<PAGE>
As filed with the Securities and Exchange Commission on February 10, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INSMED, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Virginia 2834 54-1972729
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Michael D. Baer
Chief Financial Officer
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
Edmund S. Ruffin, Jr., Esq. T. Justin Moore, III, Esq.
Venture Law Group Hunton & Williams
2800 Sand Hill Road Riverfront Plaza, East Tower
Menlo Park, California 94025 951 East Byrd Street
(650) 854-4488 Richmond, Virginia 23219
(804) 788-8464
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the reorganizations of Celtrix Pharmaceuticals, Inc. and Insmed
Pharmaceuticals, Inc., whereby each of Celtrix and Insmed Pharmaceuticals will
become wholly-owned subsidiaries of the Registrant pursuant to the Amended and
Restated Agreement and Plan of Reorganization dated as of February 9, 2000,
described in the joint proxy statement/prospectus contained herein have been
satisfied or waived. If the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [_] If this form
is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_] If this form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
---------------- ------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........... 116,500,000 N/A $194,263,640 $51,286.00
</TABLE>
(1) Represents the maximum number of shares of common stock of the Registrant
that may be issued in exchange for up to 35,210,763 shares of Celtrix common
stock, and 8,010 shares of Celtrix Series A Preferred Stock, and up to
19,866,491 shares of Insmed Pharmaceuticals common and preferred stock and
warrants, as well as options which may be exercised before the
reorganizations close to purchase up to 1,410,722 shares of Celtrix common
stock and 1,703,534 shares of Insmed Pharmaceuticals common stock.
(2) This Registration Statement covers shares of common stock of the Registrant
into which shares of the common and preferred stock of Celtrix and Insmed
Pharmaceuticals will be converted pursuant to the terms of the
reorganizations described herein at a conversion rate of one share of
Registrant common stock for each outstanding share of Celtrix common stock,
__ shares of Registrant common stock for each outstanding share of Celtrix
preferred stock (that number of shares of Registrant common stock equal to
the quotient of $1,000, plus all accrued and unpaid dividends with respect
to each share of Celtrix preferred stock through the effective date of the
reorganizations, divided by $2.006) and 3.5 shares of Registrant common
stock for each outstanding share of Insmed Pharmaceuticals common and
preferred stock. Pursuant to Rule 457(c) and Rule 457(f)(1) and (2) under
the Securities Act of 1933, as amended, the registration fee is based upon
the average of the high ($4.25) and low ($ 4.00) prices of the common stock
of Celtrix as reported by The Nasdaq SmallCap Market on February 3, 2000 and
upon $0.33, the book value of the Insmed Pharmaceuticals capital stock as of
December 31, 1999. The proposed maximum aggregate offering price is
estimated solely to determine the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
<PAGE>
[Insmed Pharmaceuticals Logo] [Celtrix Logo]
Dear Insmed Pharmaceuticals, Inc. Shareholders and Celtrix Pharmaceuticals, Inc.
Stockholders:
The boards of directors of Insmed Pharmaceuticals, Inc. and Celtrix
Pharmaceuticals, Inc. have agreed on the reorganizations of Insmed
Pharmaceuticals and Celtrix into a newly formed holding company, Insmed, Inc.
Because of the reorganizations, Insmed Pharmaceuticals and Celtrix will become
wholly-owned subsidiaries of Insmed, Inc. We believe that the combined
strengths of the two companies will enable us to compete more effectively on a
national basis. We are convinced that this transaction will enable the combined
company to achieve its strategic goals and enhance its market position as a drug
development company more quickly than either Insmed Pharmaceuticals or Celtrix
could have achieved on their own.
The reorganizations generally provide for (i) a tax-free merger in which
Celtrix common stockholders will receive one share of Insmed, Inc. common stock
for each share of Celtrix common stock and Celtrix preferred stockholders will
receive approximately ______ shares of Insmed, Inc. common stock for each share
of Celtrix preferred stock held, and (ii) a tax-free share exchange in which
Insmed Pharmaceuticals common and preferred shareholders will receive 3.5 shares
of Insmed, Inc. common stock for each Insmed Pharmaceuticals share held.
Immediately following the transactions described above but before giving effect
to the transaction described in the following sentence, former holders of
Celtrix common and preferred stock collectively will hold approximately 43.2% of
the outstanding common stock of Insmed, Inc. on a fully diluted basis and former
holders of Insmed Pharmaceuticals common and preferred stock collectively will
hold approximately 56.8% of the outstanding common stock of Insmed, Inc. on a
fully diluted basis. Insmed Pharmaceuticals, Inc., and Insmed, Inc. have
entered into a purchase agreement with certain investors which provides that
subject to satisfaction of certain conditions the investors will for an
aggregate consideration of $34.5 million purchase immediately prior to the
closing of the reorganizations 5,632,678 shares of Insmed Pharmaceuticals common
stock and warrants to purchase 6,901,344 shares of Insmed, Inc. common stock at
a price of $2.25 per share. Assuming the financing is consummated immediately
prior to the reorganizations, these new investors, the former holders of Celtrix
common and preferred stock and the former holders of Insmed Pharmaceuticals
common and preferred stock collectively will hold 22.0%, 33.7%, and 44.3%,
respectively, of the outstanding common stock of Insmed, Inc., on a fully
diluted basis, assuming exercise of all outstanding options and warrants.
We cannot complete the reorganizations unless the stockholders of both of
our companies adopt the reorganization agreement. Each of us will hold a
meeting of our stockholders to vote on this reorganization proposal. Your vote
is very important. Whether or not you plan to attend your stockholders'
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us as instructed on the proxy form. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the reorganization agreement. Not returning your
card or not instructing your broker how to vote any shares held for you in
"street name," will have the same effect as a vote against the reorganizations.
The dates, times and places of the meetings are as follows:
<TABLE>
<CAPTION>
<S> <C>
For Insmed Pharmaceuticals Shareholders: For Celtrix Stockholders:
________, 2000, 1:00 p.m., local time ________, 2000, 10:00 a.m., local time
800 East Leigh Street 2033 Gateway Place, Suite 600
Richmond, Virginia 23219 San Jose, California 95110
</TABLE>
This document provides you with detailed information about these meetings and
the proposed reorganizations. You can also get information about Celtrix from
publicly available documents that Celtrix has filed with the Securities and
Exchange Commission or about Insmed Pharmaceuticals directly from Insmed
Pharmaceuticals c/o Michael D. Baer, Insmed Pharmaceuticals, Inc., 800 East
Leigh Street, Richmond, Virginia 23219 (804) 828-6893. We encourage you to read
this entire document carefully and thoughtfully, including the section entitled
"Risk Factors" on pages ___ through ___.
Some of Celtrix's stockholders, who collectively hold on the record date
for the Celtrix annual stockholders' meeting approximately 43.7% of the
outstanding Celtrix common stock, have executed stockholder agreements in which
they have agreed to vote all of their shares of common stock in favor of the
reorganization agreement and some of Insmed Pharmaceuticals' shareholders, who
collectively hold 44.0% of the outstanding Insmed Pharmaceuticals capital stock,
and collectively 55.2% of the outstanding Insmed Pharmaceuticals Series A
Preferred Stock and outstanding Insmed Pharmaceuticals Series B Preferred Stock,
have executed stockholder agreements in which they have agreed to vote all of
their shares of common stock and preferred stock in favor of the reorganization
agreement. In addition, a holder of 4.9% of the outstanding Celtrix common
stock on the record date for the Celtrix annual stockholders' meeting has agreed
to vote its shares of Celtrix common stock in the same manner as are voted by a
majority of the remaining shares of Celtrix common stock.
We strongly support this combination of our companies and join with all the
other members of our boards of directors in enthusiastically recommending that
you vote in favor of the reorganizations.
Geoffrey Allan, Ph.D. Andreas Sommer, Ph.D.
Chairman of the Board, President President
and Chief Executive Officer and Chief Executive Officer
Insmed Pharmaceuticals, Inc. Celtrix Pharmaceuticals, Inc.
EACH VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
================================================================================
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved this document or the securities to be
issued in the reorganizations or determined if this document is accurate or
adequate. Any representation to the contrary is a criminal offense.
================================================================================
This joint proxy statement/prospectus is dated February ____, 2000
and it is first being mailed on or about ___________ ____, 2000
<PAGE>
[Celtrix Letterhead]
_____________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
_____________________________
The annual meeting of stockholders of Celtrix Pharmaceuticals, Inc. will be
held at 10:00 a.m., Pacific Standard Time, on ___________, _________, 2000 at
2033 Gateway Place, Suite 600, San Jose, California 95110. The meeting is
called for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Reorganization, dated as of February
9, 2000, by and among Celtrix, Insmed Pharmaceuticals, Inc., Insmed,
Inc., a newly formed corporation and Celtrix MergerSub, Inc., a wholly-
owned subsidiary of Insmed, Inc. Under the reorganization agreement,
(i) Celtrix MergerSub will merge with and into Celtrix, with Celtrix as
the surviving corporation and Celtrix will become a wholly-owned
subsidiary of Insmed, Inc., and (ii) non-dissenting Insmed
Pharmaceuticals shareholders will exchange their shares of Insmed
Pharmaceuticals capital stock for Insmed, Inc. capital stock with
Insmed Pharmaceuticals becoming a wholly-owned subsidiary of Insmed,
Inc.;
(2) To elect five directors of the board of directors to serve until the
2000 Annual Meeting of stockholders and until the earlier of the
expiration of their terms or consummation of the reorganizations;
(3) To ratify the appointment of Ernst & Young LLP as Celtrix's independent
public accountants for the fiscal year ending March 31, 2000; and
(4) To transact such other business as may properly come before the annual
meeting, or any adjournments or postponements of the annual meeting.
The board of directors of Celtrix has carefully considered the terms of the
reorganization agreement and the reorganizations of Celtrix and Insmed
Pharmaceuticals into wholly-owned subsidiaries of Insmed, Inc. and believes that
the reorganizations are advisable, fair to, and in the best interests of,
Celtrix and its stockholders. The board of directors of Celtrix has unanimously
approved the reorganization agreement and unanimously recommends that
stockholders vote "FOR" adoption of the reorganization proposal. Your board of
directors also unanimously recommends that you vote to approve the other
proposals before you.
The board of directors has fixed the close of business on ___________ __,
2000, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the annual meeting or any adjournment or postponement
of the annual meeting. Only stockholders of record at the close of business on
the record date are entitled to notice of and to vote at the annual meeting. A
complete list of stockholders entitled to vote at the meeting will be available
for examination at the annual meeting and at Celtrix's offices at 2033 Gateway
Place, Suite 600, San Jose, CA 95110, during ordinary business hours, after
___________, 2000, for the examination by any Celtrix stockholder for any
purpose related to the annual meeting.
By Order of the Board of Directors,
Andreas Sommer, Ph.D., President and Chief Executive Officer
______________, 2000
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IMMEDIATELY.
You are cordially invited to attend the annual meeting in person. Even if
you plan to be present, you are urged to mark, date, sign and return the
enclosed proxy at your earliest convenience in the envelope provided, which
requires no postage if mailed in the United States. If you attend the annual
meeting, you may vote either in person or by your proxy. You may revoke your
proxy at any time before the vote is taken by delivering to the Secretary a
written revocation or a proxy with a later date or by voting your shares in
person at the annual meeting.
Please do not send stock certificates with your proxy card.
<PAGE>
[Insmed Pharmaceuticals Letterhead]
_____________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
_____________________________
The special meeting of shareholders of Insmed Pharmaceuticals, Inc. will be
held at 1:00 p.m., Eastern Standard Time, on _____________, 2000 at 800 East
Leigh Street, Richmond, Virginia. The meeting is called for the following
purposes:
(1) To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Reorganization, including the related
plan of exchange, dated as of February 9, 2000, by and among Insmed
Pharmaceuticals, Celtrix Pharmaceuticals, Inc., Insmed, Inc., a newly
formed corporation and Celtrix MergerSub, Inc., a wholly-owned
subsidiary of Insmed, Inc. Under the reorganization agreement, (i) non-
dissenting Insmed Pharmaceuticals shareholders will exchange their
shares of Insmed Pharmaceuticals capital stock for Insmed, Inc. capital
stock and Insmed Pharmaceuticals will become a wholly-owned subsidiary
of Insmed, Inc., and (ii) Celtrix MergerSub will merge with and into
Celtrix, with Celtrix as the surviving corporation and Celtrix will
become a wholly-owned subsidiary of Insmed, Inc.
(2) To transact such other business as may properly come before the special
meeting, or any adjournments or postponements of the special meeting.
The board of directors of Insmed Pharmaceuticals has carefully considered
the terms of the reorganization agreement, including the related plan of
exchange and the reorganizations of Celtrix and Insmed Pharmaceuticals into
wholly-owned subsidiaries of Insmed, Inc. and believes that the reorganizations
are advisable, fair to, and in the best interests of, Insmed Pharmaceuticals and
its shareholders. The board of directors of Insmed Pharmaceuticals has
unanimously approved the reorganization agreement, including the related plan of
exchange, and unanimously recommends that shareholders vote "FOR" approval of
the reorganization proposal, including the related plan of exchange.
The board of directors has fixed the close of business on ___________ __,
2000, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the special meeting or any adjournment or
postponement of the special meeting. Only shareholders of record at the close of
business on the record date are entitled to notice of and to vote at the special
meeting. A complete list of shareholders entitled to vote at the meeting will be
available for examination at the special meeting and at Insmed Pharmaceuticals'
offices at 800 East Leigh Street, Richmond, Virginia 23219, during ordinary
business hours, after ___________, 2000, for the examination by any Insmed
Pharmaceuticals shareholder for any purpose related to the special meeting
By Order of the Board of Directors,
Geoffrey Allan, Ph.D., Chairman of the Board, President
and Chief Executive Officer
______________, 2000
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IMMEDIATELY.
You are cordially invited to attend the special meeting in person. Even if
you plan to be present, you are urged to mark, date, sign and return the
enclosed proxy at your earliest convenience in the envelope provided, which
requires no postage if mailed in the United States. If you attend the special
meeting, you may vote either in person or by your proxy. You may revoke your
proxy at any time before the vote is taken by delivering to the Secretary a
written revocation or a proxy with a later date or by voting your shares in
person at the special meeting.
Please do not send stock certificates with your proxy card.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATIONS................................................................................ 1
RECENT DEVELOPMENTS............................................................................................................ 4
SUMMARY........................................................................................................................ 5
The Companies.............................................................................................................. 5
The Reorganizations........................................................................................................ 6
General.................................................................................................................... 6
What Celtrix Stockholders and Insmed Pharmaceuticals Shareholders Will Receive in the Reorganizations...................... 6
Options, Warrants and Other Rights......................................................................................... 7
The Meetings............................................................................................................... 7
Annual Meeting of Celtrix Stockholders..................................................................................... 7
Special Meeting of Insmed Pharmaceuticals Shareholders..................................................................... 7
Votes Required............................................................................................................. 7
Voting by Celtrix Directors and Executive Officers......................................................................... 8
Voting by Insmed Pharmaceuticals Directors and Executive Officers.......................................................... 8
Recommendation to Stockholders............................................................................................. 9
Interests of Common Stockholder and Director of Insmed Pharmaceuticals and Insmed, Inc..................................... 9
Interests of Officers and Directors in the Reorganizations................................................................. 9
Opinion of Celtrix's Financial Advisor..................................................................................... 10
Conditions to the Reorganizations.......................................................................................... 11
Termination of the Reorganization Agreement................................................................................ 12
Termination Fee............................................................................................................ 13
Certain Federal Income Tax Consequences.................................................................................... 13
Accounting Treatment and Considerations.................................................................................... 13
Comparison of Stockholders' Rights......................................................................................... 14
Appraisal Rights........................................................................................................... 14
Celtrix Market Price Information........................................................................................... 14
Insmed Pharmaceuticals Market Price Information............................................................................ 14
Listing of Insmed, Inc. Common Stock....................................................................................... 14
Where You Can Find More Information........................................................................................ 14
Comparative Per Share Data................................................................................................. 16
Celtrix Pharmaceuticals, Inc. -- Selected Historical Financial Data....................................................... 18
Insmed Pharmaceuticals, Inc. -- Selected Historical Financial Data......................................................... 19
Insmed, Inc. - Unaudited Selected Pro Forma Condensed Consolidated Financial Information................................... 20
RISK FACTORS................................................................................................................... 22
The value of the consideration to be received in the reorganizations may fluctuate......................................... 22
The costs of the reorganizations and the costs of integrating the Celtrix and Insmed Pharmaceuticals businesses are
substantial............................................................................................................... 22
Integration of companies................................................................................................... 22
Risks Related to Insmed, Inc............................................................................................... 23
</TABLE>
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<TABLE>
<S> <C>
Because our products are in an early stage of development, none has received regulatory approval or been released for
commercial sale........................................................................................................... 23
We have limited operating history and a history of operating losses........................................................ 23
Our proposed financing may not close; and if closed may result in significant dilution..................................... 24
We need additional funds; and we face uncertainties with respect to access to capital...................................... 24
We face uncertainties related to clinical trials and our dependence on patient enrollment to complete our clinical trials.. 24
We face uncertainties related to regulatory approvals...................................................................... 25
There is no assurance of market acceptance for our potential products...................................................... 26
Uncertainty regarding third party reimbursement and healthcare cost containment initiatives may affect our revenue......... 26
We currently have no manufacturing or marketing capability................................................................. 27
Materials necessary to manufacture our products may not be available....................................................... 27
We need corporate partners for success..................................................................................... 27
Our growth strategy includes the acquisition of complementary businesses that may not be available to acquire or, if
acquired, might not improve our business and results...................................................................... 28
We intend to conduct proprietary research programs, and any conflicts with our collaborators could harm our business....... 28
There are risks associated with our license agreements..................................................................... 28
We face uncertainties related to patents and proprietary technology........................................................ 29
We face substantial competition............................................................................................ 30
Rapid technological change could make our products obsolete................................................................ 31
We are dependent upon key personnel and others............................................................................. 31
Our products involve the use of hazardous materials........................................................................ 32
We are subject to product liability claims and the availability of insurance............................................... 32
Our business may be negatively impacted by computer failures in the Year 2000.............................................. 32
We expect that our stock price will be volatile............................................................................ 33
Celtrix and Insmed Pharmaceuticals have never paid dividends on their capital stock and we do not anticipate paying any
cash dividends in the foreseeable future.................................................................................. 33
Certain provisions of Virginia law, our Articles of Incorporation and Amended and Restated Bylaws make a takeover by a
third party difficult..................................................................................................... 33
A CAUTION ABOUT FORWARD-LOOKING STATEMENTS..................................................................................... 35
THE MEETINGS................................................................................................................... 37
Times, Dates and Places.................................................................................................... 37
Purpose of the Meetings.................................................................................................... 37
Record Date; Voting Rights; Votes Required for Approval.................................................................... 37
Proxies.................................................................................................................... 39
Revocation of Proxies...................................................................................................... 40
Solicitation of Proxies.................................................................................................... 40
Availability of Accountants................................................................................................ 41
THE REORGANIZATIONS............................................................................................................ 42
Results of the Reorganizations............................................................................................. 42
Celtrix and Insmed Pharmaceuticals Stockholder Agreements.................................................................. 43
What Celtrix Stockholders and Insmed Pharmaceuticals Shareholders Will Receive............................................. 44
Cash Payments for Fractional Shares of Insmed, Inc. Common Stock........................................................... 44
Background and Negotiation of the Reorganizations.......................................................................... 45
</TABLE>
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<TABLE>
<S> <C>
Celtrix's Reasons for the Reorganizations................................................................................. 50
Insmed Pharmaceuticals' Reasons for the Reorganizations................................................................... 53
Recommendations of the Boards of Directors................................................................................ 54
Opinion of Celtrix's Financial Advisors................................................................................... 55
Interests of Common Stockholders and Director of Insmed Pharmaceuticals and Insmed, Inc................................... 58
Interests of Certain Persons in the Reorganizations....................................................................... 59
Material Federal Income Tax Consequences.................................................................................. 60
Accounting Treatment...................................................................................................... 62
Procedures for Exchange of Stock Certificates............................................................................. 63
Appraisal Rights.......................................................................................................... 64
Federal Securities Law Consequences; Resale Restrictions.................................................................. 69
CERTAIN TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT................................................................... 69
The Reorganizations........................................................................................................ 70
Certain Representations and Warranties..................................................................................... 71
Certain Covenants.......................................................................................................... 72
Conditions to the Reorganizations.......................................................................................... 77
Termination of the Reorganization Agreement................................................................................ 79
Effect of Termination...................................................................................................... 80
Termination Fees; Expenses................................................................................................. 80
Amendments; No Waiver...................................................................................................... 82
DESCRIPTION OF INSMED, INC. CAPITAL STOCK...................................................................................... 83
General................................................................................................................... 83
Common Stock.............................................................................................................. 83
Preferred Stock........................................................................................................... 83
Change of Control Provisions.............................................................................................. 84
Transfer Agent and Registrar.............................................................................................. 85
COMPARISON OF STOCKHOLDERS' RIGHTS............................................................................................. 85
Authorized Capital........................................................................................................ 85
Special Meetings of Stockholders.......................................................................................... 86
Stockholder Meetings...................................................................................................... 86
Advance Notice of Nominations of Directors................................................................................ 87
Merger, Share Exchanges and Sales of Assets............................................................................... 88
Anti-takeover Statutes.................................................................................................... 88
Amendments to Charter..................................................................................................... 89
Amendments to Bylaws...................................................................................................... 90
Appraisal Rights.......................................................................................................... 90
Transfer Restrictions..................................................................................................... 91
Stockholder Action by Written Consent..................................................................................... 91
Board of Directors........................................................................................................ 92
Limitation of Director Liability.......................................................................................... 93
Indemnification of Directors, Officers and Employees...................................................................... 93
MANAGEMENT AND OPERATION OF INSMED, INC. AFTER THE REORGANIZATIONS............................................................. 95
Insmed, Inc. Board of Directors........................................................................................... 95
Board Observer............................................................................................................ 97
</TABLE>
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<TABLE>
<S> <C>
Committees............................................................................................................. 97
Management.............................................................................................................. 98
Headquarters............................................................................................................ 98
INSMED, INC. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................................. 99
MARKET PRICES AND DIVIDEND INFORMATION......................................................................................... 106
ELECTION OF DIRECTORS OF CELTRIX............................................................................................... 108
Nominees.................................................................................................................. 108
Celtrix Board of Directors Meetings and Committees........................................................................ 109
Compensation of Celtrix Directors......................................................................................... 110
Celtrix Compensation Committee Report On Executive Compensation........................................................... 111
Compensation Committee Interlocks And Insider Participation............................................................... 112
Section 16(a) Beneficial Ownership Reporting Compliance................................................................... 113
Celtrix Performance Graph................................................................................................. 113
Deadline for Receipt of Stockholder Proposals for 2000 Annual Meeting..................................................... 115
DESCRIPTION OF INSMED, INC..................................................................................................... 116
Business Overview......................................................................................................... 116
The Stock Incentive Plan.................................................................................................. 116
Summary of the Stock Incentive Plan....................................................................................... 116
The Stock Purchase Plan................................................................................................... 119
Financing Activity........................................................................................................ 119
DESCRIPTION OF CELTRIX......................................................................................................... 120
Business Overview......................................................................................................... 120
Background: Medical Need.................................................................................................. 121
SomatoKine................................................................................................................ 121
Products Under Research And Development................................................................................... 123
Clinical Development...................................................................................................... 123
Corporate Collaborations.................................................................................................. 126
Research And Development.................................................................................................. 127
Manufacturing............................................................................................................. 127
Intellectual Property..................................................................................................... 127
Government Regulation..................................................................................................... 128
Insurance; Product Liability.............................................................................................. 131
Competition............................................................................................................... 131
Employees and Properties.................................................................................................. 131
Legal Proceedings......................................................................................................... 132
Selected Historical Financial Data........................................................................................ 133
Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 134
Quantitative and Qualitative Disclosures About Market Risk................................................................ 141
Directors and Officers.................................................................................................... 141
Executive Officer Compensation............................................................................................ 142
Stock Option Plans........................................................................................................ 143
Certain Transactions...................................................................................................... 144
Security Ownership Of Certain Beneficial Owners And Management............................................................ 145
</TABLE>
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<TABLE>
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DESCRIPTION OF INSMED PHARMACEUTICALS.......................................................................................... 148
Business Overview......................................................................................................... 148
Medical Background........................................................................................................ 148
Scientific Background..................................................................................................... 149
Current Treatment and Market Opportunities................................................................................ 150
Clinical Development and Regulatory Program for INS-1..................................................................... 151
Competition............................................................................................................... 152
Patents................................................................................................................... 154
Government Regulation..................................................................................................... 154
Legal Proceedings......................................................................................................... 156
Properties And Employees.................................................................................................. 156
Selected Historical Financial Data........................................................................................ 157
Management's Discussion And Analysis Of Financial Condition And Results Of Operations..................................... 157
Impact of Year 2000....................................................................................................... 159
Quantitative and Qualitative Disclosures About Market Risk................................................................ 159
Directors and Officers.................................................................................................... 159
Executive Officer Compensation............................................................................................ 159
Stock Option Plans........................................................................................................ 161
Certain Transactions...................................................................................................... 162
Security Ownership of Certain Beneficial Owners and Management............................................................ 162
LEGAL MATTERS.................................................................................................................. 165
EXPERTS........................................................................................................................ 165
WHERE YOU CAN FIND MORE INFORMATION............................................................................................ 165
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................................................................................... F-1
ANNEX A -- AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AMONG INSMED PHARMACEUTICALS, INC., CELTRIX
PHARMACEUTICALS, INC., CELTRIX MERGERSUB, INC. AND INSMED, INC................................................................ A-1
ANNEX B -- FAIRNESS OPINION OF CELTRIX'S INVESTMENT BANKER..................................................................... B-1
ANNEX C -- SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW................................................................. C-1
ANNEX D -- ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT.................................................................... D-1
ANNEX E -- INSMED PHARMACEUTICALS STOCKHOLDER AGREEMENT........................................................................ E-1
ANNEX G -- CELTRIX STOCKHOLDER AGREEMENT....................................................................................... G-1
ANNEX H -- ARTICLES OF INCORPORATION OF INSMED, INC............................................................................ H-1
ANNEX I -- AMENDED AND RESTATED BYLAWS OF INSMED, INC.......................................................................... I-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE REORGANIZATIONS
Q: Why are Celtrix and Insmed Pharmaceuticals proposing the reorganizations?
A: We believe the combined strengths of the two companies will enable us to
compete more effectively. The business combination of Insmed
Pharmaceuticals and Celtrix will create a much stronger company that can
compete more efficiently in the marketplace.
Q: What will happen to Celtrix and Insmed Pharmaceuticals because of the
reorganizations?
A: If the reorganizations are completed, Celtrix and Insmed Pharmaceuticals
will become wholly-owned subsidiaries of Insmed, Inc. and the stockholders
of Celtrix and Insmed Pharmaceuticals will become shareholders of Insmed,
Inc. Insmed, Inc. will be a holding company whose only assets will be its
100% ownership of Celtrix and Insmed Pharmaceuticals. The shares of Insmed,
Inc. common stock will trade on [the Nasdaq National Market] under the
symbol "INSM."
Q: What will I receive in the reorganizations?
A: Celtrix Common Stockholders: Under the terms of the reorganization
agreement, you will receive one (1) share of Insmed, Inc. common stock for
each share of Celtrix common stock you own.
Celtrix Preferred Stockholder: Under the terms of the reorganization
agreement, you will receive ________ shares of Insmed Inc. common stock
for each share of Celtrix preferred stock you own.
Insmed Pharmaceuticals Common and Preferred Shareholders: The
reorganization agreement provides that you will receive 3.5 shares of
Insmed, Inc. common stock for each share of Insmed Pharmaceuticals common
stock and preferred stock you own.
Q: How will the reorganizations affect my stock dividends?
A: Neither Celtrix nor Insmed Pharmaceuticals has historically paid dividends
to its shareholders. Insmed, Inc. does not anticipate that it will pay
dividends to its shareholders in the foreseeable future.
Q: When do Celtrix, Insmed Pharmaceuticals and Insmed, Inc. expect the
reorganizations to be complete?
A: Celtrix, Insmed Pharmaceuticals and Insmed, Inc. are working to complete
the reorganizations as quickly as possible. The companies expect to
complete the reorganizations in the second calendar quarter of fiscal 2000.
Q: As a Celtrix or Insmed Pharmaceuticals shareholder, what do I need to do
now?
A: After carefully reading and considering the information contained in this
joint proxy statement/prospectus, you should complete and sign the Celtrix
or Insmed Pharmaceuticals proxy card, as the case may be, and return it in
the enclosed return envelope as soon as possible so that your shares may be
represented at the annual meeting of Celtrix stockholders or the special
meeting of Insmed Pharmaceuticals shareholders, as the case may be. If you
sign, date and mail
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your proxy card without identifying how you want to vote, your proxy will
be counted "FOR" approval and adoption of the reorganization agreement.
Failing to return a signed proxy card or otherwise vote at the meeting will
have the same effect as a vote against the reorganization agreement.
Q. Are Celtrix or Insmed Pharmaceuticals shareholders entitled to appraisal or
dissenters' rights?
A: Yes. Under Delaware law, which governs the rights of stockholders of
Celtrix, Celtrix stockholders are entitled to appraisal rights for their
shares by reason of the merger of Celtrix MergerSub into Celtrix. In
addition, under Virginia law, which governs the rights of shareholders of
Insmed Pharmaceuticals, Insmed Pharmaceuticals shareholders are entitled to
dissenters' rights of appraisal for their shares by reason of the share
exchange. Please read the more detailed description of your appraisal or
dissenters' rights on pages ___ to ____.
Q: Who must approve the reorganizations?
A: In addition to the approvals by the Celtrix, Insmed Pharmaceuticals and
Insmed, Inc. boards of directors, which have already been obtained, the
stockholders of Celtrix and Insmed Pharmaceuticals must approve and adopt
the reorganization agreement.
Q: As an Insmed Pharmaceuticals or Celtrix stockholder, can I change my vote
after I have mailed my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at
the annual meeting of Celtrix stockholders or the special meeting of Insmed
Pharmaceuticals shareholders, as the case may be. You can do this in one
of three ways. First, you can send a written notice stating that you would
like to revoke your proxy. Second, you can complete and submit a new
proxy. If you choose either of these two methods, you must submit the
notice of revocation or the new proxy to Celtrix or Insmed Pharmaceuticals,
as the case may be, at the address on page ___. Third, you can attend the
annual meeting of Celtrix stockholders or the special meeting of Insmed
Pharmaceuticals shareholders, as the case may be, and vote in person.
Q: If my shares are held in "street name" by my stock broker, will the broker
vote these shares on the reorganization agreement on my behalf?
A: A broker will vote shares on the reorganization agreement only if you
provide the broker with instructions on how to vote. You should follow the
directions provided by your broker regarding how to instruct your broker to
vote the shares.
Q: Should I send in my stock certificates now?
A: No, you should not send in your stock certificates with your proxy. After
the reorganizations are completed, Insmed, Inc. will send written
instructions to you for exchanging your stock certificates.
Q: Who can help answer my questions?
A: If you have any questions about the reorganizations or if you need
additional copies of this joint proxy statement/prospectus or the enclosed
proxy, you should contact:
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Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
Attn.: Donald D. Huffman
Telephone: (408) 988-2500
Insmed Pharmaceuticals, Inc.
800 E. Leigh St.
Richmond, VA 23219
Attn.: Michael D. Baer
Telephone: (804) 828-6893
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RECENT DEVELOPMENTS
On January 13, 2000 Insmed, Inc. and Insmed Pharmaceuticals entered into a
purchase agreement with certain investors which provides that, subject to
certain conditions described below, the investors will purchase 5,632,678 shares
of Insmed Pharmaceuticals common stock and 6,901,344 warrants of Insmed, Inc.,
with each warrant exercisable into one share of Insmed, Inc. common stock at a
price of $2.25 for aggregate consideration of $34.5 million.
The purchase agreement provides that the financing will be closed on the
same date as, but immediately prior to, the closing of the reorganizations.
Pursuant to the reorganization agreement, each share of Insmed Pharmaceuticals
common stock purchased by the investors will be exchanged for 3.5 shares of
Insmed, Inc. common stock. Assuming the financing is consummated and assuming
exercise of the warrants issued to the investors immediately following the
reorganizations, the investors will collectively hold approximately 22.0% of the
outstanding common stock of Insmed, Inc. on a fully diluted basis, former
holders of common and preferred stock of Insmed Pharmaceuticals, excluding the
new investors, immediately following the reorganizations will collectively hold
approximately 44.3% of the outstanding common stock of Insmed, Inc. on a fully
diluted basis and former holders of common and preferred stock of Celtrix will
collectively hold approximately 33.7% of the outstanding common stock of Insmed,
Inc. on a fully diluted basis.
The obligation of the investors to complete the financing is subject to the
satisfaction of a number of conditions by Insmed Pharmaceuticals and Insmed,
Inc., including:
. the receipt of certificates by the investors from Insmed
Pharmaceuticals and Insmed, Inc. certifying the truth of
representations and warranties made by Insmed Pharmaceuticals and
Insmed, Inc. in the purchase agreement governing the financing;
. the receipt of certificates by the investors from Insmed
Pharmaceuticals and Insmed, Inc. certifying that the conditions to
closing the reorganizations set forth in the reorganization agreement
have been satisfied or waived; provided that any waiver cannot have a
material effect on the assets, business or operations of Insmed, Inc.,
Insmed Pharmaceuticals or Celtrix, taken as a whole;
. the execution of a registration rights agreement among the
investors, Insmed Pharmaceuticals and Insmed, Inc.;
. the sale of the securities to the investors must be exempt from
the registration requirements of the Securities Act of 1933 and state
securities laws; and
. the receipt by the investors of an opinion of Hunton & Williams,
counsel to Insmed Pharmaceuticals and Insmed, Inc.
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SUMMARY
This summary highlights selected material information from this joint proxy
statement/prospectus. It does not contain all of the detailed information that
is important to you. To understand the reorganizations and related transactions
more fully, and for a more detailed description of the legal terms of the
reorganizations, you should carefully read this entire document. Each item in
this summary refers to the pages where that subject is discussed more fully.
The Companies (See page ___)
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893
Insmed, Inc. is a newly-formed corporation. The only actions taken by
Insmed, Inc. to date are the execution of the reorganization agreement, the
formation of its wholly-owned subsidiary, Celtrix MergerSub, Inc., participation
in the preparation of this joint proxy statement/prospectus, certain other
matters contemplated by the reorganization agreement and negotiation and
execution of a purchase agreement providing for the sale of 5,632,678 shares of
Insmed Pharmaceuticals common stock and warrants to purchase 6,901,344 shares of
Insmed, Inc. common stock at a price of $2.25. See "Recent Developments" above.
As a result of the reorganizations, MergerSub will merge with and into Celtrix
and non-dissenting Insmed Pharmaceuticals shareholders will exchange their
shares of Insmed Pharmaceuticals capital stock for shares of Insmed, Inc.
capital stock, such that Celtrix and Insmed Pharmaceuticals will become wholly-
owned subsidiaries of Insmed, Inc.
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
(408) 988-2500
Celtrix is a biopharmaceutical company developing novel drug candidates to
treat seriously debilitating, degenerative conditions primarily associated with
aging, chronic diseases and severe trauma. Celtrix focuses on restoring lost
tissues and bodily processes essential for the patient's health and quality of
life. Celtrix's product development programs have targeted severe osteoporosis,
including hip fracture surgery in the elderly, diabetes and acute traumatic
injury as in severe burns. Other potential development programs may target
protein wasting diseases (involving deterioration or degeneration of body
tissue) associated with cancer, AIDS, advanced kidney failure and comparable
life-threatening conditions.
Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893
Insmed Pharmaceuticals is a development stage pharmaceutical company that
is developing drugs to treat metabolic and endocrine diseases associated with
insulin resistance. Insmed Pharmaceuticals' first drug candidate, INS-1, is
currently targeted towards the treatment of type 2 diabetes and polycystic ovary
syndrome or "PCOS". Insmed Pharmaceuticals is currently conducting multi-center
phase II clinical trials for both indications. Insmed Pharmaceuticals' objective
is to establish a leading position in the treatment of metabolic and endocrine
diseases. Insmed Pharmaceuticals intends to achieve this objective by: 1)
gaining U.S. regulatory approvals for the use of INS-1 in the treatment of PCOS;
2) retaining U.S. marketing and distribution rights to INS-1 for PCOS; 3)
entering into a strategic alliance to ensure the development and
commercialization of INS-1 for PCOS outside the U.S. and type 2 diabetic
population worldwide; and 4) acquiring and in-licensing additional products and
technologies.
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The Reorganizations (See page __)
The reorganization agreement, as amended and restated as of February 9,
2000, is attached as Annex A to this joint proxy statement/prospectus and is
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incorporated by reference into this joint proxy statement/prospectus. Throughout
this document, the amended and restated reorganization agreement will be
referred to as the "reorganization agreement." Celtrix and Insmed
Pharmaceuticals encourage their stockholders to read the reorganization
agreement because it is the legal document that governs the reorganizations.
General
Upon completion of the reorganizations, each of Celtrix and Insmed
Pharmaceuticals will become wholly-owned subsidiaries of Insmed, Inc. In the
reorganizations, Celtrix MergerSub will be merged with and into Celtrix with
Celtrix as the surviving corporation and the separate corporate existence of
MergerSub will cease. Celtrix will thereby become a wholly-owned subsidiary of
Insmed, Inc. In addition, Insmed Pharmaceuticals and Insmed, Inc. will conduct a
share exchange whereby non-dissenting Insmed Pharmaceuticals shareholders will
exchange their shares of Insmed Pharmaceuticals capital stock for shares of
Insmed, Inc. capital stock. Following the share exchange, Insmed Pharmaceuticals
will be a wholly-owned subsidiary of Insmed, Inc. Throughout this document, the
merger of Celtrix MergerSub into Celtrix will be referred to as the merger and
the exchange by non-dissenting Insmed Pharmaceuticals shareholders of Insmed
Pharmaceuticals capital stock for Insmed, Inc. capital stock will be referred to
as the share exchange, and the share exchange and the merger will be
collectively referred to as the reorganizations.
Certain directors, officers and affiliates of Celtrix, who collectively own
as of the record date for the Celtrix annual stockholders' meeting approximately
43.7% of Celtrix's outstanding common stock, and certain directors, officers and
affiliates of Insmed Pharmaceuticals, who collectively own as of the record date
for the Insmed Pharmaceuticals special shareholders' meeting approximately 44.0%
of Insmed Pharmaceuticals' outstanding capital stock and collectively 55.2% of
Insmed Pharmaceuticals' outstanding Series A Preferred Stock and outstanding
Series B Preferred Stock, have signed stockholders agreements to vote their
shares of Celtrix and Insmed Pharmaceuticals capital stock, as the case may be,
in favor of the reorganization proposal. In addition, a holder of 4.9% of the
outstanding Celtrix common stock on the record date for the Celtrix annual
stockholders' meeting has agreed to vote its shares in the same manner as are
voted by a majority of the remaining shares of Celtrix common stock. See
"Celtrix and Insmed Pharmaceuticals Stockholder Agreements" on page ___ for a
more detailed description of the stockholder agreements.
What Celtrix Stockholders and Insmed Pharmaceuticals Shareholders Will
Receive in the Reorganizations (See page ___)
If the merger is completed, each holder of Celtrix common stock will
receive one (1) share of Insmed, Inc. common stock for each share of Celtrix
common stock owned and approximately ______ shares of Insmed, Inc. common stock
for each share of Celtrix preferred stock owned. If the share exchange is
completed, Insmed Pharmaceuticals shareholders will receive 3.5 shares of
Insmed, Inc. common stock for each share of Insmed Pharmaceuticals common stock
owned and each share of Insmed Pharmaceuticals Series A Preferred Stock and
Insmed Pharmaceuticals Series B Preferred Stock owned.
Insmed, Inc. will not issue fractional shares in exchange for Insmed
Pharmaceuticals capital stock or Celtrix capital stock. Cash will be paid
instead of fractional shares. Instead of receiving a fractional share of
Insmed, Inc. common stock, or Insmed, Inc. preferred stock, as the case may be,
an Insmed Pharmaceuticals shareholder or a Celtrix stockholder will receive a
check in an amount equal to the fractional share multiplied by the mean of the
high and low sales
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price of Insmed, Inc. common stock on the first full day of trading on the
[Nasdaq National Market] after completion of the reorganizations.
Options, Warrants and Other Rights (See Page __)
Each outstanding option, warrant and other right to purchase shares of
Celtrix common stock will be converted into a new option, warrant or other
right, as appropriate, of Insmed, Inc., to purchase a number of shares of
Insmed, Inc. common stock equal to the number of shares of Celtrix common stock
that were subject to the option, warrant or other right. The exercise price per
share for each new Insmed, Inc. option, warrant or other right will be equal to
the exercise price of the Celtrix option, warrant or other right. All other
terms will remain substantially unchanged.
Each outstanding option, warrant and other right to purchase shares of
Insmed Pharmaceuticals common stock will be converted into a new option, warrant
or other right, as appropriate, of Insmed, Inc., to purchase a number of shares
of Insmed, Inc. common stock equal to the number of shares of Insmed
Pharmaceuticals common stock that were subject to the option, warrant or other
right, multiplied by 3.5. The exercise price per share for each new Insmed, Inc.
option, warrant or other right will be divided by 3.5 and rounded up to the
nearest tenth of a cent. All other terms will remain substantially unchanged.
Insmed, Inc. will not issue any options, warrants or other rights to
purchase a fractional share of Insmed, Inc. common stock. Instead of receiving
an option, warrant or other right to purchase a fractional share of Insmed, Inc.
common stock, a holder of an Insmed Pharmaceuticals option, warrant or other
right to purchase Insmed Pharmaceuticals common stock will receive a check in an
amount equal to the difference between (i) the fractional share multiplied by
the mean of the high and low sales price of Insmed, Inc. common stock on the
first full day of trading on the [Nasdaq National Market] after completion of
the reorganizations and (ii) the product of 3.5 multiplied by the exercise price
per share of each Insmed Pharmaceuticals option, warrant or other right to
purchase common stock.
The Meetings
Annual Meeting of Celtrix Stockholders (See page __)
At the annual meeting of Celtrix stockholders, Celtrix stockholders are
being asked to vote upon the following:
. approval and adoption of the reorganization agreement;
. election of five directors of the board of directors;
. ratification of the appointment of Ernst & Young LLP as Celtrix's
independent public accountants for the fiscal year ending March 31, 2000;
and
. transaction of such other business as may properly come before the meeting.
Special Meeting of Insmed Pharmaceuticals Shareholders (See page __)
At the special meeting of Insmed Pharmaceuticals shareholders, Insmed
Pharmaceuticals shareholders are being asked to vote upon the following:
. approval of the reorganization agreement, including the related plan of
exchange; and
. transaction of such other business as may properly come before the meeting.
Votes Required (See page __)
Celtrix. The affirmative vote of the holders of a majority of the
outstanding shares of Celtrix common stock is required to approve the proposal
adopting the reorganization agreement. The five nominees for election to the
board of
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directors receiving the greatest number of votes will be the persons elected as
directors of Celtrix. The affirmative vote of a majority of the shares of
Celtrix common stock, present in person or by proxy at the annual meeting and
entitled to vote, is required to ratify the selection of Ernst & Young LLP as
the independent public accountants of Celtrix. The affirmative vote of the
holders of a majority of the common stock, present in person or by proxy at the
meeting and entitled to vote, is required for the transaction of any other
business, with some exceptions, properly brought before the meeting.
Insmed Pharmaceuticals. The affirmative vote of the holders of (i) a
majority of the outstanding shares of Insmed Pharmaceuticals Series A Preferred
Stock and Insmed Pharmaceuticals Series B Preferred Stock voting together as a
single voting group and (ii) more than two-thirds of the outstanding shares of
Insmed Pharmaceuticals capital stock, voting as a single voting group, are
required to approve the reorganization agreement and related plan of exchange.
The affirmative vote of the holders of a majority of the common stock, Insmed
Pharmaceuticals Series A Preferred Stock and Insmed Pharmaceuticals Series B
Preferred Stock, present in person or by proxy at the meeting and entitled to
vote, is required for the transaction of any other business, with some
exceptions, properly brought before the meeting.
Voting by Celtrix Directors and Executive Officers (See page ___)
As of the record date, the directors, executive officers and affiliates of
Celtrix had voting power with respect to a total of 14,955,752 shares of Celtrix
common stock, or approximately 48.6% of the shares of Celtrix common stock
outstanding at that date.
Certain directors, officers and affiliates of Celtrix, who collectively own
as of the record date for the Celtrix annual stockholders' meeting approximately
13,447,001 shares or 43.7% of Celtrix's outstanding common stock, have entered
into a stockholder agreement with Insmed Inc. and Celtrix MergerSub requiring
such persons to vote their Celtrix common stock "FOR" adoption of the
reorganization agreement. Celtrix currently expects that all of its directors,
executive officers and affiliates will vote their shares of Celtrix common stock
"FOR" the proposal to adopt the reorganization agreement.
One of the Celtrix directors is affiliated with a holder of 4.9% of the
outstanding Celtrix common stock who has agreed to vote its shares in the same
manner as are voted by a majority of the remaining shares of Celtrix common
stock.
Voting by Insmed Pharmaceuticals Directors and Executive Officers (See page __)
As of the record date, the directors, executive officers and affiliates of
Insmed Pharmaceuticals had voting power with respect to a total of 7,162,870
shares of Insmed Pharmaceuticals capital stock or approximately 52.4% of the
voting shares of the Insmed Pharmaceuticals capital stock outstanding at that
date and collectively, 6,195,979 shares or approximately 63.7% of the aggregate
voting shares of the Insmed Pharmaceuticals Series A Preferred Stock and Insmed
Pharmaceuticals Series B Preferred Stock outstanding at that date.
Certain directors, executive officers and affiliates of Insmed
Pharmaceuticals, who collectively own as of the record date for the Insmed
Pharmaceuticals special shareholders' meeting approximately 6,012,709 shares or
44.0% of Insmed Pharmaceuticals' outstanding capital stock, and collectively
approximately 5,371,287 shares or 55.2% of Insmed Pharmaceuticals' outstanding
Series A Preferred Stock and outstanding Series B Preferred Stock, have entered
into a stockholder agreement with Celtrix requiring such persons to vote their
Insmed Pharmaceuticals capital stock "FOR" approval of the reorganization
agreement, including the related plan of exchange. Insmed Pharmaceuticals
currently expects that all of its directors, executive officers and affiliates
will vote their shares of Insmed Pharmaceuticals capital stock "FOR" the
proposal to approve the
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reorganization agreement, including the related plan of exchange.
Recommendation to Stockholders (See page __)
Celtrix. The board of directors of Celtrix believes that the
reorganizations are advisable, fair to and in the best interests of Celtrix and
its stockholders and unanimously recommends that Celtrix stockholders vote "FOR"
the adoption of the reorganization agreement.
In reaching its recommendation in favor of the reorganization agreement and
the transactions contemplated thereby, the Celtrix board of directors considered
the opportunities for Celtrix as a separate company and as combined with Insmed
Pharmaceuticals and Insmed, Inc., or as combined with other possible companies,
as well as other factors. See "Celtrix's Reasons for the Reorganizations" on
page __.
Insmed Pharmaceuticals. The board of directors of Insmed Pharmaceuticals
believes that the reorganizations are advisable, fair to and in the best
interests of Insmed Pharmaceuticals and its shareholders and unanimously
recommends that Insmed Pharmaceuticals shareholders vote "FOR" approval of the
reorganization agreement, including the related plan of exchange.
In reaching its recommendation in favor of the reorganization agreement and
the transactions contemplated thereby, the Insmed Pharmaceuticals board of
directors considered the opportunities for Insmed Pharmaceuticals as a separate
company and as combined with Celtrix and Insmed, Inc., as well as other factors.
See "Insmed Pharmaceuticals' Reasons for the Reorganizations" on page __.
Interests of Common Stockholder and Director of Insmed Pharmaceuticals and
Insmed, Inc. (See page __)
Edgar G. Engleman, a member of the Insmed Pharmaceuticals and Insmed, Inc.
board of directors, is a General Partner of BioAsia Investments, LLC. BioAsia
is the general partner of Biotechnology Development Fund, L.P. and Biotechnology
Development Fund III, L.P. As of February 9, 2000, the Biotechnology Fund(s)
owned (i) 917,500 shares of Insmed Pharmaceuticals Series B Preferred Stock,
(ii) 4,530,516 shares of Celtrix common stock, and (iii) a warrant to purchase
615,258 shares of Celtrix common stock at an exercise price of $2.68 which
expires on April 1, 2000. In addition, BioAsia has the right to designate one
person as a non-voting observer to attend all meetings of the Celtrix board of
directors. Since November 1998 and through the date of this joint proxy
statement/prospectus, Dr. Engleman has attended nine of thirteen of Celtrix's
board of directors meetings as the BioAsia designee following the grant of board
observer rights to BioAsia.
Interests of Officers and Directors in the Reorganizations (See page __)
Celtrix. The Celtrix board of directors also considered the following
interests of Celtrix officers and directors before approving the reorganization
agreement:
. Celtrix has entered into a consulting agreement with Andreas Sommer, Ph.D.,
that will become effective only if the reorganizations occur. Under the
terms of the consulting agreement, Dr. Sommer would receive $6,000 per
month for a period of eighteen months after the reorganizations;
. upon closing of the reorganizations, Celtrix is obligated to pay a $50,000
transaction bonus to each of the current officers (and one former officer)
of Celtrix;
. Insmed, Inc. has entered into an arrangement with Malcolm J. McKay, Ph.D.
that would become effective only if the reorganizations occur. Under the
terms of this arrangement, Dr. McKay would receive 106.5% of the base
salary he currently receives from Celtrix for a period terminating on
December 31,
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2000, plus standard Insmed, Inc. employee benefits;
. indemnification and limitation of liability provisions covering Celtrix
directors and officers will be substantially the same in all material
respects for Insmed, Inc. directors and officers after the effective time
of the reorganizations;
. at the effective time of the reorganizations, all outstanding options to
purchase shares of Celtrix common stock, including those options held by
Celtrix officers and directors, shall become fully vested and exercisable.
Officers and directors hold options to purchase 1,130,000 of such shares,
603,199 of which were vested as of December 31, 1999; and
. at the effective time of the reorganizations, each outstanding and
unexercised option to purchase Celtrix common stock, including those held
by directors and officers, will be converted into a new Insmed, Inc. option
to purchase that number of shares of Insmed, Inc. common stock equal to the
number of shares of Celtrix common stock that were subject to the option.
Insmed Pharmaceuticals. The Insmed Pharmaceuticals board of directors also
considered the following interests of Insmed Pharmaceuticals officers and
directors before approving the reorganization agreement:
. under the terms of the reorganization agreement, Geoffrey Allan, Ph.D.,
will be named President and Chief Executive Officer of Insmed, Inc.;
. under the terms of the reorganization agreement, Michael D. Baer will be
named Chief Financial Officer of Insmed, Inc.;
. under the terms of the reorganization agreement, Celtrix and Insmed
Pharmaceuticals agree to cause Geoffrey Allan, Ph.D., Gustav A.
Christensen, Kenneth G. Condon, Graham K. Crooke, MB.BS, Dennis J.
Dougherty, Steinar J. Engelsen, M.D. and Edgar G. Engleman, M.D. to be
elected to the board of directors of Insmed, Inc.;
. indemnification and limitation of liability provisions covering Insmed
Pharmaceuticals directors and officers will be substantially the same in
all material respects for Insmed, Inc. directors and officers after the
effective time of the reorganizations; and
. at the effective time of the reorganizations, each outstanding and
unexercised option to purchase Insmed Pharmaceuticals common stock,
including those held by directors and officers, will be converted into a
new Insmed, Inc. option to purchase that number of shares of Insmed, Inc.
common stock equal to the number of shares of Insmed Pharmaceuticals common
stock that were subject to the option multiplied by 3.5, except that any
resulting options in fractional shares of Insmed, Inc. will be exchanged
for cash as described in "Cash Payments for Fractional Shares of Insmed,
Inc. Common Stock" on page ___.
Opinion of Celtrix's Financial Advisor (See page __)
Celtrix. In deciding to approve the reorganization agreement and the
transactions contemplated thereby, the board of directors of Celtrix received
and considered the opinion of Pacific Growth Equities, Inc. as to the fairness,
from a financial point of view, of the consideration to be received upon
consummation of the reorganizations as of November 29, 1999, the date the board
of directors of Celtrix considered and approved the merger. On
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February 9, 2000, the date the Celtrix board of directors approved the amended
and restated reorganization agreement, Pacific Growth delivered a revised
opinion which states that based upon its review of the amended and restated
reorganization agreement and considering the matters discussed in its original
letter, dated November 29, 1999, it believes that, as of November 29, 1999, the
consideration to be received by the Celtrix shareholders is fair, from a
financial point of view. The opinion of Pacific Growth was addressed solely to
the directors of Celtrix. The opinion contains certain important qualifications
and a description of assumptions made, matters considered, areas of reliance on
others and limitations on the review undertaken by Pacific Growth. A copy of the
opinion is attached as Annex B to this joint proxy statement/prospectus.
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Conditions to the Reorganizations (See page __)
Celtrix and Insmed Pharmaceuticals. The consummation of the
reorganizations is subject to the satisfaction of a number of conditions by
Celtrix and Insmed Pharmaceuticals, including:
. approval of the reorganization agreement by the Celtrix stockholders and
the Insmed Pharmaceuticals shareholders;
. effectiveness of the registration statement filed by Insmed, Inc.;
. the absence of any restraining order, injunction or other legal restraint
preventing the consummation of the transactions contemplated by the
reorganizations;
. receipt of all required governmental and other consents and approvals;
. the shares of Insmed, Inc. common stock shall have been approved for
inclusion on the Nasdaq National Market or The Nasdaq SmallCap Market,
subject to official notice of issuance; and
. receipt by each of Celtrix and Insmed Pharmaceuticals of written agreements
from certain affiliates imposing restrictions on their disposition of
Insmed, Inc. common stock to be issued in the reorganizations.
Celtrix. The obligation of Celtrix to consummate the merger is subject to
the satisfaction of a number of conditions, including:
. the receipt of certificates by Celtrix from Insmed Pharmaceuticals
certifying the truth of representations and warranties made by Insmed
Pharmaceuticals in the reorganization agreement and certifying the
performance of covenants made by Insmed Pharmaceuticals in the
reorganization agreement;
. receipt of listing approval from the Nasdaq National Market or The Nasdaq
SmallCap Market, for Insmed, Inc. shares to be issued to Celtrix
stockholders in the reorganizations;
. receipt of a favorable tax opinion from Venture Law Group opining that (1)
the merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986 or as part of an exchange described in Section 351, and (2)
Celtrix, Insmed, Inc. and Celtrix stockholders will not recognize gain or
loss for federal income tax purposes as a result of the merger, other than
with respect to any cash received by a Celtrix stockholder in lieu of a
fractional share of Insmed, Inc. stock and except that no opinion needs to
be expressed as to any Insmed, Inc. stock received by the Celtrix Series A
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Preferred stockholder with respect to accrued but unpaid dividends;
. the absence of any events that could have a material adverse effect on
Insmed Pharmaceuticals;
. Insmed Pharmaceuticals shall have obtained all necessary consents,
approvals, actions, registrations and filings; and
. the reasonable satisfaction of Celtrix and Celtrix's counsel with the
proceedings and documents executed by Insmed Pharmaceuticals in
connection with the reorganizations.
Insmed Pharmaceuticals. The obligation of Insmed Pharmaceuticals to
consummate the share exchange is subject to the satisfaction of a number of
conditions, including:
. the receipt of certificates by Insmed Pharmaceuticals from Celtrix
certifying the truth of representations and warranties made by Celtrix
in the reorganization agreement and certifying the performance of
covenants made by Celtrix in the reorganization agreement;
. receipt of listing approval from the Nasdaq National Market or The
Nasdaq SmallCap Market, for Insmed, Inc. shares to be issued to Insmed
Pharmaceuticals shareholders in the reorganizations;
. receipt of a favorable tax opinion from Hunton & Williams opining that
(1) the exchange of Insmed Pharmaceuticals stock for Insmed, Inc.
common stock by Insmed Pharmaceuticals shareholders will be treated
for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986 or as
part of an exchange described in Section 351 and (2) Insmed
Pharmaceuticals, Insmed, Inc. and Insmed Pharmaceuticals shareholders
will not recognize gain or loss for federal income tax purposes as a
result of the share exchange, except for any cash received by an
Insmed Pharmaceuticals shareholder in lieu of a fractional share of
Insmed, Inc. stock;
. the absence of any events that could have a material adverse effect on
Celtrix;
. Celtrix shall have obtained all necessary consents, approvals,
actions, registrations and filings; and
. the reasonable satisfaction of Insmed Pharmaceuticals and Insmed
Pharmaceuticals' counsel with the proceedings and documents executed
by Celtrix in connection with the reorganizations.
Unless prohibited by law, either Celtrix or Insmed Pharmaceuticals
could elect to waive a condition that has not been satisfied and complete the
reorganizations.
Termination of the Reorganization Agreement
(See page __)
Celtrix and Insmed Pharmaceuticals may mutually agree by written
consent to terminate the reorganization agreement without completing the
reorganizations. The reorganization agreement may also be terminated in certain
other circumstances, including the following:
By Celtrix or Insmed Pharmaceuticals:
. if a court or government authority has acted to prevent the
reorganizations or the reorganizations have not been completed by May
31, 2000.
By Celtrix:
. if the reorganization proposal does not receive the requisite
shareholder votes
12
<PAGE>
at the Insmed Pharmaceuticals special meeting;
. upon a material breach of a representation or warranty, covenant or
agreement by Insmed Pharmaceuticals or Insmed, Inc. and the breach is
not cured within 10 business days after notice by Celtrix;
. if the board of directors of Insmed Pharmaceuticals fails to recommend
to its shareholders approval of the reorganization proposal or such
recommendation is withdrawn; or
. if Celtrix enters into a binding written agreement with respect to a
superior proposal.
By Insmed Pharmaceuticals:
. if the reorganization proposal does not receive the requisite
stockholder votes at the Celtrix annual meeting;
. upon a material breach of a representation or warranty, covenant or
agreement by Celtrix and the breach is not cured within 10 business
days after notice by Insmed Pharmaceuticals;
. if the board of directors of Celtrix fails to recommend to its
stockholders approval of the reorganization proposal or such
recommendation is withdrawn; or
. if Insmed Pharmaceuticals enters into a binding written agreement with
respect to a superior proposal.
Termination Fee (See page __)
If the reorganization agreement is terminated under certain
circumstances, Celtrix may have to pay Insmed Pharmaceuticals or Insmed
Pharmaceuticals may have to pay Celtrix a termination fee of $2,500,000 plus
certain other fees and expenses not to exceed $250,000. See "Payment of
Termination Fee by Celtrix" and "Payment of Termination Fee by Insmed
Pharmaceuticals" on pages ___ and ____ for more information about when a
termination fee may become payable.
Certain Federal Income Tax Consequences (See page __)
The reorganizations are conditioned on the receipt of opinions from
legal counsel that, among other things:
. The merger and the share exchange each will qualify as a tax-free
reorganization within the meaning of Section 368 of the Internal
Revenue Code or as part of an exchange described in Section 351 of the
Internal Revenue Code; and
. No gain or loss will be recognized by Celtrix's stockholders in
connection with the merger, or by Insmed Pharmaceuticals' shareholders
in connection with the share exchange, other than with respect to any
cash received instead of fractional shares and except that no opinion
needs to be expressed with respect to any Insmed Inc. shares received
by the Celtrix Series A Preferred stockholder with respect to accrued
but unpaid dividends on such preferred stock.
Tax matters are complicated, and the tax consequences of the proposed
transactions to you will depend on the facts of your own situation. You should
consult your own tax advisors for a full understanding of the tax consequences
to you because of the reorganizations.
Accounting Treatment and Considerations
(See page __)
We expect the acquisition of Celtrix by Insmed, Inc. will be accounted
for under the purchase method of accounting in accordance with generally
accepted accounting principles.
13
<PAGE>
The purchase price will be allocated among Celtrix's assets and liabilities
based on their estimated fair values.
Comparison of Stockholders' Rights (See page __)
Insmed, Inc. and Insmed Pharmaceuticals are each incorporated under the
laws of the Commonwealth of Virginia. Celtrix is incorporated under the laws of
the State of Delaware. Insmed Pharmaceuticals shareholders, whose rights are
currently governed by Virginia law, the Insmed Pharmaceuticals Articles of
Incorporation and the Insmed Pharmaceuticals Bylaws, will, upon consummation of
the share exchange, become shareholders of Insmed, Inc., and their rights as
such will be governed by Virginia law, Insmed, Inc.'s Articles of Incorporation
and Insmed, Inc.'s Amended and Restated Bylaws. Celtrix stockholders, whose
rights are currently governed by Delaware law and the Celtrix Certificate of
Incorporation and Celtrix Bylaws, will, upon consummation of the merger, become
shareholders of Insmed, Inc., and their rights as such will be governed by
Virginia law, the Insmed, Inc. Articles of Incorporation and Insmed, Inc.
Amended and Restated Bylaws. See "Comparison of Stockholders' Rights" on page
__.
Appraisal Rights (See page __)
Celtrix. Under Delaware law, Celtrix stockholders will have appraisal
rights with respect to the merger to receive payment in cash for the fair value
of their shares of common stock. To preserve their rights, stockholders who wish
to exercise their appraisal rights must follow specific procedures. Those
procedures are described in this joint proxy statement/prospectus, and the
Delaware law that grants appraisal rights and governs such procedures is
attached as Annex C.
-------
Insmed Pharmaceuticals. Under Virginia law, Insmed Pharmaceuticals
shareholders will have the right to dissent from the share exchange and to
receive payment in cash for the fair value of their shares of common stock. To
preserve their rights, shareholders who wish to dissent must follow specific
procedures. Those procedures are described in this joint proxy
statement/prospectus, and the Virginia law that grants dissenters' rights
(sometimes called "appraisal rights") and governs such procedures is attached as
Annex D.
- -------
Celtrix Market Price Information (See page __)
Celtrix common stock is listed on The Nasdaq SmallCap Market. On
November 30, 1999, the last full trading day before the public announcement of
the proposed reorganizations, Celtrix common stock closed at $1.563 per share.
On ________, 2000, the last day for which such information could be calculated
before the date of this joint proxy statement/prospectus, Celtrix common stock
closed at $____ per share.
Celtrix has not historically paid dividends to its stockholders. Insmed,
Inc. does not anticipate that it will pay dividends to its shareholders in the
foreseeable future.
Insmed Pharmaceuticals Market Price Information (See page __)
No market currently exists for Insmed Pharmaceuticals common stock.
Listing of Insmed, Inc. Common Stock (See page __)
Insmed, Inc. applied to list its stock on the Nasdaq National Market
under the ticker symbol "INSM."
Where You Can Find More Information (See Page __)
If you would like more information about Celtrix, it can be found in
documents filed by Celtrix with the Securities and Exchange Commission. If you
would like more information about Insmed Pharmaceuticals, it can be found in
14
<PAGE>
documents on file at Insmed Pharmaceuticals' headquarters.
15
<PAGE>
Comparative Per Share Data
The following table sets forth historical per share data for Insmed
Pharmaceuticals and Celtrix as well as consolidated per share data on an
unaudited pro forma basis after giving effect to the acquisition of Celtrix by
Insmed, Inc. and accounting for that transaction under the purchase method of
accounting. The Insmed, Inc. pro forma consolidated data has been computed using
the historical Celtrix and Insmed Pharmaceuticals data. The table also provides
"equivalent pro forma" information for Insmed Pharmaceuticals showing the
expected per share data giving effect to the exchange ratio provided for in the
reorganization agreement and the financing described under "Recent Developments"
on page __, but assuming that Insmed Pharmaceuticals remained as a separate
entity and did not become a wholly-owned subsidiary of Insmed, Inc. Celtrix
"equivalent pro forma" data was not presented because applying the exchange
ratio provided in the reorganization agreement to the historical data would not
have produced a different result. No cash dividends were paid by Insmed
Pharmaceuticals or Celtrix during any of the periods presented and Insmed, Inc.
does not anticipate paying any cash dividends in the foreseeable future. You
should read the table in conjunction with the selected historical financial
information and the unaudited pro forma condensed consolidated financial
information of Insmed Pharmaceuticals and Celtrix included in this joint proxy
statement/prospectus. You should not rely on the pro forma financial information
as an indication of the results that Insmed, Inc. would have achieved if the
acquisition of Celtrix by Insmed, Inc. had taken place earlier or as an
indication of the results of Insmed, Inc. after the acquisition of Celtrix by
Insmed, Inc.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
------------------------
<S> <C>
Insmed Pharmaceuticals -- Historical
Basic and diluted net loss per share $ (2.16)
Book value per common share/(1)/ $ (4.80)
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
March 31, 1999 December 31, 1999
------------------------ ------------------------
<S> <C> <C>
Celtrix -- Historical
Basic and diluted net loss per share $ (0.58) $ (0.39)
Book value per common share/(1)/ $ 0.13 $ (0.15)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
------------------------
<S> <C>
Pro Forma Consolidated -- Insmed, Inc.
Basic and diluted net loss per share $ (0.18)
Book value per common share/(2)/ $ 0.36
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
------------------------
<S> <C>
Equivalent Pro Forma Consolidated --
Per Insmed Pharmaceuticals, Inc. Share
Basic and diluted net loss per share/(3)/ $ (0.63)
Book value per common share/(3)/ $ 1.26
</TABLE>
(1) The historical book value per common share is computed by dividing
stockholders' equity attributable to common stock (total stockholders'
equity, less aggregate liquidation preferences of preferred stocks) by the
number of shares of common stock outstanding at the end of the period.
16
<PAGE>
(2) The pro forma consolidated book value per common share is computed by
dividing pro forma stockholders' equity by the pro forma shares of common
stock outstanding at the end of the period.
(3) Represents the pro forma consolidated amounts multiplied by the exchange
ratio applicable to the Insmed Pharmaceuticals stock.
17
<PAGE>
Celtrix Pharmaceuticals, Inc. -- Selected Historical Financial Data
In the table below, we provide you with selected historical financial
data of Celtrix Pharmaceuticals, Inc. We have prepared this information using
the consolidated financial statements of Celtrix Pharmaceuticals, Inc. as of and
for the five years ended March 31, 1999 and as of and for the nine-month periods
ended December 31, 1999 and 1998. The financial statements as of and for the
five fiscal years ended March 31, 1999 have been audited by Ernst & Young LLP,
independent auditors. The financial statements as of and for the nine-month
periods ended December 31, 1999 and 1998 have not been audited.
When you read this selected historical financial data, it is important
that you also read the historical financial statements and related notes, as
well as "Management's Discussion and Analysis of Financial Condition and Results
of Operations" set forth on pages ______.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
----------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Statement of Operations Data:
Total revenues $ 2,200 $ 1,750 $ 658 $ 661 $ 131 $ 79 $ 712
Operating expenses:
Cost of sales 134 31 5 1 -- -- --
Research and development 18,091 10,990 11,999 13,006 6,830 6,432 629
General and administrative 3,459 2,063 1,814 1,985 2,272 1,725 1,424
Restructuring costs 2,108 -- -- -- 5,160 5,178 --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses 23,792 13,084 13,818 14,992 14,262 13,335 2,053
--------- --------- --------- --------- --------- --------- ---------
Operating loss (21,592) (11,334) (13,160) (14,331) (14,131) (13,256) (1,341)
Equity loss in joint venture -- -- -- -- -- -- (8,973)
Interest income, net 843 625 464 681 132 121 74
Gain on sale of investment -- 3,463 -- 737 -- -- --
Proceeds from settlement agreement -- -- -- -- 600 -- --
Net loss $ (20,749) $ (7,246) $ (12,696) $ (12,913) $ (13,399) $ (13,135) $ (10,240)
========= ========= ========= ========= ========= ========= =========
Basic and diluted net loss per share:
Net loss $ (1.57) $ (0.51) $ (0.83) $ (0.61) $ (0.58) $ (0.59) $ (0.39)
Weighted average shares 13,255 14,161 15,238 21,004 22,941 22,235 26,548
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Balance Sheet Data:
Cash, cash equivalents and investments $ 19,929 $ 17,643 $ 5,788 $ 7,913 $ 1,258 $ 1,780 $ 1,243
Total assets 35,024 30,145 16,956 17,876 4,501 5,312 4,407
Long-term obligations 828 238 -- -- -- -- --
Convertible/exchangeable preferred stock -- -- -- -- -- -- 7,948
Stockholders' equity (deficiency) 29,436 26,786 14,210 14,744 3,280 3,568 (4,234)
</TABLE>
18
<PAGE>
Insmed Pharmaceuticals, Inc. -- Selected Historical Financial Data
In the table below, we provide you with selected historical financial
data of Insmed Pharmaceuticals. We have prepared this information using the
consolidated financial statements of Insmed Pharmaceuticals as of and for the
five years ended December 31, 1999. The financial statements as of and for the
five fiscal years ended December 31, 1999 have been audited by Ernst & Young
LLP, independent auditors.
When you read this selected historical financial data, it is important
that you also read the historical financial statements and related notes, as
well as "Management's Discussion and Analysis of Financial Condition and Results
of Operations" set forth on pages ____.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ------------ ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Historical Statement of Operations Data:
Total revenues $ 380 $ 146 $ -- $ 100 $ 663
Operating expenses:
Research and development 877 1,302 2,604 3,769 6,349
General and administrative 666 943 979 1,626 2,445
----------- ----------- ------------ ------------ -----------
Total operating expenses 1,543 2,245 3,583 5,395 8,794
----------- ----------- ------------ ------------ -----------
Operating loss (1,163) (2,099) (3,583) (5,295) (8,131)
Interest income, net (43) 11 103 486 338
Net loss $(1,206) $(2,088) $ (3,480) $(4,809) $(7,793)
=========== =========== ============ ============ ===========
Basic and diluted net loss per share:
Net loss $ (0.75) $ (0.87) $ (1.22) $ (1.47) $ (2.16)
Weighted average shares 1,607 2,399 2,854 3,278 3,606
December 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Historical Balance Sheet Data:
Cash, cash equivalents and investments $ 60 $ 2,106 $ 2,050 $11,677 $4,635
Total assets 173 2,386 2,365 11,938 5,296
Convertible participating preferred stock -- 5,294 -- -- --
Stockholders' equity (deficiency) (1,512) (3,093) 2,151 11,661 4,462
</TABLE>
19
<PAGE>
Insmed, Inc. - Unaudited Selected Pro Forma Condensed Consolidated
Financial Information
The unaudited pro forma condensed consolidated financial information set
forth below gives effect to the purchase of Celtrix by Insmed, Inc., assuming
that each share of Insmed Pharmaceuticals' stock outstanding is exchanged for
3.5 shares of Insmed, Inc. common stock and each share of Celtrix common stock
is exchanged for 1.0 share of Insmed, Inc. common stock and each share of
Celtrix Series A Preferred Stock is exchanged for __ shares of Insmed, Inc.
common stock. The unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1999, combine the historical
statements of operations of Insmed Pharmaceuticals and Celtrix as if the
reorganizations had occurred January 1, 1999. The Celtrix financial information
has been recast to conform to the December 31 fiscal year end of Insmed, Inc.
The unaudited pro forma condensed consolidated balance sheet data as of December
31, 1999 gives effect to the acquisition of Celtrix by Insmed, Inc. and the
$34.5 million equity financing described in "Recent Developments" on page _____
as if each occurred on December 31, 1999, and gives effect to the allocation of
the purchase price to the Celtrix assets acquired, including in-process research
and development, and liabilities assumed. This data should be read in
conjunction with the selected historical financial information, the unaudited
pro forma condensed consolidated financial statements and the separate
historical financial statements of Insmed Pharmaceuticals and Celtrix included
elsewhere in this joint proxy statement/prospectus. The unaudited pro forma
condensed consolidated financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have been achieved had the reorganizations been
completed at January 1, 1999, and such information should not be construed as
representative of future operating results or financial position. Information
with regard to the pro forma adjustments are set forth on pages __ to __.
20
<PAGE>
Insmed, Inc. - Unaudited Selected Pro Forma Condensed Consolidated
Financial Information
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------------------------------
Historical
----------------------------------
Insmed Pro Forma Pro Forma
Pharmaceuticals Celtrix Adjustments Combined
-------------------- ----------- --------------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues $ 663 $ 763 $ 1,426
Costs and expenses:
Research and development 6,349 1,027 7,347
General and administrative 2,445 1,953 4,142
-------------------- ----------- --------------- ------------
8,794 2,980 11,489
-------------------- ----------- --------------- ------------
Operating loss (8,131) (2,217) (10,063)
Equity in loss of joint venture -- (8,973) (8,973)
Interest income, net 338 85 423
Proceeds from settlement agreement -- 600 600
Net loss $ (7,793) $(10,505) -- $(18,013)
==================== ============ =============== ============
Net loss per share -- basic and diluted $ (2.16) $ (0.40) $ (0.18)
==================== ============ =============== ============
Shares used in computing basic
and diluted net loss per share 3,606 26,176 99,306
==================== ============ =============== ============
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------------------------------
Historical
------------------------------------
Insmed Pro Forma Pro Forma
Pharmaceuticals Celtrix Adjustments Combined
--------------------- ----------- --------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments $ 4,635 $ 1,243 $ 32,600 $ 38,478
Total assets 5,296 4,407 29,643 39,346
Convertible/exchangeable preferred stock -- 7,948 (7,948) --
Total stockholders' equity (deficiency) 4,462 (4,234) 35,967 36,195
</TABLE>
21
<PAGE>
RISK FACTORS
An investment in the Insmed, Inc. common stock offered by this joint
proxy statement/prospectus involves a high degree of risk. Before you decide to
invest in the Insmed, Inc. common stock offered by this joint proxy
statement/prospectus, you should carefully consider the following risk factors,
together with the other information contained in this joint proxy
statement/prospectus.
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing Insmed, Inc. Additional risks and uncertainties not presently
known to Insmed, Inc. or that Insmed, Inc. currently deems immaterial may also
impair Insmed, Inc.'s business operations.
If any of the following risks actually occur, Insmed, Inc.'s business,
financial condition, or results of operations could be materially adversely
affected. In such case, the trading price of Insmed, Inc.'s common stock could
decline and you could lose all or part of your investment.
Risks Related to the Reorganizations
The value of the consideration to be received in the reorganizations may
fluctuate.
At the effective time of the reorganizations, each outstanding share of
Celtrix common stock will be converted into one share of Insmed, Inc. common
stock, and each outstanding share of Celtrix Series A Preferred Stock will be
converted into approximately ____ shares of Insmed, Inc., common stock and each
outstanding share of common stock and preferred stock of Insmed Pharmaceuticals
will be converted into 3.5 shares of Insmed, Inc. common stock. These exchange
ratios will not increase or decrease due to fluctuations in the market price of
Celtrix's common stock. Thus, the value of the shares of Insmed, Inc. common
stock to be received by Celtrix stockholders and Insmed Pharmaceuticals
shareholders in the reorganizations will depend upon the market price of Celtrix
common stock at the effective time of the merger, which may be greater or less
than the value at the time a stockholder votes on the merger. Celtrix common
stock is subject to substantial price volatility and, therefore, the value of
the merger consideration to be received by Celtrix stockholders is subject to
the same volatility. Recent market prices of Celtrix common stock are set forth
under the caption "Market Prices and Dividend Information" on page __. We
encourage Celtrix stockholders and Insmed Pharmaceuticals shareholders to obtain
current market quotations for Celtrix common stock.
The costs of the reorganizations and the costs of integrating the Celtrix and
Insmed Pharmaceuticals businesses are substantial.
We estimate that it will cost approximately $3.5 million to consummate
the reorganizations. These costs will consist of transaction fees for investment
bankers, attorneys, accountants and other costs incurred by Celtrix and Insmed
Pharmaceuticals. There can be no assurance that we will not incur additional
charges in excess of these amounts to reflect costs associated with the
reorganizations, including the costs of integrating the Celtrix and Insmed
Pharmaceuticals businesses.
Integration of companies.
Following the reorganizations, Celtrix and Insmed Pharmaceuticals will
become our wholly-owned subsidiaries. We will need to successfully integrate and
streamline overlapping functions of the combined companies, part of which will
include moving Celtrix's operations from its current
22
<PAGE>
headquarters in San Jose, California to Insmed Inc.'s headquarters in Richmond,
Virginia. Celtrix and Insmed Pharmaceuticals have different systems and
procedures in many operational areas that must be combined. It is possible that
integration efforts will be neither smooth nor successful. The difficulties of
integration may be increased by the necessity of coordinating geographically
separated organizations. The integration of certain operations following the
reorganizations will require the dedication of management resources that may
temporarily distract attention from the day-to-day business of the combined
companies. Our failure to effectively accomplish the integration of Celtrix's
and Insmed Pharmaceuticals' operations could have an adverse effect on our
results of operations and financial condition.
Risks Related to Insmed, Inc.
Because our products are in an early stage of development, none has received
regulatory approval or been released for commercial sale.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear
promising at early stages of development may fail for a number of reasons,
including the possibility that the products will be found to be ineffective, to
cause harmful side effects and to be too expensive to manufacture on a large
scale. Such products may also fail to receive regulatory approval. In addition,
such products, even when approved by regulatory authorities, may fail to achieve
market acceptance or be precluded from commercialization by the proprietary
rights of third parties. All of our potential products and production
technologies are in the research or development stages and we have generated no
revenues from product sales. Such potential products will require significant
additional development, laboratory and clinical testing and investment before
their commercialization. Our long-term viability and growth will depend on
successful commercialization of products resulting from our research activities.
Therefore, in order to achieve profitable operations, we must, either alone or
with others, successfully develop, obtain regulatory approval for, manufacture
and market our development stage products.
We can give you no assurances that we will be able to identify, develop
or produce products with commercial potential or that our products will secure
market acceptance. In addition, the research, development, testing, clinical
trials and acquisition of the necessary regulatory approvals with respect to any
given product will take many years and thus delay our receipt of revenues, if
any, from any such products. We have not yet generated any revenues from the
commercialization of our products. There can be no assurances that we will
succeed in developing products with commercial applications.
We have limited operating history and a history of operating losses.
We are at an early stage of development and we currently have no
marketed products. To date, we have been engaged in research and development
activities and have not generated any significant revenues from the sale of
products. The process of developing our products requires significant pre-
clinical testing and clinical trials as well as regulatory approvals. In
addition, commercialization of our drug candidates will require the
establishment of a sales and marketing organization and contractual
relationships to enable product manufacturing and other related activity. These
activities, together with our general and administrative expenses, are expected
to result in substantial operating losses for the foreseeable future. We have
incurred losses during our initial years of operations and expect to continue to
incur operating losses for the foreseeable future since all of our resources
will be devoted to the development and testing of our products. As of December
31, 1999, the accumulated deficit for Insmed
23
<PAGE>
Pharmaceuticals was $22,780,309 and for Celtrix was $140,928,465, and for the
year ended December 31, 1999, the net loss for Insmed Pharmaceuticals was
$7,792,684 and for the nine months ended December 31, 1999, the net loss for
Celtrix was $10,239,931. Our ability to achieve profitability will depend in
part on our completing research and development of, and obtaining regulatory
approvals for, our products and successfully commencing product
commercialization.
Our proposed financing may not close; and if closed may result in significant
dilution.
As discussed in "Recent Developments" on p. __, Insmed Inc. has entered
into a purchase agreement with certain investors which provides for Insmed
Pharmaceuticals to issue 5,632,678 shares of its common stock and for Insmed,
Inc. to issue warrants to purchase up to 6,901,344 shares of Insmed, Inc. common
stock at any exercise price of $2.25 per share for an aggregate consideration of
$34.5 million. This financing is subject to a number of conditions and no
assurance can be given that the financing will actually occur. Further, if the
financing does occur, shareholders of Insmed, Inc. at the time of the
reorganizations may suffer significant dilution if the value of the Insmed, Inc.
common stock is substantially higher at the time of the reorganizations than the
price paid by the investors in this financing.
We need additional funds; and we face uncertainties with respect to access to
capital.
Including the funds received in connection with the financing discussed
on page __, we believe that existing cash reserves, together with proceeds from
the proposed financing will be sufficient to fund our activities for more than
two years. If the proposed financing is not consummated, our existing cash
reserves will be sufficient to fund our activities until September 2000. Our
future capital requirements will continue to be substantial in order to continue
to conduct the time consuming research and development, clinical studies and
regulatory activities necessary to bring any potential therapeutic products to
market and to establish production, marketing and sales capabilities. These
future capital requirements will depend on many factors, including the progress
of preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing and prosecuting
patent applications and enforcing patent claims and the establishment of
strategic alliances and activities required for product commercialization. There
can be no assurance that our cash reserves together with any funding
subsequently received will be sufficient to satisfy our capital requirements.
We intend to seek additional funding through strategic alliances and may
seek funding through private or public sales of our securities or by licensing
all or a portion of our technology. Such funding may result in significant
dilution to existing stockholders or may limit our rights to the technology we
are currently developing. There can be no assurance, however, that additional
funding will be available on reasonable terms, or at all. If adequate funds are
not available, we may be required to curtail significantly our product
development programs and/or relinquish rights to our technologies or product
candidates.
We face uncertainties related to clinical trials and our dependence on patient
enrollment to complete our clinical trials.
Before obtaining regulatory approvals for the commercial sale of any of
our products under development, we must demonstrate through preclinical studies
and clinical trials that the product is safe and effective for use in each
target indication. The results from preclinical testing and early clinical
trials may not be predictive of results obtained in later clinical trials and
there can be no assurance that clinical trials we conducted, by contract
research organizations retained by us or by corporate partners
24
<PAGE>
will demonstrate sufficient safety and effectiveness to obtain regulatory
approvals. A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in late stage clinical trials even
after promising results in early stage development. Moreover, the rate of
completion of our clinical trials is dependent on, among other factors, the rate
of patient enrollment. Patient enrollment is a function of many factors,
including the size of the patient population, the nature of the protocol, the
proximity of patients to clinical sites and the eligibility criteria for the
study. Delays in patient enrollment may result in increased costs and delays for
the trial, which could have a material adverse effect on our business, financial
condition and results of operations.
We face uncertainties related to regulatory approvals.
The preclinical testing and clinical trials of any compounds we or our
collaborative partners develop and the manufacturing and marketing of any drugs
produced from such compounds are subject to regulation by numerous federal,
state and local governmental authorities in the United States, principally the
Food and Drug Administration, and by similar agencies in other countries in
which drugs developed by us or our collaborative partners may be tested and
marketed. Because our products are in an early stage of development, none has
received regulatory approval or been released for commercial sale. Any compound
we develop or our collaborative partners develop must receive approval from
applicable regulatory agencies before it can be marketed as a drug in a
particular country. Therefore, our success ultimately depends on our ability to
obtain approval for one or more products from the Food and Drug Administration.
No product can receive Food and Drug Administration approval unless it is shown
to be safe and effective in human clinical trials. There can be no assurance
that clinical testing will provide evidence of safety and effectiveness in
humans or that regulatory approvals will be granted for any of our products or
even, if granted, that those products can be brought to the market economically.
