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SCHEDULE 14A
RULE 14A-101
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
THERAPEUTIC ANTIBODIES INC.*
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] 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:
- --------------------------------------------------------------------------------
* This proxy statement also constitutes the prospectus of Proteus
International plc. Accordingly, Proteus is the registrant with respect
to the Form F-4 Registration Statement (No. 333-85347) filed under the
Securities Act of 1933 with the Securities and Exchange Commission on
August 16, 1999 to register the ordinary shares of Proteus to be
issued to stockholders of Therapeutic Antibodies Inc. pursuant to the
Agreement and Plan of Merger to which this proxy statement relates.
<PAGE> 2
THERAPEUTIC ANTIBODIES INC.
1207 17TH AVENUE SOUTH
SUITE 103
NASHVILLE, TENNESSEE 37212 USA
Dear Stockholder:
The board of directors of Therapeutic Antibodies Inc. has unanimously
approved a business combination with Proteus International plc to be effected by
way of a merger.
Upon completion of the merger, stockholders of Therapeutic Antibodies will
receive 1.163 ordinary shares of Proteus for each share of Therapeutic
Antibodies common stock they own. Therapeutic Antibodies stockholders will own
approximately 38.4% of Proteus after the merger and the related equity
financing.
Your receipt of Proteus ordinary shares in the merger may or may not be
taxable to you, depending upon the relative market values of Proteus and
Therapeutic Antibodies at the time of the merger. We explain the material tax
consequences of the merger beginning on page 71.
We cannot complete the merger unless the holders of Therapeutic Antibodies
common stock approve and adopt the merger agreement. You will be entitled to
vote on the merger agreement at the 1999 annual meeting of Therapeutic
Antibodies stockholders. Notice of the date, time and place of the annual
meeting is included on the next page. Whether or not you plan to attend the
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. Your vote is very important.
The accompanying proxy statement/prospectus gives you detailed information
about the proposed merger. We encourage you to read this entire document
carefully.
On behalf of the board of directors of Therapeutic Antibodies, I urge you
to vote in favor of the merger agreement.
Stuart M. Wallis
Chairman
PLEASE PAY PARTICULAR ATTENTION TO THE "RISK FACTORS" SECTION BEGINNING ON
PAGE 19 WHICH DESCRIBES RISKS THAT YOU SHOULD CONSIDER IN DECIDING WHETHER TO
VOTE IN FAVOR OF THE MERGER AGREEMENT.
Therapeutic Antibodies common stock is listed on the London Stock Exchange
which requires the following statements: THIS DOCUMENT IS IMPORTANT AND NEEDS
YOUR IMMEDIATE ATTENTION. WHEN CONSIDERING WHAT ACTION TO TAKE YOU ARE
RECOMMENDED TO CONTACT YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR
OTHER INDEPENDENT INVESTMENT ADVISER.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE
PROTEUS ORDINARY SHARES TO BE ISSUED IN THE MERGER OR DETERMINED THAT THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated August 18, 1999, and is first
being mailed to stockholders on or about August 19, 1999.
<PAGE> 3
THERAPEUTIC ANTIBODIES INC.
1207 17th Avenue South
Suite 103
Nashville, Tennessee 37212 USA
-------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 13, 1999
To the Stockholders of Therapeutic Antibodies Inc.:
Notice is hereby given that the 1999 annual meeting of stockholders of
Therapeutic Antibodies Inc. will be held at the University Club of Nashville,
2402 Garland Avenue, Nashville, Tennessee, on September 13, 1999, at 8:00 a.m.,
Central Time, for the following purposes:
1. To approve and adopt a merger agreement which provides for:
(a) the merger of Therapeutic Antibodies with and into a
wholly-owned subsidiary of Proteus International plc; and
(b) the conversion of each share of Therapeutic Antibodies common
stock into 1.163 Proteus ordinary shares.
A copy of the merger agreement is attached as Annex A to the
accompanying proxy statement/prospectus;
2. To elect four (4) directors;
3. To ratify the appointment of the accounting firm of
PricewaterhouseCoopers LLP as independent auditors of Therapeutic
Antibodies and its subsidiaries for Therapeutic Antibodies' 1999 fiscal
year; and
4. To transact such other business as may properly come before the
meeting or any adjournment of the meeting.
Only holders of Therapeutic Antibodies common stock at the close of
business on August 9, 1999 are entitled to notice of, and to vote at, the
meeting and any adjournments or postponements of the meeting.
Approval and adoption of the merger agreement requires the affirmative vote
of the holders of a majority of the outstanding shares of Therapeutic Antibodies
common stock entitled to vote at the meeting. Proteus has entered into voting
agreements with executive officers and directors of Therapeutic Antibodies and
certain of their affiliates who in the aggregate owned approximately 10.65% of
the outstanding shares as of the record date. These stockholders have agreed to
vote to approve and adopt the merger agreement.
UNDER DELAWARE LAW, STOCKHOLDERS OF THERAPEUTIC ANTIBODIES HAVE CERTAIN
RIGHTS OF APPRAISAL IN CONNECTION WITH THE MERGER AS DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
Information regarding the merger, the merger agreement, Therapeutic
Antibodies, Proteus and related matters is contained in the accompanying proxy
statement/prospectus and the attached annexes, which are incorporated by
reference in this joint proxy statement/prospectus and form a part of this
notice.
By Order of the Board of Directors
Stuart M. Wallis
Chairman
Nashville, Tennessee
August 18, 1999
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED
ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE ANNUAL MEETING.
IF YOU WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE
PROXY IS EXERCISED.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 2
The Companies............................................. 2
Reasons for the Merger.................................... 2
The Annual Meeting........................................ 2
The Merger................................................ 3
The Equity Financing...................................... 8
Risk Factors.............................................. 8
Forward-Looking Statements May Prove Inaccurate........... 8
Structure of the Merger................................... 10
Currencies and Exchange Rates............................. 11
Summary Selected Historical and Pro Forma Financial
Data................................................... 11
Comparative Per Share Data................................ 15
Comparative Market Price Data and Dividend Information.... 17
RISK FACTORS................................................ 19
Risks Relating to the Companies........................... 19
Risks Relating to the Merger.............................. 23
FORWARD LOOKING STATEMENTS.................................. 25
THE THERAPEUTIC ANTIBODIES ANNUAL MEETING................... 26
General................................................... 26
Matters to be Considered at the Annual Meeting............ 26
Record Date; Voting Rights; Voting at the Meeting......... 26
Voting of Proxies......................................... 27
Solicitation of Proxies................................... 27
Proposal 1: Approval and Adoption of the Merger
Agreement.............................................. 28
Proposal 2: Election of Directors......................... 28
Proposal 3: Selection of Independent Accountants.......... 29
THE PROTEUS EXTRAORDINARY GENERAL MEETING................... 31
Resolutions Proposed...................................... 31
Required Vote............................................. 32
Resolutions Required for the Merger....................... 32
BACKGROUND OF AND REASONS FOR THE MERGER.................... 33
Background of the Merger.................................. 33
Reasons for the Merger.................................... 36
Corporate Benefits........................................ 36
Scientific and Development Benefits....................... 36
Corporate Development and Direct Shareholder Benefits..... 37
Opinion of Financial Advisor to Therapeutic Antibodies.... 39
Analysis of Circumstances Surrounding the Merger.......... 45
Interests of Certain Persons in the Merger................ 48
THE MERGER AND MERGER AGREEMENT............................. 50
The Merger................................................ 50
Merger Consideration...................................... 50
Treatment of Therapeutic Antibodies Stock Options,
Warrants and Convertible Notes......................... 50
Procedures for Exchange of Stock Certificates; Fractional
Shares................................................. 51
Representations and Warranties............................ 52
Certain Covenants......................................... 53
</TABLE>
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Conditions to Obligations to Effect the Merger............ 55
Termination; Termination Fees............................. 57
Fees and Expenses Generally; Amendment and Waiver......... 60
Voting Agreements......................................... 60
Appraisal Rights of Therapeutic Antibodies Stockholders... 61
Accounting Treatment...................................... 63
Regulatory Matters........................................ 63
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.................... 64
MATERIAL TAX CONSEQUENCES................................... 71
United States Federal Income Tax Consequences to U.S.
Stockholders of the Merger and Exchange of Therapeutic
Antibodies Common Stock for Proteus Ordinary Shares.... 72
United States Federal Income Tax Consequences to U.S.
Stockholders of the Ownership of Proteus Ordinary
Shares................................................. 76
United States Federal Income Tax Consequences to Non-U.S.
Stockholders........................................... 78
United Kingdom Tax Consequences of the Ownership of
Proteus Ordinary Shares................................ 79
U.K. Taxation of Chargeable Gains -- U.K. Holders of
Proteus Shares......................................... 81
U.K. Taxation of Chargeable Gains -- U.S. Holders of
Proteus Shares......................................... 82
U.K. Stamp Duty and Stamp Duty Reserve Tax................ 82
THE EQUITY FINANCING........................................ 83
DESCRIPTION OF PROTEUS BUSINESS............................. 84
General................................................... 84
Overview and Recent Developments.......................... 84
Core Technologies......................................... 85
Human Pharmaceuticals..................................... 86
New Projects.............................................. 88
Other Projects............................................ 89
Intellectual Property..................................... 90
Principal Licensing and Other Agreements.................. 91
Competition............................................... 93
Properties................................................ 94
Employees................................................. 94
Litigation................................................ 94
PROTEUS SHARE OWNERSHIP TABLE............................... 95
Beneficial Ownership by Management of Proteus............. 95
SELECTED FINANCIAL INFORMATION OF PROTEUS................... 97
PROTEUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 98
Overview.................................................. 98
Results of Operations..................................... 98
Liquidity and Capital Resources........................... 100
Year 2000................................................. 102
Market Risk............................................... 103
MANAGEMENT OF PROTEUS AFTER THE MERGER...................... 104
Executive Officers and Directors.......................... 104
Compensation of Directors and Executive Officers.......... 106
Options to Subscribe for Proteus Ordinary Shares.......... 107
DESCRIPTION OF THERAPEUTIC ANTIBODIES BUSINESS.............. 108
Overview and Recent Developments.......................... 108
</TABLE>
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<TABLE>
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<S> <C>
Technology and Production................................. 109
Common Production Process................................. 110
Product Development Portfolio............................. 111
Table of Key Products..................................... 112
Products.................................................. 112
Intellectual Property..................................... 115
Third Party Patent Rights................................. 116
Principal Licensing Agreements and Other Collaborative
Agreements............................................. 118
Competition............................................... 119
Employees................................................. 120
Properties................................................ 120
Legal Proceedings......................................... 121
THERAPEUTIC ANTIBODIES STOCK OWNERSHIP TABLE................ 122
SELECTED FINANCIAL INFORMATION OF THERAPEUTIC ANTIBODIES.... 124
THERAPEUTIC ANTIBODIES MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 126
General................................................... 126
Results of Operations..................................... 126
Liquidity and Capital Resources........................... 129
Year 2000 Readiness....................................... 131
Net Operating Loss Carryforwards.......................... 133
Recently Issued Accounting Pronouncements................. 133
Market Risk............................................... 133
THERAPEUTIC ANTIBODIES EXECUTIVE COMPENSATION INFORMATION... 135
Executive Officers........................................ 135
Summary Compensation Table................................ 136
Option Grants in Last Fiscal Year......................... 137
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values................................. 137
Employment/Consultancy Agreements......................... 138
Compensation Committee Interlocks and Insider
Participation.......................................... 139
1990 Stock Incentive Plan................................. 139
1997 Stock Option Plan.................................... 140
401(k) Savings Plan....................................... 140
Report on Executive Compensation.......................... 141
Comparative Performance Graph............................. 143
Certain Relationships and Related Transactions............ 144
GOVERNMENT REGULATION....................................... 145
General................................................... 145
Price Regulation.......................................... 146
United States Regulation.................................. 146
European Union Regulation................................. 150
Regulation in Other Countries............................. 156
EXCHANGE RATES.............................................. 157
DESCRIPTION OF PROTEUS ORDINARY SHARES...................... 158
Dividends................................................. 158
Rights in a Winding Up.................................... 158
Voting.................................................... 158
Preemptive Rights......................................... 159
Variation of Rights and Share Capital..................... 159
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Disclosure of Interests................................... 160
Miscellaneous............................................. 160
COMPARISON OF RIGHTS OF THERAPEUTIC ANTIBODIES STOCKHOLDERS
AND PROTEUS SHAREHOLDERS (U.S. VS. ENGLISH LAW)........... 161
Voting Rights............................................. 161
Action by Written Consent................................. 162
Sources and Payment of Dividends.......................... 162
Rights of Purchase and Redemption......................... 163
Special Meeting of Shareholders........................... 163
Appraisal Rights.......................................... 164
Preemptive Rights......................................... 165
Amendment of Governing Instruments........................ 165
Shareholder Votes on Certain Transactions................. 166
Rights of Inspection...................................... 167
Classification of the Board of Directors.................. 167
Removal of Directors...................................... 168
Vacancies on the Board of Directors....................... 168
Liability of Directors and Officers....................... 168
Indemnification of Directors and Officers................. 169
Shareholders' Suits....................................... 169
Certain Provisions Relating to Share Acquisitions......... 170
Anti-Takeover Provisions.................................. 171
Disclosure of Interests................................... 171
Certain London Stock Exchange Listing Requirements........ 172
ENFORCEABILITY OF CIVIL LIABILITIES......................... 173
LEGAL MATTERS............................................... 173
EXPERTS..................................................... 173
U.K. LISTING PARTICULARS.................................... 174
FUTURE STOCKHOLDER PROPOSALS................................ 174
WHERE YOU CAN FIND MORE INFORMATION......................... 174
GLOSSARY.................................................... 175
FINANCIAL STATEMENTS........................................ F-1
ANNEX A -- AGREEMENT AND PLAN OF MERGER AMONG PROTEUS
INTERNATIONAL PLC, PI MERGER SUB, INC., AND THERAPEUTIC
ANTIBODIES INC............................................ A-1
ANNEX B -- OPINION OF THE BRITISH LINEN BANK LIMITED........ B-1
ANNEX C -- DELAWARE GENERAL CORPORATION LAW SECTION 262..... C-1
ANNEX D -- FORM OF VOTING AGREEMENT......................... D-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to provide brief answers
to certain commonly asked questions. These questions and answers do not, and are
not intended to, address all questions that may be pertinent to Therapeutic
Antibodies stockholders and are qualified in their entirety by reference to the
more detailed information contained elsewhere in this proxy statement/prospectus
and the attached annexes.
Q: WHY ARE PROTEUS AND THERAPEUTIC ANTIBODIES PROPOSING TO MERGE?
A: The directors of Proteus and Therapeutic Antibodies believe that the merger
will create a biotechnology company with a stronger management team and a
broader technology platform and that its increased size and market
capitalization may increase the liquidity in the enlarged group's shares. The
boards believe that the merger will assist the combined company in pursuing
further growth through mergers and acquisitions.
Q: WHEN DO YOU HOPE TO COMPLETE THE MERGER?
A: We plan to complete the merger as soon as possible after the Therapeutic
Antibodies annual meeting, subject to the satisfaction or waiver of the other
conditions to the merger. Although we cannot predict exactly when all of the
conditions to the merger will be satisfied, we hope to complete the merger by
September 15, 1999.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions for
exchanging your stock certificates.
Q: IF MY SHARES ARE HELD IN "STREET" NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares following the
directions provided by your broker. Without instructions, your shares will
not be voted.
Q: WHERE WILL MY STOCK BE TRADED?
A: As with your existing Therapeutic Antibodies shares, Proteus shares received
in the merger will trade on the London Stock Exchange. We do not intend to
list the Proteus ordinary shares on any U.S. stock exchange or automated
quotation system.
Q: WHAT HAPPENS IF STOCKHOLDERS DO NOT APPROVE THE MERGER?
A: In the event stockholders do not approve the merger, the merger cannot be
completed. If this happens, the Therapeutic Antibodies board does not believe
that Therapeutic Antibodies will have sufficient cash resources to continue
its operations and may be compelled to institute insolvency proceedings.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you would like additional copies of this proxy statement/prospectus or a
new proxy card or if you have questions about the merger, you should contact
Corporate Investor Communications, Inc. at +1 (201) 896-1900 who is acting as
Therapeutic Antibodies' proxy solicitor. You may also call Therapeutic
Antibodies' Director of Business Development, Saul Komisar, at Therapeutic
Antibodies' Nashville office at +1 (615) 327-1027.
1
<PAGE> 9
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the terms of the merger, you should read carefully this proxy
statement/ prospectus and the annexes and the other documents to which we have
referred you.
THE COMPANIES
PROTEUS INTERNATIONAL PLC
Beechfield House
Lyme Green Business Park
Macclesfield
Cheshire SK11 0JL
England
Telephone No.: +44-1625-500555
Proteus is a development stage biopharmaceutical company engaged in
research for the discovery of novel drugs using two technologies:
- immunotherapeutic vaccines; and
- computer aided molecular design.
Proteus is headquartered in Cheshire, England.
THERAPEUTIC ANTIBODIES INC.
1207 17th Avenue South
Suite 103
Nashville, Tennessee 37212
United States
Telephone No.: +1 (615) 327-1027
Therapeutic Antibodies is a development stage biopharmaceutical company
specializing in the preparation of polyclonal antibodies for the treatment of
disease and life threatening conditions for which satisfactory therapies have,
generally, not previously existed. Therapeutic Antibodies has developed systems
for the production and purification of polyclonal antibody products. Therapeutic
Antibodies is headquartered in Nashville, Tennessee and has operations in the
United States, the United Kingdom, and Australia.
REASONS FOR THE MERGER
The Proteus and Therapeutic Antibodies boards of directors have identified
various potential benefits that may result from the merger. The boards believe
the merger will:
- result in a complementary, experienced management team;
- address mutual funding requirements for near term and longer term
projects;
- provide the combined company with a broader technology base resulting in
additional product development strategies and a reduced risk of
dependency on limited technology platforms;
- provide the combined company with a broader base of skills for the
clinical development of new drugs;
- increase the combined company's ability to pursue further mergers and
acquisitions; and
- achieve cost-savings by eliminating duplicative administrative expenses.
We explain these and other reasons for the merger identified by the Proteus
and Therapeutic Antibodies boards in greater detail starting on page 36.
THE ANNUAL MEETING
The Therapeutic Antibodies annual meeting will be held at the University
Club of Nashville, 2402 Garland Avenue, Nashville, Tennessee on September 13,
1999 at 8:00 a.m., Central time.
RECOMMENDATIONS TO STOCKHOLDERS
The Therapeutic Antibodies board of directors believes that the merger is
in the stock-
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<PAGE> 10
holders' best interest and recommends that you
vote FOR the proposals to:
- approve and adopt the merger agreement;
- elect the nominees named in this proxy statement/prospectus as directors;
and
- ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors.
VOTES REQUIRED
To approve the merger, the holders of at least a majority of the
outstanding shares of Therapeutic Antibodies common stock must vote in favor of
the merger. Proteus has entered into voting agreements with executive officers
and directors of Therapeutic Antibodies and certain of their affiliates who in
the aggregate owned approximately 10.65% of the outstanding shares as of the
record date. These stockholders have agreed to vote to approve and adopt the
merger agreement.
The four directors will be elected by a plurality of the votes cast by
holders of shares of common stock entitled to vote at the annual meeting.
To ratify the appointment of PricewaterhouseCoopers LLP, the holders of a
majority of the shares of common stock present and entitled to vote at the
meeting must vote in favor of the ratification.
THE MERGER
In the proposed merger, Therapeutic Antibodies will merge with and into a
wholly-owned subsidiary of Proteus, with the wholly-owned subsidiary surviving
the merger. In the merger, Therapeutic Antibodies stockholders will receive
1.163 Proteus ordinary shares in exchange for each share of Therapeutic
Antibodies common stock and cash in lieu of any fractional shares. The shares of
any Therapeutic Antibodies stockholder who properly dissents from the merger
will not be converted into Proteus ordinary shares. The merger agreement is
attached as Annex A to this proxy statement/prospectus. We encourage you to read
the merger agreement as it is the legal document that governs the merger.
EFFECT ON THERAPEUTIC ANTIBODIES OPTIONS (SEE PAGE 50)
Therapeutic Antibodies currently has two stock option plans. As a result of
the merger, each outstanding option to purchase shares of Therapeutic Antibodies
common stock issued under Therapeutic Antibodies' 1990 stock incentive plan that
is not exercised by the holder prior to the merger will become an option to
subscribe for Proteus ordinary shares.
Each unvested option under Therapeutic Antibodies' 1997 stock option plan
becomes exercisable prior to the time of the merger. All outstanding options
under this plan, if not exercised prior to the time of the merger, shall
terminate.
EFFECT ON THERAPEUTIC ANTIBODIES WARRANTS (SEE PAGE 51)
As a result of the merger, each outstanding warrant to purchase shares of
Therapeutic Antibodies common stock will become a warrant to subscribe for
Proteus ordinary shares.
EFFECT ON CONVERTIBLE NOTES (SEE PAGE 51)
As a result of the merger, Therapeutic Antibodies' 6% convertible notes,
due October 1, 2000, will become obligations of the Proteus subsidiary surviving
the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF PROTEUS FOLLOWING THE MERGER (SEE PAGE 104)
Following the merger, the current four directors of Therapeutic Antibodies
and James Christie, an executive officer of Therapeutic Antibodies, will join
the seven existing Proteus directors on its board. David Gration, Chairman of
Proteus, will become non-executive Deputy Chairman. Stuart M. Wallis, the
current Chairman of Therapeutic Antibodies, will become the non-executive
Chairman of Proteus and Andrew J. Heath, the current Chief Executive Officer of
Therapeutic Antibodies, will become the Chief Executive Officer of Proteus.
3
<PAGE> 11
INTERESTS OF OFFICERS AND DIRECTORS IN THE TRANSACTIONS (SEE PAGE 48)
Certain officers and directors of Proteus and Therapeutic Antibodies have
interests in the merger that are different from or in addition to your
interests. For example:
- As a result of the merger, all stock options to purchase common stock
under Therapeutic Antibodies' 1990 stock incentive plan will become
options to subscribe for Proteus ordinary shares. As of August 1, 1999,
five directors and/or executive officers of Therapeutic Antibodies held
an aggregate of 655,000 of these options. The exercise price of these
options exceeded the market price of Therapeutic Antibodies common stock
on August 1, 1999.
- As a result of the merger, all unvested stock options to purchase common
stock under Therapeutic Antibodies' 1997 stock option plan become
exercisable prior to the time of the merger. All outstanding options
under this plan, if not exercised prior to the time of the merger, shall
terminate. As of August 1, 1999, three directors and/or executive
officers of Therapeutic Antibodies held an aggregate of 205,000 of these
options. The exercise price of these options exceeded the market price of
Therapeutic Antibodies common stock on August 1, 1999.
- Conditional on the consummation of the merger, the existing Therapeutic
Antibodies option of Stuart M. Wallis, the Chairman of Therapeutic
Antibodies, will expire. Provided certain conditions are met, Mr. Wallis
will have a new option to subscribe for a number of Proteus ordinary
shares equal to 4.5% of the Proteus ordinary shares outstanding following
the merger at an exercise price of L0.395 per share.
- Conditional on the merger becoming effective, David Gration, the
executive Chairman of Proteus, has agreed to the termination of his
employment agreement with Proteus. He will receive a sum not to exceed
L90,000 as compensation for the loss of remuneration and benefits under
his employment agreement. He will, however, continue as non-executive
Deputy Chairman, and it is anticipated that he will receive an annual fee
of L54,600 in this capacity.
- The existing employment arrangements of Andrew J. Heath, the current
Chief Executive Officer of Therapeutic Antibodies and James Christie, a
current executive officer of Therapeutic Antibodies, will remain in
place.
CONDITIONS TO THE MERGER (SEE PAGE 55)
Before we can complete the merger, a number of conditions must be met,
including, but not limited to, the following:
- the approval of Therapeutic Antibodies' stockholders and Proteus
shareholders;
- the equity financing shall not have been terminated;
- the absence of legal restraints prohibiting the consummation of the
merger; and
- the agreement of the London Stock Exchange to admit to the Official List
the Proteus ordinary shares to be issued in the merger and the equity
financing.
Further, the obligation of Proteus to complete the merger is conditioned
on, among other things:
- the holders of no more than 2.5% of Therapeutic Antibodies common stock
outstanding on the closing date of the merger shall have exercised
appraisal rights; and
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<PAGE> 12
- no event of default shall have occurred under Therapeutic Antibodies'
bridge financing arrangement with Barclays Bank Plc, described in further
detail on page 130.
NO SOLICITATION (SEE PAGE 54)
The merger agreement restricts each of Proteus and Therapeutic Antibodies
from soliciting, initiating, facilitating or encouraging alternative acquisition
transactions except in certain limited circumstances. Each party must notify the
other if it receives offers or proposals for an alternative acquisition
transaction.
APPROVAL REQUIRED FOR PAYMENT OF TERMINATION FEES (SEE PAGE 59)
We have described the circumstances under which Proteus and Therapeutic
Antibodies must pay termination fees on page 57. In addition, these fees would
not be payable unless Therapeutic Antibodies' stockholders approve and adopt the
merger agreement and Proteus' shareholders pass resolutions to, among other
things, approve the merger agreement.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES (SEE PAGE 57)
Proteus and Therapeutic Antibodies can mutually agree to terminate the
merger agreement before the merger is completed. Either Proteus or Therapeutic
Antibodies can terminate the merger agreement if any of the following occurs:
- the merger is not consummated by December 20, 1999, provided that neither
party has the right to terminate if its breach has caused the delay;
- any governmental entity prohibits the merger;
- the holders of Therapeutic Antibodies common stock do not adopt the
merger agreement and approve the merger; or
- the holders of Proteus ordinary shares do not pass the necessary
resolutions at a meeting of Proteus shareholders.
Proteus can terminate the merger agreement under various additional
circumstances, including, if:
(1) the Therapeutic Antibodies board withdraws or modifies its
recommendation that stockholders adopt the merger agreement and approve
the merger;
(2) the Therapeutic Antibodies board fails to recommend to stockholders the
approval of the merger;
(3) the Therapeutic Antibodies board fails to oppose, or recommends
approval of, a tender or exchange offer for 15% or more of Therapeutic
Antibodies' common stock;
(4) the Therapeutic Antibodies board determines to accept a superior
proposal; or
(5) Therapeutic Antibodies materially breaches a covenant, agreement,
representation or warranty in the merger agreement.
If Proteus terminates the merger agreement because of any of the reasons
specified under (1) - (4) above, Therapeutic Antibodies has agreed to pay
Proteus $1,900,000. If Proteus terminates the merger agreement for the reasons
specified under (5) above, Therapeutic Antibodies has agreed to pay Proteus
$1,500,000. Under certain circumstances in which Therapeutic Antibodies enters
into an acquisition agreement following a termination of the merger agreement
for any of the reasons in the preceding sentence, Therapeutic Antibodies may be
required to pay Proteus an additional $400,000.
Therapeutic Antibodies can terminate the merger agreement under certain
additional circumstances, including, if:
(1) the Proteus board withdraws or modifies its recommendation that
shareholders adopt the merger agreement and approve the merger;
5
<PAGE> 13
(2) the Proteus board fails to recommend to shareholders the approval of
the merger;
(3) the Proteus board fails to oppose, or recommends approval of, a tender
or exchange offer for 15% or more of Proteus' ordinary shares;
(4) the Proteus board determines to accept a superior proposal; or
(5) Proteus materially breaches a covenant, agreement, representation or
warranty in the merger agreement.
If Therapeutic Antibodies terminates the merger agreement because of any of
the reasons specified under (1) - (4) above, Proteus has agreed to pay
Therapeutic Antibodies $1,900,000. If Therapeutic Antibodies terminates the
merger agreement for the reasons specified under (5) above, Proteus has agreed
to pay Therapeutic Antibodies $900,000. Under certain circumstances in which
Proteus enters into an acquisition agreement following a termination of the
merger agreement for any of the reasons in the preceding sentence, Proteus may
be required to pay Therapeutic Antibodies an additional $1,000,000.
Please refer to pages 57 through 59 for more information regarding
additional circumstances under which Proteus and Therapeutic Antibodies can
terminate the merger agreement.
UNITED STATES INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 72)
The merger is intended to qualify as a reorganization under Section 368(a)
of the U.S. Internal Revenue Code, and as a result, no gain or loss will be
recognized by Proteus or Therapeutic Antibodies in the transaction.
Non-U.S. stockholders of Therapeutic Antibodies will not incur U.S. income
tax liability as a result of the merger. If you are a U.S. stockholder of
Therapeutic Antibodies, your liability for U.S. income taxes will depend upon
the relative market values of Therapeutic Antibodies and Proteus at the time of
the merger. These values cannot be determined at the date you will vote on the
merger. If at the time of the merger the total fair market value of Proteus
equals or exceeds that of Therapeutic Antibodies, you will not be required to
pay federal income tax on the receipt of Proteus ordinary shares. Alternatively,
if the total fair market value of Therapeutic Antibodies is greater than that of
Proteus at the time of the merger, U.S. stockholders will be required to
recognize gain. The amount of the gain will be equal to the difference between
the fair market value of the Proteus ordinary shares received and the
stockholders' tax basis in the Therapeutic Antibodies common stock. EACH
THERAPEUTIC ANTIBODIES STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER AND THE
OWNERSHIP AND DISPOSITION OF PROTEUS ORDINARY SHARES.
UNITED KINGDOM INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 81)
U.S. holders of Therapeutic Antibodies common stock will not incur U.K. tax
liability as a result of the merger. U.K. holders of Therapeutic Antibodies
common stock will not incur U.K. tax on chargeable gains arising from the
exchange of Proteus ordinary shares for Therapeutic Antibodies common stock in
the merger, although the U.K. Board of Inland Revenue has indicated that U.K.
holders of Therapeutic Antibodies shares of common stock may be subject to
chargeable gains on Proteus shares received in the merger in the event any
Therapeutic Antibodies stockholders elect appraisal rights under Delaware law.
EACH THERAPEUTIC ANTIBODIES STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER AND
THE OWNERSHIP AND DISPOSITION OF PROTEUS ORDINARY SHARES.
ACCOUNTING TREATMENT (SEE PAGE 63)
Proteus will account for the merger using the merger accounting method
under U.K. GAAP and as a pooling of interests under U.S. GAAP.
6
<PAGE> 14
OPINION OF FINANCIAL ADVISOR TO THERAPEUTIC ANTIBODIES (SEE PAGE 39)
On May 20, 1999, The British Linen Bank Limited gave its opinion to the
Therapeutic Antibodies board of directors as to the fairness of the conversion
number of 1.163 Proteus ordinary shares for each Therapeutic Antibodies share.
The full text of the written opinion of The British Linen Bank Limited is
attached as Annex B to this proxy statement/prospectus. We urge you to read the
opinion carefully and in its entirety.
APPRAISAL RIGHTS (SEE PAGE 61)
Under Delaware law, Therapeutic Antibodies stockholders have the right to
an appraisal of the value of their shares in connection with the merger.
It is a condition to Proteus' obligation to consummate the merger that
Therapeutic Antibodies stockholders do not exercise appraisal rights with
respect to more than 2.5% of the outstanding shares of Therapeutic Antibodies
common stock on the closing date of the merger.
A discussion of appraisal rights is included starting on page 61. We
encourage Therapeutic Antibodies stockholders to read the discussion carefully.
COMPARISON OF STOCKHOLDER RIGHTS (SEE PAGE 161)
Upon completion of the merger, Therapeutic Antibodies stockholders will
become Proteus shareholders. As a result, the rights of the holders of
Therapeutic Antibodies common stock will be governed by the memorandum and
articles of association of Proteus and by English law. We have provided a
summary of the material differences between the rights of holders of Therapeutic
Antibodies common stock and Proteus ordinary shares beginning on page 161.
COMPARATIVE MARKET PRICE INFORMATION (SEE PAGE 17)
Proteus ordinary shares and Therapeutic Antibodies common stock are listed
on the London Stock Exchange. On May 19, 1999, the closing mid-market price as
reported in the Daily Official List of the London Stock Exchange of Proteus
ordinary shares was L0.395 per share and of Therapeutic Antibodies common stock
was L0.490 per share. This date was the last full trading day prior to the
public announcement of the proposed merger.
On August 11, 1999, the most recent practicable date prior to the printing
of this proxy statement/prospectus, the closing mid-market price of Proteus
ordinary shares was L0.39 per share and for Therapeutic Antibodies common stock
was L0.465 per share. We urge you to obtain current market quotations.
LISTING OF PROTEUS ORDINARY SHARES
Proteus has applied to the London Stock Exchange for the listing of the
Proteus ordinary shares to be issued in the merger. It is a condition of the
merger that the London Stock Exchange agree to admit the Proteus ordinary shares
to its Official List. Following approval of the merger of both Proteus' and
Therapeutic Antibodies' shareholders meetings on September 13, 1999, Therapeutic
Antibodies will make an application for the cancellation of the listing of its
common stock on the London Stock Exchange at the close of business on September
15, 1999.
VOTE REQUIRED OF PROTEUS SHAREHOLDERS (SEE PAGE 31)
At the Proteus shareholders' meeting, Proteus shareholders will vote on the
following resolutions among others:
Ordinary resolutions:
- to approve the merger and the terms of the merger agreement, to increase
Proteus' authorized share capital and to authorize the directors of
Proteus to allot ordinary shares pursuant to the merger and the
financing;
7
<PAGE> 15
- to approve the termination fee of $1,900,000 payable by Proteus to
Therapeutic Antibodies, in certain circumstances, pursuant to the merger
agreement;
- to increase the limit on the maximum number of directors of Proteus, as
contained in Proteus' articles of association, from ten to fifteen;
- to increase the limit on the maximum aggregate annual amount of fees for
non-executive directors of Proteus, as contained in Proteus' articles of
association, from L100,000 to L200,000; and
- to amend the rules regarding performance conditions in Proteus' approved
share option scheme and to extend the use of Proteus' unapproved share
option scheme to allow options granted to non-U.K. residents to qualify
for favorable tax treatment.
Special resolutions:
- to empower the directors of Proteus to disapply statutory pre-emption
rights in respect of the exercise of options and warrants over Proteus
ordinary shares to be granted to holders of options and warrants in
Therapeutic Antibodies in accordance with the terms of the merger
agreement and to empower the directors of Proteus to disapply statutory
pre-emption rights in respect of the allotment of ordinary shares
pursuant to the equity financing;
- to authorize the directors of Proteus to issue options to Stuart Wallis
pursuant to his option agreement with Proteus and to disapply statutory
pre-emption rights in respect of the allotment of ordinary shares
pursuant to the exercise of options;
- to authorize the directors of Proteus generally to allot securities and
empower them to disapply statutory pre-emption rights in respect of
allotments either in connection with a rights issue or up to
approximately 5% of the issued share capital upon completion of the
merger and equity financing; and
- to change the name of Proteus following the merger.
To pass an ordinary resolution a majority of shareholders attending the
meeting in person must vote in favor of it. In the case of a poll vote, the
majority of votes must be cast in favor of the resolution. To pass a special
resolution not less than 75% of those attending in person or by proxy must vote
in favor of it. In the case of a poll vote not less than 75% of votes must be
cast in favor of the resolution.
THE EQUITY FINANCING
Proteus has entered into a conditional financing agreement to raise
approximately L7.0 million net of expenses by issuing 23,325,000 ordinary shares
at L0.40 per share. The proceeds from the equity financing will be used for
working capital for the combined company following completion of the merger.
These Proteus ordinary shares have been placed by WestLB Panmure Limited with
non-U.S. institutional investors. WestLB Panmure Limited has fully underwritten
the equity financing and the closing of the equity financing is conditional on
completion of the merger.
Assuming that the equity financing is completed and that no appraisal
rights are exercised, Therapeutic Antibodies stockholders will own approximately
38.4% of Proteus after the merger.
RISK FACTORS
This proxy statement/prospectus includes certain additional factors related
to our operations and strategies and the merger. Stockholders should read
carefully the section entitled "Risk Factors" starting on page 19.
FORWARD-LOOKING STATEMENTS
MAY PROVE INACCURATE
We have made forward-looking statements in this proxy statement/prospectus
that are subject to risks and uncertainties. Forward-
8
<PAGE> 16
looking statements relate to future periods and include statements about:
- product development;
- receipt of regulatory approvals;
- completion and benefits of the merger;
- adequacy of resources; and
- financial condition and operating results.
Also, when we use words such as "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. Stockholders
should note that many factors could affect future financial and other results
and could cause these results to differ materially from those expressed in the
forward-looking statements.
9
<PAGE> 17
STRUCTURE OF THE MERGER
The following chart shows our corporate structures before and after the
merger is completed:
PROTEUS AND THERAPEUTIC ANTIBODIES IMMEDIATELY BEFORE THE MERGER
[GRAPHIC]
PROTEUS AND THERAPEUTIC ANTIBODIES AFTER THE MERGER
[GRAPHIC]
10
<PAGE> 18
CURRENCIES AND EXCHANGE RATES
References in this proxy statement/prospectus to "U.S. dollars," "$" or "c"
are to the currency of the U.S. and references to "pounds sterling," "pounds,"
"L", or "p" are to the currency of the U.K. There are 100p to each L1.00. Solely
for your convenience, this proxy statement/prospectus contains translations of
certain pound sterling amounts into U.S. dollars at specified rates. These
translations should not be taken as assurances that the pound sterling amounts
actually represent such U.S. dollar amounts or could be converted into U.S.
dollars at the rate indicated or at any other rate.
We have calculated currency translations in this proxy statement/prospectus
at the noon buying rate in New York City for cable transfers in pounds sterling
as certified for customs purposes by the Federal Reserve Bank of New York. When
we refer to the "noon buying rate" in this proxy statement/prospectus, we are
referring to the foregoing. The noon buying rate was $1.6107 per L1.00 on August
11, 1999. This date was the latest practicable date for which information was
available prior to the date of this proxy statement/prospectus. See "Exchange
Rates" on page 157 for historical information with respect to exchange rates
between the U.S. dollar and the pound sterling.
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
In the following tables, we are providing the following summary financial
information to aid you in your analysis of the financial aspects of the merger.
These tables include:
(a) selected historical financial information of Proteus;
(b) selected historical financial information of Therapeutic Antibodies;
and
(c) unaudited pro forma financial information of Proteus after giving
effect to the merger.
Proteus reports its financial results using methods required by generally
accepted accounting principles in the U.K. Therapeutic Antibodies reports its
financial results using methods required by generally accepted accounting
principles in the U.S. These methods of accounting differ from each other in
certain significant respects. The main differences between U.S. GAAP and U.K.
GAAP that are relevant to Proteus' consolidated financial statements relate to:
- the treatment of costs related to the development of Proteus' computer
software;
- the treatment of the cost of goodwill; and
- the classification of short-term investments and cash overdraft.
See Note 22 to the consolidated financial statements of Proteus for a summary of
the principal differences between U.S. GAAP and U.K. GAAP.
Proteus prepares its financial statements on the basis of a financial year
beginning on April 1 and ending on March 31. Therapeutic Antibodies prepares its
financial statements on the basis of a financial year beginning on January 1 and
ending on December 31.
Therapeutic Antibodies publishes its financial statements in U.S. dollars.
Proteus publishes its financial statements in pounds sterling.
The translation of pounds sterling into U.S. dollars at and for the year
ended March 31, 1999 has been made at the rate of L1.00 = $1.6140 based upon the
noon buying rate on March 31, 1999. This translation is provided solely for the
convenience of the reader and does not necessarily reflect financial information
in accordance with U.S. GAAP or U.K. GAAP for foreign currency translations.
11
<PAGE> 19
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF PROTEUS
The following table sets forth summary selected consolidated financial data
of Proteus as of and for each of the five fiscal years in the period ended March
31, 1999. This information has been derived from the audited consolidated
financial statements of Proteus and is qualified by, and should be read together
with, these financial statements and accompanying notes included elsewhere in
this proxy statement/prospectus. See also "Selected Financial Information of
Proteus" and "Proteus Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------
1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------
$ L L L L L
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
U.K. GAAP
Turnover................................. 1,123 696 178 573 1,063 --
Research and administration expenses..... (8,236) (5,103) (4,526) (4,682) (6,590) (8,136)
Share of results of joint ventures....... -- -- -- -- (9) (15)
Interest receivable...................... 872 540 353 404 207 375
Interest payable......................... (129) (80) (132) (119) (66) (149)
------ ------ ------ ------ ------ ------
Net loss................................. (6,370) (3,947) (4,127) (3,824) (5,395) (7,925)
====== ====== ====== ====== ====== ======
Net loss per ordinary share.............. (0.089) (0.055) (0.072) (0.070) (0.140) (0.216)
U.S. GAAP
Net loss................................. (6,224) (3,856) (3,990) (3,716)
Net loss per ordinary share.............. (0.087) (0.054) (0.069) (0.069)
BALANCE SHEET DATA:
(AT END OF PERIOD)
U.K. GAAP
Cash and cash equivalents................ 11,948 7,403 3,327 6,937 2,288 6,189
Total assets............................. 15,583 9,655 5,858 9,976 5,590 10,516
Long-term debt net of current portion.... 334 207 455 629 690 880
Shareholders' equity(1).................. 12,399 7,682 4,016 8,027 2,435 7,830
U.S. GAAP
Cash and cash equivalents................ 3,322 2,058 2,829
Total assets............................. 14,463 8,961 4,689
Long-term debt net of current portion.... 334 207 455
Shareholders' equity..................... 11,343 7,028 3,271
</TABLE>
- -------------------------
(1) On May 24, 1996, Proteus issued 21,805,256 ordinary shares of 2p each, in a
rights issue, for cash at a price of L0.45 per share and on May 11, 1998,
Proteus issued 18,498,354 ordinary shares of 2p each, in a rights issue, for
cash at a price of L0.45 per share.
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF THERAPEUTIC ANTIBODIES
The following table sets forth summary selected consolidated financial data
of Therapeutic Antibodies as of and for each of the five fiscal years in the
period ended December 31, 1998 and as of and for the six month periods ended
June 30, 1998 and June 30, 1999. This information has been derived from the
audited and unaudited consolidated financial statements of Therapeutic
Antibodies and is qualified by, and should be read together with, those
financial statements and accompanying notes included elsewhere in this proxy
statement/prospectus. See also "Selected Financial Information of Therapeutic
Antibodies" and "Therapeutic Antibodies Management's Discussion and Analysis of
Financial Condition and Results of Operations."
12
<PAGE> 20
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........... $ 391,319 $ 2,086,074 $ 3,392,447 $ 1,791,420 $ 927,532 $ 650,519 $ 1,092,122
Operating expenses:
Research and development... 4,479,365 5,551,426 11,363,218 11,462,352 9,185,126 6,321,674 5,107,894
General and administrative,
marketing and
distribution............. 1,370,829 2,282,116 4,598,073 4,176,139 3,083,151 2,247,472 1,619,824
Depreciation and
amortization............. 887,599 801,651 1,561,951 1,643,922 1,387,916 856,756 864,288
Other(2)................... 85,206 384,032 451,243 328,158 355,360 36,368 119,052
----------- ----------- ------------ ------------ ------------ ----------- -----------
Total operating
expenses............... 6,822,999 9,019,225 17,974,485 17,610,571 14,011,553 9,462,270 7,711,058
----------- ----------- ------------ ------------ ------------ ----------- -----------
Operating loss............... $(6,431,680) $(6,933,151) $(14,582,038) $(15,819,151) $(13,084,021) $(8,811,751) $(6,618,936)
=========== =========== ============ ============ ============ =========== ===========
Net loss..................... $(6,759,034) $(7,234,865) $(15,888,928) $(16,847,718) $(12,746,117) $(9,100,038) $(6,717,753)
=========== =========== ============ ============ ============ =========== ===========
Preferred stock
dividends(5)............... -- -- (32,877) -- -- -- --
=========== =========== ============ ============ ============ =========== ===========
Net loss applicable to common
shareholders............... $(6,759,034) $(7,234,865) $(15,921,805) $(16,847,718) $(12,746,117) $(9,100,038) $(6,717,753)
=========== =========== ============ ============ ============ =========== ===========
Basic and diluted net loss
per share.................. $ (0.13) $ (0.31) $ (0.59) $ (0.74) $ (0.68) $ (0.57) $ (0.47)
=========== =========== ============ ============ ============ =========== ===========
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash
equivalents(1)(4)(5)(6).... $ 783,313 $ 2,268,914 $ 7,760,328 $ 4,915,077 $ 20,502,536 $ 3,397,082 $ 593,154
Total assets(3)(4)(5)(6)..... 12,976,967 15,945,875 21,421,502 20,800,065 37,179,990 15,157,099 12,103,994
Long term debt, net of
current portion(3)(6)...... 4,707,257 5,625,043 4,744,216 6,059,072 8,592,755 9,595,420 2,917,251
Deficit accumulated during
development stage.......... (82,060,345) (66,647,248) (75,301,311) (59,412,383) (42,564,665) (29,818,548) (20,718,510)
Stockholders'
equity(4)(5)(6)............ 4,920,993 2,956,892 12,022,434 9,758,345 25,215,530 894,479 4,862,404
</TABLE>
- -------------------------
(1) At December 31, 1998, Therapeutic Antibodies held approximately U.S.
$7,508,000 denominated in British pounds and U.S. $31,500 denominated in
Australian dollars. The decline in the exchange rate at year end between the
British pound and Australian dollar versus the U.S. dollar resulted in a
foreign currency transaction loss of U.S. $240,703. At December 31, 1997,
Therapeutic Antibodies held cash and cash equivalents of approximately U.S.
$2,960,000 denominated in British pounds. As a result of the decline in the
exchange rate between the British pound and the U.S. dollar, Therapeutic
Antibodies experienced a foreign currency transaction loss of U.S. $913,119
for the year ended December 31, 1997.
(2) Includes costs of goods sold and other expense items.
(3) In 1995 and 1994, Therapeutic Antibodies constructed a pilot production
facility in London and a manufacturing facility in Wales. These facilities
were funded through financing arrangements provided by Aberlyn Capital
Management Company, Inc. and the Welsh Development Agency.
(4) On July 23, 1996, Therapeutic Antibodies completed an initial public
offering of 4,190,477 shares of its common stock on the London Stock
Exchange at L5.25 ($8.14 based on the noon buying rate on July 23, 1996) per
share.
(5) 100 shares of Therapeutic Antibodies Series A Convertible Redeemable
Preferred Stock, issued on September 28, 1998, together with dividends
accrued thereon, were converted into 2,995,692 shares of Therapeutic
Antibodies common stock on November 9, 1998.
13
<PAGE> 21
(6) On October 26, 1998, Therapeutic Antibodies announced a placement of
21,300,000 shares of its common stock of L0.40 ($0.68 based on the noon
buying rate on October 26, 1998) per share. At the same time it entered into
agreements to convert $2.9 million of outstanding debt into 4,394,869 shares
of common stock. A portion of the proceeds of the placement were used to
repay further outstanding debt.
SUMMARY SELECTED PRO FORMA COMBINED FINANCIAL DATA
We are providing the following pro forma financial information to give you
a better picture of what the results of operations and financial position of our
combined businesses might have looked like at specific dates. This information
is provided for illustrative purposes only.
The pro forma statement of operations data for each of the three years in
the period ended March 31, 1999 combines the audited historical consolidated
statements of operations of Proteus for those years and the audited historical
consolidated statements of operations of Therapeutic Antibodies for each of the
three years in the period ended December 31, 1998, after giving effect to the
pro forma adjustments described in the Notes to the Unaudited Pro Forma
Financial Statements. The pro forma statement of operations data does not
include the unaudited historical consolidated statement of operations data of
Therapeutic Antibodies for the three months ended March 31, 1999. The balance
sheet data as of March 31, 1999 is based upon the audited historical
consolidated balance sheet data of Proteus and unaudited historical consolidated
balance sheet data of Therapeutic Antibodies as of that date.
The unaudited pro forma financial information should be read together with
the historical financial statements and accompanying notes of Proteus and
Therapeutic Antibodies included elsewhere in this proxy statement/prospectus.
Since the pro forma financial information is based upon the financial condition
and operating results of Proteus and Therapeutic Antibodies for periods when
they were not combined, the information may not be indicative of the results
which could have actually occurred had the merger been completed at the periods
presented, nor are they indicative of future financial operating results. See
"Unaudited Pro Forma Financial Statements" starting on page 64 for a more
detailed explanation of this analysis.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
1999 1999 1998 1997
-------- ------- ------- -------
$ L L L
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenues............................................... 4,427 2,743 1,272 1,168
Loss from operations................................... (21,166) (13,114) (13,870) (12,383)
Net loss............................................... (21,697) (13,443) (14,277) (11,883)
Preferred stock dividends.............................. (32) (20) -- --
Net loss applicable to common shareholders............. (21,729) (13,463) (14,277) (11,883)
Basic and diluted net loss per common share............ (0.21) (0.13) (0.17) (0.16)
Weighted average number of common shares outstanding:
Basic and diluted.............................. 102,502 102,502 82,059 74,216
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and investments................................... 15,381 9,530
Total assets........................................... 31,053 19,240
Working capital........................................ 11,485 7,116
Long-term debt, net of current portion................. 5,050 3,129
Shareholders' equity................................... 19,759 12,242
</TABLE>
- -------------------------
(1) All pro forma amounts exclude expenses expected to be incurred directly
related to the merger. See Note 6 to "Unaudited Pro Forma Financial
Statements."
14
<PAGE> 22
COMPARATIVE PER SHARE DATA
The following table presents selected unaudited historical per share data
of Proteus and Therapeutic Antibodies and unaudited pro forma combined per share
data after giving effect to the merger using the pooling of interests method of
accounting under U.S. GAAP and assuming that no Therapeutic Antibodies
stockholders exercise dissenter's rights and thus 1.163 Proteus ordinary shares
are exchanged for each outstanding share of Therapeutic Antibodies common stock
in the merger. For purposes of the pro forma combined per share data presented
below:
- statement of operations data for Proteus' fiscal year ended March 31,
1999 has been combined with statement of operations data for Therapeutic
Antibodies' fiscal year ended December 31, 1998; and
- Proteus balance sheet data at March 31, 1999 has been combined with
Therapeutic Antibodies unaudited balance sheet data at March 31, 1999.
The data should be read together with the summary selected historical and
pro forma financial data, the unaudited pro forma financial statements and the
separate historical financial statements of Proteus and Therapeutic Antibodies
and accompanying notes included in this proxy statement/prospectus. The
unaudited pro forma combined per share data is provided for illustrative
purposes only. Since the pro forma financial information is based upon the
financial condition and operating results of Proteus and Therapeutic Antibodies
for periods when they were not combined, the information may not be indicative
of the results which could have actually occurred had the merger been completed
at the periods presented, nor are they indicative of future financial operating
results.
15
<PAGE> 23
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
MARCH 31, 1999/
DECEMBER 31, MARCH 31, 1998/ MARCH 31, 1997/
1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------- ----------------- -----------------
<S> <C> <C> <C> <C>
PROTEUS -- HISTORICAL
Loss per ordinary share
Basic and diluted
U.K. GAAP........................ L(0.06) $(0.09) L(0.07) L(0.07)
U.S. GAAP........................ L(0.05) $(0.09) L(0.07) L(0.07)
Book value per share(1)
U.K. GAAP........................ L 0.10 $ 0.16 L 0.07
U.S. GAAP........................ L 0.09 $ 0.15 L 0.06
THERAPEUTIC ANTIBODIES -- HISTORICAL
Loss per share of common stock
Basic and diluted.................. $(0.59) $(0.74) $(0.68)
Book value per share(1)............... $ 0.16 $ 0.26
PROTEUS PRO FORMA COMBINED
Loss per ordinary share
Basic and diluted.................. L(0.13) $(0.21) L(0.17) L(0.16)
Book value per share(1)............... L 0.09 $ 0.15
PROTEUS PRO FORMA COMBINED AS
ADJUSTED(2)
Loss per ordinary share
Basic and diluted.................. L(0.11) $(0.18) L(0.14) L(0.12)
Book value per share(1)............... L 0.13 $ 0.21
EQUIVALENT PRO FORMA COMBINED PER
THERAPEUTIC ANTIBODIES SHARE(3)
Loss per share of common stock
Basic and diluted.................. $(0.25) $(0.29)
Book value per share(1)............... $ 0.17
</TABLE>
- -------------------------
(1) Book value per share is computed by dividing shareholders' equity by the
number of shares outstanding at the end of each period. Pro forma book value
per share amounts have been adjusted to reflect the issuance of 60,542,545
Proteus ordinary shares to holders of Therapeutic Antibodies common stock in
the merger, assuming no exercise of appraisal rights by Therapeutic
Antibodies stockholders.
(2) The Proteus pro forma combined as adjusted per share data reflects the
issuance of 23,325,000 ordinary shares by Proteus in the equity financing,
which will occur simultaneously with the merger.
(3) Gives effect to the conversion in the merger of each share of Therapeutic
Antibodies common stock into 1.163 Proteus ordinary shares. We have computed
amounts based on applying the conversion number of 1.163 to the Proteus pro
forma combined per share data and translating the result into U.S. dollars
at the noon buying rate as of and for the periods presented.
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<PAGE> 24
COMPARATIVE MARKET PRICE DATA AND DIVIDEND INFORMATION
MARKET PRICE DATA
Proteus ordinary shares are traded on the London Stock Exchange under the
symbol "PTI." The following table sets forth for the periods indicated:
(a) the high and low closing mid-market prices as reported in the Daily
Official List of the London Stock Exchange for the Proteus ordinary
shares; and
(b) the equivalent United States dollar prices translated at the noon
buying rate on the dates of these high and low quotations.
PROTEUS ORDINARY SHARES
<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW HIGH LOW
-------------- ----- ----- ----- -----
L L $ $
<S> <C> <C> <C> <C>
June 30, 1997.......................................... 0.675 0.415 1.101 0.686
September 30, 1997..................................... 0.485 0.355 0.814 0.567
December 31, 1997...................................... 0.485 0.345 0.800 0.563
March 31, 1998......................................... 0.865 0.435 1.425 0.711
June 30, 1998.......................................... 0.680 0.430 1.138 0.718
September 30, 1998..................................... 0.430 0.320 0.715 0.536
December 31, 1998...................................... 0.410 0.325 0.687 0.547
March 31, 1999......................................... 0.495 0.320 0.806 0.529
June 30, 1999.......................................... 0.460 0.365 0.739 0.586
</TABLE>
As of August 9, 1999, Proteus had 73,998,320 ordinary shares outstanding
held by approximately 5,812 record holders. There are approximately three record
holders of Proteus ordinary shares located in the U.S.
Therapeutic Antibodies stockholders are advised to obtain current market
quotations for the Proteus ordinary shares and the Therapeutic Antibodies common
stock. No assurance can be given as to the market prices of Proteus ordinary
shares at any future time, either before or after the effective time of the
merger.
Therapeutic Antibodies common stock is traded on the London Stock Exchange
under the symbol "TAB." Therapeutic Antibodies common stock is not traded on any
stock exchange or automated quotation system in the United States. The following
table sets forth for the periods indicated:
(a) the high and low closing mid-market prices as reported in the Daily
Official List of the London Stock Exchange for the Therapeutic
Antibodies common stock; and
(b) the equivalent United States dollar prices translated at the noon
buying rate on the dates of these high and low quotations.
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<PAGE> 25
<TABLE>
<CAPTION>
THERAPEUTIC ANTIBODIES COMMON STOCK
-----------------------------------
QUARTER ENDING HIGH LOW HIGH LOW
-------------- ----- ----- ----- -----
L L $ $
<S> <C> <C> <C> <C>
June 30, 1997.......................................... 3.740 3.325 6.165 5.536
September 30, 1997..................................... 3.325 1.800 5.511 2.852
December 31, 1997...................................... 2.630 2.180 4.297 3.608
March 31, 1998......................................... 2.220 1.925 3.636 3.228
June 30, 1998.......................................... 2.215 1.425 3.206 2.372
September 30, 1998..................................... 1.415 0.625 2.351 1.028
December 31, 1998...................................... 0.860 0.465 1.466 0.774
March 31, 1999......................................... 0.580 0.495 0.941 0.820
June 30, 1999.......................................... 0.565 0.475 0.909 0.767
</TABLE>
As of August 9, 1999, Therapeutic Antibodies had 52,057,219 shares of
common stock outstanding held by approximately 1,415 record holders, of which
635 are record holders located in the U.S. and of which 780 are located outside
the U.S.
On May 19, 1999, the last full day of trading before the issuance of press
releases by Proteus and Therapeutic Antibodies announcing the proposed merger,
the closing mid-market price of Proteus ordinary shares was L0.395 per share and
the closing mid-market price of Therapeutic Antibodies common stock was L0.490
per share. On August 11, 1999, the closing mid-market prices of Proteus ordinary
shares and Therapeutic Antibodies common stock were L0.39 and L0.465,
respectively.
DIVIDENDS
To date, Proteus has not paid dividends on its ordinary shares and
Therapeutic Antibodies has not paid dividends on its common stock. Proteus
intends to continue a policy of retaining all earnings to finance the expansion
of its business and has no present intention to pay cash dividends. The
declaration and payment of future dividends will be determined by the Proteus
board in light of conditions existing in the future and are expected to depend
upon earnings, financial condition, capital requirements, and other relevant
factors not presently determinable.
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<PAGE> 26
RISK FACTORS
You should carefully consider the following factors, as well as the other
information regarding Proteus, Therapeutic Antibodies and the merger contained
in this proxy statement/prospectus in deciding how to vote.
RISKS RELATING TO THE COMPANIES
IF WE ARE UNABLE TO DEVELOP COMMERCIALLY SUCCESSFUL PRODUCTS, WE WILL BE
UNABLE TO GENERATE SIGNIFICANT REVENUES.
Our limited product launches to date have not generated significant
revenues and may not generate significant revenues in the future. We have a
variety of product candidates in various stages of development and will need to
undertake substantial additional research and development and preclinical and
clinical testing of our product candidates. These efforts may not result in the
development of any commercially successful products, in which case we will not
be able to generate significant revenues.
We may fail to successfully develop a product candidate for many reasons
including:
- a product candidate fails in preclinical studies;
- a potential product is not shown to be safe and effective in clinical
trials;
- we fail to obtain regulatory approval for the product;
- we fail to produce a product in commercial quantities at an acceptable
cost; and
- a product does not gain market acceptance.
BECAUSE BOTH PROTEUS AND THERAPEUTIC ANTIBODIES ARE EARLY STAGE BIOTECHNOLOGY
COMPANIES THAT HAVE A HISTORY OF OPERATING LOSSES, WE ANTICIPATE FUTURE LOSSES
AND MAY NEVER BECOME PROFITABLE.
To date, we have not been profitable. We expect to incur operating losses
over the next several years and may never be profitable. Proteus and Therapeutic
Antibodies had on a U.S. GAAP basis:
- net losses of approximately L3.7 million and approximately $12.7 million
for the fiscal years ended March 31, 1997 and December 31, 1996,
respectively;
- net losses of approximately L4.0 million and approximately $16.8 million
for the fiscal years ended March 31, 1998 and December 31, 1997,
respectively; and
- net losses of approximately L3.9 million and approximately $15.9 million
for the fiscal years ended March 31, 1999 and December 31, 1998,
respectively.
Losses result principally from costs associated with research, development
and clinical testing activities before the marketing of products. Collaborative
research, development and licensing arrangements, research grants and interest
income have generated most of our revenue to date. Our profitability will depend
on our ability to generate revenues from product candidates that are currently
under development and to enter into new partnerships for the licensing of our
product candidates while maintaining existing partnerships.
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<PAGE> 27
IF WE ARE UNABLE TO MAINTAIN AND ENTER INTO NEW COLLABORATIVE ARRANGEMENTS,
OUR ABILITY TO DEVELOP AND MARKET PRODUCT CANDIDATES WILL SUFFER AND WE WILL
BE UNABLE TO SUSTAIN OUR BUSINESS.
Our primary focus will continue to be on the research and development of
new pharmaceutical products and, therefore, we will be dependent on our existing
alliances and new alliances with third parties to provide development,
manufacturing, marketing and sales capabilities. Our ability to obtain new
agreements will depend, in part, on the success of our clinical trials.
Collaborators and licensees have significant discretion over the resources they
devote to these efforts. Our success, therefore, will depend on the ability and
intention of these outside parties to perform their responsibilities and devote
sufficient resources to collaborations with us. We cannot guarantee that:
- we will be able to establish additional collaborative arrangements or
license agreements;
- any collaborative arrangement or agreement will be on favorable terms; or
- any existing or future collaborative arrangement or agreement will result
in a successful product and/or generate significant revenue.
In addition, there can be no assurance that our collaborators and licensees
will not pursue alternative technologies either on their own or in collaboration
with others, including our competitors.
IF WE FAIL TO OBTAIN ADEQUATE INTELLECTUAL PROPERTY RIGHTS FOR OUR PRODUCT
CANDIDATES, COMPETITORS MAY BE ABLE TO TAKE ADVANTAGE OF OUR RESEARCH AND
DEVELOPMENT EFFORTS. WE MAY ALSO BE SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY
INFRINGEMENT BY THIRD PARTIES.
Our success will depend, in large part, on our ability to obtain and
maintain patent or other proprietary protection for our technologies, products
and processes. If we are not able to obtain patent protection for certain of our
products or secure patents that are sufficiently broad in their scope,
competitors may be able to take advantage of our research and development
efforts. Legal standards relating to the validity of patents covering
pharmaceutical or biotechnological inventions and the scope of claims made under
such patents are still developing. There is no consistent policy regarding the
breadth of claims allowed in biotechnology patents. The patent position of a
biotechnology company is highly uncertain and involves complex legal and factual
questions.
There can be no assurance that competitors will not develop substantially
equivalent techniques or otherwise gain access to our technologies. We may have
to initiate litigation to enforce our patent and license rights. If our
competitors file patent applications that claim technology also claimed by us,
we may have to participate in interference or opposition proceedings to
determine the priority of invention. An adverse outcome could subject us to
significant liabilities to third parties and require us to cease using
technology owned by, or to license disputed rights from, third parties.
Our success also depends on our ability to operate without infringing the
proprietary rights of third parties with respect to products that facilitate our
ability to develop and exploit our own products. If infringement occurs, we may
have to develop an alternative technology or reach an agreement for the license
of the necessary rights from the third party. Should this be necessary, we
cannot assure you that we can obtain or develop those technologies or obtain
those licenses, and as a result, may be unable to develop and market our product
candidates.
The cost to us of any litigation or proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial. Some of
our competitors may be able to sustain the costs of litigation more effectively
than us because of their substantially greater resources.
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<PAGE> 28
IF WE ARE UNABLE TO GENERATE SIGNIFICANT REVENUES FROM OPERATIONS, WE WILL
REQUIRE ADDITIONAL FINANCING. THIS FINANCING MAY NOT BE AVAILABLE OR MAY BE
AVAILABLE ON TERMS THAT DILUTE OUR SHAREHOLDERS' INTERESTS.
We will require significant revenue from product sales, collaborative and
licensing arrangements and strategic alliances to fund our ongoing operations.
If we are unsuccessful in generating this revenue or this revenue is
insufficient to fund proposed projects, then we will require additional
financing. Additional financing may not be available to us on favorable terms or
at all. If we have insufficient funds or are unable to raise additional funds,
we may be required to delay, reduce or cease certain of our programs and may be
unable to continue our operations at their current level.
Future financings may result in the substantial dilution of shareholders'
interests and may result in future investors being granted rights superior to
those of existing shareholders. For a discussion of our liquidity, see "Proteus
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Therapeutic Antibodies Management's Discussion and Analysis of
Financial Condition and Results of Operations."
REGULATION BY GOVERNMENT AGENCIES IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS
ON OUR BUSINESS ACTIVITIES.
The production and sale of pharmaceutical products is highly regulated. Our
ability and the ability of our partners to secure regulatory approval for our
products and to continue to satisfy regulatory requirements will determine our
future success. We may not receive required regulatory approvals for our
products or receive approvals in a timely manner. In particular, the U.S. Food
and Drug Administration and comparable agencies in foreign countries, including
the European Medicines Evaluation Agency and the Medicine Control Agency in the
U.K., must approve human therapeutic and preventive products before they are
marketed. This approval process can involve lengthy and detailed laboratory and
clinical testing, sampling activities and other costly and time-consuming
procedures. While the time required to obtain approval varies, it can take
several years. Delays in obtaining or the failure to obtain regulatory approvals
or the restriction, suspension or revocation of regulatory approvals could
adversely affect the marketing of products and our ability to receive product
revenues or royalties. We cannot guarantee that we will be able to obtain the
necessary approvals for clinical testing or for the manufacturing and marketing
of any products that we develop.
We are also subject to ongoing regulatory review. Discovery of previously
unknown problems with a product, manufacturer or facility or other violations of
regulatory requirements may result in:
- fines;
- suspensions of regulatory approvals;
- product recalls; and
- criminal prosecution.
For further discussion of regulations and potential penalties, see
"Government Regulation."
OUR COMPETITORS MAY HAVE GREATER RESOURCES FOR DEVELOPING PRODUCTS AND AS A
RESULT MAY BE ABLE TO DEVELOP PRODUCTS THAT ARE SUPERIOR TO OUR PRODUCT
CANDIDATES OR LAUNCH COMPETING PRODUCTS BEFORE WE DO.
The pharmaceutical industry is highly competitive. We compete with
pharmaceutical companies in the United States, the United Kingdom, Europe and
elsewhere for both our existing products and
21
<PAGE> 29
those currently under development. Many of these companies have research,
development, marketing, financial and personnel resources greater than ours.
Competitors may develop and receive regulatory approval for a marketable product
before we do. Competitors may also develop a product that is more effective or
economically viable than our product candidates, rendering our product
candidates obsolete. We anticipate that we will face increased competition in
the future as new companies enter our markets and alternative drugs and
technologies become available.
ANNOUNCEMENTS, DEVELOPMENTS AND/OR REGULATORY CHANGES IN THE BIOTECHNOLOGY
SECTOR MAY CAUSE OUR SHARE PRICES TO FLUCTUATE.
The market price of each of Therapeutic Antibodies common stock and Proteus
ordinary shares may be affected by announcements from or about other companies
in the biotechnology sector. Factors that could cause the combined company's
stock price to fluctuate in the future may include:
- announcements by other biotechnology companies of clinical trial results
and other product developments;
- adverse developments in the protection of intellectual property or other
legal matters;
- announcements in the scientific and research community;
- changes in treatment recommendations or guidelines by private health
organizations or science foundations;
- regulatory changes that affect our products; and
- changes in third-party reimbursement policies or in medical practices.
THIRD-PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES MAY
CONSTRAIN OUR FUTURE REVENUES.
Our ability to market successfully any product we may develop will depend
in part on the level of reimbursement that government health administration
authorities, private health coverage insurers and other organizations provide
for the cost of our products and related treatments. We may not be able to sell
our products profitably if reimbursement is unavailable or limited in scope.
Increasingly, third-party payors are attempting to contain health care costs in
ways that are likely to impact our development of products including:
- challenging the prices charged for health care products;
- limiting both coverage and the amount of reimbursement for new
therapeutic products;
- denying or limiting coverage for products that are approved by the
regulatory agencies but are considered experimental or investigational by
third-party payors; and
- refusing to provide coverage when an approved product is used in a way
that has not received regulatory marketing approval.
WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE
INSURANCE.
The testing, marketing and sale of our products involve significant product
liability risks. We may be held liable for damages for product failures or
adverse reactions resulting from the use of our products. Although we maintain
product liability insurance, this insurance may not provide adequate coverage
against product liability claims. Furthermore, in the future, we may not be able
to obtain
22
<PAGE> 30
insurance on acceptable terms and any insurance we do obtain may not provide
adequate coverage against any asserted claims.
IF THERAPEUTIC ANTIBODIES' LIVESTOCK DEVELOP DISEASES, THERAPEUTIC ANTIBODIES
MAY BE UNABLE TO SUSTAIN ITS CURRENT OR FUTURE ANTIBODY PRODUCTION CAPACITIES.
Therapeutic Antibodies supplies all of the antisera required for the
production of its antibody products from its own flocks of sheep. Therapeutic
Antibodies takes stringent precautions to minimize the risk of animal diseases,
including scrapie, that could affect its sheep or the safety of its products.
All of the sheep used by Therapeutic Antibodies to produce its antisera are
located in Australia, which the office of the Australian Chief Veterinary
Officer has acknowledged as being scrapie free. However, animal diseases,
including scrapie, could affect Therapeutic Antibodies' flocks and therefore its
ability to produce antisera.
YEAR 2000 ISSUES COULD CAUSE INTERRUPTION OR FAILURE OF OUR OR OTHER COMPUTER
SYSTEMS.
We use a significant number of computer systems and software programs in
our operations, including applications used in our accounting and administrative
functions and our computer-aided molecular design application used to support
research and development activities. Although we believe that our internal
systems and software applications contain or will contain source codes that are
able to interpret appropriately the dates following December 31, 1999, our
failure to make or obtain necessary modifications to our systems and software
could result in an interruption in or failure of normal business activities and
operations. Failure by our key service providers, vendors and worldwide research
and development, manufacturing and clinical trial partners to make their
computer software programs and operating systems Year 2000 compliant could have
a similar effect. For a discussion of our Y2K readiness, see "Proteus
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000" and "Therapeutic Antibodies Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Readiness."
RISKS RELATING TO THE MERGER
INTEGRATION OF PROTEUS AND THERAPEUTIC ANTIBODIES MAY NOT SUCCEED.
We have entered into the merger agreement with the expectation that the
merger will result in benefits to both companies through the integration of our
operations. The integration of operations will require, among other things:
- coordinating or combining research and development efforts,
- identifying and allocating collaborative relationships in a coherent
manner, and
- aligning the strategic plans of two previously independent management
teams.
The difficulties of this integration may be increased by the geographical
separation of the two companies and our employees. This integration will require
the dedication of management resources that may temporarily distract
management's attention from the day-to-day business of the combined company. If
we fail to integrate the companies quickly and efficiently, we may incur
unanticipated costs or lose opportunities to advance our business.
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<PAGE> 31
THE LOSS OF KEY EMPLOYEES COULD WEAKEN OUR SCIENTIFIC AND MANAGEMENT EXPERTISE
AND DELAY THE DEVELOPMENT OF OUR PRODUCT CANDIDATES.
In connection with the merger, Proteus will enter into or assume employment
agreements with key personnel with the aim of securing their services for a
minimum period. Nevertheless, we cannot guarantee the retention of their
services. The loss of certain key personnel could weaken our scientific and
management expertise and delay the development of our product candidates.
EXCHANGE RATE FLUCTUATIONS MAY REDUCE THE VALUE OF PROTEUS SHARES FOR U.S.
HOLDERS.
Individuals and entities located in the U.S. who hold Proteus ordinary
shares will bear exchange rate risk. The Proteus shares issued in the merger
will be traded on the London Stock Exchange. As a result, U.S. holders of
Proteus ordinary shares who would like to sell their shares must sell them on
the London Stock Exchange and have the proceeds of the sale converted into
dollars. Holders may receive a reduced dollar value upon the sale of their
shares as the result of the dollar/pound sterling exchange rate in effect at
that time.
THE VALUE OF PROTEUS ORDINARY SHARES TO BE RECEIVED IN THE MERGER WILL
FLUCTUATE.
The number of Proteus ordinary shares that Therapeutic Antibodies
stockholders will receive in the merger for each share of Therapeutic Antibodies
common stock is fixed at 1.163 and the merger agreement does not contain a
mechanism to adjust the exchange ratio in the event the market price of Proteus
ordinary shares declines. Equally, the number of Proteus ordinary shares that
will be received by Therapeutic Antibodies stockholders in the merger will not
be reduced if there is an increase in the market price of Proteus ordinary
shares between the signing of the merger agreement and the closing of the
merger.
Because the market price of Proteus ordinary shares will fluctuate, the
value at the time of the merger of the consideration to be received by
Therapeutic Antibodies stockholders will also fluctuate. There can be no
assurance as to the market value of the Proteus ordinary shares at the time of
the merger. For historical and current market prices of Proteus ordinary shares,
see "Summary -- Comparative Market Price Data and Dividend Information."
UNITED STATES JUDGMENTS MAY NOT BE ENFORCEABLE AGAINST PROTEUS.
Judgments of United States courts, including those predicated on the civil
liability provisions of the federal securities laws of the United States, may
not be enforceable in English courts. As a result, stockholders of Proteus who
obtain a judgment against it in the United States may not be able to require
Proteus to pay the amount of the judgment. See "Enforceability of Civil
Liabilities."
BECAUSE PROTEUS SHARES ARE NOT TRADED ON A U.S. STOCK EXCHANGE, THE SALE OF
PROTEUS SHARES MAY BE MORE TIME CONSUMING AND EXPENSIVE FOR U.S. SHAREHOLDERS
THAN SHARES OF COMPANIES LISTED ON U.S. STOCK EXCHANGES.
Like Therapeutic Antibodies common stock, Proteus ordinary shares trade on
the London Stock Exchange only. Proteus currently does not intend to list its
ordinary shares on any U.S. stock exchange or automated quotation system.
Proteus also has no current plans to create an American depository share program
for its ordinary shares. Many U.S. brokerage firms may be unable to effect
transfers of Proteus shares on the London Stock Exchange and must engage U.K.
brokerage firms or branches to effect these trades. This process may make the
sale of Proteus shares more time consuming and expensive for U.S. shareholders
than shares of companies listed on U.S. stock exchanges.
24
<PAGE> 32
Quotations for Proteus ordinary shares are not generally available in U.S.
newspapers; however, quotations are available in the U.S. edition of the
Financial Times and on the Nasdaq-Amex Web site at http://www.nasdaq-uk.com.
Some U.S. brokerage firms may add a surcharge to their customary commissions for
trades executed offshore, although Proteus understands the major U.S. brokerage
firms do not. Like Therapeutic Antibodies common stock, trading of Proteus
ordinary shares will result in U.K. stamp duty of 50p per 100 pounds sterling,
or portions of these amounts, on the value of shares traded. This tax is paid by
the purchaser.
FORWARD LOOKING STATEMENTS
We have made forward-looking statements in this proxy statement/prospectus
that are based on the beliefs of our respective managements as well as
assumptions made by and information currently available to each of us. These
statements include the completion of certain clinical trials involving our
products, the receipt of regulatory approvals, the adequacy of our capital
resources, trends relating to the biopharmaceutical industry and others. When
used in this document, the words "anticipate," "believe," "estimate," "expect,"
"plan," and "intend" and similar expressions, as they relate to Proteus and
Therapeutic Antibodies or their respective managements, are intended to identify
forward-looking statements.
Forward-looking statements reflect the current view of Therapeutic
Antibodies and/or Proteus with respect to future events and are subject to
certain risks, uncertainties and assumptions. Many factors could cause the
actual results, performance or achievements of Proteus or Therapeutic Antibodies
to be materially different from any future results, performance or achievements
that may be expressed or implied by the forward-looking statements, including,
among others, those set forth in "Risk Factors" and "Government Regulation" and
the following:
- the results of pre-clinical and clinical trials involving Proteus' and
Therapeutic Antibodies' products;
- the failure to receive regulatory approvals on a timely basis or at all;
- the failure to maintain adequate capital resources;
- the introduction of competing products by other companies;
- the lack of acceptance of any new products we may develop;
- changes in currency exchange rates;
- changes in general economic and business conditions;
- changes in business strategy; and
- any significant delay in the expected completion of the merger and risks
that the synergies anticipated from the merger may not be fully realized.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this proxy statement/prospectus as anticipated, believed,
estimated, expected, planned or intended.
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<PAGE> 33
THE THERAPEUTIC ANTIBODIES ANNUAL MEETING
GENERAL
This proxy statement/prospectus is being sent to the Therapeutic Antibodies
stockholders in connection with the solicitation of proxies by the board of
directors of Therapeutic Antibodies for use at the 1999 annual meeting of
stockholders to be held on September 13, 1999, at the University Club of
Nashville, 2402 Garland Avenue, Nashville, Tennessee, commencing at 8:00 a.m.,
Central Time, and at any adjournment or postponement of the meeting.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the annual meeting, Therapeutic Antibodies stockholders will consider
and vote on:
(1) Approval and adoption of the merger agreement;
(2) The election of four directors;
(3) The ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for 1999; and
(4) Such other business as may properly come before the annual meeting.
Therapeutic Antibodies' bylaws and Delaware law provide that Therapeutic
Antibodies must hold an annual meeting of stockholders to elect directors and to
conduct other routine business. In addition to the merger proposal, you will
also be asked to consider and vote on proposals to elect four directors of
Therapeutic Antibodies and to ratify the appointment of PricewaterhouseCoopers
LLP as independent auditors for the fiscal year ending December 31, 1999. The
persons elected to the Therapeutic Antibodies board of directors at the annual
meeting will serve on the Therapeutic Antibodies board of directors only until
the merger becomes effective. In the merger, Therapeutic Antibodies will merge
with and into a wholly-owned subsidiary of Proteus, PI Merger Sub, Inc., with PI
Merger Sub surviving the merger. As a result, Proteus, as the sole stockholder
of PI Merger Sub, will have the right to determine the size and membership of
the PI Merger Sub board and Proteus' independent auditors will audit the
financial statements of the consolidated group following the merger.
RECORD DATE; VOTING RIGHTS; VOTING AT THE MEETING
The Therapeutic Antibodies board has fixed August 9, 1999 as the record
date. Accordingly, only holders of record shares of Therapeutic Antibodies
common stock at the close of business on August 9, 1999 are entitled to notice
of and to vote at the annual meeting. Each holder of record of shares of
Therapeutic Antibodies common stock on the record date is entitled to cast one
vote per share, either in person or by a properly executed proxy, at the annual
meeting. As of the record date, there were 52,057,219 shares of Therapeutic
Antibodies common stock outstanding and entitled to vote held by approximately
1,415 holders of record.
Under Therapeutic Antibodies' bylaws, the holders of one third of the
shares of Therapeutic Antibodies common stock outstanding and entitled to vote
at the annual meeting will constitute a quorum. Shares of Therapeutic Antibodies
common stock represented in person and by proxy will be counted for purposes of
determining whether a quorum is present.
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<PAGE> 34
VOTING OF PROXIES
Properly executed proxies that have not been revoked will be voted at the
annual meeting in accordance with the instructions indicated in the proxies. If
a proxy is returned with no instructions indicated, such proxies will be voted
in accordance with the recommendations of the Therapeutic Antibodies board.
If any other matters are properly presented at the annual meeting,
including consideration of a motion to adjourn the meeting to another time or
place for the purpose of soliciting additional proxies, the persons named in the
enclosed form of proxy will have discretion to vote on those matters in
accordance with their best judgment, unless authorization to use discretion is
withheld in the executed proxy. Therapeutic Antibodies is not aware of any
matters expected to be presented at the annual meeting other than those listed
above.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of Therapeutic Antibodies, including by
telegram or facsimile, a written notice of revocation dated later than
the date of the proxy or by giving notice of revocation at the annual
meeting;
- duly executing a later-dated proxy relating to the same shares and
delivering it, including by telegram or facsimile, to the Secretary of
Therapeutic Antibodies; or
- attending the annual meeting and voting in person.
In order to vote in person at the annual meeting, Therapeutic Antibodies
stockholders must attend the meeting and vote in accordance with the voting
procedures established for the meeting. Attendance at the annual meeting will
not in and of itself revoke a proxy. Any written notice of revocation or
subsequent proxy must be sent to:
Therapeutic Antibodies Inc.
1207 17th Avenue South
Suite 103
Nashville, Tennessee 37212 USA
Attention: Secretary
Shares of Therapeutic Antibodies common stock held of record by a broker
that are present in person or represented by proxy will be counted for purposes
of determining a quorum. If a broker does not have discretionary voting
authority to vote on any matter at the annual meeting in the absence of
instructions from the beneficial owners, then these shares, which we refer to as
broker non-votes, will not be considered entitled to vote on the matter. Broker
non-votes and abstaining votes will not be counted in favor of approval and
adoption of the merger agreement.
SOLICITATION OF PROXIES
Therapeutic Antibodies and Proteus will share equally the cost of printing
and mailing this proxy statement/prospectus. Therapeutic Antibodies will pay the
expenses of the solicitations for the annual meeting. In addition to
solicitation by mail, directors, officers and employees of Therapeutic
Antibodies or their agents may solicit proxies in person or by telephone,
telegram, facsimile or other means of communication. Therapeutic Antibodies will
not pay these persons additional compensation for solicitation of proxies but
may reimburse them for reasonable out-of-pocket expenses. Therapeutic Antibodies
has retained Corporate Investor Communications, Inc. at an estimated cost of
$17,000, plus reimbursement of expenses, to assist in its solicitation of
proxies. Therapeutic Antibodies also
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will make arrangements with custodians, nominees and fiduciaries for forwarding
of proxy solicitation materials to beneficial owners of shares held of record by
the custodians, nominees and fiduciaries, and Therapeutic Antibodies will
reimburse the custodians, nominees and fiduciaries for their reasonable
expenses.
You will be asked to consider and vote upon the following proposals at
Therapeutic Antibodies' 1999 annual meeting:
PROPOSAL 1: APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
The proposal to approve and adopt the merger agreement is discussed in more
detail in this proxy statement/prospectus beginning on page 50. The affirmative
vote of the holders of a majority of the outstanding shares of Therapeutic
Antibodies common stock is required to approve and adopt the merger agreement.
Proteus has entered into voting agreements with executive officers and directors
of Therapeutic Antibodies and certain of their affiliates who, in the aggregate,
owned approximately 10.65% of the outstanding shares as of the record date.
These stockholders have agreed to vote to approve and adopt the merger
agreement.
For the reasons discussed in the section of this proxy statement/prospectus
under the heading, "Background of and Reasons for the Merger," the Therapeutic
Antibodies board of directors believes that the merger is in the best interests
of Therapeutic Antibodies stockholders and recommend that Therapeutic Antibodies
stockholders vote FOR the approval and adoption of the merger agreement. In the
event that holders of a majority of shares of Therapeutic Antibodies common
stock entitled to vote at the annual meeting do not vote to approve and adopt
the merger agreement, the merger cannot be completed. The Therapeutic Antibodies
board does not anticipate that the company will have sufficient capital
resources, or have entered into arrangements for additional financing, to permit
the company to continue operation in the event the merger cannot be completed
for any reason. In such event, the company may have to institute actions to
protect the company from its creditors through formal insolvency proceedings or
pursue alternative courses of action which may result in there being negligible
remaining stockholder value.
PROPOSAL 2: ELECTION OF DIRECTORS
Therapeutic Antibodies' bylaws provide that the Therapeutic Antibodies
board of directors shall consist of the number of directors that are fixed by
action of the board of directors, but not less than three nor more than fifteen.
The board of directors has nominated the four individuals named below as
nominees for election as directors to serve until the merger becomes effective
or, if the merger is not completed for any reason, until the 2000 annual meeting
of stockholders or until their successors are elected in accordance with
Therapeutic Antibodies' bylaws. All of the nominees are members of the current
Therapeutic Antibodies board of directors. If any nominee or nominees should be
unable to accept nomination or election as a director, which is not expected,
the proxies may be voted with discretionary authority for a substitute or
substitutes designated by the board of directors. Directors are elected by a
plurality of the votes cast by the shares entitled to vote at a meeting at which
a quorum is present. The Therapeutic Antibodies bylaws do not permit
stockholders to cumulate their votes in the election of directors. Therefore,
each stockholder may cast one vote per share for each nominee.
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<PAGE> 36
NOMINEES
The following table sets forth the names, ages and principal occupations of
the nominees to become directors and the year in which each nominee was first
elected to the board of directors. Additional biographical information for each
nominee is set forth under "Management of Proteus After the Merger."
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- --------
<S> <C> <C> <C>
Stuart M. Wallis.................... 53 Chairman of the Board 1998
Andrew J. Heath, M.D., Ph.D. ....... 51 Vice Chairman of the Board, Chief 1998
Executive Officer
Martin S. Brown..................... 61 Secretary 1987
Tim Chard, M.D. .................... 62 Senior Vice President -- Research and 1984
Development Administration
</TABLE>
There are no family relationships between any directors or executive
officers of Therapeutic Antibodies.
The board of directors of Therapeutic Antibodies recommends that the
stockholders vote FOR the election of the nominees listed above.
MEETINGS OF DIRECTORS AND COMMITTEES
During the last fiscal year, the board of directors held seven regular and
two special meetings. Additionally, the board of directors took two actions by
unanimous written consent. The board of directors does not currently have a
standing audit, nominating or compensation committee.
COMPENSATION OF DIRECTORS
Other than stock options, directors not otherwise employed by Therapeutic
Antibodies historically have received no compensation for attending the meetings
of the board of directors or any committee meetings, although all directors
receive reimbursement for necessary travel expenses incurred in attending board
of directors or committee meetings. All directors are eligible to participate in
Therapeutic Antibodies' 1990 stock incentive plan and the 1997 stock option
plan. Therapeutic Antibodies has historically granted stock options to its
directors. In addition, Mr. Wallis receives L10,000 annually for his services as
Chairman of the Board. See "Therapeutic Antibodies Executive Compensation
Information -- Employment/Consultancy Agreements."
PROPOSAL 3: SELECTION OF INDEPENDENT ACCOUNTANTS
The board of directors has appointed the firm of PricewaterhouseCoopers LLP
as independent auditors of Therapeutic Antibodies and its subsidiaries for the
1999 fiscal year, subject to the approval of the stockholders. This firm,
formerly known as Coopers & Lybrand, LLP, prior to its merger with Price
Waterhouse, LLP in 1998, has served as the independent auditors of Therapeutic
Antibodies since 1989. Representatives of this firm are expected to be present
at the meeting and will have an opportunity to make a statement if they desire.
These representatives will be available to respond to appropriate questions.
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<PAGE> 37
The affirmative vote of a majority of the votes cast at the meeting is
needed to ratify the appointment of PricewaterhouseCoopers LLP as auditors of
Therapeutic Antibodies for 1999. If the appointment is not approved, the matter
will be referred to the board of directors for further review.
The board recommends that the stockholders vote FOR ratification of the
appointment of PricewaterhouseCoopers LLP as auditors of Therapeutic Antibodies
and its subsidiaries for Therapeutic Antibodies' 1999 fiscal year.
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<PAGE> 38
THE PROTEUS EXTRAORDINARY GENERAL MEETING
In connection with the merger, the board of directors of Proteus has
convened an extraordinary general meeting of the shareholders of Proteus for
September 13, 1999.
RESOLUTIONS PROPOSED
At the meeting, Proteus will propose the following resolutions to its
shareholders:
RESOLUTION 1
(i) to approve the merger and the terms of the merger agreement;
(ii) to increase the authorized share capital of Proteus from L2,000,000
to L5,000,000 by the creation of an additional 150,000,000 ordinary
shares; and
(iii) to authorize the directors of Proteus to allot new ordinary shares to
be issued pursuant to the merger agreement and the equity financing
and to issue options and warrants over new ordinary shares to holders
of options and warrants in Therapeutic Antibodies in accordance with
the terms of the merger agreement, which authority relates to up to
an aggregate nominal amount of L1,760,711.02, which represents 118.97
per cent of the issued share capital of Proteus as at August 16,
1999.
RESOLUTION 2
to approve the termination fee of $1,900,000 payable by Proteus to
Therapeutic Antibodies, in certain circumstances, pursuant to the merger
agreement.
RESOLUTION 3
to increase the limit on the maximum number of directors of Proteus, as
contained in the Proteus Articles of Association, from ten to fifteen.
RESOLUTION 4
to increase the limit on the maximum aggregate amount of fees payable to
non-executive directors of Proteus, as contained in Proteus' articles of
association, from L100,000 per annum to L200,000 per annum.
RESOLUTION 5
to amend the rules relating to performance conditions contained in the
Proteus' approved share option scheme and to extend the use of Proteus'
unapproved share option scheme to allow options which qualify for favorable
taxation treatment to be granted to employees not resident in the U.K.
particularly those resident in the U.S.
RESOLUTION 6
to empower the directors of Proteus to disapply statutory pre-emption
rights in respect of the allotment of ordinary shares in respect of the equity
financing and the exercise of options and warrants over Proteus' ordinary shares
to be granted to holders of options and warrants in Therapeutic Antibodies in
accordance with the terms of the merger agreement, which disapplication is in
respect of an aggregate nominal amount of L524,222.50, representing 26,211,125
ordinary shares.
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RESOLUTION 7
to authorize the directors of Proteus to issue options over ordinary shares
to Stuart M. Wallis pursuant to his option agreement with Proteus which
authority relates to up to an aggregate nominal amount of L127,323.82 which
represents 8.6 percent of the issued share capital of Proteus as at the date of
this document, and to empower the directors of Proteus to disapply statutory
pre-emption rights in respect of the allotment of ordinary shares pursuant to
the exercise of the options, which disapplication is in respect of up to an
aggregate nominal amount of L127,323.82 representing 6,366,191 ordinary shares.
RESOLUTION 8
to authorize the directors of Proteus to allot relevant securities
following completion of the merger and the equity financing in accordance with
section 80 of the Companies Act 1985 up to an aggregate nominal value of
L1,052,439.08 being 33% of the enlarged issued share capital following
completion of the merger and the equity financing and to empower the directors
of Proteus to disapply statutory pre-emption rights in respect of allotments of
equity securities for cash either in connection with a rights issue or up to an
aggregate nominal value of L157,865.86 being 5% of the enlarged issued share
capital following completion of the equity financing.
RESOLUTION 9
to change the name of Proteus following the merger.
REQUIRED VOTE
At the Proteus extraordinary general meeting, on a show of hands, every
shareholder of Proteus who is present in person shall have one vote and on a
poll, every shareholder of Proteus who is present in person or by proxy shall
have one vote for every Proteus ordinary share held. Resolutions 1 to 4
(inclusive) are ordinary resolutions and will require the approval of a majority
of the votes cast by Proteus shareholders present in person or, if on a poll, in
person or by proxy at the Proteus shareholders' meeting. The remaining
resolutions are special resolutions and will require the approval of at least
75% of the votes cast by Proteus shareholders present in person or, if on a
poll, in person or by proxy at the Proteus shareholders' meeting. The quorum for
the shareholders' meeting is three shareholders.
RESOLUTIONS REQUIRED FOR THE MERGER
Proteus shareholders must approve resolutions 1 and 6 in order to complete
the merger. The passing of these resolutions is a condition to Therapeutic
Antibodies' obligation to consummate the merger, and the merger will not become
effective unless these resolutions are approved by the necessary votes.
Resolutions 2, 3, 4, 5, 7, 8 and 9 are not required to complete the merger.
Resolutions 2 to 9 will not take effect unless resolution 1 has been duly passed
and the merger agreement has become unconditional, save to the extent that such
conditions relate to the passing of the above resolutions or admission of
Proteus ordinary shares to the Official List of the London Stock Exchange.
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<PAGE> 40
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
In July 1996, Therapeutic Antibodies completed an initial public offering
of approximately 4.2 million shares of its common stock on the London Stock
Exchange at a share price of L5.25 per share and thereby raised approximately
L19.7 million net of expenses.
In March 1998, Therapeutic Antibodies commenced a period of restructuring
with the appointment of Andrew Heath as Chief Executive Officer. This
restructuring included the appointment of Stuart Wallis as Chairman, the
resignation of seven directors and a strategic review of Therapeutic Antibodies'
drug development portfolio which led to a revised development priority and the
cessation of several development programs.
In November 1998, Therapeutic Antibodies completed a L11.5 million
refinancing transaction, during difficult market conditions. The refinancing
consisted of the sale of 21.3 million new shares of common stock at a price of
L0.40 per share to raise L7.5 million, net of expenses, and the conversion of
$3.4 million of outstanding debt and shares of preferred stock into
approximately 7.4 million new shares of common stock. The sale price of the new
shares represented a 53% discount to the market price of the shares on the last
business day before the announcement of the refinancing.
Following Therapeutic Antibodies' refinancing, its board of directors
decided that it was appropriate to pursue strategies that would lead to the
growth of Therapeutic Antibodies through mergers or acquisitions. Therapeutic
Antibodies' board also determined that, in order to enhance shareholder value,
Therapeutic Antibodies needed to increase its market capitalization and the
liquidity in its shares.
In addition, the Therapeutic Antibodies board instructed its legal and
financial advisors to explore the feasibility of converting Therapeutic
Antibodies from a Delaware corporation into a company incorporated in England
and Wales. The Therapeutic Antibodies board believed the change of domicile
would make Therapeutic Antibodies shares more attractive to certain
institutional investors and thereby increase liquidity in its shares. The
Therapeutic Antibodies board determined in January 1999 that the change of
domicile could not be achieved without substantial adverse tax consequences to
either Therapeutic Antibodies or its shareholders.
In December 1998, Mr. Wallis and Dr. Heath met with representatives of
WestLB Panmure Limited and other investment banks to request assistance in
identifying suitable strategic business combinations. Between December and
February, Mr. Wallis and Dr. Heath had discussions with these investment banks
concerning a number of potential candidates for a business combination. The
banks discussed a number of candidates with Mr. Wallis and Dr. Heath during this
period. These discussions led to the introduction of Therapeutic Antibodies to
Proteus and one other potential merger candidate. Preliminary discussions with
the other candidate ceased.
On January 18, 1999, a WestLB Panmure Limited representative had a meeting
with David Gration, Chairman of the Board of Proteus, to discuss a potential
combination of Proteus and Therapeutic Antibodies. On January 22 and February 2,
1999, Dr. Heath and Mr. Gration met to discuss a possible combination. Following
these meetings, each of Dr. Heath and Mr. Gration met with their respective
board members to discuss the transaction. Mr. Gration had a further meeting on
January 24, 1999 with Mr. Wallis to discuss a possible combination of Proteus
and Therapeutic Antibodies at which they discussed the structure of the board
and agreed that each company would cooperate in providing additional information
to the other. After this meeting, executive officers of both companies held a
series of meetings between January and March 1999 to better understand each
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others' companies. Following these meetings, the Therapeutic Antibodies board
authorized the engagement of The British Linen Bank Limited and the Proteus
board authorized the engagement of WestLB Panmure Limited to provide independent
financial advice to them on a possible combination of the two companies.
On March 17, 1999, the Therapeutic Antibodies board met and discussed the
merits of a possible combination with Proteus. The Therapeutic Antibodies board
authorized Mr. Wallis and Dr. Heath to continue pursuing discussions with
members of Proteus' management and to continue with their review of Proteus'
operations and prospects.
On March 18, 1999, the Proteus board met and considered management's
presentation on its scientific and financial review of Therapeutic Antibodies
and then instructed management to continue its review of Therapeutic Antibodies
and to consider the appropriate structure for a possible combination.
On March 31, 1999, Therapeutic Antibodies announced its results for the
year ended December 31, 1998 and filed its annual report on Form 10-K with the
SEC. The announcement stated that due to the cessation of a clinical development
program with G.D. Searle & Co., Therapeutic Antibodies would require additional
financing by mid-1999 to fund its operations and that it was pursuing various
financing options including a possible merger.
On April 6, 1999, Proteus and Therapeutic Antibodies management, together
with their legal and financial advisors, met in New York to discuss the
regulatory requirements applicable to a possible combination and commenced
discussion of the appropriate structure for a possible combination. During the
remainder of April and early May 1999, management of the two companies continued
their due diligence activities and began negotiating a definitive agreement.
During April and May 1999, Therapeutic Antibodies held discussions with a
number of commercial lenders regarding the provision of a bridge financing
arrangement to fund its operations between the signing of any merger agreement
with Proteus and the closing of such a transaction.
On May 4, 1999, Proteus and Therapeutic Antibodies directors commenced
meeting with a series of non-U.S. institutional investors to determine their
interest in participating in a proposed equity financing for the combined
company.
During the week of May 10, 1999, members of Proteus' and Therapeutic
Antibodies' management and their respective legal and financial advisors met in
London to complete negotiation of a definitive merger agreement and ancillary
documents, including the number of Proteus ordinary shares to be issued upon
completion of the merger.
On May 14, 1999, each of the Therapeutic Antibodies and Proteus boards met
with their respective legal and financial advisors in London to consider the
proposed combination, including the number of Proteus ordinary shares to be
issued upon completion of the merger. At each of the Proteus and Therapeutic
Antibodies meetings, WestLB Panmure Limited reported on the status of the equity
financing, which Proteus and Therapeutic Antibodies had agreed would be a
condition to entering into a definitive merger agreement. WestLB Panmure Limited
advised that, as of that date, several U.K. institutions had given strong
indications of interest in participating in the equity placing and that
additional indications of interest were expected within the next few days.
At its May 14 meeting, the Proteus board of directors, together with its
legal and financial advisors, discussed the proposed transaction, including the
merger agreement, the equity financing, the Stuart Wallis option agreement, the
bridge financing to be secured by Therapeutic Antibodies and the operations of
Therapeutic Antibodies. The Proteus board determined that before making a
decision on the proposed combination it required additional information from
Therapeutic Antibodies on certain
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<PAGE> 42
matters including the status of product development, regulatory approvals, the
proprietary position of Therapeutic Antibodies and working capital. The Proteus
board scheduled a meeting for May 17 to consider the additional information
obtained by Proteus management and the Proteus legal and financial advisors.
At the May 14 Therapeutic Antibodies board meeting, the Therapeutic
Antibodies board, with its legal and financial advisors present, held extensive
discussions regarding the terms of the merger agreement and the proposed equity
financing. The board discussed the company's cash position and the extent to
which financing alternatives were available to the company and the feasibility
of such alternatives in the event the merger and the equity financing became
delayed or unachievable. The board concluded that the merger and the equity
financing presented the best strategic alternative for the company and addressed
a number of the board's strategic objectives for the company, including the
company's near-term cash needs. The board acknowledged that it had not yet
agreed to a number of Proteus ordinary shares to be issued upon completion of a
merger and discussed a range of possible conversion numbers on which it would
consider entering into the transaction. The board requested that The British
Linen Bank Limited consider the conversion numbers that the board was discussing
and stated that, if the Board were to reach agreement with Proteus on a
conversion number, it would request that The British Linen Bank Limited deliver
to the board an opinion as to the fairness of the agreed conversion number from
a financial point of view to holders of Therapeutic Antibodies common stock. The
board considered and tentatively approved the form of merger agreement, and
authorized Mr. Wallis and Dr. Heath to continue negotiating with Proteus to
reach agreement on a conversion number and a definitive agreement, provided that
The British Linen Bank Limited could give an opinion as to the fairness of the
conversion number ultimately agreed to.
