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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
SHIRE PHARMACEUTICALS GROUP PLC
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Ordinary Shares, 5 pence nominal value per share
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(2) Aggregate number of securities to which transaction applies:
260,621,527
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(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):
*
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(4) Proposed maximum aggregate value of transaction:
$4,180,698,730
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(5) Total fee paid:
$836,140. $22,093 paid herewith. $814,047 previously paid on
January 17, 2001 with filing of preliminary proxy statement.
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* The per unit price for the 254,707,924 ordinary shares in
respect of which a fee was paid in connection with the
filing of the Company's preliminary proxy statement on
January 17, 2001 was $15.98, based on the average of the
high and low prices for the ordinary shares as reported on
the London Stock Exchange on January 10, 2001. The per unit
price for the additional 5,913,603 ordinary shares that may
be issued in connection with the transaction is $18.68,
based on the average of the high and low prices for the
ordinary shares as reported on the London Stock Exchange on
February 23, 2001.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SHIRE PHARMACEUTICALS GROUP PLC
HAMPSHIRE INTERNATIONAL BUSINESS PARK
CHINEHAM, BASINGSTOKE
HAMPSHIRE RG24 8EP
ENGLAND
PROXY STATEMENT FOR THE
EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
SOLICITATION AND REVOCATION OF PROXIES
The Board of Directors of Shire Pharmaceuticals Group plc is soliciting the
accompanying proxy for use at the extraordinary general meeting of shareholders
to be held at 35 New Broad Street, London, EC2M 1SQ, England, on March 29, 2001
at 3:00 p.m., local time. If a proxy is received at least 48 hours before the
meeting, as indicated below, the shares represented by it will, on a poll, be
voted unless the proxy is revoked by written notice prior to the meeting. If
matters other than those set forth in the accompanying Notice of Extraordinary
General Meeting are presented at the meeting for action, the proxy holders will
vote the proxies as they think fit. The approximate date on which a definitive
proxy statement and the accompanying proxy will first be mailed to shareholders
is March 1, 2001.
At the extraordinary general meeting, you will be asked to consider and vote
upon a proposal to approve the merger of Shire and BioChem Pharma Inc. under the
terms of a plan of arrangement. We will issue up to 260,621,527 ordinary shares
(but in any event the number of ordinary shares we issue shall be less than the
total number of Shire issued ordinary shares at the closing of the merger) in
exchange for all of the outstanding BioChem shares (and assuming all existing
BioChem shareholders exchange their BioChem shares for ordinary shares pursuant
to the merger and including any shares to be issued pursuant to the exercise of
options under the BioChem Stock Option Plans or other rights and any new BioChem
shares which may be issued in certain circumstances as a result of the exercise
by BioChem shareholders of their statutory dissent rights under Canadian law.
See "The Merger--Anticipated Accounting Treatment and Effects").
At the extraordinary general meeting, you will also be asked to approve a
special resolution increasing the Directors' power, for a period of 5 years from
the date of the passing of the resolution, to allot securities within the limits
of the authorized share capital for cash free of pre-emption rights up to a
nominal amount of L1,279,868. This action does not relate to the merger.
SEE "RISK FACTORS" BEGINNING ON PAGE 22 OF THIS PROXY STATEMENT FOR A
DISCUSSION OF CERTAIN MATTERS YOU SHOULD CONSIDER BEFORE VOTING FOR OR AGAINST
THE APPROVAL AND ADOPTION OF THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS PROXY
STATEMENT WHICH HIGHLIGHTS THE KEY ASPECTS OF THE MERGER. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU ARE URGED TO READ AND CONSIDER CAREFULLY ALL OF THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND IN THE
ANNEXES ATTACHED TO THIS PROXY STATEMENT.
REFERENCES TO "$" OR "DOLLARS" HEREIN ARE TO US DOLLARS, UNLESS OTHERWISE
SPECIFIED.
A TABLE OF CONTENTS FOR THIS PROXY STATEMENT APPEARS AT THE BACK OF THIS
DOCUMENT.
GENERAL
This Proxy Statement relates to the proposed merger of Shire and BioChem,
under the terms of a merger agreement and a plan of arrangement. A copy of the
merger agreement is attached as Annex A to this Proxy Statement and a copy of
the plan of arrangement is attached as Annex B to this Proxy Statement. In the
merger, BioChem shareholders will be entitled to receive, for each BioChem
share, Shire ADSs, Shire ordinary shares or, in the case of Canadian residents,
shares of Shire Acquisition Inc., a wholly-owned subsidiary of Shire, which we
refer to as Exchangeco. Each ADS represents three ordinary shares. We will issue
between 1.5678 and 2.3517 ordinary shares for each BioChem share. The exchange
ratio will be determined based on the average trading price of the ADSs for the
fifteen consecutive trading days ending three days before the date the merger is
consummated.
THE COMPANIES
SHIRE PHARMACEUTICALS GROUP PLC
Hampshire International Business Park
Chineham, Basingstoke
Hampshire RG24 8EP
England
Telephone: (44)1-256-894-000
We are an international specialty pharmaceutical company with a strategic
focus on four therapeutic areas:
- - central nervous system disorders;
- - metabolic diseases;
- - oncology; and
- - gastroenterology.
We have a sales and marketing infrastructure with a broad portfolio of
products, with our own direct marketing capability in the US, Canada, the UK,
the Republic of Ireland, France, Germany, Italy and Spain and with plans to add
Japan by 2004. We also cover other pharmaceutical markets indirectly through
distributors, and sales coverage continues to grow.
BIOCHEM PHARMA INC.
275 Armand-Frappier Blvd.
Laval, Quebec
Canada H7V 4A7
Telephone: (450) 978-7800
BioChem is an international specialty pharmaceutical company dedicated to
the research and development and commercialization of innovative products for
the prevention and treatment of human diseases, with a focus on infectious
diseases and cancer. BioChem's first therapeutic product, 3TC/Epivir, has become
the cornerstone of HIV infection/ AIDS combination therapies, most recently
being launched as part of GlaxoSmithKline's Trizivir triple combination product.
A second therapeutic product, Zeffix, an oral treatment for chronic hepatitis B,
is currently being introduced in key markets worldwide by GlaxoSmithKline,
BioChem's partner for the development and commercialization of both 3TC/Epivir
and Zeffix.
THE MERGER AND THE MERGER AGREEMENT
The merger agreement provides for the combination of Shire and BioChem in a
transaction in which each BioChem shareholder (other than BioChem shareholders
who properly dissent to the merger) will have the choice of receiving as
consideration for each share of BioChem:
- - a number of ordinary shares equal to the exchange ratio;
- - a number of exchangeable shares equal to the exchange ratio divided by three
issued by Exchangeco which are exchangeable into ordinary shares or ADSs, at a
rate of one exchangeable share for three ordinary shares or one exchangeable
share for one ADS;
- - a number of ADSs equal to the exchange ratio divided by three; or
- - a combination of the above.
1
Only BioChem shareholders that are Canadian residents have the option of
receiving exchangeable shares for their shares of BioChem.
The exchangeable shares will be issued by Exchangeco, a corporation
incorporated under the CANADA BUSINESS CORPORATIONS ACT, which is a wholly-owned
subsidiary of Shire, and will be listed on The Toronto Stock Exchange (the
"TSE"). Holders of the exchangeable shares will be entitled to dividend and
other rights that are, as nearly as practicable, economically equivalent to
those of ordinary shares. Through a voting trust and by means of special voting
shares in Shire held by the trustee, holders of the exchangeable shares will, in
effect, be entitled to vote at meetings of Shire shareholders. See "The Merger
Agreement--Conversion of BioChem Shares."
EXCHANGE RATIO
The number of ordinary shares into which each BioChem share shall be
exchanged shall be determined as follows:
IF THE AVERAGE ADS PRICE IS: THE EXCHANGE RATIO SHALL BE:
- ---------------------------- ----------------------------
less than or equal to $47.20 2.3517
greater than $47.20 and less determined by dividing
than $70.80 $37.00 by the average ADS
price and multiplying by
three
equal to or greater than 1.5678
$70.80
If a BioChem shareholder elects, or in certain other circumstances, we will
provide such shareholder with one-third of an ADS or one-third of an
exchangeable share for each ordinary share that shareholder would be entitled to
receive based on the exchange ratio. See "The Merger Agreement--Exchange Ratio."
Each registered BioChem shareholder otherwise entitled to a fractional interest
in an exchangeable share, Shire ADS or Shire ordinary share will receive from
Exchangeco a cash payment equal to such registered BioChem shareholder's PRO
RATA portion of the net proceeds after expenses received upon the sale of whole
shares representing an accumulation of all fractional interests in new ordinary
shares, new ADSs and new exchangeable shares to be issued by Shire pursuant to
the merger to which all such BioChem shareholders would otherwise be entitled.
THE EXCHANGEABLE SHARES
The exchangeable shares will be securities of Exchangeco that are, as nearly
as practicable, economically equivalent to ordinary shares. The holders of
exchangeable shares will have the following rights:
- - the right to exchange their shares for ordinary shares on a one-for-three
basis as discussed in the following paragraph;
- - the right to exchange their shares for ADSs on a one-for-one basis as
discussed in the following paragraph;
- - the right to receive dividends, on a per share basis, in amounts (or property
in the case of non-cash dividends) which are three times more than, and which
are payable at the same time as, dividends declared on the ordinary shares;
- - the right, in effect, to vote at all shareholder meetings at which Shire
shareholders are entitled to vote by means of the special voting shares
referred to above; and
- - the right to participate, upon a liquidation event of Shire, on a pro rata
basis with the holders of ordinary shares in the distribution of assets of
Shire, through the automatic exchange of exchangeable shares for ordinary
shares.
Holders of the exchangeable shares will be entitled, generally, at any time
following the effective time, upon delivery of a certificate representing
exchangeable shares and a duly executed notice of retraction, to require
Exchangeco to redeem any or all of their exchangeable shares for ordinary shares
or ADSs (at the option of the holder).
The exchangeable shares will, in effect, have no separate economic or voting
rights in Exchangeco, except as required by law or contract.
Subject to applicable law and a right of redemption, on the redemption date,
all of the outstanding exchangeable shares will be redeemed by Exchangeco or
otherwise acquired by an affiliate of Shire for a price payable in ordinary
shares or ADSs (at the option of the holder).
The redemption date will generally be no earlier than the 10th anniversary
of the effective date. However, in certain circumstances, Exchangeco has the
right to redeem your exchangeable shares prior to the 10th
2
anniversary of the effective date. An early redemption may occur where:
(i) there are fewer than 1,000,000 exchangeable shares outstanding,
other than exchangeable shares held by us and our affiliates;
(ii) certain transactions occur involving us, such as (a) an acquisition
of more than 50% of the total voting power of all outstanding voting
securities, (b) shareholders approve a merger, consolidation,
recapitalization or reorganization which would result in the holders of
outstanding voting securities having at least 75% of the voting power or
(c) shareholders approve a liquidation; or
(iii) certain events occur which entitle the holders of exchangeable
shares to vote as shareholders of Exchangeco.
Shire may require you to exchange each of your exchangeable shares for three
ordinary shares or one ADS (at the option of the holder) upon a modification to
the INCOME TAX ACT (Canada), as amended, pursuant to which the exchange may be
effected without any adverse Canadian tax consequences to you.
THE EXTRAORDINARY GENERAL MEETING
DATE, TIME, PLACE AND PURPOSE
The meeting will be held at 35 New Broad Street, London, EC2M 1SQ, England,
on March 29, 2001, at 3:00 p.m., local time, to consider and vote on the merger
proposal and a special resolution, which is unrelated to the merger, regarding
an increase in our directors' power to allot securities for cash free of pre-
emption rights. See "The Extraordinary General Meeting--Date, Time, Place and
Purpose."
RECORD DATE; SHARES ENTITLED TO VOTE
Only shareholders of record at 6:00 p.m. on March 27, 2001 are entitled to
vote at the meeting. On February 27, 2001, there were 257,521,218 shares
outstanding and entitled to vote which were held by approximately 9,000 holders
of record. As of February 27, 2001, approximately 67,106,568 were held in the
name of Guarantee Nominees Limited, as nominee for the depositary. Each
registered holder of ordinary shares present in person at the meeting is
entitled to one vote on a show of hands, and every holder present in person or
by proxy shall, upon a poll, have one vote for each ordinary share held by the
holder. See "The Extraordinary General Meeting--Record Date; Voting Rights;
Voting at the Meeting."
REQUIRED VOTE
A quorum for the extraordinary general meeting will exist if two or more
Shire shareholders are present in person or by proxy and entitled to vote. If
there is a quorum, a majority of the votes cast at the extraordinary general
meeting must be cast in favor of the ordinary resolution put to the meeting for
the merger to be approved. Voters who hold ordinary shares as nominees will not
have discretionary authority to vote their ordinary shares in the absence of
instructions from their beneficial owners.
REVOCABILITY OF PROXIES
Before the vote at the extraordinary general meeting, a shareholder may
revoke his or her proxy by
- depositing at our registered office, not less than 48 hours before the
time of the extraordinary general meeting, a later-dated proxy relating to
the same shares,
- depositing at the registered office a written notice of revocation bearing
a date later than the date of the proxy or
- attending the extraordinary general meeting and voting in person.
BENEFITS OF THE MERGER
The principal benefits of the merger are expected to be:
- - DIVERSIFICATION. The revenue growth of the Shire group as enlarged by the
merger with BioChem (the "Enlarged Group") will be driven not only by Shire's
key marketed products, Adderall, Pentasa, Agrylin and Carbatrol, and by
BioChem's Second Look and Fluviral, but also by the sales achieved by two of
the world's foremost pharmaceutical companies in GlaxoSmithKline, in respect
of 3TC/Epivir, Combivir, Trizivir and Zeffix, and Johnson & Johnson, in
respect of Reminyl. In addition, the Enlarged Group expects Foznol to become a
key contributor to revenue growth when regulatory approvals, which are
expected in early 2002, are obtained.
- - INCREASED FINANCIAL RESOURCES. At December 31, 2000, Shire had indebtedness of
approximately $127.8 million and cash and investments of approximately
$186.3 million while BioChem had indebtedness of approximately
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$86.1 million and approximately $277.3 million in cash and investments. With
pro forma revenues of $675.1 million and net income of $211.7 million* for
2000 the directors and proposed directors expect to have greatly enhanced cash
with which to finance the Enlarged Group's development and research
activities. Shire has not yet determined whether to repay the amounts
outstanding under the credit facility entered into at the time of Shire's
merger with Roberts Pharmaceutical Corporation in 1999.
* This includes an APB 25 stock option charge of $21.9 million, a gain on the
sale of long term investments of $104.0 million and the write off of in
process research and development of $26.9 million.
- - A BROADENED AND STRENGTHENED PIPELINE. The Enlarged Group will have 25
products in development of which 13 will be in pre-clinical and Phase I
development, and 12 will be in full clinical development or registration. The
merger will strengthen the product pipeline in the areas of oncology and
central nervous system disorders with a total of 15 products in development in
these areas and will broaden the pipeline of products in development by the
inclusion of 6 products in the areas of anti-virals and vaccines.
- - LEVERAGE FROM COMPLEMENTARY SKILLS AND OPERATIONS. The Enlarged Group will
have a direct marketing capability in seven of the eight major pharmaceutical
markets in the world. The Enlarged Group will benefit from the application of
existing development capabilities to the enlarged product pipeline and the
direct marketing of these products through its own specialist sales forces.
The directors and proposed directors expect the Enlarged Group's lead
optimization activities and network of business and academic relations to
provide a regular source of development candidates to supplement its
development activities.
- - OPERATING SYNERGIES. The directors and proposed directors of Shire believe
that the merger will result in certain operating synergies in the following
areas:
- Review of development activities: Cost savings and future cost avoidance
are expected to result from the establishment of a budget for the Enlarged
Group; a review of the Enlarged Group's requirements for new development
projects; a thorough review of the Enlarged Group's development portfolio;
and the use by the Enlarged Group of Shire's development capabilities;
- Financing: The Enlarged Group's net cash and ability to generate further
cash will enable it to discharge its indebtedness to its bank lenders, if
it chooses, which would result in a net reduction in financing costs of
approximately $3 million in a full year; and
- Re-organization of business activities: The re-organization of
administrative, service and other functions of the Canadian operations of
the Enlarged Group may give rise to operating synergies for the Enlarged
Group.
There will be a substantial one time charge in the first quarter of 2001 of
approximately $175 million in connection with consummating the merger and the
Enlarged Group's combined operations. Taking into account the opportunity for
synergies referred to above, which includes anticipated cost savings in the
range of $10-15 million per annum, and excluding the one time charge, the Shire
Board believes the merger will be accretive to earnings for Shire shareholders
twelve months after the closing.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On December 10, 2000, our board of directors unanimously approved the merger
agreement and the merger as being in our best interests and the best interests
of our shareholders. Our board of directors, which has received financial advice
from Deutsche Bank, considers that the merger is in our best interests and the
best interests of our shareholders as a whole. In providing advice to our board
of directors, Deutsche Bank has placed reliance on our board's commercial
assessment of the merger.
Our board of directors unanimously recommends that you vote in favor of the
resolutions to be proposed at the extraordinary general meeting, as they intend
to do in respect of shareholdings in which they are interested, which amount in
aggregate to 9,087,385 ordinary shares, representing approximately 3.5% of our
issued share capital.
Following the merger, Dr. Francisco Bellini, the Honorable James A. Grant
and Mr. Gerard Veilleux, each of whom is now a director of
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BioChem, will be appointed as non-executive directors of Shire. Additionally,
Dr. Horovitz, Mr. Smith and Mr. Spitznagel will be leaving the Shire board of
directors.
REASONS FOR THE MERGER
Our board of directors believes that the merger brings together two
publicly-traded specialty pharmaceutical companies with complementary strengths,
activities and competencies. We have built effective research and development
functions, an effective sales and marketing organization in the US and UK and
have established and are expanding our functions in Canada and certain leading
European markets. BioChem has built an outstanding early stage development
operation through which it has generated a pipeline of projects focused in three
discrete specialty categories: oncology, vaccines and anti-virals.
OPINION OF FINANCIAL ADVISER
In deciding to approve the merger, our board of directors considered the
opinion of its financial adviser, Deutsche Bank, that the exchange ratio was
fair to our shareholders from a financial point of view.
The full text of the written opinion of Deutsche Bank, which presents
assumptions made, matters considered, procedures followed and the scope of the
review undertaken, is attached to this Proxy Statement as Annex D. The written
opinion of Deutsche Bank is not a recommendation as to how you should vote in
regard to the approval of the merger. We encourage you to read the opinion of
Deutsche Bank in its entirety.
APPRAISAL RIGHTS
Under English law, holders of ordinary shares will have no appraisal rights
in connection with the merger.
ANTICIPATED ACCOUNTING TREATMENT
The merger is intended to qualify as a "pooling of interests" transaction
under US GAAP, which means that the companies will be treated as if they had
always been combined. The number of new ordinary shares, new ADSs and new
exchangeable shares to be issued pursuant to the merger by Shire might increase
as a result of the exercise by BioChem shareholders of their statutory dissent
rights under Canadian law. Such dissent rights confer upon BioChem shareholders
the ability to dissent from the plan of arrangement to the proposed merger in
which event, provided the aggregate number of shares held by dissenting BioChem
shareholders is less than 5% of BioChem's issued share capital, the proposed
merger will proceed but such shareholders will be entitled to receive fair value
consideration. In the event that such dissent rights are exercised in respect of
more than 2.4% of BioChem shares, then, in the absence of the issue of shares
referred to below, the intended pooling of interests accounting treatment of the
merger will not be available. In these circumstances, Shire may request that
BioChem issue up to 2,634,383 additional BioChem shares (representing
approximately 2.6% increase over the current issued share capital of BioChem)
for cash by way of private placement to an independent third party(ies). In such
event, the board of directors of BioChem may, in its entire discretion and if
deemed appropriate in the circumstances give effect to such request of Shire,
taking into account the number of options to acquire BioChem shares exercised
since the date hereof. These shares will then be acquired by Shire pursuant to
the merger so as to allow the pooling of interests accounting treatment of the
merger to be available.
CONDITIONS TO THE MERGER
The merger will not be completed unless a number of conditions are waived or
satisfied. These include:
- - approval of the merger and other transactions contemplated by the merger
agreement by the requisite vote of our shareholders and BioChem's
shareholders;
- - there must be no order, injunction, decree or judgment in effect that
materially restrains or prohibits the merger and there must be no pending or
threatened proceeding by a governmental authority questioning the validity or
legality of the merger;
- - both we and BioChem must receive letters from our respective independent
accountants concurring with management's view regarding the applicability of
"pooling of interests" accounting under U.S. GAAP; and
- - the ordinary shares to be issued in the merger must be admitted to the
Official List of the
5
United Kingdom Listing Authority and to trading on the London Stock Exchange
(the "LSE"), the ADSs must be approved for quotation on the Nasdaq National
Market ("Nasdaq") and the exchangeable shares must be approved for listing on
the TSE.
EFFECTIVE TIME OF THE MERGER
The merger will be completed as soon as practicable after all shareholder
approvals have been obtained and all other conditions to the merger have been
satisfied or waived and, in any event, not later than May 31, 2001.
The merger is expected to become effective on or about March 30, 2001.
TERMINATION AND PAYMENT OF BREAK FEES
The merger agreement may be terminated by mutual written consent of us and
BioChem at any time prior to the effective date of the merger. In addition,
either we or BioChem may terminate the merger agreement if the effective date
shall not have occurred on or before May 31, 2001 or if certain governmental
approvals have not been obtained.
The merger agreement may be terminated by us upon the occurrence of any of
the following events:
- - BioChem's shareholders have not approved the merger at the BioChem
shareholders meeting;
- - the board of directors of BioChem fails to recommend approval of the merger to
its shareholders or adversely modifies, qualifies or withdraws its
recommendation; or
- - BioChem breaches any representation, warranty, covenant or agreement which
results in a failure of certain conditions to closing set forth in the merger
agreement (subject to a 20 business day cure period).
The merger agreement may be terminated by BioChem upon the occurrence of any
of the following events:
- - our shareholders have not approved the merger at the extraordinary general
meeting;
- - our board of directors fails to recommend approval of the merger to our
shareholders or adversely modifies, qualifies or withdraws its recommendation;
or
- - we breach or Exchangeco breaches any representation, warranty, covenant or
agreement which results in a failure of certain conditions to closing set
forth in the merger agreement (subject to a 20 business day cure period).
BioChem may also terminate the merger agreement, among other things, if it
determines that another proposal to acquire BioChem is more favorable from a
financial point of view to its shareholders than the merger with Shire. If this
occurs, then BioChem will become obligated to pay us a break fee of
$110 million. BioChem will also have to pay us this break fee in other
circumstances. If BioChem terminates the merger agreement because our board of
directors has failed to recommend approval of the merger to its shareholders or
Shire has adversely modified or qualified or withdrawn its recommendation, then
Shire will become obligated to pay BioChem a break fee of $40 million.
See "The Merger Agreement--Termination and Payment of Break Fees."
THE OPTION AGREEMENT
Concurrently with the execution of the merger agreement, we entered into an
option agreement with BioChem, dated as of December 10, 2000. In accordance with
the terms of the option agreement, BioChem granted us an option to purchase
shares representing up to 19.9% of the outstanding BioChem shares as of
December 8, 2000 (on an undiluted basis) at a price per share in cash equal to
$37.00, exercisable in the event that we are entitled to a termination fee under
the merger agreement. In the event the option is exercised, there is a limit as
to the maximum total compensation that we may receive from the termination fee
under the merger agreement and any consideration from the sale of BioChem shares
acquired from the exercise of the option. See "The Option Agreement."
GOVERNMENTAL AND REGULATORY MATTERS
US antitrust laws prohibit the merger from being completed until the merger
has been notified to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and a required waiting period has expired. On
January 12, 2001 we filed the required notification and report forms with the
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Antitrust Division and the Federal Trade Commission, and the required waiting
period expired on February 11, 2001.
In the UK, the Secretary of State for Trade and Industry decided on
February 27, 2001, on the information before him, and in accordance with the
recommendation of the Director General of Fair Trading, not to refer the merger
to the Competition Commission under the provisions of the Fair Trading Act 1973.
In Canada, the merger is subject to review by the Minister of Industry
Canada, who must make a determination as to whether the transaction is likely to
be of "net benefit to Canada." We submitted an application for review on
January 12, 2001. Each of Shire and BioChem believe that the merger is likely to
be of net benefit to Canada. A decision of the Minister is anticipated prior to
the extraordinary general meeting. The merger also constitutes a notifiable
transaction under the COMPETITION ACT (Canada). On February 5, 2001, the
Commission of Competition issued an advance ruling certificate under the
COMPETITION ACT (Canada) allowing consummation of the merger.
We are working to obtain the required regulatory approvals and consents.
However, there can be no assurance as to when or whether any of these approvals
and consents will be obtained or the terms and conditions that may be imposed by
such approvals and consents. See "The Merger--Governmental Regulation."
COURT APPROVAL
An arrangement under the CANADA BUSINESS CORPORATIONS ACT, such as this
transaction, requires approval by the Superior Court of Quebec. BioChem obtained
an interim order providing for the calling and holding of the meeting of the
BioChem shareholders and other procedural matters. A hearing to obtain a final
order of the Superior Court of Quebec approving the arrangement is scheduled to
take place in the Superior Court of Quebec, the day preceding the closing of
this arrangement, subject to approval of the merger by the requisite vote of our
shareholders and BioChem's shareholders. Relying on this court order, the
issuance of ordinary shares, ADSs and exchangeable shares will be exempt and
will not require registration under the US Securities Act of 1933, as amended.
SPECIAL RESOLUTION
At the extraordinary general meeting, you will be asked to approve a special
resolution increasing the directors' power, for a period of 5 years from the
date of the passing of the resolution, to allot securities within the limits of
the authorized share capital for cash free of pre-emption rights up to a nominal
amount of L1,279,868.
Under English law, we would typically ask you to take this action at one of
our future annual general meetings. However, as a matter of convenience, you
will be asked to take this action at the extraordinary general meeting. This
action does not relate to the merger.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF SHIRE
SUMMARY FINANCIAL DATA
The following summary financial information of Shire for each of the three
years up through and including the year ended December 31, 2000 has been derived
from Shire's audited consolidated financial statements and the notes to these
financial statements incorporated by reference into this Proxy Statement. The
summary financial information for the years ended June 30, 1997 and 1996 and the
six months and the year ended December 31, 1997 have been derived from Shire's
audited consolidated financial statements and the notes to those financial
statements.
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997(1) 1997(1)/(2) 1997(1) 1998(1) 1999 2000
---------- ---------- ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER ORDINARY SHARE AND PER ADS AMOUNTS)
INCOME STATEMENT DATA:
Revenues..................... $143,537 $ 147,842 $112,804 $191,554 $308,984 $401,532 $ 517,608
Operating (loss)/income...... (23,557) (125,116) (4,435) (85,841) 23,236 (76,068) 122,264
(Loss)/income before income
taxes...................... (24,416) (119,209) (4,058) (82,732) 23,563 (78,936) 116,188
Net (loss)/income............ (23,705) (106,994) (4,366) (84,152) 20,572 (94,998) 76,171
Basic net (loss)/income per
ordinary share............. (0.23) (0.74) (0.02) (0.45) 0.09 (0.39) 0.30
Basic net (loss)/income per
ADS........................ (0.69) (2.23) (0.06) (1.36) 0.26 (1.16) 0.91
Fully diluted net
(loss)/income per ordinary
share...................... (0.23) (0.74) (0.02) (0.45) 0.08 (0.39) 0.29
Fully diluted net
(loss)/income per ADS...... (0.69) (2.23) (0.06) (1.36) 0.25 (1.16) 0.88
Weighted average ordinary
shares
outstanding--basic......... 102,560 143,786 203,316 185,153 234,045 244,699 252,497
Weighted average ordinary
shares outstanding--fully
diluted.................... 102,560 143,786 203,316 185,153 242,806 244,699 260,345
AS AT AS AT AS AT AS AT AS AT AS AT
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997(1) 1997(1) 1998(1) 1999 2000
---------- ---------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 54,552 $ 110,099 $ 59,917 $ 52,973 $ 54,082 $ 46,598
Other current assets......... 71,417 84,297 123,871 193,325 197,224 317,391
Long term assets............. 251,803 238,995 482,498 627,307 636,457 640,743
Total assets................. 377,772 433,391 666,286 873,605 887,763 1,004,732
Current liabilities.......... 74,809 54,805 70,542 81,288 172,820 111,413
Long term debt, including
capital lease
obligations................ 11,377 7,630 25,636 126,774 126,314 126,364
Other long term
liabilities................ 11,104 3,412 3,492 2,229 1,345 14,196
Shareholders' equity......... 280,482 367,544 566,616 663,314 587,284 752,759
Total liabilities and
shareholders' equity....... 377,772 433,391 666,286 873,605 887,763 1,004,732
NOTES
1. The results for the years ended June 30, 1996 and 1997, the six months ended
December 31, 1997, the years ended December 31, 1997 and 1998 and the
financial position as at June 30, 1996 and 1997 and December 31, 1997 and
1998 have been restated to include the results of Roberts Pharmaceutical
Corporation, the merger with whom was accounted for as a pooling of
interests in accordance with APB16, Accounting for Business Combinations.
2. During 1997, Shire changed its fiscal year end from June 30 to December 31.
8
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF BIOCHEM
SUMMARY FINANCIAL DATA
The following summary financial information of BioChem for each of the three
years up through and including the year ended December 31, 2000 has been derived
from BioChem's audited consolidated financial statements and the notes to such
financial statements incorporated by reference into this Proxy Statement. The
summary financial information for the years ended December 31, 1997 and 1996
have been derived from BioChem's audited consolidated financial statements and
the notes to those financial statements. The summary financial data has been
prepared using Canadian and U.S. GAAP, which differ in certain respects. The
principal differences between Canadian GAAP and U.S. GAAP are summarized in note
22 to BioChem's 2000 audited consolidated financial statements incorporated by
reference into this Proxy Statement.
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE INFORMATION)
INCOME STATEMENT DATA:
CANADIAN GAAP
Revenues....................................... 89,735 162,860 224,965 290,275 325,124
Earnings/(loss) from continuing operations..... 27,722 77,680 117,898 167,199 299,451
Net income/(loss).............................. 33,394 79,838 114,774 149,102 299,451
Basic earnings/(loss) per common share(1)
- --continuing operations........................ 0.26 0.72 1.09 1.59 2.95
- --net income................................... 0.31 0.74 1.06 1.42 2.95
Fully diluted earnings/(loss) per common
share(1)
- --continuing operations........................ 0.26 0.72 1.09 1.57 2.87
- --net income................................... 0.31 0.74 1.06 1.41 2.87
Weighted average number of common shares
outstanding(1)
- --basic........................................ 106,485 108,153 108,443 105,313 101,240
- --fully diluted................................ 110,709 114,229 115,174 111,945 108,135
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE INFORMATION)
U.S. GAAP
Revenues....................................... 209,934 275,921 295,284
Earnings/(loss) from continuing operations..... (8,299) 156,763 258,683
Net income/(loss).............................. (10,063) 139,013 258,683
Basic earnings/(loss) per common share (1)
- --continuing operations........................ (0.08) 1.49 2.55
- --net income................................... (0.09) 1.32 2.55
Fully diluted earnings/(loss) per common share
(1)
- --continuing operations........................ (0.08) 1.49 2.51
- --net income................................... (0.09) 1.32 2.51
Weighted average number of common shares
outstanding(1)
- --basic........................................ 108,443 105,313 101,240
- --fully diluted................................ 110,447 106,974 102,978
AS AT AS AT AS AT AS AT AS AT
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS OF CANADIAN DOLLARS)
BALANCE SHEET DATA:
CANADIAN GAAP
Total assets.................................. 573,191 659,191 632,562 624,717 868,061
Long term debt excluding current portion...... 14,282 11,914 12,470 124,614 8,550
Shareholders' equity.......................... 415,832 498,068 478,621 376,864 684,840
(IN THOUSANDS OF CANADIAN DOLLARS)
U.S. GAAP
Total assets.................................. 627,428 612,196 816,730
Long term debt excluding current portion...... 12,470 124,614 8,550
Shareholders' equity.......................... 473,487 364,343 633,509
NOTES
1. The data stated above give retroactive effect to a two-for-one common stock
split that took effect on April 7, 1997.
2. No cash dividends were declared during these periods.
9
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial statements give effect
to the proposed merger of Shire and BioChem as a pooling of interests under U.S.
GAAP. The unaudited pro forma condensed balance sheet presents the combined
financial position of Shire and BioChem as of December 31, 2000 assuming that
the proposed merger occurred as of December 31, 2000. The unaudited pro forma
statements for the years ended December 31, 2000, 1999 and 1998 reflect the
combination of the historical results of operations of Shire and BioChem, along
with certain adjustments necessary to conform accounting policies of the two
companies. Such pro forma information is based upon the historical financial
statements of Shire and BioChem and has been prepared to illustrate the effects
of the merger. In calculating the Shire/BioChem pro forma information, an
average ADS trading price in the range $47.20 to $70.80 has been assumed. You
should read the pro forma combined financial data in conjunction with the
historical financial statements of Shire and BioChem incorporated into this
Proxy Statement by reference. The pro forma combined financial data are
presented for illustrative purposes only and are not necessarily indicative of
any future results of operations or the results that might have occurred if the
merger had actually occurred on the indicated date.
10
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 2000
SHIRE BIOCHEM SHIRE
---------- --------------------------------------------------------------- BIOCHEM
ACCOUNTING PRO FORMA
CANADIAN CANADIAN U.S. GAAP POLICY ----------
U.S. GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS U.S. GAAP U.S. GAAP
$ CAN$(1) $(2) $(3)/(4) $(6) $ $
---------- ----------- --------- ----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS AMOUNTS)
Total revenue....................... 517,608 325,124 198,478 -- (40,941) 157,537 675,145
Operating expenses.................. (395,344) (136,152) (97,027) (31,427) 15 (128,439) (523,783)
Operating income/(loss)............. 122,264 188,972 101,451 (31,427) (40,926) 29,098 151,362
Interest income..................... 6,216 -- 11,738 -- 1,260 12,998 19,214
Interest expense.................... (12,187) -- (4,226) -- -- (4,226) (16,413)
Other income/(expenses), net........ (105) 124,402 101,335 3,982 -- 105,317 105,212
Income/(loss) before income taxes... 116,188 313,374 210,298 (27,445) (39,666) 143,187 259,375
Income taxes........................ (40,017) (13,923) (8,507) -- 876 (7,631) (47,648)
Net income/(loss) from continuing
operations........................ 76,171 299,451 201,791 (27,445) (38,790) 135,556 211,727
Earnings/(loss) from continuing
operations per ordinary share
- --basic............................. $0.30 CAN$2.95 -- -- -- $1.34
- --diluted........................... $0.29 CAN$2.87 -- -- -- $1.32
Weighted average ordinary shares
outstanding
- --basic............................. 252,497 101,240 -- -- -- 101,240
- --diluted........................... 260,345 108,135 -- (5,157) -- 102,978
Pro forma information based on
exchange ratio of 1.8814 (2)
Pro forma earnings/(loss) from
continuing operations per ordinary
share
- --basic............................. $0.48
- --diluted........................... $0.47
Pro forma weighted average ordinary
shares outstanding
- --basic............................. 442,971
- --diluted........................... 454,088
Pro forma information based on
exchange ratio of 2.3517
Pro forma earnings/(loss)from
continuing operations per ordinary
share
- --basic............................. $0.43
- --diluted........................... $0.43
Pro forma weighted average ordinary
shares outstanding
- --basic............................. 490,584
- --diluted........................... 492,363
Pro forma information based on
exchange ratio of 1.5678
Pro forma earnings/(loss) from
continuing operations per ordinary
share
- --basic............................. $0.51
- --diluted........................... $0.50
Pro forma weighted average ordinary
shares outstanding
- --basic............................. 411,222
- --diluted........................... 421,794
11
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1999
SHIRE BIOCHEM
---------- --------------------------------------------------------------- SHIRE BIOCHEM
ACCOUNTING PRO FORMA
CANADIAN CANADIAN U.S. GAAP POLICY --------------
U.S. GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS U.S. GAAP U.S. GAAP
$ CAN$(1) $(2) $(3)/(4) $(6) $ $
---------- ------------ -------- ----------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS AMOUNTS)
Total revenue..................... 401,532 290,275 185,694 -- (49,973) 135,721 537,253
Operating expenses................ (477,600) (135,166) (93,179) (3,128) -- (96,307) (573,907)
Operating income/(loss)........... (76,068) 155,109 92,515 (3,128) (49,973) 39,414 (36,654)
Interest income................... 7,349 -- 5,066 -- 3,542 8,608 15,957
Interest expense.................. (9,742) -- (1,902) -- -- (1,902) (11,644)
Other income/(expenses), net...... (475) 24,181 23,122 (3,896) -- 19,226 18,751
Income/(loss) before income
taxes........................... (78,936) 179,290 118,801 (7,024) (46,431) 65,346 (13,590)
Income taxes...................... (16,062) (12,091) (6,500) -- 899 (5,601) (21,663)
Net income/(loss) from continuing
operations...................... (94,998) 167,199 112,301 (7,024) (45,532) 59,745 (35,253)
Earnings/(loss) from continuing
operations per ordinary share
- --basic........................... $(0.39) CAN$1.59 -- -- -- $0.57
- --diluted......................... $(0.39) CAN$1.57 -- -- -- $0.56
Weighted average ordinary shares
outstanding
- --basic........................... 244,699 105,313 -- -- -- 105,313
- --diluted......................... 244,699 111,945 -- (4,971) -- 106,974
Pro forma information based on
exchange ratio of 1.8814 (2)
Pro forma earnings/(loss) from
continuing operations per
ordinary share
- --basic........................... $(0.08)
- --diluted......................... $(0.08)
Pro forma weighted average
ordinary shares outstanding
- --basic........................... 442,834
- --diluted......................... 442,834
Pro forma information based on
exchange ratio of 2.3517
Pro forma earnings/(loss) from
continuing operations per
ordinary share
- --basic........................... $(0.07)
- --diluted......................... $(0.07)
Pro forma weighted average
ordinary shares outstanding
- --basic........................... 492,363
- --diluted......................... 492,363
Pro forma information based on
exchange ratio of 1.5678
Pro forma earnings/(loss) from
continuing operations per
ordinary share
- --basic........................... $(0.09)
- --diluted......................... $(0.09)
Pro forma weighted average
ordinary shares outstanding
- --basic........................... 409,808
- --diluted......................... 409,808
12
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1998
SHIRE BIOCHEM
--------- --------------------------------------------------------------- SHIRE BIOCHEM
ACCOUNTING PRO FORMA
U.S. CANADIAN CANADIAN U.S. GAAP POLICY U.S. --------------
GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS GAAP U.S. GAAP
$ CAN$(1) $(2) $(3)/(4) $(6) $ $
--------- ------------ --------- ----------- ---------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER ADS AMOUNTS)
Total revenue.................... 308,984 224,965 141,493 -- (14,572) 126,921 435,905
Operating expenses............... (285,748) (99,016) (68,054) -- (4,383) (72,437) (358,185)
Operating income/(loss).......... 23,236 125,949 73,439 -- (18,955) 54,484 77,720
Interest income.................. 6,398 -- 6,654 -- 2,673 9,327 15,725
Interest expense................. (6,511) -- (137) -- -- (137) (6,648)
Other income/(expenses), net..... 440 -- 4,661 (86) -- 4,575 5,015
Income/(loss) before income
taxes.......................... 23,563 125,949 84,617 (86) (16,282) 68,249 91,812
Income taxes..................... (2,991) (9,479) (5,131) -- 457 (4,674) (7,665)
Non-controlling interest......... -- 1,428 -- -- -- -- --
Net income/(loss) from continuing
operations..................... 20,572 117,898 79,486 (86) (15,825) 63,575 84,147
Earnings/(loss) from continuing
operations per ordinary share
- --basic.......................... $0.09 CAN$1.09 -- -- -- $0.59
- --diluted(9)..................... $0.08 CAN$1.09 -- -- -- $0.58
Weighted average ordinary shares
outstanding
- --basic.......................... 234,045 108,443 -- -- -- 108,443
- --diluted(9)..................... 242,806 115,174 -- (4,727) -- 110,447
Pro forma information based on
exchange ratio of 1.8814 (2)
Pro forma earnings/(loss) from
continuing operations per
ordinary share
- --basic.......................... $0.19
- --diluted........................ $0.19
Pro forma weighted average
ordinary shares outstanding
- --basic.......................... 438,069
- --diluted........................ 450,601
Pro forma information based on
exchange ratio of 2.3517
Pro forma earnings/(loss) from
continuing operations per
ordinary share
- --basic.......................... $0.17
- --diluted........................ $0.17
Pro forma weighted average
ordinary shares outstanding
- --basic.......................... 489,069
- --diluted........................ 502,544
Pro forma information based on
exchange ratio of 1.5678
Pro forma earnings/(loss) from
continuing operations per
ordinary share
- --basic.......................... $0.21
- --diluted........................ $0.20
Pro forma weighted average
ordinary shares outstanding
- --basic.......................... 404,061
- --diluted........................ 415,965
13
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS AT DECEMBER 31, 2000
SHIRE BIOCHEM
SHIRE BIOCHEM PRO FORMA
---------- ----------- ACCOUNTING --------------
CANADIAN CANADIAN U.S. GAAP POLICY
U.S. GAAP GAAP GAAP ADJUSTMENTS ALIGNMENTS U.S. GAAP U.S. GAAP
$ CAN$ $ $ (5) $ (6) $ $
---------- --------- --------- ----------- ---------- ---------- --------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and current investments........ 186,343 416,084 277,362 - - 277,362 463,705
Accounts receivable, net............ 93,830 75,604 50,398 - - 50,398 144,228
Inventories, net.................... 47,109 3,754 2,502 - - 2,502 49,611
Other current assets................ 36,707 2,473 1,648 - - 1,648 38,355
Total current assets................ 363,989 497,915 331,910 - - 331,910 695,899
Property, plant and equipment,
net............................... 49,685 127,867 85,236 (4,071) - 81,165 130,850
Intangible assets, net.............. 556,013 84,822 56,542 (29,915) (560) 26,067 582,080
Other assets........................ 35,045 157,457 104,961 - - 104,961 140,006
Total assets........................ 1,004,732 868,061 578,649 (33,986) (560) 544,103 1,548,835
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long term
debt.............................. 1,448 120,560 80,365 - - 80,365 81,813
Accounts payable and accrued
expenses.......................... 99,437 54,111 36,070 - - 36,070 135,507
Other current liabilities........... 10,528 - - - - - 10,528
Total current liabilities........... 111,413 174,671 116,435 - - 116,435 227,848
Long term debt, including capital
lease obligations................. 126,364 8,550 5,699 - - 5,699 132,063
Other long term liabilities......... 14,196 - - - - - 14,196
Shareholders' equity................ 752,759 684,840 456,515 (33,986) (560) 421,969 1,174,728
Total liabilities and shareholders'
equity............................ 1,004,732 868,061 578,649 (33,986) (560) 544,103 1,548,835
- ------------------------------
NOTES
1. The Canadian GAAP condensed financial information presented in thousands of
Canadian dollars as of December 31, 2000 and for the years ended
December 31, 1998, 1999 and 2000 has been derived from the audited
consolidated financial statements of BioChem, incorporated by reference into
this Proxy Statement.
2. The Canadian GAAP condensed financial information presented in thousands of
Canadian dollars has been translated to US dollars in the following manner:
- Assets and liabilities have been translated using exchange rates at the
end of each reporting period.
- Revenues and expenses were translated at the average exchange rates
prevailing during the period.
- Share capital balances have been translated at historical rates in effect
at the time the capital transactions occurred.
- Cumulative translation gains and losses are reported as a separate
component of shareholders' equity.
14
All translations were calculated using the following weighted average and
period end exchange rates:
YEAR ENDED YEAR ENDED YEAR ENDED
US DOLLARS PER CAN$1.00 DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 2000
- ----------------------- ----------------- ----------------- -----------------
- --weighted average...................................... 0.6743 0.6730 0.6732
- --period end............................................ 0.6534 0.6929 0.6666
(i) For the translation of CliniChem, which was formed during 1998, the
translation for the period ended December 31, 1998 is 0.6582.
3. Adjustments reflecting the differences between Canadian GAAP and U.S. GAAP
are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
INCOME STATEMENT DATA DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 2000
- --------------------- ----------------- ----------------- -----------------
(IN THOUSANDS)
Deferred charges (a)........................................ -- (3,128) (4,482)
Share of loss in a company subject to
significant influence (b)................................. -- (3,496) 3,496
Deferred foreign exchange losses (c)........................ (86) (400) 486
In process research and development (d)..................... -- -- (26,945)
------- ------ -------
(86) (7,024) (27,445)
AS AT
DECEMBER 31,
BALANCE SHEET DATA 2000
- ------------------ -----------------
(IN THOUSANDS)
Deferred charges--related to property plant and equipment
(a)....................................................... (4,071)
Deferred charges (a)........................................ (3,465)
Discontinued operations (e)................................. 231
In process research and development (d)..................... (26,681)
-------
(33,986)
(a) Deferred charges
Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), issued by the AICPA states that the costs of
start-up activities should be expensed as incurred. Pursuant to SOP
98-05, the unamortized deferred charges consisting primarily of start-up
costs have been written off in the pro forma income statement under the
caption "Operating expenses".
Adjustments (b) and (d) above appear in the pro forma income statements
under the caption "Other income/(expenses), net".
(b) Share of loss in a company subject to significant influence
Under U.S. GAAP, the total investment in North American Vaccine Inc.
("NAVA") is reduced by $3,128,000 for the year ended December 31, 1999 in
accordance with requirements of the Emerging Issues Task Force 98-13 on
accounting by an equity method investor for investee losses when the
investor has loans to and investments in other securities of the
investee. This adjustment was reversed in the year ended December 31,
2000 as the investment in NAVA was disposed of.
(c) Deferred foreign exchange losses
Under Canadian GAAP, unrealized foreign exchange gains and losses arising
on the translation of long-term monetary items are deferred and amortized
over the life of the item. Under U.S. GAAP, these gains and losses are
included in current period earnings as they arise.
(d) In process research and development
As stated in FASB Interpretation (FIN) No. 4, "Applicability of FASB
Statement No. 2 Business Combinations Accounted for by the Purchase
Method", any identifiable assets of the acquiree to be used in research
and development projects that do not also have an alternative future use
should be first valued as part of the purchase price allocation, and then
charged to expense of the acquiring company. The acquired research and
development relates to the acquisition of CliniChem as at December 15,
2000. For further information on CliniChem, see note 6 below.
(e) Discontinued operations
For discontinued operations, the same principles as described in (c) for
deferred foreign exchange losses would apply under U.S. GAAP.
4. Weighted average shares
Under Canadian GAAP, fully diluted earnings per share assumes that all the
outstanding options at the end of the year have been exercised at the
beginning of the year or at the date granted, if granted during the year,
and proceeds from the exercise of options have been used for investments.
Under U.S. GAAP, diluted earnings per share is calculated based on the
15
assumption that the options have been exercised at the beginning of the year
or at the date granted, if granted during the year, and proceeds from the
exercise of options were used at the beginning of the year or at the date
granted to acquire common shares of the company at the average market price.
5. Adjustments to expense the accumulated costs of deferred charges as
described in 3 (a) and (c) above.
6. Adjustments to reflect the realignment of BioChem's accounting policies to
conform with those of Shire under U.S. GAAP.
CONSOLIDATION OF CLINICHEM
In 1998, BioChem spun-off to its shareholders its investment in CliniChem
Development, Inc. In connection with this spin-off, BioChem retained rights
in CliniChem, including BioChem's option to reacquire all shares in
CliniChem at any time. Under EITF 99-16, this transaction would result in
CliniChem continuing to be consolidated by BioChem as BioChem would have
significant continuing involvement in the operations of CliniChem. However,
at the time that CliniChem was spun-off, EITF 99-16 had not been issued and
BioChem elected to deconsolidate CliniChem, an acceptable accounting
principle at that time. The management of Shire believe that their
accounting policies would have required Shire to continue to consolidate
CliniChem, also an acceptable accounting alternative at the date of spin-off
and a policy that conforms with the later guidance issued under EITF 99-16.
On December 15, 2000 BioChem reacquired CliniChem and accounted for the
acquisition using purchase accounting.
The adjustments listed below represent the effects from:
(a) consolidating the financial position and results of operations of
CliniChem;
(b) eliminating intercompany licensing revenues and costs; and
(c) recording accumulated deficits incurred by CliniChem during the period
that it was not consolidated.
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 2000
$ $ $
----------------- ----------------- -----------------
(IN THOUSANDS)
Total revenue........................................... (14,572) (49,973) (40,941)
Operating expenses...................................... (4,383) -- 15
------- ------- -------
Operating income/(loss)................................. (18,955) (49,973) (40,926)
Interest income......................................... 2,673 3,542 1,260
------- ------- -------
Income/(loss) before income taxes....................... (16,282) (46,431) (39,666)
Income taxes............................................ 457 899 876
------- ------- -------
Net income/(loss) from continuing operations............ (15,825) (45,532) (38,790)
AS AT
DECEMBER 31,
2000
$'000
-----------------
Shareholders' equity.................................... $ (560)
-------
16
These adjustments have been derived from the financial results of CliniChem
as follows:
U.S. GAAP
CANADIAN GAAP CANADIAN GAAP ALIGNMENTS U.S.GAAP
INCOME STATEMENT DATA: CAN$ $ * $ $
- ---------------------- --------------- --------------- ---------- ---------
(IN THOUSANDS)
Period ended December 31, 1998
Total revenue........................................ 4,061 2,673 (2,673) --
Operating expenses................................... (21,379) (14,072) (500) (14,572)
------- ------- ------ -------
Operating loss....................................... (17,318) (11,399) (3,173) (14,572)
Interest income...................................... -- -- 2,673 2,673
------- ------- ------ -------
Loss before income taxes............................. (17,318) (11,399) (500) (11,899)
Income taxes......................................... (66) (43) 500 457
------- ------- ------ -------
Net loss............................................. (17,384) (11,442) -- (11,442)
------- ------- ------ -------
Year ended December 31, 1999
Total revenue........................................ 5,262 3,541 (3,541) --
Operating expenses................................... (72,917) (49,073) (900) (49,973)
------- ------- ------ -------
Operating loss....................................... (67,655) (45,532) (4,441) (49,973)
Interest income...................................... -- -- 3,542 3,542
------- ------- ------ -------
Loss before income taxes............................. (67,655) (45,532) (899) (46,431)
Income taxes......................................... -- -- 899 899
------- ------- ------ -------
Net loss............................................. (67,655) (45,532) -- (45,532)
------- ------- ------ -------
Year ended December 31, 2000
Total revenue........................................ 1,894 1,275 (1,275) --
Operating expenses................................... (59,515) (40,065) (861) (40,926)
------- ------- ------ -------
Operating loss....................................... (57,621) (38,790) (2,136) (40,926)
Interest income...................................... -- -- 1,260 1,260
------- ------- ------ -------
Loss before income taxes............................. (57,621) (38,790) (876) (39,666)
Income taxes......................................... -- -- 876 876
------- ------- ------ -------
Net loss............................................. (57,621) (38,790) -- (38,790)
------- ------- ------ -------
Goodwill has been calculated as follows:
CAN$'000 $'000
--------- --------
Purchase price.............................................. 48,286 32,187
Share of loss of CliniChem until December 14, 2000.......... (5,659) (3,772)
------- ------
42,627 28,415
------- ------
Cash........................................................ 11,241 7,493
Non-cash working capital.................................... (10,400) (6,933)
Acquired commercialized products............................ 1,759 1,174
Acquired in-process research and development................ 40,027 26,681
------- ------
42,627 28,415
------- ------
This allocation is of a preliminary nature and may change on further
analysis of the purchase price.
As CliniChem was consolidated by BioChem effective December 15, 2000,
CliniChem's total assets less total liabilities of $560,000 needs to be
reversed.
The cash contribution made by BioChem to CliniChem's capital during the
year ended December 31, 2000 was recorded as a contributed surplus by
CliniChem. The total amount recorded was net of transaction costs of
$4,383,000 (CAN$6,500,000). To conform to Shire's accounting policies,
these costs have been recorded in the income statement for the year ended
December 31, 1998.
* Translation of Canadian dollars into U.S. dollars has been performed
according to the method set out in note 2 above.
7. Pro forma weighted average ordinary shares have been calculated using the
exchange ratios of 1.8814, 2.3517 and 1.5678 which are the mid, highest and
lowest number of ordinary shares that can be issued for each BioChem share
under the
17
terms of the merger agreement. Earnings per share information is presented
under the three scenarios to demonstrate the effect of the exchange ratio on
the pro forma results.
8. The exchange ratio of 1.8814 has been calculated by dividing an ADS price
per share of $37.00 by $59.00, which represents the mid range price, and
multiplying the result by three as per the terms of the merger agreement.
9. The calculation of weighted average number of shares for the years ended
December 31, 1999 does not include potentially dilutive stock options
because their inclusion would be anti-dilutive in a loss making year.
10. The unaudited pro forma combined income statement does not reflect costs
expected to be incurred by Shire and BioChem directly related to the merger
as these costs will not have a continuing impact on the financial results.
The costs attributable to professional fees, UK stamp duty tax levied on the
value of the Shire ordinary shares issued under the merger agreement and the
distribution of proxy materials are estimated at $100 million.
11. Refinancing of debt has not been reflected in the unaudited pro forma
combined income statements and balance sheet as Shire has not yet determined
whether to repay the amounts outstanding under its credit facility.
18
COMPARATIVE PER SHARE DATA
The following table presents certain historical per share data for Shire and
BioChem and unaudited pro forma and equivalent pro forma combined per share data
to reflect the consummation of the merger based upon the historical financial
results of Shire and BioChem presented under U.S. GAAP and the conversion of
each BioChem share into 0.6271 ADSs (the exchange ratio as of December 11,
2000). The pro forma data are not necessarily indicative of actual or future
operating results or of the financial position that would have occurred or will
occur upon consummation of the merger. The data presented below should be read
in conjunction with the separate historical consolidated financial statements of
Shire and BioChem which are incorporated into this Proxy Statement by reference.
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------
SHIRE BIOCHEM PRO FORMA BIOCHEM EQUIVALENT
HISTORICAL HISTORICAL(1) COMBINED PRO FORMA(2)
---------- ------------- --------- ------------------
Basic earnings per ordinary share........... $0.30 $1.34 $0.48 $0.90
Diluted earnings per ordinary share......... 0.29 1.32 0.47 0.88
Basic earnings per ADS...................... 0.91 -- 1.43 2.70
Diluted earnings per ADS.................... 0.88 -- 1.40 2.63
Book value per ordinary share(3)............ 2.93 4.15 2.62 4.93
Book value per ADS.......................... 8.78 -- 7.87 14.80
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------
SHIRE BIOCHEM PRO FORMA BIOCHEM EQUIVALENT
HISTORICAL HISTORICAL(1) COMBINED PRO FORMA(2)
---------- ------------- --------- ------------------
Basic earnings per ordinary share.......... $(0.39) $0.57 $(0.08) $(0.15)
Diluted earnings per ordinary share........ (0.39) 0.56 (0.08) (0.15)
Basic earnings per ADS..................... (1.16) -- (0.24) (0.45)
Diluted earnings per ADS................... (1.16) -- (0.24) (0.45)
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
SHIRE BIOCHEM PRO FORMA BIOCHEM EQUIVALENT
HISTORICAL HISTORICAL(1) COMBINED PRO FORMA(2)
---------- ------------- --------- ------------------
Basic earnings per ordinary share........... $0.09 $ 0.63 $0.20 $0.38
Diluted earnings per ordinary share......... 0.08 0.62 0.20 0.37
Basic earnings per ADS...................... 0.26 -- 0.61 1.14
Diluted earnings per ADS.................... 0.25 -- 0.59 1.11
NOTES
1. The comparative per share data for BioChem is extracted from the unaudited
pro forma combined condensed income statements. Per ADS information is not
applicable to the BioChem historical financial information.
2. The equivalent pro forma per share amounts were calculated by multiplying
pro forma income per share and pro forma book value per share by the
exchange ratio of 1.8814, the median exchange ratio that can be used to
enact the merger.
The exchange ratio of 1.8814 has been calculated by dividing an ADS price
per share of $37.00 by $59.00, which represents the mid range price, and
multiplying the result by three as per the terms of the merger agreement.
3. The book value per share calculation represents the amount of shareholders'
equity, stated based on U.S. GAAP, divided by the number of shares
outstanding at each period end.
The number of shares assumed to be outstanding, on a pro forma basis using
the exchange ratio of 1.8814, at December 31, 2000 is 448,003,678.
19
MARKET PRICE INFORMATION
Shire ADSs are quoted and traded on Nasdaq under the symbol "SHPGY". Each
ADS represents three ordinary shares. Shire ordinary shares are admitted to the
official list of the United Kingdom Listing Authority and traded on the LSE
under the symbol "SHP.L". BioChem ordinary shares are traded on Nasdaq under the
symbol "BCHE" and on the TSE under the symbol "BCH". The following table
presents the per share closing market prices for Shire ADSs on Nasdaq, the
closing mid-market quotation for Shire ordinary shares as quoted in the Daily
Official List of the LSE and the closing mid-market prices for BioChem ordinary
shares on Nasdaq and the TSE, for the periods indicated.
SHIRE SHIRE BIOCHEM BIOCHEM BIOCHEM BIOCHEM
SHIRE SHIRE ORDINARY ORDINARY ORDINARY ORDINARY ORDINARY ORDINARY
ADSS ADSS SHARES SHARES SHARES SHARES SHARES SHARES
US$ US$ L L US$ US$ CAN$ CAN$
LOW HIGH LOW HIGH HIGH LOW HIGH LOW
-------- -------- -------- -------- -------- -------- -------- --------
2000
4th Quarter.............. 42.06 65.00 9.53 14.92 32.13 22.38 48.15 33.85
3rd Quarter.............. 51.38 60.63 11.35 13.69 24.75 19.75 36.75 29.30
2nd Quarter.............. 33.19 59.75 7.37 12.40 25.25 21.63 37.10 31.30
1st Quarter.............. 28.31 67.19 5.98 14.28 34.63 21.13 49.50 30.65
1999
4th Quarter.............. 27.44 35.06 5.59 7.34 25.75 19.63 37.85 29.05
3rd Quarter.............. 23.75 29.31 5.01 6.13 26.88 19.56 39.50 29.25
2nd Quarter.............. 18.88 26.00 3.96 5.28 23.00 17.88 34.30 27.10
1st Quarter.............. 19.13 25.50 3.74 5.17 29.25 20.00 44.80 30.15
1998
4th Quarter.............. 18.63 22.50 3.46 4.35 28.63 17.44 44.10 26.60
3rd Quarter.............. 16.56 27.81 2.94 5.41 26.94 15.31 40.00 24.10
2nd Quarter.............. 19.00 23.00 3.80 4.44 27.00 23.25 39.90 33.40
1st Quarter.............. 20.00 21.44 2.87 4.10 24.36 17.59 35.05 25.10
On December 8, 2000, the last trading date before public announcement of the
execution of the merger agreement, the closing price per Shire ADS was $51 9/16
and the closing mid-market quotation per Shire ordinary share was L12.29. On
that date the closing price per BioChem ordinary share was $26 1/2 and
CAN$40.00. On February 27, 2001, the closing price per Shire ADS was $56 1/8 and
the closing mid-market quotation per Shire ordinary share was L13.15. On that
date the closing price per BioChem share was $35 11/16 and CAN$54.45.
On February 27, 2001, there were approximately 22,368,856 issued and
outstanding ADSs and 257,521,218 ordinary shares in issue, including ordinary
shares underlying ADSs. On that date, approximately 96% of the ADSs were held in
the US by approximately 390 record holders, one of which is The Depository Trust
Company. On February 27, 2001, there were approximately 101,552,086 issued and
outstanding shares of BioChem common stock, of which 66.98% were held in the US
by 78 record holders.
20
SHAREHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
Only shareholders of record at 6:00 p.m. on March 27, 2001 will be entitled
to vote at the meeting. On February 27, 2001 there were 257,521,218 Shire
ordinary shares, nominal value 5p each, outstanding and carrying rights to vote
at the extraordinary general meeting. On February 27, 2001, approximately
67,106,508 Shire ordinary shares were held in the name of Guarantee Nominees
Limited, as nominee for Morgan Guaranty Trust Company of New York as depositary,
which issues Shire sponsored American Depositary Receipts ("ADRs") evidencing
American Depositary Shares ("ADSs") which, in turn, each represent three
ordinary shares.
Each registered holder of ordinary shares present in person at the meeting
is entitled to one vote on a show of hands, and every holder present in person
or by proxy shall, upon a poll, have one vote for each ordinary share held by
such holder. In the event that the proxy card is executed but does not indicate
by marking a vote "FOR," "AGAINST" or "ABSTAIN" the proxy may vote or abstain at
his discretion.
A holder entitled to attend and vote may appoint one or more proxies to
attend and, on a poll, vote instead of him. A proxy need not also be a holder.
The appointment of a proxy will not preclude a Shire shareholder from attending
and voting in person at the meeting if he or she so desires.
Proxy voting cards from holders of ordinary shares must be received by
Shire's registrar, Lloyds TSB Registrars, The Causeway, Worthing, West Sussex,
BN99 3UH, England not later than 3:00 p.m. March 27, 2001 (or not less than
forty-eight hours before any adjournment of the meeting.)
A deposit agreement exists between Morgan Guaranty Trust Company and the
holders of ADRs pursuant to which holders of ADRs are entitled to instruct the
depositary as to the exercise of voting rights pertaining to the ordinary shares
so represented. The depositary has agreed it will endeavor, insofar as
practicable, to vote (in person or by delivery to Shire of a proxy) the ordinary
shares registered in its name in accordance with the instructions of the ADR
holders. Instructions from the ADR holders should be sent to the depositary so
that the instructions are received by no later than the close of business on
March 23, 2001.
Any holder of ADRs giving instructions to the depositary has the power to
revoke the instructions by delivery of notice to the depositary at Morgan
Guaranty Trust Company of New York, Depositary, P.O. Box 9393, Boston, MA
02205-9958 at any time so that the depositary receives, by no later than the
close of business on March 23, 2001, duly executed instructions bearing a later
date or time than the date or time of the instructions being revoked.
Shire will, in future proxy statements, include shareholder proposals
complying with the applicable rules of the US Securities and Exchange Commission
(the "SEC") and any applicable US state laws. In order for a proposal by a
shareholder to be included in the proxy statement relating to the Annual General
Meeting of Shire to be held in 2001, that proposal must be received in writing
by the Secretary of Shire at Shire's principal executive office no later than
March 1, 2001.
The cost of soliciting proxies in the form enclosed will be borne by Shire.
In addition to the solicitation by mail, proxies may be solicited personally, or
by telephone, or by employees of Shire. Shire may reimburse brokers, custodians,
nominees, the depositary and other record holders of Shire's ordinary shares or
ADRs for their expenses in sending proxy material to the beneficial owners of
such ordinary shares.
21
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING
WHETHER TO VOTE FOR OR AGAINST THE APPROVAL OF THE MERGER.
RISK FACTORS RELATING TO THE MERGER
IF WE DO NOT SUCCESSFULLY INTEGRATE OUR OPERATIONS WITH BIOCHEM, THE MERGER
MAY NOT BENEFIT US OR OUR SHAREHOLDERS.
The combination of Shire and BioChem involves the integration of separate
companies that have previously operated independently. In the event the
integration is not completed successfully or takes longer than planned, the
anticipated benefits of the merger may be lost or delayed. We cannot assure you
that we will be able to integrate the operations of BioChem without encountering
difficulties or experiencing the loss of key employees, customers or suppliers.
In addition, the operations and management of the two companies must be
successfully integrated to achieve the potential benefits that were a factor in
our board's approving the merger.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF YOUR PERCENTAGE EQUITY
AND VOTING INTEREST.
We will issue up to 260,621,527 ordinary shares (but in any event the number
of ordinary shares we issue shall be less than the total number of Shire issued
ordinary shares at the closing of the merger) in connection with the merger,
depending on the exchange ratio (and assuming all existing BioChem shareholders
exchange their BioChem shares for ordinary shares pursuant to the merger and
including any shares to be issued pursuant to the exercise of options under the
BioChem Stock Option Plans or other rights and any new BioChem shares which may
be issued in certain circumstances as a result of the exercise by BioChem
shareholders of their statutory dissent rights under Canadian law. See "The
Merger--Anticipated Accounting Treatment and Effects."). 260,621,527 ordinary
shares would represent approximately 49.5% of the outstanding ordinary shares on
a fully-diluted basis as of February 23, 2001. Accordingly, the merger will have
the effect of substantially reducing the percentage equity and voting interest
held by each of our shareholders.
AT THE TIME YOU MAIL BACK YOUR PROXY, WE MAY NOT KNOW HOW MANY ORDINARY
SHARES WE WILL BE ISSUING IN THE MERGER.
Under the terms of the merger agreement we may issue up to 260,621,527
ordinary shares (but in any event the number of ordinary shares we issue shall
be less than the total number of Shire issued ordinary shares at the closing of
the merger), based on the average trading price of the ADSs for the fifteen
consecutive trading days ending three days before the date the merger is
consummated (assuming all existing BioChem shareholders exchange their BioChem
shares for ordinary shares pursuant to the merger and including any shares to be
issued pursuant to the exercise of options under the BioChem Stock Option Plans
or other rights and any new BioChem shares which may be issued in certain
circumstances as a result of the exercise by BioChem shareholders of their
statutory dissent rights under Canadian law. See "The Merger--Anticipated
Accounting Treatment and Effects."). This means that if the ADS price drops
between the time you mail back your proxy and the time the exchange ratio is
calculated, the total maximum number of ordinary shares we may issue may have
increased.
RISK FACTORS RELATING TO BIOCHEM
BIOCHEM RELIES ON COLLABORATIVE RELATIONSHIPS WITH THIRD PARTIES WHOSE
INTERESTS MAY DIFFER.
BioChem can make no assurances regarding the future results or performance
of its existing or future agreements and collaborations. Additionally, there can
be no assurance that BioChem will be
22
able to negotiate other acceptable arrangements in the future or that any
existing or future collaborations will be successful.
There can be no assurance that the collaborators' interests are or will
remain consistent with those of BioChem or that they will succeed in developing
any new marketable products or obtaining requisite government approvals. Should
BioChem and its collaborators fail to develop any new marketable products,
obtain the requisite regulatory approvals or market any of such products
successfully, BioChem's business, financial condition and results of operations
may be materially and adversely affected. In addition, BioChem cannot control
the amount and timing of resources which its collaborators devote to BioChem's
programs. Certain of these agreements do not prevent the collaborators from
pursuing alternative technologies that could result in their developing products
competitive with those products developed under BioChem's collaborative
agreements. The agreements may be terminated by the collaborators in certain
circumstances with limited notice, and the collaborators may thereupon acquire
certain rights to the products under development.
BIOCHEM MAY HAVE PROBLEMS MANUFACTURING ITS PRODUCTS.
Except for the BCG therapeutic product, marketed under the trade name PACIS,
and the influenza vaccine Fluviral, BioChem currently has no manufacturing
facilities for commercial production of any of its therapeutic or vaccine
products approved or under development. BioChem is relying on GlaxoSmithKline's
manufacturing capabilities and resources for the manufacture of 3TC and Zeffix
pursuant to the terms of the agreements entered into with GlaxoSmithKline.
BioChem believes that GlaxoSmithKline presently has the facilities available to
manufacture an amount of 3TC and Zeffix to supply sufficient commercial
quantities of the compound.
In the vaccine area, BioChem must continue to develop, adapt or acquire the
facilities, production technology and technical and managerial personnel to
manufacture products in commercial quantities and in compliance with applicable
quality assurance and environmental and local government regulations. In the
therapeutics and CADx areas, BioChem will have to develop or acquire the
facilities, production technology and technical and managerial personnel to
manufacture products unless it decides to rely exclusively on third parties for
the manufacture of its products. Certain products that BioChem is attempting to
develop have never been manufactured on a commercial scale and there can be no
assurance that such products can be manufactured by BioChem or any other party
at a cost or in a quantity to render such products commercially viable.
Production of such products may require the development of new manufacturing
technologies and expertise.
BIOCHEM'S ONGOING SUCCESS IS DEPENDENT ON MAINTAINING PATENT PROTECTION AND
OBTAINING THIRD PARTY TECHNOLOGY AND PATENTS.
No assurance can be given that patents will issue from any pending
applications or that claims allowed, now or in the future, under issued patents
will be sufficiently broad to protect BioChem's technology. In addition, no
assurance can be given that any patents issued to, or licensed by, BioChem will
not be challenged, invalidated, infringed or circumvented, or that the rights
granted thereunder will provide competitive advantages to BioChem. The
commercial success of BioChem will also depend in part on BioChem not infringing
on patents or proprietary rights of others and not breaching the licenses
granted to BioChem. The degree of patent protection afforded to pharmaceutical
or biotechnological inventions around the world is uncertain. A number of
products important to BioChem are subject to this uncertainty. BioChem is aware
of certain issued patents and patent applications of others, and there may be
other patents and patent applications, containing subject matter which BioChem
or its licensees or collaborators may require in order to research, develop or
commercialize certain of BioChem's products. There can be no assurance that
BioChem will be able to obtain a license to any third-party technology or
patents that it may require to conduct its business or that such technology or
patents can be licensed at a reasonable cost. Failure by BioChem or its
collaborators to obtain a license to any technology or patents that it may need
to commercialize its
23
technologies or products may result in delays in marketing BioChem's proposed
products or the inability to proceed with the development, manufacture or sale
of products requiring such licenses and may have a material adverse effect on
BioChem.
SOME OF BIOCHEM'S PATENT APPLICATIONS HAVE BEEN CONTESTED BY THIRD PARTIES.
Emory University filed oppositions to two of BioChem's granted patent
applications in Europe which cover oxathiolane nucleosides including lamivudine
and dioxolane nucleosides, including troxacitabine, related nucleoside analogs
and use of these analogs for treating viral infections. In oral hearings held in
1999, both of these oppositions were dismissed by the Opposition Division of the
European Patent Office. Emory University has filed an appeal against the
dioxolane related decision of the Opposition Division. Emory University is not
pursuing its appeal of the decision relating to oxathiolanes. However, there can
be no assurance that Emory University will not file revocation actions with
respect to any BioChem patents that issue in individual European countries.
There can also be no assurance that BioChem will be successful in defeating
Emory's appeal against the decision of the Opposition Board dismissing Emory's
opposition against BioChem's granted patent application covering dioxolane
nucleosides, including troxacitabine.
In Japan, Emory University filed an opposition to BioChem's granted patent
which covers lamivudine, related analogs and use of the analogs for treating
viral infections. The Trial Board of the Japanese Patent Office dismissed Emory
University's opposition to BioChem's patent covering lamivudine. It is always
possible that Emory University could file a revocation action against this
patent.
Emory University has filed revocation actions in Australia and South Korea
against BioChem's granted patents covering lamivudine. Although BioChem is
aggressively defending its patents, there can be no assurance that BioChem will
be successful in maintaining these patents.
On July 23, 1996, Emory University filed a complaint in the US alleging
infringement from the commercialization of Epivir by BioChem and
GlaxoSmithKline, BioChem's exclusive licensee in the US, of an Emory University
US patent granted that same day. BioChem considers this patent infringement suit
to be without merit and has successfully challenged the validity of Emory
University's patent as detailed below.
On May 19, 1998, the United States Patent and Trademark Office (the "USPTO")
declared an interference between the Emory University patent that is the subject
of the lawsuit and a pending patent application of BioChem. The USPTO accorded
BioChem the earlier priority date and then accorded BioChem senior party status
in the interference. BioChem has vigorously challenged the Emory University
patent in the interference, through to a final hearing on November 10, 1999. The
Board of Patent Appeals and Interferences issued a decision on December 21, 2000
invalidating Emory's patent. There can be no assurance that Emory University
will not appeal the decision and that Emory's patent will not be reinstated.
BIOCHEM MAY NOT BE SUCCESSFUL IN OPPOSING PATENT APPLICATIONS OF THIRD
PARTIES IN AREAS THAT ARE USEFUL OR NECESSARY TO BIOCHEM'S BUSINESS.
Emory University has obtained a granted patent application in Europe
relating to oxathiolane nucleosides, including lamivudine. BioChem and
GlaxoSmithKline filed an opposition to this grant and are vigorously opposing
the grant. However, there can be no assurance that BioChem and GlaxoSmithKline
will be successful in opposing Emory's claim relating to lamivudine.
An examined patent application, filed by Emory University claiming
lamivudine, was successfully opposed by BioChem in Australia. Emory University
has filed an appeal from that decision in the Federal Court of Australia.
BioChem also filed an appeal from certain portions of the decision. There can be
no assurance that BioChem will be successful in the appeal. An examined patent
application
24
filed by Emory University claiming lamivudine was also opposed by BioChem in
Japan. The opposition was dismissed in April 1999 because it was improperly
filed by a representative who had previously represented Emory. Notwithstanding
the dismissal, the Japanese Patent Office issued an EX-OFFICIO action rejecting
all of Emory University's claims. An examined patent application filed by Emory
claiming lamivudine has been opposed by BioChem and GlaxoSmithKline in South
Korea. However, there can be no assurance that this opposition will be
successful in invalidating Emory's claims relating to lamivudine. BioChem is
also aware that Emory University has filed patent applications in other
countries, which claims BioChem believes may claim similar subject matter.
BioChem intends to challenge such patent applications; however, there can be no
assurance that BioChem will be successful in challenging such patent
applications in all countries where Emory University has sought patent rights.
In the event that BioChem were to be unsuccessful in opposing such patent
applications or any patents which may be issued, BioChem's business, financial
condition and results of operations could be materially adversely affected.
On November 23, 1999, the USPTO declared an interference between BioChem's
hepatitis B patent for lamivudine and a patent application filed by Yale
University ("Yale") claiming methods of treating hepatitis B using lamivudine.
BioChem believes that this application is licensed to Vion
Pharmaceuticals, Inc. ("Vion"), formerly know as OncoRx, Inc., a New Haven,
Connecticut-based company. BioChem believes that its patent is valid and intends
to vigorously defend the patent. However, there is no guarantee that BioChem
will be successful in defending its patent. It is always possible that Yale will
obtain a patent in the US covering methods of treating hepatitis B using
lamivudine. There can be no assurance that BioChem would be able to obtain a
license at a reasonable cost from Yale or Vion.
On April 14, 2000, the USPTO declared a further interference between
BioChem's hepatitis B patent for lamivudine and a patent application by
GlaxoSmithKline claiming methods of treating hepatitis B using lamivudine.
BioChem is not aware of corresponding patent applications by Yale University
or Vion in countries other than the US.
BioChem is aware that others, including various universities and
biotechnology companies, have also filed patent applications or have obtained
granted patents in the US and other countries claiming subject matter
potentially useful or necessary to BioChem's business. Some of these patents and
applications claim specific products or methods of making such products, while
others claim more general processes or techniques useful or now used in the
pharmaceutical and biotechnology industries. With respect to the patents
directed to general processes or techniques, BioChem believes that non-exclusive
licenses have been made available under several of these patents to the industry
for many, but not all, fields of use. The ultimate scope and validity of these
patents and other existing patents or patent applications which may be granted
to third parties in the future, the extent to which BioChem may desire or be
required to acquire rights under such patents, and the availability and costs of
acquiring such rights presently cannot be determined by BioChem. In the event it
is necessary for BioChem to obtain such rights or, if such rights are not
available on reasonable terms, BioChem's business, financial condition and
results of operations may be adversely affected. There can be no assurance that
others have not obtained or will not obtain patent protection that will preclude
BioChem from commercializing its products.
BIOCHEM MAY HAVE TO RESORT TO LEGAL PROCEEDINGS IN ORDER TO DEFEND ITS
PATENTS.
Litigation, which could result in substantial cost to BioChem, may also be
necessary to enforce or defend any patents issued to BioChem or to determine the
scope and validity of other parties' proprietary rights, which may affect
BioChem's products and technology. If the outcome of any such litigation is
adverse to BioChem, BioChem's business could be materially adversely affected.
To
25
determine the priority of invention, BioChem may also have to participate in
interference proceedings declared by the USPTO, which could result in
substantial cost to BioChem.
Under US patent law, a patent is issued to the person who made the invention
first, rather than to the first person to file an application therefor, as is
common in other countries. Until recently, in determining who is entitled to a
US patent on a particular technology, only acts in the US (not other countries)
were relevant. After December 8, 1993 inventors could rely on inventive
activities in Canada or Mexico and after January 1, 1996 on activities in any
other country. As a result, since BioChem conducted a substantial amount of its
research activities in Canada before December 8, 1993, it is at a disadvantage
as to inventions made prior to December 8, 1993 with respect to obtaining US
patents, as compared to companies that maintained research facilities in the US.
There has been, and BioChem believes that there may be in the future,
significant litigation in the industry regarding patent and other intellectual
property rights and that, if BioChem becomes involved in such litigation, it
could consume substantial resources. Significant legal issues remain as to the
extent to which patent protection may be afforded in the field of biotechnology
in Canada, the US and other countries, and the scope of any such protection has
not yet been broadly tested. BioChem, therefore, also relies upon trade secrets,
know-how, and continuing technological advancement to develop and maintain its
competitive position. Disclosure and use of BioChem's know-how is generally
controlled in part under confidentiality agreements with the parties involved.
In addition, BioChem has confidentiality agreements with its key employees,
consultants, officers and directors. There can be no assurance, however, that
all confidentiality agreements will be honored, that others will not
independently develop equivalent technology, that disputes will not arise as to
the ownership of intellectual property, or that disclosure of BioChem's trade
secrets will not occur. Furthermore, there can be no assurance that others have
not obtained or will not obtain patent protection that will exclude BioChem from
using its trade secrets and confidential information. BioChem supports and
collaborates in research conducted in universities and in government research
organizations. There can be no assurance that BioChem will have or be able to
acquire exclusive rights to inventions or technical information derived from
such collaboration or that disputes would not arise as to rights in derivative
or related research programs conducted by BioChem. In addition, in the event of
BioChem's contractual breach or bankruptcy, certain of BioChem's collaborative
research contracts provide for transfer of technology (including any patents or
patent applications) to the collaborators. See "Significant Agreements". To the
extent that consultants or research collaborators use intellectual property
owned by others in their work with BioChem, disputes may also arise as to the
rights to related or resulting know-how or inventions.
MANY COMPANIES HAVE PRODUCTS THAT MAY OR WILL SOON BE COMPETING WITH
BIOCHEM'S PRODUCTS.
For certain of BioChem's potential products, an important factor in
competition may be the timing of market introduction of BioChem's or
competitors' products. Accordingly, the relative speed with which BioChem or
BioChem's present and future collaborative partners can develop products,
complete the clinical trials and approval processes, and supply commercial
quantities of the products to the market are key factors for competitiveness.
BioChem's competition will be determined in part by the potential indications
for which BioChem's products are developed and ultimately approved by regulatory
authorities. The development by competitors of new prophylactic, treatment or
detection methods for those indications for which BioChem is developing products
could render BioChem's products non-competitive or obsolete. BioChem expects
that competition among products approved for sale will be based, among other
things, on product efficacy, safety, reliability, availability, price and
intellectual property protection.
BioChem's competitive position also depends upon its ability to secure
additional market acceptance and reimbursement of Zeffix. There can be no
assurance that Zeffix will secure additional market acceptance or that any of
BioChem's products in development will achieve market acceptance.
26
The degree of market acceptance will depend upon a number of factors, including
the receipt of regulatory approvals, the establishment and demonstration in the
medical community of the clinical efficacy and safety of BioChem's product
candidates, and the establishment and demonstration of the potential advantages
over existing and new treatment methods and reimbursement policies of government
and third-party payors. There can be no assurance that physicians, patients,
payors or the medical community in general will accept and utilize any existing
or new products that may be developed by BioChem. Additionally, BioChem's
competitive position depends on its ability to attract and retain qualified
personnel, obtain patent protection, or otherwise develop proprietary products
or processes, establish collaborative relationships and secure manufacturing.
In the medical software market, BioChem faces numerous large competitors who
have substantial resources and innovative technologies. With regards to Second
Look, competition within the market for computer-assisted detection systems for
mammography will primarily be with two privately held technology companies, R(2)
Technologies ("R(2)"), in Los Altos, California, and Scanis Inc., in Foster
City, California. R(2) is presently commercializing a product known as
ImageChecker. R(2) also signed an agreement with G.E. Medical Systems ("G.E.")
to distribute a digital version of R(2)'s Computer Aided Detection "CAD" System,
for use with G.E.'s full-field digital mammography system. Other high technology
companies with advanced artificial intelligence capabilities are possible
entrants.
RISK FACTORS RELATING TO SHIRE
For a discussion of risk factors relating to Shire, see Shire's annual
report for the year ended December 31, 2000 on Form 10-K, which is incorporated
by reference in this Proxy Statement.
27
DESCRIPTION OF BIOCHEM
BioChem is an international specialty pharmaceutical company involved in the
research and development and commercialization of innovative products for the
prevention, detection and treatment of human diseases.
BioChem's most significant therapeutic products, which have been developed
with GlaxoSmithKline, are 3TC/Epivir and Zeffix. 3TC is an orally available
formulation of lamivudine for the treatment of patients with HIV infection and
AIDS. 3TC is currently marketed in approximately 100 countries and achieved
sales of $863.5 million in 2000. Zeffix is the first and only orally available
treatment for chronic hepatitis B infection and for the prevention of liver
graft reinfection. Zeffix was first approved outside of the Philippines and
Canada in 1999. Zeffix is approved in over 69 countries and has been launched in
over 45 countries. Zeffix achieved worldwide sales of $106.9 million in 2000. In
August 2000, the Asia Pacific Consensus Group on the Prevention and Management
of Chronic Hepatitis B and C endorsed Zeffix as a key treatment option for a
broad range of chronic hepatitis B patients.
In September 1997, the US Food and Drug Administration ("FDA") authorized
the marketing of Combivir, the first product to combine two antiretroviral drugs
in a single tablet formulation. Each tablet of Combivir contains 3TC and AZT and
can be taken twice daily, offering the advantage of reducing significantly the
number of tablets a person on a 3TC/AZT based treatment regimen needs to take.
This reduction simplifies the complex multi-drug treatment regimens, thus
potentially enhancing patient adherence to therapy schedules. The European
Commission gave approval to market Combivir in the 15 member states of the
European Union on March 18, 1998. In Canada, the Canadian Health Protection
Branch ("HPB") approved Combivir on December 4, 1998.
On March 24, 1999, the FDA granted approval for expanded prescribing
information regarding the use of 3TC in infants, children and adolescents. In
addition, this approval included an important revision to the indication for use
of 3TC in combination with any other antiretroviral agent for the treatment of
HIV infection in adults and children. On November 15, 2000, the FDA authorized
the marketing of Trizivir in the US. Each tablet of Trizivir contains 3TC, AZT
and abacavir and can be taken twice daily. Trizivir is the first tablet to
combine three anti-HIV agents, thus making it the simplest triple combination
antiretroviral therapy available with the potential to enhance patient adherence
to therapy schedules. On January 4, 2001, the European Commission authorized the
marketing of Trizivir in the 15 member states of the European Union.
BioChem's most advanced therapeutic product candidates are being developed
principally for use in the treatment of cancers and infectious diseases.
BioChem's most advanced product candidate for cancer is Troxatyl
("troxacitabine"), a nucleoside analog in clinical development to treat various
forms of cancer. Troxatyl began Phase II monotherapy trials in 1999. Because
anticancer agents are generally used in combination, multiple Phase I trials
studying the use of Troxatyl in combination therapy with other chemotherapeutic
agents also are underway. BioChem's frakefamide, a product developed for use in
the control of pain, is also in Phase II trials.
BioChem is also engaged in the research and development of vaccines for
human use. BioChem's direct sales force is marketing a split virus influenza
vaccine developed and manufactured by BioChem to healthcare providers across
Canada.
BioChem's vaccine product candidates include a new cell culture-based
influenza vaccine using a novel proprietary cell line and high-cell density
microcarrier technology, which are licensed to GlaxoSmithKline. BioChem is also
involved in research and development of new recombinant protein-based bacterial
vaccines. One of these vaccine candidates has progressed to the clinical
development stage--a NEISSERIA MENINGITIDIS vaccine is in Phase I. In addition,
STREPTOCOCCUS PNEUMONIAE and PSEUDOMONAS AERUGINOSA vaccines are in pre-clinical
development.
28
On March 15, 2000, BioChem announced that it had completed the divestiture
of its diagnostics division, BioChem ImmunoSystems Inc. ("ImmunoSystems").
ImmunoSystems' minority shareholder and a management group assumed ownership of
the diagnostics business and contributed CAN$5 million of capital. BioChem
received a CAN$54 million debenture to be paid out of future cash flows.
On April 3, 2000, BioChem announced that it had concluded a partnership
agreement with the Canadian government through Technology Partnership Canada.
Under the agreement, the federal government of Canada has agreed to invest up to
CAN$80 million in the development of BioChem's recombinant-protein vaccines over
an approximately six-year period.
On June 26, 2000, BioChem sold its stake in North American Vaccine, Inc. The
gain on the sale was CAN$137 million, with cash proceeds of CAN$167 million.
Until January 1, 2000, BioChem conducted its vaccines operations through
BioChem Vaccines Inc., a wholly-owned subsidiary which was at that date
amalgamated with BioChem. In June 1998, BioChem established BioChem
Pharma, Inc., a wholly-owned subsidiary incorporated under the laws of Delaware,
to operate in the US. Until the sale of its diagnostics business on March 14,
2000, that business was carried out through BioChem's 91.0%-owned subsidiary,
ImmunoSystems, and its subsidiaries.
In 1998, CliniChem Development Inc. ("CliniChem") was formed by BioChem for
the purpose of conducting the clinical development of certain of its therapeutic
and vaccine products with a goal of commercializing such products. Such
activities have been contracted to BioChem. BioChem contributed CAN$150 million
to CliniChem as a capital contribution and then made a dividend-in-kind to the
BioChem shareholders in June 1998 of all the Class A Common Shares of CliniChem.
BioChem had an option to purchase all of the outstanding CliniChem Class A
Common Shares at a price to be set according to a predetermined formula.
On January 10, 2000, BioChem announced its plan to exercise its purchase
option of all the outstanding CliniChem Class A Common Shares upon depletion of
CliniChem's financial resources, which was expected sometime before year-end.
On October 26, 2000, BioChem announced it had elected to exercise its option
to purchase all the outstanding CliniChem Class A Common Shares and the sending
to holders of Class A Common Shares a notice of exercise at a cash purchase
price of CAN$18.43 per share. The purchase was completed on December 15, 2000
and CliniChem was merged into BioChem.
As of December 31, 2000, BioChem had a total of 476 employees.
THERAPEUTIC PRODUCTS
BioChem's therapeutic product candidates are currently directed at providing
innovative medicines principally in the anticancer and anti-infective areas.
BioChem's research and development activities are either done internally or
through partnerships and strategic alliances (see "Significant Agreements").
BioChem shares commercialization rights for 3TC, Combivir and Heptovir (as
Zeffix is known in Canada) with GlaxoSmithKline in Canada and has granted to the
latter exclusive commercialization rights in the rest of the world.
For frakefamide, in the pain control area, BioChem has established a
partnership with AstraZeneca plc.
29
The following table represents BioChem's products and products under
development in therapeutics:
PRODUCT/CANDIDATE INDICATION DEVELOPMENT STATUS* COMMERCIAL RIGHTS
- ------------------------------------- ---------------------- ----------------------------------- -----------------------
3TC/Epivir HIV/AIDS On the market BioChem/GlaxoSmithKline
Combivir HIV/AIDS On the market BioChem/GlaxoSmithKline
Trizivir HIV/AIDS On the market BioChem/GlaxoSmithKline
Zeffix/Epivir-HBV/Heptovir/Heptodin Hepatitis B infection On the market BioChem/GlaxoSmithKline
PACIS Bladder cancer On the market BioChem
Troxatyl Cancer In development--Phase II BioChem
Frakefamide Pain control In development--Phase II BioChem/AstraZeneca
BCH-10618 HIV/AIDS In development--pre-clinical BioChem
BCH-13520 HIV/AIDS In development--pre-clinical BioChem
Caspase Activators Cancer Lead optimization BioChem
Troxatyl Prodrugs Cancer Lead optimization BioChem
Angiolytics Cancer Lead optimization BioChem/Adherex
Hepatitis C Hepatitis C Lead optimization BioChem
Gr+ antibiotic Antibacterial Lead optimization BioChem/Microbiotix
- ------------------------------
* Indicates product development status. "Lead optimization" means modifying a
lead molecule in order to optimize its potency, safety, metabolic stability
and drug-like properties for progression to Pre-clinical. "Pre-clinical"
denotes efficacy, pharmacological and toxicity studies in animal models
necessary to support an application to initiate human clinical testing.
Human clinical trials for BioChem's drugs and biological products are
conducted in three phases. "Phase I" clinical trials are generally conducted
in healthy volunteers to determine pharmacokinetics and safety. "Phase II"
clinical trials are conducted to gain preliminary information regarding
efficacy and dosing regimen and additional safety information. The final
stage is "Phase III", in which studies are conducted to provide sufficient
statistical data regarding safety and efficacy to support an application for
marketing approval of a new drug or license of a biological product. In the
case of HIV/AIDS and cancer and certain other life-threatening diseases for
which there is an urgent need for treatment, the FDA may grant approval
under its accelerated approval regulations, based on analysis of surrogate
endpoints even when definitive information on efficacy and long-term safety
is not yet available. Manufacturers of accelerated approval drugs are then
required to conduct more definitive clinical endpoint studies to confirm the
drug's effect on the clinical endpoints of the disease.
HIV INFECTION/AIDS
MARKET
The World Health Organization (the "WHO") estimates that, as of the end of
2000, 36.1 million people worldwide had been infected with HIV, the virus that
leads to the development of AIDS. The WHO estimates that, as of the end of 2000,
approximately 920,000 people were infected with HIV in North America and 540,000
in Western Europe and 700,000 in Eastern Europe. In North America, it is
estimated that there were 20,000 new infections in the past year. Of these newly
infected people, the Centers for Disease Control (the "CDC") estimates that half
are younger than 25 years of age and were infected sexually. Worldwide, there
were approximately 14,500 new HIV infections per day in 2000, totaling
5.3 million new infections during the year. More than 95% of these new
infections occurred in developing countries. HIV infection and AIDS was the
fourth leading cause of death worldwide in 2000 resulting in an estimated
3 million deaths, the highest number of AIDS associated deaths in a single year
ever.
According to WORLD-WIDE ANTIRETROVIRAL SALES, IMS REPORT, in 2000, the
antiretroviral (anti-HIV) market will reach $3.5 billion in sales, with reverse
transcriptase inhibitors (such as 3TC) representing 54% of the market
($2 billion). The vast majority of the sales were generated in North America and
Western Europe.
PRODUCT ON THE MARKET--3TC
The therapeutic product 3TC (lamivudine) is indicated for the treatment of
HIV infection and AIDS. 3TC is one of a novel class of nucleoside analogs with a
heterocyclic surrogate sugar ring discovered and synthesized by BioChem
scientists which targets the HIV reverse transcriptase enzyme and interferes
with HIV replication. 3TC was first approved in the US on November 17, 1995,
where it
30
is marketed as Epivir. Approval in Canada shortly followed on December 8, 1995.
The Committee on Proprietary Medicinal Products ("CPMP") and the European
Medicines Evaluation Agency (the "EMEA") on August 8, 1996 gave full approval
under exceptional circumstances for the 15 member states of the European Union.
On September 29, 1997, the FDA authorized the marketing of Combivir, the first
product to combine two antiretroviral drugs in a single tablet formulation. Each
tablet of Combivir contains 3TC and AZT (zidovudine) and can be taken twice
daily, offering the advantage of reducing significantly the number of tablets a
person on a 3TC/AZT based treatment regimen needs to take. This reduction is
simplifying the complex multi-drug treatment regimens, thus enhancing patient
adherence to therapy schedules. The EMEA gave approval to market Combivir in the
15 member states of the European Union on March 18, 1998. In Canada, the HPB
approved Combivir on December 4, 1998.
In December 1999, GlaxoSmithKline filed regulatory submissions to the FDA,
EMEA and HPB seeking marketing approval for Trizivir. Trizivir is the first
product to combine three antiretroviral drugs in a single tablet formulation.
Each tablet of Trizivir contains 3TC, AZT and abacavir and can be taken twice
daily. Trizivir is the simplest triple combination antiretroviral therapy
available with the potential to enhance patient adherence to therapy schedules.
On November 15, 2000, the FDA authorized the marketing of Trizivir in the US. On
January 4, 2001, the European Commission authorized the marketing of Trizivir in
the 15 member states of the European Union. In the US, Trizivir is indicated
alone or in combination with other antiretroviral agents for the treatment of
HIV infection and it is intended only for patients whose regimen would otherwise
include abacavir, 3TC and AZT. GlaxoSmithKline is also currently developing a
once-a-day formulation of 3TC.
The results from four pivotal trials and from the clinical endpoint study of
3TC demonstrate the safety and efficacy of 3TC, and have successfully
established 3TC as the cornerstone of combination therapy in HIV infection.
Those positive results together with 3TC's ease of administration (one tablet
twice a day, independently of food intake) helped pave the way to combine
antiretrovirals for maximum clinical benefit and compliance. They also led to
3TC being used in the majority of triple and quadruple combination therapies
with other nucleoside analogs, protease inhibitors and non-nucleoside reverse
transcriptase inhibitors ("NNRTIs").
3TC is available for sale and marketing in approximately 100 countries and
is the most widely prescribed medication for HIV infection and AIDS in the
world. Combivir is available for sale and marketing in more than 80 countries.
On March 24, 1999, the FDA granted approval for expanded prescribing information
on the use of 3TC in infants, children and adolescents. In addition, this
approval included an important revision to the indication for use of 3TC in
combination with any other antiretroviral agent for the treatment of HIV
infection in adults and children. Since its first marketing approval in 1995,
3TC has been used safely in combination with many other antiretroviral agents,
and was part of the pivotal clinical trials used as part of the basis for
approval of five other HIV antiretroviral agents: the nucleoside analog
abacavir, the NNRTI efavirenz and the protease inhibitors indinavir, nelfinavir
and amprenavir.
Resistance to drugs is one of the most significant challenges in HIV/AIDS
therapy and viral resistance testing is used increasingly by physicians to
detect mutations and help decide whether a patient should switch to a new
treatment combination. Data presented at the Third International Workshop on HIV
Drug Resistance and Treatment Strategies in San Diego on June 24, 1999 suggests
that combination therapies which contain 3TC remain potent and continue to
suppress HIV even in the presence of 3TC resistant mutants.
BioChem has licensed to GlaxoSmithKline the worldwide rights, with the
exception of Canada, to develop, manufacture and sell 3TC. In Canada, 3TC is
sold by BioChem in partnership with GlaxoSmithKline.
31
PRODUCTS IN DEVELOPMENT
Appearance of drug resistant viruses is an inevitable consequence of
prolonged exposure of HIV to antiretroviral therapy. Recent studies suggested
that HIV can become multi-drug resistant under combination therapy. Therefore,
it is still necessary to develop alternate drug combinations for the long-term
successful treatment of HIV infection. BioChem is focusing its efforts on
developing new agents which are effective against existing drug resistant
viruses and can be rationally incorporated into novel drug combination therapy.
The objective of BioChem's program is to bring to the market drugs which are
potent, well tolerated and active against strains of virus resistant to current
therapies. Two compounds, both nucleoside analog reverse transcriptase
inhibitors ("NRTIs"), are currently being developed, namely BCH-13520 and
BCH-10618.
A) BCH-13520
BCH-13520 is a novel anti-HIV NRTI in pre-clinical development stage in
mid-1999.
The data used to support the advancement of this compound has been
accumulating since 1998. BCH-13520 has shown significant inhibition of HIV
replication for both wild-type and drug resistant virus. Importantly, IN VITRO
studies have demonstrated that BCH-13520 remains active against clinical
isolates of HIV which display phenotypic resistance to marketed NRTI
antiretroviral agents such as AZT, 3TC, d4T and abacavir.
IN VITRO studies have also shown that BCH-13520, when used in combination
with 3TC, AZT, Sustiva, d4T, BCH-10618, nevirapine, saquinavir or abacavir,
demonstrates additive or slightly synergistic anti-viral activity with most of
these agents. These data suggest that BCH-13520 will be able to fit into
multi-drug combination regimens.
Resistance of the HIV viruses to BCH-13520 is slow to develop, which is in
contrast to the relative speed of emergence of virus grown in the presence of
AZT, 3TC or NNRTIs.
Cytotoxicity evaluations of BCH-13520 demonstrate an excellent toxicity
profile IN VITRO. Extended studies (28 days of continuous exposure to growing
HepG2 cells) also revealed that BCH-13520 caused no change in cell growth or
mitochondrial DNA content at concentrations of BCH-13520 up to 100 mM.
Preliminary results of an IN VITRO myelotoxicity study indicate that BCH-13520
has a similar profile to 3TC and is 200-fold less toxic than AZT to human bone
marrow cells.
In order to further profile BCH-13520, initial IN VIVO (efficacy,
pharmacokinetic and toxicity) work has been performed with this compound in
animals. In a mouse model of HIV infection, BCH-13520 was able to reduce virus
levels in mouse serum by over one log unit following treatment with BCH-13520 at
30 mg/kg/day for 14 days. Pharmacokinetic and acute toxicity studies have been
completed with rats tolerating the drug at the highest dose administered (2,000
mg/kg p.o.). A two-week escalating repeat dose toxicity evaluation in rats was
also conducted and the product was found to be safe up to 500 mg/kg/day. In
monkeys, bone marrow cytology abnormalities were observed in the first 14-day
study at oral doses of 300 mg/kg and above. Due to very high bioavailability,
drug exposure was found to be higher than expected and a follow-on 28-day oral
study is presently ongoing using lower doses to identify the no-adverse effect
dose level. The no-adverse effect dose level has been identified for intravenous
administration in this species at 40 mg/kg.
Taken together, the data indicates that BCH-13520 is a candidate worthy of
advancing into clinical evaluation for the treatment of HIV infection. The
pre-clinical long-term Good Laboratory Practice safety studies are currently
underway. BioChem plans to submit an Investigational New Drug ("IND") to begin
Phase I trials in the third quarter of 2001.
32
B) BCH-10618 ((-)DOTC)
BCH-10618 is a compound being developed for the treatment of HIV infection
and AIDS. BCH-10618 has been shown to stop the replication of the HIV virus IN
VITRO. BCH-10618 is a nucleoside analog with a novel structure which targets the
HIV reverse transcriptase enzyme. By targeting the reverse transcriptase enzyme,
BCH-10618 appears to interfere with the transcription of viral RNA to viral DNA,
a process necessary for HIV replication. Other nucleoside analogs, such as AZT
and 3TC, also inhibit the reverse transcriptase enzyme. However, BCH-10618
appears to be capable of inhibiting the replication of HIV viruses that have
become resistant to 3TC, AZT, d4T and abacavir and to some protease inhibitors.
In addition, based on IN VITRO studies, in contrast to 3TC, resistance to
BCH-10618 appears slow to develop and when mutations do emerge in the virus,
they confer little to no diminished sensitivity to BCH-10618. BioChem believes
these properties may give BCH-10618 a role in the treatment of both HIV-infected
patients in whom standard triple combination regimens are no longer effective
and in patients who have never received anti-HIV therapy (first-line therapy).
The racemic mixture dOTC (an equal mixture of (+)dOTC and (-)dOTC
(BCH-10618)) was investigated previously IN VITRO, in pre-clinical and in Phase
I clinical studies. Further to the good safety and pharmacokinetic profile of
racemic dOTC in two Phase I single-dose healthy volunteer studies, a Phase I/II
clinical trial was conducted with racemic dOTC in antiretroviral-naive, HIV
infected patients. This study was initiated late in 1998 and was completed in
the third quarter of 1999. The results from this 7-day study demonstrated
racemic dOTC's potent activity in HIV-infected patients and further demonstrated
its good tolerability. The 3-month rat toxicity study, as well as rat and rabbit
teratology studies, were also completed in 1999. Results from these studies
continued to demonstrate racemic dOTC's good pre-clinical safety profile.
However, in a long-term toxicity study terminated late in 1999, racemic dOTC was
found to be toxic in monkeys. After much investigation, the species specificity
of the toxicity seen with racemic dOTC could not be demonstrated, nor could the
mechanism(s) responsible for the observed toxicity be elucidated.
Given these toxicity results with racemic dOTC, and given the potent IN
VITRO activity and good IN VITRO safety profile of BCH-10618 relative to
(+)dOTC, it was decided to terminate the development of racemic dOTC and to
continue with the development of BCH-10618.
Investigation of the toxicity profile of BCH-10618 in animals is currently
underway. BioChem plans to submit an IND amendment to begin Phase I trials in
the second quarter of 2001.
HEPATITIS B
MARKET
Hepatitis B virus ("HBV") is the causative agent of both the acute and
chronic forms of hepatitis B, a liver disease which is a major cause of
morbidity and mortality throughout the world. Data from the WHO indicate that
over 2 billion people worldwide have been, at some point, infected with the
hepatitis B virus. Of these 2 billion, there are over 350 million people
chronically infected (WHO 1996), 75% of whom are found in the Asia-Pacific
region. There are some 25 million chronic carriers of HBV in industrialized
countries with developed economies and healthcare programs. These chronic
carriers are at high risk of developing chronic active hepatitis, which kills up
to 2 million persons per year. The WHO estimated that as many as 25-35% of
individuals who become chronic carriers will eventually die from cirrhosis or
hepatocellular carcinoma (liver cancer) as a result of their hepatitis B
infections. Vaccines to prevent hepatitis B are currently available; however,
they have not been shown to be effective in those already infected with the
virus. Despite the availability of these vaccines for more than a decade, the
incidence of HBV infection in the US has increased.
33
Hepatitis B virus is estimated to be approximately 100 times more infectious
than the HIV virus. The main routes of transmission in North America are:
parenterally (through the use of needles) and via sexual contact. The main
routes of transmission in areas of high prevalence (including the Asia-Pacific
region) are mostly perinatally (from mother to baby during the perinatal period)
or from person to person particularly during early childhood.
Alpha interferon was previously the only widely approved treatment for
patients with chronic active hepatitis B. It is administered by injection, is
only successful in controlling the virus in a minority of patients and is
associated with undesirable side effects such as flu-like symptoms. Moreover,
alpha interferon has poorer efficacy in the majority of chronic hepatitis B
patients who are located in the Asia-Pacific region and who could be presumed to
have acquired the disease perinatally or at a young age. This usually leads to
an immune tolerance state of infection where an immunostimulant such as alpha
interferon works poorly. BioChem believes a significant market opportunity
exists for an effective and safe oral anti-viral therapy against chronic
hepatitis B, especially for a product with proven efficacy in immune tolerant
chronic hepatitis B patients, such as the vast majority of hepatitis B patients
in the Asia-Pacific region.
PRODUCT ON THE MARKET--ZEFFIX
A different dosage regimen of lamivudine (referred to as Zeffix, but also
available as Epivir-HBV in the US, as Heptovir in Canada, Heptodin in China and
Zefix in Japan) has been developed with GlaxoSmithKline as an oral treatment for
chronic hepatitis B infection and for the prevention of liver graft reinfection.
Like 3TC with HIV, Zeffix targets the reverse transcriptase enzyme of HBV and
appears to interfere with the transcription of viral RNA to viral DNA, a process
necessary for HBV replication.
GlaxoSmithKline conducted numerous Phase III clinical trials of Zeffix as a
treatment for chronic hepatitis B infection. Clinical trial sites included
countries in the Asia-Pacific region, Europe, Australia, South Africa, Canada
and the US. Most of these trials were for a duration of one year of treatment
with follow-up periods ranging from three months to two years. A longer trial
for up to five years of Zeffix treatment was completed in Asia.
Results from several clinical trials to date showed that:
1) Zeffix therapy after one year of treatment in a non-Asian trial results in
similar seroconversion rates as a standard course of interferon (Intron
A) and a course of Zeffix and interferon combined. Additionally, in
comparison to interferon treated patients, a greater number of patients
treated with Zeffix showed improvement in liver disease regardless of
whether or not seroconversion occurred. Patients taking Zeffix also suffered
from fewer side effects than either of the other two groups treated with
interferon.
2) Asian patients have been found to respond equally well to Zeffix as
Caucasians. In contrast to Caucasians, Asians generally acquire the
infection perinatally or early in childhood leading to an immune tolerance
status resulting in poor response to alpha-interferon therapy.
3) The seroconversion rate is cumulative with duration of Zeffix treatment. In
fact, four-year data from an Asian trial show that the proportion of
patients who seroconvert reaches 47% at year four (vs. 40% at year three,
29% at year two and 22% at year one). 73% of patients with active liver
disease (ALT of twice the upper limit of the normal level) successfully
seroconverted at year four. In addition, prolonged Zeffix therapy is
associated with continuous reduced disease progression and improvement of
liver inflammation and fibrosis. Also, after four years, 64% of patients had
normal ALT levels.
4) On extended Zeffix treatment, mutant virus showing changes in the YMDD locus
of the virus polymerase emerges in a number of patients. Patients from the
long term Asian trial who had a
34
mutated form of the hepatitis B virus for up to three years continued to
have reduced levels of ALT and HBV, suggesting that despite the presence of
a mutated form of the virus, patients may still obtain benefits from Zeffix.
In addition, seroconversion continues to occur and histological improvements
have been observed in the majority of patients despite the presence of the
YMDD variant.
5) Zeffix significantly improves liver inflammation, reduces progression of
fibrosis and improves fibrosis compared to placebo. Trials in North America,
Europe and Asia demonstrated similar histological benefits after one year of
therapy. An integrated analysis of three trials showed that in comparison to
placebo and alpha interferon, Zeffix can reduce significantly the
progression to cirrhosis and consequently has the potential of reducing the
mortality and morbidity associated with the complication of cirrhosis.
6) Interim results from an international study demonstrate a regression in
cirrhosis in 64% of patients with pre-existing cirrhosis following two or
more years of treatment with Zeffix. The study's findings suggest that
extended treatment with Zeffix may not only stop further damage caused by
the hepatitis B virus, but also allow the body to regenerate healthy liver
tissue and repair pre-existing damage.
7) Zeffix monotherapy is effective in a specific group of patients with a form
of the disease known as "pre-core mutant hepatitis B". This variant of the
disease is particularly prevalent in Southern Europe, the Middle East and
some Asian countries, and responds very poorly to alpha-interferon
treatment. Data showed Zeffix to be as effective in this more difficult to
treat form of hepatitis B as in the more common type.
8) Response is sustained after stopping Zeffix therapy in patients who had
achieved seroconversion. When treatment was discontinued after one year and
patients were monitored for almost 2 years without treatment, it was found
that virologic responses achieved during the year of therapy with Zeffix
were usually sustained in the vast majority of patients (86%) who had
achieved loss of HBeAg (Hepatitis Be antigen--a blood marker of ongoing
viral replication) by the end of therapy. In addition, after this two-year
follow-up, 21% of patients who lost HBeAg have also achieved HBsAg
(Hepatitis B surface antigen) seroconversion, an indicator of a probable
cure of chronic hepatitis B.
9) The overall safety profile of Zeffix is excellent with side effects similar
to placebo during the one year Phase III treatment period. Analysis of
controlled post treatment data indicates a modest increase in post treatment
ALT elevations in the Zeffix group; however, there was no difference in
clinically severe post treatment events in the Zeffix and placebo groups.
Overall these data support the broad utility of Zeffix as a safe and
effective drug for treating a wide range of patients with chronic hepatitis B,
including Asian patients, patients infected with pre-core mutant hepatitis B
virus and the subgroup of patients who eventually develop the variant HBV
strains associated with Zeffix resistance in laboratory assays.
At the end of August 2000, the Asia Pacific Consensus Group on the
Prevention and Management of Chronic Hepatitis B and C in association with the
Journal of Gastroenterology and Hepathology have endorsed Zeffix as a key
treatment option for a broad range of chronic hepatitis B patients. The
guidelines are the results of a consensus reached by a Core Planning Committee
of 37 leading clinicians from ten countries in the region. On the basis of an
extensive review of available literature and clinical experience, the Asia
Pacific guidelines recommend that hepatitis B patients with active liver
disease, liver failure or recurrent disease after liver transplantation should
be treated with Zeffix.
First approved in the Philippines and in Canada in August and November 1998
respectively, Zeffix has been approved and launched through 1999 in the US, Hong
Kong, Singapore, China, South Korea,
35
some European Union countries and Taiwan and, more recently, in Japan. As of
December 2000, Zeffix has been approved in 69 countries and launched in 45 of
those.
On November 20, 2000, GlaxoSmithKline launched Zefix in Japan. Provision of
drug information to medical institutions regarding Zefix in Japan is carried out
by GlaxoSmithKline K.K. with Ajinomoto Pharma Co. Ltd., through co-promotion as
Ajinomoto Pharma has experience in liver disease.
Pursuant to agreements entered into with GlaxoSmithKline, BioChem has
licensed to GlaxoSmithKline the worldwide rights, with the exception of Canada,
to develop, manufacture and sell Zeffix. In Canada, Zeffix is sold by BioChem in
partnership with GlaxoSmithKline, under the tradename Heptovir.
PAIN CONTROL
MARKET
The pain control or pain management market is divided into the acute
(short-term) and chronic (longer-term, persistent) pain market and along the
lines of mild, moderate and severe pain. The analgesic market is divided into
the following categories: non-steroidal anti-inflammatories ("NSAIDs"),
narcotics and non-narcotics. The injectable/intravenous forms of these
analgesics are generally used for pain management in the acute setting, such as
post-operative or trauma pain. The chronic pain control pharmaceutical market,
such as the treatment of cancer pain and arthritis pain, calls for drugs that
will provide longer term duration and whose delivery form will not require
hospital or professional supervision to administer. Such potent, well-tolerated,
chronically used, easily delivered pain control compounds would provide safe and
effective relief in an ambulatory setting, i.e. one that permits sufferers to be
mobile and to have a quality of life.
Chronic pain (chronic headache, lower back pain, cancer pain, arthritis pain
and other disorders such as neuralgias and neuropathies) has been described as
one of the most costly health problems in the US. More than 30 million Americans
visit physicians for chronic pain each year (D&MD-PAIN THERAPEUTICS: A
REVOLUTION IN THE MAKING). It is estimated that in the US alone, the annual
direct and indirect cost is close to $70 billion (INTERNATIONAL ASSOCIATION FOR
THE STUDY OF PAIN).
Cancer pain: the majority of intermediate to advanced stage cancer patients
suffer moderate to severe pain. Clinical studies of pain suggest that one-third
of patients currently receiving cancer treatment experience moderate to severe
pain and that in patients with advanced disease this increases from 60 to 90%.
Statistics on terminal cancer from the WHO suggest that there are 4 million
cancer pain sufferers at any given time, representing only a fraction of the
number of cancer patients suffering from pain.
Arthritis pain, termed the "great crippler," is estimated to affect some
36 million Americans of which about 20 million are diagnosed (DATAMONITOR,
MARKET DYNAMICS 2000: PAIN). It is estimated to cost billions of dollars
annually, a result of lost income, lost productivity and direct health care
expenses combined.
Many chronic pain conditions, such as arthritis and cancer pain, affect
older adults. With the world population generally living longer, the incidence
of cancer- and arthritis-associated pain is expected to increase, as is the
growing demand for potent and safe novel agents to manage moderate to severe
pain.
DEVELOPMENT PROJECT--FRAKEFAMIDE (BCH-3963)
Further to an agreement signed between BioChem and AstraZeneca, AstraZeneca
is presently developing a peripherally acting m-opioid receptor agonist,
frakefamide, discovered by BioChem and intended for the treatment of acute and
chronic pain.
36
Opioids such as morphine are the cornerstone in clinical pain treatment in
spite of the development of tolerance and their undesirable side effects due to
their action on the central nervous system (the "CNS"). The traditionally held
view was that opioid analgesia was mediated exclusively within the CNS. However,
recent research has shown that analgesia at the site of inflammation can be
initiated by the activation of opioid receptors located outside the CNS.
Particularly, it has been demonstrated that the agonists that have a preference
for m-receptors are generally the most potent. With that rationale, BioChem
scientists discovered frakefamide, which is highly selective for the m-opioid
receptor and which does not penetrate the CNS. In animal models, frakefamide has
exhibited potency similar to morphine but without the dependence, tolerance or
other CNS-associated side effects.
AstraZeneca filed a first Investigational New Drug ("IND") in Sweden in 1998
and completed four Phase I studies with an injectable (i.v.) formulation. The
results of these studies showed that frakefamide was well tolerated with no CNS
side effects or respiratory depression and suggested that it was 10 times more
potent than morphine as measured by a surrogate marker. In 1999, AstraZeneca
initiated Phase II clinical trials to evaluate the analgesic potential of
frakefamide.
In general, opioids and morphine, in particular, remain the most common
treatment for pain following surgery, but in recent years, parenteral NSAIDs,
notably ketorolac and diclofenac, have been shown to be effective analgesics
when administered after surgery. The major benefits of NSAIDs are related to the
ability of these agents to provide analgesia without the major drawback of
opioids. However, NSAIDs may not provide sufficient efficacy and the well-known
gastrointestinal toxicity and risk for renal failure limit their use. Recently,
companies reported the ongoing development of COX-2 inhibitors for the
management of acute pain associated with surgery.
There is a large unmet need in the management of acute pain following
surgery, and frakefamide has the potential to become an important drug in this
setting. The Phase II studies should be completed in the second quarter of 2001,
and additional clinical trial programs with the injectable (i.v.) formulation in
the management of post-operative pain are planned to be initiated thereafter.
BLADDER CANCER
MARKET
Bladder cancer is the sixth most common cancer (other than skin cancer) in
the US according to the American Cancer Society. While progress has been made in
the prevention and treatment of bladder cancer, the American Cancer Society
estimated that in 2000 over 54,000 Americans were diagnosed with transitional
cell carcinoma of the bladder and more than 12,000 people with recurrent or
acute disease died from it.
PRODUCT ON THE MARKET--PACIS
BioChem has developed a BCG (Bacillus Calmette-Guerin) immunotherapeutic
that has demonstrated efficacy in the treatment of superficial bladder cancers.
The American Urology Association recommends the use of BCG immunotherapeutics as
first line therapy for superficial bladder cancer.
BioChem's BCG product is marketed, through exclusive distributorships, under
the trademark PACIS and as of December 31, 1999, was registered in Canada,
Argentina and the Philippines. On March 9, 2000, the FDA approved PACIS for sale
in the US as a first line treatment for carcinoma IN SITU of the urinary
bladder.
37
CANCER CHEMOTHERAPY
MARKET
Epidemiological data (EUR J CANCER 35(1):24-31 1999 UI: 99227530 Abstract)
confirm that each year there are an estimated 10 million new cases of cancer
diagnosed globally, and this is expected to rise steadily to 20 million by the
year 2020. Over 6.2 million people worldwide died of cancer in 1997. The leading
causes of cancer deaths are attributed to lung (1.1 million), stomach (765,000)
colon and rectum (505,000) and breast (385,000).
The worldwide cancer market including anti-emetics and other adjuvants was
valued at over $23 billion in 1999, or about 6% of the global pharmaceutical
market (IMS World 2000, ANNUAL REVIEW OF PHARMACEUTICAL INDUSTRY PERFORMANCE).
In 1999, the cancer market grew by approximately 17% over the previous year,
1998 (Datamonitor SPRINT SALES 2000). Factors influencing the strong growth in
the cancer drug therapy market include: (a) increased incidence of cancer;
(b) improved diagnosis; and (c) development of effective adjunct therapies which
enable more intense, more effective and more widespread use of chemotherapy. The
increased incidence of cancer is due to many factors, including: (a) worldwide
population growth; (b) longer life expectancies; and (c) increased exposure to
carcinogenic environmental or dietary factors.
DEVELOPMENT PROJECTS--TROXATYL (TROXACITABINE OR BCH-4556)
Troxatyl is a nucleoside analog being developed to treat various forms of
cancer. A few nucleoside analogs, such as gemcitabine and Ara-C, are used in the
treatment of certain cancers. These nucleoside analogs inhibit tumor growth by
preventing cell replication. Currently marketed nucleoside analogs have two
major disadvantages that impair their anticancer activity and have limited their
use to date. First, they are rapidly deaminated by cellular enzymes, which leads
to a loss of efficacy and consequently to the resistance of the cancer to
treatment. Second, existing nucleoside analogs are typically unable to
completely stop cell division and therefore do not optimally treat cancer.
Troxatyl is a nucleoside analog that BioChem believes will provide significant
benefits in treating various forms of cancer due to its novel structure and
mechanism of action. Discovered and synthesized by BioChem scientists, Troxatyl
belongs to a different structural class than the currently marketed nucleoside
analogs. Because it is a nucleoside analog which has a non-natural (B-L)
configuration, Troxatyl is not vulnerable to deamination. In addition, because
it lacks the 3'-hydroxyl group, it acts as a complete DNA chain terminator and
thus may be able to completely stop tumor cell division. BioChem believes that
both of these characteristics could lead to improved efficacy compared to other
currently marketed nucleoside analogs. BioChem plans to administer Troxatyl
initially by intravenous injection.
Three Phase I safety and pharmacokinetic studies have been completed in a
total of 104 advanced stage cancer patients with solid tumors: a single dose
regimen and two additional multiple dose regimens. The drug was well tolerated
with myelosuppression and skin toxicity (rash and the hand-foot syndrome) as the
main side effects. Major clinical responses were seen in three patients with
malignant melanoma, hypernephroma and a carcinoma of unknown origin. Based on
these encouraging results, BioChem has completed a pilot Phase II clinical trial
program with Troxatyl in various types of solid tumors (E.G. renal, prostate,
colorectal, non-small-cell lung, pancreatic and melanoma) using the once every
three weeks administration schedule. Preliminary evidence of activity was seen
in the renal and pancreatic cancer trials. Consequently, BioChem is now
investigating the therapeutic effects of Troxatyl using an alternate daily times
5 monthly administration schedule in pancreatic cancer. Additional trials are
planned, and BioChem will then focus its Phase III program on the solid tumors
where activity has been identified. Since, in clinical practice, cancers are
treated mainly by using combinations of chemotherapeutic agents, BioChem is also
performing, in parallel, two pilot combination chemotherapy Phase I trials of
Troxatyl with either cisplatin or paclitaxel in solid tumors using the daily
times
38
5 monthly Troxatyl treatment schedule. It is hoped that these studies will open
additional areas of development for Troxatyl in the treatment of solid tumors.
A Phase I safety and pharmacokinetic study in refractory acute leukemia
patients has also been completed at the MD Anderson Cancer Center in Houston,
Texas. Thirty-one patients with acute myelogenous leukemia ("AML") were treated,
and a specific recommended dose was defined for this patient population. Again,
the drug was well tolerated, with skin toxicity and mucositis as the main
non-hematologic side effects. In addition, Troxatyl showed promising signs of
antileukemic activity in this heavily pretreated population of patients: 4/30
evaluable patients had major (complete and partial) responses, and 73% showed a
significant decrease in their leukemic cells following therapy. BioChem is now
following up on these results and has initiated testing of four different
Troxatyl combination regimens with either idarubicin, topotecan, Ara-C or
Mylotarg. BioChem believes that these trials will optimize the antileukemic
activity of Troxatyl and set the groundwork for subsequent Phase III trials. A
Phase II trial in patients with various types of acute leukemia was also
conducted at the MD Anderson Cancer Center. Two complete and one partial
remissions were observed in 17 evaluable AML patients. Four patients of 13
evaluable with chronic myelogenous leukemia in blastic phase ("CML-BP") achieved
a return to chronic phase disease, and three others achieved a major hematologic
response. BioChem is now following up on these promising results by testing
single agent Troxatyl in a North American multicenter trial involving 50 CML-BP
patients. The FDA will be consulted in the second quarter of 2001 to determine
Troxatyl's registration strategy in this patient population.
