Offer for Innovata

17th Nov 2006 07:02

Vectura Group PLC17 November 2006 17 November 2006 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTOTHE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR ANY OTHER JURISDICTION WHERE TODO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION Vectura Group plc ("Vectura") and Innovata plc ("Innovata") Recommended offer for Innovata by Vectura The Boards of Vectura and Innovata today announce that they have reachedagreement on the terms of a recommended all share offer by Vectura for the wholeof the issued and to be issued share capital of Innovata. The combination of the two companies will create an Enlarged Group with aportfolio of revenues from marketed products, a strong development pipeline anda range of formulation, device and delivery technologies for drugs inhaled asdry powders. With its combined expertise, facilities and cash resources, theBoards of Vectura and Innovata believe that the Enlarged Group will be a UKleader in pulmonary product development, a fast growing area of thepharmaceutical industry. The Enlarged Group will: • have revenues generated from eight marketed products; • benefit from two complementary development pipelines; • be able to offer a range of device and formulation technologiesaddressing a large and fast growing market sector; • be financially strong (combined pro forma cash of £92m at 30September 2006); and • be expected to benefit from an enhanced market presence andincreased market capitalisation. It is proposed that the Acquisition be implemented by way of a Court approvedscheme of arrangement under Section 425 of the Companies Act. • Under the terms of the Proposal, Innovata Shareholders willreceive 0.2858 new Vectura Shares for every Innovata Share. • On the Scheme becoming effective, Innovata Shareholders will own46 per cent., and Vectura Shareholders will own 54 per cent. respectively of theenlarged share capital of Vectura, assuming no further issue of Innovata Sharesor Vectura Shares prior to the date on which the Scheme becomes effective. • On the basis of a share price of 91 pence for each VecturaShare, being the average Closing Price of a Vectura Share for the 15 DealingDays up to and including 16 November 2006, the last Dealing Day prior to thisannouncement, the Proposal values the entire issued share capital of Innovata(assuming no exercise of existing Innovata Options) at approximately £130.9million and each Innovata Share at 26 pence. On this basis, the Proposalrepresents a premium of 13.0 per cent. to the Closing Price of an Innovata Shareof 23 pence on 16 November 2006. • On the basis of share price of 89.5 pence for each VecturaShare, being the Closing Price of a Vectura Share on 16 November 2006, the lastDealing Day prior to this announcement, the Proposal values the entire issuedshare capital of Innovata (assuming no exercise of existing Innovata Options) atapproximately £128.8 million and each Innovata Share at 25.6 pence. On thisbasis, the Proposal represents a premium of 11.2 per cent. to the Closing Priceof an Innovata Share of 23 pence on 16 November 2006. • Upon the Scheme becoming effective, it is proposed that Dr SusanFoden, an existing non-executive director of Innovata, will be appointed to theVectura Board as a non-executive director. • The Acquisition will be conditional on, inter alia, the approvalof Vectura Shareholders, the approval of Innovata Shareholders, the sanction ofthe Court and the London Stock Exchange agreeing to admit the existing and newVectura Shares to AIM, subject only to the Scheme becoming effective. • Vectura has received irrevocable undertakings to vote in favourof the resolutions to be put to the Innovata Court Meeting and the InnovataExtraordinary General Meeting from the Innovata Directors in respect of theirentire legal and beneficial holdings of Innovata Shares amounting, in aggregate,to 61,759,132 Innovata Shares, representing approximately 12.3 per cent. ofInnovata's existing issued share capital. These undertakings will continue to bebinding even in the event of a higher competing offer for Innovata beingannounced, and cannot be withdrawn other than in the event of the Scheme lapsingor being withdrawn. • In addition, Vectura has received letters of intent to vote infavour of the resolutions to be put to the Court Meeting and the InnovataExtraordinary General Meeting from Morley Fund Management in respect of75,831,665 Innovata Shares and from Cazenove Capital Management in respect of17,602,683 Innovata Shares (representing, in aggregate, approximately 18.6 percent. of Innovata's existing issued share capital). • In aggregate, Vectura has received irrevocable undertaking andletters of intent to vote in favour of the Proposal at the Innovata CourtMeeting and the Innovata Extraordinary General Meeting in respect of 155,193,480Innovata Shares (representing approximately 30.9 per cent. of Innovata'sexisting issued share capital). • Irrevocable undertakings to vote in favour of the Acquisition atthe Vectura Shareholder Meeting have been received from the Vectura Directors inrespect of their entire holding of Vectura Shares amounting to, in aggregate650,332 Vectura Shares, representing approximately 0.39 per cent. of theexisting issued share capital of Vectura. Irrevocable undertakings to vote infavour of the Acquisition at the Vectura Shareholder Meeting have also beenreceived from Baronsmead VCT plc, Baronsmead VCT2 plc, Baronsmead VCT3 plc,Baronsmead VCT4 plc, ISIS II 2001 L.P. and ISIS II 2001 GMBH & Co. KG in respectof, in aggregate, 5,802,090 Vectura Shares, representing approximately 3.4 percent. of the existing issued share capital of Vectura. • In addition, Vectura has received letters of intent to vote infavour of the Acquisition at the Vectura Shareholder Meeting from BluecrestCapital International Ltd, Bluecrest Equity Master Fund Ltd, Man Mac Rothorn 6ALtd and Bluecrest Strategic Ltd in respect of, in aggregate, 16,820,589 VecturaShares and from AXA Framlington Investment Management Limited in respect of7,861,275 Vectura Shares (representing, in aggregate, approximately 14.6 percent. of Innovata's existing issued share capital). • In aggregate, Vectura has received irrevocable undertaking andletters of intent to vote in favour of the Proposal at the Vectura ShareholderMeeting in respect of 31,134,286 Vectura Shares (representing approximately 18.4per cent. of Vectura's existing issued share capital). • The Boards of both Vectura and Innovata intend unanimously torecommend the Acquisition to their respective shareholders. • The Acquisition is expected to be completed by 16 January 2007. Jack Cashman, Chairman of Vectura, commented: "We believe that Innovata and Vectura represent an excellent strategic fit. Thecombination of the two businesses will create an Enlarged Group with a portfolioof licensed and marketed products, a broader and well balanced pipeline of midto late stage products in clinical development, and the cash resources toprogress development of our lead candidates. We believe that the Enlarged Groupwill have all the constituents in place to become a UK leader in pulmonaryproduct development. It is the intention of the Vectura Directors for theEnlarged Group to move from AIM to the Official List during 2007 and we believethis should provide further liquidity and a higher profile with investors." Ian Kent, Chairman of Innovata, added: "The Innovata Directors believe size is important for companies in thebiotechnology sector and the combination of Vectura and Innovata will result ina leading pulmonary development company with the skills and resources toleverage a pipeline of considerable potential, as well as a broader range offormulation, device and drug delivery capabilities. We believe thatshareholders in both companies will benefit from the enhanced strength andreputation of the Enlarged Group." This summary should be read in conjunction with the full text of theannouncement. Enquiries: Vectura Group plc Tel: 01249 667 700Chris Blackwell, Chief ExecutiveAnne Hyland, Chief Financial Officer Innovata plc Tel: 01159 747 474Kieran Murphy, Chief ExecutivePeter Shennan, Chief Financial Officer Piper Jaffray Ltd (Nominated Adviser and broker to Vectura) Tel: 020 7743 8700David RasoulyWill Carnwath Nomura Code Securities Ltd (Financial Adviser and broker to Innovata) Tel: 020 7776 1200Juliet ThompsonRichard Potts Financial Dynamics Tel: 020 7269 7156David YatesAnna Keeble Appendix I contains the conditions to the Acquisition and implementation of theScheme. Appendix II contains details of the bases and sources of the financialinformation set out in this announcement. Appendix III contains the definitions of terms used in this announcement. Piper Jaffray, which is authorised and regulated in the UK by the FinancialServices Authority, is acting as Nominated Adviser and broker to Vectura inconnection with the Proposal and no-one else and will not be responsible toanyone other than Vectura for providing the protections afforded to clients ofPiper Jaffray nor for providing advice in relation to the Proposal nor any othermatter referred to in this announcement. Nomura Code, which is authorised and regulated in the UK by the FinancialServices Authority, is acting as Financial Adviser and broker to Innovata inconnection with the Proposal and no-one else and will not be responsible toanyone other than Innovata for providing the protections afforded to clients ofNomura Code nor for providing advice in relation to the Proposal nor any othermatter referred to in this announcement. This announcement does not constitute an offer or invitation to acquire orexchange securities in Vectura or Innovata. Innovata Shareholders are advised toread carefully the formal documentation in relation to the Proposal, once it isdispatched. The implications of the Scheme for Overseas Innovata Shareholders may beaffected by the laws of the relevant jurisdictions. Such Overseas InnovataShareholders should inform themselves about and observe any applicable legalrequirements. It is the responsibility of each Overseas Innovata Shareholder tosatisfy himself as to the full observance of the laws of the relevantjurisdiction in connection therewith, including the obtaining of anygovernmental, exchange control or other consents which may be required to beobserved and the payment of any issue, transfer or other taxes in suchjurisdictions. Dealing disclosure requirements Under the provisions of Rule 8.3 of the City Code on Takeovers and Mergers (the"Code"), if any person is, or becomes, "interested" (directly or indirectly) in1 per cent. or more of any class of "relevant securities" of Innovata or ofVectura, all "dealings" in any "relevant securities" of that company (includingby means of an option in respect of, or a derivative referenced to, any such "relevant securities") must be publicly disclosed by no later than 3.30 pm(London time) on the London business day following the date of the relevanttransaction. This requirement will continue until the date on which the Schemebecomes effective or the Proposal lapses or is otherwise withdrawn or on whichthe "offer period" otherwise ends. If two or more persons act together pursuantto an agreement or understanding, whether formal or informal, to acquire an "interest" in "relevant securities" of Innovata or Vectura, they will be deemedto be a single person for the purpose of Rule 8.3. Under the provisions of Rule8.1 of the Code, all "dealings" in "relevant securities" of Innovata or ofVectura by Innovata or Vectura, or by any of their respective "associates", mustbe disclosed by no later than 12.00 noon (London time) on the London businessday following the date of the relevant transaction. A disclosure table, givingdetails of the companies in whose "relevant securities" "dealings" should bedisclosed, and the number of such securities in issue, can be found on theTakeover Panel's website at www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marksare defined in the Code, which can also be found on the Panel's website. If you are in any doubt as to the application of Rule 8 to you, please contactan independent financial adviser authorised under the Financial Services andMarkets Act 2000, consult the Panel's website at www.thetakeoverpanel.org.ukor contact the Panel on telephone number +44 (0) 20 7638 0129; fax +44 (0) 207236 7013. In accordance with Rule 2.10 of the City Code, Vectura confirms that it has168,834,281 shares of 0.025 pence each in issue and admitted to trading on AIMunder the UK ISIN Code GB00B01D1K48. In accordance with Rule 2.10 of the City Code, Innovata confirms that it has503,158,305 shares of 1 pence each in issue and admitted to trading on theLondon Stock Exchange's main market for listed securities under the UK ISIN CodeGB0005554703. