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NEULANDWHERE OPPORTUNITY BECOMES R.EALIT/
Neuland Laboratories LimitedSanali Info Park, 'A' Block,
Ground Floor, 8-2-120/113
RoadNo.2,BanjaraHiNs
Hyderabad-500034.
Telangana, India.
Tel: 040 30211600 / 23551081Fax: 040 30211602Email: neuland@neulandlabs.com
www.neulandlabs.com
REPORT OF THE AUDIT COMMITTEE OF NEULAND LABORATORIES LIMITED BEARING ON:L85195TG1984PLC004393 ("COMPANY") RECOMMENDING THE DRAFT SCHEME OFAMALGAMATION AND ARRANGEMENT BETWEEN NEULAND LABORATORIES LIMITED(TRANSFEREE COMPANY) AND NEULAND HEALTH SCIENCES PRIVATE IIM'TED (FIRSTTRANSFEROR COMPANY) AND NEULAND PHARMA RESEARCH PRIVATE LIMITED (SECONDTRANSFEROR COMPANY) AND THEIR RESPECTIVE SHAREHOLDERS AND CREDITORS, ISSUEDCONSEQUENT TO THE MEETING OF THE AUDIT COMMITTEE OF THE COMPANY HELD ONTHURSDAY, THE 03RD DAY OF NOVEMBER, 2016, AT 2.30 P.M. AND ADJOURNED TO FRIDAY,THE 04TH DAY OF NOVEMBER, 2016, AT 9.30 A.M., AT HOTEL TAJ KRISHNA, ROAD NO. 1,BANJARA H:LLS, HYDEF<ABAD - 500034, TELANGANA, INDIA.
Members Present:
Mr. P.V. Maiya - Chairman
Mr. Humayun Dhanrajgir - Member
Mr. D. Sucheth Rao - Member
In Attendance:
Mrs. Sarada Bhamidipat^ - Company Secretary & CompLidnce Officer
1. BACKGROUND
1.1 A meeting of the members of the Audit Committee cf the Company was held on Thursday,
the 03rd day of November, 2016, at 2.30 P.M. and adjourned to Friday, the 04th day of
November, 2016, at 9.30 AM, to consider and to recommend to the Board for its
consideration and approval, the proposed draft Scheme of Amalgamation and
Arrangement between Neuland Laboratories Limited (Transferee Company} and
Neuiand Health Sciences Private Limited (First Transferor Company) and Neula:td
Pharma Research Private Limited (Second Transferor Company) and their respective
Shareholders and Creditors" ("Scheme") providing for ?.na!yamat1on of Neuiand 1-icalth
Sciences Private Limited (First Transferor Company) and of NeuLand Phamna Research
Private Limited (Second Transferor Company) v/ith the Company on a g'j^ng concern basis
wTzh effect from 01.04.2016 (Fiist Day of April, Two Thousand and Sixteen) being the
Registered Office: Sanali Info Park, 'A' Block, Ground Floor, 8-2-1 20/113, Road No. 2, Banjara Hills, Hyderabad - 500034, Telangana, India, I CIN No :L85195TGT9CTPLC004393
NEULAND
appointed date and presented under the provisions of Section 391 to 394 read with sections
100 to 103 of the Companies Act, 1956 and other applicable provisions, if any, of the
Companies Act, 1956, and of the Companies Act, 2013, including any statutory
modifications, amendments, re-enactments thereof for the time being in force, relevant
and applicable regulations of Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirement) Regulations, 2015 [SEBI (LODR) Regulations], the provisions ofSEBI Circular No.CIR/CFD/CMD/16/2015, dated 30th November, 2015, and relevant rules of
the Companies (Court) Rules, 1959, or as the c^se may be, the National Company Lav/
Tribunal Rules.
1.2This report of the Audit Committee recommending the draft Scheme to the Board of
Directors of the Company for their consideration and approval, is being made in order to
comply with the requirementsof SEBI Circular No.CIR/CFD/CMD/16/2015, dated 30thNovember, 2015, issued by the Securities and Exchange Board of India ("SEBI").
1.3The draft Scheme duty initialed by the Company Secretary of the Company for the purpose
of identification, was placed before the members of the Audit Committee.
2. PROPOSED SCHEME OF AAAALGAAAATION AND ARRANGEMENT
2.1 The members of the Audit Committee noted the rationale of the Scheme which is as follows:
• NLL is a manufacturer of active pharmaceutical ingredients (APIs) and advanced
intermediates and is a solution provider for the pharmaceutical industry for chemistry
related services.
• NH5PL is in the business of conducting research and development on synthesis of
Peptides and Peptide building blocks and marketing of Peptides. NLL is the exclusive
peptide manufacturer for NHSPL.
• NPRPL is a contract research and marketing services company providing Custom
Manufacturing Solutions ("CMS") to its customers with a focus on regulated markets.
The Research and Development facility of NPRPL has been successfully Inspected and
classified acceptable by the USFDA in February 2016. NPRPL is an exclusive research
service provider for NLL and NLL is the exclusive CMS manufacturer for NPRPL.
• NHSPL, NPRPL and the Company, as a Group, provide end-to-end solutions for chemistry
related services from synthesis of early stage climcal molecules to supply of-API and
intermediates at various clinical phases up to commercial scale.
• The businesses being carried on by all these three companies are synerpistic and sre
complementary to esch other. Given the nature of consolidation in the pharmaceutical
industry, there is a huge opportunity for cross-selting of the products and services of
NEULAND
NHSPL and NPRPL along with that of the Company which 1s expected to further enhancethe value for the stakeholders of all the companies.
