------- --------- ------------------
<S> <C> <C> <C> <C>
Basic earnings per ordinary share........... $(0.45) $0.52 $(0.07) $(0.14)
Diluted earnings per ordinary share......... (0.45) 0.51 (0.07) (0.13)
Basic earnings per ADS...................... (1.36) -- (0.22) (0.41)
Diluted earnings per ADS.................... (1.36) -- (0.21) (0.40)
</TABLE>
NOTES
1. The comparative per share data for BioChem is extracted from the unaudited
pro forma combined condensed income statements. Per ADS information is not
applicable to the BioChem historical financial information.
20
<PAGE>
2. The equivalent pro forma per share amounts were calculated by multiplying
pro forma income per share and pro forma book value per share by the
exchange ratio of 1.8814, the median exchange ratio that can be used to
enact the merger.
The exchange ratio of 1.8814 has been calculated by dividing an ADS price
per share of $37.00 by $59.00, which represents the mid range price, and
multiplying the result by three as per the terms of the merger agreement.
3. The book value per share calculation represents the amount of shareholders'
equity, stated based on U.S. GAAP, divided by the number of shares
outstanding at each period end.
The number of shares assumed to be outstanding, on a pro forma basis using
the exchange ratio of 1.8814, at each period end are as follows:
<TABLE>
<S> <C>
At September 30, 2000 446,121,256
At September 30, 1999 434,537,019
At December 31, 1999 434,569,755
</TABLE>
21
<PAGE>
MARKET PRICE INFORMATION
Shire ADSs are listed and traded on Nasdaq under the symbol "SHPGY". Each
ADS represents three ordinary shares. Shire ordinary shares are admitted to the
official list of the United Kingdom Listing Authority and traded on the London
Stock Exchange under the symbol "SHP.L". BioChem ordinary shares are traded on
Nasdaq under the symbol "BCHE" and on the TSE under the symbol "BCH". The
following table presents the per share closing market prices for Shire ADSs on
Nasdaq, the closing mid-market quotation for Shire ordinary shares as quoted in
the Daily Official List of the LSE and the closing mid-market prices for BioChem
ordinary shares on Nasdaq and the TSE, for the periods indicated.
<TABLE>
<CAPTION>
SHIRE SHIRE BIOCHEM BIOCHEM BIOCHEM BIOCHEM
SHIRE SHIRE ORDINARY ORDINARY ORDINARY ORDINARY ORDINARY ORDINARY
ADSS ADSS SHARES SHARES SHARES SHARES SHARES SHARES
US$ US$ L L US$ US$ CAN$ CAN$
LOW HIGH LOW HIGH HIGH LOW HIGH LOW
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000
4th Quarter.............. 42.06 65.00 9.53 14.92 32.13 22.38 48.15 33.85
3rd Quarter.............. 51.38 60.63 11.35 13.69 24.75 19.75 36.75 29.30
2nd Quarter.............. 33.19 59.75 7.37 12.40 25.25 21.63 37.10 31.30
1st Quarter.............. 28.31 67.19 5.98 14.28 34.63 21.13 49.50 30.65
1999
4th Quarter.............. 27.44 35.06 5.59 7.34 25.75 19.63 37.85 29.05
3rd Quarter.............. 23.75 29.31 5.01 6.13 26.88 19.56 39.50 29.25
2nd Quarter.............. 18.88 26.00 3.96 5.28 23.00 17.88 34.30 27.10
1st Quarter.............. 19.13 25.50 3.74 5.17 29.25 20.00 44.80 30.15
1998
4th Quarter.............. 18.63 22.50 3.46 4.35 28.63 17.44 44.10 26.60
3rd Quarter.............. 16.56 27.81 2.94 5.41 26.94 15.31 40.00 24.10
2nd Quarter.............. 19.00 23.00 3.80 4.44 27.00 23.25 39.90 33.40
1st Quarter.............. 20.00 21.44 2.87 4.10 24.36 17.59 35.05 25.10
</TABLE>
On December 8, 2000, the last trading date before public announcement of the
execution of the merger agreement, the closing price per Shire ADS was $51 9/16
and the closing mid-market quotation per Shire ordinary share was L12.29. The
closing price per BioChem ordinary share was $26 1/2 and CAN$40.00. On January
[ ], such per share prices were [ ], [ ] and [ ] [ ].
On [ ], there were approximately [ ] issued and outstanding ADSs and [ ]
ordinary shares in issue, including ordinary shares underlying ADSs. On that
date, approximately [ ]% of the ADSs were held in the US by [ ] record
holders, one of which is The Depository Trust Company. On [ ], there were
approximately [ ] issued and outstanding shares of BioChem common stock, of
which [ ]% were held in the US by [ ] record holders.
22
<PAGE>
SHAREHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
Only shareholders of record at the close of business on [ ], 2001 will
be entitled to vote at the meeting. On that date there were ordinary
shares of the Company, nominal value 5p each, outstanding and entitled to vote
at the Extraordinary General Meeting, of which [ ] were held in the name of
Guarantee Nominees Limited, as nominee for Morgan Guaranty Trust Company of New
York as depositary (the "Depositary"), which issues Company sponsored American
Depositary Receipts ("ADRs") evidencing American Depositary Shares ("ADSs")
which, in turn, each represent three ordinary shares.
Each registered holder of ordinary shares present in person at the meeting
is entitled to one vote on a show of hands, and every holder present in person
or by proxy shall, upon a poll, have one vote for each ordinary share held by
such holder. In the event that the proxy card is executed but does not indicate
by marking a vote "FOR," "AGAINST" or "ABSTAIN" the proxy may vote or abstain at
his discretion.
A member entitled to attend and vote may appoint one or more proxies to
attend and, on a poll, vote instead of him. A proxy need not also be a member.
The appointment of a proxy will not preclude a Shire shareholder from attending
and voting in person at the meeting if he or she so desires.
Proxy voting cards from holders of ordinary shares must be received by
Shire's registrar, Lloyds TSB Registrars, The Causeway, Worthing, West Sussex,
BN99 3UH, not later than on , 2001 (or not less than forty-eight
hours before any adjournment of the meeting.)
A deposit agreement exists between Morgan Guaranty Trust Company and the
holders of ADRs pursuant to which holders of ADRs are entitled to instruct the
depositary as to the exercise of voting rights pertaining to the ordinary shares
so represented. The depositary has agreed it will endeavor, insofar as
practicable, to vote (in person or by delivery to Shire of a proxy) the ordinary
shares registered in its name in accordance with the instructions of the ADR
holders. Instructions from the ADR holders should be sent to the depositary so
that the instructions are received by no later than the close of business on
, , 2001.
Any holder of ADRs giving instructions to the depositary has the power to
revoke the instructions by delivery of notice to the depositary at Morgan
Guaranty Trust Company of New York, Depositary, P.O. Box 9393, Boston, MA
02205-9958 at any time so that the depositary receives, by no later than the
close of business on , , 2001, duly executed instructions bearing a
later date or time than the date or time of the instructions being revoked.
Shire will, in future proxy statements, include shareholder proposals
complying with the applicable rules of the US Securities and Exchange Commission
and any applicable US state laws. In order for a proposal by a shareholder to be
included in the proxy statement relating to the Annual General Meeting of Shire
to be held in 2001, that proposal must be received in writing by the Secretary
of the Company at the Company's principal executive office no later than - .
The cost of soliciting proxies in the form enclosed will be borne by the
Company. In addition to the solicitation by mail, proxies may be solicited
personally, or by telephone, or by employees of the Company. The Company may
reimburse brokers, custodians, nominees, the depositary and other record holders
of Shire's ordinary shares or ADRs for their expenses in sending proxy material
to the beneficial owners of such ordinary shares.
23
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING
WHETHER TO VOTE FOR OR AGAINST THE APPROVAL OF THE MERGER.
RISK FACTORS RELATING TO THE MERGER
IF WE DO NOT SUCCESSFULLY INTEGRATE OUR OPERATIONS WITH BIOCHEM, THE MERGER
MAY NOT BENEFIT US OR OUR SHAREHOLDERS.
The combination of Shire and BioChem involves the integration of separate
companies that have previously operated independently. In the event the
integration is not completed successfully or takes longer than planned, the
anticipated benefits of the merger may be lost or delayed. We cannot assure you
that we will be able to integrate the operations of BioChem without encountering
difficulties or experiencing the loss of key employees, customers or suppliers.
In addition, the operations and management of the two companies must be
successfully integrated to achieve the potential benefits that were a factor in
our board's approving the merger.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF YOUR PERCENTAGE EQUITY
AND VOTING INTEREST.
We will issue up to 254,707,924 ordinary shares in connection with the
merger, depending on the exchange ratio (and assuming all existing BioChem
shareholders exchange their BioChem shares for ordinary shares pursuant to the
merger and excluding any shares to be issued pursuant to the exercise of options
under the BioChem Stock Option Plans or other rights). We will also convert
BioChem options and other rights into options and rights to purchase
approximately [ - ] ordinary shares. If we issue the maximum number of
254,707,924 ordinary shares which may be issued pursuant to the merger, these
options and rights would represent approximately [ - ]% of the outstanding
ordinary shares on a fully-diluted basis as of - , 2001. Accordingly, the
merger will have the effect of substantially reducing the percentage equity and
voting interest held by each of our shareholders.
AT THE TIME YOU MAIL BACK YOUR PROXY, WE MAY NOT KNOW HOW MANY ORDINARY
SHARES WE WILL BE ISSUING IN THE MERGER.
Under the terms of the merger agreement we may issue up to 254,707,924
ordinary shares, based on the average trading price of the ADSs for the fifteen
consecutive trading days ending three days before the date the merger is
consummated (assuming all existing BioChem shareholders exchange their BioChem
shares for ordinary shares pursuant to the merger and excluding any shares to be
issued pursuant to the exercise of options under the BioChem Stock Option Plans
or other rights). This means that if the ADS price drops between the time you
mail back your proxy and the time the exchange ratio is calculated, the total
maximum number of ordinary shares we may issue may have increased.
RISK FACTORS RELATING TO BIOCHEM
BIOCHEM RELIES ON COLLABORATIVE RELATIONSHIPS WITH THIRD PARTIES WHOSE
INTERESTS MAY DIFFER.
BioChem can make no assurances regarding the future results or performance
of its existing or future agreements and collaborations. Additionally, there can
be no assurance that BioChem will be able to negotiate other acceptable
arrangements in the future or that any existing or future collaborations will be
successful.
There can be no assurance that the collaborators' interests are or will
remain consistent with those of BioChem or that they will succeed in developing
any new marketable products or obtaining requisite government approvals. Should
BioChem and its collaborators fail to develop any new marketable products,
obtain the requisite regulatory approvals or market any of such products
successfully, BioChem's business, financial condition and results of operations
may be materially and adversely affected. In addition, BioChem cannot control
the amount and timing of resources which its collaborators devote to BioChem's
programs. Certain of these agreements do not prevent the collaborators from
pursuing alternative technologies that could result in their developing products
24
<PAGE>
competitive with those products developed under BioChem's collaborative
agreements. The agreements may be terminated by the collaborators in certain
circumstances with limited notice, and the collaborators may thereupon acquire
certain rights to the products under development.
BIOCHEM MAY HAVE PROBLEMS MANUFACTURING ITS PRODUCTS.
Except for the BCG therapeutic product, marketed under the trade name PACIS,
and the influenza vaccine Fluviral, BioChem currently has no manufacturing
facilities for commercial production of any of its therapeutic or vaccine
products approved or under development. BioChem is relying on GlaxoSmithKline's
manufacturing capabilities and resources for the manufacture of 3TC and Zeffix
pursuant to the terms of the agreements entered into with GlaxoSmithKline.
BioChem believes that GlaxoSmithKline presently has the facilities available to
manufacture an amount of 3TC and Zeffix to supply sufficient commercial
quantities of the compound.
In the vaccine area, BioChem must continue to develop, adapt or acquire the
facilities, production technology and technical and managerial personnel to
manufacture products in commercial quantities and in compliance with applicable
quality assurance and environmental and local government regulations. In the
therapeutics and CADx areas, BioChem will have to develop or acquire the
facilities, production technology and technical and managerial personnel to
manufacture products unless it decides to rely exclusively on third parties for
the manufacture of its products. Certain products that BioChem is attempting to
develop have never been manufactured on a commercial scale and there can be no
assurance that such products can be manufactured by BioChem or any other party
at a cost or in a quantity to render such products commercially viable.
Production of such products may require the development of new manufacturing
technologies and expertise.
BIOCHEM'S ONGOING SUCCESS IS DEPENDENT ON MAINTAINING PATENT PROTECTION FOR
ITS PRODUCTS.
No assurance can be given that patents will issue from any pending
applications or that claims allowed, now or in the future, under issued patents
will be sufficiently broad to protect BioChem's technology. In addition, no
assurance can be given that any patents issued to, or licensed by, BioChem will
not be challenged, invalidated, infringed or circumvented, or that the rights
granted thereunder will provide competitive advantages to BioChem. The
commercial success of BioChem will also depend in part on BioChem not infringing
patents or proprietary rights of others and not breaching the licenses granted
to BioChem. The degree of patent protection afforded to pharmaceutical or
biotechnological inventions around the world is uncertain. A number of products
important to BioChem are subject to this uncertainty. BioChem is aware of
certain issued patents and patent applications of others, and there may be other
patents and patent applications, containing subject matter which BioChem or its
licensees or collaborators may require in order to research, develop or
commercialise certain of BioChem's products. There can be no assurance that
BioChem will be able to obtain a license to any third-party technology or
patents that it may require to conduct its business or that such technology or
patents can be licensed at a reasonable cost. Failure by BioChem or its
collaborators to obtain a license to any technology or patents that it may need
to commercialise its technologies or products may result in delays in marketing
BioChem's proposed products or the inability to proceed with the development,
manufacture or sale of products requiring such licenses and may have a material
adverse effect on BioChem.
Emory University filed oppositions to two of BioChem's granted patent
applications in Europe which cover oxathiolane nucleosides including lamivudine
and dioxolane nucleosides, including troxacitabine, related nucleoside analogs
and use of these analogs for treating viral infections. In oral hearings held in
1999, both of these oppositions were dismissed by the Opposition Division of the
European Patent Office. Emory University has filed an appeal against the
dioxolane related decision of the Opposition Division. Emory University is not
pursuing its appeal of the decision relating to oxathiolanes. However, there can
be no assurance that Emory University will not file revocation actions with
respect to any BioChem patents that issue in individual European countries.
There can also be no assurance that BioChem will be successful in defeating
Emory's appeal against the decision of the
25
<PAGE>
Opposition Board dismissing Emory's opposition against BioChem's granted patent
application covering dioxolane nucleosides, including troxacitabine.
In Japan, Emory University filed an opposition to BioChem's granted patent
which covers lamivudine, related analogs and use of the analogs for treating
viral infections. The Trial Board of the Japanese Patent Office dismissed Emory
University's opposition to BioChem's patent covering lamivudine. It is always
possible that Emory University could file a revocation action against this
patent.
Emory University has filed revocation actions in Australia and South Korea
against BioChem's granted patents covering lamivudine. Although BioChem is
aggressively defending its patents, there can be no assurance that BioChem will
be successful in maintaining these patents.
On July 23, 1996, Emory University filed a complaint in the United States
alleging infringement from the commercialisation of Epivir by BioChem and
GlaxoSmithKline, BioChem's exclusive licensee in the US, of an Emory University
US patent granted that same day. BioChem considers this patent infringement suit
to be without merit and has successfully challenged the validity of Emory
University's patent as detailed below.
On May 19, 1998, the United States Patent and Trademark Office (the "USPTO")
declared an interference between the Emory University patent that is the subject
of the lawsuit and a pending patent application of BioChem. The USPTO accorded
BioChem the earlier priority date and then accorded BioChem senior party status
in the interference. BioChem has vigorously challenged the Emory University
patent in the interference, through to a final hearing on November 10, 1999. The
Board of Patent Appeals and Interferences issued a decision on December 21, 2000
invalidating Emory's patent. There can be no assurance that Emory University
will not appeal the decision and that Emory's patent will not be reinstated.
Emory University has obtained a granted patent application in Europe
relating to oxathiolane nucleosides, including lamivudine. BioChem and
GlaxoSmithKline filed an opposition to this grant and are vigorously opposing
the grant. However, there can be no assurance that BioChem and GlaxoSmithKline
will be successful in opposing Emory's claim relating to lamivudine.
An examined patent application, filed by Emory University claiming
lamivudine, was successfully opposed by BioChem in Australia. Emory University
has filed an appeal from that decision in the Federal Court of Australia.
BioChem also filed an appeal from certain portions of the decision. There can be
no assurance that BioChem will be successful in the appeal. An examined patent
application filed by Emory University claiming lamivudine was also opposed by
BioChem in Japan. The opposition was dismissed in April 1999 because it was
improperly filed by a representative who had previously represented Emory.
Notwithstanding the dismissal, the Japanese Patent Office issued an EX-OFFICIO
action rejecting all of Emory University's claims. An examined patent
application filed by Emory claiming lamivudine has been opposed by BioChem and
GlaxoSmithKline in South Korea. However, there can be no assurance that this
opposition will be successful in invalidating Emory's claims relating to
lamivudine. BioChem is also aware that Emory University has filed patent
applications in other countries, which BioChem believes may claim similar
subject matter. BioChem intends to challenge such patent applications; however
there can be no assurance that BioChem will be successful in challenging such
patent applications in all countries where Emory University has sought patent
rights. In the event that BioChem were to be unsuccessful in opposing such
patent applications or any patents which may be issued, BioChem's business,
financial condition and results of operations could be materially adversely
affected.
On November 23, 1999, the USPTO declared an interference between BioChem's
hepatitis B patent for lamivudine and a patent application filed by Yale
University ("Yale") claiming methods of treating hepatitis B using lamivudine.
BioChem believes that this application is licensed to Vion
Pharmaceuticals, Inc. ("Vion"), formerly know as OncoRx, Inc., a New Haven,
Connecticut-based company. BioChem believes that its patent is valid and intends
to vigorously defend the patent.
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<PAGE>
However, there is no guarantee that BioChem will be successful in defending its
patent. It is always possible that Yale will obtain a patent in the US covering
methods of treating hepatitis B using lamivudine. There can be no assurance that
BioChem would be able to obtain a license at a reasonable cost from Yale or
Vion.
On April 14, 2000, the USPTO declared a further interference between
BioChem's hepatitis B patent for lamivudine and a patent application by
GlaxoSmithKline claiming methods of treating hepatitis B using lamivudine.
BioChem is not aware of corresponding patent applications by Yale University
or Vion in countries other than the United States.
BioChem is aware that others, including various universities and
biotechnology companies, have also filed patent applications or have obtained
granted patents in the United States and other countries claiming subject matter
potentially useful or necessary to BioChem's business. Some of these patents and
applications claim specific products or methods of making such products, while
others claim more general processes or techniques useful or now used in the
pharmaceutical and biotechnology industries. With respect to the patents
directed to general processes or techniques, BioChem believes that non-exclusive
licenses have been made available under several of these patents to the industry
for many, but not all, fields of use. The ultimate scope and validity of these
patents and other existing patents or patent applications which may be granted
to third parties in the future, the extent to which BioChem may desire or be
required to acquire rights under such patents, and the availability and costs of
acquiring such rights presently cannot be determined by BioChem. In the event it
is necessary for BioChem to obtain such rights or, if such rights are not
available on reasonable terms, BioChem's business, financial condition and
results of operations may be adversely affected. There can be no assurance that
others have not obtained or will not obtain patent protection that will preclude
BioChem from commercialising its products.
Litigation, which could result in substantial cost to BioChem, may also be
necessary to enforce or defend any patents issued to BioChem or to determine the
scope and validity of other parties' proprietary rights, which may affect
BioChem's products and technology. If the outcome of any such litigation is
adverse to BioChem, BioChem's business could be materially adversely affected.
To determine the priority of invention, BioChem may also have to participate in
interference proceedings declared by the United States Patent and Trademark
Office, which could result in substantial cost to BioChem.
Under United States patent law, a patent is issued to the person who made
the invention first, rather than to the first person to file an application
therefor, as is common in other countries. Until recently, in determining who is
entitled to a United States patent on a particular technology, only acts in the
United States (not other countries) were relevant. After December 8, 1993
inventors could rely on inventive activities in Canada or Mexico and after
January 1, 1996 on activities in any other country. As a result, since BioChem
conducted a substantial amount of its research activities in Canada before
December 8, 1993, it is at a disadvantage as to inventions made prior to
December 8, 1993 with respect to obtaining United States patents, as compared to
companies that maintained research facilities in the United States.
There has been, and BioChem believes that there may be in the future,
significant litigation in the industry regarding patent and other intellectual
property rights and that, if BioChem becomes involved in such litigation, it
could consume substantial resources. Significant legal issues remain as to the
extent to which patent protection may be afforded in the field of biotechnology
in Canada, the United States and other countries, and the scope of any such
protection has not yet been broadly tested. BioChem, therefore, also relies upon
trade secrets, know-how, and continuing technological advancement to develop and
maintain its competitive position. Disclosure and use of BioChem's know-how is
generally controlled in part under confidentiality agreements with the parties
involved. In addition, BioChem has confidentiality agreements with its key
employees, consultants, officers and directors. There can be no assurance,
however, that all confidentiality agreements will be honored, that others will
not
27
<PAGE>
independently develop equivalent technology, that disputes will not arise as to
the ownership of intellectual property, or that disclosure of BioChem's trade
secrets will not occur. Furthermore, there can be no assurance that others have
not obtained or will not obtain patent protection that will exclude BioChem from
using its trade secrets and confidential information. BioChem supports and
collaborates in research conducted in universities and in government research
organisations. There can be no assurance that BioChem will have or be able to
acquire exclusive rights to inventions or technical information derived from
such collaboration or that disputes would not arise as to rights in derivative
or related research programs conducted by BioChem. In addition, in the event of
BioChem's contractual breach or bankruptcy, certain of BioChem's collaborative
research contracts provide for transfer of technology (including any patents or
patent applications) to the collaborators. See "Significant Agreements". To the
extent that consultants or research collaborators use intellectual property
owned by others in their work with BioChem, disputes may also arise as to the
rights to related or resulting know-how or inventions.
MANY COMPANIES HAVE PRODUCTS THAT MAY OR WILL SOON BE COMPETING WITH
BIOCHEM'S PRODUCTS.
For certain of BioChem's potential products, an important factor in
competition may be the timing of market introduction of BioChem's or
competitors' products. Accordingly, the relative speed with which BioChem or
BioChem's present and future collaborative partners can develop products,
complete the clinical trials and approval processes, and supply commercial
quantities of the products to the market are key factors for competitiveness.
BioChem's competition will be determined in part by the potential indications
for which BioChem's products are developed and ultimately approved by regulatory
authorities. The development by competitors of new prophylactic, treatment or
detection methods for those indications for which BioChem is developing products
could render BioChem's products non-competitive or obsolete. BioChem expects
that competition among products approved for sale will be based, among other
things, on product efficacy, safety, reliability, availability, price and
intellectual property protection.
BioChem's competitive position also depends upon its ability to secure
additional market acceptance and reimbursement of Zeffix. There can be no
assurance that Zeffix will secure additional market acceptance or that any of
BioChem's products in development will achieve market acceptance. The degree of
market acceptance will depend upon a number of factors, including the receipt of
regulatory approvals, the establishment and demonstration in the medical
community of the clinical efficacy and safety of BioChem's product candidates,
and the establishment and demonstration of the potential advantages over
existing and new treatment methods and reimbursement policies of government and
third-party payors. There can be no assurance that physicians, patients, payors
or the medical community in general will accept and utilize any existing or new
products that may be developed by BioChem. Additionally, BioChem's competitive
position depends on its ability to attract and retain qualified personnel,
obtain patent protection, or otherwise develop proprietary products or
processes, establish collaborative relationships and secure manufacturing.
In the medical software market, BioChem faces numerous large competitors who
have substantial resources and innovative technologies. With regards to Second
Look, competition within the market for computer-assisted detection systems for
mammography will primarily be with two privately held technology companies, R(2)
Technologies ("R(2)"), in Los Altos, California, and Scanis Inc., in Foster
City, California. R(2) is presently commercializing a product known as
ImageChecker. R(2) also signed an agreement with G.E. Medical Systems ("G.E.")
to distribute a digital version of R(2)'s Computer Aided Detection (CAD) System,
for use with G.E.'s full-field digital mammography system. Other high technology
companies with advanced artificial intelligence capabilities are possible
entrants.
RISK FACTORS RELATING TO SHIRE
For a discussion of risk factors relating to Shire, see Shire's annual
report for the year ended December 31, 1999 on Form 10-K, which is incorporated
by reference in this proxy statement.
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DESCRIPTION OF BIOCHEM
BioChem Pharma Inc. ("BioChem") is an international specialty pharmaceutical
company involved in the research and development of innovative products for the
prevention, detection and treatment of human diseases.
BioChem's most significant therapeutic products, which have been developed
with GlaxoSmithKline, are 3TC and Zeffix. 3TC is an orally available formulation
of lamivudine for the treatment of patients with HIV infection and AIDS. 3TC is
currently marketed in 100 countries and achieved sales of CAN $1.3 billion in
1999. Zeffix is the first and only orally available treatment for chronic
hepatitis B infection and for the prevention of liver graft reinfection. Zeffix
was first approved outside of the Philippines and Canada in 1999. Zeffix is
approved in over 69 countries and has been launched in over 45 countries. Zeffix
achieved worldwide sales of $36 million in 1999. In August 2000, the Asia
Pacific Consensus Group on the Prevention and Management of Chronic Hepatitis B
and C endorsed Zeffix as a key treatment option for a broad range of chronic
hepatitis B patients.
In September 1997, the US Food and Drug Administration ("FDA") authorized
the marketing of Combivir, the first product to combine two antiretroviral drugs
in a single tablet formulation. Each tablet of Combivir contains 3TC and AZT and
can be taken twice daily, offering the advantage of reducing significantly the
number of tablets a person on a 3TC/AZT based treatment regimen needs to take.
This reduction simplifies the complex multi-drug treatment regimens, thus
potentially enhancing patient adherence to therapy schedules. The European
Commission gave approval to market Combivir in the 15 member states of the
European Union on March 18, 1998. In Canada, the Canadian Health Protection
Branch ("HPB") approved Combivir on December 4, 1998.
On March 24, 1999, the FDA granted approval for expanded prescribing
information regarding the use of 3TC in infants, children and adolescents. In
addition, this approval included an important revision to the indication for use
of 3TC in combination with any other antiretroviral agent for the treatment of
HIV infection in adults and children. On November 15, 2000, the FDA authorized
the marketing of Trizivir in the United States. Each tablet of Trizivir contains
3TC, AZT and abacavir and can be taken twice daily. Trizivir is the first tablet
to combine three anti-HIV agents, thus making it the simplest triple combination
antiretroviral therapy available with the potential to enhance patients'
adherence to their therapy schedule. On January 4, 2001, the European Commission
authorized the marketing of Trizivir in the 15 member states of the European
Union.
BioChem's most advanced therapeutic product candidates are being developed
principally for use in the treatment of cancers and infectious diseases.
BioChem's most advanced product candidate for cancer is Troxatyl
("troxacitabine"), a nucleoside analog in clinical development to treat various
forms of cancer. Troxatyl began Phase II monotherapy trials in 1999. Because
anticancer agents are generally used in combination, multiple Phase I trials
studying the use of Troxatyl in combination therapy with other chemotherapeutic
agents also are underway.
BioChem is also engaged in the research and development of vaccines for
human use. BioChem's direct sales force is marketing a split virus influenza
vaccine developed and manufactured by BioChem to healthcare providers across
Canada.
BioChem's vaccine product candidates include a new cell culture-based
influenza vaccine using a novel proprietary cell line and high-cell density
microcarrier technology, which are licensed to GlaxoSmithKline. BioChem is also
involved in research and development of new recombinant protein-based bacterial
vaccines. One of these vaccine candidates has progressed to the clinical
development stage--a NEISSERIA MENINGITIDIS vaccine is in Phase I. In addition,
STREPTOCOCCUS PNEUMONIAE and PSEUDOMONAS AERUGINOSA vaccines are in pre-clinical
development.
On March 15, 2000, BioChem announced that it had completed the divestiture
of its diagnostics division, BioChem ImmunoSystems Inc. ("ImmunoSystems").
ImmunoSystems' minority shareholder
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and a management group assumed ownership of the diagnostics business and
contributed CAN$5 million of capital. BioChem received a CAN$54 million
debenture to be paid out of future cash flows.
On April 3, 2000, BioChem announced that it had concluded a partnership
agreement with the Canadian government through Technology Partnership Canada
("TPC"). Under the agreement, the federal government of Canada has agreed to
invest up to CAN$80 million in the development of BioChem's recombinant-protein
vaccines over an approximately six-year period.
On June 26, 2000, BioChem sold its stake in North American Vaccine, Inc. The
gain on the sale was CAN$137 million, with cash proceeds of CAN$167 million.
Until January 1, 2000, BioChem conducted its vaccines operations through
BioChem Vaccines Inc., a wholly-owned subsidiary which was at that date
amalgamated with BioChem. In June 1998, BioChem established BioChem
Pharma, Inc., a wholly-owned subsidiary incorporated under the laws of Delaware,
to operate in the US. Until the sale of its diagnostics business on March 14,
2000, that business was carried out through BioChem's 91.0%-owned subsidiary,
BioChem ImmunoSystems Inc., and its subsidiaries.
In 1998, CliniChem Development Inc. ("CliniChem") was formed by BioChem for
the purpose of conducting the clinical development of certain of its therapeutic
and vaccine products with a goal of commercializing such products. Such
activities have been contracted to BioChem. BioChem contributed CAN$150 million
to CliniChem as a capital contribution and then made a dividend-in-kind to the
shareholders of BioChem in June 1998 of all the Class A Common Shares of
CliniChem. BioChem had an option to purchase all of the outstanding CliniChem
Class A Common Shares at a price to be set according to a predetermined formula.
On January 10, 2000, BioChem announced its plan to exercise its purchase
option of all the outstanding CliniChem Class A Common Shares upon depletion of
CliniChem's financial resources, which was expected sometime before year-end.
On October 26, 2000, BioChem announced it had elected to exercise its option
to purchase all the outstanding CliniChem Class A Common Shares and the sending
to holders of Class A Common Shares of a notice of exercise at a cash purchase
price of CAN$18.43 per share. The purchase was completed on December 15, 2000
and CliniChem was merged into BioChem as of January 1, 2001.
As of December 31, 2000, BioChem had a total of 476 employees.
THERAPEUTIC PRODUCTS
BioChem's most advanced therapeutic product candidates are currently
directed at providing innovative medicines principally in the anticancer and
anti-infective areas. BioChem's research and development activities are either
done internally or through contracts and strategic alliances (see "Significant
Agreements").
BioChem shares commercialization rights for 3TC and Heptovir (as Zeffix is
known in Canada) with GlaxoSmithKline in Canada and has granted to the latter
exclusive commercialization rights in the rest of the world.
In the pain control area, where markets are broader and therefore the
resources needed for the development and commercialization are greater, BioChem
has established a partnership with AstraZeneca plc.
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The following table represents BioChem's therapeutic products and research
and development programs:
<TABLE>
<CAPTION>
PRODUCT/CANDIDATE INDICATION DEVELOPMENT STATUS* COMMERCIAL RIGHTS
------------------------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
3TC/Epivir HIV/AIDS On the market BioChem/GlaxoSmithKline
Zeffix/Epivir-HBV/ Hepatitis B infection On the market BioChem/GlaxoSmithKline
Heptovir/Heptodin
Combivir HIV/AIDS On the market BioChem/GlaxoSmithKline
Trizivir HIV/AIDS On the market BioChem/GlaxoSmithKline
PACIS Bladder cancer On the market BioChem
Troxatyl Cancer In development--Phase II BioChem
Frakefamide (BCH-3963) Pain control In development--Phase II BioChem/AstraZeneca
In development--pre-
BCH-10618 ((-)dOTC) HIV/AIDS clinical BioChem
In development--pre-
BCH-13520 HIV/AIDS clinical BioChem
Tubulin polymerisation Cancer Lead optimization BioChem/Maxim
inhibitors
Troxatyl Prodrugs Cancer Lead optimization BioChem
Angiolytics Cancer Lead optimization BioChem/Adherex
Hepatitis C Hepatitis C Lead optimization BioChem
Gr+ antibiotic Antibacterial Lead optimization BioChem/Microbiotix
</TABLE>
--------------------------
* Indicates product development status. "Research", not used here, includes
exploratory biology and chemistry, development of screening assays, high
throughput screening ("HTS"), DE NOVO product design and synthesis. "Lead
optimization" means modifying a lead molecule in order to optimize its
potency, safety, metabolic stability and drug-like properties for
progression to Pre-clinical. "Pre-clinical" denotes efficacy,
pharmacological and toxicity studies in animal models necessary to support
an application to initiate human clinical testing. Human clinical trials for
BioChem's drugs and biological products are conducted in three phases.
"Phase I" clinical trials are generally conducted in healthy volunteers to
determine pharmacokinetics and safety. "Phase II" clinical trials are
conducted to gain preliminary information regarding efficacy and dosing
regimen and additional safety information. The final stage is "Phase III",
in which studies are conducted to provide sufficient statistical data
regarding safety and efficacy to support an application for marketing
approval of a new drug or license of a biological product. In the case of
HIV/AIDS and cancer and certain other life-threatening diseases for which
there is an urgent need for treatment, the FDA may grant approval under its
accelerated approval regulations, based on analysis of surrogate endpoints
even when definitive information on efficacy and long-term safety is not yet
available. Manufacturers of accelerated approval drugs are then required to
conduct more definitive clinical endpoint studies to confirm the drug's
effect on the clinical endpoints of the disease. "In registration", not used
here, means a license application to market the product has been filed in
one or more countries but has not yet been approved.
AIDS/HIV INFECTION
MARKET
The World Health Organization (the "WHO") estimates that, as of the end of
2000, 36.1 million people worldwide had been infected with HIV, the virus that
leads to the development of AIDS. The WHO estimates that, as of the end of 2000,
approximately 920,000 people were infected with HIV in North America and 540,000
in Western Europe and 700,000 in Eastern Europe. In North America, it is
estimated that there were 20,000 new infections in the past year. Of these newly
infected people, the Centers for Disease Control ("CDC") estimates that half are
younger than 25 years of age and were infected sexually. Worldwide, there were
approximately 14,500 new HIV infections per day in 2000, totaling 5.3 million
new infections during the year. More than 95 percent of these new infections
occurred in developing countries. HIV infection and AIDS was the fourth leading
cause of death worldwide in 2000 resulting in an estimated 3 million deaths, the
highest number of AIDS death ever.
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According to WORLD-WIDE ANTIRETROVIRAL SALES, IMS REPORT, in 2000, the
antiretroviral (anti-HIV) market will reach $3.5 billion in sales, with reverse
transcriptase inhibitors representing 54% of the market ($2 billion). The vast
majority of the sales were generated in North America and Western Europe.
PRODUCT ON THE MARKET--3TC
The therapeutic product 3TC (lamivudine) is indicated for the treatment of
HIV infection and AIDS. 3TC is one of a novel class of nucleoside analogs with a
heterocyclic surrogate sugar ring discovered and synthesized by BioChem
scientists which targets the HIV reverse transcriptase enzyme and interferes
with HIV replication. 3TC was first approved in the United States on
November 17, 1995 where it is marketed as Epivir. Approval in Canada shortly
followed on December 8, 1995. The Committee on Proprietary Medicinal Products
("CPMP") and the EMEA on August 8, 1996 gave full approval under exceptional
circumstances for the 15 member states of the European Union. On September 29,
1997, the FDA authorized the marketing of Combivir, the first product to combine
two antiretroviral drugs in a single tablet formulation. Each tablet of Combivir
contains 3TC and AZT and can be taken twice daily, offering the advantage of
reducing significantly the number of tablets a person on a 3TC/AZT based
treatment regimen needs to take. This reduction is simplifying the complex
multi-drug treatment regimens, thus enhancing patient adherence to therapy
schedules. The European Commission gave approval to market Combivir in the 15
member states of the European Union on March 18, 1998. In Canada, the HPB
approved Combivir on December 4, 1998.
In December 1999, GlaxoSmithKline filed regulatory submissions to the FDA,
EMEA and HPB seeking marketing approval for Trizivir. Trizivir is the first
product to combine three antiretroviral drugs in a single tablet formulation.
Each tablet of Trizivir contains 3TC, AZT and abacavir and can be taken twice
daily. Trizivir is the simplest triple combination antiretroviral therapy
available with the potential to enhance patients' adherence to their therapy
schedule. On November 15, 2000, the FDA authorized the marketing of Trizivir in
the United States. On January 4, 2001, the European Commission authorized the
marketing of Trizivir in the 15 member states of the European Union. In the
United States, Trizivir is indicated alone or in combination with other
antiretroviral agents for the treatment of HIV infection and it is intended only
for patients whose regimen would otherwise include abacavir, lamivudine (3TC)
and zidovudine (AZT). GlaxoSmithKline is also currently developing a once-a-day
formulation of 3TC.
The results from four pivotal trials and from the clinical endpoint study of
3TC demonstrate the safety and efficacy of 3TC, and have successfully
established 3TC as the cornerstone of combination therapy in HIV infection. In
fact, those positive results together with 3TC's ease of administration (one
tablet twice a day, independently of food intake) helped pave the way to combine
antiretrovirals for maximum clinical benefit and compliance. They also led to
3TC being used in the majority of triple and quadruple combination therapies
with other nucleoside analogs, protease inhibitors and non-nucleoside reverse
transcriptase inhibitors ("NNRTI").
3TC is available for sale and marketing in approximately 100 countries and
is the most widely prescribed medication for HIV and AIDS in the world. Combivir
is available for sale and marketing in more than 80 countries. On March 24,
1999, the FDA granted approval for expanded prescribing information on the use
of 3TC in infants, children and adolescents. In addition, this approval included
an important revision to the indication for use of 3TC in combination with any
other antiretroviral agent for the treatment of HIV infection in adults and
children. Since its first marketing approval in 1995, 3TC has been used safely
in combination with many other antiretroviral agents, and was part of the
pivotal clinical trials used as part of the basis for approval of five other HIV
antiretroviral agents: the nucleoside analog abacavir, the NNRTI efavirenz, and
the protease inhibitors indinavir, nelfinavir and amprenavir.
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Resistance to drugs is one of the most significant challenges in HIV/AIDS
therapy and viral resistance testing is used increasingly by physicians to
detect mutations and help decide whether a patient should switch to a new
treatment combination. Data presented at the Third International Workshop on HIV
Drug Resistance and Treatment Strategies in San Diego on June 24, 1999 suggests
that combination therapies which contain 3TC remain potent and continue to
suppress HIV even in presence of 3TC resistant mutants.
BioChem has licensed to GlaxoSmithKline the worldwide rights, with the
exception of Canada, to develop, manufacture and sell 3TC. In Canada, 3TC is
sold by BioChem in partnership with GlaxoSmithKline.
IN DEVELOPMENT
Appearance of drug resistant viruses is an inevitable consequence of
prolonged exposure of HIV to antiretroviral therapy. Recent studies suggested
that HIV can become multi-drug resistant under combination therapy. Therefore,
it is still necessary to develop alternate drug combinations for the long-term
successful treatment of HIV infection. BioChem is focusing its efforts on
developing new agents which are effective against existing drug resistant
viruses and can be rationally incorporated into novel drug combination therapy.
The objective of BioChem's program is to bring to the market drugs which are
potent, well tolerated and active against strains of virus resistant to current
therapies. Two compounds, both nucleoside analog reverse transcriptase
inhibitors ("NRTIs"), are currently being developed, namely BCH-10618 and
BCH-13520. BioChem is also pursuing an early stage research program on
HIV/RNAseH inhibitors.
A) BCH-13520
BCH-13520 is a novel anti-HIV NRTI which has progressed from discovery
research to the pre-clinical development stage in mid-1999.
The data used to support the advancement of this compound has been
accumulating since 1998. BCH-13520 has shown significant inhibition of HIV
replication for both wild-type and drug resistant virus. Importantly, IN VITRO
studies have demonstrated that BCH-13520 remains active against clinical
isolates of HIV which display phenotypic resistance to marketed NRTI
antiretroviral agents such as AZT, 3TC, d4T and abacavir.
IN VITRO studies have also shown that BCH-13520, when used in combination
with 3TC, AZT, Sustiva, d4T, BCH-10618, nevirapine, saquinavir or abacavir,
demonstrates additive or slightly synergistic anti-viral activity with most of
these agents. These data suggest that BCH-13520 will be able to fit into
multi-drug combination regimens.
Resistance of the HIV viruses to BCH-13520 is slow to develop, which is in
contrast to the relative speed of emergence of virus grown in the presence of
AZT, 3TC or NNRTIs.
Cytotoxicity evaluations of BCH-13520 demonstrate an excellent toxicity
profile IN VITRO. Extended studies (28 days of continuous exposure to growing
HepG2 cells) also revealed that BCH-13520 caused no change in cell growth or
mitochondrial DNA content at concentrations of BCH-13520 up to 100 mM.
Preliminary results of an IN VITRO myelotoxicity study indicate that BCH-13520
has a similar profile to 3TC and is 200-fold less toxic than AZT to human bone
marrow cells.
In order to further profile BCH-13520, initial IN VIVO (efficacy,
pharmacokinetic and toxicity) work has been performed with this compound in
animals. In a mouse model of HIV infection, BCH-13520 was able to reduce virus
levels in mouse serum by over one log unit following treatment with BCH-13520 at
30 mg/kg/day for 14 days. Pharmacokinetic and acute toxicity studies have been
completed with rats tolerating the drug at the highest dose administered (2,000
mg/kg p.o.). A two-week escalating repeat dose toxicity evaluation in rats was
also conducted and the product was
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found to be safe up to 500 mg/kg/day. In monkeys, bone marrow cytology
abnormalities were observed in the first 14-day study at oral doses of 300 mg/kg
and above. Due to very high bioavailability, drug exposure was found to be
higher than expected and a follow-on 28-day oral study is presently ongoing
using lower doses to identify the no-adverse effect dose level. The no-adverse
effect dose level has been identified for intravenous administration in this
species at 40 mg/kg.
Taken together, the data indicates that BCH-13520 is a candidate worthy of
advancing into clinical evaluation for the treatment of HIV infection. The
pre-clinical long-term Good Laboratory Practice safety studies are currently
underway. BioChem plans to submit an IND to begin Phase I trials in the second
quarter of 2001.
B) BCH-10618 (ALSO KNOWN AS (-)DOTC)
BCH-10618 is a compound being developed for the treatment of HIV infection
and AIDS. BCH-10618 has been shown to stop the replication of the HIV virus IN
VITRO. BCH-10618 is a nucleoside analog with a novel structure which targets the
HIV reverse transcriptase enzyme. By targeting the reverse transcriptase enzyme,
BCH-10618 appears to interfere with the transcription of viral RNA to viral DNA,
a process necessary for HIV replication. Other nucleoside analogs, such as AZT
and 3TC, also inhibit the reverse transcriptase enzyme. However, BCH-10618
appears to be capable of inhibiting the replication of HIV viruses that have
become resistant to 3TC, AZT, d4T and abacavir and to some protease inhibitors.
In addition, based on IN VITRO studies, in contrast to 3TC, resistance to
BCH-10618 appears slow to develop and when mutations do emerge in the virus,
they confer little to no diminished sensitivity to BCH-10618. BioChem believes
these properties may give BCH-10618 a role in the treatment of both HIV-infected
patients in whom standard triple combination regimens are no longer effective
and in patients who have never received anti-HIV therapy (first-line therapy).
The racemic mixture dOTC (an equal mixture of (+)dOTC and (-)dOTC
(BCH-10618)) was investigated previously IN VITRO, in pre-clinical and in Phase
I clinical studies. Further to the good safety and pharmacokinetic profile of
racemic dOTC in two Phase I single-dose healthy volunteer studies, a Phase I/II
clinical trial was conducted with racemic dOTC in antiretroviral-naive, HIV
infected patients. This study was initiated late in 1998 and was completed in
the third quarter of 1999. The results from this 7-day study demonstrated
racemic dOTC's potent activity in HIV-infected patients and further demonstrated
its good tolerability. The 3-month rat toxicity study, as well as rat and rabbit
teratology studies, were also completed in 1999. Results from these studies
continued to demonstrate racemic dOTC's good pre-clinical safety profile.
However, in a long-term toxicity study terminated late in 1999, racemic dOTC was
found to be toxic in monkeys. After much investigation, the species specificity
of the toxicity seen with racemic dOTC could not be demonstrated, nor could the
mechanism(s) responsible for the observed toxicity be elucidated.
Given these toxicity results with racemic dOTC, and given the potent IN
VITRO activity and good IN VITRO safety profile of BCH-10618 relative to
(+)dOTC, it was decided to terminate the development of racemic dOTC and to
continue with the development of BCH-10618.
Investigation of the toxicity profile of BCH-10618 in animals is currently
underway. BioChem plans to submit an IND amendment to begin Phase I trials in
the second quarter of 2001.
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<PAGE>
HEPATITIS B
MARKET
HBV is the causative agent of both the acute and chronic forms of hepatitis
B, a liver disease which is a major cause of morbidity and mortality throughout
the world. Data from the WHO indicate that over 2 billion people worldwide have
been, at some point, infected with hepatitis B virus. Of these 2 billion, there
are over 350 million people chronically infected (WHO 1996), 75% of whom are
found in the Asia-Pacific region. There are some 25 million chronic carriers of
HBV in industrialized countries with developed economies and healthcare
programs. These chronic carriers are at high risk of developing chronic active
hepatitis, which kills up to 2 million persons per year. The WHO estimated that
as many as 25-35% of individuals who become chronic carriers will eventually die
prematurely as a result of their hepatitis B from cirrhosis or hepatocellular
carcinoma (liver cancer) as a result of their hepatitis B infections. Vaccines
to prevent hepatitis B are currently available; however, they have not been
shown to be effective in those already infected with the virus. Despite the
availability of these vaccines for more than a decade, the incidence of HBV
infection in the United States has increased.
Hepatitis B virus is estimated to be approximately 100 times more infectious
than the HIV virus. The main routes of transmission in North America are:
parenterally (through the use of needles) and via sexual contact. The main
routes of transmission in areas of high prevalence (including the Asia-Pacific
region) are mostly perinatally (from mother to baby during the perinatal period)
or from person to person particularly during early childhood.
Alpha interferon was previously the only widely approved treatment for
patients with chronic active hepatitis B. It is administered by injection, is
only successful in controlling the virus in a minority of patients and is
associated with undesirable side effects such as flu-like symptoms. Alpha
interferon has poor efficacy in the majority of chronic hepatitis B patients who
are located in the Asia-Pacific region and who could be presumed to have
acquired the disease perinatally or at a young age. This usually leads to an
immune tolerance state of infection where an immunostimulant such as alpha
interferon works poorly. BioChem believes a significant market opportunity
exists for an effective and safe oral anti-viral therapy against chronic
hepatitis B, especially for a product with proven efficacy in immune tolerant
chronic hepatitis B patients, such as the vast majority in the Asia-Pacific
region.
PRODUCT ON THE MARKET--ZEFFIX
A different dosage regimen of lamivudine (referred to as Zeffix, but also
available as Epivir-HBV in the United States, as Heptovir in Canada and Heptodin
in China) has been developed with GlaxoSmithKline as an oral treatment for
chronic hepatitis B infection and for the prevention of liver graft reinfection.
Like 3TC with HIV, Zeffix targets the reverse transcriptase enzyme of HBV and
appears to interfere with the transcription of viral RNA to viral DNA, a process
necessary for HBV replication.
GlaxoSmithKline conducted numerous Phase III clinical trials of Zeffix as a
treatment for chronic hepatitis B infection. Clinical trial sites included
countries in the Asia/Pacific region, Europe, Australia, South Africa, Canada
and the United States. Most of these trials were for a duration of one year of
treatment with follow-up periods ranging from three months to two years. A
longer trial for up to five years of Zeffix treatment was completed in Asia.
Results from several clinical trials to date showed that:
1) Zeffix therapy after one year of treatment in a non-Asian trial results in
similar seroconversion rates as a standard course of interferon (Intron
A) and a course of Zeffix and interferon combined. Additionally, in
comparison to interferon treated patients, a greater number of patients
treated with Zeffix showed improvement in liver disease regardless of
whether or not
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seroconversion occurred. Patients taking Zeffix also suffered from fewer
side effects than either of the other two groups treated with interferon.
2) Asian patients have been found to respond equally well to Zeffix as
Caucasians. In contrast to Caucasians, Asians generally acquire the
infection perinatally or early in childhood leading to an immune tolerance
status resulting in poor response to alpha-interferon therapy.
3) The seroconversion rate is cumulative with duration of Zeffix treatment. In
fact, four-year data from an Asian trial show that the proportion of
patients who seroconvert reaches 47% at year four (vs. 40% at year three,
29% at year two and 22% at year one). 73% of patients with active liver
disease (ALT of twice the upper limit of the normal level) successfully
seroconverted at year four. In addition, prolonged Zeffix therapy is
associated with continuous reduced disease progression and improvement of
liver inflammation and fibrosis. Also, after four years, 64% of patients had
normal ALT levels.
4) On extended Zeffix treatment, mutant virus showing changes in the YMDD locus
of the virus polymerase emerges in a number of patients. Patients from this
Asian trial who had a YMDD mutated form of the hepatitis B virus for up to
three years continued to have reduced levels of ALT and HBV, suggesting that
despite the presence of a mutated form of the virus, patients may still
obtain benefits from Zeffix. In addition, seroconversion continues to occur
and histological improvements have been observed in the majority of patients
despite the presence of the YMDD variant.
5) Zeffix significantly improves liver inflammation, reduces progression of
fibrosis and improves fibrosis compared to placebo. Trials in North America,
Europe and Asia demonstrated similar histological benefits after one year of
therapy. An integrated analysis of three trials showed that in comparison to
placebo and alpha interferon, Zeffix can reduce significantly the
progression to cirrhosis and consequently has the potential of reducing the
mortality and morbidity associated with the complication of cirrhosis.
6) Interim results from an International Study demonstrates a regression in
cirrhosis in 64% of patients with pre-existing cirrhosis following two or
more year of treatment with Zeffix. The study's finding suggest that
extended treatment with Zeffix may not only stop further damage caused by
the hepatitis B virus, but also allow the body to regenerate healthy liver
tissue and repair pre-existing damage.
7) Zeffix monotherapy is effective in a specific group of patients with a form
of the disease known as "pre-core mutant hepatitis B". This variant of the
disease is particularly prevalent in Southern Europe, the Middle East and
some Asian countries, and responds very poorly to alpha-interferon
treatment. Data showed Zeffix to be as effective in this more difficult to
treat form of hepatitis B as in the more common type.
8) Response is sustained after stopping Zeffix therapy in patients who had
achieved seroconversion. When treatment was discontinued after one year and
patients were monitored for almost 2 years without treatment, it was found
that virologic responses achieved during the year of therapy with Zeffix
were usually sustained in the vast majority of patients (86%) who had
achieved loss of HBeAg (Hepatitis B e antigen--a blood marker of ongoing
viral replication) by the end of therapy. In addition, after this two-year
follow-up, 21% of patients who lost HBeAg have also achieved HBsAg
(Hepatitis B surface antigen) seroconversion, an indicator of a probable
cure of chronic hepatitis B.
9) The overall safety profile of Zeffix is excellent with side effects similar
to placebo during the one year Phase III treatment period. Analysis of
controlled post treatment data indicate a modest increase in post treatment
ALT elevations in the Zeffix group; however, there was no difference in
clinically severe post treatment events in the Zeffix and placebo groups.
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Overall these data support the broad utility of Zeffix as a safe and
effective drug for treating a wide range of patients with chronic hepatitis B,
including Asian patients, patients infected with pre-core mutant hepatitis B
virus and the subgroup of patients who eventually develop the variant HBV
strains associated with Zeffix resistance in laboratory assays.
At the end of August 2000, the Asia Pacific Consensus Group on the
Prevention and Management of Chronic Hepatitis B and C in association with the
Journal of Gastroenterology and Hepathology have endorsed Zeffix as a key
treatment option for a broad range of chronic hepatitis B patients. The
guidelines are the results of a consensus reached by a Core Planning Committee
of 37 leading clinicians from ten countries in the region. On the basis of an
extensive review of available literature and clinical experience, the Asia
Pacific guidelines recommend that hepatitis B patients with active liver
disease, liver failure, or recurrent disease after liver transplantation should
be treated with Zeffix.
First approved in the Philippines and in Canada in August and November 1998
respectively, Zeffix has been approved and launched through 1999 in the US, Hong
Kong, Singapore, China, South Korea, some European Union countries and Taiwan
and, more recently, in Japan. As of December 2000, Zeffix has been approved in
69 countries and launched in 45 of those.
On November 20, 2000, GlaxoSmithKline launched Zeffix in Japan. Provision of
drug information to medical institutions regarding Zeffix in Japan is carried
out by GlaxoSmithKline K.K. with Ajinomoto Pharma Co. Ltd., through co-promotion
as Ajinomoto Pharma has experience in liver disease.
Pursuant to agreements entered into with GlaxoSmithKline, BioChem has
licensed to GlaxoSmithKline the worldwide rights, with the exception of Canada,
to develop, manufacture and sell Zeffix. In Canada, Zeffix is sold by BioChem in
partnership with GlaxoSmithKline, under the tradename Heptovir.
BLADDER CANCER
MARKET
Bladder cancer is the sixth most common cancer (other than skin cancer) in
the US according to the American Cancer Society. While progress has been made in
the prevention and treatment of bladder cancer, the American Cancer Society
estimated that in 2000 over 54,000 Americans were diagnosed with transitional
cell carcinoma of the bladder and more than 12,000 people with recurrent or
acute disease died from it.
PRODUCT ON THE MARKET--PACIS
BioChem has developed a BCG (Bacillus Calmette-Guerin) immunotherapeutic
that has demonstrated efficacy in the treatment of superficial bladder cancers.
The American Urology Association recommends the use of BCG immunotherapeutics as
first line therapy for superficial bladder cancer.
BioChem's BCG product is marketed, through exclusive distributorships, under
the trademark PACIS and as of December 31, 1999, was registered in Canada,
Argentina and the Philippines. On March 9, 2000, the FDA approved PACIS for sale
in the US as a first line treatment for carcinoma IN SITU of the urinary
bladder.
PAIN CONTROL
MARKET
The pain control or pain management market is divided into the acute
(short-term) and chronic (longer-term, persistent) pain market and along the
lines of mild, moderate and severe pain. The
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analgesic market is divided into the following categories: non-steroidal
anti-inflammatories ("NSAID"), narcotics and non-narcotics. The injectable /
intravenous forms of these analgesics are generally used for pain management in
the acute setting, such as post-operative or trauma pain. The chronic pain
control pharmaceutical market, such as the treatment of cancer pain and
arthritis pain, calls for drugs that will provide longer term duration, and
whose delivery form will not require hospital or professional supervision to
administer. Such potent, well-tolerated, chronically used, easily delivered pain
control compounds would provide safe and effective relief in an ambulatory
setting, i.e. one that permits sufferers to be mobile and to have a quality of
life.
Chronic pain (chronic headache, lower back pain, cancer pain, arthritis
pain, other disorders, such as neuralgias and neuropathies) has been described
as one of the most costly health problems in America. More than 30 million
Americans visit physicians for chronic pain each year (D&MD-PAIN THERAPEUTICS: A
REVOLUTION IN THE MAKING). It is estimated that in the US alone, the annual
direct and indirect cost is close to $70 billion (INTERNATIONAL ASSOCIATION FOR
THE STUDY OF PAIN).
Cancer pain: the majority of intermediate to advanced stage cancer patients
suffer moderate to severe pain. Clinical studies of pain suggest that one-third
of patients currently receiving cancer treatment experience moderate to severe
pain, and in patients with advanced disease this increases from 60 to 90%.
Statistics on terminal cancer from the WHO suggest that there are 4 million
cancer pain sufferers at any given time, representing only a fraction of the
number of cancer patients suffering from pain.
Arthritis pain, termed the "great crippler," is estimated to affect some
36 million Americans of which about 20 million are diagnosed (DATAMONITOR,
MARKET DYNAMICS 2000: PAIN). It is estimated to cost billions of dollars
annually: a result of lost income, lost productivity and direct health care
expenses combined.
Many chronic pain conditions, such as arthritis and cancer pain, affect
older adults. With the world population generally living longer, the incidence
of cancer and arthritis-associated pain is expected to increase, as is the
growing demand for potent and safe novel agents to manage moderate to severe
pain.
DEVELOPMENT PROJECT--FRAKEFAMIDE (BCH-3963)
Further to an agreement signed between BioChem and AstraZeneca, AstraZeneca
is presently developing a peripherally acting m-opioid receptor agonist,
Frakefamide, discovered by BioChem and intended for the treatment of acute and
chronic pain.
Opioids such as morphine are the cornerstone in clinical pain treatment in
spite of the development of tolerance and their undesirable side effects due to
their action on the central nervous system ("CNS"). The traditionally held view
was that opioid analgesia is mediated exclusively within the CNS. However,
recent research has shown that analgesia at the site of inflammation can be
initiated by the activation of opioid receptors located outside the CNS.
Particularly, it has been demonstrated that the agonists with a preference for
m-receptors are generally the most potent. With that rationale, BioChem
scientists discovered Frakefamide, which is highly selective for the m-opioid
receptor and which does not penetrate the CNS. In animal models, Frakefamide has
exhibited potency similar to morphine but without the dependence, tolerance or
other CNS associated side effects.
AstraZeneca filed a first Investigational New Drug ("IND") in Sweden in 1998
and completed four Phase I studies with an injectable (i.v.) formulation. The
results of these studies showed that Frakefamide was well tolerated with no CNS
side effects or respiratory depression and suggested that it was 10 times more
potent than morphine as measured by a surrogate marker. AstraZeneca initiated in
1999 Phase II clinical trials to evaluate the analgesic potential of
Frakefamide.
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In general, opioids and morphine, in particular, remain as the most common
treatment for pain following surgery but in recent years, parenteral
non-steroidal anti-inflammatory drugs ("NSAIDs"), notably ketorolac and
diclofenac, have been shown to be effective analgesics when administered after
surgery. The major benefits of NSAIDs are related to the ability of these agents
to provide analgesia without the major drawback of opioids. However, NSAIDs may
not provide sufficient efficacy and the well-known gastrointestinal toxicity and
risk for renal failure limit their use. Recently companies reported the ongoing
development of COX-2 inhibitors for the management of acute pain associated with
surgery.
There is a large unmet need in the management of acute pain following
surgery and Frakefamide has the potential to become an important drug in that
setting. The Phase II studies should be completed in early 2001 and additional
clinical trials program with the injectable (i.v.) formulation in the management
of post-operative pain is planned to be initiated thereafter.
AstraZeneca is working on various potential non-parenteral formulations that
would be suitable for administration in the management of chronic pain such as
osteoarthritis and cancer pain.
CANCER CHEMOTHERAPY
MARKET
Epidemiological data (EUR J CANCER 35(1):24-31 1999 UI: 99227530 Abstract)
confirm that each year, there are an estimated 10 million new cases of cancer
diagnosed globally, and this is expected to rise steadily to 20 million by the
year 2020. Over 6.2 million people worldwide died of cancer in 1997. The leading
causes of cancer deaths are attributed to lung (1.1 million), stomach (765,000),
colon and rectum (505,000), and breast (385,000).
The worldwide cancer market including anti-emetics and other adjuvants was
valued at over US$23 billion in 1999, or about 6% of the global pharmaceutical
market (IMS World 2000, ANNUAL REVIEW OF PHARMACEUTICAL INDUSTRY PERFORMANCE).
In 1999, the cancer market grew by approximately 17% over the previous year,
1998 (Datamonitor SPRINT SALES 2000). Factors influencing the strong growth in
the cancer drug therapy market include: (a) increased incidence of cancer;
(b) improved diagnosis; and (c) development of effective adjunct therapies which
enable more intense, more effective and more widespread use of chemotherapy. The
increased incidence of cancer is due to many factors, including: (a) worldwide
population growth; (b) longer life expectancies; and (c) increased exposure to
carcinogenic environmental or dietary factors.
DEVELOPMENT PROJECTS
A) TROXATYL (TROXACITABINE OR BCH-4556)
Troxatyl is a nucleoside analog being developed to treat various forms of
cancer. A few nucleoside analogs, such as gemcitabine and Ara-C, are used in the
treatment of certain cancers. These nucleoside analogs inhibit tumor growth by
preventing cell replication. Currently marketed nucleoside analogs have two
major disadvantages that impair their anticancer activity and have limited their
use to date. First, they are rapidly deaminated by cellular enzymes, which leads
to a loss of efficacy and consequently to the resistance of the cancer to
treatment. Second, existing nucleoside analogs are typically unable to
completely stop cell division and therefore do not optimally treat cancer.
Troxatyl is a nucleoside analog that BioChem believes will provide significant
benefits in treating various forms of cancer due to its novel structure and
mechanism of action. Discovered and synthesised by BioChem scientists, Troxatyl
belongs to a different structural class than the currently marketed nucleoside
analogs. Because it is a nucleoside analog which has a non-natural (B-L)
configuration, Troxatyl is not vulnerable to deamination. In addition, because
it lacks the 3'-hydroxyl group it acts as a complete DNA chain terminator, and
thus may be able to completely stop tumor cell division. BioChem believes that
both of
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these characteristics could lead to improved efficacy compared to other
currently marketed nucleoside analogs. BioChem plans to administer Troxatyl
initially by intravenous injection.
Three Phase I safety and pharmacokinetic studies have been completed in a
total of 104 advanced stage cancer patients with solid tumors: a single dose
regimen and two additional multiple dose regimens. The drug was well tolerated
with myelosuppression and skin toxicity (rash and the hand-foot syndrome) as the
main side effects. Major clinical responses were seen in three patients with
malignant melanoma, hypernephroma and a carcinoma of unknown origin. Based on
these encouraging results, BioChem has completed a pilot Phase II clinical trial
program with Troxatyl in various types of solid tumors (E.G. renal, prostate,
colorectal, non-small-cell lung, pancreatic, melanoma) using the once every
three weeks administration schedule. Preliminary evidence of activity was seen
in the renal and pancreatic cancer trials. Consequently, BioChem is now
investigating the therapeutic effects of Troxatyl using an alternate daily times
5 monthly administration schedule in pancreatic cancer. Additional trials are
planned and BioChem will then focus its Phase III program on the solid tumors
where activity has been identified. Since, in clinical practice, cancers are
treated mainly by using combinations of chemotherapeutic agents, BioChem is also
performing, in parallel, two pilot combination chemotherapy Phase I trials of
Troxatyl with either cisplatin or paclitaxel in solid tumors using the daily
times 5 monthly Troxatyl treatment schedule. It is hoped that these studies will
open additional areas of development for Troxatyl in the treatment of solid
tumors.
A Phase I safety and pharmacokinetic study in refractory acute leukemia
patients has also been completed at the MD Anderson Cancer Center in Houston,
Texas. Thirty-one patients with acute myelogenous leukemia (AML) were treated
and a specific recommended dose was defined for this patient population. Again,
the drug was well tolerated with skin toxicity and mucositis as the main
non-hematologic side effects. In addition, Troxatyl showed promising signs of
antileukemic activity in this heavily pretreated population of patients: 4/30
evaluable patients had major (complete and partial) responses and 73% showed a
significant decrease in their leukemic cells following therapy. BioChem is now
following up on these results and has initiated testing of four different
Troxatyl combination regimens with either idarubicin, topotecan, Ara-C or
Mylotarg. BioChem believes that these trials will optimize the antileukemic
activity of Troxatyl and set the groundwork for subsequent Phase III trials. A
Phase II trial in patients with various types of acute leukemia was also
conducted at the MD Anderson Cancer Center. Two complete and one partial
remissions were observed in 17 evaluable AML patients. Four patients of 13
evaluable with chronic myelogenous leukemia in blastic phase (CML-BP) achieved a
return to chronic phase disease and three others achieved a major hematologic
response. BioChem is now following up on these promising results by testing
single agent Troxatyl in a North American multicenter trial involving 50 CML-BP
patients. The FDA will be consulted in the second quarter of 2001 to determine
Troxatyl's registration strategy in this patient population.
B) TROXATYL PRODRUGS
Most antimitotic nucleosides used in cancer chemotherapy are generally
poorly selective towards proliferating normal versus tumor cells. Compounding
this problem is the incidence of DE NOVO or tumor induced resistance towards
these agents which leads to patient death. In order to address these issues
BioChem has been conducting research aimed at the discovery of novel
antineoplastic nucleosides. This research has led to the discovery of Troxatyl,
an unnatural nucleoside analog displaying activity in leukemia patients in
ongoing clinical trials. Troxatyl has mechanistic properties which are believed
to be useful against frequently encountered solid cancers such as colon, lung,
breast, pancreatic and renal cancer. In order to develop its full potential, a
project was initiated to broaden this compound's usefulness by designing
prodrugs that will target solid tumors through an altered tissue distribution
profile. BioChem scientists believe that this approach should enhance the
activity of the compounds towards solid tumors and as well may improve the
therapeutic window with regards to hematologic toxicities.
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Novel compounds are being synthesized and our IN VITRO results to date
indicate that anticancer potency against tumor cells originating from solid
cancers was improved significantly with certain propietary prodrug derivatives
of Troxatyl. Some of these compounds will be tested IN VIVO against solid
cancers in order to establish a structure activity relationship with respect to
anticancer activity enhancements and safety profile. The objective is to select
a compound for pre-clinical development in the fourth quarter of 2001.
BioChem believes that this novel class of compounds offers significant
potential for the development of novel anticancer chemotherapeutic agents.
C) TUBULIN POLYMERIZATION INHIBITORS
A collaboration was entered into on August 31, 2000 between Maxim
Pharmaceuticals Inc. and BioChem for the development of a new class of
small-molecules that activate caspases--and the apoptosis or program cell death
mechanism--in cancer cells. This new class of compounds works independent of the
tumor suppressor gene p53 and, therefore, has the potential to cause cell death
in tumor cells refractory to current chemotherapeutic drugs. Functional analysis
of this class of molecules indicated that they inhibit tubulin polymerization by
targeting the colchicine site, thereby leading to mitotic arrest. This is unlike
current depolymerizing agents which interact with the vinca binding site and the
taxanes, which polymerize tubulin. Moreover, this new class of antimitotic
agents overcomes known mechanism of drug resistance. Lead optimization is
currently being done in order to maximize the potency and to increase the plasma
stability and half-life of the current analogues.
BioChem expects to be in a position to select a compound with the desired
characteristics to be progressed into the pre-clinical development stage towards
the end of 2001.
D) ANGIOLYTICS
Cell adhesion, the process whereby cells adhere together to form tissues, is
a fundamental biological process. Cadherins are the proteins that are
responsible for cell-to-cell adhesion. Adherex Technologies, with which BioChem
has entered in a collaboration on August 22, 2000, has patented a cyclic peptide
("Exherin") which binds to cadherins thereby dissociating cell-cell interaction.
A key advantage of Exherin over conventional chemotherapy is that it targets
cancer blood vessels and not cancer cells. Exherin also possesses an advantage
over the new class of anti-cancer drugs know as anti-angiogenic agents. These
drugs work by targeting angiogenic factors and their receptors, thus preventing
the growth of new blood vessels to the tumor. Based on its mechanism of action,
Exherin has the potential of not only preventing angiogenesis, but may reverse
tumor angiogenesis by destroying existing tumor blood vessels.
BioChem is presently at the stage of doing pharmacology and toxicity studies
as well as evaluating Exherin's anti-tumor potential in a variety of human
xenograft mouse tumor models.
HEPATITIS C
MARKET
Viral hepatitis refers to a spectrum of diseases caused by one of eight
identified hepatotropic viruses that affect humans. Most important in terms of
morbidity and cost to healthcare systems, are hepatitis B and hepatitis C
viruses (HCV) collectively affecting over 500 million people worldwide. Causes
of mortality and morbidity are related to liver cirrhosis, disability, portal
hypertension, and hepatocellular carcinoma. HBV results in chronic disease in
only 5-10% of the infected individuals, in contrast, HCV infection leads to
chronic infection in 80% of the cases. Prevalence of HCV in the Western world is
between 1.5% and 2% of the total population and according to the US Centers for
Disease Control, 10,000 people died as a result of HCV related complications in
1996 in the US.
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Currently, there is an estimated four million chronically infected individuals
in the US alone. Therefore, HCV infection poses a major health risk. The high
mutation rate of the HCV makes vaccine development extremely challenging.
Consequently, the eradication of HCV through intervention with effective
therapeutic agents is needed to alleviate this major potential health hazard.
The current approved therapy (interferon + ribavirin) for HCV related
chronic hepatitis results in sustained eradication of viral infection in less
than 50% of patients. Although the current treatment is effective, it still only
gives less than 50% chance of virus eradication, and the response rate is less
with genotypes most commonly found in the western countries. Moreover, current
HCV treatment is not cost effective and has significant side effects. Hence,
while the current therapy is proven to be partly beneficial, clearly there is a
need for anti-viral drugs that target HCV directly and it is generally believed
that agents blocking key enzymes will be more effective and less prone to side
effects. The market potential for direct HCV inhibitors is substantial. It is
believed such products, if successfully developed, could be used a) as
anti-viral agents for HCV related disorders as a monotherapy, b) in combination
with other anti-viral inhibitors and c) in combination with existing treatment
(interferon + ribavirin).
HCV POLYMERASE RESEARCH PROJECT--HCV POLYMERASE
The genome of HCV encodes for both structural and non-structural proteins.
The structural proteins include two envelope glycoproteins and an RNA-binding
nucleocapsid. The non-structural proteins include NS3 protease, NS3 helicase and
a NS5B polymerase. It has been shown that these enzymes are essential for viral
replication, hence, inhibition of these enzymes should lead to drug molecules
capable of interfering with the HCV replication. BioChem's strategy focuses on
devising potent and selective inhibitors of some of these enzymes in order to
select the most promising approach for inhibition of viral replication. Other
groups are also following the same strategy. Structure-based design approaches
as well as high throughput screening ("HTS") campaigns have been initiated.
The current focus is on developing both nucleoside and non-nucleoside
inhibitors of HCV NS5B polymerase. Novel strategies to identify nucleoside based
inhibitors are in progress. Through HTS, several novel series of non nucleoside
inhibitors have been identified. Chemical optimization of some of these series
of compounds have yielded sub mM compounds in IN VITRO polymerase assay.
Chemical optimization cycles are focusing on improving the IN VITRO potencies,
both in enzymatic assays as well as in cell based sub-genomic replicon assay, to
low nM level with an aim to identify a compound to be progressed to the
pre-clinical development stage by the end of 2001.
ANTIBIOTICS
There is a rapidly growing crisis in the clinical management of life
threatening infectious diseases caused by multi-antibiotic resistant strains of
pathogenic bacteria. Solutions to the problem will be provided, in part, by the
development of novel chemotherapeutic agents which selectively attack new
bacterial biochemical targets. Such targets include enzymes that are essential
for the replication of bacterial DNA.
A collaboration was entered into on December 6, 1999 between BioChem and
Microbiotix Inc. to further exploit this approach. The goal of the collaboration
is to identify and optimize lead compounds which target such bacterial enzymes,
in particular the specific DNA polymerases. Approaches employed include both
rational design and random screening and two organisms, methicillin-resistant
STAPHYLOCCUS AUREUS and vancomycin resistant Enterococcus represent specific
high priority therapeutic targets. This project is at the lead optimization
stage and through this collaboration effort, BioChem expects to be in a position
to select a compound having the necessary characteristics to be progressed into
the pre-clinical development stage.
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VACCINE PRODUCTS
BioChem is engaged in the research and development of vaccines for human
use. BioChem currently manufactures and markets in Canada a split influenza
virus vaccine. BioChem also distributes, in the province of Quebec, a number of
vaccines produced by other companies. In 1997, BioChem also started to export
its split influenza vaccine to Argentina following the signing of a distribution
agreement with Argent C. Comercio Internacional S.A.
BioChem has a new vaccine production center in Ste-Foy in the Quebec City
area. This center has an overall area of approximately 118,000 square feet and
houses production, quality-control laboratories and warehousing as well as
administrative offices. Commercial vaccine production in Ste-Foy started in
1998.
BioChem recently initiated vaccine development operations in the US. This
development unit was created in order to develop BioChem's current and future
vaccine pipeline. It began operations in October 1998 in Northborough,
Massachusetts, in a 62,000-square-foot facility. The facility houses process
research and development, analytical research and development, a cGMP Pilot
Plant for the preparation of clinical lots, clinical development, regulatory
affairs, project planning and management, and administration. The launch of
these operations is part of BioChem's overall strategy to conduct downstream
development activities of its products and to increase BioChem's involvement and
presence in key markets, such as the US. It also should be noted that this
facility is capable of undertaking the full development of any biological, e.g.,
monoclonal antibodies.
BioChem's vaccine development facility in Northborough, Massachusetts became
fully operational in 1999. The first vaccine candidate developed at this
location is designed to protect against bacterial meningitis caused by N.
MENINGITIDIS. This vaccine candidate, which is in Phase I clinical trials, is
also the first vaccine to emerge from BioChem's recombinant protein vaccine
discovery program. The second vaccine candidate coming from this program is the
S. PNEUMONIAE vaccine, which is in pre-clinical development. These vaccine
candidates are part of BioChem's novel recombinant protein-based vaccine
program, the research for which is being conducted in collaboration with the
Laval University Hospital Research Center (CHUL). Future candidates would emerge
for Group B Streptococcus, non-typeable H. INFLUENZAE, M. CATARRHALIS, and Group
A Streptococcus.
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The following table presents the pipeline of BioChem vaccine products:
<TABLE>
<CAPTION>
INDICATION/POTENTIAL DEVELOPMENT COMMERCIAL
PRODUCT APPLICATIONS STATUS* RIGHTS
------------------------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Fluviral S/F Influenza On the market BioChem
Injectable influenza Influenza Phase I/II BioChem/GlaxoSmithKline
vaccine derived from
cell culture
Nasal influenza vaccine Influenza Phase I BioChem/GlaxoSmithKline
derived from cell
culture
NEISSERIA MENINGITIDIS Meningitis, septicemia Phase I BioChem
vaccine
STREPTOCOCCUS PNEUMONIAE Pneumonia, meningitis, Pre-clinical development BioChem
vaccine otitis media
PSEUDOMONAS AERUGINOSA Bacteremia, opportunistic Pre-clinical development BioChem
vaccine
Group B Streptococcus Neonatal sepsis, Research BioChem
(S. AGALACTIAE) vaccine meningitis
NON-TYPEABLE HAEMOPHILUS Acute respiratory Research BioChem
INFLUENZAE vaccine infections,
chronic bronchitis,
otitis media
MORAXELLA CATARRHALIS Acute respiratory Research BioChem
vaccine infections,
otitis media
Group A Streptococcus Pharyngitis, pneumonia, Research BioChem
(S. PYOGENES) vaccine pyoderma, cellulitis
</TABLE>
--------------------------
* Indicates product development status. Please see the footnote of the table
on therapeutics pipeline for further explanation.
DEVELOPMENT PROJECTS
INJECTABLE AND NASAL CELL CULTURE-BASED INFLUENZA VACCINES
BioChem has developed a new cell culture-based influenza vaccine using a
novel proprietary cell line and high-cell-density microcarrier technology.
BioChem believes that this manufacturing technology will enable a more
profitable and productive process and better flexibility in the case of
increased demand for an influenza vaccine, which would be required during a
pandemic. BioChem completed a Phase I clinical trial in April 1997 in Canada of
a vaccine produced with the cell-culture process. The results of this trial
showed that the safety and immunogenicity of the new vaccine were equivalent to
those of the conventional egg-derived vaccine. BioChem began a Phase II clinical
trial program in Canada in November 1997 that included three trials with 1,000
volunteers. The objective of these trials was to compare the immunogenicity and
safety of the new vaccine with BioChem's commercially available egg-derived
vaccine in three patient populations: young adults, elderly, and children. The
results of these studies demonstrated in all three populations that this novel
vaccine was as safe and as immunogenic as the conventional vaccine for all three
viral strains.
BioChem and GlaxoSmithKline finalized in December 1998 an alliance covering
BioChem's cell culture technology for influenza vaccine and nasal delivery
technologies, including one named SMBV from Biovector Therapeutics S.A. BioChem
and GlaxoSmithKline are developing two technologies: a new way of producing the
vaccine antigen using cell culture and an intranasal delivery of influenza
vaccine technology using Biovector's SMBV and/or GlaxoSmithKline nasal
technologies. The technologies were transferred from BioChem to GlaxoSmithKline
during 1999. Under the terms of this agreement, BioChem and GlaxoSmithKline will
co-operate in marketing the products in the United States, after a period of
joint development by both parties. GlaxoSmithKline holds exclusive marketing
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rights in Europe and in the rest of the world. Furthermore, GlaxoSmithKline will
manufacture products that are intended for various global markets, except
Canada. Proceeds from the sale of the vaccines in the United States and in the
rest of the world, excluding Canada, will be allocated among the two partners
according to a predetermined formula. In Canada, BioChem will maintain exclusive
rights to these vaccines, including production and marketing rights. Under the
agreement, GlaxoSmithKline has made initial payments to BioChem and future
milestone payments are scheduled as the products are developed. Once approved,
this new cell-culture manufacturing technology should allow BioChem to produce
the vaccines more rapidly and in the event of a pandemic, to manufacture the
vaccines in greater volume with less lead time. If one of the nasal delivery
technologies proves successful, it should eliminate the discomfort associated
with injectable vaccines and confer mucosal immunity in addition to systemic
immunity. GlaxoSmithKline conducts all technical and clinical development.
GlaxoSmithKline completed a further Phase I trial with SMBV in early 2000,
following which GlaxoSmithKline advised BioChem of its intent not to pursue the
development of the Biovector technology but to rather pursue the development of
GlaxoSmithKline nasal technology. GlaxoSmithKline is conducting additional
technical and clinical development.
RECOMBINANT PROTEIN BACTERIAL VACCINES
Effective vaccines stimulate protective immunity. Vaccines may consist of
whole viruses or bacteria, of specific antigens that may be formulated with an
adjuvant or delivery system (agents added to enhance immunogenicity), or of
nucleic acid encoding the vaccine antigen. Through a research collaboration with
the Vaccine Research Unit of the Laval University Hospital Research Center,
BioChem conducts research and development of recombinant protein vaccines
against numerous bacterial infections for which no vaccines are currently
available or for which vaccines exist but with less-than-optimal efficacy or
market attractiveness. BioChem is focusing its initial efforts on the
development of candidate vaccines against diseases caused by NEISSERIA
MENINGITIDIS, STREPTOCOCCUS PNEUMONIAE and PSEUDOMONAS AERUGINOSA and also will
be developing vaccines against infections caused by Group B Streptococcus (S.
AGALACTIAE), non-typeable HAEMOPHILUS INFLUENZAE, MORAXELLA CATARRHALIS and
Group A Streptococcus (S. PYOGENES).
Many of the target bacteria for which BioChem is researching or developing
vaccines are encapsulated with polysaccharide. Capsular polysaccharides usually
are effective vaccine antigens. However, polysaccharide vaccines suffer from the
shortcomings that they stimulate only short-term immunity and not immune memory
and are poorly immunogenic in young children. Furthermore, there is significant
antigenic variation among the capsular polysaccharides of different strains of
the same bacteria. Consequently, numerous polysaccharide antigens must be
administered to protect against multiple strains of an encapsulated bacterium.
To overcome some of these limitations, polysaccharide conjugate vaccines have
been and are being developed. Two such vaccines to protect against
H. INFLUENZAE TYPE B (Hib) and S. PNEUMONIAE are marketed. Conjugate vaccines
consist of polysaccharides chemically coupled with a protein carrier. Because of
the carrier, conjugate vaccines induce immunological memory. However, because of
the limited number of conjugate vaccines that can be combined in a single dose,
current conjugate vaccines provide protection against only a limited number of
strains of a bacterium. Due to the complexity of the process, the S. PNEUMONIAE
(pneumococcal) conjugate vaccine is relatively expensive and challenging to
manufacture and test.
BioChem has adopted the strategy of identifying specific bacterial proteins
for each pathogen that are able to elicit a broad immune response against all
strains of the pathogen and that are immunogenic in young children while
eliciting immune memory. Furthermore, such vaccines should be easier and less
expensive to manufacture and could be combined more easily with vaccines that
protect
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against other infectious diseases. BioChem is in development with recombinant
protein vaccines against the following three bacterial infections:
A) NEISSERIA MENINGITIDIS
N. MENINGITIDIS causes over 300,000 cases of endemic and epidemic disease
worldwide, mostly meningitis and septicemia. With the availability of Hib and
pneumococcal conjugate vaccines, N. MENINGITIDIS is becoming the most common
cause of bacterial meningitis in the USA, affecting approximately 3,000 people
each year. The case-fatality rate is approximately 10% for meningitis and 20%
for septicemia, despite antibiotic therapy. The incidence of endemic
meningococcal meningitis is highest among children aged 6-12 months and then
steadily declines with age but is the most common and dreaded form of meningitis
among young adults. Serogroup B, for which no vaccine exists, accounts for
approximately 30-40% of all cases of infection by N. MENINGITIDIS. While
Serogroup A causes only a small portion of endemic disease in developed
countries, it is the most common cause of epidemics in developing countries. The
current polysaccharide vaccine has antigens for only four (A, C, W135 and Y) of
the 12 N. MENINGITIDIS serogroups (based on capsular polysaccharides). Other
groups are developing polysaccharide conjugate vaccines and protein-based
vaccines. There are Serogroup C conjugate vaccines licensed in the UK.
The protein discovered by BioChem appears to hold potential for the
development of a vaccine against all N. MENINGITIDIS strains, including
Serogroup B. This protein is present in all meningococcal isolates and is
exposed at the surface of intact meningococcal bacteria, where it is accessible
to antibodies. Immunization of mice with the purified recombinant protein
confers protection against lethal N. MENINGITIDIS infection. The serum
antibodies obtained from the immunized mice kill N. MENINGITIDIS cells. This
type of bactericidal activity is generally recognized as being indicative of
clinical protection against N. MENINGITIDIS infection. BioChem has developed a
clinical-trial-scale manufacturing process and conducted a Phase I clinical
trial in Canada from November 1999 into 2000. The data from this clinical trial
demonstrated that the vaccine was generally well tolerated and immunogenic and
was able to elicit serum bactericidal antibodies. Additional clinical studies
will be performed on an improved formulation of the vaccine.
B) STREPTOCOCCUS PNEUMONIAE
S. PNEUMONIAE infections are among the leading causes worldwide of illness
and death in young children, persons with underlying debilitating medical
conditions and the elderly. S PNEUMONIAE infections have accounted annually for
3,000-5,000 cases of meningitis, 200,000-600,000 cases of pneumonia and
7,000,000-10,000,000 cases of acute otitis media in the US alone. Case fatality
rates vary by age and the underlying illness of the patient. According to the
CDC, the case fatality rates for some immunocompromised and other high-risk
patients have been reported to be higher than 55% for meningitis and 40% for
pneumonia, despite appropriate antibiotic therapy. In children, S. PNEUMONIAE
causes 30-50% of all cases of otitis media. Increased resistance to penicillin
and other antibiotics has spread rapidly, such that there is an increased need
for effective pneumococcal vaccines. S. PNEUMONIAE strains are divided into at
least 90 serologically capsular polysaccharide types, but a limited number of
these cause most disease. Variations in the frequency of the capsular types
occur over time, geographic areas, and age groups. A polysaccharide vaccine
against the 23 most common serotypes has been available since the early 1980s.
It is no more than 60% effective in preventing pneumococcal meningitis in adults
but is poorly effective in infants under two years of age and in preventing
pneumonia in the elderly; it is not currently used to prevent otitis media. A
heptavalent conjugate vaccine composed of seven polysaccharides coupled to a
protein carrier was approved by the FDA in February 2000 for immunization of
infants under age two. However, this product would cover only 60-75% of disease-
causing serotypes and is technically complex to produce, such that it may be
difficult to combine with other vaccines. Moreover, it is not indicated for use
in adults, and its effectiveness in preventing ear
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infections has not been documented by the FDA. Other groups are developing
polysaccharide conjugate vaccines and protein-based vaccines.
BioChem has discovered proteins that appear to hold great potential for the
development of a new vaccine against all serotypes of pneumococcal infections.
These proteins are highly immunogenic in mice. Immunized mice were protected
against a lethal challenge in both bacteremia and pneumonia models of infection.
Sera from immunized rabbits and monkeys also can protect mice against lethal
challenge. These proteins are conserved antigenically among pneumococcal
isolates, exposed at the pneumococcal surface and accessible to protective
antibodies. Therefore, BioChem believes that these proteins have the necessary
characteristics to be considered potential candidates for the development of a
broad-range vaccine for preventing pneumococcal infections.
C) PSEUDOMONAS AERUGINOSA
P. AERUGINOSA are ubiquitous bacteria that cause primarily opportunistic
infections in hosts who are compromised in their health status. The bacteria are
prevalent in moist areas in hospital settings. Infection can lead to serious and
sometimes life-threatening diseases in immunocompromised people. P. AERUGINOSA
infection may be manifest in a wide range of clinical diseases, including
bacteremia and diseases of the bone and joint, CNS, eye and ear,
gastrointestinal, respiratory, skin, and urinary tract. The prevalence of
antibiotic resistance is high and increasing. Other groups are developing
polysaccharide conjugate vaccines and protein-based vaccines.
BioChem initiated a collaboration with Cytovax Biotechnologies Inc.
("Cytovax"). Scientists at the University of Alberta had been conducting
research on the pili of P. AERUGINOSA, which are appendages responsible for
bacterial attachment to cells. While pili can elicit protective immunity against
experimental infection, the protection is very highly type-specific, which would
mean that a pilin vaccin would have to be highly multivalent, hence impractical
to develop. These scientists identified sequences at the tip of the pili that
were less variable and could elicit protective immune responses. Based on the
pili tip sequences, Cytovax has developed a candidate vaccine that would consist
of 2-3 peptides, each conjugated to a carrier protein to enhance their
immunogenicity. Cytovax and BioChem are collaborating in research, analytical,
process, clinical, and regulatory issues. The vaccine program is in pre-clinical
development.
RESEARCH PROJECTS
BioChem also is conducting vaccine research programs to develop vaccines
against the following four bacterial infections:
A) Group B Streptococcus ("GBS") (STREPTOCOCCUS AGALACTIAE) infections are
the leading cause of life-threatening bacterial infections such as pneumonia,
sepsis and meningitis during the neonatal period. In the USA, there are over
3,000 cases annually of invasive GBS infections in newborns, with a mortality
rate approximately 5%. Many infants that survive meningitis may suffer from
neurological sequelae. In addition, GBS has emerged as an important cause of
morbidity and mortality among adults, especially the elderly or patients with
chronic underlying disease. GBS is classified into nine serotypes based on their
capsular polysaccharide antigenicity. Other groups are developing polysaccharide
conjugate vaccines and protein-based vaccines. BioChem has identified several
GBS membrane proteins that may be promising vaccine candidates. Their potential
will be validated through studies of their antigenic conservation and expression
across a broad range of strains, cell surface accessibility, and ability to
elicit protective immunity in mouse models of disease.
B) Non-typeable HAEMOPHILUS INFUENZAE ("NTHI") is nonencapsulated, relative
to its encapsulated forms that have six antigenically distinct capsular types (A
to F). The unencapsulated form is responsible for acute respiratory infections,
chronic bronchitis, otitis media (25-30% of all cases), bacteremia and
meningitis. NTHI is among the five most common causes of community-acquired
pneumonia (5-15% of
47
<PAGE>
the 500,000 hospital admissions annually in the United States). There are
approximately 4,000 cases annually of invasive NTHI disease in adults, including
bacteremic pneumonia, obstetric infections, epiglotitis, meningitis and
tracheobronchitis. Hib conjugate vaccines are ineffective against NTHI diseases.
Other groups are developing protein-based vaccines. BioChem has identified
several NTHI outer membrane proteins that may be promising vaccine candidates.
Their potential is being validated through studies of their antigenic
conservation and expression across a broad range of strains, cell-surface
accessibility, and ability to elicit protective immunity in mouse models of
disease.
C) MORAXELLA CATARRHALIS colonizes primarily the upper respiratory tract. It
is the third most common cause (15-20% of cases) of otitis media, after S.
PNEUMONIAE and NTHI. It also is an important cause of sinusitis, chronic
bronchitis, pneumonia, and chronic obstructive pulmonary disease. It rarely
causes invasive disease. A combination vaccine of S. PNEUMONIAE, NTHI, and M.
CATARRHALIS would cover approximately 75-90% of otitis media, a disease which
has an associated annual health-care burden of approximately $4 billion in the
USA alone. Other groups are developing protein based vaccines. BioChem has
identified several M. CATARRHALIS outer membrane proteins that may be promising
vaccine candidates. Their potential is being validated through studies of their
antigenic conservation and expression across a broad range of strains,
cell-surface accessibility, and ability to elicit protective immunity in mouse
models of disease.
D) Group A Streptococcus ("GAS") (STREPTOCOCCUS PYOGENES) is associated with
a diverse range of clinical syndromes. GAS is a primary invader of the throat
and lower respiratory tract and a secondary invader of the skin and endometrium.
The most common GAS disease are pharyngitis, pneumonia, pyoderma, and
cellulitis. Less commonly, infection can proceed to scarlet fever and
toxic-shock syndrome. Particularly dreaded among its sequelae are acute
rheumatic fever, acute glomerulonephritis, and necrotizing fascitis. Thus, a
vaccine would be very useful in preventing a range of diseases. Other groups are
developing protein-based vaccines. BioChem has identified several GAS membrane
proteins that may be promising vaccine candidates. Their potential is being
validated through studies of their antigenic conservation and expression across
a broad range of strains, cell-surface accessibility, and ability to elicit
protective immunity in mouse models of disease.
COMPUTER-ASSISTED DETECTION PRODUCTS
In July 1998, BioChem began investing in a new technology platform developed
by Qualia Computing, Inc. ("Qualia") a privately held US medical computer
science company. BioChem obtained exclusive rights to commercialize any life
science product developed from this platform. The Qualia technology platform is
a cognitive system that utilizes artificial intelligence, artificial neural
networks and advanced information processing technologies to solve complex
problems in the life science area. BioChem formed a new company, CADx Medical
Systems Inc. ("CADx") in July of 1999 to develop the technology into products
and to commercialize the products on a worldwide basis. CADx will develop
products that focus on the clinical and industrial applications of this
technology. The first commercial product is Second Look. Commercialization of
Second Look started in mid-1999.
SECOND LOOK
Second Look is a computer-assisted detection system for mammography
developed under a license and development agreement with Qualia. Second Look is
a system which, in its first application, was designed by Qualia engineers to
assist radiologists in the earlier diagnosis of breast cancer by enhancing their
ability to interpret mammograms. Early stage detection has been shown to
dramatically improve survival rates and reduce cost of treatment. The Second
Look system digitizes the x-ray films and then applies advanced image processing
and neural network software in a manner that directs radiologists to anomalies
such as microcalcifications and atypical masses, early indicators of disease
that might otherwise go undetected on visual inspection alone.
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The product is currently completing clinical trials in the USA to meet FDA
requirements. The pre-market approval (PMA) submission is being submitted in
three components or modules. Module I (manufacturing) and Module II (software)
have been submitted and accepted by the FDA. Module III (clinical studies) is
being assembled. Based on receiving FDA approval, BioChem expects to market the
product in the US in 2001. BioChem began marketing outside of the US in
June 2000.
The next generation of this technology will be a software product that
performs the same functions directly with digital mammography images.
SECOND LOOK CARDIO
Cardiovascular disease represents a significant business opportunity with an
estimated cost relating to cardiovascular disease of over $95 billion in the USA
alone. BioChem's cognitive systems technology should enhance the currently
subjective interpretation of imaging and non-imaging data providing nuclear
cardiologist with a second look. Development of concept and initiation of
requirements documents and prototype work will be the primary focus in 2001.
COMPUTER AIDED DRUG DESIGN
There are significant opportunities for companies that can improve the
efficiency of drug and vaccine discovery utilizing cognitive systems. The
efficiency of utilizing "in silico" techniques will prove to be time and cost
effective. Early prototype work has shown BioChem's cognitive platform can be
readily applied to drug design and lead optimization. The successful early
prototypes are being further refined and challenged with small data sets.
Concepts and requirements documents are currently under development. The
critical path provides for completing prototypes for potency and selectivity in
2001. These are the first two components of a computer aided drug optimization
tool.
INVESTMENTS
NAVA
As of December 31, 1999, BioChem held approximately 32% of the outstanding
common shares and 50% of the outstanding convertible preferred shares of North
American Vaccine, Inc. ("NAVA"), a publicly traded biotechnology company listed
on the American Stock Exchange and engaged in the research, development and
production of vaccines for the prevention of infectious diseases in children and
adults. BioChem shared control of NAVA pursuant to the terms of a shareholders'
agreement.
On November 18, 1999, BioChem announced that it had entered into an
agreement with Baxter International Inc. ("Baxter") to vote in favor of the
acquisition by Baxter of all of the outstanding shares of NAVA. On April 17,
2000, BioChem entered into amending agreements with Baxter and NAVA, among
others, to allow for a later than expected closing date, to provide for an
adjustment in the purchase price and to secure financing of NAVA's working
capital requirements until closing.
Pursuant to the amending agreements, BioChem made a $40 million working
capital facility available to NAVA and the offer was changed to $6.73 per NAVA
share from $7.00 in the original agreement.
On June 27, 2000, BioChem announced that it had closed the transaction to
sell to Baxter all of its shares of North American Vaccine, Inc. The gain on the
sale was CAN$137 million, with cash proceeds of CAN$167 million.
GENECHEM
In March 1997, BioChem agreed to make an investment of CAN $30 million in
GeneChem Technologies Venture Fund L.P., a venture capital fund sponsored by
BioChem's newly created
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subsidiary, GeneChem Financial Corporation. This CAN $100 million fund invests
in advanced academic research projects and early-stage private or public
companies in the area of genomics and related technologies for human
application. BioChem's partners in this fund are a select group of financial
investors. As of December 31, 2000, CAN $21 million had been invested in
GeneChem Technologies Venture Fund, L.P. by BioChem.
On September 14, 2000, BioChem entered into an agreement to invest CAN
$15 million in GeneChem Therapeutic Venture Fund L.P., a new CAN $136.5 million
capital fund. GeneChem Therapeutic Venture Fund L.P. will invest in genomics
companies focussing on cancer and infectious diseases. The general partner and
manager of GeneChem Technologies Venture Fund L.P. and GeneChem Therapeutics
Venture Fund L.P. are GeneChem Enterprise Inc. and GeneChem Management Inc., two
indirect subsidiaries of BioChem.
SIGNIFICANT AGREEMENTS
BioChem develops products both independently and in collaboration with
established pharmaceutical companies or other suitable partners. Collaborative
partners may provide financial resources, research and development and
manufacturing capabilities, and sales and marketing infrastructure, to aid in
the commercialization of BioChem's potential products. Presented below is a
brief description of BioChem's most significant collaborative agreements.
GLAXOSMITHKLINE (LAMIVUDINE)
By an agreement dated January 31, 1990 and amended as of November 20, 1995,
BioChem licensed to GlaxoSmithKline, the worldwide rights, with the exception of
Canada, to develop, manufacture and sell the nucleoside analog lamivudine
marketed as 3TC and Zeffix (3TC and Zeffix are referred to herein as
"lamivudine"). A partnership exists between GlaxoSmithKline's Canadian
subsidiary, GlaxoSmithKline Inc., and BioChem to supply, market and sell
lamivudine in Canada. GlaxoSmithKline has agreed to manufacture all the required
lamivudine to be supplied in Canada by the partnership.
In consideration for the grant of such rights, GlaxoSmithKline agreed to
undertake and fund the development of lamivudine and to pay BioChem a royalty on
sales of lamivudine. In addition, it was agreed that milestone payments would be
made to BioChem in installments as GlaxoSmithKline progressed in the development
and approval process. The amount of relevant patent prosecution costs and 50% of
milestone payments are deductible from any royalties payable to BioChem by
GlaxoSmithKline. The milestone payments and its related deductions from
royalties have been completed. The amount of certain contractual costs and
certain litigation costs may be deducted from royalties payable to BioChem by
GlaxoSmithKline. If GlaxoSmithKline terminates the license agreements upon
certain events of default by BioChem, GlaxoSmithKline will retain a
non-exclusive, paid-up license from BioChem to make, have made, use and sell
lamivudine worldwide.
GLAXOSMITHKLINE (VACCINES)
On December 3, 1998, BioChem concluded an alliance with GlaxoSmithKline for
the worldwide development, manufacturing and marketing of BioChem's cell-culture
influenza vaccines. Under the terms of the agreement, after a period of joint
development funded by both parties, BioChem and GlaxoSmithKline will collaborate
to market the products in the United States, while in Europe and the rest of the
world, GlaxoSmithKline will be exclusively responsible for marketing. In
addition, GlaxoSmithKline will be responsible for manufacturing for markets
throughout the world except Canada. BioChem will benefit from the sales of the
vaccines in the United States and the rest of the world, excluding Canada, in
accordance with a pre-determined formula. In Canada, BioChem will
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retain all exclusive rights to the vaccines, including production and marketing.
The agreement also calls for BioChem to receive up-front and milestone payments
from GlaxoSmithKline.
ASTRAZENECA PLC
On August 31, 1992, AstraZeneca plc ("Astra") and BioChem entered into a
series of agreements (the "Astra Agreements") providing for the research
development and commercialization of a new class of analgesic compounds for the
control of pain. Pursuant to the Astra Agreements, BioChem transferred and
assigned its rights to the relevant proprietary technology to Astra and retained
a right to re-acquire the Canadian rights in exchange for the payment of
royalties to Astra. In addition, a collaborative research agreement and a supply
agreement provide for Astra and BioChem to jointly research the field of opioid
peptides. Astra will retain commercial rights worldwide except for Canada. In
consideration for the grant of such rights to Astra, Astra made an upfront
payment, agreed to fund research and development, to make milestone payments to
BioChem and to pay BioChem a royalty on future product sales. Astra may, in its
sole discretion, terminate the Astra Agreements. If Astra discontinues
development of products or chooses not to develop products under the Astra
agreements or terminates the Astra agreements, then BioChem has the option to
reacquire the relevant technology and intellectual property rights subject to
certain royalty obligations to Astra.
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SHIRE AFTER THE MERGER
OVERVIEW
Following the merger, the Enlarged Group will be one of the world's leading
global specialty pharmaceutical companies with four areas of focus: central
nervous system disorders, oncology/ haematology, anti-virals and vaccines. The
Enlarged Group will refer to itself as "specialty" because its principal
products tend to be prescribed by specialists as opposed to primary care
physicians. Accordingly, a comparatively small sales force such as Shire's can
promote specialty products effectively while it could not be expected to achieve
the necessary coverage of primary care physicians.
The Enlarged Group's principal products will include: in the US, Adderall
for the treatment of Attention Deficit Hyperactivity Disorder, Agrylin for the
treatment of elevated blood platelets, Pentasa for the treatment of ulcerative
colitis, Carbatrol for the treatment of epilepsy, ProAmatine for the treatment
of orthostatic hypotension and PACIS for the treatment of superficial bladder
cancer; in the UK, the Calcichew range, used primarily as adjuncts in the
treatment of osteoporosis, and Reminyl for the treatment of Alzheimer's disease;
and, in Canada, ProAmatine, 3TC, Combivir and Zeffix, marketed in a partnership
with GlaxoSmithKline, Second Look, a product in the early stages of marketing
outside of the US, where the Enlarged Group hopes to be authorised to market in
2001, and Fluviral S/F, a vaccine for the prevention of influenza. In addition,
the Enlarged Group will have a number of products in late stage development
including Dirame and Frakefamide for the treatment of moderate to severe pain,
Foznol for the treatment of high blood phosphate levels associated with kidney
failure, Troxatyl for the treatment of leukaemia and solid tumors, SPD421, an
anti-epileptic in-licensed from D-Pharm [and SPD420, a potential treatment for
ADHD in-licensed from Cortex].
After the merger, the Enlarged Group's revenues will continue to be derived
from three sources: sales of products by sales and marketing operations
principally in the US, the UK and Canada, royalties from sales of Reminyl,
Zeffix and 3TC/Epivir and licensing and development fees. For the period ended
December 31, 1999 Shire had revenues of $401.5 million and net income (before an
APB 25 stock option charge of $11.9 million and exceptional costs of
$135.2 million) of $52.2 million and BioChem had revenues of $135.7 million and
net income from continuing operations of $59.7 million.
STRATEGY AND APPROACH
The Enlarged Group's strategy is to develop products and, where they fall
within the therapeutic focus, to market them through sales organisations in the
major markets of the world. The key elements of the operating strategy are
described below:
MARKET PROPRIETARY PRODUCTS THROUGH THE ENLARGED GROUP'S OWN SALES FORCE
The Enlarged Group believes that higher financial returns can be achieved by
marketing products directly, as opposed to receiving royalties on licensees'
sales. The merger enhances the sales and marketing capability in Canada. The
Enlarged Group intends to continue to expand the sales and marketing capability,
as opportunities arise, particularly in the US, major European markets, Japan
and through distributors outside of the significant pharmaceutical markets.
MANAGE DEVELOPMENT RISK
Recognising the inherent risks of failure in drug development, both BioChem
and Shire have historically sought to manage development risk by maintaining a
broad and balanced development portfolio. Shire has also sought to selectively
leverage relationships with collaborative parties. BioChem, through its
collaborations with academic institutions and biotech companies and investment
in a leveraged network of research companies, has access to projects and
technologies. As a combined
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company it is anticipated to continue reliance on the broad network of contacts
to identify product candidates which can be developed either internally or
through collaborative partnerships.
FOCUS ON THE DEVELOPMENT OF INNOVATIVE PRODUCTS
BioChem's lead optimisation and chemistry expertise has led to the
development and commercialisation of innovative products. Shire has also sought
to identify promising product candidates already under development or exploit a
number of proprietary drug delivery technologies to develop products. In
addition to developing proprietary pipeline products, the Enlarged Group's
principal objective will be to concentrate operations on licensing, acquiring,
developing, marketing and selling proven products and technologies. Both
companies have historically benefited from proven products that generate cash
flow, which contributes partial financial support to drug development activities
and provides enhanced product sales opportunities for the sales force.
SALES AND MARKETING
Following the merger, the Enlarged Group will use its sales and marketing
infrastructure to sell and market most of its licensed and internally developed
products. The combined sales and marketing operations of the Enlarged Group in
the US, the UK, Canada and Europe will consist of - , - , - and -
sales representatives, respectively. Following the merger, this expanded sales
force will have a broader portfolio of products with opportunities to benefit
from increased coverage.
COMBINED MARKETED PRODUCTS
The table below lists the key currently marketed products of Shire and
BioChem by therapeutic areas, indicating the owner or licensor of the product
and who is marketing the product in which territory.
<TABLE>
<CAPTION>
MARKETED BY/
PRODUCTS PRINCIPAL INDICATION(S) OWNER/LICENSOR RELEVANT TERRITORY
-------- ----------------------- -------------- ------------------
<S> <C> <C> <C>
TREATMENTS FOR CNS DISORDERS
Adderall ADHD Shire Shire/US
DextroStat ADHD Shire Shire/US
Carbatrol Epilepsy Shire Shire/US
Reminyl Alzheimer's disease Shire Shire/UK (Co-
promotion)
TREATMENTS FOR METABOLIC/BONE DISEASES
Calcichew range Osteoporosis adjunct Nycomed Shire/UK and Ireland
TREATMENTS FOR ONCOLOGY/HAEMATOLOGY
Agrylin Elevated blood Shire Shire/US and Canada
platelets
ProAmatine Orthostatic hypotension Nycomed Shire/US and Canada
PACIS Bladder cancer BioChem Urocor/US and Paladin
Labs/Canada
ANTIVIRALS
3TC/Epivir/Combivir/ HIV/AIDS BioChem GlaxoSmithKline/
Trizivir Worldwide, except
Canada
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
MARKETED BY/
PRODUCTS PRINCIPAL INDICATION(S) OWNER/LICENSOR RELEVANT TERRITORY
-------- ----------------------- -------------- ------------------
<S> <C> <C> <C>
3TC/Combivir HIV/AIDS BioChem BioChem and Glaxo-
SmithKline co-
marketed in Canada
Zeffix/Epivir-HBV/ Hepatitis B BioChem GlaxoSmithKline/
Heptovir/ Heptodin World-wide, except
Canada
Heptovir Hepatitis B BioChem BioChem and Glaxo-
SmithKline co-
marketed in Canada
VACCINES
Fluviral S/F Influenza BioChem BioChem/Canada
TREATMENTS FOR GASTROINTESTINAL DISORDERS
Pentasa Ulcerative colitis Ferring Shire/US
Colazide Ulcerative colitis Shire Shire/UK, EU and
Southeast Asia
Colace/Peri-Colace Constipation Shire Shire/US and Canada
COMPUTER ASSISTED DETECTION PRODUCTS
Second Look Breast Cancer Diagnosis Qualia Computing BioChem/Worldwide,
except US
</TABLE>
PRODUCTS UNDER DEVELOPMENT
After the merger, the Enlarged Group will seek to maintain a broad and
balanced approach to the development of new products by, among other things,
leveraging third-party research and development expertise, exploiting investment
in research collaborations and licensing compounds from third parties and
developing them through the clinical phase with a view to marketing them through
the Enlarged Group's sales and marketing organisation or out-licensing if
appropriate. On a combined basis BioChem and Shire spent approximately
$138 million on research and development in the year ended December 31, 1999,
which represents 27% of combined revenues.