Members of Proteus and Therapeutic Antibodies management and their
respective legal and financial advisors continued to meet over the weekend of
May 15 - 16 to negotiate the merger agreement and to address the questions
raised by the Proteus board on May 14 concerning Therapeutic Antibodies'
products, proprietary rights and working capital. On Monday, May 17, the Proteus
board of directors convened and received an update from, and discussed with, its
financial and legal advisors, the status of the merger agreement, the equity
financing, the Stuart Wallis option agreement, the Therapeutic Antibodies bridge
financing, the operations of Therapeutic Antibodies and the Therapeutic
Antibodies working capital position. The board determined that it required
further information on certain of these matters. To this end, the Proteus board
invited members of the Therapeutic Antibodies board of directors and management
to appear and detail for the Proteus board certain matters including the status
of product development, regulatory approvals, its proprietary position and
working capital. Following these discussions, the Proteus board determined it
would conduct further business due diligence and reconvene on May 19, 1999.
On May 19, 1999, WestLB Panmure Limited reported to both Proteus and
Therapeutic Antibodies that they had obtained commitments to purchase Proteus
ordinary shares in the equity financing that would provide for net proceeds to
the combined company of L7.0 million. The Proteus board met, at which time it
was apprised of the status of the negotiations with Therapeutic Antibodies and
discussed the additional information gathered since May 17. Proteus' legal
counsel reviewed with the board of directors the status of, and changes to, the
merger agreement and other transaction documents since the previous board
meeting. The Proteus board again considered valuation and, following advice of
WestLB Panmure Limited, the board concluded that it would proceed with the
transaction based on an exchange ratio of 1.163 Proteus ordinary shares for each
share of Therapeutic Antibodies common stock. Following further discussions
with, and advice from, its legal and financial advisors, the Proteus directors
approved the merger agreement presented to them and the transactions and
documents contemplated by the merger agreement based on the 1.163 exchange
ratio.
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On the morning of May 20, 1999, the Therapeutic Antibodies board discussed
the Proteus proposal, the terms of the merger agreement and considered the
alternatives available to Therapeutic Antibodies. At this meeting, The British
Linen Bank Limited delivered its oral opinion to the board that, as of May 20,
1999, the proposed conversion number of 1.163:1 was fair from a financial point
of view to holders of Therapeutic Antibodies common stock, other than Proteus
and its affiliates, taking into account the circumstances as of May 20, 1999
and, in particular, Therapeutic Antibodies' immediate cash constraints and the
unlikelihood of raising financing by alternative means on acceptable terms. The
British Linen Bank Limited advised the board that this presentation superseded
any earlier presentation or oral opinion made to the board. Based on the board's
deliberations, which it considered to be consistent with its analysis of the
reasons for and benefits of the merger discussed at its May 14 meeting, the
Therapeutic Antibodies board elected to approve the merger agreement and related
transactions.
On May 20, 1999, Proteus and Therapeutic Antibodies signed a definitive
agreement. On the same day, Proteus entered into a conditional underwriting
agreement with WestLB Panmure Limited for the equity financing, to raise
approximately L7.0 million ($11.3 million) net of expenses through the issuance
of up to 23,325,000 Proteus ordinary shares to U.K. institutional investors.
REASONS FOR THE MERGER
The board of directors of each of Proteus and Therapeutic Antibodies
considered the following potential benefits of the merger:
CORPORATE BENEFITS
- ADDRESS MUTUAL FUNDING REQUIREMENTS FOR NEAR TERM AND LONGER TERM
PROJECTS -- Therapeutic Antibodies' portfolio of product candidates is
further along in the development cycle than Proteus' development
portfolio. Proteus' existing resources, together with the proceeds from
the equity financing, will assist with the funding necessary for
Therapeutic Antibodies to complete the development of its near-term
product candidates. Proteus has a number of projects in research and
early clinical development that will require funding in the long term if
they are to progress. If Therapeutic Antibodies is able to launch
commercially saleable products in the near term, revenues from the sale
of these products could be available to contribute to the continued
development of Proteus' product candidates.
- ABILITY TO ACHIEVE CERTAIN COST SAVINGS -- it is anticipated that the
merger will result in cost savings by eliminating duplicative corporate
administrative expenses.
- COMPLEMENTARY AND INDUSTRY EXPERIENCED MANAGEMENT TEAMS -- the management
teams of each of Proteus and Therapeutic Antibodies are complementary.
All key management positions for the combined company are expected to be
held by persons experienced in the industry.
SCIENTIFIC AND DEVELOPMENT BENEFITS
- BROADER IMMUNOTHERAPY RESEARCH BASE -- Proteus and Therapeutic Antibodies
have common expertise in immunology to support the development of
products for the treatment of disease. The directors of Proteus and
Therapeutic Antibodies believe that there will be benefits to combining
and sharing each company's knowledge base in this area.
- BROADER BASE OF CLINICAL DEVELOPMENT AND REGULATORY SKILLS -- Proteus has
focused its activities on research and early stage development of
products. It currently has two products in clinical
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trials in the U.K. Therapeutic Antibodies complements Proteus' expertise in
conducting clinical trials, particularly in the U.S., and in preparing
regulatory dossiers for the approval of new drugs. The combination of the
Therapeutic Antibodies and Proteus clinical trials and regulatory
experience will provide a broader base of skills for the clinical
development of new drugs.
CORPORATE DEVELOPMENT AND DIRECT SHAREHOLDER BENEFITS
- INCREASED MARKET CAPITALIZATION AND LIQUIDITY -- following the merger,
the combined company is expected to have a larger market capitalization.
The boards believe that, by increasing the size of the company, the
merger may increase the combined company's ability to attract investors
and, thus, improve liquidity in its shares.
- CONVERSION OF THERAPEUTIC ANTIBODIES TO A COMPANY INCORPORATED IN ENGLAND
AND WALES -- Therapeutic Antibodies has been hampered in its ability to
raise financing and attract investors in the U.K. due, in part, to its
incorporation in Delaware. At the time of the November 1998 refinancing,
Therapeutic Antibodies explored the feasibility of converting its legal
domicile to an English holding company to match the location of its sole
stock exchange listing. The merger will in effect achieve this in a tax
efficient manner to Therapeutic Antibodies.
- INCREASED ACCESS TO ADDITIONAL CAPITAL -- the boards considered that the
merger will assist the combined company in funding growth and further
mergers and acquisitions. As a result of its increased size and any
increased liquidity in its shares that may result from the merger, the
combined company may be in a better position to use its equity to fund
acquisitions.
In reaching its decision to approve the merger agreement, the board of
directors of Proteus consulted with its legal, accounting and financial advisors
as well as with its management and considered, in addition to the factors set
forth above, the following additional factors:
- the financial condition, results of operation, cash flow and business of
Therapeutic Antibodies and the operational, financial and legal due
diligence performed by Proteus' management and advisors;
- the terms and conditions of the merger agreement, including the
conversion number and the termination fee payable to Proteus;
- economic and market conditions relating to the biotechnology industry.
The Proteus board also considered factors which may be characterized as
countervailing considerations:
- Therapeutic Antibodies' shortage of working capital;
- the transaction costs and financing arrangements associated with the
merger;
- the termination fee payable by Proteus;
- the employee benefit provisions of the merger described under
"-- Interests of Certain Persons in the Merger" which would give some
individuals interests in the combination in addition to their interests
as stockholders of Therapeutic Antibodies generally;
- the diversion of management's attention and resources in consummating the
merger; and
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- the risks inherent in attempting to integrate successfully the management
and operations of Therapeutic Antibodies and Proteus and the risk that
the anticipated benefits of the merger, including cost savings, may not
be realized.
The foregoing discussion of the information and factors considered by the
Proteus board is not intended to be exhaustive but includes all material factors
considered by the Proteus board.
In the course of reaching its decision to approve the merger agreement, the
board of directors of Therapeutic Antibodies consulted when relevant with its
legal, accounting and financial advisors as well as with its management and
considered, in addition to the factors set forth above, the following additional
factors:
- the opinion of The British Linen Bank Limited to the Therapeutic
Antibodies board of directors, as to the fairness of the conversion
number of 1.163 Proteus ordinary shares for each Therapeutic Antibodies
share;
- the structure of the business combination as a "merger of equals" with
five current directors and officers of Therapeutic Antibodies becoming
directors of Proteus upon consummation of the merger and the management
structure and operations of the combined company following the merger;
- the terms and conditions of the merger agreement, including the
conversion number, and the termination fee payable to Therapeutic
Antibodies;
- Proteus' proposed financing to raise approximately L7.0 million net of
expenses by issuing ordinary shares and the ability of the combined
company to fund near term projects of Therapeutic Antibodies;
- economic and market conditions relating to the biotechnology industry;
- the financial condition, results of operation, cash flow and business of
Proteus and the operational, financial and legal due diligence performed
by Therapeutic Antibodies' management and advisors; and
- its shortage of working capital, the lack of alternative sources of
finance and the possible effects of insolvency.
The Therapeutic Antibodies board also considered factors which may be
characterized as countervailing considerations:
- the transaction costs associated with the merger;
- the termination fee payable by Therapeutic Antibodies;
- the diversion of Therapeutic Antibodies senior management's attention and
resources in consummating the merger;
- the severance arrangements of executive officers and employees of Proteus
and Therapeutic Antibodies and other employee benefit provisions of the
transactions described below under the heading, "Background of and
Reasons for the Merger -- Interests of Certain Persons in the Merger;"
- that under English law, an agreement by a company to recommend that its
shareholders approve a business combination with another company must be
made subject to the directors' determination that their fiduciary duties
to shareholders permit such a recommendation;
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<PAGE> 46
- that London Stock Exchange regulations provide that the termination fee
provisions of the merger agreement are not enforceable unless approved by
the shareholders of the company against whom they are sought; and
- the risks inherent in attempting to integrate successfully the management
and operations of Proteus and Therapeutic Antibodies.
The foregoing discussion of the information and factors considered by the
Therapeutic Antibodies board is not intended to be exhaustive but includes all
material factors considered by the Therapeutic Antibodies board. On balance,
considering all factors and risks, the Therapeutic Antibodies board concluded
that the terms of the merger are fair to, and in the best interests of, the
Therapeutic Antibodies stockholders. Accordingly, the Therapeutic Antibodies
board recommends that the Therapeutic Antibodies stockholders vote FOR adoption
of the merger agreement.
OPINION OF FINANCIAL ADVISOR TO THERAPEUTIC ANTIBODIES
The Therapeutic Antibodies board of directors engaged The British Linen
Bank Limited to act as its financial adviser in connection with the merger and
to render an opinion as to the fairness from a financial point of view to the
holders of Therapeutic Antibodies common stock of the conversion number provided
for in the merger agreement of 1.163 Proteus ordinary shares for each share of
Therapeutic Antibodies common stock. On May 20, 1999, The British Linen Bank
Limited rendered its oral opinion to the board of directors of Therapeutic
Antibodies that, as of that date, the conversion number is fair from a financial
point of view to the holders of Therapeutic Antibodies common stock, other than
Proteus and its affiliates, taking into account the circumstances as of May 20,
1999, in particular Therapeutic Antibodies' immediate cash constraints and the
unlikelihood of raising financing by alternative means on acceptable terms. The
British Linen Bank subsequently confirmed its oral opinion in writing on May 27,
1999.
A COPY OF THE BRITISH LINEN BANK LIMITED'S OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE AND LIMITATIONS OF THE REVIEW
UNDERTAKEN AND THE PROCEDURES FOLLOWED BY THE BRITISH LINEN BANK LIMITED, IS
ATTACHED AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED INTO
THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE. THERAPEUTIC ANTIBODIES
STOCKHOLDERS ARE ADVISED TO READ THAT OPINION IN ITS ENTIRETY.
The following summary is qualified in its entirety by reference to the full
text of such opinion. The opinion of The British Linen Bank Limited is directed
only to the fairness of the conversion number to the holders of Therapeutic
Antibodies common stock, other than Proteus and its affiliates, from a financial
point of view, and has been provided for the use of the board of directors of
Therapeutic Antibodies in connection with its evaluation of the merger, and the
opinion does not address any other aspect of the merger, the additional equity
financing by Proteus or any other transaction related to the merger.
Therapeutic Antibodies stockholders should note that the opinion expressed
by The British Linen Bank Limited does not address the merits of the underlying
decision of the Therapeutic Antibodies board of directors to proceed with or
effect the merger and does not constitute a recommendation to any stockholder as
to how such stockholder should vote with respect to the merger agreement. No
limitations were placed on The British Linen Bank Limited by the Therapeutic
Antibodies board of directors with respect to the investigation made or the
procedures followed in preparing or rendering its opinion. The conversion number
was determined through negotiations between Proteus and Therapeutic Antibodies
and approved by the Therapeutic Antibodies board of directors. The British Linen
Bank Limited provided advice to Therapeutic Antibodies during the course of such
negotiations.
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<PAGE> 47
In arriving at its opinion, The British Linen Bank Limited, among other
things:
- reviewed certain publicly available business and financial information
relating to Therapeutic Antibodies and Proteus that The British Linen
Bank Limited considered relevant, including Therapeutic Antibodies'
quarterly report on Form 10-Q filed on May 17, 1999;
- reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
Therapeutic Antibodies and Proteus, as well as projected cost savings
attributable to the combination of the two companies, furnished to The
British Linen Bank Limited by Therapeutic Antibodies and Proteus;
- was informed by the board of directors of Therapeutic Antibodies that, in
the absence of additional financing, working capital is not expected to
be available to Therapeutic Antibodies to continue operations after
mid-June 1999, a period of approximately four weeks from May 20, 1999;
- was informed by the board of directors of Therapeutic Antibodies of the
progress of negotiations between Therapeutic Antibodies and Proteus as of
May 20, 1999, in particular the opinion of the board of directors that
Proteus would not agree to a merger on a conversion number more favorable
to Therapeutic Antibodies and that there could be no assurance that the
share placing of Proteus shares could be accomplished successfully if the
merger agreement as proposed were not accepted;
- was informed by the board of directors of Therapeutic Antibodies of the
availability of alternative sources of finance to Therapeutic Antibodies,
including the unlikelihood that alternative financing could be arranged
during the next four weeks on acceptable terms;
- was informed by the board of directors of Therapeutic Antibodies of the
potential effects of insolvency on Therapeutic Antibodies, including the
termination of certain principal collaboration agreements, and the effect
an insolvency could be expected to have with respect to the value of
Therapeutic Antibodies common stock;
- conducted discussions with members of senior management and
representatives of Therapeutic Antibodies and Proteus concerning the
matters described in the first two bullet points above as well as their
respective businesses and prospects before and after giving effect to the
merger and the projected cost savings attributable to the combination of
the two companies, and conducted discussions with members of senior
management and representatives of Therapeutic Antibodies concerning the
matters described in the third, fourth, fifth and sixth bullet points
above;
- reviewed the market prices and valuation multiples for Therapeutic
Antibodies common stock and Proteus shares and compared them with those
of certain publicly traded companies that The British Linen Bank Limited
considered relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other recent business combinations, to the extent
publicly available, that The British Linen Bank Limited considered to be
comparable and relevant;
- participated in certain discussions and negotiations among
representatives of Therapeutic Antibodies and Proteus and their financial
and legal advisers;
- reviewed a draft of the merger agreement dated May 19, 1999; and
- reviewed other financial studies and analyses and took into account other
matters that The British Linen Bank Limited considered necessary,
including The British Linen Bank Limited's assessment of general
economic, market and monetary conditions.
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<PAGE> 48
In rendering its opinion, The British Linen Bank Limited assumed and relied
upon the accuracy and completeness of all of the information concerning
Therapeutic Antibodies and Proteus considered in connection with its review of
the financial circumstances of Therapeutic Antibodies and the proposed
transaction, and The British Linen Bank Limited did not assume any
responsibility for independent verification of such information. The British
Linen Bank Limited did not prepare any independent evaluation or appraisal of
any of the assets or liabilities of Therapeutic Antibodies or Proteus, nor did
it conduct a physical inspection of the properties and facilities of Therapeutic
Antibodies or Proteus. With respect to information provided to The British Linen
Bank Limited by the board of directors of Therapeutic Antibodies in relation to:
- the time period for which working capital is available to continue
operations;
- the availability of alternative financing;
- the unlikelihood that alternative financing could be arranged on
acceptable terms in time to provide working capital to continue
operations; and
- the consequences of insolvency
The British Linen Bank Limited assumed that the preceding information is
accurate, complete and represents the best judgments of the management and board
of directors of Therapeutic Antibodies with respect to any of those matters and
The British Linen Bank Limited did not assume any responsibility for independent
verification or assessment of any of this information. With respect to the
financial projections made available to The British Linen Bank Limited and used
in its analyses, The British Linen Bank Limited assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgments of Therapeutic Antibodies' and Proteus' managements as to the expected
future financial performance of Therapeutic Antibodies and Proteus,
respectively, and any synergies arising from the merger including the projected
cost savings attributable to the combination of the companies. The British Linen
Bank Limited further assumed, with the consent of the board of directors of
Therapeutic Antibodies, that the merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes and that the merger will be
accounted for using merger accounting methods under generally accepted
accounting principles in the United Kingdom and as a pooling of interests under
generally accepted accounting principles in the United States.
For purposes of rendering its opinion, The British Linen Bank Limited
assumed, in all respects material to its analyses, that
- the representations and warranties of each party to the merger agreement
and all related documents and instruments contained in these documents
were or will be at the time they are executed true and correct in all
material respects;
- each party to these documents and instruments will perform all of the
covenants and agreements required to be performed by each party under
these documents and instruments; and
- all conditions to the consummation of the merger will be satisfied
without waiver.
The British Linen Bank Limited also assumed that in the course of obtaining the
necessary regulatory or other consents or approvals, contractual or otherwise,
for the merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the merger. The British Linen Bank
Limited also assumed that the final form of the merger agreement, as and when
executed, would be substantially similar to the draft reviewed by it on May 19,
1999. For purposes of its opinion, The British Linen Bank Limited assumed that
neither Proteus nor Therapeutic Antibodies was a party to any pending
transactions, including external financings, recapitalizations or material
merger discussions, other than
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<PAGE> 49
the merger and those activities disclosed to The British Linen Bank Limited or
undertaken in the ordinary course of conducting their respective businesses. The
British Linen Bank Limited necessarily based its opinion upon market, economic,
financial and other conditions as they existed and could be evaluated as of May
20, 1999 and any material change in these conditions would require a re-
evaluation of its opinion. The British Linen Bank Limited expressed no opinion
as to the price at which Proteus ordinary shares would trade subsequent to the
effective time of the merger.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances. Therefore, an opinion is not necessarily susceptible to partial
analysis or summary description. The summary of The British Linen Bank Limited
analyses set forth below does not purport to be a complete description of the
analyses underlying the presentation made by The British Linen Bank Limited to
the Therapeutic Antibodies board of directors or the opinion of The British
Linen Bank Limited. In arriving at its opinion, The British Linen Bank Limited
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor.
Accordingly, The British Linen Bank Limited believes that its analyses and
the summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or of the summary
set forth below, without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses set forth in the
presentation of The British Linen Bank Limited to the Therapeutic Antibodies
board of directors and the opinion of The British Linen Bank Limited. In
performing its analyses, The British Linen Bank Limited made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of The
British Linen Bank Limited, Therapeutic Antibodies and Proteus. The analyses
performed by The British Linen Bank Limited and summarized below are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by these analyses.
Additionally, analyses and estimates relating to the values of businesses
or securities do not purport to be appraisals or to reflect the prices at which
businesses or securities may actually be sold. Accordingly, these analyses and
estimates are inherently subject to substantial uncertainty. The opinion of The
British Linen Bank Limited and the presentation of The British Linen Bank
Limited to the Therapeutic Antibodies board of directors were among several
factors taken into consideration by the Therapeutic Antibodies board of
directors in making its determination to approve the merger agreement.
Consequently, the analyses of The British Linen Bank Limited described below
should not be viewed as determinative of the decision of the Therapeutic
Antibodies board of directors or Therapeutic Antibodies' management to engage in
the merger.
ANALYSIS OF MERGER TERMS
The British Linen Bank Limited reviewed and analyzed the proposed terms of
the merger. Based on the closing price per Proteus ordinary share of L0.395
($0.69) and the closing price per share of Therapeutic Antibodies common stock
of L0.490 ($0.86) on May 19, 1999 and a foreign exchange rate of L1 to $1.617,
The British Linen Bank Limited observed that:
- In accordance with the conversion number, holders of Therapeutic
Antibodies common stock will receive 1.163 Proteus ordinary shares for
each share of Therapeutic Antibodies common stock;
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<PAGE> 50
- Holders of Therapeutic Antibodies common stock will receive approximately
$38.7 million of value in Proteus ordinary shares, which will represent
approximately 45.0% of the equity of Proteus immediately following the
merger and prior to the equity financing; and
- The total acquisition consideration would equate to approximately $38.7
million or approximately L0.4594 ($0.74) per share of Therapeutic
Antibodies common stock, based on a closing price per share of Proteus
ordinary shares of L0.395 ($0.64) on May 19, 1999, representing a
discount of approximately 6.2% to the closing price per share of
Therapeutic Antibodies common stock of L0.490 ($0.79) on May 19, 1999.
HISTORICAL STOCK PRICE COMPARISON
The British Linen Bank Limited examined the comparable price performance of
Therapeutic Antibodies common stock and Proteus ordinary shares. The British
Linen Bank Limited reviewed the ratios of Therapeutic Antibodies' to Proteus'
per share daily closing stock prices for the period commencing on the day
following completion of Therapeutic Antibodies' placing on November 9, 1998 and
ending May 12, 1999 and computed the premium or discount of the conversion
number in relation to these ratios. The ratios of the various stock prices of
Therapeutic Antibodies to Proteus for the period ending May 12, 1999 ranged from
1.80 : 1 to 1.16 : 1 and The British Linen Bank Limited observed that the
conversion number represented a discount of approximately 35% and a premium of
approximately 0.3% respectively to those ratios.
<TABLE>
<CAPTION>
HIGHEST LOWEST
------------ ------------
<S> <C> <C>
Ratio of Therapeutic Antibodies stock
price to Proteus share price between
November 9, 1998 and May 12, 1999....... 1.80:1 1.16:1
Implied discount or premium represented by
the conversation number of 1.163:1...... 35% discount 0.3% premium
</TABLE>
COMPARABLE COMPANY ANALYSIS
Using publicly available information, The British Linen Bank Limited
reviewed and compared selected historical financial, operating and stock market
performance data of Therapeutic Antibodies and Proteus to the corresponding data
of 14 companies with financial and operating characteristics that The British
Linen Bank Limited considered to be comparable to Therapeutic Antibodies and
Proteus. Eight of the companies had shares listed on the London Stock Exchange
and the other six had common stock listed on the NASDAQ National Market. The
comparable companies were: Alizyme plc, British Biotech plc, Cambridge Antibody
Technology Group plc, Cortecs plc, Peptide Therapeutics Group plc, PPL
Therapeutics plc, Vanguard Medica Group plc, Xenova Group plc, Corixa
Corporation, La Jolla Pharmaceutical Co, Magainin Pharmaceuticals Inc,
Pharmacyclics Inc, Techniclone Corporation Inc and Xoma Inc. None of the
comparable companies is identical to Therapeutic Antibodies or Proteus.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading value of Therapeutic Antibodies, Proteus and the comparable
companies.
The British Linen Bank Limited compared:
- market value;
- cash balances;
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<PAGE> 51
- technology value, being market value plus debt less cash;
- revenues for the latest reported 12 month period;
- net income for the latest reported 12 month period;
- the ratio of market value to cash balances; and
- the ratio of market value to net asset value.
This analysis indicated mean market value to cash multiples of 3.2x and
mean market value to net asset multiples of 3.3x.
Applying the mean market value to cash multiple to corresponding financial
data of Therapeutic Antibodies and Proteus resulted in an implied conversion
number of 0.45 : 1. Applying the ratio of market value to net asset value to
corresponding financial data of Therapeutic Antibodies and Proteus resulted in
an implied conversion number of 0.96 : 1.
<TABLE>
<CAPTION>
AVERAGE MULTIPLE OF AVERAGE MULTIPLE OF
MEAN MARKET VALUE MARKET VALUE TO NET CONVERSION NUMBER
TO CASH ASSET VALUE FOR THE MERGER
-------------------- ------------------- -----------------
<S> <C> <C> <C>
Implied conversion number................... 0.45:1 0.96:1 1.163:1
</TABLE>
None of Proteus, Therapeutic Antibodies or the comparable companies
generated net income during their latest reported period and therefore a
comparison of technology value to revenue is not considered appropriate.
The British Linen Bank Limited noted that the technology value of
Therapeutic Antibodies and Proteus at March 31, 1999 was approximately L27
million for each company. This implies a conversion number of 1.42 : 1.
COMPARABLE TRANSACTION ANALYSIS
The British Linen Bank Limited reviewed and analyzed the terms, to the
extent publicly available, of 16 announced or completed "merger of equals"
transactions in various sectors such as biotechnology, utilities, financial
services and consumer products. These precedent transactions were all
transactions valued at between $20 million and $176 million. For each of the
precedent transactions, The British Linen Bank Limited reviewed and analyzed the
stock price premium or discount compared with the price one day prior to the
announcement of the transaction.
Using the stock market prices from one day prior to public announcement,
The British Linen Bank Limited's analysis indicated varying premiums and
discounts for the conversion numbers for the precedent transactions relative to
the market conversion number implied by recent pre-announcement stock market
prices. For the 16 precedent transactions the premiums and discounts ranged from
a premium of 44% to a discount of 9%.
<TABLE>
<CAPTION>
IMPLIED DISCOUNT OF
CONVERSION NUMBER TO
HOLDERS OF THERAPEUTIC
ANTIBODIES COMMON
HIGHEST PREMIUM OF GREATEST DISCOUNT OF STOCK BASED ON SHARE
PRECEDENT TRANSACTIONS PRECEDENT TRANSACTIONS PRICES ON
REVIEWED REVIEWED MAY 19, 1999
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Premium (Discount)...................... 44% (9%) (6%)
</TABLE>
The British Linen Bank Limited noted that none of the precedent
transactions was identical to the proposed merger and that, accordingly, any
analysis of the precedent transactions necessarily involved complex
considerations and judgments concerning differences in industry dynamics, stock
44
<PAGE> 52
market valuation parameters, financial and operating characteristics and various
other factors that would necessarily affect the conversion number for the
precedent transactions.
RELATIVE DISCOUNTED CASH FLOW ANALYSIS
Applying a relative discounted cash flow methodology to Therapeutic
Antibodies and Proteus, The British Linen Bank Limited calculated a range of
implied conversion numbers based on publicly available analyst projections for
the two companies for the years 1999 to 2008 and ranges of terminal values using
multiples of 7x to 10x applied to final year income and ranges of discount rates
from 10% to 20%. Cash balances disclosed in the balance sheets of Therapeutic
Antibodies and Proteus, as reported for each company as at March 31, 1999, were
added to the respective present values derived from the discounted cash flow
calculations. The implied conversion numbers resulting from the relative
discounted cash flow analysis ranged from 1.30 : 1 to 1.42 : 1.
<TABLE>
<CAPTION>
IMPLIED RANGE OF CONVERSION
NUMBERS FROM RELATIVE CONVERSION NUMBER FOR
DISCOUNTED CASHFLOW ANALYSIS THE MERGER
---------------------------- ---------------------
<S> <C> <C>
Implied conversion number........................... 1.30:1 - 1.42:1 1.163:1
</TABLE>
ANALYSIS OF CIRCUMSTANCES SURROUNDING THE MERGER
The British Linen Bank Limited noted Therapeutic Antibodies' statement in
its quarterly report on Form 10-Q filed on May 17, 1999 that:
"[Therapeutic Antibodies] must raise additional financing by mid-1999 to
fund operations. The Company is currently pursuing several financing
alternatives and is engaged in late stage discussions with a strategic
partner that may lead to a business combination on a share exchange
basis at a value that approximates the current market value of the
Company. The Company has also entered into discussions with third
parties relating to sales of additional debt or equity securities, the
disposal of certain non-core investments and additional product
licensing or collaboration arrangements. There can be no assurance that
the Company will obtain the required financing and, if none of these
financing alternatives are successfully implemented, the Company will
not have sufficient funds to continue operations. The Company believes
that in the absence of additional financing, it will have to take action
to protect the Company from its creditors through formal insolvency
proceedings, or pursue alternative courses of action which may result in
there being negligible remaining shareholder value."
The board of Therapeutic Antibodies also informed The British Linen Bank
Limited that in its opinion Proteus would not agree to a merger on a conversion
number more favorable to Therapeutic Antibodies and that there could be no
assurance that the share placing of Proteus shares could be accomplished
successfully if the merger agreement terms were not agreed to promptly.
ALTERNATIVE SOURCES OF FINANCE -- SALE OF ADDITIONAL DEBT AND EQUITY
SECURITIES
The board of directors of Therapeutic Antibodies informed The British Linen
Bank Limited that the board had held discussions with three commercial banks
about the possibility of obtaining additional secured loans and that the board
considered it unlikely that any of these banks would provide a sufficient amount
of financing on terms acceptable to Therapeutic Antibodies. The board also
advised that a secured lender had exercised its right to prepayment of an
$800,000 loan in April 1999, even though Therapeutic Antibodies had requested
that the loan be continued.
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<PAGE> 53
The board of directors of Therapeutic Antibodies informed The British Linen
Bank Limited that Therapeutic Antibodies had continued its effort to identify
potential private investors since its share placing in November 1998 and at the
time Therapeutic Antibodies was in discussions with one individual, which had
been ongoing since February 1999 and which Therapeutic Antibodies did not
anticipate concluding before mid-June 1999.
The board of directors of Therapeutic Antibodies informed The British Linen
Bank Limited that Therapeutic Antibodies had approached two of Therapeutic
Antibodies' largest U.K. institutional investors in order to assess the
possibility of raising equity finance in the event that the merger did not take
place. The board of directors of Therapeutic Antibodies informed The British
Linen Bank Limited that, of the institutions approached, one institution
indicated a preparedness to consider making funds available, provided that any
funds invested by it were matched by other investors, and that the other was
unwilling to take part in such a fundraising.
The British Linen Bank Limited noted that Therapeutic Antibodies announced
a placing of its common stock in October 1998 and that the placing shares were
priced at 40p each, a discount of 53% to the mid-market price of 85p at the
close of business at October 23, 1998, the last business day before the placing
was announced.
ALTERNATIVE SOURCES OF FINANCE -- POSSIBLE DISPOSAL OF NON-CORE INVESTMENTS
The board of directors of Therapeutic Antibodies informed The British Linen
Bank Limited that it had been considering the possible disposal of non-core
assets since September 1998. The board of directors of Therapeutic Antibodies
informed The British Linen Bank Limited that discussions had taken place with
four parties with respect to disposing of selected assets of Therapeutic
Antibodies. Of the four parties approached, two parties had expressed no further
interest in acquiring the assets and discussions are continuing with the other
two parties. Therapeutic Antibodies informed The British Linen Bank Limited that
neither of the discussions was likely to be concluded before mid-June 1999.
The board of directors of Therapeutic Antibodies informed The British Linen
Bank Limited that Therapeutic Antibodies held discussions earlier this year with
merger and acquisition intermediaries with the view of identifying potential
merger partners and that, of the potential parties identified, discussions were
held with Proteus and one other company. The board of directors of Therapeutic
Antibodies informed The British Linen Bank Limited that the discussions with the
other company to explore a potential business combination ceased at an early
stage.
The British Linen Bank Limited noted that Therapeutic Antibodies announced
on March 31, 1999 that it was in preliminary discussions which may lead to a
merger and that since that date neither Therapeutic Antibodies nor The British
Linen Bank Limited had received any expression of interest in opening or
reopening discussions relating to a possible transaction involving Therapeutic
Antibodies.
EFFECTS OF INSOLVENCY PROCEEDINGS
The board of directors of Therapeutic Antibodies informed The British Linen
Bank Limited that in the event of insolvency Therapeutic Antibodies may be
deprived of a significant part of its asset base and its prospective income,
including pursuant to the termination of its principal collaboration agreements.
The British Linen Bank Limited noted that the net asset value of Therapeutic
Antibodies as at March 31, 1999 as reported in its quarterly report on Form 10-Q
was $16.6 million, which is equal to approximately $0.33 per common stock unit.
The board of directors of Therapeutic Antibodies informed The British Linen Bank
Limited that, in the board's view, it was unlikely
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<PAGE> 54
Therapeutic Antibodies would obtain the book value of the assets in the event of
a liquidation of its assets.
CERTAIN RELATIONSHIPS; TERMS OF ENGAGEMENT
The British Linen Bank Limited, as part of its merchant banking services,
is regularly engaged in the valuation of businesses and their securities in
connection with public and private mergers and acquisitions, strategic
transactions, initial public offerings and valuations for corporate and other
purposes. The British Linen Bank Limited has also performed investment banking
services for Therapeutic Antibodies for which it has received customary fees,
including acting as sponsor for the initial public offering of 21,407,979 shares
of common stock on July 15, 1996 and for the placing of 28,690,561 shares of
common stock on October 26, 1998. The British Linen Bank Limited received a
retainer fee during the period from January 1997 to September 1998. The British
Linen Bank Limited and/or its affiliates currently own 1,383,105 shares of
Therapeutic Antibodies common stock.
The Therapeutic Antibodies board of directors selected The British Linen
Bank Limited to serve as its financial adviser in connection with the proposed
transaction with Proteus on the basis of its experience and expertise in
transactions similar to the merger and its knowledge and familiarity with
Therapeutic Antibodies resulting from the investment banking services it has
previously provided for Therapeutic Antibodies. The British Linen Bank Limited
was not retained to, nor did it, advise Therapeutic Antibodies or the board of
directors of Therapeutic Antibodies with respect to alternatives to the merger
or Therapeutic Antibodies' underlying decision to proceed with or effect the
merger. Furthermore, the Therapeutic Antibodies board did not request The
British Linen Bank Limited to, nor did The British Linen Bank Limited, solicit
or assist the board of directors of Therapeutic Antibodies in soliciting
indications of interest for the acquisition of Therapeutic Antibodies. In the
ordinary course of business, The British Linen Bank Limited and its affiliates
may hold or actively trade in debt and equity securities of Therapeutic
Antibodies and Proteus for its own account or for its customers. The British
Linen Bank Limited and its affiliates anticipate holding and trading in the
securities of the combined company following consummation of the merger. The
British Linen Bank Limited may continue in the future to provide additional
merchant banking or other financial advisory services to the combined company.
Under the terms of The British Linen Bank Limited's engagement, Therapeutic
Antibodies has agreed to pay The British Linen Bank Limited for its financial
advisory services in connection with the proposed merger a transaction fee,
payable upon effectiveness of the merger, of 0.8% of the aggregate consideration
payable in the merger less any fees previously paid. If the merger fails to be
approved by the Therapeutic Antibodies stockholders, or if the shareholders of
Proteus fail to approve any of the merger, the increase in the authorized share
capital of Proteus, the issuance of ordinary shares in the merger or the related
share placing, if the merger agreement is terminated, or in any event, if the
merger has not become effective prior to February 14, 2000, then Therapeutic
Antibodies will pay a transaction fee, payable upon the occurrence of the
applicable foregoing event, of 0.2% of the aggregate consideration that would
have been payable in the merger less any fees previously paid. Therapeutic
Antibodies has agreed, subject to certain conditions, to reimburse The British
Linen Bank Limited for all reasonable costs and expenses, including its legal
fees and expenses, and to indemnify The British Linen Bank Limited and certain
related persons against certain liabilities, including liabilities under the
federal securities laws, or relating to or arising out of The British Linen Bank
Limited's engagement as financial adviser. The British Linen Bank Limited may
agree with Therapeutic Antibodies that the excess of The British Linen Bank
Limited's recoverable expenses over L12,000 be payable in shares to be issued by
Proteus following consummation of the merger at a value per share equal to that
of shares expected to be issued in the share placing.
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<PAGE> 55
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Therapeutic Antibodies board,
stockholders of Therapeutic Antibodies should be aware that, as described below,
certain members of Therapeutic Antibodies' management and the Therapeutic
Antibodies board may have interests in the merger that are different from, or in
addition to, the interests of Therapeutic Antibodies stockholders generally, and
that these interests may create potential conflicts of interest. The Therapeutic
Antibodies board was advised of these interests and considered them, among other
factors, in approving the merger and related transactions. These interests are
summarized below.
PROTEUS GOVERNANCE ARRANGEMENTS
The merger agreement contains provisions relating to the corporate
governance of Proteus after the merger. See, "Management of Proteus After the
Merger."
WALLIS OPTION AGREEMENT
Pursuant to a Consultancy Agreement, dated August 21, 1998, between
Therapeutic Antibodies and Mr. Wallis, Chairman of the Board of Therapeutic
Antibodies, Mr. Wallis may, subject to various conditions, be entitled to
receive shares of Therapeutic Antibodies common stock upon the achievement of
various performance criteria, as more fully described in "Therapeutic Antibodies
Executive Compensation Information -- Employment/Consultancy Agreements." At the
time the merger agreement was executed, Mr. Wallis entered into an agreement
with Proteus providing that, if the merger is consummated, the existing
Therapeutic Antibodies option shall expire and he shall have a new option to
subscribe for a number of Proteus ordinary shares equal to up to 4.5% of the
Proteus ordinary shares outstanding following the merger but prior to the
completion of the Proteus equity financing. The exercise price will be L0.395
per share. Mr. Wallis will become entitled to subscribe for the maximum 4.5% of
Proteus ordinary shares only if the growth in the market capitalization of
Proteus, when compared with the growth in market capitalization of the companies
constituting the FTSE Smallcap Index between the completion of the merger and
exercise, ranks in the top quartile. Mr. Wallis will receive nothing if Proteus
is in the median position or below, but his entitlement will increase on a
straight-line basis between the median position and the position representing
the 25th percentile. The option shall be exercisable once during each of the
90-day periods commencing on December 31, 2001 and December 31, 2002, and
expires on March 31, 2003.
CONTINUATION OF HEATH AND CHRISTIE EMPLOYMENT AGREEMENTS
Dr. Heath, the Chief Executive Officer of Therapeutic Antibodies, and James
Christie, Therapeutic Antibodies' Director of Global Operations, currently have
employment agreements with Therapeutic Antibodies, as described in "Therapeutic
Antibodies Executive Compensation Information -- Employment/Consultancy
Agreements." Proteus and PI Merger Sub have agreed to assume and continue the
existing employment agreements with Dr. Heath and Mr. Christie following the
merger.
The key benefits afforded to Dr. Heath under his employment agreement are
as follows:
- an annual base salary of $215,000 per year, subject to periodic review,
and a bonus; and
- severance compensation in the amount of his annual salary in the event of
termination without cause.
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The key benefits afforded to Mr. Christie under his employment agreement
are as follows:
- an annual base salary of L85,000, subject to periodic review; and
- his employment agreement is terminable only upon six months written
notice unless the termination is for cause.
GRATION SEVERANCE ARRANGEMENT
Conditional on the merger becoming effective, David Gration, the Chairman
of Proteus, has agreed to the termination of his employment agreement with
Proteus and will receive a sum not to exceed L90,000 as compensation for the
loss of remuneration and benefits. He will, however, continue as a non-executive
director of Proteus, with the designation of Deputy Chairman, and it is
anticipated that he will receive an annual fee of L54,600 in this capacity.
THERAPEUTIC ANTIBODIES OPTION PLANS
If the merger is consummated, each outstanding option to purchase or
acquire shares of Therapeutic Antibodies common stock under Therapeutic
Antibodies' 1990 stock incentive plan, whether vested or unvested, shall be
converted into an option to purchase Proteus ordinary shares in accordance with
the formula described under the heading "The Merger and Merger Agreement --
Treatment of Therapeutic Antibodies Stock Options, Warrants and Convertible
Notes." As of August 1, 1999, five Therapeutic Antibodies executive officers and
directors held an aggregate of 655,000 options to purchase shares of Therapeutic
Antibodies common stock under the 1990 stock incentive plan. The exercise price
of these options exceeded the market price of Therapeutic Antibodies common
stock on August 1, 1999.
Under the terms of the Therapeutic Antibodies 1997 stock option plan, all
unvested stock options to purchase Therapeutic Antibodies common stock under the
1997 stock option plan become exercisable prior to the time of the merger. All
outstanding options under this plan, if not exercised prior to the time the
merger becomes effective, shall terminate. As of August 1, 1999, three directors
and/or executive officers of Therapeutic Antibodies held an aggregate of 205,000
of these options. The exercise price of these options exceeded the market price
of Therapeutic Antibodies common stock on August 1, 1999.
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THE MERGER AND MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, a copy of which is attached as Annex A and is incorporated by
reference in this proxy statement/prospectus. The summary is qualified in its
entirety by reference to the merger agreement. We urge you to read the merger
agreement in its entirety for a more complete description of the terms and
conditions of the merger.
THE MERGER
The merger agreement provides that Therapeutic Antibodies will be merged
with and into PI Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Proteus. At the effective time of the merger, PI Merger Sub will
continue as the surviving corporation in accordance with the Delaware General
Corporation Law. The merger agreement provides that the closing of the merger
will take place as soon as practicable after the satisfaction or waiver of the
conditions in the merger agreement and the merger will become effective when
Proteus and Therapeutic Antibodies file a certificate of merger with the
Secretary of State of the State of Delaware, or at such later time as the
parties may agree and specify in the certificate of merger.
MERGER CONSIDERATION
At the effective time of the merger, each issued and outstanding share of
Therapeutic Antibodies common stock, excluding shares of Therapeutic Antibodies
common stock owned by Therapeutic Antibodies, Proteus, any of their wholly owned
subsidiaries or by Therapeutic Antibodies stockholders who have properly
exercised appraisal rights, will be converted into the right to receive 1.163
ordinary shares of Proteus, subject to adjustment as described below. Each share
of Therapeutic Antibodies common stock owned by Therapeutic Antibodies, Proteus
or any of their wholly owned subsidiaries will be cancelled.
The exchange ratio described above may be adjusted by Proteus and
Therapeutic Antibodies to preserve the economic benefits reasonably expected to
be received by Proteus and Therapeutic Antibodies as a result of the
consummation of the merger in the event of any subdivision, consolidation or
reclassification of Proteus ordinary shares or the issuance or the authorization
of issuance of any other securities in exchange or in substitution for Proteus
ordinary shares.
TREATMENT OF THERAPEUTIC ANTIBODIES STOCK OPTIONS, WARRANTS AND CONVERTIBLE
NOTES
OPTIONS ISSUED UNDER THERAPEUTIC ANTIBODIES' 1990 STOCK INCENTIVE PLAN. At
the effective time of the merger, each outstanding option to purchase shares of
Therapeutic Antibodies common stock under Therapeutic Antibodies' 1990 stock
incentive plan will be assumed by Proteus and converted into an option to
purchase Proteus ordinary shares. The number of Proteus ordinary shares subject
to each assumed Therapeutic Antibodies stock option will be adjusted in
accordance with the exchange ratio. Any fractional ordinary shares of Proteus
resulting from such adjustment will be rounded down to the nearest share. The
exercise price per ordinary share of Proteus under each assumed Therapeutic
Antibodies stock option will be determined by dividing the aggregate exercise
price that would have been payable upon exercising the assumed Therapeutic
Antibodies stock option in full immediately prior to the effective time of the
merger by the number of Proteus ordinary shares subject to the assumed
Therapeutic Antibodies stock option. The exercise price per ordinary share of
Proteus will be rounded up to the nearest whole cent.
OPTIONS ISSUED UNDER THERAPEUTIC ANTIBODIES' 1997 STOCK OPTION PLAN. At the
effective time of the merger, Therapeutic Antibodies' 1997 stock option plan
will terminate and each outstanding
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option to purchase shares of Therapeutic Antibodies common stock under the 1997
stock option plan will terminate. Any holder of an option under the 1997 stock
option plan has the right, immediately prior to the effective time of the
merger, to exercise his or her option in whole or in part whether or not the
vesting requirements have been satisfied.
WARRANTS. At the effective time of the merger, each outstanding warrant to
purchase shares of Therapeutic Antibodies common stock will be assumed by
Proteus and converted into a warrant to purchase Proteus ordinary shares. The
number of Proteus ordinary shares subject to each assumed Therapeutic Antibodies
warrant will be adjusted in accordance with the exchange ratio. Any fractional
ordinary shares of Proteus resulting from such adjustment will be rounded down
to the nearest whole number. The exercise price per ordinary share of Proteus
under each assumed Therapeutic Antibodies warrant will be determined by dividing
the aggregate exercise price that would have been payable upon exercising the
assumed Therapeutic Antibodies warrant in full immediately prior to the
effective time of the merger by the number of Proteus ordinary shares subject to
the assumed Therapeutic Antibodies warrant. The exercise price per ordinary
share of Proteus will be rounded up to the nearest whole cent.
CONVERTIBLE NOTES. At the effective time of the merger, each of Therapeutic
Antibodies' 6% convertible notes, due October 1, 2000, will become obligations
of PI Merger Sub.
PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES; FRACTIONAL SHARES
The conversion of Therapeutic Antibodies common stock into the right to
receive Proteus ordinary shares will occur automatically at the time of the
merger. As soon as reasonably practicable after the effective time of the
merger, an exchange agent designated by Proteus and Therapeutic Antibodies will
mail a transmittal letter to each former Therapeutic Antibodies stockholder. The
transmittal letter will contain instructions with respect to the surrender of
certificates previously representing Therapeutic Antibodies common stock to be
exchanged for certificates representing Proteus ordinary shares.
THERAPEUTIC ANTIBODIES STOCKHOLDERS SHOULD NOT FORWARD THERAPEUTIC
ANTIBODIES STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED
TRANSMITTAL LETTERS. THERAPEUTIC ANTIBODIES STOCKHOLDERS SHOULD NOT RETURN THEIR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
After the merger, each certificate that previously represented shares of
Therapeutic Antibodies common stock will represent only the right to receive,
upon surrender of that certificate, a certificate representing the number of
Proteus ordinary shares into which the shares of Therapeutic Antibodies common
stock were converted in the merger, based upon the exchange ratio, and cash
instead of fractional Proteus ordinary shares as described below.
In the event of a transfer of ownership of Therapeutic Antibodies common
stock which is not registered in the transfer records of Therapeutic Antibodies,
a certificate representing the proper number of Proteus ordinary shares may be
issued to a person other than the person in whose name the certificate so
surrendered is registered, if:
- that certificate is properly endorsed or otherwise is in proper form for
transfer; and
- the person requesting such issuance pays any transfer or other taxes
required by reason of the issuance of Proteus ordinary shares to a person
other than the registered holder of such certificate or shall establish
to the satisfaction of Proteus that such tax has been paid or is not
applicable.
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All Proteus ordinary shares issued upon the surrender for exchange of
shares of Therapeutic Antibodies common stock, including any cash paid instead
of any fractional Therapeutic Antibodies common shares, will be deemed to have
been issued in full satisfaction of all rights pertaining to shares of
Therapeutic Antibodies common stock.
No fractional ordinary shares of Proteus will be issued in the merger. Each
holder of Therapeutic Antibodies shares who would otherwise have been entitled
to receive a fraction of a Proteus ordinary share will receive an amount in
cash, without interest, equal to the product of such fraction multiplied by the
average of the closing of the mid-market prices of the Proteus ordinary shares
on the London Stock Exchange on each of the last five trading days immediately
preceding the date on which the effective time of the merger occurs.
Following approval of the merger of both Proteus' and Therapeutic
Antibodies' shareholders meetings on September 13, 1999, Therapeutic Antibodies
will make an application for the cancellation of the listing of its common stock
on the London Stock Exchange at the close of business on September 15, 1999.
REPRESENTATIONS AND WARRANTIES
Proteus and Therapeutic Antibodies have made representations and warranties
in the merger agreement relating to, among other things:
- their organization and the organization of their subsidiaries;
- their capital structures;
- the authorization, execution, delivery and enforceability of the merger
agreement and related matters;
- the accuracy of information supplied for inclusion in this proxy
statement/prospectus and the Class 1 shareholder circular to be mailed to
shareholders of Proteus;
- compliance with laws;
- litigation;
- taxes and tax returns;
- the absence of certain changes or events;
- the shareholder votes required to approve the merger;
- disclosure of material agreements and commitments;
- employee benefit plans;
- brokers' and finders' fees incurred in connection with the merger;
- environmental matters;
- labor matters;
- proprietary rights;
- insurance;
- permits and licenses;
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- the absence of undisclosed liabilities;
- the accuracy of books and records;
- title to properties;
- regulatory requirements for products; and
- year 2000 compliance.
The merger agreement also contains representations and warranties made by
Proteus relating to the filing of documents and announcements with the London
Stock Exchange and the accuracy of the information in those documents and
announcements.
The merger agreement also contains representations and warranties made by
Therapeutic Antibodies relating to:
- the filing of reports with the SEC and the accuracy of the information in
those reports;
- the receipt of a fairness opinion from The British Linen Bank Limited;
and
- its DigiTAb(R) and CroTAb(R) products.
CERTAIN COVENANTS
CONDUCT OF BUSINESS PRIOR TO THE MERGER. Proteus and Therapeutic Antibodies
have agreed that, during the period from the date of the merger agreement and
continuing until the effective time of the merger, each of Proteus and
Therapeutic Antibodies and their respective subsidiaries will, among other
things:
- carry on its business in the ordinary course; and
- preserve intact its present business organization and its relationships
with customers, suppliers and others with which it has business dealings.
During the same period, Proteus and Therapeutic Antibodies have agreed that
each of Proteus and Therapeutic Antibodies and their respective subsidiaries
will not, without the consent of the other and subject to certain exceptions
specified in the merger agreement, among other things:
- amend its charter or organizational documents;
- issue additional shares of its capital stock or securities convertible
into or exchangeable for capital stock;
- acquire any corporation or business organization or make any investment
in any other individual or entity except in the ordinary course of
business;
- incur any indebtedness for borrowed money other than in the ordinary
course of business;
- take any action with respect to the grant of severance or termination
pay;
- adopt, enter into or amend any bonus or compensation plan or increase in
any manner the compensation or benefits of any director, officer or
employee;
- make any tax election, settle or compromise any tax liability or change
its method of accounting unless required by generally accepted accounting
principles;
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- enter into any contract except in the ordinary course of business or
amend, terminate or modify any existing material contract;
- enter into, amend, modify or terminate any agreement with an affiliate;
- settle or compromise any pending or threatened suit for an amount in
excess of $50,000 per suit; and
- authorize or make capital expenditures except as specified in its capital
budget.
During the same period, Therapeutic Antibodies has agreed that each of
Therapeutic Antibodies and its subsidiaries will not declare or pay any dividend
or other distribution or redeem, purchase or otherwise acquire any capital stock
of Therapeutic Antibodies or any of its subsidiaries.
STOCKHOLDERS MEETINGS. Each of Therapeutic Antibodies and Proteus have
agreed to duly call, give notice of, convene and hold meetings of their
stockholders for the purpose of obtaining the required stockholder votes to
approve the merger agreement and the merger. Each of Therapeutic Antibodies and
Proteus have agreed, subject to their fiduciary duties to their respective
stockholders, as determined in good faith by their boards of directors based
upon the advice of counsel, to recommend to their stockholders that they approve
the merger. Proteus has also agreed, subject to its fiduciary duties to its
stockholders, to recommend that Proteus stockholders approve the terms of Mr.
Wallis' option deed with Proteus.
NO SOLICITATION. Each of Proteus and Therapeutic Antibodies has also agreed
that, prior to the effective time of the merger, it will not:
- solicit, initiate, facilitate or encourage any acquisition proposal;
- negotiate, explore or otherwise communicate or provide any information to
any person with respect to an acquisition proposal; or
- enter into any agreement requiring it to abandon, terminate or fail to
consummate the merger.
An "acquisition proposal" is defined in the merger agreement to mean any
proposal with respect to any tender offer, exchange offer, merger,
consolidation, sale of assets, sales of capital stock or other business
combination or the acquisition of 15% or more of the assets or capital stock of
a party and its subsidiaries taken as a whole.
However, each of Proteus and Therapeutic Antibodies may, in response to an
unsolicited written binding offer with respect to an acquisition proposal which
contains no financing condition, furnish non-public information to, and
participate in discussions or negotiations with, any third party regarding an
acquisition proposal if its board of directors:
- determines in good faith, after consultation with its outside counsel and
financial advisors, that the acquisition proposal would result in a
transaction which is more favorable to its shareholders from a financial
point of view than the merger and that the acquisition proposal is likely
to be consummated; and
- determines in good faith, after advice of its outside counsel, that
failing to take such action would constitute a breach of fiduciary duties
under applicable law.
Such an acquisition proposal is referred to in the merger agreement as a
"superior proposal."
The merger agreement provides that each of Proteus and Therapeutic
Antibodies will advise the other in writing within 24 hours of receipt of a
superior proposal and within 48 hours of receipt of an
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acquisition proposal. Each of Proteus and Therapeutic Antibodies has agreed to
advise the other at least three business days prior to entering into an
agreement regarding a superior proposal.
DIRECTOR AND OFFICER INSURANCE AND INDEMNIFICATION. For six years after the
effective time of the merger, the surviving corporation will indemnify and hold
harmless each person serving as a director or officer of Therapeutic Antibodies
as of the date of the merger agreement against any costs, expenses or
liabilities pertaining to acts or omissions occurring at or prior to the
effective time of the merger to the extent provided for in Therapeutic
Antibodies' certificate of incorporation and bylaws. For six years after the
effective time of the merger, the surviving corporation will maintain in effect
the policies of directors' and officers' liability insurance maintained by
Therapeutic Antibodies or will enter into new policies with similar terms with
respect to claims arising from facts or events that occurred before the
effective time of the merger. The surviving corporation is not obligated to
spend more than 150% of the insurance premiums paid by Therapeutic Antibodies on
the date of the merger agreement for such directors' and officers' liability
insurance.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The obligations of each party to effect the merger are subject to the
satisfaction or waiver of certain conditions, including:
- the shareholders of Proteus shall have passed (A) ordinary resolutions to
- approve the merger agreement and the merger;
- increase the authorized share capital of Proteus;
- authorize the board of Proteus to allot Proteus ordinary shares to be
issued in the merger and the financing; and
(B) a special resolution disapplying the statutory pre-emption rights in
respect of the Proteus ordinary shares to be allotted pursuant to the
equity financing;
- the stockholders of Therapeutic Antibodies shall have adopted the merger
agreement and approved the consummation of the merger;
- the registration statement for the Proteus ordinary shares of which this
proxy statement/ prospectus is a part shall have become effective and
shall not be the subject of any stop order, and no proceedings for that
purpose shall have been initiated or threatened by the SEC;
- no temporary restraining order, preliminary or permanent injunction or
other order issued by a court or other entity of competent jurisdiction
shall be in effect which prohibits the consummation of the merger;
- all required governmental authorizations, orders, approvals and filings
shall have been obtained or made;
- the London Stock Exchange shall have agreed to admit to the Official
List, subject to allotment, the Proteus ordinary shares to be issued in
the merger and the financing and such agreement shall not have been
withdrawn;
- the placing agreement between Proteus and WestLB Panmure Limited, dated
May 20, 1999, shall be unconditional in all respects except that the
placing agreement may still be conditional on the consummation of the
transactions contemplated by the merger agreement and the admission of
the Proteus ordinary shares described above to the Official List; and
- all consents necessary under the Exon-Florio Act shall have been
received.
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The obligation of Proteus to effect the merger is also subject to the
satisfaction or waiver by Proteus of additional conditions, including the
following:
- the representations and warranties of Therapeutic Antibodies set forth in
the merger agreement that are qualified as to materiality shall have been
true and correct when made and shall be true and correct on the closing
date and each of the representations and warranties that is not so
qualified shall have been true and correct in all material respects when
made and shall be true and correct in all material respects on the
closing date;
- Therapeutic Antibodies shall have performed or complied with its
agreements and covenants under the merger agreement that are qualified as
to materiality and shall have performed or complied in all material
respects with its other agreements and covenants that are not so
qualified as to materiality;
- Proteus shall have received an opinion from PricewaterhouseCoopers LLP
that the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and no gain or loss will be
recognized by Proteus, PI Merger Sub or Therapeutic Antibodies as a
result of the merger for U.S. federal income tax purposes;
- Therapeutic Antibodies shall have received all written consents,
assignments, waivers or other certificates contemplated by the merger
agreement or reasonably determined necessary by Proteus' legal counsel to
provide for the continuation of Therapeutic Antibodies' material
contracts and leases;
- holders of not more than 2.5% of the shares of Therapeutic Antibodies
common stock outstanding on the closing date of the merger shall have
exercised appraisal rights;
- Proteus shall have received a written opinion of legal counsel to
Therapeutic Antibodies;
- the voting agreements entered into in connection with the execution of
the merger agreement shall be in full force and effect;
- Proteus shall have received a letter from the U.K. Treasury that it
consents to the merger for purposes of the Income and Corporations Taxes
Act 1988;
- no event of default shall have occurred under Therapeutic Antibodies'
bridge financing and the borrowings under the bridge financing shall have
not been repaid, except through the application of proceeds of a
financing approved by Proteus;
- the option agreement with Stuart Wallis entered into on May 20, 1999
shall not have been amended or supplemented and Therapeutic Antibodies
shall not have any other arrangement with Mr. Wallis regarding the
subject matter of the option agreement; and
- there shall not have occurred since the date of the merger agreement any
material adverse effect on Therapeutic Antibodies.
As used in the merger agreement, a "material adverse effect" is defined as
any change, circumstance or effect that:
- is or is reasonably likely to be materially adverse to the business,
operations, assets, liabilities, financial condition or results of
operations of an entity and its subsidiaries, taken as a whole; or
- would materially and adversely affect the ability of Proteus or
Therapeutic Antibodies, as the case may be, to perform its obligations
under the merger agreement or consummate the transactions contemplated by
the merger agreement.
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The obligation of Therapeutic Antibodies to effect the merger is also
subject to the satisfaction or waiver by Therapeutic Antibodies of additional
conditions, including the following:
- the representations and warranties of Proteus set forth in the merger
agreement that are qualified as to materiality shall have been true and
correct when made and shall be true and correct on the closing date and
each of the representations and warranties that is not so qualified shall
have been true and correct in all material respects when made and shall
be true and correct in all material respects on the closing date;
- Proteus shall have performed or complied with its agreements and
covenants under the merger agreement that are qualified as to materiality
and shall have performed or complied in all material respects with its
other agreements and covenants that are not so qualified as to
materiality;
- Therapeutic Antibodies shall have received an opinion from
PricewaterhouseCoopers LLP that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and no gain or loss will be recognized by Proteus, PI Merger
Sub or Therapeutic Antibodies as a result of the merger for U.S. federal
income tax purposes;
- Proteus shall have received all written consents, assignments, waivers or
other certificates contemplated by the merger agreement or reasonably
determined necessary by Therapeutic Antibodies' legal counsel to provide
for the continuation of Proteus' material contracts and leases;
- Proteus shall not have declared or paid any dividend or redeemed,
purchased or otherwise acquired any capital stock of Proteus or any of
its subsidiaries since the date of the merger agreement; and
- there shall not have occurred since the date of the merger agreement any
material adverse effect on Proteus.
TERMINATION; TERMINATION FEES
The merger agreement may be terminated at any time prior to the effective
time of the merger:
- by mutual written consent of Proteus and Therapeutic Antibodies;
- by either Proteus or Therapeutic Antibodies if:
(a) the merger is not consummated by December 20, 1999, so long as the
terminating party did not prevent consummation by failing to fulfill
any of its obligations under the merger agreement;
(b) any court or other governmental entity has issued an order, decree
or ruling which cannot be appealed and which makes the merger
illegal or prohibits the consummation of the merger, so long as the
terminating party shall not have been the cause of such order or
injunction;
(c) the Therapeutic Antibodies stockholder approval shall not have been
obtained at a duly held stockholders meeting of Therapeutic
Antibodies or at any adjournment of the meeting at which the merger
is voted upon; or
(d) the Proteus shareholders shall not have passed the necessary
resolutions at a duly held shareholders meeting of Proteus or at any
adjournment of the meeting at which the merger is voted upon.
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The merger agreement may be terminated by Proteus at any time prior to the
effective time of the merger:
(1) if the Therapeutic Antibodies board shall have withdrawn or adversely
modified its recommendation that stockholders adopt the merger
agreement and approve the consummation of the merger;
(2) if the Therapeutic Antibodies board shall have failed to recommend to
its stockholders that they adopt the merger agreement and approve the
merger or shall have recommended that they approve an acquisition
proposal other than the merger;
(3) if the Therapeutic Antibodies board shall have failed to oppose, or
recommends approval of, a tender offer or exchange offer that, if
successful, would result in any person becoming a beneficial owner of
15% or more of the outstanding Therapeutic Antibodies common stock;
(4) if the Therapeutic Antibodies board shall have failed, under certain
circumstances, to call and hold a stockholder's meeting to vote on the
merger prior to December 20, 1999;
(5) if the Therapeutic Antibodies board shall have determined to accept a
superior proposal; or
(6) upon a material breach of any covenant or agreement on the part of
Therapeutic Antibodies set forth in the merger agreement or if any
representation or warranty of Therapeutic Antibodies that is qualified
as to materiality shall have become untrue or any representation or
warranty that is not so qualified shall have become untrue in any
material respect, provided that such breach has not been cured prior to
the effective time of the merger and within 10 days of notice to
Therapeutic Antibodies.
In the event that Proteus terminates the merger agreement:
- for any of the reasons specified under paragraphs (1) - (5) above,
Therapeutic Antibodies has agreed to pay Proteus a cash fee of $1,900,000
by wire transfer of immediately available funds no later than two
business days after such termination;
- for the reasons specified under paragraph (6) above or because the
Therapeutic Antibodies stockholder approval shall not have been obtained
at a duly held stockholders meeting of Therapeutic Antibodies or at any
adjournment of the meeting at which the merger is voted upon, Therapeutic
Antibodies has agreed to pay Proteus a cash fee of $1,500,000 by wire
transfer of same day funds no later than three business days after such
termination; or
- for the reasons specified under paragraph (6) above or because the
Therapeutic Antibodies stockholder approval shall not have been obtained
at a duly held stockholders meeting of Therapeutic Antibodies or at any
adjournment of the meeting at which the merger is voted upon and during
the 12 month period following such termination Therapeutic Antibodies
shall have entered into a binding agreement regarding an acquisition
proposal with a party that Therapeutic Antibodies had discussions with
within six months after the merger agreement is terminated, Therapeutic
Antibodies has agreed to pay Proteus $1,900,000 less the amount of any
fees previously paid by Therapeutic Antibodies to Proteus.
The merger agreement may be terminated by Therapeutic Antibodies at any
time prior to the effective time of the merger:
(1) if the Proteus board shall have withdrawn or adversely modified its
recommendation that shareholders adopt the merger agreement and approve
the consummation of the merger;
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(2) if the Proteus board shall have failed to recommend to its shareholders
that they adopt the merger agreement and approve the merger or shall
have recommended that they approve an acquisition proposal other than
the merger;
(3) if the Proteus board shall have failed to oppose, or recommends
approval of, a tender offer or exchange offer that, if successful,
would result in any person becoming a beneficial owner of 15% or more
of the outstanding Proteus ordinary shares;
(4) if the Proteus board shall have failed, under certain circumstances, to
call and hold a shareholder's meeting to, among other things, vote on
the merger prior to December 20, 1999;
(5) if the Proteus board shall have determined to accept a superior
proposal; or
(6) upon a material breach of any covenant or agreement on the part of
Proteus set forth in the merger agreement or if any representation or
warranty of Proteus that is qualified as to materiality shall have
become untrue or any representation or warranty that is not so
qualified shall have become untrue in any material respect, provided
that such breach has not been cured prior to the effective time of the
merger and within 10 days of notice to Proteus.
In the event that Therapeutic Antibodies terminates the merger agreement:
- for any of the reasons specified under paragraphs (1) - (5) above,
Proteus has agreed to pay Therapeutic Antibodies a cash fee of $1,900,000
by wire transfer of immediately available funds no later than two
business days after such termination;
- for the reasons specified under paragraph (6) above or because Proteus'
shareholders shall not have passed the necessary ordinary resolutions or
special resolution at a duly held shareholders meeting of Proteus or at
any adjournment of the meeting at which the merger is voted upon, Proteus
has agreed to pay Therapeutic Antibodies a cash fee of $900,000 by wire
transfer of same day funds no later than three business days after such
termination; or
- for the reasons specified under paragraph (6) above or because Proteus'
shareholders shall not have passed the necessary resolutions at a duly
held shareholders meeting of Proteus or at any adjournment of the meeting
at which the merger is voted upon and during the 12 month period
following such termination Proteus shall have entered into a binding
agreement regarding an acquisition proposal with a party that Proteus had
discussions with within six months after the merger agreement is
terminated, Proteus has agreed to pay Therapeutic Antibodies $1,900,000
less the amount of any fees previously paid by Proteus to Therapeutic
Antibodies.
The provisions of the merger agreement regarding the termination fees
payable by Therapeutic Antibodies to Proteus and by Proteus to Therapeutic
Antibodies, each as described above, will be effective only if:
- Therapeutic Antibodies' stockholders approve and adopt the merger
agreement; and
- Proteus' shareholders pass resolutions to, among other things, approve
the merger agreement and the merger.
In the event the merger agreement is terminated, no provision of the merger
agreement survives, except for the provisions relating to confidentiality,
termination, expenses and miscellaneous provisions of general application.
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<PAGE> 67
FEES AND EXPENSES GENERALLY; AMENDMENT AND WAIVER
PAYMENT OF EXPENSES OF THE MERGER GENERALLY. Except as described above, all
fees and expenses incurred in connection with the preparation, execution and
performance of the merger agreement and the consummation of the merger will be
paid by the party incurring such fees and expenses.
AMENDMENT AND WAIVER. Proteus and Therapeutic Antibodies may amend the
merger agreement by written agreement at any time prior to approval of the
merger agreement by the stockholders of Therapeutic Antibodies. After this
approval, no amendment that alters or changes the consideration to be received
by the Therapeutic Antibodies stockholders or that changes the provisions of the
merger agreement if such change would materially adversely effect the
Therapeutic Antibodies stockholders may be made without the further approval of
the stockholders of Therapeutic Antibodies.
At any time prior to the effective time, to the extent legally allowed,
Proteus and Therapeutic Antibodies may
- extend the time for performance of any of the obligations or other acts
of the other parties to the merger agreement;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered in connection with the
merger agreement; and
- waive compliance with any of the agreements or conditions contained in
the merger agreement.
Extensions or waivers must be in writing and signed by the party granting the
extension or waiver.
VOTING AGREEMENTS
As an inducement to the willingness of Proteus to enter into the merger
agreement, executive officers and directors of Therapeutic Antibodies and
certain of their affiliates who collectively held, at the record date, 10.65% of
the outstanding shares of Therapeutic Antibodies common stock entered into
voting agreements for the benefit of Proteus. These stockholders are:
- Andrew J. Heath, Chief Executive Officer;
- Stuart M. Wallis, Chairman of the Board of Directors;
- Tim Chard, Senior Vice President -- Research and Development
Administration;
- Saul Komisar, Director of Business Development;
- Martin S. Brown, Director; and
- Family members and affiliated trusts of Martin S. Brown.
The form of the voting agreement entered into by each of these stockholders
is attached as Annex D to this proxy statement/prospectus.
In each voting agreement, each stockholder has agreed, among other things:
- to vote all of the stockholder's shares of Therapeutic Antibodies common
stock in favor of the adoption of the merger agreement and approval of
the merger and the other transactions contemplated by the merger
agreement; and
- to vote all of the stockholder's shares of Therapeutic Antibodies common
stock in favor of any other matter necessary to the consummation of the
transactions contemplated by the merger agreement.
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<PAGE> 68
Each stockholder also agreed to appoint Barry Riley and David Gration, or
any other designee of Proteus, as the sole and exclusive proxy and
attorney-in-fact of the stockholder, with full power to vote or deliver written
consents or otherwise act with respect to the stockholder's shares of
Therapeutic Antibodies common stock. This proxy is irrevocable until the
termination of the voting agreement. Each voting agreement terminates
automatically upon the earliest to occur of the effective time of the merger or
the termination of the merger agreement in accordance with its terms.
APPRAISAL RIGHTS OF THERAPEUTIC ANTIBODIES STOCKHOLDERS
If the merger is completed, a Therapeutic Antibodies stockholder who
- continues to hold shares through the effective time of the merger;
- strictly complies with the procedures set forth under Section 262 of the
Delaware General Corporation Law; and
- has not voted in favor of the merger;
may obtain an appraisal of those shares from the Delaware Court of Chancery
under Section 262 of the Delaware General Corporation Law and receive payment
for the "fair value" of those shares instead of the merger consideration.
Therapeutic Antibodies stockholders considering seeking appraisal of their
shares of Therapeutic Antibodies common stock should note that the fair value of
their shares determined under Section 262 could be more, the same or less than
the merger consideration they would receive if they did not seek appraisal of
their shares. The costs of the appraisal proceeding may be determined by the
Chancery Court and allocated among the parties as the Chancery Court deems
equitable in the circumstances. Upon application of a Therapeutic Antibodies
stockholder, the Chancery Court may order all or a portion of the expenses
incurred by any Therapeutic Antibodies stockholder in connection with the
appraisal proceeding including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, to be charged pro rata against the value
of all shares of Therapeutic Antibodies common stock entitled to appraisal. In
the absence of this type of determination or assessment, each Therapeutic
Antibodies stockholder bears his or her own expenses.
The statutory right of appraisal granted by Section 262 requires strict
compliance with the procedures set forth in Section 262. Failure to follow any
of those procedures may result in a termination or waiver of appraisal rights
under Section 262. The following is a summary of Section 262 and is qualified by
reference to Section 262. We have attached a copy of Section 262 as Annex C.
Therapeutic Antibodies stockholders should carefully read Section 262 as well as
the information discussed below to determine their rights to appraisal.
A Therapeutic Antibodies stockholder who elects to exercise the right to an
appraisal under Section 262 must deliver a written letter demanding appraisal of
the stockholder's shares to Therapeutic Antibodies prior to the vote on the
adoption of the merger agreement. The written letter must identify the record
owner of the shares and expressly request an appraisal. All written letters
should be delivered to the following address:
Therapeutic Antibodies Inc.
1207 17th Avenue South
Suite 103
Nashville, Tennessee 37212 USA
Attention: Secretary
The written letter demanding appraisal must be in addition to any proxy or
vote against adoption of the merger agreement. Neither voting against,
abstaining from voting or failing to vote on the
61
<PAGE> 69
adoption of the merger agreement will constitute a demand for appraisal within
the meaning of Section 262.
The record owner must sign the written letter demanding appraisal, fully
and correctly, as that person's name appears on the common stock certificate(s).
If the shares are owned of record by a trustee, guardian or custodian on behalf
of another person, the trustee, guardian or custodian must sign the letter. If
the shares are owned of record by or for more than one person, all the joint
owners must sign the letter. An authorized agent, including an agent for two or
more joint owners, may execute the letter demanding appraisal for a record
owner; however, the agent must identify the record owner(s) and expressly
disclose that, in exercising the demand, he is acting as agent for the record
owner(s).
A record owner, such as a broker, who holds shares of Therapeutic
Antibodies common stock as a nominee for others may exercise his right of
appraisal with respect to the shares for all or less than all such persons. In
this case, the letter must set forth the number of shares covered by the demand.
Where the number of shares is not expressly mentioned, the demand will be
presumed to cover all shares outstanding in the name of the record owner.
Stockholders electing to exercise their appraisal rights under Section 262
must not vote for adoption of the merger agreement. If a stockholder returns a
signed proxy but does not specify a vote against adoption of the merger
agreement or a direction to abstain, the proxy will be voted FOR adoption of the
merger agreement, which will have the effect of waiving that stockholder's
appraisal rights.
Within 10 days after the effective time of the merger, Therapeutic
Antibodies will give written notice of the effective time of the merger to each
stockholder who has satisfied the requirements of Section 262. Within 120 days
after the effective time of the merger, Therapeutic Antibodies or any of these
dissenting stockholders may file a petition in the court demanding a
determination of the fair value of the shares of Therapeutic Antibodies common
stock of all dissenting stockholders. Any dissenting stockholder who desires the
petition to be filed should file a petition on a timely basis unless the
dissenting stockholder receives notice that Therapeutic Antibodies or another
dissenting stockholder has filed a petition.
If a petition for appraisal is timely filed, the court will determine which
stockholders are entitled to appraisal rights and thereafter will determine the
fair value of the shares of Therapeutic Antibodies common stock held by
dissenting stockholders, together with a fair rate of interest on this amount.
Fair value does not include any element of value arising from the accomplishment
or expectation of the merger, but the court takes into account all relevant
factors.
From and after the effective time of the merger, no dissenting stockholder
has any rights of a Therapeutic Antibodies stockholder with respect to his
shares, except the right to receive
- the fair value payment and
- payment of any dividends or other distributions payable to Therapeutic
Antibodies record holders as of a date prior to the effective time of the
merger.
If a dissenting stockholder delivers to Therapeutic Antibodies a written
withdrawal of the demand for an appraisal within 60 days after the effective
time of the merger, or after that date with the written approval of Therapeutic
Antibodies, or if no petition for appraisal is filed within 120 days after the
effective time, then the right of the dissenting stockholder to an appraisal
will cease, and the dissenting stockholder will be entitled to receive only the
merger consideration.
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<PAGE> 70
ACCOUNTING TREATMENT
Proteus will account for the merger using the merger accounting method
under U.K. GAAP and as a pooling of interests under U.S. GAAP.
REGULATORY MATTERS
EXON-FLORIO ACT
Section 721 of the Exon-Florio Act empowers the President of the United
States to prohibit or suspend an acquisition of, or investment in, a U.S.
company by a foreign person if the President finds:
- after investigation, credible evidence that the foreign person might take
action that threatens to impair the national security of the U.S. and
- that other provisions of existing law do not provide adequate and
appropriate authority to protect the national security.
Any determination that an investigation is called for must be made within
30 days of notice of the proposed transaction. In the event this determination
is made, the investigation must be completed within 45 days of the
determination. Thereafter, any decision to take action must be announced within
15 days of completion of the investigation. Authority under Exon-Florio Act has
been delegated to the Committee on Foreign Investment in the United States, the
organization charged with administering the Exon-Florio Act. In June 1999,
Proteus and Therapeutic Antibodies made a voluntary filing to the Committee on
Foreign Investment in the United States seeking a finding that the merger does
not impair the national security of the U.S. On July 29, 1999, the Committee on
Foreign Investment in the United States determined that there are no issues of
national security sufficient to warrant an investigation under section 721 and
concluded action under section 721 with respect to the merger.
OTHER LAWS
Proteus and Therapeutic Antibodies conduct operations in a number of
countries where regulatory filings or approvals may be required or advisable in
connection with the consummation of the merger. Proteus and Therapeutic
Antibodies are currently in the process of reviewing whether other filings or
approvals may be required or desirable in other countries which may be material
to Proteus and Therapeutic Antibodies and its subsidiaries. Filings and
approvals that are not as a matter of practice required to be obtained prior to
effectiveness of a merger transaction may not be obtained prior to the effective
time of the merger.
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<PAGE> 71
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
proposed merger of Proteus and Therapeutic Antibodies as a pooling of interests
under U.S. GAAP. The unaudited pro forma condensed consolidated balance sheet
presents the combined financial position of Proteus and Therapeutic Antibodies
as of March 31, 1999 assuming that the proposed merger had occurred as of March
31, 1999. Such pro forma information is based upon the historical consolidated
balance sheet data of Proteus and unaudited historical consolidated balance
sheet of Therapeutic Antibodies as of that date. The unaudited pro forma
condensed consolidated statements of operations give effect to the proposed
merger of Proteus and Therapeutic Antibodies by combining the results of
operations of Proteus for each of the three years in the period ended March 31,
1999 with the results of operations of Therapeutic Antibodies for each of the
three years in the period ended December 31, 1998, on a pooling of interests
basis under U.S. GAAP. The unaudited pro forma financial statements should be
read in conjunction with the historical financial statements and accompanying
notes of Proteus and Therapeutic Antibodies included elsewhere in this proxy
statement/prospectus. Since the pro forma financial statements which follow are
based upon the financial condition and operating results of Proteus and
Therapeutic Antibodies for periods when they were not combined, the information
presented may not be indicative of the results which would have actually
occurred had the merger been completed at the periods presented in the unaudited
pro forma financial statements, nor are they indicative of future financial
operating results.
The translation of pro forma combined information from pounds sterling into
U.S. dollars has been made at the rate of L1.00 = $1.6140 based upon the noon
buying rate on March 31, 1999. This translation is provided solely for the
convenience of the reader and does not reflect financial information in
accordance with U.S. GAAP or U.K. GAAP principles for foreign currency
translations.
64
<PAGE> 72
PROTEUS INTERNATIONAL PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
ADJUSTMENTS
PROTEUS ON TO CONVERT PROTEUS ON PRO FORMA
U.K. PROTEUS TO U.S. THERAPEUTIC PRO FORMA PRO COMBINED
GAAP U.S. GAAP GAAP ANTIBODIES ADJUSTMENTS FORMA AS ADJUSTED
BASIS (NOTE 1) BASIS (NOTE 2) (NOTE 3) COMBINED (NOTE 5)
---------- ----------- ---------- ----------- ----------- --------- -----------
L L L L L L L
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... 7,403 (5,345) 2,058 2,167 -- 4,225 13,145
Short-term investments.......... 5,305 5,305 5,305 5,305
Other current assets............ 393 393 861 1,254 1,254
------- ------ ------- ------- ------ ------- -------
Total current assets...... 7,796 (40) 7,756 3,028 -- 10,784 19,704
Property and equipment............ 1,859 (809) 1,050 6,770 7,820 7,820
Other assets...................... 155 155 481 636 636
------- ------ ------- ------- ------ ------- -------
Total assets.............. 9,655 (694) 8,961 10,279 -- 19,240 28,160
======= ====== ======= ======= ====== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses...................... 1,381 (40) 1,341 969 2,310 2,310
Current portion of long-term
debt.......................... 385 385 973 1,358 1,358
------- ------ ------- ------- ------ ------- -------
Total current
liabilities............. 1,766 (40) 1,726 1,942 -- 3,668 3,668
Long-term debt.................. 207 207 2,922 3,129 3,129
Other liabilities............... -- 201 201 201
------- ------ ------- ------- ------ ------- -------
Total liabilities......... 1,973 (40) 1,933 5,065 -- 6,998 6,998
------- ------ ------- ------- ------ ------- -------
Shareholders' equity
Common stock
Proteus....................... 1,480 1,480 1,211 2,691 3,157
Therapeutic Antibodies........ -- 32 (32) -- --
Capital in excess of par
value......................... 47,171 47,171 53,957 (1,179) 99,949 108,403
Accumulated deficit............. (40,969) (654) (41,623) (48,748) (90,371) (90,371)
Other........................... -- (27) (27) (27)
------- ------ ------- ------- ------ ------- -------
Total shareholders'
equity.................. 7,682 (654) 7,028 5,214 -- 12,242 21,162
------- ------ ------- ------- ------ ------- -------
Total liabilities and
shareholders' equity.... 9,655 (694) 8,961 10,279 -- 19,240 28,160
======= ====== ======= ======= ====== ======= =======
<CAPTION>
PRO FORMA
COMBINED
AS ADJUSTED
-----------
$
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....... 21,216
Short-term investments.......... 8,562
Other current assets............ 2,024
--------
Total current assets...... 31,802
Property and equipment............ 12,621
Other assets...................... 1,027
--------
Total assets.............. 45,450
========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses...................... 3,728
Current portion of long-term
debt.......................... 2,192
--------
Total current
liabilities............. 5,920
Long-term debt.................. 5,050
Other liabilities............... 324
--------
Total liabilities......... 11,294
--------
Shareholders' equity
Common stock
Proteus....................... 5,095
Therapeutic Antibodies........ --
Capital in excess of par
value......................... 174,962
Accumulated deficit............. (145,858)
Other........................... (43)
--------
Total shareholders'
equity.................. 34,156
--------
Total liabilities and
shareholders' equity.... 45,450
========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements
65
<PAGE> 73
PROTEUS INTERNATIONAL PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
ADJUSTMENTS
TO CONVERT
PROTEUS ON PROTEUS TO PROTEUS ON THERAPEUTIC PRO FORMA
U.K. GAAP U.S. GAAP U.S. GAAP ANTIBODIES ADJUSTMENTS PRO FORMA PRO FORMA
BASIS (NOTE 1) BASIS (NOTE 2) (NOTE 4) COMBINED COMBINED
---------- ----------- ---------- ----------- ----------- ----------- -----------
L L L L L L $
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... 696 696 2,047 2,743 4,427
---------- ------ ---------- ---------- --------- ----------- -----------
Operating expenses:
Research and development........ 3,607 3,607 6,856 10,463 16,887
Other........................... 5,103 (3,698) 1,405 3,989 5,394 8,706
---------- ------ ---------- ---------- --------- ----------- -----------
Total operating expenses...... 5,103 (91) 5,012 10,845 -- 15,857 25,593
---------- ------ ---------- ---------- --------- ----------- -----------
Loss from operations.............. (4,407) 91 (4,316) (8,798) -- (13,114) (21,166)
Foreign currency losses......... -- -- (145) (145) (234)
Interest income................. 540 540 144 684 1,104
Interest expense................ (80) (80) (788) (868) (1,401)
---------- ------ ---------- ---------- --------- ----------- -----------
Net loss.......................... (3,947) 91 (3,856) (9,587) -- (13,443) (21,697)
Preferred stock dividends......... -- (20) (20) (32)
---------- ------ ---------- ---------- --------- ----------- -----------
Net loss applicable to common
shareholders.................... (3,947) 91 (3,856) (9,607) -- (13,463) (21,729)
========== ====== ========== ========== ========= =========== ===========
Basic and diluted net loss per
common share (Note 4)........... (0.06) (0.05) (0.36) (0.13) (0.21)
========== ========== ========== =========== ===========
Weighted average shares
outstanding..................... 71,205,296 71,205,296 26,910,291 4,386,377 102,501,964 102,501,964
========== ========== ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements
66
<PAGE> 74
PROTEUS INTERNATIONAL PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
ADJUSTMENTS
TO CONVERT
PROTEUS ON PROTEUS TO PROTEUS ON THERAPEUTIC PRO FORMA
U.K. GAAP U.S. GAAP U.S. GAAP ANTIBODIES ADJUSTMENTS PRO FORMA PRO FORMA
BASIS (NOTE 1) BASIS (NOTE 2) (NOTE 4) COMBINED COMBINED
---------- ----------- ---------- ----------- ----------- ----------- ----------
L L L L L L $
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... 178 178 1,094 1,272 2,053
---------- ------ ---------- ---------- --------- ----------- ----------
Operating expenses:
Research and development......... 3,087 3,087 6,999 10,086 16,279
Other............................ 4,526 (3,224) 1,302 3,754 5,056 8,160
---------- ------ ---------- ---------- --------- ----------- ----------
Total operating expenses....... 4,526 (137) 4,389 10,753 -- 15,142 24,439
---------- ------ ---------- ---------- --------- ----------- ----------
Loss from operations............... (4,348) 137 (4,211) (9,659) -- (13,870) (22,386)
Foreign currency losses.......... -- -- (558) (558) (901)
Interest income.................. 353 353 542 895 1,445
Interest expense................. (132) (132) (612) (744) (1,201)
---------- ------ ---------- ---------- --------- ----------- ----------
Net loss........................... (4,127) 137 (3,990) (10,287) -- (14,277) (23,043)
========== ====== ========== ========== ========= =========== ==========
Basic and diluted net loss per
common share (Note 4)............ (0.07) (0.07) (0.45) (0.17) (0.27)
========== ========== ========== =========== ==========
Weighted average shares
outstanding...................... 55,439,533 55,439,533 22,888,226 3,730,781 82,058,540 82,058,540
========== ========== ========== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements
67
<PAGE> 75
PROTEUS INTERNATIONAL PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
ADJUSTMENTS
TO CONVERT
PROTEUS ON PROTEUS TO PROTEUS ON THERAPEUTIC PRO FORMA
U.K. GAAP U.S. GAAP U.S. GAAP ANTIBODIES ADJUSTMENTS PRO FORMA PRO FORMA
BASIS (NOTE 1) BASIS (NOTE 2) (NOTE 4) COMBINED COMBINED
---------- ----------- ---------- ----------- ----------- ---------- ----------
L L L L L L $
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ 573 573 595 1,168 1,885
---------- ------ ---------- ---------- --------- ---------- ----------
Operating expenses:
Research and development.......... 3,238 3,238 5,885 9,123 14,725
Other............................. 4,682 (3,346) 1,336 3,092 4,428 7,147
---------- ------ ---------- ---------- --------- ---------- ----------
Total operating expenses........ 4,682 (108) 4,574 8,977 -- 13,551 21,872
---------- ------ ---------- ---------- --------- ---------- ----------
Loss from operations................ (4,109) 108 (4,001) (8,382) -- (12,383) (19,987)
Foreign currency gains............ -- -- 1,110 1,110 1,792
Interest income................... 404 404 389 793 1,280
Interest expense.................. (119) (119) (770) (889) (1,435)
Debt conversion expense........... -- -- (514) (514) (829)
---------- ------ ---------- ---------- --------- ---------- ----------
Net loss............................ (3,824) 108 (3,716) (8,167) -- (11,883) (19,179)
========== ====== ========== ========== ========= ========== ==========
Basic and diluted net loss per
common share (Note 4)............. (0.07) (0.07) (0.44) (0.16) (0.26)
========== ========== ========== ========== ==========
Weighted average shares
outstanding....................... 52,326,238 52,326,238 18,821,524 3,067,908 74,215,670 74,215,670
========== ========== ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements
68
<PAGE> 76
PROTEUS INTERNATIONAL PLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ADJUSTMENTS TO CONVERT PROTEUS HISTORICAL FINANCIAL STATEMENTS FROM U.K.
GAAP TO U.S. GAAP:
The following represent the adjustments made to the Proteus historical
financial statements to convert them from U.K. GAAP to U.S. GAAP: a) adjustments
to record as expenses costs incurred to develop software during the development
period previously capitalized by Proteus, b) adjustments to record goodwill and
related amortization associated with previous acquisitions of Proteus, and c)
adjustment to properly classify short-term investments and cash overdraft.
Goodwill is being amortized on a straight-line basis over its estimated useful
life of 10 years.
2. ADJUSTMENTS TO CONVERT THERAPEUTIC ANTIBODIES HISTORICAL FINANCIAL
STATEMENTS TO U.K. POUNDS STERLING BASIS:
The Therapeutic Antibodies historical balance sheet information and related
pro forma adjustments to the unaudited pro forma condensed combined balance
sheet as of March 31, 1999, have been translated into pounds sterling at the
March 31, 1999 noon buying rate of $1.00 = L0.6196. The Therapeutic Antibodies
historical statements of operations for the years ended December 31, 1998, 1997
and 1996, have been translated into pounds sterling at the weighted average noon
buying rate for the years ended December 31, 1998, 1997 and 1996 of
$1.00 = L0.6034, L0.6106 and L0.6407, respectively. Certain reclassifications
have been made to the Therapeutic Antibodies historical statement of operations
information to conform with the financial statement presentation of Proteus.
3. BALANCE SHEET PRO FORMA ADJUSTMENTS:
The capital accounts have been adjusted to reflect the issuance in the
merger of 60,542,545 shares of Proteus 2p par value ordinary shares upon
conversion of all outstanding shares of Therapeutic Antibodies common stock.
4. NET LOSS PER COMMON SHARE ADJUSTMENTS:
Combined net loss per common share amounts are based on the weighted
average number of common/ordinary shares of the companies outstanding during
each period. Shares of Therapeutic Antibodies have been adjusted to the
equivalent shares of Proteus for each period based on the exchange ratio. Shares
of Proteus for the year ended March 31, 1999 reflect the 1998 rights issue. See
Note 8 to the 1999 Proteus audited financial statements included elsewhere in
this proxy statement/prospectus and Note 5 to the Proteus Unaudited Pro Forma
Financial Statements below.
5. IMPACT OF THE EQUITY FINANCING OF PROTEUS:
The pro forma combined as adjusted amounts in the pro forma condensed
consolidated balance sheet reflect the estimated net proceeds from the equity
financing of Proteus. Total net proceeds from the equity financing will
approximate L8.9 million, assuming the issuance of 23,325,000 ordinary shares at
L0.40 per share less estimated expenses of L410,000. The equity financing will
occur simultaneously with the merger.
Assuming that the issuance of 23,325,000 ordinary shares by Proteus in the
equity financing had occurred as of the beginning of the periods presented, the
pro forma combined basic and diluted loss
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<PAGE> 77
PROTEUS INTERNATIONAL PLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
per common share amounts for the years ended March 31, 1999, 1998 and 1997,
would have been L0.11, L0.14 and L0.12, respectively, based on adjusted weighted
average shares of the combined companies of 125,826,964, 105,383,540 and
97,540,670, respectively.
6. MERGER EXPENSES:
The Proteus unaudited pro forma financial statements do not reflect
expenses expected to be incurred by Proteus and Therapeutic Antibodies directly
related to the merger. These expenses, consisting primarily of professional fees
and expenses and expenses for printing and distributing proxy materials, are
estimated at L1.9 million and will be charged as expense upon consummation of
the merger.
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<PAGE> 78
MATERIAL TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the merger and the material U.S. federal income tax and U.K. tax
consequences of the ownership and disposition of Proteus ordinary shares. In the
opinion of PricewaterhouseCoopers LLP, which is attached as Exhibit 8.1 to the
registration statement for the Proteus ordinary shares of which this proxy
statement/prospectus is a part, the tax consequences set forth in this "Material
Tax Consequences" section are the material U.S. federal income tax and U.K. tax
consequences of the transactions described in this section. The opinion of
PricewaterhouseCoopers LLP is based upon certain assumptions which are noted in
the opinion. This summary is based on current law, is for general information
only, and is not tax advice. Your tax treatment will vary depending on your
particular situation, and this discussion does not purport to deal with all
aspects of taxation that may be relevant to a holder of Therapeutic Antibodies
common stock or Proteus ordinary shares in light of his or her personal
investments or tax circumstances, or to stockholders who receive special
treatment under the federal income tax laws or U.K. tax laws. Stockholders who
receive special treatment include, without limitation:
- stockholders whose stock was acquired through the exercise of an employee
stock option or otherwise as compensation;
- insurance companies;
- financial institutions or broker-dealers;
- tax-exempt organizations;
- stockholders holding securities as part of a conversion transaction, or a
hedge or hedging transaction, or as a position in a straddle for tax
purposes; and
- persons that, as a result of the merger, will own, directly or
indirectly, 10% or more of the total combined voting power of Proteus
following the merger.
In addition, other than as set forth below under the headings "United
Kingdom Tax Consequences of the Ownership of Proteus Ordinary Shares," "U.K.
Taxation of Chargeable Gains -- U.K. Holders of Proteus Shares," "U.K. Taxation
of Chargeable Gains -- U.S. Holders of Proteus Shares" and "U.K. Stamp Duty and
Stamp Duty Reserve Tax," the summary below does not consider the effect of any
foreign, state, local or other tax laws that may be applicable to you as a
holder of Therapeutic Antibodies common stock or Proteus ordinary shares.
The information in this section is based:
- on the Internal Revenue Code;
- current, temporary and proposed Treasury regulations promulgated under
the Internal Revenue Code;
- the legislative history of the Internal Revenue Code;
- current administrative interpretations and practices of the Internal
Revenue Service; and
- court decisions.
In addition, the administrative interpretations and practices of the
Internal Revenue Service include its practices and policies as expressed in
private letter rulings which are not binding on the Internal Revenue Service,
except with respect to the particular taxpayers who requested and received these
rulings. Future legislation, Treasury regulations, administrative
interpretations and practices
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and/or court decisions may adversely affect the tax considerations contained in
this discussion. Any change could apply retroactively to transactions preceding
the date of the change. We have not requested, and do not plan to request, any
rulings from the Internal Revenue Service concerning our tax treatment, and the
statements in this prospectus are not binding on the Internal Revenue Service or
any court. Thus, we can provide no assurance that the tax considerations
contained in this discussion will not be challenged by the Internal Revenue
Service or if challenged, will not be sustained by a court.
For purposes of this discussion, the term "U.S. stockholder" means a holder
of shares of common stock or ordinary shares who is for United States federal
income tax purposes:
- an individual citizen or resident of the United States;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States, any state thereof or the District of
Columbia;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust which is subject to the supervision of a court within the U.S.
and is under the control of one or more U.S. fiduciaries.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, some trusts in existence on August 20, 1996, and treated as United
States persons prior to this date that elect to continue to be treated as United
States persons, shall also be considered U.S. stockholders. The term "non-U.S.
stockholder" means a holder of common stock or ordinary shares who is not a U.S.
stockholder as defined above. The discussion assumes that you hold your
Therapeutic Antibodies stock as a capital asset, which is generally property
held for investment.
YOU ARE STRONGLY ADVISED TO CONSULT YOUR TAX ADVISOR AS TO THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND THE OWNERSHIP AND
DISPOSITION OF PROTEUS ORDINARY SHARES IN LIGHT OF YOUR PARTICULAR SITUATION, AS
WELL AS THE TAX CONSEQUENCES UNDER APPLICABLE ESTATE, GIFT, STATE, LOCAL OR
FOREIGN TAX LAWS.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO U.S. STOCKHOLDERS OF THE MERGER
AND EXCHANGE OF THERAPEUTIC ANTIBODIES COMMON STOCK FOR PROTEUS ORDINARY SHARES
Based on certain factual representations made by the parties to the
transaction as of the closing date, the merger and exchange of Therapeutic
Antibodies common stock for Proteus ordinary shares will be treated as a
reorganization described in Internal Revenue Code Section 368(a). Consequently,
neither Proteus nor Therapeutic Antibodies will recognize taxable gain or loss
for U.S. federal income tax purposes as a result of the merger. However, if a
transaction involves the merger of a U.S. corporation with and into a U.S.
subsidiary controlled by a foreign corporation, and stock of the foreign
corporation is issued in exchange for stock of the surviving U.S. corporation in
a reorganization described in Internal Revenue Code Section 368(a), then
exchanging U.S. stockholders are considered to have made a transfer of stock
which is subject to Internal Revenue Code Section 367. Internal Revenue Code
Section 367 provides that, subject to certain exceptions, if a U.S. person
transfers stock to a foreign corporation in a reorganization, the foreign
corporation is not treated as a corporation for purposes of determining whether
the exchanging U.S. person recognizes gain on the exchange. Accordingly, unless
an applicable exception to Internal Revenue Code Section 367 is available, you
will be required to treat the merger and exchange of
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Therapeutic Antibodies common stock for Proteus ordinary shares as a taxable
exchange of stock for U.S. federal income tax purposes.
An exception to the taxable treatment mandated by Internal Revenue Code
Section 367 which is potentially available requires that, among other things, at
the time of the merger, the total value of Proteus equal or exceed the total
value of Therapeutic Antibodies. This test is referred to in the applicable
Treasury Regulations and in this summary as the "Substantiality Test." Because
the total value of Proteus is very close to the total value of Therapeutic
Antibodies, and their respective stock prices are relatively volatile, it is not
possible to determine in advance which entity will have a greater fair market
value on the date of the merger and, hence, whether the parties will satisfy the
Substantiality Test. Therefore, Therapeutic Antibodies is not able to determine
prior to the date of the merger whether you will be entitled to the protection
of the foregoing exception to Internal Revenue Code Section 367 or will instead
be required to treat the exchange of your Therapeutic Antibodies common stock
for Proteus ordinary shares as a taxable transaction for U.S. federal income tax
purposes. Accordingly, the following discussion describes both of these
alternative possible tax treatments. After completion of the merger and exchange
of Therapeutic Antibodies common stock for Proteus ordinary shares, we will
notify you whether the Substantiality Test was satisfied as of the date of the
merger and, consequently, which set of tax consequences set forth below applies.
ALTERNATIVE 1: TOTAL VALUE OF PROTEUS EQUALS OR EXCEEDS TOTAL VALUE OF
THERAPEUTIC ANTIBODIES
The U.S. federal income tax consequences set forth below in this
"Alternative 1" section assume that, at the time of the merger, the total value
of Proteus equals or exceeds the total value of Therapeutic Antibodies.
In general, for your exchange of Therapeutic Antibodies common stock for
Proteus ordinary shares in the merger to qualify for non-recognition of gain
treatment:
- we must complete and attach to our timely filed U.S. income tax return
for the taxable year of the merger a statement entitled "Section
367(a) -- Reporting of Cross-Border Transfer Under Reg.
sec. 1.367-3(c)(6);"
- shares representing no more than 50% of both the total voting power and
the total value of the stock of Proteus may be received, in the
aggregate, by U.S. stockholders exchanging Therapeutic Antibodies common
stock for Proteus ordinary shares in the merger;
- shares representing no more than 50% of the total voting power and the
total value of the stock of Proteus may be owned, in the aggregate,
immediately after the merger by U.S. persons who are either officers or
directors of Therapeutic Antibodies or who own, directly, indirectly or
constructively, 5% or more of the total voting power or value of
Therapeutic Antibodies immediately prior to the merger;
- any U.S. stockholders of Therapeutic Antibodies common stock who own,
immediately following the merger, ordinary shares representing 5% or more
of the voting power or value of Proteus must enter into "gain recognition
agreements" with the IRS; and
- an active trade or business test, of which the Substantiality Test is one
component, must be satisfied.