* The combined entity (1.e. the Company), with its strong financiats, wiLL have greater
access to sources of funds, a better credit rating, improved cash flows, increased net
worth, thereby expected to strengthen the value of alt the stakeholders of the
companies Involved.
• Therefore, the proposed Amalgamation is expected to:
^ FacHitate seamless coordination between the R&D facilities and manufacturing
activities leading to greater Leverage in operations, planning, process, product life
cycle management, new product development and product cptimization and
enhanced flexibility in operations in the combined entity.
^ Lead to the benefits of synergetic advantages particularly in view of the fact that
the companies involved in the amalgamation are engaged in the businesses, which
are akin and can be conveniently merged for mutual benefit further leading to
improved organizational capability and Leadership, arising from the pooling of
resources and expertise that has the diverse skills talent and vast experience to
compete successfully in an increasingly competitive industry.
^ Result in consoLidation of intettectual properties, R&D capabHities and physical
infrastructure into one combined entity Including an opportunity to avail additional
tax benefits for in house R&D.
^ Result 1n cost savings from utilizing the combined facilities of all the three entities
with more focus on operational efforts, rationalization, standardization arid
simplification cf business processes, productivity improvements, elimination of
intercompany transactions costs,, usage of common resource pool Like humdn
resource, administration, accounts, legal and other related functions leading to
elimination of duplication and rationalization of administrative expenses and
reduction of compliance costs.
^ Result in operational convenience in terms of execution of contracts and provision
of related services.
^ Improve relationship with customers, as the combined post amalgamation entitywould become an end-to-end API somtion provider.
• In order to achieve the objectives as mentioned in the abovementioned clauses, the
Board of Directors of all the three companies have proposed to consolidate NHSPL,
NPRPL and the Company into a single company by amalgamating NHSPL, NPRPL into theCompany.
NEULAND
• The amalgamation will build a stronger and sustainable business and enhance the
potential for future growth and the Scheme of Amalgamation would be beneficial and
in the best interests of the shareholders, creditors, customers, suppliers, employees and
other stakeholders of all the companies.
2.2The Audit Committee also took note of the foLLowing documents:
a) Valuation Report dated November 4, 2016, prepared and issued by the independent
vatuers, M/s. DeLoitte Haskins & Sells, Chartered Accountants, determining and
recommending the fair Share Exchange Ratio as under:
• Without giving effect of the proposed Scheme
(a) 552 (Five hundred and fifty only) equity shares of NLL of Rs. 10,- each fully paid-up for every 100 (One Hundred Only) equity shares of NHSPL of Rs. 1001- each
fully paid-up based on the Existing Share Capital of NHSPL of Rs. 12.43 crores
consisting of 12,42,952 equity shares of face value of Rs. 100,- each fuUy paid
up;(b) 410 (Four hundred and ten only) equity shares of NLL of Rs.10/- each fuLLy paid-
up for every 100 (One Hundred Only) equity shares of NPRPLofRs.10/- each fullypaid-up.
• After giving effect of the proposed Scheme
(a) 552 (Five hundred and fifty only) equity shares of NLL of Rs. 10, - each fully paid-up for every 1000 (One Thousand Only) equity shares of NHSPL of Rs. 10,- eachfuiiy paid-up based on the subdivision of Share Capital of NHSPL (as envisagedin the Scheme) of Rs. 12.43 crores consisting of 1,24,29,520 equity shares of face
value of Rs. 10,- each fully paid up.
(b) 410 (Four hundred and ten only) equity shares of NLL of Rs.10/- each fully paid-
up for every 100 (One Hundred Only) equity shares of NPRPL of Rs. 10,- each fully
paid-up.
• NHSPL holds shares in Its subsidiaries, NLL and NPRPL, and the intercompany
shareholding wiU be canceLLed and new shares of NLL will be allotted to shareholders
of NHSPL and balance shareholders of NPRPL as on the Record Date.
b) Fairness Opinion Certificate dated November 4, 2016, issued by the independentMerchant Banker, SBI Capital Markets Limited, certifying that the valuation carried out
by the M/s. Deloitte Haskins & Sells, Chartered Accountants, is fair and reasonable for
the proposed amalgamation.
c) Certificate issued by the Statutory Auditors of the Company in terms of provisions of
SEBI Circular No. CIR/CFD/CMD/16/2015, dated 30th November, 2015, confirming theproposed accounting treatment as contemplated under Clause 14 of Scheme of
Amalgamation and Arrangement between Neutand Laboratories Limited (Transferee
NEULANTD
Company) and Neuland Health Sciences Private Umited (First Transferor Company) and
Neuland Pharma Research Private Limited (Second Transferor Company) and their
respective Shareholders and Creditors with reference to its compliance with the
Securities and Exchange Board of India (Listing Obligations and Disdosure Requirement)
Regulations, 2015 and the Circulars issued thereunder and alt the applicable Accounting
Standards notified under the Companies Act, 1956 and /or 2013 and Other Generally
Accepted Accounting Principles.
3. RECOMMENDATION OF THE AUDIT COMMITTEE
Taking into consideration the rationale of the draft Scheme of Amalgamation and
Arrangement between Neuland Laboratories Limited (Transferee Company) and NeuLand
Health Sciences Private Limited (First Transferor Company) and Neuland Pharma Research
Private Limited (Second Transferor Company) and their respective Shareholders and
Creditors, the Valuation Report and the Fairness Opinion Certificate, the Audit Committee
do hereby recommends the draft Scheme to the Board of Directors of the Company for
favorable consideration andapproval.
BY THE ORDER OF THE AUDIT COMMITTEEFOR NEULAND LABORATORIES LIMITED
y.-'•^^tZ^yf
P.V. MAIY^-"
CHAIRMAN
PLACE: HYDERABADDATE: 04.11.2016
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