The table below lists the key products under development by Shire and
BioChem by therapeutic area, including their development status and their
territorial rights. Where either company has secured a licensee for a product,
this fact is also indicated.
<TABLE>
<CAPTION>
PRODUCT(S) PRINCIPAL INDICATION(S) STATUS TERRITORIAL RIGHTS
---------- ----------------------- ------ ------------------
<S> <C> <C> <C>
TREATMENTS FOR CNS DISORDERS
Reminyl Alzheimer's disease In registration or Global
(galantamine)(1) marketed
SLI381 ADHD In registration Global
Dirame Moderate/severe pain Phase III Global
Frakefamide(2) Moderate/severe pain Phase II Global
SPD417 Bi-polar disorder Phase III Global
SPD503 ADHD Phase I Global
SPD418 Epilepsy Phase I Global
SPD502 Stroke Phase I Global excl. Nordic
and Baltic countries
SPD451 Parkinsons Disease Pre-clinical Global
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PRODUCT(S) PRINCIPAL INDICATION(S) STATUS TERRITORIAL RIGHTS
---------- ----------------------- ------ ------------------
<S> <C> <C> <C>
TREATMENTS FOR METABOLIC DISEASES
Foznol High blood phosphate Phase III Global
levels in patients with
kidney failure
TREATMENTS FOR GASTROENTEROLOGICAL DISORDERS
Pentasa (500 mg) Ulcerative colitis Phase II/III US
Emitasol Nausea and vomiting Phase II/III US, Canada
Balsalazide Ulcerative colitis Phase II/III [Europe], Southeast
Asia
TREATMENTS FOR ONCOLOGICAL/HAEMATOLOGICAL
DISEASES
Agrylin Thrombocythemia In registration Global
Troxatyl Leukaemia and solid Phase II Global
tumors
SPD424 Prostate cancer Phase III North America, Europe
ANTIVIRALS
BCH-10618 HIV/AIDS Pre-clinical Global
BCH-13520 HIV/AIDS Pre-clinical Global
VACCINES
Injectable and nasal Influenza Phase I/II North America
influenza vaccine
derived from cell
culture
NEISSERIA Meningitis, septicemia Phase I Global
MENINGITIDIS vaccine
PSEUDOMONAS Bacteremia, Pre-clinical Global
AERUGINOSA vaccine opportunistic
</TABLE>
------------------------
(1) The licensee is Janssen.
(2) The licensee is AstraZeneca (except Canada).
DRUG DELIVERY TECHNOLOGIES
The Enlarged Group will have several platforms of drug delivery technologies
that can be applied to drugs in order to enhance their effectiveness or their
convenience to patients in terms of dosage regimen. Generally, this involves
re-formulating the drug into a new delivery system designed either to enhance
the absorption of the drug into the blood stream or, alternatively, to delay
absorption of the drug into the bloodstream, thereby requiring the patient to
take fewer daily doses.
The Enlarged Group's portfolio of drug delivery technologies will include
technologies designed to develop oral, controlled release delivery of drugs, a
technology for rapid absorption through the tissues of the mouth and several
technologies for predicting and improving bioavailability of drugs. It is
intended to out-license these technologies to third parties in return for
development fees, milestone payments and royalties. It is also intended to
employ these technologies selectively to products being developed internally,
where it is believed the characteristics of the product can be improved or
modified to secure a competitive advantage.
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<PAGE>
THE EXTRAORDINARY GENERAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement is being furnished to Shire shareholders in connection
with the solicitation of proxies by the Shire board for use at the extraordinary
general meeting scheduled to be held at 35 New Broad Street, London, EC2M ISQ,
England, on - , 2001 at 3:00 p.m., local time, and at any adjournment or
postponement thereof.
MATTERS TO BE CONSIDERED AT THE EXTRAORDINARY GENERAL MEETING
ORDINARY RESOLUTION
At the extraordinary general meeting, Shire shareholders will be asked to
consider and vote on an ordinary resolution to approve the merger, to increase
the authorised share capital of Shire, to grant authority to Shire's directors
to allot such capital and to create new special voting shares and to attach
certain rights and restrictions to those shares.
SPECIAL RESOLUTION
At the extraordinary general meeting, you will also be asked to approve a
special resolution increasing the Director's power, for a period of 5 years from
the date of the passing of the resolution, to allot securities within the limits
of the authorised share capital for cash free of pre-emption rights up to a
nominal amount of [ - ].
Under English law, we would typically ask you to take this action at one of
our future general annual meetings. However, as a matter of convenience, you
will be asked to take this action at our Shareholder's Meeting. This action does
not relate to the merger.
RECORD DATE; VOTING RIGHTS; VOTING AT THE MEETING
The Shire board has fixed - , 2001 as the record date for determination
of Shire shareholders entitled to notice of, and to vote at, the extraordinary
general meeting. Each holder of record of Shire shares on the record date is
entitled to cast one vote per share, exercisable in person or by a properly
executed proxy, on each of the resolutions put to the extraordinary general
meeting. On the record date, there were - Shire shares outstanding and
entitled to vote which were held by approximately - holders of record.
The presence, in person or by a properly executed proxy, of two or more
shareholders of Shire entitled to vote at the extraordinary general meeting is
necessary to constitute a quorum at the extraordinary general meeting. The
ordinary resolution must be passed by a majority of the votes cast by the
holders of Shire shares present or represented by proxy at the extraordinary
general meeting. The special resolution must be passed by a majority of
three-quarters of the votes cast by the holders of Shire shares present or
represented by proxy at the extraordinary general meeting. The directors of
Shire collectively own shares representing approximately - per cent of the
outstanding Shire issued share capital.
VOTING OF PROXIES
All Shire shareholders who are entitled to vote and are represented at the
extraordinary general meeting by properly executed proxies deposited with
Shire's registrars, Lloyds TSB Registrars, The Causeway, Worthing, West Sussex
BN99 3UH, England, at least 48 hours prior to the extraordinary general meeting
and not revoked will be voted at the extraordinary general meeting in accordance
with the instructions indicated in the proxy. If no instructions are indicated,
your proxy may vote or abstain on the resolution at his or her discretion. Under
rules applicable to brokers, a broker is precluded from
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<PAGE>
exercising voting discretion with respect to the approval of the merger proposal
and thus, absent specific instructions from the beneficial owners of those Shire
shares, is not empowered to vote those Shire shares for or against the merger
proposal.
Any proxy given pursuant to the solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- depositing at the registered office of Shire, before the taking of the
vote at the extraordinary general meeting, a written notice of revocation
bearing a later date than the date of proxy or by giving notice of
revocation in the open meeting;
- submitting a later-dated proxy; or
- attending the extraordinary general meeting and voting in person.
In order to vote in person at the extraordinary general meeting, Shire
shareholders must attend the meeting and cast their votes in accordance with the
voting procedures established for such meeting. Attendance at the extraordinary
general meeting will not in and of itself constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy must be sent to: Shire
Pharmaceuticals Group plc, East Anton, Andover, Hampshire, SP10 5RG, England,
attention: Company Secretary.
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<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Shire is a specialty pharmaceutical company historically focused on four
therapeutic areas: central nervous system disorders, metabolic/bone diseases,
oncology and gastroenterology.
Shire's strategy is to in-license, develop and market therapies in its areas
of strategic focus. This approach is complemented by the advanced drug delivery
platforms developed by Shire Laboratories which may be used to enhance the
bioavailability, reduce the side effects or improve the dosage regimen of
existing marketed compounds. Shire seeks to protect the intellectual property
upon which it relies through a range of patents and patent applications (both
its own and that of its licensors).
Historically, the majority of products have been in-licensed and Shire
continues actively to seek such opportunities. Products currently marketed in
the US are Adderall and DextroStat for Attention Deficit Hyperactivity Disorder
(ADHD), Carbatrol, launched in May 1998, for the treatment of epilepsy, Pentasa
for ulcerative colitis, Agrylin for thrombocythemia and ProAmatine for
orthostatic hypotension. The key UK market products are the Calcichew range of
prescription calcium and calcium/vitamin D products used as adjuncts in the
treatment of osteoporosis. Additionally, Shire launched Reminyl and Colazide in
the UK in 2000. While Shire has access to seven of the eight key pharmaceutical
markets, it was keen to consolidate its position in the North American market,
following its successful acquisition of Roberts Pharmaceutical Corporation in
1999.
Since the Roberts merger, Shire has considered approximately - to -
investment opportunities in the North American market, all of which were
specialty pharmaceutical companies. During the course of considering these
acquisition opportunities, Shire identified BioChem as a particularly attractive
candidate, primarily because BioChem broadened Shire's therapeutic areas and
provided Shire with an enhanced combined search and development platform.
Mr Rolf Stahel and Dr Francesco Bellini first met on August 28, 2000 in
Ascoli, Italy [where Mr Stahel first raised the possibility of a merger of the
two companies]. They did not discuss specific terms for a possible merger, but
they did agree that the parties' representatives should meet and continue the
discussions. Subsequent to this initial meeting, Dr Wilson Totten, Shire's
Research & Development Director, went to Montreal on September 19, 2000 where he
met with Dr Bellini and Dr Gervais Dionne. The following day, Dr Totten and
Dr Dionne visited the Laval site, where they talked through each of their
respective R&D strategies and projects, but did not discuss specific terms of a
possible transaction.
During this period, Deutsche Bank prepared a basic financial analysis of the
effect on Shire's earnings of a potential business combination transaction with
BioChem, reviewing publicly available information about BioChem and its
products. Deutsche Bank also presented their initial views on the key due
diligence issues that might arise were the proposed transaction to proceed.
By a letter dated September 22, 2000 from Deutsche Bank to Shire, which was
signed and accepted by Shire on this date, Shire formally engaged Deutsche Bank
to act as its financial adviser in connection with negotiating the proposed
merger.
Reciprocal confidentiality agreements were executed on October 3 and
October 9, 2000 with customary terms, subsequent to which information was sent
from Chase Securities, BioChem's financial advisers, to Deutsche Bank, Shire's
financial advisers, relating to specific products, tax, various accounting
issues and patents.
On October 6, 2000, Shire convened a board meeting. Deutsche Bank presented
to the board on the financial implications of a possible merger, preliminary
views on value and the rationale for the transaction. No conclusions were
possible regarding earnings impact because the financial terms of the possible
transaction were not known. Further to permission granted at this board meeting,
a
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<PAGE>
preliminary non-binding indicative offer letter was sent to BioChem. This letter
confirmed Shire's interest in pursuing a potential business combination with
BioChem and outlined various parameters of Shire's proposal, including that the
offer be structured as a merger, an indicative offer value for the BioChem
shares, certain pre-conditions and conditions to any offer by Shire, Shire's
requirement for confidentiality and a request for an exclusive period to conduct
due diligence and proceed with negotiations, for the payment of mutual break
fees, an option for Shire to acquire up to 19.9 per cent of the issued share
capital of BioChem and warranties and indemnities usual for a transaction of
this nature. In addition, the Board specifically requested that two issues that
had been highlighted during the course of that board meeting regarding
intellectual property rights and tax matters regarding BioChem be addressed and
resolved.
On October 16, 2000, the respective companies' company general counsels
opened lines of communication on certain intellectual property issues, including
the identification of patent attorneys previously retained by BioChem, although
specific terms of a possible transaction were not discussed.
On October 17, 2000, Shire's finance director, Angus Russell, financial
controller, Paul McBarron, and internal tax adviser, Simon Gibbins, visited
Montreal to discuss certain tax issues with BioChem's tax advisers and BioChem's
Chief Financial Officer, Frederick J. Andrew. Further to this meeting, Shire
spent some time assessing the possible tax structures of the transaction.
On October 18 and 19, 2000, the respective parties' patent lawyers discussed
the patent interference and litigation involving BioChem and Emory University in
connection with 3TC/ lamivudine.
A further letter was sent to Dr Bellini by Mr Stahel on behalf of the Shire
board on October 24, following the completion of initial due diligence on the
intellectual property issues and the tax issues. This letter confirmed Shire's
interest in pursuing a potential business combination with BioChem and confirmed
various parameters of Shire's proposal, including that the offer be structured
as a merger, an indicative offer value for the BioChem shares, certain
pre-conditions and conditions to any offer by Shire, Shire's requirement for
confidentiality and a request for an exclusive period to conduct due diligence
and proceed with negotiations, the payment of mutual break fees, an option for
Shire to acquire up to 19.9 per cent of the issued share capital of BioChem and
warranties and indemnities usual for a transaction of this nature.
On October 29, 2000, a first draft merger agreement was sent to Shire. Dr
Francesco Bellini contacted Shire on October 30, 2000 and it was agreed that
Shire's formal due diligence process lasting 10 days would now begin. On
October 30, 2000 BioChem sent a letter to Shire agreeing, among other things, to
pay up to $600,000 towards Shire's out-of-pocket expenses related to the due
diligence process should a definitive binding merger agreement not be signed by
December 15, 2000. Shire's due diligence team, comprised of Shire officers and
advisers, convened in Montreal on October 31, 2000. From October 31 until
November 10, 2000, representatives of Shire and its financial, legal and
accounting advisers conducted due diligence on BioChem both at the offices of
BioChem's lawyers, Stikeman Elliott, and at all of BioChem's own sites.
A further Shire board meeting, with certain directors attending by
telephone, was convened on November 14, to discuss the initial findings from the
data room and other due diligence enquiries, rationale for the transaction,
revised financial projections, valuation issues and financial implications of
the merger. As a result of this board meeting, a further indicative offer letter
was sent to BioChem. This letter confirmed Shire's interest in pursuing a
potential business combination with BioChem and confirmed various parameters of
Shire's proposal, including that the offer be structured as a merger, an
indicative value offer for the BioChem shares, certain pre-conditions and
conditions to any offer by Shire, Shire's requirement for confidentiality and a
request for an exclusive period to conduct due diligence and proceed with
negotiations, the payment of a mutual break fee, an option for Shire to acquire
up to 19.9 per cent of the issued share capital of BioChem and warranties and
indemnities
59
<PAGE>
usual for a transaction of this nature. The value to be received by a BioChem
shareholder was determined using a fixed exchange ratio. Shire also requested
that BioChem respond by 5pm UK time on November 17, which they did, saying that
the Shire offer had been rejected.
A further indicative offer was sent to BioChem on November 20, 2000,
increasing the non-binding offer that had been set out in Shire's letter of
November 14 and amending the terms of the share exchange, such that BioChem
shareholders would receive fixed consideration within certain parameters of
Shire's share price prior to closing. The exchange ratio would be based on a
Shire ADS price of US$59 which would be adjusted by any variation of Shire's ADS
price of up to plus or minus twenty per cent, assessed by reference to the
average closing Shire ADS price on the fifteen consecutive trading days ending
on the third trading day immediately preceding the closing of the merger. Any
alteration in the Shire ADS price outside of this range would not result in any
further adjustment to the exchange ratios.
BioChem stated that it was unable to respond at this time as it had entered
a period of exclusivity with a third party which expired on November 27, 2000.
This period of exclusivity with a third party subsequently expired and
negotiations with Shire recommenced. On November 28, a further draft merger
agreement was supplied. Negotiations on this merger agreement then began on
November 29.
On December 4, there was a further Shire board meeting that reported on
continuing negotiations with BioChem.
On December 5, BioChem and its team of legal, financial and accounting
advisers began its due diligence on Shire. This due diligence comprised
essentially two days spent at Shire's headquarters in Andover, December 6 and 7
at the New York law offices of Cahill Gordon & Reindel, Shire's US counsel, and
December 7 and 8 in Florence, Kentucky. Negotiations on the merger agreement
continued during this period. The primary outstanding issues related to the
legal requirement that the obligation of the Shire Board to recommend the merger
to the company's shareholders be subject to the fiduciary duties owed by Shire's
Board of Directors to the company and the break fees payable by either party in
the event that the merger was not consummated. In the period between December 5
and December 10 these issues were resolved.
On December 10 the legal advisers to Shire and BioChem revised the merger
agreement and finalised the other documentation.
The Board of Directors of Shire and BioChem convened board meetings in
Montreal on December 10. Representatives of Deutsche Bank, Arthur Andersen and
McCarthy Tetrault, Shire's Canadian counsel, were present at the Shire Board
meeting and Deutsche Bank delivered a written fairness opinion to Shire's Board
of Directors. Representatives of Chase Securities, Merrill Lynch and Stikeman
Elliott were present at the BioChem Board meeting.
The definitive merger agreement and related documents were signed by Shire
and BioChem in Montreal on the night of December 10. On the morning of
December 11, Shire and BioChem jointly issued a press release announcing the
execution of the merger agreement.
REASONS FOR THE MERGER
Our board of directors believes that the merger brings together two
publicly-traded specialty pharmaceutical companies with complementary strengths,
activities and competencies. We have built effective research and development
functions, an effective sales and marketing organisation in the US and UK and
have established and are expanding our functions in Canada and certain leading
European markets. BioChem has built an outstanding scientific operation through
which it has generated a pipeline of projects focused in three discrete
specialty categories: oncology, vaccines and anti-virals.
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<PAGE>
OPINION OF SHIRE'S FINANCIAL ADVISER
Deutsche Bank has acted as financial adviser to Shire in connection with the
merger. At the December 10, 2000 meeting of Shire's Board of Directors, Deutsche
Bank delivered its written opinion as at that date to Shire's Board of Directors
to the effect that as at the date of such opinion, based upon and subject to the
assumptions made, matters considered and the limits of the review undertaken by
Deutsche Bank, the exchange ratio was fair, from a financial point of view to
Shire's Shareholders.
The full text of the written opinion of Deutsche Bank dated December 10,
2000 (the "Deutsche Bank Opinion") which sets forth, among other things, the
assumptions made, matters considered and limits on the scope of review
undertaken by Deutsche Bank in connection with the opinion, is attached as Annex
D to this proxy statement and is incorporated by reference herein. Shire
Shareholders are urged to read this opinion in its entirety. The summary of the
Deutsche Bank Opinion set forth in this proxy statement is qualified in its
entirety by reference to the full text of the Deutsche Bank Opinion.
In connection with Deutsche Bank's role as financial adviser to Shire, and
in arriving at its opinion, Deutsche Bank has, among other things, reviewed
certain publicly available financial information and other information
concerning Shire and BioChem and their respective groups and certain internal
analyses and other information furnished to it by Shire and BioChem. Deutsche
Bank also held discussions with the members of the senior management of Shire
and BioChem regarding the businesses and prospects of their respective groups
and the joint prospects of a combined group. In addition, Deutsche Bank has
attended certain discussions with Shire's external legal counsel and BioChem's
internal and external counsel on specific items relating to ongoing patent
litigation and related proceedings against BioChem and/or members of its group
and has reviewed and relied on such counsels' opinions with respect to these
matters. In addition, Deutsche Bank has (i) reviewed the reported prices and
trading activity for the common stock of BioChem and the ordinary shares of
Shire, (ii) compared certain financial and stock market information for Shire
and BioChem with similar information for selected companies whose securities are
publicly traded, (iii) reviewed the financial terms of selected recent business
combinations which it deemed comparable in whole or in part, (iv) reviewed the
terms of the Merger Agreement and (v) performed such other studies and analyses
and considered such other factors it deemed appropriate.
In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning Shire or
BioChem or their respective groups, including, without limitation, any financial
information, forecasts or projections, considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche
Bank assumed and relied upon the accuracy and completeness of all such
information. Deutsche Bank did not conduct a physical inspection of any of the
properties or assets, and did not prepare or obtain any independent evaluation
or appraisal of any of the assets or liabilities of Shire or BioChem or members
of their groups. With respect to the financial forecasts and projections made
available to Deutsche Bank and used in its analysis, including analyses and
forecasts of certain cost savings (including assumptions relating to future tax
rates), operating efficiencies, revenue effects and financial synergies
(collectively, the "Synergies") expected by Shire to be achieved as a result of
the merger, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgements of the
management of Shire or BioChem, as the case may be, as to the matters covered
thereby. In rendering its opinion, Deutsche Bank expressed no view as to the
reasonableness of such forecasts and projections, including the Synergies, or
the assumptions on which they are based. The Deutsche Bank Opinion was
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to Deutsche Bank as of, the date of such
opinion. Events occurring after the date thereof could materially affect this
opinion and the assumptions used in preparing this opinion. Although subsequent
developments may affect Deutsche Bank's opinion, Deutsche Bank does not have any
obligation to update, revise or reaffirm its opinion. Shire imposed no other
instructions or
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<PAGE>
limitations on Deutsche Bank with respect to the other investigations made or
the procedures followed by it in rendering its opinion. Further, Deutsche Bank
does not provide legal, accounting, actuarial or tax advice.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Shire, Shire Exchangeco and BioChem contained in the Merger Agreement are true
and correct, that Shire, Shire Exchangeco and BioChem will each perform all of
the covenants and agreements to be performed by them under the Merger Agreement
and all conditions to the obligation of each of Shire, Shire Exchangeco and
BioChem to consummate the merger will be satisfied without any waiver thereof.
Deutsche Bank has also assumed that all material governmental, regulatory or
other approvals and consents required in connection with the consummation of the
transactions contemplated by the Merger Agreement will be obtained and that in
connection with obtaining any necessary governmental, regulatory or other
approvals and consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which either Shire or BioChem is a party or
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Shire or BioChem or materially reduce the
contemplated benefits of the merger to Shire. In addition, Deutsche Bank has
been advised by Shire, and accordingly has assumed for purposes of its opinion,
that the merger will be tax-free to each of Shire and BioChem and their
respective stockholders and that the merger will be accounted for as a pooling
of interests.
In connection with Deutsche Bank's role as financial adviser to Shire and in
arriving at its opinion, Deutsche Bank was not authorized to solicit, and did
not solicit, interest from any other person with respect to the acquisition of
Shire or any of its assets, nor did Deutsche Bank have discussions or negotiate
with any person in connection with the merger.
Set forth below is a brief summary of certain financial analyses performed
by Deutsche Bank in connection with its opinion.
HISTORICAL STOCK PERFORMANCE. Deutsche Bank reviewed and analyzed recent
and historical market prices and trading volume for Shire ADSs and ordinary
shares and BioChem common shares and compared such market prices to certain
stock market and industry indices.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Deutsche Bank compared
certain financial information and commonly used valuation measurements for
BioChem and Shire to corresponding information and measurements for a group of
ten publicly traded specialty pharmaceutical companies consisting of
- Allergan Inc;
- ALZA Corp;
- Forest Laboratories Inc;
- ICN Pharmaceuticals Inc;
- King Pharmaceuticals Inc;
- KV Pharmaceutical Co;
- Medicis Pharmaceuticals Corp;
- Elan Corporation plc;
- H Lundbeck; and
- Schering AG
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(collectively, the "Selected Companies"). Deutsche Bank reviewed, among other
things, enterprise values (defined as equity value, plus total debt, preferred
stock and minority interest less cash) as a multiple of estimated calendar years
2000, 2001 and 2002 EBIT and EBITDA and equity values as a multiple of estimated
calendar years 2000, 2001 and 2002 net income. In order to derive an implied
equity range for BioChem, Deutsche Bank then applied a range of selected
multiples of estimated calendar years 2000, 2001 and 2002 derived from the
Selected Companies to corresponding financial statistics for BioChem. Estimated
financial data for the Selected Companies were based on publicly available
research analysts' estimates and estimated financial data for BioChem were based
on internal estimates of the management of Shire. After applying a control
premium derived from an analysis of those in North American transactions in the
period from January 1998 to November 2000, this implied an equity reference
range for BioChem of approximately $4.0 billion to $4.7 billion.
None of the companies utilized as a comparison is identical to BioChem or
Shire. Accordingly, Deutsche Bank believes the analysis of such publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgements, reflected in Deutsche Bank's opinion,
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Deutsche Bank reviewed the
financial terms, to the extent publicly available, of five completed mergers and
acquisition transactions since January 1, 1999 involving companies in the
specialty pharmaceutical industry (the "Selected Transactions"). The
transactions reviewed were (with month of announcement in parenthesis):
- Dura Pharmaceuticals/Elan Corporation (September 2000);
- Pathogenesis/Chiron (August 2000);
- Jones Pharmaceuticals/King Pharmaceuticals (July 2000);
- Roberts Pharmaceuticals/Shire Pharmaceuticals (July 1999); and
- Agouron Pharmaceuticals/Warner Lambert (January 1999)
Deutsche Bank compared the enterprise values (for definition see above) in
the selected transactions as a multiple of forecast one year EBIT and the equity
values in the selected transactions as a multiple of forecast one year net
income. All financial information was based on financial information available
at the time of the relevant transaction. Applying the range of EBIT multiples
and net income multiples to corresponding financial data for BioChem based on
internal estimates of the management of Shire resulted in an implied enterprise
value of BioChem in the range of $3.5 billion to $4.5 billion.
Because the reasons for, and circumstances surrounding, each of the
precedent transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of BioChem and Shire
and the companies involved in the Selected Transactions, Deutsche Bank believes
that a comparable transaction analysis is not simply mathematical. Rather, it
involves complex considerations and qualitative judgments, reflected in Deutsche
Bank's opinion, concerning differences between the characteristics of these
transactions and the merger that could affect the value of the subject companies
and businesses and BioChem and Shire.
CONTRIBUTION ANALYSIS. Deutsche Bank analyzed the relative contributions of
BioChem, with synergies expected to arise from the transaction, and Shire to the
pro forma income statement of the combined company, based on internal estimates
of the management of Shire for both companies and a base level of expected
synergies. This analysis showed that on a pro forma combined basis (excluding
(i) non-recurring expenses relating to the merger and (ii) excluding the impact
of any revenue from CliniChem Development Inc), based on the calendar years
ending December 31, 2000, 2001 and 2002
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for Shire and BioChem, Shire and BioChem (with a base level of synergies
estimated by the management of Shire), would account for approximately 59%, 41%;
54% and 46%; and 55%, 45% respectively, of the combined company's pro forma net
income for each of those three years.
DISCOUNTED CASH FLOW ANALYSIS. The acquisition of BioChem by Shire is to be
satisfied by the issue of new Shire ordinary shares, new Shire ADSs or by the
issue by ExchangeCo of exchangeable shares in favor of BioChem Shareholders.
Accordingly, no cash consideration will pass to BioChem Shareholders. As such,
the Board of Shire, as advised by Deutsche Bank, did not regard a Discounted
Cash Flow Analysis as representative and hence was not relied upon by the Board
of Shire as part of its decision making process. Nevertheless, Deutsche Bank
performed a discounted cash flow analysis on BioChem. Deutsche Bank calculated
the discounted cash flow value as the estimated future cash flow that BioChem is
forecast to generate from the year 2001 onwards. The estimated future cash flows
were based on the internal estimates of the management of Shire and Deutsche
Bank used a range of discount rates.
PRO FORMA COMBINED EARNINGS ANALYSIS. Deutsche Bank analyzed certain pro
forma effects of the merger. Based on such analysis, Deutsche Bank computed the
resulting dilution/accretion to the combined company's EPS estimate for the
fiscal years ending December 31, 2001 and 2002, before and after taking into
account any potential cost savings and other synergies identified by management
that BioChem and Shire could achieve if the merger were consummated and before
non-recurring costs relating to the merger. The results of this analysis
suggested that the merger could be accretive, or represent an increase, to
Shire's earnings per share in calendar years 2001 and 2002. The actual results
achieved by the combined company may vary from projected results and the
variations may be material.
OTHER ANALYSES. In addition, Deutsche Bank analyzed the terms of the Merger
Agreement at the extremities of the collar arrangement and considered the
financial implications for Shire. Deutsche Bank also reviewed the average bid
premium paid in recommended transactions in North America since 1998. This
showed that the range of premium paid to the target company's share price on the
day prior to announcement was 27.7 per cent to 47.8 per cent, with an average of
37 per cent. Shire offered a premium of 39.6 per cent to the BioChem share price
on the trading day prior to the announcement of the merger. In addition,
Deutsche Bank considered the possible financial implications for Shire of an
adverse ruling in the Emory University patent litigation. For further details of
this litigation, please see "Risk Factors--BioChem's ongoing success is
dependent on maintaining patent protection for its products."
The foregoing summary describes all analyses and factors that Deutsche Bank
deemed material in its presentation to Shire's Board of Directors, but is not a
comprehensive description of all analyses performed and factors considered by
Deutsche Bank in connection with preparing its opinion. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not readily susceptible to summary description.
Deutsche Bank believes that its analyses must be considered as a whole and that
considering any portion of such analyses and of the factors considered without
considering all analyses and factors could create a misleading view of the
process underlying the opinion. In arriving at its fairness determination,
Deutsche Bank did not assign specific weights to any particular analyses. In
addition, Deutsche Bank expresses no opinion as to what the value of Shire's
stock will be when issued to BioChem shareholders pursuant to the merger or the
price at which Shire stock will trade subsequent to the merger.
In conducting its analyses and arriving at its opinion, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its opinion
to Shire's Board of Directors as to the fairness to Shire of the Exchange Ratio
and does not purport to be appraisals or necessarily reflect the prices at which
businesses or
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securities actually may be sold, which are inherently subject to uncertainty. In
connection with its analyses, Deutsche Bank made, and was provided by Shire
management with, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Shire's or BioChem's control. Analyses based on estimates or forecasts of
future results are not necessarily indicative of actual past or future values or
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of Shire, BioChem
or their respective advisers, neither Shire nor Deutsche Bank nor any other
person assumes responsibility if future results or actual values are materially
different from these forecasts or assumptions. The estimates contained in
Deutsche Bank's analyses and the valuation ranges resulting from any particular
analysis are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by its analyses. Deutsche Bank's opinion and related financial
analyses were only one of many factors considered by the Board of Shire in its
evaluation of the merger and should not be viewed as determinative of the views
of the Board or management of Shire with respect to the merger or the
consideration payable in the merger.
The terms of the merger were determined through negotiations between Shire
and BioChem and were approved by Shire's Board of Directors. Although Deutsche
Bank provided advice to Shire during the course of these negotiations, the
decision to enter into the merger was solely that of Shire's Board of Directors.
As described above, the opinion and presentation of Deutsche Bank to Shire's
Board of Directors were only one of a number of factors taken into consideration
by Shire's Board of Directors in making its determination to approve the
Transaction. Deutsche Bank's opinion was provided to Shire's Board of Directors
to assist it in connection with its consideration of the merger and does not
constitute a recommendation to any holder of Shire's ordinary shares as to how
to vote with respect to the merger.
Shire selected Deutsche Bank as financial adviser in connection with the
merger based on Deutsche Bank's qualifications, expertise, reputation and
experience in mergers and acquisitions. Shire has retained Deutsche Bank
pursuant to an agreement dated September 22, 2000 (the "Engagement Letter"). As
compensation for Deutsche Bank's services in connection with the merger, Shire
has incurred a cash liability to Deutsche Bank of $2,500,000 and has agreed to
pay in aggregate a fee representing 0.4 per cent of the value of the offer for
BioChem if the merger is consummated. Regardless of whether the merger is
consummated, Shire has agreed to reimburse Deutsche Bank for reasonable fees and
disbursements of Deutsche Bank's counsel and all of Deutsche Bank's reasonable
travel and other out-of-pocket expenses incurred in connection with the merger
or otherwise arising out of the retention of Deutsche Bank under the Engagement
Letter. Shire has also agreed to indemnify Deutsche Bank and certain related
persons to the full extent lawful against certain liabilities, including certain
liabilities under US federal securities laws arising out of its engagement or
the merger.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. Deutsche Bank and its affiliates may actively trade
securities of Shire or BioChem for their own account or the account of their
customers and, accordingly, may from time to time hold a long or short position
in such securities.
GOVERNMENTAL REGULATION
US ANTITRUST
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules promulgated thereunder, certain transactions, including the
merger, may not be consummated unless certain waiting period requirements have
been satisfied. On January 12, 2001, we filed a Pre-merger Notification and
Report Form in accordance with the provisions of the Hart-Scott-Rodino Act with
the Antitrust Division and the FTC. The required waiting period will expire on
February 11, 2001.
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UK ANTITRUST
In the UK, the Secretary of State can refer any qualifying merger situation
to the Competition Commission for investigation as to whether the merger may be
expected to operate against the public interest. The merger is a qualifying
merger situation for the purposes of UK law. There is no obligation to obtain
prior clearance of a qualifying merger in the UK. However, if a qualifying
merger is completed without prior clearance being given, there is a risk that
the merger may subsequently be referred to the Competition Commission and that
divestments might ultimately be required.
INVESTMENT CANADA ACT
The INVESTMENT CANADA ACT is a Canadian statute of general application
governing the acquisition of control of Canadian businesses by non-Canadians.
This merger is considered to be an acquisition of control of a Canadian business
by a non-Canadian for purposes of the INVESTMENT CANADA ACT. A proposed
acquisition of a Canadian business by a non-Canadian prospective acquiror is
subject to prior review and approval by the Minister of Industry Canada if the
value of the assets of the acquired business is equal to or greater than a
threshold amount. This amount was $192 million for the 2000 calendar year. A
reviewable investment may not be completed until the Minister determines that
the investment is likely to be of "net benefit to Canada," in accordance with
the various criteria set out under the INVESTMENT CANADA ACT. The Minister may
also condition a "net benefit to Canada" finding on the provision of
undertakings by the non-Canadian prospective acquiror. This merger is reviewable
because the value of assets of BioChem will likely exceed the threshold amount
to be fixed for the 2001 calendar year.
To commence the review process, we submitted an application for review with
prescribed information to the Director of Investments within Industry Canada on
January 12, 2001. Under the INVESTMENT CANADA ACT, a decision is required to be
rendered within 45 days of receipt of such filing, subject to the unilateral
right of the Minister to extend this period for up to a further 30 days. Based
on this timetable and assuming no extension by the Minister, we expect the
Minister to render a decision by March 1, 2001.
CANADIAN COMPETITION ACT
The merger is a "notifiable transaction" under the COMPETITION ACT (Canada),
which means prescribed information must be sent to the Competition Bureau for
review.
BioChem and Shire intend to submit a request pursuant to section 102 of the
Competition Act for an advance ruling certificate ("ARC") to the Commissioner of
Competition on or about January 17, 2001. Should it appear that the Commissioner
of Competition will not issue an ARC or will not do so quickly enough to allow
the transaction to be consummated as scheduled, BioChem and Shire will submit a
short-form pre-merger notification filing to the Commissioner of Competition.
A transaction cannot be consummated until an ARC has been issued by the
Commissioner of Competition or, in the event a short-form pre-merger
notification is filed, a relevant waiting period of 14 days has expired.
Where an ARC is issued and the notifiable transaction to which the ARC
relates is substantially completed within one year after the ARC is issued, the
Commissioner of Competition may not seek an order of the Competition Tribunal in
respect of the notifiable transaction solely on the basis of information that is
the same or substantially the same as the information on the basis of which the
ARC was issued. If an ARC is not issued, at any time within three years after
the consummation of the transaction for which the ARC was sought but not issued,
and notwithstanding the expiry of the waiting period under the Competition Act,
the Commissioner of Competition could take action under the
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Competition Act to seek to enjoin, modify or dissolve the transaction if it
would be likely to prevent or lessen competition substantially.
Each of BioChem and Shire believe that the Transaction is not likely to
prevent or lessen competition substantially. Nevertheless, there can be no
assurance (unless an ARC is issued) that the Commissioner of Competition will
not challenge the Transaction at any time before or within three years from the
consummation or, if such a challenge is made, what the result would be.
ANTICIPATED ACCOUNTING TREATMENT AND EFFECTS
The merger is intended to qualify as a pooling of interests transaction
under US GAAP, which means the recorded assets and liabilities of BioChem will
be carried forward to the combined business at their recorded amounts. The
historical revenues and expenses of BioChem, for all periods, will be combined
with those of Shire, whose financial statements will then be restated.
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THE MERGER AGREEMENT
The following description of the material provisions of the merger agreement
is only a summary and does not purport to be complete. This description is
qualified in its entirety by reference to the merger agreement, a copy of which
is attached to this Proxy Statement as Annex A and is incorporated herein by
reference.
GENERAL; EFFECTIVE TIME AND EFFECTS OF THE MERGER
The merger agreement provides that, subject to the approval of the merger by
the affirmative vote of at least two-thirds of the votes cast by BioChem
shareholders and by BioChem rightholders, voting together, subject to any
conditions prescribed in the interim order to be obtained prior to the mailing
of the BioChem circular to BioChem's shareholders and the passing of the
ordinary resolution to be proposed at the extraordinary general meeting, and the
satisfaction or waiver of other conditions to the merger, Shire and BioChem will
merge pursuant to a plan of arrangement.
Upon completion of the merger and closing of the arrangement, BioChem will
become a wholly-owned subsidiary of Exchangeco, a wholly-owned subsidiary of
Shire.
DIRECTORS OF SHIRE IMMEDIATELY FOLLOWING THE MERGER
Following the merger, Dr. Francesco Bellini, The Honourable James Andrews
Grant and Mr. Gerard Veilleux, who are now members of BioChem's board, will
become members of Shire's board. At that time approximately 30% of the Shire
board will be former BioChem board members.
CONVERSION OF BIOCHEM SHARES
The merger agreement provides for the combination of Shire and BioChem in a
transaction in which each BioChem shareholder (other than BioChem shareholders
who properly dissent to the merger) will have the choice of receiving as
consideration for each share of BioChem:
- a number of ordinary shares equal to the exchange ratio;
- a number of exchangeable shares equal to the exchange ratio divided by
three issued by a wholly-owned subsidiary of Shire, which are exchangeable
into ordinary shares, or ADSs, at a rate of one exchangeable share for
three ordinary shares or one exchangeable share for one ADS;
- a number of ADSs equal to the exchange ratio divided by three; or
- a combination of the above.
Only shareholders of BioChem that are Canadian residents will have the
option of receiving exchangeable shares for their shares of BioChem.
The exchangeable shares will be issued by Exchangeco, a corporation
incorporated under the CANADA BUSINESS CORPORATIONS ACT, which is a wholly-owned
subsidiary of Shire. Holders of the exchangeable shares will be entitled to
dividend and other rights that are, as nearly as practicable, economically
equivalent to those of ordinary shares. Through a voting trust, holders of the
exchangeable shares will be entitled to vote at meetings of Shire shareholders.
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EXCHANGE RATIO
The number of ordinary shares into which each share of BioChem shall be
converted shall be determined as follows:
<TABLE>
<CAPTION>
IF THE ADS PRICE IS: THE EXCHANGE RATIO SHALL BE:
-------------------- ----------------------------
<S> <C>
less than or equal to $47.20 2.3517
Greater than $47.20 and less than determined by dividing $37.00 by the
$70.80 ADS price and multiplying by three
equal to or greater than $70.80 1.5678
</TABLE>
If a BioChem shareholder elects, or in certain circumstances, we will
provide such shareholder with one-third of an ADS or one-third of an
exchangeable share for each ordinary share such shareholder would be entitled to
receive based on the exchange ratio.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties made
by Shire and BioChem relating to, among other things:
- due organization and good standing;
- capitalization;
- corporate authority to enter into the contemplated transactions;
- lack of conflicts with corporate governance documents;
- reports and financial statements;
- absence of certain changes or events;
- compliance with law;
- brokers or finders;
- absence of litigation;
- filing of tax returns;
- environmental matters; and
- intellectual property.
COVENANTS
During the period from the date of the merger agreement and continuing until
the effective time, each of Shire and BioChem has agreed as to itself and its
subsidiaries that, among other things, it and its subsidiaries will carry on
their respective businesses only in the ordinary course and will use reasonable
efforts to maintain and preserve its business organization, assets, employees
and business relationships and to maintain all of its properties and assets in
useful and good condition.
The merger agreement contains certain other covenants of Shire and BioChem
relating to the conduct of their respective businesses before the effective
time, including:
- covenants relating to the declaration and payment of dividends and changes
in share capital;
- the issuance of securities;
- the amendment of corporate governance documents;
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- the disposition of assets;
- the incurrence of indebtedness and the acquisition of equity interests;
- the making of loans, advances, contributions or investments;
- the maintenance of benefits' plans and compensation;
- the entering into of agreements limiting or restricting Shire or BioChem
from engaging or competing in any line of business; and
- the preservation of the availability of pooling-of-interests accounting
treatment.
NO SOLICITATION
According to the terms of the merger agreement, Shire and BioChem have each
agreed that, prior to the effective time, neither it, any of its subsidiaries
nor any of the respective employees, agents or representatives of the foregoing
will:
- initiate, solicit, encourage or knowingly facilitate, including by way of
furnishing information, any inquiries or the making of any proposal or
offer with respect to any merger, consolidation or other business
combination involving Shire or BioChem, as the case may be, or the
acquisition of the assets of BioChem or Shire having an aggregate value of
50% or more of the market capitalization or the acquisition of 50% or more
of the capital stock of Shire or BioChem, as the case may be;
- have any discussion with or provide confidential information or data to
any person relating to the type of transaction referred to above;
- engage in any negotiations regarding the type of transaction referred to
above; or
- knowingly facilitate any effort or attempt to make or implement the type
of transaction referred to above or accept such a transaction.
The merger agreement does allow Shire and BioChem, in response to an
unsolicited written proposal from a third party regarding a bona fide, written
and unsolicited proposal or offer made by any persons or group with respect to a
merger, consolidation or other business combination or an acquisition of the
assets of BioChem or Shire having an aggregate value of 50% or more of the
market capitalization or the acquisition of 50% or more of the capital stock of
Shire or BioChem, as the case may be, on terms which the board of directors of
Shire or BioChem, as the case may be, determines in good faith, and in the
exercise of reasonable judgment, based on the advice of independent financial
advisors and legal counsel, to be more favorable to its shareholders than the
merger, to furnish information to, negotiate or otherwise engage in discussions
with such third party, PROVIDED HOWEVER, in the case of Shire that its board of
directors determines in good faith, after receiving a written opinion from its
outside counsel, that such action is required for the board of directors to
comply with its fiduciary duties under applicable law.
According to the terms of the merger agreement, Shire and BioChem have
agreed to promptly advise each other of any information they have from a person
with respect to any transaction of the type referred to above and to give each
other an update on an ongoing basis or upon the reasonable request of Shire or
BioChem, as the case may be, on the status of any such transaction.
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CONDITIONS TO CLOSING
MUTUAL CONDITIONS
The merger agreement provides that the respective obligations of each party
to complete the transaction are subject to the satisfaction or waiver of a
number of conditions, including the following:
- the transaction shall have been approved by the requisite vote of Shire
and BioChem shareholders;
- no laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order
issued by a court or other governmental entity of competent jurisdiction
shall be in effect, having the effect of making the transaction illegal or
otherwise prohibiting consummation of the transaction;
- the waiting periods (and any extensions thereof) applicable to the
transaction under the HSR Act and the COMPETITION ACT (Canada) shall have
been terminated or shall have expired or the Commissioner of Competition
shall have issued an advance ruling certificate and/or a "no action"
letter under the COMPETITION ACT (Canada) in relation to the transaction
and the Director of Investments under INVESTMENT CANADA ACT shall have
concluded that the transaction is of "net benefit to Canada" for purposes
of the INVESTMENT CANADA ACT;
- all consents, approvals and actions of, filings with and notices to any
governmental entity required of Shire or BioChem or any of their
respective subsidiaries to consummate the transaction and the other
transactions contemplated hereby shall have been obtained;
- the ordinary shares to be issued in the transaction and such other
ordinary shares to be reserved for issuance in connection with the
transaction shall have been admitted to the Official List of the United
Kingdom Listing Authority and to trading on the London Stock Exchange, the
ADSs to be issued in the transaction and such other ADSs to be reserved
for issuance in connection with the transaction shall have been approved
for listing on NASDAQ (to the extent necessary) and the exchangeable
shares shall have been approved for listing on the Toronto Stock Exchange,
subject to official notice of issuance;
- a registration statement on Form S-3 relating to the issuance of ordinary
shares upon exchange of the exchangeable shares shall have been declared
effective by the Securities and Exchange Commission ("SEC") or an
appropriate "no action letter" shall have been obtained from the Staff of
the SEC relating to the issuance of ordinary shares upon exchange of the
exchangeable shares. No stop order suspending the effectiveness of the
Form S-3 shall have been issued by the SEC and no proceedings for that
purpose shall have been initiated or threatened by the SEC;
- all applicable requirements of Section 3 (a) (10) of the Securities Act of
1933 shall have been satisfied with respect to the issuance of ordinary
shares and ADSs in connection with the transaction; and
- exemption orders from the registration and prospectus requirements with
respect to the exchangeable share structure shall have been granted by all
relevant Canadian provincial securities authorities.
CONDITIONS IN FAVOR OF SHIRE AND EXCHANGECO
The merger agreement provides that the obligation of Shire and Exchangeco to
complete the transaction is subject to the satisfaction or waiver of a number of
additional conditions, each of which may be waived by Shire, including the
following:
- each of the representations and warranties of BioChem set forth in the
merger agreement that is qualified as to material adverse effect shall be
true and correct and each of the representations
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and warranties of BioChem set forth in the merger agreement that is not so
qualified shall be true and correct in all material respects, in each case
as of the date of the merger agreement and as of the effective date as
though made on and as of the effective date;
- BioChem shall have performed or complied with all agreements and covenants
required to be performed by it under the merger agreement at or prior to
the effective date that are qualified as to material adverse effect and
shall have performed or complied in all material respects with all other
agreements and covenants required to be performed by it under the merger
agreement at or prior to the effective date that are not so qualified;
- BioChem's Board of Directors shall have waived the application of a rights
plan to the transactions contemplated hereby. Under the rights plan, one
common share purchase right was issued in respect of each outstanding
common share and a share purchase right for each common share issued
thereafter. These rights are exercisable in a situation of public offering
where certain conditions are not respected. Each right entitles the holder
to purchase, from BioChem, one common share at a specific price, subject
to certain anti-dilution adjustments;
- holders of not more than 5% of BioChem's common shares issued and
outstanding immediately prior to the effective date shall have dissented
to the transaction (and not withdrawn such dissent);
- since the date of the merger agreement, there shall not have occurred any
change, effect, event or circumstance that, in combination with any other
changes, effects, events or circumstances, has resulted in or would
reasonably be expected to result in a material adverse effect with respect
to BioChem; PROVIDED, THAT, the outcome of the proceedings instituted by
Emory University in the US shall not be considered to have a material
adverse effect on BioChem; and
- there shall have been delivered to Shire:
- a pooling letter from Shire's independent auditors, dated as of the
effective date and addressed to Shire, reasonably satisfactory in form
and substance to Shire, setting forth the concurrence of Shire's
independent auditors with the conclusion of Shire's management that it
will be appropriate to account of the Arrangement as a "pooling of
interests" under US GAAP, Accounting Principles Board Opinion No. 16
and all published rules and regulations adopted by the SEC.
- a poolability letter from BioChem's independent auditors, dated as of
the effective date and reasonably satisfactory in form and substance to
Shire, setting forth the concurrence of BioChem's independent auditors
with the conclusion of BioChem's management that it will be appropriate
to account for the Arrangement as a "pooling of interest" under US
GAAP, Accounting Principles Board Opinion No. 16 and all published
rules and regulations adopted by the SEC.
CONDITIONS IN FAVOR OF BIOCHEM
The merger agreement provides that the obligation of BioChem to complete the
transaction is subject to the fulfillment of a number of additional conditions,
each of which may be waived by BioChem, including the following:
- each of the representations and warranties of each of Shire and Exchangeco
set forth in the merger agreement that is qualified as to material adverse
effect shall be true and correct, and each of the representations and
warranties of each of Shire and Exchangeco set forth in the merger
agreement that is not so qualified shall be true and correct in all
material respects, in each case of the date of the merger agreement and as
of the effective date as though made on and as of the effective date; and
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- Shire shall have performed or complied with all agreements and covenants
required to be performed by it under the merger agreement at or prior to
the effective date that are qualified as to material adverse effect and
shall have performed or complied in all material respects with all other
agreements and covenants required to be performed by it under the merger
agreement at or prior to the closing date that are not so qualified.
TERMINATION AND PAYMENT OF BREAK FEES
The merger agreement may be terminated by mutual written consent of BioChem
and Shire at any time prior to the effective date. In addition, if the effective
date shall not have occurred on or before May 31, 2001, the merger agreement may
be terminated by either BioChem or Shire; PROVIDED, HOWEVER, that this right to
termination may not be available to any party whose failure to fulfill any
obligation under the merger agreement has been the cause of, or resulted in, the
failure of the effective date to occur on or before May 31, 2001.
The merger agreement may be terminated by either BioChem or Shire, if any
governmental entity:
- shall have issued a final and non-appealable order, decree or ruling or
taken any other action (which such party shall have used its reasonable
best efforts to resist, resolve or lift, as applicable) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement, and such order, decree, ruling or
other action shall have become final and non-appealable; or
- shall have failed to issue an order, decree or ruling or to take any other
action (which order, decree, ruling or other action such party shall have
used its reasonable best efforts to obtain) which is necessary to fulfill
the conditions to closing set forth in the merger agreement, and such
denial of a request to issue such order, decree, ruling or take such other
action shall have become final and non-appealable; PROVIDED, HOWEVER, that
this right to terminate shall not be available to any party whose failure
to use reasonable best efforts to obtain regulatory approvals has been the
cause of such action or inaction.
The merger agreement may be terminated by Shire upon the occurrence of any
of the following events:
- BioChem shareholder approval has not been obtained at the BioChem
shareholder meeting;
- the board of directors of BioChem fails to recommend approval of the
merger to its shareholders or adversely modifies or qualifies or withdraws
its recommendation; or
- a breach by BioChem of any representation, covenant or agreement which
results in a failure of certain conditions to closing (subject to a 20
business day cure period);
The merger agreement may be terminated by BioChem upon the occurrence of any
of the following events:
- Shire shareholders have not approved the merger at the Shire shareholder
meeting;
- the board of directors of Shire fails to recommend approval of the merger
to its shareholders or adversely modifies or qualifies or withdraws its
recommendation; or
- a breach by Shire of any representation, covenant or agreement which
results in a failure of certain conditions to closing (subject to a 20
business day cure period).
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BioChem may also terminate the merger agreement if at any time prior to its
shareholder meeting, BioChem shall have failed to recommend approval of the
merger to its shareholders or adversely modified or qualified or withdrawn its
recommendation so long as:
- the BioChem board of directors, after consultation with its legal counsel
and financial advisor, determines that a proposal to acquire BioChem is
more favorable from a financial point of view to its shareholders than the
transaction and, after consultation with and based upon advice of legal
counsel, determines in good faith that such action is necessary for
BioChem's board of directors to comply with its fiduciary duties to
shareholders under applicable laws;
- BioChem pays to Shire, immediately following the termination of the merger
agreement, a break fee of $110 million; and
- BioChem provides to Shire at least five business days prior to termination
written notice of its intention to terminate the merger agreement and the
material terms and conditions of the proposal to acquire BioChem.
If Shire terminates the merger agreement because BioChem shareholder
approval has not been obtained, and
- a transaction to acquire BioChem is announced that BioChem's board of
directors determines is more favorable to its shareholders than the
transaction with Shire; and
- that transaction is consummated within one year (or 18 months in certain
circumstances) of termination of the merger agreement,
then BioChem shall pay to Shire a break fee of $110 million not later than two
days following consummation of the transaction referred to above.
If Shire terminates the merger agreement because BioChem's board of
directors fails to recommend approval of the merger to its shareholders or
adversely modifies or qualifies or withdraws its recommendation, then BioChem
shall pay to Shire a break fee of $110 million not later than two business days
after the termination date.
If BioChem terminates the merger agreement because Shire has failed to
recommend approval of the merger to its shareholders or Shire has adversely
modified or qualified or withdrawn its recommendation, then Shire shall pay to
BioChem, not later than two business days after the termination date, a break
fee of $40 million.
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THE OPTION AGREEMENT
GENERAL
At the same time of the execution of the merger agreement and as an
inducement and condition to entering into the merger agreement, we entered into
an option agreement with BioChem. The following description sets forth the
material provisions of the option agreement but is qualified in its entirety by
reference to the option agreement, which is attached as Annex C to this proxy
statement and incorporated herein by reference in its entirety.
Under the option agreement, BioChem granted us an irrevocable option to
purchase a number of shares representing up to 19.9% of the issued and
outstanding shares of common stock of BioChem as of December 8, 2000 (on an
undiluted basis) at a price per share in cash equal to $37.00.
The option agreement provides that we may exercise the option prior to
termination of the option agreement, in whole or in part, by delivering a
written notice, upon the occurrence of any event that entitles us to receive a
payment of $110 million from BioChem payable according to the terms of the
merger agreement.
To the extent the option has not been exercised, the option will expire upon
the earlier of the effective time or termination of the merger agreement in
accordance with its terms unless we are entitled to receive the $110 million
payment from BioChem, in which case the option will expire 180 days after
termination of the merger agreement.
Arrangements such as the option agreement are customarily entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be consummated in accordance with their
terms, and to compensate the grantee for the efforts undertaken and the
expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated under certain circumstances involving
an acquisition or potential acquisition of the issuer by a third party. The
option agreement was entered into to accomplish these objectives.
NOTICE OF EXERCISE
According to the terms of the option agreement, we may exercise the option
by:
- sending BioChem a written notice specifying the number of BioChem shares
to be purchased; and
- paying the exercise price by certified check or wire transfer.
MAXIMUM PROCEEDS
The option agreement provides that the gross proceeds received by us in
connection with any sales or dispositions of shares from the exercise of the
option (less reasonable and customary commissions and any dividends received by
us declared on the option shares) together with the $110 million payment cannot
exceed:
- $120,000,000; plus
- the product of $37.00 and the number of shares of BioChem purchased by us
under the option.
If such gross proceeds do exceed this amount, the excess amount shall be
remitted by us to BioChem or deducted from the $110 million payment to be made
by BioChem.
75
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THE SEC ALLOWS THIS PROXY STATEMENT TO INCORPORATE BY REFERENCE IMPORTANT
BUSINESS AND FINANCIAL INFORMATION WHICH IS NOT PRESENTED IN THIS DOCUMENT OR
DELIVERED WITH THIS DOCUMENT. DOCUMENTS RELATING TO THIS INFORMATION, EXCLUDING
EXHIBITS TO THOSE DOCUMENTS UNLESS THEY ARE SPECIFICALLY INCORPORATED BY
REFERENCE IN THIS DOCUMENT, ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO THE
COMPANY SECRETARY, SHIRE PHARMACEUTICALS GROUP PLC, EAST ANTON, ANDOVER,
HAMPSHIRE SP10 5RG, ENGLAND. TELEPHONE REQUESTS MAY BE DIRECTED TO
(44) 1-264-333-455. TO ENSURE TIMELY DELIVERY OF DOCUMENTS, PLEASE MAKE YOUR
REQUEST NO LATER THAN [ ], 2001.
The following documents filed with the SEC by Shire (File No. 0-29630) are
incorporated in this document by reference:
- Annual Report on Form 10-K for the year ended December 31, 1999, as
amended;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000;
- Current Reports on Form 8-K filed on March 1, 2000, September 20, 2000,
December 11, 2000 and December 12, 2000; and
- Proxy Statement for the 1999 annual meeting of shareholders.
The following documents filed with the SEC by BioChem (File No. 0-19539) are
incorporated in this document by reference:
- Annual Report on Form 20-F for the year ended December 31, 1999.
- Current Reports on Form 6-K filed on the following dates in 2000:
- January 11;
- January 27;
- February 15;
- March 6;
- March 10;
- March 15;
- April 3;
- April 18;
- April 26;
- May 2;
- May 24;
- June 19;
- June 27;
- July 11;
- July 19;
- July 26;
- August 2;
- September 22;
76
<PAGE>
- October 27;
- November 1;
- November 15;
- November 20;
- December 1;
- December 11;
- December 13;
- December 18; and
- December 22.
Any future filings by Shire or BioChem under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the general meeting are also incorporated in this document
by reference. Any of these filings will automatically update and replace the
information that appears or is incorporated in this Proxy Statement.
No person is authorized to give any information or to make any
representations not contained in this Proxy Statement or in the documents
incorporated in this document by reference in connection with the solicitation
and the offering made by this document. If given or made, such information or
representation should not be relied upon as having been authorized by us. This
Proxy Statement does not constitute the solicitation of a proxy from any person,
in any jurisdiction in which it is unlawful to make this proxy solicitation.
Neither the delivery of this Proxy Statement nor any distribution of the
securities made under this Proxy Statement will, under any circumstances, create
an implication that there has been no change in our affairs since the date of
this Proxy Statement other than as set forth in the documents incorporated in
this document by reference.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, which
means that we file reports, proxy statements and other information, with the
SEC. You can inspect and copy those reports, proxy statements and other
information at the SEC's public reference room located at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the public
reference facilities in the SEC's regional offices located at: 7 World Trade
Center, 13th Floor, New York, New York 10048, and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can obtain copies of
this material at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC toll free at 1-800-SEC-0330. The SEC also maintains an
internet Website that contains reports, proxy and information statements and
other information regarding registrants such as us that file electronically with
the SEC. The address of this Website is http://www.sec.gov.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Statements contained in this Proxy Statement that are not historical facts
are forward-looking statements that involve risks and uncertainties, including
but not limited to, risks associated with the inherent uncertainty of
pharmaceutical research, product development and commercialization, the impact
of competitive products, patents, and other risks and uncertainties, including
those detailed from time to time in periodic reports, including the Annual
Report filed on Form 10-K by Shire with the SEC.
77
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SUMMARY..................................................... 2
General..................................................... 2
The Companies............................................... 2
Exchange Ratio.......................................... 3
The Exchangeable Shares................................. 3
The Extraordinary General Meeting........................... 4
Date, Time, Place and Purpose........................... 4
Record Date; Shares Entitled to Vote.................... 4
Required Vote........................................... 4
Revocability of Proxies................................. 4
Benefits of the Merger.................................. 4
Recommendation of the Board of Directors................ 6
Reasons for the Merger.................................. 6
Opinion of Financial Advisor............................ 6
Appraisal Rights........................................ 6
Anticipated Accounting Treatment........................ 6
Conditions to the Merger................................ 6
Effective Time of the Merger............................ 6
Termination and Payment of Break Fees................... 7
The Option Agreement.................................... 7
Governmental and Regulatory Matters..................... 7
Court Approval.......................................... 8
Special Resolution...................................... 8
Market Price Information................................ 22
SHAREHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING........ 23
RISK FACTORS................................................ 24
Risk Factors Relating to the Merger..................... 24
Risk Factors Relating to BioChem........................ 24
Risk Factors Relating to Shire.......................... 28
DESCRIPTION OF BIOCHEM...................................... 29
Therapeutic Products.................................... 30
Vaccine Products........................................ 43
Computer-Assisted Detection Products.................... 48
Significant Agreements.................................. 50
SHIRE AFTER THE MERGER...................................... 52
THE EXTRAORDINARY GENERAL MEETING........................... 56
THE MERGER.................................................. 58
Background of the Merger................................ 58
Reasons for the Merger.................................. 60
Opinion of Shire's Financial Adviser.................... 61
Governmental Regulation................................. 65
Anticipated Accounting Treatment and Effects............ 67
THE MERGER AGREEMENT........................................ 68
General; Effective Time and Effects of the Merger....... 68
Directors of Shire Immediately Following the Merger..... 68
Conversion of BioChem Shares............................ 68
Exchange Ratio.......................................... 69
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Representations and Warranties.......................... 69
Covenants............................................... 70
No Solicitation......................................... 70
Conditions to Closing................................... 71
Termination and Payment of Break Fees................... 73
THE OPTION AGREEMENT........................................ 75
General................................................. 75
Notice of Exercise...................................... 75
Maximum Proceeds........................................ 75
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... 76
WHERE YOU CAN FIND MORE INFORMATION......................... 77
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 77
</TABLE>
Annex A--Merger Agreement
Annex B--Plan of Arrangement
Annex C--Option Agreement
Annex D--Opinion of Deutsche Bank
ii
<PAGE>
ANNEX A
MERGER AGREEMENT
DATED AS OF DECEMBER 10, 2000
AMONG
BIOCHEM PHARMA INC.
3829341 CANADA INC.
AND
SHIRE PHARMACEUTICALS GROUP PLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
ARTICLE I THE ARRANGEMENT.......................................... A-1
1.1 A-Closing................................................... A-1
1.2 A-Effective Date............................................ A-1
1.3 A-Implementation Steps by BioChem........................... A-1
1.4 A-Implementation Steps by Shire............................. A-2
1.5 A-Interim Order............................................. A-2
1.6 A-Articles of Arrangement................................... A-2
1.7 A-BioChem Shares Options.................................... A-3
1.8 A-BioChem Deferred Share Unit Plans and Restricted Share
Unit Plan................................................. A-3
1.9 A-Certain Adjustments....................................... A-3
ARTICLE II EXCHANGE OF CERTIFICATES................................ A-4
2.1 A-Exchange Fund............................................. A-4
2.2 A-No Further Ownership Rights in BioChem Common Shares...... A-4
2.3 A-No Fractional Shire Shares................................ A-4
2.4 A-Termination of Exchange Fund.............................. A-4
2.5 A-No Liability.............................................. A-4
2.6 A-Investment of the Exchange Fund........................... A-4
2.7 A-Lost Certificates......................................... A-4
2.8 A-Withholding Rights........................................ A-5
2.9 A-Affiliates................................................ A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES......................... A-5
3.1 A-Representations and Warranties of Shire................... A-5
3.2 A-Representations and Warranties of BioChem................. A-12
3.3 A-Representations and Warranties of Shire and Exchangeco.... A-20
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS............... A-20
4.1 A-Covenants of Shire........................................ A-20
4.2 A-Covenants of BioChem...................................... A-23
4.3 A-Governmental Filings...................................... A-26
4.4 A-Control of Other Party's Business......................... A-26
ARTICLE V ADDITIONAL AGREEMENTS.................................... A-26
5.1 A-Preparation of Proxy Statement, Form S-3, Circular,
Listing Particulars and Class 1 Circular.................. A-26
5.2 A-Shire Board of Directors.................................. A-29
5.3 A-Access to Information..................................... A-29
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
5.4 A-Reasonable Best Efforts................................... A-29
5.5 A-BioChem Acquisition Proposals............................. A-30
5.6 A-Shire Acquisition Proposals............................... A-31
5.7 A-Employee Benefits Matters................................. A-33
5.8 A-Fees and Expenses......................................... A-33
5.9 A-Directors' and Officers' Indemnification and Insurance.... A-33
5.10 A-Public Announcements...................................... A-34
5.11 A-Listing of Shire Shares................................... A-34
5.12 A-Affiliates................................................ A-34
ARTICLE VI CONDITIONS PRECEDENT.................................... A-34
6.1 A-Conditions to Each Party's Obligation to Effect the
Arrangement............................................... A-34
6.2 A-Additional Conditions to Obligations of Shire and
Exchangeco................................................ A-35
6.3 A-Additional Conditions to Obligations of BioChem........... A-36
ARTICLE VII TERMINATION............................................ A-37
7.1 A-Termination............................................... A-37
7.2 A-Effect of Termination..................................... A-38
7.3 A-Extension; Waiver......................................... A-38
ARTICLE VIII AMENDMENT............................................. A-39
8.1 A-Amendment................................................. A-39
8.2 A-Mutual Understanding Regarding Amendments................. A-39
8.3 A-Amendment................................................. A-39
ARTICLE IX GENERAL PROVISIONS...................................... A-39
9.1 A-Non-Survival of Representations, Warranties and
Agreements................................................ A-39
9.2 A-Notices................................................... A-39
9.3 A-Interpretation............................................ A-40
9.4 A-Counterparts.............................................. A-40
9.5 A-Entire Agreement; No Third Party Beneficiaries............ A-40
9.6 A-Governing Law............................................. A-41
9.7 A-Severability.............................................. A-41
9.8 A-Assignment................................................ A-41
9.9 A-Submission to Jurisdiction; Waivers....................... A-41
9.10 A-Currency.................................................. A-41
9.11 A-Enforcement............................................... A-42
9.12 A-Definitions............................................... A-42
</TABLE>
A-ii
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT TITLE
------- -----
<S> <C>
A Plan of Arrangement
1.3(b) Arrangement Resolution
1.4(a) Shire Resolution
1.4(c) Exchange Trust Agreement
1.4(e) Support Agreement
5.2 Board of Directors and Officers of Shire
5.11 Form of Affiliate Letter (BioChem)
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
---------
<S> <C>
Shire Disclosure Schedule
BioChem Disclosure Schedule
</TABLE>
A-iii
<PAGE>
MERGER AGREEMENT, dated as of December 10, 2000 (this "Agreement"), among
Shire Pharmaceuticals Group Plc, a company registered in England under registry
number 2883758 ("SHIRE"), 3829341 Canada Inc., a corporation incorporated under
the laws of Canada and an indirect wholly owned subsidiary of Shire
("EXCHANGECO"), and BioChem Pharma Inc., a corporation incorporated under the
laws of Canada ("BIOCHEM"). Terms not otherwise defined herein are defined in
Section 8.11.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of BioChem, Shire and Exchangeco deem it
advisable and in the best interests of each corporation and its respective
shareholders that BioChem and Shire engage in a business combination in order to
advance the long-term strategic business interests of BioChem and Shire;
WHEREAS, the combination of BioChem and Shire shall be effected by the terms
of this Agreement through a plan of arrangement, pursuant to Section 192 of the
Canada Business Corporation Act (the "CBCA"), of Exchangeco, Shire and BioChem;
WHEREAS the Arrangement is intended to (i) provide to holders of BioChem
Common Shares who are residents of Canada for purposes of the ITA with the
opportunity to dispose of their BioChem Common Shares in return for Exchangeable
Shares on a tax-deferred or "ROLLOVER" basis for Canadian income tax purposes;
and (ii) be treated as a "POOLING OF INTERESTS" for financial reporting purposes
under United States generally accepted accounting principles;
WHEREAS, in order to induce Shire to enter into this Agreement and to
consummate the Arrangement, concurrently with the execution and delivery of this
Agreement, BioChem is entering into a share option agreement with Shire pursuant
to which BioChem has granted to Shire an option, exercisable under the
circumstances specified therein, to purchase up to 19.9% of the outstanding
BioChem Common Shares as of December 8, 2000 on an undiluted basis;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby and thereby, the parties
hereto agree as follows:
ARTICLE I
THE ARRANGEMENT
1.1 CLOSING. Subject to the conditions set forth in Article VI and the
termination rights set forth in Article VII, the closing of the Arrangement (the
"CLOSING") will take place on the first Business Day after the satisfaction or
waiver (subject to applicable law) of the conditions (excluding conditions that,
by their nature, cannot be satisfied until the Closing Date) set forth in
Article VI, unless this Agreement has been terminated pursuant to its terms or
unless another time or date is agreed to in writing by the parties hereto (the
actual time and date of the Closing being referred to herein as the "CLOSING
DATE"). The Closing shall be held at the offices of Stikeman Elliott, 1155
Rene-Levesque Blvd. West, 40th Floor, Montreal, Quebec, unless another place is
agreed to in writing by the parties hereto.
1.2 EFFECTIVE DATE. At the Closing the parties shall take those actions
set forth in this Article I. The Arrangement shall become effective upon the
date shown on the certificate of arrangement to be issued by the Director under
the CBCA (such date and time the Arrangement becomes effective being the
"EFFECTIVE DATE").
1.3 IMPLEMENTATION STEPS BY BIOCHEM. BioChem covenants and agrees that
BioChem shall:
(a) subject to the terms of this Agreement, as soon as reasonably
practicable, apply in a manner acceptable to Shire, acting reasonably, under
Section 192 of the CBCA for an order approving the Arrangement and for the
Interim Order, and thereafter proceed with and diligently seek the Interim
Order;
A-1
<PAGE>
(b) subject to the terms of this Agreement, convene and hold the BioChem
Shareholders Meeting for the purpose of considering the Arrangement
Resolution;
(c) except as required for quorum purposes, not adjourn, postpone or
cancel (or propose for adjournment, postponement or cancellation) the
BioChem Shareholders Meeting without Shire's prior written consent except as
required by Laws or required by the BioChem shareholders;
(d) use its reasonable efforts to solicit from the BioChem shareholders
proxies in favor of the approval of the Arrangement Resolution and to take
all other action that is necessary or desirable to secure the approval of
the Arrangement Resolution by the shareholders of BioChem, except to the
extent that the Board of Directors of BioChem has changed its recommendation
in accordance with the terms of this Agreement;
(e) subject to obtaining the approvals as are required by the Interim
Order, proceed with and diligently pursue the application to the Court for
the Final Order;
(f) subject to obtaining the Final Order and the satisfaction or waiver
of the other conditions herein contained in favor of each party, send to the
Director, for endorsement and filing by the Director, the Articles of
Arrangement and such other documents as may be required in connection
therewith under the CBCA to give effect to the Arrangement; and
(g) subject to obtaining the Final Order and the satisfaction or waiver
of the other conditions herein contained in its favor, execute the Support
Agreement and the Exchange Trust Agreement.
1.4 IMPLEMENTATION STEPS BY SHIRE. Shire covenants and agrees that Shire
shall:
(a) subject to the terms of this Agreement, convene and hold the Shire
Shareholders Meeting for the purpose of considering the Shire Resolution;
(b) except as required for quorum purposes, not adjourn, postpone or
cancel (or propose for adjournment, postponement or cancellation) the Shire
Shareholders Meeting without BioChem's prior written consent except as
required by Laws or required by the Shire shareholders;
(c) take all action that is necessary or desirable to secure the
approval of the Shire Resolution by the Shire shareholders, except to the
extent that the Board of Directors of Shire has changed its recommendation
in accordance with the terms of this Agreement; and,
(d) subject to obtaining the Final Order and the satisfaction or waiver
of the other conditions herein contained in its favor, Shire shall and shall
cause Exchangeco to execute and deliver the Support Agreement and the
Exchange Trust Agreement.
1.5 INTERIM ORDER. The notice of motion for the application referred to in
Section 1.3(a) shall request that the Interim Order provide:
(a) for the class of Persons to whom notice is to be provided in respect
of the Arrangement and the BioChem Shareholders Meeting and for the manner
in which such notice is to be provided;
(b) that the requisite approval for the Arrangement Resolution shall be
66 2/3% of the votes cast on the Arrangement Resolution by the shareholders
of BioChem present in person or by proxy at the BioChem Shareholders Meeting
or as may be decided by the Court;
(c) for the grant of the Dissent Rights; and
(d) that, in all other respects, the terms, restrictions and conditions
of the bylaws and articles of amalgamation of BioChem, including quorum
requirements and all other matters, shall apply in respect of the BioChem
Shareholders Meeting.
1.6 ARTICLES OF ARRANGEMENT.
(a) The Articles of Arrangement shall provide, among other things, that at
the Effective Time, by virtue of the Arrangement and without any action on the
part of the BioChem shareholders, each
A-2
<PAGE>
issued and outstanding BioChem Common Share (other than BioChem Common Shares
held by dissenting shareholders and cash in lieu of fractional shares) shall be
converted (through the steps described in Exhibit A hereto) into Shire Ordinary
Shares or Exchangeable Shares, at the election of each BioChem shareholder
(provided that a holder who is not a Canadian resident for the purpose of the
ITA shall not be entitled to receive Exchangeable Shares). The number of Shire
Ordinary Shares or Exchangeable Shares into which each BioChem Common Share
shall be converted (the "EXCHANGE RATIO") shall be determined as follows:
<TABLE>
<CAPTION>
IF THE SHIRE ADSS PRICE IS: THE EXCHANGE RATIO SHALL BE:
--------------------------- ----------------------------
<S> <C>
less than or equal to US $47.20.............. 2.3517
greater than US $47.20 and less than determined by dividing US $37.00 by the Shire
US $70.80.................................. ADSs Price and multiplied by 3
equal to or greater than US $70.80........... 1.5678
</TABLE>
(b) Notwithstanding Section 1.6(a), if a BioChem shareholder elects, Shire
will provide such BioChem shareholder with one-third of a Shire ADSs
(represented by Shire ADSs) for each Shire Ordinary Share such shareholder would
be entitled to receive pursuant to Section 1.6(a). Shire will pay all fees and
expenses associated with the issuance of the Shire Ordinary Shares constituting
Shire ADSs to Morgan Guaranty Trust Company of New York, as depositary (the
"DEPOSITARY"), for the issuance by the Depositary of the associated Shire ADSs.
1.7 BIOCHEM SHARES OPTIONS. The Articles of Arrangement shall further
provide that each BioChem Share Option that was granted pursuant to the BioChem
Share Option Plan prior to the Effective Date, each Investissement Quebec Option
and each BioChem Warrant which has not been exercised and remains outstanding
immediately prior to the Effective Date shall upon the Effective Date be
adjusted and become an option or a right, as applicable, to receive the number
of Shire Ordinary Shares or Shire ADSs that the holder of such BioChem Share
Option, Investissement Quebec Option or BioChem Warrant would have received if
he or she had exercised such BioChem Share Option, Investissement Quebec Option
or BioChem Warrant immediately prior to the Effective Date. The exercise price
for each such Shire Ordinary Share or Shire ADS under such BioChem Share Option,
Investissement Quebec Option or BioChem Warrant remaining outstanding after the
Effective Date will be equal to (y) the aggregate exercise price immediately
prior to the Effective Date of the BioChem Common Shares purchasable pursuant to
such BioChem Share Option, Investissement Quebec Option or BioChem Warrant
divided by (z) the whole number of Shire Ordinary Shares or Shire ADSs deemed
purchasable pursuant to such BioChem Share Option, Investissement Quebec Option
or BioChem Warrant in accordance with the foregoing, rounded up to the nearest
whole cent. It is the intent of the parties that the exchange of options
pursuant to this Section be covered by Subsection 7(1.4) of the ITA.
1.8 BIOCHEM DEFERRED SHARE UNIT PLANS AND RESTRICTED SHARE UNIT PLAN. Upon
the Effective Date, Shire shall assume all of the obligations of BioChem under
the BioChem Deferred Share Unit Plans and the BioChem Restricted Share Unit Plan
in accordance with the terms and conditions of such plans.
1.9 CERTAIN ADJUSTMENTS. If, between the date of this Agreement and the
Effective Date, the outstanding Shire Ordinary Shares or the BioChem Common
Shares shall have been changed into a different number of shares or different
class by reason of any reclassification, recapitalization, share split,
split-up, combination or exchange of shares or any extraordinary dividend
payable in cash or property or a stock dividend or dividend payable in any other
securities shall be declared with a record date within such period, or any
similar event shall have occurred, the number of Shire Ordinary Shares to be
received by the holders of BioChem Common Shares shall be appropriately adjusted
to provide
A-3
<PAGE>
to the holders of BioChem Common Shares the same economic effect as contemplated
by this Agreement prior to such event.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 EXCHANGE FUND. Prior to the Effective Date, Shire shall appoint a
commercial bank or trust company reasonably acceptable to BioChem having net
capital of not less than $300,000,000, or a subsidiary thereof, to act as
exchange agent hereunder for the purpose of exchanging Certificates for the
Merger Consideration (the "EXCHANGE AGENT"). At or prior to the Effective Date,
Shire shall and shall cause Exchangeco to deposit with the Exchange Agent, in
trust for the benefit of holders of BioChem Common Shares, certificates
representing the Shire Shares issuable on the Effective Date in exchange for
BioChem Common Shares or effect the necessary CREST or other electronic
transfers. Any cash in lieu of fractional Shire Shares (as set forth below) and
certificates of Shire Shares deposited with the Exchange Agent shall hereinafter
be referred to as the "EXCHANGE FUND."
2.2 NO FURTHER OWNERSHIP RIGHTS IN BIOCHEM COMMON SHARES. All Shire Shares
issued and cash paid upon conversion of BioChem Common Shares in accordance with
the terms of the Plan of Arrangement shall be deemed to have been issued or paid
in full satisfaction of all rights pertaining to the BioChem Common Shares.
2.3 NO FRACTIONAL SHIRE SHARES.
(a) No certificates or scrip or Shire Shares representing fractional Shire
Shares or book-entry credit of the same shall be issued upon the surrender for
exchange of Certificates and such fractional share interests will not entitle
the owner thereof to vote or to have any rights of a shareholder of Shire or a
holder of Shire Shares.
(b) Notwithstanding any other provision of this Agreement, each holder of
BioChem Common Shares exchanged pursuant to this Agreement who would otherwise
have been entitled to receive a fraction of a Shire Share (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest), the whole as set forth in the Plan of
Arrangement.
2.4 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Date shall be delivered to Shire or otherwise on the instruction of
Shire, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to Shire for any cash in lieu of
fractional Shire Shares to which such holders are entitled pursuant to
Section 2.3. Any such portion of the Exchange Fund remaining unclaimed by
holders of Certificates five years after the Effective Date (or such earlier
date immediately prior to such time as such amounts would otherwise escheat to
or become property of any Governmental Entity) shall, to the extent permitted by
law, become the property of Shire free and clear of any claims or interest of
any Person previously entitled thereto.
2.5 NO LIABILITY. None of Shire, Exchangeco, BioChem or the Exchange Agent
shall be liable to any Person in respect of any Merger Consideration from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.6 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Shire on a daily basis;
provided, that no such investment or loss thereon shall affect the amounts
payable to BioChem shareholders pursuant to the Plan of Arrangement and the
other provisions of this Article II. Any interest and other income resulting
from such investments shall promptly be paid to Shire.
2.7 LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by Shire, the
posting by such Person of a bond in such reasonable amount as Shire may direct
as indemnity against any claim that may be made against it with respect to such
A-4
<PAGE>
Certificate, the Exchange Agent will deliver in exchange for such lost, stolen
or destroyed Certificate any cash in lieu of fractional Shire Shares pursuant to
this Agreement.
2.8 WITHHOLDING RIGHTS. Shire shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of BioChem Common Shares such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code and the ITA
and the rules and regulations promulgated thereunder, or any provision of state,
provincial, local or foreign tax law. To the extent that amounts are so withheld
by Shire, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the BioChem Common Shares in
respect of which such deduction and withholding was made by Shire provided that
such withheld amounts are actually remitted to the appropriate taxing authority.
2.9 AFFILIATES. Notwithstanding anything to the contrary herein, to the
fullest extent permitted by law, no certificates representing Shire Shares or
cash shall be delivered to a Person who may be deemed an "affiliate" of BioChem
in accordance with Section 5.11 hereof for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "SECURITIES ACT") until such Person has
executed and delivered an Affiliate Agreement to Shire.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SHIRE. Except as set forth in the
Shire Disclosure Schedule delivered by Shire to BioChem prior to the execution
of this Agreement (the "SHIRE DISCLOSURE SCHEDULE"), Shire represents and
warrants to BioChem as follows:
(a) ORGANIZATION AND POWER; SUBSIDIARIES.
(i) Each of Shire and its Subsidiaries is a corporation duly organized
and validly existing under the laws of its jurisdiction of incorporation or
organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized and existing or to have such
power and authority, in the aggregate, would not have a Material Adverse
Effect on Shire, and is duly qualified and in good standing to do business
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in
such jurisdictions where the failure so to qualify or to be in good
standing, in the aggregate, would not have a Material Adverse Effect on
Shire. The copies of the certificate of incorporation and Memorandum and
Articles of Association of Shire, which were previously furnished or made
available to BioChem, are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(ii) Section 3.1(a)(ii) of the Shire Disclosure Schedule sets forth all
the Subsidiaries of Shire which, as of the date of this Agreement, are
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the
SEC). All the outstanding shares of capital stock of, or other equity
interests in, each such Significant Subsidiary have been validly issued and
are fully paid and non-assessable and are, except as set forth on the Shire
Disclosure Schedule, owned directly or indirectly by Shire, free and clear
of all pledges, claims, liens, charges, encumbrances and security interests
of any kind or nature whatsoever (collectively "Liens") and free of any
other restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests),
except for restrictions imposed by applicable securities laws. Except as set
forth in the Shire SEC Reports (as defined in Section 3.1(d)) filed prior to
the date hereof, as of the date of this Agreement, neither Shire nor any of
its Subsidiaries directly or indirectly owns any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for any
equity or similar interest in, any corporation, partnership, joint venture
or other business
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association or entity (other than Subsidiaries), that is or would be
material to Shire and its Subsidiaries taken as a whole.
(b) CAPITAL STRUCTURE
(i) As of December 7, 2000, the authorized share capital of Shire
consisted of 400,000,000 Shire Ordinary Shares and the issued share capital
consisted of 256,837,043 Shire Ordinary Shares. Since December 7, 2000 to
the date of this Agreement, there have been no issuances of Shire Ordinary
Shares or any other securities of Shire other than issuances of Shire
Ordinary Shares pursuant to options or rights outstanding as of December 7,
2000 under the Shire Share Option Plans. All issued and outstanding Shire
Ordinary Shares are, and when Shire Ordinary Shares will be issued pursuant
to this Agreement, such shares will be duly authorized, validly issued,
fully paid and non-assessable and free of any preemptive rights. There were
outstanding as of December 7, 2000, no options, warrants or other rights to
acquire Shire Ordinary Shares other than rights pursuant to awards under the
Shire Pharmaceuticals Group plc Long Term Incentive Plan (the "LONG TERM
INCENTIVE PLAN") and under the Shire Pharmaceuticals Executive Share Option
Scheme (parts A and B), the Richwood 1993 Stock Option Plan, the Richwood
1995 Stock Option Plan, the Shire Holdings Limited Share Option Scheme, the
Imperial Pharmaceutical Services Limited Employee Share Option Scheme
(Number One), the Pharmavene 1991 Stock Option Plan (as amended), the Shire
Pharmaceuticals Sharesave Scheme, the Shire Pharmaceuticals Group plc
Employee Stock Purchase Plan, the Roberts' Incentive Stock Option Plan, the
Shire Pharmaceuticals Group plc 2000 Executive Share Option Scheme, the
Roberts' 1996 Equity Incentive Plan and the Roberts' Restricted Stock Option
Plan (together with the Long Term Incentive Plan, the "SHIRE SHARE OPTION
PLANS") to acquire Shire Ordinary Shares representing in the aggregate the
right to purchase approximately 9,913,338 Shire Ordinary Shares and options
(collectively, the "SHIRE SHARE OPTIONS"). Section 3.1(b) of the Shire
Disclosure Schedule sets forth a complete and correct list, as of
December 7, 2000, of the number of Shire Ordinary Shares subject to Shire
Share Options or other rights to purchase or receive Shire Ordinary Shares,
the dates of grant and the exercise prices thereof.
(ii) Except as otherwise set forth in this Section 3.1(b) and as
contemplated by the Plan of Arrangement, as of the date of this Agreement,
there are no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which Shire or any
of its Subsidiaries is a party or by which any of them is bound obligating
Shire or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares or other voting securities of
Shire or any of its Subsidiaries or obligating Shire or any of its
Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are no outstanding
obligations of Shire or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of Shire or any of its Subsidiaries.
(c) AUTHORITY; NO CONFLICTS.
(i) Shire has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby,
subject to the adoption of this Agreement and the Arrangement by the
Required Shire Vote (the "SHIRE SHAREHOLDERS APPROVAL"). The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Shire, subject to obtaining the Shire Shareholders
Approval. This Agreement has been duly executed and delivered by Shire and
constitutes the valid and binding agreement of Shire, enforceable against
Shire in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors generally or by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
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(ii) The execution and delivery of this Agreement by Shire does not,
and the consummation by Shire of the Arrangement and the other transactions
contemplated hereby will not conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of, or result by its terms in the
termination, amendment, cancellation or acceleration of any obligation or
the loss of a material benefit under, or the creation of a lien, pledge,
security interest, charge or other encumbrance on, or the loss of, any
assets, including Intellectual Property (any such conflict, violation,
default, right of termination, amendment, cancellation or acceleration, loss
or creation, a "VIOLATION") pursuant to: (A) any provision of the Memorandum
and Articles of Association or similar organizational documents of Shire or
any Significant Subsidiary of Shire, or (B) except as in the aggregate would
not have a Material Adverse Effect on Shire, subject to obtaining or making
the consents, approvals, orders, authorizations, registrations, declarations
and filings referred to in paragraph (iii) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Shire, any Significant Subsidiary of Shire, or their
respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, provincial,
municipal, local or foreign government, any instrumentality, subdivision,
court, administrative agency or commission or other authority thereof, or
any quasi-governmental or private body exercising any regulatory, taxing,
importing or other governmental or quasi-governmental authority (a
"GOVERNMENTAL ENTITY"), is required by or with respect to Shire or any
Subsidiary of Shire in connection with the execution and delivery of this
Agreement by Shire or the consummation of the Arrangement and the other
transactions contemplated hereby, except for those required under or in
relation to (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), (B) the Competition Act (Canada) (the "CA"),
(C) state securities or "blue sky" laws (the "BLUE SKY LAWS"), (D) the
Securities Act, (E) the Canadian Securities Laws, (F) the Exchange Act,
(G) the CBCA with respect to the filing of the Articles of Arrangement,
(H) the Financial Services Act 1986, (I) the Listing Rules or the Rules of
the LSE, (J) the Investment Canada Act (the "ICA"), (K) the consent of a
Canadian court to the Plan of Arrangement and (L) such consents, approvals,
orders, authorizations, registrations, declarations and filings the failures
of which to make or obtain, in the aggregate, would not have a Material
Adverse Effect on Shire. Consents, approvals, orders, authorizations,
registrations, declarations and filings required under or in relation to any
of the foregoing clauses (A) through (K) are hereinafter referred to as
"NECESSARY CONSENTS."
(d) REPORTS AND FINANCIAL STATEMENTS.
(i) Shire has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 1999 (collectively, including all
exhibits thereto, the "SHIRE SEC REPORTS"). No Subsidiary of Shire is
required to file any form, report, registration statement, prospectus or
other document with the SEC. None of the Shire SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or the Closing Date, then on the date of such
filing), contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the Shire SEC
Reports presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of
Shire and its consolidated Subsidiaries as of the respective dates or for
the respective periods set forth therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim financial
statements, to the absence of notes and normal year-end adjustments that
have not been
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and are not expected to be material in amount. All of such Shire SEC
Reports, as of their respective dates (and as of the date of any amendment
to the respective Shire SEC Report), complied as to form in all material
respects with the applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder.
(ii) Except as disclosed in the Shire SEC Reports filed prior to the
date hereof, since December 31, 1999, Shire and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of Shire and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than liabilities that, in
the aggregate, would not have a Material Adverse Effect on Shire.
(e) INFORMATION SUPPLIED.
(i) None of the information supplied or to be supplied by Shire for
inclusion or incorporation by reference in the Proxy Statement will, at the
time it is filed with the SEC or at any time it is amended or supplemented,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made. The Proxy Statement will, on the date it is first mailed to
Shire shareholders and at the time of the Shire Shareholders Meeting, not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e),
no representation or warranty is made by Shire with respect to statements
made in the Proxy Statement based on information supplied by BioChem for
inclusion or incorporation by reference therein or in the Listing
Particulars or Class 1 Circular.
(f) BOARD APPROVAL. The Board of Directors of Shire, by resolutions duly
adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way (the "SHIRE BOARD APPROVAL"), has duly (i) determined that
this Agreement and the Arrangement are fair to and in the best interests of
Shire and its shareholders, and (ii) approved this Agreement and the
Arrangement, and (iii) subject to Section 5.1(f), resolved to recommend that the
shareholders of Shire approve this Agreement and the Arrangement and directed
that this Agreement and the Arrangement be submitted for consideration at the
Shire Shareholders Meeting.
(g) VOTE REQUIRED. The approval of this Agreement and the Arrangement by
the Required Shire Vote is the only vote of the holders of any class or series
of Shire share capital necessary to approve the transactions contemplated by
this Agreement and the Arrangement.
(h) LITIGATION; COMPLIANCE WITH LAWS.
(i) Except as disclosed in the Shire SEC Reports filed prior to the
date of this Agreement, there are no suits, actions, complaints or
proceedings (collectively "ACTIONS") pending or, to the knowledge of Shire,
threatened, against or affecting Shire or any Subsidiary of Shire which, in
the aggregate, would have a Material Adverse Effect on Shire, nor are there
any judgments, decrees, injunctions, rules or orders of any Governmental
Entity or arbitrator outstanding against Shire or any Subsidiary of Shire
which, in the aggregate, would have a Material Adverse Effect on Shire.
(ii) Except as disclosed in the Shire SEC Reports filed prior to the
date of this Agreement and except as, in the aggregate, would not have a
Material Adverse Effect on Shire, Shire and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are necessary for the operation of the
businesses of Shire and its Subsidiaries, taken as a whole (the "SHIRE
PERMITS"). Shire and its Subsidiaries are in compliance with the terms of
the Shire Permits, except where the failure to so comply, in the aggregate,
would
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not have a Material Adverse Effect on Shire. Except as disclosed in the
Shire SEC Reports filed prior to the date of this Agreement, neither Shire
nor any of its Subsidiaries is in violation of, and Shire and its
Subsidiaries have not received any notices of violations with respect to,
any laws, ordinances or regulations of any Governmental Entity, except for
violations which, in the aggregate, would not have a Material Adverse Effect
on Shire.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS.
(i) Except for general tax matters and matters relating to the
pharmaceutical industry generally, liabilities incurred in connection with
this Agreement or the transactions contemplated hereby or disclosed in the
Shire SEC Reports filed prior to the date of this Agreement, and except as
permitted by Section 4.1, since September 30, 2000, Shire and its
Subsidiaries have conducted their business only in the ordinary course.
Except as disclosed in the Shire SEC Reports filed prior to the date of this
Agreement, since September 30, 2000, there have not been any changes,
circumstances or events which, in the aggregate, have had, or would have, a
Material Adverse Effect on Shire.
(ii) Since September 30, 2000 and except for as set forth on
Section 3.1(i)(ii) of the Shire Disclosure Schedule, there has not been any
(A) adoption by Shire or any of its Subsidiaries of any Benefit Plan to
which any of the officers of Shire or a Subsidiary of Shire is a participant
or (B) amendment to any Shire Benefit Plan that resulted in any material
increase in the benefits received or to be received thereunder by any
officer of Shire. Since September 30, 2000, there has not been any material
increase in the aggregate benefits provided under the Shire Benefit Plans.
(j) ENVIRONMENTAL MATTERS.
(i) Except as disclosed in the Shire SEC Reports filed prior to the
date of this Agreement, Shire and its Subsidiaries, and their respective
business and operations, (A) are in compliance with all applicable
Environmental Laws (including any Environmental Permits) in the United
States and in other applicable foreign jurisdictions with environmental
regulatory jurisdiction over Shire or any of its Subsidiaries and (B) have
obtained all Environmental Permits which are required in order to carry on
their respective businesses and operations as presently conducted under all
applicable Environmental Laws, where non-compliance or failure to obtain the
same would have a Material Adverse Effect on Shire. Except as disclosed in
the Shire SEC Reports filed prior to the date of this Agreement, neither
Shire nor its Subsidiaries with respect to their respective businesses and
operations have at any time received any written notice, written notice of
default, written notice of cancellation or revocation, orders, summons, or
notice of judgment or commencement of proceedings of any nature related to
any breach, liability or remedial action, or alleged breach, liability or
remedial action, of or arising under Environmental Laws or any Environmental
Permits which would have a Material Adverse Effect on Shire. Neither Shire
nor its Subsidiaries with respect to their respective businesses and
operations have at any time given any written undertakings with respect to
remedying any breach of Environmental Laws or Environmental Permits or
otherwise satisfying requirements under Environmental Laws or Environmental
Permits which have not been duly performed in accordance with the terms of
such undertakings, which breach or other requirements would have a Material
Adverse Effect on Shire.
(ii) To the knowledge of Shire, without inquiry to any Governmental
Entity, (A) none of the properties currently or formerly owned or leased by
Shire and its Subsidiaries is identified by any Governmental Entity for
investigation or clean-up pursuant to any Environmental Laws, which in each
of the foregoing instances would result in a Material Adverse Effect on
Shire and (B) there have been no releases in violation of any applicable
Environmental Laws of Hazardous Substances on any currently owned, leased or
operated property or formerly owned, leased or operated property of Shire or
its Subsidiaries, which would result in a Material Adverse Effect on Shire.
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(iii) Except as disclosed in the Shire SEC Reports filed prior to the
date of this Agreement, to the knowledge of Shire, neither Shire nor any of
its Subsidiaries is subject to any Environmental Losses that would have a
Material Adverse Effect on Shire.
(k) INTELLECTUAL PROPERTY. Except as in the aggregate would not have a
Material Adverse Effect on Shire and except as disclosed in the Shire SEC
Reports filed prior to the date of the Agreement, to the knowledge of Shire:
(i) Shire and each of its Subsidiaries owns (in each case, free and clear of any
Liens), controls or has license to use, all Intellectual Property used in or
necessary for the conduct of its business as currently conducted; (ii) Shire and
its Subsidiaries are not infringing or otherwise violating the Intellectual
Property of any Person and are acting in accordance with any applicable license
pursuant to which Shire or any Subsidiary acquired the right to use any
Intellectual Property; (iii) no Person is challenging or claiming the invalidity
or unenforceability of any Intellectual Property owned or controlled by and/or
licensed to Shire or its Subsidiaries used in or necessary for the conduct of
its business as currently conducted; and (iv) neither Shire nor any of its
Subsidiaries has received any written notice or otherwise has knowledge of any
pending or threatened claim, order or proceeding with respect to any
Intellectual Property owned, controlled, licensed or used by Shire or its
Subsidiaries and no Intellectual Property owned, controlled and/or licensed by
Shire or its Subsidiaries is being used or enforced in a manner that would
result in the abandonment, cancellation or unenforceability of such Intellectual
Property. For purposes of this Agreement, "Intellectual Property" shall mean
patents, applications for patents (including, without limitation, utility models
and all divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction, trademarks (registered or unregistered), service marks, brand
names, domain names, certification marks, trade dress and other indications of
origin, the goodwill associated with the foregoing and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the
foregoing, including any extension, modification or renewal of any such
registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; nonpublic information, trade secrets and
confidential or proprietary information and rights in any jurisdiction to limit
the use or disclosure thereof by any person; writings and other works, whether
copyrightable or not, in any jurisdiction, and any renewals or extensions
thereof and any similar intellectual property or proprietary rights.
(l) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Shire, except Deutsche Bank whose fees and expenses will be paid
by Shire in accordance with Shire's agreement with such firm, copies of which
have been provided to BioChem.
(m) TAXES.
(i) Each of Shire and its Subsidiaries has filed in a timely manner all
material Tax Returns required to have been filed (or extensions have been
duly obtained), and has paid in a timely manner all Taxes required to have
been paid by it and has made adequate accrual for all material taxes not yet
due and payable. Each such Tax Return is complete and accurate in all
material respects. Any deficiencies or assessments asserted in writing by
any taxing authority against Shire or any of its Subsidiaries have been paid
or fully settled. There are no claims or assessments pending (or, to the
best knowledge or Shire, threatened) against Shire or any of its
Subsidiaries for any alleged Tax deficiency and no issue has been raised in
writing by any taxing authority or representative thereof. No extension of
the period for assessment or collection of any Tax of Shire or its
Subsidiaries is currently in effect and no extension of time within which to
file any Tax Return has been requested, which Tax Return has not since been
filed.
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(ii) Shire is not and will not be at any time a "foreign investment
entity" as that term is defined in the June 22, 2000 proposed amendments to
the ITA together with proposed amendments thereto as announced on
September 7, 2000 (the "PROPOSED AMENDMENTS"). The Exchangeable Shares will
be and remain an "exempt interest" as that term is defined in the Proposed
Amendments.
For purposes of this Agreement: (A) "TAX" (and, with correlative meaning,
"TAXES") means (i) any federal, state, provincial, local or foreign income,
gross receipts, property, sales, use, license, excise, franchise, employment,
payroll, withholding, alternative or add on minimum, ad valorem, transfer or
excise tax, or any other tax, customs, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority, and (ii) any transferee,
successor or joint and several liability by contract or otherwise in respect of
any items described in clause (i), and (B) "TAX RETURN" means any return, report
or similar statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax.
(n) BENEFIT PLANS.
(i) Except as disclosed in the Shire SEC Reports filed prior to the date
of this Agreement, (A) there are no registered or supplementary pension,
retirement, profit sharing, bonus, savings, deferred compensation, share
option, purchase, appreciation, group insurance or other material employee
or retiree benefit plans, programs or arrangements, including collective
agreements, maintained or contributed to by Shire or any of its Subsidiaries
or in respect of which any such entity has an actual or contingent liability
(each such plan, program or arrangement, a "Plan"), (B) there are no
outstanding violations or defaults thereunder nor any actions, claims, or
other proceedings pending or, to the knowledge of Shire, threatened in
writing with respect to any of the Plans, (C) the Plans are registered, and
have at all times been invested and administered, in accordance with Laws
and regulatory policy and the terms of the Plans, (D) no event has occurred
which would entitle any person to terminate any Plan or adversely affect the
tax status of any Plan; (E) to the knowledge of Shire, there have been no
withdrawals of surplus or contribution holiday except as permitted by Law
and the terms of the Plans and (F) no Plan is underfunded on either a going
concern or a solvency basis as of the date of its most recent actuarial
evaluation, where the effect of any such undisclosed Plan, violation,
default, action, claim, proceeding, promise, commitment, event, withdrawal,
contribution holiday, failure to comply or underfunding would, in the
aggregate, have a Material Adverse Effect on Shire.
(ii) Except as disclosed in the Shire SEC Reports filed prior to the
date of this Agreement, none of the Plans with respect to Shire is subject
to the United States EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, as
amended ("ERISA"). With respect to each Plan that is subject to ERISA (an
"ERISA PLAN") and any ERISA Affiliate Plan (A) if such ERISA Plan is
intended to be qualified under Section 401(a) of the Code, such ERISA Plan
has been determined by the United States Internal Revenue Service (the
"IRS") to be so qualified and each trust related to any such ERISA Plan has
been determined to be exempt from federal income Tax under Section 501(a) of
the Code and no circumstance has occurred or exists which might reasonably
be expected to cause such plan or trust to cease being so qualified or
exempt from Tax; (B) such ERISA Plan has complied in all material respects
with ERISA, and all other applicable Laws; (C) no accumulated funding
deficiency, as defined in Section 302 of ERISA and Section 412 of the Code,
whether or not waived, exists with respect to such Plan or any ERISA
Affiliate Plan; (D) with respect to each single-employer ERISA Plan and
ERISA Affiliate Plan subject to Title IV of ERISA, as of the last day of the
most recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities" (as defined under
Section 4001(a)(16) of ERISA) under such plan, determined on the basis of
the actuarial assumptions in effect for such plan year, did not exceed the
then current value of the assets of such plan; and (E) none of Shire, any of
its Subsidiaries or
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any ERISA Affiliate has incurred or expects to incur any liability to the
United States Pension Benefit Guaranty Corporation with respect to any ERISA
Plan or ERISA Affiliate Plan or any withdrawal liability under Title IV of
ERISA with respect to any "Multiemployer Plan", where the effect of such
event, condition, action or failure to act under (A) through (E) above
would, in the aggregate, have a Material Adverse Effect on Shire. Except as
disclosed in the Shire SEC Reports filed prior to the date of this
Agreement, none of Shire, or any of its Subsidiaries maintains or
contributes to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which is subject to ERISA and which provides medical
benefits to employees after termination of employment other than as required
by Section 601 of ERISA or other applicable Law, or the cost of which is
paid for by the covered employees.
(iii) For purposes of this Agreement, "ERISA AFFILIATE" means (A) any
corporation which is a member of the same controlled group of corporations,
within the meaning of Section 414(b) of the Code, as Shire or BioChem, as
the case may be, or any of their respective Subsidiaries, as the case may
be, or (B) any partnership or trade or business (whether or not
incorporated) under common control, within the meaning of Section 414(c) of
the Code, with Shire or BioChem, as the case may be, or any of their
respective Subsidiaries; "MULTIEMPLOYER PLAN" means any Plan that is a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA); and "ERISA
AFFILIATE PLAN" means any single-employer plan subject to Title IV or
Section 302 of ERISA maintained or contributed to by an ERISA Affiliate.
(o) LICENSES. Shire and its Subsidiaries have obtained all permits,
concessions, grants, franchises, licenses and other federal, state, local or
foreign governmental authorizations and approvals (collectively, "LICENSES")
material, individually or in the aggregate, to the conduct of the business of
Shire and its Subsidiaries taken as a whole. All of such Licenses are in full
force and effect and, to the knowledge of Shire, will not be impaired or
adversely affected by the Arrangement in a manner or to a degree that would have
a Material Adverse Effect on Shire. There is not pending or, to the knowledge of
Shire, threatened any domestic or foreign suit or proceeding with respect to the
suspension, revocation, cancellation, modification or non-renewal of any of such
Licenses, and no event under the control of Shire has occurred that (whether
with notice or lapse of time, or both) would result in a suspension or
revocation of or failure to renew any of the Licenses, the loss of which would
have a Material Adverse Effect on Shire.
(p) POOLING OF INTERESTS. Neither Shire nor any of its Affiliates has
taken or agreed to take any action or failed to take any action that would
prevent the Arrangement from being treated for financial accounting purposes as
a "pooling of interests" in accordance with US GAAP and the regulations and
interpretations of the SEC.
3.2 REPRESENTATIONS AND WARRANTIES OF BIOCHEM. Except as set forth in the
BioChem Disclosure Schedule delivered by BioChem to Shire prior to the execution
of this Agreement (the "BIOCHEM DISCLOSURE SCHEDULE"), BioChem represents and
warrants to Shire as follows:
(a) ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.
(i) Each of BioChem and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the requisite power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and
authority, in the aggregate, would not have a Material Adverse Effect on
BioChem. Each of BioChem and its Subsidiaries is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the failures
so to qualify or to be in good standing in the aggregate would not have a
Material Adverse Effect on BioChem. The copies of the articles of
amalgamation and bylaws of BioChem, which were
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previously furnished or made available to Shire, are true, complete and
correct copies of such documents as in effect on the date of this Agreement.
(ii) Section 3.2(a)(ii) of the BioChem Disclosure Schedule sets forth
all of the Subsidiaries of BioChem as of the date of this Agreement. All the
outstanding shares of capital stock of, or other equity interests in, each
such Subsidiary have been validly issued and are fully paid and
non-assessable and are, except as set forth on the BioChem Disclosure
Schedule, owned directly or indirectly by BioChem, free and clear of all
Liens and free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests), except for restrictions imposed by applicable
securities laws or contained in the articles of such companies. Except as
Publicly Disclosed by BioChem prior to the date of this Agreement, neither
BioChem nor any of its Subsidiaries directly or indirectly owns any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity (other
than Subsidiaries), that is material to BioChem and its Subsidiaries taken
as a whole.
(b) CAPITAL STRUCTURE.
(i) As of November 24, 2000, the authorized capital of BioChem consisted
of an unlimited number of BioChem Common Shares, of which 101,323,410 shares
were issued and outstanding. Since November 24, 2000 to the date of this
Agreement, there have been no issuances of shares in the capital of BioChem
or any other securities of BioChem other than issuances of shares pursuant
to options outstanding as of November 24, 2000 under the Benefit Plans of
BioChem. All issued and outstanding shares in the capital of BioChem are
duly authorized, validly issued, fully paid and non-assessable, and no class
of shares is entitled to preemptive rights. There were outstanding as of
November 24, 2000 no options, warrants or other rights to acquire shares of
BioChem other than (w) options and other rights to acquire shares of BioChem
representing in the aggregate the right to purchase 6,873,711 BioChem Common
Shares (collectively, the "BIOCHEM SHARE OPTIONS") under BioChem's Shares
Option Plan (the "BIOCHEM SHARE OPTION PLAN"), and (x) options to acquire
123,476 BioChem Common Shares at an exercise price of $5.15 expiring in
July 2001 granted to Investissement Quebec pursuant to an agreement dated
June 21, 1991 (the "INVESTISSEMENT QUEBEC OPTIONS"); and (y) undertaking to
issue warrants in two tranches in 2001 and 2002 to the Government of Canada
giving the right to acquire BioChem Common Shares at an exercise price equal
to the closing price on the TSE prior to their respective issuance, the
whole pursuant to an agreement dated March 31, 2000 (the "BIOCHEM WARRANTS")
and (z) the memorandum of agreement dated September 1997 with two senior
employees relating to options to acquire 40,000 BioChem Common Shares.
Section 3.2(b) of the BioChem Disclosure Schedule sets forth a complete and
correct list, as of November 24, 2000, of the number of BioChem Common
Shares subject to BioChem Shares Options, the dates of grant and the
exercise prices thereof.
(ii) No bonds, debentures, notes or other indebtedness of BioChem having
the right to vote on any matters on which its shareholders may vote
("BIOCHEM VOTING DEBT") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), as of the
date of this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which BioChem or any of its Subsidiaries is a party or by which any of them
is bound obligating BioChem or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares in its
capital or other voting securities of BioChem or any of its Subsidiaries or
obligating BioChem or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of this Agreement,
there are no outstanding obligations of BioChem
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or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
shares in the capital of BioChem or any of its Subsidiaries.
(c) AUTHORITY; NO CONFLICTS.
