24th Jun 2005 13:30
SR Pharma plc ("SR Pharma" or "the Company")Acquisition of Atugen AGOn 21 June 2005 the Company announced that it had entered into a conditionalagreement to acquire Atugen AG a biotechnology company based in Berlin,Germany. By virtue of its size, this transaction constitutes a reversetake-over under the AIM Rules and as such requires the approval of SR Pharmashareholders. The Company requested a short suspension of trading in SRPharma's shares pending publication of a circular to shareholders.The Company is today posting a circular, comprising an AIM admission document,to shareholders, giving details of the proposed transaction and convening anextraordinary general meeting at 9.30 a.m. on 11 July 2005 at which SR Pharmashareholders are being asked to approve the proposed acquisition of Atugen AG.The full text of the Chairman's letter contained within the circular isappended below. Copies of the circular will be available at the Company'sregistered office, 22 Melton Street, London NW1 2BW during normal working hoursuntil at least 12 August 2005.The Company has today also requested that the Company's shares be restored totrading on AIM and this is expected to take place with immediate effect.Enquiries:For further information, please contact the following:SR Pharma plc Atugen AG +44(0)20 7307 1620 +49 30 9489 2800 Iain Ross Chairman Thomas Christely Melvyn Davies Finance Director Mulier Capital Bioscience Managers Limited Advisers to SR Pharma Advisers to Atugen +44(0)20 7821 6111 +44 (0)20 7225 4400 Pieter Mulier Michael Forer Zoe Appleyard Ley LETTER FROM THE CHAIRMAN OF SR PHARMA PLC 24 June 2005To the holders of Ordinary SharesDear Shareholder Proposed acquisition of Atugen Re-admission to AIM IntroductionOn 21 June 2005, the Company entered into the Acquisition Agreementconditional, inter alia, on the consent of Shareholders, to acquireapproximately 96 per cent. of the issued share capital of Atugen and anagreement to acquire certain indebtedness of Atugen for a total considerationof ‚£6.16 million to be satisfied by the issue of the Consideration Shares. Anoffer has been made to acquire the remaining shares in Atugen for an aggregateconsideration of approximately ¢â€š¬52,000 to be satisfied by a combination ofConsideration Shares and cash.By virtue of its size, the Acquisition constitutes a reverse takeover under theAIM Rules and requires the consent of Shareholders. The purpose of thisdocument is to provide Shareholders with information on the Company, Atugen andthe Acquisition, to explain why the Directors believe that the Acquisition isin the best interests of the Company and Shareholders as a whole and to seekthe requisite approval for it at the EGM, notice of which is set out in Part Vof this document.Background to the AcquisitionSR Pharma was established to develop novel therapeutic applications based onthe Company's proprietary M. vaccae technology. Although SR Pharma has beenunable so far to demonstrate a clear therapeutic advantage for its M. vaccaeproducts, the Directors believe that these products have considerable potentialin the oncology sector and in inflammatory conditions.Following a review of the Company's position, the Board took the decision inlate 2004 to adopt a merger and acquisition strategy and, in particular, totarget the acquisition of under-valued assets and businesses in order toaugment the Company's capabilities and provide a basis to re-evaluate M. vaccaein specific indications. The proposed acquisition of Atugen is the first suchtransaction to come to fruition.Information on AtugenEstablished in 1998, Atugen is a biotechnology company based in Berlin,Germany, which is developing RNAi therapeutics as a new class of drugs with asignificant pharmaceutical market potential. Atugen has 34 staff, including adiscovery research team, which has established core competencies in the fieldof siRNA therapeutics, where it is one of the market leaders. RNAi is a processwhereby the production of disease causing proteins by a target cell can bestopped by preventing the translation of the genes which encode them byinhibiting or "silencing" their function. This RNAi process can be initiated bythe introduction into the target cell of synthetic short interfering RNA("siRNA").Atugen's proprietary technologies include atuRNAi, chemically stabilised siRNAmolecules and atuPLEX, a liposomal system for the in vivo delivery of thesemolecules. In particular, Atugen is focusing on systemic delivery applicationsfor RNAi.A key element of Atugen's technology is Atugen's proprietary GeneBloc‚®molecules, small, synthetic DNA and RNA-containing molecules that bindspecifically to target mRNA in the cell. This binding of GeneBloc‚® moleculesprevents translation of the target mRNA into