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTOTHE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION Recommended offer for Innovata plc by Vectura Group plc 1. Introduction The Boards of Vectura and Innovata announce today that they had reachedagreement on the terms of a recommended all share offer by Vectura for the wholeof the issued and to be issued share capital of Innovata. The Board of Vectura believes that Vectura's acquisition of Innovata will createan Enlarged Group with a portfolio of revenues from marketed products, a strongdevelopment pipeline and a range of formulation, device and deliverytechnologies for drugs inhaled as dry powders. With its combined expertise,facilities and cash resources, the Boards of Vectura and Innovata believe thatthe Enlarged Group will be a UK leader in pulmonary product development, a fastgrowing area of the pharmaceutical industry. The Innovata Directors, who have been so advised by Nomura Code, consider theterms of the Proposal to be fair and reasonable and in the best interests ofInnovata Shareholders as a whole. In providing its advice, Nomura Code hastaken into account the Innovata Directors' commercial assessment of theProposal. Accordingly, the Innovata Directors unanimously intend to recommendInnovata Shareholders to vote in favour of the Scheme at the Court Meeting andin favour of the Special Resolution to be proposed at the Innovata ExtraordinaryGeneral Meeting, as they have irrevocably undertaken to do in respect of theirown beneficial holdings of 61,759,132 Innovata Shares, representing, inaggregate, approximately 12.3 per cent of the Innovata Shares in issue on thelast Dealing Day prior to the date of the Announcement. The Proposal The Proposal involves the acquisition by Vectura of the whole of the issued andto be issued share capital of Innovata and is to be effected by way of a schemeof arrangement of Innovata under Section 425 of the Companies Act.Implementation of the Scheme is subject to satisfaction or (where appropriate)waiver of the Conditions set out in Appendix I. Under the terms of the Scheme,all existing Innovata Shares will be cancelled and new Innovata Shares will beallotted to Vectura, such that Innovata will become a wholly-owned subsidiary ofVectura. Upon the Scheme becoming effective, Innovata Shareholders who are onthe register of members at the Scheme Record Time will receive: 0.2858 new Vectura Shares for every 1 Innovata Share Fractions of new Vectura Shares will not be allotted or issued to InnovataShareholders pursuant to the Proposal and fractional entitlements will berounded down to the nearest whole number of new Vectura Shares. The Acquisition constitutes a reverse takeover by Vectura for the purposes ofthe AIM Rules. Accordingly, following approval by Vectura's Shareholders,Vectura's existing quotation on AIM will be cancelled. Application will be madefor the new and existing Vectura Shares to be admitted to trading on AIM and itis expected that Admission will become effective on the Dealing Day followingthat on which the Scheme becomes effective. On the Scheme becoming effective, it will be binding on all holders of SchemeShares including any Innovata Shareholders who did not vote to approve theScheme or who voted against the Scheme. On the Scheme becoming effective, Innovata Shareholders will own 46 per cent.,and Vectura Shareholders will own 54 per cent. respectively of the enlargedshare capital of Vectura, assuming no further issue of Innovata Shares orVectura Shares prior to the date on which the Scheme becomes effective. On the basis of a share price of 91 pence for each Vectura Share, being theaverage Closing Price of a Vectura Share for the 15 Dealing Days up to andincluding 16 November 2006, the last Dealing Day prior to this announcement, theProposal values the entire issued share capital of Innovata (assuming noexercise of existing Innovata Options) at approximately £130.9 million and eachInnovata Share at 26 pence. On this basis, the Proposal represents a premium ofapproximately 13.0 per cent. to the Closing Price of an Innovata Share of 23pence on 16 November 2006. On the basis of share price of 89.5 pence for each Vectura Share, being theClosing Price of a Vectura Share on 16 November 2006, the last Dealing Day priorto this announcement, the Proposal values the entire issued share capital ofInnovata (assuming no exercise of existing Innovata Options) at approximately£128.8 million and each Innovata Share at 25.6 pence. On this basis, theProposal represents a premium of approximately 11.2 per cent. to the ClosingPrice of an Innovata Share of 23 pence on 16 November 2006. The new Vectura Shares will be issued credited as fully paid, on identical termsto and will rank pari passu with the existing issued Vectura Shares, includingthe right to receive and retain all dividends and other distributions declared,paid or made on Vectura Shares after the Scheme becomes effective. On the basis that none of the outstanding Innovata Options are exercised, theProposal will result in the issue of approximately 143.8 million new VecturaShares by Vectura to existing Innovata Shareholders, representing 46 per cent.of the Enlarged Share Capital of Vectura. The Proposal and the Scheme are subject to satisfaction or (where appropriate)waiver of the Conditions set out in Appendix I, including the approval of bothInnovata Shareholders and Vectura Shareholders as described in paragraph 9 belowand the sanction of the Court. The Proposal has the unanimous support of the Boards of both Vectura andInnovata, who intend unanimously to recommend the Proposal to their respectiveshareholders. 2. Reasons for the recommendation by the Innovata Directors of the Proposal Since early 2005, the Board of Innovata has made significant progress inpursuing its stated strategy of building a specialty pharmaceutical businessparticularly focused on the pulmonary market. However, the Innovata Directorsalso believe that one of the keys to success in the industry in which Innovataoperates is the establishment of a business of sufficient size, with a strongrevenue base and a number of collaborations with large pharmaceutical companies. Over the last 12 months, Innovata has announced that it has entered into acollaborative arrangement with a European pharmaceutical company and has beenexploring the possibility of further such collaborations for the US and Japanesemarkets. As is further described below, Vectura has a number of similarcollaborations with different companies. The Board of Innovata believes thatone of the principal benefits of combining the Innovata and Vectura businessesis the size and reputation to be gained from the Enlarged Group having a numberof such collaborations and the ability to further expand the business throughoffering a broader product, device and formulation competence base. TheEnlarged Group will also benefit from a broader intellectual property base,including device, spray-drying, stabilisation, formulation and controlledrelease technologies. In addition, the Board of Innovata understands that Vectura has been pursuing asimilar strategy of focusing on specialty pharmaceutical products to that ofInnovata. The Board of Innovata believes that shareholders in both companieswill benefit from the combination of both businesses. The Vectura Directors have stated that it is the intention of the Board ofVectura, following implementation of the Scheme, to make full use of Innovata'ssite at Ruddington. Vectura also expects to benefit from the expertise ofInnovata employees in developing pharmaceutical products. Whilst it is likelythat after completion of the Scheme there will be certain savings, the Board ofInnovata is pleased to note that there is likely to be continued employment forthe majority of Innovata's Ruddington employees and that the employment rightsof all employees will be fully safeguarded. The Board of Innovata therefore believes, and has been so advised by NomuraCode, that for the reasons expressed above, the interests of InnovataShareholders are best served by the adoption of the Proposal and the sanction ofthe Scheme. 3. Background to, and reasons for, Vectura's Proposal Strategy and strategic fit Vectura's strategy is to become a principal player in the development ofpulmonary pharmaceutical products. Vectura's first step in achieving this aimis to strengthen the Company's pulmonary pipeline and to broaden its technologybase. In this regard, the Directors of Vectura believe that Innovata representsan excellent strategic fit with Vectura's current business. Vectura's Directorsbelieve that the combined pulmonary portfolio of the Enlarged Group will createa UK leader in pulmonary product development. Financial strength and investment proposition As at 30 September 2006, on a pro forma basis, the Enlarged Group had £92million in cash and liquid investments (before taking into account anyAcquisition costs). The Enlarged Group will expect to benefit from continuingrevenues from royalty streams on the eight marketed products and milestones onthe six main licensing deals currently in place. One of the Enlarged Group'sgoals will be to become financially self-sustaining. The combination of the twocompanies is expected to result in cost savings from eliminating duplication inthe infrastructure which will assist in securing this goal. Product pipeline The combination of Innovata with Vectura will allow the Enlarged Group to focuson the development of a broad and well-balanced pipeline with products atpre-clinical, clinical and post launch stages. Supported by a significantrevenue stream, this broader pipeline should increase the likelihood of bringingnew products to value milestones and should help to reduce the portfolio riskprofile. The Acquisition will create an Enlarged Group that has: • Royalties from eight marketed products: • Five products for the treatment of respiratory diseases • Three non-pulmonary products • Twelve products in full development: • Seven targeted at the respiratory market • Two neurology products • Two sexual dysfunction products • One product for diabetes Nine of these twelve products will be in clinical development. Vectura has stated its aim of focusing its future portfolio on respiratory andneurology therapeutic areas and it intends to out-license its existing productsfor erectile dysfunction and premature ejaculation. Enabling technologies The Enlarged Group's pipeline will be underpinned by the breadth of itsformulation and delivery technologies and its experience in product development. The combination of the two businesses brings together a range of validatedformulation and stabilisation technologies: - PowderHale(R), a formulation technology that improves drypowder flow characteristics to improve lung penetration, has been employed inthe development of NVA237, a product licensed to Novartis AG in 2005 - Stabilisation technology that facilitated the development ofADVATE, a serum-free formulation of recombinant factor VIII, marketed by BaxterInternational Inc. - Particle engineering (spray drying) technology, currentlybeing used in the development of inhaled insulin The Directors of Vectura and Innovata believe that all of these technologieshave utility in other products. The Enlarged Group will have single and multiple dose devices suitable forpulmonary delivery of medicines for local lung diseases and which provide rapid,efficient access through the lungs to the bloodstream for systemic treatments: - Clickhaler(R), a multiple-dose