(i) BioChem has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby,
subject in the case of the consummation of the Arrangement to the adoption
of this Agreement by the Required BioChem Vote. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of BioChem, subject in the case of the consummation of the Arrangement
to the adoption of this Agreement by the BioChem shareholders at the BioChem
Shareholders Meeting. This Agreement has been duly executed and delivered by
BioChem and constitutes the valid and binding agreement of BioChem,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally or
by general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by BioChem does not or
will not, as the case may be, and the consummation by BioChem of the
Arrangement and the other transactions contemplated hereby will not conflict
with, or result in a Violation pursuant to: (x) any provision of the
articles of amalgamation or bylaws of BioChem or any Subsidiary of BioChem
or (y) except as in the aggregate would not have a Material Adverse Effect
on BioChem or, subject to obtaining or making the consents, approvals,
orders, authorizations, registrations, declarations and filings referred to
in paragraph (iii) below, any loan or credit agreement, note, mortgage,
bond, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to BioChem, any
Subsidiary of BioChem or any of their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to BioChem or any Subsidiary of BioChem in connection with the
execution and delivery of this Agreement by BioChem or the consummation of
the Arrangement and the other transactions contemplated hereby and thereby,
except (i) the Necessary Consents, (ii) the consents required under Canadian
Securities Laws and by the rules and regulations of the NASDAQ and the TSE
and (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain, in the
aggregate, would not have a Material Adverse Effect on BioChem.
(d) REPORTS AND FINANCIAL STATEMENTS.
(i) BioChem has filed all required registration statements,
prospectuses, reports, schedules, forms, statements, press releases and
other documents required to be filed by it with the OSC, the QSC and the SEC
since January 1, 1999 (collectively, including all exhibits thereto, the
"BIOCHEM REPORTS"). No Subsidiary of BioChem is required to file any form,
report, registration statement or prospectus or other document with the OSC,
the QSC or the SEC. None of the BioChem Reports, as of their respective
dates (and, if amended or superseded by a filing prior to the date of this
Agreement or the Closing Date, then on the date of such filing), contained
or will contain any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Each of the financial statements (including the
related notes) included in the BioChem Reports presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of BioChem and its consolidated
Subsidiaries as of the respective dates or for the respective periods set
forth therein, all in conformity with GAAP consistently applied during the
periods involved except as otherwise
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noted therein, and subject, in the case of the unaudited interim financial
statements, to the absence of notes and normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such BioChem Reports, as of their respective dates (and as of
the date of any amendment to any such BioChem Report), complied as to form
in all material respects with the applicable requirements of Canadian
Securities Laws or, as the case may be, the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder.
(ii) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, since September 30, 2000, BioChem and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of BioChem and its Subsidiaries or the
footnotes thereto prepared in conformity with GAAP, other than liabilities
that, in the aggregate, would not have a Material Adverse Effect on BioChem.
(e) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by BioChem for inclusion or incorporation by reference in the Proxy
Statement will, at the time of the BioChem Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
(f) BOARD APPROVAL. The Board of Directors of BioChem, by resolutions duly
adopted by unanimous vote of those voting at a meeting duly called and held and
not subsequently rescinded or modified in any way (the "BIOCHEM BOARD
APPROVAL"), has duly (i) determined that this Agreement and the Arrangement are
fair to and in the best interests of BioChem and its shareholders,
(ii) approved this Agreement and the Arrangement and (iii) subject to
Section 5.1(e), recommended that the shareholders of BioChem adopt this
Agreement and approve the Arrangement and directed that this Agreement and the
Arrangement be submitted for consideration by BioChem's shareholders at the
BioChem Shareholders Meeting.
(g) VOTE REQUIRED. Subject to the Interim Order, the approval of this
Agreement and the Arrangement by the Required BioChem Vote is the only vote of
the holders of any class or series of BioChem share capital necessary to approve
the transactions contemplated by this Agreement and the Arrangement.
(h) LITIGATION; COMPLIANCE WITH LAWS.
(i) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, there are no Actions pending or, to the knowledge of BioChem,
threatened, against or affecting BioChem or any Subsidiary of BioChem which,
in the aggregate, would have a Material Adverse Effect on BioChem, nor are
there any judgments, decrees, injunctions, rules or orders of any
Governmental Entity or arbitrator outstanding against BioChem or any
Subsidiary of BioChem which, in the aggregate, would have a Material Adverse
Effect on BioChem.
(ii) Except as Publicly Disclosed by BioChem prior to the date of the
Agreement and except as would, in the aggregate, not have a Material Adverse
Effect on BioChem, BioChem and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
necessary for the operation of the businesses of BioChem and its
Subsidiaries, taken as a whole (the "BIOCHEM PERMITS"). BioChem and its
Subsidiaries are in compliance with the terms of the BioChem Permits, except
where the failure to so comply, in the aggregate, would not have a Material
Adverse Effect on BioChem. Except as Publicly Disclosed by BioChem prior to
the date of this Agreement, neither BioChem nor any of its Subsidiaries is
in violation of, and BioChem and its Subsidiaries have not received any
notices of violations with respect to, any laws, ordinances or regulations
of any Governmental Entity, except for violations which, in the aggregate,
would not have a Material Adverse Effect on BioChem.
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(i) ABSENCE OF CERTAIN CHANGES OR EVENTS.
(i) Except for liabilities incurred in connection with this Agreement or
the transactions contemplated hereby, except as Publicly Disclosed by
BioChem prior to the date of this Agreement, and except as permitted by
Section 4.2, since September 30, 2000, BioChem and its Subsidiaries have
conducted their business only in the ordinary course. Except as Publicly
Disclosed by BioChem prior to the date of this Agreement, since March 31,
2000, there have not been any changes, circumstances or events which have
had, or would have, a Material Adverse Effect on BioChem, provided that, on
the basis of all facts and information disclosed by BioChem to Shire as at
the date hereof, the outcome of the proceedings instituted by Emory
University in the United States shall not, for the purpose of this
Agreement, be considered to have a Material Adverse Effect on BioChem.
(ii) Since September 30, 2000 and except for as set forth in
Section 3.2(i)(ii) of the BioChem Disclosure Schedule, there has not been
any (A) adoption by BioChem or any of its Subsidiaries of any Benefit Plan
to which any of BioChem's officers is a participant or (B) amendment to any
BioChem Benefit Plan that resulted in any material increase in the benefits
received or to be received thereunder by any officer of BioChem. Since
September 30, 2000, there has not been any material increase in the
aggregate benefits provided under the BioChem Benefit Plans.
(j) ENVIRONMENTAL MATTERS.
(i) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, BioChem and its Subsidiaries, and their respective business and
operations, (A) are in compliance with all applicable Environmental Laws
(including any Environmental Permits) in Canada and in other applicable
foreign jurisdictions with environmental regulatory jurisdiction over
BioChem or any of its Subsidiaries and (B) have obtained all Environmental
Permits which are required in order to carry on their respective businesses
and operations as presently conducted under all applicable Environmental
Laws, where non-compliance or failure to obtain the same would have a
Material Adverse Effect on BioChem prior to the date of this Agreement.
Except as Publicly Disclosed by BioChem prior to the date of this Agreement,
neither BioChem nor its Subsidiaries with respect to their respective
businesses and operations have at any time received any written notice,
written notice of default, written notice of cancellation or revocation,
orders, summons, or notice of judgment or commencement of proceedings of any
nature related to any breach, liability or remedial action, or alleged
breach, liability or remedial action, of or arising under Environmental Laws
or any Environmental Permits which would have a Material Adverse Effect on
BioChem. Neither BioChem nor its Subsidiaries with respect to their
respective businesses and operations have at any time given any written
undertakings with respect to remedying any breach of Environmental Laws or
Environmental Permits or otherwise satisfying requirements under
Environmental Laws or Environmental Permits which have not been duly
performed in accordance with the terms of such undertakings, which breach or
other requirements would have a Material Adverse Effect on BioChem.
(ii) To the knowledge of BioChem, without inquiry to any Governmental
Entity, (A) none of the properties currently or formerly owned or leased by
BioChem and its Subsidiaries is identified by any Governmental Entity for
investigation or clean-up pursuant to any Environmental Laws, which in each
of the foregoing instances would result in a Material Adverse Effect on
BioChem and (B) there have been no releases in violation of any applicable
Environmental Laws of Hazardous Substances on any currently owned, leased or
operated property or formerly owned, leased or operated property of BioChem
or its Subsidiaries, which would result in a Material Adverse Effect on
BioChem.
(iii) Except as publicly disclosed by BioChem prior to the date of this
Agreement, to the knowledge of BioChem, neither BioChem nor any of its
Subsidiaries is subject to any Environmental Losses that would have a
Material Adverse Effect on BioChem.
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(k) INTELLECTUAL PROPERTY.
(i) The BioChem Disclosure Schedule contains a worldwide list of all
material patents and trademarks, and applications for any of the foregoing
owned, licensed or controlled by BioChem or any of its Subsidiaries.
(ii) Except as in the aggregate would not have a Material Adverse Effect
on BioChem or its Subsidiaries or except as set forth in BioChem Disclosure
Schedule:
(1) BioChem and each of its Subsidiaries owns (in each case free and
clear of all Liens) or has license to use all Intellectual Property used
in or necessary for the conduct of their respective businesses as
currently conducted. Such Intellectual Property and the rights thereto
are restricted to the Intellectual Property rights in relation to the
products listed in Section 3.2(k) of BioChem Disclosure Schedule and are
collectively referred to herein as the "BioChem IP Rights". Except as set
forth in Section 3.2(k) of BioChem Disclosure Schedule hereto, no
royalties or other payments are payable to any third party with respect
to commercialization of any products presently sold or under development
by BioChem or its Subsidiaries listed in Section 3.2(k) of BioChem
Disclosure Schedule or licensed by BioChem or its Subsidiaries to third
parties;
(2) the execution, delivery and performance of this Agreement by
BioChem or any of its Subsidiaries and the consummation by BioChem or any
of its Subsidiaries of the transactions contemplated hereby will not
constitute a breach by BioChem or any of its Subsidiaries of any
instrument or agreement governing any BioChem IP Rights and will not
(i) result in BioChem's default (subject to damages) with respect to any
obligation contained therein, (ii) cause the modification of any terms of
any licenses or agreements relating to any BioChem IP Rights including
but not limited to the modification of the effective rate of any
royalties or other payments provided for in any such license or
agreement, (iii) cause forfeiture or termination of any BioChem IP
Rights, (iv) give rise to a right of forfeiture or termination of any
BioChem IP Rights or (v) impair the right of BioChem, any successor
corporation to BioChem following the Effective Date or Shire to use, sell
or license any BioChem IP Rights or portion thereof;
(3) to BioChem's knowledge, neither the manufacture, marketing,
license, sale or intended use of any product listed in Section 3.2(k) of
BioChem Disclosure Schedule (i) violates in any respect any license or
agreement between BioChem or any of its Subsidiaries and any third party
or (ii) infringes any patents or other Intellectual Property rights of
any other party; and, except as set forth in BioChem Disclosure Schedule
hereto, there is no pending or threatened claim or litigation contesting
the validity, ownership or right to use, sell, license or dispose of any
BioChem IP Rights, or asserting that any BioChem IP Rights or the
proposed use, sale, license or disposition thereof, or the manufacture,
use or sale of any BioChem products, conflicts or will conflict with the
rights of any other party;
(4) to BioChem's knowledge, no Person is infringing or otherwise
violating the BioChem IP Rights;
(5) BioChem has provided to Shire a true and complete copy of its
current standard form of employment agreement providing for an
Intellectual Property assignment undertaking; all BioChem officers and
principal scientists, past or present, whether employees or independent
contractors, listed in BioChem Disclosure Schedule, have executed such an
agreement or one substantially similar thereto, thereby assigning to
BioChem any rights such employees or contractors might have in the
BioChem IP Rights; BioChem has taken all commercially reasonable steps to
ensure that all other BioChem employees and independent contractors have
executed such an agreement;
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(6) BioChem has taken commercially reasonable steps, in accordance
with industry standards, to protect the confidentiality of its trade
secrets and inventions, notably ensuring that all BioChem officers and
principal scientists listed in BioChem Disclosure Schedule have executed
appropriate non-disclosure agreements and making commercially reasonable
efforts to ensure all other employees, consultants or third parties with
access to BioChem confidential information execute such agreements; and
(7) neither BioChem nor any of its Subsidiaries has entered into any
agreement to indemnify any other person, including but not limited to any
employee or consultant of BioChem or any of its Subsidiaries, against any
charge of infringement, misappropriation or misuse of any intellectual
property, other than indemnification provisions contained in purchase
orders or agreements with trade customers arising in the ordinary course
of business or indemnifications to licensees or licensors in applicable
license agreements.
(l) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of BioChem except Chase Securities Inc. and Merrill Lynch & Co.,
each of whose fees and expenses will be paid by BioChem in accordance with
BioChem's agreements with such firms, copies of which have been provided to
Shire.
(m) OPINIONS OF BIOCHEM FINANCIAL ADVISORS. BioChem has received the
opinion of Chase Securities Inc. and the opinion of Merrill Lynch & Co., each
dated the date of this Agreement, and each to the effect that, as of such date,
the Merger Consideration is fair, from a financial point of view, to the holders
of BioChem Common Shares, a copy of which opinions have been made available to
Shire.
(n) TAXES.
(i) Each of BioChem and its Subsidiaries has timely filed all material
Tax Returns required to have been filed (or extensions have been duly
obtained) and has timely paid all Taxes required to have been paid by it and
has made adequate accrual for all material taxes not yet due and payable.
Each such Tax Return is complete and accurate in all material respects. Any
deficiencies or assessments asserted in writing by any taxing authority
against BioChem or any of its Subsidiaries have been paid or fully settled.
There are no claims or assessments pending (or, to the best knowledge of
BioChem, threatened) against BioChem or any of its Subsidiaries for any
alleged Tax deficiency and no issue has been raised in writing by any taxing
authority or representative thereof. No extension of the period for
assessment or collection of any Tax of BioChem or its Subsidiaries is
currently in effect and no extension of time within which to file any Tax
Return has been requested, which Tax Return has not since been filed.
(ii) No corporation, partnership or other entity owned directly or
indirectly in whole or in part by BioChem is a "United States person", as
defined under Section 7701(a) (30) of the Internal Revenue Code of 1986, as
amended. Except as disclosed in BioChem Disclosure Schedule, neither BioChem
nor any corporation, partnership or other entity owned directly or
indirectly in whole or in part by BioChem is engaged in a trade or business
in the United States or is subject to any U.S. federal, state or local taxes
other than U.S. source withholding taxes in respect of portfolio
investments.
(o) BENEFIT PLANS.
(i) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, (A) there are no Plans, (B) there are no outstanding violations
or defaults thereunder nor any actions, claims, or other proceedings pending
or, to the knowledge of BioChem, threatened in writing with respect to any
of the Plans, (C) the Plans are registered, filed with the appropriate
Governmental Entity and have at all times been invested and administered, in
accordance with Laws and
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regulatory policy and the terms of the Plans, (D) no event has occurred
which would entitle any person to terminate any Plan or adversely affect the
tax status of any Plan; (E) to the knowledge of BioChem, there have been no
withdrawals of surplus or contribution holiday except as permitted by Law
and the terms of the Plans and (F) no Plan is underfunded on either a going
concern or a solvency basis as of the date of its most recent actuarial
evaluation, where the effect of any such undisclosed Plan, violation,
default, action, claim, proceeding, promise, commitment, event, withdrawal,
contribution holiday, failure to comply or underfunding would have a
Material Adverse Effect on BioChem.
(ii) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, none of the Plans with respect to BioChem is subject to ERISA.
With respect to each ERISA Plan and any ERISA Affiliate Plan (A) if such
ERISA Plan is intended to be qualified under Section 401(a) of the Code,
such ERISA Plan has been determined by the United States Internal Revenue
Service to be so qualified and each trust related to any such ERISA Plan has
been determined to be exempt from federal income Tax under Section 501(a) of
the Code and no circumstance has occurred or exists which might cause such
plan or trust to cease being so qualified or exempt from Tax; (B) such ERISA
Plan has complied in all material respects with ERISA, and all other
applicable Laws; (C) no accumulated funding deficiency, as defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived,
exists with respect to such Plan or any ERISA Affiliate Plan; (D) with
respect to each single-employer ERISA Plan and ERISA Affiliate Plan subject
to Title IV of ERISA, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities" (as defined under Section 4001(a)(16) of ERISA) under
such plan, determined on the basis of the actuarial assumptions in effect
for such plan year, did not exceed the then current value of the assets of
such plan; and (E) none of BioChem, any of its Subsidiaries or any ERISA
Affiliate has incurred or expects to incur any liability to the United
States Pension Benefit Guaranty Corporation with respect to any ERISA Plan
or ERISA Affiliate Plan or any withdrawal liability under Title IV of ERISA
with respect to any Multiemployer Plan, where the effect of such event,
condition, action or failure to act under (A) through (E) above would be
reasonably expected to have a Material Adverse Effect on BioChem. Except as
Publicly Disclosed by BioChem prior to the date of this Agreement, none of
BioChem, or any of its Subsidiaries maintains or contributes to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA) which is subject
to ERISA and which provides medical benefits to employees after termination
of employment other than as required by Section 601 of ERISA or other
applicable Law, or the cost of which is paid for by the covered employees.
(p) LICENSES. BioChem and its Subsidiaries have obtained all Licenses
material, individually or in the aggregate, to the conduct of the business of
BioChem and its Subsidiaries taken as a whole. All of such Licenses are in full
force and effect and, to the knowledge of BioChem, will not be impaired or
adversely affected by the Arrangement in a manner or to a degree that would have
a Material Adverse Effect on BioChem. There is not pending or, to the knowledge
of BioChem, threatened any domestic or foreign suit or proceeding with respect
to the suspension, revocation, cancellation, modification or non-renewal of any
of such licenses, and no event under the control of BioChem has occurred that
(whether with notice or lapse of time, or both) would result in a suspension or
revocation of or failure to renew any of the Licenses, the loss of which would
have a Material Adverse Effect on BioChem.
(q) POOLING OF INTERESTS. Neither BioChem nor any of its Affiliates has
taken or agreed to take any action or failed to take any action that would
prevent the Arrangement from being treated for financial accounting purposes as
a "pooling of interests" in accordance with US GAAP and the regulations and
interpretations of the SEC.
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(r) LABOR.
(i) No trade union, association of employees, certified association,
council of trade unions, employee bargaining agency or affiliated bargaining
agent, holds bargaining rights with respect to any employees of BioChem by
way of certification, interim certification, voluntary recognition,
designation or successor rights, except for those locations and employees
covered by the collective agreement set forth in Section 3.2(r)(i) of the
BioChem Disclosure Schedule.
(ii) To the best of BioChem's knowledge, there are no organizing
activities of any trade union, council of trade unions, association of
employees, certified association, employee bargaining agency or affiliated
bargaining agent.
3.3 REPRESENTATIONS AND WARRANTIES OF SHIRE AND EXCHANGECO. Shire and
Exchangeco represent and warrant to BioChem as follows:
(a) ORGANIZATION. Exchangeco is a corporation duly incorporated, validly
existing and in good standing under the laws of Canada.
(b) CORPORATE AUTHORIZATION.
(i) Exchangeco has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
Shire is, or will be at the Effective Date, directly or indirectly, the sole
shareholder of Exchangeco and has, or will have as at the Effective Date,
given all shareholder approvals necessary for Exchangeco to consummate the
Arrangement and the transactions contemplated hereby. The execution,
delivery and performance by Exchangeco of this Agreement and the
consummation by Exchangeco of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Exchangeco.
This Agreement has been duly executed and delivered by Exchangeco and
constitutes the valid and binding agreement of Exchangeco, enforceable
against Exchangeco in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors
generally or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by Exchangeco does
not or will not, as the case may be, and the consummation by Exchangeco of
the Arrangement and the other transactions contemplated hereby will not
conflict with, or result in any Violation of: (A) any provision of the
certificate of incorporation of Exchangeco, or (B) except as in the
aggregate would not have a Material Adverse Effect on Exchangeco, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Exchangeco.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Exchangeco in connection with the execution and delivery of this
Agreement by Exchangeco or the consummation of the Arrangement and the other
transactions contemplated hereby.
(c) NO BUSINESS ACTIVITIES. Exchangeco has not conducted and will not
conduct any activities other than in connection with the organization of
Exchangeco, the negotiation and execution of this Agreement and the consummation
of the transactions contemplated hereby. Exchangeco has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF SHIRE. During the period from the date of this Agreement
and continuing until the Effective Date, Shire agrees as to itself and its
Subsidiaries that (except as expressly contemplated
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or permitted by this Agreement or the Shire Disclosure Schedule or as required
by a Governmental Entity of competent jurisdiction or to the extent that BioChem
shall otherwise consent in writing, which consent shall not be unreasonably
withheld or delayed):
(a) ORDINARY COURSE.
(i) Shire and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Date; provided, however, that no
action by Shire or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.1 shall be deemed a
breach of this Section 4.1(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by
Section 4.1(e), Shire shall not, and shall not permit any of its
Subsidiaries to, enter into (A) any new material line of business or
(B) any material commitment or transaction (including any borrowing, capital
expenditure or purchase, sale or lease of assets) other than as specified in
the Shire Disclosure Schedule or in the ordinary course of business
consistent with past practice and which, together with all such agreements,
commitments and transactions entered into since January 1, 2000, does not
require expenditures by Shire in excess of fifty million dollars
($50,000,000) provided that if the required expenditures exceed thirty-five
million dollars ($35,000,000), Shire shall, before completing such
expenditures, verbally advise BioChem.
(b) DIVIDENDS; CHANGES IN SHARE CAPITAL. Shire shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay
any dividends on or make other distributions in respect of any of its share
capital, except for dividends (A) paid in the ordinary course of business
consistent with past practice or (B) by wholly owned Subsidiaries of Shire,
(ii) split, combine or reclassify any of its share capital or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its share capital, except for any such transaction
by a wholly owned Subsidiary of Shire which remains a wholly owned Subsidiary
after consummation of such transaction or (iii) repurchase, redeem or otherwise
acquire any of its shares or any securities convertible into or exercisable for
any of its shares except for the purchase from time to time by Shire of Shire
Ordinary Shares in the ordinary course of business consistent with past practice
in connection with the Shire Benefit Plans.
(c) ISSUANCE OF SECURITIES. Shire shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its share capital of any class or
any securities convertible into or exercisable for, or any rights, warrants,
calls or options to acquire, any such shares or enter into any commitment,
arrangement, undertaking or agreement with respect to any of the foregoing,
other than (i) the issuance of Shire Ordinary Shares upon the exercise of Shire
Share Options or in connection with other shares-based benefit plans outstanding
on the date hereof, in each case in accordance with their present terms or
pursuant to Shire Share Options or other shares based awards granted pursuant to
clause (ii) below, (ii) the granting of Shire Share Options or other
shares-based awards to acquire Shire Ordinary Shares granted under shares based
benefit plans outstanding on the date hereof in the ordinary course of business
consistent with past practice, (iii) issuances by a wholly owned Subsidiary of
Shire of shares to such Subsidiary's parent or another wholly owned Subsidiary
of Shire, or (iv) pursuant to the arrangements set forth in Section 4.1(c) of
the Shire Disclosure Schedule.
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(d) GOVERNING DOCUMENTS. Except to the extent required to comply with
their respective obligations hereunder or with applicable law, Shire and
Exchangeco shall not amend or propose to so amend their respective certificates
of incorporation, bylaws or other governing documents.
(e) NO ACQUISITIONS. Other than acquisitions disclosed on the Shire
Disclosure Schedule, Shire shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than the acquisition of
assets used in the operations of the business of Shire and its Subsidiaries in
the ordinary course, which assets do not constitute a business unit, division or
all or substantially all of the assets of the transferor); provided, however,
that the foregoing shall not prohibit (i) internal reorganizations or
consolidations involving existing Subsidiaries of Shire or (ii) the creation of
new Subsidiaries of Shire organized to conduct or continue activities otherwise
permitted by this Agreement.
(f) NO DISPOSITIONS. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Shire, (ii) dispositions
referred to in Shire SEC Reports filed prior to the date of this Agreement or
(iii) as may be required by or in conformance with law or regulation in order to
permit or facilitate the consummation of the transactions contemplated hereby or
the transactions disclosed in the Shire Disclosure Schedule, Shire shall not,
and shall not permit any of its Subsidiaries to, sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its assets
(including capital stock of Subsidiaries of Shire but excluding inventory in the
ordinary course of business), if the fair market value of the total
consideration (including the value of the indebtedness acquired or assumed)
therefor exceeds twenty-five million dollars ($25,000,0000) in the aggregate for
all such dispositions, provided that if such dispositions exceed fifteen million
dollars ($15,000,000), Shire shall, before completing such dispositions,
verbally advise BioChem.
(g) INVESTMENTS; INDEBTEDNESS. Shire shall not, and shall not permit any
of its Subsidiaries to, other than in connection with actions permitted by
Section 4.1(e), (i) make any loans, advances or capital contributions to, or
investments in, any other Person, other than (x) by Shire or a Subsidiary of
Shire to or in Shire or any Subsidiary of Shire, (y) pursuant to any contract or
other legal obligation of Shire or any of its Subsidiaries existing at the date
of this Agreement or (z) in the ordinary course of business consistent with past
practice in an aggregate amount not in excess of fifty million dollars
($50,000,0000) (provided that none of such transactions referred to in this
clause (z) presents a material risk of making it more difficult to obtain any
approval or authorization required in connection with the Arrangement under
Regulatory Laws and provided that if the amount of such loans, advances, capital
contributions or investments exceed thirty-five million dollars ($35,000,000),
Shire shall, before completing such loans, advances, capital contributions or
investments, verbally advise BioChem) or (ii) create, incur, assume or suffer to
exist any indebtedness, issuances of debt securities, guarantees, loans or
advances not in existence as of the date of this Agreement except pursuant to
the credit facilities, indentures and other arrangements in existence on the
date of this Agreement or in the ordinary course of business consistent with
past practice, in each case as such credit facilities, indentures and other
arrangements may be amended, extended, modified, refunded, renewed or refinanced
after the date of this Agreement.
(h) COMPENSATION. Other than as contemplated by Section 5.7 or by
Section 4.1(c) or 4.1(h) of the Shire Disclosure Schedule, Shire shall not
materially increase the amount of compensation of any director, officer or other
management employee except in the ordinary course of business consistent with
past practice or as required by an existing agreement, make any material
increase in or commitment to materially increase any employee benefits, issue a
material amount of additional Shire Share Options, adopt or make any commitment
to adopt any additional employee benefit plan or make any contribution, other
than regularly scheduled contributions, to any Shire Benefit Plan.
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(i) ACCOUNTING METHODS; TAX ELECTIONS. Except as disclosed in Shire SEC
Reports filed prior to the date of this Agreement, or as required by a
Governmental Entity, Shire shall not change its methods of accounting for
financial or tax purposes in effect at December 31, 1999, except as required by
changes in GAAP as concurred with by Shire's independent public accountants.
Shire shall not change its fiscal year.
(j) CERTAIN AGREEMENTS. Shire shall not, and shall not permit any of its
Subsidiaries to, enter into any agreements or arrangements that limit or
otherwise restrict Shire or any of its Subsidiaries or any of their respective
affiliates or any successor thereto or that could, after the Effective Date,
limit or restrict Shire or any of its affiliates or any successor thereto, from
engaging or competing in any line of business or in any geographic area which
agreements or arrangements, individually or in the aggregate, would have a
Material Adverse Effect on Shire after giving effect to the Arrangement.
(k) CANADIAN TAX TREATMENT. Neither Shire nor Exchangeco shall take any
action which could reasonably be expected to prevent the exchange by Canadian
resident holders of BioChem Common Shares for Exchangeable Shares from being
treated as a tax deferred transaction for purposes of the ITA to holders who are
otherwise eligible for such treatment.
(l) NO RELATED ACTIONS. Shire will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
(m) POOLING OF INTERESTS. Shire shall use all reasonable efforts to cause
the Arrangement to be accounted for as a "pooling of interests" in accordance
with GAAP, Accounting Principles Board Opinion 16 and applicable SEC rules,
regulations and policies and shall take no action that would cause such
accounting treatment not to be obtained.
4.2 COVENANTS OF BIOCHEM. During the period from the date of this
Agreement and continuing until the Effective Date, BioChem agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or the BioChem Disclosure Schedule or as required by a Governmental
Entity of competent jurisdiction or to the extent that Shire shall otherwise
consent in writing, which consent shall not be unreasonably withheld or
delayed):
(a) ORDINARY COURSE.
(i) BioChem and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use all reasonable efforts to preserve intact their present lines of
business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Date; provided, however, that no
action by BioChem or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.2 shall be deemed a
breach of this Section 4.2(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by
Section 4.2(e), BioChem shall not, and shall not permit any of its
Subsidiaries to enter into (A) any new material line of business or (B) any
material commitment or transaction (including any borrowing, capital
expenditure or purchase, sale or lease of assets) other than in the ordinary
course of business consistent with past practice and which, together with
all such agreements, commitments and transactions since the date of this
Agreement, does not require expenditures by BioChem in excess of fifty
million dollars ($50,000,000) provided that if the required expenditures
exceed thirty-five million dollars ($35,000,000), BioChem shall, before
completing such expenditures, verbally advise Shire; notwithstanding the
foregoing, BioChem shall not enter into any agreement or arrangement to
license a material product if the total consideration exceeds five million
dollars ($5,000,000) without the prior consent of Shire, which consent shall
not be unreasonably withheld.
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(b) DIVIDENDS; CHANGES IN SHARE CAPITAL. BioChem shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay
any dividends on or make other distributions in respect of any of its share
capital, except for dividends by wholly owned Subsidiaries of BioChem,
(ii) split, combine or reclassify any of its share capital or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, its share capital, except for any such transaction by a wholly
owned Subsidiary of BioChem which remains a wholly owned Subsidiary after
consummation of such transaction, or (iii) repurchase, redeem or otherwise
acquire any of its share capital or any securities convertible into or
exercisable for any of its share capital.
(c) ISSUANCE OF SECURITIES. BioChem shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its share capital of any class, any
BioChem Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants, calls or options to acquire, any such shares or BioChem
Voting Debt, or enter into any commitment, arrangement, undertaking or agreement
with respect to any of the foregoing, other than (i) the issuance of BioChem
Common Shares upon the exercise of BioChem Shares Options or Investissement
Quebec Options or in connection with other shares-based benefits plans
outstanding on the date hereof, in each case in accordance with their present
terms or pursuant to BioChem Shares Options or Investissement Quebec Options or
other shares based awards granted pursuant to clause (iii) below,
(ii) issuances by a wholly owned Subsidiary of BioChem of share capital to such
Subsidiary's parent or another wholly owned subsidiary of BioChem, (iii) the
granting of BioChem Shares Options or other shares based awards to acquire
BioChem Common Shares granted under shares based benefit plans outstanding on
the date hereof in the ordinary course of business consistent with past practice
that would not result in the issuance of more than 100,000 BioChem Common Shares
provided that such grant of BioChem Share Options or other shares based award is
done in connection with the hiring of new employees by BioChem and provided
however that BioChem shall consult with Shire prior to granting any BioChem
Share Options and shall not proceed with such grant if advised by Shire that
such grant would result in a reverse take-over bid of Shire or would affect the
pooling of interest accounting treatment of the transaction contemplated herein,
or (iii) pursuant to the arrangements set forth in Section 4.2(c) of the BioChem
Disclosure Schedule.
(d) GOVERNING DOCUMENTS. Except to the extent required to comply with its
obligations hereunder or with applicable law, BioChem shall not amend or propose
to so amend its articles of amalgamation, bylaws or other governing documents.
(e) NO ACQUISITIONS. Other than acquisitions disclosed on the BioChem
Disclosure Schedule, BioChem shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than the acquisition of
assets used in the operations of the business of BioChem and its Subsidiaries in
the ordinary course, which assets do not constitute a business unit, division or
all or substantially of the assets of the transferor); provided, however, that
the foregoing shall not prohibit (i) internal reorganizations or consolidations
involving existing Subsidiaries of BioChem or (ii) the creation of new
Subsidiaries of BioChem organized to conduct or continue activities otherwise
permitted by this Agreement.
(f) NO DISPOSITIONS. Other than (i) internal reorganizations or
consolidations involving existing subsidiaries of BioChem, (ii) dispositions
Publicly Disclosed by BioChem prior to the date of this Agreement, (iii) as may
be required by or in conformance with law or regulation in order to permit or
facilitate the consummation of the transactions contemplated hereby or (iv) the
transactions disclosed in the BioChem Disclosure Schedule, BioChem shall not,
and shall not permit any of its Subsidiaries to, sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its assets
(including capital stock of Subsidiaries of BioChem but excluding inventory in
the ordinary course of
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business), the fair market value of the total consideration (including the value
of the indebtedness acquired or assumed) therefor exceeds twenty five million
dollars ($25,000,000) in the aggregate for all such dispositions, provided that
if such dispositions exceed the amount of fifteen million dollars ($15,000,000),
BioChem shall, before completing such dispositions, verbally advise Shire.
(g) INVESTMENTS; INDEBTEDNESS. BioChem shall not, and shall not permit any
of its Subsidiaries to, other than in connection with actions permitted by
Section 4.2(e), (i) make any loans, advances or capital contributions to, or
investments in, any other Person, other than (A) by BioChem or a Subsidiary of
BioChem to or in BioChem or any Subsidiary of BioChem, (B) pursuant to any
contract or other legal obligation of BioChem or any of its Subsidiaries
existing at the date of this Agreement or (C) in the ordinary course of business
consistent with past practice in an aggregate amount not in excess of fifty
million dollars ($50,000,000) (provided that none of such transactions referred
to in this sub-clause (C) presents a material risk of making it more difficult
to obtain any approval or authorization required in connection with the
Arrangement under Regulatory Laws and provided that if the amount of such loans,
advances, capital contributions or investments exceed thirty five million
dollars ($35,000,000), BioChem shall, before completing such loans, advances,
capital contributions or investments, verbally advise Shire) or (ii) create,
incur, assume or suffer to exist any indebtedness, issuances of debt securities,
guarantees, loans or advances not in existence as of the date of this Agreement
except pursuant to the credit facilities, indentures and other arrangements in
existence on the date of this Agreement or in the ordinary course of business
consistent with past practice, in each case as such credit facilities,
indentures and other arrangements and other existing indebtedness may be
amended, extended, modified, refunded, renewed or refinanced after the date of
this Agreement; notwithstanding the foregoing, BioChem shall make no additional
investments in or advances to GeneChem LP without first consulting with Shire.
Nothing in this paragraph shall be interpreted as preventing BioChem, any of its
Affiliates or any of its Subsidiaries from complying with its contractual
obligations.
(h) COMPENSATION. Other than as contemplated by the BioChem Disclosure
Schedule, BioChem shall not materially increase the amount of compensation of
any director, officer or other management employee except in the ordinary course
of business consistent with past practice or as required by an existing
agreement, make any material increase in or commitment to materially increase
any employee benefits, issue a material amount of additional BioChem Shares
Options, adopt or make any commitment to adopt any additional employee benefit
plan or make any contribution, other than regularly scheduled contributions, to
any BioChem Benefit Plan.
(i) ACCOUNTING METHODS; INCOME TAX ELECTIONS. Except as Publicly Disclosed
by BioChem prior to the date of this Agreement, or as required by a Governmental
Entity, BioChem shall not change its methods of accounting for financial or tax
purposes in effect at December 31, 1999, except as required by changes in GAAP
as concurred with by BioChem's independent public accountants. BioChem shall not
(i) change its fiscal year or (ii) make, modify or revoke any material tax
election, other than in the ordinary course of business consistent with past
practice.
(j) CERTAIN AGREEMENTS. BioChem shall not, and shall not permit any of its
Subsidiaries to, enter into any agreements or arrangements that limit or
otherwise restrict BioChem or any of its Subsidiaries or any of their respective
affiliates or any successor thereto, or that could, after the Effective Date,
limit or restrict Shire or any of its affiliates or any successor thereto, from
engaging or competing in any line of business or in any geographic area which
agreements or arrangements, individually or in the aggregate, would have a
Material Adverse Effect on Shire, after giving effect to the Arrangement.
(k) CANADIAN TAX TREATMENT. Neither BioChem nor any of its Subsidiaries
shall take any action which could reasonably be expected to prevent the exchange
by Canadian resident holders of BioChem Common Shares for Exchangeable Shares
from being treated as a tax deferred transaction for purposes of the ITA to
holders who are otherwise eligible for such treatment.
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(l) NO RELATED ACTIONS. BioChem will not, and will not permit any of its
Subsidiaries to, agree or commit to any of the foregoing.
(m) POOLING OF INTERESTS. BioChem shall use all reasonable efforts to
cause the Arrangement to be accounted for as a "pooling of interests" in
accordance with US GAAP, Accounting Principles Board Opinion 16 and applicable
SEC rules, regulations and policies and shall take no action that would cause
such accounting treatment not to be obtained.
4.3 GOVERNMENTAL FILINGS. Each party shall (a) confer on a regular and
frequent basis with the other and (b) report to the other (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. BioChem and Shire shall file all reports required to be
filed by each of them with the OSC, the QSC, all other Canadian securities
authorities, the TSE, NASDAQ, LSE and the SEC (and all other Governmental
Entities) between the date of this Agreement and the Effective Date and shall
(to the extent permitted by law or regulation or any applicable confidentiality
agreement) deliver to the other party copies of all such reports, announcements
and publications promptly after the same are filed.
4.4 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this Agreement
shall give BioChem, directly or indirectly, the right to control or direct
Shire's operations prior to the Effective Date. Nothing contained in this
Agreement shall give Shire, directly or indirectly, the right to control or
direct BioChem's operations prior to the Effective Date. Prior to the Effective
Date, each of BioChem and Shire shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF PROXY STATEMENT, FORM S-3, CIRCULAR, LISTING PARTICULARS
AND CLASS 1 CIRCULAR.
(a) As promptly as reasonably practicable following the date hereof, Shire
shall prepare and file with the SEC proxy materials which shall constitute the
Proxy Statement (such proxy statement, and any amendments or supplements
thereto, the "PROXY STATEMENT"). The Proxy Statement shall comply as to form in
all material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder. Shire will provide BioChem with a reasonable
opportunity to review and comment on any amendment or supplement to the Proxy
Statement prior to filing such with the SEC, and will provide BioChem with a
copy of all such filings made with the SEC. Except as otherwise provided for
herein, no material amendment or supplement (including by incorporation by
reference) to the Proxy Statement shall be made by Shire without the approval of
BioChem, which approval shall not be unreasonably withheld or delayed. Shire
shall cause the Proxy Statement to be mailed to the Shire shareholders as soon
as reasonably practicable after the date hereof. Shire shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the Arrangement. Shire will advise BioChem, promptly after it receives
notice thereof, of any request by the SEC for material amendment to the Proxy
Statement. If at any time prior to the Effective Date any information relating
to Shire or BioChem, or any of their respective affiliates, officers or
directors, should be discovered by Shire or BioChem which should be set forth in
an amendment or supplement to the Proxy Statement so that the Proxy Statement
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and, to
the extent required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and
disseminated to the shareholders of Shire.
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(b) Shire shall prepare and file a registration statement on Form S-3, or
other available form under the rules of the SEC, with respect to the Shire
Ordinary Shares issuable upon exercise of the Exchangeable Shares (the
"Form S--3"); provided that Shire may seek a "no action letter" determination
from the Staff of the SEC that no such registration statement is required based
on Section 3 (a) (9) or 3 (a) (10) of the Securities Act and if such
determination is obtained, before or after the Effective Date, Shire shall have
no further obligation under this Section 5.1(b). Shire shall use its best
efforts to have the Form S-3 declared effective by the SEC prior to the
Effective Date and shall keep the Form S-3 effective while the Exchangeable
Shares remain outstanding. Shire shall cause the prospectus included in the
Form S-3 to be mailed to the holders of Exchangeable Shares as promptly as
reasonably practicable after the Form S-3 is declared effective under the
Securities Act and the Effective Date.
(c) As promptly as reasonably practicable following the date hereof, BioChem
shall prepare and file with the OSC, the QSC and the other Canadian provincial
securities authorities, the Circular. The Circular shall comply as to form in
all material respects with the applicable provisions of the Canadian Securities
Laws and the rules and regulations thereunder. Except as otherwise provided for
herein, no material amendment or supplement (including by incorporation by
reference) to the Circular shall be made by BioChem without the approval of
Shire, which approval shall not be unreasonably withheld or delayed. BioChem
will advise Shire, promptly after it receives notice thereof, of any request by
the OSC, the QSC or any other Canadian provincial securities authority for
material amendment of the Circular. If at any time prior to the Effective Date
any information relating to Shire or BioChem, or any of their respective
affiliates, officers or directors, should be discovered by Shire or BioChem
which should be set forth in an amendment or supplement to the Circular so that
the Circular would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and, to
the extent required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the OSC, the
QSC or the other Canadian provincial securities authorities and disseminated to
the shareholders of BioChem.
(d) As promptly as reasonably practicable following the date hereof, Shire
shall prepare and, subject to the approval of the UK Listing Authority and the
LSE, issue the Listing Particulars and the Class 1 Circular. The Listing
Particulars and the Class 1 Circular shall comply as to form in all material
respects with the applicable provisions of the Financial Services Act 1986, the
rules and regulations thereunder, the Listing Rules and the Rules of the LSE.
Shire will provide BioChem with a reasonable opportunity to review and comment
on the Listing Particulars and the Class 1 Circular prior to their issue, and
will provide BioChem with a copy of the Listing Particulars and the Class 1
Circular when they are issued. Shire shall cause the Listing Particulars and the
Class 1 Circular to be mailed to the Shire shareholders and the BioChem
shareholders as promptly as reasonably practicable after the Listing Particulars
and the Class 1 Circular are approved by the UK Listing Authority and the LSE.
Shire will advise BioChem as promptly as reasonably practicable after it becomes
aware that it may be required to issue supplementary listing particulars
pursuant to the Financial Services Act 1986. If at any time prior to the
Effective Date any information relating to Shire or BioChem, or any of their
respective affiliates, officers or directors, should be discovered by Shire or
BioChem which should be, or should have been, set forth in the Listing
Particulars and/or the Class 1 Circular so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or Shire or BioChem should become aware of
a significant change affecting any matter contained in the Listing Particulars
or the Class 1 Circular whose inclusion was required by Section 146 of the
Financial Services Act 1986 or by the Listing Rules, or of a significant new
matter the inclusion of information in respect of which would have been so
required if it had arisen when the Listing Particulars or the Class 1 Circular
were prepared, the party which discovers such information or, as the case may
be, becomes aware of any such significant change or significant new matter,
shall promptly
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notify the other party hereto and, to the extent required by law, rules or
regulations, supplementary listing particulars shall promptly be issued and
disseminated to the shareholders of Shire and the shareholders of BioChem.
(e) BioChem shall duly take (subject to the accuracy of the provisions of
Section 3.1(e) and Section 3.2(e) (provided that BioChem shall have used
reasonable best efforts to ensure that such representation is true and
correct)), all lawful action to call as promptly as practicable, give notice of,
convene and hold a meeting of its shareholders on a date determined by BioChem
(the "BIOCHEM SHAREHOLDERS MEETING") for the purpose of obtaining the Required
BioChem Vote with respect to the transactions contemplated by this Agreement and
shall take all lawful action to solicit the adoption of this Agreement by the
Required BioChem Vote; and the Board of Directors of BioChem shall recommend
adoption of this Agreement by the shareholders of BioChem to the effect as set
forth in Section 3.2(f) (the "BIOCHEM RECOMMENDATION"), and shall not withdraw,
modify or qualify (or propose to withdraw, modify or qualify) in any manner
adverse to Shire such recommendation or take any action or make any statement in
connection with the BioChem Shareholders Meeting inconsistent with such
recommendation (collectively, a "CHANGE IN THE BIOCHEM RECOMMENDATION");
provided the foregoing shall not prohibit accurate disclosure (and such
disclosure shall not be deemed to be a Change in the BioChem Recommendation) of
factual information regarding the business, financial condition or results of
operations of Shire or BioChem or the fact that an Acquisition Proposal has been
made, the identity of the party making such proposal or the material terms of
such proposal (provided, that the Board of Directors of BioChem does not
withdraw, modify or qualify (or propose to withdraw, modify or qualify) in any
manner adverse to Shire its recommendation) in the Circular, to the extent such
information, facts, identity or terms is required to be disclosed therein under
applicable law, rule or regulation; and, provided further, that the Board of
Directors of BioChem may make a Change in the BioChem Recommendation pursuant to
Section 5.5 hereof.
(f) Shire shall duly take (subject to the accuracy of the provisions of
Section 3.2(e) nad Section 3.1(e)) (provided that Shire shall have used
reasonable best efforts to ensure that such representation is true and correct)
all lawful action to call as promptly as reasonably practicable, give notice of,
convene and hold a meeting of its shareholders on a date determined in
accordance with the mutual agreement of Shire and BioChem (the "SHIRE
SHAREHOLDERS MEETING") for the purpose of obtaining the Shire Shareholders
Approval; and the Board of Directors of Shire shall recommend approval of the
transactions contemplated under this Agreement and the Arrangement by the
shareholders of Shire to the effect as set forth in Section 3.1(f) (the "SHIRE
RECOMMENDATION"), and shall not withdraw, modify or qualify (or propose to
withdraw, modify or qualify) in any manner adverse to BioChem such
recommendation or take any action or make any statement in connection with the
Shire Shareholders Meeting inconsistent with such recommendation (a "CHANGE IN
THE SHIRE RECOMMENDATION"). Notwithstanding anything in this Agreement, the
Board of Directors of Shire may make a Change in the Shire Recommendation in the
circumstances contemplated in Section 5.6 hereof and in any other circumstances
provided the Board of Directors of Shire concludes in good faith (after
receiving a written opinion from outside counsel independent from Shire, a copy
of which shall be provided to BioChem) taking into account, among other things,
all legal, financial, regulatory and other aspects of the circumstances as well
as the binding nature of the commitments, undertakings and covenants of Shire
under this Agreement, that the Board of Directors of Shire is required under
such Laws to make a Change in the Shire Recommendation in order to discharge its
fiduciary duties. The parties understand and agree that a variation of the
market price of the Shire ADSs or the Shire Ordinary Shares absent any material
change in BioChem shall not constitute a circumstance whereby the Board of
Directors of Shire may effect a Change in the Shire Recommendation.
(g) For purposes of this Agreement, a Change in the BioChem Recommendation
shall be deemed to include, without limitation, a recommendation by the BioChem
Board of Directors of a third party Acquisition Proposal with respect to
BioChem.
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(h) For purposes of this Agreement, a Change in the Shire Recommendation
shall be deemed to include, without limitation, a recommendation of the Shire
Board of Directors of a third party Shire Acquisition Proposal with respect to
Shire.
(i) BioChem shall inform Shire immediately of any new information in respect
of Civil Action N(o)1=96-CV-1868 GET (the "CIVIL ACTION") regarding United
States patent 5,539,116 to the extent permitted by Law. In the event that
BioChem is subject to an adverse ruling by the Federal Court of Justice in
connection with the Civil Action, BioChem agrees to make the appropriate
application in respect of the Civil Action to permit Shire to have access to all
confidential information in respect of such Civil Action unless BioChem
determines, acting reasonably, that such an application would likely have a
material adverse effect on its position in the context of the Civil Action.
5.2 SHIRE BOARD OF DIRECTORS. At or prior to the Effective Date, Shire
will use its reasonable efforts to reconstitute the Board of Directors of Shire
and the committees thereof as of the Effective Date in order that the BioChem's
nominees on the Board of Directors of Shire constitute 30% of the directors of
Shire.
5.3 ACCESS TO INFORMATION. Upon reasonable notice, each party shall (and
shall cause its Subsidiaries to) afford to the officers, employees, accountants,
counsel, financial advisors and other representatives of the other party
reasonable access during normal business hours, during the period prior to the
Effective Date, to all its properties, books, contracts, commitments, records,
officers and employees and, during such period, such party shall (and shall
cause its Subsidiaries to) furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of U.S. federal or state securities laws or Canadian Securities
Laws, as applicable (other than documents which such party is not permitted to
disclose under applicable law), and (b) all other information concerning it and
its business, properties and personnel as such other party may reasonably
request (including consultation on a regular basis with respect to litigation
matters); provided, however, that either party may restrict the foregoing access
to the extent that (i) any law, treaty, rule or regulation of any Governmental
Entity applicable to such party requires such party or its Subsidiaries to
restrict or prohibit access to any such properties or information or (ii) the
information is subject to confidentiality obligations to a third party. The
parties will hold any such information obtained pursuant to this Section 5.3 in
confidence in accordance with, and shall otherwise be subject to, the provisions
of the Confidentiality Agreements dated October 3 and October 9, 2000, between
BioChem and Shire (the "CONFIDENTIALITY AGREEMENTS"), as if such Confidentiality
Agreement were in full force and effect. Any investigation by Shire or BioChem
shall not affect the representations and warranties of BioChem or Shire, as the
case may be.
5.4 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under this
Agreement and applicable laws and regulations to consummate the Arrangement and
the other transactions contemplated by this Agreement as soon as practicable
after the date hereof, including (i) preparing and filing as promptly as
practicable all documentation to effect all necessary applications, notices,
petitions, filings, tax ruling requests and other documents and to obtain as
promptly as practicable all consents, waivers, licenses, orders, registrations,
approvals, permits, tax rulings and authorizations necessary or advisable to be
obtained from any third party and/or any Governmental Entity in order to
consummate the Arrangement or any of the other transactions contemplated by this
Agreement, (ii) taking all reasonable steps as may be necessary to obtain all
such material consents, waivers, licenses, registrations, permits,
authorizations, securities and tax rulings, orders and approvals. In furtherance
and not in limitation of the foregoing, each party hereto agrees to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act,
the CA, the ICA and any other Regulatory Law with respect to the transactions
contemplated hereby as promptly as practicable after the date hereof and to
supply as promptly as practicable any additional information
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and documentary material that may be requested pursuant to the HSR Act, the CA,
the ICA and any other Regulatory Law and to take all other actions necessary to
cause the expiration or termination of the applicable waiting periods under the
HSR Act and the CA as soon as practicable, and (iii) preparing and filing on a
promptly as practicable basis all documentation to effect all necessary
applications notices, filings and to obtain all waivers and consents necessary
or advisable to be obtained from the QSC, OSC, the other Canadian provincial
securities authorities and the TSE, the NASDAQ and the LSE.
(b) Each of Shire and BioChem shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite material approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act, the CA, the ICA or any other Regulatory Law, use its reasonable best
efforts to (i) cooperate in all respects with each other in connection with any
filing or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party, (ii) promptly inform the
other party of any communication received by such party from, or given by such
party to, the Antitrust Division of the Department of Justice (the "DOJ"), the
Federal Trade Commission (the "FTC"), the Competition Bureau under the CA (the
"COMPETITION BUREAU"), the Minister responsible for the ICA (the "ICA
AUTHORITY") or any other Governmental Entity and of any material communication
received or given in connection with any proceeding by a private party, in each
case regarding any of the transactions contemplated hereby, and (iii) permit the
other party to review any communication given by it to, and consult with each
other in advance of any meeting or conference with, the DOJ, the FTC, the
Competition Bureau, the ICA Authority, or any such other Governmental Entity or,
in connection with any proceeding by a private party, with any other Person, and
to the extent appropriate or permitted by the DOJ, the FTC, the Competition
Bureau, the ICA Authority, or such other applicable Governmental Entity or other
Person, give the other party the opportunity to attend and participate in such
meetings and conferences. For purposes of this Agreement, "REGULATORY LAW" means
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, the CA, the ICA and all other federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict or
regulate (i) foreign investment or (ii) actions having the purpose or effect of
monopolization or restraint of trade or lessening of competition.
(c) Subject to the terms and conditions of this Agreement, in furtherance
and not in limitation of the covenants of the parties contained in Sections
5.4(a) and 5.4(b), if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement as
violative of any Regulatory Law, each of Shire and BioChem shall cooperate in
all respects with each other and use its respective reasonable best efforts in
order to contest and resist any such action or proceeding and to have vacated,
lifted, reversed or overturned any decree, judgment, injunction or other order,
whether temporary, preliminary or permanent, that is in effect and that
prohibits, prevents or restricts consummation of the transactions contemplated
by this Agreement.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated hereby as violative of any Regulatory Law, each of Shire and
BioChem shall use its reasonable efforts to resolve any such objections or
challenge as such Governmental Entity or private party may have to such
transactions under such Regulatory Law so as to permit consummation of the
transactions contemplated by this Agreement.
(e) Notwithstanding the foregoing or any other provision of this Agreement,
nothing in this Section 5.4 shall limit a party's right to terminate this
Agreement pursuant to Article VII.
5.5 BIOCHEM ACQUISITION PROPOSALS.
(a) Without limitation on any of BioChem's other obligations under this
Agreement (including under Article IV hereof), BioChem agrees that neither it
nor any of its Subsidiaries nor any of the
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officers and directors of it or its Subsidiaries shall, and that it shall cause
its and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
knowingly facilitate (including by way of furnishing information) any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving it, or any purchase or
sale of the consolidated assets (including without limitation shares of
Subsidiaries) of BioChem and its Subsidiaries, taken as a whole, having an
aggregate value equal to 50% or more of the market capitalization of BioChem, or
any purchase or sale of, or tender or exchange offer for, 50% or more of the
equity securities of BioChem (any such proposal or offer (other than a proposal
or offer made by Shire or an affiliate thereof) being hereinafter referred to as
an "ACQUISITION PROPOSAL"). BioChem further agrees that neither it nor any of
its Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, have
any discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal or accept an Acquisition
Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, BioChem and
its Board of Directors shall be permitted to (A) effect a Change in the BioChem
Recommendation or (B) engage in any discussions or negotiations with, or provide
any information to, any Person in response to an unsolicited bona fide written
Acquisition Proposal by any such Person, if and only to the extent that,
(i) (x) in the case of clause (A) above, BioChem has received an unsolicited
bona fide written Acquisition Proposal from a third party and BioChem's Board of
Directors concludes in good faith that such Acquisition Proposal constitutes a
Superior Proposal and (y) in the case of clause (B) above, BioChem's Board of
Directors concludes in good faith that there is a reasonable likelihood that
such Acquisition Proposal could result in a Superior Proposal, (ii) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, BioChem's Board of Directors receives
from such Person an executed confidentiality agreement containing terms at least
as stringent as those contained in the Confidentiality Agreement and
(iii) prior to providing any information or data to any Person or entering into
discussions or negotiations with any Person, BioChem notifies Shire promptly of
such inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with, any of BioChem's representatives indicating, in connection with
such notice, the name of such Person and the material terms and conditions of
any inquiries, proposals or offers. BioChem agrees that it will promptly keep
Shire informed of the status and terms of any such proposals or offers and the
status and terms of any such discussions or negotiations. BioChem agrees that it
will, and will cause its officers, directors and representatives to, immediately
cease and cause to be terminated any activities, discussions or negotiations
existing as of the date of this Agreement with any parties conducted heretofore
with respect to any Acquisition Proposal. BioChem agrees that it will use
reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 5.5. Nothing in this Section 5.5 shall (x) permit Shire or BioChem to
terminate this Agreement (except as specifically provided in Article VII hereof)
(y) affect any other obligation of BioChem under this Agreement. Subject to this
Section 5.5(b), BioChem shall not submit to the vote of its shareholders any
Acquisition Proposal other than the Arrangement.
5.6 SHIRE ACQUISITION PROPOSALS.
(a) Without limitation on any of Shire's other obligations under this
Agreement (including under Article IV hereof), Shire agrees that neither it nor
any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of
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its Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage
or knowingly facilitate (including by way of furnishing information) any
inquiries or the making of any proposal or offer with respect to a merger,
reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving it,
having an aggregate value equal to 50% or more of the market capitalization of
Shire, or any purchase or sale of, or tender or exchange offer for 50% or more
of the equity securities of Shire (any such proposal or offer being hereinafter
referred to as an "SHIRE ACQUISITION PROPOSAL"). Shire further agrees that
neither it nor any of its Subsidiaries nor any of the officers and directors of
it or its Subsidiaries shall, and that it shall cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, have any discussion with or provide any confidential information or
data to any Person relating to a Shire Acquisition Proposal, or engage in any
negotiations concerning a Shire Acquisition Proposal, or knowingly facilitate
any effort or attempt to make or implement a Shire Acquisition Proposal or
accept a Shire Acquisition Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, Shire and
its Board of Directors shall be permitted to (A) effect a Change in the Shire
Recommendation or (B) engage in any discussions or negotiations with, or provide
any information to, any Person in response to an unsolicited bona fide written
Shire Acquisition Proposal by any such Person, if and only to the extent that,
(i) (x) in the case of clause (A) above, Shire has received an unsolicited bona
fide written Shire Acquisition Proposal from a third party and Shire's Board of
Directors concludes in good faith that such Shire Acquisition Proposal
constitutes a Shire Superior Proposal and, after receiving a written opinion
from outside counsel independent from Shire (a copy of which shall be provided
to BioChem), that the Board of Directors of Shire is required, pursuant to the
applicable Laws, to effect a Change in the Shire Recommendation in order to
discharge its fiduciary duties under such Laws, (y) in the case of clause (B)
above, Shire's Board of Directors concludes in good faith that there is a
reasonable likelihood that such Shire Acquisition Proposal could result in a
Shire Superior Proposal and that there is a reasonable likelihood that the Board
of Directors of Shire be required under applicable laws to effect a Change in
the Shire Recommendation in order to discharge properly its fiduciary duties,
(ii) prior to providing any information or data to any Person in connection with
a Shire Acquisition Proposal by any such Person, Shire's Board of Directors
receives from such Person an executed confidentiality agreement containing terms
at least as stringent as those contained in the Confidentiality Agreement and
(iii) prior to providing any information or data to any Person or entering into
discussions or negotiations with any Person, Shire notifies BioChem promptly of
such inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with, any of Shire's representatives indicating, in connection with
such notice, the name of such Person and the material terms and conditions of
any inquiries, proposals or offers. Shire agrees that it will promptly keep
Shire informed of the status and terms of any such proposals or offers and the
status and terms of any such discussions or negotiations. Shire agrees that it
will, and will cause its officers, directors and representatives to, immediately
cease and cause to be terminated any activities, discussions or negotiations
existing as of the date of this Agreement with any parties conducted heretofore
with respect to any Shire Acquisition Proposal. Shire agrees that it will use
reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 5.6. Nothing in this Section 5.6 shall (x) permit Shire or BioChem to
terminate this Agreement (except as specifically provided in Article VII hereof)
(y) affect any other obligation of Shire under this Agreement. Subject to this
Section 5.6(b), Shire shall not submit to the vote of its shareholders any Shire
Acquisition Proposal.
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5.7 EMPLOYEE BENEFITS MATTERS
Following the Effective Date, Shire shall honor all BioChem Benefit Plans
and related funding arrangements in accordance with their respective terms. For
at least one year after the Effective Date, Shire shall provide compensation and
employee benefits under Benefit Plans to the employees and former employees of
BioChem and its Subsidiaries that are, in the aggregate, no less favorable in
any material respects than those provided to such persons pursuant to the
Benefit Plans in effect on the date hereof. Nothing herein shall require Shire
to continue any particular Benefit Plan or prevent the amendment or termination
thereof (subject to the maintenance, in the aggregate, of the benefits as
provided in the preceding sentence); provided, however, that Shire shall not
take any action (by way of amendment, termination or otherwise) which is in
violation of the terms of any Benefit Plan or applicable law.
5.8 FEES AND EXPENSES
Whether or not the Arrangement is consummated, all Expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such Expenses, except (a) Expenses incurred by
BioChem shall be paid as soon as practicable by Shire in the event that BioChem
terminates this Agreement pursuant to Section 7.1(j) and (b) Expenses incurred
by Shire shall be paid as soon as practicable by BioChem in the event that Shire
terminates this Agreement pursuant to Section 7.1(i). As used in this Agreement,
"Expenses" includes all out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the Proxy Statement, Listing Particulars and Class 1 Circular and the
solicitation of shareholder approvals and all other matters related to the
transactions contemplated hereby.
5.9 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. From and after
the Effective Date, Shire shall (i) indemnify and hold harmless, and provide
advancement of expenses to, all past and present directors, officers and
employees of BioChem and its Subsidiaries (in all of their capacities) (a) to
the same extent such persons are indemnified or have the right to advancement of
expenses as of the date of this Agreement by BioChem pursuant to BioChem's
bylaws and articles and indemnification agreements, if any, in existence on the
date hereof with any directors, officers and employees of BioChem and its
Subsidiaries and (b) without limitation to clause (a), to the fullest extent
permitted by law, in each case for acts or omissions occurring at or prior to
the Effective Date (including for acts or omissions occurring in connection with
the approval of this Agreement and the consummation of the transactions
contemplated hereby), (ii) include and cause to be maintained in effect in
BioChem's or any successor's bylaws and articles for a period of six years after
the Effective Date, the current provisions regarding elimination of liability of
directors, indemnification of officers, directors and employees and advancement
of expenses contained in the bylaws and articles of BioChem and (iii) cause to
be maintained for a period of six years after the Effective Date the current
policies of directors' and officers' liability insurance and fiduciary liability
insurance maintained by BioChem (provided that Shire (or any successor) may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or events
that occurred on or before the Effective Date; provided, however, that in no
event shall Shire be required to expend in any one year an amount in excess of
200% of the annual premiums currently paid by BioChem for such insurance. The
obligations of the Shire under this Section 5.8 shall not be terminated or
modified in such a manner as to adversely affect any indemnitees to whom this
Section 5.8 applies without the consent of such affected indemnitees (it being
expressly agreed that the indemnitees to whom this Section 5.8 applies shall be
third party beneficiaries of this Section 5.8).
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5.10 PUBLIC ANNOUNCEMENTS. Shire and BioChem shall use reasonable best
efforts to develop a joint communications plan and each party shall use
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, or (in the case of Shire) as may be
required by the UK Listing Authority and the Panel on Takeovers and Mergers, to
consult with each other before issuing any press release or, to the extent
practical, otherwise making any public statement with respect to this Agreement
or the transactions contemplated hereby. In addition to the foregoing, except to
the extent disclosed in or consistent with the Proxy Statement, the Listing
Particulars and the Class 1 Circular and the Circular in accordance with the
provisions of Section 5.1, neither Shire nor BioChem shall issue any press
release or otherwise make any public statement or disclosure concerning the
other party or the other party's business, financial condition or results of
operations without the consent of the other party, which consent shall not be
unreasonably withheld or delayed.
5.11 LISTING OF SHIRE SHARES. Shire shall use its reasonable efforts to
cause the Shire Ordinary Shares to be issued in the Arrangement to be admitted
to the Official List of the UK Listing Authority and to trading on the LSE and
to cause the Exchangeable Shares to be approved for listing on the TSE, subject
to official notice of issuance, and to the extent necessary, to cause the Shire
ADSs to be approved for listing on NASDAQ prior to the Closing Date.
5.12 AFFILIATES. Not less than 45 days prior to the Effective Date,
BioChem shall deliver to Shire a letter identifying all persons who, in the
judgment of BioChem, may be deemed at the time this Agreement is submitted for
adoption by the shareholders of BioChem, "affiliates" of BioChem for purposes of
Rule 145 under the Securities Act ("Affiliates"), and such letter shall be
updated as necessary to reflect changes from the date thereof. BioChem shall use
reasonable best efforts to cause each person identified on such list to deliver
to Shire not less than 30 days prior to the Effective Date, a written agreement
substantially in the form attached as Exhibit 5.11 hereto (an "AFFILIATE
AGREEMENT").
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE ARRANGEMENT. The
respective obligations of BioChem, Shire and Exchangeco to effect the
Arrangement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) BIOCHEM SHAREHOLDERS APPROVAL. BioChem shall have obtained the
approval of its shareholders in connection with the adoption of this
Agreement by the shareholders of BioChem.
(b) SHIRE SHAREHOLDERS APPROVAL. Shire shall have obtained the
Required Shire Vote in connection with the adoption of this Agreement by the
shareholders of Shire.
(c) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, having the effect of
making the Arrangement illegal or otherwise prohibiting consummation of the
Arrangement
(d) HSR ACT, THE CA AND THE ICA. The waiting periods (and any
extensions thereof) applicable to the Arrangement under the HSR Act and the
CA shall have been terminated or shall have expired or the Commissioner of
Competition shall have issued an advance ruling certificate and/or a "no
action" letter under the CA in relation to the Arrangement and the ICA
Authority shall have concluded that the Arrangement is of "net benefit to
Canada" for purposes of the ICA.
(e) GOVERNMENTAL AND REGULATORY APPROVALS. Other than the filing
provided for under Section 1.3 and filings pursuant to the HSR Act, the CA
and the ICA, all consents, approvals and actions of, filings with and
notices to any Governmental Entity required of Shire or BioChem or
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any of their respective Subsidiaries to consummate the Arrangement and the
other transactions contemplated hereby, the failure of which to be obtained
or taken, individually or in the aggregate, would have a Material Adverse
Effect on Shire and its Subsidiaries or BioChem and its Subsidiaries, taken
together after giving effect to the Arrangement, shall have been obtained;
provided however, that the provisions of this Section 6.1(e) shall not be
available to any party whose failure to fulfill its obligations pursuant to
Section 5.4 shall have been the cause of, or shall have resulted in, the
failure to obtain such consent or approval.
(f) LISTING. The Shire Ordinary Shares to be issued in the Arrangement
and such other Shire Ordinary Shares to be reserved for issuance in
connection with the Arrangement shall have been admitted to the Official
List of the UK Listing Authority and to trading on the LSE, the Shire ADSs
to be issued in the Arrangement and such other Shire ADSs to be reserved for
issuance in connection with the Arrangement shall have been approved for
listing on NASDAQ (to the extent necessary) and the Exchangeable Shares
shall have been approved for listing on the TSE, subject to official notice
of issuance. The parties acknowledge that the Shire Ordinary Shares to be
issued under the Plan of Arrangement will not be admitted to the Official
List of the UK Listing Authority or to trading on the LSE unless and until
this Agreement is unconditional in all respects save in respect of such
admission, including the filing of the certificate of arrangement having
taken place as provided for in section 1.2. The parties therefore agree that
once the Shire Ordinary Shares to be issued under the Arrangement have been
allotted subject only to such admission, they shall use their respective
best efforts to ensure that filing of the certificate of Arrangement takes
place immediately before 3:00 a.m. (New York time) on the Closing Date, and
that the Shire Ordinary Shares to be issued pursuant to this Agreement are
admitted to the Official List of the UK Listing Authority and to trading on
the LSE at 8:00 a.m. (London time) on the Closing Date.
(g) EFFECTIVENESS OF THE FORM S-3. The Form S-3 shall have been
declared effective by the SEC under the Securities Act or an appropriate "no
action letter" shall have been obtained from the Staff of the SEC based on
Section 3 (a) 9 or 3(a) (10) of the Securities Act. No stop order suspending
the effectiveness of the Form S-3 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(h) COMPLIANCE WITH SECTION3(A)(10) OF THE SECURITIES ACT. All
applicable requirements of Section 3(a)(10) of the Securities Act shall have
been satisfied with respect to the issuance of Shire Shares pursuant to the
Arrangement.
(i) CANADIAN SECURITIES LAWS. Exemption orders from the QSC, OSC and
other Canadian provincial securities authorities from the registration and
prospectus requirements with respect to the Exchangeable Share structure
shall have been granted.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SHIRE AND EXCHANGECO. The
obligations of Shire and Exchangeco to effect the Arrangement are subject to the
satisfaction of, or waiver by Shire, on or prior to the Closing Date of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of BioChem set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of BioChem set forth in this Agreement that
is not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent in either
case that such representations and warranties speak as of another date); and
Shire shall have received a certificate of the chief executive officer and
the chief financial officer of BioChem to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF BIOCHEM. BioChem shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are qualified as to Material Adverse Effect and shall have
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performed or complied in all material respects with all other agreements and
covenants required to be performed by it under this Agreement at or prior to
the Closing Date that are not so qualified, and Shire shall have received a
certificate of the chief executive officer and the chief financial officer
of BioChem to such effect.
(c) RIGHTS PLAN. BioChem's Board of Directors shall have waived the
application of the Rights Plan to the transactions contemplated hereby.
(d) EXERCISE OF DISSENT RIGHTS. Holders of not more than 5% of the
BioChem Common Shares issued and outstanding immediately prior to the
Effective Date shall have exercised their Dissent Rights (and not withdrawn
such exercise) in connection with the Arrangement.
(e) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall not have occurred any change, effect, event or circumstance
that, in combination with any other changes, effects, events or
circumstances, has resulted in or would reasonably be expected to result in
a Material Adverse Effect with respect to BioChem, provided that, on the
basis of all facts and information disclosed by BioChem to Shire as at the
date hereof, the outcome of the proceedings instituted by Emory University
in the United States shall not, for the purpose of this Agreement, be
considered to have a Material Adverse Effect on BioChem.
(f) POOLING LETTERS. There shall have been delivered to Shire (i) a
pooling letter from its independent auditors, dated as of the Closing Date
and addressed to Shire, reasonably satisfactory in form and substance to
Shire, setting forth the concurrence of Shire's independent auditors with
the conclusion of Shire's management that it will be appropriate to account
for the Arrangement as a "pooling of interests" under US GAAP, Accounting
Principles Board Opinion No. 16 and all rules, regulations and policies of
the SEC, if the Arrangement is consummated in accordance with this Agreement
(ii) a poolability letter from BioChem's independent auditors, dated as of
the Closing Date and reasonably satisfactory in form and substance to Shire,
setting forth the concurrence of BioChem's independent auditors with the
conclusion of BioChem's management that it will be appropriate to account
for the Arrangement as a "pooling of interest" under US GAAP. Accounting
Principles Board Opinion No. 16 and all rules, regulations and policies of
the SEC, if the Arrangement is consummated in accordance with this
Agreement.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BIOCHEM. The obligations of
BioChem to effect the Arrangement are subject to the satisfaction of Shire and
Exchangeco, or waiver by BioChem, on or prior to the Closing Date of the
following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of each of Shire and Exchangeco set forth in this Agreement that
is qualified as to Material Adverse Effect shall be true and correct, and
each of the representations and warranties of each of Shire and Exchangeco
set forth in this Agreement that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent in either case that such representations and
warranties speak as of another date) and BioChem shall have received a
certificate of the chief executive officer and the chief financial officer
of each of Shire and Exchangeco to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF SHIRE. Shire shall have performed or
complied with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are qualified as
to Material Adverse Effect and shall have performed or complied in all
material respects with all other agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that
are not so qualified, and BioChem shall have received a certificate of the
chief executive officer and the chief financial officer of Shire to such
effect.
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ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Date, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Arrangement by
the shareholders of BioChem:
(a) By mutual written consent of Shire and BioChem;
(b) By either BioChem or Shire, if the Effective Date shall not have
occurred on or before May 31, 2001 (the "TERMINATION DATE"); provided, however,
that the right to terminate this Agreement under this Section 7.1(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement (including without limitation such party's obligations set forth in
Section 5.4) has been the cause of, or resulted in, the failure of the Effective
Date to occur on or before the Termination Date;
(c) By either BioChem or Shire, if any Governmental Entity (i) shall have
issued a final and non-appealable order, decree or ruling or taken any other
action (which such party shall have used its reasonable best efforts to resist,
resolve or lift, as applicable, in accordance with Section 5.4) permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement, and such order, decree, ruling or other action shall have become
final and non-appealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action (which order, decree, ruling or other action
such party shall have used its reasonable best efforts to obtain, in accordance
with Section 5.4), in the case of each of (i) and (ii) which is necessary to
fulfill the conditions set forth in subsections 6.1(c), (d) and (e), as
applicable, and such denial of a request to issue such order, decree, ruling or
take such other action shall have become final and non-appealable; provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose failure to comply with Section 5.4 has
been the cause of such action or inaction;
(d) By Shire, if the Required BioChem Vote shall not have been obtained at
the BioChem Shareholders Meeting or any adjournment thereto;
(e) By BioChem, if the Required Shire Vote shall not have been obtained at
the Shire Shareholders Meeting or any adjournment thereto;
(f) By Shire, if BioChem shall have failed to make the BioChem
Recommendation or if BioChem shall have effected a Change in the BioChem
Recommendation (or resolved to take any such action), whether or not permitted
by the terms hereof;
(g) By BioChem, if Shire shall have failed to make the Shire Recommendation
or Shire shall have effected a Change in the Shire Recommendation (or resolved
to take any such action);
(h) By BioChem, if at any time prior to the BioChem Shareholders Meeting
BioChem shall have failed to make the BioChem Recommendation or effected a
change in the BioChem Recommendation so long as (i) the BioChem Board of
Directors, after consultation with its legal counsel and financial advisor,
determines that an Acquisition Proposal is a Superior Proposal and, after
consultation with and based upon advice of legal counsel, determines in good
faith that such action is necessary for the BioChem Board of Directors to comply
with its fiduciary duties to shareholders under applicable law, (ii) BioChem
pays to Shire all amounts due under Section 7.2, and (iii) BioChem provides to
Shire at least five Business Days prior to such termination written notice of
its intention to terminate this Agreement and the material terms and conditions
of the Acquisition Proposal.
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(i) By Shire, if there shall be a breach by BioChem of any representation,
warranty, covenant or agreement contained in this Agreement which would result
in a failure of a condition set forth in paragraph 6.2(a) or 6.2(b) and cannot
be or is not cured within 20 Business Days of such breach; or
(j) By BioChem, if there shall be a breach by Shire or Exchangeco of any
representation, warranty, covenant or agreement contained in this Agreement
which would result in a failure of a condition set forth in paragraph 6.3(a) or
6.3(b) and cannot be or is not cured within 20 Business Days of such breach.
7.2 EFFECT OF TERMINATION
(a) In the event of termination of this Agreement by either BioChem or Shire
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Shire or BioChem or their
respective officers or directors except as provided in Section 3.1(l),
Section 3.2(l), the second sentence of Section 5.3, Section 5.8, this
Section 7.2 and Article VIII, which provisions shall survive such termination,
and except that, notwithstanding anything to the contrary contained in this
Agreement, neither Shire nor BioChem shall be relieved or released from any
liabilities or damages arising out of its willful and material breach of this
Agreement.
(b) If (A) (I) Shire shall terminate this Agreement pursuant to
Section 7.1(d), and (II) at any time after the date of this Agreement and at or
before the date of the BioChem Shareholders Meeting a Superior Proposal with
respect to BioChem shall have been publicly announced or otherwise communicated
to the BioChem Board of Directors, and (III) BioChem consummates the transaction
set forth in such Superior Proposal within one year of the Termination Date
provided that if the applicable regulatory approvals have not been obtained
prior to the expiry of the one-year period, such period shall be deemed extended
to eighteen months from the Termination Date; or (B) Shire shall terminate this
Agreement pursuant to Section 7.1(f); or (C) BioChem shall terminate this
Agreement pursuant to Section 7.1(h); then BioChem shall pay to Shire (in the
case of Clause (A) not later than two days following the consummation of the
transaction set forth in such Superior Proposal, in the case of clause (B) not
later than two Business Days after the Termination Date, and in the case of
clause (C) immediately following the termination of this Agreement, an amount
equal to US$110,000,000.
(c) if BioChem shall terminate this Agreement pursuant to Section 7.1(g),
then Shire shall pay to BioChem, not later than two business days after the
Termination Date, an amount equal to US$40,000,000.
(d) All payments under this Section 7.2 shall be made by wire transfer of
immediately available funds to an account designated by the party entitled to
receive payment.
(e) BioChem agrees that nothing in this Section 7.2 shall release BioChem of
any liability in the event that this Agreement is terminated by Shire pursuant
to Section 7.1(i) for a willful and material breach of this Agreement by BioChem
and Shire agrees that nothing in the Section 7.2 shall release Shire of any
liability in the event that this Agreement is terminated by BioChem pursuant to
Section 7.1(j) for a willful and material breach of this Agreement by Shire.
7.3 EXTENSION; WAIVER. At any time prior to the Effective Date, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
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ARTICLE VIII
AMENDMENT
8.1 AMENDMENT. This Agreement and the Plan of Arrangement may, at any time
and from time to time before or after the holding of the Shire Shareholders
Meeting or the BioChem Shareholders Meeting but not later than the Effective
Date, be amended by mutual written agreement of the parties hereto, and any such
amendment may, subject to applicable Laws and the Interim Order, without
limitation:
(a) change the time for performance of any of the obligations or acts of the
parties;
(b) waive any inaccuracies or modify any representation or warranty
contained herein or in any document delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants herein contained
and waive or modify performance of any of the obligations of the parties; and/or
(d) waive compliance with or modify any conditions precedent herein
contained.
8.2 MUTUAL UNDERSTANDING REGARDING AMENDMENTS. The parties agree that if
Shire or BioChem, as the case may be, propose any amendment or amendments to
this Agreement, to the Plan of Arrangement and to the related agreements, the
other will act reasonably in considering such amendment and if the other and its
security holders are not prejudiced by reason of any such amendment the other
will co-operate in a reasonable fashion with Shire, or BioChem, as the case may
be, so that such amendments can be effected subject to applicable Laws and the
rights of the security holders.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the
Arrangement by the shareholders of BioChem, but, after any such approval, no
amendment shall be made which by law or in accordance with the rules of any
relevant stock exchange requires further approval by such shareholders without
such further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of
the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Date, except for
those covenants and agreements contained herein and therein (including
Section 5.6) that by their terms apply or are to be performed in whole or in
part after the Effective Date and this Article VIII.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (i) on the date of delivery if delivered
personally, or by telefacsimile, upon confirmation of receipt, (ii) on the first
Business Day following the date of dispatch if delivered by a recognized
next-day courier service, or (iii) on the fifth Business Day following the date
of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices
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hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
(a) if to Shire or Exchangeco, to:
Shire Pharmaceuticals Group Plc
East Anton Andover
HampShire, England
England SP10 5RG
Fax: 012 64 334 658
Attention: Rolf Stahel
with copies to:
McCarthy Tetrault
1170 Peel Street
Montreal, Quebec
H3B 4S8
Fax: (514) 397-4235
Attention: Benjamin H. Silver
(b) if to BioChem to:
BioChem Pharma Inc.
275 Armand-Frappier Blvd
Laval, Quebec
Canada H7V 4A7
Fax: (450) 978-7899
Attention: Francesco Bellini
with a copy to:
Stikeman Elliott
1155 Rene-Levesque Blvd West
Suite 4000
Montreal, Quebec
H3B 3V2
Fax: (514) 397-3222
Attention: Jean Marc Huot
9.3 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement, the Confidentiality Agreements and the other agreements
of the parties referred to herein constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
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(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.8 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
9.6 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the Province of Quebec and the laws of Canada
applicable therein (without giving effect to choice of law principles thereof).
9.7 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior written
consent of the other party, and any attempt to make any such assignment without
such consent shall be null and void, except that Exchangeco may assign, in its
sole discretion, any or all of its rights, interests and obligations under this
Agreement to any direct Canadian wholly owned Subsidiary of Shire without the
consent of BioChem, but no such assignment shall relieve Exchangeco of any of
its obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
9.9 SUBMISSION TO JURISDICTION; WAIVERS. Each of Shire, Exchangeco and
BioChem irrevocably agrees that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by the other party hereto or its successors or assigns may be
brought and determined in the courts of the Province of Quebec, and each of
Shire, Exchangeco and BioChem hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Shire, Exchangeco and BioChem hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action
or proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and (c) to the fullest extent permitted by applicable law, that
(i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper and (iii) this Agreement, or the subject matter hereof, may not be
enforced in or by such courts.
9.10 CURRENCY.
All of the dollar amounts mentioned in this Agreement or in the Disclosure
Schedules shall be in Canadian funds, unless otherwise expressed.
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9.11 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
9.12 DEFINITIONS. As used in this Agreement:
"ACQUISITION PROPOSAL" has the meaning set forth in Section 5.5.
"ACTIONS" has the meaning set forth in Section 3.1(h)(i).
"AFFILIATE" has the meaning set forth in Section 5.12.
"AFFILIATE AGREEMENT" has the meaning set forth in Section 5.12.
"AGREEMENT" has the meaning set forth in the preamble.
"ARRANGEMENT" means an arrangement under Section 192 of the CBCA on the
terms and subject to the conditions set out in the Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with
Article 6 of the Plan of Arrangement or made at the direction of the Court.
"ARRANGEMENT RESOLUTION" means the special resolution of the
shareholders of BioChem to be substantially in the form and content of
Exhibit 1.3(b) annexed hereto.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of BioChem
in respect of the Arrangement that are required by the CBCA to be sent to
the Director after the Final Order is made.
"BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the meaning
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
"BENEFIT PLANS" means, with respect to any Person, each employee benefit
plan, program, arrangement and contract (including, without limitation, any
collective agreement, bonus, deferred compensation, share bonus, share
purchase, restricted share, stock option, employment, termination, stay
agreement or bonus, change in control and severance plan, program,
arrangement and contract) in effect on the date of this Agreement or
disclosed on the BioChem Disclosure Schedule or the Shire Disclosure
Schedule, as the case may be, to which such Person or its Subsidiary is a
party or which is maintained or contributed to by such Person.
"BIOCHEM" has the meaning set forth in the recitals.
"BIOCHEM BENEFIT PLAN" means any Benefit Plan maintained or contributed
by BioChem.
"BIOCHEM BOARD APPROVAL" has the meaning set forth in Section 3.2(f).
"BIOCHEM COMMON SHARES" means common share in the capital of BioChem.
"BIOCHEM DEFERRED SHARE UNIT PLANS" means BioChem's Deferred Share Unit
Plan for Key Executives and BioChem's Deferred Share Unit Plan for
Non-Employee Directors.
"BIOCHEM DISCLOSURE SCHEDULE" has the meaning set forth in Section 3.2.
"BIOCHEM IP RIGHTS" has the meaning set forth in Section 3.2(k)(i).
"BIOCHEM PERMITS" has the meaning set forth in Section 3.2(h)(ii).
"BIOCHEM RECOMMENDATION" has the meaning set forth in Section 5.1(e).
"BIOCHEM REPORTS" has the meaning set forth in Section 3.2(d)(i).
"BIOCHEM RESTRICTED SHARE UNIT PLAN" means BioChem's Restricted Share
Unit Plan.
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"BIOCHEM SHAREHOLDERS MEETING "HAS THE MEANING SET FORTH IN
SECTION 5.1(E).
"BIOCHEM SHARE OPTION" has the meaning set forth in Section 3.2(b)(i).
"BIOCHEM SHARE OPTION PLAN" has the meaning set forth in
Section 3.2(b)(i).
"BIOCHEM VOTING DEBT" has the meaning set forth in Section 3.2(b)(ii).
"BIOCHEM WARRANTS "HAS THE MEANING SET FORTH IN SECTION 3.2(B)(I).
"BLUE SKY LAWS" has the meaning set forth in Section 3.1(c)(iii).
"BOARD OF DIRECTORS" means the Board of Directors of any specified
Person and any committees thereof.
"BUSINESS DAY" means any day on which banks are not required or
authorized to close in the City of Montreal, the City of London and the City
of New York.
"CA" has the meaning set forth in Section 3.1(c)(iii).
"CANADIAN SECURITIES LAWS" means all applicable securities laws in each
of the Canadian provinces and the respective regulations under such laws
together with applicable policy statements of the securities authorities in
such provinces.
"CBCA" has the meaning set forth in the recitals.
"CERTIFICATE" means a certificate which immediately prior to the
Effective Date represented BioChem Common Shares.
"CHANGE IN SHIRE RECOMMENDATION" has the meaning set forth in
Section 5.1(f).
"CHANGE IN THE BIOCHEM RECOMMENDATION" has the meaning set forth in
Section 5.1(e).
"CIRCULAR" means the management proxy circular of BioChem to be prepared
and set to the BioChem Common Shareholders in connection with the BioChem
Shareholders Meeting pursuant to Section 5.1(c).
"CIVIL ACTION" has the meaning set forth in Section 5.1(h)
"CLASS 1 CIRCULAR" means the circular of Shire to be prepared and sent
to Shire shareholders containing (i) a notice duly convening the Shire
Shareholders Meeting and (ii) a recommendation from the Board of Directors
of Shire to the Shire shareholders to vote in favour of an ordinary
resolution approving the transactions contemplated by this Agreement.
"CLOSING" has the meaning set forth in Section 1.1.
"CLOSING DATE" has the meaning set forth in Section 1.1.
"CODE" means the United States Internal Revenue Code of 1986, as
amended.
"COMPETITION BUREAU" has the meaning set forth in Section 5.4(b).
"CONFIDENTIALITY AGREEMENT" has the meaning set forth in Section 5.3.
"CONTAMINATION" means the presence of any Hazardous Substance in the
Environment, including the degradation of water, air or soil quality.
"COURT" means the Superior Court of Justice (Quebec).
"DEPOSITARY" has the meaning set forth in Section 1.6(b).
"DIRECTOR" means the Director appointed under Section 260 of the CBCA.
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"DISSENT RIGHTS" means the rights of dissent in respect of the
Arrangement described in the Plan of Arrangement.
"DISSENTING SHAREHOLDER" has the meaning ascribed thereto in the Plan of
Arrangement.
"DOJ" has the meaning set forth in Section 5.4(b).
"EFFECTIVE DATE" has the meaning set forth in Section 1.2.
"EFFECTIVE TIME" means 12:01 a.m. (Montreal time) on the Effective Date.
"ENVIRONMENT" means all components of the earth, including air (and all
layers of the atmosphere), land (and all surface and subsurface soil,
underground spaces and cavities and all land submerged under water) and
water (and all surface and underground water), natural resources such as
wetlands, flora and fauna, organic and inorganic matter and living
organisms, and the interacting natural systems that include components
referred to above in the definition of "Environment."
"ENVIRONMENTAL LAWS" means all applicable Laws in existence on or before
the date hereof relating to Hazardous Substances, pollution or protection of
the Environment and human health or affecting the Environment, including
Laws relating to (a) on-site or off-site Contamination and (b) releases of
any Hazardous Substance into the Environment.
"ENVIRONMENTAL LOSSES" means any losses, costs, expenses, damages,
including compensatory, exemplary or punitive damages, penalties, fines or
charges required to be paid out in connection with claims of any kind
(including interest, penalties and reasonable attorneys' and consultants'
fees, expenses and disbursements) incurred in order to comply with or in
connection with any Environmental Laws.
"ENVIRONMENTAL PERMITS" means, with respect to either party, all
permits, authorizations, certificates, registrations, licenses and any other
approvals required for the operation of the business of such party and its
Subsidiaries pursuant to Environmental Laws.
"ERISA" has the meaning set forth in Section 3.1(n)(i).
"ERISA AFFILIATE" has the meaning set forth in Section 3.1(n)(iii).
"ERISA AFFILIATE PLAN" has the meaning set forth in
Section 3.1(n)(iii).
"ERISA PLAN" has the meaning set forth in Section 3.1(n)(ii).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" has the meaning set forth in Section 2.1.
"EXCHANGE FUND" has the meaning set forth in Section 2.1.
"EXCHANGE RATIO" has the meaning set forth in Section 1.6.
"EXCHANGE TRUST AGREEMENT" means an agreement to be made between Shire,
BioChem and the Trustee in connection with the Plan of Arrangement
substantially in the form and content of Exhibit 1.4(c) annexed hereto, with
such changes thereto as the parties hereto, may agree.
"EXCHANGEABLE SHARES" means the non-voting exchangeable shares to be
created in the capital of Exchangeco, having substantially the rights,
privileges, restrictions and conditions set out in Appendix I to the Plan of
Arrangement;
"EXPENSES" has the meaning set forth in Section 5.7.
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"FINAL ORDER" means the final order of the Court approving the
Arrangement as such order may be amended by the Court at any time prior to
the Effective Date or, if appealed, then, unless such appeal is withdrawn or
denied, as affirmed or as amended on appeal.
"FORM S-3" has the meaning set forth in Section 5.1(b).
"FTC" has the meaning set forth in Section 5.4(b).
"GAAP" means, in respect of Shire for the period prior to January 1,
2000, U.K. generally accepted accounting principles and after said period,
United States generally accepted accounting principles, and in respect of
BioChem, Canadian generally accepted accounting principles.
"GOVERNMENTAL ENTITY" has the meaning set forth in Section 3.1(c)(iii).
"HAZARDOUS SUBSTANCE" means any substance waste, pollutant, a
contaminant, material, chemical or constituent regulated pursuant to any
applicable Environmental Laws.
"HSR ACT" has the meaning set forth in Section 3.1(c)(iii).
"ICA" has the meaning set forth in Section 3.1(c)(iii).
"ICA AUTHORITY" has the meaning set forth in Section 5.4(b).
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 3.1(k).
"INTERIM ORDER" means the interim order of the Court, as the same may be
amended, in respect of the Arrangement.
"INVESTISSEMENT QUEBEC OPTIONS "HAS THE MEANING SET FORTH IN
SECTION 3.2(B)(I).
"IRS" has the meaning set forth in Section 3.1(n)(ii).
"ITA" means the INCOME TAX ACT (Canada).
"KNOWN" or "KNOWLEDGE" means, with respect to any party, the knowledge
of such party's executive officers after reasonable inquiry.
"LAWS" refers to all or any applicable law (whether civil, criminal or
administrative) including, without limitation, common law, statute,
statutory instrument, treaty, regulation, directive, decision, code, order,
decree, injunction, resolution or judgment of any government,
quasi-government, supranational, federal, state, provincial or local
government, statutory or regulatory body, court or agency.
"LIENS" has the meaning set forth in Section 3.1(a)(ii).
"LICENSES" has the meaning set forth in Section 3.1(o).
"LISTING PARTICULARS" means listing particulars of Shire prepared in
accordance with the Listing Rules and to be sent to Shire shareholders and
BioChem shareholders.
"LISTING RULES" means the Listing Rules of the UK Listing Authority.
"LSE" has the meaning set forth in Section 2.3(b).
"LONG-TERM INCENTIVE PLAN" has the meaning set forth in
Section 3.1(b)(i).
"MARKET PRICE" of any security means the average of the closing prices
of such security's sales on the principal securities exchange on which such
security may at the time be listed, or, if there has been no sales on such
exchange on any day, the average of the highest bid and lowest asked prices
on the principal exchange on which such security may at the time be listed
at the end of such day, in each such case averaged over a period of the
fifteen (15) consecutive trading days ending on the 3rd day prior to the
Closing Date.
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<PAGE>
"MATERIAL ADVERSE EFFECT" means, with respect to any entity, any event,
change, circumstance or effect that is or is reasonably likely to be
materially adverse to (i) the business, financial condition, results of
operations or prospects of such entity and its Subsidiaries taken as a
whole, other than any event, change, circumstance or effect relating to
(v) the economy or financial markets in general, (w) the industries in which
such entity operates in general and not specifically relating to (or having
the effect of specifically relating to or having a materially
disproportionate effect (relative to most other industry participants) on)
such entity, (x) the announcement or pendency of the Arrangement,
(y) changes after the date hereof in laws or regulations relating to the
development, manufacture or distribution of products for the treatment of
disease or (z) a change in the market price or trading volume of the shares
of such entity (provided that a change in the market price or trading price
may be used, if applicable, as evidence of some other event, change,
circumstance or effect that has or is reasonably likely to have a Material
Adverse Effect) or (ii) the ability of such entity to consummate the
transactions contemplated by this Agreement; all references to Material
Adverse Effect on Shire contained in this Agreement shall be deemed to refer
solely to Shire and its Subsidiaries without including its ownership of
BioChem and its Subsidiaries after the Arrangement.
"MERGER CONSIDERATION" means the consideration per share to be received
by the shareholders of BioChem, including any cash in lieu of fractional
Shire Shares.
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 3.1(n)(iii).
"NASDAQ" means NASDAQ National Market.
"NECESSARY CONSENTS" has the meaning set forth in Section 3.1(c)(iii).
"OSC" means the Ontario Securities Commission.
"THE OTHER PARTY" means, with respect to BioChem, Shire and means, with
respect to Shire, BioChem.
"PERSON" means an individual, corporation, company, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
"PLAN" has the meaning set forth in Section 3.1(n)(i).
"PLAN OF ARRANGEMENT" means the plan of arrangement substantially in the
form and content of Exhibit A annexed hereto and any amendments or
variations thereto made in accordance with Article 6 of the Plan of
Arrangement or made at the direction of the Court.
"PROPOSED AMENDMENTS" has the meaning set forth in Section 3.1(m)(ii).
"PROXY STATEMENT" has the meaning set forth in Section 5.1(a).
"PUBLICLY DISCLOSED BY BIOCHEM" means disclosed by BioChem in a public
filing made by it with the OSC, QSC and/or the SEC since January 1, 1999.
"QSC" means the Commission des valeurs mobilieres du Quebec.
"REGULATORY LAW" has the meaning set forth in Section 5.4(b).
"REQUIRED BIOCHEM VOTE" means the affirmative vote of the holders of the
BioChem Common Shares as set forth in the Interim Order.
"REQUIRED SHIRE VOTE" means the affirmative vote of the holders of Shire
Ordinary Shares as (being entitled to do so) vote in person or, where
proxies are allowed, by proxy at the Shire Shareholders Meeting and whose
Shire Ordinary Shares account for a majority of the votes cast at that
meeting.
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"RIGHTS PLAN" means the Shareholder Rights Plan Agreement dated as of
April 28, 1995 between BioChem and General Trust of Canada, as amended on
April 21, 1998.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" has the meaning set forth in Section 2.9.
"SHIRE" has the meaning set forth in the preamble.
"SHIRE ACQUISITION PROPOSAL" has the meaning set forth in Section 5.6.
"SHIRE ADSS" means the American Depositary Shares of Shire, or where
appropriate, the American Depositary Receipts of Shire, evidencing such
shares.
"SHIRE ADSS PRICE" means the Market Price of Shire ADSs (rounded to the
nearest 1/1000) as of the Closing Date.
"SHIRE BENEFIT PLAN" means any Benefit Plan maintained or contributed to
by Shire.
"SHIRE BOARD APPROVAL" has the meaning set forth in Section 3.1(f).
"SHIRE DISCLOSURE SCHEDULE" has the meaning set forth in Section 3.1.
"SHIRE ORDINARY SHARES" means ordinary shares of 5 pence each in the
capital of Shire.
"SHIRE PERMITS" has the meaning set forth in Section 3.1(h)(ii).
"SHIRE RECOMMENDATION" has the meaning set forth in Section 5.1(f).
"SHIRE RESOLUTION" means the ordinary resolution of the shareholders of
Shire approving the Arrangement to be substantially in the form and content
of Exhibit 1.4(a) annexed hereto.
"SHIRE SEC REPORTS" has the meaning set forth in Section 3.1(d)(i).
"SHIRE SHARES" means collectively the Shire Ordinary Shares, the Shire
ADSs and the Exchangeable Shares.
"SHIRE SHARE OPTION PLANS" has the meaning set forth in
Section 3.1(b)(i).
"SHIRE SHARE OPTIONS" has the meaning set forth in Section 3.1(b)(i).
"SHIRE SHAREHOLDERS APPROVAL" has the meaning set forth in
Section 3.1(c)(i).
"SHIRE SHAREHOLDERS MEETING" has the meaning set forth in
Section 5.1(f).
"SHIRE SUPERIOR PROPOSAL" means a written proposal made by a Person
other than Shire which is for (I)(a) a merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Shire as a result
of which Shire's shareholders prior to such transaction in the aggregate
cease to own at least 50% of the voting securities of the entity surviving
or resulting from such transaction (or the ultimate parent entity thereof),
(b) the acquisition, directly or indirectly, by a Person of beneficial
ownership of 50% or more of Shire's shares whether by merger, consolidation,
share exchange, business combination, tender or exchange offer or otherwise
(other than a merger, consolidation, share exchange, business combination,
tender or exchange offer or other transaction upon the consummation of which
the Shire shareholders would in the aggregate beneficially own greater than
50% of the voting securities of such Person), and which is (II) otherwise on
terms which the Board of Directors of Shire in good faith concludes (after
receiving a written opinion of its financial advisors and outside counsel
independent from Shire a copy of which shall be provided to BioChem), taking
into account, among other things, all legal, financial, regulatory and other
aspects of the proposal, the Person making the proposal as well as the
binding nature of the commitments, undertakings and covenants of Shire under
this Agreement, (a) would, if
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consummated, result in a transaction that is more favorable to the Shire
shareholders (in their capacities as shareholders), from a financial point
of view, than the transactions contemplated by this Agreement, (b) is
reasonably capable of being completed, (c) would not likely be completed if
Shire is prevented from effecting a Change in Shire Recommendation, and
(d) is required by Law to be approved and recommended by the Board of
Directors despite the binding nature of this Agreement.
"SUBSIDIARY" when used with respect to any party means any corporation
or other organization, whether incorporated or unincorporated, (i) of which
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any Subsidiary of such party do not have a majority of the
voting interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
"SUPERIOR PROPOSAL" means a written proposal made by a Person other than
Shire which is for (I)(a) a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution
or similar transaction involving BioChem as a result of which BioChem's
shareholders prior to such transaction in the aggregate cease to own at
least 50% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent entity thereof), (b) a sale, lease,
exchange, transfer or other disposition of at least 50% of the assets of
BioChem and its Subsidiaries, taken as a whole, in a single transaction or a
series of related transactions, or (c) the acquisition, directly or
indirectly, by a Person of beneficial ownership of 50% or more of the of the
BioChem Common Shares whether by merger, consolidation, share exchange,
business combination, tender or exchange offer or otherwise (other than a
merger, consolidation, share exchange, business combination, tender or
exchange offer or other transaction upon the consummation of which the
BioChem shareholders would in the aggregate beneficially own greater than
50% of the voting securities of such Person), and which is (II) otherwise on
terms which the Board of Directors of BioChem in good faith concludes (after
consultation with its financial advisors and outside counsel), taking into
account, among other things, all legal, financial, regulatory and other
aspects of the proposal and the Person making the proposal, (a) would, if
consummated, result in a transaction that is more favorable to the BioChem
shareholders (in their capacities as shareholders), from a financial point
of view, than the transactions contemplated by this Agreement and (b) is
reasonably capable of being completed.
"SUPPORT AGREEMENT" means an agreement to be made between Shire and
BioChem substantially in the form and content of Exhibit 1.4(e) annexed
hereto, with such changes thereto as the parties hereto may agree
"TAX RETURNS" has the meaning set forth in Section 3.1(m).
"TAXES" has the meaning set forth in Section 3.1(m).
"TERMINATION DATE" has the meaning set forth in Section 7.1(b).
"TRUSTEE" means the trustee to be chosen by Shire and BioChem, acting
reasonably, to act as trustee under the Exchange Trust Agreement, being a
corporation organized and existing under the laws of Canada and authorized
to carry on the business of a trust company in all the provinces of Canada,
and any successor trustee appointed under the Exchange Trust Agreement.
"TSE" means The Toronto Stock Exchange.
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"UK LISTING AUTHORITY" means the Financial Services Authority acting in
its capacity as the competent authority for the purposes of Part IV of the
Financial Services Act 1986 and in the exercise of its function in respect
of the admission to the Official List of the UK Listing Authority otherwise
than in accordance with Part IV of the Financial Services Act 1986.
"US GAAP" means the United States generally accepted accounting
principles.
"VIOLATION" has the meaning set forth in Section 3.1(c)(ii).
IN WITNESS WHEREOF, Shire, Exchangeco and BioChem have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
<S> <C> <C>
SHIRE PHARMACEUTICALS GROUP PLC
By: /s/ ROLF STAHEL
-----------------------------------------
Name: Rolf Stahel
Title: Chief Executive Officer
3829341 CANADA INC.
By: /s/ BENJAMIN H. SILVER
-----------------------------------------
Name: Benjamin H. Silver
Title: Director
BIOCHEM PHARMA INC.
By: /s/ FRANCESCO BELLINI
-----------------------------------------
Name: Francesco Bellini
Title: Chairman and Chief Executive
Officer
By: /s/ FRANCOIS LEGAULT
-----------------------------------------
Name: Francois Legault
Title: Executive Vice-President
Corporate Development and Investments
</TABLE>
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<PAGE>
ANNEX B
PLAN OF ARRANGEMENT INCLUDING EXCHANGEABLE SHARE PROVISIONS
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE
CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
1.1. DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject matter
or context inconsistent therewith, the following terms shall have the respective
meanings set out below and grammatical variations of such terms shall have
corresponding meanings:
"ADS ELECTED SHARE" means any BioChem Common Share that the holder shall
have elected, in a duly completed Letter of Transmittal and Election Form
deposited with the Exchange Agent no later than the Election Deadline, to
transfer to ExchangeCo under the Arrangement in exchange for a number of
fully-paid and non-assessable Shire ADSs that is equal to the Exchange Ratio
divided by three.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person. For
the purposes of this definition, "CONTROL" (including, with correlative
meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as
applied to any Person, means the possession by another Person, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of that first mentioned Person, whether through the ownership
of voting securities, by contract or otherwise.
"ARRANGEMENT" means the arrangement under Section 192 of the CBCA on the
terms and subject to the conditions set forth in the Merger Agreement and
this Plan of Arrangement and subject to any amendments or variations thereto
made in accordance with Article VIII of the Merger Agreement or Article 6
hereof or made at the direction of the Court.
"ARRANGEMENT RESOLUTION" means the special resolution to be passed by
the BioChem Securityholders at the BioChem Securityholder Meeting, to be
substantially in the form and content of Exhibit 1.3(b) to the Merger
Agreement.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of BioChem
in respect of the Arrangement, required by the CBCA to be sent to the
Director after the Final Order is made.
"BIOCHEM" means BioChem Pharma Inc., a corporation existing under the
laws of Canada.
"BIOCHEM COMMON SHARES" means the common shares in the capital of
BioChem outstanding from time to time, including all common shares issued on
the exercise of BioChem Share Options and BioChem Warrants prior to the
Effective Date.
"BIOCHEM SECURITYHOLDERS" means, collectively, the holders of BioChem
Common Shares, the holders of BioChem Share Options and the holders of
BioChem Warrants, to the extent provided in or required by the Interim
Order.
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"BIOCHEM SECURITYHOLDER MEETING" means the special meeting of the
BioChem Securityholders (including any adjournment thereof) that is to be
convened and held as provided by the Interim Order to consider, and if
deemed advisable to approve, the Arrangement.
"BIOCHEM SHARE OPTION PLAN" means the share option plan for BioChem's
directors, officers, employees and consultants.
"BIOCHEM SHARE OPTIONS" means options to acquire BioChem Common Shares
granted under the BioChem Share Option Plan.
"BIOCHEM SHAREHOLDER" means a registered holder of BioChem Common
Shares.
"BIOCHEM WARRANTS" means the warrants issued to, and the right to
receive warrants in favor of, the Government of Canada giving the right to
acquire BioChem Common Shares at an exercise price equal to the closing
price on The Toronto Stock Exchange on the day prior to their issuance, the
whole pursuant to an agreement dated March 31, 2000.
"BUSINESS DAY" means any day on which banks are not required or
authorized to close in the City of Montreal, Canada, the City of London,
England and the City of New York, U.S.A.
"CALL RIGHT DIVIDEND AMOUNT" has the meaning ascribed to that term in
Section 5.3(a).
"CALLCO" means 3829359 Canada Inc., a corporation existing under the
laws of Canada and being a wholly-owned subsidiary of Shire.
"CANADIAN RESIDENT" means a Person who is a resident of Canada for the
purposes of the ITA.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as now in effect and
as may be amended from time to time prior to the Effective Date, including
the regulations made thereunder.
"CERTIFICATE" means the certificate of arrangement giving effect to the
Arrangement, issued by the Director pursuant to subsection 192(7) of the
CBCA after the Articles of Arrangement have been filed.
"CLOSING DATE" has the meaning ascribed to that term in the Merger
Agreement.
"COURT" means the Superior Court of Quebec.
"CURRENT MARKET PRICE" has the meaning ascribed to that term in the
Exchangeable Share Provisions.
"DIRECTOR" means the Director appointed under Section 260 of the CBCA.
"DISSENT PROCEDURES" has the meaning ascribed to that term in
Section 3.1.
"DISSENTING SHAREHOLDER" means a holder of BioChem Common Shares who
dissents in respect of the Arrangement in strict compliance with the Dissent
Procedures.
"DIVIDEND AMOUNT" has the meaning ascribed to that term in
Section 5.1(a).
"EFFECTIVE DATE" means the date upon which this Plan of Arrangement
becomes effective as established by the date of issue shown on the
Certificate.
"EFFECTIVE TIME" means 12:01 a.m. (Montreal time) on the Effective Date.
"ELECTION DEADLINE" means 5:00 p.m. (Montreal time) on the date which is
two Business Days prior to the date of the BioChem Securityholder Meeting.
"ENTITY" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership,
joint venture, estate, trust, company (including any
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<PAGE>
company limited by shares, limited liability company or joint share
company), firm, society or other enterprise, association, organization or
entity.
"EXCHANGE AGENT" means at its offices at the addresses set
out in the Letter of Transmittal and Election Form in its capacity as an
exchange agent for the BioChem Common Shares under the Arrangement or such
other trust company or other Entity that Shire may, in its reasonable
discretion, choose as exchange agent.
"EXCHANGE DATE" has the meaning ascribed to that term in
Section 5.3(b).
"EXCHANGE RATIO" means (i) 2.3517, if the Shire ADS Price is less than
or equal to US$47.20; (ii) an amount determined by dividing US$37.00 by the
Shire ADS Price and multiplied by three, if the Shire ADS Price is greater
than US$47.20 and less than US$70.80; and (iii) 1.5678, if the Shire ADS
Price is equal to or greater than US$70.80; provided that if, between the
date of the Merger Agreement and the Effective Time, the outstanding BioChem
Common Shares or Shire Ordinary Shares are changed into a different number
or class of shares by reason of any share split, division or subdivision of
shares, share dividend, reverse share split, consolidation of shares,
reclassification, recapitalization or other similar transaction, then the
Exchange Ratio will be adjusted appropriately to provide to the holders of
BioChem Common Shares the same economic effect as contemplated hereby.