LEAD OPTIMIZATION PROJECTS
A) TROXATYL PRODRUGS
Most antimitotic nucleosides used in cancer chemotherapy are generally
poorly selective towards proliferating normal versus tumor cells. Compounding
this problem is the incidence of DE NOVO or tumor induced resistance towards
these agents which leads to patient death. In order to address these issues
BioChem has been conducting research aimed at the discovery of novel
antineoplastic nucleosides. This research has led to the discovery of Troxatyl,
an unnatural nucleoside analog displaying activity in leukemia patients in
ongoing clinical trials. Troxatyl has mechanistic properties which are believed
to be useful against frequently encountered solid cancers such as colon, lung,
breast, pancreatic and renal cancer. In order to develop its full potential, a
project was initiated to broaden this compound's usefulness by designing
prodrugs that will target solid tumors through an altered tissue distribution
profile. BioChem scientists believe that this approach should enhance the
activity of the compounds towards solid tumors.
Novel compounds are being synthesized, and our IN VITRO results to date
indicate that anticancer potency against tumor cells originating from solid
cancers was improved significantly with certain propietary prodrug derivatives
of Troxatyl. Some of these compounds will be tested IN VIVO against solid
cancers in order to establish a structure activity relationship with respect to
anticancer activity enhancements and safety profile. The objective is to select
a compound for pre-clinical development in the fourth quarter of 2001.
BioChem believes that this novel class of compounds offers significant
potential for the development of novel anticancer chemotherapeutic agents.
B) CASPASE ACTIVATORS
A collaboration was entered into on July 10, 2000 between Maxim
Pharmaceuticals Inc. and BioChem covering a series of anticancer compounds
discovered by Cytovia, Inc., a wholly-owned subsidiary of Maxim Pharmaceuticals
Inc.
39
This series of small-molecule compounds (CV 2105), currently in late-stage
research, was identified by Cytovia's proprietary high-throughput apoptotic
screening technology. The compounds have been shown to be potent and efficacious
activators of specific caspase activity. Caspases are key enzymes that modulate
and carry out the cellular signaling pathways involved in apoptosis (programmed
cell death).
C) ANGIOLYTICS
Cell adhesion, the process whereby cells adhere to each other to form
tissues, is a fundamental biological process. Cadherins are the proteins that
are responsible for cell-to-cell adhesion. Adherex Technologies, with which
BioChem entered into a collaboration on August 17, 2000, has patented a cyclic
peptide ("Exherin") which binds to cadherins thereby dissociating cell-cell
interaction.
A key advantage of Exherin over conventional chemotherapy is that it targets
cancer blood vessels and not cancer cells. Exherin also possesses an advantage
over the new class of anti-cancer drugs known as anti-angiogenic agents. These
drugs work by targeting angiogenic factors and their receptors, thus preventing
the growth of new blood vessels to the tumor. Based on its mechanism of action,
Exherin has the potential for not only preventing angiogenesis, but also
possibly reversing tumor angiogenesis by destroying existing tumor blood
vessels.
HEPATITIS C
MARKET
Viral hepatitis refers to a spectrum of diseases caused by one of eight
identified hepatotropic viruses that affect humans. Most important in terms of
morbidity and cost to healthcare systems, are hepatitis B and hepatitis C
viruses ("HCV"), collectively affecting over 500 million people worldwide.
Causes of mortality and morbidity are related to liver cirrhosis, disability,
portal hypertension and hepatocellular carcinoma. HBV results in chronic disease
in only 5-10% of the infected individuals; in contrast, HCV infection leads to
chronic infection in 80% of the cases. Prevalence of HCV in the Western world is
between 1.5% and 2% of the total population, and, according to the CDC, 10,000
people died as a result of HCV related complications in 1996 in the US.
Currently, there are an estimated four million chronically infected individuals
in the US alone. Therefore, HCV infection poses a major health risk. The high
mutation rate of the HCV makes vaccine development extremely challenging.
Consequently, the eradication of HCV through intervention with effective
therapeutic agents is needed to alleviate this major potential health hazard.
The current approved therapy (interferon + ribavirin) for HCV related
chronic hepatitis results in sustained eradication of viral infection in less
than 50% of patients. Although the current treatment is effective, it still only
gives less than 50% chance of virus eradication, and the response rate is less
with genotypes most commonly found in the Western countries. Moreover, current
HCV treatment is not cost effective and has significant side effects. Hence,
while the current therapy is proven to be partly beneficial, clearly there is a
need for anti-viral drugs that target HCV directly, and it is generally believed
that agents blocking key enzymes will be more effective and less prone to side
effects. The market potential for direct HCV inhibitors is substantial. It is
believed such products, if successfully developed, could be used (a) as
anti-viral agents for HCV related disorders as a monotherapy, (b) in combination
with other anti-viral inhibitors and (c) in combination with existing treatment
(interferon + ribavirin).
HCV POLYMERASE PROJECT
The genome of HCV encodes for both structural and non-structural proteins.
The structural proteins include two envelope glycoproteins and an RNA-binding
nucleocapsid. The non-structural proteins include NS3 protease, NS3 helicase and
an NS5B polymerase. It has been shown that these enzymes are essential for viral
replication; hence, inhibition of these enzymes should lead to drug
40
molecules capable of interfering with the HCV replication. BioChem's strategy
focuses on devising potent and selective inhibitors of some of these enzymes in
order to select the most promising approach for inhibition of viral replication.
Other groups are also following the same strategy. Structure-based design
approaches as well as high throughput screening ("HTS") campaigns have been
initiated.
The current focus is on developing both nucleoside and non-nucleoside
inhibitors of HCV NS5B polymerase. Novel strategies to identify nucleoside based
inhibitors are in progress. Through HTS, several novel series of non nucleoside
inhibitors have been identified. Chemical optimization of some of these series
of compounds has yielded sub mM compounds in IN VITRO polymerase assay. Chemical
optimization cycles are focusing on improving the IN VITRO potencies, both in
enzymatic assays as well as in cell based sub-genomic replicon assay, to low nM
level with an aim to identify a compound to be progressed to the pre-clinical
development stage towards the end of 2001 or the first half of 2002.
ANTIBIOTICS
There is a rapidly growing crisis in the clinical management of life
threatening infectious diseases caused by multi-antibiotic resistant strains of
pathogenic bacteria. Solutions to the problem will be provided, in part, by the
development of novel chemotherapeutic agents which selectively attack new
bacterial biochemical targets. Such targets include enzymes that are essential
for the replication of bacterial DNA.
A collaboration was entered into on December 6, 1999 between BioChem and
Microbiotix Inc. to further exploit this approach. The goal of the collaboration
is to identify and optimize lead compounds which target such bacterial enzymes,
in particular the specific DNA polymerases. Approaches employed include both
rational design and random screening. Two organisms, methicillin-resistant
STAPHYLOCCUS AUREUS and vancomycin-resistant Enterococcus, represent specific
high priority therapeutic targets.
VACCINE PRODUCTS
BioChem is engaged in the research and development of vaccines for human
use. BioChem currently manufactures and markets in Canada a split influenza
virus vaccine. BioChem also distributes, in the province of Quebec, a number of
vaccines produced by other companies. In 1997, BioChem also started to export
its split influenza vaccine to Argentina following the signing of a distribution
agreement with Argent C. Comercio Internacional S.A.
BioChem has a new vaccine production center in Ste-Foy in the Quebec City
area. This center has an overall area of approximately 118,000 square feet and
houses production, quality-control laboratories and warehousing as well as
administrative offices. Commercial vaccine production in Ste-Foy started in
1998.
BioChem recently initiated vaccine development operations in the US. This
development unit was created in order to develop BioChem's current and future
vaccine pipeline. It began operations in October 1998 in Northborough,
Massachusetts, in a 62,000-square-foot facility. The facility houses process
research and development, analytical research and development, a cGMP Pilot
Plant for the preparation of clinical lots, clinical development, regulatory
affairs, project planning and management, and administration. The launch of
these operations is part of BioChem's overall strategy to conduct downstream
development activities of its products and to increase BioChem's involvement and
presence in key markets, such as the US. It also should be noted that this
facility is capable of undertaking the full development of any biological, e.g.,
monoclonal antibodies.
41
BioChem's vaccine development facility in Northborough, Massachusetts became
fully operational in 1999. The first vaccine candidate developed at this
location is designed to protect against bacterial meningitis caused by N.
MENINGITIDIS. This vaccine candidate, which is in Phase I clinical trials, is
also the first vaccine to emerge from BioChem's recombinant protein vaccine
discovery program. The second vaccine candidate coming from this program is the
S. PNEUMONIAE vaccine, which is in pre-clinical development. These vaccine
candidates are part of BioChem's novel recombinant protein-based vaccine
program, the research for which is being conducted in collaboration with the
Laval University Hospital Research Center ("CHUL"). Future candidates may emerge
for Group B Streptococcus, non-typeable H. INFLUENZAE, M. CATARRHALIS and Group
A Streptococcus.
The following table presents the pipeline of BioChem vaccine products:
INDICATION/POTENTIAL DEVELOPMENT COMMERCIAL
PRODUCT APPLICATIONS STATUS* RIGHTS
------------------------- ------------------------- ------------------------- -------------------------
Fluviral S/F Influenza On the market BioChem
Injectable influenza Influenza Phase I/II BioChem/GlaxoSmithKline
vaccine derived from
cell culture
Nasal influenza vaccine Influenza Phase I BioChem/GlaxoSmithKline
derived from cell
culture
NEISSERIA MENINGITIDIS Meningitis, septicemia Phase I BioChem
vaccine
STREPTOCOCCUS PNEUMONIAE Pneumonia, meningitis, Pre-clinical development BioChem
vaccine otitis media
PSEUDOMONAS AERUGINOSA Bacteremia, opportunistic Pre-clinical development BioChem/Cytovax
vaccine
Group B Streptococcus Neonatal sepsis, Research BioChem
(S. AGALACTIAE) vaccine meningitis
NON-TYPEABLE HAEMOPHILUS Acute respiratory Research BioChem
INFLUENZAE vaccine infections,
chronic bronchitis,
otitis media
MORAXELLA CATARRHALIS Acute respiratory Research BioChem
vaccine infections,
otitis media
Group A Streptococcus Pharyngitis, pneumonia, Research BioChem
(S. PYOGENES) vaccine pyoderma, cellulitis
- --------------------------
* Indicates product development status. "Research" includes exploratory
biology and chemistry, development of screening assays, high throughput
screening, DE NOVO product design and synthesis. Please see the footnote to
the table on the therapeutic products pipeline for further explanation.
DEVELOPMENT PROJECTS
INJECTABLE AND NASAL CELL CULTURE-BASED INFLUENZA VACCINES
BioChem has developed a new cell culture-based influenza vaccine using a
novel proprietary cell line and high-cell-density microcarrier technology.
BioChem believes that this manufacturing technology will enable a more
profitable and productive process and better flexibility in the case of
increased demand for an influenza vaccine, which would be required during a
pandemic. BioChem completed a Phase I clinical trial in April 1997 in Canada of
a vaccine produced with the cell-culture process. The results of this trial
showed that the safety and immunogenicity of the new vaccine were equivalent to
those of the conventional egg-derived vaccine. BioChem began a Phase II clinical
trial program in Canada in November 1997 that included three trials with 1,000
volunteers. The objective of these trials was to compare the immunogenicity and
safety of the new vaccine with BioChem's commercially available egg-derived
vaccine in three patient populations: young adults, the elderly and children.
The results of these studies demonstrated in all three populations that this
novel vaccine was as safe and as immunogenic as the conventional vaccine for all
three viral strains.
BioChem and GlaxoSmithKline finalized in December 1998 an alliance covering
BioChem's cell culture technology for influenza vaccine and nasal delivery
technologies. This alliance covers the development of two technologies: a new
way of producing the vaccine antigen using cell culture and an
42
intranasal delivery of influenza vaccine technology. The technologies were
transferred from BioChem to GlaxoSmithKline during 1999. Under the terms of this
agreement, BioChem and GlaxoSmithKline will co-operate in marketing the products
in the US, after a period of joint development by both parties. GlaxoSmithKline
holds exclusive marketing rights in Europe and in the rest of the world.
Furthermore, GlaxoSmithKline will manufacture products that are intended for
various global markets, except Canada. Proceeds from the sale of the vaccines in
the US and in the rest of the world, excluding Canada, will be allocated among
the two partners according to a predetermined formula. In Canada, BioChem will
maintain exclusive rights to these vaccines, including production and marketing
rights. Under the agreement, GlaxoSmithKline has made initial payments to
BioChem and future milestone payments are scheduled as the products are
developed. Once approved, this new cell-culture manufacturing technology should
allow BioChem to produce the vaccines more rapidly and, in the event of a
pandemic, to manufacture the vaccines in greater volume with less lead time. If
any of the nasal delivery technologies proves successful, it should eliminate
the discomfort associated with injectable vaccines and confer mucosal immunity
in addition to systemic immunity. GlaxoSmithKline conducts all technical and
clinical development.
RECOMBINANT PROTEIN BACTERIAL VACCINES
Effective vaccines stimulate protective immunity. Vaccines may consist of
whole viruses or bacteria, of specific antigens that may be formulated with an
adjuvant or delivery system (agents added to enhance immunogenicity) or of
nucleic acid encoding the vaccine antigen. Through a research collaboration with
the Vaccine Research Unit of CHUL, BioChem conducts research and development of
recombinant protein vaccines against numerous bacterial infections for which no
vaccines are currently available or for which vaccines exist but with
less-than-optimal efficacy or market attractiveness. BioChem is focusing its
initial efforts on the development of candidate vaccines against diseases caused
by NEISSERIA MENINGITIDIS, STREPTOCOCCUS PNEUMONIAE and PSEUDOMONAS AERUGINOSA
and also will be developing vaccines against infections caused by Group B
Streptococcus (S. AGALACTIAE), non-typeable HAEMOPHILUS INFLUENZAE, MORAXELLA
CATARRHALIS and Group A Streptococcus (S. PYOGENES).
Many of the target bacteria for which BioChem is researching or developing
vaccines are encapsulated with polysaccharide. Capsular polysaccharides usually
are effective vaccine antigens. However, polysaccharide vaccines suffer from the
shortcomings that they stimulate only short-term immunity and not immune memory
and are poorly immunogenic in young children. Furthermore, there is significant
antigenic variation among the capsular polysaccharides of different strains of
the same bacteria. Consequently, numerous polysaccharide antigens must be
administered to protect against multiple strains of an encapsulated bacterium.
To overcome some of these limitations, polysaccharide conjugate vaccines have
been and are being developed. Two such vaccines to protect against
H. INFLUENZAE TYPE B (Hib) and S. PNEUMONIAE are marketed. Conjugate vaccines
consist of polysaccharides chemically coupled with a protein carrier. Because of
the carrier, conjugate vaccines induce immunological memory. However, because of
the limited number of conjugate vaccines that can be combined in a single dose,
current conjugate vaccines provide protection against only a limited number of
strains of a bacterium. Due to the complexity of the process, the S. PNEUMONIAE
(pneumococcal) conjugate vaccine is relatively expensive and challenging to
manufacture and test.
BioChem has adopted the strategy of identifying specific bacterial proteins
for each pathogen that are able to elicit a broad immune response against all
strains of the pathogen and that are immunogenic in young children while
eliciting immune memory. Furthermore, such vaccines should be easier and less
expensive to manufacture and could be combined more easily with vaccines that
protect against other infectious diseases. BioChem is in development with
recombinant protein vaccines against the following three bacterial infections:
A) NEISSERIA MENINGITIDIS
N. MENINGITIDIS causes over 300,000 cases of endemic and epidemic disease
worldwide, mostly meningitis and septicemia. With the availability of Hib and
pneumococcal conjugate vaccines,
43
N. MENINGITIDIS is becoming the most common cause of bacterial meningitis in the
US, affecting approximately 3,000 people each year. The case-fatality rate is
approximately 10% for meningitis and 20% for septicemia, despite antibiotic
therapy. The incidence of endemic meningococcal meningitis is highest among
children aged 6-12 months and then steadily declines with age but is the most
common and dreaded form of meningitis among young adults. Serogroup B, for which
no vaccine exists, accounts for approximately 30-40% of all cases of infection
by N. MENINGITIDIS. While Serogroup A causes only a small portion of endemic
disease in developed countries, it is the most common cause of epidemics in
developing countries. The current polysaccharide vaccine has antigens for only
four (A, C, W135 and Y) of the 12 N. MENINGITIDIS serogroups (based on capsular
polysaccharides). Other groups are developing polysaccharide conjugate vaccines
and protein-based vaccines. There are Serogroup C conjugate vaccines licensed in
the UK.
The protein discovered by BioChem appears to hold potential for the
development of a vaccine against all N. MENINGITIDIS strains, including
Serogroup B. This protein is present in all meningococcal isolates and is
exposed at the surface of intact meningococcal bacteria, where it is accessible
to antibodies. Immunization of mice with the purified recombinant protein
confers protection against lethal N. MENINGITIDIS infection. The serum
antibodies obtained from the immunized mice kill N. MENINGITIDIS cells. This
type of bactericidal activity is generally recognized as being indicative of
clinical protection against N. MENINGITIDIS infection. BioChem has developed a
clinical-trial-scale manufacturing process and conducted a Phase I clinical
trial in Canada from November 1999 into 2000. The data from this clinical trial
demonstrated that the vaccine was generally well tolerated and immunogenic and
was able to elicit serum bactericidal antibodies. Additional clinical studies
will be performed on an improved formulation of the vaccine.
B) STREPTOCOCCUS PNEUMONIAE
S. PNEUMONIAE infections are among the leading causes worldwide of illness
and death in young children, persons with underlying debilitating medical
conditions and the elderly. S PNEUMONIAE infections have accounted annually for
3,000-5,000 cases of meningitis, 200,000-600,000 cases of pneumonia and
7,000,000-10,000,000 cases of acute otitis media in the US alone. Case fatality
rates vary by age and the underlying illness of the patient. According to the
CDC, the case fatality rates for some immunocompromised and other high-risk
patients have been reported to be higher than 55% for meningitis and 40% for
pneumonia, despite appropriate antibiotic therapy. In children, S. PNEUMONIAE
causes 30-50% of all cases of otitis media. Increased resistance to penicillin
and other antibiotics has spread rapidly, such that there is an increased need
for effective pneumococcal vaccines. S. PNEUMONIAE strains are divided into at
least 90 serologically capsular polysaccharide types, but a limited number of
these cause most disease. Variations in the frequency of the capsular types
occur over time, geographic areas and age groups. A polysaccharide vaccine
against the 23 most common serotypes has been available since the early 1980s.
It is no more than 60% effective in preventing pneumococcal meningitis in adults
but is poorly effective in infants under two years of age and in preventing
pneumonia in the elderly; it is not currently used to prevent otitis media. A
heptavalent conjugate vaccine composed of seven polysaccharides coupled to a
protein carrier was approved by the FDA in February 2000 for immunization of
infants under age two. However, this product would cover only 60-75% of disease-
causing serotypes and is technically complex to produce, such that it may be
difficult to combine with other vaccines. Moreover, it is not indicated for use
in adults, and its effectiveness in preventing ear infections has not been
documented by the FDA. Other groups are developing polysaccharide conjugate
vaccines and protein-based vaccines.
BioChem has discovered proteins that appear to hold great potential for the
development of a new vaccine against all serotypes of pneumococcal infections.
These proteins are highly immunogenic in mice. Immunized mice were protected
against a lethal challenge in both bacteremia and pneumonia models of infection.
Sera from immunized rabbits and monkeys also can protect mice against lethal
challenge. These proteins are conserved antigenically among pneumococcal
isolates, exposed at the pneumococcal surface and accessible to protective
antibodies. Therefore, BioChem believes that these
44
proteins have the necessary characteristics to be considered potential
candidates for the development of a broad-range vaccine for preventing
pneumococcal infections.
C) PSEUDOMONAS AERUGINOSA
P. AERUGINOSA are ubiquitous bacteria that cause primarily opportunistic
infections in hosts who are compromised in their health status. The bacteria are
prevalent in moist areas in hospital settings. Infection can lead to serious and
sometimes life-threatening diseases in immunocompromised people. P. AERUGINOSA
infection may be manifest in a wide range of clinical diseases, including
bacteremia and diseases of the bone and joint, CNS, eyes and ears,
gastrointestinal, respiratory, skin and urinary tract. The prevalence of
antibiotic resistance is high and increasing. Other groups are developing
polysaccharide conjugate vaccines and protein-based vaccines.
BioChem initiated a collaboration with Cytovax Biotechnologies Inc.
("Cytovax"). Scientists at the University of Alberta had been conducting
research on the pili of P. AERUGINOSA, which are appendages responsible for
bacterial attachment to cells. Cytovax's proprietary "Anti-Adhesion Platform
Technology" could prevent infection by blocking the adhesion of pathogens onto
human mucosal cells. Based on the pili tip sequences, Cytovax has developed a
consensus sequence peptide vaccine which can elicit protective immunity against
experimental infection. Cytovax and BioChem are collaborating in research,
analytical, process, clinical and regulatory issues.
RESEARCH PROJECTS
BioChem also is conducting vaccine research programs to develop vaccines
against the following four bacterial infections:
A) Group B Streptococcus ("GBS") (STREPTOCOCCUS AGALACTIAE) infections are
the leading cause of life-threatening bacterial infections such as pneumonia,
sepsis and meningitis during the neonatal period. In the US, there are over
3,000 cases annually of invasive GBS infections in newborns, with a mortality
rate of approximately 5%. Many infants that survive meningitis may suffer from
neurological sequelae. In addition, GBS has emerged as an important cause of
morbidity and mortality among adults, especially the elderly or patients with
chronic underlying disease. GBS is classified into nine serotypes based on their
capsular polysaccharide antigenicity. Other groups are developing polysaccharide
conjugate vaccines and protein-based vaccines. BioChem has identified several
GBS membrane proteins that may be promising vaccine candidates. Their potential
will be validated through studies of their antigenic conservation and expression
across a broad range of strains, cell surface accessibility and ability to
elicit protective immunity in mouse models of disease.
B) Non-typeable HAEMOPHILUS INFUENZAE ("NTHI") is non-encapsulated, relative
to its encapsulated forms that have six antigenically distinct capsular types (A
to F). The unencapsulated form is responsible for acute respiratory infections,
chronic bronchitis, otitis media (25-30% of all cases), bacteremia and
meningitis. NTHI is among the five most common causes of community-acquired
pneumonia (5-15% of the 500,000 hospital admissions annually in the US). There
are approximately 4,000 cases annually of invasive NTHI disease in adults,
including bacteremic pneumonia, obstetric infections, epiglotitis, meningitis
and tracheobronchitis. Hib conjugate vaccines are ineffective against NTHI
diseases. Other groups are developing protein-based vaccines. BioChem has
identified several NTHI outer membrane proteins that may be promising vaccine
candidates. Their potential is being validated through studies of their
antigenic conservation and expression across a broad range of strains,
cell-surface accessibility and ability to elicit protective immunity in mouse
models of disease.
C) MORAXELLA CATARRHALIS colonizes primarily the upper respiratory tract. It
is the third most common cause (15-20% of cases) of otitis media, after S.
PNEUMONIAE and NTHI. It also is an important cause of sinusitis, chronic
bronchitis, pneumonia and chronic obstructive pulmonary disease. It rarely
causes invasive disease. A combination vaccine of S. PNEUMONIAE, NTHI and M.
CATARRHALIS would cover approximately 75-90% of otitis media, a disease which
has an associated annual health-care burden of approximately $4 billion in the
US alone. Other groups are developing protein
45
based vaccines. BioChem has identified several M. CATARRHALIS outer membrane
proteins that may be promising vaccine candidates. Their potential is being
validated through studies of their antigenic conservation and expression across
a broad range of strains, cell-surface accessibility and ability to elicit
protective immunity in mouse models of disease.
D) Group A Streptococcus ("GAS") (STREPTOCOCCUS PYOGENES) is associated with
a diverse range of clinical syndromes. GAS is a primary invader of the throat
and lower respiratory tract and a secondary invader of the skin and endometrium.
The most common GAS disease are pharyngitis, pneumonia, pyoderma and cellulitis.
Less commonly, infection can proceed to scarlet fever and toxic-shock syndrome.
Particularly dreaded among its sequelae are acute rheumatic fever, acute
glomerulonephritis and necrotizing fascitis. Thus, a vaccine would be very
useful in preventing a range of diseases. Other groups are developing
protein-based vaccines. BioChem has identified several GAS membrane proteins
that may be promising vaccine candidates. Their potential is being validated
through studies of their antigenic conservation and expression across a broad
range of strains, cell-surface accessibility and ability to elicit protective
immunity in mouse models of disease.
COMPUTER-ASSISTED DETECTION PRODUCTS
In July 1998, BioChem began investing in a new technology platform developed
by Qualia Computing, Inc. ("Qualia"), a privately held US medical computer
science company. BioChem obtained exclusive rights to commercialize any life
science product developed from this platform. The Qualia technology platform is
a cognitive system that utilizes artificial intelligence, artificial neural
networks and advanced information processing technologies to solve complex
problems in the life science area. BioChem formed a new company, CADx Medical
Systems Inc. ("CADx"), in July 1999 to develop the technology into products and
to commercialize the products on a worldwide basis. CADx develops products that
focus on the clinical and industrial applications of this technology. The first
commercial product is Second Look. Commercialization of Second Look started in
mid-1999. Potential applications of this technology platform currently being
investigated include cardiovascular disease diagnostic, drug design, lead
optimization and genomics.
SECOND LOOK
Second Look is a computer-assisted detection system for mammography
developed under a license and development agreement with Qualia. Second Look is
a system which, in its first application, was designed by Qualia engineers to
assist radiologists in the earlier diagnosis of breast cancer by enhancing their
ability to interpret mammograms. Early stage detection has been shown to
dramatically improve survival rates and reduce cost of treatment. The Second
Look system digitizes the x-ray films and then applies advanced image processing
and neural network software in a manner that directs radiologists to anomalies
such as microcalcifications and atypical masses, early indicators of disease
that might otherwise go undetected on visual inspection alone.
The product is currently completing clinical trials in the US to meet FDA
requirements. The pre-market approval ("PMA") submission is being submitted in
three components or modules. Module I (manufacturing) and Module II (software)
have been submitted and accepted by the FDA. Module III (clinical studies) is
being assembled. Based on receiving FDA approval, BioChem expects to market the
product in the US in 2001. BioChem began marketing outside of the US in
June 2000.
The next generation of this technology will be a software product that
performs the same functions directly with digital mammography images.
SECOND LOOK CARDIO
Cardiovascular disease represents a significant business opportunity with an
estimated cost relating to cardiovascular disease of over $95 billion in the US
alone. BioChem's cognitive systems technology should enhance the currently
subjective interpretation of imaging and non-imaging data by providing nuclear
cardiologists with a second look. Development of concept and initiation of
requirements documents and prototype work will be the primary focus in 2001.
46
COMPUTER AIDED DRUG DESIGN
There are significant opportunities for companies that can improve the
efficiency of drug and vaccine discovery utilizing cognitive systems. BioChem
believes the efficiency of utilizing "in silico" techniques will prove to be
time and cost effective. Early prototype work has shown BioChem's cognitive
platform can be readily applied to drug design and lead optimization. The
successful early prototypes are being further refined and challenged with small
data sets. Concepts and requirements documents are currently under development.
The critical path provides for completing prototypes for potency and selectivity
in 2001. These are the first two components of a computer aided drug
optimization tool.
INVESTMENTS
NAVA
As of December 31, 1999, BioChem held approximately 32% of the outstanding
common shares and 50% of the outstanding convertible preferred shares of North
American Vaccine, Inc. ("NAVA"), a publicly traded biotechnology company listed
on the American Stock Exchange and engaged in the research, development and
production of vaccines for the prevention of infectious diseases in children and
adults. BioChem shared control of NAVA pursuant to the terms of a shareholders'
agreement.
On November 18, 1999, BioChem announced that it had entered into an
agreement with Baxter International Inc. ("Baxter") to vote in favor of the
acquisition by Baxter of all of the outstanding shares of NAVA. On April 17,
2000, BioChem entered into amending agreements with Baxter and NAVA, among
others, to allow for a later than expected closing date, to provide for an
adjustment in the purchase price and to secure financing of NAVA's working
capital requirements until closing.
Pursuant to the amending agreements, BioChem made a $40 million working
capital facility available to NAVA, and the offer was changed to $6.73 per NAVA
share from $7.00 in the original agreement.
On June 27, 2000, BioChem announced that it had closed the transaction to
sell to Baxter all of its shares of NAVA. The gain on the sale was
CAN$137 million, with cash proceeds of CAN$167 million.
GENECHEM
In March 1997, BioChem agreed to make an investment of CAN$30 million in
GeneChem Technologies Venture Fund L.P., a venture capital fund sponsored by
BioChem's newly created subsidiary, GeneChem Financial Corporation. This
CAN$100 million fund invests in advanced academic research projects and
early-stage private or public companies in the area of genomics and related
technologies for human application. BioChem's partners in this fund are a select
group of financial investors. As of December 31, 2000, CAN$21 million had been
invested in GeneChem Technologies Venture Fund, L.P. by BioChem.
On September 14, 2000, BioChem entered into an agreement to invest
CAN$15 million in GeneChem Therapeutic Venture Fund L.P., a new
CAN$136.5 million capital fund. GeneChem Therapeutic Venture Fund L.P. will
invest in genomics companies focussing on cancer and infectious diseases. The
general partner of GeneChem Technologies Venture Fund L.P. and GeneChem
Therapeutics Venture Fund L.P. are respectively GeneChem Enterprise Inc. and
GeneChem Therapeutics Inc., two indirect subsidiaries of BioChem, and the
manager of each is GeneChem Management Inc., also an indirect subsidiary of
BioChem.
SIGNIFICANT AGREEMENTS
BioChem develops products both independently and in collaboration with
established pharmaceutical companies or other suitable partners. Collaborative
partners may provide financial resources, research and development and
manufacturing capabilities, and sales and marketing infrastructure, to aid in
the commercialization of BioChem's potential products. Presented below is a
brief description of BioChem's most significant collaborative agreements.
47
GLAXOSMITHKLINE (LAMIVUDINE)
Through an agreement dated January 31, 1990 and amended as of November 20,
1995, BioChem licensed to GlaxoSmithKline, the worldwide rights, with the
exception of Canada, to develop, manufacture and sell the nucleoside analog
lamivudine marketed as 3TC and Zeffix (3TC and Zeffix are referred to herein as
"lamivudine"). BioChem and GlaxoSmithKline's Canadian subsidiary,
GlaxoSmithKline Inc., entered into a partnership to supply, market and sell
lamivudine in Canada. GlaxoSmithKline has agreed to manufacture all the required
lamivudine to be supplied by the partnership in Canada.
In consideration for the grant of such rights, GlaxoSmithKline agreed to
undertake and fund the development of lamivudine and pay BioChem a royalty on
sales of lamivudine. In addition, it was agreed that milestone payments would be
made to BioChem in installments as GlaxoSmithKline progressed in the development
and approval process. The amount of relevant patent prosecution costs and 50% of
milestone payments are deductible from any royalties payable to BioChem by
GlaxoSmithKline. The milestone payments and related deductions from royalties
have been completed. The amount of certain contractual costs and certain
litigation costs may be deducted from royalties payable to BioChem by
GlaxoSmithKline. If GlaxoSmithKline terminates the license agreements upon
certain events of default by BioChem, GlaxoSmithKline will retain a
non-exclusive, paid-up license from BioChem to make, have made, use and sell
lamivudine worldwide.
GLAXOSMITHKLINE (VACCINES)
On December 3, 1998, BioChem concluded an alliance with GlaxoSmithKline for
the worldwide development, manufacturing and marketing of BioChem's cell-culture
influenza vaccines. Under the terms of the agreement, after a period of joint
development funded by both parties, BioChem and GlaxoSmithKline will collaborate
to market the products in the US, while in Europe and the rest of the world
GlaxoSmithKline will be exclusively responsible for marketing. In addition,
GlaxoSmithKline will be responsible for manufacturing for markets throughout the
world except Canada. BioChem will benefit from the sales of the vaccines in the
US and the rest of the world, excluding Canada, in accordance with a
pre-determined formula. In Canada, BioChem will retain all exclusive rights to
the vaccines, including production and marketing. The agreement also calls for
BioChem to receive up-front and milestone payments from GlaxoSmithKline.
ASTRAZENECA
On August 31, 1992, AstraZeneca and BioChem entered into a series of
agreements (the "AstraZeneca Agreements") providing for the research development
and commercialization of a new class of analgesic compounds for the control of
pain. Pursuant to the AstraZeneca Agreements, BioChem transferred and assigned
its rights to the relevant proprietary technology to AstraZeneca and retained a
right to re-acquire the Canadian rights in exchange for the payment of royalties
to AstraZeneca. In addition, a collaborative research agreement and a supply
agreement provide for AstraZeneca and BioChem to jointly research the field of
opioid peptides. AstraZeneca will retain commercial rights worldwide except for
Canada. In consideration for the grant of such rights to AstraZeneca,
AstraZeneca made an upfront payment, agreed to fund research and development, to
make milestone payments to BioChem and to pay BioChem a royalty on future
product sales. AstraZeneca may, in its sole discretion, terminate the
AstraZeneca Agreements. If AstraZeneca discontinues development of products or
chooses not to develop products under the AstraZeneca Agreements or terminates
the AstraZeneca Agreements, then BioChem has the option to reacquire the
relevant technology and intellectual property rights subject to certain royalty
obligations to AstraZeneca.
48
SHIRE AFTER THE MERGER--THE ENLARGED GROUP
OVERVIEW
Following the merger, the Enlarged Group will be one of the world's leading
global specialty pharmaceutical companies with four areas of focus: CNS
disorders, oncology, anti-virals and vaccines. The Enlarged Group will refer to
itself as "specialty" because its principal products tend to be prescribed by
specialists as opposed to primary care physicians. A comparatively small sales
force such as Shire's can promote specialty products effectively while it could
not be expected to achieve the necessary coverage of primary care physicians.
The Enlarged Group's principal products will include:
- in the US, Adderall for the treatment of Attention Deficit Hyperactivity
Disorder ("ADHD"), Epivir, Combivir and Trizivir for the treatment of HIV
infection/AIDS, Epivir-HBV for the treatment of hepatitis B, Agrylin for
the treatment of elevated blood platelets, Pentasa for the treatment of
ulcerative colitis, Carbatrol for the treatment of epilepsy, ProAmatine
for the treatment of orthostatic hypotension and PACIS for the treatment
of superficial bladder cancer;
- in the UK, the Calcichew range, used primarily as adjuncts in the
treatment of osteoporosis, and Reminyl for the treatment of Alzheimer's
disease, which was launched in September 2000; and
- in Canada, Amatine, 3TC, Combivir and Heptovir, marketed in a partnership
with GlaxoSmithKline, Second Look, a breast cancer diagnostics product
recently launched in Europe, and for which the Enlarged Group hopes to
receive an FDA approval in 2001, and Fluviral S/F, a vaccine for the
prevention of influenza.
In addition, the Enlarged Group will have a number of products in late stage
development including Dirame and frakefamide for the treatment of moderate to
severe pain, Foznol for the treatment of high blood phosphate levels associated
with kidney failure, for which the directors are expecting to shortly announce
the first regulatory submission for approval, and Troxatyl for the treatment of
leukemia and solid tumors.
After the merger, the Enlarged Group's revenues will continue to be derived
from three sources:
- sales of products by sales and marketing operations principally in the US,
the UK and Canada;
- royalties from sales of Reminyl, Zeffix and 3TC/Epivir; and
- licensing and development fees.
For the year ended December 31, 2000 Shire had revenues of $517.6 million
and net income (before an APB 25 stock option charge of $21.9 million) of
$98.1 million and BioChem had revenues of $157.5 million (stated after
consolidation of CliniChem) and net income from continuing operations of
$58.4 million (before a gain on the sale of long term investments of
$104.0 million and the write off of in-process research and development of
$26.9 million).
STRATEGY AND APPROACH
The Enlarged Group's strategy is to develop products and, where they fall
within the therapeutic focus, to market them through sales organizations in the
major markets of the world. The key elements of the operating strategy are
described below:
MARKET PROPRIETARY PRODUCTS THROUGH THE ENLARGED GROUP'S OWN SALES FORCE
The Enlarged Group believes that higher financial returns can be achieved by
marketing products directly, as opposed to receiving royalties on licensees'
sales. The merger enhances the Enlarged Group's sales and marketing capability
in Canada. The Enlarged Group intends to continue to expand the sales and
marketing capability, as opportunities arise, particularly in the US, major
European markets, Japan and through distributors outside of the significant
pharmaceutical markets.
49
MANAGE DEVELOPMENT RISK
Recognizing the inherent risks of failure in drug development, both BioChem
and Shire have historically sought to manage development risk by maintaining a
broad and balanced development portfolio. Shire has also sought to selectively
leverage relationships with collaborative parties. BioChem, through its
collaborations with academic institutions and biotech companies and investment
in a leveraged network of research companies, has access to projects and
technologies. The Enlarged Group is anticipated to continue its reliance on the
broad network of contacts to identify product candidates which can be developed
either internally or through collaborative partnerships.
FOCUS ON THE DEVELOPMENT OF INNOVATIVE PRODUCTS
BioChem's lead optimization and chemistry expertise has led to the
development and commercialization of innovative products. Shire has also sought
to identify promising product candidates already under development or exploit a
number of proprietary drug delivery technologies to develop products. In
addition to developing proprietary pipeline products, the Enlarged Group's
principal objective will be to concentrate operations on licensing, acquiring,
developing, marketing and selling proven products and technologies. Both
companies have historically benefited from proven products that generate cash
flow, which contributes partial financial support to drug development activities
and provides enhanced product sales opportunities for the sales force. In the
vaccine area the Enlarged Group intends to continue to research new vaccines.
SALES AND MARKETING
Following the merger, the Enlarged Group will use its sales and marketing
infrastructure to sell and market most of its licensed and internally developed
products. The combined sales and marketing operations of the Enlarged Group in
the US, the UK, Canada and Europe will consist of approximately 460 sales
representatives. Following the merger, this expanded sales force will have a
broader portfolio of products with opportunities to benefit from increased
geographical coverage.
COMBINED MARKETED PRODUCTS
The table below lists the key currently marketed products of Shire and
BioChem by therapeutic areas, indicating the owner or licensor of the product
and who is marketing the product in which territory.
MARKETED BY/
PRODUCTS PRINCIPAL INDICATION(S) OWNER/LICENSOR RELEVANT TERRITORY
- -------- ----------------------- -------------- ------------------
TREATMENTS FOR CNS DISORDERS
Adderall ADHD Shire Shire/US
DextroStat ADHD Shire Shire/US
Carbatrol Epilepsy Shire Shire/US
Reminyl Alzheimer's disease Shire Shire/UK and Republic of Ireland (Co-promotion)
TREATMENTS FOR METABOLIC/BONE DISEASES
Calcichew range Osteoporosis adjunct Nycomed Shire/UK and Ireland
TREATMENTS FOR ONCOLOGY/HAEMATOLOGY
Agrylin Elevated blood Shire Shire/US and Canada
platelets
ProAmatine/Amatine Orthostatic hypotension Nycomed Shire/US and Canada
PACIS Bladder cancer BioChem Paladin Labs/Canada
ANTIVIRALS
3TC/Epivir/Combivir/Trizivir HIV/AIDS BioChem GlaxoSmithKline/Worldwide, except Canada
3TC/Combivir HIV/AIDS BioChem BioChem and Glaxo-SmithKline co-marketed in Canada
Zeffix/Epivir-HBV/Heptovir/Heptodin Hepatitis B BioChem GlaxoSmithKline/Worldwide, except Canada
Heptovir Hepatitis B BioChem BioChem and Glaxo-SmithKline co-marketed in Canada
VACCINES
Fluviral S/F Influenza BioChem BioChem/Canada
TREATMENTS FOR GASTROINTESTINAL DISORDERS
Pentasa Ulcerative colitis Ferring Shire/US
Colazide Ulcerative colitis Shire Shire/UK and certain other European countries
Colace/Peri-Colace Constipation Shire Shire/US and Canada
COMPUTER ASSISTED DETECTION PRODUCTS
Second Look Breast cancer diagnosis Qualia Computing BioChem/Worldwide, except US
50
PRODUCTS UNDER DEVELOPMENT
After the merger, the Enlarged Group will seek to maintain a broad and
balanced approach to the development of new products by, among other things,
leveraging third-party research and development expertise, exploiting investment
in research collaborations and licensing compounds from third parties and
developing them through the clinical phase with a view to marketing them through
the Enlarged Group's sales and marketing organization or out-licensing if
appropriate. On a combined basis BioChem and Shire spent approximately
$160.0 million on research and development in the year ended December 31, 2000,
which represents approximately 24% of combined revenues.
The table below lists the key products under development by Shire and
BioChem by therapeutic area, including their development status and their
territorial rights. Where either company has secured a licensee for a product,
this fact is also indicated.
PRODUCT(S) PRINCIPAL INDICATION(S) STATUS
---------- ----------------------- ------
TREATMENTS FOR CNS DISORDERS
Reminyl (galantamine)(1) Alzheimer's disease In registration or marketed
SLI381 ADHD In registration
Dirame Moderate/severe pain Phase III
Frakefamide(2) Moderate/severe pain Phase II
SPD417 Bi-polar disorder Phase III
SPD503 ADHD Phase I
SPD418 Epilepsy Phase I
SPD502 Stroke Phase I
SPD451 Parkinson's disease Pre-clinical
SPD420 ADHD Phase I
SPD421 Epilepsy Phase I
TREATMENTS FOR METABOLIC DISEASES
Foznol High blood phosphate levels in patients Phase III
with kidney failure
TREATMENTS FOR GASTROENTEROLOGICAL DISORDERS
Pentasa (500 mg) Ulcerative colitis Phase II/III
Emitasol Nausea and vomiting Phase II/III
Balsalazide Ulcerative colitis Phase II/III
TREATMENTS FOR ONCOLOGICAL/HAEMATOLOGICAL DISEASES
Agrylin Thrombocythemia In registration
Troxatyl Leukemia and solid tumors Phase II
SPD424 Prostate cancer Phase III
SPD427 Oncology Pre-clinical
ANTIVIRALS
BCH-10618 HIV/AIDS Pre-clinical
BCH-13520 HIV/AIDS Pre-clinical
VACCINES
Injectable and nasal influenza vaccine Influenza Phase I/II
derived from cell culture(3)
NEISSERIA MENINGITIDIS vaccine Meningitis, septicemia Phase I
PSEUDOMONAS AERUGINOSA vaccine Bacteremia, opportunistic Pre-clinical
STREPTOCOCCUS PNEUMONIAE vaccine Pneumonia, meningitis, otitis media Pre-clinical
PRODUCT(S) TERRITORIAL RIGHTS
---------- ------------------
TREATMENTS FOR CNS DISORDERS
Reminyl (galantamine)(1) Global
SLI381 Global
Dirame Global
Frakefamide(2) Global
SPD417 Global
SPD503 Global
SPD418 Global
SPD502 Global excl. Nordic and Baltic countries
SPD451 Global
SPD420 Global
SPD421 Global
TREATMENTS FOR METABOLIC DISEASES
Foznol Global
TREATMENTS FOR GASTROENTEROLOGICAL DISO
Pentasa (500 mg) US
Emitasol US, Canada
Balsalazide Parts of Northern and Western Europe
TREATMENTS FOR ONCOLOGICAL/HAEMATOLOGIC
Agrylin Global
Troxatyl Global
SPD424 North America, Europe
SPD427 Global
ANTIVIRALS
BCH-10618 Global
BCH-13520 Global
VACCINES
Injectable and nasal influenza vaccine North America
derived from cell culture(3)
NEISSERIA MENINGITIDIS vaccine Global
PSEUDOMONAS AERUGINOSA vaccine Global
STREPTOCOCCUS PNEUMONIAE vaccine Global
- ----------------------------------------
(1) The licensee is Janssen.
(2) The licensee is AstraZeneca (except in Canada).
(3) The licensee is Glaxo/SmithKline (except in Canada).
51
DRUG DELIVERY TECHNOLOGIES
The Enlarged Group will have several platforms of drug delivery technologies
that can be applied to drugs in order to enhance their effectiveness or their
convenience to patients in terms of dosage regimen. Generally, this involves
re-formulating the drug into a new delivery system designed either to enhance
the absorption of the drug into the blood stream or, alternatively, to delay
absorption of the drug into the bloodstream, thereby requiring the patient to
take fewer daily doses.
The Enlarged Group's portfolio of drug delivery technologies will include
technologies designed to develop oral, controlled release delivery of drugs, a
technology for rapid absorption through the tissues of the mouth and several
technologies for predicting and improving bioavailability of drugs. It is
intended to out-license these technologies to third parties in return for
development fees, milestone payments and royalties. It is also intended to
employ these technologies selectively to products being developed internally,
where it is believed the characteristics of the product can be improved or
modified to secure a competitive advantage.
52
THE EXTRAORDINARY GENERAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement is being furnished to Shire shareholders in connection
with the solicitation of proxies by the Shire board for use at the extraordinary
general meeting scheduled to be held at 35 New Broad Street, London, EC2M ISQ,
England, on March 29, 2001 at 3:00 p.m., local time, and at any adjournment or
postponement thereof.
MATTERS TO BE CONSIDERED AT THE EXTRAORDINARY GENERAL MEETING
ORDINARY RESOLUTION
At the extraordinary general meeting, Shire shareholders will be asked to
consider and vote on an ordinary resolution to approve the merger, to increase
the authorized share capital of Shire, to grant authority to Shire's directors
to allot such capital and to create new special voting shares and to attach
certain rights and restrictions to those shares.
SPECIAL RESOLUTION
At the extraordinary general meeting, you will also be asked to approve a
special resolution increasing the Director's power, for a period of 5 years from
the date of the passing of the resolution, to allot securities within the limits
of the authorized share capital for cash free of pre-emption rights up to a
nominal amount of L1,279,868.
Under English law, we would typically ask you to take this action at one of
our future general annual meetings. However, as a matter of convenience, you
will be asked to take this action at extraordinary general meeting. This action
does not relate to the merger.
RECORD DATE; VOTING RIGHTS; VOTING AT THE MEETING
The Shire board has fixed 6:00 p.m. on March 27, 2001 as the record date for
determination of Shire shareholders entitled to notice of, and to vote at, the
extraordinary general meeting. Each holder of record of Shire shares on the
record date is entitled to cast one vote per share, exercisable in person or by
a properly executed proxy, on each of the resolutions put to the extraordinary
general meeting. On February 27, 2001, there were 257,521,218 Shire shares
outstanding and entitled to vote which were held by approximately 9,000 holders
of record.
The presence, in person or by a properly executed proxy, of two or more
shareholders of Shire entitled to vote at the extraordinary general meeting is
necessary to constitute a quorum at the extraordinary general meeting. The
ordinary resolution must be passed by a majority of the votes cast by the
holders of Shire shares present or represented by proxy at the extraordinary
general meeting. The special resolution must be passed by a majority of
three-quarters of the votes cast by the holders of Shire shares present or
represented by proxy at the extraordinary general meeting. The directors of
Shire collectively own or have an interest in shares representing approximately
3.5% of the outstanding Shire issued share capital.
VOTING OF PROXIES
All Shire shareholders who are entitled to vote and are represented at the
extraordinary general meeting by properly executed proxies deposited with
Shire's registrars, Lloyds TSB Registrars, The Causeway, Worthing, West Sussex
BN99 3UH, England, at least 48 hours prior to the extraordinary general meeting
and not revoked will be voted at the extraordinary general meeting in accordance
with the instructions indicated in the proxy. If no instructions are indicated,
your proxy may vote or abstain on the resolution at his or her discretion. Under
rules applicable to brokers, a broker is precluded from
53
exercising voting discretion with respect to the approval of the merger proposal
and thus, absent specific instructions from the beneficial owners of those Shire
shares, is not empowered to vote those Shire shares for or against the merger
proposal.
Any proxy given pursuant to the solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- depositing at the registered office of Shire, before the taking of the
vote at the extraordinary general meeting, a written notice of revocation
bearing a later date than the date of proxy or by giving notice of
revocation in the open meeting;
- submitting a later-dated proxy; or
- attending the extraordinary general meeting and voting in person.
In order to vote in person at the extraordinary general meeting, Shire
shareholders must attend the meeting and cast their votes in accordance with the
voting procedures established for such meeting. Attendance at the extraordinary
general meeting will not in and of itself constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy must be sent to: Shire
Pharmaceuticals Group plc, Hampshire International Business Park, Chineham,
Basingstoke, Hampshire, RG24 8EP, England, attention: Company Secretary.
54
THE MERGER
BACKGROUND OF THE MERGER
Shire is a specialty pharmaceutical company historically focused on four
therapeutic areas: CNS disorders, metabolic diseases, oncology and
gastroenterology.
Shire's strategy is to in-license, develop and market therapies in its areas
of strategic focus. This approach is complemented by the advanced drug delivery
platforms developed by Shire Laboratories which may be used to enhance the
bioavailability, reduce the side effects or improve the dosage regimen of
existing marketed compounds. Shire seeks to protect the intellectual property
upon which it relies through a range of patents and patent applications (both
its own and those of its licensors).
Historically, the majority of products have been in-licensed and Shire
continues actively to seek such opportunities. Products currently marketed in
the US are Adderall and DextroStat for ADHD, Carbatrol, launched in May 1998,
for the treatment of epilepsy, Pentasa for ulcerative colitis, Agrylin for
thrombocythemia and ProAmatine for orthostatic hypotension. The key UK market
products are the Calcichew range of prescription calcium and calcium/vitamin D
products used as adjuncts in the treatment of osteoporosis. Additionally, Shire
launched Reminyl and Colazide in the UK in 2000. While Shire has access to seven
of the eight key pharmaceutical markets, it was keen to consolidate its position
in the North American market, following its successful acquisition of Roberts
Pharmaceutical Corporation in 1999.
During the course of considering several potential acquisition
opportunities, Shire identified BioChem as a particularly attractive candidate,
primarily because BioChem broadened Shire's therapeutic areas and provided Shire
with an enhanced combined search and development platform.
Mr. Rolf Stahel, the Chief Executive of Shire, and Dr. Francesco Bellini,
the Chief Executive Officer of BioChem, first met on August 28, 2000 in Italy
where Mr Stahel first raised the possibility of a merger of the two companies.
They did not discuss specific terms for a possible merger, but they did agree
that the parties' representatives should meet and continue the discussions.
Subsequent to this initial meeting, Dr. Wilson Totten, Shire's Group Research &
Development Director, went to Montreal on September 19, 2000 where he met with
Dr. Bellini and Dr. Gervais Dionne, the Chief Scientific Officer of BioChem. The
following day, Dr. Totten and Dr. Dionne visited BioChem's Laval site, where
again they discussed each of their respective research and development
strategies and projects, but did not discuss specific terms of a possible
transaction.
During this period, Deutsche Bank prepared a basic financial analysis of the
effect on Shire's earnings of a potential business combination transaction with
BioChem, reviewing publicly available information about BioChem and its
products. Deutsche Bank also presented their initial views on the key due
diligence issues that might arise were the proposed transaction to proceed.
By a letter dated September 22, 2000 from Deutsche Bank to Shire, which was
signed and accepted by Shire on this date, Shire formally engaged Deutsche Bank
to act as its financial advisor in connection with negotiating the proposed
merger.
Reciprocal confidentiality agreements were executed on October 3 and
October 9, 2000 with customary terms, subsequent to which information was sent
from Chase Securities, BioChem's financial advisor, to Deutsche Bank, Shire's
financial advisor, relating to specific products, tax, various accounting issues
and patents.
On October 6, 2000, Shire convened a meeting of its board. Deutsche Bank
presented to the board on the financial implications of a possible merger,
preliminary views on value and the rationale for the merger. No conclusions were
possible regarding earnings impact because the financial terms of the possible
transaction were not then known. Further to permission granted at this board
meeting, a preliminary non-binding indicative offer letter was sent by Shire to
BioChem on October 6, 2000. This
55
letter confirmed Shire's interest in pursuing a potential business combination
with BioChem and outlined various parameters of Shire's proposal, including that
the merger offer be structured as an arrangement, an indicative value for the
BioChem shares, certain pre-conditions and conditions to any offer by Shire,
Shire's requirement for confidentiality and a request for an exclusive period to
conduct due diligence and proceed with negotiations, the payment of mutual break
fees, an option for Shire to acquire up to 19.9% of the outstanding BioChem
shares and representations, warranties and indemnities usual for a transaction
of this nature. In addition, the Board specifically requested that two issues
that had been highlighted during the course of that board meeting, namely
intellectual property rights and tax matters regarding the proposed transaction,
be addressed and resolved.
On October 16, 2000, the respective companies' company general counsels
opened lines of communication with respect to certain intellectual property
issues, including the identification of patent attorneys previously retained by
BioChem, although specific terms of a possible transaction were not discussed.
On October 18 and 19, 2000, Shire's Group Finance Director, Mr. Angus
Russell, Group Finance Controller, Mr. Paul McBarron, and Internal Tax /Treasury
Manager, Mr. Simon Gibbins, visited Montreal to discuss certain tax issues with
BioChem's tax advisors and BioChem's Chief Financial Officer, Mr. Frederick J.
Andrew. Further to this meeting, Shire spent some time assessing the possible
tax structures of the merger.
On October 18 and 19, 2000, the respective parties' patent lawyers discussed
the patent interference and litigation involving BioChem and Emory University in
connection with 3TC/ lamivudine.
A further letter was sent to Dr. Bellini by Mr. Stahel on behalf of the
Shire board on October 24, 2000 following the completion of initial due
diligence on the intellectual property and tax issues. This letter confirmed
Shire's interest in pursuing a potential business combination with BioChem and
confirmed the various parameters of Shire's proposal, including that the merger
offer be structured as an arrangement and the other parameters contained in the
October 6, 2000 letter referred to above.
On October 29, 2000, a first draft of a merger agreement was sent to Shire.
Dr. Francesco Bellini contacted Shire on October 30, 2000 and it was agreed that
Shire's formal due diligence process lasting 10 days would then begin. On
October 30, 2000, BioChem sent a letter to Shire agreeing, among other things,
to pay $600,000 towards Shire's out-of-pocket expenses related to the due
diligence process should a definitive binding merger agreement not be signed by
December 15, 2000. Shire's due diligence team, comprised of Shire officers and
advisors, convened in Montreal on October 31, 2000. From October 31 until
November 10, 2000, representatives of Shire and its financial, legal and
accounting advisors conducted due diligence on BioChem both at the offices of
BioChem's lawyers, Stikeman Elliott, and BioChem's sites in and around Montreal.
A further Shire board meeting was convened on November 14, 2000 to discuss
the initial findings from the data room and other due diligence enquiries, the
rationale for the merger, revised financial projections, valuation issues and
financial implications of the merger. As a result of this board meeting, a
further indicative offer letter was sent to BioChem. This letter confirmed
Shire's interest in pursuing a potential business combination with BioChem and
confirmed various parameters of Shire's proposal. The value to be received by a
BioChem shareholder was to be established using a fixed exchange ratio. Shire
also requested that BioChem respond by 5:00 p.m. UK time on November 17, 2000
which it did, indicating that it was rejecting the Shire offer.
A further offer was sent by Shire to BioChem on November 20, 2000, improving
the non-binding offer that had been set out in Shire's letter of November 14,
2000 by, in particular, amending the terms of the share exchange to provide for
a variable exchange ratio within a certain range of Shire's share price prior to
closing. The exchange ratio would be based on a Shire ADS price of $59 which
would be
56
adjusted by any variation of Shire's ADS price of up to, plus or minus, 20%,
based on the average closing Shire ADS price on the fifteen consecutive trading
days ending on the third trading day immediately preceding the closing of the
merger. Any alteration in the Shire ADS price outside of this range would not
result in any further adjustment to the exchange ratios.
BioChem stated that it was unable to respond to the revised Shire offer at
such time, as it had entered a period of exclusivity with a third party which
was to expire on November 27, 2000. This period of exclusivity with a third
party subsequently expired, and negotiations with Shire recommenced. On
November 28, 2000 a further draft of a merger agreement was circulated among the
parties and their counsel. Negotiations on this merger agreement then began on
November 29, 2000.
On December 4, 2000, there was a further Shire board meeting that reported
on continuing negotiations with BioChem.
On December 5, 2000, BioChem and its team of legal, financial and accounting
advisors began its due diligence on Shire. This due diligence included two days
(December 5 and 6) spent at Shire's headquarters in Andover, England, two days
(December 6 and 7) at the New York law offices of Cahill Gordon & Reindel,
Shire's US counsel, and two days (December 7 and 8) at Shire's offices in
Florence, Kentucky. Negotiations on the merger agreement continued during this
period, and during the period between December 5 and December 10 outstanding
issues were resolved.
On December 10, 2000, the legal advisors to Shire and BioChem reviewed and
finalized the merger agreement and other related documentation.
The Board of Directors of Shire and BioChem convened board meetings in
Montreal on December 10, 2000. Representatives of Deutsche Bank, Arthur Andersen
and McCarthy Tetrault, Shire's Canadian counsel, were present at the Shire board
meeting, and Deutsche Bank delivered a written fairness opinion to Shire's Board
of Directors. Representatives of Chase Securities, Merrill Lynch, Stikeman
Elliott and Torys, special counsel to the BioChem board's ad hoc committee, were
present at the BioChem Board meeting.
The definitive merger agreement and related documents were signed by Shire
and BioChem in Montreal on the night of December 10, 2000. On the morning of
December 11, 2000 Shire and BioChem jointly issued a press release announcing
the execution of the merger agreement.
REASONS FOR THE MERGER
Our board of directors believes that the merger brings together two
publicly-traded specialty pharmaceutical companies with complementary strengths,
activities and competencies. We have built effective research and development
functions, an effective sales and marketing organization in the US and UK and
have established and are expanding our functions in Canada and certain leading
European markets. BioChem has built an outstanding early stage development
operation through which it has generated a pipeline of projects focused in three
discrete specialty categories: oncology, vaccines and anti-virals.
OPINION OF SHIRE'S FINANCIAL ADVISER
Deutsche Bank has acted as financial adviser to Shire in connection with the
merger. At the December 10, 2000 meeting of Shire's Board of Directors, Deutsche
Bank delivered its written opinion (the "Deutsche Bank Opinion") as at that date
to Shire's Board of Directors to the effect that as at the date of such opinion,
based upon and subject to the assumptions made, matters considered and the
limits of the review undertaken by Deutsche Bank, the exchange ratio was fair,
from a financial point of view to Shire's shareholders.
57
The full text of the Deutsche Bank Opinion, which sets forth, among other
things, the assumptions made, matters considered and limits on the scope of
review undertaken by Deutsche Bank in connection with the opinion, is attached
as Annex D to this Proxy Statement and is incorporated by reference herein.
Shire Shareholders are urged to read this opinion in its entirety. The summary
of the Deutsche Bank Opinion set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of the Deutsche Bank Opinion.
In connection with Deutsche Bank's role as financial adviser to Shire, and
in arriving at its opinion, Deutsche Bank has, among other things, reviewed
certain publicly available financial information and other information
concerning Shire and BioChem and their respective groups and certain internal
analyses and other information furnished to it by Shire and BioChem. Deutsche
Bank also held discussions with the members of the senior management of Shire
and BioChem regarding the businesses and prospects of their respective groups
and the joint prospects of a combined group. In addition, Deutsche Bank has
attended certain discussions with Shire's external legal counsel and BioChem's
internal and external counsel on specific items relating to ongoing patent
litigation and related proceedings against BioChem and/or members of its group
and has reviewed and relied on such counsels' opinions with respect to these
matters. In addition, Deutsche Bank has (i) reviewed the reported prices and
trading activity for the common stock of BioChem and the ordinary shares of
Shire, (ii) compared certain financial and stock market information for Shire
and BioChem with similar information for selected companies whose securities are
publicly traded, (iii) reviewed the financial terms of selected recent business
combinations which it deemed comparable in whole or in part, (iv) reviewed the
terms of the merger agreement and (v) performed such other studies and analyses
and considered such other factors it deemed appropriate.
In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning Shire or
BioChem or their respective groups, including, without limitation, any financial
information, forecasts or projections, considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche
Bank assumed and relied upon the accuracy and completeness of all such
information. Deutsche Bank did not conduct a physical inspection of any of the
properties or assets and did not prepare or obtain any independent evaluation or
appraisal of any of the assets or liabilities of Shire or BioChem or members of
their groups. With respect to the financial forecasts and projections made
available to Deutsche Bank and used in its analysis, including analyses and
forecasts of certain cost savings (including assumptions relating to future tax
rates), operating efficiencies, revenue effects and financial synergies
(collectively, the "Synergies") expected by Shire to be achieved as a result of
the merger, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of Shire or BioChem, as the case may be, as to the matters covered
thereby. In rendering its opinion, Deutsche Bank expressed no view as to the
reasonableness of such forecasts and projections, including the Synergies, or
the assumptions on which they are based. The Deutsche Bank Opinion was
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to Deutsche Bank as of, the date of such
opinion. Events occurring after the date thereof could materially affect this
opinion and the assumptions used in preparing this opinion. Although subsequent
developments may affect the Deutsche Bank Opinion, Deutsche Bank does not have
any obligation to update, revise or reaffirm its opinion. Shire imposed no other
instructions or limitations on Deutsche Bank with respect to the other
investigations made or the procedures followed by it in rendering its opinion.
Further, Deutsche Bank does not provide legal, accounting, actuarial or tax
advice.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Shire, Shire Exchangeco and BioChem contained in the merger agreement are true
and correct, that Shire, Shire Exchangeco and BioChem will each
58
perform all of the covenants and agreements to be performed by them under the
merger agreement and all conditions to the obligation of each of Shire, Shire
Exchangeco and BioChem to consummate the merger will be satisfied without any
waiver thereof. Deutsche Bank has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the transactions contemplated by the merger agreement will be
obtained and that in connection with obtaining any necessary governmental,
regulatory or other approvals and consents, or any amendments, modifications or
waivers to any agreements, instruments or orders to which either Shire or
BioChem is a party or subject or by which it is bound, no limitations,
restrictions or conditions will be imposed or amendments, modifications or
waivers made that would have a material adverse effect on Shire or BioChem or
materially reduce the contemplated benefits of the merger to Shire. In addition,
Deutsche Bank has been advised by Shire, and accordingly has assumed for
purposes of its opinion, that the merger will be tax-free to each of Shire and
BioChem and their respective stockholders and that the merger will be accounted
for as a pooling of interests.
In connection with Deutsche Bank's role as financial adviser to Shire and in
arriving at its opinion, Deutsche Bank was not authorized to solicit, and did
not solicit, interest from any other person with respect to the acquisition of
Shire or any of its assets, nor did Deutsche Bank have discussions or negotiate
with any person in connection with the merger.
Set forth below is a brief summary of certain financial analyses performed
by Deutsche Bank in connection with its opinion.
HISTORICAL STOCK PERFORMANCE. Deutsche Bank reviewed and analyzed recent
and historical market prices and trading volume for Shire ADSs and ordinary
shares and BioChem common shares and compared such market prices to certain
stock market and industry indices.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Deutsche Bank compared
certain financial information and commonly used valuation measurements for
BioChem and Shire to corresponding information and measurements for a group of
ten publicly traded specialty pharmaceutical companies consisting of
- Allergan, Inc.;
- ALZA Corporation;
- Forest Laboratories, Inc.;
- ICN Pharmaceuticals, Inc.;
- King Pharmaceuticals, Inc.;
- KV Pharmaceutical Company;
- Medicis Pharmaceuticals Corporation;
- Elan Corporation, plc;
- H. Lundbeck A/S; and
- Schering AG
(collectively, the "Selected Companies"). Deutsche Bank reviewed, among other
things, enterprise values (defined as equity value, plus total debt, preferred
stock and minority interest less cash) as a multiple of estimated calendar years
2000, 2001 and 2002 EBIT and EBITDA and equity values as a multiple of estimated
calendar years 2000, 2001 and 2002 net income. In order to derive an implied
equity range for BioChem, Deutsche Bank then applied a range of selected
multiples of estimated calendar years 2000, 2001 and 2002 derived from the
Selected Companies to corresponding financial statistics for BioChem. Estimated
financial data for the Selected Companies were based on publicly
59
available research analysts' estimates and estimated financial data for BioChem
were based on internal estimates of the management of Shire. After applying a
control premium derived from an analysis of those in North American transactions
in the period from January 1998 to November 2000, this implied an equity
reference range for BioChem of approximately $4.0 billion to $4.7 billion.
None of the companies utilized as a comparison is identical to BioChem or
Shire. Accordingly, Deutsche Bank believes the analysis of such publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in Deutsche Bank's opinion,
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Deutsche Bank reviewed the
financial terms, to the extent publicly available, of five completed mergers and
acquisition transactions since January 1, 1999 involving companies in the
specialty pharmaceutical industry (the "Selected Transactions"). The
transactions reviewed were (with month of announcement in parenthesis):
- Dura Pharmaceuticals, Inc./Elan Corporation, plc (September 2000);
- Pathogenesis Corporation/Chiron Corporation (August 2000);
- Jones Pharma Incorporated/King Pharmaceuticals, Inc. (July 2000);
- Roberts Pharmaceutical Corporation/Shire Pharmaceuticals Group plc
(July 1999); and
- Agouron Pharmaceuticals, Inc./Warner-Lambert Company (January 1999)
Deutsche Bank compared the enterprise values (for definition see above) in
the Selected Transactions as a multiple of forecast one year EBIT and the equity
values in the Selected Transactions as a multiple of forecast one year net
income. All financial information was based on financial information available
at the time of the relevant transaction. Applying the range of EBIT multiples
and net income multiples to corresponding financial data for BioChem based on
internal estimates of the management of Shire resulted in an implied enterprise
value of BioChem in the range of $3.5 billion to $4.5 billion.
Because the reasons for, and circumstances surrounding, each of the Selected
Transactions analyzed were so diverse, and due to the inherent differences
between the operations and financial conditions of BioChem and Shire and the
companies involved in the Selected Transactions, Deutsche Bank believes that a
comparable transaction analysis is not simply mathematical. Rather, it involves
complex considerations and qualitative judgments, reflected in Deutsche Bank's
opinion, concerning differences between the characteristics of these
transactions and the merger that could affect the value of the subject companies
and businesses and BioChem and Shire.
CONTRIBUTION ANALYSIS. Deutsche Bank analyzed the relative contributions of
BioChem, with synergies expected to arise from the merger, and Shire to the pro
forma income statement of the Enlarged Group, based on internal estimates of the
management of Shire for both companies and a base level of expected synergies.
This analysis showed that on a pro forma combined basis (excluding
(i) non-recurring expenses relating to the merger and (ii) excluding the impact
of any revenue from CliniChem Development Inc.), based on the calendar years
ending December 31, 2000, 2001 and 2002 for Shire and BioChem, Shire and BioChem
(with a base level of synergies estimated by the management of Shire), would
account for approximately 59%, 41%; 54% and 46%; and 55%, 45% respectively of
the Enlarged Group's pro forma net income for each of those three years.
DISCOUNTED CASH FLOW ANALYSIS. The merger of BioChem and Shire is to be
satisfied by the issue of new Shire ordinary shares, new Shire ADSs or by the
issue by ExchangeCo of exchangeable shares in favor of BioChem shareholders.
Accordingly, no cash consideration will pass to BioChem
60
shareholders. As such, the Board of Shire, as advised by Deutsche Bank, did not
regard a discounted cash flow analysis as representative and hence was not
relied upon by the Board of Shire as part of its decision making process.
Nevertheless, Deutsche Bank performed a discounted cash flow analysis on
BioChem. Deutsche Bank calculated the discounted cash flow value as the
estimated future cash flow that BioChem is forecast to generate from the year
2001 onwards. The estimated future cash flows were based on the internal
estimates of the management of Shire and Deutsche Bank used a range of discount
rates.
PRO FORMA COMBINED EARNINGS ANALYSIS. Deutsche Bank analyzed certain pro
forma effects of the merger. Based on such analysis, Deutsche Bank computed the
resulting dilution/accretion to the Enlarged Group's EPS estimate for the fiscal
years ending December 31, 2001 and 2002, before and after taking into account
any potential cost savings and other synergies identified by management that
BioChem and Shire could achieve if the merger were consummated and before
non-recurring costs relating to the merger. The results of this analysis
suggested that the merger could be accretive, or represent an increase, to
Shire's earnings per share in calendar years 2001 and 2002. The actual results
achieved by the Enlarged Group may vary from projected results and the
variations may be material.
OTHER ANALYSES. In addition, Deutsche Bank analyzed the terms of the merger
agreement at the extremities of the collar arrangement and considered the
financial implications for Shire. Deutsche Bank also reviewed the average bid
premium paid in recommended transactions in North America since 1998. This
showed that the range of premium paid to the target company's share price on the
day prior to announcement was 27.7% to 47.8%, with an average of 37%. Shire
offered a premium of 39.6% to the BioChem share price on the trading day prior
to the announcement of the merger. In addition, Deutsche Bank considered the
possible financial implications for Shire of an adverse ruling in the Emory
University patent litigation. For further details of this litigation, please see
"Risk Factors--BioChem's ongoing success is dependent on maintaining patent
protection and obtaining third party technology and patents."
The foregoing summary describes all analyses and factors that Deutsche Bank
deemed material in its presentation to Shire's Board of Directors, but is not a
comprehensive description of all analyses performed and factors considered by
Deutsche Bank in connection with preparing its opinion. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not readily susceptible to summary description.
Deutsche Bank believes that its analyses must be considered as a whole and that
considering any portion of such analyses and of the factors considered without
considering all analyses and factors could create a misleading view of the
process underlying the opinion. In arriving at its fairness determination,
Deutsche Bank did not assign specific weights to any particular analyses. In
addition, Deutsche Bank expresses no opinion as to what the value of Shire's
stock will be when issued to BioChem shareholders pursuant to the merger or the
price at which Shire stock will trade subsequent to the merger.
In conducting its analyses and arriving at its opinion, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its opinion
to Shire's Board of Directors as to the fairness to Shire of the exchange ratio
and does not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are inherently subject to
uncertainty. In connection with its analyses, Deutsche Bank made, and was
provided by Shire management with, numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond Shire's or BioChem's control. Analyses based on estimates or
forecasts of future results are not necessarily indicative of actual past or
future values or results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
61
Shire, BioChem or their respective advisers, none of Shire, Deutsche Bank or any
other person assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions. The estimates
contained in Deutsche Bank's analyses and the valuation ranges resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by its analyses. Deutsche Bank's opinion and
related financial analyses were only one of many factors considered by the Board
of Shire in its evaluation of the merger and should not be viewed as
determinative of the views of the Board or management of Shire with respect to
the merger or the consideration payable in the merger.
The terms of the merger were determined through negotiations between Shire
and BioChem and were approved by Shire's Board of Directors. Although Deutsche
Bank provided advice to Shire during the course of these negotiations, the
decision to enter into the merger was solely that of Shire's Board of Directors.
As described above, the opinion and presentation of Deutsche Bank to Shire's
Board of Directors were only one of a number of factors taken into consideration
by Shire's Board of Directors in making its determination to approve the merger.
Deutsche Bank's opinion was provided to Shire's Board of Directors to assist it
in connection with its consideration of the merger and does not constitute a
recommendation to any holder of Shire's ordinary shares as to how to vote with
respect to the merger.
Shire selected Deutsche Bank as financial adviser in connection with the
merger based on Deutsche Bank's qualifications, expertise, reputation and
experience in mergers and acquisitions. Shire has retained Deutsche Bank
pursuant to an agreement dated September 22, 2000 (the "Engagement Letter"). As
compensation for Deutsche Bank's services in connection with the merger, Shire
has incurred a cash liability to Deutsche Bank of $2,500,000 and has agreed to
pay in aggregate a fee representing 0.4% of the value of the offer for BioChem
if the merger is consummated. Regardless of whether the merger is consummated,
Shire has agreed to reimburse Deutsche Bank for reasonable fees and
disbursements of Deutsche Bank's counsel and all of Deutsche Bank's reasonable
travel and other out-of-pocket expenses incurred in connection with the merger
or otherwise arising out of the retention of Deutsche Bank under the Engagement
Letter. Shire has also agreed to indemnify Deutsche Bank and certain related
persons to the full extent lawful against certain liabilities, including certain
liabilities under US federal securities laws arising out of its engagement or
the merger.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. Deutsche Bank and its affiliates may actively trade
securities of Shire or BioChem for their own account or the account of their
customers and, accordingly, may from time to time hold a long or short position
in such securities.
GOVERNMENTAL REGULATION
US ANTITRUST
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules promulgated thereunder, certain transactions, including the
merger, may not be consummated unless certain waiting period requirements have
been satisfied. On January 12, 2001, we filed a Pre-merger Notification and
Report Form in accordance with the provisions of the Hart-Scott-Rodino Act with
the Antitrust Division of the Department of Justice and the Federal Trade
Commission. The required waiting period expired on February 11, 2001.
62
UK ANTITRUST
In the UK, the Secretary of State for Trade and Industry decided on
February 27, 2001, on the information before him, and in accordance with the
recommendation of the Director General of Fair Trading, not to refer the merger
to the Competition Commission under the provisions of the Fair Trading Act 1973.
INVESTMENT CANADA ACT
The INVESTMENT CANADA ACT is a Canadian statute of general application
governing the acquisition of control of Canadian businesses by non-Canadians.
This merger is considered to be an acquisition of control of a Canadian business
by a non-Canadian for purposes of the INVESTMENT CANADA ACT. A proposed
acquisition of a Canadian business by a non-Canadian prospective acquiror is
subject to prior review and approval by the Minister of Industry Canada if the
value of the assets of the acquired business is equal to or greater than
$209 million. A reviewable investment may not be completed until the Minister
determines that the investment is likely to be of "net benefit to Canada," in
accordance with the various criteria set out under the INVESTMENT CANADA ACT.
The Minister may also condition a "net benefit to Canada" finding on the
provision of undertakings by the non-Canadian prospective acquiror. The value of
assets of BioChem exceeds $209 million and the merger is, therefore, reviewable.
To commence the review process, we submitted an application for review with
prescribed information to the Director of Investments within Industry Canada on
January 12, 2001. Under the INVESTMENT CANADA ACT, a decision is required to be
rendered within 45 days of receipt of such filing, subject to the unilateral
right of the Minister to extend this period for up to a further 30 days. Each of
BioChem and Shire believe that the merger is likely to be of net benefit to
Canada. A decision of the Minister is anticipated prior to the extraordinary
general meeting.
CANADIAN COMPETITION ACT
The Transaction is a "notifiable transaction" for the purposes of Part IX of
the COMPETITION ACT (CANADA) which means that the transaction cannot be
consummated until an advance ruling certificate ("ARC") has been issued by the
Commissioner of Competition or, in the event a short-form pre-merger
notification is filed, the relevant waiting period of 14 days under Section 123
of the Competition Act has expired. On January 18, 2001, BioChem and Shire
submitted a request pursuant to Section 102 of the Competition Act for an ARC to
the Commissioner of Competition. On February 5, 2001, the Commissioner of
Competition issued the ARC.
Where an ARC is issued and the notifiable transaction to which the ARC
relates is substantially completed within one year after the ARC is issued, the
Commissioner of Competition may not seek an order of the Competition Tribunal in
respect of the notifiable transaction solely on the basis of information that is
the same or substantially the same as the information on the basis of which the
ARC was issued.
ANTICIPATED ACCOUNTING TREATMENT AND EFFECTS
The merger is intended to qualify as a pooling of interests transaction
under U.S. GAAP, which means the recorded assets and liabilities of BioChem will
be carried forward to the combined business at their recorded amounts. The
historical revenues and expenses of BioChem, for all periods, will be combined
with those of Shire, whose financial statements will then be restated.
Consummation of the merger is conditional upon receipt by Shire of (a) a pooling
letter from its independent auditors dated as of the effective date to the
effect that it will be appropriate to account for the arrangement as "pooling of
interests" under United States GAAP and all published rules and regulations of
the SEC relative to accounting for business combinations and (b) a poolability
letter from BioChem's
63
independent auditors dated as of the effective date to the effect that BioChem
qualifies as a combining company for the purpose of pooling of interests
accounting in accordance with United States GAAP.
The number of new ordinary shares, new ADSs and new exchangeable shares to
be issued pursuant to the merger by Shire might increase as a result of the
exercise by BioChem shareholders of their statutory dissent rights under
Canadian law. Such dissent rights confer upon BioChem shareholders the ability
to dissent from the plan of arrangement to the proposed merger in which event,
provided the aggregate number of shares held by dissenting BioChem shareholders
is less than 5% of BioChem's issued share capital, the proposed merger will
proceed but such shareholders will be entitled to receive fair value
consideration. In the event that such dissent rights are exercised in respect of
more than 2.4% of BioChem shares, then, in the absence of the issue of shares
referred to below, the intended pooling of interests accounting treatment of the
merger will not be available. In these circumstances, Shire may request that
BioChem issue up to 2,634,383 additional BioChem shares (representing
approximately 2.6% increase over the current issued share capital of BioChem)
for cash by way of private placement to an independent third party(ies). In such
event, the board of directors of BioChem may, in its entire discretion and if
deemed appropriate in the circumstances give effect to such request of Shire,
taking into account the number of options to acquire BioChem shares exercised
since the date hereof. These shares will then be acquired by Shire pursuant to
the merger so as to allow the pooling of interests accounting treatment of the
merger to be available.
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THE MERGER AGREEMENT
The following description of the material provisions of the merger agreement
is only a summary and does not purport to be complete. This description is
qualified in its entirety by reference to the merger agreement, a copy of which
is attached to this Proxy Statement as Annex A and is incorporated herein by
reference.
GENERAL; EFFECTIVE TIME AND EFFECTS OF THE MERGER
The merger agreement provides that, subject to the approval of the merger by
the affirmative vote of at least two-thirds of the votes cast by BioChem
shareholders and by BioChem option holders, voting together, subject to any
conditions prescribed in the interim order and the passing of the ordinary
resolution to be proposed at the extraordinary general meeting, and the
satisfaction or waiver of other conditions to the merger, Shire and BioChem will
merge pursuant to a plan of arrangement.
Upon completion of the merger and closing of the arrangement, BioChem will
become a wholly-owned subsidiary of Exchangeco, a corporation incorporated under
the CANADA BUSINESS CORPORATIONS ACT, which is a wholly-owned subsidiary of
Shire.
DIRECTORS OF SHIRE IMMEDIATELY FOLLOWING THE MERGER
Following the merger, Dr. Francesco Bellini, The Honourable James Andrews
Grant and Mr. Gerard Veilleux, who are now members of BioChem's board, will
become members of Shire's board. At that time approximately 30% of the Shire
board will be former BioChem board members.
CONVERSION OF BIOCHEM SHARES
The merger agreement provides for the combination of Shire and BioChem in a
transaction in which each BioChem shareholder (other than BioChem shareholders
who properly dissent to the merger) will have the choice of receiving as
consideration for each BioChem share:
- a number of ordinary shares equal to the exchange ratio;
- a number of exchangeable shares equal to the exchange ratio divided by
three issued by Exchangeco, which are exchangeable into ordinary shares or
ADSs, at a rate of one exchangeable share for three ordinary shares or one
exchangeable share for one ADS;
- a number of ADSs equal to the exchange ratio divided by three; or
- a combination of the above.
Only BioChem shareholders that are Canadian residents will have the option
of receiving exchangeable shares for their BioChem shares.
The exchangeable shares will be issued by Exchangeco and will be listed on
the TSE. Holders of the exchangeable shares will be entitled to dividend and
other rights that are, as nearly as practicable, economically equivalent to
those of ordinary shares. Through a voting trust and by means of special voting
shares in Shire held by the trustee, holders of the exchangeable shares will, in
effect, be entitled to vote at meetings of Shire shareholders.
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EXCHANGE RATIO
The number of ordinary shares into which each BioChem share shall be
exchanged shall be determined as follows:
IF THE AVERAGE ADS PRICE IS: THE EXCHANGE RATIO SHALL BE:
- ---------------------------- ----------------------------
less than or equal to $47.20 2.3517
greater than $47.20 and less than determined by dividing $37.00 by the
$70.80 average ADS price and multiplying by
three
equal to or greater than $70.80 1.5678
If a BioChem shareholder so elects, or in certain other circumstances, we
will provide such shareholder with one-third of an ADS or one-third of an
exchangeable share for each ordinary share that shareholder would be entitled to
receive based on the exchange ratio.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties made
by Shire and BioChem relating to, among other things:
- due organization and good standing;
- capitalization;
- corporate authority to enter into the contemplated transactions;
- lack of conflicts with corporate governance documents;
- reports and financial statements;
- absence of certain changes or events;
- compliance with law;
- brokers or finders;
- absence of litigation;
- filing of tax returns;
- environmental matters; and
- intellectual property.
COVENANTS
During the period from the date of the merger agreement and continuing until
the effective time, each of Shire and BioChem has agreed as to itself and its
subsidiaries that, among other things, it and its subsidiaries will carry on
their respective businesses only in the ordinary course and will use reasonable
efforts to maintain and preserve its business organization, assets, employees
and business relationships and to maintain all of its properties and assets in
useful and good condition.
The merger agreement contains certain other covenants of Shire and BioChem
relating to the conduct of their respective businesses before the effective
time, including:
- covenants relating to the declaration and payment of dividends and changes
in share capital;
- the issuance of securities;
66
- the amendment of corporate governance documents;
- the disposition of assets;
- the incurrence of indebtedness and the acquisition of equity interests;
- the making of loans, advances, contributions or investments;
- the maintenance of benefit plans and compensation;
- the entering into of agreements limiting or restricting Shire or BioChem
from engaging or competing in any line of business; and
- the preservation of the availability of pooling-of-interests accounting
treatment.
NO SOLICITATION
According to the terms of the merger agreement, Shire and BioChem have each
agreed that, prior to the effective time, neither it, any of its subsidiaries
nor any of the respective employees, agents or representatives of the foregoing
will:
- initiate, solicit, encourage or knowingly facilitate, including by way of
furnishing information, any inquiries or the making of any proposal or
offer with respect to any merger, consolidation or other business
combination involving Shire or BioChem, as the case may be, or the
acquisition of the assets of BioChem or Shire having an aggregate value of
50% or more of the market capitalization or the acquisition of 50% or more
of the capital stock of Shire or BioChem, as the case may be;
- have any discussion with or provide confidential information or data to
any person relating to the type of transaction referred to above;
- engage in any negotiations regarding the type of transaction referred to
above; or
- knowingly facilitate any effort or attempt to make or implement the type
of transaction referred to above or accept such a transaction.
The merger agreement does allow Shire and BioChem, in response to an
unsolicited written proposal from a third party regarding a bona fide, written
and unsolicited proposal or offer made by any persons or group with respect to a
merger, consolidation or other business combination or an acquisition of the
assets of BioChem or Shire having an aggregate value of 50% or more of the
market capitalization or the acquisition of 50% or more of the capital stock of
Shire or BioChem, as the case may be, on terms which the board of directors of
Shire or BioChem, as the case may be, determines in good faith, and in the
exercise of reasonable judgment, based on the advice of independent financial
advisers and legal counsel, to be more favorable to its shareholders than the
merger, to furnish information to, negotiate or otherwise engage in discussions
with such third party, PROVIDED, HOWEVER, in the case of Shire that its board of
directors determines in good faith, after receiving a written opinion from its
outside legal counsel, that such action is required for the board of directors
to comply with its fiduciary duties under applicable law.
According to the terms of the merger agreement, Shire and BioChem have
agreed promptly to advise each other of any information they have from a person
with respect to any transaction of the type referred to above and to give each
other an update on an ongoing basis or upon the reasonable request of Shire or
BioChem, as the case may be, on the status of any such transaction.
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CONDITIONS TO CLOSING
MUTUAL CONDITIONS
The merger agreement provides that the respective obligations of each party
to complete the merger are subject to the satisfaction or waiver of a number of
conditions, including the following:
- the merger shall have been approved by the requisite vote of Shire and
BioChem shareholders;
- no laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order
issued by a court or other governmental entity of competent jurisdiction
shall be in effect, having the effect of making the merger illegal or
otherwise prohibiting consummation of the merger;
- the waiting periods (and any extensions thereof) applicable to the merger
under the HSR Act and the COMPETITION ACT (Canada) shall have been
terminated or shall have expired or the Commissioner of Competition shall
have issued an advance ruling certificate and/or a "no action" letter
under the COMPETITION ACT (Canada) in relation to the merger and the
Director of Investments under the INVESTMENT CANADA ACT shall have
concluded that the merger is of "net benefit to Canada" for purposes of
the INVESTMENT CANADA ACT;
- all consents, approvals and actions of, filings with and notices to any
governmental entity required of Shire or BioChem or any of their
respective subsidiaries to consummate the merger and the other
transactions contemplated by the merger agreement shall have been
obtained;
- the ordinary shares to be issued in the merger and such other ordinary
shares to be reserved for issuance in connection with the merger shall
have been admitted to the Official List of the United Kingdom Listing
Authority and to trading on the LSE, the ADSs to be issued in the merger
and such other ADSs to be reserved for issuance in connection with the
merger shall have been approved for quotation on Nasdaq (to the extent
necessary) and the exchangeable shares shall have been approved for
listing on the TSE, subject to official notice of issuance;
- a registration statement relating to the issuance of ordinary shares upon
exchange of the exchangeable shares shall have been declared effective by
the SEC or an appropriate "no action letter" shall have been obtained from
the Staff of the SEC relating to the issuance of ordinary shares upon
exchange of the exchangeable shares. No stop order suspending the
effectiveness of the registration statement shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated or
threatened by the SEC;
- all applicable requirements of Section 3(a)(10) of the Securities Act of
1933 shall have been satisfied with respect to the issuance of ordinary
shares and ADSs in connection with the merger; and
- exemption orders from the registration and prospectus requirements with
respect to the exchangeable share structure shall have been granted by all
relevant Canadian provincial securities authorities.
CONDITIONS IN FAVOR OF SHIRE AND EXCHANGECO
The merger agreement provides that the obligation of Shire and Exchangeco to
complete the merger is subject to the satisfaction or waiver of a number of
additional conditions, each of which may be waived by Shire, including the
following:
- each of the representations and warranties of BioChem set forth in the
merger agreement that is qualified as to material adverse effect shall be
true and correct and each of the representations and warranties of BioChem
set forth in the merger agreement that is not so qualified shall be
68
true and correct in all material respects, in each case as of the date of
the merger agreement and as of the effective date as though made on and as
of the effective date;
- BioChem shall have performed or complied with all agreements and covenants
required to be performed by it under the merger agreement at or prior to
the effective date that are qualified as to material adverse effect and
shall have performed or complied in all material respects with all other
agreements and covenants required to be performed by it under the merger
agreement at or prior to the effective date that are not so qualified;
- BioChem's Board of Directors shall have waived the application of a rights
plan to the transactions contemplated by the merger agreement. Under the
rights plan, one common share purchase right was issued in respect of each
outstanding common share and a share purchase right for each common share
issued thereafter. These rights are exercisable in a situation of public
offering where certain conditions are not respected. Each right entitles
the holder to purchase, from BioChem, one common share at a specified
price, subject to certain anti-dilution adjustments;
- holders of not more than 5% of BioChem's common shares issued and
outstanding immediately prior to the effective date shall have dissented
to the merger (and not withdrawn such dissent);
- since the date of the merger agreement, there shall not have occurred any
change, effect, event or circumstance that, in combination with any other
changes, effects, events or circumstances, has resulted in or would
reasonably be expected to result in a material adverse effect with respect
to BioChem; PROVIDED THAT the outcome of the proceedings instituted by
Emory University in the US shall not be considered to have a material
adverse effect on BioChem; and
- there shall have been delivered to Shire:
- a pooling letter from Shire's independent auditors, dated as of the
effective date and addressed to Shire, reasonably satisfactory in form
and substance to Shire, setting forth the concurrence of Shire's
independent auditors with the conclusion of Shire's management that it
will be appropriate to account of the merger as a "pooling of
interests" under U.S. GAAP, Accounting Principles Board Opinion No. 16
and all published rules and regulations adopted by the SEC; and
- a poolability letter from BioChem's independent auditors, dated as of
the effective date and reasonably satisfactory in form and substance to
Shire, setting forth the concurrence of BioChem's independent auditors
with the conclusion of BioChem's management that it will be appropriate
to account for the merger as a "pooling of interest" under U.S. GAAP,
Accounting Principles Board Opinion No. 16 and all published rules and
regulations adopted by the SEC.
CONDITIONS IN FAVOR OF BIOCHEM
The merger agreement provides that the obligation of BioChem to complete the
merger is subject to the fulfillment of a number of additional conditions, each
of which may be waived by BioChem, including the following:
- each of the representations and warranties of each of Shire and Exchangeco
set forth in the merger agreement that is qualified as to material adverse
effect shall be true and correct, and each of the representations and
warranties of each of Shire and Exchangeco set forth in the merger
agreement that is not so qualified shall be true and correct in all
material respects, in each case as of the date of the merger agreement and
as of the effective date as though made on and as of the effective date;
and
69
- Shire shall have performed or complied with all agreements and covenants
required to be performed by it under the merger agreement at or prior to
the effective date that are qualified as to material adverse effect and
shall have performed or complied in all material respects with all other
agreements and covenants required to be performed by it under the merger
agreement at or prior to the closing date that are not so qualified.
TERMINATION AND PAYMENT OF BREAK FEES
The merger agreement may be terminated by mutual written consent of BioChem
and Shire at any time prior to the effective date. In addition, if the effective
date shall not have occurred on or before May 31, 2001, the merger agreement may
be terminated by either BioChem or Shire; PROVIDED, HOWEVER, that this right to
termination may not be available to any party whose failure to fulfill any
obligation under the merger agreement has been the cause of, or resulted in, the
failure of the effective date to occur on or before May 31, 2001.
The merger agreement may be terminated by either BioChem or Shire, if any
governmental entity:
- shall have issued a final and non-appealable order, decree or ruling or
taken any other action (which such party shall have used its reasonable
best efforts to resist, resolve or lift, as applicable) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement, and such order, decree, ruling or
other action shall have become final and non-appealable; or
- shall have failed to issue an order, decree or ruling or to take any other
action (which order, decree, ruling or other action such party shall have
used its reasonable best efforts to obtain) which is necessary to fulfill
the conditions to closing set forth in the merger agreement, and such
denial of a request to issue such order, decree, ruling or take such other
action shall have become final and non-appealable; PROVIDED, HOWEVER, that
this right to terminate shall not be available to any party whose failure
to use reasonable best efforts to obtain regulatory approvals has been the
cause of such action or inaction.
The merger agreement may be terminated by Shire upon the occurrence of any
of the following events:
- BioChem shareholders have not approved the merger at the BioChem
shareholder meeting;
- the board of directors of BioChem fails to recommend approval of the
merger to its shareholders or adversely modifies, qualifies or withdraws
its recommendation; or
- a breach by BioChem of any representation, covenant or agreement which
results in a failure to respect certain conditions to closing in favor of
Shire (subject to a 20 business day cure period);
The merger agreement may be terminated by BioChem upon the occurrence of any
of the following events:
- Shire shareholders have not approved the merger at the extraordinary
general meeting;
- the board of directors of Shire fails to recommend approval of the merger
to its shareholders or adversely modifies, qualifies or withdraws its
recommendation; or
- a breach by Shire or Exchangeco of any representation, covenant or
agreement which results in a failure to respect certain conditions to
closing in favor of BioChem (subject to a 20 business day cure period).
70
BioChem may also terminate the merger agreement, if at any time prior to its
shareholder meeting, BioChem shall have failed to recommend approval of the
merger to its shareholders or adversely modified or qualified or withdrawn its
recommendation so long as:
- the BioChem board of directors, after consultation with its legal counsel
and financial adviser, determines that a proposal to acquire BioChem is
more favorable from a financial point of view to its shareholders than the
merger and, after consultation with and based upon advice of legal
counsel, determines in good faith that such action is necessary for
BioChem's board of directors to comply with its fiduciary duties to
shareholders under applicable laws;
- BioChem pays to Shire, immediately following the termination of the merger
agreement, a break fee of $110 million; and
- BioChem provides to Shire at least five business days prior to termination
written notice of its intention to terminate the merger agreement and the
material terms and conditions of the proposal to acquire BioChem.
If Shire terminates the merger agreement because BioChem shareholder
approval has not been obtained, and
- a transaction to acquire BioChem is announced that BioChem's board of
directors determines is more favorable to its shareholders than the merger
with Shire; and
- that transaction is consummated within one year (or 18 months in certain
circumstances) of termination of the merger agreement,
then BioChem shall pay to Shire a break fee of $110 million not later than two
days following consummation of the transaction referred to above.
If Shire terminates the merger agreement because BioChem's board of
directors failed to recommend approval of the merger to its shareholders or has
adversely modified, qualified or withdrawn its recommendation, then BioChem
shall pay to Shire a break fee of $110 million not later than two business days
after the termination date.
If BioChem terminates the merger agreement because Shire's board of
directors has failed to recommend approval of the merger to its shareholders or
has adversely modified, qualified or withdrawn its recommendation, then Shire
shall pay to BioChem a break fee of $40 million not later than two business days
after the termination date.
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THE OPTION AGREEMENT
GENERAL
At the same time of the execution of the merger agreement on December 10,
2000 and as an inducement and condition to entering into the merger agreement,
we entered into an option agreement with BioChem. The following description sets
forth the material provisions of the option agreement but is qualified in its
entirety by reference to the option agreement, which is attached as Annex C to
this Proxy Statement and incorporated herein by reference in its entirety.
Under the option agreement, BioChem granted us an irrevocable option to
purchase a number of shares representing up to 19.9% of the issued and
outstanding shares of common stock of BioChem as of December 8, 2000 (on an
undiluted basis) at a price per share in cash equal to $37.00.
The option agreement provides that we may exercise the option prior to
termination of the option agreement, in whole or in part, by delivering a
written notice, upon the occurrence of any event that entitles us to receive a
payment of $110 million from BioChem payable according to the terms of the
merger agreement.
To the extent the option has not been exercised, the option will expire upon
the earlier of the effective time or termination of the merger agreement in
accordance with its terms unless we are entitled to receive the $110 million
payment from BioChem under the merger agreement, in which case the option will
expire 180 days after termination of the merger agreement.
Arrangements such as the option agreement are customarily entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be consummated in accordance with their
terms, and to compensate the grantee for the efforts undertaken and the
expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated under certain circumstances involving
an acquisition or potential acquisition of the issuer by a third party. The
option agreement was entered into to accomplish these objectives.
NOTICE OF EXERCISE
According to the terms of the option agreement, we may exercise the option
by:
- sending BioChem a written notice specifying the number of BioChem shares
to be purchased; and
- paying the exercise price by certified check or wire transfer.
MAXIMUM PROCEEDS
The option agreement provides that the gross proceeds received by us in
connection with any sales or dispositions of shares from the exercise of the
option (less reasonable and customary commissions and any dividends received by
us declared on the option shares) together with the $110 million payment cannot
exceed:
- $120,000,000; plus
- the product of $37.00 and the number of BioChem shares purchased by us
under the option.
If such gross proceeds do exceed this amount, the excess amount shall be
remitted by us to BioChem or deducted from the $110 million payment to be made
by BioChem to Shire.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THE SEC ALLOWS THIS PROXY STATEMENT TO INCORPORATE BY REFERENCE IMPORTANT
BUSINESS AND FINANCIAL INFORMATION WHICH IS NOT PRESENTED IN THIS DOCUMENT OR
DELIVERED WITH THIS DOCUMENT. DOCUMENTS RELATING TO THIS INFORMATION, EXCLUDING
EXHIBITS TO THOSE DOCUMENTS UNLESS THEY ARE SPECIFICALLY INCORPORATED BY
REFERENCE IN THIS DOCUMENT, ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO THE
COMPANY SECRETARY, SHIRE PHARMACEUTICALS GROUP PLC, HAMPSHIRE INTERNATIONAL
BUSINESS PARK, CHINEHAM, BASINGSTOKE, HAMPSHIRE RG24 8EP, ENGLAND. TELEPHONE
REQUESTS MAY BE DIRECTED TO (44) 1-265-894-000. TO ENSURE TIMELY DELIVERY OF
DOCUMENTS, PLEASE MAKE YOUR REQUEST NO LATER THAN MARCH 22, 2001.
The following documents filed with the SEC by Shire (File No. 0-29630) are
incorporated in this document by reference:
- Annual Report on Form 10-K for the year ended December 31, 2000; and
- Proxy Statement for the 2000 annual meeting of shareholders.
The following documents filed with the SEC by BioChem (File No. 0-19539) are
incorporated in this document by reference:
- Annual Report on Form 20-F for the year ended December 31, 1999;
- Current Reports on Form 6-K submitted on the following dates in 2000:
- January 10;
- January 26;
- February 15;
- March 6;
- March 9;
- March 15;
- April 3;
- April 11;
- April 20;
- April 27;
- April 28;
- May 1;
- May 24;
- June 19;
- June 27;
- July 11;
- July 18;
- July 26;
- August 4;
- August 28;
- September 22;
- October 26;
- November 1;
- November 15;
- November 20;
- December 1;
- December 11;
- December 13;
- December 18; and
- December 22; and
- Current Reports on Form 6-K submitted on January 10, January 26 and
February 28, 2001.
73
Any future filings by Shire under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act and all subsequent annual reports filed by BioChem on Form 20-F,
Form 40-F or Form 10-K and all subsequent filings by BioChem on Form 10-Q and
8-K pursuant to the Exchange Act subsequent to the date of this Proxy Statement
and prior to the date of the extraordinary general meeting are also incorporated
in this document by reference. Any of these filings will automatically update
and replace the information that appears or is incorporated in this Proxy
Statement. BioChem may incorporate by reference any reports submitted by BioChem
on Form 6-K by identifying on such forms that they are being incorporated by
reference into this Proxy Statement.
No person is authorized to give any information or to make any
representations not contained in this Proxy Statement or in the documents
incorporated in this document by reference in connection with the solicitation
made by this document. If given or made, such information or representation
should not be relied upon as having been authorized by us. This Proxy Statement
does not constitute the solicitation of a proxy from any person, in any
jurisdiction in which it is unlawful to make this proxy solicitation. Neither
the delivery of this Proxy Statement will, under any circumstances, create an
implication that there has been no change in our affairs since the date of this
Proxy Statement other than as set forth in the documents incorporated in this
document by reference.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, which means that we file reports, proxy statements and
other information, with the SEC. You can inspect and copy those reports, proxy
statements and other information at the SEC's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the SEC's regional offices located at: 7
World Trade Center, 13th Floor, New York, New York 10048, and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
obtain copies of this material at prescribed rates by writing to the Securities
and Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC toll free at 1-800-SEC-0330. The SEC
also maintains an internet Website that contains reports, proxy and information
statements and other information regarding registrants such as us that file
electronically with the SEC. The address of this Website is http://www.sec.gov.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Statements contained in this Proxy Statement that are not historical facts
are forward-looking statements that involve risks and uncertainties, including
but not limited to, risks associated with the inherent uncertainty of
pharmaceutical research, product development and commercialization, the impact
of competitive products, patents, and other risks and uncertainties, including
those detailed from time to time in periodic reports, including the Annual
Report for the year ended December 31, 2000 on Form 10-K filed by Shire with the
SEC.
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TABLE OF CONTENTS
PAGE
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SUMMARY..................................................... 1
General..................................................... 1
The Companies............................................... 1
Shire Pharmaceuticals Group plc......................... 1
BioChem Pharma Inc...................................... 1
The Merger and the Merger Agreement......................... 1
Exchange Ratio.......................................... 2
The Exchangeable Shares................................. 2
The Extraordinary General Meeting........................... 3
Date, Time, Place and Purpose........................... 3
Record Date; Shares Entitled to Vote.................... 3
Required Vote........................................... 3
Revocability of Proxies................................. 3
Benefits of the Merger.................................. 3
Recommendation of the Board of Directors................ 4
Reasons for the Merger.................................. 5
Opinion of Financial Adviser............................ 5
Appraisal Rights........................................ 5
Anticipated Accounting Treatment........................ 5
Conditions to the Merger................................ 5
Effective Time of the Merger............................ 6
Termination and Payment of Break Fees................... 6
The Option Agreement.................................... 6
Governmental and Regulatory Matters..................... 6
Court Approval.......................................... 7
Special Resolution...................................... 7
Summary Historical Consolidated Financial Data of
Shire.................................................. 8
Summary Historical Consolidated Financial Data of
BioChem................................................ 9
Summary Unaudited Pro Forma Financial Data.............. 10
Comparative Per Share Data.............................. 19
SHAREHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING........ 21
RISK FACTORS................................................ 22
Risk Factors Relating to the Merger..................... 22
Risk Factors Relating to BioChem........................ 22
Risk Factors Relating to Shire.......................... 27
DESCRIPTION OF BIOCHEM...................................... 28
Therapeutic Products.................................... 29
Vaccine Products........................................ 41
Computer-Assisted Detection Products.................... 46
Investments............................................. 47
Significant Agreements.................................. 47
SHIRE AFTER THE MERGER--THE ENLARGED GROUP.................. 49
Overview................................................ 49
Strategy and Approach................................... 49
Sales and Marketing..................................... 50
Combined Marketed Products.............................. 50
Products Under Development.............................. 51
Drug Delivery Technologies.............................. 52
i
PAGE
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THE EXTRAORDINARY GENERAL MEETING........................... 53
Date, Time, Place and Purpose........................... 53
Matters to be Considered at the Extraordinary General
Meeting................................................ 53
Record Date; Voting Rights; Voting at the Meeting....... 53
Voting of Proxies....................................... 53
THE MERGER.................................................. 55
Background of the Merger................................ 55
Reasons for the Merger.................................. 57
Opinion of Shire's Financial Adviser.................... 57
Governmental Regulation................................. 62
Anticipated Accounting Treatment and Effects............ 63
THE MERGER AGREEMENT........................................ 65
General; Effective Time and Effects of the Merger....... 65
Directors of Shire Immediately Following the Merger..... 65
Conversion of BioChem Shares............................ 65
Exchange Ratio.......................................... 66
Representations and Warranties.......................... 66
Covenants............................................... 66
No Solicitation......................................... 67
Conditions to Closing................................... 68
Termination and Payment of Break Fees................... 70
THE OPTION AGREEMENT........................................ 72
General................................................. 72
Notice of Exercise...................................... 72
Maximum Proceeds........................................ 72
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... 73
WHERE YOU CAN FIND MORE INFORMATION......................... 74
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS................................................ 74
Annex A--Amended and Restated Merger Agreement
Annex B--Plan of Arrangement
Annex C--Option Agreement
Annex D--Opinion of Deutsche Bank
ii
APPENDIX A
AMENDED AND RESTATED MERGER AGREEMENT
DATED AS OF FEBRUARY 21, 2001
AMONG
BIOCHEM PHARMA INC.
SHIRE ACQUISITION INC.
AND
SHIRE PHARMACEUTICALS GROUP PLC
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TABLE OF CONTENTS
PAGE
--------
ARTICLE I THE ARRANGEMENT............................................... A-5
1.1 Closing..................................................... A-5
1.2 Effective Date.............................................. A-5
1.3 Implementation Steps by BioChem............................. A-6
1.4 Implementation Steps by Shire............................... A-6
1.5 Interim Order............................................... A-6
1.6 Articles of Arrangement..................................... A-7
1.7 BioChem Shares Options...................................... A-7
1.8 BioChem Deferred Share Unit Plans and Restricted Share Unit
Plan........................................................ A-7
1.9 Certain Adjustments......................................... A-7
ARTICLE II EXCHANGE OF CERTIFICATES..................................... A-8
2.1 Exchange Fund............................................... A-8
2.2 No Further Ownership Rights in BioChem Common Shares........ A-8
2.3 No Fractional Shire Shares.................................. A-8
2.4 Termination of Exchange Fund................................ A-8
2.5 No Liability................................................ A-8
2.6 Investment of the Exchange Fund............................. A-8
2.7 Lost Certificates........................................... A-9
2.8 Withholding Rights.......................................... A-9
2.9 Affiliates.................................................. A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES.............................. A-9
3.1 Representations and Warranties of Shire..................... A-9
3.2 Representations and Warranties of BioChem................... A-16
3.3 Representations and Warranties of Shire and Exchangeco...... A-24
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS.................... A-25
4.1 Covenants of Shire.......................................... A-25
4.2 Covenants of BioChem........................................ A-27
4.3 Governmental Filings........................................ A-30
4.4 Control of Other Party's Business........................... A-30
ARTICLE V ADDITIONAL AGREEMENTS......................................... A-30
5.1 Preparation of Proxy Statement, Form S-4, Circular, Listing
Particulars and Class 1 Circular............................ A-30
5.2 Shire Board of Directors.................................... A-33
5.3 Access to Information....................................... A-33
5.4 Reasonable Best Efforts..................................... A-34
5.5 BioChem Acquisition Proposals............................... A-35
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PAGE
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5.6 Shire Acquisition Proposals................................. A-36
5.7 Employee Benefits Matters................................... A-37
5.8 Fees and Expenses........................................... A-37
5.9 Directors' and Officers' Indemnification and Insurance...... A-38
5.10 Public Announcements........................................ A-38
5.11 Listing of Shire Shares..................................... A-38
5.12 Affiliates.................................................. A-38
ARTICLE VI CONDITIONS PRECEDENT......................................... A-39
6.1 Conditions to Each Party's Obligation to Effect the
Arrangement................................................. A-39
6.2 Additional Conditions to Obligations of Shire and
Exchangeco.................................................. A-40
6.3 Additional Conditions to Obligations of BioChem............. A-41
ARTICLE VII TERMINATION................................................. A-41
7.1 Termination................................................. A-41
7.2 Effect of Termination....................................... A-42
7.3 Extension; Waiver........................................... A-43
ARTICLE VIII AMENDMENT.................................................. A-43
8.1 Amendment................................................... A-43
8.2 Mutual Understanding Regarding Amendments................... A-43
8.3 Amendment................................................... A-43
ARTICLE IX GENERAL PROVISIONS........................................... A-44
9.1 Non-Survival of Representations, Warranties and
Agreements.................................................. A-44
9.2 Notices..................................................... A-44
9.3 Interpretation.............................................. A-45
9.4 Counterparts................................................ A-45
9.5 Entire Agreement; No Third Party Beneficiaries.............. A-45
9.6 Governing Law............................................... A-45
9.7 Severability................................................ A-45
9.8 Assignment.................................................. A-46
9.9 Submission to Jurisdiction; Waivers......................... A-46
9.10 Currency.................................................... A-46
9.11 Enforcement................................................. A-46
9.12 Definitions................................................. A-46
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LIST OF EXHIBITS AND SCHEDULES
EXHIBIT TITLE
- ------- -----
A Plan of Arrangement
1.3(b) Arrangement Resolution
1.4(a) Shire Resolution
1.4(c) Exchange Trust Agreement
1.4(e) Support Agreement
5.2 Board of Directors and Officers of Shire
5.11 Form of Affiliate Letter (BioChem)
SCHEDULES
- ------------------------------------------------------------------------------------
Shire Disclosure Schedule
BioChem Disclosure Schedule
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RESTATED AND AMENDED MERGER AGREEMENT, dated as of February 21, 2001 (this
"AGREEMENT"), among Shire Pharmaceuticals Group Plc, a company registered in
England under registry number 2883758 ("SHIRE"), Shire Acquisition Inc.
(formerly 3829341 Canada Inc.), a corporation incorporated under the laws of
Canada and a wholly owned subsidiary of Shire ("EXCHANGECO"), and Biochem
Pharma Inc., a corporation incorporated under the laws of Canada ("BIOCHEM").
Terms not otherwise defined herein are defined in Section 8.11.
W I T N E S S E T H :
WHEREAS, the Boards of Directors of BioChem, Shire and Exchangeco deem it
advisable and in the best interests of each corporation and its respective
shareholders that BioChem and Shire engage in a business combination in order to
advance the long-term strategic business interests of BioChem and Shire;
WHEREAS, the combination of BioChem and Shire shall be effected by the terms
of this Agreement through a plan of arrangement, pursuant to Section 192 of the
Canada Business Corporation Act (the "CBCA"), of Exchangeco, Shire and BioChem;
WHEREAS the Arrangement is intended to (i) provide to holders of BioChem
Common Shares who are residents of Canada for purposes of the ITA with the
opportunity to dispose of their BioChem Common Shares in return for Exchangeable
Shares on a tax-deferred or "rollover" basis for Canadian income tax purposes;
and (ii) be treated as a "pooling of interests" for financial reporting purposes
under United States generally accepted accounting principles;
WHEREAS the parties hereto entered into a merger agreement on December 10,
2000 (the "December 10 Merger Agreement").
WHEREAS, in order to induce Shire to enter into the December 10 Merger
Agreement and to consummate the Arrangement, concurrently with the execution and
delivery of the December 10 Merger Agreement, BioChem entered into a share
option agreement with Shire pursuant to which BioChem granted to Shire an
option, exercisable under the circumstances specified therein, to purchase up to
19.9% of the outstanding BioChem Common Shares as of December 8, 2000 on an
undiluted basis;
WHEREAS the parties hereto wish to amend and restate the December 10 Merger
Agreement and therefore agree to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby and thereby, the parties
hereto agree as follows:
ARTICLE I
THE ARRANGEMENT
1.1 CLOSING. Subject to the conditions set forth in Article VI and the
termination rights set forth in Article VII, the closing of the Arrangement (the
"CLOSING") will take place on the first Business Day after the satisfaction or
waiver (subject to applicable law) of the conditions (excluding conditions that,
by their nature, cannot be satisfied until the Closing Date) set forth in
Article VI, unless this Agreement has been terminated pursuant to its terms or
unless another time or date is agreed to in writing by the parties hereto (the
actual time and date of the Closing being referred to herein as the "CLOSING
DATE"). The Closing shall be held at the offices of Stikeman Elliott, 1155
Rene-Levesque Blvd. West, 40th Floor, Montreal, Quebec, unless another place is
agreed to in writing by the parties hereto.
1.2 EFFECTIVE DATE. At the Closing the parties shall take those actions
set forth in this Article I. The Arrangement shall become effective upon the
date shown on the certificate of arrangement to be issued by the Director under
the CBCA (such date and time the Arrangement becomes effective being the
"EFFECTIVE DATE").
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1.3 IMPLEMENTATION STEPS BY BIOCHEM. BioChem covenants and agrees that
BioChem shall:
(a) subject to the terms of this Agreement, as soon as reasonably
practicable, apply in a manner acceptable to Shire, acting reasonably,
under Section 192 of the CBCA for an order approving the Arrangement and
for the Interim Order, and thereafter proceed with and diligently seek
the Interim Order;
(b) subject to the terms of this Agreement, convene and hold the BioChem
Shareholders Meeting for the purpose of considering the Arrangement
Resolution;
(c) except as required for quorum purposes, not adjourn, postpone or cancel
(or propose for adjournment, postponement or cancellation) the BioChem
Shareholders Meeting without Shire's prior written consent except as
required by Laws or required by the BioChem shareholders;
(d) use its reasonable efforts to solicit from the BioChem shareholders
proxies in favor of the approval of the Arrangement Resolution and to
take all other action that is necessary or desirable to secure the
approval of the Arrangement Resolution by the shareholders of BioChem,
except to the extent that the Board of Directors of BioChem has changed
its recommendation in accordance with the terms of this Agreement;
(e) subject to obtaining the approvals as are required by the Interim Order,
proceed with and diligently pursue the application to the Court for the
Final Order;
(f) subject to obtaining the Final Order and the satisfaction or waiver of
the other conditions herein contained in favor of each party, send to the
Director, for endorsement and filing by the Director, the Articles of
Arrangement and such other documents as may be required in connection
therewith under the CBCA to give effect to the Arrangement; and
(g) subject to obtaining the Final Order and the satisfaction or waiver of
the other conditions herein contained in its favor, execute the Support
Agreement and the Exchange Trust Agreement.
1.4 IMPLEMENTATION STEPS BY SHIRE. Shire covenants and agrees that Shire
shall:
(a) subject to the terms of this Agreement, convene and hold the Shire
Shareholders Meeting for the purpose of considering the Shire Resolution;
(b) except as required for quorum purposes, not adjourn, postpone or cancel
(or propose for adjournment, postponement or cancellation) the Shire
Shareholders Meeting without BioChem's prior written consent except as
required by Laws or required by the Shire shareholders;
(c) take all action that is necessary or desirable to secure the approval of
the Shire Resolution by the Shire shareholders, except to the extent that
the Board of Directors of Shire has changed its recommendation in
accordance with the terms of this Agreement; and,
(d) subject to obtaining the Final Order and the satisfaction or waiver of
the other conditions herein contained in its favor, Shire shall and shall
cause Exchangeco to execute and deliver the Support Agreement and the
Exchange Trust Agreement.
1.5 INTERIM ORDER. The notice of motion for the application referred to in
Section 1.3(a) shall request that the Interim Order provide:
(a) for the class of Persons to whom notice is to be provided in respect of
the Arrangement and the BioChem Shareholders Meeting and for the manner
in which such notice is to be provided;
(b) that the requisite approval for the Arrangement Resolution shall be
66 2/3% of the votes cast on the Arrangement Resolution by the
shareholders of BioChem present in person or by proxy at the BioChem
Shareholders Meeting or as may be decided by the Court;
(c) for the grant of the Dissent Rights; and
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(d) that, in all other respects, the terms, restrictions and conditions of
the bylaws and articles of amalgamation of BioChem, including quorum
requirements and all other matters, shall apply in respect of the BioChem
Shareholders Meeting.
1.6 ARTICLES OF ARRANGEMENT.
(a) The Articles of Arrangement shall provide, among other things, that at
the Effective Time, by virtue of the Arrangement and without any action
on the part of the BioChem shareholders, each issued and outstanding
BioChem Common Share (other than BioChem Common Shares held by dissenting
shareholders and cash in lieu of fractional shares) shall be exchanged
(through the steps described in Exhibit A hereto) for Shire Ordinary
Shares. The number of Shire Ordinary Shares for which each BioChem Common
Share shall be exchanged (the "Exchange Ratio") shall be determined as
follows:
IF THE SHIRE ADSS PRICE IS: THE EXCHANGE RATIO SHALL BE:
less than or equal to US $47.20 2.3517
greater than US $47.20 and less than determined by dividing US $37.00 by the
US $70.80 Shire ADSs Price and multiplied by 3
equal to or greater than US $70.80 1.5678
(b) Notwithstanding Section 1.6(a), if a BioChem shareholder elects, Shire
will provide such BioChem shareholder with one-third of a Shire ADS or
one-third of an Exchangeable Share for each Shire Ordinary Share such
shareholder would be entitled to receive pursuant to Section 1.6(a)
(provided that a BioChem shareholder who is not a Canadian resident for
the purpose of the ITA shall not be entitled to receive Exchangeable
Shares). Shire will pay all fees and expenses associated with the
issuance of the Shire Ordinary Shares constituting Shire ADSs to Morgan
Guaranty Trust Company of New York, as depositary (the "DEPOSITARY"), for
the issuance by the Depositary of the associated Shire ADSs.
1.7 BIOCHEM SHARES OPTIONS. The Articles of Arrangement shall further
provide that each BioChem Share Option that was granted pursuant to the BioChem
Share Option Plan which has not been exercised and remains outstanding
immediately prior to the Effective Date and each BioChem Warrant which has not
been exercised and remains outstanding immediately prior to the Effective Date
shall upon the Effective Date be adjusted and become an option or a right, as
applicable, to receive the number of Shire Ordinary Shares that the holder of
such BioChem Share Option or BioChem Warrant would have received if he or she
had exercised such BioChem Share Option or BioChem Warrant immediately prior to
the Effective Date. The exercise price for each such Shire Ordinary Share or
Shire ADS under such BioChem Share Option or BioChem Warrant remaining
outstanding after the Effective Date will be equal to (y) the aggregate exercise
price immediately prior to the Effective Date of the BioChem Common Shares
purchasable pursuant to such BioChem Share Option or BioChem Warrant divided by
(z) the whole number of Shire Ordinary Shares deemed purchasable pursuant to
such BioChem Share Option or BioChem Warrant in accordance with the foregoing,
rounded up to the nearest whole cent. It is the intent of the parties that the
exchange of options pursuant to this Section be covered by Subsection 7(1.4) of
the ITA.
1.8 BIOCHEM DEFERRED SHARE UNIT PLANS AND RESTRICTED SHARE UNIT PLAN. Upon
the Effective Date, Shire shall assume all of the obligations of BioChem under
the BioChem Deferred Share Unit Plans and the BioChem Restricted Share Unit Plan
in accordance with the terms and conditions of such plans.
1.9 CERTAIN ADJUSTMENTS. If, between the date of this Agreement and the
Effective Date, the outstanding Shire Ordinary Shares or the BioChem Common
Shares shall have been changed into a different number of shares or different
class by reason of any reclassification, recapitalization, share split,
split-up, combination or exchange of shares or any extraordinary dividend
payable in cash or property or a
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stock dividend or dividend payable in any other securities shall be declared
with a record date within such period, or any similar event shall have occurred,
the number of Shire Ordinary Shares to be received by the holders of BioChem
Common Shares shall be appropriately adjusted to provide to the holders of
BioChem Common Shares the same economic effect as contemplated by this Agreement
prior to such event.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 EXCHANGE FUND. Prior to the Effective Date, Shire shall appoint a
commercial bank or trust company reasonably acceptable to BioChem having net
capital of not less than $300,000,000, or a subsidiary thereof, to act as
exchange agent hereunder for the purpose of exchanging Certificates for the
Merger Consideration (the "EXCHANGE AGENT"). At or prior to the Effective Date,
Shire shall and shall cause Exchangeco to deposit with the Exchange Agent, in
trust for the benefit of holders of BioChem Common Shares, certificates
representing the Shire Shares issuable on the Effective Date in exchange for
BioChem Common Shares or effect the necessary CREST or other electronic
transfers. Any cash in lieu of fractional Shire Shares (as set forth below) and
certificates of Shire Shares deposited with the Exchange Agent shall hereinafter
be referred to as the "EXCHANGE FUND."
2.2 NO FURTHER OWNERSHIP RIGHTS IN BIOCHEM COMMON SHARES. All Shire Shares
issued and cash paid upon conversion of BioChem Common Shares in accordance with
the terms of the Plan of Arrangement shall be deemed to have been issued or paid
in full satisfaction of all rights pertaining to the BioChem Common Shares.
2.3 NO FRACTIONAL SHIRE SHARES.
(a) No certificates or scrip or Shire Shares representing fractional Shire
Shares or book-entry credit of the same shall be issued upon the
surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any
rights of a shareholder of Shire or a holder of Shire Shares.
(b) Notwithstanding any other provision of this Agreement, each holder of
BioChem Common Shares exchanged pursuant to this Agreement who would
otherwise have been entitled to receive a fraction of a Shire Share
(after taking into account all Certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest), the whole as set
forth in the Plan of Arrangement.
2.4 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Date shall be delivered to Shire or otherwise on the instruction of
Shire, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to Shire for any cash in lieu of
fractional Shire Shares to which such holders are entitled pursuant to
Section 2.3. Any such portion of the Exchange Fund remaining unclaimed by
holders of Certificates five years after the Effective Date (or such earlier
date immediately prior to such time as such amounts would otherwise escheat to
or become property of any Governmental Entity) shall, to the extent permitted by
law, become the property of Shire free and clear of any claims or interest of
any Person previously entitled thereto.
2.5 NO LIABILITY. None of Shire, Exchangeco, BioChem or the Exchange Agent
shall be liable to any Person in respect of any Merger Consideration from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.6 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Shire on a daily basis;
provided, that no such investment or loss thereon shall affect the amounts
payable to BioChem shareholders pursuant to the Plan of Arrangement and the
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other provisions of this Article II. Any interest and other income resulting
from such investments shall promptly be paid to Shire.
2.7 LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by Shire, the
posting by such Person of a bond in such reasonable amount as Shire may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will deliver in exchange for such lost, stolen
or destroyed Certificate any cash in lieu of fractional Shire Shares pursuant to
this Agreement.
2.8 WITHHOLDING RIGHTS. Shire shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of BioChem Common Shares such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code and the ITA
and the rules and regulations promulgated thereunder, or any provision of state,
provincial, local or foreign tax law. To the extent that amounts are so withheld
by Shire, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the BioChem Common Shares in
respect of which such deduction and withholding was made by Shire provided that
such withheld amounts are actually remitted to the appropriate taxing authority.