protein, thus interfering withnormal biological function and, where disease causing proteins are targeted,inhibiting thereby the production of disease-causing proteins. GeneBlocs‚® areused for cross-validation experiments to confirm the specificity of its siRNAmolecules as well as for target validation studies.Atugen has benefited from approximately ¢â€š¬30 million of venture capitalinvestment (including from TBG and Ribozyme Pharmaceuticals Inc.) and has alsobeen able to access more than ¢â€š¬7 million of German government grant funding tosupport the development of its product and intellectual property portfolio.Atugen's current intellectual property portfolio includes exclusive andnon-exclusive licenses to more than 100 patents and patent applications alongwith approximately 50 of Atugen's own patent applications, coveringtechnologies including GeneBloc‚®, RNAi technology, transfection reagents andinternally-validated drug targets. Among the portfolio of Atugen's proprietary,functionally validated drug targets are druggable and non-druggable targets inoncology. In addition to its oncology programme, Atugen has shown the utilityof its siRNA candidates for treatment of metabolic and inflammatory diseases.The Directors and the Proposed Directors believe that Atugen's technology has anumber of important strengths including, inter alia, a stability that makesintravenous use possible, the potential ability to introduce siRNA therapeuticsinto the cytoplasm of cells and a high degree of specificity with respect tothe mRNA embodying the genetic sequence of the targeted gene. As a result theDirectors and the Proposed Directors believe that Atugen has today a wellestablished `leading edge' proprietary technology base in the RNA interferencetherapeutic area using its proprietary siRNA molecules.Atugen has targeted the oncology sector as an appropriate market for itstherapeutic molecules and has a number of product candidates in pre-clinicaldevelopment. In addition, through its contract research activity, Atugen hasbeen able to establish a source of revenue income.Atugen has established drug development collaborations in the field of RNAitherapeutics with a number of companies including Sanofi-Aventis and QuarkBiotech, Inc. In addition, Atugen has generated approximately ¢â€š¬20 million ofcontract research revenues to date through its partners who have included,amongst others, AstraZeneca plc, Berlex, Inc. (a subsidiary of Schering AG),Altana Pharma AG and Sankyo Ltd and has initiated academic collaborations withhigh profile institutions such as University of California, San Francisco andthe ETH, Zurich.CompetitionAtugen considers Alnylam Pharmaceuticals, Inc., Sirna Therapeutics, Inc. andAcuity Pharmaceuticals, Inc. as its major direct competitors in the therapeuticRNA interference area using synthetic siRNA molecules. There are otherpotential competitors, e.g. Benitec, Inc. and Nucleonics, Inc., which are usinga form of RNA known as "expressed short hairpin RNA" molecules. However, Atugenbelieves that the expressed short hairpin RNA molecules will face the samedifficulties as those faced by gene therapy companies, namely delivery andpersistent expression in the target cells.There are other possible competitors using antisense technology such as IsisPharmaceuticals, Inc. and Genta Incorporated. Antisense technology involves theuse of mirror images of RNA molecules to bind to them, making them unavailableto enable translation, thereby inhibiting the synthesis of the proteins theyencode. However, Atugen believes that its siRNA technology, in particular themode of action of siRNA molecules and their delivery to target cells usingliposomes, has benefits over antisense approaches, such as higher potency andcatalytic mode of action in gene silencing.In principle, companies developing small molecule drugs and antibodies couldalso be viewed as competitors. However, to neutralise disease-causing proteins,antibodies require access to them, such that they must be outside of cells.Similarly, small molecules require, in the majority of instances, so calleddruggable targets for efficacy. In contrast, the Atugen siRNA technology is notrestricted by any of these constraints. siRNA molecules can, in principle, bedeveloped against any gene target irrespective of whether the target isdruggable or non-druggable, intra- or extra-cellular.Atugen tradingDuring the year ended 31 December 2004 Atugen generated revenues of ¢â€š¬3.5million on which it made a net loss of ¢â€š¬2.8 million after incurring researchand development expenditure of ¢â€š¬3.1 million. Atugen has continued to generaterevenues from contract research, target validation and other services andgrants, albeit at a lower level than in 2004, incurring further losses. Atugenhas