Under applicable Treasury Regulations, persons who transfer Therapeutic
Antibodies common stock in exchange for Proteus ordinary shares are, for
purposes of the foregoing tests, presumed to be U.S. stockholders. As described
above, shares representing no more than 50% of both the total voting
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power and the total value of the stock of Proteus may be received, in the
aggregate, by U.S. stockholders exchanging Therapeutic Antibodies common stock
for Proteus ordinary shares in the merger. This presumption may be rebutted by
obtaining ownership statements from a sufficient number of persons who transfer
Therapeutic Antibodies common stock in the merger who are not U.S. stockholders
to demonstrate that the 50% threshold is not exceeded. We expect to obtain a
sufficient number of ownership statements to demonstrate that the 50% threshold
is not exceeded.
We believe that, if at the time of the merger, the total value of Proteus
equals or exceeds the total value of Therapeutic Antibodies, subject to the
discussion below under the heading "Special Filing Requirement Applicable to
Five-Percent Shareholders," you will not be required to recognize gain or loss
for U.S. federal income tax purposes as a result of the merger, except if you
receive cash in lieu of fractional shares. In this event:
- the aggregate tax basis of the Proteus ordinary shares you receive in the
merger, including any fractional share interests in Proteus ordinary
shares not actually received, will be the same as the aggregate adjusted
tax basis of the shares of Therapeutic Antibodies common stock you
surrendered; and
- the holding period of the Proteus ordinary shares you receive in the
merger will include the period during which you held the shares of
Therapeutic Antibodies common stock that you exchanged.
The payment of cash in lieu of a fractional share interest in Proteus
ordinary shares will be treated as if the fractional interest had been
distributed to you as part of the consideration in the merger and then redeemed
by Proteus for cash. As a result, if you receive a payment of this kind, you
will generally recognize gain or loss in an amount equal to the difference, if
any, between the amount of cash received and your adjusted tax basis in the
fractional share interest.
SPECIAL FILING REQUIREMENT APPLICABLE TO FIVE-PERCENT SHAREHOLDERS. If you
are a "five-percent shareholder" of Proteus immediately after the merger, you
must file a "gain recognition agreement" with the IRS in order for your exchange
of Therapeutic Antibodies common stock for Proteus ordinary shares to qualify
for non-recognition of gain treatment. For this purpose, Treasury Regulations
define a "five-percent shareholder" as someone who owns at least 5% of either
the total voting power or the total value of the stock of Proteus immediately
after the merger. The "gain recognition agreement" would require you to
recognize gain, fully or on a pro rata basis, if prior to the close of 60 months
following the close of the taxable year in which the merger occurs, Proteus:
- in a taxable transaction, disposes of all or part of the Therapeutic
Antibodies common stock it acquired in the merger; or
- disposes of substantially all of the assets of Therapeutic Antibodies.
In this event, if you are a "five-percent shareholder" who has entered into
a "gain recognition agreement":
- within 90 days of the triggering disposition of Therapeutic Antibodies
common stock or assets, you would be required to file an amended U.S.
federal income tax return recognizing the additional gain; or
- if you so elected when you entered into the gain recognition agreement,
you would recognize the additional gain in the taxable year in which the
triggering disposition of Therapeutic Antibodies common stock or assets
occurred, and you would pay interest as if the resulting tax liability
had been incurred at the time of the merger.
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If you are a "five-percent shareholder" of Proteus immediately after the
merger and you do not file a gain recognition agreement with the IRS, you will
be treated as if you had sold all of your Therapeutic Antibodies common stock in
a fully taxable transaction on the date of the merger and employed the proceeds
to acquire the Proteus ordinary shares you received in the exchange.
ALTERNATIVE 2: TOTAL VALUE OF PROTEUS LESS THAN TOTAL VALUE OF THERAPEUTIC
ANTIBODIES
The U.S. federal income tax consequences set forth below in this
"Alternative 2" section assume that, at the time of the merger, the total value
of Proteus is less than the total value of Therapeutic Antibodies.
In this case, the exceptions under Section 367 of the Internal Revenue Code
will not apply, and therefore:
- you will recognize gain in an amount equal to the excess, if any, of the
fair market value of the Proteus ordinary shares and any cash in lieu of
fractional shares you receive over your adjusted tax basis in your
Therapeutic Antibodies common stock surrendered; but
- you will not recognize loss in the merger, except with respect to cash
received in lieu of fractional shares.
Any gain or loss must be computed separately for blocks of Therapeutic
Antibodies common stock you acquired at different times or for different
amounts.
Any gain or loss you recognize as a result of the merger will be capital
gain or loss, and will constitute long-term capital gain or loss if your holding
period for your Therapeutic Antibodies common stock is greater than twelve
months as of the date of the merger. Your tax basis in the Proteus ordinary
shares you receive in the merger will equal the fair market value of those
ordinary shares on the date of the merger. The holding period for the Proteus
ordinary shares you receive will begin on the date following the date of the
merger.
The receipt of cash or stock as a result of the merger or the exercise of
dissenters' appraisal rights may be subject, under certain circumstances, to
"backup withholding" at a 31% rate. Backup withholding generally applies only if
the you:
- fail to furnish your social security or other taxpayer identification
number within a reasonable time after the request;
- furnish an incorrect taxpayer identification number;
- are notified by the Internal Revenue Service that you have failed to
report properly interest or dividends; or
- fail, under certain circumstances, to provide a certified statement,
signed under penalty of perjury, that the taxpayer identification number
your have provided is the correct number and that you are not subject to
backup withholding.
Backup withholding is not an additional tax, and amounts withheld are
refundable or allowed as a credit against your U.S. federal income tax
liability.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO U.S. STOCKHOLDERS OF THE
OWNERSHIP OF PROTEUS ORDINARY SHARES
TAXATION OF DISTRIBUTIONS
Distributions paid out of the current or accumulated earnings and profits
of Proteus, including the amount of any refunds received from the U.K. Inland
Revenue, will constitute dividends taxable to U.S. stockholders as
foreign-source dividend income. Any U.K. tax refunds will be included in income
in the year the U.S. stockholder becomes entitled to the payment. To the extent
that Proteus makes distributions in excess of its earnings and profits, these
distributions will be treated first as a tax-free return of capital to each U.S.
stockholder. This treatment will reduce the adjusted basis which each U.S.
stockholder has in his or her shares of stock for tax purposes, but not below
zero. Distributions in excess of a U.S. stockholder's adjusted tax basis in his
or her Proteus ordinary shares will be taxable as capital gain, provided the
shares have been held as capital assets. This gain will be taxable as long-term
capital gain if the shares have been held for more than one year. Dividends paid
by Proteus generally will not be eligible for the dividends received deduction
otherwise available to corporate shareholders.
The amount of any distribution paid in pounds sterling will equal the U.S.
dollar value of the pounds sterling received calculated using the exchange rate
in effect on the date the dividend is received by the U.S. stockholder,
regardless of whether the pounds sterling are converted into U.S. dollars on
this date. If the pounds sterling received as a distribution are not converted
into U.S. dollars on the date of receipt, the recipient U.S. stockholder will
have a basis in the pounds sterling equal to their U.S. dollar value on the date
of receipt. Any gain or loss realized on a subsequent conversion or other
disposition of the pounds sterling will be taxable as ordinary income or loss.
TAXATION OF CAPITAL GAINS
If you are a U.S. stockholder and you sell or dispose of your Proteus
ordinary shares, you will recognize gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the amount of cash and the
fair market value of any property you receive and your adjusted tax basis in the
ordinary shares sold or disposed of. This gain or loss will be capital if you
held the Proteus ordinary shares as a capital asset. This gain or loss will be
long-term capital gain or loss if you held the Proteus ordinary shares sold or
disposed of for more than one year. Under current law, long-term capital gains
realized by individuals are taxed at lower rates than items of ordinary income
or short-term capital gain. Also, for U.S. federal income tax purposes, capital
losses are subject to limitations on deductibility.
BACKUP WITHHOLDING
We report to our U.S. stockholders and the IRS the amount of dividends paid
during each calendar year and the amount of any tax withheld. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the shareholder is a
corporation or is otherwise exempt and:
- when required, demonstrates this fact or provides a taxpayer
identification number;
- certifies as to no loss of exemption from backup withholding; and
- otherwise complies with the backup withholding rules.
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If you do not provide us with your correct taxpayer identification number,
you may also be subject to penalties imposed by the IRS. Backup withholding is
not an additional tax. Any amount you pay as backup withholding will be
creditable against your income tax liability.
UNITED STATES ANTI-DEFERRAL FEDERAL TAXATION ISSUES
As of the date of this proxy statement/prospectus, Proteus believes that it
is not, and does not as a result of the merger or otherwise expect to become, a
"passive foreign investment company" or a "foreign personal holding company."
In the event that:
- 75% or more of its gross income in a taxable year were passive; or
- at least 50% of the average percentage of its assets, by value, produced
or were held for the production of passive income,
then Proteus would be a passive foreign investment company. For this purpose, if
Proteus were to own, directly or indirectly, at least 25% by value of the stock
of another company, it would be treated as if it held its proportionate share of
the assets, and received directly its proportionate share of the income, of that
company. Passive income generally includes dividends, interest, royalties, rents
other than rents and royalties derived in the active conduct of a trade or
business and derived from a related person, annuities, and gains from assets
which would produce income of this type other than sales of inventory.
If Proteus were to be classified as a passive foreign investment company,
the U.S. federal income tax consequences to you with respect to your Proteus
ordinary shares would change significantly from the consequences presented in
this discussion. For example, special rules would apply to direct and certain
indirect U.S. stockholders upon disposition of their ordinary shares, receipt of
an "excess distribution," certain non-recognition transactions, or use of
ordinary shares as security for a loan. You could be subject to tax as if any
gain or distribution were ordinary income earned ratably over the period of time
during which you held your Proteus ordinary shares, including an interest charge
on the deferred tax, and other adverse tax consequences. If you were to make a
timely filed mark-to-market election with respect to the Proteus ordinary shares
you owned or were treated as having owned, at the close of your taxable year,
you would include as ordinary income in that taxable year any excess of the fair
market value of your Proteus ordinary shares as of the close of the year over
your adjusted tax basis in those shares. In turn, you would be allowed a
deduction for the taxable year in the amount of any excess of the adjusted basis
of your Proteus ordinary shares over their fair market value at the close of the
taxable year, limited to the amount of the net mark-to-market gains you
previously included in your income. If you were to make a timely qualified
election fund election, the above-described rules generally would not apply. If
a qualified election fund election were made, you would be currently taxable on
your pro-rata share of Proteus' ordinary earnings and profits and net capital
gains, regardless of whether the income or gain was actually distributed to you.
Neither Proteus nor its advisors have a duty or will undertake to inform you of
changes in circumstances that would cause Proteus to become a passive foreign
investment company. You should consult your tax advisors concerning the status
of Proteus as a passive foreign investment company at any point in time after
the date of this proxy statement/prospectus.
If at least 60% of Proteus' gross income for any taxable year were "foreign
personal holding company income," and if, at any time during the taxable year,
more than 50% of the stock by vote or by value were owned, directly, indirectly,
or constructively, by or for five or fewer individuals who are citizens or
residents of the United States, then Proteus would be a foreign personal holding
company.
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For this purpose, "foreign personal holding company income" consists generally
of certain types of interest, dividend or other types of passive income.
If Proteus were to be classified as a foreign personal holding company,
then U.S. stockholders who owned Proteus ordinary shares on the last day of the
taxable year when the five or fewer U.S. citizens or residents owned, directly,
indirectly or constructively, 50% or more, by vote or by value, of Proteus'
stock, would be taxed upon their pro rata shares of the undistributed foreign
personal holding company income. In addition, under the circumstances described
in the preceding sentence:
- Proteus would be required to make adjustments in its accumulated earnings
and profits, and paid in surplus accounts; and
- affected U.S. shareholders would be required to adjust the tax bases in
their Proteus ordinary shares.
U.S. stockholders owning 5% or more of the value of Proteus' stock on the
last day on which the five or fewer U.S. stockholders owned, directly,
indirectly or constructively, 50% or more, by vote or value, of Proteus' stock,
would also be required to include significant addition information on their
federal income tax returns.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS OF THE
MERGER AND EXCHANGE OF THERAPEUTIC ANTIBODIES COMMON STOCK FOR PROTEUS
ORDINARY SHARES
As discussed above, based on certain factual representations made by the
parties to the transaction as of the closing date, we expect that the merger and
exchange of Therapeutic Antibodies common stock for Proteus ordinary shares will
be treated as a reorganization described in Internal Revenue Code Section
368(a). Consequently, non-U.S. stockholders who receive Proteus ordinary shares
in exchange for Therapeutic Antibodies common stock will not be required to
recognize gain or loss for U.S. federal income tax purposes as a result of the
merger, except possibly for cash received in lieu of fractional shares as
described below. In this event:
- the aggregate tax basis of the Proteus ordinary shares you receive in the
merger, including any fractional share interests in Proteus ordinary
shares not actually received, will be the same as the aggregate adjusted
tax basis of the shares of Therapeutic Antibodies common stock you
surrendered; and
- the holding period of the Proteus ordinary shares you receive in the
merger will include the period during which you held the shares of
Therapeutic Antibodies common stock that you exchanged.
The payment of cash in lieu of a fractional share interest in Proteus
ordinary shares will be treated as if the fractional interest had been
distributed to you as part of the consideration in the merger and then redeemed
by Proteus for cash. As a result, if you receive a payment of this kind, you
will realize gain or loss in an amount equal to the difference, if any, between
the amount of cash you receive and your adjusted tax basis in the fractional
share interest, and consequently, you may be subject to U.S. federal income
taxation on such a gain or loss as described below in the section entitled
"United States Federal Income Tax Consequences to Non-U.S. Stockholders of the
Ownership and Disposition of Proteus Ordinary Shares -- Disposition."
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS OF THE
OWNERSHIP AND DISPOSITION OF PROTEUS ORDINARY SHARES
OWNERSHIP. If you are a non-U.S. stockholder and you receive distributions
on your Proteus ordinary shares which are effectively connected with the conduct
of a trade or business in the United States, those distributions will be taxed
at regular U.S. federal income tax rates as described above in the section
entitled "United States Federal Income Tax Consequences to U.S. Stockholders of
the Ownership of Proteus Ordinary Shares." If you are a non-U.S. stockholder and
you receive distributions on your Proteus ordinary shares which are not
effectively connected with the conduct of a trade or business in the United
States, those distributions will be treated as "sourced outside of the United
States," and hence not taxable for U.S. federal income tax purposes, so long as
no more than 25% of Proteus' income is treated as effectively connected with a
United States trade or business under the Internal Revenue Code. We believe that
as of the date of this proxy statement/prospectus, no more that 25% of Proteus'
income is effectively connected with a United States trade or business within
the meaning of the Internal Revenue Code. Neither Proteus nor its advisors have
a duty or will undertake to inform you of changes in circumstances that would
cause the amount of Proteus' income that is effectively connected to a United
States trade or business to exceed this threshold. You should consult your tax
advisors concerning the extent to which Proteus' income is effectively connected
with a United States trade or business at any point in time after the date of
this proxy statement/prospectus.
DISPOSITION. If you are a non-U.S. stockholder and you realize a gain upon
a sale or other disposition of Proteus ordinary shares, you will generally not
be subject to U.S. federal income tax unless:
- the gain is effectively connected with your conduct of a trade or
business in the United States;
- you are an individual who is present in the U.S. for 183 days or more
during the taxable year and you meet certain other conditions; or
- you are subject to tax under provisions of U.S. tax law applicable to
U.S. expatriates, including former citizens or residents of the United
States.
If you are a non-U.S. stockholder who is subject to U.S. tax on a sale or
other disposition of Proteus ordinary shares, you should consult your tax
advisor concerning the amount of the resulting tax liability, which will depend
on your individual circumstances.
UNITED KINGDOM TAX CONSEQUENCES OF THE OWNERSHIP OF PROTEUS ORDINARY SHARES
The statements below are intended only as a general rule and do not
constitute advice to any Therapeutic Antibodies stockholder on his or her
personal tax position and may not apply to certain classes of investor such as
dealers, charities or pension providers. The comments are based on existing law
and what is understood to be current Inland Revenue practice. Levels of taxation
may change from time to time.
ANY HOLDER OF THERAPEUTIC ANTIBODIES SHARES WHO IS IN ANY DOUBT ABOUT HIS
OR HER OWN TAX POSITION IS STRONGLY RECOMMENDED TO CONSULT HIS OR HER
INDEPENDENT PROFESSIONAL ADVISER IMMEDIATELY.
PROTEUS
Depending on the level of Proteus' profits for each accounting period,
Proteus will be liable to U.K. corporation tax at current rates of between 20%
and 31%.
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Proteus may be required to pay its corporation tax liabilities by a system
of accelerated quarterly installments which will be phased in over a period of
four years commencing with accounting periods ending after June 30, 1999.
Under current United Kingdom tax legislation, Proteus is not required to
withhold tax at source when paying a dividend. Proteus is also no longer
required to account for Advance Corporation Tax on its dividends.
DIVIDENDS -- U.K. HOLDERS OF PROTEUS SHARES
U.K. resident individual shareholders are generally entitled to a tax
credit in respect of any dividend on their ordinary shares, which they can set
against their total income tax liability. The amount of a dividend received by
such a shareholder and the associated tax credit are both included in computing
the shareholder's income for United Kingdom tax purposes and will be regarded as
the top slice of the shareholder's income. The tax credit attaching to dividends
is equal to one-ninth of the cash dividend (i.e., 10% of the aggregate of the
tax credit and the cash dividend).
It is not possible to obtain repayment of the surplus tax credit in respect
of a dividend when an individual's tax credits exceed his or her total U.K. tax
liability. U.K. individuals who are not liable to tax at the higher rate will be
taxed at 10% on the amount of the dividend plus associated tax credit, with the
tax credit therefore being equal to the liability. U.K. individuals subject to
higher rate tax will pay tax at 32.5%, resulting in further tax of 25% of the
net dividend.
Non-U.K. resident shareholders who are Commonwealth citizens, European
Economic Area nationals, residents of the Isle of Man or Channel Islands and
certain other classes of person should be entitled to a tax credit in respect of
a dividend which they may set against their total United Kingdom income tax to
the same extent as if they were resident in the U.K. Non-U.K. resident
shareholders who do not fall within the above categories may be able to claim a
repayment from the Inland Revenue in respect of part of the tax credit attaching
to a dividend depending on the provisions of any relevant double taxation
convention or agreement. The reduction in the tax credit attaching to dividends,
which came in to effect from April 6, 1999, will affect the amounts that may be
paid under double tax conventions or agreements between the United Kingdom and
other jurisdictions. Shareholders resident in jurisdictions outside the United
Kingdom should consult their own tax advisers about their position.
In general, a United Kingdom resident corporate shareholder will not be
liable to corporation tax in respect of a dividend received. However, if such a
shareholder has surplus ACT brought forward at April 6, 1999, it will need to
take into account the receipt of any dividend when calculating shadow ACT for
the purpose of the surplus ACT set off calculation. This determines the level of
surplus ACT a company can set against its tax liability going forward. The
calculation involves first offsetting the shadow ACT that would have arisen on
the net dividends paid and received, as if ACT was still accounted for. The
shadow ACT is then notionally set against the corporation tax liability before
utilizing any actual surplus ACT brought forward, up to the maximum offset
available. The effect of this is therefore to restrict the utilization of any
surplus ACT.
United Kingdom pension funds are generally exempt from tax on dividends
which they receive but they are not entitled to obtain repayments of the tax
credit attaching to those dividends.
DIVIDENDS -- U.S. HOLDERS OF PROTEUS SHARES
Under the provisions of the Income Tax Convention currently in force
between the U.K. and the U.S., a U.S. corporate holder of Proteus shares which
broadly controls at least 10% of the voting
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stock of Proteus will be entitled to receive from the U.K. Inland Revenue a
refund in respect of dividends paid by Proteus to such shareholders. The amount
of this refund will be equal to one-half of the tax credit to which an
individual resident in the U.K. would have been entitled had he or she received
the dividend, less a sum of not more than 5% of the aggregate amount of the
dividend and the credit due to such a corporation. The reduction in the value of
the tax credit paid to U.K. individuals to one-ninth of the dividend paid from
April 6, 1999 means that the amount of any refund will be relatively small.
Under the terms of the Income Tax Convention, U.S. resident individuals and
corporations controlling less than 10% of the voting stock of Proteus are
technically entitled to a refund calculated by reference to the amount of the
tax credit available to a U.K. individual. However, the reduction in the value
of the tax credit on dividends paid to U.K. individuals to one-ninth of the
dividend from April 6, 1999 means that no refund will be made to those holding
less than 10% of the voting stock of Proteus.
U.K. TAXATION OF CHARGEABLE GAINS -- U.K. HOLDERS OF PROTEUS SHARES
RECEIPT OF PROTEUS SHARES IN THE MERGER
Assuming that no appraisal rights are exercised by holders of Therapeutic
Antibodies common stock, a U.K. holder of Therapeutic Antibodies stock will not
be treated as making a disposal for purposes of U.K. taxation on chargeable
gains to the extent that he or she receives Proteus shares in exchange for the
Therapeutic Antibodies shares in the merger. To the extent that such a
stockholder receives Proteus shares in the merger, any gain or loss that would
otherwise have arisen on the exchange of his or her Therapeutic Antibodies
shares will be "rolled over" into the Proteus shares and the Proteus shares will
be treated as the same asset as his or her shares of Therapeutic Antibodies
common stock acquired at the same time and for the same price as the Therapeutic
Antibodies shares.
Therapeutic Antibodies has received a letter of clearance from the Board of
Inland Revenue pursuant to Sections 136 to 138 of the Taxation of Chargeable
Gains Act 1992, in which the Board of Inland Revenue has raised an issue as to
whether the exercise by a Therapeutic Antibodies stockholder of Delaware
appraisal rights might cause the merger to fall outside the strict criteria of
Section 136. If Inland Revenue were to take the position following any exercise
of appraisal rights that "roll-over" relief was not available under Section 136,
then U.K. holders of Therapeutic Antibodies common stock who receive Proteus
shares in the merger would be treated as making a disposal for purposes of U.K.
taxation on chargeable gains, and the difference between the original cost or
value of the Therapeutic Antibodies shares and the market value of the Proteus
shares at the time of the merger, if any, would be treated as chargeable gain.
Such gain would be reduced by indexation allowance and/or taper relief where
appropriate and may be covered by a carveout exemption where available.
DISPOSAL OF PROTEUS SHARES FOLLOWING THE MERGER
A subsequent disposal of all or any of the Proteus shares may, depending on
individual circumstances, give rise to a liability to U.K. taxation on
chargeable gains.
U.K. holders of Proteus ordinary shares will be subject to the chargeable
gains provisions on the disposal of their shares. Such shareholders who dispose
of their Proteus shares may be liable to U.K. taxation on chargeable gains,
based on the gain realized as reduced by indexation allowance and/or taper
relief. The indexation allowance is computed as being the original cost or value
of the shares multiplied by the increase in the Index of Retail Prices over the
period of ownership.
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The Finance Act 1998 provides that on a disposal by an individual
shareholder or trustee, indexation allowance will be available to reduce any
chargeable gain only in respect of acquisition costs and allowable expenditure
incurred up to and including April 1, 1998 and taper relief, which replaces
indexation allowance, will be available from April 6, 1998 in respect of the
shares. Taper relief will apply in a way which will reduce the amount of any
capital gains realized by an individual on a disposal of shares according to how
long those shares have been held.
An annual exemption is available, and a shareholder's total chargeable
gains in any tax year, up to a level of the annual exemption, will be tax-free.
On a disposal by a corporate shareholder, indexation will continue after
April 1, 1998 to be available to reduce any chargeable gain on the acquisition
costs of the shares.
U.K. TAXATION OF CHARGEABLE GAINS -- U.S. HOLDERS OF PROTEUS SHARES
RECEIPT OF PROTEUS SHARES IN THE MERGER
U.S. holders of Therapeutic Antibodies common stock who are not resident,
or ordinarily resident, for tax purposes in the U.K. will not be subject to U.K.
tax upon the receipt of Proteus ordinary shares in exchange for Therapeutic
Antibodies common stock in the merger.
DISPOSAL OF PROTEUS SHARES FOLLOWING THE MERGER
A U.S. holder of Proteus shares who is not resident, or ordinarily
resident, for tax purposes in the U.K. will not generally be liable for U.K. tax
on capital gains on the disposal of Proteus ordinary shares.
U.K. STAMP DUTY AND STAMP DUTY RESERVE TAX
Generally, no stamp duty or stamp duty reserve tax will be payable by
Therapeutic Antibodies stockholders on the issue to them of Proteus shares
pursuant to the merger agreement.
The conveyance or transfer on sale of Therapeutic Antibodies shares held
outside the CREST system will usually be subject to stamp duty on the instrument
of transfer, generally at the rate of 50p per L100 or part L100 of the amount or
value of the consideration. An obligation to account for stamp duty or stamp
duty reserve tax at the rate of 0.5% of the amount or value of the consideration
may also arise if an unconditional agreement to transfer such shares is not
completed by a duly stamped instrument before the stamp duty or stamp duty
reserve tax "accountable date" (being the seventh day of the month following
that in which the agreement was made).
The transfer of Therapeutic Antibodies shares in uncertificated form will
generally attract liability to stamp duty or stamp duty reserve tax at the rate
of 0.5% of the amount or value of the consideration, payable by the fourteenth
day following the date of the unconditional agreement for transfer of those
shares.
The above statements are intended as a general guide to the current
position. Certain categories of persons are not liable to stamp duty or stamp
duty reserve tax, and others may be liable at a higher rate or may, although not
primarily liable for the tax, be required to notify and account for it under the
Stamp Duty Reserve Tax Regulations 1986.
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THE EQUITY FINANCING
On May 20, 1999, Proteus entered into a conditional placement agreement to
raise approximately L7.0 million net of expenses by issuing 23,325,000 ordinary
shares at 40p per share which on that date represented 31.5% of Proteus'
existing issued share capital and 14.7% of the enlarged share capital assuming
completion of the merger. The shares have been conditionally placed by WestLB
Panmure Limited on a non-preemptive basis with non-U.S. institutional investors.
WestLB Panmure Limited has fully underwritten the financing.
The placement is conditional on completion of the merger by December 20,
1999, and will be subject to the passing of the necessary resolutions of
shareholders at Proteus' Extraordinary General Meeting. Proteus will use the
proceeds from the equity financing for working capital and the repayment of
Therapeutic Antibodies' bridge financing. The terms of the bridge financing are
described in "Therapeutic Antibodies Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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DESCRIPTION OF PROTEUS BUSINESS
The following discussion regarding Proteus' business, product candidates
and technologies includes certain scientific and technical terms and
abbreviations that are defined in the "Glossary" on page 175. This section
should also be read in connection with "Government Regulation."
GENERAL
Proteus' business was founded in 1987 and Proteus International plc was
incorporated in England and Wales under the Companies Act 1985 on January 12,
1990 as a public company limited by shares with the registered number 2459087
under the name of Powerfirst Public Limited Company. Its name was changed to
Proteus International plc on April 18, 1990. Proteus' registered office is
Beechfield House, Lyme Green Business Park, Macclesfield, Cheshire SK11 0JL,
England.
OVERVIEW AND RECENT DEVELOPMENTS
Proteus is a biopharmaceutical company engaged in research for the
discovery of novel drugs using two technologies: immunotherapeutic vaccines and
computer aided molecular design, both of which are described more fully below.
Proteus has undergone significant restructuring in the last few years.
Proteus' new management team, installed in 1996, refined Proteus' strategy and
streamlined its research and development activities.
Under the new management team, Proteus has completed two equity financings.
In July 1996 and June 1998, it raised L9.45 million net of expenses and L7.6
million net of expenses, respectively. Since completion of the June 1998
financing, Proteus has achieved the following commercial and scientific
milestones:
- Angiotensin Immunotherapeutic for the management of high blood
pressure -- this product candidate has entered Phase I clinical
development in the U.K. and the vaccine injections have been well
tolerated at all dose levels in two Phase I trials undertaken to date.
- Factor Xa Inhibitor for the treatment of thrombosis -- Proteus has
undertaken further in-vivo and in-vitro testing. Proteus has now
identified several potent orally active compounds and is pursuing the
selection of a development candidate.
- Tryptase Inhibitor for the treatment of allergic diseases -- Proteus has
completed further pre-clinical testing and has demonstrated proof of
concept in animal models of asthma and other inflammatory diseases. In
addition, it is currently considering the use of these compounds in the
treatment of eczema and hay fever.
- Computer aided molecular design commercialization -- historically,
Proteus has used its computer aided molecular design technology for its
own drug discovery programs. Proteus is expanding the application of its
computer aided molecular design technology and plans to provide drug
discovery services to third parties. As part of this strategy in December
1998, Proteus and ChemBridge Corporation entered into an alliance to
bring together Proteus' computer aided molecular design expertise and
ChemBridge's extensive chemical libraries. Proteus and ChemBridge plan to
offer clients an approach to identifying and optimizing drug leads.
- New immunotherapeutic vaccines -- Proteus has commenced several new
immunotherapeutic projects targeted at inflammatory disease, asthma and
cancer.
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- New computer aided molecular design cancer project -- Proteus has
commenced a project to develop enzyme inhibitors for a cancer target.
CORE TECHNOLOGIES
IMMUNOTHERAPEUTIC VACCINES
Traditional vaccines stimulate the body's immune system to produce
antibodies to protect against potential external infections. Immunotherapeutic
vaccines are drugs that stimulate the body's immune system to create antibodies
against an internal disease causing substance. Immunotherapeutic vaccines have
potential broad ranging benefits in the treatment of chronic diseases. They may
offer benefits to patients because of their specificity of action and their
long-lasting effects. In addition, the duration of action may result in a
reduction in patient management costs for healthcare providers. There can be no
assurance, however, that these benefits will be achieved.
Proteus has developed two immunotherapeutic vaccines to the stage of
clinical trials: the GnRH Human Vaccine for prostate cancer and the Angiotensin
Immunotherapeutic for the treatment of high blood pressure, both of which are
described in more detail below.
COMPUTER-AIDED MOLECULAR DESIGN
Computational techniques can be used in a number of ways to improve both
the speed and quality of small molecule drug design. Proteus has focused its
drug design efforts on a structure-based approach whereby a drug is designed to
fit a particular target based on its known three dimensional shape. Proteus has
chosen enzymes as those targets because, in certain diseases, there is an
established link between specific enzymes and disease progression. Therefore,
blocking these enzymes may prove effective in treating the disease. In addition,
there is an abundance of structural information relating to enzymes which make
them an obvious choice for this approach.
Proteus has made a significant investment in the development of a suite of
drug discovery software called Prometheus, which consists of both proprietary
and commercially available software running under a common language. The main
feature of Prometheus is that it is designed to use the structural information
about the chosen enzyme to model the binding of a molecule as a potential
inhibitor of that enzyme. Moreover, Prometheus is also designed to suggest
molecules that will be relatively easy to synthesize.
To date, Proteus has used its computer aided molecular design for its own
projects and this has led to a pipeline which includes the Factor Xa and the
Tryptase Inhibitors, each of which is discussed below. Furthermore, it is now
Proteus' intention to commercialize its computer aided molecular design
technology by providing drug discovery services, either directly or through
alliances such as the ChemBridge alliance. Further details of the alliance are
described below under "Principal Licensing and Other Agreements -- ChemBridge
Agreement."
PRODUCT PORTFOLIO
Set out below is a summary of Proteus' product portfolio together with a
description of each product indicating its stage of development. The table
should be read in conjunction with the product descriptions set forth below in
order to understand Proteus' product portfolio more fully.
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<TABLE>
<CAPTION>
STAGE OF RESEARCH NEXT SIGNIFICANT
PRODUCT INDICATION AND DEVELOPMENT LICENSEE MILESTONE(3)
- -------------------------- -------------------- ----------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
HUMAN PHARMACEUTICALS
GnRH Human Vaccine prostate cancer Phase II(1) ML Laboratories Completion Phase II
trial -- late 2000
Angiotensin hypertension Phase I(1) -- Results of Phase I
Immunotherapeutic trials -- 2nd half 1999
Factor Xa Inhibitor thrombosis preclinical -- Selection of lead
research molecule for final
preclinical
testing --late 1999
Tryptase Inhibitor asthma preclinical -- Selection of lead
research molecule for final
preclinical
testing -- late 1999
Cancer Immunotherapeutic cancer exploratory -- --
research
Inflammatory Disease rheumatoid arthritis exploratory -- --
Immunotherapeutic research
Asthma Immunotherapeutic asthma exploratory -- --
research
Cancer Enzyme Inhibitor cancer exploratory -- --
research
OTHER PRODUCTS
Bovine Spongiform Presence of bovine launched Enfer Scientific --
Encephalopathy Diagnostic spongiform
Test encephalopathy
in meat
GnRH Animal Vaccine animal castration Phase II(2) Janssen Commencement
of field trials
</TABLE>
- -------------------------
Notes
(1) To date all clinical trials have been conducted in the U.K.
(2) Equivalent stage of development for animal health products.
(3) Each of the dates of next significant milestones represents the board of
Proteus' expected dates based on progress to date. There can be no
assurance, however, that any of these dates or milestones will be achieved.
HUMAN PHARMACEUTICALS
GNRH HUMAN VACCINE
GnRH is a hormone that controls sexual development and function in both
males and females, including the secretion of male and female sex steroid
hormones. Suppression of GnRH activity has been shown to be of benefit in a
number of diseases, including prostate cancer and pre-menopausal breast cancer.
Proteus has developed an immunotherapeutic vaccine which is undergoing clinical
trials and is designed to stimulate the production of antibodies that block
GnRH.
Under a license agreement with ML Laboratories plc, ML Laboratories is
responsible for the development of Proteus' GnRH Human Vaccine technology.
Proteus retains manufacturing rights and
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know how for the active ingredient for human applications of the vaccine. It
supplies the active ingredient, through subcontractors, to ML Laboratories.
ML Laboratories is conducting a dose ranging Phase IIa clinical trial in
prostate cancer. This trial has completed several dose increments. ML
Laboratories recently announced that the trial will be extended to incorporate
alternative formulations.
The license agreement with ML Laboratories provides for the payment to
Proteus of milestone payments of up to L6.0 million during clinical development
and royalties on eventual product sales, if any. ML Laboratories has made
milestone payments of L1.5 million to date. Further payments from ML
Laboratories are contingent on the product's progress through clinical
development and on registration in various jurisdictions. See "Principal
Licensing and Other Agreements -- ML Laboratories Agreement" for further
information concerning Proteus' agreement with ML Laboratories.
Proteus and the University of Strathclyde originally conducted a research
project in this area. If the results of that project are ultimately used by ML
Laboratories, the University of Strathclyde may seek to recover a portion of the
payments received from ML Laboratories up to a maximum of 20% of the payments
with respect to the commercial exploitation of such results, if any.
ANGIOTENSIN IMMUNOTHERAPEUTIC
Angiotensin II is a peptide hormone which plays an important role in the
control of blood pressure and in the maintenance of fluid balance in the body.
It is formed from a slightly larger peptide, angiotensin I, by the action of an
enzyme, the angiotensin converting enzyme. Drugs that prevent the action of this
enzyme are known as angiotensin converting enzyme inhibitors and were discovered
in the late 1970's and have become market leaders in the treatment of high blood
pressure and heart failure. More recently, drugs that block the action of
angiotensin II have been developed and marketed and these appear to be as
effective as angiotensin converting enzyme inhibitors in those indications. A
number of satisfactory therapies exist for the control of high blood pressure,
including those which target angiotensin. However, these therapies require the
patient to take the medication regularly and the failure to do so is one of the
major reasons for the poor control of blood pressure.
In August 1996, Proteus commenced its Angiotensin Immunotherapeutic project
for the treatment of high blood pressure and during 1997, Proteus completed
preclinical proof of concept and optimization studies and selected a clinical
candidate formulation for progression into clinical trials. In 1999, Proteus
commenced Phase I clinical development in the U.K. All participants have been
recruited to two of the Phase I trials and the vaccine following injection has
been well tolerated at all dose levels. Proteus expects to report results in the
second half of 1999.
To Proteus' knowledge, at present, there are no immunotherapeutics on the
market which target angiotensin nor is there any other company which is
developing an angiotensin immunotherapeutic.
Proteus believes that the following factors may make its Angiotensin
Immunotherapeutic an attractive product if successfully developed and launched:
- long duration of action -- the product is designed to be effective for
several months between doses;
- improved patient compliance -- the drug will be administered by injection
under medical supervision thereby avoiding the need for the patient to
take medication daily;
- smooth onset of action -- there should be a gradual reduction in blood
pressure over a period of weeks, which is particularly important in
elderly patients; and
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- sustained effect -- as the drug will produce a long term antibody
response it should provide improved control across the day and night,
avoiding peaks and troughs in drug effect and blood pressure.
FACTOR XA INHIBITOR (ANTI-THROMBOTIC)
Blood clots are responsible for a range of serious and often fatal
conditions such as heart attacks, strokes and pulmonary embolisms. Currently, a
number of drugs are used to prevent or limit clot formation. Several of the more
effective drugs are limited in their use, either because of potentially serious
side effects or because they require daily injections. Proteus believes that a
significant opportunity exists for an effective product which can be orally
administered and has an improved safety profile.
Factor Xa is an enzyme which has a key role in the clotting process.
Inhibition of Factor Xa results in a reduced tendency for blood to clot in
animal models. In 1996, Proteus commenced the design of Factor Xa inhibitors as
sufficient information about the structure of the Factor Xa enzyme was known.
This provided a basis for the application of Proteus' computer aided molecular
design approach to the identification of novel inhibitors.
Proteus has discovered three distinct series of potent Factor Xa
inhibitors. During the last year, several of the compounds developed have been
shown in animals to be well absorbed after oral dosing and to inhibit the
formation of clots. Proteus has made patent filings for these series of
compounds. Proteus is continuing development of these compounds with a view to
identifying a clinical candidate for full scale development.
TRYPTASE INHIBITOR (ASTHMA AND ALLERGIC DISEASES)
Asthma and related inflammatory diseases are common and serious diseases in
the developed world. The major current treatments for asthma are
bronchodilators, aimed at relieving wheezing, and anti-inflammatory steroids,
which are used on a longer term basis to reduce the frequency of attacks and to
slow damage to the lungs. There are, nevertheless, substantial numbers of
patients whose asthma is not well treated with these or other therapies.
Moreover, there is concern that long-term steroid treatment has the potential
for side-effects.
There is evidence, from both animal and clinical studies, which indicates
that an enzyme called tryptase is released during the development of an asthma
attack and contributes both to the wheezing and to the inflammation of the
lungs. Proteus commenced work in 1997 on the discovery of inhibitors of
tryptase, with a view to a possible new approach to treating asthma. Recently, a
detailed three dimensional structure of the enzyme became available and now
guides Proteus' current research. Proteus' first series of tryptase inhibitors
is being developed for delivery directly to the site of inflammatory disease.
Based upon the new structural information on tryptase, the project is now
focused on developing further series of tryptase inhibitors which may be
suitable as an oral treatment for asthma.
NEW PROJECTS
Proteus has selected several new targets in cancer, rheumatoid arthritis
and asthma for treatment with immunotherapeutic vaccines. Feasibility studies
have commenced and Proteus intends to select the most promising of these for
further development.
Over the past year, Proteus has initiated a new enzyme inhibitor project
based on a published three dimensional structure of the target enzyme. The
project is aimed at slowing the growth and
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spread of cancers. Proteus has discovered a series of compounds that inhibit the
target enzyme and intends to develop these to improve potency and selectivity in
the series.
OTHER PROJECTS
BOVINE SPONGIFORM ENCEPHALOPATHY DIAGNOSTIC TEST
There is significant public concern in Europe with respect to bovine
spongiform encephalopathy, commonly known as "mad cow disease." As part of a
program to address the political, commercial and health issues, a European Union
validation study has undertaken a review of a number of alternative bovine
spongiform encephalopathy detection tests of which four companies' tests were
accepted for detailed evaluation. On June 25, 1999, the European Union announced
the results of its evaluation. The results showed that three of the four tests,
including the Enfer Scientific test, were 100% accurate in detecting the
presence of bovine spongiform encephalopathy in samples from known affected
animals. Enfer's test proved to be the fastest and also performed well on
diluted samples, which may provide some indication of its possible effectiveness
in detecting pre-clinical disease.
Proteus has licensed its intellectual property in transmittable spongiform
encephalopathy diagnosis to Enfer Scientific Limited for application in the
worldwide development and marketing of a test to determine whether beef
carcasses are infected by bovine spongiform encephalopathy. Enfer has developed
a high throughput test and established a dedicated laboratory and logistic
support to provide a testing service on beef carcasses in the slaughterhouse
prior to release of the carcasses into the food chain. In early 1997, the Irish
government's veterinary research laboratory announced that the test had been
validated in studies which they carried out. In January 1998, Enfer
commercialized the test and tested samples from beef carcasses on behalf of the
SuperValu supermarket chain in Ireland from January to August 1998.
GNRH ANIMAL VACCINE
The GnRH hormone has the same structure and overall function in humans and
animals and, therefore, the same approach to block its effects is applicable to
both human and animal applications. In animal health and husbandry, the
potential applications encompass fertility and behavior control and improvement
in meat quality.
Proteus has entered into a licensing agreement with Janssen Pharmaceutica
NV to develop a GnRH Animal Vaccine. Janssen is responsible for the manufacture
of both the active ingredient and any formulated vaccines. Janssen has made
encouraging progress in applying the GnRH Animal Vaccine across a range of
target species, in particular for feline castration. The development program has
demonstrated proof of concept. Optimization studies are in progress in both
companion and farm animals. For additional information on the Janssen agreement,
see "Principal Licensing and Other Agreements -- Janssen Pharmaceutica
Agreement."
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INTELLECTUAL PROPERTY
Proteus seeks to protect all its intellectual property, principally by way
of patent protection. Set out below is a summary of Proteus' key intellectual
property.
- TRANSMITTABLE SPONGIFORM ENCEPHALOPATHIES -- Proteus has been granted
patents for its transmittable spongiform encephalopathy diagnostic
technology in the U.S., Europe (European Patent Office), South Africa,
Australia and New Zealand. These patents will expire between 2012 and
2015. Patent applications are pending in Canada and Japan, claiming a
priority date of December 3, 1991.
- GNRH VACCINES -- Proteus has been granted patents for GnRH analogues and
their use in vaccines in the U.S., U.K., New Zealand and Australia and a
patent application is pending in Canada, claiming a priority date of June
5, 1987.
A European patent application has been refused owing to partial
publication of the invention in the scientific literature prior to the
filing of the Proteus application. Proteus has appealed the decision, a
process which could take several years. Proteus believes that if this
appeal is not successful, although the partial publication will not affect
the validity of the patents in the U.S. and Canada, this may prejudice the
patents granted in the U.K., New Zealand and Australia.
- ANGIOTENSIN VACCINE -- Proteus has filed a patent application for
angiotensin peptide analogues and vaccine uses in the U.K. claiming a
priority date of June 24, 1997. The patent cooperation treaty patent
application was filed by June 24, 1998 and published on December 30,
1998. A separate application was filed in Argentina.
- FACTOR XA INHIBITORS -- Proteus filed a U.K. patent application, claiming
a priority date of August 29, 1997. The scope of this application was
extended on February 13, 1998 and Proteus filed two patent cooperation
treaty patent applications in August 1998, published in March 1999. A
U.K. patent application has been filed claiming a third series of Factor
Xa Inhibitors and a similar U.S. patent has been filed. Proteus is aware
of co-pending patent applications by third parties that may challenge the
ability of some aspects of the August 1998 filing to proceed to grant.
Proteus has, however, been advised that its application has novelty and
inventive steps that support patentability.
- TRYPTASE INHIBITORS -- Proteus filed a patent application in the U.K.
claiming a priority date of April 23, 1998. Proteus filed a patent
cooperation treaty patent application on April 23, 1999.
- NON-IONIC SURFACTANT VESICLES (VACCINE ADJUVANT) -- Proteus has been
granted a patent for use of non-ionic surfactant vesicles as a vaccine
adjuvant in Europe (European Patent Office), U.S., Japan, South Africa
and New Zealand. Proteus has assigned responsibility for these patents to
British Technology Group, plc.
- NON-IONIC SURFACTANT VESICLES (THERAPEUTIC) -- Proteus has been granted a
patent for use of non-ionic surfactant vesicles in the treatment of
inflammatory and other human diseases in South Africa. Proteus has
submitted a patent application in the U.K. claiming a priority date of
August 2, 1995 and Proteus filed a patent cooperation treaty patent
application on September 1, 1996.
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PRINCIPAL LICENSING AND OTHER AGREEMENTS
Proteus has entered into licensing and collaborative agreements with
pharmaceutical companies and other entities with established distribution
capabilities. The following is a summary of Proteus' existing agreements:
ML LABORATORIES AGREEMENT
On March 27, 1996, Proteus entered into a minimum ten year licensing
agreement with ML Laboratories plc for the development of its GnRH Human Vaccine
for the treatment of prostate and breast cancer and other human ailments. Under
the terms of the agreement, Proteus granted ML Laboratories the right to
develop, manufacture, use, deal in and sell the vaccine and related products for
use in humans worldwide. However, Proteus has retained manufacturing rights and
technological know-how for the vaccine's active ingredient for human
applications. The active ingredient is supplied to ML Laboratories via Proteus'
subcontractors, but ML Laboratories has the right to obtain access to the
know-how in certain circumstances, for example, if Proteus does not fulfill its
obligations under the agreement. The agreement provides for milestone payments
by ML Laboratories to Proteus of up to L6.0 million. Proteus is also entitled to
royalties on the net sales value of vaccine products sold by ML Laboratories or
on royalties received by ML Laboratories from its licensees. To date, Proteus
has received an initial payment of L1,000,000 and a subsequent milestone payment
of L500,000. Proteus has also received L371,000 in total for the supply of
vaccine materials for use in clinical trials and for the supply of laboratory
and advisory services. No royalties have been received under the agreement.
The agreement further provides that if Proteus wishes to license, sell or
otherwise dispose of new technology it must notify ML Laboratories and provide
it with brief non-confidential information to enable ML Laboratories to decide
whether it wishes to enter into negotiations with Proteus with a view to
licensing the new technology. The agreement sets out a framework for good faith
negotiations between the parties including:
- time limits within which ML Laboratories needs to notify Proteus that it
wishes to enter into negotiations with it or discuss the taking of a
licence;
- an obligation on Proteus to provide ML Laboratories with further
information on a confidential basis relating to the new technology, in
the event that it wishes to take a licence; and
- a right for ML Laboratories to make a final offer to license the new
technology once Proteus has agreed heads of terms with a third party.
Proteus is, however, under no obligation to license the new technology to
ML Laboratories if in its commercial judgement ML Laboratories' offer to take a
licence does not match that of a third party. This judgment is made in Proteus'
sole discretion.
JANSSEN PHARMACEUTICA AGREEMENT
On April 16, 1996, Proteus entered into a licensing agreement with Janssen
Pharmaceutica NV for Janssen's development of a GnRH animal vaccine across a
range of target animal species. Under the terms of the agreement, Proteus
granted Janssen the rights to produce, manufacture, use, sell or otherwise deal
in products developed or produced using Proteus' technical information related
to its animal vaccine. The agreement provides for milestone and royalty payments
by Janssen to Proteus. Additionally, Proteus is also entitled to royalties that
increase based on net sales per calendar year. The agreement's term continues in
effect for so long as Janssen is under an obligation to pay royalties on the net
sales of value of products commercially exploited under the agreement which,
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- with respect to countries where there is no valid and existing patent
right, is seven years after the first product is commercially exploited,
or
- with respect to countries where there is a valid and existing patent
right, for so long as that certain patent right remains in force and/or
is extended.
With respect to products for the domestic cat species, the agreement
provides for milestone payments by Janssen to Proteus of up to $469,000. With
respect to products for other species, the agreement provides for milestone
payments by Janssen to Proteus of up to a similar amount, subject to further
negotiation by Proteus and Janssen and subject to a determination of future
sales revenue. To date, Proteus has received an initial payment of $200,000
under the agreement. No further milestone or royalty payments have been
received. L29,000 has been received for the supply of vaccine materials.
ENFER SCIENTIFIC AGREEMENT
On May 1, 1996, Proteus licensed its immunological expertise in the
recognition of prion proteins to Enfer Scientific Limited for application in
Enfer's development and marketing of post-mortem tests for bovine spongiform
encephalopathy in Ireland, Belgium, the Netherlands, Luxembourg, Germany and
France.
On April 3, 1997, Proteus and Enfer entered into a new licensing agreement
whereby Proteus granted Enfer worldwide rights for the development and marketing
of the test, with increased royalties payable to Proteus. Under the terms of the
agreement, Proteus receives 12.5% of the net sales quarterly. After the end of
the second year of the agreement's term, the total royalties paid to Proteus
will not be less than L65,000 for any year. The agreement has a term of ten
years.
Pursuant to a letter of agreement with the University College Dublin and
Pharmapro Limited, a joint venture between Proteus and the University College
Dublin, Proteus is obligated to share each quarter's income from Enfer with the
other parties to the letter agreement. The income is divided in two. The first
half shall be applied first in repaying Proteus' loan to Pharmapro, second in
repaying to Proteus and the University their out of pocket expenses on a pro
rata basis and third in repaying to Proteus its cost incurred in obtaining and
maintaining related patents. The remaining income will then be shared 80% to
Proteus and 20% to the University College Dublin.
An initial payment of L28,000 was received under the agreement. A total of
L30,000 has been received in royalty payments.
CHEMBRIDGE AGREEMENT
On December 10, 1998, Proteus entered into an alliance agreement with
ChemBridge Corporation whereby the parties agreed to collaborate in obtaining
research contracts from third parties for the design and synthesis of drug
compound libraries and compounds directed at biological targets specified by the
third party. As a result of this collaboration, Proteus will access ChemBridge's
chemical libraries to facilitate identification of compounds for the design of
new drug candidates. For any third party contracts obtained pursuant to this
agreement, milestone payments and royalties to ChemBridge and Proteus under
those contracts are to be apportioned, in the case of projects based on
compounds from ChemBridge's libraries, 75% to ChemBridge and 25% to Proteus and,
in the case of any newly originated compound, 50% to ChemBridge and 50% to
Proteus. The agreement's term is for an initial period of twelve months and
thereafter for such subsequent periods as the parties may agree to prior to the
expiration of the initial period. No revenues have been generated under the
agreement to date.
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BRITISH TECHNOLOGY GROUP AGREEMENT
On September 8, 1998, Proteus entered into a patent assignment agreement
with British Technology Group for the non-ionic surfactant vesicles vaccine
adjuvant technology. Under the terms of the agreement, British Technology Group
will be responsible for the maintenance of the intellectual property and
commercialization of the technology.
COMPETITION
Proteus' product candidates will generally, if successfully developed,
enter large pharmaceutical markets like cardiorespiratory, cancer and arthritis.
While these markets are highly competitive, as evidenced by a range of existing
drug therapies, Proteus believes there are opportunities for the introduction of
new treatments that offer efficacy, safety or health economic benefits. Proteus
selected its disease targets carefully, with emphasis on novelty and the
potential to deliver improved product profiles. Competitive analyses are
presented below for the four therapeutic sectors in which Proteus' product
pipeline is most advanced.
HORMONAL CONTROL OF PROSTATE CANCER
Prostate cancer is treated by a wide variety of drugs and, while there is
no immunotherapeutic currently available on the market which targets GnRH,
Proteus is aware of another GnRH immunotherapeutic vaccine presently under
development. In addition, there are drugs called GnRH 'superagonists' which are
marketed by several major pharmaceutical companies which block the action of
GnRH. Furthermore, there are a number of alternative treatments which are
designed as anti-hormonal treatments to block the actions of certain hormones
which promote prostate cancer. Any of these treatments may be used in
conjunction with cytotoxic drugs which are designed to target the destruction of
tumor cells.
Proteus believes that, notwithstanding the maturity of the market for
products to treat prostate cancer, this market may offer commercial
opportunities.
MANAGEMENT OF HIGH BLOOD PRESSURE
The market for drugs to manage high blood pressure is serviced by a range
of different drugs including angiotensin converting enzyme inhibitors,
angiotensin II receptor antagonists, beta blockers, calcium channel blockers and
diuretics. Many of these drugs are no longer subject to patent protection and
competition is intense. However higher priced, recently introduced drugs, for
example, angiotensin II receptor antagonists, are now gaining market shares.
Proteus is not aware of any other immunotherapeutic vaccine under
development for the management of high blood pressure.
ANTI-BLOOD CLOTTING AGENTS
The market for anti-coagulant drugs to prevent the formation or growth of
blood clots is significant and is dominated by warfarin based drugs and
heparins. These have efficacy limitations and require careful monitoring to
minimize serious side-effects like bleeding. Newer drugs have been launched such
as the low molecular weight heparin. These are effective and safer, however they
are more expensive and require daily injection.
Proteus considers that there is a significant unmet need for an orally
available, safer compound to control blood clotting.
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<PAGE> 101
ASTHMA AND ALLERGIC CONDITIONS
The market for drugs to relieve symptoms of allergic conditions and/or
suppress flare-ups of inflammation in those conditions encompasses
bronchodilators for treatment of asthma, antihistamines for treatment of hay
fever, and steroids for all conditions. Steroids have potent anti-inflammatory
effects, but should be used carefully to avoid or limit a range of possible
adverse effects, such as growth slowing in children.
Recently, a new class of anti-inflammatory drugs, called leukotriene
antagonists, has been introduced for the treatment of asthma. These drugs can be
administered by mouth for chronic treatment, unlike steroids, but are less
effective than steroids. Leukotriene antagonists may also prove to be of value
in treating hay fever.
Proteus considers that there are needs for new anti-inflammatory drugs for
these conditions and intends to apply its tryptase inhibitor candidates to
address the spectrum of allergic conditions.
PROPERTIES
The basic terms of the lease for Proteus' principal facility in
Macclesfield are:
<TABLE>
<S> <C>
Property: Beechfield House, Plot 10B, Lyme Green Business Park,
Macclesfield SK11 0JL
Commencement Date: December 11, 1992
Expiration Date: December 10, 2017
Term: 25 years
Current rent: L166,667 per annum
</TABLE>
Proteus agreed to surrender the second floor of the property and therefore
now holds a lease over the ground and first floors.
On December 4, 1998, the landlord agreed to extend Proteus' option to
terminate the lease to March 10, 2000 instead of at the end of the seventh term
of the lease, as was previously the case. The option has been further extended
to June 10, 2000.
EMPLOYEES
As of June 1, 1999, Proteus had 53 employees, of whom approximately 38 were
engaged in research and development and 15 in administration and management.
LITIGATION
In correspondence, the University of Strathclyde has made claims that it is
entitled to receive 20% of Proteus' revenue for the commercial development of
its LH-RH analogue. For further information regarding this dispute, please see
"Human Pharmaceuticals -- GnRH Human Vaccine" above. Other than the dispute with
the University of Strathclyde, there are no material legal proceedings pending
to which Proteus or any of its subsidiaries is a party.
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<PAGE> 102
PROTEUS SHARE OWNERSHIP TABLE
BENEFICIAL OWNERSHIP BY MANAGEMENT OF PROTEUS
The following tables set forth information with respect to the Proteus
ordinary shares owned of record and beneficially:
- as of August 1, 1999 by each current executive and/or non-executive
director of Proteus; and
- by each person who will be an executive director and/or non-executive
director of Proteus following the merger, assuming the merger occurred on
August 1, 1999.
The computations in the tables are based on a total of 73,998,320 Proteus
ordinary shares issued and outstanding as of August 1, 1999. The table showing
share ownership following the merger assumes the issuance of 60,542,545 Proteus
ordinary shares in the merger and 23,325,000 Proteus ordinary shares in the
equity financing. The computations do not include shares issuable upon the
exercise of outstanding options or warrants.
<TABLE>
<CAPTION>
ORDINARY SHARES
-----------------------
BEFORE MERGER NUMBER % OF CLASS
------------- --------- ----------
<S> <C> <C>
EXECUTIVE DIRECTORS
David W. Gration.......................... 40,897 0.06%
J. Allen Miller........................... 42,962 0.06
Barrington M. Riley....................... 14,814 0.02
Arthur Rushton............................ -- --
NON-EXECUTIVE DIRECTORS
Erik Anggard.............................. -- --
James Everitt............................. 17,402 0.02
Michael R.B. Gatenby...................... 26,666 0.04
All executive and non-executive directors
as a group.............................. 142,741 0.19
</TABLE>
95
<PAGE> 103
<TABLE>
<CAPTION>
ORDINARY SHARES
-----------------------
AFTER MERGER NUMBER % OF CLASS
------------ --------- ----------
<S> <C> <C>
EXECUTIVE DIRECTORS
Andrew J. Heath........................... 288,691 0.18%
Barrington M. Riley....................... 14,814 0.01
Arthur Rushton............................ -- --
J. Allen Miller........................... 42,962 0.03
James C. Christie......................... -- --
NON-EXECUTIVE DIRECTORS
Stuart M. Wallis.......................... 436,125 0.28
David W. Gration.......................... 40,897 0.03
Martin S. Brown........................... 4,216,577 2.67
Tim Chard................................. 1,169,733 0.74
Michael R.B. Gatenby...................... 26,666 0.02
Erik Anggard.............................. -- --
James Everitt............................. 17,402 0.01
All executive and non-executive directors
as a group.............................. 6,253,867 3.96
</TABLE>
The business address of each of the Proteus directors and executive
officers is Beechfield House, Lyme Green Business Park, Macclesfield Cheshire
SK11 0JL, England.
As of August 1, 1999, no person or entity owned 10% or more of the
outstanding capital stock of Proteus. After giving effect to the merger and the
related equity financing, Nomura Asset Management and its affiliates would have
owned 20,093,590 shares of Proteus, representing approximately 12.73% of
Proteus' outstanding capital stock as of August 1, 1999.
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<PAGE> 104
SELECTED FINANCIAL INFORMATION OF PROTEUS
The following table sets forth selected consolidated financial data for
Proteus as of March 31, 1999, 1998, 1997, 1996 and 1995 and for each of the five
fiscal years in the period ended March 31, 1999 which have been derived from the
audited consolidated financial statements of Proteus and related notes thereto.
The audited consolidated financial statements have been prepared in accordance
with U.K. GAAP, which differs in certain material respects from U.S. GAAP. The
principal differences between U.K. GAAP and U.S. GAAP are summarized in Note 22
to Proteus' audited consolidated financial statements included elsewhere in this
proxy statement/prospectus. The selected consolidated financial information
should be read in conjunction with the consolidated financial statements and
notes and with "Proteus Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Unaudited Pro Forma Financial
Statements" included elsewhere in this proxy statement/prospectus.
The translation of pounds sterling into U.S. dollars at and for the year
ended March 31, 1999 has been made at the rate of L1.00 = $1.6140 based upon the
noon buying rate on March 31, 1999. This translation is provided solely for the
convenience of the reader and does not necessarily reflect financial information
in accordance with U.S. GAAP or U.K. GAAP for foreign currency translations.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- -------
$ L L L L L
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
U.K. GAAP
Turnover............................. 1,123 696 178 573 1,063 --
Research and administration
expenses........................... (8,236) (5,103) (4,526) (4,682) (6,590) (8,136)
Share of results of joint ventures... -- -- -- -- (9) (15)
Interest receivable.................. 872 540 353 404 207 375
Interest payable..................... (129) (80) (132) (119) (66) (149)
------- ------- ------- ------- ------- -------
Net loss............................. (6,370) (3,947) (4,127) (3,824) (5,395) (7,925)
======= ======= ======= ======= ======= =======
Net loss per ordinary share.......... (0.089) (0.055) (0.072) (0.071) (0.140) (0.216)
U.S. GAAP
Net loss............................. (6,224) (3,856) (3,990) (3,716)
Net loss per ordinary share.......... (0.087) (0.054) (0.069) (0.069)
BALANCE SHEET DATA:
(AT END OF PERIOD)
U.K. GAAP
Cash and cash equivalents............ 11,948 7,403 3,327 6,937 2,288 6,189
Total assets......................... 15,583 9,655 5,858 9,976 5,590 10,516
Long-term debt net of current
portion............................ 334 207 455 629 690 880
Shareholders' equity(1).............. 12,399 7,682 4,016 8,027 2,435 7,830
U.S. GAAP
Cash and cash equivalents............ 3,322 2,058 2,829
Total assets......................... 14,463 8,961 4,689
Long-term debt net of current
portion............................ 334 207 455
Shareholders' equity................. 11,343 7,028 3,271
</TABLE>
- -------------------------
(1) On May 24, 1996, Proteus issued 21,805,256 ordinary shares of 2p each, in a
rights issue, for cash at a price of L0.45 per share and on May 11, 1998
Proteus issued 18,498,354 ordinary shares of 2p each, in a rights issue, for
cash at a price of L0.45 per share.
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<PAGE> 105
PROTEUS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Proteus should be read in conjunction with Proteus'
consolidated financial statement and notes thereto.
OVERVIEW
Proteus' business was founded in 1987. Since then, Proteus' principal
activities have been the research and development of novel drugs and vaccines,
and the development and application of computer software to aid the design of
potential drugs. Proteus is deriving modest revenues from licensees for use of
the GnRH Immunotherapeutic in clinical trials and from a diagnostic test for
bovine spongiform encephalopathy. Proteus has received some royalties from the
use of the diagnostic test. The human application of the GnRH Immunotherapeutic
is in Phase II trials and the animal application is in an equivalent stage.
Proteus has licensed these projects to collaborative partners, and, if
successfully developed, further revenues are anticipated from royalties and the
supply of product. Proteus has received initial fees and milestone payments on
those projects which have been licensed to collaborative partners. Proteus
expects that significant operating losses will be incurred for several years due
to ongoing research and development expenditure, preclinical testing and
clinical trials of its current projects. The results of operations may vary
significantly from quarter to quarter depending on the progress of research and
development, the receipt of milestone payments, if any, the establishment of
further collaborative agreements, if any, the timing of expense payments, and
the overall level of resources required by the projects.
On May 20, 1999, Proteus entered into the merger agreement with Therapeutic
Antibodies. The merger would result in a larger biopharmaceutical company with a
wider portfolio of products and research and development projects. The combined
company is expected to create a more stable base from which to develop the newer
projects, and an enhanced market presence from which to expand collaborative
agreements and partnerships.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998
Proteus' total revenues increased by 291% to L696,000 in the year ended
March 31, 1999 from L178,000 in the year ended March 31, 1998. In the year ended
March 31, 1999, licensing fees of L500,000 were received from ML Laboratories in
respect of the GnRH Human Vaccine. There were no licensing fees received in the
year ended March 31, 1998. Royalties of L28,000 were received in the year ended
March 31, 1999 from the licensing of a bovine spongiform encephalopathy
diagnostic test and related technologies. Royalties in the year ended March 31,
1998 amounted to L2,000. Product sales, largely for supplies of material to ML
Laboratories for use in clinical trials, decreased by 30% to L100,000 in the
year ended March 31, 1999 from L142,000 in the year ended March 31, 1998.
Revenue from laboratory and advisory services amounted to L17,000 in the year
ended March 31, 1999 which was a 23% decrease over the corresponding figure of
L22,000 for the previous year. Other revenues in the year ended March 31, 1999
amounted to L51,000, largely consisting of receipts from a U.K. Government Spur
Plus grant. The amount received for other revenues in the year ended March 31,
1998 was L12,000.
The cost of goods sold decreased by 28% to L59,000 in the year ended March
31, 1999 from L82,000 in the year ended March 31, 1998, reflecting lower sales
of materials for use by Proteus' licensees, ML Laboratories, in the clinical
trials of the GnRH Human Vaccine. The cost of service
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<PAGE> 106
revenues decreased by 27% to L16,000 from L22,000 in the prior year, reflecting
lower requirements by Proteus' licensees for laboratory and advisory support.
Research and development expenditure increased by 18% to L3,532,000 in the year
ended March 31, 1999 from L2,983,000 in the year ended March 31, 1998. The
increase resulted from the progression of Proteus' projects from earlier stage
research to the development stage at which more extensive testing is required.
Marketing expenditure increased by 53% to L150,000 in the year ended March 31,
1999 from L98,000 in the year ended March 31, 1998, as increased resources were
employed in promoting Proteus' projects and technology. General and
administrative expenses were largely constant between the two years, totalling
L1,346,000 in the year ended March 31, 1999 and L1,341,000 in the year ended
March 31, 1998.
Interest income increased by L187,000 to L540,000 in the year ended March
31, 1999 from L353,000 in the year ended March 31, 1998 reflecting an increase
in cash and liquid investments following the receipt of funds from the issue of
shares announced on April 22, 1998.
Interest expense declined by L52,000 to L80,000 in the year ended March 13,
1999 from L132,000 in the year ended March 31, 1998 owing to the decreasing
component of interest cost in total lease payments.
Net loss reduced by L180,000 to L3,947,000 from L4,127,000 due to increased
revenues and net interest receipts more than offsetting the increased research
and administration expenditure.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
Proteus' total revenues decreased by 69% to L178,000 in the year ended
March 31, 1998 from L573,000 in the year ended March 31, 1997. No license fees
were received in the year ended March 31, 1998 while license fees of L398,000
were received in the year ended March 31, 1997. These consisted primarily of
L200,000 from Janssen in respect of the GnRH Animal Vaccine, L158,000 from
Genelabs in respect of the dissolution of a partnership and L28,000 from Enfer
in respect of bovine spongiform encephalopathy diagnostic technology. Royalties
of L2,000 were received in the year ended March 31, 1998. No royalty income was
received in the year ended March 31, 1997. Product sales, largely for supplies
of material to ML Laboratories for use in clinical trials, amounted to L142,000
in the year ended March 31, 1998 and L139,000 in the year ended March 31, 1997.
Laboratory and advisory services revenue amounted to L22,000 in the year ended
March 31, 1998, and was zero in the year ended March 31, 1997. Other income
amounted to L12,000 in the year ended March 31, 1998 and L36,000 in the year
ended March 31, 1997.
The cost of goods sold increased by 8% to L82,000 in the year ended March
31, 1998 from L76,000 in the year ended March 31, 1997 reflecting a small
increase in materials supplied to Proteus' licensee, ML Laboratories, for use by
them in the clinical trials of the GnRH Human Vaccine. The cost of service
revenues was L22,000 in the year ended March 31, 1998 and was zero in the prior
year. The majority of this cost represented a requirement from ML Laboratories
for analytical capability in support of the clinical trial of the GnRH Human
Vaccine. Research and development expenditure decreased by 6% to L2,983,000 in
the year ended March 31, 1998 from L3,162,000 in the year ended March 31, 1997.
The decrease resulted from a continued tight control on expenditure. Marketing
expenses also decreased by 29% to L98,000 from L139,000 due to decreased staff
costs. General and administrative expenses showed a small increase to L1,341,000
in the year ended March 31, 1998 from L1,305,000 in the year ended March 31,
1997, in line with overall inflation rates in the U.K.
Interest income declined by L51,000 to L353,000 in the year ended March 31,
1998 from L404,000 in the year ended March 31, 1997. This reduction reflected a
lower average of cash and liquid investments, offset to some extent by increased
interest rates.
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<PAGE> 107
Interest expense increased by L13,000 to L132,000 in the year ended March
31, 1998 from L119,000 in the year ended March 31, 1997. The increase reflected
a higher level of leasing of assets.
Proteus incurred a net loss of L4,127,000 in the year ended March 31, 1998
compared to a net loss of L3,824,000 in the year ended March 31, 1997. The
increased loss reflected the reduced revenues, which more than offset the
reduced levels of expenditure.
YEAR ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
Proteus' total revenues decreased by 46% to L573,000 in the year ended
March 31, 1997 from L1,063,000 in the year ended March 31, 1996. Licensing fees
reduced by 60% to L398,000 in the year ended March 31, 1997 from L1,000,000 in
the year ended March 31, 1996. The income in the year ended March 31, 1997
consisted primarily of L200,000 from Janssen in respect of the GnRH Animal
Vaccine, L158,000 from Genelabs in respect of the dissolution of a partnership
and L28,000 from Enfer in respect of bovine spongiform encephalopathy diagnostic
technology. The income in the year ended March 31, 1996 represented the initial
payment from ML Laboratories under the GnRH Human Vaccine technology license
agreement. There was no royalty income or revenues from laboratory and advisory
services in either year. Product sales amounted to L139,000 in the year ended
March 31, 1997 and was largely for supplies of material to ML Laboratories for
use in clinical trials. Product sales amounted to L7,000 in the year ended March
31, 1996. Other revenues were L36,000 in the year ended March 31, 1997 and
L56,000 in the year ended March 31, 1996.
Cost of goods sold increased by 533% to L76,000 in the year ended March 31,
1997 from L12,000 in the year ended March 31, 1996 as initial supplies of
material were required by Proteus' licensee, ML Laboratories, for use by them in
the clinical trials of the GnRH Human Vaccine. Research and development
expenditure decreased by 28% to L3,162,000 in the year ended March 31, 1997 from
L4,404,000 in the year ended March 31, 1996. This decrease resulted from
Proteus' major reorganization in 1996 in which it reduced both its number of
projects and staff numbers. Also, the amount of research and development being
undertaken by external organizations was reduced and brought in-house, which
produced further cost savings. This reorganization affected all areas of
Proteus' operations. As a result, marketing expenses decreased by 14% to
L139,000 from L161,000 while general and administrative expenses decreased by
35% to L1,305,000 from L2,013,000, largely as a result of reduced staff numbers.
Interest income increased to L404,000 in the year ended March 31, 1997 from
L207,000 in the year ended March 31, 1996, reflecting income earned on the funds
received from an ordinary share issuance in May 1996.
Interest expense increased to L119,000 in the year ended March 31, 1997
from L66,000 in the year ended March 31, 1996, reflecting increased leasing of
fixed assets.
The net loss for the year ended March 31, 1997 decreased by 29% to
L3,824,000 from L5,395,000 in the year ended March 31, 1996, as a result of
significant reductions in research and development and administrative expenses,
and despite a reduction in revenues.
LIQUIDITY AND CAPITAL RESOURCES
Proteus has financed its activities primarily by issuing ordinary shares
since its initial incorporation in 1990, with a total of L48,651,000 net of
expenses raised to date. Proteus has earned L1,898,000 from licensing fees and
milestone payments, L388,000 from product sales, L30,000 from royalties, L39,000
from laboratory and advisory services and L186,000 from U.K. government grants
and other income. As of March 31, 1999, Proteus had cash, cash equivalents and
marketable securities totaling L7,347,000. Future milestone payments and
royalties may be payable to Proteus
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<PAGE> 108
upon successful development, registration of products, and sales of the
products, if any, by the licensees in due course.
Since its incorporation, Proteus has acquired fixed assets with a book
value of L1,859,000 at March 31, 1999. These assets include laboratory
facilities, computer equipment, software and fixtures and fittings. Fixed assets
are generally acquired under finance leases, the liability for which totaled
L592,000 at March 31, 1999. Office and laboratory premises are provided under an
operating lease and Proteus is currently negotiating to acquire alternative
premises with larger laboratory facilities at a similar annual rental to the
present premises, which amounts to L167,000 per annum. Proteus estimates that
capital expenditures of L400,000 will be required to fit out the proposed
facilities.
Proteus has incurred expenditures as follows in funding the operations of
the joint ventures referred to in Note 11 on page F-14:
<TABLE>
<S> <C>
P.C. Aquascience Limited.................................... L322,000
ProDeva Limited............................................. L373,000
Pharmapro Limited........................................... L200,000
</TABLE>
Proteus has no commitments to future funding and has given no guarantees
with respect to joint venture obligations, other than a letter of agreement with
the University College Dublin and Pharmapro Limited to share revenues from the
agreement with Enfer Scientific Limited as set out on page 92.
Cash used by operations for the year ended March 31, 1999 was L3,156,000
which principally supported research and development activities. Net cash
outflow to finance capital investment totalled L454,000 and payments for finance
leases and hire purchase agreements totalled L363,000. Net interest receipts
amounted to L405,000. Receipts from a share issue in the year ended March 1999
amounted to L7,613,000 after expenses, and cash, cash equivalents and marketable
securities increased by L4,045,000 in the year ended March 31, 1999.
Since its incorporation, Proteus' cash expenditures have exceeded its
revenues on an annualized basis. Future capital requirements will depend on many
factors, including, but not limited to, the progress of Proteus' research and
development programs, the progress of preclinical and clinical testing, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and marketing developments, changes in
Proteus' existing research relationships, the ability of Proteus to establish
collaborative arrangements, receipt of any license fees and royalties and the
acquisition of additional facilities and capital equipment.
Proteus has entered into an agreement to raise approximately L7.0 million
after expenses through the issuance of ordinary shares, subject to the
completion of the merger. This financing will result in the receipt by Proteus
of sufficient working capital for the present requirements of the combined
company. Successful completion of the equity financing is a condition to the
merger. Proteus believes, assuming the financing is successful, that it will
have sufficient cash to fund its operations through mid-2000. The
non-achievement of planned revenues, changes in Proteus' research and
development plans or other events affecting Proteus' operations, however, may
result in accelerated or unexpected depletion of cash resources. If additional
funds are raised by issuing equity securities in the financing discussed above
or otherwise, existing stockholders may experience substantial dilution and
future investors may be granted rights superior to those of existing
stockholders.
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YEAR 2000
The Year 2000 issue refers to the problem affecting embedded computer chips
and software systems which only hold two character date fields and are,
therefore, unable to distinguish between 20th and 21st century dates. This
inability may result in system faults ranging in severity from miscalculations
to complete system failure.
In February 1998, Proteus organized a Y2K task force under the direction of
its Head of Computational Chemistry, which began with the complete audit of all
potentially affected systems including, but not limited to, computer hardware,
operating systems, application software, laboratory equipment,
telecommunications equipment and building infrastructure. This audit included
specific testing, where appropriate, of system compliance for date awareness,
problems associated with year rollover and leap year compliance. As a result, a
number of systems were identified as not being Y2K compliant and were scheduled
for upgrade or replacement.
At this time, it is estimated that over 98% of such systems are now
compliant with the remaining systems scheduled for replacement before the end of
September 1999.
With regard to material third party suppliers, Proteus has begun the
process of requesting assurances regarding Y2K compliance from those suppliers
who have not volunteered such statements.
Proteus' greatest risk is the failure of critical research and development,
manufacturing or clinical trial related service contractors not being Y2K
compliant. Because of the significant number of these external service
contractors and the vast number of business systems used by these parties,
Proteus may experience some disruption in its business operations. At this time,
Proteus is unable to determine whether the consequences of Y2K failures by these
parties will have a material impact on Proteus' business operations. Proteus
believes that with the implementation of contingency plans, including
identifying alternative service contractors, the possibility of material
interruptions of normal operations should be reduced. However, there is no
assurance that Proteus will be successful in finding alternative service
contractors. In the event that Proteus is unable to replace Y2K non-compliant
service contractors, Proteus' business operations could be adversely affected.
In addition, contingency planning for unforeseen Y2K problems has been
carried out and in addition to the securing of internal data prior to the date
change, Proteus is preparing to secure relevant electronic data held by third
parties.
Proteus has incurred costs to date in relation to Y2K compliance of
approximately L50,000 and Proteus expects additional costs to be approximately
L20,000.
Proteus is using its reasonable efforts to ensure internal and external Y2K
compliance. However, there can be no guarantee that Proteus' assessment and
correction efforts will prove accurate. Key external business partners may be
unsuccessful in solving their Y2K issues and Proteus may be unsuccessful in
identifying alternative critical service providers and contractors, vendors and
suppliers. As a result, Y2K problems may adversely impact Proteus' business
operations.
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MARKET RISK
Proteus invests its cash balances with a number of substantial U.K.
financial institutions and banks to minimize the risks from default from any one
institution. No such losses have occurred to date. Individual deposits are
placed at a fixed rate of interest at market rates prevailing at the time, which
depend on the credit rating of the institution, the time to maturity of the
deposit and the general level of interest rates as determined by the Bank of
England, which is the U.K. central bank. To the extent that the general level of
interest rates changes over time, Proteus' interest income will vary as
replacement contracts are entered into.
Proteus has small purchases, and has had small sales of product, in
currencies other than the pound sterling. However, any potential gain or loss on
foreign currency transactions is negligible within the context of overall levels
of expenditure or revenues.
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MANAGEMENT OF PROTEUS AFTER THE MERGER
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the persons who are expected to be the
executive and non-executive members of the Proteus board of directors following
the effective time of the merger and their expected positions at Proteus:
<TABLE>
<S> <C>
EXECUTIVE BOARD MEMBERS POSITION
Andrew J. Heath Chief Executive Officer
Barrington M. Riley Finance Director
Arthur Rushton Chief Operating Officer
J. Allen Miller Research Director
James C. Christie Production Director
NON-EXECUTIVE BOARD MEMBERS POSITION
Stuart M. Wallis Chairman
David W. Gration Deputy Chairman
Martin S. Brown --
Tim Chard --
Michael R.B. Gatenby --
Erik Anggard --
James E. Everitt --
</TABLE>
The following individuals will serve as the executive officers and
directors of Proteus following the effective time of the merger:
STUART M. WALLIS, FCA ATII. Mr. Wallis has held a number of senior
management and board positions in the automotive, publishing, packaging and
pharmaceutical industries. Mr. Wallis currently holds chairmanships with SSL
International plc, Yorkshire Group PLC, John Mansfield Group PLC, Euramax plc
and is a director of Informa Group PLC. He is also Chairman of several private
companies. Mr. Wallis served as Chairman of Sheffield Forgemasters Ltd. from
1996 to 1998 and as the Chief Executive Officer of the pharmaceutical group
Fisons from 1994 to 1995. He became Chairman of the Board of Therapeutic
Antibodies in September 1998.
DAVID W. GRATION, FRPHARMS. Mr. Gration has over 30 years' experience in
the pharmaceutical industry. He joined the board of Proteus in December 1992.
Mr. Gration has held senior positions at The Boots Company, Wyeth Laboratories,
and Celltech Group. He currently holds three other non-executive directorships.
ANDREW J. HEATH, M.D., PH.D. Dr. Heath holds a science degree in
pharmacology from the University of London and an M.D. from Sweden's Gothenberg
University. He has considerable experience in the pharmaceutical industry with
Glaxo Inc. and Astra. From 1993 until 1996, he was responsible for more than 500
sales and marketing professionals for Astra U.S. as Vice President Marketing and
Sales. In that post, he had profit and loss responsibility for Astra United
States' pharmaceutical portfolio. He served as Chief Executive Officer at
AeroGen, Inc., a privately held drug delivery company, from 1996 until 1998. Dr.
Heath joined Therapeutic Antibodies as a director, Vice Chairman of the Board
and Chief Executive Officer in March 1998.
ARTHUR RUSHTON, M.B., CH.B., M.R.C.P., F.F.P.M., D.M.S. Dr. Rushton joined
Proteus in January 1994 having gained over 20 years' experience in the
pharmaceutical industry with, among others, Zeneca. He is the Chief Operating
Officer of Proteus, with direct responsibilities for product
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<PAGE> 112
and business development and the management of existing commercial agreements.
Dr. Rushton joined the board of Proteus in September 1996.
J. ALLEN MILLER, B.Sc., Ph.D., F.R.S.E. Dr. Miller was previously head of
the chemical division of The Wellcome Foundation where he was responsible for
all chemistry based research. He is an honorary professor of medicinal chemistry
at Dundee University. He joined Proteus in December 1995 and was appointed to
the board of Proteus in March 1996. Dr. Miller is responsible for discovery
research at Proteus.
JAMES C. CHRISTIE. Mr. Christie has management responsibility for research
and development, quality control, Therapeutic Antibodies' Australian operations
and its manufacturing facility in Wales. Mr. Christie joined Therapeutic
Antibodies in 1998. From 1995 to 1998, Mr. Christie was Director of Operations
at Centocor BV, a subsidiary of Centocor Inc., a United States biopharmaceutical
company. He has extensive experience in taking products from research and
development stages to market and has particular knowledge in the production of
biological pharmaceutical products.
BARRINGTON M. RILEY, B.A., F.C.A. Mr. Riley was previously a divisional
finance and administration manager and the company secretary of the U.K.
operations of FMC Corporation, the Chicago based group. Mr. Riley joined Proteus
in April 1995 as its Finance Director.
ERIK ANGGARD, M.D., Ph.D. Professor Anggard is currently the Director
General of the William Harvey Research Institute. He was previously Director of
Research and Development with Bristol Myers U.K. and a member of the Nobel
Assembly at the Karolinska Institute, Sweden. Professor Anggard joined the board
of Proteus in September 1998.
MARTIN S. BROWN. Mr. Brown joined Jack Daniel Distillery Lem Motlow Prop,
Inc., as Vice President in 1965, was elected President in 1973 and became chief
executive in 1977. In 1983, he was elected Vice-Chairman of the parent company
of Jack Daniel Distillery, Brown-Forman Corporation, a consumer goods company in
which capacity he served until 1986. Mr. Brown is currently a director of Micro
Craft, a privately held corporation. Mr. Brown served as Chairman of the Board
of Therapeutic Antibodies from 1987 to August 1998, and served as Chief
Executive Officer from 1987 to February 1998. He is currently a director of
Therapeutic Antibodies.
TIM CHARD, M.D. Professor Chard has been associated with the Medical
College of St. Bartholomew's Hospital in London, England since 1968 where he
currently serves as Professor and Chairman of the Department of Reproductive
Physiology, and as honorary consultant to the Royal Hospitals Trust. He was a
co-founder of Therapeutic Antibodies in 1984 and is responsible for patent
affairs of the research and development work of Therapeutic Antibodies.
Professor Chard is a recognized authority in the field of immunochemistry and is
the author of a standard textbook on laboratory immunology, as well as more than
400 scientific articles. He is a member of the editorial board of a number of
medical journals. He is also a member of a World Health Organization expert
panel on vaccines and a director of Transatlantic Capital Limited, a member of
the British Venture Capital Association. He is currently Senior Vice
President-Research and Development Administrator and a director of Therapeutic
Antibodies.
JAMES EDMUND EVERITT, M.A., C.Eng., M.I.E.E., O.B.E. Mr. Everitt has spent
the last 24 years in health care, including leading positions at Glaxo and
Vickers. He was until July 31, 1999 the Chairman of the Center Micro-biological
Research Authority and holds six other non-executive directorships. Mr. Everitt
joined the board of Proteus in December 1996.
MICHAEL RICHARD BROCK GATENBY, M.A., F.C.A. Mr. Gatenby was previously
Vice-Chairman of Charterhouse Bank, and holds four other non-executive
directorships. Mr. Gatenby joined the board of Proteus in May, 1997.
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<PAGE> 113
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, for the year ended March 31, 1999, the
compensation paid to or accrued by or on behalf of all of Proteus' executive and
non-executive directors.
<TABLE>
<CAPTION>
BASIC BENEFITS TOTAL
SALARY FEES PENSION IN KIND 1999
------- ------ ------- -------- -------
L L L L L
<S> <C> <C> <C> <C> <C>
EXECUTIVE
David W. Gration........................... 91,000 -- 13,650 6,394 111,044
Barrington M. Riley........................ 65,000 -- 6,180 8,571 79,751
J. Allen Miller............................ 97,335 -- 9,734 9,146 116,215
Arthur Rushton............................. 92,872 -- 8,240 7,427 108,539
NON-EXECUTIVE
R. N. Boyes................................ -- 12,500 -- -- 12,500
(Resigned July 31, 1998)
Geoffrey Peter Fothergill.................. -- 15,000 -- -- 15,000
(Resigned August 18, 1999)
James E. Everitt........................... -- 15,000 -- -- 15,000
Michael R. B. Gatenby...................... -- 15,000 -- -- 15,000
Erik Anggard............................... -- 6,653 -- -- 6,653
(Appointed October 2, 1998)
------- ------ ------ ------ -------
346,207 64,153 37,804 31,538 479,702
======= ====== ====== ====== =======
</TABLE>
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OPTIONS TO SUBSCRIBE FOR PROTEUS ORDINARY SHARES
The following table sets forth information regarding stock options to
subscribe for Proteus ordinary shares held by Proteus executive and
non-executive directors as of June 1, 1999.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE (L) EXPIRATION DATE
--------- ------------- ------------------------------
<S> <C> <C> <C>
APPROVED OPTIONS
Arthur Rushton................ 23,535 1.547 July 20, 2004
Barrington M. Riley........... 52,955 0.688 July 24, 2005
UNAPPROVED OPTIONS
David W. Gration.............. 318,987 0.417 - 2.635 March 27, 2001 - June 21, 2008
J. Allen Miller............... 315,033 0.417 - 0.667 July 18, 2003 - June 21, 2008
Barrington M. Riley........... 215,022 0.417 - 0.667 July 18, 2003 - June 21, 2008
Arthur Rushton................ 297,962 0.417 - 0.667 July 18, 2003 - June 21, 2008
SAVINGS RELATED OPTIONS
J. Allen Miller............... 26,712 0.365 March 31, 2002
Barrington M. Riley........... 26,712 0.365 March 31, 2002
---------
TOTAL:........................ 1,276,918
=========
</TABLE>
As of June 1, 1999, there were a total of 2,762,050 options to purchase
Proteus ordinary shares outstanding, with purchase prices ranging from L0.365 to
L2.635 and expiration dates ranging from March 27, 2001 to June 21, 2008.
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DESCRIPTION OF THERAPEUTIC ANTIBODIES BUSINESS
The following discussion regarding Therapeutic Antibodies' business,
product candidates and technologies includes certain scientific and technical
terms and abbreviations that are defined in the "Glossary" on page 175. This
section should also be read in connection with "Government Regulation."
OVERVIEW AND RECENT DEVELOPMENTS
Therapeutic Antibodies is a development stage biopharmaceutical company
specializing in the development and production of polyclonal antibodies for the
treatment of disease and life threatening conditions for which satisfactory
therapies have, generally, not previously existed. Therapeutic Antibodies has
developed systems for the production and purification of a new generation of
polyclonal antibodies that management believes can produce suitable therapies
for neutralizing a variety of toxins. Therapeutic Antibodies' antibody products
are in various stages of development, ranging from preclinical testing to
commercial distribution. Therapeutic Antibodies has its headquarters in
Nashville, Tennessee and has operations in the United States, the United
Kingdom, and Australia. Therapeutic Antibodies was incorporated in Delaware in
1984.
Therapeutic Antibodies has developed proprietary processes for the
preparation of unique immunogens, the purification of specific antibodies and
the digestion of antibodies into fragments. Therapeutic Antibodies' management
believes that these capabilities enable Therapeutic Antibodies to produce
specific products that have applications across a broad range of diseases.
During 1998, Therapeutic Antibodies underwent a period of management
restructuring. In March 1998, Dr. Andrew Heath joined Therapeutic Antibodies as
Chief Executive Officer and Vice Chairman. Dr. Heath has significant commercial
experience in the pharmaceutical industry, with previous positions at Glaxo plc
and Astra AB. In September 1998, Stuart M. Wallis was appointed as non-executive
Chairman of the Therapeutic Antibodies board. Mr. Wallis has held a number of
senior management and board positions in the automotive, publishing, packaging
and pharmaceutical industries and served as the Chief Executive Officer of the
pharmaceutical group, Fisons, from 1994 to 1995.
Beginning with Dr. Heath's appointment in 1998, Therapeutic Antibodies
completed a strategic review of its product development, research and other
activities. This review has resulted in a more focused product portfolio.
Through its previous research and development and associated investment,
Therapeutic Antibodies has developed a highly flexible technology platform and
advanced production facilities which have together been used to develop a range
of products. In the near term, Therapeutic Antibodies' resources are primarily
focused on CroTAb(R), its crotalid antivenom product, which Therapeutic
Antibodies expects to be marketed in 1999, and DigiTAb(R), its digoxin antidote,
which Therapeutic Antibodies expects to begin marketing in the United States in
late 2000. In the mid-term, Therapeutic Antibodies anticipates the launch of
TriTAb(R), an antidote to tricyclic antidepressant toxicity, and CytoTAb(TM), a
product designed to neutralize the effects of tumor necrosis factor alpha,
commonly known as TNFa. For further discussion of Therapeutic Antibodies'
products, please see "Products" below.
Therapeutic Antibodies operates its research and development laboratories
at the facilities of The Medical College of St. Bartholomew's Hospital in
London. Therapeutic Antibodies' antibody production operations are located in
both Llandysul, Wales and Adelaide, Australia. Therapeutic Antibodies has
affiliated itself with scientists at academic institutions in the United States
and Europe to assist in the testing and development of antibody products.
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TECHNOLOGY AND PRODUCTION
There are two general classes of antibodies for use as immunotherapeutic
agents. The first, at the heart of Therapeutic Antibodies' technology, is
polyclonal antibodies, which contain a variety of antibodies directed to
different sites, known as epitopes, on the target molecule. The second type,
monoclonal antibodies, consists of a population of identical antibodies all
directed to a single epitope.
POLYCLONAL ANTIBODIES
Therapeutic Antibodies has focused its development resources on polyclonal
antibodies. These may be effective for a number of therapeutic applications in
humans, where Therapeutic Antibodies believes that many clinically significant
target molecules have multiple epitopes and are therefore better treated by
polyclonal antibodies. Unlike Therapeutic Antibodies, most immunotherapy
companies in recent years have focused on monoclonal antibodies. Therapeutic
Antibodies believes that the advantages of processed and purified polyclonal
antibodies over monoclonals in many circumstances are that polyclonals:
- bind multiple sites, resulting in more effective neutralization of toxic
molecules;
- usually bind more strongly;
- are often more robust and can generally better withstand the
fragmentation and purification process; and
- can be developed at less expense using a common technology.
Therapeutic Antibodies believes that the combination of the following
factors differentiates it from its competitors:
- the use of polyclonal antibodies;
- the production of purified specific fragments of polyclonal antibodies;
and
- the use of production systems common among Therapeutic Antibodies'
products.
ANTIBODY FRAGMENTS
The basic structure of an antibody molecule is shown in the following
diagram. An antibody can be divided into two identical components known as
antibody binding Fab fragments and an additional Fc fragment. Each Fab fragment
has a binding site which attaches to a specific epitope on the target molecule
in order to neutralize its toxic effects. The Fc fragment is potentially harmful
and can cause hypersensitivity and other adverse events. Therapeutic Antibodies'
technology allows for this harmful Fc fragment to be removed and discarded.
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The diagram below shows how Therapeutic Antibodies uses the cleavage
enzyme, papain, to split an antibody into its three components.
[GRAPHIC SHOWING ANTIBODY]
Therapeutic Antibodies separates and discards the potentially harmful Fc
fragment and retains the two beneficial Fab fragments, unimpaired in their
ability to bind and neutralize the target molecule. Their small size ensures
that the Fab fragment products are rapidly and evenly distributed throughout the
body. This means that, following injection, they quickly reach the various
tissues where a target molecule may be causing toxic effects. The small size of
Fab fragments means that once they have bound to the target molecule they can be
excreted by the kidneys. Because of its smaller size and purity, the Fab
fragment is less immunogenic and less likely to form immune complexes, thereby
significantly reducing the incidence of serum sickness.
COMMON PRODUCTION PROCESS
All of Therapeutic Antibodies' products are prepared using a very similar
series of manufacturing steps. Therapeutic Antibodies believes this common
production platform simplifies the development process and the obtaining of
regulatory approval.
Products for preclinical and clinical trials are prepared in Therapeutic
Antibodies' production site in Wales. The Welsh facility includes a 20,000
square foot manufacturing plant. This plant has been inspected by the FDA as
part of the process of obtaining approval for the manufacture of CroTAb(R).
Therapeutic Antibodies' Australian facilities produce serum which is then sent
to the manufacturing plant in Wales for further processing. The facilities in
Australia have been licensed by the Australian Therapeutic Goods Administration,
the Australian national regulatory authority.
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Therapeutic Antibodies' technical know-how can be separated into three
stages:
- the creation of product specific immunogens. These, together with the
immunization techniques developed by Therapeutic Antibodies, ensure high
yields of antibodies. Once suitable levels of circulating high affinity
antibodies have been obtained, collection of antisera commences on a
regular basis;
- the removal of unwanted serum proteins and the subsequent cleavage with
papain to produce Fab fragments of the remaining antibodies; and
- the use of chromatography to select Fab fragments specific to the target
molecule, thus minimizing the amount of foreign protein present in the
drug.
Therapeutic Antibodies has selected sheep as its source of polyclonal
antibodies. Sheep antibody based products have a proven safety record when used
therapeutically in patients with limited adverse events resulting from
immunogenicity and allergenicity. Therapeutic Antibodies supplies all of the
antisera required for the production of its antibody products from its own
flocks of sheep. All animal handling procedures are subject to stringent
regulations with which Therapeutic Antibodies complies.
PRODUCT DEVELOPMENT PORTFOLIO
The table below presents the key products Therapeutic Antibodies is
currently developing. Therapeutic Antibodies believes the next expected major
milestones are reasonably based on information available at the date of this
proxy statement/prospectus. They are, however, subject to the progress and
results of the various clinical trial programs and the regulatory review
process, and there can be no assurance that these milestones will be achieved at
all. The information contained in the table must be read in conjunction with the
more detailed information set out below on each of Therapeutic Antibodies'
products.
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TABLE OF KEY PRODUCTS
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL LICENSEES & NEXT EXPECTED
PRODUCT USES TERRITORIES STATUS TERRITORIES MAJOR MILESTONE
- ------------ --------------- ----------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
PRODUCTS UNDER DEVELOPMENT
CROTAB(R) Rattlesnake U.S. Product Altana (U.S.) Product license
antivenom license Swedish Orphan application
application (Scandinavia) approval --
submitted 1999
DIGITAB(R) Reversal of U.S. & Product Altana (U.S.) Product license
digoxin Europe license Swedish Orphan application
toxicity application (Scandinavia) approval --
submitted FH Faulding 2000
in the U.S. (Australia/SE Asia)
TRITAB(R) Reversal of U.S. & Phase I/II Altana (U.S.) Phase I/II
antidepressant Europe Swedish Orphan results -- 1999
toxicity (Scandinavia)
FH Faulding
(Australia/SE Asia)
CYTOTAB(TM) Treatment of U.S. and Phase IIb -- Agreement with
sepsis Europe strategic partner
CYTOTAB(TM) Treatment of Southeast Phase II FH Faulding Phase II
severe malaria Asia (Australia/SE Asia) results -- 1999
CYTOTAB(TM) Treatment of U.S. & Pilot -- Complete Pilot
Crohn's Europe Clinical Study - 1999
Disease
CYTOTAB(TM) Bypass surgery U.S. & On hold -- --
Europe
POLONGATAB(TM) Russell's viper Southeast Provisional FH Faulding Submission of
antivenom Asia registration (Southeast Asia) full registration
application --
2000
PRODUCTS LAUNCHED
VIPERATAB(R) Common adder Scandinavia On market Swedish Orphan Expansion of
antivenom on named (Scandinavia) sales to European
patient Union
basis
ECHITAB(TM) Carpet viper West Africa On market Nigerian Ministry --
antivenom of Health (Nigeria)
</TABLE>
PRODUCTS
CROTAB(R)
CroTAb(R) is Therapeutic Antibodies' product for the treatment of bites
from North American crotalids such as the rattlesnake. Clinical trials of
CroTAb(R) were completed in 1997 and Therapeutic Antibodies submitted its FDA
product license application and FDA establishment license application to the FDA
in April 1998. In June 1998, the FDA accepted the applications for filing and
the product received a standard twelve month review by the FDA. The initial
review of the product license application and establishment license application
by the FDA has now been completed. Therapeutic Antibodies is now addressing the
issues raised by the FDA in response to its product license application
submission and full FDA approval and product launch are expected in 1999.
Pursuant to an agreement with Altana, Inc., Altana will distribute this product
within the United
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States, primarily to hospital emergency rooms. In 1994, CroTAb(R) was granted
orphan drug status by the FDA and will therefore receive seven years of
marketing exclusivity once the product license application is approved.
Therapeutic Antibodies believes that the safety profile will be seen as
superior to the existing antivenom, which has a relatively high incidence of
serious side-effects.
DIGITAB(R)
Therapeutic Antibodies has developed DigiTAb(R) for treating digoxin
intoxication. Digoxin is a drug widely prescribed to treat various cardiac
conditions on a long-term support basis. Digoxin has a narrow therapeutic range
and can cause life-threatening toxicity as a result of both acute overdose and
chronic poisoning. In 1986, Wellcome plc (now Glaxo Wellcome plc), a major
multinational pharmaceutical company, introduced in the United States a specific
sheep-derived polyclonal antibody product, Digibind(R), to treat
life-threatening digoxin intoxication. DigiTAb(R) will therefore be competing
directly with a similar established product in this market.
Therapeutic Antibodies completed enrollment for the pivotal clinical study
for DigiTAb(R) in December 1997. In this study, Therapeutic Antibodies tested
normal volunteers comparing DigiTAb(R) to Digibind(R). The data from this study,
in conjunction with data obtained from an ongoing study of DigiTAb(R) in
overdose patients in the United States and Europe was submitted to the FDA in a
product license application in August 1999. If approved, this product will be
marketed in the United States under the agreement with Altana.
TRITAB(R)
Therapeutic Antibodies is developing TriTAb(R) to treat tricyclic
antidepressant toxicity. Tricylic antidepressants are a family of structurally
related compounds used in the treatment of severe clinical depression and are
one of the major causes of death by drug overdose in the United States and
Europe. Despite the introduction of safer non-tricylic antidepressant drugs,
tricylic antidepressants as a group, continue to hold a large share of the
antidepressant market because of their efficacy in treating depression. Because
tricylic antidepressants are typically generic and their patents have expired,
they are much less expensive than the newer antidepressants. Therapeutic
Antibodies believes that tricylic antidepressants will continue to remain in use
for some time. At present, no specific antidote for tricylic antidepressant
poisoning is available.