"EXCHANGEABLE ELECTED SHARE" means any BioChem Common Share that the
holder shall have elected, in a duly completed Letter of Transmittal and
Election Form deposited with the Exchange Agent no later than the Election
Deadline, to transfer to ExchangeCo under the Arrangement in exchange for a
number of fully paid and non-assessable Exchangeable Shares equal to the
Exchange Ratio divided by three, or that is deemed to be an Exchangeable
Elected Share pursuant to Section 2.2(d).
"EXCHANGEABLE SHARE" means a share in the class of non-voting
exchangeable shares in the capital of ExchangeCo.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares, which
rights, privileges, restrictions and conditions shall be substantially as
set forth in Appendix 1 hereto.
"EXCHANGEABLE SHARE SUPPORT AGREEMENT" means the Exchangeable Share
Support Agreement among Shire, CallCo and ExchangeCo, to be entered into in
connection with this Plan of Arrangement.
"EXCHANGEABLE SHARE VOTING EVENT" has the meaning attributed to that
term in the Exchangeable Share Provisions.
"EXCHANGECO" means 3829341 Canada Inc., a corporation existing under the
laws of Canada and being a wholly-owned subsidiary of Shire.
"EXEMPT EXCHANGEABLE SHARE VOTING EVENT" has the meaning attributed to
that term in the Exchangeable Share Provisions.
"FINAL ORDER" means the final order of the Court approving the
Arrangement, following the application therefor contemplated by
Section 1.3(e) of the Merger Agreement, as such order may be affirmed,
amended or modified by the Court or by the highest court by which an appeal
therefrom is heard at any time prior to the Effective Time.
"GOVERNMENTAL BODY" means any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of
any nature; (b) federal, state, provincial, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality,
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<PAGE>
official, ministry, fund, foundation, center, organization, unit, body or
Entity and any court or other tribunal).
"HOLDER" means, when used with reference to any shares, options or
warrants, the holders of such shares, options or warrants, respectively,
shown from time to time in the register maintained by or on behalf of the
applicable corporation in respect thereof.
"INTERIM ORDER" means the interim order of the Court made in connection
with the process for obtaining approval of the Arrangement and related
matters following the application therefor contemplated by Section 1.3(a) of
the Merger Agreement, as such order may be affirmed, amended or modified by
the Court or by the highest court by which an appeal therefrom is heard at
any time prior to the Effective Time.
"ITA" means the INCOME TAX ACT (Canada).
"LETTER OF TRANSMITTAL AND ELECTION FORM" means the Letter of
Transmittal and Election Form for use by holders of BioChem Common Shares,
in the form accompanying the Management Information Circular.
"LIQUIDATION AMOUNT" has the meaning attributed to that term in the
Exchangeable Share Provisions.
"LIQUIDATION CALL PURCHASE PRICE" has the meaning ascribed to that term
in Section 5.1(a).
"LSE" means the London Stock Exchange plc or its successors.
"LIQUIDATION CALL RIGHT" has the meaning ascribed to that term in
Section 5.1(a).
"LIQUIDATION DATE" has the meaning ascribed to that term in the
Exchangeable Share Provisions.
"MANAGEMENT INFORMATION CIRCULAR" means the notice of the BioChem
Securityholder Meeting and accompanying management information circular of
BioChem, including all schedules attached thereto, to be sent to BioChem
Securityholders in connection with the BioChem Securityholder Meeting.
"MARKET PRICE" has the meaning ascribed to that term in the Merger
Agreement.
"MEETING DATE" means the date of the BioChem Securityholder Meeting.
"MERGER AGREEMENT" means the merger agreement made as of December 10,
2000 between Shire, ExchangeCo and BioChem, as amended, supplemented and/or
restated in accordance therewith prior to the Effective Date, providing for,
among other things, the Arrangement.
"NASDAQ" means NASDAQ National Market.
"PERSON" means any individual, Entity or Governmental Body.
"PLAN OF ARRANGEMENT" means this plan of arrangement proposed under
Section 192 of the CBCA, as amended, modified or supplemented from time to
time in accordance with Article 6 hereof or Article VIII of the Merger
Agreement or any order of the Court, including the appendices hereto and
including any agreement or instrument supplementary or ancillary hereto.
"REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed to that term
in Section 5.2(a).
"REDEMPTION CALL RIGHT" has the meaning ascribed to that term in
Section 5.2(a).
"REDEMPTION DATE" has the meaning ascribed to that term in the
Exchangeable Share Provisions.
"REDEMPTION PRICE" has the meaning ascribed to that term in the
Exchangeable Share Provisions.
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<PAGE>
"REPLACEMENT OPTION" has the meaning ascribed to that term in
Section 2.2(e).
"REPLACEMENT WARRANT" has the meaning ascribed to that term in
Section 2.2(f).
"SHIRE" means Shire Pharmaceuticals Group Plc, a company registered in
England under registry number 2883758.
"SHIRE ADS" means an American Depositary Share of Shire, or where
appropriate, an American Depositary Receipt of Shire, evidencing such share.
"SHIRE ADS PRICE" means the Market Price of a Shire ADS (rounded to the
nearest 1/1000) as of the Closing Date.
"SHIRE CALL PURCHASE PRICE" has the meaning ascribed to that term in
Section 5.3(a).
"SHIRE CALL RIGHT" has the meaning ascribed to that term in
Section 5.3(a).
"SHIRE CONTROL TRANSACTION" has the meaning ascribed to that term in the
Exchangeable Share Provisions.
"SHIRE ELECTED SHARE" means any BioChem Common Share that the holder
shall have elected, in a duly completed Letter of Transmittal and Election
Form deposited with the Exchange Agent no later than the Election Deadline,
to transfer to ExchangeCo under the Arrangement in exchange for a number of
fully-paid and non-assessable Shire Ordinary Shares that is equal to the
Exchange Ratio, or that is deemed to be a Shire Elected Share pursuant to
Section 2.2(c) or Section 2.2(d).
"SHIRE ORDINARY SHARES" means ordinary shares of five pence each in the
capital of Shire.
"SPECIAL VOTING SHARES" means the special voting shares of Shire having
substantially the rights, privileges, restrictions and conditions described
in the Voting and Exchange Trust Agreement.
"STAMP TAXES" means all stamp, registration and transfer taxes and
duties or their equivalents in all jurisdictions where such taxes and duties
are payable as a result of any of the transactions contemplated by this Plan
of Arrangement including, without limitation, United Kingdom stamp duty and
stamp duty reserve tax.
"TRANSFER AGENT" has the meaning ascribed to that term in
Section 5.1(b).
"TRUSTEE" means or such other trust company or other Entity
that Shire may, in its reasonable discretion, choose to act as trustee under
the Voting and Exchange Trust Agreement, being a corporation organized and
existing under the laws of Canada and authorized to carry on the business of
a trust company in all the provinces of Canada, and any successor trustee
appointed under the Voting and Exchange Trust Agreement.
"UKLA" means the United Kingdom Listing Authority.
"U.K. POUND EQUIVALENT" means, in respect of an amount expressed in
Canadian dollars at any date, the product obtained by multiplying: (a) the
number of Canadian dollars, by (b) the noon spot exchange rate on such date
for Canadian dollars expressed in U.K. pounds as reported by the Bank of
Canada or, in the event such spot exchange rate is not available, such spot
exchange rate on such date for Canadian dollars expressed in U.K. pounds as
may be deemed by the board of directors of BioChem and the board of
directors of Shire, acting jointly and reasonably, to be appropriate for
such purpose.
"VOTING AND EXCHANGE TRUST AGREEMENT" has the meaning ascribed to that
term in the Exchangeable Share Provisions.
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1.2. SECTIONS AND HEADINGS
The division of this Plan of Arrangement into Articles and sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Plan of Arrangement. Unless otherwise
indicated, any reference in this Plan of Arrangement to an article, a section or
an appendix refers to the specified article or section of or appendix to this
Plan of Arrangement.
1.3. NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and VICE VERSA and words
importing any gender include all genders.
1.4. GOVERNING LAW
This Plan of Arrangement will be governed by and construed in accordance
with the laws of the Province of Quebec and the laws of Canada applicable
therein.
ARTICLE 2
ARRANGEMENT
2.1. BINDING EFFECT
This Plan of Arrangement will become effective at, and be binding at and
after, the Effective Time on (i) BioChem, (ii) Shire, (iii) CallCo,
(iv) ExchangeCo, (v) all holders and all beneficial holders of BioChem Common
Shares, (vi) all holders and all beneficial holders of Exchangeable Shares, and
(vii) all holders and all beneficial holders of BioChem Share Options and
BioChem Warrants.
2.2. ARRANGEMENT
Commencing at the Effective Time, the following will occur and will be
deemed to occur without any further act or formality:
(a) each Shire Elected Share will be transferred by the holder thereof,
without any further act or formality on the part of such holder, to
ExchangeCo in exchange for that number of fully paid and non-assessable
Shire Ordinary Shares equal to the Exchange Ratio, and the name of each such
holder will be removed from the register of holders of BioChem Common Shares
and added to the register of holders of Shire Ordinary Shares, and
ExchangeCo will be recorded as the holder of such BioChem Common Share so
exchanged and will be deemed to be the legal and beneficial holder thereof;
(b) each ADS Elected Share will be transferred by the holder thereof,
without any further act or formality on the part of such holder, to
ExchangeCo in exchange for that number of fully paid and non-assessable
Shire ADSs equal to the Exchange Ratio divided by three, and the name of
each such holder will be removed from the register of holders of BioChem
Common Shares and added to the register of holders of Shire ADSs, and
ExchangeCo will be recorded as the holder of such BioChem Common Share so
exchanged and will be deemed to be the legal and beneficial holder thereof;
(c) each Exchangeable Elected Share will be transferred by the holder
thereof, without any act or formality on the part of such holder, to
ExchangeCo in exchange for (i) that number of fully paid and non-assessable
Exchangeable Shares equal to the Exchange Ratio divided by three together
with (ii) the rights and benefits to which such holder will be entitled
pursuant to or as a result of the Voting and Exchange Trust Agreement and
the Exchangeable Share Support Agreement, and the name of each such holder
will be removed from the register of holders of BioChem Common Shares and
added to the register of holders of Exchangeable Shares, and
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ExchangeCo will be recorded as the holder of such BioChem Common Share so
exchanged and will be deemed to be the legal and beneficial holder thereof;
provided that, notwithstanding the foregoing, each holder of BioChem Common
Shares who is not a Canadian Resident will not be entitled to elect to
receive Exchangeable Shares, and any such election made by any such holder
will be deemed to be an election to receive Shire Ordinary Shares and each
BioChem Common Share held by such holder will be deemed to be a Shire
Elected Share and will be transferred by the holder thereof in accordance
with Section 2.2(a);
(d) each BioChem Common Share in respect of which an election has not
been made by the holder thereof, or in respect of which an effective
election has not been made, (other than (i) BioChem Common Shares held by
Dissenting Shareholders who are ultimately entitled to be paid the fair
value of the BioChem Common Shares held by them and (ii) BioChem Common
Shares that are held by Shire or any of its Affiliates, which shall not be
exchanged under this Arrangement and shall remain outstanding as BioChem
Common Shares) will be deemed to be an Exchangeable Elected Share and will
be transferred by the holder thereof in accordance with Section 2.2(c)
without any further act or formality on its part; provided that,
notwithstanding the foregoing, each BioChem Common Share in respect of which
an election has not been made or in respect of which an effective election
has not been made that is held by a holder who is not a Canadian Resident
(other than (i) BioChem Common Shares held by Dissenting Shareholders who
are ultimately entitled to be paid the fair value of the BioChem Common
Shares held by them and (ii) BioChem Common Shares that are held by Shire or
any of its Affiliates, which shall not be exchanged under this Arrangement
and shall remain outstanding as BioChem Common Shares) will be deemed to be
a Shire Elected Share and will be transferred by the holder thereof in
accordance with Section 2.2(a) and any election made by any such holder to
receive Exchangeable Shares will be deemed to be an election to receive
Shire Ordinary Shares;
(e) subject to applicable securities laws and regulatory requirements,
each BioChem Share Option which is outstanding and unexercised at or
immediately prior to the Effective Time, whether or not vested, will be
fully vested in accordance with the terms of the BioChem Share Option Plan
(whether or not otherwise vested) and will be exchanged for an option (a
"REPLACEMENT OPTION") to purchase a number of Shire Ordinary Shares from
Shire equal to the product of the Exchange Ratio multiplied by the number of
BioChem Common Shares subject to such BioChem Share Option immediately prior
to the Effective Time, rounding down to the nearest whole share. Such
Replacement Option will by fully vested and will provide for an exercise
price per Shire Ordinary Share equal to the U.K. Pound Equivalent
(calculated on the Effective Date) of the per share exercise price of such
BioChem Share Option immediately prior to the Effective Time divided by the
Exchange Ratio, rounding up to the nearest whole cent. The term to expiry,
conditions to, restrictions on and manner of exercising and all other terms
and provisions of such Replacement Option will otherwise be unchanged from
those of the BioChem Share Option. Any document or agreement previously
evidencing a BioChem Share Option will thereafter evidence and be deemed to
evidence such Replacement Option; provided, however, that each Replacement
Option issued by Shire in accordance with this Section 2.2(e) shall, in
accordance with its terms, be subject to further adjustment as appropriate
to reflect any share split, division or subdivision of shares, share
dividend, reverse share split, consolidation of shares, reclassification,
recapitalization or other similar transaction subsequent to the Effective
Time;
(f) subject to applicable securities laws and regulatory requirements,
each BioChem Warrant which is outstanding and unexercised at or immediately
prior to the Effective Time, will be exchanged with Shire for a warrant or
the right to receive a warrant (as the case may be) (a "REPLACEMENT
WARRANT") to purchase a number of Shire Ordinary Shares from Shire equal to
the product of the Exchange Ratio multiplied by the number of BioChem Common
Shares subject to such BioChem Warrant immediately prior to the Effective
Time, rounding down to the nearest whole share. Such Replacement Warrant
will provide for an exercise price per Shire Ordinary
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Share equal to the U.K. Pound Equivalent (calculated on the Effective Date)
of the per share exercise price of such BioChem Warrant divided by the
Exchange Ratio, rounding up to the nearest whole cent. The term to expiry,
conditions to, restrictions on and manner of exercising, exercisability and
all other terms and provisions of such Replacement Warrant will otherwise
remain unchanged from those of the BioChem Warrant, and any document or
agreement previously evidencing a BioChem Warrant will thereafter evidence
and be deemed to evidence such Replacement Warrant; provided, however, that
each Replacement Warrant issued by Shire in accordance with this
Section 2.2(f) shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any share split, division or
subdivision of shares, share dividend, reverse share split, consolidation of
shares, reclassification, recapitalization or other similar transaction
subsequent to the Effective Time; and
(g) coincident with the transactions set out above in this Section 2.2,
Shire, ExchangeCo and the Trustee will execute the Voting and Exchange Trust
Agreement and Shire will issue to and deposit with the Trustee the Special
Voting Shares, in consideration of the payment to Shire of one (1) U.K.
pound, to be thereafter held of record by the Trustee as trustee for and on
behalf of, and for the use and benefit of, the holders of the Exchangeable
Shares in accordance with the Voting and Exchange Trust Agreement. All
rights of holders of Exchangeable Shares under the Voting and Exchange Trust
Agreement will be received by them as part of the property receivable under
Section 2.2(c) or Section 2.2(d) in exchange for the BioChem Common Shares.
2.3. ELECTIONS
(a) Each Canadian Resident who, at or prior to the Election Deadline, is
a holder of BioChem Common Shares, will be entitled, with respect to all or
a portion of such shares, to make an election at or prior to the Election
Deadline to receive Exchangeable Shares, Shire ADSs or Shire Ordinary
Shares, or a combination thereof, in exchange for such holder's BioChem
Common Shares, on the basis set forth herein and in the Letter of
Transmittal and Election Form; for greater certainty, a holder of BioChem
Common Shares who is not a Canadian Resident will not be entitled to elect
to receive Exchangeable Shares, and any such election otherwise made by any
such holder shall be and be deemed to be an election to receive Shire
Ordinary Shares as set forth in Section 2.2(c).
(b) Holders of BioChem Common Shares who are Canadian Residents, other
than any such holder who is exempt from tax under the ITA, and who have
elected to receive consideration that includes Exchangeable Shares in
exchange for their BioChem Common Shares will be entitled to make an income
tax election pursuant to subsection 85(1) of the ITA or, if the holder is a
partnership, subsection 85(2) of the ITA (and in each case, if applicable,
the analogous provisions of applicable provincial income tax laws) with
respect to the transfer of their BioChem Common Shares to ExchangeCo by
providing three signed copies of the necessary election forms to the
Exchange Agent within 120 days following the Effective Date, duly completed
with the details of the number of shares transferred and the applicable
agreed amounts for the purposes of such elections. Thereafter, subject to
the election forms being correct and complete and complying with the
provisions of the ITA (or any applicable provincial income tax laws), the
forms will be signed by ExchangeCo and two signed copies will be returned to
such holders for filing with the Canada Customs and Revenue Agency (or the
applicable provincial taxing authority).
(c) If, between the date of this Plan of Arrangement and the Effective
Date, the outstanding Shire Ordinary Shares, Shire ADSs or the BioChem
Common Shares shall have been changed into a different number of shares or
different class by reason of any reclassification, recapitalization, share
split, split-up, combination or exchange of shares or any extraordinary
dividend payable in cash or property or a stock dividend or dividend payable
in any other securities shall be declared with a record date within such
period, or any similar event shall have occurred, the number of
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Shire Ordinary Shares, Shire ADSs or Exchangeable Shares to be received by
the holders of BioChem Common Shares shall be appropriately adjusted to
provide to the holders of BioChem Common Shares the same economic effect as
contemplated by this Plan of Arrangement prior to such event.
ARTICLE 3
RIGHTS OF DISSENT
3.1. RIGHTS OF DISSENT
Holders of BioChem Common Shares may exercise rights of dissent with respect
to such shares pursuant to and in the manner set forth in Section 190 of the
CBCA and this Section 3.1 (the "DISSENT PROCEDURES") in connection with the
Arrangement; provided that, notwithstanding subsection 190(5) of the CBCA, the
written objection to the Arrangement Resolution referred to in subsection 190(5)
of the CBCA must be received by Shire not later than 5:00 p.m. (Montreal time)
on the Business Day preceding the BioChem Securityholder Meeting. Holders of
BioChem Common Shares who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their BioChem
Common Shares will be deemed to have transferred such BioChem Common Shares
to BioChem immediately prior to the Effective Time and such BioChem Common
Shares will be cancelled as of the Effective Time; or
(b) are ultimately not entitled, for any reason, to be paid fair value
for their BioChem Common Shares will be deemed to have participated in the
Arrangement on the same basis as a non-dissenting and non-electing holder of
BioChem Common Shares and will receive Exchangeable Shares or Shire Ordinary
Shares, as the case may be, in accordance with Section 2.2(d),
but in no case will Shire, ExchangeCo, CallCo, the Exchange Agent or any other
Person be required to recognize such holders as holders of BioChem Common Shares
after the Effective Time, and the names of such holders of BioChem Common Shares
will be deleted from the register of holders of BioChem Common Shares at the
Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1. EXCHANGE OF CERTIFICATES FOR SHIRE ORDINARY SHARES OR SHIRE ADSS
At or promptly after the Effective Time, ExchangeCo will deposit, or procure
that there are deposited, with the Exchange Agent, for the benefit of the
holders of BioChem Common Shares who will receive Shire Ordinary Shares or Shire
ADSs in connection with the Arrangement, certificates representing (i) the Shire
Ordinary Shares issued pursuant to Section 2.2(a), Section 2.2(c) or
Section 2.2(d) in exchange for Shire Elected Shares or (ii) the Shire ADSs
issued pursuant to Section 2.2(b) in exchange for ADS Elected Shares (or effect
the necessary CREST or other electronic transfers). Upon surrender to the
Exchange Agent for cancellation of a certificate which immediately prior to the
Effective Time represented Shire Elected Shares or ADS Elected Shares under the
Arrangement, together with such other documents and instruments as would have
been required to effect the transfer of the BioChem Common Shares formerly
represented by such certificate under the CBCA and the by-laws of BioChem and
such additional documents and instruments as the Exchange Agent may reasonably
require, the holder of such surrendered certificate will be entitled to receive
in exchange therefor, and the Exchange Agent shall deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of Shire Ordinary Shares or Shire ADSs which such holder has the right to
receive (or effect the necessary CREST or other electronic transfers) (together
with any dividends or distributions with respect thereto pursuant to
Section 4.3 and any cash in lieu of fractional Shire Ordinary Shares or Shire
ADSs pursuant to Section 4.4), and the certificate so surrendered will forthwith
be cancelled. In the event of a transfer of ownership of BioChem
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<PAGE>
Common Shares which is not registered in the transfer records of BioChem, a
certificate representing the proper number of Shire Ordinary Shares or Shire
ADSs may be issued to the transferee (or the necessary CREST or other electronic
transfer effected) if the certificate representing such BioChem Common Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer under the CBCA and the by-laws of BioChem and
such additional documents and instruments as the Exchange Agent may reasonably
require. Until surrendered as contemplated by this Section 4.1, each certificate
which immediately prior to the Effective Time represented BioChem Common Shares
that were exchanged for Shire Ordinary Shares or Shire ADSs will be deemed at
all times after the Effective Time to represent only the right to receive upon
such surrender (i) the certificate representing Shire Ordinary Shares or Shire
ADSs as contemplated by this Section 4.1 (or have the necessary CREST or other
electronic transfer effected), (ii) a cash payment in lieu of any fractional
Shire Ordinary Shares or Shire ADSs as contemplated by Section 4.4, and
(iii) any dividends or distributions with a record date after the Effective Time
theretofore paid or payable with respect to Shire Ordinary Shares or Shire ADSs
as contemplated by Section 4.3.
4.2. ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, ExchangeCo will deposit with the
Exchange Agent, for the benefit of the holders of BioChem Common Shares who will
receive Exchangeable Shares in connection with the Arrangement, certificates
representing the Exchangeable Shares issued pursuant to Section 2.2(c) or
Section 2.2(d) in exchange for Exchangeable Elected Shares. Upon surrender to
the Exchange Agent for cancellation of a certificate which immediately prior to
the Effective Time represented one or more Exchangeable Elected Shares under the
Arrangement, together with such other documents and instruments as would have
been required to effect the transfer of the BioChem Common Shares formerly
represented by such certificate under the CBCA and the by-laws of BioChem and
such additional documents and instruments as the Exchange Agent may reasonably
require, the holder of such surrendered certificate will be entitled to receive
in exchange therefor, and the Exchange Agent will deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of Exchangeable Shares which such holder has the right to receive (together with
any dividends or distributions with respect thereto pursuant to Section 4.3 and
any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.4), and
the certificate so surrendered will forthwith be cancelled. In the event of a
transfer of ownership of BioChem Common Shares that is not registered in the
transfer records of BioChem, a certificate representing the proper number of
Exchangeable Shares may be issued to the transferee if the certificate
representing such BioChem Common Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer under
the CBCA and the by-laws of BioChem and such additional documents and
instruments as the Exchange Agent may reasonably require. Until surrendered as
contemplated by this Section 4.2, each certificate which immediately prior to
the Effective Time represented BioChem Common Shares that were exchanged for
Exchangeable Shares will be deemed at all times after the Effective Time to
represent only the right to receive upon such surrender (i) the certificate
representing Exchangeable Shares as contemplated by this Section 4.2, (ii) a
cash payment in lieu of any fractional Exchangeable Shares as contemplated by
Section 4.4, and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Exchangeable
Shares as contemplated by Section 4.3.
4.3. DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES
No dividends or other distributions declared or made after the Effective
Time with respect to Exchangeable Shares or Shire Ordinary Shares with a record
date after the Effective Time will be paid to the holder of any unsurrendered
certificate which immediately prior to the Effective Time represented
outstanding BioChem Common Shares that were exchanged pursuant to Section 2.2,
and no cash payment in lieu of fractional shares will be paid to any such holder
pursuant to Section 4.4,
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unless and until the holder of record of such certificate shall surrender such
certificate in accordance with Section 4.1 or 4.2. Subject to applicable law, at
the time of such surrender of any such certificate, there will be paid to the
record holder of the certificates representing whole BioChem Common Shares,
without interest, (i) the amount of any cash payable in lieu of a fractional
Exchangeable Share, Shire ADS or Shire Ordinary Share to which such holder is
entitled pursuant to Section 4.4, (ii) the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole Exchangeable Share, Shire ADS or Shire Ordinary Share, as
the case may be, that the holder is entitled to receive and (iii) on the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Exchangeable Share,
Shire ADS or Shire Ordinary Share, as the case may be, that the holder is
entitled to receive.
4.4. NO FRACTIONAL SHARES
No certificates or scrip representing fractional Exchangeable Shares,
fractional Shire ADSs or fractional Shire Ordinary Shares will be issued (or
CREST or other electronic transfer effected in respect of any fractional share)
upon the surrender for exchange of certificates pursuant to Section 4.1 or 4.2
and no dividend, share split or other change in the capital structure of
ExchangeCo or Shire, as the case may be, will have any effect on any such
fractional share and such fractional interests will not entitle the holder
thereof to exercise any rights as a security holder of ExchangeCo or Shire. In
lieu of any such fractional shares:
(a) each Person otherwise entitled to a fractional share in an
Exchangeable Share after aggregating all such fractional shares will receive
a cash payment equal to such Person's PRO RATA portion of the net proceeds
after expenses received by the Exchange Agent upon the sale of whole shares
representing an accumulation of all fractional interests in Exchangeable
Shares to which all such Persons would otherwise be entitled. The Exchange
Agent will sell such Exchangeable Shares by way of sale through the
facilities of any stock exchange upon which the Exchangeable Shares are then
listed as soon as reasonably practicable following the Effective Date. The
aggregate net proceeds after expenses of such sale will be distributed by
the Exchange Agent, PRO RATA in relation to the respective fractions, among
the Persons otherwise entitled to receive fractional interests in
Exchangeable Shares;
(b) each Person otherwise entitled to a fractional share in a Shire
Ordinary Share after aggregating all such fractional shares will receive a
cash payment equal to such Person's PRO RATA portion of the net proceeds
after expenses received by the Exchange Agent upon the sale of whole shares
representing an accumulation of all fractional interests in Shire Ordinary
Shares to which all such Persons would otherwise be entitled. The Exchange
Agent will sell such Shire Ordinary Shares by way of sale through the
facilities of any stock exchange upon which the Shire Ordinary Shares are
then listed as soon as reasonably practicable following the Effective Date.
The aggregate net proceeds after expenses of such sale will be distributed
by the Exchange Agent, PRO RATA in relation to the respective fractions,
among the Persons otherwise entitled to receive fractional interests in
Shire Ordinary Shares; and
(c) each Person otherwise entitled to a fractional share in a Shire ADS
after aggregating all such fractional shares will receive a cash payment
equal to such Person's PRO RATA portion of the net proceeds after expenses
received by the Exchange Agent upon the sale of whole shares representing an
accumulation of all fractional interests in Shire ADSs to which all such
Persons would otherwise be entitled. The Exchange Agent will sell such Shire
ADSs by way of sale through the facilities of any stock exchange upon which
the Shire ADSs are then listed as soon as reasonably practicable following
the Effective Date. The aggregate net proceeds after expenses of such sale
will be distributed by the Exchange Agent, PRO RATA in relation to the
respective fractions, among the Persons otherwise entitled to receive
fractional interests in Shire ADSs.
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4.5. LOST CERTIFICATES
In the event any certificate which immediately prior to the Effective Time
represented one or more outstanding BioChem Common Shares that were exchanged
pursuant to Section 2.2 shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such certificate to
be lost, stolen or destroyed, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed certificate, one or more certificates representing one
or more Exchangeable Shares, Shire ADSs or Shire Ordinary Shares (or effect the
necessary CREST or other electronic transfers) (and a cheque for any dividends
or distributions with respect thereto pursuant to Section 4.3 and any cash in
lieu of fractional interests therein pursuant to Section 4.4) deliverable in
accordance with such holder's Letter of Transmittal and Election Form. When
authorizing such issuance and payment in exchange for any lost, stolen or
destroyed certificate, the Person to whom certificates representing Exchangeable
Shares, Shire ADSs or Shire Ordinary Shares are to be issued (or the necessary
CREST or other electronic transfers effected) shall, as a condition precedent to
the issuance thereof, give a bond satisfactory to ExchangeCo, Shire and their
respective transfer agents (including the Exchange Agent) in such sum as Shire
may direct or, if Shire permits indemnification in lieu of a bond, otherwise
indemnify ExchangeCo, Shire and their respective transfer agents (including the
Exchange Agent) in a manner satisfactory to Shire against any claim that may be
made against ExchangeCo, Shire and their respective transfer agents (including
the Exchange Agent) with respect to the certificate alleged to have been lost,
stolen or destroyed.
4.6. EXTINCTION OF RIGHTS
Any certificate which immediately prior to the Effective Time represented
outstanding BioChem Common Shares that were exchanged pursuant to Section 2.2
and not deposited with the Exchange Agent in accordance with Sections 4.1 or
4.2, together with all other instruments required by Sections 4.1 or 4.2, on or
prior to the fifth anniversary of the Effective Date shall cease to represent a
claim or interest of any kind or nature as a shareholder of BioChem, Shire or
ExchangeCo. On such date, the Exchangeable Shares, Shire ADSs or Shire Ordinary
Shares (or cash in lieu of fractional interests therein, as provided in
Section 4.4) to which the former registered holder of the certificate referred
to in the preceding sentence was ultimately entitled shall be deemed to have
been surrendered to ExchangeCo, together with all entitlements to dividends,
distributions and interest thereon held for such former registered holder in
accordance with Section 4.3.
4.7. WITHHOLDING RIGHTS
ExchangeCo, CallCo, Shire and the Exchange Agent will be entitled to deduct
and withhold from any dividend or consideration otherwise payable to any holder
of BioChem Common Shares, Shire Ordinary Shares, Shire ADSs or Exchangeable
Shares, such amounts as ExchangeCo, CallCo, Shire or the Exchange Agent is
required to deduct and withhold with respect to such payment under the ITA, the
United States INTERNAL REVENUE CODE OF 1986, the United Kingdom tax laws or any
provision of provincial, state, local or foreign tax law, in each case, as
amended. To the extent that amounts are so withheld, such withheld amounts will
be treated for all purposes hereof as having been paid to the holder of the
shares in respect of which such deduction and withholding was made, provided
that such withheld amounts are actually remitted to the appropriate taxing
authority. To the extent that the amount so required to be deducted or withheld
from any payment to a holder exceeds the cash portion of the consideration
otherwise payable to the holder, ExchangeCo, CallCo, Shire and the Exchange
Agent are hereby authorized to sell or otherwise dispose of such portion of the
consideration as is necessary to provide sufficient funds to ExchangeCo, CallCo,
Shire or the Exchange Agent, as the case may be, to enable it to comply with
such deduction or withholding requirement and ExchangeCo, CallCo, Shire or the
Exchange Agent will notify the holder thereof and remit to the holder any
unapplied balance of the net proceeds of such sale. ExchangeCo shall not be
entitled to withhold amounts on dividends payable to holders of Exchangeable
Shares pursuant to the United States INTERNAL
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REVENUE CODE OF 1986 unless it has received an opinion from counsel stating that
such withholding is required under the INTERNAL REVENUE CODE OF 1986.
4.8. STAMP TAX
Notwithstanding any other provision herein, holders of Exchangeable Shares
or Persons to whom Exchangeable Shares are issued (in each case other than
Shire, its affiliates, the Exchange Agent and the Transfer Agent) shall be
responsible for any and all Stamp Taxes payable in connection with the transfer,
exchange, redemption or issuance of such shares or their exchange for Shire
Ordinary Shares or Shire ADSs, and transferees of Shire Ordinary Shares or Shire
ADSs or Persons to whom Shire Ordinary Shares or Shire ADSs are issued (in each
case other than Shire, its affiliates, the Exchange Agent and the Transfer
Agent) shall be responsible for any and all Stamp Taxes payable in connection
with the transfer or issuance of such securities. In no event will Shire, its
Affiliates, the Exchange Agent or the Transfer Agent be responsible for any such
Stamp Taxes and Shire, its Affiliates, the Exchange Agent and/or the Transfer
Agent shall make such regulations and arrangements as are necessary to ensure
that such holders, such transferees and such Persons pay all such applicable
Stamp Taxes.
ARTICLE 5
CERTAIN RIGHTS OF CALLCO AND SHIRE
TO ACQUIRE EXCHANGEABLE SHARES
5.1. CALLCO LIQUIDATION CALL RIGHT
(a) CallCo will have the overriding right (the "LIQUIDATION CALL
RIGHT"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of ExchangeCo pursuant to Article 5 of the
Exchangeable Share Provisions, to purchase from all but not less than all of
the holders of Exchangeable Shares (other than any holder of Exchangeable
Shares which is Shire or an Affiliate of Shire) on the Liquidation Date all
but not less than all of the Exchangeable Shares held by each such holder on
payment by CallCo of an amount per share (the "LIQUIDATION CALL PURCHASE
PRICE") equal to the Current Market Price of a Shire Ordinary Share on the
last Business Day prior to the Liquidation Date multiplied by three, which
will be satisfied in full by CallCo causing to be delivered to such holder
three Shire Ordinary Shares admitted to the official list of the UKLA and to
trading on the LSE or one Shire ADS quoted on NASDAQ (at the option of the
holder as indicated to the Transfer Agent), plus, to the extent not paid by
ExchangeCo, an additional amount equivalent to the full amount of all
declared and unpaid dividends on each such Exchangeable Share held by such
holder on any dividend record date which occurred prior to the date of
purchase by CallCo (the "DIVIDEND AMOUNT"). In the event of the exercise of
the Liquidation Call Right by CallCo, each holder (other than Shire or
Affiliates of Shire) shall be obligated to sell all but not less than all of
the Exchangeable Shares held by such holder to CallCo on the Liquidation
Date on payment by CallCo to the holder of the Liquidation Call Purchase
Price for each such share, and ExchangeCo shall have no obligation to pay
the Liquidation Amount of such shares so purchased by CallCo.
(b) To exercise the Liquidation Call Right, CallCo must notify
ExchangeCo's transfer agent (the "TRANSFER AGENT"), as agent for the holders
of Exchangeable Shares, and ExchangeCo of CallCo's intention to exercise
such right at least 45 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding-up of ExchangeCo and at least
five Business Days before the Liquidation Date in the case of an involuntary
liquidation, dissolution or winding-up of ExchangeCo. The Transfer Agent
will notify the holders of Exchangeable Shares as to whether or not CallCo
has exercised the Liquidation Call Right forthwith after the expiry of the
period during which the same may be exercised by CallCo. If CallCo exercises
the Liquidation Call Right, then on the Liquidation Date CallCo will
purchase and the holders (other than Shire or Affiliates of
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Shire) will sell all but not less than all of the Exchangeable Shares held
by such holders for a price per share equal to the Liquidation Call Purchase
Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Liquidation Call Right, CallCo will deposit or cause
to be deposited with the Transfer Agent, on or before the Liquidation Date,
certificates representing the aggregate number of Shire Ordinary Shares or
Shire ADSs deliverable by CallCo (or effect the necessary CREST or other
electronic transfers) and a cheque or cheques of CallCo payable at par at
any branch of the bankers of CallCo representing the aggregate Dividend
Amount in payment of the total Liquidation Call Purchase Price, less any
amounts withheld pursuant to Section 4.7 hereof. Provided that CallCo has
complied with the immediately preceding sentence, on and after the
Liquidation Date, the rights of each holder of Exchangeable Shares will be
limited to receiving such holder's proportionate part of the total
Liquidation Call Purchase Price payable by CallCo upon presentation and
surrender by the holder of certificates representing the Exchangeable Shares
held by such holder and the holder will on and after the Liquidation Date be
considered and deemed for all purposes to be the holder of the Shire
Ordinary Shares or Shire ADSs to which it is entitled, unless payment of the
total Liquidation Call Purchase Prices for the Exchangeable Shares shall not
be made upon presentation and surrender of share certificates in accordance
with the provisions of this Section 5.1(c), in which case the rights of the
holders shall remain unaffected until the total Liquidation Call Purchase
Price has been paid in the manner herein provided. Upon surrender to the
Transfer Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the CBCA and the
by-laws of ExchangeCo and such additional documents and instruments as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates will be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of CallCo will deliver to such
holder as soon as reasonably practicable, certificates representing the
Shire Ordinary Shares or Shire ADSs to which the holder is entitled (or
effect the necessary CREST or other electronic transfers) and a cheque or
cheques of CallCo payable at par at any branch of the bankers of CallCo in
payment of the Dividend Amount, and when received by the Transfer Agent, all
dividends and other distributions with respect to such Shire Ordinary Shares
or Shire ADSs with a record date after the Liquidation Date and before the
date of the transfer of such Shire Ordinary Shares or Shire ADSs to such
holder, less any amounts withheld pursuant to Section 4.7 hereof. If CallCo
does not exercise the Liquidation Call Right in the manner described above,
on the Liquidation Date the holders of the Exchangeable Shares will be
entitled to receive in exchange therefor the Liquidation Amount of such
shares pursuant to Article 5 of the Exchangeable Share Provisions.
5.2. CALLCO REDEMPTION CALL RIGHT
(a) CallCo will have the overriding right (the "REDEMPTION CALL RIGHT"),
notwithstanding the proposed redemption of the Exchangeable Shares by
ExchangeCo pursuant to Article 7 of the Exchangeable Share Provisions, to
purchase from all but not less than all of the holders of Exchangeable
Shares (other than any holder of Exchangeable Shares which is Shire or an
Affiliate of Shire) on the Redemption Date all but not less than all of the
Exchangeable Shares held by each such holder on payment by CallCo to each
holder of an amount per Exchangeable Share (the "REDEMPTION CALL PURCHASE
PRICE") equal to the Current Market Price of a Shire Ordinary Share on the
last Business Day prior to the Redemption Date multiplied by three, which
will be satisfied in full by CallCo causing to be delivered to such holder
three Shire Ordinary Shares admitted to the official list of the UKLA and to
trading on the LSE or one Shire ADS quoted on NASDAQ (at the option of the
holder as indicated to the Transfer Agent), plus the Dividend Amount. In the
event of the exercise of the Redemption Call Right by CallCo, each holder
(other than Shire or Affiliates of Shire) will be obligated to sell all but
not less than all the Exchangeable Shares held
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by such holder to CallCo on the Redemption Date on payment by CallCo to the
holder of the Redemption Call Purchase Price for each such share, and
ExchangeCo will have no obligation to redeem such shares so purchased by
CallCo.
(b) To exercise the Redemption Call Right, CallCo must notify the
Transfer Agent, as agent for the holders of Exchangeable Shares, and
ExchangeCo of CallCo's intention to exercise such right at least 60 days
before the Redemption Date, except in the case of a redemption occurring as
a result of a Shire Control Transaction, an Exchangeable Share Voting Event
or an Exempt Exchangeable Share Voting Event, in which case CallCo will so
notify the Transfer Agent and ExchangeCo on or before the Redemption Date.
The Transfer Agent will notify the holders of the Exchangeable Shares as to
whether or not CallCo has exercised the Redemption Call Right forthwith
after the expiry of the period during which the same may be exercised by
CallCo. If CallCo exercises the Redemption Call Right, on the Redemption
Date, CallCo will purchase and the holders (other than Shire or Affiliates
of Shire) will sell all but not less than all of the Exchangeable Shares
held by such holders for a price per share equal to the Redemption Call
Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Redemption Call Right, CallCo will deposit or cause
to be deposited with the Transfer Agent, on or before the Redemption Date,
certificates representing the aggregate number of Shire Ordinary Shares or
Shire ADSs deliverable by CallCo (or effect the necessary CREST or other
electronic transfers) and a cheque or cheques of CallCo payable at par at
any branch of the bankers of CallCo representing the aggregate Dividend
Amount in payment of the total Redemption Call Purchase Price, less any
amounts withheld pursuant to Section 4.7 hereof. Provided that CallCo has
complied with the immediately preceding sentence, on and after the
Redemption Date the rights of each holder of Exchangeable Shares (other than
Shire or Affiliates of Shire) will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price payable by
CallCo upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the holder will
on and after the Redemption Date be considered and deemed for all purposes
to be the holder of the Shire Ordinary Shares or Shire ADSs to which it is
entitled, unless payment of the total Redemption Call Purchase Prices for
the Exchangeable Shares shall not be made upon presentation and surrender of
share certificates in accordance with the provisions of this
Section 5.2(c), in which case the rights of the holders shall remain
unaffected until the total Redemption Call Purchase Price has been paid in
the manner herein provided. Upon surrender to the Transfer Agent of a
certificate or certificates representing Exchangeable Shares, together with
such other documents and instruments as may be required to effect a transfer
of Exchangeable Shares under the CBCA and the by-laws of ExchangeCo and such
additional documents and instruments as the Transfer Agent may reasonably
require, the holder of such surrendered certificate or certificates will be
entitled to receive in exchange therefor, and the Transfer Agent on behalf
of CallCo will deliver to such holder as soon as practicable, certificates
representing the Shire Ordinary Shares or Shire ADSs to which the holder is
entitled (or effect the necessary CREST or other electronic transfers) and a
cheque or cheques of CallCo payable at par at any branch of the bankers of
CallCo in payment of the Dividend Amount, less any amounts withheld pursuant
to Section 4.7 hereof. If CallCo does not exercise the Redemption Call Right
in the manner described above, on the Redemption Date the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor the
Redemption Price of such Shares pursuant to Article 7 of the Exchangeable
Share Provisions.
5.3. SHIRE CALL RIGHT
(a) Shire will have the right (the "SHIRE CALL RIGHT") to purchase, or
to cause CallCo to purchase, from all but not less than all of the holders
of Exchangeable Shares (other than any holder of Exchangeable Shares which
is Shire or an Affiliate of Shire) on the Exchange Date all
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but not less than all of the Exchangeable Shares held by each such holder on
payment by Shire or CallCo, as the case may be, of an amount per share (the
"SHIRE CALL PURCHASE PRICE") equal to the Current Market Price of a Shire
Ordinary Share on the last Business Day prior to the Exchange Date
multiplied by three, which will be satisfied in full by Shire delivering or
causing to be delivered, or CallCo causing to be delivered, to such holder
three Shire Ordinary Shares admitted to the official list of the UKLA and to
trading on the LSE or one Shire ADS quoted on NASDAQ (at the option of the
holder as indicated to the Transfer Agent), plus, to the extent not paid by
ExchangeCo, an additional amount equivalent to the full amount of all
declared and unpaid dividends on each such Exchangeable Share held by such
holder on any dividend record date which occurred prior to the date of
purchase by Shire or CallCo pursuant to the Shire Call Right (the "CALL
RIGHT DIVIDEND AMOUNT"). In the event of the exercise of the Shire Call
Right by Shire, each holder (other than Shire or Affiliates of Shire) shall
be obligated to sell all but not less than all of the Exchangeable Shares
held by such holder to Shire or CallCo, as the case may be, on the Exchange
Date on payment by Shire or CallCo, as the case may be, to the holder of the
Shire Call Purchase Price for each such share.
(b) To exercise the Shire Call Right, (i) Shire must notify the Transfer
Agent, as agent for the holders of Exchangeable Shares, and ExchangeCo of
Shire's intention to exercise such right at least 45 days before the
Business Day on which the purchase of such Exchangeable Shares shall occur
(the "EXCHANGE DATE") and such notice shall specify whether Shire or CallCo
will effect such purchase, and (ii) Shire must deliver to the Transfer Agent
and to the Trustee an opinion in writing signed by Canadian counsel to Shire
(which counsel shall be satisfactory to the Trustee) stating that since the
Effective Date there has been a change enacted to the ITA and other
applicable provincial income tax laws to the effect that, and based thereon
such opinion shall confirm that, the sale by Canadian resident holders of
Exchangeable Shares to Shire or CallCo, as the case may be, pursuant to the
Shire Call Right will qualify as a tax deferred transaction for purposes of
the ITA and other applicable provincial income tax laws for holders of
Exchangeable Shares. The Transfer Agent will notify the holders of
Exchangeable Shares that the Shire Call Right has been exercised by Shire.
If Shire exercises the Shire Call Right, then on the Exchange Date Shire or
CallCo, as the case may be, will purchase and the holders (other than Shire
or Affiliates of Shire) will sell all but not less than all of the
Exchangeable Shares held by such holders for a price per share equal to the
Shire Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable
Shares pursuant to the Shire Call Right, Shire will deposit with the
Transfer Agent, on or before the Exchange Date, certificates representing
the aggregate number of Shire Ordinary Shares or Shire ADSs deliverable by
Shire or CallCo, as the case may be, (or effect the necessary CREST or other
electronic transfers) and a cheque or cheques of Shire or CallCo, as the
case may be, payable at par at any branch of the bankers of Shire or CallCo,
as the case may be, representing the aggregate Call Right Dividend Amount in
payment of the total Shire Call Purchase Price, less any amounts withheld
pursuant to Section 4.7 hereof. Provided that Shire or CallCo, as the case
may be, has complied with the immediately preceding sentence, on and after
the Exchange Date, the rights of each holder of Exchangeable Shares will be
limited to receiving such holder's proportionate part of the total Shire
Call Purchase Price upon presentation and surrender by the holder of
certificates representing the Exchangeable Shares held by such holder and
the holder will on and after the Exchange Date be considered and deemed for
all purposes to be the holder of the Shire Ordinary Shares or Shire ADSs to
which it is entitled, unless payment of the total Shire Call Purchase Prices
for the Exchangeable Shares shall not be made upon presentation and
surrender of share certificates in accordance with the provisions of this
Section 5.3(c), in which case the rights of the holders shall remain
unaffected until the total Shire Call Purchase Price has been paid in the
manner herein provided. Upon surrender to the Transfer Agent of a
certificate or certificates representing Exchangeable Shares, together with
such other documents and instruments as may be
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required to effect a transfer of Exchangeable Shares under the CBCA and the
by-laws of ExchangeCo and such additional documents and instruments as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates will be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of Shire or CallCo, as the case
may be, will deliver to such holder, certificates representing the Shire
Ordinary Shares or Shire ADSs to which the holder is entitled (or effect the
necessary CREST or other electronic transfers) and a cheque or cheques of
Shire or CallCo, as the case may be, payable at par at any branch of the
bankers of Shire or CallCo, as the case may be, in payment of the Call Right
Dividend Amount and when received by the Transfer Agent, all dividends and
other distributions with respect to such Shire Ordinary Shares or Shire ADSs
with a record date after the Exchange Date and before the date of the
transfer of such Shire Ordinary Shares or Shire ADSs to such holder, less
any amounts withheld pursuant to Section 4.7 hereof.
ARTICLE 6
AMENDMENTS
6.1. AMENDMENTS TO PLAN OF ARRANGEMENT
BioChem reserves the right to amend, modify and/or supplement this Plan of
Arrangement prior to the Effective Date provided that each such amendment,
modification and/or supplement is (i) set out in writing, (ii) approved by
Shire, (iii) filed with the Court and, if made following the BioChem
Securityholder Meeting, approved by the Court, and (iv) communicated to holders
of BioChem Common Shares if and as required by the Court.
Any amendment, modification or supplement to this Plan of Arrangement may be
proposed by BioChem at any time prior to the BioChem Securityholder Meeting
(provided that Shire shall have consented thereto) with or without any other
prior notice or communication, and if so proposed and accepted by the Persons
voting at the BioChem Securityholder Meeting (subject to the requirements set
forth in the Interim Order), will become part of this Plan of Arrangement for
all purposes.
Any amendment, modification or supplement to this Plan of Arrangement that
is approved or directed by the Court following the BioChem Securityholder
Meeting will be effective only if (i) it is consented to by each of BioChem and
Shire, and (ii) if required by the Court, it is consented to by BioChem
Securityholders voting in the manner directed by the Court.
6.2. FURTHER ASSURANCES
Each party hereto shall, from time to time, and at all times hereafter, at
the request of the other parties hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
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ANNEX C
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into as of December 10, 2000
(the "AGREEMENT") by and between Shire Pharmaceuticals Group Plc, a company
registered in England under registry number 2883758 ("SHIRE"), and BioChem
Pharma Inc., a corporation incorporated under the laws of Canada ("BIOCHEM"),
with respect to the following facts:
WITNESSETH:
A. Concurrently with the execution and delivery of this Agreement, Shire,
BioChem and 3829341 Canada Inc., a corporation incorporated under the laws of
Canada and an indirect wholly-owned subsidiary of Shire ("EXCHANGECO"), are
entering into a merger agreement (the "MERGER AGREEMENT"), which provides that,
among other things, upon the terms and subject to the conditions thereof, Shire
and BioChem will enter into a business combination transaction (the
"ARRANGEMENT").
B. As a condition to Shire's willingness to enter into the Merger Agreement,
Shire has requested that BioChem agree, and BioChem has so agreed, to grant to
Shire an option to acquire BioChem Common Shares ("BIOCHEM SHARES"), upon the
terms and subject to the conditions set forth herein.
C. Capitalized terms used and not otherwise defined herein that are defined
in the Merger Agreement shall have the respective meanings ascribed thereto in
the Merger Agreement.
In consideration of the foregoing and the respective representations,
warranties and covenants set forth in this Agreement, and intending to be
legally bound hereby and thereby, the parties agree hereto as follows:
1. GRANT OF OPTION.
(a) Subject to the terms and conditions set forth herein, including receipt
of all regulatory approvals to the granting of the Option (including approvals,
as the case may be, of the TSE (collectively, the "STOCK EXCHANGE")), BioChem
hereby grants to Shire an irrevocable option (the "OPTION") to acquire up to
19.9% of the outstanding BioChem Shares as of December 8, 2000 (on an undiluted
basis) (the "OPTION SHARES"), in the manner set forth below at a price (the
"EXERCISE PRICE") of US$37.00 per Option Share, payable in cash.
(b) In the event Shire receives official notice that all regulatory
approvals necessary in respect of the granting of the Option, including approval
of the relevant Stock Exchange, will not be issued or granted, the Option and
this Agreement shall be, and shall be deemed to be, one stock appreciation right
("SAR") with respect to the Option Shares. At the request and upon notice by
Shire at any time during the period during which the Option is exercisable,
BioChem (or any successor entity thereof) shall purchase from Shire the SAR, at
a price equal to the difference between the "MARKET/TENDER OFFER PRICE" for
BioChem Shares as of the date Shire gives notice of its intent to exercise its
rights under this Section and the Exercise Price, multiplied by the number of
BioChem Shares purchasable pursuant to the Option. For purposes of this
Agreement, "MARKET/TENDER OFFER PRICE" means the higher of (A) the highest price
per share offered as of such date pursuant to any Acquisition Proposal which was
made prior to such date and not terminated or withdrawn as of such date and
(B) the highest closing sale price of BioChem Shares on the Nasdaq during the
twenty (20) trading days ending on the trading day immediately preceding such
date. For purposes of determining the highest price offered pursuant to any
Acquisition Proposal which involves consideration other than cash, the value of
such consideration shall be equal to the higher of (x) if securities of the
proponent of the same class as such consideration are traded on any national
securities exchange or by any registered securities association, a value based
on the closing sale price for such securities on their principal trading market
on such date and (y) the
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value ascribed to such consideration by the proponent of such Acquisition
Proposal, or if no such value is ascribed, a value determined in good faith by
the board of directors of BioChem.
2. EXERCISE OF OPTION; MAXIMUM PROCEEDS.
(a) The Option may be exercised by Shire, in whole or in part, at any time
and from time to time, immediately upon the occurrence of any event under
Section 7.2 of the Merger Agreement requiring BioChem to pay to Shire the amount
specified therein (the "EXERCISE EVENT"). In the event Shire wishes to exercise
the Option, Shire shall deliver to BioChem a written notice (each an "EXERCISE
NOTICE") specifying the total number of Option Shares it wishes to acquire and
pay the Exercise Price by certified cheque or wire transfer. Each closing of a
purchase of Option Shares (a "CLOSING") shall occur on a date and at a time
prior to the expiration of the Option designated by Shire in an Exercise Notice
delivered at least two Business Days prior to the date of such Closing, which
Closing shall be held at the offices of Stikeman Elliott, 1155 Rene-Levesque
Blvd. West, 40th Floor, Montreal (Quebec).
(b) The Option shall expire upon the earliest to occur of (i) the Effective
Date, or (ii) the termination of the Merger Agreement pursuant to Article VII
thereof (other than a termination in connection with which Shire is or could in
time become entitled to any payments as specified in Section 7.2 thereof), or
(iii) 180 days after the date on which the Merger Agreement is terminated and
Shire has become entitled to a payment as specified in Section 7.2 thereof;
provided, however, that if the Option cannot be exercised by reason of any
applicable Laws, or because any applicable waiting period related to issuance of
the Option Shares under any applicable Laws shall not have expired or been
terminated, then the Option shall not terminate until the tenth Business Day
after such impediment to exercise shall have been removed or shall have become
final and not subject to appeal.
(c) If Shire receives an amount pursuant to Section 7.2 of the Merger
Agreement which, when aggregated with gross proceeds received by Shire in
connection with any sales or other dispositions of Option Shares, less
reasonable and customary commissions paid in connection with such sales or
dispositions and any dividends received by Shire declared on Option Shares,
exceeds the sum of (x) US$120,000,000 plus (y) the Exercise Price multiplied by
the number of BioChem Shares purchased by Shire pursuant to the Option, then all
gross proceeds to Shire in excess of such sum shall be remitted by Shire to
BioChem or deducted from the payment to be made by BioChem pursuant to
Section 1 (b) hereof.
3. CONDITIONS TO CLOSING.
The obligation of BioChem to issue Option Shares to Shire hereunder is
subject to the conditions that (a) all filings and declarations required to be
made, all authorizations, consents, orders and approvals required to be obtained
in connection with the grant of the Option and the issue of the Option Shares
(including the approval of the relevant Stock Exchange), and all waiting periods
required to expire or be terminated, pursuant to a requirement of any
Governmental Entity or applicable Law (including, without limitation the HSR Act
or the CA, as the case may be) shall have been made or obtained or shall have
expired or been terminated, in each case in connection with the exercise of the
Option hereunder; and (b) no preliminary or permanent injunction or other order
by any court of competent jurisdiction (or similar order from any Canadian, US
or UK securities authority) prohibiting or otherwise restraining such issuance
shall be in effect. It is understood and agreed that at any time during which
the Option is exercisable, the parties will use their respective commercial
reasonable efforts to satisfy all conditions to Closing, so that a Closing may
take place as promptly as practicable, and in any event, prior to consummation
of a tender or exchange offer or take-over bid for shares of BioChem capital
stock.
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4. CLOSING.
At each Closing, (a) BioChem shall deliver to Shire a single certificate in
definitive form representing the number of BioChem Shares designated by Shire in
its Exercise Notice, such certificate to be registered in the name of Shire and
to bear the legend set forth in Section 10 hereof, against delivery of
(b) payment by Shire to BioChem of the aggregate purchase price for the BioChem
Shares so designated and being purchased by delivery of a certified cheque, bank
draft or wire transfer.
5. REPRESENTATIONS AND WARRANTIES OF BIOCHEM.
BioChem represents and warrants to Shire that: (a) BioChem is a corporation
duly incorporated, validly existing and in good standing under the laws of
Canada and has full corporate power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder; (b) the execution and
delivery of this Agreement by BioChem and consummation by BioChem of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of BioChem, and no other corporate
proceedings on the part of BioChem are necessary to authorize this Agreement or
any of the transactions contemplated hereby; (c) this Agreement has been duly
and validly executed and delivered by BioChem, constitutes a legal, valid and
binding obligation of BioChem and, assuming this Agreement constitutes a legal,
valid and binding obligation of Shire, is enforceable against BioChem in
accordance with its terms, except as enforceability may be limited by bankruptcy
and other laws affecting the rights and remedies of creditors generally and
general principles of equity; (d) except for any filings required under the CA
and the approval of the relevant Stock Exchange, BioChem has taken (or will in a
timely manner take) all necessary corporate and other action to authorize and
reserve for issuance and to permit it to issue upon exercise of the Option, and
at all times from the date hereof until the termination of the Option will have
reserved for issuance, a sufficient number of unissued BioChem Shares for Shire
to exercise the Option in full upon payment to BioChem of the Exercise Price in
connection therewith and will take all necessary corporate or other action to
authorize and reserve for issuance all additional BioChem Shares or other
securities which may be issuable pursuant to Section 9 upon exercise of the
Option and payment of the Exercise Price, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable; (e) upon delivery of the BioChem Shares and any
other securities to Shire upon exercise of the Option and payment of the
Exercise Price, Shire will acquire such BioChem Shares or other securities free
and clear of all material claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, excluding those imposed by Shire;
(f) the execution and delivery of this Agreement by BioChem do not, and the
performance of this Agreement by BioChem will not, (i) conflict with the
articles of incorporation or bylaws of BioChem, (ii) assuming that the consent
approvals, authorizations, permits, filings and notifications referred to in
subsection 5d) are obtained or made as applicable, violate any order applicable
to BioChem or any of its Subsidiaries or by which they or any of their property
is bound or affected, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of BioChem or any of its Subsidiaries pursuant to, any
contract or agreement to which BioChem or any of its Subsidiaries is a party or
by which BioChem or any of its Subsidiaries or any of their property is bound or
affected, except, in the case of clauses (ii) and (iii) above, for violations,
conflicts, breaches, defaults, rights of termination, amendment, acceleration or
cancellation, liens or encumbrances which would not, in the aggregate, have a
Material Adverse Effect on BioChem; and (g) except as described in
Section 3.2(c) of the Merger Agreement, the execution and delivery of this
Agreement by BioChem does not, and the performance of this Agreement by BioChem
will not, require any consent, approval, authorization or permit of, or filing
with, or notification to, any Governmental Entity, except pursuant to the CA,
the HSR Act, the rules and regulations of the Stock
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Exchange, the Canadian Securities Laws, the applicable US and UK securities laws
or other applicable Regulatory Laws, as the case may be.
6. REPRESENTATIONS AND WARRANTIES OF SHIRE.
Shire represents and warrants to BioChem that: (a) Shire is a corporation
duly incorporated and validly existing under the laws of England, and has full
corporate power and authority to execute and deliver this Agreement and to carry
out its obligations hereunder; (b) the execution and delivery of this Agreement
by Shire and the consummation by Shire of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Shire and no other corporate proceedings on the part of Shire are
necessary to authorize this Agreement or any of the transactions contemplated
hereby; (c) this Agreement has been duly and validly executed and delivered by
Shire, constitutes a legal, valid and binding obligation of Shire and, assuming
this Agreement constitutes a legal, valid and binding obligation of BioChem, is
enforceable against Shire in accordance with its terms, except as enforceability
may be limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity; (d) the execution and
delivery of this Agreement by Shire do not, and the performance of this
Agreement by Shire will not, (i) conflict with certificate of incorporation or
bylaws of Shire, (ii) violate any order applicable to Shire or any of its
subsidiaries or by which they or any of their property is bound or affected, or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give rise to
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the property or assets of
Shire or any of its Subsidiaries pursuant to, any contract or agreement to which
Shire or any of its Subsidiaries is a party or by which Shire or any of its
Subsidiaries or any of their property is bound or affected, except, in the case
of clauses (ii) and (iii) above, for violations, conflicts, breaches, defaults,
rights of termination, amendment, acceleration or cancellation, liens or
encumbrances which would not, in the aggregate, have a Material Adverse Effect
on Shire; (g) the execution and delivery of this Agreement by Shire does not,
and the performance of this Agreement by Shire will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except pursuant to the HSR Act, the CA or other applicable
Regulatory Laws, as the case may be; and (h) any BioChem Shares acquired upon
exercise of the Option will not be acquired by Shire with a view to the public
distribution thereof and Shire will not sell or otherwise dispose of such shares
in violation of applicable law or this Agreement.
7. REGISTRATION RIGHTS.
(a) In the event that Shire desires to sell any of the Option Shares within
two years after the first exercise of the Option and requests in writing to
BioChem that BioChem register such Option Shares under the Securities Act or
qualify such Option Shares for resale under applicable Canadian securities laws,
unless in the opinion of counsel to BioChem (which opinion shall be reasonably
satisfactory to Shire and its counsel) such registration under the Securities
Act or qualification under applicable Canadian securities laws is not required
in order to lawfully sell and distribute such Option Shares in the manner
contemplated by Shire, BioChem shall cooperate with Shire and any underwriters
in registering or qualifying of such Option Shares for resale, including,
without limitation, promptly filing a registration statement and/or prospectus
which complies with the requirements of applicable U.S. federal and state
securities laws and/or Canadian federal, provincial and territorial securities
laws, as the case may be, and entering into and complying with an underwriting
agreement with such underwriters upon such terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions; (i) provided, however, that BioChem shall not be required to file
more than two registration statements which are declared effective and/or
prospectuses hereunder and shall be entitled to delay the filing or
effectiveness of any registration statement and/or prospectus for up to 120
consecutive days in any 12-month period if the offering would, in the judgment
of the
C-4
<PAGE>
Board of Directors of BioChem, require premature disclosure of any material
corporate development or otherwise materially interfere with or materially
adversely affect any pending or proposed offering of securities of BioChem,
acquisition or divestiture or any other material transaction involving BioChem
or any of its subsidiaries and (ii) provided, however, that BioChem shall not be
required, with respect to an underwritten secondary offering, to file a
registration statement or a prospectus upon obtention from an investment banking
firm of nationally recognized standing (the "MANAGER") of a certificate stating
that, in the good faith belief of the Manager, based on the then prevailing
market condition, it will not be able to sell the Option Shares at a per share
price equal to at least 80% of the per share average of the closing sale prices
of BioChem's Shares on the TSE or the Nasdaq. Shire agrees to use its reasonable
commercial efforts to cause, and to use its commercial efforts to cause any
underwriters of any sale or other disposition to cause, any sale or other
disposition pursuant to such registration statement and/or prospectus to be
effected on a widely distributed basis so that upon consummation thereof no
purchaser or transferee will own beneficially more than (3%) of the
then-outstanding BioChem Shares.
(b) If Option Shares are registered or qualified pursuant to the provisions
of this Section 8, BioChem agrees (i) to furnish copies of the registration
statement and/or prospectus relating to the Option Shares covered thereby in
such numbers as Shire may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 120 days a prospectus covering the
Option Shares meeting the requirements of such securities laws, and to furnish
Shire with such numbers of copies of the registration statement and prospectus,
as amended or supplemented, as may reasonably be requested. BioChem shall bear
the cost of the registration or qualification, including but nor limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
its counsel and accountants for BioChem, and Shire shall pay the fees and
disbursement s of its counsel and the underwriting fees and commissions
applicable to the Option Shares sold by Shire. BioChem shall indemnify and hold
harmless Shire, its affiliates and their respective officers and directors from
and against any and all losses, claims, damages, liabilities and expenses
arising out of or based upon any statements contained in or omissions or alleged
omissions from, each registration statement or prospectus (or any amendment
thereto) filed pursuant to this paragraph; provided, however, that this
provision shall not apply to any loss, liability, claim, damage or expense to
the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished by BioChem by Shire,
its affiliates and its officers and other representatives expressly for use in
any registration statement or prospectus (or any amendment thereto) filed
pursuant to this paragraph. BioChem shall also indemnify and hold harmless each
underwriter and each person who controls any underwriter against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any statement contained in or omissions or alleged omissions from, each
registration statement or prospectus (or any amendment thereto) filed pursuant
to this Section 8.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION; RIGHTS PLANS.
(a) If any change shall occur in the BioChem Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers, amalgamations (other
than the Arrangement), recapitalizations, combinations, exchanges of shares and
the like, then (i) the type and number of shares or securities subject to the
Option and (ii) the Exercise Price shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
Shire shall receive, upon exercise of the Option, the number and class of shares
or other securities or property that Shire would have received in respect of the
BioChem Shares if the Option had been exercised immediately prior to such change
or the record date therefor, as applicable.
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<PAGE>
(b) (i) In the event that BioChem enters into an agreement (A) to amalgamate
with or merge into any Person, other than Shire or any Subsidiary of Shire (each
an "EXCLUDED PERSON"), and BioChem is not the successor corporation of such
amalgamation or merger, (B) to permit any Person, other than an Excluded Person,
to merge into BioChem and BioChem shall be the successor corporation, but, in
connection with such merger, the then outstanding BioChem Common Shares shall be
changed into or exchanged for stock or other securities of any other Person or
cash or any other property or the then outstanding BioChem Common Shares shall
after such merger represent less than 50% of the outstanding voting securities
of the merged or acquiring company, or (C) to sell or otherwise transfer all or
substantially all of its assets to any Person, then, and in each such case, the
agreement governing such transaction shall make proper provision so that, unless
earlier exercised by Shire, the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option with identical terms appropriately adjusted to
acquire the number and class of shares or other securities or property that
Shire would have received in respect of BioChem Common Shares if the Option had
been exercised immediately prior to such amalgamation, merger, sale, or
transfer, on the record date therefor, as applicable, and make any other
necessary adjustments; provided, however, that if such a conversion or exchange
cannot, because of applicable Law be the same as the Option, such terms shall be
as similar as possible and in no event less advantageous to Shire than the
Option.
(ii) In addition to any other restrictions or covenants, BioChem agrees that
it shall not enter or agree to enter into any transaction described in this
Section 9(b) unless the Acquiring Corporation (as hereinafter defined) and any
Person that controls the Acquiring Corporation assume in writing all the
obligations of BioChem hereunder and agree for the benefit of Shire to comply
with this Section 9.
(iii) For purposes of this Section 9(b), the term "ACQUIRING CORPORATION"
shall mean (x) the successor Person of an amalgamation or merger with BioChem
(if other than BioChem), (y) BioChem in an amalgamation or merger in which
BioChem is the successor Person, and (z) the transferee of all or substantially
all of BioChem's assets.
10. RESTRICTIVE LEGENDS.
Each certificate representing Option Shares issued to Shire hereunder shall
include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, OR QUALIFIED FOR DISTRIBUTION TO THE
PUBLIC PURSUANT TO APPLICABLE CANADIAN SECURITIES LAWS OR UK SECURITIES
LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR QUALIFIED OR IF
AN EXEMPTION FROM SUCH REGISTRATION(S) OR REQUIREMENT TO FILE A PROSPECTUS
IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF DECEMBER
10, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
Certificates representing shares sold in a registered public offering
pursuant to Section 8 shall not be required to bear the legend set forth in this
Section 10.
11. LISTING AND HSR AND REGULATORY APPROVALS
BioChem, upon the request of Shire, shall promptly file an application to
list the BioChem Shares to be acquired upon exercise of the Option on the Stock
Exchange and shall use its reasonable commercial efforts to obtain approval of
such listings as soon as practicable. Promptly after a request by Shire, BioChem
shall file Notification and Report Forms under the CA with the Competition
Bureau and make all filings required under the HSR Act. BioChem shall use all
its best reasonable
C-6
<PAGE>
efforts to respond as promptly as practicable to any inquiries received from the
Competition Bureau or in response to filings under the HSR Act for additional
information or documentation.
12. WAIVER OF VOTING RIGHTS.
Shire agrees that it shall have no voting rights, and shall not exercise or
permit to be exercised any voting rights in any circumstances, in respect of the
Option or the Option Shares unless, until, and only to the extent that the
Option has been exercised and the Exercise Price has actually been paid to
BioChem.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement is
not intended to confer any rights or remedies upon any Person other than the
parties hereto. Any shares sold by a party in compliance with the provisions of
Section 8 hereof shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares shall not be entitled the rights of the transferor
under this Agreement.
14. SPECIFIC PERFORMANCE.
Each of the parties hereto recognizes and acknowledges that a breach by it
of any covenants or agreements contained in this Agreement will cause the other
party to sustain damages for which it would not have an adequate remedy at law
for money damages. Therefore, in the event of any such breach, the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity.
15. ENTIRE AGREEMENT.
This Agreement and the Merger Agreement, including the exhibits and
schedules thereto and the documents and instruments referred to therein embody
the entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no representations, promises,
warranties, covenants, or undertakings, other than those expressly set forth or
referred to herein and therein.
16. FURTHER ASSURANCES.
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
consummate the transactions contemplated hereby.
17. SEVERABILITY.
In case any one or more of the provisions contained in this Agreement should
be finally determined to be invalid, illegal or unenforceable in any respect
against a party hereto, it shall be adjusted if possible to effect the intent of
the parties. In any event, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby, and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such final
determination shall have been made.
18. NOTICES.
All notices and other communications hereunder shall be in writing and shall
be delivered personally, by overnight courier or similar means or sent by
facsimile with written confirmation of
C-7
<PAGE>
receipt, to the parties at the addresses specified below (or at such other
address for a party as shall be specified by like notice). Any such notice shall
be effective upon receipt, if personally delivered, or on the next business day
following transmittal, if sent by facsimile. Notices shall be delivered as
follows:
(a) if to Shire, to:
Shire Pharmaceuticals Group Plc
East Anton Andover
Hampshire, England
England SP10 5RG
Fax: 012 64 334 658
Attention: Rolf Stahel
with copies to:
McCarthy Tetrault
1170 Peel Street
Montreal, Quebec
H3B 4S8
Fax: (514) 397-4235
Attention: Benjamin H. Silver
(b) if to BioChem to:
BioChem Pharma Inc.
275 Armand-Frappier Blvd
Laval, Quebec
Canada H7V 4A7
Fax: (450) 978-7899
Attention: Francesco Bellini
with a copy to:
Stikeman Elliott
1155 Rene-Levesque Blvd West
Suite 4000
Montreal, Quebec
H3B 3V2
Fax: (514) 397-3222
Attention: Jean Marc Huot
19. GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the laws
of the Province of Quebec and the federal laws of Canada applicable therein
(without giving effect to choice of law principles thereof).
20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but both of which together shall constitute
one and the same instrument.
C-8
<PAGE>
21. EXPENSES.
Except as otherwise expressly provided herein or in the Merger Agreement,
all costs, and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
22. AMENDMENTS; WAIVER.
This Agreement may be amended, modified or supplemented only by written
agreement of the parties. The terms and conditions hereof may be waived only by
an instrument in writing signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with a term or condition
shall not operate as a waiver or estoppel with respect to, any subsequent or
other failure.
23. ASSIGNMENT.
Neither this Agreement nor the Option created hereunder nor any right,
interest or obligation hereunder shall be assigned by either party without the
prior written consent of the other, except that this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
permitted assigns.
24. CURRENCY.
Except as expressly set forth otherwise, all sums of money referred to in
this Agreement are expressed in lawful money of Canada.
C-9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
SHIRE PHARMACEUTICALS GROUP PLC
By: __________________________________
Name: Rolf Stahel
Title: Chief Executive Officer
BIOCHEM PHARMA INC.
By: __________________________________
Name: Francesco Bellini
Title: Chairman and Chief Executive
Officer
By: __________________________________
Name: Francois Legault
Title: Executive Vice-President
Corporate Development and
Investments
C-10
<PAGE>
ANNEX D
STRICTLY PRIVATE AND
CONFIDENTIAL
Deutsche Bank AG London
Winchester House
Board of Directors
1 Great Winchester
Street
Shire Pharmaceuticals Group
plc
London EC2N 2DB
East Anton
Icknield Way
Tel 020 7545 8000
Andover
Hampshire SP10 4RG
10 December, 2000
Gentlemen:
Deutsche Bank AG London ("Deutsche Bank") has acted as financial advisor to
Shire Pharmaceuticals Group plc (Shire") in connection with the proposed merger
of Shire and BioChem Pharma Inc (the "Company") pursuant to the Merger
Agreement, expected to be dated 10 December 2000, among the Company, Shire and
Shire Exchangeco, a direct wholly owned subsidiary of Shire ("Exchangeco") (the
"Merger Agreement"), which provides, among other things, for the merger of the
Company with and into Shire Exchangeco (the "Transaction"), as a result of which
the Company will become an indirect wholly owned subsidiary of Shire.
The terms of the Transaction, including the circumstances determining the
number of Shire Ordinary Shares, Shire ADSs (where each Shire ADS is equivalent
to three Shire Ordinary Shares) or Shire Exchangeco Shares (together
"Consideration Shares") to be issued, together with the terms and conditions of
the Transaction, are more fully set forth in the Merger Agreement. As a result
of the Transaction, each share of the Common Stock of the Company ("Company
Common Stock") not owned directly or indirectly by the Company or Shire will be
converted into the right to receive such number of Consideration Shares as shall
be determined, subject to a collar, by reference to the average price of Shire
ADSs during the 15 trading days ending on the third trading date prior to the
Closing Date of the Transaction (the "Average Shire Price"). The collar provides
for a fixed value of consideration provided the Average Shire Price at the
relevant time is between $47.20 and $70.80. In the event that the Average Shire
Price is less than $47.20, each holder of Company Common Stock will receive
2.3517 Consideration Shares for each share of Company Common Stock (save that
such ratio will be divided by three where Shire ADSs are being issued as
consideration). In the event that the Average Shire Price is greater than
$70.80, each holder of Company Common Stock will receive 1.5678 Consideration
Shares for each share of Company Common Stock (save that such ratio will be
divided by three where Shire ADSs are being issued as consideration). The basis
of exchange described above (including the collar), and more fully set out in
the Merger Agreement, is referred to herein as the "Exchange Ratio".
This opinion assumes that the Transaction will be implemented in accordance
with the terms of the Merger Agreement.
You have requested Deutsche Bank's opinion, as financial advisor, as to the
fairness, from a financial point of view, to Shire of the Exchange Ratio.
In connection with Deutsche Bank's role as financial advisor to Shire, and
in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning the Company and Shire and
their respective groups and certain internal analyses and other information
furnished to it by or on behalf of the Company and Shire. Deutsche Bank has also
held discussions with members of the senior management of the Company and Shire
regarding the businesses and prospects of their respective groups and the joint
prospects of a combined group. In
D-1
<PAGE>
addition, Deutsche Bank has attended certain discussions with Shire's external
legal counsel and Company's internal and external counsel on specific items
relating to ongoing patent litigation and related proceedings against the
Company and/or members of its group and has reviewed and relied on such
counsels' opinions with respect to these matters. In addition, Deutsche Bank has
(i) reviewed the reported prices and trading activity for the Company's Common
Stock and Shire's ordinary shares, (ii) compared certain financial and stock
market information for the Company and Shire with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of the draft Merger
Agreement and certain related documents, and (v) performed such other studies
and analyses and considered such other factors as it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company or Shire or their
respective groups including, without limitation, any financial information,
forecasts or projections considered in connection with the rendering of its
opinion. Accordingly, for purposes of its opinion, Deutsche Bank has assumed and
relied upon the accuracy and completeness of all such information and Deutsche
Bank has not conducted a physical inspection of any of the properties or assets,
and has not prepared or obtained any independent evaluation or appraisal of any
of the assets or liabilities, of the Company or Shire or members of their
groups. With respect to the financial forecasts and projections, including the
analyses and forecasts of certain cost savings (including assumptions relating
to future tax rates), operating efficiencies, revenue effects and financial
synergies expected by Shire to be achieved as a result of the Transaction
(collectively, the "Synergies"), made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of the Company or Shire, as the case may be, as to the matters
covered thereby. In rendering its opinion, Deutsche Bank expresses no view as to
the reasonableness of such forecasts and projections, including the Synergies,
or the assumptions on which they are based. Deutsche Bank's opinion is
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to it as of, the date hereof. Events
occurring after the date hereof could materially affect this opinion and the
assumptions used in preparing this opinion.
Further, Deutsche Bank does not provide legal, accounting, actuarial or tax
advice.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Shire, Shire Exchangeco and the Company contained in the Merger Agreement are
true and correct, Shire, Shire Exchangeco and the Company will each perform all
of the covenants and agreements to be performed by each of them under the Merger
Agreement and all conditions to the obligations of each of Shire, Shire
Exchangeco and the Company to consummate the Transaction will be satisfied
without any waiver thereof. Deutsche Bank has also assumed that all material
governmental, regulatory or other approvals and consents required in connection
with the consummation of the Transaction will be obtained and that in connection
with obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Shire or the Company is a party or is
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Shire or the Company or materially reduce the
contemplated benefits of the Transaction to Shire. In addition, you have
informed Deutsche Bank, and accordingly for purposes of rendering its opinion
Deutsche Bank has assumed, that the Transaction will be tax-free to each of
Shire and the Company and their respective stockholders and that the Transaction
is intended to be accounted for as a pooling of interests.
D-2
<PAGE>
This opinion is confidential. Neither the whole nor any part of it, nor any
reference to it, may be disclosed to any person or included in any document,
circular or statement without Deutsche Bank's prior written consent. This
opinion is addressed to, and for the use and benefit of, the Board of Directors
of Shire and may be used and relied upon only by Shire in connection with and
for the purposes of the Transaction. It is not a recommendation to the
stockholders of Shire to approve the Transaction. This opinion is limited to the
fairness, from a financial point of view, to Shire of the Exchange Ratio, and
Deutsche Bank expresses no opinion as to the merits of the underlying decision
by Shire to engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Shire in connection with the Transaction, a portion of which is contingent upon
consummation of the Transaction. We are an affiliate of Deutsche Bank AG
(together with its affiliates, the "DB Group"). One or more members of the DB
Group have, from time to time, provided investment banking, commercial banking
(including extension of credit) and other financial services to Shire or its
affiliates for which it has received compensation. In the ordinary course of
business, members of the DB Group may actively trade in the securities and other
instruments and obligations of Shire and the Company for their own accounts and
for the accounts of their customers. Accordingly, the DB Group may at any time
hold a long or short position in such securities, instruments and obligations.
Based upon and subject to the foregoing, and based upon such other matters
as Deutsche Bank considers relevant, it is Deutsche Bank's opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
Shire.
Yours faithfully,
DEUTSCHE BANK AG LONDON
D-3
<PAGE>
PRELIMINARY COPIES
[FORM OF PROXY]
SHIRE PHARMACEUTICALS GROUP PLC
("THE COMPANY")
PROXY FORM FOR USE AT THE EXTRAORDINARY GENERAL MEETING TO BE HELD
ON - , 2001
I/We ____________________ of ____________________ being (a) holder(s) of
ordinary shares of 5p each in the capital of Shire Pharmaceuticals Group plc
hereby appoint the Chairman of the Extraordinary General Meeting or(1)
________________________________________as my/our proxy to vote for me/us and on
my/our behalf at the Extraordinary General Meeting of the Company to be held at
3:00 p.m. on , 2001 and at any adjournment thereof as indicated
below.(2)
<TABLE>
TYPE OF
NO. RESOLUTION RESOLUTION FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C>
(1) Ordinary Resolution To increase the authorised share
capital
To approve the acquisition of BioChem
Pharma Inc. ("BioChem") and the terms
of the Merger Agreement including the
conversion of options and other rights
held by BioChem option holders and
other right holders and to authorise
the directors of the Company to take
all necessary or appropriate steps to
complete the acquisition
To authorise the directors of the
Company to allot ordinary shares up to
an aggregate nominal amount of
L[ ]
To create [new special voting shares]
(2) Special Resolution To authorise the directors of the
Company to allot equity securities up
to an aggregate nominal amount of
L[ ] as if the pre-emption rights
conferred by the Companies Act 1985 did
not apply
</TABLE>
------------------------
(1) You are entitled to appoint one or more proxies of your choice who need not
be shareholders of the Company. If you wish to appoint someone other than
the Chairman of the Extraordinary General Meeting, please delete "the
Chairman of the Extraordinary General Meeting" and initial the deletion and
PRINT the name and address of the proxy in the space provided.
(2) Completion and return of the form of proxy will not prevent you from
attending and voting at the meeting instead of your proxy, if you so wish.
Signature(s) ______________________________ Dated ________________________, 2001
<PAGE>
NOTES FOR COMPLETION OF PROXY FORM
1. Please indicate by placing a single "X" in the appropriate space how you
wish your votes to be cast in respect of each of the ordinary resolution and
the special resolution referred to above. If this form is duly signed and
returned, but without any specific direction as to how you wish your votes
to be cast, your proxy may vote or abstain, at his discretion. On any other
business (including a motion to adjourn the meeting or to amend the ordinary
and/or the special resolution) the proxy may vote at his discretion.
2. In the case of joint shareholders, the vote of the first named in the
register of members of the Company who tenders a vote, whether in person or
by proxy, shall be accepted to the exclusion of the votes of the other joint
holders.
3. This form must be executed by the shareholder(s) or his/their attorney duly
authorised in writing. In the case of a shareholder which is a body
corporate, this form must be executed either under its common seal, by the
signature of a director and its secretary or of two directors or under the
hand of an officer or attorney duly authorised in writing on its behalf.
4. To be valid, this form must be completed, signed and deposited at, or
returned by post to, the office of the Company's registrars, Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex, BN99 3UH, England, not less
than 48 hours before the time appointed for the meeting.
2
<PAGE>
CHAIRMAN'S LETTER
SHIRE PHARMACEUTICALS GROUP PLC
(REGISTERED IN ENGLAND AND WALES WITH REGISTERED NUMBER 2883758)
DIRECTORS: Dr J H Cavanaugh (Non-executive Chairman), R Stahel (Chief
Executive), A C Russell (Finance Director), Dr J W Totten (R&D Director), Dr B J
Price (Senior Non-executive Director), Dr B Canavan (Non-executive), Dr Z P
Horovitz (Non-executive), Mr R M Nordmann (Non-executive), Mr J E Smith
(Non-executive), Mr J T Spitznagel (Non-executive)
REGISTERED OFFICE: East Anton, Andover, Hampshire, SP10 5RG, UK
- , 2001
TO THE HOLDERS OF ORDINARY SHARES AND ADSS AND, FOR INFORMATION ONLY, TO
PARTICIPANTS IN THE EMPLOYEE SHARE SCHEMES
Dear Shareholder,
PROPOSED MERGER WITH BIOCHEM PHARMA INC.
INTRODUCTION
Your Board announced on 11 December 2000 that Shire had entered into a
definitive merger agreement with BioChem Pharma Inc., a Canadian company, under
which Shire and BioChem would merge.
Based upon the market price of Shire's Ordinary Shares on - , 2001 (being
the latest practicable date prior to the publication of this document) the
Merger will create one of the leading specialty pharmaceutical companies in the
world with a pro forma estimated market capitalisation at the Closing of L -
($ - ).(1) The Enlarged Group will possess an enhanced pipeline in its
selected therapeutic areas of CNS, oncology/haematology, anti-virals and
vaccines, the additional financial resources necessary to capitalise on
worldwide opportunities to expand its rapidly growing product ranges within
those areas and the capacity to extend its geographical reach. Utilising Shire's
development expertise, the Enlarged Group will enhance the development of
BioChem's pipeline products and candidates which will be retained for worldwide
marketing by the Enlarged Group. In addition, following the Merger, the Enlarged
Group will be able to expand its areas of therapeutic interest to anti-virals
and vaccines and to enhance its development portfolio in oncology.
The Merger will be effected by way of a share-for-share exchange, with
BioChem's shareholders receiving Shire Exchangeco Shares unless they elect to
receive Ordinary Shares or ADSs; PROVIDED, THAT, BioChem Shareholders that are
not Canadian residents will receive Ordinary Shares unless they elect to receive
ADSs. The exchange ratio will be determined by reference to the average closing
price of ADSs during the last 15 trading days ending on the third day before the
closing of the Merger.
The Shire Exchangeco Shares will be listed on the Toronto Stock Exchange and
will be exchangeable for New Ordinary Shares on a one-for-three basis and will
be exchangeable for Shire ADSs on a one-for-one basis at the request of any
holder of Shire Exchangeco Shares. The Shire Exchangeco Shares will confer
similar rights and benefits to the existing Ordinary Shares; holders of Shire
Exchangeco Shares will, in effect, have voting rights at general meetings of
Shire by means of Special Voting Shares in Shire to be held by a trustee for the
benefit of the holders of the Shire Exchangeco Shares. The Shire Exchangeco
Shares are being offered to allow existing Canadian BioChem shareholders to
participate in the merger on a tax deferred basis.
------------------------
(1) All references to "$" and "dollars" contained in this letter are to US
dollars, unless specified otherwise.
<PAGE>
Based upon the closing price of ADSs on - , 2001 (being the latest
practicable date prior to the publication of this document) the share-for-share
exchange would value BioChem at approximately $ - million (L - million),
and would involve the issue of - New Ordinary Shares (assuming all existing
BioChem Shareholders exchange their BioChem Shares for New Ordinary Shares
pursuant to the Merger and excluding any shares to be issued pursuant to the
exercise of options under the BioChem Stock Option Plans or other rights), with
existing Shire Shareholders owning approximately - per cent of the Enlarged
Group.
Following the Merger, Dr Francesco Bellini, the Honourable James Andrews
Grant and Mr Gerard Veilleux will join your Board as non-executive directors.
Further details on these Proposed Directors are included in this letter
under the heading "Board Members" and in Part - of this document.
Due to its size, the Merger is conditional on, INTER ALIA, Shire
Shareholders' approval. The purpose of this document is to explain why your
Board considers the Merger to be in the best interests of the Company and its
Shareholders and to seek your approval for it at the forthcoming Extraordinary
General Meeting. Those Directors of the Company holding Ordinary Shares and
three of those limited partnerships controlled by HealthCare Ventures LLC (of
which your Chairman is President), who in aggregate hold 9,087,385 Ordinary
Shares (or the ADSs underlying those Ordinary Shares) representing approximately
- per cent of the issued share capital of the Company, have indicated to the
Company that they intend to vote in favour of the Merger in respect of their
entire holdings.
RATIONALE FOR AND BENEFITS OF THE MERGER
The Board believes that the Merger brings together two publicly-traded
specialty pharmaceutical companies with complementary strengths, activities and
competencies. Shire has built effective research and development functions, an
effective sales and marketing organisation in the US and UK and has established
and is expanding its functions in Canada and certain leading European markets.
BioChem has built an outstanding scientific operation through which it has
generated a pipeline of projects focused in three discrete specialty therapeutic
categories: oncology, vaccines and anti-virals. The principal benefits of the
Merger are expected to be:
- DIVERSIFICATION. The revenue growth of the combined Shire and BioChem
entity (the "Enlarged Group") will be driven not only by Shire's key
marketed products, Adderall, Pentasa, Agrylin and Carbatrol, and by
BioChem's Second Look and Fluviral, but also by the sales achieved by two
of the world's foremost pharmaceutical companies in GlaxoSmithKline in
respect of 3TC/ Epivir, Combivir, Trizivir and Zeffix, and Johnson and
Johnson in respect of Reminyl. In addition, the Enlarged Group expects
Foznol to become a key contributor to revenue growth when regulatory
approvals, which are expected in early 2002, are obtained.
- INCREASED FINANCIAL RESOURCES. At December 31, 2000, Shire had
indebtedness of approximately $ - and cash and investments of
approximately $ - while BioChem had indebtedness of approximately $ -
and approximately $ - in cash and investments. With pro forma revenues
of $ - and net income of $ - for 2000 the Directors and Proposed
Directors expect to have greatly enhanced cash with which to finance the
Enlarged Group's development and research activities. Shire will be
required to either obtain consent to the merger from its bank lenders
under the credit facility entered into at the time of Shire's merger with
Roberts Pharmaceutical Corporation in 1999 or repay the amount outstanding
under the credit facility. Shire has not yet determined whether to seek
consent or repay the amount outstanding.
FOR PURPOSES OF THIS LETTER, FINANCIAL INFORMATION ON BIOCHEM HAS BEEN
ADJUSTED TO CONSOLIDATE CLINICHEM AND EXCLUDE EXCEPTIONAL ITEMS.
2
<PAGE>
- A BROADENED AND STRENGTHENED PIPELINE. The Enlarged Group will have 24
products in development of which 12 will be in pre-clinical and Phase I
development, and 12 will be in full clinical development or registration.
This will strengthen the product pipeline in the areas of
oncology/haematology and CNS with a total of 15 products in development in
these areas and will broaden the pipeline of products in development by
the inclusion of 5 products in the areas of anti-virals and vaccines.
- LEVERAGE FROM COMPLEMENTARY SKILLS AND OPERATIONS. The Enlarged Group will
have a direct marketing capability in seven of the eight major
pharmaceutical markets in the world. The Enlarged Group will benefit from
the application of existing development capabilities to the enlarged
product pipeline and the direct marketing of these products through its
own specialist sales forces. The Directors and Proposed Directors expect
the Enlarged Group's lead optimisation activities and network of business
and academic relations to provide a regular source of development
candidates to supplement its development activities.
- OPERATING SYNERGIES. The Directors and Proposed Directors of Shire believe
that the Merger will result in certain operating synergies in the
following areas:
- Review of research and development activities: cost savings and future
cost avoidance are expected to result from: establishment of a budget
for the Enlarged Group; review of the Enlarged Group's requirements for
new research and development projects; a thorough review of the
Enlarged Group's research and development portfolio; and the use by the
Enlarged Group of Shire's development capabilities;
- Financing: the Enlarged Group's net cash and ability to generate
further cash will enable it to discharge its indebtedness to its bank
lenders, if it chooses, which would result in a net reduction in
financing costs of approximately $3 million in a full year; and
- Re-organisation of business activities: the re-organisation of
administrative, service and other functions of the Canadian operations
of the Enlarged Group may give rise to operating synergies for the
Enlarged Group.
There will be a substantial one time charge in the [second] quarter of 2001
of between [ - ] and [ - ] in connection with consummating the Merger and
Restructuring the Enlarged Group's combined operations. Taking into account the
opportunity for synergies referred to above and excluding the one time charge,
the Shire Board believes the Merger will be accretive to earnings for Shire
shareholders twelve months after the Closing.
INFORMATION ON BIOCHEM
BioChem is an international pharmaceutical company dedicated to the research
and development of innovative products for the prevention and treatment of human
diseases, with a focus on infectious diseases and cancer.
KEY PRODUCTS AND MARKETS
BioChem's first therapeutic product, 3TC/Epivir (lamivudine), has become the
cornerstone of HIV infection/AIDS combination therapies, most recently being
launched as part of GlaxoSmithKline's Trizivir triple combination tablet.
3TC/Epivir is the most widely-prescribed antiretroviral for HIV infection/AIDS
and is available in over 100 countries. Worldwide sales, including as a
component of the double combination tablet Combivir, were $873 million in 1999.
BioChem receives royalties from GlaxoSmithKline on the worldwide sales of
3TC/Epivir for the treatment of HIV infection/AIDS. 3TC/ Epivir is protected by
patent until 2009 in the US, with further protection expected in the US for the
combination therapies and combination products, Combivir and Trizivir.
3
<PAGE>
A second therapeutic product, Zeffix, an oral treatment for chronic
hepatitis B, is currently being introduced to key markets worldwide by
GlaxoSmithKline. Zeffix improves liver function and histology in the majority of
chronic hepatitis B patients and reduces progression to cirrhosis and reverse
cirrhosis. Zeffix is now available in a number of countries including China,
Japan, Taiwan, South Korea and the US. Worldwide sales of Zeffix were
$73.1 million for the first nine months of 2000. BioChem receives royalties from
GlaxoSmithKline on its worldwide sales of Zeffix. BioChem's marketed products
also include PACIS for the treatment of superficial bladder cancer, Fluviral S/F
for the prevention of influenza and Second Look for the diagnosis of breast
cancer.
PROJECT PIPELINE
With approximately 450 employees and operating from three sites in Canada
and one in the US, BioChem has a number of projects at various stages of
development including the anti-virals BCH-10618 and BCH-13520 for HIV
infection/AIDS in the pre-clinical phase, the anti-cancer compound Troxatyl and
Frakefamide for pain control in Phase II, nasal and injectable cell culture
vaccines for influenza and a vaccine for NEISSERIA MENINGITIDIS, all of which
are in Phase I and vaccines in pre-clinical for PSEUDOMONAS AERUGINOSA and
STREPTOCOCCUS PNEUMONIAE.
CLINICHEM DEVELOPMENT INC.
In 1998, CliniChem Development Inc. was formed by BioChem to continue the
research and development of certain of BioChem's therapeutic and vaccine product
candidates with a view to eventual commercialisation. In exchange for BioChem
granting CliniChem an exclusive perpetual licence to use BioChem technology to
conduct the CliniChem programs and related activities, CliniChem agreed to pay
BioChem a monthly technology fee at the rate of CN$352,000 over a period of
48 months. CliniChem contracted its research and development activities to
BioChem under a research and development agreement. BioChem recognised costs
related to these programmes as research and development expenses and billed
CliniChem on a fully burdened cost-plus-5% basis.
BioChem acquired all of the outstanding CliniChem Class A common shares on
15 December 2000 and CliniChem was merged into BioChem.
BIOCHEM SUMMARY FINANCIAL INFORMATION
The following table, which has been extracted from the financial information
set out on pages - to - of this document summarizes the financial
performance of BioChem reported in $ under US GAAP, consolidating CliniChem and
excluding other exceptional items.
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
-----------------------------------------
1997 1998 1999 [2000]
-------- -------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Royalties....................................... 89.7 103.8 116.1
Other........................................... 17.4 23.1 19.6
----- ----- -----
Total revenues.................................. 107.1 126.9 135.7
----- ----- -----
Operating income................................ 50.2 58.9 39.4
----- ----- -----
Net income from continuing operations........... 56.1 68.0 59.7
</TABLE>
CliniChem contract revenue was $14.6 million and $50.0 million in the years
ended 31 December 1998 and 1999 respectively. Exceptional items in 1998 relate
to the disposal of a long-term investment of $85.0 million.
4
<PAGE>
BOARD MEMBERS
Following the Merger, three members of the BioChem Board of Directors, Dr
Francesco Bellini, the Honourable James Andrews Grant and Mr Gerard Veilleux,
will join your board, where their industrial experience and experience in the
pharmaceutical industry in general and in Canada in particular will be a
valuable addition.
DR FRANCESCO BELLINI was a co-founder of BioChem in 1986 and is the
company's current Chairman and Chief Executive Officer. Dr Bellini received a
B.Sc. in chemistry from Loyola College in Montreal in 1972, and a Ph.D. in
organic chemistry from the University of New Brunswick in 1977.
THE HONOURABLE JAMES ANDREWS GRANT, a Director of BioChem since 1986, is a
partner with the law firm of Stikeman Elliott in Montreal. Mr Grant, who also
sits on the boards of several other prominent Canadian corporations, attended
McGill University, receiving a B.A. in arts in 1958 and a B.C.L. in law in 1961.
MR GERARD VEILLEUX joined the BioChem board in 1999. He is president of
Power Communications Inc. and Vice-President of Power Corporation, a diversified
management and holding company. Mr Veilleux is a director of several public and
private companies as well as a member of the Board of Governors of McGill
University. He has a Master's degree in public administration from Carleton
University and a Bachelor of Commerce from Laval University.
INFORMATION ON SHIRE
Shire is a specialty pharmaceutical company focused primarily on four
therapeutic areas: central nervous system disorders, oncology/haematology,
metabolic/bone diseases, and gastroenterology.
Shire's strategy is to in-license, develop and market therapies in its areas
of strategic focus. This approach is complemented by the advanced drug delivery
platforms developed by Shire Laboratories which may be used to enhance the
bioavailability, reduce the side effects or improve the dosage regimen of
existing marketed compounds. Shire seeks to protect the intellectual property
upon which it relies through a range of patents and patent applications (both
its own and that of its licensors).
Products currently marketed in the US are Adderall and DextroStat for
Attention Deficit Hyperactivity Disorder (ADHD), Carbatrol, launched in
May 1998, for the treatment of epilepsy, Pentasa for ulcerative colitis, Agrylin
for thrombocythemia and ProAmatine for orthostatic hypotension. The key UK
marketed products are the Calcichew range of prescription calcium and
calcium/vitamin D products used as adjuncts in the treatment of osteoporosis and
Reminyl for the treatment of Alzheimer's disease.
The Company's lead development products are Reminyl, for the treatment of
Alzheimer's disease; SLI 381, a novel once a day formulation of Adderall;
Foznol, for the treatment of hyperphosphataemia in patients with chronic kidney
failure; Dirame, an orally administered analgesic for treating moderate to
severe pain; SPD421, an anti-epileptic in-licensed from D-Pharm; and SPD420, a
potential treatment for ADHD in-licensed from Cortex. Reminyl is being
co-developed by Shire and Janssen Pharmaceutica NV, a subsidiary of Johnson and
Johnson. The first European authorisations for marketing of Reminyl were granted
in 2000 and various other applications have been made. The US New Drug
Application (NDA) was submitted, by Janssen, on 29 September 1999 and an
approvable letter was issued in August 2000 by the FDA. Foznol is currently in
Phase III trials in Europe, in Phase III in the US and Phase I in Japan. An NDA
for SLI 381, a patent protected derivative of Adderall, was filed on 3
October 2000. Work has also started on the extension of Carbatrol's approved
indications to include bi-polar disease (SPD 417). Shire also has a wide range
of drug delivery technologies that may be applied to its own products or to
those of third parties.
5
<PAGE>
During 2000, Shire has announced the following milestones:
- Reminyl received its EU authorisation in Sweden and was launched in the UK
on 21 September 2000.
- Reminyl received its approvable letter from the FDA.
- An application was submitted to the FDA for once a day Adderall SLI 381.
- The in-licensing of SPD421 from D-Pharm and of SPD420 from Cortex were
announced.
SHIRE AFTER THE MERGER
OVERVIEW
Following the Merger, the Enlarged Group will be one of the world's leading
global specialty pharmaceutical companies with four areas of focus: central
nervous system disorders, oncology/ haematology, anti-virals and vaccines. The
Enlarged Group will refer to itself as "specialty" because its principal
products tend to be prescribed by specialists as opposed to primary care
physicians. Accordingly, a comparatively small sales force such as Shire's can
promote specialty products effectively while it could not be expected to achieve
the necessary coverage of primary care physicians.
The Enlarged Group's principal products will include: in the US, Adderall
for the treatment of Attention Deficit Hyperactivity Disorder; Agrylin for the
treatment of elevated blood platelets; Pentasa for the treatment of ulcerative
colitis; Carbatrol for the treatment of epilepsy; ProAmatine for the treatment
of orthostatic hypotension; and PACIS for the treatment of superficial bladder
cancer; in the UK, the Calcichew range, used primarily as adjuncts in the
treatment of osteoporosis, and Reminyl for the treatment of Alzheimer's disease;
and, in Canada, ProAmatine, Epivir (marketed in a partnership with
GlaxoSmithKline), Second Look, a product in the early stages of marketing
outside of the US, where the Enlarged Group hopes to be authorised to market in
2001, and Fluviral S/F, a vaccine for the prevention of influenza. In addition,
the Enlarged Group will have a number of products in late stage development
including Dirame and Frakefamide for the treatment of moderate to severe pain,
Foznol for the treatment of high blood phosphate levels associated with kidney
failure, Troxatyl for the treatment of leukemia and solid tumors, SPD421, an
anti-epileptic in-licensed from D-Pharm [and SPD420, a potential treatment for
ADHD in-licensed from Cortex.
After the Merger, the Enlarged Group's revenues will continue to be derived
from three sources: sales of products by sales and marketing operations
principally in the US, the UK and Canada, royalties from sales of Reminyl,
Zeffix and 3TC/Epivir and licensing and development fees. For the period ended
31 December 1999, Shire had revenues of $401.5 million and net income (before an
APB 25 stock option charge of $11.9 million and exceptional costs of
$135.2 million) of $52.2 million. For the same period, BioChem had revenues of
$135.7 million and net income from continuing operations of $59.7 million.
STRATEGY AND APPROACH
The Enlarged Group's strategy is to develop products and, where they fall
within the therapeutic focus, to market them through sales organisations in the
major markets of the world. The key elements of the operating strategy are
described below:
MARKET PROPRIETARY PRODUCTS THROUGH THE ENLARGED GROUP'S OWN SALES FORCE
The Enlarged Group believes that higher financial returns can be achieved by
marketing products directly, as opposed to receiving royalties on licensees'
sales. The Merger enhances Shire's sales and marketing capability in Canada. The
Enlarged Group intends to continue to expand its sales and
6
<PAGE>
marketing capability, as opportunities arise, particularly in the US, major
European markets, Japan and through distributors outside of the significant
pharmaceutical markets.
MANAGE DEVELOPMENT RISK
Recognising the inherent risks of failure in drug development, both BioChem
and Shire have historically sought to manage development risk by maintaining a
broad and balanced development portfolio. Shire has also sought to selectively
leverage relationships with collaborative parties. BioChem, through its academic
collaborations and investment in a leveraged network of research companies, has
access to projects and technologies. The combined company is anticipated to
continue reliance on the broad network of contacts to identify product
candidates which can be developed either internally or through collaborative
partnerships.
FOCUS ON THE DEVELOPMENT OF INNOVATIVE PRODUCTS
BioChem's lead optimisation and chemistry expertise has led to the
development and commercialisation of innovative products. Shire has also sought
to identify promising product candidates already under development or exploit a
number of proprietary drug delivery technologies to develop products. In
addition to developing proprietary pipeline products, the Enlarged Group's
principal objective will be to concentrate operations on licensing, acquiring,
developing, marketing and selling proven products and technologies. Both
companies have historically benefited from proven products that generate cash
flow, which contributes partial financial support to drug development
activities, and provides enhanced product sales opportunities for the sales
force.
SALES AND MARKETING
Following the Merger, the Enlarged Group will use its sales and marketing
infrastructure to sell and market most of its licensed and internally developed
products. The combined sales and marketing operations of the Enlarged Group in
the US, the UK, Canada and Europe will consist of - , - , - and -
sales representatives, respectively. Following the Merger, this expanded sales
force will have a broader portfolio of products with opportunities to benefit
from increased geographical coverage.
COMBINED MARKETED PRODUCTS
The table below lists the key currently marketed products of Shire and
BioChem by therapeutic areas, indicating the owner or licensor of the product
and who is marketing the product in which territory.
<TABLE>
<CAPTION>
MARKETED BY/
PRODUCTS PRINCIPAL INDICATION(S) OWNER/LICENSOR RELEVANT TERRITORY
----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
TREATMENTS FOR CNS DISORDERS
Adderall ADHD Shire Shire/US
DextroStat ADHD Shire Shire/US
Carbatrol Epilepsy Shire Shire/US
Reminyl Alzheimer's disease Shire Shire/UK (Co-
promotion)
TREATMENTS FOR METABOLIC/BONE DISEASES
Calcichew range Osteoporosis adjunct Nycomed Shire/UK and Ireland
TREATMENTS FOR ONCOLOGY/HAEMATOLOGY
Agrylin Elevated blood Shire Shire/US and Canada
platelets
ProAmatine Orthostatic hypotension Nycomed Shire/US and Canada
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MARKETED BY/
PRODUCTS PRINCIPAL INDICATION(S) OWNER/LICENSOR RELEVANT TERRITORY
----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
PACIS Bladder cancer BioChem Urocor/US and Paladin
Labs/Canada
ANTI-VIRALS
3TC/Epivir/Combivir/ HIV/AIDS BioChem GlaxoSmithKline/
Trizivir Worldwide, except
Canada
3TC/Combivir HIV/AIDS BioChem BioChem and Glaxo-
SmithKline co-marketed
in Canada
Zeffix/Epivir-HBV/ Hepatitis B BioChem GlaxoSmithKline/
Heptovir/ Heptodin Worldwide, except
Canada
Heptovir Hepatitis B BioChem BioChem and Glaxo-
SmithKline co-marketed
in Canada
VACCINES
Fluviral S/F Influenza BioChem BioChem/Canada
TREATMENTS FOR GASTROINTESTINAL DISORDERS
Pentasa Ulcerative colitis Ferring Shire/US
Colazide Ulcerative colitis Shire Shire/UK, EU and
Southeast Asia
Colace/Peri-Colace Constipation Shire Shire/US and Canada
COMPUTER ASSISTED DETECTION PRODUCTS
Second Look Breast cancer diagnosis Qualia Computing BioChem/Worldwide,
except US
</TABLE>
PRODUCTS UNDER DEVELOPMENT
After the Merger, the Enlarged Group will seek to maintain a broad and
balanced approach to the development of new products by, among other things,
leveraging third-party research and development expertise, exploiting investment
in research collaborations and licensing compounds from third parties and
developing them through the clinical phase with a view to marketing them through
the Enlarged Group's sales and marketing organisation or out-licensing if
appropriate. On a combined basis, Shire and BioChem spent approximately
$138 million on research and development in the year ended 31 December 1999,
which represents 27% of combined revenues.
The table below lists the key products under development by Shire and
BioChem by therapeutic area, including their development status and their
territorial rights. Where either company has secured a licensee for a product,
this fact is also indicated.