The regulatory process, which includes preclinical testing and clinical
trials of each compound in order to establish its safety and efficacy, can take
many years and requires the expenditure of substantial resources. Data obtained
from preclinical and clinical activities are subject to varying interpretations
that could delay, limit or prevent regulatory agency approval. In addition,
delays or rejections may be encountered based on changes in regulatory agency
policies during the period in which a drug is being developed and/or the period
required for review of any application for regulatory agency approval of a
particular compound. Delays in obtaining regulatory agency approvals could
adversely affect the marketing of any drugs we or our collaborative partners
develop. Such delays could result in the imposition of costly procedures on our
and on our collaborative partners' activities, diminish any competitive
advantages that we or our collaborative partners may attain, and adversely
affect our ability to receive royalties, any of which could have a material
adverse effect on our business, financial condition and results of operations.
There can be no assurance that, even after considerable time and funds
have been expended, regulatory agency approvals will be obtained for any
compounds we develop alone or in collaboration with partners. Moreover, if
regulatory agency approval for a drug is granted, such approval may include
limitations on the indicated uses for which the drug may be marketed and this
could limit the potential market for any such drug. Furthermore, if we obtain
approval for any of our products, the marketing and manufacture of such products
remains subject to extensive regulatory requirements. Even if approval were
granted, such approval would be subject to continual review, and later discovery
of unknown problems could result in restrictions on the products for future use
or their withdrawal from the market. Failure to comply with regulatory
requirements could, among other things, result in fines, suspension of
regulatory approvals, operating restrictions and criminal prosecution. In
addition, regulatory agency
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approval of pricing is required in many countries and may be required for the
marketing in such countries of any drug we or our collaborative partners
develop.
We cannot be certain that we will obtain any regulatory approvals in
other countries. In order to market our products outside of the U.S., we and our
corporate partners must comply with numerous and varying regulatory requirements
of other countries regarding safety and quality. The approval procedures vary
among countries and can involve additional testing. The time required to obtain
approval in other countries might differ from that required to obtain FDA
approval. The regulatory approval process in other countries includes all of the
risks associated with obtaining FDA approval set forth above. Approval by the
FDA does not ensure approval by the regulatory authorities of any other country.
There is no assurance of market acceptance for our potential products.
There can be no assurance that any products that we successfully
develop, if approved for marketing, will achieve market acceptance. For example,
physicians and health care payers could conclude that our products are not safe
and effective. The products and therapies we are attempting to develop will
compete with a number of well-established traditional drugs and therapies
manufactured and marketed by major pharmaceutical companies. The degree of
market acceptance of any products we develop will depend on a number of factors,
including the establishment and demonstration in the medical community of the
clinical efficacy and safety of our product candidates, their potential
advantage over existing treatment methods, and reimbursement policies of
government and third-party payers, including insurance companies. Our
competitors may also develop new technologies or products which are more
effective or less costly, or that are perceived to be more cost-effective than
our products. There is no assurance that physicians, patients, third-party
payers or the medical community in general will accept and use any products that
we may develop. Our business, financial condition and results of operations may
be materially adversely affected if our products do not receive market
acceptance for any reason.
Uncertainty regarding third party reimbursement and healthcare cost containment
initiatives may affect our revenue.
Even if we and our corporate partners succeed in bringing any products
to market, we cannot be certain that reimbursement will be available. Our
commercial success will depend in part on third-party payers agreeing to
reimburse patients for the costs of products. Reimbursement is generally
provided by government health administration authorities, private health
insurers and other organizations. Third-party payers frequently challenge the
pricing of new drugs. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. We expect that our products will
be very expensive. Third-party payers may not approve our products for
reimbursement.
If third-party payers do not approve an Insmed, Inc. product for
reimbursement, sales will suffer as some patients will opt for a competing
product that is approved for reimbursement. Even if reimbursement is available,
payer's reimbursement policies may adversely affect our and our corporate
partners' ability to sell such products on a profitable basis.
In addition, the trend toward managed healthcare in the United States,
the growth of organizations such as health maintenance organizations, and
legislative proposals to reform healthcare and government insurance programs
could significantly influence the purchase of healthcare services and products,
resulting in lower prices and reducing demand for our products.
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If we succeed in bringing any of our proposed products to the market, we
cannot assure you that they will be considered cost-effective or that third-
party reimbursement will be available or sufficient. In addition, legislation
and regulations affecting the pricing of pharmaceuticals may change in ways
adverse to us before or after any of our proposed products are approved for
marketing. While we cannot predict whether any such legislative or regulatory
proposals will be adopted, the adoption of such proposals could have a material
adverse effect on our business, financial condition and results of operations.
We currently have no manufacturing or marketing capability.
We have no manufacturing experience. We intend to enter strategic
alliances with other parties that have established manufacturing and marketing
capabilities. There can be no assurance that we will be able to enter such
strategic alliances on terms favorable to us, or at all. As an alternative, we
may choose to pursue the commercialization of such products on our own which
would require substantial additional funds.
If we are permitted to commence commercial sales of products, we will
face competition with respect to commercial sales, marketing and distribution,
areas in which we have no experience. To market any of our products directly, we
must develop a marketing and sales force with technical expertise and with
supporting distribution capability. Alternatively, we may obtain the assistance
of a pharmaceutical company with a large distribution system and a large direct
sales force. There can be no assurance that we will be able to establish sales
and distribution capabilities or be successful in gaining market acceptance for
our proprietary products. To the extent we enter co-promotion or other licensing
arrangements, any revenues we receive will be dependent on the efforts of third
parties and there can be no assurance that such efforts will be successful.
Materials necessary to manufacture our products may not be available.
Many of the materials that we will utilize in our operations are made at
only a few facilities. A shutdown in any of these facilities due to technical,
regulatory or other problems, resulting in an interruption in supply of these
materials, could have an adverse impact on our financial results.
We need corporate partners for success.
To a large extent, our strategy for development and commercialization of
our products is predicated on entering strategic alliances with corporate
partners. We intend to establish alliances to provide continued funding for
clinical development as well as perform manufacturing and marketing functions.
There can be no assurance that we will be able to enter such strategic alliances
on terms favorable to us, or at all. Our failure to enter or maintain such
alliances would have a material adverse effect on our business and financial
condition.
We will rely on a number of significant collaborative relationships with
pharmaceutical companies for our manufacturing, research funding, clinical
development and/or sales and marketing performance. Reliance on collaborative
relationships poses a number of risks, including:
. we will not be able to control whether our corporate partners
will devote sufficient resources to our programs or products;
. disputes may arise in the future with respect to the ownership of
rights to technology developed with corporate partners;
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. disagreements with corporate partners could lead to delays in or
termination of the research, development or commercialization of
product candidates, or results in litigation or arbitration;
. contracts with our corporate partners may fail to provide
significant protection or may fail to be effectively enforced if
one of these partners fails to perform;
. corporate partners have considerable discretion in electing
whether to pursue the development of any additional products and
may pursue technologies or products either on their own or in
collaboration with our competitors; and
. corporate partners with marketing rights may choose to devote
fewer resources to the marketing of our products than they do to
products of their own development.
Given these risks, there is a great deal of uncertainty regarding the
success of our current and future collaborative efforts. If these efforts fail,
our product development or commercialization of new products could be delayed or
revenue from existing products could decline.
Our growth strategy includes the acquisition of complementary businesses that
may not be available to acquire or, if acquired, might not improve our business
and results.
As part of our business strategy, we expect to pursue additional
acquisitions. Nonetheless, we cannot assure you that we will identify suitable
acquisitions or that such acquisitions can be made at an acceptable price. If we
acquire additional businesses, those businesses may require substantial capital
and we cannot assure you that such capital will be available in sufficient
amounts or that financing will be available in amounts and on terms that we deem
acceptable. Furthermore, the integration of acquired businesses may result in
unforeseen difficulties that require a disproportionate amount of management's
attention and our other resources. Finally, we cannot assure you that we will
achieve productive synergies and efficiencies from these acquisitions.
We intend to conduct proprietary research programs, and any conflicts with our
collaborators could harm our business.
An important part of our strategy involves conducting proprietary
research programs. We may pursue opportunities in fields that could conflict
with those of our collaborators. Moreover, disagreements with our collaborators
could develop over rights to our intellectual property. Any conflict with our
collaborators could reduce our ability to obtain future collaboration agreements
and negatively influence our relationship with existing collaborators, which
could reduce our revenues.
Certain of our collaborators could also become competitors in the
future. Our collaborators could develop competing products, preclude us from
entering into collaborations with their competitors, fail to obtain timely
regulatory approvals, terminate their agreements with us prematurely or fail to
devote sufficient resources to the development and commercialization of
products. Any of these developments could harm our product development efforts.
There are risks associated with our license agreements.
We have a license agreement with the University of Virginia Patent
Foundation with respect to a number of our patents that obligates us to pay
license fees and royalties. We are also required to pay filing and maintenance
costs for the patent rights associated with the license agreement and any new
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patent applications. For the fiscal years ended December 31, 1999 and 1998, we
paid $110,921 and $165,016, respectively, in patent and licensing fees
associated with this license. If we fail to make payments required under the
license agreements, then the license agreement, and our rights to the patents
licensed to us, may be terminated.
We face uncertainties related to patents and proprietary technology.
Our success will depend in part on our ability to obtain patent
protection for our products, preserve trade secrets, prevent third parties from
infringing on our patents, and refrain from infringing on the patents of others,
both domestically and internationally. The patent positions of
biopharmaceutical, pharmaceutical and biotechnology companies can be highly
uncertain, and any patents that may be issued for our potential products will be
subject to this uncertainty. We intend to actively pursue patent protection for
products with significant potential commercial value arising in the course of
our research and development activities. Nevertheless, it is possible that, in
the patent application process, certain claims may be rejected or be so limited
as to reduce the value of the patents. Further, there can be no assurance that
any patents obtained will afford adequate protection. The patents currently
licensed to us have not been tested in litigation and the cost of such
litigation might be prohibitively expensive. In addition, any patents procured
by us may require that we work with other companies holding related patents. A
successful relationship may be difficult to conclude.
In addition, patent law relating to the scope of claims in the
technology fields in which we operate is still evolving. The degree of future
protection for our proprietary rights is therefore uncertain. No consistent
policy has emerged regarding the permissible breadth of coverage of claims in
biotechnology patents. Therefore, no assurance can be given that any of our or
our licensors' patent applications will issue as patents or that any such issued
patents will provide competitive advantages for our products or will not be
successfully challenged or circumvented by our competitors. In addition, there
can be no assurance that others will not independently develop substantially
equivalent proprietary technology that is not covered by our patents or that
others will not be issued patents that may prevent the sale of our proposed
products or require us to license technology from third parties and pay
significant fees or royalties.
It may be necessary for us to undertake costly litigation to enforce any
patents issued or licensed to us or to determine the scope and validity of
another party's proprietary rights. There can be no assurance that our issued or
licensed patents would be held to be valid by a court of competent jurisdiction.
An adverse outcome in litigation or an interference or other proceeding in a
court or patent office could subject us to significant liabilities to other
parties, require disputed rights to be licensed from other parties or require us
to cease using such technology, any of which could have a material adverse
effect on our business, financial condition and results of operations.
We also rely on trade secrets to protect technology, especially where
patent protection is not believed to be appropriate or obtainable. We attempt to
protect our proprietary technology and processes in part by confidentiality
agreements with employees, consultants and contractors. There can be no
assurance that such agreements will not be breached, that we will have adequate
remedies for any breach, or that our trade secrets will not otherwise become
known or will be independently discovered by competitors in such a manner that
we have no practical recourse. To the extent that we, our consultants, or our
research collaborators use intellectual property owned by others in work
performed for us, disputes may also arise as to the rights in related or
resulting know-how and inventions.
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We are aware that at least three large biotechnology and pharmaceutical
companies have been issued patents and/or have filed patent applications in the
United States and abroad directed at the production of recombinant IGF-I by
various methods and its use in various clinical indications. The earliest date
of filing of these patent applications is April 25, 1983, but most are much more
recent -- within the last five years. Unless and until all such applications
issue, it is not possible for us to determine the breadth of our competitors'
claims regarding processes for production of IGF-I or for the use of IGF-I for
particular indications. Furthermore, a large biotechnology and pharmaceutical
company with substantial financial and legal resources has a patent issued in
the United States directed towards certain DNA molecules encoding BP3 and the
corresponding BP3 protein. This same patent was previously granted in Europe,
which Celtrix successfully opposed. However, this large biotechnology and
pharmaceutical company has recently appealed the decision in Europe and there
can be no assurance that the appeal will not be successful, nor is it possible
to determine what, if any, claims will be reinstated or the breadth of such
claims. In addition, we expect our competitors to defend their patent positions
vigorously.
We have developed a new process for the production of IGF and BP3 that
we do not believe infringes other patents relating to recombinant protein
production in general or other patents relating to the production of IGF and BP3
in particular, although there can be no assurance that a contrary position will
not be asserted by our competitors. A large number of other companies have
pending patent applications and/or issued patents that claim certain methods of
use of IGF. There can be no assurance that third parties will not claim that our
technology for IGF-I and INS-1, current or future products or manufacturing
processes infringe their proprietary rights. If other companies were to
successfully bring legal actions against us claiming patent or other
intellectual property infringements, in addition to any potential liability for
damages, we could be required to obtain a license in order to continue to use
the affected process or to manufacture or use the affected products, or
alternatively, we could be required to cease using such products or process if
enjoined by a court. Any such claim, with or without merit, could result in
costly litigation or might require us to enter into royalty or licensing
agreements, all of which could delay or otherwise adversely impact the
development of our potential products for commercial use. If any licenses are
required, there can be no assurance that we will be able to obtain them on
commercially favorable terms, if at all, and if such licenses are not obtained,
we might be prevented from pursuing the development of certain of our potential
products. Our breach of an existing license, our failure to obtain, or our delay
in obtaining a license to any technology that we require to commercialize our
products may have a material adverse impact on our business, financial condition
and results of operations.
We face substantial competition.
We are engaged in a business characterized by extensive research
efforts, rapid developments and intense competition. Competition can be expected
to increase as technological advances are made and commercial applications
broaden. In each of our potential product areas, competition from large
pharmaceutical, biotechnology and other companies, universities and research
institutions is substantial. Relative to us, most of these entities have
substantially greater capital resources, research and development staffs,
facilities and experience in conducting clinical trials and obtaining regulatory
approvals, as well as in manufacturing and marketing pharmaceutical products.
Furthermore, we believe that our competitors have used, and may continue to use,
litigation to gain a competitive advantage. Our competitors may use different
technologies or approaches to the development of products similar to the
products we are seeking to develop. Competitors may develop new or enhanced
products or processes that may be more effective, less expensive, safer or more
readily available than any developed by us.
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There can be no assurance that our products will compete successfully or that
research and development by others will not render our products obsolete or
uneconomical.
Any potential products that we successfully develop and for which we
gain regulatory approval will have to compete for market acceptance and market
share. For certain of our potential products, an important factor in such
competition may be the timing of market introduction of competitive products.
Accordingly, the relative speed with which we can develop products, complete the
clinical testing and regulatory approval processes and supply commercial
quantities of the product to the market are expected to be important competitive
factors. We expect that competition will be based, among other things, on
product efficacy, safety, reliability, availability, timing and scope of
regulatory approval and price. There can be no assurance that our competitors
will not succeed in developing technologies and products that are more effective
than any that we are developing or that would render our technology and products
obsolete or noncompetitive. In addition, many of our competitors may achieve
product commercialization or patent protection earlier than we will. Our failure
to compete effectively would have a material adverse effect on our business,
financial condition and results of operations.
Most of our competitors have more capital and substantially greater
technical and human resources than us. In addition, many competitors have
significantly greater experience than us in conducting preclinical testing and
clinical trials of new pharmaceutical products and in obtaining regulatory
approvals.
Rapid technological change could make our products obsolete.
Biotechnology and related pharmaceutical technology have undergone and
are subject to rapid and significant change. We expect that the technologies
associated with biotechnology research and development will continue to develop
rapidly. Our future will depend in large part on our ability to maintain a
competitive position with respect to these technologies. Any compounds, products
or processes that we develop may become obsolete before we recover any expenses
incurred in connection with developing these products.
We are dependent upon key personnel and others.
We are highly dependent on the principal members of our scientific and
management staff, the loss of whose services might significantly delay or
prevent the achievement of research, development, or business objectives. Our
success is dependent, in large part, on our ability to attract and retain
qualified management, scientific and medical personnel, and on our ability to
develop and maintain important relationships with commercial partners, leading
research institutions and key distributors. Competition for such personnel and
relationships is intense. There can be no assurance that we will be able to
attract and retain such persons or maintain such relationships. The loss of key
management or scientific personnel would have a material adverse effect on us.
Our potential expansion into areas and activities requiring additional
expertise, such as further clinical trials, governmental approvals, contract
manufacturing and marketing, are expected to place additional requirements on
our management, operational and financial resources. These demands are expected
to require an increase in management and scientific personnel and the
development of additional expertise by existing management personnel. The
failure to attract and retain such personnel or to develop such expertise could
materially adversely affect prospects for our success.
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Our products involve the use of hazardous materials.
Our research and development activities involve the use of hazardous
materials and chemicals, including the use of radioactive materials. We believe
that our procedures for handling hazardous materials comply with federal and
state regulations; however, there can be no assurance that accidental injury or
contamination from these materials will not occur. In the event of an accident,
we could be held liable for any damages, which could exceed our available
financial resources, including our insurance coverage.
We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous or
radioactive materials and waste products. We may be required to incur
significant costs to comply with environmental laws and regulations in the
future.
We are subject to product liability claims and the availability of insurance.
In testing, manufacturing and marketing our products, we risk liability
from the failure of products to perform as expected. Such risks exist even with
respect to those potential products, if any, that receive regulatory approval
for commercial sale. Although we will seek to obtain product liability insurance
and indemnification from licensees of the products, such insurance or
indemnification may be inadequate, unobtainable or prohibitively expensive. Our
insurance policies provide coverage for product liability on a claims made basis
and general liability on an occurrence basis. These policies are subject to
annual renewal. Such insurance may not be available in the future on acceptable
terms or at all. An inability to obtain sufficient insurance coverage on
reasonable terms or to otherwise protect against potential product liability
claims brought against Insmed, Inc. in excess of its insurance coverage, if any,
or a product recall may significantly impair our ability to test, manufacture
and market our products.
We cannot be certain that our present product liability insurance
coverage is adequate. Such existing coverage will not be adequate as we further
develop our products, and we cannot be certain that adequate insurance coverage
against potential claims will be available in sufficient amounts or at a
reasonable cost.
Our business may be negatively impacted by computer failures in the Year 2000.
Many of our existing computer programs and systems use only two digits to
identify the year in the date field. These programs may be unable to process
date/time information between the twentieth and twenty-first centuries. This
inability could cause the disruption or failure of such computer systems. We
have identified two main areas of our Year 2000 risk:
. Our internal computer systems could be disrupted or fail, causing an
interruption or decrease in our ability to continue its operations;
and
. The computer systems of third parties with whom we regularly deal,
including our suppliers, vendors, utilities and financial
institutions, could be disrupted or fail, causing an interruption or
decrease in our ability to continue its operations.
If the business of any third party, including suppliers, vendors,
utilizes or financial institutions, is significantly disrupted because such
party is not Year 2000 compliant, such disruption could adversely affect our
business. These disruptions could include, among other things:
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. a financial institution's inability to process checks drawn on
our bank accounts, accept deposits or process wire transfers;
. a client's, supplier's, vendor's or financial institution's
business failure;
. an interruption in deliveries of equipment and supplies from
vendors;
. a loss of voice and data connections we will use to share
information;
. a loss of electric power to our facilities; or
. other interruptions to the normal conduct of our business, the
nature and extent of which we cannot foresee.
We do not know whether or when any of the disruptions described above
will actually occur. Even if they do occur, we cannot predict the effect they
will have on our business.
We expect that our stock price will be volatile.
There is no current public market for our common stock. Immediately
following completion of the reorganizations, our common stock will be listed for
trading on [the Nasdaq National Market]. Upon completion of the reorganizations,
it is likely that our common stock will experience the significant volatility
previously experienced by Celtrix common stock. The stock market, particularly
in recent years, has experienced volatility that has been especially acute with
respect to biopharmaceutical and biotechnology based stocks. The volatility of
biopharmaceutical and biotechnology based stocks has often been unrelated to the
operating performance of the companies represented by the stock. Factors such as
announcements of the introduction of new products or services by us or our
competitors, market conditions in the biotechnology sectors, rumors relating to
us or our competitors and litigation or public concern as to safety of our
potential products may have a significant impact on the market price of our
stock.
Celtrix and Insmed Pharmaceuticals have never paid dividends on their capital
stock and we do not anticipate paying any cash dividends in the foreseeable
future.
Each of Celtrix and Insmed Pharmaceuticals historically has not paid
cash dividends on Celtrix common stock or Insmed Pharmaceuticals common stock,
as the case may be. We currently intend to retain our future earnings, if any,
to fund the development and growth of our businesses and, therefore, we do not
anticipate paying any cash dividends in the foreseeable future.
Certain provisions of Virginia law, our Articles of Incorporation and Amended
and Restated Bylaws make a takeover by a third party difficult.
Certain provisions of Virginia law and our Articles of Incorporation and
Amended and Restated Bylaws could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of us. These provisions include:
. a provision allowing us to issue preferred stock with rights
senior to those of the common stock without any further vote or
action by the holders of the common stock. The issuance of
preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of common stock or
could adversely affect the
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rights and powers, including voting rights, of the holders of the
common stock. In certain circumstances, such issuance could have
the effect of decreasing the market price of the common stock;
. the existence of a staggered board of directors in which there
are three classes of directors serving staggered three-year
terms, and thereby expanding the time required to change the
composition of a majority of directors and perhaps discouraging
someone from making an acquisition proposal for us;
. the Amended and Restated Bylaws' requirement that shareholders
provide advance notice when nominating our directors;
. the inability of shareholders to convene a shareholders' meeting
without the meeting first being called by the Chairman of the
Board, the President or a majority of the board of directors; and
. the application of Virginia law prohibiting us from entering into
a business combination with the beneficial owner of 10% or more
of our outstanding voting stock for a period of three years after
the 10% or greater owner first reached that level of stock
ownership, unless certain criteria are met.
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A CAUTION ABOUT FORWARD-LOOKING STATEMENTS
The matters discussed throughout this joint proxy statement/prospectus
that are not historical facts are forward-looking and, accordingly, involve
estimates, projections, goals, forecasts, assumptions and uncertainties that
could cause actual results or outcomes to differ materially from those expressed
in the forward-looking statements.
These forward-looking statements may include, but are not limited to,
future capital expenditures, acquisitions (including the amount and nature of
acquisitions), future revenues, earnings, margins, costs, demand for new
pharmaceutical products, market trends in the pharmaceutical business, inflation
and various economic and business trends. You can identify forward-looking
statements by the use of words such as "expect," "estimate," "project,"
"budget," "forecast," "anticipate," "plan" and similar expressions. Forward-
looking statements include all statements regarding expected financial position,
results of operations, cash flows, dividends, financing plans, business
strategies, operating efficiencies or synergies, budgets, capital and other
expenditures, competitive positions, growth opportunities for existing or
proposed products or services, plans and objectives of management, and markets
for stock of Insmed, Inc., Celtrix and Insmed Pharmaceuticals.
Any forward-looking statement speaks only as of the date on which the
statement was made.
Examples of factors that should be considered with respect to any
forward-looking statements made throughout this joint proxy statement/prospectus
include, but are not limited to, the following:
. Legislative and regulatory initiatives that impact the provision
of pharmaceutical products and services;
. Market demand for pharmaceutical products and services, changes
in the economies of areas served by the companies and
catastrophic natural disasters;
. The ability of Celtrix, Insmed Pharmaceuticals, Insmed, Inc.,
their suppliers and customers to successfully address Year 2000
readiness issues;
. Unanticipated changes in operating expenses and capital
expenditures;
. General industry trends and the effects of vigorous competition
in the biotechnology, biopharmaceutical and pharmaceutical
industries;
. Financial or regulatory accounting principles or policies imposed
by the Financial Accounting Standards Board, the Securities and
Exchange Commission and similar agencies with regulatory
oversight;
. Employee workforce factors, including loss or retirement of key
executives and scientists;
. Technological developments resulting in competitive disadvantages
and creating the potential for impairment of existing assets;
. Unexpected costs or difficulties related to the integration of
the businesses of Celtrix and Insmed Pharmaceuticals;
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. Regulatory delays or conditions imposed by regulatory bodies in
approving the reorganizations;
. General economic factors including inflation and capital market
conditions; and
. Adverse changes in the securities markets.
These factors are difficult to predict. They also contain uncertainties
that may materially affect actual results, and may be beyond the control of
Celtrix, Insmed Pharmaceuticals or Insmed, Inc. New factors may emerge from time
to time and it is not possible for us to predict new factors, nor can we assess
the effect of any new factors on Celtrix, Insmed Pharmaceuticals or Insmed, Inc.
These forward-looking statements are found at various places throughout
this joint proxy statement/prospectus. We caution you not to place undue
reliance on these forward-looking statements, which speak only as of the date
they were made. None of Celtrix, Insmed Pharmaceuticals or Insmed, Inc.
undertakes any obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date of this
joint proxy statement/prospectus or to reflect the occurrence of unanticipated
events.
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THE MEETINGS
This joint proxy statement/prospectus is furnished in connection with
the solicitation of proxies from the holders of Celtrix common stock by the
Celtrix board of directors for use at the annual meeting of Celtrix
stockholders, and from the holders of Insmed Pharmaceuticals capital stock by
the Insmed Pharmaceuticals board of directors for use at the special meeting of
Insmed Pharmaceuticals shareholders. This joint proxy statement/prospectus and
accompanying forms of proxy are first being mailed to the stockholders of
Celtrix and Insmed Pharmaceuticals beginning on or about ________________, 2000.
Times, Dates and Places
Celtrix. The annual meeting of Celtrix stockholders will be held at
10:00 a.m., local time, on [day of week], [date], 2000, at 2033 Gateway Place,
Suite 600, San Jose, California 95110. It may be adjourned or postponed to
another date and/or place for proper purposes.
Insmed Pharmaceuticals. The special meeting of Insmed Pharmaceuticals
shareholders will be held at 1:00 p.m., local time, on [day of week], [date],
2000 at 800 East Leigh Street, Richmond, Virginia 23219. It may be adjourned or
postponed to another date and/or place for proper purposes.
Purpose of the Meetings
Celtrix Annual Meeting. At the annual meeting of Celtrix stockholders
(and any adjournment or postponement thereof), Celtrix stockholders will be
asked to consider and vote upon (i) a proposal to approve and adopt the
reorganization agreement, (ii) to elect directors of the board of directors to
serve until the earlier of the expiration of their term or consummation of the
reorganizations, (iii) to ratify the appointment of Ernst & Young LLP as
Celtrix's independent public accountants for the fiscal year ending March 31,
2000, and (iv) to transact such other matters as may properly come before the
meeting.
Insmed Pharmaceuticals Special Meeting. At the special meeting of Insmed
Pharmaceuticals shareholders (and any adjournment or postponement thereof),
Insmed Pharmaceuticals' shareholders will be asked to consider and vote upon a
proposal to approve and adopt the reorganization agreement, including the
related plan of exchange, and to transact such other matters as may properly
come before the special meeting.
Record Date; Voting Rights; Votes Required for Approval
Celtrix:
Record Date. Celtrix's board of directors has fixed the close of
business on ________, 2000, as the record date for the determination of the
Celtrix stockholders entitled to receive notice of and to vote at the annual
meeting. A complete list of stockholders entitled to vote at the meeting will be
open to examination by the stockholders, during regular business hours, for a
period of ten days before the meeting at the principal executive offices of
Celtrix at 2033 Gateway Place, Suite 600, San Jose, California.
Voting Rights. Only holders of record of shares of Celtrix common stock
on the Celtrix record date are entitled to notice of and to vote at the annual
meeting. Except with respect to the election of directors as described below,
each holder of record of Celtrix common stock as of the Celtrix record date is
entitled to cast one vote for each share of Celtrix common stock held on the
Celtrix record date with
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regard to the proposal to adopt the reorganization agreement, the proposal to
ratify the appointment of Ernst & Young LLP as Celtrix's independent public
accountants and with respect to each other matter that may properly come before
the Celtrix annual meeting.
Every Celtrix common stockholder voting for the election of directors
may cumulate such stockholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
shares held by such stockholder, or distribute the stockholder's votes on the
same principle among as many candidates as the stockholder thinks fit, provided
that votes cannot be cast for more than five candidates. However, no Celtrix
common stockholder shall be entitled to cumulate votes unless the candidate's
name has been placed in nomination prior to the voting and the stockholder, or
any other stockholder, has given notice at the meeting prior to the voting of
the intention to cumulate the stockholder's votes. On all other matters, each
share has one vote. As of the record date, there were 30,790,372 shares of
Celtrix common stock outstanding, each of which is entitled to five votes at the
annual meeting for the election of directors. Such votes may be cast for one
nominee or distributed among two or more nominees up to a maximum of five
nominees.
Votes Required for Approval. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Celtrix common stock entitled
to vote is necessary to constitute a quorum at the annual meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Celtrix common stock, voting as a single voting group, is required to approve
the proposal adopting the reorganization agreement. Each nominee for election to
the board of directors receiving the greatest number of votes, up to five
directors, will be the persons elected as directors. The affirmative vote of the
majority of the shares of Celtrix common stock, voting as a single voting group,
present in person or by proxy at the annual meeting and entitled to vote, is
required to ratify the selection of Ernst & Young LLP as the independent public
accountants of Celtrix.
Voting by Celtrix's Directors and Executive Officers. As of the record
date, the directors, executive officers and affiliates of Celtrix had voting
power with respect to a total of 14,955,752 shares of Celtrix common stock, or
approximately 48.6% of the shares of Celtrix common stock outstanding at that
date. Certain directors, officers and affiliates of Celtrix, who collectively
own as of the record date for the Celtrix annual stockholders' meeting
approximately 13,447,001 shares or 43.7% of Celtrix's outstanding common stock,
have entered into a stockholder agreement with Insmed, Inc. and Celtrix
MergerSub requiring such persons to vote their Celtrix common stock "FOR"
adoption of the reorganization agreement. One of the Celtrix directors is
affiliated with a holder of 4.9% of the outstanding Celtrix common stock who has
agreed to vote its shares in the same manner as are voted by a majority of the
remaining shares of Celtrix common stock. Celtrix currently expects that all of
its directors, executive officers and affiliates will vote their shares of
Celtrix common stock "FOR" the proposal to adopt the reorganization agreement.
For additional information on the ownership and voting of Celtrix common stock,
Celtrix directors and executive officers, see "Security Ownership of Certain
Beneficial Owners and Management of Celtrix" on page __.
Insmed Pharmaceuticals:
Record Date. Insmed Pharmaceuticals' board of directors has fixed the
close of business on ________, 2000, as the record date for Insmed
Pharmaceuticals' shareholders entitled to notice of and to vote at the special
meeting.
Voting Rights. Only holders of record of shares of Insmed
Pharmaceuticals common stock and Insmed Pharmaceuticals Series A Preferred Stock
and Insmed Pharmaceuticals Series B Preferred Stock,
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on the Insmed Pharmaceuticals record date, are entitled to notice of and to vote
at the special meeting. Each holder of record of Insmed Pharmaceuticals common
stock, Series A Preferred Stock and Insmed Pharmaceuticals Series B Preferred
Stock, as of the Insmed Pharmaceuticals record date, is entitled to cast one
vote per share on all matters submitted to Insmed Pharmaceuticals' shareholders.
As of the record date, there were 3,933,390 shares of Insmed Pharmaceuticals
common stock, 6,144,599 shares of Insmed Pharmaceuticals Series A Preferred
Stock and 3,581,761 shares of Insmed Pharmaceuticals Series B Preferred Stock
outstanding and entitled to vote at the special meeting.
Votes Required for Approval. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Insmed Pharmaceuticals common
stock, and the majority of the outstanding shares of Insmed Pharmaceuticals
Series A Preferred Stock and Insmed Pharmaceuticals Series B Preferred Stock, as
separate voting groups, is necessary to constitute a quorum at the special
meeting. The affirmative vote of the holders of more than two-thirds of the
outstanding shares of Insmed Pharmaceuticals capital stock and the affirmative
vote of the holders of a majority of the outstanding shares of Insmed
Pharmaceuticals Series A Preferred Stock and Insmed Pharmaceuticals Series B
Preferred Stock, voting together as a single voting group, is required to
approve and adopt the reorganization proposal. The affirmative vote of the
holders of a majority of the outstanding shares of Insmed Pharmaceuticals common
stock and Insmed Pharmaceuticals Series A Preferred Stock and Insmed
Pharmaceuticals Series B Preferred Stock, present in person or by proxy at the
meeting and entitled to vote, is required for the transaction of any other
business, with some exceptions, properly brought before the meeting.
Voting of Insmed Pharmaceuticals' Directors and Executive Officers. As
of the record date, the directors, executive officers and affiliates of Insmed
Pharmaceuticals had voting power with respect to a total of 7,162,870 shares of
Insmed Pharmaceuticals capital stock or approximately 52.4% of the voting shares
of the Insmed Pharmaceuticals capital stock outstanding at that date and
collectively, 6,195,979 shares or approximately 63.7% of the aggregate voting
shares of the Insmed Pharmaceuticals Series A Preferred Stock and Insmed
Pharmaceuticals Series B Preferred Stock outstanding at that date. Certain
directors, executive officers and affiliates of Insmed Pharmaceuticals, who
collectively own as of the record date for the Insmed Pharmaceuticals special
shareholders' meeting approximately 6,012,709 shares or 44.0% of Insmed
Pharmaceuticals' outstanding capital stock and collectively approximately
5,371,287 shares or 55.2% of Insmed Pharmaceuticals' outstanding Series A
Preferred Stock and outstanding Series B Preferred Stock, have entered into a
stockholder agreement with Celtrix requiring such persons to vote their Insmed
Pharmaceuticals capital stock "FOR" approval of the reorganization agreement,
including the related plan of exchange. Insmed Pharmaceuticals currently expects
that all of its directors, executive officers and affiliates will vote their
shares of Insmed Pharmaceuticals capital stock "FOR" the proposal to approve the
reorganization agreement, including the related plan of exchange. For additional
information on the ownership of Insmed Pharmaceuticals capital stock by Insmed
Pharmaceuticals directors and executive officers, see "Security Ownership of
Certain Beneficial Owners and Management of Insmed Pharmaceuticals" on page __.
Proxies
All shares of Celtrix common stock, and Insmed Pharmaceuticals common
stock, Insmed Pharmaceuticals Series A Preferred Stock and Insmed
Pharmaceuticals Series B Preferred Stock, represented by properly executed
proxies received prior to or at the annual meeting of Celtrix stockholders or
the special meeting of Insmed Pharmaceuticals shareholders, as the case may be,
and not revoked, will be voted in accordance with the instructions indicated in
those proxies. If no instructions are indicated on a properly executed returned
proxy, Celtrix and Insmed Pharmaceuticals will vote such
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proxy "FOR" the approval and adoption of the reorganization proposal and Celtrix
will vote such proxy "FOR" the proposals regarding election of directors and
appointment of an independent accountant.
Abstentions may be specified with respect to any of the proposals being
considered at the respective annual or special meetings, as the case may be. A
properly executed proxy marked "ABSTAIN" will be counted as present for purposes
of determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the meeting. Because the affirmative votes of a majority of the outstanding
shares of the Celtrix common stock are required for adoption of the
reorganization proposal, and in the case of Insmed Pharmaceuticals, the
affirmative vote of more than two-thirds of the outstanding shares of Insmed
Pharmaceuticals capital stock and a majority of the outstanding shares of Insmed
Pharmaceuticals Series A Preferred Stock and Series B Preferred Stock, voting
together as a single voting group, are required for approval of the
reorganization proposal, a proxy marked "ABSTAIN" with respect to the
reorganization proposal will have the effect of a vote "AGAINST" the
reorganization proposal. In addition, the failure of a stockholder of Celtrix or
Insmed Pharmaceuticals to return a proxy will have the effect of a vote
"AGAINST" the reorganization proposal. Under Nasdaq rules, brokers who hold
shares in street name for customers have the authority to vote on certain
"routine" proposals when they have not received instructions from beneficial
owners. Under Nasdaq rules, such brokers are precluded from exercising their
voting discretion with respect to proposals for non-routine matters such as the
reorganization proposal. Thus, absent specific instructions from the beneficial
owner of such shares, brokers are not empowered to vote such shares with respect
to the approval and adoption of the reorganization proposal (i.e., "broker non-
votes"), but may vote the Celtrix shares with respect to the election of
directors and the appointment of an independent accountant. Since the
affirmative votes described above are required for approval of the
reorganization proposal, a "broker non-vote" with respect to the reorganization
proposal will have the effect of a vote "AGAINST" the reorganization proposal.
In addition, with regard to the other matters to be voted on at the meetings, a
proxy marked "ABSTAIN" will have the same effect as a vote "AGAINST" a proposal.
Revocation of Proxies
You may revoke your proxy at any time prior to its use by delivering to
the Secretary of Celtrix or the Secretary of Insmed Pharmaceuticals, as the case
may be, a signed notice of revocation or a later-dated, signed proxy, or by
attending the meeting and voting in person. Merely attending the meeting does
not mean you have revoked your proxy.
Solicitation of Proxies
The solicitation of proxies of Celtrix stockholders and Insmed
Pharmaceuticals shareholders is made by both the Celtrix board of directors and
the Insmed Pharmaceuticals board of directors and is being paid for equally by
Celtrix and Insmed Pharmaceuticals. In addition to solicitation by mail,
arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to send the proxy materials to beneficial owners. Both Celtrix
and Insmed Pharmaceuticals will, upon request, reimburse such brokerage houses
and custodians for their reasonable expenses in so doing. Neither Insmed
Pharmaceuticals nor Celtrix expects to engage a firm to aid in the solicitation
of proxies; however, should it later be determined necessary, Insmed
Pharmaceuticals and Celtrix estimates that related fees will not exceed $10,000
(plus expenses). To the extent necessary in order to ensure sufficient
representation at the respective meetings, Celtrix or Insmed Pharmaceuticals, as
the case may be, or either company's respective proxy solicitor may request the
return of proxy cards by personal interview, mail, telephone, facsimile or other
means of electronic transmission. The extent to which this
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will be necessary depends entirely upon how promptly proxy cards are returned.
You are urged to send in your proxy card immediately.
You should not send in any stock certificates with your proxy card. As
soon as practicable after the consummation of the reorganizations, a transmittal
form will be sent to you with instructions for receiving Insmed, Inc. common
stock in exchange for your Celtrix stock or Insmed Pharmaceuticals stock, as the
case may be.
As of the date of this joint proxy statement/prospectus, neither the
Celtrix board of directors nor the Insmed Pharmaceuticals board of directors
knows of any business to be presented at the meetings other than the proposals
set forth above. If any other matters should properly come before either
meeting, it is intended that the shares represented by proxies will be voted
with respect to such matters in accordance with the judgment of the persons
voting such proxies. Proxies voted "AGAINST" the reorganization proposal will
not be used to vote for any adjournment pursuant to this authority.
Availability of Accountants
Celtrix. A representative of Ernst & Young LLP, Celtrix's independent
public accountants, is expected to be present at the annual meeting of Celtrix's
stockholders and to be available to respond to appropriate questions. Such
representative will have the opportunity to make a statement at the annual
meeting if he or she so desires.
Insmed Pharmaceuticals. A representative of Ernst & Young LLP, Insmed
Pharmaceuticals' independent public accountants, is expected to be present at
the special meeting of Insmed Pharmaceuticals' shareholders and be available to
respond to appropriate questions. Such representative will have the opportunity
to make a statement at the special meeting if he or she so desires.
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THE REORGANIZATIONS
The following information relating to the reorganizations is not
intended to be a complete description of all the information relating to the
reorganizations but is intended to include the material terms of the
reorganizations. The discussion in this joint proxy statement/prospectus of the
reorganizations and the principal terms of the reorganization agreement is
subject to, and qualified in its entirety by reference to, the reorganization
agreement, which is attached to this joint proxy statement/prospectus as Annex A
-------
and is incorporated by reference in this joint proxy statement/prospectus. You
are urged to read the reorganization agreement carefully for a complete
description of the terms of the reorganizations.
Results of the Reorganizations
The reorganization agreement provides that, as a part of the
reorganizations, each of Celtrix and Insmed Pharmaceuticals will become wholly-
owned subsidiaries of Insmed, Inc. In the reorganizations, Celtrix MergerSub
will be merged with and into Celtrix with Celtrix as the surviving corporation
and the separate corporate existence of MergerSub will cease. Celtrix will
thereby become a wholly-owned subsidiary of Insmed, Inc. Throughout this
document, the merger of Celtrix MergerSub into Celtrix will be referred to as
the merger. In addition, Insmed Pharmaceuticals and Insmed, Inc. will conduct a
share exchange whereby non-dissenting Insmed Pharmaceuticals shareholders will
exchange their shares of capital stock of Insmed Pharmaceuticals for shares of
Insmed, Inc. capital stock. Following the share exchange, Insmed Pharmaceuticals
will be a wholly-owned subsidiary of Insmed, Inc. Throughout this document, the
exchange of Insmed Pharmaceuticals capital stock for Insmed, Inc. capital stock
will be referred to as the share exchange, and the share exchange and the merger
will be collectively referred to as the reorganizations. The reorganizations
will become effective on the latter of, the date of filing of the certificate of
merger with the Secretary of State of the State of Delaware or, the date of
receipt of the certificate of exchange from the State Corporation Commission of
the Commonwealth of Virginia, or at such other time as will be specified in the
certificate of merger or articles of exchange. Immediately following completion
of the reorganizations:
. Celtrix and Insmed Pharmaceuticals will become wholly-owned
subsidiaries of Insmed, Inc.;
. Geoffrey Allan, Ph.D., Kenneth G. Condon, Gustav A. Christensen,
Graham K. Crooke, MB.BS, Dennis J. Dougherty, Steinar J.
Engelsen, M.D., and Edgar G. Engleman, M.D. will be directors of
Insmed, Inc. and Elan Corporation, plc will appoint an observer
to the Insmed, Inc. board of directors as described on page __;
. officers of Insmed, Inc. will include Geoffrey Allan, Ph.D., as
Chief Executive Officer and President and Michael D. Baer as
Chief Financial Officer;
. former Celtrix common and preferred stockholders will
collectively own approximately 40,819,626 shares of Insmed, Inc.
common stock or 33.7% of Insmed, Inc. on a fully diluted basis;
. former Insmed Pharmaceuticals common and preferred shareholders
will collectively own approximately 53,593,215 shares of Insmed,
Inc. common stock or 44.3% of Insmed, Inc. on a fully diluted
basis;
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. the investors who purchase Insmed Pharmaceuticals common stock
and Insmed, Inc. warrants in connection with the financing
described on page __ just before the closing, will collectively
own approximately 26,615,717 shares of Insmed, Inc. common stock
or 22.0% of Insmed, Inc. on a fully diluted basis;
. approximately 1,410,722 shares of Insmed, Inc. common stock will
be issuable upon the exercise of converted Celtrix options; and
. approximately 5,962,369 shares of Insmed, Inc. common stock will
be issuable upon the exercise of converted Insmed Pharmaceuticals
options.
Celtrix and Insmed Pharmaceuticals Stockholder Agreements
The following information relating to the stockholder agreements is not
intended to be a complete description of all of the information relating to the
stockholder agreements, but is intended to include the material terms of the
stockholder agreements. This description is qualified in its entirety by the
stockholder agreements themselves, the forms of which are attached to this joint
proxy statement/prospectus as Annex E and Annex G and are incorporated by
------- -------
reference in this joint proxy statement/prospectus. You are encouraged to read
both forms of stockholder agreements in their entirety.
As a condition to the execution by Celtrix and Insmed Pharmaceuticals of
the reorganization agreement, some of the shareholders who are affiliates of
Insmed Pharmaceuticals, including certain members of management and the board of
directors, entered into stockholder agreements for the benefit of Celtrix and
some of the stockholders of Celtrix who are affiliates, including certain
members of management and the board of directors, entered into stockholder
agreements for the benefit of Insmed Pharmaceuticals.
Pursuant to the stockholder agreements, the stockholders agreed to vote
their shares of Celtrix or Insmed Pharmaceuticals capital stock, as the case may
be, in favor of adoption or approval of the reorganization agreement and the
transactions contemplated thereby and to cause anyone to whom they transferred
their voting rights in the capital stock to do the same. The obligations under
the stockholder agreements terminate automatically upon the termination of the
reorganization agreement.
The following holders of Celtrix common stock, representing 13,447,001
shares or approximately 43.7% of its outstanding common stock are parties to
stockholder agreements for the benefit of Insmed Pharmaceuticals: Warburg,
Pincus Investors, L.P., Genzyme Corporation, Biotechnology Development Fund,
L.P., Biotechnology Development Fund, III, L.P., Veron International, Limited,
Andreas Sommer, Ph.D., Malcolm J. McKay, Ph.D. and Henry E. Blair. For more
information on these stockholders, see "Security Ownership of Certain Beneficial
Owners and Management" on page ___.
In addition, a holder of 1,508,751 shares of Celtrix common stock or
approximately 4.9% of its outstanding common stock has agreed to vote all of its
shares in the same manner as are voted by a majority of the remaining shares of
Celtrix common stock.
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The following holders of Insmed Pharmaceuticals capital stock,
representing 6,012,709 shares or approximately 44.0% of its outstanding capital
stock and collectively 5,371,287 shares or approximately 55.2% of its
outstanding Insmed Pharmaceuticals Series A Preferred Stock and outstanding
Insmed Pharmaceuticals Series B Preferred Stock, are parties to stockholder
agreements for the benefit of Celtrix: Geoffrey Allan, Ph.D., Boston University
Nominee Partnership, Ticonderoga Associates III, L.L.C., Intersouth Associates
III, LP, KS Teknoinvest V, BioAsia Investment, LLC, (on behalf of Biotechnology
Development Fund, L.P. and Biotechnology Development Fund, III, L.P.) and
Warburg Dillon Read, LLC.
What Celtrix Stockholders and Insmed Pharmaceuticals Shareholders Will Receive
In connection with the reorganizations, (i) each holder of Celtrix
common stock will receive one (1) share of Insmed, Inc. common stock for each
outstanding share of Celtrix common stock, (ii) each holder of Celtrix Series A
Preferred Stock will receive __________ shares of Insmed, Inc. common stock for
each outstanding share of Celtrix Series A Preferred Stock held, and (iii) each
shareholder of Insmed Pharmaceuticals will receive 3.5 shares of Insmed, Inc.
common stock for each outstanding share of Insmed Pharmaceuticals common stock
and Insmed Pharmaceuticals Series A Preferred Stock and Insmed Pharmaceuticals
Series B Preferred Stock held. Cash will be paid instead of issuing fractional
shares of Insmed, Inc. common stock. At the effective time of the
reorganizations, each outstanding option, warrant or other right to purchase
shares of Celtrix common stock and each outstanding option, warrant or other
right to purchase shares of Insmed Pharmaceuticals common stock will be
converted automatically into a new option, warrant or other right to purchase
the number of shares of Insmed, Inc. common stock equal to the number of shares
of Celtrix common stock or Insmed Pharmaceuticals common stock, as the case may
be, issuable under the old option, warrant or other right multiplied by one (1)
in the case of Celtrix stock options or other rights, and 3.5 in the case of
Insmed Pharmaceuticals stock options, warrants or other rights, except that cash
will be paid instead of issuing options, warrants or other rights to purchase
fractional shares of Insmed, Inc. The per share exercise price of the new
option, warrant or other right will be divided by one (1) in the case of
Celtrix, or 3.5 (rounded up to the nearest tenth of a cent) in the case of
Insmed Pharmaceuticals stock options, warrants or other rights. For more
information on the designations and rights of the Insmed, Inc. stock options,
see "Insmed, Inc. 2000 Stock Option Plan" on page ___.
Cash Payments for Fractional Shares of Insmed, Inc. Common Stock
If the conversion of Insmed Pharmaceuticals and Celtrix shares of common
stock and preferred stock into shares of Insmed, Inc. common stock results in
any former Insmed Pharmaceuticals and Celtrix stockholder being entitled to
receive a fraction of a share of Insmed, Inc. common stock, no fraction of a
share of Insmed, Inc. common stock will be delivered. Rather than receiving a
fraction of a share, former Insmed Pharmaceuticals and Celtrix common and
preferred stockholders will receive a cash payment, without interest and subject
to the payment of applicable withholding taxes, based on the mean of the high
and low sales prices of Insmed, Inc. common stock as reported on [the Nasdaq
National Market], on the first full day on which the Insmed, Inc. common stock
is traded on [the Nasdaq National Market].
Similarly, if the conversion of Insmed Pharmaceuticals options, warrants
or other rights results in any former Insmed Pharmaceuticals shareholder being
entitled to receive the right to purchase a fractional share of Insmed, Inc.
common stock, no right to purchase a fractional share of common stock will be
delivered. Instead of receiving an option, warrant or other right to purchase a
fractional share of Insmed, Inc. common stock, a holder of an Insmed
Pharmaceuticals option, warrant or other right to
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purchase Insmed Pharmaceuticals common stock will receive a check in an amount
equal to the difference between (i) the fractional share multiplied by the mean
of the high and low sales price of Insmed, Inc. common stock on the first full
day of trading on [the Nasdaq National Market] after completion of the
reorganizations and (ii) the product of 3.5 multiplied by the exercise price per
share of each Insmed Pharmaceuticals option, warrant or other right to purchase
common stock.
Background and Negotiation of the Reorganizations
On October 5, 1998, the Celtrix board of directors held a regular
meeting, at which, among other matters, it discussed the possibility of merging
Celtrix with another biotechnology company as a corporate strategy to diversify
the product portfolio and gain broader access to financial resources. The board
recommended the retention of investment bankers to assist in these activities.
On November 2, 1998, Andreas Sommer, President and Chief Executive
Officer of Celtrix, and Thomas Dietz, a Managing Director of Pacific Growth
Equities (Pacific Growth), discussed the possibility of merging with another
company. The next day Drs. Sommer and Dietz discussed the formal engagement of
Pacific Growth and possible merger candidates.
At a meeting of the Insmed Pharmaceuticals' board of directors on
November 18, 1998, Edgar Engleman, a member of the Insmed Pharmaceuticals board
of directors, discussed with Dr. Geoffrey Allan, Chairman and Chief Executive
Officer of Insmed Pharmaceuticals, whether Insmed Pharmaceuticals might be
interested in acquiring Celtrix and another company in the BioAsia management
portfolios.
On November 20, 1998, Graham Crooke, a member of the Insmed
Pharmaceuticals board of directors, contacted Andreas Sommer to discuss the
business strategies and position of each company and the complementary nature of
clinical programs. These discussions did not include financial terms.
On November 23, 1998, Dr. Engleman discussed with Dr. Sommer the
possibility of a merger between the two companies. Later that day, Dr. Allan
telephoned Dr. Sommer to give a further description of Insmed Pharmaceuticals
and discuss the desirability of a merger between the two companies.
On November 28, 1998, Dr. Sommer and Donald Huffman, Vice President,
Finance and Administration and Chief Financial Officer of Celtrix met with a
mid-size public biotechnology company (Company A) to discuss the possible
acquisition of Celtrix. The companies concluded that research and development
activities were complementary and that each would be interested in further
discussions.
On November 30, 1998, Dr. Allan informed BancBoston Robertson Stephens
that Insmed Pharmaceuticals was considering the acquisition of two companies.
On December 3, 1998, Drs. Sommer, Allan and Crooke met at the offices of
Ticonderoga Capital in San Francisco to discuss the issues and opportunities
facing both Insmed Pharmaceuticals and Celtrix and the benefits of a business
combination of the two companies. These discussions included a review of
patents, manufacturing, cost of goods, business development and science, but did
not include any discussion of financial terms. The following day Dr. Allan sent
Dr. Sommer a financial overview of Insmed Pharmaceuticals. On the same day, Dr.
Allan met separately with representatives of the other company that Dr. Engleman
had mentioned at the board of directors meeting on November 18, 1998.
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On December 7, 1998, the Celtrix board of directors held a regular
meeting, at which, among other matters, various merger possibilities were
discussed, including the interest of Insmed Pharmaceuticals and Company A in a
combination.
On December 11, 1998, Celtrix and Insmed Pharmaceuticals exchanged
confidentiality agreements. Dr. Allan sent a letter of interest to Celtrix that
outlined possible terms for an acquisition of Celtrix by Insmed Pharmaceuticals.
On December 14, 1998, Dr. Allan sent additional financial information regarding
Insmed Pharmaceuticals to Celtrix.
On December 14, 1998, the Insmed Pharmaceuticals board of directors
discussed both acquisition opportunities in a telephonic meeting.
On December 16, 1998, Celtrix engaged Pacific Growth as its financial
advisor to assist in the process of a comprehensive evaluation of all merger
possibilities. On the same day, Dr. Allan sent Dr. Sommer a copy of the Insmed
Pharmaceuticals Clinical Investigator's Brochure (CIB). The following day Dr.
Sommer provided a copy of the Celtrix CIB to Insmed Pharmaceuticals.
On January 7, 1999, a representative of Company A informed Mr. Huffman
that his firm had evaluated a number of acquisition candidates and that it had
decided to focus its efforts in a different area of business from that discussed
with Celtrix.
On January 8, 1999, George Milstein, a Managing Director of Pacific
Growth provided a list of potential merger partners to Celtrix. Also that day,
Dr. Allan of Insmed Pharmaceuticals met with representatives of BancBoston
Robertson Stephens to discuss acquisition strategies.
On January 11, 1999, Dr. Sommer visited Dr. Allan at Insmed
Pharmaceuticals' offices to discuss the clinical programs of each company.
On January 14, 1999, Dr. Sommer, Mr. Huffman and Dr. Dietz and Mr.
Milstein of Pacific Growth met with representatives of a private, developmental
stage biotechnology company (Company B) at the offices of Pacific Growth in San
Francisco. The parties exchanged confidentiality agreements and had a
comprehensive discussion of the clinical programs, business opportunities and
strategies of each company. The companies agreed to have further discussions as
the clinical plans and overall business strategies of the companies appeared to
be complementary. After the meeting, Dr. Dietz of Pacific Growth provided an
updated list of potential merger partners to Celtrix.
On January 20, 1999, Dr. Sommer visited a public mid-size biotechnology
company (Company C) for discussions regarding the possibility of a merger of the
two companies.
On January 25, 1999, Dr. Allan again met with BancBoston Robertson
Stephens representatives to discuss acquisition strategies.
On January 28, 1999, Dr. Sommer met with representatives of Elan
Corporation, plc regarding the possibility of a corporate collaboration in the
area of osteoporosis.
On February 11, 1999, the Insmed Pharmaceuticals board of directors
discussed potential merger or acquisition candidates, including Celtrix.
On February 12, 1999, Dr. Allan spoke with representatives of Pacific
Growth and provided them with preliminary information regarding Insmed
Pharmaceuticals.
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On February 16, 1999, Drs. Sommer and Allan met in the offices of
Pacific Growth for further discussions regarding the possible merger of the
companies.
On February 26, 1999, Dr. Sommer and Dr. Desmond Mascarenhas, Director
of Research and Intellectual Property at Celtrix, gave a further presentation at
the Company B offices covering various topics including the patent positions of
both companies.
On March 9, 1999, Dr. Sommer met with Elan to discuss the possibility of
a corporate collaboration that involved funding of Celtrix's osteoporosis
program and an investment by Elan in Celtrix.
On March 10, 1999, Celtrix and Elan continued collaboration discussions.
Later that day representatives of Company B made a presentation of the company's
programs and business strategy to Dr. Sommer, Mr. Huffman, Dr. Malcolm McKay,
Vice President Regulatory Affairs and Quality Assurance and Dr. Mascarenhas. The
parties concluded that a business combination could be mutually beneficial.
On March 12, 1999, Dr. Sommer visited Insmed Pharmaceuticals in
Richmond, Virginia and performed preliminary due diligence on Insmed
Pharmaceuticals.
On March 16, 1999, the Celtrix board of directors held a regularly
scheduled meeting at which the progress of discussions with Insmed
Pharmaceuticals and Company B were reviewed. Mr. Milstein reviewed possible deal
structures and Dr. Dietz reviewed the business prospects of each company.
On March 18, 1999, Company C informed Dr. Sommer that, while there was
interest in a merger due to the attractiveness of Celtrix's technology, it could
not advance discussions in the near term (in 1999) because of other corporate
goals.
On March 30, 1999, Celtrix received letters of intent from Insmed
Pharmaceuticals and Company B regarding their desire to merge with Celtrix.
Celtrix also received a proposal from Elan to purchase $2.5 million of Celtrix
common shares and provide additional funding to support a Phase IIb clinical
trial in osteoporosis. Company B expressed concern that if Celtrix were to
conclude a corporate partnership with Elan, or any other firm, prior to
completing a merger, it would potentially diminish their desire to merge with
Celtrix.
On March 31, 1999, the board of directors of Celtrix held a special
meeting to evaluate the letters of intent and the Elan proposal for
collaboration. The board discussed the possibility of completing a transaction
with each company and Elan, the possible terms, the status of discussions,
timing and related matters. The board decided that it was in the best interests
of Celtrix to accept Elan's firm proposal to conclude a partnership and executed
a binding letter agreement with Elan.
On April 6, 1999, the Insmed Pharmaceuticals board of directors
discussed the acquisition of Celtrix and agreed that discussions and due
diligence should continue.
On April 21, 1999, Celtrix and Elan executed the definitive agreement
governing the Elan joint venture.
On May 4, 1999, Dr. Sommer, Mr. Huffman, and Drs. McKay and Mascarenhas
met with representatives of a public biotechnology company (Company D) at their
offices to discuss a possible business combination.
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On May 25, 1999, Dr. Sommer, Mr. Huffman, and Drs. McKay and Mascarenhas
met with representatives of a public, mid-size medical device company (Company
E) to discuss the possibility of a collaboration or merger.
On May 28, 1999, Company B reiterated its interest in Celtrix, but again
expressed concern that the partnership completed with Elan diminished their
desire to merge with Celtrix.
On June 3, 1999, Hany Awadalla, a Managing Director of BancBoston
Robertson Stephens, spoke with Mr. Milstein regarding the continued interest of
Insmed Pharmaceuticals to merge with Celtrix.
On June 7, 1999, Drs. Sommer and Allan met at Celtrix to resume
discussions regarding a merger.
On June 9, 1999, a representative of Company D called to inform Celtrix
that it was not prepared to proceed with merger discussions in the near term.
Further, that its interests in pursuing a merger in the longer term would now
depend upon the outcome of clinical trials in which it was currently involved.
On June 22, 1999, the Celtrix board of directors at its regularly
scheduled meeting discussed, among other matters, the status of possible merger
partners and in the case of Insmed Pharmaceuticals, terms and conditions of a
merger.
On June 24, 1999, a representative from Company E informed Celtrix that
its objectives were to continue to concentrate its efforts in the device area
for the foreseeable future.
On June 29, 1999, Drs. Sommer and Allan met in New York with Messrs.
Milstein and Awadalla to discuss an appropriate plan of action to proceed with a
merger.
Between July and August, Celtrix and Insmed Pharmaceuticals and their
respective financial advisors held numerous conversations regarding the business
opportunities of both companies.
On August 4, 1999, the Insmed Pharmaceuticals board of directors
retained BancBoston Robertson Stephens to act as Insmed Pharmaceuticals'
exclusive investment banker with respect to its acquisition of Celtrix.
On August 23, 1999, at its regularly scheduled meeting, the Celtrix
board of directors reviewed Insmed Pharmaceuticals' merger proposal including
proposed valuation, ratios and related terms. The board then instructed Mr.
Milstein and the officers of Celtrix to continue negotiations with Insmed
Pharmaceuticals in accordance with the board's instructions.
At the meeting of the Insmed Pharmaceuticals board of directors on
September 14, 1999, BancBoston Robertson Stephens and Insmed Pharmaceuticals
management reviewed the terms of a proposed merger with Celtrix and Insmed
Pharmaceuticals management presented the results of its due diligence of
Celtrix. The Insmed Pharmaceuticals board of directors directed Insmed
Pharmaceuticals management to continue due diligence and to begin preparation of
documents necessary to effect the merger.
On September 20, 1999, at its regularly scheduled meeting, the Celtrix
board of directors discussed the proposed merger with Insmed Pharmaceuticals,
its proposed terms, certain other strategic matters and related matters. The
board agreed to continue negotiations with Insmed Pharmaceuticals,
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assuming that Insmed Pharmaceuticals would consummate a collaboration agreement
with a major corporate partner.
On September 28, 29 and 30, 1999, management representatives from Celtrix
and Insmed Pharmaceuticals together with their legal advisors met in Richmond,
Virginia to negotiate the terms of a definitive merger agreement.
In the month of October, Insmed Pharmaceuticals and Celtrix conducted due
diligence on each other.
On November 18, 1999, Dr. Allan informed Dr. Sommer that Insmed
Pharmaceuticals had decided not to pursue a collaboration agreement with a major
corporate partner at this time. Since the Celtrix decision to proceed with the
merger partially was based on Insmed Pharmaceuticals concluding such a
transaction, the Celtrix board discussed this situation at a telephonic meeting
held on November 23, 1999. The board then discussed the current status of
Celtrix's business and that of Insmed Pharmaceuticals as well as the strength of
the combined business, with or without a major collaboration at this time. The
board instructed management to continue discussions with Insmed Pharmaceuticals
regarding a merger, but at a reduced exchange ratio.
On November 23, 1999, following the Celtrix board meeting, Insmed
Pharmaceuticals was informed of the Celtrix board's decision to request a
modification of the exchange ratio. Insmed Pharmaceuticals rejected the request
for the change but made a counter offer, which was conveyed to Celtrix.
On November 24, 1999, the Celtrix board had a telephonic meeting to discuss
the revised Insmed Pharmaceuticals proposal. It also discussed the financial
position of both companies and the ability of the combined companies to obtain
additional financing. The board instructed Pacific Growth to reiterate its
position to Insmed Pharmaceuticals on what it believed was a fair exchange
ratio.
On November 29, 1999, the board of Insmed Pharmaceuticals met in New York
to discuss the Celtrix transaction. The board of directors of Insmed
Pharmaceuticals approved the reorganization at the exchange ratio proposed on
November 24, 1999, by Celtrix. After consideration and discussions, the Insmed
Pharmaceuticals board unanimously (i) determined that the terms of the
reorganizations were desirable to Insmed Pharmaceuticals, (ii) approved the
terms of the reorganization agreement, (iii) authorized Insmed Pharmaceuticals'
officers to undertake all acts necessary or desirable to effectuate the
reorganizations, (iv) ratified and approved all actions taken previously by any
officer or director of Insmed Pharmaceuticals in connection with the
reorganizations and (v) recommended approval of the reorganization agreement by
the holders of the Insmed Pharmaceuticals common stock and preferred stock.
Insmed Pharmaceuticals informed Celtrix of its decision to accept the
Celtrix board's revised exchange ratio. The Celtrix board met telephonically
later that day to discuss the proposed reorganizations. A representative from
Pacific Growth delivered its oral opinion (which was subsequently confirmed in
writing) that, as of such date, the consideration to be received by the holders
of Celtrix common stock and preferred stock pursuant to the terms of the
reorganization agreement was fair to such holders from a financial point of
view. Celtrix's financial advisor and legal counsel reviewed the final draft of
the reorganization agreement. After consideration and discussion of the
presentations of its financial and legal advisors, the Celtrix board unanimously
(i) determined that the terms of the reorganizations were fair to, and in the
best interests of, the holders of the Celtrix common stock from a
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financial point of view, (ii) approved the terms of the reorganization
agreement, (iii) authorized Celtrix's officers to undertake all acts necessary
or desirable to effectuate the reorganizations, (iv) ratified and approved all
actions taken previously by any officer or director of Celtrix in connection
with the reorganizations and (v) recommended approval of the reorganization
agreement by the holders of the Celtrix common stock.
On November 30, 1999, the reorganization agreement was signed.
On January 13, 2000, the purchase agreement with respect to the financing
was executed.
On February 4, 2000, the Insmed Pharmaceuticals board of directors met
telephonically to discuss the proposed amendment and restatement of the
reorganization agreement. After consideration and discussions, the Insmed
Pharmaceuticals board unanimously (i) determined that the terms of the
reorganizations were desirable to Insmed Pharmaceuticals, (ii) approved the
terms of the amended and restated reorganization agreement, (iii) authorized
Insmed Pharmaceuticals' officers to undertake all acts necessary or desirable to
effectuate the reorganizations, (iv) ratified and approved all actions taken
previously by any officer or director of Insmed Pharmaceuticals in connection
with the reorganizations and (v) recommended approval of the amended and
restated reorganization agreement by the holders of the Insmed Pharmaceuticals
common stock and preferred stock.
On February 9, 2000, the Celtrix board of directors met telephonically to
discuss the proposed amendment and restatement of the reorganization agreement.
A representative from Pacific Growth delivered an updated written opinion that,
as of November 29, 1999, the consideration to be received by the holders of
Celtrix common stock and preferred stock pursuant to the terms of the amended
and restated reorganization agreement was fair to such holders from a financial
point of view. After consideration and discussion of the presentations of its
financial and legal advisors, the Celtrix board unanimously (i) determined that
the terms of the reorganizations were fair to, and in the best interests of, the
holders of the Celtrix common stock from a financial point of view, (ii)
approved the terms of the amended and restated reorganization agreement, (iii)
authorized Celtrix's officers to undertake all acts necessary or desirable to
effectuate the reorganizations, (iv) ratified and approved all actions taken
previously by any officer or director of Celtrix in connection with the
reorganizations and (v) recommended approval of the amended and restated
reorganization agreement by the holders of the Celtrix common stock.
On February 9, 2000, the amended and restated reorganization agreement was
signed.
Celtrix's Reasons for the Reorganizations
In reaching its decision to approve the reorganization agreement, the
Celtrix board of directors consulted with Celtrix senior management about
strategic and operational matters. Celtrix also sought the advice of its legal
counsel and independent accountants regarding (1) the legal duties of the
Celtrix board of directors, (2) regulatory, tax and accounting matters, (3) the
terms of the reorganization agreement, (4) the other definitive agreements
contemplated by that agreement and (5) other relevant matters. The Celtrix
board of directors also consulted with Pacific Growth Equities, Inc. regarding
the overall fairness from a financial point of view of the aggregate
consideration to be received by Celtrix stockholders pursuant to the
reorganization agreement. While the Celtrix board of directors did not assign
any relative weight to the various factors it considered, some of the more
important factors considered by Celtrix's board of directors in approving the
reorganization agreement were the following:
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. the fact that the consideration contained in the reorganization
agreement would enable Celtrix stockholders to hold approximately
43.2% of the outstanding common stock of Insmed, Inc. on a fully
diluted basis (based on ownership prior to completion of the $34.5
million financing described under "Recent Developments" on page __);
. the opinion of Pacific Growth, dated as of February 9, 2000, the day
the amended and restated reorganization was executed, that as of
November 29, 1999, the day before the original reorganization
agreement was executed, the consideration to be received by the
Celtrix stockholders, as provided for in the amended and restated
reorganization agreement was fair to Celtrix stockholders from a
financial point of view. A copy of that opinion, which sets forth
certain important qualifications, assumptions made, matters
considered, areas of reliance on others and limitations is attached as
Annex B, and a summary description is included in "Opinion of
-------
Celtrix's Financial Advisor" on page ___;
. the consolidation taking place among biotechnology companies suggests
that large companies will be better able to compete in this industry
and that it is an attractive time for smaller companies to consider
strategic alternatives. For example, the Celtrix board believes it
would be beneficial for Celtrix to be part of a larger organization
with greater market potential and offer its products as part of a
broader range of products for treating a variety of metabolic
disorders;
. the value of Celtrix continuing as a stand-alone entity compared to
the prospects for a combined company. In this context, the following
factors were particularly compelling: (1) the reorganizations offered
a strategic fit between Celtrix's and Insmed Pharmaceuticals' core
businesses; and (2) the reorganizations would afford Celtrix
stockholders the chance, as equity holders of Insmed, Inc., to
participate in the continued growth of a more effective competitor
with greater financial resources, increased business opportunities and
expanded earnings potential than would be possible for Celtrix as an
independent company;
. the lack of any substantial impediments to the ability of the Celtrix
board to entertain alternative proposals for a business combination
transaction, negotiate and give information to third parties and
terminate the reorganization agreement in the event of an alternative
proposal, if required by the Celtrix board's fiduciary duties to
its stockholders;
. the opportunity to raise additional capital in order to continue
clinical trials for SomatoKine in existing indications;
. Celtrix management's assessment of possible strategic alternatives,
including remaining a separate company, entering joint ventures or
merging with a third party;
. the fact that, although Celtrix did not conduct a formal auction, the
Celtrix board believed that a more attractive offer would not be
available based on previous merger discussions with five other
companies;
. the potential to pursue additional indications for Celtrix's main
product;
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. the reduction of strategic risk inherent in an expanded product
portfolio;
. the reorganizations provide the opportunity for the combined entity to
achieve potential cost synergies, through consolidation and
integration of certain manufacturing, research, development, sales and
administrative operations and functions;
. recent and historical market prices of Celtrix common stock;
. the larger market capitalizations of Insmed, Inc. compared to Celtrix
and the corresponding increase in trading liquidity of the Insmed,
Inc. common stock compared to the Celtrix common stock should benefit
the former Celtrix stockholders;
. the likelihood that the reorganizations will be completed, including
the likelihood of satisfying the conditions to completion of the
reorganizations, the experience, reputation and financial condition of
Insmed Pharmaceuticals and the risks to Celtrix if the reorganizations
are not completed; and
. the other terms and attributes of the reorganizations, including the
tax-free nature of the transaction with respect to Celtrix
stockholders.
The Celtrix board also considered a number of potentially negative factors
in its deliberations concerning the reorganizations, including, but not limited
to:
. the loss of control over the future operations of Celtrix following
the merger and the resulting potential for disruption in operations
arising from the change in control of Celtrix, including the possible
change to or cessation of Celtrix's SomatoKine clinical and
development programs;
. the benefits sought to be achieved in the merger may be delayed or may
not be achieved;
. the potential disruption of Celtrix's business that might result from
employee uncertainty and lack of focus following announcement of the
merger and during the combination of operations;
. the possibility that the merger would not be consummated and the
effect of the public announcement of the merger on Celtrix's
operations, its ability to attract and retain employees and the
effects on its public stock price from the public announcement of a
termination of the reorganization agreement;
. the substantial expenses to be incurred in connection with the merger;
. the risk that key personnel may not remain employed by Insmed, Inc.;
and
. the other risks described under "Risk Factors" on page __.
After due consideration, the Celtrix board concluded that the benefits of
the transaction to Celtrix and its stockholders outweighed the risks associated
with the foregoing factors.
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The foregoing discussion of the information and factors considered by the
Celtrix board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the Celtrix board of directors.
Insmed Pharmaceuticals' Reasons for the Reorganizations
Insmed Pharmaceuticals' board of directors has unanimously approved the
reorganizations and the reorganization agreement. It believes the
reorganizations are beneficial to Insmed Pharmaceuticals and its shareholders
for the following reasons:
. the reorganizations will increase our product development
opportunities. The combined entity will have a clinical stage product
portfolio that includes drugs for type 1 and type 2 diabetes,
polycystic ovary syndrome, hip fracture, osteoporosis, severe burns
and wound healing. Insmed Pharmaceuticals' board of directors believes
that the expanded product portfolio should increase business
development activities and financial results;
. the increased number of products increases the opportunity for
commercial success while decreasing the potential adverse financial
impact that could result from failure of individual products to
perform successfully in clinical development;
. the reorganizations will cause illiquid shares of privately held
Insmed Pharmaceuticals to be exchanged for liquid shares of a publicly
held company. The shares in the new company will be traded on a major
U.S. exchange. This improves Insmed Pharmaceuticals shareholders'
liquidity;
. the reorganizations will enable the combined company to pursue a
number of potential product opportunities that Insmed Pharmaceuticals
and Celtrix would otherwise be unable to pursue as stand-alone
companies;
. the combined company may be able to obtain better commercial terms in
partnering and other transactions due to its increased size, product
development portfolio and bargaining power;
. the reorganizations will enable the companies to combine their
research and development programs and should thereby enable the
combined entity to achieve greater operating synergies;
. the combined company will have greater financial resources to develop
its products than either individual company on a stand-alone basis;
. the core technologies of Insmed Pharmaceuticals and Celtrix are
complementary; and
. the combined company will have greater leverage in obtaining financing
for its operations.
The Insmed Pharmaceuticals board also considered a number of potentially
negative factors in its deliberations concerning the reorganizations, including,
but not limited to:
. the dilutive effects of the issuance of shares in the reorganizations;
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. the potential disruption to the business of both companies following
announcement of the reorganizations, including the effects of employee
uncertainty, the possibility that key employees may leave Insmed
Pharmaceuticals or Celtrix, and the possibility that corporate
partners may not approve of the reorganizations or may decide to
terminate their relationship with the combined company;
. additional potential problems and costs associated with the
integration of both companies into a single enterprise;
. the possibility that the merger would not be completed; and
. the other risks described under "Risk Factors" on page __.
After due consideration, the Insmed Pharmaceuticals' board concluded that
the benefits of the transaction to Insmed Pharmaceuticals and its shareholders
outweighed the risks associated with the foregoing factors.
The foregoing discussion of the information and factors considered by the
Insmed Pharmaceuticals board of directors is not intended to be exhaustive but
is believed to include all material factors considered by the Insmed
Pharmaceuticals board of directors.
Recommendations of the Boards of Directors
Celtrix. In view of the wide variety of factors considered by the Celtrix
board, it did not find it practicable to quantify, or otherwise attempt to
assign relative weights to the specific factors considered in making its
determination. However, after taking into account all factors set forth above,
the Celtrix board of directors has unanimously approved and adopted the
reorganization agreement. The Celtrix officers and directors believe that the
reorganization agreement and the transactions related to it are advisable and in
the best interests of Celtrix and the Celtrix stockholders, and the Celtrix
board unanimously recommends that Celtrix stockholders vote "FOR" adoption of
the reorganization agreement. In approving and adopting the reorganization
agreement, the Celtrix board of directors took into account the potential
conflicts of interest of certain officers and directors of the companies
resulting from their future employment with Insmed, Inc. See "Interests of
Certain Persons in the Reorganizations" on page ____.
Insmed Pharmaceuticals. In view of the wide variety of factors considered
by the Insmed Pharmaceuticals board, it did not find it practicable to quantify,
or otherwise attempt to assign relative weights to the specific factors
considered in making its determination. However, after taking into account all
factors set forth above, the Insmed Pharmaceuticals board of directors has
unanimously approved and adopted the reorganization agreement. The Insmed
Pharmaceuticals officers and directors believe that the reorganization agreement
and the transactions related to it are in the best interests of Insmed
Pharmaceuticals and the Insmed Pharmaceuticals shareholders, and the Insmed
Pharmaceuticals board unanimously recommends that Insmed Pharmaceuticals
shareholders vote "FOR" approval of the reorganization agreement, including the
related plan of exchange. In approving the reorganization agreement, the Insmed
Pharmaceuticals board of directors took into account the potential conflicts of
interest of certain officers and directors of the companies resulting from their
future employment with Insmed, Inc. See "Interests of Certain Persons in the
Reorganizations" on page ____.
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Opinion of Celtrix's Financial Advisors
Celtrix retained Pacific Growth Equities, Inc. to evaluate the terms of the
merger, as set forth in the Agreement and Plan of Reorganization dated November
30, 19999 (the "Original Agreement") and render an opinion as to its fairness.
On November 29, 1999, Pacific Growth rendered its oral opinion (subsequently
confirmed in writing) to the board of directors of Celtrix to the effect that,
as of November 29, 1999, and based on and subject to matters stated in the
opinion, the terms of the merger are fair from a financial point of view to
Celtrix stockholders.
On February 9, 2000, Celtrix, Insmed, Inc. and Insmed Pharmaceuticals
executed an amended and restated form of the agreement and plan of
reorganization (the "Amended Agreement") and on the same day Pacific Growth
rendered its oral opinion, which was confirmed in writing that day to the effect
that as of November 29, 1999, the terms of the merger as reflected in the
Amended Agreement are fair from a financial point of view to Celtrix
stockholders.
THE FULL TEXT OF PACIFIC GROWTH'S REVISED WRITTEN OPINION DATED FEBRUARY 9,
2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B AND IS INCORPORATED HEREIN BY
REFERENCE. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION. HOLDERS OF CELTRIX COMMON STOCK ARE URGED TO, AND SHOULD,
READ THIS OPINION CAREFULLY IN ITS ENTIRETY. THE ENGAGEMENT OF PACIFIC GROWTH
AND ITS OPINION ARE FOR THE BENEFIT OF THE CELTRIX BOARD OF DIRECTORS AND ITS
OPINION WAS DELIVERED TO THE CELTRIX BOARD IN CONNECTION WITH ITS CONSIDERATION
OF THE MERGER. PACIFIC GROWTH'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO CELTRIX, AND IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION
TO ANY HOLDER OF CELTRIX COMMON STOCK AS TO HOW TO VOTE WITH RESPECT TO THE
MERGER.
In connection with the Pacific Growth opinion, Pacific Growth:
. reviewed certain publicly available financial information and other
information concerning Celtrix and Insmed Pharmaceuticals and certain
internal analyses and other information furnished to it by Celtrix and
Insmed Pharmaceuticals; and
. held discussions with the members of senior management of Celtrix and
Insmed Pharmaceuticals regarding the businesses and prospects of their
respective companies and the joint prospects of a combined company.
In addition, Pacific Growth:
. reviewed the historical reported prices and trading activity for
Celtrix common stock;
. compared certain financial information for both Celtrix and Insmed
Pharmaceuticals with similar information for selected companies whose
securities are publicly traded;
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. compared certain stock market information and valuations for Celtrix
and Insmed Pharmaceuticals with similar information for certain
companies whose securities are publicly traded;
. analyzed and compared certain financial information for Insmed
Pharmaceuticals about certain public traded companies at time of their
initial public offering; and
. performed such other studies and analyses and considered such other
factors as it deemed appropriate.
In conducting its review and arriving at its opinion, Pacific Growth
assumed and relied upon, without independent verification, the accuracy,
completeness and fairness of the information furnished to or otherwise reviewed
by or discussed with it for the purposes of rendering its opinion. Pacific
Growth assumed, with the consent of Celtrix, that the Merger would be accounted
for as a purchase of Celtrix by Insmed Pharmaceuticals and as a tax-free
transaction for the stockholders of Celtrix for federal income tax purposes, and
that the merger would be consummated in accordance with the terms of the Amended
and Restated Agreement and Plan of Reorganization dated February 9, 2000.
Pacific Growth did not make an independent evaluation or appraisal of the assets
of Celtrix or Insmed Pharmaceuticals nor was Pacific Growth furnished with any
such evaluations or appraisals. The Pacific Growth opinion is based on market,
economic and other conditions as they existed and could be evaluated as of the
date of the opinion letter.
The following is a summary of the analyses performed and factors considered
by Pacific Growth in connection with rendering of the Pacific Growth Opinion.
Historical Financial Position. In rendering its opinion, Pacific Growth
reviewed and analyzed the historical financial position of Celtrix and Insmed
Pharmaceuticals which included (i) an assessment of each of Celtrix's and Insmed
Pharmaceuticals' recent financial statements; (ii) an analysis of each of
Celtrix's and Insmed Pharmaceuticals' revenue, growth and operating performance
trends; and (iii) an assessment of Celtrix's and Insmed Pharmaceuticals'
balance sheet information.
Historical Stock Price Performance. Pacific Growth reviewed and analyzed
the daily closing per share market prices and trading volume for Celtrix common
stock from November 4, 1999 through November 24, 1999. Pacific Growth also
reviewed the daily closing prices per share of Celtrix common stock and compared
the movement of such daily closing prices with the movement of the AMEX
Biotechnology Index, Nasdaq Biotechnology Index and the S&P 500 Index for the
period November 1, 1998 through November 19, 1999.
Analysis of Selected Publicly Traded Companies at the time of IPO. This
analysis examines a company's valuation in the public market as compared to the
valuation in the public market of other selected publicly traded companies at
the time of IPO. Pacific Growth compared certain financial information (based
on the commonly used valuation measurements described below) relating to Insmed
Pharmaceuticals to certain corresponding information for a group of selected
publicly traded companies (together, the Selected Publicly Traded Company
Comparables). The eight publicly traded companies included in this analysis in
alphabetical order were Biomarin Pharmaceutical, Inc. (Nasdaq: BMRN); Biopure
Corporation (Nasdaq: BPUR); Collateral Therapeutics, Inc. (Nasdaq: CLTX);
Combichem, Inc. (Nasdaq: CCHM); Curagen Corporation (Nasdaq: CRGN); Immtech
International, Inc. (Nasdaq: IMMT); Iomed, Inc. (NYSE: IOX); and Vaxgen, Inc.
(Nasdaq: VXGN). Such financial information
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included, among other things (i) share price at time of initial public offering
and (ii) common equity market capitalization at time of initial public offering.
The financial information used in connection with the analysis provided below
with respect to Insmed Pharmaceuticals was based on information furnished to us
by Insmed Pharmaceuticals. In the case of the Selected Publicly Traded Company
Comparables, the financial information used in connection with the analysis
provided below was based on the most recent publicly available income statement
and balance sheet information. Pacific Growth noted that, based on the reported
financial information, the mean market capitalization of selected comparable
companies was $160 million for Insmed Pharmaceuticals, compared to the mean
excluding the high and low of $132 million of companies selected as comparable
to Insmed.
Analysis of Selected Publicly Traded Companies. This analysis examines a
company's valuation in the public market as compared to the valuation in the
public market of other selected publicly traded companies. Pacific Growth
compared certain financial information (based on the commonly used valuation
measurements described below) relating to Celtrix to certain corresponding
information for a group of selected publicly traded companies (together, the
"Selected Public Traded Company Comparables"). The 17 publicly traded companies
included in this analysis in alphabetical order were Advanced Tissue Sciences,
Inc. (Nasdaq: ATIS); Alexion Pharmaceuticals, Inc. (Nasdaq: ALXN); Alteon,
Inc. (Nasdaq: ALTNC); Amylin Pharmaceuticals, Inc. (Nasdaq: AMLN); Anika
Therapeutics (Nasdaq: ANIK); AutoImmune, Inc. (Nasdaq: AIMM); Connetics
Corporation (Nasdaq: CNCT); Corixa Corporation (Nasdaq: CRXA); Cubist
Pharmaceuticals, Inc. (Nasdaq: CBST); Ergo Science Corporation (Nasdaq: ERGO);
GelTex Pharmaceuticals, Inc. (Nasdaq: GELX); Ligand Pharmaceuticals, Inc.
(Nasdaq: LGND); Medarex, Inc. (Nasdaq: MEDX); Neurocrine Biosciences, Inc.
(Nasdaq: NBIX); Noven Pharmaceuticals, Inc. (Nasdaq: NOVN); Regeneron, Inc.