continued to invest in research and development, also at a lower level thanin 2004, due principally to cash constraints.Reasons for the AcquisitionThe Directors and the Proposed Directors believe that the Acquisition willallow SR Pharma to strengthen considerably its research and developmentcapability and broaden its product pipeline and intellectual propertyportfolio. By combining the competencies of the two companies, the Directorsand the Proposed Directors believe that the Enlarged Group will be able tobuild a credible European biotechnology business. In particular, the Directorsand the Proposed Directors believe the Acquisition will enable SR Pharma to:¢â€" access a technology platform already proven to be the source of innovativeproducts and a team of scientists experienced in the discovery and pre-clinicaldevelopment of new therapeutic molecules;¢â€" access technology that is applicable to, and scientific personnel withcapabilities and experience in, the oncology and inflammatory market sectors;¢â€" expand its intellectual property portfolio by providing coverage for a newclass of therapeutics and the delivery thereof;¢â€" access third party collaborators and partners who could further enhance thedevelopment of SR Pharma's existing product and intellectual propertyportfolio; and¢â€" build a sustainable revenue-generating contract services business.Integration of SR Pharma and AtugenThe Enlarged Group will combine its expertise and technologies to positionitself as a European biotechnology group with an expanded range of innovativeproduct opportunities. The Enlarged Group will seek to derive value by focusingon four specific initiatives, comprising:¢â€" the development of oncology therapeutics up to and including Phase IIclinical trials, thereafter seeking collaborative partners;¢â€" the development of inflammatory therapeutics in collaboration with thirdparties;¢â€" out-licensing and partnering the Enlarged Group's product portfolio for allother therapeutic sectors; and¢â€" the development of a growing and sustainable revenue stream based uponcontract research and collaboration revenues.The Enlarged Group will concentrate upon those projects that the Directors andthe Proposed Directors believe have the highest chance of technical success andthe greatest commercial potential. As a consequence, the Enlarged Group maydiscontinue, license out and/or dispose of certain projects.Once SR Pharma has integrated Atugen, the Directors and the Proposed Directorsintend to locate the Enlarged Group's discovery research activities in Berlin,to outsource its pre-clinical and clinical development to Fulcrum PharmaDevelopments Limited in the UK and to appoint Eden Biopharm Limited, of which Iam a director, in the North West of England to advise on appropriate productdevelopment and GMP manufacturing strategies for the Enlarged Group's products.The Enlarged Group will retain a small corporate development office in Londonand it is intended that the integration of the businesses of the Enlarged Groupwill be completed within three months of the Acquisition.The Directors and the Proposed Directors intend to operate the Enlarged Groupunder the SR Pharma name and will operate Atugen as a wholly owned subsidiary.The Enlarged Group will make use of the Atugen trademarks where consideredappropriate.Acquisition AgreementAs set out above, the Company has entered into the Acquisition Agreement. TheAcquisition Agreement provides that the Company will acquire approximately 96per cent. of the issued share capital of Atugen in consideration of the issueto certain Atugen shareholders of 19,734,033 Consideration Shares. Theremaining 4 per cent. of Atugen's issued share capital (the "Atugen MinorityShares") will be acquired by SR Pharma either in return for the issue offurther Consideration Shares or cash or at the option of SR Pharma compulsorilyfor cash pursuant to German squeeze-out legislation. The maximum number ofConsideration Shares (including the Placing Shares referred to below) that maybe issued in return for the acquisition of 100 per cent. of the issued sharecapital of Atugen and certain indebtedness of Atugen as discussed below is22,949,019 Consideration Shares, which would comprise 49 per cent. of theissued share capital of SR Pharma as enlarged by the issue of the ConsiderationShares. To the extent that any Atugen Minority Shares are acquired for cash,the number of Consideration Shares to be issued would reduce and the Directorsand Proposed Directors anticipate that the maximum cash consideration payablewould not exceed ¢â€š¬52,000. The Consideration Shares will, when issued, rank paripassu in all respects with the existing issued Ordinary Shares.The Acquisition is conditional upon, inter alia, the following:¢â€" approval