<TABLE>
<CAPTION>
PRODUCT(S) PRINCIPAL INDICATION(S) STATUS TERRITORIAL RIGHTS
----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
TREATMENTS FOR CNS DISORDERS
Reminyl Alzheimer's disease In registration or Global
(galantamine)(1) marketed
SLI381 ADHD In registration Global
Dirame Moderate/severe pain Phase III Global
Frakefamide(2) Moderate/severe pain Phase II Global
SPD417 Bi-polar disorder Phase III Global
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PRODUCT(S) PRINCIPAL INDICATION(S) STATUS TERRITORIAL RIGHTS
----------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
SPD503 ADHD Phase I Global
SPD418 Epilepsy Phase I Global
SPD502 Stroke Phase I Global excl. Nordic and
Baltic countries
SPD451 Parkinsons Disease Pre-clinical Global
TREATMENTS FOR METABOLIC DISEASES
Foznol High blood phosphate Phase III Global
levels in patients with
kidney failure
TREATMENTS FOR GASTROENTEROLOGICAL DISORDERS
Pentasa (500 mg) Ulcerative colitis Phase II/III US
Emitasol Nausea and vomiting Phase II/III US, Canada
Balsalazide Ulcerative colitis Phase II/III [Europe], Southeast
Asia
TREATMENTS FOR ONCOLOGICAL/HAEMATOLOGICAL
DISEASES
Agrylin Thrombocythemia In registration Global
Troxatyl Leukemia and solid Phase II Global
tumors
SPD424 Prostate cancer Phase III North America, Europe
ANTI-VIRALS
BCH-10618 HIV/AIDS Pre-clinical Global
BCH-13520 HIV/AIDS Pre-clinical Global
VACCINES
Injectable and nasal Influenza Phase I/II North America
influenza vaccine
derived from cell
culture
NEISSERIA MENINGITIDIS Meningitis, septicemia Phase I Global
vaccine
PSEUDOMONAS AERUGINOSA Bacteremia, Pre-clinical Global
vaccine opportunistic
</TABLE>
--------------------------
(1) The licensee is Janssen.
(2) The licensee is AstraZeneca (except Canada).
DRUG DELIVERY TECHNOLOGIES
The Enlarged Group will have several platforms of drug delivery technologies
that can be applied to drugs in order to enhance their effectiveness or their
convenience to patients in terms of dosage regimen. Generally, this involves
re-formulating the drug into a new delivery system designed either to enhance
the absorption of the drug into the blood stream or, alternatively, to delay
absorption of the drug into the bloodstream, thereby requiring the patient to
take fewer daily doses.
The Enlarged Group's portfolio of drug delivery technologies will include
technologies designed to develop oral, controlled release delivery of drugs, a
technology for rapid absorption through the tissues of the mouth and several
technologies for predicting and improving bioavailability of drugs. It is
intended to out-license these technologies to third parties in return for
development fees, milestone payments and royalties. It is also intended to
employ these technologies selectively to products being developed internally
where it is believed the characteristics of the product can be improved or
modified to secure a competitive advantage.
9
<PAGE>
PHENTERMINE LITIGATION
Until April 1998, Shire Richwood Inc. ("SRI") distributed products
containing phentermine, a prescription drug approved in the US as a single agent
for short term use in obesity. Contrary to the approved labelling of these
products, physicians in the US co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly known
as the "fen-phen" diet. In mid-1997, following concerns raised about cardiac
valvular side effects alleged to be associated with this diet regime, the
fenfluramine and dexfenfluramine elements of the "fen-phen" diet were withdrawn
from the US market. SRI and a number of other pharmaceutical companies are being
sued for damages for personal injury and medical monitoring arising from
phentermine used either alone or in combination.
As of 31 December 2000 Shire had been named as a defendant in approximately
3,729 cases related to the "fen-phen" litigation. Shire has been dismissed from
2,178 cases with approximately 1,120 further dismissals pending on the basis
that the plaintiff was shown not to have used Shire's product. In approximately
136 cases, of which 45 have been subsequently dismissed, it has been
specifically alleged that the relevant plaintiff did use Shire's products.
Pursuant to an indemnity from Shire's former contract manufacturer of
phentermine, Eon Labs Manufacturing, Inc. (Eon), legal costs in respect of the
phentermine litigation have to date been met by Eon or its insurance carriers.
Shire also has access to its own products liability policy for certain defense
costs and claims up to a maximum of $ - million. In addition, Shire has
obtained additional insurance for claims of third parties up to an aggregate of
$ - million (less a self-insured retention of $ - million).
The Directors are confident that these claims will not result in any award
of damages against Shire. Nevertheless, Shire intends to defend vigorously any
and all claims made against the Enlarged Group in respect of phentermine and
will continue to seek case dismissals based upon product identification.
CURRENT TRADING AND PROSPECTS
On - February 2001, Shire released its audited preliminary statement of
results for the year ended 31 December 2000, the text of which is set out in
Part - of this document. On - January 2001, BioChem announced its
[audited] results for the year ended 31 December 2000, the full text of which is
set out in Part - of this document.
In the Board's opinion, the current outlook for the Enlarged Group's key
drivers of revenue growth remains favourable. Adderall's market share [ ], 3TC
royalties [ ] and following the launch of Zeffix in Japan [ ].
Taking into account the opportunity for synergies and excluding the one time
charge, the Board believes the Merger will be accretive to earnings twelve
months after the Closing.
The Shire audited preliminary statement of results for the year ended
31 December 2000 released on - February 2001 included the following statement
on current trading:
[ ]
EXTRAORDINARY GENERAL MEETING
Set out at the end of this document is a Notice of Extraordinary General
Meeting of the Company to be held at 35 New Broad Street, London, EC2M 1SQ,
England, on - , 2001 at 3:00 p.m., local time. At this meeting, an ordinary
resolution will be proposed to approve the Merger, to increase the authorised
share capital of the Company, to grant authority to the Directors to allot such
capital and to create new special voting shares and to attach certain rights and
restrictions to those shares. In
10
<PAGE>
addition, a special resolution will be proposed to enable the Directors to allot
a larger number of equity securities than before as if the pre-emption rights
conferred by the Companies Act 1985 did not apply.
ACTION TO BE TAKEN
You will find enclosed a form of proxy for use at the Extraordinary General
Meeting. Whether or not you propose to attend the Extraordinary General Meeting
in person, you are requested to complete the form of proxy in accordance with
the instructions thereon and return it as soon as possible but, in any event, so
as to reach the Company's registrars, Lloyds TSB Registrars, The Causeway,
Worthing, West Sussex, BN99 3UH, England, not later than [ - p.m.] on
- , 2001. The return of a completed form of proxy will not prevent you from
attending the Extraordinary General Meeting and voting in person if you so wish.
RECOMMENDATION
The Board, which has received financial advice from Deutsche Bank, considers
that the Merger is in the best interests of Shire and its shareholders as a
whole. In providing advice to the Board, Deutsche Bank has placed reliance on
the Board's commercial assessment of the Merger.
The Directors unanimously recommend you to vote in favour of the Resolutions
to be proposed at the Extraordinary General Meeting, as they intend to do in
respect of shareholdings in which they are interested, which amount in aggregate
to - Ordinary Shares, representing approximately - per cent of the issued
share capital.
Yours sincerely,
Dr. James H. Cavanaugh
Chairman
11
<PAGE>
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Shire
Pharmaceuticals Group plc (the "Company") will be held at 35 New Broad Street,
London, EC2M 15Q, England, on - , 2001 at 3:00 p.m., local time, for the
purposes of considering and, if thought fit, passing the following resolutions,
of which the resolution numbered 1 will be proposed as an ordinary resolution
and the resolution numbered 2 as a special resolution:
1. ORDINARY RESOLUTION
THAT:
(a) the authorised share capital of the Company be increased from L20,000,000 to
L - by the creation of - new ordinary shares of 5p each forming a
single class with the existing ordinary shares of 5p each in the capital of
the Company;
(b) the proposed acquisition by the Company of BioChem Pharma Inc. ("BioChem"),
on the terms and subject to the conditions of the Merger Agreement (as
defined in the Company's circular to shareholders dated - 2001 (the
"Circular"), a copy of which, initialed by the Chairman of the meeting for
the purposes of identification, has been produced to the meeting), including
the conversion of options and rights held by BioChem option holders and
right holders, respectively, over BioChem shares into options and rights,
respectively, over ordinary shares of the Company, be and is hereby approved
and the directors of the Company be and are hereby authorised to take all
necessary or appropriate steps to complete the same and give effect thereto
with such modifications not, in the opinion of the directors, materially
adverse to the Company as they shall think fit;
(c) in addition and without prejudice to all existing authorities, the directors
of the Company be generally and unconditionally authorised for the purposes
of section 80 of the Companies Act 1985 to exercise all the powers of the
Company to issue and allot relevant securities (within the meaning of that
section) up to an aggregate nominal amount of L - for a period expiring
(unless previously renewed, varied or revoked by the Company in general
meeting) 15 months after the date of the passing of this resolution or at
the conclusion of the Annual General Meeting of the Company following the
passing of this resolution, whichever is later, save that the Company may
before such expiry make an offer or agreement which would or might require
relevant securities to be allotted after such expiry and the directors of
the Company may allot relevant securities in pursuance of such an offer or
agreement as if the authority conferred hereby had not expired;
(d) the relevant number of existing authorised but unissued ordinary shares of
5p each in the capital of the Company be and are hereby divided into shares
(of an aggregate nominal amount equal to the sum of the nominal amounts of
all the ordinary shares thus divided) (such shares being designated the
"Special Voting Shares"). For the purposes of this resolution, the "relevant
number" of such ordinary shares shall be the smallest number of such
ordinary shares necessary to be subdivided to give rise to such number of
Special Voting Shares as will be equal to the number of issued and
outstanding Shire Exchangeco Shares (as defined in the Circular) immediately
after the Closing (as defined in the Circular); and
(e) the rights and restrictions attaching to the Special Voting Shares shall be
as set out below:
(A) INCOME
the holder of the Special Voting Shares shall not be entitled to any
dividends or distributions in respect of such share;
(B) CAPITAL
the holder of the Special Voting Shares shall be entitled to receive out
of any winding up of the Company an amount equal only to the aggregate
nominal amount of such shares and only
12
<PAGE>
after holders of ordinary shares of 5p each in the capital of the Company
have received an amount equal to the nominal amount of such shares held
by them;
(C) TRANSFER
the directors of the Company shall decline to register any transfer of
any of the Special Voting Shares unless the transfer is to a company
which replaces the Trustee (as defined in the Circular) pursuant to the
terms of the Voting and Exchange Trust Agreement (as defined in the
Circular);
(D) VOTING RIGHTS
(i) the holder of the Special Voting Shares shall be entitled to
receive notice of and to attend and vote at any general meeting of the
Company as follows:
(a) on a show of hands, the holder of the Special Voting Shares
shall have one vote in addition to the votes which may be cast by a
holder of Shire Exchangeco Shares (other than the Company or any of
its subsidiaries, subsidiary undertakings or associated undertakings)
(a "Beneficiary") (or its nominee) on such show of hands as proxy for
the holder of the Special Voting Shares; and
(b) on a poll the holder of the Special Voting Shares shall have
three votes for every Shire Exchangeco Share then outstanding
(A) that is owned by Beneficiaries and (B) as to which the holder of
the Special Voting Shares has received valid voting instructions from
the holders of the Shire Exchangeco Shares for the purposes of the
Voting and Exchange Trust Agreement;
(ii) the holder of the Special Voting Shares shall on a poll be
entitled to cast the votes attaching to such share on any resolution for
or against such resolution (such that some of such votes may be cast for,
some of such votes may be cast against, and some of such votes may not be
cast at all on, such resolution) in such proportions as it may determine
based on voting instruction;
(iii) if so instructed by a Beneficiary, the holder of the Special
Voting Shares shall be entitled to appoint that Beneficiary, or such
other person as that Beneficiary nominates, as proxy to attend and to
exercise personally in place of the holder of the Special Voting Shares
that number of votes equal to three times the number of Shire Exchangeco
Shares held by the Beneficiary (the "Beneficiary Votes"). A proxy need
not be a member of the Company. A Beneficiary (or its nominee) exercising
its Beneficiary Votes shall have the same rights as the holder of the
Special Voting Shares to speak at the meeting in favour of any matter and
to vote on a show of hands or on a poll in respect of any matter
proposed;
(iv) the holder of the Special Voting Shares shall be entitled to
demand a poll at any general meeting of the Company; and
(v) a proxy received from the holder of the Special Voting Shares
will be valid for the purposes of any poll at any general meeting of the
Company if it is received before the closing of the poll to which it
relates; and
(E) CLASS RIGHTS
any amendment to, or removal of, or alteration of the effect of (which
for the avoidance of doubt shall be taken to include the ratification of
any breach of) all or any of [articles - and - ] of the articles of
association of the Company as in force at the date of this resolution
shall be deemed to be a variation of the rights of the Special Voting
Shares and shall accordingly only be effective with the consent in
writing of the holder of the Special Voting Shares and without such
consent shall not be done, or caused or permitted to be done, and the
holder of the Special Voting Shares shall withhold such consent save as
directed by the directors of the Company.
13
<PAGE>
2. SPECIAL RESOLUTION
THAT:
in substitution for all existing authorities save for, and without prejudice to,
resolution 17 passed at the annual general meeting of the Company held on
7 July 2000 at 11:00 a.m., the directors of the Company be and they are hereby
empowered pursuant to section 95 of the Companies Act 1985 to allot equity
securities (within the meaning of section 94(2) of the Companies Act 1985) of
the Company pursuant to the authority conferred by the passing of the resolution
passed on - , 2000 as if section 89(1) of the Companies Act 1985 did not
apply to such allotment provided that this power:
(i) shall expire 5 years after the date of the passing of this
resolution, save that the Company may make an offer or agreement which would
or might require equity securities to be allotted after such expiry and the
directors of the Company may allot equity securities pursuant to any such
offer or agreement as if the power conferred hereby had not expired; and
(ii) shall be limited to:
(a) allotment of equity securities where such securities have been
offered (whether by way of a rights issue, open offer or other
pre-emptive offer) to holders of ordinary shares in proportion (as nearly
as may be) to their existing holdings of ordinary shares but subject to
the directors of the Company having a right to make such exclusions or
other arrangements in connection with such offering as they may deem
necessary or expedient:
(1) to deal with equity securities representing fractional
entitlements;
(2) to deal with ordinary shares represented by depository
receipts;
(3) to deal with legal or practical problems under the laws of,
or the requirements of any recognised regulatory body or any
stock exchange in, any territory; and
(b) allotments of equity securities for cash otherwise than pursuant
to paragraph (a) up to an aggregate nominal amount of approximately
L - .
<TABLE>
<S> <C>
Dated: - 2001
REGISTERED OFFICE BY ORDER OF THE BOARD
East Anton NC Harris
Andover Secretary
Hampshire
SP10 5RG
United Kingdom
</TABLE>
NOTES:
(1) A member of the Company entitled to attend and vote at the above
Extraordinary General Meeting may appoint one or more proxies to attend and,
on a poll, to vote instead of him/her. A proxy need not be a member of the
Company.
(2) Shareholders should note that in order to have the right to attend and vote
at the Extraordinary General Meeting, their holding must be entered in the
Company's share register by no later than 3:00 p.m. on - 2001.
14
<PAGE>
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt about what action you should take, you are recommended to seek advice
from your stockbroker, bank manager, solicitor, accountant or other independent
financial adviser authorised under the Financial Services Act 1986.
If you have sold or otherwise transferred all of your Ordinary Shares in Shire
Pharmaceuticals Group plc, please send this document and the accompanying Form
of Proxy at once to the purchaser or transferee or to the bank, stockbroker or
other agent through whom the sale or transfer was effected, for delivery to the
purchaser or transferee. However, such documents should not be distributed,
forwarded to or transmitted in or into Australia or Japan.
A copy of this document, which comprises a circular and listing particulars
relating to Shire Pharmaceuticals Group plc prepared in accordance with the
listing rules made under section 142 of the Financial Services Act 1986, has
been delivered to the Registrar of Companies in England and Wales for
registration in accordance with section 149 of that Act.
This document should be read as a whole. Your attention is drawn to the letter
from the Chairman of Shire which is set out on pages o to o and which recommends
you to vote in favour of the Resolutions to be proposed at the Extraordinary
General Meeting referred to below.
Application has been made to the UK Listing Authority for the New Ordinary
Shares being issued in connection with the proposed Merger described herein to
be admitted to the Official List and to the London Stock Exchange for such New
Ordinary Shares to be admitted to trading on the London Stock Exchange.
Application was made on o, 2001 to register the Shire Exchangeco Shares with the
Toronto Stock Exchange. The New Ordinary Shares will, when issued, rank pari
passu in all respects with the existing Ordinary Shares. Their issue is subject,
inter alia, to the passing of the ordinary resolution to be proposed at the
Extraordinary General Meeting. It is expected that Admission will become
effective and dealings in the New Ordinary Shares will commence at 8.00 a.m. on
2001.
--------------------------------------------------------------------------------
Shire Pharmaceuticals Group plc
(Registered in England and Wales with registered number 2883758)
Circular and Listing Particulars
relating to the issue of up to
o new ordinary shares of 5 pence each in Shire Pharmaceuticals Group plc
in connection with the proposed Merger between
Shire Pharmaceuticals Group plc and BioChem Pharma Inc.
--------------------------------------------------------------------------------
Deutsche Bank, which is regulated in the United Kingdom by The Securities and
Futures Authority Limited, is acting exclusively for Shire Pharmaceuticals Group
plc in relation to the proposed Merger with BioChem Pharma Inc. and no-one else
in connection with this transaction and will not be responsible to anyone other
than Shire Pharmaceuticals Group plc for providing the protections afforded to
customers of Deutsche Bank or for providing advice in relation to this
transaction.
Notice of an Extraordinary General Meeting of Shire Pharmaceuticals Group plc to
be held at o, London at [3.00 p.m.] on 2001 is set out at the end of this
document. Forms of proxy for use in connection with the meeting, to be valid,
should be completed and returned so as to reach the Company's Registrars, Lloyds
TSB Registrars, The Causeway, Worthing, West Sussex, BN99 3UH, United Kingdom no
later than [3.00 p.m.] on o, 2001.
2
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
Page
<S> <C> <C>
Part I Letter from the Chairman of Shire o
Part II Description of BioChem o
Part III Financial information on BioChem o
Part IV Reconciliations of BioChem figures to US and
UK GAAP as applied by Shire o
Part V Financial information on Shire o
Part VI Pro forma statement of combined net assets o
Part VII Details of the Merger and Special Voting Shares o
Part VIII Statutory and general information o
Definitions o
Glossary o
Notice of Extraordinary General Meeting o
</TABLE>
EXPECTED TIMETABLE OF PRINCIPAL EVENTS IN THE UNITED KINGDOM
Latest time and date for receipt of Forms of Proxy [3.00 p.m.] on [D-4], 2001
Extraordinary General Meeting [3.00 p.m.] on [D-2], 2001
Admission and dealings in New Ordinary Shares
commence on the London Stock Exchange 8.00 a.m. on [D], 2001
New Ordinary Shares credited to CREST accounts
and despatch by post of definitive share certificates
(where applicable) o, 2001
EXPECTED TIMETABLE OF PRINCIPAL EVENTS IN CANADA
BioChem Shareholders' meeting held to
approve the Merger 9.00 a.m. (Montreal time) [D-2], 2001
Superior Court of Quebec hearing of
final order for approval of the Arrangement [D-2], 2001
Filing of Articles of Amendments under the
Canada Business Corporations Act [D-1], 2001
Effective date of the Arrangement under the
Canada Business Corporations Act [D-1], 2001
3
<PAGE>
ADVISERS TO SHIRE PHARMACEUTICALS GROUP plc
Sponsor and Financial Adviser Deutsche Bank AG, London
Winchester House
1 Great Winchester Street
London EC2N 2DB
Supporting Financial Adviser Bear, Stearns & Co. Inc
245 Park Avenue
New York
New York 10167
Joint Brokers Merrill Lynch International
20 Farringdon Street
London EC1M 3NH
West LB Panmure Limited
New Broad Street
London EC2M 1SQ
Legal Advisers (UK) Slaughter and May
35 Basinghall Street
London EC2V 5DB
Legal Advisers (US) Cahill Gordon & Reindel
80 Pine Street
New York
New York 10005
Legal Advisers (Canada) McCarthy Tetrault
1170 Peel Street
Montreal
Quebec
Canada H3B 4S8
Auditors and Reporting Accountants Arthur Andersen
Abbots House
Abbey Street
Reading RG1 3BD
Registrars Lloyds TSB Registrars
The Causeway
Worthing
West Sussex
BN99 3UH
4
<PAGE>
PART I - LETTER FROM THE CHAIRMAN OF SHIRE
Shire Pharmaceuticals Group plc
(Registered in England and Wales with Registered Number 2883758)
Directors: Dr J H Cavanaugh (Non-executive Chairman), Registered Office:
R Stahel (Chief Executive), East Anton,
A C Russell (Finance Director), Andover, Hampshire,
Dr J W Totten (R&D Director), SP10 5RG,
Dr B J Price (Senior Non-executive Director), United Kingdom
Dr B Canavan (Non-executive),
Dr Z P Horovitz (Non-executive),
Mr R M Nordmann (Non-executive),
Mr J E Smith (Non-executive),
Mr J T Spitznagel (Non-executive)
o , 2001
To the holders of Ordinary Shares and ADSs and, for information only, to
participants in the Employee Share Schemes
Dear Shareholder,
Proposed Merger with BioChem Pharma Inc.
Introduction
Your Board announced on 11 December 2000 that Shire had entered into a
definitive merger agreement with BioChem Pharma Inc., a Canadian company, under
which Shire and BioChem would merge.
Based upon the market price of Shire's Ordinary Shares on o 2001 (being the
latest practicable date prior to the publication of this document) the Merger
will create one of the leading specialty pharmaceutical companies in the world
with a pro forma estimated market capitalisation at the Closing of (pound) o
($o). The Enlarged Group will possess an enhanced pipeline in its selected
therapeutic areas of CNS, oncology/haematology, anti-virals and vaccines, the
additional financial resources necessary to capitalise on worldwide
opportunities to expand its rapidly growing product ranges within those areas
and the capacity to extend its geographical reach. Utilising Shire's development
expertise, the Enlarged Group will enhance the development of BioChem's pipeline
products and candidates which will be retained for worldwide marketing by the
Enlarged Group. In addition, following the Merger, the Enlarged Group will be
able to expand its areas of therapeutic interest to anti-virals and vaccines and
enhance its development portfolio in oncology.
The Merger will be effected by way of a share-for-share exchange, with BioChem's
shareholders receiving Shire Exchangeco Shares unless they elect to receive
Ordinary Shares or ADSs, provided, that, BioChem Shareholders that are not
Canadian residents will receive Ordinary Shares unless they elect to receive
ADSs. The exchange ratio will be determined by reference to the average closing
price of ADSs during the last 15 trading days ending on the third day before the
Closing of the Merger.
The Shire Exchangeco Shares will be listed on the Toronto Stock Exchange and
will be exchangeable for New Ordinary Shares on a one-for-three basis and will
be exchangeable for Shire ADSs on a one-for-one basis at the request of any
holder of Shire Exchangeco Shares (as set out in more detail in Part VII of this
document). The Shire Exchangeco Shares will confer similar rights and benefits
to the existing Ordinary Shares; holders of Shire Exchangeco Shares will, in
effect, have voting rights at general meetings of Shire by means of Special
Voting Shares in Shire to be held by a trustee for the benefit of the holders of
the Shire Exchangeco Shares. The Shire Exchangeco Shares are being offered to
allow existing Canadian BioChem shareholders to participate in the Merger on a
tax deferred basis.
Based upon the closing price of ADSs on 2001 (being the latest practicable date
prior to the publication of this document) the share-for-share exchange would
value BioChem at approximately $ o million ((pound) o million), and would
involve the issue of o New Ordinary Shares (assuming all existing BioChem
Shareholders exchange their
5
<PAGE>
BioChem Shares for New Ordinary Shares pursuant to the Merger and excluding any
shares to be issued pursuant to the exercise of options under the BioChem Stock
Option Plans or other rights), with existing Shire Shareholders owning
approximately o per cent of the Enlarged Group.
Following the Merger Dr Francesco Bellini, the Honourable James Andrews Grant
and Mr Gerard Veilleux will join your Board as non-executive directors.
Further details on these Proposed Directors and on BioChem are included in this
letter under the heading "Board Members" and in Part o of this document.
Due to its size, the Merger is conditional on, inter alia, Shire Shareholders'
approval. The purpose of this document is to explain why your Board considers
the Merger to be in the best interests of the Company and its Shareholders and
to seek your approval for it at the forthcoming Extraordinary General Meeting.
Those Directors of the Company holding Ordinary Shares and three of those
limited partnerships controlled by HealthCare Ventures LLC (of which your
Chairman is President), who in aggregate hold 9,087,385 Ordinary Shares (or the
ADSs underlying those Ordinary Shares) representing approximately o per cent of
the issued share capital of the Company, have indicated to the Company that they
intend to vote in favour of the Merger in respect of their entire holdings.
Rationale for and benefits of the Merger
The Board believes that the Merger brings together two publicly-traded specialty
pharmaceutical companies with complementary strengths, activities and
competencies. Shire has built effective research and development functions, an
effective sales and marketing organisation in the US and UK and has established
and is expanding its functions in Canada and certain leading European markets.
BioChem has built an outstanding late stage research operation through which it
has generated a pipeline of projects focused in three discrete specialty
therapeutic categories: oncology/haematology, vaccines and anti-virals. The
principal benefits of the Merger are expected to be:
o Diversification. The revenue growth of the combined Shire and BioChem
entity (the "Enlarged Group") will be driven not only by Shire's key
marketed products, Adderall, Pentasa, Agrylin and Carbatrol, and by
BioChem's Second Look and Fluviral, but also by the sales achieved by two
of the world's foremost pharmaceutical companies in GlaxoSmithKline in
respect of 3TC/Epivir, Combivir, Trizivir and Zeffix, and Johnson and
Johnson in respect of Reminyl. In addition, the Enlarged Group expects
Foznol to become a key contributor to revenue growth when regulatory
approvals, which are expected inearly 2002, are obtained.
o Increased financial resources. At 31 December 2000, Shire had indebtedness
of approximately $ o and cash and investments of approximately $ o while
BioChem had indebtedness of approximately $o and approximately $ o in cash
and investments. With pro forma revenues of $ o and net income of $ o for
2000 the Directors and Proposed Directors expect to have greatly enhanced
cash with which to finance the Enlarged Group's development and research
activities. Shire will be required to either obtain consent to the Merger
from its bank lenders under the credit facility entered into at the time
of Shire's merger with Roberts Pharmaceutical Corporation in 1999 or repay
the amount outstanding under the credit facility. Shire has not yet
determined whether to seek consent or repay the amount outstanding.
For purposes of this letter, financial information on BioChem has been
adjusted to consolidate CliniChem and exclude exceptional items.
o A broadened and strengthened pipeline. The Enlarged Group will have 24
products in development of which 12 will be in pre-clinical and Phase I
development, and 12 will be in full clinical development or registration.
This will strengthen the product pipeline in the areas of
oncology/haematology and CNS with a total of 15 products in development in
these areas and will broaden the pipeline of products in development by
the inclusion of 5 products in the areas of anti-virals and vaccines.
o
o Leverage from complementary skills and operations. The Enlarged Group will
have a direct marketing capability in seven of the eight major
pharmaceutical markets in the world. The Enlarged Group will
6
<PAGE>
benefit from the application of existing development capabilities to the
enlarged product pipeline and the direct marketing of these products
through its own specialist sales forces. The Directors and Proposed
Directors expect the Enlarged Group's lead optimisation activities and
network of business and academic relations to provide a regular source of
development candidates to supplement its development activities.
o Operating synergies. The Directors and Proposed Directors of Shire believe
that the Merger will result in certain operating synergies in the
following areas:
o Review of research and development activities: cost savings and
future cost avoidance are expected to result from: establishment of
a budget for the Enlarged Group; a review of the Enlarged Group's
requirements for new research and development projects; thorough
review of the Enlarged Group's research and development portfolio;
and the use by the Enlarged Group of Shire's development
capabilities.
o Financing: the Enlarged Group's net cash and ability to generate
further cash will enable the group to discharge its indebtedness to
its bank lenders, if it chooses, which would result in a net
reduction in financing costs of approximately $3 million in a full
year; and
o Re-organisation of business activities: the re-organisation of
administrative, service and other functions of the Canadian
operations of the Enlarged Group may give rise to operating
synergies for the Enlarged Group.
There will be a substantial one time charge in the [second] quarter of 2001 of
between [o] and [o] in connection with consummating the Merger and restructuring
the Enlarged Group's combined operations. Taking into account the opportunity
for synergies referred to above and excluding the one time charge, the Shire
Board believes the Merger will be accretive to earnings for Shire Shareholders
twelve months after the Closing.
Information on BioChem
BioChem is an international pharmaceutical company dedicated to the research and
development of innovative products for the prevention and treatment of human
diseases, with a focus on infectious diseases and cancer.
Key products and markets
BioChem's first therapeutic product, 3TC/Epivir (lamivudine), has become the
cornerstone of HIV infection/AIDS combination therapies, most recently being
launched as part of GlaxoSmithKline's Trizivirtriple combination tablet.
3TC/Epivir is the most widely-prescribed antiretroviral for HIV infection/AIDS
and is available in over 100 countries. Worldwide sales, including as a
component of the combination tablet Combivir, were $873 million in 1999. BioChem
receives royalties from GlaxoSmithKline on the worldwide sales of 3TC/Epivir for
the treatment of HIV infection/AIDS. 3TC/Epivir is protected by patent until
2009 in the US, with further protection expected in the US for combination
therapies and combination products, Combivir and Trizivir.
A second therapeutic product, Zeffix, an oral treatment for chronic hepatitis B,
is currently being introduced to key markets worldwide by GlaxoSmithKline.
Zeffix improves liver function and histology in the majority of chronic
hepatitis B patients and reduces progression to cirrhosis and reverse cirrhosis.
Zeffix is now available in a number of countries including China, Japan, Taiwan,
South Korea and the US. Worldwide sales of Zeffix were $73.1 million for the
first nine months of 2000. BioChem receives royalties from GlaxoSmithKline on
its worldwide sales of Zeffix. BioChem's marketed products also include PACIS
for the treatment of superficial bladder cancer, Fluviral S/F for the prevention
of influenza and Second Look for the diagnosis of breast cancer.
Project Pipeline
With approximately 450 employees and operating from three sites in Canada and
one in the US, BioChem has a number of projects at various stages of development
including the anti-ivirals BCH-10618 and BCH-13520 for HIV infection/AIDS in the
pre-clinical phase, the anti-cancer compound Troxatyl and FrakeFamide for pain
control in Phase II, nasal and injectable cell culture vaccines for influenza
and a vaccine for Neisseria meningitidis all of which are in Phase I and a
vaccine in pre-clinical for Pseudomonas aeruginosa.
7
<PAGE>
CliniChem
In 1998, CliniChem Development Inc. was formed by BioChem to continue the
research and development of certain of BioChem's therapeutic and vaccine product
candidates with a view to eventual commercialisation. In exchange for BioChem
granting CliniChem an exclusive perpetual licence to use BioChem technology to
conduct the CliniChem programs and related activities, CliniChem agreed to pay
BioChem a monthly technology fee at the rate of CN$352,000 over a period of 48
months. CliniChem contracted its research and development activities to BioChem
under a research and development agreement. BioChem recognised costs related to
these programmes as research and development expenses and billed CliniChem on a
fully burdened cost-plus-5per cent. basis.
BioChem acquired all of the outstanding CliniChem Class A common shares on 15
December 2000and CliniChem was merged into BioChem.
8
<PAGE>
BioChem Summary Financial Information
The following table, which has been extracted from the financial information set
out on pages o to o of this document summarises the financial performance of
BioChem reported in $ under US GAAP, consolidating CliniChem and excluding other
exceptional items,:
<TABLE>
<CAPTION>
1997 1998 1999 [2000]
----- ----- ----- ------
(in millions of dollars)
<S> <C> <C> <C>
Royalties ................................ 89.7 103.8 116.1
Other .................................... 17.4 23.1 19.6
----- ----- -----
Total revenues ........................... 107.1 126.9 135.7
----- ----- -----
Operating income ......................... 50.2 58.9 39.4
----- ----- -----
Net income from contimuing operations .... 56.1 68.0 59.7
</TABLE>
CliniChem contract revenue was $14.6 million and $50.0 million in the years
ended 31 December 1998 and 1999. Exceptional items in 1998 relate to the
disposal of the investment of $85.0 million.
Board Members
Following the Merger, three members of the BioChem Board of Directors, Dr
Francesco Bellini, the Honourable James Andrews Grant and Mr Gerard Veilleux,
will join your board, where their industrial experience and experience in the
pharmaceutical industry in general and in Canada in particular will be a
valuable addition.
Dr Francesco Bellini was a co-founder of BioChem in 1986 and is the company's
current Chairman and Chief Executive Officer. Dr Bellini received a B.Sc. in
chemistry from Loyola College in Montreal in 1972, and a Ph.D. in organic
chemistry from the University of New Brunswick in 1977.
The Honourable James Andrews Grant, a Director of BioChem since 1986, is a
partner with the law firm of Stikeman, Elliott in Montreal. Mr Grant, who also
sits on the boards of several other prominent Canadian corporations, attended
McGill University receiving a B.A. in arts in 1958 and a B.C.L. in law in 1961.
Mr Gerard Veilleux joined the BioChem board in 1999. He is president of Power
Communications Inc. and Vice-President of Power Corporation, a diversified
management and holding company. Mr Veilleux is a director of several public and
private companies as well as a member of the Board of Governors of McGill
University. He has a Master's degree in public administration from Carleton
University and a Bachelor of Commerce from Laval University.
Information on Shire
Shire is a specialty pharmaceutical company focused primarily on four
therapeutic areas: central nervous system disorders, oncology/haematology,
metabolic/bone diseases, and gastroenterology.
Shire's strategy is to in-license, develop and market therapies in its areas of
strategic focus. This approach is complemented by the advanced drug delivery
platforms developed by Shire Laboratories which may be used to enhance the
bioavailability, reduce the side effects or improve the dosage regimen of
existing marketed compounds. Shire seeks to protect the intellectual property
upon which it relies through a range of patents and patent applications (both
its own and that of its licensors).
9
<PAGE>
Products currently marketed in the US are Adderall and DextroStat for Attention
Deficit Hyperactivity Disorder (ADHD), Carbatrol, launched in May 1998, for the
treatment of epilepsy, Pentasa for ulcerative colitis, Agrylin for
thrombocythemia and ProAmatine for orthostatic hypotension. The key UK marketed
products are the Calcichew range of prescription calcium and calcium/vitamin D
products used as adjuncts in the treatment of osteoporosis and Reminyl for the
treatment of Alzheimer's disease.
The Company's lead development products are Reminyl, for the treatment of
Alzheimer's disease; SLI 381, a novel once a day formulation of Adderall;
Foznol, for the treatment of hyperphosphataemia in patients with chronic kidney
failure; Dirame, an orally administered analgesic for treating moderate to
severe pain; SPD421, an anti-epileptic in-licensed from D-Pharm; and SPD420, a
potential treatment for ADHD in-licensed from Cortex. Reminyl is being
co-developed by Shire and Janssen Pharmaceutica NV, a subsidiary of Johnson and
Johnson. The first European authorisations for marketing of Reminyl were granted
in 2000 and various other applications have been made. The US New Drug
Application (NDA) was submitted, by Janssen, on 29 September 1999 and an
approvable letter was issued in August 2000 by the FDA. Foznol is currently in
Phase III trials in Europe, in Phase III in the US and Phase I in Japan. An NDA
for SLI 381, a patent protected derivative of Adderall, was filed on 3 October
2000. Work has also started on the extension of Carbatrol's approved indications
to include bi-polar disease (SPD 417). Shire also has a wide range of drug
delivery technologies that may be applied to its own products or to those of
third parties.
During 2000, Shire has announced the following milestones:
o Reminyl received its EU authorisation in Sweden and was launched in the UK
on 21 September 2000.
o Reminyl received its approvable letter from the FDA.
o An application was submitted to the FDA for once a day Adderall SLI 381.
o The in-licensing of SPD421 from D-Pharmand of SPD420 from Cortex were
announced.
Shire after the Merger
Overview
Following the Merger, the Enlarged Group will be one of the world's leading
global specialty pharmaceutical companies with four areas of focus: central
nervous system disorders, oncology/haematology, anti-virals and vaccines. The
Enlarged Group will refer to itself as "specialty" because its principal
products tend to be prescribed by specialists as opposed to primary care
physicians. Accordingly, a comparatively small sales force such as Shire's can
promote specialty products effectively while it could not be expected to achieve
the necessary coverage of primary care physicians.
The Enlarged Group's principal products will include: in the US, Adderall for
the treatment of Attention Deficit Hyperactivity Disorder; Agrylin for the
treatment of elevated blood platelets; Pentasa for the treatment of ulcerative
colitis, Carbatrol for the treatment of epilepsy; ProAmatine for the treatment
of orthostatic hypotension; and PACIS for the treatment of superficial bladder
cancer; in the UK, the Calcichew range, used primarily as adjuncts in the
treatment of osteoporosis, and Reminyl for the treatment of Alzheimer's disease;
and, in Canada, ProAmatine,Epivir, (marketed in a partnership with
GlaxoSmithKline), Second Look, a product in the early stages of marketing
outside of the US, where the Enlarged Group hopes to be authorised to market in
2001; and Fluviral S/F, a vaccine for the prevention of influenza. In addition,
the Enlarged Group will have a number of products in late stage development
including Dirame and FrakeFamide for the treatment of moderate to severe pain,
Foznol for the treatment of high blood phosphate levels associated with kidney
failure, Troxatyl for the treatment of leukemia and solid tumours; SPD421, an
anti-epileptic in-licensed from D-Pharm and SPD420, a potential treatment for
ADHD in-licensed from Cortex.
After the Merger, the Enlarged Group's revenues will continue to be derived from
three sources: sales of products by sales and marketing operations principally
in the US, the UK and Canada, royalties from sales of Reminyl, Zeffix and
3TC/Epivir and licensing and development fees. For the period ended 31 December
1999, 2000 Shire had revenues of $401.5 million and net income (before an APB 25
stock option charge of $11.9 million andexceptional costs of $135.2 million of
$52.2 million. For the same period, BioChem had revenues of$135.7 million and
net income from continuing operations of $59.7 million.
10
<PAGE>
Strategy and Approach
The Enlarged Group's strategy is to develop products and, where they fall within
the therapeutic focus, to market them through sales organisations in the major
markets of the world. The key elements of the operating strategy are described
below:
Market proprietary products through the Enlarged Group's own sales force
The Enlarged Group believes that higher financial returns can be achieved by
marketing products directly, as opposed to receiving royalties on licensees'
sales. The Merger enhances Shire's sales and marketing capability in Canada. The
Enlarged Group intends to continue to expand its sales and marketing capability,
as opportunities arise, particularly in the US, major European markets, Japan
and through distributors outside of the significant pharmaceutical markets.
Manage development risk
Recognising the inherent risks of failure in drug development, both BioChem and
Shire have historically sought to manage development risk by maintaining a broad
and balanced development portfolio. Shire has also sought to selectively
leverage relationships with collaborative parties. BioChem, through its academic
collaborations and investment in a leveraged network of research companies, has
access to projects and technologies. The combined company is anticipated to
continue reliance on the broad network of contacts to identify product
candidates which can be developed either internally or through collaborative
partnerships.
Focus on the development of innovative products
BioChem's lead optimisation and chemistry expertise has led to the development
and commercialisation of innovative products. Shire has also sought to identify
promising product candidates already under development or exploit a number of
proprietary drug delivery technologies to develop products. In addition to
developing proprietary pipeline products, the Enlarged Group's principal
objective will be to concentrate operations on licensing, acquiring, developing,
marketing and selling proven products and technologies. Both companies have
historically benefited from proven products that generate cash flow, which
contributes partial financial support to drug development activities, and
provides enhanced product sales opportunities for the sales force.
Sales and Marketing
Following the Merger the Enlarged Group will use its sales and marketing
infrastructure to sell and market most of its licensed and internally developed
products. The combined sales and marketing operations of the Enlarged Group in
the US, the UK, Canada and Europe will consist of o , o , o and o sales
representatives, respectively. Following the Merger, this expanded sales force
will have a broader portfolio of products with opportunities to benefit from
increased geographical coverage.
Combined Marketed Products
The table below lists the key currently marketed products of Shire and BioChem
by therapeutic areas, indicating the owner or licensor of the product and who is
marketing the product in which territory.
11
<PAGE>
<TABLE>
<CAPTION>
Products Principal Indication(s) Owner/Licensor Marketed By/Relevant Territory
-------- ----------------------- -------------- ------------------------------
<S> <C> <C> <C>
Treatments for CNS disorders
Adderall ADHD Shire Shire/US
DextroStat ADHD Shire Shire/US
Carbatrol Epilepsy Shire Shire/US
Reminyl Alzheimer's disease Shire Shire/UK (Co-promotion)
Treatments for metabolic/bone diseases
Calcichew range Osteoporosis adjunct Nycomed Shire/UK and Ireland
Treatments for oncology/haematology
Agrylin Elevated blood platelets Shire Shire/US and Canada
ProAmatine Orthostatic hypotension Nycomed Shire/US and Canada
PACIS Bladder cancer BioChem Urocor/US and Paladin Labs/Canada
Anti-Virals
3TC/Epivir/Combivir/ HIV/AIDS BioChem GlaxoSmithKline/Worldwide, except
Trizivir Canada
3TC/Combivir HIV/AIDS BioChem BioChem and GlaxoSmithKline
co-marketed in Canada
Zeffix/Epivir -HBV/ Hepatitis B BioChem GlaxoSmithKline/Worldwide, except
Heptovir/Heptodin Canada
Heptovir Hepatitis B BioChem BioChem and GlaxoSmithKline
co-marketed in Canada
Vaccines
Fluviral S/F Influenza BioChem BioChem/Canada
Treatments for gastrointestinal disorders
Pentasa Ulcerative colitis Ferring Shire/US
Colazide Ulcerative colitis Shire Shire/UK/EU and Southeast Asia
Colace/Peri-Colace Constipation Shire Shire/US and Canada
Computer assisted detection products
Second Look Breast cancer diagnosis Qualia Computing BioChem/Worldwide, except US
</TABLE>
Products under Development
After the Merger, the Enlarged Group will seek to maintain a broad and balanced
approach to the development of new products by, among other things, leveraging
third-party research and development expertise, exploiting investment in
research collaborations and licensing compounds from third parties and
developing them through the clinical phase with a view to marketing them through
the Enlarged Group's sales and marketing organisation or out-licensing if
appropriate. On a combined basis, Shire and BioChem spent approximately $138
million on research and development in the year ended 31 December 1999, which
represents 27 per cent of combined revenues.
The table below lists the key products under development by Shire and BioChem by
therapeutic area, including their development status and their territorial
rights. Where either company has secured a licensee for a product, this fact is
also indicated.
12
<PAGE>
<TABLE>
<CAPTION>
Product(s) Principal Indication(s) Status Territorial Rights
---------- ----------------------- ------ ------------------
<S> <C> <C> <C>
Treatments for CNS disorders
Reminyl (galantamine)(1) Alzheimer's disease In registration or marketed Global
SLI381 ADHD In registration Global
Dirame Moderate/severe pain Phase III Global
FrakeFamide(2) Moderate/severe pain Phase II Global
SPD417 Bi-polar disorder Phase III Global
SPD503 ADHD Phase I Global
SPD418 Epilepsy Phase I Global
SPD502 Stroke Phase I Global excl. Nordic
and Baltic countries
SPD451 Parkinson's disease Pre-clinical Global
Treatments for metabolic diseases
Foznol High blood phosphate levels Phase III Global
in patients with kidney
failure
Treatments for gastroenterological disorders
Pentasa (500 mg) Ulcerative colitis Phase II/III US
Emitasol Nausea and vomiting Phase II/III US, Canada
Balsalazide Ulcerative colitis Phase II/III [Europe], Southeast
Asia
Treatments for oncological/ haematological diseases
Agrylin Thrombocythemia In registration Global
Troxatyl Leukemia and solid tumours Phase II Global
SPD424 Prostate cancer Phase III North America, Europe
Antivirals
BCH10618 HIV/AIDS Pre-clinical Global
BCH13520 HIV/AIDS Pre-clinical Global
Vaccines
Injectable and nasal Influenza Phase I/II North America
influenza vaccine derived
from cell culture
Neisseria meningitides Meningitis, septicemia Phase I Global
vaccine
Pseudomonas aeruginosa Bacteremia,opportunistic Pre-clinical Global
vaccine
</TABLE>
----------
(1) The licensee is Janssen.
(2) The licensee is AstraZeneca(except Canada).
13
<PAGE>
Drug Delivery Technologies
The Enlarged Group will have several platforms of drug delivery technologies
that can be applied to drugs in order to enhance their effectiveness or their
convenience to patients in terms of dosage regimen. Generally, this involves
re-formulating the drug into a new delivery system designed either to enhance
the absorption of the drug into the blood stream or, alternatively, to delay
absorption of the drug into the bloodstream, thereby requiring the patient to
take fewer daily doses.
The Enlarged Group's portfolio of drug delivery technologies will include
technologies designed to develop oral, controlled release delivery of drugs, a
technology for rapid absorption through the tissues of the mouth and several
technologies for predicting and improving bioavailability of drugs. It is
intended to out-license these technologies to third parties in return for
development fees, milestone payments and royalties. It is also intended to
employ these technologies selectively to products being developed internally
where it is believed the characteristics of the product can be improved or
modified to secure a competitive advantage.
Phentermine Litigation
Until April 1998, Shire Richwood Inc. distributed products containing
phentermine, a prescription drug approved in the US as a single agent for short
term use in obesity. Contrary to the approved labelling of these products,
physicians in the US co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly known
as the "fen/phen" diet. In mid-1997, following concerns raised about cardiac
valvular side effects alleged to be associated with this diet regime, the
fenfluramine and dexfenfluramine elements of the "fen/phen" diet were withdrawn
from the US market. SRI and a number of other pharmaceutical companies are being
sued for damages for personal injury and medical monitoring arising from
phentermine used either alone or in combination.
As of 31 December 2000 Shire had been named as a defendant in approximately
3,729 cases related to the "fen/phen" litigation. Shire has been dismissed from
2,178 cases with approximately 1,120 further dismissals pending on the basis
that the plaintiff was shown not to have used Shire's product. In approximately
136 cases, of which 45 have been subsequently dismissed, it has been
specifically alleged that the relevant plaintiff did use Shire's products.
Pursuant to an indemnity from Shire's former contract manufacturer of
phentermine, Eon Labs Manufacturing, Inc. (Eon), legal costs in respect of the
phentermine litigation have to date been met by Eon or its insurance carriers.
Shire also has access to its own products liability policy for certain defence
costs and claims up to a maximum of $o million. In addition, Shire has obtained
additional insurance for claims of third parties up to an aggregate of $o
million (less a self-insured retention of $o million).
The Directors are confident that these claims will not result in any award of
damages against Shire. Nevertheless, Shire intends to defend vigorously any and
all claims made against the Enlarged Group in respect of phentermine and will
continue to seek case dismissals based upon product identification.
Current trading and prospects
On o February 2001, Shire released its audited preliminary statement of results
for the year ended 31 December 2000, the text of which is set out in Part o of
this document. On o January 2001, BioChem announced its [audited] results for
the year ended 31 December 2000, the full text of which is set out in Part o of
this document.
In the Board's opinion, the current outlook for the Enlarged Group's key drivers
of revenue growth remain favourable. Adderall's market share [ ], 3TC
royalties [ ] and following the launch of Zeffix in Japan [ ].
Taking into account the opportunity for synergies and excluding the one time
charge, the Board believes the Merger will be earnings enhancing twelve months
after the Closing.
The Shire audited preliminary statement of results for the year ended 31
December 2000 released on o February 2001 included the following statement on
current trading:
[ ]
14
<PAGE>
Extraordinary General Meeting
Set out at the end of this document is a Notice of Extraordinary General Meeting
of the Company to be held at 35 New Broad Street, London EC2M 1SQ, England, on
oo 2001 at 3.00 p.m.. At this meeting, an ordinary resolution will be proposed
to approve the Merger, to increase the authorised share capital of the Company,
to grant authority to the Directors to allot such capital and to create new
Special Voting Shares and to attach certain rights and restrictions to those
shares. In addition a special resolution will be proposed to increase the
Directors' powers to allot equity securities for cash free of the pre-emption
rights conferred by the Companies Act 1985.
Action to be taken
You will find enclosed a form of proxy for use at the Extraordinary General
Meeting. Whether or not you propose to attend the Extraordinary General Meeting
in person, you are requested to complete the form of proxy in accordance with
the instructions thereon and return it as soon as possible but, in any event, so
as to reach the Company's registrars, Lloyds TSB Registrars, The Causeway,
Worthing, West Sussex, BN99 3UHEngland, not later than [3o 00 p.m.] on o 2001.
The return of a completed form of proxy will not prevent you from attending the
Extraordinary General Meeting and voting in person if you so wish.
Recommendation
The Board, which has received financial advice from Deutsche Bank, considers
that the Merger is in the best interests of Shire and its shareholders as a
whole. In providing advice to the Board, Deutsche Bank has placed reliance on
the Board's commercial assessment of the Merger.
The Directors unanimously recommend you to vote in favour of the Resolutions to
be proposed at the Extraordinary General Meeting, as they intend to do in
respect of shareholdings in which they are interested, which amount in aggregate
to o Ordinary Shares, representing approximately o per cent of the issued share
capital.
Yours sincerely,
Dr. James H. Cavanaugh
Chairman
15
<PAGE>
16
<PAGE>
PART II
- DESCRIPTION OF BIOCHEM
BioChem is an international specialty pharmaceutical company involved in the
research and development, of innovative products for the prevention, detection
and treatment of human diseases.
BioChem's most significant therapeutic products, which have been developed with
GlaxoSmithKline, are 3TC and Zeffix. 3TC is an orally available formulation of
lamivudine for the treatment of patients with HIV infection and AIDS. 3TC is
currently marketed in approximately 100 countries and achieved sales of CAN$1.3
billion in 1999. Zeffix is the first and only orally available treatment for
chronic hepatitis B infection and for the prevention of liver graft reinfection.
Zeffix was first approved outside of the Philippines and Canada in 1999. Zeffix
is approved in over 69 countries and has been launched in over 45 countries.
Zeffix achieved worldwide sales of CAN$36 million in 1999. In August 2000, the
Asia Pacific Consensus Group on the Prevention and Management of Chronic
Hepatitis B and C endorsed Zeffix as a key treatment option for a broad range of
chronic hepatitis B patients.
In September 1997, the U.S. Food and Drug Administration ("FDA") authorised the
marketing of Combivir, the first product to combine two antiretroviral drugs in
a single tablet formulation. Each tablet of Combivir contains 3TC and AZT and
can be taken twice daily, offering the advantage of reducing significantly the
number of tablets a person on a 3TC/AZT based treatment regimen needs to take.
This reduction simplifies the complex multi-drug treatment regimens, thus
potentially enhancing patient adherence to therapy schedules. The European
Commission gave approval to market Combivir in the 15 member states of the
European Union on 18 March 1998. In Canada, the Canadian Health Protection
Branch ("HPB") approved Combivir on 4 December 1998.
On 24 March 1999, the FDA granted approval for expanded prescribing information
regarding the use of 3TC in infants, children and adolescents. In addition, this
approval included an important revision to the indication for use of 3TC in
combination with any other antiretroviral agent for the treatment of HIV
infection in adults and children. On 15 November 2000, the FDA authorised the
marketing of Trizivir in the United States. Each tablet of Trizivir contains
3TC, AZT and abacavir and can be taken twice daily. Trizivir is the first tablet
to combine three anti-HIV agents, thus making it the simplest triple combination
antiretroviral therapy available with the potential to enhance patients'
adherence to their therapy schedule. On 4 January 2001, the European Commission
authorised the marketing of Trizivir in the 15 member states of the European
Union.
BioChem's most advanced therapeutic product candidates are being developed
principally for use in the treatment of cancers and infectious diseases as well
as one product for pain control, FrakeFamide which is in Phase II of clinical
development. BioChem's most advanced product candidate for cancer is Troxatyl
(troxacitabine), a nucleoside analog in clinical development to treat various
forms of cancer. Troxatyl began Phase II monotherapy trials in 1999.
BioChem is also engaged in the research and development of vaccines for human
use. BioChem's direct sales force is marketing a split virus influenza vaccine
developed and manufactured by BioChem to healthcare providers across Canada.
BioChem's vaccine product candidates include a new cell culture-based influenza
vaccine using a novel proprietary cell line and high-cell density microcarrier
technology, which are licensed to GlaxoSmithKline. BioChem is also involved in
research and development of new recombinant protein-based bacterial vaccines.
Therapeutics products
BioChem's most advanced therapeutic product candidates are currently directed at
providing innovative medicines principally in the anticancer and anti-infective
areas. BioChem's research and development activities are either done internally
or through contracts and strategic alliances. The following table represents
BioChem's most advanced therapeutic products:
17
<PAGE>
<TABLE>
<CAPTION>
PRODUCT/CANDIDATE INDICATION DEVELOPMENT STATUS COMMERCIAL RIGHTS
<S> <C> <C> <C>
3TC/Epivir HIV/AIDS On the market BioChem/GlaxoSmithKline
Zeffix/Epivir-HBV/ Hepatitis B On the market BioChem/GlaxoSmithKline
Heptovir/Heptodin infection
Combivir HIV/AIDS On the market BioChem/GlaxoSmithKline
Trizivir HIV/AIDS On the market BioChem/GlaxoSmithKline
PACIS Bladder cancer On the market BioChem
Troxatyl Cancer In development - Phase II BioChem
FrakeFamide (BCH-3963) Pain control In development - Phase II BioChem/AstraZeneca
BCH-10618 ((-)dOTC) HIV/AIDS In development - preclinical BioChem
BCH-13520 HIV/AIDS In development - preclinical BioChem
</TABLE>
AIDS/HIV Infection
The World Health Organization (the "WHO") estimates that, as of the end of 2000,
36.1 million people worldwide had been infected with HIV, the virus that leads
to the development of AIDS. The WHO estimates that, as of the end of 2000,
approximately 920,000 people were infected with HIV in North America and 540,000
in Western Europe and 700,000 in Eastern Europe. Worldwide, there were
approximately 14,500 new HIV infections per day in 2000, totalling 5.3 million
new infections during the year. More than 95 percent of these new infections
occurred in developing countries. HIV infection and AIDS was the fourth leading
cause of death worldwide in 2000 resulting in an estimated 3 million deaths, the
highest number of AIDS death ever. According to World-Wide Antiretroviral Sales,
IMS Report, in 2000, the antiretroviral (anti-HIV) market will reach $3.5
billion in sales, with reverse transcriptase inhibitors representing 54 per cent
of the market ($2 billion). The vast majority of the sales were generated in
North America and Western Europe.
Product on the market -- 3TC
The therapeutic product 3TC (lamivudine) is indicated for the treatment of HIV
infection and AIDS. 3TC was first approved in the United States on 17 November
1995 where it is marketed as Epivir. Approval in Canada shortly followed on 8
December 1995. The Committee on Proprietary Medicinal Products ("CPMP") and the
EMEA on 8 August 1996 gave full approval under exceptional circumstances for the
15 member states of the European Union. On 29 September 1997, the FDA authorised
the marketing of Combivir, the first product to combine two antiretroviral drugs
in a single tablet formulation. Each tablet of Combivir contains 3TC and AZT and
can be taken twice daily, offering the advantage of reducing significantly the
number of tablets a person on a 3TC/AZT based treatment regimen needs to take,
thus enhancing patient adherence to therapy schedules. The European Commission
gave approval to market Combivir in the 15 member states of the European Union
on 18 March 1998. In Canada, the HPB approved Combivir on 4 December 1998.
On 15 November 2000, the FDA authorized the marketing of Trizivir in the United
States. Trizivir is the first product to combine three antiretroviral drugs in a
single tablet formulation. Each tablet of Trizivir contains 3TC, AZT and
abacavir and can be taken twice daily. Trizivir is the simplest triple
combination antiretroviral therapy available with the potential to enhance
patients' adherence to their therapy schedule. On 4 January 2001, the European
Commission authorised the marketing of Trizivir in the 15 member states of the
European Union. GlaxoSmithKline is also currently developing a once-a-day
formulation of 3TC.
The safety and efficacy of 3TC together with 3TC's ease of administration have
successfully established 3TC as the cornerstone of combination therapy in HIV
infection and helped pave the way to combine antiretrovirals for maximum
clinical benefit and compliance. 3TC is being used in the majority of triple and
quadruple combination therapies with other nucleoside analogs, protease
inhibitors and non-nucleoside reverse transcriptase inhibitors ("NNRTI") and was
part of the pivotal clinical trials used as part of the basis for approval of
five other HIV antiretroviral agents: the nucleoside analog abacavir, the NNRTI
efavirenz, and the protease inhibitors indinavir, nelfinavir and amprenavir.
18
<PAGE>
3TC is available for sale and marketing in approximately 100 countries and is
the most widely prescribed medication for HIV and AIDS in the world. Combivir is
available for sale and marketing in more than 80 countries. On 24 March 1999,
the FDA granted approval for expanded prescribing information on the use of 3TC
in infants, children and adolescents. In addition, this approval included an
important revision to the indication for use of 3TC in combination with any
other antiretroviral agent for the treatment of HIV infection in adults and
children
Resistance to drugs is one of the most significant challenges in HIV/AIDS
therapy and viral resistance testing is used increasingly by physicians to
detect mutations and help decide whether a patient should switch to a new
treatment combination. Data presented at the Third International Workshop on HIV
Drug Resistance and Treatment Strategies in San Diego on 24 June 1999 suggests
that combination therapies which contain 3TC remain potent and continue to
suppress HIV even in presence of 3TC resistant mutants.
BioChem has licensed to GlaxoSmithKline the worldwide rights, with the exception
of Canada, to develop, manufacture and sell 3TC. In Canada, 3TC is sold by
BioChem in partnership with GlaxoSmithKline.
In Development
Appearance of drug resistant viruses is an inevitable consequence of prolonged
exposure of HIV to antiretroviral therapy. Therefore, it is still necessary to
develop alternate drug combinations for the long-term successful treatment of
HIV infection. BioChem is focusing its efforts on developing new agents which
are effective against existing drug resistant viruses and can be rationally
incorporated into novel drug combination therapy. The objective of BioChem's
program is to bring to the market drugs which are potent, well tolerated and
active against strains of virus resistant to current therapies. Two compounds,
both novel nucleoside analog reverse transcriptase inhibitors ("NRTIs"), are
currently being developed, namely BCH-10618 and BCH-13520.
A) BCH-13520
BCH-13520 has shown significant inhibition of HIV replication for both wild-type
and drug resistant virus. Importantly, in vitro studies have demonstrated that
BCH-13520 remains active against clinical isolates of HIV which display
phenotypic resistance to marketed NRTI antiretroviral agents such as AZT, 3TC,
d4T and abacavir. Resistance of the HIV viruses to BCH-13520 is slow to develop,
which is in contrast to the relative speed of emergence of virus grown in the
presence of AZT, 3TC or NNRTI's.
In vitro studies have also shown that BCH-13520, when used in combination with
3TC, AZT, Sustiva, d4T, BCH-10618, nevirapine, saquinavir or abacavir,
demonstrates additive or slightly synergistic anti-viral activity with most of
these agents. These data suggest that BCH-13520 will be able to fit into
multi-drug combination regimens. Cytotoxicity and mitochondrial toxicity
evaluations of BCH-13520 demonstrate an excellent toxicity profile in vitro.
Preliminary results of an in vitro myelotoxicity study indicate that BCH-13520
has a similar profile to 3TC and is 200-fold less toxic than AZT to human bone
marrow cells.
In a mouse model of HIV infection, BCH-13520 was able to reduce virus levels in
mouse serum by over one log unit following treatment with BCH-13520 at 30
mg/kg/day for 14 days. Pharmacokinetic and acute toxicity studies have been
completed with rats tolerating the drug at the highest dose administered (2,000
mg/kg p.o.). A two-week escalating repeat dose toxicity evaluation in rats was
also conducted and the product was found to be safe up to 500 mg/kg/day. In
monkeys, bone marrow cytology abnormalities were observed in the first 14-day
study at oral doses of 300 mg/kg and above. Due to the very high
bioavailability, drug exposure was found to be higher than expected and a
follow-on 28-day oral study is presently ongoing using lower doses to identify
the no-adverse effect dose level. No adverse effect dose level has been
identified for intravenous administration in this species at 40 mg/kg.
Taken together, the data indicates that BCH-13520 is a candidate worthy of
advancing into clinical evaluation for the treatment of HIV infection. The
preclinical long-term Good Laboratory Practice safety studies are currently
underway. BioChem plans to submit an IND to begin Phase I trials in the second
quarter of 2001.
B) BCH-10618 (also known as (-)dOTC)
BCH-10618 has been shown to stop the replication of the HIV virus in vitro and
BCH-10618 appears to be capable of inhibiting the replication of HIV viruses
that have become resistant to 3TC, AZT, d4T and abacavir and to some protease
inhibitors. In addition, based on in vitro studies, in contrast to 3TC,
resistance to BCH-10618 appears slow to develop and when mutations do emerge in
the virus, they confer little to no diminished sensitivity to BCH-
19
<PAGE>
10618. BioChem believes these properties may give BCH-10618 a role in the
treatment of both HIV-infected patients in whom standard triple combination
regimens are no longer effective and in patients who have never received
anti-HIV therapy (first-line therapy). Investigation of the toxicity profile of
BCH-10618 in animals is currently underway. BioChem plans to submit an IND
amendment to begin Phase I trials in the second quarter of 2001.
Hepatitis B
Data from the WHO indicate that over 2 billion people worldwide have been, at
some point, infected with hepatitis B virus. Of these 2 billion, there are over
350 million people chronically infected (WHO 1996), 75 per cent of whom are
found in the Asia-Pacific region. There are some 25 million chronic carriers of
HBV in industrialised countries with developed economies and healthcare
programmes. These chronic carriers are at high risk of developing chronic active
hepatitis, which kills up to 2 million persons per year. The WHO estimated that
as many as 25 to 35 per cent of individuals who become chronic carriers will
eventually die prematurely as a result of their hepatitis B from cirrhosis or
hepatocellular carcinoma (liver cancer) as a result of their hepatitis B
infections. Vaccines to prevent hepatitis B are currently available; however,
they have not been shown to be effective in those already infected with the
virus.
Alpha interferon was previously the only widely approved treatment for patients
with chronic active hepatitis B. It is administered by injection, is only
successful in controlling the virus in a minority of patients and is associated
with undesirable side-effects such as flu-like symptoms. Alpha interferon has
poor efficacy in the majority of chronic hepatitis B patients who are located in
the Asia-Pacific region and who could be presumed to have acquired the disease
perinatally or at a young age. This usually leads to an immune tolerance state
of infection where an immunostimulant such as alpha interferon works poorly.
BioChem believes a significant market opportunity exists for an effective and
safe oral anti-viral therapy against chronic hepatitis B, especially for a
product with proven efficacy in immune tolerant chronic hepatitis B patients,
such as the vast majority in the Asia-Pacific region.
Product on the Market -- Zeffix
Zeffix, but also available as Epivir-HBV in the United States, as Heptovir in
Canada and as Heptodin in China, has been developed with GlaxoSmithKline as an
oral treatment for chronic hepatitis B infection and for the prevention of liver
graft reinfection.
GlaxoSmithKline conducted numerous Phase III clinical trials of Zeffix as a
treatment for chronic hepatitis B infection. Clinical trial sites included
countries in the Asia/Pacific region, Europe, Australia, South Africa, Canada
and the United States. Most of these trials were for a duration of one year of
treatment with follow-up periods ranging from three months to two years. A
longer trial for up to five years of Zeffix treatment was completed in Asia.
Results from several clinical trials to date showed that:
1) Zeffix therapy after one year of treatment in a non-Asian trial results in
similar seroconversion rates as a standard course of interferon (Intron A)
and a course of Zeffix and interferon combined.
2) Asian patients have been found to respond equally well to Zeffix as
Caucasians.
3) The seroconversion rate is cumulative with duration of Zeffix treatment.
73 per cent of patients with active liver disease (ALT of twice the upper
limit of normal level) successfully seroconverted at year four.
4) On extended Zeffix treatment, mutant virus showing changes in the YMDD
locus of the virus polymerase emerges in a number of patients. Patients
from this Asian trial who had a YMDD mutated form of the hepatitis B virus
for up to three years continued to have reduced levels of ALT and HBV,
suggesting that despite the presence of a mutated form of the virus,
patients may still obtain benefits from Zeffix.
5) Zeffix significantly improves liver inflammation, reduces progression of
fibrosis and improves fibrosis compared to placebo.
6) Interim results from an International Study demonstrates a regression in
cirrhosis in 64 per cent of patients with pre-existing cirrhosis following
two or more year of treatment with Zeffix.
20
<PAGE>
7) Zeffix monotherapy is effective in a specific group of patients with a
form of the disease known as "pre-core mutant hepatitis B".
8) Response is sustained after stopping Zeffix therapy in a majority of
patients who had achieved seroconversion.
9) The overall safety profile of Zeffix is excellent with side effects
similar to placebo during the one year Phase III treatment period.
Overall these data support the broad utility of Zeffix as a safe and effective
drug for treating a wide range of patients with chronic hepatitis B. At the end
of August 2000, the Asia Pacific Consensus Group on the Prevention and
Management of Chronic Hepatitis B and C in association with the Journal of
Gastroenterology and Hepathology have endorsed Zeffix as a key treatment option
for a broad range of chronic hepatitis B patients. The Asia Pacific guidelines
recommend that hepatitis B patients with active liver disease, liver failure, or
recurrent disease after liver transplantation should be treated with Zeffix.
First approved in the Philippines and in Canada in August and November 1998
respectively, Zeffix has been approved and launched through 1999 in the United
States of America, Hong Kong, Singapore, China, South Korea, some European Union
countries and Taiwan and more recently in Japan. As of December 2000, Zeffix has
been approved in 69 countries and launched in 45 of those. On 20 November 2000,
GlaxoSmithKline launched Zeffix in Japan. Provision of drug information to
medical institutions regarding Zeffix in Japan is carried out by GlaxoSmithKline
K.K. with Ajinomoto Pharma Co. Ltd., through co-promotion as Ajinomoto Pharma
has experience in liver disease.
Pursuant to agreements entered into with GlaxoSmithKline, BioChem has licensed
to GlaxoSmithKline the worldwide rights, with the exception of Canada, to
develop, manufacture and sell Zeffix. In Canada, Zeffix is sold by BioChem in
partnership with GlaxoSmithKline, under the tradename Heptovir.
Bladder Cancer
Bladder cancer is the sixth most common cancer (other than skin cancer) in the
United States according to the American Cancer Society. While progress has been
made in the prevention and treatment of bladder cancer, the American Cancer
Society estimated that in 2000 over 54,000 Americans will be diagnosed with
transitional cell carcinoma of the bladder and more than 12,000 people with
recurrent or acute disease will die from it.
Product on the Market -- PACIS
BioChem has developed a BCG (Bacillus Calmette-Guerin) immunotherapeutic that
has demonstrated efficacy in the treatment of superficial bladder cancers. The
American Urology Association recommends the use of BCG immunotherapeutics as
first line therapy for superficial bladder cancer. BioChem's BCG product is
marketed, through exclusive distributorships, under the trademark PACIS and as
of 31 December 1999, was registered in Canada, Argentina and the Philippines. On
9 March 2000, the FDA approved PACIS for sale in the United States of America as
a first line treatment for carcinoma in situ of the urinary bladder.
Pain Control
The pain control or pain management market is divided into the acute
(short-term) and chronic (longer-term, persistent) pain market and along the
lines of mild, moderate and severe pain. The injectable / intravenous forms of
these analgesics are generally used for pain management in the acute setting,
such as post-operative or trauma pain.
Chronic pain (chronic headache, lower back pain, cancer pain, arthritis pain,
other disorders, such as neuralgias and neuropathies) has been described as one
of the most costly health problems in America. More than 30 million Americans
visit physicians for chronic pain each year (D&MD-Pain Therapeutics: A
Revolution in the Making). It is estimated that in the United States of America
alone, the annual direct and indirect cost is close to $70 billion
(International Association for the Study of Pain). Many chronic pain conditions,
such as arthritis and cancer pain, affect older adults. With the world
population generally living longer, the incidence of cancer and
arthritis-associated pain is expected to increase, as is the growing demand for
potent and safe novel agents to manage moderate to severe pain.
21
<PAGE>
Development Project -- FrakeFamide (BCH-3963)
Further to an agreement signed between BioChem and AstraZeneca, AstraZeneca is
presently developing a peripherally acting u-opioid receptor agonist,
FrakeFamide, discovered by BioChem and intended for the treatment of acute and
chronic pain.
Opioids such as morphine are the cornerstone in clinical pain treatment in spite
of the development of tolerance and their undesirable side effects due to their
action on the central nervous system ("CNS"). The traditionally held view was
that opioid analgesia is mediated exclusively within the CNS. However, recent
research has shown that analgesia at the site of inflammation can be initiated
by the activation of opioid receptors located outside the CNS. Particularly, it
has been demonstrated that the agonists with a preference for u-receptors are
generally the most potent. With that rationale, BioChem scientists discovered
FrakeFamide which is highly selective for the u-opioid receptor and which does
not penetrate the CNS. In animal models, FrakeFamide has exhibited potency
similar to morphine but without the dependence, tolerance or other CNS
associated side effects.
AstraZeneca completed four Phase I studies with an injectable (i.v.)
formulation. The results of these studies showed that FrakeFamide was well
tolerated with no CNS side effects or respiratory depression and suggested that
it was 10 times more potent than morphine as measured by a surrogate marker.
AstraZeneca initiated in 1999 Phase II clinical trials to evaluate the analgesic
potential of FrakeFamide.
There is a large unmet need in the management of acute pain following surgery
and FrakeFamide has the potential to become an important drug in that setting.
The Phase II studies should be completed in early 2001 and additional clinical
trials program with the injectable (i.v.) formulation in the management of
post-operative pain is planned to be initiated thereafter.
AstraZeneca is working on various potential non-parenteral formulations that
would be suitable for administration in the management of chronic pain such as
osteoarthritis and cancer pain.
Cancer Chemotherapy
Epidemiological data (Eur J Cancer 35(1):24-31 1999 UI: 99227530 Abstract)
confirm that each year, there are an estimated 10 million new cases of cancer
diagnosed globally, and this is expected to rise steadily to 20 million by the
year 2020. Over 6.2 million people worldwide died of cancer in 1997. The leading
causes of cancer deaths are attributed to lung (1.1 million), stomach (765,000),
colon and rectum (505,000), and breast (385,000).
The worldwide cancer market including anti-emetics and other adjuvants was
valued at over $23 billion in 1999, or about 6 per cent of the global
pharmaceutical market (IMS World 2000, Annual Review of Pharmaceutical Industry
Performance). In 1999, the cancer market grew by approximately 17 per cent over
the previous year, 1998 (Datamonitor SPRINT Sales 2000).
Development Project -- Troxatyl ( troxacitabine or BCH-4556)
Troxatyl is a nucleoside analog being developed to treat various forms of
cancer. A few nucleoside analogs, such as gemcitabine and Ara-C, are used in the
treatment of certain cancers. Troxatyl is a nucleoside analog that BioChem
believes will provide significant benefits in treating various forms of cancer
due to its novel structure and mechanism of action. BioChem plans to administer
Troxatyl initially by intravenous injection.
Three Phase I safety and pharmacokinetic studies have been completed in a total
of 104 advanced stage cancer patients with solid tumours. The drug was well
tolerated with myelosuppression and skin toxicity (rash and the hand-foot
syndrome) as the main side effects. Major clinical responses were seen in three
patients with malignant melanoma, hypernephroma and a carcinoma of unknown
origin. Based on these encouraging results, BioChem has completed a pilot Phase
II clinical trial program with Troxatyl in various types of solid tumors (e.g.
renal, prostate, colorectal, non-small-cell lung, pancreatic, melanoma) using
the once every three weeks administration schedule. Preliminary evidence of
activity was seen in the renal and pancreatic cancer trials. BioChem is now
investigating the therapeutic effects of Troxatyl using an alternate daily times
5 monthly administration schedule in pancreatic cancer. Additional trials are
planned and BioChem will then focus its Phae III program on the solid tumors
where activity have been identified. Since, in clinical practice, cancers are
22
<PAGE>
treated mainly by using combinations of chemotherapeutic agents, BioChem is also
performing, in parallel, two pilot combination chemotherapy Phase I trials of
Troxatyl with either cisplatin or paclitaxel in solid tumors.
A Phase I safety and pharmacokinetic study in refractory acute leukemia patients
has also been completed at the MD Anderson Cancer Center in Houston, Texas.
Thirty-one patients with acute myelogenous leukemia (AML) were treated and a
specific recommended dose was defined for this patient population. Again, the
drug was well tolerated with skin toxicity and mucositis as the main
non-hematologic side effects. In addition, Troxatyl showed promising signs of
antileukemic activity in this heavily pretreated population of patients: 4/30
evaluable patients had major (complete and partial) responses and 73% showed a
significant decrease in their leukemic cells following therapy. BioChem is now
following up on these results and has initiated testing four different Troxatyl
combination regimens with either idarubicin, topotecan, Ara-C or Mylotarg.
BioChem believes that these trials will optimize the antileukemic activity of
Troxatyl and set the groundwork for subsequent Phase III trials. Four patients
of 13 evaluable with chronic myelogenous leukemia in blastic phase (CML-BP)
achieved a return to chronic phase disease and three others achieved a major
hematologic response. BioChem is now following up on these promising results by
testing single agent Troxatyl in a North American multicenter trial involving 50
CML-BP patients. The FDA will be consulted in the second quarter of 2001 to
determine Troxatyl's registration strategy in this patient population.
Vaccine Products
BioChem is engaged in the research and development of vaccines for human use.
BioChem currently manufactures and markets in Canada a split influenza virus
vaccine. In 1997, BioChem also started to export its split influenza vaccine to
Argentina following the signing of a distribution agreement with Argent C.
Comercio Internacional S.A.
BioChem has a new vaccine production center in Ste-Foy in the Quebec City area.
This centre has an overall area of approximately 118,000 square feet and houses
production, quality-control laboratories and warehousing as well as
administrative offices. Commercial vaccine production in Ste-Foy started in
1998.
BioChem recently initiated vaccine development operations in the United States.
This development unit was created in order to develop BioChem's current and
future vaccine pipeline. It began operations in October 1998 in Northborough,
Massachusetts, in a 62,000-square-foot facility. The facility houses process
research and development, analytical research and development, a cGMP Pilot
Plant for the preparation of clinical lots, clinical development, regulatory
affairs, project planning and management, and administration. BioChem's vaccine
development facility in Northborough, Massachusetts became fully operational in
1999. The first vaccine candidate developed at this location is designed to
protect against bacterial meningitis caused by N. meningitidis.
The following table presents the pipeline of BioChem most advanced vaccine
products:
<TABLE>
<CAPTION>
PRODUCT INDICATION/POTENTIAL DEVELOPMENT COMMERCIAL RIGHTS
APPLICATIONS STATUS
<S> <C> <C> <C>
Fluviral S/F Influenza On the market BioChem
Injectable influenza vaccine Influenza Phase I/II BioChem/Glaxo-SmithKline
derived from cell culture
Nasal influenza vaccine Influenza Phase I BioChem/Glaxo-SmithKline
derived from cell culture
Neisseria meningitidis vaccine Meningitis, septicemia Phase I BioChem
Streptococcus pneumoniae Pneumonia, meningitis, Preclinical BioChem
vaccine otitis media
Pseudomonas aeruginosa vaccine Bacteremia, opportunistic Preclinical BioChem
</TABLE>
Development Projects
Injectable and nasal cell culture-based influenza vaccines
BioChem has developed a new cell culture-based influenza vaccine using a novel
proprietary cell line and high-cell-density microcarrier technology. BioChem
believes that this manufacturing technology will enable a more
23
<PAGE>
profitable and productive process and better flexibility in the case of
increased demand for an influenza vaccine, which would be required during a
pandemic. BioChem completed a Phase I clinical trial in April 1997 in Canada of
a vaccine produced with the cell-culture process. The results of this trial
showed that the safety and immunogenicity of the new vaccine were equivalent to
those of the conventional egg-derived vaccine. BioChem began a Phase II clinical
trial program in Canada in November 1997 that included three trials with 1,000
volunteers. The objective of these trials was to compare the immunogenicity and
safety of the new vaccine with BioChem's commercially available egg-derived
vaccine in three patient populations: young adults, elderly, and children. The
results of these studies demonstrated in all three populations that this novel
vaccine was as safe and as immunogenic as the conventional vaccine for all three
viral strains.
BioChem and GlaxoSmithKline finalized in December 1998 an alliance covering
BioChem's cell culture technology for influenza vaccine and nasal delivery
technologies, including one named the SMBV delivery technology from Biovector
Therapeutics S.A. The technologies were transferred from BioChem to
GlaxoSmithKline during 1999. Under the terms of this agreement, BioChem and
GlaxoSmithKline will co-operate in marketing the products in the United States,
after a period of joint development by both parties. GlaxoSmithKline holds
exclusive marketing rights in Europe and in the rest of the world. Furthermore,
GlaxoSmithKline will manufacture products that are intended for various global
markets, except Canada. Proceeds from the sale of the vaccines in the United
States and in the rest of the world, excluding Canada, will be allocated among
the two partners according to a predetermined formula. In Canada, BioChem will
maintain exclusive rights to the vaccines, including production and marketing
rights. Once approved, this new cell-culture manufacturing technology should
allow BioChem to produce the vaccines more rapidly and in the event of a
pandemic, to manufacture the vaccines in greater volume with less lead time. If
one of the nasal delivery technologies proves successful, it should eliminate
the discomfort associated with injectable vaccines and confer mucosal immunity
in addition to systemic immunity. GlaxoSmithKline conducts all technical and
clinical development. GlaxoSmithKline completed a further Phase I trial with
SMBV in early 2000, following which GlaxoSmithKline advised BioChem of its
intent not to pursue the development of the Biovector technology but to rather
pursue the development of GlaxoSmithKline nasal technology. GlaxoSmithKline is
conducting additional technical and clinical development.
Recombinant protein bacterial vaccines
Effective vaccines stimulate protective immunity. Through a research
collaboration with the Vaccine Research Unit of the Laval University Hospital
Research Center, BioChem conducts research and development of recombinant
protein vaccines against numerous bacterial infections for which no vaccines are
currently available or for which vaccines exist but with less-than-optimal
efficacy or market attractiveness.
Many of the target bacteria for which BioChem is researching or developing
vaccines are encapsulated with polysaccharide. Capsular polysaccharides usually
are effective vaccine antigens. However, polysaccharide vaccines suffer from the
shortcomings that they stimulate only short-term immunity and not immune memory
and are poorly immunogenic in young children. Furthermore, there is significant
antigenic variation among the capsular polysaccharides of different strains of
the same bacteria. Consequently, numerous polysaccharide antigens must be
administered to protect against multiple strains of an encapsulated bacterium.
To overcome some of these limitations, polysaccharide conjugate vaccines have
been and are being developed. However, because of the limited number of
conjugate vaccines that can be combined in a single dose, current conjugate
vaccines provide protection against only a limited number of strains of a
bacterium.
BioChem has adopted the strategy of identifying specific bacterial proteins for
each pathogen that are able to elicit a broad immune response against all
strains of the pathogen and that are immunogenic in young children while
eliciting immune memory. Furthermore, such vaccines should be easier and less
expensive to manufacture and could be combined more easily with vaccines that
protect against other infectious diseases. BioChem is in development with
recombinant protein vaccines against the following three bacterial infections:
A) Neisseria meningitidis
N. meningitidis causes over 300,000 cases of endemic and epidemic disease
worldwide, mostly meningitis and septicemia. N. meningitidis is becoming the
most common cause of bacterial meningitis in the United States of America
affecting approximately 3,000 people each year. The case-fatality rate is
approximately 10 per cent for meningitis and 20 per cent for septicemia, despite
antibiotic therapy. Serogroup B, for which no vaccine exists, accounts for
approximately 30 to 40 per cent of all cases of infection by N. meningitidis.
The current polysaccharide vaccine has antigens for only four (A, C, W135 and Y)
of the 12 N. meningitidis serogroups.
24
<PAGE>
Other groups are developing polysaccharide conjugate vaccines and protein-based
vaccines. There are Serogroup C conjugate vaccines licensed in the UK.
The protein discovered by BioChem appears to hold potential for the development
of a vaccine against all N. meningitidis strains, including Serogroup B. This
protein is present in all meningococcal isolates and is exposed at the surface
of intact meningococcal bacteria, where it is accessible to antibodies.
Immunization of mice with the purified recombinant protein confers protection
against lethal N. meningitidis infection. The serum antibodies obtained from the
immunized mice kill N. meningitidis cells. This type of bactericidal activity is
generally recognized as being indicative of clinical protection against N.
meningitidis infection. BioChem has developed a clinical-trial-scale
manufacturing process and conducted a Phase I clinical trial in Canada from
November 1999 into 2000. The data from this clinical trial demonstrated that the
vaccine was generally well tolerated and immunogenic and was able to elicit
serum bactericidal antibodies. Additional clinical studies will be performed on
an improved formulation of the vaccine.
B) Streptococcus pneumoniae
S. pneumoniae infections are among the leading causes worldwide of illness and
death in young children, persons with underlying debilitating medical conditions
and the elderly. S pneumoniae infections have accounted annually for 3,000to
5,000 cases of meningitis, 200,000 to 600,000 cases of pneumonia and
7,000,000-10,000,000 cases of acute otitis media in the United States of America
alone. According to the CDC, the case fatality rates for some immunocompromised
and other high-risk patients have been reported to be higher than 55 per cent
for meningitis and 40 per cent for pneumonia, despite appropriate antibiotic
therapy. In children, S. pneumoniae causes 30 to 50 per cent of all cases of
otitis media. Increased resistance to penicillin and other antibiotics has
spread rapidly, such that there is an increased need for effective pneumococcal
vaccines. S. pneumoniae strains are divided into at least 90 serologically
capsular polysaccharide types. A polysaccharide vaccine against the 23 most
common serotypes is available but is no more than 60 per cent effective in
preventing pneumococcal meningitis in adults but is poorly effective in infants
under two years of age and in preventing pneumonia in the elderly; it is not
currently used to prevent otitis media. An heptavalent conjugate vaccine
composed of seven polysaccharides coupled to a protein carrier was approved by
the FDA in February 2000 for immunization of infants under age two. However,
this product would cover only 60 to 75 per cent of disease-causing serotypes and
is technically complex to produce, such that it may be difficult to combine with
other vaccines. Moreover, it is not indicated for use in adults, and its
effectiveness in preventing ear infections has not been documented by the FDA.
Other groups are developing polysaccharide conjugate vaccines and protein-based
vaccines.
BioChem has discovered proteins that appear to hold great potential for the
development of a new vaccine against all serotypes of pneumococcal infections.
These proteins are highly immunogenic in mice. Immunized mice were protected
against a lethal challenge in both bacteremia and pneumonia models of infection.
Sera from immunized rabbits and monkeys also can protect mice against lethal
challenge. These proteins are conserved antigenically among pneumococcal
isolates, exposed at the pneumococcal surface and accessible to protective
antibodies. Therefore, BioChem believes that these proteins have the necessary
characteristics to be considered potential candidates for the development of a
broad-range vaccine for preventing pneumococcal infections.
C) Pseudomonas aeruginosa
P. aeruginosa are ubiquitous bacteria that cause primarily opportunistic
infections in hosts who are compromised in their health status. The bacteria are
prevalent in moist areas in hospital settings. Infection can lead to serious and
sometimes life-threatening diseases in immunocompromised people. The prevalence
of antibiotic resistance is high and increasing. Other groups are developing
polysaccharide conjugate vaccines and protein-based vaccines.
BioChem initiated a collaboration with Cytovax Biotechnologies. Scientists at
the University of Alberta had been conducting research on the pili of P.
aeruginoas, which are appendages responsible for bacterial attachment to cells.
While pili can elicit protective immunity against experimental infection, the
protection is very highly type-specific, which would mean that a pilin vaccin
would have to be highly multivalent, hence impractical to develop. These
scientists identified sequences at the tip of the pili that were less variable
and could elicit protective immune responses. Based on the pili tip sequences
Cytovax has developed a candidate vaccine that would consist of 2-3 peptides,
each conjugated to a carrier protein to enhance their immunogenicity. Cytovax
and BioChem are collaborating in research, analytical, process, clinical, and
regulatory issues. The vaccine program is in preclinical development.
25
<PAGE>
Computer-Assisted Detection Products
In July 1998, BioChem began investing in a new technology platform developed by
Qualia Computing, Inc. ("Qualia") a privately held US medical computer science
company. BioChem obtained exclusive rights to commercialize any life science
product developed from this platform. The Qualia technology platform is a
cognitive system that utilizes artificial intelligence, artificial neural
networks and advanced information processing technologies to solve complex
problems in the life science area. BioChem formed a new company, CADx Medical
Systems Inc. ("CADx") in July of 1999 to develop the technology into products
and to commercialize the products on a worldwide basis. CADx will develop
products that focus on the clinical and industrial applications of this
technology. The first commercial product is Second Look, a computer-assisted
detection system for mammography designed to assist the radiologist in the
earlier diagnosis of breast cancer. Commercialisation of Second Look started in
mid 1999.
In addition, BioChem has options to other medical applications of this
technology platform. For examples, potential applications of this technology
platform currently being investigated include cardiovascular disease diagnostic,
drug design, lead optimisation and genomics.
Investments
GeneChem
In March 1997, BioChem agreed to make an investment of CAN$30 million in
GeneChem Technologies Venture Fund L.P., a venture capital fund sponsored by
BioChem's newly created subsidiary, GeneChem Financial Corporation. This CAN$100
million fund invests in advanced academic research projects and early-stage
private or public companies in the area of genomics and related technologies for
human application. BioChem's partners in this fund are a select group of
financial investors. As of 31 December 2000, CAN$21 million had been invested in
GeneChem Technologies Venture Fund, L.P. by BioChem.
On 14 September 2000, BioChem entered into an agreement to invest CAN $15
million in GeneChem Therapeutic Venture Fund L.P., a new CAN$136.5 million
capital fund. GeneChem Therapeutic Venture Fund L.P. will invest in genomics
companies focusing on cancer and infectious diseases. The general partner and
manager of GeneChem Technologies Venture Fund L.P. and GeneChem Therapeutics
Venture Fund L.P. are GeneChem Enterprise Inc. and GeneChem Management Inc., two
indirect subsidiaries of BioChem.
PART III
FINANCIAL INFORMATION ON BIOCHEM
The financial information contained in this Part III is extracted without
material adjustment from the audited consolidated financial statements of
BioChem (referred to as "the company" in this Part III) for each of the three
years in the periods ended 31 December 2000, 1999 and 1998 filed on Form 20-F
pursuant to the US Securities Exchange Act of 1934. The financial information
has been prepared in accordance with Canadian GAAP in Canadian dollars. The
independent public accountants of BioChem for the years ended 31 December 2000,
1999 and 1998 were Raymond Chabot Grant Thornton who have respectively issued
audit opinions on each of those three financial years.
[ [Preliminary] 2000 numbers to follow]
26
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of Canadian dollars except per share information)
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Operating revenue
Sales 23,412 22,094
Royalties 172,588 154,122
Research and development contracts 79,923 33,718
Interest 7,528 9,869
Other 6,824 5,162
-------------------------------------------------------------------------------------------------------------------
290,275 224,965
-------------------------------------------------------------------------------------------------------------------
Expenses
Cost of sales 14,223 11,812
Selling and administrative 26,081 31,250
Research and development (note 4) 87,498 49,116
Financial (note 4) (918) (114)
-------------------------------------------------------------------------------------------------------------------
126,884 92,064
-------------------------------------------------------------------------------------------------------------------
Earnings before depreciation, amortisation and other 163,391 132,901
Depreciation and amortisation (note 4) (8,282) (6,952)
-------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and other 155,109 125,949
Gain on sale of long-term investments 24,181 --
Income taxes (note 5) (12,091) (9,479)
Non-controlling interest -- 1,428
Share of loss of a company subject to significant influence (note 8) -- --
-------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 167,199 117, 898
Earnings (loss) from discontinued operations (note 3) (18,097) (3,124)
-------------------------------------------------------------------------------------------------------------------
Net income 149,102 114,774
-------------------------------------------------------------------------------------------------------------------
Basic earnings per common share
Continuing operations 1.59 1.09
Net income 1.42 1.06
Fully diluted earnings per common share
Continuing operations 1.57 1.09
Net income 1.41 1.06
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retained earnings, beginning of year 45,813 81,039
Net income 149,102 114,774
Premium on repurchase of common shares (note 13) (209,497) --
Reduction arising from the distribution of the CliniChem Class A
shares (note 14) -- (150,000)
-------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of year (14,582) 45,813
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Earnings from continuing operations 167,199 117,898
Non-cash items (note 16) (17,385) 6,279
-------------------------------------------------------------------------------------------------------------------
Operating cash flow 149,814 124,177
Changes in non-cash working capital items (note 16) (10,811) (12,586)
-------------------------------------------------------------------------------------------------------------------
139,003 111,591
-------------------------------------------------------------------------------------------------------------------
Investing activities
Maturity of temporary investments 120,295 90,757
Purchase of temporary investments (81,460) (146,264)
Acquisition of long-term investments (16,284) (38,014)
Proceeds from sale of long-term investments 31,804 --
Acquisition of non-controlling interest -- (16,214)
Capital expenditures (41,071) (22,048)
Disposal of capital assets 1,048 --
Other (2,082) (1,336)
-------------------------------------------------------------------------------------------------------------------
12,250 (133,119)
-------------------------------------------------------------------------------------------------------------------
Financing activities
Increase (decrease) in bank indebtedness (2,276) 2,016
Increase in long-term debt -- 1,498
Repayment of long-term debt (3,660) (8,089)
Non-controlling interest -- --
Issuance of common shares 4,050 3,934
Repurchase of common shares (121,158) --
Distribution of the CliniChem Class A shares -- (150,000)
-------------------------------------------------------------------------------------------------------------------
(123,044) (150,641)
-------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment (2,900) 2,201
-------------------------------------------------------------------------------------------------------------------
Cash flows related to continuing operations 25,309 (169,968)
Cash flows related to discontinued operations (10,319) 2,371
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 14,990 (167,597)
Cash and cash equivalents, beginning of year 53,801 221,398
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 68,791 53,801
-------------------------------------------------------------------------------------------------------------------
Pre-acquisition free cash flow 96,898 88,207
-------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Pre-acquisition free cash flow includes cash flow from operating activities
after capital expenditures, disposal of capital assets and other items in
investing activities.
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 68,791 53,801
Temporary investments 81,460 120,295
Accounts receivable (note 6) 83,331 64,871
Inventories (note 7) 3,236 2,312
Prepaid expenses 3,089 2,464
Current assets of discontinued operations 89,620 123,586
-------------------------------------------------------------------------------------------------------------------
329,527 367,329
Long-term investments (note 8) 110,324 103,746
Capital assets (note 9) 137,988 98,778
Other assets (note 10) 12,880 10,846
Non-current assets of discontinued operations 33,998 51,863
-------------------------------------------------------------------------------------------------------------------
624,717 632,562
-------------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
Bank indebtedness -- 2,276
Accounts payable and accrued liabilities (note 11) 45,314 25,122
Current portion of long-term debt (note 12) 600 942
Current liabilities of discontinued operations 42,558 67,906
-------------------------------------------------------------------------------------------------------------------
88,472 96,246
Long-term debt (note 12) 124,614 12,470
Non-current liabilities of discontinued operations 34,767 45,225
-------------------------------------------------------------------------------------------------------------------
247,853 153,941
-------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Capital stock (note 13) 382,174 408,365
Contributed surplus 9,451 10,199
Retained earnings (14,582) 45,813
Foreign currency translation adjustment (note 15) (179) 14,244
-------------------------------------------------------------------------------------------------------------------
376,864 478,621
-------------------------------------------------------------------------------------------------------------------
624,717 632,562
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE>
Notes to consolidated financial statements
(tabular amounts are in thousands of Canadian dollars except per share
information)
1. Nature of operations
The company is an international biopharmaceutical company dedicated to the
research and development and commercialisation of innovative products for the
prevention and treatment of human diseases with a focus in the anti-infective
and anticancer areas.
2. Significant accounting policies
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. The financial statements
differ in certain respects from generally accepted accounting principles in the
United States, as described in note 22.
Principles of consolidation
The consolidated financial statements include the accounts of the company and
those of its subsidiaries since their date of acquisition or creation.
Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts presented in the financial statements
and the accompanying notes. Actual results could differ from these estimates.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated
at the exchange rate in effect at year-end and non-monetary items are translated
at historical exchange rates. Operating revenue and expenses are translated at
average exchange rates prevailing during the year. Gains or losses arising from
these translations are included in earnings, with the exception of unrealised
foreign exchange gains or losses on long-term monetary items, which are
amortised over the remaining period of the related items.
Assets and liabilities of self-sustaining foreign operations are translated at
the exchange rate in effect at year-end. Operating revenue and expense items are
translated at average exchange rates prevailing during the year. Any
corresponding foreign exchange gains and losses are deferred and disclosed
separately as part of shareholders' equity and are recognised in earnings when
the interest in the foreign operations is reduced.
Cash equivalents and temporary investments
Cash equivalents which consist primarily of highly liquid bank term deposits and
commercial paper are restricted to investments which have an original maturity
of three months or less. Investments which have an original maturity of more
than three months are disclosed as temporary investments.
Inventory valuation
The raw materials inventory is valued at the lower of cost and replacement cost.
The finished goods and work-in-process inventories are valued at the lower of
cost and net realisable value. Cost is determined using the first in, first out
method.
Long-term investments
The investment in common shares of a company subject to significant influence is
accounted for by the equity method and other investments are recorded at
acquisition cost. When there has been a decrease in value of a long-term
investment that is other than a temporary decline, the investment is written
down to recognise the loss.
Capital assets
Capital assets are recorded at acquisition cost. Rights, licences and patents
include acquisition costs, patent registration costs and other expenses incurred
to obtain the licences necessary to market and manufacture products.
30
<PAGE>
Depreciation and amortisation are calculated as follows:
Methods Annual rates
--------------------------------------------------------------------------------
Buildings Declining balance 5% to 10%
Equipment Declining balance 10% to 40%
Leasehold improvements Straight-line Over the lease terms
Rights, licences and patents Straight-line 5 to 10 years, commencing
in the year in which the
product is marketed
Goodwill
Goodwill represents the excess of the cost of acquisitions over the fair value
of the net assets acquired and is evaluated for any impairment in value. The
evaluation consists of a review of the forecasted future earnings and the
undiscounted future cash flows of the operations acquired. Any permanent
impairment in the carrying value is charged to earnings in the year incurred.
The company concluded that the carrying value of goodwill had not sustained a
permanent impairment in value for the years ended 31 December 1999 and 1998.
Goodwill is amortised on a straight-line basis over a period of 20 years, ending
in 2018.
Deferred income taxes
The company follows the tax allocation basis of accounting for income taxes.
Deferred income taxes result from timing differences between the amount charged
to earnings and the tax deduction.
Research and development
Research and development contract revenues are recorded on the basis of direct
costs incurred, in addition to indirect costs and a portion of overhead
expenses. Research and development contract revenues also include milestone
revenue relating to research and development agreements.
Research and development expenses are recognised as incurred, net of related tax
credits, and include a share of administrative expenses.
Earnings per common share
Basic and fully diluted earnings per common share are calculated using the
weighted average number of common shares outstanding during the year. Fully
diluted earnings per share give effect to the potential exercise of outstanding
stock purchase options.
3. Discontinued operations
On 29 January 1999, the company adopted a formal plan to dispose of its
diagnostic operations. For reporting purposes, the results and financial
position of this business segment have been presented as discontinued
operations. Accordingly, prior years figures have been restated to reflect this
change.
In July 1999, the company disposed of the haematology operations of its
diagnostics subsidiary. In January 2000, the company announced that it had
reached an agreement in principle to dispose of the remaining operations to a
management-led group of this subsidiary. The proceeds of disposition will be
determined according to agreed upon terms and repayment is contingent upon
future cash flows. The company has guaranteed the reimbursement of a long-term
debt of this subsidiary in the amount of 37.3 billion Italian lire
(CAN$27,952,000 as at 31 December 1999 and CAN$34,512,000 as at 31 December
1998).
The results of discontinued operations are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Operating revenue 75,975 122,419
Results of operations to measurement date (1,097) (3,124)
Estimated net loss on disposal (17,000) --
--------------------------------------------------
(18,097) (3,124)
</TABLE>
31
<PAGE>
4. Information on the consolidated statements of earnings
Research and development
Research and development expenses are disclosed net of tax credits which
amounted to $2,434,000 in 1999 and $1,935,000 in 1998.
Financial expenses
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Interest on long-term debt 2,819 98
Other interest 8 106
Foreign exchange gain (3,960) (298)
Amortisation of deferred foreign exchange losses (gains) 215 (20)
-------------------------------------------------
(918) (114)
</TABLE>
Depreciation and amortisation
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Capital assets 7,344 5,863
Goodwill 344 228
Deferred charges 594 861
-------------------------------------------------
8,282 6,952
</TABLE>
5. Income taxes
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Income taxes at combined statutory tax rates 13,870 9,856
Non-deductible items 459 75
Realisation of previously unrecorded tax benefit (2,526) (879)
Large corporations tax 288 427
-------------------------------------------------
Income taxes at effective tax rates 12,091 9,479
</TABLE>
The provision for income taxes comprises the following:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Current 12,399 9,479
Deferred (308) -
-------------- ---------------- ----------------
12,091 9,479
</TABLE>
As at 31 December 1999, the company had accumulated research and development
expenses in the amount of approximately $101,000,000 which can be used to reduce
taxable income in future years and which have no expiration date. In addition,
the company has operating losses carried forward of approximately $8,000,000
which expire on various dates from 2001 to 2006.
As at 31 December 1999, the company had investment tax credits amounting to
approximately $12,400,000 ($14,200,000 as at 31 December 1998) which may be used
to reduce future taxes payable. These credits expire in the years 2004 to 2009.
32
<PAGE>
The tax benefits in respect of these items have not been reflected in the
consolidated financial statements as at 31 December, 1999.
6. Accounts receivable
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Trade 4,048 5,124
Royalties receivable from a shareholder 48,312 43,585
Scientific research and experimental development tax credits 1,500 1,749
Research and development contracts 19,216 6,357
Other 10,255 8,056
-------------------------------------------------
83,331 64,871
</TABLE>
7. Inventories
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Raw materials 890 574
Work-in-process 2,198 1,427
Finished goods 148 311
-------------------------------------------------
3,236 2,312
</TABLE>
8. Long-term investments
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Investments in private companies, at cost 80,882 75,687
Shares in public companies, at cost 11,258 9,065
Investments in a company subject to significant
influence-- North American Vaccine, Inc.(a)
Common shares, at equity value -- --
Preferred shares, at cost 5,194 5,194
Convertible notes, at cost 12,990 13,800
--------------------------------------------------
110,324 103,746
</TABLE>
(a) Investments in a company subject to significant influence - North American
Vaccine, Inc. Common shares, at equity value
North American Vaccine, Inc. (NAVA) is a public company listed on the American
Stock Exchange. BioChem holds 32.0per cent. of NAVA's outstanding common shares
as at 31 December, 1999, or 10,522,640 shares (34.7per cent. or 11,179,114
shares as at 31 December 1998). As at 31 December 1999, the price per common
share at the close of the market was $6.49 or US$4.50 ($13.61 or US$8.88 as at
31 December 1998). As at 31 December 1999, the market value of the investment in
common shares based on the closing market price at the balance sheet date
amounted to $68,343,000 ($152,148,000 as at 31 December,1998).
In 1999, the company exercised all 57,812 options held to acquire common shares
of NAVA at a price of $4.48 (US$2.92) per share for a total of $258,838
(US$168,811). In addition, BioChem sold 714,286 common shares of NAVA for
proceeds of $7,371,000 (US$5,000,000).
During the year, the company has guaranteed the reimbursement of NAVA's line of
credit to a maximum amount of US$6,000,000.
The company's share of losses in the common shares of NAVA in excess of its
equity value of nil amounted to $23,439,000 in 1999 and $29,141,000 in 1998.
33
<PAGE>
Preferred shares, at cost
The company holds 50per cent. of NAVA's preferred shares as at 31 December, 1999
and 1998, or 1,000,000 shares. Each preferred share is convertible into two
common shares. The market value of the investment in preferred shares, based on
the closing market price of the common shares at the balance sheet date, is
$12,990,000 ($27,220,000 as at 31 December, 1998).
Convertible notes, at cost
The convertible notes of $12,989,700 (US$9,000,000) bear interest at the rate of
4.5per cent. payable semi-annually and mature in November 2003. The notes are
secured by equipment and patents of NAVA and are convertible at all times into
common shares of NAVA at the rate of 117.0864 shares per US$1,000 of capital.
The carrying amount of the notes approximates the fair value.
Financial position and earnings
The financial position of NAVA as at 31 December 1999 and 1998, as well as the
earnings for the years ended 31 December 1999 and 1998, presented in accordance
with generally accepted accounting principles in the United States, in thousands
of Canadian dollars, are as follows:
2000 1999 1998
Financial position $ $ $
Total assets 49,039 98,936
Total liabilities 190,250 189,361
Shareholders' equity (141,211) (90,425)
Earnings
Revenue 16,280 12,430
Net loss (73,248) (83,979)
Disposal of investments in NAVA
On 18 November 1999, the company entered into an agreement with a publicly
traded corporation to vote in favour of the acquisition by this corporation of
all of the outstanding shares of NAVA. Pursuant to the agreement, the
corporation has agreed to exchange each share of NAVA's common stock for an
amount of US$7 per share composed of cash and common stock. This transaction is
conditional upon certain events expected to occur in 2000 and will be accounted
for when concluded.
9. Capital assets
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Cost
Land 6,401 5,414
Buildings 96,464 68,298
Equipment and leasehold improvements 34,012 22,550
Rights, licences and patents 25,354 19,085
------------------------------------------------
162,231 115,347
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Accumulated depreciation and amortisation
Buildings 8,519 6,303
Equipment and leasehold improvements 13,248 8,366
Rights, licences and patents 2,476 1,900
------------------------------------------------
24,243 16,569
------------------------------------------------
Net book value 137,988 98,778
</TABLE>
The capital expenditures shown in the consolidated statement of cash flows are
presented excluding the variation in construction-related accounts payable.
Building costs include an amount of $24,401,000 in 1999 and $20,998,000 in 1998
for items that were not utilised and therefore not depreciated.
34
<PAGE>
10. Other assets
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Goodwill, at net book value 6,705 7,049
Deferred charges, at net book value 4,648 3,542
Deferred foreign exchange loss 722 128
Other, at cost 805 127
-------------------------------------------------
12,880 10,846
</TABLE>
11. Accounts payable and accrued liabilities
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Accounts payable and accrued liabilities 27,358 14,888
Construction-related accounts payable 6,664 207
Income taxes payable 11,292 10,027
------------------------------------------------
45,314 25,122
</TABLE>
12. Long-term debt
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Promissory note to a shareholder totalling US$80,000,000 115,464 --
bearing interest at 5per cent. per annum, repayable in 2001
Bank loans, bearing interest at the lender's prime rate, 4,800 8,460
secured by a hypothec on land and building, repayable in
annual instalments of $600,000 and a final payment totalling
$3,600,000 in 2002 and renegotiable for an additional 5-year
period. A subsidiary has undertaken to respect certain
financial ratios. (a)
Federal and provincial government loans, with a maximum 4,950 4,950
available amount of $5,500,000, non-interest bearing and
repayable in maximum annual instalments of $1,100,000
commencing in 2002
Obligations under capital leases maturing in 1999 -- 2
-------------------------------------------------
125,214 13,412
Less: current portion 600 942
--------------------------------------------------
124,614 12,470
--------------------------------------------------
</TABLE>
(a) The company entered into an agreement with Investissement Quebec (IQ)
whereby IQ guarantees, until 2006, 80per cent. of a maximum loan of
$4,800,000. IQ will reimburse the company the aggregate interest of this
loan until 2001 to a maximum of $1,875,000.
Payments due in each of the next five years are as follows:
$
--------------------------------------------------------------------------------
2000 600
2001 116,064
2002 4,590
2003 990
2004 990
35
<PAGE>
13. Capital stock
Authorised shares
An unlimited number of voting common shares, without par value.
Issued shares
The changes to the company's capital stock are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Number of shares
Balance, beginning of year 108,735,790 108,255,640
Share repurchase (8,000,000) --
Exercise of share options 279,800 480,150
---------------------------------------------------
Balance, end of year 101,015,590 108,735,790
---------------------------------------------------
Weighted average number of common shares outstanding 105,312,719 108,442,700
---------------------------------------------------
</TABLE>
A two-for-one stock split of common shares took effect on 7 April 1997. All
information relating to common shares reflects this stock split.
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
Amounts
<S> <C> <C>
Balance, beginning of year 408,365 404,431
Share repurchase (30,241) --
Exercise of share options 4,050 3,934
-------------------------------------------------
Balance, end of year 382,174 408,365
</TABLE>
Share repurchase
On 19 July 1999, the company completed its purchase for cancellation of eight
million of the company's common shares held by Glaxo Wellcome Inc. at a price of
US$20 per share. Payment of these shares is to be made in two stages:
$121,158,000 (US$80 million) was paid on 19 July 1999 and the balance is
presented as long-term debt and due on 19 January 2001. The above-mentioned
transaction was recorded as follows: $30,241,000 as a reduction to capital
stock, $748,000 as a reduction to contributed surplus and $209,497,000 as a
charge to retained earnings.