2.9 AFFILIATES. Notwithstanding anything to the contrary herein, to the
fullest extent permitted by law, no certificates representing Shire Shares or
cash shall be delivered to a Person who may be deemed an "affiliate" of BioChem
in accordance with Section 5.11 hereof for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "SECURITIES ACT") until such Person has
executed and delivered an Affiliate Agreement to Shire.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SHIRE. Except as set forth in the
Shire Disclosure Schedule delivered by Shire to BioChem prior to the execution
of this Agreement (the "SHIRE DISCLOSURE SCHEDULE"), Shire represents and
warrants to BioChem as follows:
(a) ORGANIZATION AND POWER; SUBSIDIARIES.
(i) Each of Shire and its Subsidiaries is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation or
organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized and existing or
to have such power and authority, in the aggregate, would not have a
Material Adverse Effect on Shire, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the
failure so to qualify or to be in good standing, in the aggregate, would
not have a Material Adverse Effect on Shire. The copies of the
certificate of incorporation and Memorandum and Articles of Association
of Shire, which were previously furnished or made available to BioChem,
are true, complete and correct copies of such documents as in effect on
the date of this Agreement.
(ii) Section 3.1(a)(ii) of the Shire Disclosure Schedule sets forth all the
Subsidiaries of Shire which, as of the date of this Agreement, are
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of
the SEC). All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and non-assessable and are, except as set
forth on the Shire Disclosure Schedule, owned directly or indirectly by
Shire, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively "LIENS") and free of any other restriction
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(including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests), except for
restrictions imposed by applicable securities laws. Except as set forth
in the Shire SEC Reports (as defined in Section 3.1(d)) filed prior to
the date hereof, as of the date of this Agreement, neither Shire nor
any of its Subsidiaries directly or indirectly owns any equity or
similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity
(other than Subsidiaries), that is or would be material to Shire and
its Subsidiaries taken as a whole.
(b) CAPITAL STRUCTURE.
(i) As of December 7, 2000, the authorized share capital of Shire consisted
of 400,000,000 Shire Ordinary Shares and the issued share capital
consisted of 256,837,043 Shire Ordinary Shares. Since December 7, 2000
to the date of this Agreement, there have been no issuances of Shire
Ordinary Shares or any other securities of Shire other than issuances of
Shire Ordinary Shares pursuant to options or rights outstanding as of
December 7, 2000 under the Shire Share Option Plans. All issued and
outstanding Shire Ordinary Shares are, and when Shire Ordinary Shares
will be issued pursuant to this Agreement, such shares will be duly
authorized, validly issued, fully paid and non-assessable and free of
any preemptive rights. There were outstanding as of December 7, 2000, no
options, warrants or other rights to acquire Shire Ordinary Shares other
than rights pursuant to awards under the Shire Pharmaceuticals
Group plc Long Term Incentive Plan (the "LONG TERM INCENTIVE PLAN") and
under the Shire Pharmaceuticals Executive Share Option Scheme (parts A
and B), the Richwood 1993 Stock Option Plan, the Richwood 1995 Stock
Option Plan, the Shire Holdings Limited Share Option Scheme, the
Imperial Pharmaceutical Services Limited Employee Share Option Scheme
(Number One), the Pharmavene 1991 Stock Option Plan (as amended), the
Shire Pharmaceuticals Sharesave Scheme, the Shire Pharmaceuticals
Group plc Employee Stock Purchase Plan, the Roberts' Incentive Stock
Option Plan, the Shire Pharmaceuticals Group plc 2000 Executive Share
Option Scheme, the Roberts' 1996 Equity Incentive Plan and the Roberts'
Restricted Stock Option Plan (together with the Long Term Incentive
Plan, the "SHIRE SHARE OPTION PLANS") to acquire Shire Ordinary Shares
representing in the aggregate the right to purchase approximately
9,913,338 Shire Ordinary Shares and options (collectively, the "SHIRE
SHARE OPTIONS"). Section 3.1(b) of the Shire Disclosure Schedule sets
forth a complete and correct list, as of December 7, 2000, of the number
of Shire Ordinary Shares subject to Shire Share Options or other rights
to purchase or receive Shire Ordinary Shares, the dates of grant and the
exercise prices thereof.
(ii) Except as otherwise set forth in this Section 3.1(b) and as
contemplated by the Plan of Arrangement, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to
which Shire or any of its Subsidiaries is a party or by which any of
them is bound obligating Shire or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares or other voting securities of Shire or any of its Subsidiaries
or obligating Shire or any of its Subsidiaries to issue, grant, extend
or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, there are no outstanding obligations of Shire or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares
of Shire or any of its Subsidiaries.
(c) AUTHORITY; NO CONFLICTS.
(i) Shire has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby,
subject to the adoption of this Agreement and the Arrangement by the
Required Shire Vote (the "SHIRE SHAREHOLDERS APPROVAL"). The execution
and delivery of this Agreement and the consummation of the transactions
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contemplated hereby have been duly authorized by all necessary corporate
action on the part of Shire, subject to obtaining the Shire Shareholders
Approval. This Agreement has been duly executed and delivered by Shire
and constitutes the valid and binding agreement of Shire, enforceable
against Shire in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally
or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by Shire does not, and the
consummation by Shire of the Arrangement and the other transactions
contemplated hereby will not conflict with, or result in any violation
of, or constitute a default (with or without notice or lapse of time,
or both) under, or give rise to a right of, or result by its terms in
the termination, amendment, cancellation or acceleration of any
obligation or the loss of a material benefit under, or the creation of
a lien, pledge, security interest, charge or other encumbrance on, or
the loss of, any assets, including Intellectual Property (any such
conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "VIOLATION") pursuant
to: (A) any provision of the Memorandum and Articles of Association or
similar organizational documents of Shire or any Significant Subsidiary
of Shire, or (B) except as in the aggregate would not have a Material
Adverse Effect on Shire, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (iii) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or
other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Shire, any Significant Subsidiary of Shire, or
their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state,
provincial, municipal, local or foreign government, any
instrumentality, subdivision, court, administrative agency or
commission or other authority thereof, or any quasi-governmental or
private body exercising any regulatory, taxing, importing or other
governmental or quasi-governmental authority (a "GOVERNMENTAL ENTITY"),
is required by or with respect to Shire or any Subsidiary of Shire in
connection with the execution and delivery of this Agreement by Shire
or the consummation of the Arrangement and the other transactions
contemplated hereby, except for those required under or in relation to
(A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), (B) the Competition Act (Canada) (the "CA"),
(C) state securities or "blue sky" laws (the "BLUE SKY LAWS"), (D) the
Securities Act, (E) the Canadian Securities Laws, (F) the Exchange Act,
(G) the CBCA with respect to the filing of the Articles of Arrangement,
(H) the Financial Services Act 1986, (I) the Listing Rules or the Rules
of the LSE, (J) the Investment Canada Act (the "ICA"), (K) the consent
of a Canadian court to the Plan of Arrangement and (L) such consents,
approvals, orders, authorizations, registrations, declarations and
filings the failures of which to make or obtain, in the aggregate,
would not have a Material Adverse Effect on Shire. Consents, approvals,
orders, authorizations, registrations, declarations and filings
required under or in relation to any of the foregoing clauses (A)
through (K) are hereinafter referred to as "NECESSARY CONSENTS."
(d) REPORTS AND FINANCIAL STATEMENTS.
(i) Shire has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 1999 (collectively, including
all exhibits thereto, the "SHIRE SEC REPORTS"). No Subsidiary of Shire
is required to file any form, report, registration statement, prospectus
or other document with the SEC. None of the Shire SEC Reports, as of
their respective dates (and, if amended or superseded by a filing prior
to the date of this Agreement or the Closing Date, then on the date of
such filing), contained or will contain any untrue statement of a
material fact or omitted or will omit to
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state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading. Each of the financial statements (including
the related notes) included in the Shire SEC Reports presents fairly, in
all material respects, the consolidated financial position and
consolidated results of operations and cash flows of Shire and its
consolidated Subsidiaries as of the respective dates or for the
respective periods set forth therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise
noted therein, and subject, in the case of the unaudited interim
financial statements, to the absence of notes and normal year-end
adjustments that have not been and are not expected to be material in
amount. All of such Shire SEC Reports, as of their respective dates (and
as of the date of any amendment to the respective Shire SEC Report),
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder.
(ii) Except as disclosed in the Shire SEC Reports filed prior to the date
hereof, since December 31, 1999, Shire and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to
be disclosed on a balance sheet of Shire and its Subsidiaries or the
footnotes thereto prepared in conformity with GAAP, other than
liabilities that, in the aggregate, would not have a Material Adverse
Effect on Shire.
(e) INFORMATION SUPPLIED.
(i) None of the information supplied or to be supplied by Shire for
inclusion or incorporation by reference in the Proxy Statement will, at
the time it is filed with the SEC or at any time it is amended or
supplemented, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances
under which they were made. The Proxy Statement will, on the date it is
first mailed to Shire shareholders and at the time of the Shire
Shareholders Meeting, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy
Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e), no
representation or warranty is made by Shire with respect to statements
made in the Proxy Statement based on information supplied by BioChem
for inclusion or incorporation by reference therein or in the Listing
Particulars or Class 1 Circular.
(f) BOARD APPROVAL. The Board of Directors of Shire, by resolutions duly
adopted at a meeting duly called and held and not subsequently rescinded or
modified in any way (the "SHIRE BOARD APPROVAL"), has duly (i) determined that
this Agreement and the Arrangement are fair to and in the best interests of
Shire and its shareholders, and (ii) approved this Agreement and the
Arrangement, and (iii) subject to Section 5.1(f), resolved to recommend that the
shareholders of Shire approve this Agreement and the Arrangement and directed
that this Agreement and the Arrangement be submitted for consideration at the
Shire Shareholders Meeting.
(g) VOTE REQUIRED. The approval of this Agreement and the Arrangement by
the Required Shire Vote is the only vote of the holders of any class or series
of Shire share capital necessary to approve the transactions contemplated by
this Agreement and the Arrangement.
(h) LITIGATION; COMPLIANCE WITH LAWS.
(i) Except as disclosed in the Shire SEC Reports filed prior to the date of
this Agreement, there are no suits, actions, complaints or proceedings
(collectively "ACTIONS") pending or, to the knowledge of Shire,
threatened, against or affecting Shire or any Subsidiary of Shire which,
in the aggregate,
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would have a Material Adverse Effect on Shire, nor are there any
judgments, decrees, injunctions, rules or orders of any Governmental
Entity or arbitrator outstanding against Shire or any Subsidiary of Shire
which, in the aggregate, would have a Material Adverse Effect on Shire.
(ii) Except as disclosed in the Shire SEC Reports filed prior to the date of
this Agreement and except as, in the aggregate, would not have a
Material Adverse Effect on Shire, Shire and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are necessary for the operation of the
businesses of Shire and its Subsidiaries, taken as a whole (the "SHIRE
PERMITS"). Shire and its Subsidiaries are in compliance with the terms
of the Shire Permits, except where the failure to so comply, in the
aggregate, would not have a Material Adverse Effect on Shire. Except as
disclosed in the Shire SEC Reports filed prior to the date of this
Agreement, neither Shire nor any of its Subsidiaries is in violation
of, and Shire and its Subsidiaries have not received any notices of
violations with respect to, any laws, ordinances or regulations of any
Governmental Entity, except for violations which, in the aggregate,
would not have a Material Adverse Effect on Shire.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS.
(i) Except for general tax matters and matters relating to the
pharmaceutical industry generally, liabilities incurred in connection
with this Agreement or the transactions contemplated hereby or disclosed
in the Shire SEC Reports filed prior to the date of this Agreement, and
except as permitted by Section 4.1, since September 30, 2000, Shire and
its Subsidiaries have conducted their business only in the ordinary
course. Except as disclosed in the Shire SEC Reports filed prior to the
date of this Agreement, since September 30, 2000, there have not been
any changes, circumstances or events which, in the aggregate, have had,
or would have, a Material Adverse Effect on Shire.
(ii) Since September 30, 2000 and except for as set forth on
Section 3.1(i)(ii) of the Shire Disclosure Schedule, there has not been
any (A) adoption by Shire or any of its Subsidiaries of any Benefit
Plan to which any of the officers of Shire or a Subsidiary of Shire is
a participant or (B) amendment to any Shire Benefit Plan that resulted
in any material increase in the benefits received or to be received
thereunder by any officer of Shire. Since September 30, 2000, there has
not been any material increase in the aggregate benefits provided under
the Shire Benefit Plans.
(j) ENVIRONMENTAL MATTERS.
(i) Except as disclosed in the Shire SEC Reports filed prior to the date of
this Agreement, Shire and its Subsidiaries, and their respective
business and operations, (A) are in compliance with all applicable
Environmental Laws (including any Environmental Permits) in the United
States and in other applicable foreign jurisdictions with environmental
regulatory jurisdiction over Shire or any of its Subsidiaries and
(B) have obtained all Environmental Permits which are required in order
to carry on their respective businesses and operations as presently
conducted under all applicable Environmental Laws, where non-compliance
or failure to obtain the same would have a Material Adverse Effect on
Shire. Except as disclosed in the Shire SEC Reports filed prior to the
date of this Agreement, neither Shire nor its Subsidiaries with respect
to their respective businesses and operations have at any time received
any written notice, written notice of default, written notice of
cancellation or revocation, orders, summons, or notice of judgment or
commencement of proceedings of any nature related to any breach,
liability or remedial action, or alleged breach, liability or remedial
action, of or arising under Environmental Laws or any Environmental
Permits which would have a Material Adverse Effect on Shire. Neither
Shire nor its Subsidiaries with respect to their respective businesses
and operations have at any time given any written undertakings with
respect to remedying any breach of Environmental Laws or Environmental
Permits or otherwise satisfying requirements under Environmental Laws or
Environmental Permits which have not been duly performed in accordance
with the terms of such
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undertakings, which breach or other requirements would have a Material
Adverse Effect on Shire.
(ii) To the knowledge of Shire, without inquiry to any Governmental Entity,
(A) none of the properties currently or formerly owned or leased by
Shire and its Subsidiaries is identified by any Governmental Entity for
investigation or clean-up pursuant to any Environmental Laws, which in
each of the foregoing instances would result in a Material Adverse
Effect on Shire and (B) there have been no releases in violation of any
applicable Environmental Laws of Hazardous Substances on any currently
owned, leased or operated property or formerly owned, leased or
operated property of Shire or its Subsidiaries, which would result in a
Material Adverse Effect on Shire.
(iii) Except as disclosed in the Shire SEC Reports filed prior to the date of
this Agreement, to the knowledge of Shire, neither Shire nor any of its
Subsidiaries is subject to any Environmental Losses that would have a
Material Adverse Effect on Shire.
(k) INTELLECTUAL PROPERTY. Except as in the aggregate would not have a
Material Adverse Effect on Shire and except as disclosed in the Shire SEC
Reports filed prior to the date of the Agreement, to the knowledge of Shire:
(i) Shire and each of its Subsidiaries owns (in each case, free and clear of any
Liens), controls or has license to use, all Intellectual Property used in or
necessary for the conduct of its business as currently conducted; (ii) Shire and
its Subsidiaries are not infringing or otherwise violating the Intellectual
Property of any Person and are acting in accordance with any applicable license
pursuant to which Shire or any Subsidiary acquired the right to use any
Intellectual Property; (iii) no Person is challenging or claiming the invalidity
or unenforceability of any Intellectual Property owned or controlled by and/or
licensed to Shire or its Subsidiaries used in or necessary for the conduct of
its business as currently conducted; and (iv) neither Shire nor any of its
Subsidiaries has received any written notice or otherwise has knowledge of any
pending or threatened claim, order or proceeding with respect to any
Intellectual Property owned, controlled, licensed or used by Shire or its
Subsidiaries and no Intellectual Property owned, controlled and/or licensed by
Shire or its Subsidiaries is being used or enforced in a manner that would
result in the abandonment, cancellation or unenforceability of such Intellectual
Property. For purposes of this Agreement, "Intellectual Property" shall mean
patents, applications for patents (including, without limitation, utility models
and all divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction, trademarks (registered or unregistered), service marks, brand
names, domain names, certification marks, trade dress and other indications of
origin, the goodwill associated with the foregoing and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the
foregoing, including any extension, modification or renewal of any such
registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; nonpublic information, trade secrets and
confidential or proprietary information and rights in any jurisdiction to limit
the use or disclosure thereof by any person; writings and other works, whether
copyrightable or not, in any jurisdiction, and any renewals or extensions
thereof and any similar intellectual property or proprietary rights.
(l) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Shire, except Deutsche Bank whose fees and expenses will be paid
by Shire in accordance with Shire's agreement with such firm, copies of which
have been provided to BioChem.
(m) TAXES.
(i) Each of Shire and its Subsidiaries has filed in a timely manner all
material Tax Returns required to have been filed (or extensions have
been duly obtained), and has paid in a timely manner all Taxes required
to have been paid by it and has made adequate accrual for all material
taxes not yet due and payable. Each such Tax Return is complete and
accurate in all material respects. Any
A-14
deficiencies or assessments asserted in writing by any taxing authority
against Shire or any of its Subsidiaries have been paid or fully
settled. There are no claims or assessments pending (or, to the best
knowledge or Shire, threatened) against Shire or any of its Subsidiaries
for any alleged Tax deficiency and no issue has been raised in writing
by any taxing authority or representative thereof. No extension of the
period for assessment or collection of any Tax of Shire or its
Subsidiaries is currently in effect and no extension of time within
which to file any Tax Return has been requested, which Tax Return has
not since been filed.
(ii) Shire is not and will not be at any time a "foreign investment entity"
as that term is defined in the June 22, 2000 proposed amendments to the
ITA together with proposed amendments thereto as announced on
September 7, 2000 (the "PROPOSED AMENDMENTS"). The Exchangeable Shares
will be and remain an "exempt interest" as that term is defined in the
Proposed Amendments.
For purposes of this Agreement: (A) "TAX" (and, with correlative meaning,
"TAXES") means (i) any federal, state, provincial, local or foreign income,
gross receipts, property, sales, use, license, excise, franchise, employment,
payroll, withholding, alternative or add on minimum, ad valorem, transfer or
excise tax, or any other tax, customs, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority, and (ii) any transferee,
successor or joint and several liability by contract or otherwise in respect of
any items described in clause (i), and (B) "TAX RETURN" means any return, report
or similar statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax.
(n) BENEFIT PLANS
(i) Except as disclosed in the Shire SEC Reports filed prior to the date of
this Agreement, (A) there are no registered or supplementary pension,
retirement, profit sharing, bonus, savings, deferred compensation, share
option, purchase, appreciation, group insurance or other material
employee or retiree benefit plans, programs or arrangements, including
collective agreements, maintained or contributed to by Shire or any of
its Subsidiaries or in respect of which any such entity has an actual or
contingent liability (each such plan, program or arrangement, a "PLAN"),
(B) there are no outstanding violations or defaults thereunder nor any
actions, claims, or other proceedings pending or, to the knowledge of
Shire, threatened in writing with respect to any of the Plans, (C) the
Plans are registered, and have at all times been invested and
administered, in accordance with Laws and regulatory policy and the
terms of the Plans, (D) no event has occurred which would entitle any
person to terminate any Plan or adversely affect the tax status of any
Plan; (E) to the knowledge of Shire, there have been no withdrawals of
surplus or contribution holiday except as permitted by Law and the terms
of the Plans and (F) no Plan is underfunded on either a going concern or
a solvency basis as of the date of its most recent actuarial evaluation,
where the effect of any such undisclosed Plan, violation, default,
action, claim, proceeding, promise, commitment, event, withdrawal,
contribution holiday, failure to comply or underfunding would, in the
aggregate, have a Material Adverse Effect on Shire.
(ii) Except as disclosed in the Shire SEC Reports filed prior to the date of
this Agreement, none of the Plans with respect to Shire is subject to
the United States EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, as
amended ("ERISA"). With respect to each Plan that is subject to ERISA
(an "ERISA PLAN") and any ERISA Affiliate Plan (A) if such ERISA Plan
is intended to be qualified under Section 401(a) of the Code, such
ERISA Plan has been determined by the United States Internal Revenue
Service (the "IRS") to be so qualified and each trust related to any
such ERISA Plan has been determined to be exempt from federal income
Tax under Section 501(a) of the Code and no circumstance has occurred
or exists which might reasonably be expected to cause such plan or
trust to cease being so qualified or exempt from Tax; (B) such ERISA
Plan has complied in all material respects with ERISA, and all other
applicable Laws; (C) no accumulated
A-15
funding deficiency, as defined in Section 302 of ERISA and Section 412
of the Code, whether or not waived, exists with respect to such Plan or
any ERISA Affiliate Plan; (D) with respect to each single-employer
ERISA Plan and ERISA Affiliate Plan subject to Title IV of ERISA, as of
the last day of the most recent plan year ended prior to the date
hereof, the actuarially determined present value of all "benefit
liabilities" (as defined under Section 4001(a)(16) of ERISA) under such
plan, determined on the basis of the actuarial assumptions in effect
for such plan year, did not exceed the then current value of the assets
of such plan; and (E) none of Shire, any of its Subsidiaries or any
ERISA Affiliate has incurred or expects to incur any liability to the
United States Pension Benefit Guaranty Corporation with respect to any
ERISA Plan or ERISA Affiliate Plan or any withdrawal liability under
Title IV of ERISA with respect to any "Multiemployer Plan", where the
effect of such event, condition, action or failure to act under
(A) through (E) above would, in the aggregate, have a Material Adverse
Effect on Shire. Except as disclosed in the Shire SEC Reports filed
prior to the date of this Agreement, none of Shire, or any of its
Subsidiaries maintains or contributes to any employee welfare benefit
plan (as defined in Section 3(1) of ERISA) which is subject to ERISA
and which provides medical benefits to employees after termination of
employment other than as required by Section 601 of ERISA or other
applicable Law, or the cost of which is paid for by the covered
employees.
(iii) For purposes of this Agreement, "ERISA AFFILIATE" means (A) any
corporation which is a member of the same controlled group of
corporations, within the meaning of Section 414(b) of the Code, as
Shire or BioChem, as the case may be, or any of their respective
Subsidiaries, as the case may be, or (B) any partnership or trade or
business (whether or not incorporated) under common control, within the
meaning of Section 414(c) of the Code, with Shire or BioChem, as the
case may be, or any of their respective Subsidiaries; "MULTIEMPLOYER
PLAN" means any Plan that is a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA); and "ERISA AFFILIATE PLAN" means any
single-employer plan subject to Title IV or Section 302 of ERISA
maintained or contributed to by an ERISA Affiliate.
(o) LICENSES. Shire and its Subsidiaries have obtained all permits,
concessions, grants, franchises, licenses and other federal, state, local or
foreign governmental authorizations and approvals (collectively, "LICENSES")
material, individually or in the aggregate, to the conduct of the business of
Shire and its Subsidiaries taken as a whole. All of such Licenses are in full
force and effect and, to the knowledge of Shire, will not be impaired or
adversely affected by the Arrangement in a manner or to a degree that would have
a Material Adverse Effect on Shire. There is not pending or, to the knowledge of
Shire, threatened any domestic or foreign suit or proceeding with respect to the
suspension, revocation, cancellation, modification or non-renewal of any of such
Licenses, and no event under the control of Shire has occurred that (whether
with notice or lapse of time, or both) would result in a suspension or
revocation of or failure to renew any of the Licenses, the loss of which would
have a Material Adverse Effect on Shire.
(p) POOLING OF INTERESTS. Neither Shire nor any of its Affiliates has
taken or agreed to take any action or failed to take any action that would
prevent the Arrangement from being treated for financial accounting purposes as
a "pooling of interests" in accordance with US GAAP and the regulations and
interpretations of the SEC.
3.2 REPRESENTATIONS AND WARRANTIES OF BIOCHEM. Except as set forth in the
BioChem Disclosure Schedule delivered by BioChem to Shire prior to the execution
of this Agreement (the "BIOCHEM DISCLOSURE SCHEDULE"), BioChem represents and
warrants to Shire as follows:
(a) ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.
(i) Each of BioChem and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction
of incorporation or organization, has the requisite power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted, except where the failure to be so organized,
existing and in good standing or to
A-16
have such power and authority, in the aggregate, would not have a
Material Adverse Effect on BioChem. Each of BioChem and its Subsidiaries
is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than
in such jurisdictions where the failures so to qualify or to be in good
standing in the aggregate would not have a Material Adverse Effect on
BioChem. The copies of the articles of amalgamation and bylaws of
BioChem, which were previously furnished or made available to Shire, are
true, complete and correct copies of such documents as in effect on the
date of this Agreement.
(ii) Section 3.2(a)(ii) of the BioChem Disclosure Schedule sets forth all of
the Subsidiaries of BioChem as of the date of this Agreement. All the
outstanding shares of capital stock of, or other equity interests in,
each such Subsidiary have been validly issued and are fully paid and
non-assessable and are, except as set forth on the BioChem Disclosure
Schedule, owned directly or indirectly by BioChem, free and clear of
all Liens and free of any other restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock
or other ownership interests), except for restrictions imposed by
applicable securities laws or contained in the articles of such
companies. Except as Publicly Disclosed by BioChem prior to the date of
this Agreement, neither BioChem nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or
other business association or entity (other than Subsidiaries), that is
material to BioChem and its Subsidiaries taken as a whole.
(b) CAPITAL STRUCTURE.
(i) As of November 24, 2000, the authorized capital of BioChem consisted of
an unlimited number of BioChem Common Shares, of which 101,323,410
shares were issued and outstanding. Since November 24, 2000 to the date
of this Agreement, there have been no issuances of shares in the capital
of BioChem or any other securities of BioChem other than issuances of
shares pursuant to options outstanding as of November 24, 2000 under the
Benefit Plans of BioChem. All issued and outstanding shares in the
capital of BioChem are duly authorized, validly issued, fully paid and
non-assessable, and no class of shares is entitled to preemptive rights.
There were outstanding as of November 24, 2000 no options, warrants or
other rights to acquire shares of BioChem other than (w) options and
other rights to acquire shares of BioChem representing in the aggregate
the right to purchase 6,873,711 BioChem Common Shares (collectively, the
"BIOCHEM SHARE OPTIONS") under BioChem's Shares Option Plan (the
"BIOCHEM SHARE OPTION PLAN"), and (x) options to acquire 123,476 BioChem
Common Shares at an exercise price of $5.15 expiring in July 2001
granted to Investissement Quebec pursuant to an agreement dated
June 21, 1991 (the "INVESTISSEMENT QUEBEC OPTIONS"); and
(y) undertaking to issue warrants in two tranches in 2001 and 2002 to
the Government of Canada giving the right to acquire BioChem Common
Shares at an exercise price equal to the closing price on the TSE prior
to their respective issuance, the whole pursuant to an agreement dated
March 31, 2000 ("BioChem Warrant") and (z) the memorandum of agreement
dated September 1997 with two senior employees relating to options to
acquire 40,000 BioChem Common Shares. Section 3.2(b) of the BioChem
Disclosure Schedule sets forth a complete and correct list, as of
November 24, 2000, of the number of BioChem Common Shares subject to
BioChem Shares Options, the dates of grant and the exercise prices
thereof.
(ii) No bonds, debentures, notes or other indebtedness of BioChem having the
right to vote on any matters on which its shareholders may vote
("BIOCHEM VOTING DEBT") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.2(b), as of the date of
this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or
A-17
undertakings of any kind to which BioChem or any of its Subsidiaries is
a party or by which any of them is bound obligating BioChem or any of
its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares in its capital or other voting
securities of BioChem or any of its Subsidiaries or obligating BioChem
or any of its Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement, there are
no outstanding obligations of BioChem or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares in the capital of
BioChem or any of its Subsidiaries.
(c) AUTHORITY; NO CONFLICTS.
(i) BioChem has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby,
subject in the case of the consummation of the Arrangement to the
adoption of this Agreement by the Required BioChem Vote. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of BioChem, subject in the case of the consummation
of the Arrangement to the adoption of this Agreement by the BioChem
shareholders at the BioChem Shareholders Meeting. This Agreement has
been duly executed and delivered by BioChem and constitutes the valid
and binding agreement of BioChem, enforceable against it in accordance
with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors generally or by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by BioChem does not or
will not, as the case may be, and the consummation by BioChem of the
Arrangement and the other transactions contemplated hereby will not
conflict with, or result in a Violation pursuant to: (x) any provision
of the articles of amalgamation or bylaws of BioChem or any Subsidiary
of BioChem or (y) except as in the aggregate would not have a Material
Adverse Effect on BioChem or, subject to obtaining or making the
consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below, any loan
or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to BioChem, any Subsidiary of BioChem or
any of their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or
with respect to BioChem or any Subsidiary of BioChem in connection with
the execution and delivery of this Agreement by BioChem or the
consummation of the Arrangement and the other transactions contemplated
hereby and thereby, except (i) the Necessary Consents, (ii) the
consents required under Canadian Securities Laws and by the rules and
regulations of the NASDAQ and the TSE and (iii) such consents,
approvals, orders, authorizations, registrations, declarations and
filings the failure of which to make or obtain, in the aggregate, would
not have a Material Adverse Effect on BioChem.
(d) REPORTS AND FINANCIAL STATEMENTS.
(i) BioChem has filed all required registration statements, prospectuses,
reports, schedules, forms, statements, press releases and other
documents required to be filed by it with the OSC, the QSC and the SEC
since January 1, 1999 (collectively, including all exhibits thereto, the
"BIOCHEM REPORTS"). No Subsidiary of BioChem is required to file any
form, report, registration statement or prospectus or other document
with the OSC, the QSC or the SEC. None of the BioChem Reports, as of
their respective dates (and, if amended or superseded by a filing prior
to the date of this Agreement or the Closing Date, then on the date of
such filing), contained or will contain any untrue statement of a
material fact or omitted or will omit to state a material fact required
to
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be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. Each of
the financial statements (including the related notes) included in the
BioChem Reports presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations
and cash flows of BioChem and its consolidated Subsidiaries as of the
respective dates or for the respective periods set forth therein, all in
conformity with GAAP consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to the absence of notes and
normal and recurring year-end adjustments that have not been and are not
expected to be material in amount. All of such BioChem Reports, as of
their respective dates (and as of the date of any amendment to any such
BioChem Report), complied as to form in all material respects with the
applicable requirements of Canadian Securities Laws or, as the case may
be, the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, since September 30, 2000, BioChem and its Subsidiaries have
not incurred any liabilities that are of a nature that would be
required to be disclosed on a balance sheet of BioChem and its
Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than liabilities that, in the aggregate, would not have a
Material Adverse Effect on BioChem.
(e) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by BioChem for inclusion or incorporation by reference in the Proxy
Statement will, at the time of the BioChem Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
(f) BOARD APPROVAL. The Board of Directors of BioChem, by resolutions duly
adopted by unanimous vote of those voting at a meeting duly called and held and
not subsequently rescinded or modified in any way (the "BIOCHEM BOARD
APPROVAL"), has duly (i) determined that this Agreement and the Arrangement are
fair to and in the best interests of BioChem and its shareholders,
(ii) approved this Agreement and the Arrangement and (iii) subject to
Section 5.1(e), recommended that the shareholders of BioChem adopt this
Agreement and approve the Arrangement and directed that this Agreement and the
Arrangement be submitted for consideration by BioChem's shareholders at the
BioChem Shareholders Meeting.
(g) VOTE REQUIRED. Subject to the Interim Order, the approval of this
Agreement and the Arrangement by the Required BioChem Vote is the only vote of
the holders of any class or series of BioChem share capital necessary to approve
the transactions contemplated by this Agreement and the Arrangement.
(h) LITIGATION; COMPLIANCE WITH LAWS.
(i) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, there are no Actions pending or, to the knowledge of BioChem,
threatened, against or affecting BioChem or any Subsidiary of BioChem
which, in the aggregate, would have a Material Adverse Effect on
BioChem, nor are there any judgments, decrees, injunctions, rules or
orders of any Governmental Entity or arbitrator outstanding against
BioChem or any Subsidiary of BioChem which, in the aggregate, would have
a Material Adverse Effect on BioChem.
(ii) Except as Publicly Disclosed by BioChem prior to the date of the
Agreement and except as would, in the aggregate, not have a Material
Adverse Effect on BioChem, BioChem and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the operation of the businesses of
BioChem and its Subsidiaries, taken as a whole (the "BIOCHEM PERMITS").
BioChem and its Subsidiaries are in compliance with the terms of the
BioChem Permits, except where the failure to so comply, in the
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aggregate, would not have a Material Adverse Effect on BioChem. Except
as Publicly Disclosed by BioChem prior to the date of this Agreement,
neither BioChem nor any of its Subsidiaries is in violation of, and
BioChem and its Subsidiaries have not received any notices of
violations with respect to, any laws, ordinances or regulations of any
Governmental Entity, except for violations which, in the aggregate,
would not have a Material Adverse Effect on BioChem.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS.
(i) Except for liabilities incurred in connection with this Agreement or the
transactions contemplated hereby, except as Publicly Disclosed by
BioChem prior to the date of this Agreement, and except as permitted by
Section 4.2, since September 30, 2000, BioChem and its Subsidiaries have
conducted their business only in the ordinary course. Except as Publicly
Disclosed by BioChem prior to the date of this Agreement, since
March 31, 2000, there have not been any changes, circumstances or events
which have had, or would have, a Material Adverse Effect on BioChem,
provided that, on the basis of all facts and information disclosed by
BioChem to Shire as at the date hereof, the outcome of the proceedings
instituted by Emory University in the United States shall not, for the
purpose of this Agreement, be considered to have a Material Adverse
Effect on BioChem.
(ii) Since September 30, 2000 and except for as set forth in
Section 3.2(i)(ii) of the BioChem Disclosure Schedule, there has not
been any (A) adoption by BioChem or any of its Subsidiaries of any
Benefit Plan to which any of BioChem's officers is a participant or
(B) amendment to any BioChem Benefit Plan that resulted in any material
increase in the benefits received or to be received thereunder by any
officer of BioChem. Since September 30, 2000, there has not been any
material increase in the aggregate benefits provided under the BioChem
Benefit Plans.
(j) ENVIRONMENTAL MATTERS.
(i) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, BioChem and its Subsidiaries, and their respective business
and operations, (A) are in compliance with all applicable Environmental
Laws (including any Environmental Permits) in Canada and in other
applicable foreign jurisdictions with environmental regulatory
jurisdiction over BioChem or any of its Subsidiaries and (B) have
obtained all Environmental Permits which are required in order to carry
on their respective businesses and operations as presently conducted
under all applicable Environmental Laws, where non-compliance or failure
to obtain the same would have a Material Adverse Effect on BioChem prior
to the date of this Agreement. Except as Publicly Disclosed by BioChem
prior to the date of this Agreement, neither BioChem nor its
Subsidiaries with respect to their respective businesses and operations
have at any time received any written notice, written notice of default,
written notice of cancellation or revocation, orders, summons, or notice
of judgment or commencement of proceedings of any nature related to any
breach, liability or remedial action, or alleged breach, liability or
remedial action, of or arising under Environmental Laws or any
Environmental Permits which would have a Material Adverse Effect on
BioChem. Neither BioChem nor its Subsidiaries with respect to their
respective businesses and operations have at any time given any written
undertakings with respect to remedying any breach of Environmental Laws
or Environmental Permits or otherwise satisfying requirements under
Environmental Laws or Environmental Permits which have not been duly
performed in accordance with the terms of such undertakings, which
breach or other requirements would have a Material Adverse Effect on
BioChem.
(ii) To the knowledge of BioChem, without inquiry to any Governmental
Entity, (A) none of the properties currently or formerly owned or
leased by BioChem and its Subsidiaries is identified by any
Governmental Entity for investigation or clean-up pursuant to any
Environmental Laws, which in each of the foregoing instances would
result in a Material Adverse Effect on BioChem and (B) there have been
no releases in violation of any applicable Environmental Laws of
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Hazardous Substances on any currently owned, leased or operated
property or formerly owned, leased or operated property of BioChem or
its Subsidiaries, which would result in a Material Adverse Effect on
BioChem.
(iii) Except as publicly disclosed by BioChem prior to the date of this
Agreement, to the knowledge of BioChem, neither BioChem nor any of its
Subsidiaries is subject to any Environmental Losses that would have a
Material Adverse Effect on BioChem.
(k) INTELLECTUAL PROPERTY.
(i) The BioChem Disclosure Schedule contains a worldwide list of all
material patents and trademarks, and applications for any of the
foregoing owned, licensed or controlled by BioChem or any of its
Subsidiaries.
(ii) Except as in the aggregate would not have a Material Adverse Effect on
BioChem or its Subsidiaries or except as set forth in BioChem
Disclosure Schedule:
1. BioChem and each of its Subsidiaries owns (in each case free and
clear of all Liens) or has license to use all Intellectual Property
used in or necessary for the conduct of their respective businesses
as currently conducted. Such Intellectual Property and the rights
thereto are restricted to the Intellectual Property rights in
relation to the products listed in Section 3.2(k) of BioChem
Disclosure Schedule and are collectively referred to herein as the
"BioChem IP Rights". Except as set forth in Section 3.2(k) of BioChem
Disclosure Schedule hereto, no royalties or other payments are
payable to any third party with respect to commercialization of any
products presently sold or under development by BioChem or its
Subsidiaries listed in Section 3.2(k) of BioChem Disclosure Schedule
or licensed by BioChem or its Subsidiaries to third parties;
2. the execution, delivery and performance of this Agreement by BioChem
or any of its Subsidiaries and the consummation by BioChem or any of
its Subsidiaries of the transactions contemplated hereby will not
constitute a breach by BioChem or any of its Subsidiaries of any
instrument or agreement governing any BioChem IP Rights and will not
(i) result in BioChem's default (subject to damages) with respect to
any obligation contained therein, (ii) cause the modification of any
terms of any licenses or agreements relating to any BioChem IP Rights
including but not limited to the modification of the effective rate
of any royalties or other payments provided for in any such license
or agreement, (iii) cause forfeiture or termination of any BioChem IP
Rights, (iv) give rise to a right of forfeiture or termination of any
BioChem IP Rights or (v) impair the right of BioChem, any successor
corporation to BioChem following the Effective Date or Shire to use,
sell or license any BioChem IP Rights or portion thereof;
3. to BioChem's knowledge, neither the manufacture, marketing, license,
sale or intended use of any product listed in Section 3.2(k) of
BioChem Disclosure Schedule (i) violates in any respect any license
or agreement between BioChem or any of its Subsidiaries and any third
party or (ii) infringes any patents or other Intellectual Property
rights of any other party; and, except as set forth in BioChem
Disclosure Schedule hereto, there is no pending or threatened claim
or litigation contesting the validity, ownership or right to use,
sell, license or dispose of any BioChem IP Rights, or asserting that
any BioChem IP Rights or the proposed use, sale, license or
disposition thereof, or the manufacture, use or sale of any BioChem
products, conflicts or will conflict with the rights of any other
party;
4. to BioChem's knowledge, no Person is infringing or otherwise
violating the BioChem IP Rights;
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5. BioChem has provided to Shire a true and complete copy of its current
standard form of employment agreement providing for an Intellectual
Property assignment undertaking; all BioChem officers and principal
scientists, past or present, whether employees or independent
contractors, listed in BioChem Disclosure Schedule, have executed
such an agreement or one substantially similar thereto, thereby
assigning to BioChem any rights such employees or contractors might
have in the BioChem IP Rights; BioChem has taken all commercially
reasonable steps to ensure that all other BioChem employees and
independent contractors have executed such an agreement;
6. BioChem has taken commercially reasonable steps, in accordance with
industry standards, to protect the confidentiality of its trade
secrets and inventions, notably ensuring that all BioChem officers
and principal scientists listed in BioChem Disclosure Schedule have
executed appropriate non-disclosure agreements and making
commercially reasonable efforts to ensure all other employees,
consultants or third parties with access to BioChem confidential
information execute such agreements; and
7. neither BioChem nor any of its Subsidiaries has entered into any
agreement to indemnify any other person, including but not limited to
any employee or consultant of BioChem or any of its Subsidiaries,
against any charge of infringement, misappropriation or misuse of any
intellectual property, other than indemnification provisions
contained in purchase orders or agreements with trade customers
arising in the ordinary course of business or indemnifications to
licensees or licensors in applicable license agreements.
(l) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of BioChem except Chase Securities Inc. and Merrill Lynch & Co.,
each of whose fees and expenses will be paid by BioChem in accordance with
BioChem's agreements with such firms, copies of which have been provided to
Shire.
(m) OPINIONS OF BIOCHEM FINANCIAL ADVISORS. BioChem has received the
opinion of Chase Securities Inc. and the opinion of Merrill Lynch & Co., each
dated the date of this Agreement, and each to the effect that, as of such date,
the Merger Consideration is fair, from a financial point of view, to the holders
of BioChem Common Shares, a copy of which opinions have been made available to
Shire.
(n) TAXES.
(i) Each of BioChem and its Subsidiaries has timely filed all material Tax
Returns required to have been filed (or extensions have been duly
obtained) and has timely paid all Taxes required to have been paid by it
and has made adequate accrual for all material taxes not yet due and
payable. Each such Tax Return is complete and accurate in all material
respects. Any deficiencies or assessments asserted in writing by any
taxing authority against BioChem or any of its Subsidiaries have been
paid or fully settled. There are no claims or assessments pending (or,
to the best knowledge of BioChem, threatened) against BioChem or any of
its Subsidiaries for any alleged Tax deficiency and no issue has been
raised in writing by any taxing authority or representative thereof. No
extension of the period for assessment or collection of any Tax of
BioChem or its Subsidiaries is currently in effect and no extension of
time within which to file any Tax Return has been requested, which Tax
Return has not since been filed.
(ii) No corporation, partnership or other entity owned directly or
indirectly in whole or in part by BioChem is a "United States person",
as defined under Section 7701(a) (30) of the Internal Revenue Code of
1986, as amended. Except as disclosed in BioChem Disclosure Schedule,
neither BioChem nor any corporation, partnership or other entity owned
directly or indirectly in whole or in part by BioChem is engaged in a
trade or business in the United States or is subject to
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any U.S. federal, state or local taxes other than U.S. source
withholding taxes in respect of portfolio investments.
(o) BENEFIT PLANS
(i) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, (A) there are no Plans, (B) there are no outstanding
violations or defaults thereunder nor any actions, claims, or other
proceedings pending or, to the knowledge of BioChem, threatened in
writing with respect to any of the Plans, (C) the Plans are registered,
filed with the appropriate Governmental Entity and have at all times
been invested and administered, in accordance with Laws and regulatory
policy and the terms of the Plans, (D) no event has occurred which would
entitle any person to terminate any Plan or adversely affect the tax
status of any Plan; (E) to the knowledge of BioChem, there have been no
withdrawals of surplus or contribution holiday except as permitted by
Law and the terms of the Plans and (F) no Plan is underfunded on either
a going concern or a solvency basis as of the date of its most recent
actuarial evaluation, where the effect of any such undisclosed Plan,
violation, default, action, claim, proceeding, promise, commitment,
event, withdrawal, contribution holiday, failure to comply or
underfunding would have a Material Adverse Effect on BioChem.
(ii) Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, none of the Plans with respect to BioChem is subject to
ERISA. With respect to each ERISA Plan and any ERISA Affiliate Plan
(A) if such ERISA Plan is intended to be qualified under
Section 401(a) of the Code, such ERISA Plan has been determined by the
United States Internal Revenue Service to be so qualified and each
trust related to any such ERISA Plan has BEEN determined to be exempt
from federal income Tax under Section 501(a) of the Code and no
circumstance has occurred or exists which might cause such plan or
trust to cease being so qualified or exempt from Tax; (B) such ERISA
Plan has complied in all material respects with ERISA, and all other
applicable Laws; (C) no accumulated funding deficiency, as defined in
Section 302 of ERISA and Section 412 of the Code, whether or not
waived, exists with respect to such Plan or any ERISA Affiliate Plan;
(D) with respect to each single-employer ERISA Plan and ERISA Affiliate
Plan subject to Title IV of ERISA, as of the last day of the most
recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities" (as defined under
Section 4001(a)(16) of ERISA) under such plan, determined on the basis
of the actuarial assumptions in effect for such plan year, did not
exceed the then current value of the assets of such plan; and (E) none
of BioChem, any of its Subsidiaries or any ERISA Affiliate has incurred
or expects to incur any liability to the United States Pension Benefit
Guaranty Corporation with respect to any ERISA Plan or ERISA Affiliate
Plan or any withdrawal liability under Title IV of ERISA with respect
to any Multiemployer Plan, where the effect of such event, condition,
action or failure to act under (A) through (E) above would be
reasonably expected to have a Material Adverse Effect on BioChem.
Except as Publicly Disclosed by BioChem prior to the date of this
Agreement, none of BioChem, or any of its Subsidiaries maintains or
contributes to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which is subject to ERISA and which provides
medical benefits to employees after termination of employment other
than as required by Section 601 of ERISA or other applicable Law, or
the cost of which is paid for by the covered employees.
(p) LICENSES. BioChem and its Subsidiaries have obtained all Licenses
material, individually or in the aggregate, to the conduct of the business of
BioChem and its Subsidiaries taken as a whole. All of such Licenses are in full
force and effect and, to the knowledge of BioChem, will not be impaired or
adversely affected by the Arrangement in a manner or to a degree that would have
a Material Adverse Effect on BioChem. There is not pending or, to the knowledge
of BioChem, threatened any domestic or foreign suit or proceeding with respect
to the suspension, revocation, cancellation, modification or non-renewal of any
of such licenses, and no event under the control of BioChem has occurred that
(whether with notice or
A-23
lapse of time, or both) would result in a suspension or revocation of or failure
to renew any of the Licenses, the loss of which would have a Material Adverse
Effect on BioChem.
(q) POOLING OF INTERESTS. Neither BioChem nor any of its Affiliates has
taken or agreed to take any action or failed to take any action that would
prevent the Arrangement from being treated for financial accounting purposes as
a "pooling of interests" in accordance with US GAAP and the regulations and
interpretations of the SEC.
(r) LABOR
(i) No trade union, association of employees, certified association, council
of trade unions, employee bargaining agency or affiliated bargaining
agent, holds bargaining rights with respect to any employees of BioChem
by way of certification, interim certification, voluntary recognition,
designation or successor rights, except for those locations and
employees covered by the collective agreement set forth in
Section 3.2(r)(i) of the BioChem Disclosure Schedule.
(ii) To the best of BioChem's knowledge, there are no organizing activities
of any trade union, council of trade unions, association of employees,
certified association, employee bargaining agency or affiliated
bargaining agent.
3.3 REPRESENTATIONS AND WARRANTIES OF SHIRE AND EXCHANGECO. Shire and
Exchangeco represent and warrant to BioChem as follows:
(a) ORGANIZATION. Exchangeco is a corporation duly incorporated, validly
existing and in good standing under the laws of Canada.
(b) CORPORATE AUTHORIZATION.
(i) Exchangeco has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby.
Shire is, or will be at the Effective Date, directly or indirectly, the
sole shareholder of Exchangeco and has, or will have as at the Effective
Date, given all shareholder approvals necessary for Exchangeco to
consummate the Arrangement and the transactions contemplated hereby. The
execution, delivery and performance by Exchangeco of this Agreement and
the consummation by Exchangeco of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of Exchangeco. This Agreement has been duly executed and delivered by
Exchangeco and constitutes the valid and binding agreement of
Exchangeco, enforceable against Exchangeco in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors generally or by general equity principles
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(ii) The execution and delivery of this Agreement by Exchangeco does not or
will not, as the case may be, and the consummation by Exchangeco of the
Arrangement and the other transactions contemplated hereby will not
conflict with, or result in any Violation of: (A) any provision of the
certificate of incorporation of Exchangeco, or (B) except as in the
aggregate would not have a Material Adverse Effect on Exchangeco, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Exchangeco.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or
with respect to Exchangeco in connection with the execution and
delivery of this Agreement by Exchangeco or the consummation of the
Arrangement and the other transactions contemplated hereby.
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(c) NO BUSINESS ACTIVITIES. Exchangeco has not conducted and will not
conduct any activities other than in connection with the organization of
Exchangeco, the negotiation and execution of this Agreement and the consummation
of the transactions contemplated hereby. Exchangeco has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF SHIRE. During the period from the date of this Agreement
and continuing until the Effective Date, Shire agrees as to itself and its
Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or the Shire Disclosure Schedule or as required by a Governmental
Entity of competent jurisdiction or to the extent that BioChem shall otherwise
consent in writing, which consent shall not be unreasonably withheld or
delayed):
(a) ORDINARY COURSE.
(i) Shire and its Subsidiaries shall carry on their respective businesses in
the usual, regular and ordinary course in all material respects, in
substantially the same manner as heretofore conducted, and shall use all
reasonable efforts to preserve intact their present lines of business,
maintain their rights and franchises and preserve their relationships
with customers, suppliers and others having business dealings with them
to the end that their ongoing businesses shall not be impaired in any
material respect at the Effective Date; provided, however, that no
action by Shire or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.1 shall be deemed a
breach of this Section 4.1(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by
Section 4.1(e), Shire shall not, and shall not permit any of its
Subsidiaries to, enter into (A) any new material line of business or
(B) any material commitment or transaction (including any borrowing,
capital expenditure or purchase, sale or lease of assets) other than as
specified in the Shire Disclosure Schedule or in the ordinary course of
business consistent with past practice and which, together with all
such agreements, commitments and transactions entered into since
January 1, 2000, does not require expenditures by Shire in excess of
fifty million dollars ($50,000,000) provided that if the required
expenditures exceed thirty-five million dollars ($35,000,000), Shire
shall, before completing such expenditures, verbally advise BioChem.
(b) DIVIDENDS; CHANGES IN SHARE CAPITAL. Shire shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay
any dividends on or make other distributions in respect of any of its share
capital, except for dividends (A) paid in the ordinary course of business
consistent with past practice or (B) by wholly owned Subsidiaries of Shire,
(ii) split, combine or reclassify any of its share capital or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its share capital, except for any such transaction
by a wholly owned Subsidiary of Shire which remains a wholly owned Subsidiary
after consummation of such transaction or (iii) repurchase, redeem or otherwise
acquire any of its shares or any securities convertible into or exercisable for
any of its shares except for the purchase from time to time by Shire of Shire
Ordinary Shares in the ordinary course of business consistent with past practice
in connection with the Shire Benefit Plans.
(c) ISSUANCE OF SECURITIES. Shire shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its share capital of any class or
any securities convertible into or exercisable for, or any rights, warrants,
calls or options to acquire, any such shares or enter into any commitment,
arrangement, undertaking or agreement with respect to any of the foregoing,
other than (i) the issuance of Shire Ordinary Shares upon the exercise of Shire
Share Options or in connection with other shares-based benefit plans outstanding
on the date hereof, in each case in accordance with their present terms or
pursuant to Shire Share Options or other shares
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based awards granted pursuant to clause (ii) below, (ii) the granting of Shire
Share Options or other shares-based awards to acquire Shire Ordinary Shares
granted under shares based benefit plans outstanding on the date hereof in the
ordinary course of business consistent with past practice, (iii) issuances by a
wholly owned Subsidiary of Shire of shares to such Subsidiary's parent or
another wholly owned Subsidiary of Shire, or (iv) pursuant to the arrangements
set forth in Section 4.1(c) of the Shire Disclosure Schedule.
(d) GOVERNING DOCUMENTS. Except to the extent required to comply with
their respective obligations hereunder or with applicable law, Shire and
Exchangeco shall not amend or propose to so amend their respective certificates
of incorporation, bylaws or other governing documents.
(e) NO ACQUISITIONS. Other than acquisitions disclosed on the Shire
Disclosure Schedule, Shire shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than the acquisition of
assets used in the operations of the business of Shire and its Subsidiaries in
the ordinary course, which assets do not constitute a business unit, division or
all or substantially all of the assets of the transferor); provided, however,
that the foregoing shall not prohibit (i) internal reorganizations or
consolidations involving existing Subsidiaries of Shire or (ii) the creation of
new Subsidiaries of Shire organized to conduct or continue activities otherwise
permitted by this Agreement.
(f) NO DISPOSITIONS. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Shire, (ii) dispositions
referred to in Shire SEC Reports filed prior to the date of this Agreement or
(iii) as may be required by or in conformance with law or regulation in order to
permit or facilitate the consummation of the transactions contemplated hereby or
the transactions disclosed in the Shire Disclosure Schedule, Shire shall not,
and shall not permit any of its Subsidiaries to, sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its assets
(including capital stock of Subsidiaries of Shire but excluding inventory in the
ordinary course of business), if the fair market value of the total
consideration (including the value of the indebtedness acquired or assumed)
therefor exceeds twenty-five million dollars ($25,000,0000) in the aggregate for
all such dispositions, provided that if such dispositions exceed fifteen million
dollars ($15,000,000), Shire shall, before completing such dispositions,
verbally advise BioChem.
(g) INVESTMENTS; INDEBTEDNESS. Shire shall not, and shall not permit any
of its Subsidiaries to, other than in connection with actions permitted by
Section 4.1(e), (i) make any loans, advances or capital contributions to, or
investments in, any other Person, other than (x) by Shire or a Subsidiary of
Shire to or in Shire or any Subsidiary of Shire, (y) pursuant to any contract or
other legal obligation of Shire or any of its Subsidiaries existing at the date
of this Agreement or (z) in the ordinary course of business consistent with past
practice in an aggregate amount not in excess of fifty million dollars
($50,000,0000) (provided that none of such transactions referred to in this
clause (z) presents a material risk of making it more difficult to obtain any
approval or authorization required in connection with the Arrangement under
Regulatory Laws and provided that if the amount of such loans, advances, capital
contributions or investments exceed thirty-five million dollars ($35,000,000),
Shire shall, before completing such loans, advances, capital contributions or
investments, verbally advise BioChem) or (ii) create, incur, assume or suffer to
exist any indebtedness, issuances of debt securities, guarantees, loans or
advances not in existence as of the date of this Agreement except pursuant to
the credit facilities, indentures and other arrangements in existence on the
date of this Agreement or in the ordinary course of business consistent with
past practice, in each case as such credit facilities, indentures and other
arrangements may be amended, extended, modified, refunded, renewed or refinanced
after the date of this Agreement.
(h) COMPENSATION. Other than as contemplated by Section 5.7 or by
Section 4.1(c) or 4.1(h) of the Shire Disclosure Schedule, Shire shall not
materially increase the amount of compensation of any director,
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officer or other management employee except in the ordinary course of business
consistent with past practice or as required by an existing agreement, make any
material increase in or commitment to materially increase any employee benefits,
issue a material amount of additional Shire Share Options, adopt or make any
commitment to adopt any additional employee benefit plan or make any
contribution, other than regularly scheduled contributions, to any Shire Benefit
Plan.
(i) ACCOUNTING METHODS; TAX ELECTIONS. Except as disclosed in Shire SEC
Reports filed prior to the date of this Agreement, or as required by a
Governmental Entity, Shire shall not change its methods of accounting for
financial or tax purposes in effect at December 31, 1999, except as required by
changes in GAAP as concurred with by Shire's independent public accountants.
Shire shall not change its fiscal year.
(j) CERTAIN AGREEMENTS. Shire shall not, and shall not permit any of its
Subsidiaries to, enter into any agreements or arrangements that limit or
otherwise restrict Shire or any of its Subsidiaries or any of their respective
affiliates or any successor thereto or that could, after the Effective Date,
limit or restrict Shire or any of its affiliates or any successor thereto, from
engaging or competing in any line of business or in any geographic area which
agreements or arrangements, individually or in the aggregate, would have a
Material Adverse Effect on Shire after giving effect to the Arrangement.
(k) CANADIAN TAX TREATMENT. Neither Shire nor Exchangeco shall take any
action which could reasonably be expected to prevent the exchange by Canadian
resident holders of BioChem Common Shares for Exchangeable Shares from being
treated as a tax deferred transaction for purposes of the ITA to holders who are
otherwise eligible for such treatment.
(l) NO RELATED ACTIONS. Shire will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
(m) POOLING OF INTERESTS. Shire shall use all reasonable efforts to cause
the Arrangement to be accounted for as a "pooling of interests" in accordance
with GAAP, Accounting Principles Board Opinion 16 and applicable SEC rules,
regulations and policies and shall take no action that would cause such
accounting treatment not to be obtained.
4.2 COVENANTS OF BIOCHEM. During the period from the date of this
Agreement and continuing until the Effective Date, BioChem agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or the BioChem Disclosure Schedule or as required by a Governmental
Entity of competent jurisdiction or to the extent that Shire shall otherwise
consent in writing, which consent shall not be unreasonably withheld or
delayed):
(a) ORDINARY COURSE.
(i) BioChem and its Subsidiaries shall carry on their respective businesses
in the usual, regular and ordinary course in all material respects, in
substantially the same manner as heretofore conducted, and shall use all
reasonable efforts to preserve intact their present lines of business,
maintain their rights and franchises and preserve their relationships
with customers, suppliers and others having business dealings with them
to the end that their ongoing businesses shall not be impaired in any
material respect at the Effective Date; provided, however, that no
action by BioChem or its Subsidiaries with respect to matters
specifically addressed by any other provision of this Section 4.2 shall
be deemed a breach of this Section 4.2(a)(i) unless such action would
constitute a breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by
Section 4.2(e), BioChem shall not, and shall not permit any of its
Subsidiaries to enter into (A) any new material line of business or
(B) any material commitment or transaction (including any borrowing,
capital expenditure or purchase, sale or lease of assets) other than in
the ordinary course of business consistent with past practice and
which, together with all such agreements, commitments and transactions
since the date of this Agreement, does not require expenditures by
BioChem in excess of fifty million
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dollars ($50,000,000) provided that if the required expenditures exceed
thirty-five million dollars ($35,000,000), BioChem shall, before
completing such expenditures, verbally advise Shire; notwithstanding
the foregoing, BioChem shall not enter into any agreement or
arrangement to license a material product if the total consideration
exceeds five million dollars ($5,000,000) without the prior consent of
Shire, which consent shall not be unreasonably withheld.
(b) DIVIDENDS; CHANGES IN SHARE CAPITAL. BioChem shall not, and shall not
permit any of its Subsidiaries to, and shall not propose to, (i) declare or pay
any dividends on or make other distributions in respect of any of its share
capital, except for dividends by wholly owned Subsidiaries of BioChem,
(ii) split, combine or reclassify any of its share capital or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, its share capital, except for any such transaction by a wholly
owned Subsidiary of BioChem which remains a wholly owned Subsidiary after
consummation of such transaction, or (iii) repurchase, redeem or otherwise
acquire any of its share capital or any securities convertible into or
exercisable for any of its share capital.
(c) ISSUANCE OF SECURITIES. BioChem shall not, and shall not permit any of
its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its share capital of any class, any
BioChem Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants, calls or options to acquire, any such shares or BioChem
Voting Debt, or enter into any commitment, arrangement, undertaking or agreement
with respect to any of the foregoing, other than (i) the issuance of BioChem
Common Shares upon the exercise of BioChem Shares Options or Investissement
Quebec Options or in connection with other shares-based benefits plans
outstanding on the date hereof, in each case in accordance with their present
terms or pursuant to BioChem Shares Options or Investissement Quebec Options or
other shares based awards granted pursuant to clause (iii) below,
(ii) issuances by a wholly owned Subsidiary of BioChem of share capital to such
Subsidiary's parent or another wholly owned subsidiary of BioChem, (iii) the
granting of BioChem Shares Options or other shares based awards to acquire
BioChem Common Shares granted under shares based benefit plans outstanding on
the date hereof in the ordinary course of business consistent with past practice
that would not result in the issuance of more than 100,000 BioChem Common Shares
provided that such grant of BioChem Share Options or other shares based award is
done in connection with the hiring of new employees by BioChem and provided
however that BioChem shall consult with Shire prior to granting any BioChem
Share Options and shall not proceed with such grant if advised by Shire that
such grant would result in a reverse take-over bid of Shire or would affect the
pooling of interest accounting treatment of the transaction contemplated herein,
or (iii) pursuant to the arrangements set forth in Section 4.2(c) of the BioChem
Disclosure Schedule, or (iv) at the request of Shire, at any time before the
Closing, BioChem may, at its entire discretion, issue BioChem Common Shares up
to such number as Shire may request, subject to regulatory approvals.
(d) GOVERNING DOCUMENTS. Except to the extent required to comply with its
obligations hereunder or with applicable law, BioChem shall not amend or propose
to so amend its articles of amalgamation, bylaws or other governing documents.
(e) NO ACQUISITIONS. Other than acquisitions disclosed on the BioChem
Disclosure Schedule, BioChem shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (other than the acquisition of
assets used in the operations of the business of BioChem and its Subsidiaries in
the ordinary course, which assets do not constitute a business unit, division or
all or substantially of the assets of the transferor); provided, however, that
the foregoing shall not prohibit (i) internal reorganizations or consolidations
involving existing Subsidiaries of BioChem or (ii) the creation of new
Subsidiaries of BioChem organized to conduct or continue activities otherwise
permitted by this Agreement.
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(f) NO DISPOSITIONS. Other than (i) internal reorganizations or
consolidations involving existing subsidiaries of BioChem, (ii) dispositions
Publicly Disclosed by BioChem prior to the date of this Agreement, (iii) as may
be required by or in conformance with law or regulation in order to permit or
facilitate the consummation of the transactions contemplated hereby or (iv) the
transactions disclosed in the BioChem Disclosure Schedule, BioChem shall not,
and shall not permit any of its Subsidiaries to, sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its assets
(including capital stock of Subsidiaries of BioChem but excluding inventory in
the ordinary course of business), the fair market value of the total
consideration (including the value of the indebtedness acquired or assumed)
therefor exceeds twenty five million dollars ($25,000,000) in the aggregate for
all such dispositions, provided that if such dispositions exceed the amount of
fifteen million dollars ($15,000,000), Biochem shall, before completing such
dispositions, verbally advise Shire.
(g) INVESTMENTS; INDEBTEDNESS. BioChem shall not, and shall not permit any
of its Subsidiaries to, other than in connection with actions permitted by
Section 4.2(e), (i) make any loans, advances or capital contributions to, or
investments in, any other Person, other than (A) by BioChem or a Subsidiary of
BioChem to or in BioChem or any Subsidiary of BioChem, (B) pursuant to any
contract or other legal obligation of BioChem or any of its Subsidiaries
existing at the date of this Agreement or (C) in the ordinary course of business
consistent with past practice in an aggregate amount not in excess of
fifty million dollars ($50,000,000) (provided that none of such transactions
referred to in this sub-clause (C) presents a material risk of making it more
difficult to obtain any approval or authorization required in connection with
the Arrangement under Regulatory Laws and provided that if the amount of such
loans, advances, capital contributions or investments exceed thirty-five million
dollars ($35,000,000), BioChem shall, before completing such loans, advances,
capital contributions or investments, verbally advise Shire) or (ii) create,
incur, assume or suffer to exist any indebtedness, issuances of debt securities,
guarantees, loans or advances not in existence as of the date of this Agreement
except pursuant to the credit facilities, indentures and other arrangements in
existence on the date of this Agreement or in the ordinary course of business
consistent with past practice, in each case as such credit facilities,
indentures and other arrangements and other existing indebtedness may be
amended, extended, modified, refunded, renewed or refinanced after the date of
this Agreement; notwithstanding the foregoing, BioChem shall make no additional
investments in or advances to GeneChem LP without first consulting with Shire.
Nothing in this paragraph shall be interpreted as preventing BioChem, any of its
Affiliates or any of its Subsidiaries from complying with its contractual
obligations.
(h) COMPENSATION. Other than as contemplated by the BioChem Disclosure
Schedule, BioChem shall not materially increase the amount of compensation of
any director, officer or other management employee except in the ordinary course
of business consistent with past practice or as required by an existing
agreement, make any material increase in or commitment to materially increase
any employee benefits, issue a material amount of additional BioChem Shares
Options, adopt or make any commitment to adopt any additional employee benefit
plan or make any contribution, other than regularly scheduled contributions, to
any BioChem Benefit Plan.
(i) ACCOUNTING METHODS; INCOME TAX ELECTIONS. Except as Publicly Disclosed
by BioChem prior to the date of this Agreement, or as required by a Governmental
Entity, BioChem shall not change its methods of accounting for financial or tax
purposes in effect at December 31, 1999, except as required by changes in GAAP
as concurred with by BioChem's independent public accountants. BioChem shall not
(i) change its fiscal year or (ii) make, modify or revoke any material tax
election, other than in the ordinary course of business consistent with past
practice.
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(j) CERTAIN AGREEMENTS. BioChem shall not, and shall not permit any of its
Subsidiaries to, enter into any agreements or arrangements that limit or
otherwise restrict BioChem or any of its Subsidiaries or any of their respective
affiliates or any successor thereto, or that could, after the Effective Date,
limit or restrict Shire or any of its affiliates or any successor thereto, from
engaging or competing in any line of business or in any geographic area which
agreements or arrangements, individually or in the aggregate, would have a
Material Adverse Effect on Shire, after giving effect to the Arrangement.
(k) CANADIAN TAX TREATMENT. Neither BioChem nor any of its Subsidiaries
shall take any action which could reasonably be expected to prevent the exchange
by Canadian resident holders of BioChem Common Shares for Exchangeable Shares
from being treated as a tax deferred transaction for purposes of the ITA to
holders who are otherwise eligible for such treatment.
(l) NO RELATED ACTIONS. BioChem will not, and will not permit any of its
Subsidiaries to, agree or commit to any of the foregoing.
(m) POOLING OF INTERESTS. BioChem shall use all reasonable efforts to
cause the Arrangement to be accounted for as a "pooling of interests" in
accordance with US GAAP, Accounting Principles Board Opinion 16 and applicable
SEC rules, regulations and policies and shall take no action that would cause
such accounting treatment not to be obtained.
4.3 GOVERNMENTAL FILINGS. Each party shall (a) confer on a regular and
frequent basis with the other and (b) report to the other (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters. BioChem and Shire shall file all reports required to be
filed by each of them with the OSC, the QSC, all other Canadian securities
authorities, the TSE, NASDAQ, LSE and the SEC (and all other Governmental
Entities) between the date of this Agreement and the Effective Date and shall
(to the extent permitted by law or regulation or any applicable confidentiality
agreement) deliver to the other party copies of all such reports, announcements
and publications promptly after the same are filed.
4.4 CONTROL OF OTHER PARTY'S BUSINESS. Nothing contained in this Agreement
shall give BioChem, directly or indirectly, the right to control or direct
Shire's operations prior to the Effective Date. Nothing contained in this
Agreement shall give Shire, directly or indirectly, the right to control or
direct BioChem's operations prior to the Effective Date. Prior to the Effective
Date, each of BioChem and Shire shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF PROXY STATEMENT, FORM S-4, CIRCULAR, LISTING PARTICULARS
AND CLASS 1 CIRCULAR.
(a) As promptly as reasonably practicable following the date hereof, Shire
shall prepare and file with the SEC proxy materials which shall
constitute the Proxy Statement (such proxy statement, and any amendments
or supplements thereto, the "PROXY STATEMENT"). The Proxy Statement shall
comply as to form in all material respects with the applicable provisions
of the Exchange Act and the rules and regulations thereunder. Shire will
provide BioChem with a reasonable opportunity to review and comment on
any amendment or supplement to the Proxy Statement prior to filing such
with the SEC, and will provide BioChem with a copy of all such filings
made with the SEC. Except as otherwise provided for herein, no material
amendment or supplement (including by incorporation by reference) to the
Proxy Statement shall be made by Shire without the approval of BioChem,
which approval shall not be unreasonably withheld or delayed. Shire shall
cause the Proxy Statement to be mailed to the Shire shareholders as soon
as reasonably practicable after the date hereof. Shire shall also take
any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or to file a general consent to service
of process)
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required to be taken under any applicable state securities laws in
connection with the Arrangement. Shire will advise BioChem, promptly
after it receives notice thereof, of any request by the SEC for material
amendment to the Proxy Statement. If at any time prior to the Effective
Date any information relating to Shire or BioChem, or any of their
respective affiliates, officers or directors, should be discovered by
Shire or BioChem which should be set forth in an amendment or supplement
to the Proxy Statement so that the Proxy Statement would not include any
misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which discovers
such information shall promptly notify the other party hereto and, to
the extent required by law, rules or regulations, an appropriate
amendment or supplement describing such information shall be promptly
filed with the SEC and disseminated to the shareholders of Shire.
(b) Shire shall prepare and file a registration statement on Form S-4, or
other available form under the rules of the SEC, with respect to the
Shire Ordinary Shares issuable upon exercise of the Exchangeable Shares
(the "Form S-4"); provided that Shire may seek a "no action letter"
determination from the Staff of the SEC that no such registration
statement is required based on Section 3 (a) (9) or 3 (a) (10) of the
Securities Act and if such determination is obtained, before or after the
Effective Date, Shire shall have no further obligation under this
Section 5.1(b). Shire shall use its best efforts to have the Form S-4
declared effective by the SEC prior to the Effective Date and shall keep
the Form S-4 effective while the Exchangeable Shares remain outstanding.
Shire shall cause the prospectus included in the Form S-4 to be mailed to
the holders of Exchangeable Shares as promptly as reasonably practicable
after the Form S-4 is declared effective under the Securities Act and the
Effective Date.
(c) As promptly as reasonably practicable following the date hereof, BioChem
shall prepare and file with the OSC, the QSC and the other Canadian
provincial securities authorities, the Circular. The Circular shall
comply as to form in all material respects with the applicable provisions
of the Canadian Securities Laws and the rules and regulations thereunder.
Except as otherwise provided for herein, no material amendment or
supplement (including by incorporation by reference) to the Circular
shall be made by BioChem without the approval of Shire, which approval
shall not be unreasonably withheld or delayed. BioChem will advise Shire,
promptly after it receives notice thereof, of any request by the OSC, the
QSC or any other Canadian provincial securities authority for material
amendment of the Circular. If at any time prior to the Effective Date any
information relating to Shire or BioChem, or any of their respective
affiliates, officers or directors, should be discovered by Shire or
BioChem which should be set forth in an amendment or supplement to the
Circular so that the Circular would not include any misstatement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall
promptly notify the other party hereto and, to the extent required by
law, rules or regulations, an appropriate amendment or supplement
describing such information shall be promptly filed with the OSC, the QSC
or the other Canadian provincial securities authorities and disseminated
to the shareholders of BioChem.
(d) As promptly as reasonably practicable following the date hereof, Shire
shall prepare and, subject to the approval of the UK Listing Authority
and the LSE, issue the Listing Particulars and the Class 1 Circular. The
Listing Particulars and the Class 1 Circular shall comply as to form in
all material respects with the applicable provisions of the Financial
Services Act 1986, the rules and regulations thereunder, the Listing
Rules and the Rules of the LSE. Shire will provide BioChem with a
reasonable opportunity to review and comment on the Listing Particulars
and the Class 1 Circular prior to their issue, and will provide BioChem
with a copy of the Listing Particulars and the Class 1 Circular when they
are issued. Shire shall cause the Listing Particulars and the Class 1
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Circular to be mailed to the Shire shareholders and the BioChem
shareholders as promptly as reasonably practicable after the Listing
Particulars and the Class 1 Circular are approved by the UK Listing
Authority and the LSE. Shire will advise BioChem as promptly as
reasonably practicable after it becomes aware that it may be required to
issue supplementary listing particulars pursuant to the Financial
Services Act 1986. If at any time prior to the Effective Date any
information relating to Shire or BioChem, or any of their respective
affiliates, officers or directors, should be discovered by Shire or
BioChem which should be, or should have been, set forth in the Listing
Particulars and/or the Class 1 Circular so that any of such documents
would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or Shire or
BioChem should become aware of a significant change affecting any matter
contained in the Listing Particulars or the Class 1 Circular whose
inclusion was required by Section 146 of the Financial Services Act 1986
or by the Listing Rules, or of a significant new matter the inclusion of
information in respect of which would have been so required if it had
arisen when the Listing Particulars or the Class 1 Circular were
prepared, the party which discovers such information or, as the case may
be, becomes aware of any such significant change or significant new
matter, shall promptly notify the other party hereto and, to the extent
required by law, rules or regulations, supplementary listing particulars
shall promptly be issued and disseminated to the shareholders of Shire
and the shareholders of BioChem.
(e) BioChem shall duly take (subject to the accuracy of the provisions of
Section 3.1(e) and Section 3.2(e) (provided that BioChem shall have used
reasonable best efforts to ensure that such representation is true and
correct)), all lawful action to call as promptly as practicable, give
notice of, convene and hold a meeting of its shareholders on a date
determined by BioChem (the "BIOCHEM SHAREHOLDERS MEETING") for the
purpose of obtaining the Required BioChem Vote with respect to the
transactions contemplated by this Agreement and shall take all lawful
action to solicit the adoption of this Agreement by the Required BioChem
Vote; and the Board of Directors of BioChem shall recommend adoption of
this Agreement by the shareholders of BioChem to the effect as set forth
in Section 3.2(f) (the "BIOCHEM RECOMMENDATION"), and shall not withdraw,
modify or qualify (or propose to withdraw, modify or qualify) in any
manner adverse to Shire such recommendation or take any action or make
any statement in connection with the BioChem Shareholders Meeting
inconsistent with such recommendation (collectively, a "CHANGE IN THE
BIOCHEM RECOMMENDATION"); provided the foregoing shall not prohibit
accurate disclosure (and such disclosure shall not be deemed to be a
Change in the BioChem Recommendation) of factual information regarding
the business, financial condition or results of operations of Shire or
BioChem or the fact that an Acquisition Proposal has been made, the
identity of the party making such proposal or the material terms of such
proposal (provided, that the Board of Directors of BioChem does not
withdraw, modify or qualify (or propose to withdraw, modify or qualify)
in any manner adverse to Shire its recommendation) in the Circular, to
the extent such information, facts, identity or terms is required to be
disclosed therein under applicable law, rule or regulation; and, provided
further, that the Board of Directors of BioChem may make a Change in the
BioChem Recommendation pursuant to Section 5.5 hereof.
(f) Shire shall duly take (subject to the accuracy of the provisions of
Section 3.2(e) and Section 3.1(e)) (provided that Shire shall have used
reasonable best efforts to ensure that such representation is true and
correct) all lawful action to call as promptly as reasonably practicable,
give notice of, convene and hold a meeting of its shareholders on a date
determined in accordance with the mutual agreement of Shire and BioChem
(the "SHIRE SHAREHOLDERS MEETING") for the purpose of obtaining the Shire
Shareholders Approval; and the Board of Directors of Shire shall
recommend approval of the transactions contemplated under this Agreement
and the Arrangement by the shareholders of Shire to the effect as set
forth in Section 3.1(f) (the "SHIRE RECOMMENDATION"), and shall not
withdraw, modify or qualify (or propose to withdraw, modify or
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qualify) in any manner adverse to BioChem such recommendation or take any
action or make any statement in connection with the Shire Shareholders
Meeting inconsistent with such recommendation (a "CHANGE IN THE SHIRE
RECOMMENDATION"). Notwithstanding anything in this Agreement, the Board
of Directors of Shire may make a Change in the Shire Recommendation in
the circumstances contemplated in Section 5.6 hereof and in any other
circumstances provided the Board of Directors of Shire concludes in good
faith (after receiving a written opinion from outside counsel independent
from Shire, a copy of which shall be provided to BioChem) taking into
account, among other things, all legal, financial, regulatory and other
aspects of the circumstances as well as the binding nature of the
commitments, undertakings and covenants of Shire under this Agreement,
that the Board of Directors of Shire is required under such Laws to make
a Change in the Shire Recommendation in order to discharge its fiduciary
duties. The parties understand and agree that a variation of the market
price of the Shire ADSs or the Shire Ordinary Shares absent any material
change in BioChem shall not constitute a circumstance whereby the Board
of Directors of Shire may effect a Change in the Shire Recommendation.
(g) For purposes of this Agreement, a Change in the BioChem Recommendation
shall be deemed to include, without limitation, a recommendation by the
BioChem Board of Directors of a third party Acquisition Proposal with
respect to BioChem.
(h) For purposes of this Agreement, a Change in the Shire Recommendation
shall be deemed to include, without limitation, a recommendation of the
Shire Board of Directors of a third party Shire Acquisition Proposal with
respect to Shire.
(i) BioChem shall inform Shire immediately of any new information in respect
of Civil Action N(o) 1=96-CV-1868 GET (the "CIVIL ACTION") regarding
United States patent 5,539,116 to the extent permitted by Law. In the
event that BioChem is subject to an adverse ruling by the Federal Court
of Justice in connection with THE Civil Action, BioChem agrees to make
the appropriate application in respect of the Civil Action to permit
Shire to have access to all confidential information in respect of such
Civil Action unless BioChem determines, acting reasonably, that such an
application would likely have a material adverse effect on its position
in the context of the Civil Action.
5.2 SHIRE BOARD OF DIRECTORS. At or prior to the Effective Date, Shire
will use its reasonable efforts to reconstitute the Board of Directors of Shire
and the committees thereof as of the Effective Date in order that the BioChem's
nominees on the Board of Directors of Shire constitute 30% of the directors of
Shire.
5.3 ACCESS TO INFORMATION. Upon reasonable notice, each party shall (and
shall cause its Subsidiaries to) afford to the officers, employees, accountants,
counsel, financial advisors and other representatives of the other party
reasonable access during normal business hours, during the period prior to the
Effective Date, to all its properties, books, contracts, commitments, records,
officers and employees and, during such period, such party shall (and shall
cause its Subsidiaries to) furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of U.S. federal or state securities laws or Canadian Securities
Laws, as applicable (other than documents which such party is not permitted to
disclose under applicable law), and (b) all other information concerning it and
its business, properties and personnel as such other party may reasonably
request (including consultation on a regular basis with respect to litigation
matters); provided, however, that either party may restrict the foregoing access
to the extent that (i) any law, treaty, rule or regulation of any Governmental
Entity applicable to such party requires such party or its Subsidiaries to
restrict or prohibit access to any such properties or information or (ii) the
information is subject to confidentiality obligations to a third party. The
parties will hold any such information obtained pursuant to this Section 5.3 in
confidence in accordance with, and shall otherwise be subject to, the provisions
of the Confidentiality Agreements dated October 3 and October 9, 2000, between
BioChem and Shire (the "CONFIDENTIALITY AGREEMENTS"), as if such Confidentiality
Agreements were in full
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force and effect. Any investigation by Shire or BioChem shall not affect the
representations and warranties of BioChem or Shire, as the case may be.
5.4 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under this Agreement and applicable laws and regulations to
consummate the Arrangement and the other transactions contemplated by
this Agreement as soon as practicable after the date hereof, including
(i) preparing and filing as promptly as practicable all documentation to
effect all necessary applications, notices, petitions, filings, tax
ruling requests and other documents and to obtain as promptly as
practicable all consents, waivers, licenses, orders, registrations,
approvals, permits, tax rulings and authorizations necessary or advisable
to be obtained from any third party and/or any Governmental Entity in
order to consummate the Arrangement or any of the other transactions
contemplated by this Agreement, (ii) taking all reasonable steps as may
be necessary to obtain all such material consents, waivers, licenses,
registrations, permits, authorizations, securities and tax rulings,
orders and approvals. In furtherance and not in limitation of the
foregoing, each party hereto agrees to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act, the CA, the ICA and
any other Regulatory Law with respect to the transactions contemplated
hereby as promptly as practicable after the date hereof and to supply as
promptly as practicable any additional information and documentary
material that may be requested pursuant to the HSR Act, the CA, the ICA
and any other Regulatory Law and to take all other actions necessary to
cause the expiration or termination of the applicable waiting periods
under the HSR Act and the CA as soon as practicable, and (iii) preparing
and filing on a promptly as practicable basis all documentation to effect
all necessary applications notices, filings and to obtain all waivers and
consents necessary or advisable to be obtained from the QSC, OSC, the
other Canadian provincial securities authorities and the TSE, the NASDAQ
and the LSE.
(b) Each of Shire and BioChem shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite material approvals
and authorizations for the transactions contemplated by this Agreement
under the HSR Act, the CA, the ICA or any other Regulatory Law, use its
reasonable best efforts to (i) cooperate in all respects with each other
in connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a
private party, (ii) promptly inform the other party of any communication
received by such party from, or given by such party to, the Antitrust
Division of the Department of Justice (the "DOJ"), the Federal Trade
Commission (the "FTC"), the Competition Bureau under the CA (the
"COMPETITION BUREAU"), the Minister responsible for the ICA (the "ICA
AUTHORITY") or any other Governmental Entity and of any material
communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions
contemplated hereby, and (iii) permit the other party to review any
communication given by it to, and consult with each other in advance of
any meeting or conference with, the DOJ, the FTC, the Competition Bureau,
the ICA Authority, or any such other Governmental Entity or, in
connection with any proceeding by a private party, with any other Person,
and to the extent appropriate or permitted by the DOJ, the FTC, the
Competition Bureau, the ICA Authority, or such other applicable
Governmental Entity or other Person, give the other party the opportunity
to attend and participate in such meetings and conferences. For purposes
of this Agreement, "REGULATORY LAW" means the Clayton Act, as amended,
the HSR Act, the Federal Trade Commission Act, as amended, the CA, the
ICA and all other federal, state and foreign, if any, statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and
other laws that are designed or intended to prohibit, restrict or
regulate (i) foreign
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investment or (ii) actions having the purpose or effect of monopolization
or restraint of trade or lessening of competition.
(c) Subject to the terms and conditions of this Agreement, in furtherance
and not in limitation of the covenants of the parties contained in
Sections 5.4(a) and 5.4(b), if any administrative or judicial action or
proceeding, including any proceeding by a private party, is instituted
(or threatened to be instituted) challenging any transaction contemplated
by this Agreement as violative of any Regulatory Law, each of Shire and
BioChem shall cooperate in all respects with each other and use its
respective reasonable best efforts in order to contest and resist any
such action or proceeding and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that
prohibits, prevents or restricts consummation of the transactions
contemplated by this Agreement.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted
by any Governmental Entity or any private party challenging any of the
transactions contemplated hereby as violative of any Regulatory Law, each
of Shire and BioChem shall use its reasonable efforts to resolve any such
objections or challenge as such Governmental Entity or private party may
have to such transactions under such Regulatory Law so as to permit
consummation of the transactions contemplated by this Agreement.
(e) Notwithstanding the foregoing or any other provision of this Agreement,
nothing in this Section 5.4 shall limit a party's right to terminate this
Agreement pursuant to Article VII.
5.5 BIOCHEM ACQUISITION PROPOSALS.
(a) Without limitation on any of BioChem's other obligations under this
Agreement (including under Article IV hereof), BioChem agrees that
neither it nor any of its Subsidiaries nor any of the officers and
directors of it or its Subsidiaries shall, and that it shall cause its
and its Subsidiaries' employees, agents and representatives (including
any investment banker, attorney or accountant retained by it or any of
its Subsidiaries) not to, directly or indirectly, initiate, solicit,
encourage or knowingly facilitate (including by way of furnishing
information) any inquiries or the making of any proposal or offer with
respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or
similar transaction involving it, or any purchase or sale of the
consolidated assets (including without limitation shares of Subsidiaries)
of BioChem and its Subsidiaries, taken as a whole, having an aggregate
value equal to 50% or more of the market capitalization of BioChem, or
any purchase or sale of, or tender or exchange offer for, 50% or more of
the equity securities of BioChem (any such proposal or offer (other than
a proposal or offer made by Shire or an affiliate thereof) being
hereinafter referred to as an "ACQUISITION PROPOSAL"). BioChem further
agrees that neither it nor any of its Subsidiaries nor any of the
officers and directors of it or its Subsidiaries shall, and that it shall
cause its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it
or any of its Subsidiaries) not to, directly or indirectly, have any
discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal or accept an
Acquisition Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, BioChem and
its Board of Directors shall be permitted to (A) effect a Change in the
BioChem Recommendation or (B) engage in any discussions or negotiations
with, or provide any information to, any Person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person, if
and only to the extent that, (i) (x) in the case of clause (A) above,
BioChem has received an unsolicited bona fide written Acquisition
Proposal from a third party and BioChem's Board of Directors concludes in
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good faith that such Acquisition Proposal constitutes a Superior Proposal
and (y) in the case of clause (B) above, BioChem's Board of Directors
concludes in good faith that there is a reasonable likelihood that such
Acquisition Proposal could result in a Superior Proposal, (ii) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, BioChem's Board of Directors
receives from such Person an executed confidentiality agreement
containing terms at least as stringent as those contained in the
Confidentiality Agreement and (iii) prior to providing any information or
data to any Person or entering into discussions or negotiations with any
Person, BioChem notifies Shire promptly of such inquiries, proposals or
offers received by, any such information requested from, or any such
discussions or negotiations sought to be initiated or continued with, any
of BioChem's representatives indicating, in connection with such notice,
the name of such Person and the material terms and conditions of any
inquiries, proposals or offers. BioChem agrees that it will promptly keep
Shire informed of the status and terms of any such proposals or offers
and the status and terms of any such discussions or negotiations. BioChem
agrees that it will, and will cause its officers, directors and
representatives to, immediately cease and cause to be terminated any
activities, discussions or negotiations existing as of the date of this
Agreement with any parties conducted heretofore with respect to any
Acquisition Proposal. BioChem agrees that it will use reasonable best
efforts to promptly inform its directors, officers, key employees, agents
and representatives of the obligations undertaken in this Section 5.5.
Nothing in this Section 5.5 shall (x) permit Shire or BioChem to
terminate this Agreement (except as specifically provided in Article VII
hereof) (y) affect any other obligation of BioChem under this Agreement.
Subject to this Section 5.5(b), BioChem shall not submit to the vote of
its shareholders any Acquisition Proposal other than the Arrangement.
5.6 SHIRE ACQUISITION PROPOSALS.
(a) Without limitation on any of Shire's other obligations under this
Agreement (including under Article IV hereof), Shire agrees that neither
it nor any of its Subsidiaries nor any of the officers and directors of
it or its Subsidiaries shall, and that it shall cause its and its
Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit,
encourage or knowingly facilitate (including by way of furnishing
information) any inquiries or the making of any proposal or offer with
respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or
similar transaction involving it, having an aggregate value equal to 50%
or more of the market capitalization of Shire, or any purchase or sale
of, or tender or exchange offer for 50% or more of the equity securities
of Shire (any such proposal or offer being hereinafter referred to as an
"SHIRE ACQUISITION PROPOSAL"). Shire further agrees that neither it nor
any of its Subsidiaries nor any of the officers and directors of it or
its Subsidiaries shall, and that it shall cause its and its Subsidiaries'
employees, agents and representatives (including any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) not to,
directly or indirectly, have any discussion with or provide any
confidential information or data to any Person relating to a Shire
Acquisition Proposal, or engage in any negotiations concerning a Shire
Acquisition Proposal, or knowingly facilitate any effort or attempt to
make or implement a Shire Acquisition Proposal or accept a Shire
Acquisition Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, Shire and
its Board of Directors shall be permitted to (A) effect a Change in the
Shire Recommendation or (B) engage in any discussions or negotiations
with, or provide any information to, any Person in response to an
unsolicited bona fide written Shire Acquisition Proposal by any such
Person, if and only to the extent that, (i) (x) in the case of
clause (A) above, Shire has received an unsolicited bona fide written
Shire Acquisition Proposal from a third party and Shire's Board of
Directors concludes in
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good faith that such Shire Acquisition Proposal constitutes a Shire
Superior Proposal and (after receiving a written opinion from outside
counsel independent from Shire, a copy of which shall be provided to
BioChem), that the Board of Directors of Shire is required, pursuant to
the applicable Laws, to effect a Change in the Shire Recommendation in
order to discharge its fiduciary duties under such Laws, (y) in the case
of clause (B) above, Shire's Board of Directors concludes in good faith
that there is a reasonable likelihood that such Shire Acquisition
Proposal could result in a Shire Superior Proposal and that there is a
reasonable likelihood that the Board of Directors of Shire be required
under applicable laws to effect a Change in the Shire Recommendation in
order to discharge properly its fiduciary duties, (ii) prior to providing
any information or data to any Person in connection with a Shire
Acquisition Proposal by any such Person, Shire's Board of Directors
receives from such Person an executed confidentiality agreement
containing terms at least as stringent as those contained in the
Confidentiality Agreement and (iii) prior to providing any information or
data to any Person or entering into discussions or negotiations with any
Person, Shire notifies BioChem promptly of such inquiries, proposals or
offers received by, any such information requested from, or any such
discussions or negotiations sought to be initiated or continued with, any
of Shire's representatives indicating, in connection with such notice,
the name of such Person and the material terms and conditions of any
inquiries, proposals or offers. Shire agrees that it will promptly keep
Shire informed of the status and terms of any such proposals or offers
and the status and terms of any such discussions or negotiations. Shire
agrees that it will, and will cause its officers, directors and
representatives to, immediately cease and cause to be terminated any
activities, discussions or negotiations existing as of the date of this
Agreement with any parties conducted heretofore with respect to any Shire
Acquisition Proposal. Shire agrees that it will use reasonable best
efforts to promptly inform its directors, officers, key employees, agents
and representatives of the obligations undertaken in this Section 5.6.
Nothing in this Section 5.6 shall (x) permit Shire or BioChem to
terminate this Agreement (except as specifically provided in Article VII
hereof) (y) affect any other obligation of Shire under this Agreement.
Subject to this Section 5.6(b), Shire shall not submit to the vote of its
shareholders any Shire Acquisition Proposal.
5.7 EMPLOYEE BENEFITS MATTERS. Following the Effective Date, Shire shall
honor all BioChem Benefit Plans and related funding arrangements in
accordance with their respective terms. For at least one year after the
Effective Date, Shire shall provide compensation and employee benefits
under Benefit Plans to the employees and former employees of BioChem and
its Subsidiaries that are, in the aggregate, no less favorable in any
material respects than those provided to such persons pursuant to the
Benefit Plans in effect on the date hereof. Nothing herein shall require
Shire to continue any particular Benefit Plan or prevent the amendment or
termination thereof (subject to the maintenance, in the aggregate, of the
benefits as provided in the preceding sentence); provided, however, that
Shire shall not take any action (by way of amendment, termination or
otherwise) which is in violation of the terms of any Benefit Plan or
applicable law.
5.8 FEES AND EXPENSES. Whether or not the Arrangement is consummated, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses,
except (a) Expenses incurred by BioChem shall be paid as soon as
practicable by Shire in the event that BioChem terminates this Agreement
pursuant to Section 7.1(j) and (b) Expenses incurred by Shire shall be
paid as soon as practicable by BioChem in the event that Shire terminates
this Agreement pursuant to Section 7.1(i). As used in this Agreement,
"Expenses" includes all out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its affiliates)
incurred by a party or on its behalf in connection with or related to the
authorization, preparation, negotiation, execution and performance of
this Agreement and the transactions contemplated hereby, including the
preparation, printing, filing and mailing of the
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Proxy Statement, Listing Particulars and Class 1 Circular and the
solicitation of shareholder approvals and all other matters related to
the transactions contemplated hereby.
5.9 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. From and after
the Effective Date, Shire shall (i) indemnify and hold harmless, and provide
advancement of expenses to, all past and present directors, officers and
employees of BioChem and its Subsidiaries (in all of their capacities) (a) to
the same extent such persons are indemnified or have the right to advancement of
expenses as of the date of this Agreement by BioChem pursuant to BioChem's
bylaws and articles and indemnification agreements, if any, in existence on the
date hereof with any directors, officers and employees of BioChem and its
Subsidiaries and (b) without limitation to clause (a), to the fullest extent
permitted by law, in each case for acts or omissions occurring at or prior to
the Effective Date (including for acts or omissions occurring in connection with
the approval of this Agreement and the consummation of the transactions
contemplated hereby), (ii) include and cause to be maintained in effect in
BioChem's or any successor's bylaws and articles for a period of six years after
the Effective Date, the current provisions regarding elimination of liability of
directors, indemnification of officers, directors and employees and advancement
of expenses contained in the bylaws and articles of BioChem and (iii) cause to
be maintained for a period of six years after the Effective Date the current
policies of directors' and officers' liability insurance and fiduciary liability
insurance maintained by BioChem (provided that Shire (or any successor) may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or events
that occurred on or before the Effective Date; provided, however, that in no
event shall Shire be required to expend in any one year an amount in excess of
200% of the annual premiums currently paid by BioChem for such insurance. The
obligations of the Shire under this Section 5.8 shall not be terminated or
modified in such a manner as to adversely affect any indemnitees to whom this
Section 5.8 applies without the consent of such affected indemnitees (it being
expressly agreed that the indemnitees to whom this Section 5.8 applies shall be
third party beneficiaries of this Section 5.8).
5.10 PUBLIC ANNOUNCEMENTS. Shire and BioChem shall use reasonable best
efforts to develop a joint communications plan and each party shall use
reasonable best efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby shall be
consistent with such joint communications plan, and (ii) unless otherwise
required by applicable law or by obligations pursuant to any listing agreement
with or rules of any securities exchange, or (in the case of Shire) as may be
required by the UK Listing Authority and the Panel on Takeovers and Mergers, to
consult with each other before issuing any press release or, to the extent
practical, otherwise making any public statement with respect to this Agreement
or the transactions contemplated hereby. In addition to the foregoing, except to
the extent disclosed in or consistent with the Proxy Statement, the Listing
Particulars and the Class 1 Circular and the Circular in accordance with the
provisions of Section 5.1, neither Shire nor BioChem shall issue any press
release or otherwise make any public statement or disclosure concerning the
other party or the other party's business, financial condition or results of
operations without the consent of the other party, which consent shall not be
unreasonably withheld or delayed.
5.11 LISTING OF SHIRE SHARES. Shire shall use its reasonable efforts to
cause the Shire Ordinary Shares to be issued in the Arrangement to be admitted
to the Official List of the UK Listing Authority and to trading on the LSE and
to cause the Exchangeable Shares to be approved for listing on the TSE, subject
to official notice of issuance, and to the extent necessary, to cause the Shire
ADSs to be approved for listing on NASDAQ prior to the Closing Date.
5.12 AFFILIATES. Not less than 45 days prior to the Effective Date,
BioChem shall deliver to Shire a letter identifying all persons who, in the
judgment of BioChem, may be deemed at the time this Agreement is submitted for
adoption by the shareholders of BioChem, "affiliates" of BioChem for purposes of
Rule 145 under the Securities Act ("Affiliates"), and such letter shall be
updated as necessary to reflect changes from the date thereof. BioChem shall use
reasonable best efforts to cause each person identified
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on such list to deliver to Shire not less than 30 days prior to the Effective
Date, a written agreement substantially in the form attached as Exhibit 5.11
hereto (an "AFFILIATE AGREEMENT").
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE ARRANGEMENT. The
respective obligations of BioChem, Shire and Exchangeco to effect the
Arrangement are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) BIOCHEM SHAREHOLDERS APPROVAL. BioChem shall have obtained the
approval of its shareholders in connection with the adoption of this Agreement
by the shareholders of BioChem.
(b) SHIRE SHAREHOLDERS APPROVAL. Shire shall have obtained the Required
Shire Vote in connection with the adoption of this Agreement by the shareholders
of Shire.
(c) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, having the effect of making
the Arrangement illegal or otherwise prohibiting consummation of the
Arrangement.
(d) HSR ACT, THE CA AND THE ICA. The waiting periods (and any extensions
thereof) applicable to the Arrangement under the HSR Act and the CA shall have
been terminated or shall have expired or the Commissioner of Competition shall
have issued an advance ruling certificate and/or a "no action" letter under the
CA in relation to the Arrangement and the ICA Authority shall have concluded
that the Arrangement is of "net benefit to Canada" for purposes of the ICA.
(e) GOVERNMENTAL AND REGULATORY APPROVALS. Other than the filing provided
for under Section 1.3 and filings pursuant to the HSR Act, the CA and the ICA,
all consents, approvals and actions of, filings with and notices to any
Governmental Entity required of Shire or BioChem or any of their respective
Subsidiaries to consummate the Arrangement and the other transactions
contemplated hereby, the failure of which to be obtained or taken, individually
or in the aggregate, would have a Material Adverse Effect on Shire and its
Subsidiaries or BioChem and its Subsidiaries, taken together after giving effect
to the Arrangement, shall have been obtained; provided however, that the
provisions of this Section 6.1(e) shall not be available to any party whose
failure to fulfill its obligations pursuant to Section 5.4 shall have been the
cause of, or shall have resulted in, the failure to obtain such consent or
approval.
(f) LISTING. The Shire Ordinary Shares to be issued in the Arrangement and
such other Shire Ordinary Shares to be reserved for issuance in connection with
the Arrangement shall have been admitted to the Official List of the UK Listing
Authority and to trading on the LSE, the Shire ADSs to be issued in the
Arrangement and such other Shire ADSs to be reserved for issuance in connection
with the Arrangement shall have been approved for listing on NASDAQ (to the
extent necessary) and the Exchangeable Shares shall have been approved for
listing on the TSE, subject to official notice of issuance. The parties
acknowledge that the Shire Ordinary Shares to be issued under the Plan of
Arrangement will not be admitted to the Official List of the UK Listing
Authority or to trading on the LSE unless and until this Agreement is
unconditional in all respects save in respect of such admission, including the
filing of the certificate of arrangement having taken place as provided for in
section 1.2. The parties therefore agree that once the Shire Ordinary Shares to
be issued under the Arrangement have been allotted subject only to such
admission, they shall use their respective best efforts to ensure that filing of
the certificate of Arrangement takes place immediately before 3:00 a.m.
(New York time) on the Closing Date, and that the Shire Ordinary Shares to be
issued pursuant to this Agreement are admitted to the Official List of the UK
Listing Authority and to trading on the LSE at 8:00 a.m. (London time) on the
Closing Date.
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(g) EFFECTIVENESS OF THE FORM S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act or an appropriate "no action
letter" shall have been obtained from the Staff of the SEC based on Section 3
(a) 9 or 3(a) (10) of the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(h) COMPLIANCE WITH SECTION3(A)(10) OF THE SECURITIES ACT. All applicable
requirements of Section 3(a)(10) of the Securities Act shall have been satisfied
with respect to the issuance of Shire Shares pursuant to the Arrangement.
(i) CANADIAN SECURITIES LAWS. Exemption orders from the QSC, OSC and other
Canadian provincial securities authorities from the registration and prospectus
requirements with respect to the Exchangeable Share structure shall have been
granted.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SHIRE AND EXCHANGECO. The
obligations of Shire and Exchangeco to effect the Arrangement are subject to the
satisfaction of, or waiver by Shire, on or prior to the Closing Date of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of BioChem set forth in this Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of BioChem set forth in this Agreement that is
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date (except to the extent in either case that such
representations and warranties speak as of another date); and Shire shall have
received a certificate of the chief executive officer and the chief financial
officer of BioChem to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF BIOCHEM. BioChem shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are qualified as to Material
Adverse Effect and shall have performed or complied in all material respects
with all other agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are not so qualified, and
Shire shall have received a certificate of the chief executive officer and the
chief financial officer of BioChem to such effect.
(c) RIGHTS PLAN. BioChem's Board of Directors shall have waived the
application of the Rights Plan to the transactions contemplated hereby.
(d) EXERCISE OF DISSENT RIGHTS. Holders of not more than 5% of the BioChem
Common Shares issued and outstanding immediately prior to the Effective Date
shall have exercised their Dissent Rights (and not withdrawn such exercise) in
connection with the Arrangement.
(e) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall not have occurred any change, effect, event or circumstance that, in
combination with any other changes, effects, events or circumstances, has
resulted in or would reasonably be expected to result in a Material Adverse
Effect with respect to BioChem, provided that, on the basis of all facts and
information disclosed by BioChem to Shire as at the date hereof, the outcome of
the proceedings instituted by Emory University in the United States shall not,
for the purpose of this Agreement, be considered to have a Material Adverse
Effect on BioChem.
(f) POOLING LETTERS. There shall have been delivered to Shire (i) a
pooling letter from its independent auditors, dated as of the Closing Date and
addressed to Shire, reasonably satisfactory in form and substance to Shire,
setting forth the concurrence of Shire's independent auditors with the
conclusion of Shire's management that it will be appropriate to account for the
Arrangement as a "pooling of interests" under US GAAP, Accounting Principles
Board Opinion No. 16 and all rules, regulations and policies of the SEC, if the
Arrangement is consummated in accordance with this Agreement (ii) a poolability
letter from BioChem's independent auditors, dated as of the Closing Date and
reasonably
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satisfactory in form and substance to Shire, setting forth the concurrence of
BioChem's independent auditors with the conclusion of BioChem's management that
it will be appropriate to account for the Arrangement as a "pooling of interest"
under US GAAP. Accounting Principles Board Opinion No. 16 and all rules,
regulations and policies of the SEC, if the Arrangement is consummated in
accordance with this Agreement.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BIOCHEM. The obligations of
BioChem to effect the Arrangement are subject to the satisfaction of Shire and
Exchangeco, or waiver by BioChem, on or prior to the Closing Date of the
following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of each of Shire and Exchangeco set forth in this Agreement that is
qualified as to Material Adverse Effect shall be true and correct, and each of
the representations and warranties of each of Shire and Exchangeco set forth in
this Agreement that is not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the extent
in either case that such representations and warranties speak as of another
date) and BioChem shall have received a certificate of the chief executive
officer and the chief financial officer of each of Shire and Exchangeco to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF SHIRE. Shire shall have performed or
complied with all agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are qualified as to Material
Adverse Effect and shall have performed or complied in all material respects
with all other agreements and covenants required to be performed by it under
this Agreement at or prior to the Closing Date that are not so qualified, and
BioChem shall have received a certificate of the chief executive officer and the
chief financial officer of Shire to such effect.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Date, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Arrangement by
the shareholders of BioChem:
(a) By mutual written consent of Shire and BioChem;
(b) By either BioChem or Shire, if the Effective Date shall not have
occurred on or before May 31, 2001 (the "TERMINATION DATE"); provided,
however, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement (including without limitation
such party's obligations set forth in Section 5.4) has been the cause of,
or resulted in, the failure of the Effective Date to occur on or before
the Termination Date;
(c) By either BioChem or Shire, if any Governmental Entity (i) shall have
issued a final and non-appealable order, decree or ruling or taken any
other action (which such party shall have used its reasonable best
efforts to resist, resolve or lift, as applicable, in accordance with
Section 5.4) permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order, decree,
ruling or other action shall have become final and non-appealable or
(ii) shall have failed to issue an order, decree or ruling or to take any
other action (which order, decree, ruling or other action such party
shall have used its reasonable best efforts to obtain, in accordance with
Section 5.4), in the case of each of (i) and (ii) which is necessary to
fulfill the conditions set forth in subsections 6.1(c), (d) and (e), as
applicable, and such denial of a request to issue such order, decree,
ruling or take such other action shall have become final and
non-appealable; provided, however, that the right to terminate
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this Agreement under this Section 7.1(c) shall not be available to any
party whose failure to comply with Section 5.4 has been the cause of such
action or inaction;
(d) By Shire, if the Required BioChem Vote shall not have been obtained at
the BioChem Shareholders Meeting or any adjournment thereto;
(e) By BioChem, if the Required Shire Vote shall not have been obtained at
the Shire Shareholders Meeting or any adjournment thereto;
(f) By Shire, if BioChem shall have failed to make the BioChem
Recommendation or if BioChem shall have effected a Change in the BioChem
Recommendation (or resolved to take any such action), whether or not
permitted by the terms hereof;
(g) By BioChem, if Shire shall have failed to make the Shire Recommendation
or Shire shall have effected a Change in the Shire Recommendation (or
resolved to take any such action);
(h) By BioChem, if at any time prior to the BioChem Shareholders Meeting
BioChem shall have failed to make the BioChem Recommendation or effected
a change in the BioChem Recommendation so long as (i) the BioChem Board
of Directors, after consultation with its legal counsel and financial
advisor, determines that an Acquisition Proposal is a Superior Proposal
and, after consultation with and based upon advice of legal counsel,
determines in good faith that such action is necessary for the BioChem
Board of Directors to comply with its fiduciary duties to shareholders
under applicable law, (ii) BioChem pays to Shire all amounts due under
Section 7.2, and (iii) BioChem provides to Shire at least five Business
Days prior to such termination written notice of its intention to
terminate this Agreement and the material terms and conditions of the
Acquisition Proposal.
(i) By Shire, if there shall be a breach by BioChem of any representation,
warranty, covenant or agreement contained in this Agreement which would
result in a failure of a condition set forth in paragraph 6.2(a) or
6.2(b) and cannot be or is not cured within 20 Business Days of such
breach; or
(j) By BioChem, if there shall be a breach by Shire or Exchangeco of any
representation, warranty, covenant or agreement contained in this
Agreement which would result in a failure of a condition set forth in
paragraph 6.3(a) or 6.3(b) and cannot be or is not cured within 20
Business Days of such breach.
7.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either BioChem or Shire
as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Shire or
BioChem or their respective officers or directors except as provided in
Section 3.1(l), Section 3.2(l), the second sentence of Section 5.3,
Section 5.8, this Section 7.2 and Article VIII, which provisions shall
survive such termination, and except that, notwithstanding anything to
the contrary contained in this Agreement, neither Shire nor BioChem shall
be relieved or released from any liabilities or damages arising out of
its willful and material breach of this Agreement.
(b) If (A) (I) Shire shall terminate this Agreement pursuant to
Section 7.1(d), and (II) at any time after the date of this Agreement and
at or before the date of the BioChem Shareholders Meeting a Superior
Proposal with respect to BioChem shall have been publicly announced or
otherwise communicated to the BioChem Board of Directors, and
(III) BioChem consummates the transaction set forth in such Superior
Proposal within one year of the Termination Date provided that if the
applicable regulatory approvals have not been obtained prior to the
expiry of the one-year period, such period shall be deemed extended to
eighteen months from the Termination Date; or (B) Shire shall terminate
this Agreement pursuant to Section 7.1(f); or (C) BioChem
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shall terminate this Agreement pursuant to Section 7.1(h); then BioChem
shall pay to Shire (in the case of Clause (A) not later than two days
following the consummation of the transaction set forth in such Superior
Proposal, in the case of clause (B) not later than two Business Days
after the Termination Date, and in the case of clause (C) immediately
following the termination of this Agreement, an amount equal to
US$110,000,000.
(c) If BioChem shall terminate this Agreement pursuant to Section 7.1(g),
then Shire shall pay to BioChem, not later than two business days after
the Termination Date, an amount equal to US$40,000,000.
(d) All payments under this Section 7.2 shall be made by wire transfer of
immediately available funds to an account designated by the party
entitled to receive payment.
(e) BioChem agrees that nothing in this Section 7.2 shall release BioChem of
any liability in the event that this Agreement is terminated by Shire
pursuant to Section 7.1(i) for a willful and material breach of this
Agreement by BioChem and Shire agrees that nothing in the Section 7.2
shall release Shire of any liability in the event that this Agreement is
terminated by BioChem pursuant to Section 7.1(j) for a willful and
material breach of this Agreement by Shire.
7.3 EXTENSION; WAIVER. At any time prior to the Effective Date, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
AMENDMENT
8.1 AMENDMENT. This Agreement and the Plan of Arrangement may, at any time
and from time to time before or after the holding of the Shire Shareholders
Meeting or the BioChem Shareholders Meeting but not later than the Effective
Date, be amended by mutual written agreement of the parties hereto, and any such
amendment may, subject to applicable Laws and the Interim Order, without
limitation:
(a) change the time for performance of any of the obligations or acts of the
parties;
(b) waive any inaccuracies or modify any representation or warranty
contained herein or in any document delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants herein contained
and waive or modify performance of any of the obligations of the parties;
and/or
(d) waive compliance with or modify any conditions precedent herein
contained.
8.2 MUTUAL UNDERSTANDING REGARDING AMENDMENTS. The parties agree that if
Shire or BioChem, as the case may be, propose any amendment or amendments to
this Agreement, to the Plan of Arrangement and to the related agreements, the
other will act reasonably in considering such amendment and if the other and its
security holders are not prejudiced by reason of any such amendment the other
will co-operate in a reasonable fashion with Shire, or BioChem, as the case may
be, so that such amendments can be effected subject to applicable Laws and the
rights of the security holders.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the
Arrangement by the shareholders of BioChem, but, after any such
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approval, no amendment shall be made which by law or in accordance with the
rules of any relevant stock exchange requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of
the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Date, except for
those covenants and agreements contained herein and therein (including
Section 5.6) that by their terms apply or are to be performed in whole or in
part after the Effective Date and this Article VIII.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (i) on the date of delivery if delivered
personally, or by telefacsimile, upon confirmation of receipt, (ii) on the first
Business Day following the date of dispatch if delivered by a recognized
next-day courier service, or (iii) on the fifth Business Day following the date
of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) IF TO SHIRE OR EXCHANGECO, TO:
Shire Pharmaceuticals Group Plc
East Anton, Andover
Hampshire, England
England SP10 5RG
Fax: 012 64 334 658
Attention: Rolf Stahel
with copies to:
McCarthy Tetrault
1170 Peel Street
Montreal, Quebec
H3B 4S8
Fax: (514) 397-4235
Attention: Benjamin H. Silver
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(b) IF TO BIOCHEM TO:
Biochem Pharma Inc.
275 Armand-Frappier Blvd
Laval, Quebec
Canada H7V 4A7
Fax: (450) 978-7899
Attention: Francesco Bellini
with a copy to:
Stikeman Elliott
1155 Rene-Levesque Blvd. West
Suite 4000
Montreal, Quebec
H3B 3V2
Fax: (514) 397-3222
Attention: Jean Marc Huot
9.3 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement, the Confidentiality Agreements and the other agreements
of the parties referred to herein constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including
without limitation the December 10 Merger 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 5.8 (which is intended to be for the benefit of the
Persons covered thereby and may be enforced by such Persons).
9.6 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the Province of Quebec and the laws of Canada
applicable therein (without giving effect to choice of law principles thereof).
9.7 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
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parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior written
consent of the other party, and any attempt to make any such assignment without
such consent shall be null and void, except that Exchangeco may assign, in its
sole discretion, any or all of its rights, interests and obligations under this
Agreement to any direct Canadian wholly owned Subsidiary of Shire without the
consent of BioChem, but no such assignment shall relieve Exchangeco of any of
its obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
9.9 SUBMISSION TO JURISDICTION; WAIVERS. Each of Shire, Exchangeco and
BioChem irrevocably agrees that any legal action or proceeding with respect to
this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by the other party hereto or its successors or assigns may be
brought and determined in the courts of the Province of Quebec, and each of
Shire, Exchangeco and BioChem hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Shire, Exchangeco and BioChem hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or otherwise, in any action
or proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and (c) to the fullest extent permitted by applicable law, that
(i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit, action or proceeding is
improper and (iii) this Agreement, or the subject matter hereof, may not be
enforced in or by such courts.
9.10 CURRENCY. All of the dollar amounts mentioned in this Agreement or in
the Disclosure Schedules shall be in Canadian funds, unless otherwise expressed.
9.11 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
9.12 DEFINITIONS. As used in this Agreement:
"ACQUISITION PROPOSAL" has the meaning set forth in Section 5.5.
"ACTIONS" has the meaning set forth in Section 3.1(h)(i).
"AFFILIATE" has the meaning set forth in Section 1.2.
"AFFILIATE AGREEMENT" has the meaning set forth in Section 1.2.
"AGREEMENT" has the meaning set forth in the preamble.
"ARRANGEMENT" means an arrangement under Section 192 of the CBCA on the
terms and subject to the conditions set out in the Plan of Arrangement,
subject to any amendments or variations thereto made in accordance with
Article 6 of the Plan of Arrangement or made at the direction of the Court.
"ARRANGEMENT RESOLUTION" means the special resolution of the shareholders of
BioChem to be substantially in the form and content of Exhibit 1.3(b)
annexed hereto.
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"ARTICLES OF ARRANGEMENT" means the articles of arrangement of BioChem in
respect of the Arrangement that are required by the CBCA to be sent to the
Director after the Final Order is made.
"BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the meaning under
Section 13(d) of the Exchange Act and the rules and regulations thereunder.
"BENEFIT PLANS" means, with respect to any Person, each employee benefit
plan, program, arrangement and contract (including, without limitation, any
collective agreement, bonus, deferred compensation, share bonus, share
purchase, restricted share, stock option, employment, termination, stay
agreement or bonus, change in control and severance plan, program,
arrangement and contract) in effect on the date of this Agreement or
disclosed on the BioChem Disclosure Schedule or the Shire Disclosure
Schedule, as the case may be, to which such Person or its Subsidiary is a
party or which is maintained or contributed to by such Person.
"BIOCHEM" has the meaning set forth in the recitals.
"BIOCHEM BENEFIT PLAN" means any Benefit Plan maintained or contributed by
BioChem.
"BIOCHEM BOARD APPROVAL" has the meaning set forth in Section 3.2(f).
"BIOCHEM COMMON SHARES" means common share in the capital of BioChem.
"BIOCHEM DEFERRED SHARE UNIT PLANS" means BioChem's Deferred Share Unit Plan
for Key Executives and BioChem's Deferred Share Unit Plan for Non-Employee
Directors.
"BIOCHEM DISCLOSURE SCHEDULE" has the meaning set forth in Section 3.2.
"BIOCHEM IP RIGHTS" has the meaning set forth in Section 3.2(k)(i).
"BIOCHEM PERMITS" has the meaning set forth in Section 3.2(h)(ii).
"BIOCHEM RECOMMENDATION" has the meaning set forth in Section 5.1(e).
"BIOCHEM REPORTS" has the meaning set forth in Section 3.2(d)(i).
"BIOCHEM RESTRICTED SHARE UNIT PLAN" means BioChem's Restricted Share Unit
Plan.
"BIOCHEM SHAREHOLDERS MEETING "has the meaning set forth in Section 5.1(e).
"BIOCHEM SHARE OPTION" has the meaning set forth in Section 3.2(b)(i).
"BIOCHEM SHARE OPTION PLAN" has the meaning set forth in Section 3.2(b)(i).
"BIOCHEM VOTING DEBT" has the meaning set forth in Section 3.2(b)(ii).
"BIOCHEM WARRANTS "has the meaning set forth in Section 3.2(b)(i).
"BLUE SKY LAWS" has the meaning set forth in Section 3.1(c)(iii).
"BOARD OF DIRECTORS" means the Board of Directors of any specified Person
and any committees thereof.
"BUSINESS DAY" means any day on which banks are not required or authorized
to close in the City of Montreal, the City of London and the City of
New York.
"CA" has the meaning set forth in Section 3.1(c)(iii).
"CANADIAN SECURITIES LAWS" means all applicable securities laws in each of
the Canadian provinces and the respective regulations under such laws
together with applicable policy statements of the securities authorities in
such provinces.
"CBCA" has the meaning set forth in the recitals.
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"CERTIFICATE" means a certificate which immediately prior to the Effective
Date represented BioChem Common Shares.
"CHANGE IN SHIRE RECOMMENDATION" has the meaning set forth in
Section 5.1(f).
"CHANGE IN THE BIOCHEM RECOMMENDATION" has the meaning set forth in
Section 5.1(e).
"CIRCULAR" means the management proxy circular of BioChem to be prepared and
set to the BioChem Common Shareholders in connection with the BioChem
Shareholders Meeting pursuant to Section 5.1(c).
"CIVIL ACTION" has the meaning set forth in Section 5.1(h)
"CLASS 1 CIRCULAR" means the circular of Shire to be prepared and sent to
Shire shareholders containing (i) a notice duly convening the Shire
Shareholders Meeting and (ii) a recommendation from the Board of Directors
of Shire to the Shire shareholders to vote in favour of an ordinary
resolution approving the transactions contemplated by this Agreement.
"CLOSING" has the meaning set forth in Section 1.1.
"CLOSING DATE" has the meaning set forth in Section 1.1.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COMPETITION BUREAU" has the meaning set forth in Section 5.4(b).
"CONFIDENTIALITY AGREEMENT" has the meaning set forth in Section 5.3.
"CONTAMINATION" means the presence of any Hazardous Substance in the
Environment, including the degradation of water, air or soil quality.
"COURT" means the Superior Court of Justice (Quebec).
"DECEMBER 10 MERGER AGREEMENT" has the meaning set forth in the preamble.
"DEPOSITARY" has the meaning set forth in Section 1.6(b).
"DIRECTOR" means the Director appointed under Section 260 of the CBCA.
"DISSENT RIGHTS" means the rights of dissent in respect of the Arrangement
described in the Plan of Arrangement.
"DISSENTING SHAREHOLDER" has the meaning ascribed thereto in the Plan of
Arrangement.
"DOJ" has the meaning set forth in Section 5.4(b).
"EFFECTIVE DATE" has the meaning set forth in Section 1.2.
"EFFECTIVE TIME" means 12:01 a.m. (Montreal time) on the Effective Date.
"ENVIRONMENT" means all components of the earth, including air (and all
layers of the atmosphere), land (and all surface and subsurface soil,
underground spaces and cavities and all land submerged under water) and
water (and all surface and underground water), natural resources such as
wetlands, flora and fauna, organic and inorganic matter and living
organisms, and the interacting natural systems that include components
referred to above in the definition of "Environment."
"ENVIRONMENTAL LAWS" means all applicable Laws in existence on or before the
date hereof relating to Hazardous Substances, pollution or protection of the
Environment and human health or affecting the Environment, including Laws
relating to (a) on-site or off-site Contamination and (b) releases of any
Hazardous Substance into the Environment.
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"ENVIRONMENTAL LOSSES" means any losses, costs, expenses, damages, including
compensatory, exemplary or punitive damages, penalties, fines or charges
required to be paid out in connection with claims of any kind (including
interest, penalties and reasonable attorneys' and consultants' fees,
expenses and disbursements) incurred in order to comply with or in
connection with any Environmental Laws.
"ENVIRONMENTAL PERMITS" means, with respect to either party, all permits,
authorizations, certificates, registrations, licenses and any other
approvals required for the operation of the business of such party and its
Subsidiaries pursuant to Environmental Laws.
"ERISA" has the meaning set forth in Section 3.1(n)(i).
"ERISA AFFILIATE" has the meaning set forth in Section 3.1(n)(iii).
"ERISA AFFILIATE PLAN" has the meaning set forth in Section 3.1(n)(iii).
"ERISA PLAN" has the meaning set forth in Section 3.1(n)(ii).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" has the meaning set forth in Section 2.1.
"EXCHANGE FUND" has the meaning set forth in Section 2.1.
"EXCHANGE RATIO" has the meaning set forth in Section 1.6.
"EXCHANGE TRUST AGREEMENT" means an agreement to be made between Shire,
BioChem and the Trustee in connection with the Plan of Arrangement
substantially in the form and content of Exhibit 1.4(c) annexed hereto, with
such changes thereto as the parties hereto, may agree.
"EXCHANGEABLE SHARES" means the non-voting exchangeable shares to be created
in the capital of Exchangeco, having substantially the rights, privileges,
restrictions and conditions set out in Appendix I to the Plan of
Arrangement;
"EXPENSES" has the meaning set forth in Section 5.7.
"FINAL ORDER" means the final order of the Court approving the Arrangement
as such order may be amended by the Court at any time prior to the Effective
Date or, if appealed, then, unless such appeal is withdrawn or denied, as
affirmed or as amended on appeal.
"FORM S-4" has the meaning set forth in Section 5.1(b).
"FTC" has the meaning set forth in Section 5.4(b).
"GAAP" means, in respect of Shire for the period prior to January 1, 2000,
U.K. generally accepted accounting principles and after said period, United
States generally accepted accounting principles, and in respect of BioChem,
Canadian generally accepted accounting principles.
"GOVERNMENTAL ENTITY" has the meaning set forth in Section 3.1(c)(iii).
"HAZARDOUS SUBSTANCE" means any substance waste, pollutant, a contaminant,
material, chemical or constituent regulated pursuant to any applicable
Environmental Laws.
"HSR ACT" has the meaning set forth in Section 3.1(c)(iii).
"ICA" has the meaning set forth in Section 3.1(c)(iii).
"ICA AUTHORITY" has the meaning set forth in Section 5.4(b).
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 3.1(k).
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"INTERIM ORDER" means the interim order of the Court, as the same may be
amended, in respect of the Arrangement.