On the basis that preclinical tests demonstrated TriTAb(R) to be effective
in reversing tricylic antidepressants toxicity, Phase I/II clinical studies were
initiated under investigator investigational new drug applications. The first
overdose patient was treated in June 1998 and nine patients have been treated to
date. The first clinical data is expected to be announced during the third
quarter of 1999. Therapeutic Antibodies plans to submit an investigational new
drug application to the FDA and expects to commence a Phase II/III clinical
study in overdose patients by the end of 1999. This product will be targeted to
hospital emergency rooms and will be marketed in the United States under the
agreement with Altana. Therapeutic Antibodies is not aware of any other
competing products in development.
CYTOTAB(TM)
The body's inflammatory response to trauma, certain infections and
disorders often involves the release of high levels of cytokines, such as tumor
necrosis factor alpha, which themselves may have serious or even
life-threatening effects. Therapeutic Antibodies' CytoTAb(TM) product is
designed to neutralize the effects of TNFa. Initial clinical tests have
demonstrated that CytoTAb(TM) effectively
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neutralizes TNFa which indicates it could be useful for treating or preventing a
number of disease states. Therapeutic Antibodies has focused its research and
development efforts for CytoTAb(TM) initially on four areas: sepsis, Crohn's
disease, cerebral malaria and coronary artery bypass graft surgery.
- SEPSIS -- In June 1998, Therapeutic Antibodies terminated its Phase IIb
trial early, having recruited 81 out of 300 patients required for this
study. This trial was terminated as the board believed that the
commercial risk it posed to the company was too great. Recently available
data from the 81 patients enrolled in the Phase IIb trial coordinated by
Vanderbilt University shows that CytoTAb(TM) demonstrated a statistically
significant reduction in two of the clinical endpoints being studied: the
amount of time patients remained in the intensive care unit and the
amount of time patients required assisted ventilation. Therapeutic
Antibodies will not continue any further development itself and is now
seeking a collaborative partner to enable further clinical evaluation of
CytoTAb(TM) for this indication.
- CROHN'S DISEASE -- Therapeutic Antibodies is currently enrolling patients
into a 10-patient Phase I/II study of CytoTAb(TM) in Crohn's disease. The
symptoms of this disease include abdominal pain, frequent and protracted
diarrhea, fever, malaise, chronic fatigue and signs and symptoms of
nutritional deficiency. The relationship of TNFa neutralization to the
clinical response of this disease has been recognized with the FDA's
approval of Centocor Inc.'s Remicade(R), a monoclonal antibody product.
Therapeutic Antibodies believes that CytoTAb(TM) will result in a more
rapid neutralization of TNFa and a similar safety profile. Therapeutic
Antibodies commenced enrollment in this study in January 1999 and seven
patients have been enrolled to date.
- CEREBRAL MALARIA -- Severe cerebral malaria is associated with mortality
and elevated concentrations of TNFa. Therapeutic Antibodies is
investigating the use of CytoTAb(TM) in mitigating the morbidity and
mortality associated with the treatment of cerebral malaria. In June
1997, Therapeutic Antibodies completed its Phase I study conducted in 28
severely ill patients suffering from malaria. This study met its
objectives and demonstrated a reduction in the levels of TNFa. In early
1998, Therapeutic Antibodies launched an expanded 100-patient Phase II
clinical trial in Thailand. Enrollment was completed in September 1998
and the results of this study are expected in the final quarter of 1999.
- CORONARY ARTERY BYPASS GRAFT SURGERY -- There is data to suggest that
TNFa levels in the plasma are elevated in patients undergoing cardiac
surgery involving cardiopulmonary bypass. The bypass machine often
induces an inflammatory response, which may lead to increased post
surgical morbidity and mortality. Therapeutic Antibodies believes that
CytoTAb(TM) could reduce the incidence of these surgical side effects,
making the procedure safer and less expensive. Therapeutic Antibodies
decided not to pursue this indication in the short term due to a lack of
funds.
POLONGATAB(TM)
PolongaTAb(TM) is an antivenom for the Sri Lankan Daboia russelli
("Russell's viper"). The pivotal clinical study for this product was completed
in December 1997. The Sri Lankan authorities granted provisional registration
for this product in March 1999 which will allow sales in Sri Lanka prior to full
registration. Therapeutic Antibodies is currently working in collaboration with
F.H. Faulding & Co. Limited to prepare the full registration application for the
approval of this product in various Southeast Asian markets.
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LAUNCHED PRODUCTS
VIPERATAB(R)
Therapeutic Antibodies produces and sells ViperaTAb(R) to treat bites from
the European Vipera berus ("common adder") snake. This product is currently
being sold on a named patient basis in Sweden, Norway, Finland and Denmark under
an agreement with Swedish Orphan AB. Furthermore, Therapeutic Antibodies
supplies ViperaTAb(R) to the United States Department of Defense. ViperaTAb(R)
has been shown to be over eight times more potent on a weight for weight basis
than an equine-derived antivenom available in Europe. Therapeutic Antibodies
intends to broaden product sales in the European Union in 1999, making
ViperaTAb(R) available on a named patient basis, and will pursue the approval
process when resources permit.
ECHITAB(TM)
EchiTAb(TM) is sold by Therapeutic Antibodies as an antivenom against the
West African Echis ocellatus ("carpet viper") snake. Therapeutic Antibodies has
entered into an agreement with the Federal Ministry of Health on behalf of the
Nigerian Government under which the Nigerian Government has contributed to the
costs of development and clinical trials of EchiTAb(TM). Therapeutic Antibodies
has supplied the Nigerian Government with this product since 1995.
INTELLECTUAL PROPERTY
Therapeutic Antibodies' policy is to protect and defend the intellectual
property associated with its technology and products. Therapeutic Antibodies
seeks patents whenever appropriate. Therapeutic Antibodies also believes that
sufficient steps have been taken to ensure that trade secrets such as animal
husbandry techniques and processes for the large-scale production of polyclonal
antibodies are protected.
Therapeutic Antibodies has optimized the production and purification of
polyclonal antibodies and has developed extensive proprietary knowledge in this
area, combining scientific, veterinary and large-volume processing skills.
Therapeutic Antibodies has been granted patents and has applied for additional
patents in the United States, Europe, and other relevant jurisdictions covering
several key aspects of its proprietary techniques. However, some parts of the
production and purification process are non-patentable, and Therapeutic
Antibodies has policies and procedures designed to protect proprietary
information concerning manufacturing techniques.
PATENTS
Therapeutic Antibodies is pursuing a multinational patent strategy for the
protection of intellectual property associated with its technology and products.
Therapeutic Antibodies holds the following patents:
- European, Australian, Russian Federation and New Zealand patents for use
of Fab fragments of anti-TNFa antibodies in medicine;
- United States and European patents for a method of preparing Fab
fragments from whole blood in a closed sterile environment;
- European, United Kingdom, Australian and Russian Federation patents on
the use of mixed monospecific polyclonal antivenoms. These patents are
projected to expire on April 24, 2012, other than the Australian patent
which is projected to expire on April 24, 2008; and
- a United States patent in respect of an antidote to poisoning with
tricyclic antidepressants; this patent is expected to expire on October
26, 2010.
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In addition, United States and European patents for use of anti-human TNFa
antibodies to prevent or treat shock-related conditions arising from
antilymphocyte antibody therapy were assigned to Therapeutic Antibodies by
Nutrition Toxicology and Environment Research Institute Maastricht in a 1996
agreement. A confirmatory assignment is currently being arranged in order to
ensure that Therapeutic Antibodies is able to record itself as proprietor of the
patents.
Therapeutic Antibodies is pursuing the following patent applications:
- use of Fab fragments of anti-TNFa antibodies in medicine in other
territories including the United States, Canada and Japan;
- a United States divisional for various steps in the process of production
of Fab fragments;
- a European divisional for a method of accelerated clotting of blood in
the production of polyclonal antibodies; and
- the use of mixed monospecific antivenoms in the United States and Japan;
the U.S. and Japanese applications have an effective filing date of April
24, 1992.
United States applications remain confidential and are only published if a
patent is granted, whereas international applications are published within 18
months even if they do not proceed to grant. In order to ensure the protection
of know-how, no international equivalent of the United States application in
respect of an antidote to poisoning with tricyclic antidepressants was filed.
There can be no assurance that Therapeutic Antibodies will receive the
requested approval of the pending patent applications.
THIRD PARTY PATENT RIGHTS
Rockefeller University has two European patents which could be construed to
cover uses of anti-TNFa antibodies. If valid, these European patents could be
used to attempt to limit Therapeutic Antibodies' freedom to use anti-TNFa
antibodies and, therefore, Therapeutic Antibodies' ability to market CytoTAb(TM)
in various European countries. Therapeutic Antibodies successfully filed
oppositions to both European patents and, following oral hearings before the
Oppositions Division of the European Patent Office, both patents were revoked in
their entirety. Rockefeller University has now filed a notice of appeal against
revocation of one of the patents and the management of Therapeutic Antibodies
anticipates that Rockefeller will also file an appeal with respect to the other
patent. The effect of the appeals is to suspend the decision to revoke the
patents. The appeals could take a number of years to resolve, but based on the
outcome of the opposition proceedings Therapeutic Antibodies has good reason to
expect success.
Rockefeller University also holds patent rights related to the European
patents in the United States, Canada, Australia and Japan. Therapeutic
Antibodies believes that, due to the precise nature of these patent rights in
Australia and the United States, commercial exploitation of CytoTAb(TM) in these
territories will not infringe any valid claims of the U.S. and Australian
patents. Therapeutic Antibodies has, itself, applied for specific patents in the
United States and other territories covering the use of Fab fragments of
anti-TNFa antibodies and methods for their preparation, as summarized above.
In January 1999, following a routine search by its patent attorneys,
Therapeutic Antibodies was alerted to two United States patents granted in
August 1998 in the name of Genentech, Inc. that cover anti-TNFa antibodies. One
patent relates to a TNFa antagonist comprising an antibody that neutralizes
cytotoxic activity of human TNFa. There are also claims to Fab fragments of a
variable region of the antibody. The second patent relates to a method of
treatment of graft versus host reaction that comprises administering to a
patient a therapeutically effective dose of a TNFa antagonist. Therapeutic
Antibodies is in the process of obtaining an opinion of patent counsel relating
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to the validity of these two patents. If valid, these patents could be used to
restrict Therapeutic Antibodies' development of anti-TNFalpha products,
including CytoTAb(TM), in the United States and other territories in which
equivalent rights exist.
Therapeutic Antibodies has identified a series of European and Australian
patents which correspond to the United States anti-TNFa antibody patents. These
patents contain claims to recombinant human TNFa and consequently they could, if
valid, be used to restrict Therapeutic Antibodies' use of recombinant human
TNFa, in the form claimed by the patents, to produce anti-TNFa antibodies in the
territories in which the patent is maintained. Therapeutic Antibodies is taking
steps to ensure that its supplier of TNFa is appropriately licensed under the
patents, failing which, it will consider its alternative options, such as
contesting the validity of the patents.
Professor Sean B. Carroll invented a family of patents relating to purified
polyvalent antivenoms and methods of purifying antivenoms using immuno affinity
techniques, which if valid could be used to attempt to limit exploitation of
Therapeutic Antibodies' antivenom products. Professor Carroll applied for these
patents in the United States, Australia and the European Patent Office.
Therapeutic Antibodies has been advised that Professor Carroll has assigned all
rights in the patents to Ophidian Pharmaceuticals, Inc. Therapeutic Antibodies
successfully opposed the Australian version of the patent. As a result, Ophidian
dropped its specific claims in the Australian patent that might have inhibited
Therapeutic Antibodies' ability to exploit its antivenom products in Australia.
Ophidian was granted and owns the United States patent, although
Therapeutic Antibodies has been advised by its patent attorneys that the claims
covered by the United States patent are sufficiently narrow so as not to be
infringed by Therapeutic Antibodies' antivenom products. The European patent has
also been granted, but has not been validated in any country other than the
United Kingdom. Significant validation deadlines in several countries have
recently expired. Therapeutic Antibodies has been advised by its patent
attorneys that to the extent that any of Therapeutic Antibodies' mixed
monospecific antivenom products fall within the scope of the claims of the
patent, there are good grounds to argue the claims are invalid. Therapeutic
Antibodies filed a Notice of Opposition to the European patent with the European
Patent Office on May 26, 1999. Therapeutic Antibodies is not aware that either
Professor Carroll or Ophidian has any ongoing development products with respect
to the claims covered by the European patent.
TRADEMARKS
Therapeutic Antibodies has registered the following trademarks:
- TAb(R) in the United States, Canada, Australia, Germany, France, Italy,
Norway, Spain and Sweden;
- DigiTAb(R), TriTAb(R), and ViperaTAb(R) in the United States, the United
Kingdom and various countries worldwide;
- CytoTAb(TM) in the United Kingdom, Australia, Canada, Denmark, Finland,
France, Italy, Japan, Spain, Sweden and Norway (pending in the United
States); and
- CroTAb(R) in the United States.
Therapeutic Antibodies has withdrawn or abandoned its attempts to register
the DigiTAb(R) mark in Australia, Canada, Denmark, and Germany in the face of
oppositions or prior registrations of Digibind(R). An application for the TAb
mark in the United Kingdom is pending.
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PRINCIPAL LICENSING AGREEMENTS AND OTHER COLLABORATIVE AGREEMENTS
To market its products, Therapeutic Antibodies has already secured, and
intends to secure further collaborative agreements with pharmaceutical companies
and other entities with established distribution capabilities. The following is
a summary of agreements that have already been entered into:
ALTANA, INC.
In October 1997, Altana, Inc. entered into an agreement with Therapeutic
Antibodies providing Altana with exclusive U.S. distribution rights for
CroTAb(R), DigiTAb(R), and TriTAb(R). Under the agreement terms, Altana expects
to pay $23 million in milestone and bonus payments. The agreement specifies that
Therapeutic Antibodies will receive up to $10 million in payments upon the
achievement of certain milestones, of which $2.5 million has been received to
date.
SWEDISH ORPHAN AB
In January 1990, Swedish Orphan AB entered into an agreement with
Therapeutic Antibodies, whereby Swedish Orphan was appointed as exclusive sales
representative to market ViperaTAb(R) in certain territories. The agreement was
subsequently amended to include CroTAb(R) and other antivenom products, and
DigiTAb(R) and TriTAb(R). The territories are currently Sweden, Norway, Denmark
and Finland.
F.H. FAULDING & CO. LIMITED
In September 1995, F.H. Faulding & Co. Limited entered into an exclusive
distribution agreement with Therapeutic Antibodies. Under the agreement terms,
F.H. Faulding received the right to obtain approval and to distribute
DigiTAb(R), TriTAb(R) and PolongaTAb(TM) in Australia, New Zealand and certain
Southeast Asian countries.
In October 1996, F.H. Faulding entered into an agreement with Therapeutic
Antibodies for F.H. Faulding to fund clinical trials and to seek registration
and marketing approvals for CytoTAb(R) for treatment of cerebral malaria in
Thailand and other countries in Southeast Asia. Subject to receipt of all
necessary approvals, F.H. Faulding has been granted an exclusive option for
ninety days after issuance of such regulatory approvals to enter into a ten-year
distribution and profit-sharing agreement based upon commercial terms specified
in the October 1996 agreement.
FEDERAL MINISTRY OF HEALTH OF NIGERIA
In August 1995, Therapeutic Antibodies entered into an agreement with the
Federal Ministry of Health on behalf of the Nigerian Government under which the
Nigerian Government has contributed to the costs of development and clinical
trials of EchiTAb(TM), and undertook to purchase a minimum of 10,000 vials of
antivenom. A royalty of 15% is payable to the Nigerian Government on sales of
EchiTAb(TM) outside Nigeria.
ACADEMIC AND CLINICAL AFFILIATIONS
A proportion of Therapeutic Antibodies research and development and product
testing activities are carried out through affiliations and consulting
arrangements with clinical research organizations
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and scientists at academic institutions in the United Kingdom, Scandinavia and
North America. Research and development and product testing have been carried
out in conjunction with the Medical College of St. Bartholomew's Hospital, the
Karolinska Institute, the University of Arizona and Vanderbilt University
Medical Center. These include arrangements in respect of preclinical and
clinical research, consultancy, patents, royalties and facility leases. Where
appropriate Therapeutic Antibodies has entered into formal agreements with such
third parties which ensure ownership of any intellectual property rights arising
out of such arrangements vests with Therapeutic Antibodies.
COMPETITION
The pharmaceutical industry is highly competitive. In addition to the
factors set forth below, see "Risk Factors."
ANTIVENOMS. A number of organizations and companies manufacture snake
antivenom throughout the world. However, Therapeutic Antibodies believes most
are using equine-derived products based on older technology. Based on clinical
results, Therapeutic Antibodies believes that its antivenom products are, in
general, safer and have greater efficacy.
There are two main European competitors to Therapeutic Antibodies'
ViperaTAb(R) product. Both of the European viper antivenoms are equine-derived
products. Therapeutic Antibodies believes that its product is superior, although
both competing products are considerably cheaper. Notwithstanding the price
differential, Therapeutic Antibodies has successfully competed with the products
manufactured in Europe and has achieved an 80% market share in the markets in
which ViperaTAb(R) has been launched.
Only one crotalid antivenom product is currently approved in the United
States, which is an equine-derived product. There are frequent toxicity problems
associated with that product.
Equine-derived antivenom products with which EchiTAb(TM) and certain other
of Therapeutic Antibodies' potential antivenoms will compete are produced by,
among others, Institut Pasteur and Haffkine BioPharmaceuticals.
DIGOXIN ANTIDOTE. Therapeutic Antibodies has two competitors, one of which
is well-established in Europe and the other in the United States. Glaxo Wellcome
plc's Digibind(R) is available in the United Kingdom and the United States and
Boehringer Mannheim GmbH's Digidote is available in Europe. Both of these
products are Fab-based and derived from sheep polyclonal antibodies. However,
Therapeutic Antibodies believes that DigiTAb(R) could compete effectively in
this area.
TRICYCLIC ANTIDEPRESSANT ANTIDOTE. No specific tricyclic antidepressant
antidote exists and Therapeutic Antibodies does not know of any commercially
competitive activity in this area. Therapeutic Antibodies intends to apply for
orphan drug status in the United States which, if granted, will provide seven
years of marketing exclusivity. Furthermore, Therapeutic Antibodies has been
granted a United States patent which expires in October 2010 for the key
immunogens, the production process, the resultant product and the use of the
product to treat tricyclic antidepressant toxicity.
ANTI-TNFalpha
CROHN'S DISEASE. In August 1998, the FDA approved Remicade(R), a
monoclonal antibody product manufactured by Centocor Inc. for the treatment
of Crohn's disease. Therapeutic Antibodies is aware of several other
companies pursuing clinical development of products for the indication.
CORONARY ARTERY BYPASS GRAFT SURGERY. Therapeutic Antibodies is not
aware of any anti-TNFalpha product currently approved in the United States
for this indication. However,
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Therapeutic Antibodies is aware of several companies pursuing clinical
development of products for this indication.
EMPLOYEES
As of April 30, 1999, Therapeutic Antibodies had 139 full-time employees,
including 41 scientists, 21 management and 21 administrative personnel. In
addition, Therapeutic Antibodies employed 27 part-time employees. Therapeutic
Antibodies believes that its future success will depend, in part, on its ability
to attract and retain highly skilled technical, marketing, support and
management personnel. None of Therapeutic Antibodies' employees in the United
States are subject to a collective bargaining agreement, and Therapeutic
Antibodies has never experienced a work stoppage. Therapeutic Antibodies
believes that its employee relations are good.
PROPERTIES
Therapeutic Antibodies' physical properties are primarily owned or leased
through its subsidiaries. Therapeutic Antibodies U.K. Limited operates
Therapeutic Antibodies' research and development laboratories at St.
Bartholomew's Hospital Medical College in London located at Charterhouse Square,
London, EC1A 7BE. Therapeutic Antibodies U.K. leases 5,099 square feet of
laboratory space from the trustees of St. Bartholomew's Medical School. The
current lease term has an expiration date of September 30, 2003. Therapeutic
Antibodies U.K. also leases approximately 4,000 square feet of office space at
14/15 Newbury Street in central London. The contractual terms of the lease came
to an end on March 24, 1999. Under English law Therapeutic Antibodies U.K. is
entitled to continue to occupy the premises and is entitled to a new tenancy of
the premises. At present, Therapeutic Antibodies U.K. is in the process of
negotiating terms with the landlord for a possible new lease.
In addition, Therapeutic Antibodies U.K. owns and operates production
offices, quality control laboratories and a manufacturing facility located at
Blaenwaun Farm and Gernos Farm in Ceredigion, Wales. In 1992, Therapeutic
Antibodies acquired these initial Welsh facilities, including approximately 220
acres of pasture land, animal stock, and production and ancillary facilities.
The Welsh facilities were established with financial support of the Welsh Office
and Welsh Development Agency in the form of grants and investments. In 1995,
Therapeutic Antibodies U.K. completed construction of a 20,000 square foot
manufacturing plant within its existing Welsh facilities.
In 1995, Therapeutic Antibodies Australasia Pty Ltd. leased offices and
laboratories and acquired grazing rights over 250 hectares of land at the
Turretfield Research Centre in Adelaide, South Australia. The flocks of sheep
were moved to this location and a bleeding shed was constructed. In the fourth
quarter of 1996, Therapeutic Antibodies Australasia completed construction of
new facilities on the property, which include offices, a cleanroom and a
manufacturing plant, located adjacent to Therapeutic Antibodies' existing
facilities. The lease of the Turretfield Research Centre property will expire on
July 31, 2000, but Therapeutic Antibodies Australasia has an option to extend
the term on prior written notice for a further period of five years. Therapeutic
Antibodies Australasia has grazing rights at the Turretfield Research Centre
until July 31, 2005 and has an option to further extend this right for a period
of 10 years upon prior written notice.
Therapeutic Antibodies' corporate headquarters is located at 1207 17th
Avenue South, Suite 103, Nashville, Tennessee 37212. This property is 7,722
square feet of leased office space in the vicinity of Vanderbilt University
Medical Center. Therapeutic Antibodies has options to renew the leases covering
this space through January 31, 2004.
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All of Therapeutic Antibodies' laboratories, production facilities and
farms are suitably equipped for their intended purposes.
LEGAL PROCEEDINGS
Therapeutic Antibodies is not currently subject to any pending or
threatened legal proceedings. From time to time, Therapeutic Antibodies must
engage in formal opposition proceedings to protect its proprietary rights and to
challenge patent claims of third parties.
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THERAPEUTIC ANTIBODIES STOCK OWNERSHIP TABLE
The following table sets forth the number of shares held beneficially,
directly or indirectly, as of August 1, 1999, by:
- each person known by Therapeutic Antibodies to own beneficially more than
5% of Therapeutic Antibodies' common stock;
- each director of Therapeutic Antibodies;
- each executive officer of Therapeutic Antibodies named below; and
- all directors and executive officers as a group, together with the
percentage of the outstanding shares which such ownership represents.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes shares of Therapeutic
Antibodies common stock which an individual has a right to acquire within 60
days of the date of this proxy statement/prospectus upon the exercise of
options. The table includes options granted under Therapeutic Antibodies' 1990
stock incentive plan and its 1997 stock option plan, together referred to as the
option plans. These shares are deemed to be outstanding for the purposes of
computing the percentage ownership of that individual but are not deemed
outstanding for the purposes of computing the percentage of any other person.
Unless otherwise noted in the following footnotes, the persons as to whom
information is given had sole voting and investment power over the shares of
common stock shown as beneficially owned. The computation of percentage
ownership is based upon 52,057,219 shares of common stock outstanding on August
1, 1999.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS AMOUNT AND NATURE OF OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- ----------------------- -------
<S> <C> <C>
Stuart M. Wallis......................................... 375,000 *
69 - 77 Paul Street
London EC2A 4LQ
Andrew J. Heath, M.D.(1)................................. 454,730(2) *
Martin S. Brown(1)....................................... 3,909,604(3) 7.47%
Tim Chard, M.D.(1)....................................... 1,055,790(4) 2.03
James C. Christie(1)..................................... 0 *
Carol Clark-Evans(1)..................................... 27,143(5) *
R. Stephen Porter(1)..................................... 49,361(6) *
A.J. Kazimi.............................................. 488,000(7) *
712 Overton Park
Nashville, TN 37215
All directors and executive officers as a group (7
persons)............................................... 6,167,961(8) 11.71
Nomura International plc................................. 7,216,010(9) 13.86
Nomura House
1 St. Martin-Le-Grand
London EC1A 4NP
WestLB Panmure Limited................................... 4,528,123(10) 8.70
35 New Broad Street
New Broad Street House
London EC2M 1NH
PPM America, Inc......................................... 4,761,900(11) 9.15
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
</TABLE>
- -------------------------
* Indicates less than 1% ownership.
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(1) The address for Messrs. Heath, Brown, Chard, Christie and Porter and Ms.
Clark-Evans is c/o Therapeutic Antibodies Inc., 1207 17th Avenue South,
Suite 103, Nashville, Tennessee 37212.
(2) Includes 194,000 shares of common stock issuable upon the exercise of
options granted pursuant to the option plans and 12,500 shares of common
stock upon the exercise of warrants outstanding.
(3) Includes 179,804 shares of common stock owned by Mr. Brown's spouse, 79,000
shares of common stock issuable upon the exercise of warrants outstanding,
6,250 shares of common stock registered in the name of the Cockayne Fund,
Inc., over which Mr. Brown shares investment control, 205,000 shares of
common stock issuable upon the exercise of options granted pursuant to the
option plans, 68,449 shares of common stock held in an Individual
Retirement Account and 645,706 shares of common stock held by the Atticus
Trust of which Mr. Brown is a trustee.
(4) Includes 50,000 shares of common stock issuable upon the exercise of
options granted pursuant to the option plans.
(5) Includes 24,667 shares of common stock issuable upon the exercise of
options granted pursuant to the option plans.
(6) Includes 42,000 shares of common stock issuable upon the exercise of
options granted pursuant to the option plans.
(7) Includes 210,000 shares of common stock issuable upon the exercise of
options granted pursuant to the option plans. Mr. Kazimi resigned as a
director and executive officer of Therapeutic Antibodies in August 1998.
His shareholdings are required to be included under SEC rules.
(8) Includes 91,500 shares of common stock issuable upon the exercise of
outstanding warrants and 515,667 shares of common stock issuable upon the
exercise of options granted pursuant to the option plans.
(9) Information is derived from a Schedule 13G filed with the Securities and
Exchange Commission on December 31, 1998 and from the most recent
information available from the Therapeutic Antibodies registrar.
(10) Information is derived from a Schedule 13G filed with the Securities and
Exchange Commission on January 8, 1999 and from the most recent information
available from the Therapeutic Antibodies registrar.
(11) Information is derived from a Schedule 13G filed with the Securities and
Exchange Commission on February 12, 1999 and from the most recent
information available from the Therapeutic Antibodies registrar.
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SELECTED FINANCIAL INFORMATION OF THERAPEUTIC ANTIBODIES
The following table sets forth selected consolidated financial data as and
for:
- each of the five fiscal years in the period ended December 31, 1998; and
- the six month periods ended June 30, 1998 and 1999.
The selected financial data for Therapeutic Antibodies has been derived
from the audited consolidated financial statements of Therapeutic Antibodies,
except for the June 30, 1998 and 1999 financial data, which information has been
derived from the unaudited condensed consolidated financial statements of
Therapeutic Antibodies. These unaudited condensed consolidated financial
statements include all normal recurring adjustments necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1999. The selected consolidated financial data is qualified
by, and should be read together with, the consolidated financial statements and
accompanying notes included elsewhere in this proxy statement/prospectus and
also with "Therapeutic Antibodies Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........... $ 391,319 $ 2,086,074 $ 3,392,447 $ 1,791,420 $ 927,532
Operating expenses:
Research and development... 4,479,365 5,551,426 11,363,218 11,462,352 9,185,126
General and administrative,
marketing and
distribution............. 1,370,829 2,282,116 4,598,073 4,176,139 3,083,151
Depreciation and
amortization............. 887,599 801,651 1,561,951 1,643,922 1,387,916
Other(2)................... 85,206 384,032 451,243 328,158 355,360
------------ ------------ ------------ ------------ ------------
Total operating
expenses........... 6,822,999 9,019,225 17,974,485 17,610,571 14,011,553
------------ ------------ ------------ ------------ ------------
Operating loss............... $ (6,431,680) $ (6,933,151) $(14,582,038) $(15,819,151) $(13,084,021)
============ ============ ============ ============ ============
Net loss................... $ (6,759,034) $ (7,234,865) $(15,888,928) $(16,847,718) $(12,746,117)
============ ============ ============ ============ ============
Preferred stock
dividends(5)............. -- -- (32,877) -- --
============ ============ ============ ============ ============
Net loss applicable to
common shareholders...... $ (6,759,034) $ (7,234,865) $(15,921,805) $(16,847,718) $(12,746,117)
============ ============ ============ ============ ============
Basic and diluted net loss
per share................ $ (0.13) $ (0.31) $ (0.59) $ (0.74) $ (0.68)
============ ============ ============ ============ ============
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash
equivalents(1)(4)(5)(6)... $ 783,313 $ 2,268,914 $ 7,760,328 $ 4,915,077 $ 20,502,536
Total assets(3)(4)(5)(6)... 12,976,967 15,945,875 21,421,502 20,800,065 37,179,990
Long term debt, net of
current portion(3)(6).... 4,707,257 5,625,043 4,744,216 6,059,072 8,592,755
Deficit accumulated during
development stage........ (82,060,345) (66,647,248) (75,301,311) (59,412,383) (42,564,665)
Stockholders'
equity(4)(5)(6).......... 4,920,993 2,956,892 12,022,434 9,758,345 25,215,530
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues........... $ 650,519 $ 1,092,122
Operating expenses:
Research and development... 6,321,674 5,107,894
General and administrative,
marketing and
distribution............. 2,247,472 1,619,824
Depreciation and
amortization............. 856,756 864,288
Other(2)................... 36,368 119,052
------------ ------------
Total operating
expenses........... 9,462,270 7,711,058
------------ ------------
Operating loss............... $ (8,811,751) $ (6,618,936)
============ ============
Net loss................... $ (9,100,038) $ (6,717,753)
============ ============
Preferred stock
dividends(5)............. -- --
============ ============
Net loss applicable to
common shareholders...... $ (9,100,038) $ (6,717,753)
============ ============
Basic and diluted net loss
per share................ $ (0.57) $ (0.47)
============ ============
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash
equivalents(1)(4)(5)(6)... $ 3,397,082 $ 593,154
Total assets(3)(4)(5)(6)... 15,157,099 12,103,994
Long term debt, net of
current portion(3)(6).... 9,595,420 2,917,251
Deficit accumulated during
development stage........ (29,818,548) (20,718,510)
Stockholders'
equity(4)(5)(6).......... 894,479 4,862,404
</TABLE>
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- -------------------------
(1) At December 31, 1998, Therapeutic Antibodies held approximately U.S.
$7,508,000 denominated in British pounds and U.S. $31,500 in Australian
dollars. The decline in the exchange rate at year end between the British
pound and Australian dollar versus the U.S. dollar resulted in a foreign
currency transaction loss of U.S. $240,703. At December 31, 1997,
Therapeutic Antibodies held approximately U.S. $2,960,000 which was
denominated in British pounds. As a result of the decline in the exchange
rate between the British pound and the U.S. dollar, Therapeutic Antibodies
experienced a foreign currency transaction loss of U.S. $913,119 for the
year ended December 31, 1997.
(2) Includes cost of goods sold and other expense items.
(3) In 1995 and 1994, Therapeutic Antibodies constructed a pilot production
facility in London and a manufacturing facility in Wales. These facilities
were funded through financing arrangements provided by Aberlyn Capital
Management Company, Inc. and the Welsh Development Agency.
(4) On July 23, 1996, Therapeutic Antibodies completed an initial public
offering of 4,190,477 shares of its common stock on the London Stock
Exchange at L5.25 ($8.14 based on the noon buying rate on July 23, 1996) per
share.
(5) 100 shares of Therapeutic Antibodies Series A Convertible Redeemable
Preferred Stock, issued on September 28, 1998, together with dividends
accrued thereon, were converted into 2,995,692 shares of Therapeutic
Antibodies common stock on November 9, 1998.
(6) On October 26, 1998, Therapeutic Antibodies completed a placement of
21,300,000 shares of its common stock at L0.40 ($0.68 based on the noon
buying rate on October 26, 1998) per share. At the same time it entered into
agreements to convert $2.9 million of outstanding debt into 4,394,869 shares
of common stock. A portion of the proceeds of the placement were used to
repay further outstanding debt.
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THERAPEUTIC ANTIBODIES MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Therapeutic Antibodies should be read in conjunction
with Therapeutic Antibodies' consolidated financial statements and notes
thereto.
GENERAL
Since its inception, Therapeutic Antibodies has been in the development
stage, devoting its efforts and resources to drug discovery and development
programs relating to the development of highly purified, polyclonal antibodies
for the treatment of disease. Therapeutic Antibodies' revenues have been
primarily derived from licensing agreements with corporate partners, contract
agreements, product sales, grant income, and interest income. Therapeutic
Antibodies has incurred net losses each year since its incorporation and
Therapeutic Antibodies expects to continue to incur operating losses during at
least the next year due to continued spending on research, product development
and the requirements for process development, preclinical and clinical testing,
regulatory affairs, initial manufacturing activities and administration. To fund
these activities, Therapeutic Antibodies will continue to evaluate opportunities
to raise further funding which will be required to carry out the current
business plan.
Therapeutic Antibodies conducts its operations from its headquarters in the
United States and through subsidiaries located in the United Kingdom and
Australia. For a discussion of Therapeutic Antibodies' international operations
for the past three fiscal years, see Note 11 to Therapeutic Antibodies'
consolidated financial statements.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Therapeutic Antibodies' operating revenues for the six months ending June
30, 1999 decreased by 81% to $391,000 from $2,086,000 for the same period in
1998. No licensing revenue was earned during 1999 compared to $1,544,000 earned
during 1998. Milestone payments received in the first half of 1998 included
$500,000 received under the Altana, Inc. agreement and $1,000,000 received under
an agreement with G. D. Searle & Co. Sales revenue decreased 58% during the six
months ended June 30, 1999 to $182,000 from $435,000 during the same period in
1998, which included a $219,000 sale of EchiTab(TM). Contract income increased
225% in the six months ended June 30, 1999 compared to the same period for 1998
due to an increase in the number of sheep managed by Therapeutic Antibodies
under contractual arrangements with third parties in the United Kingdom.
Total operating expenses for the six months ended June 30, 1999 decreased
by 24% to $6,823,000 from $9,019,000 for the same period in 1998. The overall
decrease is due to Therapeutic Antibodies' cost cutting measures, instituted in
late 1998, particularly in the areas of research and development and general and
administrative expenses. Research and development expenses during the same
periods decreased by 19% to $4,479,000 from $5,551,000 due to discontinuation of
certain research and clinical projects that Therapeutic Antibodies determined
were less likely to result in near-term commercial success.
General and administrative expenses for the six months ended June 30, 1999
decreased by 43% to $1,148,000 from $2,023,000 for the six months ended June 30,
1998. This decrease reflects Therapeutic Antibodies' efforts to reduce costs and
downsize the corporate structure.
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Marketing and distribution expenses decreased for the six months ended June
30, 1999 by 14% to $222,000 from $259,000 for the six months ended June 30,
1998. The Director of Business Development position was vacant from April to
December of 1998 but the position has now been filled. The comparative six month
decrease reflects cost reductions in consulting, travel and product distribution
activity related to product sales during 1999.
Depreciation and amortization expense for the six months ended June 30,
1999 increased by 11% to $888,000 from $802,000 for the six months ended June
30, 1998, as a result of added capital expenditures since June 30, 1998.
Interest income during the first half of 1999 was $87,000, a decrease of
40% from $144,000 in the first half of 1998 reflecting lower cash holdings in
1999.
Interest expense in the six months ended June 30, 1999, decreased by 47% to
$248,000 from $470,000 in the six months ending June 30, 1998 as a result of the
Therapeutic Antibodies' reduction of debt obligations from $10,924,000 at June
30, 1998 to $6,551,000 at June 30, 1999.
Therapeutic Antibodies also recorded a foreign currency loss of $166,000
during the first six months of 1999 as compared to a foreign currency gain of
$24,000 during the first six months of 1998.
Therapeutic Antibodies' net loss for the six months ended June 30, 1999,
was $6,759,000 compared to a net loss of $7,235,000 for the six months ended
June 30, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Therapeutic Antibodies' operating revenues for 1998 increased by 89% to
$3,392,000 from $1,791,000 for 1997. Licensing revenue increased 129% to
$2,544,000 for the year ended December 31, 1998 from $1,113,000 for the year
ended December 31, 1997. This increase is primarily attributable to milestone
payments received from licensing agreements with pharmaceutical partners.
Included in the 1998 milestone payments is $1,500,000 which was received under
the Altana agreement. An additional $1,000,000 was received when Therapeutic
Antibodies entered into an agreement with G. D. Searle & Co., as discussed under
"Liquidity and Capital Resources" below. The 1997 licensing revenues consisted
primarily of $1,000,000 in milestone payments from Altana. A 79% increase in
sales revenue to $530,000 during the year ended December 31, 1998 from $295,000
during the year ended December 31, 1997 was due primarily to the recognition in
1998 of a $219,000 sale of Therapeutic Antibodies' Nigerian EchiTAb(TM) product.
Contract revenue in 1998 increased 102% to $197,000 from $98,000 as a result of
an increase in the number of sheep managed by Therapeutic Antibodies under
contractual arrangements with third parties in the United Kingdom. Grant revenue
decreased 80% in 1998. Therapeutic Antibodies received a $129,000 grant from the
Welsh Government in 1997 for the expansion of Therapeutic Antibodies' Welsh
operations.
Therapeutic Antibodies' total operating expenses for the year ended
December 31, 1998 were slightly more than 1997 expenses. Research and
development expenses for 1998 decreased to $11,363,000 from $11,462,000 in 1997
due to cost reduction measures initiated by Therapeutic Antibodies in 1998.
Research and development expenses had increased between 18% and 50% per year for
the previous five years ending in 1997. In early 1998, management implemented a
plan to conserve cash and to sharpen the focus of Therapeutic Antibodies'
research and development efforts. As part of this streamlining, some of
Therapeutic Antibodies' basic research activities and certain clinical trial
programs, including research into the application of CytoTAb(TM) to treat the
symptoms of sepsis syndrome, ceased. Therapeutic Antibodies is currently
pursuing other applications for CytoTAb(TM). Therapeutic Antibodies began to
realize the results of these cost reduction measures during late 1998.
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General and administrative expenses for the year ended December 31, 1998
increased by 14% to $4,051,000 from $3,562,000 for the year ended December 31,
1997. This increase was due to one-time costs of approximately $162,000 incurred
for management changes, $35,000 for the development of an information systems
department, and fees of $283,000 incurred for restructuring Therapeutic
Antibodies' United Kingdom subsidiary entities.
Marketing and distribution expenses decreased for the year ended December
31, 1998 by 11% to $547,000 from $615,000 for the year ended December 31, 1997
primarily as a result of a vacancy in the Director of Business Development
position from April until December 1998. Marketing and distribution expenses
exceeded sales and contract revenues for the years ended December 31, 1998 and
December 31, 1997 primarily due to the fact that many of Therapeutic Antibodies'
products were still in the development stage and not yet providing revenue.
Depreciation and amortization expenses for the year ended December 31, 1998
decreased by 5% to $1,562,000 from $1,644,000 for the year ended December 31,
1997. Therapeutic Antibodies had significant capital expenditures in 1994
through 1996 for the establishment of the Welsh and Australian production
facilities. Expenditures for production facilities incurred in 1997 and 1998
resulted in a leveling off and slight reduction in depreciation expense in 1998.
In addition, the majority of 1998 expenditures occurred later in the year
resulting in less depreciation during the year.
Interest income for the year ended December 31, 1998, decreased 73% to
$239,000 from $887,000 for 1997 due to lower cash and short-term investment
holdings during 1998.
Interest expense for the year ended December 31, 1998 increased by 30% to
$1,306,000 from $1,002,000 for the year ended December 31, 1997. During 1998,
Therapeutic Antibodies incurred an additional $516,000 in interest and warrant
expense related to Therapeutic Antibodies' private placement of $4,025,000
principal amount of short-term bridge notes between June and September 1998.
Changes in foreign currency exchange rates resulted in the recording of
less foreign currency loss in 1998 than in 1997. Gains and losses are the result
of fluctuations in the exchange rates of the currencies in which Therapeutic
Antibodies conducts its business compared to the United States dollar.
Therapeutic Antibodies' net loss for the year ended December 31, 1998, was
$15,889,000 compared to a net loss of $16,848,000 for the year ended December
31, 1997. Therapeutic Antibodies' net loss applicable to common shareholders for
the year ended December 31, 1998 was $15,922,000 compared to a net loss
applicable to common shareholders of $16,848,000 for the year ended December 31,
1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Therapeutic Antibodies' operating revenues for 1997 increased by 93% to
$1,791,000 from $928,000 for 1996. Licensing revenue increased 676% to
$1,113,000 for the year ended December 31, 1997 from $144,000 for the year ended
December 31, 1996 primarily due to the receipt of $1,000,000 in milestone
payments from Altana in the fourth quarter of 1997. Sales revenue for 1997
remained fairly consistent increasing 2% over the 1996 total. Contract revenue
decreased during the year ended December 31, 1997 primarily because 1996
included a one time payment of $173,000 attributable to Therapeutic Antibodies'
Nigerian EchiTAb(TM) contract. In 1997, grant revenue increased $87,000 due to a
grant received from the Welsh Government for expansion of Therapeutic
Antibodies' Welsh operations.
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Total operating expenses for the year ended December 31, 1997 increased by
26% to $17,611,000 from $14,012,000 for the same period in 1996. Research and
development expenses during the same periods increased by 25% to $11,462,000
from $9,185,000 as a result of the following: advanced clinical trial activities
for DigiTAb(R) and CytoTAb(TM); continued preparation for the regulatory review
process for CroTAb(R); manufacturing Therapeutic Antibodies' products for
clinical trials; and conducting and establishing the necessary quality control
and assurance systems. Additionally, the expansion of the Australian facility
was completed in early 1997 and Therapeutic Antibodies began devoting resources
to that facility to meet the need for increased serum requirements for
commercial production.
General and administrative expenses for the year ended December 31, 1997
increased by 31% to $3,562,000 from $2,722,000 for the year ended December 31,
1996. This increase relates primarily to increased insurance requirements,
stockholder relations and other activities required following Therapeutic
Antibodies' initial public offering in the United Kingdom in 1996.
Marketing and distribution expenses increased for the year ended December
31, 1997 by 70% to $615,000 from $361,000 in the year ended December 31, 1996.
This increase reflects additional staffing and associated expenses. Marketing
and distribution expenses exceeded sales and contract revenues for the years
ended December 31, 1997 and December 31, 1996 primarily due to the fact that
many of Therapeutic Antibodies' products were still in the development stage and
not yet providing revenue.
Depreciation and amortization expenses for the year ended December 31, 1997
increased by 18% to $1,644,000 from $1,388,000 for the year ended December 31,
1996. This increase is the result of the depreciation of the capital expenditure
for the Australian production facility, which was placed in service in February
1997.
Interest income in the year ended December 31, 1997, increased 46% to
$887,000 from $607,000 due to additional cash and short-term investment holdings
from the proceeds of Therapeutic Antibodies' initial public offering in the
United Kingdom in July 1996.
Interest expenses for the year ended December 31, 1997 decreased by 17% to
$1,002,000 from $1,201,000 in the year ended December 31, 1996. This decrease is
a result of Therapeutic Antibodies' repayment in 1996 of approximately
$4,750,000 in debt obligations.
During the year ended December 31, 1996 Therapeutic Antibodies recorded a
foreign currency transaction gain of $1,733,000 as a result of the United States
dollar's improvement during 1996 against the British pound sterling compared to
a loss of $913,000 for the year ended December 31, 1997.
Therapeutic Antibodies' net loss for the year ended December 31, 1997, was
$16,848,000 compared to a net loss of $12,746,000 for the year ended December
31, 1996. In addition to the factors described above, changes in foreign
currency exchange rates used to translate the foreign subsidiaries financial
statements into United States dollars resulted in higher expense levels.
LIQUIDITY AND CAPITAL RESOURCES
Since its incorporation, Therapeutic Antibodies has been in the development
stage, devoting its efforts and resources to drug discovery and development
programs. Capital resources have been used for the establishment and expansion
of production facilities, for product research and development activities, for
clinical testing and to meet Therapeutic Antibodies' overall increased working
capital requirements. Therapeutic Antibodies does not expect revenues from
product sales to be a significant source of funding until additional products
receive regulatory approval. Although Therapeutic
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Antibodies anticipates the launch of its CroTAb(R) antivenom product following
FDA approval in 1999, revenues from sales of CroTAb(R) are not expected to be
significant in 1999. Future capital requirements will depend on numerous factors
including, but not limited to, the progress of Therapeutic Antibodies' research
programs and clinical trials, the development of regulatory submissions, the
receipt of FDA approval of CroTAb(R), the commercial viability of Therapeutic
Antibodies' products, the ability to attract collaborative partners with sales,
distribution and marketing capabilities, and the terms of any new licensing
arrangements.
At June 30, 1999, Therapeutic Antibodies had cash and cash equivalents
totaling $847,000. Therapeutic Antibodies' net cash used in operating activities
during the six months ended June 30, 1999, totaled $5,806,000, a decrease of 13%
from the six months ended June 30, 1998. Trade receivables increased $197,000
from December 31, 1998 due to sales of ViperaTAb(R). Capital expenditures
decreased 16% to $467,000 in the first six months of 1999 from $555,000 in the
first six months of 1998 due to restrictions on expenditures. Therapeutic
Antibodies anticipates that total capital expenditures for 1999 will be
approximately $1,900,000. During the remainder of 1999, Therapeutic Antibodies
intends to replace certain equipment at its production facilities in Wales and
Australia to attain greater efficiencies in the production process as well as
continue needed upkeep of existing equipment.
Contingent on closing of the merger, Proteus has obtained commitments for
the placing of 23,325,000 Proteus ordinary shares for aggregate proceeds to the
combined company of L7.0 million net of expenses. The equity financing is
expected to close immediately following the closing of the merger.
To provide working capital until the closing of the merger, Therapeutic
Antibodies has obtained a short-term secured bridge facility from Barclays Bank
Plc in the amount of up to L3.0 million ($4.89 million). Borrowings under the
bridge facility may be drawn as need until maturity. The bridge facility is to
be repaid in full on September 14, 1999, or at such earlier time as Barclays may
demand, and bears interest at a rate of 2.0% per annum over Barclays' base rate
(currently 5.25%). The bridge facility is secured by debentures and guarantees
executed by its subsidiaries Polyclonal Antibodies Limited and TAb Wales Limited
and by a second charge over Polyclonal Antibodies Limited's manufacturing
facility in Wales. At August 9, 1999, Therapeutic Antibodies had drawn
L1,800,000 ($2,898,000) on the bridge facility. It is anticipated that the
bridge facility will be repaid in full from the proceeds of the equity
financing.
As discussed in this proxy statement/prospectus, the completion of the
merger and the equity financing is subject to certain conditions, including
approval by the shareholders of both Therapeutic Antibodies and Proteus. See
"The Merger and the Merger Agreement" and "The Equity Financing." There can be
no assurance that the merger and the equity financing will be completed. If the
merger and the equity financing are not completed for any reason, and if
additional financing cannot be obtained, Therapeutic Antibodies will not have
sufficient funds to continue operations. Therapeutic Antibodies believes that in
the absence of additional financing, it will have to take action to protect
Therapeutic Antibodies from its creditors through formal insolvency proceedings,
or pursue alternative courses of action which may result in there being
negligible remaining shareholder value.
On April 30, 1999, Therapeutic Antibodies repaid the outstanding balance of
an $800,000 term loan, plus accrued interest, to Equitas, L.P. The loan bore
interest at an annual rate of 11.5%.
During 1998, Therapeutic Antibodies received milestone payments of
$1,500,000 under the Altana agreement as a result of the FDA's acceptance of
Therapeutic Antibodies' product license application and establishment license
application for CroTAb(R). Therapeutic Antibodies is entitled to receive
additional payments under the agreement based on achievement of certain
milestones relating
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to CroTAb(R) and Therapeutic Antibodies' DigiTAb(R) and TriTAb(R) products.
Therapeutic Antibodies anticipates receiving additional payments under the
agreement of $2,000,000 in 1999 based on FDA approval of CroTAb(R) and
progression of the DigiTAb(R) and TriTAb(R) regulatory filings with the FDA.
In May 1998, Therapeutic Antibodies entered into an agreement with G. D.
Searle & Co. for the identification, development and commercialization of a new
antibody based drug designed to titrate the effects of Searle's new xemilofiban
and orbofiban anticoagulent products. Searle anticipated that it would pay
Therapeutic Antibodies up to $8,000,000 over the term of the agreement for
research and development and product supplies based on achieving certain
milestones. Therapeutic Antibodies received its first milestone payment of
$1,000,000 upon execution of the agreement in May 1998. In January 1999,
however, Searle made the decision to cease development of its xemilofiban and
orbofiban projects and exercised its right to terminate its agreement with
Therapeutic Antibodies.
On November 9, 1998, Therapeutic Antibodies completed a $19,500,000 capital
refinancing involving the issuance of 28,690,561 new shares of Therapeutic
Antibodies' common stock on the London Stock Exchange at $.68 per share. The
refinancing included the private placement of 21,300,000 shares of common stock
for cash and the conversion of all outstanding shares of Therapeutic Antibodies'
Series A Convertible Redeemable Preferred Stock and $2,900,000 of principal and
interest on Therapeutic Antibodies' 15% subordinated promissory notes and
certain other loan notes into a total of 7,390,561 shares of Therapeutic
Antibodies' common stock. Of the approximately $12,600,000 in cash raised in the
private placement, net of expenses, $1,730,000 was used to repay the outstanding
balance of principal and interest on the 15% subordinated promissory notes. The
remaining proceeds were and continue to be used to fund the ongoing development
of Therapeutic Antibodies' products.
YEAR 2000 READINESS
GENERAL
Therapeutic Antibodies utilizes management information systems and software
technology that may be affected by Year 2000 issues. During 1998, Therapeutic
Antibodies implemented a plan called the Y2K project to ensure that its systems
would be Year 2000 compliant. The Y2K project is addressing the issue of
programmable logic controllers and computer programs being able to distinguish
between dates in the 20th century and dates in the 21st century. The Y2K project
is expected to make all of Therapeutic Antibodies' business systems Year 2000
compliant, or they will be retired.
Y2K PROJECT
Therapeutic Antibodies' Y2K project is divided into five phases. The
project phases are:
- Phase 1: compile an inventory of all equipment;
- Phase 2: assign priorities to the equipment identified as being at risk
for Year 2000;
- Phase 3: assess the Year 2000 compliance of items identified as being
significant to the operational activities of Therapeutic Antibodies;
- Phase 4: repair or replace material items that are determined not to be
Year 2000 compliant; and
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- Phase 5: test and validate material items. A task force has been
established to carry out these tasks which includes subgroups at each of
Therapeutic Antibodies' four locations, Nashville, USA; Adelaide,
Australia; London, U.K.; and Llandysul, U.K.
By the end of the first quarter of 1999, Therapeutic Antibodies had
completed the inventory and priority assignment phases (phases 1 and 2) for each
location.
The assessment of Year 2000 compliance (phase 3) included the
identification and prioritization of critical external suppliers. Therapeutic
Antibodies has undertaken a detailed evaluation of critical suppliers by
communicating with them about their commitment, plans and progress in addressing
their Year 2000 issues. Detailed plans for this evaluation of material items and
suppliers are in place and have been initiated. The assessment of critical
suppliers was approximately 75% complete at the end of the second quarter of
1999. Phase 3 is due for completion by the end of the third quarter of 1999.
Phase 4, the repair and replacement of equipment and application software
that is not Year 2000 compliant, includes conversion, where available from the
supplier, or replacement. The testing phase will be undertaken as the hardware
and software is converted or replaced.
During 1998, the Y2K task force determined that the accounting software
used in Australia is not Year 2000 compliant. The software vendor released an
upgrade during the first quarter of 1999 that is Year 2000 compliant. This
upgrade will be installed at Therapeutic Antibodies' Australian facilities
during the third quarter of 1999. In addition, Therapeutic Antibodies has
identified a possible risk to Year 2000 compliance posed by some of the
programmable logic controllers or embedded systems controlling the air handling
units at each of the production sites in Wales and Australia. The extent of this
risk and the optimal solution are currently being researched. The task force has
also determined that the sheep planning aid software that is used in Australia
is non-compliant. The software will require major code modification to achieve
compliance with a cost estimated to be $7,200. The hardware and software
controlling some of the manufacturing processes at the Welsh facility have been
found to be non-compliant necessitating the installation of new hardware and
software which will be installed and validated to FDA standards during the third
quarter of 1999.
All phases of the Y2K project are expected to be completed before the end
of 1999. The phases are concurrent rather than consecutive; therefore, more than
one phase is in progress at the same time.
COSTS
The total estimated cost associated with the required modifications to
become Year 2000 compliant is not expected to be material to Therapeutic
Antibodies' financial position. The total capital cost is estimated to be no
more than $150,000. This figure may vary depending on the cost of the
replacements needed after completion of the assessment phase of the Y2K project.
The total operating cost incurred to date attributable to staff time and effort
devoted to the Y2K project to date is $89,000. The estimated future operating
cost of completing the project is $31,000.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of normal business activities or operations. Due
to the inherent uncertainty when dealing with the Year 2000 issues, and from the
uncertainty of the Year 2000 readiness of suppliers, Therapeutic Antibodies is
unable at this time to determine whether or not any Year 2000 failures will have
a
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material effect on Therapeutic Antibodies, its operations or its financial
condition. This Year 2000 project is expected to significantly reduce the level
of uncertainty about any Year 2000 problem posed to Therapeutic Antibodies by
its compliance, or by the compliance of its material suppliers. Therapeutic
Antibodies believes that with the implementation and completion of its Year 2000
project as scheduled the possibility of significant interruptions of normal
operations should be minimal.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1998, Therapeutic Antibodies had approximately $70.5
million of net operating loss carryforwards for income tax purposes, of which
$57.7 million are available to offset United States federal income taxes and
expire from 1999 through 2018. In addition, Therapeutic Antibodies has
approximately $307,000 of research and development tax credits available to
offset future federal income tax, subject to limitations for alternative minimum
tax. As a result of the capital refinancing in 1998, Therapeutic Antibodies
experienced an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code. Consequently, Therapeutic Antibodies is subject to an
annual limitation on the amount of net operating loss carryforwards that can be
used to offset taxable income. The annual limitation is $1,502,000 plus certain
gains included in taxable income attributable to Therapeutic Antibodies prior to
the ownership change. No assets have been recognized in Therapeutic Antibodies'
financial statements for these net operating loss carryforwards because
management believes the criteria for recognition under generally accepted
accounting principles have not been met.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and hedging Activities". In general, SFAS
No. 133 requires that all derivatives be recognized as either assets or
liabilities in the balance sheet at their face value, and sets forth the manner
in which gains or losses thereon are to be recorded. The treatment of such gains
and losses is dependent upon the type of exposure, if any, for which the
derivative is designated as a hedge. This statement is effective for the Company
on January 1, 2001. As the Company does not purchase derivative instruments or
engage in hedging activities, the adoption of SFAS No. 133 is not expected to
impact the Company's financial position or results of operations.
MARKET RISK
Therapeutic Antibodies is exposed to market risk from changes in foreign
currency exchange rates and interest rates. Therapeutic Antibodies' operations
consist of manufacturing and sales activities in foreign countries exposing
Therapeutic Antibodies to the effects of changes in foreign currency rates.
Therapeutic Antibodies has exposure to changes in interest rates on certain
floating rate debt instruments. Therapeutic Antibodies does not currently
purchase derivative instruments or engage in hedging activities to mitigate the
risks of fluctuations in foreign currency exchange rates or interest rates.
The value of market risk sensitive financial instruments is subject to
change as a result of movements in market rates and prices. For purposes of
specific risk analysis, Therapeutic Antibodies uses sensitivity analysis to
determine the impact that market risk exposures may have on Therapeutic
Antibodies' debt and other financial instruments.
Therapeutic Antibodies is exposed to foreign currency gains or losses from
the translation of U.S. dollars into other foreign currencies and from sales and
purchases transactions with certain
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customers and suppliers in foreign countries. For these transactions, currency
exchange rates are agreed upon prior to the time of the actual transfer of cash.
Therapeutic Antibodies realizes a transaction gain or loss based upon the actual
currency exchange rate at the time the transaction is completed and records
these gains and losses in operations. To reduce exposure to these fluctuations,
Therapeutic Antibodies maintains cash balances in its primary foreign
currencies. Historically, the primary net foreign currency market exposures have
related to British pounds and Australian dollars. At June 30, 1998, Therapeutic
Antibodies held cash balances of $531,000 denominated in British pounds and
$140,000 denominated in Australian dollars.
As of June 30, 1999, a hypothetical 10 percent weakening in the levels of
foreign currency exchange rates against the U.S. dollar with all other variables
held constant would result in a decrease in Therapeutic Antibodies' results of
operations and the fair value of its financial instruments of $417,000, as
compared to a decrease of $527,000 as of December 31, 1998. Actual results may
differ.
A hypothetical 10 percent movement in interest rates affecting Therapeutic
Antibodies' floating rate debt instruments would have an immaterial effect on
Therapeutic Antibodies' results of operations.
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THERAPEUTIC ANTIBODIES EXECUTIVE COMPENSATION INFORMATION
EXECUTIVE OFFICERS
The current executive officers of Therapeutic Antibodies are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Andrew J. Heath, M.D............ 51 Vice Chairman of the Board and Chief Executive Officer
Martin S. Brown................. 61 Secretary
Tim Chard, M.D.................. 62 Senior Vice President -- Research and Development
Administration
James C. Christie............... 41 Director, Global Operations
Carol Clark-Evans............... 39 Vice President of Regulatory and Clinical Affairs
R. Stephen Porter............... 49 Executive Director, Medical Affairs
</TABLE>
CAROL CLARK-EVANS, Vice President of Regulatory and Clinical Affairs. Ms.
Clark-Evans joined Therapeutic Antibodies in 1996 and is responsible for its
worldwide regulatory affairs. From 1995 to 1996, Ms. Clark-Evans was Manager,
Regulatory Affairs at Corning Besselaar, Inc., which is one of the world's
largest contract research organizations. From 1992 to 1995, Ms. Clark-Evans was
a Regulatory Scientist and Regulatory Liaison at Solvay Pharmaceuticals, Inc.
Ms. Clark-Evans was Manager, Regulatory Affairs at Pharmacia & Upjohn, Inc. from
1984 to 1992.
R. STEPHEN PORTER, PHARM.D., Executive Director of Medical Affairs. Dr.
Porter joined Therapeutic Antibodies in 1995 from American Cyanamid Company,
where he served in its medical research division from 1991 to 1995. From 1987 to
1991, Dr. Porter served as Director of Cardiovascular Pharmacology and Assistant
Professor of Medicine at the Likoff Cardiovascular Institute within the
Hahnemann School of Medicine in Philadelphia. Dr. Porter received his doctorate
in clinical pharmacy from the University of Michigan. In addition to his duties
at Therapeutic Antibodies, he currently serves as assistant editor for the Rocky
Mountain Drug Consultation Center in Denver, Colorado.
Information regarding the background of Drs. Heath and Chard and Messrs.
Brown and Christie can be found in the section of this proxy
statement/prospectus entitled "Management of Proteus After the Merger."
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SUMMARY COMPENSATION TABLE
The following table sets forth for the years ended December 31, 1996, 1997
and 1998, the compensation paid to or accrued by or on behalf of Therapeutic
Antibodies' Chief Executive Officer and the three other most highly compensated
executive officers of Therapeutic Antibodies whose 1998 cash compensation was in
excess of $100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS PAYOUTS
ANNUAL ---------- --------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) PAYOUTS COMPENSATION($)
--------------------------- ---- --------- -------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Andrew J. Heath M.D.(2)......................... 1998 $179,167 $ 0 509,000 $ 0 $100,634(5)(6)
Vice Chairman and Chief Executive Officer
Carol Clark-Evans............................... 1998 $106,467 $10,000 20,000 $ 0 $ 61(6)
Vice President of Regulatory and 1997 91,867 7,500 0 0 40(6)
Clinical Affairs 1996 76,923 3,000 26,000 0 40(6)
R. Stephen Porter............................... 1998 $105,402 $ 0 0 $ 0 $ 157(6)
Director of Medical Affairs 1997 99,666 2,500 0 0 142(6)
1996 91,667 5,000 10,000 0 122(6)
A.J. Kazimi(3).................................. 1998 $131,042 $ 0 95,000 $ 0 $ 275(6)
President and Chief Operating Officer 1997 172,500 0 0 712,176(4) 250(6)
1996 155,000 0 60,000 0 139(6)
</TABLE>
- -------------------------
(1) These executive officers did not receive any annual compensation not
properly categorized as salary or bonus, except for certain perquisites or
other benefits the aggregate incremental cost of which to Therapeutic
Antibodies for each officer did not exceed the lesser of $50,000 or 10% of
the total of annual salary and bonus reported for each such officer.
(2) Information given is as of March 2, 1998, the date that Dr. Heath joined
Therapeutic Antibodies, through December 31, 1998.
(3) Mr. Kazimi resigned as President of Therapeutic Antibodies effective
September 1, 1998. SEC rules require the inclusion of his compensation
information in the table.
(4) During 1997, Mr. Kazimi paid Therapeutic Antibodies $46,625 to exercise
warrants to purchase 44,667 shares of Therapeutic Antibodies common stock.
As of December 31, 1997, Mr. Kazimi continued to hold all of the shares of
common stock received pursuant to the exercise of the warrants, which had an
aggregate market value of $160,801. Mr. Kazimi also disposed of warrants to
purchase an aggregate of 142,000 shares of Therapeutic Antibodies common
stock for total consideration of $598,000.
(5) Therapeutic Antibodies granted Dr. Heath $100,000 in moving expenses upon
joining the company in 1998.
(6) Group term life insurance.
Therapeutic Antibodies has no long-term incentive plans, as that term is
defined in Securities and Exchange Commission regulations, and has no defined
benefit or actuarial plans covering employees of the company. Therapeutic
Antibodies granted no stock appreciation rights in 1998.
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<PAGE> 144
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options made during 1998 to the executive officers named in the summary
compensation table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER PERCENTAGE OF ANNUAL RATES OF
OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE MARKET APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE PRICE ON OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE DATE OF EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SH)(1) GRANT DATE 5%($) 10%($)
---- ---------- ------------- --------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew J. Heath, M.D.............. 300,000(3) 36% $3.37 $2.37 6/29/08 $147,144 $833,151
200,000(4) 24 3.37 2.37 6/29/08 98,096 555,434
Carol Clark-Evans................. 20,000(5) 2 2.40 2.37 6/29/08 29,210 74,943
R. Stephen Porter................. 0 0 N/A N/A N/A N/A N/A
A.J. Kazimi....................... 95,000(6) 11 1.23 1.30 9/01/08 84,318 203,477
</TABLE>
- -------------------------
(1) All incentive stock options were granted at or above the fair market value
on the date of grant, which value, prior to Therapeutic Antibodies' initial
public offering in 1996, was determined by the board of directors.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
Therapeutic Antibodies' securities that the actual stock price appreciation
over the term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the common stock appreciates over
the option term, no value will be realized from the option grants made to
these executive officers.
(3) 60,000 options vested on March 2, 1999. An additional 60,000 options become
exercisable on March 2, 2000, 2001 and 2002. In addition, 57,500 and 2,500
options become exercisable on March 2 and June 29, 2003, respectively.
(4) 125,000 options vested on March 1, 1999. 75,000 options vest upon
achievement of any one of the three following goals:
1. A licensing deal on CytoTAb(TM) is concluded with a total value of at
least $50,000,000 and with at least $5,000,000 in upfront signing
payment, or $7,500,000 if equity investments are included;
2. Total revenues of Therapeutic Antibodies are at least $18,000,000 in any
one year, or are, cumulatively, $40,000,000 in 1998, 1999, and 2000; or
3. The share price of Therapeutic Antibodies common stock gets to and stays
above the 1996 initial public offering price ($8.11) for six months.
(5) 6,667 options become exercisable on each of June 29, 1999 and 2000; 6,666
options become exercisable on June 29, 2001.
(6) On September 1, 1998, Therapeutic Antibodies granted 95,000 options under
the 1997 stock option plan to Mr. Kazimi as part of his severance package
following his resignation as President effective September 1, 1998. All
options were fully exercisable upon grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of the executive officers named in the summary compensation table
exercised any stock options in 1998. The following table provides certain
information, with respect to these executive officers, concerning the
unexercised options at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT FISCAL YEAR
OPTIONS AT FISCAL YEAR END(#) END($)(1)
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew J. Heath, M.D. ............. 9,000 500,000 N/A N/A
A.J. Kazimi........................ 190,000 20,000 N/A N/A
Carol Clark-Evans.................. 12,000 34,000 N/A N/A
R. Stephen Porter.................. 34,000 16,000 N/A N/A
</TABLE>
- -------------------------
(1) The exercise price of all of the stock options held by each of the named
persons at fiscal year end exceeded the market value of the common stock
underlying the options as reported on the London Stock Exchange.
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<PAGE> 145
EMPLOYMENT/CONSULTANCY AGREEMENTS
Therapeutic Antibodies, through its subsidiary Therapeutic Antibodies U.K.
Limited, entered into a Consultancy Agreement with Stuart M. Wallis dated August
21, 1998, pursuant to which Mr. Wallis agreed to provide certain consulting
services generally relating to assessing Therapeutic Antibodies' operations.
This agreement is terminable by Therapeutic Antibodies upon prior written notice
at any time after June 27, 2001 or by Mr. Wallis upon one month's prior written
notice. The agreement also provides that Mr. Wallis shall keep confidential
certain information acquired in the course of his duties for Therapeutic
Antibodies.
Under the terms of a schedule to this agreement, Mr. Wallis was granted a
performance based option to purchase shares of Therapeutic Antibodies common
stock. Under the terms of the option, Mr. Wallis will become entitled to
purchase a number of shares determined by dividing up to a maximum of 10% of the
increase in the company's market capitalization between June 8, 1998 and the
date of exercise by the market price of the common stock on the date of
exercise. Mr. Wallis will become entitled to exercise the option only if the
increase in the market price of Therapeutic Antibodies common stock between June
8, 1998 and the date of exercise, when compared to the increase in share price
of the companies constituting the FTSE Smallcap Index over the same period,
ranks in the top quartile. Mr. Wallis will receive nothing if Therapeutic
Antibodies is at or below the median position, but his entitlement will increase
on a straight-line basis between the median position and the position
representing the 25th percentile. The award may be exercised in two tranches
during the 90-day period following each of the second and third anniversaries of
the date of commencement of Mr. Wallis' consultancy, but if Mr. Wallis exercises
the award following the second anniversary, the comparative group and market
capitalization are reset to June 9, 2000 for the purposes of calculating the
entitlement. The award expires on September 8, 2002. The exercise price for each
tranche is L1.
Under the terms of an Option Deed, dated May 20, 1999, between Mr. Wallis
and Proteus, the option contained in the August 21, 1998 Consultancy Agreement
will expire upon effectiveness of the merger and Mr. Wallis will receive an
option to purchase Proteus ordinary shares. The terms of the Proteus option are
described in more detail under "Background of and Reasons for the Merger --
Interests of Certain Persons in the Merger."
In addition, Therapeutic Antibodies, through Therapeutic Antibodies U.K.
Limited, entered into a Consultancy Agreement with Mr. Wallis dated September 1,
1998 pursuant to which Mr. Wallis agrees to provide certain consulting services
generally relating to the strategic development and growth of Therapeutic
Antibodies. Mr. Wallis' base annual salary under this agreement is L60,000,
subject to annual review. The agreement is terminable by either party upon not
less than 12 months' prior written notice. The agreement also provides that Mr.
Wallis shall keep confidential certain information acquired in the course of his
duties for Therapeutic Antibodies.
Therapeutic Antibodies also, through Therapeutic Antibodies U.K. Limited,
entered into a letter agreement with Mr. Wallis dated September 1, 1998 pursuant
to which Mr. Wallis agreed to serve as Chairman of the Board. Mr. Wallis' annual
salary under the letter agreement is L10,000. The letter agreement is terminable
by either party upon not less than 12 months' prior written notice; provided,
however, that Therapeutic Antibodies may not terminate the letter agreement
prior to August 31, 2001. The letter agreement also provides that Mr. Wallis
shall keep confidential certain information acquired in connection with his
services on behalf of Therapeutic Antibodies.
Therapeutic Antibodies entered into an Employment Agreement with Andrew J.
Heath, effective February 6, 1998, pursuant to which Dr. Heath is employed as
Vice Chairman and Chief Executive Officer of Therapeutic Antibodies. Dr. Heath's
base annual salary under the agreement is $215,000,
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<PAGE> 146
subject to periodic review. In addition to the annual base salary, Dr. Heath is
entitled to receive an annual bonus, the amount of which is determined by the
Compensation Committee of the board of directors at its sole discretion. The
agreement is terminable by either party upon thirty days' prior written notice.
Upon termination by Therapeutic Antibodies without cause, Dr. Heath is entitled
to severance compensation in the amount of his annual base salary. The agreement
also provides that Dr. Heath keep confidential certain information acquired in
connection with his services on behalf of Therapeutic Antibodies pursuant to the
terms of a Confidentiality Agreement dated February 7, 1998 between Therapeutic
Antibodies and Dr. Heath. In addition, during the term of his employment Dr.
Heath agrees not to compete with Therapeutic Antibodies. If Dr. Heath
voluntarily terminates his employment with Therapeutic Antibodies, the term of
this noncompete expires 24 months from the date of termination. If Dr. Heath is
terminated for cause, the term of the noncompete expires 18 months from the date
of termination. If Dr. Heath is terminated without cause, the noncompete expires
on the date of termination. Dr. Heath further agrees, for a period of one year
after the termination of his employment with Therapeutic Antibodies, not to
solicit the business or employees of Therapeutic Antibodies.
Therapeutic Antibodies entered into an Executive Service Agreement with
James Christie, effective October 1, 1998, pursuant to which Mr. Christie is
employed as Director, Global Operations. Mr. Christie's base annual salary is
L85,000, subject to annual review. The agreement provides that Mr. Christie
shall be entitled to receive options to purchase 100,000 shares of Therapeutic
Antibodies common stock, subject to unspecified performance criteria, although
no options have been granted to Mr. Christie to date. The agreement may be
terminated by either party upon not less than six months written notice,
although Therapeutic Antibodies may pay to Mr. Christie the value of his salary
over the notice period in lieu of giving notice. The agreement also provides
that Mr. Christie shall keep confidential all trade or business secrets of
Therapeutic Antibodies obtained during his employment and that he shall be
restricted from competing with Therapeutic Antibodies or soliciting its
employees or customers during and after a period following his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors established the
compensation arrangements for executive officers of Therapeutic Antibodies for
the year ended December 31, 1998. The compensation committee for 1998 consisted
of Joseph Williams, Robert Hilton and Steven Stroup until August 31, 1998.
Following the restructuring of the board on September 1, 1998 and the
resignations of Messrs. Williams, Hilton and Stroup, the board of directors
assumed responsibility for reviewing and setting executive compensation. There
are no interlocking relationships among the former members of the compensation
committee. Drs. Heath and Chard both serve as executive officers and members of
the board of directors of Therapeutic Antibodies. Drs. Heath and Chard did not
participate in deliberations concerning executive officer compensation during
the last fiscal year.
1990 STOCK INCENTIVE PLAN
The board of directors of Therapeutic Antibodies has adopted, with approval
of Therapeutic Antibodies' stockholders, the 1990 stock incentive plan as
amended. The 1990 stock incentive plan provides for the grant to
- key employees of Therapeutic Antibodies of stock options complying with
Section 422A of the Internal Revenue Code, called incentive stock options
or
- advisors, officers and directors of Therapeutic Antibodies of stock
options not qualifying under this provision, called non-qualified
options,
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<PAGE> 147
for the purchase of an aggregate of up to 1,650,000 shares of common stock, as
well as stock appreciation rights. The 1990 stock incentive plan provides for
adjustment of the number of shares available under the plan in the event of
stock splits, stock dividends and various other events. The 1990 stock incentive
plan also provides that if Therapeutic Antibodies is not the surviving
corporation in a business combination, the holder of an outstanding option will
be entitled to purchase stock in the surviving corporation on the same terms and
conditions as the option. Options are non-transferable, and options and stock
appreciation rights are subject to any restrictions contained in the grant and
applicable securities laws.
1997 STOCK OPTION PLAN
In 1997, the board of directors of Therapeutic Antibodies adopted and
Therapeutic Antibodies' stockholders approved at the 1997 Annual Meeting of
Stockholders, Therapeutic Antibodies' 1997 stock option plan. The 1997 stock
option plan provides for the grant of stock options and stock appreciation
rights to directors, employees, consultants or advisors of Therapeutic
Antibodies. The 1997 stock option plan distinguishes between stock options
granted to
- eligible plan participants, generally, and
- plan participants who are residents of the United Kingdom and who are
eligible to participate, and contains provisions applicable to the grant
of options to each.
Options granted to eligible plan participants pursuant to the 1997 stock option
plan may, at the discretion of the compensation committee, be incentive stock
options or non-qualified options. A total of 1,100,000 shares of Therapeutic
Antibodies common stock have been reserved for issuance under the 1997 stock
option plan. The 1997 stock option plan provides for adjustment of the number of
shares available under the plan in the event of stock splits, stock dividends
and various other events. The 1997 stock option plan also provides that if
Therapeutic Antibodies is not the surviving corporation in a business
combination, all outstanding options will terminate, provided that, subject to
certain limitations under the Internal Revenue Code, all outstanding options
shall become exercisable immediately prior to such transaction whether or not
the vesting requirements of such options have been satisfied, unless the
compensation committee elects to convert all options into options to purchase
stock of an acquiring corporation. Options are non-transferable, except by will
or under the laws of descent and distribution. Non-qualified options, however,
may be transferable to the extent provided in the applicable stock option
agreement. Options and stock appreciation rights are also subject to any
restrictions contained in the grant and applicable securities laws.
401(K) SAVINGS PLAN
Therapeutic Antibodies has established the Therapeutic Antibodies 401(k)
savings plan, which is a qualified retirement plan under Sections 401(a) and
401(k) of the Internal Revenue Code of 1986, as amended. All United States
employees of Therapeutic Antibodies are eligible to participate in the 401(k)
savings plan immediately upon employment. The 401(k) savings plan permits
eligible employees to contribute from 1% to 15% of their earnings to the 401(k)
savings plan by payroll deduction, subject to various statutory limits. The
401(k) savings plan permits Therapeutic Antibodies to make discretionary
matching contributions or other employer contributions to the 401(k) savings
plan each year. Therapeutic Antibodies currently does not make matching
contributions to the 401(k) savings plan.
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<PAGE> 148
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The compensation committee of the board of directors established the
compensation arrangements for 1998. The compensation committee of the board of
directors for 1998 consisted of Joseph Williams, Robert Hilton and Steven Stroup
until August 31, 1998. Following the restructuring of the board on September 1,
1998 and the resignations of Messrs. Williams, Hilton and Stroup, the board of
directors assumed responsibility for reviewing and setting executive
compensation. As the compensation committee no longer exists, the entire board
of directors of Therapeutic Antibodies is delivering the Report on Executive
Compensation for 1998 as established by the prior committee. In this capacity,
the board of directors has the responsibility for establishing and administering
a general compensation policy and program for Therapeutic Antibodies. The board
of directors is also responsible for administering all of Therapeutic
Antibodies' employee benefit plans, including all stock option plans, bonus
plans, retirement plans, medical and insurance plans. Subject to the provisions
of these employee benefit plans, the board of directors must determine the
individuals eligible to participate in each one of the plans, the extent of such
participation and the terms and conditions under which benefits may be vested,
received or exercised.
EXECUTIVE COMPENSATION
The board of directors intends for Therapeutic Antibodies' executive
compensation program to attract, motivate and retain key executive officers of
Therapeutic Antibodies, its subsidiaries and affiliated entities, and to provide
for
- base salaries competitive with those paid by comparable biotechnology
companies,
- variable annual incentives which would reflect executive officers'
contributions to Therapeutic Antibodies' annual performance objectives
and
- a variable long-term incentive program utilizing equity ownership in
Therapeutic Antibodies which would reflect executive officers'
contributions to Therapeutic Antibodies' achievement of longer-term
goals.
Executive compensation for Therapeutic Antibodies in 1998 was comprised of
three elements:
- base salaries,
- incentive bonus compensation and
- equity-based compensation.
BASE SALARY -- The board of directors endeavors to establish base salary
levels for executives of Therapeutic Antibodies which are consistent with those
provided for similarly situated executives of other biotechnology companies. In
establishing these levels, the board considers compensation for executives of
other publicly traded biotechnology companies, as well as other publicly traded
companies of similar size and with a similar growth rate. As a development stage
company without substantial earnings, however, the board must balance the need
to attract and retain key scientists and executives with budgetary constraints.
The annual salaries for the executive officers of Therapeutic Antibodies are
usually approved by the board of directors, at the board of directors' annual
meeting each spring. The 1998 salaries of Therapeutic Antibodies' executive
officers were established or adjusted based on management's subjective
assessment of the nature of their positions, the experience of the individuals
filling the positions and the tenure of such individuals with and their general
contribution to Therapeutic Antibodies.
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<PAGE> 149
INCENTIVE BONUS COMPENSATION -- In addition to base salary, the board of
directors may grant cash incentive compensation for certain executives of
Therapeutic Antibodies, based upon each such executive's success in meeting
qualitative and quantitative performance goals on an annual basis. Bonus
determinations are made on a case-by-case basis, taking into account appropriate
quantitative and qualitative factors, and there is no fixed relationship between
any particular performance factor and the amount of a given executive's bonus.
EQUITY-BASED COMPENSATION -- In addition to cash incentive compensation,
Therapeutic Antibodies has always utilized equity-based compensation in the form
of stock options as an incentive to encourage its executives to work to meet its
operational goals. The board of directors reviews and administers the 1990 stock
incentive plan and 1997 stock option plan, under which granted options typically
vest over a one to ten-year period. Specific grants are determined taking into
account an executive's current responsibilities and historical performance, as
well as the executive's perceived contribution to Therapeutic Antibodies'
results of operations. Options are also used to give incentive to newly-promoted
officers at the time that they are asked to assume greater responsibilities. In
evaluating option grants, the board considers prior grants and shares currently
held, as well as the recipient's success in meeting operational goals and the
recipient's level of responsibility. However, no fixed formula is utilized to
determine particular grants. The board of directors believes that the
opportunity to acquire a significant equity interest in Therapeutic Antibodies
is a strong motivation for Therapeutic Antibodies' executives to pursue the
long-term interests of Therapeutic Antibodies and its stockholders, and promotes
the retention of key executives.
In addition, Therapeutic Antibodies has a health benefits plan and a 401(k)
plan in which all United States employees, including all executive officers, are
permitted to participate. All employees and executive officers are subject to
the same terms and conditions relating to eligibility and are subject to the
same limitations as to amounts that may be contributed.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR FISCAL YEAR 1998
As Chief Executive Officer of Therapeutic Antibodies during 1998, Dr.
Heath's annual base salary for 1998 was set at $215,000 effective March 1998.
This salary level was developed with regard to the progress made by Therapeutic
Antibodies in the advancement of its various products and the board's review of
executive compensation for executive officers of other biotechnology companies.
Board of Directors
Stuart M. Wallis
Andrew J. Heath, M.D., Ph.D.
Martin S. Brown
Timothy Chard, M.D.
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<PAGE> 150
COMPARATIVE PERFORMANCE GRAPH
The SEC rules require Therapeutic Antibodies to include in this proxy
statement/prospectus a line graph which compares the yearly percentage change in
cumulative total stockholder return on Therapeutic Antibodies common stock with
(a) the performance of a broad equity market indicator, and (b) the performance
of a published industry index or peer group. The following graph compares the
yearly percentage change in the return on Therapeutic Antibodies common stock
since June 30, 1995, the effective date of Therapeutic Antibodies' registration
statement on Form 10 filed with the Securities and Exchange Commission, with the
cumulative total return on the CRSP Index for Nasdaq Stock Market Companies,
U.S. and Foreign, and the CRSP Index for Nasdaq Stock Market Pharmaceutical
Companies, U.S. and Foreign. The graph assumes the investment on June 30, 1995
of $100 in Therapeutic Antibodies common stock and that all dividends were
reinvested at the time they were paid.
[GRAPH]
<TABLE>
<CAPTION>
6/30/95 12/31/95 12/31/96 12/31/97 12/31/98
------- -------- -------- -------- --------
<C> <S> <C> <C> <C> <C> <C>
X Therapeutic Antibodies $100.00 $137.50 $152.00 $ 90.00 $ 22.25
X Nasdaq Stocks (SIC 2830-2839 U.S. and
Foreign Pharmaceuticals) $100.00 $145.73 $146.18 $150.99 $192.86
X Nasdaq Stock Market, U.S. and Foreign $100.00 $112.95 $138.31 $169.20 $233.77
</TABLE>
NOTES:
A. The lines for Nasdaq indexes represent monthly index levels derived from
compounded daily returns that include all dividends.
B. Prior to Therapeutic Antibodies' initial public offering on July 23, 1996,
returns were calculated based on the offering price for Therapeutic
Antibodies' common stock as determined by the board of directors and may not
be indicative of the actual market price for the common stock or actual
returns thereon.
C. Subsequent to July 23, 1996, returns were calculated based on the closing
prices of Therapeutic Antibodies' common stock on the measurement dates as
reported on the London Stock Exchange.
D. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
E. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
F. The index level for all series was set to $100.00 on 6/30/95.
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<PAGE> 151
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, Mr. Brown purchased $750,000 principal amount of Therapeutic
Antibodies' 15% Subordinated Promissory Notes due December 31, 1998. Also in
1996, Mr. Brown made a series of advances to Therapeutic Antibodies, which
Therapeutic Antibodies evidenced by the issuance of a $250,000 12% Promissory
Note due December 31, 1998. In October 1998, Mr. Brown agreed to extend the
maturity dates of the 12% note and the balance of the 15% notes to December 31,
2000. On November 9, 1998, Mr. Brown converted $500,000 principal and interest
of the 15% notes into 736,811 shares of Therapeutic Antibodies' common stock in
connection with Therapeutic Antibodies' private placement. On January 11, 1999,
Therapeutic Antibodies repaid Mr. Brown the entire outstanding principal
balance, together with accrued interest, on the 12% note.
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<PAGE> 152
GOVERNMENT REGULATION
GENERAL
Regulation by government authorities in the United States, Europe and other
countries in which Proteus and Therapeutic Antibodies operate is a significant
consideration in the development, production, marketing, labeling and
reimbursement of their products and in the continuation of their research and
development activities.
In the United States, Europe and most other countries, in order to market
and sell biological products, drugs, medical devices and diagnostic products,
there is a requirement to obtain and to maintain an approval for a product from
the appropriate regulatory authority, referred to as a marketing authorization.
Proteus and Therapeutic Antibodies are also subject to various laws,
regulations, policies, guidelines and recommendations relating to such matters
as safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the protection of the environment. Furthermore,
there has been a general trend towards greater regulation of the pharmaceutical
industry and its products.
The submission of a marketing authorization application to a regulatory
authority does not guarantee that an authorization will be granted. Regulatory
authorities require substantial data in connection with marketing authorization
applications, resulting in a lengthy approval process. The time taken to obtain
such approval varies depending upon the countries concerned and the nature of
the product, but can take from a few months to several years and can involve
substantial expenditure. This may be due to:
- the lack of necessary results/data required by regulatory authorities;
- changing or additional regulation; or
- new scientific standards or other scientific developments arising during
the product development process.
Furthermore, regulatory authorities of different countries may impose differing
requirements and may refuse to grant, or may require additional data before
granting an, approval even though the product may have been approved by the
regulatory authority of another country. Even if approval is obtained, failure
to comply with present or future regulatory requirements, or the emergence of
new information reflecting adversely upon the safety or effectiveness of the
approved drug, can lead the regulatory authority to suspend, vary or withdraw
its approval to market the product.
In the United States, the principal regulatory agency is the FDA. Nearly
all other countries have similar national regulatory authorities. Proteus and
Therapeutic Antibodies may have to satisfy different requirements from the FDA,
European regulatory authorities and other national regulatory authorities. There
is an ongoing initiative, the International Conference on Harmonization, among
representatives from Japan, the United States and the European Union, to limit
regulatory differences where possible, but it may be many years before its
objective is achieved, if at all.
In Europe, Proteus and Therapeutic Antibodies must take into consideration:
(a) the regulatory climate within the European Union, including the
influence of the International Conference on Harmonization, and the
approach of the European Agency for the Evaluation of Medicinal
Products and its expert advisory committee, the European Committee for
Proprietary Medicinal Products, as well as
(b) the position of the national regulatory authorities.
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<PAGE> 153
New licensing procedures were introduced in the European Union in 1995
aimed at harmonizing the regulatory requirements and outcomes between member
states in respect of the same products. The impact of these new procedures is
scheduled for review by the European Commission. The system continues to have
problems and medicine's regulation is not yet fully harmonized.
Recognizing global regulatory differences, wherever practical, Proteus and
Therapeutic Antibodies intend to design preclinical and clinical protocols which
should generate sufficient data of a quality that will be acceptable to support
applications for the same product in each country where it is intended to be
marketed.
PRICE REGULATION
In some countries it is necessary to obtain approval for the price to be
charged for a medicinal product or device. This is true in a number of European
Union member states. In the United Kingdom, the launch price of pharmaceuticals
is set by the manufacturer but is subject to the constraints of the
Pharmaceutical Price Regulation System which controls the profitability of a
company's business with the United Kingdom's National Health Service.
Governments may also influence the product price through the control of
national healthcare systems and also organizations which may bear the cost of
supply of such products. In the United States, government-funded or private
medical care plans can influence prices, and there are a variety of indirect
controls.
UNITED STATES REGULATION
REGULATORY AUTHORITIES -- The production and marketing of Proteus' and
Therapeutic Antibodies' products and their research and development activities
are subject to regulation by federal and state governmental authorities in the
United States. Although most states maintain one or more agencies with power to
regulate products, they commonly defer to the federal agencies discussed below
in matters relating to the development, production, marketing, labeling and
reimbursement of their products.
FDA REGULATION -- Biological products, drugs, medical devices and
diagnostic products are subject to rigorous review by the FDA. The Federal Food,
Drug and Cosmetic Act, the Public Health Service Act and other federal statutes
and regulations govern or influence the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of such
products. Product development and approval within this regulatory framework
takes a number of years, involves the expenditure of substantial resources and
is commercially risky. Many products ultimately do not reach the market because
of toxicity or lack of effectiveness as demonstrated by required testing. Total
development time for successful compounds often exceeds 10 years. However, under
the provisions of recent legislation the FDA has committed to reduce the review
time for applications. Although the agency has achieved some reductions,
especially for high-priority medicines, the review process remains lengthy and
complex. There has been little or no reduction in the testing required before
applications are submitted, which consumes most of the time spent in developing
new medicines for the United States market. In addition, there can be no
assurance that this regulatory framework will not change or that additional
regulations will not arise at any stage of product development that may affect
approval, delay an application, or require additional expenditures.
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<PAGE> 154
The steps required before a pharmaceutical product may be marketed in the
United States include:
(a) preclinical laboratory testing;
(b) submission to the FDA of an investigative new drug application which
must become effective before human clinical trials may be commenced;
(c) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug;
(d) submission of a new drug application to the FDA; and
(e) FDA approval of the new drug application prior to any commercial sale
or shipment of the drug.
GOOD PRACTICE STANDARDS -- Various standards are applied either by law or
custom to the activities of pharmaceutical companies. These include principally:
- Good laboratory practice, applied to studies performed during preclinical
developments to identify the compound's behavior and toxicity in animals;
- Good clinical practice, intended to ensure the quality and integrity of
clinical data and to protect the rights and safety of human subjects in
clinical trials; and
- Good manufacturing practice, intended to ensure the quality of drugs by
setting minimum standards for all drug manufacturing facilities. Such
standards have been developed by the FDA and by the United States
National Committee for Clinical Laboratory Standards. Violation of these
regulations can lead to invalidation of the relevant studies.
Proteus and Therapeutic Antibodies have used consulting firms in the United
Kingdom and in the United States for advice on compliance with existing
regulations and guidelines.
CLINICAL TESTING -- Clinical testing of new compounds in humans is designed
to establish both safety and efficacy in treating a particular disease or
condition. These studies are usually conducted in three phases of testing. The
clinical trial process may take from two to six years or more to complete.
Phase I trials are normally conducted in a small number of healthy human
subjects or patients with the specific condition targeted. Their purpose is to
provide a preliminary evaluation of the product candidate's safety, toxicity and
behavior when administered to humans.
In Phase II trials, the product candidate is assessed for its short-term
safety and preliminary efficacy in a limited number of patients with the
targeted disease or disorder. The appropriate dose ranges and regimens for Phase
III are also determined during this phase.
Phase III trials involve a comprehensive evaluation of safety, efficacy and
toxicity that might not have been evident in smaller studies. The trials are
carried out, typically on a multi-center basis, on a sufficient number of
patients to obtain statistically significant results. All adverse reactions are
investigated in detail and special features of the product candidate are
explored.
Clinical trials for existing and future products seek to develop safety
data as well as efficacy data and will require substantial time and significant
funding. There is no assurance that clinical trials related to these products
will be completed successfully within any specified time period, if at all.
Furthermore, the FDA may suspend clinical trials at any time if it believes that
the subjects participating in such trials are being exposed to unacceptable
health risks.
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If the drug is considered by the FDA and by prospective users to provide an
important benefit in the treatment of a serious disease, the applicant may be
faced with demands from patient groups, sometimes endorsed by the FDA, for
release of the drug for treatment during the investigative stage. The supply of
such treatment is termed treatment use. Supplying drugs on this basis can
involve significant expense and resource demands for the sponsor of the drug,
which must administer the pre-approval release program. This may, in some
situations, interfere with the ability to complete controlled clinical trials of
the drug.
APPROVAL PROCEDURES AND CRITERIA -- The FDA generally applies the same
requirements for approval of all products:
- proof of safety and efficacy;
- demonstration of adequate controls in the manufacturing process; and
- conformity with requirements for labeling. Efficacy must usually be
demonstrated by two well-controlled clinical trials carried out in
accordance with FDA regulations.
The FDA has discretion to determine whether the data submitted is adequate
for approval. The time taken for this approval process is based on:
- the quality of the submission;
- the potential contribution of the compound in improving the treatment of
the target disease; and
- the workload at the FDA.
There can be no assurance that any new drug will successfully proceed
through this approval process or that it will be approved in any specific period
of time.
During its review, the FDA may ask for additional test data. If the FDA
approves the product, it may require post-marketing testing, including
potentially expensive post-market surveillance studies, known as Phase IV
testing. This phase further assesses the product's therapeutic value and
provides additional information about the safety and efficacy of the product
across a broader patient base. In addition, the FDA can impose restrictions on
the use of the drug that may be difficult and expensive to administer.
ORPHAN DRUG STATUS -- The Orphan Drug Act encourages manufacturers to seek
approval of products intended to treat diseases with a prevalence of under
200,000 patients in the United States. This Act provides tax incentives, FDA
assistance with protocol design, and a period of seven years of marketing
exclusivity for the product. Some proposed products of Proteus and Therapeutic
Antibodies may be designated as orphan drugs by the FDA. Therapeutic Antibodies'
crotalid antivenom, CroTAb(R), has already been designated by the FDA as an
orphan drug.
ACCELERATED APPROVAL -- The FDA may accelerate approval of medicines that
offer a significant improvement in the treatment of fatal or life-threatening
conditions, or conditions for which there is no alternative therapy. In certain
cases, the FDA may permit Phase II and Phase III studies to be compressed into a
single study. It is unusual for the FDA to base an approval on such compressed
studies and, although many of Proteus' and Therapeutic Antibodies' products
would be included in this category, there can be no assurance that such combined
testing would be considered acceptable for any of their products.
ACCEPTANCE OF FOREIGN CLINICAL DATA -- The FDA will accept reports of
foreign clinical trials if they meet requirements for good clinical practice and
are relevant to United States medical practice.
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It is, however, uncommon for the agency to approve a product without some
evidence from clinical trials conducted in the United States, and most sponsors
carry out at least one pivotal trial there. Studies conducted outside the United
States are subject to special audits by FDA inspectors and may be rejected if
United States requirements for record-keeping, protection of human subjects and
other matters relating to good clinical practice are not met.
NON-PATENT MARKET EXCLUSIVITY -- Under United States law, there are two
forms of non-patent market exclusivity. First, the law prohibits approval of
abbreviated new drug applications or literature-based applications for copies of
innovative products for a period of five years after the approval of a new
chemical entity, and three years after the approval of a new indication or
dosage form for which substantial clinical trials were required.
Second, the law provides for a seven-year period of protection for orphan
drugs (see above). During this period, the FDA is precluded, subject to complex
exceptions, from approving any application for the same drug, even if it is
based on original data. These provisions apply to all drugs, including
antibiotics and biological products.
POST APPROVAL -- After regulatory approval is obtained, products are
subject to continual review. Manufacturing, labeling and promotional activities
are continually regulated by the FDA and equivalent regulatory agencies of other
countries, and the manufacturer also reports certain adverse events involving
its drugs to these agencies. Previously unidentified adverse events or an
increased frequency of adverse events that occur post-approval could result in
labeling modifications of approved products, which could adversely effect future
marketing of a drug. Finally, approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
MANUFACTURING CONTROLS -- Certain manufacturers and suppliers are required
by the Federal Food, Drug and Cosmetic Act and by FDA regulations to follow good
manufacturing practice requirements and are subject to routine periodic
inspections by the FDA and certain state and foreign regulatory agencies for
compliance with good manufacturing practice and other applicable regulations.
Upon routine inspection of these facilities, there can be no assurance that the
FDA and other regulatory agencies will find the manufacturing process or
facilities to be in compliance with good manufacturing practice and other
regulations. Failure to achieve satisfactory good manufacturing practice
compliance as confirmed by routine inspections could have a material adverse
effect on a company's ability to continue to manufacture and distribute its
products in the United States and, in the most serious case, result in the
issuance of a regulatory warning letter or seizure or recall of products,
injunction and/or civil fines or closure of a company's manufacturing facility
until good manufacturing practice compliance is achieved.
ADVERTISING AND PROMOTION -- The FDA regulates advertising and promotion of
prescription drugs. Promotion for unapproved uses is prohibited, and sponsorship
of medical symposia and publications is restricted. Financial incentives to
prescribers are regulated under federal and state criminal laws as well as codes
of practice for the medical professions.
NONCOMPLIANCE -- Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution. In
addition, the marketing and manufacturing of pharmaceutical products are subject
to continuing FDA and other regulatory review, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in the FDA
and other regulatory agencies requiring further clinical research or
restrictions on the product or the manufacturer, including withdrawal of the
product from the market.
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PRODUCT LIABILITY -- Companies that market products in the United States
are subject to suit in state and federal courts for personal injuries caused by
these items. The risk of product liability litigation is significantly greater
in the United States than in most European jurisdictions, and damage awards can
be substantial. FDA approval is not a defense to liability, but failure to
comply with FDA requirements may constitute evidence of negligence.
REGULATION OF VETERINARY PRODUCTS -- A similar FDA regulatory system
applies in the United States with regard to veterinary products. In particular,
the safety and efficacy of new veterinary drugs must be demonstrated for FDA
approval. The FDA requires controlled field experiments with the intended animal
species using the new drug. FDA approval must be given before a new veterinary
drug may be marketed in the United States.
MEDICARE AND MEDICAID -- The Medicare program, a federal program that
provides defined health benefits for the aged and disabled, may be an indirect
source of revenue for products. Further, the Medicaid program, a joint federal
and state program that provides defined health benefits to certain financially
needy individuals, may also provide a source of revenue for products. Any
restrictions on reimbursement, coverage or eligibility under the Medicare or
Medicaid program could adversely affect the revenue generated by a product.
To the extent the combined company participates in the Medicare and
Medicaid programs, it will be subject to extensive federal and state regulation,
including
(a) the Medicare and Medicaid fraud and abuse laws which prohibit the
offering or payment of any bribe, kickback, rebate or other
remuneration in return for the referral or recommendation of patients
for items and services covered by federal health care programs;
(b) the Omnibus Budget Reconciliation Act of 1993, commonly known as "Stark
II," which prohibits certain referrals of Medicare patients by a
physician to an entity if the physician or a member of such physician's
immediate family has a "financial relationship" with the entity,
defined broadly to include any type of compensation arrangement or
ownership interest; and
(c) the federal False Claims Act which imposes civil and criminal liability
on individuals or entities that submit false or fraudulent claims for
payment to the government.
GENERIC SUBSTITUTION STATUTES/STATUTORILY REQUIRED REBATES -- Many states
have enacted generic substitution statutes which permit, and in some cases
require, the substitution of a different manufacturer's version of a product
than the one prescribed. In addition, many states require pharmaceutical
companies to rebate a portion of their revenues from products sold to Medicaid
beneficiaries back to the states concerned.
EUROPEAN UNION REGULATION
The system of regulation of medicinal products for human use in Europe
dates back to 1965. There is a broad range of European Community legislation,
which has been implemented by European Union member states, governing all
aspects of activities related to medicinal products. This legislation is
supplemented by numerous guidelines, that are not legally binding in most cases.
However, failure to comply with, or a departure from, the guidelines requires
justification and may, for example, raise issues as to the adequacy of data
submitted in support of an application to market a product.