by Shareholders at an extraordinary general meeting of the Company;¢â€" admission of the Consideration Shares to trading on AIM; and¢â€" the lock-in arrangements detailed in paragraph 5(b) of Part IV of thisdocument being duly entered into.TBG has granted soft loans to Atugen (the "Soft Loans"). Pursuant to theagreement detailed in paragraph 5(d) of Part IV of this document, it isintended that the Company will acquire the Soft Loans in the following manner:(i) the Company will issue 2,481,765 Ordinary Shares (the "Placing Shares") toApax Europe IV-A LP ("Apax") at a price of 27p per Ordinary Share, amounting to‚£670,076.55 in aggregate; and(ii) the Company will acquire the Soft Loans from TBG for approximately ‚£700,000.The issue of Ordinary Shares to Apax and acquisition of the Soft Loans areinterconditional with the Acquisition and Admission.In addition, Apax has agreed that it will sell the Placing Shares to TBG, suchsale to take effect immediately following Admission. Upon Admission, but beforethe sale of the Placing Shares to TBG, Apax will hold approximately 33 percent. of the issued share capital of the Company. The Panel on Takeovers andMergers has agreed that Apax does not need to make an offer for the Companypursuant to Rule 9 of the City Code on Takeovers and Mergers, on the basis thatthe Placing Shares are to be transferred to TBG immediately following Admissionand that Apax will therefore not be able to vote in respect of the PlacingShares.Current trading and prospectsBoth SR Pharma and Atugen have incurred net losses in each year since theirrespective inceptions and the Enlarged Group is expected by the Directors andthe Proposed Directors to continue to incur substantial losses and cashoutflows for the foreseeable future. It is expected that the expenditure to beincurred over the next three years will be financed by existing cash reserves,revenues and new equity finance.The Directors and Proposed Directors expect that revenues will be generated inthe form of research and development fees, milestone payments, licence fees androyalties from both existing and new clients, collaborative partners andlicensees. In addition, the Enlarged Group will seek further developmentpartners to share development costs, particularly the significant coststypically associated with late-stage trials and commercialisation.Substantial profitability will only be achieved if the technology and productportfolio of the Enlarged Group result in healthcare products achievingregulatory and marketing approval and are commercialised, perhaps inpartnerships with major companies.Financing proposalsIn order to develop the technologies of the Enlarged Group, SR Pharma will needto raise additional funds, which the Directors and the Proposed Directorscurrently anticipate would be by means of an equity fundraising through aplacing with institutional investors organised by Mulier Capital Limited("Fundraising"). The Fundraising would also be intended to enable the EnlargedGroup to exploit opportunities that may arise to acquire undervalued assets andbusinesses. As a result, there is an intention to incentivise the Directors andthe Proposed Directors at the time of the Fundraising in the form of bonusesand options, details of which proposals are set out in paragraphs 3(d) and 3(e)of Part IV of this document.The Acquisition is not conditional upon the Fundraising. If, however, theFundraising did not take place, the Company would need to take steps to reduceits cashburn and the Directors and the Proposed Directors have identifiedspecific actions including the delay and or cancellation of some of theidentified development projects, a general reduction in research anddevelopment, a reduction in staff numbers and additional measures to reducecentral administration costs. In addition, the Directors and the ProposedDirectors would be forced to look at partnering projects at an earlier stagethan otherwise anticipated in order to generate additional funds in the shortterm. This could lead to a potential delay in the creation of shareholder valueand a possible diminution of long term value.Action the SR Pharma Directors would take if the Proposals were rejectedThe proposed Acquisition is the result of analysis of the various opportunitiesavailable. The Directors believe that Atugen represents the best of theopportunities that they have reviewed. If Shareholders do not approve theAcquisition, the Directors would continue their ongoing search for analternative acquisition or merger opportunity which they believed would formthe basis for a significant fundraising, having regard for the fact that theCompany will have declining cash resources.Directors and Proposed DirectorsFollowing the Acquisition, I will become Executive Chairman