"INVESTISSEMENT QUEBEC OPTIONS" has the meaning set forth in
Section 3.2(b)(i).
"IRS" has the meaning set forth in Section 3.1(n)(ii).
"ITA" means the INCOME TAX ACT (Canada).
"KNOWN" or "KNOWLEDGE" means, with respect to any party, the knowledge of
such party's executive officers after reasonable inquiry.
"LAWS" refers to all or any applicable law (whether civil, criminal or
administrative) including, without limitation, common law, statute,
statutory instrument, treaty, regulation, directive, decision, code, order,
decree, injunction, resolution or judgment of any government,
quasi-government, supranational, federal, state, provincial or local
government, statutory or regulatory body, court or agency.
"LIENS" has the meaning set forth in Section 3.1(a)(ii).
"LICENSES" has the meaning set forth in Section 3.1(o).
"LISTING PARTICULARS" means listing particulars of Shire prepared in
accordance with the Listing Rules and to be sent to Shire shareholders and
BioChem shareholders.
"LISTING RULES" means the Listing Rules of the UK Listing Authority.
"LSE" has the meaning set forth in Section 2.3(b).
"LONG-TERM INCENTIVE PLAN" has the meaning set forth in Section 3.1(b)(i).
"MARKET PRICE" of any security means the average of the closing prices of
such security's sales on the principal securities exchange on which such
security may at the time be listed, or, if there has been no sales on such
exchange on any day, the average of the highest bid and lowest asked prices
on the principal exchange on which such security may at the time be listed
at the end of such day, in each such case averaged over a period of the
fifteen (15) consecutive trading days ending on the 3rd day prior to the
Closing Date.
"MATERIAL ADVERSE EFFECT" means, with respect to any entity, any event,
change, circumstance or effect that is or is reasonably likely to be
materially adverse to (i) the business, financial condition, results of
operations or prospects of such entity and its Subsidiaries taken as a
whole, other than any event, change, circumstance or effect relating to
(v) the economy or financial markets in general, (w) the industries in which
such entity operates in general and not specifically relating to (or having
the effect of specifically relating to or having a materially
disproportionate effect (relative to most other industry participants) on)
such entity, (x) the announcement or pendency of the Arrangement,
(y) changes after the date hereof in laws or regulations relating to the
development, manufacture or distribution of products for the treatment of
disease or (z) a change in the market price or trading volume of the shares
of such entity (provided that a change in the market price or trading price
may be used, if applicable, as evidence of some other event, change,
circumstance or effect that has or is reasonably likely to have a Material
Adverse Effect) or (ii) the ability of such entity to consummate the
transactions contemplated by this Agreement; all references to Material
Adverse Effect on Shire contained in this Agreement shall be deemed to refer
solely to Shire and its Subsidiaries without including its ownership of
BioChem and its Subsidiaries after the Arrangement.
"MERGER CONSIDERATION" means the consideration per share to be received by
the shareholders of BioChem, including any cash in lieu of fractional Shire
Shares.
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 3.1(n)(iii).
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"NASDAQ" means NASDAQ National Market.
"NECESSARY CONSENTS" has the meaning set forth in Section 3.1(c)(iii).
"OSC" means the Ontario Securities Commission.
"THE OTHER PARTY" means, with respect to BioChem, Shire and means, with
respect to Shire, BioChem.
"PERSON" means an individual, corporation, company, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
"PLAN" has the meaning set forth in Section 3.1(n)(i).
"PLAN OF ARRANGEMENT" means the plan of arrangement substantially in the
form and content of Exhibit A annexed hereto and any amendments or
variations thereto made in accordance with Article 6 of the Plan of
Arrangement or made at the direction of the Court.
"PROPOSED AMENDMENTS" has the meaning set forth in Section 3.1(m)(ii).
"PROXY STATEMENT" has the meaning set forth in Section 5.1(a).
"PUBLICLY DISCLOSED BY BIOCHEM" means disclosed by BioChem in a public
filing made by it with the OSC, QSC and/or the SEC since January 1, 1999.
"QSC" means the Commission des valeurs mobilieres du Quebec.
"REGULATORY LAW" has the meaning set forth in Section 5.4(b).
"REQUIRED BIOCHEM VOTE" means the affirmative vote of the holders of the
BioChem Common Shares as set forth in the Interim Order.
"REQUIRED SHIRE VOTE" means the affirmative vote of the holders of Shire
Ordinary Shares as (being entitled to do so) vote in person or, where
proxies are allowed, by proxy at the Shire Shareholders Meeting and whose
Shire Ordinary Shares account for a majority of the votes cast at that
meeting.
"RIGHTS PLAN" means the Shareholder Rights Plan Agreement dated as of
April 28, 1995 between BioChem and General Trust of Canada, as amended on
April 21, 1998.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" has the meaning set forth in Section 2.9.
"SHIRE" has the meaning set forth in the preamble.
"SHIRE ACQUISITION PROPOSAL" has the meaning set forth in Section 5.6.
"SHIRE ADSS" means the American Depositary Shares of Shire, or where
appropriate, the American Depositary Receipts of Shire, evidencing such
shares.
"SHIRE ADSS PRICE" means the Market Price of Shire ADSs (rounded to the
nearest 1/1000) as of the Closing Date.
"SHIRE BENEFIT PLAN" means any Benefit Plan maintained or contributed to by
Shire.
"SHIRE BOARD APPROVAL" has the meaning set forth in Section 3.1(f).
"SHIRE DISCLOSURE SCHEDULE" has the meaning set forth in Section 3.1.
"SHIRE ORDINARY SHARES" means ordinary shares of 5 pence each in the capital
of Shire.
"SHIRE PERMITS" has the meaning set forth in Section 3.1(h)(ii).
"SHIRE RECOMMENDATION" has the meaning set forth in Section 5.1(f).
A-51
"SHIRE RESOLUTION" means the ordinary resolution of the shareholders of
Shire approving the Arrangement to be substantially in the form and content
of Exhibit 1.4(a) annexed hereto.
"SHIRE SEC REPORTS" has the meaning set forth in Section 3.1(d)(i).
"SHIRE SHARES" means collectively the Shire Ordinary Shares, the Shire ADSs
and the Exchangeable Shares.
"SHIRE SHARE OPTION PLANS" has the meaning set forth in Section 3.1(b)(i).
"SHIRE SHARE OPTIONS" has the meaning set forth in Section 3.1(b)(i).
"SHIRE SHAREHOLDERS APPROVAL" has the meaning set forth in
Section 3.1(c)(i).
"SHIRE SHAREHOLDERS MEETING" has the meaning set forth in Section 5.1(f).
"SHIRE SUPERIOR PROPOSAL" means a written proposal made by a Person other
than BioChem which is for (I)(a) a merger, reorganization, consolidation,
share exchange, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Shire as a result of which
Shire's shareholders prior to such transaction in the aggregate cease to own
at least 50% of the voting securities of the entity surviving or resulting
from such transaction (or the ultimate parent entity thereof), (b) the
acquisition, directly or indirectly, by a Person of beneficial ownership of
50% or more of Shire's shares whether by merger, consolidation, share
exchange, business combination, tender or exchange offer or otherwise (other
than a merger, consolidation, share exchange, business combination, tender
or exchange offer or other transaction upon the consummation of which the
Shire shareholders would in the aggregate beneficially own greater than 50%
of the voting securities of such Person), and which is (II) otherwise on
terms which the Board of Directors of Shire in good faith concludes (after
receiving a written opinion of its financial advisors and outside counsel
independent from Shire, a copy of which shall be provided to BioChem),
taking into account, among other things, all legal, financial, regulatory
and other aspects of the proposal, the Person making the proposal as well as
the binding nature of the commitments, undertakings and covenants of Shire
under this Agreement, (a) would, if consummated, result in a transaction
that is more favorable to the Shire shareholders (in their capacities as
shareholders), from a financial point of view, than the transactions
contemplated by this Agreement, (b) is reasonably capable of being
completed, (c) would not likely be completed if Shire is prevented from
effecting a Change in Shire Recommendation, and (d) is required by Law to be
approved and recommended by the Board of Directors despite the binding
nature of this Agreement.
"SUBSIDIARY" when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, (i) of which
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any Subsidiary of such party do not have a majority of the
voting interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
"SUPERIOR PROPOSAL" means a written proposal made by a Person other than
Shire which is for (I)(a) a merger, reorganization, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution
or similar transaction involving BioChem as a result of which BioChem's
shareholders prior to such transaction in the aggregate cease to own at
least 50% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent entity thereof), (b) a sale, lease,
exchange, transfer or other disposition of at least 50% of the assets of
BioChem and its Subsidiaries, taken as a whole, in a single transaction or a
series of related transactions, or (c) the acquisition, directly or
indirectly, by a Person of beneficial ownership of 50%
A-52
or more of the of the BioChem Common Shares whether by merger,
consolidation, share exchange, business combination, tender or exchange
offer or otherwise (other than a merger, consolidation, share exchange,
business combination, tender or exchange offer or other transaction upon the
consummation of which the BioChem shareholders would in the aggregate
beneficially own greater than 50% of the voting securities of such Person),
and which is (II) otherwise on terms which the Board of Directors of BioChem
in good faith concludes (after consultation with its financial advisors and
outside counsel), taking into account, among other things, all legal,
financial, regulatory and other aspects of the proposal and the Person
making the proposal, (a) would, if consummated, result in a transaction that
is more favorable to the BioChem shareholders (in their capacities as
shareholders), from a financial point of view, than the transactions
contemplated by this Agreement and (b) is reasonably capable of being
completed.
"SUPPORT AGREEMENT" means an agreement to be made between Shire and BioChem
substantially in the form and content of Exhibit 1.4(e) annexed hereto, with
such changes thereto as the parties hereto may agree.
"TAX RETURNS" has the meaning set forth in Section 3.1(m).
"TAXES" has the meaning set forth in Section 3.1(m).
"TERMINATION DATE" has the meaning set forth in Section 7.1(b).
"TRUSTEE" means the trustee to be chosen by Shire and BioChem, acting
reasonably, to act as trustee under the Exchange Trust Agreement, being a
corporation organized and existing under the laws of Canada and authorized
to carry on the business of a trust company in all the provinces of Canada,
and any successor trustee appointed under the Exchange Trust Agreement.
"TSE" means The Toronto Stock Exchange.
"UK LISTING AUTHORITY" means the Financial Services Authority acting in its
capacity as the competent authority for the purposes of Part IV of the
Financial Services Act 1986 and in the exercise of its function in respect
of the admission to the Official List of the UK Listing Authority otherwise
than in accordance with Part IV of the Financial Services Act 1986.
"US GAAP" means the United States generally accepted accounting principles.
"VIOLATION" has the meaning set forth in Section 3.1(c)(ii).
IN WITNESS WHEREOF, Shire, Exchangeco and BioChem have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
SHIRE PHARMACEUTICALS GROUP PLC
By: /s/ ROLF STAHEL
-------------------------------
Name: Rolf Stahel
Title: Chief Executive Officer
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SHIRE ACQUISITION INC.
By: /s/ BENJAMIN H. SILVER
-------------------------------
Name: Benjamin H. Silver
Title: Director
BIOCHEM PHARMA INC.
By: /s/ FRANCOIS LEGAULT
-------------------------------
Name: Francois Legault
Title: Executive Vice-President
Corporate Development and
Investments
By: /s/ CHARLES A. TESSIER
-------------------------------
A-54
APPENDIX B
FORM OF PLAN OF ARRANGEMENT INCLUDING EXCHANGEABLE SHARE PROVISIONS
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject matter
or context inconsistent therewith, the following terms shall have the respective
meanings set out below and grammatical variations of such terms shall have
corresponding meanings:
"ADS ELECTED SHARE" means any BioChem Common Share that the holder shall
have elected, in a duly completed Letter of Transmittal and Election Form
deposited with the Exchange Agent no later than the Election Deadline, to
transfer to ExchangeCo under the Arrangement in exchange for a number of
fully-paid and non-assessable Shire ADSs that is equal to the Exchange Ratio
divided by three.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person. For
the purposes of this definition, "CONTROL" (including, with correlative
meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as
applied to any Person, means the possession by another Person, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of that first mentioned Person, whether through the ownership
of voting securities, by contract or otherwise.
"ARRANGEMENT" means the arrangement under Section 192 of the CBCA on the
terms and subject to the conditions set forth in the Merger Agreement and
this Plan of Arrangement and subject to any amendments or variations thereto
made in accordance with Article VIII of the Merger Agreement or Article 6
hereof or made at the direction of the Court.
"ARRANGEMENT RESOLUTION" means the special resolution to be passed by the
BioChem Securityholders at the BioChem Securityholder Meeting, to be
substantially in the form and content of Exhibit 1.3(b) to the Merger
Agreement.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of BioChem in
respect of the Arrangement, required by the CBCA to be sent to the Director
after the Final Order is made.
"BIOCHEM" means BioChem Pharma Inc., a corporation existing under the laws
of Canada.
"BIOCHEM COMMON SHARES" means the common shares in the capital of BioChem
outstanding from time to time, including all common shares issued on the
exercise of BioChem Share Options and BioChem Warrants prior to the
Effective Date.
"BIOCHEM SECURITYHOLDERS" means, collectively, the holders of BioChem Common
Shares, the holders of BioChem Share Options and the holders of BioChem
Warrants, to the extent provided in or required by the Interim Order.
B-1
"BIOCHEM SECURITYHOLDER MEETING" means the special meeting of the BioChem
Securityholders (including any adjournment thereof) that is to be convened
and held as provided by the Interim Order to consider, and if deemed
advisable to approve, the Arrangement.
"BIOCHEM SHARE OPTION PLAN" means the share option plan for BioChem's
directors, officers, employees and consultants.
"BIOCHEM SHARE OPTIONS" means options to acquire BioChem Common Shares
granted under the BioChem Share Option Plan.
"BIOCHEM SHAREHOLDER" means a registered holder of BioChem Common Shares.
"BIOCHEM WARRANTS" means the right to receive warrants in certain
circumstances granted in favour of the Government of Canada giving the right
to acquire BioChem Common Shares at an exercise price equal to the closing
price on The Toronto Stock Exchange on the day prior to their issuance, the
whole pursuant to an agreement dated March 31, 2000.
"BUSINESS DAY" means any day on which banks are not required or authorized
to close in the City of Montreal, Canada, the City of London, England and
the City of New York, U.S.A.
"CALL RIGHT DIVIDEND AMOUNT" has the meaning ascribed to that term in
Section 5.3(a).
"CALLCO" means 3829359 Canada Inc., a corporation existing under the laws of
Canada and being a wholly-owned subsidiary of Shire.
"CANADIAN RESIDENT" means a Person who is a resident of Canada for the
purposes of the ITA.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as now in effect and as
may be amended from time to time prior to the Effective Date, including the
regulations made thereunder.
"CERTIFICATE" means the certificate of arrangement giving effect to the
Arrangement, issued by the Director pursuant to subsection 192(7) of the
CBCA after the Articles of Arrangement have been filed.
"CLOSING DATE" has the meaning ascribed to that term in the Merger
Agreement.
"COURT" means the Superior Court of Quebec.
"CURRENT MARKET PRICE" has the meaning ascribed to that term in the
Exchangeable Share Provisions.
"DIRECTOR" means the Director appointed under Section 260 of the CBCA.
"DISSENT PROCEDURES" has the meaning ascribed to that term in Section 3.1.
"DISSENTING SHAREHOLDER" means a holder of BioChem Common Shares who
dissents in respect of the Arrangement in strict compliance with the Dissent
Procedures.
"DIVIDEND AMOUNT" has the meaning ascribed to that term in Section 5.1(a).
"EFFECTIVE DATE" means the date upon which this Plan of Arrangement becomes
effective as established by the date of issue shown on the Certificate.
"EFFECTIVE TIME" means 12:01 a.m. (Montreal time) on the Effective Date.
"ELECTION DEADLINE" means 5:00 p.m. (Montreal time) on the date which is two
Business Days prior to the date of the BioChem Securityholder Meeting.
"ENTITY" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership,
joint venture, estate, trust, company (including any company limited by
shares, limited liability company or joint share company), firm, society or
other enterprise, association, organization or entity.
B-2
"EXCHANGE AGENT" means General Trust of Canada at its offices at the
addresses set out in the Letter of Transmittal and Election Form in its
capacity as an exchange agent for the BioChem Common Shares under the
Arrangement or such other trust company or other Entity that Shire may, in
its reasonable discretion, choose as exchange agent.
"EXCHANGE DATE" has the meaning ascribed to that term in Section 5.3(b).
"EXCHANGE RATIO" means (i) 2.3517, if the Shire ADS Price is less than or
equal to US$47.20; (ii) an amount determined by dividing US$37.00 by the
Shire ADS Price and multiplying by three, if the Shire ADS Price is greater
than US$47.20 and less than US$70.80; and (iii) 1.5678, if the Shire ADS
Price is equal to or greater than US$70.80; provided that if, between the
date of the Merger Agreement and the Effective Time, the outstanding BioChem
Common Shares or Shire Ordinary Shares are changed into a different number
or class of shares by reason of any share split, division or subdivision of
shares, share dividend, reverse share split, consolidation of shares,
reclassification, recapitalization or other similar transaction, then the
Exchange Ratio will be adjusted appropriately to provide to the holders of
BioChem Common Shares the same economic effect as contemplated hereby.
"EXCHANGEABLE ELECTED SHARE" means any BioChem Common Share that the holder
shall have elected, in a duly completed Letter of Transmittal and Election
Form deposited with the Exchange Agent no later than the Election Deadline,
to transfer to ExchangeCo under the Arrangement in exchange for a number of
fully paid and non-assessable Exchangeable Shares equal to the Exchange
Ratio divided by three, or that is deemed to be an Exchangeable Elected
Share pursuant to Section 2.2(d).
"EXCHANGEABLE SHARE" means a share in the class of non-voting exchangeable
shares in the capital of ExchangeCo.
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares, which rights,
privileges, restrictions and conditions shall be substantially as set forth
in Appendix 1 hereto.
"EXCHANGEABLE SHARE SUPPORT AGREEMENT" means the Exchangeable Share Support
Agreement among Shire, CallCo and ExchangeCo, to be entered into in
connection with this Plan of Arrangement.
"EXCHANGEABLE SHARE VOTING EVENT" has the meaning attributed to that term in
the Exchangeable Share Provisions.
"EXCHANGECO" means Shire Acquisition Inc. (formerly 3829341 Canada Inc.), a
corporation existing under the laws of Canada and being a wholly-owned
subsidiary of Shire.
"EXEMPT EXCHANGEABLE SHARE VOTING EVENT" has the meaning attributed to that
term in the Exchangeable Share Provisions.
"FINAL ORDER" means the final order of the Court approving the Arrangement,
following the application therefor contemplated by Section 1.3(e) of the
Merger Agreement, as such order may be affirmed, amended or modified by the
Court or by the highest court by which an appeal therefrom is heard at any
time prior to the Effective Time.
"GOVERNMENTAL BODY" means any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any
nature; (b) federal, state, provincial, local, municipal, foreign or other
government; or (c) governmental or quasi-governmental authority of any
nature
B-3
(including any governmental division, department, agency, commission,
instrumentality, official, ministry, fund, foundation, center, organization,
unit, body or Entity and any court or other tribunal).
"HOLDER" means, when used with reference to any shares, options or warrants,
the holders of such shares, options or warrants, respectively, shown from
time to time in the register maintained by or on behalf of the applicable
corporation in respect thereof.
"INTERIM ORDER" means the interim order of the Court made in connection with
the process for obtaining approval of the Arrangement and related matters
following the application therefor contemplated by Section 1.3(a) of the
Merger Agreement, as such order may be affirmed, amended or modified by the
Court or by the highest court by which an appeal therefrom is heard at any
time prior to the Effective Time.
"ITA" means the INCOME TAX ACT (Canada).
"LETTER OF TRANSMITTAL AND ELECTION FORM" means the Letter of Transmittal
and Election Form for use by holders of BioChem Common Shares, in the form
accompanying the Management Information Circular.
"LIQUIDATION AMOUNT" has the meaning attributed to that term in the
Exchangeable Share Provisions.
"LIQUIDATION CALL PURCHASE PRICE" has the meaning ascribed to that term in
Section 5.1(a).
"LSE" means the London Stock Exchange plc or its successors.
"LIQUIDATION CALL RIGHT" has the meaning ascribed to that term in
Section 5.1(a).
"LIQUIDATION DATE" has the meaning ascribed to that term in the Exchangeable
Share Provisions.
"MANAGEMENT INFORMATION CIRCULAR" means the notice of the BioChem
Securityholder Meeting and accompanying management information circular of
BioChem, including all schedules attached thereto, to be sent to BioChem
Securityholders in connection with the BioChem Securityholder Meeting.
"MARKET PRICE" has the meaning ascribed to that term in the Merger
Agreement.
"MEETING DATE" means the date of the BioChem Securityholder Meeting.
"MERGER AGREEMENT" means the merger agreement made as of December 10, 2000
between Shire, ExchangeCo and BioChem, as amended, supplemented and/or
restated in accordance therewith prior to the Effective Date, providing for,
among other things, the Arrangement.
"NASDAQ" means NASDAQ National Market.
"PERSON" means any individual, Entity or Governmental Body.
"PLAN OF ARRANGEMENT" means this plan of arrangement proposed under
Section 192 of the CBCA, as amended, modified or supplemented from time to
time in accordance with Article 6 hereof or Article VIII of the Merger
Agreement or any order of the Court, including the appendices hereto and
including any agreement or instrument supplementary or ancillary hereto.
"REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed to that term in
Section 5.2(a).
"REDEMPTION CALL RIGHT" has the meaning ascribed to that term in
Section 5.2(a).
"REDEMPTION DATE" has the meaning ascribed to that term in the Exchangeable
Share Provisions.
"REDEMPTION PRICE" has the meaning ascribed to that term in the Exchangeable
Share Provisions.
"REPLACEMENT OPTION" has the meaning ascribed to that term in
Section 2.2(e).
"REPLACEMENT WARRANT" has the meaning ascribed to that term in
Section 2.2(f).
B-4
"SHIRE" means Shire Pharmaceuticals Group Plc, a company registered in
England under registry number 2883758.
"SHIRE ADS" means an American Depositary Share of Shire, or where
appropriate, an American Depositary Receipt of Shire, evidencing such share.
"SHIRE ADS PRICE" means the Market Price of a Shire ADS (rounded to the
nearest 1/1000) as of the Closing Date.
"SHIRE CALL PURCHASE PRICE" has the meaning ascribed to that term in
Section 5.3(a).
"SHIRE CALL RIGHT" has the meaning ascribed to that term in Section 5.3(a).
"SHIRE CONTROL TRANSACTION" has the meaning ascribed to that term in the
Exchangeable Share Provisions.
"SHIRE ELECTED SHARE" means any BioChem Common Share that the holder shall
have elected, in a duly completed Letter of Transmittal and Election Form
deposited with the Exchange Agent no later than the Election Deadline, to
transfer to ExchangeCo under the Arrangement in exchange for a number of
fully-paid and non-assessable Shire Ordinary Shares that is equal to the
Exchange Ratio, or that is deemed to be a Shire Elected Share pursuant to
Section 2.2(c) or Section 2.2(d).
"SHIRE ORDINARY SHARES" means ordinary shares of five pence each in the
capital of Shire.
"SPECIAL VOTING SHARES" means the special voting shares of Shire having
substantially the rights, privileges, restrictions and conditions described
in the Voting and Exchange Trust Agreement.
"STAMP TAXES" means all stamp, registration and transfer taxes and duties or
their equivalents in all jurisdictions where such taxes and duties are
payable as a result of any of the transactions contemplated by this Plan of
Arrangement including, without limitation, United Kingdom stamp duty and
stamp duty reserve tax.
"TOTAL LIQUIDATION CALL PURCHASE PRICE" means the Liquidation Amount
multiplied by the relevant number of Exchangeable Shares of a particular
holder.
"TOTAL REDEMPTION CALL PURCHASE PRICE" means the Redemption Price multiplied
by the number of Exchangeable Shares of a particular holder subject to a
redemption pursuant to Section 7.1.
"TOTAL SHIRE CALL PURCHASE PRICE" means the Shire Call Purchase Price
multiplied by the relevant number of Exchangeable Shares subject to the
Shire Call Right exercised by Shire.
"TRANSFER AGENT" has the meaning ascribed to that term in Section 5.1(b).
"TRUSTEE" means General Trust of Canada or such other trust company or other
Entity that Shire may, in its reasonable discretion, choose to act as
trustee under the Voting and Exchange Trust Agreement, being a corporation
organized and existing under the laws of Canada and authorized to carry on
the business of a trust company in all the provinces of Canada, and any
successor trustee appointed under the Voting and Exchange Trust Agreement.
"UKLA" means the United Kingdom Listing Authority.
"UNITED KINGDOM POUND EQUIVALENT" means, in respect of an amount expressed
in Canadian dollars at any date, the product obtained by multiplying:
(a) the number of Canadian dollars, by (b) the exchange rate on such date
for Canadian dollars expressed in United Kingdom pounds as reported by the
Bank of Canada or, in the event such spot exchange rate is not available,
such spot exchange rate
on such date for Canadian dollars expressed in United Kingdom pounds as may
be deemed by the board of directors of BioChem and the board of directors of
Shire, acting jointly and reasonably, to be appropriate for such purpose.
"VOTING AND EXCHANGE TRUST AGREEMENT" has the meaning ascribed to that term
in the Exchangeable Share Provisions.
1.2 SECTIONS AND HEADINGS
The division of this Plan of Arrangement into Articles and sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Plan of Arrangement. Unless otherwise
indicated, any reference in this Plan of Arrangement to an article, a section or
an appendix refers to the specified article or section of or appendix to this
Plan of Arrangement.
1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and VICE VERSA and words
importing any gender include all genders.
1.4 GOVERNING LAW
This Plan of Arrangement will be governed by and construed in accordance
with the laws of the Province of Quebec and the laws of Canada applicable
therein.
B-5
ARTICLE 2
ARRANGEMENT
2.1 BINDING EFFECT
This Plan of Arrangement will become effective at, and be binding at and
after, the Effective Time on (i) BioChem, (ii) Shire, (iii) CallCo,
(iv) ExchangeCo, (v) all holders and all beneficial holders of BioChem Common
Shares, (vi) all holders and all beneficial holders of Exchangeable Shares, and
(vii) all holders and all beneficial holders of BioChem Share Options and
BioChem Warrants.
2.2 ARRANGEMENT
Commencing at the Effective Time, the following will occur and will be
deemed to occur without any further act or formality:
(a) each Shire Elected Share will be transferred by the holder thereof,
without any further act or formality on the part of such holder, to
ExchangeCo in exchange for that number of fully paid and non-assessable
Shire Ordinary Shares equal to the Exchange Ratio, and the name of each
such holder will be removed from the register of holders of BioChem
Common Shares and added to the register of holders of Shire Ordinary
Shares, and ExchangeCo will be recorded as the holder of such BioChem
Common Share so exchanged and will be deemed to be the legal and
beneficial holder thereof;
(b) each ADS Elected Share will be transferred by the holder thereof,
without any further act or formality on the part of such holder, to
ExchangeCo in exchange for that number of fully paid and non-assessable
Shire ADSs equal to the Exchange Ratio divided by three, and the name of
each such holder will be removed from the register of holders of BioChem
Common Shares and added to the register of holders of Shire ADSs, and
ExchangeCo will be recorded as the holder of such BioChem Common Share so
exchanged and will be deemed to be the legal and beneficial holder
thereof;
(c) each Exchangeable Elected Share will be transferred by the holder
thereof, without any act or formality on the part of such holder, to
ExchangeCo in exchange for (i) that number of fully paid and
non-assessable Exchangeable Shares equal to the Exchange Ratio divided by
three together with (ii) the rights and benefits to which such holder
will be entitled pursuant to or as a result of the Voting and Exchange
Trust Agreement and the Exchangeable Share Support Agreement, and the
name of each such holder will be removed from the register of holders of
BioChem Common Shares and added to the register of holders of
Exchangeable Shares, and ExchangeCo will be recorded as the holder of
such BioChem Common Share so exchanged and will be deemed to be the legal
and beneficial holder thereof; provided that, notwithstanding the
foregoing, each holder of BioChem Common Shares who is not a Canadian
Resident will not be entitled to elect to receive Exchangeable Shares,
and any such election made by any such holder will be deemed to be an
election to receive Shire Ordinary Shares and each BioChem Common Share
held by such holder will be deemed to be a Shire Elected Share and will
be transferred by the holder thereof in accordance with Section 2.2(a);
(d) each BioChem Common Share in respect of which an election has not been
made by the holder thereof by the Election Deadline, or in respect of
which an effective election has not been made, (other than (i) BioChem
Common Shares held by Dissenting Shareholders who are ultimately entitled
to be paid the fair value of the BioChem Common Shares held by them and
(ii) BioChem Common Shares that are held by Shire or any of its
Affiliates, which shall not be exchanged under this Arrangement and shall
remain outstanding as BioChem Common Shares) will be deemed to be an
Exchangeable Elected Share and will be transferred by the holder thereof
in accordance with Section 2.2(c) without any further act or formality on
its part; provided that,
B-6
notwithstanding the foregoing, each BioChem Common Share in respect of
which an election has not been made or in respect of which an effective
election has not been made that is held by a holder who is not a Canadian
Resident (other than (i) BioChem Common Shares held by Dissenting
Shareholders who are ultimately entitled to be paid the fair value of the
BioChem Common Shares held by them and (ii) BioChem Common Shares that
are held by Shire or any of its Affiliates, which shall not be exchanged
under this Arrangement and shall remain outstanding as BioChem Common
Shares) will be deemed to be a Shire Elected Share and will be
transferred by the holder thereof in accordance with Section 2.2(a) and
any election made by any such holder to receive Exchangeable Shares will
be deemed to be an election to receive Shire Ordinary Shares;
(e) subject to applicable securities laws and regulatory requirements, each
BioChem Share Option which is outstanding and unexercised at or
immediately prior to the Effective Time will be fully vested in
accordance with the terms of the BioChem Share Option Plan (whether or
not otherwise vested) and will be exchanged for an option (a "REPLACEMENT
OPTION") to purchase a number of Shire Ordinary Shares from Shire equal
to the product of the Exchange Ratio multiplied by the number of BioChem
Common Shares subject to such BioChem Share Option immediately prior to
the Effective Time, rounding down to the nearest whole share. Such
Replacement Option will be fully vested and will provide for an exercise
price per Shire Ordinary Share equal to the United Kingdom Pound
Equivalent (calculated on the Effective Date) of the per share exercise
price of such BioChem Share Option immediately prior to the Effective
Time divided by the Exchange Ratio, rounding up to the nearest whole
penny. The term to expiry, conditions to, restrictions on and manner of
exercising, and all other terms and provisions of such Replacement Option
will otherwise be unchanged from those of the BioChem Share Option. Any
document or agreement previously evidencing a BioChem Share Option will
thereafter evidence and be deemed to evidence such Replacement Option;
provided, however, that each Replacement Option issued by Shire in
accordance with this Section 2.2(e) shall, in accordance with its terms,
be subject to further adjustment as appropriate to reflect any share
split, division or subdivision of shares, share dividend, reverse share
split, consolidation of shares, reclassification, recapitalization or
other similar transaction subsequent to the Effective Time;
(f) subject to applicable securities laws and regulatory requirements, each
BioChem Warrant which is outstanding at or immediately prior to the
Effective Time, will be exchanged with Shire for a right to receive a
warrant (a "REPLACEMENT WARRANT") to purchase a number of Shire Ordinary
Shares calculated pursuant to the valuation formula set out in the
agreement dated March 31, 2000 between BioChem and the Government of
Canada. Such Replacement Warrant will provide for an exercise price per
Shire Ordinary Share equal to the closing price of such shares on the LSE
on the trading day immediately prior to their issuance. The term to
expiry, conditions to, restrictions on and manner of exercising, and all
other terms and provisions of such Replacement Warrant will otherwise
remain unchanged from those of the BioChem Warrant, and any document or
agreement previously evidencing a BioChem Warrant will thereafter
evidence and be deemed to evidence such Replacement Warrant; provided,
however, that each Replacement Warrant issued by Shire in accordance with
this Section 2.2(f) shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any share split, division or
subdivision of shares, share dividend, reverse share split, consolidation
of shares, reclassification, recapitalization or other similar
transaction subsequent to the Effective Time; and
(g) coincident with the transactions set out above in this Section 2.2,
Shire, ExchangeCo and the Trustee will execute the Voting and Exchange
Trust Agreement and Shire will issue to and deposit with the Trustee the
Special Voting Shares, in consideration of the payment to Shire of one
(1) United Kingdom pound, to be thereafter held of record by the Trustee
as trustee for and on
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behalf of, and for the use and benefit of, the holders of the
Exchangeable Shares in accordance with the Voting and Exchange Trust
Agreement. All rights of holders of Exchangeable Shares under the Voting
and Exchange Trust Agreement will be received by them as part of the
property receivable under Section 2.2(c) or Section 2.2(d) in exchange
for the BioChem Common Shares.
2.3 ELECTIONS
(a) Each Canadian Resident who, at or prior to the Election Deadline, is a
holder of BioChem Common Shares, will be entitled, with respect to all or
a portion of such shares, to make an election at or prior to the Election
Deadline to receive Exchangeable Shares, Shire ADSs, Shire Ordinary
Shares or a combination thereof, in exchange for such holder's BioChem
Common Shares, on the basis set forth herein and in the Letter of
Transmittal and Election Form; for greater certainty, a holder of BioChem
Common Shares who is not a Canadian Resident will not be entitled to
elect to receive Exchangeable Shares, and any such election otherwise
made by any such holder shall be and be deemed to be an election to
receive Shire Ordinary Shares as set forth in Section 2.2(c).
(b) Holders of BioChem Common Shares who are Canadian Residents, other than
any such holder who is exempt from tax under the ITA, and who have
elected to receive consideration that includes Exchangeable Shares in
exchange for their BioChem Common Shares will be entitled to make an
income tax election pursuant to subsection 85(1) of the ITA or, if the
holder is a partnership, subsection 85(2) of the ITA (and in each case,
if applicable, the analogous provisions of applicable provincial income
tax legislation) with respect to the transfer of their BioChem Common
Shares to ExchangeCo by providing three signed copies of the necessary
election forms to the Exchange Agent within 120 days following the
Effective Date, duly completed with the details of the number of shares
transferred and the applicable agreed amounts for the purposes of such
elections. Thereafter, subject to the election forms being correct and
complete and complying with the provisions of the ITA (and any applicable
provincial income tax legislation), the forms will be signed by
ExchangeCo and two signed copies will be returned to such holders for
filing with the Canada Customs and Revenue Agency (and the applicable
provincial tax authority).
(c) If, between the date of this Plan of Arrangement and the Effective Date,
the outstanding Shire Ordinary Shares, Shire ADSs or the BioChem Common
Shares shall have been changed into a different number of shares or
different class by reason of any reclassification, recapitalization,
share split, split-up, combination or exchange of shares or any
extraordinary dividend payable in cash or property or a stock dividend or
dividend payable in any other securities shall be declared with a record
date within such period, or any similar event shall have occurred, the
number of Shire Ordinary Shares, Shire ADSs or Exchangeable Shares to be
received by the holders of BioChem Common Shares shall be appropriately
adjusted to provide to the holders of BioChem Common Shares the same
economic effect as contemplated by this Plan of Arrangement prior to such
event.
ARTICLE 3
RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT
Holders of BioChem Common Shares may exercise rights of dissent with respect
to such shares pursuant to and in the manner set forth in Section 190 of the
CBCA and this Section 3.1 (the "DISSENT PROCEDURES") in connection with the
Arrangement; provided that, notwithstanding subsection 190(5) of the CBCA, the
written objection to the Arrangement Resolution referred to in
subsection 190(5) of the CBCA must be received by Shire not later than
5:00 p.m. (Montreal time) on the Business Day preceding the
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BioChem Securityholder Meeting. Holders of BioChem Common Shares who duly
exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their BioChem Common
Shares will be deemed to have transferred such BioChem Common Shares to
BioChem immediately prior to the Effective Time and such BioChem Common
Shares will be cancelled as of the Effective Time; or
(b) are ultimately not entitled, for any reason, to be paid fair value for
their BioChem Common Shares will be deemed to have participated in the
Arrangement on the same basis as a non-dissenting and non-electing holder
of BioChem Common Shares and will receive Exchangeable Shares or Shire
Ordinary Shares, as the case may be, in accordance with Section 2.2(d),
but in no case will Shire, ExchangeCo, CallCo, the Exchange Agent or any other
Person be required to recognize such holders as holders of BioChem Common Shares
after the Effective Time, and the names of such holders of BioChem Common Shares
will be deleted from the register of holders of BioChem Common Shares at the
Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 EXCHANGE OF CERTIFICATES FOR SHIRE ORDINARY SHARES AND/OR SHIRE ADSS
At or promptly after the Effective Time, ExchangeCo will deposit, or procure
that there are deposited, with the Exchange Agent, for the benefit of the
holders of BioChem Common Shares who will receive Shire Ordinary Shares and/or
Shire ADSs in connection with the Arrangement, certificates representing
(i) the Shire Ordinary Shares issued pursuant to Section 2.2(a), Section 2.2(c)
or Section 2.2(d) in exchange for Shire Elected Shares and/or (ii) the Shire
ADSs issued pursuant to Section 2.2(b) in exchange for ADS Elected Shares (or
effect the necessary CREST or other electronic transfers). Upon surrender to the
Exchange Agent for cancellation of a certificate which immediately prior to the
Effective Time represented Shire Elected Shares and/or ADS Elected Shares under
the Arrangement, together with such other documents and instruments as would
have been required to effect the transfer of the BioChem Common Shares formerly
represented by such certificate under the CBCA and the by-laws of BioChem and
such additional documents and instruments as the Exchange Agent may reasonably
require, the holder of such surrendered certificate will be entitled to receive
in exchange therefor, and the Exchange Agent shall deliver to such holder, a
certificate or certificates representing that number (rounded down to the
nearest whole number) of Shire Ordinary Shares and/or Shire ADSs which such
holder has the right to receive (or effect the necessary CREST or other
electronic transfers) (together with any dividends or distributions with respect
thereto pursuant to Section 4.3 and any cash in lieu of fractional Shire
Ordinary Shares and/or Shire ADSs pursuant to Section 4.4), and the certificate
so surrendered will forthwith be cancelled. In the event of a transfer of
ownership of BioChem Common Shares which is not registered in the transfer
records of BioChem, a certificate or certificates representing the proper number
of Shire Ordinary Shares and/or Shire ADSs may be issued to the transferee (or
the necessary CREST or other electronic transfer effected) if the certificate
representing such BioChem Common Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer under
the CBCA and the by-laws of BioChem and such additional documents and
instruments as the Exchange Agent may reasonably require. Until surrendered as
contemplated by this Section 4.1, each certificate which immediately prior to
the Effective Time represented BioChem Common Shares that were exchanged for
Shire Ordinary Shares or Shire ADSs will be deemed at all times after the
Effective Time to represent only the right to receive upon such surrender
(i) the certificate or certificates representing Shire Ordinary Shares and/or
Shire ADSs as contemplated by this Section 4.1 (or have the necessary CREST or
other electronic transfer effected), (ii) a cash payment in lieu of any
fractional Shire Ordinary Shares and/or Shire ADSs as contemplated by
Section 4.4, and (iii) any dividends or distributions with a record
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date after the Effective Time theretofore paid or payable with respect to Shire
Ordinary Shares or Shire ADSs as contemplated by Section 4.3.
4.2 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, ExchangeCo will deposit with the
Exchange Agent, for the benefit of the holders of BioChem Common Shares who will
receive Exchangeable Shares in connection with the Arrangement, certificates
representing the Exchangeable Shares issued pursuant to Section 2.2(c) or
Section 2.2(d) in exchange for Exchangeable Elected Shares. Upon surrender to
the Exchange Agent for cancellation of a certificate which immediately prior to
the Effective Time represented one or more Exchangeable Elected Shares under the
Arrangement, together with such other documents and instruments as would have
been required to effect the transfer of the BioChem Common Shares formerly
represented by such certificate under the CBCA and the by-laws of BioChem and
such additional documents and instruments as the Exchange Agent may reasonably
require, the holder of such surrendered certificate will be entitled to receive
in exchange therefor, and the Exchange Agent will deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of Exchangeable Shares which such holder has the right to receive (together with
any dividends or distributions with respect thereto pursuant to Section 4.3 and
any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.4), and
the certificate so surrendered will forthwith be cancelled. In the event of a
transfer of ownership of BioChem Common Shares that is not registered in the
transfer records of BioChem, a certificate representing the proper number of
Exchangeable Shares may be issued to the transferee if the certificate
representing such BioChem Common Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer under
the CBCA and the by-laws of BioChem and such additional documents and
instruments as the Exchange Agent may reasonably require. Until surrendered as
contemplated by this Section 4.2, each certificate which immediately prior to
the Effective Time represented BioChem Common Shares that were exchanged for
Exchangeable Shares will be deemed at all times after the Effective Time to
represent only the right to receive upon such surrender (i) the certificate
representing Exchangeable Shares as contemplated by this Section 4.2, (ii) a
cash payment in lieu of any fractional Exchangeable Shares as contemplated by
Section 4.4, and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Exchangeable
Shares as contemplated by Section 4.3.
4.3 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES
No dividends or other distributions declared or made after the Effective
Time with respect to Exchangeable Shares or Shire Ordinary Shares with a record
date after the Effective Time will be paid to the holder of any unsurrendered
certificate which immediately prior to the Effective Time represented
outstanding BioChem Common Shares that were exchanged pursuant to Section 2.2,
and no cash payment in lieu of fractional shares will be paid to any such holder
pursuant to Section 4.4, unless and until the holder of record of such
certificate shall surrender such certificate in accordance with Section 4.1 or
4.2. Subject to applicable law, at the time of such surrender of any such
certificate, there will be paid to the record holder of the certificates
representing whole BioChem Common Shares, without interest, (i) the amount of
any cash payable in lieu of a fractional Exchangeable Share, Shire ADS or Shire
Ordinary Share to which such holder is entitled pursuant to Section 4.4,
(ii) the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole Exchangeable Share,
Shire ADS or Shire Ordinary Share, as the case may be, that the holder is
entitled to receive and (iii) on the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole Exchangeable Share, Shire ADS or Shire Ordinary Share, as
the case may be, that the holder is entitled to receive.
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4.4 NO FRACTIONAL SHARES
No certificates or scrip representing fractional Exchangeable Shares,
fractional Shire ADSs or fractional Shire Ordinary Shares will be issued (or
CREST or other electronic transfer effected in respect of any fractional share)
upon the surrender for exchange of certificates pursuant to Section 4.1 or 4.2
and no dividend, share split or other change in the capital structure of
ExchangeCo or Shire, as the case may be, will have any effect on any such
fractional share and such fractional interests will not entitle the holder
thereof to exercise any rights as a security holder of ExchangeCo or Shire. In
lieu of any such fractional shares:
(a) each BioChem Shareholder otherwise entitled to a fractional interest in
an Exchangeable Share after aggregating all such fractional shares will
receive a cash payment in Canadian dollars equal to such Person's PRO
RATA portion of the net proceeds after expenses received by the Exchange
Agent upon the sale of whole shares representing an accumulation of all
fractional interests in Exchangeable Shares to which all such Persons
would otherwise be entitled. The Exchange Agent will sell such
Exchangeable Shares by way of sale through the facilities of any stock
exchange upon which the Exchangeable Shares are then listed as soon as
reasonably practicable following the Effective Date. The aggregate net
proceeds after expenses of such sale will be distributed by the Exchange
Agent, PRO RATA in relation to the respective fractions, among the
Persons otherwise entitled to receive fractional interests in
Exchangeable Shares;
(b) each BioChem Shareholder otherwise entitled to a fractional interest in
a Shire Ordinary Share after aggregating all such fractional shares will
receive a cash payment in United Kingdom pounds equal to such Person's
PRO RATA portion of the net proceeds after expenses received by the
Exchange Agent upon the sale of whole shares representing an accumulation
of all fractional interests in Shire Ordinary Shares to which all such
Persons would otherwise be entitled. The Exchange Agent will sell such
Shire Ordinary Shares by way of sale through the facilities of any stock
exchange upon which the Shire Ordinary Shares are then listed as soon as
reasonably practicable following the Effective Date. The aggregate net
proceeds after expenses of such sale will be distributed by the Exchange
Agent, PRO RATA in relation to the respective fractions, among the
Persons otherwise entitled to receive fractional interests in Shire
Ordinary Shares; and
(c) each BioChem Shareholder otherwise entitled to a fractional interest in
a Shire ADS after aggregating all such fractional ADSs will receive a
cash payment in U.S. dollars equal to such Person's PRO RATA portion of
the net proceeds after expenses received by the Exchange Agent upon the
sale of whole ADSs representing an accumulation of all fractional
interests in Shire ADSs to which all such Persons would otherwise be
entitled. The Exchange Agent will sell such Shire ADSs by way of sale
through the facilities of any stock exchange upon which the Shire ADSs
are then listed as soon as reasonably practicable following the Effective
Date. The aggregate net proceeds after expenses of such sale will be
distributed by the Exchange Agent, PRO RATA in relation to the respective
fractions, among the Persons otherwise entitled to receive fractional
interests in Shire ADSs.
4.5 LOST CERTIFICATES
In the event any certificate which immediately prior to the Effective Time
represented one or more outstanding BioChem Common Shares that were exchanged
pursuant to Section 2.2 shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such certificate to
be lost, stolen or destroyed, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed certificate, one or more certificates representing one
or more Exchangeable Shares, Shire ADSs or Shire Ordinary Shares (or effect the
necessary CREST or other electronic transfers) (and a cheque for any dividends
or distributions with respect thereto pursuant to Section 4.3 and any cash in
lieu of fractional interests therein pursuant to Section 4.4) deliverable in
accordance with such holder's Letter of Transmittal
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and Election Form. When authorizing such issuance and payment in exchange for
any lost, stolen or destroyed certificate, the Person to whom certificates
representing Exchangeable Shares, Shire ADSs or Shire Ordinary Shares are to be
issued (or the necessary CREST or other electronic transfers effected) shall, as
a condition precedent to the issuance thereof, give a bond satisfactory to
ExchangeCo, Shire and their respective transfer agents (including the Exchange
Agent) in such sum as Shire may direct or, if Shire permits indemnification in
lieu of a bond, otherwise indemnify ExchangeCo, Shire and their respective
transfer agents (including the Exchange Agent) in a manner satisfactory to Shire
against any claim that may be made against ExchangeCo, Shire and their
respective transfer agents (including the Exchange Agent) with respect to the
certificate alleged to have been lost, stolen or destroyed.
4.6 EXTINCTION OF RIGHTS
Any certificate which immediately prior to the Effective Time represented
outstanding BioChem Common Shares that were exchanged pursuant to Section 2.2
and not deposited with the Exchange Agent in accordance with Sections 4.1 or
4.2, together with all other instruments required by Sections 4.1 or 4.2, on or
prior to the fifth anniversary of the Effective Date shall cease to represent a
claim or interest of any kind or nature as a shareholder of BioChem, Shire or
ExchangeCo. On such date, the Exchangeable Shares, Shire ADSs or Shire Ordinary
Shares (or cash in lieu of fractional interests therein, as provided in
Section 4.4) to which the former registered holder of the certificate referred
to in the preceding sentence was ultimately entitled shall be deemed to have
been surrendered to ExchangeCo, together with all entitlements to dividends,
distributions and interest thereon held for such former registered holder in
accordance with Section 4.3.
4.7 WITHHOLDING RIGHTS
ExchangeCo, CallCo, Shire and the Exchange Agent will be entitled to deduct
and withhold from any dividend or consideration otherwise payable to any holder
of BioChem Common Shares, Shire Ordinary Shares, Shire ADSs or Exchangeable
Shares, such amounts as ExchangeCo, CallCo, Shire or the Exchange Agent is
required to deduct and withhold with respect to such payment under the ITA, the
United States INTERNAL REVENUE CODE OF 1986, the United Kingdom tax laws or any
provision of provincial, state, local or foreign tax law, in each case, as
amended. To the extent that amounts are so withheld, such withheld amounts will
be treated for all purposes hereof as having been paid to the holder of the
securities in respect of which such deduction and withholding was made, provided
that such withheld amounts are actually remitted to the appropriate tax
authority. To the extent that the amount so required to be deducted or withheld
from any payment to a holder exceeds the cash portion of the consideration
otherwise payable to the holder, ExchangeCo, CallCo, Shire and the Exchange
Agent are hereby authorized to sell or otherwise dispose of such portion of the
consideration as is necessary to provide sufficient funds to ExchangeCo, CallCo,
Shire or the Exchange Agent, as the case may be, to enable it to comply with
such deduction or withholding requirement and ExchangeCo, CallCo, Shire or the
Exchange Agent will notify the holder thereof and remit to the holder any
unapplied balance of the net proceeds of such sale. ExchangeCo shall not be
entitled to withhold amounts on dividends payable to holders of Exchangeable
Shares pursuant to the United States INTERNAL REVENUE CODE OF 1986 unless it has
received an opinion from counsel stating that such withholding is required under
the INTERNAL REVENUE CODE OF 1986.
4.8 STAMP TAX
(a) Notwithstanding any other provision herein but subject to
Section 4.8(b) below, holders of Exchangeable Shares or Persons to whom
Exchangeable Shares are issued or transferred (in each case other than
Shire, its Affiliates, the Exchange Agent or the Transfer Agent) shall be
responsible for any and all Stamp Taxes payable in connection with the
transfer, exchange, redemption or issuance of such shares or their
exchange for Shire Ordinary Shares or Shire ADSs and, subject to
Section 4.8(b) below, transferees of Shire Ordinary Shares or Shire ADSs
or
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Persons to whom Shire Ordinary Shares or Shire ADSs are issued (in each
case other than Shire, its Affiliates, the Exchange Agent or the Transfer
Agent) shall be responsible for any and all Stamp Taxes payable in
connection with the transfer or issuance of such securities. In no event,
subject to Section 4.8(b) below, will Shire, its Affiliates, the Exchange
Agent or the Transfer Agent be responsible for any such Stamp Taxes and
Shire, its Affiliates, the Exchange Agent and/or the Transfer Agent shall
make such regulations and arrangements as are necessary to ensure that
such holders, such transferees and such Persons pay all such applicable
Stamp Taxes.
(b) Shire shall be responsible for (i) any United Kingdom stamp duty and
stamp duty reserve tax payable on the issue or transfer of Shire Ordinary
Shares to a depository or to a nominee or agent for a depository pursuant
to this Arrangement, (ii) any United Kingdom stamp duty reserve tax that
arises in respect of the transfer of Exchangeable Shares in exchange for
Shire ADSs and/or Shire Ordinary Shares pursuant to this Arrangement (an
"Exchange"), (iii) any United Kingdom stamp duty reserve tax that Shire
or any of its Affiliates requires to be paid on an Exchange, and
(iv) any United Kingdom stamp duty payable on an issue of Exchangeable
Shares to a holder of BioChem Common Shares pursuant to this Arrangement.
ARTICLE 5
CERTAIN RIGHTS OF CALLCO AND SHIRE TO ACQUIRE EXCHANGEABLE SHARES
5.1 CALLCO LIQUIDATION CALL RIGHT
(a) CallCo will have the overriding right (the "LIQUIDATION CALL RIGHT"), in
the event of and notwithstanding the proposed liquidation, dissolution or
winding-up of ExchangeCo pursuant to Article 5 of the Exchangeable Share
Provisions, to purchase from all but not less than all of the holders of
Exchangeable Shares (other than any holder of Exchangeable Shares which
is Shire or an Affiliate of Shire) on the Liquidation Date all but not
less than all of the Exchangeable Shares held by each such holder on
payment by CallCo of an amount per share (the "LIQUIDATION CALL PURCHASE
PRICE") equal to the Current Market Price of a Shire Ordinary Share on
the last Business Day prior to the Liquidation Date multiplied by three,
which will be satisfied in full by CallCo causing to be delivered to such
holder three Shire Ordinary Shares admitted to the official list of the
UKLA and to trading on the LSE or one Shire ADS quoted on NASDAQ (at the
option of the holder as indicated to the Transfer Agent), plus, to the
extent not paid by ExchangeCo, an additional amount equivalent to the
full amount of all declared and unpaid dividends on each such
Exchangeable Share held by such holder on any dividend record date which
occurred prior to the date of purchase by CallCo (the "DIVIDEND AMOUNT").
In the event of the exercise of the Liquidation Call Right by CallCo,
each holder (other than Shire or Affiliates of Shire) shall be obligated
to sell all but not less than all of the Exchangeable Shares held by such
holder to CallCo on the Liquidation Date on payment by CallCo to the
holder of the Liquidation Call Purchase Price for each such share, and
ExchangeCo shall have no obligation to pay the Liquidation Amount of such
shares so purchased by CallCo.
(b) To exercise the Liquidation Call Right, CallCo must notify ExchangeCo's
transfer agent (the "TRANSFER AGENT"), as agent for the holders of
Exchangeable Shares, and ExchangeCo of CallCo's intention to exercise
such right at least 45 days before the Liquidation Date in the case of a
voluntary liquidation, dissolution or winding-up of ExchangeCo and at
least five Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding-up of ExchangeCo. The
Transfer Agent will notify the holders of Exchangeable Shares as to
whether or not CallCo has exercised the Liquidation Call Right forthwith
after the expiry of the period during which the same may be exercised by
CallCo. If CallCo exercises the Liquidation Call Right, then on the
Liquidation Date CallCo will purchase and the holders (other than Shire
or
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Affiliates of Shire) will sell all but not less than all of the
Exchangeable Shares held by such holders for a price per share equal to
the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, CallCo will deposit or cause to
be deposited with the Transfer Agent, on or before the Liquidation Date,
certificates representing the aggregate number of Shire Ordinary Shares
and/or Shire ADSs deliverable by CallCo (or effect the necessary CREST or
other electronic transfers) and a cheque or cheques of CallCo payable at
par at any branch of the bankers of CallCo representing the aggregate
Dividend Amount in payment of the Total Liquidation Call Purchase Price,
less any amounts withheld pursuant to Section 4.7 hereof. Provided that
CallCo has complied with the immediately preceding sentence, on and after
the Liquidation Date, the rights of each holder of Exchangeable Shares
will be limited to receiving the Total Liquidation Call Purchase Price
payable by CallCo upon presentation and surrender by the holder of
certificates representing the Exchangeable Shares held by such holder and
the holder will on and after the Liquidation Date be considered and
deemed for all purposes to be the holder of the Shire Ordinary Shares
and/or Shire ADSs to which it is entitled, unless payment of the Total
Liquidation Call Purchase Price for the Exchangeable Shares shall not be
made upon presentation and surrender of share certificates in accordance
with the provisions of this Section 5.1(c), in which case the rights of
the holders shall remain unaffected until the Total Liquidation Call
Purchase Price has been paid in the manner herein provided. Upon
surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents and
instruments as may be required to effect a transfer of Exchangeable
Shares under the CBCA and the by-laws of ExchangeCo and such additional
documents and instruments as the Transfer Agent may reasonably require,
the holder of such surrendered certificate or certificates will be
entitled to receive in exchange therefor, and the Transfer Agent on
behalf of CallCo will deliver to such holder as soon as reasonably
practicable, certificates representing the Shire Ordinary Shares and/or
Shire ADSs to which the holder is entitled (or effect the necessary CREST
or other electronic transfers) and a cheque or cheques of CallCo payable
at par at any branch of the bankers of CallCo in payment of the Dividend
Amount, and when received by the Transfer Agent, all dividends and other
distributions with respect to such Shire Ordinary Shares and/or Shire
ADSs with a record date after the Liquidation Date and before the date of
the transfer of such Shire Ordinary Shares and/or Shire ADSs to such
holder, less any amounts withheld pursuant to Section 4.7 hereof. If
CallCo does not exercise the Liquidation Call Right in the manner
described above on the Liquidation Date, the holders of the Exchangeable
Shares (other than Shire or Affiliates of Shire) will be entitled to
receive in exchange therefor the Liquidation Amount of such shares
pursuant to Article 5 of the Exchangeable Share Provisions.
5.2 CALLCO REDEMPTION CALL RIGHT
(a) CallCo will have the overriding right (the "REDEMPTION CALL RIGHT"),
notwithstanding the proposed redemption of the Exchangeable Shares by
ExchangeCo pursuant to Article 7 of the Exchangeable Share Provisions, to
purchase from all but not less than all of the holders of Exchangeable
Shares (other than any holder of Exchangeable Shares which is Shire or an
Affiliate of Shire) on the Redemption Date all but not less than all of
the Exchangeable Shares held by each such holder on payment by CallCo to
each holder of an amount per Exchangeable Share (the "REDEMPTION CALL
PURCHASE PRICE") equal to the Current Market Price of a Shire Ordinary
Share on the last Business Day prior to the Redemption Date multiplied by
three, which will be satisfied in full by CallCo causing to be delivered
to such holder three Shire Ordinary Shares admitted to the official list
of the UKLA and to trading on the LSE or one Shire ADS quoted on NASDAQ
(at the option of the holder as indicated to the Transfer Agent), plus
the Dividend Amount. In the event of the exercise of the Redemption Call
Right by CallCo, each
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holder (other than Shire or Affiliates of Shire) will be obligated to
sell all but not less than all the Exchangeable Shares held by such
holder to CallCo on the Redemption Date on payment by CallCo to the
holder of the Redemption Call Purchase Price for each such share, and
ExchangeCo will have no obligation to redeem such shares so purchased by
CallCo.
(b) To exercise the Redemption Call Right, CallCo must notify the Transfer
Agent, as agent for the holders of Exchangeable Shares, and ExchangeCo of
CallCo's intention to exercise such right at least 60 days before the
Redemption Date, except in the case of a redemption occurring as a result
of a Shire Control Transaction, an Exchangeable Share Voting Event or an
Exempt Exchangeable Share Voting Event, in which case CallCo will so
notify the Transfer Agent and ExchangeCo on or before the Redemption
Date. The Transfer Agent will notify the holders of the Exchangeable
Shares as to whether or not CallCo has exercised the Redemption Call
Right forthwith after the expiry of the period during which the same may
be exercised by CallCo. If CallCo exercises the Redemption Call Right, on
the Redemption Date, CallCo will purchase and the holders (other than
Shire or Affiliates of Shire) will sell all but not less than all of the
Exchangeable Shares held by such holders for a price per share equal to
the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, CallCo will deposit or cause to be
deposited with the Transfer Agent, on or before the Redemption Date,
certificates representing the aggregate number of Shire Ordinary Shares
and/or Shire ADSs deliverable by CallCo (or effect the necessary CREST or
other electronic transfers) and a cheque or cheques of CallCo payable at
par at any branch of the bankers of CallCo representing the aggregate
Dividend Amount in payment of the total Redemption Call Purchase Price,
less any amounts withheld pursuant to Section 4.7 hereof. Provided that
CallCo has complied with the immediately preceding sentence, on and after
the Redemption Date the rights of each holder of Exchangeable Shares
(other than Shire or Affiliates of Shire) will be limited to receiving
the Total Redemption Call Purchase Price payable by CallCo upon
presentation and surrender by the holder of certificates representing the
Exchangeable Shares held by such holder and the holder will on and after
the Redemption Date be considered and deemed for all purposes to be the
holder of the Shire Ordinary Shares and/or Shire ADSs to which it is
entitled, unless payment of the Total Redemption Call Purchase Price for
the Exchangeable Shares shall not be made upon presentation and surrender
of share certificates in accordance with the provisions of this
Section 5.2(c), in which case the rights of the holders shall remain
unaffected until the Total Redemption Call Purchase Price has been paid
in the manner herein provided. Upon surrender to the Transfer Agent of a
certificate or certificates representing Exchangeable Shares, together
with such other documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the CBCA and the by-laws of
ExchangeCo and such additional documents and instruments as the Transfer
Agent may reasonably require, the holder of such surrendered certificate
or certificates will be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of CallCo will deliver to such holder as soon as
practicable, certificates representing the Shire Ordinary Shares and/or
Shire ADSs to which the holder is entitled (or effect the necessary CREST
or other electronic transfers) and a cheque or cheques of CallCo payable
at par at any branch of the bankers of CallCo in payment of the Dividend
Amount, less any amounts withheld pursuant to Section 4.7 hereof. If
CallCo does not exercise the Redemption Call Right in the manner
described above, on the Redemption Date the holders of the Exchangeable
Shares (other than Shire or Affiliates of Shire) will be entitled to
receive in exchange therefor the Redemption Price of such Shares pursuant
to Article 7 of the Exchangeable Share Provisions.
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5.3 SHIRE CALL RIGHT
(a) Shire will have the right (the "SHIRE CALL RIGHT") to purchase, or to
cause CallCo to purchase, from all but not less than all of the holders
of Exchangeable Shares (other than any holder of Exchangeable Shares
which is Shire or an Affiliate of Shire) on the Exchange Date all but not
less than all of the Exchangeable Shares held by each such holder on
payment by Shire or CallCo, as the case may be, of an amount per share
(the "SHIRE CALL PURCHASE PRICE") equal to the Current Market Price of a
Shire Ordinary Share on the last Business Day prior to the Exchange Date
multiplied by three, which will be satisfied in full by Shire delivering
or causing to be delivered, or CallCo causing to be delivered, to such
holder three Shire Ordinary Shares admitted to the official list of the
UKLA and to trading on the LSE or one Shire ADS quoted on NASDAQ (at the
option of the holder as indicated to the Transfer Agent), plus, to the
extent not paid by ExchangeCo, an additional amount equivalent to the
full amount of all declared and unpaid dividends on each such
Exchangeable Share held by such holder on any dividend record date which
occurred prior to the date of purchase by Shire or CallCo pursuant to the
Shire Call Right (the "CALL RIGHT DIVIDEND AMOUNT"). In the event of the
exercise of the Shire Call Right by Shire, each holder (other than Shire
or Affiliates of Shire) shall be obligated to sell all but not less than
all of the Exchangeable Shares held by such holder to Shire or CallCo, as
the case may be, on the Exchange Date on payment by Shire or CallCo, as
the case may be, to the holder of the Shire Call Purchase Price for each
such share.
(b) To exercise the Shire Call Right, (i) Shire must notify the Transfer
Agent, as agent for the holders of Exchangeable Shares, and ExchangeCo of
Shire's intention to exercise such right at least 45 days before the
Business Day on which the purchase of such Exchangeable Shares shall
occur (the "EXCHANGE DATE") and such notice shall specify whether Shire
or CallCo will effect such purchase, and (ii) Shire must deliver to the
Transfer Agent and to the Trustee an opinion in writing signed by
Canadian counsel to Shire (which counsel shall be satisfactory to the
Trustee) stating that since the Effective Date there has been a change
enacted to the ITA and other applicable provincial income tax legislation
to the effect that, and based thereon such opinion shall confirm that,
the sale by Canadian Resident holders of Exchangeable Shares to Shire or
CallCo, as the case may be, pursuant to the Shire Call Right will qualify
as a tax deferred transaction for purposes of the ITA and other
applicable provincial income tax legislation for holders of Exchangeable
Shares. The Transfer Agent will notify the holders of Exchangeable Shares
that the Shire Call Right has been exercised by Shire. If Shire exercises
the Shire Call Right, then on the Exchange Date Shire or CallCo, as the
case may be, will purchase and the holders (other than Shire or
Affiliates of Shire) will sell all but not less than all of the
Exchangeable Shares held by such holders for a price per share equal to
the Shire Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Shire Call Right, Shire will deposit with the Transfer
Agent, on or before the Exchange Date, certificates representing the
aggregate number of Shire Ordinary Shares and/or Shire ADSs deliverable
by Shire or CallCo, as the case may be, (or effect the necessary CREST or
other electronic transfers) and a cheque or cheques of Shire or CallCo,
as the case may be, payable at par at any branch of the bankers of Shire
or CallCo, as the case may be, representing the aggregate Call Right
Dividend Amount in payment of the Total Shire Call Purchase Price, less
any amounts withheld pursuant to Section 4.7 hereof. Provided that Shire
or CallCo, as the case may be, has complied with the immediately
preceding sentence, on and after the Exchange Date, the rights of each
holder of Exchangeable Shares will be limited to receiving the Total
Shire Call Purchase Price upon presentation and surrender by the holder
of certificates representing the Exchangeable Shares held by such holder
and the holder will on and after the Exchange Date be considered and
deemed for all purposes to be the holder of the Shire Ordinary Shares
and/or
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Shire ADSs to which it is entitled, unless payment of the Total Shire
Call Purchase Price for the Exchangeable Shares shall not be made upon
presentation and surrender of share certificates in accordance with the
provisions of this Section 5.3(c), in which case the rights of the
holders shall remain unaffected until the Total Shire Call Purchase Price
has been paid in the manner herein provided. Upon surrender to the
Transfer Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the CBCA and
the by-laws of ExchangeCo and such additional documents and instruments
as the Transfer Agent may reasonably require, the holder of such
surrendered certificate or certificates will be entitled to receive in
exchange therefor, and the Transfer Agent on behalf of Shire or CallCo,
as the case may be, will deliver to such holder, certificates
representing the Shire Ordinary Shares and/or Shire ADSs to which the
holder is entitled (or effect the necessary CREST or other electronic
transfers) and a cheque or cheques of Shire or CallCo, as the case may
be, payable at par at any branch of the bankers of Shire or CallCo, as
the case may be, in payment of the Call Right Dividend Amount and when
received by the Transfer Agent, all dividends and other distributions
with respect to such Shire Ordinary Shares and/or Shire ADSs with a
record date after the Exchange Date and before the date of the transfer
of such Shire Ordinary Shares and/or Shire ADSs to such holder, less any
amounts withheld pursuant to Section 4.7 hereof.
ARTICLE 6
AMENDMENTS
6.1 AMENDMENTS TO PLAN OF ARRANGEMENT
BioChem reserves the right to amend, modify and/or supplement this Plan of
Arrangement prior to the Effective Date provided that each such amendment,
modification and/or supplement is (i) set out in writing, (ii) approved by
Shire, (iii) filed with the Court and, if made following the BioChem
Securityholder Meeting, approved by the Court, and (iv) communicated to holders
of BioChem Common Shares if and as required by the Court.
Any amendment, modification or supplement to this Plan of Arrangement may be
proposed by BioChem at any time prior to the BioChem Securityholder Meeting
(provided that Shire shall have consented thereto) with or without any other
prior notice or communication, and if so proposed and accepted by the Persons
voting at the BioChem Securityholder Meeting (subject to the requirements set
forth in the Interim Order), will become part of this Plan of Arrangement for
all purposes.
Any amendment, modification or supplement to this Plan of Arrangement that
is approved or directed by the Court following the BioChem Securityholder
Meeting will be effective only if (i) it is consented to by each of BioChem and
Shire, and (ii) if required by the Court, it is consented to by BioChem
Securityholders voting in the manner directed by the Court.
6.2 FURTHER ASSURANCES
Each party hereto shall, from time to time, and at all times hereafter, at
the request of the other parties hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
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APPENDIX 1 TO THE PLAN OF ARRANGEMENT
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES OF SHIRE ACQUISITION INC.
The Exchangeable Shares of Shire Acquisition Inc. shall have the following
rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 FOR THE PURPOSES OF THESE SHARE PROVISIONS:
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person. For
the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as
applied to any Person, means the possession by another Person, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of that first mentioned Person, whether through the ownership
of voting securities, by contract or otherwise.
"BIOCHEM" means BioChem Pharma Inc., a corporation existing under the laws
of Canada.
"BOARD OF DIRECTORS" means the board of directors of the Corporation.
"BUSINESS DAY" means any day on which banks are not required or authorized
to close in the City of Montreal, Canada, the City of London, England and
the City of New York, U.S.A.
"CALLCO" means 3829359 Canada Inc., a corporation existing under the laws of
Canada and being a wholly-owned subsidiary of Shire.
"CALLCO CALL NOTICE" has the meaning ascribed to that term in Section 6.3 of
these share provisions.
"CANADIAN DOLLAR EQUIVALENT" means, in respect of an amount expressed in a
currency other than Canadian dollars (the "Foreign Currency Amount") at any
date, the product obtained by multiplying: (a) the Foreign Currency Amount,
by (b) the noon spot exchange rate on such date for such foreign currency
expressed in Canadian dollars as reported by the Bank of Canada or, in the
event such spot exchange rate is not available, such spot exchange rate on
such date for such foreign currency expressed in Canadian dollars as may be
deemed by the Board of Directors to be appropriate for such purpose.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT.
"COMMON SHARE" means a share in the class of common shares in the capital of
the Corporation.
"CORPORATION" means Shire Acquisition Inc. (formerly 3829341 Canada Inc.), a
corporation existing under the laws of Canada and being a wholly-owned
subsidiary of Shire.
"CURRENT MARKET PRICE" means, in respect of a Shire Ordinary Share on any
date, the Canadian Dollar Equivalent of the average of the closing prices of
Shire Ordinary Shares during a period of 20 consecutive trading days ending
not more than three trading days before such date on the LSE, or, if the
Shire Ordinary Shares are not then admitted to the official list of the UKLA
and to trading on the LSE, on such other stock exchange or automated
quotation system on which the Shire Ordinary Shares are listed or quoted, as
the case may be, as may be selected by the Board of Directors for such
purpose; provided, however, that if in the opinion of the Board of Directors
the public distribution or trading activity of Shire Ordinary Shares during
such period does not create a market which reflects the fair market value of
a Shire Ordinary Share, then the Current Market Price of a Shire Ordinary
Share shall be determined by the Board of Directors, in good faith and in
its sole discretion, and
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provided further that any such selection, opinion or determination by the
Board of Directors shall be conclusive and binding.
"DIVIDEND AMOUNT" has the meaning ascribed to that term in Section 6.3 of
these share provisions.
"EFFECTIVE DATE" has the meaning ascribed to that term in the Plan of
Arrangement.
"ENTITY" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership,
joint venture, estate, trust, company (including any company limited by
shares, limited liability company or joint stock company), firm, society or
other enterprise, association, organization or entity.
"EXCHANGE AGENT" means General Trust of Canada at its offices at the
addresses set out in the Letter of Transmittal and Election Form in its
capacity as an exchange agent for the common shares of the share capital of
BioChem under the Plan of Arrangement or such other trust company or other
Entity that Shire may, in its reasonable discretion, choose as exchange
agent.
"EXCHANGEABLE SHARE" means a share in the class of non-voting exchangeable
shares in the capital of the Corporation having the rights, privileges,
restrictions and conditions set forth herein.
"EXCHANGEABLE SHARE SUPPORT AGREEMENT" means the Exchangeable Share Support
Agreement among Shire, CallCo and the Corporation, to be entered into in
connection with the Plan of Arrangement.
"EXCHANGEABLE SHARE VOTING EVENT" means any matter in respect of which
holders of Exchangeable Shares are entitled to vote as shareholders of the
Corporation, other than an Exempt Exchangeable Share Voting Event, and, for
greater certainty, excluding any matter in respect of which holders of
Exchangeable Shares are entitled to vote (or instruct the Trustee to vote)
in their capacity as Beneficiaries under (and as that term is defined in)
the Voting and Exchange Trust Agreement.
"EXEMPT EXCHANGEABLE SHARE VOTING EVENT" means any matter in respect of
which holders of Exchangeable Shares are entitled to vote as shareholders of
the Corporation in order to approve or disapprove, as applicable, any change
to, or in the rights of the holders of, the Exchangeable Shares, where the
approval or disapproval, as applicable, of such change would be required to
maintain the equivalence of the Exchangeable Shares and the Shire Ordinary
Shares.
"GOVERNMENTAL BODY" means any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any
nature; (b) federal, state, provincial, local, municipal, foreign or other
government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, ministry, fund, foundation, centre, organization,
unit, body or Entity and any court or other tribunal).
"HOLDER" means, when used with reference to any shares, options or warrants,
the holders of such shares, options or warrants, respectively, shown from
time to time in the register maintained by or on behalf of the applicable
corporation in respect thereof.
"LETTER OF TRANSMITTAL AND ELECTION FORM" has the meaning ascribed to that
term in the Plan of Arrangement.
"LIQUIDATION AMOUNT" has the meaning ascribed to that term in Section 5.1 of
these share provisions.
"LIQUIDATION CALL RIGHT" has the meaning ascribed to that term in the Plan
of Arrangement.
"LIQUIDATION DATE" has the meaning ascribed to that term in Section 5.1 of
these share provisions.
"LSE" means the London Stock Exchange Plc or its successors.
"NASDAQ" means NASDAQ National Market.
"PERSON" means any individual, Entity or Governmental Body.
B-19
"PLAN OF ARRANGEMENT" means the plan of arrangement relating to the
arrangement of BioChem under Section 192 of the CBCA, as amended, modified
or supplemented from time to time in accordance with the plan and any order
of the Superior Court of Quebec, to which plan these share provisions are
attached as Appendix 1.
"PURCHASE PRICE" has the meaning ascribed to that term in Section 6.3 of
these share provisions.
"REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed to that term in
the Plan of Arrangement.
"REDEMPTION CALL RIGHT" has the meaning ascribed to that term in the Plan of
Arrangement.
"REDEMPTION DATE" means the date, if any, established by the Board of
Directors for the redemption by the Corporation of all but not less than all
of the outstanding Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be no earlier than the tenth anniversary of the
Effective Date unless:
(a) there are fewer than 1,000,000 Exchangeable Shares outstanding (other
than Exchangeable Shares held by Shire and its Affiliates, and as such
number of shares may be adjusted as deemed appropriate by the Board of
Directors to give effect to any subdivision or consolidation of or share
dividend on the Exchangeable Shares, any issue or distribution of rights
to acquire Exchangeable Shares or securities exercisable or exchangeable
for or convertible into Exchangeable Shares, any issue or distribution of
other securities or rights or evidences of indebtedness or assets, or any
other capital reorganization or other transaction affecting the
Exchangeable Shares), in which case the Board of Directors may accelerate
such redemption date to such date prior to the tenth anniversary of the
Effective Date as they may determine, upon at least 60 days' prior
written notice to the registered holders of the Exchangeable Shares and
the Trustee;
(b) a Shire Control Transaction occurs, in which case, provided that the
Board of Directors determines, in good faith and in its sole discretion,
that it is not reasonably practicable to substantially replicate or
modify the terms and conditions of the Exchangeable Shares in connection
with such Shire Control Transaction or that the redemption of all but not
less than all of the outstanding Exchangeable Shares is necessary to
enable the completion of such Shire Control Transaction in accordance
with its terms, the Board of Directors may accelerate such redemption
date to such date prior to the tenth anniversary of the Effective Date as
it may determine, upon such number of days' prior written notice to the
registered holders of the Exchangeable Shares and to Shire and CallCo and
the Trustee as the Board of Directors may determine to be reasonably
practicable in such circumstances;
(c) an Exchangeable Share Voting Event is proposed and (i) the Board of
Directors has determined, in good faith and in its sole discretion, that
it is not reasonably practicable to accomplish the business purpose
intended by the Exchangeable Share Voting Event, which business purpose
must be bona fide and not for the primary purpose of causing the
occurrence of a Redemption Date, in any other commercially reasonable
manner that does not result in an Exchangeable Share Voting Event, and
(ii) the holders of the Exchangeable Shares fail to take the necessary
action at a meeting or other vote of holders of Exchangeable Shares to
approve or disapprove, as applicable, the Exchangeable Share Voting
Event, in which case the redemption date shall be the Business Day
following the day on which the holders of the Exchangeable Shares failed
to take such action; or
(d) an Exempt Exchangeable Share Voting Event is proposed and the holders of
the Exchangeable Shares fail to take the necessary action at a meeting or
other vote of holders of Exchangeable Shares, to approve or disapprove,
as applicable, the Exempt Exchangeable Share Voting Event, in which case
the Redemption Date shall be the Business Day following the day on which
the holders of the Exchangeable Shares failed to take such action and the
Board of Directors shall
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give such number of days' prior written notice of such redemption to the
registered holders of the Exchangeable Shares as the Board of Directors
may determine to be reasonably practicable in such circumstances,
provided, however, that the accidental failure or omission to give any
notice of redemption under clause (a), (b), (c) or (d) above to less than
10% of such holders of Exchangeable Shares shall not affect the validity of
any such redemption.
"REDEMPTION PRICE" has the meaning ascribed to that term in Section 7.1 of
these share provisions.
"RETRACTED SHARES" has the meaning ascribed to that term in Section 6.1(a)
of these share provisions.
"RETRACTION CALL RIGHT" has the meaning ascribed to that term in
Section 6.1(c) of these share provisions.
"RETRACTION DATE" has the meaning ascribed to that term in Section 6.1(b) of
these share provisions.
"RETRACTION PRICE" has the meaning ascribed to that term in Section 6.1 of
these share provisions.
"RETRACTION REQUEST" has the meaning ascribed to that term in Section 6.1 of
these share provisions.
"SHIRE" means Shire Pharmaceuticals Group Plc, a company registered in
England under registry number 2883758.
"SHIRE ADS" means an American Depositary Shares of Shire, or where
appropriate, an American Depositary Receipt of Shire, evidencing such share.
"SHIRE CALL RIGHT" has the meaning ascribed to that term in the Plan of
Arrangement.
"SHIRE CONTROL TRANSACTION" shall be deemed to have occurred if:
(a) any person, firm or corporation acquires directly or indirectly any
voting security of Shire and immediately after such acquisition, the
acquirer has voting securities representing more than 50% of the total
voting power of all the then outstanding voting securities of Shire on a
fully-diluted basis;
(b) the shareholders of Shire shall approve a merger, consolidation,
recapitalization or reorganization of Shire, other than any such
transaction which would result in the holders of outstanding voting
securities of Shire immediately prior to such transaction having at least
75% of the total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction, with the
voting power of each such continuing holder relative to such other
continuing holders being not altered substantially in the transaction; or
(c) the shareholders of Shire shall approve a plan of complete liquidation
of Shire or an agreement for the sale or disposition by Shire of all or a
substantial portion of Shire's assets (i.e., 66 2/3% or more in fair
market value of the total assets of Shire).
"SHIRE DIVIDEND DECLARATION DATE" means the date on which the board of
directors of Shire declares any dividend on the Shire Ordinary Shares.
"SHIRE ORDINARY SHARES" means ordinary shares of five pence each in the
capital of Shire.
"STAMP TAXES" means all stamp, registration and transfer taxes and duties or
their equivalents in all jurisdictions where such taxes and duties are
payable as a result of any of the transactions contemplated by the Plan of
Arrangement including, without limitation, United Kingdom stamp duty and
stamp duty reserve tax.
"TOTAL LIQUIDATION AMOUNT" means the Liquidation Amount multiplied by the
relevant number of Exchangeable Shares of a particular holder.
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"TOTAL PURCHASE PRICE" means the Purchase Price multiplied by the relevant
number of Retracted Shares subject to the Retraction Call Right exercised by
Callco.
"TOTAL REDEMPTION PRICE" means the Redemption Price multiplied by the number
of Exchangeable Shares of a particular holder subject to a redemption
pursuant to Section 7.1.
"TOTAL RETRACTION PRICE" means the Retraction Price multiplied by the
relevant number of Retracted Share of a particular holder.
"TRANSFER AGENT" means General Trust of Canada or such other Person as may
from time to time be appointed by the Corporation as the registrar and
transfer agent for the Exchangeable Shares.
"TRUSTEE" means General Trust of Canada or such other trust company or other
Entity that Shire may, in its reasonable discretion, choose to act as
trustee under the Voting and Exchange Trust Agreement, being a corporation
organized and existing under the laws of Canada and authorized to carry on
the business of a trust company in all the provinces of Canada, and any
successor trustee appointed under the Voting and Exchange Trust Agreement.
"UKLA" means the United Kingdom Listing Authority.
"VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange Trust
Agreement among Shire, the Corporation and the Trustee, to be entered into
in connection with the Plan of Arrangement.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the Common
Shares and any other shares ranking junior to the Exchangeable Shares with
respect to the payment of dividends and the distribution of assets in the event
of the liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of the
Corporation, among its shareholders for the purpose of winding up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each Shire Dividend
Declaration Date, declare a dividend on each Exchangeable Share:
(a) in the case of a cash dividend declared on the Shire Ordinary Shares, in
an amount in cash for each Exchangeable Share in United Kingdom pounds,
or the Canadian Dollar Equivalent thereof on the Shire Dividend
Declaration Date, in each case, equal to the cash dividend declared on
each Shire Ordinary Share multiplied by three;
(b) in the case of a share dividend declared on the Shire Ordinary Shares to
be paid in Shire Ordinary Shares, in such number of Exchangeable Shares
(with nominal paid-up capital for purposes of the INCOME TAX ACT
(Canada)) for each Exchangeable Share as is equal to the number of Shire
Ordinary Shares divided by three to be paid on each Shire Ordinary Share;
or
(c) in the case of a dividend declared on the Shire Ordinary Shares in
property other than cash or Shire Ordinary Shares, in such type and
amount of property for each Exchangeable Share as is the same as or
economically equivalent to (to be determined by the Board of Directors as
contemplated by Section 3.6 hereof) the type and amount of property
declared as a dividend on each Shire Ordinary Share multiplied by three.
Such dividends shall be paid out of money, assets or property of the Corporation
properly applicable to the payment of dividends, or out of authorized but
unissued shares of the Corporation, as applicable.
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3.2 In the case of a share dividend declared on the Shire Ordinary Shares to
be paid in Shire Ordinary Shares, in lieu of declaring the share dividend
contemplated by Section 3.1(b) on the Exchangeable Shares, the Board of
Directors may, in good faith and in its discretion and subject to applicable
law, subdivide, redivide or change (the "Subdivision") each issued and unissued
Exchangeable Share on the basis that each Exchangeable Share before the
subdivision becomes a number of Exchangeable Shares as is equal to the sum of
(i) three Shire Ordinary Shares and (ii) the number of Shire Ordinary Shares to
be paid as a share dividend on each Shire Ordinary Share. In making such
Subdivision, the Board of Directors shall consider the effect thereof upon the
then outstanding Exchangeable Shares and the general taxation consequences of
the Subdivision to the holders of the Exchangeable Shares. In such instance, and
notwithstanding any other provision hereof, such Subdivision shall become
effective on the effective date specified in Section 3.4 hereof without any
further act or formality on the part of the Board of Directors or of the holders
of Exchangeable Shares. For greater certainty, subject to the applicable laws,
no approval of the holders of Exchangeable Shares to an amendment to the
articles of the Corporation shall be required to give effect to such
subdivision.
3.3 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
Section 3.1(a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share shall satisfy the cash dividend represented thereby unless
the cheque is not paid on presentation. Subject to applicable law, certificates
registered in the name of the registered holder of Exchangeable Shares shall be
issued or transferred in respect of any share dividends contemplated by
Section 3.1(b) hereof or the Subdivision of Exchangeable Shares contemplated by
Section 3.2 hereof and the sending of such a certificate to each holder of an
Exchangeable Share shall satisfy the share dividend represented thereby. Such
other type and amount of property in respect of any dividends contemplated by
Section 3.1(c) hereof shall be issued, distributed or transferred by the
Corporation in such manner as it shall determine and the issuance, distribution
or transfer thereof by the Corporation to each holder of an Exchangeable Share
shall satisfy the dividend represented thereby. No holder of an Exchangeable
Share shall be entitled to recover by action or other legal process against the
Corporation any dividend that is represented by a cheque that has not been duly
presented to the Corporation's bankers for payment or that otherwise remains
unclaimed for a period of six years from the date on which such dividend was
payable.
3.4 The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend
declared on the Exchangeable Shares under Section 3.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the Shire Ordinary Shares. The record date for the
determination of the holder of Exchangeable Shares entitled to receive
Exchangeable Shares in connection with any Subdivision of Exchangeable Shares
under Section 3.2 hereof and the effective date of such Subdivision shall be the
same dates as the record date and payment date, respectively, for the
corresponding share dividend declared on Shire Ordinary Shares.
3.5 If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
3.6 The Board of Directors shall determine, in good faith and in its sole
discretion, economic equivalence for the purposes of Sections 3.1 and 3.2
hereof, and each such determination shall be conclusive and binding on the
Corporation and its shareholders. In making each such determination, the
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following factors shall, without excluding other factors determined by the Board
of Directors to be relevant, be considered by the Board of Directors:
(a) in the case of any share dividend or other distribution payable in Shire
Ordinary Shares, the number of such shares issued in proportion to the
number of Shire Ordinary Shares previously outstanding;
(b) in the case of the issuance or distribution of any rights, options or
warrants to subscribe for or purchase Shire Ordinary Shares (or
securities exercisable or exchangeable for or convertible into or
carrying rights to acquire Shire Ordinary Shares), the relationship
between the exercise price of each such right, option or warrant and the
current market value (as determined by the Board of Directors in the
manner above contemplated) of a Shire Ordinary Share;
(c) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of Shire
of any class other than Shire Ordinary Shares, any rights, options or
warrants other than those referred to in Section 3.6(b) above, any
evidences of indebtedness of Shire or any assets of Shire), the
relationship between the fair market value (as determined by the Board of
Directors in the manner above contemplated) of such property to be issued
or distributed with respect to each outstanding Shire Ordinary Share and
the current market value (as determined by the Board of Directors in the
manner above contemplated) of a Shire Ordinary Share; and
(d) in all such cases, the general taxation consequences of the relevant
event to holders of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to holders of
Shire Ordinary Shares as a result of differences between taxation laws of
Canada and the United Kingdom (except for any differing consequences
arising as a result of differing marginal taxation rates and without
regard to the individual circumstances of holders of Exchangeable
Shares).
For purposes of the foregoing determinations, the current market value of
any security listed and traded or quoted on a securities exchange shall be the
weighted average of the daily trading prices of such security during a period of
not less than 20 consecutive trading days ending not more than three trading
days before the date of determination on the principal securities exchange on
which such securities are listed and traded or quoted; provided, however, that
if in the opinion of the Board of Directors the public distribution or trading
activity of such securities during such period does not create a market which
reflects the fair market value of such securities, then the current market value
thereof shall be determined by the Board of Directors, in good faith and in its
sole discretion, and provided further that any such determination by the Board
of Directors shall be conclusive and binding on the Corporation and its
shareholders.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in Section 9.2 of these
share provisions:
(a) pay any dividends on the Common Shares or any other shares ranking
junior to the Exchangeable Shares, other than share dividends payable in
Common Shares or any such other shares ranking junior to the Exchangeable
Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of Common
Shares or any other shares ranking junior to the Exchangeable Shares;
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(c) redeem or purchase any other shares of the Corporation ranking equally
with or junior to the Exchangeable Shares with respect to the payment of
dividends or on any distribution on liquidation; or
(d) issue any Exchangeable Shares or any other shares of the Corporation
ranking equally with, or superior to, the Exchangeable Shares other than
by way of share dividends to the holders of such Exchangeable Shares.
The restrictions in Sections 4.1(a), 4.1(b), 4.1(c) and 4.1(d) above shall
not apply if all dividends on the outstanding Exchangeable Shares corresponding
to dividends declared and paid to date on the Shire Ordinary Shares shall have
been declared and paid on the Exchangeable Shares.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs, subject to the exercise
by CallCo of the Liquidation Call Right, a holder of Exchangeable Shares shall
be entitled, subject to applicable law, to receive from the assets of the
Corporation in respect of each Exchangeable Share held by such holder on the
effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of the Corporation
among the holders of the Common Shares or any other shares ranking junior to the
Exchangeable Shares, an amount per share equal to the Current Market Price of a
Shire Ordinary Share on the last Business Day prior to the Liquidation Date
multiplied by three, which shall be satisfied in full by the Corporation causing
to be delivered to such holder three Shire Ordinary Shares admitted to the
official list of the UKLA and to trading on the LSE or one Shire ADS quoted on
NASDAQ (at the option of the holder as indicated to the Transfer Agent),
together with all declared and unpaid dividends on each such Exchangeable Share
held by such holder on any dividend record date which occurred prior to the
Liquidation Date (the "Liquidation Amount").
5.2 On or promptly after the Liquidation Date, and subject to the exercise by
CallCo of the Liquidation Call Right, the Corporation shall pay or cause to be
paid to the holders of the Exchangeable Shares the Liquidation Amount for each
such Exchangeable Share upon presentation and surrender of the certificates
representing such Exchangeable Shares, together with such other documents and
instruments as are required to effect a transfer of Exchangeable Shares under
the CBCA and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent or the Corporation may reasonably require, at
the registered office of the Corporation or at any office of the Transfer Agent
as may be specified by the Corporation by notice to the holders of the
Exchangeable Shares. Payment of the Total Liquidation Amount for such
Exchangeable Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of the Corporation for the
Exchangeable Shares or by holding for pick-up by the holder at the registered
office of the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of Exchangeable Shares, on
behalf of the Corporation of certificates representing Shire Ordinary Shares
and/or Shire ADSs (or by effecting the necessary CREST or other electronic
transfers) (which shares shall be duly issued as fully paid and non-assessable
and shall be free and clear of any lien, claim or encumbrance) and a cheque of
the Corporation payable at par at any branch of the bankers of the Corporation
in respect of the remaining portion, if any, of the Total Liquidation Amount (in
each case less any amounts withheld on account of tax required to be deducted
and withheld therefrom). On and after the Liquidation Date, the holders of the
Exchangeable Shares shall cease to be holders of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of holders in respect
thereof, other than the right to receive the Total Liquidation Amount, unless
payment of the Total Liquidation Amount for such Exchangeable Shares shall not
be made upon presentation and surrender of share certificates in accordance with
the foregoing provisions, in which
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case the rights of the holders shall remain unaffected until the Total
Liquidation Amount has been paid in the manner hereinbefore provided. The
Corporation shall have the right at any time after the Liquidation Date to
deposit or cause to be deposited the Total Liquidation Amount in respect of the
Exchangeable Shares represented by certificates that have not at the Liquidation
Date been surrendered by the holders thereof in a custodial account with any
chartered bank or trust company in Canada. Upon such deposit being made, the
rights of the holders of Exchangeable Shares after such deposit shall be limited
to receiving the Total Liquidation Amount (in each case less any amounts
withheld on account of tax required to be deducted and withheld therefrom) for
such Exchangeable Shares so deposited, against presentation and surrender of the
said certificates held by them, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of the Total Liquidation Amount, the
holders of the Exchangeable Shares shall thereafter be considered and deemed for
all purposes to be holders of the Shire Ordinary Shares and/or Shire ADSs
delivered to them or the custodian on their behalf.
5.3 After the Corporation has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant
to Section 5.1 of these share provisions, such holders shall not be entitled to
share in any further distribution of the assets of the Corporation.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time, subject to
the exercise by CallCo of the Retraction Call Right and otherwise upon
compliance with the provisions of this Article 6, to require the Corporation to
redeem any or all of the Exchangeable Shares registered in the name of such
holder for an amount per share equal to the Current Market Price of a Shire
Ordinary Share on the last Business Day prior to the Retraction Date multiplied
by three, which shall be satisfied in full by the Corporation causing to be
delivered to such holder three Shire Ordinary Shares admitted to the official
list of the UKLA and to trading on the LSE or one Shire ADS quoted on NASDAQ (at
the option of the holder as indicated to the Transfer Agent) for each
Exchangeable Share presented and surrendered by the holder, together with, on
the payment date therefor, the full amount of all declared and unpaid dividends
on any such Exchangeable Share held by such holder on any dividend record date
which occurred prior to the Retraction Date (the "Retraction Price"). To effect
such redemption, the holder shall present and surrender at the registered office
of the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation by notice to the holders of Exchangeable Shares the certificate
or certificates representing the Exchangeable Shares which the holder desires to
have the Corporation redeem, together with such other documents and instruments
as are required to effect a transfer of Exchangeable Shares under the CBCA and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent or the Corporation may reasonably require, and together with
a duly executed statement (the "Retraction Request") in the form of Schedule A
hereto or in such other form as may be acceptable to the Corporation:
(a) specifying that the holder desires to have all or any number specified
therein of the Exchangeable Shares represented by such certificate or
certificates (the "Retracted Shares") redeemed by the Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares (the "Retraction Date"), provided
that the Retraction Date shall be not less than 10 Business Days nor more
than 15 Business Days after the date on which the Retraction Request is
received by the Corporation and further provided that, in the event that
no such Business Day is specified by the holder in the Retraction
Request, the Retraction Date shall be deemed to be the 15th Business Day
after the date on which the Retraction Request is received by the
Corporation; and
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(c) acknowledging the overriding right (the "Retraction Call Right") of
CallCo to purchase all but not less than all the Retracted Shares
directly from the holder and that the Retraction Request shall be deemed
to be a revocable offer by the holder to sell the Retracted Shares to
CallCo in accordance with the Retraction Call Right on the terms and
conditions set out in Section 6.3 below.
6.2 Subject to the exercise by CallCo of the Retraction Call Right and to
Section 6.8, upon receipt by the Corporation or the Transfer Agent in the manner
specified in Section 6.1 hereof of a certificate or certificates representing
the number of Exchangeable Shares which the holder desires to have the
Corporation redeem, together with a Retraction Request and such other documents
and instruments as are required to effect a transfer of Exchangeable Shares
under the CBCA and the by-laws of the Corporation and such additional documents
and instruments as the Transfer Agent or the Corporation may reasonably require,
and provided that the Retraction Request is not revoked by the holder in the
manner specified in Section 6.7, the Corporation shall redeem the Retracted
Shares effective at the close of business on the Retraction Date and shall cause
to be delivered to such holder the Total Retraction Price with respect to such
shares, provided that all declared and unpaid dividends for which the record
date has occurred prior to the Retraction Date shall be paid on the payment date
for such dividends. If only a part of the Exchangeable Shares represented by any
certificate is redeemed (or purchased by CallCo pursuant to the Retraction Call
Right), a new certificate for the balance of such Exchangeable Shares shall be
issued to the holder at the expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify CallCo thereof and shall provide to CallCo a copy of
the Retraction Request. In order to exercise the Retraction Call Right, CallCo
must notify the Corporation of its determination to do so (the "CallCo Call
Notice") within five Business Days of notification to CallCo by the Corporation
of the receipt by the Corporation of the Retraction Request. If CallCo does not
so notify the Corporation within such five Business Day period, the Corporation
will notify the holder as soon as possible thereafter that CallCo will not
exercise the Retraction Call Right. If CallCo delivers the CallCo Call Notice
within such five Business Day period, and provided that the Retraction Request
is not revoked by the holder in the manner specified in Section 6.7, the
Retraction Request shall thereupon be considered only to be an offer by the
holder to sell the Retracted Shares to CallCo in accordance with the Retraction
Call Right. In such event, the Corporation shall not redeem the Retracted Shares
and CallCo shall purchase from such holder and such holder shall sell to CallCo
on the Retraction Date the Retracted Shares for a purchase price (the "Purchase
Price") per share equal to the Retraction Price per share which shall be
satisfied in full by CallCo causing to be delivered to such holder three Shire
Ordinary Shares or one Shire ADS (at the option of the holder as indicated to
the Transfer Agent) for each Exchangeable Share presented and surrendered by the
holder, plus, on the designated payment date therefor, to the extent not paid by
the Corporation on the designated payment date therefor, an additional amount
equivalent to the full amount of all declared and unpaid dividends on those
Retracted Shares held by such holder on any dividend record date which occurred
prior to the Retraction Date (the "Dividend Amount"). For the purposes of
completing a purchase pursuant to the Retraction Call Right, CallCo shall
deposit with the Transfer Agent, on or before the Retraction Date, certificates
representing Shire Ordinary Shares and/or Share ADSs and a cheque or cheques of
CallCo payable at par at any branch of the bankers of CallCo representing the
aggregate Dividend Amount, less any amounts withheld on account of tax required
to be deducted and withheld therefrom. Provided that CallCo has complied with
the immediately preceding sentence, the closing of the purchase and sale of the
Retracted Shares pursuant to the Retraction Call Right shall be deemed to have
occurred as at the close of business on the Retraction Date and, for greater
certainty, no redemption by the Corporation of such Retracted Shares shall take
place on the Retraction Date. In the event that CallCo does not deliver a CallCo
Call Notice within such five Business Day period, and provided that the
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, the Corporation shall redeem the Retracted Shares on the Retraction
Date and in the manner otherwise contemplated in this Article 6.
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6.4 The Corporation or CallCo, as the case may be, shall deliver or cause the
Transfer Agent to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the Exchangeable
Shares or at the address specified in the holder's Retraction Request or by
holding for pick-up by the holder at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the Corporation by
notice to the holders of Exchangeable Shares, certificates representing the
Shire Ordinary Shares (or effect the necessary CREST or other electronic
transfers) (which shares shall be duly issued as fully paid and non-assessable
and shall be free and clear of any lien, claim or encumbrance and shall be
admitted to the official list of the UKLA and to trading on the LSE) and/or
Shire ADSs (which securities shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance and
shall be quoted on NASDAQ) registered in the name of the holder or in such other
name as the holder may request, and, if applicable and on or before the payment
date therefor, a cheque payable at par at any branch of the bankers of the
Corporation or CallCo, as applicable, representing the aggregate Dividend Amount
in payment of the Total Retraction Price or the Total Purchase Price, as the
case may be, in each case, less any amounts withheld on account of tax required
to be deducted and withheld therefrom, and such delivery of such certificates
(or necessary CREST or other electronic transfers) and cheques on behalf of the
Corporation or by CallCo, as the case may be, or by the Transfer Agent shall be
deemed to be payment of and shall satisfy and discharge all liability for the
Total Retraction Price or Total Purchase Price, as the case may be, to the
extent that the same is represented by such share certificates (or necessary
CREST or other electronic transfers) and cheques (plus any tax deducted and
withheld therefrom and remitted to the proper tax authority).
6.5 On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive the Total Retraction Price or Total
Purchase Price, as the case may be, unless upon presentation and surrender of
certificates in accordance with the foregoing provisions, payment of the Total
Retraction Price or the Total Purchase Price, as the case may be, shall not be
made as provided in Section 6.4, in which case the rights of such holder shall
remain unaffected until the Total Retraction Price or the Total Purchase Price,
as the case may be, has been paid in the manner hereinbefore provided. On and
after the close of business on the Retraction Date, provided that presentation
and surrender of certificates and payment of the Total Retraction Price or the
Total Purchase Price, as the case may be, has been made in accordance with the
foregoing provisions, the holder of the Retracted Shares so redeemed by the
Corporation or purchased by CallCo shall thereafter be considered and deemed for
all purposes to be a holder of the Shire Ordinary Shares and/or Shire ADSs
delivered to it.
6.6 Notwithstanding any other provision of this Article 6, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
the Corporation believes that on any Retraction Date it would not be permitted
by any of such provisions to redeem the Retracted Shares tendered for redemption
on such date, and provided that CallCo shall not have exercised the Retraction
Call Right with respect to the Retracted Shares, the Corporation shall only be
obligated to redeem Retracted Shares specified by a holder in a Retraction
Request to the extent of the maximum number that may be so redeemed (rounded
down to a whole number of shares) as would not be contrary to such provisions
and shall notify the holder at least two Business Days prior to the Retraction
Date as to the number of Retracted Shares which will not be redeemed by the
Corporation. In any case in which the redemption by the Corporation of Retracted
Shares would be contrary to solvency requirements or other provisions of
applicable law, the Corporation shall redeem the maximum number of Exchangeable
Shares which the Board of Directors determine the Corporation is, on the
Retraction Date, permitted to redeem, which shall be selected as nearly as may
be pro rata (rounded up to a whole number of shares) in proportion to the total
number of Exchangeable Shares tendered for retraction by each holder thereof and
the Corporation shall issue to each holder of Retracted Shares a new
certificate, at the expense of the Corporation, representing the Retracted
Shares not redeemed by the Corporation pursuant to Section 6.2 hereof. Provided
that the Retraction Request is not revoked by the holder in the manner specified
in
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Section 6.7, the holder of any such Retracted Shares not redeemed by the
Corporation pursuant to Section 6.2 of these share provisions as a result of
solvency requirements or other provisions of applicable law shall be deemed by
giving the Retraction Request to have instructed the Trustee to require Shire to
purchase such Retracted Shares from such holder on the Retraction Date or as
soon as practicable thereafter on payment by to such holder of the Purchase
Price for each such Retracted Share, all as more specifically provided in
Section 5.7 of the Voting and Exchange Trust Agreement.
6.7 A holder of Retracted Shares may, by notice in writing given by the holder
to the Corporation before the close of business on the Business Day immediately
preceding the Retraction Date, withdraw its Retraction Request, in which event
such Retraction Request shall be null and void and, for greater certainty, the
revocable offer constituted by the Retraction Request to sell the Retracted
Shares to CallCo shall be deemed to have been revoked.
6.8 The Corporation, by issuing a press release, may at any time and from time
to time notify the holders of Exchangeable Shares of the suspension of their
rights to require the Corporation to redeem any Exchangeable Shares for Shire
Ordinary Shares pursuant to this Section 6 if Shire has been unable to obtain
the approval of the UKLA or the LSE to the admission of the Shire Ordinary
Shares to the official list of the UKLA or to trading on the LSE that would be
required to be delivered to the holders of Exchangeable Shares in connection
with the exercise of such rights and such rights shall be suspended until such
approval has been obtained. The Corporation shall notify the holders of the
Exchangeable Shares by press release, that such rights are once again in force
forthwith after such approval has been obtained.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and provided CallCo has not exercised the
Redemption Call Right, the Corporation shall on the Redemption Date redeem all
but not less than all of the then outstanding Exchangeable Shares for an amount
per share equal to the Current Market Price of a Shire Ordinary Share on the
last Business Day prior to the Redemption Date multiplied by three, which shall
be satisfied in full by the Corporation causing to be delivered to each holder
of Exchangeable Shares three Shire Ordinary Shares admitted to the official list
of the UKLA and to trading on the LSE or one Shire ADS quoted on NASDAQ (at the
option of the holder as indicated to the Transfer Agent) for each Exchangeable
Share held by such holder, together with the full amount of all declared and
unpaid dividends on each such Exchangeable Share held by such holder on any
dividend record date which occurred prior to the Redemption Date (the
"Redemption Price").
7.2 In any case of a redemption of Exchangeable Shares under this Article 7,
the Corporation shall, at least 60 days before the Redemption Date (other than a
Redemption Date established in connection with a Shire Control Transaction, an
Exchangeable Share Voting Event or an Exempt Exchangeable Share Voting Event),
send or cause to be sent to each holder of Exchangeable Shares a notice in
writing of the redemption by the Corporation or the purchase by CallCo under the
Redemption Call Right, as the case may be, of the Exchangeable Shares held by
such holder; provided that if the notice period of 60 days would expire after
the date that would, but for such 60-day period, be established as the
Redemption Date, then the Redemption Date will be deferred until the notice
period of 60 days has passed. In the case of a Redemption Date established in
connection with a Shire Control Transaction, an Exchangeable Share Voting Event
or an Exempt Exchangeable Share Voting Event, the written notice of redemption
by the Corporation or the purchase by CallCo under the Redemption Call Right
will be sent on or before the Redemption Date, on as many days prior written
notice as may be determined by the Board of Directors of the Corporation to be
reasonably practicable in the circumstances. In any such case, such notice shall
set out the Redemption Price or the Redemption Call Purchase Price, as the case
may be, the Redemption Date and, if applicable, particulars of the Redemption
Call Right.
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7.3 On or after the Redemption Date and subject to the exercise by CallCo of
the Redemption Call Right, the Corporation shall cause to be delivered to the
holders of the Exchangeable Shares to be redeemed the Redemption Price for each
such Exchangeable Share, together with the full amount of all declared and
unpaid dividends on each such Exchangeable Share held by such holder on any
dividend record date which occurred prior to the Redemption Date, upon
presentation and surrender at the registered office of the Corporation or at any
office of the Transfer Agent or the Corporation as may be specified by the
Corporation in such notice of the certificates representing such Exchangeable
Shares, together with such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the CBCA and the by-laws of the
Corporation and such additional documents and instruments as the Transfer Agent,
Shire or the Corporation may reasonably require. Payment of the Total Redemption
Price for such Exchangeable Shares, together with payment of such dividends,
shall be made by delivery to each holder, at the address of the holder recorded
in the securities register of the Corporation or by holding for pick-up by the
holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation in such notice, on behalf
of the Corporation of certificates representing Shire Ordinary Shares and/or
Shire ADSs (or effecting the necessary CREST or other electronic transfer)
(which shares shall be duly issued as fully paid and non-assessable and shall be
free and clear of any lien, claim or encumbrance) and, if applicable, a cheque
of the Corporation payable at par at any branch of the bankers of the
Corporation in payment of any such dividends, in each case, less any amounts
withheld on account of tax required to be deducted and withheld therefrom. On
and after the Redemption Date, the holders of the Exchangeable Shares called for
redemption shall cease to be holders of such Exchangeable Shares and shall not
be entitled to exercise any of the rights of holders in respect thereof, other
than the right to receive the Total Redemption Price and any such dividends,
unless payment of the Total Redemption Price and any such dividends for such
Exchangeable Shares shall not be made upon presentation and surrender of
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the Total Redemption Price
and any such dividends have been paid in the manner hereinbefore provided. The
Corporation shall have the right at any time after the sending of notice of its
intention to redeem the Exchangeable Shares as aforesaid to deposit or cause to
be deposited the Total Redemption Price for, and the full amount of such
dividends on (except as provided in the preceding sentence), the Exchangeable
Shares so called for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such deposit been
surrendered by the holders thereof in connection with such redemption, in a
custodial account with any chartered bank or trust company in Canada named in
such notice, less any amounts withheld on account of tax required to be deducted
and withheld therefrom. Upon the later of such deposit being made and the
Redemption Date, the Exchangeable Shares in respect whereof such deposit shall
have been made shall be redeemed and the rights of the holders thereof after
such deposit or Redemption Date, as the case may be, shall be limited to
receiving the Total Redemption Price and such dividends for such Exchangeable
Shares so deposited, against presentation and surrender of the said certificates
held by them, respectively, in accordance with the foregoing provisions. Upon
such payment or deposit of the Total Redemption Price and the full amount of
such dividends, the holders of the Exchangeable Shares shall thereafter be
considered and deemed for all purposes to be holders of the Shire Ordinary
Shares and/or Shire ADSs delivered to them or the custodian on their behalf.
ARTICLE 8
VOTING RIGHTS
8.1 Except as required by applicable law and by Article 10 hereof, the holders
of the Exchangeable Shares shall not be entitled as such to receive notice of or
to attend any meeting of the shareholders of the Corporation or to vote at any
such meeting.
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ARTICLE 9
AMENDMENT AND APPROVAL
9.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
9.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 25% of the outstanding Exchangeable Shares at that time are present or
represented by proxy; provided that if at any such meeting the holders of at
least 25% of the outstanding Exchangeable Shares at that time are not present or
represented by proxy within one-half hour after the time appointed for such
meeting, then the meeting shall be adjourned to such date not less than five
days thereafter and to such time and place as may be designated by the Chairman
of such meeting. At such adjourned meeting the holders of Exchangeable Shares
present or represented by proxy thereat may transact the business for which the
meeting was originally called and a resolution passed thereat by the affirmative
vote of not less than two-thirds of the votes cast on such resolution at such
meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares.
ARTICLE 10
RECIPROCAL CHANGES, ETC.
IN RESPECT OF SHIRE ORDINARY SHARES
10.1 Each holder of an Exchangeable Share acknowledges that the Exchangeable
Share Support Agreement provides, in part, that Shire will not without the prior
approval of the Corporation and the prior approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 of these share
provisions:
(a) issue or distribute Shire Ordinary Shares (or securities exchangeable
for or convertible into or carrying rights to acquire Shire Ordinary
Shares) to the holders of all or substantially all of the then
outstanding Shire Ordinary Shares by way of share dividend or other
distribution, other than an issue of Shire Ordinary Shares (or securities
exchangeable for or convertible into or carrying rights to acquire Shire
Ordinary Shares) to holders of Shire Ordinary Shares who exercise an
option to receive dividends in Shire Ordinary Shares (or securities
exchangeable for or convertible into or carrying rights to acquire Shire
Ordinary Shares) in lieu of receiving cash dividends;
(b) issue or distribute rights, options or warrants to the holders of all or
substantially all of the then outstanding Shire Ordinary Shares entitling
them to subscribe for or to purchase Shire Ordinary Shares (or securities
exchangeable for or convertible into or carrying rights to acquire Shire
Ordinary Shares); or
(c) issue or distribute to the holders of all or substantially all of the
then outstanding Shire Ordinary Shares:
(i) shares or securities of Shire of any class other than Shire Ordinary
Shares (other than shares convertible into or exchangeable for or
carrying rights to acquire Shire Ordinary Shares);
(ii) rights, options or warrants other than those referred to in
Section 10.1(b) above;
B-31
(iii) evidences of indebtedness of Shire; or
(iv) assets of Shire,
unless the economic equivalent on a per share basis of such rights, options,
securities, shares, evidences of indebtedness or other assets is issued or
distributed simultaneously to holders of the Exchangeable Shares.
10.2 Each holder of an Exchangeable Share acknowledges that the Exchangeable
Share Support Agreement further provides, in part, that Shire will not without
the prior approval of the Corporation and the prior approval of the holders of
the Exchangeable Shares given in accordance with Section 9.2 of these share
provisions:
(a) subdivide, redivide or change the then outstanding Shire Ordinary Shares
into a greater number of Shire Ordinary Shares;
(b) reduce, combine, consolidate or change the then outstanding Shire
Ordinary Shares into a lesser number of Shire Ordinary Shares; or
(c) reclassify or otherwise change the Shire Ordinary Shares or effect an
amalgamation, merger, reorganization or other transaction affecting the
Shire Ordinary Shares,
unless the same or an economically equivalent change shall simultaneously be
made to, or in, the rights of the holders of the Exchangeable Shares. The
Exchangeable Share Support Agreement further provides, in part, that the
aforesaid provisions of the Exchangeable Share Support Agreement shall not be
changed without the approval of the holders of the Exchangeable Shares given in
accordance with Section 9.2 of these share provisions.
ARTICLE 11
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
11.1 The Corporation will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by Shire, CallCo and the Corporation with all
provisions of the Exchangeable Share Support Agreement applicable to Shire,
CallCo and the Corporation, respectively, in accordance with the terms thereof
including, without limitation, taking all such actions and doing all such things
as shall be necessary or advisable to enforce to the fullest extent possible for
the direct benefit of the Corporation all rights and benefits in favour of the
Corporation under or pursuant to such agreement.
11.2 The Corporation shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations under,
the Exchangeable Share Support Agreement without the approval of the holders of
the Exchangeable Shares given in accordance with Section 9.2 of these share
provisions other than such amendments, waivers and/or forgiveness as may be
necessary or advisable for the purposes of:
(a) adding to the covenants of the other parties to such agreement for the
protection of the Corporation or the holders of the Exchangeable Shares
thereunder;
(b) making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the good faith opinion of the
Board of Directors, it may be expedient to make, provided that the Board
of Directors shall be of the good faith opinion, after consultation with
counsel, that such provisions and modifications will not be prejudicial
to the interests of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement which, on the
advice of counsel to the Corporation, are required for the purpose of
curing or correcting any ambiguity or defect or
B-32
inconsistent provision or clerical omission or mistake or manifest error
contained therein, provided that the Board of Directors shall be of the
good faith opinion, after consultation with counsel, that such changes or
corrections will not be prejudicial to the interests of the holders of
the Exchangeable Shares.
ARTICLE 12
LEGEND; CALL RIGHTS
12.1 The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend in form and on terms approved by the Board of
Directors, with respect to the Exchangeable Share Support Agreement, the
provisions of the Plan of Arrangement relating to the Liquidation Call Right,
the Redemption Call Right and the Shire Call Right, and the Voting and Exchange
Trust Agreement (including the provisions with respect to the voting rights,
exchange right and automatic exchange thereunder).
12.2 Each holder of an Exchangeable Share, whether of record or beneficial, by
virtue of becoming and being such a holder shall be deemed to acknowledge each
of the Liquidation Call Right, the Retraction Call Right and the Redemption Call
Right, in each case, in favour of CallCo, and the overriding nature thereof in
connection with the liquidation, dissolution or winding-up of the Corporation or
the retraction or redemption of Exchangeable Shares, as the case may be, and the
Shire Call Right in favour of Shire and to be bound thereby in favour of CallCo
or Shire, as the case may be, as therein provided.
ARTICLE 13
NOTICES
13.1 Any notice, request or other communication to be given to the Corporation
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of the Corporation and addressed to the attention of the
President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
13.2 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding-up of the
Corporation or the retraction or redemption of Exchangeable Shares shall be made
by registered mail (postage prepaid) or by delivery to the registered office of
the Corporation or to such office of the Transfer Agent as may be specified by
the Corporation, in each case, addressed to the attention of the President of
the Corporation. Any such presentation and surrender of certificates shall only
be deemed to have been made and to be effective upon actual receipt thereof by
the Corporation or the Transfer Agent, as the case may be. Any such presentation
and surrender of certificates made by registered mail shall be at the sole risk
of the holder mailing the same.
13.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last known address of such holder. Any such notice,
request or other communication, if given by mail, shall be deemed to have been
given and received on the third Business Day following the date of mailing and,
if given by delivery, shall be deemed to have been given and received on the
date of delivery. Accidental failure or omission to give any notice, request or
other communication to one or more holders of Exchangeable Shares shall not
invalidate or otherwise alter or affect any action or proceeding to be taken by
the Corporation pursuant thereto.
B-33
13.4 If the Corporation determines that mail service is or is threatened to be
interrupted at the time when the Corporation is required or elects to give any
notice to the holders of Exchangeable Shares hereunder, the Corporation shall,
notwithstanding the provisions hereof, give such notice by means of publication
in THE GLOBE AND MAIL, national edition, or any other English language daily
newspaper or newspapers of general circulation in Canada and in a French
language daily newspaper of general circulation in the Province of Quebec, once
in each of two successive weeks, and notice so published shall be deemed to have
been given on the latest date on which the first publication has taken place.
If, by reason of any actual or threatened interruption of mail service due
to strike, lock-out or otherwise, any notice to be given to the Corporation
would be unlikely to reach its destination in a timely manner, such notice shall
be valid and effective only if delivered personally to the Corporation in
accordance with Section 13.1 or 13.2, as the case may be.
ARTICLE 14
WITHHOLDING RIGHTS
14.1 The Corporation, CallCo, Shire and the Exchange Agent will be entitled to
deduct and withhold from any dividend or consideration otherwise payable to any
holder of Exchangeable Shares, such amounts as the Corporation, CallCo, Shire or
the Exchange Agent is required to deduct and withhold with respect to such
payment under the ITA, the United States INTERNAL REVENUE CODE OF 1986, the
United Kingdom tax laws or any provision of provincial, state, local or foreign
tax law, in each case, as amended. To the extent that amounts are so withheld,
such withheld amounts will be treated for all purposes hereof as having been
paid to the holder of the Exchangeable Shares in respect of which such deduction
and withholding was made, provided that such withheld amounts are actually
remitted to the appropriate tax authority. To the extent that the amount so
required to be deducted or withheld from any payment to a holder exceeds the
cash portion of the consideration otherwise payable to the holder, the
Corporation, CallCo, Shire and the Exchange Agent are hereby authorized to sell
or otherwise dispose of such portion of the consideration as is necessary to
provide sufficient funds to the Corporation, CallCo, Shire or the Exchange
Agent, as the case may be, to enable it to comply with such deduction or
withholding requirement and the Corporation, CallCo, Shire or the Exchange Agent
will notify the holder thereof and remit to the holder any unapplied balance of
the net proceeds of such sale. The Corporation shall not be entitled to withhold
amounts on dividends payable to holders of Exchangeable Shares pursuant to the
United States INTERNAL REVENUE CODE OF 1986 unless it has received an opinion
from counsel stating that such withholding is required under the INTERNAL
REVENUE CODE OF 1986.
ARTICLE 15
STAMP TAX
15.1 (a) Notwithstanding any other provision herein but subject to
Section 15.1(b) below, holders of Exchangeable Shares or Persons to
whom Exchangeable Shares are issued or transferred (in each case other
than Shire, its Affiliates, the Transfer Agent or the Exchange Agent)
shall be responsible for any and all Stamp Taxes payable in connection
with the transfer, exchange, redemption or issuance of such shares or
their exchange for Shire Ordinary Shares or Shire ADSs and, subject to
Section 15.1(b) below, transferees of Shire Ordinary Shares or Shire
ADSs or Persons to whom Shire Ordinary Shares or Shire ADSs are issued
(in each case other than Shire, its Affiliates, the Transfer Agent or
the Exchange Agent) shall be responsible for any and all Stamp Taxes
payable in connection with the transfer or issuance of such securities.
In no event, subject to Section 15.1(b) below, will Shire, its
Affiliates, the Transfer Agent or the Exchange Agent be responsible for
any Stamp Taxes and Shire, its Affiliates, the Transfer Agent and/or
the Exchange Agent shall make such regulations and arrangements as are
necessary to ensure that such holders, such transferees and such
Persons pay all such applicable Stamp Taxes.
B-34
(b) Shire shall be responsible for (i) any United Kingdom stamp duty reserve
tax payable on the issue or transfer of Shire Ordinary Shares to a
depository or to a nominee or agent for a depository pursuant to these
share provisions, (ii) any United Kingdom stamp duty reserve tax that
arises in respect of the transfer of Exchangeable Shares in exchange for
Shire ADSs and/or Shire Ordinary Shares (an "Exchange"), (iii) any United
Kingdom stamp duty reserve tax that Shire or any of its Affiliates
requires to be paid on an Exchange, and (iv) any United Kingdom stamp
duty payable on an issue of Exchangeable Shares to a holder of common
shares of BioChem pursuant to these share provisions.
B-35
SCHEDULE A
NOTICE OF RETRACTION
To Shire Acquisition Inc. (the "Corporation") and 3829359 Canada Inc.
("CallCo").
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the Exchangeable Shares of the Corporation represented
by the attached certificate and all capitalized words and expressions used in
this notice that are defined in the Share Provisions have the meanings ascribed
to such words and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem in accordance with Article 6 of the Share Provisions:
/ / all share(s) represented by the attached share certificate; or
/ / ______________ share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date
shall be _______________________________________________________________________
NOTE: The Retraction Date must be a Business Day and must not be less than 10
Business Days nor more than 15 Business Days after the date upon which
this notice is received by the Corporation. If no such Business Day is
specified above, the Retraction Date shall be deemed to be the 15th
Business Day after the date on which this notice is received by the
Corporation.
The undersigned acknowledges the overriding Retraction Call Right of CallCo
to purchase all but not less than all the Retracted Shares from the undersigned
and that this notice is and shall be deemed to be a revocable offer by the
undersigned to sell the Retracted Shares to CallCo in accordance with the
Retraction Call Right on the Retraction Date for the Purchase Price and on the
other terms and conditions set out in Section 6.3 of the Share Provisions. This
notice of retraction, and this offer to sell the Retracted Shares to CallCo, may
be revoked and withdrawn by the undersigned only by notice in writing given to
the Corporation at any time before the close of business on the Business Day
immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, the Corporation is unable to redeem all Retracted Shares, and
provided that CallCo shall not have exercised the Retraction Call Right with
respect to the Retracted Shares, the undersigned will be deemed to have
exercised the Exchange Right (as defined in the Voting and Exchange Trust
Agreement) so as to require Shire to purchase the unredeemed Retracted Shares.
B-36
The undersigned hereby represents and warrants to CallCo and the Corporation
that the undersigned:
/ / is
(select one)
/ / is not
a non-resident of Canada for purposes of the INCOME TAX ACT (Canada). THE
UNDERSIGNED ACKNOWLEDGES THAT IN THE ABSENCE OF AN INDICATION THAT THE
UNDERSIGNED IS NOT A NON-RESIDENT OF CANADA, WITHHOLDING ON ACCOUNT OF CANADIAN
TAX MAY BE MADE IF THE RETRACTED SHARES ARE NOT LISTED ON A PRESCRIBED STOCK
EXCHANGE FOR THE PURPOSES OF THE INCOME TAX ACT (CANADA), FROM AMOUNTS PAYABLE
TO THE UNDERSIGNED ON THE REDEMPTION OR PURCHASE OF THE RETRACTED SHARES.
The undersigned hereby represents and warrants to CallCo, the Corporation
and Shire that the undersigned has good title to, and owns, the share(s)
represented by this certificate to be acquired by CallCo or the Corporation, as
the case may be, free and clear of all liens, claims and encumbrances.