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PRECLINICAL RESEARCH
European legislation (Directive 75/318/EEC, as amended) imposes certain
specific requirements for preclinical testing of a product where the data
generated will be used for an application for a product marketing authorization
in the European Union. Basic provisions in legislation are expanded upon by a
broad range of guidance documents issued by the European Committee for
Proprietary Medicinal Products, which, while not usually incorporated into the
legislation, are extremely important for companies to follow when products are
under development. Deviation by companies from such guidance, particularly where
they are specific to product groups, would generally require a strong
justification upon application for a marketing authorization. Directive
86/609/EEC establishes pre clinical research standards to be met by research
institutions engaged in animal research. These provisions are enforced through
registration and inspection. Additionally, Good Laboratory Practice Directive
L(87/18/EEC) establishes high standards of practice and associated legislation
for laboratories, with compliance again monitored through a system of
inspection.
CLINICAL RESEARCH
Directive 75/318/EEC establishes requirements for conducting research in
human beings where the data is intended to be utilized in a marketing
authorization application. The European Committee for Proprietary Medicinal
Products has issued a number of guidance documents. In particular, these include
guidelines on good clinical practice which adopt the texts recently developed by
the International Conference for Harmonization. These guidelines became
effective in January 1997 and take account of European Committee for Proprietary
Medicinal Products guidelines on good clinical practice previously adopted in
1990. In addition, some general legislation, such as the recent Protection of
Individuals Directive with regard to the Processing of Personal Data Directive
(95/46/ EEC) are also relevant to the conduct of clinical research. Aside from
these provisions, however, the conduct of research in the European Union is not
yet subject to specific European Union legislation. As a result, the national
laws and practices of member states still govern research conducted within the
local jurisdiction. The variation in these laws and practices limits the extent
to which the conduct of research projects can be streamlined across multiple
sites throughout the European Union. As a result, the European Commission plans
to introduce two directives governing the conduct of clinical research. The
first proposal is currently making its way through the European legislative
process but is not likely to be implemented until around 2001. The second
planned directive on good clinical practice has not yet been published in draft.
Their introduction will affect regulation and practice within member states. As
with all European legislation, its aim will be to harmonize regulation by member
states. Until then, the conduct of the research and the results produced are
effectively regulated at the European Union level only through the requirements
for the submission of application dossiers. Failure to satisfy these
requirements, which include adherence to good clinical practice, may lead to a
rejection of an application for a marketing authorization.
MARKETING
In 1995, the European Union introduced the "New Systems," also known as
Centralized and Mutual Recognition Procedures, for authorization of medicinal
products. In particular, Council Regulation 2309/93 established a process of
European authorization for particular types of biotechnology and high technology
products and new chemical entities. This centralized application system requires
an application for a marketing authorization to be made by a person who is
"established in the Community" and who will be responsible for placing the
product on the market to the European Agency for the Evaluation of Medicinal
Products. This agency coordinates the assessment process and procedure, while
the European Committee for Proprietary Medicinal Products, a body of expert
advisers drawn from the member states, undertakes, with the assistance of
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nominated external experts drawn from the European Union, the scientific
assessment of the product dossier and produces an opinion as to whether a
product satisfies the criteria for authorization. The criteria for authorization
involve evaluating a potential product's safety, quality and efficacy. The
European Commission then makes the final decision as to the grant or refusal of
a marketing authorization. If successful, the application will result in a
single authorization for the product concerned which is valid in all member
states.
This system is still in its relatively early stages of operation and,
consequently, there are still matters at administrative and procedural levels
which have yet to be clarified or established. The European Commission has
recently commenced a review of the workings and achievements of the new system.
Products processed through the centralized procedure are considered
technologically advanced and the time limits prescribed for the assessment
procedure are intended to ensure that the product is thoroughly evaluated as
quickly as is reasonably possible to ensure early availability to the public.
However, it is possible for an applicant's schedule to slip if an applicant
delays in responding to queries or providing additional data causing the clock
to stop and/or in the later stages of the European Commission's decision issuing
process where there are no specific time limits and bureaucratic procedures may
be time-consuming.
The new European legislation also introduced a system of "mutual
recognition" under which an authorization for a product gained in one member
state can be used as the basis for gaining authorization in others without the
repetition of the lengthy product assessment already carried out by the first
member state authorizing the product. Objections to recognition may be made by
member states within time limits set by the legislation. The process of dealing
with objections, called arbitration, may significantly lengthen the time between
the initial application and approval in the nominated member states. The
European Committee for Proprietary Medicinal Products handles arbitrations and
its decision, when adopted by the European Commission, is binding in all member
states. The outcome of an arbitration may adversely affect marketing
authorizations obtained prior to the arbitration. The mutual recognition
procedure is an option for all products for which the centralized procedure is
not compulsory under Regulation 2309/93.
Some companies will have the option under the European Commission rules to
use either procedure to authorize a new product. In some cases, the relative
flexibility of certain aspects of the mutual recognition system may be
preferable to the centralized process. In others, the perceived benefits of a
single European Union-wide authorization and the relative simplicity of a single
application in Europe will influence the system chosen by companies.
The European Commission is currently pursuing a proposal for a regulation
of "orphan drugs." Currently, the requirements for data that support marketing
authorization applications, permit the submission of a more limited clinical
data package when:
- the indications for which a product is intended are rare conditions so
that the applicant cannot reasonably be expected to provide comprehensive
evidence;
- the state of scientific knowledge does not enable the provision of
comprehensive data; or
- there are ethical reasons precluding the collection of completion of
data.
In such cases, marketing authorization may be obtained subject to
conditions such as:
- the completion of an agreed study program in a specific time;
- strict limitation upon the basis of supply, administration and
supervision of use; and
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- the insertion of text into information provided with the product and to
practitioners, alerting the practitioner to the limited nature of the
available product data.
When the European Commission's regulation becomes effective, assuming it is in
its current form, companies whose products fall within the scope of the
regulation, such as for rare diseases and conditions with, generally, a
prevalence of no more than five persons per 10,000 unless seriously
debilitating, communicable or life threatening, may obtain:
- pre-submission assistance from the European Agency for the Evaluation of
Medicinal Products;
- a reduced registration fee;
- use of the centralized procedure;
- 10 years exclusivity in the market; and
- other incentives yet to be determined by the European Commission.
When an authorization is granted and a product is brought to market, there
are numerous obligations imposed upon the marketing authorization holder by the
pharmaceutical legislation. These include the obligation to ensure that the
product keeps pace with the state of scientific and technical knowledge, in
particular, in terms of its manufacture and control. This means applying to vary
the marketing authorization when the changes in the state of the art and
relevant circumstances warrant its updating and amendment. Additionally,
requirements for pharmacovigilance and the reporting of adverse reactions to
products are central to the legislation. Within the European Union, advertising,
and the production of labeling and patient information leaflets, are
specifically regulated by directives, with local codes of conduct and practice,
in some cases, providing additional controls on corporate activity. The
provisions of the legislation require significant staff and expertise which may
be provided in-house and/or by external service. Examples of such staffing
requirements include the need for pharmacovigilance and an information services
individual within the company responsible for compliance.
The regulatory authorities have the power to suspend, revoke or vary a
marketing authorization:
- if the grant no longer satisfies safety, quality or efficacy standards;
- for reasons relating to and omissions in the product dossier; and
- for particulars or failures in relation to product manufacture.
The requirements for the performance of comprehensive pharmacovigilance
marketed products are designed for companies and regulators to detect product
safety concerns and to take appropriate action in the interests of public
health. The harmonization and streamlining of compulsory action and decision
making on such matters in the European Union through the European Committee for
Proprietary Medicinal Products means that, increasingly, a concern arising in
one member state in relation to a product marketed in several states will be
examined at the European Union level and the outcome of the examination will
affect the product and its authorization across all member states in which it is
sold and supplied.
MANUFACTURING
Manufacturing conducted within the European Union must meet good
manufacturing practice requirements (Directive 91/356/EEC). The legislation
(Directive 75/319/EEC) imposes precise obligations upon manufacturers, in
particular with regard to control, batch testing and release of
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products in the European market and the qualifications for the personnel
authorized to undertake such activities (the Qualified Person). Inspections of
manufacturing site facilities and procedures are regularly undertaken, both by
local inspectors and by inspectors from other countries in which the product is
to be sold. Failing an inspection may result in:
- product supplies being interrupted;
- recall; or
- plant closure pending elimination of defects.
The legislation requires clear, contractual documentation regarding how
manufacturing services are provided by one company to another when aspects of
the manufacturing process are subcontracted to others by the marketing
authorization holder and/or manufacturer.
WHOLESALING
Wholesale distribution in the European Union is governed by Directive
92/25/EEC and accompanying Good Distribution Practice Guidelines. Wholesalers
must meet minimum requirements in terms of staff, facilities and procedure in
order to obtain and retain authorization.
PRICING
In a number of member states, it is not possible to market a product until
pricing negotiations with the responsible government authorities have been
concluded. Authorization by the regulatory authorities does not guarantee the
negotiation of a satisfactory price or of reimbursement terms under national
public health systems for the products concerned.
SUPPLEMENTARY PROTECTION CERTIFICATES
The time taken to research and develop medicinal products reduces the
marketing time provided by a product patent and, therefore, can reduce the
period available to the developer to recoup investment through sales. In 1992,
the European Union introduced Regulation 1768/92 creating a supplementary
protection certificate for authorized products. While this regulation does not
extend the patent, it does confer rights of a similar nature for the product
after the product has expired. The period during which the certificates are
effective depends on calculations based upon the date of the application for the
patent and the grant of the first European Union marketing authorization for the
product, with a maximum limit of five years.
ABRIDGED APPLICATIONS -- "MARKET EXCLUSIVITY"
In cases where the patent and supplementary protection certificate have
expired or are not available, medicinal products can benefit from European Union
provisions which are commonly described as the rules of "market exclusivity,"
but which in fact govern the making of abridged applications for marketing
authorizations.
Under European Union law, a third party is effectively prevented for a
period of between six and ten years from authorization, or, in some cases, until
expiration of the patent, if sooner, from relying upon data submitted in support
of a prior full application by the originator, except in certain defined and
limited circumstances.
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The period is fixed at ten years for two types of products:
- those derived from biotechnological processes specified in Part A of the
Annex to Regulation 2309/93 for which the centralized procedure is
compulsory; and
- "high-technology" products, viewed by the competent regulatory
authorities as representing significant innovation and falling within
Part B of the Annex, for which the option to use the centralized
procedure has been exercised.
Member states may elect to extend the period of "protection" from six to ten
years for all products. They may also elect not to apply for an extension beyond
the date of expiration of the patent covering the medicinal product.
The rules do not, however, prevent a competitor from making a marketing
authorization application accompanied by:
- a full data package compiled by the competitor;
- reference to published literature; or
- with the consent of the owner of the original data, cross reference to
the data held on file by the regulatory authorities.
The rules are only intended to limit the circumstances in which a marketing
authorization may be granted without submission of a full data package, in order
to protect the interests of the originator of the filed data who undertook and
resourced the original research necessary to support an application to market.
The rules are unclear in some respects and their interpretation is subject to
variation and dispute. Divergent views are taken by regulatory authorities on
the availability of protection, for example, where new data is generated for a
variation to an existing product involving substantial "investment" by the
originator. This issue is the subject of pending litigation before the European
Court of Justice.
PROTEUS' AND THERAPEUTIC ANTIBODIES' PRODUCT CANDIDATES
Several, if not all, of the human therapeutic products currently being
developed by Proteus and Therapeutic Antibodies will fall within the ambit of
Regulation 2309/93 (centralized authorization). All products developed by means
of recombinant DNA technology or the controlled expression of gender coding for
biologically active proteins in prokaryotes and eukaryotes including transformed
mammalian cells or hybridoma and monoclonal antibody method, known as "List A"
products, are subject to compulsory centralized authorization for the purposes
of marketing within the European Union. In any remaining cases, there may be an
option as to the approval process followed. Products falling within List B of
the regulation, which can generally be summarized as products constituting
significant innovation, based upon radioisotopes or of significant therapeutic
interest, may be pursued centrally or through mutual recognition. Ten years
"marketing exclusivity" will apply across all member states where centralized
procedures are applied.
During the development phases of the products, all clinical research
programs must be conducted according to local and European Union requirements in
order to ensure the acceptability of the data generated for European Union
regulatory purposes. In the U.K., and rarely in the European Union, Phase I
clinical studies, where there is no anticipated benefit to the volunteers
arising out of their participation, do not require regulatory clearance.
Nevertheless, ethical approval is required for good clinical practice
compliance. Furthermore, the status of studies involving the first
administration of a product, may, where the trial subjects are patients, be
subject to regulatory clearance depending upon
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the objectives of the study as set out in the study protocol. This position is
expected to change when the European Directives on clinical research are
implemented.
REGULATION OF VETERINARY PRODUCTS
A very similar regulatory system applies in Europe with regard to
veterinary medicinal products. In particular, hi-technology and biotechnology
products are also subject to centralized review and registration under
Regulation 2309/93 above. The regulatory systems to which these products may be
subject also promulgates laws and guidelines with regard to appropriate testing
which will be used in food production. As is the case with human pharmaceutical
products, no unauthorized veterinary product may be marketed in the European
Community, subject, in the case of veterinary products, to somewhat more limited
exceptions than apply in relation to human pharmaceuticals.
REGULATION IN OTHER COUNTRIES
In general, regulation is similar in countries outside the United States
and Europe, with the approval system regulated by specific agencies in each
geographic area. However, approval by one agency does not ensure approval in
other countries.
In Australia, successful marketing of a therapeutic substance may be
dependent on receiving marketing approval from the Therapeutic Goods
Administration and also on obtaining Commonwealth Government subsidy for use of
the product via either the Pharmaceutical Benefit Scheme or the Special Access
Scheme. Applications for listing on either of these Schemes requires additional
information, in particular economic analysis data, and approval for this second
step may lag behind obtaining marketing approval. The Australian Government is
able to exercise considerable power over price control through this process.
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EXCHANGE RATES
The following table sets forth, for the periods indicated, certain
information concerning the exchange rates in U.S. dollars per pound sterling
based on the noon buying rate:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD END AVERAGE(1) HIGH LOW
-------------------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C>
1995........................................ $1.6190 $1.5649 $1,6440 $1.4621
1996........................................ 1.5262 1.5625 1.6195 1.5037
1997........................................ 1.6448 1.5988 1.6950 1.5030
1998........................................ 1.6765 1.6463 1.7035 1.5827
1999........................................ 1.6140 1.6518 1.7068 1.5980
</TABLE>
- -------------------------
(1) The average of the noon buying rates in effect on the last day of each month
during the relevant period. On August 11, 1999, the noon buying rate was
$1.6107 to L1.
There are currently no laws, decrees or regulations in the U.K. that would
restrict the export or import of capital by Proteus shareholders, including, but
not limited to, U.K. foreign exchange control restrictions, or that affect the
remittances of dividends or other payments to nonresident holders of Proteus'
ordinary shares, except as otherwise set forth in "Material Tax Consequences --
Dividends -- U.K. Holders of Proteus Shares" and "-- Dividends -- U.S. Holders
of Proteus Shares" and except in respect of the government of, or any resident
of Iraq or Libya or any person treated as such a resident.
There are no limitations under the laws of the U.K. restricting the right
of nonresidents to hold or to vote shares in Proteus. Except for the general
limitations described in "Description of Proteus Ordinary Shares -- Voting" and
in "Comparison of Rights of Therapeutic Antibodies Stockholders and Proteus
Shareholders (U.S. vs. English Law) -- Voting Rights," which apply to both
residents and nonresidents, there are no limitations under Proteus' memorandum
and articles of association restricting the right of nonresidents to hold or to
vote shares in Proteus.
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DESCRIPTION OF PROTEUS ORDINARY SHARES
The following summarizes certain rights of holders of the Proteus ordinary
shares based on the Proteus memorandum and articles of association and English
law in force as of the date of this proxy statement/prospectus. The summary does
not purport to be complete and is qualified in its entirety by reference to the
articles of association.
The authorized share capital of Proteus is 100,000,000 ordinary shares of
2p each, of which 73,998,320 Proteus ordinary shares had been issued as of May
20, 1999. Each of the issued Proteus ordinary shares is fully paid and not
subject to any further calls or assessments by Proteus. There are no conversion
rights, redemption provisions or sinking fund provisions related to the Proteus
ordinary shares. Proteus may by ordinary resolution convert any fully paid up
shares into stock of the same class as the shares which shall be so converted.
The Proteus ordinary shares are issued in registered form.
At an extraordinary general meeting to be held on September 13, 1999, the
Proteus shareholders will be asked to approve an increase of 150,000,000
ordinary shares in the authorized share capital of Proteus to 250,000,000
ordinary shares.
In the following description, a shareholder is the person registered in the
register of members of Proteus as the holder of the relevant share.
DIVIDENDS
Proteus has never paid cash dividends on its ordinary shares. Any dividends
on the Proteus ordinary shares must be declared and paid according to the amount
paid up on the Proteus ordinary shares (otherwise than in advance of calls) but
no dividend shall be declared in excess of the amount recommended by the
directors. The directors may from time to time pay to the members of Proteus
such interim dividends as appear to the directors to be justified by the profits
of Proteus available for distribution. There are no fixed dates on which
entitlement to dividends arises on the Proteus ordinary shares.
RIGHTS IN A WINDING UP
In the event of a winding-up or reduction of capital of Proteus involving
repayment, the assets of Proteus available for distribution among the members
shall be divided between the holders of the Proteus ordinary shares according to
the respective number of shares held by them and in accordance with the
provisions of the Companies Act. The liquidator may, with the sanction of an
extraordinary resolution of Proteus and subject to the Companies Act, divide
among the members in specie the whole or any part of the assets of Proteus in
such manner as he may determine.
VOTING
Voting at any general meeting of the Proteus shareholders is by a show of
hands unless a poll is duly demanded. A poll may be demanded by:
- the chairman of the meeting;
- at least five shareholders present in person or by proxy, and who are
entitled to vote at the meeting;
- any shareholder(s) present in person or by proxy, who represent in the
aggregate at least 10% of the voting rights of all shareholders entitled
to vote at the meeting; or
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- any shareholder(s) present in person or by proxy, who hold shares
providing a right to vote at the meeting on which the aggregate sum paid
up on such shares is equal to not less than 10% of the total sum paid
upon all the shares providing that right.
On a show of hands, every holder of Proteus ordinary shares who is present
in person at a general meeting of Proteus will have one vote, and on a poll,
every holder of Proteus ordinary shares who is present in person or by proxy
will have one vote per share. The necessary quorum for a shareholder meeting is
a minimum of three persons entitled to vote on the business to be transacted,
each being a shareholder or a proxy for a shareholder or a duly authorized
representative of a corporation. Unless otherwise required by law or the
Articles of Association, voting in a general meeting is by ordinary resolution
which includes among other matters:
- resolutions for the election of directors;
- the approval of financial statements;
- the declaration of final dividends;
- the appointment of auditors;
- the increase of authorized share capital; or
- the grant of authority to allot shares.
An ordinary resolution requires the affirmative vote of a majority of the
votes cast at a meeting at which there is a quorum. A special or extraordinary
resolution relating, for example, to certain matters concerning, among other
things, an alteration of the articles of association, or a winding-up of
Proteus, or modifying the rights of any class of shares at a meeting of the
holders of such class, requires the affirmative vote of not less than
three-fourths of the votes cast. Meetings are generally convened upon advance
notice of 21 or 14 clear days, not including the days of delivery or receipt of
the notice or the day of the meeting and depending on the nature of the business
to be transacted.
PREEMPTIVE RIGHTS
Under the Companies Act, the issue of equity securities that are, or are to
be, paid for wholly in cash, except shares held under an employees' share
scheme, must be offered in the first instance to the existing shareholders in
proportion to the respective nominal values of their holdings on the same or
more favorable terms, unless a special resolution to the contrary has been
passed in a general meeting of shareholders. In this context, equity securities
generally means, in relation to Proteus, Proteus ordinary shares, or shares with
no restrictions on the amounts receivable in a distribution of dividends or
capital and all rights to subscribe for or convert into such shares.
VARIATION OF RIGHTS AND SHARE CAPITAL
Proteus may by ordinary resolution increase its share capital or
consolidate and divide all or any of its share capital into shares of larger
amounts. Subject to the provisions of the Companies Act, Proteus may also
subdivide its shares or any of them into shares of smaller amount or cancel or
reduce the nominal value of any shares which have not been taken or agreed to be
taken by any person. Subject to the provisions of the Companies Act, Proteus may
by special resolution reduce its share capital, any capital redemption reserve
and any share premium account. Proteus may also, subject to such approvals as
are required by the Companies Act, purchase its own shares.
Subject to the provisions of the Companies Act and unless otherwise
provided by the terms of issue of that class, the rights attached to any class
of shares may be varied with the written consent
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of the holders of three-fourths in nominal value 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 shares of that class.
DISCLOSURE OF INTERESTS
The Companies Act gives Proteus power to require persons who it knows are,
or has reasonable cause to believe to be, or to have been within the previous
three years, interested in its relevant share capital to disclose prescribed
particulars of those interests. For this purpose "relevant share capital" means
issued share capital of Proteus carrying the right to vote in all circumstances
at a general meeting of Proteus. Failure to provide the information requested
within a prescribed period after the date of sending of the notice may result in
sanctions being imposed against the holder of the relevant shares as provided in
the Companies Act. The articles of association allow the board to impose such
restrictions in their absolute discretion from the following: the withdrawal of
voting and other rights of such shares and restrictions on the rights to receive
dividends on and to transfer such shares. In this context, the term "interest"
is broadly defined and will generally include an interest of any kind in shares,
including the interest of a holder of a Proteus ordinary share. In addition,
under the Companies Act, any person who acquires either alone or, in certain
circumstances, with others a direct or indirect interest in the relevant share
capital of Proteus in excess of the "notifiable percentage," currently 3% or 10%
for certain types of interest, is obligated to disclose prescribed information
to Proteus with respect to those shares within two business days. An obligation
of disclosure also arises where such person's notifiable interest subsequently
falls below the notifiable percentage or where, above that level, the
percentage, expressed in whole numbers, of Proteus' relevant capital in which
such person is interested increases or decreases.
MISCELLANEOUS
There are currently no United Kingdom foreign exchange controls on the
payment of dividends on the Proteus ordinary shares or the conduct of operations
of Proteus. There are no restrictions under the articles of association or under
English law that limit the right of non-resident or foreign owners to hold or
vote in respect of Proteus ordinary shares.
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COMPARISON OF RIGHTS OF THERAPEUTIC ANTIBODIES STOCKHOLDERS
AND PROTEUS SHAREHOLDERS (U.S. VS. ENGLISH LAW)
The rights of Therapeutic Antibodies stockholders are currently governed by
the Delaware General Corporation Law, Therapeutic Antibodies' amended and
restated certificate of incorporation and Therapeutic Antibodies' bylaws. The
rights of Proteus shareholders are currently governed by English law, including
the Companies Act and Proteus' memorandum and articles of association. As a
result of the merger, stockholders of Therapeutic Antibodies will receive
ordinary shares of Proteus, and thereby become Proteus shareholders whose rights
will be governed by Proteus' memorandum and articles of association and English
law. There are a number of differences between the rights of Therapeutic
Antibodies stockholders and the rights of Proteus shareholders. The following is
a summary of material differences between the rights of Therapeutic Antibodies
stockholders and the rights of Proteus shareholders. To understand these
differences fully, you should read the relevant provisions of the DGCL, the
Companies Act, Therapeutic Antibodies' certificate of incorporation and bylaws,
and Proteus' memorandum and articles of association. Therapeutic Antibodies'
certificate of incorporation and bylaws may be obtained by writing or
telephoning the Secretary of Therapeutic Antibodies at the following address:
Therapeutic Antibodies Inc.
Corporation Trust Center
1209, Orange Street
Wilmington, Delaware 19801
United States
Proteus' memorandum and articles of association may be obtained by writing
or telephoning the Secretary of Proteus at the following address:
Proteus International plc
Beechfield House
Lyme Green Business Park
Macclesfield
Cheshire SK11 0JL
England
Under Section 14 of the Exchange Act and the proxy rules promulgated under
the Exchange Act, Therapeutic Antibodies is required to comply with certain
notice and disclosure requirements relating to the solicitation of proxies in
respect of stockholder meetings. Because Therapeutic Antibodies is listed on the
London Stock Exchange, it is also subject to the listing rules of the London
Stock Exchange. As a foreign private issuer, Proteus will not be subject to the
proxy rules, except for certain rules relating to tender offers. Proteus is, and
following the merger will continue to be, subject to the Companies Act as well
as the listing rules of the London Stock Exchange.
In the following comparison, a shareholder of Proteus is the person
registered in the register of members of Proteus as the holder of the shares.
VOTING RIGHTS
Under Section 212 of the DGCL, each stockholder is entitled to one vote per
share unless the certificate of incorporation provides otherwise. In addition,
the certificate of incorporation may provide for cumulative voting in the
election of directors of the corporation. The Therapeutic Antibodies certificate
of incorporation does not provide for cumulative voting at elections of
directors. Under the Therapeutic Antibodies bylaws, a quorum consists of
one-third of the shares entitled to vote, unless otherwise required by law or
its certificate of incorporation.
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Under English law, the voting rights of shareholders are governed by a
company's articles of association, subject to the statutory right of
shareholders to demand a poll at a general meeting. This poll is a vote by the
nominal value of shares held. As described above in "Description of Proteus
Ordinary Shares -- Voting," the Proteus articles of association provide that a
poll may be demanded in certain circumstances. English law does not generally
provide for cumulative voting. Under English law, two shareholders present in
person constitute a quorum for purposes of a general meeting, unless the
company's articles of association specify otherwise. Proteus' articles of
association specify that three shareholders present in person or by proxy and
entitled to vote constitute a quorum. Any Proteus shareholder on the register
may vote in person or, assuming the proxy is received by Proteus at least 48
hours prior to the time set for the meeting, by proxy.
ACTION BY WRITTEN CONSENT
Section 228 of the DGCL provides that any action required or permitted to
be taken by stockholders may be effected by a written consent of a majority of
the holders of the outstanding stock having not less than the minimum number of
votes that would be necessary to take such action at a meeting at which all
shares entitled to vote on the matter were present and voted, unless the
corporation's certificate of incorporation or bylaws otherwise provides. The
Therapeutic Antibodies bylaws permit action to be effected in writing in this
manner.
Under English law, a company's articles of association may provide that a
resolution in writing executed by or on behalf of each shareholder who would
have been entitled to vote upon it if it had been proposed at a general meeting
at which he was present will be as valid and effectual as if it had been passed
at a general meeting properly convened and held. Such a written resolution
requires the unanimous consent of all such shareholders entitled to attend and
vote. Proteus' articles of association do not contain such a provision.
SOURCES AND PAYMENT OF DIVIDENDS
Section 170 of the DGCL permits a corporation to pay dividends on common
stock, subject to any restrictions contained in the certificate of
incorporation, either out of its surplus or if there is no surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year; except that no dividends may be paid out of such net
profits if the net assets of the corporation are less than the aggregate amount
of capital represented by the issued and outstanding stock having a preference
upon the distribution of assets. The DGCL defines surplus as the amount by which
net assets, exceeds the capital of the corporation. Net assets equals total
assets less total liabilities. In accordance with the DGCL, capital is
determined by the board of directors and shall not be less than the aggregate
par value of the outstanding capital stock of the corporation having par value.
The Therapeutic Antibodies certificate of incorporation and bylaws do not
restrict the payment of dividends.
Under English law, a company may pay dividends on its ordinary shares only
out of its distributable profits and not out of share capital. Distributable
profits equals accumulated realized profits, not previously utilized by
distribution or capitalization, less accumulated realized losses. Share capital
includes share premiums, also known as paid-in surplus. Amounts credited to the
share premium account, representing the excess of the consideration for the
issue of shares over the aggregate par value of such shares, may not be paid out
as cash dividends. Amounts credited to the share premium account may be used,
among other things, to pay up unissued shares which may then be distributed to
shareholders in proportion to their holdings. A public company such as Proteus
may make a distribution at any time only if, at that time and immediately after
such distribution, the amount of its net assets is not less than the aggregate
of its issued and paid-up share capital and
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undistributable reserves. Proteus has not historically paid dividends. Holders
of Proteus ordinary shares must approve any final dividend to be paid by Proteus
at a general meeting of Proteus but no dividend can exceed the amount
recommended by the Proteus board. The Proteus board has the power under Proteus'
articles of association to declare and pay interim dividends.
RIGHTS OF PURCHASE AND REDEMPTION
Under Sections 151 and 160 of the DGCL, a corporation may purchase or
redeem shares of any class of its capital stock, but subject generally to the
availability of sufficient lawful funds and provided at all times that, at the
time of any such redemption, the corporation shall have outstanding one or more
shares of one or more classes or series of capital stock, which share, or shares
together, have full voting powers.
Under English law, a company may issue redeemable shares if authorized by
its articles of association and subject to the conditions stated therein.
Proteus' articles of association permit the issue of redeemable shares with the
sanction of a ordinary resolution. Such shares may be redeemed only if fully
paid and, in the case of public companies, only, subject as provided below, out
of distributable profits or the proceeds of a new issue of shares issued for the
purpose of the redemption. When redeemable shares are redeemed wholly out of
profits, the amount by which the par value of the company's issued share capital
is diminished on cancellation of the redeemed shares must be transferred to the
capital redemption reserve, which is generally treated as paid-up share capital.
In addition, any amount payable on redemption of any redeemable shares in excess
of the par value of such shares may be paid out of the proceeds of a fresh issue
of shares up to an amount equal to the lesser of (1) the aggregate of the
premiums received by the company on the issue of those shares or (2) the amount
of the company's share premium account as at the time of the redemption
including any sum transferred to that account in respect of premiums on the new
issue. A company may purchase its own shares, including any redeemable shares,
if:
- authorized by its articles of association and
- previously approved by an ordinary resolution of its shareholders in the
case of an on-market purchase, which, in the case of Proteus, means on
the London Stock Exchange only, or a special resolution in other cases.
As with a Delaware corporation, any such purchase is subject to the
availability of sufficient lawful funds.
SPECIAL MEETING OF SHAREHOLDERS
Under the DGCL, a special meeting of stockholders may be called by the
board of directors or by such person or persons as may be authorized by the
certificate of incorporation or bylaws. The Therapeutic Antibodies bylaws
provide that special meetings of stockholders may be called by the president, a
majority of the board of directors or stockholders owning a majority of the
issued and outstanding voting stock.
Under English law, an extraordinary general meeting of shareholders may be
called by the board of directors. Notwithstanding any provision to the contrary
in a company's articles of association, an extraordinary general meeting may
also be called by a request from shareholders holding not less than one-tenth of
the paid-up capital of the company carrying voting rights at general meetings.
An ordinary resolution, other than an ordinary resolution to remove a director
which requires 28 clear days' notice, or one to be proposed at an annual general
meeting which requires 21 clear days' notice, requires 14 clear days' notice,
and requires a majority vote of those present, in person or by proxy,
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and voting. An extraordinary or special resolution requires 21 clear days'
notice and a three-quarters majority vote of those present, in person or by
proxy, and voting. An extraordinary resolution requires 14 clear days' notice,
other than one to be proposed at an annual general meeting, which requires 21
clear days' notice, and a three-quarters majority of those voting and present,
in person or by proxy. The term "clear days' notice" means calendar days and
excludes the date of mailing, the deemed date of receipt of such notice, and the
date of the meeting itself. Proteus' articles of association provide that if
notice is served by post it will be deemed to have been served within 24 hours
if sent by first class post and within 48 hours, if sent by second class post.
Extraordinary resolutions are relatively unusual and are confined to certain
matters out of the ordinary course of business such as a proposal to wind up the
affairs of the company. Proposals which are the normal subject of special
resolutions generally involve proposals to:
- change the name of the company;
- alter its capital structure;
- change or amend the rights of shareholders;
- permit the company to issue new shares for cash without applying the
shareholder's statutory pre-emptive rights;
- amend the company's objects, or purpose, clause in its memorandum of
association and to amend the company's articles of association; and
- carry out certain other matters where a special resolution is required by
either the company's articles of association or the Companies Act.
All other proposals relating to the ordinary course of the company's business
such as the election of directors would be the subject of an ordinary
resolution.
APPRAISAL RIGHTS
Under Section 262 of the DGCL, stockholders who follow prescribed statutory
procedures are entitled, in the event of certain mergers or consolidations, to
surrender their shares to the corporation in exchange for the judicially
determined "fair value" of such shares. Such stockholders are entitled to such
appraisal rights unless the shares of stock, or any depositary receipts, held by
the stockholder are either
- listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or
- held of record by more than 2,000 holders.
No appraisal rights are available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as provided
in the DGCL. Regardless of this provision appraisal rights are available for the
shares of any class or series of stock of a constituent corporation if its
holders are required by the terms of an agreement of merger or consolidation to
accept for such stock anything except the following:
- shares of stock or depositary receipts of the surviving or resulting
corporation in the merger or consolidation;
- shares of stock or depositary receipts of any other corporation, which
shares of stock or depositary receipts, at the effective date of the
merger or consolidation will be either listed on
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a national securities exchange or designated as a national market system
security on an interdealer quotation system by the NASD or held of record
by more than 2,000 holders;
- cash in lieu of fractional shares or fractional depositary receipts
described in the two above clauses; or
- any combination of the shares of stock, depositary receipts and cash in
lieu of fractional shares, or fractional depositary receipts described in
all of the above clauses.
English law does not generally provide for appraisal rights.
PREEMPTIVE RIGHTS
Unless the certificate of incorporation expressly provides otherwise,
stockholders of a Delaware corporation do not have preemptive rights. The
Therapeutic Antibodies certificate of incorporation does not provide for
preemptive rights.
Under English law, the issue for cash of:
- equity securities that, with respect to dividends or capital, carry a
right to participate beyond a specified amount or
- rights to subscribe for or convert into equity securities, other than
pursuant to an employees' share scheme
must be offered in the first instance to the existing equity shareholders in
proportion to the respective nominal values of their holdings, unless a special
resolution has been passed in a general meeting of shareholders to the contrary.
As is the custom of many English companies listed on the London Stock Exchange,
at its annual general meeting each year Proteus seeks general disapplication by
special resolution of statutory preemption rights on an annual basis:
- in respect of the entire unissued ordinary share capital where the equity
securities are to be issued by way of rights to existing shareholders and
- in respect of the issue for cash of equity securities representing no
more than five percent of the company's then issued ordinary share
capital.
AMENDMENT OF GOVERNING INSTRUMENTS
Under Section 242 of the DGCL, a corporation's board of directors may
propose, and its stockholders may adopt, one or more amendments to the
corporation's certificate of incorporation. Unless the certificate of
incorporation otherwise provides, such amendments may be adopted by the vote of
holders of a majority of the outstanding shares entitled to vote on the matter,
and a majority of the outstanding stock of each class entitled to vote as a
class. The Therapeutic Antibodies certificate of incorporation and bylaws
provide that amendments to the certificate of incorporation or bylaws that
modify, vary or abrogate any of the special rights, privileges or preferences of
any class of its capital stock require the vote of the holders of 75% of the
shares entitled to vote at any meeting of such class. Under the DGCL, the power
to amend the bylaws of a corporation is vested in the stockholders, but a
corporation in its certificate of incorporation may also confer such power upon
the board of directors. The Therapeutic Antibodies certificate of incorporation
does not confer this power to its board of directors.
Under English law, the shareholders have the authority to alter, delete,
substitute or add to the objects clause in a company's memorandum and all
provisions of its articles of association by a vote
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of not less than three-quarters of the shareholders entitled to vote and who do
vote, either in person or by proxy, at a general meeting. In the case of certain
alterations to the memorandum of association, the dissenting shareholders have a
right to apply to the courts to cancel the alterations. Under English law, the
board of directors is not authorized to change the memorandum or the articles of
association. Amendments affecting the rights of the holders of any class of
shares may, depending on the rights attached to such class and the nature of the
amendments, also require approval of the classes affected in separate class
meetings.
SHAREHOLDER VOTES ON CERTAIN TRANSACTIONS
Under Section 251 of the DGCL, the vote of a majority of the outstanding
shares of capital stock entitled to vote generally is necessary to approve a
merger or other reorganization or a sale of all or substantially all of the
assets of the corporation.
Shareholder approval is usually required under the rules of the London
Stock Exchange for an acquisition or disposition by a listed company, if the net
assets of the company or business to be acquired or disposed of represent 25% or
more of the net asset value of the company or 25% or more of the value of the
company using any of the various other criteria prescribed by the listing rules
of the London Stock Exchange. Where the size of the acquisition or disposal
falls below that level, certain information may nevertheless be required to be
published or circulated to shareholders. Shareholder approval may also be
required for an acquisition or disposal of assets between, or a joint investment
by, a listed company and certain parties including:
- directors of the company or its subsidiaries;
- holders of 10% of the nominal value of any class of the company's or any
holding company's or subsidiary's shares having the right to vote in all
circumstances at general meetings of the relevant company; or
- any associate of the above.
Under the Companies Act, fundamental corporate changes, such as the passing
of a resolution for winding up, non pro rata issuances for cash, reduction of
capital (subject to sanction by the court) and certain repurchases of shares may
be authorized by a vote of not less than three-quarters of the shareholders
entitled to vote and who do vote, either in person or by proxy at a general
meeting. Subject to the provisions of the Companies Act, if at such time, the
capital of Proteus is divided into different classes of shares and the amendment
or other resolution would cause any of the special rights attached to any class
of shares to be varied or abrogated, the amendment must also be sanctioned by
the holders of at least three-quarters in nominal value of the issued shares of
the class concerned.
The Companies Act provides for schemes of arrangement, which are
arrangements or compromises between a company and (any class of) its
shareholders or (any class of) its creditors and are used for certain types of
reconstructions, amalgamations, capital reorganizations or takeovers. They
require the approval at an extraordinary general meeting of the company convened
by order of the court of a majority in number of the shareholders representing
75% in value of the capital or class of creditors or shareholders or class of
shareholders present and voting, either in person or by proxy, and the sanction
of the court. Once so approved and sanctioned, all creditors and shareholders
(of the relevant class) are bound by the terms of the scheme. A dissenting
shareholder would have no rights comparable to dissenter's rights described
above. A scheme of reconstruction under Section 110 of the Insolvency Act may be
made when a company is being wound up voluntarily under which, with the sanction
of a special resolution of shareholders in a general meeting the whole or part
of the company's business or property is transferred to a second company in
consideration for the issue or
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transfer to them of shares in the second company. Any dissenting shareholder can
require the liquidator to abstain from carrying the resolution into effect or to
purchase his interest at a price agreed or determined by arbitration.
RIGHTS OF INSPECTION
The DGCL allows any stockholder, upon written demand under oath, to have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts from any such document. A proper
purpose means a purpose reasonably related to such person's interest as a
stockholder.
Except when closed in accordance with the provisions of the Companies Act,
the register and index of names of shareholders of a company, together with
certain other registers required to be maintained by such company, may be
inspected during business hours by its shareholders without charge and by other
persons upon payment of a fee, and copies may be obtained on payment of a fee.
The shareholders of an English public company may, without charge, also inspect
the minutes of meetings of the shareholders during business hours and obtain
copies upon payment of a fee. The published annual accounts of a public company
are required to be laid before the shareholders in general meeting and a
shareholder is entitled to a copy of such accounts. Copies are filed with the
Registrar of Companies in England and Wales from whom copies are publicly
available upon payment of the appropriate fee. The shareholders of Proteus have
no rights to inspect its accounting records or minutes of meetings of its
directors. Certain registers required to be kept by the company are open to
public inspection. Service contracts of directors of the company which have more
than 12 months unexpired or require more than 12 months' notice to terminate
must be available for inspection during business hours. Rights of inspection
during business hours mean that the company must make the register, index or
document available for inspection for not less than two hours during the period
between 9:00 a.m. and 5:00 p.m. on each business day. The rules of the London
Stock Exchange require the service contracts of directors to be open for
inspection at certain times for periods longer than two hours.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Under the DGCL, the certificate of incorporation of a Delaware corporation
may provide for the classification of the board of directors in order to stagger
the terms of directors. The term "classified board" generally means the
specification of selected board seats for a term of more than one year but not
more than three years, with different classes of board seats coming up for
election each year. The Therapeutic Antibodies bylaws provide that each director
shall stand for reelection at each annual meeting.
English law permits a company to provide for the classification of the
board of directors with respect to the time for which directors severally hold
office. Proteus' articles of association currently provide that unless otherwise
determined by Proteus in a general meeting there shall not be less than three
directors, nor more than ten. See "The Proteus Extraordinary General Meeting" as
to the proposal to increase the number of directors to fifteen. All directors
are subject to the general corporate law requirements concerning the removal of
directors. One-third of the directors or the number nearest to but not greater
than one-third are required to retire from office by rotation at each annual
general meeting and are eligible to be re-elected by the shareholders. The
directors to retire are selected on the basis of time in office since their last
election. Any director appointed by the directors since the last annual general
meeting is required to retire at the next following annual general meeting and
is then eligible for election, but is not taken into account in determining
which
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directors are to retire by rotation at such meeting. In addition to the
provisions of Proteus' articles of association, Proteus is required by the
Listing Rules of the London Stock Exchange to disclose its compliance with the
terms of the Combined Code, which consists of the Principles of Good Governance
and Code of Best Practice, in its annual report and accounts. The Combined Code
provides that all directors should be subject to election by shareholders at the
first opportunity after their appointment and reelection thereafter at intervals
of no more than three years.
REMOVAL OF DIRECTORS
Under the DGCL, the entire board of directors or any individual director of
a corporation may be removed from office by the stockholders with or without
cause. If a corporation has a classified board, directors may be removed only
for cause, unless the certificate of incorporation provides otherwise. If the
stockholders are entitled to cumulative voting in the election of directors, no
individual director may be removed without cause if the number of votes cast
against his removal would be sufficient if cumulatively voted to elect such
director to the board. The Therapeutic Antibodies bylaws provide that directors
may be removed from office with or without cause by the affirmative vote of
holders of a majority of the shares entitled to vote for the election of
directors. The Therapeutic Antibodies bylaws do not provide for a classified
board and the certificate of incorporation does not provide for cumulative
voting.
Under the Companies Act, shareholders have the right to remove a director
without cause by ordinary resolution of which special notice of 28 clear days
has been given to the company, irrespective of the provisions of the articles of
association of the company.
VACANCIES ON THE BOARD OF DIRECTORS
Under the DGCL, the board of directors of a corporation may fill any
vacancy on the board, including vacancies resulting from an increase in the
number of directors. The Therapeutic Antibodies bylaws provide that vacancies on
the board of directors may be filled by a majority vote of the directors then in
office, although less than a quorum, or by a sole remaining director.
Under English law, appointment of directors is primarily determined by a
company's articles of association. Proteus' articles of association provide that
it may, by ordinary resolution of a meeting at which any director retires by
rotation, appoint a person who is willing to fill a vacancy. Without prejudice
to the right of the company, Proteus' articles also provide that the directors
shall have the power to fill a casual vacancy or as an addition to the board.
LIABILITY OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the DGCL enables a corporation in its certificate of
incorporation to eliminate or limit the personal liability of a director for
monetary damages for violations of the director's fiduciary duty, except for the
following:
- any breach of a director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- liability under Section 174 of the DGCL which provides for director
liability for unlawful payment of dividends or unlawful stock purchases
or redemptions; or
- any transaction from which a director derived an improper personal
benefit.
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The Therapeutic Antibodies certificate of incorporation does not contain
this provision.
English law does not permit a company to exempt any director or other
officer of the company or any person employed by the company as auditor from any
liability in respect of any negligence, default, breach of duty or breach of
trust of which he may be guilty in relation to the company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation may, and in certain
circumstances, must, indemnify its directors, officers, employees and agents for
expenses, judgments or settlements actually and reasonably incurred by them in
connection with suits and other legal actions or proceedings if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding had no reasonable cause to believe their conduct was unlawful. In
any such suit or action brought by or on behalf of the corporation such
indemnification is limited to expenses reasonably incurred in defense or
settlement of the suit or action. The DGCL also permits a corporation to adopt
procedures for advancing expenses to directors, officers and others without the
need for a case-by-case determination of eligibility, so long as in the case of
officers and directors, they undertake to repay the amounts advanced if it is
ultimately determined that the officer or director was not entitled to be
indemnified. The DGCL permits corporations to purchase and maintain insurance
for directors and officers against liability for expenses, judgments or
settlements whether or not the corporation would have the power to indemnify
such persons. The Therapeutic Antibodies bylaws provide for the indemnification
of its officers, directors, employees and agents to the extent permitted by the
DGCL.
English law does not permit a company to indemnify a director or an officer
of the company or any person employed by the company as auditor against any
liability in respect of negligence, default, breach of duty or breach of trust
in relation to the company. This general rule does not apply where a director,
officer or auditor incurs liability in defending any legal proceedings (whether
civil or criminal) in which judgment is given in his favor or in which he is
acquitted or in certain instances where, although he is liable, a court finds
that such director, officer or auditor acted honestly and reasonably and that
having regard to all the circumstances he ought fairly to be excused and relief
is granted by the court. Section 310 of the Companies Act enables companies to
purchase and maintain insurance for directors, officers and auditors against any
liability which would otherwise attach to them in respect of any negligence,
default, breach of duty or breach of trust in relation to the company.
SHAREHOLDERS' SUITS
Under Delaware law, a stockholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. An individual stockholder may also commence a lawsuit on behalf of
himself and other similarly situated stockholders when the requirements for
maintaining a class action under Delaware law have been met.
Section 459 of the Companies Act permits a shareholder whose name is on the
register of members of the company (including U.S. persons) to apply for a court
order when the company's affairs are being or have been conducted in a manner
unfairly prejudicial to the interests of the shareholders, or when any actual or
proposed act or omission of the company is or would be so prejudicial. A court
when granting relief has wide discretion, including authorizing civil
proceedings to be brought in the name of the company by a shareholder on such
terms as the court may direct.
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Judgments of United States courts, including judgments against Proteus,
based on the civil liability provisions of the federal securities laws of the
United States, may not be enforceable in English courts. See "Enforceability of
Civil Liabilities."
CERTAIN PROVISIONS RELATING TO SHARE ACQUISITIONS
Section 203 of the DGCL prohibits a corporation which has securities traded
on a national securities exchange, designated on Nasdaq or held of record by
more than 2,000 stockholders from engaging in certain business combinations with
interested stockholders, including mergers, sales of substantial assets, loans
or substantial issuances of stock with an interested stockholder. This
prohibition is for a three-year period following the time the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation.
The restrictions on business combinations do not apply if
- the board of directors gives prior approval to the transaction in which
the 15% ownership level is exceeded;
- the interested stockholder acquires, in the transaction pursuant to which
the interested stockholder becomes the owner of 15% or more of the
outstanding stock, 85% of the corporation's stock, excluding those shares
owned by persons who are directors and also officers as well as employee
stock plans in which employees do not have a confidential right to
determine whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
- the business combination is approved by the board of directors and
authorized at a meeting of stockholders by the holders of at least
two-thirds of the outstanding voting stock, excluding shares owned by the
interested stockholder. Although a Delaware corporation may elect,
pursuant to its certificate of incorporation or bylaws, not to be
governed by this provision, the Therapeutic Antibodies certificate of
incorporation and bylaws contain no such election. Therapeutic Antibodies
does not have more than 2,000 record holders and therefore is not
currently subject to Section 203.
In the case of a company listed on the London Stock Exchange, shareholder
approval must be obtained for certain acquisitions or disposals of assets
involving directors or substantial shareholders or their associates. See
"-- Shareholder Votes on Certain Transactions." In addition, takeovers of public
companies incorporated in England and Wales are regulated by the City Code on
Takeovers and Mergers, non-statutory rules unenforceable at law but administered
by the Panel on Takeovers and Mergers, a body comprising representatives of
certain City of London financial and professional institutions. Although Proteus
is subject to the City Code, Therapeutic Antibodies is not. One of the
provisions of the City Code provides that
- when any person acquires, whether by a series of transactions over a
period of time or not, shares which (taken together with shares held or
acquired by persons acting in concert with him) carry 30% or more of the
voting rights of a public company; or
- when any person, together with persons acting in concert with him, holds
not less than 30% but not more than 50% of the voting rights and such
person, or any person acting in concert with him, acquires additional
shares,
then such person must generally make an offer for all of the voting or
non-voting equity shares of the company for cash, or accompanied by a cash
alternative, at not less than the highest price paid for the relevant shares
during the 12 months preceding the date of the offer.
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The Companies Act also provides that where a takeover offer is made for the
shares of a company incorporated in the U.K. and, within four months of the date
of the offer the offeror has, by virtue of acceptances of the offer, acquired or
contracted to acquire not less than nine-tenths in nominal value of the shares
of any class to which the offer relates, the offeror may, within two months of
reaching the nine-tenths level, by notice require shareholders who do not accept
the offer to transfer their shares on the terms of the offer. A dissenting
shareholder may apply to the court within six weeks of the date on which such
notice was given objecting to the transfer or its proposed terms. The court is
unlikely, in the absence of fraud or oppression to exercise its discretion to
order that the acquisition not take effect, but it may specify such terms of the
transfer as it finds appropriate. A minority shareholder is also entitled in
these circumstances to require the offeror to acquire his shares on the terms of
the offer.
ANTI-TAKEOVER PROVISIONS
Neither Proteus nor Therapeutic Antibodies has any anti-takeover plan.
Under English law, directors of a company have a fiduciary duty to take only
those actions which are in the best interests of the company. Generally,
anti-takeover provisions are not actions which under English law fall within
this category. Under the City Code a company is generally prohibited from taking
any action which could effectively result in a bona fide offer being frustrated
or in the shareholders being denied an opportunity to decide on its merits.
DISCLOSURE OF INTERESTS
Acquirors of shares of Therapeutic Antibodies common stock are subject to
disclosure requirements under Section 13(d)(1) of the Exchange Act and Rule
13d-1 of the Exchange Act. These rules provide that any person who becomes the
beneficial owner of more than 5% of the issued and outstanding shares of
Therapeutic Antibodies common stock must file a Schedule 13D or Schedule 13G
with the SEC disclosing certain specified information, and send a copy of the
Schedule 13D or Schedule 13G to Therapeutic Antibodies and to the securities
exchange on which the security is traded within 10 days after the acquisition.
After the merger, acquirors of Proteus ordinary shares will be required to
comply with, among other things, the provisions of Section 13(d) of the Exchange
Act and Rule 13d-1 thereunder.
Section 198 of the Companies Act provides that a person, company and other
legal entity who acquires an interest or becomes aware that he has acquired an
interest of 3%, or for certain types of interest, 10%, or more of any class of
shares comprised in a public company's "relevant share capital" is obliged to
notify that company of his interest within two days following the day on which
the interest was acquired. Relevant share capital means that company's issued
share capital carrying rights to vote in all circumstances at general meetings
of the company. Thereafter, notice must be given to the company of any changes
in respect of whole percentage figure increases or decreases, rounded down to
the next whole number or which reduce such interest below 3% or 10%, as
appropriate. The Proteus ordinary shares are "relevant share capital" for this
purpose.
Under Section 212 of the Companies Act, a public company may by notice in
writing require a person whom the company knows or has reasonable cause to
believe to be, or have been within the previous three years, interested in the
company's share capital to confirm that fact and to give particulars of that
interest and any interest of any other person in this share capital.
When a Section 212 notice is served by a company on a person who is or was
interested in shares of the company and that person fails to give the company
any information required by the notice within the time specified in the notice,
the company may apply to the court for an order
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directing that the shares in question be subject to restrictions prohibiting any
transfer of those shares, the exercise of voting rights in respect of such
shares, the issue of further shares in respect of such shares and, other than in
a liquidation, payments, including dividends, in respect of such shares. Such
restrictions may also void any agreement to transfer such shares. In addition, a
person who fails to fulfill the obligations described above is subject to
criminal penalties in the United Kingdom. Under the Proteus articles of
association certain of the powers of imposing restrictions granted to the courts
may be imposed by its board of directors in certain circumstances. The
Therapeutic Antibodies bylaws provide that it is subject to Section 212 of the
Companies Act.
CERTAIN LONDON STOCK EXCHANGE LISTING REQUIREMENTS
Proteus and Therapeutic Antibodies are both subject to the Listing Rules of
the London Stock Exchange made under Section 142 of the United Kingdom Financial
Services Act 1986 and in particular to the continuing obligations under those
rules. As an "overseas company," however, Therapeutic Antibodies is subject to
the provisions of Chapter 17 of the Listing Rules which provide for certain
exceptions to the Listing Rules. Among other things the Listing Rules require a
listed company to notify the London Stock Exchange of any major new developments
in its sphere of activities which are not public knowledge which may by virtue
of the effect of these developments on its assets and liabilities or financial
position or the general course of its business, lead to a substantial movement
in the price of its listed securities. A company must ensure equality of
treatment for all holders of listed securities who are in the same position.
When its securities are listed on more than one stock exchange, a company must
ensure that equivalent information is made available to the market on each
exchange on which its securities are listed. In addition, the general law and/or
the Listing Rules impose obligations on listed companies to send the following
information to shareholders:
- details relating to certain acquisitions, disposals, takeovers, mergers
and offers either made by or in respect of the company; and
- an explanatory circular, whenever a general meeting of the shareholders
is convened. If the meeting includes any business other than routine
business at an annual general meeting, it must specify the general nature
of such business. For this specification, "routine business" means
declarations of dividends, considering the report and accounts, election
of directors in place of those retiring, appointment and fixing of
remuneration of auditors or the manner in which fixed.
In addition to the above requirements, a company is required to notify the
London Stock Exchange of certain notifications received by the company of:
- persons holding an interest in 3% or more of any class of the company's
relevant share capital;
- any changes on the company's board of directors;
- any purchase or redemption by the company of its own equity securities;
- any directors' interests, including changes in the shares or the
debentures of their company; and
- changes in the capital structure of the company.
Unaudited half yearly reports of results for the first six months of any
fiscal year must be published as soon as possible and in any event within four
months of the end of the fiscal year to which it related and an unaudited
preliminary announcement of results for each full fiscal year must also be made
to the Company Announcements Office of the London Stock Exchange without delay
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after such results have been approved by the board. The annual audited financial
statements must be published as soon as possible after the accounts been
approved and, in any event, within six months of the end of the financial period
to which may relate. In exceptional circumstances, the London Stock Exchange may
grant an extension to this time limit.
Under U.S. federal securities laws, Proteus will be required to file with
the SEC audited financial statements within six months of the end of Proteus'
fiscal year and unaudited half yearly reports when they are made available in
the U.K. However, this requirement may be suspended after March 31, 2000 if the
number of U.S. holders of Proteus ordinary shares decreases below a certain
number.
ENFORCEABILITY OF CIVIL LIABILITIES
Proteus is a public limited company organized under the laws of England and
Wales. All or most of Proteus' officers and directors reside principally in the
United Kingdom. All or a significant portion of the assets of Proteus are
located outside of the United States, although the combined company will have
assets in the United States following completion of the merger. As a result, it
may be difficult for investors:
(1) to effect service of process upon Proteus within the United States, or
(2) to enforce in United States courts, or courts outside of the United
States, judgments obtained against Proteus in United States courts in any
action, including actions predicated upon the civil liability provisions of U.S.
federal securities laws.
There is doubt as to the enforceability in England, in original actions or
in actions for enforcement of judgments of United States courts, of civil
liabilities predicated solely upon the U.S. federal securities laws.
Individual shareholders of an English company, including U.S. persons, have
the right under English law to bring lawsuits on behalf of the company in which
they are a shareholder, and on their own behalf against the company, in certain
limited circumstances. See "Comparison of Rights of Therapeutic Antibodies
Stockholders and Proteus Shareholders (U.S. vs. English Law) -- Shareholders'
Suits."
LEGAL MATTERS
The validity of the Proteus ordinary shares offered hereby will be passed
upon by Cameron McKenna, English counsel for Proteus.
EXPERTS
The consolidated financial statements of Proteus as of March 31, 1999 and
for each of the three fiscal years in the period ended March 31, 1999 included
in this proxy statement/prospectus have been audited by Mazars Neville Russell,
as indicated in their report with respect thereto, and included in this proxy
statement/prospectus in reliance upon the authority of this firm as experts in
giving these reports.
The consolidated financial statements of Therapeutic Antibodies as of
December 31, 1998 and for each of the three fiscal years in the period ended
December 31, 1998 included in this proxy statement/prospectus have been audited
by PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report, which contains an explanatory paragraph relating to Therapeutic
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Antibodies' ability to continue as a going concern as described in Note 1 to
Therapeutic Antibodies' consolidated financial statements, and are included in
this proxy statement/prospectus in reliance upon this report given upon the
authority of this firm as experts in accounting and auditing.
U.K. LISTING PARTICULARS
Proteus will deliver a copy of a document comprising the U.K. listing
particulars relating to Proteus in accordance with the Listing Rules to the
Registrar of Companies in England and Wales for registration and the document
will be available for inspection at the offices of Cameron McKenna, Mitre House,
160 Aldersgate Street, London, EC1A 4DD, England until the date of Proteus'
Extraordinary General Meeting of shareholders. The contents of such listing
particulars do not form part of, nor are they incorporated into, this proxy
statement/prospectus.
FUTURE STOCKHOLDER PROPOSALS
If the merger is consummated as expected, Therapeutic Antibodies will not
hold an annual meeting in 2000. If the merger agreement is not adopted by the
holders of Therapeutic Antibodies common stock or is not consummated for any
other reason, proposals submitted by stockholders for presentation at the 2000
annual meeting must be received by Therapeutic Antibodies no later than December
31, 1999 or a reasonable time before Therapeutic Antibodies begins to print and
mail its proxy materials, for inclusion, if appropriate, in Therapeutic
Antibodies' proxy statement for that annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
Therapeutic Antibodies files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
Therapeutic Antibodies' Commission file number is 0-25978. You may read and copy
any reports, statements or other information filed by Therapeutic Antibodies at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Therapeutic Antibodies' SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
Proteus has filed with the SEC a registration statement on Form F-4 to
register the Proteus ordinary shares to be issued to Therapeutic Antibodies
stockholders in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of Proteus in addition to
being a proxy statement of Therapeutic Antibodies for the annual meeting. As
allowed by SEC rules, this proxy statement/prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.
Proteus has supplied all information contained in this proxy
statement/prospectus relating to Proteus and Therapeutic Antibodies has supplied
all information relating to Therapeutic Antibodies.
You should rely on the information contained in this proxy
statement/prospectus to vote on the merger. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated August ,
1999. You should not assume that the information contained in this proxy
statement/prospectus is accurate as of any date other than August , 1999, and
neither the mailing of the proxy statement/ prospectus to holders of Therapeutic
Antibodies common stock nor the issuance of Proteus ordinary shares in the
merger shall create any implication to the contrary.
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GLOSSARY
The discussion herein regarding Proteus' and Therapeutic Antibodies'
product candidates and technologies includes certain scientific and technical
terms and abbreviations. These terms include:
<TABLE>
<S> <C>
active site the part of the enzyme which promotes changes in other
molecules
affinity the strength of the binding between an antibody and its
antigen or epitope
allergenicity the degree to which a substance can be deemed to be an
allergen
angiotensin the term used to describe a family of peptide hormones
that are involved in the control of blood pressure and
body fluid levels
angiotensin converting enzyme an enzyme that forms the peptide angiotensin I
antibody substance produced by cells of the immune system which
bind to parts of other substances in a highly specific
way to neutralize their effect
antiserum(a) serum from an animal which has been injected with an
immunogen
antithrombotic a drug or other active agent which degrades or prevents
the formation of thromboses (blood clots)
assay a quantitative or qualitative process used to measure
or detect a particular substance
assay and bio assay a test for determining the level or extent of
biological activity of a potential drug molecule
biological testing the process of testing potential drug molecules for
activity against the molecular target
bovine spongiform encephalopathy the abnormal prion protein disease of cattle
Cardiopulmonary Bypass the diversion of blood through a pump oxygenator
(heart-lung machine); used in operations to maintain
blood circulation
chemical synthesis the process of making substances (e.g., potential
drugs) from simpler substances
chronic inflammatory conditions a group of diseases in which one or more tissues show
signs of inflammation and damage over a period of
months or years
clinical candidate a preferred compound or formulation that merits
evaluation in human clinical trials (i.e., entry into
the clinical development stage)
clinical development the stage of pharmaceutical research and development in
which potential drugs are studied in human clinical
trials (or in the target species for animal health
drugs)
coronary artery bypass graft a surgical technique used on patients with blocked
coronary arteries. This involves the use of the
patient's own blood vessels which are grafted to the
coronary arteries and the aorta, thus bypassing the
diseased segment of the coronary arteries
cytokine a cellular messenger, typically of the immune system
</TABLE>
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<TABLE>
<S> <C>
diagnostic test an assay used for the diagnosis of disease typically
carried out on body fluids or tissues
digitalis a drug that has a specific effect on the heart
drug research the stage of drug discovery and evaluation of lead
compounds for their potential to be developed into
pharmaceutical products
embolism a condition in which an embolus (e.g., a blood clot)
becomes lodged in an artery and obstructs blood flow
encephalopathies diseases of the brain which interfere with its normal
functioning
enzymes proteins that promote changes in other molecules (e.g.,
in other proteins, sugars or fatty substances)
epitope the part or parts of the target molecule which react
with an antibody
equine relating to or derived from the horse
factor Xa a factor (enzyme) involved in blood clotting
fragment part of an antibody molecule which can be split from
the whole molecule and which still retains biological
activity
GnRH gonadotrophin releasing hormone, the 'boss' hormone
that controls sexual development and function in both
males and females
heart failure a condition in which the pumping action of the heart
becomes inadequate
high blood pressure blood pressure that is above medically defined limits
and which is associated with increased risks of stroke
and heart disease
high throughput assay a test system capable of processing large number of
samples per day
HIV integrase an HIV enzyme that catalyses integration of virtually
derived DNA into the host chromosomes
homology modeling using established structural details from a family of
enzymes to model the structure of a further member of
the family
hypersensitivity an excessive or inappropriate immune response which can
cause harm to the body
immune complex a complex consisting of multiple antigen and antibody
molecules. Such complexes can cause damage to small
blood vessels throughout the body
immune system the cells and structures in the body that are capable
of producing antibodies and other components of the
immune response
immunogen any substance which can elicit the formation of
specific antibodies
immunotherapeutics medicines that act on or through the immune system
(e.g., vaccines)
inhibitor a substance that blocks the action of another substance
(e.g., an enzyme)
in-vitro in the test-tube
</TABLE>
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<TABLE>
<S> <C>
investigator investigational new drug an investigational new drug for which the sponsor is an
individual researcher or a medical institution (as
opposed to a corporate entity)
molecular design the process by which Prometheus is used to select and
evaluate potential new drug molecules
molecular target the substance (e.g., an enzyme ) at which drug
discovery efforts are directed
monoclonal antibody an antibody directed to a single epitope on the target
molecule
Monospecific Antivenoms antisera prepared to the venom of a single species of
snake
named patient basis this refers to a form of limited regulatory approval
for certain drugs used in the treatment of human
injuries or conditions for which no satisfactory
therapies exist, or for which other drugs are
unavailable, cause adverse effects or are in short
supply
non-ionic surfactant microscopic globular structures with a fluid center
surrounded by layers of fatty materials which can
entrap vaccine antigens
orphan drug status status granted by the FDA which provides certain
development, registration and marketing incentives, for
development of treatments of small (under 200,000 per
annum in the United States) incidence conditions
papain a proteolytic enzyme obtained from the papaya used as a
protein digestant
peptide or protein mediators substance made from amino acids which are associated
with specific diseases
Phase I clinical study/trial the assessment of the safety of a biologically active
substance in volunteers
Phase II clinical study/trial the assessment in patients of a drug to determine dose
range and preliminary efficacy
Phase III clinical study/trial definitive studies to determine efficacy and safety of
a drug prior to marketing approval
polyclonal antibody a population of antibodies directed to multiple
epitopes on the target molecule
post-mortem tests testing of animals after death (e.g., from samples
taken in the slaughterhouse)
pre-clinical development the research and development stage immediately prior to
clinical trials, which usually lasts 12 - 18 months
prion protein the protein that assumes an abnormal structure in
bovine spongiform encephalopathy and related diseases
and which is believed to be capable of transmitting
bovine spongiform encephalopathy and related diseases
proof of concept and optimization studies studies in animals to demonstrate the (expected) action
of the drug and to define the most effective form of
the drug
</TABLE>
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<TABLE>
<S> <C>
purification of polycolonal antibodies the process of removal of extraneous foreign proteins,
virus and other biological materials associated with
manufacturing of product
PRO LEADS and PRO SELECT proprietary software modules within Prometheus
Prometheus the name applied to Proteus' integrated CAMD system
sepsis syndrome the name given to a spectrum of disorders caused by the
body's exaggerated response to infection or injury. The
defining characteristics are inflammation, abnormal
vital signs and failure of one or more major organ
systems. The condition may progress to multiple organ
failure
serum the component of blood excluding the red and white
blood cells and fibrinogen
sex steroid hormones hormones that induce maleness (testosterone) or
femaleness (oestrogen and progesterone)
small molecules substances (e.g., potential drugs) with low molecular
weight (usually less than 700 Daltons)
specificity the degree to which an antibody binds to antigens other
than that to which it is primarily directed
structure-based studies use of fine detail structures of molecular targets (in
drug discovery)
therapeutic a pharmaceutical product targeted to treat a specific
disease
TM means that a trademark is being registered or an
application for a trademark is being made in one or
more countries
TNFa tumor necrosis factor alpha, a cytokine, involved in
the body's inflammatory process
tryptase an enzyme released from mast cells during allergic
inflammation
transmittable spongiform encephalopathy a degenerative condition of the nervous system believed
to be caused by the accumulation of an abnormal form of
the prion protein
vaccine a formulation used to stimulate an immune response
well-resolved 3-D picture the fine detail view of molecular structure provided by
x-ray crystallography
x-ray crystallography a process for analyzing the fine detail of molecular
structure (e.g., of enzymes)
</TABLE>
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROTEUS INTERNATIONAL PLC
Report of Independent Chartered Accountants................. F-2
Consolidated Profit and Loss Accounts for the years ended
March 31, 1997, 1998 and 1999............................. F-3
Consolidated Balance Sheets as of March 31, 1998 and 1999... F-4
Consolidated Cash Flow Statements for the years ended March
31, 1997, 1998 and 1999................................... F-5
Notes to the Financial Statements........................... F-6
THERAPEUTIC ANTIBODIES INC.
Report of Independent Accountants........................... F-33
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-34
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 1998, 1997 and 1996 and
for the Cumulative Development Stage from August 10, 1984
(inception) through December 31, 1998..................... F-35
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 and for the
Cumulative Development Stage from August 10, 1984
(inception) through December 31, 1998..................... F-36
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and for the Cumulative
Development Stage from August 10, 1984 (inception) through
December 31, 1998......................................... F-37
Notes to Consolidated Financial Statements.................. F-38
Condensed Consolidated Balance Sheets (unaudited) as of June
30, 1999 and December 31, 1998............................ F-53
Condensed Consolidated Statements of Operations and
Comprehensive Loss (unaudited) for the six and three month
periods ended June 30, 1999 and 1998 and for the
Cumulative Development Stage from August 10, 1984
(inception) through June 30, 1999......................... F-54
Condensed Consolidated Statement of Cash Flows (unaudited)
for the six months ended June 30, 1999 and 1998 and for
the Cumulative Development Stage from August 10, 1984
(inception) through June 30, 1999......................... F-55
Notes to Condensed Consolidated Financial Statements........ F-56
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998......................... F-58
Condensed Consolidated Statements of Operations and
Comprehensive Loss for the periods ended March 31, 1999
and 1998 (unaudited)...................................... F-59
Condensed Consolidated Statements of Cash Flows for the
periods ended March 31, 1999 and 1998 (unaudited)......... F-60
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-61
</TABLE>
F-1
<PAGE> 187
PROTEUS INTERNATIONAL PLC
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE DIRECTORS OF PROTEUS INTERNATIONAL PLC
We have audited the financial statements on pages F-3 to F-31 which have been
prepared under the historical cost convention and in accordance with the
accounting policies set out on pages F-6 and F-7.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible for the preparation of the financial
statements. It is our responsibility to form an independent opinion, based on
our audits, on those financial statements and to report our opinion to the
directors.
BASIS OF OPINION
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board, which do not differ in any significant
respect from United States Generally Accepted Auditing Standards. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements and of whether the accounting policies are appropriate
to the circumstances of the Company and of the Group, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of affairs of the Group as of March 31, 1999 and 1998 and of the Group's loss
and cash flows for each of the three years ended March 31, 1997, 1998 and 1999,
and in accordance with Generally Accepted Accounting Principles in the United
Kingdom.
RECONCILIATION TO US GAAP
Accounting practices used by the Group in preparing the accompanying financial
statements conform with Generally Accepted Accounting Principles in the United
Kingdom, but do not conform with accounting principles generally accepted in the
United States. A description of these differences and a reconciliation of net
loss and shareholders' equity to United States Generally Accepted Accounting
Principles is set out in Note 22.
MAZARS NEVILLE RUSSELL
BIRMINGHAM, ENGLAND
June 4, 1999
F-2
<PAGE> 188
PROTEUS INTERNATIONAL PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------
NOTES 1999 1998 1997
----- L'000 L'000 L'000
<S> <C> <C> <C> <C>
TURNOVER............................................. 2 696 178 573
Research and administration expenses................. (5,103) (4,526) (4,682)
------ ------ ------
OPERATING LOSS....................................... 3 (4,407) (4,348) (4,109)
Interest receivable.................................. 540 353 404
Interest payable..................................... 6 (80) (132) (119)
------ ------ ------
LOSS ON ORDINARY ACTIVITIES BEFORE AND AFTER TAXATION
RETAINED FOR THE YEAR................................ 17 (3,947) (4,127) (3,824)
====== ====== ======
LOSS PER SHARE....................................... 8 (5.54p) (7.17p) (7.05p)
====== ====== ======
</TABLE>
The Group has no recognised gains and losses other than the loss for the
year.
The Group's turnover and expenses all relate to continuing activities.
The loss for the year has been calculated on the historical cost basis.
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 189
PROTEUS INTERNATIONAL PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------
1999 1998
NOTES ------- -------
----- L'000 L'000
<S> <C> <C> <C>
TANGIBLE FIXED ASSETS....................................... 9 1,859 2,132
------- -------
CURRENT ASSETS
Debtors..................................................... 12 393 399
Cash at bank and in hand.................................... 7,403 3,327
------- -------
7,796 3,726
CREDITORS -- AMOUNTS FALLING DUE WITHIN ONE YEAR............ 13 (1,766) (1,387)
------- -------
NET CURRENT ASSETS.......................................... 6,030 2,339
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 7,889 4,471
CREDITORS -- AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR... 14 (207) (455)
------- -------
NET ASSETS.................................................. 7,682 4,016
======= =======
CAPITAL AND RESERVES
Called up equity share capital.............................. 16 1,480 1,110
Share premium account....................................... 17 47,171 39,928
Profit and loss account..................................... 17 (40,969) (37,022)
------- -------
EQUITY SHAREHOLDERS' FUNDS.................................. 18 7,682 4,016
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 190
PROTEUS INTERNATIONAL PLC
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------
NOTES 1999 1998 1997
----- ------ ------ ------
L'000 L'000 L'000
<S> <C> <C> <C> <C>
NET CASH OUTFLOW FROM OPERATING ACTIVITIES........... 20(i) (3,156) (3,276) (4,213)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE...... 20(ii) 405 251 238
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT......... 20(ii) (454) (360) (507)
------ ------ ------
NET CASH OUTFLOW BEFORE MANAGEMENT OF LIQUID
RESOURCES AND FINANCING.............................. (3,205) (3,385) (4,482)
MANAGEMENT OF LIQUID RESOURCES....................... 20(ii) (4,080) 3,524 (4,626)
FINANCING............................................ 20(ii) 7,250 (203) 9,169
------ ------ ------
(DECREASE)/INCREASE IN CASH.......................... 20(iii) (35) (64) 61
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 191
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of Proteus International plc ("the Company"),
which is incorporated in England and Wales, and its subsidiary companies
("the Group") are prepared under the historical cost convention and in
accordance with applicable accounting standards in the United Kingdom
("U.K. GAAP"). As described in note 22, these principles differ in certain
significant respects from those that the Company would have followed had
its consolidated financial statements been prepared in accordance with
accounting principles generally accepted in the United States ("U.S.
GAAP").
The Group accounts consolidate the accounts of the Company and its
subsidiary undertakings and include the Group's share of the results and
post-acquisition reserves of its joint ventures made up to the year end.
The trading results of undertakings acquired are accounted for from the
relevant date of acquisition.
INVESTMENTS
Investments held as fixed assets are stated at cost less provision for any
permanent diminution in value.
GOODWILL
Goodwill arising, representing the excess of cost of investment in
subsidiary undertakings over the fair value of the identifiable assets and
liabilities acquired, is now capitalised and amortised over its estimated
useful life. In previous accounting periods, goodwill was written off
directly to reserves.
TURNOVER
Turnover represents amounts receivable in respect of licence agreements and
the sale of intellectual property, goods and services to customers during
the year, net of value added tax.
COMPUTER SOFTWARE
Costs incurred in developing the Group's PROMETHEUS software are
capitalised as a fixed asset.
RESEARCH AND DEVELOPMENT EXPENDITURE
Research and development expenditure is written off to the profit and loss
account in the period in which it is incurred.
F-6
<PAGE> 192
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation of tangible fixed assets is provided to write off the cost of
the assets over their estimated useful lives. The rates used are as
follows:
<TABLE>
<S> <C>
Computer equipment and software 20% straight line
Fixtures, fittings and motor vehicles 20% and 25% straight line
</TABLE>
DEFERRED TAXATION
Deferred tax is provided in respect of the tax effect of all timing
differences, to the extent that it is probable that a liability will
crystallise in the foreseeable future, at the rates of tax expected to
apply when the timing differences reverse.
LEASING
Assets acquired under finance leases are capitalised.
Depreciation on leased assets is calculated to write off the capitalised
amount on a straight line basis over the shorter of the lease term and the
useful life of the assets.
Rentals payable are apportioned between the finance charge and a reduction
of the outstanding obligation for future amounts payable so that the charge
for each accounting period is a constant percentage of the remaining
balance of the capital sum outstanding.
Rentals payable under operating leases are charged on a straight line basis
over the term of the lease.
FOREIGN CURRENCIES
Assets, liabilities, revenues and costs expressed in foreign currencies are
translated into sterling at rates of exchange ruling on the date on which
transactions occurred, except for:
(a) Monetary assets and liabilities which are translated at the rate
ruling at the balance sheet date (other than those in (b) below).
(b) Transactions to be settled at a contractual rate and trading
transactions covered by a related or matching forward contract which
are translated at these contractual rates.
Differences arising on the translation of such items are dealt with in the
profit and loss account.
PENSIONS
The Group operates a defined contribution pension scheme for all members of
staff who wish to participate. The funds of the scheme are administered by
trustees and are independent of the Group's finances. The Group's
contributions are charged against profits on an accruals basis, in the
period to which they relate.
F-7
<PAGE> 193
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. SEGMENTAL INFORMATION
The turnover, net assets and loss on ordinary activities are attributable
to the principal activities of the Group being the development and
application of computer-aided molecular modelling and immunotherapeutic
techniques to enable the Group to design and synthesise lead compounds for
development as therapeutics in conjunction with pharmaceutical industry
partners. The Group operates in the United Kingdom and its turnover
analysed by geographical destination is as follows:
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
-----------------------
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
United Kingdom............................................ 656 156 157
Rest of Europe............................................ 40 22 252
USA....................................................... -- -- 158
Rest of the world......................................... -- -- 6
--- --- ---
696 178 573
=== === ===
</TABLE>
3. OPERATING LOSS
The operating loss is stated after charging/(crediting):
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
-----------------------
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
Directors' emoluments.................................... 479 449 482
Depreciation............................................. 969 1,120 1,127
Auditors' remuneration
Audit.................................................... 18 18 18
Other services........................................... 13 10 9
Profit on disposal of tangible fixed assets.............. (3) -- (1)
</TABLE>
In addition to those fees disclosed above the auditors received L19,000 in
relation to the 1998 Rights Issue during the year ended 31 March 1999 and
L7,000 in relation to the 1996 Rights Issue during the year ended 31 March
1997.
4. STAFF COSTS
The average number of persons, including directors, employed during each of
the three years ended 31 March 1999 was:
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------
1999 1998 1997
------ ------ ------
NUMBER NUMBER NUMBER
<S> <C> <C> <C>
Management........................................... 4 4 4
Administration....................................... 11 11 10
Research............................................. 36 38 33
-- -- --
51 53 47
== == ==
</TABLE>
F-8
<PAGE> 194
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. STAFF COSTS (CONTINUED)
Their total remuneration was:
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
-----------------------
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
Salaries................................................ 1,600 1,665 1,464
Social security costs................................... 189 161 152
Pension costs........................................... 161 151 140
----- ----- -----
1,950 1,977 1,756
===== ===== =====
</TABLE>
5. DIRECTORS' REMUNERATION
A. EMOLUMENTS
The emoluments of the directors for the three years ended 31 March 1999
were as follows:
<TABLE>
<CAPTION>
BENEFITS TOTAL
SALARY BONUS FEES PENSION IN KIND 1999
------ ----- ----- ------- -------- -----
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
D W Gration.................. 91 -- -- 14 6 111
J A Miller................... 93 -- -- 9 7 109
A Rushton.................... 97 -- -- 9 9 115
B M Riley.................... 65 -- -- 6 9 80
R N Boyes.................... -- -- 12 -- -- 12
G P Fothergill............... -- -- 15 -- -- 15
J E Everitt.................. -- -- 15 -- -- 15
M R B Gatenby................ -- -- 15 -- -- 15
E Anggard.................... -- -- 7 -- -- 7
--- -- -- -- -- ---
346 -- 64 38 31 479
=== == == == == ===
</TABLE>
<TABLE>
<CAPTION>
BENEFITS TOTAL
SALARY BONUS FEES PENSION IN KIND 1998
------ ----- ----- ------- -------- -----
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
D W Gration.................. 73 8 -- 8 1 90
J A Miller................... 91 9 -- 9 9 118
A Rushton.................... 80 8 -- 8 5 101
B M Riley.................... 60 7 -- 6 8 81
R N Boyes.................... -- -- 14 -- -- 14
G P Fothergill............... -- -- 14 -- -- 14
J E Everitt.................. -- -- 14 -- -- 14
M R B Gatenby................ -- -- 14 -- -- 14
J C Lees..................... -- -- 3 -- -- 3
--- -- -- -- -- ---
304 32 59 31 23 449
=== == == == == ===
</TABLE>
F-9
<PAGE> 195
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' REMUNERATION (CONTINUED)
<TABLE>
<CAPTION>
BENEFITS TOTAL
SALARY BONUS FEES PENSION IN KIND 1997
------ ----- ----- ------- -------- -----
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
J S Sikorski................. 44 25 -- 6 3 78
S J Jones ................... 61 5 -- 6 6 78
B M Riley.................... 54 6 -- 5 8 73
J C Lees..................... -- -- 13 -- -- 13
D W Gration.................. 36 5 10 4 -- 55
J A Miller................... 82 6 -- 8 5 101
A Rushton.................... 45 6 -- 5 4 60
R N Boyes.................... -- -- 13 -- -- 13
G P Fothergill............... -- -- 7 -- -- 7
J E Everitt.................. -- -- 4 -- -- 4
--- -- -- -- -- ---
322 53 47 34 26 482
=== == == == == ===
</TABLE>
In addition, during the year ended 31 March 1997, K M Gilmore and J K Pool
were paid L57,294 and L49,560 respectively following termination of their
service agreements, on ceasing to be directors of the Company.
B. INTERESTS IN ORDINARY SHARES
The directors' interests in the ordinary shares of the Company at 31 March
1997, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------------
31 MARCH 31 MARCH 31 MARCH
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
D W Gration..................................... 40,897 30,673 30,673
J A Miller...................................... 42,962 32,222 32,222
A Rushton (appointed 2 September 1996).......... -- -- --
B M Riley....................................... 14,814 11,111 11,111
G P Fothergill (appointed 2 September 1996)..... 13,333 10,000 10,000
J E Everitt (appointed 18 December 1996)........ 17,402 13,052 --
M R B Gatenby (appointed 29 May 1997)........... 26,666 20,000 --
E Anggard (appointed 22 October 1998)........... -- -- --
J C Lees (resigned 29 May 1997)................. -- -- 51,428
R N Boyes (resigned 31 July 1998)............... -- -- --
</TABLE>
F-10
<PAGE> 196
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' REMUNERATION (CONTINUED)
C. SHARE OPTIONS
Details of share options granted to directors are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDER OPTION
---------------------------------------------------------------------------------------------
DATE FROM
AT 1 APRIL AT 31 MARCH EXERCISE WHICH
1998 GRANTED CANCELLED 1999 PRICE(P) EXERCISABLE EXPIRY DATE
---------- ------- --------- ----------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
APPROVED OPTIONS
A Rushton............... 23,535 -- -- 23,535 154.66 21 July 1997 20 July 2004
B M Riley............... 52,955 -- -- 52,955 68.83 25 July 1998 24 July 2005
UNAPPROVED OPTIONS
D W Gration............. 12,257 -- -- 12,257 263.51 28 March 1997 27 March 2001
D W Gration............. 87,110 -- -- 87,110 57.40 20 August 1999 19 August 2003
D W Gration............. 129,620 -- -- 129,620 41.66 23 January 2001 22 January 2004
J A Miller.............. 117,017 -- -- 117,017 66.66 19 July 1999 18 July 2003
J A Miller.............. 108,016 -- -- 108,016 41.66 23 January 2001 22 January 2004
B M Riley............... 78,011 -- -- 78,011 66.66 19 July 1999 18 July 2003
B M Riley............... 72,011 -- -- 72,011 41.66 23 January 2001 22 January 2004
A Rushton............... 111,947 -- -- 111,947 66.66 19 July 1999 18 July 2003
A Rushton............... 96,015 -- -- 96,015 41.66 23 January 2001 22 January 2004
D W Gration............. -- 90,000 -- 90,000 46.00 22 June 2001 21 June 2008
J A Miller.............. -- 90,000 -- 90,000 46.00 22 June 2001 21 June 2008
B M Riley............... -- 65,000 -- 65,000 46.00 22 June 2001 21 June 2008
A Rushton............... -- 90,000 -- 90,000 46.00 22 June 2001 21 June 2008
SAVINGS RELATED OPTIONS
J A Miller.............. -- 26,712 -- 26,712 36.50 1 October 2001 31 March 2002
B M Riley............... -- 26,712 -- 26,712 36.50 1 October 2001 31 March 2002
</TABLE>
There were no changes to the interests of directors in share options or
ordinary shares of the Company as of 3 June 1999.
The price of the Company's ordinary shares to which the options relate was
46.0p at 31 March 1999 and fluctuated between 69.5p and 32.0p during the
year ended 31 March 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDER OPTION
---------------------------------------------------------------------------------------------
DATE FROM
AT 1 APRIL AT 31 MARCH EXERCISE WHICH
1997 GRANTED CANCELLED 1998 PRICE(P) EXERCISABLE EXPIRY DATE
---------- ------- --------- ----------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
APPROVED OPTIONS
A Rushton............... 23,535 -- -- 23,535 154.66 21 July 1997 20 July 2004
B M Riley............... 52,955 -- -- 52,955 68.83 25 July 1998 24 July 2005
UNAPPROVED OPTIONS
D W Gration............. 12,257 -- -- 12,257 263.51 28 March 1997 27 March 2001
D W Gration............. 87,110 -- -- 87,110 57.40 20 August 1999 19 August 2003
D W Gration............. 129,620 -- -- 129,620 41.66 23 January 2001 22 January 2004
J A Miller.............. 117,017 -- -- 117,017 66.66 19 July 1999 18 July 2003
J A Miller.............. 108,016 -- -- 108,016 41.66 23 January 2001 22 January 2004
B M Riley............... 78,011 -- -- 78,011 66.66 19 July 1999 18 July 2003
B M Riley............... 72,011 -- -- 72,011 41.66 23 January 2001 22 January 2004
A Rushton............... 111,947 -- -- 111,947 66.66 19 July 1999 18 July 2003
A Rushton............... 96,015 -- -- 96,015 41.66 23 January 2001 22 January 2004
</TABLE>
The price of the Company's ordinary shares, to which the options relate,
was 69.5p at 31 March 1998 and fluctuated between 86.5p and 34.5p during
the year ended 31 March 1998.
F-11
<PAGE> 197
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. DIRECTORS' REMUNERATION (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDER OPTION
---------------------------------------------------------------------------------------------
AT 1 APRIL AT 31 MARCH EXERCISE DATE FROM WHICH
1996 GRANTED CANCELLED 1997 PRICE(P) EXERCISABLE EXPIRY DATE
---------- ------- --------- ----------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
APPROVED OPTIONS
J S Sikorski........... 56,738 -- 56,738 -- -- -- --
J S Sikorski........... 152,057 -- 152,057 -- -- -- --
S J Jones.............. 79,432 -- 79,432 -- -- -- --
A Rushton*............. 23,535 -- -- 23,535 154.66 21 July 1997 20 July 2004
B M Riley.............. 52,955 -- -- 52,955 68.83 25 July 1998 24 July 2005
UNAPPROVED OPTIONS
D W Gration............ 12,257 -- -- 12,257 263.51 28 March 1997 27 March 2001
D W Gration............ -- 87,110 -- 87,110 57.40 20 August 1999 19 August 2003
D W Gration............ -- 129,620 -- 129,620 41.66 23 January 2001 22 January 2004
J S Sikorski........... -- 136,250 136,250 -- -- -- --
S J Jones.............. -- 101,111 101,111 -- -- -- --
J A Miller............. -- 117,017 -- 117,017 66.66 19 July 1999 18 July 2003
J A Miller............. -- 108,016 -- 108,016 41.66 23 January 2001 22 January 2004
B M Riley.............. -- 78,011 -- 78,011 66.66 19 July 1999 18 July 2003
B M Riley.............. -- 72,011 -- 72,011 41.66 23 January 2001 22 January 2004
A Rushton*............. -- 111,947 -- 111,947 66.66 19 July 1999 18 July 2003
A Rushton.............. -- 96,015 -- 96,015 41.66 23 January 2001 22 January 2004
</TABLE>
* Relates to shares under option at the date of appointment.
The price of the Company's ordinary shares, to which the options relate, was
52.5p at 31 March 1997 and fluctuated between 87.5p and 29p during the year
ended 31 March 1997.
In accordance with individual option agreements and scheme rules, the number
of shares under option and the exercise prices have been adjusted to take
account of Rights Issues since the date of grant.
D. DIRECTORS' SERVICE CONTRACTS
A Rushton, J A Miller and B M Riley are employed under service contracts
which will continue until terminated by the director giving not less than six
months notice or the Company giving not less than twelve months notice.
D W Gration is employed under a service contract which will continue until
terminated by either party giving not less than twelve months notice.
G P Fothergill, E Anggard, J E Everitt and M R B Gatenby do not have service
contracts with the Company.
6. INTEREST PAYABLE
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
-----------------------
1999 1998 1997
----- ----- -----
L'000 L'000 L'000
<S> <C> <C> <C>
Finance lease and hire purchase agreements.................. 74 132 119
Other....................................................... 6 -- --
-- --- ---
80 132 119
== === ===
</TABLE>
F-12
<PAGE> 198
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7. TAXATION
There is no charge to taxation for the three years ended 31 March 1999. At 31
March 1999 the Group had tax losses, subject to the agreement of the Inland
Revenue, of approximately L38 million (1998: L35 million, 1997: L31 million)
available for offset against future taxable profits of the same trade and
have no expiry date.
8. LOSS PER SHARE
Loss per share is based on attributable losses of L3,947,000 (1998:
L4,127,000, 1997: L3,824,000) and a weighted average number of shares in
issue during the year of 71,205,296 (1998: 55,439,533, 1997: 52,326,238). The
comparative loss per share figures have been adjusted for the effects of the
1998 Rights Issue.
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
COMPUTER FIXTURE, FITTINGS
PROMETHEUS EQUIPMENT & & MOTOR
SOFTWARE PURCHASED SOFTWARE VEHICLES TOTAL
L'000 L'000 L'000 L'000
---------- ------------------ ----------------- -----
<S> <C> <C> <C> <C>
COST
At 1 April 1997................. 3,924 1,796 1,237 6,957
Additions....................... 247 143 151 541
----- ----- ----- -----
At 31 March 1998................ 4,171 1,939 1,388 7,498
Additions....................... 234 176 292 702
Disposals....................... -- (207) (5) (212)
----- ----- ----- -----
At 31 March 1999................ 4,405 1,908 1,675 7,988
===== ===== ===== =====
DEPRECIATION
At 1 April 1997................. 2,573 1,008 665 4,246
Charge for the year............. 541 336 243 1,120
----- ----- ----- -----
At 31 March 1998................ 3,114 1,344 908 5,366
Charge for the year............. 482 306 181 969
Eliminated on disposal.......... -- (205) (1) (206)
----- ----- ----- -----
At 31 March 1999................ 3,596 1,445 1,088 6,129
===== ===== ===== =====
NET BOOK VALUE
31 March 1998................... 1,057 595 480 2,132
===== ===== ===== =====
31 March 1999................... 809 463 587 1,859
===== ===== ===== =====
</TABLE>
The net book value at 31 March 1999 includes L576,000 (1998: L634,000) in
respect of assets held under finance lease and hire purchase agreements.
Depreciation for the year ended 31 March 1999 on those assets was L292,000
(1998: L259,000).
F-13
<PAGE> 199
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
DETAILS OF SUBSIDIARY UNDERTAKINGS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
COUNTRY OF
REGISTRATION/
CLASS OF INCORPORATION AND
SHARES HELD % HELD ACTIVITY OPERATION
----------- ------ -------- -----------------
<S> <C> <C> <C> <C>
Proteus Molecular Design
Limited........................ Ordinary 100 Computer-aided England and Wales
molecular modelling
and drug design
Genethics Limited................ Ordinary 76 Research and England and Wales
development
Proteus Biotechnology Limited.... Ordinary 100 Dormant England and Wales
Proteus Molecular Design Inc..... Ordinary 100 Dormant United States of America
Cellular Research Limited........ Ordinary 76 Dormant England and Wales
Proteus Research Ireland Ordinary 75 Dormant Republic of Ireland
Limited........................
</TABLE>
All shares in subsidiary undertakings are held by Proteus International plc
with the exception of Cellular Research Limited which is wholly owned by
Genethics Limited.
11. FIXED ASSET INVESTMENTS -- OTHER
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------
INTEREST IN SHARES OF JOINT VENTURES 1999 1998
------------------------------------ ----- -----
L'000 L'000
<S> <C> <C>
Cost brought forward........................................ 18 18
Amount provided............................................. (18) (18)
--- ---
Net book value.............................................. -- --
=== ===
</TABLE>
Additional information regarding Joint Ventures is as follows:
<TABLE>
<CAPTION>
COUNTRY OF
REGISTRATION/
CLASS OF INCORPORATION AND
SHARES HELD % HELD ACTIVITY OPERATION
----------- ------ -------- -----------------
<S> <C> <C> <C> <C>
PC Aquascience Limited.......... Ordinary 50 Dormant England and Wales
Pharmapro Limited............... Ordinary 50 Research and Republic of Ireland
development
ProDeva Limited................. Ordinary 50 Dormant England and Wales
</TABLE>
12. DEBTORS
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Trade debtors............................................... 18 120
Prepayments and accrued income.............................. 312 217
Other debtors............................................... 63 62
--- ---
393 399
=== ===
</TABLE>
F-14
<PAGE> 200
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. CREDITORS -- AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Bank overdraft.............................................. 56 25
Trade creditors............................................. 503 353
Other taxation and social security.......................... 148 123
Accruals and deferred income................................ 622 573
Other creditors............................................. 52 52
Obligations under finance lease and hire purchase
agreements................................................ 385 261
----- -----
1,766 1,387
===== =====
</TABLE>
14. CREDITORS -- AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Obligations under finance lease and hire purchase
agreements................................................ 207 455
=== ===
</TABLE>
Included in obligations under finance lease and hire purchase agreements
disclosed above and in note 13 are certain agreements secured on Group cash
deposits totalling L305,000 at 31 March 1999 (1998: L473,000).
Obligations under finance lease and hire purchase agreements bear interest at
normal commercial rates and fall due as follows:
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Within one to two years..................................... 174 309
Within two to three years................................... 33 146
--- ---
207 455
=== ===
</TABLE>
15. DEFERRED TAXATION
The full potential liability for deferred taxation under the liability method
at 30% (1998 31%) is as follows:
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Capital allowances in excess of depreciation................ 171 271
Taxable losses.............................................. (171) (271)
---- ----
-- --
==== ====
</TABLE>
F-15
<PAGE> 201
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16. SHARE CAPITAL
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Authorised:
100,000,000 (1998: 70,750,000) ordinary shares of 2p each... 2,000 1,415
===== =====
Allotted, called up and fully paid:
73,998,320 (1998: 55,499,966,) ordinary shares of 2p each... 1,480 1,110
===== =====
</TABLE>
On 22 April 1998 the Company announced a 1 for 3 rights issue of 18,498,354
ordinary shares of 2p each which were issued for cash at 45p per share.
On 2 May 1997, 215,900 ordinary shares of 2p were issued for cash at 24.12p
per share and on 29 May 1997, 261,195 shares of 2p were issued for cash at
24.12p per share following the exercise of share options.
Details of outstanding share options are as follows:
<TABLE>
<CAPTION>
AT 1 APRIL AT 31 MARCH EXERCISE
DATE EXERCISABLE 1998 GRANTED EXERCISED CANCELLED 1999 PRICE (P)
---------------- ---------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
INDIVIDUAL UNAPPROVED
19 Sept 1994 to 18 Sep 1998.............. 224,621 -- -- 224,621 -- --
28 Mar 1997 to 27 Mar 2001............... 12,257 -- -- -- 12,257 263.51
APPROVED SCHEME
21 July 1997 to 20 July 2004............. 70,605 -- -- -- 70,605 154.66
25 July 1998 to 24 July 2005............. 52,955 -- -- -- 52,955 68.83
UNAPPROVED SCHEMES
19 July 1999 to 18 July 2003............. 783,124 -- -- -- 783,124 66.66
20 Aug 1999 to 19 Aug 2003............... 87,110 -- -- -- 87,110 57.40
23 Jan 2001 to 22 Jan 2004............... 590,597 -- -- 60,142 530,455 41.66
24 July 2000 to 23 July 2004............. 115,612 -- -- -- 115,612 42.12
5 August 2000 to 4 Aug 2004.............. 27,004 -- -- -- 27,004 41.66
12 Dec 2000 to 11 Dec 2004............... 32,405 -- -- -- 32,405 41.66
20 Jan 2001 to 19 Jan 2005............... 10,801 -- -- -- 10,801 76.84
22 June 2001 to 21 June 2008............. -- 511,573 -- -- 511,573 46.00
SAVINGS RELATED OPTIONS
1 Oct 2001 to 31 Mar 2002................ -- 375,028 -- -- 375,028 36.50
1 Oct 2003 to 31 Mar 2004................ -- 153,121 -- -- 153,121 36.50
--------- --------- --------- ------- ---------
2,007,091 1,039,722 -- 284,763 2,762,050
========= ========= ========= ======= =========
</TABLE>
In accordance with individual option agreements and scheme rules, the
number of shares under option and the exercise prices have been adjusted to
take account of Rights Issues since the date of the grant.
F-16
<PAGE> 202
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
17. RESERVES
<TABLE>
<CAPTION>
SHARE PREMIUM PROFIT AND LOSS
ACCOUNT ACCOUNT
------------- ---------------
L'000 L'000
<S> <C> <C>
As of 1 April 1997....................................... 39,822 (32,895)
Issue of 215,900 ordinary shares at 24.12p per share..... 48 --
Issue of 261,195 ordinary shares at 24.12p per share..... 58 --
Retained loss for the year............................... -- (4,127)
------ -------
As at 31 March 1998...................................... 39,928 (37,022)
Issue of 18,498,354 ordinary shares at 45p per share..... 7,954 --
Expenses paid in connection with share issue............. (711) --
Retained loss for the year............................... -- (3,947)
------ -------
As at 31 March 1999...................................... 47,171 (40,969)
====== =======
</TABLE>
Goodwill on acquisition written off against reserves in prior periods
amounts to L1,909,000.
18. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
---------------------
1999 1998
------- -------
L'000 L'000
<S> <C> <C>
Loss for the financial year................................. (3,947) (4,127)
Issue of shares............................................. 7,613 116
------ ------
Net increase/(reduction) in shareholders' funds............. 3,666 (4,011)
Opening shareholders' funds................................. 4,016 8,027
------ ------
Closing shareholders' funds................................. 7,682 4,016
====== ======
</TABLE>
19. FINANCIAL COMMITMENTS
At 31 March 1999 the Group had the following commitments in respect of
operating leases which expire:
<TABLE>
<CAPTION>
PROPERTY OTHER
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Within one year....................................... -- -- -- 12
Within two to five years.............................. 167 167 29 8
</TABLE>
F-17
<PAGE> 203
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS
(I) RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------
1999 1998 1997
------ ------ ------
L'000 L'000 L'000
<S> <C> <C> <C>
Operating loss........................................... (4,407) (4,348) (4,109)
Depreciation............................................. 969 1,120 1,127
Profit on disposal of tangible fixed assets.............. (3) -- (1)
Decrease/(increase) in debtors........................... 67 (101) (118)
Increase/(decrease) in creditors......................... 218 53 (1,112)
------ ------ ------
Net cash outflow from operating activities............... (3,156) (3,276) (4,213)
====== ====== ======
</TABLE>
(II) ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
-------------------------
1999 1998 1997
------ ----- ------
L'000 L'000 L'000
<S> <C> <C> <C>
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received......................................... 479 383 357
Interest paid............................................. (74) (132) (119)
------ ----- ------
NET CASH INFLOW FOR RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE.............................................. 405 251 238
====== ===== ======
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets including
PROMETHEUS software....................................... (463) (360) (609)
Proceeds from sale of tangible fixed assets............... 9 -- 102
------ ----- ------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT.............................................. (454) (360) (507)
====== ===== ======
MANAGEMENT OF LIQUID RESOURCES
Cash (invested in)/withdrawn from money market deposits
(note 20(iii))............................................ (4,080) 3,524 (4,626)
------ ----- ------
NET CASH (OUTFLOW)/INFLOW FROM MANAGEMENT OF LIQUID
RESOURCES............................................... (4,080) 3,524 (4,626)
====== ===== ======
FINANCING
Issue of share capital.................................... 8,324 116 9,860
Expenses paid in connection with share issues............. (711) -- (444)
Finance lease and hire purchase agreement payments (note
20(iii))................................................ (363) (319) (247)
------ ----- ------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING.................. 7,250 (203) 9,169
====== ===== ======
</TABLE>
F-18
<PAGE> 204
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS (CONTINUED)
(III) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
------------------------
1999 1998 1997
----- ------ -----
L'000 L'000 L'000
<S> <C> <C> <C>
(Decrease)/increase in cash................................ (35) (64) 61
Cash outflow/(inflow) from management of liquid
resources................................................ 4,080 (3,524) 4,626
Capital element of finance lease and hire purchase
agreements............................................... 363 319 247
----- ------ -----
Change in net funds resulting from cash flows.............. 4,408 (3,269) 4,934
New finance lease and hire purchase agreements............. (239) (181) (191)
----- ------ -----
Movement in net funds in the year.......................... 4,169 (3,450) 4,743
Net funds brought forward.................................. 2,586 6,036 1,293
----- ------ -----
Net funds carried forward.................................. 6,755 2,586 6,036
===== ====== =====
</TABLE>
(IV) ANALYSIS OF NET FUNDS
<TABLE>
<CAPTION>
AT 1 APRIL NON-CASH AT 31 MARCH
1998 CASH FLOW CHANGES 1999
---------- --------- -------- -----------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Cash in hand......................... 44 (4) -- 40
Bank overdraft....................... (25) (31) -- (56)
-----
(35)
Finance lease and hire purchase
agreements......................... (716) 363 (239) (592)
Money market deposits................ 3,283 4,080 -- 7,363
----- ----- ---- -----
Total................................ 2,586 4,408 (239) 6,755
===== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
AT 1 APRIL NON-CASH AT 31 MARCH
1997 CASH FLOW CHANGES 1998
---------- --------- -------- -----------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Cash in hand......................... 130 (86) -- 44
Bank overdraft....................... (47) 22 -- (25)
------
(64)
Finance lease and hire purchase
agreements......................... (854) 319 (181) (716)
Money market deposits................ 6,807 (3,524) -- 3,283
----- ------ ---- -----
Total................................ 6,036 (3,269) (181) 2,586
===== ====== ==== =====
</TABLE>
F-19
<PAGE> 205
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AT 1 APRIL NON-CASH AT 31 MARCH
1996 CASH FLOW CHANGES 1997
---------- --------- -------- -----------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Cash in hand......................... 107 23 -- 130
Bank overdraft....................... (85) 38 -- (47)
-----
61
Finance lease and hire purchase
agreements......................... (910) 247 (191) (854)
Money market deposits................ 2,181 4,626 -- 6,807
----- ----- ---- -----
Total................................ 1,293 4,934 (191) 6,036
===== ===== ==== =====
</TABLE>
(v) MAJOR NON-CASH TRANSACTIONS
During the year ended 31 March 1999, fixed assets were acquired for
L239,000 (1998: L181,000, 1997: L191,000) under finance lease and hire
purchase agreements.
During the year ended 31 March 1997, 309,731 ordinary shares were issued at
56.43p per share by way of settlement of certain expenses incurred in
connection with the 1996 Rights Issue.
21. CONTINGENT LIABILITIES
The Company has guaranteed the bank borrowings of Proteus Molecular Design
Limited which at 31 March 1999 amounted to L56,000 (1998 L25,000).
The Company has also guaranteed certain operating lease, finance lease and
hire purchase agreements entered into by subsidiary companies.
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
U.K. GAAP which differ in certain significant respects from U.S. GAAP. The
main differences between U.K. GAAP and U.S. GAAP that affect the Group's
consolidated loss and net assets are set out below.
(a) COMPUTER SOFTWARE
The Group has capitalised costs incurred in developing its PROMETHEUS
software for internal use. A significant proportion of these costs relate to
internal costs incurred during the development period. U.S. GAAP requires
such costs to be expensed and consequently the costs capitalised under U.K.
GAAP have been written off to conform with U.S. GAAP.
(b) GOODWILL
Under U.K. GAAP, goodwill arising on acquisitions during accounting periods
ending on or after December 23, 1998 is capitalised in the balance sheet
and amortised over its estimated useful economic life limited to a period
of 20 years or less. Goodwill arising from acquisitions consummated in
accounting periods ending before December 23, 1998 could be charged against
F-20
<PAGE> 206
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
reserves in the year of acquisition. Upon subsequent disposal or an
indication of impairment in respect of the acquired asset or entity, the
effect of any associated goodwill was eliminated from reserves and then
charged against the profit and loss account.
Under U.S. GAAP, goodwill is capitalised in the balance sheet and is
subsequently amortised over its estimated useful economic life not
exceeding 40 years.
For purposes of restating shareholders' equity in accordance with U.S.
GAAP, goodwill has been reclassified as an asset less amortisation based
upon the useful economic life of 10 years on a straight line basis.
Goodwill under U.S. GAAP is stated at cost less amortisation as follows:
<TABLE>
<CAPTION>
AS AT 31 MARCH
--------------------------
1999 1998 1997
------ ------ ------
L'000 L'000 L'000
<S> <C> <C> <C>
Cost................................................. 1,909 1,909 1,909
Amortisation......................................... (1,754) (1,597) (1,440)
------ ------ ------
Book value........................................... 155 312 469
====== ====== ======
</TABLE>
(c) CONSOLIDATED CASH FLOW STATEMENTS
The Group's consolidated financial statements include Consolidated
Statements of Cash Flows in accordance with U.K. Financial Reporting
Standard 1 (Revised 1996), "Cash Flow Statements" ("FRS 1 (Revised)"). The
statement prepared under FRS 1 (Revised) presents substantially the same
information as that required under U.S. Statement of Financial Accounting
Standard No 95 (SFAS 95), except that FRS 1 (Revised) reflects changes in
cash (which is defined as cash in hand and deposits repayable on demand
less any bank loans or bank overdrafts repayable on demand), whereas SFAS
95 reflects changes in the total of cash and cash equivalents.
Under FRS 1 (Revised) cash flows are presented separately for (i) operating
activities; (ii) returns on investments and servicing of finance; (iii)
taxation; (iv) capital expenditure and financial investment (and
acquisitions and disposals); (v) management of liquid resources; and (vi)
financing activities. SFAS 95 only requires presentation of cash flows from
operating, investing and financing activities.
Cash flows under FRS1 (Revised) in respect of interest received, interest
paid (net of that capitalised), interest on finance leases and taxation
would be included within operating activities under SFAS 95. Under SFAS 95
all short-term borrrowings are included in financing activities.
F-21
<PAGE> 207
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
The following statements summarise the statement of cash flows for the Group
as if they had been presented in accordance with U.S. GAAP and include the
adjustments which reconcile cash and cash equivalents under U.S. GAAP to
cash and cash equivalents reported under U.K. GAAP.
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------
1999 1998 1997
------ ------ ------
L'000 L'000 L'000
<S> <C> <C> <C>
Net cash outflow from operating activities............... (2,985) (3,272) (4,293)
Net cash used in investing activities.................... (5,220) 3,687 (3,989)
Net cash provided by financing activities................ 7,434 (28) 9,185
------ ------ ------
Net increase/(decrease) in cash and cash equivalents
under U.S. GAAP.......................................... (771) 387 903
Cash and cash equivalents under U.S. GAAP at beginning of
year................................................... 2,829 2,442 1,539
------ ------ ------
Cash and cash equivalents under U.S. GAAP at end of
year................................................... 2,058 2,829 2,442
Short term cash deposits................................. 5,000 -- 3,800
Short term deposit secured on finance leases............. 305 473 648
Cash set off against bank overdraft...................... 40 -- --
Overdrafts included in financing......................... -- 25 47
------ ------ ------
Cash and bank balances under U.K. GAAP at end of year.... 7,403 3,327 6,937
====== ====== ======
</TABLE>
(d) DEVELOPMENT STAGE ENTERPRISES
Under U.S. GAAP, Statement of Financial Accounting Standard No 7 (SFAS 7),
a development stage company is required to disclose certain additional
financial information relating to: its deficit accumulated during the
development stage; accumulated revenue; expenses and cash flows; and a
statement of shareholders' equity showing certain details of all stock
issues since the enterprise's inception.
The directors believe the Group is a development stage company as it is
devoting substantially all of its efforts to establishing the business.
Planned principal operations have not commenced.
F-22
<PAGE> 208
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
The information required by SFAS 7 is set out below:
Profit and loss account for the cumulative amounts from inception on 12
January 1990 through 31 March 1999.
<TABLE>
<CAPTION>
L'000
-------
<S> <C>
Turnover.................................................... 2,541
Cost of goods sold.......................................... (240)
Cost of service revenues.................................... (38)
Research and development.................................... (26,951)
Marketing................................................... (1,153)
General and administrative.................................. (14,812)
-------
Operating loss.............................................. (40,653)
Share of results of joint ventures.......................... (507)
Interest receivable......................................... 3,299
Interest payable............................................ (1,199)
-------
Loss on ordinary activities before and after taxation....... (39,060)
-------
</TABLE>
F-23
<PAGE> 209
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
Statement of shareholders' equity from inception through 31 March 1999.
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED IN
THE
SHARES PAR SHARE DEVELOPMENT
ANALYSIS OF SHAREHOLDERS' EQUITY DATE NUMBER VALUE PREMIUM STAGE TOTAL
-------------------------------- -------- ---------- --------- ---------- -------------- -----------
L L L L
<S> <C> <C> <C> <C> <C> <C>
Initial share capital............. 12/01/90 2 2 -- -- 2
Issuance for acquisition of PMD... 14/05/90 322,398 322,398 -- -- 322,398
50 to 1 stock split............... 18/05/90 15,797,600 -- -- -- 0
Issue of shares on flotation to
USM............................. May-90 5,373,333 107,467 4,406,133 -- 4,513,600
Issue expenses.................... -- -- (353,000) -- (353,000)
Issue of shares................... 28/11/91 895,000 17,900 1,235,100 -- 1,253,000
Issue expenses.................... -- -- (18,000) -- (18,000)
Rights issue...................... 02/06/92 4,477,666 89,553 12,447,911 -- 12,537,464
Share issue....................... 05/10/92 123,000 2,460 397,290 -- 399,750
Share issue for acquisition of 76%
of Genethics Limited............ 27/11/92 30,400 608 117,952 -- 118,560
Issue expenses.................... -- -- (400,000) -- (400,000)
Exercise of share options......... 07/07/93 200,000 4,000 51,020 -- 55,020
Rights issue...................... 20/04/94 3,888,485 77,770 10,809,988 -- 10,887,758
Issue of shares by placing........ 10/02/95 1,500,000 30,000 2,595,000 -- 2,625,000
Exercise of share options......... 10/03/95 100,000 2,000 25,370 -- 27,370
Issue expenses.................... -- -- (462,000) -- (462,000)
Rights issue...................... 24/05/96 21,805,256 436,105 9,376,260 -- 9,812,365
Exercise of share options......... 01/08/96 200,000 4,000 44,280 -- 48,280
Issue of shares to settle Rights
issue expenses.................. 01/08/96 309,731 6,195 168,587 -- 174,782
Issue expenses.................... -- -- (619,000) -- (619,000)
Exercise of share options......... 02/05/97 215,900 4,318 47,757 -- 52,075
Exercise of share options......... 29/05/97 261,195 5,224 57,776 -- 63,000
Rights issue...................... 22/04/98 18,498,354 369,967 7,954,292 -- 8,324,259
Issue expenses.................... -- -- (711,000) -- (711,000)
Losses accumulated during
development stage............... -- -- (39,060,000) (39,060,000)
Goodwill written off.............. -- -- (1,909,000) (1,909,000)
---------- --------- ---------- ----------- -----------
Total............................. 73,998,320 1,479,967 47,171,716 (40,969,000) 7,682,683
========== ========= ========== =========== ===========
</TABLE>
(e) DEFERRED TAXES
Under U.K. GAAP, deferred taxes are recognised where it is probable that
such tax will become payable in the foreseeable future. Under U.S. GAAP,
deferred taxes are accounted for on all temporary differences, including
tax losses. Any resultant net deferred tax assets so recognised are reduced
by a valuation allowance to the extent that future taxable income, as it is
currently
F-24
<PAGE> 210
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
assessed, is not likely to be sufficient to realise such assets. The
deferred tax asset under U.K. GAAP can be reconciled to the deferred tax
asset under U.S. GAAP as follows:
<TABLE>
<CAPTION>
AS AT 31 MARCH
------------------
1999 1998
------- -------
L'000 L'000
<S> <C> <C>
Deferred tax asset under U.K. GAAP.......................... -- --
Tax effects of timing differences:
-- Tax losses............................................. 11,400 10,850
------- -------
Gross deferred tax assets under U.S. GAAP................... 11,400 10,850
Valuation allowances........................................ (11,400) (10,850)
------- -------
Net deferred tax assets under U.S. GAAP..................... -- --
======= =======
</TABLE>
The Group has incurred tax losses for the past nine years. A valuation
allowance has been provided against the full amount of the deferred tax
assets arising from tax loss carry forwards as, in light of the Group's
start-up nature and lack of profitable operations to date, management
believes that it is more likely than not that sufficient taxable income
will not be generated to utilise these loss carry forwards which can be
used to offset future taxable profits of the same trade and have no expiry
date.
(f) STOCK COMPENSATION PLANS
As required under U.K. GAAP, Urgent Issues Task Force Abstract 17 ("UITF
17"), share options granted to employees are recognised in the Group's
financial statements when the share options have been granted. Such grants
give rise to compensation expense measured by reference to the fair value
of shares only on the date of grant, and at no subsequent date for variable
plans.
Under U.S. GAAP, as permitted by Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-based Compensation", the Group applies
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for
Stock Issued to Employees". Under APB 25 compensation expense resulting
from awards under variable plans is measured as the difference between the
quoted market price of the underlying shares at the date when the number of
shares of stock are known (the date the performance conditions are
satisfied) and the exercise price; the cost is recognised over the period
the employee performs related services. Since the ultimate compensation
cost is unknown until the performance conditions are satisfied, estimates
of compensation cost are recorded before the measurement date based on the
quoted market price of the underlying stock at period end dates where it is
probable that the performance conditions will be attained. The additional
compensation cost calculated under APB 25 is not material for the three
years ended 31 March 1999.
Savings related scheme
Under this plan all employees of the Group (including directors employed by
the Group who work at least 25 hours or more per week) are eligible to
participate provided they have been employed for a minimum continuous
period determined by the Board. Participants may choose to save a fixed
amount of between L5 and L250 a month for a period of three, five or seven
F-25
<PAGE> 211
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
years. At the end of the fixed term participants may choose to withdraw
their savings or use them to buy shares at a price fixed prior to the start
of the savings period. The price is not less than 80% of the market value
of a share at the start of the savings period. The options may be exercised
from the end of the fixed term for a period of six months. The number of
shares over which options to subscribe may be granted on any date may not,
when added to the number of shares issued or issuable in respect of options
granted in the previous ten years under this scheme and any other employee
share scheme adopted by the Group, exceed a number representing 10% of the
issued ordinary share capital of the Company on that date. The scheme also
applies limits to the number of shares over which options to subscribe may
be granted in a three year and five year period under all schemes.
Performance related executive scheme (the "Approved Scheme")
Options are granted at the discretion of the Board to eligible employees,
being any employee (including a director) who is required to devote
substantially the whole of his time to the service of the Group and is not
within two years of retirement. The option exercise price is determined by
the Board before the grant of the option but cannot be less than the market
value of the share on the date of grant. The options may be exercised
subject to a performance condition being achieved, from a date determined
by the Board which is between three and five years from the date of grant,
and before the expiration of a period of ten years from the date of grant.
The relevant performance condition that must be met is that the Company has
achieved a growth in earnings per share over the three financial periods
immediately preceding the date of exercise which exceeds the growth in the
General Index of Retail Prices. The number of shares for which options to
subscribe may be granted under this scheme on any day may not, when added
to the number of shares which immediately prior to that day have been or
remain to be issued on the exercise of options granted under this scheme,
exceed 2,149,333 shares or up to 10% of the ordinary share capital then in
issue, subject to the approval of the Inland Revenue, and confirmation by
the Auditors that such an increase is fair and reasonable. The scheme also
applies limits to the number of shares for which options may be granted in
a three year and ten year period under this scheme and any other executive
share scheme adopted by the Company.
Performance related employee scheme (the "Unapproved Scheme")
Options are granted by the Board to any eligible employee, being any
employee (including an executive director) who is employed under a contract
of employment save for any person who is within two years of retirement.
The option exercise price is determined by the Board before the grant of
the option but cannot be less than the market value of the share on the
date of grant. The options may be exercised subject to performance
conditions being achieved, from a date determined by the Board and before
the expiration of a period of seven years from the date of grant in the
case of options granted before 30 April 1998. Options granted from this
date may be exercised from a date determined by the Board and before the
expiration of a period of ten years from the date of grant. The three
performance conditions that must be met are as follows: the share price has
increased by a minimum of 15% per annum on a compound basis between the
date of grant and exercise; in the three years before exercise, at least
one agreement has been signed which is capable of generating L5 million in
license fees for technical information and an average of L1 million revenue
per annum has been generated in the two years preceding exercise,
F-26
<PAGE> 212
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
as a result of agreements signed since date of grant. Under this scheme, no
share may be issued on the exercise of an option which, when added to the
aggregate of all shares issued or to be issued in respect of options
granted under this scheme or any other executive scheme (not including any
profit sharing or savings related scheme) in the preceding ten years, would
exceed 5% of the ordinary share capital of the Company then in issue. The
scheme also applies limits to the number of shares which may be issued on
the exercise of an option in a three year and ten year period under this
scheme or any other scheme adopted by the Group (including any profit
sharing or savings related scheme).
Individual options
The Company has granted individual options whose terms are determined on an
individual basis. Individual options outstanding at 31 March 1999 are
exercisable from the third anniversary of the date of grant and may be
exercised before the expiration of a period of seven years from the date of
grant.
Information relating to stock options during the three years ended 31 March
1999 is as follows:
<TABLE>
<CAPTION>
PERFORMANCE RELATED PERFORMANCE RELATED
EXECUTIVE SCHEME EMPLOYEE SCHEME
SAVINGS RELATED (THE "APPROVED (THE "UNAPPROVED
SCHEME SCHEME") SCHEME" INDIVIDUAL OPTIONS
-------------------- ---------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE EXERCISE EXERCISE EXERCISE
OF PRICE OF NUMBER PRICE OF NUMBER PRICE OF NUMBER PRICE OF
SHARE SCHEMES SHARES OPTION(P) OF SHARES OPTION(P) OF SHARES OPTION(P) OF SHARES OPTION(P)
------------- ------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At 31 March 1996..... -- -- 504,831 127.14 -- -- 1,496,395 29.33
Granted.............. -- -- -- -- 1,799,461 58.07 -- --
Exercised............ -- -- -- -- -- -- (216,033) 22.33
Cancelled............ -- -- (298,897) 123.39 (301,747) 66.72 -- --
------- -------- --------- ---------
At 31 March 1997..... -- -- 205,934 132.59 1,497,714 56.32 1,280,362 30.52
Granted.............. -- -- -- -- 188,850 44.00 -- --
Exercised............ -- -- -- -- -- -- (515,341) 22.33
Cancelled............ -- -- (82,374) 154.66 (39,911) 65.68 (528,143) 22.33
------- -------- --------- ---------
At 31 March 1998..... -- -- 123,560 117.88 1,646,653 54.68 236,878 66.57
Granted.............. 528,149 36.50 -- -- 511,573 46.00 -- --
Exercised............ -- -- -- -- -- -- -- --
Cancelled/lapsed..... -- -- -- -- (60,142) 41.66 (224,621) 55.82
------- -------- --------- ---------
At 31 March 1999..... 528,149 36.50 123,560 117.88 2,098,084 52.94 12,257 263.51
======= ======== ========= =========
</TABLE>
The weighted average grant date fair value of options granted during the
year is as follows:
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------------------------------
PERFORMANCE
SAVINGS RELATED RELATED EMPLOYEE
SCHEME SCHEME
----------------------- -----------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ----- ----- -----
(P) (P) (P) (P) (P) (P)
<S> <C> <C> <C> <C> <C> <C>
For options whose exercise price:
Equals the share price on date of grant..................... -- -- -- 30.35 30.70 47.31
Exceeds the share price on date of grant.................... 19.39 -- -- -- 26.00 23.51
Is less than the share price on date of grant............... -- -- -- -- -- --
</TABLE>
F-27
<PAGE> 213
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
No individual options were granted and no options were granted under the
performance related executive scheme in the three years ended 31 March
1999.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997, 1998 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------------------------------
PERFORMANCE
SAVINGS RELATED RELATED EMPLOYEE
SCHEME SCHEME
----------------------- -----------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Weighted risk free rate %.......... 4.25 -- -- 5.51 5.99 6.56
Dividend yield %................... -- -- -- -- -- --
Volatility %....................... 77.19 -- -- 79.98 75.85 73.03
Weighted average expected life
(years).......................... 3.8 -- -- 4.7 5.5 6.4
</TABLE>
If the Company had elected to recognize compensation expense based on the
fair value at the grant date for awards under its various option plans,
consistent with the methodology prescribed by FAS 123, the Group's U.S.
GAAP net income and earnings per share would be altered to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------
1999 1998 1997
------ ------ ------
L'000 L'000 L'000
<S> <C> <C> <C>
U.S. GAAP net loss
As reported........................................ (3,856) (3,990) (3,716)
Pro forma.......................................... (4,079) (4,167) (3,816)
U.S. GAAP loss per ordinary share
As reported........................................ (5.42p) (6.94p) (6.85p)
Pro forma.......................................... (5.73p) (7.52p) (7.29p)
</TABLE>
F-28
<PAGE> 214
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
(g) APPROXIMATE EFFECT ON NET LOSS OF DIFFERENCES BETWEEN U.K. GAAP AND U.S.
GAAP
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
--------------------------------------
1999 1998 1997
---------- ---------- ----------
L'000 L'000 L'000
<S> <C> <C> <C>
Net loss of the Group under U.K. GAAP..... (3,947) (4,127) (3,824)
Adjustments:
Computer software....................... 248 294 265
Goodwill................................ (157) (157) (157)
---------- ---------- ----------
Approximate net loss under U.S. GAAP...... (3,856) (3,990) (3,716)
========== ========== ==========
Loss per Ordinary Share in accordance with
U.S. GAAP (pence)....................... (5.42p) (6.94p) (6.85p)
========== ========== ==========
Number of Ordinary Shares used in
calculating U.S. GAAP loss per Ordinary
Share................................... 71,205,296 55,439,533 52,326,238
========== ========== ==========
</TABLE>
The loss per share for the years ended 31 March 1998 and 1997 has been
adjusted for the effects of the 1998 Rights Issue.
(h) APPROXIMATE EFFECT ON EQUITY SHAREHOLDERS' FUNDS OF DIFFERENCES BETWEEN U.K.
GAAP AND U.S. GAAP
<TABLE>
<CAPTION>
YEARS ENDED
31 MARCH
----------------
1999 1998
----- ------
L'000 L'000
<S> <C> <C>
Equity shareholders' funds under U.K. GAAP.................. 7,682 4,016
Adjustments:
Computer software......................................... (809) (1,057)
Goodwill.................................................. 155 312
----- ------
Approximate equity shareholders' funds under U.S. GAAP...... 7,028 3,271
===== ======
</TABLE>
(i) OTHER U.S. GAAP DISCLOSURES
Accounting estimates
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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-29
<PAGE> 215
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
Concentrations of credit risk
Financial instruments that potentially subject the Group to concentrations
of credit risk consist principally of cash and cash equivalents. Cash and
liquid resources are invested in short-term deposits with a range of U.K.
banks and building societies. The risk associated with the Group's cash and
liquid resources is mitigated by the fact that these amounts are placed in
what management believes to be high quality financial institutions. The
Group has not experienced any losses to date on its deposited cash.
Analysis of revenue
Revenue analysed in accordance with U.S. GAAP is set out below:
<TABLE>
<CAPTION>
YEARS ENDED 31
MARCH
---------------------
1999 1998 1997
L'000 L'000 L'000
----- ----- -----
<S> <C> <C> <C>
License fees for technical information...................... 500 -- 398
Royalties................................................... 28 2 --
Product sales............................................... 100 142 139
Laboratory and advisory services............................ 17 22 --
Other....................................................... 51 12 36
--- --- ---
Total revenue..................................... 696 178 573
--- --- ---
</TABLE>
Analysis of operating expenses
Expenses analysed in accordance with U.S. GAAP are set out below:
<TABLE>
<CAPTION>
YEARS ENDED 31 MARCH
---------------------
1999 1998 1997
L'000 L'000 L'000
----- ----- -----
<S> <C> <C> <C>
Cost of goods sold.......................................... 59 82 76
Cost of service revenues.................................... 16 22 --
Research and development.................................... 3,532 2,983 3,162
Marketing................................................... 150 98 139
General and administrative.................................. 1,346 1,341 1,305
----- ----- -----
Total operating expenses.......................... 5,103 4,526 4,682
----- ----- -----
</TABLE>
Statement of comprehensive income
There is no difference between the Company's total recognized gains and
losses for the year and the net loss for the year (as set out in the profit
and loss account).
F-30
<PAGE> 216
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
Debtors
Trade debtors are reflected net of allowances for uncollectable accounts of
L11,000 as of 31 March 1999 and 1998 respectively.
Creditors and accruals
Current liabilities, other than accounts and notes payable, that are
greater than 5% of total current liabilities are:
<TABLE>
<CAPTION>
1999 1998
----- -----
L'000 L'000
<S> <C> <C>
Sub-contract research....................................... 309 234
Staff bonus................................................. -- 101
Computer upgrade costs...................................... 134 --
--- ---
443 335
=== ===
</TABLE>
Future minimum lease payments
The future minimum lease payments under non-cancellable leases as of 31
March 1999 are:
<TABLE>
<CAPTION>
FINANCE
-------------------
PAYABLE IN THE YEAR OPERATING CAPITAL INTEREST TOTAL
ENDING 31 MARCH --------- ------- -------- -----
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
2000.......................................... 196 385 41 622
2001.......................................... 193 174 10 377
2002.......................................... 179 33 3 215
2003.......................................... 167 -- -- 167
2004.......................................... 167 -- -- 167
--- --- --- -----
Total......................................... 902 592 54 1,548
=== === === =====
</TABLE>
(j) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 is effective for financial
years beginning after 15 June 1998. It establishes accounting and reporting
standards for derivative instruments including requiring such instruments
to be reported as either assets or liabilities at fair value and how
changes in fair value from year to year should be reported. SFAS 133 also
describes the conditions required for hedge accounting. Management is
currently assessing the impact SFAS 133 will have on the Group's financial
statements.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 Reporting on the Costs of Start-Up Activities.
This Statement of Position ("SOP") provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. This
SOP is effective for financial statements for fiscal years beginning after
15 December 1998. Management is currently assessing the impact this will
have on the Group's financial statements.
F-31
<PAGE> 217
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22. DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
Effective April 1, 1999, the Company adopted, as required, Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1, effective for fiscal
periods beginning after December 15, 1998, requires that certain costs for
the development of internal use software should be capitalized, including
the costs of coding, software configuration, upgrades and enhancements.
Based on internal software development plans, the Company estimates no
costs related to the development of internal use software could be
capitalized for the year ending March 31, 2000. The estimated range of
capitalizable development costs for internal use software reflects the
Company's current views. There may be differences between these estimates
and actual development costs, and those differences may be material.
23. COMPANIES ACT 1985
The consolidated financial statements do not constitute "statutory
accounts' within the meaning of the United Kingdom Companies Act 1985 for
any of the periods presented. These consolidated financial statements
exclude certain parent company statements and other information required by
the Companies Act 1985. However, they include all material disclosures
required by generally accepted accounting principles in the United Kingdom
including those Companies Act 1985 disclosures relating to the profit and
loss account and balance sheet items.
24. SUBSEQUENT EVENTS
On 20 May 1999 the Group announced the agreement of a merger with
Therapeutic Antibodies Inc. accompanied by a conditional pre-emptive
placing of 23,325,000 new Group ordinary shares at 40p per share to raise
approximately L7.0 million net of expenses. Upon the merger becoming
effective, Therapeutic Antibodies Inc. stockholders will receive 1.163
Proteus ordinary shares for each share of common stock. The merger is
subject to the approval of shareholders of both the Company and Therapeutic
Antibodies Inc. It is expected that shareholders' meetings of both
companies will be held in late August 1999.
F-32
<PAGE> 218
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Therapeutic Antibodies, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive loss,
stockholders' equity, and cash flows present fairly, in all material respects,
the financial position of Therapeutic Antibodies, Inc. and Subsidiaries, A
Development Stage Company (the Company) at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 and for the period August 10, 1984
(inception) through December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has been in the development stage since inception with its primary activities
being research and development and has not yet commenced planned principal
operations. The Company's efforts to obtain additional financing necessary to
support 1999 activities have not been concluded, raising substantial doubt about
its ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PRICEWATERHOUSECOOPERS LLP
Louisville, Kentucky
March 5, 1999
F-33
<PAGE> 219
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 7,760,328 $ 4,915,077
Restricted cash.......................................... 419,168 --
Short-term investments................................... -- 1,997,240
Trade receivables........................................ 67,677 594,267
Value added tax receivable............................... 326,849 179,629
Inventories.............................................. 287,802 489,138
Other current assets..................................... 712,370 409,929
------------ ------------
Total current assets............................. 9,574,194 8,585,280
Property and equipment, net................................ 11,074,766 11,456,690
Patent and trademark costs, net............................ 678,306 598,924
Other assets, net.......................................... 94,236 159,171
------------ ------------
Total assets..................................... $ 21,421,502 $ 20,800,065
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $ 1,755,098 $ 1,457,121
Accrued interest......................................... 122,486 146,326
Current portion of notes payable......................... 2,159,428 2,545,701
------------ ------------
Total current liabilities........................ 4,037,012 4,149,148
Notes payable, net of current portion...................... 4,744,216 6,059,072
Deferred revenue........................................... 342,363 559,467
Other liabilities.......................................... 275,477 274,033
------------ ------------
Total liabilities................................ 9,399,068 11,041,720
------------ ------------
Convertible redeemable preferred stock -- par value $.01
per share; 1,000,000 shares authorized................... -- --
Stockholders' equity:
Common stock -- par value $.001 per share; 59,000,000
shares authorized, 52,057,219 issued and outstanding
December 31, 1998; 30,000,000 shares authorized,
23,252,825 issued and outstanding December 31, 1997... 52,057 23,253
Additional paid-in capital............................... 87,074,215 68,927,203
Deficit accumulated during the development stage
(1984 - 1998)......................................... (75,301,311) (59,412,383)
Other comprehensive income............................... 197,473 220,272
------------ ------------
Total stockholders' equity....................... 12,022,434 9,758,345
------------ ------------
Total liabilities and stockholders' equity....... $ 21,421,502 $ 20,800,065
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-34
<PAGE> 220
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
FOR THE CUMULATIVE
FOR THE YEARS ENDED DEVELOPMENT STAGE
DECEMBER 31, FROM AUGUST 10, 1984
------------------------------------------ (INCEPTION) THROUGH
1998 1997 1996 DECEMBER 31, 1998
------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Operating revenues:
Sales revenue............... $ 529,754 $ 295,328 $ 288,155 $ 1,664,868
Contract revenue............ 197,206 97,560 312,452 1,853,209
Licensing revenue........... 2,543,925 1,112,955 143,500 3,900,380
Grant income................ 41,488 205,569 118,535 774,007
Value-added tax and
insurance recoveries..... -- -- -- 577,170
Other....................... 80,074 80,008 64,890 300,888
------------ ------------ ------------ ------------
3,392,447 1,791,420 927,532 9,070,522
------------ ------------ ------------ ------------
Operating expenses:
Cost of sales revenue....... 374,371 50,172 136,842 630,443
Cost of contract revenue.... 66,387 60,568 198,147 355,473
Research and development.... 11,363,218 11,462,352 9,185,126 53,405,675
General and
administrative........... 4,050,667 3,561,541 2,721,889 16,993,834
Marketing and
distribution............. 547,406 614,598 361,262 2,523,959
Depreciation and
amortization............. 1,561,951 1,643,922 1,387,916 7,073,621
Other....................... 10,485 217,418 20,371 345,310
------------ ------------ ------------ ------------
17,974,485 17,610,571 14,011,553 81,328,315
------------ ------------ ------------ ------------
Operating loss................ (14,582,038) (15,819,151) (13,084,021) (72,257,793)
Interest income............. 239,362 886,511 607,479 2,162,048
Interest expense............ (1,305,549) (1,001,959) (1,201,335) (5,036,131)
Foreign currency gains...... -- -- 1,733,357 1,785,984
Foreign currency losses..... (240,703) (913,119) -- (1,153,822)
Debt conversion expense..... -- -- (801,597) (801,597)
------------ ------------ ------------ ------------
Net loss...................... (15,888,928) (16,847,718) (12,746,117) (75,301,311)
Preferred stock dividends..... (32,877) -- -- (32,877)
------------ ------------ ------------ ------------
Net loss applicable to common
shareholders................ (15,921,805) (16,847,718) (12,746,117) (75,334,188)
Other comprehensive income
(loss), before and after
tax:
Change in equity due to
foreign currency
translation
adjustments.............. (22,799) (455,521) 859,202 197,473
------------ ------------ ------------ ------------
Total comprehensive
loss............. $(15,944,604) $(17,303,239) $(11,886,915) $(75,136,715)
============ ============ ============ ============
Basic and diluted net loss per
share....................... $ (0.59) $ (0.74) $ (0.68)
============ ============ ============
Weighted average shares used
in computing basic and
diluted net loss per
share....................... 26,910,291 22,888,226 18,821,524
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-35
<PAGE> 221
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND FOR THE CUMULATIVE
DEVELOPMENT STAGE FROM AUGUST 10, 1984 (INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK COMMON ADDITIONAL STOCK
---------------------- STOCK PAID-IN SUBSCRIPTIONS
SHARES PAR VALUE SUBSCRIBED CAPITAL RECEIVABLE
---------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Sale of common stock 1985 - 1995................... 10,055,243 $10,055 2,122 $27,418,235 (3,528,537)
One thousand-for-one stock split 1985.............. 2,797,200 2,797 (2,797)
Exercise of stock warrants at $.75 per share 1989
and $.50 - $.75 1995............................. 166,402 167 110,134
Issuance of shares 1990, 1992, 1994 and 1995....... 2,121,883 2,122 (2,122) (13,677) 3,528,537
Issuance of shares for acquisition of PAL 1992..... 1,415,875 1,416 3,155,984
Issuance of warrants 1992 and 1993................. 212,000
Translation adjustment 1992 - 1995.................
Net loss from August 10, 1984 (inception) to
December 31, 1995................................
---------- ------- ------ ----------- ----------
Balance, December 31, 1995......................... 16,556,603 16,557 -- 30,879,879 --
Issuance of shares upon debt conversion............ 466,383 466 2,564,639
Debt conversion charge............................. 801,597
Sale of common stock, net.......................... 164,332 165 933,384
Initial public offering, net....................... 4,190,477 4,190 30,370,518
Exercise of stock warrants at $.75 - $4.50 per
share............................................ 942,897 943 1,332,989
Exercise of stock options.......................... 33,000 33 89,667
Issuance of warrants............................... 46,944
Stock-based compensation expense................... 62,431
Net loss 1996......................................
Translation adjustment.............................
---------- ------- ------ ----------- ----------
Balance, December 31, 1996......................... 22,353,692 22,354 -- 67,082,048 --
Exercise of stock warrants at $.60 - $3.50 per
share............................................ 888,716 889 1,357,197
Stock-based compensation expense................... 469,438
Exercise of stock options.......................... 10,417 10 18,520
Net loss 1997......................................
Translation adjustment.............................
---------- ------- ------ ----------- ----------
Balance, December 31, 1997......................... 23,252,825 23,253 -- 68,927,203 --
Refinancing, net................................... 28,690,561 28,690 -- 17,642,828 --
Exercise of stock warrants at $2.50 per share...... 20,500 21 51,229
Stock-based compensation expense................... 160,129
Exercise of stock options.......................... 93,333 93 (93)
Issuance of warrants............................... 292,919
Net loss 1998......................................
Translation adjustment.............................
---------- ------- ------ ----------- ----------
Balance, December 31, 1998......................... 52,057,219 $52,057 -- $87,074,215 --
========== ======= ====== =========== ==========
<CAPTION>
DEFICIT OTHER
ACCUMULATED DURING COMPREHENSIVE
DEVELOPMENT STAGE INCOME TOTAL
------------------ ------------- ------------
<S> <C> <C> <C>
Sale of common stock 1985 - 1995................... $ -- $ -- $ 23,901,875
One thousand-for-one stock split 1985..............
Exercise of stock warrants at $.75 per share 1989
and $.50 - $.75 1995............................. 110,301
Issuance of shares 1990, 1992, 1994 and 1995....... 3,514,860
Issuance of shares for acquisition of PAL 1992..... 3,157,400
Issuance of warrants 1992 and 1993................. 212,000
Translation adjustment 1992 - 1995................. (183,409) (183,409)
Net loss from August 10, 1984 (inception) to
December 31, 1995................................ (29,818,548) (29,818,548)
------------ --------- ------------
Balance, December 31, 1995......................... (29,818,548) (183,409) 894,479
Issuance of shares upon debt conversion............ 2,565,105
Debt conversion charge............................. 801,597
Sale of common stock, net.......................... 933,549
Initial public offering, net....................... 30,374,708
Exercise of stock warrants at $.75 - $4.50 per
share............................................ 1,333,932
Exercise of stock options.......................... 89,700
Issuance of warrants............................... 46,944
Stock-based compensation expense................... 62,431
Net loss 1996...................................... (12,746,117) (12,746,117)
Translation adjustment............................. 859,202 859,202
------------ --------- ------------
Balance, December 31, 1996......................... (42,564,665) 675,793 25,215,530
Exercise of stock warrants at $.60 - $3.50 per
share............................................ 1,358,086
Stock-based compensation expense................... 469,438
Exercise of stock options.......................... 18,530
Net loss 1997...................................... (16,847,718) (16,847,718)
Translation adjustment............................. (455,521) (455,521)
------------ --------- ------------
Balance, December 31, 1997......................... (59,412,383) 220,272 9,758,345
Refinancing, net................................... 17,671,518
Exercise of stock warrants at $2.50 per share...... 51,250
Stock-based compensation expense................... 160,129
Exercise of stock options.......................... --
Issuance of warrants............................... 292,919
Net loss 1998...................................... (15,888,928) (15,888,928)
Translation adjustment............................. (22,799) (22,799)
------------ --------- ------------
Balance, December 31, 1998......................... $(75,301,311) $ 197,473 $ 12,022,434
============ ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-36
<PAGE> 222
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE CUMULATIVE
FOR THE YEARS ENDED DEVELOPMENT STAGE
DECEMBER 31, FROM AUGUST 10, 1984
------------------------------------------ (INCEPTION) THROUGH
1998 1997 1996 DECEMBER 31, 1998
------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss................................... $(15,888,928) $(16,847,718) $(12,746,117) $(75,301,311)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 1,561,951 1,643,922 1,387,916 7,073,621
Disposal of property and equipment..... 279,328 282,806 532,817 1,206,566
Foreign currency loss (gain)........... 240,703 913,119 (1,733,357) (632,162)
Warrant expense........................ 292,919 -- 46,944 486,913
Stock-based compensation expense....... 160,129 487,968 62,431 710,528
Debt conversion expense................ -- -- 801,597 801,597
Changes in:
Restricted cash..................... (419,168) -- -- (419,168)
Trade receivable.................... 355,227 (434,140) (52,373) (154,005)
Inventories......................... 201,335 (88,971) (7,073) (173,629)
Other current assets................ (301,155) 60,616 (128,813) (709,262)
Accounts payable and accrued
expenses.......................... 333,821 646,550 (340,411) 1,887,203
Accrued interest.................... 86,749 (777) (37,512) 862,974
Deferred revenue.................... (218,581) (84,063) 313,670 11,026
Other............................... 32,877 -- (234,301) (10,612)
------------ ------------ ------------ ------------
Net cash used in operating activities.... (13,282,793) (13,420,688) (12,134,582) (64,359,721)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment......... (1,385,027) (1,257,448) (3,293,214) (15,273,350)
Patent and trademark costs, net............ (99,657) (109,709) (198,502) (760,654)
Purchase of short-term investments......... -- (11,931,028) (2,002,266) (13,933,294)
Maturity of short-term investments......... 2,094,509 11,838,785 -- 13,933,294
Other...................................... -- -- -- 69,750
------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities............................. 609,825 (1,459,400) (5,493,982) (15,964,254)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable................ 4,641,239 17,605 2,518,239 20,450,244
Payments on notes payable.................. (3,346,423) (1,299,211) (1,969,138) (9,523,894)
Proceeds from line of credit............... -- 61,897 123,371 3,371,278
Payments on line of credit................. (43,836) (118,505) (1,018,738) (3,371,278)
Proceeds from convertible debt, net........ -- -- 5,432,500 9,655,000
Payments on convertible debt............... -- -- (4,320,325) (4,320,325)
Proceeds from issuance of stock, net....... 14,707,529 1,358,086 32,326,264 71,719,109
Proceeds from issuance of warrants......... -- -- -- 65,000
Other...................................... (1,869) 39,184 (5,628) (149,467)
------------ ------------ ------------ ------------
Net cash provided by financing
activities............................. 15,956,640 59,056 33,086,545 87,895,667
------------ ------------ ------------ ------------
Effect of exchange rate changes on cash and
cash equivalents........................... (438,421) (766,427) 1,647,473 188,636
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents................................ 2,845,251 (15,587,459) 17,105,454 7,760,328
Cash and cash equivalents, beginning of
period..................................... 4,915,077 20,502,536 3,397,082 --
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period..... $ 7,760,328 $ 4,915,077 $ 20,502,536 $ 7,760,328
============ ============ ============ ============
Supplemental cash flow disclosures:
Cash payments for interest (net of amount
capitalized)............................. $ 929,106 $ 1,017,000 $ 1,142,738 $ 1,612,778
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-37
<PAGE> 223
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
Therapeutic Antibodies Inc. (the "Company") was incorporated on August 10,
1984 for the purpose of engaging in the research, development, production and
marketing of therapeutic antibodies that provide protection against venoms,
drugs, toxins and infectious diseases. The Company is a development stage
company as defined in Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by Development Stage Enterprises, and is devoting
substantially all of its present efforts to research and development, including
pre-production activities. Certain of the Company's research and development and
product testing activities are carried out through affiliations with scientists
at academic institutions around the world. These affiliations include
preclinical and clinical research agreements, consulting agreements, patent and
royalty agreements and facility leases. Inherent in the development stage is a
range of risks including the need for, and uncertainty of, future financing. The
Company also faces risks stemming from the nature of the biopharmaceutical
industry, such as the risk of competition, the risk of regulatory change,
including potential changes in health care coverage, uncertainties associated
with obtaining and enforcing patents and proprietary technology, uncertainty of
the approval of products by governmental agencies and risks related to
fluctuations in interest rates and foreign currencies.
Since its inception, the Company has been in the development stage,
devoting its efforts and resources to drug discovery and development programs.
Capital resources have been used for the establishment and expansion of
production facilities, for product research and development activities, for
clinical testing and to meet Therapeutic Antibodies' overall increased working
capital requirements. Management does not expect revenues from product sales to
be a significant source of funding until additional products receive regulatory
approval. Although the Company anticipates the launch of CroTAb(R) following FDA
approval in mid-1999, revenues from sales of CroTAb(R) are not expected to be
significant in 1999. Future capital requirements will depend on numerous factors
including the progress of the Company's research programs and clinical trials,
the development of regulatory submissions, the receipt of FDA approval of
CroTAb(R), the commercial viability of the Company's products, the ability to
attract collaborative partners with sales, distribution and marketing
capabilities, and the terms of any new licensing arrangements.
Funds for the Company's operating and capital requirements historically
have been provided by the sale of equity and debt and from collaboration
agreements and other financing arrangements. In November 1998, the Company
successfully completed the private placement (described below in more detail) of
28,690,561 shares of Common Stock in the United States and in the United
Kingdom, raising net cash proceeds of $12,600,000. At the time of the private
placement, the Company estimated that the fundraising, together with licensing
and contract revenue, would provide sufficient funds to allow the Company to
reach the launch of several of its products, and accordingly bring the Company
to the point at which its revenues can sustain ongoing product development. With
the loss of the 1999 milestone payments and product revenues that would have
been received under the Searle agreement, the Company will need to raise
additional financing by mid-1999 to fund operations. The Company is currently
pursuing several financing alternatives, including preliminary discussions that
may lead to a merger on a share exchange basis at a value that approximates the
current market value of Therapeutic Antibodies. The Board has also entered into
discussions with third parties relating to the sale of additional debt or equity
securities, the disposal of certain non-core investments, entering into
additional product licensing arrangements, and possible combinations or
collaborations with strategic partners. While the Directors believe that they
will be able to successfully implement one or more of these financing
strategies, there can be no assurance that they will be able to do so or to
otherwise obtain financing on terms acceptable to the Company. The
F-38
<PAGE> 224
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND OPERATIONS OF THE COMPANY (CONTINUED):
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. In the meantime, the Company continues to take
measures, implemented in 1998, to conserve cash resources, while sustaining the
progress of clinical trials for products that promise the most success.
On November 9, 1998, the Company completed a $19,500,000 (L11,500,000) capital
refinancing involving the issuance of 28,690,561 new shares of Common Stock on
the London Stock Exchange at $.68 (40 pence) per share. The refinancing included
the private placement of 21,300,000 new shares of Common Stock. It also included
the conversion of $2,000,000 (all outstanding shares) of the Series A
Convertible Redeemable Preferred Stock issued by the Company in September 1998
and accrued dividends thereon of $33,000 into 2,995,692 shares of the Company's
Common Stock and of $2,900,000 (L1,700,000) principal and interest amount of
certain loan notes into 4,394,869 shares of Common Stock. Approximately
$12,600,000 (L7,500,000) in cash was raised in the private placement, net of
expenses, which will be used to fund the ongoing development of the Company's
products and to repay the balance of the outstanding 15% Notes (see Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of the
Company include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been
eliminated.
b. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign subsidiaries
denominated in foreign currencies are translated to United States (U.S.)
dollars at period-end exchange rates. Revenues and expenses denominated in
foreign currencies are translated at average exchange rates for the period.
Translation adjustments are reported as a separate component of stockholders'
equity. The effects of translation of intercompany loans to international
subsidiaries, which have been designated as long-term investments, are also
included in the separate component of stockholders' equity. At December 31,
1998, the Company had approximately L4,524,000 in British sterling and
$31,500 in Australian dollars which were translated to U.S. dollars at the
year end currency rates of 1.6595 and 0.6123, respectively. Foreign currency
transaction losses for the years ended December 31, 1998 and 1997 were
$240,703 and $913,119 and foreign currency transaction gains for the year
ending December 31, 1996 were $1,733,357.
c. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: All highly liquid investments
with an original maturity of three months or less when purchased are
classified as cash equivalents. Restricted cash relates to amounts received
pursuant to Therapeutic Antibodies' collaborative agreement with G. D. Searle
& Co. The funds were to be used for the identification, development and
commercialization of a new antibody based drug designed to titrate the
effects of Searle's new xemilofiban and orbofiban anticoagulent products. In
January 1999, however, Searle made the decision to cease development of its
xemilofiban and orbofiban projects and exercised its right to terminate its
agreement with the Company.
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and temporary cash investments.
The Company places substantially all of its cash and temporary cash
investments with one major financial institution. As of December 31, 1998,
and at times throughout the period, cash balances were in excess of Federal
Deposit Insurance Corporation insurance limits. The Company has not
experienced any losses in such
F-39
<PAGE> 225
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
accounts and believes no significant exposure from this concentration exists
with respect to cash and temporary cash investments. The Company also
maintains balances at a U.S. institution denominated in British pounds
sterling and Australian dollars.
Short-term investments consisted of governmental and corporate debt
instruments. The carrying value of these short-term investments approximated
fair value at December 31, 1997.
d. INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out) or market.
e. LONG-LIVED ASSETS: Property and equipment is stated at cost and is
depreciated using the straight-line method over the estimated useful life of
the asset as follows:
Buildings and improvements -- 10 to 20 years
Furniture, fixtures and equipment -- 3 to 10 years
Livestock -- 5 years
Leasehold improvements are amortized over the shorter of their estimated life
or the period of the related leases, including anticipated renewals for which
the Company has an option.
Patent costs consist of legal fees associated with patent applications and
filings and trademark costs consists of legal fees associated with trademark
procurement. Once a patent is granted, costs are amortized using the
straight-line method over 17 years from the patent grant date. Accumulated
amortization was $55,117 and $27,282 as of December 31, 1998 and 1997,
respectively. Trademark costs are amortized using the straight-line method
over 10 years. Accumulated amortization was $27,231 and $34,790 as of
December 31, 1998 and 1997, respectively.
The carrying value of long-lived assets is reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates
that the carrying value will not be recoverable, the carrying value is
reduced to fair value.
f. REVENUE RECOGNITION: Revenues from sales of products are recognized at the
time of shipment. Revenues from licensing agreements are recognized when
earned based upon signing the agreement, if applicable, and upon reaching
predefined milestones in the development program. Product sales revenues,
contract revenues and licensing revenues are nonrefundable and not subject to
any future obligations.
The Company has received grants from the United Kingdom (U.K.) and Australia
as a result of reaching certain employment levels and constructing production
facilities. Grants related to employment levels and conducting clinical
trials are recognized as income at the point in time that the conditions of
the grant are satisfied. Grants related to construction of production
facilities are recognized over the life of the facility.
Deferred grant income of $249,000 relating to U.K. grants received in 1995
and 1994 is included in deferred revenue at December 31, 1998. For the years
ended December 31, 1998, 1997 and 1996 deferred grant income relating to the
1995 and 1994 U.K. grants was recognized in the amounts of $41,000, $77,000
and $39,000, respectively.
In 1996, the Company received a $79,000 development grant from the Department
of Industry and Trade of the Government of South Australia for expansion of
the Company's Australian operations. The grant is structured in the form of a
99 year interest-free loan and the entire
F-40
<PAGE> 226
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
amount was recognized upon receipt. The Company received a $129,000 grant
from the Welsh Government in 1997 for expansion of the Company's Welsh
operations and the entire amount was recognized upon receipt.
g. RESEARCH AND DEVELOPMENT COSTS: Research and development costs ("R&D"), costs
for developing and improving manufacturing processes, pilot plant operations
and inventories of products not yet approved for sale by governmental
regulatory authorities are expensed when incurred.
h. BASIC AND DILUTED EARNINGS PER COMMON SHARE: The basic and diluted earnings
per common share calculation was based on SFAS No. 128, "Earnings per Share",
which the Company adopted during the year ended December 31, 1997.
The calculations are based upon the weighted average number of shares of
common stock outstanding during each period. Options to purchase 2,589,609,
2,032,388 and 1,612,376 and warrants to purchase 1,265,207, 737,374 and
1,726,738 shares of common stock for the years ended December 31, 1998, 1997
and 1996, respectively, have been excluded from the computation of diluted
earnings per common share because their effect is antidilutive.
i. VALUE-ADDED TAX RECEIVABLE: The Company's operations in the U.K. are subject
to value-added tax (VAT) where the Company pays tax at a rate of 17.5% on
most goods and services purchased. These VAT taxes are subject to refund
based on returns, which are filed quarterly with U.K. taxing authorities. VAT
paid by the Company after December 31, 1993 is recorded as a receivable at
the time it is paid. In years prior to 1994, VAT tax paid was included with
the related expense. In 1994, the Company determined it could file refunds
for VAT paid in prior years in the amount of $475,760 which was recorded as
revenue in 1994.
j. FINANCIAL STATEMENTS ESTIMATES: 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
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
During 1998, the Financial Accounting Standards Board issued Statement of
Position No. 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP No. 98-1") and Statement of Position No. 98-5
"Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5"). The Company
will adopt SOP No. 98-1 and SOP No. 98-5 in 1999 as required.
The Company primarily purchases all computer software from third party
vendors and does not engage in the development of internal use software. The
Company capitalizes all costs to acquire computer software from third party
vendors. Consequently, the implementation of SOP No. 98-1 is not expected to
have a material impact on the Company.
The Company expenses all start-up related costs and accordingly, the
implementation of SOP No. 98-5 will not have a significant impact on the
Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". In general, SFAS
No. 133 requires that all
F-41
<PAGE> 227
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED):
derivatives be recognized as either assets or liabilities in the balance sheet
at their face value, and sets forth the manner in which gains or losses thereon
are to be recorded. The treatment of such gains and losses is dependent upon the
type of exposure, if any, for which the derivative is designated as a hedge.
This statement is effective for periods beginning after June 15, 1999.
Management is currently assessing the impact of adopting SFAS No. 133, but does
not anticipate a significant impact on the Company's financial position or
results of operations.
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land......................................... $ 617,668 $ 614,429
Buildings and improvements................... 8,314,053 7,976,570
Construction in progress..................... -- 64,571
Furniture, fixtures and equipment............ 7,870,686 7,141,732
Livestock.................................... 905,062 870,323
----------- -----------
17,707,469 16,667,625
Accumulated depreciation................... 6,632,703 5,210,935
----------- -----------
$11,074,766 $11,456,690
=========== ===========
</TABLE>
Buildings and improvements includes $10,120 and $38,288 of capitalized
interest associated with the construction of a building in Australia in 1997 and
1996, respectively and $491,408 with the construction of buildings in the U.K.
in 1995.
F-42
<PAGE> 228
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE:
Notes payable at December 31 consist of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
6% convertible notes payable, principal due October 1, 2000,
interest due semi-annually on April 1 and October 1....... $2,905,000 $2,905,000
Capital lease payable to Phoenixcor Inc. (formerly Aberlyn
Capital Management Limited Partnership), interest at
14.5% - 18%, collateralized by equipment in the U.K. with
a net book value of $1 million with monthly payments due
through January 2000...................................... 568,118 1,697,708
11.5% note payable to Equitas, LP, principal due March 1999,
interest due quarterly in November, February, May, and
August, collateralized by various assets of the Company's
subsidiaries and common shares of the Company's
subsidiary, TAb U.K....................................... 800,000 800,000
12% and 15% unsecured notes payable to an officer of the
Company, interest due monthly and/or quarterly, principal
due January 1999 and December 2000, respectively.......... 500,000 1,000,000
Note payable to Bank of Wales PLC, collateralized by certain
real property in the U.K., interest at 2.5% over Bank of
Wales lending rate (effective rate of 8.75% at December
31, 1998), principal and interest due monthly over 10
years through February 2005............................... 356,445 395,363
Notes payable to South Australian Minister for Primary
Industries, collateralized by building and equipment,
interest rates from 6.5% to 9%, principal repayable in
annual installments through April 2008.................... 1,199,775 1,217,177
Capital equipment leases, interest rates from 10.6% to
21.3%, principal and interest payable monthly through
2001...................................................... 206,711 327,172
6% note payable to CATO, Inc., interest due semi-annually,
principal due December 2000............................... 100,000 100,000
Other....................................................... 267,595 162,353
---------- ----------
6,903,644 8,604,773
Less current portion........................................ 2,159,428 2,545,701
---------- ----------
$4,744,216 $6,059,072
========== ==========
</TABLE>
In August 1995, the Company initiated a private placement of its 6%
Convertible Notes due October 1, 2000 (the "6% Notes"). Interest on the 6% Notes
is payable semi-annually and the notes are convertible into shares of the
Company's Common Stock at $8.00 per share at any time prior to maturity upon the
election of the holder. The 6% Notes are not collateralized. In January 1996,
the Company offered each holder of the 6% Notes the opportunity to exchange all
or a portion of their 6% Notes for shares of the Company's Common Stock at the
rate of $5.50 per share until February 9, 1996. Pursuant to this offer, the
holders of $2,565,105 aggregate amount of principal and accrued interest on the
6% Notes elected to tender their 6% Notes to the Company in exchange for 466,383
shares of common stock. This exchange conversion resulted in a non-cash debt
conversion expense of $801,597.
The Company has capital lease agreements with Aberlyn Capital Management
Limited Partnership under which it has financed $1,000,000 at 18% and $3,203,573
at 14.5%. The borrowings are collateralized by certain of the Company's
equipment located in the U.K. Principal amounts mature through January 2000.
During 1998, the $1,000,000 leases at 18% were repaid in full.
F-43
<PAGE> 229
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
Principal and interest payments on the remaining leases of $568,118 are due
monthly. In connection with the agreement, the Company issued warrants in 1995
and 1994 to purchase a total of 102,514 shares of the Company's Common Stock at
$5.00 per share. In June 1998, Aberlyn assigned the $3,203,573 leases at 14.5%
to Phoenixcor Inc.
In 1995, the Company obtained the proceeds of an $800,000 loan from
Equitas, LP. The loan agreement provides for interest at an annual rate of 11.5%
to be paid quarterly. Principal is due in full at maturity on July 24, 2000.
However, the lender has elected to exercise its right to call the loan early and
principal will be repaid in March 1999. The lender received warrants to purchase
22,198 shares of the Company's Common Stock at $8.00 per share. The loan is
collateralized by accounts receivable, antisera inventory, and livestock from
certain of the Company's subsidiaries as well as limited guarantees from those
subsidiaries. The common shares of the Company's subsidiary, TAb U.K.,
additionally collateralize this loan.
In April 1996, an officer of the Company made a short-term unsecured loan
to the Company of $1,000,000 bearing interest at 12% (the "12% Note"). In May
1996, the officer converted $750,000 principal amount of the 12% Note into an
equal amount of the Company's 1996 notes bearing interest at 15% (the "15%
Notes"). In November 1998, $500,000 of the 15% Note was converted into 736,811
shares of the Company's Common Stock as a part of the capital refinancing. The
$250,000 principal balance on the remaining 12% Note was paid in full with
accrued interest in January 1999. The remaining $250,000 principal balance on
the 15% Note is due in December 2000.
In January 1995, financing of $465,900 was obtained from Bank of Wales PLC
collateralized by certain real property in the U.K. The note is repayable over
10 years beginning in February 1995. Interest is paid at 2.5% over the Bank of
Wales's base lending rate (effective rate of 8.75% at December 31, 1998).
The Company's subsidiary, TAb Australasia Pty. Ltd., has two loan
agreements with the South Australian Minister for Primary Industries (the
"Minister"). The first agreement allowed TAb Australasia Pty. Ltd. to draw up to
$2,000,000 Australian dollars ($1,224,600 U.S. dollars at December 31, 1998) to
assist with construction and equipment of buildings at its Turretfield location
in South Australia. The loan is to be repaid over ten years in equal annual
installments through August 2007. Interest is variable at the discretion of the
Minister and is due annually. The interest rates at December 31, 1998 and 1997
were 9% and 11% per annum. The loan is collateralized by a mortgage on the
building and equipment purchased. The second agreement provided for a loan of
$250,000 Australian dollars ($153,075 U.S. dollars at December 31, 1998) for the
construction of transportable buildings at the Company's Australian location.
Principal and interest accrued thereon are to be repaid in semi-annual
installments through April 2008. The interest rate at December 31, 1998 was 6.5%
and is variable at the discretion of the Minister.
The Company has available lines of credit at December 31, 1998 totaling
150,000 British pounds sterling with the Bank of Scotland and its subsidiary,
Bank of Wales PLC, in the U.K. Interest is paid at 2.5% over the relevant bank's
base lending rate (effective rate of 8.75% at December 31, 1998). The Company
also has available lines of credit at December 31, 1998 of 50,000 Australian
dollars with the Westpac Bank. This line of credit bears interest at 1.75% above
the bank's base lending rate (effective rate of 10.5% at December 31, 1998).
These lines of credit are collateralized by the guarantee of the Company and are
due on demand. At December 31, 1998, the Company had no outstanding borrowings
on these lines of credit. The weighted average interest rate on these lines of
credit outstanding at December 31, 1997 was 9%.
F-44
<PAGE> 230
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
Aggregate maturities of fixed payments on notes payable for the next five
years follow:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999................................ $2,159,428
2000................................ 3,514,044
2001................................ 193,623
2002................................ 202,405
2003................................ 215,733
Thereafter.......................... 618,411
----------
$6,903,644
==========
</TABLE>
At December 31, 1998 and 1997, $1,700,250 and $1,868,967, respectively, of
the Company's debt obligations were denominated in British pounds sterling or
Australian dollars and were translated to U.S. dollars at year-end exchange
rates. The Company is subject to foreign currency risk to the extent that
exchange rates between the U.S. dollar and the foreign currencies change. For
accounting purposes, changes in exchange rates for the debt obligations result
in translation adjustments which are reported as part of the separate component
of stockholders' equity. At December 31, 1998 and 1997, the amount included in
the cumulative translation adjustment related to the Company's debt obligations
was $320,484 and $242,956 of gain, respectively. The Company does not hedge its
exposure to foreign currency risks.
6. INCOME TAXES:
Under SFAS No. 109, Accounting for Income Taxes, deferred income taxes are
recognized for future tax consequences of differences between the tax bases of
assets and liabilities and their financial reporting amounts based on enacted
laws and statutory rates applicable in the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
The Company determined that at December 31, 1998 and 1997 its ability to realize
future benefits of deferred tax assets did not meet the "more likely than not"
criteria in SFAS No. 109. The components of the net deferred tax liability
recognized in the accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets................ $ 24,916,109 $ 19,214,452
Deferred tax liabilities........... (275,477) (643,339)
Valuation allowance................ (24,916,109) (18,845,146)
------------ ------------
$ (275,477) $ (274,033)
============ ============
</TABLE>
The deferred tax liability arose due to tax differences in the bases of
assets and liabilities relative to the acquisition of Polyclonal Antibodies,
Ltd. and the temporary difference in capital allowance in U.K. assets. The
deferred tax asset arises primarily from the Company's net operating loss
carryforwards.
At December 31, 1998, the Company had available net operating loss
carryforwards for U.S. federal tax purposes of approximately $57,700,000, which
expire in various amounts through 2018 and
F-45
<PAGE> 231
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED):
approximately $307,000 of research and development tax credits which expire
through 2013. As a result of the capital refinancing in 1998 discussed in Note
1, the Company experienced an "ownership change" within the meaning of Section
382 of the Internal Revenue Code. Consequently, the Company is subject to an
annual limitation on the amount of net operating loss carryforwards that can be
used to offset taxable income. The annual limitation is $1,502,000 plus certain
gains included in taxable income attributable to the Company prior to the
ownership change.
United Kingdom net operating loss carryforwards of $11,128,000 and
Australian net operating loss carryforwards of $1,687,000 are available to
offset future taxable income generated in those respective countries and may be
carried forward indefinitely.
The Company's effective tax rate varies from the federal statutory rate due
to the recognition of a valuation allowance for financial reporting purposes.
7. STOCK WARRANTS AND STOCK OPTIONS:
At December 31, 1998 there were warrants outstanding to purchase 1,265,207
shares of the Company's Common Stock at prices ranging from $.68 to $8.00
(average price of $4.18) per share. All outstanding warrants expire from 1999 to
2003.
Activity in stock warrants is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
WARRANTS PER SHARE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1995...................... 2,303,135 $ .60 - $8.00
Granted............................................. 366,500 $ 8.00
Forfeited........................................... -- --
Exercised........................................... (942,897) $ .75 - $4.50
Outstanding at December 31, 1996...................... 1,726,738 $ .60 - $8.00
Granted............................................. 5,000 $ 1.25
Forfeited........................................... (105,648) $1.25 - $3.50
Exercised........................................... (888,716) $ .60 - $3.50
Outstanding at December 31, 1997...................... 737,374 $2.50 - $8.00
Granted............................................. 707,500 $ .68 - $2.49
Forfeited........................................... (159,167) $2.50 - $3.50
Exercised........................................... (20,500) $ 2.50
---------
Outstanding at December 31, 1998...................... 1,265,207 $ .68 - $8.00
=========
</TABLE>
On April 26, 1996, the Board of Directors of the Company amended the
Therapeutic Antibodies Inc. 1990 Stock Incentive Plan (the "1990 Plan"). Up to
1,650,000 shares of the Company's Common Stock may be subject to incentives
under the 1990 Plan. The 1990 Plan provides for the grant to key employees,
advisors, officers and directors of the Company of stock options complying with
Section 422(a) of the Internal Revenue Code (qualified options) or options not
qualifying under such provision (nonqualified options) as well as stock
appreciation rights (SARs). The 1990 Plan provides for adjustment of the number
of shares under the 1990 Plan in the event of stock splits, stock dividends and
certain other events. The 1990 Plan also provides that if the Company shall not
be the surviving corporation in a business combination, the holder of an
outstanding option will be
F-46
<PAGE> 232
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK WARRANTS AND STOCK OPTIONS (CONTINUED):
entitled to purchase stock in the surviving corporation on the same terms and
conditions as the options. Options are nontransferable, and options and SARs are
subject to any restrictions contained in the grant and applicable securities
laws.
On April 27, 1997, shareholders of the Company voted in favor of adopting
the Company's 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan states
that 1,100,000 shares of the Company's Common Stock will be reserved for
issuance, at the discretion of the Company's Compensation Committee, to any
director, employee, consultant or advisor of the Company or any of its
subsidiaries. The 1997 Plan provides for adjustment of the number of shares
available under the 1997 Plan in the event of stock splits, stock dividends and
certain other events.
Between the 1990 Plan and the 1997 Plan, options to purchase 2,589,609
shares of the Company's Common Stock were outstanding at December 31, 1998 at
prices ranging from $.90 to $8.18 (average price of $3.97). Options granted
under both the 1990 and 1997 Plans have a contractual life of ten years. The
average remaining contractual life of outstanding options under both plans at
December 31, 1998 is approximately 7.4 years. Generally, the Company grants
options with a graded vesting requirement, which typically vests ratably over
one to five years. The options are issued at or above the fair value of the
underlying stock at date of grant. At December 31, 1998, 1,611,259 options were
exercisable at a weighted average price of $4.09. All options expire from 1999
to 2008.
The Company has granted its Chairman an option to purchase a number of
shares of its common stock determined by dividing up to a maximum of 10% of the
increase in the Company's market capitalization between June 8, 1998 and the
date of exercise by the market price of the Company's common stock on the date
of exercise. The Chairman will be entitled to exercise the option only if the
increase in the market price of the Company's common stock between June 8, 1998
and the date of exercise, when compared to the increase in the share price of
the companies constituting the FTSE Smallcap Index at the date of grant and
exercise, ranks in the top quartile. The Chairman will receive nothing if the
Company is in the median position, but options earned will increase on a
straight-line basis between the median position and the position representing
the 25th percentile. The award may be exercised in two tranches following the
second and third years of employment, but if the Chairman exercises the award
following the second anniversary, the terms of the calculation of any future
award is reset. The exercise price of each grant is one pound, or approximately
$1.61 at December 31, 1998. The Company has not recognized any compensation
expense in connection with this arrangement because it is not currently probable
that any awards will be earned under the arrangement. Should it become likely
that an award will be earned under this arrangement, the company will record
compensation expense over the three-year period of the arrangement in accordance
with FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans".
F-47
<PAGE> 233
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK WARRANTS AND STOCK OPTIONS (CONTINUED):
Activity in stock options is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE WEIGHTED
OPTIONS PER SHARE AVERAGE PRICE
--------- -------------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1995........ 1,108,626 $1.25 - $6.00 $3.10
Granted............................... 538,050 $6.00 - $8.18 $6.12
Forfeited............................. (1,300) $ 6.00 $6.00
Exercised............................. (33,000) $2.40 - $3.00 $2.49
Outstanding at December 31, 1996........ 1,612,376 $1.25 - $8.18 $4.12
Granted............................... 504,450 $4.00 - $6.00 $5.49
Forfeited............................. (84,438) $3.00 - $6.00 $4.18
Exercised............................. -- -- --
Outstanding at December 31, 1997........ 2,032,388 $1.25 - $8.18 $4.46
Granted............................... 1,042,670 $ .90 - $3.37 $2.71
Forfeited............................. (287,949) $2.40 - $6.58 $4.73
Exercised............................. (197,500) $ 1.25 $1.25
---------
Outstanding at December 31, 1998........ 2,589,609 $ .90 - $8.18 $3.97
=========
</TABLE>
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation",
the Company follows the provisions of Accounting Principles Board Opinion 25
"Accounting For Stock Issued to Employees", and related interpretations in
accounting for its stock option grants. Compensation expense for employees has
not been recognized for options issued under the 1990 Plan and the 1997 Plan.
Had compensation been determined based on the fair value of the awards at the
grant date consistent with the provisions of SFAS No. 123, the Company's net
loss and basic and diluted net loss per share would have been increased to the
pro forma amounts that follow:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common
shareholders
As reported....................... $(15,921,805) $(16,847,718) $(12,746,117)
Pro forma......................... $(16,572,715) $(17,249,174) $(12,922,164)
Basic and diluted net loss per share
As reported....................... $ (0.59) $ (0.74) $ (0.68)
Pro forma......................... $ (0.62) $ (0.75) $ (0.69)
</TABLE>
During 1998, 1997 and 1996, the Company granted options to non-employees to
purchase 395,420, 290,650 and 107,550 shares, respectively, of the Company's
Common Stock. The expense related to these grants recognized during 1998, 1997
and 1996 was approximately $160,000, $469,000 and $62,000 respectively.
The weighted average fair value of options granted during 1998, 1997 and
1996 was $1.55, $2.88 and $0.97, respectively.
F-48
<PAGE> 234
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK WARRANTS AND STOCK OPTIONS (CONTINUED):
Fair value estimates were determined using a variation of the Black-Scholes
model with the following weighted average assumptions for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate................................... 6.0% 6.0% 6.0%
Volatility factor......................................... 55% 30% 25%
Expected term of options (in years)....................... 10 10 5
Dividend yield............................................ none none none
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of the future amounts. SFAS No. 123 does not apply to
awards made prior to December 31, 1995, and the Company anticipates making
awards in the future under its stock-based compensation plan.
8. NET LOSS PER COMMON SHARE COMPUTATIONS:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common
shareholders used for basic and
diluted per share computations
(numerator)....................... $(15,921,805) $(16,847,718) $(12,746,117)
Shares used for basic and diluted
per share computations
(denominator)..................... 26,910,291 2,888,226 18,821,524
Basic and diluted net loss per
amount share...................... $ (0.59) $ (0.74) $ (0.68)
</TABLE>
9. COMMITMENTS:
ROYALTY COMMITMENT: In 1992, the Company entered into a patent sale and
royalty agreement with scientists who at the time worked at the University of
Arizona. Under the agreement, the Company purchased the scientists' rights under
their U.S. patent and certain U.S. patent applications. The Company agreed to
pay royalties to the sellers with respect to products developed and sold under
the patents. Currently, no royalty payments have yet been required under this
agreement.
LEASES: The Company leases laboratory and office space under operating
leases. Aggregate rent expense incurred under these leases was approximately
$694,915 in 1998, $475,209 in 1997 and $190,248 in 1996. Future minimum rental
commitments under noncancelable operating leases as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1999................................ $ 733,941
2000................................ 696,087
2001................................ 535,883
2002................................ 519,836
2003................................ 508,965
----------
$2,994,712
==========
</TABLE>
F-49
<PAGE> 235
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS:
The Company incurred interest expense and loan guarantee fees of $167,312,
$142,500 and $115,241 in the years ended December 31, 1998, 1997 and 1996,
respectively, on notes payable to certain directors of the Company and loan
guarantees made by certain directors on behalf of the Company in order to obtain
short-term loan financing.
11. INTERNATIONAL OPERATIONS:
The Company operates in one business segment and conducts its activities in
the U.S., the U.K., Australia and before 1998, New Zealand. International
operations are primarily located in the U.K. Intercompany sales between regions
are made at cost plus markup. Summarized financial data by region are as
follows:
<TABLE>
<CAPTION>
1998 U.S. INTERNATIONAL ELIMINATIONS NET
---- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Trade....................... $ 3,292,859 $ 338,950 $ -- $ 3,631,809
Intercompany(a)............. 908,323 9,747,363 (10,655,686) --
------------ ----------- ------------ ------------
$ 4,201,182 $10,086,313 $(10,655,686) $ 3,631,809
============ =========== ============ ============
R & D expense(a).............. $ 11,512,863 $ 9,268,170 $ (9,417,815) $ 11,363,218
============ =========== ============ ============
Foreign currency loss......... $ 240,703 $ 157,652 $ (157,652) $ 240,703
============ =========== ============ ============
Net loss...................... $(13,386,190) $(2,490,904) $ 11,834 $(15,888,928)
============ =========== ============ ============
Capital expenditures.......... $ 33,126 $ 1,351,901 $ -- $ 1,385,027
============ =========== ============ ============
Long lived assets............. $ 1,375,562 $10,483,745 $ (12,000) $ 11,847,307
============ =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1997 U.S. INTERNATIONAL ELIMINATIONS NET
---- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Trade....................... $ 2,255,334 $ 422,597 $ -- $ 2,677,931
Intercompany(a)............. 779,507 10,912,302 (11,691,809) --
------------ ----------- ------------ ------------
$ 3,034,841 $11,334,899 $(11,691,809) $ 2,677,931
============ =========== ============ ============
R & D expense(a).............. $ 13,458,565 $ 8,871,785 $(10,867,998) $ 11,462,352
============ =========== ============ ============
Foreign currency loss......... $ 913,119 $ 696,969 $ (696,969) $ 913,119
============ =========== ============ ============
Net loss...................... $(15,763,860) $(1,819,741) $ 735,883 $(16,847,718)
============ =========== ============ ============
Capital expenditures.......... $ 54,712 $ 1,202,736 $ -- $ 1,257,448
============ =========== ============ ============
Long lived assets............. $ 1,459,792 $10,766,992 $ (12,000) $ 12,214,784
============ =========== ============ ============
</TABLE>
F-50
<PAGE> 236
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INTERNATIONAL OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 U.S. INTERNATIONAL ELIMINATIONS NET
---- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Trade....................... $ 1,184,619 $ 350,392 $ -- $ 1,535,011
Foreign currency gain....... 1,733,357 -- -- 1,733,357
Intercompany(a)............. 1,301,702 5,318,319 (6,620,021) --
------------ ----------- ------------ ------------
$ 4,219,678 $ 5,668,711 $ (6,620,021) $ 3,268,368
============ =========== ============ ============
R & D expense(a).............. $ 5,279,302 $ 6,860,712 $ (2,954,888) $ 9,185,126
============ =========== ============ ============
Net loss...................... $ (5,468,662) $(5,223,305) $ (2,054,150) $(12,746,117)
============ =========== ============ ============
Capital expenditures.......... $ 99,035 $ 3,194,179 $ -- $ 3,293,214
============ =========== ============ ============
Long lived assets............. $ 1,528,257 $11,931,885 $ (12,000) $ 13,448,142
============ =========== ============ ============
</TABLE>
- ---------------
(a) Intercompany revenues include interest income earned by the U.S. parent
company on loans made to international subsidiaries and sales of products
to, and the performance of contract research and development for, the U.S.
parent company by international subsidiaries on a cost plus markup basis.
The intercompany account associated with this activity is eliminated in
consolidation.
12. NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1998 and 1997 the Company purchased equipment in the amounts of
$19,195 and $227,000, respectively, which was financed under capital lease
agreements.
On November 9, 1998 holders of $2,375,000 of the 15% Notes issued in 1998
converted principal plus accrued interest of $107,000 into 3,658,058 shares of
the Company's Common Stock.
On November 9, 1998, the Company converted $2,000,000 (all of the 100
outstanding shares) of its Series A Convertible Redeemable Preferred Stock and
$33,000 of accrued dividends into 2,995,692 shares of its Common Stock.
On November 9, 1998 the Company also converted $500,000 principal of the
15% Note held by an officer of the Company into 736,811 shares of the Company's
Common Stock.
On February 9, 1996 the Company issued 466,383 shares of common stock in
exchange for $2,500,000 of principal and $65,000 of accrued interest on the 6%
Notes.
In May 1996 an officer of the Company converted $750,000 principal of the
12% Note into an equal principal amount of the Company's 15% Notes.
On October 21, 1996 the Company issued 150,000 shares of common stock in
exchange for (pound)250,000 principal on two notes payable to the Welsh
Development Agency.
F-51
<PAGE> 237
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents and short-term investments
approximates fair value due to the short maturities of these instruments. The
Company believes that it is not practicable to estimate the fair value of its
long-term debt because these instruments were generally issued in a convertible
form or in conjunction with warrants to purchase the Company's Common Stock. The
Company would be required to obtain an independent valuation of each specific
instrument.
F-52
<PAGE> 238
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 783,313 $ 7,760,328
Restricted cash....................................... 63,587 419,168
Trade receivables..................................... 264,546 67,677
Value added tax receivable............................ 98,620 326,849
Inventories........................................... 291,542 287,802
Other current assets.................................. 226,656 712,370
------------ ------------
Total current assets.......................... 1,728,264 9,574,194
Property and equipment, net............................. 10,478,007 11,074,766
Patent and trademark costs, net......................... 701,843 678,306
Other assets, net....................................... 68,853 94,236
------------ ------------
Total assets.................................. $ 12,976,967 $ 21,421,502
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................. $ 876,538 $ 1,755,098
Accrued interest...................................... 152,004 122,486
Current portion of notes payable...................... 1,843,830 2,159,428
------------ ------------
Total current liabilities..................... 2,872,372 4,037,012
Notes payable, net of current portion................... 4,707,257 4,744,216
Deferred revenue........................................ 476,345 342,363
Other liabilities....................................... -- 275,477
------------ ------------
Total liabilities............................. 8,055,974 9,399,068
------------ ------------
Stockholders' equity:
Common stock -- par value $.001 per share; 59,000,000
shares authorized, 52,057,219 issued and
outstanding........................................ 52,057 52,057
Additional paid-in capital............................ 87,097,993 87,074,215
Deficit accumulated during the development stage
(1984-1999)........................................ (82,060,345) (75,301,311)
Other comprehensive income (loss)..................... (168,712) 197,473
------------ ------------
Total stockholders' equity.................... 4,920,993 12,022,434
------------ ------------
Total liabilities and stockholders' equity.... $ 12,976,967 $ 21,421,502
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-53
<PAGE> 239
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE THREE MONTHS FOR THE CUMULATIVE
ENDED ENDED DEVELOPMENT STAGE
JUNE 30, JUNE 30, FROM AUGUST 10, 1984
------------------------- ------------------------- (INCEPTION) THROUGH
1999 1998 1999 1998 JUNE 30, 1999
----------- ----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Sales revenue............. $ 182,300 $ 434,554 $ 182,300 $ 369,954 $ 1,847,168
Contract revenue.......... 179,498 55,214 114,810 30,123 2,032,707
Licensing revenue......... -- 1,543,925 -- 1,400,000 3,900,380
Grant income.............. 20,258 20,623 10,047 10,336 794,265
Value-added tax and
insurance recoveries... -- -- -- -- 577,170
Other..................... 9,263 31,758 2,332 23,544 310,151
----------- ----------- ----------- ----------- ------------
391,319 2,086,074 309,489 1,833,957 9,461,841
----------- ----------- ----------- ----------- ------------
Operating expenses:
Cost of sales revenue..... 18,853 363,319 18,853 353,640 649,296
Cost of contract
revenue................ 66,353 20,713 31,198 11,388 421,826
Research and
development............ 4,479,365 5,551,426 2,104,740 2,985,756 57,885,040
General and
administrative......... 1,148,360 2,022,880 830,681 1,041,751 18,142,194
Marketing and
distribution........... 222,469 259,236 134,314 123,300 2,746,428
Depreciation and
amortization........... 887,599 801,651 471,798 427,683 7,961,220
Other..................... -- -- -- -- 345,310
----------- ----------- ----------- ----------- ------------
6,822,999 9,019,225 3,591,584 4,943,518 88,151,314
----------- ----------- ----------- ----------- ------------
Operating loss.............. (6,431,680) (6,933,151) (3,282,095) (3,109,561) (78,689,473)
Interest income........... 86,874 144,295 22,560 57,446 2,248,922
Interest expense.......... (247,964) (470,124) (114,329) (257,240) (5,284,095)
Foreign currency gains.... -- 24,115 -- -- 1,785,984
Foreign currency losses... (166,264) -- (6,465) (22,361) (1,320,086)
Debt conversion expense... -- -- -- -- (801,597)
----------- ----------- ----------- ----------- ------------
Net loss.................... (6,759,034) (7,234,865) (3,380,329) (3,331,716) (82,060,345)
Redeemable preferred stock
dividends................. -- -- -- -- (32,877)
----------- ----------- ----------- ----------- ------------
Net loss applicable to
common shareholders....... (6,759,034) (7,234,865) (3,380,329) (3,331,716) (82,093,222)
Other comprehensive income
(loss), before and after
tax:
Change in equity due to
foreign currency
translation
adjustments............ (366,185) 34,871 (126,072) (49,779) (168,712)
----------- ----------- ----------- ----------- ------------
Total comprehensive loss.... $(7,125,219) $(7,199,994) $(3,506,401) $(3,381,495) $(82,261,934)
=========== =========== =========== =========== ============
Basic and diluted net loss
per share................. $ (0.13) $ (0.31) $ (0.06) $ (0.14)
=========== =========== =========== ===========
Weighted average shares used
in computing basic and
diluted net loss per
share..................... 52,057,219 23,257,950 52,057,219 23,263,075
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-54
<PAGE> 240
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE CUMULATIVE
ENDED DEVELOPMENT STAGE
JUNE 30, FROM AUGUST 10, 1984
------------------------- (INCEPTION) THROUGH
1999 1998 JUNE 30, 1999
----------- ----------- --------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss...................................... $(6,759,034) $(7,234,865) $(82,060,345)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 887,599 801,651 7,961,220
Disposal of property and equipment......... -- -- 1,206,566
Foreign currency (gain) loss............... 166,264 (24,115) (465,898)
Warrant expense............................ -- 48,820 486,913
Stock-based compensation expense........... 23,778 54,372 734,306
Debt conversion expense.................... -- -- 801,597
Changes in:
Restricted cash.......................... 355,580 (1,000,000) (63,588)
Trade receivable......................... 17,110 483,712 (136,895)
Inventories.............................. (3,740) 328,640 (177,369)
Other current assets..................... 473,193 194,587 (236,069)
Accounts payable and accrued expenses.... (867,535) (208,910) 1,019,668
Accrued interest......................... 23,636 65,620 886,610
Deferred revenue......................... 145,777 (197,711) 156,803
Other.................................... (268,887) -- (279,499)
----------- ----------- ------------
Net cash used in operating activities...... (5,806,259) (6,688,199) (70,165,980)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment............ (467,458) (555,382) (15,740,808)
Patent and trademark costs.................... (43,906) (41,700) (804,560)
Purchase of short-term investments............ -- -- (13,933,294)
Maturity of short-term investments............ -- 2,094,508 13,933,294
Other......................................... -- -- 69,750
----------- ----------- ------------
Net cash provided by (used in) investing
activities.................................... (511,364) 1,497,425 (16,475,618)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable................... -- 3,331,412 20,450,244
Payments on notes payable..................... (1,806,062) (590,331) (11,329,956)
Proceeds from line of credit.................. 1,355,401 -- 4,726,679
Payments on line of credit.................... -- (43,836) (3,371,278)
Proceeds from convertible debt, net........... -- -- 9,655,000
Payments on convertible debt.................. -- -- (4,320,325)
Proceeds from issuance of stock, net.......... -- 51,250 71,719,109
Proceeds from issuance of warrants............ -- -- 65,000
Other......................................... -- (1,937) (149,467)
----------- ----------- ------------
Net cash (used in) provided by financing
activities.................................... (450,661) 2,746,558 87,445,006
----------- ----------- ------------
Effect of exchange rate changes on cash and cash
equivalents................................... (208,731) (201,948) (20,095)
----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents................................... (6,977,015) (2,646,164) 783,313
Cash and cash equivalents, beginning of
period........................................ 7,760,328 4,915,077 --
----------- ----------- ------------
Cash and cash equivalents, end of period........ $ 783,313 $ 2,268,914 $ 783,313
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-55
<PAGE> 241
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements are
unaudited, but include all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary for a fair statement of the
results for such periods.
The unaudited interim condensed consolidated financial statements should be
read in conjunction with the audited December 31, 1998 consolidated financial
statements of Therapeutic Antibodies Inc. (the "Company"). The December 31, 1998
condensed consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
The results of operations for the interim periods are note necessarily
indicative of the results to be expected for the full year ending December 31,
1999.
NOTE 2 -- BASIC AND DILUTED EARNINGS PER COMMON SHARE
The basic and diluted loss per common share calculation was based on
Statement of Financial Accounting Standards No. 128, "Earnings per Share."
The calculations are based upon the weighted average number of shares of
common stock outstanding during each period as disclosed in the consolidated
statements of operations and comprehensive loss. Common equivalent shares from
stock options, warrants and other dilutive securities totaling 3,463,216 at June
30, 1999, and 3,608,212 at June 30, 1998 are excluded from the computations as
their effect is antidilutive.
NOTE 3 -- NEW LINE OF CREDIT
On May 20, 1999, the Company announced that it had entered into an
Agreement and Plan of Merger with Proteus International plc. To provide working
capital until the closing of the merger, the Company has obtained a short-term
secured bridge facility from Barclays Bank, Plc in the amount of up to L3.0
million ($4.89 million). Borrowings under the bridge facility may be drawn as
needed until maturity. The bridge facility is to be repaid in full on September
14, 1999, or at such earlier time as Barclays may demand, and bears interest at
a rate of 2.0% per annum over Barclays' base rate (currently 5.25%). The bridge
facility is secured by debentures and guarantees executed by the Company's
Polyclonal Antibodies Limited and TAb Wales Limited subsidiaries and by a second
charge over Polyclonal Antibodies Limited's manufacturing facility in Wales. At
August 9, 1999, the Company had drawn L1,800,000 ($2,898,000) on the bridge
facility. It is anticipated that the bridge facility will be repaid in full from
the net proceeds of Proteus' UK L7.0 million financing which is scheduled to
close simultaneously with the merger.
F-56
<PAGE> 242
NOTE 4 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In general, SFAS
No. 133 requires that all derivatives be recognized as either assets or
liabilities in the balance sheet at their face value, and sets forth the manner
in which gains or losses thereon are to be recorded. The treatment of such gains
and losses is dependent upon the type of exposure, if any, for which the
derivative is designated as a hedge. This statement is effective for the Company
on January 1, 2001. As the Company does not purchase derivative instruments or
engage in hedging activities, the adoption of SFAS No. 133 is not expected to
impact the Company's financial position or results of operations.
F-57
<PAGE> 243
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
ASSETS -------------- -----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 3,497,279 $ 7,760,328
Restricted cash......................................... 136,170 419,168
Trade receivables....................................... 70,724 67,677
Value added tax receivable.............................. 294,485 326,849
Inventories............................................. 306,859 287,802
Other current assets.................................... 581,671 712,370
------------ ------------
Total current assets............................ 4,887,188 9,574,194
Property and equipment, net............................... 10,927,311 11,074,766
Patent and trademark costs, net........................... 695,311 678,306
Other assets, net......................................... 81,400 94,236
------------ ------------
Total assets.................................... $ 16,591,210 $ 21,421,502
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................... $ 1,473,290 $ 1,755,098
Accrued interest........................................ 91,475 122,486
Current portion of notes payable........................ 1,570,228 2,159,428
------------ ------------
Total current liabilities....................... 3,134,993 4,037,012
Notes payable, net of current portion..................... 4,715,579 4,744,216
Deferred revenue.......................................... 325,133 342,363
Other liabilities......................................... -- 275,477
------------ ------------
Total liabilities............................... 8,175,705 9,399,068
------------ ------------
Stockholders' equity:
Common stock -- par value $.001 per share; 59,000,000
shares authorized, 52,057,219 issued and
outstanding.......................................... 52,057 52,057
Additional paid-in capital.............................. 87,086,104 87,074,215
Deficit accumulated during the development stage
(1984-1999).......................................... (78,680,016) (75,301,311)
Other comprehensive income (loss)....................... (42,640) 197,473
------------ ------------
Total stockholders' equity...................... 8,415,505 12,022,434
------------ ------------
Total liabilities and stockholders' equity...... $ 16,591,210 $ 21,421,502
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-58
<PAGE> 244
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE CUMULATIVE
THREE MONTHS ENDED DEVELOPMENT STAGE
MARCH 31, FROM AUGUST 10, 1984
------------------------- (INCEPTION) THROUGH
1999 1998 MARCH 31, 1999
----------- ----------- --------------------
<S> <C> <C> <C>
Operating revenues:
Sales revenue.............................. $ -- $ 64,600 $ 1,664,868
Contract revenue........................... 64,688 25,091 1,917,897
Licensing revenue.......................... -- 143,925 3,900,380
Grant income............................... 10,210 10,287 784,217
Value-added tax and insurance recoveries... -- -- 577,170
Other...................................... 6,931 8,214 307,819
----------- ----------- ------------
81,829 252,117 9,152,351
----------- ----------- ------------
Operating expenses:
Cost of sales revenue...................... -- 9,679 630,443
Cost of contract revenue................... 35,155 9,325 390,628
Research and development................... 2,374,625 2,565,670 55,780,300
General and administrative................. 317,679 981,129 17,311,513
Marketing and distribution................. 88,155 135,936 2,612,114
Depreciation and amortization.............. 415,800 373,968 7,489,421
Other...................................... -- -- 345,310
----------- ----------- ------------
3,231,414 4,075,707 84,559,729
----------- ----------- ------------
Operating loss............................... (3,149,585) (3,823,590) (75,407,378)
Interest income............................ 64,314 86,849 2,226,362
Interest expense........................... (133,635) (212,884) (5,169,766)
Foreign currency gains..................... -- 46,476 1,785,984
Foreign currency losses.................... (159,799) -- (1,313,621)
Debt conversion expense.................... -- -- (801,597)
----------- ----------- ------------
Net loss................................... (3,378,705) (3,903,149) (78,680,016)
=========== =========== ============
Redeemable preferred stock dividends....... -- -- (32,877)
----------- ----------- ------------
Net loss applicable to common
shareholders............................ (3,378,705) (3,903,149) (78,712,893)
Other comprehensive income (loss), before
and after tax:
Change in equity due to foreign currency
translation adjustments................. (240,113) 84,650 (42,640)
----------- ----------- ------------
Total comprehensive loss................... $(3,618,818) $(3,818,499) $(78,755,533)
=========== =========== ============
Basic and diluted net loss per share....... $ (0.06) $ (0.17)
=========== ===========
Weighted average shares used in computing
basic and diluted net loss per share.... 52,057,219 23,252,825
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-59
<PAGE> 245
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE CUMULATIVE
FOR THE DEVELOPMENT STAGE
THREE MONTHS ENDED FROM AUGUST 10,
MARCH 31, 1984 (INCEPTION)
------------------------- THROUGH MARCH 31,
1999 1998 1999
----------- ----------- ------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss.................................................. $(3,378,705) $(3,903,149) $(78,680,016)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 415,800 373,968 7,489,421
Disposal of property and equipment...................... -- -- 1,206,566
Foreign currency (gain) loss............................ 159,799 (46,476) (472,363)
Warrant expense......................................... -- -- 486,913
Stock-based compensation expense........................ 11,889 27,186 722,417
Debt conversion expense................................. -- -- 801,597
Changes in:
Restricted cash....................................... 282,998 -- (136,170)
Trade receivable...................................... 18,683 412,803 (135,322)
Inventories........................................... (19,056) 19,234 (192,685)
Other current assets.................................. 119,735 91,512 (589,527)
Accounts payable and accrued.......................... (266,771) (72,889) 1,620,432
expenses Accrued interest............................. (32,623) (14,641) 830,351
Deferred revenue...................................... (10,208) 23,548 818
Other................................................. (271,027) -- (281,639)
----------- ----------- ------------
Net cash used in operating activities................. (2,969,486) (3,088,904) (67,329,207)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment........................ (408,686) (133,701) (15,682,036)
Patent and trademark costs................................ (27,189) (15,651) (787,843)
Purchase of short-term investments........................ -- -- (13,933,294)
Maturity of short-term investments........................ -- 1,497,240 13,933,294
Other..................................................... -- -- 69,750
----------- ----------- ------------
Net cash provided by (used in) investing activities....... (435,875) 1,347,888 (16,400,129)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable............................... -- -- 20,450,244
Payments on notes payable................................. (653,824) (306,487) (10,177,718)
Proceeds from line of credit.............................. -- -- 3,371,278
Payments on line of credit................................ -- (43,836) (3,371,278)
Proceeds from convertible debt, net....................... -- -- 9,655,000
Payments on convertible debt.............................. -- -- (4,320,325)
Proceeds from issuance of stock, net...................... -- -- 71,719,109
Proceeds from issuance of warrants........................ -- -- 65,000
Other..................................................... -- -- (149,467)
----------- ----------- ------------
Net cash (used in) provided by financing activities....... (653,824) (350,323) 87,241,843
----------- ----------- ------------
Effect of exchange rate changes on cash and cash
equivalents............................................... (203,864) (21,246) (15,228)
----------- ----------- ------------
Net (decrease) increase in cash and cash equivalents........ (4,263,049) (2,112,585) 3,497,279
Cash and cash equivalents, beginning of period.............. 7,760,328 4,915,077 --
----------- ----------- ------------
Cash and cash equivalents, end of period.................... $ 3,497,279 $ 2,802,492 $ 3,497,279
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-60
<PAGE> 246
THERAPEUTIC ANTIBODIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE 1 -- BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements are
unaudited, but include all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary for a fair statement of the
results for such periods.
The unaudited interim consolidated financial statements should be read in
conjunction with the audited December 31, 1998 consolidated financial statements
of Therapeutic Antibodies Inc. (the "Company"). The December 31, 1998 condensed
consolidated balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year ending December 31,
1999.
NOTE 2 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board issued Statement of
Position (SOP) No. 98-1 "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" ("SOP No. 98-1") and Statement of Position No.
98-5 "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5"). The
Company has adopted SOP No. 98-1 and SOP No. 98-5 in the first quarter of 1999
as required. However, the adoption has not had a significant impact on the
Company's financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
In general, SFAS No. 133 requires that all derivatives be recognized as either
assets or liabilities in the balance sheet at their face value, and sets forth
the manner in which gains or losses thereon are to be recorded. The treatment of
such gains and losses is dependent upon the type of exposure, if any, for which
the derivative is designated as a hedge. This statement is effective for periods
beginning after June 15, 1999. Management is currently assessing the impact of
adopting SFAS No. 133, but does not anticipate a significant impact on the
Company's financial position or results of operations.
NOTE 3 -- BASIC AND DILUTED EARNINGS PER COMMON SHARE
The basic and diluted loss per common share calculation was based on
Statement of Financial Accounting Standards No. 128, "Earnings per Share".
The calculations are based upon the weighted average number of shares of
common stock outstanding during each period as disclosed in the consolidated
statements of operations and comprehensive loss. Common equivalent shares from
stock options, warrants and other dilutive securities totaling 3,944,641 at
March 31, 1999, and 2,779,334 at March 31, 1998 are excluded from the
computations as their effect is antidilutive.
F-61
<PAGE> 247
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 20, 1999
AMONG
PROTEUS INTERNATIONAL PLC
PI MERGER SUB, INC.
AND
THERAPEUTIC ANTIBODIES INC.
A-1
<PAGE> 248
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. THE MERGER................................................ A-8
1.1. The Merger.................................................. A-8
1.2. Closing..................................................... A-8
1.3. Effective Time.............................................. A-9
1.4. Effects of the Merger....................................... A-9
1.5. Certificate of Incorporation................................ A-9
1.6. Bylaws...................................................... A-9
1.7. Directors of Surviving Corporation.......................... A-9
ARTICLE II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES................. A-9
2.1. Effect on Capital Stock..................................... A-9
2.2. Exchange of Certificates.................................... A-10
2.3. Dissenting Shares........................................... A-12
2.4. Options, Warrants and Convertible Notes..................... A-12
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........... A-14
3.1. Organization, Standing and Power; Subsidiaries.............. A-14
3.2. Capital Structure........................................... A-14
3.3. Authority; No Conflicts..................................... A-15
3.4. Reports and Financial Statements............................ A-16
3.5. Information Supplied........................................ A-17
3.6. Compliance with Law......................................... A-17
3.7. Litigation.................................................. A-17
3.8. Taxes....................................................... A-18
3.9. Absence of Certain Changes or Events........................ A-20
Vote Required............................................... A-20
3.10.
Certain Agreements.......................................... A-21
3.11.
Employee Benefit Plans...................................... A-21
3.12.
Brokers or Finders.......................................... A-23
3.13.
Opinion of Financial Advisor................................ A-23
3.14.
Environmental............................................... A-23
3.15.
Labor Matters............................................... A-25
3.16.
Proprietary Rights.......................................... A-25
3.17.
Insurance................................................... A-27
3.18.
Permits; Licenses........................................... A-28
3.19.
Absence of Undisclosed Liabilities.......................... A-28
3.20.
Books and Records........................................... A-28
3.21.
Title to Properties; Condition of Properties................ A-28
3.22.
Consequence of Consummation of the Merger................... A-29
3.23.
Product Regulatory Requirements............................. A-29
3.24.
Year 2000................................................... A-29
3.25.
Additional Representations.................................. A-30
3.26.