and, dependent onthe success of the Fundraising, will devote up to 75 per cent. of my time tothe development of the Enlarged Group. Melvyn Davies will continue as FinanceDirector with Peter Reynolds and Iain Rugheimer remaining as Non-ExecutiveDirectors. Upon completion of the Acquisition, Jeremy Curnock Cook, Dr DavidU'Pritchard and Dr Bernd Wetzel, all currently members of the AtugenSupervisory Board, will join the Board as Non-Executive Directors. Details ofthe proposed terms of employment of the Directors and the Proposed Directorsare set out in paragraphs 3(d) and 3(e) of Part IV of this document.Upon completion, Melvyn Davies, Jeremy Curnock Cook and I will comprise theSupervisory Board of Atugen and Thomas Christely, Chief Operating Officer andDr Klaus Giese, Chief Scientific Officer will form the Management Board ofAtugen.Upon completion of the Acquisition, Dr Jeremy Reffin, Dr Steven St. Peter andDr Michael Steinmetz, currently on the Supervisory Board of Atugen, will resignas directors and will have no further involvement in the Enlarged Group.Atugen's current Chief Executive Officer, Dr Peter Buckel, will also shortlystand down.Under the existing service contracts and letters of appointment, each of theDirectors was entitled to a bonus upon a change of control of the Company.Although the Acquisition will not constitute a change of control, given themagnitude of the Acquisition, the Board of Directors of the Company has agreedto pay bonuses to each of the Directors upon completion of the Acquisition asif the Acquisition did constitute a change of control. The Directors haveagreed to defer payment of these bonuses until completion of the Fundraising.Further details of these bonuses are set out in paragraphs 3(d) and 3(e) ofPart IV of this document.Current DirectorsIain Ross, aged 51, BSc (Hons) Biochemistry, is an experienced businessentrepreneur in the pharmaceutical and biotechnology sector and has held anumber of senior positions with companies in the UK and internationallyincluding Sandoz AG, Hoffmann-La Roche AG and Celltech Group plc. He has raisedsubstantial funds, both publicly and privately and has direct experience ofmergers and acquisitions both in the UK and USA. Currently Mr Ross is Chairmanof Biomer Technology Ltd and is a non-executive director of a number ofcompanies in the sector including Angle plc, Eden Biopharma Group Limited andPharmacia Diagnostics (Swedish DIA (Sweden) AB). Mr Ross, who joined the Boardin 2004, is a Chartered Director of the UK Institute of Directors.Melvyn Davies, aged 49, is a Chartered Accountant with over 25 years'experience advising and assisting both large and small businesses. Formerly apartner with a medium-sized London based firm of Chartered Accountants, hejoined the Board in 1994 having provided external advice to the Group since itsformation and is responsible for the Group's financial, legal and taxationaffairs.Peter Reynolds, aged 67, was appointed a Non-Executive Director in 2004. He hasspent over 30 years as a director of a range of both public and privatecompanies. Mr Reynolds is currently the director of a number of companiesincluding Chairman of Eckoh Technologies plc and a non-executive director ofSwallow Ventures Limited.Iain Rugheimer, aged 51, was appointed a Non-Executive Director in 1994. Hepreviously specialised in pharmaceutical and healthcare company research as aninvestment banker with a number of UK and European investment banks. Morerecently he has focused on helping develop new enterprises either directly oras a consultant through Gunnarson & Co. Limited, of which he is ChiefExecutive.Proposed DirectorsJeremy Curnock Cook, aged 55, is Chairman of Atugen's supervisory board andExecutive Chairman of Bioscience Managers Limited a corporate and investmentadvisory company. Mr. Curnock Cook founded Bioscience Managers Limited inFebruary 2001, following his time at N.M. Rothschild & Sons Limited. During his13 years at Rothschild, Mr. Curnock Cook created and led the RothschildBioscience Unit - the international and multidisciplinary team responsible forthe investment advisory and management of a number of funds. Prior to joiningRothschild, Mr Curnock Cook founded the International Biochemicals Group (IBG)in 1975 and built an 80-person company which he sold to Royal Dutch Shell in1985. Mr. Curnock Cook has served on more than 30 boards of directors in thelife science sector in the UK, Europe, USA, Canada, Japan and Australia.Dr David U'Pritchard, aged 57 was, from 1999 to 2003, Chief Executive Officerand a member of the Board of Directors of 3-Dimensional Pharmaceuticals, Inc.,Yardley PA ("3DP"). During that time he took 3DP public and secured largecollaborations with Bristol-Myers Squibb and Johnson & Johnson. In March 2003,3DP become