(Nasdaq: REGN); and Scios, Inc. (Nasdaq: SCIO). Such financial information
included, among other things (i) common equity market capitalization; (ii) cash
position; (iii) ratios adjusted for cash or technology value; (iv) ratios of
market capitalization to cash; (v) ratios of market capitalization to technology
value; and (vi) discount of common stock market price relative to 52-week high
per share market price. The financial information used in connection with the
analysis provided below with respect to Celtrix was based on publicly available
information. In the case of the Selected Publicly Traded Company Comparables,
the financial information used in connection with the analysis provided below
was based on the most recent publicly available income statement and balance
sheet information. Pacific Growth noted that, based on the reported financial
information and most recent common equity prices as of November 29, 1999, the
multiple of market capitalization to cash was 22.4x for Celtrix, compared to the
mean excluding the high and low of 7.5x for companies selected as comparable to
Celtrix; the multiple for market capitalization to technology value was 1.0x for
Celtrix, compared to the mean excluding the high and low of 1.1x for companies
selected as comparable to Celtrix. The discount to 52-week high was 41.1% for
Celtrix compared to a mean excluding the high and low of 32.2% of companies
comparable to Celtrix.
Analysis of Discounted Cash Flow. Pacific Growth analyzed the cash flows
and terminal value for Insmed Pharmaceuticals using financial and operating data
made available from the internal records of Insmed Pharmaceuticals for
projections of Insmed Pharmaceuticals' Calendar years 1999 through 2008.
Pacific Growth used a terminal multiple of eight times revenue, based upon an
analysis of publicly traded comparable companies and discount rates from 30% to
40%. The implied value of the company was $92.2 million compared with the
proposed transaction value in the merger.
No company used in the above analysis of Selected Publicly Traded Company
Comparables nor any transaction used in the analysis of Selected Transactions
summarized above is identical to Celtrix, Insmed, or the merger. Accordingly,
such analyses must take into account differences in the financial
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and operating characteristics of the Selected Companies and other factors that
would affect the public trading value and acquisition value of the Selected
Companies.
While the foregoing summary describes analyses and factors that Pacific
Growth deemed material in its presentation to Celtrix's board, it is not a
comprehensive description of all analyses and factors considered by Pacific
Growth. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the applications of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Pacific Growth believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the evaluation process underlying Pacific Growth's
opinion. In performing its analyses, Pacific Growth considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of Celtrix and Insmed Pharmaceuticals. The analyses
performed by Pacific Growth are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than those
suggested by such analyses. Accordingly such analyses are subject to
substantial uncertainty. Additionally, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be sold. Furthermore, no opinion is being expressed as to
the prices at which shares of Celtrix common stock may trade at any future time.
Pursuant to a letter agreement dated December 16, 1998, between Celtrix and
Pacific Growth, the fees payable to Pacific Growth for rendering the Pacific
Growth opinion shall, in the event the reorganizations described in the
reorganization agreement (or any other acquisition transactions described in the
Pacific Growth letter agreement) are consummated, consist of a "performance fee"
equal to $450,000 plus 1% of the value of the acquisition transaction that
exceeds $15 million. Based on the reorganizations described in this joint proxy
statement/prospectus, the performance fee has been calculated to be $879,003 of
which $15,000 was paid as a retainer to Pacific Growth and of which $864,003
will be payable upon consummation of the reorganizations. In addition to the
fee provided for above, Celtrix agreed to promptly reimburse Pacific Growth,
upon request, for all of Pacific Growth's reasonable and accountable out-of-
pocket expenses (including, without limitation, travel expenses, charges for
public reference documents and database services, statistical analysis data and
legal fees and expenses) incurred by Pacific Growth in connection with the
performance of its services pursuant to the letter agreement, up to a maximum of
$50,000. Celtrix has agreed to indemnify Pacific Growth and its directors,
officers, agents, employees and controlling persons, for certain costs,
expenses, losses, claims, damages and liabilities related to or arising out of
its rendering of services under its engagement.
The Celtrix board retained Pacific Growth based upon Pacific Growth's
qualifications, reputation, experience and expertise. Pacific Growth, as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
public equity underwritings, private placements and valuations for corporate and
other purposes. Pacific Growth maintains a market in the common stock of many
publicly traded biotechnology and other companies and regularly publishes
research reports regarding the biotechnology industry and publicly traded
companies in the biotechnology industry.
Interests of Common Stockholders and Director of Insmed Pharmaceuticals and
Insmed, Inc.
Edgar G. Engleman, a member of the Insmed Pharmaceuticals and Insmed, Inc.
board of directors, is a General Partner of BioAsia Investments, LLC. BioAsia
is the general partner of Biotechnology Development Fund, L.P. and Biotechnology
Development Fund III, L.P. As of February
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9, 2000, the Biotechnology Fund(s) owned (i) 917,500 shares of Insmed
Pharmaceuticals Series B Preferred Stock, (ii) 4,530,516 shares of Celtrix
common stock, and (iii) a warrant to purchase 615,258 shares of Celtrix common
stock at an exercise price of $2.68 which expires on April 1, 2000. In addition,
BioAsia has the right to designate one person as a non-voting observer to attend
all meetings of the Celtrix board of directors. Since November 1998 and through
the date of this joint proxy statement/prospectus, Dr. Engleman has attended
nine of thirteen of Celtrix's board of directors meetings as the BioAsia
designee following the grant of board observer rights to BioAsia.
Interests of Certain Persons in the Reorganizations
In considering the recommendation of the Celtrix board of directors and
Insmed Pharmaceuticals board of directors with respect to the reorganizations,
Celtrix stockholders and Insmed Pharmaceuticals shareholders should be aware
that certain directors and officers of Celtrix and Insmed Pharmaceuticals have
interests in respect of the reorganizations that are in addition to, or
different from, their interests as stockholders generally. In connection with
their approval of the reorganization agreement and the transactions contemplated
by that agreement, the Celtrix board of directors and the Insmed Pharmaceuticals
board of directors also considered the interests of Celtrix management and
directors and Insmed Pharmaceuticals management and directors described below.
See also "Interests of Common Stockholder and Director of Insmed Pharmaceuticals
and Insmed, Inc." immediately preceding this section.
Considerations of the Celtrix Board of Directors and Officers:
. Celtrix has entered into a consulting agreement with Andreas Sommer,
Ph.D. that would become effective only if the reorganizations occur.
Under the terms of the consulting agreement, Dr. Sommer would receive a
monthly retainer of $6,000 for a period of eighteen months after the
reorganizations;
. Insmed, Inc. has entered into an arrangement with Malcolm J. McKay, Ph.D.
that would become effective only if the reorganizations occur. Under the
terms of this arrangement, Dr. McKay would receive 106.5% of the base
salary he currently receives from Celtrix for a period terminating on
December 31, 2000, plus standard Insmed, Inc. employee benefits;
. upon closing of the reorganizations, Celtrix is obligated to pay a
$50,000 transaction bonus to each of the current officers (and one former
officer) of Celtrix.
. indemnification and limitation of liability provisions covering Celtrix
directors and officers will be substantially the same in all material
respects for Insmed, Inc. directors and officers after the effective time
of the reorganizations;
. at the effective time of the reorganizations, all outstanding options to
purchase shares of Celtrix common stock, including those options held by
Celtrix officers and directors, shall become fully vested and
exercisable. As of December 31, 1999, there were outstanding options to
purchase 1,410,722 shares of Celtrix common stock, of which 802,767 were
vested. Officers and directors hold options to purchase 1,130,000 of such
shares, 603,199 of which were vested as of December 31, 1999; and
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. at the effective time of the reorganizations, each outstanding and
unexercised option to purchase Celtrix common stock, including those held
by directors and officers, will be converted into a new option to
purchase a number of shares of Insmed, Inc. common stock equal to the
number of Celtrix shares covered by the option immediately prior to the
reorganizations.
Considerations of the Insmed Pharmaceuticals Board of Directors:
. under the terms of the reorganization agreement, Geoffrey Allan, Ph.D.
will be named Chief Executive Officer and President of Insmed, Inc.
. under the terms of the reorganization agreement, Michael D. Baer will be
named Chief Financial Officer of Insmed, Inc.;
. under the terms of the reorganization agreement, Celtrix and Insmed
Pharmaceuticals agree to cause Geoffrey Allan, Ph.D., Gustav A.
Christensen , Kenneth G. Condon, Graham K. Crooke, MB.BS, Dennis J.
Dougherty, Steinar J. Engelsen, M.D. and Edgar G. Engleman, M.D. to be
elected to the Insmed, Inc. board of directors;
. Insmed, Inc. has entered into an arrangement with Malcolm J. McKay, Ph.D.
that would become effective only if the reorganizations occur. Under this
arrangement, Dr. McKay would receive 106.5% of the base salary he
currently receives from Celtrix for a period terminating on December 31,
2000, plus standard Insmed, Inc. employee benefits;
. indemnification and limitation of liability provisions covering Insmed
Pharmaceuticals directors and officers will remain substantially the same
in all material respects for Insmed, Inc. officers and directors after
the effective time of the reorganizations; and
. at the effective time of the reorganizations, each outstanding and
unexercised option to purchase Insmed Pharmaceuticals common stock,
including those held by directors and officers, will be converted into a
new option or new warrant, as the case may be, to purchase the number of
shares of Insmed, Inc. common stock equal to the same number of shares
covered by the option or warrant, as the case may be, immediately prior
to the reorganizations multiplied by 3.5. The directors and officers of
Insmed Pharmaceuticals held options and warrants to purchase 734,166
shares (363,331 of which are exercisable) of Insmed Pharmaceuticals
common stock as of December 31, 1999.
Material Federal Income Tax Consequences
The following summarizes the material federal income tax consequences of
the merger to Celtrix stockholders or the share exchange to Insmed
Pharmaceuticals shareholders. This summary and the legal opinions described
below are based on current law, which is subject to change at any time, possibly
with retroactive effect. This summary and the legal opinions are not a complete
description of all tax consequences of the reorganizations and, in particular,
do not address all of the federal income tax consequences applicable to the
personal circumstances of Celtrix or Insmed stockholders or to taxpayers that
are subject to special treatment under federal income tax law including, but not
limited to, the Celtrix Series A Preferred stockholder to the extent it receives
Insmed, Inc. common stock in exchange for accrued but unpaid dividends. In
addition, this summary and the legal opinions do not address the tax
consequences of the reorganizations under applicable state, local or foreign
laws. You should consult
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with your own tax advisor about the tax consequences of the merger or the share
exchange, as applicable, in light of your particular circumstances, including
the application of any state, local or foreign law.
In the opinion of Venture Law Group, a Professional Corporation, counsel to
Celtrix, the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and subject to the limitations
referred to above:
. Celtrix and Insmed, Inc. will not recognize gain or loss upon completion
of the merger;
. a Celtrix stockholder will not recognize gain or loss upon the exchange
of his or her Celtrix stock for Insmed, Inc. common stock in the merger,
except with respect to the receipt of cash instead of a fractional share;
. the aggregate tax basis of the shares of Insmed, Inc. common stock
received in the merger by a Celtrix stockholder, including any fractional
share interest, will be the same as the aggregate tax basis of the shares
of Celtrix stock surrendered by the stockholder in the merger;
. the holding period of the shares of Insmed, Inc. common stock received in
the merger by a Celtrix stockholder, including any fractional share
interest, will include the holding period of the shares of Celtrix stock
surrendered by the stockholder in the merger, if the shares of Celtrix
stock are held as capital assets at the effective time of the merger; and
. a Celtrix stockholder who receives cash instead of a fractional share of
Insmed, Inc. common stock will recognize gain or loss equal to the
difference between the amount of cash received and his or her tax basis
in the Insmed, Inc. common stock that is allocable to the fractional
share; the gain or loss recognized by a Celtrix stockholder generally
will constitute capital gain or loss, if the Celtrix stock is held as a
capital asset at the effective time of the merger.
In the opinion of Hunton & Williams, counsel to Insmed Pharmaceuticals, the
Insmed Pharmaceuticals shareholders' exchange of Insmed Pharmaceuticals stock
for Insmed, Inc. common stock will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code or as part of an exchange
within the meaning of Section 351 of the Internal Revenue Code; and:
. Insmed Pharmaceuticals and Insmed, Inc. will not recognize gain or loss
upon completion of the share exchange;
. an Insmed Pharmaceuticals shareholder will not recognize gain or loss
upon the exchange of his or her Insmed Pharmaceuticals stock for Insmed,
Inc. common stock in the share exchange, except with respect to the
receipt of cash instead of a fractional share;
. the aggregate tax basis of the shares of Insmed, Inc. common stock
received in the share exchange by an Insmed Pharmaceuticals shareholder,
including any fractional share interest, will be the same as the
aggregate tax basis of the shares of Insmed Pharmaceuticals stock
surrendered by the shareholder in the share exchange;
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. the holding period of the shares of Insmed, Inc. common stock received in
the share exchange by an Insmed Pharmaceuticals shareholder will include
the holding period of the shares of Insmed Pharmaceuticals stock
surrendered by the shareholder in the share exchange, if the shares of
Insmed Pharmaceuticals stock are held as capital assets at the effective
time of the share exchange; and
. an Insmed Pharmaceuticals shareholder who receives cash instead of a
fractional share of Insmed, Inc. common stock will recognize gain or loss
equal to the difference between the amount of cash received and his or
her tax basis in the Insmed, Inc. common stock that is allocable to the
fractional share; the gain or loss recognized by an Insmed
Pharmaceuticals shareholder generally will constitute capital gain or
loss, if the Insmed Pharmaceuticals stock is held as a capital asset at
the effective time of the share exchange.
Receipt by Celtrix of a tax opinion of Venture Law Group, a Professional
Corporation as of the closing date of the merger, and receipt by Insmed
Pharmaceuticals of a tax opinion of Hunton & Williams as of the closing date of
the share exchange are conditions to completion of each of the reorganizations.
The opinions of Venture Law Group, a Professional Corporation and Hunton &
Williams are based on, and the opinions to be given as of the respective closing
dates of the merger and the share exchange will be based on, customary
assumptions and representations made by Insmed, Inc., Celtrix, and Insmed
Pharmaceuticals. An opinion of counsel represents counsel's best legal judgment
and is not binding on the Internal Revenue Service or any court, and no rulings
will be sought from the Internal Revenue Service concerning the merger or the
share exchange. If the merger and the share exchange do not qualify as
reorganizations within the meaning of Section 368(a) of the Internal Revenue
Code or as parts of an exchange within the meaning of Section 351 of the
Internal Revenue Code, the exchange of Celtrix stock in the merger and the
exchange of Insmed Pharmaceuticals stock in the share exchange would be taxable
to Celtrix stockholders or Insmed Pharmaceuticals shareholders, as the case may
be. In such case, stockholders would recognize gain or loss in the same amount
as if they had received cash in the amount of the fair market value of the
Insmed, Inc. common stock received.
The receipt of cash pursuant to the exercise of dissenters' or appraisal
rights by a Celtrix stockholder or an Insmed Pharmaceuticals shareholder will be
a taxable transaction. Any Celtrix stockholder or an Insmed Pharmaceuticals
shareholder considering the exercise of dissenters' or appraisal rights, should
consult a tax advisor to determine the tax consequences of exercising his or her
dissenters' or appraisal rights.
For federal income tax purposes, both Celtrix and Insmed Pharmaceuticals
have significant net operating loss carryforwards. After consummation of the
Celtrix merger and the Insmed Pharmaceuticals share exchange, each corporation's
ability to use its net operating loss carryforwards will be restricted under
federal income tax law. However, for financial accounting purposes, neither
Celtrix nor Insmed Pharmaceuticals has attributed any value to the future use of
its net operating loss carryforwards.
Accounting Treatment
We expect the acquisition of Celtrix by Insmed, Inc. will be accounted for
under the purchase method of accounting in accordance with generally accepted
accounting principles. The purchase price will be allocated among Celtrix's
consolidated assets and liabilities based on their estimated fair values.
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Procedures for Exchange of Stock Certificates
Insmed, Inc. has appointed First Union National Bank as exchange agent in
connection with the reorganizations. Immediately prior to the effective time of
the reorganizations, Insmed, Inc. will deposit with First Union National Bank,
in trust for the benefit of former Celtrix stockholders and former Insmed
Pharmaceuticals shareholders, certificates representing shares of Insmed, Inc.
common stock to be issued and the cash to be paid instead of fractional shares
under the terms of the reorganization agreement.
Promptly after the reorganizations are consummated, First Union National
Bank will send to each former stockholder of Celtrix and Insmed Pharmaceuticals
a letter and instructions for exchanging the stockholder's Celtrix or Insmed
Pharmaceuticals stock certificates for the stock certificates of Insmed, Inc.
After the reorganizations become effective, shares of Celtrix common and
preferred stock and Insmed Pharmaceuticals common and preferred stock will
represent only the right to receive:
. certificates representing shares of Insmed, Inc. common stock into which
the stockholder's shares of Celtrix common stock or Celtrix preferred
stock or Insmed Pharmaceuticals common stock or Insmed Pharmaceuticals
preferred stock are converted; and
. a check for any fractional share interests and any dividends or
distributions as described below.
The Insmed, Inc. common stock certificates and any checks will be delivered
to each former Celtrix stockholder and each former Insmed Pharmaceuticals
shareholder on receipt by First Union National Bank of certificates representing
the stockholder's shares of Celtrix common stock or Celtrix preferred stock or
Insmed Pharmaceuticals common stock or Insmed Pharmaceuticals preferred stock,
along with a properly completed letter transmitting the certificates. If any of
the certificates of Celtrix common stock or Celtrix preferred stock or Insmed
Pharmaceuticals common stock or Insmed Pharmaceuticals preferred stock have been
lost, stolen or destroyed, the stockholder must deliver a bond reasonably
satisfactory to Insmed, Inc. and First Union National Bank. No interest will be
paid on any cash to be paid instead of fractional shares.
________________________________________________________________________________
You should not send in your certificates representing Celtrix common stock or
Celtrix preferred stock or Insmed Pharmaceuticals common stock or Insmed
Pharmaceuticals preferred stock until you receive instructions from First Union
National Bank.
________________________________________________________________________________
None of Celtrix, Insmed Pharmaceuticals, Insmed, Inc. or First Union
National Bank will be liable to any former Celtrix stockholder or former Insmed
Pharmaceuticals shareholder for any shares or cash delivered in good faith to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
Until their outstanding certificates representing Celtrix common stock or
Celtrix preferred stock or Insmed Pharmaceuticals common stock or Insmed
Pharmaceuticals preferred stock are surrendered, former stockholders of Celtrix
and former shareholders of Insmed Pharmaceuticals will not receive any dividends
payable to Insmed, Inc. shareholders for any period after the reorganizations
become effective. When Celtrix stockholders and Insmed Pharmaceuticals
shareholders surrender their certificates formerly representing Celtrix common
stock, Celtrix preferred stock and Insmed Pharmaceuticals common stock and
Insmed Pharmaceuticals preferred stock, the certificates will be canceled and
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exchanged for certificates of Insmed, Inc. common stock and cash representing
fractional shares. In addition, when Insmed, Inc. stock certificates are issued
to former common and preferred stockholders of Celtrix and Insmed
Pharmaceuticals, any dividend declared by Insmed, Inc. with a record date for
common shareholders entitled to receive the dividend on or after the
reorganizations becomes effective and a date of payment prior to the date the
Celtrix or Insmed Pharmaceuticals certificates are surrendered will be paid
promptly to the former common and preferred stockholders. No interest will be
paid on these dividends.
First Union National Bank may deduct any amounts required to be withheld
under federal, state, local or foreign income tax laws from any shares of common
stock or cash payments made to a former Celtrix or Insmed Pharmaceuticals
shareholder. For federal income tax purposes, former Celtrix stockholders and
former Insmed Pharmaceuticals shareholders will be treated as having received
any amounts withheld by First Union National Bank.
Appraisal Rights
Celtrix. Celtrix is a Delaware corporation. Under Delaware law, certain
stockholders have appraisal rights with respect to a merger and the right to
receive payment in cash for their shares of common stock. A stockholder of a
Delaware corporation is entitled to an appraisal by the Court of Chancery of the
State of Delaware of the "fair value" of his or her shares in the event of the
consummation of a merger or consolidation to which the corporation is a party,
provided that either one of the following is true:
. approval by the stockholders of the corporation is required for a merger
or consolidation pursuant to Delaware law or the corporation's
certificate of incorporation and the stockholder is entitled to vote on
adoption of such merger or consolidation; or
. the corporation is a subsidiary being merged with its parent or another
subsidiary of the parent pursuant to a particular provision under
Delaware law for such transactions and all of the stock of the
corporation is not owned by the parent corporation.
With respect to shares of any class or series that are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the NASD or held by at least 2,000 record
stockholders, appraisal rights are not available to the holders of such shares
by reason of a merger or consolidation unless the holders thereof are required
by the terms of an agreement of merger or consolidation to accept for such stock
anything except the following types of consideration:
(1) cash in lieu of fractional shares;
(2) shares of the surviving corporation or shares of any other corporation
that are either listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system
by the NASD or held by more than 2,000 record stockholders; or
(3) a combination of (1) and (2).
Celtrix Stockholders. Celtrix stockholders have a statutory appraisal right
granted under Delaware law, as described above. A Celtrix stockholder who
desires to receive payment of the "fair
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value" of his shares must follow the specific procedural requirements set forth
under Delaware law in order to maintain such right and obtain such payment.
Section 262 of the Delaware General Corporation Law addresses stockholders'
appraisal rights and is reprinted in its entirety in Annex C to this joint proxy
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statement/prospectus. The following discussion is a summary of the material
terms of the law relating to appraisal rights and is qualified in its entirety
by reference to Annex C. Celtrix stockholders should review this discussion and
-------
Annex C carefully if they wish to exercise statutory appraisal rights, or
- -------
preserve their right to dissent because failure to comply with the procedures
set forth in this discussion and in the statute will result in the loss of
appraisal rights.
A Celtrix stockholder who wishes to exercise appraisal rights generally
must dissent with respect to all of the shares he or she owns or over which he
or she has power to direct the vote. However, if a record stockholder is a
nominee for several beneficial stockholders, some of whom wish to dissent and
some of whom do not, then the record stockholder may dissent with respect to all
the shares beneficially owned by any one person by notifying Celtrix in writing
of the name and address of each person on whose behalf the record stockholder
asserts appraisal rights. A beneficial stockholder may assert appraisal rights
directly by submitting to Celtrix the record stockholder's written consent to
the dissent and by dissenting with respect to all the shares of which the
stockholder is the beneficial stockholder or over which the stockholder has
power to direct the vote.
A Celtrix stockholder wishing to exercise his or her appraisal rights must
deliver a written demand of appraisal to Celtrix before the taking of the vote
on the reorganization agreement at the annual meeting of Celtrix stockholders.
The written demand must:
(1) state the stockholder's desire to exercise his appraisal rights; and
(2) reasonably inform Celtrix of the stockholder's identity.
The written demand should be sent to the following address:
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
(408) 988-2500
Attn: Donald D. Huffman
If the merger is completed, Insmed, Inc., as the parent company of Celtrix,
will, within 10 days after the effective date of the merger, deliver a written
notice to all stockholders who properly exercised their appraisal rights. Within
120 days after the effective date of the merger, Insmed, Inc. or any stockholder
who has properly exercised his or her appraisal rights may file a petition in
the Court of Chancery of the State of Delaware demanding a determination of the
value of the stock of all such stockholders. A stockholder who has properly
exercised his or her appraisal rights may withdraw his or her demand for
appraisal rights and accept the reorganization consideration at any time within
60 days of the effective date of the merger.
Within the 120-day period after the effective date of the merger, any
Celtrix stockholder who properly exercised his or her appraisal right may, by
written notice, request from Insmed, Inc. a statement setting forth the
aggregate number of shares of Celtrix stock not voted in favor of the merger and
with respect to which demands for appraisal have been received and the aggregate
number of holders
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of such shares. Insmed, Inc. will mail the requested information to the
stockholders who requested the information within 10 days of receiving the
written request or within 10 days after expiration of the period, for delivery
of demands for appraisal, whichever occurs later.
If a stockholder files a petition with the Court of Chancery of the State
of Delaware to exercise his or her appraisal rights, a copy of the petition will
be served on Insmed, Inc. Within 20 days of receiving service, Insmed, Inc. will
file a list of names and addresses of all Celtrix stockholders seeking appraisal
rights who have not settled with Insmed, Inc. on a fair price for their shares.
If Insmed, Inc., rather than a stockholder, files the petition with the
Court of Chancery of the State of Delaware, Insmed, Inc. will at the same time
provide the list of names and addresses of stockholders.
The Court of Chancery of the State of Delaware may order a hearing to be
held to determine the fair value of the Celtrix stock. Upon determination of the
fair price and the surrender to Insmed, Inc. of any Celtrix share certificates
still held by Celtrix stockholders, the Court of Chancery of the State of
Delaware shall order payment of the fair value of the shares, together with
interest, if any, by Insmed, Inc. to the stockholders entitled thereto.
Insmed Pharmaceuticals. Insmed Pharmaceuticals is a Virginia corporation.
Under Virginia law, certain shareholders have the right to dissent from a
reorganization and receive payment in cash for their shares of common stock. A
shareholder of a Virginia corporation is entitled to an appraisal by the Circuit
Court of the "fair value" of his shares in the event of the consummation of a
merger, consolidation or share exchange to which the corporation is a party,
provided that either one of the following is true:
. approval by the shareholders of the corporation is required for a merger,
share exchange or sale of substantially all assets pursuant to Virginia
law or the corporation's articles of incorporation, bylaws or by
directors' resolution and the shareholder is entitled to vote; or
. the corporation is a subsidiary being merged with its parent or another
subsidiary of the parent pursuant to a particular provision under
Virginia law for such transactions and all of the stock of the
corporation is not owned by the parent corporation.
With respect to shares of any class or series that are either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the NASD or held by at least 2,000 record
shareholders, rights to dissent are not available to the holders of such shares
by reason of a merger, share exchange or sale of substantially all assets unless
the holders thereof are required by the terms of an agreement of a merger, share
exchange or sale of substantially all assets to accept for such stock anything
except the following types of consideration:
(1) cash in lieu of fractional shares;
(2) shares of the surviving corporation or shares of any other corporation
that are listed on a national securities exchange or held by more than
2,000 record shareholders; or
(3) a combination of (1) and (2).
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Insmed Pharmaceuticals Shareholders. Insmed Pharmaceuticals shareholders
have a statutory right to dissent granted under Virginia law, as described
above. An Insmed Pharmaceuticals shareholder who desires to receive payment of
the "fair value" of his shares must follow the specific procedural requirements
set forth under Virginia law in order to maintain such right and obtain such
payment.
Article 15 of the Virginia Stock Corporation Act addresses shareholders'
rights to dissent and is reprinted in its entirety in Annex D to this joint
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proxy statement/prospectus. The following discussion is a summary of the
material terms of the law relating to rights to dissent and is qualified in its
entirety by reference to Annex D. Insmed Pharmaceuticals shareholders should
-------
review this discussion and Annex D carefully if they wish to exercise their
-------
statutory right to dissent, or preserve their right to dissent because failure
to comply with the procedures set forth in this discussion and in the statute
will result in the loss of the right to dissent to the reorganizations.
An Insmed Pharmaceuticals shareholder who wishes to exercise rights to
dissent generally must dissent with respect to all of the shares he or she owns
or over which he or she has power to direct the vote. However, if a record
shareholder is a nominee for several beneficial shareholders, some of whom wish
to dissent and some of whom do not, then the record shareholder may dissent with
respect to all the shares beneficially owned by any one person by notifying
Insmed Pharmaceuticals in writing of the name and address of each person on
whose behalf the record shareholder asserts such rights to dissent. A beneficial
shareholder may assert their rights directly by submitting to Insmed
Pharmaceuticals the record shareholder's written consent to the dissent and by
dissenting with respect to all the shares of which the shareholder is the
beneficial shareholder or over which the shareholder has power to direct the
vote.
An Insmed Pharmaceuticals shareholder wishing to exercise his or her right
to dissent must deliver a written payment demand to Insmed Pharmaceuticals
before the taking of the vote on the reorganization proposal at the special
meeting of Insmed Pharmaceuticals shareholders. A shareholder who wishes to
assert dissenters' rights must:
(1) state the shareholder's intent to demand payment for his shares if the
proposed action is effectuated; and
(2) not vote such shares in favor of the proposed action.
The written demand should be sent to the following address:
Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attn: Michael D. Baer
If the share exchange is completed, Insmed, Inc., as the parent company of
Insmed Pharmaceuticals, will, within 10 days after the effective time of the
share exchange, deliver a written notice to all shareholders who properly
exercised their rights. The notice delivered by Insmed, Inc. will: (i) state
where payment demand is to be sent and where and when certificates for the
shares subject to the shareholders' dissent are to be deposited; (ii) supply a
form for demanding payment that includes the date (December 1, 1999) of the
first announcement to the news media of the share exchange, and requires that
the person asserting dissenters' rights certify whether or not such person
acquired beneficial ownership of such person's shares subject to the
shareholders' dissent before or after such date; (iii) set a
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date by which Insmed, Inc. must receive the payment demand, which date may not
be less than thirty nor more than sixty days after the date of delivery of the
dissenters' notice; and (iv) be accompanied by a copy of Article 15 of the
Virginia Stock Corporation Act.
A shareholder's dissenters' notice shall demand payment, certify that such
holder acquired beneficial ownership of such holder's shares of Insmed
Pharmaceuticals common stock before, on or after December 1, 1999, and deposit
the certificates representing such holder's shares of Insmed Pharmaceuticals
common stock in accordance with the dissenters' notice. A shareholder who
deposits such holder's shares as described in the dissenters' notice retains all
other rights as a holder of Insmed Pharmaceuticals common stock except to the
extent such rights are canceled or modified by the consummation of the share
exchange. A shareholder who does not demand payment and deposit his share
certificates where required, each by the date set forth in the dissenters'
notice, is not entitled to payment for such holder's shares under Article 15 of
the Virginia Stock Corporation Act.
Except as provided below with respect to after-acquired shares, within
thirty days after receipt of a payment demand, Insmed, Inc. shall pay the
dissenter the amount that Insmed, Inc. estimates to be the fair value of the
dissenter's shares, plus accrued interest. The obligation of Insmed, Inc. to
make such payment may be enforced: (1) by the Circuit Court for the City of
Richmond, Virginia; or (2) at the election of any dissenter residing or having
its principal office in Virginia, by the circuit court in the city or county
where the dissenter resides or has such office. The payment by Insmed, Inc. will
be accompanied by: (1) Insmed Pharmaceuticals' balance sheet as of the end of a
fiscal year ended not more than sixteen months before the effective time of the
reorganizations, an income statement for that year, a statement of changes in
shareholders' equity for that year and the latest available interim financial
statements, if any; (2) an explanation of how Insmed, Inc. estimated the fair
value of the shares and of how the interest was calculated; (3) a statement of
the dissenter's right to demand payment as described below; and (4) a copy of
Article 15 of the Virginia Stock Corporation Act.
Insmed, Inc. may elect to withhold payment from a dissenter unless the
dissenter was the beneficial owner of the shares subject to such rights to
dissent on December 1, 1999 in which case Insmed, Inc. will estimate the fair
value of such after-acquired shares, plus accrued interest, and will offer to
pay such amount to each dissenter who agrees to accept it in full satisfaction
of such dissenter's demand. Insmed, Inc. will send with such offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment as described below.
Within thirty days after Insmed, Inc. makes or offers payment as described
above, a dissenter may notify Insmed, Inc. in writing of the dissenter's own
estimate of the fair value of the shares and the amount of interest due, and
demand payment of such estimate (less any payment by Insmed, Inc.) or reject
Insmed, Inc.'s offer and demand payment of such estimate.
If any such demand for payment remains unsettled, within sixty days after
receiving the payment demand, Insmed, Inc. will petition the Circuit Court for
the City of Richmond, Virginia to determine the fair value of the shares and the
accrued interest and make all dissenters whose demands remain unsettled parties
to such proceeding, or pay each dissenter whose demand remains unsettled the
amount demanded. Each dissenter made a party to such proceeding is entitled to a
judgment for: (i) the amount, if any, by which the court finds that the fair
value of the shares, plus interest, exceeds the amount paid by Insmed, Inc.; or
(ii) the fair value, plus accrued interest, of the dissenter's after-acquired
shares for which Insmed, Inc. elected to withhold payment. The court will
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court and assess the costs against
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Insmed, Inc., or against all or some of the dissenters to the extent the court
finds the dissenters did not act in good faith in demanding payment.
The foregoing is only a summary of the rights of a dissenting holder of
Insmed Pharmaceuticals common stock. Any holder of Insmed Pharmaceuticals
common stock who intends to dissent from the reorganizations should carefully
review the text of the applicable provisions of Article 15 of the Virginia Stock
Corporation Act set forth in Annex D to this joint proxy statement/prospectus
-------
and should also consult with such holder's attorney.
The failure of a holder of Insmed Pharmaceuticals common stock to follow
precisely the procedures summarized above, and set forth in Annex D, may result
-------
in loss of dissenters' rights. No further notice of the events giving rise to
dissenters' rights or any steps associated therewith will be furnished to
holders of Insmed Pharmaceuticals common stock, except as indicated above or
otherwise required by law.
In general, any dissenting shareholder who perfects such holder's right to
be paid the fair value of such holder's Insmed Pharmaceuticals common stock in
cash will recognize taxable gain or loss for federal income tax purposes upon
receipt of such cash. See "Certain Federal Income Tax Consequences" on page ___.
Federal Securities Law Consequences; Resale Restrictions
All shares of Insmed, Inc. common stock that will be distributed to
stockholders of Celtrix and Insmed Pharmaceuticals in the reorganizations will
be freely transferable, except for certain restrictions applicable to
"affiliates" of Celtrix and Insmed Pharmaceuticals. Shares of Insmed, Inc.
common stock received by persons who are deemed to be affiliates of Celtrix or
Insmed Pharmaceuticals may be resold by them only in transactions permitted by
the resale provisions of Rule 145 or as otherwise permitted under the Securities
Act of 1933. Persons who may be deemed affiliates of Celtrix or Insmed
Pharmaceuticals generally include certain officers, directors and significant
stockholders of Celtrix and Insmed Pharmaceuticals. The reorganization agreement
requires Celtrix and Insmed Pharmaceuticals to cause each of their affiliates to
execute a written agreement to the effect that such persons will not sell or
dispose of any of the shares of Insmed, Inc. common stock issued to them in the
reorganizations unless the sale or disposition of such shares has been
registered under the Securities Act of 1933, is in conformity with Rule 145 or
is otherwise exempt from the registration requirements under the Securities Act
of 1933.
CERTAIN TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT
This section describes the material provisions of the amended and restated
reorganization agreement, dated as of February 9, 2000. Throughout this
document, the amended and restated reorganization agreement will be referred to
as the reorganization agreement. This description does not purport to be
complete and is entirely qualified by reference to the reorganization agreement,
a copy of which is attached to this joint proxy statement/prospectus as Annex A,
-------
and which is incorporated in this document by reference. All stockholders are
urged to read the entire reorganization agreement carefully in its entirety.
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The Reorganizations
Structure. In the reorganizations, Celtrix MergerSub will be merged with
and into Celtrix with Celtrix as the surviving corporation and the separate
corporate existence of MergerSub will cease. Celtrix will thereby become a
wholly-owned subsidiary of Insmed, Inc. In addition, Insmed Pharmaceuticals and
Insmed, Inc. will conduct a share exchange whereby non-dissenting Insmed
Pharmaceuticals shareholders will exchange their shares of Insmed
Pharmaceuticals capital stock for shares of Insmed, Inc. capital stock.
Following the share exchange, Insmed Pharmaceuticals will be a wholly-owned
subsidiary of Insmed, Inc.
Effective Time. The reorganizations will become effective on the latter
of, the date of filing of certificate of merger relating to the merger with the
Secretary of State of the State of Delaware or, the date of receipt of the
certificate of exchange relating to the share exchange from the State
Corporation Commission of the Commonwealth of Virginia, or at such other date
and time as is specified in the certificate of merger and articles of exchange.
The certificate of merger and articles of exchange are expected to be filed as
soon as practicable after the stockholders of Celtrix and Insmed Pharmaceuticals
have approved the reorganization proposal and all of the other conditions set
forth in the reorganization agreement have been satisfied or waived. Insmed
Pharmaceuticals and Celtrix anticipate that the effective time of the
reorganizations will occur in the second calendar quarter of 2000.
Share Conversion. Under the terms and subject to the conditions of the
reorganization agreement, each holder of Celtrix common stock will receive one
(1) share of Insmed, Inc. common stock in exchange for each share of Celtrix
common stock held and each holder of Celtrix Series A Preferred Stock will
receive ___ shares of Insmed, Inc. common stock in exchange for each share of
Celtrix preferred stock held. Each Insmed Pharmaceuticals shareholder will
receive 3.5 shares of Insmed, Inc. common stock for each share of Insmed
Pharmaceuticals common stock and Insmed Pharmaceuticals Series A Preferred Stock
and Insmed Pharmaceuticals Series B Preferred Stock held. Cash will be paid
instead of issuing fractional shares of Insmed, Inc. common stock.
Stock Options and Warrants. Each outstanding option to purchase Celtrix
common stock as of the effective time of the merger will become a new option to
acquire a number of shares of Insmed, Inc. common stock equal to the number of
shares purchasable under the Celtrix option at a per share price equal to the
exercise price under the Celtrix option. Pursuant to their terms, warrants
exercisable for 1,938,047 shares of Celtrix common stock will expire as of April
1, 2000. In addition, the remaining outstanding warrants to purchase 970,000
shares of Celtrix common stock will terminate upon the earlier to occur of
November 20, 2001 or the sale of substantially all of Celtrix's property or
business, Celtrix's merger into or consolidation with another corporation, or
any other transaction or series of transactions in which more than 50% of the
voting power of Celtrix is disposed. Each outstanding option or warrant to
purchase Insmed Pharmaceuticals common stock as of the effective time of the
exchange will become a new option or warrant, as the case may be, to acquire a
number of shares of Insmed, Inc. common stock equal to the number of shares
purchasable under the Insmed Pharmaceuticals option or warrant multiplied by 3.5
at a per share price equal to the exercise price under the Insmed
Pharmaceuticals option or warrant, as the case may be, divided by 3.5 and
rounded up to the nearest tenth of one cent. If the conversion of Insmed
Pharmaceuticals options and warrants would result in an option holder or warrant
holder being entitled to the right to receive a fractional share of Insmed, Inc.
common stock, that option holder or warrant holder will receive cash in lieu of
the option, warrant or other right that would have been convertible into a
fractional share. For more information on the designations and rights of the
Insmed, Inc. stock options. See "Insmed, Inc. 2000 Stock Option Plan" on page
__.
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Certain Representations and Warranties
In the reorganization agreement, Insmed Pharmaceuticals and Celtrix make
customary representations and warranties to each other relating to, among other
things:
. organization and authority;
. capitalization;
. corporate authorization to effect the reorganizations;
. recommendation of the board of directors;
. consents and approvals required in connection with the reorganizations;
. absence of certain changes or events;
. legal actions and proceedings;
. employee benefit matters;
. labor matters;
. tax matters;
. compliance with applicable laws;
. absence of certain undisclosed liabilities and adverse changes;
. joint proxy statement and prospectus;
. absence of defaults under certain agreements;
. Year 2000 compliance;
. material contracts;
. absence of other reorganizations discussions;
. accounting and tax treatment of the reorganizations;
. certain business practices;
. no existing discussions;
. transactions with affiliates;
. vote required to approve the reorganizations;
. board approval;
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. accuracy and delivery of financial statements;
. accuracy of information provided;
. absence of undisclosed liabilities;
. environmental laws and regulations;
. properties;
. intellectual property;
. the applicability of state takeover statutes relating to the
reorganizations;
. insurance matters;
. accuracy and truth of representations and warranties; and
. fees and expenses of brokers and others.
In addition, Celtrix has made certain additional representations and
warranties to Insmed Pharmaceuticals in the reorganization agreement with
respect to, among other things, reports with the Securities and Exchange
Commission and receipt of an opinion of their financial advisor that the
consideration to be received by Celtrix stockholders is fair from a financial
point of view.
The representations and warranties in the reorganization agreement do not
survive the effective time of the reorganizations.
Certain Covenants
Interim Operations of Celtrix. From the date of signing the reorganization
agreement until the effective time of the reorganizations, Celtrix is required
to conduct its business in the ordinary course consistent with past practice, to
seek to preserve intact its current business organization, to keep available the
service of its current officers and employees and to preserve its relationships
with customers, suppliers and others with whom it does business. In addition,
Celtrix, its subsidiaries and the partnerships in which it has any interest may
not, subject to certain limited exceptions, take certain other actions during
this period, including the following:
. amend their certificates of incorporation or Bylaws, partnership or joint
venture agreements;
. declare or pay any dividends;
. authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver any capital stock;
. redeem, recapitalize, split, combine or reclassify any of their capital
stock;
. purchase, redeem or otherwise acquire any shares of Celtrix's capital
stock;
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. adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganizations
of Celtrix (other than the merger provided for in the reorganization
agreement);
. (1) incur or assume any debt or issue any debt securities; (2) assume,
guarantee, endorse or otherwise become liable or responsible for the
obligations of any other person; (3) make any loans, advances or capital
contributions to, or investments in, any other person; (4) pledge or
otherwise encumber shares of capital stock of Celtrix; or (5) mortgage or
pledge any material assets or create any material liens on the assets
(other than tax liens for taxes not yet due);
. except as may be required by law, enter into, adopt or amend or terminate
any bonus, profit sharing, compensation, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, severance or other arrangement for the benefit or welfare of
any director, officer or employee or increase in any manner the
compensation or fringe benefits of any director, officer or employee or
pay any benefit not required by any plan and arrangement as in effect on
the date of the reorganization agreement;
. acquire, sell, lease, sell/leaseback, license or dispose of any material
properties or assets or enter into any agreement to do so;
. except as may be required as a result of a change in law or in GAAP,
change any accounting principles or practices or make any material change
to financial statements, or prepay any indebtedness, change depreciation
or amortization methods, delay incurring budgeted expenses or deviate
from usual and customary terms with suppliers, lessors, customers or
buyers;
. revalue in any material respect any assets;
. (1) acquire any interest in any corporation, partnership or other
business organization; (2) enter into any contract or agreement which
would be material to Celtrix; (3) authorize any new capital expenditure
or expenditures;
. settle or compromise any pending or threatened suit, action or claim
which relates to the reorganizations or which could have a material
adverse effect on Celtrix;
. commence any material research and development project or terminate any
material research and development project that is currently ongoing,
except pursuant to the terms of existing contracts;
. fail to conduct its business only in the ordinary course or fail to
maintain and preserve its organization, goodwill and properties;
. make or rescind any material election relating to taxes, settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or
make any material change to any of its methods of reporting income or
deductions for federal income tax purposes from those employed in
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the preparation of its federal income tax return for the taxable year
ending March 31, 1998, except as may be required by applicable law;
and
. take, or agree to take any of the actions listed above which would
make any of the representations or warranties of Celtrix contained in
the reorganization agreement untrue or incorrect.
Interim Operations of Insmed Pharmaceuticals. From the date of signing the
reorganization agreement until the effective time of the reorganizations, Insmed
Pharmaceuticals is required to conduct its business in the ordinary course
consistent with past practice, to seek to preserve intact its current business
organization, to keep available the service of its current officers and
employees and to preserve its relationships with customers, suppliers and others
with whom they do business. In addition, Insmed Pharmaceuticals, its
subsidiaries and the partnerships in which it has any interest may not, subject
to certain limited exceptions, take certain other actions during this period,
including the following:
. amend their Articles of Incorporation or Bylaws, partnership or joint
venture agreements;
. authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver any capital stock;
. redeem, recapitalize, split, combine or reclassify any of their
capital stock;
. purchase, redeem or otherwise acquire any shares of Insmed
Pharmaceuticals' capital stock;
. adopt a plan of complete or partial liquidation, dissolution,
reorganizations, consolidation, restructuring, recapitalization or
other reorganizations of Insmed Pharmaceuticals (other than the share
exchange provided for in the reorganization agreement);
. settle or compromise any pending or threatened suit, action or claim
which relates to the reorganizations or which could have a material
adverse effect on Insmed Pharmaceuticals; and
. take, or agree to take any of the actions that would make any of the
representations or warranties of Insmed Pharmaceuticals contained in
the reorganization agreement untrue or incorrect.
Interim Operations with Respect to the Elan Joint Venture. From the date
of signing the reorganization agreement until the effective time of the
reorganizations, Celtrix on behalf of the Elan joint venture will not, subject
to certain limited exceptions, take certain actions during this period,
including the following:
. amend the agreement governing the Elan joint venture or other similar
governing instruments;
. adopt or agree to a budget for the Elan joint venture;
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. authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any shares of Celtrix Series B Preferred Stock to provide
capital to the Elan joint venture;
. engage in any material undertakings with respect to the Elan joint
venture;
. consent to, or enter into on behalf of the Elan joint venture any
agreement or commitment as to clinical trials with respect to drugs
under development by the Elan joint venture;
. consent to, or enter into on behalf of the Elan joint venture, any
agreement, commitment or understanding that could reasonably be
expected to impose a liability on Celtrix or any of its subsidiaries
of $25,000 or more; and
. take or agree to take any of the actions listed above which would make
any of the representations or warranties of Celtrix contained in the
reorganization agreement untrue or incorrect.
No Solicitation. Neither Celtrix nor Insmed Pharmaceuticals may directly or
indirectly, institute, pursue, encourage or continue any discussions, or
negotiations or agreements relating to any public or private offering of equity,
or any merger, share exchange, acquisition, purchase or sale of a significant
amount of shares or assets or other business combination or change in control of
Celtrix or Insmed Pharmaceuticals, respectively, or a similar transaction
involving Celtrix or Insmed Pharmaceuticals. If either Celtrix or Insmed
Pharmaceuticals receives an unsolicited merger, share exchange, acquisition or
other offer, it must notify the other party as to the details of the unsolicited
offer.
Notwithstanding the preceding paragraph, the boards of directors of each of
Celtrix and Insmed Pharmaceuticals must comply with the state and federal laws
concerning an acquisition proposal. The Celtrix and Insmed Pharmaceuticals
boards also may furnish information or enter into negotiations regarding an
unsolicited proposal if the following conditions are met:
. the board of directors of either company believes in good faith (after
consultation with its financial advisor) that such an acquisition is
reasonably capable of being completed on the terms proposed and, after
taking into account the strategic benefits anticipated to be derived
from the reorganizations and the prospects of Celtrix and Insmed
Pharmaceuticals as a combined company, would, if consummated, result
in a transaction more favorable to its stockholders over the long term
than the transactions contemplated by the reorganization agreement and
the board of directors determines in good faith, taking into account
the advice of outside counsel, that furnishing information or entering
into negotiations with a third party is required for the board of
directors to comply with its fiduciary duties to its stockholders;
. prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the board of
directors of the party receiving such proposal receives from such
person or entity an executed confidentiality and standstill agreement;
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. the party receiving the proposal notifies the other party within 24
hours after receipt by such party (or any of its advisors) of any
acquisition proposal or any request for nonpublic information in
connection with an acquisition proposal or for access to the
properties, books or records of such party by any person or entity
that informs such party that it is considering making, or has made, an
acquisition proposal, the identity of the person making the proposal
and the party's intention to provide information or commence
discussions; and
. the party receiving the proposal keeps the other party informed of the
status of the discussions with the third party.
Confidentiality. Each party has agreed that it will hold, and will cause
its representatives to hold, in confidence, all information received in
connection with the transactions contemplated by the reorganization agreement.
The parties will not be subject to this obligation with respect to any
information:
. that is or becomes generally available to the public other than as a
result of a disclosure of the party receiving the information in
connection with the reorganization agreement;
. that was previously available to the party receiving the information
on a non-confidential basis; or
. that becomes available to the party on a non-confidential basis from
an outside source that is not known to the party receiving the
information to be contractually or legally prohibited from disclosing
the information.
If the reorganization agreement is terminated, each party will use its best
efforts to cause the documents and other materials subject to the
confidentiality obligations to be destroyed or returned.
Stockholders Meetings. Celtrix and Insmed Pharmaceuticals have agreed to
call, give notice of and hold the stockholders meetings as promptly as
practicable for the purpose of voting upon the approval and adoption of the
reorganization agreement and any related matters.
Indemnification. Insmed, Inc. has agreed to indemnify, defend and hold
harmless the directors, officers and employees of Celtrix and Insmed
Pharmaceuticals, and their subsidiaries, against all claims, damages,
liabilities or expenses arising out of the person's position within Celtrix,
Insmed Pharmaceuticals or any of their subsidiaries, or arising out of the
reorganizations or related transactions.
Nasdaq Listing. Insmed, Inc. will apply to be listed on the Nasdaq National
Market under the trading symbol "INSM." Insmed, Inc., Celtrix and Insmed
Pharmaceuticals have agreed to use all reasonable efforts to have the Insmed,
Inc. common stock approved for listing on the Nasdaq National Market or, if such
shares do not satisfy the necessary listing requirements, then on The Nasdaq
SmallCap Market, subject to official notice of issuance, before the effective
time of the reorganizations.
Stockholder Voting Agreements. Certain stockholders of Celtrix and Insmed
Pharmaceuticals have agreed to vote their shares of capital stock "FOR" the
approval and adoption of the reorganization proposal pursuant to letter
agreements executed before the effective time of the reorganizations. See
"Celtrix and Insmed Pharmaceuticals Stockholder Agreements" on page __ for more
information on the stockholder voting agreements.
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Certain Other Covenants. Celtrix and Insmed Pharmaceuticals have agreed to
certain other customary covenants in the reorganization agreement, including
covenants relating to obtaining necessary consents and approvals; cooperating
with each other to obtain antitrust clearances; assisting in the preparation of
this joint proxy statement/prospectus and the filing of the registration
statement by Insmed, Inc.; providing access to and furnishing information;
providing notices of certain events and consulting with each other regarding
public statements and filings; obtaining opinions from each of the parties'
accountants; obtaining agreements from affiliates relating to stock trading; and
certain employee and employee benefits matters.
Conditions to the Reorganizations
Conditions to Each Party's Obligations. The obligations of Celtrix and
Insmed Pharmaceuticals to consummate the reorganizations are subject to the
satisfaction of the conditions set forth in the reorganization agreement,
including:
. approval of the reorganization agreement by the Celtrix stockholders
and the Insmed Pharmaceuticals shareholders as required by law;
. the absence of any order, ruling, injunction, decree or other legal
restraint from any governmental entity preventing the consummation of
the reorganizations;
. receipt of all required governmental and other consents and approvals;
. effectiveness of the registration statement filed by Insmed, Inc. of
which this document is a part and obtaining all necessary state
securities and blue sky law authorizations;
. approval for listing of the Insmed, Inc. common stock to be issued
pursuant to the reorganization agreement on the Nasdaq National Market
or The Nasdaq SmallCap Market; and
. receipt by each of Celtrix and Insmed Pharmaceuticals of written
agreements from certain affiliated persons imposing restrictions on
their disposition of Insmed, Inc. common stock to be received in the
reorganizations.
Additional Conditions to Obligations of Celtrix. The obligations of Celtrix
to consummate the merger are subject to the satisfaction or waiver by Celtrix at
or before the effective time of the reorganizations of the following additional
conditions:
. receipt of certificates by Celtrix from Insmed Pharmaceuticals
certifying the truth of representations and warranties made by Insmed
Pharmaceuticals in the reorganization agreement and certifying the
performance of covenants made by Insmed Pharmaceuticals in the
reorganization agreement;
. receipt of listing approval from the Nasdaq National Market or The
Nasdaq SmallCap Market for Insmed, Inc. shares to be issued to Celtrix
stockholders in the merger;
. receipt by Celtrix of a favorable tax opinion from Venture Law Group,
a Professional Corporation, opining that (1) the merger will be
treated for U.S. federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of
1986 or as part of an exchange described in Section 351 of the
Internal
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Revenue Code, and (2) Celtrix, Insmed, Inc. and Celtrix stockholders
will not recognize gain or loss for federal income tax purposes, other
than for cash received by a Celtrix stockholder in lieu of a
fractional share of Insmed, Inc. stock except that no opinion needs to
be expressed with respect to any Insmed, Inc. shares received by the
Celtrix Series A Preferred stockholder with respect to accrued but
unpaid dividends on such preferred stock;
. Insmed Pharmaceuticals shall have obtained all necessary consents,
approvals, actions, registrations and filings; and
. the absence of any events that could have a material adverse effect on
Insmed Pharmaceuticals; and
. the reasonable satisfaction of Celtrix and Celtrix's counsel with the
proceedings and documents executed by Insmed Pharmaceuticals
concerning the reorganizations.
Additional Conditions to Obligations of Insmed Pharmaceuticals. The
obligations of Insmed Pharmaceuticals to consummate the share exchange are
subject to the satisfaction or waiver by Insmed Pharmaceuticals at or before the
effective time of the reorganizations of the following additional conditions:
. the receipt of a certificate by Insmed Pharmaceuticals from Celtrix
certifying the truth of representations and warranties made by Celtrix
in the reorganization agreement and certifying the performance of
covenants made by Celtrix in the reorganization agreement;
. receipt of listing approval from the Nasdaq National Market or The
Nasdaq SmallCap Market for Insmed, Inc. shares to be issued to Insmed
Pharmaceuticals shareholders in the share exchange;
. receipt by Insmed Pharmaceuticals of a favorable tax opinion from
Hunton & Williams opining that (1) the share exchange will be treated
for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986 or as
part of an exchange described in Section 351 of the Internal Revenue
Code, and (2) Insmed Pharmaceuticals, Insmed, Inc. and Insmed
Pharmaceuticals shareholders will not recognize gain or loss for
federal income tax purposes, except for cash received by an Insmed
Pharmaceuticals shareholder in lieu of a fractional share of Insmed,
Inc. stock;
. Celtrix shall have obtained all necessary consents, approvals,
actions, registrations and filings;
. the absence of any events that could have a material adverse effect on
Celtrix; and
. the reasonable satisfaction of Insmed Pharmaceuticals and Insmed
Pharmaceuticals' counsel with the proceedings and documents executed
by Celtrix concerning the reorganizations.
Unless prohibited by law, either Celtrix or Insmed Pharmaceuticals could
elect to waive a condition that has not been satisfied and complete the
reorganizations.
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Termination of the Reorganization Agreement
Rights to Terminate. At any time before the effective time of the
reorganizations, the reorganization agreement may be terminated and the
transactions contemplated may be abandoned as follows (any of the following
rights to terminate may be waived by the party possessing the right):
. by the mutual written consent of Celtrix and Insmed Pharmaceuticals;
and
. by either Celtrix or Insmed Pharmaceuticals if:
.. any court or other governmental authority has issued an order,
decree or ruling permanently enjoining, restraining or otherwise
prohibiting the reorganizations; or
.. the reorganizations shall not have been consummated by May 31,
2000, unless the failure to consummate the reorganizations by that
time has been caused by or is the result of the failure to fulfill
any obligation under the reorganization agreement by the party
seeking to terminate the reorganization agreement; and
. by Celtrix if:
.. the transactions contemplated in the reorganization agreement
shall have been voted on by Insmed Pharmaceuticals' shareholders
at a meeting duly convened therefore, and the votes shall not have
been sufficient to approve the reorganization agreement;
.. there has been a material breach by Insmed Pharmaceuticals or
Insmed, Inc. of any representation, warranty, covenant or
agreement set forth in the reorganization agreement, which breach
has not been cured within ten business days following receipt by
the breaching party of notice of such breach;
.. the board of directors of Insmed Pharmaceuticals should fail to
recommend to its shareholders approval of the transactions
contemplated by the reorganization agreement or such
recommendation shall have been made and subsequently withdrawn; or
.. Celtrix, (1) based on the advice of its outside legal counsel and
financial advisors, (2) after notice to Insmed Pharmaceuticals and
(3) after an opportunity by Insmed Pharmaceuticals to amend the
reorganization agreement, enters into a binding written agreement
concerning a superior transaction to the transaction contemplated
by the reorganization agreement; and
. by Insmed Pharmaceuticals if:
.. the transactions contemplated in the reorganization agreement
shall have been voted on by Celtrix's stockholders at a meeting
duly convened therefore, and the votes shall not have been
sufficient to approve the reorganization agreement;
.. there has been a material breach by Celtrix of any
representation, warranty, covenant or agreement set forth in the
reorganization agreement, which breach
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has not been cured within ten business days following receipt by
the breaching party of notice of such breach;
.. the board of directors of Celtrix should fail to recommend to its
shareholders approval of the transactions contemplated by the
reorganization agreement or such recommendation shall have been
made and subsequently withdrawn; or
.. Insmed Pharmaceuticals, (1) based on the advice of its outside
legal counsel and financial advisors, (2) after notice to Celtrix
and (3) after an opportunity by Celtrix to amend the
reorganization agreement, enters into a binding written agreement
concerning a superior transaction to the transaction contemplated
by the reorganization agreement.
Effect of Termination
If the reorganization agreement is terminated and the reorganizations are
not completed, the reorganization agreement will become void and have no effect,
without any liability on the part of either of Celtrix or Insmed Pharmaceuticals
or their directors, officers or stockholders, except that termination of the
reorganization agreement will not:
. terminate the obligations of the parties in the reorganization
agreement regarding confidentiality;
. terminate the obligations of the parties in the reorganization
agreement regarding the payment of fees and expenses associated with
the reorganizations and the termination of the reorganization
agreement; or
. relieve a breaching party from liability for any breach of the
reorganization agreement.
Termination Fees; Expenses
Except as described below, whether or not the reorganizations or other
transactions contemplated by the reorganization agreement are consummated, all
costs and expenses incurred in connection with the reorganization agreement and
the transactions contemplated thereby will be paid by the party incurring such
costs or expenses. Except as described below, however, Insmed Pharmaceuticals
and Celtrix will each be responsible for 50% of the registration fees and
printing costs incurred in connection with this joint proxy
statement/prospectus.
Payment of Termination Fee by Celtrix. Celtrix will pay Insmed
Pharmaceuticals a termination fee of $2,500,000 and shall reimburse Insmed
Pharmaceuticals for all out of pocket expenses not to exceed $250,000 if:
. Insmed Pharmaceuticals terminates the reorganization agreement because
the Celtrix stockholders fail to adopt the reorganization agreement;
. there has been a material breach by Celtrix of any representation,
warranty, covenant or agreement set forth in the reorganization
agreement, which breach has not been cured within ten business days
following receipt by the breaching party of notice of such breach;
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. the board of directors of Celtrix should fail to recommend to its
shareholders approval of the reorganization agreement or such
recommendation shall have been made and subsequently withdrawn;
. Celtrix terminates the reorganization agreement to pursue a superior
proposal for Celtrix as described above; or
. Celtrix shall fail to obtain certain shareholder affiliate letters;
and
. in each of the above cases, Celtrix shall not be required to pay the
termination fee in the event that:
.. Insmed Pharmaceuticals shareholders have failed to adopt the
reorganization agreement;
.. there has been a material breach by Insmed Pharmaceuticals or
Insmed, Inc. of any representation, warranty, covenant or
agreement set forth in the reorganization agreement, which breach
has not been cured within ten business days following receipt by
the breaching party of notice of such breach; or
.. the board of directors of Insmed Pharmaceuticals has failed to
recommend to its shareholders approval of the transactions
contemplated by the reorganization agreement or such
recommendation was made and subsequently withdrawn.
Payment of Termination Fee by Insmed Pharmaceuticals. Insmed
Pharmaceuticals will pay Celtrix a termination fee of $2,500,000 and shall
reimburse Celtrix for all out of pocket expenses not to exceed $250,000 if:
. Celtrix terminates the reorganization agreement because the Insmed
Pharmaceuticals shareholders fail to adopt the reorganization
agreement;
. there has been a material breach by Insmed Pharmaceuticals or Insmed,
Inc. of any representation, warranty, covenant or agreement set forth
in the reorganization agreement, which breach has not been cured
within ten business days following receipt by the breaching party of
notice of such breach;
. the board of directors of Insmed Pharmaceuticals should fail to
recommend to its shareholders approval of the reorganization agreement
or such recommendation shall have been made and subsequently
withdrawn;
. Insmed Pharmaceuticals terminates the reorganization agreement to
pursue a superior proposal for Insmed Pharmaceuticals as described
above; or
. Insmed Pharmaceuticals shall fail to obtain certain shareholder
affiliate letters; and
. in each of the above cases, Insmed shall not be required to pay the
termination fee in the event that:
.. Celtrix shareholders have failed to adopt the reorganization
agreement;
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.. there has been a material breach by Celtrix of any
representation, warranty, covenant or agreement set forth in the
reorganization agreement, which breach has not been cured within
ten business days following receipt by the breaching party of
notice of such breach; or
.. the board of directors of Celtrix has failed to recommend to its
stockholders approval of the transactions contemplated by the
reorganization agreement or such recommendation was made and
subsequently withdrawn.
Amendments; No Waiver
Any provision of the reorganization agreement may be amended or waived, in
writing, before the effective time of the reorganizations. Following the
approval of the reorganization agreement by the stockholders of Celtrix, no
amendment or waiver will be made that by applicable law would require the
further approval of the stockholders of Celtrix without first obtaining approval
from the stockholders of Celtrix. Following the approval of the reorganization
agreement by the shareholders of Insmed Pharmaceuticals, no amendment or waiver
will be made that by applicable law would require the further approval of the
shareholders of Insmed Pharmaceuticals without first obtaining approval from the
shareholders of Insmed Pharmaceuticals. No failure of any party to exercise a
right or privilege under the reorganization agreement operates as a waiver of
that right or privilege.
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DESCRIPTION OF INSMED, INC. CAPITAL STOCK
General
This summary of the characteristics of Insmed, Inc.'s capital stock is
qualified in all respects by reference to the Insmed, Inc. Articles of
Incorporation and Amended and Restated Bylaws, copies of which are attached to
this joint proxy statement/prospectus as Annex H and Annex I, and incorporated
------- -------
herein by reference.
Presently the authorized capital stock of Insmed, Inc. consists of
500,000,000 shares of Insmed, Inc. common stock and 200,000,000 shares of
Insmed, Inc. preferred stock. There are 100 shares of Insmed, Inc. common stock
outstanding, all of which are owned by the incorporator of Insmed, Inc. No
shares of Insmed, Inc. preferred stock are outstanding. Assuming consummation
of the proposed financing as described in "Recent Developments" on page __,
immediately prior to the effectiveness of the reorganizations there shall be
outstanding warrants to purchase 6,901,344 shares of Insmed, Inc. common stock
at a price of $2.25 per share.
Immediately following the effective time of the reorganizations, but before
giving effect to the proposed financing described in "Recent Developments" on
page __, former holders of Celtrix common stock and Celtrix preferred stock
collectively will hold approximately 43.2% of the outstanding shares of Insmed,
Inc. common stock on a fully diluted basis; and former holders of Insmed
Pharmaceuticals common stock and Insmed Pharmaceuticals preferred stock
collectively will hold approximately 56.8% of the outstanding shares of Insmed,
Inc. common stock on a fully diluted basis.
Assuming the proposed financing is consummated, immediately prior to the
effective time of the reorganizations, the new investors, the former holders of
Celtrix common and preferred stock and options exercisable into Celtrix common
stock and the former holders of Insmed Pharmaceuticals' common and preferred
stock and options and warrants to purchase Insmed Pharmaceuticals' common stock
will hold 22.0%, 33.7% and 44.3%, respectively, of the outstanding common stock
of Insmed, Inc. on a fully diluted basis.
Common Stock
Each share of Insmed, Inc. common stock entitles the holder to one vote in
the election of directors and on all other matters submitted to a vote of
shareholders. Holders of Insmed, Inc. common stock have no conversion or
redemption rights and no preemptive or other rights to subscribe for securities
of Insmed, Inc. Holders of Insmed, Inc. common stock have no right to cumulate
votes in the election of directors. Holders of Insmed, Inc. common stock are
entitled to receive dividends when, as and if declared by the Insmed, Inc. board
of directors out of funds legally available for distribution. Upon the
liquidation of Insmed, Inc., holders of Insmed, Inc. common stock will be
entitled, subject to the rights of the holders of any outstanding Insmed, Inc.
preferred stock, to receive pro rata all assets, if any, of Insmed, Inc.
available for distribution after payment of necessary expenses and all prior
claims.
Insmed, Inc. has applied to have its common stock listed on the Nasdaq
National Market under the trading symbol "INSM."
Preferred Stock
The preferred stock may be issued, from time to time in one or more series,
and the Insmed, Inc. board of directors, without further approval of the
shareholders, is authorized to fix the dividend rights
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and terms, redemption rights and terms, liquidation preferences, conversion
rights, voting rights and sinking fund provisions applicable to each such series
of preferred stock. If Insmed, Inc. issues a series of preferred stock in the
future that has voting rights or preferences over Insmed, Inc. common stock with
respect to the payment of dividends and upon Insmed, Inc.'s liquidation,
dissolution or winding up, the rights of the holders of Insmed, Inc. common
stock offered hereby may be adversely affected. Insmed, Inc. may amend from time
to time the Insmed, Inc. Articles of Incorporation to increase the number of
authorized shares of preferred stock. This type of amendment would require the
approval of the holders of a majority of the outstanding shares of each series
of preferred stock, if any, that is adversely affected by the amendment, voting
separately by group and the approval of more than two-thirds of all the voting
capital stock of Insmed, Inc., voting as a single voting group. The issuance of
shares of preferred stock could be utilized, under certain circumstances, in an
attempt to prevent an acquisition of Insmed, Inc. As of the date of this joint
proxy statement/prospectus, Insmed, Inc. has no shares of preferred stock
outstanding.
Change of Control Provisions
Other provisions that are intended to affect any attempted change of
control in Insmed, Inc. govern the rights of Insmed, Inc. shareholders.
Board of Directors. Celtrix and Insmed Pharmaceuticals agreed in the
reorganization agreement to provide for three classes of directors of Insmed,
Inc. One-third of the directors will be in each class, and one class of
directors would be up for election at each annual meeting.
Advance Notice Requirements for Shareholder Proposals. The Insmed, Inc.
Amended and Restated Bylaws require a shareholder desiring to bring a proposal
before an annual meeting of Insmed, Inc. shareholders to give proper written
notice to the Secretary of Insmed, Inc. Notice will be deemed proper if, in case
of the 2001 annual meeting, it is delivered by November 6, 2000, and in case of
subsequent annual meetings, it is delivered not later than 90 days nor more than
120 days before the first anniversary of the date of mailing of the Insmed,
Inc.'s proxy statement in connection with the last preceding year's annual
meeting. The written notice delivered to the Secretary must include certain
information and be in the proper form as specified in the Insmed, Inc. Amended
and Restated Bylaws.
Advance Notice Requirements for Nomination of Directors. The Insmed, Inc.
Amended and Restated Bylaws require a shareholder desiring to nominate a
director for election at an annual meeting of Insmed, Inc. shareholders to give
proper written notice to the Secretary of Insmed, Inc. Notice will be deemed
proper if, notice is given not later than 90 days nor more than 120 days prior
to the first anniversary date of the previous year's annual meeting. The written
notice delivered to the Secretary must include certain information and be in the
proper form as specified in the Insmed, Inc. Amended and Restated Bylaws.
Meetings of Shareholders. The Insmed, Inc. Amended and Restated Bylaws
permit the President, a majority of the board of directors, or the Chairman of
the Board of Insmed, Inc. to call a special meeting of shareholders. The Amended
and Restated Bylaws specifically deny the shareholders the right to convene a
special meeting of shareholders.
Amendment of Articles of Incorporation or Bylaws. Subject to Virginia law,
the Insmed, Inc. Articles of Incorporation generally may be amended by the
affirmative vote of the holders of a majority of the outstanding votes entitled
to be cast by each voting group entitled to vote. However, certain provisions of
the Articles of Incorporation may only be amended or repealed by the affirmative
vote of
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the holders of 75 percent of the outstanding votes entitled to be cast by each
voting group entitled to vote. The Insmed, Inc. Amended and Restated Bylaws may
be amended by the affirmative vote of a majority of the board of directors,
unless otherwise required by the Articles of Incorporation or Virginia law. If
shareholder voting is required for an amendment to the Bylaws, 75 percent of the
then outstanding stock voting together as a single voting group must vote in the
affirmative to approve the amendment.
Certain Business Combinations. Certain provisions of Virginia law will make
takeover of Insmed, Inc. more difficult. See "Comparison of Stockholders'
Rights--Anti-takeover Statutes" on page ___.
Transfer Agent and Registrar
The transfer agent and registrar for the Insmed, Inc. common stock is First
Union National Bank.
COMPARISON OF STOCKHOLDERS' RIGHTS
Insmed, Inc. and Insmed Pharmaceuticals are incorporated under the laws of
the Commonwealth of Virginia. Celtrix is incorporated under the laws of the
State of Delaware. Insmed Pharmaceuticals shareholders, whose rights are
currently governed by Virginia law and the Insmed Pharmaceuticals Articles of
Incorporation and Bylaws, will, upon consummation of the share exchange, become
shareholders of Insmed, Inc., and their rights as such will be governed by
Virginia law and Insmed, Inc.'s Articles of Incorporation and Bylaws. Celtrix
stockholders, whose rights are currently governed by Delaware law and the
Celtrix Certificate of Incorporation and Bylaws, will, upon consummation of the
share exchange, become shareholders of Insmed, Inc., and their rights as such
will be governed by Virginia law, the Insmed, Inc. Articles of Incorporation and
Amended and Restated Bylaws.
Set forth below are the material differences between the rights of Celtrix
stockholders under Celtrix's Certificate of Incorporation, Bylaws and Delaware
law, and Insmed Pharmaceuticals shareholders and Insmed, Inc. shareholders under
their respective Articles of Incorporation, Bylaws and under Virginia law. The
description set forth below summarizes the material differences that may affect
the rights of stockholders of Celtrix and Insmed Pharmaceuticals but does not
purport to be a complete statement of all such differences. Celtrix
stockholders and Insmed Pharmaceuticals shareholders should read the relevant
provisions of the laws and documents discussed below, including the Insmed, Inc.
Articles of Incorporation and Amended and Restated Bylaws which are attached to
this joint proxy statement/prospectus as Exhibit G and Exhibit H in their
--------- ---------
entirety.
Authorized Capital
Insmed, Inc. Insmed, Inc. authorized capital is described under
"Description of Insmed, Inc. Capital Stock" on page ___.
Celtrix. The total number of authorized shares of capital stock of Celtrix
is 70,000,000 shares, consisting of 60,000,000 shares of common stock and
10,000,000 shares of preferred stock, 10,000 shares of which have been
designated as Celtrix Series A Preferred Stock and 9,000 shares of which have
been designated as Celtrix Series B Preferred Stock.
Insmed Pharmaceuticals. The total number of authorized shares of capital
stock of Insmed Pharmaceuticals is 37,000,000 shares, consisting of 20,000,000
shares of common stock and 17,000,000 shares of preferred stock, 7,000,000
shares of which have been designated as Insmed Pharmaceuticals
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Convertible Participating Preferred Stock, Series A and 5,000,000 shares of
which have been designated as Insmed Pharmaceuticals Convertible Preferred
Stock, Series B.
Special Meetings of Stockholders
Celtrix. Under Delaware law, unless provided in the Certificate of
Incorporation or Bylaws of a corporation, stockholders of a public corporation
do not have the right to call a special meeting of stockholders. The Celtrix
Bylaws provide that a special meeting of Celtrix stockholders may be called for
any purpose by the board of directors, the Chairman of the Board, the President
or by a stockholder holding ten percent of more of the aggregate number of
shares entitled to vote at the special meeting.
Insmed Pharmaceuticals. Under Virginia law, unless provided in the Articles
of Incorporation or Bylaws of the corporation, the shareholders of a corporation
do not have a right to call a special meeting of shareholders. The Insmed
Pharmaceuticals Bylaws provide that a special meeting of the shareholders may be
called for any purpose at any time by the President or by a majority of the
board of directors.
Insmed, Inc. Under Virginia law, unless provided in the articles of
incorporation or Bylaws of a corporation, shareholders of a public corporation
do not have the right to call a special meeting of shareholders. The Insmed,
Inc. Amended and Restated Bylaws provide that a special meeting of Insmed, Inc.
shareholders may be called for any purpose by the President, the Chairman of the
Board or by a majority of the board of directors.
Stockholder Meetings
Celtrix. On any issue to be determined at any meeting of stockholders, each
Celtrix common stockholder is entitled to one vote for each share of common
stock owned by the stockholder, and each holder of preferred stock is entitled
to the number of votes equal to the number of shares of common stock that the
holder would have received if the holder had converted the preferred stock into
common stock immediately prior to the vote. Holders of Celtrix preferred stock
are not entitled to vote; except that holders of Celtrix Series A Preferred
Stock are entitled to vote as a separate voting group upon any amendment to the
Certificate of Incorporation that would create any series of stock that would be
senior to the Celtrix Series A Preferred Stock or would change the rights of the
holders of the Celtrix Series A Preferred Stock. In all elections of directors,
directors are elected by an affirmative vote of the holders of the plurality of
the shares present or represented by proxy and entitled to vote in the election
of directors, unless there is cumulative voting. Cumulative voting is permitted
under the Celtrix Certificate of Incorporation with respect to the election of
directors. Cumulative voting means that each share is entitled to a number of
votes equal to the number of directors to be elected. Such votes may be cast for
one nominee or distributed among two or more nominees. Thus each nominee for
election to the board of directors receiving the greatest number of votes, up to
the number of directors then to be elected, will be the persons elected as
directors of Celtrix. Except as specifically provided in the Celtrix Certificate
of Incorporation, Bylaws or Delaware law, the vote of a majority of common
shares represented at a meeting and entitled to vote at a meeting at which a
quorum exists is generally required to approve other actions requiring
stockholder approval.
Insmed Pharmaceuticals. On any issue to be determined at any meeting of
shareholders, each Insmed Pharmaceuticals common shareholder is entitled to one
vote for each share of common stock owned by such shareholder, and each holder
of preferred stock is entitled to the number of votes equal to the number of
shares of common stock that the holder would have received if the holder had
converted
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the preferred stock into common stock immediately prior to the vote. Holders of
Insmed Pharmaceuticals preferred stock vote together with the holders of common
stock, including in the election of directors; except that the holders of the
preferred stock vote together as a single voting group on certain matters,
including, but not limited to, the redemption, creation or change in the rights
of any series of preferred stock not junior to the Insmed Pharmaceuticals Series
A Preferred Stock and Insmed Pharmaceuticals Series B Preferred Stock.
Cumulative voting is not permitted under the Insmed Pharmaceuticals Articles of
Incorporation. In all elections of directors, directors are elected by an
affirmative vote of the holders of the plurality of the shares entitled to vote
in the election of directors at a meeting at which a quorum exists. Except as
specifically provided in the Insmed Pharmaceuticals Articles of Incorporation,
Bylaws or Virginia law, the vote of a majority of shares represented at a
meeting and entitled to vote at a meeting at which a quorum exists is generally
required to approve other actions requiring shareholder approval.
Insmed, Inc. Insmed, Inc. common shareholders are entitled to one vote per
share on all matters to be voted on by shareholders. Cumulative voting is not
permitted under the Insmed, Inc. Articles of Incorporation. Except as
specifically provided in the Insmed, Inc. Articles of Incorporation or Virginia
law, the vote of a majority of shares represented at a meeting and entitled to
vote at a meeting at which a quorum exists is generally required to approve
other actions requiring shareholder approval. In all elections of directors,
directors are elected by an affirmative vote of the holders of the plurality of
the shares entitled to vote in the election of directors at a meeting at which a
quorum exists.
Advance Notice of Nominations of Directors
Celtrix. Celtrix stockholders can nominate candidates for the Celtrix board
of directors if the stockholders follow the advance notice provisions contained
in the Celtrix Bylaws. The Celtrix Bylaws require a stockholder nomination be in
writing and delivered to or mailed and received by the Secretary of the
corporation not less than 60 nor more than 90 days prior to the meeting of
stockholders; provided, however, that if the meeting is called upon less than 60
days' notice, the stockholder nomination must be received by the Secretary of
the corporation not less than 10 days after the notice of the meeting was mailed
or public disclosure of the meeting was made. The stockholder nomination must
provide the specific information about the candidate and the stockholder set
forth in the Bylaws. If a stockholder nomination of a candidate for director
does not comply with the provisions set forth in the Bylaws, the chairman of the
meeting shall declare that the nomination was not made in accordance with the
Celtrix Bylaws and is null, void and of no effect.
Insmed Pharmaceuticals. The Insmed Pharmaceuticals Bylaws do not have
special procedures for shareholders' submissions of nominations of candidates
for the board of directors.
Insmed, Inc. Insmed, Inc. shareholders can nominate candidates at an annual
meeting for the Insmed, Inc. board of directors if the shareholder follows the
advance notice provisions contained in the Insmed, Inc. Amended and Restated
Bylaws. The Insmed, Inc. Amended and Restated Bylaws require a shareholder
nomination be in writing and delivered to the Secretary of Insmed, Inc. not
later than 90 days nor more than 120 days before the anniversary of the date of
the first mailing of Insmed, Inc.'s proxy statement for the immediately
preceding year's annual meeting. The shareholder nomination must provide the
specific information about the candidate and the shareholder set forth in the
Bylaws. If a shareholder nomination of a candidate for director does not comply
with the provisions set forth in the Bylaws, the chairman of the board of
directors shall have the power and duty to declare that the nomination was not
made in accordance with the Insmed, Inc. Amended and Restated Bylaws and that
such defective proposal shall be disregarded.
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Merger, Share Exchanges and Sales of Assets
Celtrix. Delaware law generally requires that any merger, share exchange or
sale of all or substantially all the assets of a corporation not in the ordinary
course of business be approved by the affirmative vote of the majority of the
issued and outstanding shares of each voting group entitled to vote, unless a
different vote is required by the Certificate of Incorporation or Bylaws. The
Certificate of Incorporation of Celtrix does not specifically address mergers,
share exchanges or sales of assets; therefore, an affirmative vote of the
majority of the issued and outstanding shares of common stock, which is the only
class of voting stock, is required to approve the merger.
Insmed Pharmaceuticals and Insmed, Inc. Virginia law generally requires
that any merger or share exchange be approved by an affirmative vote of more
than two-thirds of all the issued and outstanding shares of stock of each voting
group entitled to vote, unless a different vote is required by the Articles of
Incorporation; provided, however, that shareholder action by the acquiring
corporation in a share exchange is normally not required. The Articles of
Incorporation of Insmed, Inc. do not specifically address mergers and share
exchanges; therefore, a vote of the Insmed, Inc. sole shareholder is not
required. The Insmed Pharmaceuticals Articles of Incorporation provide for
separate class voting in the event of a merger or consolidation. Accordingly, an
affirmative vote of more than two-thirds of the outstanding Insmed
Pharmaceuticals' capital stock and of a majority of the outstanding shares of
Insmed Pharmaceuticals' Series A Preferred Stock and Insmed Pharmaceuticals'
Series B Preferred Stock, voting together as a single voting group, is required
to approve the share exchange with Insmed, Inc.
Anti-takeover Statutes
Celtrix. Delaware law contains certain provisions that may have the effect
of delaying or discouraging a hostile takeover. Delaware law prohibits a
Delaware corporation from entering into a business combination with the
beneficial owner of 15% or more of the corporation's outstanding voting stock,
or its affiliates, for a period of three years after the 15% beneficial owner
achieved this level of ownership. Delaware law permits a business combination
with a 15% beneficial owner if: (i) prior to the date the stockholder becomes a
15% beneficial owner, the board of directors of the corporation approves either
the business combination or the transaction that will result in the person or
entity becoming a 15% beneficial owner, (ii) the interested stockholder acquires
at least 85% of the corporation's outstanding voting stock (excluding shares
owned by persons who are directors, officers and by certain employee stock
plans) in the same transaction in which the stockholder becomes a 15% beneficial
owner or (iii) on or subsequent to the date of the transaction by which the
stockholder becomes a 15% beneficial owner, the board of directors approves the
business combination and the holders of two-thirds of the corporation's
outstanding voting stock approve the transaction (not including shares owned by
the 15% beneficial owners). In general, a Delaware corporation must specifically
elect, through an amendment to its Bylaws or Certificate of Incorporation, not
to be governed by these provisions. Celtrix has not made such an election and,
therefore, is currently subject to these provisions of the Delaware law.
Insmed Pharmaceuticals and Insmed, Inc. Virginia law contains two
statutory provisions that may have the effect of delaying or discouraging a
hostile takeover. Under the first statutory provision, if a person acquires 10%
or more of the stock of a Virginia corporation without the prior approval of the
corporation's board of directors, the person is deemed an "interested
shareholder" and may not engage in certain transactions with the corporation
(including a merger and a sale or exchange of greater than 5% of the
corporation's net worth) for a period of three years, and then only with the
specified supermajority
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shareholder vote, disinterested director approval or fair price and procedural
protections. The three year prohibition on an affiliated transaction does not
apply if prior to the affiliated transaction, a majority of the disinterested
directors and holders of at least two-thirds of the outstanding voting shares
other than shares beneficially owned by the interested person approve the
transaction. Virginia law permits a corporation to exempt itself from this
statutory provision by placing a statement to that effect in its Articles of
Incorporation. Furthermore, this statutory provision regarding affiliated
transactions does not apply to corporations with fewer than 300 shareholders.
Neither the Insmed Pharmaceuticals Articles of Incorporation nor the Insmed,
Inc. Articles of Incorporation specifically address the Virginia statute
regarding affiliated transactions; therefore, both corporations are subject to
this provision.
Under the second statutory provision, Virginia law requires an interested
person who acquires a threshold percentage of stock in the target corporation to
obtain the approval of disinterested shareholders before the interested person
may exercise its voting rights with respect to the acquired shares. Under the
Virginia statute, certain notice and informational filings and special
shareholder voting and meeting procedures must be followed prior to consummation
of the purchase of stock that will provide the interested shareholder with the
power to vote in excess of 20%, 33% or 50% of the outstanding voting stock of
the company. Assuming compliance with notice and information filing
requirements, the purchased stock will not provide the interested purchaser with
any voting rights with respect to the stock until a majority of the outstanding
disinterested shares vote to restore the voting rights to the purchased stock.
The Insmed Pharmaceuticals Articles of Incorporation do not specifically address
the Virginia statute regarding control share acquisitions; therefore, Insmed
Pharmaceuticals is subject to this provision. The Insmed, Inc. Articles of
Incorporation, however, provide that this second statutory provision does not
apply to Insmed, Inc.; therefore, Insmed, Inc. is not subject to this provision.
Amendments to Charter
Celtrix. Delaware law provides generally, unless otherwise provided in the
Certificate of Incorporation, that a Delaware corporation's Certificate of
Incorporation may be amended by the board of directors and by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote on
the matter. The Celtrix Certificate of Incorporation does not specifically
address amendments to the Certificate of Incorporation; therefore, the Celtrix
Certificate of Incorporation may be amended as provided under Delaware law.