</TABLE>
A-2
<PAGE> 249
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT................. A-30
4.1. Organization, Standing and Power; Subsidiaries.............. A-30
4.2. Capital Structure........................................... A-31
4.3. Authority; No Conflicts..................................... A-31
4.4. LSE Reports and Financial Statements........................ A-32
4.5. Information Supplied........................................ A-33
4.6. Compliance with Law......................................... A-33
4.7. Litigation.................................................. A-34
4.8. Taxes....................................................... A-34
4.9. Absence of Certain Changes or Events........................ A-35
Vote Required............................................... A-35
4.10.
Certain Agreements.......................................... A-36
4.11.
Employee Share and Other Schemes............................ A-36
4.12.
Brokers or Finders.......................................... A-37
4.13.
Environmental............................................... A-37
4.14.
Labour Matters.............................................. A-39
4.15.
Proprietary Rights.......................................... A-39
4.16.
Insurance................................................... A-41
4.17.
Permits; Licenses........................................... A-41
4.18.
Absence of Undisclosed Liabilities.......................... A-42
4.19.
Books and Records........................................... A-42
4.20.
Title to Properties; Condition of Properties................ A-42
4.21.
Consequence of Consummation of the Merger................... A-43
4.22.
Product Regulatory Requirements............................. A-43
4.23.
Year 2000................................................... A-43
4.24.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF MERGER SUB.............. A-43
5.1. Organization and Corporate Power............................ A-43
5.2. Corporate Authorization..................................... A-44
5.3. Non-Contravention........................................... A-44
5.4. No Business Activities...................................... A-44
ARTICLE VI. COVENANTS RELATING TO CONDUCT OF BUSINESS................ A-44
6.1. Covenants of the Company.................................... A-44
6.2. Covenants of Parent and Merger Sub.......................... A-47
6.3. Advice of Changes; Government Filings....................... A-49
6.4. Control of Other Party's Business........................... A-49
ARTICLE VII. ADDITIONAL AGREEMENTS................................... A-50
7.1. Preparation of Form F-4 and Proxy Statement; the
Stockholders Meetings....................................... A-50
7.2. Preparation of Parent Disclosure Circular................... A-51
7.3. Access to Information....................................... A-51
7.4. Approvals and Consents; Cooperation......................... A-52
7.5. Acquisition Proposals....................................... A-52
7.6. Fees and Expenses........................................... A-54
7.7. Indemnification; Directors' and Officers' Insurance......... A-55
7.8. Public Announcements........................................ A-55
</TABLE>
A-3
<PAGE> 250
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.9. Tax and Accounting Treatment................................ A-55
Affiliates.................................................. A-55
7.10.
Stock Exchange Listing...................................... A-56
7.11.
Takeover Statutes........................................... A-56
7.12.
Directors and Senior Management of Parent................... A-56
7.13.
Patent Opinion.............................................. A-56
7.14.
Further Assurances.......................................... A-56
7.15.
ARTICLE VIII. CONDITIONS PRECEDENT................................... A-56
8.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-56
8.2. Additional Conditions to Obligations of Parent and Merger
Sub......................................................... A-57
8.3. Additional Conditions to Obligations of the Company......... A-59
ARTICLE IX. TERMINATION AND AMENDMENT................................ A-61
9.1. Termination................................................. A-61
9.2. Effect of Termination....................................... A-63
9.3. Certain Payments in the Event of Termination................ A-63
9.4. Amendment................................................... A-65
9.5. Extension; Waiver........................................... A-65
ARTICLE X. GENERAL PROVISIONS........................................ A-65
Non-Survival of Representations, Warranties and Agreements;
10.1. No Other Representations and Warranties..................... A-65
Notices..................................................... A-66
10.2.
Interpretation.............................................. A-66
10.3.
Counterparts................................................ A-66
10.4.
Entire Agreement; No Third Party Beneficiaries.............. A-66
10.5.
Governing Law............................................... A-67
10.6.
Severability................................................ A-67
10.7.
Assignment.................................................. A-67
10.8.
Enforcement; Other Remedies................................. A-67
10.9.
Definitions................................................. A-67
10.10.
</TABLE>
A-4
<PAGE> 251
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
---------- ------------
<S> <C>
1990 Plan................................................... Section 2.4(a)(i)
1997 Plan................................................... Section 2.4(a)(ii)
Affiliate................................................... Section 10.10(a)
Agreement................................................... Preamble
Board of Directors.......................................... Section 10.10(b)
Break-Up Fee................................................ Section 9.3(b)
Bridge Financing............................................ Section 6.1(g)
Business Day................................................ Section 10.10(c)
Certificate of Merger....................................... Section 1.3
Certificates................................................ Section 2.2(b)
Cleanup..................................................... Section 3.15(g)(i)
Closing..................................................... Section 1.2
Closing Date................................................ Section 1.2
Code........................................................ Recitals
Companies Act............................................... Section 4.3(a)
Company..................................................... Preamble
Company Acquisition Proposal................................ Section 7.5(a)
Company Balance Sheet....................................... Section 3.20
Company Common Stock........................................ Recitals
Company Disclosure Schedule................................. Article III
Company Environmental Claim................................. Section 3.15(g)(ii)
Company Environmental Permits............................... Section 3.15(a)
Company Licensed Proprietary Rights......................... Section 3.17(a)
Company Options............................................. Section 3.2(a)
Company Proprietary Rights.................................. Section 3.17(a)
Company Stock Option Plans.................................. Section 10.10(d)
Company Stockholders Meeting................................ Section 7.1(b)
Company Subsidiaries........................................ Section 3.1(b)
Company Superior Proposal................................... Section 7.5(b)
Company Voting Debt......................................... Section 3.2(b)
Company Warrants............................................ Section 2.4(b)
Conversion Number........................................... Section 2.1(c)
Copyrights.................................................. Section 3.17(a)
DGCL........................................................ Recitals
Dissenting Shares........................................... Section 2.3
Effective Time.............................................. Section 1.3
ERISA....................................................... Section 3.12(c)
Employee Plan............................................... Section 3.12(g)(i)
Environmental Laws.......................................... Section 3.15(g)(iii)
Exchange Act................................................ Section 3.3(c)
Exchange Agent.............................................. Section 2.2(a)
Exchange Fund............................................... Section 2.2(a)
</TABLE>
A-5
<PAGE> 252
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
---------- ------------
<S> <C>
Expenses.................................................... Section 7.6
FDA......................................................... Section 3.26
Financing................................................... Section 8.1(f)
FSA......................................................... Section 3.5(b)
Form F-4.................................................... Section 3.5(a)
Governmental Entity......................................... Section 3.3(c)
Harm........................................................ Section 4.14(g)(i)
Hazardous Materials......................................... Section 3.15(g)(iv)
Hazardous Matters........................................... Section 4.15(g)(ii)
IRS......................................................... Section 3.12(b)
Leased Property............................................. Section 3.22(b)
Leases...................................................... Section 3.22(b)
LSE......................................................... Section 2.2
LSE Reports................................................. Section 4.4
Marks....................................................... Section 3.17(a)
Material Adverse Effect..................................... Section 10.10(e)
Material Contracts.......................................... Section 3.11
Mazars...................................................... Section 7.1(e)
Merger...................................................... Recitals
Merger Sub.................................................. Preamble
Multiemployer Plan.......................................... Section 3.12(g)(iv)
Mutual Secrecy Agreement.................................... Section 7.3
Noon Buying Rate............................................ Section 2.2(e)
Organizational Documents.................................... Section 10.10(f)
Outside Date................................................ Section 9.1(b)
Owned Copyrights............................................ Section 3.17(f)
Owned Marks................................................. Section 3.17(e)
Owned Patents............................................... Section 3.17(d)
Owned Trade Secrets......................................... Section 3.17(g)
Parent...................................................... Preamble
Parent Acquisition Proposal................................. Section 7.5(c)
Parent Balance Sheet........................................ Section 4.19
Parent Disclosure Circular.................................. Section 3.5(b)
Parent Disclosure Schedule.................................. Article IV
Parent Environmental Laws................................... Section 4.14(g)(iv)
Parent Environmental Permits................................ Section 4.14(a)
Parent Leases............................................... Section 4.21(b)
Parent Licensed Proprietary Rights.......................... Section 4.16(a)
Parent Material Contracts................................... Section 4.11
Parent Option Shares........................................ Section 2.4(a)
Parent Options.............................................. Section 4.2(a)
Parent Ordinary Shares...................................... Recitals
Parent Owned Copyrights..................................... Section 4.16(f)
Parent Owned Marks.......................................... Section 4.16(e)
</TABLE>
A-6
<PAGE> 253
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
---------- ------------
<S> <C>
Parent Owned Patents........................................ Section 4.16(d)
Parent Owned Trade Secrets.................................. Section 4.16(g)
Parent Permits.............................................. Section 4.18
Parent Properties........................................... Section 4.21(a)
Parent Proprietary Rights................................... Section 4.16(a)
Parent Shareholder Meeting.................................. Section 3.5(b)
Parent Subsidiaries......................................... Section 4.1(b)
Parent Superior Proposal.................................... Section 7.5(e)
Parent Voting Debt.......................................... Section 4.2(b)
Parent Warrant Shares....................................... Section 2.4(b)
Parent Warrants............................................. Section 2.4(b)
Patent Opinion.............................................. . Section 7.14
Patents..................................................... Section 3.17(a)
Permits..................................................... Section 3.19
Person...................................................... Section 10.10(g)
Preferred Stock............................................. Section 3.2(a)
Proxy Statement............................................. Section 3.5(a)
Registrar of Companies...................................... Section 4.1(a)
Release..................................................... Section 3.15(g)(v)
Removal..................................................... Section 4.14(g)(vi)
Required Company Votes...................................... Section 3.10
Required Parent Votes....................................... Section 4.10
Required Regulatory Approvals............................... Section 8.1(d)
SEC......................................................... Section 3.3(c)
SEC Reports................................................. Section 3.4
Securities Act.............................................. Section 3.3(c)
Subsidiary.................................................. Section 10.10(h)
Surviving Corporation....................................... Section 1.1
Taxation Authority.......................................... Section 4.8(e)
Taxation Statute............................................ Section 4.8(f)
Tax Returns................................................. Section 3.8(g)
Taxes....................................................... Section 3.8(f)
Terminating Company Breach.................................. Section 9.1(h)
Terminating Parent Breach................................... Section 9.1(i)
The other party............................................. Section 10.10(i)
Trade Secrets............................................... Section 3.17(a)
U.K. GAAP................................................... Recitals
U.S. GAAP................................................... Section 3.4
Unexercised Option.......................................... Section 2.4(a)
Unqualified Company Representations......................... Section 8.2(a)
Unqualified Parent Representations.......................... Section 8.3(a)
Voting Agreements........................................... Recitals
Wallis Deed................................................. Section 7.1(c)
Year 2000 Problem........................................... Section 3.25
</TABLE>
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This AGREEMENT AND PLAN OF MERGER, dated as of May 20, 1999 (this
"Agreement"), is entered into by and among Proteus International plc, a public
company incorporated under the laws of England and Wales ("Parent"), PI Merger
Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent
("Merger Sub"), and Therapeutic Antibodies Inc., a Delaware corporation (the
"Company").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have each determined that the Merger (as defined below) is in the best
interests of their respective stockholders and have approved the Merger upon the
terms and subject to the conditions set forth in this Agreement, whereby each
issued and outstanding share of Common Stock, par value $.001 per share, of the
Company ("Company Common Stock"), other than shares owned directly or indirectly
by Parent or by the Company and Dissenting Shares (as defined herein), will be
converted into the right to receive the Conversion Number (as defined herein) of
an Ordinary Share of Parent (the "Parent Ordinary Shares");
WHEREAS, in order to effectuate the foregoing, the Company, upon the terms
and subject to the conditions of this Agreement and in accordance with the
Delaware General Corporation Law (the "DGCL"), will merge with and into Merger
Sub (the "Merger");
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger;
WHEREAS, it is intended that certain stockholders of the Company will enter
into voting agreements ("Voting Agreements") with Parent concurrently herewith;
WHEREAS, for United States federal income tax purposes it is intended that
the Merger qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a merger accounting transaction under U.K. generally
accepted accounting principles ("U.K. GAAP").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
1.1. THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, the Company shall be merged
with and into Merger Sub at the Effective Time (as defined below). Following the
Merger, the separate corporate existence of the Company shall cease and Merger
Sub shall continue as the surviving corporation (the "Surviving Corporation") in
accordance with the DGCL.
1.2. CLOSING. The closing of the Merger (the "Closing") will take place as
soon as practicable after satisfaction or waiver (as permitted by this Agreement
and applicable law) of the conditions set forth in Article VIII hereof (the
"Closing Date"), unless another time or date is agreed to in writing
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by the parties hereto. The Closing shall be held at the offices of Latham &
Watkins, 885 Third Avenue, New York, New York 10022, or at such other place as
the parties may agree.
1.3. EFFECTIVE TIME. Upon the Closing, the parties shall file with the
Secretary of State of the State of Delaware a certificate of merger or other
appropriate documents (in any such case, the "Certificate of Merger") executed
in accordance with the relevant provisions of the DGCL and shall make all other
filings, recordings or publications required under the DGCL in connection with
the Merger. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State, or at such later time
as the parties may agree and specify in the Certificate of Merger (the time the
Merger becomes effective being the "Effective Time").
1.4. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
will have the effects set forth in this Agreement, the Certificate of Merger and
the DGCL.
1.5. CERTIFICATE OF INCORPORATION. At the Effective Time, the Certificate
of Incorporation of Merger Sub shall be the Certificate of Incorporation of the
Surviving Corporation; provided, however, that Article I thereof shall be
amended so that the name of the Surviving Corporation shall be a name agreed
upon by Parent and the Company.
1.6. BYLAWS. At the Effective Time, the Bylaws of Merger Sub shall be the
Bylaws of the Surviving Corporation.
1.7. DIRECTORS OF SURVIVING CORPORATION. Immediately following the
Effective Time, the directors of the Surviving Corporation shall be Barry Riley,
Arthur Rushton, Andrew Heath and James Christie.
ARTICLE II.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of
capital stock of Merger Sub shall remain outstanding and continue to
represent fully paid and nonassessable shares of common stock, par value
$.001 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock that is owned by the Company or by a wholly owned
subsidiary of the Company and each share of Company Common Stock that is
owned by Parent, Merger Sub or any other wholly owned subsidiary of Parent
shall automatically be canceled and retired and shall cease to exist, and
no Parent Ordinary Shares or other consideration shall be delivered in
exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section 2.2(e),
each issued and outstanding share of Company Common Stock (other than
shares to be canceled in accordance with Section 2.1(b) and Dissenting
Shares) shall be converted into the right to receive the Conversion Number
of fully paid Parent Ordinary Shares. The "Conversion Number" shall mean
1.163, as adjusted pursuant to Section 2.1(e). As of the Effective Time,
all such shares of Company Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of
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Company Common Stock shall cease to have any rights with respect thereto,
except the right to receive, upon the surrender of such certificates,
certificates representing the Parent Ordinary Shares, and cash in lieu of
fractional Parent Ordinary Shares to the extent provided in Section 2.2(c)
to be issued or paid in consideration therefor upon surrender of such
certificates in accordance with Section 2.2, without interest.
(d) Dissenting Shares. All Dissenting Shares shall be handled in
accordance with Section 2.3.
(e) Adjustment of Conversion Number. In the event of any sub-division,
consolidation or reclassification of any Parent Ordinary Share or any
issuance or the authorization of any issuance of any other securities in
exchange or in substitution for Parent Ordinary Shares at any time during
the period from the date of this Agreement to the Effective time, the
Company and Parent shall make such adjustment to the Conversion Number as
the Company and Parent shall mutually agree so as to preserve the economic
benefits that the Company and Parent each reasonably expected on the date
of this Agreement to receive as a result of the consummation of the Merger
and the other transactions contemplated by this Agreement.
2.2. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Immediately following the Effective Time, Parent
shall deposit with a bank or trust company designated by Parent and the
Company (the "Exchange Agent"), for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the Parent Ordinary
Shares issuable pursuant to Section 2.1 in exchange for outstanding shares
of Company Common Stock together with amounts sufficient in the aggregate
to provide all funds necessary for the Exchange Agent to make payments in
lieu of fractional shares pursuant to Section 2.2(e) (such Parent Ordinary
Shares and funds being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time of the Merger, the Exchange Agent shall mail to each holder
of record of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock, other than shares to be canceled or retired in
accordance with Section 2.1(b), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for certificates representing
Parent Ordinary Shares. Upon surrender of a Certificate for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole Parent Ordinary
Shares which such holder has the right to receive pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Company
Common Stock which is not registered in the transfer records of the
Company, a certificate representing the proper number of Parent Ordinary
Shares may be issued to a Person other than the Person in whose name the
Certificate so surrendered is registered, if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the
Person requesting such payment shall pay any transfer or other taxes
required by reason of the issuance of Parent Ordinary Shares to a Person
other than the registered holder of such Certificate or establish to the
satisfaction of Parent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate
shall be
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deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing the appropriate
number of whole Parent Ordinary Shares, and cash in lieu of any fractional
Parent Ordinary Shares to the extent provided in Section 2.2(c) as
contemplated by this Section 2.2. No interest will be paid or will accrue
on any cash payable in lieu of any fractional Parent Ordinary Shares.
(c) Cash Payments with Respect to Unexchanged Shares. No cash payment
in lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.2(e) until the surrender of the Certificate in accordance with
this Article II. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificate representing whole Parent Ordinary Shares issued in exchange
therefor, without interest, at the time of such surrender, the amount of
any cash payable in lieu of a fractional Parent Ordinary Share to which
such holder is entitled pursuant to Section 2.2(e).
(d) No Further Ownership Rights in Company Common Stock. All Parent
Ordinary Shares issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid
pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued
(credited as fully paid) in full satisfaction of all rights pertaining to
the shares of Company Common Stock theretofore represented by such
Certificates, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of
Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation or the Exchange Agent for any reason, they shall
be canceled and exchanged as provided in this Article II, except as
otherwise provided by law.
(e) No Fractional Shares. No certificates or scrip representing
fractional Parent Ordinary Shares shall be issued upon the surrender for
exchange of Certificates. No fractional interest shall entitle the owner to
vote or to any other rights of a security holder. In lieu of fractional
shares, each individual or entity who would otherwise have been entitled to
a fractional Parent Ordinary Share hereunder, will receive an amount in
cash (without interest) in British sterling or, in the case of U.S. holders
of Certificates, in U.S. dollars (calculated using the Noon Buying Rate in
effect on the date the Effective Time occurs) determined by multiplying
such fraction by the average of the closing mid-market prices of the Parent
Ordinary Shares on the London Stock Exchange ("LSE") (as derived from the
LSE Daily Official List) on each of the last five trading days immediately
preceding the date on which the Effective Time occurs. For purposes of this
Section 2.2(e), Noon Buying Rate shall mean the noon buying rate in New
York City for cable transfers in pounds sterling as certified for customs
purposes by the Federal Reserve Bank of New York.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Certificates who have not theretofore complied with this Article
II shall thereafter look only to Parent for payment of their claim for
Parent Ordinary Shares and any cash in lieu of fractional Parent Ordinary
Shares. In no event shall Parent be deemed to have any ownership interest
in any portion of the Exchange Fund held by Parent.
(g) No Liability. None of Parent, Merger Sub, the Company or the
Exchange Agent shall be liable to any Person in respect of any Parent
Ordinary Shares or cash from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
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(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Parent, on a daily
basis. Any interest and other income resulting from such investments shall
be paid to Parent.
(i) Lost Certificates. In the event that 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 Parent, the posting by such Person of a bond
in such reasonable amount as Parent may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Parent Ordinary Shares and any cash in lieu of fractional
shares to which they are entitled pursuant to this Agreement.
(j) Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law, including the tax laws of the United
Kingdom. To the extent that amounts are so withheld by the Surviving
Corporation or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock in respect of which such
deduction and withholding was made.
(k) Further Assurances. The officers and directors of the Surviving
Corporation are hereby authorized, at and after the Effective Time, to
execute and deliver, in the name and on behalf of the Company or Merger
Sub, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Sub, any other
actions and thing to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and
under any of the rights, properties or assets acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the
Merger.
2.3. DISSENTING SHARES.
(a) Shares of Company Common Stock held by a stockholder who has
properly exercised appraisal rights with respect thereto in accordance with
Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not
be converted into Parent Ordinary Shares. From and after the Effective
Time, a stockholder who has properly exercised such appraisal rights shall
no longer retain any rights of a stockholder of the Company or the
Surviving Corporation, except those provided under Section 262 of the DGCL.
(b) The Company shall give Parent (i) prompt notice of any written
demand under Section 262 of the DGCL with respect to any shares of Company
Common Stock, any withdrawal of any such demand and any other instruments
served pursuant to the DGCL and received by the Company and (ii) the right
to participate in all negotiations and proceedings with respect to any such
demands. The Company shall cooperate with Parent concerning, and shall not,
except with the prior written consent of Parent, voluntarily make any
payment with respect to, or offer to settle or settle, any such demands.
2.4. OPTIONS, WARRANTS AND CONVERTIBLE NOTES.
(a) Company Options.
(i) At the Effective Time, each outstanding and unexercised option
("Unexercised Option") to purchase shares of Company Common Stock
pursuant to the Company's 1990 Stock Incentive Plan (the "1990 Plan")
shall be converted into an option to purchase the
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number of Parent Ordinary Shares equal to the Conversion Number
multiplied by the number of shares of Company Common Stock which could
have been purchased immediately prior to the Effective Time upon the
exercise of the Unexercised Option (provided that any fractional shares
resulting from such conversion shall be rounded down to the nearest
share) (the "Parent Option Shares") at an exercise price per Parent
Option Share determined by dividing the aggregate exercise price that
would have been payable upon exercising the Unexercised Option in full
immediately prior to the Effective Time by the number of Parent Option
Shares (provided that the exercise price per Parent Option Share shall
be rounded up to the nearest whole cent). The vesting schedule and other
terms of the new option shall be the same as the Unexercised Option
except that all references to the Company shall be deemed to be
references to Parent. The Company has taken or will take all such
actions as may be required to provide for the conversion of Unexercised
Options in accordance with this Section 2.4(a).
(ii) At the Effective Time, the Company's 1997 Stock Option Plan
(the "1997 Plan") shall terminate and each outstanding option to
purchase a share Company Common Stock pursuant to the 1997 Plan shall
terminate; provided, however, pursuant to Section 8.3 of the 1997 Plan,
any holder of an option under the 1997 Plan shall have the right,
immediately prior to the Effective Time, to exercise such option in
whole or in part whether or not the applicable vesting requirements have
been satisfied.
(b) Company Warrants. At the Effective Time, each outstanding warrant
to purchase or otherwise acquire Company Common Stock ("Company Warrants")
shall cease to represent a right to purchase or otherwise acquire Company
Common Stock and shall be converted into a warrant ("Parent Warrant") to
acquire that number of Parent Ordinary Shares (the "Parent Warrant Shares")
obtained by multiplying the number of shares of Company Common Stock which
could have been purchased immediately prior to the Effective Time upon
exercise of the Company Warrant by the Conversion Number. If the foregoing
calculation results in a warrant being exercisable for a fraction of a
Parent Ordinary Share, then the number of Parent Warrant Shares shall be
rounded down to the nearest whole number. The exercise price per Parent
Warrant Share of each Parent Warrant shall be determined by dividing the
aggregate exercise price that would have been payable upon the exercise of
the Company Warrant in full immediately prior to the Effective Time by the
number of Parent Warrant Shares rounded up to the nearest cent. The other
terms of the Parent Warrants shall be the same as the Company Warrants
except that all references to the Company shall be deemed to be references
to Parent. The Company has taken or will take all such actions as may be
required to provide for the conversion of Company Warrants in accordance
with this Section 2.4(b).
(c) Convertible Notes. At the Effective Time, each of the Company's 6%
Convertible Notes, Due October 1, 2000, shall be assumed automatically by,
and become an obligation of, the Surviving Corporation.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedule delivered by the
Company to Parent at or prior to the execution of this Agreement (the "Company
Disclosure Schedule"), the Company represents and warrants to Parent and Merger
Sub as follows:
3.1. ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite corporate power and authority to own, lease and operate its
assets and to carry on its business as it is now being conducted. The
Company is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing which would not have a Material Adverse Effect on the Company.
Copies of the Certificate of Incorporation, as amended, and Bylaws, as
amended, of the Company heretofore delivered to Parent are accurate and
complete as of the date hereof.
(b) The only subsidiaries of the Company are those listed in the
Company Disclosure Schedule (the "Company Subsidiaries"). The Company is,
directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each of the Company Subsidiaries and
there are no irrevocable or other proxies with respect to such shares.
There are no contracts, commitments, understandings or arrangements by
which the Company or any Company Subsidiary is bound to transfer shares or
issue additional shares of capital stock or other equity securities of a
Company Subsidiary or options, warrants or other rights to purchase such
shares or other equity securities or securities convertible into or
exchangeable for such shares or equity securities. All of the shares of
capital stock of each Company Subsidiary are fully paid and nonassessable
and are owned by the Company or a Company Subsidiary free and clear of any
claim, lien, encumbrance, restriction or agreement with respect thereto.
Each Company Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and
has the requisite corporate power to carry on its business as it is now
being conducted. Each Company Subsidiary is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except for failures to be so
qualified or in good standing which would not have a Material Adverse
Effect on the Company. Copies of the organizational documents of each
Company Subsidiary, which have been heretofore delivered to Parent, are
accurate and complete as of the date hereof. The Company and the Company
Subsidiaries are not, and have not agreed to become, the holder or owner of
any class of shares or other securities of, or any investment (whether
equity, debt, loan or advance) in, any Person other than the Company
Subsidiaries.
3.2. CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of 59,000,000
shares of Company Common Stock and 1,000,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock"). As of the date of this
Agreement, (i) 52,057,219 shares of Company Common Stock are validly issued
and outstanding, fully paid and nonassessable and no other shares of
Company Common Stock are outstanding or are held in the Company's treasury
and (ii) no shares of Preferred Stock are issued and outstanding. All
outstanding shares of Company Common Stock have been duly authorized and
validly issued, and are fully paid, nonassessable and free of preemptive
rights. As of the date of this Agreement, there are no outstanding
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options, warrants or other rights to acquire capital stock from the Company
other than 1,481,289 shares of Company Common Stock issuable upon exercise
of outstanding options under the 1990 Plan, 1,102,220 shares of Company
Common Stock issuable upon exercise of outstanding options under the 1997
Plan (collectively, the "Company Options") and 1,000,332 shares of Company
Common Stock issuable upon exercise of outstanding Company Warrants. There
are not now and at the Effective Time there will not be, any other shares
of capital stock (other than shares of Company Common Stock issued upon
exercise of Company Options and Company Warrants outstanding on the date
hereof), or other equity securities of the Company outstanding, or any
other outstanding options, warrants, rights to subscribe to (including any
preemptive rights), calls or commitments of any character whatsoever to
which the Company or any Company Subsidiary is a party or may be bound,
requiring the issuance, transfer or sale of, shares of any capital stock or
other equity securities of the Company or securities or rights convertible
into or exchangeable for such shares or other equity securities. There are
not now and at the Effective Time will not be any contracts, commitments,
understandings or arrangements (other than Company Options or Company
Warrants outstanding on the date hereof) by which the Company is or may
become bound to issue additional shares of its capital stock or other
equity securities or options, warrants or rights to purchase or acquire any
additional shares of its capital stock or other equity securities or
securities convertible into or exchangeable for such shares or other equity
securities. There are not now and at the Effective Time will not be any
outstanding contracts, commitments, understandings or arrangements of the
Company to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company. The Company Disclosure Schedule sets forth, with
respect to each Company Option, the grant or issue date, expiration date,
vesting schedule, exercise price and holder thereof. The Company Disclosure
Schedule sets forth, with respect to each Company Warrant, the number of
shares of Company Common Stock subject to such Company Warrant, the
exercise price and the expiration date.
(b) No bonds, debentures, notes or other indebtedness of the Company
having the right to vote on any matters on which stockholders may vote
("Company Voting Debt") are issued or outstanding.
3.3. AUTHORITY; NO CONFLICTS.
(a) The Company has all requisite corporate power and corporate
authority to enter into and deliver this Agreement and, subject to the
adoption of this Agreement by the requisite vote of the holders of Company
Common Stock, to consummate the transactions contemplated hereby. The Board
of Directors of the Company has duly authorized and approved this Agreement
and the transactions contemplated by this Agreement and has resolved to
recommend to the Company's stockholders that they approve this Agreement
and the transactions contemplated under this Agreement. 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 the Company, subject in the case of the consummation
of the Merger to the adoption of this Agreement by the stockholders of the
Company. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding agreement of the Company, 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 and by general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(b) The delivery and performance of this Agreement by the Company and
consummation by it of the transactions contemplated hereby will not (i)
violate any provision of the organizational documents of the Company or any
Company Subsidiary; (ii) violate, conflict with or result in the breach of
any of the terms or conditions of, result in modification of the effect of,
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or otherwise give any other contracting party the right to terminate, or
constitute (or with notice or lapse of time or both constitute) a default
under, any material instrument, contract or other agreement to which the
Company or a Company Subsidiary is party or to which either of them or any
of their assets or properties is bound or subject; (iii) violate any law,
ordinance or regulation or any order, judgment, injunction, decree or
requirement of any court, arbitrator or governmental or regulatory body
applicable to the Company or a Company Subsidiary or by which any of their
assets or properties is bound; or (iv) result in the creation of any lien
or other encumbrance on the assets or properties of the Company or a
Company Subsidiary, excluding from the foregoing clauses (ii), (iii) and
(iv) violations, breaches and defaults which, and filings, notices,
permits, consents and approvals the absence of which, in the aggregate,
would not have a Material Adverse Effect on the Company.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any U.K., U.S. or foreign supranational,
national, state, municipal or local government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, or other governmental or quasi-governmental authority
(a "Governmental Entity"), is required to be obtained by the Company or any
Company Subsidiary in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for (x) those required under or in
relation to (A) U.S. state securities or "blue sky" laws, (B) the
Securities Act of 1933, as amended (the "Securities Act"), including the
filing of the Form F-4 (as defined below) with the Securities and Exchange
Commission ("SEC"), (C) the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including the filing of the Proxy Statement (as
defined below), (E) the DGCL with respect to the filing and recordation of
appropriate merger or other documents, (F) rules and regulations of the
LSE, and (G) antitrust or other competition laws of other jurisdictions,
and (y) such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain could not
reasonably be expected to have a Material Adverse Effect on the Company or
impair or delay the ability of the Company to consummate the transactions
contemplated hereby.
3.4. REPORTS AND FINANCIAL STATEMENTS. The Company has filed with the SEC
all reports, forms, definitive proxy statements and documents required to be
filed by the Company with the SEC since January 1, 1997 (the "SEC Reports"). As
of their respective dates, the SEC Reports (including all financial statements,
exhibits and schedules thereto and documents incorporated by reference therein)
complied, and all reports filed by the Company between the date of this
Agreement and the Effective Time will comply, in all material respects with
applicable SEC requirements and did not, or in the case of reports filed on or
after the date hereof will not, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading. The audited consolidated financial statements
and unaudited consolidated interim financial statements of the Company and the
Company Subsidiaries included or incorporated by reference in the SEC Reports
heretofore delivered to Parent, have been prepared from, and are in accordance
with, the Company's books and records, are in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto),
and fairly present the consolidated assets, liabilities and financial position
of the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and changes in financial position for
the periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments which are not, in the aggregate,
material).
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3.5. INFORMATION SUPPLIED.
(a) None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in (i) the registration
statement on Form F-4 to be filed with the SEC by Parent in connection with
the issuance of Parent Ordinary Shares in the Merger (the "Form F-4") will
at the time it becomes effective under the Securities Act, 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, or (ii) the proxy statement related to the meeting of the
Company's stockholders to be held in connection with the Merger and the
transactions contemplated by this Agreement (the "Proxy Statement") will,
on the date it is first mailed to the Company's stockholders or at the time
of the Company Stockholders Meeting (as defined below), 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.
Notwithstanding the foregoing, no representation or warranty is made by the
Company with respect to statements made or incorporated by reference in the
Proxy Statement or Form F-4 relating to Parent or Merger Sub or based on
information supplied by Parent or Merger Sub for inclusion or incorporation
by reference therein. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder.
(b) None of the information supplied or to be supplied by the Company
for inclusion in the Class 1 Shareholder Circular (which will include
listing particulars under Part IV of the Financial Services Act 1986 of the
United Kingdom, as amended (the "FSA")) (the "Parent Disclosure Circular")
will, on the date the Parent Disclosure Circular is first mailed to
shareholders of Parent and at the time of the extraordinary general meeting
of Parent shareholders (the "Parent Shareholder Meeting") to vote on
approval of the Merger, 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.
3.6. COMPLIANCE WITH LAW. None of the Company or the Company Subsidiaries
has violated or failed to comply in any respect with any statute, law,
ordinance, regulation, rule or order of any foreign, federal, state or local
government or any other governmental department or agency, or any judgment,
decree, order or requirement of any court, applicable to its business,
operations, properties and assets which violation or failure would, individually
or in the aggregate with all other violations and failures, have a Material
Adverse Effect on the Company. The conduct of the Company's and the Company
Subsidiaries' business is in conformity with all labor, employment, energy,
public utility, zoning, building code, health, OSHA and environmental
requirements and all other material foreign, federal, state and local
governmental and regulatory requirements applicable to its business, operations,
properties and assets, except for such failures to conform which would not
individually or in the aggregate have a Material Adverse Effect on the Company.
Neither the Company nor any Company Subsidiary has received any notice asserting
a failure to comply with any such statute, law, ordinance, regulation, rule,
judgment, decree or order.
3.7. LITIGATION. There are no actions, suits, proceedings, arbitration,
mediation or investigations pending or, to the knowledge of the Company,
threatened against the Company or any Company Subsidiary, nor is the Company or
any Company Subsidiary subject to any order, judgment, writ, injunction or
decree of any court or governmental or regulatory authority or body. To the best
knowledge of the Company, there is no fact, event or circumstance now in
existence that reasonably could be expected to give rise to any material action,
suit, claim, proceeding or investigation against the Company or any Company
Subsidiary.
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3.8. TAXES.
(a) Filing of Tax Returns. The Company (including, for purposes of
this Section 3.8, each of its subsidiaries from time to time) has timely
filed with the proper taxing or other Governmental Entities all Tax Returns
(as such term is defined herein) required to be filed through the date
hereof. Such Tax Returns are complete, correct and accurate in all material
respects. The Company has delivered to Parent complete and accurate copies
of all of the Company's federal, state and local Tax Returns filed for its
taxable years ended December 31, 1995, 1996 and 1997. The Company has not
filed any federal, state or local Tax Returns for its taxable year ended
December 31, 1998.
(b) Payment of Taxes. All Taxes for which the Company is shown as
owing on any Tax Return for any period or portion thereof heretofore ended,
have been paid, or an adequate reserve (in conformity with U.S. GAAP
applied on a consistent basis and in a manner consistent with the Company's
past custom and practice) has been established therefor in the Company's
financial statements, and the Company has no material liability for Taxes
in excess of the amounts so paid or reserves so established. All Taxes that
the Company has been required to collect or withhold have been duly
collected or withheld and, to the extent required when due, have been or
will be duly paid to the proper taxing or other governmental authority.
(c) Audit History.
(i) No deficiencies for Taxes of the Company have been claimed,
proposed or assessed by any taxing or other governmental authority.
(ii) There are no pending or, to the best of the Company's
knowledge, threatened audits, investigations or claims for or relating
to any liability in respect of Taxes of the Company, and there are no
matters under discussion with any taxing or other governmental authority
with respect to Taxes of the Company.
(iii) All audits of federal, state and local returns for Taxes by
the relevant taxing or other governmental authority have been completed
for all periods, and the Company has made available to Parent all
examination reports and statements of deficiencies assessed against or
agreed to by the Company for any period.
(iv) The Company has not been notified that any taxing or other
governmental authority intends to audit a Tax Return for any other
period.
(v) No extension of a statute of limitations relating to Taxes is
in effect with respect to the Company.
(vi) The Company does not have any knowledge of any claim made by
an authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction.
(d) Tax Elections.
(i) There are no material elections with respect to Taxes affecting
the Company.
(ii) The Company has not made an election, and is not required, to
treat any asset of the Company as owned by another person or as
tax-exempt bond financed property or tax-exempt use property within the
meaning of Section 168 of the Code or under any comparable state or
local income Tax or other Tax provision.
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(iii) The Company is not a party to or bound by any binding tax
sharing, tax indemnity or tax allocation agreement or other similar
arrangement with any other person or entity.
(iv) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have
Sections 341(f)(2) of the Code (or any corresponding provision of state
or local law) apply to any disposition of any asset owned by it.
(e) Additional Representations.
(i) There are no liens for Taxes (other than for Taxes not yet
delinquent) upon the assets of the Company.
(ii) The Company has never been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code, nor has the
Company or any present or former subsidiary, or any predecessor or
affiliate of any of them, become liable (whether by contract, as
transferee or successor, by law or otherwise) for the Taxes of any other
person or entity under Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law.
(iii) The Company has not made, requested or agreed to make, nor is
it required to make, any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise for any taxable
year.
(iv) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in
the aggregate, in the payment of any amount as to which a deduction may
be denied under Section 162(m) or 280G of the Code.
(v) The Company is not a party to any joint venture, partnership,
or other arrangement or contract which could be treated as a partnership
for federal, state, local or foreign Tax purposes.
(vi) The Company has prepared and made available to Parent all of
the Company's books and working papers that clearly demonstrate the
income and activities of the Company for the last full reporting period
ending prior to the date hereof.
(vii) The Company has not been a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii).
(viii) The Company has properly requested, received and retained
all necessary exemption certificates and other documentation supporting
any claimed exemption or waiver of Taxes on sales or other transactions
as to which the Company would have been obligated to collect or withhold
Taxes except for any failure to do so which would not be expected to
have a Material Adverse Effect on the Company.
(f) Definition of Taxes. For purposes of this Article III, the term
"Taxes" shall mean any federal, state, local or foreign income, gross
receipts, profits, occupation, franchise, capital stock, real or personal
property, sales, use, registration, value added, transfer, license,
commercial rent, payroll, employment, unemployment, social security,
disability, withholding, alternative or add-on minimum, customs, excise,
severance, stamp, environmental, estimated, or other tax of any kind
whatsoever, including any interest, penalties or additions thereto, whether
disputed or not.
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(g) Definition of Tax Return. For purposes of this Article III, the
term "Tax Return" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
3.9. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated by this
Agreement, since December 31, 1998, none of the following have occurred: (i) any
change, event or condition (or any development involving a prospective change,
event or condition) or any threat thereof, which change, event or condition has
had, or is reasonably likely to have, a Material Adverse Effect on the Company;
(ii) any change in accounting methods, principles or practices by the Company
affecting its assets, liabilities or business; (iii) any revaluation by the
Company or any of the Company Subsidiaries of any of their assets; (iv) any
damage, destruction or loss having a Material Adverse Effect on the Company; (v)
any cancellation of any material debts or waiver or release of any material
right or claim of the Company relating to its business activities or properties;
(vi) any declaration, setting aside or payment of dividends or distributions in
respect of any shares of capital stock or any redemption, purchase or other
acquisition of any securities of the Company or the Company Subsidiaries; (vii)
any issuance by the Company or any Company Subsidiary of, or commitment of the
Company or any Company Subsidiary to issue, any shares of stock, options,
warrants or other equity securities or obligations or securities convertible
into or exchangeable for shares of stock, options, warrants or other equity
securities, other than upon exercise of Company Options or Company Warrants;
(viii) negotiation or execution of any material arrangement, agreement or
understanding to which the Company or any Company Subsidiary is a party which
cannot be terminated by it on notice of 30 days or less without cost or penalty;
(ix) the making of any loan or payment, the entering into of any arrangement,
agreement or understanding or similar transaction with any Person who is an
officer, director or stockholder of the Company or any Company Subsidiary, or
who is an affiliate or associate of such a Person; (x) any capital expenditures
other than in the ordinary course of business and consistent with past practice
by the Company or any Company Subsidiary in an aggregate amount that exceeds
$80,000; (xi) any adoption of a plan of liquidation or resolutions providing for
the liquidation, dissolution, merger, consolidation or other reorganization of
the Company or any Company Subsidiary; (xii) any increase in salary, bonus,
fringe benefit, severance, retention bonus or incentive or other compensation
payable or to become payable to any officer, director, employee or other Person
receiving compensation of any nature from the Company or any Company Subsidiary;
any increase in the number of shares obtainable under, or the acceleration or
creation of any rights of any Person to benefits under, any Employee Plan (as
defined herein) (including, without limitation, the acceleration of the vesting
or exercisability of any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement), or the entering into of
any employment, consulting, severance or other employee related agreement,
arrangement or understanding with the Company or any Company Subsidiary; (xiii)
any delay or failure to repay when due any material obligation of the Company or
any Company Subsidiary; (xiv) any notice of termination of employment by any
officer or employee or resignation by any director; or (xv) any agreement by the
Company or any Company Subsidiary to do any of the things described in the
preceding clauses (i) through (xiv) other than as expressly provided for herein.
3.10. VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock (the "Required Company Votes")
adopting this Agreement and approving the consummation of the transactions
contemplated hereby is the only vote or action of the holders of any class or
series of the Company capital stock necessary to consummate the transactions
contemplated hereby.
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3.11. CERTAIN AGREEMENTS. The Company Disclosure Schedule lists all
Material Contracts. For purposes of this Agreement, unless otherwise indicated,
"Material Contracts" means all contracts of the following types to which the
Company or any Company Subsidiary is a party or by which the Company or any
Company Subsidiary or any of their respective properties is bound, including
real property leases, labor or employment-related agreements, and contracts
relating to intellectual property: (a) joint venture and limited or general
partnership agreements, shareholder agreements with respect to the Company
Subsidiaries, joint ventures or partnerships or other contracts involving
sharing of profits, losses, costs or liabilities, (b) mortgages, indentures,
loan or credit agreements, letters of credit, reimbursement agreements, personal
property leases, security agreements and other agreements and instruments
relating to the borrowing of money or extension of credit in any case in excess
of $80,000, (c) other contracts which are not cancelable by the Company or any
Company Subsidiary on notice of sixty (60) days or less and which require
payment by the Company after the date hereof of more than $80,000 in any one
calendar year, (d) material license or royalty agreements, whether the Company
or any Company Subsidiary is the licensor or licensee thereunder, (e)
confidentiality and non-disclosure agreements, (whether the Company or any
Company Subsidiary is the beneficiary or the obligated party thereunder) other
than such agreements entered into with consultants to the Company and the
Company Subsidiaries or entered into in connection with possible acquisitions,
(f) contracts containing covenants limiting the freedom of the Company or any
Company Subsidiary or any of their respective officers to engage in any line of
business or compete with any Person that relates directly or indirectly to the
Company's business, (h) indemnification agreements with respect to any
acquisition or disposition of assets, securities or business, whether the
Company or any Company Subsidiary is the indemnitor or indemnitee, (i) contracts
currently outstanding or which have been outstanding at any time in the last
three years with any Person known to be an affiliate, director, officer,
employee or shareholder of the Company (other than the Company and the Company
Subsidiaries), (j) any executory contract relating to any material acquisitions
or dispositions of assets, securities or businesses by the Company or any
Company Subsidiary, (k) any agreement with a change of control provision or with
restrictions or limitations on, or consent requirements with respect to,
assignments, (l) any research, development or governmental grants made by any
Person to the Company or any Company Subsidiary in the last three years and (m)
contracts under which the Company or any Company Subsidiary is responsible for
the indebtedness or obligations of any other Person or which evidence any
guaranty or surety by the Company or any Company Subsidiary. The Company and the
Company Subsidiaries have made available to Parent a true and correct copy of
each Material Contract. The Company and the Company Subsidiaries are in
compliance in all material respects with their respective obligations under the
Material Contracts. All of the Material Contracts are in full force and effect,
are valid and binding obligations of the Company and the Company Subsidiaries
and enforceable in all material respects by the Company and the Company
Subsidiaries in accordance with their terms except to the extent that such
enforceability may be limited by bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or similar laws affecting
creditors' rights generally and by general principles of equity (whether
considered at law or in equity). To the knowledge of the Company, the other
party to a Material Contract is in compliance with its material obligations
thereunder.
3.12. EMPLOYEE BENEFIT PLANS.
(a) The Company Disclosure Schedule lists every Employee Plan (as
defined below) that has been maintained (as defined below) by the Company
or any Company Subsidiary at any time during the three-year period ending
at the Effective Time.
(b) Each Employee Plan maintained by the Company or any Company
Subsidiary and intended to qualify under Section 401(a) or 501(c)(9) of the
Code has received a favorable
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determination or approval letter from the Internal Revenue Service ("IRS")
regarding its qualification under such section. To the best knowledge of
the Company, no event or omission has occurred which would cause any such
Employee Plan to lose its qualification under the applicable Code section.
(c) Neither the Company nor any Company Subsidiary knows or has reason
to know of any material failure of any party to comply with any laws
applicable to the Employee Plans that have been maintained by the Company
or any Company Subsidiary. With respect to any Employee Plan ever
maintained by the Company or any Company Subsidiary, there has occurred no
"prohibited transaction," as defined in Section 406 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section
4975 of the Code, or breach of any duty under ERISA or other applicable law
(including, without limitation, any health care continuation requirements
or any other tax law requirements, or conditions to favorable tax
treatment, applicable to such plan), which could result, directly or
indirectly, in any taxes, penalties or other liability to the Company, any
Company Subsidiary, Parent or Merger Sub. No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other
proceeding (other than those relating to routine claims for benefits) is
pending or, to the Company's knowledge, threatened with respect to any
Employee Plan maintained by the Company or any Company Subsidiary.
(d) Neither the Company, nor any Company Subsidiary nor any of their
Affiliates (as defined below) (i) has ever maintained any Employee Plan
which has been subject to Title IV of ERISA, Section 302 of ERISA or
Section 412 of the Code (including, but not limited to, any Multiemployer
Plan (as defined below)), (ii) has ever maintained any other Multiemployer
Plan, or (iii) has ever provided health care or any other non-pension
benefits to any employees after their employment is terminated (other than
as required by part 6 of subtitle B of title I of ERISA) or has ever
promised to provide such post-termination benefits.
(e) With respect to each Employee Plan maintained by the Company or
any Company Subsidiary within the three years preceding the Effective Time,
complete and correct copies of the following documents (if applicable to
such Employee Plan) have previously been delivered to Parent: (i) all
documents embodying or governing such Employee Plan, and any funding medium
for the Employee Plan (including, without limitation, trust agreements) as
they may have been amended; (ii) the most recent IRS determination or
approval letter with respect to such Employee Plan under Code Sections 401
or 501(c)(9), and any applications for determination or approval
subsequently filed with the IRS; (iii) the three most recently filed IRS
Forms 5500, with all applicable schedules and accountants' opinions
attached thereto; (iv) the summary plan description for such Employee Plan
(or other descriptions of such Employee Plan provided to employees) and all
modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Plan; (vi) any
documents evidencing any loan to an Employee Plan that is a leveraged
employee stock ownership plan; and (vii) all other materials reasonably
necessary for Parent or Merger Sub to perform any of its responsibilities
with respect to any Employee Plan subsequent to the Effective Time
(including, without limitation, health care continuation requirements).
(f) Each Employee Plan listed on the Company Disclosure Schedule may
be amended, terminated, modified or otherwise revised prospectively by the
Company or any Company Subsidiary as applicable, including the elimination
of any and all future benefit accruals under any Employee Plan.
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(g) For purposes of this section:
(i) "Employee Plan" means (A) all employee benefit plans within the
meaning of ERISA Section 3(3), including, but not limited to, multiple
employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes
and employee benefit plans (such as foreign or excess benefit plans)
which are not subject to ERISA; and (B) all stock option plans, bonus or
incentive award plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans, agreements, and
arrangements not described in (A) above. In the case of an Employee Plan
funded through an organization described in Code Section 501(c)(9), each
reference to such Employee Plan shall include a reference to such
organization.
(ii) An entity "maintains" or has "maintained" an Employee Plan if
such entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Plan, or has sponsored,
contributed to or been obligated to contribute to such Employee Plan, or
has any obligation (by agreement or under applicable law) to contribute
to or provide benefits under such Employee Plan, or if such Employee
Plan provides or has provided benefits to or otherwise covers employees
of such entity, or their spouses, dependents, or beneficiaries, or such
entity has or may incur any liability under such Employee Plan.
(iii) For purposes of this Section 3.12, an entity is an
"Affiliate" of the Company or any Company Subsidiary if it would have
ever been considered a single employer with the Company or any Company
Subsidiary, respectively, under ERISA Section 4001(b) or part of the
same "controlled group" as the Company or any Company Subsidiary or any
of their respective subsidiaries for purposes of ERISA Section
302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension) employee
benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements
(including, but not limited to, any "multiemployer plan" within the
meaning of Section 3(37) or 4001(a)(3) of ERISA).
3.13. 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 the Company, except The British Linen Bank Limited.
3.14. OPINION OF FINANCIAL ADVISOR. The Company has received the opinion
of The British Linen Bank Limited as of the date of this Agreement, to the
effect that, as of such date, the Conversion Number is fair, from a financial
point of view, to the holders of Company Common Stock.
3.15. ENVIRONMENTAL.
(a) The Company and the Company Subsidiaries are in compliance with
all applicable Environmental Laws (as defined below) (which compliance
includes, but is not limited to, the possession by the Company and the
Company Subsidiaries of all permits and other governmental authorizations
required under applicable Environmental Laws (collectively, "Company
Environmental Permits"), and compliance with the terms and conditions
thereof), except for any noncompliance that individually or in the
aggregate could not reasonably be expected to have a Material Adverse
Effect on the Company. Neither the Company nor any Company Subsidiary has
received any communication (written or oral), whether from a governmental
authority,
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citizens group, employee or otherwise, that alleges that the Company is not
in such compliance, and there are no past or present actions, activities,
circumstances, conditions, events or incidents that may prevent or
interfere with such compliance in the future.
(b) There is no Company Environmental Claim (as defined below) pending
or, to the knowledge of the Company, threatened against the Company or any
Company Subsidiary, or to the knowledge of the Company, against any person
or entity whose liability for any Company Environmental Claim the Company
or any Company Subsidiary has retained or assumed either contractually or
by operation of law, which individually or in the aggregate would
reasonably be expected to have a Material Adverse Effect on the Company.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents (including, without limitation, the
release, omission, discharge, presence or disposal of any Hazardous
Material) (as defined below) which could form the basis of any Company
Environmental Claim against the Company or any Company Subsidiary, or, to
the knowledge of the Company, against any person or entity whose liability
for any Company Environmental Claim the Company or any Company Subsidiary
has or may have retained or assumed either contractually or by operation of
law, which individually or in the aggregate would reasonably be expected to
have a Material Adverse Effect on the Company.
(d) Neither the Company nor any Company Subsidiary has, and to the
knowledge of Company, no other person has Released (as defined below),
placed, stored, buried or dumped Hazardous Materials on, beneath or
adjacent to any property owned, operated or leased or formerly owned,
operated or leased by the Company or any Company Subsidiary and neither the
Company nor any Company Subsidiary has received notice that it is a
potentially responsible party for the Cleanup (as defined below) of any
property, whether or not owned or operated by the Company or any Company
Subsidiary, which individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect on the Company.
(e) The Company and the Company Subsidiaries have delivered or
otherwise made available for inspection to Parent true, complete and
correct copies and results of any reports, studies, analyses, tests or
monitoring possessed or initiated by the Company or any Company Subsidiary
pertaining to Hazardous Materials on, beneath or adjacent to the property
owned or leased by the Company or any Company Subsidiary or regarding the
Company's and the Company Subsidiaries' compliance with applicable
Environmental Laws.
(f) No transfers of Company Environmental Permits and no additional
Company Environmental Permits will be required to permit the Company and
the Company Subsidiaries or the Surviving Corporation and its subsidiaries,
as the case may be, to be in full compliance all applicable Environmental
Laws for the period immediately following the transactions contemplated
hereby, as conducted by the Company and the Company Subsidiaries
immediately prior to the date hereof.
(g) The following terms as used in this Section 3.15 shall have the
following meanings:
(i) "Cleanup" means all actions required by governmental entities
or Environmental Laws to: (1) clean-up, remove, treat or remediate
Hazardous Materials in the indoor or outdoor environment; (2) prevent
the Release of Hazardous Materials so that they do not migrate, endanger
or threaten to endanger public health or welfare or the indoor or
outdoor environment; (3) perform pre-remedial studies and investigations
and post-remedial monitoring and care; or (4) respond to any government
requests for information or documents in any way relating to cleanup,
removal, treatment or remediation or Hazardous Materials in the indoor
or outdoor environment.
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(ii) "Company Environmental Claim" means any claim, action, cause
of action, investigation or written notice by any person or entity
alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, monitoring costs,
governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence, or Release into the indoor or outdoor
environment, of any Hazardous Materials at any location, whether or not
owned or operated by the Company or any Company Subsidiary or (b)
circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
(iii) "Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of
human health or the environment, including without limitation, laws
relating to Releases or threatened Releases of Hazardous Materials into
the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface
strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, disposal, transport or
handling of Hazardous Materials and all laws and regulations with regard
to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials.
(iv) "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National
Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
sec. 300.5, or defined as such by, or regulated as such by or under any
Environmental Law.
(v) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment (including,
without limitation, ambient air, surface water, groundwater and surface
or subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface
water, groundwater or property.
3.16. LABOR MATTERS. The Company and the Company Subsidiaries are not a
party to any labor agreement with respect to their employees with any labor
organization, group or association. The Company and the Company Subsidiaries are
in compliance in all material respects with all applicable laws respecting
employment practices, terms and conditions of employment and wages and hours and
are not engaged in any unfair labor practice. There is no unfair labor practice
charge or complaint against the Company or any Company Subsidiary pending before
the National Labor Relations Board or any other governmental agency, and the
Company has no knowledge of any facts or information which would give rise
thereto. There is no labor strike or labor disturbance pending or, to the
Company's knowledge, threatened against the Company or any Company Subsidiary
nor is any grievance currently being asserted; and the Company and the Company
Subsidiaries have not experienced a work stoppage or other labor difficulty.
3.17. PROPRIETARY RIGHTS.
(a) The term "Company Proprietary Rights" includes: (i) fictitious
business names, trading names, registered and unregistered trademarks,
service marks, and applications (collectively "Marks"); (ii) patents,
patent applications, disclosures, and inventions and discoveries that may
be patentable (collectively "Patents"); (iii) copyrights in both published
works and unpublished works (collectively "Copyrights"); (iv) know-how,
trade secrets, confidential information, customer lists, software,
technical information, data, process technology, plans, drawings, blue
prints and other similar material (collectively "Trade Secrets"); and (v)
any of the foregoing licensed by the Company from third parties (the
"Company Licensed Proprietary Rights") in each case, used in the Company's
business.
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(b) The Company Disclosure Schedule sets forth with respect to the
Company Proprietary Rights: (i) for each Patent and patent application,
including petty patents and utility models and applications therefor, as
applicable, the number, normal expiration date, title and priority
information for each country in which such patent has been issued, or, the
application number, date of filing, title and priority information for each
country and (ii) all Company Licensed Proprietary Rights.
(c) The Company Proprietary Rights are all those necessary for the
operation of the Company's business as it is currently conducted and as
presently contemplated, including the design, manufacture and sale of all
products currently under development or in production. Except for the
rights of third parties that may exist with respect to the Company Licensed
Proprietary Rights, the Company is the owner of all right, title, and
interest in each of the Company Proprietary Rights, free and clear of all
security interests, charges, encumbrances, and other adverse claims, and
has the right to use without payment to a third party (except for payments
under licenses of Company Licensed Proprietary Rights) and without
infringing the rights of any third party all of the Company Proprietary
Rights. To the Company's best knowledge, no employee of the Company has
entered into any agreement that requires the employee to transfer, assign,
or disclose information concerning his work on behalf of the Company to
anyone other than the Company. No other Person (a) has notified the Company
or any Company Subsidiary that it is claiming any ownership of, or right to
use, any Company Proprietary Rights or (b) to the best of the Company's
knowledge, has interfered with, infringed upon or otherwise come into
conflict with or challenged the validity of any Company Proprietary Rights.
(d) The Company Disclosure Schedule contains a complete and accurate
list and summary description of all Patents owned by the Company ("Owned
Patents"). The Company is the owner of all right, title and interest in and
to each of the Owned Patents, free and clear of all liens, security
interests, charges, encumbrances, and other adverse claims; all of the
issued Owned Patents are currently in compliance with formal legal
requirements (including payment of filing, examination and maintenance fees
and proofs of working or use), are valid and enforceable; no Owned Patent
material to the Company's business as conducted or proposed to be conducted
has been or is now involved in any interference, reissue, reexamination, or
opposition proceeding, and to the Company's best knowledge, there is no
potentially interfering patent or patent application of any third party; to
the Company's best knowledge, no Owned Patent is infringed or has been
challenged or threatened in any way; the operation of the Company's
business and any process or know-how used does not infringe any third party
proprietary right of any other person or entity; and any products made,
used or sold under the Owned Patents have been marked with the proper
patent notice. The Company has conducted an inquiry regarding the presence
of activities which might materially infringe the Owned Patents and has
provided a summary of the results of such inquiry to Parent.
(e) The Company Disclosure Schedule contains a complete and accurate
list and summary description of all registered Marks owned by the Company
("Owned Marks"); the Company is the owner of all right, title and interest
in and to each of the Owned Marks, free and clear of all liens, security
interests, charges, encumbrances, and other adverse claims; all Owned Marks
that have been registered with the USPTO are currently in compliance with
all formal legal requirements (including the timely post-registration
filing of affidavits of use and incontestability and renewal applications),
are valid and enforceable; no Owned Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to the Company's best
knowledge, no such action is threatened with respect to any of the Owned
Marks; to the Company's best knowledge, there is no potentially interfering
trademark or trademark application of any third
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party; to the Company's best knowledge, no Owned Mark is infringed or has
been challenged or threatened in any way; none of the Owned Marks used in
conjunction with the Company's business infringes or, to the Company's best
knowledge, is alleged to infringe any trade name, trademark, or service
mark of any third party; and all products and materials containing an Owned
Mark bear the proper federal registration notice where permitted by law.
(f) The Company Disclosure Schedule contains a complete and accurate
list and summary description of all material Copyrights owned by the
Company ("Owned Copyrights"); the Company is the owner of all right, title
and interest in and to each of the Owned Copyrights, free and clear of all
liens, security interests, charges, encumbrances, and other adverse claims;
to the Company's best knowledge, no Owned Copyright is infringed or has
been challenged or threatened in any way; the subject matter of any of the
Owned Copyrights does not infringe and, to the Company's best knowledge, is
not alleged to infringe any copyright of any third party or is a derivative
work based on the work of a third party; and all material works encompassed
by the Owned Copyrights have been marked with proper copyright notices.
(g) With respect to each Trade Secret relating to, or used in
conjunction with, the Company's business ("Owned Trade Secrets"): the
documentation relating to such Owned Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to allow
its full and proper use without reliance on the knowledge or memory of any
individual; the Company has taken all reasonable precautions to protect the
secrecy, confidentiality, and value of the Owned Trade Secrets; the Company
has good title and an absolute (but not necessarily exclusive) right to use
any Owned Trade Secret; to the Company's best knowledge, the Owned Trade
Secrets are not part of the public knowledge or literature, and have not
been used, divulged or appropriated either for the benefit of any third
party person or entity or to the detriment of the Company; and to the
Company's best knowledge, no Owned Trade Secret is subject to any adverse
claim or has been challenged or threatened in any way.
(h) The Company Disclosure Schedule lists all payments due to third
parties in respect of commercial exploitation of the products currently
under development by the Company. (i) The Company Disclosure Schedule lists
all material licenses or rights which have been granted by the Company.
(i) The Company Disclosure Schedule lists all material licenses or
rights which have been granted by the Company.
(j) The consummation of the Merger will not adversely affect the
rights of the Company under any of the Company Proprietary Rights.
3.18. INSURANCE. The Company Disclosure Schedule sets forth a complete and
accurate list, as of the date hereof, of the material policies of insurance
maintained by the Company and the Company Subsidiaries with respect to the
products, properties, assets, operations and business of the Company and the
Company Subsidiaries since 1996. All insurance coverage applicable to the
Company and the Company Subsidiaries is in full force and effect, insures the
Company and the Company Subsidiaries in sufficient amounts (consistent with
industry standards) against all risks usually insured against by Persons
operating similar businesses or properties of similar size in the localities
where such businesses or properties are located, provides coverage as may be
required by all regulations which the Company and the Company Subsidiaries are
subject and has been issued by insurers of recognized responsibility. There is
no default under any such coverage nor has there been any failure to give notice
or present any claim under any such coverage in a due and timely fashion. There
are no outstanding unpaid premiums except in the ordinary course of business and
no notice of cancellation or nonrenewal of any such coverage has been received.
There are no provisions in such
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insurance policies for retroactive or retrospective premium adjustments. There
are no facts upon which an insurer might be justified in reducing coverage or
increasing premiums on existing policies or binders. There are no outstanding
unpaid claims under any such policies or binders.
3.19. PERMITS; LICENSES. The Company and each Company Subsidiary has, and
at all times has had, all material licenses, permits, authorizations, approvals
and registrations required under any statute, law, ordinance, regulation, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency in the operation of the Company's business
(collectively, "Permits") and owns or possesses such Permits free and clear of
all encumbrances. The Company and each Company Subsidiary is in material
compliance with all Permits and neither the Company nor any Company Subsidiary
is in default or received any notice of any claim of default with respect to any
such Permit. There are no proceedings, investigations or audits pending, or to
the Company's knowledge, threatened against the Company or any Company
Subsidiary by any governmental agency relating to any Permit. All such Permits
are renewable by their terms or in the ordinary course of business without the
need to comply with any special qualification procedures or to pay any amounts
other than routine filing fees and will not be adversely affected by the
completion of the Merger or the transactions contemplated hereby. No present or
former stockholder, director, officer or employee of the Company or any
affiliate thereof, or any other person, firm, corporation or other entity, owns
or has any proprietary, financial or other interest (direct or indirect) in any
Permit which the Company owns, possesses or uses.
3.20. ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor any
Company Subsidiary has any liabilities of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due (including, without
limitation, all tax liabilities and liabilities for all money borrowed) which
would be required to be disclosed in financial statements, including the
footnotes thereto, prepared in accordance with U.S. GAAP, and which are not
adequately reflected or reserved against in the Company's balance sheet as of
December 31, 1998, including the footnotes thereto (the "Company Balance
Sheet"), except such as have arisen in the ordinary course of business since
such date. The Company has not engaged, and prior to the Effective Time will not
engage, in any hedging transactions or transactions in derivative securities.
The total amount borrowed by the Company and the Company Subsidiaries does not,
and at the Effective Time will not, exceed any limitation on borrowing in any
agreement to which the Company or any Company Subsidiary is a party.
3.21. BOOKS AND RECORDS. The minute books and other records of the
Company, all of which have been made available to Parent, are complete and
correct in all material respects and have been maintained in accordance with
sound business practices and the requirements of Section 13(b)(2) of the
Exchange Act, including the maintenance of an adequate system of internal
controls. The Company minute books contain in all material respects accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, the Board of Directors and committees of the board of directors of
the Company, and no meeting of any such stockholders, Board of Directors or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Company.
3.22. TITLE TO PROPERTIES; CONDITION OF PROPERTIES.
(a) The Company and each Company Subsidiary has good, valid and
marketable title (in fee simple absolute in the case of real property) to
all properties and assets used in its business, except for leased
properties and assets; none of those owned properties is subject to any
mortgage, deed of trust, pledge, lien, claim, charge, equity, covenant,
condition, restriction easement, right-of-way or encumbrance, except (i)
liens, claims, charges and encumbrances disclosed, or reserved against, in
the Company Balance Sheet, (ii) liens for current taxes not yet
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due and payable, and (iii) minor imperfections of title not material
(individually or in the aggregate) and not materially detracting from the
value, or the use (either actual or intended) the Company and the Company
Subsidiaries make, of the property in question. All of the buildings,
fixtures, machinery and equipment owned or used by the Company and the
Company Subsidiaries are in good operating condition and repair, and comply
in all material respects with applicable zoning, building, fire and safety
codes.
(b) The Company Disclosure Schedule lists all leases (the "Leases")
pursuant to which the Company and the Company Subsidiaries lease real
property (the "Leased Property"), including without limitation a general
description of the Leased Property, the terms, the applicable rent and any
and all renewal options. All such Leases are valid, binding and enforceable
in accordance with their terms and are in full force and effect and no
event of default has occurred which (whether with or without notice, lapse
of time or both or the happening or occurrence of any other event) would
constitute a default thereunder on the part of the Company or any Company
Subsidiary. To the Company's knowledge, each Lease that terminates within
two years of the date hereof and which does not provide for a renewal term,
will be renewed. Except as set forth in the Company Disclosure Schedule,
each Lease is fully assignable.
(c) There are no pending, or to the knowledge of the Company,
threatened condemnation proceedings with respect to the Leased Property, or
pending or, or to the knowledge of the Company, threatened litigation or
administrative actions relating to the Leased Property.
(d) There are no subleases, licenses, options, rights, concessions or
other agreements or arrangements, written or oral, granting to any Person
the right to use or occupy the Leased Property or any portion thereof or
interest therein.
3.23. CONSEQUENCE OF CONSUMMATION OF THE MERGER. The consummation of the
Merger will not: (a) relieve any Person of any obligation to the Company or any
Company Subsidiary (whether contractual or otherwise) or legally entitle any
Person to terminate any such obligation or any right or benefit enjoyed by the
Company or any Company Subsidiary or to exercise any right whether under an
agreement with or otherwise in respect of the Company or any Company Subsidiary;
(b) result in any present or future indebtedness of the Company becoming due and
payable or capable of being declared due and payable prior to its stated
maturity; or (c) give rise to a right of termination of any agreement for the
employment of any director, officer or senior employee of the Company.
3.24. PRODUCT REGULATORY REQUIREMENTS.
(a) The Company and the Company Subsidiaries have not manufactured for
commercial supply, marketed, sold or supplied any product which was at the
time not fully compliant with (i) the requirements of all applicable laws
and the laws of any territory in which any product has been placed on the
market; (ii) the terms of any applicable recognized national or
international product standards; and (iii) any representation or warranty
(whether express or implied) given in respect of any product.
(b) At no time has the Company or any Company Subsidiary had knowledge
of or received any notice, claim, governmental enforcement action or other
communication from any person alleging any defect in any product
manufactured for commercial supply, marketed, sold or supplied by the
Company or any Company Subsidiary or any contravention of any applicable
law or standard relating to any such product.
3.25. YEAR 2000. The Company and the Company Subsidiaries are reviewing
their respective operations and those of any third parties with which the
Company or any Company Subsidiary has a
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material relationship to evaluate the extent to which the business or operations
of the Company or any Company Subsidiary will be affected by the Year 2000
Problem. As a result of such review, none of the Company or any Company
Subsidiary has reason to believe, and do not believe, that the Year 2000 Problem
will have a Material Adverse Effect on the Company. The "Year 2000 Problem" as
used herein means any significant risk that computer hardware or software used
in the receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
3.26. ADDITIONAL REPRESENTATIONS.
(a) The Company has no reason to believe that it will be unable to
submit a Product License Application for DigiTAb to the U.S. Food and Drug
Administration ("FDA") on or before July 31, 1999.
(b) The Company has no reason to believe that it will be unable to
realize $300,000 in CroTAb revenues and $750,000 in CroTAb license fees in
each of September and October 1999.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the Parent Disclosure Schedule delivered by Parent
to the Company at or prior to the execution of this Agreement (the "Parent
Disclosure Schedule"), Parent represents and warrants to the Company as follows:
4.1. ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.
(a) Parent is a public limited company duly organized and validly
existing under the laws of England and Wales and has the requisite
corporate power and authority to own, lease and operate its assets and to
carry on its business as it is now being conducted. According to the
documents on the file of Parent in the custody of the Registrar of
Companies for England and Wales (the "Registrar of Companies"), Parent has
been in continuous and unbroken existence since the date of its
incorporation; no action is currently being taken by the Registrar of
Companies for striking Parent off the register and dissolving it as defunct
and Parent is not in liquidation or subject to an administrative order and
no receiver or manager of Parent's properties has been appointed. Copies of
the memorandum and articles of association of Parent heretofore delivered
to the Company are accurate and complete as of the date hereof.
(b) The only subsidiaries of Parent are those listed in the Parent
Disclosure Schedule (the "Parent Subsidiaries"). Parent is, directly or
indirectly, the legal and beneficial owner of all of the issued shares of
each of the Parent Subsidiaries. There are no contracts, commitments,
understandings or arrangements by which Parent or any Parent Subsidiary is
bound to transfer shares or issue additional shares or other equity
securities of a Parent Subsidiary or options, warrants or other rights to
purchase such shares or other equity securities or securities convertible
into or exchangeable for such shares or equity securities. All of the
issued shares of each Parent Subsidiary are fully paid or credited as fully
paid and are owned by Parent or a Parent Subsidiary free and clear of any
claim, lien, encumbrance, restriction or agreement with respect thereto.
Each Parent Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation
and has the requisite corporate power to carry on its business as it is now
being conducted. Copies of the memorandum and
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articles of association (or equivalent organizational documents) of each
Parent Subsidiary, which have been heretofore delivered to the Company, are
accurate and complete as of the date hereof. Parent and the Parent
Subsidiaries are not, and have not agreed to become, the holder or owner of
any shares, debentures or other securities of, or any investment (whether
equity, debt, loan or advance) in, any Person other than the Parent
Subsidiaries.
4.2. CAPITAL STRUCTURE.
(a) The authorized equity share capital of Parent consists of
100,000,000 Parent Ordinary Shares of 2p each. As of the date of this
Agreement, 73,999,954 Parent Ordinary Shares are issued and fully paid or
credited as fully paid. The Parent Ordinary Shares to be issued in the
Merger will, when issued in accordance with the terms of this Agreement, be
duly and validly issued and will rank pari passu with all other issued
Ordinary Shares in the capital of Parent. All issued Parent Ordinary Shares
have been duly authorized and validly issued, and are fully paid or
credited as fully paid. As of the date of this Agreement, there are no
outstanding options, warrants or other rights to acquire shares in Parent
other than 2,762,050 Parent Ordinary Shares issuable upon exercise of
outstanding options to acquire Parent Ordinary Shares ("Parent Options").
There are not now and at the Effective Time there will not be, any other
shares (other than Parent Ordinary Shares issued upon exercise of Parent
Options outstanding on the date hereof or allotted pursuant to this
Agreement and the Financing (as defined herein)), or other equity
securities of Parent outstanding, or any other outstanding options,
warrants, rights to subscribe to (including any pre-emptive rights), calls
or commitments of any character whatsoever to which Parent or any Parent
Subsidiary is a party or may be bound, requiring the issuance, transfer or
sale of, shares or other equity securities of Parent or securities or
rights convertible into or exchangeable for such shares or other equity
securities. There are not now and at the Effective Time will not be any
contracts, commitments, understandings or arrangements (other than Parent
Options outstanding on the date hereof or as contemplated by this Agreement
and the Financing) by which Parent is or may become bound to issue
additional shares or other equity securities or options, warrants or rights
to purchase or acquire any additional shares or other equity securities or
securities convertible into or exchangeable for such shares or other equity
securities. There are not now and at the Effective Time will not be any
outstanding contracts, commitments, understandings or arrangements of
Parent to repurchase, redeem or otherwise acquire any shares of Parent. The
Parent Disclosure Schedule sets forth, with respect to each Parent Option,
the grant or issue date, expiration date, vesting schedule, exercise price
and holder thereof.
(b) No bonds, debentures, notes or other indebtedness of Parent having
the right to vote on any matters on which shareholders may vote ("Parent
Voting Debt") are issued or outstanding.
4.3. AUTHORITY; NO CONFLICTS.
(a) Parent has all requisite corporate power and corporate authority
to enter into and deliver this Agreement and, subject to the adoption of
this Agreement and approval of the Merger by the requisite vote of the
holders of Parent Ordinary Shares, the creation and issue of a sufficient
amount of authorized ordinary share capital of Parent, the granting of
authority pursuant to Section 80 of the Companies Act 1985 ("Companies
Act"), the disapplication of Section 89 of the Companies Act and the
satisfaction of the conditions of this Agreement, to consummate the
transactions contemplated hereby. The Board of Directors of Parent has duly
authorized and approved this Agreement and the transactions contemplated by
this Agreement and has resolved to recommend to Parent's shareholders that
they approve this Agreement and the transactions contemplated under this
Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
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authorized by all necessary corporate action on the part of Parent, subject
to the approval of the shareholders of Parent of the Merger and this
Agreement, the creation and issue of a sufficient amount of authorized
ordinary share capital of Parent, the disapplication of Section 89 of the
Companies Act and the granting of authority pursuant to Section 80
Companies Act. This Agreement has been duly executed and delivered by
Parent and constitutes a valid and binding agreement of Parent, 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 and by general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
(b) The delivery and performance of this Agreement by Parent and
consummation by it of the transactions contemplated hereby will not (i)
violate any provision of the articles of association of Parent; (ii)
violate, conflict with or result in the breach of any of the terms or
conditions of, result in modification of the effect of, or otherwise give
any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any material
instrument, contract or other agreement to which Parent or any Parent
Subsidiary is party or to which either of them or any of their assets or
properties is bound or subject; (iii) violate any law, ordinance or
regulation or any order, judgment, injunction, decree or requirement of any
court, arbitrator or governmental or regulatory body applicable to Parent
or any Parent Subsidiary or by which any of their assets or properties is
bound; or (iv) result in the creation of any lien or other encumbrance on
the assets or properties of Parent or any Parent Subsidiary, excluding from
the foregoing clauses (ii), (iii) and (iv) violations, breaches and
defaults which, and filings, notices, permits, consents and approvals the
absence of which, in the aggregate, would not have a Material Adverse
Effect on Parent.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be
obtained by Parent or any Parent Subsidiary in connection with the
execution and delivery of this Agreement by Parent or the consummation by
Parent of the transactions contemplated hereby, except for (x) those
required under or in relation to (A) U.S. state securities or "blue sky"
laws, (B) the Securities Act, including the filing of the Form F-4 (C) the
Exchange Act, including the filing of the Proxy Statement (E) the DGCL with
respect to the filing and recordation of appropriate merger or other
documents, (F) rules and regulations of the LSE, and (G) antitrust or other
competition laws of other jurisdictions, and (y) such consents, approvals,
orders, authorizations, registrations, declarations and filings the failure
of which to make or obtain could not reasonably be expected to have a
Material Adverse Effect on Parent or impair or delay the ability of Parent
to consummate the transactions contemplated hereby.
4.4. LSE REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1997, Parent
has, and all Parent Subsidiaries organized under the laws of England and Wales
have, filed in a timely manner with the LSE all documents and announcements
required to be filed by it pursuant to the rules of the LSE and the Financial
Services Act 1986 (the "LSE Reports"). As of their respective dates, the LSE
Reports (including all financial statements, exhibits, and schedules thereto)
complied, and all documents to be filed by Parent with the LSE between the date
of this Agreement and the Effective Time will comply, in all material respects
with applicable LSE requirements and did not, or in the case of reports filed on
or after the date hereof will not, contain any untrue statement of a material
fact or 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. The audited consolidated financial statements and
unaudited consolidated interim financial statements of Parent and the Parent
Subsidiaries for each of the three years ended March 31, 1999, have been
prepared from, and are in accordance with, Parent's books and records, are in
accordance with U.K. GAAP
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applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto), and give a true and fair view of the
consolidated assets, liabilities and financial position of Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and changes in financial position for the periods then ended
(subject, in the case of any unaudited interim financial statements, to normal
year-end adjustments which are not, in the aggregate, material).
4.5. INFORMATION SUPPLIED.
(a) None of the information supplied or to be supplied by Parent or
Merger Sub for inclusion or incorporation by reference in (i) the Form F-4
will at the time it becomes effective under the Securities Act, 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 or (ii) the Proxy Statement will, on the date it is first
mailed to the Company's stockholders or at the time of the Company
Stockholders Meeting, 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 Form F-4 will comply as to
form in all material respects with the requirements of the Exchange Act and
the Securities Act and the rules and regulations of the SEC thereunder.
Notwithstanding the foregoing, no representation or warranty is made by
Parent or Merger Sub with respect to statements made or incorporated by
reference in the Proxy Statement or Form F-4 relating to the Company or
based on information supplied by the Company for inclusion or incorporation
by reference therein.
(b) None of the information supplied or to be supplied by Parent for
inclusion in the Parent Disclosure Circular will, on the date the Parent
Disclosure Circular is first mailed to shareholders of Parent and at the
time of the Parent Shareholder Meeting to vote on approval of the Merger,
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 Parent Disclosure Circular will, in accordance
with the requirements of Section 146 of the FSA, contain all such
information as investors and their professional advisors would reasonably
require, and reasonably expect to find there, for the purpose of making an
informed assessment of the assets and liabilities, financial position,
profits and losses, and prospects of Parent and the rights attaching to the
Parent Ordinary Shares, having regard to the matters specified in Section
146(3) of the FSA. Notwithstanding the foregoing, no representation or
warranty is made by Parent with respect to statements to be made or
incorporated by reference in the Parent Disclosure Circular relating to the
Company or based on information supplied by the Company for inclusion or
incorporation by reference therein.
4.6. COMPLIANCE WITH LAW. None of Parent or the Parent Subsidiaries has
violated or failed to comply in any respect with any statute, law, ordinance,
regulation, rule or order of any governmental department or agency, or any
judgment, decree, order or requirement of any court, applicable to its business,
operations, properties and assets which violation or failure would, individually
or in the aggregate with all other violations and failures, have a Material
Adverse Effect on Parent. The conduct of Parent's and the Parent Subsidiaries'
business is in conformity with all labour, employment, energy, public utility,
planning, building regulations, health and safety and environmental requirements
and all other material governmental and regulatory requirements applicable to
its business, operations, properties and assets, except for such failures to
conform which would not individually or in the aggregate have a Material Adverse
Effect on Parent. Neither Parent nor any Parent Subsidiary has received any
notice asserting a failure to comply with any such statute, law, ordinance,
regulation, rule, judgment, decree or order.
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4.7. LITIGATION. There are no actions, suits, proceedings, arbitration,
mediation or investigations pending or, to the knowledge of Parent, threatened
against Parent or any Parent Subsidiary, nor is Parent or any Parent Subsidiary
subject to any order, judgment, writ, injunction or decree of any court or
governmental or regulatory authority or body. To the best knowledge of Parent,
there is no fact, event or circumstance now in existence that reasonably could
be expected to give rise to any material action, suit, claim, proceeding or
investigation against Parent or any Parent Subsidiary.
4.8. TAXES.
(a) Filing of Tax Returns. Parent (including, for purposes of this
Section 4.8, each of its subsidiaries from time to time) has timely filed
with the proper Taxation Authority (as such term is defined herein) all Tax
Returns required to be filed through the date hereof. Such Tax Returns are
complete, correct and accurate in all material respects. Parent has
delivered to the Company complete and accurate copies of all of Parent's
Tax Returns filed for its taxable years ended December 31, 1996, 1997 and
1998.
(b) Payment of Taxes. All Taxes for which Parent is liable to pay for
any period or portion thereof heretofore ended, have been paid, or proper
provision shall have been made in conformity with U.K. GAAP applied on a
consistent basis and in a manner consistent with Parent's past custom and
practice has been established therefor in Parent's financial statements,
and Parent has no material liability for Taxes in excess of the amounts so
paid or reserves so established. All Taxes that Parent has been required to
collect or withhold have been duly collected or withheld and, to the extent
required when due, have been or will be duly paid to the proper Taxation
Authority.
(c) Audit History.
(i) All notices, returns, computations and registrations of Parent
for the purposes of Taxation have been made punctually on a proper basis
and are correct and none of them is, or to the knowledge of Parent is
likely to be, the subject of any dispute with any Taxation Authority.
(ii) Parent has not within the period of seven years ending on the
date of this Agreement paid or become liable to pay any penalty, fine,
surcharge or interest charged by virtue of the provisions of the Taxes
Management Act 1970 or any other Taxation Statute.
(iii) Parent has not been subject to any audit, investigation,
discovery or access order by any Taxation Authority and, to the
knowledge of Parent, there are no circumstances existing which make it
likely that an audit, investigation, discovery or access order will be
made other than on a routine basis.
(d) Definition of Taxes or Taxation. For purposes of this Section 4.8,
the term "Taxes" or "Taxation" shall mean all forms of taxation including
any charge, tax, national insurance and social security liabilities, duty,
levy, impost, withholding or liability wherever chargeable whether of the
United Kingdom or any other jurisdiction; and any penalty, fine, surcharge,
interest, charges or costs payable in connection with any taxation in
connection therewith.
(e) Definition of Taxation Authority. For purposes of this Section
4.8, the term "Taxation Authority" shall mean the Inland Revenue, Customs &
Excise, the Department of Social Security, the Contributions Agency and any
other governmental or other authority whatsoever competent to impose any
Taxation, whether in the United Kingdom or elsewhere.
(f) Definition of Taxation Statute. For purposes of this Section 4.8,
the term "Taxation Statute" shall mean any directive, statute, enactment,
law, or regulation or similar measure,
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wheresoever enacted or issued, coming into force or entered into providing
for or imposing any Taxation and shall include orders, regulations,
instruments, bye-laws or other subordinate legislation made under the
relevant statute or statutory provision and any such measure which amends,
extends, consolidates or replaces, or which has been amended, extended,
consolidated or replaced by, any such measure.
(g) Definition of Tax Return. For purposes of this Article IV, "Tax
Return" shall mean all notices, returns, computations and registrations of
Parent for the purposes of Taxation.
4.9. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated by this
Agreement, since March 31, 1999, none of the following have occurred: (i) any
change, event or condition (or any development involving a prospective change,
event or condition) or any threat thereof shall have occurred or be threatened,
which change, event or condition has had, or is reasonably likely to have, a
Material Adverse Effect on Parent; (ii) any change in accounting methods,
principles or practices by Parent affecting its assets, liabilities or business;
(iii) any revaluation by Parent or any of the Parent Subsidiaries of any of
their assets, (iv) any damage, destruction or loss having a Material Adverse
Effect on Parent; (v) any cancellation of any material debts or waiver or
release of any material right or claim of Parent relating to its business
activities or properties; (vi) any declaration, setting aside or payment of
dividends or distributions in respect of any shares or any redemption, purchase
or other acquisition of any securities of Parent or the Parent Subsidiaries;
(vii) any issuance by Parent or any Parent Subsidiary of, or commitment of
Parent or any Parent Subsidiary to issue, any shares, options, warrants or other
equity securities or obligations or securities convertible into or exchangeable
for shares, options, warrants or other equity securities, other than upon
exercise of share options in Parent or in any of the Parent Subsidiaries; (viii)
negotiation or execution of any material arrangement, agreement or understanding
to which Parent or any Parent Subsidiary is a party which cannot be terminated
by it on notice of 30 days or less without cost or penalty; (ix) the making of
any loan or payment, the entering into of any arrangement, agreement or
understanding or similar transaction with any Person who is an officer, director
or shareholder of Parent or any Parent Subsidiary, or who is an affiliate or
associate of such a Person; (x) any capital expenditures other than in the
ordinary course of business and consistent with past practice by Parent or any
Parent Subsidiary in an aggregate amount that exceeds $80,000; (xi) any entering
into of any scheme of arrangement or any arrangement providing for the winding
up liquidation, administration, dissolution, merger, consolidation or other
reorganization of Parent or any Parent Subsidiary; (xii) any increase in salary,
bonus, emoluments, benefits, severance, bonus or incentive or other compensation
payable or to become payable to any officer, director, employee or other Person
receiving compensation of any nature from Parent or any Parent Subsidiary; any
increase in the number of shares obtainable under, or the acceleration or
creation of any rights of any Person to benefits under, any employee share
option scheme operated by Parent (including, without limitation, the
acceleration of the vesting or exercisability of any share options, the
acceleration of the accrual or vesting of any benefits under any pension scheme
operated by Parent or the acceleration or creation of any rights under any
severance, parachute or change in control agreement), or the entering into of
any employment, consulting, severance or other employee related agreement,
arrangement or understanding with Parent or any Parent Subsidiary; (xiii) any
delay or failure to repay when due any material obligation of Parent or any
Parent Subsidiary; (xiv) any notice of termination of employment by any officer
or employee or resignation by any director; or (xv) any agreement by Parent or
any Parent Subsidiary to do any of the things described in the preceding clauses
(i) through (xiv) other than as expressly provided for herein.
4.10. VOTE REQUIRED. The passing of (A) ordinary resolutions of Parent to
(i) approve this Agreement and the Merger, (ii) increase the authorized share
capital of Parent and (iii) authorize the Board of Directors of Parent pursuant
to Section 80 of the Companies Act to allot Parent
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Ordinary Shares pursuant to this Agreement and pursuant to the Financing (as
defined herein) and (B) a special resolution of Parent disapplying the statutory
pre-emption rights of Section 89 of the Companies Act in respect of Parent
Ordinary Shares to be allotted pursuant to the Financing are the only actions of
the holders of the Parent Ordinary Shares necessary for the consummation of the
transactions contemplated hereby (the "Required Parent Votes").
4.11. CERTAIN AGREEMENTS. The Parent Disclosure Schedule lists all Parent
Material Contracts. For the purposes of this Section 4.11, unless otherwise
indicated, "Parent Material Contracts" means all contracts of the following
types to which Parent or any Parent Subsidiary is a party or by which Parent or
any Parent Subsidiary or any of their respective properties is bound, including
real property leases, labour or employment-related agreements, and contracts
relating to intellectual property: (a) joint venture and limited or general
partnership agreements, shareholder agreements with respect to the Parent
Subsidiaries, joint ventures or partnerships or other contracts involving
sharing of profits, losses, costs or liabilities, (b) mortgages, indentures,
loan or credit agreements, letters of credit, reimbursement agreements, personal
property leases, security agreements and other agreements and instruments
relating to the borrowing of money or extension of credit in any case in excess
of $80,000, (c) other contracts which are not cancelable by Parent or any Parent
Subsidiary on notice of sixty (60) days or less and which require payment by
Parent after the date hereof of more than $80,000 in any one calendar year, (d)
material license or royalty agreements, whether Parent or any Parent Subsidiary
is the licensor or licensee thereunder, (e) confidentiality and non-disclosure
agreements (whether Parent or any Parent Subsidiary is the beneficiary or the
obligated party thereunder) other than such agreements entered into with
consultants to Parent and the Parent Subsidiaries or entered into in connection
with possible acquisitions, (f) contracts containing covenants limiting the
freedom of Parent or any Parent Subsidiary or any of their respective officers
to engage in any line of business or compete with any Person that relates
directly or indirectly to Parent's business, (h) indemnification agreements with
respect to any acquisition or disposition of assets, securities or business,
whether Parent or any Parent Subsidiary is the indemnitor or indemnitee, (i)
contracts currently outstanding or which have been outstanding at any time in
the last three years with any Person known to be an affiliate, director,
officer, employee or shareholder of Parent (other than Parent and the Parent
Subsidiaries), (j) any executory contract relating to any material acquisitions
or dispositions of assets, securities or businesses by Parent or any Parent
Subsidiary, (k) any agreement with a change of control provision or with
restrictions or limitations on, or consent requirements with respect to,
assignments, (l) any research or development grants made by any Person to Parent
or any Parent Subsidiary in the last three years and (m) contracts under which
Parent or any Parent Subsidiary is responsible for the indebtedness or
obligations of any other Person or which evidence any guaranty or surety by
Parent or any Parent Subsidiary. Parent and the Parent Subsidiaries have made
available to the Company a true and correct copy of each Parent Material
Contract. Parent and the Parent Subsidiaries are in compliance in all material
respects with their respective obligations under the Parent Material Contracts.
All of the Parent Material Contracts are in full force and effect, are valid and
binding obligations of Parent and the Parent Subsidiaries and enforceable in all
material respects by Parent and the Parent Subsidiaries in accordance with their
terms except to the extent that such enforceability may be limited by
bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium,
receivership or similar laws affecting creditors' rights generally and by
general principles of equity (whether considered at law or in equity. To the
knowledge of Parent, the other party to a Parent Material Contract is in
compliance with its material obligations thereunder.
4.12. EMPLOYEE SHARE AND OTHER SCHEMES.
(a) The Parent Disclosure Schedule lists all schemes and arrangements
that exist for the provision of pension or other benefits for employees of
Parent. Each pension scheme (i) is either
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approved by the Board of Inland Revenue for purposes of Chapter 1 of Part
XIV of the Income and Corporation Taxes Act 1988 or is the scheme under
which the benefits provided or to be provided are consistent with the
approval of the scheme by the Board of Inland Revenue for such purposes and
is a scheme in respect of which an application for such approval has been
made and has not been withdrawn or refused and the Board of Inland Revenue
have not given notice to the applicant that it believes the application has
been dropped, (ii) is established under irrevocable trusts and (iii) has
been administered in accordance with all applicable laws, regulations and
requirements of any competent governmental body or regulatory authority and
the trust and rules of each pension scheme.
(b) No claim has been made or litigation commenced against the
trustees or administrator of any pension scheme against Parent. To Parent's
best knowledge, there are no circumstances which may give rise to any such
claim or litigation.
4.13. 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 Parent or Merger Sub, except WestLB Panmure Limited and Deloitte
& Touche.
4.14. ENVIRONMENTAL.
(a) Parent and the Parent Subsidiaries are in compliance with all
applicable Parent Environmental Laws (as defined below) (which compliance
includes, but is not limited to, the possession by Parent and the Parent
Subsidiaries of all permits and other governmental authorizations required
under applicable Parent Environmental Laws (collectively, "Parent
Environmental Permits"), and compliance with the terms and conditions
thereof), except for any non-compliance that individually or in the
aggregate could not reasonably be expected to have a Material Adverse
Effect on Parent. Neither Parent nor any Parent Subsidiary has received any
communication (written or oral), whether from a governmental authority,
citizens group, employee or otherwise, that alleges that Parent is not in
such compliance, and there are no past or present actions, activities,
circumstances, conditions, events or incidents that may prevent or
interfere with such compliance in the future.
(b) There is no Parent Environmental Claim (as defined below) pending
or, to the knowledge of Parent, threatened against Parent or any Parent
Subsidiary, or to the knowledge of Parent, against any person or entity
whose liability for any Parent Environmental Claim Parent or any Parent
Subsidiary has retained or assumed either contractually or by operation of
law, which individually or in the aggregate would reasonably be expected to
have a Material Adverse Effect on Parent.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents (including, without limitation, the
release, omission, discharge, presence or disposal of any Hazardous Matter)
(as defined below) which could form the basis of any Parent Environmental
Claim against Parent or any Parent Subsidiary, or, to the knowledge of
Parent, against any person or entity whose liability for any Parent
Environmental Claim Parent or any Parent Subsidiary has or may have
retained or assumed either contractually or by operation of law, which
individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect on Parent.
(d) Neither Parent nor any Parent Subsidiary has, and to the knowledge
of Parent, no other person has Released (as defined in Section 4.14(g)(v)),
placed, stored, buried or dumped Hazardous Matter on, beneath or adjacent
to any property owned, operated or leased or formerly
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owned, operated or leased by Parent or any Parent Subsidiary and neither
Parent nor any Parent Subsidiary has received notice that it may be liable
for the Removal (as defined below) of any property, whether or not owned or
operated by Parent or any Parent Subsidiary, which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect on
Parent.
(e) Parent and the Parent Subsidiaries have delivered or otherwise
made available for inspection to the Company true, complete and correct
copies and results of any reports, studies, analyses, tests or monitoring
possessed or initiated by Parent or any Parent Subsidiary pertaining to
Hazardous Matter on, beneath or adjacent to the property owned or leased by
Parent or any Parent Subsidiary or regarding Parent's and the Parent
Subsidiaries' compliance with applicable Environmental Laws.
(f) No transfers of Parent Environmental Permits and no additional
Parent Environmental Permits or other governmental authorizations under
Parent Environmental Laws, will be required to permit Parent and the Parent
Subsidiaries or the Surviving Corporation and its subsidiaries, as the case
may be, to be in full compliance all applicable Parent Environmental Laws
for the period immediately following the transactions contemplated hereby,
as conducted by Parent and the Parent Subsidiaries immediately prior to the
date hereof.
(g) The following terms as used in this Section 4.14 shall have the
following meanings:
(i) "Harm" means material harm or damage to, or other interference
with, the environment and includes any detrimental effects on the health
of living organisms or other interference with the ecosystems of which
they form part and, in the case of man, includes offense caused to any
of his senses or harm or damage to his property;
(ii) "Hazardous Matter" means any and all matter (whether alone or
in combination with other matter) including electricity, heat,
vibration, noise or other vibration which may or is liable to cause
Harm.
(iii) "Parent Environmental Claim" means any claim, action, cause
of action, investigation or written notice by any person or entity
alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, monitoring costs,
governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence, or Release (as defined in Section
4.14(g)(v)) into the indoor or outdoor environment, of any Hazardous
Matter at any location, whether or not owned or operated by Parent or
any Parent Subsidiary or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
(iv) "Parent Environmental Laws" means all international, European
Union, U.K., federal, state, local and foreign laws and regulations
relating to pollution or protection of human health or the environment,
including without limitation, Section 57 of and Schedule 22 to the U.K.
Environment Act 1995 and the guidance and regulations adopted
thereunder, and laws relating to Releases (as defined in Section
4.14(g)(v)) or threatened Releases (as defined in Section 4.15(g)(v)) of
Hazardous Matter into the indoor or outdoor environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release (as defined
in Section 4.15(g)(v)), disposal, transport or handling of Hazardous
Matter and all laws and regulations with regard to recordkeeping,
notification, disclosure and reporting requirements respecting Hazardous
Matter.
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(v) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment (including,
without limitation, ambient air, surface water, groundwater and surface
or subsurface strata) or into or out of any property, including the
movement of Hazardous Matter through or in the air, soil, surface water,
groundwater or property.
(vi) "Removal" means all actions required by governmental entities
or Environmental Laws to: (1) clean-up, remove, treat or remediate
Hazardous Matter in the indoor or outdoor environment; (2) prevent the
Release (as defined in Section 4.14(g)(v)) of Hazardous Matter so that
they do not migrate, endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment; (3) perform pre-remedial
studies and investigations and post-remedial monitoring and care; or (4)
respond to any government requests for information or documents in any
way relating to cleanup, removal, treatment or remediation or Hazardous
Matter in the indoor or outdoor environment.
4.15. LABOUR MATTERS.
(a) Parent and the Parent Subsidiaries are not a party to any
agreement or arrangement with or commitment to any trade unions or staff
association nor are any of its employees members of any trade union or
staff association.
(b) Parent and the Parent Subsidiaries have in relation to each of its
employees (and so far as relevant to each of its former employees) complied
with:
(i) all material obligations imposed on it by all relevant
statutes, regulations and codes of conduct and practice affecting its
employment of any persons and all relevant orders and awards made
thereunder and has maintained current, adequate and suitable records
regarding the service, terms and conditions of employment of each of its
employees; and
(ii) all material collective agreements, recognition agreements and
customs and practices for the time being affecting its employees or
their conditions of service.
(c) No material dispute exists between Parent and the Parent
Subsidiaries and a material number or category of its employees or any
trade union(s) and there are no wage or other claims outstanding against
Parent and the Parent Subsidiaries by any person who is now or has been a
director, officer or employee of Parent and the Parent Subsidiaries.
(d) Parent and the Parent Subsidiaries have not had during the last
three years any strike, work stoppages, slow-down or work-to-rule by its
employees or lock-out, nor, to Parent's knowledge, is any anticipated,
which has caused, or is likely to cause Parent and the Parent Subsidiaries
to be materially incapable of carrying on their business in the normal and
ordinary course.
4.16. PROPRIETARY RIGHTS.
(a) The term "Parent Proprietary Rights" includes Marks, Patents,
Copyrights, Trade Secrets and any of the foregoing licensed by Parent from
third parties (the "Parent Licensed Proprietary Rights") in each case, used
in Parent's business.
(b) The Parent Disclosure Schedule sets forth with respect to Parent
Proprietary Rights: (i) for each Patent and patent application, including
petty patents and utility models and applications therefor, as applicable,
the number, normal expiration date, title and priority information for each
country in which such patent has been issued, or, the application number,
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date of filing, title and priority information for each country and (ii)
all Parent Licensed Proprietary Rights.
(c) The Parent Proprietary Rights are all those necessary for the
operation of Parent's business as it is currently conducted and as
presently contemplated, including the design, manufacture and sale of all
products currently under development or in production. Except for rights of
third parties that may exist with respect to the Parent Licensed
Proprietary Rights, Parent is the owner of all right, title, and interest
in each of the Parent Proprietary Rights, free and clear of all security
interests, charges, encumbrances, and other adverse claims, and has the
right to use without payment to a third party (except for payments under
licenses of Parent Licensed Proprietary Rights) and without infringing the
rights of any third party all of the Parent Proprietary Rights. To Parent's
best knowledge, no employee of Parent has entered into any agreement that
requires the employee to transfer, assign, or disclose information
concerning his work on behalf of Parent to anyone other than Parent. No
other Person (a) has notified Parent or any Parent Subsidiary that it is
claiming any ownership of, or right to use, any such Parent Proprietary
Rights or (b) to the best of Parent's knowledge, has interfered with,
infringed upon or otherwise come into conflict with or challenged the
validity of any such Parent Proprietary Rights.