a part of Johnson & Johnson Pharmaceutical R&D. From 1997 to 1999,Dr U'Prichard served as Chairman of Research and Development at SmithKlineBeecham. While at SmithKline Beecham, Dr U'Prichard oversaw the entry ofapproximately ten compounds into global development, the internationalregistration of the diabetes drug Avandia‚® and the entry of four compounds intoPhase III trials and six compounds into early clinical trials; additionally, heinstituted several major restructuring efforts at the company. Prior toSmithKline Beecham, he worked for ICI/Zeneca from 1986 to 1997, as ExecutiveVice President and International Research Director from 1994 to 1997.Professor Dr Bernd Wetzel, aged 60, is a member of the advisory and supervisoryboard of several companies. In almost 30 years in the global pharmaceuticalindustry, Professor Wetzel has acquired extensive experience in many diseaseareas and enabling technologies, in strategic research and development andmanagement across functions and sites. In 1997 he was appointed Head ofWorldwide Research and Non-clinical Development with responsibility forBoehringer Ingelheim's international research sites and for more than 3,000people. Since 1982 Professor Wetzel has served in various senior managementpositions, amongst them Chief Scientific Officer and member of the board ofBoehringer Ingelheim, Germany. In 1990 Bernd Wetzel was appointed HonoraryProfessor at the Ludwig Maximilian University in Munich, lecturing in MedicinalChemistry. Professor Wetzel was originally trained in synthetic and theoreticalorganic chemistry and obtained a Ph.D. from the Ludwig Maximilian University inMunich in 1970.Share Option SchemesThe Directors and the Proposed Directors believe that the Group's futuresuccess is highly dependent on its management and employees. To assist in therecruitment, retention and motivation of high quality key employees, the Groupmust have an effective remuneration strategy. The Directors and the ProposedDirectors consider that an important part of its remuneration strategy will bethe ability to award equity incentives and, in particular, share options to keyemployees.The Group currently operates an Inland Revenue Approved Share Option Scheme, anUnapproved Share Option Scheme and an Enterprise Management Investment Scheme,the provisions of which are set out in paragraph 2(h) of Part IV of thisdocument. Including options and other subscription rights granted prior toAdmission, the Board currently intends that no more than 15 per cent. of theCompany's issued share capital will be under option from time to time. Thiswill be in addition to any issue of warrants referred to in paragraph 5(f) ofPart IV.Lock-in ArrangementsThe following have agreed not to sell any of their Consideration Shares(amounting, in aggregate, to 21,605,568 Ordinary Shares representingapproximately 46 per cent. of the Enlarged Issued Share Capital) for a periodof 12 months following completion of the Acquisition, without the prior writtenconsent of the Company: Novartis Forschungsstiftung, Apax Europe IV-A LP, BBBioVentures LP, MPM BioVentures Parallel Fund LP, MPM Asset Management 1998LLC, MPM Asset Management LLC, TBG, Thomas Christely, Dr Klaus Giese, Dr AnkeKlippel-Giese, Dr Andre Lochter, Dr Peter Buckel, Dr Jorg Kaufmann and DrOliver Keil.This 12 month lock-in period is, however, subject to a number of carve outs,including:(a) upon the acceptance of an offer for the entire issued share capital of theCompany; and(b) if the Company is advised by Mulier Capital Limited or its AIM Broker thatsuch shares can be sold as part of a successful block-trade.Corporate governanceThe Directors and Proposed Directors will continue to give carefulconsideration to the principles of corporate governance as set out in theCombined Code appended to the Listing Rules issued by the Financial ServicesAuthority, although as a Company quoted on the AIM Market it is not required tocomply with the Combined Code. The Company is small and it is the opinion ofthe Directors and Proposed Directors that not all of the provisions of the Codeare either relevant or desirable for a Company of this size.The Board meets regularly and has ultimate responsibility for the management ofthe Company and sub-committees comprising the Non-Executive Directors meet asand when required to deal with Remuneration and Audit matters.The Directors and Proposed Directors have also considered the guidancepublished by the Institute of Chartered Accountants in England and Wales(commonly known as the Turnbull report) concerning the internal controlrequirements of the Combined Code. The Board will regularly review and managekey business risks in addition to financial risks facing the Company in theoperation of its business.The Company has adopted and