(Date) (Signature of Shareholder) (Guarantee of Signature)
/ / Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up
by the shareholder from the Transfer Agent, failing which the securities
and any cheque(s) will be mailed to the last address of the shareholder
as it appears on the register.
NOTE: This panel must be completed and the attached share certificate, together
with such additional documents as the Transfer Agent may require, must be
deposited with the Corporation or the Transfer Agent. The securities and
any cheque(s) resulting from the retraction or purchase of the Retracted
Shares will be issued and registered in, and made payable to,
respectively, the name of the shareholder as it appears on the register of
the Corporation and the securities and any cheque(s) resulting from such
retraction or purchase will be delivered to such shareholder as indicated
above, unless the form appearing immediately below is duly completed.
Date: ____________________________________
Name of Person in Whose Name Securities or Cheque(s)
Are to be Registered, Issued or Delivered (please print): ______________________
Street Address or P.O. Box: ____________________________________________________
Signature of Shareholder: ______________________________________________________
City, Province and Postal Code: ________________________________________________
Signature Guaranteed by: _______________________________________________________
NOTE: If this notice of retraction is for less than all of the shares
represented by the attached certificate, a certificate representing the
remaining share(s) of the Corporation represented by the attached share
certificate will be issued and registered in the name of the shareholder
as it appears on the register of the Corporation, unless the Share
Transfer Power on the share certificate is duly completed in respect of
such share(s).
B-37
ANNEX C
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into as of December 10, 2000
(the "AGREEMENT") by and between Shire Pharmaceuticals Group Plc, a company
registered in England under registry number 2883758 ("SHIRE"), and BioChem
Pharma Inc., a corporation incorporated under the laws of Canada ("BIOCHEM"),
with respect to the following facts:
W I T N E S S E T H :
A. Concurrently with the execution and delivery of this Agreement, Shire,
BioChem and 3829341 Canada Inc., a corporation incorporated under the laws of
Canada and an indirect wholly-owned subsidiary of Shire ("EXCHANGECO"), are
entering into a merger agreement (the "Merger Agreement"), which provides that,
among other things, upon the terms and subject to the conditions thereof, Shire
and BioChem will enter into a business combination transaction (the
"ARRANGEMENT").
B. As a condition to Shire's willingness to enter into the Merger
Agreement, Shire has requested that BioChem agree, and BioChem has so agreed, to
grant to Shire an option to acquire BioChem Common Shares ("BIOCHEM SHARES"),
upon the terms and subject to the conditions set forth herein.
C. Capitalized terms used and not otherwise defined herein that are defined
in the Merger Agreement shall have the respective meanings ascribed thereto in
the Merger Agreement.
In consideration of the foregoing and the respective representations,
warranties and covenants set forth in this Agreement, and intending to be
legally bound hereby and thereby, the parties agree hereto as follows:
1. GRANT OF OPTION.
(a) Subject to the terms and conditions set forth herein, including receipt
of all regulatory approvals to the granting of the Option (including approvals,
as the case may be, of the TSE (collectively, the "STOCK EXCHANGE")), BioChem
hereby grants to Shire an irrevocable option (the "OPTION") to acquire up to
19.9% of the outstanding BioChem Shares as of December 8, 2000 (on an undiluted
basis) (the "OPTION SHARES"), in the manner set forth below at a price (the
"EXERCISE PRICE") of US$37.00 per Option Share, payable in cash.
(b) In the event Shire receives official notice that all regulatory
approvals necessary in respect of the granting of the Option, including approval
of the relevant Stock Exchange, will not be issued or granted, the Option and
this Agreement shall be, and shall be deemed to be, one stock appreciation right
("SAR") with respect to the Option Shares. At the request and upon notice by
Shire at any time during the period during which the Option is exercisable,
BioChem (or any successor entity thereof) shall purchase from Shire the SAR, at
a price equal to the difference between the "MARKET/TENDER OFFER PRICE" for
BioChem Shares as of the date Shire gives notice of its intent to exercise its
rights under this Section and the Exercise Price, multiplied by the number of
BioChem Shares purchasable pursuant to the Option. For purposes of this
Agreement, "MARKET/TENDER OFFER PRICE" means the higher of (A) the highest price
per share offered as of such date pursuant to any Acquisition Proposal which was
made prior to such date and not terminated or withdrawn as of such date and
(B) the highest closing sale price of BioChem Shares on the Nasdaq during the
twenty (20) trading days ending on the trading day immediately preceding such
date. For purposes of determining the highest price offered pursuant to any
Acquisition Proposal which involves consideration other than cash, the value of
such consideration shall be equal to the higher of (x) if securities of the
proponent of the same class as such consideration are traded on any national
securities exchange or by any registered securities association, a value based
on the closing sale price for such securities on their principal trading market
on such date and (y) the value ascribed to such consideration
C-1
by the proponent of such Acquisition Proposal, or if no such value is ascribed,
a value determined in good faith by the board of directors of BioChem.
2. EXERCISE OF OPTION; MAXIMUM PROCEEDS.
(a) The Option may be exercised by Shire, in whole or in part, at any time
and from time to time, immediately upon the occurrence of any event under
Section 7.2 of the Merger Agreement requiring BioChem to pay to Shire the amount
specified therein (the "EXERCISE EVENT"). In the event Shire wishes to exercise
the Option, Shire shall deliver to BioChem a written notice (each an "EXERCISE
NOTICE") specifying the total number of Option Shares it wishes to acquire and
pay the Exercise Price by certified cheque or wire transfer. Each closing of a
purchase of Option Shares (a "CLOSING") shall occur on a date and at a time
prior to the expiration of the Option designated by Shire in an Exercise Notice
delivered at least two Business Days prior to the date of such Closing, which
Closing shall be held at the offices of Stikeman Elliott, 1155 Rene-Levesque
Blvd. West, 40th Floor, Montreal (Quebec).
(b) The Option shall expire upon the earliest to occur of (i) the Effective
Date, or (ii) the termination of the Merger Agreement pursuant to Article VII
thereof (other than a termination in connection with which Shire is or could in
time become entitled to any payments as specified in Section 7.2 thereof), or
(iii) 180 days after the date on which the Merger Agreement is terminated and
Shire has become entitled to a payment as specified in Section 7.2 thereof;
provided, however, that if the Option cannot be exercised by reason of any
applicable Laws, or because any applicable waiting period related to issuance of
the Option Shares under any applicable Laws shall not have expired or been
terminated, then the Option shall not terminate until the tenth Business Day
after such impediment to exercise shall have been removed or shall have become
final and not subject to appeal.
(c) If Shire receives an amount pursuant to Section 7.2 of the Merger
Agreement which, when aggregated with gross proceeds received by Shire in
connection with any sales or other dispositions of Option Shares, less
reasonable and customary commissions paid in connection with such sales or
dispositions and any dividends received by Shire declared on Option Shares,
exceeds the sum of (x) US$120,000,000 plus (y) the Exercise Price multiplied by
the number of BioChem Shares purchased by Shire pursuant to the Option, then all
gross proceeds to Shire in excess of such sum shall be remitted by Shire to
BioChem or deducted from the payment to be made by BioChem pursuant to
Section 1 (b) hereof.
3. CONDITIONS TO CLOSING.
The obligation of BioChem to issue Option Shares to Shire hereunder is
subject to the conditions that (a) all filings and declarations required to be
made, all authorizations, consents, orders and approvals required to be obtained
in connection with the grant of the Option and the issue of the Option Shares
(including the approval of the relevant Stock Exchange), and all waiting periods
required to expire or be terminated, pursuant to a requirement of any
Governmental Entity or applicable Law (including, without limitation the HSR Act
or the CA, as the case may be) shall have been made or obtained or shall have
expired or been terminated, in each case in connection with the exercise of the
Option hereunder; and (b) no preliminary or permanent injunction or other order
by any court of competent jurisdiction (or similar order from any Canadian, US
or UK securities authority) prohibiting or otherwise restraining such issuance
shall be in effect. It is understood and agreed that at any time during which
the Option is exercisable, the parties will use their respective commercial
reasonable efforts to satisfy all conditions to Closing, so that a Closing may
take place as promptly as practicable, and in any event, prior to consummation
of a tender or exchange offer or take-over bid for shares of BioChem capital
stock.
C-2
4. CLOSING.
At each Closing, (a) BioChem shall deliver to Shire a single certificate in
definitive form representing the number of BioChem Shares designated by Shire in
its Exercise Notice, such certificate to be registered in the name of Shire and
to bear the legend set forth in Section 10 hereof, against delivery of
(b) payment by Shire to BioChem of the aggregate purchase price for the BioChem
Shares so designated and being purchased by delivery of a certified cheque, bank
draft or wire transfer.
5. REPRESENTATIONS AND WARRANTIES OF BIOCHEM.
BioChem represents and warrants to Shire that: (a) BioChem is a corporation
duly incorporated, validly existing and in good standing under the laws of
Canada and has full corporate power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder; (b) the execution and
delivery of this Agreement by BioChem and consummation by BioChem of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of BioChem, and no other corporate
proceedings on the part of BioChem are necessary to authorize this Agreement or
any of the transactions contemplated hereby; (c) this Agreement has been duly
and validly executed and delivered by BioChem, constitutes a legal, valid and
binding obligation of BioChem and, assuming this Agreement constitutes a legal,
valid and binding obligation of Shire, is enforceable against BioChem in
accordance with its terms, except as enforceability may be limited by bankruptcy
and other laws affecting the rights and remedies of creditors generally and
general principles of equity; (d) except for any filings required under the CA
and the approval of the relevant Stock Exchange, BioChem has taken (or will in a
timely manner take) all necessary corporate and other action to authorize and
reserve for issuance and to permit it to issue upon exercise of the Option, and
at all times from the date hereof until the termination of the Option will have
reserved for issuance, a sufficient number of unissued BioChem Shares for Shire
to exercise the Option in full upon payment to BioChem of the Exercise Price in
connection therewith and will take all necessary corporate or other action to
authorize and reserve for issuance all additional BioChem Shares or other
securities which may be issuable pursuant to Section 9 upon exercise of the
Option and payment of the Exercise Price, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable; (e) upon delivery of the BioChem Shares and any
other securities to Shire upon exercise of the Option and payment of the
Exercise Price, Shire will acquire such BioChem Shares or other securities free
and clear of all material claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, excluding those imposed by Shire;
(f) the execution and delivery of this Agreement by BioChem do not, and the
performance of this Agreement by BioChem will not, (i) conflict with the
articles of incorporation or bylaws of BioChem, (ii) assuming that the consent
approvals, authorizations, permits, filings and notifications referred to in
subsection 5d) are obtained or made as applicable, violate any order applicable
to BioChem or any of its Subsidiaries or by which they or any of their property
is bound or affected, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of BioChem or any of its Subsidiaries pursuant to, any
contract or agreement to which BioChem or any of its Subsidiaries is a party or
by which BioChem or any of its Subsidiaries or any of their property is bound or
affected, except, in the case of clauses (ii) and (iii) above, for violations,
conflicts, breaches, defaults, rights of termination, amendment, acceleration or
cancellation, liens or encumbrances which would not, in the aggregate, have a
Material Adverse Effect on BioChem; and (g) except as described in
Section 3.2(c) of the Merger Agreement, the execution and delivery of this
Agreement by BioChem does not, and the performance of this Agreement by BioChem
will not, require any consent, approval, authorization or permit of, or filing
with, or notification to, any Governmental Entity, except pursuant to the CA,
the HSR Act, the rules and regulations of the Stock Exchange, the Canadian
Securities Laws, the applicable US and UK securities laws or other applicable
Regulatory Laws, as the case may be.
C-3
6. REPRESENTATIONS AND WARRANTIES OF SHIRE.
Shire represents and warrants to BioChem that: (a) Shire is a corporation
duly incorporated and validly existing under the laws of England, and has full
corporate power and authority to execute and deliver this Agreement and to carry
out its obligations hereunder; (b) the execution and delivery of this Agreement
by Shire and the consummation by Shire of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Shire and no other corporate proceedings on the part of Shire are
necessary to authorize this Agreement or any of the transactions contemplated
hereby; (c) this Agreement has been duly and validly executed and delivered by
Shire, constitutes a legal, valid and binding obligation of Shire and, assuming
this Agreement constitutes a legal, valid and binding obligation of BioChem, is
enforceable against Shire in accordance with its terms, except as enforceability
may be limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity; (d) the execution and
delivery of this Agreement by Shire do not, and the performance of this
Agreement by Shire will not, (i) conflict with certificate of incorporation or
bylaws of Shire, (ii) violate any order applicable to Shire or any of its
subsidiaries or by which they or any of their property is bound or affected, or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give rise to
any right of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the property or assets of
Shire or any of its Subsidiaries pursuant to, any contract or agreement to which
Shire or any of its Subsidiaries is a party or by which Shire or any of its
Subsidiaries or any of their property is bound or affected, except, in the case
of clauses (ii) and (iii) above, for violations, conflicts, breaches, defaults,
rights of termination, amendment, acceleration or cancellation, liens or
encumbrances which would not, in the aggregate, have a Material Adverse Effect
on Shire; (g) the execution and delivery of this Agreement by Shire does not,
and the performance of this Agreement by Shire will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except pursuant to the HSR Act, the CA or other applicable
Regulatory Laws, as the case may be; and (h) any BioChem Shares acquired upon
exercise of the Option will not be acquired by Shire with a view to the public
distribution thereof and Shire will not sell or otherwise dispose of such shares
in violation of applicable law or this Agreement.
7. REGISTRATION RIGHTS.
In the event that Shire desires to sell any of the Option Shares within two
years after the first exercise of the Option and requests in writing to BioChem
that BioChem register such Option Shares under the Securities Act or qualify
such Option Shares for resale under applicable Canadian securities laws, unless
in the opinion of counsel to BioChem (which opinion shall be reasonably
satisfactory to Shire and its counsel) such registration under the Securities
Act or qualification under applicable Canadian securities laws is not required
in order to lawfully sell and distribute such Option Shares in the manner
contemplated by Shire, BioChem shall cooperate with Shire and any underwriters
in registering or qualifying of such Option Shares for resale, including,
without limitation, promptly filing a registration statement and/or prospectus
which complies with the requirements of applicable U.S. federal and state
securities laws and/or Canadian federal, provincial and territorial securities
laws, as the case may be, and entering into and complying with an underwriting
agreement with such underwriters upon such terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions; (i) provided, however, that BioChem shall not be required to file
more than two registration statements which are declared effective and/or
prospectuses hereunder and shall be entitled to delay the filing or
effectiveness of any registration statement and/or prospectus for up to 120
consecutive days in any 12-month period if the offering would, in the judgment
of the Board of Directors of BioChem, require premature disclosure of any
material corporate development or otherwise materially interfere with or
materially adversely affect any pending or proposed offering of securities of
BioChem, acquisition or divestiture or any other material transaction involving
BioChem or any of its subsidiaries and (ii) provided, however, that BioChem
shall not be required, with respect to an underwritten secondary offering, to
file a registration statement or a
C-4
prospectus upon obtention from an investment banking firm of nationally
recognized standing (the "MANAGER") of a certificate stating that, in the good
faith belief of the Manager, based on the then prevailing market condition, it
will not be able to sell the Option Shares at a per share price equal to at
least 80% of the per share average of the closing sale prices of BioChem's
Shares on the TSE or the Nasdaq. Shire agrees to use its reasonable commercial
efforts to cause, and to use its commercial efforts to cause any underwriters of
any sale or other disposition to cause, any sale or other disposition pursuant
to such registration statement and/or prospectus to be effected on a widely
distributed basis so that upon consummation thereof no purchaser or transferee
will own beneficially more than (3%) of the then-outstanding BioChem Shares.
(b) If Option Shares are registered or qualified pursuant to the provisions
of this Section 8, BioChem agrees (i) to furnish copies of the registration
statement and/or prospectus relating to the Option Shares covered thereby in
such numbers as Shire may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 120 days a prospectus covering the
Option Shares meeting the requirements of such securities laws, and to furnish
Shire with such numbers of copies of the registration statement and prospectus,
as amended or supplemented, as may reasonably be requested. BioChem shall bear
the cost of the registration or qualification, including but nor limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
its counsel and accountants for BioChem, and Shire shall pay the fees and
disbursement s of its counsel and the underwriting fees and commissions
applicable to the Option Shares sold by Shire. BioChem shall indemnify and hold
harmless Shire, its affiliates and their respective officers and directors from
and against any and all losses, claims, damages, liabilities and expenses
arising out of or based upon any statements contained in or omissions or alleged
omissions from, each registration statement or prospectus (or any amendment
thereto) filed pursuant to this paragraph; provided, however, that this
provision shall not apply to any loss, liability, claim, damage or expense to
the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished by BioChem by Shire,
its affiliates and its officers and other representatives expressly for use in
any registration statement or prospectus (or any amendment thereto) filed
pursuant to this paragraph. BioChem shall also indemnify and hold harmless each
underwriter and each person who controls any underwriter against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any statement contained in or omissions or alleged omissions from, each
registration statement or prospectus (or any amendment thereto) filed pursuant
to this Section 8.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION; RIGHTS PLANS.
(a) (i) If any change shall occur in the BioChem Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers, amalgamations (other
than the Arrangement), recapitalizations, combinations, exchanges of shares and
the like, then (i) the type and number of shares or securities subject to the
Option and (ii) the Exercise Price shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
Shire shall receive, upon exercise of the Option, the number and class of shares
or other securities or property that Shire would have received in respect of the
BioChem Shares if the Option had been exercised immediately prior to such change
or the record date therefor, as applicable.
(b) (i) In the event that BioChem enters into an agreement (A) to amalgamate
with or merge into any Person, other than Shire or any Subsidiary of Shire (each
an "EXCLUDED PERSON"), and BioChem is not the successor corporation of such
amalgamation or merger, (B) to permit any Person, other than an Excluded Person,
to merge into BioChem and BioChem shall be the successor corporation, but, in
connection with such merger, the then outstanding BioChem Common Shares shall be
changed into or exchanged for stock or other securities of any other Person or
cash or any other property or the then outstanding BioChem Common Shares shall
after such merger represent less than 50% of the outstanding
C-5
voting securities of the merged or acquiring company, or (C) to sell or
otherwise transfer all or substantially all of its assets to any Person, then,
and in each such case, the agreement governing such transaction shall make
proper provision so that, unless earlier exercised by Shire, the Option shall,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or other
securities or property that Shire would have received in respect of BioChem
Common Shares if the Option had been exercised immediately prior to such
amalgamation, merger, sale, or transfer, on the record date therefor, as
applicable, and make any other necessary adjustments; provided, however, that if
such a conversion or exchange cannot, because of applicable Law be the same as
the Option, such terms shall be as similar as possible and in no event less
advantageous to Shire than the Option.
(ii) In addition to any other restrictions or covenants, BioChem agrees that
it shall not enter or agree to enter into any transaction described in this
Section 9(b) unless the Acquiring Corporation (as hereinafter defined) and any
Person that controls the Acquiring Corporation assume in writing all the
obligations of BioChem hereunder and agree for the benefit of Shire to comply
with this Section 9.
(iii) For purposes of this Section 9(b), the term "Acquiring Corporation"
shall mean (x) the successor Person of an amalgamation or merger with BioChem
(if other than BioChem), (y) BioChem in an amalgamation or merger in which
BioChem is the successor Person, and (z) the transferee of all or substantially
all of BioChem's assets.
9. RESTRICTIVE LEGENDS.
Each certificate representing Option Shares issued to Shire hereunder shall
include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, OR QUALIFIED FOR DISTRIBUTION TO THE
PUBLIC PURSUANT TO APPLICABLE CANADIAN SECURITIES LAWS OR UK SECURITIES
LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR QUALIFIED OR IF
AN EXEMPTION FROM SUCH REGISTRATION(S) OR REQUIREMENT TO FILE A PROSPECTUS
IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF DECEMBER
10, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
Certificates representing shares sold in a registered public offering
pursuant to Section 8 shall not be required to bear the legend set forth in this
Section 10.
10. LISTING AND HSR AND REGULATORY APPROVALS.
BioChem, upon the request of Shire, shall promptly file an application to
list the BioChem Shares to be acquired upon exercise of the Option on the Stock
Exchange and shall use its reasonable commercial efforts to obtain approval of
such listings as soon as practicable. Promptly after a request by Shire, BioChem
shall file Notification and Report Forms under the CA with the Competition
Bureau and make all filings required under the HSR Act. BioChem shall use all
its best reasonable efforts to respond as promptly as practicable to any
inquiries received from the Competition Bureau or in response to filings under
the HSR Act for additional information or documentation.
C-6
11. WAIVER OF VOTING RIGHTS.
Shire agrees that it shall have no voting rights, and shall not exercise or
permit to be exercised any voting rights in any circumstances, in respect of the
Option or the Option Shares unless, until, and only to the extent that the
Option has been exercised and the Exercise Price has actually been paid to
BioChem.
12. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement is
not intended to confer any rights or remedies upon any Person other than the
parties hereto. Any shares sold by a party in compliance with the provisions of
Section 8 hereof shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares shall not be entitled the rights of the transferor
under this Agreement.
13. SPECIFIC PERFORMANCE.
Each of the parties hereto recognizes and acknowledges that a breach by it
of any covenants or agreements contained in this Agreement will cause the other
party to sustain damages for which it would not have an adequate remedy at law
for money damages. Therefore, in the event of any such breach, the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity.
14. ENTIRE AGREEMENT.
This Agreement and the Merger Agreement, including the exhibits and
schedules thereto and the documents and instruments referred to therein embody
the entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no representations, promises,
warranties, covenants, or undertakings, other than those expressly set forth or
referred to herein and therein.
15. FURTHER ASSURANCES.
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
consummate the transactions contemplated hereby.
16. SEVERABILITY.
In case any one or more of the provisions contained in this Agreement should
be finally determined to be invalid, illegal or unenforceable in any respect
against a party hereto, it shall be adjusted if possible to effect the intent of
the parties. In any event, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby, and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such final
determination shall have been made.
17. NOTICES.
All notices and other communications hereunder shall be in writing and shall
be delivered personally, by overnight courier or similar means or sent by
facsimile with written confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like
C-7
notice). Any such notice shall be effective upon receipt, if personally
delivered, or on the next business day following transmittal, if sent by
facsimile. Notices shall be delivered as follows:
(a) IF TO SHIRE, TO:
Shire Pharmaceuticals Group Plc
East Anton, Andover
Hampshire, England
England SP10 5RG
Fax: 012 64 334 658
Attention: Rolf Stahel
with copies to:
McCarthy Tetrault
1170 Peel Street
Montreal, Quebec
H3B 4S8
Fax: (514) 397-4235
Attention: Benjamin H. Silver
(b) IF TO BIOCHEM TO:
Biochem Pharma Inc.
275 Armand-Frappier Blvd
Laval, Quebec
Canada H7V 4A7
Fax: (450) 978-7899
Attention: Francesco Bellini
with a copy to:
Stikeman Elliott
1155 Rene-Levesque Blvd West
Suite 4000
Montreal, Quebec
H3B 3V2
Fax: (514) 397-3222
Attention: Jean Marc Huot
18. GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the laws
of the Province of Quebec and the federal laws of Canada applicable therein
(without giving effect to choice of law principles thereof).
19. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but both of which together shall constitute
one and the same instrument.
C-8
20. EXPENSES.
Except as otherwise expressly provided herein or in the Merger Agreement,
all costs, and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
21. AMENDMENTS; WAIVER.
This Agreement may be amended, modified or supplemented only by written
agreement of the parties. The terms and conditions hereof may be waived only by
an instrument in writing signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with a term or condition
shall not operate as a waiver or estoppel with respect to, any subsequent or
other failure.
22. ASSIGNMENT.
Neither this Agreement nor the Option created hereunder nor any right,
interest or obligation hereunder shall be assigned by either party without the
prior written consent of the other, except that this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
permitted assigns.
23. CURRENCY.
Except as expressly set forth otherwise, all sums of money referred to in
this Agreement are expressed in lawful money of Canada.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
SHIRE PHARMACEUTICALS GROUP PLC
By: /s/ ROLF STAHEL
-------------------------------------
Name: Rolf Stahel
Title: Chief Executive Officer
BIOCHEM PHARMA INC.
By: /s/ FRANCESCO BELLINI
-------------------------------------
Name: Francesco Bellini
Title: Chairman and Chief Executive Officer
By: /s/ FRANCOIS LEGAULT
-------------------------------------
Name: Francois Legault
Title: Executive Vice-President
Corporate Development and Investments
C-9
ANNEX D
STRICTLY PRIVATE AND
CONFIDENTIAL
Deutsche Bank AG London
Winchester House
Board of Directors
1 Great Winchester
Street
Shire Pharmaceuticals Group
plc
London EC2N 2DB
East Anton
Icknield Way
Tel 020 7545 8000
Andover
Hampshire SP10 4RG
10 December, 2000
Gentlemen:
Deutsche Bank AG London ("Deutsche Bank") has acted as financial advisor to
Shire Pharmaceuticals Group plc (Shire") in connection with the proposed merger
of Shire and BioChem Pharma Inc (the "Company") pursuant to the Merger
Agreement, expected to be dated 10 December 2000, among the Company, Shire and
Shire Exchangeco, a direct wholly owned subsidiary of Shire ("Exchangeco") (the
"Merger Agreement"), which provides, among other things, for the merger of the
Company with and into Shire Exchangeco (the "Transaction"), as a result of which
the Company will become an indirect wholly owned subsidiary of Shire.
The terms of the Transaction, including the circumstances determining the
number of Shire Ordinary Shares, Shire ADSs (where each Shire ADS is equivalent
to three Shire Ordinary Shares) or Shire Exchangeco Shares (together
"Consideration Shares") to be issued, together with the terms and conditions of
the Transaction, are more fully set forth in the Merger Agreement. As a result
of the Transaction, each share of the Common Stock of the Company ("Company
Common Stock") not owned directly or indirectly by the Company or Shire will be
converted into the right to receive such number of Consideration Shares as shall
be determined, subject to a collar, by reference to the average price of Shire
ADSs during the 15 trading days ending on the third trading date prior to the
Closing Date of the Transaction (the "Average Shire Price"). The collar provides
for a fixed value of consideration provided the Average Shire Price at the
relevant time is between $47.20 and $70.80. In the event that the Average Shire
Price is less than $47.20, each holder of Company Common Stock will receive
2.3517 Consideration Shares for each share of Company Common Stock (save that
such ratio will be divided by three where Shire ADSs are being issued as
consideration). In the event that the Average Shire Price is greater than
$70.80, each holder of Company Common Stock will receive 1.5678 Consideration
Shares for each share of Company Common Stock (save that such ratio will be
divided by three where Shire ADSs are being issued as consideration). The basis
of exchange described above (including the collar), and more fully set out in
the Merger Agreement, is referred to herein as the "Exchange Ratio".
This opinion assumes that the Transaction will be implemented in accordance
with the terms of the Merger Agreement.
You have requested Deutsche Bank's opinion, as financial advisor, as to the
fairness, from a financial point of view, to Shire of the Exchange Ratio.
In connection with Deutsche Bank's role as financial advisor to Shire, and
in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning the Company and Shire and
their respective groups and certain internal analyses and other information
furnished to it by or on behalf of the Company and Shire. Deutsche Bank has also
held discussions with members of the senior management of the Company and Shire
regarding the businesses and prospects of their respective groups and the joint
prospects of a combined group. In
D-1
addition, Deutsche Bank has attended certain discussions with Shire's external
legal counsel and Company's internal and external counsel on specific items
relating to ongoing patent litigation and related proceedings against the
Company and/or members of its group and has reviewed and relied on such
counsels' opinions with respect to these matters. In addition, Deutsche Bank has
(i) reviewed the reported prices and trading activity for the Company's Common
Stock and Shire's ordinary shares, (ii) compared certain financial and stock
market information for the Company and Shire with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of the draft Merger
Agreement and certain related documents, and (v) performed such other studies
and analyses and considered such other factors as it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company or Shire or their
respective groups including, without limitation, any financial information,
forecasts or projections considered in connection with the rendering of its
opinion. Accordingly, for purposes of its opinion, Deutsche Bank has assumed and
relied upon the accuracy and completeness of all such information and Deutsche
Bank has not conducted a physical inspection of any of the properties or assets,
and has not prepared or obtained any independent evaluation or appraisal of any
of the assets or liabilities, of the Company or Shire or members of their
groups. With respect to the financial forecasts and projections, including the
analyses and forecasts of certain cost savings (including assumptions relating
to future tax rates), operating efficiencies, revenue effects and financial
synergies expected by Shire to be achieved as a result of the Transaction
(collectively, the "Synergies"), made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of the Company or Shire, as the case may be, as to the matters
covered thereby. In rendering its opinion, Deutsche Bank expresses no view as to
the reasonableness of such forecasts and projections, including the Synergies,
or the assumptions on which they are based. Deutsche Bank's opinion is
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to it as of, the date hereof. Events
occurring after the date hereof could materially affect this opinion and the
assumptions used in preparing this opinion.
Further, Deutsche Bank does not provide legal, accounting, actuarial or tax
advice.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Shire, Shire Exchangeco and the Company contained in the Merger Agreement are
true and correct, Shire, Shire Exchangeco and the Company will each perform all
of the covenants and agreements to be performed by each of them under the Merger
Agreement and all conditions to the obligations of each of Shire, Shire
Exchangeco and the Company to consummate the Transaction will be satisfied
without any waiver thereof. Deutsche Bank has also assumed that all material
governmental, regulatory or other approvals and consents required in connection
with the consummation of the Transaction will be obtained and that in connection
with obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Shire or the Company is a party or is
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Shire or the Company or materially reduce the
contemplated benefits of the Transaction to Shire. In addition, you have
informed Deutsche Bank, and accordingly for purposes of rendering its opinion
Deutsche Bank has assumed, that the Transaction will be tax-free to each of
Shire and the Company and their respective stockholders and that the Transaction
is intended to be accounted for as a pooling of interests.
D-2
This opinion is confidential. Neither the whole nor any part of it, nor any
reference to it, may be disclosed to any person or included in any document,
circular or statement without Deutsche Bank's prior written consent. This
opinion is addressed to, and for the use and benefit of, the Board of Directors
of Shire and may be used and relied upon only by Shire in connection with and
for the purposes of the Transaction. It is not a recommendation to the
stockholders of Shire to approve the Transaction. This opinion is limited to the
fairness, from a financial point of view, to Shire of the Exchange Ratio, and
Deutsche Bank expresses no opinion as to the merits of the underlying decision
by Shire to engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Shire in connection with the Transaction, a portion of which is contingent upon
consummation of the Transaction. We are an affiliate of Deutsche Bank AG
(together with its affiliates, the "DB Group"). One or more members of the DB
Group have, from time to time, provided investment banking, commercial banking
(including extension of credit) and other financial services to Shire or its
affiliates for which it has received compensation. In the ordinary course of
business, members of the DB Group may actively trade in the securities and other
instruments and obligations of Shire and the Company for their own accounts and
for the accounts of their customers. Accordingly, the DB Group may at any time
hold a long or short position in such securities, instruments and obligations.
Based upon and subject to the foregoing, and based upon such other matters
as Deutsche Bank considers relevant, it is Deutsche Bank's opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
Shire.
Yours faithfully,
DEUTSCHE BANK AG LONDON
D-3
SHIRE PHARMACEUTICALS GROUP plc
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, DEPOSITARY
P.O. BOX 9383, BOSTON, MA 02205-9958
VOTING INSTRUCTION CARD
The undersigned, a registered holder of American Depositary Receipt(s)
representing Ordinary Shares of Shire Pharmaceuticals Group plc, of record
February 12, 2001, hereby requests and authorizes Morgan Guaranty Trust Company
of New York, Depositary, through its Nominee or Nominees, to vote or execute a
proxy to vote the underlying Ordinary Shares of the Company represented by such
American Depositary Receipts registered in the name of the undersigned at the
Extraordinary General Meeting of Shareholders of the Company to be held at 35
New Broad Street, London EC2M 1SQ on Thursday, March 29, 2001, beginning at 3:00
p.m., or any adjournment thereof.
NOTE: In order to have the aforesaid shares voted, this Voting Instruction Card
MUST be received before 3:00 p.m., March 23, 2001.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this Voting Instruction Card exactly as your name(s) appear(s) on
the books of the Depositary. Joint owners should each sign personally. Trustees
and other fiduciaries should indicate the capacity in which they sign, and where
more than one name appears, a majority must sign. If a corporation, this
signature should be that of an authorized officer who should state his or her
title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- -------------------------------------- -----------------------------------
- -------------------------------------- -----------------------------------
- -------------------------------------- -----------------------------------
ORDINARY RESOLUTION
1. To increase the authorized share capital,
approve the acquisition of BioChem Pharma Inc.
("BioChem") and the terms of the Merger
Agreement including the conversion of options
and rights held by BioChem option and rights
holders and to authorize the directors of the
Company to take all necessary or appropriate
steps to complete the acquisition, authorize
the directors of the Company to allot ordinary
shares up to an aggregate nominal amount of
L____, and create new special voting shares.
SPECIAL RESOLUTION
2. To authorize the directors of the Company to
allot equity securities for cash free of
statutory pre-emption rights.
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ----------------------------------------------- ORDINARY RESOLUTION
SHIRE PHARMACEUTICALS GROUP plc ----------------------------------------------------------
- ----------------------------------------------- For Against Abstain
Resolution 1 |_| |_| |_|
- -----------------------------------------------
PLEASE REFER TO THE REVERSE OF THIS CARD
FOR THE RESOLUTIONS TO BE VOTED AT THE MEETING.
- -----------------------------------------------
CONTROL NUMBER: SPECIAL RESOLUTION
----------------------------------------------------------
For Against Abstain
Resolution 2 |_| |_| |_|
Mark box at right if an address change or |_|
comment has been noted on the reverse of this card.
Please be sure to sign and date this Voting Date
Instruction Card.
----------------------------------------------------------------
| |
| | Mark box at right if you wish to give a discretionary |_|
---ADR Holder sign here-------------------Co-owner sign here---- proxy to a person designated by the Company. PLEASE
NOTE: Marking this box voids any other instructions
indicated in the items hereon.
DETACH CARD DETACH CARD
TO THE REGISTERED HOLDERS OF AMERICAN DEPOSITARY RECEIPTS ("ADRs")
REPRESENTING ORDINARY SHARES OF
SHIRE PHARMACEUTICALS GROUP plc
Morgan Guaranty Trust Company of New York (the "Depositary") has received advice that an Extraordinary General Meeting of
Shareholders (the "Meeting") of Shire Pharmaceuticals Group plc (the "Company") will be held at 35 New Broad Street, London EC2M
1SQ, on Thursday, March 29, 2001, beginning at 3:00 p.m., for the purposes set forth on the reverse of this card.
If you are desirous of having the Depositary, through its Nominee or Nominees, vote or execute a proxy to vote the Ordinary Shares
represented by your American Depositary Receipt(s) for or against or to abstain from voting the Resolutions to be proposed at the
Meeting, kindly execute and forward to Morgan Guaranty Trust Company of New York, Depositary, the attached Voting Instruction Card.
The enclosed postage paid envelope is provided for this purpose. This Voting Instruction Card should be executed in such manner as
to show clearly whether you desire the Nominee or the Nominees of the Depositary to vote for or against or to abstain from voting
the Resolutions, as the case may be. You may include instructions to give a discretionary proxy to a person designated by the
Company. The Voting Instruction Card MUST be forwarded in sufficient time to reach the Depositary before 3:00 p.m., New York City
time, March 23, 2001. Only the registered holders of record at the close of business February 12, 2001 will be entitled to execute
the attached Voting Instruction Card.
Morgan Guaranty Trust Company of New York, Depositary
Dated: March 2, 2001
SHIRE PHARMACEUTICALS GROUP PLC
("THE COMPANY")
PROXY FORM FOR USE AT THE EXTRAORDINARY GENERAL MEETING TO BE HELD
ON 29 MARCH, 2001
I/We ____________________ of ____________________ being (a) holder(s) of
ordinary shares of 5p each in the capital of Shire Pharmaceuticals Group plc
hereby appoint the Chairman of the Extraordinary General Meeting
or*________________________________________as my/our proxy to vote for me/us and
on my/our behalf at the Extraordinary General Meeting of the Company to be held
at 35 New Broad Street, London EC2M ISQ at 3.00p.m. (local time) on 29 March,
2001 and at any adjournment thereof as indicated below.**
TYPE OF
NO. RESOLUTION RESOLUTION FOR AGAINST ABSTAIN
1 Ordinary Resolution To increase the authorised share
capital
To approve the acquisition of BioChem
Pharma Inc. ("BioChem") and the terms
of the Merger Agreement including the
conversion of options and rights held
by BioChem option and rights holders
and to authorise the directors of the
Company to take all necessary or
appropriate steps to complete the
acquisition
To authorise the directors of the
Company to allot ordinary shares up to
an aggregate nominal amount of
L17,221,000, and create new special
voting shares
To create new special voting shares
2 Special Resolution To authorise the directors of the
Company to allot equity securities up
to an aggregate nominal amount of L- as
if the pre-emption rights conferred by
the Companies Act 1985 did not apply
Signature(s) ______________________________ Dated ________________________, 2001
NOTES FOR COMPLETION OF PROXY FORM
1. Please indicate by placing a single "X" in the appropriate space how you
wish your votes to be cast in respect of each of the Ordinary Resolution and
the Special Resolution referred to above. If this form is duly signed and
returned, but without any specific direction as to how you wish your votes
to be cast, your proxy may vote or abstain, at his discretion. On any other
business (including a motion to adjourn the meeting or to amend the Ordinary
and/or the Special Resolution) the proxy may vote at his discretion.
- ------------------------
* You are entitled to appoint one or more proxies of your choice who need not
be shareholders of the Company. If you wish to appoint someone other than
the Chairman of the Extraordinary General Meeting, please delete "the
Chairman of the Extraordinary General Meeting" and initial the deletion and
PRINT the name and address of the proxy in the space provided.
** Completion and return of the form or proxy will not prevent you from
attending and voting at the meeting instead of your proxy, if you so wish.
2. In the case of joint shareholders, the vote of the first named in the
register of members of the Company who tenders a vote, whether in person or
by proxy, shall be accepted to the exclusion of the votes of the other joint
holders.
3. This form must be executed by the shareholder(s) or his/their attorney duly
authorised in writing. In the case of a shareholder which is a body
corporate, this form must be executed either under its common seal, by the
signature of a director and its secretary or of two directors or under the
hand of an officer or attorney duly authorised in writing on its behalf.
4. Pursuant to Regulation 34 of the Uncertificated Securities Regulations 1995,
the time by which a person must be entered on the register of members of the
Company in order to have the right to attend or vote at the Extraordinary
Meeting is 6.00p.m. on 27 March 2001. If the Extraordinary General Meeting
is adjourned, the time by which a person must be entered on the register of
members of the Company in order to have the right to attend or vote at the
adjourned meeting is 6.00p.m. two days preceding the date fixed for
adjourned meeting. Changes to entries on the register of members of the
Company after 6.00 p.m. on 27 March 2001 will be disregarded in determining
the rights of any person to attend or vote at the meeting.
5. To be valid, this form must be completed, signed and deposited at, or
returned by post to, the office of the Company's registrars, Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex, BN99 3UH England, United
Kingdom not less than 48 hours before the time appointed for the meeting.
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF SHIRE PHARMACEUTICALS GROUP PLC:
We have audited the accompanying consolidated balance sheets of Shire
Pharmaceuticals Group plc and its subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, comprehensive income,
shareholders' investment and cash flows for the years ended December 31, 2000,
1999 and 1998. 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 did not audit the financial statements for the year ended December 31,
1998 of Roberts Pharmaceutical Corporation, a company acquired during 1999 in a
transaction accounted for as a pooling of interests. Such statements are
included in the consolidated financial statements of Shire Pharmaceuticals Group
plc and reflect total assets and total revenues of 60% and 57% respectively for
the year ended December 31, 1998. These statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for Roberts Pharmaceutical Corporation for the year
ended December 31, 1998, is based solely upon the report of the other public
accountants.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
public accountants provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other public
accountants, the financial statements referred to above present fairly, in all
material respects, the financial position of Shire Pharmaceuticals Group plc and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States.
Our audit opinion was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion based on our audit and report of the other public accountants, fairly
states in all material aspects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN
Reading, England
February 14, 2001
AUDITORS' REPORT
To the Shareholders of BioChem Pharma Inc.
We have audited the consolidated balance sheets of BioChem Pharma Inc. as at
December 31, 2000 and 1999 and the consolidated statements of earnings, retained
earnings and cash flows for the years ended December 31, 2000, 1999 and 1998.
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 in accordance with generally accepted auditing
standards in Canada for the years ended December 31, 2000, 1999 and 1998 and in
accordance with auditing standards generally accepted in the United States of
America for the year ended December 31, 2000. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2000 and 1999 and the results of its operations and its cash flows for the years
ended December 31, 2000, 1999 and 1998 in accordance with generally accepted
accounting principles in Canada.
On January 25, 2001, we also reported separately to the shareholders of
BioChem Pharma Inc. on consolidated financial statements for the same period,
expressed in U.S. dollars, prepared in accordance with generally accepted
accounting principles in the United States of America.
/s/ RAYMOND CHABOT GRANT THORNTON
General partnership
Chartered accountants
Montreal, Quebec
January 25, 2001
AUDITORS' REPORT
To the Shareholders of BioChem Pharma Inc.
We have audited the consolidated balance sheets of BioChem Pharma Inc. as at
December 31, 1999 and 1998 and the consolidated statements of earnings, retained
earnings and cash flows for the years ended December 31, 1999, 1998 and 1997.
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 in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
ended December 31, 1999, 1998 and 1997 in accordance with generally accepted
accounting principles in Canada.
/s/ RAYMOND CHABOT GRANT THORNTON
General partnership
Chartered accountants
Montreal, Quebec, Canada
January 26, 2000
Shire Pharmaceuticals Group plc
Hampshire International Business Park
Chineham Basingstoke Hampshre RG24 8EP UK
Tel +44 1256 894000 Fax +44 1256 894708
http://www.shire.com
[SHIRE LOGO]
March 1, 2001
Dear Holder of American Depositary Receipts of Shire
Pharmaceuticals Group plc:
We enclose a Proxy Statement relating to the extraordinary general meeting of
shareholders of Shire Pharmaceuticals Group plc ("Shire") to be held on
March 29, 2001 called to consider and approve the proposed merger between
Shire and BioChem Pharma Inc. We also enclose Shire's Circular and Listing
Particulars, including the notice of extraordinary general meeting, prepared
under the rules of the United Kingdom Listing Authority with respect to the
shareholders' meeting. Please read the enclosed documents as they contain
important information with respect to the proposed merger and the meeting.
To vote at the meeting, holders of the American Depositary Receipts should
complete the enclosed Voting Instruction Card for holders of American
Depositary Receipts.
Yours sincerely
/s/ Rolf Stahel
- -------------------
Rolf Stahel
Enc
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are
in any doubt about what action you should take, you are recommended to seek
advice from your stockbroker, bank manager, solicitor, accountant or other
independent financial adviser authorised under the Financial Services Act
1986.
If you have sold or otherwise transferred all of your Ordinary Shares in Shire
Pharmaceuticals Group plc, please send this document and the accompanying Form
of Proxy at once to the purchaser or transferee or to the bank, stockbroker or
other agent through whom the sale or transfer was effected, for delivery to
the purchaser or transferee. However, such documents should not be
distributed, forwarded or transmitted to, in or into Australia or Japan.
A copy of this document, which comprises a circular and listing particulars
relating to Shire Pharmaceuticals Group plc prepared in accordance with the
listing rules made under section 142 of the Financial Services Act 1986, has
been delivered to the Registrar of Companies in England and Wales for
registration in accordance with section 149 of that Act.
This document should be read as a whole. Your attention is drawn to the letter
from the Chairman of Shire which is set out on pages 5 to 14 of this document
and which recommends you to vote in favour of the ordinary resolution and the
special resolution to be proposed at the Extraordinary General Meeting
referred to below.
Application has been made to the UK Listing Authority for the New Ordinary
Shares being issued in connection with the proposed Merger described herein to
be admitted to the Official List and to the London Stock Exchange for such New
Ordinary Shares to be admitted to trading on the London Stock Exchange.
Conditional listing approval to list the Shire Exchangeco Shares on the
Toronto Stock Exchange was given on 22 February 2001. The New Ordinary Shares
will, when issued, rank pari passu in all respects with the existing Ordinary
Shares. Their issue is subject, inter alia, to the passing of the ordinary
resolution to be proposed at the Extraordinary General Meeting. It is expected
that Admission will become effective and dealings in the New Ordinary Shares
will commence at 8.00 a.m. (London time) on 2 April 2001.
Shire Pharmaceuticals Group plc
(Registered in England and Wales with registered number 2883758)
Circular and Listing Particulars
relating to the issue of up to
260,621,527 new ordinary shares of 5 pence each in Shire Pharmaceuticals Group
plc
in connection with the proposed Merger between
Shire Pharmaceuticals Group plc and BioChem Pharma Inc.
Deutsche Bank, which is regulated in the United Kingdom by The Securities and
Futures Authority Limited, is acting exclusively for Shire Pharmaceuticals
Group plc in relation to the proposed Merger with BioChem Pharma Inc. and no-
one else in connection with this transaction and will not be responsible to
anyone other than Shire Pharmaceuticals Group plc for providing the
protections afforded to customers of Deutsche Bank or for providing advice in
relation to this transaction.
Notice of an Extraordinary General Meeting of Shire Pharmaceuticals Group plc
to be held at 35 New Broad Street, London EC2M 1SQ, England at 3.00 p.m.
(London time) on 29 March 2001 is set out at the end of this document. Forms
of Proxy for use in connection with the meeting, to be valid, should be
completed and returned so as to reach the Company's registrars, Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex, BN99 3UH, England no later
than 3.00 p.m. (London time) on 27 March 2001.
Contents
Page
Part I Letter from the Chairman of Shire 5
Part II Description of BioChem 15
Part III BioChem historical financial results under Canadian GAAP for the three years ended 31 December
2000 24
Part IV Reconciliation of BioChem financial results 49
(a) (i)Reconciliation of BioChem financial results to US GAAP as applied by Shire for the three
years ended 31 December 2000 49
(ii)Unaudited reconciliation of BioChem's Canadian GAAP, CAN$ financial information for the
year ended 31 December 2000 to US GAAP as applied by Shire 55
(b) Reconciliation of BioChem financial results to UK GAAP as applied by Shire for the three
years ended 31 December 2000 58
Part V Financial information on Shire - under US GAAP 67
Part VI Financial information on Shire - under UK GAAP 94
Part VII Unaudited pro forma statements 99
(a) Unaudited pro forma statement of combined condensed balance sheet under US GAAP as at 31
December 2000 99
(b) Unaudited pro forma statement of net assets under UK GAAP as at 31 December 2000 102
Part VIII Details of the Merger Agreement and Special Voting Shares 105
Part IX Statutory and general information 115
Definitions 149
Glossary 155
Notice of Extraordinary General Meeting 161
Cautionary Statement Concerning Forward-Looking Statements
Statements contained in this document that are not historical facts are
forward-looking statements that involve risks and uncertainties, including but
not limited to, risks associated with the inherent uncertainty of
pharmaceutical research, product development and commercialisation, the impact
of competitive products, patents, and other risks and uncertainties, including
those detailed from time to time in periodic reports, including the Annual
Report filed on Form 10-K by Shire with the SEC.
2
Expected Timetable of Principal Events in the United Kingdom
Latest time and date for receipt of Forms 3.00 p.m. (London time) on 27
of Proxy March 2001
Extraordinary General Meeting 3.00 p.m. (London time) on 29
March 2001
Admission and dealings in New Ordinary 8.00 a.m. (London time) on 2
Shares commence on the London Stock April 2001
Exchange
New Ordinary Shares credited to CREST 2 April 2001
accounts (where applicable)
Despatch by post of definitive share April 2001
certificates (where applicable)
Expected Timetable of Principal Events in Canada
BioChem Shareholders' meeting held 9.00 a.m. (Montreal time)
to approve the Merger 29 March 2001
Superior Court of Quebec hearing (on or about) 29 March 2001
of final order for approval of the
Arrangement
Filing of Articles of Arrangement (on or about) 30 March 2001
under the Canada Business
Corporations Act
Effective date of the Arrangement (on or about) 30 March 2001
under the Canada Business
Corporations Act
3
Advisers to Shire Pharmaceuticals Group plc
Sponsor and Financial Adviser
Deutsche Bank AG, London
Winchester House
1 Great Winchester Street
London EC2N 2DB
England
Supporting Financial Adviser
Bear, Stearns & Co. Inc.
245 Park Avenue
New York
New York 10167
USA
Joint Brokers
Merrill Lynch International
20 Farringdon Street
London EC1M 3NH
England
WestLB Panmure Limited
35 New Broad Street
London EC2M 1SQ
England
Legal Advisers (England) Slaughter and May
35 Basinghall Street
London EC2V 5DB
England
Legal Advisers (US)
Cahill Gordon & Reindel
80 Pine Street
New York
New York 10005
USA
McCarthy Tetrault
1170 Peel Street
Legal Advisers (Canada) Montreal
Quebec
Canada H3B 4S8
Auditors and Reporting Accountants
Arthur Andersen
Abbots House
Abbey Street
Reading RG1 3BD
England
Registrars
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex
BN99 3UH
England
Principal Bankers Barclays Bank plc
PO Box 756
Slough
Berkshire SL1 4SG
England
4
PART I
Letter from the Chairman of Shire
[graphic]
SHIRE PHARMACEUTICALS GROUP PLC
(Registered in England and Wales with Registered Number 2883758)
Directors:
Dr J H Cavanaugh (Non-executive Chairman),
R Stahel (Chief Executive),
A C Russell (Group Finance Director),
Dr J W Totten (Group R&D Director),
Dr B J Price (Senior Non-executive Director),
Dr B Canavan (Non-executive),
Dr Z P Horovitz (Non-executive),
Mr R M Nordmann (Non-executive),
Mr J E Smith (Non-executive),
Mr J T Spitznagel (Non-executive)
1 March 2001
To the holders of Ordinary Shares and ADSs and, for information only, to
participants in the Employee Share Schemes
Dear Shareholder,
Proposed Merger with BioChem Pharma Inc.
Introduction
Your Board announced on 11 December 2000 that Shire had entered into a
definitive merger agreement with BioChem Pharma Inc., a Canadian company,
under which Shire and BioChem would merge.
Based upon the market price of Shire's Ordinary Shares on 27 February 2001
(being the latest practicable date prior to the publication of this document)
the Merger will create one of the leading specialty pharmaceutical companies
in the world with a pro forma estimated market capitalisation at the Closing
of approximately $8.8 billion ((L)6.1 billion). The Enlarged Group will
possess an enhanced pipeline in its selected areas of CNS, oncology, anti-
virals and vaccines, the additional financial resources necessary to
capitalise on worldwide opportunities to expand its rapidly growing product
ranges within those areas and the capacity to extend its geographical reach.
Utilising Shire's development expertise, the Enlarged Group will enhance the
development of BioChem's pipeline products and candidates which will be
retained for worldwide marketing by the Enlarged Group. In addition, following
the Merger, the Enlarged Group will be able to expand its areas of interest to
anti-virals and vaccines and enhance its development portfolio in oncology.
The Merger will be effected by way of a share-for-share exchange, pursuant to
which each BioChem Shareholder will have the choice of receiving as
consideration for each BioChem Share:
o a number of Ordinary Shares equal to the exchange ratio in respect of
the Merger (as described below);
o provided that the BioChem Shareholder is a Canadian resident, a number
of Shire Exchangeco Shares equal to the exchange ratio divided by three,
which are exchangeable into Ordinary Shares or ADSs at a rate of 1 Shire
Exchangeco Share for 3 Ordinary Shares or 1 Shire Exchangeco Share for 1
ADS;
5
o a number of ADSs equal to the exchange ratio divided by three; or
o a combination of the above.
The exchange ratio will be determined by reference to the average closing
price of ADSs during the last 15 trading days ending on the third day before
the Closing of the Merger (as described more fully in Part VIII of this
document). Each BioChem Shareholder otherwise entitled to a fractional
interest in a Shire Exchangeco Share, Shire ADS or Shire Ordinary Share will
receive from Exchangeco a cash payment equal to such BioChem Shareholder's pro
rata portion of the net proceeds after expenses received upon the sale of
whole shares representing an accumulation of all fractional interests in
Consideration Shares to which all such BioChem Shareholders would otherwise be
entitled.
The Shire Exchangeco Shares will be listed on The Toronto Stock Exchange and
will be exchangeable for New Ordinary Shares on a one-for-three basis and will
be exchangeable for Shire ADSs on a one-for-one basis at the request of any
holder of Shire Exchangeco Shares (as set out in more detail in Part VIII of
this document). The Shire Exchangeco Shares will confer similar rights and
benefits to the existing Ordinary Shares; holders of Shire Exchangeco Shares
will, in effect, have voting rights at general meetings of Shire by means of
Special Voting Shares in Shire to be held by a trustee for the benefit of the
holders of the Shire Exchangeco Shares. The Shire Exchangeco Shares are being
offered to allow existing Canadian BioChem shareholders to participate in the
Merger on a tax deferred basis.
Based on an Average Shire ADS price of $56.125 (being the closing price of a
Shire ADS on 27 February 2001, the latest practicable date prior to the
publication of this document) the share-for-share exchange would value BioChem
at approximately $3,757 million ((L)2,609 million), and would involve the
issue of approximately 200.8 million New Ordinary Shares (assuming all
existing BioChem Shareholders exchange their BioChem Shares for New Ordinary
Shares pursuant to the Merger and excluding any issue of BioChem Shares as
referred to in the paragraph below or to be issued pursuant to the exercise of
options under the BioChem Stock Option Plans or other rights), with existing
Shire Shareholders owning approximately 44 per cent of the Enlarged Group.
The number of Consideration Shares to be issued by Shire might increase as a
result of the exercise by BioChem Shareholders of their statutory dissent
rights under Canadian law. Such dissent rights confer upon BioChem
Shareholders the ability to dissent from the plan of arrangement to the
proposed Merger in which event, provided the aggregate number of shares held
by dissenting BioChem Shareholders is less than 5 per cent of BioChem's issued
share capital, the proposed Merger will proceed but such shareholders will be
entitled to receive fair value consideration. In the event that such dissent
rights are exercised in respect of more than 2.4 per cent of BioChem Shares,
then, in the absence of the issue of shares referred to below, the intended
pooling of interest accounting treatment of the Merger will not be available.
In these circumstances, Shire may request that BioChem issues up to 2,634,383
additional BioChem Shares (representing approximately 2.6 per cent increase
over the current issued share capital of BioChem) for cash by way of private
placement to an independent third party. In such event, the board of directors
of BioChem may, in its entire discretion and if deemed appropriate in the
circumstances give effect to such request of Shire, taking into account the
number of BioChem Options exercised since the date hereof. These shares will
then be acquired by Shire pursuant to the Merger so as to allow the pooling of
interest accounting treatment of the Merger to be available. Notwithstanding
the above, Shire shall issue less than the total number of outstanding Shire
Ordinary Shares in existence at the Effective Date.
Following the Merger Dr Francesco Bellini, the Hon. James Andrews Grant and Mr
Gerard Veilleux will join your Board as non-executive Directors. Additionally,
following the Merger, Dr Zola Horovitz, Mr Joseph Smith and Mr John Spitznagel
will be leaving the Board.
Further details on these Proposed Directors and on BioChem are included in
this letter under the heading "Changes to the Board" and in Parts II and IX of
this document.
Because of its size, the Merger is conditional on, inter alia, Shire
Shareholders' approval. The purpose of this document is to explain why your
Board considers the Merger to be in the best interests of the Company and its
shareholders and to seek your approval for it at the forthcoming Extraordinary
General Meeting. Those Directors of the Company holding Ordinary Shares and
three of those limited partnerships controlled by HealthCare Ventures LLC (of
which your Chairman is President), who or which in aggregate hold 9,087,385
Ordinary Shares (directly or as ADSs) representing approximately 3.5 per cent
of the issued share capital of the Company, have indicated to the Company that
they intend to vote in favour of the Merger in respect of their entire
holdings.
6
Rationale for and benefits of the Merger
The Board believes that the Merger brings together two publicly-traded
specialty pharmaceutical companies with complementary strengths, activities
and competencies. Shire has built effective research and development functions
and an effective sales and marketing organisation in the US and UK and has
established and is expanding its functions in Canada and certain leading
European markets. BioChem has built an outstanding early stage development
operation through which it has generated a pipeline of projects focused in
three discrete specialty categories: oncology, vaccines and anti-virals. The
principal benefits of the Merger are expected to be:
o Diversification. The revenue growth of the Enlarged Group will be driven
not only by Shire's key marketed products, Adderall, Pentasa, Agrylin
and Carbatrol, and by BioChem's Second Look and Fluviral, but also by
the sales achieved by two of the world's foremost pharmaceutical
companies in GlaxoSmithKline, in respect of 3TC/Epivir, Combivir,
Trizivir and Zeffix, and Johnson and Johnson, in respect of Reminyl. In
addition, the Enlarged Group expects Foznol to become a key contributor
to revenue growth when regulatory approvals, which are expected in early
2002, are obtained.
o Increased financial resources. At 31 December 2000, Shire had
indebtedness of approximately $127.8 million and cash and investments of
approximately $186.3 million while BioChem had indebtedness of
approximately $86.1 million (CAN$129.1 million) and approximately $277.4
million (CAN$416.1 million) in cash and investments. With revenues of
$517.6 million and $157.5 million and net income of $76.2 million and
$135.5 million for the year ended 31 December 2000, for Shire and
BioChem respectively, the Directors and Proposed Directors expect to
have greatly enhanced cash with which to finance the Enlarged Group's
R&D activities. Shire will be required to either obtain consent to the
Merger from its bank lenders under the credit facility entered into at
the time of Shire's merger with Roberts Pharmaceutical Corporation in
1999 or repay the amount outstanding under the credit facility.
o A broadened and strengthened pipeline. The Enlarged Group will have 25
products in development of which 13 will be in pre-clinical and Phase I
development, and 12 will be in full clinical development or
registration. The Merger will strengthen the product pipeline in the
areas of oncology and central nervous system disorders with a total of
15 products in development in these areas and will broaden the pipeline
of products in development by the inclusion of 6 products in the areas
of anti-virals and vaccines.
o Leverage from complementary skills and operations. The Enlarged Group
will have a direct marketing capability in seven of the eight major
pharmaceutical markets in the world. The Enlarged Group will benefit
from the application of existing development capabilities to the
enlarged product pipeline and the direct marketing of these products
through its own specialist sales forces. The Directors and Proposed
Directors expect the Enlarged Group's lead optimisation activities and
network of business and academic relations to provide a regular source
of development candidates to supplement its development activities.
o Operating synergies. The Directors and Proposed Directors of Shire
believe that the Merger will result in certain operating synergies in
the following areas:
o Review of development activities: cost savings and future cost
avoidance are expected to result from the establishment of a
budget for the Enlarged Group; a review of the Enlarged Group's
requirements for new development projects; a thorough review of
the Enlarged Group's development portfolio; and the use by the
Enlarged Group of Shire's development capabilities;
o Financing: the Enlarged Group's net cash and ability to generate
further cash will enable the group to discharge its indebtedness
to its bank lenders, if it chooses, which would result in a net
reduction in financing costs of approximately $3 million in a full
year; and
o Re-organisation of business activities: the re-organisation of
administrative, service and other functions of the Canadian
operations of the Enlarged Group may give rise to operating
synergies for the Enlarged Group.
There will be a substantial one time charge in the first quarter of 2001 of
approximately $175 million in connection with consummating the Merger and
restructuring the Enlarged Group's combined operations. Taking into account
the opportunity for synergies referred to above, which includes anticipated
cost savings in the range of $10-15 million per annum, and excluding the one
time charge, the Shire Board believes the Merger will be accretive to earnings
for Shire Shareholders twelve months after the Closing.
7
Information on BioChem
BioChem is an international pharmaceutical company dedicated to the research
and development and commercialisation of innovative products for the
prevention and treatment of human diseases, with a focus on infectious
diseases and cancer.
Key products and markets
BioChem's first therapeutic product, 3TC/Epivir (lamivudine), has become the
cornerstone of HIV infection/AIDS combination therapies, most recently being
launched as part of GlaxoSmithKline's Trizivir triple combination tablet. 3TC/
Epivir is the most widely-prescribed antiretroviral for HIV infection/AIDS and
is available in approximately 100 countries. Worldwide sales, including as a
component of the double combination tablet Combivir, were $863.5 million in
2000. BioChem receives royalties from GlaxoSmithKline on the worldwide sales
of 3TC/Epivir for the treatment of HIV infection/AIDS. 3TC/Epivir is protected
by patent until 2009 in the US, and combination therapies and combination
products, such as Combivir and Trizivir, are protected by patent until 2018 in
the US.
A second therapeutic product, Zeffix, an oral treatment for chronic hepatitis
B, is currently being introduced to key markets worldwide by GlaxoSmithKline.
Zeffix improves liver histology and function in the majority of chronic
hepatitis B patients and reduces progression to cirrhosis and reverses
cirrhosis in a majority of late stage hepatitis B patients. Zeffix is now
available in a number of countries including China, Japan, Taiwan, South Korea
and the US. Worldwide sales of Zeffix were $106.9 million in 2000. BioChem
receives royalties from GlaxoSmithKline on its worldwide sales of Zeffix.
BioChem's marketed products also include PACIS for the treatment of
superficial bladder cancer, Fluviral S/F for the prevention of influenza and
Second Look for the diagnosis of breast cancer.
Project Pipeline
With approximately 480 employees and operating from three sites in Canada and
one in the US, BioChem has a number of projects at various stages of
development including the anti-virals BCH-10618 and BCH-13520 for HIV
infection/AIDS in the pre-clinical phase, the anti-cancer compound Troxatyl
and Frakefamide for pain control in Phase II, nasal and injectable cell
culture vaccines for influenza and a vaccine for Neisseria meningitidis, all
of which are in Phase I, and a vaccine in pre-clinical for Pseudomonas
aeruginosa.
CliniChem
In 1998, CliniChem Development Inc. was formed by BioChem to continue the
research and development of certain of BioChem's therapeutic and vaccine
product candidates with a view to eventual commercialisation. In exchange for
BioChem granting CliniChem an exclusive perpetual licence to use BioChem
technology to conduct the CliniChem programmes and related activities,
CliniChem agreed to pay BioChem a monthly technology fee at the rate of
CAN$352,000 over a period of 48 months. CliniChem contracted its research and
development activities to BioChem under a research and development agreement.
BioChem recognised costs related to these programmes as research and
development expenses and billed CliniChem on a fully burdened cost-plus-5 per
cent basis.
BioChem acquired all of the outstanding CliniChem Class A common shares on 15
December 2000 when CliniChem was merged into BioChem.
BioChem Summary Financial Information
BioChem prepares its financial statements in Canadian dollars in accordance
with Canadian GAAP with a reconciliation to US GAAP. In 2000, under US GAAP,
BioChem had total revenue of $157.5 million and net income from continuing
operations of $135.5 million. The only material difference between US GAAP as
applied by Shire and BioChem relates to the treatment of CliniChem. Under
Shire's accounting policies, CliniChem would be consolidated whereas under
BioChem's policies, CliniChem was not consolidated. Had CliniChem been
consolidated, BioChem development revenue would have been substantially
reduced with the corresponding reduction in net income for the years ended 31
December 1998, 1999 and 2000. The tables set out in Part IV(a)(ii) of this
document summarise the financial performance of BioChem for 2000 reported in
US dollars under US GAAP as applied by Shire.
Investors should read the whole of this document and should not just rely on
the summary above.
8
Changes to the Board
Following the Merger, three members of the BioChem board of directors, Dr
Francesco Bellini, the Hon. James Andrews Grant and Mr Gerard Veilleux, will
join your Board, where their industrial experience and experience in the
pharmaceutical industry in general and in Canada in particular will be a
valuable addition. At that time, approximately 30 per cent of the Shire Board
of Directors will be former BioChem board members.
Dr Francesco Bellini was a co-founder of BioChem in 1986 and is the company's
current Chairman and Chief Executive Officer. Dr Bellini received a B.Sc. in
chemistry from Loyola College in Montreal in 1972, and a Ph.D. in organic
chemistry from the University of New Brunswick in 1977.
The Hon. James Andrews Grant, a director of BioChem since 1986, is a partner
with the law firm of Stikeman Elliott in Montreal. Mr Grant, who also sits on
the boards of several other prominent Canadian corporations, attended McGill
University receiving a B.A. in arts in 1958 and a B.C.L. in law in 1961.
Mr Gerard Veilleux joined the BioChem board in 1999. He is president of Power
Communications Inc. and Vice-President of Power Corporation, a diversified
management and holding company. Mr Veilleux is a director of several public
and private companies as well as a member of the Board of Governors of McGill
University. He has a Masters degree in public administration from Carleton
University and a Bachelor of Commerce from Laval University.
Additionally, following the Merger, Dr Zola Horovitz, Mr Joseph Smith and Mr
John Spitznagel will be leaving the Board.
Information on Shire
Shire is a specialty pharmaceutical company focused primarily on four
therapeutic areas: central nervous system disorders (CNS), oncology, metabolic
diseases, and gastroenterology.
Shire's strategy is to in-license, develop and market therapies in its areas
of strategic focus. This approach is complemented by the advanced drug
delivery platforms developed by Shire Laboratories which may be used to
enhance the bioavailability, reduce the side effects or improve the dosage
regimen of existing marketed compounds. Shire seeks to protect the
intellectual property upon which it relies through a range of patents and
patent applications (both its own and that of its licensors).
Products currently marketed in the US are Adderall and DextroStat for
Attention Deficit Hyperactivity Disorder (ADHD), Carbatrol, launched in May
1998, for the treatment of epilepsy, Pentasa for ulcerative colitis, Agrylin
for thrombocythemia and ProAmatine for orthostatic hypotension. The key UK
marketed product is the Calcichew range of prescription calcium and calcium/
vitamin D products used as adjuncts in the treatment of osteoporosis. Reminyl,
for the treatment of Alzheimer's disease, was launched in the UK in September
2000.
The Company's lead development products are Reminyl, for the treatment of
Alzheimer's disease; SLI 381, a novel once-a-day formulation of Adderall;
Foznol, for the treatment of hyperphosphataemia in patients with chronic
kidney failure; Dirame, an orally administered analgesic for treating moderate
to severe pain; SPD421, an anti-epileptic in-licensed from D-Pharm; and
SPD420, a potential treatment for ADHD in-licensed from Cortex. Reminyl is
being co-developed by Shire and Janssen Pharmaceutica NV, a subsidiary of
Johnson and Johnson. The first European authorisations for marketing of
Reminyl were granted in 2000 and various other applications have been made.
The US New Drug Application (NDA) in respect of Reminyl was submitted, by
Janssen, on 29 September 1999 and an approvable letter was issued in August
2000 by the FDA. Foznol is currently in Phase III trials in Europe, in Phase
III in the US and Phase I in Japan with the Directors expecting to announce
shortly the first regulatory submission for approval. An NDA for SLI 381, a
novel once-a-day formulation of Adderall, was filed on 3 October 2000. Work
has also started on the extension of Carbatrol's approved indications to
include bi-polar disease (SPD 417). Shire has, in addition, a wide range of
drug delivery technologies that may be applied to its own products or to those
of third parties.
During 2000, Shire has announced the following milestones:
o Reminyl received its European Union authorisation in Sweden and was
launched in the UK on 21 September 2000.
o Reminyl received its approvable letter from the FDA.
o An application was submitted to the FDA for once a day Adderall SLI 381.
o The in-licensing of SPD421 from D-Pharm and of SPD420 from Cortex were
announced.
9
Shire after the Merger
Overview
Following the Merger, the Enlarged Group will be one of the world's leading
global specialty pharmaceutical companies with four areas of focus: central
nervous system disorders (CNS), oncology, anti-virals and vaccines. The
Enlarged Group will refer to itself as "specialty" because its principal
products tend to be prescribed by specialists as opposed to primary care
physicians. A comparatively small sales force such as Shire's can promote
specialty products effectively while it could not be expected to achieve the
necessary coverage of primary care physicians.
The Enlarged Group's principal products will include: in the US, Adderall for
the treatment of Attention Deficit Hyperactivity Disorder; Epivir, Combivir,
Trizivir for the treatment of HIV infection/AIDS; Epivir -HBV for the
treatment of Hepatitis B; Agrylin for the treatment of elevated blood
platelets; Pentasa for the treatment of ulcerative colitis; Carbatrol for the
treatment of epilepsy; ProAmatine for the treatment of orthostatic
hypotension; and PACIS for the treatment of superficial bladder cancer; in the
UK, the Calcichew range, used primarily as adjuncts in the treatment of
osteoporosis, and Reminyl, for the treatment of Alzheimer's disease, launched
in September 2000; and, in Canada, Amatine; 3TC, Combivir and Heptovir
(marketed in a partnership with GlaxoSmithKline); Second Look, a breast cancer
diagnostics product recently launched in Europe (the Enlarged Group hopes to
receive US FDA approval in 2001 for this product); and Fluviral S/F, a vaccine
for the prevention of influenza. In addition, the Enlarged Group will have a
number of products in late stage development including Dirame and frakefamide
for the treatment of moderate to severe pain; Foznol for the treatment of high
blood phosphate levels associated with kidney failure; Troxatyl for the
treatment of leukemia and solid tumours.
After the Merger, the Enlarged Group's revenues will continue to be derived
from three sources: sales of products by sales and marketing operations
principally in the US, the UK and Canada, royalties from sales of Reminyl,
Zeffix, 3TC/Epivir and licensing and development fees. For the period ended 31
December 2000 Shire had revenues of $517.6 million and net income (before an
APB 25 stock option charge of $21.9 million) of $98.1 million. For the same
period, BioChem had revenues of $157.5 million and net income (excluding net
gains on sale of long-term investments and the write-off of in-process
research and development) of $58.4 million. The data included within this
section has been extracted from the financial information on Shire and BioChem
set out in Parts V and III of this document. Investors should read the whole
of this document and should not just rely on the summary above.
Strategy and Approach
The Enlarged Group's strategy is to develop products and, where they fall
within the therapeutic focus, to market them through sales organisations in
the major markets of the world. The key elements of the operating strategy are
described below:
Market proprietary products through the Enlarged Group's own sales force
The Enlarged Group believes that higher financial returns can be achieved by
marketing products directly, as opposed to receiving royalties on licensees'
sales. The Merger enhances Shire's sales and marketing capability in Canada.
The Enlarged Group intends to continue to expand its sales and marketing
capability, as opportunities arise, particularly in the US, major European
markets, Japan and through distributors outside of the significant
pharmaceutical markets.
Manage development risk
Recognising the inherent risks of failure in drug development, both BioChem
and Shire have historically sought to manage development risk by maintaining a
broad and balanced development portfolio. Shire has also sought to selectively
leverage relationships with collaborative parties. BioChem, through its
academic collaborations and investment in a leveraged network of research
companies, has access to projects and technologies. The Enlarged Group is
anticipated to continue its reliance on a broad network of contacts to
identify product candidates which can be developed either internally or
through collaborative partnerships.
Focus on the development of innovative products
BioChem's lead optimisation and chemistry expertise has led to the development
and commercialisation of innovative products. Shire has also sought to
identify promising product candidates already under development or exploit a
number of proprietary drug delivery technologies to develop products. In
addition to developing proprietary pipeline products, the Enlarged Group's
principal objective will be to concentrate operations on
10
licensing, acquiring, developing, marketing and selling proven products and
technologies. Both companies have historically benefited from proven products
that generate cash flow, which contributes partial financial support to drug
development activities, and provides enhanced product sales opportunities for
the sales force. In the vaccine area the Enlarged Group intends to continue to
research new vaccines.
Sales and Marketing
Following the Merger, the Enlarged Group will use its sales and marketing
infrastructure to sell and market most of its licensed and internally
developed products. The combined sales and marketing operations of the
Enlarged Group in the US, the UK, Canada and Europe will consist of
approximately 460 sales representatives. Following the Merger, this expanded
sales force will have a broader portfolio of products with opportunities to
benefit from increased geographical coverage.
Combined Marketed Products
The table below lists the key currently marketed products of Shire and BioChem
by therapeutic areas, indicating the owner or licensor of the product and who
is marketing the product in which territory.
Product(s) Principal Indication(s) Owner/Licensor Marketed By/Relevant Territory
- ---------------------------------- ------------------------- ------------------- ----------------------------------------
Treatments for CNS disorders
Adderall ADHD Shire Shire/US
DextroStat ADHD Shire Shire/US
Carbatrol Epilepsy Shire Shire/US
Reminyl Alzheimer's disease Shire Shire/UK/Republic of Ireland (Co-
promotion)
Treatments for metabolic/bone diseases
Calcichew range Osteoporosis adjunct Nycomed Shire/UK and Ireland
Treatments for oncology/haematology
Agrylin Elevated blood platelets Shire Shire/US and Canada
ProAmatine/Amatine Orthostatic hypotension Nycomed Shire/US and Canada
PACIS Bladder cancer BioChem Paladin Labs/Canada
Anti-Virals
3TC/Epivir/Combivir/ HIV/AIDS BioChem GlaxoSmithKline/Worldwide, except Canada
Trizivir
3TC/Combivir HIV/AIDS BioChem BioChem and GlaxoSmithKline co-marketed
in Canada
Zeffix/Epivir -HBV/ Hepatitis B BioChem GlaxoSmithKline/Worldwide, except Canada
Heptovir/Heptodin
Heptovir Hepatitis B BioChem BioChem and GlaxoSmithKline co-marketed
in Canada
Vaccines
Fluviral S/F Influenza BioChem BioChem/Canada
Treatments for gastrointestinal disorders
Pentasa Ulcerative colitis Ferring Shire/US
Colazide Ulcerative colitis Shire Shire/UK and certain other European
countries
Colace/Peri-Colace Constipation Shire Shire/US and Canada
Computer assisted detection products
Second Look Breast cancer diagnosis Qualia Computing BioChem/Worldwide, except US
Products under Development
After the Merger, the Enlarged Group will seek to maintain a broad and
balanced approach to the development of new products by, among other things,
leveraging third-party research and development expertise, exploiting
investment in research collaborations and licensing compounds from third
parties and developing them through the clinical phase with a view to
marketing them through the Enlarged Group's sales and marketing organisation
11
or out-licensing if appropriate. Shire and BioChem spent approximately $160
million on research and development in the year ended 31 December 2000, which
represents approximately 24 per cent of combined revenues.
The table below lists the key products under development by Shire and BioChem
by therapeutic area, including their development status and their territorial
rights. Where either company has secured a licensee for a product, this fact
is also indicated.
Product(s) Principal Indication(s) Status Territorial Rights
- --------------------------------------- ----------------------------- --------------------- -----------------------------
Treatments for CNS disorders
Reminyl (galantamine)(1) Alzheimer's disease In registration or Global
marketed
SLI381 ADHD In registration Global
Dirame Moderate/severe pain Phase III Global
Frakefamide(2) Moderate/severe pain Phase II Global
SPD417 Bipolar disorder Phase III Global
SPD503 ADHD Phase I Global
SPD418 Epilepsy Phase I Global
SPD502 Stroke Phase I Global except Nordic and
Baltic countries
SPD420 ADHD Phase I Global
SPD421 Epilepsy Phase I Global
SPD451 Parkinson's disease Pre-clinical Global
Treatments for metabolic diseases
Foznol High blood phosphate levels Phase III Global
in patients with kidney
failure
Treatments for gastroenterological disorders
Pentasa (500 mg) Ulcerative colitis Phase II/III US
Emitasol Nausea and vomiting Phase II/III US, Canada
Balsalazide Ulcerative colitis Phase II/III UK and certain European
territories, South East Asia
Treatments for oncological/ haematological diseases
Agrylin Thrombocythemia In registration Global
Troxatyl Leukemia and solid tumours Phase II Global
SPD424 Prostate cancer Phase III North America, Europe
SPD427 Oncology Pre-clinical Global
Antivirals
BCH10618 HIV/AIDS Pre-clinical Global
BCH13520 HIV/AIDS Pre-clinical Global
Vaccines
Injectable and nasal influenza vaccines Influenza Phase I North America
derived from cell culture(3)
Neisseria meningitidis vaccine Meningitis, septicemia Phase I Global
Pseudomonas aeruginosa vaccine Bacteremia, opportunistic Pre-clinical Global
Streptococcus pneumoniae vaccine Pneumonia, meningitis, otitis Pre-clinical Global
media
(1) The licensee is Janssen.
(2) The licensee is AstraZeneca (except in Canada).
(3) The licensee is GlaxoSmithKline (except in Canada).
Drug Delivery Technologies
The Enlarged Group will have several platforms of drug delivery technologies
that can be applied to drugs in order to enhance their effectiveness or their
convenience to patients in terms of dosage regimen. Generally, this involves
re-formulating the drug into a new delivery system designed either to enhance
the absorption of the drug
12
into the blood stream or, alternatively, to delay absorption of the drug into
the bloodstream, thereby requiring the patient to take fewer daily doses.
The Enlarged Group's portfolio of drug delivery technologies will include
technologies designed to develop oral, controlled release delivery of drugs, a
technology for rapid absorption through the tissues of the mouth and several
technologies for predicting and improving bioavailability of drugs. It is
intended to out-license these technologies to third parties in return for
development fees, milestone payments and royalties. It is also intended to
employ these technologies selectively to products being developed internally
where it is believed the characteristics of the product can be improved or
modified to secure a competitive advantage.
Phentermine Litigation
Until April 1998, Shire Richwood Inc. ("SRI") distributed products containing
phentermine, a prescription drug approved in the US as a single agent for
short term use in obesity. Contrary to the approved labelling of these
products, physicians in the US co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly
known as the "fen/phen" diet. In mid-1997, following concerns raised about
cardiac valvular side effects alleged to be associated with this diet regime,
the fenfluramine and dexfenfluramine elements of the "fen/phen" diet were
withdrawn from the US market. SRI and a number of other pharmaceutical
companies are being sued for damages for personal injury and medical
monitoring arising from phentermine used either alone or in combination.
As of 23 February 2001, SRI had been named as a defendant in approximately
3,746 cases related to the "fen/phen" litigation. SRI had been dismissed from
2,597 cases with approximately 818 further dismissals pending on the basis
that the plaintiff was shown not to have used SRI's product. In approximately
171 cases, of which 112 have been subsequently dismissed, it had been
specifically alleged that the relevant plaintiff did use SRI's products.
Legal expenses have been paid by Eon Labs Manufacturing Inc. ("Eon"), the
supplier to SRI, or Eon's insurance carriers but such insurance is now
exhausted. Eon has agreed to defend and indemnify SRI in this litigation
pursuant to an agreement dated 30 November 2000 made between Eon and SRI.
The Directors are confident that these claims will not result in any award of
damages against SRI. Nevertheless, SRI and Shire intend to defend vigorously
any and all claims made against the Enlarged Group in respect of phentermine
and will continue to seek case dismissals based upon product identification.
Current trading and prospects
On 14 February 2001, Shire released its preliminary statement of results for
the year ended 31 December 2000. On 25 January 2001, BioChem announced its
audited full results for the year ended 31 December 2000.
2001 has seen several promising regulatory announcements for Shire, providing
the opportunity to build further on 2000 performance:
o the granting, by the European Commission, of orphan designation to
anagrelide (marketed in the US as Agrylin) for the treatment of
essential thrombocythaemia provides Shire with valuable market
exclusivity protection for the three major marketing regions of the
world, namely Europe, Japan and the US;
o the UK National Institute of Clinical Excellence ("NICE") announcing
that treatments for Alzheimer's disease should be made available as part
of the management of people with mild to moderate Alzheimer's disease
within the UK. This endorsement signals exciting growth prospects for
Reminyl, the Shire product developed jointly with Janssen Pharmaceutica.
It is the Directors' opinion that Shire's market, trading and financial
positions will be enhanced as a result of the Merger. The Merger with BioChem
will expand both the product and project portfolios and bring together the
companies' complementary skills. An example of future prosperity is Adderall
and subject to FDA approval, its replacement, Adderall once-a-day (SLI381),
which, if it continues its recent pattern of sales growth, will be a
significant contributor to the total revenue of the Enlarged Group, along with
3TC/Epivir and Zeffix royalties. After the Merger, the Enlarged Group's
revenues will continue to be derived from three sources: sales of products by
sales and marketing efforts, royalties and licensing and development fees.
To ensure a healthy pipeline well into the future, the Enlarged Group will
seek to maintain a broad and balanced approach to the development of new
products by, among other things, leveraging third-party research and
development expertise, exploiting investment in research collaborations and
licensing compounds from third
13
parties and developing them through the clinical phase with a view to
marketing them through the Enlarged Group's sales and marketing organisation
or out-licensing if appropriate.
Taking into account the opportunity for synergies, which includes anticipated
cost savings in the range of
$10-15 million per annum, and excluding the one-time charge, the Board
believes the Merger will be earnings enhancing twelve months after the
Closing.
Extraordinary General Meeting
Set out at the end of this document is a notice of an Extraordinary General
Meeting of the Company to be held at 35 New Broad Street, London EC2M 1SQ,
England, on 29 March 2001 at 3.00 p.m. (London time). At this meeting, an
ordinary resolution will be proposed to approve the Merger, to increase the
authorised share capital of the Company, to grant authority to the Directors
to allot such capital and to create new Special Voting Shares and attach
certain rights and restrictions to those shares. In addition a special
resolution will be proposed to increase the Directors' powers to allot equity
securities for cash, free of the pre-emption rights conferred by the Companies
Act 1985.
Action to be taken
You will find enclosed a Form of Proxy for use at the Extraordinary General
Meeting. Whether or not you propose to attend the Extraordinary General
Meeting in person, you are requested to complete the Form of Proxy in
accordance with the instructions thereon and return it as soon as possible
but, in any event, so as to reach the Company's registrars, Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex, BN99 3UH, England not later
than 3.00 p.m. (London time) on 27 March 2001. The return of a completed Form
of Proxy will not prevent you from attending the Extraordinary General Meeting
and voting in person if you so wish.
Recommendation
The Board, which has received financial advice from Deutsche Bank, considers
that the Merger is in the best interests of Shire and its shareholders as a
whole. In providing advice to the Board, Deutsche Bank has placed reliance on
the Board's commercial assessment of the Merger.
The Directors unanimously recommend you to vote in favour of the ordinary
resolution and the special resolution to be proposed at the Extraordinary
General Meeting, as they intend to do in respect of the shareholdings in which
they are interested, which amount in aggregate to 9,087,385 Ordinary Shares,
representing approximately 3.5 per cent of the issued share capital of the
Company.
Yours sincerely,
/s/ Dr. James H. Cavanaugh
Dr. James H. Cavanaugh
Chairman
14
PART II
Description of BioChem
BioChem is an international specialty pharmaceutical company involved in the
research and development and commercialisation of innovative products for the
prevention, detection and treatment of human diseases.
BioChem's most significant therapeutic products, which have been developed
with GlaxoSmithKline, are
3TC/Epivir and Zeffix. 3TC/Epivir is an orally available formulation of
lamivudine for the treatment of patients with HIV infection and AIDS. 3TC/
Epivir is currently marketed in approximately 100 countries and achieved sales
of $863.5 million in 2000. Zeffix is the first and only orally available
treatment for chronic hepatitis B infection and for the prevention of liver
graft reinfection. Zeffix was first approved outside of the Philippines and
Canada in 1999. Zeffix is approved in over 69 countries and has been launched
in over 45 countries. Zeffix achieved worldwide sales of $106.9 million in
2000. In August 2000, the Asia Pacific Consensus Group on the Prevention and
Management of Chronic Hepatitis B and C endorsed Zeffix as a key treatment
option for a broad range of chronic hepatitis B patients.
In September 1997, the U.S. Food and Drug Administration (FDA) authorised the
marketing of Combivir, the first product to combine two antiretroviral drugs
in a single tablet formulation. Each tablet of Combivir contains 3TC and AZT
and can be taken twice daily, offering the advantage of reducing significantly
the number of tablets a person on a 3TC/AZT based treatment regimen needs to
take. This reduction simplifies the complex multi-drug treatment regimens,
thus potentially enhancing patient adherence to therapy schedules. The
European Commission gave BioChem approval to market Combivir in the 15 member
states of the European Union on 18 March 1998. In Canada, the Canadian Health
Protection Branch (HPB) approved Combivir on 4 December 1998.
On 24 March 1999, the FDA granted approval for expanded prescribing
information regarding the use of 3TC in infants, children and adolescents. In
addition, this approval included an important revision to the indication for
the use of 3TC in combination with any other antiretroviral agent for the
treatment of HIV infection in adults and children. On 15 November 2000, the
FDA authorised the marketing of Trizivir in the United States. Each tablet of
Trizivir contains 3TC, AZT and abacavir and can be taken twice daily. Trizivir
is the first tablet to combine three anti-HIV agents, thus making it the
simplest triple combination antiretroviral therapy available with the
potential to enhance patients' adherence to their therapy schedule. On 4
January 2001, the European Commission authorised the marketing of Trizivir in
the 15 member states of the European Union.
BioChem's most advanced therapeutic product candidates are being developed
principally for use in the treatment of cancers and infectious diseases.
BioChem's most advanced product candidate for cancer is Troxatyl
(troxacitabine), a nucleoside analogue in Phase II of clinical development to
treat various forms of cancer. BioChem's frakefamide, a product developed for
use in the control of pain, is also in Phase II trials.
BioChem is also engaged in the research and development of vaccines for human
use. BioChem's direct sales force is marketing a split virus influenza vaccine
developed and manufactured by BioChem to healthcare providers across Canada.
BioChem's vaccine product candidates include a new cell culture-based
influenza vaccine using a novel proprietary cell line and high-cell density
microcarrier technology, which is licensed to GlaxoSmithKline. BioChem is also
involved in the research and development of new recombinant protein-based
bacterial vaccines.
As of 31 December 2000, BioChem had a total of 476 employees.
15
Therapeutic products
BioChem's therapeutic products and most advanced therapeutic product
candidates are currently directed at providing innovative medicines
principally in the anticancer and anti-infective areas. BioChem's research and
development activities are either done internally or through partnerships and
strategic alliances. The following table represents BioChem's products and
products under development in therapeutics:
Product(s) Principal indication(s) Status Marketed by
3TC/Epivir HIV/AIDS Marketed BioChem/GlaxoSmithKline
Combivir HIV/AIDS Marketed BioChem/GlaxoSmithKline
Trizivir HIV/AIDS Marketed BioChem/GlaxoSmithKline
Zeffix/Epivir-HBV/Heptovir/Heptodin Hepatitis B infection Marketed BioChem/GlaxoSmithKline
PACIS Bladder cancer Marketed BioChem
Troxatyl Cancer Phase II BioChem
Frakefamide Pain control Phase II BioChem/AstraZeneca
BCH-10618 HIV/AIDS Pre-clinical BioChem
BCH-13520 HIV/AIDS Pre-clinical BioChem
AIDS/HIV Infection
The World Health Organization (WHO) estimates that, as of the end of 2000,
36.1 million people worldwide had been infected with HIV, the virus that leads
to the development of AIDS. The WHO estimates that, as of the end of 2000,
approximately 920,000 people were infected with HIV in North America, 540,000
in Western Europe and 700,000 in Eastern Europe. Worldwide, there were
approximately 14,500 new HIV infections per day in 2000, totalling 5.3 million
new infections during the year. More than 95 per cent of these new infections
occurred in developing countries. HIV infection and AIDS were the fourth
leading cause of death worldwide in 2000, resulting in an estimated 3 million
deaths, the highest number of AIDS deaths in a single year ever.
According to World-Wide Antiretroviral Sales, IMS Report, in 2000, the
antiretroviral (anti-HIV) market reached $3.5 billion in sales, with reverse
transcriptase inhibitors (such as 3TC) representing 54 per cent of the market
($2 billion). The vast majority of the sales were generated in North America
and Western Europe.
Product on the market -- 3TC
The therapeutic product 3TC (lamivudine) is indicated for the treatment of HIV
infection and AIDS. 3TC was first approved in the United States on 17 November
1995. It is now marketed in the United States as Epivir. Approval in Canada
followed shortly on 8 December 1995. The Committee on Proprietary Medicinal
Products (CPMP) and the European Agency for the evaluation of Healthcare
Products (EMEA) on 8 August 1996 gave full approval under exceptional
circumstances for the 15 member states of the European Union. On 29 September
1997, the FDA authorised the marketing of Combivir, the first product to
combine two antiretroviral drugs in a single tablet formulation. Each tablet
of Combivir contains 3TC and AZT and can be taken twice daily, offering the
advantage of reducing significantly the number of tablets a person on a 3TC/
AZT based treatment regimen needs to take, thus enhancing patient adherence to
therapy schedules. The EMEA gave approval to market Combivir in the 15 member
states of the European Union on 18 March 1998. In Canada, the HPB approved
Combivir on 4 December 1998.
On 15 November 2000, the FDA authorised the marketing of Trizivir in the
United States. Trizivir is the first product to combine three antiretroviral
drugs in a single tablet formulation. Each tablet of Trizivir contains 3TC,
AZT and abacavir and can be taken twice daily. Trizivir is the simplest triple
combination antiretroviral therapy available with the potential to enhance
patients' adherence to their therapy schedule. On 4 January 2001, the European
Commission authorised the marketing of Trizivir in the 15 member states of the
European Union. GlaxoSmithKline is also currently developing a once-a-day
formulation of 3TC.
The safety and efficacy of 3TC together with 3TC's ease of administration have
successfully established 3TC as the cornerstone of combination therapy in HIV
infection and helped pave the way to combine antiretrovirals for maximum
clinical benefit and compliance. 3TC is being used in the majority of triple
and quadruple combination therapies with other nucleoside analogues, protease
inhibitors and non-nucleoside reverse transcriptase inhibitors (NNRTI) and was
part of the pivotal clinical trials used as part of the basis for approval of
five other HIV antiretroviral agents: the nucleoside analogue abacavir, the
NNRTI efavirenz, and the protease inhibitors indinavir, nelfinavir and
amprenavir.
16
3TC is available for sale and marketing in approximately 100 countries and is
the most widely prescribed medication for HIV infection and AIDS in the world.
Combivir is available for sale and marketing in more than 80 countries. On 24
March 1999, the FDA granted approval for expanded prescribing information on
the use of 3TC in infants, children and adolescents. In addition, this
approval included an important revision to the indication for use of 3TC in
combination with any other antiretroviral agent for the treatment of HIV
infection in adults and children.
Resistance to drugs is one of the most significant challenges in HIV/AIDS
therapy and viral resistance testing is used increasingly by physicians to
detect mutations and help decide whether a patient should switch to a new
treatment combination. Data presented at the Third International Workshop on
HIV Drug Resistance and Treatment Strategies in San Diego on 24 June 1999
suggests that combination therapies which contain 3TC remain potent and
continue to suppress HIV even in the presence of 3TC resistant mutants.
BioChem has licensed to GlaxoSmithKline the worldwide rights, with the
exception of Canada, to develop, manufacture and sell 3TC. In Canada, 3TC is
sold by BioChem in partnership with GlaxoSmithKline.
In Development
Appearance of drug resistant viruses is an inevitable consequence of prolonged
exposure of HIV to antiretroviral therapy. Therefore, it is still necessary to
develop alternate drug combinations for the long-term successful treatment of
HIV infection. BioChem is focusing its efforts on developing new agents which
are effective against existing drug resistant viruses and can be rationally
incorporated into novel drug combination therapy. The objective of BioChem's
programme is to bring to the market drugs which are potent, well-tolerated and
active against strains of virus resistant to current therapies. Two compounds,
both novel nucleoside analogue reverse transcriptase inhibitors (NRTIs), are
currently being developed, namely BCH-10618 and BCH-13520.
(A) BCH-13520
BCH-13520 has shown significant inhibition of HIV replication for both wild-
type and drug resistant viruses. Importantly, in vitro studies have
demonstrated that BCH-13520 remains active against clinical isolates of HIV
which display phenotypic resistance to marketed NRTI antiretroviral agents
such as AZT, 3TC, d4T and abacavir. Resistance of the HIV viruses to BCH-13520
is slow to develop, which is in contrast to the relative speed of emergence of
virus grown in the presence of AZT, 3TC or NNRTIs.
In vitro studies have also shown that BCH-13520, when used in combination with
3TC, AZT, Sustiva, d4T, BCH-10618, nevirapine, saquinavir or abacavir,
demonstrates additive or slightly synergistic anti-viral activity with most of
these agents. These data suggest that BCH-13520 will be able to fit into
multi-drug combination regimens. Cytotoxicity and mitochondrial toxicity
evaluations of BCH-13520 demonstrate an excellent toxicity profile in vitro.
Preliminary results of an in vitro myelotoxicity study indicate that BCH-13520
has a similar profile to 3TC and is 200-fold less toxic than AZT to human bone
marrow cells.
In a mouse model of HIV infection, BCH-13520 was able to reduce virus levels
in mouse serum by over one log unit following treatment with BCH-13520 at 30
mg/kg/day for 14 days. Pharmacokinetic and acute toxicity studies have been
completed with rats tolerating the drug at the highest dose administered
(2,000 mg/kg p.o.). A two-week escalating repeat dose toxicity evaluation in
rats was also conducted and the product was found to be safe up to 500 mg/kg/
day. In animals, bone marrow cytology abnormalities were observed in the first
14-day study at oral doses of 300 mg/kg and above. Due to the very high
bioavailability, drug exposure was found to be higher than expected and a
follow-on 28-day oral study is presently ongoing using lower doses to identify
the no-adverse effect dose level. No adverse effect dose level has been
identified for intravenous administration in this species at 40 mg/kg.
Taken together, the data indicates that BCH-13520 is a candidate worthy of
advancing into clinical evaluation for the treatment of HIV infection. The
pre-clinical long-term Good Laboratory Practice safety studies are currently
underway. BioChem plans to submit an IND to begin Phase I trials in the third
quarter of 2001.
(B) BCH-10618 ((-)dOTC)
BCH-10618 has been shown to stop the replication of the HIV virus in vitro and
BCH-10618 appears to be capable of inhibiting the replication of HIV viruses
that have become resistant to 3TC, AZT, d4T and abacavir and to some protease
inhibitors. In addition, based on in vitro studies, in contrast to 3TC,
resistance to BCH-10618 appears slow to develop and when mutations do emerge
in the virus, they confer little to no diminished sensitivity to BCH-10618.
BioChem believes these properties may give BCH-10618 a role in the treatment
of both HIV-infected patients in whom standard triple combination regimens are
no longer effective and in patients who have never received anti-HIV therapy
(first-line therapy). Investigation of the toxicity profile of BCH-10618
17
in animals is currently underway. BioChem plans to submit an IND amendment to
begin Phase I trials in the second quarter of 2001.
Hepatitis B
Data from the WHO indicate that over 2 billion people worldwide have been, at
some point, infected with the hepatitis B virus. Of these 2 billion, there are
over 350 million people chronically infected (WHO 1996), 75 per cent of whom
are found in the Asia-Pacific region. There are some 25 million chronic
carriers of HBV in industrialised countries with developed economies and
healthcare programmes. These chronic carriers are at high risk of developing
chronic active hepatitis, which kills up to 2 million persons per year. The
WHO estimated that as many as 25 to 35 per cent of individuals who become
chronic carriers will eventually die as a result of their hepatitis B
infection from cirrhosis or hepatocellular carcinoma (liver cancer). Vaccines
to prevent hepatitis B are currently available; however, they have not been
shown to be effective in those already infected with the virus.
Alpha interferon was previously the only widely approved treatment for
patients with chronic active hepatitis B. It is administered by injection, is
only successful in controlling the virus in a minority of patients and is
associated with undesirable side-effects such as flu-like symptoms. Moreover,
Alpha interferon has poorer efficacy in the majority of chronic hepatitis B
patients who are located in the Asia-Pacific region and who could be presumed
to have acquired the disease perinatally or at a young age. This usually leads
to an immune tolerance state of disease where an immunostimulant such as alpha
interferon works poorly. BioChem believes a significant market opportunity
exists for an effective and safe oral anti-viral therapy against chronic
hepatitis B, especially for a product with proven efficacy in immune tolerant
chronic hepatitis B patients, such as the vast majority of hepatitis B
patients in the Asia-Pacific region.
Product on the Market -- Zeffix
Zeffix, also available as Epivir-HBV in the United States, as Heptovir in
Canada, as Heptodin in China and as Zefix in Japan, has been developed with
GlaxoSmithKline as an oral treatment for chronic hepatitis B infection and for
the prevention of liver graft reinfection.
GlaxoSmithKline conducted numerous Phase III clinical trials of Zeffix as a
treatment for chronic hepatitis B infection. Clinical trial sites included
countries in the Asia/Pacific region, Europe, Australia, South Africa, Canada
and the United States. Most of these trials were for a duration of one year of
treatment with follow-up periods ranging from three months to two years. A
longer trial for up to five years of Zeffix treatment was completed in Asia.
Results from several clinical trials to date showed that:
(1) Zeffix therapy after one year of treatment in a non-Asian trial results
in similar seroconversion rates as a standard course of interferon
(Intron A) and a course of Zeffix and interferon combined.
(2) Asian patients have been found to respond as well to Zeffix as
Caucasians.
(3) The seroconversion rate is cumulative with duration of Zeffix treatment.
73 per cent of patients with active liver disease (ALT of twice the
upper limit of normal level) successfully seroconverted at year four.
(4) On extended Zeffix treatment, mutant virus showing changes in the YMDD
locus of the virus polymerase emerges in a number of patients. Patients
from the long term Asian trial who had a mutated form of the hepatitis B
virus for up to three years continued to have reduced levels of ALT and
HBV, suggesting that despite the presence of a mutated form of the
virus, patients may still obtain benefits from Zeffix.
(5) Zeffix significantly improves liver inflammation, reduces progression of
fibrosis and improves fibrosis compared to placebo.
(6) Interim results from an international study demonstrate a regression in
cirrhosis in 64 per cent of patients with pre-existing cirrhosis
following two or more years of treatment with Zeffix.
(7) Zeffix monotherapy is effective in a specific group of patients with a
form of the disease known as "pre-core mutant hepatitis B".
(8) Response is sustained after stopping Zeffix therapy in a majority of
patients who had achieved seroconversion.
(9) The overall safety profile of Zeffix is excellent with side effects
similar to placebo during the one year Phase III treatment period.
Overall these data support the broad utility of Zeffix as a safe and effective
drug for treating a wide range of patients with chronic hepatitis B. At the
end of August 2000, the Asia Pacific Consensus Group on the Prevention and
Management of Chronic Hepatitis B and C in association with the Journal of
Gastroenterology and
18
Hepathology endorsed Zeffix as a key treatment option for a broad range of
chronic hepatitis B patients. The Asia Pacific guidelines recommend that
hepatitis B patients with active liver disease, liver failure, or recurrent
disease after liver transplantation should be treated with Zeffix.
First approved in the Philippines and in Canada in August and November 1998,
respectively, Zeffix has been approved and launched through 1999 in the United
States of America, Hong Kong, Singapore, China, South Korea, some European
Union countries and Taiwan and more recently in Japan. As of December 2000,
Zeffix had been approved in 69 countries and launched in 45. On 20 November
2000, GlaxoSmithKline launched Zeffix in Japan. Provision of drug information
to medical institutions regarding Zeffix in Japan is carried out by
GlaxoSmithKline K.K. with Ajinomoto Pharma Co. Ltd., through co-promotion, as
Ajinomoto Pharma has experience in liver disease.
Pursuant to agreements entered into with GlaxoSmithKline, BioChem has licensed
to GlaxoSmithKline the worldwide rights, with the exception of Canada, to
develop, manufacture and sell Zeffix. In Canada, Zeffix is sold by BioChem in
partnership with GlaxoSmithKline, under the tradename Heptovir.
Pain Control
The pain control or pain management market is divided into the acute (short-
term) and chronic (longer-term, persistent) pain market and along the lines of
mild, moderate and severe pain. The injectable/intravenous forms of these
analgesics are generally used for pain management in the acute setting, such
as post-operative or trauma pain.
Chronic pain (chronic headache, lower back pain, cancer pain, arthritis pain
and other disorders such as neuralgias and neuropathies) has been described as
one of the most costly health problems in America. More than 30 million
Americans visit physicians for chronic pain each year (D&MD-Pain Therapeutics:
A Revolution in the Making). It is estimated that in the United States of
America alone, the annual direct and indirect cost is close to $70 billion
(International Association for the Study of Pain). Many chronic pain
conditions, such as arthritis and cancer pain, affect older adults. With the
world population generally living longer, the incidence of cancer and
arthritis-associated pain is expected to increase, as is the growing demand
for potent and safe novel agents to manage moderate to severe pain.
Development Project -- frakefamide (BCH-3963)
Further to an agreement signed between BioChem and AstraZeneca, AstraZeneca is
presently developing a peripherally acting m-opioid receptor agonist,
frakefamide, discovered by BioChem and intended for the treatment of acute and
chronic pain.
Opioids such as morphine are the cornerstone in clinical pain treatment in
spite of the development of tolerance and their undesirable side effects due
to their action on the central nervous system. The traditionally held view was
that opioid analgesia was mediated exclusively within the CNS. However, recent
research has shown that analgesia at the site of inflammation can be initiated
by the activation of opioid receptors located outside the CNS. Particularly,
it has been demonstrated that the agonists that have a preference for m-
receptors are generally the most potent. With that rationale, BioChem
scientists discovered frakefamide which is highly selective for the m-opioid
receptor and which does not penetrate the CNS. In animal models, frakefamide
has exhibited potency similar to morphine but without the dependence,
tolerance or other CNS associated side effects.
AstraZeneca completed four Phase I studies with an injectable (i.v.)
formulation. The results of these studies showed that frakefamide was well
tolerated with no CNS side effects or respiratory depression and suggested
that it was 10 times more potent than morphine as measured by a surrogate
marker. In 1999, AstraZeneca initiated Phase II clinical trials to evaluate
the analgesic potential of frakefamide.
There is a large unmet need in the management of acute pain following surgery
and frakefamide has the potential to become an important drug in this setting.
The Phase II studies should be completed in early 2001 and additional clinical
trial programmes with the injectable (i.v.) formulation in the management of
post-operative pain are planned to be initiated thereafter.
Bladder Cancer
Bladder cancer is the sixth most common cancer (other than skin cancer) in the
United States according to the American Cancer Society. While progress has
been made in the prevention and treatment of bladder cancer, the American
Cancer Society estimated that in 2000 over 54,000 Americans would be diagnosed
with transitional cell carcinoma of the bladder and more than 12,000 people
with recurrent or acute disease would die from it.
19
Product on the Market -- PACIS
BioChem has developed a BCG (Bacillus Calmette-Guerin) immunotherapeutic that
has demonstrated efficacy in the treatment of superficial bladder cancers. The
American Urology Association recommends the use of BCG immunotherapeutics as
first line therapy for superficial bladder cancer. BioChem's BCG product is
marketed, through exclusive distributorships, under the trademark PACIS and as
of 31 December 1999, was registered in Canada, Argentina and the Philippines.
On 9 March 2000, the FDA approved PACIS for sale in the United States of
America as a first line treatment for carcinoma in situ of the urinary
bladder.
Cancer Chemotherapy
Epidemiological data (Eur J Cancer 35(1):24-31 1999 UI: 99227530 Abstract)
confirm that each year, there are an estimated 10 million new cases of cancer
diagnosed globally, and this is expected to rise steadily to 20 million by the
year 2020. Over 6.2 million people worldwide died of cancer in 1997. The
leading causes of cancer deaths are attributed to lung (1.1 million), stomach
(765,000), colon and rectum (505,000), and breast (385,000).
The worldwide cancer market including anti-emetics and other adjuvants was
valued at over $23 billion in 1999, or about 6 per cent of the global
pharmaceutical market (IMS World 2000, Annual Review of Pharmaceutical
Industry Performance). In 1999, the cancer market grew by approximately 17 per
cent over the previous year, 1998 (Datamonitor SPRINT Sales 2000).
Development Project -- Troxatyl (troxacitabine or BCH-4556)
Troxatyl is a nucleoside analogue being developed to treat various forms of
cancer. A few nucleoside analogues, such as gemcitabine and Ara-C, are used in
the treatment of certain cancers. Troxatyl is a nucleoside analogue that
BioChem believes will provide significant benefits in treating various forms
of cancer due to its novel structure and mechanism of action. BioChem plans to
administer Troxatyl initially by intravenous injection.
Three Phase I safety and pharmacokinetic studies have been completed in a
total of 104 advanced stage cancer patients with solid tumours. The drug was
well tolerated with myelosuppression and skin toxicity (rash and the hand-foot
syndrome) as the main side effects. Major clinical responses were seen in
three patients with malignant melanoma, hypernephroma and a carcinoma of
unknown origin. Based on these encouraging results, BioChem has completed a
pilot Phase II clinical trial program with Troxatyl in various types of solid
tumours (e.g. renal, prostate, colorectal, non-small-cell lung, pancreatic,
melanoma) using the once every three weeks administration schedule.
Preliminary evidence of activity was seen in the renal and pancreatic cancer
trials. BioChem is now investigating the therapeutic effects of Troxatyl using
an alternate daily times five monthly administration schedule in pancreatic
cancer. Additional trials are planned and BioChem will then focus its Phase
III programme on the solid tumours where activity has been identified. Since,
in clinical practice, cancers are treated mainly by using combinations of
chemotherapeutic agents, BioChem is also performing, in parallel, two pilot
combination chemotherapy Phase I trials of Troxatyl with either cisplatin or
paclitaxel in solid tumours. A Phase I safety and pharmacokinetic study in
refractory acute leukemia patients has also been completed at the MD Anderson
Cancer Center in Houston, Texas. Thirty-one patients with acute myelogenous
leukemia (AML) were treated and a specific recommended dose was defined for
this patient population. Again, the drug was well tolerated with skin toxicity
and mucositis as the main non-haematologic side effects. In addition, Troxatyl
showed promising signs of antileukemic activity in this heavily pretreated
population of patients: 4/30 evaluable patients had major (complete and
partial) responses and 73 per cent showed a significant decrease in their
leukemic cells following therapy. BioChem is now following up on these results
and has initiated testing four different Troxatyl combination regimens with
either idarubicin, topotecan, Ara-C or Mylotarg. BioChem believes that these
trials will optimise the antileukemic activity of Troxatyl and set the
groundwork for subsequent Phase III trials. Four patients out of 13 evaluable
with chronic myelogenous leukemia in blastic phase (CML-BP) achieved a return
to chronic phase disease and three others achieved a major haematologic
response. BioChem is now following up on these promising results by testing
single agent Troxatyl in a North American multicentre trial involving 50 CML-
BP patients. The FDA will be consulted in the second quarter of 2001 to
determine Troxatyl's registration strategy in this patient population.
Vaccine Products
BioChem is engaged in the research and development of vaccines for human use.
BioChem currently manufactures and markets in Canada a split influenza virus
vaccine. In 1997, BioChem also started to export its split influenza vaccine
to Argentina following the signing of a distribution agreement with Argent C.
Comercio Internacional S.A.
20
BioChem has a new vaccine production centre in Ste-Foy in the Quebec City
area. This centre has an overall area of approximately 118,000 square feet and
houses production, quality-control laboratories and warehousing as well as
administrative offices. Commercial vaccine production in Ste-Foy started in
1998.
BioChem recently initiated vaccine development operations in the United
States. This development unit was created in order to develop BioChem's
current and future vaccine pipeline. It began operations in October 1998 in
Northborough, Massachusetts, in a 62,000-square-foot facility. The facility
houses process research and development, analytical research and development,
a cGMP Pilot Plant for the preparation of clinical lots, clinical development,
regulatory affairs, project planning and management, and administration.
BioChem's vaccine development facility in Northborough, Massachusetts became
fully operational in 1999. The first vaccine candidate developed at this
location is designed to protect against bacterial meningitis caused by N.
meningitidis.
The following table presents the pipeline of BioChem's most advanced vaccine
products:
Principal
Product(s) indication(s) Status Market by
Fluviral S/F Influenza On the market BioChem
Injectable influenza vaccine derived from cell Influenza Phase I/II BioChem/GlaxoSmithKline
culture
Nasal influenza vaccine derived from cell Influenza Phase I BioChem/GlaxoSmithKline
culture
Neisseria meningitidis vaccine Meningitis, septicemia Phase I BioChem
Pre-clinical BioChem
Pseudomonas aeruginosa vaccine Bacteremia, Pre-clinical BioChem/Cytovax
opportunistic
Streptococcus pneumoniae vaccine Pneumonia, meningitis, Pre-clinical BioChem
otitis media
Development Projects
Injectable and nasal cell culture-based influenza vaccines
BioChem has developed a new cell culture-based influenza vaccine using a novel
proprietary cell line and high-cell-density microcarrier technology. BioChem
believes that this manufacturing technology will enable a more profitable and
productive process and better flexibility in the case of increased demand for
an influenza vaccine, which would be required during a pandemic. BioChem
completed a Phase I clinical trial in April 1997 in Canada of a vaccine
produced with the cell-culture process. The results of this trial showed that
the safety and immunogenicity of the new vaccine were equivalent to those of
the conventional egg-derived vaccine. BioChem began a Phase II clinical trial
programme in Canada in November 1997 that included three trials with 1,000
volunteers. The objective of these trials was to compare the immunogenicity
and safety of the new vaccine with BioChem's commercially available egg-
derived vaccine in three patient populations: young adults, the elderly and
children. The results of these studies demonstrated in all three populations
that this novel vaccine was as safe and as immunogenic as the conventional
vaccine for all three viral strains.
BioChem and GlaxoSmithKline finalised in December 1998 an alliance covering
BioChem's cell culture technology for influenza vaccine and nasal delivery
technologies. The technologies were transferred from BioChem to
GlaxoSmithKline during 1999. Under the terms of this agreement, BioChem and
GlaxoSmithKline will co-operate in marketing the products in the United
States, after a period of joint development by both parties. GlaxoSmithKline
holds exclusive marketing rights in Europe and in the rest of the world.
Furthermore, GlaxoSmithKline will manufacture products that are intended for
various global markets, except Canada. Proceeds from the sale of the vaccines
in the United States and in the rest of the world, excluding Canada, will be
allocated among the two partners according to a predetermined formula. In
Canada, BioChem will maintain exclusive rights to the vaccines, including
production and marketing rights. Once approved, this new cell-culture
manufacturing technology should allow BioChem to produce the vaccines more
rapidly and in the event of a pandemic, to manufacture the vaccines in greater
volume with less lead time. If any of the nasal delivery technologies proves
successful, it should eliminate the discomfort associated with injectable
vaccines and confer mucosal immunity in addition to systemic immunity.
GlaxoSmithKline conducts all technical and clinical development.
21
Recombinant protein bacterial vaccines
Effective vaccines stimulate protective immunity. Through a research
collaboration with the Vaccine Research Unit of the Laval University Hospital
Research Center, BioChem conducts research and development of recombinant
protein vaccines against numerous bacterial infections for which no vaccines
are currently available or for which vaccines exist but with less-than-optimal
efficacy or market attractiveness.
Many of the target bacteria for which BioChem is researching or developing
vaccines are encapsulated with polysaccharide. Capsular polysaccharides
usually are effective vaccine antigens. However, polysaccharide vaccines
suffer from the shortcomings that they stimulate only short-term immunity, no
immune memory and are poorly immunogenic in young children. Furthermore, there
is significant antigenic variation among the capsular polysaccharides of
different strains of the same bacteria. Consequently, numerous polysaccharide
antigens must be administered to protect against multiple strains of an
encapsulated bacterium. To overcome some of these limitations, polysaccharide
conjugate vaccines have been and are being developed. However, because of the
limited number of conjugate vaccines that can be combined in a single dose,
current conjugate vaccines provide protection against only a limited number of
strains of a bacterium.
BioChem has adopted the strategy of identifying specific bacterial proteins
for each pathogen that is able to elicit a broad immune response against all
strains of the pathogen and that would be immunogenic in young children while
eliciting immune memory. Furthermore, such vaccines should be easier and less
expensive to manufacture and could be combined more easily with vaccines that
protect against other infectious diseases. BioChem is in development stage
against the following three bacterial infections:
(A) Neisseria meningitidis
N. meningitidis causes over 300,000 cases of endemic and epidemic disease
worldwide, mostly meningitis and septicemia. N. meningitidis is becoming the
most common cause of bacterial meningitis in the United States affecting
approximately 3,000 people each year. The case-fatality rate is approximately
10 per cent for meningitis and 20 per cent for septicemia, despite antibiotic
therapy. Serogroup B, for which no vaccine exists, accounts for approximately
30 to 40 per cent of all cases of infection by N. meningitidis. The current
polysaccharide vaccine has antigens for only four (A, C, W135 and Y) of the 12
N. meningitidis serogroups. Other groups are developing polysaccharide
conjugate vaccines and protein-based vaccines. There are no Serogroup C
conjugate vaccines licensed in the UK.
The protein discovered by BioChem appears to hold potential for the
development of a vaccine against all N. meningitidis strains, including
Serogroup B. This protein is present in all meningococcal isolates and is
exposed at the surface of intact meningococcal bacteria, where it is
accessible to antibodies. Immunisation of mice with the purified recombinant
protein confers protection against lethal N. meningitidis infection. The serum
antibodies obtained from the immunised mice kill N. meningitidis cells. This
type of bactericidal activity is generally recognised as being indicative of
clinical protection against N. meningitidis infection. BioChem has developed a
clinical-trial-scale manufacturing process and conducted a Phase I clinical
trial in Canada from November 1999 into 2000. The data from this clinical
trial demonstrated that the vaccine was generally well tolerated and
immunogenic and was able to elicit serum bactericidal antibodies. Additional
clinical studies will be performed on an improved formulation of the vaccine.
(B) Streptococcus pneumoniae
S. pneumoniae infections are among the leading causes worldwide of illness and
death in young children, persons with underlying debilitating medical
conditions and the elderly. S. pneumoniae infections have accounted annually
for 3,000 to 5,000 cases of meningitis, 200,000 to 600,000 cases of pneumonia
and 7,000,000 to 10,000,000 cases of acute otitis media in the United States
alone. According to the CDC, the case fatality rates for some
immunocompromised and other high-risk patients have been reported to be higher
than 55 per cent for meningitis and 40 per cent for pneumonia, despite
appropriate antibiotic therapy. In children, S. pneumoniae causes 30 to 50 per
cent of all cases of otitis media. Increased resistance to penicillin and
other antibiotics has spread rapidly, such that there is an increased need for
effective pneumococcal vaccines. S. pneumoniae strains are divided into at
least 90 serologically capsular polysaccharide types. A polysaccharide vaccine
against the 23 most common serotypes is available but is no more than 60 per
cent effective in preventing pneumococcal meningitis in adults but is poorly
effective in infants under two years of age and in preventing pneumonia in the
elderly; it is not currently used to prevent otitis media. An heptavalent
conjugate vaccine composed of seven polysaccharides coupled to a protein
carrier was approved by the FDA in February 2000 for immunisation of infants
under age two. However, this product would cover only 60 to 75 per cent of
disease-causing serotypes and is technically complex to produce, such that it
may be difficult to combine with other vaccines. Moreover, it is not
22
indicated for use in adults, and its effectiveness in preventing ear
infections has not been documented by the FDA. Other groups are developing
polysaccharide conjugate vaccines and protein-based vaccines.
BioChem has discovered proteins that appear to hold great potential for the
development of a new vaccine against all serotypes of pneumococcal infections.
These proteins are highly immunogenic in mice. Immunised mice were protected
against a lethal challenge in both bacteremia and pneumonia models of
infection. Sera from immunised rabbits and monkeys also can protect mice
against lethal challenge. These proteins are conserved antigenically among
pneumococcal isolates, exposed at the pneumococcal surface and accessible to
protective antibodies. Therefore, BioChem believes that these proteins have
the necessary characteristics to be considered potential candidates for the
development of a broad-range vaccine for preventing pneumococcal infections.
(C) Pseudomonas aeruginosa
P. aeruginosa are ubiquitous bacteria that cause primarily opportunistic
infections in hosts who are compromised in their health status. The bacteria
are prevalent in moist areas in hospital settings. Infection can lead to
serious and sometimes life-threatening diseases in immunocompromised people.
The prevalence of antibiotic resistance is high and increasing. Other groups
are developing polysaccharide conjugate vaccines and protein-based vaccines.
BioChem initiated a collaboration with Cytovax Biotechnologies. Scientists at
the University of Alberta had been conducting research on the pili of P.
aeruginosa, which are appendages responsible for bacterial attachment to
cells. Cytovax proprietary "Anti-Adhesion Platform Technology" could prevent
infection by blocking the adhesion of pathogens onto human mucosal cells.
Based on the pili tip sequences Cytovax has developed a consensus sequence
peptide vaccine which can elicit protective immunity against experimental
infection. Cytovax and BioChem are collaborating in research, analytical,
process, clinical, and regulatory issues.
Computer-Assisted Detection Products
In July 1998, BioChem began investing in a new technology platform developed
by Qualia Computing, Inc. ("Qualia"), a privately held US medical computer
science company. BioChem obtained exclusive rights to commercialise any life
science product developed from this platform. The Qualia technology platform
is a cognitive system that utilises artificial intelligence, artificial neural
networks and advanced information processing technologies to solve complex
problems in the life science area. BioChem formed a new company, CADx Medical
Systems Inc. ("CADx") in July 1999 to develop the technology into products and
to commercialise the products on a worldwide basis. CADx develops products
that focus on the clinical and industrial applications of this technology. The
first commercial product is Second Look, a computer-assisted detection system
for mammography designed to assist the radiologist in the earlier diagnosis of
breast cancer. Commercialisation of Second Look started in mid-1999. Potential
applications of this technology platform currently being investigated include
cardiovascular disease diagnostic, drug design, lead optimisation and
genomics.
Investments
GeneChem
In March 1997, BioChem agreed to make an investment of CAN$30 million in
GeneChem Technologies Venture Fund L.P., a venture capital fund sponsored by
BioChem's newly created subsidiary, GeneChem Financial Corporation. This
CAN$100 million fund invests in advanced academic research projects and early-
stage private or public companies in the area of genomics and related
technologies for human application. BioChem's partners in this fund are a
select group of financial investors. As of 31 December 2000, CAN$21 million
had been invested in GeneChem Technologies Venture Fund, L.P. by BioChem.
On 14 September 2000, BioChem entered into an agreement to invest CAN$15
million in GeneChem Therapeutic Venture Fund L.P., a new CAN$136.5 million
capital fund. GeneChem Therapeutic Venture Fund L.P. will invest in genomics
companies focusing on cancer and infectious diseases. The general partner of
GeneChem Technologies Venture Fund L.P. and GeneChem Therapeutics Venture Fund
L.P. are respectively GeneChem Enterprise Inc. and GeneChem Therapeutics Inc.,
two indirect subsidiaries of BioChem, and the manager of each is GeneChem
Management Inc., also an indirect subsidiary of BioChem.
23
PART III
BioChem historical financial results under Canadian GAAP
for the three years ended 31 December 2000
The financial information contained in this Part III is extracted from the
audited consolidated financial statements of BioChem (referred to as "the
company" in this Part III) for each of the three years in the periods ended
31 December 2000, 1999 and 1998 filed on Form 20-F pursuant to the US
Securities Exchange Act of 1934 for 1998 and 1999, and to be filed on Form 6-K
for 2000. The financial information has been prepared in accordance with
Canadian GAAP in Canadian dollars.
The 1998 comparatives to the 1999 financial statements were restated and
included within the company's audited financial statements for 1999 and 2000
in order to be comparable to the periods ended 31 December 1999 and 2000 for
the following reasons: (a) to reflect the continuing operations following the
divestiture of the diagnostic operations, in March 2000; and (b) to reflect
the disclosure requirements related to the Canadian Institute of Chartered
Accountants' recommendations relating to the presentation of cash flow
statements. The financial information for 1998, as contained within this
section, has been extracted without material adjustment from the restated
comparatives.
The independent public accountants of BioChem for the years ended 31 December
2000, 1999 and 1998 were Raymond Chabot Grant Thornton who have issued
unqualified audit opinions on each of those three financial years.