Insmed Pharmaceuticals. Virginia law provides generally that, unless
otherwise specified in a corporation's Articles of Incorporation, a Virginia
corporation's Articles of Incorporation may be amended by the board of directors
for certain minor alterations and otherwise upon recommendation of the board of
directors and by the affirmative vote of the holders of more than two-thirds of
the outstanding shares of each voting group entitled to vote on the matter.
Generally under the Insmed Pharmaceutical Articles of Incorporation, an
affirmative vote of more than two-thirds of the issued and outstanding shares of
the Insmed Pharmaceuticals Convertible Participating Preferred Stock, Series A,
the Insmed Pharmaceuticals Convertible Preferred Stock, Series B and the Insmed
Pharmaceuticals common stock entitled to vote, voting together as a single
voting group, is required to amend the Articles of Incorporation. The Insmed
Pharmaceuticals Articles of Incorporation also provides that amendments specific
to the rights, preferences and interests of the preferred stock must also be
approved by at least a majority of the Insmed Pharmaceuticals' Series A
Preferred Stock and Insmed Pharmaceuticals' Series B Preferred Stock voting
together as a single voting group.
Insmed, Inc. Virginia law provides generally that, unless otherwise
specified in a corporation's Articles of Incorporation, a Virginia corporation's
Articles of Incorporation may be amended by the
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board of directors and by the affirmative vote of the holders of more than two-
thirds of the outstanding shares of each voting group entitled to vote on the
matter. The Articles of Incorporation of Insmed, Inc. provide that a majority of
the issued and outstanding shares of each voting group entitled to vote is
required to amend the Articles of Incorporation.
Amendments to Bylaws
Celtrix. Delaware law provides that the board of directors of a corporation
may amend the Bylaws of the corporation if such authority is granted in the
Certificate of Incorporation. The Celtrix Certificate of Incorporation does not
grant the power to amend the Bylaws to the board of directors.
Insmed Pharmaceuticals. The Insmed Pharmaceuticals Bylaws provide generally
that the Insmed Pharmaceuticals Bylaws may be amended by the Insmed
Pharmaceuticals board of directors; provided, however, that any provision of the
Insmed Pharmaceuticals Bylaws adopted or required to be adopted pursuant to
Virginia law, by the shareholders of Insmed Pharmaceuticals, may only be amended
by the affirmative vote of the majority of the holders of the outstanding
capital stock of Insmed Pharmaceuticals entitled to vote thereon.
Insmed, Inc. The Insmed, Inc. Articles of Incorporation and Amended and
Restated Bylaws provide generally that the Insmed, Inc. Bylaws may be amended by
the Insmed, Inc. board; provided, however, that any provision of the Insmed,
Inc. Bylaws adopted or required to be adopted pursuant to Virginia law by the
shareholders of Insmed, Inc., may only be amended by the affirmative vote of at
least 75 percent of the holders of the outstanding capital stock of Insmed, Inc.
entitled to vote thereon, voting as a single voting group.
Appraisal Rights
Celtrix. Celtrix is a Delaware corporation. Under Delaware law, certain
stockholders have a right to dissent from a merger or reorganization and receive
payment in cash for their shares of common stock. However, dissenters' rights
(sometimes referred to as "appraisal rights") are not available to stockholders
of a corporation whose securities are listed on a national securities exchange
or held by at least 2,000 record stockholders and whose stockholders are not
required to accept in exchange for their stock anything other than stock of
another corporation listed on a national securities exchange and cash in lieu of
fractional shares. Because Celtrix common stock is not traded on a national
securities exchange or on the Nasdaq National Market and is not held by more
than 2,000 record stockholders, Celtrix stockholders will have appraisal rights
with respect to the reorganizations. To exercise their appraisal rights, Celtrix
stockholders must follow specific procedural requirements set forth under
Delaware law. See "Dissenters' Rights" on page ___.
Insmed Pharmaceuticals. Insmed Pharmaceuticals is a Virginia corporation.
Under Virginia law, shareholders have a right to dissent from, and receive
payment of the fair value of their shares in case of a merger, share exchange or
similar corporate event if the shareholders are entitled to vote with respect to
the corporate action. Dissenters' rights are not available, however, to
shareholders of a corporation whose securities are listed on a national
securities exchange or on the Nasdaq National Market or are held by at least
2,000 record shareholders, unless the shareholders are required to accept in
exchange for their stock something other than cash or stock of the surviving
corporation or any other corporations that are either listed on a national
securities exchange or held by at least 2,000 record shareholders. Because
Insmed Pharmaceuticals stock is not traded on a national securities exchange or
on the Nasdaq National Market and is not held by at least 2,000 record
shareholders, Insmed
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Pharmaceuticals shareholders will have appraisal rights with respect to the
share exchange. To exercise their appraisal rights, Insmed Pharmaceuticals
shareholders must follow the specific procedural requirements set forth under
Virginia Law. See "Dissenters' Rights" on page ___.
Transfer Restrictions
Insmed, Inc., Celtrix and Insmed Pharmaceuticals. Each of the Insmed, Inc.
Articles of Incorporation, the Celtrix Certificate of Incorporation and the
Insmed Pharmaceuticals Articles of Incorporation does not establish transfer
restrictions on the original issuance or transfer of shares of Insmed, Inc.
common stock, Celtrix common stock or Insmed Pharmaceuticals common stock, as
the case may be.
With respect to the Insmed Pharmaceuticals common stock, however, there is
no public trading market. The shares of Insmed Pharmaceuticals common stock are
not registered under the Securities Act of 1933 or under other applicable
federal and state securities laws. Insmed Pharmaceuticals common stock may not
be transferred in the absence of an effective registration statement under the
Securities Act and any applicable state securities laws or an opinion of
counsel, acceptable to Insmed Pharmaceuticals, that the transfer of Insmed
Pharmaceuticals common stock is exempt from state and federal registration
requirements.
All shares of Insmed, Inc. common stock that will be distributed to
stockholders of Celtrix and Insmed Pharmaceuticals in the reorganizations will
be freely transferable, except for certain restrictions applicable to
"affiliates" of Celtrix and Insmed Pharmaceuticals. Shares of Insmed, Inc.
common stock received by persons who are deemed to be affiliates of Celtrix or
Insmed Pharmaceuticals may be resold by them only in transactions permitted by
the resale provisions of Rule 145 or as otherwise permitted under the Securities
Act of 1933. Persons who may be deemed affiliates of Celtrix or Insmed
Pharmaceuticals generally include certain officers, directors and significant
stockholders of Celtrix and Insmed Pharmaceuticals. The reorganization agreement
requires Celtrix and Insmed Pharmaceuticals to cause each of their affiliates to
execute a written agreement to the effect that such persons will not sell or
dispose of any of the shares of Insmed, Inc. common stock issued to them in the
reorganizations unless the sale or disposition of such shares has been
registered under the Securities Act of 1933, is in conformity with Rule 145 or
is otherwise exempt from the registration requirements under the Securities Act
of 1933.
Stockholder Action by Written Consent
Celtrix. The Bylaws of Celtrix permit the stockholders to take any action
required to be taken or that may be taken at any annual or special meeting of
stockholders to be taken by written consent without a meeting. The written
consent must be signed by the stockholders owning not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Insmed Pharmaceuticals. The Bylaws of Insmed Pharmaceuticals permit the
shareholders to take any action required to be taken or that may be taken at any
annual or special meeting of shareholders to be taken by written consent without
a meeting. The written consent must be signed by all of the shareholders
entitled to vote on the action.
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Insmed, Inc. Pursuant to Virginia law, any action required to be taken or
that may be taken at any annual or special meeting of Insmed, Inc., may be taken
by written consent without a meeting. The written consent must be signed by all
of the shareholders entitled to vote on the action.
Board of Directors
Celtrix. The Celtrix board of directors currently consists of five
directors. The Celtrix Bylaws provide that there shall be five directors on the
board of the company. Celtrix directors stand for reelection at each annual
meeting. Under Delaware law, directors are elected by a plurality of the shares
present in person or represented by proxy at a meeting, at which a quorum is
present, and entitled to vote on the election of directors, unless there is
cumulative voting. The Certificate of Incorporation and Bylaws of Celtrix
provide for cumulative voting in the election of directors. Cumulative voting
allows each stockholder to multiply the number of votes that the stockholder is
entitled to cast by the number of directors for whom the stockholder is to vote
and cast all of the votes for a single nominee or distribute the votes amongst
the nominees. Under Celtrix's Bylaws, any vacancy, whether the result of death,
resignation, retirement, disqualification, removal from office for cause or an
increase in the number of directors, shall be filled by a majority of the board
of directors then in office, though less than a quorum, or by a sole remaining
director. The term of any director elected to fill a vacancy shall be the same
remaining term as that of his or her predecessor. The stockholders of Celtrix
may remove a director, with or without cause, upon the affirmative vote of the
majority of the shares entitled to vote at an election of directors; provided,
however, that if less than the entire board is removed, no director may be
removed without cause if the votes cast against such director's removal would be
sufficient to elect such director if then cumulatively voted at an election of
the entire board of directors.
Insmed Pharmaceuticals. The Insmed Pharmaceuticals board currently consists
of seven directors. The Articles of Incorporation and Bylaws provide that the
board of directors may increase or decrease the number of directors by a number
that is 30% or less of the number of directors last elected by shareholders.
Insmed Pharmaceuticals directors stand for reelection at each annual meeting.
Directors are elected by a plurality of the votes cast by the holders of shares
entitled to vote in the election of directors at a meeting of shareholders at
which a quorum is present. Under both Virginia law and Insmed Pharmaceuticals'
Bylaws, vacancies, whether by resignation, death or removal or because of an
increase in the size of the board, may be filled by the remaining members of the
board of directors although less than a quorum. A director elected to fill a
vacancy will serve until the next shareholders' meeting at which directors are
elected. Insmed Pharmaceuticals' Bylaws provide that directors may be removed
with or without cause by the vote of a majority of the shares of the voting
groups that elected such director entitled to vote at an election of directors.
Insmed, Inc. Under the Insmed, Inc. Articles of Incorporation and Amended
and Restated Bylaws, the board will consist of seven directors. Insmed, Inc.
directors stand for reelection at each annual meeting. Directors are elected by
a plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is present.
Under Virginia law, vacancies, whether by resignation, death or removal or
because of an increase in the size of the board, may be filled by the remaining
members of the board of directors although less than a quorum. A director
elected to fill a vacancy will serve until the next shareholders' meeting at
which directors are elected. Virginia law provides that directors may be removed
with or without cause by the vote of a majority of the shares of the voting
groups that elected such director entitled to vote at an election of directors.
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Limitation of Director Liability
Insmed, Inc. and Insmed Pharmaceuticals. The Articles of Incorporation of
Insmed, Inc. and Insmed Pharmaceuticals contain provisions that limit the
liability of the directors and officers of Insmed, Inc. and Insmed
Pharmaceuticals as permitted under Virginia law. The provisions eliminate the
liability of the Insmed, Inc. directors and officers to Insmed, Inc. or its
shareholders and eliminate the liability of the Insmed Pharmaceuticals directors
and officers to Insmed Pharmaceuticals and its shareholders for monetary damages
for negligent or grossly negligent acts or omissions in their capacity as
directors or officers, as the case may be. The provisions in the Articles of
Incorporation of Insmed, Inc. and Insmed Pharmaceuticals do not, however,
eliminate or limit the liability of a director or officer resulting from such
person's willful misconduct or knowing violation of the criminal law or any
federal or state securities law.
Pursuant to the Articles of Incorporation of Insmed, Inc. and Insmed
Pharmaceuticals, the limitation of liability of directors and officers will not
be affected by any amendment or repeal of the applicable provisions in the
Articles of Incorporation of Insmed, Inc. or Insmed Pharmaceuticals, as the case
may be.
Celtrix. The Certificate of Incorporation of Celtrix contains a provision
that limits the liability of Celtrix's directors for breaches of fiduciary duty
as permitted under Delaware law. The provision eliminates the liability of a
director to Celtrix or its stockholders for monetary damages to the fullest
extent permitted by Delaware law.
Pursuant to the Certificate of Incorporation, the directors' exculpation
from liability will not be limited or eliminated by any amendment of the
Certificate of Incorporation.
Indemnification of Directors, Officers and Employees
Celtrix. Delaware law permits corporations to indemnify their directors,
officers and employees for liabilities incurred by them because of service as
directors, officers or employees of their corporations or of other corporations
and entities at the request of their corporations. Celtrix has entered into
separate indemnification agreements with each of its directors and executive
officers that may require Celtrix, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors or officers, to advance their expenses as incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' liability insurance if available on reasonable terms.
Under Delaware law, indemnification is permitted if the indemnitee acted in good
faith and in a manner the person reasonably believed to be in the corporation's
best interest, and in a criminal proceeding, had no reasonable cause to believe
that the conduct was unlawful. The Certificate of Incorporation and Bylaws of
Celtrix provide that the directors, officers and employees of Celtrix shall be
indemnified to the fullest extent permitted or required by Delaware law.
Delaware law does not permit indemnification in the following circumstances:
. for breach of a director's duty of loyalty to a corporation or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
. for unlawful distributions; and
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. in respect of any transaction from which a director received an
improper personal benefit.
Insmed, Inc. and Insmed Pharmaceuticals. Virginia law permits a
corporation to provide indemnification of reasonable expenses for officers,
directors, employees or agents of the corporation (or any such person serving in
such capacities for another entity at the request of the corporation) who are
parties or are threatened to be made parties to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses, judgments, fines and amounts paid in settlement that are
actually and reasonably incurred. Indemnification is permitted in all
instances, except indemnity against willful misconduct or knowing violation of
the criminal law. Each of the Insmed, Inc. and Insmed Pharmaceuticals Articles
of Incorporation provides for the indemnification of liabilities of each person
incurred by reason of serving as a director, officer, employee or agent or by
reason of serving as a director, officer, trustee, or in some similar capacity,
of another corporation in all instances, except, in the case of Insmed
Pharmaceuticals, in a criminal proceeding unless the indemnitee had no
reasonable cause to believe that the conduct was unlawful and in the case of
Insmed, Inc., where the indemnitee engaged in willful misconduct or a knowing
violation of the criminal law. Virginia law does not permit indemnification in
the following circumstances:
. in respect of a proceeding by and in the right of the corporation, in
which the director is determined to be liable to the corporation; and
. in respect of any transaction from which a director received an
improper personal benefit.
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MANAGEMENT AND OPERATION OF INSMED, INC. AFTER THE REORGANIZATIONS
Insmed, Inc. Board of Directors
It is expected that the Insmed, Inc. board, at the effective time of the
reorganizations, will consist of the seven individuals listed below. The
Insmed, Inc. board will be divided into three classes, with the initial term of
office of the first, second and third classes expiring at the first, second and
third annual meetings of the shareholders of Insmed, Inc., respectively. The
three classes of directors will be as nearly equal in number as possible.
<TABLE>
<CAPTION>
Name Age Class Position
---- --- ----- --------
<S> <C> <C> <C>
Geoffrey Allan, Ph.D............ 46 President, Chief Executive Officer, and
Chairman, board of directors
Kenneth G. Condon............... 52 Member, board of directors
Gustav A. Christensen........... 52 Member, board of directors
Graham K. Crooke, MB.BS......... 41 Member, board of directors
Dennis J. Dougherty............. 51 Member, board of directors
Steinar J. Engelsen, M.D........ 49 Member, board of directors
Edgar G. Engleman, M.D.......... 54 Member, board of directors
</TABLE>
Geoffrey Allan, Ph.D., will be President, Chief Executive Officer and
Chairman of the board of directors of Insmed, Inc. Dr. Allan has been
President, Chief Executive Officer and director of Insmed Pharmaceuticals since
1994. Dr. Allan joined Insmed Pharmaceuticals in January 1994 and has 20 years
of experience in pharmaceutical drug development, most recently as Vice
President, Drug Development at Whitby Research, Inc. Dr. Allan has extensive
experience in pre-clinical and clinical drug development and the new drug
approval process. While at Whitby Research, Dr. Allan was responsible for
building a drug development division in the areas of Clinical Research,
Regulatory Affairs and Pharmaceutical Sciences. Before his association with
Whitby Research, Dr. Allan was the Head of the Cardiovascular Section at
Wellcome Research Laboratories, where he was responsible for building a
Cardiovascular Research Department. Dr. Allan holds several patents and has
over seventy publications in the area of cardiovascular research and therapeutic
drug development. Dr. Allan received his Ph.D. in Pharmacology from Cornell
University Medical College.
Kenneth G. Condon, will be a director of Insmed, Inc. Mr. Condon has been
a director of Insmed Pharmaceuticals since 1997. Mr. Condon serves as the Vice
President for Financial Affairs and Treasurer at Boston University, a position
he has held from 1986 to present. He is also a Trustee and the Chairman of
Audit/Finance Committee of Newbury College and Chairman of the Educational and
Cultural Division of the United Way Mass Bay. He was formerly Chairman of the
Board of BayFunds, a $1.8 billion mutual fund family, a former director of
BayBank Harvard Trust, a former member of the BankBoston Advisory Board, a
former director of the BayBank Trust Board, a former director of Seragen, Inc.,
a biotechnology firm, and former director, Chapter Secretary, Treasurer and
President of the Financial Executives Institute of Massachusetts. Before 1975,
Mr. Condon was a Senior Accountant with the CPA firm of Arthur Anderson & Co. in
Boston. He received his B.A. degree in Economics and Mathematics from Tufts
University, and an MBA in Finance from the Wharton School of Finance, University
of Pennsylvania. Mr. Condon is both a Certified Public Accountant and a
Certified Financial Planner.
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Gustav A. Christensen, will be a director of Insmed, Inc. Mr. Christensen
has been a director of Insmed Pharmaceuticals since 1996. Mr. Christensen is
Chairman of Primedica, Corporation, an international preclinical contract
research organization and subsidiary of Genzyme Transgenic Corp. From 1992 to
1999, Mr. Christensen served as Chairman of Alpha-Beta Technology, Inc., a
biotechnology company. On January 28, 1999, Alpha-Beta Technology, Inc.
announced that it would be pursuing an out-of-court liquidation conducted by a
common law Assignment for the Benefit of Creditors. Before 1990, Mr.
Christensen served as President and Chief Executive Officer of ImmuLogic
Pharmaceutical Corporation, as Vice President Business Development and Senior
Vice President Commercial Affairs at Genetics Institute, and as Vice President
of Operations at Baxter Travenol Laboratories. Mr. Christensen is a founder and
director of Phytera, Inc., a private biotechnology research company, and serves
on the Advisory Board of BioVentures Investors, L.P. Mr. Christensen formerly
served on the board of Diatide, Inc., a biotechnology company which was recently
acquired by Schering A.G. He received a Cand. Oecon. Degree in Economics from
the University of Aarhus (Denmark) and a Master's degree in Business
Administration from Harvard University.
Graham K. Crooke, MB.BS, will be a director of Insmed, Inc. Dr. Crooke has
been a director of Insmed Pharmaceuticals since 1996. Since September 1997, Dr.
Crooke has been a principal of Ticonderoga Capital, Inc., formerly Dillon Read
Venture Capital, a venture capital firm. From April 1992 to September 1997, Dr.
Crooke held various positions with Dillon Read Venture Capital, most recently as
Vice President. Dr. Crooke serves on the board of directors of Centaur
Pharmaceuticals, Inc., a biopharmaceutical company. Dr. Crooke is also a
director of several privately held companies. Dr. Crooke earned his medical
degree from the University of Western Australia and an M.B.A. from the Stanford
Graduate School of Business.
Dennis J. Dougherty, will be a director of Insmed, Inc. Mr. Dougherty has
been a director of Insmed Pharmaceuticals since 1996. Mr. Dougherty is a
general partner of Intersouth Partners, a venture capital investment firm which
he founded in 1985. Mr. Dougherty manages the life science portfolio for
Intersouth. Mr. Dougherty was formerly Office Partner-in-Charge with Touche Ross
(Deloitte & Touche) and director of Small Business Services for Raleigh/Durham.
Before entering the field of accounting and finance, Mr. Dougherty was in
marketing with UNOCAL, in Chicago, for industrial products and chemicals. Mr.
Dougherty currently serves on the boards of directors of Biolex, Inc., a private
protein manufacturing company, Cogent Neuroscience, Inc., a private neurological
target and drug discovery company, Encelle Inc., an emerging biotechnology
company, Paradigm Genetics, Inc., a private agricultural biotechnology company,
Xanthon, Inc., a private geonomics technology company, Concept Fabrics, Inc., a
private fabric manufacturing company and Structure House, Inc. He has
previously served on the boards of five public companies and a number of private
companies. Mr. Dougherty received his B.S. in Marketing from Oklahoma City
University in 1970.
Steinar J. Engelsen, M.Sc., M.D., will be a director of Insmed, Inc. Dr.
Engelsen has been a director of Insmed Pharmaceuticals since 1998. Since
November 1996, Dr. Engelsen has been a partner of Teknoinvest Management AS, a
venture capital firm based in Norway. From 1989 until September 1996, Dr.
Engelsen held various management positions within Hafslund Nycomed AS, a
pharmaceutical company based in Europe, and affiliated companies. He was
responsible for therapeutic research and development, most recently serving as
Senior Vice President, Research and Development of Nycomed Pharma AS from
January 1994 until September 1996. Effective January 1, 2000, Dr. Engelsen was
appointed acting chief executive officer of Centaur Pharmaceuticals, Inc., a
biopharmaceutical company. Dr. Engelsen also serves as chairman of the board of
directors of Centaur. Dr. Engelsen is also a director of several privately-held
companies. Dr. Engelsen received an M.Sc. in nuclear chemistry and an M.D. from
the University of Oslo, and is a Certified European Financial Analyst.
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Edgar G. Engleman, M.D., will be a director of Insmed, Inc. Dr. Engleman
has been a director of Insmed Pharmaceuticals since 1999. Dr. Engleman joined
BioAsia Investments in 1997 and is currently a General Partner of BioAsia
Investments, L.L.C., a venture investment company investing in life sciences and
healthcare information companies. Dr. Engleman has been a Professor of Medicine
and Pathology of the Stanford University School of Medicine since 1990. He is a
co-founder of Cetus Immune, Inc., Genelabs Technologies, Inc., National Medical
Audit, Dendreon Corporation, and CellGate Technologies, LLC. Dr. Engleman
serves on the board of directors of InterMune Pharmaceuticals, Inc., a public
biopharmaceutical company, Pepgen Corporation, a private biopharmaceutical
company and Med-e-Commerce, a private medical supply company, Advanced Pathology
Systems, Inc., a private biotechnology company, GlycoDesign, Inc., (formerly
Vascular Therapeutics Inc.), a private biopharmaceutical company, Phoenix
Pharmacologies, Inc., a private biopharmaceutical company, and CellGate,
Technologies, LLC, a private wireless IP service provider. He received his B.S.
from Harvard University, and an M.D. from Columbia University School of
Medicine. Dr. Engleman completed post-graduate training at the University of
California, San Francisco and the National Institutes of Health. Dr. Engleman is
trained as an internist and immunologist. A holder of multiple patents, he is
credited as the inventor of the first generation AIDS test for use in screening
blood donors, and the discoverer of the therapeutic agents for systemic lupus,
AIDS, and malignant tumors which are currently in clinical trials.
Board Observer
Pursuant to a letter agreement dated November 30, 1999, Insmed Inc. granted
Elan Corporation, plc power to appoint an observer to attend meetings of the
board of directors in which the activities of the joint venture between Celtrix
and Elan would be discussed. See "Corporate Collaborations" on page __ for more
information on the joint venture. Those observer rights extend until completion
of the clinical trials to be conducted by the joint venture and for a reasonable
period of not more than six months thereafter to analyze the trial data.
Committees
The board of directors of Insmed Inc. will have an executive committee, an
audit committee, a compensation committee and a governance committee.
The executive committee will consist of the Chairman of the Board and at
least two directors free of any material business or professional relationship
with the company or its management, also known as outside directors. The
committee will have all powers of the board of directors except that it will not
be authorized to 1) approve or recommend shareholder action, 2) fill vacancies
on the board of directors or committees, 3) amend the Articles of Incorporation,
4) amend or repeal the Bylaws, 5) approve a plan of merger, 6) approve a
distribution or 7) approve the sale or determine the rights or designations of
stock. The members of the executive committees will be appointed by the board
after the effective date of the reorganizations.
The audit committee will consist of not less than three outside directors.
The committee will primarily 1) recommend the selection of independent
accountants and auditors, 2) review the scope of the accountants' audit and
approval of any non-audit services to be performed by the independent
accountants and 3) review annual audits and accounting practices. The initial
members of the audit committee will be Messrs. Condon (Chair), Christensen and
Dougherty.
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The compensation committee will consist of not less than two outside
directors. This committee will review and make recommendations to the board of
directors regarding the compensation and benefits of all officers of Insmed,
Inc. and will review policy matters relating to compensation and benefits of
employees of Insmed, Inc. The initial members of the compensation committee
will be Messrs. Crooke (Chair), Christensen and Engleman.
The governance committee shall consist of not less than three outside
directors and the Chairman of the Board. The committee will primarily 1) review
the composition of the board of directors to insure that there is a balance of
appropriate skills and characteristics reflected on the board including age,
diversity and experience, 2) develop criteria for director searches and make
recommendations to the board of directors for the addition of any new board
members after proper search and investigation, 3) review in consultation with
the Chairman of the Board, each director's continuation on the board every three
years prior to that director's standing for re-election, 4) monitor procedures
for corporate decision-making, 5) evaluate shareholder proposals, 6) review
public policy issues which affect the image of Insmed, Inc. within its customer
service areas, 7) recommend actions to increase the board's effectiveness and 8)
review annually the format used by the corporation's management to report to the
board of directors. The initial members of the governance committee will be
appointed by the board after the effective date of the reorganizations.
Management
The principal officers of Insmed, Inc. at the effective time of the
reorganizations will be as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Geoffrey Allan, Ph.D............. 46 President, Chief Executive Officer, and Chairman of
the board of directors
Michael D. Baer.................. 55 Chief Financial Officer
</TABLE>
For biographical information on Geoffrey Allan, Ph.D. see page ___.
Michael D. Baer, will be Chief Financial Officer of Insmed, Inc. Mr. Baer
has been Chief Financial Officer of Insmed Pharmaceuticals since May 1999 and in
such capacity oversees all financial activities at Insmed Pharmaceuticals. He
has more than 25 years experience in financial management, most recently as
Controller, Vice President and Chief Financial Officer of InSite Vision
Incorporated, a biopharmaceutical company, from 1995 to 1998. Before that
position, he served as Chief Financial Officer for the U.S. operations of
Simsmetal Limited, a publicly-held Australian recycling company, from 1993 to
1994, as the regional Financial and Administrative Officer for the public
accounting firm, Deloitte & Touche from 1990 to 1993, and as the partner in
charge of the Sacramento office of Deloitte, Haskins & Sells from 1984 to 1990.
He is a Certified Public Accountant and holds an MBA in Finance from the
University of California, Berkeley.
The Insmed, Inc. board may elect other officers after completion of the
reorganizations.
Headquarters
Insmed, Inc.'s corporate offices will be located in Richmond, Virginia.
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INSMED, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are based upon and should be read in conjunction with the historical
consolidated financial statements of Insmed Pharmaceuticals and Celtrix,
including the notes thereto, which are attached beginning on page F-1 in this
joint proxy statement/prospectus. The Unaudited Pro Forma Condensed
Consolidated Statement of Operations does not (a) purport to represent what the
results of operations actually would have been if the acquisition of Celtrix by
Insmed, Inc. and the other transactions described below had occurred as of the
date indicated or what such results will be for any future periods or (b) give
effect to certain nonrecurring charges expected to result from the transaction.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1999 gives effect to the reorganizations and related
transactions as if such transactions had occurred on January 1, 1999. Celtrix's
fiscal year end is March 31, 1999. Therefore, for the purpose of the historical
data included in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1999, the unaudited financial data
from the nine months ended December 31, 1999, was combined with the unaudited
financial data for the three months ended March 31, 1999.
The acquisition of Celtrix will be accounted for using the purchase method
of accounting, so the total purchase costs of the acquisition will be allocated
to the tangible and intangible assets and liabilities acquired based upon their
estimated fair values. The purchase price allocation is preliminary, based on
facts currently known to the companies. Insmed Pharmaceuticals and Celtrix are
not aware of any significant unrecorded obligations or contingencies, and do not
believe that the final purchase price allocation will differ materially from
that included in the pro forma financial information contained herein. The
final allocation of the purchase price will be made based upon valuations and
other studies that have not been completed.
It is expected that Insmed, Inc. will incur certain expenses as a result of
combining the companies; however, the unaudited pro forma earnings per share
data does not reflect any of these anticipated expenses.
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Insmed, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma References Pro
Insmed Celtrix Adjustments (Note 2) Forma
-------------------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 317 $ 1,243 $ 32,600 (G) $ 34,160
Marketable securities 4,318 -- 4,318
Prepaids and other current assets 43 159 202
------------ ------------ --------------- ------------- ---------------
Total current assets 4,678 1,402 32,600 38,680
Property and equipment, net 242 75 317
Assets held for sale -- 349 349
------------ ------------ --------------- ---------------
Other assets 376 2,581 (2,957) (A), (H) --
------------ ------------ --------------- ---------------
Total assets $ 5,296 $ 4,407 $ 29,643 $ 39,346
============ ============ =============== ===============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other liabilities $ 834 $ 693 $ 1,624 (A) $ 3,151
------------ ------------ --------------- ---------------
Total current liabilities 834 693 1,624 3,151
Convertible/Exchangeable preferred stock -- 7,948 (7,948) (B) --
Stockholders' equity (deficiency):
Preferred stocks 97 -- (97) (C) --
Common stocks 39 272 682 (B)-(D), (G) 993
Additional capital 27,181 136,141 (51,650) (A)-(H) 111,672
Cumulative preferred stock dividend -- 281 (281) (B) --
Notes receivable from stock sale (64) -- -- (64)
Accumulated deficit (22,780) (140,928) 140,928 (E)
(53,615) (F) (76,395)
Accumulated other comprehensive loss (11) -- -- (11)
------------ ------------ --------------- ---------------
Total stockholders' equity (deficiency) 4,462 (4,234) 35,967 36,195
------------ ------------ --------------- ---------------
Total liabilities and stockholders' equity $ 5,296 $ 4,407 $ 29,643 $ 39,346
============ ============ =============== ===============
</TABLE>
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Insmed, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
-----------------------
Insmed Celtrix Adjustments Combined
----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Total revenues $ 663 $ 763 $ -- $ 1,426
Costs and expenses:
Research and development 6,349 1,027 7,347
General and administrative 2,445 1,953 4,142
----------- ----------- --------------- -------------
8,794 2,980 11,489
----------- ----------- --------------- -------------
Operating loss (8,131) (2,217) -- (10,063)
Equity in loss from joint venture (8,973) (8,973)
Interest income, net 338 85 423
Proceeds from settlement agreement -- 600 600
----------- ----------- --------------- -------------
Net loss $(7,793) $(10,505) $ -- $(18,013)
=========== =========== =============== =============
Net loss per share -- basic and diluted $ (2.16) $(0.40) $ (0.18)
=========== =========== =============
Shares used in computing basic
and diluted net loss per share 3,606 26,176 99,306
=========== =========== =============
</TABLE>
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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
Note 1
The unaudited pro forma condensed consolidated financial statements reflect the
conversion of all of the outstanding shares of Celtrix and Insmed
Pharmaceuticals common and preferred stock into approximately 79,591,268 shares
of Insmed, Inc. common stock and the sale of 5,632,678 shares of Insmed
Pharmaceuticals common stock which will convert into 19,714,373 shares of
Insmed, Inc. common stock. The sale of these shares is fully described in
"Recent Developments" on page ____. This calculation is based on respective
companies' capitalization at December 31, 1999 using the conversion ratio of 1
share of Insmed, Inc. common stock for each share of Celtrix common stock and
3.5 shares of Insmed, Inc. common stock for each share of Insmed Pharmaceuticals
stock.
In connection with the purchase of Celtrix, Insmed, Inc. expects approximately
$53.6 million of the purchase price to be allocated to in-process research and
development. Insmed Pharmaceuticals management has engaged an independent
third-party appraisal company to perform a valuation of the intangible assets
acquired. The valuation is expected to be completed at closing. It is expected
that Insmed, Inc. will enter into various corporate collaborations and
agreements to manufacture, market, distribute, and develop the in-process
research and development acquired in the purchase of Celtrix. The terms and
conditions of these agreements could differ substantially from the assumptions
made by management. It is also likely that the terms and conditions of existing
corporate collaboration agreements could be amended or terminated, which could
also significantly effect the assumptions associated with the in-process
projects.
The value assigned to purchased in-process research and development was
determined by estimating the costs to develop the purchased in-process research
and development into commercially viable products; estimating the resulting net
cash flows from such projects; and discounting the net cash flows back to their
present value.
The nature of the efforts to develop the purchased in-process research and
development into commercially viable products, principally relates to the
completion and/or acceleration of existing development programs, including the
mandatory completion of several phases of clinical trials and the general and
administrative costs necessary to manage the projects and trials. Assuming the
approval of the drug by the FDA, costs related to the wide scale manufacturing,
distribution, and marketing of the drugs are included in the projection. The
resulting net cash flows from such projects are based on Insmed, Inc.
management's estimates of revenues, cost of sales, research and development
costs, sales and marketing, general and administrative, and the anticipated
income tax effect.
The discounting of net cash flows back to their present value is based on the
weighted average cost of capital (WACC). The WACC calculation produces the
average required rate of return of an investment in an operating enterprise,
based on various required rates of return from investments in various areas of
that enterprise. The discount rates utilized in discounting the net cash flows
from purchased in-process research and development range from 33% to 45%. These
discount rates may be higher than the WACC due to the inherent uncertainties
surrounding the successful development of the purchased in-process research and
development.
The forecast data employed in the analyses was based upon internal product level
forecast information maintained by Celtrix management in the ordinary course of
managing its business. Insmed, Inc. management has reviewed and challenged the
forecast data and related assumptions and utilized the
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information in analyzing in-process research and development. The forecast data
and assumptions are inherently uncertain and unpredictable. However, based upon
the information available at this time Insmed, Inc. management believes the
forecast data and assumptions to be reasonable. These assumptions may be
incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from the forecasted results. Any such variance may result in a material adverse
effect on Insmed, Inc.'s financial condition and results of operations.
A brief description of in-process research and development projects is set forth
below including an estimation of when management believes Insmed, Inc. may
realize royalties from the sale of these products in the respective application.
SomatoKine: Diabetes
Diabetes is typically characterized by the inadequate production or utilization
of insulin. Insulin is a vital hormone needed by the body for normal control of
blood glucose levels. The findings from a Phase II study in 12 patients to
treat patients with Type-I diabetes suggests that SomatoKine is a potential
therapeutic for improving insulin sensitivity in both Type-I and Type-II
diabetes and helping patients to manage their disease, thereby avoiding the
complications which ultimately accompany the disease. A discount rate of 35%
was utilized in discounting these estimated cash flows.
SomatoKine: Severe Osteoporosis
Osteoporosis is a chronic, debilitating disorder in which the bones become
increasingly porous, brittle and subject to fracture. Management believes the
findings from a Phase II feasibility study in hip fracture patients present an
argument for further development of SomatoKine for the treatment of severe
osteoporosis. The Phase II study suggests that a relatively short period of
treatment with SomatoKine offers the potential to restore the patient's bone
mineral density and improve supportive muscle strength as opposed to current
treatments which are used primarily to prevent further bone loss. A discount
rate of 34% was utilized in discounting these estimated cash flows.
SomatoKine: Severe Burns
In persons suffering from traumatic burns over at least 20% of their body
surface, very low levels of IGF-I, along with major tissue damage are associated
with the disruption of biological processes that are essential for healing and
protections from burn complications. In a Phase II study conducted within this
population patients who received SomatoKine through two skin graft cycles
indicated substantial improvement in restoring the balance between protein
synthesis and degradation which is a prerequisite for accelerated wound healing
and reduced hospital stay. A discount rate of 33% was utilized in discounting
these estimated cash flows.
SomatoKine: Protein Wasting
Many critically ill patients suffer from serious protein wasting conditions,
which contribute to physical weakness and increase their risk of morbidity and
mortality. The results for the Phase II study conducted in burn patients
demonstrates potential efficacy for SomatoKine to treat serious medical
conditions associated with muscle and weight loss, and provides further evidence
supporting the use of SomatoKine to treat wasting diseases associated with
cancer cachexia, AIDS and advanced kidney failure. A discount rate of 45% was
utilized in discounting these estimated cash flows.
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TGF-beta-2: Dermal Ulcer
Celtrix entered into a product development, license and marketing agreement with
Genzyme in June 1994 for TGF-beta-2. The objective is to commercialize this
product for tissue repair and treatment of systemic applications. A discount
rate of 34% was utilized in discounting these estimated cash flows.
The total cost of the proposed reorganizations is estimated to be approximately
$55.6 million, determined as follows (in thousands):
<TABLE>
<S> <C>
Fair value of Insmed, Inc. shares (calculated using the
per share fair value at the date of the reorganization
agreement) $ 53,566
Insmed Pharmaceuticals transaction costs, consisting
primarily of financial advisory, legal and accounting fees 2,000
------------
$ 55,566
============
</TABLE>
Based upon preliminary estimate of the valuation of tangible and intangible
assets acquired and liabilities assumed, Insmed Pharmaceuticals has allocated
the total cost of the purchase to the net assets of Celtrix, as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Tangible assets acquired $ 2,796
In-process research and development 53,615
Liabilities assumed (845)
------------
$ 55,566
============
</TABLE>
The Celtrix research and development programs currently in process were valued
as follows:
<TABLE>
<S> <C>
SomatoKine: Diabetes 35,304
SomatoKine: Osteoporosis 12,650
SomatoKine: Severe Burns $ 1,224
SomatoKine: Protein Wasting 3,169
TGF-beta-2: Dermal Ulcer 1,268
------------
$ 53,615
============
</TABLE>
The in-process research and development has been written off against the
consolidated accumulated deficit. Because the charge is nonrecurring, it has
not been reflected in the pro forma condensed consolidated statement of
operations.
Note 2
The pro forma condensed consolidated balance sheet includes the adjustments
necessary to give effect to the reorganizations as if the reorganizations had
occurred on December 31, 1999 and to reflect the allocation of the acquisition
cost to the fair value of tangible and intangible assets acquired and
liabilities assumed as noted above, including a charge to accumulated deficit
for acquired in-process research and development and the elimination of Celtrix
and Insmed Pharmaceuticals' equity accounts. Adjustments
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included in the pro forma condensed consolidated balance sheet are summarized as
follows (in thousands except share and per share amounts):
(A) Increase the accrual for Insmed Pharmaceuticals' estimated transaction-
related costs to $2,000, principally for investment banking, legal and
accounting services.
(B) Conversion of Celtrix preferred stock and cumulative dividends into
4,133,050 shares of Insmed, Inc. common stock at the exchange ratio
prescribed in the Celtrix Certificate of Incorporation.
(C) Conversion of Insmed Pharmaceuticals Convertible Participating Preferred
Stock, Series A and Convertible Preferred Stock, Series B into 34,042,260
shares of Insmed, Inc. common stock.
(D) Conversion of Insmed Pharmaceuticals and Celtrix common stock into
41,415,958 shares of Insmed, Inc. common stock.
(E) Elimination of Celtrix accumulated deficit.
(F) Charge to operations for in-process research and development of $53,615.
(G) Sale of 5,632,678 shares of Insmed Pharmaceuticals common stock before the
merger which will convert into 19,714,373 shares of Insmed, Inc. common
stock and sale of warrants to purchase 6,901,344 shares of common stock of
Insmed, Inc. Proceeds, net of estimated transaction costs, are expected to
approximate $32.6 million.
(H) Adjustment of net assets based upon purchase price allocation.
Note 3
Pro forma basic and diluted net loss per share amounts for the year ended
December 31, 1999, are based upon the estimated weighted-average number of
shares expected to be outstanding subsequent to the reorganizations. The impact
of outstanding options and warrants, including Insmed Pharmaceuticals and
Celtrix options converted is not included in the calculation of basic and
diluted net loss per share as the effect would be antidilutive.
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<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
Celtrix. Celtrix common stock is traded on The Nasdaq SmallCap Market
under the symbol "CTRX." The table below sets forth the high and low quarterly
sales prices for the common stock of Celtrix as reported in published financial
sources for each fiscal quarter during the last two years.
Celtrix
<TABLE>
<S> <C> <C>
Fiscal Year 2000 High Low
Fourth Quarter $5.88 $2.50
(through February 8)
Third Quarter.......... 3.00 1.13
Second Quarter......... 1.81 1.13
First Quarter.......... 1.63 0.81
Fiscal Year 1999 High Low
Fourth Quarter......... $2.00 $0.91
Third Quarter.......... 2.97 0.50
Second Quarter......... 2.19 1.00
First Quarter.......... 3.75 1.75
Fiscal Year 1998 High Low
Fourth Quarter......... $3.88 $1.72
Third Quarter.......... 2.63 1.66
Second Quarter......... 2.94 2.00
First Quarter.......... 3.00 2.00
</TABLE>
On November 30, 1999, the last full trading day before the joint public
announcement by Insmed Pharmaceuticals and Celtrix of the signing of the
reorganization agreement, the closing sale price per share of Celtrix common
stock as reported by The Nasdaq SmallCap Market was $1.563. On _______, 2000,
the closing sale price per share of Celtrix common stock as reported by The
Nasdaq SmallCap Market was $_____.
Celtrix has never declared or paid any cash dividends on its common stock.
Insmed, Inc. currently intends to retain future earnings, if any, to fund the
development and growth of its businesses and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. Any future decision
concerning the payment of dividends on common stock of Insmed, Inc. will depend
upon the results of operations, financial condition and capital expenditure
plans of Insmed, Inc., as well as such other factors as the Insmed, Inc. board
of directors, in its sole discretion, may consider relevant.
The number of Celtrix stockholders is approximately 6,000.
Insmed Pharmaceuticals. There is no public market for Insmed
Pharmaceuticals common stock.
Insmed Pharmaceuticals has never declared or paid any cash dividends on its
common stock. Insmed, Inc. currently intends to retain all of its earnings, if
any, for the future operation and expansion of its business and does not
contemplate distributing any dividends to stockholders. Any future decision
concerning the payment of dividends on the common stock of Insmed, Inc. will
depend upon the results
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<PAGE>
of operations, financial condition and capital expenditure plans of Insmed,
Inc., as well as such other factors as the Insmed, Inc. board of directors, in
its sole discretion, may consider relevant.
Insmed, Inc. There is not yet a public market for Insmed, Inc. common
stock. However, following the reorganizations, Insmed, Inc. common stock will
be traded on the Nasdaq National Market or, if such shares do not qualify for
listing, on The Nasdaq SmallCap Market, and Celtrix common stock will cease to
be traded on The Nasdaq SmallCap Market and will represent only the right to
receive Insmed, Inc. common stock under the reorganization agreement. Insmed,
Inc. has applied with the Nasdaq National Market to be traded on the Nasdaq
National Market under the symbol "INSM."
Insmed, Inc. currently intends to retain all of its earnings, if any, for
the future operation and expansion of its business and does not contemplate
distributing any dividends to stockholders. Any future decision concerning the
payment of dividends on the common stock of Insmed, Inc. will depend upon the
results of operations, financial condition and capital expenditure plans of
Insmed, Inc., as well as such other factors as the Insmed, Inc. board of
directors, in its sole discretion, may consider relevant.
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ELECTION OF DIRECTORS OF CELTRIX
Nominees
At the Celtrix annual meeting, five directors are to be elected to serve
until the earlier of the expiration of their term or the consummation of the
merger. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Celtrix's five nominees named below, all of whom are
currently directors of Celtrix. In the event that any nominee of Celtrix is
unable or declines to serve as a director at the time of the Celtrix annual
meeting, the proxies will be voted for any nominee who shall be designated by
the present Celtrix board of directors to fill the vacancy. The proxy holders
intend to vote all proxies received by them in such a manner in accordance with
cumulative voting as will assure the election of as many of the nominees listed
below as possible, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders. It is not expected that any nominee
listed below will be unable or will decline to serve as a director. Assuming a
quorum is present, the five nominees for director receiving the greatest number
of votes cast at the Celtrix annual meeting will be elected. The term of office
of each person elected as a director will continue until the earlier of the
consummation of the merger and the next Celtrix annual meeting of Celtrix
stockholders or until his successor has been elected and qualified.
The nominees' names and ages as of December 31, 1999, and certain
information about them are set forth below:
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
--------------- --- -------------------- --------------
<S> <C> <C> <C>
Henry E. Blair......................... 56 Chairman and Chief Executive Officer of 1995
Dyax Corporation; Co-Founder and
Consultant, Genzyme Corporation and
Director of Celtrix
Stuart D. Sedlack...................... 35 Director of Corporate Business 1999
Development, Elan Corporation, plc
Barry M. Sherman, M.D.................. 57 Executive Vice President and Chief Medical 1997
Officer, Pain Therapeutics, Inc. and
Director of Celtrix
Andreas Sommer, Ph.D................... 58 Chief Executive Officer, President and 1994
Director of Celtrix
James E. Thomas........................ 39 Chairman of the board of directors of 1993
Celtrix; Managing Director of E.M.
Warburg, Pincus & Co., Inc.
</TABLE>
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There are no family relationships among the directors or executive
officers of Celtrix.
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<PAGE>
Henry E. Blair. Mr. Blair was elected to the board of directors of
Celtrix in January 1995. Since April 1997, he has served as Chairman and Chief
Executive of Dyax Corporation. He was a co-founder of Genzyme Corporation in
1981 and served as Genzyme's Senior Vice President, Manufacturing, Research and
Development until 1988. He continues to serve on Genzyme's Board of Directors
and as a consultant. He is also a director of Genzyme Transgenic Corporation,
DynaGen Inc. and several privately-held companies.
Stuart D. Sedlack. Mr. Sedlack was elected to the board of directors in
August 1999. He has served as Director of Corporate Business Development of
Elan Corporation, plc, since June 1997, and from July 1994 until May 1997, he
served as Director, Licensing and Technology Development of the University of
Maryland Medical School in Baltimore, Maryland. Previously, from November 1991
until June 1994, Mr. Sedlack served as Vice President, Natho Corporation, Paris,
France.
Barry M. Sherman, M.D. Dr. Sherman was elected to the board of directors
of Celtrix in December 1997. He currently serves as Executive Vice President
and Chief Medical Officer of Pain Therapeutics Inc., and has been a Clinical
Professor of Internal Medicine at Stanford University since 1986. Previously,
Dr. Sherman served as President and Chief Executive Officer of Anergen, Inc. and
Senior Vice President and Chief Medical Officer at Genentech, Inc.
Andreas Sommer, Ph.D. Dr. Sommer was appointed Chief Executive Officer and
President of Celtrix in April 1995 and has served as a director of Celtrix since
May 1994. Previously, Dr. Sommer served as Senior Vice President of Celtrix
since July 1993 and as Vice President, Research of Celtrix since 1992, following
Celtrix's merger with BioGrowth, Inc. From 1989 to 1991, Dr. Sommer served as
Vice President, Research and Development of BioGrowth.
James E. Thomas. Mr. Thomas was elected Chairman of the Board of Celtrix
in April 1995 and has served as a director of Celtrix since November 1993. He
has been a Managing Director of E.M. Warburg, Pincus & Co., Inc. since January
1994 and has held various other positions at Warburg since 1989. He is also a
director of Menley & James Laboratories, Inc., Scientific Learning Company,
Transkaryotic Therapies, Inc., and several privately-held companies.
Celtrix Board of Directors Meetings and Committees
The board of directors of Celtrix held a total of nine meetings during the
year ended March 31, 1999. The Celtrix board of directors has an audit
committee and a compensation committee. It does not have a nominating committee
or a committee performing the functions of a nominating committee.
The audit committee of the Celtrix board of directors currently consists of
directors Blair and Thomas, the chairman of the Celtrix audit committee. The
Celtrix audit committee held no meetings during fiscal 1999. The Celtrix audit
committee recommends engagement of Celtrix's independent auditors, and is
primarily responsible for approving the services performed by Celtrix's
independent auditors and for reviewing and evaluating Celtrix's accounting
principles and its system of internal accounting controls.
The compensation committee of the Celtrix board of directors currently
consists of directors Thomas and Blair, the chairman of the Celtrix compensation
committee. Dr. Sommer attends Celtrix compensation committee meetings in an
unofficial capacity. The Celtrix compensation committee held two meetings
during fiscal 1999. The Celtrix compensation committee is responsible for
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<PAGE>
setting and administering the policies for executive compensation, Celtrix's
1991 Stock Option Plan and Celtrix 1991 Employee Stock Purchase Plan and short-
term and long-term incentive programs.
In fiscal 1999, no incumbent director attended fewer than 75% of the
aggregate number of meetings of the board of directors and meetings of the
committees of the board of directors on which he serves.
Compensation of Celtrix Directors
Celtrix directors are reimbursed for out-of-pocket travel expenses
associated with their attendance at board meetings. During fiscal 1999,
independent non-employee directors, Messrs. Blair and Sherman received a fee of
$1,500 for each meeting of the board of directors attended. In accordance with
internal policies at Warburg, director Mr. Thomas does not receive compensation
for attending Celtrix's board meetings. Independent non-employee directors
holding less than 2% of Celtrix's common stock participate in Celtrix's 1991
Directors' Option Plan, pursuant to which such directors are automatically
granted options to purchase shares of common stock on the terms and conditions
set forth in the Celtrix 1991 Directors' Option Plan. Additionally, at the
discretion of the board, non-employee directors may also receive option grants
under the Celtrix 1991 Stock Option Plan. During the year ended March 31, 1999,
director Mr. Blair was granted options to purchase 3,333 shares and 40,000
shares of Celtrix common stock under the Celtrix directors' plan at an
exercise price of $2.875 per share and $1.688 per share, respectively, and an
additional option to purchase 10,001 shares under the Celtrix 1991 Stock Option
Plan at an exercise price of $2.875. Director Sherman was granted an option to
purchase 40,000 shares under the Celtrix directors' plan at an exercise price of
$1.688, and an additional option to purchase 5,000 shares under the Celtrix
stock option plan at an exercise price of $2.875 per share. Except for the
option grant of 3,333 shares to director Blair, the options granted under the
Celtrix directors' plan during the fiscal year ended March 31, 1999, are
exercisable with respect to 1/4th of the shares granted on the first anniversary
of the grant date, and 1/48th per month thereafter. The 3,333 options granted to
director Blair under the Celtrix Directors' Option Plan are exercisable on the
third anniversary of the grant date. Options granted under the Celtrix 1991
Stock Option Plan are exercisable with respect to 12% of the shares granted six
months after the grant date, and 2% per month thereafter. Mr. Sedlack has not
received stock or option grants under either the Celtrix directors' plan or the
Celtrix 1991 Stock Option Plan.
At the effective time of the reorganizations, all outstanding options to
purchase shares of Celtrix common stock, including those options held by Celtrix
officers and directors, shall become fully vested and exercisable. Officers and
directors hold options to purchase 1,130,000 of such shares, 603,199 of which
were vested as of December 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES LISTED
ABOVE TO SERVE AS DIRECTORS UNTIL THE EARLIER OF EITHER (I) THE ENSUING ONE YEAR
TERM AND UNTIL HIS SUCCESSOR IS ELECTED AND QUALIFIED OR (II) THE CONSUMMATION
OF THE MERGER.
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Notwithstanding anything to the contrary set forth in any of Celtrix's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this joint proxy statement/prospectus, in whole or in part, the
following Compensation Committee Report on Executive Compensation and the
Performance Graph on page__ shall not be incorporated by reference into any such
filings.
Celtrix Compensation Committee Report On Executive Compensation
The Celtrix compensation committee of the board of directors is responsible
for setting and administering the policies for executive salaries and short-term
and long-term incentive programs. The committee currently consists of Henry E.
Blair and James E. Thomas, non-employee directors of Celtrix. Andreas Sommer,
Celtrix's President and CEO, attends meetings of the Celtrix compensation
committee in an unofficial capacity.
Compensation Philosophy. The executive compensation program is designed to
motivate and retain executives of outstanding ability who contribute to the
long-term success of Celtrix and is based on the following guiding principles:
. Integrate executives' compensation with accomplishment of Celtrix's
strategic plan and business objectives.
. Provide a compensation package that is competitive with comparable
companies in the biotechnology industry.
. Assure that executives are focused on the enhancement of stockholder
value.
Compensation Program. Compensation for Celtrix's Chief Executive Officer
and other officers is based on individual performance as measured against
clearly defined corporate objectives. The board of directors approves corporate
objectives at the beginning of the fiscal year and reviews progress throughout
the year. The Celtrix compensation committee determines executive compensation
based on the accomplishment of those objectives. Corporate objectives for fiscal
1999 were identified in the areas of product development, strategic corporate
alliances, and financing milestones. Executives' performance was measured
against these specific objectives.
The primary components of executives' compensation are (1) base salary, (2)
long-term equity incentives, and (3) cash bonus. The Celtrix compensation
committee's goal in setting annual base salaries is to be at the median salary
level for similar positions in companies of comparable size, geographic location
(San Francisco Bay Area) and industry sector (biopharmaceuticals) within the
biotechnology industry. To determine these levels, the committee refers to
compensation survey data from a select group of companies participating in the
Radford Biotechnology Salary Survey. All of these companies are also in the
Nasdaq Pharmaceutical Stocks Index used in Celtrix's stock price performance
graph set forth in the section entitled "Celtrix Performance Graph" on page ___.
Each year, the list of companies participating in the survey is reviewed, and
additions or deletions are made to the select group of companies based on the
three criteria used (size, geographic location, industry sector).
Stock option awards are intended to align the interests of the executives
with those of the stockholders and provide significant incentive to meet
Celtrix's long-term goals and enhance stockholder value. Stock options are
granted at fair market value and vest over a 50-month period. In determining
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<PAGE>
the size of the option grants, several factors are considered: size of previous
awards made to executives, competitive practices at similar companies within the
industry and perceived long-term contribution.
In addition to the award of stock options, the Celtrix compensation
committee also awarded cash bonuses to the officers of Celtrix in April 1997 in
recognition of each individual's unique contribution with respect to attainment
of certain corporate and individual milestones. When evaluating and deciding on
cash bonuses, the Celtrix compensation committee gives consideration to the
individual's contribution towards Celtrix's success and for progress made
towards the development of pharmaceutical products. Accordingly, in March 1998,
the Celtrix compensation committee approved cash bonuses to officers and certain
senior managers for their achievement of company objectives during fiscal 1998;
the bonuses were paid in April 1998. There were no cash bonuses paid to
officers in the fiscal year ended March 31, 1999.
Compensation of the Celtrix Chief Executive Officer. The CEO's compensation
is determined based on a number of factors, including comparative salaries of
CEOs of the select group of companies identified above, the CEO's individual
performance and Celtrix's performance as measured against the stated objectives
discussed above. Current base salary for the CEO is in line with the median for
similarly situated executives in other companies of comparable size in the
biotechnology industry. The CEO's total compensation package includes stock
option grants and cash bonus with the goal of motivating leadership for long-
term company success and providing significant reward upon achievement of
company objectives and enhancing stockholder value. As with other executives,
size of option grants is also based on a review of competitive survey data.
Deductibility of Executive Compensation. The Celtrix compensation committee
has considered the impact of Section 162(m) of the Internal Revenue Code adopted
under the Omnibus Budget Reconciliation Act of 1993, which section disallows a
deduction for any publicly-held corporation for individual compensation
exceeding $1 million in any taxable year for the CEO and the four other most
highly compensated executive officers, unless such compensation meets the
requirements for the performance-based exception to the general rule. Since the
cash compensation paid by Celtrix to each of its executive officers is expected
to be well below $1 million and the committee believes that options granted
under the Celtrix 1991 Stock Option Plan will meet the requirements for the
"performance-based" exemption of Section 162(m), the committee believes that
this section will not affect the tax deductions available to Celtrix. It will be
the Celtrix compensation committee's policy to qualify, to the extent
reasonable, the executive officers' compensation for deductibility under
applicable tax law.
From the members of the Compensation Committee of Celtrix:
COMPENSATION COMMITTEE
Henry E. Blair -- Chairman
James E. Thomas
Compensation Committee Interlocks And Insider Participation
Dr. Sommer, Celtrix's President and CEO, while not a member of Celtrix's
Compensation Committee, attends all meetings of the Compensation Committee in an
unofficial capacity. He does not vote on any matters on which action is being
taken by the Compensation Committee.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Celtrix's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of Celtrix's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Celtrix common stock and other equity securities of
Celtrix. Officers, directors and greater-than-ten-percent stockholders are
required by SEC regulations to furnish Celtrix with copies of all Section 16(a)
forms they file.
To Celtrix's knowledge, based solely upon review of the copies of such
reports furnished to Celtrix and written representations from officers and
directors that no other reports were required, during the fiscal year ended
March 31, 1999, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent stockholders were complied
with.
Celtrix Performance Graph
The following graph summarizes cumulative total stockholder return data
(assuming reinvestment of dividends) for the period commencing on March 31, 1994
and ending on March 31, 1999. The graph assumes that $100 was invested on March
31, 1994 (i) in the common stock of Celtrix Pharmaceuticals, Inc. at a price per
share of $7.38, (ii) in the Center for Research in Securities Prices Total
Return Index for the Nasdaq Stock Market (U.S. Companies) and (iii) in the
Nasdaq Pharmaceutical Stocks Index. The stock price performance shown on the
following graph is not necessarily indicative of future stock price performance.
<TABLE>
- ---------------------------------------------------------------------------------------------------------
3/31/94 4/30/94 5/31/94 6/30/94 7/31/94 8/31/94
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 235.343 232.29 232.871 224.382 228.982 243.572
NASDAQ TOTAL 100 98.7027445 98.9496182 95.3425426 97.2971365 103.496599
Nasdaq Pharm. 234.297 224.872 221.836 204.509 210.696 233.559
NASDAQ PHARM 100 95.97732792 94.6815367 87.2862222 89.9268877 99.6850152
Celtrix stock price $ 7.38 $ 6.00 $ 6.88 $ 6.25 $ 6.00 $ 7.88
CELTRIX 100 81.3559322 93.220339 84.7457627 81.3559322 106.779661
5.36% --18.64% 14.58% --9.09% --4.00% 31.25%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
9/30/94 10/31/94 11/30/94 12/31/94 1/31/95 2/28/95 3/31/95
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 242.952 247.686 239.446 240.179 241.515 254.232 261.641
NASDAQ TOTAL 103.233153 105.244685 101.743413 102.054873 102.622555 108.026158 111.174329
Nasdaq Pharm. 230.336 222.465 223.446 216.205 228.174 236.794 233.405
NASDAQ PHARM 98.3094107 94.9499994 95.3686987 92.2781768 97.3866503 101.065741 99.6192866
Celtrix stock price $ 7.13 $ 2.44 $ 3.00 $ 2.63 $ 2.75 $ 1.88 $ 1.50
CELTRIX 96.6101695 33.0508475 40.6779661 35.5932203 37.2881356 25.4237288 20.3389831
--9.52% --65.79% 23.08% --12.50% 4.76% --31.82% --20.00%
</TABLE>
113
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
4/28/95 5/31/95 6/30/95 7/31/95 8/31/95 9/30/95
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 270.035 277.104 299.106 320.672 327.276 341.659
NASDAQ TOTAL 114.741038 117.744739 127.093646 136.257293 139.06341 145.174915
Nasdaq Pharm. 239.962 242.986 271.456 294.828 329.698 339.11
NASDAQ PHARM 102.417871 103.708541 115.859785 125.835158 140.717978 144.735101
Celtrix stock price $ 1.38 $ 1.62 $ 2.56 $ 2.50 $ 2.38 $ 2.44
CELTRIX 18.7118644 21.9661017 34.7118644 33.8983051 32.2711864 33.0847458
--8.00% 17.39% 58.02% --2.34% --4.80% 2.52%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
10/31/95 11/30/95 12/31/95 1/31/96 2/29/96 3/31/96
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 339.711 347.658 345.795 347.384 360.647 361.794
NASDAQ TOTAL 144.347187 147.72396 146.93235 147.607535 153.243139 153.730512
Nasdaq Pharm. 326.433 342.812 395.456 429.353 421.538 411.597
NASDAQ PHARM 139.324447 146.315147 168.784065 183.251599 179.916089 175.673184
Celtrix stock price $ 2.00 $ 1.81 $ 2.56 $ 2.25 $ 2.44 $ 2.50
CELTRIX 27.1186441 24.5423729 34.7118644 30.5084746 33.0847458 33.8983051
--18.03% --9.50% 41.44% --12.11% 8.44% 2.46%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
4/30/96 5/31/96 6/30/96 7/31/96 8/31/96 9/30/96
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 391.904 409.903 391.419 356.557 376.531 405.331
NASDAQ TOTAL 166.524605 174.172591 166.318522 151.50525 159.992437 172.229894
Nasdaq Pharm. 432.851 447.508 399.817 356.293 382.113 408.8
NASDAQ PHARM 184.744576 191.000312 170.645377 152.068955 163.089156 174.4794
Celtrix stock price $ 2.44 $ 3.38 $ 3.38 $ 2.38 $ 2.25 $ 2.44
CELTRIX 33.0576271 45.7627119 45.7627119 32.2033898 30.5084746 33.0576271
--2.48% 38.43% --29.63% --5.26% 8.36%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
10/31/96 11/30/96 12/31/96 1/31/97 2/28/97 3/31/97
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 400.853 425.641 425.197 455.336 430.222 402.211
NASDAQ TOTAL 170.32714 180.859851 180.671191 193.477605 182.806372 170.90417
Nasdaq Pharm. 390.351 384.786 396.609 429.835 432.718 376.676
NASDAQ PHARM 166.605206 164.230016 169.276175 183.457321 184.687811 160.768597
Celtrix stock price $ 1.88 $ 2.06 $ 2.00 $ 3.50 $ 3.00 $ 2.44
CELTRIX 25.4237288 27.9728814 27.1186441 47.4576271 40.6779661 33.0576271
--23.09% 10.03% --3.05% 75.00% --14.29% --18.73%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
4/30/97 5/30/97 6/30/97 7/31/97 8/29/97 9/30/97
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 414.486 461.476 475.597 525.801 525.001 556.061
NASDAQ TOTAL 176.119961 196.086563 202.086741 223.41901 223.07908 236.276838
Nasdaq Pharm. 354.392 407.799 406.693 418.27 413.3 456.2
NASDAQ PHARM 151.257592 174.052165 173.580114 178.521279 176.400039 194.710133
Celtrix stock price $ 2.00 $ 3.00 $ 2.31 $ 2.38 $ 2.06 $ 2.63
CELTRIX 27.1186441 40.6779661 31.3627119 32.2033898 27.9728814 35.5932203
--17.97% 50.00% --22.90% 2.68% --13.14% 27.24%
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
10/31/97 11/30/97 12/31/97 1/31/98 2/27/98 3/31/98
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 527.276 529.917 521.608 538.166 588.713 610.43
NASDAQ TOTAL 224.045754 225.167946 221.637355 228.673043 250.151056 259.378864
Nasdaq Pharm. 432.979 419.508 409.572 405.797 419.031 450.596
NASDAQ PHARM 184.799208 179.049668 174.808896 173.197694 178.84608 192.318297
Celtrix stock price $ 2.13 $ 2.38 $ 1.81 $ 1.81 $ 2.88 $ 2.69
CELTRIX 28.8135593 32.2033898 24.5830508 24.5830508 38.9830508 36.4474576
--19.05% 11.76% --23.66% 58.58% --6.50%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
4/30/98 5/29/98 6/30/98 7/31/98 8/31/98 9/30/98
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 620.05 585.626 626.527 619.205 496.809 565.777
NASDAQ TOTAL 263.466515 248.839354 266.218668 263.107464 211.099969 240.405281
Nasdaq Pharm. 440.313 424.93 417.828 421.101 322.801 394.185
NASDAQ PHARM 187.929423 181.363825 178.332629 179.729574 137.774278 168.241591
Celtrix stock price $ 2.81 $ 2.88 $ 2.06 $ 1.88 $ 1.19 $ 1.00
CELTRIX 38.1016949 38.9830508 27.9322034 25.4237288 16.1355932 13.559322
4.54% 2.31% --28.35% --8.98% --36.53% --15.97%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
10/30/98 11/30/98 12/31/98 1/29/99 2/26/99 3/31/99
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock 590.203 649.905 734.202 840.969 765.589 821.277
NASDAQ TOTAL 250.784175 276.152254 311.971038 357.337588 325.307742 348.970226
Nasdaq Pharm. 420.644 441.383 522.507 570.607 534.932 573.377
NASDAQ PHARM. 179.534522 188.386108 223.010538 243.540037 228.313636 244.722297
Celtrix stock price $ 0.69 $ 1.72 $ 1.69 $ 1.63 $ 1.50 $ 1.09
CELTRIX 9.3559322 23.3220339 22.9152542 22.1016949 20.3389831 14.779661
--31.00% 149.28% --1.74% --3.55% --7.98% --27.33%
</TABLE>
Deadline for Receipt of Stockholder Proposals for 2000 Annual Meeting
Proposals of stockholders of Celtrix that are intended to be presented by
such stockholders at Celtrix's 2000 Annual Meeting of Stockholders must be
received by Celtrix no later than June 15, 2000, in order that they may be
included in the proxy statement and form of proxy relating to that meeting.
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<PAGE>
DESCRIPTION OF INSMED, INC.
Business Overview
Insmed, Inc. is a newly formed Virginia corporation that has not, to date,
conducted any activities other than those incident to its formation, its
execution of the reorganization agreement and related documents, its preparation
of this joint proxy statement/prospectus, the adoption of the Insmed, Inc. 2000
Stock Incentive Plan and the Insmed Inc. 2000 Stock Purchase Plan described
below and the negotiation and execution of the financing described under "Recent
Developments" on page __. Because of the reorganizations, Insmed, Inc. will
become a holding company for Celtrix and Insmed Pharmaceuticals such that
Celtrix and Insmed Pharmaceuticals will become wholly-owned subsidiaries of
Insmed, Inc. and each of Celtrix and Insmed Pharmaceuticals will continue to
conduct the businesses that they are currently conducting. Insmed, Inc.'s
headquarters will be at 800 East Leigh Street, Richmond, Virginia 23219 and its
telephone number will be (804) 828-6893.
The Stock Incentive Plan
The board of directors of Insmed, Inc. has adopted and the sole shareholder
of Insmed, Inc. has approved the Insmed, Inc. 2000 Stock Incentive Plan, subject
to the approval of the reorganizations by the Insmed Pharmaceuticals
shareholders and the Celtrix stockholders and completion of the reorganizations.
The purpose of the Stock Incentive Plan is to attract and retain executive
officers, key employees, non-employee directors and other non-employee advisors
and service providers, and to align more closely the interests of those persons
with the interests of shareholders.
The following paragraphs summarize the principal features of the Stock
Incentive Plan. This summary is subject, in all respects, to the terms of the
Stock Incentive Plan. Insmed, Inc. will provide promptly, upon request and
without charge, a copy of the full text of the Stock Incentive Plan to any
person to whom a copy of this joint proxy statement/prospectus is delivered.
Summary of the Stock Incentive Plan
Administration. The Stock Incentive Plan is administered by the Insmed,
Inc. board of directors and the Insmed Inc. compensation committee (or such
other committee of the Insmed Inc. board of directors which is composed solely
of persons who satisfy the "non-employee director" and "outside director"
requirements of Rule 16b-3 under the Exchange Act and Section 162(m) of the
Code) although the Insmed, Inc. board of directors, the Insmed Inc. compensation
committee or such other committee may delegate its authority and
responsibilities under the Stock Incentive Plan to one or more officers of
Insmed, Inc., but the Insmed, Inc. board of directors, the Insmed Inc.
compensation committee or such other committee may not delegate authority with
respect to grants and awards to individuals subject to Section 16 of the
Exchange Act. As used in this summary, the term "Administrator" means the
Insmed, Inc. board of directors, the Insmed Inc. compensation committee or such
other committee or a delegate, as appropriate. The Administrator generally has
the authority, within limitations described in the Stock Incentive Plan, (i) to
establish rules and policies concerning the Stock Incentive Plan, (ii) to
determine the persons to whom stock options, awards of Insmed, Inc. common stock
and performance shares may be granted, (iii) to fix the number of shares of
Insmed, Inc. common stock to be covered by each award, and (iv) to set the terms
of each award. Each type of award is described below.
Eligibility. Each employee of Insmed, Inc. or a subsidiary corporation of
Insmed, Inc., including an employee who is a member of Insmed, Inc.'s board of
directors, each non-employee member of the
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<PAGE>
Insmed, Inc. board of directors, and each other non-employee advisor or service
provider of Insmed, Inc. or a subsidiary corporation is eligible to participate
in the Stock Incentive Plan. The Administrator selects the individuals who will
participate in the Stock Incentive Plan. Under the Stock Incentive Plan, no
Stock Incentive Plan participant may be granted, in any calendar year, options
for more than 1,000,000 shares of Insmed, Inc. common stock. Further, no Stock
Incentive Plan participant may be granted, in any calendar year, an award of
more than 500,000 shares of Insmed, Inc. common stock or an award of more than
500,000 performance shares.
Options. A stock option entitles a Stock Incentive Plan participant to
purchase shares of Insmed, Inc. common stock from Insmed, Inc. at the option
price. The option price may be paid in cash, with shares of Insmed, Inc. common
stock, with a combination of cash and shares of Insmed, Inc. common stock, or by
instructing a broker to deliver the exercise price to Insmed, Inc. through the
sale of shares of Insmed, Inc. common stock purchased under the option. The
option price is fixed by the Administrator at the time the option is granted,
but the price cannot be less than the shares' fair market value on the date of
grant in the case of an option intended to qualify as an incentive stock option
under Section 422 of the Code. Options granted under the Stock Incentive Plan
may be ISOs or nonqualified options. The differences between these two types of
options are discussed below under "Federal Income Taxes."
If provided in the option agreement, the Administrator may grant
nonqualified options that are transferable to a Stock Incentive Plan
participant's spouse, children or grandchildren, to trusts for the benefit of
such persons, or to partnerships in which those persons are the only partners,
or to such other persons or entities as the Administrator may permit, on such
terms and conditions as may be permitted from time to time under Rule 16b-3 of
the Securities Exchange Act of 1934, as amended. The option will continue to be
subject to the same terms and conditions following the transfer, and no such
transferee may transfer the option other than by will or the laws of descent and
distribution.
Stock Awards. Stock Incentive Plan participants may be awarded shares of
restricted Insmed, Inc. common stock and stock awards not subject to
restrictions. A Stock Incentive Plan participant's rights in a restricted stock
award are nontransferable or forfeitable or both unless certain conditions
prescribed by the Administrator, in its discretion, are satisfied. These
conditions may include, for example, a requirement that the Stock Incentive Plan
participant continue employment or service with Insmed, Inc. or a subsidiary
corporation for a specified period, or that Insmed, Inc., a subsidiary
corporation, or the Stock Incentive Plan participant achieve stated,
performance-related objectives such as those measured with respect to fair
market value of Insmed, Inc. common stock, Insmed, Inc. common stock price
appreciation, gross, operating, net earnings before or after taxes, return on
equity, earnings per share, total earnings, earnings growth, return on capital,
return on assets, return on sales, cash flow per share, book value per share,
market share, economic value added, market value added, productivity, level of
expenses, new product development, peer group comparisons of any of the
foregoing, or other measures the Administrator may select.
Performance Share Awards. The Stock Incentive Plan also provides for the
award of performance shares. A performance share award entitles the Stock
Incentive Plan participant to receive a payment equal to the fair market value
of a specified number of shares of Insmed, Inc. common stock if certain
standards are met. The Administrator prescribes the requirements that must be
satisfied before a performance share award is earned. Those requirements may be
based on the fair market value of Insmed, Inc. common stock, Insmed, Inc. common
stock price appreciation, gross, operating, net earnings before or after taxes,
return on equity, earnings per share, total earnings, earnings growth, return on
capital, return on assets, return on sales, cash flow per share, book value per
share, market share, economic value added, market value added, productivity,
level of expenses, new product development,
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<PAGE>
peer group comparisons of any of the foregoing, or other measures as the
Administrator may select. To the extent that performance shares are earned, the
obligation may be settled in cash, in shares of Insmed, Inc. common stock, or by
a combination of the two. If provided in the performance shares agreement, the
Administrator may also grant performance shares that are transferable, subject
to the same general conditions described above under "Options."
Change of Control. All options, stock awards and performance shares will
become exercisable, vested or earned, as applicable, upon a change of control of
Insmed, Inc. Events constituting a change of control are defined in the Stock
Incentive Plan.
Share Authorization. All awards made under the Stock Incentive Plan are
evidenced by written agreements between Insmed, Inc. and the Stock Incentive
Plan participant. The maximum number of shares of Insmed, Inc. Insmed, Inc.
common stock that may be issued under the Stock Incentive Plan upon its adoption
by the board of directors of Insmed, Inc. is 12,000,000 shares. That maximum
will be increased each January 1 during the term of the Stock Incentive Plan by
a number of shares equal to 1.0% of the number of shares of Insmed, Inc. common
stock outstanding on the preceding December 31. In no event, however, may the
annual increases cause the maximum number of shares issued under the Stock
Incentive Plan to exceed 25,000,000 shares. The maximum share authorization, the
individual annual award limits, and the terms of outstanding awards will be
adjusted as the Administrator determines is appropriate in the event of a stock
dividend, stock split, combination, reclassification, recapitalization,
reorganization or similar event.
Termination and Amendment. No award may be granted under the Stock
Incentive Plan more than ten years after the earlier of the date that the Stock
Incentive Plan was adopted by Insmed, Inc.'s board of directors or the date that
it was approved by Insmed, Inc.'s sole shareholder. Insmed, Inc.'s board of
directors may amend or terminate the Stock Incentive Plan at any time, but an
amendment will not become effective without shareholder approval if the
amendment materially increases the aggregate number of shares of Insmed, Inc.
common stock that may be issued under the Stock Incentive Plan (other than
equitable adjustments on certain corporate transactions).
Awards. Shares issued under the Stock Incentive Plan will include those
issued pursuant to Insmed Inc.'s assumption of the obligations of Insmed
Pharmaceuticals and Celtrix under stock options outstanding immediately prior to
the completion of the reorganizations. In connection with the reorganizations,
Insmed Pharmaceuticals and Celtrix will amend their outstanding options to
provide that those options will be exercisable for Insmed, Inc. common stock
following the completion of the reorganizations. For information on the Celtrix
option plans, see "Description of Celtrix Stock Option Plans" on page ___. For
information on the Insmed Pharmaceuticals option plan, see "Description of
Insmed Pharmaceuticals Stock Option Plans." Up to 7,373,091 shares of Insmed,
Inc. common stock may be issued on the exercise of former Insmed Pharmaceuticals
and Celtrix options. [Options for an additional [number, if any, of Insmed, Inc.
options that will be granted as of the effective time of the reorganizations]
shares of Insmed, Inc. common stock have been approved by the Administrator and
will be granted as of the effective date of the reorganizations.]
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<PAGE>
Federal Income Taxes. No income is recognized by a Stock Incentive Plan
participant at the time an option is granted. If the option is an ISO, no income
will be recognized upon the Stock Incentive Plan participant's exercise of the
option. Income is recognized by a Stock Incentive Plan participant when he
disposes of shares acquired under an ISO. ISOs may be granted only to employees
of Insmed, Inc. and its subsidiaries. The exercise of a nonqualified option
generally is a taxable event that requires the Stock Incentive Plan participant
to recognize, as ordinary income, the difference between the shares' fair market
value and the option price.
A Stock Incentive Plan participant will recognize income on account of a
stock award on the first day that the shares are either transferable or not
subject to a substantial risk of forfeiture. The amount of income recognized by
the Stock Incentive Plan participant is equal to the fair market value of the
shares of Insmed, Inc. common stock received on that date.
A Stock Incentive Plan participant will recognize income on account of the
settlement of a performance share award. A Stock Incentive Plan participant will
recognize income equal to any cash that is paid and the fair market value of
shares of Insmed, Inc. common stock (on the date that the shares are first
transferable or not subject to a substantial risk of forfeiture) that are
received in settlement of the award.
The employer (either Insmed, Inc. or a subsidiary corporation) will be
entitled to claim a federal income tax deduction on account of the exercise of a
nonqualified option, the vesting of a stock award and the settlement of a
performance share award. The amount of the deduction is equal to the ordinary
income recognized by the Stock Incentive Plan participant. The employer will not
be entitled to a federal income tax deduction on account of the grant or the
exercise of an ISO. The employer may claim a federal income tax deduction on
account of certain dispositions of shares of Insmed, Inc. common stock acquired
upon the exercise of an ISO.
The Stock Purchase Plan
The board of directors of Insmed, Inc. has adopted and the sole shareholder
of Insmed, Inc. has approved the Insmed, Inc. 2000 Stock Purchase Plan. Under
the Stock Purchase Plan, eligible employees of Insmed, Inc. and its subsidiary
corporations (other than certain employees who are also shareholders) will be
able to purchase Insmed, Inc. common stock directly from Insmed, Inc. Purchases
may be made through payroll deduction, with an annual limit on purchases equal
to the lesser of 15% of an employee's base salary or a number of shares with a
fair market value (at the time the right to purchase shares is made available)
of $25,000. The price per share purchased under the Stock Purchase Plan will be
the lesser of 85% of the fair market value of a share of Insmed, Inc. common
stock at the beginning of each annual offering period, or 85% of the fair market
value on the date the purchase is made. No income will be recognized by the
employees at the time Insmed, Inc. common stock is purchased under the Stock
Purchase Plan, but the employee may recognize ordinary income (and the employer
may claim a corresponding federal income tax deduction) on account of certain
dispositions of shares acquired under the Stock Purchase Plan. A maximum of
1,000,000 shares of Insmed, Inc. common stock may be purchased under the Stock
Purchase Plan.
Financing Activity
On January 13, 2000 Insmed, Inc. and Insmed Pharmaceuticals entered into a
purchase agreement with certain investors which provides that subject to certain
conditions described below the investors will purchase 5,632,678 shares of
Insmed Pharmaceuticals common stock
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and 6,901,344 warrants, with each warrant exercisable into one share of Insmed,
Inc. common stock at a price of $2.25 for each share of Insmed, Inc. common
stock. The aggregate consideration to be received by Insmed, Inc. and Insmed
Pharmaceuticals pursuant to this financing is $34.5 million. See "Recent
Developments" on page _____ for more information on the financing.
DESCRIPTION OF CELTRIX
Business Overview
Celtrix is a biopharmaceutical company developing novel drug candidates to
treat seriously debilitating, degenerative conditions primarily associated with
aging, chronic diseases and severe trauma. Celtrix's focus is on restoring lost
tissues and bodily processes essential for the patient's health and quality of
life. Celtrix's product development programs have targeted severe osteoporosis,
including hip fracture surgery in the elderly, diabetes, and acute traumatic
injury as in severe burns. Other potential development programs may target
protein wasting diseases (involving deterioration or degeneration of body
tissue) associated with cancer, AIDS, advanced kidney failure, and comparable
life-threatening conditions.
Celtrix's leading drug candidate is SomatoKine, a naturally occurring
complex comprised of the tissue-producing (or anabolic) hormone insulin-like
growth factor-I (IGF-I) and its primary binding protein, BP3. IGF-I is known to
play a major role in diverse biological processes, including bone and muscle
formation, tissue repair, and endocrine regulation. However, IGF-I does not
naturally exist in quantity free of its binding proteins, and limitations
associated with administering free IGF-I therapeutically have proven
significant. Early studies, using free IGF-I (without the benefit of the binding
protein present in SomatoKine) were complicated by side-effects brought on by
the use of the free form of the molecule. When IGF-I is bound to BP3, as it is
in nature, it does not display these acute limitations. BP-3 is critical in
regulating the availability of IGF-I to the body's cells.
Celtrix completed a Phase II clinical feasibility study in December 1998
using SomatoKine to treat severely osteoporotic patients recovering from hip
fracture surgery. Final results from the Phase II study suggest that SomatoKine
has the potential to amplify bone metabolism and reverse the loss of bone
mineral density that usually occurs following a hip fracture and improves the
patient's functional independence. In April 1999, Celtrix established a
corporate partnership with Elan Corporation, plc and Elan International
Services, Ltd. to form a new jointly owned subsidiary that will continue global
development of SomatoKine for treatment of severe osteoporosis, including
recovery from hip fracture surgery.
Celtrix has also conducted a Phase II feasibility study in patients with
severe burns. Data from the study show that SomatoKine has a normalizing effect
on protein metabolism and patients treated with SomatoKine recorded improvements
in several measures of their immune systems and heart functions. Celtrix
believes that SomatoKine has the potential to provide severely burned patients
with critical protection from serious infection, and it may speed their recovery
and reduce their hospital stay. Recently the United States Food and Drug
Administration notified Celtrix that SomatoKine qualifies for orphan drug status
in treatment of severe burns. Orphan drug status will guarantee Celtrix seven
years of market exclusivity in the United States following the FDA approval of
SomatoKine for the treatment of severe burns.
In January 1999, Celtrix completed a Phase II study in patients with Type I
diabetes. Final data revealed that average daily insulin requirements for
patients who received SomatoKine decreased
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significantly and these patients' average daily glucose levels declined. Based
on such findings, Celtrix believed that SomatoKine has potential to improve
insulin sensitivity and help diabetics manage their disease, and in so doing
avoid complications which ultimately accompany diabetes.
Celtrix also has a product development, license and marketing agreement
with Genzyme Corporation for TGF-beta-2. Genzyme is currently developing TGF-
beta-2 for tissue repair and the treatment of systemic indications.
As part of Celtrix's corporate restructuring announced in September 1998,
Celtrix discontinued the manufacture of SomatoKine at its Santa Clara facility.
Currently, Celtrix has sufficient quantities of the drug to conduct clinical
trials through the remainder of Year 2000. Celtrix believes that its future
requirements for SomatoKine, beyond the drug already in inventory, can be met
through contract manufacturing. Celtrix has the ability to transfer the
necessary technology to a contract manufacturer to supply SomatoKine.
Celtrix's principal executive offices are located at 2033 Gateway Place,
Suite 600, San Jose 95110 and Celtrix's telephone number is (408) 988-2500.
Background: Medical Need
Many of the body's physiological functions, such as growth of bone and
muscle, tissue healing, immune processes and endocrine functions are controlled
by regulatory proteins (growth factors, cytokines, and protein hormones) that
bind to specific cells to modulate their function. When the body produces
appropriate levels of these proteins and when the target cells respond properly,
the body functions normally. When the body encounters adverse situations such as
trauma, infection, or chronic disease, the production and regulation of these
factors can become unbalanced. Normally, the body has the ability to naturally
modulate the production of these regulating proteins to return to a balanced
physiological state (homeostasis). However, when the ability to make these
changes is impaired, it can result in a number of undesirable consequences
including, but not limited to, poor nutritional status, an impaired ability to
maintain and repair tissues and organs normally, and impaired immune and
endocrine functions. Celtrix, alone or in collaboration with others, is
developing biopharmaceuticals based on such naturally occurring, regulating
proteins.