will operate a share dealing code for Directors andsenior employees on the same terms as the Model Code appended to the ListingRules of the UKLA.Financial informationThe Company's annual report and accounts for the year ended 31 December 2004were posted to shareholders on 1 June 2005 and a copy will be available until adate at least one month after Admission at the Company's websitewww.srpharma.com.Financial information on Atugen is set out in Part III (A) of this document,along with pro forma financial information set out in Part III (B) showing theBalance Sheet of the Enlarged Group as if the Company had acquired Atugen on 31December 2004. Copies of the financial statements of Atugen for the three yearsended 31 December 2004 are included as appendices to this document.TaxationGeneral information regarding UK taxation in relation to the Proposals andAdmission is set out in paragraph 8 of Part IV of this document. If you are inany doubt as to your tax position you should consult your own financial adviserimmediately.CRESTCREST is a paperless settlement procedure enabling securities to be evidencedotherwise than by certificate and transferred otherwise than by writteninstrument. Accordingly, settlement of transactions in the Ordinary Sharesfollowing Admission may take place within the CREST system if the relevantshareholders so wish.CREST is a voluntary system and holders of Ordinary Shares who wish to receiveand retain share certificates will be able to do so.Dividend policyThe Directors and Proposed Directors anticipate that, following Admission,earnings will be retained for development of the Enlarged Group's business andwill not be distributed for the foreseeable future. The declaration and paymentby the Company of any future dividends and the amount will depend on theresults of the Enlarged Group's operations, its financial condition, cashrequirements, future prospects, profits available for distribution and otherfactors deemed to be relevant at the time.Additional informationYour attention is drawn to Part II of this document which contains risk factorsrelating to any investment in the Company and to Parts III, IV and theappendices to this document which contain further information on the Companyand on Atugen.Annual General MeetingThe 2005 Annual General Meeting will be held at 9.30 a.m. on Thursday 30 Juneat Farmers and Fletchers Hall, 3 Cloth Street, London EC1A 7LD. The formalnotice of the AGM and the resolutions to be proposed, have already been sent toShareholders. Resolution 7 would, if passed, authorise the Directors to allotfor cash Ordinary Shares up to an aggregate nominal amount of ‚£1,000,000.Although this resolution is not being specifically proposed to enable theCompany to undertake the Acquisition and the Fundraising, it would provide theDirectors with sufficient authority to issue Ordinary Shares pursuant to thosetransactions and it is the Directors' current intention to utilise thatauthority in this manner.Extraordinary General MeetingYou will find set out at the end of this document the notice convening theExtraordinary General Meeting of the Company to be held at Farmers andFletchers Hall, 3 Cloth Street, London EC1A 7LD on 11 July 2005 at 9.30 a.m. Atthe EGM, an ordinary resolution will be proposed to approve the Acquisition.Action to be takenShareholders will find enclosed with this document a Form of Proxy for use atthe Extraordinary General Meeting. Forms of Proxy should be completed andreturned in accordance with the instructions printed thereon so as to arrive atthe Company's registrars, Capita Registrars, Proxy Department, PO Box 25,Beckenham, Kent BR3 4TU as soon as possible and in any event not later than9.30 a.m. on 9 July 2005. Completion and return of a Form of Proxy will notprevent Shareholders from attending and voting at the Extraordinary GeneralMeeting should they so wish.RecommendationThe Directors and the Proposed Directors consider the Proposals described inthis document to be fair and reasonable and in the best interests of theCompany and its Shareholders as a whole. Accordingly, the Directors unanimouslyrecommend that Shareholders vote in favour of the Resolution to be proposed atthe Extraordinary General Meeting, as they and those connected with them intendto do in respect of their own beneficial holdings of Ordinary Shares whichamount to 234,533 Ordinary Shares (representing approximately one per cent. ofthe voting rights exercisable at the EGM).Yours faithfullyIain RossChairmanDefinitions used within the above text can be found within the circular, copiesof which will be available at 22 Melton Street, London NW1 2BW during normalworking hours until at least 12 August 2005.ENDSR PHARMA PLCRelated Shares:
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