24
Consolidated Statements of Earnings
for the years ended 31 December 2000, 1999 and 1998
(in thousands except per share information)
2000 1999 1998
CAN$ CAN$ CAN$
Revenue
Sales 32,885 23,412 22,094
Royalties 195,588 172,588 154,122
Research and development contracts 66,812 79,923 33,718
Investment and other 29,839 14,352 15,031
------------- ------------- -------------
325,124 290,275 224,965
------------- ------------- -------------
Expenses
Cost of sales 19,626 14,223 11,812
Selling and distribution 14,251 6,089 3,933
Administrative 26,003 19,992 27,317
Research and development (note 6) 71,834 87,498 49,116
Financial (note 6) 4,438 (918) (114)
------------- ------------- -------------
136,152 126,884 92,064
------------- ------------- -------------
Earnings before depreciation, amortisation and other 188,972 163,391 132,901
Depreciation and amortisation (note 6) (11,159) (8,282) (6,952)
------------- ------------- -------------
Earnings before income taxes and other 177,813 155,109 125,949
Net gain on sale of long-term investments 141,220 24,181 --
Income taxes (note 7) (13,923) (12,091) (9,479)
Non-controlling interest -- -- 1,428
Share of loss of a company subject to significant influence (5,659) -- --
------------- ------------- -------------
Earnings from continuing operations 299,451 167,199 117,898
Loss from discontinued operations (note 4) -- (18,097) (3,124)
------------- ------------- -------------
Net earnings 299,451 149,102 114,774
============= ============= =============
Basic earnings per common share
Continuing operations 2.95 1.59 1.09
Net earnings 2.95 1.42 1.06
Diluted earnings per common share
Continuing operations 2.87 1.57 1.09
Net earnings 2.87 1.41 1.06
The accompanying notes are an integral part of the consolidated financial
statements.
25
Consolidated Statements of Retained Earnings
for the years ended 31 December 2000, 1999 and 1998
(in thousands)
2000 1999 1998
CAN$ CAN$ CAN$
Retained earnings (deficit), beginning of year (14,582) 45,813 81,039
Net earnings 299,451 149,102 114,774
Premium on repurchase of common shares (note 15) -- (209,497) --
Reduction arising from the distribution of the CliniChem Class A shares -- -- (150,000)
------------- ------------- -------------
Retained earnings (deficit), end of year 284,869 (14,582) 45,813
============= ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
26
Consolidated Balance Sheets
As at 31 December 2000, 1999 and 1998
(in thousands)
2000 1999 1998
CAN$ CAN$ CAN$
Assets
Current assets
Cash and cash equivalents 70,018 68,791 53,801
Temporary investments 346,066 81,460 120,295
Accounts receivable (note 8) 75,604 83,331 64,871
Inventories (note 9) 3,754 3,236 2,312
Prepaid expenses 2,473 3,089 2,464
Current assets of discontinued operations -- 89,620 123,586
------------- ------------- -------------
497,915 329,527 367,329
Long-term investments (note 10) 103,681 110,324 103,746
Net assets of business transferred under contractual arrangements (note 4) 53,776 -- --
Property, plant and equipment, net (note 11) 127,867 115,110 81,593
Other assets (note 12) 84,822 35,758 28,031
Non-current assets of discontinued operations -- 33,998 51,863
------------- ------------- -------------
868,061 624,717 632,562
============= ============= =============
Liabilities
Current liabilities
Bank indebtedness -- -- 2,276
Accounts payable and accrued liabilities (note 13) 54,111 45,314 25,122
Current portion of long-term debt (note 14) 120,560 600 942
Current liabilities of discontinued operations -- 42,558 67,906
------------- ------------- -------------
174,671 88,472 96,246
Long-term debt (note 14) 8,550 124,614 12,470
Non-current liabilities of discontinued operations -- 34,767 45,225
------------- ------------- -------------
183,221 247,853 153,941
------------- ------------- -------------
Shareholders' Equity
Capital stock (note 15) 391,261 382,174 408,365
Contributed surplus (note 15) 9,451 9,451 10,199
Retained earnings (note 15) 284,869 (14,582) 45,813
Foreign currency translation adjustment (note 16) (741) (179) 14,244
------------- ------------- -------------
684,840 376,864 478,621
------------- ------------- -------------
868,061 624,717 632,562
============= ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board,
Francesco Bellini, Director
Roderick L. Henry, Director
27
Consolidated Statements of Cash Flows
for the years ended 31 December 2000, 1999 and 1998
(in thousands)
2000 1999 1998
CAN$ CAN$ CAN$
Continuing operating activities
Net earnings 299,451 149,102 114,774
Loss from discontinued operations -- (18,097) (3,124)
------------- ------------- -------------
Earnings from continuing operations 299,451 167,199 117,898
Non-cash items (note 17) (123,739) (17,385) 6,279
------------- ------------- -------------
Operating cash flow 175,712 149,814 124,177
Changes in non-cash working capital items (note 17) (2,562) (10,811) (12,586)
------------- ------------- -------------
173,150 139,003 111,591
------------- ------------- -------------
Investing activities
Maturity of temporary investments 97,319 120,295 90,757
Purchase of temporary investments (361,925) (81,460) (146,264)
Business acquisition, net of cash acquired (note 5) (37,045) -- --
Acquisition of long-term investments (19,910) (16,284) (38,014)
Proceeds from sale of long-term investments 183,110 31,804 --
Acquisition of non-controlling interest -- -- (16,214)
Capital expenditures (27,014) (33,528) (17,904)
Disposal of property, plant and equipment -- 1,048 --
Acquisition of intangible assets (9,888) (7,543) (4,144)
Other (2,670) (2,082) (1,336)
------------- ------------- -------------
(178,023) 12,250 (133,119)
------------- ------------- -------------
Financing activities
Increase (decrease) in bank indebtedness -- (2,276) 2,016
Increase in long-term debt -- -- 1,498
Repayment of long-term debt (600) (3,660) (8,089)
Issuance of common shares 9,087 4,050 3,934
Repurchase of common shares -- (121,158) --
Distribution of the CliniChem Class A shares -- -- (150,000)
------------- ------------- -------------
8,487 (123,044) (150,641)
------------- ------------- -------------
Foreign currency translation adjustment 148 (2,900) 2,201
------------- ------------- -------------
Cash flows related to continuing operations 3,762 25,309 (169,968)
Cash flows related to discontinued operations (2,535) (10,319) 2,371
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 1,227 14,990 (167,597)
Cash and cash equivalents, beginning of year 68,791 53,801 221,398
------------- ------------- -------------
Cash and cash equivalents, end of year 70,018 68,791 53,801
============= ============= =============
Pre-acquisition free cash flow 133,578 96,898 88,207
============= ============= =============
Pre-acquisition free cash flow includes cash flow from operating activities
after deducting capital expenditures, disposal of property, plant and
equipment, acquisition of intangible assets and other items in investing
activities.
Supplemental information (note 17).
The accompanying notes are an integral part of the consolidated financial
statements.
28
Notes to Consolidated Financial Statements
(tabular amounts are in thousands except per share information)
1. Nature of operations
The company is a biopharmaceutical company dedicated to the research,
development and commercialisation of innovative products for the prevention
and treatment of human diseases with a focus in the anti-infective and
anticancer areas.
2. Significant accounting policies
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada. The financial statements
differ in certain respects from generally accepted accounting principles in
the United States, as described in note 22.
Basis of presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada. They
include the accounts of the company and all of its subsidiaries in which a
controlling interest is maintained. Investments in affiliates over which the
company has significant influence but not a controlling interest are accounted
for under the equity method. All significant intercompany transactions and
balances have been eliminated upon consolidation.
Use of estimates
In preparing financial statements in conformity with accounting principles
generally accepted in Canada, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
Revenue from sales of the company's therapeutic products and vaccines are
recognised upon shipment of the product.
Royalty revenue is recognised as sales of the licensed products are made by
the licensee, under the terms of the royalty agreement.
Research and development contract revenues are recorded on the basis of direct
costs incurred in addition to indirect costs and a portion of overhead
expenses. Research and development contract revenues also include milestone
revenue relating to research and development agreements, which are recognised
when milestones are attained.
Research and development
Research and development expenses are recognised as incurred, net of related
tax credits, and include a share of administrative expenses.
Income taxes - Change in accounting policy
During the year, the company adopted, on a retroactive basis, the new
recommendations issued by the Canadian Institute of Chartered Accountants with
respect to income taxes. However, it did not restate the financial statements
for previous years. Under the new standards income taxes are calculated based
on the liability method. Under this method, future tax assets and liabilities
are recognised as estimated taxes for recovery or settlement arising from the
recovery or settlement of assets and liabilities recorded at their financial
statement carrying amounts. Future tax assets and liabilities are measured
based on enacted or substantively enacted tax rates and laws at the date of
the financial statements for the years in which these temporary differences
are expected to reverse. In the past, the company used the deferral method of
tax allocation of accounting. This change in accounting policy has had no
significant impact.
29
2. Significant accounting policies (continued)
Earnings per common share
Basic and diluted earnings per common share are calculated using the weighted
average number of common shares outstanding during the year. Diluted earnings
per share give effect to the potential exercise of outstanding stock purchase
options.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are
translated at the exchange rate in effect at year-end and non-monetary items
are translated at historical exchange rates. Operating revenue and expenses
are translated at average exchange rates prevailing during the year. Gains or
losses arising from these translations are included in earnings, with the
exception of unrealised foreign exchange gains or losses on long-term monetary
items, which are amortised over the remaining period of the related items.
Assets and liabilities of self-sustaining foreign operations are translated at
the exchange rate in effect at year-end. Operating revenue and expense items
are translated at average exchange rates prevailing during the year. Any
corresponding foreign exchange gains and losses are deferred and disclosed
separately as part of shareholders' equity and are recognised in earnings when
the interest in the foreign operations is reduced.
Cash and cash equivalents
Cash and cash equivalents which consist primarily of highly liquid bank term
deposits and commercial paper are restricted to investments which have an
original maturity of three months or less. Investments which have an original
maturity of more than three months are disclosed as temporary investments.
Inventory valuation
The raw materials inventory is valued at the lower of cost and replacement
cost. The finished goods and work-in-process inventories are valued at the
lower of cost and net realisable value. Cost is determined using the first in,
first out method.
Long-term investments
Long-term investments are recorded at acquisition cost. When there has been a
decrease in value of a long-term investment that is other than a temporary
decline, the investment is written down to recognise the loss.
Property, plant and equipment
Property, plant and equipment are recorded at cost. The cost of construction
in progress is transferred to the appropriate category as construction
projects are completed. Depreciation is provided for in amounts sufficient to
relate the cost of depreciable assets to expenses over their estimated service
lives using declining and straight-line basis. Depreciation is calculated as
follows:
Methods Annual rates
Buildings Declining balance 5 per cent. to 10 per cent.
Equipment Declining balance 10 per cent. to 40 per cent.
Leasehold improvements Straight-line Over the lease terms
Each year the company assesses the impairment of property, plant and equipment
and when events or changes in circumstances indicate that the carrying value
may not be recoverable, a determination of impairment is made based on
estimates of future cash flows. Maintenance and repairs are charged to expense
as incurred; additions and betterments are capitalised. Upon retirement or
sale, the cost and related accumulated depreciation of the disposed assets are
removed and any resulting gain or loss is credited or charged to expenses.
Other assets
Intangible assets consist primarily of rights, licences and patents as well as
acquired commercialised products. Rights, licences and patents include
acquisition costs, patent registration costs and other expenses incurred to
obtain the licences necessary to commercialise and manufacture products.
Intangible assets are amortised on a straight-line basis over periods ranging
from 5 to 10 years, commencing in the year in which the product is
commercialised.
30
2. Significant accounting policies (continued)
Goodwill represents the excess of the cost of acquisitions over the fair value
of the net identifiable assets acquired. Goodwill is amortised on a straight-
line basis over a period of 20 years, ending in 2018.
Acquired in-process research and development are stated at cost. Amortisation
is provided for on a straight-line basis over estimated useful lives not to
exceed twenty years, commencing in the year in which the products are
commercialised. Acquired in-process research and development is periodically
reviewed to determine recoverability by comparing carrying value to expected
future cash flows.
The value of other assets is evaluated for any impairment in value on a
recurring basis. The evaluation consists of a review of the undiscounted
future cash flow of the underlying assets. Any permanent impairment in the
carrying value is charged to earnings in the year incurred. There have been no
adjustments to the carrying values of other assets resulting from these
evaluations.
Stock option plan
The company has granted stock options as described in Note 15. No expense is
recognised when stock options are granted. Any consideration received on
exercise of stock options is credited to capital stock.
Derivative financial instruments
Derivative financial instruments are utilised by the company to hedge a
promissory note. The company does not hold or issue derivative financial
instruments for trading or speculative purposes.
Currency gains and losses on contracts designated as hedges of the promissory
note are charged against the gain or loss on the promissory note.
3. Merger with Shire Pharmaceuticals Group plc
On 10 December 2000, the company entered into a definitive merger agreement
with Shire Pharmaceuticals Group plc, a UK-based company. The transaction is
subject to the approval of both Shire and BioChem shareholders as well as
various regulatory agencies. The agreement provides for breakup fees and
grants Shire an option to acquire 19.9 per cent. of BioChem's common stock if
the agreement is terminated under certain circumstances.
4. Divestiture of a subsidiary
In March 2000, the company concluded the divestiture of its diagnostics
operations to a management-led group of this subsidiary. The diagnostics
operations were previously accounted for as discontinued operations following
the adoption of a formal plan of disposal on 29 January 1999. As
consideration, the company received a debenture in the amount of
CAN$53,776,000 to be paid out of future cash flows. For accounting purposes,
the transaction is not recorded as a sale since certain significant risks of
ownership were not transferred to the buyer. Accordingly, the net assets
transferred to the buyer are presented in the non-current assets section of
the Balance Sheet as "Net assets of business transferred under contractual
arrangements". BioChem has guaranteed the reimbursement of a long-term debt of
this company in the amount of 37.3 billion Italian lira (CAN$27,154,000 as at
31 December 2000, CAN$27,952,000 as at 31 December 1999 and CAN$34,512,000 as
at 31 December 1998).
31
4. Divestiture of a subsidiary (continued)
Summarised data relating to the discontinued operations of the diagnostics
operations for the years ended 31 December 2000, 1999 and 1998 and net asset
data for 1999 and 1998 are as follows:
2000 1999 1998
CAN$ CAN$ CAN$
Results of operations
Revenue to disposal date 10,673 75,975 122,419
============= ============= =============
Loss from operations of diagnostics segment (less applicable income taxes of
CAN$1,408 in 1999, CAN$(530) in 1998) (1,097) (3,124)
Net loss on disposal of diagnostics segment, including provision of CAN$17,000
for operating losses during phase-out period (less applicable income taxes of
nil) (17,000) --
------------- -------------
Loss from discontinued operations (18,097) (3,124)
============= =============
Net assets of discontinued operations
Current assets 89,620 123,586
Property, plant and equipment 14,684 19,893
Other assets 19,314 31,970
Current liabilities (42,558) (67,906)
Long-term liabilities (34,767) (45,225)
------------- -------------
46,293 62,318
============= =============
5. Acquisition of CliniChem Development Inc.
During the year, the company acquired all of the Class A common shares of
CliniChem Development Inc. (CliniChem) for an amount of CAN$48,286,000. The
acquisition has been accounted for using the purchase method. The accompanying
financial statements include BioChem's share of loss for the period for which
the company had a significant influence as well as the results of operations
from the date BioChem acquired the control over CliniChem, when the company
exercised its purchase option on 15 December 2000.
The purchase price allocated to net assets based on their fair values is as
follows:
Purchase price 48,286
Share of loss of CliniChem until 14 December 2000 (5,659)
-------------
42,627
=============
Cash 11,241
Non-cash working capital (10,400)
Acquired commercialised products 1,759
Acquired in-process research and development 40,027
-------------
42,627
=============
In 1998, CliniChem was formed by BioChem to conduct research and development
of certain of the company's human therapeutic and vaccine product candidates.
On 8 June 1998, BioChem made a CAN$150,000,000 cash contribution to
CliniChem's capital. The shares of CliniChem held by BioChem were exchanged
for Class A and B common shares of CliniChem. As at 26 June 1998, each holder
of record of BioChem common shares received one Class A common share of
CliniChem for each 40 common shares of BioChem held on 22 June 1998.
32
5. Acquisition of CliniChem Development Inc. (continued)
The fair value of the Class A common shares of CliniChem distributed to
BioChem's shareholders was approximately CAN$24,000,000. This value has been
determined by management based on the trading price of the shares of CliniChem
on the relevant stock markets immediately after the distribution and has been
accounted for as a reduction of retained earnings. The excess of the carrying
value of the company's investment in CliniChem Class A shares over their fair
value, which amounted to approximately CAN$126,000,000, has also been
accounted for as a reduction of retained earnings.
Simultaneously, BioChem concluded a series of agreements with CliniChem. Under
the terms of a technology licence contract, BioChem granted to CliniChem an
exclusive perpetual licence to use BioChem technology to conduct the CliniChem
programmes and related activities, and to manufacture and commercialise the
CliniChem products worldwide. CliniChem paid a fee to BioChem in exchange for
the technology licence. The technology fee was payable monthly at a rate of
CAN$352,000 per month over a period of 48 months.
Under the terms of a research and development agreement, BioChem conducted the
CliniChem programmes. CliniChem used available funds, as defined in the
contract, to repay BioChem for its research and development expenses. BioChem
accounted for amounts received as research and development contract revenue.
6. Information on the Consolidated Statement of Earnings
Research and development
Research and development expenses are disclosed net of tax credits which
amounted to CAN$1,286,000 in 2000, CAN$2,434,000 in 1999 and CAN$1,935,000 in
1998.
2000 1999 1998
CAN$ CAN$ CAN$
Financial expenses
Interest on long-term debt 6,114 2,819 98
Other interest 164 8 106
Foreign exchange gain (1,840) (3,960) (298)
Amortisation of deferred foreign exchange losses (gains) -- 215 (20)
------------- ------------- -------------
4,438 (918) (114)
============= ============= =============
Depreciation and amortisation
Property, plant and equipment 8,914 6,561 4,793
Intangible assets 1,136 783 1,070
Goodwill 344 344 228
Deferred charges 765 594 861
------------- ------------- -------------
11,159 8,282 6,952
============= ============= =============
7. Income Taxes
2000 1999 1998
CAN$ CAN$ CAN$
Income taxes at combined statutory tax rates of different jurisdictions 56,527 13,870 9,856
Non-deductible items 2,424 459 75
Realisation of previously unrecorded tax benefit (45,484) (2,526) (879)
Large corporations tax 456 288 427
------------- ------------- -------------
Income taxes at effective tax rates 13,923 12,091 9,479
============= ============= =============
The provision for income taxes comprises the following:
Current: Domestic 768 606 748
Foreign 13,244 11,793 8,731
Future: Domestic -- -- --
Foreign (89) (308) --
------------- ------------- -------------
13,923 12,091 9,479
============= ============= =============
33
7. Income Taxes (continued)
As at 31 December 2000, the company has accumulated research and development
expenses in the amount of approximately CAN$115,000,000, which can be used to
reduce taxable income in future years and which have no expiration date. In
addition, the company has operating losses carried forward of approximately
CAN$116,000,000 which expire on various dates from 2005 to 2007. As at
31 December 2000, the company has investment tax credits amounting to
approximately CAN$9,600,000 (CAN$12,400,000 as at 31 December 1999 and
CAN$14,200,000 as at December 1998), which may be used to reduce future taxes
payable. These credits expire in the years 2007 to 2010.
The future tax benefits in respect of these items have not been reflected in
the consolidated financial statements as at 31 December 2000.
Future tax assets or liabilities are recorded for temporary differences that
will result in deductible amounts or taxable amounts in future years as well
as for loss carry forwards and deferred investment tax credits. A valuation
allowance is recorded for the portion of the asset considered unrealisable. In
addition, the future tax asset or liability is calculated at the current rate
disclosed by government authorities. The tax consequences calculated on the
differences between the carrying amount and the value for tax purposes of the
assets and liabilities are as follows:
2000 1999 1998
CAN$ CAN$ CAN$
Research and development expenses and operating losses 81,939 37,227 27,181
Investment tax credits 9,601 12,400 14,200
Temporary differences on investments (278) 55,346 49,640
------------- ------------- -------------
91,262 104,973 91,021
Valuation allowance (90,865) (104,665) (91,021)
------------- ------------- -------------
Future income taxes - asset 397 308 --
============= ============= =============
8. Accounts receivable
2000 1999 1998
CAN$ CAN$ CAN$
Trade 4,392 4,048 5,124
Royalties receivable from a shareholder 53,576 48,312 43,585
Research and development contracts 6,700 19,216 6,357
Other 10,936 11,755 9,805
------------- ------------- -------------
75,604 83,331 64,871
============= ============= =============
9. Inventories
2000 1999 1998
CAN$ CAN$ CAN$
Raw materials 1,025 890 574
Work-in-process 1,152 2,198 1,427
Finished goods 1,577 148 311
------------- ------------- -------------
3,754 3,236 2,312
============= ============= =============
34
10. Long-term investments
2000 1999 1998
CAN$ CAN$ CAN$
Investments in private companies, at cost 103,681 80,882 75,687
Shares in public companies, at cost -- 11,258 9,065
Investments in a company subject to significant influence - North American
Vaccine, Inc.(a)
Preferred shares, at cost -- 5,194 5,194
Convertible notes, at cost -- 12,990 13,800
------------- ------------- -------------
103,681 110,324 103,746
============= ============= =============
(a) Investments in a company subject to significant influence - North American
Vaccine, Inc.
During the year, the company completed the divestiture of its investment in
North American Vaccine, Inc. (NAVA), a public corporation listed on the
American Stock Exchange. BioChem received a consideration composed of cash and
shares of a publicly traded corporation, which shares were subsequently sold.
The total proceeds amounted to CAN$167.0 million and the transaction generated
a net gain of CAN$137.3 million.
Common shares, at equity value
As at 31 December 1999, the company held 32.0% of NAVA's outstanding common
shares or 10,522,640 shares (34.7% or 11,179,114 shares as at 31 December
1998). As at that date, the market value of the investment in common shares
based on the closing market price amounted to CAN$68,343,000 (CAN$152,148,000
as at 31 December 1998).
In 1999, the company exercised all 57,812 options held to acquire common
shares of NAVA at a price of CAN$4.48 ($2.92) per share for a total of
CAN$258,838 ($168,811). In addition, BioChem sold 714,286 common shares of
NAVA for proceeds of CAN$7,371,000 ($5,000,000).
As at 31 December 1999, the company's share of cumulative losses in the common
shares of NAVA in excess of its equity value of nil amounted to
CAN$64,227,000.
Preferred shares, at cost
As at 31 December 1999 and 1998, the company held 50% of NAVA's preferred
shares or 1,000,000 shares. As at that date, the market value of the
investment in preferred shares, based on the closing market price of the
common shares was CAN$12,990,000 (CAN$27,220,000 as at 31 December 1998).
Convertible notes, at cost
The convertible notes of CAN$12,990,000 ($9,000,000) as at 31 December 1999
bore interest at the rate of 4.5%. As at that date, the carrying amount of the
notes approximated the fair value.
11. Property, plant and equipment, net
2000 1999 1998
CAN$ CAN$ CAN$
Cost
Land 6,503 6,401 5,414
Buildings 110,485 96,464 68,298
Equipment and leasehold improvements 41,501 34,012 22,550
------------- ------------- -------------
158,489 136,877 96,262
Accumulated depreciation
Buildings 14,134 8,519 6,303
Equipment and leasehold improvements 16,488 13,248 8,366
------------- ------------- -------------
30,622 21,767 14,669
------------- ------------- -------------
Net book value 127,867 115,110 81,593
============= ============= =============
35
11. Property, plant and equipment, net (continued)
The capital expenditures shown in the consolidated statement of cash flows are
presented excluding the variation in construction-related accounts payable.
Building costs include an amount of CAN$25,943,000 in 2000, CAN$24,401,000 in
1999 and CAN$20,998,000 in 1998 for items considered construction in progress
that were not utilised and therefore not depreciated.
12. Other Assets
2000 1999 1998
CAN$ CAN$ CAN$
Intangible assets, net 29,128 22,878 17,185
Acquired in-process research and development, at cost 40,027 -- --
Goodwill, net 6,360 6,705 7,049
Deferred charges, net 5,938 4,648 3,542
Deferred foreign exchange loss -- 722 128
Other 3,369 805 127
------------- ------------- -------------
84,822 35,758 28,031
============= ============= =============
13. Accounts payable and accrued liabilities
2000 1999 1998
CAN$ CAN$ CAN$
Accounts payable and accrued liabilities 39,646 27,358 14,888
Construction-related accounts payable 240 6,664 207
Income taxes payable 14,225 11,292 10,027
------------- ------------- -------------
54,111 45,314 25,122
============= ============= =============
14. Long-term debt
2000 1999 1998
CAN$ CAN$ CAN$
Promissory note to a shareholder totalling $80,000,000, bearing interest at 5%
per annum, repayable in 2001. 119,960 115,464 --
Bank loans, bearing interest at the lender's prime rate, secured by a hypothec
on land and building, repayable in annual instalments of CAN$600,000 and a
final payment totalling CAN$3,600,000 in 2002 and renegotiable for an
additional 5-year period. The company has undertaken to respect certain
financial ratios.(a) 4,200 4,800 8,460
Federal and provincial government loans, with a maximum available amount of
CAN$5,500,000, non-interest bearing and repayable in maximum annual
instalments of CAN$1,100,000 commencing in 2002. 4,950 4,950 4,950
Obligations under capital leases maturing in 1999. -- -- 2
------------- ------------- -------------
129,110 125,214 13,412
Less: current portion 120,560 600 942
------------- ------------- -------------
8,550 124,614 12,470
============= ============= =============
36
14. Long-term debt (continued)
(a) The company entered into an agreement with Investissement Quebec (IQ)
whereby IQ guarantees, until 2006, 80% of a maximum loan of
CAN$4,800,000. IQ will reimburse the company the aggregate interest of
this loan until October 2001 to a maximum of CAN$1,875,000.
Payments due in each of the next five years are as follows:
CAN$
2001 120,560
2002 4,590
2003 990
2004 990
2005 990
The company has available an unsecured credit facility, renewable annually,
with an authorized amount of $100,000,000, or the equivalent Canadian dollar
amount. The interest rate is based on either the Canadian prime rate, the
U.S.-base rate or the LIBOR rate, plus a premium in relation to the ratio of
debt to earnings before interest, taxes, depreciation and amortisation. The
company has undertaken to respect certain financial ratios.
15. Capital stock
Authorised shares
An unlimited number of voting common shares, without par value.
Issued shares
The changes to the company's capital stock are as follows:
2000 1999 1998
Number of shares
Balance, beginning of year 101,015,590 108,735,790 108,255,640
Share repurchase -- (8,000,000) --
Exercise of share options 459,496 279,800 480,150
--------------- --------------- ---------------
Balance, end of year 101,475,086 101,015,590 108,735,790
=============== =============== ===============
Weighted average number of common shares outstanding 101,240,416 105,312,719 108,442,700
=============== =============== ===============
2000 1999 1998
CAN$ CAN$ CAN$
Amounts
Balance, beginning of year 382,174 408,365 404,431
Share repurchase -- (30,241) --
Exercise of share options 9,087 4,050 3,934
--------------- --------------- ---------------
Balance, end of year 391,261 382,174 408,365
=============== =============== ===============
Share repurchase
On 19 July 1999, the company completed its purchase for cancellation of eight
million of the company's common shares held by GlaxoSmithKline at a price of
$20 per share. Payment of these shares is to be made in two stages:
CAN$121,158,000 ($80 million) was paid on 19 July 1999 and the balance is
presented in the current portion of long-term debt and due on 19 January 2001.
The above-mentioned transaction was recorded in 1999 as follows:
CAN$30,241,000 as a reduction to capital stock, CAN$748,000 as a reduction to
contributed surplus and CAN$209,497,000 as a charge to retained earnings.
Stock purchase options
o Stock option plan
The company maintains a stock option plan intended for directors, officers,
employees and consultants of the company. The total number of options that may
be granted under the terms of the plan cannot exceed 19,250,000. The exercise
price of options granted under the plan is determined by the board of
directors of the company and cannot be lower than the market value on the date
the options are granted. These options expire no later than ten years after
the date they are granted.
37
15. Capital Stock (continued)
The changes to the number of stock options granted by the company are as
follows:
2000 1999 1998
Balance, beginning of year 6,548,750 6,520,600 6,182,600
Granted at a weighted average price of CAN$41.41 in 2000, CAN$38.17 in 1999
and CAN$31.84 in 1998 804,261 443,000 973,450
Exercised at a weighted average price of CAN$19.77 in 2000, CAN$14.47 in 1999
and CAN$8.19 in 1998 (336,020) (279,800) (480,150)
Cancelled (184,077) (135,050) (155,300)
------------- ------------- -------------
Balance, end of year 6,832,914 6,548,750 6,520,600
============= ============= =============
Weighted average price of options
outstanding at end of year CAN$27.58 CAN$25.91 CAN$24.36
============= ============= =============
Options exercisable at end of year 4,285,592 3,805,790 3,173,850
============= ============= =============
The information about stock options outstanding as at 31 December 2000 is as
follows:
Exercise price (CAN$) Options outstanding Options exercisable
------------------------------------------- ------------------------------------------------ -------------------------------
Weighted
average Weighted Weighted
remaining average average
contractual exercise exercise
Number life price Number price
------------------------------------------------ -------------------------------
CAN$ CAN$
6.19 to 7.50 143,600 3.3 years 6.51 143,600 6.51
7.51 to 10.00 247,150 2.9 years 8.57 247,150 8.57
10.01 to 15.00 1,598,000 1.1 years 11.17 1,598,000 11.17
15.01 to 22.50 213,000 2.1 years 17.52 213,000 17.52
22.51 to 33.00 1,586,403 6.5 years 31.07 875,242 30.74
33.01 to 45.25 3,044,761 7.2 years 37.62 1,208,600 35.90
------------- ------------- ------------- -------------
6,832,914 27.58 4,285,592 22.15
============= ============= ============= =============
The weighted average price of options exercisable for 1999 and 1998 were
respectively CAN$20.24 and CAN$16.86.
o Investissement Quebec
In consideration for the guarantee of a subsidiary's loan relating to a
building and reimbursement of interest on this loan, the company has granted
Investissement Quebec an option to purchase 123,476 common shares at an
exercise price of CAN$5.15 per share. This option was exercised in 2000.
Deferred share unit plan
In 1998, the company introduced a long-term incentive plan for directors and
certain executives. Under the plan, the participants may elect to be
allocated, in lieu of a cash payment, a portion or all of the annual bonus or
fees in the form of Deferred Share Units (DSUs). The number of DSUs to be
credited is based on the amount of the annual bonus in the case of executives,
or directors fees in the case of directors, divided by the market value of the
company's common shares at a predetermined date. The DSUs are redeemable
(either in cash or common shares or a combination of cash and common shares)
only upon the participant's retirement, death, resignation or termination.
Compensation expense in respect of the DSUs is charged to income during the
year incurred and amounted to CAN$3,424,000 in 2000, CAN$761,000 in 1999 and
CAN$951,000 in 1998.
38
15. Capital Stock (continued)
Restricted Share Unit Plan
During the year, the company introduced a long term incentive plan as
retirement compensation for certain senior executives. Under the plan, the
participants are awarded Restricted Share Units (RSUs) of which 50% vest after
two years and the remainder after five years. The value of one RSU is
equivalent to the value of one common share of BioChem, is priced at market on
the date of the grants and is redeemable only upon the participant's
retirement, death, resignation or termination. Compensation expense in respect
of the RSUs is charged to income at the date of grant and totaled CAN$513,000
in 2000.
Shareholder Rights Plan
During 1995, the shareholders of the company approved a Shareholder Rights
Plan (Rights Plan). Under the Rights Plan, one common share purchase right was
issued on 28 April 1995 in respect of each outstanding common share and a
share purchase right for each common share issued thereafter. These rights are
exercisable in a situation of public offering where certain conditions are not
respected. Each right entitles the holder to purchase, from the company, one
common share at a specific price, subject to certain anti-dilution
adjustments. The Rights Plan expires on 30 June 2003, or unless terminated
earlier by the company's board of directors. The purpose of the Rights Plan is
to require anyone, who seeks to acquire 20% or more of the company's voting
shares, to present a bid complying with specific provisions. The application
of the Rights Plan was waived on 10 December 2000 with respect to the proposed
Merger with Shire.
16. Foreign currency translation adjustment
2000 1999 1998
CAN$ CAN$ CAN$
Balance, beginning of year (179) 14,244 2,399
Reduction arising from disposal of long-term investment (2,605) -- --
Effect of foreign exchange rate variations upon translation of the net assets
of self-sustaining foreign operations 2,043 (14,423) 11,845
------------- ------------- -------------
Balance, end of year (741) (179) 14,244
============= ============= =============
17. Information on the consolidated statements of cash flows
In 1999, the company adopted the Canadian Institute of Chartered Accountants'
recommendations related to the presentation of cash flow statements. The
standard requires that only investments which have an original maturity of
three months or less be disclosed as cash equivalents. In addition, all non-
cash transactions are to be excluded from investing and financing activities
and disclosed elsewhere in the consolidated financial statements in a manner
that provides all relevant information about investing and financing
activities.
2000 1999 1998
CAN$ CAN$ CAN$
Non-cash items
Depreciation and amortisation 11,159 8,282 6,952
Share of loss of a company subject to significant influence 5,659 -- --
Non-controlling interest -- -- (1,428)
Net gain on sale of long-term investments (141,220) (24,181) --
Future income taxes (89) (308) --
Other 752 (1,178) 755
------------- ------------- -------------
(123,739) (17,385) 6,279
============= ============= =============
39
17. Information on the consolidated statements of cash flows (continued)
2000 1999 1998
CAN$ CAN$ CAN$
Changes in non-cash working capital items
Accounts receivable (5,619) (22,673) (13,269)
Inventories (518) (924) (868)
Prepaid expenses 616 (637) (1,114)
Accounts payable and accrued liabilities, excluding construction-related
accounts payable 2,959 13,423 2,665
------------- ------------- -------------
(2,562) (10,811) (12,586)
============= ============= =============
Supplemental Information
Income taxes paid 11,057 9,865 4,947
Interest paid 161 468 661
18. Related party transactions
Transactions with a shareholder are as follows:
2000 1999 1998
CAN$ CAN$ CAN$
Royalty revenue 195,588 172,588 153,500
Interest expense on promissory note 6,113 2,610 --
The company incurred professional fees with law firms, in which certain of the
company's directors are partners, totalling CAN$665,000 for the year ended 31
December 2000 (CAN$330,000 for the year ended 31 December 1999 and CAN$988,000
for the year ended 31 December 1998).
These transactions were concluded in the normal course of operations, at the
exchange amount.
19. Commitments and contingencies
The company has undertaken to subscribe to an interest in companies and
partnerships for amounts totaling CAN$48,169,000. As at 31 December 2000, an
amount of CAN$38,569,000 has been subscribed. In addition, the company has
undertaken to subscribe to additional amounts and pay royalties on certain
future sales upon realisation of certain conditions.
During the year, the company has concluded a partnership agreement with the
Canadian government through Technology Partnerships Canada. Under the
agreement, the Canadian government has agreed to contribute up to
CAN$80,000,000 in the development of recombinant protein vaccines over a
period of approximately six years. In 2000, contributions from the Canadian
government amounted to CAN$6,700,000 based on eligible research and
development expenses and is accounted for as research and development contract
revenue. The company is committed to expand research and manufacturing
capabilities and create a predetermined number of employment positions in
Canada over the period of development. The Canadian government will be
entitled to receive warrants during the first two years of the agreement upon
realisation of certain conditions as well as royalties on future sales of
vaccines developed through this agreement.
In 1996, a legal proceeding was instituted in the United States by Emory
University against the company and GlaxoSmithKline for alleged patent
infringement on a product licensed to GlaxoSmithKline. The action seeks
monetary damages relating to the sale of the product in the United States. In
the opinion of management, the claim is without merit and the company is
vigorously opposing the allegation. On 21 December 2000, the U.S. Patent and
Trademark Office invalidated the patent of Emory University. Emory University
may appeal this latest decision. In addition, the company is involved in other
claims and lawsuits in the normal course of business. It is not possible at
this time to determine the ultimate outcome of any of these claims.
40
20. Segmented information
The company has two reportable segments: therapeutics and vaccines. The
therapeutic segment focuses mainly on conducting research and development of
new medications for the treatment of cancer and infectious diseases. The
vaccine segment specialises in the research, development, manufacturing and
marketing of innovative vaccines for the prevention of certain infectious
diseases. Information about other operating segments that are not reportable
is combined and disclosed in the category "Other". These segments mainly
relate to head office operations. Where operating revenue is concerned, they
primarily include inter-segment revenues, interest income and certain other
contract revenue. The accounting policies used for the various segments are
the same as those described in the summary of significant accounting policies
in note 2.
Inter-segment transactions are concluded at the exchange amount and are not
eliminated in presenting the revenues and expenses of each industry segment.
These transactions include head office expenses, such as management fees,
interest and certain operating costs allocated to the various segments.
Industry segments
The company operates in the following industry segments:
2000 1999 1998
CAN$ CAN$ CAN$
Revenue(a)
Therapeutics 235,517 235,185 184,227
Vaccines 49,845 35,706 26,795
Other 41,068 21,171 22,283
------------- ------------- -------------
326,430 292,062 233,305
Inter-segment transactions relating to other segments (1,306) (1,787) (8,340)
------------- ------------- -------------
325,124 290,275 224,965
============= ============= =============
Depreciation and amortisation
Therapeutics 4,532 3,226 3,491
Vaccines 6,349 4,160 2,635
Other 278 896 826
------------- ------------- -------------
11,159 8,282 6,952
============= ============= =============
2000 1999 1998
CAN$ CAN$ CAN$
Income taxes
Therapeutics 12,975 11,443 8,727
Vaccines 251 181 165
Other 697 467 587
------------- ------------- -------------
13,923 12,091 9,479
============= ============= =============
Net earnings (loss)
Therapeutics 171,999 162,362 119,322
Vaccines 2,773 (4,425) (1,482)
Net gain on sale of long-term investments 141,220 24,181 --
Share of loss of a company subject to significant influence (5,659) -- --
Other (10,882) (14,919) 58
------------- ------------- -------------
Earnings from continuing operations 299,451 167,199 117,898
Loss from discontinued operations -- (18,097) (3,124)
------------- ------------- -------------
299,451 149,102 114,774
============= ============= =============
41
20. Segmented information (continued)
2000 1999 1998
CAN$ CAN$ CAN$
Total assets
Therapeutics 282,929 248,664 210,324
Vaccines 139,827 132,975 99,498
Other 445,305 119,460 147,291
------------- ------------- -------------
868,061 501,099 457,113
Assets from discontinued operations -- 123,618 175,449
------------- ------------- -------------
868,061 624,717 632,562
============= ============= =============
Capital expenditures
Therapeutics 13,882 12,518 9,049
Vaccines 13,481 33,273 8,826
Other 3,233 1,737 1,226
------------- ------------- -------------
30,596 47,528 19,101
Variation in construction-related accounts payable 6,306 (6,457) 2,947
------------- ------------- -------------
36,902 41,071 22,048
============= ============= =============
Financial expenses relate to head office operations
Geographic segments
The company operates in the following geographic segments:
2000 1999 1998
CAN$ CAN$ CAN$
Revenue
Canada 114,810 88,039 77,815
United States 136,997 119,164 93,131
Europe 61,878 55,479 56,512
Other 94,859 97,924 73,133
------------- ------------- -------------
408,544 360,606 300,591
Inter-segment transactions (83,420) (70,331) (75,626)
------------- ------------- -------------
325,124 290,275 224,965
============= ============= =============
2000 1999 1998
CAN$ CAN$ CAN$
Segment assets (b)
Canada 117,803 106,958 98,001
United States 36,120 29,485 1,464
Europe 1,310 1,064 3,003
Other 8,122 7,186 3,359
------------- ------------- -------------
163,355 144,693 105,827
============= ============= =============
(a) Revenue includes interest income totaling CAN$843,000 in 2000
(CAN$593,000 in 1999 and CAN$691,000 in 1998) for the therapeutic
segment, CAN$59,000 in 2000 (Nil in 1999 and Nil in 1998) for the
vaccine segment and CAN$16,534,000 in 2000 (CAN$6,934,000 in 1999 and
CAN$9,178,000 in 1998) for the other segments.
(b) Segment assets includes property, plant and equipment, intangible assets
and goodwill.
Information on the company's major client
Revenue includes royalties of CAN$195,588,000 in 2000 (CAN$172,588,000 in 1999
and CAN$153,500,000 in 1998) from a shareholder.
42
21. Financial instruments
Temporary investments
Temporary investments totaling CAN$346,066,000 as at 31 December 2000
(CAN$81,460,000 as at 31 December 1999 and CAN$120,295,000 as at 31 December
1998) include bank term deposits and commercial paper, which have original
maturities of more than three months. The company has classified temporary
investments as held to maturity and has recorded these investments at cost.
Foreign exchange risk
Foreign exchange risk is the risk that variations in exchange rates between
the Canadian dollar and foreign currencies will affect the company's operating
and financial results. The company earns a significant portion of its
operating revenues in U.S. dollars and British pounds and does not use
derivative instruments to reduce its exposure to this foreign exchange risk.
The company has entered into a forward exchange contract which acts as a hedge
to effectively fix the amount of Canadian dollars required to repay the
$80,000,000 promissory note from a shareholder, which is repayable on
19 January 2001, at an exchange rate of 1.4630. Any unrealized gains or losses
on the forward exchange contract are offset by unrealised gains and losses on
the U.S. dollar-denominated promissory note. As at 31 December 2000, the
amount of unrealised gain on this forward exchange contract was CAN$2,920,000
(unrealised loss of CAN$1,576,000 as at 31 December 1999).
Fair value of financial instruments
The company uses the following methods and assumptions to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, temporary investments, accounts receivable,
accounts payable and accrued liabilities
The carrying amounts approximate fair value due to the short-term maturity of
these instruments.
Long-term investments in private companies
The fair value of the investments in private companies is not readily
determinable because these investments are not publicly traded.
Shares of public companies
The fair value of the shares of public companies is established based on the
closing market price as at the balance sheet date. As at 31 December 1999, the
fair value of these shares amounted to CAN$9,301,000 (CAN$4,406,000 as at
31 December 1998).
Long-term debt
The fair value is estimated using discounted cash flow analyses, based on the
company's current incremental borrowing rates for similar types of
arrangements. There is no material difference between the carrying value and
the fair value of the long-term debt.
43
22. Summary of differences between generally accepted accounting principles in
Canada and in the United States
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) in Canada which differ in
certain respects from US GAAP. Had the company followed US GAAP, certain items
on the consolidated balance sheets would have increased (decreased) as
follows:
Consolidated balance sheets
2000 1999 1998
CAN$ CAN$ CAN$
Long-term investments (a) (b) -- (7,151) (4,659)
Property, plant and equipment (c) (6,107) -- --
Other assets
Deferred charges (c) (5,197) (4,648) --
Deferred foreign exchange losses (d) -- (722) (128)
Non-current assets of discontinued operations (f) -- -- (347)
Acquired in-process research and development (e) (40,027) -- --
Shareholders' equity
Retained earnings (50,630) (9,863) 226
Foreign currency translation adjustment (g) (701) (701) (701)
Foreign currency translation adjustment transferred to
comprehensive income (k) 1,442 880 (13,543)
Other cumulative components of comprehensive income (k)
Unrealised investment losses (a) -- (1,957) (4,659)
Foreign currency translation adjustment (1,442) (880) 13,543
In addition, the net earnings (loss) and the earnings (loss) per common share
in the United States are as follows:
Consolidated statements of earnings
2000 1999 1998
CAN$ CAN$ CAN$
Earnings from continuing operations according to Canadian GAAP 299,451 167,199 117,898
Share of loss in a company subject to significant influence (b) 5,194 (5,194) --
Cost of start-up activities (c) (6,656) (4,648) --
Deferred foreign exchange gains (losses) (d) 722 (594) (128)
Acquired in-process research and development (e) (40,027) -- --
Loss on disposal of a long-term investment (h) -- -- (126,069)
------------- ------------- -------------
Earnings (loss) from continuing operations per US GAAP 258,684 156,763 (8,299)
------------- ------------- -------------
Loss from discontinued operations according to Canadian GAAP -- (18,097) (3,124)
Adjustment to loss from discontinued operations (f) -- 347 1,360
------------- ------------- -------------
Loss from discontinued operations per US GAAP -- (17,750) (1,764)
------------- ------------- -------------
Net earnings (loss) per US GAAP 258,684 139,013 (10,063)
============= ============= =============
2000 1999 1998
CAN$ CAN$ CAN$
Earnings (loss) per common share per US GAAP (i)
Basic
Continuing operations 2.56 1.49 (0.08)
Discontinued operations -- (0.17) (0.01)
Net earnings 2.56 1.32 (0.09)
Diluted
Continuing operations 2.51 1.49 (0.08)
Discontinued operations -- (0.17) (0.01)
Net earnings 2.51 1.32 (0.09)
Weighted average number of common shares:
Diluted 102,977,929 106,973,581 110,446,590
44
22. Summary of differences between generally accepted accounting principles in
Canada and in the United States (continued)
(a) Long-term investments
Under Canadian GAAP, investments in shares of public companies and debt
securities, excluding the investments in the common shares of a company
subject to significant influence, are recorded at cost, less any decrease in
value other than a temporary decline. Under US GAAP, the company is required
to record some of these investments at fair value and include the unrealised
gains or losses as a component of comprehensive income in shareholders'
equity. The cost of these investments amounts to nil as at 31 December 2000
(CAN$24,248,000 as at 31 December 1999 and CAN$22,865,000 as at 31 December
1998) and the fair value amounts to nil as at 31 December 2000 (CAN$22,291,000
as at 31 December 1999 and CAN$18,206,000 as at 31 December 1998).
(b) Share of loss in a company subject to significant influence
Under US GAAP, the total investment in NAVA would have been reduced by
CAN$5,194,000 in 1999 in accordance with the requirements of the Emerging
Issues Task Force on accounting by an equity method investor for investee
losses when the investor has loans to and investments in other securities of
the investee.
(c) Cost of start-up activities
As stated in Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), costs of start-up activities should be expensed as
incurred. Pursuant to SOP 98-5, the company has written off the unamortised
portion of the start-up activity costs included in deferred charges and
property, plant and equipment.
(d) Deferred foreign exchange gains and losses
Under Canadian GAAP, unrealised foreign exchange gains and losses arising on
the translation of long-term monetary items are deferred and amortised over
the term of the item. Under US GAAP, these gains or losses are included in
earnings. The deferred foreign exchange losses on the balance sheet amounting
to Nil and CAN$722,000 as at 31 December 2000 and 1999 respectively would have
been eliminated. Accordingly, a foreign exchange gain amounting to CAN$722,000
is recognised in earnings for the year ended 31 December 2000 and a foreign
exchange loss amounting to CAN$594,000 and CAN$128,000 is recognised in
earnings for the years ended 31 December 1999 and 1998 respectively.
(e) Acquired in-process research and development
As stated in FASB Interpretation (FIN) No. 4, "Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the Purchase Method", any
identifiable assets of the acquiree to be used in research and development
projects that do not also have an alternative future use should be first
valued as part of the purchase price allocation, and then charged to expense
of the acquiring company. The acquired research and development relate to the
acquisition of CliniChem Development Inc. as at 15 December 2000.
(f) Discontinued operations
For discontinued operations, the same principles as described in (d) for
deferred foreign exchange losses applies under US GAAP. The impact on earnings
from discontinued operations, net of income taxes, is Nil in 2000 and an
increase of CAN$347,000 in 1999 and CAN$1,360,000 in 1998.
(g) Realisation of foreign currency translation adjustment
Under Canadian GAAP, a portion of the foreign currency translation adjustment
is recognised in earnings on repatriation of capital from foreign operations.
Under US GAAP, adjustments to the foreign currency translation adjustment are
only made if there is a reduction in ownership to a third party.
(h) Loss on disposal of a long-term investment
Under US GAAP, the distribution of CliniChem's Class A shares in 1998
amounting to CAN$150,000,000 is reduced by CAN$126,069,000 and an equivalent
loss on disposal of a long-term investment is recorded.
(i) Earnings per share
Under Canadian GAAP, diluted earnings per share assumes that all the
outstanding options at the end of the year have been exercised at the
beginning of the year or at the date granted, if granted during the year, and
proceeds from the exercise of options have been used for investments. Under US
GAAP, diluted earnings per share is calculated based on the assumption that
the options have been exercised at the beginning of the year or at the date
granted, if granted during the year, and proceeds from the exercise of options
were used at the beginning of the year or at the date granted to acquire
common shares of the company at the average market price.
45
22. Summary of differences between generally accepted accounting principles in
Canada and in the United States (continued)
(j) Earnings before depreciation, amortisation and other
US GAAP does not permit the disclosure of a subtotal for earnings before
depreciation, amortisation and other. Canadian GAAP permits the disclosure of
this subtotal.
(k) Comprehensive income
Under US GAAP, unrealised gains or losses on investments and the change in the
foreign currency translation adjustment are added to net earnings for the year
to determine comprehensive income. In addition, these two items are presented
as other components of comprehensive income under shareholders' equity. The
changes in comprehensive income are as follows:
2000 1999 1998
CAN$ CAN$ CAN$
Net earnings (loss) per U.S. GAAP 258,684 139,013 (10,063)
Unrealised gains (losses) on long-term investments 1,957 2,702 (3,234)
Foreign currency translation adjustment (562) (14,423) 11,845
------------- ------------- -------------
Consolidated comprehensive income 260,079 127,292 (1,452)
============= ============= =============
Consolidated statements of cash flows
o Under US GAAP, the distribution of the CliniChem Class A shares
amounting to CAN$150,000,000 shown as a financing activity in 1998 would
be reduced by CAN$126,069,000 and cash flow from operations would be
reduced by the same amount.
o Canadian GAAP allows for the presentation of operating cash flow before
changes in non-cash working capital items in the consolidated statements
of cash flows. Pre-acquisition free cash flow can also be disclosed.
These totals cannot be presented under US GAAP.
Accounting for compensation programs
The company measures compensation costs related to awards of stock options
using the intrinsic value- based method of accounting. Under US GAAP, the
company is required to make pro forma disclosure of net earnings (loss), as if
the fair value-based method of accounting had been applied. The fair value of
options granted is estimated using the Black-Scholes option-pricing model
based on the weighted average market price at grant date and the following
weighted average assumptions:
Years Ended 31 December 2000 1999 1998
Dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 6.4% 5.2% 5.4%
Volatility 50% 50% 45%
Expected life (years) 7.5 7.5 7.5
The following table presents the pro forma decrease (increase) in net earnings
(loss) that would have been recorded had the fair values of options granted
been recognised as compensation expense on a straight-line basis over the
vesting period of the grant.
2000 1999 1998
CAN$ CAN$ CAN$
Pro forma
Net earnings (loss) 19,272 9,415 (14,715)
Earnings (loss) per share
Basic 0.19 0.09 (0.14)
Diluted 0.18 0.09 (0.13)
The weighted average fair value of options granted in 2000 was CAN$25.84
(CAN$22.91 in 1999 and CAN$18.18 in 1998).
46
22. Summary of differences between generally accepted accounting principles in
Canada and in the United States (continued)
Accounting pronouncements not yet implemented
In 2000, the Canadian Institute of Chartered Accountants issued a new
accounting standard concerning earnings per share. The company is required to
adopt this standard for Canadian GAAP reporting purposes for the fiscal year
beginning with 2001. The impact of this new standard will have no material
impact on the computation of earnings per share and diluted earnings per
share.
The Financial Accounting Standards Board has issued Statement of Financial
Standard Board No. 133 dealing with hedging instruments. This standard should
be adopted for fiscal years commencing after 15 June 2000. The company has not
yet determined the potential impact of this statement.
47
Quarterly Financial Results
(in thousands except per share information)
Year Ended 31 December 2000
Quarter ended
-----------------------------------------------------------------------------------
31 March 2000 30 June 2000 30 Sept 2000 31 Dec 2000 Total
CAN$ CAN$ CAN$ CAN$ CAN$
Operating revenue 72,517 72,741 85,470 94,396 325,124
Earnings from continuing operations 40,429 169,252 44,773 44,997 299,451
Net earnings 40,429 169,252 44,773 44,997 299,451
Basic earnings per common share
Continuing operations 0.40 1.67 0.44 0.44 2.95
Net earnings 0.40 1.67 0.44 0.44 2.95
Year Ended 31 December 1999
Quarter ended
-----------------------------------------------------------------------------------
31 March 1999 30 June 1999 30 Sept 1999 31 Dec 1999 Total
CAN$ CAN$ CAN$ CAN$ CAN$
Operating revenue 62,722 68,676 70,366 88,511 290,275
Earnings from continuing operations 30,206 35,974 32,874 68,145 167,199
Net earnings 29,109 35,974 32,874 51,145 149,102
Basic earnings per common share
Continuing operations 0.28 0.33 0.32 0.66 1.59
Net earnings 0.27 0.33 0.32 0.50 1.42
Quarterly Stock Market Information
For the years ended 31 December 2000 and 1999
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------------- --------------------- --------------------- ---------------------
2000 1999 2000 1999 2000 1999 2000 1999
Montreal Exchange and The
Toronto Stock Exchange
High (CAN$) 49.50 45.40 37.10 35.25 36.75 40.70 48.15 38.50
Low (CAN$) 30.65 28.25 31.30 26.45 29.30 28.35 33.85 28.80
Volume (000) 878,867 20,736 306,216 18,418 256,015 16,850 654,013 16,981
NASDAQ National Market
High ($) 34.63 30.25 25.25 23.63 24.75 27.63 32.13 26.06
Low ($) 21.13 18.88 21.63 17.38 19.75 18.50 22.38 19.44
Volume (000) 1,101,422 54,692 469,038 31,350 458,221 44,501 1,045,032 36,120
48
PART IV
Reconciliation of BioChem financial results
As noted in Part V, Shire prepares its primary financial statements in US
dollars in accordance with US GAAP. Financial statements in UK pounds in
accordance with UK GAAP are prepared for statutory purposes. BioChem prepares
its financial statements in Canadian dollars in accordance with Canadian
GAAP. The reconciliations of BioChem's financial results have been prepared in
accordance with both US and UK GAAP.
(a) (i)Reconciliation of BioChem financial results to US GAAP as applied by
Shire for the three years ended 31 December 2000
Unaudited reconciliation of financial information under US GAAP
Accounting policies generally accepted in the US differ in certain material
respects from those generally accepted in Canada. The differences which are
material to restating the historical financial statements of BioChem to
conform with Shire's accounting policies under US GAAP are set out below.
Year ended Year ended Year ended
31 December 31 December 31 December
1998 1999 2000
Notes CAN$'000 CAN$'000 CAN$'000
Earnings from continuing operations as reported under
Canadian GAAP 117,898 167,199 299,451
Total other income (15,145) (15,270) (25,401)
Provision for income taxes 9,479 12,091 13,923
Net gain on sale of long-term investments -- (24,181) (141,220)
Non-controlling interest (1,428) -- --
Deferred charges (d) -- (4,648) (6,656)
Consolidation of CliniChem (a) (22,139) (74,254) (60,794)
CliniChem transaction costs (a) (6,500) -- --
In-process research and development (b) -- -- (40,027)
------------- ------------- -------------
Operating income as reported under US GAAP 82,165 60,937 39,276
Consolidation of CliniChem (a) 4,061 5,263 1,872
Share of loss in a company subject to significant influence (c) -- (5,194) 5,194
Deferred foreign exchange gains and losses (e) (128) (594) 722
Net gain on sale of long-term investments -- 24,181 141,220
Non-controlling interest 1,428 -- --
Total other income 15,145 15,270 25,401
------------- ------------- -------------
Income from continuing operations before income taxes under
US GAAP 102,671 99,863 213,685
------------- ------------- -------------
Provisions for income taxes as reported under Canadian GAAP (9,479) (12,091) (13,923)
Consolidation of CliniChem (a) 694 1,336 1,301
Loss from discontinued operations as reported under Canadian
GAAP (3,124) (18,097) --
Adjustment to loss from discontinued operations (g) 1,360 347 --
------------- ------------- -------------
Net income under US GAAP 92,122 71,358 201,063
============= ============= =============
49
Year ended Year ended Year ended
31 December 31 December 31 December
1998 1999 2000
Notes CAN$ CAN$ CAN$
Earnings per share per US GAAP adjusted results (h)
Earnings per share
Basic 0.85 0.68 1.99
Diluted 0.83 0.67 1.95
Weighted average number of common shares:
Basic 108,442,700 105,312,719 101,240,416
Diluted 110,446,590 106,973,581 102,977,929
Reconciliation of consolidated total assets less total liabilities /
shareholders' equity between Canadian and US GAAP
As at As at As at
31 December 31 December 31 December
1998 1999 2000
Notes CAN$'000 CAN$'000 CAN$'000
As reported under Canadian GAAP 478,621 376,864 684,840
Adjustments for:
Long term investments (c) -- (5,194) --
Long term investments (f) (4,659) (1,957) --
Capital assets (d) -- -- (6,107)
Deferred charges (d) -- (4,648) (5,197)
Consolidation of CliniChem (a) 126,117 58,462 (841)
Elimination of acquired research and development (a) -- -- (40,027)
Deferred foreign exchange gains and losses (e) (128) (722) --
Non-current assets of discontinued operations (g) (347) -- --
--------------- --------------- ---------------
As reported under US GAAP 599,604 422,805 632,668
=============== =============== ===============
Notes:
(a) CliniChem Development, Inc. ("CliniChem")
Consolidation of CliniChem
In 1998, BioChem spun-off to its shareholders its investment in CliniChem. In
connection with this spin-off, BioChem retained rights in CliniChem, including
that BioChem had an option to reacquire all shares in CliniChem at any time.
Under EITF 99-16, this transaction would result in CliniChem continuing to be
consolidated by BioChem as BioChem would have significant continuing
involvement in the operations of CliniChem. However, at the time that
CliniChem was spun-off, EITF 99-16 had not been issued and BioChem elected to
deconsolidate CliniChem, an acceptable accounting principle at that time. The
management of Shire believe that their accounting policies would have required
Shire to continue to consolidate CliniChem, also an acceptable accounting
alternative at the date of spin-off and a policy that conforms with the later
guidance issued under EITF 99-16.
On 15 December 2000, BioChem reacquired CliniChem and has accounted for the
acquisition using purchase accounting.
50
The adjustments set out below cover all three years and represent the effects
from:
(i) consolidating the financial position and results of operation of
CliniChem;
(ii) eliminating intercompany licensing revenues and costs; and
(iii) recording accumulated deficits incurred by CliniChem during the period
that it was not consolidated.
Year ended Year ended Year ended
31 December 31 December 31 December
1998 1999 2000
CAN$'000 CAN$'000 CAN$'000
Total revenue (22,139) (74,254) (60,794)
Operating expenses -- -- --
--------------- --------------- ---------------
Operating loss (22,139) (74,254) (60,794)
Interest income 4,061 5,263 1,872
--------------- --------------- ---------------
Loss before taxes (18,078) (68,991) (58,922)
Income taxes 694 1,336 1,301
--------------- --------------- ---------------
Net loss from continuing operations (17,384) (67,655) (57,621)
--------------- --------------- ---------------
As at 31 December As at 31 December As at 31 December
1998 1999 2000
CAN$'000 CAN$'000 CAN$'000
Shareholders' equity 126,117 58,462 (841)
--------------- --------------- ---------------
51
These adjustments have been derived from the financial results of CliniChem as
follows:
US GAAP
Income Statement Data Canadian GAAP alignments US GAAP
CAN$'000 CAN$'000 CAN$'000
Period ended 31 December 1998
Total revenue 4,061 (4,061) --
Operating expenses (21,379) (760) (22,139)
--------------- --------------- ---------------
Operating loss (17,318) (4,821) (22,139)
Interest income -- 4,061 4,061
--------------- --------------- ---------------
Loss before taxes (17,318) (760) (18,078)
Income taxes (66) 760 694
--------------- --------------- ---------------
Loss from continuing operations (17,384) -- (17,384)
--------------- --------------- ---------------
Year ended 31 December 1999
Total revenue 5,263 (5,263) --
Operating expenses (72,918) (1,336) (74,254)
--------------- --------------- ---------------
Operating loss (67,655) (6,599) (74,254)
Interest income -- 5,263 5,263
--------------- --------------- ---------------
Loss before taxes (67,655) (1,336) (68,991)
Income taxes -- 1,336 1,336
--------------- --------------- ---------------
Net loss from continuing operations (67,655) -- (67,655)
--------------- --------------- ---------------
Period ended 14 December 2000
Total revenue 1,894 (1,894) --
Operating expenses (59,515) (1,279) (60,794)
--------------- --------------- ---------------
Operating loss (57,621) (3,173) (60,794)
Interest income -- 1,872 1,872
--------------- --------------- ---------------
Loss before taxes (57,621) (1,301) (58,922)
Income taxes -- 1,301 1,301
--------------- --------------- ---------------
Net loss from continuing operations (57,621) -- (57,621)
--------------- --------------- ---------------
52
As at 31 December As at 31 December As at 15 December
Balance Sheet Data 1998 1999 2000*
CAN$'000 CAN$'000 CAN$'000
Cash and cash equivalents 20,009 1,178 11,041
Temporary investments 114,392 69,247
Taxes and other receivables 1,115 3,699 2,695
Scientific research and experimental development tax credits receivable 759 1,243 1,089
--------------- --------------- ---------------
Total current assets 136,275 75,367 14,825
--------------- --------------- ---------------
Accounts payable and accrued liabilities 10,158 16,905 13,984
--------------- --------------- ---------------
Shareholders' equity
Share capital 1 1 1
Contributed surplus 143,500 143,500 143,500
Deficit accumulated during the development stage (17,384) (85,039) (142,660)
--------------- --------------- ---------------
126,117 58,462 841
--------------- --------------- ---------------
* As CliniChem was consolidated following the re-acquisition as discussed
above, CAN$841,000 is already included in the BioChem results and
therefore needs to be reversed.
Write off of in-process research and development
The acquired in-process research and development in respect of CliniChem
included on BioChem's balance sheet at 31 December 2000 of CAN$40,027,000 is
written off immediately.
The in-process research and development has been calculated as follows:
CAN$'000
Purchase price 48,286
Share of loss of CliniChem until December 14, 2000 (5,659)
---------------
42,627
---------------
Cash 11,241
Non-cash working capital (10,400)
Acquired commercialised products 1,759
Acquired in-process research and development 40,027
---------------
42,627
---------------
This allocation is of a preliminary nature and may change on further analysis
of the purchase price.
Transaction costs
The difference between the CAN$150,000,000 cash contribution to CliniChem's
capital by BioChem and the CAN$143,500,000 recorded as a contributed surplus
by CliniChem represents CAN$6,500,000 of transaction costs. These costs have
been included in the income statement for the year ended 31 December 1998.
(b) In-process research and development
As stated in FASB Interpretation (FIN) No. 4, "Applicability of FASB Statement
No. 2 Business Combinations Accounted for by the Purchase Method", any
identifiable assets of the acquiree to be used in research and development
projects that do not also have an alternative future use should be first
valued as part of the purchase price allocation, and then charged to expense
of the acquiring company. The acquired research and development relates to the
acquisition of CliniChem as at December 15, 2000. For further information on
CliniChem, see note (a) above.
53
(c) Share of loss in a company subject to significant influence
Under US GAAP, the total investment in North American Vaccine Inc. (NAVA)
would have been reduced by CAN$5,194,000 in 1999 in accordance with the
requirements of the Emerging Issues Task Force on accounting by an equity
method investor for investee losses when the investor has loans to and
investments in other securities of the investee. This adjustment was reversed
in the year ended 31 December 2000 as the investment in NAVA was disposed of.
(d) Cost of start-up activities
As stated in Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), costs of start-up activities should be expensed as
incurred. Pursuant to SOP 98-05, the company has written off the unamortised
portion of the start-up activity costs included in deferred charges and
property, plant and equipment.
(e) Deferred foreign exchange gains and losses
Under Canadian GAAP, unrealised foreign exchange gains and losses arising on
the translation of long-term monetary items are deferred and amortised over
the life of the item. Under US GAAP, these gains and losses are included in
earnings. The deferred foreign exchange losses on the balance sheet amounting
to CAN$ nil and CAN$722,000 as at 31 December 2000 and 1999 respectively would
have been eliminated. Accordingly a foreign exchange gain amounting to
CAN$722,000 is recognised in earnings for the year ended 31 December 2000 and
a foreign exchange loss amounting to CAN$594,000 and CAN$128,000 is recognised
in earnings for the years ended 31 December 1999 and 1998 respectively.
(f) Long-term investment
Under Canadian GAAP, investments in shares of public companies and debt
securities, excluding the investment in the common shares of a company subject
to significant influence, should be recorded at cost, less any decrease in
value other than a temporary decline. Under US GAAP, the company would be
required to record some of the investments at fair value and would have
presented the unrealised gains or losses as a component of comprehensive
income in the shareholders' equity. The cost of these investments amounts to
CAN$ Nil, CAN$24,248,000 and CAN$22,865,000 as at 31 December 2000, 1999 and
1998 respectively and the fair value amounts to CAN$ Nil, CAN$22,291,000 and
CAN$18,206,000 as at 31 December 2000, 1999 and 1998 respectively.
(g) Discontinued operations
For discontinued operations, the same principles as described in (e) for
deferred foreign exchange losses would apply under US GAAP. The impact on
earnings from discontinued operations, net of income taxes, would be an
increase of CAN$347,000 in 1999 and CAN$1,360,000 in 1998.
(h) Earnings per share
Under Canadian GAAP, fully diluted earnings per share assumes that all the
outstanding options at the end of the year have been exercised at the
beginning of the year or at the date granted, if granted during the year, and
proceeds from the exercise of options have been used for investments. Under US
GAAP, diluted earnings per share is calculated based on the assumption that
the options have been exercised at the beginning of the year or at the date
granted, if granted during the year, and proceeds from the options were used
at the beginning of the year or at the date granted to acquire common shares
of the company at the average market price.
(i) Cash flow statement
Under US GAAP, consolidated cash flow statements are presented in accordance
with SFAS No. 95. The statements prepared under US GAAP present substantially
the same information as that required under Canadian GAAP.
54
(a) (ii) Unaudited reconciliation of BioChem's Canadian GAAP, CAN$ financial
information for the year ended 31 December 2000 to US GAAP as
applied by Shire
The following table is the unaudited reconciliation of BioChem's
Canadian GAAP, CAN$ financial information for the year ended 31
December 2000 to US GAAP as applied by Shire.
BioChem US GAAP BioChem BioChem
CAN GAAP adjustments US GAAP US GAAP
Note 1 Note 2 Note 3
CAN$'000 CAN$'000 CAN$'000 US$'000
Royalty revenue 195,588 -- 195,588 131,670
Other revenues (a) 99,239 (60,794) 38,445 25,882
-------------- -------------- -------------- --------------
Revenues 294,827 (60,794) 234,033 157,552
Cost of sales (19,626) -- (19,626) (13,212)
-------------- -------------- -------------- --------------
Gross profit 275,201 (60,794) 214,407 144,340
Research and development (b) (73,120) (40,027) (113,147) (76,170)
Other operating expenses (c) (51,413) (6,656) (58,069) (39,071)
-------------- -------------- -------------- --------------
Operating income 150,668 (107,477) 43,191 29,099
Interest income (d) 17,436 1,872 19,308 12,998
Interest expense (e) (6,278) -- (6,278) (4,226)
Other income/(expenses), net (f) 150,262 5,916 156,178 105,318
-------------- -------------- -------------- --------------
Income before income taxes 312,088 (99,689) 212,399 143,189
Income taxes (g) (12,637) 1,301 (11,336) (7,631)
-------------- -------------- -------------- --------------
Net income from continuing operations 299,451 (93,388) 201,063 135,558
-------------- -------------- -------------- --------------
Supplemental information
Net income as above 135,558
Add back/(deduct):
Write off of in-process research and development
(CAN$ 40,027,000) 26,945
Net gain on sale of long term investments (CAN$
141,220,000) (104,031)
--------------
Net income before exceptionals 58,472
==============
Notes
1 The BioChem Canadian GAAP financial information presented in
CAN$ is extracted from the BioChem consolidated financial
statements appearing in Part III of this document and
represented as described in notes (a) - (g) below.
CAN$'000
(a) Other revenues
From consolidated statement
of earnings:
-- Sales 32,885
-- Research and development 66,812
-- Other (458)
--------------
99,239
--------------
(b) Research and development
From consolidated statement
of earnings:
-- Research and development 71,834
-- R&D tax credit (note 6) 1,286
--------------
73,120
--------------
55
CAN$'000
(c) Other operating expenses
From consolidated statement
of earnings:
-- Selling and
Administration 14,251
-- Administration 26,003
-- Depreciation and
amortisation 11,159
--------------
51,413
--------------
(d) Interest income
From note 20 (a):
-- Therapeutics 843
-- Vaccines 59
-- Other 16,534
--------------
17,436
--------------
(e) Interest expense
From note 6:
-- Interest on long term
debt 6,114
-- Other interest 164
--------------
6,278
--------------
(f) Other income/(expenses), net
From consolidated statement
of earnings:
-- Net gain on sale of long
term investments 141,220
-- Share of loss of company
subject to significant
influence (5,659)
-- Investment and other
revenues 29,839
-- Financial expenses (4,438)
-- Less interest income (see
note (d) above) (17,436)
-- Add interest expense (see
note (e) above) 6,278
-- Other 458
--------------
150,262
--------------
(g) Income taxes
From consolidated statement
of earnings:
-- Income taxes 13,923
-- R&D tax credit (1,286)
--------------
12,637
--------------
2 The US GAAP adjustments are extracted from Part IV (a)(i)
Reconciliation of BioChem financial results to US GAAP as
applied by Shire.
3 Conversion into US$ has been performed using the average
exchange rate for the period of 1.4854 except for the net
gain on sale of investments which was translated at the
exchange rate ruling on the date of the transaction.
56
[graphic]
The Directors and Proposed Directors Arthur Andersen
Shire Pharmaceuticals Group plc Abbots House
East Anton Abbey Street
Andover Reading
Hampshire RG1 3BD
SP10 5RG
The Directors
Deutsche Bank AG London
Global Investment Banking
Winchester House
1 Great Winchester Street
London
EC2N 2DB 1 March 2001
Dear Sirs
We report on the unaudited reconciliations to US GAAP of the consolidated
statement of total assets less total liabilities and shareholders equity as at
31 December 2000, 1999 and 1998, the statement of consolidated net income
statements for each of the three financial years then ended and the
consolidated income statement for the year then ended 31 December 2000 of
BioChem and its subsidiaries ("the financial information (as adjusted) of
BioChem") prepared on the basis of the accounting policies of Shire in
accordance with US GAAP set out on pages 49 to 56 in Part IV of the circular
and listing particulars dated 1 March 2001 issued by Shire.
Responsibilities
It is the responsibility solely of the Directors of Shire to prepare the
financial information (as adjusted) of BioChem in accordance with paragraph
12.11 of the Listing Rules of the UK Listing Authority ("the Listing Rules").
It is our responsibility to form an opinion, as required by the Listing Rules,
on the financial information (as adjusted) of BioChem and to report our
opinion to you.
The financial information (as adjusted) of BioChem incorporates significant
reclassifications of and adjustments to the historical financial statements of
BioChem. The historical financial statements of BioChem for each of the three
years ended 31 December 2000 state that they were prepared in accordance with
Canadian GAAP and were audited by Raymond Chabot Grant Thornton, who gave
unqualified reports thereon. We do not accept any responsibility for the
historical financial statements of BioChem.
Basis of Opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued in the United Kingdom by the Auditing Practices
Board.
Our work, which was substantially less in scope than an audit and involved no
independent examination of any of the underlying financial information,
consisted primarily of making enquiries of the management of BioChem and its
auditors to establish the accounting policies which were applied in the
preparation of the underlying financial information, considering the evidence
supporting the reclassifications and adjustments made and discussing the
financial information (as adjusted) of BioChem with the Directors of Shire.
Our work has not been carried out in accordance with auditing standards
generally accepted in the United States and accordingly should not be relied
upon as if it had been carried out in accordance with those standards.
Opinion
In our opinion:
1. the financial information (as adjusted) of BioChem has been properly
compiled on the basis stated; and
2. the adjustments are appropriate for the purpose of presenting the
financial information (as adjusted) of BioChem on a basis consistent in
all material respects with the accounting policies of Shire under US
GAAP.
Yours faithfully
Arthur Andersen
Chartered Accountants
57
(b) Reconciliation of BioChem financial results to UK GAAP as applied by Shire
for the three years ended 31 December 2000
Unaudited reconciliation of financial information under UK GAAP
Accounting policies generally accepted in the UK differ in certain material
respects from those generally accepted in Canada.
A summary of Shire's principal accounting policies under UK GAAP, all of which
have been applied consistently throughout the periods presented, is set out
below:
(a) Basis of accounting
The accounts have been prepared under the historical cost convention, and in
accordance with applicable accounting standards. The accounts have been
prepared in accordance with UK GAAP.
(b) Basis of consolidation
The Group accounts consolidate the accounts of Shire and all its subsidiary
undertakings drawn up to 31 December each year.
Under the acquisition method of accounting, which has been adopted for
business combinations other than Group reconstructions, the results of
subsidiary undertakings acquired or disposed of in a period are included in
the consolidated profit and loss account from the date of acquisition up to
the date of disposal.
Where merger accounting principles apply, subsidiary undertakings are
consolidated as if they have always been owned by the Company and acquired
share premium has been shown as other reserves. There has been no difference
between the nominal value of shares issued to acquire subsidiary undertakings
and the nominal value of shares acquired.
(c) Intangible assets - goodwill
Goodwill arising on acquisitions in the year ended 31 December 1997 and
earlier periods was written off to reserves in accordance with the accounting
standard then in force. As permitted by the current accounting standard the
goodwill previously written off to reserves has not been reinstated in the
balance sheet. On disposal or closure of a previously acquired business, the
attributable amount of goodwill previously written off to reserves is included
in determining the profit or loss on disposal.
Goodwill arising on the acquisition of subsidiary undertakings and businesses
subsequent to 31 December 1997, representing any excess of the fair value of
the consideration given over the fair value of the identifiable assets and
liabilities acquired, is capitalised and written off on a straight line basis
over its useful economic life being 20 years. Provision is made for any
impairment.
(d) Intangible assets - intellectual property
Intellectual property, including trademarks, for products with an immediate
defined revenue stream and acquired for valuable consideration, is recorded at
cost and amortised in equal annual instalments over the estimated useful life
of the product with a maximum of 20 years. Intellectual property with no
defined revenue stream is written off on acquisition. Provision is made for
any impairment.
(e) Tangible fixed assets
Tangible fixed assets are shown at cost less accumulated depreciation and any
provision for impairment. Depreciation is provided on a straight line basis at
rates calculated to write off the cost less estimated residual value of each
asset over its estimated useful life at the following annual rates:
Freehold land and buildings 2 per cent per annum
Office furniture and fittings 20-25 per cent per annum
Equipment and other 20-25 per cent per annum
(f) Investments
Fixed asset investments are shown at cost less any provision for impairment.
Current asset investments are shown at the lower of cost and net realisable
value.
58
(g) Stocks
Stocks are stated at the lower of cost and net realisable value. Cost incurred
in bringing each product to its present location and condition is based on
purchase costs calculated on a first-in, first-out basis, including transport.
Net realisable value is based on estimated normal selling price less further
costs expected to be incurred to completion and disposal. Provision is made
for obsolete, slow moving or defective items where appropriate.
(h) Taxation
Corporation tax is provided on taxable profits at the current rate.
Deferred taxation (which arises from differences in the timing of recognition
of items, principally depreciation, in the accounts and by the tax
authorities) has been calculated on the liability method. Deferred taxation is
provided on timing differences which will probably reverse at the rates of tax
likely to be in force at the time of reversal. Deferred taxation is not
provided on timing differences which, in the opinion of the Directors, will
probably not reverse.
(i) Turnover
The principal components of the Company's turnover and their respective
accounting treatments are set out below.
The Company recognises turnover when:
o there is persuasive evidence of an arrangement;
o delivery of products has occurred or services have been rendered;
o the seller's price to the buyer is fixed or determinable; and
o collectibility is reasonably assured.
Product sales are recognised net upon shipment to customers. Provisions for
certain rebates, product returns and discounts to customers are provided for
as reductions to net turnover in the same period as the related sales are
recorded.
Licensing and development fees represent revenues derived from licence
agreements and from collaborative research and development arrangements.
Initial licence fees are not considered to be separable from the associated
research and development activities, even where such fees are non-refundable
and not creditable against research and development services to be rendered.
Initial licence fees are thus deferred and recognised over the period of the
licence term or the period of the associated research and development
agreement. In circumstances where initial licence fees are not for a defined
period, revenues are deferred and recognised over the period to the expiration
of the relevant patent to which the licence relates.
Where licensing arrangements are accompanied by an equity subscription
agreement, the series of transactions are accounted for as a multiple elements
arrangement. Accordingly, the aggregate consideration is allocated to the two
elements of the arrangement as described below.
The fair value of the equity subscription is calculated as being the aggregate
number of shares issued at the average of the opening and closing share prices
on the date of issue.
During the term of certain research and development agreements, the Company
receives non-refundable milestones as certain technical targets are achieved.
Revenue is recognised on achievement of milestones.
The Company also receives non-refundable clinical milestones when certain
targets are achieved during the clinical phases of development, such as the
submission of clinical data to a regulatory authority. These clinical
milestones are recognised when received. If milestone payments are creditable
against future royalty payments, the milestones are deferred and released over
the period in which the royalties are anticipated to be received.
Royalty income relating to licensed technology is recognised when receivable.
Revenues are stated net of VAT and similar taxes, trade discounts and intra-
Group transactions.
59
No revenue is recognised for consideration, the value or receipt of which is
dependent on future events, future performance, or refund obligations.
(j) Research and development
Research and development expenditure includes funded and unfunded expenditure
and is written off in the period in which it is incurred.
(k) Pensions
The Group contributes to personal defined contribution pension plans of
employees. Contributions are charged to the profit and loss accounts as they
become payable.
(l) Foreign currency
Monetary assets and liabilities in foreign currencies are translated into
sterling at the rate of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into sterling at the rate of
exchange ruling at the date of the transaction. Exchange differences are taken
into account in arriving at the operating profit.
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets at the rates ruling at the
balance sheet date.
Exchange differences arising on translation of the opening net assets and on
foreign currency borrowings, to the extent that they hedge the Group's
investment in such operations, are dealt with through reserves. All other
exchange differences are included in the profit and loss account.
(m) Leases
The cost of operating leases is charged to the profit and loss account on a
straight line basis over the lease term, even if rental payments are not made
on such a basis.
Assets acquired under finance leases are included in the balance sheet as
tangible fixed assets and are depreciated over the shorter of the period of
lease or their useful lives. The capital elements of future lease payments are
recorded as liabilities, while the interest elements are charged to the profit
and loss account over the period of the leases to give a constant charge on
the balance of the capital repayments outstanding.
(n) Finance costs
Finance costs of debt are charged to the profit and loss account over the term
of the debt at a constant rate on the carrying amount.
(o) Debt
Debt is initially stated at the amount of the net proceeds after deduction of
issue costs. The carrying amount is increased by the finance cost in respect
of the accounting period and reduced by payments made in the period.
Convertible debt is reported as a liability unless conversion actually occurs.
No gain or loss is recognised on conversion.
(p) Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange risk and interest rate movements. The Group does not hold or issue
derivative financial instruments for speculative purposes.
For a forward foreign exchange contract to be treated as a hedge the
instrument must be related to actual foreign currency assets or liabilities or
to a probable commitment. It must involve the same currency or similar
currencies as the hedged item and must also reduce the risk of foreign
currency exchange movements on the Group's operations. Gains and losses
arising on these contracts are deferred and recognised in the profit and loss
account, or as adjustments to the carrying amount of fixed assets, only when
the hedged transaction has itself been reflected in the Group's accounts.
For an interest rate swap to be treated as a hedge the instrument must be
related to actual assets or liabilities or a probable commitment and must
change the nature of the interest rate by converting a fixed rate to a
variable rate or vice versa. Interest differentials under these swaps are
recognised by adjusting net interest payable over the periods of the
contracts.
60
If an instrument ceases to be accounted for as a hedge, for example because
the underlying hedged position is eliminated, the instrument is marked to
market and any resulting profit or loss recognised at that time.
(q) Employee share schemes
In accordance with UITF Abstract 17 "Employee share schemes", the cost of
awards to employees that take the form of shares or rights to shares is
recognised as a charge in the profit and loss account. The amount recognised,
which is the difference between the market value at date of grant and the
underlying share and any exercise price, is charged to the profit and loss
account over the period the shares are vested, with a corresponding credit to
reserves.
(r) Related party transactions
In accordance with the exemptions in FRS 8, "Related Party Transactions",
transactions between Group companies have not been disclosed since Group
accounts are prepared and include the results of all subsidiary undertakings.
The differences which are material to restating the historical financial
statements of BioChem to conform with Shire's accounting policies under UK
GAAP are set out below.
Year ended Year ended Year ended
31 December 1998 31 December 1999 31 December 2000
Notes CAN$000 CAN$000 CAN$000
Earnings from continuing operations as reported under
Canadian GAAP 117,898 167,199 299,451
Total other income (15,145) (15,270) (25,401)
Provision for income taxes 9,479 12,091 13,923
Gain on sale of long-term investments -- (24,181) (141,220)
Non-controlling interest (1,428) -- --
Deferred charges (c) (4) (1,106) (6,656)
Consolidation of CliniChem (a) (22,139) (74,254) (60,794)
CliniChem transaction costs (a) (6,500) -- --
------------- ------------- -------------
Operating profit as reported under UK GAAP 82,161 64,479 79,303
Consolidation of CliniChem (a) 4,061 5,263 1,872
Share of loss in a company subject to significant influence (b) (29,141) (23,439) 64,227
Gain on sale of long-term investments -- 24,181 141,220
Non-controlling interest 1,428 -- --
------------- ------------- -------------
Profit on ordinary activities before finance charges under
UK GAAP 58,509 70,484 286,622
Total other income 15,145 15,270 25,401
Deferred foreign exchange gains and losses (d) (128) (594) 722
------------- ------------- -------------
Profit on ordinary activities before taxation under UK GAAP 73,526 85,160 312,745
Provisions for income taxes as reported under Canadian GAAP (9,479) (12,091) (13,923)
Consolidation of CliniChem (a) 694 1,336 1,301
Loss from discontinued operations as reported under Canadian
GAAP (3,124) (18,097) --
Adjustment for discontinued operations (e) -- 17,000 (17,000)
------------- ------------- -------------
Profit on ordinary activities after taxation under UK GAAP
being retained profit as reported under UK GAAP 61,617 73,308 283,123
============= ============= =============
61
Year ended Year ended Year ended
31 December 31 December 31 December
1998 1999 2000
Notes CAN$ CAN$ CAN$
Earnings per share per UK GAAP adjusted results (g)
Earnings per share
- - Basic 0.57 0.70 2.80
- - Diluted 0.56 0.69 2.75
Weighted average number of common shares:
Basic 108,442,700 105,312,719 101,240,416
Diluted 110,466,590 106,973,581 102,977,929
Reconciliation of consolidated net assets / shareholders' equity from Canadian
to UK GAAP as applied by Shire
As at As at As at
31 December 1998 31 December 1999 31 December 2000
Notes CAN$000 CAN$000 CAN$000
As reported under Canadian GAAP 478,621 376,864 684,840
Adjustments for:
Long term investments (b) (40,788) (64,227) --
Property, plant and equipment (c) -- -- (6,107)
Deferred charges (c) (3,542) (4,648) (5,197)
Consolidation of CliniChem (a) 126,117 58,462 (841)
Retained losses from discontinued operations (e) -- 17,000 (17,000)
---------------- ---------------- ----------------
As reported under UK GAAP 560,408 383,451 655,695
---------------- ---------------- ----------------
Notes:
(a) CliniChem Development, Inc. ("CliniChem")
Consolidation of CliniChem
In 1998, BioChem spun-off to its shareholders its investment in CliniChem. In
connection with this spin-off, BioChem retained rights in CliniChem, including
that BioChem had an option to reacquire all shares in CliniChem at any time.
Applying Shire's accounting policies, this transaction would result in
CliniChem continuing to be consolidated by BioChem as BioChem has the right to
exercise a dominant influence over CliniChem. However, at the time that
CliniChem was spun-off, BioChem elected to deconsolidate CliniChem, an
acceptable accounting principle at that time. The management of Shire believe
that their accounting policies would have required Shire to continue to
consolidate CliniChem, also an acceptable accounting alternative at the date
of spin-off.
On 15 December 2000, BioChem reacquired CliniChem and has accounted for the
acquisition using purchase accounting.
62
The adjustments set out below cover all three years and represent the effects
from:
(i) consolidating the financial position and results of operation of
CliniChem;
(ii) eliminating intercompany licensing revenues and costs; and
(iii) recording accumulated deficits incurred by CliniChem during the period
that it was not consolidated.
Year ended Year ended Year ended
31 December 31 December 31 December
1998 1999 2000
CAN$000 CAN$000 CAN$000
Turnover (22,139) (74,254) (60,794)
Operating expenses -- -- --
---------------- ---------------- ----------------
Operating loss (22,139) (74,254) (60,794)
Interest income 4,061 5,263 1,872
---------------- ---------------- ----------------
Loss before taxes (18,078) (68,991) (58,922)
Income taxes 694 1,336 1,301
---------------- ---------------- ----------------
Loss from continuing operations (17,384) (67,655) (57,621)
================ ================ ================
As at As at As at
31 December 31 December 31 December
1998 1999 2000
CAN$000 CAN$000 CAN$000
Shareholders' equity 126,117 58,462 (841)
================ ================ ================
These adjustments have been derived form the financial results of CliniChem as
follows:
UK GAAP
Canadian GAAP alignments UK GAAP
Profit and loss accounts CAN$000 CAN$000 CAN$000
Period ended 31 December 1998
Turnover 4,061 (4,061) --
Operating expenses (21,379) (760) (22,139)
---------------- ---------------- ----------------
Operating loss (17,318) (4,821) (22,139)
Interest income -- 4,061 4,061
---------------- ---------------- ----------------
Loss before taxes (17,318) (760) (18,078)
Income taxes (66) 760 694
---------------- ---------------- ----------------
Loss from continuing operations (17,384) -- (17,384)
---------------- ---------------- ----------------
Period ended 31 December 1999
Turnover 5,263 (5,263) --
Operating expenses (72,918) (1,336) (74,254)
---------------- ---------------- ----------------
Operating loss (67,655) (6,599) (74,254)
Interest income -- 5,263 5,263
---------------- ---------------- ----------------
Loss before taxes (67,655) (1,336) (68,991)
Income taxes -- 1,336 1,336
---------------- ---------------- ----------------
Loss from continuing operations (67,655) -- (67,655)
---------------- ---------------- ----------------
63
UK GAAP
Canadian GAAP alignments UK GAAP
Profit and loss accounts CAN$000 CAN$000 CAN$000
Period ended 14 December 2000
Total revenue 1,894 (1,894) --
Operating expenses (59,515) (1,279) (60,794)
---------------- ---------------- ----------------
Operating loss (57,621) (3,173) (60,794)
Interest income -- 1,872 1,872
---------------- ---------------- ----------------
Loss before taxes (57,621) (1,301) (58,922)
Income taxes -- 1,301 1,301
---------------- ---------------- ----------------
Loss from continuing operations (57,621) -- (57,621)
---------------- ---------------- ----------------
As at As at As at
31 December 31 December 31 December
Balance Sheet Data 1998 1999 2000*
CAN$000 CAN$000 CAN$000
Cash and cash equivalents 20,009 1,178 11,041
Temporary investments 114,392 69,247 --
Taxes and other receivables 1,115 3,699 2,695
Scientific research and experimental development tax credits
receivable 759 1,243 1,089
---------------- ---------------- ----------------
Total current assets 136,275 75,367 14,825
---------------- ---------------- ----------------
Accounts payable and accrued liabilities 10,158 16,905 13,984
---------------- ---------------- ----------------
Shareholders' equity
Share capital 1 1 1
Contributed surplus 143,500 143,500 143,500
Deficit accumulated during the development stage
(17,384) (85,039) (142,660)
---------------- ---------------- ----------------
126,117 58,462 841
================ ================ ================
* As CliniChem was consolidated following the re-acquisition as discussed
above, CAN$841,000 is already included in the BioChem results and
therefore needs to be reversed.
Transaction costs
The difference between the CAN$150,000,000 cash contribution to CliniChem's
capital by BioChem and the CAN$143,500,000 recorded as a contributed surplus
by CliniChem represents CAN$6,500,000 of transaction costs. These costs have
been included in the profit and loss account for the year ended 31 December
1998.
(b) Share of loss in a company subject to significant influence
Under UK GAAP, BioChem would continue to record changes in the carrying value
of its investment in North American Vaccine Inc. (NAVA) even if the
application of the equity method results in an interest in net liabilities
rather than net assets. The only exception is where there is sufficient
evidence that an event has irrevocably changed the relationship between the
investor and its investee, marking the investor's irreversible withdrawal from
the investee.
(c) Deferred charges
Urgent Issues Task Force pronouncement number 24 ("UITF 24"), "Accounting for
Start Up Costs", states that costs which are not directly associated with
tangible fixed assets in accordance with FRS 15, should not be recognised on
the balance sheet, but expensed as incurred.
64
(d) Deferred foreign exchange losses
Under Canadian GAAP, unrealised foreign exchange gains and losses arising on
the translation of long-term monetary items are deferred and amortised over
the life of the item The deferred foreign exchange losses on the balance sheet
amounting to CAN$ nil and CAN$722,000 as at 31 December 2000 and 1999
respectively would have been eliminated under UK GAAP. Accordingly a foreign
exchange gain amounting to CAN$722,000 is recognised in earnings for the year
ended 31 December 2000 and a foreign exchange loss amounting to CAN$594,000
and CAN$128,000 is recognised in earnings for the years ended 31 December 1999
and 1998 respectively.
(e) Discontinued operations
Under UK GAAP and in accordance with Financial Reporting Standard No. 12 (FRS
12), provisions for the costs of disposal of an operation are only recognised
when there is a present obligation (legal or constructive) as a result of a
past event, it is probable that a transfer of economic benefits will be
required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation. Unless these conditions are met, no provision should
be recognised. In particular, future operating losses of a business to be
disposed should not be provided for.
Under Canadian GAAP, provisions for losses on discontinued operations can be
recognised earlier, generally when a decision has been made to dispose of an
operation. These adjustments reflect the accounting for the disposal of these
operations in accordance with UK GAAP.
(f) Cash flow statement
Under UK GAAP, consolidated cash flow statements are presented in accordance
with Financial Reporting Standard No. 1 (FRS 1). The statements prepared under
FRS 1 present substantially the same information as that required under
Canadian GAAP. Under Canadian GAAP, however, there are certain differences
from UK GAAP with regard to classification of items within the cash flow
statement with regard to the definition of cash.
Under Canadian GAAP, cash and cash equivalents include cash and short-tem
investments with original maturities of three months or less. Under FRS 1,
cash comprises cash in hand and at bank (on demand) and overnight deposits,
net of bank overdrafts.
Under FRS 1, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investments, acquisitions and disposals, dividends paid to the
company's shareholders, and management of liquid resources and financing.
Under Canadian GAAP, cash flows are reported as resulting from operating,
investing and financing activities.
Cash flows under FRS 1 in respect of interest received, interest paid and
taxation would be included within operating activities under Canadian GAAP.
Cash flows from purchases, sales and maturities of trading securities, while
not separately identified under UK GAAP, would be included within investing
activities under Canadian GAAP. Dividends paid would be included within
financing activities under Canadian GAAP. Under UK GAAP movements in bank
overdrafts are classified as movements in cash while under Canadian GAAP they
are classified as a financing activity.
(g) Earnings per share
Under Canadian GAAP, fully diluted earnings per share assumes that all the
outstanding options at the end of the year have been exercised at the
beginning of the year or at the date granted, if granted during the year, and
proceeds from the exercise of options have been used for investments. Under UK
GAAP, diluted earnings per share is calculated based on the assumption that
the options have been exercised at the beginning of the year or at the date
granted, if granted during the year, and proceeds from the options were used
at the beginning of the year or at the date granted to acquire common shares
of the Company at the average market price.
65
[graphic]
The Directors and Proposed Directors Arthur Andersen
Shire Pharmaceuticals Group plc Abbots House
East Anton Abbey Street
Andover Reading
Hampshire RG1 3BD
SP10 5RG
The Directors
Deutsche Bank AG London
Global Investment Banking
Winchester House
1 Great Winchester Street
London
EC2N 2DB 1 March 2001
Dear Sirs
We report on the unaudited reconciliations to UK GAAP of the consolidated
statements of net assets and shareholders equity as at 31 December 2000, 1999
and 1998 and the consolidated net loss or profit for each of the three
financial years then ended of BioChem and its subsidiaries ("the financial
information (as adjusted) of BioChem") prepared on the basis of the accounting
policies of Shire in accordance with UK GAAP as set out on pages 58 to 65 in
Part IV of the circular and listing particulars dated 1 March 2001 issued by
Shire.
Responsibilities
It is the responsibility solely of the Directors of Shire to prepare the
financial information (as adjusted) of BioChem in accordance with paragraph
12.11 of the Listing Rules of the UK Listing Authority ("the Listing Rules").
It is our responsibility to form an opinion, as required by the Listing Rules,
on the financial information (as adjusted) of BioChem and to report our
opinion to you.
The financial information (as adjusted) of BioChem incorporates significant
reclassifications of and adjustments to the historical financial statements of
BioChem. The historical financial statements of BioChem for each of the three
years ended 31 December 2000 state that they were prepared in accordance with
Canadian GAAP and were audited by Raymond Chabot Grant Thornton, who gave
unqualified reports thereon. We do not accept any responsibility for the
historical financial statements of BioChem.
Basis of Opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards issued in the United Kingdom by the Auditing Practices
Board.
Our work, which was substantially less in scope than an audit and involved no
independent examination of any of the underlying financial information,
consisted primarily of making enquiries of the management of BioChem and its
auditors to establish the accounting policies which were applied in the
preparation of the underlying financial information, considering the evidence
supporting the reclassifications and adjustments made and discussing the
financial information (as adjusted) of BioChem with the Directors of Shire.
Our work has not been carried out in accordance with auditing standards
generally accepted in the United States and accordingly should not be relied
upon as if it had been carried out in accordance with those standards.
Opinion
In our opinion:
1. the financial information (as adjusted) of BioChem has been properly
compiled on the basis stated; and
2. the adjustments are appropriate for the purpose of presenting the
financial information (as adjusted) of BioChem on a basis consistent in
all material respects with the accounting policies of Shire under UK
GAAP.
Yours faithfully
Arthur Andersen
Chartered Accountants
66
PART V
Financial Information on Shire - under US GAAP
In addition to the annual statutory accounts, Shire also prepare audited
consolidated financial statements in accordance with US GAAP in US$ as filed
with the US SEC. The information set out on pages 66 to 91 of this document
has been extracted without material adjustment from the US GAAP, US$ financial
statements as filed with the US SEC on form 10-K on 27 February 2001 for the
periods ended 31 December 1998, 1999 and 2000.
Statutory consolidated accounts of the Group for the financial periods ended
31 December 1998, 1999 and 2000 received an unqualified audit opinion and did
not contain a statement under section 237(2) and (3) of the Companies Act
1985. The statutory consolidated accounts for 1998 and 1999 have been
delivered to the Registrar. The statutory consolidated accounts for 2000 will
be delivered to the Registrar following the annual general meeting. Arthur
Andersen, Chartered Accountants and Registered Auditors of Abbots House, Abbey
Street, Reading RG1 3BD have been auditors to the Company since its
incorporation. No audited accounts of the Group have been prepared in respect
of any period subsequent to 31 December 2000.
67
Consolidated Balance Sheets
(In thousands of US dollars)
31 December 31 December 31 December
2000 1999 1998
ASSETS
Current assets:
Cash and cash equivalents 46,598 54,082 52,973
Marketable securities and other current asset investments 139,745 84,344 71,726
Accounts receivable, net 93,830 59,018 76,622
Inventories, net 47,109 39,538 34,639
Deferred tax asset 26,971 5,312 5,222
Prepaid expenses and other current assets 9,736 9,012 5,116
---------------- ---------------- ----------------
Total current assets 363,989 251,306 246,298
Investments 6,139 2,604 10,000
Property, plant and equipment, net 49,685 37,484 42,682
Intangible assets, net 556,013 557,934 537,159
Deferred tax asset 6,298 31,799 32,632
Other assets 22,608 6,636 4,834
---------------- ---------------- ----------------
Total assets 1,004,732 887,763 873,605
================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt 1,448 9,608 12,351
Accounts and notes payable 99,437 114,509 54,896
Other current liabilities 10,528 48,703 14,041
---------------- ---------------- ----------------
Total current liabilities 111,413 172,820 81,288
Long-term debt, excluding current installments 126,364 126,314 126,774
Other non-current liabilities 14,196 1,345 2,229
---------------- ---------------- ----------------
Total liabilities 251,973 300,479 210,291
================ ================ ================
Shareholders' equity:
Common stock, 5p par value; 400,000,000 shares authorized; and
257,088,451 shares issued and outstanding (1999: 244,519,024) 21,035 20,063 11,725
Additional paid-in capital 938,493 832,650 814,953
Accumulated other comprehensive losses (27,814) (10,303) (3,236)
Accumulated deficit (178,955) (255,126) (160,128)
---------------- ---------------- ----------------
Total shareholders' equity 752,759 587,284 663,314
---------------- ---------------- ----------------
Total liabilities and shareholders' equity 1,004,732 887,763 873,605
================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
68
Consolidated Statements of Income
(In thousands of US dollars, except share and per share data)
Years ended 31 December
2000 1999 1998
Revenues:
Product sales 498,092 385,203 291,785
Licensing and development 14,147 10,772 11,821
Royalties 4,107 3,562 3,697
Other revenues 1,262 1,995 1,681
---------------- ---------------- ----------------
Total revenues 517,608 401,532 308,984
================ ================ ================
Costs and expenses:
Cost of revenues 88,158 93,475 95,013
Research and development 106,131 77,503 59,253
Selling, general and administrative (inclusive of stock option
compensation charge of $21,914, $11,933 and
$5,497 respectively) 201,055 171,386 131,702
Other charges:
Asset impairments and restructuring charges -- 97,132 --
Merger transaction expenses -- 32,279 --
Loss/(profit) on sale of product rights -- 5,825 (220)
---------------- ---------------- ----------------
Total operating expenses 395,344 477,600 285,748
================ ================ ================
Operating income/(loss) 122,264 (76,068) 23,236
Interest income 6,216 7,349 6,398
Interest expense (12,187) (9,742) (6,511)
Other (expenses)/income (105) (475) 440
---------------- ---------------- ----------------
Total other (expenses)/income (6,076) (2,868) 327
================ ================ ================
Income/(loss) before income taxes 116,188 (78,936) 23,563
Income taxes (40,017) (16,062) (2,991)
---------------- ---------------- ----------------
Net income/(loss) 76,171 (94,998) 20,572
================ ================ ================
Net income/(loss) per share:
Basic $0.30 $(0.39) $0.09
Diluted $0.29 $(0.39) $0.08
Weighted average number of shares:
Basic 252,497,255 244,698,721 234,044,732
Diluted 260,344,932 244,698,721 242,806,410
The accompanying notes are an integral part of these consolidated financial
statements.
69
Consolidated Statements of Comprehensive Income/(Losses)
(In thousands of US dollars)
Years ended 31 December
2000 1999 1998
Net income/(loss) 76,171 (94,998) 20,572
Foreign currency translation adjustments (17,463) (7,067) (840)
Unrealized holding (loss)/gain on marketable securities and
non-current investments (48) (411) 96
------------- ------------- -------------
Comprehensive income/(loss) 58,660 (102,476) 19,828
============= ============= =============
There are no tax effects related to the items included above.
The accompanying notes are an integral part of these consolidated financial
statements
Consolidated Statements of Cash Flows
(In thousands of US dollars)
Years ended 31 December
2000 1999 1998
Cash flows from operating activities:
Net income/(loss) 76,171 (94,998) 20,572
Adjustments to reconcile net income/(loss) to net cash provided by operating
activities:
Depreciation and amortization 30,475 28,598 25,249
Stock option compensation 21,914 11,933 5,497
Tax benefit of stock option compensation, credited directly to equity 30,782 1,964 3,006
Non cash exchange gains and losses (1,676) (664) (1,816)
(Gain)/loss on sale of fixed assets -- (828) 16
Loss on sale of intangible assets 1,514 5,825 --
Write-down of investment -- 7,546 --
(Increase)/decrease in accounts receivable (54,433) 16,272 (20,566)
Increase in inventory (7,571) (6,543) (5,170)
Decrease/(increase) in deferred tax asset 3,842 743 (4,420)
Increase in accounts payable 43,373 37,083 12,186
Reserve for restructuring charges (83,608) 83,608 --
------------- ------------- -------------
Net cash provided by operating activities 60,783 90,539 34,554
------------- ------------- -------------
Cash flows from investing activities:
(Investment in)/redemption of marketable securities (1,997) (7,940) 3,825
Increase in cash placed on short term deposit (53,404) (4,677) (35,664)
Purchase of long-term investment (3,591) -- (10,000)
Purchase of subsidiary undertakings -- (32,000) --
Expenses of acquisition (1,461) -- (551)
Net cash acquired with subsidiary undertakings -- 1,979 --
Purchase of intangible assets (38,379) (57,848) (142,258)
Purchase of fixed assets (28,359) (4,786) (13,871)
Proceeds from sale of intangible fixed assets -- 6,575 1,033
Proceeds from sale of fixed assets 12,007 1,413 60
Collection on notes receivable 766 7,195 1,751
------------- ------------- -------------
Net cash used in investing activities (114,418) (90,089) (195,675)
------------- ------------- -------------
70
Years ended 31 December
2000 1999 1998
Cash flows from financing activities:
Long-term debt issued -- -- 125,000
Payments on long-term debt, capital leases and notes (8,110) (11,499) (11,708)
Payment of debt issuance costs -- -- (2,528)
Proceeds from issue of common stock, net 8,472 8,615 35,027
Proceeds from exercise of options 45,647 3,523 4,082
Proceeds from issue of preferred stock -- -- 4,494
Cash dividends paid -- -- (150)
------------- ------------- -------------
Net cash provided by financing activities 46,009 639 154,217
------------- ------------- -------------
Effect of foreign exchange rate changes on cash and cash equivalents 142 20 9
------------- ------------- -------------
Net (decrease)/increase in cash and cash equivalents (7,484) 1,109 (6,895)
Cash and cash equivalents at beginning of period 54,082 52,973 59,868
------------- ------------- -------------
Cash and cash equivalents at end of period 46,598 54,082 52,973
------------- ------------- -------------
Supplemental cash flow information:
Interest paid 12,156 11,612 3,948
Income taxes paid 6,650 11,356 5,285
Non cash activities:
Notes issued for product acquisitions -- 11,800 --
Notes received for sale of product rights -- -- 218
Common stock issued for product acquisitions 3,085 -- 11,572
Common stock issued on conversion of zero-coupon note 8,772 -- 14,042
Debt assumed on acquisition of subsidiaries -- 3,300 --
Capitalized leases -- -- 131
The accompanying notes are an integral part of these consolidated financial
statements
71
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of US dollars except share data)
Additional Accumulated other Total
Common Common paid-in Accumulated comprehensive shareholders'
stock stock capital deficit losses equity
Balances as of 31 December 1997 10,345 124,531 738,637 (180,666) (2,396) 565,920
Net income -- -- -- 20,572 -- 20,572
Dividends paid by pooled entity -- -- -- (34) -- (34)
Foreign currency translation -- -- -- -- (840) (840)
Issuance of common stock 905 10,861 57,110 -- -- 58,015
Issuance of common stock by pooled
entity -- -- 9,220 -- -- 9,220
Issuance costs -- -- (2,124) -- -- (2,124)
Options exercised 475 5,700 3,607 -- -- 4,082
Stock option compensation -- -- 5,497 -- -- 5,497
Tax benefit associated with
exercise of stock options -- -- 3,006 -- -- 3,006
--------- --------- ----------- ------------- -------------- -------------
Balances as of 31 December 1998 11,725 141,092 814,953 (160,128) (3,236) 663,314
Net loss -- -- -- (94,998) -- (94,998)
Foreign currency translation -- -- -- -- (7,067) (7,067)
Issuance of common stock for
acquisitions 8,123 100,767 (8,123) -- -- --
Issuance of common stock by pooled
entity -- -- 8,615 -- -- 8,615
Options exercised 215 2,660 3,308 -- -- 3,523
Stock option compensation -- -- 11,933 -- -- 11,933
Tax benefit associated with
exercise of stock options -- -- 1,964 -- -- 1,964
--------- --------- ----------- ------------- -------------- -------------
Balances as of
31 December 1999 20,063 244,519 832,650 (255,126) (10,303) 587,284
Net income -- -- -- 76,171 -- 76,171
Unrealized holding loss on
marketable securities (48) (48)
Foreign currency translation -- -- -- -- (17,463) (17,463)
Issuance of common stock 137 1,843 11,720 -- -- 11,857
Issue costs (3,385) -- -- (3,385)
Options exercised 835 10,726 44,812 -- -- 45,647
Stock option compensation -- -- 21,914 -- -- 21,914
Tax benefit associated with
exercise of stock options -- -- 30,782 -- -- 30,782
--------- --------- ----------- ------------- -------------- -------------
Balances as of 31 December 2000 21,035 257,088 938,493 (178,955) (27,814) 752,759
========= ========= =========== ============= ============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
72
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
(a) Description of Operations and Principles of Consolidation
Shire Pharmaceuticals Group plc is an international specialty pharmaceutical
company with a strategic focus on four therapeutic areas: central nervous
system disorders, metabolic diseases, oncology and gastroenterology. The
Company's principal products include Adderall, for the treatment of ADHD,
Agrylin, for the treatment of thrombocythemia and Pentasa, for the treatment
of ulcerative colitis.
The Group has operations in the U.S., the U.K., Europe and the rest of the
world. Within these geographic operating segments, revenues are derived from
three sources: sales of products by the Company's own sales and marketing
operations, licensing and development fees, and royalties.
The accompanying consolidated financial statements include the accounts of
Shire Pharmaceuticals Group plc and all its subsidiary undertakings after
elimination of intercompany accounts and transactions.
(b) Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Revenue Recognition
The Company's principal revenue streams and their respective accounting
treatments are discussed below. This is in accordance with SAB 101, under
which revenue is recognised when:
o there is persuasive evidence of an arrangement;
o delivery of products has occurred or services have been rendered;
o the seller's price to the buyer is fixed or determinable; and
o collectibility is reasonably assured.
(i) Product sales
Revenue for the sales of products is recognised as net revenue
upon shipment to customers. Provisions for certain rebates,
product returns and discounts to customers are provided for as
reductions to net revenue in the same period as the related sales
are recorded.
(ii) Licensing and development fees
Licensing and development fees represent revenues derived from
license agreements and from collaborative research and development
arrangements.
Initial license fees are not considered to be separable from the
associated research and development activities, even where such
fees are non-refundable and not creditable against research and
development services to be rendered. Initial license fees are thus
deferred and recognised over the period of the license term or the
period of the associated research and development agreement. In
circumstances where initial license fees are not for a defined
period, revenues are deferred and recognized over the period to
the expiration of the relevant patent to which the license
relates.
Where licensing arrangements are accompanied by an equity
subscription agreement, the series of transactions are accounted
for as a multiple elements arrangement. Accordingly, the aggregate
consideration is allocated to the two elements of the arrangement
as described below.
The fair value of the equity subscription is calculated as being
the aggregate number of shares issued at the average of the
opening and closing share prices on the date of issue.
During the term of certain research and development agreements,
the Company receives non-refundable milestones as certain
technical targets are achieved. Revenues are recognised on
achievement of milestones.
73
The Company also receives non-refundable clinical milestones when
certain targets are achieved during the clinical phases of
development, such as the submission of clinical data to a
regulatory authority. These clinical milestones are recognised
when received. If milestone payments are creditable against future
royalty payments, the milestones are deferred and released over
the period in which the royalties are anticipated to be received.
(iii) Royalty income
Royalty income relating to licensed technology is recognized when
receivable.
Where applicable, all revenues are stated net of value added tax and similar
taxes, trade discounts and intercompany transactions.
No revenue is recognised for consideration, the value or receipt of which is
dependent on future events, future performance, or refund obligations. The SEC
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements", which reemphasises existing guidance related to revenue
recognition, including criteria specified in the Financial Accounting
Standards Board (FASB) conceptual framework on timing of revenue recognition,
and presentation and disclosure of revenue in the financial statements. SAB
No. 101 was effective for the fourth quarter of 2000. The implementation of
SAB No. 101 did not have a material impact on the company's results of
operations, cashflows or financial position.
(d) Research and Development
Research and development expenditures include funded and unfunded expenditure
and are charged to operations in the period in which the expense is incurred.
Milestones payable in respect of research and development work are charged to
the income statement on achievement of those milestones.
(e) Leased Assets
The costs of operating leases are charged to operations on a straight line
basis over the lease term, even if rental payments are not made on such a
basis.
Assets acquired under capital leases are included in the balance sheet as
tangible fixed assets and are depreciated over the shorter of the period of
lease or their useful lives. The capital elements of future lease payments are
recorded as liabilities, while the interest elements are charged to the income
statement over the period of the leases to produce a level yield on the
balance of the capital lease obligation.
(f) Pensions
The Group contributes to personal defined contribution pension plans of
employees. Contributions are charged to the income statement as they become
payable. These contributions are detailed in Note 22. Details of the
supplemental Executive Retirement Plan operated by the Group are given in Note
22.
(g) Finance Costs of Debt
Finance costs of debt are recorded as a deferred asset and then amortized to
the income statement over the term of the debt using the level yield method.
Deferred financing costs relating to debt terminated early are written off to
the income statement in that period.
(h) Income Taxes
The Company provides for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes". Deferred tax assets and liabilities are
provided for differences between the financial statement and tax bases of
assets and liabilities that will result in future taxable or deductible
amounts. The deferred tax assets and liabilities are measured using the
enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Income tax expense is computed as the
tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realised.
(i) Advertising Expense
The Company expenses the cost of advertising as incurred. Advertising costs
amounted to $6,810,000, $6,646,000 and $6,715,000 for the years ended 31
December 2000, 1999 and 1998 respectively.
74
(j) Foreign Currency
Monetary assets and liabilities in foreign currencies are translated into US
dollars at the rate of exchange ruling at the balance sheet date. Transactions
in foreign currencies are translated into US dollars at the rate of exchange
ruling at the date of the transaction. Transaction gains and losses are
recognised in arriving at operating income.
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets at the rates ruling at the
balance sheet date. The cumulative effect of exchange rate movements is
included in a separate component of other comprehensive income.
The consolidated financial statements are prepared from records maintained in
the country in which the subsidiary is located and are translated into US
dollars according to the above policy.
Foreign currency exchange transaction gains and losses on an after-tax basis
included in consolidated net income in the years ended 31 December 2000, 1999,
and 1998, pursuant to Statement of Financial Accounting Standards (SFAS) No.
52, Foreign Currency Translation, amounted to $67,000 loss, $880,000 loss and
$457,000 gain, respectively.
(k) Employee Stock Plans
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations.
(l) Cash Equivalents and Marketable Securities
Cash and cash equivalents include cash in banks and bank short-term
investments with original maturities of less than ninety days. Marketable
securities classified as available for sale consist primarily of debt
instruments with maturities of more than three months. They are marked to
market at each balance sheet date, with gains and losses recorded in a
separate component of other comprehensive income. Other than temporary
impairments in value are recorded through the income statement.
(m) Inventories
Inventories, consisting primarily of finished goods, are stated at the lower
of cost and net realizable value. Cost incurred in bringing each product to
its present location and condition is based on purchase costs calculated on a
first-in, first-out basis, including transport. Net realisable value is based
on estimated normal selling price less further costs expected to be incurred
to completion and disposal. Provision is made for obsolete, slow moving or
defective items where appropriate.
(n) Investments
Investments which are accounted for under the cost method are stated at cost,
less provisions for other than temporary impairment in value. Impairment is
assessed by reference to the fair value of the securities as determined using
established financial methodologies. Investments in equities with readily
determinable market values are marked to market. The fair value of investments
in private entities and non-traded securities of public entities are measured
by valuation methodologies including discounted cash flows.
(o) Intangible Assets
Intangible assets comprise goodwill and intellectual property rights.
Goodwill arising on the acquisition of subsidiary undertakings and businesses,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired, is capitalized
and written off on a straight line basis over its useful economic life.
Goodwill recognised in each significant business combination is being
amortized over a period of five to 30 years on a straight line basis depending
on the nature of the goodwill, and is evaluated periodically for realisability
based on expectations of undiscounted cash flows and earnings from operations
for each subsidiary having a material goodwill balance.
The following factors are considered in estimating the useful lives. Where an
intangible asset is a composite of a number of factors, the period of
amortisation is determined from considering these factors together:
o regulatory and legal provisions, including the regulatory approval
and review process, patent issues and actions by government
agencies
75
o the effects of obsolescence, changes in demand, competing products
and other economic factors, including the development of competing
drugs that are more effective clinically or economically
o actions of competitors, suppliers, regulatory agencies or others
that may eliminate current competitive advantages
Impairments to goodwill are recognised if expected undiscounted cash flows are
not sufficient to recover the goodwill. If a material impairment is
identified, goodwill is written down to its fair value. Fair value is
determined based on the present value of expected net cash flows to be
generated by the business, discounted using a rate commensurate with the risks
involved.
Intellectual property, including trademarks for products with an immediate
defined revenue stream and acquired for valuable consideration, is recorded at
cost and amortised in equal annual installments over the estimated useful life
of the related product which range from 5 to 40 years. Intellectual property
with no defined revenue stream where the related product has not yet completed
the necessary approval process is written off on acquisition. Amounts recorded
as intangible assets are reviewed for impairment on a periodic basis using
expected undiscounted cash flows.
Continuing milestone payments on intellectual property with no defined revenue
stream are charged to operations. Royalty payments due on sales of products
are charged to operations when a liability has been incurred.
(p) Property, Plant and Equipment
Property, plant and equipment is shown at cost less accumulated depreciation
and any provision for impairment. Depreciation is provided on a straight line
basis at rates calculated to write off the cost less estimated residual value
of each asset over its estimated useful life as follows:
Land and buildings 50 years
Office furniture, fittings and equipment 4 to 5 years
Warehouse, laboratory and manufacturing equipment 4 to 5 years
Expenditures for maintenance and repairs are charged to expense as incurred;
costs of major renewals and improvements are capitalised. At the time
property, plant and equipment are retired or otherwise disposed of, the cost
and accumulated depreciation are eliminated from the asset and accumulated
depreciation accounts and the profit or loss on such disposition is reflected
in income.
(q) Concentration of Credit Risk
Revenues are mainly derived from agreements with major pharmaceutical
companies and relationships with drug distributors. Significant customers are
disclosed in Note 20(d). Such clients have significant cash resources and
therefore any credit risk associated with these transactions is considered
minimal.
Excess cash is invested in bank and building society term deposits and
commercial paper from a variety of companies with strong credit ratings. These
investments typically bear minimal risk.
(r) Related Parties
Transactions with related parties are conducted on the same basis as they
would have been with unrelated parties.
(s) New Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivatives be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". This Statement defers for one year the effective date of
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000.
In June 2000, the FASB issued Statement No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement No. 133". SFAS 138 amends SFAS 133 to (a) exclude from the scope of
SFAS No. 133 non financial assets that will be delivered in quantities
expected to be used or sold by the company over a reasonable period in the
normal course of business and for which physical delivery is
76
probable, (b) permit hedging of a benchmark interest rate, (c) allow hedging
of foreign-currency-denominated assets and liabilities and (d) allow for
limited hedging of net foreign currency exposures.
The Company has reviewed it's existing contracts and has put procedures in
place to monitor and evaluate transactions in accordance with FASB Statement
No. 133. The Company does not believe the adoption of this Statement will have
a material impact on the results of operations or it's financial position
going forward. There is no impact on the financial position as at 31 December
2000.
2. Business Combinations and Reorganisations
Year ended 31 December 2000
No significant acquisitions or dispositions of businesses took place during
the year ended 31 December 2000.
On 11 December 2000 the Company announced that it has entered into an
agreement to merge with BioChem Pharma Inc. ("BioChem"), an international
specialty pharmaceutical company based in Laval, Canada. It is intended that
the merger will be achieved through an exchange of shares. The Merger, which
is expected to close in the second quarter of 2001, is subject to the approval
of Shire and BioChem shareholders, the absence of any material change
affecting BioChem, the accounting of the merger as a pooling of interests, the
obtaining of regulatory approvals, and other customary terms and conditions.
Year ended 31 December 1999
(a) Acquisition of Laboratoires Murat S.A., Fuisz Pharma GmbH & Co KG and
Istoria Farmaceutici S.p.A.
On 22 October 1999, the Company completed the acquisition of all the assets
and liabilities of Laboratoires Murat S.A., Fuisz Pharma GmbH and the Cebutid
trademark for $33 million, including the costs of acquisition. The purchase
price consisted of $29.7 million in cash and the assumption of a $3.3 million
liability due to Knoll AG.
On 17 November 1999, the Company completed the acquisition of all the assets
and liabilities of Istoria Farmaceutici S.p.A. for $6.5 million, including the
costs of acquisition. The purchase consideration was $6.5 million in cash.
The above transactions provided Shire with marketing and distribution
operations in France, Germany and Italy respectively. These acquisitions were
accounted for using purchase accounting. Total goodwill of $22.4 million was
recorded and is being amortized on a straight line basis over a period of 20
years, the expected economic life of the underlying assets acquired. The
results of operations of the acquired subsidiaries have been included in the
consolidated results of the Company since their respective dates of
acquisition.
The purchase price of $3.3 million for Laboratoires Murat S.A. was allocated
as follows:
$'000
Property, plant and equipment 19
Intangible assets 1,073
Current assets 1,614
Accounts payable (1,292)
-------------
Net assets acquired 1,414
Goodwill 1,886
-------------
Purchase consideration 3,300
=============
$7.5 million was in respect of the Cebutid trademark.
77
The purchase price of $22.2 million for Fuisz Pharma GmbH was allocated as
follows:
$'000
Property, plant and equipment 23
Intangible assets 3,331
Current assets 1,891
Accounts payable (1,108)
-------------
Net assets acquired 4,137
Goodwill 18,063
-------------
Purchase consideration 22,200
=============
The purchase price of $6.5 million for Istoria Farmaceutici S.p.A. was
allocated as follows:
$'000
Property, plant and equipment 166
Intangible assets 3,268
Current assets 1,515
Accounts payable (897)
-------------
Net assets acquired 4,052
Goodwill 2,448
-------------
Purchase consideration 6,500
=============
(b) Merger with Roberts Pharmaceutical Corporation
On 23 December 1999 the Company acquired 100% of the outstanding stock of
Roberts Pharmaceutical Corporation ("Roberts") in exchange for 100,767,482
ordinary shares.
This transaction was accounted for by the pooling of interests method.
Following consummation of the transaction, the Company decided to restructure
the enlarged business and accordingly recorded approximately $97.1 million in
non-recurring asset impairment and restructuring charges. The accompanying
consolidated financial statements have been retroactively restated to reflect
the combined operations of Roberts and Shire as if the merger was consummated
on 1 January 1998.
(c) Dispositions
On 13 January 1999 the Company disposed of its Indianapolis manufacturing
plant for a net consideration after expenses of $1.5 million including a loan
note of $0.5 million. A net gain of $0.8 million was recorded in the
consolidated statement of income.
During November 1999, the Company sold the product Tigan for $6.4 million. The
Company recorded a loss on disposal of $5.8 million.