SomatoKine
SomatoKine is a human recombinant equivalent to the naturally occurring
complex formed by insulin-like growth factor-I (IGF-I) and its primary binding
protein (BP3). The potential use of SomatoKine to treat certain medical
conditions stems from a variety of demonstrated bioactivities in which IGF-I is
involved which include:
. Bone formation;
. Muscle formation;
. Prevention of muscle degradation;
. Tissue and organ repair;
. Nutrient utilization;
. Hormonal regulation of insulin and growth hormone;
. Immune system stimulation; and
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. Neurotrophic activity.
The metabolic activities of IGF-I suggest that SomatoKine may provide a
safe and effective therapeutic approach to treating debilitating conditions
associated with adverse metabolic, immune and hormonal functions. Clinical and
preclinical studies have demonstrated that circulating IGF-I levels are often
lower than normal in a variety of conditions including aging, chronic disease,
and severe trauma. Low levels of IGF-I are often associated with destructive
metabolic processes (catabolism) causing bone and muscle loss, delaying healing,
and increasing the patient's risk of life-threatening complications and
infections. Low levels of IGF-I may also exacerbate immunocompromised and
diabetic conditions. The overall development of SomatoKine is aimed at elevating
the circulating reservoir of IGF-I thereby overcoming these destructive
metabolic processes.
Once in the bloodstream, the SomatoKine complex attaches to a third
naturally occurring protein known as an acid labile subunit, or ALS. The
resulting larger complex emulates what is observed in nature, safely storing and
transporting IGF-I throughout the patient's body with an extended half life
compared to free IGF-I. The BP3 contains important biological information used
by the body in regulating IGF-I bioavailability and biodistribution. In
addition, IGF-I can separate from this circulating reservoir and bind to target
cells whenever the body needs it. Through its specific receptor, IGF-I then
stimulates essential metabolic activities important for regeneration of bone and
muscle, tissue repair, regulation of blood glucose levels and other critical
biological processes.
Although other biopharmaceutical companies may have development programs
involving IGF-I, Celtrix does not believe that any other company is currently
developing the IGF-BP3 (SomatoKine) complex. This complex is of key importance
because most naturally occurring IGF-I does not circulate in its free form, but
is bound to its primary binding protein, BP3. The natural association of the two
molecules appears to be of fundamental biological significance.
Preclinical experimentation, including toxicology studies, indicates that
SomatoKine substantially improves IGF-I safety and efficacy. In addition, a
variety of biological effects has been demonstrated with SomatoKine that could
not be demonstrated upon the administration of IGF-I alone. This is believed to
be related to the observation that SomatoKine significantly removes the known
dose limitations associated with free (unbound) IGF-I. By removing dosage
limitations and improving safety while still providing the benefits of IGF-I,
SomatoKine has the potential to serve as a superior IGF-I therapeutic
composition for a wide range of applications.
Realization of the therapeutic potential of IGF-I, although pursued by
several companies over the past years, has been hampered by a number of
limitations mainly associated with the administration of IGF-I in its free form.
As demonstrated in preclinical and clinical studies, SomatoKine given over a
range of doses is well tolerated, whereas equivalent doses of IGF-I without BP3
can cause serious side effects, such as hypoglycemia, joint pain and swelling,
and parotid discomfort. Human clinical studies with IGF-I, administered without
BP3, have shown that IGF-I by itself must be administered in low-dose daily
injections in order to avoid acute side effects and this, in turn, may limit the
observed clinical efficacy. In contrast, Celtrix's Phase I clinical data
suggested that injectable, higher doses of SomatoKine are feasible and provide
the benefits of IGF-I without dose-limiting side effects. The higher safety
margins of SomatoKine, in combination with potentially less frequent dosing,
should make it possible to use SomatoKine to treat a variety of conditions that
may be difficult to treat successfully with IGF-I alone.
Because IGF-BP3 is involved in a variety of essential biological processes,
Celtrix believes that SomatoKine therapy could have broad range potential. This
potential is supported by preclinical
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laboratory and animal and clinical studies conducted by Celtrix's scientists and
other academic collaborations.
Products Under Research And Development
The following table summarizes potential products currently under research
and development, alone and in collaboration with others.
CELTRIX PRODUCT PORTFOLIO: SOMATOKINE(R)
<TABLE>
<CAPTION>
PATIENT INDICATION BIOLOGICAL ACTION STATUS POPULATION(U.S./WORLD)
- ----------------- ----------------- ------ ----------------------
<S> <C> <C> <C>
Diabetes Improve glycemic control Phase IIA Study 9,100,000(2)/
Reduce insulin usage Completed 1/99 57,000,000
(increase insulin sensitivity)
Severe Osteoporosis Build bone and muscle Assessing bone formation 1,500,000(1)/
strength & muscle strength in hip 5,000,000
fracture study
Completed 12/98
(See Corporate Partners)
Recovery from Build bone and muscle Phase IIA Study 300,000/
Hip Fracture Surgery Prevent muscle loss Completed 12/98 1,700,000
(See Corporate Partners)
Severe Burns Reverse catabolic condition Phase IIA Study 10,000/
Stimulate tissue repair Completed 9/98 30,000
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INDICATION (Corporate Partners) PRODUCT (DELIVERY) BIOLOGICAL ACTION STATUS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severe Osteoporosis SomatoKine Build bone and muscle strength Phase IIB Clinical Trial
(Elan Corporation, plc) (subcutaneous infusion) Prevent loss of bone mineral density
Dermal Ulcers TGF-beta-2 in a collagen Stimulate local tissue repair; Phase II -- Clinical Trial
(Genzyme Corporation) matrix (local) accelerate healing
</TABLE>
_______________
1 Of the estimated 24 million people in the United States with osteoporosis,
there are an estimated 1.5 million fractures per year due to osteoporosis.
2 This population size represents the diagnosed cases of Type I and Type II
diabetes.
Clinical Development
Recovery from Hip Fracture Surgery. Celtrix's initial treatment targets
have been elderly patients who have undergone hip fracture surgery, a subset of
the severe osteoporosis patient population. Each year approximately 300,000
patients in the United States (1.7 million worldwide) undergo hip surgery to
repair fractures of the femur that have occurred during falls. Studies have
shown that blood levels of IGF-I drop significantly following hip fracture
surgery. These osteoporotic elderly patients begin to rapidly lose even further
bone and lean body mass. These losses can prolong patient immobility, further
threaten recovery and survival, interfere with quality of life and add to the
high cost of hip repair and rehabilitation. Celtrix's goal is to provide
SomatoKine as a short-term therapeutic treatment to prevent bone loss, improve
muscle strength, restore mobility, and increase the patient's functional
independence.
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In January 1997, Celtrix initiated a multi-center Phase II clinical
feasibility study in osteoporotic women (ages 65-90) who have undergone hip
fracture surgery. This study, performed in Belgium, evaluated approximately 26
patients (approximately eight patients per dose group), who received either
SomatoKine or a placebo over a period of eight weeks. Multiple dosage levels
were tested. End points evaluated included change in the patient's body
composition (bone, lean mass and fat mass), muscle function (measured by grip
strength), trends in measures of daily activity (ADL, or activities of daily
living scores) and bone metabolism markers.
Results from this Phase II study demonstrated important trend information.
Hip fracture patients typically suffer an accelerated loss (5-9%) of hip bone
mineral density. In fact, at six months following fracture, the hip bone mineral
density of placebo-treated patients had declined approximately 6% from baseline
value. Following an initial characteristic loss, SomatoKine-treated patients who
were administered drug for eight weeks at 1.0 mg/kg per day, regained a
substantial portion of their hip bone mineral density. At the six-month time
point (four months post-treatment), SomatoKine-treated patients showed a hip
bone mineral density average decrease of less than 2% from baseline value. Hip
bone mineral density is a strong predictor of fracture risk where loss of hip
bone mineral density predisposes hip fracture patients to a high risk of
refracture; population studies show that a 5% decrease in hip bone mineral
density increases the risk of fracture by approximately 25%.
Results also demonstrated that hand grip strength improved approximately
10% from baseline value for patients treated with 1.0 mg/kg dose of SomatoKine,
versus an approximately 10% loss for those receiving the placebo. Whether
improved grip strength is related to the anabolic effects of SomatoKine on
muscle remains to be determined. Preclinical studies, however, suggest
SomatoKine has an effect on building lean body mass. There also appeared to be a
positive trend in parameters indicative of functional independence.
Based on findings from Celtrix's Phase II clinical feasibility study,
Celtrix established a joint venture with Elan Corporation, plc in April 1999 to
continue the global development of SomatoKine for osteoporosis and recovery from
hip fracture surgery. The joint venture brings together Celtrix's drug
technology and Elan's MEDIPAD(TM) delivery system. MEDIPAD is a state of the
art, disposable micro-infusion pump, worn by the patient in a manner similar to
a transdermal patch that will facilitate the administration of SomatoKine to
this indication.
Severe Osteoporosis. Osteoporosis is a chronic, debilitating disorder in
which the bones become increasingly porous, brittle and subject to fracture.
Severe osteoporosis (defined by the number of patients suffering osteoporotic
fractures) affects approximately 1.5 million elderly people in the United States
(5 million worldwide). Celtrix believes the findings from the Phase II
feasibility study in hip fracture patients present a strong argument for
development of SomatoKine for the short-term treatment of severe osteoporosis.
This patient population consists largely of post-menopausal women who already
have lost a substantial quantity of bone and are at high risk of fractures of
the hip, wrist or spine. In fact, it is estimated that 25% of all women over age
60 will suffer an osteoporosis-related fracture. While estrogens, calcitonins,
bisphosphonates and other therapies are prescribed for osteoporosis, these
treatments are used primarily to prevent further bone loss rather than to form
new bone in this population. A relatively short period of treatment with
SomatoKine offers the potential to substantially restore the patient's bone
mineral density and improve supportive muscle strength, thus reducing fracture
risk and improving the patient's strength and mobility. SomatoKine could provide
a much needed therapeutic complement to the existing preventative therapies.
Celtrix has established a corporate collaboration with Elan Corporation, plc for
continued global development of SomatoKine for the treatment of severe
osteoporosis, including recovery from hip fracture surgery.
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Diabetes. Diabetes is typically characterized by the inadequate production
or utilization of insulin, a vital hormone needed by the body for normal control
of blood glucose levels. It afflicts over 5% of the populations of Europe, Japan
and North America. In the United States alone, an estimated 9.1 million people
have been diagnosed with diabetes. The endocrine activities of IGF-I suggest
that SomatoKine may provide an effective therapeutic approach to treating
diabetes patients. A number of clinical studies conducted by other researchers
have shown that administration of free IGF-I can significantly increase insulin
sensitivity and glucose tolerance in patients with diabetes, and IGF-I treatment
substantially reduced the requirement for injected insulin and improved glycemic
control. In a number of studies, the use of free IGF-I, however, without its
primary binding protein, resulted in substantial side effects that limited the
therapeutic value of the molecule.
Celtrix conducted a Phase II study in 12 patients to determine whether the
SomatoKine complex provided similar beneficial therapeutic effects on glycemic
control as free IGF-I without its limiting side effects. The study began in July
1998 to treat patients with Type I diabetes. These patients typically produce
little or no insulin of their own, and although they require frequent insulin
injections, their tissue may become partially resistant to insulin over time.
They also have low blood levels of IGF-I due to lack of normal insulin
secretion. Celtrix completed the Phase II study in patients with Type I diabetes
in January 1999. Final data revealed significant treatment results in several
key measurements. In treated patients, the average daily insulin requirements
decreased 49% and average daily blood glucose levels were decreased by 23%.
Serum growth hormone was reduced 77% and cholesterol levels were reduced 12% in
treated patients. These findings suggest that SomatoKine is a potential
therapeutic for improving insulin sensitivity in both Type-I and Type-II
diabetes and helping patients to manage their disease, thereby avoiding the
complications that ultimately accompany the disease. Celtrix intends to find a
corporate partner(s) for the continued worldwide development of SomatoKine for
the treatment of diabetes.
Severe Burns. Another treatment target is severe burns. Annually,
approximately 10,000 people in the United States (30,000 worldwide) suffer from
traumatic burns over greater than 20% of their body surface. Very low IGF-I
levels, along with major tissue damage, are associated with disruption of
biological processes that are essential for efficient and successful healing and
protection from burn complications. Furthermore, the length of time spent in a
burn trauma center is directly related to the time required to conduct the skin
grafting required to heal the burn wound. Research has shown that IGF-I plays a
significant role in tissue repair and that IGF-I supplementation can potentially
promote the healing process and reduce hospital stay.
In July 1997, Celtrix initiated a Phase II feasibility trial in severely
burned patients, collaborating with leaders in burn care at key burn trauma
centers throughout the United States. In addition to their standard burn care,
approximately 60 patients, both children and adults, received systemic
SomatoKine and/or placebo through two skin graft cycles.
Data provided evidence supporting the use of SomatoKine to attenuate the
degradation of muscle tissue (protein wasting) that is associated with severe
trauma such as burn injury. In burn patients, the balance between protein
synthesis and degradation is shifted towards degradation, leading to muscle and
weight loss that in turn leads to delayed wound healing and increases in
infectious complications and mortality. Data obtained from SomatoKine treated
patients indicate substantial improvement in restoring the balance between
protein synthesis and degradation which is a prerequisite for accelerated wound
healing and reduced hospital stay.
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Additionally, data indicate that SomatoKine may have a positive effect on
the immune system of severely burned patients. After severe burn, patients
typically experience immune system effects that impair their ability to resist
infection (i.e. an adverse shift in cytokines produced by T-cell lymphocytes).
However, lymphocytes collected from six severely burned SomatoKine-treated
patients (ages 2-18) showed an approximately 280% increase in the production of
interleukin-2 and a 25-90% increase in the production of interferon gamma, both
vital immune system proteins.
SomatoKine appears to have a normalizing effect on immune functions and
protein synthesis which offers the potential to provide critical protection from
serious infection and protein wasting response that occur in severe burn
patients.
Corporate Collaborations
Elan Corporation, plc. In April 1999, Celtrix entered into an agreement
with Elan Corporation, plc to establish a joint venture for the development of
SomatoKine to treat osteoporosis using Elan's MEDIPAD Delivery System. As part
of the agreement, Elan purchased $8 million of Celtrix Series A Convertible
Exchangeable Preferred Stock. Celtrix used the proceeds of the Celtrix Series A
Convertible Exchangeable Preferred Stock sale to fund its share of the joint
venture's initial capitalization and research and development costs. Celtrix may
also issue up to $4.8 million of Series B Convertible Preferred Stock to Elan to
fund its share of the joint venture's ongoing research and development costs.
Elan has agreed to commit $1.2 million of additional funds to the joint venture
to support its share of operating costs.
The joint venture is initially 80.1% owned by Celtrix and 19.9% by Elan and
Elan, at its option, has the right either to convert the Celtrix Series A
Convertible Exchangeable Preferred Stock it purchased into Celtrix common stock
or exchange into additional ownership in the new joint venture. Elan may convert
shares of Series B Convertible Preferred Stock into common shares of Celtrix.
The joint venture paid a license fee to Elan for the use of the MEDIPAD
technology while Celtrix will have an 80% share in any future proceeds related
to the further development and commercialization of the osteoporosis product
(e.g. upfront payments, milestones or royalties) received by the joint venture,
regardless of ownership, until it is paid $10 million. Thereafter, Celtrix and
Elan will share the joint venture's proceeds in accordance with their ownership
interest. In a separate transaction, in April 1999 Celtrix issued 1,508,751
shares of common stock to Elan International Services, Ltd. at a price of $1.657
per share, for a total of $2.5 million.
Genzyme Corporation. In June 1994, Celtrix entered into a product
development, license and marketing agreement with Genzyme on TGF-beta-2 which
included equity investments, milestone payments and potential royalties to
Celtrix. The objective was to commercialize TGF-beta-2 for tissue repair and
treatment of systemic applications. Genzyme has been granted exclusive
commercialization rights for all systemic applications and select local
applications of TGF-beta-2. In December 1997, under amended terms, Celtrix
granted Genzyme expanded territory rights to TGF-beta-2 to include Japan, China,
Korea and Taiwan. In exchange, Genzyme released Celtrix from certain service and
royalty obligations under the original agreement. Celtrix has retained all
rights to applications of TGF-beta-2 concerning ophthalmic disease and has the
option to reacquire rights to other product applications not pursued by Genzyme.
Genzyme has completed a 15-center, double-blinded, randomized Phase II clinical
study to evaluate the treatment of approximately 177 diabetic patients suffering
from neurotrophic diabetic foot ulcers.
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Additionally, in December 1997, under a separate license agreement, Genzyme
was granted a worldwide royalty-bearing license to TGF-beta antibodies and
receptor technology. Under the terms of the agreement, Genzyme will assume the
licensing and royalty obligations of Celtrix related to TGF-beta receptor. In
October 1999, this agreement was amended to indicate that the receptor
technology sublicense is effective until the end of the full term(s) for which
the patent rights are issued.
Genentech, Inc. In March 1993, Celtrix entered into a cross-license
agreement with Genentech. Under the terms of the agreement, Genentech granted
Celtrix rights to certain process patents that may have application in the
manufacturing of TGF-beta-2 and TGF-beta receptors, in return for a $4.0 million
licensing fee and future product royalties. Celtrix granted Genentech patent
rights to TGF-beta for certain fields of use for future product royalties. The
license fee was balanced by an equity purchase by Genentech of 572,450 shares of
newly issued Celtrix common stock for a total value of $4.0 million, resulting
in a non-cash transaction.
Research And Development
Celtrix has substantial accumulated or retained expertise with IGF-I and
BP3. Through an extensive collaboration program with leading scientists
worldwide, research and development efforts are focused on demonstrating the
safety and effectiveness of SomatoKine (IGF-I in combination with BP3) in human
clinical studies that are relevant to the indications being evaluated. Studies
to evaluate optimal formulations, doses and dosing frequencies are being
conducted to aid in the development of SomatoKine. These collaborative efforts
have effectively contributed to Celtrix's understanding of the underlying causes
and potential treatment strategies for conditions leading to muscle and bone
loss and other catabolic conditions. Celtrix is continuing to expand
collaborations into other fields where SomatoKine therapy may be beneficial.
Advances by Celtrix's research staff in the development of a novel protein
expression technology for SomatoKine provided Celtrix with a proprietary
manufacturing method that will position Celtrix for large-scale commercial
manufacturing. Efforts in this area will continue to focus on ways that this
technology can advance the SomatoKine program. Celtrix believes that this
technology not only provides benefits to Celtrix programs, but also offers a
potential option to other biopharmaceutical companies in need of novel protein
expression technology. Celtrix intends to evaluate its options to license such
technology to other biopharmaceutical companies in the future.
Manufacturing
Celtrix manufactured human recombinant SomatoKine according to current Good
Manufacturing Practices (cGMP) at its Santa Clara location. Since Celtrix
believed it had a supply of SomatoKine sufficient for future, large scale Phase
II studies, it ceased manufacturing as part of its September 1998 restructuring.
When larger-scale manufacturing is needed, Celtrix will arrange to resume
manufacturing efforts through collaborative relationships or contract
manufacturers.
Intellectual Property
Proprietary protection for Celtrix's potential products is important to
Celtrix's business. Celtrix's policy is to protect its technology by filing
patent applications for technology that it considers important to the
development of its business. Celtrix intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. In the United States, Celtrix
currently holds a total of 29 issued or allowed patents (42 worldwide) related
to
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the composition, production, antibodies and methods of use for SomatoKine,
including one patent with claims to a BP3 composition-of-matter, 12 therapeutic
use patents for SomatoKine, IGF-I or BP3, nine patents regarding novel
expression and production methods which may be used for the manufacture of
SomatoKine and two issued patents relating to methods of predicting drug
response. Celtrix has 23 families of applications, pending in the U.S. or
abroad, regarding the therapeutic use of BP3, antibodies to BP3 and their uses,
and therapeutic uses and production of the complex, SomatoKine. These
applications are in various stages of review. In Europe, Celtrix has an issued
patent with claims to: a BP3 composition-of-matter; certain therapeutic uses of
that BP3; and certain therapeutic uses of a complex of IGF and the claimed BP3.
Celtrix has received a European patent with claims to: recombinantly produced
BP3; therapeutic uses of BP3; and therapeutic uses of the complex, SomatoKine.
Another company has opposed this patent.
Celtrix also owns or co-owns 27 issued patents regarding the composition-
of-matter, methods of purification, and therapeutic uses of TGF-beta-2 and
antagonists of TGF-beta-2. Celtrix also owns the rights to a patent application
relating to therapeutic uses of TGF-beta antagonists.
Celtrix seeks patent protection for its inventions and discoveries which
Celtrix believes are patentable in the United States and, in most instances, in
at least Australia, Canada, Japan and various countries in Europe. As with any
pending patent application, there can be no assurance that any of these
applications will be issued in the United States or foreign countries, nor can
there be any assurance that any United States or foreign patents issuing from
any of these applications will not later be held invalid or unenforceable.
At least three large biotechnology and pharmaceutical companies with
substantial financial and legal resources have patent applications on file in
the United States and abroad directed at the production of recombinant IGF-I by
various methods. The earliest date of filing of these patent applications is
April 25, 1983. Unless and until these applications issue in the United States,
it is not possible to determine the breadth of these claims regarding a process
for IGF-I production. Furthermore, a large biotechnology and pharmaceutical
company with substantial financial and legal resources has a patent issued in
the United States directed toward certain DNA molecules encoding BP3 and the
corresponding BP3 protein. This same patent was granted in Europe and was
successfully opposed by Celtrix. However, this large biotechnology and
pharmaceutical company has recently appealed the decision and there can be no
assurance that the appeal will not be successful, and it is not possible to
determine what, if any, claims will be reinstated or the breadth of such claims.
In addition, this large biotechnology company has been issued a patent directed
toward the subcutaneous bolus administration of IGF-BP3 for certain limited
areas of use. Each of the referenced companies can be expected to defend its
patent position vigorously.
Celtrix has developed a new process for the production of IGF and BP3 which
it does not believe will infringe on other patents relating to recombinant
protein production in general or on other patents relating to the production of
IGF and BP3 in particular, although there can be no assurance that a contrary
position will not be asserted. A large number of other companies have pending
patent applications and/or issued patents that claim certain methods of use of
IGF.
Government Regulation
The research and development, production and marketing of Celtrix's
products are and will be subject to substantial regulation by numerous
governmental authorities in the United States and other countries. The
regulatory process, which includes preclinical testing and clinical trials of
each
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compound in order to establish its safety and efficacy, can take many years and
requires the expenditure of substantial resources.
In the United States, pharmaceutical products are subject to rigorous Food
and Drug Administration regulation. The Federal Food, Drug and Cosmetic Act and
the regulations promulgated thereunder, as well as other federal and state
statutes and regulations, govern, among other things, the testing, manufacture,
safety, effectiveness, labeling, storage, record-keeping, approval, advertising
and promotion of Celtrix's potential products. The steps required before a
pharmaceutical product may be marketed in the United States include (i)
preclinical laboratory and animal tests, (ii) the submission to the FDA of an
Investigational New Drug (IND) application, which must become effective before
human clinical trials may commence, (iii) the conduct of adequate and well-
controlled human clinical trials to establish the safety and efficacy of the
drug product for its intended indications, (iv) the submission to the FDA of a
New Drug Application (NDA) for pharmaceuticals, and (v) FDA approval of the NDA
prior to any commercial shipment or sale of the product.
Although SomatoKine is a DNA-derived protein complex and is manufactured
using biotechnology techniques, the FDA has indicated to Celtrix that products
containing SomatoKine will fall into the category of hormones and will be
reviewed as a drug. The review has been assigned to the Division of Endocrine
and Metabolism Products, Center for Drug Evaluation and Research (CDER). During
the investigation phase, the IND requirements will govern the development of the
drug. Before marketing, FDA approval of products containing SomatoKine will be
based on submission of an NDA containing the results of preclinical and clinical
studies, and complete manufacturing and controls information. Furthermore, NDA
approval requires preapproval inspection by the FDA of the proposed commercial
manufacturing facilities to assess compliance with cGMP.
Before the commencement of clinical trials for its potential products,
Celtrix must conduct preclinical tests of its products, which include laboratory
characterization of the products and the conduct of animal studies to assess
preliminarily the safety and pharmacological effect of the products. The
preclinical safety tests must be conducted in compliance with FDA regulations
regarding good laboratory practices. The results of preclinical tests must be
submitted to the FDA as part of the IND application and reviewed by the FDA
during the course of the agency's determination as to whether the clinical
trials described in the IND application may commence. There is no certainty that
submission of an IND application will result in FDA authorization to commence
clinical trials.
Clinical trials involve the administration of the investigational compound
to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND application. Further, each clinical
study must be conducted under the auspices of an independent Institutional
Review Board at the institution at which the study will be conducted, and
informed consent must be obtained from each clinical subject.
Clinical trials of drug products are typically conducted in three phases,
but the phases may overlap. In Phase I, the product is tested for safety
(adverse effects) and may include dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. Phase II involves studies in a limited
patient population to (i) determine the efficacy of the product for specific,
targeted indications, (ii) determine dosage tolerance and optimal dosage, and
(iii) identify possible adverse effects and safety risks. When a compound is
found to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to further confirm clinical
efficacy and to further test for
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safety within an expanded patient population at geographically dispersed
clinical study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed successfully within any specified time period, if
at all, with respect to any of Celtrix's products subject to such testing.
Furthermore, Celtrix or the FDA may suspend clinical trials at any time if it is
felt that the subjects or patients are being exposed to an unacceptable health
risk.
The results of the product development efforts, preclinical studies and
clinical studies are submitted to the FDA in the form of a NDA for approval to
permit marketing and commercial shipment and sales of the pharmaceutical
product. The testing and approval process is likely to require substantial time
and effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny an NDA if applicable regulatory
criteria are not satisfied, may require additional testing or information if it
does not view the NDA as containing adequate evidence of the safety and efficacy
of the product, or may require post-marketing testing and surveillance to
monitor the safety of Celtrix's products. Notwithstanding the submission of such
data, the FDA may ultimately decide that the application does not satisfy its
regulatory criteria for approval. Finally, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing.
Among the conditions for NDA approval is the requirement that the
manufacturer's manufacturing procedures and quality control must comply with the
FDA regulations as published in the current GMP regulations, as well as any
additional standards or guidelines issued for specific drug or biological
products. The FDA monitors compliance with these requirements by requiring all
drug manufacturers to register with the FDA, which subjects them to biennial FDA
inspections of manufacturing facilities. In addition, a precondition for NDA
approval is that the FDA conducts an inspection of the manufacturing facility
and determines that it complies with all applicable regulatory requirements. In
order to assure compliance with those requirements, manufacturers must continue
to expend time, resources and effort in the areas of production and quality
control to ensure full technical compliance.
For marketing outside the United States, Celtrix is also subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs. Celtrix has conducted clinical trials in Europe and the
considerations set forth above also apply to European clinical trials; for
example, clinical trials must be conducted in several phases and there can be no
assurance that such phases of testing in Europe will be completed successfully
within any specified time period, if at all, with respect to Celtrix's product.
Although the new drug approval process has been centralized for the European
Union, clinical research is still controlled at the national level. For clinical
trials in certain European countries, Celtrix is required to give a simple
notification process and no submission is required. Other European countries may
require the submission of a Clinical Trial Exemption, which is the equivalent of
the United States IND and which must be effective before human clinical trials
may be commenced. Once submitted, the review and approval process typically
takes three months, although there can be no assurance that an approval will be
obtained within that time, or at all.
For the marketing and commercial shipment and sales of new biotechnology
products, the European Union has centralized the process for new drug approval.
The centralized approval process involves the submission of a Marketing
Application, the equivalent of a United States NDA, to the European Medicines
Evaluation Authority (EMEA). The EMEA uses the centralized scientific body of
reviewers from the Committee for Proprietary Medicinal Products to assess the
new drug product and obtains a recommendation whether or not to approve the new
product. A single approval from the centralized EMEA is typically applicable to
the entire European Community.
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Because Celtrix intends to have its products marketed in certain foreign
countries in the future, approval by these countries' regulatory authorities may
need to be obtained. The approval procedures vary from country to country, and
the time required for approval may be longer or shorter than that required for
FDA approval. Even after foreign approvals are obtained, further delays may be
encountered before products may be marketed. For example, many countries require
additional government approval for price reimbursement under national health
systems. Such approvals can be critical to any extensive marketing of drug
products in such countries.
Insurance; Product Liability
Celtrix currently has in force general liability and product liability
insurance. Celtrix's insurance policies provide coverage for product liability
and general liability on a claims made and on an occurrence basis, respectively.
These policies are subject to annual renewal.
Competition
In each of the areas targeted by Celtrix's potential products, including
osteoporosis, diabetes, severe burns, and protein wasting caused by diseases
such as cancer, AIDS and kidney failure, Celtrix faces competition from larger
pharmaceutical companies, biotechnology companies, universities and other
research institutions. Relative to Celtrix, most of these entities have greater
capital resources, research and development staffs and facilities, experience in
conducting clinical trials and obtaining regulatory approvals, and manufacturing
and marketing of pharmaceutical products. Celtrix believes that success within
this competitive environment will be based, among other things, on product
efficacy, safety, reliability, availability, timing and scope of regulatory
approvals, as well as price.
Employees and Properties
As of December 31, 1999, Celtrix employed seven full-time employees. Since
the September 1998 restructuring, Celtrix utilizes consultants as necessary to
assist in various research and development activities. Celtrix plans to add
staff as necessary to manage the clinical and related activities planned by the
Celtrix/Elan joint venture.
Celtrix is highly dependent on the principal members of its management and
scientific staff as well as consultants. Its future success depends in large
part upon its ability to attract and retain highly qualified scientific and
management personnel. Celtrix faces significant competition for such personnel
from other companies, academic institutions, government entities and other
organizations. There can be no assurance that Celtrix will be successful in
hiring or retaining requisite personnel.
Celtrix leases administrative offices at 2033 Gateway Place, San Jose,
California 95110. In the fourth calendar quarter of 1998, Celtrix ceased
manufacturing operations and administrative functions at its Santa Clara
facility. The Santa Clara facility was designed to address Celtrix's anticipated
manufacturing needs to provide its initial drug supply for clinical studies. In
the future, Celtrix plans to subcontract its manufacturing operations to supply
drugs for Phase III clinical studies and commercialization. However, there can
be no assurance that Celtrix or any other party will be able to arrange to
manufacture any of its current or future products on a commercial scale, or that
such products can be manufactured by Celtrix or any other party at a cost or in
quantities to make commercially viable products.
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Legal Proceedings
As of the date hereof, there are no legal proceedings involving Celtrix or
its assets that, in the opinion of management, could result in a materially
adverse change in the business or financial condition of Celtrix.
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Selected Historical Financial Data
The following results of operations and balance sheet data as of and for
the end of fiscal years 1995, 1996, 1997, 1998 and 1999 have been derived from
Celtrix's audited consolidated financial statements. The selected financial data
as of and for the nine months ended December 31, 1998 and 1999 have been derived
from unaudited consolidated financial statements of Celtrix. The information set
forth below should be read in conjunction with Celtrix's consolidated financial
statements and related notes and other financial information in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
------------------------------------------------------------ -----------------------
1995 1996 1997 1998 1999 1998 1999
------------------------------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Historical Statement of Operations Data:
Total revenues $ 2,200 $ 1,750 $ 658 $ 661 $ 131 $ 79 $ 712
Operating expenses:
Cost of sales 134 31 5 1 -- -- --
Research and development 18,091 10,990 11,999 13,006 6,830 6,432 629
General and administrative 3,459 2,063 1,814 1,985 2,272 1,725 1,424
Restructuring costs 2,108 -- -- 5,160 5,178 --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses 23,792 13,084 13,818 14,992 14,262 13,335 2,053
-------- -------- -------- -------- -------- -------- --------
Operating loss (21,592) (11,334) (13,160) (14,331) (14,131) (13,256) (1,341)
Equity loss in joint venture -- -- -- -- -- -- (8,973)
Interest income, net 843 625 464 681 132 121 74
Gain on sale of investment -- 3,463 -- 737 -- -- --
Proceeds from settlement agreement -- -- -- 600 -- --
-------- -------- -------- -------- -------- -------- --------
Net loss $(20,749) $ (7,246) $(12,696) $(12,913) $(13,399) $(13,135) $(10,240)
======== ======== ======== ======== ======== ======== ========
Basic and diluted net loss per share:
Net loss $ (1.57) $ (0.51) $ (0.83) $ (0.61) $ (0.58) $ (0.59) $ (0.39)
Weighted average shares 13,255 14,161 15,238 21,004 22,941 22,235 26,548
March 31, December 31,
---------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---------- --------- ---------- --------- ----------- --------- ----------
Historical Balance Sheet Data:
Cash, cash equivalents and investments $ 19,929 $ 17,643 $ 5,788 $ 7,913 $ 1,258 $ 1,780 $ 1,243
Total assets 35,024 30,145 16,956 17,876 4,501 5,312 4,407
Long-term obligations 828 238 -- -- -- -- --
Convertible/exchangeable preferred stock -- -- -- -- -- -- 7,948
Stockholders' equity (deficiency) 29,436 26,786 14,210 14,744 3,280 3,568 (4,234)
</TABLE>
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Nine Months Ended December 31, 1999, Compared to the Nine Months Ended
December 31, 1998
General. On December 1, 1999, Celtrix announced that it had entered
into a definitive agreement for Insmed Pharmaceuticals to acquire Celtrix. The
following discussion is presented on the basis of Celtrix as an independent
entity. References to future activities are subject to change based upon
completion of the reorganizations.
Celtrix is a biopharmaceutical company developing novel therapeutics for
the treatment of seriously debilitating, degenerative conditions primarily
associated with severe trauma, chronic diseases or aging. Celtrix's focus is on
regenerating lost tissue and metabolic processes essential for the patient's
health and quality of life. Ongoing product development programs target severe
osteoporosis (recovery from hip fracture surgery) and diabetes. Other potential
indications include traumatic burns and protein wasting diseases associated with
cancer, AIDS, advanced kidney failure and other life-threatening conditions.
Celtrix's development focus is on SomatoKine, a naturally occurring complex
comprised of the anabolic hormone insulin-like growth factor-I (IGF-I) and its
primary binding protein, BP3. IGF-I is known to play a major role in diverse
biological processes, including muscle and bone formation, tissue repair and
endocrine regulation. However, limitations associated with administering free
IGF-I therapeutically have proven significant because IGF-I does not naturally
exist in quantity free of its binding proteins. SomatoKine delivers IGF-I
complexed with BP3, which contains biological information important for the
body's natural regulation of IGF-I bioavailability and biodistribution, and the
resulting complex does not display the acute limitations seen in free IGF-I
administration.
Results from Celtrix's three earlier Phase I studies demonstrated that the
repeated or continuous administration of SomatoKine safely delivers IGF-I at
substantially higher dosage levels than have ever been achievable with free IGF-
I, increasing the peak blood concentration of IGF-I up to 35-times its normal
level. Furthermore, the elevated levels substantially stimulated bone and
connective tissue metabolism.
In early 1997, Celtrix initiated a Phase II clinical feasibility study
using SomatoKine to treat severe osteoporosis patients recovering from hip
fracture surgery. Following the trauma of hip fracture, patients typically
suffer an accelerated loss of hip bone mineral density (BMD) which predisposes
them to a high risk of refracture. Final data from this Phase II clinical
feasibility study reveal significant treatment results in several key
measurements including hip bone mass and tests of functional ability. The
results suggest that SomatoKine amplifies the body's natural bone metabolism and
that short-term treatment with SomatoKine appears to have sustained effects. The
findings suggest the potential usefulness of SomatoKine for the treatment of
osteoporosis.
Based on these promising findings, in April 1999 Celtrix entered into an
agreement with Elan Corporation, plc to establish a joint venture company for
the development of SomatoKine to treat osteoporosis using Elan's MEDIPAD
Delivery System. The joint venture company is initially owned 80.1% by Celtrix
and 19.9% by Elan. The joint venture company has licensed SomatoKine technology
from Celtrix and MEDIPAD technology from Elan. Celtrix initially invested $8.01
million in the joint venture and Elan invested $1.99 million. At the time of
closing, Elan International Services, Ltd. (EIS) purchased $8.01 million of
Celtrix Series A Convertible/Exchangeable Preferred Stock, which, with all
accrued and unpaid dividends, is convertible into Celtrix common stock at a
price of $2.006 per share or
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exchangeable for an incremental 30.1% ownership in the joint venture to a total
of 50.0%. If the exchange right is exercised, the Series A
Convertible/Exchangeable Preferred Stock will be cancelled. Celtrix anticipates
the Series A Convertible/Exchangeable Preferred Stock will be converted to
Insmed, Inc. common stock, in accordance with the terms of the agreement with
Elan, at the time of the proposed reorganizations. The Series A Convertible
Exchangeable Preferred Stock pays a 5% annual in-kind dividend. Although Celtrix
owns 80.1% of the joint venture the joint venture is accounted for under the
equity method of accounting because Elan has substantive participating rights
that give them the ability to block significant decisions proposed by Celtrix.
In addition, Elan actively participates in directing and carrying out the
operating and capital activities of the joint venture's business.
The agreement with Elan also provides at Celtrix's option for EIS to
purchase from time to time Series B Convertible Preferred Stock up to an amount
of $4.8 million, the proceeds from which sale will be used by Celtrix to fund
its share of the joint venture's operating expenses. Celtrix and Elan will be
reimbursed by the joint venture for research and development and administrative
work performed on behalf of the joint venture. The Series B Convertible
Preferred Stock is convertible into Celtrix common stock at a price of $2.006
per share and pays a 9% annual in-kind dividend. Currently, there are no shares
of Celtrix Series B Convertible Preferred Stock outstanding.
Elan received a $10 million license payment from the joint venture for the
use of MEDIPAD technology while Celtrix will have an 80% share in any future
proceeds related to the further development and commercialization of the
osteoporosis product (e.g. upfront payments, milestones or royalties) received
by the joint venture, regardless of ownership, until Celtrix is paid $10
million. Thereafter, Celtrix and Elan will share the joint venture's proceeds in
accordance with their ownership interests.
In April 1999, in a separate transaction, Celtrix issued 1,508,751 shares
of common stock to Elan International Services, Ltd. at a price of $1.657 per
share, amounting to $2.4 million (net of expenses).
In mid-1997, Celtrix began a Phase II clinical feasibility study in
severely burned patients. Severe burns patients typically have low IGF-I levels
which may be connected to the disruption of the biological processes that are
essential for efficient and successful healing and protection from
complications. Results provided evidence that SomatoKine improved the metabolic
processes involved in maintaining muscle protein. In addition, SomatoKine
appeared to have a positive effect on the heart function and immune system of
these severely burned patients. Clinical findings from this study may be used to
establish corporate partnership(s) for future development of SomatoKine in
severe burns.
Based upon the results of this Phase II clinical feasibility study in
severely burned patients, Celtrix applied for orphan drug status to the Food and
Drug Administration (FDA). In July 1999, Celtrix received notification from the
FDA that SomatoKine qualified for orphan designation for the treatment of major
burns that require hospitalization.
Other potential indications include protein wasting conditions associated
with cancer cachexia, AIDS, advanced kidney failure, and other life-threatening
conditions. Celtrix plans to pursue the use of SomatoKine in these areas through
corporate collaborations. SomatoKine's anabolic effects offer the potential to
preserve and restore muscle strength and mobility which are important for these
patients' survival and quality of life.
In July 1998, Celtrix initiated a Phase II feasibility study in Type I
diabetes. This 12-patient study investigated SomatoKine's potential to increase
sensitivity to insulin and improve blood glucose
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control. In a cross-over study, patients served as their own control group. All
patients reacted positively to SomatoKine. On average, while using SomatoKine,
patients reduced exogenous insulin by 49% and recorded a 23% reduction in blood
sugar levels, while improving glycemic control.
Celtrix has a product development, license and marketing agreement with
Genzyme Corporation for TGF-beta-2, a potential pharmaceutical based on a
naturally occurring compound which appears to play an important role in
regulating healthy cell functions. In December 1997, under amended terms,
Celtrix granted Genzyme Corporation expanded territory rights to TGF-beta-2 to
include Japan, China, Korea and Taiwan. Additionally, under a separate license
agreement, Genzyme Corporation was granted a worldwide royalty-bearing license
to TGF-beta antibodies and receptor technology. In October 1999, this agreement
was amended to indicate that the receptor technology sublicense is effective
until the end of the full term(s) for which the patent rights are issued.
Genzyme Corporation is conducting a Phase II clinical study in dermal ulcers;
Celtrix is not currently pursuing an in-house TGF-beta-2 program.
Celtrix has not earned substantial revenues from product sales since
inception and at December 31, 1999, had an accumulated deficit of $141.0
million. Celtrix's revenues to date consist principally of licensing and
milestone payments from pharmaceuticals, research and development funding,
related party revenue, and to a lesser extent, sales of products for use in
research and assay applications. Celtrix expects to incur additional operating
losses, which may fluctuate quarter to quarter, for at least the next several
years as Celtrix continues its development activities, including clinical
trials.
In November 1998, Celtrix received notice from the Nasdaq Stock Market that
it failed to comply with two Nasdaq Stock Market continued listing requirements-
the minimum net tangible assets requirement and the minimum bid price
requirement. In January 1999, Nasdaq Stock Market officials confirmed that
Celtrix had regained compliance with the minimum bid price requirement, but that
it would be subject to delisting if it failed to comply with the minimum net
tangible assets requirement. In response, Celtrix requested an oral hearing
before a Nasdaq Listing Qualifications Panel to present its plan to regain
compliance with the minimum net tangible assets requirement. Such plan was
presented at an oral hearing on April 1, 1999, and on July 6, 1999, the Nasdaq
Listing Qualifications Panel informed Celtrix that its listing would be moved
from the Nasdaq National Market to The Nasdaq SmallCap Market effective July 8,
1999, subject to its continued compliance with The Nasdaq SmallCap Market
listing requirements.
There can be no assurance that Celtrix will ever achieve either significant
revenues from product sales or profitable operations. To achieve profitable
operations, Celtrix, alone or with others, must successfully develop, obtain
regulatory approval for and market its potential products. No assurance can be
given that Celtrix's product development efforts will be successfully completed,
that required regulatory approvals will be obtained, or that any products, if
developed and introduced, will be successfully marketed or achieve market
acceptance.
Results of Operations. Celtrix incurred a net loss of $1.1 million and
$10.2 million for the three- and nine-month periods ended December 31, 1999,
compared to $1.1 million and $13.1 million for the same periods in 1998. Net
loss per share was $0.04 for the three-month periods ended December 31, 1999 and
1998. The reduction of operating expenses in the three-month period ended
December 31, 1999 was offset by Celtrix's share of losses attributable to the
joint venture company formed by Celtrix and Elan Corporation, plc in April 1999.
Net loss per share decreased to $0.39 per share for the nine-month period ended
December 31, 1999, compared to $0.59 for the same period in 1998. The decrease
in net loss and basic and diluted net loss per share for the nine-month period
ended December 31, 1999 reflects both the reduction of operating expenses since
the September 1998 restructuring of Celtrix, and
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the absence of one-time restructuring charges associated with that event. The
decrease in net loss for the nine-month period ended December 31, 1999 is
partially offset by Celtrix's 80.1% share of the joint venture company's losses,
including the $10 million one-time license fee paid by the joint venture company
to Elan for the use of Elan's MEDIPAD Delivery System technology.
Revenues increased to $622,000 and $712,000 for the three- and nine-month
periods ended December 31, 1999 from $21,000 and $79,000 for the same periods in
1998. The increase is due primarily to related party revenue from the joint
venture formed by Celtrix and Elan Corporation, plc, which includes revenues for
services performed on behalf of the joint venture and the sale of SomatoKine
drug substance to the joint venture for use in the clinical trial currently
planned by the joint venture.
Operating expenses decreased to $779,000 and $2.1 million for the three-and
nine-month periods ended December 31, 1999 from $1.1 million and $13.3 million
for the same periods in 1998. The decrease results from the restructuring plan
implemented by Celtrix in September 1998, which included the discontinuation of
manufacturing and a reduction of workforce.
Net interest income increased to $21,000 for the three-months ended
December 31, 1999 from $14,000 for the same period in 1998, and decreased to
$74,000 for the nine-months ended December 31, 1999 from $121,000 for the same
period in 1998, due primarily to the increase and decrease, respectively, in
average cash, cash equivalent and short-term investment balances.
In September 1998, Celtrix announced a restructuring of Celtrix to focus on
the clinical development of SomatoKine, and to significantly reduce its cash
burn rate. Since sufficient clinical grade SomatoKine has been manufactured for
the conduct of clinical trials over the next two years, Celtrix discontinued its
manufacturing operations. As part of the restructuring, Celtrix reduced its work
force by 69 employees, or approximately 90%, by the end of calendar year 1998.
The reduction in work force affected all levels of staff in manufacturing and
other functions. Celtrix terminated its 69,000 square foot facility lease in
November 1998, and relocated to offices in San Jose, California to support
ongoing clinical and business development activities.
As a result of the restructuring, Celtrix recognized a $5.2 million one-
time charge in the quarter ended September 30, 1998, which included a net $4.5
million non-cash charge for the write-off of leasehold improvements, $358,000
for severance and benefit expenses, $250,000 related to certain operating lease
obligations and $75,000 in other restructuring-related charges.
Fiscal Year Ended March 31, 1999 Compared to the Fiscal Year Ended March
31, 1998
Results of Operations. Celtrix incurred net losses of $13.4 million,
$12.9 million, and $12.7 million in fiscal 1999, 1998, and 1997, respectively.
Basic and diluted net losses per share for these years were $0.58, $0.61, and
$0.83, respectively. Celtrix has not earned substantial revenues from product
sales since inception and at March 31, 1999 had an accumulated deficit of $130.4
million. Celtrix's revenues to date consist principally of licensing and
milestone payments from pharmaceuticals, research and development funding,
related party revenue, and to a lesser extent, sales of products for use in
research and assay applications. Celtrix expects to incur additional operating
losses, which may fluctuate quarter to quarter, for at least the next several
years as Celtrix continues its development activities, including clinical
trials.
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Revenues consist of licensing revenue and miscellaneous product sales.
Revenues were $131,000, $661,000 and $658,000 in fiscal 1999, 1998 and 1997,
respectively. The 80% decrease in revenues from 1998 to 1999 is due primarily to
loss of licensing revenue resulting from the termination of the Yoshitomi
license agreement.
Operating expenses decreased 5% to $14.3 million in 1999 from $15.0 million
in 1998 due to the reduction of expenses since the September 1998 restructuring
of Celtrix, offset by the one-time restructuring charge of $5.2 million recorded
in September 1998. At year-end, Celtrix had reduced its expenditure level to
approximately $2.4 million per year, and it expects to maintain this rate of
expenditure for its corporate activities for the next 12 months. Clinical and
administrative expenditures anticipated by the Celtrix/Elan joint venture are
the responsibility of each party in proportion to their ownership shares. The
joint venture agreement provides for Celtrix to obtain funds for its share of
such expenditures through the sale of additional equity securities to Elan.
Operating expenses increased 9% to $15.0 million in 1998 from $13.8 million in
1997 due primarily to increased costs associated with the Phase II clinical
trials, and additional staffing to support increased SomatoKine manufacturing
and clinical activities.
Interest income, net of interest expense, decreased 81% to $132,000 in 1999
from $681,000 in 1998 due primarily to the lower average cash, cash equivalents
and short-term investment balances in 1999. Net interest income increased 47% to
$681,000 in 1998 from $464,000 in 1997 primarily because of an increase in
average cash, cash equivalents and short-term investments resulting from net
proceeds received from Celtrix's April 1997 private equity financing of
approximately $13.3 million. Interest expense was $1,000, $24,000, and $89,000
in 1999, 1998, and 1997, respectively.
In 1999, Celtrix received a $600,000 payment from Yoshitomi, as a
settlement related to the termination of the Green Cross license agreement. In
1998, Celtrix reported a gain on investment of $737,000 from the sale of
preferred stock in Prograft Medical, Inc. (Prograft), held by Celtrix since
1993.
At March 31, 1999, Celtrix had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $127.7 million
and $4.3 million, respectively, expiring in the years 2006 through 2019. Due to
ownership changes as defined by the Internal Revenue Code, Celtrix's utilization
of its net operating loss carryforwards and tax credits is subject to
substantial annual limitations. Celtrix has determined that a valuation
allowance for deferred tax assets of $51.2 million and $45.8 million at March
31, 1999 and 1998, respectively, is required to reduce the deferred tax assets
to the amount realizable, zero, based upon Celtrix's earnings history of losses.
In September 1998, Celtrix announced a restructuring to focus on the
clinical development of SomatoKine, and to significantly reduce its cash burn
rate. Since Celtrix believes that sufficient clinical grade SomatoKine has been
manufactured for the conduct of clinical trials over the next two years, it
discontinued its manufacturing operations. As part of the restructuring, Celtrix
reduced its work force by 59 employees, or approximately 80%, in September 1998.
Celtrix further reduced its work force by the end of the calendar year, for a
total reduction of approximately 90%. The reduction in work force affected all
levels of staff in manufacturing and other functions. Celtrix terminated its
69,000 square foot facility lease effective November 30, 1998, and relocated to
offices in San Jose, California to support ongoing clinical and business
development activities.
As a result of the restructuring, Celtrix recognized a $5.2 million one-
time charge in the quarter ended September 30, 1998, which included a net $4.5
million non-cash charge for the write-off of
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leasehold improvements, $358,000 for severance and benefit expenses, $250,000
related to certain non-cancelable operating lease obligations and $75,000 in
other restructuring-related charges.
Fiscal Year Ended March 31, 1998 Compared to the Fiscal Year Ended March
31, 1997
General. Celtrix has not earned substantial revenues from product sales
since inception and at March 31, 1998 had an accumulated deficit of $117.0
million. Celtrix's revenues to date consist principally of licensing and
milestone payments from pharmaceuticals, research and development funding,
related party revenue, and to a lesser extent, sales of products for use in
research and assay applications. Celtrix expects to incur additional operating
losses, which may fluctuate quarter to quarter, for at least the next several
years as Celtrix expands its development activities, including clinical trials
and manufacturing.
There can be no assurance that Celtrix will ever achieve either significant
revenues from product sales or profitable operations. To achieve profitable
operations, Celtrix, alone or with others, must successfully develop, obtain
regulatory approval for and market its potential products. No assurance can be
given that Celtrix's product development efforts will be successfully completed,
that required regulatory approvals will be obtained, or that any products, if
developed and introduced, will be successfully marketed or achieve market
acceptance.
Results of Operations. Celtrix incurred net losses of $12.9 million,
$12.7 million, and $7.2 million in fiscal 1998, 1997, and 1996, respectively.
Basic and diluted net losses per share for these years were $0.61, $0.83, and
$0.51, respectively. Revenues, consisting of licensing revenue from Yoshitomi
and miscellaneous product sales, were $661,000 and $658,000, respectively, for
1998 and 1997. Operating expenses increased 9% to $15.0 million in 1998 from
$13.8 million in 1997 due primarily to increased costs associated with the Phase
II feasibility clinical trials, and additional staffing to support increased
SomatoKine manufacturing and clinical activities.
Interest income, net of interest expense, increased 47% to $681,000 in 1998
from $464,000 in 1997 due primarily to an increase in average cash, cash
equivalents and short-term investments resulting from net proceeds received from
Celtrix's April 1997 private equity financing of approximately $13.3 million.
Net interest income decreased 26% in 1997 from $625,000 in 1996 due primarily to
the lower average cash, cash equivalents and short-term investment balances,
partly offset by lower interest expense. Interest expense was $24,000 and
$89,000 in 1998 and 1997, respectively.
In 1998, Celtrix reported a gain on investment of $737,000 from the sale of
preferred stock in Prograft Medical, Inc. (Prograft), held by Celtrix since
1993. At March 31, 1998, Celtrix had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $113.4 million
and $4.1 million, respectively, expiring in the years 2006 through 2013. Due to
ownership changes as defined by the Internal Revenue Code, Celtrix's utilization
of its net operating loss carryforwards and tax credits is subject to
substantial annual limitations. Celtrix has determined that a valuation
allowance for deferred tax assets of $45.8 million and $41.0 million at March
31, 1998 and 1997, respectively, is required to reduce the deferred tax assets
to the amount realizable, zero, based upon Celtrix's earnings history of losses.
Liquidity and Capital Resources. Celtrix has funded its activities with
proceeds from private offerings, research and development revenues from
collaborative arrangements, lease and debt financing arrangements, proceeds from
liquidating its equity investments and, to a lesser extent, other revenues and
product sales.
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Celtrix's cash and cash equivalents were approximately $1.2 million at both
December 31, 1999 and March 31, 1999. Net proceeds of $10.7 million received
from the issuance of common stock and preferred stock and proceeds from the sale
of fixed assets were offset by cash outlays which included $9.2 million used for
investing activities, primarily in connection with the joint venture company
formed with Elan in April 1999, and $1.5 million used in operating activities.
In April 1999, in connection with the closing of a joint venture agreement
with Elan Corporation, plc, Elan International Services, Ltd. purchased
1,508,751 shares of Celtrix common stock at a purchase price of $1.657 per
share, resulting in net proceeds to Celtrix of $2.4 million, which is included
in the $10.7 million described above.
In February 2000, an investor in the $14.0 million April 1997 private
placement financing exercised 820,344 warrants at an exercise price of $2.6818
per share, which generated approximately $2.2 million in additional cash for
Celtrix.
At December 31, 1999, Celtrix had working capital of $0.7 million and an
accumulated deficit of $141.0 million, and incurred a net loss of $1.1 million
for the quarter ended December 31, 1999. Celtrix has reduced its burn rate to
approximately $200,000 per month not including reimbursable expenditures
attributed to the joint venture formed by Celtrix and Elan Corporation, plc.
Accordingly, Celtrix expects its working capital, plus $2.2 million in proceeds
from the February 2000 exercise of warrants from the April 1997 private
placement financing, will be sufficient to fund operations into the first half
of 2001. Celtrix will be required to seek additional funds to finance operations
beyond that period. The joint venture transaction with Elan Corporation, plc
provides, at Celtrix's option, for the purchase by Elan of additional Celtrix
equity securities, the proceeds from which will be used to fund Celtrix's share
of anticipated clinical expenses associated with the joint venture's large-scale
trial in osteoporosis (recovery from hip fracture surgery).
To minimize future dilution to stockholders from additional equity
financing, Celtrix plans to concentrate on establishing additional corporate
partner arrangements and other opportunities that will enable the continued
development of SomatoKine. Merger opportunities that are consistent with
Celtrix's clinical development of SomatoKine will also be considered. There can
be no assurance that Celtrix will be able to raise additional funds or enter
into further collaborative arrangements on terms favorable to Celtrix.
Notwithstanding the foregoing, on December 1, 1999, Celtrix announced its
intention to merge with Insmed Pharmaceuticals.
Celtrix anticipates that it will be necessary to expend significant capital
resources to support further clinical development. Capital resources may also be
required for the acquisition of complementary businesses, products or
technologies. Celtrix's future capital requirements will depend on many factors,
including progress with its clinical trials, the time and costs involved in
obtaining regulatory approvals, the time and costs involved in filing,
prosecuting, enforcing and defending patent claims, competition in technological
and market developments, the establishment of and changes in collaborative
relationships and the cost of commercialization activities and arrangements.
Celtrix anticipates that it will be required to raise substantial additional
capital over a period of several years in order to continue its clinical
development programs and to prepare for commercialization. Raising additional
funds may result in further dilution to then-existing shareholders. No assurance
can be given that such additional funds will be available on reasonable terms,
or at all. The unavailability of such financing could delay or prevent the
development and marketing of Celtrix's potential products.
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Impact of Year 2000. Many computer systems experience problems handling
dates beyond the year 1999. Therefore, some computer hardware and software has
been upgraded or modified before the Year 2000 in order to remain functional.
Celtrix has assessed the impact of Year 2000 on its existing software and
systems. Celtrix implemented successfully the systems and software changes
necessary to address the Year 2000 issues, and does not believe that the costs
of such actions will have a material effect on Celtrix's results of operations
or financial condition. However, it is unknown the extent, if any, of the impact
of the Year 2000 on other systems and equipment of third parties with which
Celtrix does business. There can be no assurance that third parties will address
the Year 2000 issue in a timely fashion, or at all. Any Year 2000 compliance
problem or delay of either Celtrix, its suppliers, its clinical research
organizations, or its collaborative partners could have a material adverse
effect on Celtrix's business, operating results and financial conditions.
Quantitative and Qualitative Disclosures About Market Risk
Celtrix invests its excess cash in investment grade, interest-bearing
securities. At December 31, 1999, Celtrix had $1,211,652 invested in money
market mutual funds. While a hypothetical decrease in market interest rates by
10 percent from the December 31, 1999 levels would cause a decrease in interest
income, it would not result in a loss of the principal. Additionally, the
decrease in interest income would not be material.
Directors and Officers
The following sets forth certain information with respect to the current
directors and executive officers of Celtrix and their ages as of December 31,
1999:
NAME AGE POSITION
- ---- --- --------
Andreas Sommer, Ph.D. 58 President, Chief Executive Officer
and Member, board of directors
Donald D. Huffman 53 Vice President, Finance and
Administration, Chief Financial
Officer and Assistant Secretary
Malcolm J. McKay, Ph.D. 43 Vice President, Regulatory Affairs
and Quality Assurance
James E. Thomas 39 Chairman, board of directors
Henry E. Blair 56 Member, board of directors
Stuart D. Sedlack 35 Member, board of directors
Barry M. Sherman, M.D. 57 Member, board of directors
Except as set forth below, each of the directors of Celtrix has been
engaged in the principal occupation set forth next to his name above during the
past five years. The board of directors elects Celtrix's officers and such
officers serve at the discretion of the board. There are no family relationships
among the directors or executive officers of Celtrix.
For biographical information on Andreas Sommer, Ph.D., James E. Thomas,
Stuart D. Sedlack Barry M. Sherman, M.D. and Henry E. Blair, see "Election of
Directors of Celtrix" on page ____.
Donald D. Huffman. Mr. Huffman was appointed Vice President of Finance and
Administration and Chief Financial Officer of Celtrix in October 1997.
Previously, he was Vice
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President and Chief Financial Officer of Endosonics Corporation from July 1995
to October 1997 and served in the same capacity at Qualimatrix, Inc. from
October 1990 to June 1995. Mr. Huffman has an extensive background in finance
and strategic planning for Fortune 200, mid-size and emerging growth companies.
He received an MBA from State University of New York at Buffalo and a B.S. from
Pennsylvania State University.
Malcolm J. McKay, Ph.D. Dr. McKay was appointed Vice President of
Regulatory Affairs and Quality Assurance in August 1996 and has served in that
capacity for Celtrix since then. He was formerly a director of quality assurance
and quality control at COR Therapeutics from September 1995 until August 1996.
Previously, he served as director of quality assurance at Celtrix from April
1991 to September 1995, and he oversaw this function at Triton Biosciences from
March 1989 to April 1991. In addition, he served as group leader of technical
support at Abbott Laboratories. Dr. McKay received his Ph.D. in biochemistry at
the University of London and was a postdoctoral fellow at the Medical College of
Virginia.
The board of directors elects Celtrix's officers and such officers serve at
the discretion of the board of directors of Celtrix. There are no family
relationships among the directors or officers of Celtrix.
Executive Officer Compensation
Summary Compensation Table. The following table shows the compensation
received by (a) Celtrix's Chief Executive Officer, (b) the most highly
compensated executive officers (other than the Chief Executive Officer) who were
serving as executive officers of Celtrix as of March 31, 1999 and whose total
compensation for the year exceeded $100,000, (c) the most highly compensated
individual who would have been included under item (b) above but for the fact
that he was no longer serving as an executive officer of Celtrix as of March 31,
1999, and the compensation received by each such individual for Celtrix's two
prior fiscal years.
<TABLE>
<CAPTION>
Annual Long Term All Other
Compensation (1) Compensation Awards(1) Compensation(1)
Fiscal --------------------- ---------------------- --------------
Name and Principal Position Year Salary(2) Bonuses Options/SARS Granted
- --------------------------- ------ --------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
Andreas Sommer 1999 $ 269,315 $ 81,277(3)
Chief Executive Officer, President 1998 $ 251,100 $ 56,250(4) 170,000
& Director 1997 $ 212,925 $ 40,000(5)
Donald D. Huffman (6)
Vice President, Finance & 1999 $ 156,504
Administration, Chief Financial 1998 $ 68,874 $ 19,893(4) 165,000
Officer & Assistant Secretary
Malcolm J. McKay 1999 $ 155,535
Vice President, Regulatory 1998 $ 144,242 $ 21,750(4) 80,000
Affairs & Quality Assurance 1997 $ 78,587 $ 25,000(5) 50,000
David M. Rosen 1999 $ 87,804 $ 41,293(7)
Senior Vice President, Research & 1998 $ 154,074 $ 23,250(4) 100,000
Development 1997 $ 136,463 $ 25,000(5)
</TABLE>
(1) Except as disclosed in the table, there was no other cash compensation,
long-term incentive plan or restricted stock award that required
disclosure.
(2) Includes amounts earned but deferred at the election of the executive, such
as salary deferrals under Celtrix's retirement savings plan ("the 401(k)
Plan").
(3) Consists of forgiveness of loan principal and accrued interest.
(4) Includes amounts earned as of March 31, 1998 related to achieving certain
corporate milestones during fiscal year 1998. The awards were paid in April
1998.
(5) Includes amounts earned as of March 31, 1997 related to meeting certain
corporate milestones. The awards were paid in April 1997.
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(6) Celtrix hired Mr. Huffman in October 1997 as Vice President of Finance and
Administration and Chief Financial Officer.
(7) Consists of severance payment to Dr. Rosen upon termination of his
employment in September 1998. Dr. Rosen's salary, on an annualized basis,
would have been $175,000.
Stock Option Grants in Last Fiscal Year. There were no stock option grants
for the named executive officers made during the fiscal year ended March 31,
1999.
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values. The following table sets forth information for the named executive
officers with respect to exercises, during the fiscal year ended March 31, 1999,
of options to purchase common stock of Celtrix, and the number and value of
unexercised options at fiscal year end.
<TABLE>
<CAPTION>
Value of Unexercised In-the-
Number of Unexercised Money
Shares Acquired Options at Fiscal Year-End Options at Fiscal Year-End
Name On Exercise Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ---------------- --------------------- -------------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Andreas Sommer 0 $0 316,850/128,150 -/- (1)
Donald Huffman 0 $0 54,900/110,100 -/- (1)
Malcolm McKay 0 $0 60,800/69,200 -/- (1)
David Rosen 0 $0 0/0 -/- (1)
</TABLE>
________________
(1) The fair market value of Celtrix's common stock as reported on the Nasdaq
National Market System at the close of business on March 31, 1999 was $1.094.
The exercise price of all stock options held by the named officers was above the
market value of Celtrix's common stock on March 31, 1999.
Stock Option Plans
The 1991 Stock Option Plan. Under the Celtrix Pharmaceuticals, Inc. 1991
Stock Option Plan (the Celtrix 1991 Plan), officers, key employees, non-employee
directors and consultants of Celtrix may be selected to receive options to
purchase common stock of Celtrix. The Celtrix 1991 Plan is administered by the
board of directors of Celtrix and, to the extent its authority is so delegated,
to a compensation committee appointed by the board of directors of Celtrix.
Administration of the Celtrix 1991 Plan, and the composition of the compensation
committee-administrator is intended to satisfy the requirements of section
162(m) of the Internal Revenue Code and Rule 16b-3 under the Exchange Act. The
board of directors or the compensation committee selects individuals who will
participate in the Celtrix 1991 Plan, and establishes the terms of option grants
made under the Celtrix 1991 Plan, subject to the provisions of the Celtrix 1991
Plan. No participant in the Celtrix 1991 Plan may receive options for more than
500,000 shares of Celtrix common stock during any year (subject to equitable
adjustment on certain corporate transactions).
Options granted under the Celtrix 1991 Plan may be either options intended
to qualify as ISOs under section 422 of the Code, or options not intended to so
qualify. No income is recognized by a Celtrix 1991 Plan participant at the time
an option is granted. If the option is an ISO, no income will be recognized upon
exercise of the option. Income is recognized by a Celtrix 1991 Plan participant
when he disposes of shares acquired under an ISO. The exercise of a nonqualified
option generally is a taxable event that requires the Celtrix 1991 Plan
participant to recognize, as ordinary income, the difference between the shares'
fair market value and the option price. Celtrix is entitled to claim a federal
income tax deduction on account of the exercise of a nonqualified option.
Celtrix will not be entitled to a federal income tax deduction on account of the
grant or the exercise of an ISO, but may claim a federal income tax deduction on
account of certain dispositions of shares acquired upon the exercise of an ISO.
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The price per share purchased on exercise of an option granted under the
1991 stock option plan may not be less than the fair market value of a share of
Celtrix common stock on the date of grant of the option, in the case of an ISO,
or an option granted to a "covered employee" within the meaning of section
162(m) of the Code. The exercise price of nonqualified options granted to
persons other than "covered employees" may not be less than 85% of the fair
market value of a share of Celtrix common stock on the date of grant of the
option. The option price may be paid in the form of consideration determined by
the board of directors or the compensation committee, which may vary for each
option. No option may be exercised more than ten years after the date the option
is granted, nor may any option be transferred other than by will or the laws of
descent and distribution. Certain limitations on exercise of options granted
under the Celtrix 1991 Plan apply following an employee's, director's or
consultant's termination of employment of service.
The number of shares available for issuance under the Celtrix 1991 Plan and
the number, class, and price of shares subject to outstanding options shall be
adjusted by the board of directors or the compensation committee as it deems
appropriate in the event of a stock dividend, stock split or other transaction
that does not involve receipt of consideration by Celtrix. In the event of a
proposed merger or sale of Celtrix, options either must be assumed by the
acquiring entity, or the exercisability of outstanding options must be
accelerated and participants must be permitted to exercise those options. The
Celtrix 1991 Plan will terminate in 2001 or on any earlier date determined by
the board of directors of Celtrix.
The 1991 Directors' Stock Option Plan. Under the Celtrix Pharmaceuticals,
Inc. 1991 Directors' Stock Option Plan (the Celtrix Directors' Plan), non-
employee directors who own less than 2% of the outstanding common stock of
Celtrix receive options for 40,000 shares of Celtrix common stock when they join
the board of directors of Celtrix. These directors receive another option for
40,000 shares of Celtrix common stock every four years. Options become
exercisable for one-fourth of the shares subject to the option on the first
anniversary of the date of grant, and for 1/48 of the shares remaining each
month thereafter. Certain limitations on exercise apply following a termination
of service on the board of directors.
Certain Transactions
In November 1998, Celtrix sold 4,000,000 shares of common stock in a
private placement at $0.50 per share, which resulted in net proceeds to Celtrix
of approximately $1.9 million. Additionally, Celtrix issued three-year warrants
to purchase 6,000,000 shares of Celtrix common stock at $0.55 per share.
Purchasers in the offering included the following holders of more than 5% of
Celtrix's outstanding common stock: Biotechnology Development Fund and Veron
International, Ltd.
In January 1997, Celtrix entered into a two-year employment agreement with
Andreas Sommer which provides in pertinent part for annual compensation of
$215,000 as subsequently adjusted by the Compensation Committee, and up to 18
months severance, in the event of termination of employment under certain
circumstances. In January 1999, Celtrix executed a one-year extension of the
employment agreement with Dr. Sommer.
In January 1992, Celtrix loaned Dr. Sommer $60,000 to pay income taxes
associated with Dr. Sommer's exercise of his options to purchase BioGrowth
common stock. The loan was secured by Dr. Sommer's Celtrix stock and bore
interest at the rate of 5.12% per annum. The loan principal and accrued interest
totaling $81,277 were forgiven in September 1998. Withholding taxes of $28,813
due from Dr.
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<PAGE>
Sommer upon forgiveness of the loan were paid by Celtrix in December 1998, and a
receivable was established in that amount.
Celtrix has entered into separate indemnification agreements with each of
its directors and executive officers that may require Celtrix, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
as incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
Celtrix believes that the transactions set forth above are on terms no less
favorable to Celtrix than could have been obtained from unaffiliated third
parties. All future material transactions, including loans, between Celtrix and
its officers, directors, principal stockholders and affiliates will be approved
by a majority of the board of directors, including a majority of the independent
and disinterested outside directors on the board of directors, and will be on
terms no less favorable to Celtrix than could be obtained from unaffiliated
third parties.
Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth the beneficial ownership of Celtrix's common
stock as of December 31, 1999, as to (i) each person who is known by Celtrix to
beneficially own more than five percent of Celtrix's common stock, (ii) each of
Celtrix's current directors, (iii) each of the executive officers of Celtrix
named in the Summary Compensation Table on page ____, and (iv) all current
directors and executive officers of Celtrix as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------------
5% Stockholders, Directors, Named Executive Officers, and
Directors and Executive Officers as a Group Number Percent (2)
------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Biotechnology Development Fund, L.P. (3) 5,670,774 18.4%
575 High Street, Suite 201
Palo Alto, CA 94301
Elan Pharmaceuticals Investments, Ltd. (6) 5,632,680 17.6%
102 St. James Court
Flatts, Smiths Parish
Bermuda, FL 04
Warburg, Pincus Investors, L.P. (4) 3,643,175 12.9%
466 Lexington Avenue, Tenth Floor
New York, NY 10017
Veron International, Limited (5) 3,272,887 11.1%
Chinachem Golden Plaza
77 Mody Road
Tsiu Sha Tsui East
Kowloon, Hong Kong
Genzyme Corporation 3,023,217 10.9%
One Kendall Square
Cambridge, MA 02139
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------------
5% Stockholders, Directors, Named Executive Officers, and
Directors and Executive Officers as a Group Number Percent (2)
------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Henry E. Blair (7) 3,055,950 11.0%
One Kendall Square
Cambridge, MA 02139
Donald D. Huffman (8) 102,450 *
Malcolm J. McKay, Ph.D. (8) 102,467 *
Stuart D. Sedlack (9) 5,632,680 17.6%
Elan Corporation, plc
345 Park Avenue
New York, NY 10154
Barry M. Sherman, M.D. (10) 27,266 *
250 E. Grand Avenue
South San Francisco, CA 94080
Andreas Sommer, Ph.D. (8) 419,061 1.5%
James E. Thomas (11) 3,643,175 12.9%
466 Lexington Avenue, 10/th/ Floor
New York, NY 10017
All directors and executive officers as a group
(7 persons) (12) 12,983,049 39.8%
</TABLE>
_________________
*Less than 1%.
(1) Information with respect to beneficial ownership is based upon information
furnished by each director and officer or contained in filings made with
the Securities and Exchange Commission. Except as indicated in the
footnotes to this table, the stockholders named in the table have sole
voting and investment power with respect to all shares of Celtrix common
stock shown as beneficially owned by them, subject to community property
laws where applicable.
(2) Percentage of ownership is based on 27,862,372 shares of Celtrix common
stock outstanding on December 31, 1999. The number of shares of common
stock beneficially owned includes the shares issuable upon conversion of
Celtrix Series A Preferred Stock and/or pursuant to stock options that are
exercisable within 60 days after December 31, 1999. Shares issuable
pursuant to conversion of Celtrix Series A Preferred Stock and/or pursuant
to the exercise of warrants and stock options are deemed outstanding for
computing the percentage of the person holding such Celtrix Series A
Preferred Stock and/or options but are not outstanding for computing the
percentage of any other person.
(3) Includes shares held by an affiliated fund. Includes warrants for the
purchase of 615,258 shares of Celtrix common stock at an exercise price of
$2.68 which expires on April 1, 2000 and warrants for 2,250,000 shares of
Celtrix common stock at an exercise price of $0.55 which expire on November
20, 2001. Also includes an option to purchase 75,000 shares of Celtrix
common stock at an exercise price of $2.438 per share which expires on
April 1, 2000.
(4) Warburg, Pincus Investors, L.P. (WPI) is a Delaware limited partnership
whose sole general partner is Warburg, Pincus & Co., a New York general
partnership (WP). E. M. Warburg, Pincus & Co., LLC, a New York limited
liability company (EMW LLC), manages WP. The members of EMW LLC are
substantially the same as the partners of WP. Lionel I. Pincus is the
managing partner of WP and the managing member of EMW LLC and may be deemed
to control both WP and EMW LLC. WP, as the sole general partner of WPI,
has a 20% interest in the profits of WPI. Mr. James E. Thomas, Chairman of
the board of directors of Celtrix, is a Managing Director and member of EMW
LLC and a general partner of WP. As such, Mr. Thomas may be deemed to have
an indirect pecuniary interest (within
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<PAGE>
the meaning of Rule 16a-1 under the Securities Exchange Act of 1934) in an
indeterminable portion of the shares beneficially owned by WPI and WP. The
number of shares beneficially owned includes a warrant for the purchase of
461,443 shares of common stock at an exercise price of $2.68 which expires
on April 1, 2000.
(5) Includes a warrant for the purchase of 307,629 shares of Celtrix common
stock at an exercise price of $2.68 which expires on April 1, 2000 and a
warrant for 1,410,000 shares of Celtrix common stock at an exercise price
of $0.55 which expires on November 20, 2001.
(6) Includes 8,010 shares of Celtrix Series A Preferred Stock convertible into
4,123,929 shares of Celtrix common stock within 60 days after December 31,
1999.
(7) 3,023,217 of the shares indicated as owned by Mr. Blair are owned directly
by Genzyme Corporation and are included because Mr. Blair is a member of
the board of directors of Genzyme. Mr. Blair disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934. Also, includes 27,733 shares issuable
upon exercise of options exercisable within 60 days after December 31,
1999.
(8) As to each of Mr. Huffman, Dr. McKay, and Dr. Sommer, includes 102,450,
102,467, and 419,061 shares, respectively, issuable upon exercise of
options exercisable within 60 days after December 31, 1999.
(9) All of the shares indicated as owned by Mr. Sedlack are owned directly by
Elan International Services, Ltd., an affiliate of Elan Corporation, plc,
of which Mr. Sedlack serves as Director of Corporate Business Development.
Mr. Sedlack disclaims beneficial ownership of these shares within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
(10) Represents 27,266 shares issuable upon exercise of options exercisable
within 60 days after December 31, 1999.
(11) All of the shares indicated as owned by Mr. Thomas are owned directly by
Warburg, Pincus Investors (WPI) and are included because Mr. Thomas may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Securities Exchange Act of 1934) in an indeterminable
portion of the shares beneficially owned by WPI and WP. Mr. Thomas
disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest in such funds within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.
(12) Includes 4,779,628 shares issuable upon exercise of options held by
officers and directors exercisable within 60 days after December 31, 1999,
including shares issuable upon exercise of options held by the officers and
directors named in the foregoing table.
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DESCRIPTION OF INSMED PHARMACEUTICALS
Business Overview
Insmed Pharmaceuticals is a company that develops drugs to treat metabolic
and endocrine diseases. Insmed Pharmaceuticals' current programs address
treatments for type 2 diabetes and polycystic ovary syndrome (PCOS).
Insmed Pharmaceuticals' research and development activities are conducted
at Insmed Pharmaceuticals' laboratories in Richmond, Virginia, and at the
University of Virginia School of Medicine in Charlottesville, Virginia. Insmed
Pharmaceuticals currently has 13 U.S.-issued patents covering use and methods of
manufacture. Certain of the patents are licensed exclusively to Insmed
Pharmaceuticals under a license agreement with the University of Virginia Patent
Foundation. See "License Agreement" on page ___ for a more detailed description
of the license agreement.
Insmed Pharmaceuticals' lead product is INS-1. INS-1 is a naturally
occurring oral insulin sensitizer. In Phase II clinical studies, it has
demonstrated efficacy in patients with type 2 diabetes and in women suffering
from PCOS. In both pre-clinical and clinical studies, INS-1 has been tolerated
well and shown no evidence of organ toxicity. Unlike insulin, INS-1 achieves
significant concentrations in the bloodstream following oral administration.
Medical Background
Diabetes. Diabetes is a metabolic disorder characterized by an inability to
properly store and use glucose and is caused by either a deficiency of insulin
or a failure of insulin to produce "insulin mediator" which regulates and
coordinates the effects of insulin inside the cell. In the United States,
diabetes is the fourth leading cause of death by disease and is estimated to
afflict 16 million people with around 800,000 new cases diagnosed annually. Each
year, 200,000 Americans die from diabetes-related complications.
Many tissues of the body normally rely on glucose, a form of sugar, as a
source of metabolic energy. Most cells store significant amounts of glucose as
glycogen, but certain tissues, especially the brain, depend upon the blood to
deliver a continuous supply of glucose. The concentration of glucose in the
bloodstream must be controlled within a relatively tight range to maintain
normal health. If blood glucose drops too low, causing hypoglycemia, the brain
and nervous system stop working properly, thereby causing faintness, weakness,
tremulousness, headache, confusion, and personality changes. Severe hypoglycemia
can progress to convulsions, coma, and death. If blood glucose rises too high,
causing hyperglycemia, there may be excess urine production, thirst, weight
loss, fatigue, and in the most severe cases, dehydration, coma, and death.
Moreover, hyperglycemia causes damage from chemical reactions between the excess
glucose and proteins in cells, tissues, and organs. Over long periods, episodes
of hyperglycemia are thought to lead to diabetic complications, including
blindness, kidney failure, impotence and increased susceptibility to infection.
To control the storage and metabolism of blood glucose, the pancreas makes
hormones that signal either removal or addition of glucose to the blood,
depending on the need. Insulin is a pancreatic hormone that lowers blood glucose
levels. Glucagon is a pancreatic hormone that raises blood glucose levels.
Although certain other hormones affect blood glucose levels, insulin and
glucagon are considered the principal regulators of glucose metabolism
associated with eating. When the concentration of glucose in the bloodstream is
not controlled within a relatively tight range, severe complications result.
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<PAGE>
The principal disease associated with abnormal glucose metabolism is diabetes,
which is defined by the presence of elevated blood glucose levels.
Over the last 20 years, it has become generally accepted that there are
several distinct subclasses of diabetes, the two most important of which are
Type 1 diabetes and Type 2 diabetes. Type 1 diabetes typically begins during
childhood or early adulthood. Type 1 diabetes is caused by a lack of insulin,
resulting in deficient hormonal control of glucose metabolism and abnormally
high blood glucose levels. It is estimated that there are over 1 million Type 1
diabetics in the United States, and about 45,000 new cases are diagnosed each
year.
Type 2 diabetes is much more prevalent and typically begins during or after
middle age. In type 2 diabetes, the problem is not a lack of insulin but rather
an inability of insulin to produce "insulin mediator" and regulate blood glucose
levels, a phenomenon known as insulin resistance. As a consequence, even though
insulin continues to be secreted by the pancreas, blood glucose is poorly
controlled. Over time, the resulting episodes of hyperglycemia are thought to
cause widespread tissue damage, including possible damage to insulin secretion
mechanisms in the pancreas. It is currently estimated that 20% of the population
have some degree of insulin resistance, 11% have impaired glucose tolerance, a
condition characterized by normal blood glucose levels before eating but a
tendency toward hyperglycemia afterward, and 6% have type 2 diabetes. Each year,
the cost of diabetes management in the United States is in excess of $100
billion.
Polycystic Ovary Syndrome. Polycystic ovary syndrome, commonly known as
PCOS, is a major women's health disorder that affects approximately 6% of women
of reproductive age. PCOS is characterized by hyperandrogenism and the absence
of ovulation and is the leading cause of female infertility in the United
States. Recent studies suggest that insulin resistance accompanied by
compensatory hyperinsulinemia is a common feature of PCOS with excessive insulin
secretion being responsible in part for the hyperandrogenism of the disorder.
Clinical studies have demonstrated that excess testosterone concentrations
decrease when insulin resistance is reduced by drugs or by diet. This suggests
that correcting the underlying insulin resistance is an important target for
clinical intervention for patients suffering from PCOS. Women with this disorder
are often overweight, have excess facial hair and menstrual irregularities. The
long-term dangers of PCOS arise from the various medical complications that
occur as a consequence of the underlying disease. When compared to their normal
counterparts, women with PCOS have a four-fold increase in the risk of
developing hypertension, a seven-fold increase in the risk of developing type 2
diabetes and a seven-fold increase in the risk of having a heart attack. In
addition, women with PCOS have a higher risk of developing endometrial cancer.
Scientific Background
Insmed Pharmaceuticals' core technology is based on more than 20 years of
research at the University of Virginia School of Medicine on the biochemistry of
insulin resistance. Insulin resistance is an important metabolic disorder that
precedes type 2 diabetes, PCOS and other conditions. It is caused by a defect in
the body's ability to respond properly to insulin and is thought to exist in 20%
of the United States population.
Insulin is the primary hormone that circulates in the bloodstream to
regulate blood glucose. When released from the pancreas, insulin circulates in
the bloodstream and binds to receptors on the outer surface of various organs
and tissues, such as the liver, skeletal muscle and fat. After it binds to a
surface receptor on a normal cell, an "insulin mediator" is produced that
regulates and coordinates the
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<PAGE>
effects of the hormone inside the cell. Work at the University of Virginia has
demonstrated that defects in the production of this mediator contribute to the
severity of insulin resistance.
Insmed Pharmaceuticals' lead product candidate, INS-1, is a component of
this mediator. Insmed Pharmaceuticals believes that administration of INS-1 will
act as a building block to enhance replacement of the missing mediator, and has
the potential to enhance the metabolic effects of insulin in the body and
improve clinical management of insulin resistance.
Emerging Product Profile for INS-1. Insmed Pharmaceuticals believes that
INS-1 has several features that make it a desirable pharmaceutical product:
. Efficacy Profile. In phase II clinical studies, INS-1 has demonstrated
efficacy in patients with type 2 diabetes and women suffering from
PCOS.
. Toxicity Profile. In both pre-clinical and clinical studies, INS-1 has
been well-tolerated with no evidence of toxicity.
. Oral Product. INS-1, unlike insulin, achieves significant
concentrations in the bloodstream following oral administration. This
facilitates a patient's compliance with the recommended dosing
regimen.
. Manufacturing and Product Stability. INS-1 is a simple molecule with
an excellent stability profile. It can be synthesized using readily
available raw materials.
Current Treatment and Market Opportunities
There are few therapeutic options available for treatment of the diabetic
patient. The mainstay therapies consist primarily of injectable insulin
replacement, particularly in the type 1 diabetic, and oral hypoglycemic agents
for the type 2 diabetic who has failed dietary modification. It is estimated
that one-third of all diabetic patients use insulin and an additional one-third
are prescribed oral agents. The current marketplace consists of three key
classes of oral drugs: biguanides (metformin), thiazolidinediones (troglitazone,
rosiglitazone and pioglitazone) and the sulfonylureas (glyburide and glipizide).
Oral antidiabetic agents currently generate pharmaceutical revenues in excess of
$2 billion dollars in the United States with sales of troglitazone and metformin
contributing in excess of $1.5 billion. Industry analysts predict that the
introduction of newer thiazolidinediones will increase the U.S. market
considerably in the next several years.
While these therapies service a multi-billion dollar market, they have
limitations. The risk of hypoglycemia, which can precipitate coma, convulsion
and death, is the primary fear associated with intensive insulin use. Oral
sulfonylurea drugs are used to control hyperglycemia in type 2 diabetics;
however, these drugs are not universally effective and carry the risk of
increased cardiovascular mortality with their use. The use of troglitazone has
been associated with liver injury and death, and the FDA recommends intensive
liver monitoring while using this therapy. The use of troglitazone has been
disallowed in Europe.