(d) The Parent Disclosure Schedule contains a complete and accurate
list and summary description of all Patents owned by Parent ("Parent Owned
Patents"). Parent is the owner of all right, title and interest in and to
each of the Parent Owned Patents, free and clear of all liens, security
interests, charges, encumbrances, and other adverse claims; all of the
issued Parent Owned Patents are currently in compliance with formal legal
requirements (including payment of filing, examination and maintenance fees
and proofs of working or use), are valid and enforceable; no Parent Owned
Patent material to Parent's business as conducted or proposed to be
conducted has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding, and to Parent's best knowledge,
there is no potentially interfering patent or patent application of any
third party; to Parent's best knowledge, no Parent Owned Patent is
infringed or has been challenged or threatened in any way; the operation of
Parent's business and any process or know-how used does not infringe any
third party proprietary right of any other person or entity; and any
products made, used or sold under the Parent Owned Patents have been marked
with the proper patent notice. Parent has conducted an inquiry regarding
the presence of activities which might materially infringe the Parent Owned
Patents and has provided a summary of the results of such inquiry to the
Company.
(e) Parent Disclosure Schedule contains a complete and accurate list
and summary description of all registered Marks owned by Parent ("Parent
Owned Marks"); Parent is the owner of all right, title and interest in and
to each of the Parent Owned Marks, free and clear of all liens, security
interests, charges, encumbrances, and other adverse claims; all Parent
Owned Marks that have been registered with the appropriate authority are
currently in compliance with all formal legal requirements (including the
timely post-registration filing of affidavits of use and incontestability
and renewal applications), are valid and enforceable; no Parent Owned Mark
has been or is now involved in any opposition, invalidation, or
cancellation and, to Parent's best knowledge, no such action is threatened
with respect to any of the Parent Owned Marks; to Parent's best knowledge,
there is no potentially interfering trademark or trademark application of
any third party; to Parent's best knowledge, no Parent Owned Mark is
infringed or has been challenged or threatened in any way; none of the
Parent Owned Marks used in conjunction with Parent's business infringes or
is alleged to infringe any trade name, trademark, or service mark of any
third party; and all products and materials containing a Parent Owned Mark
bear the proper federal registration notice where permitted by law.
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(f) Parent is the owner of all right, title and interest in and to all
material Copyrights owned by Parent (the "Parent Owned Copyrights") free
and clear of all liens, security interests, charges, encumbrances, and
other adverse claims; to Parent's best knowledge, no Parent Owned Copyright
is infringed or has been challenged or threatened in any way; the subject
matter of any of the Parent Owned Copyrights does not infringe and is not
alleged to infringe any copyright of any third party or is a derivative
work based on the work of a third party; and all material works encompassed
by the Parent Owned Copyrights have been marked with proper copyright
notices.
(g) With respect to each Trade Secret relating to, or used in
conjunction with, the Parent's business ("Parent Owned Trade Secrets"): the
documentation relating to such Parent Owned Trade Secret is current,
accurate, and sufficient in detail and content to identify and explain it
and to allow its full and proper use without reliance on the knowledge or
memory of any individual; Parent has taken all reasonable precautions to
protect the secrecy, confidentiality, and value of the Parent Owned Trade
Secrets; Parent has good title and an absolute (but not necessarily
exclusive) right to use any Parent Owned Trade Secret; to Parent's best
knowledge, the Parent Owned Trade Secrets are not part of the public
knowledge or literature, and have not been used, divulged or appropriated
either for the benefit of any third party person or entity or to the
detriment of Parent; and to Parent's best knowledge, no Parent Owned Trade
Secret is subject to any adverse claim or has been challenged or threatened
in any way.
(h) The Parent Disclosure Schedule lists all payments due to third
parties in respect of commercial exploitation of the products currently
under development by Parent.
(i) The Parent Disclosure Schedule lists all material licenses or
rights which have been granted by Parent.
(j) The consummation of the Merger will not adversely affect the
rights of Parent under any of the Parent Proprietary Rights.
4.17. INSURANCE. The Parent Disclosure Schedule sets forth a complete and
accurate list, as of the date hereof, of the material policies of insurance
maintained by Parent and the Parent Subsidiaries with respect to the products,
properties, assets, operations and business of Parent and the Parent
Subsidiaries since 1996. All insurance coverage applicable to Parent and the
Parent Subsidiaries is in full force and effect, insures Parent and the Parent
Subsidiaries in sufficient amounts (consistent with industry standards) against
all risks usually insured against by Persons operating similar businesses or
properties of similar size in the localities where such businesses or properties
are located, provides coverage as may be required by all regulations which
Parent and the Parent Subsidiaries are subject and has been issued by insurers
of recognized responsibility. There is no default under any such coverage nor
has there been any failure to give notice or present any claim under any such
coverage in a due and timely fashion. There are no outstanding unpaid premiums
except in the ordinary course of business and no notice of cancellation or
nonrenewal of any such coverage has been received. There are no provisions in
such insurance policies for retroactive or retrospective premium adjustments.
There are no facts upon which an insurer might be justified in reducing coverage
or increasing premiums on existing policies or binders. There are no outstanding
unpaid claims under any such policies or binders.
4.18. PERMITS; LICENSES. Parent and each Parent Subsidiary has, and at all
times has had, all material licenses (including statutory licenses), permits,
consents and authorities (public and private) required under any statute, law,
ordinance, regulation, rule or order of any foreign, local government or any
other governmental department or agency in the operation of the business
(collectively, "Parent Permits") and owns or possesses such Parent Permits free
and clear of all encumbrances. Parent and each Parent Subsidiary is in material
compliance with all Parent Permits and neither
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Parent nor any Parent Subsidiary is in default or received any notice of any
claim of default with respect to any such Parent Permit. There are no
proceedings, investigations or audits pending, or to Parent's knowledge,
threatened against Parent or any Parent Subsidiary by any governmental agency
relating to any Parent Permit. All such Parent Permits are renewable by their
terms or in the ordinary course of business without the need to comply with any
special qualification procedures or to pay any amounts other than routine filing
fees and will not be adversely affected by the completion of the Merger or the
transactions contemplated hereby. No present or former shareholder, director,
officer or employee of Parent or any affiliate thereof, or any other person,
firm, corporation or other entity, owns or has any proprietary, financial or
other interest (direct or indirect) in any Parent Permit which Parent owns,
possesses or uses.
4.19. ABSENCE OF UNDISCLOSED LIABILITIES. Neither Parent nor any Parent
Subsidiary has any liabilities of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due (including, without
limitation, all tax liabilities and liabilities for all money borrowed) which
would be required to be disclosed in financial statements, including the
footnotes thereto, prepared in accordance with U.K. GAAP, and which are not or
will not be adequately reflected or reserved against in Parent's balance sheet
as of March 31, 1999, including the footnotes thereto (the "Parent Balance
Sheet"), except such as have arisen in the ordinary course of business since
such date. Parent has not engaged, and prior to the Effective Time will not
engage, in any hedging transactions or transactions in derivative securities.
The total amount borrowed by Parent and the Parent Subsidiaries does not, and at
the Effective Time will not, exceed any limitation on borrowing in any agreement
to which Parent or any Parent Subsidiary is a party.
4.20. BOOKS AND RECORDS.
(a) The statutory books (including all registers and minute books) of
Parent and the Parent Subsidiaries have been properly kept and contain an
accurate and complete record of the matters which should be dealt with in
those books, and no written notice or allegation that any of them is
incorrect or should be rectified has been received.
(b) Parent has complied with the provisions of the Companies Acts 1985
and 1989 and all returns, particulars, resolutions and other documents
required to be filed with or delivered to the Registrar of Companies or to
any other authority whatsoever by Parent have been correctly and properly
prepared and so filed or delivered.
4.21. TITLE TO PROPERTIES; CONDITION OF PROPERTIES.
(a) The properties listed on the Parent Disclosure Schedule comprise
all the freehold and leasehold land owned, used or occupied by Parent in
its business (the "Parent Properties"). Parent has good, valid and
marketable title to the Parent Properties which title is freehold or
leasehold as indicated the Parent Disclosure Schedule and Parent is solely
legally and beneficially entitled to the Parent Properties for an
unencumbered estate in possession, except for (i) liens, claims, charges
and encumbrances disclosed, or reserved against, in the Parent Balance
Sheet, (ii) liens for current taxes not yet due and payable, and (iii)
minor imperfections of title not material (individually or in the
aggregate) and not materially detracting from the value, or the use (either
actual or intended) Parent and the Parent Subsidiaries make, of the
property in question. All of the buildings, fixtures, machinery and
equipment owned or used by Parent and the Parent Subsidiaries are in good
operating condition and repair, and comply in all material respects with
applicable planning, building, fire and safety codes.
(b) Each of the Parent Properties which is a leasehold is held under a
lease (the "Parent Leases") described in the Parent Disclosure Schedule.
All such Parent Leases are valid, binding and enforceable in accordance
with their terms and are in full force and effect and no event of
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default has occurred which (whether with or without notice, lapse of time
or both or the happening or occurrence of any other event) would constitute
a default thereunder on the part of Parent or any Parent Subsidiary. To
Parent's knowledge, each Parent Lease that terminates within two years of
the date hereof and which does not provide for a renewal term, will be
renewed.
(c) There are no pending, or to the knowledge of Parent, threatened
proceedings with respect to the Parent Properties, or pending or, or to the
knowledge of Parent, threatened litigation or administrative actions
relating to the Parent Properties.
(d) There are no subleases, licenses, options, rights, concessions or
other agreements or arrangements, written or oral, granting to any Person
the right to use or occupy the property subject to the Parent Leases or any
portion thereof or interest therein.
4.22. CONSEQUENCE OF CONSUMMATION OF THE MERGER. The consummation of the
Merger will not: (a) relieve any Person of any obligation to Parent or any
Parent Subsidiary (whether contractual or otherwise) or legally entitle any
Person to terminate any such obligation or any right or benefit enjoyed by
Parent or any Parent Subsidiary or to exercise any right whether under an
agreement with or otherwise in respect of Parent or any Parent Subsidiary; (b)
result in any present or future indebtedness of Parent becoming due and payable
or capable of being declared due and payable prior to its stated maturity; or
(c) give rise to a right of termination of any agreement for the employment of
any director, officer or senior employee of Parent.
4.23. PRODUCT REGULATORY REQUIREMENTS.
(a) Parent and the Parent Subsidiaries have not manufactured for
commercial supply, marketed, sold or supplied any product which was at the
time not fully compliant with (i) the requirements of all applicable laws
and the laws of any territory in which any product has been placed on the
market; (ii) the terms of any applicable recognized national or
international product standards; and (iii) any representation or warranty
(whether express or implied) given in respect of any product.
(b) At no time has Parent or any Parent Subsidiary had knowledge of or
received any notice, claim, governmental enforcement action or other
communication from any person alleging any defect in any product
manufactured for commercial supply, marketed, sold or supplied by Parent or
any Parent Subsidiary or any contravention of any applicable law or
standard relating to any such product.
4.24. YEAR 2000. Parent and the Parent Subsidiaries are reviewing their
respective operations and those of any third parties with which Parent or any
Parent Subsidiary has a material relationship to evaluate the extent to which
the business or operations of Parent or any Parent Subsidiary will be affected
by the Year 2000 Problem. As a result of such review, none of Parent or any
Parent Subsidiary has reason to believe, and do not believe, that the Year 2000
Problem will have a Material Adverse Effect on Parent.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
5.1. ORGANIZATION AND CORPORATE POWER. Merger Sub is corporation duly
incorporated, validly existing and in good standing under the laws of Delaware.
Copies of the Certificate of Incorporation
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and Bylaws of Merger Sub heretofore delivered to the Company are accurate and
complete as of the date hereof.
5.2. CORPORATE AUTHORIZATION. Merger Sub has all requisite corporate power
and corporate authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and constitutes a valid and binding
agreement of Merger Sub, enforceable against it 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).
5.3. NON-CONTRAVENTION. The execution, delivery and performance by Merger
Sub of this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby do not and will not contravene or conflict with the
Certificate of Incorporation or Bylaws of Merger Sub.
5.4. NO BUSINESS ACTIVITIES. Merger Sub is not a party to any material
agreements and has not conducted any activities other than in connection with
the organization of Merger Sub, the negotiation and execution of this Agreement
and the consummation of the transactions contemplated hereby.
ARTICLE VI.
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1. COVENANTS OF THE COMPANY. The Company covenants and agrees that during
the period from the date of this Agreement and continuing until the Effective
Time (except as expressly contemplated or permitted by this Agreement or to the
extent that Parent shall otherwise consent in writing):
(a) Ordinary Course of Business. The business of the Company and the
Company Subsidiaries shall be conducted only in, and the Company and the
Company Subsidiaries shall not take any action except in, the ordinary
course of business and consistent with past practices.
(b) Preservation of Organization. The Company shall use its reasonable
best efforts to maintain and preserve its business organization, present
relationships with customers, suppliers and others having business dealings
with the Company and its subsidiaries, assets, employees, regulatory
licenses and approvals and advantageous business relationships. Neither the
Company nor any Company Subsidiary shall, directly or indirectly, amend or
propose to amend its organizational documents.
(c) Capitalization Changes. Neither the Company nor any Company
Subsidiary shall directly or indirectly (i) issue, sell, transfer, pledge,
dispose of or encumber, or authorize, or propose or agree to the issuance,
sale, pledge, transfer, disposition or encumbrance of, any capital stock of
the Company (except for shares issuable upon exercise of Company Options or
Company Warrants outstanding on the date hereof) or any Company Subsidiary;
(ii) issue, sell, pledge, transfer or dispose of, or authorize, propose or
agree to the issuance, sale, pledge, transfer or disposition of any
options, warrants or rights of any kind to acquire any shares of or any
securities convertible into or exchangeable for any shares of, any capital
stock of any class or any other equity securities of the Company or any
Company Subsidiary; (iii) authorize, recommend
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or propose any change in its capitalization; or (iv) adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or
any company Subsidiary (other than the Merger).
(d) Sale of Assets. Neither the Company nor any Company Subsidiary
shall directly or indirectly (i) except in the ordinary course of business
and consistent with past practices, sell, pledge, transfer, lease, sell and
leaseback, assign, license, dispose of or encumber any assets of the
Company or of any Company Subsidiary (including without limitation, any
indebtedness owed to them or any claims held by them) or (ii) whether or
not in the ordinary course of business, sell, pledge, transfer, lease, sell
and leaseback, assign, license (other than the license of Company
Proprietary Rights in the ordinary course of business), dispose of or
encumber any material assets of the Company or any Company Subsidiary;
provided, however, that (a) the Company may sell its Gernos farm and its
contract antisera manufacturing business conducted at its Welsh facilities
to John Landon, M.D., on the terms set forth in Section 6.1(d) of the
Company Disclosure Schedule prior to the Effective Time, and (b) in
connection with the Bridge Financing (as defined below), the Company may
pledge or grant to the lender(s) a security interest in certain of the
Company's or the Company Subsidiaries' assets, including the assets
comprising the Company's manufacturing facilities in Llandysul, Dyfed,
Wales. Parent and the Company acknowledge that the Company is contemplating
the sale or sale and leaseback of (i) the real property and improvements
comprising its manufacturing operations at Llandysul, Dyfed, Wales and (ii)
the real property and improvements comprising its manufacturing operations
at Adelaide, Australia and that the Company may, with the written consent
of Parent, sell or enter into an agreement to sell and leaseback either or
both of these operations.
(e) Dividends and Repurchases. Neither the Company nor any Company
Subsidiary shall directly or indirectly (i) split, combine or reclassify
any shares of its capital stock or declare, set aside or pay any dividend
or distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock other than dividends and distributions
by a Company Subsidiary to the Company or to any other Company Subsidiary
all of the capital stock of which is owned directly or indirectly by the
Company, or (ii) redeem, purchase or otherwise acquire or offer or agree to
redeem, purchase or otherwise acquire any capital stock of the Company or
any Company Subsidiary.
(f) Acquisitions; Investments. Neither the Company nor any Company
Subsidiary shall, directly or indirectly, except in the ordinary course of
business and consistent with past practices, acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or make any
investment either by purchase of stock or securities, contributions to
capital, loans, advances, property transfer or purchase of any amount of
property or assets, in any other individual or entity (other than Company
Subsidiaries).
(g) Indebtedness. Neither the Company nor any Company Subsidiary
shall, directly or indirectly, incur any indebtedness for borrowed money
other than in the ordinary course of business, issue any debt securities or
enter into any capitalized leases or assume, guarantee, endorse, secure or
otherwise as an accommodation become responsible for, the obligations of
any other Person (other than the Company and the Company Subsidiaries);
provided, however, that the Company may, prior to the Closing Date, borrow
from one or more commercial banks or lending institutions up to L4 million
on a short-term basis to fund the Company's working capital needs pending
the closing of the Financing, of which up to L3 million may come from
Barclays Bank, plc in the form of a secured loan, the principal terms of
which are described in the Company Disclosure Schedule, and that such
loan(s) may be secured, in whole or in part, by
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the written guaranty of one or more of the Company Subsidiaries
(collectively, the "Bridge Financing").
(h) Severance and Termination Pay. Neither the Company nor any Company
Subsidiary shall take any action with respect to the grant of any severance
or termination pay (otherwise than pursuant to policies or written
agreements of the Company in effect on the date hereof) or with respect to
any increase of benefits payable under its severance or termination pay
policies or written agreements in effect on the date hereof; provided,
however, that the Company may grant severance benefits to one employee at a
total cost to the Company not exceeding L90,000 in the aggregate.
(i) Employee Benefits. Neither the Company nor any Company Subsidiary
shall adopt, enter into or amend any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment,
severance, retention or stay or other employee benefit plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any
director, officer or employee or increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan, arrangement or agreement in effect on the date
hereof.
(j) Tax Election; Accounting. Neither the Company nor any Company
Subsidiary shall make any tax election or settle or compromise any federal,
state, local or foreign income tax liability. Each of the Company and the
Company Subsidiaries shall maintain its books of account and records in its
usual, regular and ordinary manner, consistent with its past practices, and
except as may be required as a result of a change in law or in U.S. GAAP,
shall not make any change in any accounting principle or accounting
practice.
(k) Subsequent Financials. The Company shall deliver to Parent all of
the Company's monthly, if any, and quarterly financial statements for
periods and dates subsequent to the date hereof, as soon as the same are
available to the Company.
(l) Contracts. The Company and the Company Subsidiaries will not enter
into any contract or agreement other than in the ordinary course of
business. The Company and the Company Subsidiaries will not amend,
terminate or modify any Material Contract and will not enter into any
contract or agreement which would have been a Material Contract if entered
into prior to the date of this Agreement.
(m) Affiliates. The Company and the Company Subsidiaries will not
enter into, amend, modify or terminate any contract or agreement with, or
make any payment other than pursuant to a written agreement existing on the
date hereof to, any affiliate (other than the Company or any Company
Subsidiary) of the Company or the Company Subsidiaries.
(n) Litigation. The Company and the Company Subsidiaries will not
settle or compromise any pending or threatened suit, action or claim for an
amount in excess of $50,000 per suit, action or claim or which relates to
the transactions contemplated hereby.
(o) Capital Expenditures. The Company and the Company Subsidiaries
will not authorize or make any expenditure for capital or acquisitions
which are not specifically provided for in the Company's capital budget (a
true and correct copy of which has been delivered to Parent and is set
forth in the Company Disclosure Schedule).
(p) Proprietary Rights. The Company and the Company Subsidiaries will
use best efforts to protect the Company Proprietary Rights.
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(q) Other Actions. The Company shall not, and shall not permit any
Company Subsidiary to, take any action that could reasonably be expected to
result in (i) any of the representations or warranties of the Company set
forth in this Agreement that are qualified as to materiality becoming
untrue (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect or (iii) except as
otherwise permitted by Section 7.5, any of the conditions to the Merger set
forth in Article VIII not being satisfied.
6.2. COVENANTS OF PARENT AND MERGER SUB. Parent and Merger Sub covenant and
agree that during the period from the date of this Agreement and continuing
until the Effective Time (except as expressly contemplated or permitted by this
Agreement or to the extent that the Company shall otherwise consent in writing):
(a) Ordinary Course of Business. The business of Parent and the Parent
Subsidiaries shall be conducted only in, and Parent and the Parent
Subsidiaries shall not take any action except in, the ordinary course of
business and consistent with past practices.
(b) Preservation of Organization. Parent shall use its reasonable best
efforts to maintain and preserve its business organization, present
relationships with customers, suppliers and others having business dealings
with Parent and its subsidiaries, assets, employees, regulatory licenses
and approvals and advantageous business relationships. Neither Parent nor
any Parent Subsidiary shall, directly or indirectly, amend or propose to
amend its memorandum or articles of association except to the extent
necessary to consummate the transactions contemplated by this Agreement.
(c) Capitalization Changes. Neither Parent nor any Parent Subsidiary
shall directly or indirectly (i) issue, allot, sell, transfer, pledge,
dispose of or encumber, or propose or agree to the issuance, sale, pledge,
transfer, disposition or encumbrance of, any capital stock of Parent
(except for shares issuable upon exercise of Parent Options outstanding on
the date hereof or in connection with actions to be approved at the Parent
Shareholder Meeting) or any Parent Subsidiary; (ii) issue, sell, pledge,
transfer or dispose of, or authorize, propose or agree to the issuance,
sale, pledge, transfer or disposition of any options, warrants or rights of
any kind to acquire any shares of or any securities convertible into or
exchangeable for any shares of, any capital stock of any class or any other
equity securities of Parent or any Parent Subsidiary; provided, however,
that Parent may issue options to acquire Parent Ordinary Shares; (iii)
authorize, recommend or propose any change in its capitalization (except in
connection with actions to be approved at the Parent Shareholder Meeting
and resolutions to be proposed at the extraordinary general meeting of
Parent seeking the authority of Parent's shareholders under Section 80 of
the Companies Act and the disapplication of statutory pre-emption rights
contained in Section 89 of the Companies Act, both in accordance with the
guidelines of the Association of British Insurers); or (iv) adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of Parent or any
Parent Subsidiary (other than the Merger).
(d) Sale of Assets. Neither Parent nor any Parent Subsidiary shall
directly or indirectly (i) except in the ordinary course of business and
consistent with past practices, sell, pledge, transfer, lease, sell and
leaseback, assign, license, dispose of or encumber any assets of Parent or
of any Parent Subsidiary (including without limitation, any indebtedness
owed to them or any claims held by them) or (ii) whether or not in the
ordinary course of business, sell, pledge, transfer, lease, sell and
leaseback, assign, license (other than the license of Parent Proprietary
Rights in the ordinary course of business), dispose of or encumber any
material assets of Parent or any Parent Subsidiary.
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(e) Acquisitions; Investments. Neither Parent nor any Parent
Subsidiary shall, directly or indirectly, except in the ordinary course of
business and consistent with past practices, acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or make any
investment either by purchase of stock or securities, contributions to
capital, loans, advances, property transfer or purchase of any amount of
property or assets, in any other individual or entity (other than Parent
Subsidiaries).
(f) Indebtedness. Neither Parent nor any Parent Subsidiary shall,
directly or indirectly, incur any indebtedness for borrowed money, issue
any debt securities or enter into any capitalized leases or assume,
guarantee, endorse, secure or otherwise as an accommodation become
responsible for, the obligations of any other Person (other than Parent and
the Parent Subsidiaries).
(g) Severance and Termination Pay. Neither Parent nor any Parent
Subsidiary shall take any action with respect to the grant of any severance
or termination pay (otherwise than pursuant to policies or written
agreements of Parent in effect on the date hereof) or with respect to any
increase of benefits payable under its severance or termination pay
policies or written agreements in effect on the date hereof; provided,
however, that Parent may grant severance benefits to one employee at a
total cost to Parent not exceeding L90,000 in the aggregate.
(h) Employee Benefits. Neither Parent nor any Parent Subsidiary shall
adopt, enter into or amend any bonus, profit sharing, compensation, share
option, pension, retirement, deferred compensation, employment, severance,
retention or stay or other employee benefit plan, agreement, trust, fund or
other arrangement for the benefit or welfare of any director, officer or
employee or increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any
plan, arrangement or agreement in effect on the date hereof; provided,
however, that Parent shall be entitled to amend its directors and senior
employees service contracts to minimize tax liability on termination of
these contracts.
(i) Tax Election; Accounting. Neither Parent nor any Parent Subsidiary
shall make any tax election or settle or compromise any U.K., federal,
state, local or foreign or other tax liability for Taxes as defined in
Section 4.8. Each of Parent and the Parent Subsidiaries shall maintain its
books of account and records in its usual, regular and ordinary manner,
consistent with its past practices, and except as may be required as a
result of a change in law or in U.K. GAAP, shall not make any change in any
accounting principle or accounting practice.
(j) Subsequent Financials. Parent shall deliver to the Company all of
Parent's monthly, if any, and quarterly financial statements for periods
and dates subsequent to the date hereof, as soon as the same are available
to Parent.
(k) Contracts. Parent and the Parent Subsidiaries will not enter into
any contract or agreement other than in the ordinary course of business.
Parent and the Parent Subsidiaries will not amend, terminate or modify any
Parent Material Contract and will not enter into any contract or agreement
which would have been a Parent Material Contract if entered into prior to
the date of this Agreement.
(l) Affiliates. Parent and the Parent Subsidiaries will not enter
into, amend, modify or terminate any contract or agreement with, or make
any payment other than pursuant to a written agreement existing on the date
hereof to, any affiliate (other than Parent or any Parent Subsidiary) of
Parent or the Parent Subsidiaries.
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(m) Litigation. Parent and the Parent Subsidiaries will not settle or
compromise any pending or threatened suit, action or claim for an amount in
excess of $50,000 per suit, action or claim or which relates to the
transactions contemplated hereby.
(n) Capital Expenditures. Parent and the Parent Subsidiaries will not
authorize or make any expenditure for capital or acquisitions in excess of
L50,000 in the aggregate which are not specifically provided for in
Parent's capital budget (a true and correct copy of which has been
delivered to the Company and is set forth in the Parent Disclosure
Schedule).
(o) Proprietary Rights. Parent and the Parent Subsidiaries will use
best efforts to protect the Parent Proprietary Rights.
(p) Other Actions. Parent shall not, and shall not permit any Parent
Subsidiary to, take any action that could reasonably be expected to result
in (i) any of the representations or warranties of Parent set forth in this
Agreement that are qualified as to materiality becoming untrue (ii) any of
such representations and warranties that are not so qualified becoming
untrue in any material respect or (iii) except as otherwise permitted by
Section 7.5, any of the conditions to the Merger set forth in Article VIII
not being satisfied.
6.3. ADVICE OF CHANGES; GOVERNMENT FILINGS. Each party shall (a) confer on
a regular and frequent basis with the other, (b) report (to the extent permitted
by law, regulation and any applicable confidentiality agreement) to the other on
operational matters and (c) promptly advise the other orally and in writing of
(i) any representation or warranty made by it contained in this Agreement that
is qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it (A) to comply with or
satisfy in any respect any covenant, condition or agreement required to be
complied with or satisfied by it under this Agreement that is qualified as to
materiality or (B) to comply with or satisfy in any material respect any
covenant, condition or agreement required to be complied with or satisfied by it
under this Agreement that is not so qualified as to materiality or (iii) any
change, event or circumstance that has had or could reasonably be expected to
have a Material Adverse Effect on such party or materially adversely affect its
ability to consummate the Merger in a timely manner; provided, however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. The Company and Parent shall file all reports required to
be filed by each of them with the SEC and the LSE (and all other Governmental
Entities) between the date of this Agreement and the Effective Time 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 promptly after
the same are filed. Subject to applicable laws relating to the exchange of
information, each of the Company and Parent shall have the right to review in
advance, and to the extent practicable each will consult with the other, with
respect to all the information relating to the other party and each of their
respective subsidiaries, which appears in any filings, announcements or
publications made with, or written materials submitted to, any third party or
any Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party agrees that, to the
extent practicable, it will consult with the other party with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party apprised of the status of matters relating to completion of the
transactions contemplated hereby.
6.4. CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this Agreement
shall give the Company, directly or indirectly, the right to control or direct
Parent's operations prior to the Effective
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Time. Nothing contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct the Company's operations prior to the
Effective Time. Prior to the Effective Time, each of the Company and Parent
shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision over its respective operations.
ARTICLE VII.
ADDITIONAL AGREEMENTS
7.1. PREPARATION OF FORM F-4 AND PROXY STATEMENT; THE STOCKHOLDERS
MEETINGS.
(a) As soon as practicable following the date of this Agreement, the
Company and Parent shall prepare and file with the SEC the Proxy Statement
and Parent shall prepare and file with the SEC the Form F-4, in which the
Proxy Statement shall be included as a prospectus, together with any other
documents required by the Securities Act or Exchange Act in connection with
the Merger. Subject to the provisions of Section 7.5, the Proxy Statement
shall include the recommendation of the Board of Directors of the Company
in favor of the Merger. Each of the Company and Parent shall use reasonable
efforts to have the Form F-4 declared effective under the Securities Act as
promptly as practicable after such filing. The Company shall use reasonable
efforts to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after the Form F-4 is declared
effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is
not now so qualified) required to be taken under any applicable securities
laws of the United States or United Kingdom or "blue sky" laws in
connection with the issuance of Parent Ordinary Shares pursuant to the
Merger, and the Company shall furnish all information concerning the
Company and the holders of the Company Common Stock and rights to acquire
Company Common Stock pursuant to the Company Stock Option Plans and Company
Warrants as may be reasonably requested in connection with any such action.
(b) The Company shall duly call, give notice of, convene and hold a
meeting of its stockholders (the "Company Stockholders Meeting") for the
purpose of obtaining the Required Company Votes, and, the Company's Board
of Directors shall, subject to its fiduciary duties to stockholders (as
determined in good faith by the Company's Board of Directors based upon the
advice of counsel) and the terms of Section 7.5(b) of this Agreement,
recommend to its stockholders that they approve the transactions
contemplated by this Agreement. Parent shall vote or cause to be voted all
the shares of Company Common Stock, if any, owned of record by Parent or
any of its subsidiaries in favor of the transactions contemplated by this
Agreement.
(c) Parent shall duly call, give notice of, convene and hold the
Parent Shareholder Meeting for the purpose of obtaining the Required Parent
Votes, and, Parent's Board of Directors shall, subject to its fiduciary
duties to shareholders (as determined in good faith by Parent's Board of
Directors based upon the advice of counsel) and Sections 7.5(e) and (f) of
this Agreement, recommend to its shareholders that they approve the
transactions contemplated by this Agreement. The Company shall vote or
cause to be voted all Parent Ordinary Shares, if any, owned of record by
the Company or any of its subsidiaries in favor of the transactions
contemplated by this Agreement. Parent agrees that (i) there shall be
presented at the Parent Shareholder Meeting a resolution to authorize the
Board of Directors of Parent to allot Parent Ordinary Shares pursuant to
Section 80 of the Companies Act, without regard to Section 89 of the
Companies Act, pursuant to that certain Deed of even date herewith between
Parent, the Company, Therapeutic Antibodies U.K. Limited and Stuart M.
Wallis (the "Wallis Deed") and (ii) Parent shall, through its Board of
Directors, subject to its fiduciary duties to shareholders
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(as determined by Parent's Board of Directors based upon the advice of
counsel), recommend to its shareholders that they vote in favour of such
resolution.
(d) The Company shall use reasonable efforts to cause to be delivered
to Parent "comfort" letters of PricewaterhouseCoopers LLP, the Company's
independent public accountants, dated (i) a date within two Business Days
before the date on which the Form F-4 shall become effective and (ii) the
Closing Date, and addressed to Parent, in form reasonably satisfactory to
Parent and customary in scope for letters delivered by independent public
accountants in connection with registration statements similar to the Form
F-4.
(e) Parent shall use reasonable efforts to cause to be delivered to
the Company "comfort" letters of Mazars Neville Russell ("Mazars"),
Parent's independent public accountants, dated (i) a date within two
business days before the date on which the Form F-4 shall become effective
and (ii) the Closing Date, and addressed to the Company, in form reasonably
satisfactory to the Company and customary in scope for letters delivered by
independent public accountants in connection with registration statements
similar to the Form F-4.
7.2. PREPARATION OF PARENT DISCLOSURE CIRCULAR. Parent shall, (i) as soon
as practicable after the date of this Agreement and in accordance with the
listing rules of the LSE and applicable law and in cooperation with the Company,
prepare and submit to the LSE for approval the Parent Disclosure Circular, and
shall use reasonable commercial efforts to have such document formally cleared
by the LSE and shall thereafter publish the Parent Disclosure Circular, file it
with the Registrar of Companies in England and mail the same to its shareholders
in compliance with all legal requirements applicable to the Parent Shareholder
Meeting and the listing rules of the LSE and (ii) if necessary, after the Parent
Disclosure Circular has been so posted, promptly circulate amended, supplemental
or supplemented materials and, if required in connection therewith, resolicit
votes.
7.3. ACCESS TO INFORMATION. Upon reasonable notice, each of the Company and
Parent shall (and shall cause its subsidiaries, to the extent permitted by the
organizational documents or other pertinent agreements of such entity, to)
afford to the officers, employees, accountants, counsel, financial advisors and
other representatives of the other reasonable access during normal business
hours, during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records and its officers, employees and
representatives and, during such period, each of the Company and Parent shall
(and shall cause its subsidiaries, to the extent permitted by the organizational
documents or other pertinent agreements of such entity, to) furnish promptly to
the other (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 Federal or state securities laws, as applicable
(other than reports or documents which such party is not permitted to disclose
under applicable law) and (b) consistent with its legal obligations, all other
information concerning its business, properties and personnel as the other party
may reasonably request, including any information requested with respect to
stockholder approval at either the Company Stockholders Meeting or the Parent
Shareholder Meeting and the status of efforts to obtain such approval; provided,
however, that either the Company or Parent may restrict the foregoing access to
the extent that (i) a Governmental Entity requires such party or its subsidiary
to restrict access to any properties or information reasonably related to any
such contract on the basis of applicable laws and regulations or (ii) any law,
treaty, rule or regulation of any Governmental Entity applicable to such party
or its subsidiary requires such party or its subsidiary to restrict access to
any properties or information. Such information shall be held in confidence to
the extent required by, and in accordance with, the provisions of the mutual
secrecy agreement (the "Mutual Secrecy Agreement") dated January 25, 1999,
between the Company and Parent, which Mutual Secrecy Agreement shall remain in
full force and effect.
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7.4. APPROVALS AND CONSENTS; COOPERATION. Each of the Company and Parent
shall cooperate with each other and use (and shall cause their respective
subsidiaries to use) its reasonable efforts to take or cause to be taken all
actions, and do or cause to be done all things, necessary, proper or advisable
on their part under this Agreement and applicable laws to consummate and make
effective the Merger and the other transactions contemplated by this Agreement
as soon as practicable, 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 Merger or any of the other transactions contemplated by this
Agreement, (ii) taking all reasonable steps as may be necessary to obtain all
such consents, waivers, licenses, registrations, permits, authorizations, tax
rulings, orders and approvals and (iii) subject to fiduciary duties, the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated by this Agreement including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed. Without limiting the generality of the foregoing, each of
the Company and Parent agrees to make all necessary filings in connection with
the Required Regulatory Approvals (as defined herein) as promptly as practicable
after the date of this Agreement, and to use its reasonable efforts to furnish
or cause to be furnished, as promptly as practicable, all information and
documents requested with respect to such Required Regulatory Approvals and shall
otherwise cooperate with the applicable Governmental Entity in order to obtain
any Required Regulatory Approvals in as expeditious a manner as possible. Each
of the Company and Parent shall use its reasonable efforts to resolve such
objections, if any, as any Governmental Entity may assert with respect to this
Agreement and the transactions contemplated hereby in connection with the
Required Regulatory Approvals. In the event that a suit is instituted by a
Person or Governmental Entity challenging this Agreement and the transactions
contemplated hereby as violative of applicable antitrust or competition laws,
each of the Company and Parent shall use its reasonable efforts to resist or
resolve such suit. The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its subsidiaries,
directors, officers and stockholders and such other matters as may reasonably be
necessary or advisable in connection with the Form F-4 or Proxy Statement or any
other statement, filing, tax ruling request, notice or application made by or on
behalf of the Company, Parent or any of their respective subsidiaries to any
third party and/or any Governmental Entity in connection with the Merger or the
other transactions contemplated by this Agreement.
7.5. ACQUISITION PROPOSALS.
(a) The Company agrees that, prior to the Effective Time, it shall not
and shall not authorize or permit any Company Subsidiary or any of its or
its subsidiaries, directors, officers, employees, agents or representatives
to, directly or indirectly, solicit, initiate, facilitate or encourage any
inquiries or the making of any proposal with respect to any tender offer,
exchange offer, merger, consolidation, sale of assets, sales of capital
stock or other business combination involving the Company or the Company
Subsidiaries or the acquisition of 15% or more of the assets or capital
stock of the Company and the Company Subsidiaries taken as a whole (a
"Company Acquisition Proposal"), or negotiate, explore or otherwise
communicate in any way with, or provide or furnish any information to, any
Person (other than Parent or Merger Sub) with respect to any Company
Acquisition Proposal or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transaction contemplated by this Agreement.
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(b) Notwithstanding anything to the contrary contained in Section
7.5(a) or elsewhere in this Agreement, prior to the Effective Time, the
Company may, in response to an unsolicited written binding offer with
respect to a Company Acquisition Proposal from a Person with sufficient
financial resources available to it to consummate such transaction which
contains no financing condition, participate in discussion or negotiations
with, and furnish non-public information, and afford access to the
properties, books, records, officers, employees and representatives of the
Company to any Person, entity or group, in each case only if the Board of
Directors of the Company determines in good faith, (A) after consultation
with its outside counsel and financial advisors, that the Company
Acquisition Proposal would, upon consummation thereof, result in a
transaction which is more favorable to the Company's stockholders from a
financial point of view than the Merger and that such transaction is likely
to be consummated, and (B) after advice of outside counsel, that failing to
take such action would constitute a breach of the Company's Board of
Directors' fiduciary duties under applicable law (a "Company Superior
Proposal"). In the event the Company receives a Company Superior Proposal,
nothing contained in this Agreement (but subject to the terms of this
paragraph (b)) shall prevent the Board of Directors of the Company from
executing or entering into an agreement relating to such Company Superior
Proposal and recommending such Company Superior Proposal to its
stockholders; in such case, the Board of Directors of the Company may
withdraw, modify or refrain from making its recommendation of the Merger,
and, to the extent it does so, the Company may refrain from calling,
providing notice of and holding the Company Stockholders Meeting to adopt
this Agreement and from soliciting proxies or consents to secure the vote
or written consent of its stockholders to adopt this Agreement and may
terminate this Agreement; provided, however, that the Company shall (i)
provide Parent written notice of the Company's receipt of a Company
Superior Proposal, including a copy of such Company Superior Proposal
within 24 hours of such receipt, (ii) provide Parent written notice of the
Company's receipt of a Company Acquisition Proposal, including a copy of
such Company Acquisition Proposal within 48 hours of such receipt and (iii)
provide Parent written notice of the Company's intention to execute or
enter into an agreement relating to a Company Superior Proposal at least
three Business Days prior to the Company's execution of or entry into such
an agreement. Notwithstanding anything to the contrary contained in Section
7.5 or elsewhere in this Agreement, prior to the Effective Time, the
Company may, in connection with a possible Company Acquisition Proposal,
refer any third party to this Section 7.5 and Section 9.3(b) and make a
copy of this Section 7.5 and Section 9.3(b) available to a third party.
(c) Parent agrees that, prior to the Effective Time, it shall not and
shall not authorize or permit any Parent Subsidiary or any of its or its
subsidiaries, directors, officers, employees, agents or representatives to,
directly or indirectly, solicit, initiate or encourage any inquiries or the
making of any proposal with respect to any tender offer, exchange offer,
merger, consolidation, sale of assets, sales of capital stock or other
business combination involving Parent or the Parent Subsidiaries or the
acquisition of 15% or more of the assets or capital stock of Parent and the
Parent Subsidiaries taken as a whole (a "Parent Acquisition Proposal"), or
negotiate or explore with any Person (other than the Company) with respect
to any Parent Acquisition Proposal or enter into any agreement, arrangement
or understanding requiring it to abandon, terminate or fail to consummate
the Merger or any other transaction contemplated by this Agreement.
(d) Parent agrees that, prior to the Effective Time, it shall not and
shall not authorize or permit any Parent Subsidiary or any of its or its
subsidiaries, directors, officers, employees, agents, or representatives to
directly facilitate the making of a Parent Acquisition Proposal or
otherwise communicate in any way with, or provide or furnish any
information to, any Person (other than the Company) with respect to any
Parent Acquisition Proposal.
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(e) Notwithstanding anything to the contrary contained in Sections
7.5(c) and (d) or elsewhere in this Agreement, prior to the Effective Time,
Parent may, in response to an unsolicited written binding offer with
respect to a Parent Acquisition Proposal from a Person with sufficient
financial resources available to it to consummate such transaction which
contains no financing condition, participate in discussion or negotiations
with, and furnish non-public information, and afford access to the
properties, books, records, officers, employees and representatives of
Parent to any Person, entity or group, in each case only if the Board of
Directors of Parent determines in good faith, (A) after consultation with
its outside counsel and financial advisors, that the Parent Acquisition
Proposal would, upon consummation thereof, result in a transaction which is
more favorable to Parent's shareholders from a financial point of view than
the Merger and that such transaction is likely to be consummated, and (B)
after advice of outside counsel, that failing to take such action would
constitute a breach of Parent's Board of Directors' fiduciary duties under
applicable law (a "Parent Superior Proposal"). In the event Parent receives
a Parent Superior Proposal, nothing contained in this Agreement (but
subject to the terms of this paragraph (e)) shall prevent the Board of
Directors of Parent from executing or entering into an agreement relating
to such Parent Superior Proposal and recommending such Parent Superior
Proposal to its shareholders; in such case, the Board of Directors of
Parent may withdraw, modify or refrain from making its recommendation of
the Merger, and, to the extent it does so, Parent may refrain from calling,
providing notice of and holding the Parent Shareholder Meeting to adopt
this Agreement and from soliciting proxies or consents to secure the vote
or written consent of its shareholders to adopt this Agreement and may
terminate this Agreement; provided, however, that Parent shall (i) provide
the Company written notice of Parent's receipt of a Parent Superior
Proposal, including a copy of such Parent Superior Proposal within 24 hours
of such receipt, (ii) provide the Company written notice of Parent's
receipt of a Parent Acquisition Proposal, including a copy of such Parent
Acquisition Proposal within 48 hours of such receipt and (iii) provide the
Company written notice of Parent's intention to execute or enter into an
agreement relating to a Parent Superior Proposal at least three Business
Days prior to Parent's execution of or entry into such an agreement.
Notwithstanding anything to the contrary contained in Section 7.5 or
elsewhere in this Agreement, prior to the Effective Time, Parent may, in
connection with a possible Parent Acquisition Proposal, refer any third
party to this Section 7.5 and Section 9.3(f) and make a copy of this
Section 7.5 and Section 9.3(f) available to a third party.
(f) Nothing contained in Section 7.5(d) or (e) shall prohibit Parent
from taking any action and making such recommendations as the Board of
Directors of Parent, upon advice from WestLB Panmure Limited, reasonably
consider necessary so as to comply with any obligations imposed on them or
Parent by the City Code on Takeovers and Mergers in relation to any Parent
Acquisition Proposal.
7.6. FEES AND EXPENSES. Subject to Article IX, the Company and Parent
shall bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the transactions
contemplated hereby, including without limitation, all fees and expenses of
agents, representatives, counsel and accountants. 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 Form F-4 and Proxy Statement and the solicitation of stockholder approvals
and all other matters related to the transactions contemplated hereby.
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7.7. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) For a period of six years after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless the officers and
directors of the Company as of the date hereof against all losses, claims,
damages, expenses or liabilities arising out of actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time to
the same extent and on the same terms and conditions (including with
respect to advancement of expenses) provided for in the Company's
Certificate of Incorporation and Bylaws in effect at the date hereof (to
the extent consistent with applicable law).
(b) From and after the Effective Time until the sixth anniversary
thereof, the Surviving Corporation shall maintain in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that the Parent or the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with
respect to claims arising from facts or events which occurred before the
Effective Time; provided, however, that the Surviving Corporation shall not
be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 150% of the premiums paid as of the date hereof
by the Company for such insurance.
7.8. PUBLIC ANNOUNCEMENTS. The Company and Parent shall use all reasonable
efforts to develop a joint communications plan and each party shall use all
reasonable 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, to consult with each other before
issuing any press release or otherwise making any public statement with respect
to this Agreement or the transactions contemplated hereby.
7.9. TAX AND ACCOUNTING TREATMENT. Each of Parent, Merger Sub and the
Company shall not take any action and shall not fail to take any action which
action or failure to act would prevent, or would be likely to prevent, the
Merger from qualifying (i) as a reorganization within the meaning of Section
368(a) of the Code, (ii) for pooling of interests accounting treatment under
U.S. GAAP or (iii) for merger accounting treatment under U.K. GAAP.
7.10. AFFILIATES.
(a) Prior to the Closing Date, the Company shall deliver to Parent a
letter identifying all Persons who are, at the time this Agreement is
submitted for approval to the stockholders of the Company, "affiliates" of
the Company (including all directors of the Company and the stockholders
identified on Schedule 7.10(a)) for purposes of Rule 145 under the
Securities Act or under applicable SEC accounting releases with respect to
pooling of interests accounting treatment. The Company shall use reasonable
efforts to cause each such Person to deliver to Parent on or prior to the
Closing Date a written agreement substantially in the form attached hereto
as Exhibit A.
(b) Prior to the Closing Date, Parent shall deliver to the Company a
letter identifying all Persons who are, at the time this Agreement is
submitted for approval to the stockholders of the Company, "affiliates" of
Parent (including all directors of Parent) under applicable SEC accounting
releases with respect to pooling of interests accounting treatment. Parent
shall use reasonable efforts to cause each such Person to deliver to the
Company on or prior to the Closing Date a written agreement substantially
in the form attached hereto as Exhibit B.
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7.11. STOCK EXCHANGE LISTING. Parent shall use reasonable efforts to cause
the Parent Ordinary Shares to be issued in the Merger and the Financing to be
admitted to the Official List of the LSE.
7.12. TAKEOVER STATUTES. If any "fair price," "moratorium," "control share
acquisition," or other anti-takeover statute or similar statute or regulation,
or any provision of the Company's Certificate of Incorporation, Bylaws or other
constitutive documents shall become applicable to the Merger, this Agreement or
any of the other transactions contemplated hereby or thereby, the Company and
its Board of Directors shall take all action necessary to ensure that the
Merger, this Agreement and the other transactions contemplated hereby and
thereby may be consummated as promptly as practicable and otherwise to minimize
the effect of such statute, regulation or provisions on the Merger, this
Agreement and the other transactions contemplated hereby.
7.13. DIRECTORS AND SENIOR MANAGEMENT OF PARENT. The Board of Directors of
Parent shall take action to cause the directors comprising the full Board of
Directors of Parent at the Effective Time to be the persons listed on Schedule
7.13(a). The Board of Directors of Parent shall also take action to cause the
persons identified on Schedule 7.13(b) to be elected to the offices specified
opposite each person's name.
7.14. PATENT OPINION. Within 21 days following the date of this Agreement,
the Company shall retain U.S. patent counsel nationally recognized to be
experienced in rendering opinions on the validity of U.S. patents and approved
by Parent (which approval shall not be unreasonably withheld) to render an
opinion to Parent and the Company in relation to such matters and in relation to
such patents as Parent and the Company shall mutually agree (the "Patent
Opinion"). The Company shall use reasonable efforts to cause the Patent Opinion
to be delivered to Parent not later than the 70th day following the date of this
Agreement.
7.15. FURTHER ASSURANCES. In case at any time after the Effective Time any
further action is reasonably necessary to carry out the purposes of this
Agreement, the proper officers of the Company, Parent and Merger Sub shall take
any such reasonably necessary action.
ARTICLE VIII.
CONDITIONS PRECEDENT
8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligations of the Company, Parent and Merger Sub to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. The Company shall have obtained the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock adopting this Agreement and approving the consummation
of the transactions contemplated hereby and Parent's shareholders shall
have passed (A) ordinary resolutions to (i) approve this Agreement and the
Merger, (ii) increase the authorized share capital of Parent and (iii)
authorize the Board of Directors of Parent pursuant to Section 80 of the
Companies Act to allot Parent Ordinary Shares pursuant to this Agreement
and pursuant to the Financing (as defined below) and (B) a special
resolution disapplying the statutory pre-emption rights of Section 89 of
the Companies Act in respect of Parent Ordinary Shares to be allotted
pursuant to the Financing.
(b) Effective Registration Statement. The Form F-4 shall have been
declared effective by the SEC under the Securities Act, and no stop order
suspending the effectiveness of the Form F-4 shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Parent or the Company, threatened by the SEC, and
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all necessary approvals under blue sky laws relating to the issuance of the
Parent Ordinary Shares to be issued to the stockholders of the Company in
connection with the Merger shall have been received.
(c) No Injunctions or Restraints, Illegality. 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
and have the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
(d) Required Regulatory Approvals. All authorizations, consents,
orders and approvals of, and declarations and filings with, and all
expirations of waiting periods imposed by, any Governmental Entity which,
if not obtained in connection with the consummation of the transactions
contemplated hereby, could reasonably be expected to have a Material
Adverse Effect on Parent or the Company (collectively, "Required Regulatory
Approvals"), shall have been obtained, have been declared or filed or have
occurred, as the case may be, and all such Required Regulatory Approvals
shall be in full force and effect.
(e) Admission to LSE. The LSE shall have agreed to admit to the
Official List (subject to allotment) the Parent Ordinary Shares to be
issued in the Merger and in the Financing (as defined herein) and such
agreement shall not have been withdrawn.
(f) Capital Raising. The placing agreement, dated as of the date
hereof, between Parent and WestLB Panmure Limited (the "Financing") shall
be unconditional in all respects; provided, however, that such placing
agreement may still be conditional on the consummation of the transactions
contemplated by this Agreement and the admission of the Parent Ordinary
Shares to be issued in the Financing and the Merger to the Official List of
the LSE as contemplated in the placing agreement.
(g) Exon-Florio Act. Parent shall have received all consents or
approvals necessary under the Exon-Florio provisions of the Omnibus Trade
and Competitiveness Act of 1988.
8.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction of, or waiver by Parent, on or prior to the Closing Date, of the
following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company set forth in this Agreement that is qualified as
to materiality shall have been true and correct when made and shall be true
and correct on and as of the Closing Date as if made on and as of such date
(other than representations and warranties which address matters only as of
a certain date which shall be true and correct as of such certain date),
and each of the representations and warranties of the Company that is not
so qualified (the "Unqualified Company Representations") shall have been
true and correct in all material respects when made and shall be true and
correct in all material respects on and as of the Closing Date as if made
on and as of such date (other than representations and warranties which
address matters only as of a certain date which shall be true and correct
in all material respects as of such certain date). For purposes of this
Section 8.2(a), an Unqualified Company Representation shall be deemed not
to have been true and correct in all material respects only if Parent
reasonably determines in good faith that the failure of the Unqualified
Company Representation to be true and correct is material to its decision
with respect to whether to consummate the transactions provided for herein.
(b) Performance of Obligations of the Company. The Company shall have
performed or complied with all agreements and covenants required to be
performed by it under this
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Agreement at or prior to the Closing Date that are qualified as to
materiality 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 as to materiality.
(c) Tax Opinion. Parent shall have received an opinion from
PricewaterhouseCoopers, dated on or about the date the Proxy Statement is
mailed to the Company's stockholders, in form and substance reasonably
satisfactory to Parent and based on customary representations of Parent,
Merger Sub and the Company and on the basis of facts and assumptions set
forth in such opinion, which are consistent with the state of facts
existing at the Effective Time, substantially to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and (ii) no gain or loss will be recognized by the
Company, Parent or Merger Sub in connection with or as a result of the
Merger for United States federal income tax purposes Further, the opinion
of PricewaterhouseCoopers delivered pursuant to this section shall not have
been withdrawn or modified in any material respect on or prior to the
Effective Time.
(d) Absence of Company Material Adverse Effect. There shall not have
occurred since the date of this Agreement any Material Adverse Effect on
the Company.
(e) Secretary of State Certificate. The Company shall have delivered a
copy of the Certificate of Incorporation of the Company, as in effect
immediately prior to the Closing Date, certified by the Delaware Secretary
of State and a certificate, as of the most recent practicable date, of the
Delaware Secretary of State as to the Company's corporate good standing.
(f) Secretary's Certificate. The Company shall have delivered a
certificate of the Secretary of the Company dated as of the Closing Date,
certifying as to (i) the incumbency of officers of the Company executing
documents executed and delivered in connection herewith, (ii) a copy of the
Certificate of Incorporation of the Company as in effect immediately prior
to the Closing Date; (iii) a copy of the Bylaws of the Company, as in
effect on and as of the Closing Date, (iv) a copy of the resolutions of the
Board of Directors of the Company authorizing and approving the applicable
matters contemplated hereunder and (v) a copy of the resolutions of the
stockholders of the Company authorizing and approving the applicable
matters contemplated hereunder.
(g) Affiliate Letters. Parent shall have received the Affiliate
Letters referred to in Section 7.10.
(h) Consents. The Company shall have received all written consents,
assignments, waivers, authorizations or other certificates contemplated by
this Agreement or the Company Disclosure Schedule or reasonably deemed
necessary by Parent's legal counsel to provide for the continuation in full
force and effect of all Material Contracts and Leases of the Company and
for Parent to consummate the transactions contemplated hereby, each in form
and substance satisfactory to Parent, except where the failure to obtain
such consents, assignments, waivers, authorizations or other certificate
would not have a Material Adverse Effect on the Company.
(i) Dissenting Shares. The Dissenting Shares of Company Common Stock
shall not exceed 2.5% of the shares of Company Common Stock outstanding on
the Closing Date.
(j) Opinion of Counsel. Parent shall have received the written opinion
of Waller Lansden, Dortch & Davis, counsel to the Company, substantially in
the form attached hereto as Exhibit C.
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(k) Voting Agreements. Each of the Voting Agreements shall be in full
force and effect and each party thereto shall have complied with all
covenants contained therein to be performed by them prior to the Closing
Date.
(l) Taxation. Parent shall have received a letter from the U.K.
Treasury that it consents to the Merger for purposes of 765(1)(c) of the
Income and Corporations Taxes Act 1988.
(m) Bridge Financing. No event of default shall have occurred and be
continuing under the Bridge Financing and, unless Parent shall have
consented in writing, the borrowings under the Bridge Financing shall be
outstanding and shall not have been repaid other than through the
application of proceeds of a financing approved by Parent for the purpose
of repayment of the Bridge Financing.
(n) Wallis Deed. The Wallis Deed shall not have been amended,
supplemented or modified in any way and the Company shall not have any
other arrangement, agreement or understanding, whether written or oral,
with Mr. Wallis regarding the subject matter of the Wallis Deed.
8.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to effect the Merger are subject to the satisfaction of, or
waiver by the Company on or prior to the Closing Date of the following
additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub set forth in this Agreement that is
qualified as to materiality shall have been true and correct when made and
shall be true and correct on and as of the Closing Date as if made on and
as of such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct as of
such certain date), and each of the representations and warranties of each
of Parent and Merger Sub that is not so qualified (the "Unqualified Parent
Representations") shall have been true and correct in all material respects
when made and shall be true and correct in all material respects on and as
of the Closing Date as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date). For purposes of this Section 8.3(a), an Unqualified Parent
Representation shall be deemed not to have been true and correct in all
material respects only if the Company reasonably determines in good faith
that the failure of the Unqualified Parent Representation to be true and
correct is material to its decision with respect to whether to consummate
the transactions provided for herein.
(b) Performance of Obligations of Parent. Parent 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 materiality and shall have performed or complied in all material
respects with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are not so
qualified as to materiality.
(c) Tax Opinion. The Company shall have received an opinion from
PricewaterhouseCoopers LLP, dated on or about the date the Proxy Statement
is mailed to the Company's stockholders, in form and substance reasonably
satisfactory to the Company and based on customary representations of
Parent, Merger Sub and the Company and on the basis of facts and
assumptions set forth in such opinion, which are consistent with the state
of facts existing at the Effective Time, substantially to the effect that
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and (ii) no gain or loss will be recognized by
the Company, Parent or Merger Sub in connection with or as a result of the
Merger for United States federal income tax purposes. Further, the opinion
of Price-
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waterhouseCoopers LLP delivered pursuant to this section shall not have
been withdrawn or modified in any material respect on or prior to the
Effective Time.
(d) Absence of Parent Material Adverse Effect. There shall not have
occurred since the date of this Agreement any Material Adverse Effect on
Parent.
(e) U.K. Good Standing. Parent shall deliver a certificate certifying
that from the documents on the file of Parent in the custody of the
Registrar of Companies, Parent has been in continuous and unbroken
existence since the date of its incorporation; no action is being taken by
the Registrar of Companies for striking Parent off the register and
dissolving it as defunct and Parent is not in liquidation or subject to an
administrative order and no receiver or manager of Parent's properties has
been appointed.
(f) Secretary's Certificate. Parent shall have delivered a certificate
of the Secretary of Parent dated as of the Closing Date, certifying as to
(i) the incumbency of officers of Parent executing documents executed and
delivered in connection herewith, (ii) a copy of the memorandum and
articles of association of Parent as in effect immediately prior to the
Closing Date; (iii) a copy of the resolutions of the Board of Directors of
Parent authorizing and approving the applicable matters contemplated
hereunder and (iv) a copy of the resolutions of the holders of Parent
Ordinary Shares authorizing and approving the applicable matters
contemplated hereunder.
(g) Consents. Parent shall have received all written consents,
assignments, waivers, authorizations or other certificates contemplated by
this Agreement or the Parent Disclosure Schedule or reasonably deemed
necessary by the Company's legal counsel to provide for the continuation in
full force and effect of all Parent Material Contracts and Parent Leases
and for the Company to consummate the transactions contemplated hereby,
each in form and substance satisfactory to the Company, except where the
failure to obtain such consents, assignments, waivers, authorizations or
other certificate would not have a Material Adverse Effect on Parent.
(h) Dividends. During the period from the date of this Agreement until
the Effective Time, Parent shall not have directly or indirectly (i) split,
combined or reclassified any shares of its capital stock or declared, set
aside or paid any dividend or distribution, payable in cash, stock,
property or otherwise, with respect to any of its capital stock other than
dividends and distributions by a Parent Subsidiary to Parent or to any
other Parent Subsidiary all of the capital stock of which is owned directly
or indirectly by Parent, or (ii) redeemed, purchased or otherwise acquired
or offered or agreed to redeem, purchase or otherwise acquire any capital
stock of Parent or any Parent Subsidiary.
(i) Resignation of Officer of Parent. The Company shall have received
a letter of resignation of David Gration as Executive Chairman of Parent
and accepting the position of Non-Executive Deputy Chairman.
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ARTICLE IX.
TERMINATION AND AMENDMENT
9.1. TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of the Company or
the shareholders of Parent:
(a) By mutual written consent of Parent and the Company;
(b) By either the Company or Parent if the Merger shall not have been
consummated by December 20, 1999 (the "Outside Date"); provided, however,
that the right to terminate this Agreement under this Section 9.1(b) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Merger to occur on or before such date;
(c) By either the Company or Parent if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties shall have used their
reasonable efforts to resist, resolve or lift, as applicable, subject to
the provisions of Section 6.3) 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
nonappealable; provided, however, that the provisions of this Section
9.1(c) shall not be available to any party whose failure to fulfill its
obligations pursuant to Section 6.3 shall have been the cause of, or shall
have resulted in, such order or injunction;
(d) By either Parent or the Company if the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock
adopting this Agreement and approving the consummation of the transactions
contemplated hereby shall not have been obtained at the Company
Stockholders Meeting or at any adjournment thereof (by reason of the
failure to obtain the required vote) at a duly held meeting of stockholders
or at any adjournment thereof;
(e) By either Parent or the Company if (A) ordinary resolutions of
Parent to (i) approve this Agreement and the Merger, (ii) increase the
authorized share capital of Parent and (iii) authorize the Board of
Directors of Parent pursuant to Section 80 of the Companies Act to allot
Parent Ordinary Shares pursuant to this Agreement and pursuant to the
Financing and (B) a special resolution of Parent disapplying the statutory
pre-emption rights of Section 89 of the Companies Act in respect of Parent
Ordinary Shares to be allotted pursuant to the Financing shall not have
passed at the Parent Shareholders Meeting or at any adjournment thereof (by
reason of the failure to obtain the required vote) at a duly held meeting
of shareholders or at any adjournment thereof;
(f) By Parent if (i) the Board of Directors of the Company shall have
withdrawn or adversely modified its recommendation that stockholders adopt
this Agreement or approve the consummation of the transactions contemplated
hereby; (ii) the Board of Directors of the Company shall have failed to
recommend that the Company's stockholders adopt this Agreement and approve
the consummation of the transactions contemplated hereby or shall have
recommended to the stockholders of the Company that they approve a Company
Acquisition Proposal other than the Merger; (iii) a tender offer or
exchange offer that, if successful, would result in any Person or "group"
becoming a "beneficial owner" (such terms having the meanings ascribed to
them under Regulation 13D under the Exchange Act) of 15% or more of the
outstanding shares of Company Common Stock is commenced (other than by
Parent or an affiliate of Parent) and the Board of Directors of the Company
does not oppose such tender or
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exchange offer or recommends that the stockholders of the Company tender
their shares in such tender or exchange offer; or (iv) for any reason the
Company fails to call and hold the Company Stockholders Meeting by the
Outside Date (provided that (i) the Form F-4 shall have been declared
effective by the SEC or shall have failed to be declared effective by the
SEC solely as a result of the Company's failure to provide information
concerning the Company required by the SEC to be set forth in the Form F-4
and (ii) Parent's right to terminate this Agreement under this clause (iv)
shall not be available if at such time the Company would be entitled to
terminate this Agreement under Section 9.1(i));
(g) By the Company if the Board of Directors of the Company determines
to accept a Company Superior Proposal; provided, however, that no
termination pursuant to this Section 9.1(g) shall be effective unless that
Company shall make the payment required by Section 9.3(b) within two
Business Days following the acceptance of such Company Superior Proposal;
(h) By Parent, upon a material breach of any covenant or agreement on
the part of the Company set forth in this Agreement, or if (i) any
representation or warranty of the Company that is qualified as to
materiality shall have become untrue or (ii) any representation or warranty
of the Company that is not so qualified shall have become untrue in any
material respect, in each case such that the conditions set forth in
Section 8.2(a) or Section 8.2(b) would not be satisfied (a "Terminating
Company Breach"); provided, however, that, if such Terminating Company
Breach is capable of being cured by the Company prior to the Effective
Time, Parent shall promptly give notice of such Terminating Company Breach
to the Company and if such Terminating Company Breach is cured within 10
days after giving notice to the Company of such breach, Parent may not
terminate this Agreement under this Section 9.1(h);
(i) By the Company, upon a material breach of any covenant or
agreement on the part of Parent or Merger Sub set forth in this Agreement,
or if (i) any representation or warranty of Parent or Merger Sub that is
qualified as to materiality shall have become untrue or (ii) any
representation or warranty of Parent or Merger Sub that is not so qualified
shall have become untrue in any material respect, in each case such that
the conditions set forth in Section 8.3(a) or Section 8.3(b) would not be
satisfied (a "Terminating Parent Breach"); provided, however, that, if such
Terminating Parent Breach is capable of being cured by Parent prior to the
Effective Time, the Company shall promptly give notice of such Terminating
Parent Breach to Parent and if such Terminating Parent Breach is cured
within 10 days after giving written notice to Parent of such breach, the
Company may not terminate this Agreement under this Section 9.1(i);
(j) By the Company if (i) the Board of Directors of Parent shall have
withdrawn or adversely modified its recommendation that shareholders adopt
this Agreement or approve the consummation of the transactions contemplated
hereby or (ii) the Directors of Parent shall have failed to recommend that
Parent's shareholders adopt this Agreement and approve the consummation of
the transactions contemplated hereby or shall have recommended to the
shareholders of Parent that they approve a Parent Acquisition Proposal
other than the transactions contemplated by this Agreement, (iii) a tender
offer or exchange offer that, if successful, would result in any Person or
"group" becoming a "beneficial owner" (such terms having the meanings
ascribed to them under Regulation 13D under the Exchange Act) of 15% or
more of the outstanding Parent Ordinary Shares is commenced and the Board
of Directors of Parent does not oppose such tender or exchange offer or
recommends that the shareholders of Parent tender their shares in such
tender or exchange offer; or (iv) for any reason Parent fails to call and
hold the Parent Shareholder Meeting by the Outside Date (provided that the
Parent Disclosure Circular shall have been approved for issue by the LSE or
shall have failed to be so
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approved solely as a result of Parent's failure to provide information
concerning Parent required to be set forth in the Parent Disclosure
Circular and (ii) the Company's right to terminate this Agreement under
this clause (iv) shall not be available if at such time Parent would be
entitled to terminate this Agreement under Section 9.1(h)); or
(k) By Parent if the Board of Directors of Parent determines to accept
a Parent Superior Proposal; provided, however, that no termination pursuant
to this Section 9.1(k) shall be effective unless Parent shall make the
payment required by Section 9.3(f) within two Business Days following the
acceptance of such Parent Superior Proposal.
9.2. EFFECT OF TERMINATION. In the event of termination of this Agreement
by either the Company or Parent as provided in Section 9.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Parent or the Company or their respective officers or directors except (i)
with respect to Section 7.6, this Section 9.2, Section 9.3 and Article X and
(ii) subject to the provisions of Section 9.3 (if those provisions shall have
become effective as provided in Section 9.3(a)), with respect to any liabilities
or damages incurred or suffered by a party as a result of the breach by the
other party of any of its covenants or other agreements set forth in this
Agreement.
9.3. CERTAIN PAYMENTS IN THE EVENT OF TERMINATION.
(a) The provisions of this Section 9.3 shall be effective if and only
if (i) the Company stockholder approval described in Section 8.1(a) shall
have been obtained and (ii) Parent's shareholders shall have passed the
ordinary resolutions and special resolution described in Section 8.1(a).
(b) In the event of termination of this Agreement pursuant to Section
9.1(f) or 9.1(g), then the Company shall pay the Parent a cash fee of
$1,900,000 (the "Break-Up Fee"), which amount shall be payable by wire
transfer of immediately available funds no later than two Business Days
after such termination. The Company acknowledges that the agreements
contained in this Section 9.3(b) are an integral part of the transactions
contemplated in this Agreement, and that, without these agreements, Parent
and Merger Sub would not enter into this Agreement.
(c) In the event of termination of this Agreement by Parent pursuant
to Section 9.1(d) or 9.1(h), then the Company shall pay Parent a cash fee
of $1,500,000 as liquidated damages, which amount shall be payable by wire
transfer of same day funds within three Business Days after termination.
(d) In the event of termination of this Agreement by the Company
pursuant to Section 9.1(e) or 9.1(i), then Parent shall pay the Company a
cash fee of $900,000 as liquidated damages, which amount shall be payable
by wire transfer of same day funds within three Business Days after
termination.
(e) If, during the 12 month period commencing on the date on which
this Agreement is terminated pursuant to Section 9.1(d) or (h), the Company
shall have entered into a binding agreement with respect to a Company
Acquisition Proposal with any third party with whom the Company had any
discussions concerning a Company Acquisition Proposal within 6 months of
the date on which this Agreement is terminated, upon consummation of the
transaction contemplated by such Company Acquisition Proposal (whether or
not such consummation shall occur with such 12 month period), the Company
agrees to pay to Parent the Break-Up Fee less the amount, if any,
theretofore paid by the Company to Parent pursuant to Section 9.3(c), in
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immediately available funds, promptly, but in no event later than two
business days, after the date of such consummation.
(f) In the event of termination of this Agreement pursuant to Section
9.1(j) or (k), then Parent shall pay the Company the Break-Up Fee, which
amount shall be payable by wire transfer of immediately available funds no
later than two Business Days after such termination. Parent acknowledges
that the agreements contained in this Section 9.3(f) are an integral part
of the transactions contemplated in this Agreement, and that, without these
agreements, the Company would not enter into this Agreement.
(g) If, during the 12 month period commencing on the date on which
this Agreement is terminated pursuant to Section 9.1(e) or (i), Parent
shall have entered into a binding agreement with respect to a Parent
Acquisition Proposal with any third party with whom Parent had any
discussions concerning a Parent Acquisition Proposal within 6 months of the
date on which this Agreement is terminated, upon consummation of the
transaction contemplated by such Parent Acquisition Proposal (whether or
not such consummation shall occur with such 12 month period), Parent agrees
to pay to the Company the Break-Up Fee less the amount, if any, theretofore
paid by the Company to Parent pursuant to Section 9.3(d), in immediately
available funds, promptly, but in no event later than two business days,
after the date of such consummation.
(h) If any party shall be entitled to receive the Break-Up Fee
pursuant to Section 9.3(b) or 9.3(f) hereof, that party shall not also be
entitled to receive any payment pursuant to Section 9.3(c) or 9.3(d).
(i) THE PARTIES TO THIS AGREEMENT ACKNOWLEDGE THAT THE PARTIES' ACTUAL
DAMAGES OR ADVERSE CONSEQUENCES TO THE PARTIES IN THE EVENT OF A
TERMINATION OF THIS AGREEMENT FOR THE REASONS SPECIFIED IN THIS SECTION 9.3
WOULD BE EXTREMELY DIFFICULT, COSTLY, INCONVENIENT AND IMPRACTICABLE TO
DETERMINE AND PROVE. THEREFORE, THE PARTIES ACKNOWLEDGE THAT THE PAYMENTS
SPECIFIED IN THIS SECTION 9.3 SHALL BE DEEMED FOR ALL PURPOSES TO HAVE BEEN
AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF
DAMAGES OR ADVERSE CONSEQUENCES IN THE EVENT OF A TERMINATION OF THIS
AGREEMENT FOR THE REASONS SPECIFIED IN THIS SECTION 9.3. THE PARTIES HEREBY
ACKNOWLEDGE AND AGREE THAT THE PAYMENTS SPECIFIED IN THIS SECTION 9.3 ARE
REASONABLE SUMS CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF
THIS AGREEMENT, INCLUDING THE RELATIONSHIP OF THE AMOUNT OF THE PAYMENTS
SPECIFIED IN THIS SECTION 9.3 TO THE RANGE OF POSSIBLE HARM TO THE PARTIES.
EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS
THIS PROVISION COVERING LIQUIDATED DAMAGES AND THAT IT SHALL HAVE NO
RECOURSE AGAINST ANY PERSON IN THE EVENT OF A TERMINATION OF THIS AGREEMENT
FOR THE REASONS SPECIFIED IN THIS SECTION 9.3 PROVIDED THAT IT HAS RECEIVED
THE PAYMENT TO WHICH IT IS ENTITLED UNDER THIS SECTION 9.3. EACH PARTY TO
THIS AGREEMENT ACKNOWLEDGES THAT IN CONNECTION WITH THE TRANSACTIONS
PROVIDED FOR IN THIS AGREEMENT IT HAS BEEN REPRESENTED BY COUNSEL WHO
EXPLAINED THE CONSEQUENCES OF THE PROVISIONS IN THIS SECTION 9.3(i) AT THE
TIME THIS AGREEMENT WAS EXECUTED. IN PLACING THEIR INITIALS BELOW EACH
PARTY SPECIFICALLY CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND
IRREVOCABLY AND
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CONCLUSIVELY AGREES THAT IT MAY NOT CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THE PROVISIONS OF THIS SECTION 9.3(i) (INCLUDING, WITHOUT
LIMITATION, THE METHODOLOGY BY WHICH THE AMOUNTS OF THE PAYMENTS SPECIFIED
IN THIS SECTION 9.3 WERE DETERMINED).
Parent Initial /s/ BMR Merger Sub Initial /s/ BMR Company Initial
/s/ AJH
9.4. AMENDMENT. This Agreement may not be amended except by an instrument
signed by each of the parties hereto; provided, however, that after adoption of
this Agreement by the stockholders of the Company, without the further approval
of the stockholders of the Company, no amendment may be made that (a) alters or
changes the amount or kind of consideration to be received as provided in
Section 2.1 or (b) alters or changes any of the terms and conditions of this
Agreement if such alteration or change would materially adversely affect the
stockholders of the Company.
9.5. EXTENSION; WAIVER. At any time prior to the Effective Time, 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. No delay on
the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power or privilege hereunder operate as a waiver
of any other right, power or privilege hereunder, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. Unless otherwise provided, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
the parties hereto may otherwise have at law or in equity. 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.
ARTICLE X.
GENERAL PROVISIONS
10.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS; NO OTHER
REPRESENTATIONS AND WARRANTIES. 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 Time, except for those covenants and agreements contained herein
and therein that by their terms apply or are to be performed in whole or in part
after the Effective Time and this Article X. Each party hereto agrees that,
except for the representations and warranties contained in this Agreement, none
of the Company, Parent or Merger Sub makes any other representations or
warranties, and each hereby disclaims any other representations and warranties
made by itself or any of its officers, directors, employees, agents, financial
and legal advisors or other representatives, with respect to the execution and
delivery of this Agreement, the documents and the instruments referred to
herein, or the transactions contemplated hereby or thereby, notwithstanding the
delivery or disclosure to the other party or the other party's representatives
of any documentation or other information with respect to any one or more of the
foregoing.
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10.2. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, (b) on the first Business Day following the date of dispatch if
delivered by a nationally recognized next-day courier service, (c) on the tenth
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid or (d) if sent by
facsimile transmission, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone. All notices 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 Parent or Merger Sub, to Beechfield House, Lyme Green
Business Park, Macclesfield, Cheshire, SK11 0JL, attn: Barry Riley,
(facsimile no. +44(0) 1625 500666), with copies to Dick Tyler, Cameron
McKenna, 160 Aldersgate Street, London EC1A 4DD (facsimile no. +44(0) 171
367 2000) and Jeff Pero, Latham & Watkins, 505 Montgomery Street, Suite
1900, San Francisco, California 94111-2562 (facsimile no. (415) 395-8095).
(b) if to the Company, to 1207 17th Avenue South, Suite 103, Nashville
Tennessee, 37212, attn: Andrew Heath, (facsimile no. (615) 320-1212), with
copies to Hunter Rost, Waller Lansden Dortch & Davis, PLLC, Nashville City
Center, 511 Union Street, Suite 2100, Nashville, Tennessee 37219-8966
(facsimile no. (615) 244-6804) and Philip Broke, Ashurst Morris Crisp,
Broadwalk House, 5 Appold Street, London EC2A 2HA (facsimile no. +44(0) 171
972 7990).
10.3. 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, glossary of defined terms 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." The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden or proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statue or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the content requires otherwise.
10.4. 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.
10.5. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement (including the Schedules and Exhibits) constitutes
the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof, other than the Mutual Secrecy Agreement, which
shall survive the execution and delivery of this Agreement.
(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 7.7 (which is intended to be for the benefit
of the Persons covered thereby and may be enforced by such Persons).
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10.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the laws
that might be applicable under conflicts of laws principles.
10.7. 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. Any provision of this Agreement held invalid or
unenforceable only in part, degree or certain jurisdictions will remain in full
force and effect to the extent not held invalid or unenforceable. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
10.8. 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 parties, and any attempt to make any such
assignment without such consent shall be null and void. 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.
10.9. ENFORCEMENT; OTHER REMEDIES.
(a) 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.
(b) Except as otherwise provided herein, any and all remedies
expressly conferred herein upon a party will be deemed cumulative with and
not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any
other.
10.10. DEFINITIONS. As used in this Agreement:
(a) "Affiliate" of a Person means any Person which directly or
indirectly controls, is controlled by, or is under common control with,
such Person. The term "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by
contract or otherwise.
(b) "Board of Directors" means the Board of Directors of any specified
Person and any properly serving and acting committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(d) "Company Stock Option Plans" means the Company's 1997 Stock Option
Plan and 1990 Stock Incentive Plan.
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(e) "Material Adverse Effect" means, with respect to any entity, any
adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or
is reasonably likely to be materially adverse to the business, operations,
assets, liabilities, financial condition or results of operations of such
entity and its subsidiaries taken as a whole or would materially and
adversely affect the ability of the Company or Parent (as the case may be)
to perform its obligations under this Agreement or consummate the
transactions contemplated hereby.
(f) "organizational documents" means, with respect to any entity, the
certificate of incorporation, bylaws or other governing documents of such
entity.
(g) "Person" means an individual, corporation, partnership, limited
liability company association, trust, unincorporated organization, entity
or group (as defined in the Exchange Act).
(h) "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 and economic 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.
(i) "the other party" means, with respect to the Company, Parent and
means, with respect to Parent, the Company.
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IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of May 20, 1999.
PROTEUS INTERNATIONAL PLC,
a public company incorporated under
the laws
of England and Wales
By: /s/ BARRY RILEY
------------------------------------
Name: Barrington M. Riley
Title: Finance Director
PI MERGER SUB, INC.,
a Delaware corporation
By: /s/ BARRY RILEY
------------------------------------
Name: Barrington M. Riley
Title: Finance Director
THERAPEUTIC ANTIBODIES INC.,
a Delaware corporation
By: /s/ ANDREW HEATH
------------------------------------
Name: Andrew J. Heath
Title: Chief Executive Officer
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ANNEX B
27 May 1999
STRICTLY PRIVATE AND CONFIDENTIAL
The Board of Directors
Therapeutic Antibodies Inc.
1207 17th Avenue South, Suite 103
Nashville, Tennessee 37212
USA
MEMBERS OF THE BOARD OF DIRECTORS:
Therapeutic Antibodies Inc. ("Therapeutic Antibodies"), Proteus
International PLC ("Proteus") and a newly formed wholly owned subsidiary of
Proteus ("Proteus Subsidiary") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Therapeutic Antibodies will be
merged with the Proteus Subsidiary in a transaction (the "Merger") in which each
outstanding share of Therapeutic Antibodies common stock (the "Therapeutic
Antibodies Shares"), will be converted into the right to receive 1.163 shares
(the "conversion number") of the ordinary shares of Proteus (the "Proteus
Shares"). The descriptions of the Merger and the Merger Agreement in this letter
are qualified in their entirety by reference to the Merger Agreement itself.
You have asked us whether, in our opinion, the conversion number is fair
from a financial point of view to the holders of Therapeutic Antibodies Shares
(other than Proteus and its affiliates) taking into account the circumstances as
of May 20, 1999, in particular Therapeutic Antibodies' immediate cash
constraints and the unlikelihood of raising financing by alternative means on
acceptable terms.
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available business and financial
information relating to Therapeutic Antibodies and Proteus that we
deemed to be relevant, including Therapeutic Antibodies' Quarterly
Report on Form 10-Q filed on May 17, 1999;
(ii) reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of Therapeutic Antibodies and Proteus, as well as projected
cost savings attributable to the combination of the two companies
("Projected Cost Savings"), furnished to us by Therapeutic Antibodies
and Proteus and their respective independent accountants;
(iii) been informed by the Board of Directors of Therapeutic Antibodies
that, in the absence of additional financing, working capital is not
expected to be available to Therapeutic Antibodies to continue
operations after mid-June, 1999, a period approximately four weeks
from May 20, 1999;
(iv) been informed by the Board of Directors of Therapeutic Antibodies of
the progress of negotiations between Therapeutic Antibodies and
Proteus as of May 20, 1999, in particular the opinion of the Board of
Directors that (a) Proteus would not agree to the Merger on a
conversion number more favourable to Therapeutic Antibodies and that
(b) there could be no assurance that the share placing of Proteus
Shares could be accomplished successfully if the Merger Agreement as
proposed were not accepted forthwith;
(v) been informed by the Board of Directors of Therapeutic Antibodies of
the availability of alternative sources of finance to Therapeutic
Antibodies, including the unlikelihood that alternative financing
could be arranged during the next four weeks on acceptable terms;
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(vi) been informed by the Board of Directors of Therapeutic Antibodies of
the potential effects of insolvency on Therapeutic Antibodies,
including the termination of certain principal collaboration
agreements, and the effect an insolvency could be expected to have
with respect to the value of Therapeutic Antibodies Shares;
(vii) conducted discussions with members of senior management and
representatives of Therapeutic Antibodies and Proteus concerning the
matters described above in clauses (i) and (ii), as well as their
respective businesses and prospects before and after giving effect
to the Merger and the Projected Cost Savings, and conducted
discussions with members of senior management and representatives of
Therapeutic Antibodies concerning the matters described in (iii) to
(vi) above;
(viii) reviewed the market prices and valuation multiples for the
Therapeutic Antibodies Shares and the Proteus Shares and compared
them with those of certain publicly traded companies that we deemed
to be relevant;
(ix) compared the proposed financial terms of the Merger with the
financial terms of certain other recent business combinations, to the
extent publicly available, that we deemed to be comparable and
relevant;
(x) participated in certain discussions and negotiations among
representatives of Therapeutic Antibodies and Proteus and their
financial and legal advisers;
(xi) reviewed a draft of the Merger Agreement dated May 19, 1999;
(xii) reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In rendering our opinion, we assumed and relied upon the accuracy and
completeness of all of the information concerning Therapeutic Antibodies and
Proteus considered in connection with our review of the financial circumstances
of Therapeutic Antibodies and the proposed transaction, and we did not assume
any responsibility for independent verification of such information. We did not
prepare any independent evaluation or appraisal of any of the assets or
liabilities of Therapeutic Antibodies or Proteus, nor did we conduct a physical
inspection of the properties and facilities of Therapeutic Antibodies or
Proteus. With respect to information provided to us by the Board of Directors of
Therapeutic Antibodies in relation to the time period for which working capital
is available to continue operations, the availability of alternative financing,
the unlikelihood that alternative financing could be arranged on acceptable
terms in time to provide working capital to continue operations, and the
consequences of insolvency, we have assumed that such information is accurate,
complete and represents the best judgments of the management and Board of
Directors of Therapeutic Antibodies with respect to such matters and we did not
assume any responsibility for independent verification or assessment of any of
such information. With respect to the financial projections made available to us
and used in our analyses, we assumed that they were reasonably prepared and
reflect the best currently available estimates and judgments of Therapeutic
Antibodies' and Proteus' managements as to the expected future financial
performance of Therapeutic Antibodies and Proteus, respectively, and any
synergies arising from the Merger including the Projected Cost Savings. We have
further assumed, with your consent, that the Merger will qualify as a tax-free
reorganization for U.S. federal income tax purposes and that the Merger will be
accounted for using merger accounting methods under generally accepted
accounting principles in the United Kingdom and as a "pooling of interests"
under generally accepted accounting principles in the United States.
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For purposes of rendering our opinion, we assumed, in all respects material
to our analyses, that the representations and warranties of each party to the
Merger Agreement and all related documents and instruments contained therein are
or will be at the time such documents or instruments are executed true and
correct in all material respects, that each party to such documents and
instruments will perform all of the covenants and agreements required to be
performed by such party under such documents and instruments and that all
conditions to the consummation of the Merger will be satisfied without waiver
thereof. We also assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Merger, no restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. We have also assumed that the final form of
the Merger Agreement, as and when executed, will be substantially similar to the
last draft thereof reviewed by us.
For purposes of our opinion, we assumed that neither Therapeutic Antibodies
nor Proteus is a party to any pending transactions, including external
financings, recapitalisations or material merger discussions, other than the
Merger and those activities disclosed to us (including the additional share
placing planned by Proteus in connection with the Merger) or undertaken in the
ordinary course of conducting their respective businesses.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of May 20, 1999 and any
material change in such conditions would require a re-evaluation of our opinion.
We express no opinion as to the price at which the Proteus Shares will trade
subsequent to the effective time of the Merger.
In connection with the preparation of this opinion, we have not been
requested by Therapeutic Antibodies or its Board of Directors to, nor did we,
solicit or assist the Board of Directors in soliciting indications of interest
for the acquisition of Therapeutic Antibodies.
We are acting as financial advisor to Therapeutic Antibodies in connection
with the Merger and will receive a fee from Therapeutic Antibodies for our
services, a significant portion of which is contingent upon the consummation of
the Merger. We may agree with Therapeutic Antibodies that the excess of our
recoverable expenses over L12,000 be payable in shares to be issued by Proteus
following consummation of the Merger at a value per Share equal to that of
shares expected to be issued in the share placing. In addition, Therapeutic
Antibodies has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided investment banking services to
Therapeutic Antibodies for which we have received fees, including acting as
sponsor for the initial public offering of Therapeutic Antibodies Shares in July
1996 and a subsequent placing of Therapeutic Antibodies Shares in October 1998.
We may continue in the future to provide additional merchant banking or other
financial advisory services to the combined company. In addition, in the
ordinary course of business, we and affiliates of ours may hold or actively
trade in debt and equity securities of Therapeutic Antibodies and Proteus for
our own account or for our customers. We and our affiliates anticipate holding
and trading in the securities of the combined company following consummation of
the Merger.
It is understood that our opinion is for the information of the Board of
Directors of Therapeutic Antibodies in connection with its evaluation of the
Merger and does not address any other aspect of the Merger, the share placing by
Proteus or any other transaction related to the Merger. Our opinion does not
address the merits of the underlying decision of the Board of Directors of
Therapeutic Antibodies to proceed with or effect the Merger and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Merger Agreement. Our opinion is not to be quoted or
referred to, in whole or in part, in any registration statement,
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prospectus or proxy statement, or in any other document used in connection with
the offering or sale of securities, nor shall this letter be used for any other
purposes, without our prior written consent.
This letter represents a written confirmation of our oral opinion and
presentation delivered to the Board of Directors of Therapeutic Antibodies on
May 20, 1999 and supersedes any earlier presentation or oral opinion.
On the basis of and subject to the foregoing, we are of the opinion that,
as of May 20, 1999, the conversion number is fair from a financial point of view
to the holders of Therapeutic Antibodies Shares (other than Proteus and its
affiliates) taking into account the circumstances as of May 20, 1999, in
particular Therapeutic Antibodies' immediate cash constraints and the
unlikelihood of raising financing by alternative means on acceptable terms.
Yours faithfully
THE BRITISH LINEN BANK LIMITED
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ANNEX C
PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW
RELATING TO RIGHTS OF DISSENTING STOCKHOLDERS
SECTION 262 -- APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of
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such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
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(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
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(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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ANNEX D
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT dated as of , 1999 (this "Agreement"),
is entered into by (the "Stockholder") and Proteus International,
plc, a public company incorporated under the laws of England and Wales
("Parent").
WHEREAS, as of the date hereof, the Stockholder owns of record the shares
of common stock ("Company Common Stock"), of Therapeutic Antibodies Inc., a
Delaware corporation (the "Company"), set forth opposite the Stockholder's name
on the signature page hereto (such shares, together with any other voting or
equity securities of the Company hereafter acquired by the Stockholder prior to
the termination of this Agreement, if any, being referred to herein as the
"Shares");
WHEREAS, Parent, PI Merger Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub") and the Company propose to enter into
an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which,
upon the terms and subject to the conditions thereof, the Company will be merged
with and into Merger Sub (the "Merger"); and
WHEREAS, as a condition to the willingness of Parent to enter into the
Merger Agreement, Parent has requested that the Stockholder agree, and in order
to induce Parent to enter into the Merger Agreement, the Stockholder is willing,
to consent to the adoption of the Merger Agreement and the approval of the
Merger and to agree to certain other matters, all upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree as follows:
SECTION 1. Consent; Voting of Shares.
(a) The Stockholder hereby agrees that at any meeting of the stockholders
of the Company, however called, and at every adjournment thereof, and in any
action by consent of the stockholders of the Company in lieu of a meeting, the
Stockholder will (i) vote all of such Stockholder's Shares in favor of the
adoption of the Merger Agreement and approval of the Merger and the other
transactions contemplated by the Merger Agreement and hereby irrevocably
consents to the adoption of the Merger Agreement and the approval of the Merger
and the other transactions contemplated by the Merger Agreement, (ii) vote all
of such Stockholder's Shares against any proposal by a party other than Parent
or Merger Sub to merge, consolidate or otherwise combine with the Company or any
subsidiary of the Company or to sell all or substantially all of the assets of
or any equity interest in the Company or any subsidiary of the Company, (iii)
vote all of such Stockholder's Shares against any action involving the Company
or any subsidiary of the Company which has or may have the effect of impeding,
interfering with, delaying, postponing or impairing the ability of the Company
to consummate the Merger or the transactions contemplated by this Agreement and
the Merger Agreement and (iv) vote all of such Stockholder's Shares in favor of
any other matter necessary to the consummation of the transactions contemplated
by the Merger Agreement. In addition, the Stockholder agrees that the
Stockholder will, upon request by Parent, furnish written confirmation, in form
and substance reasonably satisfactory to Parent, of the Stockholder's support
for the Merger Agreement and the Merger.
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(b) From time to time and without additional consideration, the Stockholder
shall execute and deliver, or cause to be executed and delivered, such
additional proxies, consents and other similar instruments and shall take such
further actions as Parent may reasonably request for the purpose of carrying out
and furthering the intent of this Agreement.
SECTION 2. Irrevocable Proxy.
(a) The Stockholder hereby appoints Barry Riley and David Gration, their
successors or any other designee of Parent, the sole and exclusive and true and
lawful proxy, agent and attorney-in-fact of the Stockholder, with full power of
substitution and resubstitution, to vote or to execute and deliver written
consents or otherwise act with respect to all of such Stockholder's Shares, as
fully, to the same extent, and with the same effect as the Stockholder might or
could do under any applicable laws or regulations governing the rights and
powers of stockholders of a Delaware corporation, but only in connection with
the matters described in Section 1(a) hereof.
(b) The Stockholder shall execute such additional documents and take such
additional actions as Parent may reasonably request to effectuate or further
secure and protect the rights of Parent under this Section 2.
(c) Parent and the Stockholder intend that this proxy be coupled with an
interest in the Shares, and, as a result, this proxy shall be irrevocable until
the date this proxy terminates as provided in Section 2(e) hereof, whereupon it
shall automatically lapse.
(d) The Stockholder hereby revokes any other proxy or proxies to act and
vote on behalf of any and all of such Stockholder's Shares, and hereby ratifies
and confirms all acts and votes that the proxy specified herein may lawfully
perform by virtue of this authorization.
(e) This proxy shall terminate and shall be revoked upon termination of
this Agreement pursuant to Section 4 hereof.
SECTION 3. Transfer of Shares. The Stockholder agrees that it shall not
take any action, prior to the termination of this Agreement in accordance with
the terms hereof, to, directly or indirectly, (a) sell, assign, transfer
(including by merger or otherwise by operation of law), pledge, encumber or
otherwise dispose of any of such Shareholder's Shares or agree to sell, assign,
transfer (including by merger or otherwise by operation of law), pledge,
encumber or otherwise dispose of any of such Stockholder's Shares, (b) deposit
any of such Stockholder's Shares into a voting trust or enter into a voting
agreement or arrangement with respect to any of such Stockholder's Shares or
grant any proxy or power of attorney with respect thereto or (c) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
SECTION 4. Termination. This Agreement shall terminate automatically upon
the earlier to occur of (i) the time the Merger becomes effective or (ii) any
termination of the Merger Agreement in accordance with the terms thereof;
provided that no such termination shall relieve any party of liability for a
breach hereof prior to termination.
SECTION 5. Representations. The Stockholder represents and warrants to
Parent and Merger Sub as follows:
(a) The Stockholder is the sole record owner of, and has good title
to, all of the Shares it owns as specified on the signature page hereto.
The Stockholder owns of record the Shares set forth opposite the
Stockholder's name on the signature page hereto free and clear of any lien,
encumbrance, preemptive right, right of first offer or refusal, or other
prior claim. The Stockholder has not entered into any voting trust or
voting agreement or arrangement with
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respect to any of such Stockholder's Shares which is in effect as of the
date of this Agreement and has not granted any proxy or power of attorney
with respect thereto which is in effect as of the date of this Agreement.
The Stockholder has sole voting power, sole power of disposition, sole
power to issue instructions with respect to the matters set forth in
Sections 1 and 2 hereof and sole power to agree to all of the matters set
forth in this Agreement in each case with respect to such Stockholder's
Shares.
(b) The execution and delivery of this Agreement by the Stockholder
does not, and the performance by the Stockholder of its obligations
hereunder will not, (i) constitute a violation (with or without the giving
of notice or lapse of time or both) of any provision of any law applicable
to the Stockholder, (ii) require any consent, approval or authorization of,
or notice to, any person, corporation partnership, domestic or foreign
governmental authority or other organization or entity (except where the
failure to obtain such consents, approvals or authorizations or provide
notice would not materially impair the ability of the Stockholder to
consummate the transactions contemplated hereby), (iii) result in a default
under, an acceleration or termination of, or the creation in any party of
the right to accelerate, terminate, modify or cancel, any material
agreement, lease, note or other restriction, encumbrance, obligation or
liability to which the Stockholder is a party or by which the Stockholder
is bound, or (d) result in the creation of any lien on any of such
Stockholder's Shares under (i) any contract commitment, agreement,
understanding, arrangement or restriction of any kind to which the
Stockholder is a party or by which the Stockholder or such Stockholder's
Shares are bound, (ii) any judgment, writ, decree, order or ruling
affecting the Stockholder or such Stockholder's Shares or (iii) the
organizational documents of the Stockholder to the extent the Stockholder
is not an individual.
(c) The Stockholder has the necessary power or capacity (as the case
may be) and authority to execute to this Agreement, to make the
representations, warranties and covenants herein and to perform its, his or
her obligations hereunder. This Agreement has been duly and validly
authorized, executed and delivered by the Stockholder.
SECTION 6. Waiver of Dissenter's and Appraisal Rights. Until the
termination of this Agreement in accordance with the terms hereof, the
Stockholder agrees that it will not exercise any rights to dissent from the
Merger or request appraisal of such Stockholder's Shares pursuant to the
Delaware General Corporation Law or any other similar provisions of law in
connection with the Merger.
SECTION 7. Specific Performance.
(a) The parties hereto agree that irreparable damage would occur in the
event any provision of this Agreement were not performed in accordance with the
terms hereof and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or in equity.
(b) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party.
SECTION 8. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and
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oral, between the parties with respect thereto. This Agreement may not be
amended, modified or rescinded except by an instrument in writing signed by each
of the parties hereto.
(b) If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. 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 to the fullest extent permitted by
applicable law in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible.
(c) This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware without regard to the principles of
conflicts of law thereof.
(d) This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.
(e) All costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such costs
and expenses.
(f) Neither this Agreement nor any of the interests or obligations
hereunder may be assigned or delegated by either party hereto and any attempted
or purported assignment or delegation of any of such interests or obligations
shall be void. Subject to the preceding sentence, this Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. This Agreement shall be binding upon any person or
entity to whom any of such Stockholder's Shares are transferred.
(G) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS VOTING
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, each of the parties hereto have executed and delivered
this Agreement as of the date first written above.
PROTEUS INTERNATIONAL, PLC
--------------------------------------
By:
Its:
--------------------------------------
Name:
By:
Its:
Number of shares of Company Common
Stock owned of record as of the date
of hereof:
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<PAGE> 329
PROXY CARD
THERAPEUTIC ANTIBODIES INC.
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE THERAPEUTIC ANTIBODIES INC. BOARD OF
DIRECTORS.
The undersigned hereby appoints Andrew J. Heath and Martin S. Brown, or
either of them, with power of substitution or ____________, as Proxy(ies) to
vote all stock of Therapeutic Antibodies Inc. owned by the undersigned at the
Annual Meeting of Stockholders to be held at 8:00 a.m., Central Time, at the
University Club of Nashville, located at 2402 Garland Avenue, Nashville,
Tennessee 37212 on September 13, 1999, and any adjournment thereof, on the
following items of business and such other business as may properly come before
the meeting.
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER AMONG THERAPEUTIC
ANTIBODIES INC., PROTEUS INTERNATIONAL PLC AND PI MERGER SUB, INC. PROVIDING
FOR:
(A) THE MERGER OF THERAPEUTIC ANTIBODIES INC. WITH AND INTO PI MERGER SUB,
INC., A WHOLLY-OWNED SUBSIDIARY OF PROTEUS INTERNATIONAL PLC; AND
(B) THE CONVERSION OF EACH SHARE OF THERAPEUTIC ANTIBODIES INC. COMMON STOCK
INTO 1.163 PROTEUS INTERNATIONAL PLC ORDINARY SHARES.
[ ] FOR [ ] AGAINST
2. THE ELECTION AS DIRECTORS OF ALL NOMINEES LISTED BELOW:
<TABLE>
<CAPTION>
NOMINEE FOR AGAINST NOMINEE FOR AGAINST
------- --- ------- ------- --- -------
<S> <C> <C> <C> <C> <C>
Stuart M. Wallis [ ] [ ] Martin S. Brown [ ] [ ]
Andrew J. Heath, M.D., Ph.D. [ ] [ ] Tim Chard, M.D. [ ] [ ]
</TABLE>
3. THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITORS OF THERAPEUTIC ANTIBODIES INC. AND ITS SUBSIDIARIES FOR
THERAPEUTIC ANTIBODIES' 1999 FISCAL YEAR.
[ ] FOR [ ] AGAINST
(Continued and to be signed on the reverse side)
<PAGE> 330
4. IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THE PROXY
DESIGNATED HEREBY WILL EXERCISE HIS OR HER DISCRETION AS TO WHETHER AND, IF SO,
HOW TO VOTE ON ALL MATTERS TO PROPERLY COME BEFORE THE MEETING. YOU MAY, BUT ARE
NOT REQUIRED TO, APPOINT ANY PERSON, WHETHER OR NOT AFFILIATED WITH THERAPEUTIC
ANTIBODIES, AS YOUR PROXY. IN THE ABSENCE OF A SPECIFIC DESIGNATION, ANDREW J.
HEATH AND MARTIN S. BROWN, OR EITHER OF THEM, WITH POWER OF SUBSTITUTION, SHALL
ACT AS YOUR PROXY FOR THE MEETING.
Please sign, and when signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated , 1999
-----------------------------
Stockholder Name (Please
print)
-----------------------------
Signature of Stockholder
-----------------------------
Signature if held jointly
(Your signature(s) should
conform to your name(s) as
printed hereon. Co-owners
should all sign.)
[ ] I expect to attend the
Annual Meeting
[ ] I do not expect to attend
the Annual Meeting
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