(d) Pro forma information
The pro forma effect in 1999 and 1998 of the significant acquisitions if
acquired on 1 January 1999 and 1 January 1998 respectively would have resulted
in revenues, income before extraordinary items, net income and per share data
as follows:
1999 1998
$'000 $'000
Revenues 417,948 330,346
(Loss)/income before extraordinary items (95,463) 19,039
Net (loss)/income (95,463) 19,039
Net (loss)/income per share - basic $(0.39) $0.08
Net (loss)/income per share - diluted $(0.39) $0.08
Year ended 31 December 1998
There were no significant acquisitions or dispositions of businesses during
the year ended 31 December 1998.
78
3. Cash and Cash Equivalents
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Cash at bank and in hand 46,598 54,082 52,973
4. Marketable Securities and Other Current Asset Investments
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Marketable securities 46,000 44,003 36,062
Commercial paper 28,000 39,200 6,510
Institutional cash fund 65,745 1,141 29,154
------------- ------------- -------------
139,745 84,344 71,726
============= ============= =============
There are no restrictions on the sale of marketable securities and no amounts
have been pledged as collateral.
There have been no significant changes in market value subsequent to
31 December 2000.
The Company recorded realised losses on sales of marketable securities during
the years ended 31 December 2000, 1999 and 1998 of Nil, $227,000 and $30,000.
Unrealized holding gains and losses on available for sale marketable
securities, as disclosed in the Statement of Comprehensive Income, amounted to
Nil, $411,000 loss and $96,000 gain at 31 December 2000, 1999 and 1998
respectively.
Maturity dates of marketable securities held at 31 December 2000 ranged from
one to 3 months. Maturity dates of marketable securities held at 31 December
1999 primarily ranged from three to 6 months (31 December 1998: three to 6
months).
5. Accounts Receivable
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Trade receivables 92,204 55,953 64,857
Notes receivable 334 678 9,426
Other receivables 1,292 2,387 2,339
------------- ------------- -------------
93,830 59,018 76,622
============= ============= =============
Trade receivables included above are stated net of a provision for doubtful
debts at 31 December 2000, 1999 and 1998 of $819,000, $565,000 and $577,000
respectively.
At 31 December 2000 other receivables were in respect of accrued royalty
income. At 31 December 1999 other receivables included $1,144,000 of accrued
royalty income. At 31 December 1998 other receivables included $669,000 in
respect of product divestments and $923,000 of accrued royalty income.
Notes receivable are in respect of the divestment of certain products.
6. Inventory
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Finished goods 23,066 26,573 19,990
Work-in-process 11,776 6,389 6,113
Raw materials 12,267 6,576 8,536
--------------- --------------- ---------------
47,109 39,538 34,639
=============== =============== ===============
79
7. Prepaid Expenses and Other Current Assets
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Prepaid expenses 3,807 6,621 4,286
Deferred financing costs 500 1,098 --
Tooling costs 1,000 -- --
Other current assets 4,429 1,293 830
--------------- --------------- ---------------
9,736 9,012 5,116
=============== =============== ===============
The deferred financing costs are in respect of the $125 million long-term loan
(see Note 15 Long-term Debt) and are being amortised over the five-year term
of the loan.
Tooling costs are not currently being amortised as the manufacturing equipment
to which they relate is not yet in use. It is anticipated that production will
commence during 2001, and based on expected production volumes, approximately
$1,000,000 of the costs are classified as current at 31 December 2000. The
Company does not own the tools but has a non-cancelable right to use the tools
during the contract period.
Included within other current assets at 31 December 2000 is valued added tax
recoverable of $1,899,000.
8. Investments
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
RiboGene Inc. 2,604 2,604 10,000
Cortex Pharmaceuticals Inc. 836 -- --
D-Pharm Ltd 2,000 -- --
CeNeS Pharmaceuticals plc 699 -- --
--------------- --------------- ---------------
6,139 2,604 10,000
=============== =============== ===============
The Company has an investment in the convertible preferred stock of RiboGene,
Inc., a drug discovery company targeting infectious diseases. The shares have
no voting rights. One-third of the preferred stock is convertible at the
option of the Company to common stock of RiboGene at each of the first three
anniversary dates of the investment. The investment is classified as held to
maturity.
In April 2000, the Company entered into an option agreement with Cortex
Pharmaceuticals Inc. under which Shire will evaluate the use of Cortex's
Ampakine CX516 for the treatment of ADHD. Under the terms of the agreement,
the Company will undertake a double-blind, placebo-controlled evaluation of
CX516 in ADHD patients. If the study proves effective, Shire has the right to
convert its option into an exclusive worldwide license for the Ampakines for
ADHD under a development and licensing agreement. In exchange for the option,
Cortex received approximately $0.8 million and issued common stock to Shire.
In March 2000, the Company entered into a license agreement with D-Pharm Ltd,
under which Shire has undertaken to develop and market DP-VPA for the
treatment of epilepsy. DP-VPA, which Shire has designated SPD 421, is a unique
new chemical analogue of valproic acid which has successfully completed Phase
I studies. The terms of the agreement included an upfront fee payable to D-
Pharm comprising cash and an equity investment, as well as clinical and
commercial milestone payments. The cash payment was expensed as incurred in
accordance with the Company's accounting policies. The equity investment has
been recorded at cost.
In December 2000, Shire signed a research, development and licensing agreement
with CeNeS Pharmaceuticals plc for the development of CeNeS' dopamine D1
agonist program for the treatment of Parkinson's disease. Shire will make
milestone payments and pay CeNeS royalties on products developed under the
agreement. Shire has made an equity investment in CeNeS of approximately $0.7
million and will fund all development work.
80
The Company recorded an unrealized holding loss of $48,000 in respect of non-
current investments marked to market at 31 December 2000. This is shown in the
Statement of Comprehensive income. There were no unrealized holding gains or
losses at 31 December 1999 in respect of non-current investments.
9. Property, Plant and Equipment
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Land and buildings 34,597 25,498 29,767
Office furniture, fittings and equipment 12,575 14,527 12,253
Warehouse, laboratory and manufacturing equipment 13,272 10,595 10,053
--------------- --------------- ---------------
60,444 50,620 52,073
Less: Accumulated depreciation (10,759) (13,136) 9,391
--------------- --------------- ---------------
49,685 37,484 42,682
=============== =============== ===============
Depreciation expense for the years ended 31 December 2000, 1999 and 1998 was
$3,814,000 $4,243,000 and $3,281,000 respectively.
Included within land and buildings at 31 December 2000 is a new office
facility purchased for $17.4 million, which will become the Group's new
worldwide headquarters effective from March 2001. The building, purchased in
October 2000, has not been depreciated as it will not become operational until
March 2001.
Included within land and buildings at 31 December 1999 is approximately $12
million relating to the Company's Eatontown, New Jersey office facility that
was classified as available for sale. The Company completed the sale of the
Eatontown facility during the year ended 31 December 2000.
10. Intangible Assets
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Intellectual property rights acquired 433,049 394,640 363,306
Goodwill arising on businesses acquired 222,865 238,897 223,776
--------------- --------------- ---------------
655,914 633,537 587,082
Less: Accumulated amortisation (99,901) (75,603) 49,923
--------------- --------------- ---------------
556,013 557,934 537,159
=============== =============== ===============
Amortisation expense for the years ended 31 December 2000, 1999 and 1998 was
$26,661,000, $24,355,000 and $21,968,000 respectively.
Year ended 31 December 2000:
Included in intellectual property above is $15.9 million for the purchase from
Salix Pharmaceuticals Ltd ("Salix") of the exclusive rights to balsalazide, a
treatment for ulcerative colitis. The exclusive rights apply to certain
European and Nordic countries. Under the terms of the agreement, the Company
has undertaken to pay Salix up to a total of $24.0 million, including
approximately $12.0 million in up-front fees and up to $12.0 million upon the
achievement of certain milestones.
In November 2000, the Company entered into an agreement with Nycomed Austria
GmbH ("Nycomed") under which Shire extended the term of its exclusive
distributor rights to the product ProAmatine in North America and the U.K. and
Republic of Ireland, for approximately $21.1 million. Shire had previously
marketed the product and paid Nycomed royalties on sales of ProAmatine. Under
the terms of the agreement, Nycomed repaid all royalties received from Shire
in respect of the year ended 31 December 2000 and has waived all rights to
future royalties. The net cost to Shire of approximately $17.5 million is
included as an addition to intangible assets in the year ended 31 December
2000.
81
Other significant additions to intellectual property during the year ended 31
December 2000 included a gastrointestinal product purchased for marketing and
distribution in Spain for approximately $4.8 million.
Year ended 31 December 1999:
Included in intellectual property was $35,000,000 for the purchase of the
worldwide rights to Agrylin during the year ended 31 December 1999, which
allowed the Company to retain all rights to the product with no future royalty
liability.
Other significant additions to intellectual property during the year ended 31
December 1999 were in respect of product rights for Lodine ($5,474,000) and
Fareston ($10,000,000), the Cebutid trademark purchased from Fuisz
Technologies Limited ($7,500,000) and intellectual property relating to the
manufacture of Adderall ($11,800,000) acquired from Arenol Corporation.
During the year ended 31 December 1999 the Company disposed of Tigan product
rights. The loss on sale of $5,825,000 was recorded in the statement of
operations.
Year ended 31 December 1998:
Included in additions for the year ended 31 December 1998 was $1,494,000 for
exclusive distributor rights in the UK and Ireland for Hyalgan, an
osteoarthritis treatment and $949,000 related to the Carbatrol reacquisition.
Included in disposals for the year ended 31 December 1998 was $1,018,000
related to write off of the Nivalin trademark. Nivalin was acquired in 1997
and was an approved product for marketing in one territory. In 1998, Nivalin
provided revenues net of costs of approximately $25,000. Following the filing
of the NDA for Reminyl (galantamine), it was decided to cease actively
promoting Nivalin since the product would compete with Reminyl (galantamine).
Following the launch of Reminyl (galantamine) in 2000, Nivalin was withdrawn
from sale. The net revenues arising from Nivalin in 1999 were expected to be
less than $25,000 and therefore the asset was fully written down at 31
December 1998.
11. Other Non-current Assets
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Notes receivable -- 422 2,369
Deferred financing costs 2,341 4,393 --
Tooling costs 3,218 -- --
SERP investment 16,115 -- --
Other assets 934 1,821 2,465
---------------- ---------------- ----------------
22,608 6,636 4,834
================ ================ ================
The deferred financing costs and tooling costs represent the non-current
portion of the total assets respectively. For further details see Note 7
"Prepaid Expenses and Other Current Assets" above.
For further details of the SERP investment, see Note 22 "Retirement Benefits".
The amount shown above is the gross asset represented by non-current
marketable securities. A liability of approximately $13.6 million is included
within Note 16 "Other Non-current Liabilities".
12. Current Portion of Long-term Debt
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Current portion of notes payable 1,448 9,573 11,178
Current portion of capital leases -- 35 1,173
---------------- ---------------- ----------------
1,448 9,608 12,351
================ ================ ================
82
13. Accounts and Notes Payable
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Trade accounts payable 39,755 31,540 19,791
Accrued expenses 59,682 79,520 35,105
Notes payable -- 3,449 --
---------------- ---------------- ----------------
99,437 114,509 54,896
================ ================ ================
The notes payable at 31 December 1999 were in respect of the divestment of
certain products and were repaid in full during the year ended 31 December
2000. The weighted average interest rate for these notes payable at 31 December
1999 and 1998 was 6%.
14. Other Current Liabilities
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Income taxes payable 4,263 6,727 3,134
Deferred tax liabilities -- -- 244
Payable for termination of license agreement 747 806 832
Other accrued liabilities 5,518 41,170 9,831
---------------- ---------------- ----------------
10,528 48,703 14,041
================ ================ ================
Included within other accrued liabilities at 31 December 2000 is $1,024,000
for value added taxes, $818,000 for social security liabilities, and $930,000
payable to Knoll AG related to the acquisition of the Fuisz subsidiaries (see
Note 2 "Business Combinations and Reorganizations").
At 31 December 1999 other accrued liabilities primarily related to
restructuring costs incurred as a result of the merger with Roberts
Pharmaceutical Corporation.
15. Long-term Debt
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Notes payable 127,812 135,887 137,917
Less: current installments (1,448) (9,573) (11,178)
---------------- ---------------- ----------------
126,364 126,314 126,739
---------------- ---------------- ----------------
Capital leases payable -- 35 1,208
Less: current installments -- (35) (1,173)
---------------- ---------------- ----------------
-- -- 35
---------------- ---------------- ----------------
Total, less current liabilities 126,364 126,314 126,774
================ ================ ================
83
Principal payments in each of the next five years and thereafter on long-term
debt outstanding at 31 December 2000 amount to:
31 December
2000
$'000
2001 1,448
2002 1,364
2003 --
2004 125,000
2005 --
Thereafter --
----------------
127,812
================
$125 million five year term loan
The Company entered into a $125 million five year term loan with Credit Suisse
First Boston ("CSFB"), previously known as DLJ Capital Funding, Inc. on
19 November 1999. This loan replaced an existing $125 million loan facility in
the name of Roberts Pharmaceutical Corporation that had been taken out to
finance the acquisition of Pentasa in 1998. The new loan is in the name of the
parent company, Shire Pharmaceuticals Group plc. The applicable interest rate
ranges between 0.5 per cent and 1.5 per cent over the higher of the prime rate
of CSFB or the Federal Funds Rate plus 0.5 per cent or between 1.5 per cent
and 2.5 per cent over the London Interbank Overnight Rate (as adjusted in
accordance with the loan agreement), in each case depending on Company's
credit rating.
All obligations under the facility are jointly and severally guaranteed by the
Company and by its subsidiaries and are initially secured by all material
property owned by the Company and its subsidiaries and the capital stock of
the subsidiaries. If the Company's credit rating reaches specified levels, the
facility will not be secured. The facility contains covenants and maintenance
tests that require the Company to maintain a minimum net worth, a specified
leverage ratio and a specified coverage ratio. At 31 December 2000 the Company
satisfied the aforementioned covenants and maintenance tests.
$11.8 million Unsecured Convertible Zero Coupon Loan Note
The Company financed the purchase of intellectual property relating to the
manufacture of Adderall from Arenol Corporation by a total of $11.8 million in
loan notes. On 5 March 1999 the Company issued a $5.8 million principal amount
Unsecured Convertible Zero Coupon Loan note due 30 July 2001 (the "First Loan
Note") and a $6.0 million principal amount Unsecured Convertible Zero Coupon
Loan Note due 30 July 2004 (the "Second Loan Note"). Both loan notes are in
the name of the parent company, Shire Pharmaceuticals Group plc. The agreement
provides for the cancellation of certain specified amounts of the aggregate
principal amount of the First Loan Note and of such amounts of the Second Loan
Note on certain dates to the extent of certain indemnified losses or, to the
extent that such amounts of the First Loan Note or the Second Loan Note
(together "the Loan Notes") are not so cancelled, for their conversion into
Ordinary Shares. The number of Ordinary Shares is calculated by dividing the
amount not cancelled by the lower of (L)3.565 (approximately $5.75) and the
midmarket closing price of the Ordinary Shares on the London Stock Exchange on
the relevant date. Translation from pounds sterling to US dollars is using the
exchange rate on the relevant date. The Company issued 533,279, 560,076 and
541,478 Ordinary Shares on 13 March 2000, 3 August 2000 and 6 November 2000,
respectively to Arenol Corporation (or its nominee broker) in consideration of
the conversion of part of each of the Loan Notes in the Company.
16. Other Non-current Liabilities
31 December 31 December 31 December
2000 1999 1998
$'000 $'000 $'000
Payable for termination of license agreement 373 1,209 2,080
Other accrued liabilities 13,823 136 149
---------------- ---------------- ----------------
14,196 1,345 2,229
================ ================ ================
84
Other accrued liabilities at 31 December 2000 include $13,609,000 in relation
to the SERP (see Note 22 "Retirement Benefits".
17. Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each material class of financial instrument:
o Cash and cash equivalents - carrying amount approximates fair value due
to the short-term nature of these instruments.
o Marketable securities and other current asset investments - the fair
value of marketable securities is estimated based on quotes obtained
from brokers.
o Investments - non current investments with readily determinable market
values are marked to market. The fair value of investments in private
entities and non-traded securities are measured by valuation
methodologies including discounted cash flows.
o Accounts receivable - carrying amount approximates fair value due to the
short-term nature of these instruments.
o Accounts and notes payable - carrying amount approximates fair value due
to the short-term nature of these instruments.
o Long term debt - the fair value of long term debt is estimated based on
the discounted future cash flows using currently available interest
rates.
The carrying amounts and corresponding fair values of financial instruments at
31 December 2000, 1999 and 1998 were as follows:
31 December 2000 Carrying Amount Fair Value
$'000 $'000
Financial assets:
Cash and cash equivalents 46,598 46,598
Marketable securities and other current
asset investments 139,745 139,745
Investments 6,139 6,139
Financial liabilities:
Accounts and notes payable 99,437 99,437
Long-term debt 127,812 127,812
---------------- ----------------
31 December 1999
Financial assets:
Cash and cash equivalents 54,082 54,082
Marketable securities and other current
asset investments 84,344 83,933
Investments 2,604 2,604
Financial liabilities:
Accounts and notes payable 114,509 114,487
Long-term debt 135,922 135,922
---------------- ----------------
31 December 1998
Financial assets:
Cash and cash equivalents 52,973 53,196
Marketable securities and other current
asset investments 71,726 71,822
Financial liabilities:
Accounts and notes payable 54,896 54,896
Long-term debt 139,125 138,992
---------------- ----------------
The carrying amounts in the table are included in the consolidated balance
sheet under the indicated captions.
85
18. Leases and Other Commitments
(a) Leases
The Company leases facilities, motor vehicles and certain office equipment
under operating leases. The Company's commitments under the non-cancelable
portion of all operating leases for the next five years and thereafter as of
31 December 2000 are as follows:
31 December
2000
$'000
2001 4,027
2002 3,437
2003 2,267
2004 1,154
2005 689
Thereafter 2,299
----------------
13,873
================
Lease and rental expense included in selling, general and administrative
expenses in the accompanying statements of operations amounts to approximately
$4,250,000 $3,155,000 and $1,555,000 for the fiscal years ended 31 December
2000, 1999 and 1998 respectively.
(b) Contingent liabilities
Until April 1998, Shire Richwood Inc. ("SRI") distributed products containing
phentermine, a prescription drug approved in the US as a single agent for
short term use in obesity. Contrary to the approved labeling of these
products, physicians in the US co-prescribed phentermine with fenfluramine or
dexfenfluramine for management of obesity. This combination was popularly
known as the "fen/phen" diet. In mid 1997, following concerns raised about
cardiac valvular side effects alleged to be associated with this diet regime,
the fenfluramine and dexfenfluramine elements of the "fen/phen" diet were
withdrawn from the US market. Although SRI has ceased to distribute
phentermine, the drug remains both approved and available in the US SRI and a
number of other pharmaceutical companies are being sued for damages for
personal injury and medical monitoring arising from phentermine used either
alone or in combination. As of 23 February 2001, SRI was named as a defendant
in approximately 3,749 lawsuits and had been dismissed from approximately
2,597 of these cases. There were approximately 818 additional cases pending
dismissal as of 23 February 2001. In only 171 cases has it been alleged in the
complaint or subsequent discovery that the plaintiff had used SRI's particular
product and SRI has been dismissed from 112 of these cases as well. Although
there have been reports of substantial jury awards and settlements in respect
of fenfluramine and/or dexfenfluramine, to date Shire is not aware of any jury
awards made against, or any settlements made by, any phentermine defendant.
Shire denies liability on a number of grounds including lack of scientific
evidence that phentermine, properly prescribed, causes the alleged side
effects and that SRI did not promote phentermine for long term combined use as
the "fen/phen" diet. Accordingly, Shire intends to defend vigorously any and
all claims made against the Group in respect of phentermine and believes that
a liability is neither probable nor quantifiable at this stage of litigation.
Legal expenses have been paid by Eon Labs Manufacturing Inc. ("Eon"), the
supplier to SRI, or Eon's insurance carriers but such insurance is now
exhausted. Eon has agreed to defend and indemnify SRI in this litigation
pursuant to an agreement dated 30 November 2000 made between Eon and SRI.
On 31 August 2000 Shire entered into an agreement (the "Termination
Agreement") with the former shareholders of SRI, pursuant to which the
ordinary shares placed in escrow at the time of the purchase of SRI by Shire
were released and the escrow agreement and the escrow fund were terminated.
The escrow agreement with the SRI shareholders was initially established by
Shire in 1997 in anticipation of possible phentermine related claims against
the Company. Under the terms of the termination Agreement, monies in the
approximate amount of $7 million were received by Shire and the escrow fund
was terminated. The remaining shares were distributed to the former SRI
shareholders.
At the present stage of litigation, Shire is unable to estimate the level of
future legal costs after taking into account any available product liability
insurance and enforceable indemnities. To the extent that any legal costs are
not covered by insurance or available indemnities, these will be expensed as
incurred.
86
19. Net Income/(loss) per Share
Basic net income/(loss) per share is based upon the income available to common
stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted net income/(loss) per share is based
upon income available to common stockholders divided by the weighted-average
number of common shares outstanding during the period and adjusted for the
effect of all dilutive potential common shares that were outstanding during
the period.
The following table sets forth the computation for basic and diluted net
income/(loss) per share:
Years ended 31 December 2000 1999 1998
$'000 $'000 $'000
Numerator for basic and diluted net income/(loss) per share 76,171 (94,998) 20,572
---------------- ---------------- ----------------
No. of shares No. of shares No. of shares
Weighted average number of shares 252,497,255 244,698,721 234,044,732
Basic
Effect of dilutive stock options 7,847,677 -- 8,761,678
---------------- ---------------- ----------------
Diluted 260,344,932 244,698,721 242,806,410
---------------- ---------------- ----------------
Basic net income/(loss) per share $0.30 $(0.39) $0.09
Diluted net income/(loss) per share $0.29 $(0.39) $0.08
The calculation of weighted average number of shares for the year ended 31
December 2000 does not include convertible debt because, after eliminating
interest charged in the income statement from the numerator, the inclusion
would be anti-dilutive. The calculation of weighted average number of shares
for the year ended 31 December 1999 does not include potentially dilutive
stock options and convertible debt because their inclusion would be anti-
dilutive in a loss-making year.
20. Analysis of Revenue, Operating Income/(Loss), Assets and Reportable
Segments
The Company has disclosed segment information for the individual operating
areas of the business, based on the way in which the business is managed and
controlled. Shire's principal reporting segments are geographic, each being
managed and monitored separately and serving different markets. The Company
evaluates performance based on operating income or loss before interest and
income taxes. All inter-company items are eliminated. The accounting policies
of each reportable segment are the same as those of the Group.
US Europe Rest of World Total
$'000 $'000 $'000 $'000
Year ended 31 December 2000
Product sales 414,624 60,798 22,670 498,092
Licensing and development 1,326 12,821 -- 14,147
Royalties 266 3,816 25 4,107
Other revenues 20 -- 1,242 1,262
---------------- ---------------- ---------------- ----------------
Total revenues 416,236 77,435 23,937 517,608
---------------- ---------------- ---------------- ----------------
Cost of revenues 53,393 23,601 11,164 88,158
Research and development 69,252 36,799 80 106,131
Selling, general and administrative 120,713 72,660 7,682 201,055
---------------- ---------------- ---------------- ----------------
Total operating expenses 243,358 133,060 18,926 395,344
Operating income/(loss) 172,878 (55,625) 5,011 122,264
Total assets 567,113 406,780 30,839 1,004,732
Long-lived assets 13,444 21,431 14,810 49,685
Capital expenditure on long-lived assets 7,931 20,070 358 28,359
87
US Europe Rest of World Total
$'000 $'000 $'000 $'000
Year ended 31 December 1999
Product sales 313,582 55,194 16,427 385,203
Licensing and development 1,097 9,675 -- 10,772
Royalties -- 3,562 -- 3,562
Other revenues 517 -- 1,478 1,995
---------------- ---------------- ---------------- ----------------
Total revenues 315,196 68,431 17,905 401,532
---------------- ---------------- ---------------- ----------------
Cost of revenues 62,375 20,958 10,142 93,475
Research and development 50,544 26,904 55 77,503
Selling, general and administrative 108,682 55,986 6,718 171,386
Costs of restructuring 93,603 3,529 -- 97,132
Merger transaction expenses 9,312 22,967 -- 32,279
Loss on sale of product rights 5,825 -- -- 5,825
---------------- ---------------- ---------------- ----------------
Total operating expenses 330,341 130,344 16,915 477,600
---------------- ---------------- ---------------- ----------------
Operating (loss)/income (15,145) (61,913) 990 (76,068)
Total assets 546,849 313,113 27,801 887,763
Long-lived assets 19,003 2,656 15,825 37,484
Capital expenditure on long-lived assets 2,621 768 1,397 4,786
Year ended 31 December 1998
Product sales 226,988 50,261 14,536 291,785
Licensing and development 622 11,199 -- 11,821
Royalties -- 3,697 -- 3,697
Other revenues 306 -- 1,375 1,681
---------------- ---------------- ---------------- ----------------
Total revenues 227,916 65,157 15,911 308,984
---------------- ---------------- ---------------- ----------------
Cost of revenues 67,889 19,378 7,746 95,013
Research and development 27,556 31,647 50 59,253
Selling, general and administrative 80,854 45,208 5,640 131,702
Profit on sale of product rights (220) -- -- (220)
---------------- ---------------- ---------------- ----------------
Total operating expenses 176,079 96,233 13,436 285,748
---------------- ---------------- ---------------- ----------------
Operating income/(loss) 51,837 (31,076) 2,475 23,236
Total assets 542,799 307,309 23,497 873,605
Long-lived assets 25,653 2,764 14,265 42,682
Capital expenditure on long-lived assets 4,902 1,201 8,665 14,768
(d) Material customers
In the periods set out below, certain customers accounted for greater than 10%
of total revenue:
Years ended 31 December 2000 1999 1998
Customer A 132,913 100,267 53,599
Customer B 80,293 54,498 31,387
Customer C 58,776 40,045 35,314
21. Other Charges
Year ended 31 December 1999
As a result of the acquisition of Roberts Pharmaceutical Corporation on 23
December 1999, which was accounted for as a pooling of interests, the Company
recorded charges totaling $135.2 million pre-tax for asset impairments ($48.5
million), merger-related transaction expenses ($32.3 million), restructuring
costs ($43.6 million), loss on
88
product dispositions ($5.8 million) and other charges ($5.0 million). These
charges are disclosed separately within operating expenses in the consolidated
statements of income.
The Company recorded an impairment charge of $34.2 million to adjust
intangible asset values, primarily product rights, to their estimated fair
value. These charges are consistent with the Company's accounting policy to
review periodically the carrying value of the intangibles and evaluate whether
there has been any impairment in the value of those intangibles as compared
with estimated undiscounted future cash flows of the products. Other asset
impairments consisted of the write off of inventory held for research and
development work and duplicate equipment ($3.2 million), adjustments to the
carrying value of the RiboGene investment to market value at 31 December 1999
($7.6 million), and write down of receivables to their estimated realizable
value ($3.5 million).
The components of the restructuring charge were as follows:
$m
Employee termination costs 37.9
Property 5.7
----------------
43.6
================
In December 1999, the decision was made to close the office facility in
Eatontown, New Jersey and consolidate the sales and marketing operations into
the existing facility in Florence, Kentucky and to transfer the research &
development activities to Shire's facility in Rockville, Washington.
Similarly, Roberts' sales and marketing operation in the UK was combined with
Shire's established operation in Andover, Hampshire. The property at Eatontown
was written down to its estimated fair value.
As a result of the restructuring and elimination of duplicate facilities, the
Company identified a number of sales and marketing, research and development
and administrative positions to be terminated. These employees were notified
of their termination prior to 31 December 1999. The employee termination costs
consisted of payments for severance, medical and other benefits, outplacement
counseling, acceleration of pension benefits and excise taxes. The Company
completed the restructuring program during the fourth quarter of 2000, and the
restructuring reserve of $43.6 million was fully utilized by 31 December 2000.
Merger costs savings for the year ended 31 December 2000 exceeded the initial
target of $20 million.
Year ended 31 December 1998
During the year ended 31 December 1998 a gain of $220,000 was credited to the
income statement in respect of the disposition of certain products.
22. Retirement Benefits
(a) Personal defined contribution pension plans
The Company makes contributions to defined contribution retirement plans that
together cover substantially all employees within the Group. For the defined
contribution retirement plans, the level of company contribution is fixed at a
set percentage of employee's pay.
Company contributions to personal defined contribution pension plans totaled
$2,580,000, $1,558,000 and $1,124,000 for the years ended 31 December 2000,
1999 and 1998 respectively, and were charged to operations as they became
payable.
(b) Defined benefit pension plan
Roberts Pharmaceutical Corporation, a company with whom Shire merged in
December 1999, operated a defined Supplemental Executive Retirement Plan
(SERP) for certain U.S. employees, which was established in 1998. This plan
was available to employees of Roberts who met certain age and service
requirements.
As part of the restructuring of the Group following the merger, the SERP was
closed to new members and contributions have ceased being paid into the plan
for existing members. As part of this arrangement, the Company paid a lump sum
contribution into the plan of $18 million, the result of which is that the
Company has no future liabilities under the plan.
In accordance with EITF 97-14, the asset and liability of $16.1 million and
$13.6 million respectively are shown on the balance sheet within the
categories investments and other non current liabilities. See Notes 11 and 16
above.
89
23. Income Taxes
The (provision)/benefit for income taxes consists of:
Years ended 31 December 2000 1999 1998
$'000 $'000 $'000
Current
Federal (26,534) (14,007) (7,375)
State and foreign (9,641) (1,556) 118
---------------- ---------------- ----------------
Total current (36,175) (15,563) (7,257)
---------------- ---------------- ----------------
Deferred
Federal (4,268) (622) 3,808
State and foreign 426 123 458
---------------- ---------------- ----------------
Total deferred (3,842) (499) 4,266
---------------- ---------------- ----------------
(40,017) (16,062) (2,991)
================ ================ ================
Approximate net operating loss
carry-forwards against future federal tax liabilities 60,451 40,418 43,089
---------------- ---------------- ----------------
Approximate net operating loss carry-forwards against future state and
foreign tax liabilities 146,933 185,458 150,572
---------------- ---------------- ----------------
The tax losses shown above have the following expiration dates:
31 December
2000
$'000
2002 1,885
2003 1,327
2004 3,100
2005 80,373
Available indefinitely 120,699
---------------
207,384
===============
The losses stated above include approximately $78 million of state tax losses
for which relief is available at state tax rates of approximately 3%.
A comparison of the (provision)/benefit for income taxes as reported to a
provision based on federal statutory rates and consolidated income before
income taxes is as follows:
Years ended 31 December 2000 1999 1998
$'000 $'000 $'000
(Provision)/benefit at federal statutory rates (40,666) 27,628 (8,247)
Adjusted for:
Permanent differences 669 (6,474) 18
Difference in taxation rates 9,100 (1,200) 1,300
Adjustment to prior year liabilities (1,950) 4,004 --
Goodwill amortization (3,783) (9,758) (4,232)
Other (2,335) (337) (464)
Valuation allowance (1,052) (29,925) 8,634
--------------- --------------- ---------------
Provision for income taxes (40,017) (16,062) (2,991)
=============== =============== ===============
90
An analysis of the deferred tax asset is as follows:
Years ended 31 December 2000 1999 1998
$'000 $'000 $'000
Losses carried forward 47,596 39,411 36,078
Amounts deductible when paid 34,307 28,835 --
Valuation reserves and provisions 7,100 3,259 --
Other 1,446 1,568 7,497
Debt conversion -- -- 377
--------------- --------------- ---------------
90,449 73,073 43,952
Valuation allowance (37,014) (35,962) (6,037)
--------------- --------------- ---------------
Deferred tax assets 53,435 37,111 37,915
Excess of tax value over book value of assets (20,166) -- (305)
--------------- --------------- ---------------
Net deferred tax assets 33,269 37,111 37,610
=============== =============== ===============
Valuation allowances against deferred tax assets have not been provided to the
extent that it is more likely than not that future income and tax planning
strategies will enable losses brought forward to be utilized.
The income (loss) before taxes by tax jurisdiction is as follows:
Years ended 31 December 2000 1999 1998
$'000 $'000 $'000
US 77,974 (33,924) 30,972
UK (37,577) (33,996) 5,763
Other 75,791 (11,016) (13,172)
--------------- --------------- ---------------
116,188 (78,936) 23,563
=============== =============== ===============
24. Stock Incentive Plans
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 ("APB 25") and related interpretations in accounting for
its plans. In the years ended 31 December 2000, 1999 and 1998 the company
recognized a charge under APB 25 of $21,914,000 $11,933,000 and $5,497,000
respectively. Had compensation for stock options awarded under the plans been
determined in accordance with SFAS 123, the Company's net income/(loss) and
per share data would have been changed to the pro forma amounts indicated
below:
Years ended 31 December 2000 1999 1998
$'000 $'000 $'000
Net income/(loss)
As reported 76,171 (94,998) 20,572
Pro forma 88,854 (106,246) 17,439
Income/(loss) per share
As reported - basic $0.30 $(0.39) $0.09
As reported - diluted $0.29 $(0.39) $0.08
Pro forma - basic $0.35 $(0.43) $0.07
Pro forma - diluted $0.34 $(0.43) $0.07
91
The fair value of stock options used to compute pro forma net income/(loss)
and per share disclosures is the estimated present value at grant date using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
Years ended 31 December 2000 1999 1998
Risk free interest rate 5.68%-6.58% 4.67%-6.25% 4.55%-6.57%
Expected dividend yield 0% 0% 0%
Expected life 4 years 4 years 4 years
Expected volatility 64.2% 53.4% 53.2%
Directors and employees have been granted options over ordinary shares under
the following stock option plans: the Shire Pharmaceuticals Group plc 2000
Executive Share Option Scheme ("2000 Executive Scheme"), the Shire Holdings
Ltd Share Options Scheme ("SHL Scheme"), the Imperial Pharmaceutical Services
Ltd Employee Share Option Scheme (Number One) ("SPC Scheme"), the Pharmavene
1991 Stock Option Plan ("SLI Plan"), the Shire Pharmaceuticals Executive Share
Option Scheme (Parts A and B) ("Executive Scheme"), the Shire Pharmaceuticals
Sharesave Scheme ("Sharesave Scheme"), the Shire Pharmaceuticals Group plc
Employee Stock Purchase Plan ("Stock Purchase Plan"), the Richwood Stock
Options Plan ("Richwood Plan") and the Roberts Stock Option Plans ("Roberts
Plan").
On 28 February 2000, the Remuneration Committee of the Board exercised its
powers to amend the terms of the Executive Share Option Scheme so as to
include a Cliff Vesting provision.
No further options will be granted under the SHL Scheme, SPC Scheme, SLI Plan,
Richwood Plan or Roberts Plan. In a period of five years, not more than five
per cent of the issued share capital of the Company may be placed under option
under any employee share scheme. In a period of ten years, not more than ten
per cent of the issued share capital of the Company may be placed under option
under any employee share scheme. In addition, the following terms apply to
options that may be granted under the various plans:
Executive Scheme: up to 5% of the issued ordinary share capital of the
Company, in any period of ten years, subject to a limit of 2.5% in the period
of four years following adoption of the Scheme and a limit of three per cent
in any period of three calendar years.
Stock Purchase Plan: up to 21,000,000 ordinary shares.
The Company has granted options through 31 December 2000 under the various
plans as follows:
Number of
Scheme options Expiry period from date of issue Vesting period
SHL Scheme 572,160 7 years, or 3 months after end of 1 - 3 years
employment
SPC Scheme 48,000 7 years, or 6 months after end of 2 years
employment
Executive Scheme 6,080,083 10 years 3 years, subject to performance
criteria
2000 Executive Scheme 484,248 10 years 3 years, subject to performance
criteria
Sharesave Scheme 210,999 6 months after vesting 3 or 5 years
Stock Purchase Plan 50,294 Automatic exercise 27 months
Richwood Plan 747,067 5 years Immediate on acquisition by Shire
Roberts Plan 1,047,809 6 years Immediate on merger with Shire
-------------
9,240,660
=============
92
A summary of the status of the Company's stock option plans as of 31 December
2000, 1999 and 1998 and the related transactions during the periods then ended
is presented below:
Weighted average
Year ended 31 December 2000 Exercise price Number of shares
Outstanding at beginning of period 4.39 17,637,142
Granted 16.17 2,556,001
Exercised 4.19 (10,726,407)
Forfeited/expired 12.72 (226,076)
----------------- -----------------
Outstanding at end of period 7.42 9,240,660
----------------- -----------------
Exercisable at end of period 2.94 3,632,373
================= =================
All options granted under the Executive and 2000 Executive schemes were issued
with exercise prices equivalent to the fair market value of the Company's
common stock on the date of grant as these options were granted at market
prices. 79,424 options were granted under the Sharesave Scheme at a price of
(L)8.56 (approximately $12.79). These options were granted with an exercise
price equal to 80% of the mid-market price on the day before invitations were
issued to employees.
The weighted average fair value of options granted in the year ended 31
December 2000 is $16.26. For the years ended 31 December 1999 and 1998, the
weighted average fair value equates to the weighted average exercise prices of
$6.86 and $5.51 respectively as all options were granted at market prices.
Weighted Average
Year ended 31 December 1999 Exercise price $ Number of Shares
Outstanding at beginning of period 3.38 20,784,312
Granted 6.86 2,952,734
Exercised 2.37 (4,552,618)
Forfeited/expired 4.90 (1,547,286)
Outstanding at end of period 4.39 17,637,142
Exercisable at end of period 3.92 13,001,439
Weighted Average
Year ended 31 December 1998 Exercise price $ Number of Shares
Outstanding at beginning of period 2.30 21,002,886
Granted 5.51 7,170,801
Exercised 1.32 (6,628,884)
Forfeited/expired 4.01 (760,491)
Outstanding at end of period 3.38 20,784,312
Exercisable at end of period 2.60 9,505,075
Options outstanding at 31 December 2000 have the following characteristics:
Weighted average Weighted average
exercise price of exercise price of
Number of options Weighted average options Number of options options
outstanding Exercise prices remaining life outstanding exercisable exercisable
436,852 $0.45 - $0.46 0.3 $0.45 436,852 $0.45
980,669 $1.23 - $1.73 1.8 $1.49 980,669 $1.49
658,881 $2.30 - $2.84 2.0 $2.61 551,287 $2.61
939,611 $3.22 - $4.24 3.2 $3.64 923,148 $3.64
2,509,049 $5.06 - $6.75 4.4 $5.32 657,523 $5.56
1,218,394 $6.76 - $7.07 5.2 $7.05 82,894 $6.78
100,000 $7.97 - $10.72 6.4 $9.48 -- --
2,397,204 $12.79 - $19.72 6.6 $16.21 -- --
----------------- ----------------- ----------------- ----------------- -----------------
9,240,660 4.4 $7.42 3,632,373 $2.94
93
PART VI
Financial information on Shire - under UK GAAP
The financial information in this section does not constitute statutory
accounts under the meaning of section 240 of the Companies Act 1985.
The summary financial statements for the years ended 31 December 1999 and 2000
have been extracted from the Annual report and statutory accounts 2000 as
approved by the Board on 27 February 2001. The summary financial statement for
the year ended 31 December 1998 is extracted from the annual review and
summary financial statement 1999, as approved by the Board on 7 April 2000.
Summary financial statements were not prepared for any period prior to the
year ended 31 December 1999. The 1998 summary financial statements were
derived from the audited statutory accounts for the year ended 31 December
1998. The financial information has been prepared in accordance with UK GAAP
in UK pounds.
Consolidated Profit and Loss Account
Years ended 31 December
2000 1999 1998
(L)'000 (L)'000 (L)'000
Turnover 343,624 133,878 80,328
Operating expenses before exceptional items (263,967) (103,506) (72,449)
Operating profit 79,657 30,372 7,879
Costs of a fundamental restructuring of continuing operations -- (11,516) --
------------- ------------- -------------
Profit on ordinary activities before finance charges 79,657 18,856 7,879
Finance charges, net (2,885) 2,153 1,220
------------- ------------- -------------
Profit on ordinary activities before taxation 76,772 21,009 9,099
Taxation (3,570) (8,439) (2,852)
------------- ------------- -------------
Profit on ordinary activities after taxation 73,202 12,570 6,247
============= ============= =============
Earnings per share
Basic 29.0p 8.7p 4.5p
Diluted 28.1p 8.3p 4.3p
94
Consolidated Balance Sheet
Years ended 31 December
2000 1999 1998
(L)'000 (L)'000 (L)'000
Fixed assets
Intangible assets 694,261 684,387 7,938
Tangible assets 33,261 23,256 4,671
Fixed asset investments 4,142 1,617 --
------------- ------------- -------------
731,664 709,260 12,609
------------- ------------- -------------
Current assets
Stocks 31,536 24,532 6,652
Debtors 84,464 46,880 17,560
Investments 93,550 49,850 21,435
Cash at bank and in hand 31,194 36,038 8,230
------------- ------------- -------------
240,744 157,300 53,877
Creditors: Amounts falling due within one year (74,579) (107,140) (14,384)
------------- ------------- -------------
Net current assets 166,165 50,160 39,493
------------- ------------- -------------
Total assets less current liabilities 897,829 759,420 52,102
Creditors: amounts falling due in more than one year (94,186) (80,133) (1,508)
------------- ------------- -------------
Net assets 803,643 679,287 50,594
============= ============= =============
Capital and reserves
Called-up share capital 12,854 12,226 7,055
Share premium 873,567 839,026 228,537
Capital reserve 2,755 2,755 2,755
Other reserves 24,247 24,247 24,247
Profit and loss account (109,780) (198,967) (212,000)
------------- ------------- -------------
Equity shareholders' funds 803,643 679,287 50,594
============= ============= =============
95
Consolidated Cash Flow Statement
Year ended 31 December
2000 1999 1998
(L)'000 (L)'000 (L)'000
Net cash inflow from operating activities 52,925 39,863 3,691
Returns on investments and servicing of finance:
Interest received 4,125 2,334 1,434
Interest paid (7,009) (149) (142)
Interest element of finance lease rentals (1) (32) (72)
------------- ------------- -------------
Net cash inflow from returns on investments and servicing of finance (2,885) 2,153 1,220
------------- ------------- -------------
Taxation:
Corporation tax paid (4,397) (3,707) (3,177)
------------- ------------- -------------
Capital expenditure and financial investments:
Purchase of long term investment (2,398) -- --
Purchase of intangible fixed assets (25,776) (11,500) (629)
Purchase of tangible fixed assets (19,251) (1,303) (1,633)
Sale of intangible fixed assets 1,027 106 258
Sale of tangible fixed assets 7,903 1,521 37
------------- ------------- -------------
Net cash outflow for capital expenditure and financial investments (38,495) (11,176) (1,967)
------------- ------------- -------------
Acquisitions and disposals:
Purchase of subsidiary undertakings -- (17,355) --
Expenses of acquisitions (964) (7,448) (295)
Net cash acquired with subsidiary undertakings -- 24,149 --
------------- ------------- -------------
Net cash outflow from acquisitions (964) (654) (295)
------------- ------------- -------------
Net cash inflow/(outflow) before management of liquid resources and financing 6,184 26,479 (528)
------------- ------------- -------------
Management of liquid resources:
Increase in cash placed on short-term deposit (39,171) (1,033) (21,435)
------------- ------------- -------------
Financing:
Issue of ordinary share capital 7,904 -- 19,373
Exercise of share options 29,085 2,180 2,452
Expenses of share issues (2,089) (6,799) (1,274)
Capital element of finance leases (22) (705) (553)
Net increase in loans during the year (9,329) 7,439 --
------------- ------------- -------------
Net cash inflow from financing 25,549 2,115 19,998
------------- ------------- -------------
(Decrease) increase in cash in the year (7,438) 27,561 (1,965)
------------- ------------- -------------
96
Notes to the summary financial statement
1. Basis of preparation
The summary financial statement has been prepared in accordance with the
accounting policies set out in the full UK statutory annual accounts for the
year ended 31 December 2000. The summary financial statement does not
constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985.
2. Earnings per share
Earnings per share (EPS) has been calculated by dividing the profit on
ordinary activities after taxation for each year by the weighted average
number of shares in issue during those years, in accordance with FRS14. The
weighted average number of shares used in calculating fully diluted earnings
per share has been adjusted for the effects of all dilutive potential ordinary
shares in accordance with FRS14.
Years ended 31 December 2000 1999 1998
Basic earnings per share 29.0p 8.7p 4.5p
Diluted earnings per share 28.1p 8.3p 4.3p
Basic earnings per share - weighted average shares 252,497,255 145,202,383 136,924,061
Effect of dilutive stock options 8,411,015 6,326,876 7,475,065
-------------- -------------- --------------
Diluted earnings per share - weighted average shares 260,908,270 151,529,259 144,399,126
============== ============== ==============
Summary of significant differences between US generally accepted accounting
principles followed by the Group and UK generally accepted accounting
principles followed by the Group
The Group's consolidated financial statements set out in the annual review
have been prepared under US GAAP, which differs in certain respects from UK
GAAP. The principal differences between the Group's accounting policies under
US GAAP and UK GAAP are set out in the tables below:
Reconciliation of net profit/(loss) from US GAAP to UK GAAP
Years ended 31 December 2000 1999 1998 2000 1999 1998
$'000 $'000 $'000 (L)'000 (L)'000 (L)'000
Net profit/(loss) as reported under US GAAP 76,171 (94,998) 20,572 51,837 (59,046) 12,205
Adjustments to conform to UK GAAP:
Merger accounting adjustments
- - elimination of pooled profits and losses -- (16,437) (16,643) -- (10,196) (10,026)
- - restructuring costs charged to income (240) 87,877 -- (157) 54,513 --
- - merger transaction costs capitalised -- 22,967 -- -- 14,247 --
Amortisation of capitalised goodwill 10,277 11,004 11,137 6,792 6,802 6,709
Amortisation under acquisition accounting (34,538) (919) -- (22,824) (570) --
Recognition of deferred tax asset 3,842 (2,878) (12,890) 2,626 (1,771) (7,765)
Stock option compensation costs 21,914 11,933 5,497 13,633 7,362 3,313
Tax benefit from exercise of non-qualified stock
options 30,782 1,967 3,006 20,488 1,229 1,811
Amortisation of loan note 470 -- -- 298 -- --
NIC on share options - charge under UK GAAP (111) -- -- (75) -- --
Elimination of foreign exchange on US$ liabilities -- -- -- 584 -- --
--------- --------- --------- --------- --------- ---------
Net income as reported under UK GAAP 108,567 20,516 10,679 73,202 12,570 6,247
========= ========= ========= ========= ========= =========
97
Shareholders' equity
Years ended 31 December 2000 1999 1998 2000 1999 1998
$'000 $'000 $'000 (L)'000 (L)'000 (L)'000
As reported under US GAAP 752,759 587,284 663,314 503,922 364,387 398,674
Adjustments for:
- - capitalisation of goodwill (200,914) (216,769) (223,776) (134,499) (134,497) (134,497)
Goodwill amortisation 34,393 26,161 15,690 23,024 16,232 9,430
Acquisition accounting for Roberts
Pharmaceutical Corporation 646,942 735,242 (341,810) 433,085 456,191 (205,439)
Deferred tax (33,269) (37,111) (29,240) (22,271) (23,026) (17,574)
Loan note 465 -- -- 311 -- --
Difference in valuation of fixed
asset investments 48 -- -- 32 -- --
Restructuring accrual disallowed
under UK GAAP 170 -- -- 114 -- --
NIC on share options - charge under
UK GAAP (111) -- -- (75) -- --
------------ ------------ ------------ ------------ ------------ ------------
As reported under UK GAAP 1,200,483 1,094,807 84,178 803,643 679,287 50,594
============ ============ ============ ============ ============ ============
98
PART VII
Unaudited pro forma statements
As noted in Part V, Shire prepares its primary financial statements in US
dollars in accordance with US GAAP. Financial statements in UK pounds in
accordance with UK GAAP are prepared for statutory purposes. The unaudited pro
forma financial information has been prepared for illustrative purposes only
in accordance with both US and UK GAAP.
Under US GAAP, the Merger is expected to be accounted for as a `pooling of
interests'. Under this method, Shire and BioChem will be treated as if they
had always been combined. The purchase price in excess of the carrying value
of the net assets of BioChem will not be recognised and the costs associated
with the Merger will be treated as a one time charge to income. Under UK GAAP,
the Merger is expected to be accounted for as an acquisition. Goodwill arising
on the acquisition will be capitalised and written off on a straight line
basis over its useful economic life. Under UK GAAP, the costs associated with
the Merger will be included in the fair value of the consideration.
(a) Unaudited pro forma statement of combined condensed balance sheet under US
GAAP at 31 December 2000
The unaudited pro forma statement of combined condensed balance sheet of the
Enlarged Group set out below has been prepared for illustrative purposes only
in US dollars in accordance with US GAAP as applied by Shire. The pro forma
statement has been prepared to illustrate the effect on the combined condensed
balance sheet of Shire as if the Merger had occurred at 31 December 2000.
Because of its nature, it may not give a true picture of the Enlarged Group's
financial position if the Merger had occurred on the date assumed.
US GAAP
Unaudited
US GAAP US GAAP US GAAP Pro forma
Audited CAN GAAP Adjusted Adjusted Condensed
Shire BioChem BioChem BioChem balance
31 December 31 December 31 December 31 December Merger sheet post
2000 2000 Adjustments 2000 2000 adjustments merger
$'000 CAN$'000 CAN$'000 CAN$'000 $'000 $'000 $'000
(Note 1) (Note 2) (Note 3) (Note 4) (Note 5)
ASSETS
Current assets:
Cash and current
investments 186,343 416,084 -- 416,084 277,352 -- 463,695
Accounts receivable, net 93,830 75,604 -- 75,604 50,396 -- 144,226
Inventories, net 47,109 3,754 -- 3,754 2,502 -- 49,611
Deferred tax asset 26,971 -- -- -- -- -- 26,971
Prepaid expenses 9,736 2,473 -- 2,473 1,648 -- 11,384
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current assets 363,989 497,915 -- 497,915 331,898 -- 695,887
----------- ----------- ----------- ----------- ----------- ----------- -----------
Investments 6,139 103,681 -- 103,681 69,110 -- 75,249
Property, plant and
equipment, net 49,685 127,867 (6,107) 121,760 81,163 -- 130,848
Intangible assets, net 556,013 84,822 (46,065) 38,757 25,835 -- 581,848
Net assets of business
transferred under
contractual arrangements -- 53,776 -- 53,776 35,846 -- 35,846
Deferred tax asset 6,298 -- -- -- -- -- 6,298
Other assets 22,608 -- -- -- -- -- 22,608
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 1,004,732 868,061 (52,172) 815,889 543,852 -- 1,548,584
----------- ----------- ----------- ----------- ----------- ----------- -----------
99
US GAAP
Unaudited
Pro forma
US GAAP CAN GAAP US GAAP US GAAP Combined
Audited Unaudited Adjusted Adjusted condensed
Shire BioChem BioChem BioChem balance
31 December 31 December 31 December 31 December Merger sheet post
2000 2000 Adjustments 2000 2000 adjustments merger
$'000 CAN$'000 CAN$'000 CAN$'000 $'000 $'000 $'000
(Note 1) (Note 2) (Note 3) (Note 4) (Note 5)
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of
long term debt 1,448 120,560 -- 120,560 80,363 -- 81,811
Accounts and notes
payable 99,437 54,111 -- 54,111 36,069 100,000 235,506
Other current liabilities 10,528 -- -- -- -- -- 10,528
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 111,413 174,671 -- 174,671 116,432 100,000 327,845
----------- ----------- ----------- ----------- ----------- ----------- -----------
Long term debt, excluding
current instalments 126,364 8,550 -- 8,550 5,699 -- 132,063
Other non-current
liabilities 14,196 -- -- -- -- -- 14,196
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 251,973 183,221 -- 183,221 122,131 100,000 474,104
Total assets less total
liabilities 752,759 684,840* (52,172) 632,668* 421,721 (100,000) 1,074,480
Shareholders' equity 752,759 684,840 (52,172) 632,668 421,721 (100,000) 1,074,480
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity 1,004,732 868,061 (52,172) 816,889 543,852 -- 1,548,584
----------- ----------- ----------- ----------- ----------- ----------- -----------
* As extracted from the reconciliation of BioChem's financial results to US
GAAP as included in PART IV (a)(i) of this document.
Notes:
(1) Extracted from the audited consolidated financial statements of Shire as
included in Part V of this document.
(2) Derived from the audited consolidated financial statements of BioChem as
included in Part III of this document, reclassified in accordance with US
reporting formats, as noted:
CAN$'000
Cash and current investments:
Cash and cash equivalents 70,018
Temporary investments 346,066
-----------
416,084
-----------
(3) The following adjustments are required to conform BioChem's reclassified
financial statements to US GAAP as applied by Shire.
CAN$'000
Property, plant and equipment, net:
Deferred charges (6,107)
Intangible assets, net:
Deferred charges (5,197)
Consolidation of CliniChem (841)
Write off of in-process research and development (40,027)
-----------
(52,172)
-----------
These adjustments are extracted and as described in notes (a), (c) and (f)
to the unaudited reconciliation of financial information under US GAAP as
set out in Part IV (a)(i) of this document and have been reported on by
Arthur Andersen on page 57 of this document.
(4) Translated at CAN$1.5002- US $1, being the exchange rate ruling at 31
December 2000.
(5) Merger expenses consisting primarily of SDRT, professional fees and costs
of distributing proxy materials are estimated to be US$100 million and
will be charged as an operating expense upon consummation of the merger.
(6) No account has been taken of the trading results or other transactions of
Shire or BioChem after 31 December 2000.
100
[graphic]
Arthur Andersen
Abbots House
The Directors and Proposed Directors Abbey Street
Shire Pharmaceuticals Group plc Reading
East Anton RG1 3BD
Andover
Hampshire
SP10 5RG
The Directors
Deutsche Bank AG London
Global Investment Banking
Winchester House
1 Great Winchester Street
London
EC2N 2DB 1 March 2001
Dear Sirs
We report on the pro forma combined condensed balance sheet set out on pages
99 to 100 of the circular and listing particulars dated 1 March 2001 issued by
Shire, which has been prepared, for illustrative purposes only, to provide
information about how the proposed acquisition might have affected the
financial information presented by Shire US GAAP.
Responsibilities
It is the responsibility solely of the Directors of Shire to prepare the pro
forma combined condensed balance sheet in accordance with paragraph 12.29 of
the Listing Rules of the UK Listing Authority ("the Listing Rules").
It is our responsibility to form an opinion, as required by the Listing Rules,
on the pro forma combined condensed balance sheet and to report our opinion to
you. We do not accept any responsibility for any reports previously given by
us on any financial information used in the compilation of the pro forma
combined condensed balance sheet beyond that owed to those to whom those
reports were addressed by us at the dates of their issue.
Basis of Opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards and Bulletin 1998/8 "Reporting on pro forma financial
information pursuant to the Listing Rules" issued in the United Kingdom by the
Auditing Practices Board. Our work, which involved no independent examination
of any of the underlying financial information, consisted primarily of
comparing the unadjusted financial information with the source documents,
considering the evidence supporting the adjustments and discussing the pro
forma combined condensed balance sheet with the Directors of Shire.
Our work has not been carried out in accordance with auditing standards
generally accepted in the United States and accordingly should not be relied
upon as if it had been carried out in accordance with those standards.
Opinion
In our opinion:
1. the pro forma combined condensed balance sheet has been properly
compiled on the basis stated;
2. such basis is consistent with accounting policies as applied by Shire
under US GAAP; and
3. the adjustments are appropriate for the purposes of the pro forma
combined condensed balance sheet as disclosed pursuant to paragraph
12.29 of the Listing Rules.
Yours faithfully
Arthur Andersen
Chartered Accountants
101
(b) Unaudited pro forma statement of net assets in accordance with UK GAAP as
at 31 December 2000
The unaudited pro forma statement of net assets of the Enlarged Group set out
below has been prepared for illustrative purposes only in UK pounds in
accordance with UK GAAP as applied by Shire. The pro forma statement has been
prepared to illustrate the effect on the balance sheet of Shire as if the
Merger had occurred at 31 December 2000. Because of its nature, it may not
give a true picture of the Enlarged Group's financial position if the Merger
had occurred on the date assumed.
UK GAAP UK GAAP UK GAAP UK GAAP
Audited CAN GAAP Adjusted Adjusted Unaudited
Shire BioChem BioChem BioChem Pro forma
31 December 31 December 31 December 31 December Acquisition Net assets
2000 2000 Adjustments 2000 2000 adjustment post Merger
(L)'000 CAN$'000 CAN$'000 CAN$'000 (L)'000 (L)'000 (L)'000
(Note 1) (Note 2) (Note 3) (Note 4) (Note 5)
Fixed assets
Intangible assets 694,261 84,822 (6,038) 78,784 35,121 1,788,796 2,518,178
Tangible assets 33,261 127,867 (6,107) 121,760 54,280 -- 87,541
Fixed asset
investments 4,142 103,681 -- 103,681 46,220 -- 50,362
------------ ------------ ------------ ------------ ------------ ------------ ------------
731,664 316,370 (12,145) 304,225 135,621 1,788,796 2,656,081
------------ ------------ ------------ ------------ ------------ ------------ ------------
Current assets
Stocks 31,536 3,754 -- 3,754 1,674 -- 33,210
Debtors
- - due within one
year 69,106 78,077 -- 78,077 34,806 -- 103,912
- - due after one year 15,358 53,776 -- 53,776 23,973 -- 39,331
Cash and short term
investments 124,744 416,084 -- 416,084 185,487 -- 310,231
------------ ------------ ------------ ------------ ------------ ------------ ------------
240,744 551,691 -- 551,691 245,940 -- 486,684
Creditors: amounts
falling due in
less than one year (74,579) (174,671) (17,000) (191,671) (85,446) (66,943) (226,968)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net current assets 166,165 377,020 (17,000) 360,020 160,494 (66,943) 259,716
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total assets less
current
liabilities 897,829 693,390 (29,145) 664,245 296,115 1,721,853 2,915,797
Creditors: amounts
falling due in
more than one year (94,186) (8,550) -- (8,550) (3,812) -- (97,998)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net assets 803,643 684,840* (29,145) 655,695* 292,303 1,721,853 2,817,799
============ ============ ============ ============ ============ ============ ============
* As extracted from the reconciliation of BioChem's financial results to UK
GAAP as included in Part IV (b) of this document.
Notes:
(1) Extracted from the audited summary financial statements of Shire as
included in Part VI of this document.
(2) Derived from the audited consolidated financial statements of BioChem as
included in Part III of this document, reclassified in accordance with UK
reporting formats, as noted:
102
CAN$'000
Debtors comprise:
Accounts receivable 75,604
Prepaid expenses 2,473
------------
78,077
------------
Cash and short term investments comprise:
Cash and cash equivalents 70,018
Temporary investments 346,066
------------
416,084
------------
Creditors: amounts due in less than one year comprise:
Current portion of long term debt 120,560
Accounts payable and accrued liabilities 54,111
------------
174,671
============
(3) The following adjustments are required to conform BioChem's reclassified
financial statements to UK GAAP as applied by Shire.
CAN$'000
Tangible assets:
Deferred charges (6,107)
Intangible assets:
Deferred charges (5,197)
Consolidation of CliniChem (841)
Retained losses from discontinued operations (17,000)
------------
(29,145)
============
These adjustments are extracted and as described in notes (a) to (d) of
the unaudited reconciliation of financial information under UK GAAP as set
out in Part IV (b) of this document and have been reported on by Arthur
Andersen on page 66 of this document.
(4) Translated at CAN$2.2432 - (L)1, being the exchange rate ruling at 31
December 2000.
(5) Goodwill arising on the acquisition has been calculated as follows:
(L)'000
Purchase consideration:
Shire Ordinary Share or Exchangeable Shares (i) 2,014,156
Acquisition expenses (ii) 66,943
------------
2,081,099
Net assets of BioChem (292,303)
------------
Goodwill arising on acquisition 1,788,796
------------
(i) The purchase consideration has been calculated by applying the mid-
point exchange ratio of 1.8814 to the number of BioChem shares
outstanding at 31 December 2000, being 101,475,086 and multiplying by
the Shire ordinary share price of $10.55 at 31 December 2000.
(ii)Acquisition fees of US$100,000 million translated to (L)66,943
million.
(6) No account has been taken of the trading results or other transactions of
Shire or BioChem after 31 December 2000.
103
[graphic]
The Directors and Proposed Directors Arthur Andersen
Shire Pharmaceuticals Group plc Abbots House
East Anton Abbey Street
Andover Reading
Hampshire RG1 3BD
SP10 5RG
The Directors
Deutsche Bank AG London
Global Investment Banking
Winchester House
1 Great Winchester Street
London
EC2N 2DB 1 March 2001
Dear Sirs
We report on the pro forma statement of net assets set out on pages 102 to 103
of the circular and listing particulars dated 1 March 2001 issued by Shire,
which has been prepared, for illustrative purposes only, to provide
information about how the proposed acquisition might have affected the
financial information presented by Shire under UK GAAP.
Responsibilities
It is the responsibility solely of the Directors of Shire to prepare the pro
forma statement of net assets in accordance with paragraph 12.29 of the
Listing Rules of the UK Listing Authority ("the Listing Rules").
It is our responsibility to form an opinion, as required by the Listing Rules,
on the pro forma statement of net assets and to report our opinion to you. We
do not accept any responsibility for any reports previously given by us on any
financial information used in the compilation of the pro forma statement of
net assets beyond that owed to those to whom those reports were addressed by
us at the dates of their issue.
Basis of Opinion
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards and Bulletin 1998/8 "Reporting on pro forma financial
information pursuant to the Listing Rules" issued in the United Kingdom by the
Auditing Practices Board. Our work, which involved no independent examination
of any of the underlying financial information, consisted primarily of
comparing the unadjusted financial information with the source documents,
considering the evidence supporting the adjustments and discussing the pro
forma statement of net assets with the Directors of Shire.
Our work has not been carried out in accordance with auditing standards
generally accepted in the United States and accordingly should not be relied
upon as if it had been carried out in accordance with those standards.
Opinion
In our opinion:
1. the pro forma statement of net assets has been properly compiled on the
basis stated;
2. such basis is consistent with accounting policies as applied by Shire
under UK GAAP; and
3. the adjustments are appropriate for the purposes of the pro forma
statement of net assets as disclosed pursuant to paragraph 12.29 of the
Listing Rules.
Yours faithfully
Arthur Andersen
Chartered Accountants
104
PART VIII
Details of the Merger Agreement and Special Voting Rights
The following is a summary of the structure of the Enlarged Group following
completion of the Merger and of material documents entered into, and to be
entered into, in connection with the Merger.
1. Structure of the Enlarged Group
Following completion of the Arrangement, Shire will indirectly own 100 per
cent of BioChem through the holding company structure described below. The
business of BioChem will be operated in combination with the existing business
of Shire.
BioChem will, once the Arrangement becomes effective, become a direct wholly-
owned subsidiary of Exchangeco. Exchangeco is a company incorporated under the
CBCA. Pursuant to the Arrangement, Exchangeco will, if the requisite elections
are made, issue the Shire Exchangeco Shares to BioChem Shareholders who are
Canadian residents. Callco is a company incorporated under the CBCA. Pursuant
to the Exchangeable Share Support Agreement described below, Callco will have
the overriding right, in certain circumstances, to purchase Shire Exchangeco
Shares that are exchanged for New Ordinary Shares or new ADSs at the option of
the holder, for a purchase price payable in New Ordinary Shares or new ADSs as
the case may be. Further details are set out in paragraph 6 of this Part VIII.
The entire issued share capital of both Exchangeco and Callco is held by
Shire.
2. The Merger Agreement
The Merger Agreement sets out the basis on which Shire will acquire the entire
issued, and to be issued, share capital of BioChem. The Merger Agreement is
governed by Canadian law (more particularly, the laws of the Province of
Quebec and the federal laws applicable therein).
Plan of Arrangement
Under the Merger Agreement, the Merger is to be implemented by way of a plan
of arrangement under the CBCA, the corporations statute by which BioChem is
governed. The Merger Agreement provides that, subject to the approval of the
Merger by the affirmative vote of BioChem Shareholders and BioChem
Optionholders, voting together as set forth in the Interim Order, and the
passing of the ordinary resolution set out in the notice of an Extraordinary
General Meeting at the end of this document by a majority of the votes cast by
Shire Shareholders at the meeting and the satisfaction or waiver of other
conditions to the Merger, Shire and BioChem will merge pursuant to the
Arrangement. The Arrangement is also subject to the approval of the Superior
Court of Quebec which, amongst other things, will consider whether the
Arrangement is fair to the BioChem Securityholders. Under the terms of the
Merger, the BioChem Shareholders, and the BioChem Optionholders only to the
extent that they exercise their BioChem Options, may elect to receive New
Ordinary Shares, new Shire ADSs or, to the extent they are resident in Canada
for the purpose of the Income Tax Act (Canada), Shire Exchangeco Shares in
exchange for their BioChem Shares. Any BioChem Options or other rights in
respect of BioChem Shares which are not exercised will be replaced with
options or (as appropriate) other rights over Shire Ordinary Shares.
Conversion of BioChem Shares
The Merger Agreement provides for the combination of Shire and BioChem in a
transaction in which each BioChem Shareholder (other than BioChem Shareholders
who properly dissent to the Merger) will have the choice of receiving as
consideration for each BioChem Share:
o a number of Ordinary Shares equal to the exchange ratio;
o provided that the BioChem Shareholder is a Canadian resident, a number
of Shire Exchangeco Shares equal to the exchange ratio divided by three,
which are exchangeable into Ordinary Shares or ADSs at a rate of one
Shire Exchangeco Share for three Ordinary Shares or one Shire Exchangeco
Share for one ADS;
o a number of ADSs equal to the exchange ratio divided by three; or
o a combination of the above.
For the avoidance of doubt, only BioChem Shareholders who are Canadian
residents will have the option of receiving Shire Exchangeco Shares for their
BioChem Shares.
105
Holders of Shire Exchangeco Shares will be entitled to dividend and other
rights that are, as nearly as practicable, economically equivalent to those of
Ordinary Shares. Through a voting trust, holders of Shire Exchangeco Shares
will be entitled to vote at meetings of Shire Shareholders.
Exchange Ratio
The number of Ordinary Shares into which each BioChem Share shall be exchanged
shall be determined as follows:
If the Average Shire ADS Price is: the exchange ratio shall be:
less than or equal to $47.20 2.3517
greater than $47.20 and less than $70.80 determined by dividing $37.00 by the Average Shire ADS Price
and multiplying by 3
equal to or greater than $70.80 1.5678.
If a BioChem Shareholder so elects, or in certain other circumstances, Shire
will provide such shareholder with one-third of an ADS or one-third of a Shire
Exchangeco Share for each Ordinary Share that shareholder would be entitled to
receive based on the exchange ratio. The Shire ADS price will be the average
of the closing prices of the Shire ADSs on NASDAQ over a period of 15
consecutive trading days ending on the third day prior to Closing of the
Arrangement.
Representations and Warranties
The Merger Agreement contains customary representations and warranties made by
Shire and BioChem relating to, among other things:
o due organisation and good standing;
o capitalisation;
o corporate authority to enter into the contemplated transactions;
o lack of conflicts with corporate governance documents;
o reports and financial statements;
o absence of certain changes or events;
o compliance with law;
o brokers or finders;
o absence of litigation;
o filing of tax returns;
o environmental matters; and
o intellectual property.
Covenants
During the period from the date of the Merger Agreement and continuing until
the Effective Time, each of Shire and BioChem has agreed as to itself and its
subsidiaries that, among other things, it and its subsidiaries will carry on
their respective businesses only in the ordinary course and will use
reasonable efforts to maintain and preserve its business organisation, assets,
employees and business relationships and to maintain all of its properties and
assets in useful and good condition.
The Merger Agreement contains certain other covenants of Shire and BioChem
relating to the conduct of their respective businesses before the Effective
Time, including:
o covenants relating to the declaration and payment of dividends and
changes in share capital;
o the issuance of securities;
106
o the amendment of the memorandum and articles of association of Shire or
other constituting documents of the parties to the Merger Agreement;
o the disposition of assets;
o the incurrence of indebtedness and the acquisition of equity interests;
o the making of loans, advances, contributions or investments;
o the maintenance of benefits plans and compensation;
o the entering into of agreements limiting or restricting Shire or BioChem
from engaging or competing in any line of business; and
o the preservation of the availability of pooling-of-interests accounting
treatment.
No Solicitation
According to the terms of the Merger Agreement, Shire and BioChem have each
agreed that, prior to the Effective Time of the Arrangement, neither it, nor
any of its subsidiaries nor any of the respective employees, agents or
representatives of the foregoing, will:
o initiate, solicit, encourage or knowingly facilitate, including by way
of furnishing information, any inquiries or the making of any proposal
or offer with respect to, any merger, consolidation or other business
combination involving Shire or BioChem, as the case may be, or the
acquisition of the assets of BioChem or Shire having an aggregate value
of 50 per cent or more of the market capitalisation or the acquisition
of 50 per cent or more of the capital stock of Shire or BioChem, as the
case may be;
o have any discussion with or provide confidential information or data to
any person relating to the type of transaction referred to above;
o engage in any negotiations regarding the type of transaction referred to
above; or
o knowingly facilitate any effort or attempt to make or implement the type
of transaction referred to above or accept such a transaction.
The Merger Agreement does allow Shire and BioChem, in response to an
unsolicited written Acquisition Proposal on terms which the board of directors
of Shire or BioChem, as the case may be, determines in good faith, and in the
exercise of reasonable judgment, based on the advice of independent financial
advisers and legal counsel, to be more favourable to its shareholders than the
Merger, to furnish information to, negotiate or otherwise engage in
discussions with such third party, provided, however, in the case of Shire
that its Board determines in good faith, after receiving a written opinion
from its outside legal advisers, that such action is required for the Board to
comply with its fiduciary duties under applicable law.
According to the terms of the Merger Agreement, Shire and BioChem have agreed
promptly to advise each other of any information they have from a person with
respect to any transaction of the type referred to above and to give each
other an update on an ongoing basis or upon the reasonable request of Shire or
BioChem, as the case may be, on the status of any such transaction.
Conditions to Closing
Mutual Conditions
The Merger Agreement provides that the respective obligations of each party to
complete the transaction are subject to the satisfaction or waiver of a number
of conditions, including the following:
o the transaction shall have been approved by the requisite vote of Shire
Shareholders and BioChem Shareholders;
o no laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order
issued by a court or other governmental entity of competent jurisdiction
shall be in effect, having the effect of making the transaction illegal
or otherwise prohibiting consummation of the transaction;
107
o the waiting periods (and any extensions thereof) applicable to the
transaction under the HSR Act and the Competition Act (Canada) shall
have been terminated or shall have expired or the Commissioner of
Competition shall have issued an advance ruling certificate and/or a "no
action" letter under the Competition Act (Canada) in relation to the
transaction and the Director of Investments under the Investment Canada
Act shall have concluded that the transaction is of "net benefit to
Canada" for purposes of the Investment Canada Act;
o all consents, approvals and actions of, filings with and notices to any
governmental entity required of Shire or BioChem or any of their
respective subsidiaries to consummate the transaction and the other
transactions contemplated by the Merger Agreement shall have been
obtained;
o the New Ordinary Shares shall have been admitted to the Official List of
the UK Listing Authority and to trading on the London Stock Exchange,
the ADSs shall have been approved for listing on NASDAQ (to the extent
necessary) and the Shire Exchangeco Shares shall have been approved for
listing on The Toronto Stock Exchange, subject to official notice of
issuance;
o a registration statement on Form S-4 relating to the issue of Ordinary
Shares upon exchange of the Shire Exchangeco Shares shall have been
declared effective by the SEC or an appropriate "no action letter" shall
have been obtained from the staff of the SEC relating to the issue of
Ordinary Shares upon exchange of the Shire Exchangeco Shares. No stop
order suspending the effectiveness of the Form S-4 shall have been
issued by the SEC and no proceedings for that purpose shall have been
initiated or threatened by the SEC;
o all applicable requirements of Section 3 (a) (10) of the US Securities
Act shall have been satisfied with respect to the issue of Ordinary
Shares and ADSs in connection with the Merger; and
o exemption orders from the registration and prospectus requirements with
respect to the Shire Exchangeco Share structure shall have been granted
by all relevant Canadian provincial securities authorities.
Conditions in favour of Shire and Exchangeco
The Merger Agreement provides that the obligation of Shire and Exchangeco to
complete the transaction is subject to the satisfaction or waiver of a number
of additional conditions, each of which may be waived by Shire, including the
following:
o each of the representations and warranties of BioChem set forth in the
Merger Agreement that is qualified as to Material Adverse Effect shall
be true and correct and each of the representations and warranties of
BioChem set forth in the Merger Agreement that is not so qualified shall
be true and correct in all material respects, in each case as of the
date of the Merger Agreement and as of the Effective Date as though made
on and as of the Effective Date;
o BioChem shall have performed or complied with all agreements and
covenants required to be performed by it under the Merger Agreement at
or prior to the Effective Date that are qualified as to Material Adverse
Effect and shall have performed or complied in all material respects
with all other agreements and covenants required to be performed by it
under the Merger Agreement at or prior to the Effective Date that are
not so qualified;
o BioChem's board of directors shall have waived the application of a
BioChem rights plan to the transactions contemplated by the Merger
Agreement. Under the rights plan, one common share purchase right was
issued in respect of each outstanding BioChem Share and a share purchase
right for each BioChem Share issued thereafter. These rights are
exercisable in a situation of public offering where certain conditions
are not respected. Each right entitles the holder to purchase, from
BioChem, one BioChem Share at a specified price, subject to certain
anti-dilution adjustments;
o holders of not more than 5 per cent of the BioChem Shares issued and
outstanding immediately prior to the Effective Date shall have dissented
to the Merger (and not withdrawn such dissent);
o since the date of the Merger Agreement, there shall not have occurred
any change, effect, event or circumstance that, in combination with any
other changes, effects, events or circumstances, has resulted in or
would reasonably be expected to result in a Material Adverse Effect with
respect to BioChem; provided that the outcome of the proceedings by
Emory University in the US shall not be considered to have a Material
Adverse Effect on BioChem; and
108
o there shall have been delivered to Shire:
o a pooling letter from Shire's independent auditors, dated as of
the Effective Date and addressed to Shire, reasonably satisfactory
in form and substance to Shire, setting forth the concurrence of
Shire's independent auditors with the conclusion of Shire's
management that it will be appropriate to account of the
Arrangement as a "pooling of interests" under US GAAP, Accounting
Principles Board Opinion No. 16 and all published rules and
regulations adopted by the SEC; and
o a poolability letter from BioChem's independent auditors, dated as
of the Effective Date and reasonably satisfactory in form and
substance to Shire, setting forth the concurrence of BioChem's
independent auditors with the conclusion of BioChem's management
that it will be appropriate to account for the Arrangement as a
"pooling of interest" under US GAAP, Accounting Principles Board
Opinion No. 16 and all published rules and regulations adopted by
the SEC.
Conditions in favour of BioChem
The Merger Agreement provides that the obligation of BioChem to complete the
Merger is subject to the fulfilment of a number of additional conditions, each
of which may be waived by BioChem, including the following:
o each of the representations and warranties of each of Shire and
Exchangeco set forth in the Merger Agreement that is qualified as to
Material Adverse Effect shall be true and correct, and each of the
representations and warranties of each of Shire and Exchangeco set forth
in the Merger Agreement that is not so qualified shall be true and
correct in all material respects, in each case as of the date of the
Merger Agreement and as of the Effective Date as though made on and as
of the Effective Date; and
o Shire shall have performed or complied with all agreements and covenants
required to be performed by it under the Merger Agreement at or prior to
the Effective Date that are qualified as to Material Adverse Effect and
shall have performed or complied in all material respects with all other
agreements and covenants required to be performed by it under the Merger
Agreement at or prior to the Effective Date that are not so qualified.
Termination and Payment of Break Fees
The Merger Agreement may be terminated by mutual written consent of BioChem
and Shire at any time prior to the Effective Date. In addition, if the
Effective Date shall not have occurred on or before 31 May 2001, the Merger
Agreement may be terminated by either BioChem or Shire; provided, however,
that this right to termination may not be available to any party whose failure
to fulfil any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Date to occur on or before 31 May
2001.
The Merger Agreement may be terminated by either BioChem or Shire, if any
governmental entity:
o shall have issued a final and non-appealable order, decree or ruling or
taken any other action (which such party shall have used its reasonable
best efforts to resist, resolve or lift, as applicable) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Merger Agreement, and such order, decree, ruling or
other action shall have become final and non-appealable; or
o shall have failed to issue an order, decree or ruling or to take any
other action (which order, decree, ruling or other action such party
shall have used its reasonable best efforts to obtain) which is
necessary to fulfil the conditions to closing set forth in the Merger
Agreement, and such denial of a request to issue such order, decree,
ruling or take such other action shall have become final and non-
appealable; provided, however, that this right to terminate shall not be
available to any party whose failure to use reasonable best efforts to
obtain regulatory approvals has been the cause of such action or
inaction.
The Merger Agreement may be terminated by Shire upon the occurrence of any of
the following events:
o BioChem Shareholders' approval has not been obtained at the BioChem
Shareholders' meeting;
o the board of directors of BioChem fails to recommend approval of the
Merger to its shareholders or adversely modifies or qualifies or
withdraws its recommendation; or
o a breach by BioChem of any representation, covenant or agreement which
results in a failure of certain conditions to closing (subject to a 20
business day cure period).
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The Merger Agreement may be terminated by BioChem upon the occurrence of any
of the following events:
o Shire Shareholders have not approved the Merger at the Extraordinary
General Meeting;
o the Board of Shire fails to recommend approval of the Merger to its
shareholders or adversely modifies or qualifies or withdraws its
recommendation; or
o a breach by Shire of any representation, covenant or agreement which
results in a failure of certain conditions to closing (subject to a 20
business day cure period).
BioChem may also terminate the Merger Agreement if, at any time prior to its
shareholder meeting, BioChem shall have failed to recommend approval of the
Merger to its shareholders or adversely modified or qualified or withdrawn its
recommendation so long as:
o the BioChem board of directors, after consultation with its legal
counsel and financial adviser, determines that a proposal to acquire
BioChem is more favourable from a financial point of view to its
shareholders than the Merger and, after consultation with and based upon
advice of legal counsel, determines in good faith that such action is
necessary for BioChem's board of directors to comply with its fiduciary
duties to shareholders under applicable laws;
o BioChem pays to Shire, immediately following the termination of the
Merger Agreement, a break fee of $110 million; and
o BioChem provides to Shire at least five business days prior to
termination written notice of its intention to terminate the Merger
Agreement and the material terms and conditions of the proposal to
acquire BioChem.
If Shire terminates the Merger Agreement because BioChem Shareholders'
approval has not been obtained, and
o a transaction to acquire BioChem is announced that BioChem's board of
directors determines is more favourable to its shareholders than the
transaction with Shire; and
o that transaction is consummated within one year (or 18 months in certain
circumstances) of termination of the Merger Agreement,
then BioChem shall pay to Shire a break fee of $110 million not later than two
days following consummation of the transaction referred to above.
If Shire terminates the Merger Agreement because BioChem's board of directors
fails to recommend approval of the Merger to its shareholders or adversely
modifies or qualifies or withdraws its recommendation, then BioChem shall pay
to Shire a break fee of $110 million not later than two business days after
the termination date.
If BioChem terminates the Merger Agreement because Shire has failed to
recommend approval of the Merger to its shareholders or Shire has adversely
modified or qualified or withdrawn its recommendation, then Shire shall pay to
BioChem, not later than two business days after the termination date, a break
fee of $40 million.
3. The Option Agreement
General
At the same time as the execution of the Merger Agreement and as an inducement
and condition to entering into the Merger Agreement, Shire entered into an
Option Agreement with BioChem.
Under the Option Agreement, BioChem granted Shire an irrevocable option to
purchase a number of shares representing up to 19.9 per cent of the issued and
outstanding BioChem Shares as of 8 December 2000 (on an undiluted basis) at a
price per share in cash equal to $37.00.
The Option Agreement provides that Shire may exercise the option prior to
termination of the Option Agreement, in whole or in part, by delivering a
written notice, upon the occurrence of any event that entitles Shire to
receive a payment of $110 million from BioChem according to the terms of the
Merger Agreement.
To the extent the option has not been exercised, the option will expire upon
the earlier of the Effective Time or termination of the Merger Agreement in
accordance with its terms unless Shire is entitled to receive the $110 million
payment from BioChem under the Merger Agreement, in which case the option will
expire 180 days after termination of the Merger Agreement.
110
Arrangements such as the Option Agreement are customarily entered into in
connection with corporate mergers and acquisitions in an effort to increase
the likelihood that the transactions will be consummated in accordance with
their terms, and to compensate the grantee for the efforts undertaken and the
expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated under certain circumstances involving
an acquisition or potential acquisition of the issuer by a third party. The
Option Agreement was entered into to accomplish these objectives.
Notice of exercise
According to the terms of the Option Agreement, Shire may exercise the option
by:
o sending BioChem a written notice specifying the number of BioChem Shares
to be purchased; and
o paying the exercise price by certified cheque or wire transfer.
Maximum proceeds
The Option Agreement provides that the gross proceeds received by Shire in
connection with any sales or dispositions of shares from the exercise of the
option (less reasonable and customary commissions and any dividends received
by Shire declared on the option shares) together with the $110 million payment
cannot exceed:
o $120,000,000; plus
o the product of $37.00 and the number of BioChem Shares purchased by
Shire under the option.
If such gross proceeds do exceed this amount, the excess amount shall be
remitted by Shire to BioChem or deducted from the $110 million payment to be
made by BioChem to Shire.
4. Exchangeable Share Support Agreement
Under the Exchangeable Share Support Agreement to be entered into between
Shire, Callco and Exchangeco, Shire will agree to ensure that Exchangeco can
meet its obligations in respect of the Shire Exchangeco Shares.
So long as any Shire Exchangeco Shares not owned by Shire or its affiliates
are outstanding, Shire cannot declare or pay any dividend unless Exchangeco
simultaneously declares or pays an equivalent dividend to holders of the Shire
Exchangeco Shares. If there is a shortfall in Exchangeco's reserves then Shire
is required to fund this shortfall to the extent necessary to pay an
economically equivalent dividend. If Shire pays a dividend in specie to Shire
Shareholders then a payment of economically equivalent value must be made to
the holders of the Shire Exchangeco Shares.
If Shire is subject to a takeover offer, it must use all reasonable efforts to
enable the holders of the Shire Exchangeco Shares to participate on
economically equivalent terms. Furthermore, the Exchangeable Share Support
Agreement contains an anti-dilution covenant on the part of Shire which
prevents Shire from issuing Ordinary Shares, convertibles or options to Shire
Shareholders; distributing property to Shire Shareholders; merging or
undergoing a reorganisation; or altering its share capital structure, in each
case without either (a) the approval of the holders of the Shire Exchangeco
Shares or (b) economically equivalent reciprocal arrangements being put in
place in favour of the holders of the Shire Exchangeco Shares.
The measure of economic equivalence will be determined by the board of
directors of Exchangeco in accordance with certain parameters set forth in the
Exchangeable Share Support Agreement.
Shire must also ensure that Exchangeco complies with its obligations in
relation to the exercise of retraction rights, payment of dividends and
segregation of funds and must ensure the availability of sufficient New
Ordinary Shares to satisfy the exchange rights of the holders of the Shire
Exchangeco Shares.
Upon the exercise of exchange rights attaching to the Shire Exchangeco Shares
(whether at the option of the holders of Shire Exchangeco Shares or upon some
other exchange event), Callco will have the overriding right, but not the
obligation, to purchase the Shire Exchangeco Shares in question for a purchase
price payable in New Ordinary Shares or new ADSs (at the option of the
holder). Further details are set out in paragraph 6 of this Part VIII).
111
5. Voting and Exchange Trust Agreement
Under the Voting and Exchange Trust Agreement (to be entered into among Shire,
Exchangeco and General Trust of Canada (the "Trustee")) Special Voting Shares
will be issued to the Trustee in the same number as the number of outstanding
Shire Exchangeco Shares as at the Effective Date and a trust created for the
benefit of the holders of the Shire Exchangeco Shares. The Trustee will hold
the Special Voting Shares in trust for the benefit of the holders of the Shire
Exchangeco Shares (other than Shire and affiliates of Shire) and will be able
to vote in person or by proxy on any matters put before the Shire Shareholders
at a Shire general meeting. Each holder of Shire Exchangeco Shares (other than
Shire or affiliates of Shire) is entitled to direct the Trustee how to vote
three Special Voting Shares held by the Trustee for each one Shire Exchangeco
Share owned by such holder or to attend the meeting personally and vote
directly as proxy for the Trustee in respect of such Special Voting Shares.
Unless instructed, the Trustee may not vote, and any Shire Exchangeco Shares
held by Shire or its affiliates may not be voted. The Trustee will also hold
rights entitling the holders of the Shire Exchangeco Shares to automatic
exchange rights providing that, in the event of the insolvency or liquidation
of Exchangeco or of Shire, Shire will acquire the Shire Exchangeco Shares
other than those held by Shire and its affiliates in return for New Ordinary
Shares at the same rate as the right to exchange (i.e. one-for-three).
Under the Voting and Exchange Trust Agreement, Shire must provide to the
Trustee all materials to be sent to Shire Shareholders and certain items are
subject to the right of reasonable comment by the Trustee prior to mailing.
Shire must also give the Trustee and Exchangeco advance notice of any meetings
of Shire Shareholders and all materials must be mailed to the holders of the
Shire Exchangeco Shares at the same time as they are mailed to the Shire
Shareholders at Shire's expense.
Shire will not be responsible for the payment of any applicable stamp,
registration and transfer taxes and duties, if any, upon transfer of the Shire
Exchangeco Shares or the issue of New Ordinary Shares or the transfer of
Ordinary Shares other than (a) any UK stamp duty or stamp duty reserve tax
payable on any issue of New Ordinary Shares or transfer of Ordinary Shares to
a depository or its nominee or agent in connection with the issuance of Shire
ADSs pursuant to the Merger and any issue of New Ordinary Shares or transfer
of Ordinary Shares to a depository or its nominee or agent in connection with
any exchange of Shire Exchangeco Shares for Shire ADSs, (b) any UK stamp duty
reserve tax that arises in respect of the transfer of Shire Exchangeco Shares
in exchange for Shire ADSs or New Ordinary Shares pursuant to the Merger (an
"Exchange"), (c) any UK stamp duty that Shire or any of its subsidiaries
requires to be paid on an Exchange, and (d) any UK stamp duty payable on an
issue of Shire Exchangeco Shares to a holder of BioChem Shares pursuant to the
Merger. Shire and Exchangeco jointly and severally agree to pay the Trustee
for all services rendered by it under the Voting and Exchange Trust Agreement,
including reasonable expenses. In addition, Shire and Exchangeco will be
liable to indemnify the Trustee against any claims, losses and reasonable
costs and expenses incurred in compliance with its duties under the Voting and
Exchange Trust Agreement.
6. Further Details of the Shire Exchangeco Shares
Retraction
Holders of Shire Exchangeco Shares have the right at any time (subject to the
exercise by Callco of its overriding call right described below) to require
Exchangeco to redeem any or all of their Shire Exchangeco Shares (the
"Retracted Shares") in exchange for the delivery to such holders of three New
Ordinary Shares or one ADS (at the option of the holder) for each Retracted
Share plus any declared and unpaid dividends on the Retracted Share (the
"Exchange Amount"). Holders of the Shire Exchangeco Shares may effect an
exchange by presenting to Exchangeco the share certificates representing the
Retracted Shares together with a duly executed notice in prescribed form (a
"Retraction Request") and such other documents as may be required to effect
the exchange.
When a holder requests Exchangeco to redeem Retracted Shares, Callco will have
an overriding right (the "Retraction Call Right") to purchase all but not less
than all of the Retracted Shares, at a purchase price per share equal to the
Exchange Amount. Upon receipt of a Retraction Request, Exchangeco will
immediately notify Callco of the Retraction Call Right. Callco must then
advise Exchangeco within five business days as to whether the Retraction Call
Right will be exercised. If Callco does not so advise Exchangeco, Exchangeco
will notify the holder as soon as possible thereafter that Callco will not
exercise the Retraction Call Right. If Callco advises Exchangeco that Callco
will exercise the Retraction Call Right within such five business day period,
then provided the Retraction Request is not revoked by the holder as described
below, the Retraction Request shall thereupon be considered only to be an
offer by the holder to sell the Retracted Shares to Callco in accordance with
the Retraction Call Right.
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A holder may revoke its Retraction Request, in writing, at any time prior to
the close of business on the business day preceding the date set for
retraction (the "Retraction Date") in which case the Retracted Shares will
neither be purchased by Callco nor be redeemed by Exchangeco. If a holder does
not revoke its Retraction Request, on or before the Retraction Date, the
Retracted Shares will be purchased by Callco or redeemed by Exchangeco, as the
case may be, in each case as set out above.
Liquidation of Exchangeco
In the event of the liquidation, dissolution or winding-up of Exchangeco or
any other distribution of the assets of Exchangeco among its shareholders for
the purpose of winding-up its affairs, holders of the Shire Exchangeco Shares
will have, subject to applicable law, preferential rights to receive from
Exchangeco the Exchange Amount for each Shire Exchangeco Share held. Upon the
occurrence of such liquidation, dissolution or winding-up, Callco will have an
overriding right to purchase all of the outstanding Shire Exchangeco Shares
(other than Shire Exchangeco Shares held by Shire and its affiliates) from the
holders thereof for a purchase price per share equal to the Exchange Amount.
Upon the occurrence and during the continuance of an Exchangeco Insolvency
Event, Shire shall purchase from each holder of Shire Exchangeco Shares (other
than Shire and its affiliates) all of the Shire Exchangeco Shares held by each
such holder. The purchase price payable by Shire for each Shire Exchangeco
Share so purchased will be the Exchange Amount.
Liquidation of Shire
In order for the holders of the Shire Exchangeco Shares to participate on a
pro rata basis with the holders of Ordinary Shares, on the fifth business day
prior to the effective date of a Shire Liquidation Event, each Shire
Exchangeco Share (other than those held by Shire or its affiliates) will
automatically be exchanged for the Exchange Amount.
Redemption
Subject to applicable law and to the exercise by Callco of its call right
described below, Exchangeco will redeem all but not less than all of the then
outstanding Shire Exchangeco Shares for a price per share equal to the
Exchange Amount on a date (the "Redemption Date") determined by the board of
directors of Exchangeco but not before the tenth anniversary of the Effective
Date (subject to "Early Redemption" below). Exchangeco will, at least 60 days
before the Redemption Date or such number of days as the board of directors of
Exchangeco may determine to be reasonably practicable under the circumstances
in respect of a Redemption Date arising in connection with a Shire Control
Transaction an Exchangeable Share Voting Event or an Exempt Exchangable Share
Voting Event, notify the holder of the Shire Exchangeco Shares of the
Redemption Date.
Callco will have an overriding right (the "Redemption Call Right") to purchase
on the Redemption Date all but not less than all of the Shire Exchangeco
Shares then outstanding (other than Shire Exchangeco Shares held by Shire and
its affiliates) for a purchase price per share equal to the Exchange Amount.
Upon the exercise of the Redemption Call Right, holders will be obligated to
sell their Shire Exchangeco Shares to Callco. If Callco exercises the
Redemption Call Right, Exchangeco's right and obligation to redeem the Shire
Exchangeco Shares on such Redemption Date will terminate.
Early Redemption
In certain circumstances, Exchangeco has the right to require a redemption of
the Shire Exchangeco Shares prior to the tenth anniversary of the Effective
Date. An early redemption may occur upon:
(i) there being fewer than 1,000,000 Shire Exchangeco Shares outstanding
(other than Shire Exchangeable Shares held by Shire and its affiliates),
provided that such number may be adjusted by the board of directors of
Exchangeco in certain circumstances;
(ii) the occurrence of a Shire Control Transaction, provided that the board
of directors of Exchangeco determines (i) that it is not reasonably
practicable to substantially replicate or modify the terms and
conditions of the Shire Exchangeco Shares in connection with the Shire
Control Transaction and (ii) that the redemption of the Shire Exchangeco
Shares is necessary to enable the completion of the Shire Control
Transaction;
(iii) an Exchangeable Share Voting Event being proposed, provided that (i) the
board of directors of Exchangeco determines that it is not reasonably
practicable to accomplish the business purpose intended by
113
the Exchangeable Share Voting Event in any other commercially reasonable
matter that does not result in an Exchangeable Share Voting Event and
(ii) the holders of the Shire Exchangeco Shares fail to take the
necessary action at a meeting or other vote of such holders to approve
or disapprove, as applicable, the Exchangeable Share Voting Event; and
(iv) an Exempt Exchangeable Share Voting Event being proposed, provided that
the holders of the Shire Exchangeco Shares fail to take the necessary
action at a meeting or other vote of such holders to approve or
disapprove, as applicable, the Exempt Exchangeable Share Voting Event.
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PART IX
Statutory and general information
1. Responsibility
The Directors and Proposed Directors, whose names appear in paragraph 2 below,
accept responsibility for the information contained in this document. To the
best of the knowledge and belief of the Directors and Proposed Directors, who
have taken all reasonable care to ensure that such is the case, the
information contained in this document is in accordance with the facts and
does not omit anything likely to affect the import of such information.
2. Directors and Proposed Directors
(a) The Directors are listed below together with their respective positions:
Directors Position
Dr James Henry Cavanaugh Non-executive Chairman
Rolf Stahel Chief Executive
Angus Charles Russell Group Finance Director
Dr Joseph Wilson Totten Group Research and Development Director
Dr Barry John Price Senior Non-executive Director
Dr Bernard Canavan Non-executive Director
Dr Zola Philip Horovitz Non-executive Director
Ronald Maurice Nordmann Non-executive Director
Joseph Edward Smith Non-executive Director
John Tetje Spitznagel Non-executive Director
It is proposed that, following the Merger, Dr Francesco Bellini, the
Hon. James Andrews Grant and Mr Gerard Veilleux will be appointed as
non-executive Directors of the Company. At that time, approximately 30
per cent of the Shire Board of Directors will be formed of former
BioChem board members, following the resignations of Dr Zola Horovitz,
Mr Joseph Smith and Mr John Spitznagel.
As of 5 March 2001 the business address of all the Directors is, and of
the Proposed Directors will be, Hampshire International Business Park,
Chineham, Basingstoke, Hampshire RG24 8EP, England.
(b) The brief biographical details of the Directors are as follows:
Dr James Cavanaugh joined the Board on 24 March 1997 and was appointed
as Non-executive Chairman with effect from 11 May 1999. Dr Cavanaugh is
the President of HealthCare Ventures LLC. Formerly he was President of
SmithKline & French Laboratories, the US pharmaceutical division of what
was then SmithKline Beecham Corporation. Prior to that, he was President
of SmithKline Beecham Corporation's clinical laboratory business and,
before that, President of Allergan International. Prior to his industry
experience, Dr Cavanaugh served as Deputy Assistant to the President of
the US on the White House Staff in Washington, DC. He is a Non-executive
Director of MedImmune, Inc, 3-Dimensional Pharmaceuticals Inc and
Versicor Inc.
Rolf Stahel joined the Group in March 1994 as Chief Executive from
Wellcome plc where he worked for 27 years. From April 1990 until
February 1994, he served as Director of Group Marketing reporting to the
Chief Executive of Wellcome plc. A business studies graduate of KSL
Lucerne, Switzerland, he attended the 97th Advanced Managers Program at
Harvard Business School.
Angus Russell joined the Board with effect from December 1999, having
previously worked for ICI, Zeneca and AstraZeneca for a total of 19
years. His last position was Vice President - Corporate Finance at
AstraZeneca PLC, where he was responsible for financial input into M&A
activities, management of tax, legal and finance structure, investor
relations activities and the management of various financial risks.
Prior to this, he held a number of positions within Zeneca Group PLC and
ICI including Group Treasurer, Group Investor Relations Manager,
Strategic Planner, Marketing Manager and management accounting roles in
manufacturing and R & D operations. Mr Russell is a chartered
accountant, having qualified with Coopers & Lybrand and is a member of
the Association of Corporate Treasurers.
Dr Wilson Totten joined the Board of Shire in January 1999 as Group
Research and Development Director. Dr Totten is a medical doctor and has
wide experience in the pharmaceutical industry covering all phases of
115
drug development. He has substantial experience in the field of CNS
disorders. His last position was Vice President of Clinical Research &
Development with Astra Charnwood where he served from 1995 to 1997,
having previously worked for Fisons Pharmaceuticals from 1989 to 1995,
and prior to that with 3M Health Care and Eli Lilly. Dr Totten is also a
non-executive director of Keryx Biopharmaceuticals Inc.
Dr Barry Price joined the Board on 24 January 1996, having spent 28
years at Glaxo holding a succession of key executive positions with
Glaxo Group Research. He is Chairman of Antisoma plc and also Biowisdom
Ltd. He is also on the board of directors of Pharmagene plc and
Chemunex S.A. Dr Price is Chairman of the Remuneration Committee of the
Board.
Dr Bernard Canavan joined the Board as a non-executive Director on 11
March 1999. Dr Canavan is a medical doctor and graduate of the
University of Edinburgh. He was employed by American Home Products for
over 25 years until he retired in January 1994. He was President of that
corporation from 1990 to 1994, and prior to that was Chairman and Chief
Executive Officer of American Home Products Pharmaceutical Division,
Wyeth-Ayerst Laboratories. Dr Canavan is also a director of Magainin
Pharmaceuticals Inc. and 3-Dimensional Pharmaceuticals Inc. Dr Canavan
is Chairman of the Audit Committee of the Board. Dr Canavan was a
director of BioChem from 1997 to 2000.
Dr Zola Horovitz joined the Board with effect from 23 December 1999,
having previously served as a director of Roberts since October 1996.
Dr. Horovitz has been self-employed as a consultant in the biotechnology
and pharmaceutical industries since 1994. From 1959 to 1994 Dr Horovitz
held various positions at Squibb Corporation and its successor
corporation, Bristol-Myers Squibb & Co., including that of Vice
President, Business Development and Planning. Dr Horovitz received
undergraduate and masters degrees and a Ph.D from the University of
Pittsburgh.
Ronald Nordmann served as a non-executive director of Roberts from May
1999 until becoming a Director of Shire with effect from 23 December
1999. He was a partner of Deerfield Management Company from September
1994 until January 2000. He has been a financial analyst in healthcare
equities since 1971 and has held senior positions with PaineWebber,
Oppenheimer & Co., F. Eberstadt & Co., and Warner-Chilcott Laboratories,
a division of Warner-Lambert. Mr Nordmann received his undergraduate
degree from The Johns Hopkins University and a M.B.A. from Fairleigh
Dickinson University.
Joseph Smith served as a non-executive director of Roberts from August
1998 and joined the Board of Shire with effect from 23 December 1999.
From 1989 to 1997, Mr Smith served in various positions at Warner-
Malbert Company, including President of Parke-Davis Pharmaceuticals and
President of the Shaving Products Division (Schick and Wilkinson Sword).
Mr Smith previously held positions at Johnson and Johnson and served as
President of Rorer Pharmaceutical Corporation. Mr Smith received his
undergraduate degree from the University of Buffalo and a M.B.A. degree
from the Wharton School of the University of Pennsylvania.
John Spitznagel served as President and Chief Executive Officer of
Roberts from September 1997 to December 1999, when he joined the Shire
Board. He was previously executive Vice President-World-wide Sales and
Marketing of Roberts from March 1996 to September 1997, having served as
President of Reed and Carnrick Pharmaceuticals from September 1990 until
July 1995. He previously served as Chief Executive Officer of BioCryst
Pharmaceuticals Inc. having held before that various sales, marketing
and management positions in the industry. Mr Spitznagel received his
undergraduate degree from Rider University and his M.B.A. degree from
Fairleigh Dickinson University. He is also a director of Questcor
Pharmaceuticals Inc, Boron LePore & Associates, Inc and Global Health
Associates, LLC.
Brief biographical details of the Proposed Directors are set out on
pages 8 and 9 of Part I of this document.
(c) The Directors and Proposed Directors, their current directorships, their
directorships held during the five years preceding the date of this
document, the partnerships of which they are currently partners and
partnerships of which they have been partners during the five years
preceding the date of this document are as follows:
116
Current Past
Name Directorships/Partnerships Directorships/Partnerships
- -----------------------------------------------------------------------------------------------------------------------------------
Dr James Henry Cavanaugh Diversa Corporation Human Genome Sciences Inc
Med Immune Inc Procept Inc
3-Dimensional Pharmaceuticals Inc. Magainin Pharmaceuticals Inc
Versicor Inc. Genetic Therapy Inc
Aronex Pharmaceuticals Inc
LeukoSite Inc
General Partnerships
HealthCare Partners I, II, III, IV and V
HealthCare Ventures I, II, III, IV and V
Limited Partnerships
Parker & Parsley 1986-C
Parker & Parsley 1987-B
Chevy Chase Associates
PLM Equipment Growth Fund
Cigna Willowbrooke-2 Associates
Geodyne Energy Income Programs
Curran Partners LP
RPC Real Estate Fund I LLC
J.P. Morgan Mosaic Fund IV, LLC
JPM Venture Capital Private Investors II
Business Trust
JPM Venture Capital Private Investors II
Business Trust PFD
TL Ventures V Special Partners LLC
- -----------------------------------------------------------------------------------------------------------------------------------
Mr Rolf Stahel None None
- -----------------------------------------------------------------------------------------------------------------------------------
Mr Angus Charles Russell I.C. Insurance Services Ltd None
I.C. Insurance Holdings Ltd
I.C. Insurance Ltd
Zeneca Insurance Company Ltd
Zeneca Finance (Netherlands) Company
Zeneca Nominees Ltd
Zeneca Pensions Trustee Ltd
- -----------------------------------------------------------------------------------------------------------------------------------
Dr Joseph Wilson Totten Keryx Biopharmaceuticals Inc None
- -----------------------------------------------------------------------------------------------------------------------------------
Dr Barry John Price Antisoma plc (Chairman) Thallia Pharmaceuticals SA
Pharmagene plc Glaxchem Ltd
Chemunex SA Glaxo Operations Ltd
Biowisdom Ltd (Chairman) Celltech Chiroscience plc
- -----------------------------------------------------------------------------------------------------------------------------------
Dr Bernard Canavan Magainin Pharmaceuticals Inc Alpha-Beta Technology Inc
3-Dimensional Pharmaceuticals Inc BioChem Pharma Inc.
Nelson Communications Inc
- -----------------------------------------------------------------------------------------------------------------------------------
Dr Zola Philip Horovitz BioCryst Pharmaceuticals Inc Cytomed Inc
Magainin Pharmaceuticals Inc Proscript Inc
Synaptic Pharmaceuticals Corporation Procept Inc
Avigen Inc Clinicor Inc
Diacrin Inc Deltys Pharmaceuticals Inc
Phyton Inc
3-Dimensional Pharmaceuticals Inc
Nitromed Inc
Immunicon Corporation
Dov Pharmaceuticals Inc
Palitin Technologies Inc
- -----------------------------------------------------------------------------------------------------------------------------------
Mr Ronald Maurice Nordmann Guilford Pharmaceuticals Inc Deerfield Management Company
Global Health Associates, LLC
Boron, LePore & Associates, Inc
- -----------------------------------------------------------------------------------------------------------------------------------
Mr Joseph Edward Smith Semus Drug Development Corporation Careinsite Inc
Claneil Enterprises Inc
International Longevity Center
Boron, LePore & Associates, Inc
Vivus Inc
Avanir Pharmaceuticals
WebMD Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Mr John Tetje Spitznagel Questcor Pharmaceuticals Inc None
Boron, LePore & Associates, Inc
Global Health Associates, LLC
- -----------------------------------------------------------------------------------------------------------------------------------
117
Current Past
Name Directorships/Partnerships Directorships/Partnerships
- -----------------------------------------------------------------------------------------------------------------------------------
Dr Francesco Bellini Chambre de Commerce Italienne None
Fonds de Recherche de L'institut de
Cardiologie de Montreal
Molson Inc
L'Industrielle-Alliance Compagnie d'assurance
sur la vie
AB Immunosystems
- -----------------------------------------------------------------------------------------------------------------------------------
The Hon. James Andrews Grant United Dominion Industries Ltd None
CAE Industries Ltd
Canadian Imperial Bank of Commerce
- -----------------------------------------------------------------------------------------------------------------------------------
Mr Gerard Veilleux Gesca The State Hermitage Museum Foundation
La Presse of Canada Inc.
Publications JTL
Great West Life Assurance Co. & Great West
Lifeco
Investors Group
London Life
Power Technology Investment
Corporation(Diffusion Power)
QuebecTel/Telus
McGill University
Fondation Baxter & Alma Ricard
Loeb Research Institute
Theatre du Rideau-Vert
McCord Museum
- -----------------------------------------------------------------------------------------------------------------------------------
(d) Save as disclosed in sub-paragraph (e) below, no Director or Proposed
Director of the Company has:
(i) any unspent convictions for indictable offences;
(ii) been declared bankrupt;
(iii) been subject to any public criticism by any statutory or
regulatory authority;
(iv) been disqualified by a court from acting as a director of or in
the management of any company;
(v) been a director of a company which has been placed in
administration, receivership or liquidation whilst he was a
director of that company or within twelve months after he ceased
to be a director of that company; or
(vi) been a partner of a partnership which has been placed into
liquidation or administration.
(e) Dr Bernard Canavan is a former director of Alpha-Beta Technology Inc.,
which went into an assignment for the benefit of creditors on 27 January
1999 pursuant to an out of court liquidation in the US State of
Massachusetts. An assignee was appointed on that date in the State of
Massachusetts, and a receiver was appointed in the US State of Rhode
Island, in respect of the debts of Alpha-Beta Technology Inc. The assets
of Alpha-Beta Technology Inc. were sold pursuant to court authorisation,
yielding approximately $20.5 million. Virtually all of the sale proceeds
were paid over to Rhode Island Economic Development Corporation, which
held a mortgage on the company's assets in the State of Rhode Island.
This mortgage has a shortfall deficiency claim of approximately $6
million which, when added to the claims of all other creditors filed
with the receiver and for the assignee, brings the current total of
unpaid creditors' claims to approximately $9.4 million. It is believed
that the company creditors are likely to receive about three US cents in
the dollar.
3. The Company
The Company, whose registered office and principal place of business is at
East Anton, Andover, Hampshire SP10 5RG, England, was incorporated in England
and Wales with registered number 2883758 on 1 January 1994 under the Act as a
public limited company with the name Barnhill PLC. The Company changed its
name to Shire Pharmaceuticals Group plc with effect from 12 December 1994. As
of 5 March 2001, the registered office and principal place of business is
Hampshire International Business Park, Chineham, Basingstoke, Hampshire, RG24
8EP, England.
118
4. Share capital
(a) The authorised and issued and fully paid share capital of the Company,
as at 27 February 2001 (the latest practicable date prior to posting of
this document) and as it will be following the Merger (assuming no
exercise of options outstanding under the Employee Share Schemes, no
exercise of options or rights in respect of BioChem Shares, no issue of
BioChem Shares following the exercise of dissent rights as referred to
in Part I of this document and an Average Shire ADS Price less than or
equal to $47.20 and assuming all existing BioChem Shareholders exchange
their BioChem Shares for New Ordinary Shares pursuant to the terms of
the Merger) is as follows:
At 27 February 2001 After the Merger
Authorised Issued Authorised Issued
Ordinary Ordinary Ordinary Ordinary
Shares (L) Shares (L) Shares (L) Shares (L)
400,000,000 20,000,000 257,521,218 12,876,061 800,000,000 40,000,000 496,298,576 24,814,929
Following the issue of Consideration Shares pursuant to the Merger
Agreement, 303,701,424 Ordinary Shares will remain authorised but
unissued, subject to the assumptions set out above and before taking
into account the Special Voting Shares to be issued pursuant to the
Merger.
(b) (i) By a resolution passed at the last annual general meeting of the
Company held on 7 July 2000, the Directors, in substitution for
all existing authorities (save to the extent the same may have
been exercised by the issue of relevant securities prior to 7 July
2000 or by reason of any offer or agreement made prior to 7 July
2000 which would or might require relevant securities to be
allotted on or after 7 July 2000), were generally and
unconditionally authorised for the purposes of section 80 of the
Act to exercise all or any of the powers of the Company to allot
relevant securities (within the meaning of that section) up to an
aggregate nominal amount equal to (L)4,197,625.90 for a period
expiring (unless previously renewed, varied or revoked by the
Company in general meeting) five years after the date of the
passing of this resolution ("the period of authority"), save that
the Company was empowered before such expiry to make an offer or
agreement which would or might require relevant securities to be
allotted after such expiry and the Directors were empowered to
allot relevant securities pursuant to any such offer or agreement
as if the authority conferred by this resolution had not expired;
(ii) By a resolution passed at the same annual general meeting, the
Directors, in substitution for all existing authorities, were
empowered pursuant to section 95 of the Act to allot equity
securities (within the meaning of section 94(2) of the Act)
pursuant to the authority conferred upon them under (i) above as
if section 89(1) of the Act did not apply to any such allotment.
This power: (a) expires at the end of the period of authority save
that during the period of authority the Company may make an offer
or agreement which would or might require equity securities to be
allotted after the expiry of such period and the Directors may
allot equity securities in pursuance of any such offer or
agreement; and (b) is limited (i) to allotments of equity
securities where such securities have been offered (whether by way
of a rights issue, open offer or other pre-emptive offer) to
holders of Ordinary Shares made in proportion (as nearly as may
be) to their existing holdings of Ordinary Shares but subject to
the Directors having a right to make such exclusions or other
arrangements in connection with the offering as they deem
necessary or expedient, first, to deal with equity securities
representing fractional entitlements, secondly, to deal with
Ordinary Shares represented by depository receipts and, thirdly,
to deal with legal or practical problems under the laws of, or the
requirements of any recognised regulatory body or any stock
exchange in, any territory; and (ii) to allotments (otherwise than
pursuant to the powers referred to in (i) above) of equity
securities for cash up to an aggregate nominal amount of
(L)611,297.55;
(iii) By a resolution passed at the same annual general meeting, subject
to resolution (i) above and in addition and without prejudice to
all existing authorities including any authority conferred by
resolution (ii) above, the Directors were empowered pursuant to
section 95 of the Act to allot equity securities (within the
meaning of section 94(2) of the Act) of the Company pursuant to
the authority conferred upon them at (i) above as if section 89(1)
of the Act did not apply to such allotment, provided that this
power: (i) should expire five years after the date of the passing
of this resolution, save that the Company might make an offer or
agreement which would or might require equity securities to be
allotted after such expiry and the Directors might allot equity
securities pursuant to any such offer or agreement as if the power
conferred by this resolution had not expired; and (ii) should be
limited to allotment of equity securities to raise funds solely
for the purposes of repaying in
119
whole or in part any outstanding amounts under the facility
agreement entered into on 19 November 1999 between, inter alia,
the Company, Roberts and the Company's subsidiaries in the United
States of America as borrowers and DLJ as agent; and (iii) should
not involve the allotment of more than (L)430,000 in nominal value
of equity securities; and
(iv) At the same annual general meeting, the Company adopted new
Articles of Association, a summary of which is contained in
paragraph 8 below.
(c) The provisions of section 89(1) of the Act (which, to the extent not
disapplied pursuant to section 95 of the Act, confer on shareholders
rights of pre-emption in respect of the allotment of equity securities
(as defined in section 94(2) of the Act) which are, or may be, paid up
wholly in cash) apply to the balance of the authorised but unissued
share capital of the Company to the extent not disapplied pursuant to
the authority under section 95 of the Act referred to in sub-paragraphs
(b)(ii) and (b)(iii) above, subject to paragraph (d) below.
(d) The ordinary resolution to be proposed at the Extraordinary General
Meeting will, if passed, increase the authorised share capital of the
Company to (L)40,000,000. The amount of this increase represents 155 per
cent of the total Ordinary Shares in issue as at 27 February 2001 or an
increase of 100 per cent from the previous authorised share capital of
the Company. The principal reason for the increase in the authorised
share capital is to enable the Directors to issue the Consideration
Shares. If passed this resolution will also approve the Merger
(including the conversion of share options and rights held by BioChem
Optionholders over BioChem Shares into options over Ordinary Shares) and
will give the Directors authority to allot unissued share capital with a
nominal value of up to (L)17,221,000, representing 134 per cent of the
total Ordinary Shares in issue as at 27 February 2001, for a period
expiring 15 months after the date of the passing of this resolution. The
resolution will also create Special Voting Shares with such rights,
privileges and restrictions attached to them as are set out in the
Notice of the Extraordinary General Meeting set out at the end of this
document. By a special resolution also to be proposed at the
Extraordinary General Meeting, the Directors will be empowered, in
substitution for all existing authorities save for, and without
prejudice to, the resolution passed at the last annual general meeting
of the Company held on 7 July 2000 referred to in sub-paragraph (b)(iii)
above, to allot equity securities (within the meaning of section 94(2)
of the Act) of the Company for a period of 5 years as if section 89(1)
of the Act did not apply, provided that this power shall be limited,
inter alia, to allotments of equity securities for cash up to an
aggregate nominal amount of (L)1,279,868.
(e) As the number of New Ordinary Shares to be issued depends upon the
Average Shire ADS Price and upon the elections made by BioChem
Shareholders pursuant to the terms of the Merger Agreement, the amount
of the Company's issued share capital immediately following completion
of the Merger is not yet known. As a result, the authorities being
sought at the EGM under section 80 and section 95 of the Act, which
assume that the maximum possible number of New Ordinary Shares will be
issued, may exceed IPC guidelines. The Directors of the Enlarged Group
undertake that, to the extent that the aggregate nominal amount of
relevant securities (within the meaning of section 80 of the Act) up to
which the Directors are generally and unconditionally authorised for the
purposes of section 80 and section 95 of that Act to allot such relevant
securities exceeds such guidelines, the Directors shall not allot
relevant securities pursuant to any outstanding authorities.
(f) The Ordinary Shares are in registered form and are only admitted to the
Official List and to trading on the London Stock Exchange, as will be
the New Ordinary Shares.
(g) The New Ordinary Shares will be in registered form. It is expected that
definitive share certificates, to the extent the New Ordinary Shares
will not be held in the CREST system, will be despatched by post by
2 April 2001. No temporary documents of title will be issued.
120
(h) The following are details of options to acquire Ordinary Shares granted
to certain Directors and employees under the Employee Share Schemes
(excluding the Long Term Incentive Plan) which were not issued for cash
consideration and were outstanding at 27 February 2001 (being the latest
practicable date prior to the publication of this document) and which
represent the maximum number of Ordinary Shares which may be issued
pursuant to such options:
Number of Exercise Exercise dates Total by
Scheme ordinary shares Price Earliest Latest Scheme
SHL 3,180 (L)1.00 01.07.97 30.06.01
290,400 (L)1.00 24.11.98 23.11.02
272,000 (L)1.00 24.01.99 23.01.03 565,580
Executive Scheme A 59,283 (L)2.180 15.02.99 14.02.06
12,000 (L)1.900 30.09.99 29.09.06
7,620 (L)2.690 26.08.00 25.08.07
140,961 (L)3.385 09.02.01 08.02.08
8,275 (L)3.625 13.08.01 12.08.08
27,194 (L)4.170 11.12.01 10.12.08
17,765 (L)4.735 15.03.02 14.03.09
10,618 (L)5.650 26.07.02 25.07.09
5,623 (L)5.335 23.08.02 22.08.09
4,181 (L)7.175 13.12.02 12.12.09
131,788 (L)10.275 01.03.03 28.02.10
21,426 (L)10.275 27.04.03 26.04.10
13,007 (L)10.275 06.06.03 05.06.10
9,612 (L)12.480 03.08.03 02.08.10
7,239 (L)12.430 19.09.03 18.09.10
1,500 (L)12.690 27.11.03 26.11.10 478,092
Executive Scheme B 526,287 (L)1.750 15.02.99 14.02.03
10,000 (L)1.900 30.09.99 29.09.03
153,313 (L)2.185 25.03.00 24.03.04
320,475 (L)2.690 26.08.00 25.08.04
772,249 (L)3.385 09.02.01 08.02.05
631,725 (L)3.625 13.08.01 12.08.05
17,806 (L)4.170 11.12.01 10.12.05
40,000 (L)4.260 12.01.02 11.01.06
2,000 (L)4.200 10.03.02 09.03.06
932,735 (L)4.735 15.03.02 14.03.06
185,000 (L)4.705 12.05.02 11.05.06
19,382 (L)5.650 26.07.02 22.07.06
14,377 (L)5.335 23.08.02 22.08.06
45,819 (L)7.175 13.12.02 12.12.06
1,191,291 (L)10.275 01.03.03 28.02.07
35,000 (L)10.275 25.04.03 24.04.07
194,824 (L)10.275 27.04.03 26.04.07
75,743 (L)10.275 06.06.03 05.06.07
95,888 (L)12.480 03.08.03 02.08.07
34,261 (L)12.430 19.09.03 18.09.07
8,000 (L)12.690 27.11.03 26.11.07 5,306,175
2000 Executive Scheme A 2,417 (L)12.410 19.09.03 18.09.10 2,417
2000 Executive Scheme B 320,248 (L)12.800 03.08.03 02.08.07
157,583 (L)12.410 19.09.03 18.09.10
4,000 (L)13.200 27.11.03 26.11.07 481,831
121
Number of Exercise Exercise dates Total by
Scheme ordinary shares Price Earliest Latest Scheme
Roberts 1,564 $3.277 - 02.12.03
92,348 $3.280 - 02.12.03
31,280 $3.380 - 12.01.04
4,692 $3.637 - 30.11.01
39,120 $3.640 - 30.11.01
62,354 $3.680 - 15.12.02
938 $4.240 - 21.01.03
368,491 $5.240 - 31.08.04
11,730 $5.600 - 09.06.04
2,972 $5.880 - 16.05.05
62,560 $6.000 - 20.01.05
187,680 $6.020 - 26.05.05
1,564 $6.754 - 10.12.04
65,033 $6.760 - 10.12.04
8,140 $7.000 - 23.03.05 940,466
SPC 16,800 (L)0.31 - 16.08.02 16,800
SRI 388,852 $0.45 - 13.03.01
148,899 $1.2345 - 12.03.02
209,316 $1.64 - 12.03.02 747,067
SLI 2,265 $1.2955 -- 10.04.04
6,421 $1.2955 -- 21.05.05
986 $1.2955 -- 11.07.05
1,098 $1.2969 -- 22.01.06
10,581 $1.2955 -- 05.03.06
939 $1.2953 -- 13.05.06
1,243 $1.2955 -- 07.08.06
2,508 $1.7270 -- 06.11.06
20,319 $1.7274 -- 10.12.06 46,360
Sharesave 71,752 (L)1.75 01.04.01 30.09.01
35,842 (L)1.54 01.12.01 31.05.02
16,463 (L)2.20 01.11.02 30.04.03
5,671 (L)2.20 01.11.00 30.04.01
45,739 (L)8.56 01.06.03 30.11.03
26,075 (L)8.56 01.06.03 30.11.05 201,542
--------------
8,786,330
==============
Further details of the Employee Share Schemes are set out in paragraph 5
of this Part IX. Details of Directors' interests in shares of the
Company are included in paragraph 9 of this Part IX.
(i) The following are details of awards in respect of Ordinary Shares
granted to certain Directors and employees under the Long Term Incentive
Plan and which were outstanding at 27 February 2001 (being the latest
practicable date prior to the publication of this document):
Earliest date on
Number of Ordinary which award may be
Value of Award Shares vested
(L)390,243 83,848 8 April 2003
(L)77,351 16,440 12 May 2003
(L)56,500 10,000 25 July 2003
(L)54,220 10,000 22 Aug 2003
(L)1,211,731 120,452 28 February 2004
(L)611,962 62,701 6 June 2004
122
(j) The share capital history of the Company for the three years prior to 27
February 2001 (being the latest practicable date prior to the
publication of this document) is as follows:
(i) On 1 April 1998 6,000,000 Ordinary Shares were issued by the
Company pursuant to an offer of 24,217,255 Ordinary Shares at 343p
per Ordinary Share, including Ordinary Shares underlying 7,265,177
ADSs.