Stock purchase options
Stock option plan
The company maintains a stock option plan intended for directors, officers,
employees and consultants of the company. The total number of options that may
be granted under the terms of the plan cannot exceed 19,250,000. The exercise
price of options granted under the plan is determined by the Board of Directors
of the company and cannot be lower than the market value on the date the options
are granted. These options expire no later than ten years after the date they
are granted.
The changes to the number of stock options granted by the company are as
follows:
36
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Balance, beginning of year 6,520,600 6,182,600
Granted at a weighted average price of $38.17 in 1999, 443,000 973,450
$31.84 in 1998 and $35.59 in 1997
Exercised at a weighted average price of $14.47 in 1999, (279,800) (480,150)
$8.19 in 1998 and $11.89 in 1997
------------------------------------------------
Cancelled (135,050) (155,300)
-----------------------------------------------
Balance, end of year 6,548,750 6,520,600
-----------------------------------------------
Weighted average price of options outstanding at end of year $25.91 $24.36
------------------------------------------------
Options exercisable at end of year 3,805,790 3,173,850
</TABLE>
37
<PAGE>
The information about stock options outstanding as at 31 December [1999] is as
follows:
<TABLE>
<CAPTION>
Number of options Exercise Weighted average Weighted average Number of Weighted average
outstanding prices remaining life exercise price options exercise price of
of options exercisable options
outstanding exercisable
<S> <C> <C> <C> <C> <C>
$6.19 to $7.50 185,700 4.4 years 6.59 185,700 6.59
$7.51 to $10.00 272,450 3.9 years 8.60 232,450 8.54
$10.01 to $15.00 1,598,000 2.1 years 11.17 1,598,000 11.17
$15.01 to $22.50 226,000 3.3 years 17.59 201,000 17.44
$22.51 to $33.00 1,904,600 7.3 years 30.79 804,540 30.45
$33.01 to $40.40 2,362,000 7.5 years 36.27 784,100 35.67
------------ ---------------------------------------------------------
6,548,750 25.91 3,805,790 20.24
</TABLE>
The weighted average price of options exercisable for 1998 was $16.86.
Investissement Quebec
In consideration for the guarantee of a subsidiary's loan relating to a building
and reimbursement of interest on this loan, the company has granted
Investissement Quebec an option to purchase 123,476 common shares at an exercise
price of $5.15 per share. This option expires in July 2001.
Deferred share unit plan
In 1998, the company introduced a long-term incentive plan for directors and
certain executives. Under the plan, the participants may elect to be allocated,
in lieu of a cash payment, a portion or all of the annual bonus or fees in the
form of Deferred Share Units (DSUs). The number of DSUs to be credited is based
on the amount of the annual bonus in the case of executives, or directors fees
in the case of directors, divided by the market value of the company's common
shares at a predetermined date. The DSUs are redeemable (either in cash or
common shares or a combination of cash and common shares) only upon the
participant's retirement, death, resignation or termination. Compensation
expense in respect of the DSUs is charged to income during the year incurred and
amounted to $761,000 in 1999 and $951,000 in 1998.
Shareholder Rights Plan
During 1995, the shareholders of the company approved a Shareholder Rights Plan
(Rights Plan). Under the Rights Plan, one common share purchase right was issued
on 28 April 1995 in respect of each outstanding common share and a share
purchase right for each common share issued thereafter. These rights are
exercisable in a situation of public offering where certain conditions are not
respected. Each right entitles the holder to purchase, from the company, one
common share at a specific price, subject to certain anti-dilution adjustments.
The Rights Plan expires on 30 June 2003, or unless terminated earlier by the
company's Board of Directors. The purpose of the Rights Plan is to require
anyone, who seeks to acquire 20per cent. or more of the company's voting shares,
to present a bid complying with specific provisions.
14. Transactions concluded with CliniChem Development Inc.
In 1998, CliniChem Development Inc. (CliniChem) was formed by BioChem to conduct
research and development of certain of the company's human therapeutic and
vaccine product candidates.
On 8 June 1998, BioChem made a $150,000,000 cash contribution to CliniChem's
capital. The shares of CliniChem held by BioChem were exchanged for Class A and
B common shares of CliniChem. As at 26 June 1998, each holder of record of
BioChem common shares received one Class A common share of CliniChem for each 40
common shares of BioChem held on 22 June,1998.
The fair value of the Class A common shares of CliniChem distributed to
BioChem's shareholders was approximately $24,000,000. This value has been
determined by management based on the trading price of the shares of CliniChem
on the relevant stock markets immediately after the distribution and has been
accounted for as a reduction of retained earnings. The excess of the carrying
value of the company's investment in CliniChem Class A shares over their fair
value, which amounted to approximately $126,000,000, has also been accounted for
as a reduction of retained earnings.
38
<PAGE>
Simultaneously, BioChem concluded a series of agreements with CliniChem. Under
the terms of a technology licence contract, BioChem granted to CliniChem an
exclusive perpetual licence to use BioChem technology to conduct the CliniChem
programmes and related activities, and to manufacture and commercialise the
CliniChem products worldwide. CliniChem will pay a fee to BioChem in exchange
for the technology licence. The technology fee is payable monthly at a rate of
$352,000 per month over a period of 48 months. However, the technology fee will
cease to be payable under certain circumstances.
Under the terms of a research and development agreement, BioChem conducts the
CliniChem programmes. CliniChem will use available funds, as defined in the
contract, to repay BioChem for its research and development expenses. BioChem
accounts for amounts received as research and development contract revenue.
CliniChem also granted BioChem an option to acquire all rights to each CliniChem
product. This option is exercisable on a country-by-country basis for each
CliniChem product.
Moreover, as the holder of the majority of Class B shares, BioChem is entitled
to acquire, from a specific date, all of the outstanding CliniChem Class A
common shares at a price to be determined according to a set formula.
15. Foreign currency translation adjustment
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C>
Balance, beginning of year 14,244 2,399
Effect of foreign exchange rate variations upon translation
of the net assets of self-sustaining foreign operations (14,423) 11,845
-------------------------------------------------
Balance, end of year (179) 14,244
</TABLE>
16. Information on the consolidated statements of cash flows
In 1999, the company adopted the Canadian Institute of Chartered Accountants
recommendations related to the presentation of cash flow statements. The
standard requires that only investments which have an original maturity of three
months or less be disclosed as cash equivalents. In addition, all non-cash
transactions are to be excluded from investing and financing activities and
disclosed elsewhere in the consolidated financial statements in a manner that
provides all relevant information about investing and financing activities. The
standard requires retroactive application with prior comparative information
being restated.
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Non-cash items
Depreciation and amortisation 8,282 6,952
Share of loss of a company subject to significant influence -- --
Non-controlling interest -- (1,428)
Gain on sale of long-term investments (24,181) --
Deferred income taxes (308) --
Other (1,178) 755
---------------------------------------------------
(17,385) 6,279
2000 1999 1998
$ $ $
Changes in non-cash working capital items
Accounts receivable (22,673) (13,269)
Inventories (924) (868)
Prepaid expenses (637) (1,114)
Accounts payable and accrued liabilities, excluding 13,423 2,665
construction-related accounts payable
--------------------------------------------------
(10,811) (12,586)
Supplemental information
Income taxes paid 9,865 4,947
Interest paid 468 661
</TABLE>
39
<PAGE>
17. Related party transactions
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Transactions with a shareholder are as follows:
Royalty revenue 172,588 153,500
Interest expense on promissory note 2,610 --
</TABLE>
The company incurred professional fees with law firms, in which certain of the
company's directors are partners, totalling $330,000 for the year ended 31
December 1999 ($988,000 for the year ended 31 December 1998).
These transactions were concluded in the normal course of operations, at the
exchange amount.
In 1998, the company repurchased the common shares of a subsidiary held by a
company shareholder for an amount of $16,025,000. Goodwill arising from the
transaction amounted to $6,631,000. In 1997, this shareholder subscribed to
common shares of the subsidiary for an amount of $2,650,000.
18. Commitments and contingencies
The company has undertaken to subscribe to an interest in companies and a
partnership for amounts totalling $48,169,000. As at 31 December 1999, an amount
of $31,932,000 has been acquired.
In 1996, a legal proceeding was instituted in the United States against the
company and Glaxo Wellcome for alleged patent infringement on a product licenced
to Glaxo Wellcome. The action seeks monetary damages relating to the sale of the
product in the United States. In the opinion of management, the claim is without
merit and the company is vigorously opposing the allegation. In addition, the
company is involved in other claims and lawsuits in the normal course of
business. It is not possible at this time to determine the ultimate outcome of
any of these claims.
19. Uncertainty due to the Year 2000 issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on, or after
1 January 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting the
company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
20. Segmented information
The company has two reportable segments: therapeutics and vaccines. The
therapeutic segment focuses mainly on conducting research and development of new
medications for the treatment of cancer and infectious diseases. The vaccine
segment specialises in the research and development, manufacturing and marketing
of innovative vaccines for the prevention of certain infectious diseases.
Information about other operating segments that are not reportable is combined
and disclosed in the category "Other". These segments mainly relate to head
office operations. Where operating revenue is concerned, they include
inter-segment revenues, interest income and certain other contract revenue. The
accounting policies used for the various segments are the same as those
described in the summary of significant accounting policies in note 2.
Inter-segment transactions are concluded at the exchange amount and are not
eliminated in presenting the revenues and expenses of each industry segment.
These transactions include head office expenses, such as management fees,
interest and certain operating costs allocated to the various segments.
40
<PAGE>
Industry segments
The company operates in the following industry segments:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Operating revenue (a)
Therapeutics 235,185 184,227
Vaccines 35,706 26,795
Other 21,171 22,283
-------------------------------------------------
292,062 233,305
Inter-segment transactions relating to other segments (1,787) (8,340)
-------------------------------------------------
290,275 224,965
Financial expenses
Therapeutics 7 5
Vaccines 97 900
Other 2,723 114
-------------------------------------------------
2,827 1,019
Inter-segment transactions - (815)
Foreign exchange gain, including amortisation of deferred
foreign exchange gains and losses (3,745) (318)
-------------------------------------------------
(918) (114)
Depreciation and amortisation
Therapeutics 3,226 3,491
Vaccines 4,160 2,635
Other 896 826
-------------------------------------------------
8,282 6,952
Income taxes
Therapeutics 11,443 8,727
Vaccines 181 165
Other 467 587
-------------------------------------------------
12,091 9,479
Net income (loss)
Therapeutics 162,362 119,322
Vaccines (4,425) (1,482)
Share of loss of a company subject to significant influence - -
Other 9,262 58
-------------------------------------------------
Earnings from continuing operations 167,199 117,898
Earnings (loss) from discontinued operations (18,097) (3,124)
-------------------------------------------------
149,102 114,774
Total assets
Therapeutics 248,664 210,324
Vaccines 132,975 99,498
Other 119,460 147,291
-------------------------------------------------
501,099 457,113
Assets from discontinued operations 123,618 175,449
-------------------------------------------------
624,717 632,562
Capital expenditures
Therapeutics 12,518 9,049
Vaccines 33,273 8,826
Other 1,737 1,226
-------------------------------------------------
47,528 19,101
Variation in construction-related accounts payable (6,457) 2,947
-------------------------------------------------
41,071 22,048
</TABLE>
41
<PAGE>
Geographic segments
The company operates in the following geographic segments:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Operating revenue
Canada 88,039 77,815
United States 119,164 93,131
Europe 55,479 56,512
Other 97,924 73,133
-------------------------------------------------
360,606 300,591
Inter-segment transactions (70,331) (75,626)
-------------------------------------------------
290,275 224,965
Capital assets
Canada 100,253 90,952
United States 29,485 1,464
Europe 1,064 3,003
Other 7,186 3,359
-------------------------------------------------
137,988 98,778
Goodwill
Canada 6,705 7,049
</TABLE>
(a) Operating revenue includes interest income totalling $593,000 in 1999
($691,000 in 1998) for the therapeutic segment, nil in 1999 (nil in 1998)
for the vaccine segment and $6,934,000 in 1999 ($9,178,000 in 1998) for
the other segments.
Information on the company's major client
Operating revenue includes royalties of $172,588,000 in 1999 ($153,500,000 in
1998) from a shareholder.
21. Financial instruments
Temporary investments
Temporary investments totalling $81,460,000 as at 31 December 1999 ($120,295,000
as at 31 December 1998) include bank term deposits and commercial paper which
have original maturities of three months or more. The company has classified
temporary investments as held to maturity and has recorded these investments at
cost.
Foreign exchange risk
Foreign exchange risk is the risk that variations in exchange rates between the
Canadian dollar and foreign currencies will affect the company's operating and
financial results. The company earns a significant portion of its operating
revenues in US dollars and British pounds and does not use derivative
instruments to reduce its exposure to this foreign exchange risk.
The company has entered into a forward exchange contract which acts as a hedge
to effectively fix the amount of Canadian dollars required to repay the
US$80,000,000 promissory note from a shareholder, which is repayable on 19
January, 2001, at an exchange rate of 1.4630. Any unrealised gains or losses on
the forward exchange contract are offset by unrealised gains and losses on the
US dollar-denominated promissory note. As at 31 December 1999, the amount of
unrealised loss on this forward exchange contract was $1,576,000.
Fair value of financial instruments
The company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, temporary investments, bank indebtedness, accounts
receivable, accounts payable and accrued liabilities
The carrying amounts approximate fair value due to the short-term maturity of
these instruments.
42
<PAGE>
Long-term investments in private companies
The fair value of the investments in private companies is not readily
determinable because these investments are not publicly traded.
Shares of public companies
The fair value of the shares of public companies is established based on the
closing market price as at the balance sheet date. As at 31 December 1999, the
fair value of these shares amounted to $9,301,000 ($4,406,000 as at 31 December
1998).
Long-term debt
The fair value is estimated using discounted cash flow analyses, based on the
company's current incremental borrowing rates for similar types of arrangements.
There is no material difference between the carrying value and the fair value of
the long-term debt.
22. Summary of differences between generally accepted accounting principles in
Canada and in the United States
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) in Canada which differ in
certain respects from US GAAP. Had the company followed US GAAP, certain items
on the consolidated balance sheets would have increased (decreased) as follows:
Consolidated balance sheets
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Long-term investments (a) (b) (7,151) (4,659)
Other assets
Deferred charges (c) (4,648) --
Deferred foreign exchange losses (d) (722) (128)
Non-current assets of discontinued operations (f) -- (347)
Shareholders' equity
Retained earnings (9,863) 226
Foreign currency translation adjustment (g) (701) (701)
880 (13,543)
Other cumulative components of comprehensive income (k)
Unrealised investment losses (a) (1,957) (4,659)
Foreign currency translation adjustment (880) 13,543
</TABLE>
In addition, the net income (loss) and the earnings (loss) per common share in
the United States are as follows:
Consolidated statements of earnings
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Earnings from continuing operations according to Canadian GAAP 167,199 117,898
Share of loss in a company subject to significant influence (b) (5,194) --
Deferred charges (c) (4,648) --
Deferred foreign exchange losses (d) (594) (128)
Loss on disposal of a long-term investment (h) -- (126,069)
-------------------------------------
Earnings (loss) from continuing operations per US GAAP 156,763 (8,299)
Earnings (loss) from discontinued operations according to Canadian
GAAP (18,097) (3,124)
Adjustment to earnings (loss) from discontinued operations (f) 347 1,360
-------------------------------------
Loss from discontinued operations per US GAAP (17,750) (1,764)
-------------------------------------
Net income (loss) per US GAAP 139,013 (10,063)
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Earnings (loss) per common share per US GAAP (i)
Basic
Continuing operations 1.49 (0.08)
Discontinued operations (0.17) (0.01)
Net income 1.32 (0.09)
Diluted
Continuing operations 1.49 (0.08)
Discontinued operations (0.17) (0.01)
Net income 1.32 (0.09)
</TABLE>
(a) Long-term investments
Under Canadian GAAP, investments in shares of public companies and debt
securities, excluding the investment in the common shares of a company subject
to significant influence, should be recorded at cost, less any decrease in value
other than a temporary decline. Under US GAAP, the company would be required to
record some of these investments at fair value and would have presented the
unrealised gains or losses as a component of comprehensive income in the
shareholders' equity. The cost of these investments amounts to $24,248,000 as at
31 December 1999 ($22,865,000 as at 31 December 1998) and the fair value amounts
to $22,291,000 as at 31 December 1999 ($18,206,000 as at 31 December1998).
(b) Share of loss in a company subject to significant influence
Under US GAAP, the total investment in NAVA would be reduced by $5,194,000 in
accordance with the new requirements of the Emerging Issues Task Force on
accounting by an equity method investor for investee losses when the investor
has loans to and investments in other securities of the investee.
(c) Deferred charges
In 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"), that should be applied in 1999. SOP 98-5
states that the costs of start-up activities should be expensed as incurred.
Pursuant to SOP 98-5, the company has written off the unamortised deferred
charges which consist primarily of start-up activity costs. This was treated as
a change in accounting principle.
(d) Deferred foreign exchange losses
Under Canadian GAAP, unrealised foreign exchange gains and losses arising on the
translation of long-term monetary items are deferred and amortised over the life
of the item. Under US GAAP, these gains or losses would be included in earnings
as they arise. The deferred foreign exchange losses on the balance sheet
amounting to $722,000 and $128,000 as at 31 December 1999 and 1998 respectively
would have been eliminated. Accordingly, a foreign exchange loss amounting to
$594,000 and $128,000 would have been recognised in earnings for the years ended
31 December 1999 and 1998 respectively.
(e) Income taxes
Under US GAAP, deferred tax assets or liabilities would be recorded for
temporary differences that will result in deductible amounts or taxable amounts
in future years as well as for loss carry forwards and deferred investment tax
credits. A valuation allowance would be recorded for the portion of the asset
considered unrealisable. In addition, the deferred tax asset or liability must
be calculated at the current rate disclosed by government authorities. The tax
consequences calculated on the differences between the carrying amount and the
value for tax purposes of the assets and liabilities are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Deferred income taxes - asset
Research and development expenses and operating losses 38,023 27,181
Investment tax credits 12,400 14,200
Temporary differences on investments 55,346 49,640
-------------------------------------------------
105,769 91,021
Valuation allowance (105,461) (91,021)
-------------------------------------------------
Deferred income taxes - asset 308 --
</TABLE>
The deferred income tax asset in the amount of $308,000 as of 31 December 1999
has been recorded in the consolidated financial statements under Canadian GAAP.
44
<PAGE>
Under US GAAP, the amounts applicable to domestic and foreign income taxes would
be disclosed separately and comprise the following:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Current: Canada 606 748
Foreign 11,793 8,731
Deferred: Canada -- --
Foreign (308) --
-------------------------------------------------
12,091 9,479
</TABLE>
(f) Discontinued operations
For discontinued operations, the same principles as described in (d) for
deferred foreign exchange losses would apply under US GAAP. The impact on
earnings from discontinued operations, net of income taxes, would be an increase
of $347,000 in 1999 and $1,360,000 in 1998.
(g) Realization of foreign currency translation adjustment
Under Canadian GAAP, a portion of the foreign currency translation adjustment is
recognised in earnings on repatriation of capital from foreign operations. Under
US GAAP, adjustments to the foreign currency translation adjustment are only
made if there is a reduction in ownership to a third party.
(h) Loss on disposal of a long-term investment
Under US GAAP, the distribution of CliniChem's Class A shares amounting to
$150,000,000 would be reduced by $126,069,000 and an equivalent loss on disposal
of a long-term investment would be recorded.
(i) Earnings per share
Under Canadian GAAP, fully diluted earnings per share assumes that all the
outstanding options at the end of the year have been exercised at the beginning
of the year or at the date granted, if granted during the year, and proceeds
from the exercise of options have been used for investments. Under US GAAP,
diluted earnings per share is calculated based on the assumption that the
options have been exercised at the beginning of the year or at the date granted,
if granted during the year, and proceeds from the exercise of options were used
at the beginning of the year or at the date granted to acquire common shares of
the company at the average market price.
(j) Earnings before depreciation, amortisation and other
US GAAP does not permit the disclosure of a subtotal for earnings before
depreciation, amortisation and other. Canadian GAAP permits the disclosure of
this subtotal.
(k) Comprehensive income
Under US GAAP, unrealized gains or losses on investments and the change in the
foreign currency translation adjustment are added to net earnings for the year
to determine comprehensive income. In addition, these two items are presented as
other components of comprehensive income under shareholders' equity. The changes
in comprehensive income are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Net earnings (loss) per US GAAP 139,013 (10,063)
Unrealised gains (losses) on long-term investments 2,702 (3,234)
Foreign currency translation adjustment (14,423) 11,845
-------------------------------------------------
Consolidated comprehensive income 127,292 (1,452)
</TABLE>
45
<PAGE>
Consolidated statements of cash flows
o Under US GAAP, the distribution of the CliniChem Class A shares amounting to
$150,000,000 shown as a financing activity in 1998 would be reduced by
$126,069,000 and cash flow from operations would be reduced by the same amount.
o Canadian GAAP allows for the presentation of operating cash flow before
changes in non-cash working capital items in the consolidated statements of cash
flows. Pre-acquisition free cash flow can also be disclosed. These totals cannot
be presented under US GAAP.
Accounting for compensation programs
The company measures compensation costs related to awards of stock options using
the intrinsic value-based method of accounting. Under US GAAP, the company is
required to make pro forma disclosure of net income (loss), as if the fair
value-based method of accounting had been applied. The fair value of options
granted was estimated using the Black-Scholes option-pricing model with an
expected life of 7.5 years, a risk-free interest rate of 5.15per cent. in 1999
(5.4per cent. in 1998) and an expected volatility of 50per cent. in 1999 (45per
cent. in 1998). The expected dividends for 1999 and 1998 are nil.
The company's net income (loss), earnings (loss) per share and diluted earnings
(loss) per share would have increased (decreased) for the years ended 31
December 1999 and 1998, on a pro forma basis, as follows:
<TABLE>
<CAPTION>
2000 1999 1998
$ $ $
<S> <C> <C> <C>
Net income (loss) pro forma 9,415 (14,715)
Earnings (loss) per share pro forma 0.09 (0.14)
Diluted earnings (loss) per share pro forma 0.09 (0.13)
</TABLE>
The weighted average fair value of options granted in 1999 was $22.91 ($18.18 in
1998).
Accounting pronouncements not yet implemented
In 1997, the Canadian Institute of Chartered Accountants issued a new accounting
standard concerning accounting for income taxes. The company is required to
adopt this standard for Canadian GAAP reporting purposes for the fiscal year
beginning with 2000.
The Financial Accounting Standards Board has issued Statement of Financial
Standard Board No. 133 dealing with hedging instruments. This standard should be
adopted for fiscal years commencing after 15 June 2000.
The company has not yet determined the potential impact of these statements.
46
<PAGE>
PART IV - RECONCILIATIONS OF BIOCHEM'S FIGURES TO US AND UK GAAP AS APPLIED
BY SHIRE
Unaudited reconciliation of financial information under US and UK GAAP
Accounting policies generally accepted in the US and UK differ in certain
material respects for those generally accepted in Canada. The differences which
are material to restating the historical financial statements of BioChem to
conform with Shire's accounting policies under US and UK GAAP are set out below.
[AA to provide]
47
<PAGE>
The Directors and Proposed Directors Arthur Andersen
Shire Pharmaceuticals Group plc Abbots House
East Anton Abbey Street
Andover Reading
Hampshire RG1 3BD
SP10 5RG
The Directors
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London
EC2N 2DB o, 2001
Dear Sirs
We report on the unaudited reconciliations to US and UK GAAP as applied by Shire
Pharmaceuticals Group plc of the consolidated statements of net assets and
shareholders equity as at 31 December 2000, 1999 and 1998 and the consolidated
net loss or profit for each of the three financial years then ended of BioChem
Pharma Inc. ("BioChem") and its subsidiaries ("the unaudited reconciliations")
prepared on the basis of the accounting policies of Shire Pharmaceuticals Group
plc set out on pages o to o of the Listing Particulars dated o, 2001 issued by
Shire Pharmaceuticals Group plc.
Responsibilities
It is the responsibility solely of the Directors of Shire Pharmaceuticals Group
plc to prepare the unaudited reconciliations of BioChem in accordance with
paragraph 12.11 of the Listing Rules of the United Kingdom Listing Authority
("the Listing Rules"). It is our responsibility to form an opinion, as required
by the Listing Rules, on the unaudited reconciliations of BioChem and to report
our opinion to you.
The unaudited reconciliations of BioChem incorporates significant
reclassifications of and adjustments to the historical financial statements of
the unaudited reconciliations of BioChem. The historical financial statements of
BioChem for each of the three years ended 31 December 2000 state that they were
prepared in accordance with Canadian GAAP and were audited by Raymond Chabot
Grant Thornton, who gave unqualified reports thereon. We do not accept any
responsibility for the historical financial statements of BioChem.
Basis of Opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued by the Auditing Practices Board. Our work, which was
substantially less in scope than an audit and involved no independent
examination of any of the underlying financial information, consisted primarily
of making enquiries of the management of BioChem and its auditors to establish
the accounting policies which were applied in the preparation of the underlying
financial information, considering the evidence supporting the reclassifications
and adjustments made and discussing the unaudited reconciliations of BioChem
with the Directors of Shire Pharmaceuticals Group plc.
Our work has not been carried out in accordance with auditing standards
generally accepted in [Canada/the United States of America] and accordingly
should not be relied upon as if it had been carried out in accordance with those
standards.
Opinion
In our opinion:
1. the unaudited reconciliations of BioChem have been properly compiled on the
basis stated; and
2. the adjustments are appropriate for the purpose of presenting the unaudited
reconciliations of BioChem on a basis consistent in all material respects with
the accounting policies of Shire Pharmaceuticals Group plc.
Yours faithfully
Arthur Andersen
Chartered Accountants
48
<PAGE>
PART V - FINANCIAL INFORMATION ON SHIRE
The financial information contained in these comparative tables does not
constitute statutory accounts within the meaning of section 240 of the Companies
Act 1985. Statutory consolidated accounts of the Group for the financial periods
ended 31 December 1997, 1998 and 1999 received an unqualified audit opinion, did
not contain a statement under section 237(2) and (3) of the Companies Act 1985
and have been delivered to the Registrar of Companies in England and Wales.
Arthur Andersen, Chartered Accountants and Registered Auditors of Abbots House,
Abbey Street, Reading, RG1 3BD have been auditors to the Company since its
incorporation. No audited accounts of the Group have been prepared in respect of
any period subsequent to 31 December 1999.
The following information is extracted without material adjustment from the
audited consolidated financial statements of the Group for the [twelve months to
30 June 1997, six months to 31 December 1997] and twelve months to 31 December
1998 and 31 December 1999.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of US dollars, except share and per share data)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Product sales 385,203 291,785 168,916
Licensing and development 10,772 11,821 20,130
Royalties 3,562 3,697 1,612
Other revenues 1,995 1,681 896
-----------------------------------------------------------------------------------------------------------------
Total revenues 401,532 308,984 191,554
-----------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 93,475 95,013 67,090
Research and development 77,503 59,253 40,663
Selling, general and administrative 171,386 131,702 86,555
Other charges:
In-process research and development -- -- 83,087
Asset impairments and restructuring charges 97,132 -- --
Merger transaction expenses 32,279 -- --
Loss/(profit) on sale of product rights 5,825 (220) --
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 477,600 285,748 277,395
-----------------------------------------------------------------------------------------------------------------
Operating(loss)/income (76,068) 23,236 (85,841)
Interest income 7,349 6,398 6,547
Interest expense (9,742) (6,511) (964)
Other (expenses)/income (475) 440 (2,474)
Total other (expenses)/income (2,868) 327 3,109
--------------------------------------------------------------- --------------- ---------------- ----------------
(Loss)/income before income taxes (78,936) 23,563 (82,732)
--------------------------------------------------------------- --------------- ---------------- ----------------
Income taxes (16,062) (2,991) (1,420)
-----------------------------------------------------------------------------------------------------------------
Net (loss)/income (94,998) 20,572 (84,152)
-----------------------------------------------------------------------------------------------------------------
Net (loss)/income per share:
Basic $ (0.39) $ 0.09 $ (0.45)
Diluted $ (0.39) $ 0.08 $ (0.45)
Weighted average number of shares:
Basic 244,698,721 234,044,732 185,153,065
Diluted 244,698,721 242,806,410 185,153,065
</TABLE>
49
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of US dollars)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net (loss)/income (94,998) 20,572 (84,152)
Foreign currency translation adjustments (7,067) (840) (2,095)
Unrealized holding (loss)/gain on marketable securities (411) 96 199
-----------------------------------------------------------------------------------------------------------------
Comprehensive (loss)/income (102,065) 19,732 (86,247)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
There are no tax effects related to the items included above.
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)/income (94,998) 20,572 (84,152)
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities:
Depreciation and amortisation 28,598 25,249 12,309
Stock option compensation 13,900 8,505 2,567
Acquisition of in--process research and development -- -- 83,087
Non cash exchange gains and losses (664) (1,816) (1,289)
(Gain)/ loss on sale of fixed assets (828) 16 (13)
Loss on sale of intangible assets 5,825 -- --
Write--down of investment 7,546 -- --
Decrease/(increase) in accounts receivable 17,012 (24,988) (5,751)
(Increase) in inventory (6,543) (5,170) (4,657)
Increase in accounts payable 37,083 12,186 511
Reserve for restructuring charges 83,608 -- --
Carbatrol milestone payment -- -- 8,000
Impact of discontinued operations -- -- (629)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 90,539 34,554 9,983
-----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
(Investment in)/redemption of marketable securities (7,940) 3,825 (32,094)
Purchase of long--term investment -- (10,000) --
Deferred consideration -- -- (10,000)
Purchase of subsidiary undertakings (32,000) -- (41,053)
Expenses of acquisition -- (551) (3,118)
Net cash acquired with subsidiary undertakings 1,979 -- 6,759
Purchase of intangible assets (57,848) (142,258) (10,066)
Purchase of fixed assets (4,786) (13,871) (13,936)
Proceeds from sale of intangible fixed assets 6,575 1,033 --
Proceeds from sale of fixed assets 1,413 60 20
Collection on notes receivable 7,195 1,751 6,738
-----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (85,412) (160,011) (96,750)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cash flows from financing activities:
(Increase)/decrease in cash placed on short-term deposit (4,677) (35,664) 33,949
Long term debt issued -- 125,000 --
Payments on long term debt, capital leases and notes (11,499) (11,708) (7,410)
Payment of debt issuance costs -- (2,528) --
Proceeds from issue of common stock, net 8,615 35,027 19,054
Proceeds from exercise of options 3,523 4,082 1,016
Proceeds from issue of preferred stock -- 4,494 6,000
Cash dividends paid -- (150) (1,629)
-----------------------------------------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities (4,038) 118,553 50,980
-----------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash and cash 20 9 (401)
equivalents
Net increase/(decrease) in cash and cash equivalents 1,109 (6,895) (36,188)
Cash and cash equivalents at beginning of period 52,973 59,868 96,056
Cash and cash equivalents at end of period 54,082 52,973 59,868
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid 11,612 3,948 953
Income taxes paid 11,356 5,285 2,534
Non cash activities:
Notes issued for product acquisitions 11,800 -- 7,250
Notes received for sale of product rights -- 218 --
Common stock issued for product acquisitions -- 11,572 --
Common stock issued on conversion of zero-coupon note -- 14,042 --
Common stock issued for acquisitions of subsidiaries -- -- 259,000
Debt assumed on acquisition of subsidiaries 3,300 -- --
Capitalised leases -- 131 256
</TABLE>
51
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars, except share and per share data)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 54,082 52,973
Marketable securities and other current asset investments 84,344 71,726
Accounts receivable, net 59,018 76,622
Inventories, net 39,538 34,639
Deferred tax asset 5,312 5,222
Prepaid expenses and other current assets 9,012 5,116
-----------------------------------------------------------------------------------------------------------------
Total current assets 251,306 246,298
-----------------------------------------------------------------------------------------------------------------
Investments 2,604 10,000
Property, plant and equipment, net 37,484 42,682
Intangible assets, net 557,934
Deferred tax asset 31,799 32,632
Other assets 6,636 4,834
-----------------------------------------------------------------------------------------------------------------
Total assets 887,763 873,605
-----------------------------------------------------------------------------------------------------------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current liabilitiesc
Current instalments of long-term debt 9,608 12,351
Accounts and notes payable 114,509 54,896
Other current liabilities 48,703 14,041
-----------------------------------------------------------------------------------------------------------------
Total current liabilities 172,820 81,288
-----------------------------------------------------------------------------------------------------------------
Long-term debt, excluding current instalments 126,314 126,774
Other long-term liabilities 1,345 2,229
-----------------------------------------------------------------------------------------------------------------
Total liabilities 300,479 210,291
-----------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, 5p par value; 400,000,000 shares authorised 20,063 11,725
(1998: 200,000,000); and 244,519,024 shares issued and
outstanding (1998: 141,092,395)
Additional paid-in capital 832,650 814,953
Accumulated other comprehensive income/(losses) (10,303) (3,236)
Accumulated deficit (255,126) (160,128)
-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 587,284 663,314
-----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 887,763 873,605
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of US dollars)
Accumulated
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Common Stock
Amount Shares Additional Accumulated Accumulated Total
paid-in deficit other shareholders'
capital comprehensive equity
income
(losses)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AS OF 10,345 124,531 738,637 (180,666) (2,396) 565,920
31 DECEMBER, 1997
Net income -- -- -- 20,572 -- 20,572
Dividends paid by pooled -- -- -- (34) -- (34)
entity
Foreign currency -- -- -- -- (840) (840)
translation
Issuance of common stock 905 10,861 57,105 -- -- 58,010
Issuance of common and -- -- 9,220 -- -- 9,220
preferred stock by pooled
entity
Issuance costs -- -- (2,124) -- -- (2,124)
Options exercised 475 5,700 3,610 -- -- 4,085
Stock option compensation -- -- 5,499 -- -- 5,499
Tax benefit associated -- -- 3,006 -- -- 3,006
with exercise of stock
options
-----------------------------------------------------------------------------------------------------------------
BALANCES AS OF 11,725 141,092 814,953 (160,128) (3,236) 663,314
31 DECEMBER, 1998
-----------------------------------------------------------------------------------------------------------------
Net loss -- -- -- (94,998) -- (94,998)
Foreign currency -- -- -- -- (7,067) (7,067)
translation
Issuance of common stock 8,123 100,767 (8,123) -- -- --
for acquisitions
Issuance of common and -- -- 8,613 -- -- 8,613
preferred stock by pooled
entity
Options exercised 215 2,660 3,308 -- -- --
Stock option compensation -- 11,932 -- -- -- 11,932
Tax benefit associated -- -- 1,967 -- -- 1,967
with exercise of stock
options
-----------------------------------------------------------------------------------------------------------------
BALANCES AS OF 20,063 244,519 832,650 (255,126) (10,303) 587,284
31 DECEMBER, 1999
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
53
<PAGE>
Notes to consolidated financial statements
1. Summary of significant accounting policies
(a) Description of operations and principles of consolidation
Shire Pharmaceuticals Group plc is an international specialty pharmaceutical
company with a strategic focus on four therapeutic areas: central nervous system
disorders, metabolic diseases, cancer and gastrointestinal disorders. The
Company's principal products include Adderall, for the treatment of Attention
Deficit Hyperactivity Disorder, and Pentasa, for the treatment of ulcerative
colitis.
The Group has operations in the United States, Europe and the rest of the world.
Within these geographic operating segments, revenues are derived from three
sources: sales of products by the Company's own sales and marketing operations,
licensing and development fees, and royalties.
The accompanying consolidated financial statements include the accounts of Shire
Pharmaceuticals Group plc and all its subsidiary undertakings after elimination
of intercompany accounts and transactions.
(b) Use of estimates in financial statements
The preparation of financial statements in conformity with 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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Revenue recognition
Product sales are recognised upon shipment of products. Reserves for product
returns are established on an accruals basis at the time revenue for product
sales is recognised.
Licencing and development fees represent revenues derived from licence
agreements and from collaborative research and development arrangements.
Licensing fees are recognised upon transfer or licensing of intellectual
property rights. Development fee revenue relates to ongoing research and
development in connection with licenced technology. Revenue in respect of
research and development performed on a cost plus or fixed percentage of cost
basis is recognised as research and development work is performed. The total
cost of research and development work performed is based on accrued project
costs, including employee related expenses determined according to actual hours
worked. Where collaborative research and development arrangements stipulate
payment on a milestone basis, revenue is recognised upon achievement of those
milestones.
Royalty revenue relating to licenced technology is recognised when receivable.
Revenues are stated net of value added tax and similar taxes, trade discounts
and intercompany transactions.
No revenue is recognised for consideration, the value or receipt of which is
dependent on future events, future performance, or refund obligations.
(d) Research and development
Research and development expenditures include funded and unfunded expenditure
and are charged to operations in the period in which the expense is incurred.
Milestones payable in respect of research and development work are charged to
the income statement on achievement of those milestones.
(e) Leased assets
The cost of operating leases is charged to operations on a straight line basis
over the lease term, even if rental payments are not made on such a basis.
Assets acquired under finance leases are included in the balance sheet as
tangible fixed assets and are depreciated over the shorter of the period of
lease or their useful lives. The capital elements of future lease payments are
recorded as liabilities, while the interest elements are charged to the income
statement over the period of the leases to give a constant charge on the balance
of the capital repayments outstanding.
54
<PAGE>
(f) Pensions
The Group contributes to personal defined contribution pension plans of
employees. Contributions are charged to the income statement as they become
payable. Details of the Supplemental Executive Retirement Plan operated by the
Group are given in Note 22.
(g) Finance costs of debt
Finance costs of debt are recorded as a deferred asset and then amortised to the
income statement over the term of the debt at a constant rate on the carrying
amount. Deferred financing costs relating to debt terminated early are written
off to the income statement in that period.
(h) Income taxes
The Company provides for income taxes in accordance with SFAS No.109, Accounting
for Income Taxes. Deferred tax assets and liabilities are provided for
differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts. The
deferred tax assets and liabilities are measured using the enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is computed as the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realised.
(i) Advertising expense
The Company expenses the cost of advertising as incurred. Advertising costs
amounted to $6,646,000, $6,715,000 and $5,284,000 for the years ended 31
December 1999, 1998 and 1997 respectively.
(j) Foreign currency
Monetary assets and liabilities in foreign currencies are translated into US
dollars at the rate of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into US dollars at the rate of
exchange ruling at the date of the transaction. Exchange differences are taken
into account in arriving at operating income.
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets at the rates ruling at the
balance sheet date. The cumulative effect of exchange rate movements is included
in a separate component of other comprehensive income.
The consolidated financial statements are prepared from records maintained in
the country in which the subsidiary is located and are translated into US
dollars according to the above policy.
Foreign currency transaction gains and losses on an after-tax basis included in
consolidated net income in the years ended 31 December 1999, 1998, and 1997,
pursuant to Statement of Financial Accounting Standards (SFAS) No. 52, Foreign
Currency Translation, amounted to $880,000 loss, $457,000 gain and $106,000
loss, respectively.
(k) Employee stock plans
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations.
(l) Cash equivalents and marketable securities
Cash and cash equivalents include cash in banks and bank short-term investments
with original maturities of less than ninety days. Marketable securities
classified as available for sale consist primarily of debt instruments with
maturities of more than three months. They are marked to market at each balance
sheet date, with gains and losses recorded in a separate component of other
comprehensive income. Other than temporary impairments in value are recorded
through the income statement.
(m) Inventories
Inventories, consisting primarily of finished goods, are stated at the lower of
cost and net realisable value. Cost incurred in bringing each product to its
present location and condition is based on purchase costs calculated on a
55
<PAGE>
first-in, first-out basis, including transport. Net realisable value is based on
estimated normal selling price less further costs expected to be incurred to
completion and disposal. Provision is made for obsolete, slow moving or
defective items where appropriate.
(n) Investments
Investments which are accounted for under the cost method are stated at cost,
less provisions for other than temporary impairment in value. Impairment is
assessed by reference to the fair value of the securities as determined using
established financial methodologies. The fair value of investments in private
entities and non-traded securities of public entities are measured by valuation
methodologies including discounted cash flows.
(o) Intangible assets
Intangible assets comprise goodwill and intellectual property rights. Goodwill
arising on the acquisition of subsidiary undertakings and businesses,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired, is capitalised
and written off on a straight line basis over its useful economic life.
Goodwill recognised in each significant business combination is being amortised
over a period of 5 to 30 years on a straight line basis depending on the nature
of the goodwill, and is evaluated periodically for realisability based on
expectations of undiscounted cash flows for each subsidiary having a material
goodwill balance.
The following factors are considered in estimating the useful lives. Where an
intangible asset is a composite of a number of factors, the period of
amortisation is determined from considering these factors together:
- regulatory and legal provisions, including the regulatory approval and
review process, patent issues and actions by government agencies
- the effects of obsolescence, changes in demand, competing products and
other economic factors, including the development of competing drugs that
are more effective clinically or economically
- actions of competitors, suppliers, regulatory agencies or others that may
eliminate current competitive advantages
Impairments to goodwill are recognised if expected undiscounted cash flows are
not sufficient to recover the goodwill. If a material impairment is identified,
goodwill is written down to its fair value. Fair value is determined based on
the present value of expected net cash flows to be generated by the business,
discounted using a rate commensurate with the risks involved.
Intellectual property, including trademarks for products with an immediate
defined revenue stream and acquired for valuable consideration, is recorded at
cost and amortised in equal annual instalments over the estimated useful life of
the related product which range from 5 to 40 years. Intellectual property with
no defined revenue stream where the related product has not yet completed the
necessary approval process is written off on acquisition. Amounts recorded as
intangible assets are reviewed for impairment on a periodic basis using expected
undiscounted cash flows.
Continuing milestone payments on intellectual property with no defined revenue
stream are charged to operations. Royalty payments due on sales of products are
charged to operations when a liability has been incurred.
(p) Property, plant and equipment
Property, plant and equipment is shown at cost less accumulated depreciation and
any provision for impairment. Depreciation is provided on a straight line basis
at rates calculated to write off the cost less estimated residual value of each
asset over its estimated useful life as follows:
Land and buildings 50 years
Office furniture, fittings and equipment 4 to 5 years
Warehouse, laboratory and manufacturing equipment 4 to 5 years
Expenditures for maintenance and repairs are charged to expense as incurred;
costs of major renewals and improvements are capitalised. At the time property,
plant and equipment are retired or otherwise disposed of,
56
<PAGE>
the cost and accumulated depreciation are eliminated from the asset and
accumulated depreciation accounts and the profit or loss on such disposition is
reflected in income.
(q) Concentration of credit risk
Revenues are mainly derived from agreements with major pharmaceutical companies
and relationships with drug distributors. Such clients have significant cash
resources and therefore any credit risk associated with these transactions is
considered minimal.
Excess cash is invested in bank and building society term deposits and
commercial paper from a variety of companies with strong credit ratings. These
investments typically bear minimal risk.
(r) Related parties
Transactions with related parties are conducted on the same basis as they would
have been with unrelated parties.
Transactions between Group companies have not been disclosed since Group
accounts are prepared and include the results of all subsidiary undertakings.
(s) New accounting pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement requires that all derivatives
be recorded in the balance sheet as either an asset or liability measured at its
fair value and that changes in the derivative's fair value be recognised
currently in earnings unless specific hedge accounting criteria are met. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133.
This Statement defers for one year the effective date of SFAS 133 to all fiscal
quarters of all fiscal years beginning after 15 June 2000. The Company has not
yet determined the future impact of this statement on its consolidated financial
statements.
2. Business combinations and reorganisations
YEAR ENDED 31 DECEMBER,1999
(a) Acquisition of Laboratoires Murat S.A., Fuisz Pharma GmbH & Co KG and
Istoria Farmaceutici S.p.A.
On 22 October, 1999, Shire completed the acquisition of all the assets and
liabilities of Laboratoires Murat S.A., Fuisz Pharma GmbH and the Cebutid
trademark for $33 million, including the costs of acquisition. The purchase
price consisted of $29.7 million in cash and the assumption of $3.3 million in
debt.
On 17 November, 1999, Shire completed the acquisition of all the assets and
liabilities of Istoria Farmaceutici S.p.A. for $6.5 million, including the costs
of acquisition. The purchase consideration was $6.5 million in cash.
The above transactions have provided Shire with marketing and distribution
operations in France, Germany and Italy respectively. Shire has accounted for
the acquisitions using purchase accounting. Total goodwill of $22.4 million will
be amortised over a period of 20 years, the expected economic life of the
underlying assets acquired, on a straight line basis and periodically reviewed
for impairment in accordance with the Company's accounting policy for purchased
goodwill. The results of operations of these acquired companies have been
included in the consolidated results of the Company since their respective dates
of acquisition.
The purchase price of $3.3 million for Laboratoires Murat S.A. was allocated as
follows:
$'000
Property, plant and equipment 19
Intangible assets 1,073
Current assets 1,614
Accounts payable (1,292)
--------------------------------------------------------------------------------
Net assets acquired 1,414
--------------------------------------------------------------------------------
Goodwill 1,886
--------------------------------------------------------------------------------
Purchase consideration 3,300
--------------------------------------------------------------------------------
57
<PAGE>
$7.5 million was in respect of the Cebutid trademark.
The purchase price of $22.2 million for Fuisz Pharma GmbH was allocated as
follows:
$'000
Property, plant and equipment 23
Intangible assets 3,331
Current assets 1,891
Accounts payable (1,108)
--------------------------------------------------------------------------------
Net assets acquired 4,137
--------------------------------------------------------------------------------
Goodwill 18,063
--------------------------------------------------------------------------------
Purchase consideration 22,200
--------------------------------------------------------------------------------
The purchase price of $6.5 million for Istoria Farmaceutici S.p.A. was allocated
as follows:
$'000
Property, plant and equipment 166
Intangible assets 3,268
Current assets 1,515
Accounts payable (897)
--------------------------------------------------------------------------------
Net assets acquired 4,052
--------------------------------------------------------------------------------
Goodwill 2,448
--------------------------------------------------------------------------------
Purchase consideration 6,500
--------------------------------------------------------------------------------
(b) Merger with Roberts Pharmaceutical Corporation
On 23 December 1999 the Company acquired 100per cent. of the outstanding stock
of Roberts Pharmaceutical Corporation in exchange for 100,767,482 ordinary
shares. Roberts Pharmaceutical Corporation is an international pharmaceutical
company which licences, acquires, develops and commercialises post-discovery
drugs in selected therapeutic categories.
This transaction was accounted for by the pooling of interests method. Following
consummation of the transaction, the Company has decided to restructure the
enlarged business and accordingly has recorded approximately $97.1 million in
non-recurring asset impairment and restructuring charges.
The accompanying consolidated financial statements have been retroactively
restated to reflect the combined operations of Roberts Pharmaceutical
Corporation and Shire Pharmaceuticals Group plc as if the merger was consummated
on 1 January 1997.
(c) Dispositions
On 13 January 1999 Shire disposed of its Indianapolis manufacturing plant for a
net consideration after expenses of $1.5 million including a loan note of $0.5
million. The net gain of $0.8 million is included in results of operations.
During November 1999, the Company sold the product Tigan for $6.4 million. The
Company incurred a loss on disposal of $5.8 million, which is included within
the results of operations.
(d) Pro forma information
The unaudited pro forma effect in 1999 and 1998 of significant acquisitions if
acquired on 1 January 1999 and 1 January 1998 respectively would have resulted
in revenues, income before extraordinary items, net income and per share data as
follows:
58
<PAGE>
1999 1998
$'000 $'000
REVENUES 417,948 330,346
(Loss)/income before extraordinary items (95,463) 19,039
Net (loss)/income (95,463) 19,039
Net (loss)/income per share--basic $ (0.39) $ 0.08
Net (loss)/income per share--diluted $ (0.39) $ 0.08
YEAR ENDED 31 DECEMBER, 1998
There were no significant acquisitions or dispositions of businesses during the
year ended 31 December 1998.
YEAR ENDED 31 DECEMBER, 1997
(a) Acquisition of Pharmavene, Inc.
On 23 March 1997 Shire completed the acquisition of Pharmavene, Inc.
("Pharmavene"), subsequently renamed Shire Laboratories, Inc., for approximately
$104 million, including the costs of acquisition. The purchase price consisted
of $27.2 million in cash, the issue of $60.5 million in shares, the issue of
$6.3 million in share options and contingent consideration of $10 million.
In connection with the acquisition, each outstanding share of Pharmavene common
stock was exchanged for Shire ordinary shares, resulting in the issuance of
16,947,000 Shire ordinary shares valued at $60.5 million. Options granted by
Pharmavene prior to the acquisition date were converted into options to acquire
2,790,000 Shire ordinary shares. These options were valued in determination of
the purchase price of Pharmavene at $6.3 million.
The contingent consideration was payable to the former shareholders of
Pharmavene on approval of the drug Carbatrol by the F.D.A. On payment of the
contingent consideration in December 1997, the amount of $10 million was
capitalised as an intangible asset representing completed products.
Shire accounted for the acquisition of Pharmavene using purchase accounting. The
purchase price of $104 million was allocated as follows:
$'000
Property, plant and equipment 1,561
Intangible assets 11,065
Current assets 14,002
Accounts payable (5,398)
In-process research and development 82,774
Purchase consideration 104,004
Included within acquired intangible assets is the value of the assembled
workforce of $1,065,000 which is being amortised on a straight line basis over a
period of 5 years. $10,000,000 is attributed to the value of completed products,
as disclosed above, and is being amortised on a straight line basis over 20
years.
As a result of the transaction, Shire incurred a charge for the year ended 31
December 1997, representing the acquisition of in-process research and
development in accordance with SFAS No. 2. The acquired in-process research and
development charge of $82,774 represents the value of Pharmavene's products in
development at the date of acquisition. Technological feasibility of these
products was not established at the date of acquisition. These products were
considered to have no alternative future use other than the therapeutic
indications for which they were in development. The work remaining to complete
the development products involved continuing formulation activity, clinical
studies and the submission of regulatory filings to seek marketing approval. As
pharmaceutical products cannot be marketed without regulatory approvals, Shire
will not receive any benefits unless it receives such regulatory approval.
The results of operations of Shire Laboratories, Inc. have been included in the
consolidated results of the Company since the acquisition date of 23 March 1997.
59
<PAGE>
1999 1998
$'000 $'000
REVENUES 417,948 330,346
(Loss)/income before extraordinary items (95,463) 19,039
Net (loss)/income (95,463) 19,039
Net (loss)/income per share--basic $(0.39) $ 0.08
Net (loss)/income per share--diluted $(0.39) $ 0.08
YEAR ENDED 31 DECEMBER, 1998
There were no significant acquisitions or dispositions of businesses during the
year ended 31 December 1998.
YEAR ENDED 31 DECEMBER, 1997
(a) Acquisition of Pharmavene, Inc.
On 23 March 1997 Shire completed the acquisition of Pharmavene, Inc.
("Pharmavene"), subsequently renamed Shire Laboratories, Inc., for approximately
$104 million, including the costs of acquisition. The purchase price consisted
of $27.2 million in cash, the issue of $60.5 million in shares, the issue of
$6.3 million in share options and contingent consideration of $10 million.
In connection with the acquisition, each outstanding share of Pharmavene common
stock was exchanged for Shire ordinary shares, resulting in the issuance of
16,947,000 Shire ordinary shares valued at $60.5 million. Options granted by
Pharmavene prior to the acquisition date were converted into options to acquire
2,790,000 Shire ordinary shares. These options were valued in determination of
the purchase price of Pharmavene at $6.3 million.
The contingent consideration was payable to the former shareholders of
Pharmavene on approval of the drug Carbatrol by the F.D.A. On payment of the
contingent consideration in December 1997, the amount of $10 million was
capitalised as an intangible asset representing completed products.
Shire accounted for the acquisition of Pharmavene using purchase accounting. The
purchase price of $104 million was allocated as follows:
$'000
Property, plant and equipment 1,561
Intangible assets 11,065
Current assets 14,002
Accounts payable (5,398)
In-process research and development 82,774
Purchase consideration 104,004
Included within acquired intangible assets is the value of the assembled
workforce of $1,065,000 which is being amortised on a straight line basis over a
period of 5 years. $10,000,000 is attributed to the value of completed products,
as disclosed above, and is being amortised on a straight line basis over 20
years.
As a result of the transaction, Shire incurred a charge for the year ended 31
December 1997, representing the acquisition of in-process research and
development in accordance with SFAS No. 2. The acquired in-process research and
development charge of $82,774 represents the value of Pharmavene's products in
development at the date of acquisition. Technological feasibility of these
products was not established at the date of acquisition. These products were
considered to have no alternative future use other than the therapeutic
indications for which they were in development. The work remaining to complete
the development products involved continuing formulation activity, clinical
studies and the submission of regulatory filings to seek marketing approval. As
pharmaceutical products cannot be marketed without regulatory approvals, Shire
will not receive any benefits unless it receives such regulatory approval.
The results of operations of Shire Laboratories, Inc. have been included in the
consolidated results of the Company since the acquisition date of 23 March 1997.
60
<PAGE>
(b) Acquisition of Richwood Pharmaceutical Company, Inc.
On 22 August 1997 the Company acquired all of the outstanding shares of Richwood
Pharmaceutical Company, Inc. ("Richwood"), subsequently renamed Shire Richwood,
Inc., a company involved in the development, manufacture and marketing of
pharmaceutical products. The consideration paid was $209 million, comprising
shares valued at $170.5 million, share options $21.7 million, cash of $15.1
million and acquisition expenses of $1.7 million.
In connection with the acquisition, each outstanding share of Richwood common
stock was exchanged for Shire ordinary shares, resulting in the issuance of
39,488,000 Shire ordinary shares valued at $170.5 million. Options granted by
Richwood prior to the acquisition date were converted into options to acquire
5,632,000 Shire ordinary shares. These options were valued in determination of
the purchase price at $21.7 million.
Shire accounted for the acquisition of Richwood using purchase accounting. The
purchase price of $209 million was allocated as follows:
$'000
Property, plant and equipment 2,275
Intangible assets 198,445
Current assets 14,625
Accounts payable (6,434)
--------------------------------------------------------------------------------
Purchase consideration 208,911
--------------------------------------------------------------------------------
The related acquired goodwill and other intangible assets of $198.4 million are
being amortised on a straight line basis over a period between 5 and 30 years as
follows:
$'000
Completed products/technology 176,006
Assembled workforce 2,819
Goodwill 19,620
--------------------------------------------------------------------------------
198,445
--------------------------------------------------------------------------------
Completed products and technology represent the portfolio of named identifiable
products and technologies owned and marketed by Shire Richwood, Inc. at the time
of acquisition.
The results of operations of Shire Richwood, Inc. have been included in the
consolidated results of the Company since the acquisition date of 22 August
1997.
3. Cash and cash equivalents
<TABLE>
<CAPTION>
1999 1998
$'000 $'000
<S> <C> <C>
Cash at bank and in hand 54,082 52,973
</TABLE>
4. Marketable securities and other current asset investments
<TABLE>
<CAPTION>
1999 1998
$'000 $'000
<S> <C> <C>
Marketable securities 44,003 36,062
Commercial paper 39,200 6,510
Institutional cash fund 1,141 29,154
----------------------------------------------------------------------------------
84,344 71,726
----------------------------------------------------------------------------------
</TABLE>
There are no restrictions on the sale of marketable securities and no amounts
have been pledged as collateral.
There have been no significant changes in market value subsequent to 31 December
1999.
61
<PAGE>
The Company recorded losses on sales of marketable securities during the years
ended 31 December 1999, 1998 and 1997 of $227,000, $30,000 and $18,000.
Unrealised holding gains and losses on available for sale marketable securities,
as disclosed in the Statement of Comprehensive Income, amounted to $411,000
loss, $96,000 gain and $199,000 gain at 31 December 1999, 1998 and 1997
respectively.
Maturity dates of marketable securities held at 31 December 1999 primarily
ranged from 3 to 36 months.
5. Accounts receivable
1999 1998
$'000 $'000
Trade receivables 55,953 64,857
Notes receivable 678 9,426
Other receivables 2,387 2,339
------------------------------------------------------------------------------
59,018 76,622
------------------------------------------------------------------------------
Trade receivables included above are stated net of a provision for doubtful
debts of $565,000; 31 December1998: $577,000.
Included within other receivables at 31 December 1999 is $1,144,000 of accrued
royalty income. At 31 December, 1998 other receivables included $669,000 in
respect of product divestments and $923,000 of accrued royalty income.
Notes receivable are in respect of the divestment of certain products.
6. Inventory
Inventory consists of:
1999 1998
$'000 $'000
Finished goods 26,573 19,990
Work-in-process 6,389 6,113
Raw materials 6,576 8,536
------------------------------------------------------------------------------
39,538 34,639
------------------------------------------------------------------------------
7. Prepaid expenses and other current assets
1999 1998
$'000 $'000
Prepaid expenses 6,621 4,286
Other current assets 2, 391 830
------------------------------------------------------------------------------
9,012 5,116
------------------------------------------------------------------------------
Included within other current assets at 31 December 1999 is $1,098,000 in
respect of the current portion of deferred financing costs relating to the
$125,000,000 long term loan. The deferred financing costs are being amortised
over the five year term of the loan.
8. Investments
1999 1998
$'000 $'000
Investment in RiboGene Inc 2,604 10,000
62
<PAGE>
The Company has an investment in the convertible preferred stock of RiboGene,
Inc., a drug discovery company targeting infectious diseases. The shares have no
voting rights. One-third of the preferred stock is convertible at the option of
the Company to common stock of RiboGene at each of the first three anniversary
dates of the investment. The investment is classified as held to maturity.
In accordance with the Company's stated accounting policy, the cost of the
investment has been written down by $7,396,000 to $2,604,000 at 31 December 1999
as the Company considers the value of the investment to have suffered a
permanent diminution in value.
9. Property, plant & equipment
Property, plant and equipment consists of:
1999 1998
$'000 $'000
Land and buildings 25,498 29,767
Office furniture, fittings and equipment 14,527 12,253
Warehouse, laboratory and manufacturing equipment 10,595 10,053
--------------------------------------------------------------------------------
50,620 52,073
--------------------------------------------------------------------------------
Less: Accumulated depreciation 13,136 9,391
--------------------------------------------------------------------------------
37,484 42,682
--------------------------------------------------------------------------------
Depreciation expense for the years ended 31 December 1999, 1998 and 1997 was
$4,243,000, $3,281,000 and $1,893,000 respectively.
Included within land and buildings at 31 December,1999 is $12 million relating
to the Company's Eatontown, New Jersey office facility classified as available
for sale. The asset is continuing to be depreciated.
10. Intangible assets
Intangible assets comprise:
1999 1998
$'000 $'000
Intellectual property rights acquired 394,640 363,306
Goodwill arising on businesses acquired 238,897 223,776
--------------------------------------------------------------------------------
633,537 587,082
--------------------------------------------------------------------------------
Less: Accumulated amortisation 75,603 49,923
--------------------------------------------------------------------------------
557,934 537,159
--------------------------------------------------------------------------------
Included in intellectual property above is $35,000,000 for the purchase of the
world-wide rights to Agrylin during the year ended 31 December 1999, which
allows the Company to retain all rights to the product with no future royalty
liability.
Other significant additions to intellectual property during the year ended 31
December 1999 were in respect of product rights for Lodine ($5,474,000) and
Fareston ($10,000,000), the Cebutid trademark purchased from Fuisz Technologies
Ltd ($7,500,000) and intellectual property relating to the manufacture of
Adderall ($11,800,000) acquired from Arenol Corporation.
During the year ended 31 December 1999 the Company disposed of the Tigan product
rights. The loss on sale of $5,825,000 is recorded in the statement of
operations.
Amortisation expense for the years ended 31 December 1999, 1998 and 1997 was
$24,355,000, $21,968,000 and $10,416,000 respectively.
63
<PAGE>
The movement on goodwill was as follows:
<TABLE>
<CAPTION>
Completed Assembled Goodwill/Other Deferred Total
Products Workforce Consideration
$'000 $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
As of 1 January 1997 4,222 170 1,355 -- 5,747
Arising on acquisitions 176,006 3,744 19,619 -- 199,369
Arising on deferred payment -- -- -- 10,142 10,142
Amortisation charge (3,355) (418) (137) (126) (4,036)
Foreign exchange 4,311 70 456 64 4,901
---------------------------------------------------------------------------
As of 31 December 1997 181,184 3,566 21,293 10,080 216,123
Adjustment to goodwill -- -- 691 -- 691
Amortisation charge (9,091) (790) (704) (506) (11,091)
Foreign exchange 1,965 34 254 110 2,363
---------------------------------------------------------------------------
As of 31 December 1998 174,058 2,810 21,534 9,684 208,086
Arising on acquisitions -- -- 22,383 -- 22,383
Amortisation charge (9,021) (782) (871) (504) (11,178)
Foreign exchange (5,401) (86) (940) (301) (6,728)
---------------------------------------------------------------------------
As of 31 December 1999 159,636 1,942 42,106 8,879 212,563
</TABLE>
The weighted average amortisable life of goodwill at 31 December 1999, 1998 and
1997 was 21 years.
The additions to goodwill during the year ended 31 December 1999 arose on the
acquisition of Laboratoires Murat S.A., Fuisz Pharma GmbH & Co KG and Istoria
Farmaceutici S.p.A. from Fuisz Technologies Ltd. For further details see Note
2(a).
11. Other non current assets
1999 1998
$'000 $'000
Notes receivable 422 2,369
Other assets 6,214 2,465
-----------------------------------------------------------------------------
6,636 4,834
-----------------------------------------------------------------------------
Included within other assets at 31 December 1999 is $4,393,000 in respect of
deferred financing costs. See Note 7 above for further details.
12. Accounts and notes payable
1999 1998
$'000 $'000
Trade accounts payable 31,540 19,791
Accrued expenses 79,520 35,105
Notes payable 3,449 --
------------------------------------------------------------------------------
114,509 54,896
------------------------------------------------------------------------------
The weighted average interest rate for notes payable at 31 December 1999 and
1998 was 6per cent.. The notes payable are not secured and do not contain any
covenants.
13. Current portion of long-term debt
1999 1998
$'000 $'000
Current portion of notes payable 9,573 11,178
Current portion of capital leases 35 1,173
--------------------
9,608 12,351
64
<PAGE>
14. Other current liabilities 1999 1998 $'000 $'000
Income taxes payable 6,727 3,134
Deferred tax liabilities -- 244
Payable for termination of licence agreement 806 832
Other accrued liabilities 41,170 9,831
--------------------
48,703 14,041
Other accrued liabilities at 31 December 1999 primarily relate to restructuring
costs incurred as a result of the merger with Roberts Pharmaceutical
Corporation.
15. Long-term debt
1999 1998
$'000 $'000
Notes payable 135,887 137,917
Less: current instalments (9,573) (11,178)
--------------------------------------------------------------------------------
126,314 126,739
--------------------------------------------------------------------------------
Capital leases payable 35 1,208
Less: current instalments (35) (1,173)
--------------------------------------------------------------------------------
-- 35
--------------------------------------------------------------------------------
Total, less current instalments 126,314 126,774
Principal payments in each of the next five years and thereafter on long-term
debt outstanding at 31 December 1999 amount to:
1999
$'000
2000 8,358
2001 1,322
2002 1,242
2003 --
2004 125,000
Thereafter --
---------------------------------------------------------------------------
135,922
---------------------------------------------------------------------------
The weighted average borrowing rate for the year ended 31 December 1999 was 7per
cent. (1998: 7per cent.).
$125 MILLION FIVE YEAR TERM LOAN
The Company entered into a $125,000,000 five year term loan with DLJ Capital
Funding, Inc. on 19 November 1999. This loan replaced an existing $125,000,000
loan facility in the name of Roberts Pharmaceutical Corporation that had been
taken out to finance the acquisition of Pentasa in 1998. The new loan is in the
name of the parent company, Shire Pharmaceuticals Group plc. The applicable
interest rate ranges between 0.5 per cent and 1.5 per cent over the higher of
the prime rate of DLJ Capital Funding, Inc. or the Federal Funds Rate plus 0.5
per cent or between 1.5 per cent and 2.5 per cent over the London Interbank
Overnight Rate (as adjusted in accordance with the loan agreement), in each case
depending on the Company's credit rating.
All obligations under the facility are jointly and severally guaranteed by the
Company and by its subsidiaries and is initially secured by all material
property owned by the Company and its subsidiaries and the capital stock of the
subsidiaries. If the Company's credit rating reaches specified levels, the
facility will not be secured. The facility contains covenants and maintenance
tests that require the Company to maintain a minimum net worth, a
65
<PAGE>
specified leverage ratio and a specified coverage ratio. At 31 December 1999 the
Company satisfied the aforementioned covenants and maintenance tests.
$11.8 MILLION UNSECURED CONVERTIBLE ZERO COUPON LOAN NOTE
The Company financed the purchase of intellectual property relating to the
manufacture of Adderall from Arenol Corporation by a total of $11.8 million in
loan notes. On 5 March 1999 the Company issued a $5,800,000 principal amount
Unsecured Convertible Zero Coupon Loan note due 30 July 2001 (the "First Loan
Note") and a $6,000,000 principal amount Unsecured Convertible Zero Coupon Loan
Note due 30 July 2004 (the "Second Loan Note"). Both loan notes are in the name
of the parent company, Shire Pharmaceuticals Group plc. The agreement provides
for the cancellation of certain specified amounts of the aggregate principal
amount of the First Loan Note and of such amounts of the Second Loan Note on
certain dates to the extent of certain indemnified losses or, to the extent that
such amounts of the First Loan Note or the Second Loan Note are not so
cancelled, for their conversion into that number of Ordinary Shares equal to the
amounts not cancelled divided by the product of (a) the lower of L3.565
(approximately $5.75) of the midweek closing price of the Ordinary Shares on the
London Stock Exchange on the relevant date and (b) the exchange rate on the
relevant date.
16. Other non current liabilities
1999 1998
$'000 $'000
Payable for termination of Licence agreement 1,209 2,080
Other liabilities 136 149
--------------------------------------------------------------------------------
1,345 2,229
--------------------------------------------------------------------------------
17. Financial instruments
The following methods and assumptions were used to estimate the fair value of
each material class of financial instrument:
CASH AND CASH EQUIVALENTS-carrying amount approximates fair value due to the
short-term nature of these instruments.
MARKETABLE SECURITIES AND OTHER CURRENT ASSET INVESTMENTS-the fair value of
marketable securities is estimated based on quotes obtained from brokers.
ACCOUNTS RECEIVABLE-carrying amount approximates fair value due to the
short-term nature of these instruments.
ACCOUNTS AND NOTES PAYABLE-carrying amount approximates fair value due to the
short-term nature of these instruments.
LONG TERM DEBT-the fair value of long term debt is estimated based on the
discounted future cash flows using currently available interest rates.
66
<PAGE>
The carrying amounts and corresponding fair values of financial instruments at
31 December 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
$'000 $'000
<S> <C> <C>
Financial assets:
Cash and cash equivalents 54,082 54,082
Marketable securities and other current asset investments 84,344 83,933
Financial liabilities:
Accounts and notes payable 114,509 114,487
Long--term debt 135,922 135,922
Financial assets:
Cash and cash equivalents 52,973 53,196
Marketable securities and other current assets 71,726 71,822
Financial liabilities:
Accounts and notes payable 54,896 54,896
Long--term debt 139,125 138,992
</TABLE>
The carrying amounts in the table are included in the consolidated balance sheet
under the indicated captions.
18. Leases and other commitments
(a) Leases
The Company leases facilities, motor vehicles and certain office equipment under
operating leases. The Company's commitments under the non-cancellable portion of
all operating leases for the next five years and thereafter as of 31 December
1999 are as follows:
1999
$'000
2000 4,274
2001 3,391
2002 2,707
2003 1,632
2004 726
Thereafter 600
---------
13,330
Lease and rental expense included in selling, general and administrative
expenses in the accompanying statements of operations amounts to approximately
$3,155,000, $1,555,000 and $1,201,000 for the fiscal years ended 31 December
1999, 1998 and 1997 respectively.
(b) Other commitments
In accordance with several product acquisitions and licensing agreements, and
subject to certain cancellation rights reserved by the Company, the Company may
be required to make minimum payments related to Noroxin, Sampatrilat and the
Lilly Compounds totalling $21.0 million; and purchase ProAmatine inventory in
the amount of $74.6 million through 2004. The Noroxin payments may be triggered
if minimum sales levels are not met and the ProAmatine payments may be triggered
if minimum s ales purchases are not made. The Sampatrilat and Lilly payments are
milestone payments due on reaching certain stages in the development of the
compounds. The following schedule details the minimum payments which may be
required in each of the next four fiscal years, assuming the previously
discussed triggering events occur:
67
<PAGE>
1999
$'000
2000 5,000
2001 2,000
2002 2,000
2003 12,000
--------------------------------------------------------------------------------
21,000
--------------------------------------------------------------------------------
1999
$'000
PROAMATINE INVENTORY
2000 26,808
2001 11,943
2002 11,943
2003 11,943
2004 11,943
--------------------------------------------------------------------------------
74,580
--------------------------------------------------------------------------------
Upon successful completion of the development of these products, approval by the
FDA, and subsequent marketing of these products, royalties will be in the range
of 7per cent. to 10per cent. of product sales with a weighted average royalty of
approximately 7per cent.. The duration of these royalties is the earlier of 15
years or patent expiration.
In June 1997, the Company concluded agreements with MacFarlan Smith Ltd. ("MS")
and Janssen Pharmaceuticals NV for the procurement of daffodils by MS on behalf
of Shire and Janssen and the extraction from those bulbs of galantamine for use
in the production of Reminyl for commercial launch of the product. Under these
arrangements, MS arranges for the production, planting and harvesting of
daffodil bulbs in sufficient quantities to provide the world-wide launch stock
for the product and has constructed a plant to undertake the extraction of
galantamine with an agreed maximum plant cost of L7 million (approximately $11.2
million). Reciprocal arrangements have been concluded with Janssen, which will
bear the entire cost other than a proportion relative to the supply of bulbs and
product for sale by Shire in the UK and Ireland.
These arrangements may be terminated by Shire and Janssen subject to the payment
by Shire and Janssen to MS of certain sums due to MS in respect of outstanding
bulb orders and its capital expenditure.
(c) Contingent liabilities
Until April 1998, Shire Richwood Inc. ("SRI") distributed products containing
phentermine, a prescription drug approved in the US as a single agent for short
term use in obesity. Contrary to the approved labelling of these products,
physicians in the US co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly known
as the "fen/phen" diet. In mid 1997, following concerns raised about cardiac
valvular side effects alleged to be associated with this diet regime, the
fenfluramine and dexfenfluramine elements of the "fen/ phen" diet were withdrawn
from the US market. Although SRI has ceased to distribute phentermine, the drug
remains both approved and available in the US SRI and a number of other
pharmaceutical companies are being sued for damages for personal injury and
medical monitoring arising from phentermine used either alone or in combination.
Through approximately March 2000 SRI was named as a defendant in approximately
3,500 lawsuits and had been dismissed from approximately 500 of these cases.
There are approximately 2,400 additional cases pending dismissal as of 16 March
2000. In only 127 cases pending was it alleged in the complaint or subsequent
discovery that the plaintiff had used SRI's particular product and SRI has been
dismissed from 29 of these cases as well. Although there have been reports of
substantial jury awards and settlements in respect of fenfluramine and/or
dexfenfluramine, to date Shire is not aware of any jury awards made against, or
any settlements made by, any phentermine defendant. Shire denies liability on a
number of grounds including lack of scientific evidence that phentermine,
properly prescribed, causes the alleged side effects and that SRI did not
promote phentermine for long term combined use as the "fen/phen" diet.
Accordingly, Shire intends to defend vigorously any and all claims made against
the Group in respect of phentermine and believes that a liability is neither
probable nor quantifiable at this stage of the litigation.
68
<PAGE>
Pursuant to an unlimited indemnity from SRI's former contract manufacturer of
phentermine, EON Laboratories Inc. (EON), legal costs in respect of the
phentermine litigation have, to date, been met by EON's insurers. EON has
available, subject to Court sanction, a further $12 million of insurance to meet
the costs and liabilities of EON and each of its distributors including Shire.
EON is a subsidiary of Hexal GmbH, a manufacturer of generic pharmaceuticals
based in Germany with a reported turnover of approximately $400 million,
operations in an estimated 30 countries and approximately 500 employees. Hexal
does not publicly disclose more extensive details of its financial position. EON
has indicated to Shire that it will defend and indemnify Shire against costs and
liabilities. Although EON has not indicated to Shire an unwillingness or
inability to fund any uninsured losses, Shire is unable to determine EON's
ability to pay such losses. Shire also has access to a limited indemnity given
by the former shareholders of SRI for costs and liabilities related to the
phentermine litigation not met by insurance or other indemnity arising from
litigation filed prior to 12 March 1999. This indemnity is limited to the value
of 1,622,566 ordinary shares of Shire presently held by a third party in escrow
and is available on demand. As of 24 March 2000, based on a closing share price
of L10.60, the value of these shares amounted to approximately L17.2 million
(approximately $27.5 million). In addition, Shire has access to its own product
liability insurance up to a maximum of $3 million. At the present stage of the
litigation, Shire is unable to estimate the level of future legal costs after
taking into account any available product liability insurance and enforceable
indemnities. To the extent that any legal costs are not covered by insurance or
available indemnities, these will be expensed as incurred.
19. Net income/(loss) per share
Basic net income/(loss) per share is based upon the income available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings/(loss) per share is based upon income
available to common stockholders divided by the weighted-average number of
common shares outstanding during the period and adjusted for the effect of all
dilutive potential common shares that were outstanding during the period.
The following table sets forth the computation for basic and diluted net
income/(loss) per share:
<TABLE>
<CAPTION>
1999 1998 1997
$'000 $'000 $'000
<S> <C> <C> <C>
Numerator for basic and diluted net (loss) /income per share (94,998) 20,572 (84,152)
</TABLE>
<TABLE>
<CAPTION>
No of shares No of shares No of shares
<S> <C> <C> <C>
Weighted average number of shares (basic) 244,698,721 234,044,732 185,153,065
Effect of dilutive stock options -- 8,761,678 --
Weighted average number of shares (diluted) 244,698,721 242,806,410 185,153,065
Basic net (loss)/income per share $(0.39) $0.09 $(0.45)
Diluted net (loss)/income per share $(0.39) $0.08 $(0.45)
</TABLE>
The calculation of weighted average number of shares for the year ended 31
December 1999 does not include potentially dilutive securities, stock options
and convertible debt, because their inclusion would be anti-dilutive in a loss
making year.
The calculation for the year ended December 31 1997 excludes potentially
dilutive stock options on the same basis.
20. Analysis of revenue, operating income/(loss), assets and reportable segments
The Company has disclosed segment information for the individual operating areas
of the business, based on the way in which the business is managed and
controlled. Shire's principal reporting segments are geographic, each being
managed and monitored separately and serving different markets. The Company
evaluates performance based on operating income or loss before interest and
income taxes. All inter-company items are eliminated. The accounting policies of
each reportable segment are the same as those of the Group.
69
<PAGE>
<TABLE>
<CAPTION>
US EUROPE REST OF WORLD TOTAL
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
YEAR ENDED 31 DECEMBER 1999
Product sales 313,582 55,194 16,427 385,203
Licensing and development 1,097 9,675 -- 10,772
Royalties -- 3,562 -- 3,562
Other revenues 517 -- 1,478 1,995
-----------------------------------------------------------------------------------------------------------------
Total revenue 315,196 68,431 17,905 401,532
-----------------------------------------------------------------------------------------------------------------
Cost of sales 62,375 20,958 10,142 93,475
Research and development 50,544 26,904 55 77,503
Selling, general and administrative 108,682 55,986 6,718 171,386
Costs of restructuring 93,603 3,529 -- 97,132
Merger transaction expenses 9,312 22,967 -- 32,279
Loss on sale of product rights 5,825 -- -- 5,825
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 330,341 130,344 16,915 477,600
-----------------------------------------------------------------------------------------------------------------
Operating (loss)/income (15,145) (61,913) 990 (76,068)
Total assets 547,762 313,113 27,801 888,676
Long-lived assets 348,946 231,560 15,825 596,331
Capital expenditure on long-lived assets 64,450 8,143 1,397 73,990
YEAR ENDED 31DECEMBER 1998
Product sales 226,988 50,261 14,536 291,785
Licensing and development 622 11,199 -- 11,821
Royalties -- 3,697 -- 3,697
Other revenues 306 -- 1,375 1,681
-----------------------------------------------------------------------------------------------------------------
Total revenue 227,916 65,157 15,911 308,984
-----------------------------------------------------------------------------------------------------------------
Cost of sales 67,889 19,378 7,746 95,013
Research and development 27,556 31,647 50 59,253
Selling, general and administrative 80,854 45,208 5,640 131,702
(Profit) on sale of product rights (220) -- -- (220)
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 176,079 96,233 13,436 285,748
-----------------------------------------------------------------------------------------------------------------
Operating income/(loss) 51,837 (31,076) 2,475 23,236
Total assets 542,799 307,309 23,497 873,605
Long-lived assets 352,195 213,381 14,265 579,841
Capital expenditure on long-lived assets 147,007 2,696 8,665 158,368
YEAR ENDED 31 DECEMBER 1997
Product sales 113,814 41,702 13,400 168,916
Licensing and development 4,201 15,929 -- 20,130
Royalties -- 1,596 16 1,612
Other revenues -- -- 896 896
Total revenue 118,015 59,227 14,312 191,554
Cost of sales 41,874 18,228 6,988 67,090
Research and development 20,876 19,678 109 40,663
Selling, general and administrative 52,538 29,211 4,806 86,555
In-process research and development 83,087 -- -- 83,087
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 198,375 67,117 11,903 277,395
-----------------------------------------------------------------------------------------------------------------
Operating (loss)/income (80,360) (7,890) 2,409 (85,841)
Total assets 351,573 288,643 24,734 664,950
Long-lived assets 205,500 239,956 6,960 452,416
Capital expenditure on long-lived assets 24,826 2,542 7,064 34,432
</TABLE>
(d) Material customers
70
<PAGE>
In the periods set out below, certain customers accounted for greater than 10
per cent of total revenue:
1999 1998 1997
$'000 $'000 $'000
Customer A 100,267 53,599 --
Customer B 54,498 31,387 --
Customer C 40,045 35,314 --
21. Other charges
YEAR ENDED 31 DECEMBER 1999
As a result of the acquisition of Roberts Pharmaceutical Corporation on 23
December 1999, which was accounted for as a pooling of interests, the Company
recorded charges totalling $135.2 million pre-tax for asset impairments ($48.5
million), merger-related transaction expenses ($32.3 million), restructuring
($43.6 million), loss on product dispositions ($5.8 million) and other charges
($5.0 million). These charges are disclosed separately within operating expenses
in the Statement of Income.
The Company recorded an impairment charge of $34.2 million to adjust intangible
asset values, primarily product rights, to their estimated fair value. These
charges are consistent with the Company's accounting policy to review
periodically the carrying value of the intangibles and evaluate whether there
has been any impairment in the value of those intangibles as compared with
estimated undiscounted future cash flows relating to those intangibles. The
estimated fair value has been calculated using projected discounted cash flows
of the products. Other asset impairments are the write off of inventory held for
research and development work and duplicate equipment ($ 3.2 million),
adjustments to the carrying value of the RiboGene investment to market value at
31 December 1999 ($ 7.6 million), and write down of notes receivable to their
estimated realisable value ($ 3.5 million).
The components of the restructuring charge were as follows:
$m
Employee termination costs 37.9
Property 5.7
---------
43.6
In December 1999, the decision was made to close the office facility in
Eatontown, New Jersey and consolidate the sales and marketing operations into
the existing facility in Florence, Kentucky and to transfer the research &
development activities to Shire's facility in Rockville, Maryland. Similarly,
Roberts' sales and marketing operation in the UK was combined with Shire's
established operation in Andover, Hampshire.
Shire has commenced negotiations with potential purchasers of the property at
Eatontown, which has been written down to its estimated fair value.
As a result of the restructuring, employees were notified of their termination
prior to 31 December 1999. As of 31 December 147 employees had been terminated
and the Company expects to complete the termination of the remainder of the
employees by 30 April 2000. Employee termination costs consist of payments for
severance, medical and other benefits, outplacement counselling, acceleration of
pension benefits and excise taxes.
YEAR ENDED 31 DECEMBER 1998
During the year ended 31 December 1998 a gain of $220,000 was credited to the
income statement in respect of the disposition of certain products.
71
<PAGE>
YEAR ENDED 31 DECEMBER 1997
As a result of the acquisition of Shire Laboratories, Inc. (formerly Pharmavene,
Inc.) in March 1997, Shire incurred a charge of $83,087,000 representing the
acquisition of in-process research and development pursuant to SFAS No. 2 (See
Note 2).
22. Retirement benefits
The Company has a number of defined contribution retirement plans and one
defined benefit plan covering substantially all employees. For the defined
contribution retirement plans, the level of company contribution is fixed at a
set percentage of employee's pay. For the defined benefit plan, where benefits
are based on employees' years of service and average final remuneration, the
pension cost is established in accordance with the advice of independent
qualified actuaries based on valuations undertaken on varying dates.
Personal defined contribution pension plans
Company contributions to personal defined contribution pension plans totalled
$1,558,000, $1,124,000, and $514,000 for the years ended 31 December 1999, 1998
and 1997 respectively, and were charged to operations as they became payable.
Defined benefit pension plans
The Company operates a defined benefit Supplemental Executive Retirement Plan
(SERP) for certain US employees, which was established in 1998. This plan is
available to former employees of Roberts Pharmaceutical Corporation who meet
certain age and service requirements. The plan requires mandatory contributions
based on employee contributions and makes discretionary contributions based on
employee compensation. The mandatory contributions to the plan in 1999 totalled
$429,000 (1998: $285,000). Estimated discretionary contributions of $306,000
were accrued in 1999 (1998: $226,000).
During 1999, as part of the restructuring of the Group following the merger with
Roberts Pharmaceutical Corporation, the SERP was closed to new members and
contributions have ceased being paid into the plan for existing members. As part
of this arrangement, the Company has paid a lump sum contribution into the plan
of $18 million, the result of which is that the Company has no future
liabilities under the plan.
23. Income taxes
The (provision)/benefit for income taxes consists of:
<TABLE>
<CAPTION>
1999 1998 1997
$'000 $'000 $'000
<S> <C> <C> <C>
Current
Federal (14,007) (7,375) (619)
State and foreign (1,556) 118 --
-----------------------------------------------------------------------------------------------------------------
Total current (15,563) (7,257) (619)
-----------------------------------------------------------------------------------------------------------------
Deferred
Federal (622) 3,808 (995)
State and foreign 123 458 194
-----------------------------------------------------------------------------------------------------------------
Total deferred (499) 4,266 (801)
-----------------------------------------------------------------------------------------------------------------
(16,062) (2,991) (1,420)
Approximate net operating loss carry forward against future federal tax 40,418 43,089 17,536
liabilities
Approximate net operating loss carry forward against future state and foreign 185,458 150,572 39,978
tax liabilities
</TABLE>
72
<PAGE>
The tax losses shown above have the following expiration dates:
1999
2005 78,200
2006 1,274
2007 4,403
2008 2,832
2009 5,327
2010 6,229
2011 10,430
Available indefinitely 117,181
-------------------------------------------------------------------------------
225,876
-------------------------------------------------------------------------------
A comparison of the (provision)/benefit for income taxes as reported to a
provision based on federal statutory rates and consolidated income before income
taxes is as follows:
1999 1998 1997
Benefit/(provision) at federal statutory rates 27,628 (8,247) 28,956
Adjusted for:
Permanent differences (6,474) 18 (33,124)
State and foreign tax (1,200) 1,300 (200)
Difference in taxation rates -- -- (663)
Adjustment to prior year liabilities 4,004 -- 2,701
Goodwill amortisation (9,758) (4,232) (1,532)
Other (337) (464) (651)
Valuation allowance (29,925) 8,634 3,093
-------------------------------------------------------------------------------
(Provision)/benefit for income taxes (16,062) (2,991) (1,420)
-------------------------------------------------------------------------------
An analysis of the deferred taxation asset is as follows:
1999 1998
Losses carried forward 39,411 36,078
Capitalised start up costs for tax purposes 3,259 --
Restructuring Reserve 28,835 --
Other 1,568 7,497
Debt conversion -- 377
-------------------------------------------------------------------------------
73,073 43,952
-------------------------------------------------------------------------------
Valuation allowance (35,962) (6,037)
-------------------------------------------------------------------------------
37,111 37,915
-------------------------------------------------------------------------------
Excess of tax value over book value of assets -- (305)
-------------------------------------------------------------------------------
Net deferred tax assets 37,111 37,610
-------------------------------------------------------------------------------
Valuation allowances against deferred tax assets have not been provided to the
extent that it is more likely than not that future income and tax planning
strategies will enable losses brought forward to be utilised.
The income (loss) before taxes by tax jurisdiction is as follows:
1999 1998 1997
$'000 $'000 $'000
US (33,924) 30,772 4,541
UK (33,996) 5,763 (84,480)
Other (11,016) (13,172) (2,793)
-----------------------------------------------------------------------------
(78,936) 23,363 (82,732)
24. Stock incentive plans
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" but applies Accounting Principles
Board Opinion No. 25 and related interpretations in
73
<PAGE>
accounting for its plans. In the years ended 31 December 1999, 1998 and 1997 the
Company recognised a charge under APB25 of $11,933,000, $5,497,000 and
$2,031,000 respectively. Had compensation for stock options awarded under the
plans been determined in accordance with SFAS 123, the Company's net
income/(loss) and per share data would have been changed to the pro forma
amounts indicated below:
1999 1998 1997
$'000 $'000 $'000
Net income/(loss)
As reported (94,998) 20,572 (84,152)
Pro forma (106,246) 17,439 (89,847)
Income/(loss) per share
As reported--basic $(0.39) $0.09 $(0.45)
As reported--diluted $(0.39) $0.08 $(0.45)
Pro forma--basic $(0.43) $0.07 $(0.49)
Pro forma--diluted $(0.43) $0.07 $(0.49)
The fair value of stock options used to compute pro forma net income/(loss) and
per share disclosures is the estimated present value at grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
1999 1998 1997
Risk free interest rate 4.67%-6.25% 4.55%-6.57% 5.17%-6.57%
Expected dividend yield 0% 0% 0%
Expected life 4 years 4 years 4 years
Expected volatility 53.4% 53.2% 28.21%
Directors and employees have been granted options over ordinary shares under the
following stock option plans: Shire Holdings Limited Share Options Scheme ("SHL
Scheme"), the Imperial Pharmaceutical Services Limited Employee Share Option
Scheme (Number One) ("SPC Scheme"), the Pharmavene 1991 Stock Option Plan ("SLI
Plan"), the Shire Pharmaceuticals Executive Share Option Scheme (Parts A and B)
("Executive Scheme"), the Shire Pharmaceuticals Sharesave Scheme ("Sharesave
Scheme"), the Shire Pharmaceuticals Group plc Employee Stock Purchase Plan
("Stock Purchase Plan"), the Richwood Stock Options Plan ("Richwood Plan") and
the Roberts Stock Option Plans ("Roberts Plan").
No further options will be granted under the SHL Scheme, SPC Scheme, SLI Plan,
Richwood Plan or Roberts Plan. In a period of five years, not more than five per
cent of the issued share capital of the Company may be placed under option under
any employee share scheme. In a period of ten years, not more than ten per cent
of the issued share capital of the Company may be placed under option under any
employee share scheme. In addition, the following terms apply to options that
may be granted under the various plans:
Executive Scheme: up to five per cent of the issued ordinary share capital of
the Company, in any period of ten years, subject to a limit of 2.5 per cent in
the period of four years following adoption of the Scheme and a limit of three
per cent in any period of three calendar years.
Stock Purchase Plan: up to 21,000,000 ordinary shares.
The Company has granted options through 31 December 1999 under the various plans
as follows:
<TABLE>
<CAPTION>
Scheme No of Date of issue Expiry date from vesting period
options
<S> <C> <C> <C>
SHL Scheme 964,280 7 years, or 3 months after end 1--3 years
of employment
SPC Scheme 48,000 7 years, or 6 months after of 2 years
employment
SLI Plan 485,367 10 years Immediate on acquisition by Shire
Executive Scheme 5,371,042 10 years 3 years, subject to performance criteria
Sharesave Scheme 180,697 6 months after vesting 3 or 5 years
Stock Purchase Plan 218,950 Automatic exercise 27 months
Richwood Plan 1,194,388 5 years Immediate on acquisition by Shire
</TABLE>
74
<PAGE>
<TABLE>
<S> <C> <C> <C>
Roberts Plan 9,174,418 6 years Immediate on acquisition by Shire
</TABLE>
A summary of the status of the Company's stock option plans as of 31 December
1999, 1998 and 1997 and the related transactions during the periods then ended
is presented below:
Weighted average Number of
exercise price shares
YEAR ENDED 31 DECEMBER 1999
Outstanding at beginning of period 3.38 20,784,312
Granted 6.86 2,952,734
Exercised 2.37 (4,552,618)
Forfeited/expired 4.90 (1,547,286)
Outstanding at end of period 4.39 17,637,142
Exercisable at end of period 3.92 13,001,439
The weighted average grant-date fair value of options granted during the year
equates to the weighted average exercise price as options are granted at market
price.
Weighted average Number of
exercise price shares
YEAR ENDED 31 DECEMBER 1998
Outstanding at beginning of period 2.30 21,002,886
Granted 5.51 7,170,801
Exercised 1.32 (6,628,884)
Forfeited/expired 4.01 (760,491)
---------------------------------------------------------------- ---------------
Outstanding at end of period 3.38 20,784,312
Exercisable at end of period 2.60 9,505,075
Weighted average Number of
exercise price shares
YEAR ENDED 31 DECEMBER 1997
Outstanding at beginning of period 2.89 15,090,452
Granted 1.54 8,491,081
Exercised 1.40 (1,596,314)
Forfeited/expired 3.25 (1,543,033)
---------------------------------------------------------------- ---------------
Outstanding at end of period 2.30 20,442,186
Exercisable at end of period 1.85 13,269,619
75
<PAGE>
Options outstanding at 31 December 1999 have the following characteristics:
<TABLE>
<CAPTION>
Number of options Exercise prices Weighted Weighted average Number of Weighted
outstanding average exercise price options average
remaining life of options exercisable exercise price
outstanding of options
exercisable
<S> <C> <C> <C> <C> <C>
864,249 $0.19-$0.83 1.1 $ 0.39 864,249 $0.39
1,827,786 $1.21-$1.73 3.5 $ 1.55 1,827,786 $1.55
932,612 $2.09-$3.06 3.7 $ 2.82 819,231 $2.83
5,433,152 $3.22-$4.38 3.4 $ 3.73 4,206,730 $3.64
7,225,437 $5.23-$6.75 5.1 $ 5.66 5,251,537 $5.71
1,247,650 $6.77-$7.69 5.9 $ 7.59 25,650 $7.14
106,256 $8.27-$11.56 5.2 $10.19 6,256 $8.27
17,637,142 4.0 $ 4.39 13,001,439 $3.92
</TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents summarised unaudited quarterly results for 1999 (in
thousands, except per share data):
FIRST SECOND THIRD FOURTH
$'000 $'000 $'000 $'000
Revenues 95,252 96,107 105,784 104,389
Gross profit 71,741 76,878 79,381 80,057
Net income/(loss) 10,266 9,409 9,293 (123,966)
Basic net income per share $0.04 $0.04 $0.04 ($0.49)
Diluted net income per share $0.04 $0.04 $0.04 ($0.49)
76
<PAGE>
Financial statements reported under UK GAAP
Consolidated profit and loss account
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
Notes
<S> <C> <C> <C>
Turnover 2
Existing operations 131,544 80,328
Acquisitions 2,334 --
---------- ----------
Continuing operations 133,878 80,328
Cost of sales and operating expenses (103,506) (72,449)
---------- ----------
Operating profit
Existing operations 30,894 7,879
Acquisitions (522) --
---------- ----------
Continuing operations 30,372 7,879
Costs of a fundamental restructuring of continuing operations (11,516) --
---------- ----------
Profit on ordinary activities before interest 18,856 7,879
Bank interest receivable 2,334 1,434
Interest payable and similar charges (181) (214)
---------- ----------
Profit on ordinary activities before taxation 21,009 9,099
Tax on profit on ordinary activities (8,439) (2,852)
---------- ----------
Profit on ordinary activities after taxation 12,570 6,247
---------- ----------
Earnings per share - basic 11 8.7p 4.5p
- diluted 11 8.3p 4.3p
---------- ----------
</TABLE>
A statement of movement on reserves is given in note 22.
The accompanying notes are an integral part of this consolidated profit and loss
account.
Consolidated statement of total recognised gains and losses
<TABLE>
<CAPTION>
1999 1998
Notes (pound)'000 (pound)'000
<S> <C> <C>
Profit for the year 12,570 6,247
Translation of the financial statements of overseas subsidiaries 519 (1,171)
---------- ---------
Total recognised gains and losses relating to the year 13,089 5,076
---------- ---------
</TABLE>
77
<PAGE>
The accompanying notes are an integral part of this consolidated statement of
total recognised gains and losses.
Balance sheets
<TABLE>
<CAPTION>
Consolidated Company
---------------------------- ---------------------------
1999 1998 1999 1998
Notes (pound)'000 (pound)'000 (pound)'000 (pound)'000
Fixed assets
<S> <C> <C> <C> <C> <C>
Intangible assets - Intellectual property 12 214,856 7,938 -- 31
- Goodwill 12 469,531 -- -- --
Tangible assets 13 23,256 4,671 874 1,101
Fixed asset investments 14 1,617 -- 881,091 234,942
---------- ---------- ---------- ----------
709,260 12,609 881,965 236,074
---------- ---------- ---------- ----------
Current assets
Stocks 15 24,532 6,652 -- --
Debtors 16
- due within 1 year 45,488 17,560 1,920 264
- due after 1 year 1,392 -- -- --
Investments 17 49,850 21,435 708 17,522
Cash at bank and in hand 36,038 8,230 9,814 1,362
---------- ---------- ---------- ----------
157,300 53,877 12,442 19,148
Creditors: Amounts falling due within one
year 18 (107,140) (14,384) (19,785) (1,473)
---------- ---------- ---------- ----------
Net current assets (liabilities) 50,160 39,493 (7,343) 17,675
---------- ---------- ---------- ----------
Total assets less current liabilities 759,420 52,102 874,622 253,749
Creditors: amounts falling due after more
than one year (80,133) (1,508) (1,861) --
---------- ---------- ---------- ----------
Net assets 679,287 50,594 872,761 253,749
---------- ---------- ---------- ----------
Capital and reserves
Called-up share capital 21 12,226 7,055 12,226 7,055
Share premium 22 839,026 228,537 839,026 228,537
Capital reserve 22 2,755 2,755 1,674 1,674
Other reserves 22 24,247 24,247 18,079 18,079
Profit and loss account 22 (198,967) (212,000) 1,756 (1,596)
---------- ---------- ---------- ----------
Equity shareholders' funds 23 679,287 50,594 872,761 253,749
---------- ---------- ---------- ----------
</TABLE>
The accounts on pages o to o were approved by the Board of Directors on 7 April
2000 and signed on its behalf by:
A. Russell
Director
The accompanying notes are an integral part of this balance sheet.
78
<PAGE>
Consolidated cash flow statement
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
Notes
<S> <C> <C> <C>
Net cash inflow from operating activities 26a 39,863 3,691
Returns on investments and servicing of finance:
Interest received 2,334 1,434
Interest paid (149) (142)
Interest element of finance lease rentals (32) (72)
--------- ---------
Net cash inflow from returns on investments and servicing of finance 2,153 1,220
--------- ---------
Taxation:
Overseas corporation tax paid (3,707) (3,177)
--------- ---------
Capital expenditure and financial investments:
Purchase of intangible fixed assets (11,500) (629)
Purchase of tangible fixed assets (1,303) (1,633)
Sale of intangible fixed assets 106 258
Sale of tangible fixed assets 1,521 37
--------- ---------
Net cash outflow for capital expenditure and financial investments (11,176) (1,967)
--------- ---------
Acquisitions and disposals:
Purchase of subsidiary undertakings 14 (17,355) --
Expenses of acquisitions (7,448) (295)
Net cash acquired with subsidiary undertakings 24,149 --
--------- ---------
Net cash outflow from acquisitions (654) (295)
--------- ---------
Cash inflow (outflow) before management of liquid resources and financing
26,479 (528)
--------- ---------
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
Notes
<S> <C> <C> <C>
Management of liquid resources:
Increase in cash placed on short-term deposit 26b (1,033) (21,435)
--------- ---------
Financing:
Issue of ordinary share capital -- 19,373
Exercise of share options 2,180 2,452
Expenses of share issues (6,799) (1,274)
Capital element of finance leases (705) (553)
Net increase in loans during the year 7,439 --
--------- ---------
Net cash inflow from financing 2,115 19,998
--------- ---------
Increase (decrease) in cash in the year 27,561 (1,965)
--------- ---------
</TABLE>
The accompanying notes are an integral part of this consolidated cash flow
statement.
Notes to the accounts
A summary of the principal Group accounting policies, all of which have been
applied consistently throughout the year and the preceding year, is set out
below:
(a) Basis of accounting
The accounts have been prepared under the historical cost convention, and in
accordance with applicable accounting standards. The accounts have been prepared
under United Kingdom Generally Accepted Accounting Principles (UK GAAP).
(b) Basis of consolidation
The Group accounts consolidate the accounts of Shire Pharmaceuticals Group plc
and all its subsidiary undertakings drawn up to 31 December each year.
Under the acquisition method of accounting, which has been adopted for business
combinations other than Group reconstructions, the results of subsidiary
undertakings acquired or disposed of in a period are included in the
consolidated profit and loss account from the date of acquisition up to the date
of disposal.
Where merger accounting principles apply, subsidiary undertakings are
consolidated as if they have always been owned by the Company and acquired share
premium has been shown as other reserves. There has been no difference between
the nominal value of shares issued to acquire subsidiary undertakings and the
nominal value of shares acquired.
(c) Intangible fixed assets - goodwill
Goodwill arising on acquisitions in the year ended 31 December 1997 and earlier
periods was written off to reserves in accordance with the accounting standard
then in force. As permitted by the current accounting standard the goodwill
previously written off to reserves has not been reinstated in the balance sheet.
On disposal or closure of a previously acquired business, the attributable
amount of goodwill previously written off to reserves is included in determining
the profit or loss on disposal.
Goodwill arising on the acquisition of subsidiary undertakings and businesses
subsequent to 31 December 1997, representing any excess of the fair value of the
consideration given over the fair value of the identifiable assets and
liabilities acquired, is capitalised and written off on a straight line basis
over its useful economic life being 20 years. Provision is made for any
impairment.
(d) Turnover
Product sales are recognised upon shipment of products.
Licensing and development fees represent revenues derived from licence
agreements and from collaborative research and development arrangements.
80
<PAGE>
Licensing fees are recognised upon transfer or licensing of intellectual
property rights. Development fee revenue relates to ongoing research and
development in connection with licenced technology.
Revenue in respect of research and development performed on a cost plus or fixed
percentage of cost basis is recognised as research and development work is
performed. Where collaborative research and development arrangements stipulate
payment on a milestone basis, revenue is recognised upon achievement of those
milestones.
Royalty revenue relating to licenced technology is recognised when receivable.
Revenues are stated net of VAT and similar taxes, trade discounts and
intra-Group transactions.
No revenue is recognised for consideration, the value or receipt of which is
dependent on future events, future performance, or refund obligations.
(e) Research and development
Research and development expenditure includes funded and unfunded expenditure
and is written off in the period in which it is incurred.
(f) Leased assets
The cost of operating leases is charged to the profit and loss account on a
straight line basis over the lease term, even if rental payments are not made on
such a basis.
Assets acquired under finance leases are included in the balance sheet as
tangible fixed assets and are depreciated over the shorter of the period of
lease or their useful lives. The capital elements of future lease payments are
recorded as liabilities, while the interest elements are charged to the profit
and loss account over the period of the leases to give a constant charge on the
balance of the capital repayments outstanding.
(g) Pensions
The Group contributes to personal defined contribution pension plans of
employees. Contributions are charged to the profit and loss accounts as they
become payable.
(h) Finance costs of debt
Finance costs of debt are charged to the profit and loss account over the term
of the debt at a constant rate on the carrying amount.
(i) Debt
Debt is initially stated at the amount of the net proceeds after deduction of
issue costs. The carrying amount is increased by the finance cost in respect of
the accounting period and reduced by payments made in the period. Convertible
debt is reported as a liability unless conversion actually occurs. No gain or
loss is recognised on conversion.
(j) Taxation
Corporation tax is provided on taxable profits at the current rate.
Deferred taxation (which arises from differences in the timing of recognition of
items, principally depreciation, in the accounts and by the tax authorities) has
been calculated on the liability method. Deferred taxation is provided on timing
differences which will probably reverse at the rates of tax likely to be in
force at the time of reversal. Deferred taxation is not provided on timing
differences which, in the opinion of the Directors, will probably not reverse.
(k) Foreign currency
Monetary assets and liabilities in foreign currencies are translated into
sterling at the rate of exchange ruling at the balance sheet date. Transactions
in foreign currencies are translated into sterling at the rate of exchange
ruling at the date of the transaction. Exchange differences are taken into
account in arriving at the operating profit.
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets at the rates ruling at the
balance sheet date.
81
<PAGE>
Exchange differences arising on translation of the opening net assets and on
foreign currency borrowings, to the extent that they hedge the Group's
investment in such operations, are dealt with through reserves. All other
exchange differences are included in the profit and loss account.
(l) Intangible fixed assets - intellectual property
Intellectual property, including trademarks, for products with an immediate
defined revenue stream and acquired for valuable consideration, is recorded at
cost and amortised in equal annual instalments over the estimated useful life of
the product with a maximum of 20 years. Intellectual property with no defined
revenue stream is written off on acquisition. Provision is made for any
impairment.
(m) Tangible fixed assets
Tangible fixed assets are shown at cost less accumulated depreciation and any
provision for impairment. Depreciation is provided on a straight line basis at
rates calculated to write off the cost less estimated residual value of each
asset over its estimated useful life at the following annual rates:
Freehold land and buildings 2 per cent per annum
Office furniture and fittings 20-25 per cent per annum
Equipment and other 20-25 per cent per annum
(n) Investments
Fixed asset investments are shown at cost less any provision for impairment.
Current asset investments are shown at the lower of cost and net realisable
value.
(o) Stocks
Stocks are stated at the lower of cost and net realisable value. Cost incurred
in bringing each product to its present location and condition is based on
purchase costs calculated on a first-in, first-out basis, including transport.
Net realisable value is based on estimated normal selling price less further
costs expected to be incurred to completion and disposal. Provision is made for
obsolete, slow moving or defective items where appropriate.
(p) Employee share schemes
In accordance with UITF Abstract 17 "Employee share schemes", the cost of awards
to employees that take the form of shares or rights to shares is recognised as a
charge in the profit and loss account. The amount recognised, which is the
difference between the market value at date of grant and the underlying share
and any exercise price, is charged to the profit and loss account over the
period the shares are vested, with a corresponding credit to reserves.
(q) Related party transactions
In accordance with the exemptions in FRS 8, "Related Party Transactions",
transactions between Group companies have not been disclosed since Group
accounts are prepared and include the results of all subsidiary undertakings.
(r) Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange risk and interest rate movements. The Group does not hold or issue
derivative financial instruments for speculative purposes.
For a forward foreign exchange contract to be treated as a hedge the instrument
must be related to actual foreign currency assets or liabilities or to a
probable commitment. It must involve the same currency or similar currencies as
the hedged item and must also reduce the risk of foreign currency exchange
movements on the Group's operations. Gains and losses arising on these contracts
are deferred and recognised in the profit and loss account, or as adjustments to
the carrying amount of fixed assets, only when the hedged transaction has itself
been reflected in the Group's accounts.
For an interest rate swap to be treated as a hedge the instrument must be
related to actual assets or liabilities or a probable commitment and must change
the nature of the interest rate by converting a fixed
82
<PAGE>
rate to a variable rate or vice versa. Interest differentials under these swaps
are recognised by adjusting net interest payable over the periods of the
contracts.
If an instrument ceases to be accounted for as a hedge, for example because the
underlying hedged position is eliminated, the instrument is marked to market and
any resulting profit or loss recognised at that time.