single reservoir dry powderinhaler (DPI) that has achieved regulatory validation, and is available in fivemarketed products - Duohaler(R), a twin reservoir multi-dose DPI device indevelopment for the delivery of generic products - GyroHaler(R), a passive multi-unit dose DPI in development todeliver dry powder formulations to treat respiratory diseases. Vectura haslicensed the European rights to a generic combination product delivered withGyroHaler(R) - Aspirair(R), a highly-efficient active single-unit DPI deviceinvolved in Vectura's development of three products that require deep lungdelivery for systemic effect - A device for the private German company, BoehringerIngelheim, which has agreed to collaborate with Vectura to develop this devicefor delivery of its own respiratory products - S2 bead engine, a highly efficient passive dispersion engine,which could be incorporated into a single unit dose DPI for a wide range ofconditions Staff and facilities Both Vectura and Innovata benefit individually from strong management teams andstaff experienced in the drug development process, and Vectura intends tomaintain the expertise that exists within Innovata through the retention of mostof Innovata's staff within the Enlarged Group. Vectura's and Innovata's keyfacilities in Chippenham, Cambridge and Ruddington, which the Vectura Directorsintend to maintain within the Enlarged Group, provide a means to expand theEnlarged Group's operational capabilities to meet the needs of the consolidatedportfolio. The Directors of Vectura and Innovata believe that consolidation within the UKbiotechnology sector will provide stronger opportunities for potentialinvestors and that the acquisition of Innovata by Vectura will create a companywhich will be a more attractive specific investment opportunity in the field ofpulmonary product development. It is the intention of the Vectura Directors forthe Enlarged Group to move from AIM to the Official List during 2007 and theVectura Directors believe that this should provide further liquidity and ahigher profile with investors. 4. Directors, management and employees Each of the Innovata Directors have agreed to resign from the Board of Innovataon the date on which the Scheme becomes effective, although Dr Susan Foden willjoin the board of Vectura as a non-executive director. Dr Chadwick and DrDalton will continue as employees of the Enlarged Group, although Dr Chadwickwill move to a three day week and both of their respective terms of engagementwill be modified. The services of Ian Kent and Kieran Murphy, Chairman and CEOof Innovata respectively, will be made available to the Enlarged Group on a parttime basis for a period of 12 months following the date on which the Schemebecomes effective. Further details of the termination arrangements, modification of terms andconsultancy arrangements will be set out in the document to be sent to InnovataShareholders in due course. Vectura has given assurances that, following the Scheme becoming effective, theexisting employment rights, including accrued pension rights, of Innovata'semployees will be fully safeguarded and, save as in the case of the InnovataDirectors as referred to above, its plans for Innovata do not include anymaterial changes in the conditions of employment of Innovata employees. 5. Principal terms and conditions of the Acquisition and implementation ofthe Scheme The Proposal involves the acquisition by Vectura of the whole of the issued andto be issued share capital of Innovata and is to be effected by way of a schemeof arrangement of Innovata under Section 425 of the Companies Act. Under theterms of the Scheme, all existing Innovata Shares will be cancelled and newInnovata Shares will be allotted to Vectura, such that Innovata will become awholly-owned subsidiary of Vectura. Upon the Scheme becoming effective, InnovataShareholders who are on the register of members at the Scheme Record Time willreceive: 0.2858 new Vectura Shares for every 1 Innovata Share Fractions of new Vectura Shares will not be allotted or issued to InnovataShareholders pursuant to the Proposal and fractional entitlements will berounded down to the nearest whole number of new Vectura Shares. The Acquisition is conditional on, inter alia, the approval of InnovataShareholders and of Vectura Shareholders, and as the Acquisition constitutes areverse acquisition under the AIM Rules, the admission of the existing and newVectura Shares to trading on AIM. Application will be made to the Court forleave to convene the Innovata Court Meeting which (subject to the approval ofthe Court) is expected to be held at 10.00 a.m. on 20 December 2006 for thepurpose of seeking the necessary approval from Innovata Shareholders. It isexpected that the Innovata Extraordinary General Meeting will also be convenedfor 20 December 2006, immediately following the Court Meeting for the purpose ofobtaining all other requisite approvals from Innovata Shareholders. It isexpected that the Vectura Extraordinary General Meeting will be convened for10.00 a.m. on 13 December 2006 for the purpose of seeking the necessaryapprovals from Vectura Shareholders. The new Vectura Shares will, when issued, be credited as fully paid and freefrom all liens, charges and encumbrances and will rank pari passu in allrespects with the existing Vectura Shares. Application will be made to theLondon Stock Exchange for the new Vectura Shares to be admitted to trading onAIM. It is expected that Admission will occur on the Dealing Day following thedate on which the Scheme becomes effective. Conditions to the Proposal and implementation of the Scheme The Conditions to the Proposal and implementation of the Scheme are set out infull in Appendix I and include the following: (i) the Scheme becoming effective by no later than close of businesson 31 March 2007 or such later date as Innovata and Vectura shall agree and theCourt may approve, failing which the Scheme will lapse; (ii) the approval of the Scheme by a majority in number representingnot less than three-fourths in value of the holders of Innovata Shares, presentand voting, either in person or by proxy, at the Court Meeting (or anyadjournment of that meeting); (iii) the resolutions required to approve and implement the Proposalbeing duly passed by the requisite majority at the Innovata ExtraordinaryGeneral Meeting (or at any adjournment of that meeting); (iv) the resolutions required to approve and implement the Acquisitionbeing duly passed by the requisite majority at the Vectura Shareholder Meeting(or at any adjournment of that meeting); (v) the sanction of the Scheme and confirmation of the Reduction ofCapital involved therein by the Court with such modifications (if any) as may bereasonably acceptable to Vectura and Innovata) and an office copy of the Orderof the Court sanctioning the Scheme and confirming the Reduction of Capitalwhich forms part of it being delivered by Innovata for registration to theRegistrar of Companies in England and Wales and being registered by him; (vi) the condition in the Paul Capital Agreement with respect to thepayment of sums by Innovata to RST having been satisfied in accordance with itsterms; (vii) the London Stock Exchange agreeing or confirming its decision toadmit the existing and new Vectura Shares to trading on AIM, subject only to (i)the allotment of the new Vectura Shares and/or (ii) the Scheme becomingeffective (other than with respect to the condition described in this paragraph(vii)); and (viii) the Conditions, which are not otherwise identified above, beingsatisfied or (where applicable) waived. 6. Information on Vectura Vectura is an emerging pharmaceutical development company with a range ofinhaled drugs for the treatment of medical conditions where optimised deliveryvia the lungs can provide significant benefits, such as fast onset of action,improved efficacy and improved tolerability compared with other therapies.Vectura's strategy is to combine the Vectura Group's proprietary pulmonarydelivery technologies with known drugs either for use in new indications or fora new route of administration. Vectura generates positive cash flows from licensing its technologies in certainfields to other pharmaceutical companies. The Boehringer Ingelheim agreementsigned in April 2006 for a dry powder inhaler device is an example of such adeal. Vectura also operates a Pharmaceutical Development Services business thatundertakes contract development work for licensing partners and otherpharmaceutical companies. The cash generated from these activities is availablefor investment in Vectura's own development projects or for other purposes. TheVectura Directors believe that these activities demonstrate Vectura's expertisein applying pulmonary technologies to the creation of valuable pharmaceuticalproducts. 7. Information on Innovata Innovata is a cash generative company specialising in the development ofpulmonary products for the treatment of respiratory disorders and other inhaledtherapies. Innovata generates revenue from its pulmonary and non-pulmonaryassets. Innovata has a track record of successful device development,formulation development, clinical development, regulatory approval and licensingof pharmaceutical products to major pharmaceutical companies and is involved inthe development of new products for specialist pharmaceutical markets. Innovata has undertaken a number of transactions as part of a strategy focusedon the development of inhaled therapeutics using its proprietary technologiesfrom its Ruddington base. Through these transactions, Innovata has broughttogether competencies in candidate product identification, product development(including device and formulation design and development), project management,clinical development, regulatory affairs, quality, manufacturing andsupply-chain management. Using its proprietary dry powder inhaler and drug formulation technologies,Innovata has developed a pipeline of revenue-generating pre-clinical,clinical-stage and marketed pulmonary products. Innovata has established development and licensing partnerships with a number ofpharmaceutical companies including Baxter, UCB and Otsuka. Paul Capital Agreement In 2001 and 2002, Innovata entered into royalty sharing arrangements with PaulCapital Royalty Acquisition Fund L.P. ("Paul Capital") under which Paul Capitalprovided funding totalling £22.5 million in return for which Paul Capital wouldreceive a share of the revenues earned by Innovata from the commercialisation ofExtraneal and Adept(R) in the period from commencement of these arrangements upto 30 September 2010. Under these royalty sharing arrangements ("the PRFAgreements"), Paul Capital was granted a right (the "Put Option") in certaincircumstances (including on change of control), to require that Innovatare-purchases Paul Capital's interests in the royalty streams from Extraneal andAdept(R) for a consideration calculated to give Paul Capital an agreed minimumrate of return under the royalty sharing arrangements. Since these arrangementswere entered into, the interests of Paul Capital have been assigned to RoyaltySecuritization Trust I ("RST"). As the Proposal would, if implemented, result in the trigger of RST's right toexercise its Put Option, Innovata and Vectura have jointly negotiated amendmentsto the terms of the PRF Agreements, these amendments being conditional on theScheme becoming effective. On 16 November 2006, Innovata entered into a conditional Deed of Waiver andAmendment ("the Deed") reflecting the amendments to the PRF Agreements that havebeen agreed with RST. The principal terms of the Deed, which is conditional,inter alia, on the Scheme becoming effective, are that RST will agree to waiveits right to exercise the Put Option as a consequence of the acquisition ofInnovata by Vectura. In return, RST is to receive a payment of US$2m fromVectura upon the Scheme becoming effective. Further amendments to the PRFAgreements have been agreed, such that future receipts by RST under the PRFagreements will be subject to agreed minimum and maximum annual payments. Inaddition, in the event that the Put Option becomes exercisable (for example on achange of control of Vectura) at any time between the date on which the Schemebecomes effective and the date on which the royalty sharing under the PRFAgreements terminates in September 2010, the basis of calculation of the amountpayable in such circumstances will alter according to a schedule of fixedpayments. Innovata will also have a right to buy out the interests of RST on thesame basis of fixed payments. On the Scheme becoming effective, Vectura willguarantee the performance by Innovata of its obligations under the PRFAgreement, as amended by the Deed. Further details of the Deed will be set out in the documents to be sent toInnovata and Vectura shareholders in due course. 