Currently, there are no therapies approved to treat PCOS. Treatment is
targeted at symptoms rather than the underlying cause and includes the use of
fertility agents such as clomiphene and human gonadotropins, oral contraceptives
for menstrual regulation and weak anti-androgens for the treatment of hirsutism
and acne. In addition, drugs such as metformin and troglitazone, which are
indicated for the treatment of type 2 diabetes, are prescribed off-label for the
treatment of PCOS.
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<PAGE>
Clinical Development and Regulatory Program for INS-1
Summary of Ongoing and Completed Studies. Insmed Pharmaceuticals has
completed several pre-clinical toxicology studies and phase I/II clinical
studies in support of the development of INS-1 for both type 2 diabetes and PCOS
indications. As of December 31, 1999, twelve clinical studies have been
performed or are in progress with 394 subjects exposed to INS-1, the longest
exposure being for 8 weeks.
Summary of INS-1 Clinical Trials
<TABLE>
<CAPTION>
Study Number of
- ----- ---------
Number Design Subjects Status Purpose
- ------ ------ -------- ------ -------
<S> <C> <C> <C> <C>
INS-1/1 Randomized, double-blind, 18 obese male volunteers Completed. Safety and pharmacodynamic/
placebo-controlled, 2-period pharmacokinetic profile
crossover
INS-1/2 Randomized, 4-period, open-label, 12 healthy male volunteers Completed. Safety and pharmacokinetic profile
crossover
INS-1/3 Randomized, 2-period, open-label, 14 healthy male volunteers Completed. Safety and pharmacokinetic profile
crossover, food interaction
INS-1/4 Randomized, open-label 9 healthy male volunteers Completed. Safety and pharmacokinetic profile
INS-1/5 Randomized, open-label 9 subjects with impaired Completed. Safety and efficacy.
glucose tolerance, 10
subjects with normal
glucose tolerance
INS-1/6 Randomized, double-blind, parallel, 104 subjects with PCOS Completed. Safety and efficacy.
placebo-controlled
INS-1/9 Randomized, double-blind, 133 subjects with type 2 Completed. Safety and efficacy.
placebo-controlled, multi-center diabetes
INS-1/10 Randomized, double-blind, 220 obese women with PCOS In progress. Safety and efficacy.
placebo-controlled,
multi-center
INS-1/11 Open-label 24 pre-pubertal or In progress. Safety and pharmacokinetic
late-adolescent males and profile.
females
INS-1/12 Randomized, double-blind, 60 subjects with impaired In progress. Safety and efficacy.
placebo-controlled, multi-center glucose tolerance or
impaired fasting glucose
INS-1/14 Randomized, double-blind, 80 patients with type 2 In progress. Safety and efficacy.
placebo-controlled diabetes currently on
sulfonylureas
INS-1/16 Randomized, double-blind, 80 women with PCOS In progress. Safety and efficacy.
placebo-controlled (comparison with metformin)
</TABLE>
In all seven of the completed clinical studies, INS-1 was well-tolerated
with no evidence of clinically relevant adverse events. The drug was well-
absorbed in a dose-dependent manner and the absorption rate and magnitude was
not affected by food or repeated administration. In the PCOS population, the
drug was well-tolerated and showed statistically significant improvement in
ovulation and in the biochemical markers of this condition. The results of the
first part of the study (covering 44 patients) were reported in the April 29,
1999, issue of the New England Journal of Medicine. In patients
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<PAGE>
with type 2 diabetes, the drug was well-tolerated and showed a statistically
significant improvement in glycemic and lipid profiles without weight gain. This
data was presented at the June 1999 annual meeting of the American Diabetes
Association.
Future Studies. Insmed Pharmaceuticals plans to conduct several phase
II/III trials to document the safety and efficacy of the product in both type 2
diabetes and PCOS to support world-wide product registration.
Business Strategy
The key elements of Insmed Pharmaceuticals' business strategy for
establishing a leading position in the development and marketing of drugs to
treat endocrine and metabolic diseases and disorders are:
. Obtain regulatory approvals for INS-1 in the treatment of PCOS. After
successful completion of its development program, Insmed
Pharmaceuticals intends to file for U.S. regulatory approval.
. Retain commercial rights and market products in selected markets.
Insmed Pharmaceuticals intends to retain market and distribution of
INS-1 for PCOS in the United States. For type 2 diabetes and for
territories outside of the United States, Insmed Pharmaceuticals will
seek to establish corporate partnerships.
. Acquire and in-license additional products and technologies. Insmed
Pharmaceuticals intends to expand its product portfolio in metabolic
and endocrine disorders by acquiring, in-licensing and commercializing
additional products.
Competition
Any product that Insmed Pharmaceuticals may develop will compete directly
with products developed and marketed by other companies. In addition, other
institutions, including pharmaceutical companies, universities, government
agencies and public and private research organizations are attempting to develop
and patent products that could compete with our products. These companies and
institutions also compete with Insmed Pharmaceuticals in recruiting and
retaining qualified scientific personnel. Many of Insmed Pharmaceuticals'
competitors and potential competitors have substantially greater scientific
research and product development capabilities, as well as financial, marketing
and human resources, than Insmed Pharmaceuticals does.
Virtually all of Insmed Pharmaceuticals' competitors and potential
competitors have greater research and development capabilities, experience,
manufacturing, marketing, sales, financial and managerial resources than Insmed
Pharmaceuticals now has. Insmed Pharmaceuticals' competitors may develop
competing technologies, and obtain regulatory approval for products more rapidly
than Insmed Pharmaceuticals does. This may allow them to obtain greater market
acceptance of their products. Developments by others may render some or all of
Insmed Pharmaceuticals' proposed products or technologies uncompetitive or
obsolete.
Currently, the majority of new drug development in the field of diabetes
focuses on managing the established disease state and associated complications,
including renal disease, blindness, ulcerations and neuropathic disease. Insmed
Pharmaceuticals believes that, by focusing its research and
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<PAGE>
development on the insulin-resistant condition, it is uniquely positioned to
identify and treat people before they develop these disorders.
Drugs in research and development indicated specifically for the chronic
treatment of type 2 diabetes fall into two major classes:
. newer insulins and peptides improving insulin release or action; and
. improved oral hypoglycemic agents.
New Insulins. Insulin is the primary therapy for diabetic patients. Albeit
successful, insulin therapy has limitations. Long-term treatment relies on
frequent subcutaneous injection of the hormone. The kinetics of absorption from
injection sites are slower than, and do not mimic, the normal physiological
release and distribution profile of naturally secreted insulin. Although potency
and duration of action can be pre-selected, the risk of hypoglycemia resulting
from overdosage or mismatching of peak insulin delivery to food intake always
poses a problem. The results of a study conducted in 1994 by the National
Institute of Diabetes and Digestive and Kidney Diseases demonstrated that the
more vigorous the attempts to achieve normal blood glucose levels, the more
frequent the episodes of hypoglycemia.
Improved Oral Hypoglycemic Agents. There are numerous products which have
been approved for use in the treatment of type 2 diabetes in place of or in
addition to insulin therapy. These products include the following:
. Glucophage(R) is a proprietary product of Bristol-Myers Squibb Company
that is used to improve diabetic patients' ability to control glucose
without increasing serum insulin levels. It is believed to work, at
least in part, by reducing glucose output from the liver.
. Arcabose(R) is a proprietary product sold in the United States by
Bayer Corporation. The product is sold in Europe under the tradename
Glucobay. Acarbose reduces blood glucose levels primarily after meals
by slowing down the digestion of carbohydrates and lengthening the
time it takes for carbohydrates to convert to glucose.
. Avandia(R), Actos(R) and Rezulin(R) are proprietary products sold by
Warner Lambert Company, Smith Kline Beecham plc and Eli Lilly and
Company, respectively, and belong to a class of compounds referred to
as glitazones. The products are believed to work in part by increasing
the body's sensitivity to insulin.
. Prandin(TM) is a proprietary product sold by Novo Nordisk A/S and
Schering-Plough Corporation which has been approved by the FDA for
certain diabetic patients. The product is believed to act via calcium
channels to stimulate insulin secretion.
License Agreement
The license agreement between the UVA Patent Foundation and Insmed
Pharmaceuticals grants to Insmed Pharmaceuticals the worldwide, exclusive right
and license, including the right to grant sublicenses, to use and practice
certain patent rights and all processes, techniques, modifications,
enhancements, variations and alterations, including continuations-in-part to
these inventions.
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<PAGE>
In consideration for the license agreement, Insmed Pharmaceuticals is
obligated to pay minimum annual licensing fees as well as patent costs through
the expiration of the patent rights. Insmed Pharmaceuticals must pay the
foundation a royalty on the net sales of therapeutic drugs covered by the
license agreement. Royalties earned by the foundation will reduce licensing fees
and, in case of patent infringement, Insmed Pharmaceuticals may use 50% of
royalties payable to the foundation to cover expenses it incurs to defend the
patents.
In addition to payments to be made by Insmed Pharmaceuticals to UVA Patent
Foundation pursuant to the license agreement, the foundation has been issued
common stock equal to 3% of the total outstanding stock of all classes issued by
Insmed Pharmaceuticals. The Foundation's right to receive shares of capital
stock of Insmed Pharmaceuticals will terminate on the date immediately preceding
the date the SEC declares effective this joint proxy statement/prospectus.
Patents
Insmed Pharmaceuticals has 13 U.S.-issued patents. Ten of the issued
patents are exclusively licensed from the University of Virginia, and three are
the sole property of Insmed Pharmaceuticals. Insmed Pharmaceuticals also has
four pending patent applications covering defined compounds and their use in the
diagnosis and treatment of insulin resistance. Patent applications have been
filed in major international markets.
The issued patents cover use of compounds to treat insulin resistance in
type 2 diabetes, use of compounds to screen individuals for insulin resistance
associated with type 2 diabetes, compositions and methods for treating metabolic
disorders, processes by which compounds are manufactured and the purification,
character and function of certain compounds. Pending applications cover broader
claims for use of compounds in the treatment of insulin resistance.
The Waxman-Hatch Act provides that patent terms may be extended during the
FDA regulatory review period for the related product. This period is generally
one-half the time between the effective date of an investigational new drug
application and the submission date of a new drug application, plus the time
between the submission date of a new drug application and the approval of that
application, subject to a maximum extension of five years. Similar patent term
extensions are available under European laws.
Government Regulation
The research, development, testing, manufacture, promotion, marketing and
distribution of drug products are extensively regulated by government
authorities in the United States and other countries. Drugs are subject to
rigorous regulation by the FDA in the United States and similar regulatory
bodies in other countries. The steps ordinarily required before a new drug may
be marketed in the United States, which are similar to steps required in most
other countries, include:
. Preclinical laboratory tests, preclinical studies in animals and
formulation studies and the submission to the FDA of an
investigational new drug application for a new drug or antibiotic;
. Adequate and well-controlled clinical trials to establish the safety
and efficacy of the drug for each indication;
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<PAGE>
. The submission of a new drug application to the FDA; and
. FDA review and approval of the new drug application before any
commercial sale or shipment of the drug.
Preclinical tests include laboratory evaluation of product chemistry
toxicity and formulation, as well as animal studies. The results of preclinical
testing are submitted to the FDA as part of an investigational new drug
application. A 30-day waiting period after the filing of each investigational
new drug application is required before beginning clinical tests in humans. At
any time during this 30-day period or at any time thereafter, the FDA may halt
proposed or ongoing clinical trials until the FDA authorizes trials under
specified terms. The investigational new drug application process may be
extremely costly and substantially delay development of Insmed Pharmaceuticals'
products. Moreover, positive results of preclinical tests will not necessarily
indicate positive results in clinical trials.
Clinical trials to support new drug applications are typically conducted in
three sequential phases, but the phases may overlap. During Phase I, the initial
introduction to the drug into healthy human subjects or patients, the drug is
tested to assess metabolism, pharmacokinetics and pharmacological actions and
safety, including side effects associated with increasing doses.
Phase II usually involves studies in a limited patient population to:
. Assess the efficacy of the drug in specific, targeted indications;
. Assess dosage tolerance and optimal dosage; and
. Identify possible adverse effects and safety risks.
If a compound is found to be potentially effective and to have an
acceptable safety profile in Phase II evaluations, Phase III trials, also called
pivotal studies, major studies or advanced clinical trails, are undertaken to
further demonstrate clinical efficacy and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
After successful completion of the required clinical testing, generally a
new drug application is submitted. The FDA may request additional information
before accepting a new drug application for filing, in which case the
application must be resubmitted with the additional information. Once the
submission has been accepted for filing, the FDA has 180 days to review the
application and respond to the applicant. The review process is often
significantly extended by FDA requests for additional information or
clarification. The FDA may refer the new drug application to an appropriate
advisory committee for review, evaluation and recommendation as to whether the
application should be approved, but the FDA is not bound by the recommendation
of an advisory committee.
If FDA evaluations of the new drug application and related manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter. An approvable letter will usually contain a number of
conditions that must be met in order to secure final approval of the new drug
application and authorization of commercial marketing of the drug for certain
indications. The FDA may refuse to approve the new drug application or issue a
not approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information.
If regulatory approval of any of Insmed Pharmaceuticals' products is
granted, it will be limited to certain disease states or conditions. The
manufacturers of approved products and their manufacturing
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<PAGE>
facilities will be subject to continual review and periodic inspections. Because
Insmed Pharmaceuticals intends to contract with third parties for manufacturing
of its products, its control of compliance with FDA requirements will be
incomplete. In addition, identification of certain side effects or the
occurrence of manufacturing problems after any of its drugs are on the market
could cause subsequent withdrawal of approval, reformulation of the drug,
additional preclinical testing or clinical trials, and changes in labeling of
the product.
Outside the United States, Insmed Pharmaceuticals' ability to market its
products will also be contingent upon receiving marketing authorizations from
the appropriate regulatory authorities. The foreign regulatory approval process
includes all of the risks associated with FDA approval set forth above. The
requirements governing the conduct of clinical trials and marketing
authorization vary widely from country to country. At present, foreign marketing
authorizations are applied for at a national level, although within Europe
procedures are available to companies wishing to market a product in more than
one EU member state.
Under a new regulatory system in the EU, marketing authorizations may be
submitted at either a centralized, a decentralized or a national level. The
centralized procedure is mandatory for the approval of biotechnology products
and high technology products and available at the applicant's option for other
products. The centralized procedure provides for the grant of a single marketing
authorization that is valid in all EU member states. The decentralized procedure
is available for all medicinal products that are not subject to the centralized
procedure. The decentralized procedure provides for mutual recognition of
national approval decisions, changes existing procedures for national approvals
and establishes procedures for coordinated EU actions on products, suspensions
and withdrawals. Under this procedure, the holder of a national marketing
authorization for which mutual recognition is sought may submit an application
to one or more EU member states, certify that the dossier is identical to that
on which the first approval was based or explain any differences and certify
that identical dossiers are being submitted to all member states for which
recognition is sought. Within 90 days of receiving the application and
assessment report, each EU member state must decide whether to recognize
approval. The procedure encourages member states to work with applicants and
other regulatory authorities to resolve disputes concerning mutual recognition.
Lack of objection of a given country within 90 days automatically results in
approval of the EU country.
Insmed Pharmaceuticals will choose the appropriate route of European
regulatory filing to accomplish the most rapid regulatory approvals. However,
the chosen regulatory strategy may not secure regulatory approvals or approvals
of the chosen product indications. Insmed Pharmaceuticals intends to secure
European regulatory approval for the use of INS-1 in parallel with its United
States and Canadian regulatory filings.
Legal Proceedings
Insmed Pharmaceuticals is not involved in any legal proceedings nor, to
Insmed Pharmaceuticals' knowledge, is any litigation threatened against Insmed
Pharmaceuticals.
Properties And Employees
As of December 31, 1999, Insmed Pharmaceuticals has 28 full-time employees
and leases 8,400 square feet of office and laboratory space at an annual cost of
approximately $221,000.
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<PAGE>
Selected Historical Financial Data
The following results of operations and balance sheet data for and as of
the end of fiscal years 1995, 1996, 1997, 1998 and 1999 have been derived from
Insmed Pharmaceuticals' audited consolidated financial statements. The
information set forth below should be read in conjunction with Insmed
Pharmaceuticals' consolidated financial statements and related notes and other
financial information in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Historical Statement of Operations Data:
Total revenues $ 380 $ 146 $ -- $ 100 $ 663
Operating expenses:
Research and development 877 1,302 2,604 3,769 6,349
General and administrative 666 943 979 1,626 2,445
------- ------- ------- ------- -------
Total operating expenses 1,543 2,245 3,583 5,395 8,794
------- ------- ------- ------- -------
Operating loss (1,163) (2,099) (3,583) (5,295) (8,131)
Interest income, net (43) 11 103 486 338
------- ------- ------- ------- -------
Net loss $(1,206) $(2,088) $(3,480) $(4,809) $(7,793)
======= ======= ======= ======= =======
Basic and diluted net loss per share:
Net loss $ (0.75) $ (0.87) $ (1.22) $ (1.47) $ (2.16)
Weighted average shares 1,607 2,399 2,854 3,278 3,606
December 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
Historical Balance Sheet Data:
Cash, cash equivalents and investments $ 60 $ 2,106 $ 2,050 $11,677 $ 4,635
Total assets 173 2,386 2,365 11,938 5,296
Convertible participating preferred stock -- 5,294 -- -- --
Stockholders' equity (deficiency) (1,512) (3,093) 2,151 11,661 4,462
</TABLE>
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
The following discussion also should be read in conjunction with the
Consolidated Financial Statements and notes thereto.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Results of Operations. For the year ended December 31, 1999, revenues were
$663,000, compared with $100,000 for 1998. Revenues for both periods consist
primarily of grants under the Small Business Innovation Research Program (SBIR).
The revenue recorded in 1999 relates to a SBIR grant to fund a phase II study in
PCOS subjects. The revenue recorded in 1998 relates to an SBIR grant to fund a
phase I study in PCOS subjects. Research and development expense was $6.3
million for the year ended December 31, 1999 compared to $3.8 million for the
year ended December 31, 1998. The $2.5 million (66%) increase was caused by
higher clinical trial costs. General and administrative expenses increased
$819,000 or 50% to $2.4 million for the year ended December 31, 1999. The
increase can be attributed to costs expended to obtain patent protection for
technology in various countries, expenses incurred to develop strategic
relationships for Insmed Pharmaceuticals, salary and benefits for the chief
financial officer hired in May, and increases in travel and office expenses. The
increase is also related to the recognition of $280,000 of stock-based
compensation. Interest income
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<PAGE>
declined $148,000 to $338,000 for the year ended December 31, 1999. Lower
average cash balances caused this decrease in 1999 compared to 1998.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Results of Operations. Insmed Pharmaceuticals recorded revenues of $100,000
for the year ended December 31, 1998. No revenue was recorded in 1997. The 1998
revenue related to a SBIR grant to fund a phase I study in PCOS subjects. For
the year ended December 31, 1998, Insmed Pharmaceuticals expended $3.8 million
on research and development. This was an increase of $1.2 million or 46% from
the year ended December 31, 1997, in which $2.6 million was expended. In 1998,
additional development personnel were hired to manage and conduct an increasing
number of clinical trials. The number of pre-clinical toxicology studies
increased significantly over the prior year. Additional lab space was necessary
to accommodate the increase in activity and Insmed Pharmaceuticals utilized
outside scientific consultants. General and administrative expenses increased
$647,000 to $1.6 million from $979,000 for the year ended December 31, 1997. The
two primary components of the increase were additional salary and wages
associated with an increase in personnel and expenditures on investor relations.
In June 1998, Insmed Pharmaceuticals received net proceeds of $14.0 million from
the sale of its Series B Preferred stock. This influx of cash caused an increase
in the average cash balance in 1998 resulting in interest income of $486,000 for
the year ending December 31, 1998, an increase of $383,000 over 1997.
Liquidity and Capital Resources. Since Insmed Pharmaceuticals' inception in
1988, we have financed our operations primarily through the private placement of
preferred and common stock aggregating approximately $26.2 million through
December 31, 1999. Our last private placement of stock occurred in June 1998 and
generated net proceeds of $14 million. At December 31, 1999, our cash and
investments were about $4.6 million. These funds are invested in money market
instruments and investment grade corporate debt. Investments in both fixed and
floating rate instruments carry interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to rises in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Insmed Pharmaceuticals does not expect changes in interest rates to
have a material impact on the results of operations.
In January 2000, Insmed Pharmaceuticals entered into an agreement to sell
5,632,678 shares of its common stock and warrants to purchase 6,901,344 shares
of common stock of Insmed, Inc. for aggregate consideration of $34.5 million.
The warrants are exercisable for five years at a price of $2.25. Such sale is
contingent on the completion of the merger with Celtrix. See "Recent
Developments" on page ___ for more information on the agreement.
If we complete this financing, we believe that we will have adequate cash
to meet our needs for at least two years. Our business strategy contemplates
selling additional equity and entering into agreements with corporate partners
to fund research and development, and provide milestone payments, license fees
and equity investments to fund operations. We will need to raise substantial
additional funds to continue development and commercialization of our products.
There can be no assurance that adequate funds will be available when we need
them, or on favorable terms. If at any time we are unable to obtain sufficient
additional funds, we will be required to delay, restrict or eliminate some or
all of our research or development programs, dispose of assets or technology, or
cease operations.
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Impact of Year 2000
Insmed Pharmaceuticals replaced and upgraded much of its information
technology in the normal course of business during 1999. Year 2000 failures
have not had, and Insmed Pharmaceuticals does not believe they will have, a
material adverse impact. The incremental costs of the project were not
significant.
Quantitative and Qualitative Disclosures About Market Risk.
Insmed Pharmaceuticals invests its excess cash in investment grade,
interest-bearing securities. At December 31, 1999, Insmed Pharmaceuticals had
$1.0 million invested in money market mutual funds. While a hypothetical
decrease in market interest rates by 10 percent from the December 31, 1999
levels would cause a decrease in interest income, it would not result in a loss
of the principal. Additionally, the decrease in interest income would not be
material.
Directors and Officers
Directors and Executive Officers. Set forth below are the names, ages and
positions and a brief description of the business experience of Insmed
Pharmaceuticals' directors and executive officers. All directors hold office
until the next annual meeting of shareholders and until their successors are
duly elected and qualified.
Name Age Position
- ---- --- --------
Geoffrey Allan, Ph.D.................. 46 President, Chief Executive
Officer, and Chairman of the
board of directors
Michael D. Baer....................... 55 Chief Financial Officer
Kenneth G. Condon..................... 52 Member, board of directors
Gustav A. Christensen................. 52 Member, board of directors
Graham K. Crooke, MB.BS............... 40 Member, board of directors
Dennis J. Dougherty................... 51 Member, board of directors
Steinar J. Engelsen, M.D.............. 49 Member, board of directors
Edgar G. Engleman, M.D................ 54 Member, board of directors
The officers serve at the pleasure of the board and are elected on an
annual basis following the annual meeting of Insmed Pharmaceuticals'
shareholders. There are no family relationships among any of the directors or
officers of Insmed Pharmaceuticals. For a description of the business experience
of Insmed Pharmaceuticals' directors see "Management and Operation of Insmed,
Inc. After the Reorganizations - Insmed, Inc. Board of Directors" on page ___,
and for a description of the business experience of Michael D. Baer, see
"Management and Operation of Insmed, Inc. After the Reorganizations -Management"
on page ___.
Executive Officer Compensation
Summary Compensation Table: The following table shows the compensation
received by each person serving as an executive officer of Insmed
Pharmaceuticals as of December 31, 1999 and the compensation received by each
such individual for each of the two prior fiscal years.
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<TABLE>
<CAPTION>
Annual Long Term All Other
Compensation (1) Compensation Awards Compensation (7)
---------------- ------------------------ ----------------
Fiscal Options/SARS Granted (1)
------------------------
Name and Principal Position Year Salary(2) Bonuses
- --------------------------- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Geoffrey Allan 1999 $210,000 --(3) 100,000 $1,470
Chairman of the board of directors, 1998 $200,000 $50,000(4) 250,000 $1,475
Chief Executive Officer and President 1997 $176,667 $30,000(5) -- $ --
Michael D. Baer (6) 1999 $103,125 --(3) 90,000 $9,850
Chief Financial Officer
</TABLE>
(1) Except as disclosed in the table, there was no other cash compensation,
long-term incentive plan or restricted stock award that required
disclosure.
(2) Includes amounts earned but deferred at the election of the executive, such
as salary deferrals under Insmed Pharmaceuticals' retirement savings plan
("the 401(k) Plan").
(3) As of February 9, 2000, Dr. Allan's and Mr. Baer's performance bonuses for
1999 had not been approved by the board of directors.
(4) Includes amounts earned as of December 31, 1998 for achieving certain
corporate milestones during fiscal year 1998. The award was paid in April
1999.
(5) Includes amounts earned as of December 31, 1997, for achieving certain
corporate milestones during fiscal year 1997. The award was paid in
December 1998.
(6) Insmed Pharmaceuticals hired Mr. Baer in May 1999 as Chief Financial
Officer.
(7) Relates personnel use of a vehicle provided by Insmed Pharmaceuticals to
Dr. Allan and life insurance premiums for coverage in excess of $50,000.
Mr. Baer's other compensation relates to relocation expenses paid by Insmed
Pharmaceuticals on his behalf and life insurance premiums for coverage in
excess of $50,000.
Stock Option/SAR Grants in Last Fiscal Year. Each of the following
options relates to Insmed Pharmaceuticals common stock and does not include a
related SAR.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------
% of
Total Options
Granted to Exercise
Options Employees in or Base Expiration Grant date present
Name Granted(#) Fiscal Year Price ($) Date value(2)
- ---- ---------- ----------- --------- ---- --------
<S> <C> <C> <C> <C> <C>
Geoffrey Allan 100,000(1) 18.8% $0.80 1/01/2005 $87,000
Michael D. Baer 90,000(1) 16.9% $0.80 5/16/2005 $78,300
</TABLE>
(1) Options vest and become exercisable in equal monthly amounts over a four
year period.
(2) No market currently exists for Insmed Pharmaceuticals common stock. We have
utilized the fair market value of Celtrix's common stock as reported on The
Nasdaq SmallCap Market at the close of business on December 31, 1999, of
$2.875 as a basis for determining whether the options granted to Dr. Allan
and Mr. Baer are in the money. By applying the exchange ratio, of 3.5 to 1,
dictated in the reorganization agreement, applicable to the Insmed
Pharmaceuticals common stock to the Celtrix market value per share it
implies a market value of $10.06 for Insmed Pharmaceuticals common stock.
Based on this methodology we have classified all the options granted to Dr.
Allan and Mr. Baer as in the money. The fair value of the stock options was
estimated at the date of grant using the Black-Scholes pricing method
assuming a risk free interest rate of 6.0%, no dividends, a volatility
factor of 0.25, and a weighted average exercise life of four years. The
application of this method resulted in a fair value per option between
$0.87 and $1.38.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End
Option Values. The following table sets forth information for the named
executive officers with respect to exercises, during the year ended December 31,
1999, of options to purchase common stock of Insmed Pharmaceuticals, and the
number and value of unexercised options at fiscal year end.
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<PAGE>
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
Name Shares Acquired On Exercise Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ------------------ --------------------------- -------------- --------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Geoffrey Allan 0 $0 295,206/273,960 359,331/297,918 (1)
Michael D. Baer 0 $0 13,125/76,875 11,419/66,881 (1)
</TABLE>
(1) No market currently exists for Insmed Pharmaceuticals common stock. We have
utilized the fair market value of Celtrix's common stock as reported on The
Nasdaq SmallCap Market at the close of business on December 31, 1999, of $2.875
as a basis for determining whether the options granted to Dr. Allan and Mr. Baer
are in the money. By applying the exchange ratio, of 3.5 to 1, dictated in the
reorganization agreement, applicable to the Insmed Pharmaceuticals common stock
to the Celtrix market value per share it implies a market value of $10.06 for
Insmed Pharmaceuticals common stock. Based on this methodology we have
classified all the options granted to Dr. Allan and Mr. Baer as in the money.
The fair value of the stock options was estimated at the date of grant using the
Black-Scholes pricing method assuming a risk free interest rate of 6.0%, no
dividends, a volatility factor of 0.25, and a weighted average exercise life of
four years. The application of this method resulted in a fair value per option
between $0.87 and $1.38.
Stock Option Plans
The 1994 Stock Option Plan. Under the Insmed Pharmaceuticals, Inc. 1994
Stock Option Plan (the Insmed Pharmaceuticals 1994 Plan), officers, key
employees, non-employee directors and consultants of Insmed Pharmaceuticals may
be selected to receive options to purchase common stock of Insmed
Pharmaceuticals. The Insmed Pharmaceuticals 1994 Plan is administered by the
board of directors of Insmed Pharmaceuticals and, to the extent its authority is
so delegated, to a compensation committee appointed by the Insmed
Pharmaceuticals board of directors of Insmed Pharmaceuticals. The board of
directors or the compensation committee selects individuals who will participate
in the Insmed Pharmaceuticals 1994 Plan, and establishes the terms of option
grants made under the Insmed Pharmaceuticals 1994 Plan, subject to the
provisions of the Insmed Pharmaceuticals 1994 Plan.
Options granted under the Insmed Pharmaceuticals 1994 Plan may be either
options intended to qualify as "incentive stock options" under section 422 of
the Internal Revenue Code, or options not intended to so qualify. No income is
recognized by a Insmed Pharmaceuticals 1994 Plan participant at the time an
option is granted. If the option is an ISO, no income will be recognized upon
exercise of the option. Income is recognized by a Insmed Pharmaceuticals 1994
Plan participant when he disposes of shares acquired under an ISO. The exercise
of a nonqualified option generally is a taxable event that requires the Insmed
Pharmaceuticals 1994 Plan participant to recognize, as ordinary income, the
difference between the shares' fair market value and the option price. Insmed
Pharmaceuticals is entitled to claim a federal income tax deduction on account
of the exercise of a nonqualified option. Insmed Pharmaceuticals will not be
entitled to a federal income tax deduction on account of the grant or the
exercise of an ISO, but may claim a federal income tax deduction on account of
certain dispositions of shares acquired upon the exercise of an ISO.
The price per share purchased on exercise of an option granted under the
1994 stock option plan may not be less than the fair market value of a share of
Insmed Pharmaceuticals common stock on the date of grant of the option, and must
be paid either by certified or bank check. No option may be exercised more than
ten years after the date the option is granted, nor may any option be
transferred other than by will or the laws of descent and distribution. Certain
limitations on exercise of options granted under the Insmed Pharmaceuticals 1994
Plan apply following an employee's, director's or consultant's termination of
employment of service.
The number of shares available for issuance under the Insmed
Pharmaceuticals 1994 Plan and the number, class, and price of shares subject to
outstanding options shall be adjusted by the Insmed Pharmaceuticals board of
directors or the compensation committee as it deems appropriate in the event of
a stock dividend, recapitalization, merger, consolidation, split-up, share
exchange, or similar event.
161
<PAGE>
The Insmed Pharmaceuticals 1994 Plan will terminate on December 31, 2003 or on
any earlier date determined by the Insmed Pharmaceuticals board of directors.
Certain Transactions
Since October 1988, W. McIlwaine Thompson, Jr., of counsel to Woods, Rogers
& Hazlegrove P.L.C., has provided legal assistance to Insmed Pharmaceuticals and
Insmed Diagnostics, Inc., a wholly-owned subsidiary of Insmed Pharmaceuticals on
various matters. During 1999, Insmed Pharmaceuticals paid Woods, Rogers &
Hazlegrove P.L.C. $38,806 for legal services rendered during the year.
Dr. Allan has been granted options to purchase a total of 865,000 shares of
Insmed Pharmaceuticals common stock: 500,000 at a price of $0.15 per share;
250,000 at a price of $0.50 per share, 100,000 at a price of $0.80 per share and
15,000 at a price of $3.00 per share. On October 15, 1997, Insmed
Pharmaceuticals loaned Dr. Allan $44,375.10 which he used to purchase 295,834
shares of Insmed Pharmaceuticals common stock pursuant to vested options. Of his
remaining 569,166 options, 295,206 were vested and exercisable as of December
31, 1999. Mr. Baer has been granted options to purchase 90,000 shares at a price
of $0.80 per share vesting monthly at a rate of 1,875 shares per month over 48
months commencing May 1999.
Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1999, there were 241 shareholders of Insmed
Pharmaceuticals. The following table sets forth certain information regarding
the beneficial ownership of Insmed Pharmaceuticals' capital stock as of December
31, 1999, as adjusted to assume the conversion of all outstanding shares of
Insmed Pharmaceuticals Series A Preferred Stock and Insmed Pharmaceuticals
Series B Preferred Stock into shares of common stock and with respect to all
officers and directors of Insmed Pharmaceuticals, all officers and directors as
a group and each shareholder owning more than 5% of Insmed Pharmaceuticals'
capital stock, including shares to be issued upon the exercise of outstanding
warrants and options.
<TABLE>
<CAPTION>
Shares of Insmed Pharmaceuticals Common Stock
Beneficially Owned
---------------------------------------------------------------
Name & Address Number of Shares Beneficially Owned/(1)/ Percent
- -------------- ----------------------------------- -------
<S> <C> <C>
Graham K. Crooke 2,867,531/(2)/ 21.0%
Ticonderoga Capital
Suite 4360
555 California St.
San Francisco, CA 94101
Steinar J. Engelsen 1,010,000/(3)/ 7.4%
Teknoinvest Management AS
Grev Wedels, Plass 5
P.O. Box 556 Sentrum
Oslo, Norway 0105
Dennis J. Dougherty 929,605/(4)/ 6.8%
Intersouth Partners III, L.P.
1000 Park Forty Plaza, Suite 290
Durham, NC 27713
Edgar G. Engleman 922,500/(5)/ 6.8%
BioAsia Investments, L.L.C.
575 High Street
Suite 201
Palo Alto, CA 94301
</TABLE>
162
<PAGE>
<TABLE>
<S> <C> <C>
Duncan C. McCallum 921,036/(6)/ 6.8%
One Liberty Fund III, L.P.
One Liberty Square
Boston, MA 02109
Kenneth G. Condon 862,381/(7)/ 6.3%
Boston University Nominee Partnership
147 Bay State Road
Boston, MA 02215
Geoffrey Allan 620,207/(8)/ 4.6%
800 E. Leigh Street
Richmond, VA 23219
W. M. Thompson, Jr. 290,019/(9)/ 2.1%
1 Apple Tree Lane
Charlottesville, VA 22903
Gustav A. Christensen 60,000/(10)/ *
3 Idylwilde Road
Lexington, MA 02421
Michael D. Baer 16,875/(11)/ *
800 E. Leigh Street
Richmond, VA 23219
Officers & Directors As A Group (9 7,579,118/(12)/ 55.7%
persons)
</TABLE>
* Less than 1%.
/(1)/ Shares subject to options and warrants that are currently exercisable or
exercisable within 60 days of December 31, 1999, are deemed to be
outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. In calculating ownership
percentages, the UVA Patent Foundation's guaranteed 3% ownership
percentage has not been taken into account. When an individual actually
exercises his options and warrants, additional shares must be issued to
the UVA Patent Foundation to maintain its holding at 3%. This will have
the effect of slightly reducing the individual's percentage holding below
what appears in the preceding chart. The Foundation's right to maintain
its ownership of 3% will terminate on the date immediately preceding the
date the SEC declares effective this joint proxy statement/prospectus.
/(2)/ Dr. Crooke, a director of Insmed Pharmaceuticals, has the right to
purchase 15,000 shares upon exercise of options. The number of shares set
forth opposite Dr. Crooke's name also includes 2,424,285 shares owned by
Ticonderoga Partners III, LP, of which Ticonderoga Associates III, LLC is
the General Partner. Dr. Crooke is a member at Ticonderoga Associates,
III, LLC. Also included are 14,520 shares beneficially owned by Dr.
Crooke, which shares are held by Warburg Dillon Read LLC, as agent for Dr.
Crooke, 389,034 shares held by Warburg Dillon Read LLC, as agent, for
certain other current and former employees of Warburg Dillon Read LLC and
24,692 shares held by Lexington Partners IV, LP an investment partnership
formed for the benefit of certain other current and former employees of
Warburg Dillon Read LLC. Dr. Crooke, who is a shareholder and employee of
Ticonderoga Capital, Inc., the financial manager of Ticonderoga Partners
III, LP, disclaims beneficial ownership of these shares except to the
extent of his proportional interest and except as indicated.
/(3)/ Dr. Engelsen, a director of Insmed Pharmaceuticals, has the right to
purchase 10,000 shares upon exercise of options. The number of shares set
forth opposite Dr. Engelsen's name also includes 1,000,000 owned by
Teknoinvest Management AS. Dr. Engelsen disclaims beneficial ownership of
these shares except to the extent of his proportional interest.
/(4)/ Mr. Dougherty, a director of Insmed Pharmaceuticals, has the right to
purchase 15,000 shares upon exercise of options. The number of shares set
forth opposite Mr. Dougherty's name also includes the shares owned by
Intersouth Partners III, L.P. of which Mr. Dougherty is a General Partner.
Mr. Dougherty disclaims beneficial ownership of these shares except to the
extent of his proportional partnership interest therein.
/(5)/ Dr. Engleman was appointed as a director of Insmed Pharmaceuticals as of
June 15, 1999 and has the right to purchase 5,000 shares upon exercise of
options. The number of shares set forth opposite Dr. Engleman's name
includes the shares owned by BioAsia Investments, L.L.C. of which Dr.
Engleman is a general partner. Dr. Engleman disclaims beneficial ownership
of these shares except to the extent of his proportional partnership
interest therein.
/(6)/ Mr. McCallum resigned as a director of Insmed Pharmaceuticals as of June
14, 1999. The number of shares set forth opposite Mr. McCallum's name
includes the shares owned by One Liberty Fund III, L.P. of which Mr.
McCallum is a senior associate and Gilde International BV as to which One
Liberty Fund III, L.P. has a power of attorney to vote and dispose. Mr.
McCallum disclaims beneficial ownership of these shares.
/(7)/ Kenneth G. Condon, a director of Insmed Pharmaceuticals, has the right to
purchase 15,000 shares upon exercise of options. The number of shares set
forth opposite Mr. Condon's name also includes 847,381 shares owned by
Boston University Nominee Partnership of which he is a partner. Mr. Condon
disclaims beneficial ownership of these shares.
/(8)/ Includes 324,373 shares issuable upon exercise of options, which options
are exercisable within 60 days of December 31, 1999.
163
<PAGE>
/(9)/ Includes 41,830 shares of stock owned by Krusen-Thompson Interests, a
general partnership in which Mr. Thompson is a 50% owner, and 15,000
shares issuable upon exercise of options. Also includes 10,000 shares
owned by Mr. Thompson's mother, Alice J. Thompson, over which Mr.
Thompson has a power of attorney to vote and dispose and 78,220 shares
owned by the Alice Jones Thompson 1984 Trust of which Mr. Thompson is a
co-trustee and as to which Mr. Thompson disclaims beneficial ownership.
/(10)/ Mr. Christensen, a director of Insmed Pharmaceuticals, owns directly
60,000 shares of Insmed Pharmaceuticals' common stock.
/(11)/ Includes 16,875 shares issuable upon exercise of options, which options
are exercisable within 60 days of December 31, 1999.
/(12)/ Represents the shares referenced in footnotes (2)-(5) and (7)-(11).
164
<PAGE>
LEGAL MATTERS
Venture Law Group will pass on certain tax consequences of the merger for
Celtrix. Hunton & Williams will pass on certain tax consequences of the share
exchange for Insmed Pharmaceuticals and the validity of the Insmed, Inc. common
stock offered by this joint proxy statement/prospectus.
EXPERTS
Insmed Pharmaceuticals, Inc.
Ernst & Young LLP, independent auditors, have audited Insmed
Pharmaceuticals' consolidated financial statements at December 31, 1999 and
1998, and for each of the three years in the period ended December 31, 1999, as
set forth in their report. We have included our financial statements in this
joint proxy statement/prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
Celtrix Pharmaceuticals, Inc.
Ernst & Young LLP, independent auditors, have audited Celtrix's
consolidated financial statements at March 31, 1999 and 1998, and for each of
the three years in the period ended March 31, 1999, as set forth in their
report. We have included our financial statements in the this joint proxy
statement/prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Celtrix
Celtrix is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance with the Exchange Act files
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements or other information Celtrix files at the Security and Exchange
Commission's public reference rooms at 450 Fifth Street, N.W., Washington, D.C.
20549, Seven World Trade Center, New York, New York 10048 and 500 West Madison,
14th Floor, Chicago, Illinois 60661. Please call the Securities and Exchange
Commission at 1-800-SEC-0300 for further information on the public reference
rooms. Celtrix SEC filings also are available to the public from commercial
document retrieval services and at the world wide web site maintained by the
Securities and Exchange Commission at http://www.sec.gov. You may also inspect
such reports, proxy statements and other information concerning Celtrix at the
offices of The Nasdaq SmallCap Market, 9801 Washingtonian Boulevard,
Gaithersburg, Maryland, 20878.
Insmed, Inc. has filed the Insmed, Inc. registration statement on Form S-4
with the Securities and Exchange Commission to register the Insmed, Inc. common
stock to be issued in the reorganizations. This joint proxy statement/prospectus
will be a part of the Insmed, Inc. registration statement and will constitute a
prospectus of Insmed, Inc. in addition to being a proxy statement of Celtrix for
the annual meeting and a proxy statement of Insmed Pharmaceuticals for the
special meeting.
As allowed by Securities and Exchange Commission rules, this joint proxy
statement/prospectus does not contain all the information you can find in the
Insmed, Inc. registration statement or the exhibits to the Insmed, Inc.
registration statement.
165
<PAGE>
If you are a stockholder of Celtrix, you may have already received some of
these documents referred to above, but you can obtain them from Celtrix or the
Securities and Exchange Commission. Documents are available from Celtrix without
charge, excluding exhibits. Stockholders may obtain documents referred to in
this joint proxy statement/prospectus by requesting them in writing or by
telephone at the following address:
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
Attn: Donald D. Huffman
(408) 988-2500
If you would like to request documents from Celtrix, please do so by
________, 2000 to receive them before the annual meeting.
You should rely only on the information contained in this joint proxy
statement/prospectus in connection with deciding your vote upon the approval of
the reorganization agreement and the reorganizations. Celtrix has not authorized
anyone to provide you with information different from what is contained in this
joint proxy statement/prospectus. This joint proxy statement/prospectus is dated
________________, 2000. You should not assume that the information contained in
this joint proxy statement/prospectus is accurate as of any date other than such
date, and neither the mailing of this joint proxy statement/prospectus to
stockholders nor the issuance of Insmed, Inc. common stock in the
reorganizations shall create any implication to the contrary.
Insmed Pharmaceuticals
Insmed Pharmaceuticals is not a public company and is not subject to the
reporting requirements of the Securities Exchange Act. Shareholders of Insmed
Pharmaceuticals may, however, request additional information about Insmed
Pharmaceuticals by contacting Insmed Pharmaceuticals at the following address
and telephone number:
Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attn: Michael D. Baer
Telephone: (804) 828-6893
If you would like to request documents from Insmed Pharmaceuticals, please
do so by ________, 2000 to receive them before the special meeting.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus in connection with deciding
your vote upon the approval of the reorganizations. Insmed Pharmaceuticals has
not authorized anyone to provide you with information different from what is
contained in this joint proxy statement/prospectus. This joint proxy
statement/prospectus is dated ________________, 2000. You should not assume
that the information contained in this joint proxy statement/prospectus is
accurate as of any date other than such date, and neither the mailing of this
joint proxy statement/prospectus to stockholders nor the issuance of Insmed,
Inc. common stock in the reorganizations shall create any implication to the
contrary.
166
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Insmed Pharmaceuticals, Inc.
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.............. F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, 1997 and Period from
September 21, 1988 (inception) to December 31, 1999..................... F-4
Consolidated Statement of Stockholders' Equity for the Period from
September 21, 1988 (inception) to December 31, 1999..................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, 1997 and Period from
September 21, 1988 (inception) to December 31, 1999..................... F-8
Notes to Consolidated Financial Statements................................ F-10
Celtrix Pharmaceuticals, Inc
Report of Ernst & Young LLP, Independent Auditors......................... F-18
Consolidated Balance Sheets as of March 31, 1999 and 1998................. F-19
Consolidated Statements of Operations for the years ended
March 31, 1999, 1998 and 1997........................................... F-20
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1999, 1998 and 1997..................................... F-21
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998, and 1997.......................................... F-22
Notes to Consolidated Financial Statements................................ F-23
Condensed Consolidated Balance Sheets as of March 31, 1999
and December 31, 1999 (unaudited)....................................... F-31
Condensed Consolidated Statements of Operations for the three and
nine month periods ended December 31, 1999 and 1998 (unaudited)......... F-32
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended December 31, 1999 and 1998 (unaudited).............. F-33
Notes to Condensed Consolidated Financial Statements (unaudited).......... F-34
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Insmed Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Insmed
Pharmaceuticals, Inc. (a development stage company) as of December 31, 1999 and
1998 and the related consolidated statements of operations and cash flows for
each of the three years in the period ended December 31, 1999 and the
consolidated statements of operations, stockholders' equity, and cash flows for
the period from September 21, 1988 (inception) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insmed
Pharmaceuticals, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 and for the period from September 21, 1988
(inception) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Richmond, Virginia
January 13, 2000
F-2
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 316,901 $ 11,677,084
Marketable securities 4,318,273 --
Prepaids and other current assets 43,207 15,499
---------------------------
Total current assets 4,678,381 11,692,583
Property and equipment:
Research and development equipment 335,758 262,328
Furniture and equipment 167,876 161,582
---------------------------
503,634 423,910
Accumulated depreciation (262,267) (178,554)
---------------------------
241,367 245,356
Other assets 375,784 --
---------------------------
Total assets $ 5,295,532 $ 11,937,939
===========================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other liabilities $ 833,941 $ 277,404
---------------------------
Total current liabilities 833,941 277,404
Stockholders' equity:
Series A Convertible Participating Preferred Stock, $.01 par value:
authorized shares, 7,000,000; issued and outstanding shares, 6,144,599 in
1999 and 1998; aggregate liquidation preference, $8,713,212 61,446 61,446
Series B Convertible Preferred Stock, $.01 par value: authorized shares,
5,000,000; issued and outstanding shares, 3,581,761 in 1999 and 1998;
aggregate liquidation preference, $14,327,044 35,818 35,818
Common Stock, $.01 par value: authorized shares, 20,000,000; issued and
outstanding shares, 3,872,453 in 1999 and 3,587,699 in 1998 38,725 35,877
Additional capital 27,181,327 26,562,158
Notes receivable from stock sales (64,079) (47,139)
Deficit accumulated during the development stage (22,780,309) (14,987,625)
Accumulated other comprehensive loss (11,337) --
---------------------------
Total stockholders' equity 4,461,591 11,660,535
---------------------------
Total liabilities and stockholders' equity $ 5,295,532 $ 11,937,939
===========================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from Sept. 21,
Year Ended December 31, 1988 (inception) to
1999 1998 1997 Dec. 31, 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sponsored research and other
operating revenues $ 663,162 $ 99,819 $ - $ 1,634,443
Operating expenses:
Research and development 6,348,541 3,768,752 2,604,818 17,477,732
General and administrative 2,444,873 1,625,941 978,615 7,800,470
--------------------------------------------------------------------
Total operating expenses 8,793,414 5,394,693 3,583,433 25,278,202
--------------------------------------------------------------------
Operating loss (8,130,252) (5,294,874) (3,583,433) (23,643,759)
Other (income) expenses:
Interest expense - - - 167,684
Interest income (337,568) (486,180) (103,485) (980,299)
Minority interest in losses of
subsidiary - - - (50,835)
--------------------------------------------------------------------
(337,568) (486,180) (103,485) (863,450)
--------------------------------------------------------------------
Net loss $(7,792,684) $(4,808,694) $(3,479,948) $(22,780,309)
====================================================================
Basic and diluted:
Net loss per share $ (2.16) $ (1.47) $ (1.22)
Weighted average shares 3,606,094 3,277,966 2,854,359
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statement of Stockholders' Equity
For the Period from September 21, 1988 (inception) to December 31, 1999
<TABLE>
<CAPTION>
Series A Deficit
Convertible Series B Notes Accumulated
Participating Convertible Convertible Receivable During the
Preferred Preferred Preferred Stock Common Additional from Development
Stock Stock Series B Series A Stock Capital Stock Sales Stage
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 430,000 shares of
common stock for cash $ - $ - $ - $ - $ 4,300 $ 791 $ - $ -
Issuance of 55,000 shares of
common stock in exchange for
services - - - - 550 10,450 - -
Issuance of 15,000 shares of
common stock to licensor - - - - 150 2,850 - -
Net loss for the period from
September 21, 1988 (inception)
to December 31, 1988 - - - - - - - (36,036)
----------------------------------------------------------------------------------------------------
Balance at December 31, 1988 - - - - 5,000 14,091 - (36,036)
Issuance of 68,230 shares of
common stock for cash - - - - 682 38,464 - -
Issuance of 40,000 shares of
common stock in exchange for
services - - - - 400 400 - -
Net loss for 1989 - - - - - - - (81,124)
----------------------------------------------------------------------------------------------------
Balance at December 31, 1989 - - - - 6,082 52,955 - (117,160)
Issuance of 120,195 shares of
common stock for cash - - - - 1,202 155,180 - -
Issuance of 22,685 shares of
common stock in exchange for notes
payable - - - - 227 28,582 - -
Issuance of 1,000 shares of common
stock in exchange for services - - - - 10 1,490 - -
Net loss for 1990 - - - - - - - (323,006)
----------------------------------------------------------------------------------------------------
Balance at December 31, 1990 - - - - 7,521 238,207 - (440,166)
Issuance of 256,470 shares of
common stock for cash - - - - 2,565 214,938 - -
Issuance of 51,485 shares of
common stock in exchange for notes
payable - - - - 515 50,283 - -
Issuance of 14,740 shares of
common stock in exchange for
services - - - - 147 8,213 - -
Issuance of 17,775 shares of
common stock to licensor - - - - 178 26,485 - -
Net loss for 1991 - - - - - - - (303,083)
----------------------------------------------------------------------------------------------------
Balance at December 31, 1991 - - - - 10,926 538,126 - (743,249)
Issuance of 303,794 shares of
common stock for cash - - - - 3,038 644,962 - -
Issuance of 9,398 shares of
common stock to licensor - - - - 94 22,038 - -
Net loss for 1992 - - - - - - - (689,794)
----------------------------------------------------------------------------------------------------
Balance at December 31, 1992 - - - - 14,058 1,205,126 - (1,433,043)
Issuance of 327,159 shares of
preferred stock for cash, net of
offering costs of $54,969 - - - 3,272 - 923,169 - -
Issuance of 13,333 shares of
preferred stock in exchange for
notes payable - - - 133 - 39,867 - -
Issuance of 10,530 shares of
common stock to licensor - - - - 105 31,485 - -
Net loss for 1993 - - - - - - - (721,478)
----------------------------------------------------------------------------------------------------
Balance at December 31, 1993 - - - 3,405 14,163 2,199,647 - (2,154,521)
<CAPTION>
Accumulated
Other
Comprehensive
Loss
-------------
<S> <C>
Issuance of 430,000 shares of
common stock for cash $ -
Issuance of 55,000 shares of
common stock in exchange for
services -
Issuance of 15,000 shares of
common stock to licensor -
Net loss for the period from
September 21, 1988 (inception) to
December 31, 1988 -
--------
Balance at December 31, 1988 -
Issuance of 68,230 shares of
common stock for cash -
Issuance of 40,000 shares of
common stock in exchange for
services -
Net loss for 1989 -
--------
Balance at December 31, 1989 -
Issuance of 120,195 shares of
common stock for cash -
Issuance of 22,685 shares of
common stock in exchange for notes
payable -
Issuance of 1,000 shares of common
stock in exchange for services -
Net loss for 1990 -
--------
Balance at December 31, 1990 -
Issuance of 256,470 shares of
common stock for cash -
Issuance of 51,485 shares of
common stock in exchange for notes
payable -
Issuance of 14,740 shares of
common stock in exchange for
services -
Issuance of 17,775 shares of
common stock to licensor -
Net loss for 1991 -
--------
Balance at December 31, 1991 -
Issuance of 303,794 shares of
common stock for cash -
Issuance of 9,398 shares of
common stock to licensor -
Net loss for 1992 -
--------
Balance at December 31, 1992 -
Issuance of 327,159 shares of
preferred stock for cash, net of
offering costs of $54,969 -
Issuance of 13,333 shares of
preferred stock in exchange for
notes payable -
Issuance of 10,530 shares of
common stock to licensor -
Net loss for 1993 -
--------
Balance at December 31, 1993 -
</TABLE>
F-5
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statement of Stockholders' Equity (continued)
For the Period from September 21, 1988 (inception) to December 31, 1999
<TABLE>
<CAPTION>
Series A Deficit
Convertible Series B Notes Accumulated Accumulated
Participating Convertible Convertible Receivable During the Other
Preferred Preferred Preferred Common Additional from Development Comprehensive
------------------
Stock Stock Series B Series A Stock Capital Stock Sales Stage Loss
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 154,885 shares
of common stock for cash
upon exercise of warrants $ - $ - $ - $ - $ 1,549 $ 230,777 $ - $ - $ -
Issuance of 68,331 shares
of common stock for cash, net
of offering costs of $42,119 - - - - 683 162,191 - - -
Issuance of 6,093 shares of
common stock to licensor - - - - 69 20,640 - - -
Net loss for 1994 - - - - - - - (1,250,081) -
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 - - - 3,405 16,464 2,613,255 - (3,404,602) -
Issuance of 119,353 shares
of preferred stock for cash,
net of offering costs of
$134,861 - - 1,194 - - 222,094 - - -
Issuance of 89,331 shares of
preferred stock for cash upon
exercise of warrants - - 893 - - 222,435 - - -
Issuance of 68,331 shares of
preferred stock upon exchange
of common stock - - 683 - (683) - - - -
Issuance of 6,456 shares of
common stock to licensor - - - - 64 19,304 - - -
Net loss for 1995 - - - - - - - (1,206,131) -
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 - - 2,770 3,405 15,845 3,077,088 - (4,610,733) -
Issuance of 408,582 shares of
common stock for 340,492
shares of Series A,
Convertible Preferred Stock - - - 3,405 4,086 (681) - - -
Issuance of 332,446 shares of
common stock for 277,045
shares of Series B,
Convertible preferred Stock - - (2,770) - 3,324 (554) - - -
Issuance of 285,758 shares
of common stock in exchange
for shares of preferred and
common stock of subsidiary - - - - 2,858 582.222 - - -
Issuance of 4,072,504 shares
of redeemable preferred stock 5,294,255 - - - - (101,275) - - -
Issuance of 125,953 shares of
common stock to licensor - - - - 1,259 17,633 - - -
Issuance of 24,757 shares of
common stock for services - - - - 248 3,466 - - -
Net loss for 1996 - - - - - - - (2,088,250) -
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,294,255 - - - 27,620 3,577,899 - (6,698,983) -
</TABLE>
F-6
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statement of Stockholders' Equity (continued)
For the Period from September 21, 1988 (inception) to December 31, 1999
<TABLE>
<CAPTION>
Series A Deficit
Convertible Series B Notes Accumulated Accumulated
Participating Convertible Convertible Receivable During the Other
Preferred Preferred Preferred Common Additional from Development Comprehensive
-----------------
Stock Stock Series B Series A Stock Capital Stock Sales Stage Loss
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 295,834 shares
of common stock upon
exercise of stock options $ - $ - $ - $ - $ 2,958 $ 41,417 $ (44,375) $ - $ -
Issuance of 2,072,095 shares
of redeemable preferred stock 3,418,957 - - - - (19,552) - - -
Elimination of redemption
rights (8,651,766) - - - - 8,651,766 - - -
Issuance of 64,085 shares of
common stock to licensor - - - - 641 12,176 - - -
Issuance of 13,846 shares of
common stock for services - - - - 139 17,861 - - -
Net loss for 1997 - - - - - - - (3,479,948) -
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 61,446 - - - 31,358 12,281,567 (44,375) (10,178,931) -
Issuance of 102,590 shares
of common stock upon
exercise of stock options - - - - 1,026 16,190 - - -
Issuance of 103,000 shares
of common stock upon
exercise of stock warrants - - - - 1,030 258,470 - - -
Issuance of 3,581,761 shares
of Series B, Convertible
Preferred Stock and related
issuance of 116,270 shares
of common stock to underwriter - 35,818 - - 1,163 13,942,212 - - -
Issuance of 130,032 shares
of common stock to licensor - - - - 1,300 63,716 - - -
Accrued interest on note
receivable - - - - - - (2,764) - -
Net loss for 1998 - - - - - - - (4,808,694) -
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 61,446 35,818 - - 35,877 26,562,158 (47,139) (14,987,625) -
Issuance of 188,642 shares
of common stock upon
exercise of stock options - - - - 1,887 185,754 - - -
Issuance of 12,000 shares
of common stock upon
exercise of stock warrants - - - - 120 15,480 (15,600) - -
Issuance of 75,000 shares
of common stock upon
exercise of stock warrants - - - - 750 122,250 - - -
Issuance of 9,112 shares
of common stock to licensor - - - - 91 10,830 - - -
Principal payment on note
receivable - - - - - - 1,500 - -
Accrued interest on notes
receivable - - - - - - (2,840) - -
Recognition of stock
compensation expense - - - - - 284,855 - - -
Unrealized loss on
investments - - - - - - - - (11,377)
Net loss for 1999 - - - - - - - (7,792,684) -
-------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 61,446 $ 35,818 $ - $ - $38,725 $27,181,327 $ (64,079) $(22,780,309) $ (11,377)
-------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
Sept. 21, 1988
Year Ended December 31, (inception) to
1999 1998 1997 Dec. 31, 1999
------------------------------------------ ---------------
<S> <C> <C> <C> <C>
Operating activities
Net loss $(7,792,684) $(4,808,694) $(3,479,948) $(22,780,309)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 86,574 78,256 54,925 499,342
Gain on sale of property and equipment 1,326 - - (5,370)
Issuance of stock for services 10,921 65,016 30,817 286,515
Interest accrued on notes receivable from
stock sales (2,840) (2,764) - (5,604)
Recognition of stock compensation expense 284,855 - - 284,855
Accrued interest on stock for debt conversion 12,696
Minority interest in losses of subsidiary - - - (50,835)
Changes in operating assets and liabilities:
Prepaids and other assets (277,229) (15,139) - (292,368)
Accounts payable and other liabilities 455,741 62,636 29,616 782,945
------------ ------------ ------------ -------------
Net cash used in operating activities (7,233,336) (4,620,689) (3,364,590) (21,268,133)
Investing activities
Purchases of marketable securities (4,329,610) - - (4,329,610)
Purchases of property and equipment (109,378) (114,528) (152,449) (607,717)
Proceeds from sale of property and equipment - - - 31,100
Other - - - (9,379)
------------ ------------ ------------ -------------
Net cash used in investing activities $(4,438,988) $ (114,528) $ (152,449) $ (4,915,606)
</TABLE>
F-8
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Period from
Sept. 21, 1988
Year Ended December 31, (inception) to
1999 1998 1997 Dec. 31, 1999
----------------------------------------- ---------------
<S> <C> <C> <C> <C>
Financing activities
Payment of deferred offering costs $ - $ - $ (106,710) $ (185,587)
Proceeds from borrowings on notes payable - - - 921,046
Principal payments on capitalized lease obligations - - - (174,809)
Principal payments on notes payable - - - (73,565)
Proceeds from issuance of redeemable preferred stock - - 3,567,738 7,860,176
Proceeds from issuance of preferred stock - 14,085,906 - 15,537,840
Proceeds from issuance of common stock 312,141 276,716 - 2,050,179
Proceeds from sale of preferred stock of subsidiary - - - 565,360
------------ ------------ ----------- ------------
Net cash provided by financing activities 312,141 14,362,622 3,461,028 26,500,640
------------ ------------ ----------- ------------
Decrease (increase) in cash and cash equivalents (11,360,183) 9,627,405 (56,011) 316,901
Cash and cash equivalents of beginning of period 11,677,084 2,049,679 2,105,690 -
------------ ------------ ----------- ------------
Cash and cash equivalents at end of period $ 316,901 $ 11,677,084 $ 2,049,679 $ 316,901
============ ============ =========== ============
Supplemental Cash Flow Disclosures
Interest paid $ - $ - $ 13,454 $ 93,289
============ ============ =========== ============
Equipment acquired under capital leases $ - $ - $ - $ 174,809
============ ============ =========== ============
Issuance of redeemable preferred stock in exchange
for notes payable and accrued interest $ - $ - $ - $ 742,037
============ ============ =========== ============
Issuance of preferred stock in exchange for notes
payable $ - $ - $ - $ 40,000
============ ============ =========== ============
Issuance of common stock in exchange for notes
payable/receivable $ 15,600 $ - $ 44,375 $ 139,582
============ ============ =========== ============
Issuance of preferred stock of subsidiary in
exchange for notes payable $ - $ - $ - $ 58,522
============ ============ =========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-9
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1999
1. Significant Accounting Policies
Insmed Pharmaceuticals, Inc. (the Company) is a development stage
biopharmaceutical company incorporated in September 1988 to conduct research and
development aimed at treating type 2 diabetes, polycystic ovary syndrome and
other diseases associated with insulin resistance. The following is a
description of the Company's more significant accounting policies:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary, Insmed Diagnostics, Inc. All significant intercompany balances
and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers liquid investments with maturities of three months or less
when purchased to be cash equivalents. Substantially all cash equivalents are
held in a short-term money market account with a bank.
Marketable Securities
Marketable securities consist of corporate debt securities, all of which mature
within one year. Management classifies the company's marketable securities as
available for sale. Such securities are stated at market value, with the
unrealized gains and losses included as a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be other than
temporary on securities available for sale are included in investment income.
The cost of securities sold is calculated using the specific identification
method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using the
straight-line method over periods ranging from three to seven years.
Stock-Based Compensation
The Company recognizes expense for stock-based compensation in accordance with
the provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. Accordingly,
compensation cost is recognized for the excess of the estimated fair value of
the stock at the grant date over the exercise price, if any. Disclosures
regarding alternative fair value measurement and recognition methods prescribed
by Financial Accounting Standards Board Statement No. 123, Accounting for Stock-
Based Compensation, are presented in Note 2.
F-10
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Revenue Recognition
The Company has received funding from the U.S. government and certain
corporations in support of research, in some cases in return for permitting
those corporations exclusive review of certain research results for limited time
periods. Payments irrevocably received are recognized as revenues when
received. Revenue from achievement of milestone events is recognized when the
results stipulated in the related agreement have been met. Grant revenues are
recognized as the related work is performed. Revenue related to future
performance is deferred and recognized as revenue when earned.
Net Loss Per Share
Basic net loss per share is computed based upon the weighted average number of
common shares outstanding during the period. The Company's diluted net loss per
share is the same as its basic net loss per share because all stock options,
warrants, and other potentially dilutive securities are antidilutive and,
therefore, excluded from the calculation of diluted net loss per share.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Pending Acquisition of Celtrix Pharmaceuticals
On November 30, 1999, the Company entered into an agreement to acquire Celtrix
Pharmaceuticals, Inc. ("Celtrix"). At closing, each share of Celtrix will be
exchanged for one share in a newly formed holding company (Insmed, Inc.), and
each preferred and common share of the Company will be exchanged for three and
one-half shares of common; all options and warrants outstanding at the time of
the transaction will convert into options and warrants of the holding company.
The acquisition of Celtrix by the Company is subject to approval by the
shareholders of both companies, as well as certain other conditions. The
Company's current management and board of directors will govern the holding
company.
The Company has incurred $375,784 of legal, due diligence and other costs in
1999 related to the acquisition. These costs are reflected in other assets and
will be included in determining the purchase price of Celtrix.
F-11
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
3. Commitment to Issue Equity
The Company entered into an agreement to sell 5,632,678 shares of its common
stock and warrants to purchase 6,901,344 shares of common stock of Insmed, Inc.
for $34.5 million. The warrants are exercisable for five years at a price of
$2.25. Such sale is contingent on completion of the merger with Celtrix.
The proceeds of the issuance of the shares and warrants are expected to fund
Insmed, Inc.'s research and development activities for at least two years.
Continuation of the present level of research and development efforts is
contingent upon continued availability of adequate financing. If the Celtrix
acquisition and the equity issuance are not consummated, management of the
Company intends to pursue and believes it can obtain other financing
arrangements including private placements and strategic partnerships.
4. Stockholders' Equity
Preferred Stock
Series A Convertible Participating Preferred Stock has a liquidation preference
ahead of all other classes of capital stock, and Series B Convertible Preferred
Stock has a liquidation preference ahead of common stock equal to its original
issue price plus any unpaid dividends. Preferred stockholders are entitled to
receive noncumulative dividends if declared by the board of directors and in
preference to common stockholders.
Each holder of the preferred stock can convert these shares into an equal number
of shares of common stock at any time. These shares will automatically convert
at the time of the merger with Celtrix or otherwise upon a public offering with
gross proceeds of at least $10 million (at a price per share of at least $4.95)
or the vote of at least two-thirds of the outstanding shares.
The preferred stock entitles the holders to vote in all corporate matters and
approval of certain matters requires the majority vote of the outstanding
shares.
Common Stock
Periodically, the Company has issued shares of common stock in exchange for
services provided by stockholders and others. These issuances have been
recorded at their estimated fair value at the time of the respective
transactions and corresponding amounts have been reflected as expense in the
accompanying consolidated statements of operations.
In 1992, the Company's board of directors declared a five-for-one common stock
split that was effected in the form of a stock dividend. All share activity
before the split and all stock option and stock warrant data have been restated
to reflect the stock split.
F-12
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
4. Stockholders' Equity (continued)
Stock Options and Warrants
In 1994, the Company's stockholders approved the adoption of a stock option plan
for its key employees, directors, and consultants. The plan provides for
issuance of options to purchase up to 2,000,000 shares of common stock. At
December 31, 1999, 33,582 options remain available for new grants under the
plan. Options may be granted at the discretion of the board of directors at
exercise prices not less than the estimated fair value of such shares at the
date of grant. Before adopting this plan, the Company granted other stock
options to certain employees, directors, and consultants pursuant to agreements
approved by the board of directors.
A summary of stock option activity since inception is as follows (as adjusted
for the stock split):
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
---------------------------------
<S> <C> <C>
Balance at Inception, September 21, 1988
Granted 1,288,463 $1.39
Expired (107,500) 2.09
Relinquished (220,000) 3.50
---------------------------------
Outstanding at December 31, 1996 960,963 0.81
=================================
Exercisable at December 31, 1996 528,152 $1.23
=================================
Weighted Average Fair Value $0.01
of Options Granted
Balance, December 31, 1996 960,963 0.81
Granted 412,234 0.43
Expired (30,000) 5.00
Relinquished (25,417) 1.83
Exercised (295,834) 0.15
---------------------------------
Outstanding at December 31, 1997 1,021,946 0.70
=================================
Exercisable at December 31, 1997 528,413 $1.18
=================================
Weighted Average Fair Value $0.01
of Options Granted
</TABLE>
F-13
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
4. Stockholders' Equity (continued)
<TABLE>
<S> <C> <C>
Balance, December 31, 1997 1,021,946 0.70
Granted 590,501 1.18
Relinquished (76,993) 0.19
Exercised (102,590) 0.16
-------------------------------------
Outstanding at December 31, 1998 1,432,864 0.95
=====================================
Exercisable at December 31, 1998 850,320 $1.37
=====================================
Weighted Average Fair Value
of Options Granted $0.08
Balance, December 31, 1998 1,432,864 0.95
Granted 532,484 0.80
Relinquished (73,172) 0.38
Exercised (188,642) 0.99
-------------------------------------
Outstanding at December 31, 1999 1,703,534 0.93
=====================================
Exercisable at December 31, 1999 955,667 $1.16
=====================================
Weighted Average Fair Value $0.38
of Options Granted
</TABLE>
At December 31, 1999 and 1998, 1,521,333 and 1,108,666 of the above options
represented grants under the Company's stock option plan, respectively. The
following table summarizes information about stock options outstanding at
December 31, 1999:
F-14
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
4. Stockholders' Equity (continued)
<TABLE>
<CAPTION>
Outstanding Contractual Exercisable
Exercise Price Options Life Options
------------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
$0.15 386,687 2.56 311,310
$0.20 159,145 2.62 99,078
$0.50 290,754 2.39 134,274
$0.80 580,207 4.85 124,264
$1.21 1,005 7.00 1,005
$1.30 2,227 7.00 2,227
$1.65 64,085 4.35 64,085
$2.50 3,061 5.59 3,061
$3.00 105,587 0.73 105,587
$4.00 110,776 5.46 110,776
------------------- ------------------- --------------------
1,703,534 3.47 955,667
=================== =================== ====================
</TABLE>
If the Company had accounted for its employee stock awards under the fair value
based method, the net loss would have increased by approximately $48,000 for
1999, $16,000 for 1998, and $10,000 for 1997. The basic and diluted net loss
per share would have increased $.01 in 1999, $.00 in 1998, $.00 in 1997. These
pro forma amounts are not indicative of future effects of applying the fair
value based method since stock based awards granted may vary from year to year
and vesting periods of one to four years were used to measure pro forma
compensation expense. The fair value for these awards was estimated at the date
of grant using the Black- Scholes pricing method assuming a risk-free interest
rate of 6.0%, no dividends, and a weighted-average expected life of the option
of 4 years (2 years in 1998 and 1997).
The Company has an agreement with its founding scientist to grant options to
enable him to maintain a three percent interest in the equity of the Company as
new equity securities are issued. The exercise price for these options is equal
to the issue price of the new securities. The right to continuing options will
expire one day before the merger with Celtrix or before a public offering.
Warrants were issued periodically to certain stockholders, directors, and
consultants for the purchase of common stock. At December 31, 1999, warrants
were outstanding to purchase 10,000 shares of common stock at $3.00 per share.
All of the warrants are exercisable and will expire on January 31, 2002 or upon
the effective date of a registration statement for a public offering.
A total of 11,439,894 shares of common stock were reserved at December 31, 1999
in connection with stock options, stock warrants, and potential conversions of
the preferred stock.
F-15
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consoliadted Financial Statements (continued)
5. Income Taxes
Deferred tax assets and liabilities are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The
deferred tax assets of approximately $8.3 million and $5.5 million at December
31, 1999 and 1998, respectively, arise primarily due to net operating loss
carryforwards for income tax purposes. Due to the Company's cumulative losses,
these amounts have been entirely offset by a valuation allowance.
At December 31, 1999 and 1998, the Company had net operating loss carryforwards
for income tax purposes of approximately $ 20.6 million and $14.0 million,
respectively, expiring in various years beginning in 2003. Utilization of these
carryforwards will be limited due to changes in the ownership of the Company's
common stock.
6. Leases
The Company leases office and laboratory space under operating lease agreements
expiring in February 2002. The leases provide for monthly rent of approximately
$14,300 with a 2.5% escalation per year. The Company also leases a vehicle,
office equipment and additional laboratory space.
Future minimum payments on these leases at December 31, 1999 were as follows:
Year Amount
-------------- ----------
2000 $227,858
2001 216,278
2002 35,362
----------
$479,498
==========
Rent expense for all operating leases amounted to $243,010 in 1999, $222,747 in
1998, $127,434 in 1997 and $842,081 on a cumulative basis since inception.
7. Employee Benefit Plan
In 1996, the Company adopted a defined contribution plan covering substantially
all employees meeting certain eligibility requirements. Participants may elect
to contribute a specified portion of their compensation to the plan on a tax-
deferred basis. The Company has never contributed to this plan.
F-16
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consoliadted Financial Statements (continued)
8. License Agreement
In 1988, the Company entered into a license agreement with The University of
Virginia Alumni Patents Foundation (the Foundation). The agreement, as amended
in 1991, provides the Company an exclusive, worldwide license to develop and
sell products related to certain patent rights for insulin resistance and
associated disorders.
Under the license agreement, the Company is required to issue shares of its
common stock each time shares of any class of stock are issued so that the
Foundation at all times has a 3% undiluted interest in the Company. As of
December 31, 1999, the Foundation had received 395,244 shares of common stock
under the license agreement. These issuances have been recorded at their
estimated fair value at the time of the respective transaction. Related expenses
of $110,921 in 1999, $165,016 in 1998, $112,817 in 1997 and $1,053,218 on a
cumulative basis since inception have been included in research and development
expense in the accompanying consolidated statements of operations. The right to
receive such stock expires one day before the merger with Celtrix or before a
public offering.
The Company also provides support for research at the University of Virginia
(UVA) that contributes toward commercial development of its planned products.
Certain of the Company's research activities have taken place at UVA. The
Company has also supported the research through consulting payments to
individuals conducting additional research work beyond their commitments as
employees of UVA. Total expense for research support to UVA amounted to $347,324
in 1999, $180,000 in 1998, $191,600 in 1997 and $1,501,975 on a cumulative basis
since inception.
F-17
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Celtrix Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Celtrix
Pharmaceuticals, Inc. as of March 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Celtrix
Pharmaceuticals, Inc. at March 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
May 28, 1999
F-18
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,258 $ 1,608
Short-term investments -- 6,305
Receivables and other current assets 172 219
---------- ----------
Total current assets 1,430 8,132
Property and equipment, at cost:
Leasehold improvements -- 11,133
Machinery and equipment 164 8,974
---------- ----------
164 20,107
Less accumulated depreciation and amortization (63) (13,045)
---------- ----------
101 7,062
Assets held for sale 416 --
Intangible and other assets, net of accumulated amortization
of $1,235 and $938 at March 31, 1999 and 1998, respectively 2,554 2,682
---------- ----------
Total Assets $ 4,501 $ 17,876
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 547 $ 751
Accrued clinical expenses 439 482
Accrued compensation 47 421
Other accrued liabilities 188 580
Short-term debt and lease obligations -- 8
---------- ----------
Total current liabilities 1,221 2,242
Deferred rent -- 890
Stockholders' equity:
Preferred stock, $.01 par value, authorized 10,000,000
shares and 2,000,000 shares at March 31, 1999 and
1998, respectively; none issued and -- --
outstanding
Common stock, $.01 par value, authorized 60,000,000
shares and 30,000,000 shares at March 31, 1999 and
1998, respectively; 25,061,053 shares and 21,061,053
shares issued and outstanding at March 31, 1999 and
1998, respectively 251 211
Additional paid-in capital 133,437 131,542
Accumulated deficit (130,408) (117,009)
---------- ----------
Total stockholders' equity 3,280 14,744
---------- ----------
Total liabilities and stockholder equity $ 4,501 $ 17,876
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Product sales $ 10 $ 51 $ 31
Licensing revenues and other 121 610 627
131 661 658
Costs and expenses:
Cost of sales -- 1 5
Research and development 6,830 13,006 11,999
General and administrative 2,272 1,985 1,814
Restructuring costs 5,160 -- --
-------- -------- --------
14,262 14,992 13,818
-------- -------- --------
Operating loss (14,131) (14,331) (13,160)
Interest income, net 132 681 464
Gain on sale of investments -- 737 --
Proceeds from settlement agreement 600 -- --
-------- -------- --------
Net loss $(13,399) $(12,913) $(12,696)
======== ======== ========
Basic and diluted net loss per share $ (0.58) $ (0.61) $ (0.83)
======== ======== ========
Shares used in basic and diluted per share
computation 22,941 21,004 15,238
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at March 31, 1996 $152 $118,052 $ (91,418) $ 26,786
Issuance of 20,249 shares of common
stock upon exercise of stock options -- 51 -- 51
Issuance of 29,188 shares of common
stock under the Employee Stock
Purchase Plam 1 49 -- 50
Unrealized gain on available-for-sale
securities -- -- 19 19
Net loss -- -- (12,696) (12,696)
------------ ------------- -------------- --------------
Balance at March 31, 1997 153 118,152 (104,095) 14,210
Issuance of 5,721,876 shares of common
stock and warrants to purchase
2,860,934 shares of common stock in
a private placement, net 57 13,274 -- 13,331
Issuance of 75,748 shares of common
stock under the Employee Stock
Purchase Plan 1 116 -- 117
Unrealized loss on available-for-sale
securities -- -- (1) (1)
Net loss -- -- (12,913) (12,913)
------------ ------------- -------------- --------------
Balance at March 31, 1998 211 131,542 (117,009) 14,744
Issuance of 4,000,000 shares of common
stock and warrants to purchase
6,000,000 shares of common stock
in a private placement, net 40 1,872 -- 1,912
Issuance of warrants to purchase 75,000
shares of common stock and options to
purchase 50,000 shares of common stock
to non-employees -- 23 -- 23
Net loss -- -- (13,399) (13,399)
------------ ------------- -------------- --------------
Balance at March 31, 1999 $251 $133,437 $(130,408) $ 3,280
============ ============= ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(13,399) $(12,913) $(12,696)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write off of leasehold improvements 5,311 -- --
Write off of deferred rent liability (816) -- --
Reduction in deferred rent liability (74) -- --
Depreciation and amortization 1,036 1,660 1,840
Gain on sale of investments -- (737) --
Changes in operating accounts:
Receivables and other current assets 4 (22) (2)
Accounts payable, accrued compensation
and other accrued liabilities (992) 854 79
------------- ------------- -------------
Net cash used in operating activities (8,930) (11,158) (10,779)
Cash flows from investing activities:
Sales and maturities of available-for-sale
securities 7,575 40,497 35,210
Purchase of available-for-sale securities (1,270) (43,482) (30,315)
Decrease (increase) in restricted cash -- 520 (470)
Proceeds from sale of fixed assets 600 -- --
Capital expenditures (84) (187) (198)
Increase in intangible and other assets (168) (394) (455)
------------- ------------- -------------
Net cash provided by (used in) investing
activities 6,653 (3,046) 3,772
Cash flows from financing activities:
Proceeds from issuance of common stock, net 1,935 13,448 101
Principal payments under lease obligations (8) (320) (543)
------------- ------------- -------------
Net cash provided by (used in) financing
activities 1,927 13,128 (442)
------------- ------------- -------------
Net decrease in cash and cash equivalents (350) (1,076) (7,449)
Cash and cash equivalents at beginning of year 1,608 2,684 10,133
------------- ------------- -------------
Cash and cash equivalents at end of year $ 1,258 $ 1,608 $ 2,684
============= ============= =============
Supplemental disclosure:
Interest paid $ 1 $ 24 $ 89
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Celtrix Pharmaceuticals, Inc. (the "Company") is a biopharmaceutical company
focused on developing novel therapeutics for the treatment of seriously
debilitating, degenerative conditions primarily associated with severe trauma,
chronic diseases or aging.
The consolidated financial statements include the accounts of Celtrix and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
At March 31, 1999, the Company had net working capital of $0.2 million and an
accumulated deficit of $130.4 million, and incurred a net loss of $13.4 million
for the year ended March 31, 1999. Working capital was increased in April 1999
from the issuance of common stock to Elan International Services, Ltd., which
resulted in net proceeds of $2.3 million. The Company expects current cash and
cash equivalents, including proceeds from the April 1999 financing, will be
sufficient to fund operations into the third calendar quarter of 2000. The
Company will be required to seek additional funds to finance operations beyond
that period. The transaction with Elan Corporation, plc provides for the
purchase by Elan of additional Celtrix equity securities, the proceeds from
which will be used to fund the Company's share of anticipated clinical expenses
associated with the joint venture's large-scale trial in osteoporosis (recovery
from hip fracture surgery).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
Cash Equivalents and Short-term Investments
Celtrix considers all highly liquid investment securities with maturity from
date of purchase of three months or less to be cash equivalents and investment
securities with maturity from date of purchase of more than three months to be
short-term investments.
To date, all marketable securities have been classified as available-for-sale
and are carried at fair value, with unrealized gains and losses reported in
accumulated deficit. Fair values of investment securities are based on quoted
market prices, and the costs of securities sold are based on the specific
identification method. Premiums and discounts are amortized over the period from
acquisition to maturity and are included in investment income, along with
interest and dividends.
Property and Equipment
Depreciation and amortization of property and equipment is provided on the
straight-line method over the estimated useful lives (three to seven years) of
the assets. Leasehold improvements are amortized over the shorter of the life of
the lease or their estimated useful lives using the straight-line method.
Intangible Assets
Intangible and other assets consist primarily of patents. Patents, carried at
cost, are amortized using the straight-line method over the estimated useful
lives of the related intellectual property, generally 12 years. Celtrix
regularly performs reviews regarding the carrying value of the assets. The
reviews look for the existence of facts or circumstances, either internal or
external, which may indicate that the carrying value of the assets cannot be
recovered. To date no adjustments have been made to the carrying value of the
assets.
Revenue Recognition
F-23
<PAGE>
Licensing revenues are recorded when contractually earned. Revenue from product
sales is recognized at time of shipment.
Stock-Based Compensation
The Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-
Based Compensation" in October 1995, which encourages, but does not require,
companies to record compensation expense for stock-based employee compensation
plans at fair value. The Company has elected to follow the disclosure
requirements of SFAS 123 for the fiscal years ended 1999, 1998 and 1997 (see
Note 5) and will continue to measure stock-based compensation to employees in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees".
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, and, accordingly, recognizes no compensation expense for the stock option
grants.
Recently Issued Accounting Standard
In April 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income". Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net loss or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Total comprehensive income (loss) approximates net loss for the fiscal
years ended March 31, 1999, 1998 and 1997.
F-24
<PAGE>
2. Investment Securities
There were no available-for-sale securities held at March 31, 1999. The
following is a summary of available-for-sale securities at March 31, 1998 (in
thousands). Gross unrealized losses were immaterial.
1998
--------------------------------
Net Estimated
Unrealized Fair
Cost Losses Value
---------- --------- ------
U.S. treasury securities and
obligations of U.S. government
agencies $5,808 $ 1 $5,807
U.S. corporate debt securities 499 1 498
------ ------- ------
$6,307 $ 2 $6,305
====== ======= ======
Classified as:
Cash equivalents $ -- $ -- $ --
Short-term investments 6,307 2 6,305
------ ------- ------
$6,307 $ 2 $6,305
====== ======= ======
During fiscal years 1999 and 1998, no securities were sold prior to maturity.
3. Assets Held for Sale
As a result of the September 1998 restructuring and the discontinuation of
manufacturing, the Company is in the process of selling certain equipment and
other fixed assets. The assets held for sale are recorded at their net
realizable value.
4. Debt and Commitments
As of March 31, 1999, the Company had fully amortized its obligation under
capital leases and debt arrangements. Amortization expense for leased assets is
included in depreciation and amortization expense.
As a result of restructuring the Company and discontinuing manufacturing
operations in September 1998, the Company terminated its office, laboratory and
manufacturing facility lease effective November 1998. The Company also
terminated certain equipment operating leases as a result of the restructuring.
The Company currently leases offices in San Jose under an operating lease which
expires in December 1999. Deferred rent at March 31, 1998 reflects the
landlord's funding of certain leasehold improvements prior to lease commencement
and was amortized over the lease term to offset rent expense. Rent expense was
$600,000, $1.1 million and $1.2 million for the years ended March 31, 1999,
1998, and 1997 respectively.