2. Turnover and segment information
(a) Turnover by business activity
1999 1998
(pound)'000 (pound)'000
Product sales 125,013 71,021
Licensing and development fees 6,653 7,084
Royalties 2,212 2,223
---------- ----------
133,878 80,328
========== ==========
(b) Turnover by geographical destination
1999 1998
(pound)'000 (pound)'000
Europe 28,665 26,454
United States of America 104,372 53,155
Other overseas markets 841 719
---------- ----------
133,878 80,328
========== ==========
(c) Contribution by business activity
<TABLE>
<CAPTION>
Licensing &
Product sales development Royalties Total
Year to 31 December, 1999 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Turnover 125,013 6,653 2,212 133,878
Cost of product sales (22,811) -- -- (22,811)
Distribution costs (32,860) -- -- (32,860)
Funded research and development costs -- (5,190) -- (5,190)
--------- ---------- ---------- ----------
69,342 1,463 2,212 73,017
Unfunded research and development costs (32,229)
Expenses not allocated (10,416)
----------
Operating profit 30,372
==========
Turnover 71,021 7,084 2,223 80,328
Cost of product sales (17,907) -- -- (17,907)
Distribution costs (19,717) -- -- (19,717)
Funded research and development costs -- (7,290) -- (7,290)
--------- ---------- ---------- ----------
33,397 (206) 2,223 35,414
Unfunded research and development costs (21,695)
Expenses not allocated (5,840)
----------
Operating profit 7,879
==========
</TABLE>
83
<PAGE>
(d) Geographical analysis by country of origin
1999 1998
Turnover: (pound)'000 (pound)'000
Europe 28,665 26,454
United States of America 104,372 53,156
Rest of world 841 719
---------- ----------
133,878 80,329
========== ==========
Operating profit (loss):
Europe (11,773) (11,113)
United States of America 42,145 18,992
Rest of world -- --
---------- ----------
30,372 7,879
========== ==========
Net assets:
Europe 465,854 32,214
United States of America 213,084 18,380
Rest of world 349 --
---------- ----------
679,287 50,594
========== ==========
(e) Acquisitions
The analyses presented above include the following amounts in respect of
operations acquired during the year:
Acquisition of Roberts
Pharmaceutical Corporation
---------------------------
Business Geographic
activity area
Product sales USA
(pound)'000 (pound)'000
Sales to third parties
- by destination 563 563
- by origin 563 563
Segment loss before cost of restructuring (770) (770)
=========== ===========
Roberts Pharmaceutical Corporation had (pound)158,463,000 of net assets at 31
December 1999. Of these (pound)162,562,000 arose in the USA, (pound)4,449,000 in
Europe and (pound)350,000 in the rest of the world.
84
<PAGE>
Acquisition of Laboratoires Murat
S.A., Fuisz Pharma GmbH & Co KG and
Istoria Farmaceutici S.p.A.
-----------------------------------
Class of Geographic
business area
Product sales Europe
(pound)'000 (pound)'000
Sales to third parties
- by destination 1,771 1,771
- by origin 1,771 1,771
Segment profit 248 248
Segment net assets 5,791 5,791
=========== ===========
3. Cost of sales, gross profit and other operating expenses (net)
In relation to the acquisitions of Roberts Pharmaceutical Corporation and
Laboratoires Murat S.A., Fuisz Pharma GmbH & Co KG and Istoria Farmaceutici
S.p.A. (collectively "Shire Europe"), continuing operations in 1999 include the
following:
Roberts
Pharmaceutical
Corporation Shire Europe
(pound)'000 (pound)'000
Cost of product sales 269 767
Distribution Costs 134 756
Funded research and development costs 443 --
Expenses not allocated 487 --
Operating (loss) profit (770) 248
========= ==========
4. Exceptional items reported after operating profit
The costs of a fundamental restructuring of continuing operations arose in
respect of the reorganisation and restructuring of the Group as a result of the
acquisition of Roberts Pharmaceutical Corporation, which has had a material
effect on the nature and focus of the Group's operations.
There are no effects of the exceptional item on the amounts charged to the
profit and loss account for taxation in the year ended 31 December 1999.
5. Interest payable and similar charges
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Bank loans and overdrafts and other loans wholly repayable 149 142
within 5 years
Finance leases and hire purchase contracts 32 72
---------- ----------
181 214
========== ==========
</TABLE>
85
<PAGE>
6. Profit on ordinary activities before taxation
Profit on ordinary activities before taxation is stated after charging
(crediting):
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Staff costs (note 7) 20,848 16,125
Auditors' remuneration
- audit fees 289 75
- other services 994 157
Operating lease rentals
- plant and machinery 816 418
- other 909 401
Depreciation of tangible fixed assets
- owned 1,089 927
- held under finance leases and hire purchase contracts 344 373
Amortisation of goodwill 678 --
Amortisation of intangible fixed assets 2,196 527
Cost of employee share options -- 24
Foreign exchange loss (gain) 503 (313)
---------- ----------
</TABLE>
The following amounts have been charged directly to share premium or costs of
acquisition:
Year ended 31 December 1999: non-audit fees of (pound)375,000 related to the
acquisition of Roberts Pharmaceutical Corporation.
Year ended 31 December 1998: non-audit fees of (pound)400,000 related to an
international offering completed in April 1998. Non-audit fees of (pound)295,000
related to the acquisition of Shire Richwood Inc.
7. Staff costs
Particulars of employee costs (including Directors' remuneration) are shown
below:
1999 1998
(pound)'000 (pound)'000
Wages and salaries 18,556 14,207
Social security costs 1,223 1,241
Pension contributions 1,069 677
---------- ----------
20,848 16,125
========== ==========
86
<PAGE>
The average monthly number of people employed by the Group during the year was
as follows:
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Manufacturing 50 52
Distribution 254 210
General and administrative 63 57
Research and development 112 98
---------- ----------
479 417
========== ==========
</TABLE>
8. Directors' remuneration, interests and transactions
Aggregate remuneration
The total amounts for Directors' remuneration and other benefits were as
follows:
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Aggregate emoluments 934 829
Gains on exercise of share options 2,539 1,941
Company contributions to money purchase pension schemes 62 44
---------- ----------
3,535 2,814
========== ==========
</TABLE>
No fees were payable to third parties in respect of Directors' services for
either year.
Directors waived emoluments of (pound)20,000 in both years.
The number of Directors who were members of the company pension scheme was as
follows:
1999 1998
(pound)'000 (pound)'000
Money purchase schemes 3 3
========== ==========
The above amounts for remuneration include the following in respect of the
highest paid Director:
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Aggregate emoluments 2,293 371
Company contributions to money purchase pension schemes 30 24
---------- ----------
2,323 395
========== ==========
</TABLE>
9. Tax on profit on ordinary activities
The tax charge comprises:
87
<PAGE>
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Overseas corporation tax 8,439 2,852
========== ==========
Approximate gross tax losses to carry forward against certain
future UK corporation tax liabilities 15,484 14,262
========== ==========
</TABLE>
Additionally, the Group had non-UK tax losses to carry forward against certain
future non-UK tax liabilities.
There was no unprovided deferred taxation liability at either year end.
10. Profit attributable to Shire Pharmaceuticals Group plc
The profit for the financial year dealt with in the accounts of the company was
(pound)3,408,000 (1998 - (pound)4,513,000). As provided by section 230 of the
Companies Act 1985, no profit and loss account is presented in respect of the
Company.
11. Earnings per share
Earnings per share (EPS) has been calculated by dividing the profit on ordinary
activities after taxation for each period by the weighted average number of
shares in issue during those periods, in accordance with FRS14.
The weighted average number of shares used in calculating fully diluted earnings
per share has been adjusted for the effects of all dilutive potential ordinary
shares in accordance with FRS14.
<TABLE>
<CAPTION>
Basic and diluted
------------------------------
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Profit for the financial year 12,570 6,247
========== ==========
</TABLE>
The weighted average number of shares used in each year are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Weighted average number of shares in issue for basic EPS 145,202,383 136,924,061
Number of dilutive potential shares 6,326,875 7,475,065
----------- -----------
Total for fully diluted EPS 151,529,258 144,399,126
=========== ===========
</TABLE>
12. Intangible fixed assets - intellectual property
Group Company
(pound)'000 (pound)'000
Cost
As at 31 December 1998 8,459 31
Additions 11,500 --
Acquisitions 226,100 --
Disposals (161) --
Intra-Group transfer - (31)
Foreign exchange 278 --
---------- ----------
88
<PAGE>
As at 31 December 1999 246,176 --
---------- ----------
Amortisation
As at 31 December 1998 (521) --
Charge for the period (2,196) --
Acquisition (28,694) --
Disposals 55 --
Foreign exchange 36 --
---------- ----------
As at 31 December 1999 (31,320) --
========== ==========
Net book value
As at 31 December 1998 7,938 31
---------- ----------
As at 31 December 1999 214,856 --
========== ==========
13. Intangible fixed assets - goodwill
Group Company
(pound)'000
Cost
As at 31 December 1998 -- --
Additions 470,209 --
---------- ----------
As at 31 December 1999 470,209 --
========== ==========
Amortisation
As at 31 December 1998 -- --
Charge for the period (678) --
---------- ----------
As at 31 December 1999 (678) --
========== ==========
Net book value
As at 31 December 1998 -- --
---------- ----------
As at 31 December 1999 469,531 --
========== ==========
14. Tangible fixed assets
(a) Group
89
<PAGE>
<TABLE>
<CAPTION>
Freehold Office
land and furniture and Equipment
buildings fittings and other Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Cost
As at 31 December 1998 463 2,015 5,511 7,989
Additions -- 602 701 1,303
Acquisition 17,448 2,666 3,072 23,186
Disposals (466) (72) (949) (1,487)
Foreign exchange 3 110 302 415
------- ------- ------- -------
As at 31 December 1999 17,448 5,321 8,637 31,406
======= ======= ======= =======
Depreciation
As at 31 December 1998 (41) (839) (2,438) (3,318)
Charge (4) (436) (993) (1,433)
Acquisition (1,438) (1,680) (371) (3,489)
Disposals 46 32 353 431
Foreign exchange (1) (87) (253) (341)
------- ------- ------- -------
As at 31 December 1999 (1,438) (3,010) (3,702) (8,150)
======= ======= ======= =======
Net book value
As at 31 December 1998 422 1,176 3,073 4,671
------- ------- ------- -------
As at 31 December 1999 16,010 2,304 4,942 23,256
======= ======= ======= =======
Leased assets included above, at NBV
As at 31 December 1998 -- -- 592 592
------- ------- ------- -------
As at 31 December 1999 -- -- 255 255
======= ======= ======= =======
</TABLE>
Freehold land, amounting to (pound)2,300,000 (1998 - (pound)nil) for the Group
has not been depreciated.
Depreciation charged on assets held under finance leases and hire purchase
contracts is disclosed in Note 6.
15. Tangible fixed assets (continued)
(b) Company
Office
furniture and Equipment
fittings and other Total
(pound)'000 (pound)'000 (pound)'000
Cost
As at 31 December 1998 358 1,284 1,642
Additions 170 32 202
------ ------ ------
As at 31 December 1999 528 1,316 1,844
====== ====== ======
Depreciation
As at 31 December 1998 (129) (412) (541)
Charge (101) (328) (429)
------ ------ ------
As at 31 December 1999 (230) (740) (970)
====== ====== ======
Net book value
As at 31 December 1998 229 872 1,101
------ ------ ------
As at 31 December 1999 298 576 874
====== ====== ======
Leased assets included above, at NBV
As at 31 December 1998 -- 394 394
------ ------ ------
As at 31 December 1999 -- 233 233
====== ====== ======
90
<PAGE>
Depreciation charged on leased assets was (pound)161,000 in both years.
The Directors are satisfied that the aggregate value of fixed assets at 31
December 1999 is not less than the aggregate amount at which they are stated in
the Company's accounts.
16. Fixed asset investments
(a) Group
The Group has an investment in the convertible preference shares of RiboGene,
Inc., a drug discovery company targeting infectious diseases. The shares have no
voting rights. One-third of the preference shares is convertible at the option
of the Group to ordinary shares of RiboGene at each of the first three
anniversary dates of the investment. The investment is classified as held to
maturity.
The cost of the investment is (pound)1,617,000 as at 31 December 1999.
(b) Company
<TABLE>
<CAPTION>
Amount due
Shares in from
subsidiary Convertible subsidiary
undertakings loan stock undertakings Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
As at 31 December 1998 35,460 69,300 130,182 234,942
Net acquisitions 627,672 -- -- 627,672
Net advances -- -- 18,477 18,477
Interest on intra-Group loan note (6,930) 6,930 -- --
---------- ---------- ---------- ----------
As at 31 December 1999 656,202 76,230 148,659 881,091
========== ========== ========== ==========
</TABLE>
Shire Holdings (Europe) Limited, a Group company, issued Unsecured Convertible
Redeemable Loan Stock (1997-2002) in favour of the Company in consideration for
the whole of the issued share capital of Shire Laboratories Inc. at a price of
(pound)60m. The loan stock has a face value of (pound)96.6m.
(c) Principal subsidiaries
The Company owned directly or indirectly the whole of the issued ordinary share
capital of the following companies at 31 December 1999:
91
<PAGE>
<TABLE>
<CAPTION>
Country of
Subsidiary incorporation/operation Principal activity
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shire Pharmaceuticals Limited* UK Marketing of pharmaceuticals.
Shire Pharmaceutical Development Limited* UK Development of pharmaceuticals,
including on behalf of other
Group companies.
Shire Pharmaceutical Contracts Limited* UK Development and licensing of
pharmaceuticals.
The Endocrine Centre Limited UK Endocrine clinic (dormant).
Shire Holdings (Europe) Limited* UK Intermediate holding company.
Shire International Licensing BV Netherlands Licensing and development of
pharmaceuticals.
Shire Holdings Limited* Bermuda/UK Intermediate holding company
Shire Laboratories Inc. USA Development and licensing of
pharmaceuticals, including on behalf of
other Group companies.
Shire Richwood Inc. USA Marketing of pharmaceuticals.
Roberts Pharmaceutical Corporation USA Marketing of pharmaceuticals.
Laboratoires Murat S.A. France Marketing of pharmaceuticals.
(renamed Shire France)
Fuisz Pharma GmbH and Co KG Germany Marketing of pharmaceuticals.
(renamed Shire Deutschland)
Istoria Farmaceutici S.p.A Italy Marketing of pharmaceuticals.
(renamed Shire Italia)
Shire Holdings AG Switzerland Intermediate holding company
Shire Holdings US Inc. USA Intermediate holding company
Shire Supplies US llc USA Licensing of pharmaceuticals
</TABLE>
All subsidiary undertakings have been included in these consolidated accounts.
* Held directly by Shire Pharmaceuticals Group plc.
(d) Acquisition of subsidiary undertaking
On 23 December 1999, Shire acquired 100per cent. of the outstanding shares of
Roberts Pharmaceutical Corporation in exchange for 100,767,482 ordinary shares.
Roberts Pharmaceutical Corporation is an international pharmaceutical company
which licenses, acquires, develops and commercialises post-discovery drugs in
selected therapeutic categories. The transaction was accounted for using
acquisition accounting.
On 22 October 1999, Shire completed the acquisition of all the assets and
liabilities of Laboratoires Murat S.A., Fuisz Pharma GmbH and the Cebutid
Trademark for (pound)23.8 million, including the costs of acquisition. The
purchase price consisted of (pound)21.8 million in cash and the assumption of
(pound)2 million in debt. Of the (pound)21.8 million in cash, (pound)4.5 million
related directly to the Cebutid Trademark which has been accounted for as an
intangible fixed asset addition.
92
<PAGE>
On 17 November 1999, Shire completed the acquisition of all the assets and
liabilities of Istoria Farmaceutici S.p.A, for (pound)4 million, including the
costs of acquisition. The purchase consideration was (pound)4 million in cash.
The above transactions have provided Shire with marketing and distribution
operations in France, Germany and Italy. Shire has accounted for the
acquisitions using acquisition accounting.
93
<PAGE>
17 Fixed asset investments (continued)
(d) Acquisition of subsidiary undertaking (continued)
Roberts Pharmaceutical Corporation
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair value to the Group:
<TABLE>
<CAPTION>
Accounting Other
policy significant Fair value
Book value Revaluation alignment items to group
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Fixed assets
Intangible 214,078 (21,287) -- -- 192,791
Tangible 22,816 (3,247) -- -- 19,569
Investments 6,313 (4,696) -- -- 1,617
Current assets
Stocks 17,886 (1,811) (282) -- 15,793
Debtors 23,460 (2,178) -- -- 21,282
Investments 27,382 -- -- -- 27,382
Cash 22,936 -- -- -- 22,936
---------- ---------- ---------- ---------- ----------
Total assets 334,871 (33,219) (282) -- 301,370
---------- ---------- ---------- ---------- ----------
Bank loans (78,959) -- -- -- (78,959)
Creditors (39,883) -- -- (11,336) (51,219)
---------- ---------- ---------- ---------- ----------
Total liabilities (118,842) -- -- (11,336) (130,178)
---------- ---------- ---------- ---------- ----------
Net assets 216,029 (33,219) (282) (11,336) 171,192
========== ========== ========== ========== ==========
Goodwill 456,479
----------
627,671
==========
Satisfied by
Shares issued 620,223
Expenses of acquisition 7,448
----------
627,671
==========
</TABLE>
Details of the preliminary fair value adjustments are as follows, these will be
finalised in 2000:
Revaluation adjustments relate to (pound)3,133,000 write down of the Roberts'
building to market value, (pound)114,000 write down of other tangible fixed
assets, (pound)21,287,000 write down of intangible fixed assets to estimated
market value, (pound)1,811,000 stock write down to net realisable value,
(pound)4,696,000 write down of a fixed asset investment due to a permanent
diminution in value and (pound)2,178,000 write down of debtors balances not
considered recoverable.
Other significant items comprise the fair value of the deficiency of the
Roberts' Supplemental Executive Retirement Plan.
94
<PAGE>
18. Fixed asset investments (continued)
(d) Acquisition of subsidiary undertaking (continued)
Net cash in respect of the acquisition comprised:
(pound)'000
Cash at bank and in hand acquired 22,936
==========
Roberts Pharmaceutical Corporation earned, under US GAAP, a profit after
taxation but before exceptional items of (pound)5,667,000 in the year ended 31
December 1999 (year ended 31 December 1998 - (pound)10,113,000), of which a
profit of (pound)5,785,000 arose in the period from 1 January 1999 to 23
December 1999. The summarised profit and loss account and statement of total
recognised gains and losses for the period from 1 January 1999 to 23 December
1999, shown on the basis of the accounting policies of Roberts Pharmaceutical
Corporation under US GAAP prior to the acquisition, are as follows:
Profit and loss account
(pound)'000
Turnover 114,863
Cost of sales (37,812)
-----------
Gross profit 77,051
Other operating expenses (net) (60,883)
-----------
Operating profit 16,168
Finance charges (net) (3,942)
-----------
Profit on ordinary activities before taxation 12,226
Tax on profit on ordinary activities (6,441)
-----------
Profit on ordinary activities after taxation 5,785
==========
Statement of total recognised gains and losses
(pound)'000
Profit for the financial period 5,785
Gain on foreign currency translation 656
-----------
Total recognised gains and losses relating to the period 6,441
==========
Laboratoires Murat S.A.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair value to the Group, the fair values
attributed are preliminary and will be finalised in 2000:
95
<PAGE>
<TABLE>
<CAPTION>
Accounting Other
policy significant Fair value
Book value alignment items to group
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Fixed assets
Intangible 644 (11) -- 633
Tangible 12 -- -- 12
Investments 5 (5) -- --
Current assets
Stocks 182 -- -- 182
Debtors 771 5 (220) 556
Cash 221 -- -- 221
---------- ---------- ---------- ----------
Total assets 1,835 (11) (220) 1,604
---------- ---------- ---------- ----------
Creditors (1,879) -- 1,103 (776)
---------- ---------- ---------- ----------
Net (liabilities) assets (44) (11) 883 828
========== ========== ========== ==========
Goodwill 1,155
----------
1,983
----------
Satisfied by
Debt assumed 1,983
==========
</TABLE>
The fair value adjustments represent accounting policy alignments to UK GAAP, a
reclassification of a debtors balance and the forgiveness of intercompany debt
with the old parent company of Laboratoires Murat.
Net cash outflows in respect of the acquisition comprised:
(pound)'000
Cash at bank and in hand acquired 221
==========
Laboratoires Murat made a loss after taxation of (pound)9,000 in the year ended
31 December 1999 (year ended 31 December 1998: loss of (pound)2,000), of which a
loss of (pound)106,000 arose in the period from 1 January 1999 to 22 October
1999. The summarised profit and loss account for the period from 1 January 1999
to 22 October 1999, shown on the basis of the accounting policies of
Laboratoires Murat prior to the acquisition is as follows:
Profit and loss account
(pound)'000
Turnover 2,562
Cost of sales (1,243)
-----------
Gross profit 1,319
Other operating expenses (net) (1,370)
-----------
Operating loss (51)
Finance charges (net) (55)
-----------
Loss on ordinary activities before and after taxation (106)
===========
96
<PAGE>
Fuisz Pharma GmbH & Co KG
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair value to the Group, the fair values
attributed are preliminary and will be finalised in 2000:
<TABLE>
<CAPTION>
Accounting Other
policy significant Fair value
Book value alignment items to group
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Fixed assets
Intangible 9,671 (7,669) -- 2,002
Tangible 14 -- -- 14
Current assets
Stocks 22 -- -- 22
Debtors 192 -- -- 192
Cash 721 -- -- 721
---------- ---------- ---------- ----------
Total assets 10,620 (7,669) -- 2,951
---------- ---------- ---------- ----------
Creditors (8,463) -- 7,797 (666)
---------- ---------- ---------- ----------
Net assets 2,157 (7,669) 7,797 2,285
========== ========== ========== ==========
Goodwill 11,061
----------
13,346
==========
Satisfied by
Cash from own resources 13,346
==========
</TABLE>
The fair value adjustments represent accounting policy alignments to UK GAAP and
the forgiveness of an intercompany debt with the old parent company of Fuisz
Pharma.
Net cash outflows in respect of the acquisition comprised:
(pound)'000
Cash consideration (13,346)
Cash at bank and in hand acquired 721
-----------
(12,625)
===========
19 Fixed asset investments (continued)
(d) Acquisition of subsidiary undertakings (continued)
Fuisz Pharma recorded a loss after taxation of (pound)255,000 in the year ended
31 December 1999 (year ended 31 December1998: loss of (pound)582,000), of which
a loss of (pound)207,000 arose in the period from 1 January 1999 to 22 October
1999. The summarised profit and loss account for the period from 1 January 1999
to 22 October 1999, shown on the basis of the accounting policies of Fuisz
Pharma prior to the acquisition is as follows:
97
<PAGE>
Profit and loss account
(pound)'000
Turnover 4,571
Cost of sales (1,447)
-----------
Gross profit 3,124
Other operating expenses (net) (2,951)
-----------
Operating profit 173
Finance charges (net) (380)
-----------
Loss on ordinary activities before and after taxation (207)
===========
Istoria Farmaceutici S.p.A.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair value to the Group, the fair values
attributed are preliminary and will be finalised in 2000:
<TABLE>
<CAPTION>
Accounting Other
policy significant Fair value
Book value alignment items to group
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Fixed assets
Intangible 2,125 (145) -- 1,980
Tangible 102 -- -- 102
Current assets
Stocks 269 -- -- 269
Debtors 426 -- -- 426
Cash 271 -- -- 271
---------- ---------- ---------- ----------
Total assets 3,193 (145) -- 3,048
---------- ---------- ---------- ----------
Creditors (2,817) -- 2,264 (553)
---------- ---------- ---------- ----------
Net assets 376 (145) 2,264 2,495
========== ========== ========== ==========
Goodwill 1,514
----------
4,009
==========
Satisfied by
Cash from own resources 4,009
==========
</TABLE>
The fair value adjustments represent accounting policy alignments to UK GAAP and
the forgiveness of an intercompany debt with the old parent company of Istoria
Farmaceutici.
Net cash outflows in respect of the acquisition comprised:
(pound)'000
Cash consideration (4,009)
Cash at bank and in hand acquired 271
----------
(3,738)
==========
98
<PAGE>
Istoria Farmaceutici made a loss after taxation of (pound)242,000 in the year
ended 31 December 1999 (year ended 31 December 1998: loss of (pound)527,000), of
which a loss of (pound)241,000 arose in the period from 1 January 1999 to 17
November 1999. The summarised profit and loss account for the period from 1
January 1999 to 17 November 1999, shown on the basis of the accounting policies
of Istoria Farmaceutici prior to the acquisition is as follows:
Profit and loss account
(pound)'000
Turnover 1,530
Cost of sales (470)
----------
Gross profit 1,060
Other operating expenses (net) (1,767)
----------
Operating loss (707)
Finance charges (net) 466
----------
Loss on ordinary activities before and after taxation (241)
==========
20. Stocks
<TABLE>
<CAPTION>
Group Company
---------------------------- ----------------------------
1999 1998 1999 1998
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Raw materials and consumables 4,081 4,175 -- --
Finished goods 20,451 2,477 -- --
---------- ---------- ---------- ----------
24,532 6,652 -- --
========== ========== ========== ==========
</TABLE>
There is no material difference between the balance sheet value of stocks and
their replacement costs.
21. Debtors
<TABLE>
<CAPTION>
Group Company
---------------------------- ----------------------------
1999 1998 1999 1998
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Amounts falling due within one year:
Trade debtors 35,145 14,692 -- --
VAT 735 345 164 45
Other debtors 5,500 1,407 1,548 100
Prepayments and accrued income 4,108 1,116 208 119
---------- ---------- ---------- ----------
45,488 17,560 1,920 264
========== ========== ========== ==========
Amounts falling due after more than one year:
Notes receivable 262 -- -- --
Other debtors 1,130 -- -- --
---------- ---------- ---------- ----------
1,392 -- -- --
========== ========== ========== ==========
</TABLE>
99
<PAGE>
22. Current asset investments
<TABLE>
<CAPTION>
Group Company
---------------------------- ----------------------------
1999 1998 1999 1998
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Institutional cash fund 708 17,522 708 17,522
Commercial paper 24,322 3,913 -- --
Marketable securities 24,820 -- -- --
---------- ---------- ---------- ----------
49,850 21,435 708 17,522
========== ========== ========== ==========
</TABLE>
23. Creditors: amounts falling due within one year
<TABLE>
<CAPTION>
Group Company
---------------------------- ----------------------------
1999 1998 1999 1998
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Convertible debt
Zero coupon convertible unsecured loan note (note 19) 5,460 -- 5,460 --
---------- ---------- ---------- ----------
Other creditors
Obligations under finance leases and hire purchase
contracts 22 705 -- 44
Bank term loan 776 -- -- --
Other loans 3,501 -- -- --
Trade creditors 19,385 6,656 103 235
Payable in respect of termination of a licence agreement 500 500 -- --
Overseas corporation tax payable 3,681 66 -- --
VAT 151 319 -- --
Social security and PAYE 434 179 99 46
Other creditors 13,018 952 -- --
Restructuring and merger accrual 24,441 -- 12,925 --
Accruals and deferred income 33,945 5,007 1,198 1,148
Accrued pension contributions 1,826 -- -- --
---------- ---------- ---------- ----------
101,680 14,384 14,325 1,473
---------- ---------- ---------- ----------
107,140 14,384 19,785 1,473
========== ========== ========== ==========
</TABLE>
100
<PAGE>
24. Creditors: amounts falling due after more than one year
<TABLE>
<CAPTION>
Group Company
---------------------------- ----------------------------
1999 1998 1999 1998
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Convertible debt
Zero coupon convertible unsecured loan note 1,861 -- 1,861 --
---------- ---------- ---------- ----------
Other creditors
Obligations under finance leases and hire purchase
contracts -- 22 -- --
Bank term loan 76,783 -- -- --
Accruals and deferred income -- 236 -- --
Payable in respect of termination of a licence agreement 750 1,250 -- --
Other creditors 739 -- -- --
---------- ---------- ---------- ----------
78,272 1,508 -- --
---------- ---------- ---------- ----------
80,133 1,508 1,861 --
========== ========== ========== ==========
Borrowings are repayable as follows:
Convertible loan note:
Between one and two years 931 -- 931 --
Between two and five years 930 -- 930 --
========== ========== ========== ==========
Obligations under finance leases and hire purchase contracts:
Between one and two years -- 22 -- --
========== ========== ========== ==========
Bank term loan:
Between two and five years 76,783 -- -- --
========== ========== ========== ==========
</TABLE>
25. Creditors: amounts falling due after more than one year (continued)
(pound)77.6m ($125m) five year term loan
The Company entered into a (pound)77.6m ($125m) five year term loan with DLJ
Capital Funding Inc. on 19 November 1999 of which (pound)0.8m falls due within
one year. This loan replaced an existing $125m loan facility in the name of
Roberts Pharmaceutical Corporation that had been taken out to finance the
acquisition of Pentasa in 1998. The new loan is in the name of the parent
company, Shire Pharmaceuticals Group plc together with Roberts Pharmaceutical
Corporation and the other US subsidiaries of Shire. The loan is accounted for in
the books of Roberts Pharmaceutical Corporation. The applicable interest rate
ranges between 0.5 per cent and 1.5 per cent over the higher of the prime rate
of DLJ Capital Funding Inc., or the US Federal Funds Rate plus 0.5 per cent or
between 1.5 per cent and 2.5 per cent over the London Interbank Overnight Rate
(as adjusted in accordance with the loan agreement), in each case depending on
the Company's credit rating.
All obligations under the facility are jointly and severally guaranteed by the
Company and its subsidiaries and is initially secured by all material property
owned by the Company and its subsidiaries and the capital stock of the
subsidiaries.
101
<PAGE>
(pound)7.3m ($11.8m) Unsecured Convertible Zero Coupon Loan Note
The Company financed the purchase of intellectual property relating to the
manufacture of Adderall from Arenol Corporation by a total of (pound)7.3m
($11.8m) in loan notes. On 5 March 1999, the Company issued a (pound)3.6m
($5.8m) principal amount unsecured convertible Zero Coupon Loan Note due 30 July
2001, and a (pound)3.7m ($6m) principal amount Unsecured Convertible Zero Coupon
Loan Note due 30 July 2004. Both loan notes are in the name of the parent
company, Shire Pharmaceuticals Group plc. Amounts not cancelled by the specified
dates can be converted into the number of ordinary shares equal to the amounts
not cancelled divided by the lower of (pound)3.565 and the midweek closing price
of the ordinary shares on the London Stock Exchange on the relevant date
translated at the exchange rate on that date.
Both loan notes carry the option to convert at dates earlier than the due dates,
with (pound)5.5m ($8.8m) convertible in the year ended 31 December 2000,
(pound)0.9m ($1.5m) convertible in the year ended 31 December 2001 and
(pound)0.9m ($1.5m) convertible in the year ended 31 December 2002.
26. Derivatives and other financial instruments
Financial instruments play an important role in creating or changing the risks
the Group faces in its activities. The numerical disclosures in this note deal
with financial assets and financial liabilities as defined in Financial
Reporting Standard 13 "Derivatives and other financial instruments: Disclosures"
("FRS 13"). Certain financial assets such as investments in subsidiary companies
are excluded from the scope of these disclosures.
As permitted by FRS 13, short term debtors and creditors have been excluded from
the disclosures, other than the currency disclosures.
Interest rate profile
The currency and interest rate profile of the Group's financial assets excluding
short term debtors at 31 December 1999 are as below. Current asset investments
comprise institutional cash funds, commercial paper and marketable securities as
detailed in note 17. The sterling cash deposits comprise deposits placed on
money market at call, seven-day and monthly rates.
<TABLE>
<CAPTION>
Cash Current asset investments
---------------------------- ----------------------------
Variable rate Fixed rate Variable rate Fixed rate Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Sterling 3,417 6,714 708 -- 10,839
US Dollar 24,117 -- -- 49,142 73,259
Dutch Gilder 436 -- -- -- 436
Deutsche Mark 729 -- -- -- 729
Italian Lire 358 -- -- -- 358
Other 267 -- -- -- 267
---------- ---------- ---------- ---------- ----------
29,324 6,714 708 49,142 85,888
========== ========== ========== ========== ==========
</TABLE>
After taking into account interest rate swaps and forward foreign currency
contracts entered into by the Group, the interest rate profile of the Group's
financial liabilities at 31 December 1999 was as follows:
102
<PAGE>
<TABLE>
<CAPTION>
Currency Total Floating rate Fixed rate Interest free
1999 1999 1999 1999
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
US Dollar:
- Convertible debt 7,321 -- -- 7,321
- Borrowings 79,699 77,559 2,140 --
French Franc borrowings 1,361 -- -- 1,361
---------- ---------- ---------- ----------
Total 88,381 77,559 2,140 8,682
========== ========== ========== ==========
</TABLE>
The French Franc borrowings represent the balance of the debt assumed on the
purchase of Laboratoires Murat S.A.
There were no borrowings at 31 December 1998.
27. Derivatives and other financial instruments (continued)
Interest rate profile (continued)
Further analysis of the interest rate profile at 31 December 1999 is as follows.
1999
-----------------------------------------------
Currency Fixed rate Interest free
-----------------------------------------------
Weighted Weighted
Weighted average period average
average for which rate period to
interest rate is fixed maturity
(%) Years Years
US Dollar
- Convertible debt -- -- 0.9
- Borrowings 6.0 1.0 --
French Franc borrowings -- -- 1.0
---------- ---------- ----------
Total 6.0 1.0 1.9
========== ========== ==========
Further details of interest rates on long term borrowings are given in note 19.
Currency exposures
The Group's objectives in managing the currency exposures arising from its net
investment overseas (in other words, its structural currency exposures) are to
maintain a low cost of borrowings and to retain some potential for
currency-related appreciation while partially hedging against currency
depreciation. Gains and losses arising from these structural currency exposures
are recognised in the statement of total recognised gains and losses.
The table below shows the Group's currency exposures; in other words, those
transactional (or non-structural) exposures that give rise to the net currency
gains and losses recognised in the profit and loss account. Such exposures
comprise the monetary assets and monetary liabilities of the Group that are not
denominated in the operating (or "functional") currency of the operating unit
involved, other than certain
103
<PAGE>
non-sterling borrowings treated as hedges of net investments in overseas
operations. As at 31 December 1999 these exposures were as follows:
<TABLE>
<CAPTION>
Net foreign currency monetary assets (liabilities)
Functional currency -------------------------------------------------------------------------------------------
of Group operation
US dollar Irish Dutch Norwegian Other Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C> <C>
Sterling (4,035) 345 443 (336) 59 (3,523)
=========== =========== =========== =========== =========== ===========
</TABLE>
104
<PAGE>
The exposures at 31 December 1998 for comparison purposes were as follows:
<TABLE>
<CAPTION>
Net foreign currency monetary assets (liabilities)
Functional currency -------------------------------------------------------------------------------------------
of Group operation
US dollar Irish Dutch Norwegian Other Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C> <C>
Sterling (65) 2 (26) (464) 21 (573)
=========== =========== =========== =========== =========== ===========
</TABLE>
The amounts shown in the tables above take into account the effect of any
currency swaps, forward contracts and other derivatives entered into to manage
these currency exposures.
As at 31 December 1999, the Group also held open various currency swaps and
forward contracts that the Group had taken out to hedge expected future foreign
currency sales.
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at 31 December 1999 is
shown in note 19.
Borrowing facilities
The Group had undrawn committed borrowing facilities at 31 December 1999, in
respect of which all conditions precedent had been met, as follows:
1999 1998
(pound)'000 (pound)'000
Expiring in more than two years 77,558 --
=========== ===========
Fair values
There is no material difference between the book values and fair values of the
Group's financial assets and liabilities at the end of either year.
Gains on losses and hedges
The Group had no forward foreign currency contracts outstanding at 31 December
1998 or 31 December 1999.
105
<PAGE>
28. Called-up share capital
<TABLE>
<CAPTION>
Number
'000 (pound)'000
<S> <C> <C>
Authorised
At 31 December 1998 - ordinary shares of 5p each 200,000 10,000
----------- -----------
At 31 December 1999 - ordinary shares of 5p each 400,000 20,000
----------- -----------
Allotted, issued and fully paid
At 1 January 1998 - ordinary shares of 5p each 124,531 6,226
Issued on exercise of options for cash consideration 5,700 286
Issued as part consideration for in-licenced research and development 435 22
Issued as part consideration for product rights 1,961 98
Issued on conversion of zero coupon note 2,465 123
Issued pursuant to international offering for cash consideration 6,000 300
----------- -----------
At 31 December 1998 - ordinary shares of 5p each 141,092 7,055
Issued on exercise of options for cash consideration 2,660 133
Issued on acquisition of subsidiary undertaking 100,767 5,038
----------- -----------
At 31 December 1999 - ordinary shares of 5p each 244,519 12,226
=========== ===========
</TABLE>
During the year ended 31 December 1999 the authorised share capital of the
Company was increased by (pound)10,000,000 through the creation of 200,000,000
ordinary shares of 5p each.
During the year the Company allotted 100,767,000 ordinary shares with a nominal
value of (pound)5,038,000 in connection with the acquisition of Roberts
Pharmaceutical Corporation. These shares were issued at a premium of
(pound)615,185,000.
The Company's Directors and employees have been granted options over ordinary
shares under the Shire Holdings Limited Share Option Scheme ("SHL Scheme"), the
Imperial Pharmaceutical Services Limited Employee Share Option Scheme (Number
One) ("SPC Scheme"), the Pharmavene 1991 Stock Option Plan ("SLI Plan"), the
Shire Pharmaceuticals Executive Share Option Scheme (Parts A and B) ("Executive
Scheme"), the Shire Pharmaceuticals Sharesave Scheme ("Sharesave Scheme"), the
Shire Pharmaceuticals Group plc Employee Stock Purchase Plan ("Stock Purchase
Plan"), the Richwood 1993 and 1995 Stock Option Plans ("SRI Plan") and the
Roberts Stock Options Plans ("Roberts Plan").
106
<PAGE>
28. Called-up share capital (continued)
The following table sets forth certain information relating to changes to
options outstanding in the year:
<TABLE>
<CAPTION>
As at
As at 31
1 January Options Options Options December
1999 granted exercised lapsed 1999
<S> <C> <C> <C> <C> <C>
Number of ordinary shares of 5p each
SHL Scheme 1,751,920 -- (787,640) -- 964,280
SPC Scheme 57,600 -- (9,600) -- 48,000
Executive Scheme 'A' 456,299 44,563 (58,044) (51,127) 391,691
Executive Scheme 'B' 4,903,064 1,360,437 (474,539) (809,611) 4,979,351
Sharesave Scheme 234,122 -- (19,513) (33,912) 180,697
Stock Purchase Plan 322,442 -- (28,128) (75,364) 218,950
SLI Plan 990,684 -- (505,317) -- 485,367
SRI Plan 1,970,759 (776,371) -- 1,194,388
Roberts Plan -- 11,645,156 (1,893,466) (577,272) 9,174,418
---------- ---------- ---------- ---------- ----------
10,686,890 13,050,156 (4,552,618) (1,547,286) 17,637,142
========== ========== ========== ========== ==========
</TABLE>
29. Reserves Group
<TABLE>
<CAPTION>
Share Capital Other Profit and
premium reserve reserves loss account
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
As at 1 January 1998 193,386 2,755 24,223 (216,650)
Premium on issue of shares 34,259 -- -- --
Issue expenses (1,274) -- -- --
Options exercised 2,166 -- -- --
Cost of employee share options -- -- 24 --
Adjustments to goodwill -- -- -- (426)
Foreign exchange adjustment -- -- -- (1,171)
Profit for the year -- -- -- 6,247
---------- ---------- ---------- ----------
As at 31 December 1998 228,537 2,755 24,247 (212,000)
Premium on issue of shares 615,185 -- -- --
Issue expenses (6,799) -- -- --
Options exercised 2,047 -- -- --
Foreign exchange adjustment -- -- -- 519
Profit for the year -- -- -- 12,570
Cost of employee share options 56 (56)
---------- ---------- ---------- ----------
As at 31 December 1999 839,026 2,755 24,247 (198,967)
========== ========== ========== ==========
</TABLE>
Group (continued)
The cumulative goodwill resulting from acquisitions which has been written off
amounts to (pound)208,194,000 as at 31 December 1999 and 31 December 1998.
Adjustments to goodwill during the year to 31 December 1998 related to the
acquisition of Shire Richwood Inc in 1997.
107
<PAGE>
The capital reserve arose in relation to a Group reconstruction and certain
financing transactions, and is not distributable.
<TABLE>
<CAPTION>
Company
Share Capital Other Profit and
premium reserve reserves loss account
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
As at 1 January 1998 193,386 1,674 18,055 (6,109)
Premium on issue of shares 34,259 -- -- --
Issue expenses (1,274) -- -- --
Options exercised 2,166 -- -- --
Cost of employee share options -- -- 24 --
Profit for the year -- -- -- 4,513
---------- ---------- ---------- ----------
As at 31 December 1998 228,537 1,674 18,079 (1,596)
Premium on issue of shares 615,185 -- -- --
Issue expenses (6,799) -- -- --
Options exercised 2,047 -- --
Profit for the year -- -- -- 3,408
Cost of employee share options 56 -- -- (56)
---------- ---------- ---------- ----------
As at 31 December 1999 839,026 1,674 18,079 1,756
========== ========== ========== ==========
</TABLE>
30. Reconciliation of movements in Group shareholders' funds
<TABLE>
<CAPTION>
Year to Year to
31 December 31 December
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Profit for the year 12,570 6,247
Other recognised gains and losses relating to the year 519 (1,171)
---------- ----------
13,089 5,076
Cost of employee share options -- 24
Share capital issued 622,403 37,254
Issue expenses (6,799) (1,274)
Goodwill on acquisition of subsidiary undertakings -- (426)
---------- ----------
Net additions to shareholders' funds 628,693 40,654
Opening shareholders' funds 50,594 9,940
---------- ----------
Closing shareholders' funds 679,287 50,594
========== ==========
</TABLE>
108
<PAGE>
The cumulative foreign exchange differences on translation amount to
(pound)289,000 loss as at 31 December 1999 and (pound)808,000 loss as at 31
December 1998.
31. Guarantees, commitments and contingencies
(a) Operating leases
The Group leases property, computer and office equipment and motor vehicles on
short-term leases. The rents payable under property leases are subject to
renegotiation at various intervals specified in the leases. The Group pays for
substantially all of the insurance, maintenance and repair of these assets.
The minimum annual rentals under the foregoing leases are as follows:
Group
<TABLE>
<CAPTION>
Motor
Property Equipment vehicles
As at 31 December 1999 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C>
Operating leases which expire:
- within 1 year 248 11 244
- within 2-5 years 986 115 1,076
- after 5 years 58 -- --
---------- ---------- ----------
1,292 126 1,320
========== ========== ==========
As at 31 December 1998
Operating leases which expire:
- within 1 year 15 10 67
- within 2-5 years 305 13 299
- after 5 years 80 -- --
---------- ---------- ----------
400 23 366
========== ========== ==========
</TABLE>
32. Guarantees, commitments and contingencies (continued)
Company
<TABLE>
<CAPTION>
Motor
vehicles
As at 31 December 1999 pound)'000
<S> <C>
Operating leases which expire:
- within 1 year 13
- within 2-5 years 11
- after 5 years --
----------
24
==========
As at 31 December 1998
Operating leases which expire:
- within 1 year --
- within 2-5 years 28
- after 5 years --
----------
28
==========
</TABLE>
109
<PAGE>
(b) Capital commitments
There were no capital commitments at the end of either year.
(c) Contingent liabilities
Until April 1998, Shire Richwood Inc. (SRI) distributed products containing
phentermine, a prescription drug approved in the US as a single agent for short
term use in obesity. Contrary to the approved labelling of these products,
physicians in the US co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly known
as the "fen/phen" diet. In mid 1997, following concerns raised about cardiac
valvular side effects alleged to be associated with this diet regime, the
fenfluramine and dexfenfluramine elements of the "fen/phen" diet were withdrawn
from the US market. Although SRI has ceased to distribute phentermine, the drug
remains both approved and available in the US. SRI and a number of other
pharmaceutical companies are being sued for damages for personal injury and
medical monitoring arising from phentermine used either alone or in combination.
As at March 2000 SRI was named as a defendant in approximately 3,500 lawsuits
and had been dismissed from approximately 500 of these cases. There are
approximately 2,400 additional cases pending dismissal as of 16 March 2000. In
only 127 cases pending was it alleged in the complaint or subsequent discovery
that the plaintiff had used SRI's particular product and SRI has been dismissed
from 29 of these cases as well. Although there have been reports of substantial
jury awards and settlements in respect of fenfluramine and/or dexfenfluramine,
to date Shire is not aware of any jury awards made against, or any settlements
made by, any phentermine defendant. Shire denies liability on a number of
grounds including lack of scientific evidence that phentermine, properly
prescribed, causes the alleged side effects and that SRI did not promote
phentermine for long term combined use as the "fen/phen" diet. Accordingly,
Shire intends to defend vigorously any and all claims made against the Group in
respect of phentermine and believes that a liability is neither probable nor
quantifiable at this stage of the litigation.
Pursuant to unlimited indemnity from SRI's former contract manufacturer of
phentermine, EON Laboratories Inc. (EON), legal costs in respect of the
phentermine litigation have, to date, been met by EON's insurers. EON has
available, subject to Court sanction, a further $15m of insurance to meet the
cost and liabilities of EON and each of its distributors including Shire. EON is
a subsidiary of Hexal GmbH, a manufacturer of generic pharmaceuticals based in
Germany with a reported turnover of approximately $400m ((pound)250m),
operations in an estimated 30 countries and approximately 500 employees. Hexal
does not publicly disclose more extensive details of its financial position. EON
has indicated to Shire that it will define and indemnify Shire against cost and
liabilities. Although EON has not indicated to Shire an unwillingness or
inability to fund any uninsured losses, Shire is unable to determine EON's
ability to pay such losses. Shire also has access to a limited indemnity given
by the former shareholders of SRI for costs and liabilities related to the
phentermine litigation not met by insurance or other indemnity arising from
litigation filed prior to 12 March 1999. This indemnity is limited to the value
of 1,622,566 ordinary shares of Shire presently held by a third party in escrow
and is
110
<PAGE>
available on demand. As of 24 March 2000, based on a closing share price of
(pound)10.60, the value of these shares amounted to approximately (pound)17.2m
(approximately $27.5m). In addition, Shire has access to its own product
liability insurance up to a maximum level of (pound)3m. At the present stage of
the litigation, Shire is unable to estimate the level of future legal costs
after taking into account any available product liability insurance and
enforceable indemnities. To the extent that any legal costs are not covered by
insurance or available indemnities, these will be expensed as incurred.
33. Pension arrangements
The Group has a number of defined contribution retirement plans and one defined
benefit plan covering substantially all employees. For the defined contribution
retirement plans, the company contribution is fixed as a set percentage of
employee's pay. For the defined benefit plan, where benefits are based on
employees' years of service and average final remuneration, the pension cost is
established in accordance with the advice of independent qualified actuaries
based on valuations undertaken on varying dates.
The pension cost charge for the defined contribution schemes for the year
was (pound)1,069,000 (1998: (pound)677,000).
The defined benefit plan operated by the Group is a Supplemental Executive
Retirement Plan (SERP) for certain US employees of the acquired company, Roberts
Pharmaceutical Corporation, who meet certain age and service requirements.
The pension cost charge for the period since acquisition of Roberts was for
(pound)27,000.
The Group has paid a lump sum of (pound)11.25m ($18m) into the SERP which has
been accounted for as a fair value adjustment on the acquisition of Roberts
Pharmaceutical Corporation to make good the deficit on this scheme at the time
of acquisition. This lump sum payment has led to the Group having no future
liability under the SERP which has been closed to new members with contributions
no longer payable by existing members.
34. Notes to the consolidated cash flow statement
(a) Reconciliation of operating profit to net cash flow from operating
activities
Year to Year to
31 December 31 December
1999 1998
(pound)'000 (pound)'000
Operating profit 30,372 7,879
Cost of employee share options -- 24
Cost of a fundamental restructuring (11,516) --
Exchange gain (115) --
Depreciation 1,433 1,281
Amortisation of intangible fixed assets 2,874 525
(Profit) loss on sale of fixed assets (465) 10
Increase in stocks (1,595) (572)
Increase in debtors (6,864) (7,822)
Increase in creditors 25,739 2,366
----------- -----------
Net cash inflow from operating activities 39,863 3,691
=========== ===========
111
<PAGE>
Companies acquired in the year contributed (pound)5,595,000 outflow to the
Group's net operating cashflows, paid (pound)149,000 in respect of net returns
on investments and servicing of finance, paid (pound)nil in respect of taxation
and utilised (pound)nil for capital expenditure and financial investments.
(b) Analysis of changes in net debt
<TABLE>
<CAPTION>
Start of Exchange End of
year Cash flow Acquisitions movement year
Year ended 31 December 1999 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand 8,230 27,561 -- 247 36,038
Debt due within one year -- (4,830) (4,907) -- (9,737)
Finance leases due within one year (705) 683 -- -- (22)
----------- ----------- ----------- ----------- -----------
7,525 23,414 (4,907) 247 26,279
Debt due after one year -- (2,609) (76,035) -- (78,644)
Finance leases due after one year (22) 22 -- -- --
----------- ----------- ----------- ----------- -----------
7,503 20,827 (80,942) 247 (52,365)
Current asset investments 21,435 1,033 27,382 -- 49,850
----------- ----------- ----------- ----------- -----------
Net funds (debts) 28,938 21,860 (53,560) 247 (2,515)
=========== =========== =========== =========== ===========
<CAPTION>
Other
Start of non-cash Exchange End of
year Cash flow changes movement year
Year ended 31 December 1998 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand 10,283 (1,965) -- (88) 8,230
Finance leases due within one year (431) 221 (495) -- (705)
----------- ----------- ----------- ----------- -----------
9,852 (1,744) (495) (88) 7,525
Finance leases due after one year (770) 332 416 -- (22)
----------- ----------- ----------- ----------- -----------
9,082 (1,412) (79) (88) 7,503
Current assets investments -- 21,435 -- -- 21,435
----------- ----------- ----------- ----------- -----------
Net funds 9,082 20,023 (79) (88) 28,938
=========== =========== =========== =========== ===========
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
Year ended Year ended
31 December 31 December
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Increase (decrease) in cash in the year 27,561 (1,965)
Cash (inflow) outflow from increase in debt and lease financing (8,717) 553
Cash outflow from increase in liquid resources 1,033 21,435
----------- -----------
Change in net debt resulting from cashflows 19,877 20,023
Loans and current asset investments acquired with subsidiary undertakings (51,577) --
Other non-cash changes -- (79)
Translation difference 247 (88)
----------- -----------
Movement in net debt in year (31,453) 19,856
Net funds at beginning of year 28,938 9,082
----------- -----------
Net (debt) funds at end of year (2,515) 28,938
=========== ===========
</TABLE>
(c) Major non-cash transactions
Other non-cash changes during the year ended 31 December 1998 represent finance
lease arrangements entered into by the Group
113
<PAGE>
PART VI - PROFORMA STATEMENT OF COMBINED NET ASSETS
The unaudited proforma statement of net assets of the Enlarged Group set out
below has been prepared for illustrative purposes only. The proforma statement
has been prepared to illustrate the effect on the balance sheet of Shire as if
the Merger had occurred at 30 June 2000. Because of its nature, it may not give
a true picture of the Enlarged Group's financial position if the Merger had
occurred on the date assumed.
<TABLE>
<CAPTION>
Adjusted Pro forma
Shire BioChem Adjusted BioChem net
30 June 30 June BioChem 30 June Merger assets
2000 2000 Adjustments 30 June 2000 adjustment post
$'000 $'000 $'000 2000 (pound)'000 (pound)'000 Merger
(Note 1) (Note 2) (Note 3) $'000 (Note 4) (Note 5) (pound)'000
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed assets
Intangible assets o o o o o o o
Tangible assets o o o o o o o
----------------------------------------------------------------------------------------------
o o o o o o o
----------------------------------------------------------------------------------------------
Current assets
Stocks o o o o o o o
Debtors o o o o o o o
Cash and short
term investments o o o o o o o
----------------------------------------------------------------------------------------------
o o o o o o o
Creditors: Amounts
falling due in less than
one year o o o o o o o
----------------------------------------------------------------------------------------------
Net current assets o o o o o o o
----------------------------------------------------------------------------------------------
Total assets less current
liabilities o o o o o o o
Creditors: Amounts
falling due in more than
one year o o o o o o o
----------------------------------------------------------------------------------------------
Net assets o o o o o o o
==============================================================================================
</TABLE>
Notes:
(1) Extracted from the interim consolidated financial statements of Shire.
(2) Derived from the interim consolidated financial statements of BioChem,
reclassified in accordance with US reporting formats, as noted:
114
<PAGE>
Debtors Comprise: $'000
Accounts and Notes Receivable:
Trade, net o
Other o
Current deferred tax asset o
Other current assets o
Notes receivable (non-current) o
Deferred tax asset (non-current) o
----------
Other non-current assets o
Cash and short term investments comprise: $'000
Cash and cash equivalents o
Marketable securities o
--------------------------------------------------------------------------------
o
--------------------------------------------------------------------------------
Creditors: amounts due in less than one year comprise: $'000
Current instalments of long term debt o
Accounts payable o
Other current liabilities o
--------------------------------------------------------------------------------
o
--------------------------------------------------------------------------------
(3) The following adjustments are required to conform BioChem's financial
statements with Shire's accounting policy under US GAAP.
Write down of intangible assets o
Accounting for defined benefit pension plan o
Write off of deferred tax asset o
--------------------------------------------------------------------------------
o
--------------------------------------------------------------------------------
(4) Translated at (pound)o = (pound)1, being the exchange rate ruling at 30
June 2000.
(5) Merger expenses consisting primarily of professional fees and distributing
proxy materials are estimated to be o and will be charged as an operating
expense upon consummation of the Merger.
115
<PAGE>
The Directors and Proposed Directors Arthur Andersen
Shire Pharmaceuticals Group plc Abbots House
East Anton Abbey Street
Andover Reading
Hampshire RG1 3BD
SP10 5RG
The Directors
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London
EC2N 2DB o, 2001
Dear Sirs
We report on the pro forma financial information set out on pages o to o of the
Listing Particulars dated o, 2001 issued by Shire Pharmaceuticals Group plc
which has been prepared, for illustrative purposes only, to provide information
about how the acquisition of BioChem Pharma Inc. might have affected the
financial information presented.
Responsibilities
It is the responsibility solely of the Directors of Shire Pharmaceuticals Group
plc to prepare the pro forma financial information in accordance with paragraph
12.29 of the Listing Rules of the United Kingdom Listing Authority.
It is our responsibility to form an opinion, as required by the Listing Rules,
on the pro forma financial information and to report our opinion to you. We do
not accept any responsibility for any reports previously given by us on any
financial information used in the compilation of the pro forma financial
information beyond that owed to those to whom those reports were addressed by us
at the dates of their issue.
Basis of Opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards and Bulletin 1998/8 Reporting on pro forma financial
information pursuant to the Listing Rules issued by the Auditing Practices
Board. Our work, which involved no independent examination of any of the
underlying financial information, consisted primarily of comparing the pro forma
financial information with the source documents, considering the evidence
supporting the adjustments and discussing the pro forma financial information
with the Directors of Shire Pharmaceuticals Group plc.
Our work has not been carried out in accordance with auditing standards
generally accepted in [Canada/the United States of America] and accordingly
should not be relied upon as if it had been carried out in accordance with those
standards.
Opinion
In our opinion:
1. the pro forma financial information has been properly compiled on the
basis stated; and
2. such basis is consistent with the accounting policies of Shire
Pharmaceuticals Group plc; and
3. the adjustments are appropriate for the purposes of the pro forma
financial information as disclosed pursuant to paragraph 12.29 of the
Listing Rules of the United Kingdom Listing Authority.
Yours faithfully
Arthur Andersen
Chartered Accountants
116
<PAGE>
PART VII DETAILS OF THE MERGER AGREEMENT AND SPECIAL VOTING RIGHTS
The following is a summary of the structure of the Enlarged Group following
completion of the Merger and material documents entered into and to be entered
into in connection with the Merger.
1. Structure of the Enlarged Shire Group
Following completion of the Arrangement, Shire will indirectly own 100 per cent
of BioChem through the holding company structure described below. The business
of BioChem will be operated in combination with the existing business of Shire.
BioChem will, once the Arrangement becomes effective, become a direct
wholly-owned subsidiary of Exchangeco. Exchangeco is a company incorporated
under the CBCA. Pursuant to the Arrangement, Exchangeco will, if the requisite
elections are made, issue the Shire Exchangeco Shares to BioChem Shareholders
who are Canadian residents. Callco is a company incorporated under the CBCA.
Pursuant to the Exchangeable Share Support Agreement described below, Callco
will have the overriding right, in certain circumstances, to purchase Shire
Exchangeco Shares that are exchanged for New Ordinary Shares or new ADSs at the
option of the holder, for a purchase price payable in New Ordinary Shares or new
ADSs as the case may be. Further details are set out in paragraph o of this Part
VIII.
The entire issued share capital of both Exchangeco and Callco is held by Shire.
2. Merger Agreement
The Merger Agreement sets out the basis on which Shire will acquire the entire
issued, and to be issued, share capital of BioChem. The Merger Agreement is
governed by Canadian law (more particularly, the laws of the Province of Quebec
and the federal laws applicable therein).
Plan of arrangement
Under the Merger Agreement, the Merger is to be implemented by way of a plan of
arrangement under the CBCA, the corporations statute by which BioChem is
governed. The Merger Agreement provides that, subject to the approval of the
Merger by the affirmative vote of BioChem Shareholders and Rightholders, voting
together as set forth in the Interim Order, and the passing of the ordinary
resolution set out in the Notice of Extraordinary General Meeting at the end of
this document by a majority of the votes cast by Shire Shareholders at the
meeting and the satisfaction or waiver of other conditions to the Merger, Shire
and BioChem will merge pursuant to the Arrangement. The Arrangement is also
subject to the approval of the Superior Court of Quebec which, amongst other
things, will consider whether the Arrangement is fair to the BioChem
Shareholders. Under the terms of the Merger, the BioChem Shareholders, including
BioChem Rightholders only to the extent that they exercise their BioChem
Options, may elect to receive New Ordinary Shares, new Shire ADSs or, to the
extent they are resident in Canada for the purpose of the Income Tax Act
(Canada), Shire Exchangeco Shares in exchange for their BioChem Shares. Any
BioChem Options or rights in respect of BioChem Shares which are not exercised
will be replaced with options or (as appropriate) rights over Shire Ordinary
Shares.
Conversion of BioChem Shares
The Merger Agreement provides for the combination of Shire and BioChem in a
transaction in which each BioChem Shareholder (other than BioChem Shareholders
who properly dissent to the Merger) will have the choice of receiving as
consideration for each BioChem Share:
o a number of Ordinary Shares equal to the exchange ratio =;
117
<PAGE>
o provided that the BioChem shareholder is a Canadian resident a number of
Shire Exchangeco Shares equal to the exchange ratio divided by three,
which are exchangeable into Ordinary Shares, or ADSs, at a rate of one
Shire Exchangeco Share for three Ordinary Shares or one Exchangeco Share
for one ADS;
o a number of ADSs equal to the exchange ratiodivided by three; or
o a combination of the above.
For the avoidance of doubt, only BioChem Shareholders who are Canadian residents
will have the option of receiving ShireExchangeco Shares for their BioChem
Shares.
Holders of Shire Exchangeco Shares will be entitled to dividend and other rights
that are, as nearly as practicable, economically equivalent to those of Ordinary
Shares. Through a voting trust, holders of Shire Exchangeco Shares will be
entitled to vote at meetings of Shire Shareholders.
118
<PAGE>
Exchange Ratio
The number of Ordinary Shares into which each BioChem Share shall be converted
shall be determined as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------
If the Average Shire ADS Price is: the exchange ratio shall be:
-----------------------------------------------------------------------------------------------
less than or equal to $47.20 2.3517
-----------------------------------------------------------------------------------------------
Greater than determined by dividing $37.00 by the ADS Price and
$47.20 and less than $70.80 multiplying by 3
-----------------------------------------------------------------------------------------------
equal to or greater than $70.80 1.5678
-----------------------------------------------------------------------------------------------
</TABLE>
If a BioChem Shareholder elects, or in certain circumstances, Shire will provide
him with one third of an ADS or one third of a Shire Exchangeco Share for each
Ordinary Share that shareholder would be entitled to receive based on the
exchange ratio.
Representations and Warranties
The Merger Agreement contains customary representations and warranties made by
Shire and BioChem relating to, among other things:
o due organisation and good standing;
o capitalisation;
o corporate authority to enter into the contemplated transactions;
o lack of conflicts with corporate governance documents;
o reports and financial statements;
o absence of certain changes or events;
o compliance with law;
o brokers or finders;
o absence of litigation;
o filing of tax returns;
o environmental matters; and
o intellectuel property
Covenants
During the period from the date of the Merger Agreement and continuing until the
Effective Time, each of Shire and BioChem has agreed as to itself and its
subsidiaries that, among other things, it and its subsidiaries will carry on
their respective businesses only in the ordinary course and will use reasonable
efforts to maintain and preserve its business organisation, assets, employees
and business relationships and to maintain all of its properties and assets in
useful and good condition.
119
<PAGE>
The Merger Agreement contains certain other covenants of Shire and BioChem
relating to the conduct of their respective businesses before the Effective
Time, including:
o covenants relating to the declaration and payment of dividends and
changes in share capital;
o the issuance of securities;
o the amendment of the memorandum and articles of association of Share
or other constitutive documents of the parties to the Merger
Agreement;
o the disposition of assets;
o the incurrence of indebtedness and the acquisition of equity
interests;
o the making of loans, advances, contributions or investments
o the maintenance of benefits plans and compensation;
o the entering into of agreements limiting or restricting Shire or
BioChem from engaging or competing in any line of business; and
o the preservation of the availability of pooling-of-interests
accounting treatment.
No Solicitation
According to the terms of the Merger Agreement, Shire and BioChem have each
agreed that, prior to the Effective Time of the Arrangement, neither it, any of
its subsidiaries nor any of the respective employees, agents or representatives
of the foregoing will:
o initiate, solicit, encourage or knowingly facilitate, including by
way of furnishing information, any inquiries or the making of any
proposal or offer with respect to, any merger, consolidation or
other business combination involving Shire or BioChem, as the case
may be, or the acquisition of the assets of BioChem or Shire having
an aggregate value of 50 per cent or more of the market
capitalisation or the acquisition of 50 per cent or more of the
capital stock of Shire or BioChem, as the case may be;
o have any discussion with or provide confidential information or data
to any person relating to the type of transaction referred to above;
o engage in any negotiations regarding the type of transaction
referred to above; or
o knowingly facilitate any effort or attempt to make or implement the
type of transaction referred to above or accept such a transaction.
The Merger Agreement does allow Shire and BioChem, in response to an unsolicited
written proposal from a third party regarding a bona fide, written and
unsolicited proposal or offer made by any persons or group with respect to a
merger, consolidation or other business combination or an acquisition of the
assets of BioChem or Shire having an aggregate value of 50 per cent or more of
the market capitalisation or the acquisition of 50 per cent or more of the
capital stock, of Shire or BioChem, as the case may be, on terms which the board
of directors of Shire or BioChem, as the case may be, determines in good faith,
and in the exercise of reasonable judgment, based on the advice of independent
financial advisers and legal counsel, to be more favourable to its shareholders
than the Merger, to furnish information to, negotiate or otherwise engage in
discussions with such third party, provided however, in the case of Shire that
its board of directors determines in good faith, after receiving a written
opinion from its outside legal advisers, that such action is required for the
board of directors to comply with its fiduciary duties under applicable law.
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According to the terms of the Merger Agreement, Shire and BioChem have agreed to
promptly advise each other of any information they have from a person with
respect to any transaction of the type referred to above and to give each other
an update on an ongoing basis or upon the reasonable request of Shire or
BioChem, as the case may be, on the status of any such transaction.
Conditions to Closing
Mutual Conditions
The Merger Agreement provides that the respective obligations of each party to
complete the transaction are subject to the satisfaction or waiver of a number
of conditions, including the following:
o the transaction shall have been approved by the requisite vote of
Shire Shareholders and BioChem Shareholders;
o no laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other
order issued by a court or other governmental entity of competent
jurisdiction shall be in effect, having the effect of making the
transaction illegal or otherwise prohibiting consummation of the
transaction;
o the waiting periods (and any extensions thereof) applicable to the
transaction under the HSR Act and the Competition Act (Canada) shall
have been terminated or shall have expired or the Commissioner of
Competition shall have issued an advance ruling certificate and/or a
"no action" letter under the Competition Act (Canada) in relation to
the transaction and the Director of Investments under Investment
Canada Act shall have concluded that the transaction is of "net
benefit to Canada" for purposes of the Investment Canada Act;
o all consents, approvals and actions of, filings with and notices to
any governmental entity required of Shire or BioChem or any of their
respective subsidiaries to consummate the transaction and the other
transactions contemplated by the Merger Agreement shall have been
obtained;
o the New Ordinary Shares shall have been admitted to the Official
List of the UK Listing Authority and to trading on the London Stock
Exchange, the ADSs shall have been approved for listing on NASDAQ
(to the extent necessary) and the Shire Exchangeco Shares shall have
been approved for listing on The Toronto Stock Exchange, subject to
official notice of issuance;
o a registration statement on Form S-3 relating to the issue of
Ordinary Shares upon exchange of the Shire Exchangeco Shares shall
have been declared effective by the SEC or an appropriate "no action
letter" shall have been obtained from the staff of the SEC relating
to the issue of Ordinary Shares upon exchange of the Shire
Exchangeco Shares. No stop order suspending the effectiveness of the
Form S-3 shall have been issued by the SEC and no proceedings for
that purpose shall have been initiated or threatened by the SEC;
o all applicable requirements of Section 3 (a) (10) of the US
Securities Act shall have been satisfied with respect to the issue
of Ordinary Shares and ADSs in connection with theMerger; and
o exemption orders from the registration and prospectus requirements
with respect to the Shire Exchangeco Share structure shall have been
granted by all relevant Canadian provincial securities authorities.
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Conditions in favour of Shire and Exchangeco
The Merger Agreement provides that the obligation of Shire and Exchangeco to
complete the transaction is subject to the satisfaction or waiver of a number of
additional conditions, each of which may be waived by Shire, including the
following:
o each of the representations and warranties of BioChem set forth in
the Merger Agreement that is qualified as to Material Adverse Effect
shall be true and correct and each of the representations and
warranties of BioChem set forth in the Merger Agreement that is not
so qualified shall be true and correct in all material respects, in
each case as of the date of the MergerAgreement and as of the
Effective Date as though made on and as of the Effective Date;
o BioChem shall have performed or complied with all agreements and
covenants required to be performed by it under the Merger Agreement
at or prior to the Effective Date that are qualified as to Material
Adverse Effect and shall have performed or complied in all material
respects with all other agreements and covenants required to be
performed by it under the Merger Agreement at or prior to the
Effective Date that are not so qualified;
o BioChem's Board of Directors shall have waived the application of a
BioChem rights plan to the transactions contemplated by the Merger
Agreement. Under the rights plan, one common share purchase right
was issued in respect of each outstanding BioChem Share and a share
purchase right for each BioChem Share issued thereafter. These
rights are exercisable in a situation of public offering where
certain conditions are not respected. Each right entitles the holder
to purchase, from BioChem, one BioChem Share at a specified price,
subject to certain anti-dilution adjustments. ;
o holders of not more than 5 per cent of the BioChemShares issued and
outstanding immediately prior to the Effective Date shall have
dissented to the Merger (and not withdrawn such dissent);
o since the date of the Merger Agreement, there shall not have
occurred any change, effect, event or circumstance that, in
combination with any other changes, effects, events or
circumstances, has resulted in or would reasonably be expected to
result in a Material Adverse Effect with respect to BioChem;
provided that the outcome of the proceedings by Emory University in
the US shall not be considered to have a Material Adverse Effect on
BioChem; and
o there shall have been delivered to Shire:
o a pooling letter from Shire's independent auditors, dated as
of the Effective Date and addressed to Shire, reasonably
satisfactory in form and substance to Shire, setting forth the
concurrence of Shire's independent auditors with the
conclusion of Shire's management that it will be appropriate
to account of the Arrangement as a "pooling of interests"
under US GAAP, Accounting Principles Board Opinion No. 16 and
all published rules and regulations adopted by the SEC
o a poolability letter from BioChem's independent auditors,
dated as of the Effective Date and reasonably satisfactory in
form and substance to Shire, setting forth the concurrence of
BioChem's independent auditors with the conclusion of
BioChem's management that it will be appropriate to account
for the Arrangement as a "pooling of interest" under US GAAP,
Accounting Principles Board Opinion No. 16 and all published
rules and regulations adopted by the SEC.
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Conditions infavour of BioChem
The Merger Agreement provides that the obligation of BioChem to complete the
Merger is subject to the fulfillment of a number of additional conditions, each
of which may be waived by BioChem, including the following:
o each of the representations and warranties of each of Shire and
Exchangeco set forth in the Merger Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of each of Shire and Exchangeco set
forth in the Merger Agreement that is not so qualified shall be true
and correct in all material respects, in each case as of the date of
the Merger Agreement and as of the Effective Date as though made on
and as of the Effective Date; and
o Shire shall have performed or complied with all agreements and
covenants required to be performed by it under the Merger Agreement
at or prior to the Effective Date that are qualified as to Material
Adverse Effect and shall have performed or complied in all material
respects with all other agreements and covenants required to be
performed by it under the Merger Agreement at or prior to the
Effective Date that are not so qualified.
Termination and payment of break fees
The Merger Agreement may be terminated by mutual written consent of BioChem and
Shire at any time prior to the Effective Date. In addition, if the Effective
Date shall not have occurred on or before 31 May 2001, the Merger Agreement may
be terminated by either BioChem or Shire; provided, however, that this right to
termination may not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of the Effective Date to occur on or before 31 May 2001.
The Merger Agreement may be terminated by either BioChem or Shire, if any
governmental entity:
o shall have issued a final and non-appealable order, decree or ruling
or taken any other action (which such party shall have used its
reasonable best efforts to resist, resolve or lift, as applicable)
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement, and such order,
decree, ruling or other action shall have become final and
non-appealable; or
o shall have failed to issue an order, decree or ruling or to take any
other action (which order, decree, ruling or other action such party
shall have used its reasonable best efforts to obtain) which is
necessary to fulfill the conditions to closing set forth in the
Merger Agreement, and such denial of a request to issue such order,
decree, ruling or take such other action shall have become final and
non-appealable; provided, however, that this right to terminate
shall not be available to any party whose failure to use reasonable
best efforts to obtain regulatory approvals has been the cause of
such action or inaction.
The Merger Agreement may be terminated by Shire upon the occurrence of any of
the following events:
o BioChem shareholder approval has not been obtained at the BioChem
shareholder meeting;
o the board of directors of BioChem fails to recommend approval of the
Merger to its shareholders or adversely modifies or qualifies or
withdraws its recommendation; or
o a breach by BioChem of any representation, covenant or agreement
which results in a failure of certain conditions to closing (subject
to a 20 business day cure period).
The Merger Agreement may be terminated by BioChem upon the occurrence of any of
the following events:
o Shire shareholders have not approved the Merger at theExtraordinary
General Meeting;
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o the board of directors of Shire fails to recommend approval of the
Merger to its shareholders or adversely modifies or qualifies or
withdraws its recommendation; or
o a breach by Shire of any representation, covenant or agreement which
results in a failure of certain conditions to closing (subject to a
20 business day cure period).
BioChem may also terminate the Merger Agreement if at any time prior to its
shareholder meeting, BioChem shall have failed to recommend approval of the
Merger to its shareholders or adversely modified or qualified or withdrawn its
recommendation so long as:
o the BioChem board of directors, after consultation with its legal
counsel and financial adviser, determines that a proposal to acquire
BioChem is more favourable from a financial point of view to its
shareholders than the Merger and, after consultation with and based
upon advice of legal counsel, determines in good faith that such
action is necessary for BioChem's board of directors to comply with
its fiduciary duties to shareholders under applicable laws;
o BioChem pays to Shire, immediately following the termination of the
Merger Agreement, a break fee of $110 million; and
o BioChem provides to Shire at least five business days prior to
termination written notice of its intention to terminate the Merger
Agreement and the material terms and conditions of the proposal to
acquire BioChem.
If Shire terminates the Merger Agreement because BioChem shareholder approval
has not been obtained, and
o a transaction to acquire BioChem is announced that BioChem's board
of directors determines is more favourable to its shareholders than
the transaction with Shire; and
o that transaction is consummated within one year (or 18 months in
certain circumstances) of termination of the Merger Agreement,
then BioChem shall pay to Shire a break fee of $110 million not later than two
days following consummation of the transaction referred to above.
If Shire terminates the Merger Agreement because BioChem's board of directors
fails to recommend approval of the Merger to its shareholders or adversely
modifies or qualifies or withdraws its recommendation, then BioChem shall pay to
Shire a break fee of $110 million not later than two business days after the
termination date.
If BioChem terminates the Merger Agreement because Shire has failed to recommend
approval of the Merger to its shareholders or Shire has adversely modified or
qualified or withdrawn its recommendation, then Shire shall pay to BioChem, not
later than two business days after the termination date, a break fee of $40
million.
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3. The Option Agreement
General
At the same time as the execution of the Merger Agreement and as an inducement
and condition to entering into the Merger Agreement, Shire entered into an
Option Agreement with BioChem. Under the Option Agreement, BioChem granted Shire
an irrevocable option to purchase a number of shares representing up to 19.9 per
cent of the issued and outstanding BioChem Shares as of 8 December 2000 (on an
undiluted basis) at a price per share in cash equal to $37.00.
The Option Agreement provides that Shire may exercise the option prior to
termination of the Option Agreement, in whole or in part, by delivering a
written notice, upon the occurrence of any event that entitles Shire to receive
a payment of $110 million from BioChem according to the terms of the Merger
Agreement.
To the extent the option has not been exercised, the option will expire upon the
earlier of 12.01 a.m. on the Effective Date or termination of the Merger
Agreement in accordance with its terms unless Shire is entitled to receive the
$110 million payment from BioChem under the Merger Agreement, in which case the
option will expire 180 days after termination of the Merger Agreement.
Arrangements such as the Option Agreement are customarily entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be consummated in accordance with their
terms, and to compensate the grantee for the efforts undertaken and the
expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated under certain circumstances involving
an acquisition or potential acquisition of the issuer by a third party. The
option agreement was entered into to accomplish these objectives.
Notice of exercise
According to the terms of the Option Agreement, Shire may exercise the option
by:
o sending BioChem a written notice specifying the number of BioChem
Shares to be purchased; and
o paying the exercise price by certified cheque or wire transfer.
Maximum proceeds
The Option Agreement provides that the gross proceeds received by Shire in
connection with any sales or dispositions of shares from the exercise of the
option (less reasonable and customary commissions and any dividends received by
Shire declared on the option shares) together with the $110 million payment
cannot exceed:
o $120,000,000; plus
o the product of $37.00 and the number of BioChem Shares purchased by
Shire under the option.
If such gross proceeds do exceed this amount, the excess amount shall be
remitted by Shire to BioChem or deducted from the $110 million payment to be
made by BioChem to Shire.
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4. Exchangeable Share Support Agreement
Under the Exchangeable Share Support Agreement to be entered into between Shire,
Callco and Exchangeco, Shire will agree to ensure that Exchangeco can meet its
obligations in respect of the Shire Exchangeco Shares.
So long as any Shire Exchangeco Shares not owned by Shire or its affiliates are
outstanding, Shire cannot declare or pay any dividend unless Exchangeco on the
same day declares or pays an equivalent dividend to holders of the Shire
Exchangeco Shares. If there is a shortfall in Exchangeco's reserves then Shire
is required to fund this shortfall to the extent necessary to pay an
economically equivalent dividend. If Shire pays a dividend in specie to Shire
Shareholders then a payment of economically equivalent value must be made to the
holders of the Shire Exchangeco Shares.
If Shire is subject to a takeover offer, it must use all reasonable efforts to
enable the holders of the Shire Exchangeco Shares to participate on economically
equivalent terms. Further, the Exchangeable Share Support Agreement contains an
anti-dilution covenant on the part of Shire which prevents Shire from issuing
Ordinary Shares, convertibles or options to Shire Shareholders; distributing
property to Shire Shareholders; merging or undergoing a reorganisation; or
altering its share capital structure, , in each case without either (a) the
approval of the holders of the Shire Exchangeco Shares or (b) economically
equivalent reciprocal arrangements being put in place in favour of the holders
of the Shire Exchangeco Shares.
The measure of economic equivalence will be determined by the board of directors
of Exchangeco in accordance with certain parameters set forth in the
Exchangeable Share Support Agreement.
Shire must also ensure that Exchangeco complies with its obligations in relation
to the exercise of retraction rights, payment of dividends and segregation of
funds and must ensure the availability of sufficient New Ordinary Shares to
satisfy the exchange rights of the holders of the Shire Exchangeco Shares.
Upon the exercise of exchange rights attaching to the Shire Exchangeco Shares
(whether at the option of the holders of Shire Exchangeco Shares or upon some
other exchange event), Callco will have the overriding right, but not the
obligation, to purchase the Shire Exchangeco Shares in question for a purchase
price payable in New Ordinary Shares or new ADSs (at the option of the holder).
Further details are set out in paragraph o of this Part VIII.
5. Voting and Exchange Trust Agreement
Under the Voting and Exchange Trust Agreement (to be entered into among Shire,
Exchangeco and o (the "Trustee"), Special Voting Shares will be issued to the
Trustee in the same number as the number of outstanding Shire Exchangeco Shares
as at the Effective Date and a trust created for the benefit of the holders of
the Shire Exchangeco Shares. The Trustee will hold the Special Voting Shares in
trust for the benefit of the holders of the Shire Exchangeco Shares (other than
Shire and affiliates of Shire) and will be able to vote in person or by proxy on
any matters put before the Shire Shareholders at a Shire general meeting. Each
holder of Shire Exchangeco Shares (other than Shire or affiliates of Shire) is
entitled to direct the Trustee how to vote three Special Voting Shares held by
the Trustee for each one Shire Exchangeco Share owned by such holder or to
attend the meeting personally and vote directly as proxy for the Trustee in
respect of such Special Voting Shares. Unless instructed, the Trustee may not
vote, and any Shire Exchangeco Shares held by Shire or its affiliates may not be
voted. The Trustee will also hold rights entitling the holders of the Shire
Exchangeco Shares to automatic exchange rights providing that, in
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the event of insolvency or liquidation of Exchangeco or of Shire, Shire will
acquire the Shire Exchangeco Shares other than those held by Shire and its
affiliates in return for New Ordinary Shares at the same rate as the right to
exchange (i.e. one-for-three).
Under the Voting and Exchange Trust Agreement, Shire must provide to the Trustee
all materials to be sent to the UK Shire Shareholders and certain items are
subject to the right of reasonable comment by the Trustee prior to mailing.
Shire must also give the Trustee and Exchangeco advance notice of any meetings
of Shire Shareholders and all materials must be mailed to the holders of the
Shire Exchangeco Shares at the same time as they are mailed to the Shire
Shareholders at Shire's expense.
Shire will not be responsible for the payment of any applicable stamp,
registration and transfer taxes and duties, if any, upon transfer of the Shire
Exchangeco Shares or the issue or delivery of Shire Ordinary Shares other than
the issue of Shire Ordinary Shares to a depositary pursuant to the Merger. Shire
and Exchangeco jointly and severally agree to pay the Trustee for all services
rendered to it under the Voting and Exchange Trust Agreement, including
reasonable expenses. In addition, Shire and Exchangeco will be liable to
indemnify the Trustee against any claims, losses and reasonable costs and
expenses incurred in compliance with its duties under the Voting and Exchange
Trust Agreement.
6. Further details of the Shire Exchangeable Shares
Exchange
Holders of Shire Exchangeco Shares have the right at any time (subject to the
exercise by Callco of its overriding callright described below) to require
Exchangeco to redeem any or all of their Shire Exchangeco Shares (the "Retracted
Shares") in exchange for the delivery to such holders of three New Ordinary
Shares or one ADS (at the option of the holder) for each Retracted Share plus
any declared and unpaid dividends on the Retracted Share (the "Exchange
Amount"). Holders of the Shire Exchangeco Shares may effect an exchange by
presenting to Exchangeco the share certificates representing the Retracted
Shares together with a duly executed notice in prescribed form (a "Retraction
Request") and such other documents as may be required to effect the exchange.
When a holder requests Exchangeco to redeem Retracted Shares, Callco will have
an overriding right (the "Retraction Call Right") to purchase all but not less
than all of the Retracted Shares, at a purchase price per share equal to the
Exchange Amount. Callco is the primary mechanism by which Shire Exchangeable
Shares maybe acquired in return for New Ordinary Shares or ADS (at the option of
the holder). Upon receipt of a Retraction Request, Exchangeco will immediately
notify Callco of the Retraction Call Right. Callco must then advise Exchangeco
within five business days as to whether the Retraction Call Right will be
exercised. If Callco does not so advise Exchangeco, Exchangeco will notify the
holder as soon as possible thereafter that Callco will not exercise the
Retraction Call Right. If Callco advises Exchangeco that Callco will exercise
the Retraction Call Right within such five business day period, then provided
the Retraction Request is not revoked by the holder as described below, the
Retraction Request shall thereupon be considered only to be an offer by the
holder to sell the Retracted Shares to Callco in accordance with the Retraction
Call Right.
A holder may revoke its Retraction Request, in writing, at any time prior to the
close of business on the business day preceding the date set for retraction (the
"Retraction Date") in which case the Retracted Shares will neither be purchased
by Callco nor be redeemed by Exchangeco. If a holder does not revoke its
Retraction Request, on or before the Retraction Date, the Retracted Shares will
be purchased by Callco or redeemed by Exchangeco, as the case may be, in each
case as set out above.
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Liquidation of Exchangeco
In the event of the liquidation, dissolution or winding-up of Exchangeco or any
other distribution of the assets of Exchangeco among its shareholders for the
purpose of winding-up its affairs, holders of the Shire Exchangeco Shares will
have, subject to applicable law, preferential rights to receive from Exchangeco
the Exchange Amount for each Shire Exchangeco Share held. Upon the occurrence of
such liquidation, dissolution or winding-up, Callco will have an overriding
right to purchase all of the outstanding Shire Exchangeco Shares (other than
Shire Exchangeco Shares held by Shire and its affiliates) from the holders
thereof for a purchase price per share equal to the Exchange Amount.
Upon the occurrence and during the continuance of an Exchangeco insolvency event
(essentially the institution of winding up or insolvency proceedings of
Exchangeco or similar events), Shire shall purchase from each holder of Shire
Exchangeco Shares (other than Shire and its affiliates) all of the Shire
Exchangeco Shares held by each such holder. The purchase price payable by Shire
for each Shire Exchangeco Share so purchased will be the Exchange Amount.
Liquidation of Shire
In order for the holders of the Shire Exchangeco Shares to participate on a pro
rata basis with the holders of Ordinary Shares, on the fifth business day prior
to the effective date of a Shire Liquidation Event (defined as essentially the
institution of winding up or insolvency proceedings of Shire or similar events),
each Shire Exchangeco Share (other than those held by Shire or its affiliates)
will automatically be exchanged for the Exchange Amount.
Redemption
Subject to applicable law and to the exercise by Callco of its call right
described below, Exchangeco will redeem all but not less than all of the then
outstanding Shire Exchangeco Shares for a price per share equal to the Exchange
Amount on a date (the "Redemption Date") determined by the board of directors of
Exchangeco but not before the tenth anniversary of the Effective Date (subject
to "Early Redemption" below). Exchangeco will, at least 60 days before the
Redemption Date or such number of days as the board of directors of Exchangeco
may determine to be reasonably practicable under the circumstances in respect of
a Redemption Date arising in connection with the Shire Control Transaction (as
described in "Early Redemption" below), notify the holder of the Shire
Exchangeco Shares of the Redemption Date.
Callco will have an overriding right (the "Redemption Call Right") to purchase
on the Redemption Date all but not less than all of the Shire Exchangeco Shares
then outstanding (other than Shire Exchangeco Shares held by Shire and its
affiliates) for a purchase price per share equal to the Exchange Amount. Upon
the exercise of the Redemption Call Right, holders will be obligated to sell
their Shire Exchangeco Shares to Callco. If Callco exercises the Redemption Call
Rights, Exchangeco's right and obligation to redeem the Shire Exchangeco Shares
on such Redemption Date will terminate.
Early Redemption
In certain circumstances, Exchangeco has the right to require a redemption of
the Shire Exchangeco Shares prior to the tenth anniversary of the Effective
Date. An early redemption may occur upon:
(i) there being fewer than 1,000,000 Shire Exchangeco Shares outstanding
(other than Shire Exchangeable Shares held by Shire and its
affiliates), provided that such number may be adjusted by the board
of directors of Exchangeco in certain circumstances;
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(ii) the occurrence of the Shire Control Transaction (defined as
essentially a merger, amalgamation takeover or similar transaction),
provided that the board of directors of Exchangeco determines (I)
that it is not reasonably practicable to substantially replicate or
modify the terms and conditions of the Shire Exchangeco Shares in
connection with the Shire Control Transaction and (ii) that the
redemption of the Shire Exchangeco Shares is necessary to enable the
completion of the Shire Control Transaction; or
(iii) the failure by holders of Shire Exchangeco Shares to approve
necessary action to maintain economic equivalence with Ordinary
Shares.
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PART VII- STATUTORY AND GENERAL INFORMATION
1. Responsibility
The Directors and Proposed Directors, whose names appear in paragraph 2 below,
accept responsibility for the information contained in this document. To the
best of the knowledge and belief of the Directors and Proposed Directors, who
have taken all reasonable care to ensure that such is the case, the information
contained in this document is in accordance with the facts and does not omit
anything likely to affect the import of such information.
2. Directors and Proposed Directors
(a) The Directors are listed below together with their respective positions:
Directors Position
Dr James Henry Cavanaugh Non-executive Chairman
Rolf Stahel Chief Executive
Angus Charles Russell Group Finance Director
Dr Joseph Wilson Totten Group Research and Development Director
Dr Barry John Price Senior Non-executive Director
Dr Bernard Canavan Non-executive Director
Dr Zola Philip Horovitz Non-executive Director
Ronald Maurice Nordmann Non-executive Director
Joseph Edward Smith Non-executive Director
John Tetje Spitznagel Non-executive Director
It is proposed that, following the Merger, Dr Francesco Bellini, the
Honourable James Andrews Grant and Gerard Veilleux will be appointed as
non-executive directors of the Company.
The business address of all the Directors is, and of the Proposed
Directors will be, East Anton, Andover, Hampshire SP10 5RG.
(b) The brief biographical details of the Directors are as follows: [Dr James
Cavanaugh joined the Board on 24 March 1997 and was appointed as
Non-executive Chairman with effect from 11 May 1999. Dr Cavanaugh is the
President of HealthCare Ventures LLC. Formerly he was President of
SmithKline & French Laboratories, the US pharmaceutical division of
SmithKline Beecham Corporation. Prior to that, he was President of
SmithKline Beecham Corporation's clinical laboratory business and, before
that, President of Allergan International. Prior to his industry
experience, Dr Cavanaugh served as Deputy Assistant to the President of
the US for Health Affairs on the White House Staff in Washington, DC. He
is a Non-executive Director of MedImmune, Inc. and LeukoSite, Inc.
Rolf Stahel joined the Group in March 1994 as Chief Executive from
Wellcome plc where he worked for 27 years. From April 1990 until February
1994, he served as Director of Group Marketing reporting to the Chief
Executive. A business studies graduate of KSL Lucerne, Switzerland, he
attended the 97th Advanced Managers Program at Harvard Business School.
Angus Russell joined the Board with effect from December 1999, having
previously worked for ICI, Zeneca and AstraZeneca for a total of 19 years.
His last position was Vice President - Corporate Finance at AstraZeneca
PLC, where he was responsible for financial input into M&A activities,
management of tax, legal, and finance structure, investor relations
activities and the management of various financial risks. Prior to this,
he held a number of positions within Zeneca Group PLC and ICI including
Group Treasurer, Group Investor Relations Manager, Strategic Planner,
Marketing Manager and management accounting roles in manufacturing and R &
D operations. Mr Russell is a chartered accountant, having qualified with
Coopers & Lybrand and is a member of the Association of Corporate
Treasurers.
Dr Wilson Totten joined the Board of Shire in January 1999 as Group R&D
Director. Dr Totten is a medical doctor and has wide experience in the
pharmaceutical industry covering all phases of drug development. He has
substantial experience in the field of CNS disorders. His last position
was Vice President of Clinical Research & Development with Astra Charnwood
where he served from 1995 to 1997, having previously worked for Fisons
Pharmaceuticals from 1989 to 1995, and prior to that with 3M Health Care
and Eli Lilly.
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Dr Barry Price joined the Board on 24 January 1996 having spent 28 years
at Glaxo holding a succession of key executive positions with Glaxo Group
Research. He is a Non-executive Director of Celltech Chiroscience plc and
Chairman of Antisoma plc. Dr Price is Chairman of the Remuneration
Committee.
Dr Bernard Canavan joined the Board as a Non-executive Director on 11
March 1999. Dr Canavan is a medical doctor and graduate of the University
of Edinburgh. He was employed by American Home Products for over 25 years
until he retired in January 1994. He was president of that Corporation
from 1990 to 1994, and prior to that was Chairman and Chief Executive
Officer of American Home Products Pharmaceutical Division, Wyeth-Ayerst
Laboratories. Dr Canavan is also a director of BioChem Pharma Inc.,
Magainin Pharmaceuticals Inc., 3-Dimensional Pharmaceuticals Inc. and
Nelson Communications Inc. Dr Canavan is Chairman of the Audit Committee.
Dr Zola Horovitz joined the Board with effect from 23 December 1999,
having previously served as a director of Roberts Pharmaceutical
Corporation since October 1996. Dr. Horovitz has been self-employed as a
consultant in the biotechnology and pharmaceutical industries since 1994.
From 1959 to 1994 Dr Horovitz held various positions at Squibb Corporation
and its successor corporation, Bristol-Myers Squibb & Co., including that
of Vice President, Business Development and Planning. Dr Horovitz received
undergraduate and masters degrees and a Ph.D from the University of
Pittsburgh.
Ronald Nordmann served as a non-executive director of Roberts
Pharmaceutical Corporation from May 1999 until becoming a director of
Shire with effect from 23 December 1999. He has been a financial analyst
in healthcare equities since 1971. Since September 1994 he has held senior
positions with PaineWebber, Oppenheimer & Co., F. Eberstadt & Co., and
Warner-Chilcott Laboratories, a division of Warner-Lambert. Mr Nordmann
received his undergraduate degree from The Johns Hopkins University and a
M.B.A. from Fairleigh Dickinson University.
Joseph Smith served as a non-executive director of Roberts Pharmaceutical
Corporation from August 1998 and joined the Board of Shire with effect
from 23 December 1999. From 1989 to 1997, Mr Smith served in various
positions at Warner-Malbert Company, including President of Parke-Davis
Pharmaceuticals and President of the Shaving Products Division (Schick and
Wilkinson Sword). Mr Smith previously held positions at Johnson & Johnson
and served as President of Rorer Pharmaceutical corporation. Mr Smith
received his undergraduate degree from the University of Buffalo and an
M.B.A. degree from the Wharton School of the University of Pennsylvania.
John Spitznagel served as President and Chief Executive Officer of Roberts
from September 1997 to December 1999, when he joined the Shire Board. He
was previously executive Vice President-- World-wide Sales and Marketing
of Roberts from March 1996 to September 1997, having served as President
of Reed and Carnrick Pharmaceuticals from September 1990 until July 1995.
He previously served as Chief Executive Officer of BioCryst
Pharmaceuticals Inc. having held before that various sales, marketing and
management positions in the industry.]
Brief biographical details of the Proposed Directors are set out on page o
of Part I of this document.
(c) The Directors and Proposed Directors, their current directorships, their
directorships held during the five years preceding the date of this
document, the partnerships of which they are currently partners and
partnerships of which they have been partners during the five years
preceding the date of this document are as follows:
131
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Current Past Directorships/Partnerships
Name Directorships/Partnerships
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[Dr James Henry Cavanaugh Diversa Corporation Human Genome Sciences
Med Immune Inc Inc
3-Dimensional Pharmaceuticals Inc. Procept Inc
LeukoSite Inc. Magainin Pharmaceuticals Inc
Versicor Inc. Genetic Therapy Inc
Aronex Pharmaceuticals Inc
General Partnerships
HealthCare Partners I, II,
III, IV and V
General Partnerships
HealthCare Ventures I, II III, IV and V
Limited Partnerships
Parker & Parsley 1986-C
Parker & Parsley 1987-B
Chevy Chase Associates
PLM Equipment Growth Fund
Cigna Willowbrooke-2 Associates
Geodyne Energy Income Programs
Curran Partners LP
RPC Real Estate Fund I LLC
------------------------------------------------------------------------------------------------------------------------------------
Mr Rolf Stahel None None
------------------------------------------------------------------------------------------------------------------------------------
Mr Angus Charles Russell [I.C. Insurance Services Ltd None
I.C. Insurance Holdings Ltd
I.C. Insurance Ltd
Zeneca Insurance Company Ltd
Zeneca Finance (Netherlands) Company
Zeneca Nominees Ltd
Zeneca Pensions Trustee Ltd]
------------------------------------------------------------------------------------------------------------------------------------
Dr Joseph Wilson Totten None None
------------------------------------------------------------------------------------------------------------------------------------
Dr Barry John Price Celltech Chiroscience plc Thallia Pharmaceuticals SA
Antisoma plc (Chairman) Glaxchem Ltd
Pharmagene plc Glaxo Operations Ltd
Chemunex SA
------------------------------------------------------------------------------------------------------------------------------------
Dr Bernard Canavan Magainin Pharmaceuticals Inc Alpha-Beta Technology Inc
Nelson Communications Inc
3-Dimensional
Pharmaceuticals Inc
------------------------------------------------------------------------------------------------------------------------------------
Dr Zola Philip Horovitz BioCryst Pharmaceuticals Inc Cytomed Inc
Magainin Pharmaceuticals Inc Proscript Inc
Synaptic Pharmaceuticals Corporation
Avigen Inc
Procept Inc
Diacrim Inc
Clinicor Inc
Phyton Inc
3-Dimensional Pharmaceuticals Inc
Delfys Pharmaceuticals Inc
Nitromed Inc
Immunicon Corporation
Dov Pharmaceuticals Inc.
------------------------------------------------------------------------------------------------------------------------------------
Mr Ronald Maurice Nordmann Deerfield None
------------------------------------------------------------------------------------------------------------------------------------
Mr Joseph Edward Smith Boren, LePore Associates None
Virus Inc
Avanir Pharmaceuticals
Semus Drug Development Corporation
Claneil Enterprises Inc
International Longevity Center
Careinsite Inc
------------------------------------------------------------------------------------------------------------------------------------
Mr John Tetje Spitznagel None None
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Dr Francesco Bellini Chambre de Commerce Italienne None
Fonds de Recherche de L'institut de
Cardiologie de Montreal
Molson Inc
L'Industrielle-Alliance Compagnie d'assurance
sur la vie
Adherex
AB Immunosystems
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
132
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
The Honourable James Andrews Grant United Dominion Industries Ltd None
CAE Industries Ltd
Canadian Imperial Bank of Commerce
------------------------------------------------------------------------------------------------------------------------------------
Mr Gerard Veilleux Gesca The State Hermitage Museum Foundation of
La Presse Canada Inc.]
Publications JTL
Great West Life Assurance Co. & Great West
Lifeco
Investors Group
London Life
Power Technology Investment
Corporation(Diffusion Power)
QuebecTel/Telus
Universite McGill
Fondation Baxter & Alma Ricard
Loeb Research Institute
Theatre du Rideau-Vert
McCord Museum
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Save as disclosed in sub-paragraph (e) below, no Director or Proposed
Director of the Company has:
(i) any unspent convictions for indictable offences;
(ii) been declared bankrupt;
(iii) been subject to any public criticism by any statutory or regulatory
authority;
(iv) been disqualified by a court from acting as a director of or in the
management of any company;
(v) been a director of a company which has been placed in
administration, receivership or liquidation whilst he was a director
of that company or within twelve months after he ceased to be a
director of that company; or
(vi) been a partner of a partnership which has been placed into
liquidation or administration.
(e) (i) Dr Barry Price is a former director of Thallia Pharmaceuticals
SA, which went into judicial liquidation on 3 August 1999. Creditors
were given 12 months from the date of the judgement for the
commencement of the company's judicial liquidation to declare
amounts owing to them. On 29 September 1999 Thallia Pharmaceuticals
SA was authorised by a court to carry on business for a further two
months.
(ii) Dr Bernard Canavan is a former director of Alpha-Beta Technology
Inc., which went into an assignment for the benefit of creditors on
27 January 1999 pursuant to an out of court liquidation in the US
State of Massachusetts. An assignee was appointed on that date in
the State of Massachusetts, and a receiver was appointed in the US
State of Rhode Island, in respect of the debts of Alpha-Beta
Technology Inc. The assets of Alpha-Beta Technology Inc. were sold
pursuant to court authorisation, yielding approximately $20.5
million. Virtually all of the sale proceeds were paid over to Rhode
Island Economic Development Corporation, which held a mortgage on
the company's assets in the State of Rhode Island. This mortgage has
a shortfall deficiency claim of approximately $6,000,000 which, when
added to the claims of all other creditors filed with the receiver
and for the assignee, brings the current total of unpaid creditors'
claims to approximately $9,429,000. It is believed that the company
creditors are likely to receive about three US cents in the dollar.
3. The Company
The Company, whose registered office and principal place of business is at
East Anton, Andover, Hampshire SP10 5RG, was incorporated in England and
Wales with registered number 2883758 on 1 January 1994 under the Act as a
public limited company with the name Barnhill PLC. The Company changed its
name to Shire Pharmaceuticals Group plc with effect from 12 December 1994.
133
<PAGE>
4. Share capital
(a) The authorised and issued and fully paid share capital of the Company, as
at o 2001 (the latest practicable date prior to posting of this document)
and as it will be following the Merger (assuming no exercise of options
outstanding under the Employee Share Schemes, no exercise of options or
rights in respect of BioChem Shares and an Average Shire ADS Price of
[more than $o] [less than $o] and assuming all existing BioChem
Shareholders exchange their BioChem Shares for New Ordinary Shares
pursuant to the terms of the Merger) is as follows:
<TABLE>
<CAPTION>
At o 2001 After the Merger
Authorised Issued Authorised Issued
Ordinary (pound) Ordinary (pound) Ordinary (pound) Ordinary (pound)
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C>
400,000,000 20,000,000 o o o o o o
</TABLE>
Following the issue of Consideration Shares pursuant to the Merger
Agreement, o Ordinary Shares will remain authorised but unissued,
subject to the assumptions set out above.
(b) (i) At the last Annual General Meeting held on 7 July 2000, the
Directors were generally and unconditionally authorised for the
purposes of section 80 of the Act to exercise all or any of the
powers of the Company to allot relevant securities (within the
meaning of that section) up to an aggregate nominal amount equal
to (pound)4,197,625.90 for a period expiring (unless previously
renewed, varied or revoked by the Company in general meeting) five
years after the date of the passing of this resolution ("the period
of authority"), save that the Company may before such expiry make an
offer or agreement which would or might require relevant securities
to be allotted after such expiry and the Directors may allot
relevant securities pursuant to any such offer or agreement as if
the authority conferred hereby had not expired;
(ii) At the same Annual General Meeting, the Directors were empowered
pursuant to section 95 of the Act to allot equity securities (within
the meaning of section 94(2) of the Act) pursuant to the authority
conferred upon them under (i) above as if section 89(1) of the Act
did not apply to any such allotment. This power: (a) expires at the
end of the period of authority save that during the period of
authority the Company may make an offer or agreement which would or
might require equity securities to be allotted after the expiry of
such period and the Directors may allot equity securities in
pursuance of any such offer or agreement; (b) is limited (i) to
allotments of equity securities where such securities have been
offered (whether by way of a rights issue, open offer or other
pre-emptive offer) to holders of Ordinary Shares made in proportion
(as nearly as may be) to their existing holdings of Ordinary Shares
but subject to the Directors having a right to make such exclusions
or other arrangements in connection with the offering as they deem
necessary or expedient, first, to deal with equity securities
representing fractional entitlements, secondly, to deal with
Ordinary Shares represented by depository receipts and, thirdly, to
deal with legal or practical problems under the laws of, or the
requirements of any recognised regulatory body or any stock exchange
in, any territory; and (ii) to allotments (otherwise than pursuant
to the powers referred to in (i) above) of equity securities for
cash up to an aggregate nominal amount of (pound)611,297.55.
(iii) At the same Annual General Meeting, subject to resolution (i) above
and in addition and without prejudice to resolution (ii) above, the
Directors were empowered pursuant to Section 95 of the Companies Act
1985 to allot equity securities (within the means of section 94(2)
of the Companies Act 1985) of the Company pursuant to the authority
conferred upon them at (i) above as if section 89(1) of the
Companies Act 1985 did not apply to such allotment, provided that
this power: (i) shall expire five years after the date of the
passing of this resolution, save that the Company may make an offer
or agreement which would or might require equity securities to be
allotted after such expiry and the Directors may allot equity
securities pursuant to any such offer or agreement as if the power
conferred hereby has not expired; and (ii) shall be limited to
allotment of equity securities to raise funds solely for the
purposes of repaying in whole or in part any outstanding amounts
under the facility agreement entered into on 19
134
<PAGE>
November 1999 between inter alia, the Company, Roberts and the
Company's subsidiaries in the United States of America as borrowers
and DLJ Capital Funding, Inc. as agent; and (iii) shall not involve
the allotment of more than (pound)430,000 in nominal value or equity
securities.
(iv) At the same Annual General Meeting, the Company adopted new Articles
of Association, a summary of which is contained in paragraph 8
below.
(iii)
(c) The provisions of section 89(1) of the Act (which, to the extent not
disapplied pursuant to section 95 of the Act, confer on shareholders
rights of pre-emption in respect of the allotment of equity securities (as
defined in section 94(2) of the Act) which are, or may be, paid up wholly
in cash) apply to the balance of the authorised but unissued share capital
of the Company to the extent not disapplied pursuant to the authority
under section 95 of the Act referred to in sub-paragraphs (b)(ii) and
(b)(iii)above, subject to paragraph (d) below.
(d) The ordinary resolution to be proposed at the Extraordinary General
Meeting will, if passed, increase the authorised share capital of the
Company to (pound)o, being o Ordinary Shares. The amount of this increase
represents o per cent. of the total Ordinary Shares in issue as at o 2001
or an increase of o per cent. from the previous authorised share capital
of the Company. The principal reason for the increase in the authorised
share capital is to enable the Directors to issue the Consideration
Shares. If passed this resolution will also approve the Merger (including
the conversion of share options and rights held by BioChem option holders
over BioChem Shares into options over Ordinary Shares) and will give the
Directors authority to allot unissued share capital with a nominal value
of up to (pound)o, representing o per cent. of the total Ordinary Shares
in issue as at o 2001, for a period expiring 5 years after the date of the
passing of this resolution. The resolution will also create Special Voting
Shares with the rights, privileges and restrictions to it as set out in
the Notice of the Extraordinary General Meeting. By a special resolution
also to be proposed at the Extraordinary General Meeting, the Directors
will be empowered to allot equity securities (within the meaning of
section 94(2) of the Act) of the Company for a similar period of 5 years
as if section 89(1) of the Act did not apply, provided that this power
shall be limited, inter alia, to allotments of equity securities for cash
up to an aggregate nominal amount of (pound)o.
(e) As the number of New Ordinary Shares to be issued depends upon market
prices after the date of this document, and upon the elections for Shire
Exchangeco Shares made by BioChem Shareholders pursuant to the terms of
the Merger Agreement, the amount of the Company's issued share capital
immediately following completion of the Merger is not yet known. As a
result, the authorities being sought at the EGM under section 80 and
section 95 of the Act, which assume that the maximum possible number of
New Ordinary Shares will be issued, may exceed IPC guidelines. The
Directors of the Enlarged Group undertake that, to the extent that the
aggregate nominal amount of relevant securities (within the meaning of
section 80 of the Act) up to which the Directors are generally and
unconditionally authorised for the purposes of section 80 and section 95
of that Act to allot such relevant securities exceeds such guidelines, the
Directors shall not allot relevant securities pursuant to any outstanding
authorities.
(f) The Ordinary Shares are in registered form and are listed only on the
Official List and admitted to trading only on the London Stock Exchange,
as will be the New Ordinary Shares.
(g) The New Ordinary Shares will be in registered form. It is expected that
definitive share certificates, to the extent the New Ordinary Shares are
not being held in the CREST system, are expected to be despatched by post
by o 2001. No temporary documents of title will be issued.
(h) The following are details of options to acquire Ordinary Shares granted to
certain Directors and employees under the Employee Share Schemes
(excluding the Long Term Incentive Plan) which were not issued for cash
consideration and were outstanding at o 2001 (being the latest practicable
date prior to the publication of this document) and which represent the
maximum number of Ordinary Shares which may be issued pursuant to such
options:
135
<PAGE>
Exercise date Number of
Scheme Exercise Earliest Latest Ordinary
Notes Price ((pound)) Shares
o o o o o o
Further details of the Employee Share Schemes are set out in paragraph 5
of this Part VIII. Details of Directors' interests in shares of the
Company are included in paragraph 9 of this Part VIII.
(i) The following are details of awards in respect of Ordinary Shares granted
to certain Directors and employees under the Long Term incentive Plan and
which were outstanding at o 2001 (being the latest practicable date prior
to the publication of this document):
<TABLE>
<CAPTION>
Value of Award Number of Ordinary Shares Earliest date on which award
may be vested
<S> <C> <C>
(pound) 390,243 83,848 8 April 2003
(pound) 77,351 16,440 12 May 2003
(pound) 56,500 10,000 25 July 2003
(pound) 54,220 10,000 22 Aug 2003
(pound) 1,211,731 120,452 28 February 2004
(pound) 611,962 62,701 6 June 2004
</TABLE>
(j) The share capital history of the Company for the three years prior to o
2001 (being the latest practicable date prior to the publication of this
document) is as follows:
136
<PAGE>
(i) On 1 April 1998 6,000,000 Ordinary Shares were issued by the Company
pursuant to an offer of 24,217,255 Ordinary Shares at 343p per
Ordinary Share, including Ordinary Shares underlying 7,265,177 ADSs.