8. Current trading and prospects of the Enlarged Group Vectura The unaudited interim results of Vectura for the six months to 30 September 2006were announced today. For the six months ended 30 September 2006, Vecturaachieved turnover of £6.1 million (2005: £3.6 million) and gross profits of £4.5million (2005: £2.7 million). Since March of this year, Vectura has made significant progress across all areasof the business, in both drugs and devices, and completed a £45 millionfundraising. In clinical development Vectura's lead product NVA237 successfullycompleted a Phase IIb trial for COPD, VR004 (its drug for erectile dysfunction)successfully completed a Phase IIb trial, and VR040 for "off" episodes inParkinson's Disease demonstrated safety and efficacy in a Phase IIa trial. Thedevice expertise within Vectura was also further validated by a worldwidecollaboration development and licence agreement, signed with BoehringerIngelheim in April 2006. Since 30 September 2006, Vectura has continued to operate in line with theVectura Directors' expectations, and the Vectura Directors are confident of thefinancial and trading prospects of Vectura for the current financial year. Innovata The audited results of Innovata for the year ended 30 September 2006 were alsoannounced earlier today. For the twelve months ended 30 September 2006, Innovataachieved turnover of £33.6 million (2005: £19.5 million) and gross profits of£29.3 million (2005: £15.8 million). During the year ended 30 September 2006, Innovata has made significant progressin developing its business and increasing its revenues. Adept was licensed toBaxter and subsequently received regulatory approval in the US, a secondDuohaler(R) licensing agreement was signed with a European partner, the inhaledinsulin collaboration agreement with Bristol-Myers Squibb was restructured andthe project progressed under the control of our Qdose joint venture. Royaltiesfrom ADVATE were included for the full year following acquisition of QuadrantTechnologies Limited last year and benefited from strong growth in underlyingsales. Royalties from Extraneal also grew, although as from September 2006,royalties will cease to be received from the European sales of Extraneal.Development fees increased, reflecting increased activities on the Duohaler(R)programmes and sales of Clickhaler devices grew following regulatory approvals. Since 30 September 2006, Innovata has continued to operate in line with theInnovata Directors' expectations and the Innovata Directors are confident of theGroup's prospects for the financial year that has just begun. Enlarged Group The Vectura Directors and the Proposed Director believe that the combination ofVectura and Innovata should result in a leading pulmonary development company ofsignificant size and with the resources to develop and/or partner a broad andpromising pipeline. Accordingly, the Vectura Directors and the Proposed Director view the EnlargedGroup's prospects for the current financial year with confidence. It is the intention of the Vectura Directors and the Proposed Director for theEnlarged Group to move from AIM to the Official List during 2007. The VecturaDirectors and the Proposed Director believe that moving the Enlarged Group tothe Official List should provide further liquidity and a higher profile withinvestors. 9. Shareholder meetings In view of its size, the Acquisition is conditional upon, inter alia, theapproval of Vectura Shareholders at the Vectura Shareholder Meeting, which isexpected to be held at 10.00 a.m. on 13 December 2006. Implementation of the Scheme is subject, inter alia, to the approval of InnovataShareholders at the Innovata Court Meeting and at the Innovata ExtraordinaryGeneral Meeting. Application will shortly be made to the Court for leave toconvene the Court Meeting which (subject to the approval of the Court) isexpected to be held at 10.00 a.m. on 20 December 2006. It is expected that theInnovata Extraordinary General Meeting will also be convened for 20 December2006, immediately following the Court Meeting. The implementation of the Scheme can only take place if all the Conditions havebeen satisfied or, where appropriate, waived. Assuming the satisfaction or,where appropriate, waiver of the Conditions, the Scheme will become effective onthe delivery by Innovata to the Registrar of Companies in England and Wales ofthe Court Order sanctioning the Scheme (and the related Reduction of Capital)and the registration of such Court Order. Once the Scheme becomes effective, itwill be binding on all Innovata Shareholders whether or not they voted infavour. The Scheme Document setting out full details of the Acquisition and the Scheme,together with notices of the Court Meeting and the Innovata ExtraordinaryGeneral Meeting and the expected timetable, together with the Vectura AdmissionDocument, will be posted as soon as practicable to Innovata Shareholders. Atthe same time, Vectura will post the Vectura Shareholder Circular, containing anotice convening the Vectura Shareholder Meeting, together with a copy of theVectura Admission Document, to Vectura Shareholders. 10. Conduct Agreement On 17 November 2006, Innovata and Vectura entered into a Conduct Agreement inconnection with Proposal, pursuant to which each of the parties has undertaken(subject to and taking into account the fiduciary duties of their respectivedirectors), inter alia, to use all reasonable endeavours to achieve satisfactionof the Conditions to the Scheme as soon as reasonably practicable and toco-operate together in the publication of all documents and the taking of allnecessary steps in order to give effect to the Scheme. Innovata has undertaken that prior to the Scheme becoming effective or theConduct Agreement being terminated in accordance with its terms (whichever isearlier) and subject to and taking into account the fiduciary duties of itsdirectors, it will make the necessary applications to Court and take the othernecessary procedural steps to give effect to the Scheme. Each of the parties has agreed that prior to the Scheme becoming effective orthe Conduct Agreement being terminated in accordance with its terms (whicheveris earlier) and subject to and taking into account the fiduciary duties of theirrespective directors, each of Innovata and Vectura will conduct their respectivebusinesses in accordance with an agreed set of principles. As an inducement to Vectura proceeding with the Proposal, Innovata has agreed topay Vectura an inducement fee of £1,250,000 (inclusive of any applicable VAT)if: (i) Innovata fails to publish the Scheme Document and dispatch it,together with the Vectura Admission Document, to Innovata Shareholders (otherthan for reasons attributable directly or indirectly and in whole or in part toVectura or the Vectura Directors); (ii) Innovata fails to hold the Court Meeting and Extraordinary GeneralMeeting to be convened for the purposes of giving the necessary approvals forthe Acquisition; (iii) in the event that the Scheme is approved by Innovata Shareholders,Innovata subsequently fails to undertake the various subsequent procedural stepsnecessary to give effect to the Scheme (other than for reasons attributabledirectly or indirectly and in whole or in part to Vectura or the VecturaDirectors); (iv) an independent competing offer for Innovata is announced; (v) Innovata's directors either withdraw or adversely modify or fail toreconfirm their unqualified and unconditional recommendation of the Scheme orapprove the announcement of or recommend any independent competing offer forInnovata or resolve to undertake any of the above actions, and in any such case, the Scheme subsequently lapses or is withdrawn. However,nothing in the Conduct Agreement shall oblige Innovata to pay any amount whichthe Panel determines would not be permitted by rule 21.2 of the City Code. As an inducement to Innovata proceeding with the Proposal, Vectura has agreed topay Innovata an inducement fee of £1,250,000 (inclusive of any applicable VAT)if: (i) Vectura fails to publish the Vectura Admission Document (other thanfor reasons attributable directly or indirectly and in whole or in part toInnovata or the Innovata Directors); (ii) Vectura fails to hold a duly convened Vectura Shareholder Meetingfor the purposes of passing the requisite resolutions to give effect to theScheme; or (iii) prior to the holding of the Vectura Shareholders Meeting, theVectura Directors withdraw their unqualified and unconditional recommendation toVectura Shareholders to vote in favour of the resolutions to be considered atthe Vectura Shareholders Meeting, in circumstances where Innovata has complied with its obligations under theConduct Agreement and as a result the Scheme subsequently lapses or iswithdrawn. The Conduct Agreement may be terminated by either party in certain circumstancesincluding where the Court declines or refuses to sanction the Scheme, where anyof the Conditions to the Scheme becomes incapable of satisfaction, where theother party is in material breach of its obligations or where the requisiteresolutions of the Innovata Shareholders or the Vectura Shareholders are notapproved. 11. Irrevocable undertakings and letters of intent • Vectura has received irrevocable undertakings to vote in favourof the resolutions to be put to the Innovata Court Meeting and the InnovataExtraordinary General Meeting from the Innovata Directors in respect of theirentire legal and beneficial holdings of Innovata Shares amounting, in aggregate,to 61,759,132 Innovata Shares, representing approximately 12.3 per cent. ofInnovata's existing issued share capital. These undertakings will continue to bebinding even in the event of a higher competing offer for Innovata beingannounced, and cannot be withdrawn other than in the event of the Scheme lapsingor being withdrawn. • In addition, Vectura has received letters of intent to vote infavour of the resolutions to be put to the Court Meeting and the InnovataExtraordinary General Meeting from Morley Fund Management in respect of75,831,665 Innovata Shares and from Cazenove Capital Management in respect of17,602,683 Innovata Shares (representing, in aggregate, approximately 18.6 percent. of Innovata's existing issued share capital) • In aggregate, Vectura has received irrevocable undertaking andletters of intent to vote in favour of the Proposal at the Innovata CourtMeeting and the Innovata Extraordinary General Meeting in respect of 155,193,480Innovata Shares (representing approximately 30.9 per cent. of Innovata'sexisting issued share capital). • Irrevocable undertakings to vote in favour of the Acquisition atthe Vectura Shareholder Meeting have been received from the Vectura Directors inrespect of their entire holding of Vectura Shares amounting to, in aggregate650,332 Vectura Shares, representing approximately 0.39 per cent. of theexisting issued share capital of Vectura. Irrevocable undertakings to vote infavour of the Acquisition at the Vectura Shareholder Meeting have also beenreceived from Baronsmead VCT plc, Baronsmead VCT2 plc, Baronsmead VCT3 plc,Baronsmead VCT4 plc, ISIS II 2001 L.P. and ISIS II 2001 GMBH & Co. KG in respectof, in aggregate, 5,802,090 Vectura Shares, representing approximately 3.4 percent. of the existing issued share capital of Vectura. • In addition, Vectura has received letters of intent to vote infavour of the Acquisition at the Vectura Shareholder Meeting from BluecrestCapital International Ltd, Bluecrest Equity Master Fund Ltd, Man Mac Rothorn 6ALtd and Bluecrest Strategic Ltd in respect of, in aggregate, 16,820,589 VecturaShares and from AXA Framlington Investment Management Limited in respect of7,861,275 Vectura Shares (representing, in aggregate, approximately 14.6 percent. of Innovata's existing issued share capital). • In aggregate, Vectura has received irrevocable undertaking andletters of intent to vote in favour of the Proposal at the Vectura ShareholderMeeting in respect of 31,134,286 Vectura Shares (representing approximately 18.4per cent. of Vectura's existing issued share capital). 