Future minimum lease payments under operating leases at March 31, 1999 are as
follows (in thousands):
Operating
Leases
------
1999 $ 117
2000 --
2001 --
2002 --
2003 --
Thereafter --
-----
Total minimum lease payments $ 117
=====
F-25
<PAGE>
5. Incentive and Benefit Plans
In September 1997, the stockholders approved an increase in the number of shares
reserved for issuance under the Company's 1991 Stock Option Plan from 1,500,000
to 3,000,000 shares of common stock. Under the 1991 Directors' Stock Option
Plan, 200,000 shares of Celtrix's common stock have been reserved for issuance.
The exercise prices under these plans are determined by the Board of Directors
or its committee and may not be less than 100% of the fair market value of
Celtrix's common stock at the time of grant. The options expire ten years from
the date of grant, unless otherwise provided in the option agreement. The
options generally become vested and exercisable over four years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock options because, as discussed below,
the alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized.
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to March
31, 1995 under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1999, 1998 and
1997, respectively: risk-free interest rates of 4.88%, 6.03%, and 6.55%;
dividend yields of zero; volatility factors of the expected market price of the
Company's common stock of .801, .792 and .733; and an expected option life of 5
years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility and
expected option life. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
In September 1998, the stockholders approved an increase in the number of shares
reserved for issuance under the Company's 1991 Employee Stock Purchase Plan from
250,000 to 500,000 shares of common stock. Under the plan, employees have an
opportunity to purchase common stock of Celtrix at 85% of the fair market value
at the beginning or end of each 12-month offering period, whichever is lower.
The first offering period commenced January 1, 1994. As of March 31, 1999,
176,880 shares of common stock have been issued to company employees. There
were no shares issued, and subsequently no fair value of employees' purchase
rights estimated, for 1999. The fair value of the employees' purchase rights
for 1998 and 1997, respectively, was estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rates of 5.59% and 5.66%; dividend yields of zero; volatility factors
of the expected market price of the Company's common stock of .792 and .733; and
an expected life of 1 year.
F-26
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for net loss per share
information):
1999 1998 1997
--------- --------- ---------
Pro forma net loss $(13,391) $(13,275) $(12,929)
Pro forma net loss per share $ (0.58) $ (0.63) $ (0.85)
The weighted-average fair value of options granted during 1999, 1998 and 1997
was $1.14, $1.59, and $1.47, respectively.
A summary of the Company's stock option activity, which includes the 1991 Stock
Option Plan and the 1991 Directors' Stock Option Plan, for the years ended March
31 follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------------------------------------
Shares Weighted-
Available Number of Price Average
for Grant Shares Per Share Exercise Price
-------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Balance at March 31, 1996 653,335 1,034,740 $ 1.25-$11.50 $2.94
Options granted (137,116) 137,116 $ 1.94-$3.94 $2.45
Options exercised -- (20,249) $ 1.31-$2.63 $2.52
Options canceled 191,249 (191,249) $ 1.31-$9.50 $4.30
---------- --------- ------------- -----
Balance at March 31, 1997 707,468 960,358 $ 1.25-$11.50 $2.61
Shares authorized 1,500,000 -- -- --
Options granted (1,073,783) 1,073,783 $ 2.00-$2.94 $2.34
Options canceled 272,450 (272,450) $ 2.44-$3.94 $2.60
---------- --------- ------------- -----
Balance at March 31, 1998 1,406,135 1,761,691 $ 1.25-$11.50 $2.39
Options granted (211,084) 211,084 $ 1.06-$ 2.88 $1.62
Options canceled 731,275 (731,275) $ 1.25-$11.50 $2.38
---------- --------- ------------- -----
Balance at March 31, 1999 1,926,326 1,241,500 $ 1.06-$8.00 $2.26
========== ========= ============= =====
</TABLE>
The following table summarizes information concerning outstanding options at
March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ------------------------------------------
Weighted- Weighted Weighted-
Options Average Average Options Average
Outstanding at Remaining Exercise Exercisable at Exercise
Range of Exercise Price Mar. 31, 99 Contractual Price Mar. 31, '98 Price
Life
-------------------- ------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.06 - $2.50 853,083 7.4 $2.06 444,003 $2.22
$2.51 - $4.00 386,917 7.3 $2.68 251,550 $2.72
$4.01 - $8.00 1,500 3.2 $8.00 1,500 $8.00
-------------------- ------------------
1,241,500 697,053
==================== ==================
</TABLE>
Under Celtrix's 1991 retirement savings plan ("401(k) Plan"), employees may
elect to defer up to 20% of their total compensation, not to exceed the amount
allowed by applicable Internal Revenue Service guidelines. There were no
employer contributions to the plan as of March 31, 1999.
F-27
<PAGE>
6. Stockholders' Equity
In November 1998, Celtrix sold 4,000,000 shares of common stock in a private
placement at $0.50 per share, which resulted in net proceeds to the Company of
approximately $1.9 million. Additionally, the Company issued a three-year
warrant to purchase 6,000,000 shares of Celtrix common stock at $0.55 per share.
As of March 31, 1999, 6,000,000 shares of warrants are outstanding.
In April 1997, the Company completed a private placement of 5,721,876 newly
issued shares of common stock at $2.438 per share. For every two shares of
stock issued, the Company also issued a warrant to purchase an additional share
of Celtrix common stock at $2.682 per share. The warrants are exercisable only
after the shares of stock are held for at least one year and as of March 31,
1999, there were 2,758,391 warrants outstanding related to this financing
(102,543 were cancelled due to the sale of stock). The warrant expires in April
2000. The net proceeds to the Company, after fees and expenses of approximately
$619,000, were $13.3 million.
7. License and Collaborative Arrangements
In July 1994, Celtrix entered into a license agreement with The Green Cross
Corporation ("Green Cross"), covering the development and commercialization of
SomatoKine for the treatment of osteoporosis in Japan. Under the terms of the
agreement, Green Cross was to be responsible for all related research,
development and marketing, as well as manufacturing the product to support its
preclinical, clinical and commercial needs in Japan. The agreement provided for
Celtrix to receive licensing fees, milestone payments upon Green Cross
accomplishing specific product development activities and royalties on future
product sales. Celtrix retained full rights outside of Japan to SomatoKine and
also to related know-how and technology developed by Green Cross. In April
1998, Green Cross was merged with Yoshitomi Pharmaceuticals Industries, Ltd. In
May 1998, Celtrix received notice from Yoshitomi of its intent to terminate this
license agreement. This license was terminated in March 1999 upon the payment
by Yoshitomi of $600,000 to Celtrix. Celtrix regained the rights to the
treatment of osteoporosis in Japan.
In June 1994, the Company entered into a product development, license and
marketing agreement with Genzyme Corporation ("Genzyme") on TGF-beta-2 which
includes equity investments, milestone payments and potential royalties to
Celtrix. As part of the agreement, Celtrix sold to Genzyme 1,550,388 shares of
Celtrix common stock in June 1994, and subsequently, in December 1995 Celtrix
exercised the option to receive an additional investment by Genzyme for
1,472,829 shares of Celtrix common stock resulting in $4.4 million of net
proceeds to the Company. Under recently amended terms, Genzyme has been granted
expanded worldwide commercialization rights for all systemic applications and
select local applications of TGF-beta-2 to include Japan, China, Korea and
Taiwan; in exchange, Genzyme released Celtrix from certain service and royalty
obligations under the original agreement. Celtrix has retained rights to select
applications of TGF-beta-2 and the Company has the option to reacquire rights to
other product applications not pursued by Genzyme. In December 1997, the
Company also entered into a new license agreement with Genzyme granting Genzyme
a worldwide exclusive royalty-bearing license to TGF-beta antibodies, and
license and sublicense rights to TGF-beta receptor. Under the terms of the
agreement, Genzyme will assume the licensing and royalty obligations of Celtrix
related to TGF-beta receptor.
Since inception, Celtrix has entered into various other research and development
and licensing arrangements. Some of these agreements contain royalty and other
obligations.
8. Restructuring Costs
During fiscal year 1999, the Company restructured to focus on the clinical
development of SomatoKine, cease manufacturing operations and reduce the cash
burn rate. As a result, the Company recognized a $5.2 million restructuring
charge in the quarter ended September 30, 1998 consisting of a $5.3 million non-
cash write-off of leasehold improvements partly offset by $816,000 non-cash
reduction of deferred rent liability, $358,000 in severance expenses, $250,000
related to non-cancelable operating lease obligations, and $75,000 in other
restructuring-related charges. As part of the restructuring, the Company
reduced its workforce by 69 employees,
F-28
<PAGE>
or approximately 90%, by the end of the calendar year. The reduction in
workforce affected all levels of staff in manufacturing and other functions. As
of March 31, 1999, the Company has no restructuring liabilities remaining to be
paid.
9. Gain on Sale of Investments
In June 1997, the Company sold 43,750 shares of Prograft Medical, Inc. preferred
stock, resulting in the recording of $737,000 in gain on investment. These
shares were held by Celtrix since 1993.
10. Income Taxes
At March 31, 1999, the Company had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $127.7 million
and $4.3 million, respectively, expiring in the years 2006 through 2019. The
federal net operating loss carryforward differs from the accumulated deficit
principally due to (i) the nondeductibility for tax purposes of the charges for
in-process research and development resulting from the BioGrowth, Inc. merger
and the Baltimore Biotech, Inc. acquisition, and (ii) timing differences in the
recognition of certain revenue and expense items for financial and federal tax
reporting purposes (primarily certain expenses not currently deductible).
Approximately $8.8 million of the total federal net operating losses are
available only to offset future consolidated taxable income to the extent
contributed by the Company's wholly owned subsidiary, BioGrowth, Inc.
Utilization of the net operating losses and credits is subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986.
Significant components of the Company's deferred tax assets and liabilities for
federal and state income taxes as of March 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Deferred tax assets: 1999 1998
------------ --------------
<S> <C> <C>
Net operating loss carryforwards $ 44,300 $ 39,100
Research credits 5,900 5,500
Acquired intangibles -- --
Research expenses capitalized for tax
purposes 2,400 2,200
Other (1,400) (1,000)
-------- --------
Total deferred tax assets 51,200 45,800
Valuation allowance for deferred tax (51,200) (45,800)
assets -------- --------
Net deferred tax assets $ -- $ --
======== ========
</TABLE>
The valuation allowance increased by $5.4 million, $4.8 million, and $5.2
million during the years ended March 31, 1999, 1998, and 1997, respectively.
11. Subsequent Event
The Company entered into an agreement on April 21, 1999 with Elan Corporation,
plc to establish a joint venture for the development of SomatoKine to treat
osteoporosis using Elan's MEDIPAD Delivery System.
The joint venture company is initially owned 80.1% by Celtrix and 19.9% by Elan.
The new company has licensed SomatoKine technology from Celtrix and MEDIPAD
technology from Elan. Celtrix has invested $8.01 million in the joint venture
and Elan has invested $1.99 million. At the time of closing, Elan International
Services, Ltd. (EIS) purchased $8.01 million of Celtrix Series A
Convertible/Exchangeable Preferred Stock, which is convertible into Celtrix
common stock at a price of $2.006 per share or exchangeable for an incremental
30.1% ownership in the joint venture to a total of 50.0%. If the exchange right
is excercised, the Series A Convertible/Exchangeable Preferred Stock will be
cancelled. The Series A Convertible/Exchangeable Preferred Stock pays a 5%
annual in-kind dividend.
F-29
<PAGE>
The agreement with Elan also provides for EIS to purchase from time to time
Series B Convertible Preferred Stock up to an amount of $4.8 million, the
proceeds from which sale will be used by Celtrix to fund its share of the joint
venture's operating expenses. The Series B Convertible Preferred Stock is
convertible into Celtrix common stock at a price of $2.006 per share and pays a
9% annual in-kind dividend.
Elan received a $10 million license payment from the joint venture for the use
of MEDIPAD technology while Celtrix will have an 80% share in any future
proceeds related to the further development and commercialization of the
osteoporosis product (e.g. upfront payments, milestones or royalties) received
by the joint venture, regardless of ownership, until it is paid $10 million.
Thereafter, Celtrix and Elan will share the joint venture's proceeds in
accordance with their ownership interests.
In April 1999, in a separate transaction, the Company issued 1,508,751 shares of
common stock to Elan International Services, Ltd. at a price of $1.657 per
share, amounting to $2.3 million (net of expenses).
F-30
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
----------------- --------------
(Unaudited) (1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,243 $ 1,258
Receivables and other current assets 159 172
----------------- --------------
Total current assets 1,402 1,430
Property and equipment, net 75 101
Assets held for sale 349 416
Intangible and other assets, net 2,581 2,554
----------------- --------------
Total assets $ 4,407 $ 4,501
================= ==============
Liabilities, Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 333 $ 547
Other accrued liabilities 360 674
----------------- --------------
Total current liabilities 693 1,221
Series A convertible/exchangeable preferred stock 7,948 --
Stockholders' equity (deficit):
Common stock 272 251
Additional paid-in capital 136,141 133,437
Cumulative preferred stock dividend 281 --
Accumulated deficit (140,928) (130,408)
----------------- --------------
Total stockholders' equity (deficit) (4,234) 3,280
----------------- --------------
Total liabilities, preferred stock and stockholders' equity (deficit) $ 4,407 $ 4,501
================= ==============
</TABLE>
(1) Derived from audited financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See accompanying notes.
F-31
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ -- $ -- $ -- $ 10
Revenues from related parties 597 -- 629 --
Other revenues 25 21 83 69
---------- ---------- ----------- ----------
622 21 712 79
Costs and expenses:
Research and development 290 615 629 6,432
General and administrative 489 496 1,424 1,725
Restructuring costs -- -- -- 5,178
---------- ---------- ----------- ----------
779 1,111 2,053 13,335
---------- ---------- ----------- ----------
Operating loss (157) (1,090) (1,341) (13,256)
Equity in loss from joint venture (963) -- (8,973) --
Interest income, net 21 14 74 121
---------- ---------- ----------- ----------
Net loss $ (1,099) $ (1,076) $ (10,240) $ (13,135)
========== ========== =========== ==========
Basic and diluted net loss per share $ (0.04) $ (0.04) $ (0.39) $ (0.59)
========== ========== =========== ==========
Shares used in basic and diluted per
share computation 26,837 24,583 26,548 22,235
========== ========== =========== ==========
</TABLE>
See accompanying notes.
F-32
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,240) $(13,135)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 267 939
Write off of leasehold improvements -- 5,311
Reduction in deferred rent liability -- (890)
Equity in loss from Celtrix/Elan joint venture 8,973
Other adjustments related to changes in operating accounts (514) (506)
-------- --------
Net cash used in operating activities (1,514) (8,281)
Cash flows from investing activities:
Investment in Celtrix/Elan joint venture (8,973) --
Decrease in available-for-sale securities -- 6,307
Proceeds from sale of fixed assets 67 359
Capital expenditures (3) (77)
Increase in intangible and other assets (265) (85)
-------- --------
Net cash (used in) provided by investing activities (9,174) 6,504
Cash flows from financing activities:
Proceeds from issuance of common stock, net 2,725 1,957
Proceeds from issuance of Series A convertible/ exchangeable
preferred stock, net 7,948 --
Principal payments under lease obligations -- (8)
-------- --------
Net cash provided by financing activities 10,673 1,949
-------- --------
Net (decrease) increase in cash and cash equivalents (15) 172
Cash and cash equivalents at beginning of period 1,258 1,608
-------- --------
Cash and cash equivalents at end of period $ 1,243 $ 1,780
======== ========
</TABLE>
See accompanying notes.
F-33
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Interim Financial Statements
---------------------------------------------------
The condensed consolidated balance sheet as of December 31, 1999 and the
condensed consolidated statements of operations and cash flows for the three-and
nine-month periods ended December 31, 1999 and 1998, have been prepared by the
Company, without audit. In the opinion of management, the accompanying unaudited
interim condensed consolidated financial statements include all adjustments,
which include normal recurring adjustments, necessary to present fairly the
Company's financial position, results of its operations and its cash flows.
Interim results are not necessarily indicative of results to be expected for a
full fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto for the fiscal year ended March 31, 1999 in the Company's
Annual Report on Form 10-K.
2. Acquisition of Celtrix by Insmed Pharmaceuticals, Inc.
------------------------------------------------------
On December 1, 1999, the Company announced that it had entered into a definitive
agreement for Insmed Pharmaceuticals, Inc. ("Insmed") to acquire Celtrix. The
acquisition of Celtrix by Insmed, a bioscience company focused on the diagnosis
and treatment of medical conditions associated with insulin resistance,
including type 2 diabetes and polycystic ovary syndrome (PCOS), is subject to
approval by the shareholders of both companies, as well as certain other
contingencies and is expected to close at the beginning of the second quarter,
2000. At closing, each share of Celtrix will be exchanged for one share in a
newly formed holding company and each share of Insmed will be exchanged for
three and one-half shares. Prior to the closing of the financing described
below, Celtrix's current shareholders will hold approximately 43 percent and
Insmed's current shareholders will hold approximately 57% of the new company.
The exchange will be tax-free for both companies' shareholders. The newly formed
holding company expects to be a publicly traded company.
In connection with the merger, Insmed entered into an agreement to sell
5,632,678 shares of its common stock and warrants, exercisable for five years,
to purchase the equivalent of 1,971,813 shares of common stock of the newly
formed holding company. The proceeds from the financing will be approximately
$34.5 million. Subsequent to the financing, the new investors, Celtrix's current
shareholders and Insmed's current shareholders will hold approximately 22%, 34%
and 44%, respectively, of the outstanding common stock of the newly formed
holding company, on a fully diluted basis. Such sale is contingent upon
completion of the merger with Celtrix.
3. Joint Venture with Elan Corporation, plc
----------------------------------------
On April 21, 1999, the Company entered into an agreement with Elan Corporation,
plc to establish a joint venture company for the development of SomatoKine to
treat osteoporosis using Elan's MEDIPAD Delivery System.
The joint venture company is initially owned 80.1% by Celtrix and 19.9% by Elan.
The joint venture company has licensed SomatoKine technology from Celtrix and
MEDIPAD technology from Elan. Celtrix initially invested $8.01 million in the
joint venture and Elan invested $1.99 million. At the time of closing, Elan
International Services, Ltd. (EIS) purchased $8.01 million of Celtrix Series A
Convertible/Exchangeable Preferred Stock, which, with all accrued and unpaid
dividends, is convertible into Celtrix common stock at a price of $2.006 per
share or exchangeable for an incremental 30.1% ownership in the joint venture to
a total of 50.0%. If the exchange right is exercised, the Series A
Convertible/Exchangeable Preferred Stock will be cancelled. The Company
anticipates the Series A Convertible/Exchangeable Preferred Stock will be
converted to Celtrix common stock, in accordance with the terms of the agreement
with Elan, at the time of the proposed merger with Insmed Pharmaceuticals, Inc.
(see Note 2). The Series A Convertible/Exchangeable Preferred Stock pays a 5%
annual in-kind dividend. Although the Company owns 80.1% of the joint venture,
the joint venture is accounted for under the equity method of
F-34
<PAGE>
accounting, because Elan has substantive participating rights that give them the
ability to block significant decisions proposed by the Company. In addition,
Elan actively participates in directing and carrying out the operating and
capital activities of the joint venture's business.
The agreement with Elan also provides, at Celtrix's option, for EIS to purchase
from time to time Series B Convertible Preferred Stock up to an amount of $4.8
million, the proceeds from which sale will be used by Celtrix to fund its share
of the joint venture's operating expenses. Celtrix and Elan will be reimbursed
by the joint venture for research and development and administrative work
performed on behalf of the joint venture. The Series B Convertible Preferred
Stock is convertible into Celtrix common stock at a price of $2.006 per share
and pays a 9% annual in-kind dividend.
Elan received a $10 million license payment from the joint venture for the use
of MEDIPAD technology while Celtrix will have an 80% share in any future
proceeds related to the further development and commercialization of the
osteoporosis product (e.g. upfront payments, milestones or royalties) received
by the joint venture, regardless of ownership, until Celtrix is paid $10
million. Thereafter, Celtrix and Elan will share the joint venture's proceeds in
accordance with their ownership interests.
In April 1999, in a separate transaction, the Company issued 1,508,751 shares of
Celtrix common stock to Elan International Services, Ltd. at a price of $1.657
per share, amounting to $2.4 million (net of expenses).
4. Restructuring Charges
---------------------
In September 1998, Celtrix announced a restructuring of the Company to focus on
the clinical development of SomatoKine, cease manufacturing operations and
significantly reduce the cash burn rate. As a result, the Company recognized a
$5.2 million restructuring charge in the quarter ended September 30, 1998. As of
December 31, 1999, the Company held $349,000 in certain equipment and fixed
assets to be sold. There are no restructuring liabilities remaining to be paid
as of December 31, 1999.
5. Nasdaq Listing
--------------
In April 1999, the Company participated in an oral hearing before a Nasdaq
Listing Qualifications Panel regarding its compliance with Nasdaq National
Market Standards. The hearing was in response to notification received by the
Company from Nasdaq in January 1999 that the Company failed to comply with the
minimum net tangible assets requirement. On July 6, 1999, the Nasdaq panel
informed the Company that its listing would be moved from the Nasdaq National
Market to The Nasdaq SmallCap Market effective July 8, 1999, subject to its
continued compliance with SmallCap listing requirements.
6. Subsequent Events
-----------------
In January 2000, certain investors holding warrants issued in connection with
the $2.0 million November 1998 private placement financing completed a cashless
exercise of 4,230,000 shares underlying such warrants which resulted in the
issuance of 3,384,000 shares of common stock to such investors on the basis of a
$2.75 share price.
In February 2000, an investor in the $14.0 million April 1997 private placement
financing exercised 820,344 warrants at an exercise price of $2.6818 per share,
which generated $2.2 million in additional cash for the Company.
F-35
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
INSMED PHARMACEUTICALS, INC.,
CELTRIX PHARMACEUTICALS, INC.
AND
INSMED, INC.
DATED AS OF February 9, 2000
The following reflects the reorganization agreement, dated February 9,
2000, by and between Insmed Pharmaceuticals, Inc., Insmed, Inc., Celtrix Merger
Subsidiary, Inc. and Celtrix Pharmaceuticals, Inc.
<PAGE>
Annex A
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INSMED, INC.,
CELTRIX PHARMACEUTICALS, INC.,
CELTRIX MERGERSUB, INC.,
AND
INSMED PHARMACEUTICALS, INC.
Dated as of February 9, 2000
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS......................................................................................... 10
Section 1.1. Agreement................................................................................ 10
Section 1.2. Antitrust Laws........................................................................... 10
Section 1.3. Articles of Exchange..................................................................... 10
Section 1.4. BancBoston............................................................................... 11
Section 1.5. Celtrix.................................................................................. 11
Section 1.6. Celtrix Affiliate........................................................................ 11
Section 1.7. Celtrix Benefit Plans.................................................................... 11
Section 1.8. Celtrix Capital Stock.................................................................... 11
Section 1.9. Celtrix Common Stock..................................................................... 11
Section 1.10. Celtrix Companies....................................................................... 11
Section 1.11. Celtrix Contracts....................................................................... 11
Section 1.12. Celtrix Disclosure Letter............................................................... 11
Section 1.13. Celtrix Dissenting Holders.............................................................. 11
Section 1.14. Celtrix ERISA Affiliate................................................................. 12
Section 1.15. Celtrix ERISA Plan...................................................................... 12
Section 1.16. Celtrix Form 10-K....................................................................... 12
Section 1.17. Celtrix Intellectual Property........................................................... 12
Section 1.18. Celtrix License Agreements.............................................................. 12
Section 1.19. Celtrix Permits......................................................................... 12
Section 1.20. Celtrix Plans........................................................................... 12
Section 1.21. Celtrix Preferred Stock................................................................. 12
Section 1.22. Celtrix Qualified Plan.................................................................. 12
Section 1.23. Celtrix Series A Preferred Stock........................................................ 12
Section 1.24. Celtrix Series B Preferred Stock........................................................ 13
Section 1.25. Celtrix SEC Reports..................................................................... 13
Section 1.26. Celtrix Stock Options................................................................... 13
Section 1.27. Celtrix Superior Proposal............................................................... 13
Section 1.28. Celtrix Third Party Acquisition Offer................................................... 13
Section 1.29. Celtrix Warrant......................................................................... 13
Section 1.30. Certificate of Merger................................................................... 13
Section 1.31. Certificates............................................................................ 13
Section 1.32. Closing................................................................................. 13
Section 1.33. Closing Date............................................................................ 13
Section 1.34. COBRA................................................................................... 14
Section 1.35. Code.................................................................................... 14
Section 1.36. Confidential Material................................................................... 14
Section 1.37. Confidentiality Agreement............................................................... 14
</TABLE>
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<TABLE>
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Section 1.38. Contracts............................................................................... 14
Section 1.39. Copyrights.............................................................................. 14
Section 1.40. Delivering Company...................................................................... 14
Section 1.41. DGCL.................................................................................... 14
Section 1.42. Dissenting Shares....................................................................... 14
Section 1.43. Effective Time.......................................................................... 14
Section 1.44. Elan Joint Venture...................................................................... 15
Section 1.45. Elan Joint Venture Agreement............................................................ 15
Section 1.46. Environmental Claim..................................................................... 15
Section 1.47. Environmental Laws...................................................................... 15
Section 1.48. ERISA................................................................................... 15
Section 1.49. Exchange................................................................................ 15
Section 1.50. Exchange Act............................................................................ 15
Section 1.51. Exchange Agent.......................................................................... 15
Section 1.52. Exchange Consideration.................................................................. 15
Section 1.53. FCPA.................................................................................... 15
Section 1.54. GAAP.................................................................................... 16
Section 1.55. Governmental Authority.................................................................. 16
Section 1.56. HSR Act................................................................................. 16
Section 1.57. Indemnified Party....................................................................... 16
Section 1.58. Insmed.................................................................................. 16
Section 1.59. Insmed Affiliate........................................................................ 16
Section 1.60. Insmed Benefit Plans.................................................................... 16
Section 1.61. Insmed Capital Stock.................................................................... 16
Section 1.62. Insmed Common Stock..................................................................... 16
Section 1.63. Insmed Companies........................................................................ 16
Section 1.64. Insmed Contracts........................................................................ 17
Section 1.65. Insmed Disclosure Letter................................................................ 17
Section 1.66. Insmed Dissenting Holder................................................................ 17
Section 1.67. Insmed ERISA Affiliate.................................................................. 17
Section 1.68. Insmed ERISA Plan....................................................................... 17
Section 1.69. Insmed Financial Statements............................................................. 17
Section 1.70. Insmed Intellectual Property............................................................ 17
Section 1.71. Insmed License Agreements............................................................... 17
Section 1.72. Insmed Permits.......................................................................... 17
Section 1.73. Insmed Plans............................................................................ 17
Section 1.74. Insmed Preferred Stock.................................................................. 17
Section 1.75. Insmed Qualified Plan................................................................... 18
Section 1.76. Insmed Series A Preferred Stock......................................................... 18
Section 1.77. Insmed Series B Preferred Stock......................................................... 18
Section 1.78. [Intentionally Omitted]................................................................. 18
Section 1.79. Insmed Stock Options.................................................................... 18
Section 1.80. Insmed Superior Proposal................................................................ 18
Section 1.81. Insmed Third Party Acquisition Offer.................................................... 18
Section 1.82. Insmed Warrant.......................................................................... 18
</TABLE>
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<TABLE>
<S> <C>
Section 1.83. IRS..................................................................................... 18
Section 1.84. Joint Proxy Statement/Prospectus........................................................ 18
Section 1.85. Knowledge of Celtrix.................................................................... 18
Section 1.86. Knowledge of Insmed..................................................................... 19
Section 1.87. Law..................................................................................... 19
Section 1.89. Material Adverse Effect................................................................. 19
Section 1.90. Merger.................................................................................. 19
Section 1.91. Merger Consideration.................................................................... 19
Section 1.92. Merger Subsidiary....................................................................... 19
Section 1.93.A. Nasdaq SmallCap....................................................................... 19
Section 1.93.B. Nasdaq National....................................................................... 19
Section 1.94. New Stock Plan.......................................................................... 19
Section 1.94A. Original Agreement.................................................................... 20
Section 1.95. Parent.................................................................................. 20
Section 1.96. Parent Common Stock..................................................................... 20
Section 1.97. Partnership; Partnerships............................................................... 20
Section 1.98. Patents................................................................................. 20
Section 1.99. Permits................................................................................. 20
Section 1.100. PGE.................................................................................... 20
Section 1.101. Plan of Exchange....................................................................... 20
Section 1.102. Receiving Company...................................................................... 20
Section 1.103. Registration Statement................................................................. 20
Section 1.104. Representatives........................................................................ 21
Section 1.105. SCC.................................................................................... 21
Section 1.106. SEC.................................................................................... 21
Section 1.107. Secretary of State..................................................................... 21
Section 1.108. Securities Act......................................................................... 21
Section 1.109. Special Meetings....................................................................... 21
Section 1.110. Subsidiary; Subsidiaries............................................................... 21
Section 1.111. Tax; Taxes............................................................................. 21
Section 1.112. Tax Return............................................................................. 22
Section 1.113. Trademarks............................................................................. 22
Section 1.114. Trade Secrets.......................................................................... 22
Section 1.115. VSCA................................................................................... 22
Section 1.116. Year 2000 Compliant or Year 2000 Compliance............................................ 22
Section 1.117. Year 2000 Problem...................................................................... 22
ARTICLE II THE MERGER AND EXCHANGE............................................................................ 23
Section 2.1. The Merger............................................................................... 23
Section 2.2. The Exchange............................................................................. 24
Section 2.3. Exchange of Certificates................................................................. 26
Section 2.4. Stock Options and Warrants............................................................... 27
ARTICLE III SHAREHOLDER APPROVAL; CLOSING..................................................................... 30
Section 3.1. Shareholder Approval..................................................................... 30
</TABLE>
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<TABLE>
<S> <C>
Section 3.2. Time and Place of Closing................................................................ 30
ARTICLE IV PARENT AND MERGER SUBSIDIARY....................................................................... 31
Section 4.1. No Conduct of Business by Each of Parent and Merger Subsidiary; Restated Articles
and Bylaws...................................................................................... 31
Section 4.2. Board of Directors...................................................................... 31
Section 4.3. Management.............................................................................. 31
Section 4.4. Headquarters of Parent.................................................................. 31
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CELTRIX.......................................................... 31
Section 5.1. Organization and Authority of the Celtrix Companies..................................... 32
Section 5.2. Capitalization.......................................................................... 32
Section 5.3. Authority Relative to this Agreement; Recommendation.................................... 33
Section 5.4. Consents and Approvals; No Violations................................................... 33
Section 5.5. Reports................................................................................. 33
Section 5.6. Absence of Certain Events............................................................... 34
Section 5.7. Joint Proxy Statement/Prospectus........................................................ 35
Section 5.8. Litigation.............................................................................. 35
Section 5.9. Employee Benefit Plans; Labor Matters................................................... 35
Section 5.10. Tax Matters............................................................................ 38
Section 5.11. Compliance with Law.................................................................... 39
Section 5.12. Transactions With Affiliates........................................................... 40
Section 5.13. Fees and Expenses of Brokers and Others................................................ 40
Section 5.14. Accuracy of Information................................................................ 40
Section 5.15. Absence of Undisclosed Liabilities..................................................... 40
Section 5.16. Opinion of Financial Advisor........................................................... 41
Section 5.17. [Intentionally Omitted]................................................................ 41
Section 5.18. Environmental Laws and Regulations..................................................... 41
Section 5.19. Intellectual Property.................................................................. 41
Section 5.20. Insurance.............................................................................. 43
Section 5.21. Vote Required; Board Approval.......................................................... 44
Section 5.22. State Takeover Statutes................................................................ 44
Section 5.23. Tax Treatment.......................................................................... 44
Section 5.24. Certain Business Practices............................................................. 44
Section 5.25. No Existing Discussions................................................................ 45
Section 5.26. Material Contracts..................................................................... 45
Section 5.27. Properties............................................................................. 46
Section 5.28. Year 2000 Compliance................................................................... 46
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF INSMED.......................................................... 46
Section 6.1. Organization and Authority of the Insmed Companies...................................... 46
Section 6.2. Capitalization.......................................................................... 47
Section 6.3. Authority Relative to this Agreement; Recommendation.................................... 47
Section 6.4. Consents and Approvals; No Violations................................................... 48
Section 6.5. Financial Statements.................................................................... 48
</TABLE>
A-5
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<TABLE>
<S> <C>
Section 6.6. Absence of Certain Events............................................................... 48
Section 6.7. Joint Proxy Statement/Prospectus........................................................ 49
Section 6.8. Litigation.............................................................................. 49
Section 6.9. Employee Benefit Plans; Labor Matters................................................... 49
Section 6.10. Tax Matters............................................................................ 51
Section 6.11. Compliance with Law.................................................................... 52
Section 6.12. Transactions With Affiliates........................................................... 53
Section 6.13. Fees and Expenses of Brokers and Others................................................ 53
Section 6.14. Accuracy of Information................................................................ 53
Section 6.15. Absence of Undisclosed Liabilities..................................................... 53
Section 6.16. [Intentionally Omitted]................................................................ 54
Section 6.17. [Intentionally Omitted]................................................................ 54
Section 6.18. Environmental Laws and Regulations..................................................... 54
Section 6.19. Intellectual Property.................................................................. 54
Section 6.20. Insurance.............................................................................. 56
Section 6.21. Vote Required; Board Approval.......................................................... 57
Section 6.22. State Takeover Statutes................................................................ 57
Section 6.23. Tax Treatment.......................................................................... 57
Section 6.24. Certain Business Practices............................................................. 57
Section 6.25. No Existing Discussions................................................................ 57
Section 6.26. Material Contracts..................................................................... 58
Section 6.27. Properties............................................................................. 59
Section 6.28. Year 2000 Compliance................................................................... 59
ARTICLE VII COVENANTS........................................................................................ 60
Section 7.1. Conduct of Business of Celtrix.......................................................... 60
Section 7.2. Conduct of Business of Insmed........................................................... 62
Section 7.3. Conduct of Elan Joint Venture........................................................... 63
Section 7.4. No Solicitation......................................................................... 64
Section 7.5. Meetings of Shareholders................................................................ 65
Section 7.6. Nasdaq Listing.......................................................................... 66
Section 7.7. Employee Benefits; Stock Option and Employee Purchase Plans............................. 66
Section 7.8. The Registration Statement.............................................................. 66
Section 7.9. Access to Information................................................................... 67
Section 7.10. Best Efforts........................................................................... 67
Section 7.11. Consents............................................................................... 67
Section 7.12. Public Announcements................................................................... 68
Section 7.13. Certain Agreements..................................................................... 68
Section 7.14. Letter of Celtrix's Accountants........................................................ 68
Section 7.15. Letter of Insmed's Accountants......................................................... 68
Section 7.16. Indemnification........................................................................ 68
Section 7.17. Affiliate Letters...................................................................... 69
Section 7.18. Confidentiality........................................................................ 70
Section 7.19. Antitrust Matters...................................................................... 72
Section 7.20. Voting Agreements...................................................................... 73
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VIII CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER AND EXCHANGE................................. 73
Section 8.1. Conditions Precedent to Each Party's Obligation to Consummate Merger and Exchange....... 73
Section 8.2. Conditions Precedent to Obligations of Celtrix.......................................... 74
Section 8.3. Conditions Precedent to Obligations of Insmed........................................... 75
ARTICLE IX TERMINATION; AMENDMENT; WAIVER.................................................................... 76
Section 9.1. Termination............................................................................. 76
Section 9.2. Effect of Termination................................................................... 78
Section 9.3. Termination Fee......................................................................... 78
Section 9.4. Amendment............................................................................... 78
Section 9.5. Extension; Waiver....................................................................... 79
ARTICLE X MISCELLANEOUS...................................................................................... 79
Section 10.1. Survival of Representations, Warranties and Covenants.................................. 79
Section 10.2. Brokerage Fees and Commissions......................................................... 79
Section 10.3. Entire Agreement; Assignment........................................................... 79
Section 10.4. Notices................................................................................ 79
Section 10.5. Governing Law.......................................................................... 80
Section 10.6. Descriptive Headings................................................................... 80
Section 10.7. Parties in Interest.................................................................... 81
Section 10.8. Counterparts........................................................................... 81
Section 10.9. Specific Performance................................................................... 81
Section 10.10. Fees and Expenses..................................................................... 81
Section 10.11. Severability.......................................................................... 81
Section 10.12. Personal Liability.................................................................... 81
</TABLE>
A-7
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS
- --------
Exhibit 1.30 Certificate of Merger
Exhibit 1.101 Plan of Exchange
Exhibit 4.1A Articles of Incorporation of Parent
Exhibit 4.1B Bylaws of Parent
Exhibit 4.2 Board of Directors of Parent
Exhibit 4.3 Officers of Parent
Exhibit 7.17(a)(i) Celtrix Affiliates
Exhibit 7.17(a)(ii) Celtrix Affiliate Letters
Exhibit 7.17(b)(i) Insmed Affiliates
Exhibit 7.17(b)(ii) Insmed Affiliate Letters
Exhibit 7.20A Form of Celtrix Voting Agreement
Exhibit 7.20B Form of Insmed Voting Agreement
SCHEDULES TO CELTRIX DISCLOSURE LETTER
- --------------------------------------
Schedule 1.85 Knowledge of Celtrix
Schedule 1.97A Partnerships of Celtrix
Schedule 1.110A Celtrix Subsidiaries
Schedule 5.2 Celtrix Options, Warrants,
Subscriptions or Other Rights
Schedule 5.4 Celtrix Required Consents
Schedule 5.6(a) Adverse Changes Affecting Celtrix
Schedule 5.6(b) Adverse Changes Affecting Elan Joint Venture
Schedule 5.8 Celtrix Litigation
Schedule 5.9(i) Celtrix Optionholders
Schedule 5.9(j) Celtrix Change of Control Provisions
Schedule 5.10 Tax Matters Concerning Celtrix
Schedule 5.12 Transactions With Affiliates by Celtrix
Schedule 5.18 Celtrix Environmental Matters
Schedule 5.19 Celtrix Intellectual Property
Schedule 5.20 Celtrix Insurance
Schedule 5.26 Celtrix Material Contracts
Schedule 7.1 Celtrix Exceptions to Operation in the Ordinary Course
Schedule 7.3 Elan Joint Venture Exceptions in the Ordinary Course
Schedule 7.13 Certain Agreements With Employees
A-8
<PAGE>
SCHEDULES TO INSMED DISCLOSURE LETTER
- -------------------------------------
Schedule 1.86 Knowledge of Insmed
Schedule 1.97B Partnerships of Insmed
Schedule 1.110B Insmed Subsidiaries
Schedule 6.2 Insmed Outstanding Options, Warrants,
Subscriptions or Other Rights
Schedule 6.4 Insmed Required Consents
Schedule 6.6 Adverse Changes Affecting Insmed
Schedule 6.9(i) Insmed Optionholders
Schedule 6.10 Tax Matters Concerning Insmed
Schedule 6.11 Compliance with Law by Insmed
Schedule 6.12 Transactions With Affiliates
Schedule 6.18 Insmed Environmental Matters
Schedule 6.19 Insmed Intellectual Property
Schedule 6.20 Insmed Insurance
Schedule 6.26 Insmed Material Contracts
Schedule 7.2 Insmed Exceptions in the Ordinary Course
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, dated as of
February 9, 2000, by and among INSMED, INC., a Virginia corporation ("Parent"),
CELTRIX PHARMACEUTICALS, INC., a Delaware corporation ("Celtrix"), CELTRIX
MERGERSUB, INC., a Delaware corporation and a direct, wholly owned subsidiary of
Parent ("Merger Subsidiary") and INSMED PHARMACEUTICALS, INC., a Virginia
corporation ("Insmed").
RECITALS
--------
WHEREAS, the respective Boards of Directors of Celtrix and Insmed have,
subject to the terms and conditions set forth herein, determined that it is
advisable, fair and in the best interests of their respective shareholders that
the businesses and operations of Celtrix and Insmed be combined; and
WHEREAS, the parties have determined that the most practical manner to
give effect to such combination is through (a) the merger of Merger Subsidiary,
with and into Celtrix, with Celtrix to be the surviving corporation of such
Merger in accordance with this Agreement and the Certificate of Merger and (b) a
share exchange pursuant to which all outstanding shares of Insmed Capital Stock
will be exchanged for shares of Parent Capital Stock in accordance with the Plan
of Exchange; and
WHEREAS, each of the directors and certain shareholders of Celtrix and
Insmed have entered into Shareholder Letters pursuant to which each such
director and shareholder has agreed, among other things, to vote all voting
securities of Celtrix or Insmed, as the case may be,
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<PAGE>
beneficially owned by him in favor of approval and adoption of the Merger or the
Exchange, as the case may be; and
WHEREAS, Celtrix and Insmed desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and Exchange
and also to prescribe various conditions to the Merger and Exchange; and
WHEREAS, for Federal income tax purposes, it is intended that the
transactions contemplated by this Agreement shall constitute transactions
described in Section 351 and/or Section 368 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder; and
WHEREAS, this Agreement and the Purchase Agreement dated January 13,
2000 among Parent, Insmed and the investors named therein constitute a single
plan for the capitalization of Parent; and
WHEREAS, the parties hereto previously entered into the Agreement and
Plan of Reorganization dated as of November 30, 1999 (the "Original Agreement");
and
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in its entirety;
NOW, THEREFORE, in consideration of the premises, which are
incorporated into and made part of this Agreement, and of the mutual
representations, warranties, covenants, agreements and conditions set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1. Agreement.
---------
"Agreement" shall mean this Amended and Restated Agreement and Plan of
Reorganization, together with the Certificate of Merger, Plan of Exchange and
other Schedules and Exhibits attached hereto, as amended from time to time in
accordance with the terms hereof.
Section 1.2. Antitrust Laws.
--------------
"Antitrust Laws" shall have the meaning given in Section 7.19(b)
---------------
hereof.
Section 1.3. Articles of Exchange.
--------------------
"Articles of Exchange" shall mean the articles of exchange to be filed
by Parent with the SCC with respect to the Exchange.
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<PAGE>
Section 1.4. BancBoston.
----------
"BancBoston" shall mean BancBoston Robertson Stephens, Inc., financial
advisors to Insmed.
Section 1.5. Celtrix.
-------
"Celtrix" shall mean Celtrix Pharmaceuticals, Inc., a Delaware
corporation.
Section 1.6. Celtrix Affiliate.
-----------------
"Celtrix Affiliate" shall have the meaning given in Section 5.12
------------
hereof.
Section 1.7. Celtrix Benefit Plans.
---------------------
"Celtrix Benefit Plans" shall have the meaning given in Section 5.9(a)
--------------
hereof.
Section 1.8. Celtrix Capital Stock.
---------------------
"Celtrix Capital Stock" shall mean, collectively, the Celtrix Common
Stock and the Celtrix Preferred Stock.
Section 1.9. Celtrix Common Stock.
--------------------
"Celtrix Common Stock" shall mean the common stock, $.01 par value, of
Celtrix.
Section 1.10. Celtrix Companies.
-----------------
"Celtrix Companies" shall mean Celtrix, its Subsidiaries and the
Partnerships in which it has any interest.
Section 1.11. Celtrix Contracts.
-----------------
"Celtrix Contracts" shall have the meaning given in Section 5.26(a)
---------------
hereof.
Section 1.12. Celtrix Disclosure Letter.
-------------------------
"Celtrix Disclosure Letter" shall have the meaning given in the
preamble of Article V hereof.
Section 1.13. Celtrix Dissenting Holders.
--------------------------
"Celtrix Dissenting Holders" shall have the meaning given in Section
-------
2.1(e) hereof.
- ------
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<PAGE>
Section 1.14. Celtrix ERISA Affiliate.
-----------------------
"Celtrix ERISA Affiliate" shall mean Celtrix and any trade or business
(whether or not incorporated) which is or has ever been under common control, or
which is or has ever been treated as a single employer, with Celtrix under
Section 414(b), (c), (m) or (o) of the Code.
Section 1.15. Celtrix ERISA Plan.
------------------
"Celtrix ERISA Plan" shall have the meaning given in Section 5.9(a)
--------------
hereof.
Section 1.16. Celtrix Form 10-K.
-----------------
"Celtrix Form 10-K" shall mean Celtrix's Annual Report on Form 10-K for
the fiscal year ended March 31, 1999.
Section 1.17. Celtrix Intellectual Property.
-----------------------------
"Celtrix Intellectual Property" shall have the meaning given in Section
-------
5.19(a) hereof.
- -------
Section 1.18. Celtrix License Agreements.
--------------------------
"Celtrix License Agreements" shall have the meaning given in Section
5.19(b) hereof.
- -------
Section 1.19. Celtrix Permits.
---------------
"Celtrix Permits" shall have the meaning given in Section 5.11 hereof.
------------
Section 1.20. Celtrix Plans.
-------------
"Celtrix Plans" shall have the meaning given in Section 2.4(a) hereof.
--------------
Section 1.21. Celtrix Preferred Stock.
-----------------------
"Celtrix Preferred Stock" shall mean the Celtrix Series A Preferred
Stock and the Celtrix Series B Preferred Stock.
Section 1.22. Celtrix Qualified Plan.
----------------------
"Celtrix Qualified Plan" shall have the meaning given in Section5.9(d)
-------------
hereof.
Section 1.23. Celtrix Series A Preferred Stock.
--------------------------------
"Celtrix Series A Preferred Stock" shall mean the Series A Preferred
Stock, $.01 par value, of Celtrix.
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<PAGE>
Section 1.24. Celtrix Series B Preferred Stock.
--------------------------------
"Celtrix Series B Preferred Stock" shall mean the Series B Preferred
Stock, $.01 par value, of Celtrix.
Section 1.25. Celtrix SEC Reports.
-------------------
"Celtrix SEC Reports" shall mean (a) Celtrix's Annual Reports on Form
10-K for the fiscal years ended March 31, 1999, 1998, 1997, and 1996, and (b)
all documents filed by Celtrix with the SEC pursuant to Sections 13(a) and 13(c)
of the Exchange Act, any definitive proxy statements so filed pursuant to
Section 14 of the Exchange Act and any report filed pursuant to Section 15(d) of
the Exchange Act and all other reports and registration statements under the
Securities Act filed by Celtrix with the SEC, in each such case since April 1,
1996.
Section 1.26. Celtrix Stock Options.
---------------------
"Celtrix Stock Options" shall have the meaning given in Section 2.4(a)
--------------
hereof.
Section 1.27. Celtrix Superior Proposal.
-------------------------
"Celtrix Superior Proposal" shall have the meaning given in Section
-------
7.4(b) hereof.
- ------
Section 1.28. Celtrix Third Party Acquisition Offer.
-------------------------------------
"Celtrix Third Party Acquisition Offer" shall have the meaning given in
Section 7.4(b) hereof.
- --------------
Section 1.29. Celtrix Warrant.
---------------
"Celtrix Warrant" shall have the meaning given in Section 2.4(e)
--------------
hereof.
Section 1.30. Certificate of Merger.
---------------------
"Certificate of Merger" shall mean the Certificate of Merger of Merger
Subsidiary with and into Celtrix, in substantially the form attached hereto as
Exhibit 1.30.
- ------------
Section 1.31. Certificates.
------------
"Certificates" shall have the meaning given in Section 2.3 hereof.
-----------
Section 1.32. Closing.
-------
"Closing" shall have the meaning given in Section 3.2 hereof.
-----------
Section 1.33. Closing Date.
------------
"Closing Date" shall mean the date on which the Closing occurs.
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<PAGE>
Section 1.34. COBRA.
-----
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
Section 1.35. Code.
----
"Code" shall mean, as appropriate, the Internal Revenue Code of 1954 or
of 1986, each as amended.
Section 1.36. Confidential Material.
---------------------
"Confidential Material" shall have the meaning given in Section 7.18(a)
---------------
hereof.
Section 1.37. Confidentiality Agreement.
-------------------------
"Confidentiality Agreement" shall mean the Mutual Non-Disclosure
Agreement, dated as of December 8, 1998, between Celtrix and Insmed.
Section 1.38. Contracts.
---------
"Contracts" shall mean all contracts, agreements, leases, licenses,
arrangements, relationships and commitments, whether written or oral (and all
amendments, side letters, modifications and supplements thereto).
Section 1.39. Copyrights.
----------
"Copyrights" shall have the meaning given in Section 5.19(a) hereof.
---------------
Section 1.40. Delivering Company.
------------------
"Delivering Company" shall have the meaning given in Section 7.18(a)
---------------
hereof.
Section 1.41. DGCL.
----
"DGCL" shall mean the Delaware General Corporation Law, as amended.
Section 1.42. Dissenting Shares.
-----------------
"Dissenting Shares" shall mean shares of Celtrix Capital Stock or
Insmed Capital Stock held by a Celtrix Dissenting Holder or Insmed Dissenting
Holder, as the case may be.
Section 1.43. Effective Time.
--------------
"Effective Time" shall have the meaning given in Section 3.1 hereof.
-----------
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<PAGE>
Section 1.44. Elan Joint Venture.
------------------
"Elan Joint Venture" shall mean, as may be applicable, either Celtrix
Newco Ltd. or that certain Subscription, Joint Development and Operating
Agreement (the "Elan Joint Venture Agreement") between Celtrix, Elan
Corporation, plc, Elan International Services, Ltd. and Celtrix Newco Ltd.,
dated April 21, 1999, with respect to the development of SomatoKine to treat
osteoporosis using Elan Corporation, plc's MEDIPAD Delivery System.
Section 1.45. Elan Joint Venture Agreement.
----------------------------
"Elan Joint Venture Agreement" shall have the meaning given in Section
-------
1.44 hereof.
- ----
Section 1.46. Environmental Claim.
-------------------
"Environmental Claim" shall have the meaning given in Section 5.18
------------
hereof.
Section 1.47. Environmental Laws.
------------------
"Environmental Laws" shall have the meaning given in Section 5.18
------------
hereof.
Section 1.48. ERISA.
-----
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amende
Section 1.49. Exchange.
--------
"Exchange" shall have the meaning given in Section 2.2(a) hereof.
--------------
Section 1.50. Exchange Act.
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.51. Exchange Agent.
--------------
"Exchange Agent" shall mean First Union National Bank.
Section 1.52. Exchange Consideration.
----------------------
"Exchange Consideration" shall have the meaning given in Section 2.2
-----------
hereof.
Section 1.53. FCPA.
----
"FCPA" shall mean the Foreign Corrupt Practices Act of 1977, as
amended.
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<PAGE>
Section 1.54. GAAP.
----
"GAAP" shall mean generally accepted accounting principles as in effect
in the United States of America at the time of the preparation of the subject
financial statement.
Section 1.55. Governmental Authority.
----------------------
"Governmental Authority" shall mean any federal, state, provincial,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States, any of
its possessions or territories, or of any foreign nation.
Section 1.56. HSR Act.
-------
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
Section 1.57. Indemnified Party.
-----------------
"Indemnified Party" shall have the meaning given in Section 7.16.
------------
Section 1.58. Insmed.
------
"Insmed" shall mean Insmed Pharmaceuticals, Inc., a Virginia
corporation.
Section 1.59. Insmed Affiliate.
----------------
"Insmed Affiliate" shall have the meaning given in Section 6.12 hereof.
------------
Section 1.60. Insmed Benefit Plans.
--------------------
"Insmed Benefit Plans" shall have the meaning given in Section 6.9(a)
--------------
hereof.
Section 1.61. Insmed Capital Stock.
--------------------
"Insmed Capital Stock" shall mean, collectively, the Insmed Common
Stock and Insmed Preferred Stock.
Section 1.62. Insmed Common Stock.
-------------------
"Insmed Common Stock" shall mean the Common Stock, $.01 par value, of
Insmed.
Section 1.63. Insmed Companies.
----------------
"Insmed Companies" shall mean Insmed, its Subsidiaries and the
Partnerships in which it has any interest.
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<PAGE>
Section 1.64. Insmed Contracts.
----------------
"Insmed Contracts" shall have the meaning given in Section 6.26(a)
---------------
hereof.
Section 1.65. Insmed Disclosure Letter.
------------------------
"Insmed Disclosure Letter" shall have the meaning given in the preamble
to Article VI hereof.
----------
Section 1.66. Insmed Dissenting Holder.
------------------------
"Insmed Dissenting Holder" shall have the meaning given in Section
-------
2.2(c).
- ------
Section 1.67. Insmed ERISA Affiliate.
----------------------
"Insmed ERISA Affiliate" shall mean Insmed and any trade or business
(whether or not incorporated) which is or has ever been under common control, or
which is or has ever been treated as a single employer, with Insmed under
Section 414(b), (c), (m) or (o) of the Code.
Section 1.68. Insmed ERISA Plan.
-----------------
"Insmed ERISA Plan" shall have the meaning given in Section 6.9(a)
--------------
hereof.
Section 1.69. Insmed Financial Statements.
---------------------------
"Insmed Financial Statements" shall have the meaning given in Section
-------
6.5 hereof.
- ---
Section 1.70. Insmed Intellectual Property.
----------------------------
"Insmed Intellectual Property" shall have the meaning given in Section
-------
6.19(b) hereof.
- -------
Section 1.71. Insmed License Agreements.
-------------------------
"Insmed License Agreements" shall have the meaning given in Section
-------
6.19(a) hereof.
- -------
Section 1.72. Insmed Permits.
--------------
"Insmed Permits" shall have the meaning given in Section 6.11 hereof.
------------
Section 1.73. Insmed Plans.
------------
"Insmed Plans" shall have the meaning given in Section 2.4(b) hereof.
--------------
Section 1.74. Insmed Preferred Stock.
----------------------
"Insmed Preferred Stock" shall mean, collectively, the Insmed Series A
Preferred Stock and Insmed Series B Preferred Stock.
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<PAGE>
Section 1.75. Insmed Qualified Plan.
---------------------
"Insmed Qualified Plan" shall have the meaning given in Section 6.9(d)
--------------
hereof.
Section 1.76. Insmed Series A Preferred Stock.
-------------------------------
"Insmed Series A Preferred Stock" shall mean the Series A Convertible
Participating Preferred Stock, $.01 par value, of Insmed.
Section 1.77. Insmed Series B Preferred Stock.
-------------------------------
"Insmed Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, $.01 par value, of Insmed.
Section 1.78. [Intentionally Omitted].
---------------------
Section 1.79. Insmed Stock Options.
--------------------
"Insmed Stock Options" shall have the meaning given in Section 2.4(b)
--------------
hereto.
Section 1.80. Insmed Superior Proposal.
------------------------
"Insmed Superior Proposal" shall have the meaning given in Section
-------
7.4(a) hereto.
- ------
Section 1.81. Insmed Third Party Acquisition Offer.
------------------------------------
"Insmed Third Party Acquisition Offer" shall have the meaning given in
Section 7.4(a) hereto.
- --------------
Section 1.82. Insmed Warrant.
--------------
"Insmed Warrant" shall have the meaning given in Section 2.4(e) hereto.
--------------
Section 1.83. IRS.
---
"IRS" shall mean the Internal Revenue Service.
Section 1.84. Joint Proxy Statement/Prospectus.
--------------------------------
"Joint Proxy Statement/Prospectus" shall mean the Joint Proxy
Statement/Prospectus of Parent, Celtrix and Insmed included in the Registration
Statement and distributed to each of the shareholders of Celtrix and Insmed in
connection with the Special Meetings.
Section 1.85. Knowledge of Celtrix.
--------------------
"Knowledge of Celtrix" shall mean the actual knowledge, after due
inquiry, of those officers of Celtrix identified on Schedule 1.85 attached
-------------
hereto.
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<PAGE>
Section 1.86. Knowledge of Insmed.
-------------------
"Knowledge of Insmed" shall mean the actual knowledge, after due
inquiry, of those officers of Insmed identified on Schedule 1.86 attached
-------------
hereto.
Section 1.87. Law.
---
"Law" shall mean any federal, state, provincial, local or other law or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder.
Section 1.88 Lien.
----
"Lien" shall mean any mortgages, liens, pledges, charges, security
interests or encumbrances of any kind.
Section 1.89. Material Adverse Effect.
-----------------------
"Material Adverse Effect" shall mean, with respect to any entity or
group of entities, a material adverse effect (or any development which, insofar
as reasonably can be foreseen, is reasonably likely to have a material adverse
effect in the future), on the business, assets, financial or other condition,
results of operations or prospects of such entity or group of entities taken as
a whole.
Section 1.90. Merger.
------
"Merger" shall have the meaning given in Section 2.1(a) hereof.
--------------
Section 1.91. Merger Consideration.
--------------------
"Merger Consideration" shall have the meaning given in Section 2.1(b)
--------------
hereof.
Section 1.92. Merger Subsidiary.
-----------------
"Merger Subsidiary" shall mean Celtrix Mergersub, Inc., a Delaware
corporation and direct, wholly-owned subsidiary of Parent.
Section 1.93.A. Nasdaq SmallCap.
---------------
"Nasdaq" shall mean The Nasdaq SmallCap Market.
Section 1.93.B. Nasdaq National
---------------
"Nasdaq National" shall mean the Nasdaq National Market.
Section 1.94. New Stock Plan.
--------------
"New Stock Plan" shall have the meaning given in Section 2.4(d) hereof.
--------------
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<PAGE>
Section 1.94A. Original Agreement.
------------------
"Original Agreement" shall have the meaning given in the Recitals
hereof.
Section 1.95. Parent.
------
"Parent" shall mean Insmed, Inc., a Virginia corporation formed to
effect the transactions described herein.
Section 1.96. Parent Common Stock.
-------------------
"Parent Common Stock" shall mean the Common Stock, $.01 par value, of
Parent.
Section 1.97. Partnership; Partnerships.
-------------------------
"Partnership" shall mean any limited or general partnership, joint
venture or other business association, other than a Subsidiary, in which any
party has a direct or indirect interest (collectively, "Partnerships"), all of
such Partnerships of Celtrix being listed on Schedule 1.97A to the Celtrix
--------------
Disclosure Letter and all of such Partnerships of Insmed being listed on
Schedule 1.97B to the Insmed Disclosure Letter.
- --------------
Section 1.98. Patents.
-------
"Patents" shall have the meaning given in Section 5.19(a) hereto.
---------------
Section 1.99. Permits.
-------
"Permits" shall mean all permits, licenses, variances, exemptions,
orders, registrations and approvals and governmental authorizations of all
Governmental Authorities.
Section 1.100. PGE.
---
"PGE" shall mean Pacific Growth Equities, Inc., financial advisors to
Celtrix.
Section 1.101. Plan of Exchange.
----------------
"Plan of Exchange" shall mean the Plan of Exchange with respect to the
Exchange, in substantially the form attached hereto as Exhibit 1.101.
-------------
Section 1.102. Receiving Company.
-----------------
"Receiving Company" shall have the meaning given in Section 7.18(a)
---------------
hereof.
Section 1.103. Registration Statement.
----------------------
"Registration Statement" shall mean the Registration Statement on Form
S-4, including the Joint Proxy Statement/Prospectus contained therein, to be
filed by Parent with the SEC with
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<PAGE>
respect to the Parent Common Stock to be offered to the holders of Celtrix
Capital Stock and Insmed Capital Stock in the Merger.
Section 1.104. Representatives.
---------------
"Representatives" shall have the meaning given in Section 7.18(a)
---------------
hereof.
Section 1.105. SCC.
---
"SCC" shall mean the State Corporation Commission of Virginia.
Section 1.106. SEC.
---
"SEC" shall mean the Securities and Exchange Commission.
Section 1.107. Secretary of State.
------------------
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
Section 1.108. Securities Act.
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.109. Special Meetings.
----------------
"Special Meetings" shall mean, collectively, the special or annual
meeting of shareholders of Celtrix and the special meeting of shareholders of
Insmed called pursuant to Section 3.1 hereof to consider and approve the
-----------
transactions contemplated herein, and any adjournments thereof.
Section 1.110. Subsidiary; Subsidiaries.
------------------------
"Subsidiary" shall mean (i) each corporate entity with respect to which
a party has the right to vote (directly or indirectly through one or more other
entities or otherwise) shares representing 50% or more of the votes eligible to
be cast in the election of directors of such entity, and (ii) each other
corporate entity which constitutes a "significant subsidiary," as defined in
Rule 1-02 of Regulation S-X adopted under the Exchange Act (collectively,
"Subsidiaries"), all of the Subsidiaries of Celtrix being listed on Schedule
--------
1.110A of the Celtrix Disclosure Letter attached hereto and all of the
- ------
Subsidiaries of Insmed being listed on Schedule 1.110B of the Insmed Disclosure
---------------
Letter attached hereto.
Section 1.111. Tax; Taxes.
----------
"Tax" or "Taxes" means any federal, state, county, local, or foreign
taxes, charges, levies, imposts, duties, other assessments, or similar charges
of any kind whatsoever, including any interest, penalties, and additions imposed
thereon or with respect thereto.
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<PAGE>
Section 1.112. Tax Return.
----------
"Tax Return" means any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or combined or unitary group.
Section 1.113. Trademarks.
----------
"Trademarks" shall have the meaning given in Section 5.19(a).
---------------
Section 1.114. Trade Secrets.
-------------
"Trade Secrets" shall have the meaning given in Section 5.19(a).
---------------
Section 1.115. VSCA.
----
"VSCA" shall mean the Virginia Stock Corporation Act, as amended.
Section 1.116. Year 2000 Compliant or Year 2000 Compliance.
-------------------------------------------
"Year 2000 Compliant" or "Year 2000 Compliance" shall mean that the
computer systems and other automated equipment used by an entity in connection
with the conduct of its business, including, without limitation, all hardware,
software and operating systems, (i) are able to accurately recognize, represent,
process, manage and manipulate date and date-sensitive data (including, but not
limited to, calculating, comparing, sorting, tagging and sequencing), in both
input and output, whether the date field uses 2 or 4 digits or any other date
coding scheme, including "leap year" calculations and will not cause an abnormal
ending scenario within the application domain or generate incorrect values
involving such dates, (ii) with respect to system time for all hardware,
software and operating systems, automatically function into and beyond the year
2000 without interruption and that all applications and components will
correctly interpret system time into and beyond the year 2000, and (iii) are
able to accurately recognize, represent, process and manage any date fields
currently assigned special values (i.e., 99/99/99 or 00/00/00), if any.
Section 1.117. Year 2000 Problem.
-----------------
"Year 2000 Problem" shall mean the risk that computer applications may
be unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date on or after December 31, 1999.
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<PAGE>
ARTICLE II
THE MERGER AND EXCHANGE
Section 2.1. The Merger.
----------
(a) Immediately prior to the Effective Time Celtrix will execute and
deliver the Certificate of Merger and file it with the Secretary of State in
accordance with the DGCL. Subject to the terms and conditions of this Agreement,
at the Effective Time, Merger Subsidiary shall be merged with and into Celtrix
in accordance with the provisions of, and with the effects provided in,
Subchapter IX of the DGCL (the "Merger"). Celtrix shall be the surviving
corporation resulting from the Merger and as a result shall become a wholly-
owned subsidiary of Parent and shall continue to be governed by the laws of the
State of Delaware and the separate corporate existence of Merger Subsidiary
shall cease. The Merger is intended to qualify as a reorganization under Section
368(a) of the Code and as part of an exchange described in Section 351 of the
Code.
(b) Pursuant to the Merger, each share of Celtrix Common Stock and
each share of Celtrix Preferred Stock outstanding immediately prior to the
Effective Time (other than (i) shares of Celtrix Common Stock and Celtrix
Preferred Stock held in Celtrix's treasury, which shall be cancelled pursuant to
Section 2.1(d) hereof, (ii) shares of Celtrix Common Stock and Preferred Stock
- --------------
held by Merger Subsidiary, which shall be cancelled pursuant to Section 2.1(d)
--------------
hereof and (iii) Dissenting Shares) shall by virtue of the Merger and without
any action on the part of the Merger Subsidiary, Celtrix or the holder thereof,
be converted into and become (X) in the case of each share of Celtrix Common
Stock one (1) share of Parent Common Stock and (Y) in the case of each share of
Celtrix Preferred Stock, that number of shares of Parent Common Stock equal to
$1,000, plus all accrued and unpaid dividends on such share of Celtrix Preferred
Stock through the Effective Time, divided by $2.0006 (in each case, subject to
adjustment for any stock split, reverse split, stock dividend or other similar
distribution with respect to Celtrix Common Stock or any series of Celtrix
Preferred Stock, as the case may be) (the "Merger Consideration"). All such
shares of Celtrix Common Stock and Celtrix Preferred Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares of Celtrix Common Stock or Celtrix Preferred Stock shall cease to have
any ownership or other rights with respect thereto, except the right to receive
the shares of Parent Common Stock, in each case upon the surrender of such
certificate in accordance with Section 2.3 and without any interest thereon.
-----------
Pursuant to the Merger, at the Effective Time, each share of Common Stock of
Merger Subsidiary issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and exchanged for one share of Celtrix Common Stock.
The separate existence and corporate organization of Merger Subsidiary shall
cease upon the Effective Time.
(c) No fraction of a share of Parent Common Stock shall be issued in
connection with the conversion of Celtrix Common Stock or Celtrix Preferred
Stock in the Merger and the distribution of Parent Common Stock in respect
thereof, but in lieu of such fraction, the
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<PAGE>
Exchange Agent shall make a cash payment (without interest and subject to the
payment of any applicable withholding Taxes) equal to the same fraction of the
market value of a full share of Parent Common Stock, computed on the basis of
the mean of the high and low sales prices of Parent Common Stock as reported on
Nasdaq National or Nasdaq SmallCap, as the case may be, on the first full day on
which the Parent Common Stock is traded on Nasdaq National or Nasdaq SmallCap,
as the case may be, after the Effective Time. Parent and Celtrix agree to use
their best efforts to cause the Merger to be consummated in accordance with the
terms of this Agreement. The parties acknowledge that payment of the cash
consideration in lieu of issuing fractional shares was not separately bargained-
for consideration but merely represents a mechanical rounding-off for purposes
of simplifying the corporate and accounting complexities which would otherwise
be caused by the issuance of fractional shares.
(d) At the Effective Time, each share held in the treasury of Celtrix
and each share of Celtrix Common Stock and Celtrix Preferred Stock held by
Merger Subsidiary shall, by virtue of the Merger and without any action on the
part of Celtrix or Merger Subsidiary be canceled, retired and cease to exist and
no payment shall be made with respect thereto.
(e) Notwithstanding anything in this Agreement to the contrary,
shares of Celtrix Capital Stock outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded appraisal for such shares of Celtrix
Capital Stock in accordance with the DGCL (a "Celtrix Dissenting Holder") shall
not be converted into a right to receive the Merger Consideration, but shall,
from and after the Effective Time, have only such rights as are afforded to the
holders thereof by the provisions of Section 262 of the DGCL, unless such
Celtrix Dissenting Holder fails to perfect or withdraws or otherwise loses his
right to appraisal. If, after the Effective Time, such Celtrix Dissenting Holder
fails to perfect or withdraws or loses his right to appraisal, such shares of
Celtrix Capital Stock shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration payable in
respect of such shares of Celtrix Capital Stock pursuant to this Section 2.1.
-----------
Celtrix shall give Insmed (i) prompt notice of any demands received by Celtrix
for appraisal of shares, withdrawals of such demands, and any other instruments
served pursuant to the DGCL and received by Celtrix and (ii) all negotiations
and proceedings with respect to such demands. Celtrix shall not, except with the
prior written consent of Insmed, make any payment with respect to any demands
for appraisal, or offer to settle, or settle any such demands.
Section 2.2. The Exchange.
------------
(a) Immediately prior to the Effective Time Parent shall execute and
deliver Articles of Exchange, which shall include the Plan of Exchange, and file
it with the SCC in accordance with the VSCA. Subject to the terms and conditions
of this Agreement, the Plan of Exchange and the VSCA, and without any action on
the part of Parent, Insmed or the holders of Insmed Capital Stock, at the
Effective Time each share of Insmed Common Stock, Insmed Series A Preferred
Stock and Insmed Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares) shall be exchanged
for 3.50 shares of Parent Common Stock (subject to adjustment for any stock
split, reverse split, stock dividend or other
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<PAGE>
similar distribution with respect to the Insmed Common Stock, Insmed Series A
Preferred Stock or Insmed Series B Preferred Stock, as the case may be) (the
"Exchange") (the shares of Parent Common Stock received pursuant to the
Exchange, the "Exchange Consideration"). Parent shall acquire and become the
owner and holder of each issued and outstanding share of Insmed Capital Stock so
exchanged. The former holders of shares of Insmed Capital Stock so exchanged
shall cease to have any ownership or other rights with respect thereto, except
the right to receive the shares of Parent Common Stock upon the surrender of
such certificate in accordance with Section 2.3 and without any interest
-----------
thereon. Each share of Parent Common Stock issued and outstanding immediately
prior to the Effective Time shall be canceled and shall thereupon constitute an
authorized unissued share of Parent Common Stock. The Exchange is intended to
qualify as a reorganization under Section 368 of the Code or a tax-free exchange
under Section 351 of the Code.
(b) No fraction of a share of Parent Common Stock shall be issued in
connection with the exchange of Insmed Common Stock or Insmed Preferred Stock in
the Exchange and the distribution of Parent Common Stock in respect thereof, but
in lieu of such fraction, the Exchange Agent shall make a cash payment (without
interest and subject to the payment of any applicable withholding Taxes) equal
to the same fraction of the market value of a full share of Parent Common Stock,
computed on the basis of the mean of the high and low sales prices of Parent
Common Stock as reported on Nasdaq National or Nasdaq SmallCap, as the case may
be, on the first full day on which the Parent Common Stock is traded on Nasdaq
National or Nasdaq SmallCap, as the case may be, after the Effective Time.
Parent and Insmed agree to use their best efforts to cause the Exchange to be
consummated in accordance with the terms of this Agreement and the Plan of
Exchange. The parties acknowledge that payment of the cash consideration in lieu
of issuing fractional shares was not separately bargained-for consideration but
merely represents a mechanical rounding-off for purposes of simplifying the
corporate and accounting complexities which would otherwise be caused by the
issuance of fractional shares.
(c) Notwithstanding anything in this Agreement to the contrary,
shares of Insmed Capital Stock outstanding immediately prior to the Effective
Time and held by a holder who has not voted in favor of the Exchange or
consented thereto in writing and who has demanded appraisal for such shares of
Insmed Capital Stock in accordance with the VSCA (an "Insmed Dissenting Holder")
shall not be exchanged into the Exchange Consideration, but shall, from and
after the Effective Time, have only such rights as are afforded to the holders
thereof by the provisions of Section 13.1-730 of the VSCA, unless such Insmed
Dissenting Holder fails to perfect or withdraws or otherwise loses his right to
appraisal. If, after the Effective Time, such Insmed Dissenting Holder fails to
perfect or withdraws or loses his right to appraisal, such shares of Insmed
Capital Stock shall be treated as if they had been converted as of the Effective
Time into a right to receive the Exchange Consideration payable in respect of
such shares of Insmed Capital Stock pursuant to this Section 2.2. Insmed shall
-----------
give Celtrix (i) prompt notice of any demands received by Insmed for appraisal
of shares, withdrawals of such demands, and any other instruments served
pursuant to the VSCA and received by Insmed and (ii) all negotiations and
proceedings with respect to such demands.
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<PAGE>
Section 2.3. Exchange of Certificates.
------------------------
(a) Prior to the Effective Time, Parent, Celtrix and Insmed shall
appoint the Exchange Agent to act as the exchange agent in connection with the
Merger and Exchange. Except as otherwise provided in Sections 2.1 and 2.2, from
------------ ---
and after the Effective Time, each holder of a certificate which immediately
prior to the Effective Time represented outstanding shares of Celtrix Capital
Stock and Insmed Capital Stock (the "Certificates") shall be entitled to receive
in exchange therefor, upon surrender thereof to the Exchange Agent, a
certificate or certificates representing the number of whole shares of Parent
Common Stock into which such holder's shares were converted in the Merger or
Exchange, as the case may be, plus cash payable in lieu of a fractional share.
Immediately prior to the Effective Time, Parent will deliver to the Exchange
Agent, in trust for the benefit of the holders of Celtrix Capital Stock and
Insmed Capital Stock, shares of Parent Common Stock (together with sufficient
cash in immediately available funds in lieu of fractional shares, as provided in
Sections 2.1 and 2.2 hereof) necessary to make the exchanges contemplated by
- ------------ ---
Sections 2.1 and 2.2 hereof on a timely basis.
- ------------ ---
(b) Promptly after the Effective Time, the Exchange Agent shall mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of Celtrix Capital
Stock and Insmed Capital Stock whose shares were converted or exchanged into the
right to receive shares of Parent Common Stock pursuant to Sections 2.1 and 2.2
------------ ---
herein, a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent) and instructions for
use in effecting the surrender of Certificates in exchange for certificates
representing shares of Parent Common Stock. Upon surrender to the Exchange Agent
of a Certificate, together with such letter of transmittal duly executed, and
any other required documents, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock and, if applicable, a check representing the cash
consideration to which such holder has the right to receive for a fractional
share, as set forth in the Certificate of Merger and the Plan of Exchange, and
such Certificate so surrendered shall forthwith be cancelled. No holder of a
Certificate or Certificates shall be entitled to receive any dividend or other
distribution from Parent until the surrender of such holder's Certificate for a
certificate or certificates representing shares of Parent Common Stock. Upon
such surrender, there shall be paid to the holder the amount of any dividends or
other distributions (without interest and subject to any applicable withholding
Tax) which theretofore became payable, but which were not paid by reason of the
foregoing, with respect to the number of whole shares of Parent Common Stock
represented by the certificates issued upon surrender, which amount shall be
delivered to the Exchange Agent by Parent from time to time as such dividends or
other distributions are declared. If delivery of certificates representing
shares of Parent Common Stock is to be made to a person other than the person in
whose name the Certificate surrendered is registered or if any certificate for
shares of Parent Common Stock is to be issued in a name other than that in which
the Certificate surrendered therefor is registered, it shall be a condition of
such delivery or issuance that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such delivery or issuance shall pay any transfer or other Taxes required by
reason of such delivery or issuance to a person other than the
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<PAGE>
registered holder of the Certificate surrendered or establish to the
satisfaction of Parent that such Tax has been paid or is not applicable. Until
surrendered in accordance with the provisions of this Section 2.3, each
-----------
Certificate shall represent for all purposes only the right to receive shares of
Parent Common Stock (and cash in lieu of a fractional share), as provided in
Sections 2.1 and 2.2 hereto, without any interest thereon.
- ------------ ---
(c) After the Effective Time, there shall be no transfers on the
stock transfer books of Parent, as the surviving corporation in the Merger and
Exchange, of the shares of Celtrix Capital Stock or Insmed Capital Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Parent for transfer, they shall be
cancelled and exchanged for shares of Parent Common Stock as provided in
Sections 2.1 and 2.2 hereof, in accordance with the procedures set forth in this
- ------------ ---
Section 2.3.
- -----------
(d) Any shares of Parent Common Stock (and any accrued dividends and
distributions thereon), and any cash held by the Exchange Agent for payment in
lieu of fractional shares, that remain unclaimed by the former shareholders of
Celtrix and Insmed six months after the Effective Time shall be delivered by the
Exchange Agent to Parent. Any former shareholders of Celtrix and Insmed who have
not theretofore complied with this Section 2.3 shall thereafter look only to
-----------
Parent for satisfaction of their claim for the consideration set forth in the
Certificate of Merger and Plan of Exchange, as the case may be, without any
interest thereon. Notwithstanding the foregoing, neither Parent, Celtrix nor
Insmed shall be liable to any holder of shares of Celtrix Capital Stock or
Insmed Capital Stock for any shares of Parent Common Stock (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar Law.
Section 2.4. Stock Options and Warrants.
--------------------------
(a) At the Effective Time, each outstanding option to purchase shares
of Celtrix Common Stock (a "Celtrix Stock Option" or collectively, "Celtrix
Stock Options") as fully identified on Schedule 5.9(i) of the Celtrix Disclosure
---------------
Letter, whether vested or unvested, shall be assumed by Parent (all of such
plans or agreements pursuant to which any Celtrix Stock Option has been issued
or may be issued are referred to collectively as the "Celtrix Plans"). To effect
that assumption, each Celtrix Stock Option shall be replaced with an option to
acquire, on the same terms and conditions as were applicable under such Celtrix
Stock Option, the same number of shares of Parent Common Stock as the holder of
such Celtrix Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time, at a price per share equal to (y) the aggregate exercise price
for the shares of Celtrix Common Stock otherwise purchasable pursuant to such
Celtrix Stock Option divided by (z) the number of full shares of Parent Common
Stock purchasable pursuant to such replacement option pursuant to this Section
-------
2.4 rounded up to the nearest whole cent; provided, however, that in the case of
- ---
any option to which section 421 of the Code applies by reason of its
qualification under section 422 of the Code ("incentive stock options" or
"ISOs"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with section 424(a) of the Code rounded up to the
nearest whole cent. Parent shall make such
A-27
<PAGE>
assumption in such manner that (i) Parent is a corporation "assuming a stock
option in a transaction to which Section 424(a) applies" within the meaning of
Section 424 of the Code or (ii) to the extent that Section 424 of the Code does
not apply to such Celtrix Stock Option, Parent would be such a corporation were
Section 424 of the Code applicable to such Celtrix Stock Option.
(b) At the Effective Time, each outstanding option to purchase shares
of Insmed Common Stock (an "Insmed Stock Option" or collectively, "Insmed Stock
Options") whether vested or unvested, shall be assumed by Parent (all of such
plans or agreements pursuant to which any Insmed Stock Option has been issued or
may be issued are referred to collectively as the "Insmed Plans"). To effect
that assumption, each Insmed Stock Option shall be replaced with an option to
acquire, on the same terms and conditions as were applicable under such Insmed
Stock Option, the same number of shares of Parent Common Stock as the holder of
such Insmed Stock Option would have been entitled to receive pursuant to the
Exchange had such holder exercised such option in full immediately prior to the
Effective Time, at a price per share equal to (y) the aggregate exercise price
for the shares of Insmed Common Stock otherwise purchasable pursuant to such
Insmed Stock Option divided by (z) the number of shares of Parent Common Stock
purchasable pursuant to such replacement option pursuant to this Section 2.4
-----------
rounded up to the nearest one tenth of a cent; provided, however, that in the
case of any ISOs, the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such option shall be
determined in order to comply with section 424(a) of the Code rounded up to the
nearest one tenth of a cent. Parent shall make such assumption in such manner
that (i) Parent is a corporation "assuming a stock option in a transaction to
which Section 424(a) applies" within the meaning of Section 424 of the Code or
(ii) to the extent that Section 424 of the Code does not apply to such Insmed
Stock Option, Parent would be such a corporation were Section 424 of the Code
applicable to such Insmed Stock Option.
(c) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Celtrix Stock Options and Insmed Stock Options
appropriate notices setting forth such holders' rights pursuant to the
respective Celtrix Plans and Insmed Plans and this Section 2.4, and shall amend
-----------
or replace the agreements evidencing the grants of such Insmed Options and
Celtrix Options as required by Section 2.4(a) and Section 2.4(b) after giving
-------------- --------------
effect to the Merger and Exchange. Parent shall comply with the terms of the
Celtrix Plans and Insmed Plans as in effect prior to the Effective Time and
ensure, to the extent required by, and subject to the provisions of, such Plans,
that Celtrix Stock Options and Insmed Stock Options which qualified as incentive
stock options immediately prior to the Effective Time continue to qualify as
incentive stock options of Parent after the Effective Time.
(d) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Celtrix Stock Options and Insmed Stock Options assumed in accordance
with this Section 2.4. Such action shall include, without limitation (i)
-----------
adoption of the Insmed, Inc. Stock Incentive Plan (the "New Stock Plan") on or
before the Effective Time; and (ii) registration of shares of Parent Common
Stock that will be issuable under the New Stock Plan (including those that will
be delivered on exercise of Celtrix Stock Options and Insmed Stock Options
assumed in accordance with this Section 2.4)
-----------
A-28
<PAGE>
pursuant to a registration statement on Form S-8 filed within 10 business days
of the Effective Time. In addition, prior to the Effective Time, the sole
shareholder of the Parent shall approve the New Stock Plan. Following the
Effective Time, Parent shall use its best efforts to maintain the effectiveness
of such registration statement or registration statements for so long as options
or other awards granted thereunder remain outstanding. With respect to those
individuals who, subsequent to the Merger and Exchange, will be subject to the
reporting requirements under Section 16(a) of the Exchange Act, where
applicable, Parent shall administer the New Stock Plan in a manner that complies
with Rule 16b-3 promulgated under the Exchange Act, as it may be amended from
time to time.
(e) At the Effective Time, each of the (i) warrants to purchase shares of
Celtrix Common Stock (each a "Celtrix Warrant"), and (ii) warrants to purchase
shares of Insmed Common Stock (each a "Insmed Warrant") which then remains
outstanding shall be replaced with a warrant to purchase, on the same terms and
conditions as were applicable under such Celtrix Warrant or Insmed Warrant, as
the case may be, the same number of shares of Parent Common Stock as the holder
of such Celtrix Warrant or Insmed Warrant would have been entitled to receive
pursuant to the Merger and Exchange had such holder exercised such warrant in
full immediately prior to the Effective Time, at a price per share equal to (y)
the aggregate exercise price for the shares of Celtrix Common Stock or shares of
Insmed Common Stock otherwise purchasable pursuant to such Celtrix Warrant or
Insmed Warrant, as the case may be, divided by (z) the number of full shares of
Parent Common Stock purchasable pursuant to such replacement warrant rounded up
to the nearest whole cent.
As soon as practicable after the Effective Time, Parent shall deliver
to each holder of a Celtrix Warrant or Insmed Warrant appropriate notices
setting forth such holder's rights pursuant to the warrants to purchase shares
of Parent Common Stock, and shall amend or replace the agreements evidencing
such Celtrix Warrants or Insmed Warrants as required by this Section 2.4(e)
--------------
after giving effect to the Merger and Exchange.
Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Celtrix Warrants or Insmed Warrants replaced with warrants to
purchase Parent Common Stock in accordance with this Section 2.4(e).
--------------
(f) In lieu of issuing any options or warrants to purchase a fractional
share of Parent Common Stock, Parent will deliver to holders of Insmed Stock
Options or Insmed Warrants cash, within 30 days of Closing, payable by check,
equal to the difference between (i) the fractional share multiplied by the mean
of the high and low sales price of Parent Common Stock on the first full day of
trading on Nasdaq National or Nasdaq SmallCap, as the case may be, after the
Closing, and (ii) the exercise price per fractional share of each Insmed Stock
Option or Insmed Warrant divided by 3.5.
(g) In lieu of issuing any options or warrants to purchase a fractional
share of Parent Common Stock, Parent will deliver to holders of Celtrix Stock
Options or Celtrix Warrants, cash within 30 days of Closing, payable by check,
equal to the difference between (i) the fractional
A-29
<PAGE>
share multiplied by the mean of the high and low sales price of Parent Common
Stock on the first full day of trading on Nasdaq National or Nasdaq SmallCap, as
the case may be, after the Closing, and (ii) the exercise price per fractional
share of each Celtrix Stock Option or Celtrix Warrant.