(ii) On 30 June 1998 the authorised share capital was increased to
(L)10,000,000 by the creation of 22,000,000 additional Ordinary
Shares of 5p each.
(iii) Pursuant to an agreement dated 30 July 1999 made between the
Company and Arenol Corporation, Arenol Corporation held a loan
note with a principal amount of US$6,000,000 which is convertible
into Ordinary Shares. The Company issued 533,279, 560,076 and
541,478 Ordinary Shares on 13 March 2000, 3 August 2000 and 6
November 2000, respectively, to Arenol Corporation in
consideration of the conversion of part of the loan notes in the
Company.
(iv) On 22 December 1999 the authorised share capital of the Company
was increased to (L)20,000,000 by the creation of an additional
200,000,000 new Ordinary Shares of 5p each.
(v) The Company issued 160,546 and 47,641 Ordinary Shares on 22 May
2000 and 15 August 2000, respectively to Biorex Laboratories
Limited at the request of Glycyx Pharmaceuticals Limited
("Glycyx") in part consideration for the transfer of assets and
grant of rights to the Company pursuant to an agreement between
Glycyx and the Company dated 17 May 2000.
(vi) The following Ordinary Shares have been issued as a result of the
exercise of options:
Number of Ordinary Shares issued during year
to 31 December to 27February
Scheme 1998 1999 2000 2001
SRI 3,661,041 776,371 447,322 --
SLI 1,392,330 505,171 435,073 3,934
Roberts -- -- 8,126,294 107,343
SPC 84,000 9,600 -- 31,200
SHL 854,180 787,640 392,120 6,580
Sharesave 4,290 19,513 37,110 9,394
Stock Purchase Plan -- 28,123 218,950 --
Executive A -- 58,044 75,561 16,234
Executive B -- 483,539 993,977 258,082
---------------- ---------------- ---------------- ----------------
Total number of Ordinary Shares
issued during each year 5,995,841 2,668,001 10,726,407 432,767
================ ================ ================ ================
(k) Pursuant to an asset purchase agreement among the Company, Shire
Supplies US LLC, Arenol Corporation and Richard Vorisek and Robert
Jaeder dated as of 5 March 1999, the Company issued a $5,800,000
principal amount Unsecured Convertible Zero Coupon Loan Note due 30 July
2001 (the "First Loan Note") and a $6,000,000 principal amount Unsecured
Convertible Zero Coupon Loan Note due 30 July 2004 (the "Second Loan
Note"). The agreement provides for the cancellation of certain specified
amounts of the aggregate principal amount of the First Loan Note and of
such amounts of the Second Loan Note on certain dates to the extent of
certain indemnified losses, or, to the extent that such amounts of the
First Loan Note or the Second Loan Note are not so cancelled, for their
conversion into that number of Ordinary Shares equal to the amounts not
cancelled divided by the product of (A) the lower of (L)3.565 or the
midweek closing price of the Ordinary Shares on the London Stock
Exchange on the relevant date and (B) the exchange rate on the relevant
date.
(l) Save as disclosed in this paragraph 4 there has been no alteration in
the issued share capital of the Company since 27 February 1998 (being
three years prior to 27 February 2001, the latest practicable date prior
to the publication of this document), and no share or loan capital of
the Company has been issued or agreed to be issued since incorporation
or (save in respect of the Merger) is now proposed to be issued and no
share or loan capital of the Company or any of its subsidiaries is under
option or has been agreed, conditionally or unconditionally, to be put
under option.
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5. Employee Share Schemes and BioChem Stock Option Plans
There are five share option schemes in subsidiaries of the Company, the SHL
Scheme, the SPC Scheme, the Roberts' Incentive Stock Option Plan, the Roberts'
1996 Equity Incentive Plan and the Roberts' Restricted Stock Option Plan.
Options over shares in Pharmavene Inc. were converted into options over
Ordinary Shares under the SLI Plan. Options over shares in Richwood
Pharmaceuticals Company, Inc. were converted into options over Ordinary Shares
under the SRI Plan. The Stock Purchase Plan was adopted at the same time as
the acquisition of Pharmavene Inc. No further options will be granted under
any of the SHL Scheme, the SPC Scheme, the SLI Plan, the Stock Purchase Plan,
the SRI Plan, the Roberts' Incentive Stock Option Plan, the Roberts' 1996
Equity Incentive Plan and the Roberts' Restricted Stock Option Plan. Upon
admission of its shares to the Official List in February 1996, the Company
adopted two share option schemes, the Executive Scheme and the Sharesave
Scheme. At the last annual general meeting of the Company held on 7 July 2000,
the Company adopted a further share option scheme, the 2000 Executive Share
Option Scheme. The Sharesave Scheme, Part A of the Executive Scheme and Part A
of the 2000 ESO Scheme have been approved by the Inland Revenue. A summary of
each of these schemes is set out below. None of the options under these
schemes have been issued for monetary consideration.
(a) The SHL Scheme
Options granted under the SHL Scheme result, when exercised, in
participants acquiring Ordinary Shares at an exercise price determined
by the board of directors of SHL at the date of grant. Options are non-
transferable, except in the case of the death of a participant. Options
granted under the SHL Scheme are normally exercisable as to one-third
after one year, two-thirds after two years and in full three years after
the date of grant, with a last exercise date of seven years after the
date of grant. Options expire three months after the termination of the
employment of the participant or immediately on termination in the case
of a dismissal by reason of serious misconduct.
(b) The SPC Scheme
The SPC Scheme was assumed by the Company in connection with the
acquisition of SPC. It covers options granted by SPC to its then
employees. Options granted under the SPC Scheme result, when exercised,
in participants acquiring Ordinary Shares at an exercise price
determined by the board of directors of SPC at the date of grant.
Options are non-transferable, except in the case of the death of a
participant. Options granted under the SPC Scheme are normally
exercisable after two years and expire seven years after being granted,
although early exercise is permitted where a participant ceases
employment due to death, injury, disability, redundancy or retirement.
Options expire six months after termination of employment of the
participant other than by reason of death, injury, disability,
redundancy or retirement or immediately on termination of employment for
any other reason.
(c) The Executive Scheme
Part A of the Executive Scheme has been approved by the Inland Revenue
under Schedule 9 to the Income and Corporation Taxes Act 1988 in order
to allow for the grant of approved options up to the (L)30,000 Revenue
limit per employee. Any additional options are unapproved options
granted under part B of the Executive Scheme. Set out below are
summaries of the principal terms of parts A and B of the Executive
Scheme.
Part A of the Executive Scheme
(i) Grant of options
Options may be granted by the remuneration committee ("the Committee") within
42 days following the announcement by the Company of its results for any
period, or at any other time when the Committee believes that exceptional
circumstances exist to justify the grant of options. No option may be granted
more than 10 years after the date of adoption of the Executive Scheme. Options
are not transferable. Options granted under the Executive Scheme will normally
be exercisable only if performance-related criteria imposed by the Committee
are met (see sub-paragraph (viii) below).
(ii) Eligibility
The Executive Scheme provides for the grant of options to acquire Ordinary
Shares, subject to the limitations mentioned in sub-paragraph (ix) below, to
selected employees and full-time Directors of the Company or any of its
subsidiaries.
124
(iii) Exercise price
The price per share at which Ordinary Shares may be acquired upon the exercise
of an option shall be determined by the Committee at the time of grant but
shall be not less than the higher of:
(a) the middle-market quotation of Ordinary Shares for the dealing day
immediately preceding the grant date as derived from the Official
List (or such other price as may be agreed with the Inland
Revenue); and
(b) in the case of an option to subscribe for shares, the nominal
value of such shares.
(iv) Exercise of options
An option is exercisable normally only after the third anniversary of the date
of grant and cannot in any event be exercised later than the tenth anniversary
of the date of grant. Except in the circumstances outlined in this sub-
paragraph (iv), an option may not normally be exercised on any occasion unless
the relevant performance conditions are met.
If an option holder dies his or her option may be exercised by his or her
personal representatives within 12 months thereafter. If any option holder
leaves the Group by reason of injury, disability, redundancy or retirement on
reaching his or her contractual retirement age (but in this case only if the
relevant performance conditions are met) or if the company or business with
which he or she holds office or employment is sold outside the Group, then he
or she may exercise an option by the latest of (i) twelve months after the
date of termination; (ii) 42 months after the grant date; and (iii) 42 months
after the last tax-relieved exercise by him of a Revenue approved executive
share option. If an option holder leaves the Group for any other reason, he or
she may only exercise an option with the approval of the Committee.
Early exercise of options within specified periods is also permitted in the
event of a take-over or reconstruction or winding up of the Company. In the
case of a take-over or reconstruction options may be exchanged for options
over the acquiring company's shares, but only with the consent of the
acquiring company.
(v) Rights attaching to the shares
All Ordinary Shares issued upon the exercise of options will rank equally in
all respects with other Ordinary Shares for the time being in issue (save as
regards any rights attaching to such Ordinary Shares by reference to a record
date prior to the transfer or allotment of such shares) and applications will
be made to the UK Listing Authority for any allotted shares to be admitted to
the Official List and to the London Stock Exchange for such shares to be
admitted to trading on the London Stock Exchange.
(vi) Variation of share capital
In the event of any variation in the share capital of the Company, the
Committee may adjust the total number of Ordinary Shares subject to any option
and/or the exercise price under any option with the prior approval of the
Inland Revenue.
(vii) Alteration of the Executive Scheme
The Committee may, at any time alter or add to the Executive Scheme but may
not make any alteration or addition to the advantage of participants without
the prior approval of shareholders in general meeting except for minor
amendments (i) for the purpose of administration of the Executive Scheme or
(ii) to take account of any change in legislation or (iii) to obtain or
maintain favourable tax or regulatory treatment for option holders, the
Company or any company within the Group, or amendments solely relating to
special terms (including performance conditions). No alteration may be made to
the disadvantage of participants without their majority consent. Any
alteration requires the approval of the Inland Revenue.
(viii) Performance conditions
The performance conditions to be imposed on options will be determined by the
Committee before such options are granted. In making such determination the
Committee will have regard to the guidance issued from time to time by the
bodies representing institutional shareholders and will seek to identify
factors which represent a fair measure of performance and genuinely reflect
the efforts and achievements of the Group's management. The performance
conditions applicable to options granted in any year will be described in the
Company's annual report and accounts for that year. The performance conditions
currently applying to options require the Company's share price to increase at
a compound rate of at least 20.5 per cent per annum over a minimum three-year
measurement period to exercise all options and to increase by at least 14.5
per cent per annum
125
(compounded) to exercise 60 per cent of the options granted. If these
conditions are not met after the initial three years, they are thereafter
tested quarterly by reference to share price growth over an extended period.
If the share price does not meet these conditions at any time, none of the
options will become exercisable. The Committee may from time to time vary any
such performance conditions as they apply to outstanding options if, in their
opinion, to do so would more effectively achieve the objective of affording
realistic incentives to option holders.
(ix) Limits of the Executive Scheme
The Executive Scheme is subject to the following dilution limits:
(a) in any period of 10 years, not more than five per cent of the
issued ordinary share capital of the Company may be placed under
option under the Executive Scheme and any other executive share
option scheme of the Company;
(b) in the period of four years following the adoption of the
Executive Scheme, not more than 2.5 per cent of the issued
ordinary share capital of the Company may be placed under option
under the Executive Scheme and any other executive share option
scheme of the Company;
(c) in any period of three calendar years, not more than three per
cent of the issued ordinary share capital of the Company may be
placed under option under the Executive Scheme and any other
executive share option scheme of the Company;
(d) in any period of five years, not more than five per cent of the
issued share capital of the Company may be placed under option or
issued under any employee share scheme of the Company;
(e) in any period of 10 years the market value as at the grant date of
options granted to any participant in the Executive Scheme
(excluding options previously exercised) must not exceed four
times his annual remuneration (excluding bonuses and benefits in
kind); and
(f) in any period of 10 years, not more than 10 per cent of the issued
ordinary share capital of the Company may be placed under option
or issued under any employee share scheme of the Company; and
(g) at any one time, the market value as at the grant date of options
held by any one participant must not exceed (L)30,000.
With the exception of (g), the above limits exclude shares under option
granted prior to the admission of the Ordinary Shares to the Official List on
15 February 1996.
Part B of the Executive Scheme
The provisions of part A of the Executive Scheme above apply equally to
options granted under part B, with the following principal exceptions:
(i) any options granted under part B will have a maximum life of seven years
or such other period not exceeding 10 years as the Committee may
determine;
(ii) the provisions of part A requiring Inland Revenue consent for any
actions of the Committee do not apply to options granted under part B;
and
(iii) the limit in sub-paragraph (ix)(g) above in respect of part A does not
apply to options granted under part B. In addition, part B of the
Executive Scheme permits options granted to employees of a participating
company who are or may become subject to taxation on their pay in the US
("US employees") to qualify as incentive stock options for US tax
purposes. A maximum of 4,000,000 incentive stock options may be granted
to US employees under these provisions. All other limits, described in
sub-paragraph (ix) above, continue to apply.
(d) The Sharesave Scheme
The Sharesave Scheme has been approved by the Inland Revenue under
Schedule 9 to the Income and Corporation Taxes Act 1988.
(i) Eligibility
All UK employees and full-time Directors of the Company and any of its
subsidiaries participating in the Sharesave Scheme who are employed by the
Group on the date invitations for options are issued and have been employed
throughout the period of six months ending on the last day of the last
financial year of the Company
126
ending immediately prior to the date of grant of options ("eligible
employees") are eligible to participate in the Sharesave Scheme, as are any
further employees or Directors nominated by the Board for this purpose.
(ii) Grant of options
Eligible employees may be invited by the Board to apply for options under the
Sharesave Scheme to acquire Ordinary Shares. Employees applying for options
must agree to make regular monthly savings (minimum (L)10, maximum (L)250) for
three or five years under a special Sharesave savings contract. The funds
saved (plus interest or, as appropriate, bonus contributions) are used by
employees to exercise options after three or five years. Options may only be
granted during the period of six weeks following the announcement by the
Company of its results for any period, or at any other time when the
circumstances are considered by the Board to be sufficiently exceptional to
justify such grant. No options may be granted more than 10 years after the
date of adoption of the Sharesave Scheme. Options are not transferable.
(iii) Option price
Ordinary Shares may be acquired at a price to be determined by the Board
before the grant of the option. This price shall not be less than 80 per cent
of the middle-market quotation of an Ordinary Share (as derived from the Daily
Official List of the London Stock Exchange) on the dealing day last preceding
the period of five business days ending with the date on which invitations to
apply for options are given (or on such other day as may be agreed with the
Inland Revenue) or, if greater, the nominal value of an Ordinary Share.
(iv) Exercise of options
An option granted under the Sharesave Scheme may not normally be exercised
until after three or five years, as mentioned above. Special provisions,
permitting the early exercise of options in certain circumstances, apply in
respect of option holders who cease employment with the Group before
completing their savings contracts in the event of death, disability,
redundancy or retirement at the age of 65 or contractual retirement age. The
early exercise of options is also permitted in the exceptional circumstances
of a take-over or reconstruction of the Company, in which case options may
alternatively be exchanged for options over the acquiring company's shares,
but only with the consent of the acquiring company.
(v) Rights attaching to shares
All Ordinary Shares allotted on the exercise of options under the Sharesave
Scheme will rank pari passu with all other Ordinary Shares of the Company for
the time being in issue (save as regards any right attaching to such shares by
reference to a record date prior to the date of allotment) and application
will be made for such shares to be admitted to the Official List.
(vi) Limits of the Sharesave Scheme
The Sharesave Scheme is subject to the following dilution limits:
(a) in any period of 10 years not more than 10 per cent of the issued
ordinary share capital of the Company may be placed under option
or issued under the Sharesave Scheme or any other employee share
scheme of the Company; and
(b) the Board may impose a lower limit on the number of shares which
may be placed under option under the Sharesave Scheme on any
occasion.
The above limits exclude options granted prior to the admission of the
Ordinary Shares to the Official List on 15 February 1996.
(vii) Variation of share capital
In the event of any variation in the issued ordinary share capital of the
Company, the Board may make such adjustments as it considers appropriate to
the total number of Ordinary Shares subject to any option and/or the exercise
price under any option, provided that any such adjustment is approved in
advance by the Inland Revenue.
(viii) Alteration of the Sharesave Scheme
The Board may at any time alter or add to the Sharesave Scheme. However, the
prior approval of the Company in general meeting must be obtained in the case
of any alteration or addition to the advantage of participants, except for any
minor alteration or addition to benefit the administration of the Sharesave
Scheme, to take account of any
127
change in legislation, or to obtain or maintain favourable tax, exchange
control or regulatory treatment for participants. Any alteration requires the
prior approval of the Inland Revenue.
(e) The Stock Purchase Plan
(i) Structure
The Stock Purchase Plan (the "Plan") was adopted at the extraordinary general
meeting on 14 March 1997. The Plan is available to employees of US
subsidiaries of the Company. Under the Plan, employees are able to purchase
Ordinary Shares with the proceeds of amounts deducted by the employer from the
employee's salary. The Plan qualifies as an employee stock purchase plan under
section 423 of the US Internal Revenue Code of 1986.
(ii) Eligibility
The Plan is open to individuals who are employees of US subsidiaries of the
Company designated by the Board who work at least 20 hours per week and more
than five months in any calendar year.
The Plan is operated by the Remuneration Committee of the Board or such other
committee as is selected by the Board to administer the Plan (the
"Committee").
(iii) Offering of Shares
In order to participate in the Plan individual employees enter into an
agreement authorising deductions to be made from their salary on each salary
payment date during an offering period (an "Offering Period"). The Plan is
implemented by Offering Periods determined by the Committee, which may be
either consecutive or concurrent. The duration of an Offering Period may not
exceed 27 months, and the Offering Periods begin within the period of six
weeks commencing with the business day next following the date on which the
Company announces its results for any period or at any other time when the
circumstances are considered by the Committee to be sufficiently exceptional
to justify the beginning of an Offering Period. Individuals may elect to have
up to $500 per month (or such other amount set by the Committee) of their
salary deducted for this purpose. Payroll deductions continue throughout the
Offering Period. A participant may discontinue participation in the Plan at
any time during the Offering Period.
(iv) Grant of Option
Each eligible employee participating in the Plan during an Offering Period is
granted an option to purchase, on the last day of that Offering Period, a
number of Ordinary Shares determined by dividing the total payroll deductions
accumulated during the Offering Period and retained in the participant's
account, by the applicable purchase price. Unless otherwise determined by the
Committee, no interest is payable on the payroll deductions. During each
Offering Period no employee is permitted to purchase more than 7,000 Ordinary
Shares (or such other amount as is set by the Committee prior to commencement
of the Offering Period).
The purchase price is set by the Committee and is equal to either 85 per cent
of the market value of the Ordinary Shares on the first or last day of the
Offering Period, whichever is the lower, or such higher price as is set by the
Committee at the beginning of the Offering Period.
(v) Exercise
Unless a participant withdraws from the Plan, the participant's option is
exercised automatically on the last day of the Offering Period and the maximum
number of Ordinary Shares under option are purchased for that participant at
the applicable purchase price. No fractions of shares are purchased. Any
remaining amounts are retained in the participant's account for the subsequent
Offering Period unless the participant withdraws from the Plan.
(vi) Termination of Employment
On a participant ceasing to be an employee for any reason, the participant
will be deemed to withdraw from the Plan and the payroll deductions credited
to that participant's account but not used to exercise the option will be
returned to the participant.
(vii) Limits on the Plan
The maximum number of Ordinary Shares made available for sale under the Plan
is 2,000,000. In addition, limits equivalent to those described in paragraph
(d)(vi) above in relation to the Sharesave Scheme apply in relation to the
Plan.
128
Rights to exercise options may not be assigned, transferred or pledged or
otherwise disposed of in any way.
(viii) Adjustments
The number of Ordinary Shares which an employee is permitted to purchase in
any Offering Period and the price per share of Ordinary Shares covered by each
option will be adjusted in the event of any subdivision or consolidation of
the ordinary share capital or capitalisation.
(ix) Alteration of the Plan
The Board may at any time terminate or amend the Plan. However the provisions
relating to the identity of the participants, limitations on the number or
amount of Ordinary Shares subject to the Plan, the maximum entitlement of
participants or the basis for determining a participant's entitlement cannot
be altered to the advantage of participants without the prior approval of
shareholders in general meeting (except for minor amendments to benefit the
administration of the Plan, to take account of a change in legislation or to
obtain or maintain favourable tax, exchange control or regulatory treatment
for participants in the Plan or for the Company or any member of the Group).
(f) The SLI Plan
Following the acquisition of Pharmavene Inc. ("Pharmavene"), the SLI Plan
(then called the Pharmavene 1991 Stock Option Plan) was amended such that
options over Pharmavene common stock were replaced by options over Ordinary
Shares. Under the SLI Plan, options to acquire a total of 46,360 Ordinary
Shares at prices ranging from $1.2953 to $1.7274 per share were outstanding as
of 27 February 2001 (being the latest practicable date prior to publication of
this document).
It is intended that no further options will be granted under the SLI Plan.
(g) The SRI Plan
Following the acquisition of Richwood Pharmaceutical Company, Inc.
("Richwood"), the SRI Plan (then consisting of the 1993 Plan and the 1995
Plan) was amended such that options over Richwood common stock were replaced
by options over Ordinary Shares under the SRI Plan. Options to acquire a total
of 747,067 Ordinary Shares at prices ranging from $0.45 to $1.64 per share
were outstanding as of 27 February 2001 (being the latest practicable date
prior to publication of this document).
It is intended that no further options will be granted under the SRI Plan.
(h) The Long Term Incentive Plan
(i) Structure
The Long Term Incentive Plan (the "Plan") was adopted at the general meeting
on 30 June 1998.
Under the Plan, the Company may at any time, with the approval of the
Remuneration Committee, grant, or request that trustees grant, an award to any
full-time employee of any member of the Group.
(ii) Eligibility
An award may be made to any full-time employee (including a director who is
also such an employee) of a member of the Group on the terms set out in the
Plan and upon such other terms as the Board (or a committee appointed by the
Board) may specify, provided that no award may be granted to an employee who
is within two years of his contractual retirement age.
(iii) Awards
An award will specify whether it is a "Share Option" (under which the shares
are transferred only on its exercise) or a "Conditional Allocation" (under
which the shares automatically become transferable when the relevant
conditions are satisfied).
An award may only be granted within six weeks following the approval and
adoption of the Plan by shareholders and thereafter within six weeks following
an announcement of the Company's results for any period or if the Board
considers that there are exceptional circumstances. No awards may be granted
more than ten years after the date on which the Plan is approved and adopted
by the Company in general meeting.
129
The number of Ordinary Shares in respect of which awards may be granted to any
person in any financial year of the Company shall not exceed such number as
has a market value equal to 100 per cent (or such lower percentage as, in the
opinion of the Remuneration Committee, reflects other incentive opportunities
which may be available to him in respect of that financial year) of his
contractual basic salary (excluding bonuses, allowances and benefits in kind)
payable as at the award date. For this purpose, the "market value" is taken to
be an amount equal to the average of the closing prices of Ordinary Shares (as
derived from the Daily Official List of the London Stock Exchange) on the five
dealing days last preceding the award date.
(iv) Exercise of Awards
The exercise of an award granted as a Share Option shall be effected by giving
notice in writing to the Company. An award granted as a Share Option may only
be exercised, and where an award is granted as a Conditional Allocation
Ordinary Shares shall only be transferable, to the extent that certain
conditions are satisfied.
In addition, unless the Board specifies otherwise at the time an award is
made, an award granted as a Share Option may be exercised only on or after the
fourth anniversary of the award date and, where an award is granted as a
Conditional Allocation, Ordinary Shares in respect of which the award is made
will be transferable following the fourth anniversary of the award date.
(v) Termination of Employment
If any participant ceases to be a director or employee of a member of the
Group or any other specified body corporate (a "Group Member"), by reason of
injury, ill-health, disability or redundancy or by reason that his office or
employment is in a company which ceases to be a Group Member, or relates to a
business or part of a business which is transferred to a person who is not a
Group Member, then an award granted as a Share Option may be exercised within
the 12 months after his ceasing to be a director or employee, but may not be
exercised after the expiry of that period. If any participant ceases to be a
director or employee of a Group Member for any other reason, any award granted
as a Share Option or any award granted as a Conditional Allocation shall not
be transferable unless permitted by the Board.
(vi) Adjustments
Where Ordinary Shares have or may become transferable to a person in respect
of an award, the Board may determine that, in substitution for his right to
acquire such a number of those shares as the Board may decide, he will be paid
by way of additional emoluments a sum equal to a cash equivalent of that
number of shares.
The number of Ordinary Shares in respect of which any award granted as a Share
Option may be exercised or the number of Ordinary Shares which may be
transferred in respect of an award granted as a Conditional Allocation may be
adjusted in the event of any sub-division or consolidation of the ordinary
share capital of the Company or a capitalisation.
(vii) Alteration of the Plan
The Board may at any time alter the Plan or the terms of any award granted
under it. However, the provisions of the Plan relating to eligibility, limits
on participation, the maximum individual entitlement, the grant or exercise of
awards or their adjustment may not be altered without the prior approval by
ordinary resolution of the members of the Company in general meeting (except
for any minor alterations to benefit the administration of the Plan, to take
account of a change in legislation or to obtain or maintain favourable tax,
exchange control or regulatory treatment for participants or any member of the
Group).
(i) The 2000 Executive Share Option Scheme
The 2000 ESO Scheme enables options over Ordinary Shares in the Company to be
granted to selected employees and full-time Directors.
It is divided into two parts: part A which is intended to be approved by the
Inland Revenue, offering favourable tax treatment on the exercise of options
and part B, the unapproved part.
No payment will be required for the grant of options.
130
Part A of the 2000 ESO Scheme
(i) Eligibility
With the approval of the Remuneration Committee (the "Committee") options to
acquire Ordinary Shares may be granted to selected employees and full-time
Directors of the Company or any of its subsidiaries (other than those due to
retire within two years of grant).
(ii) Grant of options
Options may be granted by the Committee within 42 days of shareholder approval
of the 2000 ESO Scheme or within 42 days of the date part A is approved by the
Inland Revenue. Thereafter, options may be granted within 42 days following
the announcement by the Company of its results for any period, or at any other
time when the Committee believes that exceptional circumstances exist to
justify the grant of options. No option may be granted more than 10 years
after the date of adoption of the 2000 ESO Scheme. The Committee will,
however, review the operation of the 2000 ESO Scheme after five years to
consider whether it still meets the Company's business needs.
Options will be neither transferable (other than to personal representatives
following death) nor pensionable.
Options granted under the 2000 ESO Scheme will normally be exercisable only if
performance-related criteria imposed by the Committee are met (see sub-
paragraph (viii) below).
(iii) Exercise price
The price per share at which Ordinary Shares may be acquired upon the exercise
of an option will be determined by the Committee at the time of grant but will
be not less than the higher of:
(a) the market value of a share on the date of grant (or, if the
grantor determines, the average of the market values on the three
dealing days immediately preceding the date of grant or the market
value at such earlier time or times as may be determined by the
grantor and previously agreed in writing with the Inland Revenue);
and
(b) in the case of an option to subscribe for shares, the nominal
value of such shares.
(iv) Exercise of options
An option will normally only be exercisable after the third anniversary of the
date of grant and cannot in any event be exercised later than the tenth
anniversary of the date of grant. In addition, an option will not normally be
capable of exercise on any occasion unless the relevant performance conditions
(referred to in sub-paragraph (viii) below) are met, unless:
(a) any optionholder dies, when his or her option will become
immediately exercisable by his or her personal representatives for
a period of 12 months thereafter;
(b) any optionholder leaves the Company or any of its subsidiaries by
reason of injury, disability, or redundancy; or
(c) the company or business with which he or she holds office or
employment is sold outside the Company or any of its subsidiaries,
when he or she may exercise his or her option by the latest of
(i) 12 months after the date of termination of employment; (ii) 42
months after the grant date; and (iii) 42 months after the last
tax-relieved exercise by him of an Inland Revenue approved company
share option.
If an optionholder leaves employment at retirement he or she may also exercise
his or her option during this period, but in these circumstances only if the
relevant performance criteria have been satisfied.
If an optionholder leaves the Group for any other reason, he or she may only
exercise an option with the approval of the Committee.
Early exercise of options within specified periods is also permitted in the
event of a take-over or reconstruction or winding up of the Company, subject
to meeting the relevant performance criteria unless the Committee resolves
otherwise. In the case of a take-over or reconstruction options may be
exchanged for options over the acquiring company's shares, but only with the
consent of the acquiring company.
(v) Rights attaching to the Shares
All ordinary shares issued upon the exercise of options will rank equally in
all respects with other ordinary shares for the time being in issue (save as
regards any rights attaching to such ordinary shares by reference to a record
131
date prior to the allotment of such shares) and application to the UK Listing
Authority will be made to the UK Listing Authority for any allotted shares to
be admitted to the Official List and to the London Stock Exchange for any such
shares to be admitted to trading on the London Stock Exchange.
(vi) Variation of share capital
In the event of any variation in the share capital of the Company, the
Committee may adjust the total number of Ordinary Shares subject to any option
and/or the exercise price under any option with the prior approval of the
Inland Revenue.
(vii) Alteration of the Executive Scheme
The Committee may, at any time, alter or add to the 2000 ESO Scheme but may
not make any alteration or addition to the advantage of participants without
the prior approval of shareholders in general meeting except for minor
amendments (i) for the purpose of administration of the 2000 ESO Scheme or
(ii) to take account of any change in legislation or (iii) to obtain or
maintain favourable tax or regulatory treatment for optionholders, the Company
or any of its subsidiaries. No alteration may be made to the disadvantage of
participants without their majority consent. Any alterations require the
approval of the Inland Revenue.
(viii) Performance conditions
The performance conditions to be imposed on options will be determined by the
Committee before such options are granted. In making such determination the
Committee will have regard to the guidance issued from time to time by the
bodies representing institutional shareholders, insofar as they are
appropriate to the Company, and will seek to identify factors which represent
a fair measure of performance and genuinely reflect the efforts and
achievements of the Company's management.
It is proposed that the performance conditions applying to the first grant of
options under the 2000 ESO Scheme will relate to the compound growth in the
Company's share price. If the compound rate increase is at least 20.5 per cent
per annum over a minimum three-year measurement period an option will become
exercisable in whole. If it increases by at least 14.5 per cent per annum
(compounded), 60 per cent of an option will become exercisable. If these
conditions are not met after the initial three year measurement period, they
will thereafter be tested quarterly by reference to compound annual share
price growth over an extended period. If the share price does not meet these
conditions the relevant option will lapse.
The Committee will from time to time be able to vary any such performance
conditions as they apply to outstanding options if, in their opinion, to do so
would more effectively achieve the object of affording realistic incentives to
optionholders.
The Committee have discretion to decide the form in which performance
conditions will be set, taking into account particularly their accounting and
taxation consequences. In accordance with the requirements of fixed
compensation plan accounting under US GAAP, any option would be exercisable
with no restriction other than that the optionholder remains employed within
the Group for a period of six weeks prior to the expiry of the option.
(ix) Scheme limits
(a)Individual Limits
An individual's participation under part A of the 2000 ESO Scheme
is limited so that the aggregate market value of shares (measured
at the date of grant) comprised in subsisting approved options
held by him/her cannot exceed (L)30,000. For these purposes, the
value of the Ordinary Shares under option will be their market
value at the date of the option grant.
A limit on the value of Ordinary Shares which may be put under
option on an annual basis to an individual under the 2000 ESO
Scheme will be set from time to time by the Committee in the light
of current market practice and the markets in which the Company
operates. No option will be granted in excess of this limit
without the prior approval of the Committee.
(b)Overall Limit
The number of shares issuable pursuant to options granted under
the 2000 ESO Scheme, when aggregated with the number of shares
issued or issuable pursuant to rights granted under all the
Group's employee share schemes, within the previous period of ten
years, may not exceed 10 per cent of the Company's issued ordinary
share capital at the date of grant. For the purpose of this limit
132
options which lapse will cease to count and any options granted
prior to or on the date of the Company obtaining its listing with
the UK Listing Authority will not be included.
Part B of the ESO Scheme
The provisions of part A of the 2000 ESO Scheme above apply equally to options
granted under part B, with the following exceptions:
(a) the provisions of part A requiring Inland Revenue consent for any
actions of the Committee will not apply to options granted under
Part B;
(b) the limit referred to in sub-paragraph (ix) (i) of part A will not
apply to options granted under part B;
(c) options under part B of the 2000 ESO Scheme may be transferable at
the consent of the Board; and
(d) the maximum number of shares over which incentive stock options
within the meaning of section 422 of the United States of America
Internal Revenue Code of 1986 (as amended) may be granted under
part B of the 2000 ESO Scheme is 25,000,000.
(j) The Roberts Stock Option Plans
Following the acquisition of Roberts, the Roberts Stock Option Plans were
amended such that options over Roberts' common stock were replaced by options
over Ordinary Shares. Under the Roberts' Stock Option Plans options to acquire
a total of 940,466 Ordinary Shares at prices ranging from $3.277 to $7.00 per
Share were outstanding at 27 February 2001 (being the latest practicable date
prior to the publication of this document).
It is intended that no further options will be granted under the Roberts Stock
Option Plans.
(k) BioChem's Stock Option Plan
The BioChem Stock Option Plan provides for the granting of options to purchase
a maximum of 19,250,000 BioChem Shares. Beneficiaries of the BioChem Stock
Option Plan are the directors, officers and full-time employees or regular
employees of BioChem or its subsidiaries as well as external consultants
engaged by BioChem or its subsidiaries to provide ongoing bona fide management
and consulting services.
The board of directors of BioChem, at its discretion, grants options following
the recommendation of the Compensation Committee of BioChem which administers
the BioChem Stock Option Plan. The exercise price of the options, which cannot
be lower than the market price (as defined under the BioChem Stock Option
Plan) of BioChem Shares on the day immediately preceding the day on which the
options are granted, must be paid upon exercise. An option must be exercised
within ten years from the date of its grant. The board of directors of BioChem
determines at the time of the grant of options their vesting and exercise
conditions.
BioChem Options that are not currently exercisable vest and become exercisable
as a result of a bona fide offer to purchase all or part of BioChem Shares
being made to BioChem Shareholders in accordance with the terms of the BioChem
Stock Option Plan.
Following the Merger, the BioChem Stock Option Plan will be amended such that
options over BioChem's common stock will be replaced by options over Ordinary
Shares.
At the Effective Date, each outstanding and unexercised BioChem Option will be
exchanged for a vested option to purchase a number of Ordinary Shares from the
Company equal to the product of the exchange ratio multiplied by the number of
BioChem shares subject to such BioChem Option prior to the Effective Time. The
exercise price per Ordinary Share will be equal to the UK pound equivalent on
the Effective Date of the per share exercise price of such BioChem Option
immediately prior to the Merger divided by the exchange ratio applicable to
the Merger. The term to expiry, conditions to, restrictions on and manner of
exercising and all other terms and provisions of such replacement option will
otherwise be unchanged from those of the BioChem Stock Option Plan, except for
the initial vesting period.
133
6. Principal subsidiaries and undertakings
The principal subsidiaries and undertakings of the Company are as follows:
Subsidiary/undertaking Country of incorporation Registered Office Field of activity
- ----------------------------------- -------------------------- ------------------- ----------------
Roberts Pharmaceutical Corporation USA, State of New Jersey 7900 Tanners Gate Drive Pharmaceutical
Florence marketing and
Kentucky 41042 development
USA
Shire Pharmaceuticals Limited England and Wales East Anton Pharmaceutical
Andover Hants marketing
SP10 5RG
England
Shire Pharmaceutical Development Limited England and Wales East Anton Pharmaceutical
Andover Hants development
SP10 5RG
England
Shire International Licensing BV Netherlands Olympic Plaza Fred. Licensing company
Roeskestraat 123
1076 EE Amsterdam/
PO Box 75032
1070 AA Amsterdam
Netherlands
Shire Richwood Inc. USA, State of Kentucky 7900 Tanners Gate Pharmaceutical
Drive, marketing
Florence,
Kentucky,
41042, USA
Shire Laboratories Inc. USA, State of Delaware 1550 East Gude Drive Pharmaceutical
Rockville development
MD 20850 USA
Shire Supplies, US, LLC USA, State of Delaware Corporation Trust Manufacturing
Center procurement
Wilmington
Delaware 19801
USA
Shire France S.A France 160 rue de Paris Pharmaceutical
92100 Boulogne marketing and
Bilancourt, France distribution
Shire Deutschland GmbH & Co. KG Germany Sieburger Strasse 126, Pharmaceutical
D-50679 marketing and
Koln distribution
Germany
Shire US Inc USA, State of New Jersey 7900 Tanners Gate Pharmaceutical
Drive, marketing
Florence, Kentucky,
41042, USA
Shire Italia SpA Italy Via Lucchese, 80 Pharmaceutical
Sestro Fiorentino, marketing and
Florence distribution
Italy
Shire Pharmaceuticals Iberica S.L. Spain Nunez de Balbao 81 Pharmaceutical
28006 Madrid marketing and
Spain distribution
Shire Canada Inc Canada 400 Iroquois Pharmaceutical
Shore Road, manufacturing and
Oakville, marketing
Ontario
L6H 1M5
Canada
Shire Pharmaceuticals Development US Inc US 1901 Research Pharmaceutical
Boulevard, development
Rockville,
Maryland,
USA
134
All of the Group's subsidiary undertakings are beneficially owned (directly or
indirectly) as to 100 per cent and are all consolidated in the results of the
Group.
7. Premises
The principal premises occupied by the Group are as follows:
Property and Tenure Description Date of Lease Length of Lease Annual Rent
- -------------------------- -------------------- ----------------- ----------------- --------------
Hampshire International Business Office accommodation 35,029 N/A N/A N/A
Park, Chineham, Basingstoke, sq ft
Hampshire RG24 8EP. Freehold 7 acre site
Planning consent for a
further 70,000 sq ft of
office accommodation
East Anton Court, Icknield Way, Office accommodation 17,460 5 December 1997 10 years from (L)138,382
Andover, Hampshire sq. ft 24 June 1997
SP10 5RG. Leasehold
1550 East Gude Drive, Rockville MD Offices and laboratories 1 May 1995 5 years from 1 May $637,336
20850 USA. Leasehold 44,500 sq. ft 1995
7900 Tanners Gate Drive, Florence, Office accommodation 11,000 1 April 1999 4 years from $146,403
Kentucky 41042, USA sq. ft 1 April 1999
1901 Research Blvd, Rockville MD 16,379sq.ft 1 July 2000 8 1/2 years from $425,854
20850 USA 1 July 2000
7900 Tanners Gate Drive, Florence, Office Accommodation 4,490 1 March 1999 34 months from $29,089
Kentucky 41042, USA sq. ft 1 March 1999
7900 Tanners Gate Drive, Florence, Office Accommodation 3,130 1 January 1999 3 years from $21,931
Kentucky 41042, USA sq. ft 1 January 1999
7900 Tanners Gate Drive, Florence, Warehouse space 1 January 1999 20 months from $36,760
Kentucky 41042, USA 5,890 sq. ft 1 May 1999
7900 Tanners Gate Drive, Florence, Warehouse space 1 April 1999 54 months from $24,511
Kentucky 41042, USA 3,930 sq. ft 1 April 1999
7900 Tanners Gate Drive, Florence, Warehouse space 1 April 1999 33 months from $21,091
Kentucky 41042, USA 3,380 sq. ft 1 April 1999
7900 Tanners Gate Drive, Florence, Warehouse space 1 April 1999 5 years from $15,000
Kentucky 41042, USA 3,000 sq. ft 1 April 1999
8. Memorandum and Articles of Association
(a) The objects clause of the Memorandum of Association of the Company
provides that its principal objects include the carrying on of business
as manufacturers, builders and suppliers of and dealers in goods of all
kinds, as chemical engineers and as an investment holding company and
applying for or acquiring patent rights and licences and expending money
in experimenting and testing and making researches, and improving, or
seeking to improve, any patents, inventions or rights which the Company
may acquire.
The objects of the Company are set out in full in paragraph 4(A) of the
Memorandum of Association which is available for inspection at the
address specified in paragraph 17 below.
(b) The Articles of Association of the Company (the "Articles") adopted
pursuant to a special resolution of the Company passed on 7 July, 2000
contain provisions, inter alia, to the following effect:
135
(i) Voting rights
Subject to any special terms as to voting on which shares may have
been issued or may for the time being be held (of which there are
none at present), or any suspension or abrogation of voting rights
pursuant to the Articles (including in circumstances where a
statutory notice requiring disclosure of beneficial ownership of
shares has not been complied with), at a general meeting every
member present in person shall, on a show of hands, have one vote
and every member present in person or by proxy shall, on a poll,
have one vote for every Ordinary Share of which he is the holder.
(ii) Dividends
Subject to the provisions of the Act and of the Articles, the
Company may by ordinary resolution declare a dividend to be paid
to the members according to their respective rights and interest,
but no dividend shall exceed the amount recommended by the Board.
The Board may declare and pay such interim dividends (including
any dividend payable at a fixed rate) as appear to it to be
justified by the profits of the Company available for
distribution.
Except as otherwise provided by the rights attached to shares, all
dividends shall be declared and paid according to the amounts paid
up on the shares in respect of which the dividend is declared and
paid, but no amount paid up on a share in advance of a call shall
be treated as paid up on the share for this purpose. All dividends
shall be apportioned and paid proportionately to the amounts paid
up on the shares during any portion or portions of the period in
respect of which the dividend is paid. All dividends unclaimed for
a period of 12 years after having been declared or due for payment
shall be forfeited and cease to remain owing by the Company.
Without prejudice to the provisions of the Articles, the Board
may, with the prior authority of an ordinary resolution of the
Company, direct that payment of any dividend may be satisfied
wholly or in part by the distribution of specific assets and, in
particular, of paid up shares or debentures of another company.
The Board may, with the prior authority of an ordinary resolution
of the Company, offer holders of a particular class of shares the
right to elect to receive further shares of that class or ordinary
shares, in either case credited as fully paid, instead of cash in
respect of all or part of a dividend.
(iii) Distribution of assets on winding up
On a voluntary winding up of the Company, the liquidator may, on
obtaining any sanction required by law, divide amongst members in
kind the whole or any part of the assets of the Company, whether
or not the assets consist of property of one kind or of different
kinds. For such purpose, the liquidator may set the value he deems
fair on any class or classes of property, and may determine on the
basis of that valuation and in accordance with the then existing
rights of the members how the division is to be carried out
between members or classes of members. The liquidator may not,
however, distribute to a member, without his consent, any asset to
which there is attached a liability or potential liability for the
owner.
(iv) Transfer and issues of shares
Each member may transfer all or any of his uncertificated shares
by means of a relevant system subject to the Uncertificated
Securities Regulations 1999 (as amended) and each member may
transfer any or all of his certificated shares by instrument of
transfer in any usual form or in any other form approved by the
Board and the instrument shall be executed by or on behalf of the
transferor and (in the case of a transfer of a share which is not
fully paid) by or on behalf of the transferee.
Subject to the provisions of the Articles and the requirements of
the London Stock Exchange the Board may, in its absolute
discretion and without giving any reason, refuse to register any
transfer of a certificated share or renunciation to a renounceable
letter of allotment unless all of the following conditions are
satisfied:
(a) it is in respect of a share which is fully paid;
(b) it is in respect of a share on which the Company has no
lien;
(c) it is in respect of only one class of shares;
136
(d) it is in favour of a single transferee or renouncee or not
more than four joint transferees or renouncees;
(e) it is duly stamped (if required); and
(f) it is delivered for registration to the registered office of
the Company or such other place as the Board may decide,
accompanied by the certificate for the shares to which it
relates (except in the case of the transfer by a recognised
person where a certificate has not been issued, or in the
case of a renunciation) and such other evidence as the Board
may reasonably require to prove the title of the transferor
or person renouncing and the due execution by him of the
transfer or renunciation or, if the transfer or renunciation
is executed by some other person on his behalf, the
authority of that person to do so.
Unless the Board determines otherwise, or the transfer is an
excepted transfer in accordance with the Articles, the transfer of
shares held by a member who has not complied, in accordance with
the Articles, with a statutory notice requiring disclosure as to
the beneficial ownership of such shares may not be registered.
The Articles do not contain any pre-emption rights relating to the
transfers of shares. The provisions of section 89 of the Act,
which confer on shareholders rights of pre-emption in respect of
the allotment of equity securities which are, or are to be, paid
up in cash, apply to the authorised but unissued share capital of
the Company, save to the extent presently disapplied as referred
to in paragraph 4 (b) above.
(v) Variation of rights
(a) Subject to the provisions of the Act the rights attached to
a class of shares may be varied, whether or not the Company
is being wound up, (1) in such a manner (if any) as may be
provided by those rights, or (2), in the absence of
provision, either with the consent in writing of the holders
of at least three fourths of the nominal amount of the
issued shares of that class or with the sanction of an
extraordinary resolution passed at a separate meeting of the
holders of the issued shares of that class validly held in
accordance with the Articles, but not otherwise.
(b) The rights attached to a class of shares are not, unless
otherwise expressly provided in the rights attaching to
those shares, deemed to be varied by the creation or issue
of further shares ranking pari passu with or subsequent to
them or by the purchase or redemption by the Company of its
own shares in accordance with the Act and the Articles.
(vi) Share capital and changes in capital
(a) The Company may, by ordinary resolution, increase its share
capital; consolidate and divide all or any of its share
capital into shares of a larger amount; sub-divide all or
any of its shares (subject to the provisions of the Act)
into shares of a smaller amount and as part of such sub-
division determine that the shares resulting from such sub-
division have amongst themselves a preference or other
advantage or be subject to a restriction; and cancel any
shares which, at the date of the passing of the resolution,
have not been taken or agreed to be taken by any person and
diminish the amount of its share capital by the amount of
the shares so cancelled.
(b) Subject to the provision of the Act and the rights attached
to existing shares, the Company may, by special resolution,
reduce its share capital, capital redemption reserve and
share premium account in any way.
(c) Subject to the provision of the Act, the Company may
purchase any of its shares of any class (including
redeemable shares) in its own capital in any way.
9. Directors' and other interests
(a) As at 27 February 2001 (being the latest practicable date prior to the
publication of this document), the interests of the Directors, their
immediate families and (so far as is known to them or could with
reasonable diligence be ascertained by the Directors) persons connected
(within the meaning of section 346 of the Act) with the Directors in the
issued share capital of the Company (all of which are beneficial unless
otherwise stated), including (i) those notified to the Company pursuant
to section 324 or section 328 of the Act, (ii) those required to be
entered in the register maintained under section 325 of the Act and
(iii) those of connected persons of the Directors which would, if the
connected persons were Directors, be required to be disclosed under (i)
or (ii) above, were, and at the Effective Date (assuming no dealings by
the Directors,
137
their immediate families and any persons connected with them during the
period up to such date) the interests of such persons will be, as
follows:
Prior to Following
(i) Merger Merger
Number of Number of
Ordinary Ordinary
Name Shares Shares
Dr J H Cavanaugh(1) 8,806,368 8,806,368
R Stahel 13,827 13,827
A C Russell -- --
Dr J W Totten -- --
Dr B J Price 31,350 31,350
Dr B Canavan(3) 3,000 24,754
Dr Z P Horovitz 3,128 3,128
R M Nordmann 46,968 46,968
J E Smith 125,120 125,120
J T Spitznagel 57,624 57,624
Dr F Bellini(2) -- 5,702,895
The Hon J A Grant(2) -- 3,955
G Veilleux(2) -- --
(1) Dr Cavanaugh is the President of HealthCare Ventures LLC, which is
the management company for a number of limited partnerships which
have interests in 8,690,090 Ordinary Shares. Dr Cavanaugh is also a
general partner in these partnerships which acquired their Ordinary
Shares following the acquisition of Pharmavene, Inc. 8,690,090 of
the Ordinary Shares in which Dr Cavanaugh is expressed to be
interested represent shares held by those partnerships and not by Dr
Cavanaugh personally. The remaining 116,278 Ordinary Shares are held
by Dr Cavanaugh as beneficial owner.
(2) Based on the Average Shire ADS price of $56.125 (being the closing
price of an ADS on 27 February 2001, the latest practicable date
prior to the publication of this document) and assuming each
Proposed Director elects for New Shire Ordinary Shares, Dr Bellini's,
the Hon. J A Grant's and G Veilleux's shares would be exchanged at a
rate of 1.9777 New Shire Ordinary Shares for each existing BioChem
Share. No account of BioChem Share Options has been made.
(3) Dr Canavan is also interested in 11,000 BioChem Shares. Based on an
Average Shire ADS price of $56.125 (being the closing price of an
ADS on 27 February 2001, the latest practicable date prior to the
publication of this document), Dr Canavan's shares would be
exchanged at a rate of 1.9777 New Shire Ordinary Shares for each
existing BioChem Share. No account of BioChem Share Options has been
made. Dr Canavan can also expect to receive payment of approximately
$58,000 in respect of his ownership of BioChem's Deferred Share
Units.
(ii) The Directors' interests in Ordinary Shares in respect of their options
over shares in the Employee Share Schemes are as follows:
Number of
Ordinary Shares Exercise Exercise dates
Name Scheme under option price Earliest Latest
R Stahel SHL 89,840 (L)1.00 24.11.96 23.11.02
89,840 (L)1.00 24.11.97 23.11.02
89,840 (L)1.00 24.11.98 23.11.02
90,160 (L)1.00 24.01.97 23.01.03
90,160 (L)1.00 24.01.98 23.01.03
90,160 (L)1.00 24.01.99 23.01.03
Executive Scheme A 13,761 (L)2.18 15.02.99 14.02.06
Executive Scheme B 329,095 (L)1.75 15.02.99 14.02.03
81,918 (L)3.385 09.02.01 08.02.05
54,189 (L)10.275 01.03.03 28.02.07
2000 Executive Scheme B 34,241 (L)12.80 03.08.03 02.08.07
Sharesave Scheme 9,857 (L)1.75 01.04.01 30.09.01
---------------------
Total 1,063,061
=====================
Dr J W Totten Executive Scheme A 8,862 (L)3.39 09.02.01 08.02.08
Executive Scheme B 141,138 (L)3.385 09.02.01 08.02.05
25,000 (L)4.705 12.05.02 11.05.06
16,995 (L)10.275 01.03.03 28.02.07
2000 Executive Scheme B 63,242 (L)12.80 03.08.03 02.08.07
Sharesave Scheme 1,139 (L)8.56 01.06.03 30.11.03
---------------------
Total 256,376
=====================
138
Number of Exercise dates
Ordinary Shares under Exercise
Name Scheme option price Earliest Latest
A C Russell Executive Scheme A 4,181 (L)7.175 13.12.02 12.12.09
Executive Scheme B 45,819 (L)7.175 13.12.02 12.12.06
6,422 (L)10.275 01.03.03 28.02.07
Sharesave Scheme 1,971 (L)8.56 01.06.05 30.11.05
---------------------
Total 58,393
=====================
Dr Z Horovitz Roberts 31,280 $3.38 -- 13.01.04
11,730 $5.60 -- 10.06.04
31,280 $5.24 -- 01.09.04
31,280 $6.00 -- 21.01.05
15,640 $6.02 -- 27.05.05
---------------------
Total 121,210
=====================
J Smith Roberts 31,280 $5.24 -- 01.09.04
31,280 $6.00 -- 21.01.05
15,640 $6.02 -- 27.05.05
---------------------
Total 78,200
=====================
The above figures for Ordinary Shares under option do not take into
account conditional awards made under the Long Term Incentive Plan.
(b) As at 27 February 2001 (being the latest practicable date prior to the
publication of this document) the interests of the Directors, their
immediate families and (so far as is known to them or could with
reasonable diligence be ascertained by them) persons connected (within
the meaning of section 346 of the Act) with them in conditional awards
made under the Long Term Incentive Plan were as follows:
Earliest date on which award
Name Value of award Number of Ordinary Shares may be awarded
R Stahel (L)150,000 32,230 8 April 2003
Dr J W Totten (L)71,000 15,255 8 April 2003
A C Russell (L)90,000 12,436 12 December 2003
R Stahel (L)360,050 35,785 28 February 2004
A C Russell (L)18,000 1,789 28 February 2004
Dr J W Totten (L)200,003 19,881 28 February 2004
(c) Save as disclosed above, none of the Directors (nor any person connected
with any Director within the meaning of section 346 of the Act) has any
interest in the share capital of the Company.
(d) Mr Spitznagel entered into a consultancy agreement with the Company in
December 1999, which provided that:
(i) if he has good reason, as defined in his service agreement with
Roberts to terminate his employment with Roberts under his service
agreement, then the Company will cause Roberts to provide him with
the payments and benefits he is entitled to upon a `good reason'
termination;
(ii) Mr Spitznagel would provide consulting services to the Company for
at least 42 months following the acquisition of Roberts unless Mr
Spitznagel terminates the consultancy agreement prior to the end
of the 42 month upon 30 days' notice; and
(iii) the Company would pay Mr Spitznagel at a rate of (L)248,000 per
annum for his consulting services, (L)93,000 per annum as an
office holder, (L)155,000 per annum to comply with certain
restrictive covenants contained therein and (L)93,000 per annum
for tax, financial and estate planning advice, life insurance and
health insurance.
(e) Save as disclosed in sub-paragraph (d) above, no Director (or Proposed
Director) has, or has had, an interest in any transaction which is or
was unusual in its nature or conditions or significant to the business
of the
139
Group effected in the current or immediately preceding financial year or
during an earlier financial year and which remains in any respect
outstanding or unperformed.
(f) There are no outstanding loans granted by any member of the Group to any
of the Directors nor any guarantees provided by any such companies for
their benefit.
(g) (i) On 8 February 1996, the Company entered into a service agreement
with Rolf Stahel, Chief Executive. This Agreement was amended by
an agreement between the Company and Mr. Stahel dated 21 October
1996. The contract will continue (subject to earlier termination
as provided therein) until terminated by either party giving to
the other 12 months' notice in writing. Mr Stahel currently has an
annual salary of (L)440,000. Mr Stahel is entitled to receive such
an annual bonus (if any and subject to a maximum of 55 per cent of
his basic salary) as the Remuneration Committee of the Company
shall determine. The Company is obliged to contribute an amount
equal to 10 per cent of Mr. Stahel's salary to such pension scheme
as he may specify.
(ii) On 29 October 1999, the Company entered into a service agreement
with Angus Russell, Group Finance Director. The contract will
continue (subject to earlier termination as provided therein)
until terminated by either party giving to the other 12 months'
notice in writing. Mr Russell has an annual salary of (L)225,000.
Mr Russell is entitled to receive such an annual bonus (if any and
subject to a maximum of 50 per cent of Mr Russell's basic salary)
as the Remuneration Committee of the Company shall determine. The
Company is obliged to contribute an amount equal to 10 per cent of
Mr Russell's salary to such pension scheme as he may specify.
Subject to Mr Russell remaining in the employment of the Company,
he will be paid a bonus of (L)36,000 for the first six months of
his employment of the Company, which will be paid in March 2001.
(iii) On 30 December 1998, the Company entered into a service agreement
with Dr J W Totten, Group Research and Development Director. The
contract will continue (subject to earlier termination as provided
therein) until terminated by either party giving to the other 12
months' notice in writing. Dr Totten currently has an annual
salary of (L)260,000. Dr Totten is entitled to receive such an
annual bonus (if any and subject to a maximum of 50 per cent of
his salary) as the Remuneration Committee of the Company shall
determine. The Company is obliged to contribute an amount equal to
10 per cent of his salary to such pension scheme as he may
specify.
(iv) Each of the non-executive Directors has received, and each non-
executive Proposed Director of the Company will receive, a letter
of appointment from the Company providing for that individual to
be paid an annual fee of (L)20,000 per annum, payable quarterly in
arrear. The agreement pursuant to this letter of appointment is
terminable by either party giving to the other three months'
notice.
(v) The Company also provides each of these executives, his spouse and
children under the age of 18 years with membership of an
appropriate private patients medical plan and also provides each
of them with life assurance cover, membership of any permanent
health care scheme and prolonged disability scheme operated by the
Group and Directors and Officers insurance cover, as well as a
company car. The Company is entitled to terminate each executive's
employment with immediate effect by paying him salary in lieu of
notice and a sum (calculated by multiplying the Relevant Amount
(as defined below) by the number of months' notice which he is
entitled to receive at the date of such termination) in
compensation for his immediate loss of his other benefits. The
"Relevant Amount" is the aggregate of all bonuses due to him over
the full period of his employment divided by twice the number of
complete months' service and the total cost to the Company of
providing him (and where appropriate members of his family) with
the other benefits detailed above during the period of 12 months
immediately preceding such termination divided by 12.
(vi) Save as disclosed in this sub-paragraph (g), no service contract
has been entered into or varied between any Director or Proposed
Director and Shire or any other member of the Enlarged Group.
(h) In the year ended 31 December 2000, the total aggregate remuneration,
including benefits in kind and pension contributions, of the Directors
from Shire was approximately (L)1,388,000. The total emoluments
receivable by the Directors will not be varied in consequence of the
Merger and there are no arrangements under which any of the Directors
has agreed to waive any further emoluments.
(i) As at 27 February 2001 (being the latest practicable date prior to the
publication of this document) the Company had been notified pursuant to
the Act of the following interests (within the meaning of Part VI of the
Act) in three per cent or more of the issued share capital of the
Company:
140
Percentage of
Number of issued share
Shareholder Notes Ordinary Shares capital
The Capital Group Companies, Inc. (i) 10,762,647 4.18
HealthCare Ventures LLC (ii) 8,690,090 3.37
Putnam Investment Management, LLC &
The Putnam Advisory Company, Inc. 17,732,370 6.89
(i) The Capital Group Companies Inc. interest includes 1,779,600
Ordinary Shares registered to Capital International Limited,
263,713 Ordinary Shares registered to Capital International S.A.,
3,700 Ordinary Shares registered to Capital International, Inc.
and 8,715,634 registered to Capital Research and Management
Company.
(ii) HealthCare Ventures LLC interests includes 5,508,032 Ordinary
Shares registered to HealthCare Ventures III, 1,617,528 Ordinary
Shares registered to HealthCare Ventures IV and 1,564,530 Ordinary
Shares registered to HealthCare Ventures V.
In addition to the above, the Company has been notified that as at 13
February 2001 Guaranty Nominees Limited held 68,251,417 Ordinary Shares
which underlie ADSs (representing 26.51 per cent of the total share
capital of the Company) in its capacity as the depository of the
Company's ADSs. Each ADS equates to three of the Company's Ordinary
Shares of 5p.
On Completion of the Merger, (assuming no exercise of options
outstanding under the Employee Share Schemes, no exercise of options or
rights in respect of BioChem Shares, no issue of new BioChem Shares as
referred to in Part I of this document and an Average Shire ADS Price
less than or equal to $47.20 and assuming all existing BioChem
Shareholders exchange their BioChem Shares for New Ordinary Shares
pursuant to the terms of the Merger) the following are expected to have
interests in three per cent or more of the issued share capital of the
Company (based on the interests in the Company shown above and assuming
no other changes in their interests before the Closing):
Percentage of
Number of issued share
Shareholder Ordinary Shares capital
Putman Investment Management, LLC
& The
Putnam Advisory Company, Inc. 17,732,370 3.57
La Caisse des Depots 16,869,390 3.40
(j) Save as disclosed above, the Company is not aware of any person who,
immediately following the Merger, will be directly or indirectly
interested in three per cent or more of the issued share capital of the
Company or will or could, directly or indirectly, jointly or severally,
exercise control over the Company.
10. Material contracts
(a) No contracts (other than contracts entered into in the ordinary course
of business) have either been entered into by members of the Group (i)
within a period of two years immediately preceding the date of this
document and are or may be material, or (ii) at any time which contain
provisions under which any member of the Group has a material obligation
or entitlement as at the date of this document, save as disclosed below:
(i) the Merger Agreement (as described in paragraph 2 to Part VIII of
this document);
(ii) the Option Agreement (as described in paragraph 3 to Part VIII of
this document);
(iii) a merger agreement among the Company, Roberts and Ruby Acquisition
Sub Inc., a New Jersey corporation and wholly owned subsidiary of
the Company, made as of 26 July 1999, pursuant to which each
Roberts share issued and outstanding at the effective date (as
defined in the merger agreement) was converted into the right to
receive Ordinary Shares in the Company. Each Roberts shareholder
received Ordinary Shares in the Company in accordance with a ratio
determined by reference to the average last reported sale price of
ADSs on the NASDAQ National Market for the 15 consecutive trading
days ending on the third trading day immediately preceding
completion. Roberts shareholders could elect to take either
Ordinary Shares or ADSs. The Company assumed all Roberts stock
option plans so that option holders under any of the Roberts stock
option plans had their options converted by the same ratio as the
Roberts shareholders above. Each of Shire and Roberts gave certain
warranties;
141
(iv) an amended and restated escrow agreement among the Company, Star
Bank N.A. (the "Escrow Agent") and James Currie, as the
shareholders' representative on behalf of the shareholders listed
in that agreement, made as of 25 June 1999 ("the Escrow
Agreement"), pursuant to which the Escrow Agent agreed to hold
1,662,566 Ordinary Shares in escrow to be released in certain
circumstances to the Company where it, SRI or any of their
affiliates listed in that agreement need to expend moneys in
respect of external costs (including the reasonable fees and
expenses of counsel and any experts, court costs, judgements and
settlements) for which SRI has not been reimbursed by any other
source and where those monies have been paid by SRI prior to 12
March 2002 and have been incurred wholly and necessarily (a) in
the defence of SRI against any of the lawsuits relating to
phentermine litigation referred to in that agreement (the
"Claims") or (b) settlement of any Claim or as a result of
judicial resolution of any Claim, but excluding costs internal to
SRI for employees or personal or overheads incidental thereto. On
31 August 2000, Shire entered into an agreement (the "Termination
Agreement") with the former shareholders of SRI terminating the
Escrow Agreement, pursuant to which 1,622,566 Ordinary Shares
placed into escrow at the time of the purchase of SRI by Shire
were released and the Escrow Agreement and the escrow fund were
terminated. Under the terms of the Termination Agreement, 406,064
of the shares held in the escrow fund were sold and the net
proceeds were distributed to Shire. Shire received approximately
US$7 million from the sale of these shares. The remaining
1,216,502 shares were distributed to the former SRI shareholders;
(v) a sale and purchase agreement among Shire Holdings Europe Limited
(the "Purchaser"), Fuisz International Limited (the "Seller") and
Fuisz Technologies Limited. ("Fuisz Technologies") dated 22
October 1999, pursuant to which the Purchaser acquired
Laboratories Murat SA, Fuisz Pharma Beteiligungs GmbH and Fuisz
Technologies Holding GmbH and agreed to acquire Isotria
Farmaceutici SpA from the Seller and Fuisz Technologies assigned
its rights in the trademarks Cebutid and Cebutin to the Purchaser
in consideration for the payment by the Purchaser of $36.2 million
and an obligation to pay a further $3.3 million in deferred
consideration to Knoll AG (in three stages on or before 24
November 2001) in respect of the assignment of the trademarks
Cebutid and Cebutin. Each of the Seller and Fuisz Technologies
gave certain representations and warranties and the Seller gave
certain restrictive covenants; and
(vi) an agreement between, inter alia, Shire, Roberts and Shire's
United States subsidiaries as borrowers and DLJ (as agent for a
syndicate of banks) dated 19 November 1999, pursuant to which
certain banks agreed to provide a $250 million credit facility
including a $125 million five-year revolving credit facility
(including a $25 million letter of credit facility) and a $125
million five-year term loan facility. The applicable interest rate
on the credit facility will range, between 0.5 per cent and
1.5 per cent over the higher of the prime rate of DLJ Inc or the
Federal Funds Rate plus 0.5 per cent or between 1.5 per cent and
2.5 per cent over the London Interbank Overnight rate (as adjusted
in accordance with the agreement), in each case depending on
Shire's credit rating. All obligations under the credit facility
are jointly and severally guaranteed by Shire and by Shire's
subsidiaries (other than the borrowers) and will initially be
secured by all material property owned by Shire and its
subsidiaries and the capital stock of Shire's subsidiaries. If
Shire's credit rating reaches specified levels, the credit
facility will not be secured. The credit facility contains
customary covenants. The terms of the credit agreement also
contain maintenance tests which require Shire to maintain a
minimum net worth, a specified leverage ratio and a specified
coverage ratio.
(b) No contracts (other than contracts entered into in the ordinary course
of business) have either been entered into by BioChem (i) within a
period of two years immediately preceding the date of this document and
are or may be material, or (ii) at any time which contain provisions
under which BioChem has a material obligation or entitlement, save as
disclosed below:
(i) the Merger Agreement (as described in paragraph 2 to Part VIII of
this document);
(ii) the Option Agreement (as described in paragraph 3 to Part VIII of
this document);
(iii) an agreement between BioChem and GlaxoSmithKline dated 31 January
1990 and amended as of 20 November 1995, pursuant to which BioChem
licensed to GlaxoSmithKline the worldwide rights, with the
exception of Canada, to develop, manufacture and sell the
nucleoside analogue lamivudine marketed as 3TC and Zeffix (3TC and
Zeffix are referred to herein as "lamivudine"). A partnership
exists between GlaxoSmithKline's Canadian subsidiary,
GlaxoSmithKline Inc., and BioChem to supply, market and sell
lamivudine in Canada. GlaxoSmithKline has agreed to manufacture
all the required lamivudine to be supplied in Canada by the
partnership.
142
In consideration for the grant of such rights, GlaxoSmithKline
agreed to undertake and fund the development of lamivudine and to
pay BioChem a royalty on sales of lamivudine. In addition, it was
agreed that milestone payments would be made to BioChem in
instalments as GlaxoSmithKline progressed in the development and
approval process. The amount of relevant patent prosecution costs
and 50 per cent of milestone payments are deductible from any
royalties payable to BioChem by GlaxoSmithKline. The milestone
payments and its related deductions from royalties have been
completed. The amount of certain contractual costs and certain
litigation costs may be deducted from royalties payable to BioChem
by GlaxoSmithKline. If GlaxoSmithKline terminates the licence
agreements upon certain events of default by BioChem,
GlaxoSmithKline will retain a non-exclusive, paid-up licence from
BioChem to make, have made, use and sell lamivudine worldwide;
(iv) a series of agreements between AstraZeneca plc ("Astra") and
BioChem dated 31 August 1992 (the "Astra Agreements"), providing
for the research, development and commercialisation of a new class
of analgesic compounds for the control of pain. Pursuant to the
Astra Agreements, BioChem transferred and assigned its rights to
the relevant proprietary technology to Astra and retained a right
to re-acquire the Canadian rights in exchange for the payment of
royalties to Astra. In addition, a collaborative research
agreement and a supply agreement provide for Astra and BioChem to
jointly research the field of opioid peptides. Astra will retain
commercial rights worldwide except for Canada. In consideration
for the grant of such rights to Astra, Astra made an upfront
payment, agreed to fund research and development, to make
milestone payments to BioChem and to pay BioChem a royalty on
future product sales. Astra may, in its sole discretion, terminate
the Astra Agreements. If Astra discontinues development of
products or chooses not to develop products under the Astra
agreements or terminates the Astra agreements, then BioChem has
the option to reacquire the relevant technology and intellectual
property rights subject to certain royalty obligations to Astra;
and
(v) an agreement between BioChem and GlaxoSmithKline dated 3 December
1998, pursuant to which BioChem concluded an alliance with
GlaxoSmithKline for the worldwide development, manufacturing and
marketing of BioChem's cell-culture influenza vaccines. Under the
terms of the agreement, after a period of joint development funded
by both parties, BioChem and GlaxoSmithKline will collaborate to
market the products in the United States while, in Europe and the
rest of the world, GlaxoSmithKline will be exclusively responsible
for marketing. In addition, GlaxoSmithKline will be responsible
for manufacturing for markets throughout the world except Canada.
BioChem will benefit from the sales of the vaccines in the United
States and the rest of the world, excluding Canada, in accordance
with a pre-determined formula. In Canada, BioChem will retain all
exclusive rights to the vaccines, including production and
marketing. The agreement also calls for BioChem to receive up-
front and milestone payments from GlaxoSmithKline.
11. Working capital
The Directors and Proposed Directors are of the opinion that, having regard to
the Enlarged Group's existing resources, the Enlarged Group has sufficient
working capital for its present requirements, that is for at least the next 12
months from the date of this document.
12. Litigation
(a) (i) SRI has been named as a defendant in approximately 3,746 lawsuits,
in both US federal and state courts, which seek damages for, among
other things, personal injury arising from phentermine products
supplied for the treatment of obesity by SRI and several other
pharmaceutical companies. SRI has been sued as a manufacturer and
distributor of phentermine, an anorectic used in the short-term
treatment of obesity and one of the products addressed by the
lawsuits. The suits relate to phentermine either alone or together
with fenfluramine or dexfenfluramine. As at 23 February 2001 SRI
had been dismissed from 2,597 cases. As at 23 February 2001
approximately 818 cases were pending dismissal. SRI's products
Oby-Cap or Oby-Trim have been positively identified (or have been
specifically alleged to have been ingested) in 171 cases of which
59 of these cases are still active. The lawsuits generally allege
the following claims:
o the defendants marketed phentermine and other products for
the treatment of obesity and misled users about the products
and the dangers associated with them;
o the defendants failed adequately to test phentermine
individually and when taken in combination with the other
drugs; and
143
o the defendants knew or should have known about the negative
effects of the drugs and should have informed the public
about such risks and/or failed to provide appropriate
warning labels.
SRI became involved with phentermine through its acquisition of
certain assets of Rexar Pharmacal Corp. ("Rexar") in January 1994.
In addition to liability as a result of its own production of Oby-
Cap, the plaintiffs may seek to impose liability on SRI as
successor to Rexar. Class certification has been sought for
certain of the claims made against SRI. In addition, pending US
federal lawsuits have been consolidated as a multidistrict
litigation in the Eastern District of Pennsylvania. SRI intends
vigorously to defend all the lawsuits and pursue all available
reasonable defences. SRI denies liability on a number of grounds
including lack of scientific evidence that phentermine, properly
prescribed, causes the alleged side effects and that SRI did not
promote phentermine for long term combined use as the "fen/phen"
diet. Accordingly, SRI intends to defend vigorously any and all
claims made against the Group in respect of phentermine and
believes that liability is neither probable nor quantifiable at
this stage of litigation. Legal expenses have been paid by Eon
Labs Manufacturing Inc. ("Eon"), the supplier to SRI, or Eon's
insurance carriers but such insurance is now exhausted. Eon has
agreed to defend and indemnify SRI in this litigation pursuant to
an agreement dated 30 November 2000 made between Eon and SRI.
(ii) On 22 September 2000, a lawsuit was filed against the Company in
the United States District Court for the District of North Dakota.
The suit involves an incident in 1999 in which a young North
Dakota man, Ryan Ehlis, shot and killed his infant daughter and
wounded himself, allegedly as a result of a psychotic reaction to
Adderall. Mr. Ehlis' physician had prescribed Adderall for the
treatment of ADHD. The Company filed its answer to the complaint
on 24 November 2000 and discovery schedules are being developed.
(iii) The Company is aware of two further potential cases:
Ms Sharon Curry stabbed her 8 year old daughter to death. No
lawsuit has been filed as yet nor has the Company or Adderall been
referred to in media reports specifically related to this
incident. It is reported that Ms Curry had a history of
methamphetamine use.
The Company has received notice of a car accident where a young
child was killed. It has been alleged that the accident was
attributable to Ms Dawn Branson having a psychotic episode due to
the ingestion of Adderall. No lawsuit has been filed as yet.
No substantive legal advice has been given to date and in the
circumstances the Company does not have definitive information to
enable further disclosure.
(b) Save as disclosed in paragraph (a) above, the Group is not, and has not
been, engaged in any legal or arbitration proceedings and no legal or
arbitration proceedings are pending or threatened by or against the
Group which may have or have had during the 12 months prior to the date
hereof a significant effect on the financial position of the Group.
(c) (i) Emory University filed oppositions to two of BioChem's granted
patent applications in Europe which cover oxathiolane nucleosides
including lamivudine and dioxolane nucleosides, including
troxacitabine, related nucleoside analogues and use of these
analogues for treating viral infections. In oral hearings held in
1999, both of these oppositions were dismissed by the Opposition
Division of the European Patent Office. Emory University has filed
an appeal against the dioxolane - related decision of the
Opposition Division. Emory University is not pursuing its appeal
of the decision relating to oxathiolanes. Emory University has not
to date filed revocation actions with respect to any BioChem
patents in issue in individual European countries.
In Japan, Emory University filed an opposition to BioChem's
granted patent which covers lamivudine, related analogues and use
of the analogues for treating viral infections. The Trial Board of
the Japanese Patent Office dismissed Emory University's opposition
to BioChem's patent covering lamivudine. Emory University has not
to date filed a revocation action against this patent. Emory
University has filed revocation actions in Australia and South
Korea against BioChem's granted patents covering lamivudine.
BioChem is aggressively defending these patents.
On 23 July 1996, Emory University filed a complaint in the United
States alleging infringement from the commercialisation of Epivir
by BioChem and GlaxoSmithKline, BioChem's exclusive licensee in
the US, of an Emory University US patent granted that same day.
BioChem considers this patent
144
infringement suit to be without merit and has successfully
challenged the validity of Emory University's patent.
On 19 May 1998, the United States Patent and Trademark Office (the
"USPTO") declared an interference between the Emory University
patent that is the subject of a lawsuit and a pending patent
application of BioChem. The USPTO accorded BioChem the earlier
priority date and then accorded BioChem senior party status in the
interference. BioChem has vigorously challenged the Emory
University patent in the interference, through to a final hearing
on 10 November 1999. The Board of Patent Appeals and Interferences
issued a decision on 21 December 2000 invalidating Emory's patent.
There can be no assurance that Emory University will not appeal
the decision and that Emory's patent will not be reinstated.
Emory University has obtained a granted patent application in
Europe relating to oxathiolane nucleosides, including lamivudine.
BioChem and GlaxoSmithKline filed an opposition to this grant and
are vigorously opposing the grant. An examined patent application,
filed by Emory University claiming lamivudine, was successfully
opposed by BioChem in Australia. Emory University has filed an
appeal from that decision in the Federal Court of Australia.
BioChem also filed an appeal from certain portions of the
decision. An examined patent application filed by Emory University
claiming lamivudine was also opposed by BioChem in Japan. The
opposition was dismissed in April 1999 because it was improperly
filed by a representative who had previously represented Emory.
Notwithstanding the dismissal, the Japanese Patent Office issued
an ex-officio action rejecting all of Emory University's claims.
An examined patent application filed by Emory claiming lamivudine
has also been opposed by BioChem and GlaxoSmithKline in South
Korea. BioChem is aware that Emory University has filed patent
applications in other countries, which BioChem believes may claim
similar subject matter. BioChem intends to challenge vigorously
such patent applications.
The Company has been advised by its patent agents that BioChem has
reasonable patent coverage for lamivudine and its use in treating
viral infections including HIV and HBV. Should BioChem or the
Enlarged Group suffer a successful opposition or challenge to its
patents or patent applications relating to lamivudine, then such
an action could have a detrimental effect on the Enlarged Group.
(ii) On 23 November 1999, the USPTO declared an interference between
BioChem's hepatitis B patent for lamivudine and a patent
application filed by Yale University ("Yale") claiming methods of
treating hepatitis B using lamivudine. BioChem believes that this
application is licenced to Vion Pharmaceuticals, Inc. ("Vion"),
formerly know as OncoRx, Inc., a New Haven, Connecticut-based
company. BioChem believes that its patent is valid and intends to
vigorously defend the patent. On 14 April 2000, the USPTO declared
a further interference between BioChem's hepatitis B patent for
lamivudine and a patent application by GlaxoSmithKline claiming
methods of treating hepatitis B using lamivudine. BioChem is not
aware of corresponding patent applications by Yale University or
Vion in countries other than the United States.
(d) Save as disclosed in paragraph (c) above, neither BioChem nor any other
member of its group is, or has been, engaged in any legal or arbitration
proceedings and no legal or arbitration proceedings are pending or
threatened by or against BioChem or any other member of its group which
may have or have had during the 12 months prior to the date hereof a
significant effect on the financial position of BioChem.
13. Significant changes
(a) There has been no significant change in the financial or trading
position of the Group since 31 December 2000, the date to which the
latest audited accounts of the Group were prepared.
(b) There has been no significant change in the financial or trading
position of BioChem since 31 December 2000, the date to which the latest
audited results of BioChem were prepared.
14. United Kingdom Taxation
The comments set out below are intended as a general guide to the position
under current UK law and Inland Revenue practice as at the date of this
document and are subject to changes therein. They relate only to certain
limited aspects of the UK taxation treatment of holders of Ordinary Shares or
ADRs and (except so far as express reference is made to the treatment of non-
UK resident holders) to the position of persons who are resident or ordinarily
resident in the UK for tax purposes and who hold their Ordinary Shares or ADRs
beneficially as an investment. In addition, the comments assume that holders
of ADRs will be treated in practice as the beneficial owners of the Ordinary
Shares represented by the ADRs for the purposes of UK tax.
145
Any person who is in any doubt about his own tax position, or is subject to
taxation in a jurisdiction other than the UK, should consult an appropriate
independent tax adviser.
(a) Dividends
Shire is not required to withhold any amounts in respect of taxation
from its dividend payments.
A Shire Shareholder or ADR holder who is an individual resident for tax
purposes in the UK and who receives a dividend from Shire will be
entitled to a tax credit equal to one-ninth of the dividend. The
individual will be taxable on the total of the dividend and the related
tax credit (the "gross dividend"), which will be regarded as the top
slice of the individual's income. The tax credit will, however, be
treated as discharging the individual's liability to income tax in
respect of the gross dividend, unless and except to the extent that the
gross dividend falls above the threshold for the higher rate of income
tax, in which case the individual will, to that extent, pay tax on the
gross dividend calculated as 32.5 per cent of the gross dividend, less
the related tax credit. So, for example, a dividend of (L)80 will carry
a tax credit of (L)8.89 and the income tax payable on the dividend by an
individual liable to income tax at the higher rate would be 32.5 per
cent of (L)88.89, namely (L)28.89, which, after deducting the tax credit
of (L)8.89, leaves a higher rate income tax charge of (L)20.
With the exception of investors holding Ordinary Shares and/or ADRs
through personal equity plans or individual savings accounts, Shire
Shareholders or ADR holders which are not liable to income tax or
corporation tax on dividends received by them will not be entitled to
claim payment of the tax credit in respect of those dividends. Investors
holding Ordinary Shares and/or ADRs through personal equity plans or
individual savings accounts will only be entitled to claim payment of
the tax credit for dividends paid on or before 5 April 2004. Charities
will receive some compensation for the loss of their entitlement to
claim payment of tax credits under a transitional relief expiring on 5
April 2004.
A Shire Shareholder or ADR holder that is a company resident for tax
purposes in the UK will not generally be taxable on any dividend it
receives from Shire.
The right of a Shire Shareholder or ADR holder who is not resident for
tax purposes in the UK to a tax credit in respect of a dividend received
from Shire and to claim payment of any part of that tax credit will
depend on the existence and terms of any double taxation convention
between the UK and the country in which the holder is resident. Holders
who are not solely resident in the UK should consult their own tax
advisers concerning their tax liabilities on dividends received, whether
they are entitled to claim any part of the tax credit and, if so, the
procedure for doing so. Such holders should note, however, that most
holders who are entitled to claim payment of a portion of tax credits
pursuant to double taxation conventions are only able to obtain a
payment of less than 1 per cent of the dividends to which the tax
credits relate.
(b) Chargeable Gains
A disposal of Ordinary Shares or ADRs by a Shire Shareholder or ADR
holder who is either resident or, in the case of an individual,
ordinarily resident, for tax purposes in the UK, or who is not resident
in the UK, but carries on a trade, profession or vocation in the UK
through a branch or agency to which the Ordinary Shares or ADRs are
attributable, may give rise to a chargeable gain or allowable loss for
the purposes of UK tax on chargeable gains. Individuals who dispose of
Ordinary Shares or ADRs while they are temporarily non-resident may,
under special rules, be treated as disposing of them in the tax year in
which they again become resident or ordinarily resident in the UK.
(c) Stamp Duty and Stamp Duty Reserve Tax ("SDRT")
These comments are intended as a guide to the general position and do
not relate to persons such as market makers, brokers, or dealers, to
whom special rules apply.
(i)Ordinary Shares
A conveyance or transfer on sale of Ordinary Shares other than to
a depository or clearance service or their nominees or agents will
be liable to ad valorem stamp duty, generally at the rate of 0.5
per cent of the consideration for the transfer (rounded up to the
nearest (L)5). An unconditional agreement for such transfer will
be liable to SDRT, generally at the rate of 0.5 per cent of the
consideration for the transfer, but such liability will be
cancelled if the agreement is completed by a duly stamped transfer
within six years of the date of the agreement or, if the agreement
was conditional, the date the agreement became unconditional.
Where the stamp duty is paid, any SDRT paid will, provided that a
claim for repayment is made, be repaid. Stamp duty and SDRT are
normally paid by the purchaser.
146
Under the CREST system for paperless transfers, no stamp duty or
SDRT will arise on a transfer of Ordinary Shares into the system,
unless such a transfer is made for a consideration in money or
money's worth, in which case a liability to SDRT (usually at a
rate of 0.5 per cent) will arise. Paperless transfers of shares
within CREST will be liable to SDRT rather than stamp duty, also
at a rate of 0.5 per cent and SDRT on relevant transactions
settled within the system or reported through it for regulatory
purposes will be collected by CREST.
A charge to stamp duty or SDRT may arise on the issue or transfer
of Ordinary Shares to an issuer of depositary receipts, to its
nominee or agent or to particular persons providing a clearance
service, their nominees or their agents. The rate of stamp duty or
SDRT will generally be 1.5 per cent of either (a) in the case of
an issue of Ordinary Shares, the issue price of the Ordinary
Shares concerned, or (b) in the case of a transfer of Ordinary
Shares, the value of the consideration or, in some circumstances,
the value of the Ordinary Shares concerned, in the case of stamp
duty rounded up if necessary to the nearest multiple of (L)5.
(ii) ADRs
No SDRT will be payable on an agreement to transfer ADRs and,
provided that an instrument transferring ADRs is executed and
retained at all times outside the UK, it should not in practice be
necessary to pay stamp duty in respect of such transfer.
15. Miscellaneous
(a) The total expenses of, and incidental to, the Merger which are payable
by the Company (including SDRT, professional fees and printing costs)
are estimated to be approximately (L)55 million (excluding value added
tax).
(b) The average monthly number of people employed by Shire during 2000, 1999
and 1998 was as follows:
Years ending 31 December
2000 1999 1998
Manufacturing 154 50 52
Distribution 552 254 210
General and
administrative 119 63 57
Research and
development 143 112 98
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(c) The New Ordinary Shares will be issued fully paid in registered form.
None of the New Ordinary Shares has been marketed and none will be
available to the public. An application has been made to the UK Listing
Authority for the New Ordinary Shares to be admitted to the Official
List and to the London Stock Exchange for the New Ordinary Shares to be
admitted to trading on the London Stock Exchange.
(d) The Company's registrars are Lloyds TSB Registrars, The Causeway,
Worthing, West Sussex BN99 6DA, England.
(e) The Company has received financial advice from Deutsche Bank in relation
to the Merger. Deutsche Bank has given and has not withdrawn its written
consent to the issue of this document with the inclusion therein of the
references to its name in the form and context in which they appear.
(f) The registered auditors of the Company are Arthur Andersen, Chartered
Accountants, of Abbott House, Abbey Street, Reading, Berks. who have
audited accounts of the Company for the three years ended 31 December
2000.
(g) The independent certified public accountants for BioChem are Raymond
Chabot Grant Thornton who have audited the financial statements of
BioChem for the three years ended 31 December 2000.
(h) Arthur Andersen have given and not withdrawn their written consent to
the inclusion in Parts IV and VII of this document of their letters
relating to the accounting policies' reconciliation and pro forma
financial information, and the references thereto and to their name, in
the form and context in which they are included. They have also
authorised the contents of their letters referred to above for the
purposes of section 152(1)(e) of the Financial Services Act 1986.
147
(i) Each of the New Ordinary Shares is to be issued credited as fully paid.
Based on the average last reported sale price of ADSs on the NASDAQ
National Market for the 15 consecutive days ending on the third trading
day immediately preceding the Closing (the "Average Shire ADS Price")
being less than or equal to $47.20 and a maximum possible number of
BioChem Shares of 108,188,225 at the Effective Time (excluding any
BioChem Shares to be issued following the exercise of dissent rights as
referred to in Part I of this document), the aggregate consideration
represented by the number of Consideration Shares to be issued in the
Merger would be (L)3,346 million based on the Company share price of
(L)13.15 as at 27 February 2001 (being the latest practicable date prior
to the publication of this document). This would represent a premium of
1310p per Ordinary Share over the nominal value of 5p. Based on the
Average Shire ADS Price being equal to or greater than $70.80, the
aggregate consideration represented by the number of Consideration
Shares to be issued in the Merger would be (L)2,230 million based on the
Company share price of (L)13.15 as at 27 February 2001 (being the latest
practicable date prior to the publication of this document). This would
represent a premium of 1310p per Ordinary Share over the nominal value
of 5p.
16. Documents available for inspection
Copies of the following documents may be inspected at the offices of Slaughter
and May, 35 Basinghall Street, London EC2V 5DB and the Company's registered
office during normal business hours on any weekday (Saturdays, Sundays and
public holidays excepted) from the date of this document until the conclusion
of the Extraordinary General Meeting:
(i) the Memorandum and Articles of Association of the Company;
(ii) the audited consolidated accounts of the Group for the years ended
31 December 1999 and 31 December 2000;
(iii) the Merger Agreement and other material contracts referred to in
paragraph 10 above;
(iv) the service agreements referred to in paragraph 9(g) above;
(v) the rules of the Employee Share Schemes and the BioChem Stock
Option Plans referred to in paragraph 5 above;
(vi) the letters of consent referred to in paragraphs 15(e) and 15(h)
above;
(vii) the audited financial statements of BioChem for the years ended 31
December 1999 and 31 December 2000;
(viii)the unaudited pro forma statements of combined net assets under
US/UK GAAP referred to in Part VII;
(ix) the reconciliations of BioChem's figures to US/UK GAAP referred to
in Part IV; and
(x) this document.
1 March 2001
148
Definitions
In this document, the following expressions have the following meanings,
unless the context requires otherwise:
"1993 Plan" the Richwood 1993 Stock Option Plan
"1995 Plan" the Richwood 1995 Stock Option Plan
"2000 ESO Scheme" the Shire Pharmaceuticals Group plc 2000
Executive Share Option Scheme (parts A and B)
"Acquisition Proposal" any proposal or offer with respect to a
merger, reorganisation, share exchange,
consolidation, business combination,
recapitalisation, liquidation, dissolution,
or similar transaction involving BioChem or
Shire or any purchase or sale of the
consolidated assets of BioChem or Shire and
its subsidiaries, taken as a whole, having an
aggregate value of 50 per cent or more of the
market capitalisation of BioChem or Shire, or
any purchase or sale of, or tender or
exchange offer for, 50 per cent or more of
the equity securities of BioChem or Shire,
excluding the Arrangement
"Admission" admission of the New Ordinary Shares to the
Official List
"ADR" American Depository Receipt, the evidentiary
document for an underlying holding of one or
more ADS(s)
"Arrangement" the plan of arrangement, pursuant to section
192 of the CBCA, involving Shire, BioChem and
Exchangeco
"Average Shire ADS Price" has the meaning set out in paragraph 15(i) of
Part IX of this document
"BioChem" BioChem Pharma Inc.
"BioChem Optionholders" holders of BioChem Options
"BioChem Options" options to acquire BioChem Shares granted
under the BioChem Stock Option Plan
"BioChem Optionholders" collectively the holders of BioChem Options
and BioChem Warrants
"BioChem Securityholders" collectively the BioChem Shareholders and the
BioChem Optionholders
"BioChem Shareholders" holders of BioChem Shares
"BioChem Shares" the outstanding common shares in the capital
of BioChem
"BioChem Stock Option Plan" BioChem's Directors, Officers, Employees and
Consultants Stock Option Plan as amended on 1
March 1999
"BioChem Stock Option Plans" the Biochem Stock Option Plan, the BioChem
Warrants and a memorandum of undertaking
dated September 1997 pursuant to which
BioChem granted two senior employees of
BioChem options to acquire 40,000 BioChem
Shares
"BioChem Warrants" right to receive warrants in certain
circumstances in two tranches in 2001 and
2002 in favour of the Government of Canada
giving the right to acquire BioChem Shares
made pursuant to an agreement dated 31 March
2000
"Callco" 3829359 Canada Inc., a company incorporated
under the laws of Canada and a wholly-owned
subsidiary of Shire
"Canadian GAAP" generally accepted accounting principles in
Canada
"CBCA" Canada Business Corporations Act
149
"Chase H&Q" Chase H&Q, a division of Chase Securities
"Cliff Vesting" a provision in a performance based stock
option scheme that allows vesting of option
awards at a defined point in time even if the
performance target has not been achieved
"CliniChem" CliniChem Development Inc., a company
incorporated under the laws of Canada and a
wholly-owned subsidiary of BioChem
"Closing" the closing of the Arrangement, which will
take place on the first business day after
the satisfaction or waiver (subject to
applicable law) of the conditions set forth
in the Merger Agreement unless the Merger
Agreement has been terminated pursuant to its
terms or unless another time or date agreed
to in writing by the parties thereto; such
Closing is expected to occur on or about 30
March 2001
"Companies Act" or the "Act" the Companies Act 1985 (as amended)
"Deutsche Bank" Deutsche Bank AG, London
"Directors" or "Board" the directors of the Company, whose names are
set out in paragraph 2(a) of Part IX of this
document
"DLJ" DLJ Capital Funding, Inc.
"Effective Date" the date shown on the certificate of
arrangement issued by the director (appointed
from time to time under section 260, or any
successor section, of the CBCA) under the
CBCA giving effect to the Arrangement and
which is expected to be on or about 30 March
2001
"Effective Time" 12.01 a.m. (Montreal time) on the Effective
Date
"Employee Share Schemes" the Executive Scheme, the 1993 Plan, the 1995
Plan, the SHL Scheme, the SPC Scheme, the SLI
Plan, the Sharesave Scheme, the Stock
Purchase Plan, the Long Term Incentive Plan,
the ESO Scheme, Roberts' Incentive Stock
Option Plan, Roberts' 1996 Equity Incentive
Plan and Roberts' Restricted Stock Option
Plan
"Enlarged Group" the Shire Group as enlarged by the Merger
with BioChem
"Exchangeco Share Support
Agreement"
the Exchangeable Share Support Agreement
between Shire, Callco and Exchangeco to be
entered into on the date of the certificate
of arrangement issued under the CBCA giving
effect to the Arrangement
"Exchangeco Share Voting Event" means any matter in respect of which holders
of Shire Exchangeco Shares are entitled to
vote as shareholders of the Exchangeco, other
than an Exempt Exchangeco Share Voting Event,
and, for greater certainty, excluding any
matter in respect of which holders of Shire
Exchangeco Shares are entitled to vote (or
instruct the Trustee to vote) in their
capacity as Beneficiaries under (and as that
term is defined in) the Voting and Exchange
Trust Agreement
"Exchangeco" Shire Acquisition Inc., a company
incorporated under the laws of Canada and a
wholly-owned subsidiary of Shire
"Exchangeco Insolvency Event" (i) the institution by Exchangeco of any
proceeding to be adjudicated a bankrupt or
insolvent or to be wound up, or the consent
of Exchangeco to the institution of
bankruptcy, insolvency or winding-up
proceedings against it, or (ii) the filing of
a petition, answer or consent seeking the
dissolution or winding-up of Exchangeco under
any bankruptcy, insolvency or analogous laws,
including without limitation under the
Company's Creditors' Arrangement Act (Canada)
and the Bankruptcy and Insolvency Act
(Canada) and the failure by Exchangeco to
contest in
150
good faith any such proceedings commenced in
respect of Exchangeco within 30 days of
becoming aware thereof, or the consent by
Exchangeco to the filing of any such petition
or to the appointment of a receiver in
respect of Exchangeco, or (iii) the making by
Exchangeco of a general assignment for the
benefit of creditors, or the admission in
writing by Exchangeco of its inability to pay
its debts generally as they become due, or
(iv) Exchangeco not being permitted, pursuant
to solvency requirements of applicable law,
to redeem any Retracted Shares
"Executive Scheme" the Shire Pharmaceuticals Executive Share
Option Scheme (parts A and B)
means any matter in respect of which holders
of Shire Exchangeco Shares are entitled to
"Exempt Exchangeco Share vote as shareholders of Exchangeco, in order
Voting Event" to approve or disapprove, as applicable, any
change to, or in the rights of the holders
of, the Shire Exchangeco Shares, where the
approval or disapproval, as applicable, of
such change would be required to maintain the
equivalence of the Shire Exchangeco Shares
and Ordinary Shares
"Extraordinary General Meeting" orthe extraordinary general meeting to approve,
"EGM" inter alia, the Merger, notice of which is
given at the end of this document
"GlaxoSmithKline" GlaxoSmithKline plc, a company incorporated
in England
"Group" Shire and its subsidiary undertakings
"HPB" Health Protection Branch of the Canadian
Ministry of Health
"HSR Act" the United States Hart-Scott-Rodino Act
Antitrust Improvements Act of 1976, as now in
effect and as it may be amended from time to
time prior to the Effective Date
"Interim Order" means the interim order of the Superior Court
of Quebec in respect of the Arrangement dated
20 February 2001
"IPC" The Investment Performance Council
"London Stock Exchange" or "LSE" the London Stock Exchange plc
"Long Term Incentive Plan" the Shire Pharmaceuticals Group plc Long Term
Incentive Plan
"Material Adverse Effect" with respect to any entity, any event,
change, circumstance or effect that is or is
reasonably likely to be materially adverse to
(i) the business, financial condition,
results of operations or prospects of such
entity and its subsidiaries taken as a whole,
other than any event, change, circumstance or
effect relating to (a) the economy or
financial markets in general, (b) the
industries in which such entity operates in
general and not specifically relating to (or
having the effect of specifically relating to
or having a materially disproportionate
effect (relative to most other industry
participants) on) such entity, (c) the
announcement or pendency of the Arrangement,
(d) changes after the date hereof in laws or
regulations relating to the development,
manufacture or distribution of products for
the treatment of disease or (e) a change in
the market price or trading volume of the
shares of such entity (provided that a change
in the market price or trading price may be
used, if applicable, as evidence of some
other event, change, circumstance or effect
that has or is reasonably likely to have a
Material Adverse Effect) or (ii) the ability
of such entity to consummate the transactions
contemplated by the Merger Agreement; all
references to Material Adverse Effect on
Shire being deemed to refer solely to Shire
and its subsidiaries without including its
ownership of BioChem and its subsidiaries
after the Arrangement
151
"Merger" the proposed merger of Shire with BioChem
pursuant to the terms of the Merger Agreement
and the Arrangement
"Merger Agreement" the merger agreement dated as of 10 December
2000 among BioChem, Shire and Exchangeco, a
summary of which is contained in Part VIII of
this document, as restated and amended on 21
February 2001
"Merrill Lynch" Merrill Lynch & Co. Inc. in its capacity as
adviser to BioChem and Merrill Lynch
International in its capacity as broker to
Shire, as the context requires
"New Ordinary Shares" up to 260,621,527 new Ordinary Shares to be
issued pursuant to the Arrangement
"Official List" the Official List of the UK Listing Authority
"Option Agreement" the stock option agreement entered into by
the Company and BioChem dated 10 December
2000, a summary of which is contained in Part
VIII of this document
"Ordinary Shares" ordinary shares of 5p each in the capital of
the Company
"Proposed Directors" the proposed directors of the Company, being
those persons other than the Directors whose
names are set out in paragraph 2(a) of Part
IX of this document
"Retracted Shares" the Shire Exchangeco Shares in respect of
which a holder thereof has exercised the
right under the Arrangement to require
Exchangeco to redeem such Shire Exchangeco
Shares
"Roberts" Roberts Pharmaceutical Corporation, a wholly-
owned subsidiary of Shire
"Roberts Stock Option Plans" Roberts' Incentive Stock Option Plan,
Roberts' 1996 Equity Incentive Plan and
Roberts' Restricted Stock Option Plan
"SEC" the Securities and Exchange Commission of the
United States
"Sharesave Scheme" the Shire Pharmaceuticals Sharesave Scheme
"Shire" or "Company" Shire Pharmaceuticals Group plc, a company
incorporated in England
"Shire ADSs" or "ADSs" American Depository Shares, each representing
three Ordinary Shares
"Shire Board" or "Board" the Directors whose names are set out in
paragraph 2(a) of Part IX of this document,
including the Proposed Directors
"Shire Consideration Shares"
or "Consideration Shares"
the New Ordinary Shares, new ADSs and new
Shire Exchangeco Shares to be issued pursuant
to the Merger Agreement and the Arrangement
"Shire Exchangeco Shares" the exchangeable shares to be created in the
capital of Exchangeco, exchangeable for New
Ordinary Shares or new ADSs in accordance
with the rights attaching to such
exchangeable shares
"Shire Group" or "Group" Shire and its subsidiaries and subsidiary
undertakings
"Shire Laboratories" or "SLI" Shire Laboratories Inc., a wholly-owned
subsidiary of the Company
"Shire Liquidation Event" (i) any determination by the Board to
institute voluntary liquidation, dissolution
or winding-up proceedings with respect to
Shire or to effect any other distribution of
assets of Shire among its shareholders for
the purpose of winding-up its affairs, or
(ii) receipt by Shire of notice of, or (iii)
Shire otherwise becoming aware of, any
instituted claim, suit, petition or other
proceedings with respect to the involuntary
liquidation, dissolution or winding-up of
Shire or to effect any other distribution of
152
assets of Shire amongst shareholders for the
purpose of winding-up its affairs, in each
case where Shire has failed to contest in
good faith any such proceeding commenced in
respect of Shire within 30 days of becoming
aware thereof
"Shire Shareholders" the holders of Ordinary Shares
"SHL" Shire Holdings Limited, a wholly-owned
subsidiary of the Company
"SHL Scheme" the Shire Holdings Limited Share Option
Scheme
"SLI Plan" the Pharmavene 1991 Stock Option Plan (as
amended)
"SPC Scheme" the Imperial Pharmaceutical Services Limited
Employee Share Option Scheme (Number One)
"SPC" Shire Pharmaceutical Contracts Limited, a
wholly-owned subsidiary of the Company
"SPD" Shire Pharmaceutical Development Limited, a
wholly-owned subsidiary of the Company
"Special Voting Shares" the special voting shares in the capital of
the Company to be issued, credited as fully
paid, pursuant to the Merger and Arrangement,
as more fully described in Part VIII of this
document and in the notice of the
Extraordinary General Meeting set out at the
end of this document
"SPL" Shire Pharmaceuticals Limited, a wholly owned
subsidiary of the Company
"SRI Plan" the 1993 Plan and the 1995 Plan
"SRI" Shire Richwood Inc., a wholly-owned
subsidiary of the Company
"Stock Purchase Plan" the Shire Pharmaceuticals Group plc Employee
Stock Purchase Plan
"UK GAAP" generally accepted accounting principles in
the United Kingdom
"UK Listing Authority" the Financial Services Authority acting in
its capacity as the competent authority for
the purposes of Part IV of the Financial
Services Act 1986 and in the exercise of its
function in respect of the admission to the
Official List otherwise than in accordance
with Part IV of the Financial Services Act
1986
"United Kingdom" or "UK" means the United Kingdom of Great Britain and
Northern Ireland
"United States" or "US" the United States of America and its
territories and possessions and all other
areas subject to its jurisdiction
"US GAAP" generally accepted accounting principles in
the United States
"USPTO" the United States Patent and Trademark Office
"US Securities Act" the US Securities Act of 1933, as amended
"WestLB Panmure" WestLB Panmure Limited
153
Exchange Rates
Unless otherwise stated, values throughout this document have been translated
from Canadian dollars to US dollars (for illustration purposes only) using an
exchange rate of US$1: CAN$1.47 and from US dollars to UK sterling (for
illustrative purposes only) using an exchange rate of (L)1: US$1.44.
Where translations are stated with reference to a specific date, the exchange
rates used are those prevailing on those dates.
Unless stated otherwise, "US$" or "$" refers to the currency of the United
States of America, "CAN$" refers to the currency of Canada and "(L)" refers to
the currency of the United Kingdom.
154
Glossary
Product, compound or Description and/or use
technical term
Acute Myelogenous Leukemia (AML) Progressive malignant disease of the non-
lymphocyte groups of white blood cells.
ADHD Attention Deficit Hyperactivity Disorder, a
CNS disorder characterised by inattention,
implusivity and hyperactivity. It is
primarily diagnosed in children.
m opioid receptor a particular type of receptor. Each type of
receptor reacts to different opioids in a
different way.
Adjuvant A substance that, when added to a medicine,
speeds or improves its action.
Agonist A drug that has affinity for and stimulates
activity at cell receptors.
Alzheimer's disease A condition first described by the German
physician, Alois Alzheimer. The term Senile
Dementia of the Alzheimer Types (SDAT) is
used to cover dementias related to specific
degenerative changes in the brain described
by Alzheimer.
Symptoms include loss of memory (especially
for recent events), confusion and
disorientation in terms of time and place,
impaired concentration, restlessness and
anxiety. It is a relentlessly progressive
disease leading eventually to coma and death,
usually from urinary or respiratory
infection.
In Alzheimer's disease the areas of the brain
in which acetylcholine is the
neurotransmitter are most affected.
ALT Alanine aminotransferase. An enzyme that
catalyses the transfer of nitrogen for
excretion.
Analgesic A medicine which relieves pain.
Antiemetic A medicine that alleviates nausea and
vomiting.
Antigen Any substance which causes an immune system
response.
Anti-infective Designed to combat infectious diseases caused
by micro organisms such as bacteria, viruses
and fungi.
Antiretroviral Designed to combat the development of HIV/
AIDS after exposure to the virus.
Antiviral Stimulates cellular defences against viruses
AZT An antibiotic used to treat infection by HIV.
Bacteremia The presence of viable bacteria circulating
in the bloodstream.
Bioavailability The degree to which a drug or other substance
becomes available to the target tissue after
administration.
Bi-polar disease A manic depressive disorder.
Carbatrol Shire's patented formulation of the compound
carbamazepine, for the treatment of epilepsy
and trigeminal neuralgia.
Carcinoma A tumour that develops from internal and
external surface cells, such as the inside of
the cheek or the lining of the intestine.
155
Central Nervous System Disorders
("CNS") Disorders of the brain and spinal cord.
Cirrhosis A liver disease leading to fibrosis and
inflammation.
Cisplatin A chemical that prevents the development of
abnormal tissue growth and may enhance immune
responses.
Clinical isolate A pure culture of a micro-organism.
CML-BP Chronic Myelogenous Leukemia in blastic phase
- the later stage of a slowly progressing
myeloid leukemia.
Conjugate vaccine A combination of two or more vaccines in a
single vaccine.
CPMP The Committee on Proprietary Medicinal
Products.
Cytology The study of cells.
Cytotoxicity A toxic or poisonous effect on cells.
Diagnostics The identification of distinctive symptoms or
characteristics of a disease.
Dioxolane nucleoside A particular form of nucleoside using the
organic chemistry compound dioxolane.
EMEA European Agency for the evaluation of
healthcare products.
Epilepsy An episodic disturbance of consciousness
during which generalised convulsions may
occur.
FDA US Food and Drug Administration.
Fibrosis The creation of dense, firm scar tissue in
response to previous tissue damage or
disease.
Galantamine One of Shire's drug candidates; a
cholinesterase inhibitor for Alzheimer's
disease which has been for marketing in a
number of countries under the proprietary
name Reminyl.
Gastroenterology The diagnosis and treatment of diseases and
disorders affecting the stomach, intestines
and associated organs.
Generic drug A non-branded prescription medicine.
Haematology/Haematologic The branch of physiology which relates to
blood.
Hepatitis B A disease which results from the hepatitis B
virus infection and which attacks the liver
often causing cirrhosis of the liver.
Heptavalent A chemistry term for a substance having seven
units of attractive force or affinity.
Histology The science of organic tissues; that brand of
anatomy or of biology which is concerned with
the minute structure of the tissues of living
species. In the context of liver histology it
refers to the tissue structure of the liver.
HIV/AIDS Human Immune deficiency Virus/Acquired Immune
Deficiency Syndrome. A virus which attacks
the immune system leaving the patient
vulnerable to other diseases and infections
(e.g. pneumonia).
HPB Canadian Health Protection Branch.
Hypernephroma A common form of kidney cancer.
156
Hyperphosphataemia An excess of phosphates in the blood.
Hypotension Blood pressure below the expected normal
range.
IND Investigational New Drug. An IND application
is submitted to the FDA to request permission
to conduct studies in humans.
Indication A disease or system target for a drug.
Inflammatory bowel disease Ulcerative colitis and Crohn's disease.
In vitro In vitro means, literally, "in glass"; a
biological or biochemical process occurring
outside a living organism.
Immunogenicity Describes the quality of a substance which is
able to provoke an immune response against
the substance. A measure of how able the
substance is at provoking an immune response
against it.
Immunostimulant Any drug or chemical which increases the
body's immune response to antigens.
Immunotherapeutic A form of therapy that treats disease by
stimulating the body's own immune system.
Irritable Bowel Syndrome A digestive disorder causing change or
disruption of the normal bowel habit.
Ischaemic stroke Damage caused by interruption of the blood
supply to the brain.
Lead optimisation The process by which the main active compound
in a drug is developed or enhanced to meet
the required criteria for development.
Leukemia A cancer-like disease of the white blood
cells.
Log unit A unit on a logarithmic scale.
Marketing authorisation A grant of licence by a governmental
regulatory authority giving permission to
market a pharmaceutical product.
Melanoma A type of skin cancer that develops from the
cells in the skin which produce melanin (skin
pigment).
Meningococcal Pertaining to a particular genus of bacteria
that are a common cause of meningitis.
Metabolic diseases Disorders in which the body's ability to
process certain chemical reactions is
disturbed.
Metabolism (drug) The modification of a substance in the body,
often by the liver.
Mitochondrial toxicity A toxic or poisonous effect on the part of a
cell responsible for respiration (the
production of energy).
Mucosal immunity An immunity in the mucous membrane.
Mucositis Inflammation of a mucous membrane. Oral
mucositis is a common complication of
chemotherapy and radiation therapy.
Mutant virus A virus which differs from the wild-type
virus.
Myelosuppression Depression of the bone marrow functions (such
as the formation of red blood cells and
platelets), usually as a complication of drug
therapy.
Myelotoxicity Toxicity or destruction of the bone marrow.
157
NDA New Drug Application. The application
submitted to and reviewed by the FDA showing
the data on the quality, safety and efficacy
of a chemical entity. Approval of a NDA
allows marketing of the product.
Neuralgia Neuralgia is the sudden and recurrent attacks
of pain, of short duration, in the
distribution of the nerve fibres.
Neuropathy Disease of the nervous system.
NNRTI Non-Nucleoside Analogue Reverse Transcriptase
Inhibitors.
NRTI Nucleoside Analogue Reverse Transcriptase
Inhibitors. A synthetic molecule that
suppresses the ability of a retrovirus to
make DNA from viral RNA.
Nucleoside A molecule in which a purine or pyrimidine
base is bound to a pentose sugar.
Nucleoside analogue A synthetic molecule that resembles a
naturally occurring nucleoside, but that
lacks a bond site needed to link it to an
adjacent nucleotide.
Oncology The branch of medical science relating to
tumours.
Opioid Opioids are a group of drug that have
molecular structures close to those drugs
derived from opium. As such they have many
similar properties, e.g. they provide
analgesia (pain relief) and cause respiratory
depression as one of their side effects.
Opioids include morphine and codeine.
Opioid receptor agonist A compound that elicits a response from an
opioid receptor.
Orthostatic hypotension A drop in blood pressure precipitated by
changes in body position (e.g. rising from a
bed).
Osteoarthritis Non-inflammatory degenerative joint disease
occurring chiefly in older persons. It is
accompanied by pain and stiffness,
particularly after prolonged activity.
Osteoporosis A disease in which calcium and protein are
progressively lost from bones until they
become brittle and liable to fracture.
Otitis media Infection and inflammation of the middle ear
and ear drum.
Paclitaxel A drug used as a chemotherapy agent.
Parkinson's disease A progressive neurological disease leading to
movement difficulties and eventually
dementia.
Peptide A compound of two or more amino acids with
particular bonding characteristics.
Pharmacokinetics This is the science which describes
quantitatively the uptake of drugs by the
body, their biotransformation, their
distribution, metabolism, and elimination
from the body.
Pharmacological The branch of medical science relating to
studies of drugs and their uses in animals or
humans.
Phase I Clinical trials normally conducted in healthy
human volunteers following pre-clinical
trials.
Phase II Clinical trials to assess short term safety
and preliminary efficacy in a limited number
of patients with the relevant disease.
158
Phase III Clinical trials to undertake a comprehensive
evaluation of safety and efficacy in patients
with the relevant disease.
Phase IV Clinical trials performed after marketing
authorisation designed to monitor drug use in
the clinical setting.
Phenotype The physical appearance/observable
characteristics of an organism.
Pili Thread-like structures present on some
bacteria used to adhere bodies to one another
or to animal cells.
Placebo An inactive agent used in clinical studies as
a control with which to compare a presumed
active compound.
Platelet A type of blood involved in clotting.
Polymerase An enzyme which acts as a catalyst for
replication.
Pneumococcal Pertaining to a particular genus of bacteria
that are a common cause of pneumonia.
Pre-clinical trials phase Studies of compounds undertaken in the
laboratory, in isolated tissues or in living
animals.
Product licence The marketing authorisation for a drug from a
governmental regulatory authority.
Prostatic/Prostate cancer Cancer of the prostate gland.
Protease inhibitors A protease is an enzyme that catalyses the
break down of proteins. Protease inhibitors
suppress this effect. They are used in this
context to prevent HIV protease from working
thereby preventing the production of new
infectious viral articles.
Receptor Either a nerve-ending or, the site in a cell
that combines with a chemical to alter cell
functions.
Recombinant A cell or an individual with a new
combination of genes not found together in
either parent.
Refractory acute A disease of short, severe duration that does
not respond to treatment.
Registration The legal process by which a drug is approved
by governmental agencies for marketing in a
given country or group of countries.
Reverse cirrhosis The opposite of cirrhosis namely the
contraction or shrinking of an organ (usually
refers to the liver).
Reverse transcriptase inhibitors A drug that suppresses the enzyme which can
synthesise DNA on an RNA template (the
process of reverse transcription).
Septicemia Blood poisoning.
Seroconversion rates The rate of development of antibodies in
response to infection or immunisation.
Serotype A grouping of micro-organisms into a type
based on serological criteria, namely the
antigens they contain.
Solid Tumour A cancer that originates in organ or tissue
other than bone marrow or the lymph system.
Stroke The term denoting the sudden development of
focal neurological defects usually related to
impaired cerebral blood flow.
159
Systemic immunity An immunity not confined to a particular
organ or part of the body.
Thrombocythemia A condition of overproduction of blood
platelet cells without a recognisable cause
often leading to the formation of dangerous
blood clots or haemorrhaging.
Thrombolytic agent A drug used to dissolve blood clots.
Transcriptase inhibitors A drug which suppresses the first step in
gene expression.
Ulcerative colitis An inflamation of the colon and the rectum.
WHO World Health Organisation
Wild-type virus The naturally-occurring, normal, non-mutated
version of a virus.
YMDD A variant (mutation) of the Hepatitis B
virus.
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Shire Pharmaceuticals Group plc
(Registered in England and Wales with registered number 2883758)
Notice of Extraordinary General Meeting
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Shire
Pharmaceuticals Group plc (the "Company") will be held at 35 New Broad Street,
London EC2M 1SQ, England on 29 March 2001 at 3.00pm for the purposes of
considering and, if thought fit, passing the following resolutions, of which
the resolution numbered 1 will be proposed as an ordinary resolution and the
resolution numbered 2 as a special resolution:
ORDINARY RESOLUTION
THAT:
(a) the authorised share capital of the Company be increased from
(L)20,000,000 to (L)40,000,000 by the creation of 400,000,000 new
ordinary shares of 5p each forming a single class with the existing
ordinary shares of 5p each in the capital of the Company;
(b) the proposed acquisition by the Company of BioChem Pharma Inc.
("BioChem"), on the terms and subject to the conditions of the Merger
Agreement (as defined in the Company's circular to shareholders dated
1 March 2001 (the "Circular"), a copy of which, initialled by the
Chairman of the meeting for the purposes of identification, has been
produced to the meeting), including the conversion of options and rights
held by BioChem option holders and right holders, respectively, over
BioChem shares into options and rights, respectively, over ordinary
shares of the Company, be and is hereby approved and the Directors of
the Company (or any duly authorised Committee thereof) be and are hereby
authorised to take all necessary or appropriate steps to complete the
same and give effect thereto with such modifications, variations,
revisions, waivers or amendments (not being modifications, variations,
revisions, waivers or amendments which are in the opinion of the
Directors or any such Committee, of a material nature) as the Directors
or any such Committee may deem necessary, expedient or appropriate;
(c) in addition and without prejudice to all existing authorities, the
Directors of the Company be generally and unconditionally authorised for
the purposes of section 80 of the Companies Act 1985 to exercise all the
powers of the Company to issue and allot relevant securities (within the
meaning of that section) up to an aggregate nominal amount of
(L)17,221,000 for a period expiring (unless previously renewed, varied
or revoked by the Company in general meeting) 15 months after the date
of the passing of this resolution or at the conclusion of the Annual
General Meeting of the Company following the passing of this resolution,
whichever is earlier, save that the Company may before such expiry make
an offer or agreement which would or might require relevant securities
to be allotted after such expiry and the Directors of the Company may
allot relevant securities in pursuance of such an offer or agreement as
if the authority conferred hereby had not expired;
(d) such existing authorised but unissued ordinary shares of 5p each in the
capital of the Company be and are hereby divided into shares of a
nominal value of 0.00001p each (such shares being designated the
"Special Voting Shares") as will give rise to such number of Special
Voting Shares as will be equal to the number of issued and outstanding
Shire Exchangeco Shares (as defined in the Circular) immediately after
the Closing (as defined in the Circular); and
(e) the rights and restrictions attaching to the Special Voting Shares shall
be as set out below:
(A) Income
the holder of the Special Voting Shares shall not be entitled to any
dividends or distributions in respect of such shares;
(B) Capital
the holder of the Special Voting Shares shall be entitled to receive out
of any winding up of the Company an amount equal only to the higher of
1p and the aggregate nominal amount of such shares and only after
holders of ordinary shares of 5p each in the capital of the Company have
received an amount equal to the nominal amount of such shares held by
them;
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(C) Transfer
the Directors of the Company shall decline to register any transfer of
any of the Special Voting Shares unless the transfer is to a company
which replaces the Trustee (as defined in the Circular) pursuant to the
terms of the Voting and Exchange Trust Agreement (as defined in the
Circular);
(D) Voting Rights
(i) the holder of the Special Voting Shares shall be entitled to
receive notice of and to attend and vote at any general meeting of
the Company as follows:
(a) on a show of hands, the holder of the Special Voting Shares
shall have one vote in addition to the votes which may be
cast by a holder of Shire Exchangeco Shares (other than the
Company or any of its subsidiaries, subsidiary undertakings
or associated undertakings) (a "Beneficiary") (or its
nominee) on such show of hands as proxy for the holder of
the Special Voting Shares; and
(b) on a poll the holder of the Special Voting Shares shall have
three votes for every Shire Exchangeco Share then
outstanding (A) that is owned by Beneficiaries and (B) as to
which the holder of the Special Voting Shares has received
valid voting instructions from the holders of the Shire
Exchangeco Shares for the purposes of the Voting and
Exchange Trust Agreement;
(ii) the holder of the Special Voting Shares shall on a poll be
entitled to cast the votes attaching to such shares on any
resolution for or against such resolution (such that some of such
votes may be cast for, some of such votes may be cast against, and
some of such votes may not be cast at all on, such resolution) in
such proportions as it may determine;
(iii) if so instructed by a Beneficiary, the holder of the Special
Voting Shares shall be entitled to appoint that Beneficiary, or
such other person as that Beneficiary nominates, as proxy to
attend and to exercise personally in place of the holder of the
Special Voting Shares that number of votes equal to three times
the number of Shire Exchangeco Shares held by the Beneficiary (the
"Beneficiary Votes"). A proxy need not be a member of the Company.
A Beneficiary (or his nominee) exercising its Beneficiary Votes
shall have the same rights as the holder of the Special Voting
Shares to speak at the meeting in favour of any matter and to vote
on a show of hands or on a poll in respect of any matter proposed;
(iv) the holder of the Special Voting Shares shall be entitled to
demand a poll at any general meeting of the Company; and
(v) a proxy received from the holder of the Special Voting Shares will
be valid for the purposes of any poll at any general meeting of
the Company if it is received before the closing of the poll to
which it relates; and
(E) Class Rights
any amendment to, or removal of, or alteration of the effect of (which
for the avoidance of doubt shall be taken to include the ratification of
any breach of) all or any of the articles of association of the Company
as in force at the date of this resolution which shall be a variation of
the rights of the Special Voting Shares shall only be effective with the
consent in writing of the holder of the Special Voting Shares and
without such consent shall not be done, or caused or permitted to be
done, and the holder of the Special Voting Shares shall withhold such
consent save as directed by the Directors of the Company.
162
SPECIAL RESOLUTION
THAT:
in substitution for all existing authorities save for, and without prejudice
to, resolution 17 passed at the annual general meeting of the Company held on
7 July 2000, the Directors of the Company be and they are hereby empowered
pursuant to section 95 of the Companies Act 1985 to allot equity securities
(within the meaning of section 94(2) of the Companies Act 1985) of the Company
pursuant to the authority conferred by the passing of resolution 16 passed on
7 July 2000 as if section 89(1) of the Companies Act 1985 did not apply to
such allotment provided that this power:
(A) shall expire five years after the date of the passing of this
resolution, save that the Company may make an offer or agreement
which would or might require equity securities to be allotted
after such expiry and the Directors of the Company may allot
equity securities pursuant to any such offer or agreement as if
the power conferred hereby had not expired; and
(B) shall be limited to:
(i) allotment of equity securities where such securities have
been offered (whether by way of a rights issue, open offer
or other pre-emptive offer) to holders of ordinary shares in
proportion (as nearly as may be) to their existing holdings
of ordinary shares but subject to the Directors of the
Company having a right to make such exclusions or other
arrangements in connection with such offering as they may
deem necessary or expedient:
(a) to deal with equity securities representing fractional
entitlements;
(b) to deal with ordinary shares represented by depositary
receipts; and
(c) to deal with legal or practical problems under the
laws of, or the requirements of any recognised
regulatory body or any stock exchange in, any
territory; and
(ii) allotments of equity securities for cash otherwise than
pursuant to paragraph (a) up to an aggregate nominal amount
of (L)1,279,868.
Dated: 1 March 2001
Registered office By Order of the Board
East Anton N C Harris
Andover
Hampshire Secretary
SP10 5RG
United Kingdom
Notes:
(1) A member of the Company entitled to attend and vote at the above
Extraordinary General Meeting may appoint one or more proxies to attend
and, on a poll, to vote instead of him/her. A proxy need not be a member
of the Company.
(2) Pursuant to Regulation 34 of the Uncertificated Securities Regulations
1995, the time by which a person must be entered on the register of
members of the Company in order to have the right to attend or vote at the
Extraordinary General Meeting is 6.00pm on 27 March 2001. If the
Extraordinary General Meeting is adjourned, the time by which a person
must be entered on the register of members of the Company in order to have
the right to attend or vote at the adjourned meeting is 6.00pm on the day
prior to the day preceding the date fixed for the adjourned meeting.
Changes to entries on the register of members of the Company after 6.00pm
on 27 March 2001 will be disregarded in determining the rights of any
person to attend or vote at the meeting.
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