12. Share options Innovata Options granted under the Innovata Share Schemes will, to the extentnot already exercisable, become exercisable following the Effective Date,although such exercise will remain subject to the satisfaction of any relevantperformance condition. Any Innovata Option which is subject to a performancecondition which has not been satisfied will not therefore become exercisablesolely as a result of the Scheme becoming effective. To the extent that any Innovata Options become exercisable and are exercisedonce the Scheme becomes effective, any Innovata Shares allotted willautomatically be exchanged for new Vectura Shares in accordance with Innovata'sArticles (as amended by the resolution to be proposed at the InnovataExtraordinary General Meeting to approve the Scheme). In addition to any right to exercise their Innovata Options in accordance withthe rules of the relevant Innovata Share Scheme, Vectura intends to make aproposal to holders of Innovata Options pursuant to which the participants inthe relevant Innovata Share Schemes will be offered the opportunity to exchangetheir options over Innovata Shares for options over Vectura Shares either inaccordance with the rules of the relevant Innovata Share Scheme, in the case ofHM Revenue and Customs approved options (where applicable) or, in the case ofunapproved options, on the basis that they will receive new options on broadlyequivalent terms over Vectura Shares with an aggregate market value similar tothat of the Innovata Shares released and at a similar aggregate exercise price,save that, to the extent such Innovata Options would not have vested but for theScheme becoming effective, the new options will be subject to the vestingperiods that would otherwise have applied. However, no performance conditions(to the extent that any currently apply) will apply to such new options overVectura Shares. Each of the Innovata Directors who holds Innovata Options has agreed to acceptVectura's option exchange proposal, when made, in respect of all of theirInnovata Options. Options granted to Kieran Murphy and Ian Kent pursuant to the Individual OptionArrangements will become exercisable on the Effective Date. However, Mr Murphyand Mr Kent have also agreed to exchange these options over Innovata Shares foroptions over Vectura Shares. All participants in the Innovata Share Schemes will be sent separately detailsof the proposals to be made by Vectura and the actions they may take in respectof their outstanding Innovata Options. 13. Accounting policies of the Enlarged Group The Enlarged Group will adopt Vectura's accounting policies. The Board ofVectura believes that the impact of the differences between the accountingpolicies of Vectura and Innovata will not be significant. 14. Settlement, listing and dealings Assuming the Scheme becomes effective on 16 January 2007, the last Dealing Dayin, and for registration of transfers of, Innovata Shares is expected to be 15January 2007, following which the Innovata Shares will be suspended from listingon the Official List and trading on the London Stock Exchange's main market forlisted securities. No transfers of Innovata Shares will be registered afterthis date. Prior to the Scheme becoming effective, application will be made to the UKLA andto the London Stock Exchange for the cancellation of the Innovata Shares fromlisting on the Official List and trading on the London Stock Exchange's mainmarket for listed securities. Accordingly, if the Court sanctions the Scheme on15 January 2007, it is expected that the Innovata Shares will cease to be listedon the Official List and traded on the London Stock Exchange's main market forlisted securities at 8.00 a.m. on 16 January 2007. On the Effective Date, share certificates in respect of Innovata Shares willcease to be valid and should, if so requested by Innovata, be sent to Innovatafor cancellation. In addition, on the Effective Date entitlements to InnovataShares held within the CREST system will be cancelled. The new Vectura Shares are to be issued in registered form. Settlement of thenew Vectura Shares to which Innovata Shareholders are entitled is expected tooccur as soon as possible after the Effective Date and in any event within 14days of the Effective Date. 15. Overseas Innovata Shareholders It is the responsibility of each Overseas Innovata Shareholder to satisfyhimself/herself as to the full observance of the laws of the relevantjurisdiction in connection with the Proposal, including the obtaining of anygovernmental, exchange control or other consents which may be required, or thecompliance with other necessary formalities which are required to be observedand the payment of any issue, transfer or other taxes due in such jurisdiction. 16. Expected timetable of principal events: Posting of Scheme Document and Vectura Admission Document to Innovata Shareholders 24 November 2006Posting of Vectura Shareholder Circular and Vectura Admission Document to Vectura 24 November 2006ShareholdersVectura Shareholder Meeting 13 December 2006Innovata Court Meeting 20 December 2006Innovata Extraordinary General Meeting 20 December 2006Date of Court Hearing 15 January 2007Effective Date of the Scheme (if sanction and confirmation of the Court is received) 16 January 2007Crediting of new Vectura Shares to CREST accounts 16 January 2007Latest date for despatch of certificates for new Vectura Shares 30 January 2007 Each of these dates represent the expectation of the Vectura Directors and theInnovata Directors, and are subject to the discretion of the Court. 17. Disclosure of interests in Innovata Shares Save for the irrevocable undertakings referred to above, neither Vectura nor, sofar as Vectura is aware, any person acting in concert with Vectura has anyinterest in, or right to subscribe for, any Innovata Shares, nor does any suchperson have any short position or any arrangement in relation to InnovataShares. For these purposes "arrangement" includes any agreement to sell or anydelivery obligation or right to require another person to purchase or takedelivery and borrowing and lending of Innovata Shares. An "arrangement" alsoincludes any indemnity or option arrangement, any agreement or anyunderstanding, formal or informal, of whatever nature, relating to InnovataShares which may be an inducement to deal or refrain from dealing in suchsecurities. It has not been possible, by the date of this announcement, to ascertain theinterests in Innovata Shares (if any) of all of Vectura's concert parties.Further enquiries will be completed prior to publication of the Scheme Document.If such enquiries reveal any such interest, they will be included in theScheme Document or announced earlier if so requested by the Panel. "Interests in securities" is further explained in paragraph 18 below. 18. Dealing disclosure requirements Under the provisions of Rule 8.3 of the City Code on Takeovers and Mergers (the"Code"), if any person is, or becomes, "interested" (directly or indirectly) in1 per cent. or more of any class of "relevant securities" of Innovata or ofVectura, all "dealings" in any "relevant securities" of Innovata or of Vectura(including by means of an option in respect of, or a derivative referenced to,any such "relevant securities") must be publicly disclosed by no later than 3.30pm (London time) on the London business day following the date of the relevanttransaction. This requirement will continue until the date on which the Schemebecomes effective or the Proposal lapses or is otherwise withdrawn or on whichthe "offer period" otherwise ends. If two or more persons act together pursuantto an agreement or understanding, whether formal or informal, to acquire an "interest" in "relevant securities" of Innovata or Vectura, they will be deemedto be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevantsecurities" of Innovata or of Vectura by Innovata or Vectura, or by any of theirrespective "associates", must be disclosed by no later than 12.00 noon (Londontime) on the London business day following the date of the relevant transaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Takeover Panel's website atwww.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on thePanel's website. If you are in any doubt as to the application of Rule 8 toyou, please contact an independent financial adviser authorised under theFinancial Services and Markets Act 2000, consult the Panel's website atwww.thetakeoverpanel.org.uk or contact the Panel on telephone number +44 (0) 207638 0129; fax +44 (0) 20 7236 7013. 19. General Vectura reserves the right, with the consent of the Panel, to elect to implementthe Proposal by making a takeover offer for the entire issued and to be issuedshare capital of Innovata. If Vectura elects to implement the Proposal by atakeover offer, that offer will be implemented on the same terms, so far asapplicable, as those which would apply to the Scheme. Further, if sufficientacceptances of any such offer are received and/or sufficient Innovata Shares areotherwise acquired, it is the intention of Vectura to apply the provisions ofsections 428 to 430F (inclusive) of the Companies Act to acquire compulsorilyany outstanding Innovata Shares to which such offer relates. The availability of the Proposal to Overseas Innovata Shareholders may beaffected by the laws of the relevant jurisdiction. Any persons who are subjectto the laws of any jurisdiction other than the UK should inform themselves aboutand observe any applicable requirements. Further details in relation toOverseas Innovata Shareholders will be contained in the documents to be sent toInnovata Shareholders in due course. The bases and sources of certain financial information contained in thisannouncement are set out in Appendix II to this announcement. Certain termsused in this announcement are defined in Appendix III to this announcement. This announcement does not constitute an offer or invitation to acquire orexchange securities in Vectura or Innovata. Innovata Shareholders are advised toread carefully the formal documentation in relating to the Proposal, once it hasbeen dispatched. APPENDIX I CONDITIONS OF THE ACQUISITION CONDITIONS FOR IMPLEMENTATION OF THE PROPOSAL AND THE SCHEME The Proposal is conditional upon the Scheme becoming unconditional and becomingeffective by not later than 31 March 2007 or such later date as, subject to theCity Code, Vectura and Innovata may agree and (if required) the Court may allow. 1. The Scheme is conditional upon: (a) the approval of the Scheme by a majority in number representing notless than three-fourths in value of the holders of Innovata Shares, present andvoting, either in person or by proxy, at the Court Meeting (or any adjournmentof that meeting); (b) the resolutions required to approve and implement the Scheme beingduly passed by the requisite majority at the Innovata Extraordinary GeneralMeeting (or any adjournment of that meeting); (c) the resolutions required to approve and implement the Acquisitionbeing duly passed by the requisite majority at the Vectura Shareholder Meeting(or any adjournment of that meeting); (d) the sanction (with or without modification, such modification beingacceptable to both Innovata and Vectura) of the Scheme and confirmation of theReduction of Capital by the Court being obtained, an office copy of the CourtOrder being delivered to the Registrar of Companies and, in relation to theReduction of Capital, being registered by the Registrar of Companies; (e) the condition in the Paul Capital Agreement with respect to thepayment of sums by Innovata to RST having been satisfied in accordance with itsterms; and (f) Admission of the new and existing Vectura Shares occurring inaccordance with the AIM Rules or (if Vectura so determines and subject to theconsent of the Panel) the London Stock Exchange agreeing to admit the newVectura Shares to trading on AIM subject only to the allotment of such shares. 