(ii) On 30 June 1998 the authorised share capital was increased to
(pound)10,000,000 by the creation of an additional 22,000,000
Ordinary Shares of 5p each.
(iii) Pursuant to an agreement dated 30 July 1999 made between the Company
and Arenol Corporation, Arenol Corporation held a loan note with a
principal amount of US$6,000,000 which is convertible into Ordinary
Shares. The Company issued 533,279, 560,076 and 541,478 Ordinary
Shares on 13 March 2000, 3 August 2000 and 6 November 2000,
respectively to Arenol Corporation in consideration of the
conversion of part of the loan notes in the Company.
(iv) On 22 December 1999 the authorised share capital of the Company was
increased to (pound)20,000,000 by the creation of an additional
200,000,000 new Ordinary Shares of 5p each
(v) The Company issued 160,546 and 47,641 Ordinary Shares on 22 May 2000
and 15 August 2000, respectively to Biorex Laboratories Limited at
the request of Glycyx Pharmaceuticals Limited ("Glycyx") in part
consideration for the transfer of assets and grant of rights to the
Company pursuant to an agreement between Glycyx and the Company
dated 17 May 2000.
(vi) The following Ordinary Shares have been issued as a result of the
exercise of options:
(k) Pursuant to an asset purchase agreement among the Company, Shire Supplies
US LLC, Arenol Corporation and Richard Vorisek and Robert Jaeder dated as
of 5 March 1999, the Company issued a $5,800,000 principal amount
Unsecured Convertible Zero Coupon Loan Note due 30 July 2001 (the "First
Loan Note") and a $6,000,000 principal amount Unsecured Convertible Zero
Coupon Loan Note due 30 July 2004 (the "Second Loan Note"). The agreement
provides for the cancellation of certain specified amounts of the
aggregate principal amount of the First Loan Note and of such amounts of
the Second Loan Note on certain dates to the extent of certain indemnified
losses, or, to the extent that such amounts of the First Loan Note or the
Second Loan Note are not so cancelled, for their conversion into that
number of Ordinary Shares equal to the amounts not cancelled divided by
the product of (A) the lower of (pound)3.565 or the midweek closing price
of the Ordinary Shares on the London Stock Exchange on the relevant date
and (B) the exchange rate on the relevant date.
(l) Save as disclosed in this paragraph 4 there has been no alteration in the
issued share capital of the Company since o 1998 (being three years prior
to o 2001, the latest practicable date prior to the publication of this
document), and no share or loan capital of the Company has been issued or
agreed to be issued since incorporation or (save in respect of the Merger)
is now proposed to be issued and no share or loan capital of the Company
or any of its subsidiaries is under option or has been agreed,
conditionally or unconditionally, to be put under option.
5. Employee Share Schemes and BioChem Stock Option Plans
There are [six] share option schemes in subsidiaries of the Company, the SHL
Scheme, the SPC Scheme, the Roberts' Incentive Stock Option Plan, the Roberts'
1996 Equity Incentive Plan and the Roberts' Restricted Stock Option Plan.
Options over shares in Pharmavene Inc. were converted into options over Ordinary
Shares under the SLI Plan. Options over shares in Richwood Pharmaceuticals
Company, Inc. were converted into options over Ordinary Shares under the SRI
Plan. The Stock Purchase Plan was adopted at the same time as the acquisition of
Pharmavene Inc. No further options will be granted under any of the SHL Scheme,
the SPC Scheme, the SLI Plan, the Stock Purchase Plan, the SRI Plan , the
137
<PAGE>
Roberts' Incentive Stock Option Plan, the Roberts' 1996 Equity Incentive Plan
and the Roberts' Restricted Stock Option Plan Upon admission of its shares to
the Official List in February 1996, the Company adopted two share option
schemes, the Executive Scheme and the Sharesave Scheme. The Sharesave Scheme and
part A of the Executive Scheme have been approved by the Inland Revenue. At the
last Annual General meeting held on 7 July 2000, the Company adopted a further
share option scheme, the ESO Scheme. A summary of each of these schemes is set
out below. None of the options under these schemes have been issued for monetary
consideration.
(a) The SHL Scheme
Options granted under the SHL Scheme result, when exercised, in
participants acquiring Ordinary Shares at an exercise price determined by
the board of directors of SHL at the date of grant. Options are
non-transferable, except in the case of the death of a participant.
Options granted under the SHL Scheme are normally exercisable as to
one-third after one year, two-thirds after two years and in full three
years after the date of grant, with a last exercise date of seven years
after the date of grant. Options expire three months after the termination
of the employment of the participant or immediately on termination in the
case of a dismissal by reason of serious misconduct.
(b) The SPC Scheme
The SPC Scheme was assumed by the Company in connection with the
acquisition of SPC. It covers options granted by SPC to its then
employees. Options granted under the SPC Scheme result, when exercised, in
participants acquiring Ordinary Shares at an exercise price determined by
the board of directors of SPC at the date of grant. Options are
non-transferable, except in the case of the death of a participant.
Options granted under the SPC Scheme are normally exercisable after two
years and expire seven years after being granted, although early exercise
is permitted where a participant ceases employment due to death, injury,
disability, redundancy or retirement. Options expire six months after
termination of employment of the participant other than by reason of
death, injury, disability, redundancy or retirement or immediately on
termination of employment for any other reason.
(c) The Executive Scheme
Part A of the Executive Scheme has been approved by the Inland Revenue
under Schedule 9 to the Income and Corporation Taxes Act 1988 in order to
allow for the grant of approved options up to the (pound)30,000 Revenue
limit per employee. Any additional options are unapproved options granted
under part B of the Executive Scheme. Set out below are summaries of the
principal terms of parts A and B of the Executive Scheme.
Part A of the Executive Scheme
(i) Grant of options
Options may be granted by the remuneration committee ("the Committee")
within 42 days following the announcement by the Company of its results
for any period, or at any other time when the Committee believes that
exceptional circumstances exist to justify the grant of options. No option
may be granted more than 10 years after the date of adoption of the
Executive Scheme. Options are not transferable. Options granted under the
Executive Scheme will normally be exercisable only if performance-related
criteria imposed by the Committee are met (see sub-paragraph (viii)
below).
(ii) Eligibility
The Executive Scheme provides for the grant of options to acquire Ordinary
Shares, subject to the limitations mentioned in sub-paragraph (ix) below,
to selected employees and full-time directors of the Company or any of its
subsidiaries.
(iii) Exercise price
The price per share at which Ordinary Shares may be acquired upon the
exercise of an option shall be determined by the Committee at the time of
grant but shall be not less than the higher of:
138
<PAGE>
(a) the middle-market quotation of Ordinary Shares for the dealing
day immediately preceding the grant date as derived from the
Official List (or such other price as may be agreed with the
Inland Revenue); and
(b) in the case of an option to subscribe for shares, the nominal
value of such shares.
(iv) Exercise of options
An option is exercisable normally only after the third anniversary
of the date of grant and cannot in any event be exercised later than
the tenth anniversary of the date of grant. Except in the
circumstances outlined in this sub-paragraph (iv) below, an option
may not normally be exercised on any occasion unless the relevant
performance conditions are met. If an option holder dies his or her
option may be exercised by his or her personal representatives
within 12 months thereafter. If any option holder leaves the Group
by reason of injury, disability, redundancy or retirement on
reaching his or her contractual retirement age (but in this case
only if the relevant performance conditions are met) or if the
company or business with which he or she holds office or employment
is sold outside the Group, then he or she may exercise an option by
the latest of (i) twelve months after the date of termination; (ii)
42 months after the grant date; and (iii) 42 months after the last
tax-relieved exercise by him of a Revenue approved executive share
option. If an option holder leaves the Group for any other reason,
he or she may only exercise an option with the approval of the
Committee.
Early exercise of options within specified periods is also permitted
in the event of a take-over or reconstruction or winding up of the
Company. In the case of a take-over or reconstruction options may be
exchanged for options over the acquiring company's shares, but only
with the consent of the acquiring company.
(v) Rights attaching to the shares
All Ordinary Shares issued upon the exercise of options will rank
equally in all respects with other Ordinary Shares for the time
being in issue (save as regards any rights attaching to such
Ordinary Shares by reference to a record date prior to the transfer
or allotment of such shares) and application to the London Stock
Exchange will be made for any allotted shares to be admitted to the
Official List.
(vi) Variation of share capital
In the event of any variation in the share capital of the Company,
the Committee may adjust the total number of Ordinary Shares subject
to any option and/or the exercise price under any option with the
prior approval of the Inland Revenue.
(vii) Alteration of the Executive Scheme
The Committee may, at any time alter or add to the Executive Scheme
but may not make any alteration or addition to the advantage of
participants without the prior approval of shareholders in general
meeting except for minor amendments (i) for the purpose of
administration of the Executive Scheme or (ii) to take account of
any change in legislation or (iii) to obtain or maintain favourable
tax or regulatory treatment for option holders, the Company or any
company within the Group, or amendments solely relating to special
terms (including performance conditions). No alteration may be made
to the disadvantage of participants without their majority consent.
Any alteration requires the approval of the Inland Revenue.
(viii) Performance conditions
The performance conditions to be imposed on options will be
determined by the Committee before such options are granted. In
making such determination the Committee will have regard to the
guidance issued from time to time by the bodies representing
institutional shareholders[, insofar as they are appropriate to
smaller quoted companies,] and will seek to identify factors which
represent a fair measure of performance and genuinely reflect the
efforts and achievements of the Group's management. The performance
conditions applicable to options granted in any year will be
described in the Company's annual report and accounts for that year.
The performance conditions currently applying to options require the
Company's share price to
139
<PAGE>
increase at a compound rate of at least 20.5 per cent. per annum
over a minimum three-year measurement period to exercise all options
and to increase by at least 14.5 per cent. per annum (compounded) to
exercise 60 per cent. of the options granted. If these conditions
are not met after the initial three years, they are thereafter
tested quarterly by reference to share price growth over an extended
period. If the share price does not meet these conditions at any
time, none of the options will become exercisable. The Committee may
from time to time vary any such performance conditions as they apply
to outstanding options if, in their opinion, to do so would more
effectively achieve the objective of affording realistic incentives
to option holders.
(ix) Limits of the Executive Scheme
The Executive Scheme is subject to the following dilution limits:
(a) in any period of 10 years, not more than five per cent. of the
issued ordinary share capital of the Company may be placed
under option under the Executive Scheme and any other
executive share option scheme of the Company;
(b) in the period of four years following the adoption of the
Executive Scheme, not more than 2.5 per cent. of the issued
ordinary share capital of the Company may be placed under
option under the Executive Scheme and any other executive
share option scheme of the Company;
(c) in any period of three calendar years, not more than three per
cent. of the issued ordinary share capital of the Company may
be placed under option under the Executive Scheme and any
other executive share option scheme of the Company;
(d) in any period of five years, not more than five per cent. of
the issued share capital of the Company may be placed under
option or issued under any employee share scheme of the
Company;
(e) in any period of 10 years the market value as at the grant
date of options granted to any participant in the Executive
Scheme (excluding options previously exercised) must not
exceed four times his annual remuneration (excluding bonuses
and benefits in kind); and
(f) in any period of 10 years, not more than 10 per cent. of the
issued ordinary share capital of the Company may be placed
under option or issued under any employee share scheme of the
Company;
(g) at any one time, the market value as at the grant date of options held by
any one participant must not exceed (pound)30,000.
With the exception of (g), the above limits exclude shares under option granted
prior to the admission of the Ordinary Shares to the Official List on 15
February 1996.
Part B of the Executive Scheme
The provisions of part A of the Executive Scheme above apply equally to options
granted under Part B, with the following principal exceptions:
(i) any options granted under part B will have a maximum life of seven
years or such other period not exceeding 10 years as the Committee
may determine;
(ii) the provisions of part A requiring Inland Revenue consent for any
actions of the Committee do not apply to options granted under part
B; and
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<PAGE>
the limit in sub-paragraph (ix)(g) of part A above does not apply to
options granted under part
B. In addition, part B of the Executive Scheme permits options granted to
employees of a participating company who are or may become subject to taxation
on their pay in the US ("US employees") to qualify as incentive stock options
for US tax purposes. A maximum of 4,000,000 options may be granted to US
employees under these provisions. All other limits, described in sub-paragraph
(ix) above, continue to apply.
The Sharesave Scheme
The Sharesave Scheme has been approved by the Inland Revenue under
Schedule 9 to the Income and Corporation Taxes Act 1988.
(i) Eligibility
All UK employees and full-time directors of the Company and any of
its subsidiaries participating in the Sharesave Scheme who are
employed by the Group on the date invitations for options are issued
and have been employed throughout the period of six months ending on
the last day of the last financial year of the Company ending
immediately prior to the date of grant of options ("eligible
employees") are eligible to participate in the Sharesave Scheme, as
are any further employees or directors nominated by the Board for
this purpose.
(ii) Grant of options
Eligible employees may be invited by the Board to apply for options
under the Sharesave Scheme to acquire Ordinary Shares. Employees
applying for options must agree to make regular monthly savings
(minimum (pound)10, maximum (pound)250) for three or five years
under a special Sharesave savings contract. The funds saved (plus
interest or, as appropriate, bonus contributions) are used by
employees to exercise options after three or five years. Options may
only be granted during the period of six weeks following the
announcement by the Company of its results for any period, or at any
other time when the circumstances are considered by the Board to be
sufficiently exceptional to justify such grant. No options may be
granted more than 10 years after the date of adoption of the
Sharesave Scheme. Options are not transferable.
(iii) Option price
Ordinary Shares may be acquired at a price to be determined by the
Board before the grant of the option. This price shall not be less
than 80 per cent. of the middle-market quotation of an Ordinary
Share (as derived from the Official List) on the dealing day last
preceding the period of five business days ending with the date on
which invitations to apply for options are given (or on such other
day as may be agreed with the Inland Revenue) or, if greater, the
nominal value of an Ordinary Share.
(iv) Exercise of options
An option granted under the Sharesave Scheme may not normally be
exercised until after three or five years, as mentioned above.
Special provisions, permitting the early exercise of options in
certain circumstances, apply in respect of option holders who cease
employment with the Group before completing their savings contracts
in the event of death, disability, redundancy or retirement at the
age of 65 or contractual retirement age. The early exercise of
options is also permitted in the exceptional circumstances of a
take-over or reconstruction of the Company, in which case options
may alternatively be exchanged for options over the acquiring
company's shares, but only with the consent of the acquiring
company.
(v) Rights attaching to shares
All Ordinary Shares allotted on the exercise of options under the
Sharesave Scheme will rank pari passu with all other Ordinary Shares
of the Company for the time being in issue (save as regards any
right attaching to such shares by reference to a record date prior
to the date of
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<PAGE>
allotment) and application will be made to the London Stock Exchange
for such shares to be admitted to the Official List.
(vi) Limits of the Sharesave Scheme
The Sharesave Scheme is subject to the following dilution limits:
;
(a) in any period of 10 years not more than 10 per cent. of the
issued ordinary share capital of the Company may be placed
under option or issued under the Sharesave Scheme or any other
employee share scheme of the Company; and
(b) the Board may impose a lower limit on the number of shares
which may be placed under option under the Sharesave Scheme on
any occasion.
The above limits exclude options granted prior to the admission of
the Ordinary Shares to the Official List on 15 February 1996.
(vii) Variation of share capital
In the event of any variation in the issued ordinary share capital
of the Company, the Board may make such adjustments as it considers
appropriate to the total number of Ordinary Shares subject to any
option and/or the exercise price under any option, provided that any
such adjustment is approved in advance by the Inland Revenue.
(viii) Alteration of the Sharesave Scheme
The Board may at any time alter or add to the Sharesave Scheme.
However, the prior approval of the Company in general meeting must
be obtained in the case of any alteration or addition to the
advantage of participants, except for any minor alteration or
addition to benefit the administration of the Sharesave Scheme, to
take account of any change in legislation, or to obtain or maintain
favourable tax, exchange control or regulatory treatment for
participants. Any alteration requires the prior approval of the
Inland Revenue.
(e) The Stock Purchase Plan
(i) Structure
The Stock Purchase Plan (the "Plan") was adopted at the
extraordinary general meeting on 14 March 1997. The Plan is
available to employees of US subsidiaries of the Company. Under the
Plan, employees are able to purchase Ordinary Shares with the
proceeds of amounts deducted by the employer from the employee's
salary. The Plan qualifies as an employee stock purchase plan under
section 423 of the US Internal Revenue Code of 1986.
(ii) Eligibility
The Plan is open to individuals who are employees of US subsidiaries
of the Company designated by the Board who work at least 20 hours
per week and more than five months in any calendar year.
The Plan is operated by the Remuneration Committee of the Board or
such other committee as is selected by the Board to administer the
Plan (the "Committee").
(iii) Offering of Shares
In order to participate in the Plan individual employees enter into
an agreement authorising deductions to be made from their salary on
each salary payment date during an offering period (an "Offering
Period"). The Plan is implemented by Offering Periods determined by
the Committee, which may be either consecutive or concurrent. The
duration of an Offering Period may not exceed 27 months, and the
Offering Periods begin within the period of six weeks commencing
with the business day next following the date on which the Company
announces its results for any period or at any other time when the
circumstances are considered by the Committee to be sufficiently
exceptional to justify the beginning of an Offering Period.
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<PAGE>
Individuals may elect to have up to $500 per month (or such other
amount set by the Committee) of their salary deducted for this
purpose. Payroll deductions continue throughout the Offering Period.
A participant may discontinue participation in the Plan at any time
during the Offering Period.
(iv) Grant of Option
Each eligible employee participating in the Plan during an Offering
Period is granted an option to purchase, on the last day of that
Offering Period, a number of Ordinary Shares determined by dividing
the total payroll deductions accumulated during the Offering Period
and retained in the participant's account, by the applicable
purchase price. Unless otherwise determined by the Committee, no
interest is payable on the payroll deductions. During each Offering
Period no employee is permitted to purchase more than 7,000 Ordinary
Shares (or such other amount as is set by the Committee prior to
commencement of the Offering Period).
The purchase price is set by the Committee and is equal to either 85
per cent. of the market value of the Ordinary Shares on the first or
last day of the Offering Period, whichever is the lower, or such
higher price as is set by the Committee at the beginning of the
Offering Period.
(v) Exercise
Unless a participant withdraws from the Plan, the participant's
option is exercised automatically on the last day of the Offering
Period and the maximum number of Ordinary Shares under option are
purchased for that participant at the applicable purchase price. No
fractions of shares are purchased. Any remaining amounts are
retained in the participant's account for the subsequent Offering
Period unless the participant withdraws from the Plan.
(vi) Termination of Employment
On a participant ceasing to be an employee for any reason, the
participant will be deemed to withdraw from the Plan and the payroll
deductions credited to that participant's account but not used to
exercise the option will be returned to the participant.
(vii) Limits on the Plan
The maximum number of Ordinary Shares made available for sale under
the Plan is 21,000,000. In addition, limits equivalent to those
described in paragraph (d)(vi) above in relation to the Sharesave
Scheme apply in relation to the Plan.
Rights to exercise options may not be assigned, transferred or pledged or
otherwise disposed of in any way.
(viii) Adjustments
The number of Ordinary Shares which an employee is permitted to
purchase in any Offering Period and the price per share of Ordinary
Shares covered by each option will be adjusted in the event of any
subdivision or consolidation of the ordinary share capital or
capitalisation.
(ix) Alteration of the Plan
The Board may at any time terminate or amend the Plan. However the
provisions relating to the identity of the participants, limitations
on the number or amount of Ordinary Shares subject to the Plan, the
maximum entitlement of participants or the basis for determining a
participant's entitlement cannot be altered to the advantage of
participants without the prior approval of shareholders in general
meeting (except for minor amendments to benefit the administration
of the Plan, to take account of a change in legislation or to obtain
or maintain favourable tax, exchange control or regulatory treatment
for participants in the Plan or for the Company or any member of the
Group).
(f) The SLI Plan
Following the acquisition of Pharmavene Inc., the SLI Plan (then called
the Pharmavene 1991 Stock Option Plan) was amended such that options over
Pharmavene common stock were
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<PAGE>
replaced by options over Ordinary Shares. Under the SLI Plan, options to
acquire a total of o Ordinary Shares at prices ranging from $o to $o per
share are currently outstanding.
It is intended that no further options will be granted under the SLI Plan.
(g) The SRI Plan
Following the acquisition of Richwood Pharmaceutical Company, Inc.
("Richwood") the SRI Plan (then consisting of the 1993 Plan and the 1995
Plan) was amended such that options over Richwood common stock were
replaced by options over Ordinary Shares under the SRI Plan. Options to
acquire a total of o Ordinary Shares at prices ranging from $o to $o per
share are currently outstanding.
It is intended that no further options will be granted under the SRI Plan.
(h) The Long Term Incentive Plan
(i) Structure
The Long Term Incentive Plan (the "Plan") was adopted at the general
meeting on 30 June 1998.
Under the Plan, the Company may at any time, with the approval of
the Remuneration Committee, grant, or request that trustees grant,
an award to any full-time employee of any member of the Group.
(iii) Eligibility
An award may be made to any full-time employee (including a director
who is also such an employee) of a member of the Group on the terms
set out in the Plan and upon such other terms as the Board (or a
committee appointed by the Board) may specify, provided that no
award may be granted to an employee who is within two years of his
contractual retirement age.
(iii) Awards
An award will specify whether it is a "Share Option" (under which
the shares are transferred only on its exercise) or a "Conditional
Allocation" (under which the shares automatically become
transferable when the relevant conditions are satisfied).
An award may only be granted within six weeks following the approval
and adoption of the Plan by shareholders and thereafter within six
weeks following an announcement of the Company's results for any
period or if the Board considers that there are exceptional
circumstances. No awards may be granted more than ten years after
the date on which the Plan is approved and adopted by the Company in
general meeting.
The number of Ordinary Shares in respect of which awards may be
granted to any person in any financial year of the Company shall not
exceed such number as has a market value equal to 100 per cent. (or
such lower percentage as, in the opinion of the Remuneration
Committee, reflects other incentive opportunities which may be
available to him in respect of that financial year) of his
contractual basic salary (excluding bonuses, allowances and benefits
in kind) payable as at the award date. For this purpose, the "market
value" is taken to be an amount equal to the average of the closing
prices of Ordinary Shares (as derived from the Official List) on the
five dealing days last preceding the award date.
(iv) Exercise of Awards
The exercise of an award granted as a Share Option shall be effected
by giving notice in writing to the Company. An award granted as a
Share Option may only be exercised, and where an award is granted as
a Conditional Allocation Ordinary Shares shall only be transferable,
to the extent that certain conditions are satisfied.
In addition, unless the Board specifies otherwise at the time an
award is made, an award granted as a Share Option may be exercised
only on or after the fourth anniversary of the award date and, where
an award is granted as a Conditional Allocation, Ordinary Shares in
respect of which the award is made will be transferable following
the fourth anniversary of the award date.
(v) Termination of Employment
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If any participant ceases to be a director or employee of a
member of the Group or any other specified body corporate (a "Group
Member"), by reason of injury, ill-health, disability or redundancy
or by reason that his office or employment is in a company which
ceases to be a Group Member, or relates to a business or part of a
business which is transferred to a person who is not a Group Member,
then an award granted as a Share Option may be exercised within the
12 months after his ceasing to be a director or employee, but may
not be exercised after the expiry of that period. If any participant
ceases to be a director or employee of a Group Member for any other
reason, any award granted as a Share Option or any award granted as
a Conditional Allocation shall not be transferable unless permitted
by the Board.
(vi) Adjustments
Where Ordinary Shares have or may become transferable to a person in
respect of an award, the Board may determine that, in substitution
for his right to acquire such a number of those shares as the Board
may decide, he will be paid by way of additional emoluments a sum
equal to a cash equivalent of that number of shares.
The number of Ordinary Shares in respect of which any award granted
as a Share Option may be exercised or the number of Ordinary Shares
which may be transferred in respect of an award granted as a
Conditional Allocation may be adjusted in the event of any
sub-division or consolidation of the ordinary share capital of the
Company or a capitalisation.
(vii) Alteration of the Plan
The Board may at any time alter the Plan or the terms of any award
granted under it. However, the provisions of the Plan relating to
eligibility, limits on participation, the maximum individual
entitlement, the grant or exercise of awards or their adjustment may
not be altered without the prior approval by ordinary resolution of
the members of the Company in general meeting (except for any minor
alterations to benefit the administration of the Plan, to take
account of a change in legislation or to obtain or maintain
favourable tax, exchange control or regulatory treatment for
participants or any member of the Group).
(i) The 2000 Executive Share Option Scheme
The 2000 ESO Scheme enables options over ordinary shares in the
Company to be granted to selected employees and full-time directors.
It is divided into two parts: Part A which is intended to be
approved by the Inland Revenue, offering favourable tax treatment on
the exercise of options and Part B, the unapproved part.
No payment will be required for the grant of options.
Part A of the 2000 ESO Scheme
(i) Eligibility
With the approval of the Remuneration Committee (the""Committe"")
options to acquire ordinary shares may be granted to selected
employees and full-time directors of the Company or any of its
subsidiaries (other than those due to retire within two years of
grant).
(ii) Grant of options
Options may be granted by the Committee within 42 days of
shareholder approval of the 2000 ESO Scheme or within 42 days of the
date Part A is approved by the Inland Revenue. Thereafter, options
may be granted within 42 days following the announcement by the
Company of its results for any period, or at any other time when the
Committee believes that exceptional circumstances exist to justify
the grant of options. No option may be granted more than 10 years
after the date of adoption of the 2000 ESO Scheme. The Committee
will, however, review the operation of the 2000 ESO Scheme after
five years to consider whether it still meets the Compan"s business
needs.
Options will be neither transferable (other than to personal
representatives following death) nor pensionable.
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<PAGE>
Options granted under the 2000 ESO Scheme will normally be
exercisable only if performance-related criteria imposed by the
Committee are met (see section (viii) below).
(iii) Exercise price
The price per share at which ordinary shares may be acquired upon
the exercise of an option will be determined by the Committee at the
time of grant but will be not less than the higher of:
a) the market value of a share on the date of grant (or, if the
grantor determines, the average of the market values on the
three dealing days immediately preceding the date of grant or
the market value at such earlier time or times as may be
determined by the grantor and previously agreed in writing
with the Inland Revenue); and
b) in the case of an option to subscribe for shares, the nominal
value of such shares.
(iv) Exercise of options
An option will normally only be exercisable after the third
anniversary of the date of grant and cannot in any event be
exercised later than the tenth anniversary of the date of grant. In
addition, an option will not normally be capable of exercise on any
occasion unless the relevant performance conditions (referred to in
section (viii) below) are met, unless:
a) any optionholder dies, when his or her option will become
immediately exercisable by his or her personal representatives
for a period of 12 months thereafter;
b) any optionholder leaves the Company or any of its subsidiaries
by reason of injury, disability, or redundancy; or
c) if the company or business with which he or she holds office
or employment is sold outside the Company or any of its
subsidiaries when he or she may exercise his or her option by
the latest of (i) 12 months after the date of termination of
employment; (ii) 42 months after the grant date; and (iii) 42
months after the last tax-relieved exercise by him of an
Inland Revenue approved company share option.
If an optionholder leaves employment at retirement he or she may
also exercise his or her option during this period, but in these
circumstances only if the relevant performance criteria have been
satisfied.
If an optionholder leaves the Group for any other reason, he or she
may only exercise an option with the approval of the Committee.
Early exercise of options within specified periods is also permitted
in the event of a take-over or reconstruction or winding up of the
Company, subject to meeting the relevant performance criteria unless
the Committee resolves otherwise. In the case of a take-over or
reconstruction options may be exchanged for options over the
acquiring compan"s shares, but only with the consent of the
acquiring company.
(v) Rights attaching to the Shares
All ordinary shares issued upon the exercise of options will rank
equally in all respects with other ordinary shares for the time
being in issue (save as regards any rights attaching to such
ordinary shares by reference to a record date prior to the allotment
of such shares) and application to the UK Listing Authority will be
made for any allotted shares to be admitted to the Official List.
(vi) Variation of share capital
In the event of any variation in the share capital of the Company,
the Committee may adjust the total number of ordinary shares subject
to any option and/or the exercise price under any option with the
prior approval of the Inland Revenue.
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<PAGE>
(vii) Alteration of the Executive Scheme
The Committee may, at any time alter or add to the 2000 ESO Scheme
but may not make any alteration or addition to the advantage of
participants without the prior approval of shareholders in general
meeting except for minor amendments (i) for the purpose of
administration of the 2000 ESO Scheme or (ii) to take account of any
change in legislation or (iii) to obtain or maintain favourable tax
or regulatory treatment for optionholders, the Company or any of its
Subsidiaries. No alteration may be made to the disadvantage of
participants without their majority consent. Any alterations require
the approval of the Inland Revenue.
(viii) Performance conditions
The performance conditions to be imposed on options will be
determined by the Committee before such options are granted. In
making such determination the Committee will have regard to the
guidance issued from time to time by the bodies representing
institutional shareholders, insofar as they are appropriate to the
Company, and will seek to identify factors which represent a fair
measure of performance and genuinely reflect the efforts and
achievements of the Compan"s management.
It is proposed that the performance conditions applying to the first
grant of options under the 2000 ESO Scheme will relate to the
compound growth in the Compan"s share price. If the compound rate
increase is at least 20.5 per cent per annum over a minimum
three-year measurement period an option will become exercisable in
whole. If it increases by at least 14.5 per cent per annum
(compounded) 60 per cent of an option will become exercisable. If
these conditions are not met after the initial three year
measurement period, they will thereafter be tested quarterly by
reference to compound annual share price growth over an extended
period. If the share price does not meet these conditions the
relevant option will lapse.
The Committee will from time to time be able to vary any such
performance conditions as they apply to outstanding options if, in
their opinion, to do so would more effectively achieve the object of
affording realistic incentives to optionholders.
The Committee have discretion to decide the form* in which
performance conditions will be set, taking into account particularly
their accounting and taxation consequences.
*In accordance with the requirements of fixed compensation plan accounting under
US GAAP, any option would be exercisable with no restriction other than that the
optionholder remains employed within the Group for a period of six weeks prior
to the expiry of the option
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(ix) Scheme limits
(a) Individual Limits
An individua"s participation under Part A of the ESO Scheme is
limited so that the aggregate market value of shares (measured at
the date of grant) comprised in subsisting approved options held by
him/her cannot exceed ((pound)30,000. For these purposes, the value
of the ordinary shares under option will be their market value at
the date of the option grant.
A limit on the value of ordinary shares which may be put under
option on an annual basis to an individual under the 2000 ESO Scheme
will be set from time to time by the Committee in the light of
current market practice and the markets in which the Company
operates. No option will be granted in excess of this limit without
the prior approval of the Committee.
(b) Overall Limit
The number of shares issuable pursuant to options granted under the
2000 ESO Scheme, when aggregated with the number of shares issued or
issuable pursuant to rights granted under all group employee"
shareschemes, within the previous period of ten years, may not
exceed 10 per cent of the Compan"s issued ordinary share capital at
the date of grant. For the purpose of this limit options which lapse
will cease to count and any options granted prior to or on the date
of the Company obtaining its listing with the UK Listing Authority
will not be included.
Part B of the ESO Scheme
The provisions of Part A of the 2000 ESO Scheme above apply equally to options
granted under Part B, with the following exceptions:
(a) the provisions of Part A requiring Inland Revenue consent for any actions
of the Committee will not apply to options granted under Part B;
(b) the limit referred to in section (ix) (i) of Part A will not apply to
options granted under Part B;
(c) options under Part B of the ESO Scheme may be transferable at the consent
of the Board; and
(d) the maximum number of shares over which incentive stock options within the
meaning of section 422 of the United States of America Internal Revenue
Code of 1986 (as amended) may be granted under Part B of the 2000 ESO
Scheme is 25,000,000.
(j) The Roberts Stock Option Plans
Roberts currently has options outstanding under the Roberts' 1996 Equity
Incentive Plan which encompasses the Roberts Restricted Stock Option Plan.
Following the merger between Roberts' and the Company on 23 December 1999 no
further options have been or will be granted under this plan. Under the Roberts'
Stock Option Plan, options to acquire a total of o Ordinary Shares at prices
ranging from $o to $o per Share are outstanding at o.
In relation to the Roberts Stock Option Plans which continued after the Merger
with the Company, such plans have been amended and each of the options granted
under them were assumed by the Company on merger with Roberts. As a result of
such amendments these options now apply to the number of Ordinary Shares
(adjusted to the nearest whole share) in the Company equal to the product of (1)
the number of all options such option holder held immediately prior to the
Roberts merger and (2) the exchange ratio of 3.128. The exercise price for each
option (adjusted to the nearest pence), was, in most cases, equal to the
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<PAGE>
old exercise price per share of common stock of Roberts divided by such exchange
ratio. The duration and other terms of each option have remained.
(k) BioChem's stock option plan
BioChem's Directors, Officers, Employees and Consultants Stock Option Plan
(the""BioChem Stock Option Plan"") provides for the granting of options to
purchase a maximum of 19,250,000 common shares of BioChem. Beneficiaries of the
BioChem Stock Option Plan are the directors, officers and full-time employees or
regular employees of BioChem or its subsidiaries as well as external
consultants, engaged by BioChem or its subsidiaries to provide ongoing bona fide
management and consulting services.
The board of directors of BioChem, at its discretion, grants options following
the recommendation of the Compensation Committee of BioChem which administers
the BioChem Stock Option Plan. The exercise price of the options, which cannot
be lower than the market price (as defined under the BioChem Stock Option Plan)
on the day immediately preceding the day on which the options are granted, must
be paid upon exercise. An option must be exercised within ten years from the
date of its grant. The board of directors of BioChem determines at the time of
the grant of options their vesting and exercise conditions.
6. Principal subsidiaries and undertakings
The principal subsidiaries of the Company are as follows:
<TABLE>
<S> <C> <C> <C>
Subsidiary/undertaking Country of Registered Office Field of activity
incorporation
Roberts Pharmaceutical New Jersey 7900 Tanners Gate Pharmaceutical
Corporation Drive Marketing and
Florence Development
Kentucky 41042
USA
Shire Pharmaceuticals England and Wales East Anton Pharmaceutical
Limited Andover Hants marketing
SP10 5RG
Shire Pharmaceutical England and Wales East Anton Pharmaceutical
Development Limited Andover Hants development
SP10 5RG
Shire International Netherlands Olympic Plaza Licensing company
Licensing BV Fred.
Roeskestraat 123
1076 EE Amsterdam/
PO Box 75032
1070 AA Amsterdam
Netherlands
Shire Richwood Inc. Kentucky, USA 7900 Tanners Gate Pharmaceutical
Drive, marketing
Florence,
Kentucky,
41042, USA
Shire Laboratories Inc. State of Delaware, 1550 East Gude Pharmaceutical
USA Drive development
Rockville
MD 20850 USA
Shire Supplies, US, LLC State of Delaware, Corporation Trust Manufacturing
USA Center procurement
Wilmington
Delaware 19801
USA
Shire France S.A France 160 rue de Paris Pharmaceutical
92100 Boulogne marketing and
Bilancourt, France distribution
Shire Germany Strasse 126, Pharmaceutical
D-50679 Koln marketing and
Germany distribution
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Shire Italia SpA Italy Via Lucchese, 80 Pharmaceutical
Sestro Fiorentino, marketing and
Florence distribution
Italy
Shire PharmaIberia, S.L. Spain Nunez de Balbao 81 Pharmaceutical
28006 Madrid marketing and
Spain distribution
Shire Canada Inc Canada o Pharmaceutical
manufacturing and
marketing
Shire Pharmaceutical US o Pharmaceutical
Development US Inc development
</TABLE>
All of the Group's subsidiary undertakings are beneficially owned (directly or
indirectly) as to 100 per cent. and are all consolidated in the results of the
Group.
7. Premises
The principal premises occupied by the Group are as follows:
<TABLE>
<CAPTION>
Property and Tenure Description Date of Lease Length of Lease Annual Rent
<S> <C> <C> <C> <C>
Hampshire International Office N/A N/A N/A
Business Park, Chineham, accommodation
Basingstoke, Hampshire 35,029 sq ft
RG24 8EP Freehold 7 acre site
Planning consent
for a further
70,000 sq ft of
office
accommodation
East Anton Court, Office 5 December 1997 10 years from (pound)138,382
Icknield Way, accommodation 24 June 1997
Andover, Hampshire 17,460 sq. ft
SP10 5RG-- leasehold
1550 East Gude Drive, Offices and 1 May 1995 5 years from $637,336
Rockville MD 20850 laboratories 1 May 1995
USA-- leasehold 44,500 sq. ft
7900 Tanners Gate Drive, Office 1 April 1999 4 years from $146,403
Florence, Kentucky accommodation 1 April 1999
41042, USA 11,000 sq. ft
1901 Research Blvd 16,379sq.ft 1 July 2000 8 1/2 years from 1 $425,854
Rockville July 2000
7900 Tanners Gate Drive, Office 1 March 1999 34 months from $29,089
Florence, Kentucky Accommodation 1 March 1999
41042, USA 4,490 sq. ft
7900 Tanners Gate Drive, Office 1 January 1999 3 years from $21,931
Florence, Kentucky Accommodation 1 January 1999
41042, USA 3,130 sq. ft
7900 Tanners Gate Drive, Warehouse space 1 January 1999 20 months from $36,760
Florence, Kentucky 5,890 sq. ft 1 May 1999
41042, USA
7900 Tanners Gate Drive, Warehouse space 1 April 1999 54 months from $24,511
Florence, Kentucky 3,930 sq. ft 1 April 1999
41042, USA
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
7900 Tanners Gate Drive, Warehouse space 1 April 1999 33 months from $21,091
Florence, Kentucky 3,380 sq. ft 1 April 1999
41042, USA
7900 Tanners Gate Drive, Warehouse space 1 April 1999 5 years from $15,000
Florence, Kentucky 3,000 sq. ft 1 April 1999
41042, USA
</TABLE>
8. Memorandum and Articles of Association
(a) The objects clause of the Memorandum of Association of the Company
provides that its principal objects include the carrying on of business as
manufacturers, builders and suppliers of and dealers in goods of all
kinds, as chemical engineers and as an investment holding company and
applying for or acquiring patent rights and licences and expending money
in experimenting and testing and making researches, and improving, or
seeking to improve, any patents, inventions or rights which the Company
may acquire.
The objects of the Company are set out in full in paragraph 4(A) of the
Memorandum of Association which is available for inspection at the address
specified in paragraph 17 below.
(b) The Articles of Association of the Company (the "Articles") adopted
pursuant to a special resolution of the Company passed on 7 July, 2000
contain provisions, inter alia, to the following effect:
(i) Voting rights
Subject to any special terms as to voting on which shares may have
been issued or may for the time being be held (of which there are
none at present), or any suspension or abrogation of voting rights
pursuant to the Articles (including in circumstances where a
statutory notice requiring disclosure of beneficial ownership of
shares has not been complied with), at a general meeting every
member present in person shall, on a show of hands, have one vote
and every member present in person or by proxy shall, on a poll,
have one vote for every Ordinary Share of which he is the holder.
(ii) Dividends
Subject to the provisions of the Act and of the Articles, the
Company may by ordinary resolution declare a dividend to be paid to
the members according to their respective rights and interest, but
no dividend shall exceed the amount recommended by the Board. The
Board may declare and pay such interim dividends (including any
dividend payable at a fixed rate) as appear to it to be justified by
the profits of the Company available for distribution.
Except as otherwise provided by the rights attached to shares, all
dividends shall be declared and paid according to the amounts paid
up on the shares in respect of which the dividend is declared and
paid, but no amount paid up on a share in advance of a call shall be
treated as paid up on the share for this purpose. All dividends
shall be apportioned and paid proportionately to the amounts paid up
on the shares during any portion or portions of the period in
respect of which the dividend is paid. All dividends unclaimed for a
period of 12 years after having been declared or due for payment
shall be forfeited and cease to remain owing by the Company.
Without prejudice to the provisions of the Articles, the Board may,
with the prior authority of an ordinary resolution of the Company,
direct that payment of any dividend may be satisfied wholly or in
part by the distribution of specific assets and, in particular, of
paid up shares or debentures of another company. The Board may, with
the prior authority of an ordinary resolution of the Company, offer
holders of a particular class of shares the right to elect to
receive further shares of that class or ordinary shares, in either
case credited as fully paid, instead of cash in respect of all or
part of a dividend.
(iii) Distribution of assets on winding up
On a voluntary winding up of the Company, the liquidator may, on
obtaining any sanction required by law, divide amongst members in
kind the whole or any part of the assets of the Company, whether or
not the assets consist of property of one kind or of
151
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different kinds. For such purpose, the liquidator may set the value
he deems fair on any class or classes of property, and may determine
on the basis of that valuation and in accordance with the then
existing rights of the members how the division is to be carried out
between members or classes of members. The liquidator may not,
however, distribute to a member, without his consent, any asset to
which there is attached a liability or potential liability for the
owner.
(iv) Transfer and issues of shares
Each member may transfer all or any of his uncertificated shares by
means of a relevant system subject to the Uncertificated Securities
Regulations 1999 (as amended) and each member may transfer any or
all of his certificated shares by instrument of transfer in any
usual form or in any other form approved by the Board and the
instrument shall be executed by or on behalf of the transferor and
(in the case of a transfer of a share which is not fully paid) by or
on behalf of the transferee.
Subject to the provisions of the Articles and the requirements of
the London Stock Exchange the Board may, in its absolute discretion
and without giving any reason, refuse to register any transfer of a
certificated share or renunciation to a renounceable letter of
allotment unless all of the following conditions are satisfied:
(a) it is in respect of a share which is fully paid;
(b) it is in respect of a share on which the Company has no lien;
(c) it is in respect of only one class of shares;
(d) it is in favour of a single transferee or renouncee or not
more than four joint transferees or renouncees;
(e) it is duly stamped (if required); and
(f) it is delivered for registration to the registered office of
the Company or such other place as the Board may decide,
accompanied by the certificate for the shares to which it
relates (except in the case of the transfer by a recognised
person where a certificate has not been issued, or in the case
of a renunciation) and such other evidence as the Board may
reasonably require to prove the title of the transferor or
person renouncing and the due execution by him of the transfer
or renunciation or, if the transfer or renunciation is
executed by some other person on his behalf, the authority of
that person to do so.
Unless the Board determines otherwise, or the transfer is an
excepted transfer in accordance with the Articles, the transfer of
shares held by a member who has not complied, in accordance with the
Articles, with a statutory notice requiring disclosure as to the
beneficial ownership of such shares may not be registered.
The Articles do not contain any pre-emption rights relating to the
transfers of shares. The provisions of section 89 of the Act, which
confer on shareholders rights of pre-emption in respect of the
allotment of equity securities which are, or are to be, paid up in
cash, apply to the authorised but unissued share capital of the
Company, save to the extent presently disapplied as referred to in
section 4 sub-paragraph (b)(ii) above.
(v) Variation of rights
(a) Subject to the provisions of the Act the rights attached to a
class of shares may be varied, whether or not the Company is
being wound up, (1) in such a manner (if any) as may be
provided by those rights, or (2), in the absence of provision,
either with the consent in writing of the holders of at least
three fourths of the nominal amount of the issued shares of
that class or with the sanction of an extraordinary resolution
passed at a separate meeting of the holders of the issued
shares of that class validly held in accordance with the
Articles, but not otherwise.
The rights attached to a class of shares are not, unless
otherwise expressly provided in the rights attaching to those
shares, deemed to be varied by the creation or issue of
further shares ranking pari passu with or subsequent to them
or by the purchase or redemption by the Company of its own
shares in accordance with the Act and the Articles.
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(vi) Share capital and changes in capital
(a) The Company may, by ordinary resolution, increase its share
capital; consolidate and divide all or any of its share
capital into shares of a larger amount; sub-divide all or any
of its shares (subject to the provisions of the Act) into
shares of a smaller amount and as part of such sub-division
determine that the shares resulting from such sub-division
have amongst themselves a preference or other advantage or be
subject to a restriction; and cancel any 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.
(b) Subject to the provision of the Act and the rights attached to
existing shares, the Company may, by special resolution,
reduce its share capital, capital redemption reserve and share
premium account in any way.
(c) Subject to the provision of the Act, the Company may purchase
any of its shares of any class (including redeemable shares)
in its own capital in any way.
9. Directors' and other interests
(a) As at o 2001 (being the latest practicable date prior to the publication
of this document), the interests of the Directors, their immediate
families and (so far as is known to them or could with reasonable
diligence be ascertained by the Directors) persons connected (within the
meaning of section 346 of the Act) with the Directors in the issued share
capital of the Company (all of which are beneficial unless otherwise
stated), including (i) those notified to the Company pursuant to section
324 or section 328 of the Act, (ii) those required to be entered in the
register maintained under section 325 of the Act and (iii) those of
connected persons of the Directors which would, if the connected persons
were Directors, be required to be disclosed under (i) or (ii) above, were,
and at the Effective Date (assuming no dealings by the Directors, their
immediate families and any persons connected with them during the period
up to such date) the interests of such persons will be, as follows:
<TABLE>
<CAPTION>
Prior to Merger Following Merger
--------------- ----------------
Number of Number of Number of Number of
Ordinary Shares Ordinary Ordinary Shares Ordinary
Name Shares under Shares under
Option Option
<S> <C> <C>
Dr JH Cavanaugh(1) 8,806,368 --
R Stahel 13,827 1,063,061
AC Russell -- 56,422
Dr JW Totten -- 255,237
Dr BJ Price 31,350 --
Dr B Canavan 3,000 --
Dr ZP Horovitz 3,128 121,210
RM Nordmann 46,968 --
JE Smith 125,120 --
JT Spitznagel 57,624 --
Dr F Bellini -- --
The Hon JA Grant -- --
G Veilleux -- --
</TABLE>
Dr Cavanaugh is the President of HealthCare Ventures LLC, which is the
management company for a number of limited partnerships which have interests in
8,690,090 Ordinary Shares. Dr Cavanaugh is also a general partner in these
partnerships which acquired their Ordinary Shares following the acquisition of
Pharmavene, Inc. 8,690,090 of the Ordinary Shares in which Dr Cavanaugh is
expressed to be interested represent shares held by those partnerships and not
by Dr Cavanaugh personally. The remaining 116,278 Ordinary Shares are held by Dr
Cavanaugh as beneficial owner.
The above figures for Ordinary Shares under option do not take into
account conditional awards
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made under the Long Term Incentive Plan but do take into account options
granted to the Directors under the share option schemes adopted by SHL. On
exercise of options under the share option schemes relating to SHL, the
Directors who hold such options will automatically receive 20 Ordinary
Shares for each share in SHL to which the Directors were originally
entitled under such option. The Directors' interests in Ordinary Shares in
respect of their options over shares in SHL are as follows:
Number of
Shares in SHL Subscription Ordinary Shares
Name under option price per SHL share ((pound)) to be issued
R Stahel 27,000 20 540,000
(b) As at o 2001 (being the latest practicable date prior to the publication
of this document) the interests of the Directors, their immediate families
and (so far as is known to them or could with reasonable diligence be
ascertained by them) persons connected (within the meaning of section 346
of the Act) with them in conditional awards made under the Long Term
Incentive Plan were as follows:
Name Value of Number of Earliest date on which
award Ordinary Shares Award may be awarded
R Stahel (pound) 150,000 32,230 8 April 2003
Dr J W Totten (pound) 71,000 15,255 8 April 2003
R Stahel (pound) 360,050 35,785 28 February 2004
A C Russell (pound) 18,000 1,789 28 February 2004
Dr J W Totten (pound) 200,003 19,881 28 February 2004
(c) Save as disclosed above, none of the Directors (nor any person connected
with any Director within the meaning of section 346 of the Act) has any
interest in the share capital of the Company.
(d) Mr Spitznagel entered into a consultancy agreement with the Company in
December 1999, which provided that;
(i) if he has good reason, as defined in his service agreement with
Roberts Pharmaceutical Corporation, to terminate his employment with
Roberts Pharmaceutical Corporation under his service agreement, then
the Company will cause Roberts Pharmaceutical Corporation to provide
him with the payments and benefits he is entitled to upon a `good
reason' termination;
(ii) Mr Spitznagel would provide consulting services to the Company for
at least 42 months following the acquisition of Roberts
Pharmaceutical Corporation, unless Mr Spitznagel terminates the
consultancy agreement prior to the end of the 42 month upon 30 days
notice; and
(iii) The Company would pay Mr Spitznagel at a rate of (pound)248,000 per
annum for his consulting services, (pound)93,000 per annum as an
office holder, (pound)155,000 per annum to comply with certain
restrictive covenants contained therein and (pound)93,000 per annum
for tax, financial and estate planning advice, life insurance and
health insurance.
(e) Save as disclosed in sub-paragraph (d) above, no Director (or proposed
director) has, or has had, an interest in any transaction which is or was
unusual in its nature or conditions or significant to the business of the
Group effected in the current or immediately preceding financial year or
during an earlier financial year and which remains in any respect
outstanding or unperformed.
(f) There are no outstanding loans granted by any member of the Group to any
of the Directors nor any guarantees provided by any such companies for
their benefit.
154
<PAGE>
(g) (i) On 8 February 1996, the Company entered into a service agreement
with Rolf Stahel, Chief Executive. This Agreement was amended by an
agreement between the Company and Mr. Stahel dated 21 October 1996.
The contract will continue (subject to earlier termination as
provided therein) until terminated by either party giving to the
other 12 months' notice in writing. Mr Stahel currently has an
annual salary of (pound)440,000. Mr Stahel is entitled to receive
such an annual bonus (if any and subject to a maximum of 40 per
cent. of his basic salary) as the Remuneration Committee of the
Company shall determine. The Company is obliged to contribute an
amount equal to 10 per cent. of Mr. Stahel's salary to such pension
scheme as he may specify.
(ii) On 29 October 1999, the Company entered into a service agreement
with Angus Russell, Group Finance Director. The contract will
continue (subject to earlier termination as provided therein) until
terminated by either party giving to the other 12 months' notice in
writing. Mr Russell has an annual salary of (pound)225,000. Mr
Russell is entitled to receive such an annual bonus (if any and
subject to a maximum of 40 per cent. of Mr Russell's basic salary)
as the Remuneration Committee of the Company shall determine. The
Company is obliged to contribute an amount equal to 10 per cent. of
Mr Russell's salary to such pension scheme as he may specify.
Subject to Mr Russell remaining in the employment of the Company, he
will be paid a bonus of (pound)36,000 for the first six months of
his employment of the Company, which will be paid in March 2001. Any
additional payments for the year 2000 do not include any amount for
the first six months of Mr Russell's employment.
(iii) On 30 December 1998, the Company entered into a service agreement
with Dr J W Totten, Group Research and Development Director. The
contract will continue (subject to earlier termination as provided
therein) until terminated by either party giving to the other 12
months' notice in writing. Dr Totten currently has an annual salary
of (pound)260,000. Dr Totten is entitled to receive a bonus (if any
and subject to a maximum of 40 per cent. of his salary) as the
Remuneration Committee of the Company shall determine. The Company
is obliged to contribute an amount equal to 10 per cent. of his
salary to such pension scheme as he may specify.
(iv) Each of the non-executive Directors has received, and each
non-executive Proposed Director of the Company will receive a letter
of appointment from the Company providing for that individual to be
paid an annual fee of (pound)20,000 per annum, payable quarterly in
arrears. The agreement pursuant to this letter of appointment is
terminable by either party giving to the other three months' notice.
(v) The Company also provides each of these executives, his spouse and
children under the age of 18 years with membership of an appropriate
private patients medical plan and also provides each of them with
life assurance cover, membership of any permanent health care scheme
and prolonged disability scheme operated by the Group and Directors
and Officers insurance cover, as well as a company car. The Company
is entitled to terminate each executive's employment with immediate
effect by paying him salary in lieu of notice and a sum (calculated
by multiplying the Relevant Amount by the number of months' notice
which he is entitled to receive at the date of such termination) in
compensation for his immediate loss of his other benefits. The
"Relevant Amount" is the aggregate of all bonuses due to him over
the full period of his employment divided by twice the number of
complete months' service and the total cost to the Company of
providing to him (and where appropriate members of his family) with
the other benefits detailed above during the period of 12 months
immediately preceding such termination divided by 12.
(vi) Save as disclosed in this sub-paragraph (g), no service contract has
been entered into or varied between any Director or Proposed
Director and Shire or any member of the Enlarged Group.
155
<PAGE>
(h) In the year ended 31 December 2000, the total aggregate remuneration,
including benefits in kind and pension contributions, of the Directors
from Shire was (pound)o. Save as disclosed in sub-paragraphs (d) and (g),]
the total emoluments receivable by the Directors will not be varied in
consequence of the Merger and there are no arrangements under which any of
the Directors has agreed to waive any further emoluments.
(i) As at o 2001 (being the latest practicable date prior to the publication
of this document) the Company had been notified pursuant to the Act of the
following interests (within the meaning of Part VI of the Act) in three
per cent. or more of the issued share capital of the Company:
<TABLE>
<CAPTION>
Percentage of
Number of issued share
Shareholder Notes Ordinary Shares capital
<S> <C> <C> <C>
The Capital Group Companies, Inc. (i) 10,762,647 4.21
HealthCare Ventures LLC (ii) 8,690,090 o
Putnam Investment Management, LLC & 17,732,370
The Putnam Advisory Company, Inc. 7.05%
Singapore Investment Corporation Pte (iii) 7,914,123 3.05
Limited
</TABLE>
(i) The Capital Group Companies Inc. interest includes 1,779,600
Ordinary Shares registered to Capital International Limited, 263,713
Ordinary Shares registered to Capital International S.A., 3,700
Ordinary Shares registered to Capital International, Inc. and
8,715,634 registered to Capital Research and Management Company
(ii) HealthCare Ventures LLC interests includes 5,508,032 Ordinary Shares
registered to HealthCare Ventures III, 1,617,528 Ordinary Shares
registered to HealthCare Ventures IV and 1,564,530 Ordinary Shares
registered to HealthCare Ventures V.
(iii) The Singapore Investment Corporation Pte Limited interest includes
418,140 Ordinary Shares registered to the Board of Commissioners of
Currency, Singapore, 5,569,966 Ordinary Shares registered to the
Government of Singapore and 1,926,017 Ordinary Shares registered to
the Monetary Authority of Singapore.
(iv) In addition to the above, the Company has been notified that as at 3
January 2001 Guaranty Nominees Limited held 75,449,440 ordinary
shares which underlie ADRs (representing 29.35per cent. of the total
share capital of the Company) in its capacity as the depositary of
the Company's ADRs. Each ADR equates to three of the Company's
ordinary shares of 5p each.
On Completion of the Merger, assuming an exchange ratio of o and no
exercise of options or rights under the BioChem Stock Option Plans and the
Employee Share Schemes, the following are expected to have interests in
three per cent. or more of the issued share capital of the Company (based
on the interests in the Company shown above and assuming no other changes
in their interests before Completion of the Merger):
Number of Percentage of
Ordinary Shares issued share
Shareholder capital
o o o
(j) Save as disclosed above, the Company is not aware of any person who,
immediately following the Merger, will be directly or indirectly
interested in three per cent. or more of the issued share capital of the
Company or will or could, directly or indirectly, jointly or severally,
exercise control over the Company.
156
<PAGE>
10. Material contracts
The following contracts (not being contracts entered into in the ordinary
course of business) have either been entered into by members of the Group
within a period of two years immediately preceding the date of this
document and are or may be material, or contain provisions under which any
member of the Group has a material obligation or entitlement:
(i) the Merger Agreement;
(ii) the Stock Option Agreement;
(iii) a merger agreement among the Company, Roberts and Ruby Acquisition
Sub Inc., a New Jersey corporation and wholly owned subsidiary of
the Company, made as of 26 July 1999, pursuant to which each Roberts
share issued and outstanding at the effective date (as defined in
the merger agreement) was converted into the right to receive
ordinary shares in the Company. Each Roberts shareholder received
ordinary shares in the Company in accordance with a ratio determined
by the average last reported sale price of ADSs on the NASDAQ
National Market for the 15 consecutive trading days ending on the
third trading day immediately preceding completion (the "Shire Share
Value"). Roberts shareholders could elect to take either Ordinary
Shares or ADSs. The company assumed all Roberts stock option plans
so that option holders under any of the Roberts stock option plans
had their options converted by the same ratio as the Roberts
shareholders above. Each of Shire and Roberts gave certain
warranties;
(iv) [an amended and restated escrow agreement among the company, Star
Bank N.A. (the "Escrow Agent") and James Currie, as the
shareholders' representative on behalf of the Shareholders listed in
that agreement, made as of 25 June 1999 ("the Escrow Agreement"),
pursuant to which the Escrow Agent agreed to hold 1,662,566 Ordinary
Shares in escrow to be released in certain circumstances to the
Company where it, SRI or any of their affiliates listed in that
agreement need to expend moneys in respect of external costs
(including the reasonable fees and expenses of counsel and any
experts, court costs, judgements and settlements) for which SRI, has
not been reimbursed by any other source and where those monies have
been paid by SRI prior to 12 March 2002 and have been incurred
wholly and necessarily (a) in the defence of SRI against any of the
lawsuits relating to phentermine litigation referred to in that
agreement (the "Claims") or (b) settlement of any Claim or as a
result of judicial resolution of any Claim, but excluding costs
internal to SRI for employees or personal or overheads incidental
thereto. On 31 August, 2000, Shire entered into an agreement (the
"Termination Agreement") with the former shareholders of SRI
terminating the Escrow Agreement, pursuant to which 1,622,566
Ordinary Shares placed into escrow at the time of the purchase of
SRI by Shire were released and the Escrow Agreement and the escrow
fund were terminated . Under the terms of the Termination Agreement,
406,064 of the shares held in the escrow fund were sold and the net
proceeds were distributed to Shire. Shire received approximately
US$7 million from the sale of these shares. The remaining 1,216,502
shares were distributed to the former SRI shareholders];
(v) a sale and purchase agreement among Shire Holdings Europe Limited
(the "Purchaser"), Fuisz International Limited (the "Seller") and
Fuisz Technologies Ltd. ("Fuisz Technologies") dated 22 October
1999, pursuant to which the Purchaser acquired Laboratories Murat
SA, Fuisz Pharma Beteiligungs GmbH and Fuisz Technologies Holding
GmbH and agreed to acquire Isotria Farmaceutici SpA from the Seller
and Fuisz Technologies assigned its rights in the trademarks Cebutid
and Cebutin to the Purchaser in consideration for the payment by the
Buyer of $36.2 million and an obligation to pay a further $3.3
million in deferred consideration to Knoll AG (in three stages on or
before 24 November 2001) in respect of the assignment of the
trademarks Cebutid and Cebutin. Each of the Seller and Fuisz
Technologies gave certain representations and warranties and the
Seller gave certain restrictive covenants; and
(vi) an agreement between, inter alia, Shire, Roberts and Shire's United
States subsidiaries as borrowers and DLJ Capital Funding, Inc dated
19 November 1999 providing a $250 million credit facility including
a $125 million five-year revolving credit facility (including a $25
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million letter of credit facility) and a $125 million five-year term
loan facility. The applicable interest rate on the new credit
facility will range between 0.5 per cent and 1.5 per cent over the
higher of the prime rate of DLJ Capital Funding, Inc or the Federal
Funds Rate plus 0.5 per cent or between 1.5 per cent and 2.5 per
cent over the London Interbank Overnight rate (as adjusted in
accordance with the agreement), in each case depending on Shire's
credit rating. All obligations under the new credit facility will be
jointly and severally guaranteed by Shire and by Shire's
subsidiaries (other than the borrowers) and will initially be
secured by all material property owned by Shire and its subsidiaries
and the capital stock of Shire's subsidiaries. If Shire's credit
rating reaches specified levels, the new credit facility will not be
secured. The new credit facility will contain customary covenants.
The terms of the credit agreement will also contain maintenance
tests which will require Shire to maintain a minimum net worth, a
specified leverage ratio and a specified coverage ratio.
(b) The following contracts (not being contracts entered into in the
ordinary course of business) have either been entered into by
BioChem within a period of two years immediately preceding the date
of this document and are or may be material, or contain provisions
under which BioChem has a material obligation or entitlement:
(i) By an agreement dated 31 January 1990 and amended as of 20 November
1995, BioChem licenced to GlaxoSmithKline the worldwide rights, with
the exception of Canada, to develop, manufacture and sell the
nucleoside analog lamivudine marketed as 3TC and Zeffix (3TC and
Zeffix are referred to herein as "lamivudine"). A partnership exists
between GlaxoSmithKline's Canadian subsidiary, GlaxoSmithKline Inc.,
and BioChem to supply, market and sell lamivudine in Canada.
GlaxoSmithKline has agreed to manufacture all the required
lamivudine to be supplied in Canada by the partnership.
In consideration for the grant of such rights, GlaxoSmithKline
agreed to undertake and fund the development of lamivudine and to
pay BioChem a royalty on sales of lamivudine. In addition, it was
agreed that milestone payments would be made to BioChem in
instalments as GlaxoSmithKline progressed in the development and
approval process. The amount of relevant patent prosecution costs
and 50 per cent of milestone payments are deductible from any
royalties payable to BioChem by GlaxoSmithKline. The milestone
payments and its related deductions from royalties have been
completed. The amount of certain contractual costs and certain
litigation costs may be deducted from royalties payable to BioChem
by GlaxoSmithKline. If GlaxoSmithKline terminates the licence
agreements upon certain events of default by BioChem,
GlaxoSmithKline will retain a non-exclusive, paid-up licence from
BioChem to make, have made, use and sell lamivudine worldwide.
(ii) On 31 August 1992, AstraZeneca plc ("Astra") and BioChem entered
into a series of agreements (the "Astra Agreements") providing for
the research development and commercialisation of a new class of
analgesic compounds for the control of pain. Pursuant to the Astra
Agreements, BioChem transferred and assigned its rights to the
relevant proprietary technology to Astra and retained a right to
re-acquire the Canadian rights in exchange for the payment of
royalties to Astra. In addition, a collaborative research agreement
and a supply agreement provide for Astra and BioChem to jointly
research the field of opioid peptides. Astra will retain commercial
rights worldwide except for Canada. In consideration for the grant
of such rights to Astra, Astra made an upfront payment, agreed to
fund research and development, to make milestone payments to BioChem
and to pay BioChem a royalty on future product sales. Astra may, in
its sole discretion, terminate the Astra Agreements. If Astra
discontinues development of products or chooses not to develop
products under the Astra agreements or terminates the Astra
agreements, then BioChem has the option to reacquire the relevant
technology and intellectual property rights subject to certain
royalty obligations to Astra.
On 3 December 1998, BioChem concluded an alliance with
GlaxoSmithKline for the worldwide development, manufacturing and
marketing of BioChem's cell-culture influenza vaccines. Under the
terms of the agreement, after a period of joint development funded
by both parties, BioChem and GlaxoSmithKline will collaborate to
market the products in the United States, while in Europe and the
rest of the world, GlaxoSmithKline will be exclusively responsible
for marketing. In addition, GlaxoSmithKline will be responsible for
manufacturing for markets
158
<PAGE>
throughout the world except Canada. BioChem will benefit from the
sales of the vaccines in the United States and the rest of the
world, excluding Canada, in accordance with a pre-determined
formula. In Canada, BioChem will retain all exclusive rights to the
vaccines, including production and marketing. The agreement also
calls for BioChem to receive up-front and milestone payments from
GlaxoSmithKline.
11. Working capital
The Directors are of the opinion that, having regard to the Enlarged Group's
existing resources, the Enlarged Group has sufficient working capital for its
present requirements, that is for at least the next 12 months from the date of
this document.
12. Indebtedness
At the close of business on o 2001 (being the latest practicable date prior to
the publication of this document) the Enlarged Group had outstanding the
following indebtedness:
<TABLE>
<CAPTION>
Shire BioChem Total
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
[Convertible notes]
[DLJ Credit Agreement]
[Finance lease and hire purchase agreements]
[Notes payable (secured)] -- -- --
========== ========== ==========
Total indebtedness o o o
---------- ---------- ----------
</TABLE>
Save as disclosed above, Shire and BioChem do not have any loan capital
outstanding, or created but unissued, or term loans or any outstanding
mortgages, charges, debentures or other borrowings, or indebtedness in the
nature of borrowing, including bank overdrafts, liabilities under acceptances or
acceptance credits, hire purchase commitments, obligations under finance leases,
guarantees or other contingent liabilities.
At the close of business on o 2001, the Enlarged Group had the following
balances:
<TABLE>
<CAPTION>
Shire BioChem Total
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
Cash, cash equivalents and short term investments o o o
------ ------ ------
</TABLE>
13. Litigation
(a) SRI has been named as a defendant in approximately 3,729 lawsuits, in both
US federal and state courts, which seek damages for, among other things,
personal injury arising from phentermine products supplied for the
treatment of obesity by SRI and several other pharmaceutical companies.
SRI has been sued as a manufacturer and distributor of phentermine, an
anorectic used in the short-term treatment of obesity and one of the
products addressed by the lawsuits. The suits relate to phentermine either
alone or together with fenfluramine or dexfenfluramine. As at [10 January
2001] SRI has been dismissed from 2,178 cases and has not yet been served
in 37 additional cases. As at [10 January 2001] approximately 1,120 cases
are pending dismissal. SRI's products Oby-Cap or Oby-Trim have been
positively identified (or have been specifically alleged to have been
ingested) in 136 cases of which 91 of these cases are still active. The
lawsuits generally allege the following claims:
o the defendants marketed phentermine and other products for the
treatment of obesity and misled users about the products and the
dangers associated with them;
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o the defendants failed adequately to test phentermine individually
and when taken in combination with the other drugs; and
o the defendants knew or should have known about the negative effects
of the drugs and should have informed the public about such risks
and/or failed to provide appropriate warning labels.
(i) SRI became involved with phentermine through its acquisition of
certain assets of Rexar Pharmacal Corp. ("Rexar") in January 1994.
In addition to liability as a result of its own production of
Oby-Cap, plaintiffs may seek to impose liability on SRI as successor
to Rexar. Class certification has been sought for certain of the
claims made against SRI. In addition, pending US federal lawsuits
have been consolidated as a multidistrict litigation in the Eastern
District of Pennsylvania. SRI intends vigorously to defend all the
lawsuits and pursue all available reasonable defences. Legal
expenses have been paid by Eon Labs Manufacturing Inc. ("Eon"), the
supplier to SRI or EON's insurance carriers but such insurance is
now exhausted. Eon has agreed to defend and indemnify SRI in this
litigation pursuant to an agreement dated 30 November 2000 made
between Eon and SRI.
(ii) On 22 September, 2000, a lawsuit was filed against the Company in
the United States District Court for the District of North Dakota.
The suit involves an incident in 1999 in which a young North Dakota
man, Ryan Ehlis, shot and killed his infant daughter and wounded
himself, allegedly as a result of a psychotic reaction to Adderall.
Mr. Ehlis' physician had prescribed Adderall for the treatment of
ADHD. The Company filed its answer to the complaint on 24 November,
2000 and discovery schedules are being developed.
The Company is aware of two further potential cases:
Ms Sharon Curry stabbed her 8 year old daughter to death. No lawsuit
has been filed as yet nor has the Company or Adderall been referred
to in media reports specificallyrelated to this incident. It is
reported that Ms Curry had a history of methamphetamine use.
The Company has received notice of a car accident where a young
child was killed. It has been alleged that the accident was
attributable to Ms Dawn Branson having a psychotic episode due to
the ingestion of Adderall. No lawsuit has been filed as yet.
(b) Save as disclosed in paragraph (a) above, Shire is not engaged in any
legal or arbitration proceedings and no legal or arbitration proceedings
are pending or threatened by or against Shire which may have or have had
during the 12 months prior to the date hereof a significant effect on the
financial position of Shire.
(c) Emory University filed oppositions to two of BioChem's granted patent
applications in Europe which cover oxathiolane nucleosides including
lamivudine and dioxolane nucleosides, including troxacitabine, related
nucleoside analogs and use of these analogs for treating viral infections.
In oral hearings held in 1999, both of these oppositions were dismissed by
the Opposition Division of the European Patent Office. Emory University
has filed an appeal against the dioxolane related decision of the
Opposition Division. Emory University is not pursuing its appeal of the
decision relating to oxathiolanes. Emory University has not to date filed
revocation actions with respect to any BioChem patents that issue in
individual European countries.
In Japan, Emory University filed an opposition to BioChem's granted patent
which covers lamivudine, related analogs and use of the analogs for
treating viral infections. The Trial Board of the Japanese Patent Office
dismissed Emory University's opposition to BioChem's patent covering
lamivudine. Emory University has not to date filed a revocation action
against this patent. Emory University has filed revocation actions in
Australia and South Korea against BioChem's granted patents covering
lamivudine. BioChem is aggressively defending these patents.
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On 23 July 1996, Emory University filed a complaint in the United States
alleging infringement from the commercialisation of Epivir by BioChem and
GlaxoSmithKline, BioChem's exclusive licencee in the US, of an Emory
University US patent granted that same day. BioChem considers this patent
infringement suit to be without merit and has successfully challenged the
validity of Emory University's patent.
On 19 May 1998, the United States Patent and Trademark Office (the
"USPTO") declared an interference between the Emory University patent that
is the subject of a lawsuit and a pending patent application of BioChem.
The USPTO accorded BioChem the earlier priority date and then accorded
BioChem senior party status in the interference. BioChem has vigorously
challenged the Emory University patent in the interference, through to a
final hearing on 10 November 1999. The Board of Patent Appeals and
Interferences issued a decision on 21 December 2000 invalidating Emory's
patent. There can be no assurance that Emory University will not appeal
the decision and that Emory's patent will not be reinstated.
Emory University has obtained a granted patent application in Europe
relating to oxathiolane nucleosides, including lamivudine. BioChem and
GlaxoSmithKline filed an opposition to this grant and are vigorously
opposing the grant.
An examined patent application, filed by Emory University claiming
lamivudine, was successfully opposed by BioChem in Australia. Emory
University has filed an appeal from that decision in the Federal Court of
Australia. BioChem also filed an appeal from certain portions of the
decision. An examined patent application filed by Emory University
claiming lamivudine was also opposed by BioChem in Japan. The opposition
was dismissed in April 1999 because it was improperly filed by a
representative who had previously represented Emory. Notwithstanding the
dismissal, the Japanese Patent Office issued an ex-officio action
rejecting all of Emory University's claims. An examined patent application
filed by Emory claiming lamivudine has also been opposed by BioChem and
GlaxoSmithKline in South Korea. BioChem is aware that Emory University has
filed patent applications in other countries, which BioChem believes may
claim similar subject matter. BioChem intends to challenge vigorously such
patent applications. On 23 November 1999, the USPTO declared an
interference between BioChem's hepatitis B patent for lamivudine and a
patent application filed by Yale University ("Yale") claiming methods of
treating hepatitis B using lamivudine. BioChem believes that this
application is licenced to Vion Pharmaceuticals, Inc. ("Vion"), formerly
know as OncoRx, Inc., a New Haven, Connecticut-based company. BioChem
believes that its patent is valid and intends to vigorously defend the
patent. On 14 April, 2000, the USPTO declared a further interference
between BioChem's hepatitis B patent for lamivudine and a patent
application by GlaxoSmithKline claiming methods of treating hepatitis B
using lamivudine. BioChem is not aware of corresponding patent
applications by Yale University or Vion in countries other than the United
States.
(d) Save as disclosed in paragraph (c) above, BioChem is not engaged in any
legal or arbitration proceedings and no legal or arbitration proceedings
are pending or threatened by or against BioChem which may have or have had
during the 12 months prior to the date hereof a significant effect on the
financial position of BioChem.
14. Significant changes
(a) [Save as disclosed in the paragraph headed "Information on Shire" on pages
o and o of Part I of this document,] there has been no significant change
in the financial or trading position of the Group since o 2000, the date
to which the latest interim results of the Group were prepared.
(b) [Save as disclosed in the paragraphs headed "Information on BioChem" on
pages o and o of Part I of this document,] there has been no significant
change in the financial or trading position of BioChem since o 2000, the
date to which the latest audited results of BioChem were prepared.
15. United Kingdom Taxation
The comments set out below are intended as a general guide to the position under
current UK law and Inland Revenue practice and are subject to changes therein.
They relate only to certain limited
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aspects of the UK taxation treatment of the acquisition of New Ordinary Shares
and/or ADRs pursuant to the Merger and (except so far as express reference is
made to the treatment of non-UK resident holders) to the position of persons who
are resident or ordinarily resident in the UK for tax purposes and who hold
their BioChem Shares or, as the case may be, New Ordinary Shares and/or ADRs
beneficially as an investment. In addition, the comments assume that holders of
ADRs will be treated as the beneficial owners of the Shire Shares represented by
the ADRs for the purposes of UK tax.
Any person who is in any doubt about his own tax position or is subject to
taxation in a jurisdiction other than the UK, should consult an appropriate
independent tax adviser.
(a) Taxation of chargeable gains
(i) Disposal of BioChem Shares and Acquisition of New Ordinary Shares
and/or ADRs A BioChem Shareholder will be treated as making a
disposal of his BioChem Shares for the purposes of UK taxation in
respect of chargeable gains to the extent that he receives New
Ordinary Shares and/or ADRs in exchange for his BioChem Shares
pursuant to the Merger. Such disposal may result in a liability to
UK taxation in respect of chargeable gains, subject to any available
exemption or relief. A BioChem Shareholder who receives New Ordinary
Shares and/or ADRs in exchange for his BioChem Shares pursuant to
the Merger will, for the purposes of UK taxation in respect of
chargeable gains, be treated as having acquired those New Ordinary
Shares and/or ADRs for a consideration equal to the value of his
BioChem Shares at the time when he is deemed to acquire the New
Ordinary Shares and/or ADRs for the purposes of UK taxation in
respect of chargeable gains.
(ii) Disposal of New Ordinary Shares and/or ADRs A subsequent disposal of
all or any of the New Ordinary Shares and/or ADRs by an individual
or corporate shareholder may result in a liability to UK taxation in
respect of chargeable gains, depending on the particular
circumstances of the shareholder concerned.
(b) Taxation of income
(i) Dividends
Shire is not required to withhold any amounts in respect of taxation
from its dividend payments.
A Shire Shareholder or ADS holder who is an individual resident for
tax purposes in the UK and who receives that dividend will be
entitled to a tax credit equal to one-ninth of the dividend. The
individual will be taxable on the total of the dividend and the
related tax credit (the "gross dividend"), which will be regarded as
the top slice of the individual's income. The tax credit will,
however, be treated as discharging the individual's liability to
income tax in respect of the gross dividend, unless and except to
the extent that the gross dividend falls above the threshold for the
higher rate of income tax, in which case the individual will, to
that extent, pay tax on the gross dividend calculated as 32.5 per
cent. of the gross dividend, less the related tax credit. So, for
example, a dividend of (pound)80 will carry a tax credit of
(pound)8.89 and the income tax payable on the dividend by an
individual liable to income tax at the higher rate would be 32.5 per
cent. of (pound)88.89, namely (pound)28.89, which after deducting
the tax credit of (pound)8.89, leaves a higher rate income tax
charge of (pound)20.
With the exception of investors holding their New Ordinary Shares
and/or ADRs in Shire through personal equity plans or Individual
Savings Accounts, shareholders or ADS holders which are not liable
to income tax or corporation tax on dividends received by them will
not be entitled to claim payment of the tax credit in respect of
those dividends. Charities will, however, receive some compensation
for the loss of their entitlement to claim payment of tax credits
under a transitional relief expiring on 5 April 2004.
A Shire Shareholder or ADS holder that is a company resident for tax
purposes in the UK will not generally be taxable on any dividend it
receives from Shire.
The right of a Shire Shareholder or ADS holder who is not resident
for tax purposes in the UK to a tax credit in respect of a dividend
received from Shire and to claim payment of any part of that tax
credit will depend on the existence and terms of any double taxation
convention between the UK and the country in which the holder is
resident. Holders who are not solely resident in the
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UK should consult their own tax advisers concerning their tax
liabilities on dividends received, whether they are entitled to
claim any part of the tax credit and, if so, the procedure for doing
so. Such holders should note, however, that most holders who are
entitled to claim payment of a portion of tax credits pursuant to
double taxation conventions are only able to obtain a payment of
less than 1 per cent. of the dividends to which the tax credits
relate.
(c) Share Option Schemes
[BioChem Optionholders who acquired or acquire their BioChem Shares under
the BioChem Stock Option Plans are reminded that special tax provisions
may apply to them on their exercise of options or on any disposal of
shares acquired on exercise, including provisions imposing a charge to UK
income tax.]
(d) Stamp Duty and Stamp Duty Reserve Tax ("SDRT")
These comments are intended as a guide to the general position and do not
relate to persons such as market makers, brokers, or dealers, to whom
special rules apply.
(i) New Ordinary Shares
No stamp duty or SDRT will generally be payable by BioChem
Shareholders as a result of receiving New Ordinary Shares pursuant
to the Merger.
A conveyance or transfer on sale of New Ordinary Shares other than
to a depositary or clearance service or their nominees or agents
will be liable to ad valorem stamp duty, generally at the rate of
0.5 per cent of the consideration for the transfer (rounded up to
the nearest (pound)5). An unconditional agreement for the transfer
of such shares will be liable to SDRT, generally at the rate of 0.5
per cent. of the consideration for the transfer, but such liability
will be cancelled if the agreement is completed by a duly stamped
transfer within six years of the date of the agreement or, if the
agreement was conditional, the date the agreement became
unconditional. Where the SDRT is paid, the SDRT will, provided that
a claim for repayment is made, be repaid (but not necessarily
interest and penalties). Stamp duty and SDRT are normally paid by
the purchaser.
Where New Ordinary Shares are transferred (a) to, or to a nominee
for, a person whose business is or includes the provision of
clearance services, or (b) to, or to a nominee for, a person whose
business is or includes issuing depositary receipts, stamp duty at
the higher rate of 1.5 per cent. (rounded up to the nearest
(pound)5) at current rates, of the consideration payable or, in
certain circumstances, the value of the New Ordinary Shares
concerned is payable. Where New Ordinary Shares are transferred or
issued (a) to, or to a nominee for, a person whose business is or
includes the provision of clearance services, or (b) to, or to a
nominee for, a person whose business is or includes issuing
depositary receipts, stamp duty or SDRT at the higher rate of 1.5
per cent. at current rates, of the consideration payable or, in
certain circumstances, the value of the New Ordinary Shares
concerned is payable. Shire has agreed to pay any SDRT that becomes
payable on the issue of New Ordinary Shares to a depositary pursuant
to the Merger.
(ii) ADRs
No SDRT will be payable on an agreement to transfer ADRs and
provided that an instrument transferring ADRs is executed and
retained at all times outside the UK, it should not in practice be
necessary to pay stamp duty in respect of such transfer.
Any person who is in any doubt as to his or her tax position or who is subject
to tax in a jurisdiction other than the UK should consult an appropriate
professional adviser without delay.
16. Miscellaneous
(a) The total expenses of, and incidental to, the Merger which are payable by
the Company (including professional fees and printing costs) are estimated
to be approximately (pound)o (excluding value added tax). The total amount
payable to financial intermediaries by way of fees in relation to the
Merger as estimated to amount to approximately (pound)o.
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(b) The Consideration Shares will be issued fully paid in registered form.
None of the Consideration Shares has been marketed and none will be
available to the public. An application has been made to the UK Listing
Authority for the New Ordinary Shares to be admitted to the Official List
and to the London Stock Exchange for the New Ordinary Shares being issued
to be admitted to trading on the London Stock Exchange.
(c) The Company's registrars are Lloyds TSB Registrars, The Causeway,
Worthing, West Sussex BN99 6DA.
(d) The Company has been advised by Deutsche Bank in relation to the Merger.
Deutsche Bank 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.
(e) Merrill Lynch and West LB Panmure have given and have not withdrawn their
written consent to the issue of this document and the references to their
names thereto in the form and context in which they are included.
(f) The registered auditors of the Company are Arthur Andersen, Chartered
Accountants, of Abbott House, Abbey Street, Reading, Berks. who have
audited accounts of the Company for the three years ended 31 December
2000.
(g) The independent certified public accountants for BioChem are Raymond
Chabot Grant Thornton who have audited the financial statements of BioChem
for the two years ended 31 December 2000.
(h) Arthur Andersen have given and not withdrawn their written consent to the
inclusion in Parts III and VII of this document of their letters relating
to the accounting policies' reconciliation and pro forma financial
information, and the references thereto and to their name, in the form and
context in which they are included. They have also authorised the contents
of their letters referred to above for the purposes of section 152(1)(e)
of the Financial Services Act 1986.
(i) Each of the Consideration Shares is to be issued credited as fully paid.
Based on the average last reported sale price of ADSs on the NASDAQ
National Market for the 15 consecutive days ending on the third trading
day immediately preceding Completion (the "Average Shire ADS Price") being
less than $o and a maximum possible number of BioChem Shares of o at the
Effective Time, the aggregate consideration represented by the number of
Consideration Shares to be issued in the Merger would be (pound)o based on
the Company share price of o as at o 2001 (being the latest practicable
date prior to the publication of this document). This would represent a
premium of op per Ordinary Share over the nominal value of 5p. Based on
the Average ShireADS Price being greater than $o, the aggregate
consideration represented by the number of Consideration Shares to be
issued in the Merger would be (pound)o based on the Company share price of
o as at o 2001 (being the latest practicable date prior to the publication
of this document). This would represent a premium of op per Ordinary Share
over the nominal value of 5p.
17. Documents available for inspection
Copies of the following documents may be inspected at the offices of Slaughter
and May, 35 Basinghall Street, London EC2V 5DB and the Company's registered
office during normal business hours on any weekday (Saturdays, Sundays and
public holidays excepted) from the date of this document until the conclusion of
the Extraordinary General Meeting:
(i) the Memorandum and Articles of Association of the Company;
(ii) the audited consolidated accounts of the Group for the years ended 31
December 1999 and 31 December 2000;
(iii) the material contracts referred to in paragraph 10 above;
(iv) the service agreements referred to in paragraph 9(g) above;
(v) the rules of the Employee Share Schemes and the BioChem Stock Option Plans
referred to in paragraph 5 above;
(vi) the letters of consent referred to in paragraphs 16(d) and 16(e) above;
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(vii) the audited financial statements of BioChem for the years ended 31
December 2000 and 31 December 1999;
(viii) the proforma statement of combined net assets referred to in Part VIII;
(ix) the reconciliation of BioChem's figures to US/UK GAAP referred to in Part
IV;
(x) letters from Arthur Andersen referred to in paragraph 16(h) above;
(xi) the Merger Agreement; and
(xii) this document.
o 2001
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DEFINITIONS
In this document, the following expressions have the following meanings, unless
the context requires otherwise:
<TABLE>
<S> <C>
"2000 ESO Scheme" the Shire Pharmaceuticals Group plc 2000 Executive Share Option
Scheme (parts A and B)
"1993 Plan" the Richwood 1993 Stock Option Plan
"1995 Plan" the Richwood 1995 Stock Option Plan
"Acquisition Proposal" any proposal or offer with respect to a merger, reorganisation,
share exchange, consolidation, business combination,
recapitalisation, liquidation, dissolution, or similar
transaction involving BioChem or any purchase or sale of the
consolidated assets of BioChem and its subsidiaries, taken as a
whole, having an aggregate value of 50per cent. or more of the
market capitalisation of BioChem, or any purchase or sale of, or
tender or exchange offer for, 50per cent. or more of the equity
securities of BioChem, excluding the Arrangement
"Admission" admission of the New Ordinary Shares to the Official List
"ADR" American Depository Receipt, the evidentiary document for an
underlying holding of one or more ADS(s)
"Arrangement" the plan of arrangement, pursuant to section 192 of the CBCA,
involving Shire, BioChem and Exchangeco
"Average Shire ADS Price" has the meaning set out in paragraph 16(i) of Part VIII of this
document
"BioChem" BioChem Pharma Inc.
"BioChem Optionholders" holders of BioChem Options
""BioChem Rightholders" [o]
"BioChem Shareholders" holders of BioChem Shares
"BioChem Shares" the outstanding common shares in the capital of BioChem
"BioChem Stock Option Plan" BioChem's Stock Option Plan
"BioChem Stock Option Plans" the Biochem Stock Option Plan, the BioChem Warrants and
a memorandum of undertaking dated September 1997 with
two senior employees of BioChem relating to options to
acquire 40,000 BioChem Shares
"BioChem Warrants" the right to receive warrants in two tranches in 2001
and 2002 in favour of the Government of Canada giving
the right to acquire BioChem Shares made pursuant to an
agreement dated 31 March 2000
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
"Callco" 3829359 Canada Inc, a company incorporated under the laws of
Canada and a wholly-owned subsidiary of Shire
"Canadian GAAP" generally accepted accounting principles in Canada
"CBCA" Canada Business Corporations Act
"Chase H&Q" Chase H&Q, a division of Chase Securities
"CliniChem" CliniChem Development Inc., a company incorporated under the
laws of Canada and a wholly-owned subsidiary of BioChem
"Closing" the closing of the certificate of arrangement issued under the
CBCA giving effect to the Arrangement
"Companies Act" or the "Act" the Companies Act 1985 (as amended)
"Deutsche Bank" Deutsche Bank AG, London
the directors of the Companythe company, whose names are set out
"Directors" or "Board" in paragraph 2(a) of Part IX of this document
"DLJ" DLJ Capital Funding, Inc.
"Effective Date" the date of the Closing
"Effective Time" 12.01 a.m. (Montreal time) on the Effective Date
"Employee Share Schemes" the Executive Scheme, the 1993 Plan, the 1995 Plan, the
SHL Scheme, the SPC Scheme, the SLI Plan, the Sharesave
Scheme, the Stock Purchase Plan, the Long Term Incentive
Plan, the ESO Scheme, Roberts' Incentive Stock Option
Plan, Roberts' 1996 Equity Incentive Plan and Roberts'
Restricted Stock Option Plan
"Enlarged Group" Shire as enlarged by the Merger
"Exchangeable Share Support Agreement" the Exchangeable Share Support Agreement between Shire,
Callco and Exchangeco to be entered into on the date of
the certificate of arrangement issued under the CBCA
giving effect to the Arrangement
"Exchangeco" 3829341 Canada Inc., a company incorporated under the laws of
Canada and a wholly-owned subsidiary of Shire
"Executive Scheme" the Shire Pharmaceuticals Executive Share Option Scheme (parts A
and B)
"Extraordinary General Meeting" the extraordinary general meeting to, inter alia,
approve the Merger, notice of which is given at the end
of this document
"GlaxoSmithKline" GlaxoSmithKline plc, a company incorporated in England
"Group" Shire and its subsidiary undertakings
"HSR Act" the United States Hart-Scott-Rodino Act Antitrust
Improvements Act of 1976, as now in effect and as it may
be amended from time to time prior to the Effective Date
</TABLE>
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<TABLE>
<S> <C>
"Interim Order" means the interim order of the Quebec Superior Court in respect
of the Arrangement dated o 2001
"London Stock Exchange" or "LSE" London Stock Exchange plc
"Long Term Incentive Plan" the Shire Pharmaceuticals Group plc Long Term Incentive Plan
"Material Adverse Effect" with respect to any entity, any event, change,
circumstance or effect that is or is reasonably likely
to be materially adverse to (i) the business, financial
condition, results of operations or prospects of such
entity and its subsidiaries taken as a whole, other than
any event, change, circumstance or effect relating to
(a) the economy or financial markets in general, (b) the
industries in which such entity operates in general and
not specifically relating to (or having the effect of
specifically relating to or having a materially
disproportionate effect (relative to most other industry
participants) on) such entity, (c) the announcement or
pendency of the Arrangement, (d) changes after the date
hereof in laws or regulations relating to the
development, manufacture or distribution of products for
the treatment of disease or (e) a change in the market
price or trading volume of the shares of such entity
(provided that a change in the market price or trading
price may be used, if applicable, as evidence of some
other event, change, circumstance or effect that has or
is reasonably likely to have a Material Adverse Effect)
or (ii) the ability of such entity to consummate the
transactions contemplated by this Agreement; all
references to Material Adverse Effect on Shire contained
in the Merger Agreement being deemed to refer solely to
Shire and its subsidiaries without including its
ownership of BioChem and its subsidiaries after the
Arrangement
"Merger" the proposed merger of Shire with BioChem pursuant to the terms
of the Merger Agreement
"Merger Agreement" the merger agreement dated as of 10 December 2000 among
BioChem, Shire and Exchangeco, a summary of which is
contained in Part VIII of this document
"Merrill Lynch" Merrill Lynch & Co. Inc in its capacity as adviser to BioChem
and Merrill Lynch International in its capacity as broker to
Shire, as the context requires
"New Ordinary Shares" the o new Ordinary Shares to be issued pursuant to the Merger
Agreement
"Official List" the Official List of the UK Listing Authority
"Option Agreement" o
"Ordinary Shares" ordinary shares of 5p each in the capital of the Company
"Proposed Directors" the proposed directors of the Company, being those
persons other than the Directors whose names are set out
in paragraph 2(a) of Part VIII of this document.
"Roberts" Roberts Pharmaceutical Corporation, a wholly-owned subsidiary
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
of Shire
"Roberts Stock Option Plans" Roberts' Incentive Stock Option Plan, Roberts' 1996 Equity
Incentive Plan and Roberts' Restricted Share Option Plan
"SEC" the Securities and Exchange Commission of the United States
"Sharesave Scheme" the Shire Pharmaceuticals Sharesave Scheme
"Shire" or "Company" Shire Pharmaceuticals Group plc, a company incorporated in
England
"Shire ADSs" or "ADSs" American Depository Shares, issuable upon deposit of
Ordinary Shares, each representing three Ordinary Shares
"Shire Board" or "Board" the Directors whose names are set out in paragraph 2(a)
of Part IX of this document, including the Proposed
Directors
"Shire Consideration Shares" or the New Ordinary Shares, new ADSs and new Shire Exchangeco
"Consideration Shares" Shares to be issued pursuant to the Merger Agreement
"Shire Exchangeco Shares" the exchangeable shares to be created in the capital of
Exchangeco, exchangeable for New Ordinary Shares or new
ADSs in accordance with the rights attaching to such
exchangeable shares
"Shire Group" Shire and its subsidiaries and subsidiary undertakings
"Shire Laboratories" or "SLI" Shire Laboratories Inc., a wholly-owned subsidiary of the
Company into
"Shire Shareholders" the holders of Ordinary Shares
"SHL" Shire Holdings Limited, a whollyowned subsidiary of the Company
"SHL Scheme" the Shire Holdings Limited Share Option Scheme
"SLI Plan" the Pharmavene 1991 Stock Option Plan (as amended)
"SPC Scheme" the Imperial Pharmaceutical Services Limited Employee Share
Option Scheme (Number One)
"SPC" Shire Pharmaceutical Contracts Limited, a wholly-owned
subsidiary of the Company
"SPD" Shire Pharmaceutical Development Limited, a wholly-owned
subsidiary of the Company
"Special Voting Shares" the special voting shares of op in the capital of the Company
to be issued, credited as fully paid, pursuant to the Merger
"SPL" Shire Pharmaceuticals Limited, a wholly owned subsidiary of the
Company
"SRI Plan" the 1993 Plan and the 1995 Plan
"SRI" Shire Richwood Inc., [now known as Shire US] a wholly owned
subsidiary of the Company
</TABLE>
169
<PAGE>
<TABLE>
<S> <C>
"Stock Option Agreement" the Stock Option Agreement entered into by the Company
and BioChem dated 10 December 2000, a summary of which
is contained in Part o of this document
"Stock Purchase Plan" the Shire Pharmaceuticals Group plc Employee Stock Purchase Plan
"Transaction" the transactions contemplated by the Merger Agreement
and the Arrangement, whereby, among other things, Shire
becomes, indirectly through its subsidiaries, the sole
beneficial holder of the BioChem Shares outstanding
after giving effect to the Arrangement.
"UK GAAP" generally accepted accounting principles in the United Kingdom
"UK Listing Authority" the Financial Services Authority acting in its capacity
as the competent authority for the purposes of Part IV
of the Financial Services Act 1986 and in the exercise
of its function in respect of the admission to the
Official List otherwise than in accordance with Part IV
of the Financial Services Act 1986
"United Kingdom" or "UK" means the United Kingdom of Great Britain and Northern Ireland
"United States" or "US" the United States of America and its territories and possessions
and all other areas subject to its jurisdiction
"US GAAP" generally accepted accounting principles in the United States
"USPTO" the United States Patent and Trademark Office
"US Securities Act" the US Securities Act of 1933, as amended
"West LB Panmure" West LB Panmure Limited
</TABLE>
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EXCHANGE RATES
Unless otherwise stated, values throughout this document have been translated
from Canadian dollars to US dollars (for illustration purposes only) using an
exchange rate of US$1: CAN$1.47 and from US dollars to UK sterling (for
illustrative purposes only) using an exchange rate of (pound)1: US$1.44.
Unless stated otherwise, "US$" or "$" refers to the currency of the United
States of America, "CAN$" refers to the currency of Canada and "(pound)" refers
to the currency of the United Kingdom.
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GLOSSARY
Product, compound or technical Description and/or use
term
ADHD Attention Deficit Hyperactivity Disorder, a
CNS disorder characterised by inattention,
implusivity and hyperactivity. It is
primarily diagnosed in children.
Alzheimer's disease A condition first described by the German
physician, Alois Alzheimer. The term Senile
Dementia of the Alzheimer Types (SDAT) is
used to cover dementias related to specific
degenerative changes in the brain described
by Alzheimer.
Symptoms include loss of memory (especially
for recent events), confusion and
disorientation in terms of time and place,
impaired concentration, restlessness and
anxiety. it is a relentlessly progressive
disease leading eventually to coma and
death, usually from urinary or respiratory
infection.
In Alzheimer's disease the areas of the
brain in which acetylcholine is the
neurotransmitter are most affected.
Analgesic A medicine which relieves pain.
Anti-Invective Drugs designed to combat the opportunistic
diseases which affect HIV/AIDS sufferers.
Antiretroviral Drugs designed to combat the development of
HIV/AIDS after exposure to the virus.
Bi-polar disease A manic depressive disorder.
Carbatrol Shire's patented formulation of the compound
carbamazepine, for the treatment of
epilepsy.
Central Nervous System Disorders Disorders of the brain and spinal cord.
("CNS")
Diagnostics The identification of distinctive symptoms
or characteristics of a disease.
Epilepsy An episodic disturbance of consciousness
during which generalised convulsions may
occur.
Galantamine One of Shire's drug candidates; a
cholinesterase inhibitor undergoing clinical
trials for Alzheimer's disease and Chronic
Fatigue Syndrome amongst other applications.
Generic drug A non-branded prescription medicine.
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Haematology The brand of physiology which relates to
blood.
Hepatitis B A disease which attacks the liver often
causing cirrhosis of the liver or liver
failure.
Histology The science of organic tissues; that brand
of anatomy or of biology which is concerned
with the minute structure of the tissues of
animals and plants.
Hyperphosphataemia An excess of phosphates in the blood.
Hypotension Blood pressure below the expected normal
range.
Indication A disease or system target for a drug.
Inflammatory bowel disease Ulcerative colitis and Crohn's disease.
Irritable Bowel Syndrome A digestive disorder causing change or
disruption of the normal bowel habit.
Ischaemic stroke Damage caused by interruption of the blood
supply to the brain.
Foznol A compound Shire is developing aimed at
improving upon present therapies used to
regulate blood phosphate levels in chronic
kidney failure patients.
Lead Optimisation The process by which the lead compound is
developed or enhanced.
Leukemia A cancer-like disease of the white blood
cells.
Marketing authorisation A grant of licence by a governmental
regulatory authority giving permission to
market a pharmaceutical product.
Metabolic diseases Disorders in which the body's ability to
process certain chemical reactions is
disturbed.
Metabolism (drug) The modification of a substance in the body,
often by the liver.
NDA New Drug Application. The application
submitted to and reviewed by the FDA showing
the data on the quality, safety and efficacy
of a chemical entity. Approval of a NDA
allows marketing of the product.
Oncology The brand of medical science relating to
tumours.
Osteoporosis A disease in which calcium and protein are
progressively lost from bones until they
become brittle and liable to fracture.
Pharmacological The branch of medical science relating to
drugs and their uses.
Phase I Clinical trials normally conducted in
healthy human volunteers following
pre-clinical trials.
Phase II Clinical trials to assess short term safety
and preliminary efficacy in a limited
number of patients with the relevant
disease.
Phase III Clinical trials to undertake a comprehensive
evaluation of safety and efficacy in
patients with the relevant disease.
Phase IV Clinical trials performed after marketing
authorisation designed to
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monitor drug use in the clinical setting.
Placebo An inactive agent used in clinical studies
as a control with which to compare a
presumed active compound.
Platelet A type of blood involved in clotting.
Preclinical trials Studies of compounds undertaken in the
laboratory, in isolated tissues or in living
animals.
Product licence The marketing authorisation for a drug from
a governmental regulatory authority.
Prostatic/Prostate cancer Cancer of the prostate gland.
Registration The legal process by which a drug is
approved by governmental agencies for
marketing in a given country or group of
countries.
Stroke An apoplectic or paralytic seizure.
Thrombocythemia A condition of overproduction of blood
platelet cells without a recognisable cause
often leading to the formation of dangerous
blood clots.
Ulcerative colitis A drug used to dissolve blood clots.
SPD 502 A compound Shire is developing for the
treatment of ischaemic stroke.
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Shire Pharmaceuticals Group plc
(Registered in England and Wales with registered number 2883758)
Notice of Extraordinary General Meeting
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Shire
Pharmaceuticals Group plc (the "Company") will be held at o on o 2001 at 3.00pm
for the purposes of considering and, if thought fit, passing the following
resolutions, of which the resolution numbered 1 will be proposed as an ordinary
resolution and the resolution numbered 2 as a special resolution:
ORDINARY RESOLUTION
THAT:
(a) the authorised share capital of the Company be increased from
(pound)20,000,000 to (pound)o by the creation of o new ordinary shares of
5p each forming a single class with the existing ordinary shares of 5p
each in the capital of the Company;
(b) the proposed acquisition by the Company of BioChem Pharma Inc.
("BioChem"), on the terms and subject to the conditions of the Merger
Agreement (as defined in the Company's circular to shareholders dated o
2001 (the "Circular"), a copy of which, initialled by the Chairman of the
meeting for the purposes of identification, has been produced to the
meeting), including the conversion of options and rights held by BioChem
option holders and right holders, respectively, over BioChem shares into
options and rights, respectively, over ordinary shares of the Company, be
and is hereby approved and the directors of the Company be and are hereby
authorised to take all necessary or appropriate steps to complete the same
and give effect thereto with such modifications not, in the opinion of the
directors, materially adverse to the Company as they shall think fit; and
(c) in addition and without prejudice to all existing authorities, the
directors of the Company be generally and unconditionally authorised for
the purposes of section 80 of the Companies Act 1985 to exercise all the
powers of the Company to issue and allot relevant securities (within the
meaning of that section) up to an aggregate nominal amount of (pound)o for
a period expiring (unless previously renewed, varied or revoked by the
Company in general meeting) 15 months after the date of the passing of
this resolution or at the conclusion of the Annual General Meeting of the
Company following the passing of this resolution, whichever is earlier,
save that the Company may before such expiry make an offer or agreement
which would or might require relevant securities to be allotted after such
expiry and the directors of the Company may allot relevant securities in
pursuance of such an offer or agreement as if the authority conferred
hereby had not expired;
(d) the relevant number of existing authorised but unissued ordinary shares of
5p each in the capital of the Company be and are hereby divided into
shares (of an aggregate nominal amount equal to the sum of the nominal
amounts of all the ordinary shares thus divided) (such shares being
designated the "Special Voting Shares"). For the purposes of this
resolution, the "relevant number" of such ordinary shares shall be the
smallest number of such ordinary shares necessary to be divided to give
rise to such number of Special Voting Shares as will be equal to the
number of issued and outstanding Shire Exchangeco Shares (as defined in
the Circular) immediately after the Closing (as defined in the Circular);
(e) the rights and restrictions attaching to the Special Voting Shares shall
be as set out below:
(A) Income
the holder of the Special Voting Shares shall not be entitled to any
dividends or distributions in respect of such shares;
(B) Capital
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the holder of the Special Voting Shares shall be entitled to receive out
of any winding up of the Company an amount equal only to the aggregate
nominal amount of such shares and only after holders of ordinary shares of
5p each in the capital of the Company have received an amount equal to the
nominal amount of such shares held by them;
(C) Transfer
the directors of the Company shall decline to register any transfer of any
of the Special Voting Shares unless the transfer is to a company which
replaces the Trustee (as defined in the Circular) pursuant to the terms of
the Voting and Exchange Trust Agreement (as defined in the Circular);
(D) Voting Rights
(i) the holder of the Special Voting Shares shall be entitled to receive
notice of and to attend and vote at any general meeting of the
Company as follows:
(a) on a show of hands, the holder of the Special Voting Shares
shall have one vote in addition to the votes which may be cast
by a holder of Shire Exchangeco Shares (other than the Company
or any of its subsidiaries, subsidiary undertakings or
associated undertakings) (a "Beneficiary") (or its nominee) on
such show of hands as proxy for the holder of the Special
Voting Shares; and
(b) on a poll the holder of the Special Voting Shares shall have
three votes for every Shire Exchangeco Share then outstanding
(A) that is owned by Beneficiaries and (B) as to which the
holder of the Special Voting Shares has received valid voting
instructions from the holders of the Shire Exchangeco Shares
for the purposes of the Voting and Exchange Trust Agreement;
(ii) the holder of the Special Voting Shares shall on a poll be entitled
to cast the votes attaching to such shares on any resolution for or
against such resolution (such that some of such votes may be cast
for, some of such votes may be cast against, and some of such votes
may not be cast at all on, such resolution) in such proportions as
it may determine;
(iii) if so instructed by a Beneficiary, the holder of the Special Voting
Shares shall be entitled to appoint that Beneficiary, or such other
person as that Beneficiary nominates, as proxy to attend and to
exercise personally in place of the holder of the Special Voting
Shares that number of votes equal to three times the number of Shire
Exchangeco Shares held by the Beneficiary (the "Beneficiary Votes").
A proxy need not be a member of the Company. A Beneficiary (or his
nominee) exercising its Beneficiary Votes shall have the same rights
as the holder of the Special Voting Shares to speak at the meeting
in favour of any matter and to vote on a show of hands or on a poll
in respect of any matter proposed.
(iv) the holder of the Special Voting Shares shall be entitled to demand
a poll at any general meeting of the Company; and
(vi) a proxy received from the holder of the Special Voting Shares will
be valid for the purposes of any poll at any general meeting of the
Company if it is received before the closing of the poll to which it
relates; and
(E) Class Rights
any amendment to, or removal of, or alteration of the effect of (which for
the avoidance of doubt shall be taken to include the ratification of any
breach of) all or any of [articles o and o]
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of the articles of association of the Company as in force at the date of
this resolution shall be deemed to be a variation of the rights of the
Special Voting Shares and shall accordingly only be effective with the
consent in writing of the holder of the Special Voting Shares and without
such consent shall not be done, or caused or permitted to be done, and the
holder of the Special Voting Shares shall withhold such consent save as
directed by the directors of the Company.
SPECIAL RESOLUTION
THAT:
in substitution for all existing authorities save for, and without prejudice to,
resolution 17 passed at the annual general meeting of the Company held on 7 July
2000 at 11.00 am, the directors of the Company be and they are hereby empowered
pursuant to section 95 of the Companies Act 1985 to allot equity securities
(within the meaning of section 94(2) of the Companies Act 1985) of the Company
pursuant to the authority conferred by the passing of resolution 16 passed on 7
July 2000 2000 as if section 89(1) of the Companies Act 1985 did not apply to
such allotment provided that this power:
(i) shall expire five years after the date of the passing of this
resolution, save that the Company may make an offer or agreement
which would or might require equity securities to be allotted after
such expiry and the directors of the Company may allot equity
securities pursuant to any such offer or agreement as if the power
conferred hereby had not expired; and
(ii) shall be limited to:
(a) allotment of equity securities where such securities have been
offered (whether by way of a rights issue, open offer or other
pre-emptive offer) to holders of ordinary shares in proportion
(as nearly as may be) to their existing holdings of ordinary
shares but subject to the directors of the Company having a
right to make such exclusions or other arrangements in
connection with such offering as they may deem necessary or
expedient:
(i) to deal with equity securities representing fractional
entitlements;
(ii) to deal with ordinary shares represented by depository
receipts; and
(iii) to deal with legal or practical problems under the laws
of, or the requirements of any recognised regulatory
body or any stock exchange in, any territory; and
(b) allotments of equity securities for cash otherwise than
pursuant to paragraph (a) up to an aggregate nominal amount
of (pound)o.
Dated: o 2001
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Registered office By Order of the Board
East Anton N C Harris
Andover
Hampshire Secretary
SP10 5RG
United Kingdom
Notes:
(1) A member of the Company entitled to attend and vote at the above
Extraordinary General Meeting may appoint one or more proxies to attend
and, on a poll, to vote instead of him/her. A proxy need not be a member
of the Company.
(2) Shareholders should note that in order to have the right to attend and
vote at the Extraordinary General Meeting, their holding must be entered
in the Company's share register by no later than 3.00 pm on o 2001.
178