2. Vectura and Innovata have agreed that, subject as stated in paragraph 5below, the Scheme is also conditional upon, and accordingly the necessaryactions to make the Scheme become effective will only be taken, on thesatisfaction or waiver of the following Conditions: (a) no government or governmental, quasi-governmental, supranational,statutory or regulatory body, institution, association or agency (including anytrade agency) or any court or other body (including any professional orenvironmental body) or person in any relevant jurisdiction (a "RelevantAuthority") having decided to take, instituted, implemented or threatened orhaving announced its intention to institute or implement any action,proceedings, suit, investigation, enquiry or reference or enacted, made orproposed any statute, regulation, order or decision that would or might bereasonably expected to: (i) make the acquisition or the proposed acquisition of any shares in,or control of Innovata, by any member of the Wider Vectura Group void,unenforceable or illegal under the laws of any jurisdiction or directly orindirectly restrain, restrict, prohibit, frustrate or otherwise materially delayor interfere with the implementation of, or impose additional materialconditions or obligations with respect to, or otherwise in a material waychallenge, the acquisition of any shares in, or control of, Innovata by Vectura; (ii) require, prevent or delay the divestiture (or alter the terms of anyproposed divestiture) by the Wider Vectura Group or the Wider Innovata Group ofall or any material part of their respective businesses, assets or properties orof any Innovata Shares or other securities in Innovata or (except in relation tolimitations which apply generally to entities conducting similar businesses)impose any material limitation on their ability to conduct all or any part oftheir respective businesses and to own any of their respective assets orproperties in each case to an extent which is material in the context of theWider Vectura Group taken as a whole or, as the case may be, the Wider InnovataGroup taken as a whole; (iii) impose any material limitation on or result in any delay in theability of any member of the Wider Vectura Group or any member of the WiderInnovata Group to acquire or hold or to exercise effectively, directly orindirectly, all or any rights of ownership of shares or other securities in, orto exercise management control over, any member of the Wider Innovata Group oron the ability of any member of the Wider Innovata Group to hold or exerciseeffectively, directly or indirectly, all or any rights of ownership of shares orother securities in, or to exercise management control over, any other member ofthe Wider Innovata Group in each case to an extent which is material in thecontext of the Wider Vectura Group taken as a whole or, as the case may be, theWider Innovata Group taken as a whole; (iv) except as required pursuant to the Proposal, require any member ofthe Wider Vectura Group or the Wider Innovata Group to offer to acquire anyshares or other securities in any member of the Wider Innovata Group or anyother asset owned by any third party where such acquisition would be material inthe context of the Wider Vectura Group taken as a whole or, as the case may be,the Wider Innovata Group taken as a whole; (v) impose any material limitation on the ability of any member of theWider Vectura Group or the Wider Innovata Group to integrate or co-ordinate itsbusiness, or any part of it, with the businesses or any part of the businessesof any other member of the Wider Vectura Group and/or the Wider Innovata Groupin each case in a manner which would be adverse and material in the context ofthe Wider Vectura Group taken as a whole or, as the case may be, the WiderInnovata Group taken as a whole; (vi) result in any member of the Wider Vectura Group or of the WiderInnovata Group ceasing to be able to carry on business under any name underwhich it presently does so, where such a result would be material in the contextof the Wider Vectura Group taken as a whole or, as the case may be, the WiderInnovata Group taken as a whole; or (vii) (except in relation to matters which generally affect entitiesconducting similar businesses) otherwise materially and adversely affect any orall of the businesses, assets, financial or trading position or profits orprospects of any member of the Wider Vectura Group or of the Wider InnovataGroup to an extent which is adverse to and material in the context of the WiderVectura Group taken as a whole or, as the case may be, the Wider Innovata Grouptaken as a whole, and all applicable waiting and other time periods during which any such RelevantAuthority could institute, implement or threaten any such action, proceeding,suit, investigation, enquiry or reference or otherwise intervene having expired,lapsed or been terminated; (b) all necessary filings or applications in connection with the Proposalor its implementation having been made and all appropriate waiting and othertime periods (including extensions of such periods) under any applicablelegislation or regulation of any jurisdiction having expired, lapsed or beenterminated in each case in respect of the acquisition of any shares in, orcontrol of, Innovata by Vectura; (c) all material authorisations, orders, grants, recognitions,confirmations, licences, consents, clearances, permissions and approvals("authorisations") which Vectura or Innovata reasonably deem necessary orappropriate in any jurisdiction for or in respect of the Scheme and the proposedacquisition of any shares or securities in, or control of, Innovata or anymember of the Wider Innovata Group by Vectura or any member of the Wider VecturaGroup or the issue of the new Vectura Shares or any matters arising from suchissue being obtained in terms and in a form reasonably satisfactory to Vecturaand Innovata from appropriate Relevant Authorities (in each case where theabsence of such authorisation could reasonably be expected by Vectura andInnovata to have a material adverse effect on the Wider Innovata Group taken asa whole or, as the case may be, the Wider Vectura Group taken as a whole) andsuch authorisations together with all authorisations necessary or appropriatefor any member of the Wider Innovata Group to carry on its business (where suchbusiness is material in the context of the Wider Innovata Group taken as a wholeor, as the case may be, the Wider Vectura Group taken as a whole and where theabsence of such authorisations would have a material and adverse effect on theWider Innovata Group taken as a whole or, as the case may be, the Wider VecturaGroup taken as a whole) remaining in full force and effect and no intimation ofany intention to revoke, withdraw, suspend, restrict, withhold or modify or notto renew any of them having been made under the laws or regulations of anyjurisdiction (in each case to an extent which would have a material and adverseeffect on the Wider Innovata Group taken as a whole or, as the case may be, theWider Vectura Group taken as a whole) and all necessary statutory or regulatoryobligations in any jurisdiction in respect of the Scheme and the proposedacquisition of any shares or securities in, or control of Innovata or anymatters arising from such acquisition having been complied with in all materialrespects; (d) save as Disclosed, there being no provision of any arrangement,agreement, licence, permit, franchise or other instrument to which any member ofthe Wider Innovata Group or Wider Vectura Group is a party or by or to which anysuch member or any of its material assets may be bound or be subject which, as aresult of the making or implementation of the Scheme or the proposed acquisitionby any member of the Wider Vectura Group of any shares or securities in Innovataor because of a change in the control or management of Innovata or any member ofthe Wider Innovata Group or otherwise, could or might reasonably be expected toresult in (in each case to an extent which is material and adverse in thecontext of the Wider Innovata Group taken as a whole or, as the case may be,Wider Vectura Group taken as a whole): (i) any moneys borrowed by or any indebtedness (actual or contingent)of, or grant available to, any member of the Wider Innovata Group or WiderVectura Group becoming repayable or capable of being declared repayableimmediately or earlier than the stated repayment date or the ability of suchmember to borrow monies or incur any indebtedness being withdrawn or inhibitedor adversely affected; (ii) the creation of any mortgage, charge or other security interest overthe whole or any substantial part of the business, property or assets of anymember of the Wider Innovata Group or Wider Vectura Group or any such securityinterest (whether existing or having arisen) becoming enforceable; (iii) any such arrangement, agreement, licence, permit, franchise or otherinstrument, or any right, interest, liability or obligation of any member of theWider Innovata Group or Wider Vectura Group under any such arrangement,agreement, licence, permit, franchise or other instrument being terminated oradversely modified or affected or any onerous obligation or liability arisingadverse action being taken or arising under any such arrangement, agreement,licence, permit, franchise or other instrument; (iv) the interests or business of any member of the Wider Innovata Groupor Wider Vectura Group in or with any other person, firm or company (or anyarrangements relating to such interest or business) being terminated ormaterially and adversely affected; (v) any member of the Wider Innovata Group or Wider Vectura Group ceasingto be able to carry on business under any name under which it presently does so; (vi) any assets or interest of any member of the Wider Innovata Group orWider Vectura Group being or falling to be disposed of or charged or any rightarising under which any such asset or interest could be required to be disposedof or charged otherwise than in the ordinary course of business; or (vii) the value of any member of the Wider Innovata Group or Wider VecturaGroup or its financial or trading position or prospects being prejudiced oradversely affected, and no event having occurred which, under any provision of any arrangement,agreement, licence, permit, franchise or other instrument to which any member ofthe Wider Innovata Group or Wider Vectura Group is a party or by or to which anysuch member or any of its assets may be bound, entitled or subject, couldreasonably be expected to result in any events or circumstances as are referredto in sub-paragraphs (i) to (vii) of this paragraph (d); (e) in any case where such result would be material and adverse in thecontext of the Wider Innovata Group taken as a whole or, as the case may be, theWider Vectura Group taken as a whole; (f) save as Disclosed, no member of the Wider Innovata Group having since30 September 2005 (being the date to which the latest audited consolidatedreports and accounts of the Innovata Group were made up) and no member of theWider Vectura Group having since 31 March 2006 (being the date to which thelatest audited consolidated reports and accounts of the Vectura Group were madeup), to an extent which is material in the context of the Wider Innovata Grouptaken as a whole or, as the case may be, the Wider Vectura Group taken as awhole: (i) issued or agreed to issue or authorised or proposed the issue ofadditional shares of any class, or securities convertible into, or rights,warrants or options to subscribe for or acquire, any such shares or convertiblesecurities (save for the grant of Innovata Options or Vectura Options, or theissue of Innovata Shares or Vectura Shares on the exercise of Innovata Optionsor Vectura Options (as the case may be), pursuant to the terms of the InnovataOption Schemes or Vectura Option Schemes (as the case may be)); (ii) recommended, declared, paid or made or proposed to recommend,declare, pay or make any bonus, dividend or other distribution, whether payablein cash or otherwise, other than a distribution by any wholly-owned subsidiaryof Innovata or, as the case may be, Vectura; (iii) (save as between wholly-owned subsidiaries of Innovata or, as thecase may be) Vectura merged or demerged with any body corporate or, otherwisethan in the ordinary course of business, acquired or disposed of, ortransferred, mortgaged or charged or created any security interest over, anyassets or any right, title or interest in any asset (including shares), orauthorised, proposed or announced any intention to propose any merger, demerger,acquisition, disposal, transfer, mortgage, charge or security interest; (iv) redeemed, purchased or reduced or announced any proposal to redeem,purchase or reduce any of its own shares or other securities or made, authorisedor proposed or announced its intention to propose any change in its share orloan capital; (v) issued, authorised or proposed the issue of any debentures or (otherthan in the ordinary course of business) incurred or increased any indebtednessor contingent liability; (vi) entered into, varied or terminated, or authorised, proposed orannounced its intention to enter into, vary or terminate any arrangement,contract or commitment (whether in respect of capital expenditure or otherwise),other than in the ordinary course of business, which is of a long term, onerousor unusual nature or magnitude or which involves or could involve an obligationof a nature or magnitude which is material in the context of the Wider InnovataGroup taken as a whole or, as the case may be, the Wider Vectura Group taken asa whole; (vii) entered into or varied the terms of, or made any offer (which remainsopen for acceptance) to enter into or vary the terms of, any service contract orother agreement with any director or senior executive of Innovata or, as thecase may be, Vectura; (viii) implemented, authorised or proposed the entry into of, or announcedits intention to implement or enter into, any contract, transaction,reconstruction, amalgamation, commitment, scheme or other arrangement otherwisethan in the ordinary course of business; (ix) taken any corporate action or (to an extent which is material in thecontext of the Innovata Group taken as a whole or, as the case may be, theVectura Group taken as a whole) had any legal proceedings started or threatenedagainst it for its winding-up, dissolution or reorganisation or for theappointment of a receiver, manager, administrator, administrative receiver,trustee, provisional liquidator, liquidator or similar officer in respect of allor any of its assets and revenues or any analogous proceedings or steps in anyjurisdiction having been taken or for the appointment of any analogous person inany jurisdiction to have occurred; (x) waived or compromised any claim, other than in the ordinary course ofbusiness, which is material in the context of the Wider Innovata Group taken asa whole or, as the case may be, the Wider Vectura Group taken as a whole; (xi) made or agreed or consented to any change to the terms of the trustdeeds constituting the pension schemes established for its directors and/oremployees and/or their dependants or to the benefits which accrue, or to thepensions which are payable under such schemes, or to the basis on whichqualification for or accrual or entitlement to such benefits or pensions arecalculated or determined or to the basis upon which the liabilities (includingpensions) of such pension schemes are funded, or made or agreed or consented toany change to the trustees, in each case which is material in the context or theWider Innovata Group taken as a whole or, as the case may be, the Wider VecturaGroup taken as a whole; (xii) made any amendment to its memorandum or articles of association; (xiii) entered into any contract, transaction or arrangement which is ormay be materially restrictive on the business of any member of the WiderInnovata Group or, as the case may be, the Wider Vectura Group other than of anature and to an extent which is not unusual in the context of the businessconcerned; (xiv) been unable or admitted in writing that it is unable to pay its debtsor having stopped or suspended (or threatened to stop or suspend) payment of itsdebts generally or ceased or threatened to cease carrying on all or asubstantial part of its business; or (xv) entered into any contract, commitment or arrangement or passed anyresolution in general meeting with respect to, or proposed or announced anyintention to effect or propose, any of the transactions, matters or eventsreferred to in this paragraph (f); (g) save as Disclosed, since 30 September 2005 (being the date to whichthe latest audited consolidated reports and accounts of the Innovata Group weremade up): (i) no adverse change, and no other circumstance which would or might belikely to result in any adverse change, in the business, assets, financial ortrading position or profits or prospects of any member of the Wider InnovataGroup having occurred which is material in the context of the Wider InnovataGroup taken as a whole; (ii) no litigation, arbitration, prosecution or other legal proceedingshaving been threatened, announced, instituted or become pending and remainingoutstanding by, against or in respect of any member of the Wider Innovata Groupor to which any member of the Wider Innovata Group is or may be a party (whetheras plaintiff or defendant or otherwise) and no investigation by any RelevantAuthority or other investigative body against or in respect of any member of theWider Innovata Group having been threatened, announced, implemented, institutedor become pending and remaining outstanding by, against or in respect of anymember of the Wider Innovata Group in any such case which would or mightreasonably be expected materially and adversely to affect the Wider InnovataGroup taken as a whole; and (iii) no contingent or other liability having arisen or having beenincurred which might be reasonably expected materially and adversely to affectany member of the Wider Innovata Group taken as a whole; (h) save as Disclosed, since 31 March 2006 (being the last date to whichthe latest audited consolidated reports and accounts of the Vectura Group weremade up): (i) no adverse change, and no other circumstance which would or might belikely to result in any adverse change, in the business, assets, financial ortrading position or profits or prospects of any member of the Wider VecturaGroup having occurred which is material in the context of the Wider VecturaGroup taken as a whole; (ii) no litigation, arbitration, prosecution or other legal proceedingshaving being threatened, announced, instituted or become pending and remainingoutstanding by, against or in respect of any member of the Wider Vectura Groupor to which any member of the Wider Vectura Group is or may be a party (whetheras plaintiff or defendant or otherwise) and no investigation by any RelevantAuthority or other investigative body against or in respect of any member of theWider Vectura Group having being threatened, announced, implemented, institutedor become pending and remaining outstanding by, against or in respect of anymember of the Wider Vectura Group in any such case which would or mightreasonably be expected materially and adversely to affect the Wider VecturaGroup taken as a whole; and (iii) no contingent or other liability having arisen or having beenincurred which might be reasonably expected materially and adversely to affectany member of the Wider Vectura Group taken as a whole; (i) Vectura not having discovered regarding the Wider Innovata Group andInnovata not having discovered regarding the Wider Vectura Group: (i) any financial, business or other information in relation tocircumstances existing prior to the Announcement Date which is material in thecontext of the Proposal and which has not been Disclosed by Innovata or Vecturato the other prior to such date; (ii) any financial, business or other information concerning any memberof the Wider Innovata Group or, as the case may be, the Wider Vectura Grouppublicly disclosed at any time by any member of the Wider Innovata Group or, asthe case may be, the Wider Vectura Group is misleading, contains amisrepresentation of fact or omits to state a fact necessary to make suchinformation not misleading which in any case is material and adverse to thefinancial or trading position of the Wider Innovata Group taken as a whole or,as the case may be, the Wider Vectura Group taken as a whole and suchinformation has not been corrected by a subsequent announcement to a RegulatoryInformation Service by or on behalf of any member of the Wider Innovata Groupor, as the case may be, the Wider Vectura Group; (iii) any member of the Wider Innovata Group or, as the case may be, theWider Vectura Group is subject to any liability, contingent or otherwise, whichis not disclosed in the annual report and accounts of Innovata for the yearended 30 September 2005 or the preliminary statement of results of Innovata forthe year ended 30 September 2006 or the annual report and accounts of Vecturafor the year ended 31 March 2006 or the interim financial statements of Vecturafor the six months ended 30 September 2006 and which is material in the contextof the Wider Innovata Group taken as a whole or, as the case may be, the WiderVectura Group taken as a whole; (iv) any past or present member of the Wider Innovata Group or, as thecase may be, the Wider Vectura Group has failed to comply with any applicablelegislation or regulations of any jurisdiction with regard to the disposal,discharge, spillage, leak or emission of any waste or hazardous or harmfulsubstance or any substance likely to impair the environment or harm human oranimal health or otherwise relating to environmental matters, or that there hasotherwise been any such disposal, spillage, release, discharge, leak or emission(whether or not the same constituted non-compliance by any person with any suchlegislation or regulation, and wherever the same may have taken place), any ofwhich would be reasonably likely to give rise to any liability (whether actualor contingent) or cost on the part of any member of the Wider Innovata Group or,as the case may be, the Wider Vectura Group and which is material in the contextof the Wider Innovata Group taken as a whole or, as the case may be, the WiderVectura Group taken as a whole; or (v) there is or is reasonably likely to be any liability (whetheractual or contingent) to make good, repair, re-instate or clean up any propertynow or previously owned, occupied, operated or made use of or controlled by anypast or present member of the Wider Innovata Group or, as the case may be, theWider Vectura Group or in which any such member may now or previously had aninterest under any environmental legislation, regulation, notice, circular ororder of any Relevant Authority or third party or otherwise and which ismaterial in the context of the Wider Innovata Group taken as a whole or, as thecase may be, the Wider Vectura Group taken as a whole; 3. Save with the consent of the Panel, the Proposal will lapse and theScheme will not proceed if, before the date of the Court Meeting, followinginvestigation by the Office of Fair Trading there is a reference of theAcquisition, or any part of it, to the Competition Commission. 4. Vectura reserves the right to elect to implement the Acquisition by wayof a takeover offer. In such event, such offer will be implemented on the sameterms (subject to appropriate amendments, including (without limitation) anacceptance condition set at ninety per cent. of the Innovata Shares to whichsuch offer relates, so far as applicable, as those which would apply to theScheme. 5. Vectura and Innovata, acting together, reserve the right to waive allor any of the conditions contained in paragraphs 2(a),(b) and (c), in whole orin part. Vectura reserves the right to waive all or any of the conditions inparagraphs 2(d), (e), (f) and (h) so far as they relate to the Innovata Group orthe Wider Innovata Group, in whole or in part. Innovata reserves the right towaive all or any of the conditions in paragraphs 2(d),(e), (g) and (h) so far asthey relate to the Vectura Group or the Wider Vectura Group, in whole or inpart. 6. Vectura shall be under no obligation to waive or treat as satisfied,and Innovata shall be under no obligation to waive or treat as satisfied any ofthe Conditions in paragraph 2 by a date earlier than the latest date forsatisfaction thereof, notwithstanding that the other Conditions of the Proposalmay at such earlier date have been waived or fulfilled and that there are atsuch earlier date no circumstances indicating that any of the Conditions may notbe capable of fulfilment. 7. If Vectura is required by the Panel to make an offer for InnovataShares under the provisions of Rule 9 of the City Code, Vectura may make suchalterations to any of the above Conditions as are necessary to comply with theprovisions of that Rule. The Proposal and the Scheme are governed by English law and are subject to thejurisdiction of the English Courts. APPENDIX II BASES AND SOURCES OF THE FINANCIAL INFORMATION SET OUT IN THIS ANNOUNCEMENT 1. Unless otherwise stated: i. Financial information relating to Innovata has been extracted withoutmaterial adjustment from the Innovata preliminary audited results for thefinancial year ended 30 September 2006; and ii. Financial information relating to Vectura has been extracted withoutmaterial adjustment from the unaudited interim results of Vectura for the 6months ended 30 September 2006 and the published reports and accounts of Vecturafor the two financial years ended 31 March 2006. 2. The value of the existing issued share capital of Innovata ofapproximately £130.9 million is based on 503,158,305 Innovata Shares in issue asat 16 November 2006 (source: Innovata). 3. Unless otherwise stated, all prices quoted for shares are closingmid-market prices as extracted from the London Stock Exchange website. 4. The percentage ownership of the Enlarged Group held by InnovataShareholders and Vectura Shareholders is based on the enlarged issued sharecapital of Vectura following the Acquisition, being the aggregate of 168,834,281Vectura Shares in issue on 15 November 2006 (source: Vectura registrar) andapproximately 143,821,795 million new Vectura Shares to be issued pursuant tothe Proposal. This assumes no exercise of options under the Vectura ShareSchemes or the Innovata Share Schemes. 5. The combined cash and liquid investments of Vectura and Innovata are anaggregate of the cash and liquid investments of each company as extracted fromthe Innovata preliminary audited results for the financial year ended 30September 2006 and the unaudited Vectura interim results for the 6 months ended30 September 2006 (before taking into account any Acquisition costs). APPENDIX III DEFINITIONS The following definitions apply throughout this announcement, unless the contextotherwise requires: "Act" or "Companies Act" the Companies Act 1985 (as amended)"Acquisition" the acquisition of Innovata by Vectura pursuant to the Scheme"Admission" admission of the existing Vectura Shares and/or of the new Vectura Shares to trading on AIM in accordance with the AIM Rules"AIM" AIM, a market operated by the London Stock Exchange"AIM Rules" rules published by the London Stock Exchange governing, inter alia, admission to AIM and the continuing obligations of companies admitted to AIM, as amended from time to time"Articles" the articles of association of Innovata"authorisations" authorisations, orders, recognitions, grants, consents, licences, confirmations, clearances, permissions and approvals"Board" the board of Vectura or the board of Innovata as the context requires"Closing Price" the closing middle market quotation of one Vectura Share and /or of one Innovata Share as derived from the Daily Official List"Code" or "City Code" the City Code on Takeovers and Mergers"Conditions" the conditions to the implementation of the Proposal (including the Scheme) set out in Appendix I to this announcement"Conduct Agreement" the agreement dated 17 November 2006 and entered into between Innovata and Vectura in connection with the Proposal"Court" the High Court of Justice in England and Wales"Court Hearing" the hearing by the Court of the petition to sanction the Scheme"Court Meeting" the meeting of Innovata Shareholders to be convened by order of the Court pursuant to section 425 of the Companies Act to consider and, if thought fit, approve the Scheme, including any adjournment thereof"Court Order" the order of the Court sanctioning the Scheme under section 425 of the Companies Act and confirming the associated Reduction of Capital of Innovata pursuant to the Scheme under section 137 of the Companies Act"Court Sanction" the sanction (with or without modification) of the Scheme and confirmation of the associated Reduction of Capital by the Court"Daily Official List" the Daily Official List of the London Stock Exchange"Dealing Day" a day on which the London Stock Exchange is open for business in the trading of securities admitted to AIM"Disclosed" (a) in respect of Innovata: (i) as disclosed in the audited consolidated reports and accounts of the Innovata Group for the year to 30 September 2005; (ii) as publicly announced by Innovata (through a Regulatory Information Service) prior to today; (iii) as disclosed in this announcement; or the simultaneous announcement made by Innovata of its preliminary results for the year ended 30 September 2006; or (iv) as otherwise fairly disclosed in writing to Vectura or its advisers by or on behalf of Innovata prior to today; and (b) in respect of Vectura: (i) as disclosed in the audited consolidated reports and accounts of the Vectura Group for the year to 31 March 2006 and the unaudited interim results for the 6 months ended 30 September 2006; (ii) as publicly announced by Vectura (through a Regulatory Information Service) today; (iii) as disclosed in this announcement; or (iv) as otherwise fairly disclosed in writing to Innovata or its advisers by or on behalf of Vectura prior to today"Effective Date" the date on which the Scheme becomes effective in accordance with its terms"Enlarged Group" the Vectura Group as enlarged by the Proposal"Enlarged Share Capital" the issued share capital of Vectura as enlarged by the issue of the new Vectura Shares"Existing Vectura Shares" the Vectura Shares in issue at the date of this announcement"Explanatory Statement" the explanatory statement relating to the Scheme to be set out in the Scheme Document, constituting the explanatory statement required by section 426 of the Act"FSA" the UK Financial Services Authority"FSMA" the Financial Services and Markets Act 2000 as amended from time to time"Hearing Date" the date on which the Court Hearing is held"Innovata" Innovata plc, a public company registered in England and Wales with company number 2148607"Innovata Director" a director of Innovata"Innovata Extraordinary General Meeting" the extraordinary general meeting of Innovata to be convened to consider the resolutions required to approve and implement the Scheme and the Proposal, including any adjournment thereof"Innovata Group" Innovata and its subsidiary undertakings"Innovata Optionholder" a holder of Innovata Options"Innovata Options" options to acquire shares granted pursuant to an Innovata Share Scheme"Innovata Shareholder(s)" holder(s) of Innovata Shares"Innovata Share Schemes" The ML Laboratories PLC Executive Share (1989) Option Scheme and the ML Laboratories PLC 1999 Executive Share Option Scheme"Innovata Shares" ordinary shares of £0.01 in the capital of Innovata"Individual Option Arrangements" the option over 1,000,000 Innovata Shares granted to Ian Kent and the option over 2,000,000 Innovata Shares granted to Kieran Murphy by resolution of shareholders at Innovata's 2005 extraordinary general meeting "London Stock Exchange" London Stock Exchange plc"new Vectura Shares" the new Vectura Shares proposed to be issued by Vectura (credited as fully paid) as consideration under the Proposal"Nomura Code" Nomura Code Securities Ltd"Offer Period" the period from 17 November 2006 until the Effective Date"Overseas Innovata Shareholders" Innovata Shareholders resident in, or nationals or citizens of, jurisdictions outside the UK"Panel" the Panel on Takeover and Mergers"Paul Capital Agreement" the Revenue Management Agreement dated 28 June 2001 between Paul Capital Royalty Acquisition Fund, L.P ("Paul Capital") and Innovata (as subsequently amended and restated), the benefit of which is now held by RST, the successor in interest to Paul Capital."Piper Jaffray" Piper Jaffray Ltd"Proposal" the proposed acquisition of all the issued and to be issued ordinary share capital of Innovata by Vectura by means of the Scheme and pursuant to the Articles as proposed to be amended at the Innovata Extraordinary General Meeting"Reduction of Capital" the reduction of capital of Innovata proposed to be implemented as part of the Scheme"Registrar of Companies" the Registrar of Companies in England and Wales"Registrars " Capita Registrars of Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU"Regulatory Information Service" any of the services on the list of Regulatory Information Services maintained by the Financial Services Authority"RST" Royalty Securitization Trust I"Scheme" the proposed scheme of arrangement under section 425 of the Companies Act between Innovata and the holders of Scheme Shares, with or subject to any modification or addition thereto or condition approved or imposed by the Court and agreed by Innovata and Vectura"Scheme Document" the document to be sent to Innovata Shareholders containing details of the Scheme"Scheme Record Time" 6.00 p.m. on the Dealing Day immediately preceding the Hearing Date"Scheme Shareholders" holders of the Scheme Shares"Scheme Shares" all of the Innovata Shares: (i) in issue at the date of the Scheme; (ii) (if any) issued after the date on which the Scheme Document is posted of this Scheme and prior to the Voting Record Time; and (iii) (if any) issued on or after the Voting Record Time and before the close of business on the business day preceding the Hearing Date, in respect of which the original or any subsequent holder of it is or shall have agreed in writing to be bound by the Scheme"Significant Interest" a direct or indirect interest of 10% or more of the equity share capital (as defined in the Act)"third party" includes person, firm, company or body"UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland"United States" or "US" the United States of America, its territories and possessions, any state of the United States and the District of Columbia"US Securities Act" the United States Securities Act of 1933, as amended from time to time"Vectura" Vectura Group plc, a public company registered in England and Wales with company number 3418970"Vectura Admission Document" the admission document to be published by Vectura in connection with the Proposal in accordance with the AIM Rules"Vectura Director" a director of Vectura"Vectura Group" Vectura and its subsidiary undertakings"Vectura Option" options to acquire Vectura Shares granted pursuant to a Vectura Share Scheme"Vectura Shareholders" holders of Vectura Shares"Vectura Shareholder Meeting" an extraordinary general meeting of Vectura to be convened for the purpose of considering and, if thought fit, approving resolutions to be proposed to approve and implement"Vectura Shares" ordinary shares of 0.025 pence each in the capital of Vectura"Wider Innovata Group" Innovata and its subsidiary undertakings, associated undertakings and any other undertaking in which Innovata and /or such undertakings (aggregating their interest) have a significant interest"Wider Vectura Group" Vectura and its subsidiary undertakings, associated undertakings and any other undertaking in which Vectura and/ or such undertakings (aggregating their interest) have a significant interest This information is provided by RNS The company news service from the London Stock Exchange

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