(h) Each warrant or option to purchase shares of Parent Common Stock
issued and outstanding prior to the Effective Time shall continue to be issued
and outstanding after the Effective Time and shall continue to have such rights
and preferences as existed prior to the Effective Time. All shares of Parent
Common Stock reserved for issuance upon exercise of such warrants and options
shall continue to be reserved for issuance after the Effective Time.
ARTICLE III
SHAREHOLDER APPROVAL; CLOSING
Section 3.1 Shareholder Approval. This Agreement together with the
--------------------
Certificate of Merger shall be submitted for consideration and approval to
the holders of shares of Celtrix Capital Stock at an annual or special meeting
of shareholders duly held for such purpose by Celtrix, and this Agreement
together with the Plan of Exchange shall be submitted for consideration and
approval to the holders of shares of Insmed Capital Stock at an annual or
special meeting of shareholders duly held for such purpose by Insmed. Celtrix
and Insmed shall coordinate and cooperate with respect to the timing of such
meetings and shall endeavor to hold such meetings on the same day and as soon as
practicable after the date hereof. The Board of Directors of Celtrix shall
recommend that its shareholders approve this Agreement and the transactions
contemplated hereby and the Board of Directors of Insmed shall recommend that
its shareholders approve the Plan of Exchange and the transactions contemplated
hereby and thereby, and such recommendation shall be contained in the Joint
Proxy Statement/Prospectus. On the first business day on or by which (a) this
Agreement and the Plan of Exchange have been duly approved by the requisite vote
of the holders of shares of Celtrix Capital Stock and Insmed Capital Stock, and
(b) the Closing of the transactions contemplated by this Agreement and those
contemplated by the Plan of Exchange shall have occurred, or such later date as
shall be agreed upon by Celtrix and Insmed, Articles of Exchange shall be filed
in accordance with the VSCA and a Certificate of Merger shall be filed in
accordance with the DGCL, and the Merger and the Exchange shall become effective
in accordance with the terms of this Agreement and the Certificate of Merger and
the Plan of Exchange at the time and date set forth therein (such time and date
being referred to herein as the "Effective Time").
Section 3.2. Time and Place of Closing. The closing of the transactions
-------------------------
contemplated by this Agreement and the Plan of Exchange will take place at a
time and on a date mutually agreed upon by the parties hereto (the "Closing"),
which shall be no later than the third business day following the date on which
all of the conditions to the obligations of the parties hereunder set forth in
Article VIII have been satisfied or waived. The place of Closing shall be at
- ------------
Hunton & Williams, Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond,
Virginia 23219, or at such other place as may be mutually agreed upon by the
parties hereto.
A-30
<PAGE>
ARTICLE IV
PARENT AND MERGER SUBSIDIARY
Section 4.1. No Conduct of Business by Each of Parent and Merger
---------------------------------------------------
Subsidiary; Restated Articles and Bylaws.
- ----------------------------------------
(a) Prior to the Effective Time, each of Parent and Merger Subsidiary
shall not (i) conduct any business operations whatsoever or (ii) enter into any
contract or agreement of any kind or acquire any assets or incur any liability,
except for the Stock Purchase Agreement, dated January 13, 2000, by and among
Parent, Insmed and certain investors, or as may be specifically contemplated by
this Agreement or as the parties may otherwise agree.
(b) Insmed, Celtrix and Parent agree that immediately prior to the filing
of the Certificate of Merger and Articles of Exchange pursuant to Sections 2.1
------------
and 2.2 hereof, the Articles of Incorporation of Parent, shall be substantially
---
in the form attached hereto as Exhibit 4.1A, and the Bylaws of Parent shall be
------------
substantially in the form attached hereto as Exhibit 4.1B.
------------
Section 4.2. Board of Directors.
------------------
(a) At the Effective Time, the Board of Directors of Parent shall be as
listed on Exhibit 4.2 attached hereto. The Board of Directors of Parent shall be
-----------
divided into three classes, with the initial terms of office of the first,
second and third classes expiring at the first, second and third annual meetings
of the shareholders of Parent, respectively.
(b) The persons named as members of the Board of Directors of Parent on
Exhibit 4.2 shall be named in the Joint Proxy Statement/Prospectus and the
- -----------
Registration Statement, subject to receipt of the consent of such individuals to
be so named.
Section 4.3. Management.
----------
The principal officers of Parent at the Effective Time shall be as listed
on Exhibit 4.3. All other management positions of Parent shall be determined by
------------
Parent's Chief Executive Officer and President.
Section 4.4. Headquarters of Parent.
----------------------
The headquarters of Parent shall be located in Richmond, Virginia.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CELTRIX
Celtrix represents and warrants to Insmed that as of November 30, 1999
(unless such representation or warranty speaks as of a different date), and
subject to such qualifications and
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<PAGE>
exceptions as are set forth in a disclosure letter delivered and dated as of the
date hereof, signed by an executive officer of Celtrix (the "Celtrix Disclosure
Letter"), as follows:
Section 5.1. Organization and Authority of the Celtrix Companies. Each of
---------------------------------------------------
the Celtrix Companies is duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of organization. Each of the
Celtrix Companies has full corporate or partnership power to carry on their
respective businesses as they are now being conducted and to own, operate and
hold under lease their assets and properties as, and in the places where, such
properties and assets now are owned, operated or held. Each of the Celtrix
Companies is duly qualified as a foreign entity to do business, and is in good
standing, in each jurisdiction where the failure to be so qualified would have a
Material Adverse Effect on the Celtrix Companies. The copies of the Certificate
of Incorporation and Bylaws or partnership or joint venture certificates and
agreements of each of the Celtrix Companies which have been delivered to Insmed
are complete and correct and in full force and effect on the date hereof, and no
amendment or other modification has been filed, recorded or is pending or
contemplated thereto.
Section 5.2. Capitalization. Celtrix's authorized equity capitalization
--------------
consists of 60,000,000 shares of Celtrix Common Stock, $.01 par value, and
10,000,000 shares of Celtrix Preferred Stock, $.01 par value, 10,000 shares of
which have been designated Celtrix Series A Preferred Stock and 9,000 shares of
which have been designated Celtrix Series B Preferred Stock. As of the close of
business on December 31, 1999, 27,862,372 shares of Celtrix Common Stock, 8,010
shares of Celtrix Series A Preferred Stock and 0 shares of Celtrix Series B
Preferred Stock were issued and outstanding. Such shares of Celtrix Capital
Stock constituted all of the issued and outstanding shares of capital stock of
Celtrix as of such date. All issued and outstanding shares of Celtrix Capital
Stock have been duly authorized and validly issued and are fully paid and
nonassessable, are not subject to and have not been issued in violation of any
preemptive rights and have not been issued in violation of any federal or state
securities laws. All of the outstanding shares of capital stock of Celtrix's
Subsidiaries are validly issued, fully paid and nonassessable and are, except as
disclosed in Schedule 5.2 of the Celtrix Disclosure Letter, owned by Celtrix,
------------
directly or indirectly, free and clear of all Liens. Since January 1, 1995,
except as set forth in Schedule 5.2 Celtrix has not declared or paid any
------------
dividend on, or declared or made any distribution with respect to, or authorized
or effected any split-up or any other recapitalization of, any of the Celtrix
Capital Stock, or directly or indirectly redeemed, purchased or otherwise
acquired any of its outstanding capital stock or agreed to take any such action
and will not take any such action during the period between the date of this
Agreement and the Effective Time. Schedule 5.2 of the Celtrix Disclosure Letter
------------
sets forth, as of December 31, 1999, all outstanding options, warrants,
subscriptions or other rights to purchase or acquire any capital stock of any of
the Celtrix Companies, the exercise or purchase price for such securities and
the expiration date thereof, and lists all contracts, commitments,
understandings, arrangements or restrictions by which any of the Celtrix
Companies is bound to sell or issue any shares of its capital stock. The shares
of Celtrix Common Stock constitute the only class of equity securities of
Celtrix registered or required to be registered under the Exchange Act. All
outstanding shares of Celtrix Common Stock are duly included for trading on
Nasdaq SmallCap.
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<PAGE>
Section 5.3. Authority Relative to this Agreement; Recommendation. The
----------------------------------------------------
execution, delivery and performance of this Agreement and of all of the other
documents and instruments required hereby by Celtrix are within the corporate
power and authority of Celtrix. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Celtrix and no other corporate
proceedings on the part of Celtrix are necessary to authorize this Agreement or
to consummate the transactions contemplated herein (other than the approval of
the transactions contemplated in this Agreement by the holders of at least a
majority of the outstanding shares of Celtrix Capital Stock at the Celtrix
Special Meeting). This Agreement and all of the other documents and instruments
required hereby have been or will be duly and validly executed and delivered by
Celtrix and (assuming the due authorization, execution and delivery hereof and
thereof by Insmed) constitute or will constitute valid, legal and binding
agreements of Celtrix, enforceable against Celtrix in accordance with their
respective terms. The Celtrix Board has resolved that the shareholders of
Celtrix approve and adopt this Agreement.
Section 5.4. Consents and Approvals; No Violations. Except for (i) any
-------------------------------------
applicable requirements of the Exchange Act, and any applicable filings under
state securities, "Blue Sky" or takeover laws, (ii) the filing and recordation
of a Certificate of Merger as required by the DGCL and (iii) those required
filings, registrations and approvals listed on Schedule 5.4 of the Celtrix
------------
Disclosure Letter, no filing or registration with, or notice to, and no permit,
authorization, consent or approval of, any public court, tribunal or
administrative, governmental or regulatory body, agency or authority is
necessary or required in connection with the execution and delivery of this
Agreement by Celtrix or for the consummation by Celtrix of the transactions
contemplated by this Agreement. Assuming that all filings, registrations,
permits, authorizations, consents and approvals contemplated by the immediately
preceding sentence have been duly made or obtained, neither the execution,
delivery and performance of this Agreement nor the consummation of the
transactions contemplated hereby by Celtrix will (i) conflict with or result in
any breach of any provision of the Certificate of Incorporation, Bylaws,
partnership or joint venture agreements or other organizational documents of any
of the Celtrix Companies, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, Celtrix Contract or other instrument or obligation to which any of the
Celtrix Companies is a party or by which it or any of them or any of their
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any of the Celtrix Companies
or any of their properties or assets except, in the case of subsections (ii) or
(iii) above, for violations, breaches or defaults that would not have a Material
Adverse Effect on the Celtrix Companies and that will not prevent or delay the
consummation of the transactions contemplated hereby.
Section 5.5. Reports. The Celtrix SEC Reports complied, as of their dates
-------
of filing, in all material respects with all applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations of the SEC. As of
their respective dates, none of such forms, reports or documents, including
without limitation any financial statements or schedules included therein,
contained any untrue statement of a material fact or omitted to state a material
fact required to be
A-33
<PAGE>
stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made. Each of the
balance sheets (including the related notes) included in the Celtrix SEC Reports
fairly presented the consolidated financial position of the Celtrix Companies as
of the respective dates thereof, and the other related financial statements
(including the related notes) included therein fairly presented the results of
operations and cash flows of the Celtrix Companies for the respective fiscal
periods or as of the respective dates set forth therein. Each of the financial
statements (including the related notes) included in the Celtrix SEC Reports (i)
complied as to form with the applicable accounting requirements and rules and
regulations of the SEC, and (ii) was prepared in accordance with GAAP
consistently applied during the periods presented. Except for Celtrix, none of
the Celtrix Companies is required to file any forms, reports or other documents
with the SEC, Nasdaq SmallCap or any other foreign or domestic securities
exchange or Governmental Authority with jurisdiction over securities laws. All
material agreements, contracts and other documents required to be filed as
exhibits to any of the Celtrix SEC Reports have been so filed by Celtrix.
Section 5.6. Absence of Certain Events.
-------------------------
(a) Except as set forth in the Celtrix SEC Reports filed prior to the date
of this Agreement or as otherwise specifically disclosed in Schedule 5.6(a) of
---------------
the Celtrix Disclosure Letter, since March 31, 1999, none of the Celtrix
Companies has suffered any adverse change in its business, financial condition
or results of operations that will have a Material Adverse Effect upon the
Celtrix Companies. Except as disclosed in the Celtrix SEC Reports or in Schedule
--------
5.6(a) of the Celtrix Disclosure Letter, or as otherwise specifically
- ------
contemplated by this Agreement, and except with respect to the Elan Joint
Venture in which case Section 5.6(b) shall apply, there has not been since March
--------------
31, 1999: (i) any entry into any agreement or understanding or an amendment of
any agreement or understanding between any of the Celtrix Companies on the one
hand, and any of their respective executive officers or key employees or
consultants on the other hand, providing for employment of any such officer or
key employee or consultants or any general or material increase in the
compensation, severance or termination benefits payable or to become payable by
any of the Celtrix Companies to any of their respective officers or key
employees or consultants (except for normal increases in the ordinary course of
business that are consistent with past practices and that, in the aggregate, do
not result in a material increase in benefits or compensation expense), or any
adoption of or increase in any bonus, insurance, pension or other employee
benefit plan, payment or arrangement (including, without limitation, the
granting of stock options or stock appreciation rights or the award of
restricted stock) made to, for or with any such officer or key employee or
consultant; (ii) any entry by any of the Celtrix Companies into any material
commitment, agreement, license or transaction (including, without limitation,
any borrowing, capital expenditure, sale of assets or any Lien made on any of
the properties or assets of any of the Celtrix Companies) other than in the
ordinary and usual course of business; (iii) any change in the accounting
methods, principles or practices of Celtrix; (iv) any damage, destruction or
loss, whether covered by insurance or not, having a Material Adverse Effect upon
the Celtrix Companies; or (v) any agreement to do any of the foregoing.
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<PAGE>
(b) with respect to the Elan Joint Venture, except as set forth in
Schedule 5.6(b) of the Celtrix Disclosure Letter, none of the Celtrix Companies
- ---------------
has committed to, or has itself entered into any agreement, commitment or
understanding or an amendment of any agreement, commitment or understanding with
respect to the Elan Joint Venture, including without limitation, (i) any
agreement relating to funding the Elan Joint Venture, (ii) any agreement
establishing a budget for the Elan Joint Venture, (iii) any agreement,
commitment or understanding as to clinical trials or (iv) any other agreement
commitment or understanding that could reasonably be expected to impose a
liability on any Celtrix Company of $50,000 or more.
Section 5.7. Joint Proxy Statement/Prospectus. None of the information
--------------------------------
with respect to the Celtrix Companies to be included in the Joint Proxy
Statement/Prospectus or the Registration Statement will, in the case of the
Joint Proxy Statement/Prospectus or any amendments thereof or supplements
thereto, at the time of the mailing of the Joint Proxy Statement/Prospectus or
any amendments thereof or supplements thereto, and at the time of the Celtrix
Special Meeting, or, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Celtrix with respect to
information supplied in writing by Parent or Insmed or any affiliate of Parent
or Insmed for inclusion in the Joint Proxy Statement/Prospectus.
Section 5.8. Litigation. Except as set forth in Schedule 5.8 of the
---------- ------------
Celtrix Disclosure Letter, there is no action, suit, proceeding or investigation
pending or, to the Knowledge of Celtrix, threatened against or relating to any
of the Celtrix Companies at law or in equity, or before any federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency, instrumentality or arbitration panel, whether in the United
States or otherwise, including without limitation with respect to infringement
of any Intellectual Property. None of the Celtrix Companies is subject to any
order, judgment, decree or obligation that would materially limit the ability of
the Celtrix Companies to operate their respective businesses in the ordinary
course.
Section 5.9. Employee Benefit Plans; Labor Matters.
-------------------------------------
(a) Celtrix has delivered to Insmed prior to the execution of this
Agreement copies of all pension, 401(k), retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay, vacation,
bonus or other incentive plan, any other employee program, arrangement or
agreement, whether arrived at through collective bargaining or otherwise, any
medical, vision, dental or other health plan, any life insurance plan, or any
other employee benefit plan or fringe benefit plan, including, without
limitation, any "employee benefit plan" as that term is defined in Section 3(3)
of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any of the Celtrix Companies or affiliates thereof for the
benefit of employees, former employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees, former employees,
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<PAGE>
retirees, dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "Celtrix Benefit
Plans") and (i) any related trust agreement; (ii) any amendments to such plans
or trust; (iii) the most recent Form 5500 and all schedules thereto; (iv) the
most recent IRS determination letter; (iv) the most recent summary plan
descriptions; and (v) the most recent actuarial report for any Celtrix Benefit
Plan that is a defined benefit pension plan or funded welfare benefit plan. Any
of the Celtrix Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section 3(2) of ERISA, is referred to herein as an
"Celtrix ERISA Plan."
(b) Each Celtrix Benefit Plan has been administered in material compliance
with its terms and with the applicable provisions (including, without
limitation, any funding requirements or limitations) of ERISA, the Code and any
other applicable Laws. Each Celtrix Benefit Plan is enforceable in accordance
with its terms.
(c) No Celtrix ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, and the present fair market value of the assets of any such plan exceeds
the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16)
of ERISA, when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements.
(d) Each Celtrix ERISA Plan intended to be qualified under Section 401(a)
of the Code ("Celtrix Qualified Plan") has either obtained a favorable
determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status from the IRS or still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination. To the Knowledge of Celtrix, there are no facts or circumstances
that would be reasonably likely to jeopardize or adversely affect the
qualification under Code Section 401(a) of any Celtrix Qualified Plan or
otherwise have a material adverse effect on the qualified status of any Celtrix
Qualified Plan. Each Celtrix Qualified Plan incorporates or has been amended to
incorporate all provisions required to comply with the Tax Reform Act of 1986
and subsequent legislation to the extent such amendment or incorporation is
required as of the Closing Date.
(e) As of the Effective Time, full payment of all contributions will be
made or accrued with respect to each Celtrix Benefit Plan (including all
employer contributions and employee salary reduction contributions) that are
either required under the terms thereof or under ERISA or the Code. Neither
Celtrix nor any organization to which Celtrix is a successor or parent
corporation, within the meaning of Section 4069(b) of ERISA, has engaged in any
transaction, within the meaning of Section 4069 of ERISA. No Celtrix ERISA Plan
has incurred a "reportable event" as such term is defined in Section 4043 of
ERISA, other than a "reportable event" which was not required to be reported.
(f) Celtrix has filed all reports, returns and other documentation and
paid all premiums and taxes associated therewith that are required to have been
filed with respect to each Celtrix Benefit Plan with the IRS, the Department of
Labor, or any other governmental agency (federal, state or local) and such have
been filed on a timely basis. No lawsuits, complaints,
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<PAGE>
investigations or proceedings to or by any Person or governmental authority have
been filed or, to the Knowledge of Celtrix, are proposed or threatened, with
respect to any Celtrix Benefit Plan, except where such lawsuits, complaints,
investigations or proceedings would not have, alone or in the aggregate, a
Material Adverse Effect.
(g) Neither Celtrix nor any Celtrix ERISA Affiliate is or has ever been a
party to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA)
and neither Celtrix nor any Celtrix ERISA Affiliate has received a notice of, or
incurred, any withdrawal liability with respect to a "multiemployer plan" that
has not been satisfied.
(h) Celtrix has not incurred any material liability for "welfare benefits"
(as defined in Code Section 419) that was not fully reflected in the Celtrix
Form 10-K. Except as required under COBRA (or any similar provisions of state
law) or the terms of any Celtrix ERISA Plan, Celtrix is not obligated to provide
or to pay any benefits to former employees, or to their dependents or
beneficiaries, solely as a result of the consummation of the transactions
contemplated in this Agreement.
(i) Schedule 5.9(i) sets forth a true and complete list, as of December
--------------
31, 1999, of each person who holds any Celtrix Stock Options, together with the
number of shares of Celtrix Common Stock which are subject to such option, the
date of grant of such option, the extent to which such option is vested (or will
become vested as a result of the Merger), the option price of such option (to
the extent determined as of the date hereof), whether such option is a
nonqualified stock option or is intended to qualify as an incentive stock option
within the meaning of Section 422(b) of the Code, and the expiration date of
such option. Schedule 5.9(i) of the Celtrix Disclosure Letter also sets forth
--------------
the total number of such incentive stock options and such nonqualified options
and any non-statutory options issued to consultants or others. Celtrix has
furnished Insmed with complete copies of the plans pursuant to which the Celtrix
Stock Options were issued. Other than the automatic vesting of Celtrix Stock
Options that may occur without any action on the part of Celtrix or its officers
or directors, Celtrix has not taken any action that would result in any Celtrix
Stock Options that are unvested becoming vested in connection with or as a
result of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
(j) Celtrix has made available to Insmed (i) a description of the terms of
employment and compensation arrangements of all officers and other employees of
Celtrix and a copy of each such agreement currently in effect; (ii) copies of
all agreements with consultants who are individuals obligating Celtrix to make
annual cash payments in an amount exceeding $25,000; (iii) copies (or
descriptions) of all severance agreements, programs and policies of Celtrix with
or relating to its employees, except programs and policies required to be
maintained by Law; and (iv) copies of all plans, programs, agreements and other
arrangements of Celtrix with or relating to its employees which contain change
in control provisions all of which are set forth on Schedule 5.9(j) of the
--------------
Celtrix Disclosure Letter.
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<PAGE>
Section 5.10 Tax Matters.
-----------
(a) Except as set forth on Schedule 5.10 of the Celtrix Disclosure Letter:
-------------
(i) Celtrix and each of its Subsidiaries that is incorporated
under the laws of the United States or of any of the United States are members
of the affiliated group, within the meaning of Section 1504(a) of the Code, of
which Celtrix is the common parent, such affiliated group files a consolidated
federal income tax return and neither Celtrix nor any of its Subsidiaries has
ever filed a consolidated federal income tax return with (or been included in a
consolidated return of) a different affiliated group;
(ii) each of the Celtrix Companies has timely filed or caused to
be filed all material Tax Returns required to have been filed by or for it, and
all information set forth in such Tax Returns is accurate and complete in all
material respects;
(iii) each of the Celtrix Companies has paid or made adequate
provision on its books and records in accordance with GAAP for all material
Taxes covered by such Tax Returns;
(iv) each of the Celtrix Companies is in material compliance
with, and its records contain all information and documents (including, without
limitation, properly completed IRS Forms W-8 and Forms W-9) necessary to comply
with, all applicable information reporting requirements under federal, state,
local and foreign Laws, and such records identify with specificity all accounts
subject to withholding under Section 1441, 1442 or 3406 of the Code or similar
provisions of state, local or foreign Laws;
(v) each of the Celtrix Companies has collected or withheld all
material Taxes required to be collected or withheld by it, and all such Taxes
have been paid to the appropriate Governmental Authority or set aside in
appropriate accounts for future payment when due;
(vi) there are no unpaid Taxes due and payable by any of the
Celtrix Companies or by any other person that are or may become a lien on any
asset of, or otherwise may reasonably be expected to have a Material Adverse
Effect on, Celtrix;
(vii) none of the Celtrix Companies has granted (or is subject to)
any waiver, which is currently in effect, of the period of limitations for the
assessment of any Tax; no unpaid Tax deficiency has been assessed or asserted
against or with respect to any of the Celtrix Companies by any Governmental
Authority; no power of attorney relating to Taxes that is currently in effect
has been granted by or with respect to any of the Celtrix Companies; there are
no currently pending administrative or judicial proceedings, or any deficiency
or refund litigation, with respect to Taxes of any of the Celtrix Companies, the
adverse outcome of which may reasonably be expected to have a Material Adverse
Effect on Celtrix; and any such assertion, assessment, proceeding or litigation
disclosed in Schedule 5.10 of the Celtrix Disclosure Letter is being contested
-------------
in good faith through appropriate measures, and its status is described in the
Schedule 5.10 of the Celtrix Disclosure Letter;
- -------------
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<PAGE>
(viii) none of the Celtrix Companies has made or entered into, or
holds any asset subject to, a consent filed pursuant to Section 341(f) of the
Code or a "safe harbor lease" subject to former Section 168(f)(8) of the Code;
(ix) none of the Celtrix Companies is required to include in income
any material amount from an adjustment pursuant to Section 481 of the Code or
any similar provision of state or local Law, and to the Knowledge of Celtrix no
Governmental Authority has proposed any such adjustment;
(x) none of the Celtrix Companies is obligated to make any
payments, or is a party to any Contract that could obligate it to make any
payments, that would not be deductible by reason of Section 162(m) or 280G of
the Code;
(xi) there are no excess loss accounts or deferred intercompany
gains with respect to any member of the affiliated group of which Celtrix is the
common parent which may reasonably be expected to have a Material Adverse Effect
on Celtrix if taken into account;
(xii) the most recent audited consolidated balance sheet included in
the Celtrix SEC Reports fully and properly reflects, as of the date thereof, the
liabilities of Celtrix and its Subsidiaries for all accrued Taxes and deferred
liability for Taxes and, for periods ending after such date, the books and
records of each such corporation fully and properly reflect its liability for
all accrued Taxes; and
(xiii) since April 16, 1997, none of the Celtrix Companies has
distributed to its stockholders or security holders stock or securities of a
controlled corporation in a transaction to which Section 355(a) of the Code
applies.
(b) Celtrix has provided Insmed with copies of all Tax Returns (for the
last five years), consents and agreements made by or affecting any of the
Celtrix Companies, or filed by or on behalf of any of the Celtrix Companies,
including any Tax Returns, consents or agreements with respect to which any of
the Celtrix Companies is or has been included in a consolidated, unitary or
combined return.
Section 5.11. Compliance with Law. Except as publicly disclosed by Celtrix
-------------------
in the Celtrix Form 10-K, Celtrix holds all Permits necessary for the lawful
conduct of its businesses (the "Celtrix Permits"), except for failures to hold
such Celtrix Permits which would not have a Material Adverse Effect on Celtrix.
Except as publicly disclosed by Celtrix in the Celtrix Form 10-K, Celtrix is in
compliance with the terms of the Celtrix Permits, except where the failure so to
comply would not have a Material Adverse Effect on Celtrix. Except as publicly
disclosed by Celtrix in the Celtrix Form 10-K, the business of Celtrix is not
being conducted in violation of any Law, ordinance or regulation of any
Governmental Entity except that no representation or warranty is made in this
Section 5.11 with respect to Environmental Laws (as defined in Section 5.18
- ------------ ------------
below) and except for violations or possible violations which do not have, and,
insofar as reasonably can be foreseen, in the future will not, have a Material
Adverse Effect on Celtrix. Except as publicly disclosed by Celtrix in the
Celtrix Form 10-K, no investigation or review by any Governmental Entity with
respect to Celtrix is pending or, to the Knowledge of Celtrix,
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<PAGE>
threatened, nor, to the Knowledge of Celtrix, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those
which Celtrix reasonably believes will not have a Material Adverse Effect on
Celtrix.
Section 5.12. Transactions With Affiliates. Except as set forth in
----------------------------
Schedule 5.12 of the Celtrix Disclosure Letter attached hereto, since March 31,
- -------------
1999, the Celtrix Companies have not, in the ordinary course of business or
otherwise, purchased, leased or otherwise acquired any material property or
assets or obtained any material services from, or sold, leased or otherwise
disposed of any material property or assets or provided any material services to
(except with respect to remuneration for services rendered as a director,
officer or employee of one or more of the Celtrix Companies) (a) any holder of
5% or more of the voting securities of Celtrix, (b) any director, officer or
employee of the Celtrix Companies, (c) any person, firm or corporation that
directly or indirectly controls, is controlled by or is under common control
with any of the Celtrix Companies or (d) any member of the immediate family of
any of such persons (collectively, for purposes of this Section, a "Celtrix
Affiliate"). Except as set forth in Schedule 5.12 of the Celtrix Disclosure
-------------
Letter, (a) the Contracts of the Celtrix Companies do not include any obligation
or commitment between any of the Celtrix Companies and any Celtrix Affiliate,
and (b) the assets of Celtrix do not include any receivable or other obligation
or commitment from a Celtrix Affiliate to any of the Celtrix Companies, and no
Celtrix Affiliate has any interest in any material property, real or personal,
tangible or intangible, including without limitation, any Software or Celtrix
Intellectual Property, used in or pertaining to the business of Celtrix, except
for the ordinary rights of a shareholder or employee stock optionholder.
Section 5.13. Fees and Expenses of Brokers and Others. None of the Celtrix
---------------------------------------
Companies (a) has had any dealings, negotiations or communications with any
broker, finder or investment banker or other intermediary in connection with the
transactions contemplated by this Agreement, (b) is committed to any liability
for any brokers' or finders' fees or any similar fees in connection with the
transactions contemplated by this Agreement or (c) has retained any broker,
finder or investment banker or other intermediary to act on its behalf in
connection with the transactions contemplated by this Agreement, except that
Celtrix has retained PGE to represent it in connection with such transactions.
Section 5.14. Accuracy of Information. Neither this Agreement nor any
-----------------------
other document provided by the Celtrix Companies or their employees or agents to
Insmed in connection with the transactions contemplated herein contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein not misleading.
Section 5.15. Absence of Undisclosed Liabilities. None of the Celtrix
----------------------------------
Companies has any liabilities or obligations of any kind, whether absolute,
accrued, asserted or unasserted, contingent or otherwise, except liabilities,
obligations or contingencies that are accrued or reserved against in the
consolidated balance sheet of Celtrix as of March 31, 1999, that is included in
the Celtrix SEC Reports or reflected in the notes thereto, or that were incurred
after the date of such balance sheet in the ordinary course of business and
consistent with past
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<PAGE>
practices, and except for any such liabilities or obligations which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Celtrix Companies.
Section 5.16. Opinion of Financial Advisor. Celtrix has received the
----------------------------
opinion of PGE to the effect that, as of November 29, 1999, the consideration
contemplated in the Merger is fair to the holders of shares of Celtrix Capital
Stock from a financial point of view.
Section 5.17. [Intentionally Omitted].
-----------------------
Section 5.18. Environmental Laws and Regulations.
----------------------------------
(a) Except as publicly disclosed by Celtrix in the Celtrix Form 10-K or as
set forth in Schedule 5.18 of the Celtrix Disclosure Letter, (i) Celtrix is and
-------------
always has been in material compliance with all applicable federal, state, local
and foreign laws (including common law) and regulations relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata)
(collectively, "Environmental Laws"), except for non-compliance that would not
have a Material Adverse Effect on Celtrix, which compliance includes, but is not
limited to, the possession by Celtrix of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (ii) Celtrix has not received
written notice of, or, to the Knowledge of Celtrix, is the subject of, any
action, cause of action, claim, investigation, demand or notice by any person or
entity alleging liability under or non-compliance with any Environmental Law (an
"Environmental Claim") that could reasonably be expected to have a Material
Adverse Effect on Celtrix; (iii) there has been no releases or offsite shipments
from any property ever owned by Celtrix or any of its Subsidiaries of any
hazardous, toxic or radioactive material, substance or wastes defined or
regulated as such under the Environmental Law that would be reasonably likely to
result in an Environmental Claim; and (iv) to the Knowledge of Celtrix, there
are no circumstances that are reasonably likely to prevent or interfere with
such material compliance in the future.
(b) Except as publicly disclosed by Celtrix in the Celtrix Form 10-K,
there are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on Celtrix that are pending or, to the Knowledge of
Celtrix, threatened against Celtrix or, to the Knowledge of Celtrix, against any
person or entity whose liability for any Environmental Claim Celtrix has or may
have retained or assumed either contractually or by operation of Law.
Section 5.19. Intellectual Property.
---------------------
(a) Celtrix owns, or has a valid license to use or otherwise has the right
to use, free and clear of all Liens, all (i) patents and industrial design
registrations or applications (including any continuations, divisionals,
continuations-in-part, renewals, reissues, and applications for any of the
foregoing) (collectively, "Patents"), (ii) trademarks, service marks, trade
names, Internet domain names, designs, logos, slogans, and general intangibles
of like nature, together with all goodwill, registrations and applications
related to the foregoing (collectively, "Trademarks"), (iii) copyrights
(including any registrations and applications therefor) (collectively
"Copyrights"), (iv) software, (v) "mask works" (as defined under 17 U.S.C. (S)
901) and any
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<PAGE>
registrations and applications for "mask works" and (vi) technology, trade
secrets and other confidential information, know-how, proprietary processes,
formulae, algorithms, models, and methodologies (collectively, "Trade Secrets"),
in the case of each of the foregoing clauses, used in or necessary of the
conduct of Celtrix's business as currently conducted or contemplated to be
conducted (collectively, the "Celtrix Intellectual Property").
(b) Schedule 5.19 of the Celtrix Disclosure Letter sets forth, for the
-------------
Celtrix Intellectual Property, a complete and accurate list as of the date
hereof of (i) all U.S. and foreign (A) patents and patent applications, each as
owned by Celtrix, (B) trademark registrations (including Internet domain name
registrations), trademark applications, and material unregistered trademarks,
each as owned by Celtrix and (C) copyright and mask work registrations and
applications, and material unregistered copyrights, each as owned by Celtrix;
and (ii) all material agreements (whether oral or written) (A) granting or
obtaining any right to use or practice any rights under any Celtrix Intellectual
Property, or (B) restricting Celtrix's rights to use any Celtrix Intellectual
Property, including license agreements, consulting and professional services
agreements, development agreements, distribution agreements, settlement
agreements, consent to use agreements, and covenants not to sue (collectively,
the "Celtrix License Agreements"). The Celtrix License Agreements are valid and
binding obligations of Celtrix and, to Celtrix's Knowledge, each of the other
parties thereto, enforceable in accordance with their terms, except that the
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or thereafter in effect
relating to creditors' rights generally and (ii) the availability of the remedy
of specific performance or injunctive or other forms of equitable relief may be
subject to equitable defenses and would be subject to the discretion of the
court before which any proceeding therefor may be brought. There exists no event
or condition which will result in a violation or breach of, or constitute (with
or without due notice of lapse of time or both) a default by Celtrix or, to
Celtrix's Knowledge, any party under any such Celtrix License Agreement. Celtrix
has not licensed or sublicensed, nor has any third party acquired, rights in any
Celtrix Intellectual Property other than pursuant to the Celtrix License
Agreements.
(c) No royalties, honoraria or other fees are payable by Celtrix to any
third parties for the use of or right to use any Celtrix Intellectual Property
except pursuant to the Celtrix License Agreements identified on Schedule 5.19 of
-------------
the Celtrix Disclosure Letter.
(d) Except as set forth on Schedule 5.19 of the Celtrix Disclosure Letter:
-------------
(i) Celtrix is listed in the records of the appropriate U.S., state
or foreign registry as the sole and current owner of record for each application
and registration listed on Schedule 5.19 of the Celtrix Disclosure Letter;
-------------
(ii) Each Patent, Copyright and Trademark owned by Celtrix and, to
Celtrix's Knowledge, each Patent, Copyright and Trademark not owned but used by
Celtrix, is in full force and effect, and has not been cancelled, expired, or
abandoned, and is valid and enforceable;
(iii) There has never been any claim, suit, arbitration or other
adversarial proceeding before any court, agency, arbitral tribunal, or
registration authority in any jurisdiction, nor, to Celtrix's Knowledge, is
there threatened or any valid basis for any such
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<PAGE>
claim, suit, arbitration or other adversarial proceeding, (A) involving the
Celtrix Intellectual Property owned by Celtrix or the Celtrix Intellectual
Property licensed to Celtrix or (B) alleging that the activities or the conduct
of Celtrix's business does or will infringe upon, violate or constitute the
unauthorized use of the intellectual property rights of any third party, or
challenging the ownership, use, validity, enforceability or registrability of
any Celtrix Intellectual Property. There are no settlements, forbearances to
sue, consents, judgments, orders or similar obligations other than the Celtrix
License Agreements to which Celtrix or any of its executive officers is subject
or a party or the existence of which Celtrix or any of its directors or
executive officers is otherwise aware which (A) restrict Celtrix's rights to use
any Celtrix Intellectual Property, (B) restrict Celtrix's business in order to
accommodate a third party's intellectual property rights or (C) permit any third
party to use any Celtrix Intellectual Property;
(iv) The conduct of Celtrix's business as currently conducted or
planned to be conducted does not infringe upon (either directly or indirectly,
such as through contributory infringement or inducement to infringe) any
intellectual property rights owned or controlled by any third party. To
Celtrix's Knowledge, no third party is misappropriating, infringing, diluting or
violating any Celtrix Intellectual Property; no claim, suit, arbitration or
other adversarial proceeding alleging any such misappropriation, infringement,
dilution or violation has ever been brought against any third party by Celtrix
nor has Celtrix ever threatened any such claim against any third party;
(v) Celtrix takes reasonable measures to protect the
confidentiality of its Trade Secrets, including requiring its employees and
other parties having access thereto to execute written non-disclosure
agreements. To Celtrix's Knowledge, no Trade Secret has been disclosed or
authorized to be disclosed to any third party other than pursuant to a non-
disclosure agreement that fully protects the proprietary interests of Celtrix in
and to such Trade Secrets. To Celtrix's Knowledge, no party to any non-
disclosure agreement relating to Celtrix's Trade Secrets is in breach or default
thereof;
(vi) Except as set forth in Schedule 5.19 of the Celtrix Disclosure
-------------
Letter, no current or former partner, director, officer, or employee of Celtrix
will, after giving effect to each of the transactions contemplated herein, own
or retain any rights in or to any of the Celtrix Intellectual Property; and
(vii) Except as set forth on Schedule 5.19 of the Celtrix Disclosure
-------------
Letter, the consummation of the transactions contemplated hereby will not result
in any breach or default under any Celtrix License Agreement, or require the
consent of any party thereto and will not result in the loss or impairment of
Celtrix's rights to own or use any of the Celtrix Intellectual Property, nor
will it require the consent of any governmental authority or third party in
respect of any such Celtrix Intellectual Property.
Section 5.20. Insurance.
---------
All material fire and casualty, general liability, business interruption,
product liability, and sprinkler and water damage insurance policies maintained
by Celtrix and its Subsidiaries are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident
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<PAGE>
to the business of Celtrix and its Subsidiaries and their respective properties
and assets, and are in character and amount at least equivalent to that carried
by persons engaged in similar businesses and subject to the same or similar
perils or hazards, except for any such failures to maintain insurance policies
that, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect and are listed on Schedule 5.20 of the Celtrix
-------------
Disclosure Letter. Celtrix has maintained such policies on a continuous basis
since April 1, 1995.
Section 5.21. Vote Required; Board Approval.
-----------------------------
(a) The affirmative vote of the holders of at least a majority of the
outstanding shares of Celtrix voting Capital Stock, voting as a single class, is
the only vote of the holders of any class or series of Celtrix's Capital Stock
necessary to approve and adopt this Agreement and the Merger.
(b) Celtrix's Board of Directors has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
advisable and in the best interests of Celtrix and its shareholders, (ii)
approved this Agreement and the transactions contemplated hereby and (iii)
resolved to recommend to its shareholders that they vote in favor of adopting
and approving this Agreement in accordance with the terms hereof.
Section 5.22. State Takeover Statutes.
-----------------------
Celtrix has taken all actions required to be taken by it in order to
exempt this Agreement and the transactions contemplated hereby from the
provisions of Section 203 of the DGCL, and accordingly, such section does not
apply to the Merger or any of such transactions. No other "control share
acquisition," "fair price," "investor protection" or other anti-takeover laws or
regulations enacted under state or federal laws in the United States apply to
this Agreement or any of the transactions contemplated hereby.
Section 5.23. Tax Treatment.
-------------
Neither Celtrix nor, to the Knowledge of Celtrix, any of its affiliates
has taken, agreed to take or will take any action or is aware of any fact or
circumstance that would prevent the Merger or the Exchange from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code or
part of an exchange described in Section 351 of the Code.
Section 5.24. Certain Business Practices.
--------------------------
None of Celtrix or any directors, officers, agents or employees of Celtrix
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the FCPA,
or (iii) made any other unlawful payment.
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Section 5.25. No Existing Discussions.
-----------------------
As of the date hereof, Celtrix is not engaged, directly or indirectly, in
any discussions or negotiations with any other party with respect to any Celtrix
Third Party Acquisition.
Section 5.26. Material Contracts.
------------------
(a) Schedule 5.26 of the Celtrix Disclosure Letter attached hereto
-------------
contains a true, correct and complete list of all Contracts and agreements (and
all amendments, modifications and supplements thereto and all side letters
affecting the obligations of any party thereunder) to which the Celtrix
Companies are a party or by which any of its properties or assets are bound that
are, material to the business, properties or assets of Celtrix taken as a whole,
including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or assets
of Celtrix taken as a whole (for such purposes material shall mean an amount of
at least $25,000), all: (i) employment, product design or development, personal
services, consulting, non-competition, severance, golden parachute, or
indemnification contracts (including, without limitation, any Contract to which
Celtrix is a party involving employees of Celtrix); (ii) licensing, publishing,
merchandising or distribution agreements; (iii) Contracts granting rights of
first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets or stock or otherwise entered into since April 1, 1999;
(vi) Contracts or agreements with any Governmental Entity; (vii) Contracts
relating to the purchase of goods, equipment or services used in support of
Celtrix's business or operations of amounts in excess of $25,000 per year or
having a duration in excess of one year; (viii) Contracts which contain
covenants pursuant to which Celtrix has agreed not to compete with any person or
any person has agreed not to compete with Celtrix; (ix) Contracts upon which any
substantial part of Celtrix's business is dependent or which, if breached, could
reasonably be expected to have a Material Adverse Effect on Celtrix; and (x) all
commitments and agreements to enter into any of the foregoing (collectively, the
"Celtrix Contracts"). Except as set forth in Schedule 5.26 of the Celtrix
-------------
Disclosure Letter, Celtrix is not a party to or bound by any consulting,
severance, golden parachute, indemnification or other agreement with any
employee or consultant pursuant to which such person would be entitled to
receive any additional compensation or an accelerated payment of compensation as
a result of the consummation of the transactions contemplated hereby and Celtrix
is not obligated to make a payment to an individual that would be a "parachute
payment" to a "disqualified individual" (as those terms are defined in Section
280G of the Code, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future).
(b) Each of the Celtrix Contracts is valid, binding, in full force and
effect and enforceable in accordance with its terms, and true and correct copies
thereof have been delivered to Insmed, and there is no default under any Celtrix
Contract so listed either by Celtrix or, to the Knowledge of Celtrix, by any
other party thereto, and no event has occurred that with the lapse of time or
the giving of notice or both would constitute a default thereunder by Celtrix
or, to the Knowledge of Celtrix, any other party, in any such case in which such
default or event could reasonably be expected to have a Material Adverse Effect
on Celtrix.
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(c) No party to any such Celtrix Contract has given notice to Celtrix of
or made a claim against Celtrix with respect to any breach or default
thereunder, in any such case in which such breach or default could reasonably be
expected to have a Material Adverse Effect on Celtrix.
(d) The execution and delivery of this Agreement by Celtrix does not, and
the consummation of the transactions contemplated by this Agreement will not,
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require the consent or waiver under, any of the material terms,
conditions or provisions of the Celtrix Contracts identified on Schedule 5.26 of
-------------
the Celtrix Disclosure Letter.
Section 5.27. Properties.
----------
(a) None of the Celtrix Companies leases for a term of more than six
months any real property nor owns any real property.
Section 5.28. Year 2000 Compliance.
--------------------
(a) Celtrix has reviewed the areas within its business and operations
which could be adversely affected by the Year 2000 Problem and has initiated a
program to achieve Year 2000 Compliance by December 31, 1999. As of the date
hereof, except as is not reasonably likely to have a Material Adverse Effect on
Celtrix: (i) Celtrix has implemented such Year 2000 Compliance program in
accordance with the timetable set forth therein; (ii) Celtrix has made
appropriate inquiries as to the Year 2000 Compliance of their material
suppliers, service providers, franchisers and vendors, and Celtrix has not
received notice of any inability on the part of such entities to achieve Year
2000 Compliance in a timely manner; and (iii) based on such review and program,
Celtrix believes that the Year 2000 Problem, including costs of remediation,
will not have a Material Adverse Effect on Celtrix.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF INSMED
Insmed represents and warrants to Celtrix that as of November 30, 1999
(unless such representation or warranty speaks as of a different date), and
subject to such qualifications and exceptions as are set forth in a disclosure
letter delivered and dated as of the date hereof, signed by an executive officer
of Insmed (the "Insmed Disclosure Letter"), as follows:
Section 6.1. Organization and Authority of the Insmed Companies. Each of
--------------------------------------------------
the Insmed Companies is duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of organization. Each of the
Insmed Companies has full corporate or partnership power to carry on their
respective businesses as they are now being conducted and to own, operate and
hold under lease their assets and properties as, and in the places where, such
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properties and assets now are owned, operated or held. Each of the Insmed
Companies is duly qualified as a foreign entity to do business, and is in good
standing, in each jurisdiction where the failure to be so qualified would have a
Material Adverse Effect on the Insmed Companies. The copies of the Articles of
Incorporation and Bylaws or partnership or joint venture certificates and
agreements of each of the Insmed Companies which have been delivered to Celtrix
are complete and correct and in full force and effect on the date hereof, and no
amendment or other modification has been filed, recorded or is pending or
contemplated thereto.
Section 6.2. Capitalization. Insmed's authorized equity capitalization
---------------
consists of 20,000,000 shares of Insmed Common Stock, $.01 par value, and
17,000,000 shares of Insmed Preferred Stock, $.01 par value, 7,000,000 shares of
which have been designated as Insmed Series A Preferred Stock, and 5,000,000
shares of which have been designated as Insmed Series B Preferred Stock. As of
the close of business on November 30, 1999, 3,637,052 shares of Insmed Common
Stock, 6,144,599 shares of Insmed Series A Preferred Stock, and 3,581,761 shares
of Insmed Series B Preferred Stock were issued and outstanding. Such shares of
Insmed Capital Stock constituted all of the issued and outstanding shares of
capital stock of Insmed as of such date. All issued and outstanding shares of
Insmed Capital Stock have been duly authorized and validly issued and are fully
paid and nonassessable, are not subject to and have not been issued in violation
of any preemptive rights and have not been issued in violation of any federal or
state securities laws. All of the outstanding shares of capital stock of
Insmed's Subsidiaries are validly issued, fully paid and nonassessable and are,
except as disclosed on Schedule 6.2 of the Insmed Disclosure Letter, owned by
------------
Insmed, directly or indirectly, free and clear of all liens, claims, charges or
encumbrances. Since January 1, 1995, Insmed has not declared or paid any
dividend on, or declared or made any distribution with respect to, or authorized
or effected any split-up or any other recapitalization of, any of the Insmed
Capital Stock, or except as set forth in Schedule 6.2 of the Insmed Disclosure
------------
Letter directly or indirectly redeemed, purchased or otherwise acquired any of
its outstanding capital stock or agreed to take any such action and will not
take any such action during the period between the date of this Agreement and
the Effective Time. Schedule 6.2 of the Insmed Disclosure Letter sets forth, as
------------
of November 30, 1999, all outstanding options, warrants, subscriptions or other
rights to purchase or acquire any capital stock of any of the Insmed Companies,
the exercise or purchase price for such securities and the expiration date
thereof, and lists all contracts, commitments, understandings, arrangements or
restrictions by which any of the Insmed Companies is bound to sell or issue any
shares of its capital stock.
Section 6.3. Authority Relative to this Agreement; Recommendation. The
----------------------------------------------------
execution, delivery and performance of this Agreement and of all of the other
documents and instruments required hereby by Insmed are within the corporate
power and authority of Insmed. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Insmed and no other corporate
proceedings on the part of Insmed are necessary to authorize this Agreement or
to consummate the transactions contemplated herein (other than, with respect to
the Exchange, the approval of the Plan of Exchange by the holders of more than
two-thirds of the outstanding shares of each series of Insmed Preferred Stock
voting as a separate class and the holders of more than two-thirds of the
outstanding shares of Insmed Capital Stock voting as a
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<PAGE>
single class at the Insmed Special Meeting). This Agreement and all of the other
documents and instruments required hereby have been or will be duly and validly
executed and delivered by Insmed and (assuming the due authorization, execution
and delivery hereof and thereof by Celtrix) constitute or will constitute valid,
legal and binding agreements of Insmed, enforceable against Insmed in accordance
with their respective terms. The Insmed Board has resolved that the shareholders
of Insmed approve and adopt the Plan of Exchange.
Section 6.4. Consents and Approvals; No Violations. Except for (i) any
-------------------------------------
applicable requirements of the Exchange Act, and any applicable filings under
state securities, "Blue Sky" or takeover laws, (ii) the filing and recordation
of Articles of Exchange as required by the VSCA and (iii) those required
filings, registrations and approvals listed on Schedule 6.4 of the Insmed
------------
Disclosure Letter attached hereto, no filing or registration with, or notice to,
and no permit, authorization, consent or approval of, any public court, tribunal
or administrative, governmental or regulatory body, agency or authority is
necessary or required in connection with the execution and delivery of this
Agreement by Insmed or for the consummation by Insmed of the transactions
contemplated by this Agreement. Assuming that all filings, registrations,
permits, authorizations, consents and approvals contemplated by the immediately
preceding sentence have been duly made or obtained, neither the execution,
delivery and performance of this Agreement nor the consummation of the
transactions contemplated hereby by Insmed will (i) conflict with or result in
any breach of any provision of the Articles of Incorporation, Bylaws,
partnership or joint venture agreements or other organizational documents of any
of the Insmed Companies, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, Insmed Contract or other instrument or obligation to which any of the
Insmed Companies is a party or by which it or any of them or any of their
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any of the Insmed Companies or
any of their properties or assets except, in the case of subsections (ii) or
(iii) above, for violations, breaches or defaults that would not have a Material
Adverse Effect on the Insmed Companies and that will not prevent or delay the
consummation of the transactions contemplated hereby.
Section 6.5. Financial Statements. The audited consolidated financial
--------------------
statements of Insmed for the years ended December 31, 1996, 1997 and 1998
(collectively, the "Insmed Financial Statements") fairly present, in conformity
with GAAP applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of Insmed and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended. As of
their respective dates, none of the Insmed Financial Statements contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made.
Section 6.6. Absence of Certain Events. Except as otherwise specifically
-------------------------
disclosed in Schedule 6.6 attached hereto, since December 31, 1998, none of the
------------
Insmed Companies has suffered any adverse change in its business, financial
condition or results of operations that will
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<PAGE>
have a Material Adverse Effect upon the Insmed Companies. Except as disclosed in
Schedule 6.6 of the Insmed Disclosure Letter, or as otherwise specifically
- ------------
contemplated by this Agreement, there has not been since December 31, 1998: (i)
any labor dispute which is or is expected to be material to any of the Insmed
Companies; (ii) any entry by any of the Insmed Companies into any material
commitment, agreement, license or transaction (including, without limitation,
any borrowing, capital expenditure, sale of assets or any mortgage, pledge, lien
or encumbrances made on any of the properties or assets of any of the Insmed
Companies) other than in the ordinary and usual course of business; (iii) any
change in the accounting methods, principles or practices of Insmed; (iv) any
damage, destruction or loss, whether covered by insurance or not, having a
Material Adverse Effect upon the Insmed Companies; or (v) any agreement to do
any of the foregoing.
Section 6.7. Joint Proxy Statement/Prospectus. None of the information with
--------------------------------
respect to Insmed Companies to be included in the Joint Proxy
Statement/Prospectus or the Registration Statement will, in the case of the
Joint Proxy Statement/Prospectus or any amendments thereof or supplements
thereto, at the time of the mailing of the Joint Proxy Statement/Prospectus or
any amendments thereof or supplements thereto, and at the time of the Insmed
Special Meeting, or, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Insmed with respect to
information supplied in writing by Celtrix or any Celtrix Affiliate for
inclusion in the Joint Proxy Statement/Prospectus.
Section 6.8. Litigation. There is no action, suit, proceeding or
----------
investigation pending or to the Knowledge of Insmed, threatened against or
relating to any of the Insmed Companies at law or in equity, or before any
federal, state, provincial, municipal or other governmental department,
commission, board, bureau, agency, instrumentality or arbitration panel, whether
in the United States or otherwise. None of the Insmed Companies is subject to
any order, judgment, decree or obligation that would materially limit the
ability of the Insmed Companies to operate their respective businesses in the
ordinary course.
Section 6.9. Employee Benefit Plans; Labor Matters. (a) Insmed has
-------------------------------------
delivered to Celtrix prior to the execution of this Agreement copies of all
pension, retirement, 401(K), profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or other
incentive plan, any other employee program, arrangement or agreement, any
medical, vision, dental or other health plan, any life insurance plan, or any
other employee health plan or fringe benefit plan, including, without
limitation, any "employee benefit plan" as that term is defined in Section 3(3)
of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any of the Insmed Companies or affiliates thereof for the
benefit of employees, former employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries are eligible to participate (collectively, the
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<PAGE>
"Insmed Benefit Plans") and (i) any related trust agreement; (ii) any amendments
to such plans or trust; (iii) the most recent Form 5500 and all schedules
thereto; (iv) the most recent IRS determination letter; (iv) the most recent
summary plan descriptions; and (v) the most recent actuarial report for any
Insmed Benefit Plan that is a defined benefit pension plan or funded welfare
benefit plan. Any of the Insmed Benefit Plans which is an "employee pension
benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as an "Insmed ERISA Plan."
(b) Each Insmed Benefit Plan has been administered in material compliance
with its terms and with the applicable provisions (including, without
limitation, any funding requirements or limitations) of ERISA, the Code and any
other applicable Laws. Each Insmed Benefit Plan is enforceable in accordance
with its terms.
(c) No Insmed ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, and the present fair market value of the assets of any such plan exceeds
the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16)
of ERISA, when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements.
(d) Each Insmed ERISA Plan intended to be qualified under Section 401(a)
of the Code ("Insmed Qualified Plan") has either obtained a favorable
determination notification, advisory and/or opinion letter, as applicable, as to
its qualified status from the IRS or still has a remaining period of time under
applicable Treasury Regulations or IRS pronouncements in which to apply for such
letter and to make any amendments necessary to obtain a favorable determination.
To the Knowledge of Insmed, there are no facts or circumstances that would be
reasonably likely to jeopardize or adversely affect the qualification under Code
Section 401(a) of any Insmed Qualified Plan or otherwise have a material adverse
effect on the qualified status of any Insmed Qualified Plan. Each Insmed
Qualified Plan incorporates or has been amended to incorporate all provisions
required to comply with the Tax Reform Act of 1986 and subsequent legislation to
the extent such Amendment or incorporation is required.
(e) As of the Effective Time, full payment of all contributions will be
made or accrued with respect to each Insmed Benefit Plan (including all employer
contributions and employee salary reduction contributions) that are either
required under the terms thereof or under ERISA or the Code. Neither Insmed nor
any organization to which Insmed is a successor or parent corporation, within
the meaning of Section 4069(b) of ERISA, has engaged in any transaction, within
the meaning of Section 4069 of ERISA. No Insmed ERISA Plan has incurred a
"reportable event" as such term is defined in Section 4043 of ERISA, other than
a "reportable event" which was not required to be reported.
(f) Insmed has filed all reports, returns and other documentation and paid
all premiums and taxes associated therewith that are required to have been filed
with respect to each Insmed Benefit Plan with the IRS, the Department of Labor,
or any other governmental agency (federal, state or local) and such have been
filed on a timely basis. No lawsuits, complaints, investigations or proceedings
to or by any Person or governmental authority have been filed or,
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<PAGE>
to the Knowledge of Insmed, are proposed or threatened, with respect to any
Insmed Benefit Plan, except where such lawsuits, complaints, investigations or
proceedings would not have, alone or in the aggregate, a Material Adverse
Effect.
(g) Neither Insmed nor any Insmed ERISA Affiliate is or has ever been a
party to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA)
and neither Insmed nor any Insmed ERISA Affiliate has received a notice of, or
incurred, any withdrawal liability with respect to a "multiemployer plan" that
has not been satisfied.
(h) Insmed has not incurred any material liability for "welfare benefits"
(as defined in Code Section 419) that was not fully reflected in the Insmed
Financial Statements. Except as required under COBRA (or any similar provision
of state law) or the terms of any Insmed ERISA Plan, Insmed is not obligated to
provide or to pay any benefits to former employees, or to their dependents or
beneficiaries, solely as a result of the consummation of the transactions
contemplated in this Agreement.
(i) Schedule 6.9(i) of the Insmed Disclosure Letter sets forth a true and
---------------
complete list, as of November 30, 1999, of each person who holds any Insmed
Stock Options, together with the number of shares of Insmed Common Stock which
are subject to such option, the date of grant of such option, the extent to
which such option is vested (or will become vested as a result of the Merger),
the option price of such option (to the extent determined as of the date
hereof), whether such option is a nonqualified stock option or is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code, and the expiration date of such option. Schedule 6.9(i) of the Insmed
Disclosure Letter also sets forth the total number of such incentive stock
options and such nonqualified options and any non-statutory options issued to
consultants or others. Insmed has furnished Celtrix with complete copies of the
plans pursuant to which the Insmed Stock Options were issued. Other than the
automatic vesting of Insmed Stock Options that may occur without any action on
the part of Insmed or its officers or directors, Insmed has not taken any action
that would result in any Insmed Stock Options that are unvested becoming vested
in connection with or as a result of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(j) Insmed has made available to Celtrix (i) a description of the terms of
employment and compensation arrangements of all officers and other employees of
Insmed and a copy of each such agreement, if any, currently in effect; (ii)
copies of all agreements, if any, with consultants who are individuals
obligating Insmed to make annual cash payments in an amount exceeding $25,000;
(iii) copies (or descriptions) of all severance agreements, programs and
policies of Insmed with or relating to its employees, except programs and
policies required to be maintained by Law; and (iv) copies of all plans,
programs, agreements and other arrangements of Insmed with or relating to its
employees which contain change in control provisions.
Section 6.10. Tax Matters.
-----------
(a) Except as set forth on Schedule 6.10 of the Insmed Disclosure Letter:
-------------
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(i) Insmed and each of its Subsidiaries that is incorporated under the
laws of the United States or of any of the United States are members of the
affiliated group, within the meaning of Section 1504(a) of the Code, of which
Insmed is the common parent, such affiliated group does not file a consolidated
federal income tax return and neither Insmed nor any of its Subsidiaries has
ever filed a consolidated federal income tax return with (or been included in a
consolidated return of) a different affiliated group;
(ii) each of the Insmed Companies has timely filed or caused to be filed
all material Tax Returns required to have been filed by or for it, and all
information set forth in such Tax Returns is accurate and complete in all
material respects;
(iii) each of the Insmed Companies has paid or made adequate provision on
its books and records in accordance with GAAP for all material Taxes covered by
such Tax Returns;
(iv) each of the Insmed Companies has collected or withheld all material
Taxes required to be collected or withheld by it, and all such Taxes have been
paid to the appropriate Governmental Authority or set aside in appropriate
accounts for future payment when due;
(v) there are no unpaid Taxes due and payable by any of the Insmed
Companies or by any other person that are or may become a lien on any asset of,
or otherwise may reasonably be expected to have a Material Adverse Effect on,
Insmed;
(vi) none of the Insmed Companies has granted (or is subject to) any
waiver, which is currently in effect, of the period of limitations for the
assessment of any Tax; no unpaid Tax deficiency has been assessed or asserted
against or with respect to any of the Insmed Companies by any Governmental
Authority; there are no currently pending administrative or judicial
proceedings, or any deficiency or refund litigation, with respect to Taxes of
any of the Insmed Companies, the adverse outcome of which may reasonably be
expected to have a Material Adverse Effect on Insmed; and any such assertion,
assessment, proceeding or litigation disclosed in Schedule 6.10 of the Insmed
-------------
Disclosure Letter is being contested in good faith through appropriate measures,
and its status is described in Schedule 6.10 of the Insmed Disclosure Letter;
-------------
and
(vii) the most recent audited consolidated balance sheet included in the
Insmed Financial Statements fully and properly reflects, as of the date thereof,
the liabilities of Insmed and its Subsidiaries for all accrued Taxes and
deferred liability for Taxes and, for periods ending after such date, the books
and records of each such corporation fully and properly reflect its liability
for all accrued Taxes.
Section 6.11. Compliance with Law. Except as set forth in Schedule 6.11 of
------------------- -------------
the Insmed Disclosure Letter, Insmed holds all Permits necessary for the lawful
conduct of its businesses (the "Insmed Permits"), except for failures to hold
such Insmed Permits which would not have a Material Adverse Effect on Insmed.
Except as set forth on Schedule 6.11 of the Insmed Disclosure Letter, Insmed is
-------------
in compliance with the terms of the Insmed Permits, except where the failure so
to comply would not have a Material Adverse Effect on Insmed. Except as set
forth on Schedule 6.11 of the Insmed Disclosure Letter, the business of
-------------
Insmed is not being
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conducted in violation of any Law, ordinance or regulation of any Governmental
Entity except that no representation or warranty is made in this Section 6.11
------------
with respect to Environmental Laws (as defined in Section 5.18 above) and
------------
except for violations or possible violations which do not have, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on Insmed. Except as set forth on Schedule 6.11 of the Insmed Disclosure
-------------
Letter, no investigation or review by any Governmental Entity with respect to
Insmed is pending or, to the Knowledge of Insmed, threatened, nor, to the
Knowledge of Insmed, has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those which Insmed reasonably
believes will not have a Material Adverse Effect on Insmed.
Section 6.12. Transactions With Affiliates. Since December 31, 1998, the
----------------------------
Insmed Companies have not, in the ordinary course of business or otherwise,
purchased, leased or otherwise acquired any material property or assets or
obtained any material services from, or sold, leased or otherwise disposed of
any material property or assets or provided any material services to (except
with respect to remuneration for services rendered as a director, officer or
employee of one or more of the Insmed Companies) (a) any holder of 5% or more of
the voting securities of Insmed, (b) any director, officer or employee of the
Insmed Companies, (c) any person, firm or corporation that directly or
indirectly controls, is controlled by or is under common control with any of the
Insmed Companies or (d) any member of the immediate family of any of such
persons (collectively, for purposes of this Section, an "Insmed Affiliate").
Except as set forth in Schedule 6.12 of the Insmed Disclosure Letter, (a) the
-------------
Contracts of the Insmed Companies do not include any obligation or commitment
between any of the Insmed Companies and any Insmed Affiliate, and (b) the assets
of Insmed do not include any receivable or other obligation or commitment from
an Insmed Affiliate to any of the Insmed Companies and no Insmed Affiliate has
any interest in any material property, real or personal, tangible or intangible,
including without limitation, any Software or Insmed Intellectual Property, used
in or pertaining to the business of Insmed, except for the ordinary rights of a
shareholder or employee stock optionholder.
Section 6.13. Fees and Expenses of Brokers and Others. None of the Insmed
---------------------------------------
Companies (a) has had any dealings, negotiations or communications with any
broker, finder or investment banker or other intermediary in connection with the
transactions contemplated by this Agreement, (b) is committed to any liability
for any brokers' or finders' fees or any similar fees in connection with the
transactions contemplated by this Agreement or (c) has retained any broker,
finder or investment banker or other intermediary to act on its behalf in
connection with the transactions contemplated by this Agreement, except that
Insmed has retained BancBoston to represent it in connection with such
transactions.
Section 6.14. Accuracy of Information. Neither this Agreement nor any other
-----------------------
document provided by the Insmed Companies or their employees or agents to
Celtrix in connection with the transactions contemplated herein contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein not misleading.
Section 6.15. Absence of Undisclosed Liabilities. None of the Insmed
----------------------------------
Companies has any liabilities or obligations of any kind, whether absolute,
accrued, asserted or unasserted,
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contingent or otherwise, except liabilities, obligations or contingencies that
are accrued or reserved against in the consolidated balance sheet of Insmed as
of December 31, 1998 or reflected in the notes thereto, or that were incurred
after the date of such balance sheet in the ordinary course of business and
consistent with past practices, and except for any such liabilities or
obligations which, individually or in the aggregate, would not have a Material
Adverse Effect on the Insmed Companies.
Section 6.16. [Intentionally Omitted].
----------------------
Section 6.17. [Intentionally Omitted].
----------------------
Section 6.18. Environmental Laws and Regulations.
----------------------------------
(a) Except as set forth in Schedule 6.18 of the Insmed Disclosure Letter,
-------------
(i) Insmed is and always has been in material compliance with all applicable
Environmental Laws, except for non-compliance that would not have a Material
Adverse Effect on Insmed, which compliance includes, but is not limited to, the
possession by Insmed of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof; (ii) Insmed has not received written notice
of, or, to the Knowledge of Insmed, is the subject of, any Environmental Claim
that could reasonably be expected to have a Material Adverse Effect on Insmed;
(iii) there has been no releases or offsite shipments from any property ever
owned by Insmed or any of its Subsidiaries of any hazardous, toxic or
radioactive material, substance or wastes defined or regulated as such under the
Environmental Law that would be reasonably likely to result in an Environmental
Claim; and (iv) to the Knowledge of Insmed, there are no circumstances that are
reasonably likely to prevent or interfere with such material compliance in the
future.
(b) Except as set forth on Schedule 6.18 of the Insmed Disclosure Letter,
-------------
there are no Environmental Claims which could reasonably be expected to have a
Material Adverse Effect on Insmed that are pending or, to the Knowledge of
Insmed, threatened against Insmed or, to the Knowledge of Insmed, against any
person or entity whose liability for any Environmental Claim Insmed has or may
have retained or assumed either contractually or by operation of Law.
Section 6.19. Intellectual Property.
---------------------
(a) Schedule 6.19 of the Insmed Disclosure Letter sets forth, for the
-------------
Insmed Intellectual Property (as defined below), a complete and accurate list as
of the date hereof of (i) all U.S. and foreign (A) patents and patent
applications, each as owned by Insmed, (B) trademark registrations (including
Internet domain name registrations), trademark applications, and material
unregistered trademarks, each as owned by Insmed and (C) copyright and mask work
registrations and applications, and material unregistered copyrights, each as
owned by Insmed; and (ii) all material agreements (whether oral or written) (A)
granting or obtaining any right to use or practice any rights under any Insmed
Intellectual Property, or (B) restricting Insmed's rights to use any Insmed
Intellectual Property, including license agreements, consulting and professional
service agreements, development agreements, distribution agreements, settlement
agreements, consent to use agreements, and covenants not to sue (collectively,
the "Insmed
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License Agreements"). The Insmed License Agreements are valid and binding
obligations of Insmed and, to Insmed's Knowledge, each of the other parties
thereto, enforceable in accordance with their terms, except that the enforcement
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or thereafter in effect relating to creditors' rights
generally and (ii) the availability of the remedy of specific performance or
injunctive or other forms of equitable relief may be subject to equitable
defenses and would be subject to the discretion of the court before which any
proceeding therefor may be brought. There exists no event or condition which
will result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default by Insmed or, to Insmed's Knowledge,
any party under any such Insmed License Agreement. Insmed has not licensed or
sublicensed, nor has any third party acquired, rights in any Insmed Intellectual
Property other than pursuant to the Insmed License Agreements.
(b) Insmed owns, or has a valid license to use or otherwise has the right
to use, free and clear of all Liens, all (i) Trademarks, (ii) Patents, (iii)
Copyrights, (iv) software, (v) "mask works" (as defined under 17 U.S.C. (S) 901)
and any registrations and applications for "mask works" and (vi) Trade Secrets,
in the case of each of the foregoing clauses, used in or necessary of the
conduct of Insmed's business as currently conducted or contemplated to be
conducted (collectively, the "Insmed Intellectual Property").
(c) No royalties, honoraria or other fees are payable by Insmed to any
third parties for the use of or right to use any Insmed Intellectual Property
except pursuant to the Insmed License Agreements identified on Schedule 6.19 of
-------------
the Insmed Disclosure Letter.
(d) Except as set forth on Schedule 6.19 of the Insmed Disclosure Letter:
-------------
(i) Insmed is listed in the records of the appropriate U.S., state
or foreign registry as the sole and current owner of record for each application
and registration listed on Schedule 6.19 of the Insmed Disclosure Letter;
-------------
(ii) Each Patent, Copyright and Trademark owned by Insmed and, to
Insmed's Knowledge, each Patent, Copyright and Trademark not owned but used by
Insmed, is in full force and effect, and has not been cancelled, expired, or
abandoned, and is valid and enforceable;
(iii) There has never been any claim, suit, arbitration or other
adversarial proceeding before any court, agency, arbitral tribunal, or
registration authority in any jurisdiction, nor, to Insmed's Knowledge, is there
threatened or any valid basis for any such claim, suit, arbitration or other
adversarial proceeding, (A) involving the Insmed Intellectual Property owned by
Insmed or the Insmed Intellectual Property licensed to Insmed or (B) alleging
that the activities or the conduct of Insmed's business does or will infringe
upon, violate or constitute the unauthorized use of the intellectual property
rights of any third party, or challenging the ownership, use, validity,
enforceability or registrability of any Insmed Intellectual Property. There are
no settlements, forbearances to sue, consents, judgments, orders or similar
obligations other than the Insmed License Agreements to which Insmed or any of
its executive officers is subject or a party or the existence of which Insmed or
any of its directors or executive officers is otherwise aware which (A) restrict
Insmed's rights to use any Insmed
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Intellectual Property, (B) restrict Insmed's business in order to accommodate a
third party's intellectual property rights or (C) permit any third party to use
any Insmed Intellectual Property;
(iv) The conduct of Insmed's business as currently conducted or
planned to be conducted does not infringe upon (either directly or indirectly,
such as through contributory infringement or inducement to infringe) any
intellectual property rights owned or controlled by any third party. Except as
set forth on Schedule 6.19 of the Insmed Disclosure Letter, to Insmed's
-------------
Knowledge, no third party is misappropriating, infringing, diluting or violating
any Insmed Intellectual Property; no claim, suit, arbitration or other
adversarial proceeding alleging any such misappropriation, infringement,
dilution or violation has ever been brought against any third party by Insmed
nor has Insmed ever threatened any such claim against any third party, except in
such instance where it will not have a Material Adverse Effect on Insmed;
(v) Insmed takes reasonable measures to protect the confidentiality
of its Trade Secrets, including requiring its employees and other parties having
access thereto to execute written non-disclosure agreements. To Insmed's
Knowledge, no Trade Secret has been disclosed or authorized to be disclosed to
any third party other than pursuant to a non-disclosure agreement that fully
protects the proprietary interests of Insmed in and to such Trade Secrets. To
Insmed's Knowledge, no party to any non-disclosure agreement relating to
Insmed's Trade Secrets is in breach or default thereof;
(vi) No current or former partner, director, officer, or employee of
Insmed will, after giving effect to each of the transactions contemplated
herein, own or retain any rights in or to any of the Insmed Intellectual
Property; and
(vii) Except as set forth on Schedule 6.19 of the Insmed Disclosure
-------------
Letter, the consummation of the transactions contemplated hereby will not result
in any breach or default under any Insmed License Agreement, or require the
consent of any party thereto and will not result in the loss or impairment of
Insmed's rights to own or use any of the Insmed Intellectual Property, nor will
it require the consent of any governmental authority or third party in respect
of any such Insmed Intellectual Property.
Section 6.20. Insurance.
---------
All material fire and casualty, general liability, business interruption,
product liability, and sprinkler and water damage insurance policies maintained
by Insmed and its Subsidiaries are with reputable insurance carriers, provide
full and adequate coverage for all normal risks incident to the business of
Insmed and its Subsidiaries and their respective properties and assets, and are
in character and amount at least equivalent to that carried by persons engaged
in similar businesses and subject to the same or similar perils or hazards,
except for any such failures to maintain insurance policies that, individually
or in the aggregate, are not reasonably likely to have a Material Adverse Effect
and are listed on Schedule 6.20 of the Insmed Disclosure Letter. Insmed has
-------------
maintained such policies on a continuous basis since January 1, 1995.
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<PAGE>
Section 6.21. Vote Required; Board Approval.
-----------------------------
(a) The affirmative vote of (i) the holders of at least a majority of the
outstanding shares of the Insmed Series A Preferred Stock and Insmed Series B
Preferred Stock, voting together as separate voting group, and (ii) more than
two-thirds of the outstanding shares of Insmed Capital Stock voting as a single
class are the only votes of the holders of any class or series of Insmed's
Capital Stock necessary to approve and adopt this Agreement and the Plan of
Exchange.
(b) Insmed's Board of Directors has unanimously (i) determined that this
Agreement and the transactions contemplated hereby, including the Exchange, are
advisable and in the best interests of Insmed and its shareholders, (ii)
approved this Agreement and the transactions contemplated hereby and (iii)
resolved to recommend to its shareholders that they vote in favor of adopting
and approving the Plan of Exchange in accordance with the terms hereof.
Section 6.22. State Takeover Statutes.
-----------------------
Insmed has taken all actions required to be taken by it in order to exempt
this Agreement and the transactions contemplated hereby from the provisions of
Article 14.1 of the VSCA, and accordingly, such Article does not apply to the
Exchange or any of such transactions. No other "control share acquisition,"
"fair price," "investor protection" or other anti-takeover laws or regulations
enacted under state or federal laws in the United States apply to this Agreement
or any of the transactions contemplated hereby.
Section 6.23. Tax Treatment.
-------------
Neither Insmed nor, to the Knowledge of Insmed, any of its affiliates has
taken, agreed to take or will take any action or is aware of any fact or
circumstance that would prevent the Merger or the Exchange from constituting a
reorganization qualifying under the provisions of Section 368 of the Code or
part of an exchange described in Section 351 of the Code.
Section 6.24. Certain Business Practices.
--------------------------
None of Insmed or any directors, officers, agents or employees of Insmed
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the FCPA,
or (iii) made any other unlawful payment.
Section 6.25. No Existing Discussions.
-----------------------
As of the date hereof, Insmed is not engaged, directly or indirectly, in
any discussions or negotiations with any other party with respect to any Insmed
Third Party Acquisition Offer.
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<PAGE>
Section 6.26. Material Contracts.
------------------
(a) Schedule 6.26 of the Insmed Disclosure Letter contains a true, correct
-------------
and complete list of all Contracts and agreements (and all amendments,
modifications and supplements thereto and all side letters to which Insmed is a
party affecting the obligations of any party thereunder) to which the Insmed
Companies are a party or by which any of its properties or assets are bound that
are material to the business, properties or assets of Insmed taken as a whole,
including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or assets
of Insmed taken as a whole (for such purposes material shall mean an amount of
at least $25,000), all: (i) employment, product design or development, personal
services, consulting, non-competition, severance, golden parachute or
indemnification contracts (including, without limitation, any Contract to which
Insmed is a party involving employees of Insmed); (ii) licensing, publishing,
merchandising or distribution agreements; (iii) Contracts granting rights of
first refusal or first negotiation; (iv) partnership or joint venture
agreements; (v) agreements for the acquisition, sale or lease of material
properties or assets or stock or otherwise entered into since January 1, 1997;
(vi) Contracts or agreements with any Governmental Entity; (vii) Contracts
relating to the purchase of goods, equipment or services used in support of
Insmed's business or operations of amounts in excess of $25,000 per year or
having a duration in excess of one year; (viii) Contracts which contain
covenants pursuant to which Insmed has agreed not to compete with any person or
any person has agreed not to compete with Insmed; (ix) Contracts upon which any
substantial part of Insmed's business is dependent or which, if breached, could
reasonably be expected to have a Material Adverse Effect on Insmed; and (x) all
commitments and agreements to enter into any of the foregoing (collectively, the
"Insmed Contracts"). Insmed is not a party to or bound by any consulting,
severance, golden parachute, indemnification or other agreement with any
employee or consultant pursuant to which such person would be entitled to
receive any additional compensation or an accelerated payment of compensation as
a result of the consummation of the transactions contemplated hereby and Insmed
is not obligated to make a payment to an individual that would be a "parachute
payment" to a "disqualified individual" (as those terms are defined in Section
280G of the Code, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future).
(b) Each of the Insmed Contracts is valid, binding, in full force and
effect and enforceable in accordance with its terms, and true and correct copies
thereof have been delivered to Celtrix, and there is no default under any Insmed
Contract so listed either by Insmed or, to the Knowledge of Insmed, by any other
party thereto, and no event has occurred that with the lapse of time or the
giving of notice or both would constitute a default thereunder by Insmed or, to
the Knowledge of Insmed, any other party, in any such case in which such default
or event could reasonably be expected to have a Material Adverse Effect on
Insmed.
(c) No party to any such Insmed Contract has given notice to Insmed of or
made a claim against Insmed with respect to any breach or default thereunder, in
any such case in which such breach or default could reasonably be expected to
have a Material Adverse Effect on Insmed.
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<PAGE>
(d) The execution and delivery of this Agreement by Insmed does not, and
the consummation of the transactions contemplated by this Agreement will not,
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require the consent or waiver under, any of the material terms,
conditions or provisions of the Insmed Contracts identified on Schedule 6.26 of
-------------
the Insmed Disclosure Letter.
Section 6.27. Properties. Neither Insmed nor any of its Subsidiaries is in
----------
default under any leases for real property leased by Insmed or any of its
Subsidiaries, except where the existence of such defaults, individually or in
the aggregate, is not reasonably likely to have a Material Adverse Effect on
Insmed. None of the Insmed Companies owns any real property.
Section 6.28. Year 2000 Compliance.
--------------------
(a) Insmed has reviewed the areas within its business and operations which
could be adversely affected by the Year 2000 Problem and has initiated a program
to achieve Year 2000 Compliance by December 31, 1999. As of November 30, 1999,
except as is not reasonably likely to have a Material Adverse Effect on Insmed:
(i) Insmed has implemented such Year 2000 Compliance program in accordance with
the timetable set forth therein; (ii) Insmed has made appropriate inquiries as
to the Year 2000 Compliance of their material suppliers, service providers,
franchisers and vendors, and Insmed has not received notice of any inability on
the part of such entities to achieve Year 2000 Compliance in a timely manner;
and (iii) based on such review and program, Insmed believes that the Year 2000
Problem, including costs of remediation, will not have a Material Adverse Effect
on Insmed.
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<PAGE>
ARTICLE VII
COVENANTS
Section 7.1. Conduct of Business of Celtrix. Except as contemplated by
------------------------------
this Agreement, as described in Schedule 7.1 of the Celtrix Disclosure Letter,
------------
or with respect to the Elan Joint Venture in which case Section 7.3 shall apply,
-----------
during the period from November 30, 1999 to the Effective Time, Celtrix will
conduct its operations in the ordinary and usual course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organization, keep available the
service of its current officers and employees and preserve its relationships
with customers, suppliers, contractors, distributors, licensors, licensees and
others having business dealings with it to the end that goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, except as otherwise expressly provided in this
Agreement or as described in Schedule 7.1 of the Celtrix Disclosure Letter,
------------
during the period from November 30, 1999 to the Effective Time, none of the
Celtrix Companies will (other than with respect to the Elan Joint Venture in
which case Section 7.3 shall apply), without the prior written consent of
-----------
Insmed:
(a) amend its Certificate of Incorporation or Bylaws, partnership or joint
venture agreements or other similar governing instruments;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for (i) the
issuance and sale of Celtrix Shares pursuant to options previously granted under
the Celtrix Plans; (ii) the issuance and sale of Celtrix Shares pursuant to
Celtrix Stock Options outstanding on the date hereof; (iii) the issuance and
sale of Celtrix Series B Preferred Stock to Elan Corporation, plc pursuant to
the Elan Joint Venture, to the extent permitted pursuant to Section 7.3 hereof;
-----------
and (iv) the issuance and sale of Celtrix Shares pursuant to warrants granted by
Celtrix prior to the date hereof;
(c) redeem, capitalize, split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock, make any other actual, constructive or deemed distribution in
respect of its capital stock or otherwise make any payments to shareholders in
their capacity as such, or redeem or otherwise acquire any of its securities or
any securities of its respective Subsidiaries and Partnerships;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
Celtrix (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or issue any debt
securities; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person; (iii) make any loans, advances
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<PAGE>
or capital contributions to, or investments in, any other person; (iv) pledge or
otherwise encumber shares of capital stock of Celtrix; or (v) mortgage or pledge
any of its material assets, tangible or intangible, or create or suffer to exist
any material Lien thereupon (other than tax Liens for taxes not yet due);
(f) except as may be required by Law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner, or increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights or
performance units);
(g) acquire, sell, lease, sell/leaseback, license or dispose of any of its
material properties or assets or enter into any agreement to do so;
(h) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it or make any
material change to its financial statements, or prepay any indebtedness, change
depreciation or amortization methods, delay incurring budgeted expenses or
deviate from usual and customary terms with suppliers, lessors, customers or
buyers;
(i) revalue in any material respect any of its assets;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) enter into any material ($25,000)
contract or agreement; or (iii) authorize any new capital expenditure or
expenditures;
(k) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the settlement
or compromise of which could have a Material Adverse Effect on Celtrix;
(l) commence any material research and development project or terminate any
material research and development project that is currently ongoing, in either
case, except pursuant to the terms of existing contracts;
(m) fail to (i) conduct its business only in the ordinary course or (ii)
maintain and preserve its organization, goodwill and properties;
(n) make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to Taxes,
or make any material change to any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
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<PAGE>
preparation of its federal income tax return for the taxable year ending March
31, 1998, except as may be required by applicable Law; or
(o) take, or agree in writing or otherwise to take, or have any affiliate,
director, officer, employee, agent, consultant or other third party take or
otherwise agree to take, any of the actions described in Sections 7.1(a) through
--------------
7.1(n) or any action which would make any of the representations or warranties
- ------
of Celtrix contained in this Agreement untrue or incorrect.
Section 7.2. Conduct of Business of Insmed. Except as contemplated by this
-----------------------------
Agreement or as described in Schedule 7.2 of the Insmed Disclosure Letter,
------------
during the period from November 30, 1999 to the Effective Time, Insmed will
conduct its operations in the ordinary and usual course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organization, keep available the
service of its current officers and employees and preserve its relationships
with customers, suppliers, contractors, distributors, licensors, licensees and
others having business dealings with it to the end that goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, except as otherwise expressly provided in this
Agreement or as described in Schedule 7.2 of the Insmed Disclosure Letter,
------------
during the period from November 30, 1999 to the Effective Time, none of the
Insmed Companies will, without the prior written consent of Celtrix:
(a) amend its Articles of Incorporation or Bylaws, partnerships or joint
venture agreements or other similar governing instrument, other than to amend
the Articles of Incorporation and Bylaws of Parent to read as set forth in
Exhibit 4.1A and Exhibit 4.1B hereto, respectively;
- ------------ ------------
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities or equity equivalents (including, without
limitation, any stock options or stock appreciation rights), except for (i) the
issuance and sale of Insmed Shares pursuant to options previously granted under
the Insmed Plans; (ii) the issuance and sale of Insmed Shares pursuant to Insmed
Options and Insmed Warrants outstanding on the date hereof; (iii) the granting
of stock options to employees in the ordinary course of business and consistent
with past practices of Insmed, provided that the aggregate number of Insmed
Shares issuable pursuant to such options granted subsequent to the date of this
Agreement shall not exceed 200,000; (iv) the issuance and sale of not more than
6,500,000 shares of Insmed Common Stock; and (v) the issuance of warrants to
purchase not more than 6,901,344 shares of Parent Common Stock.
(c) redeem, recapitalize, split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock, make any other actual, constructive or deemed distribution in
respect of its capital stock or otherwise make any payments to
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shareholders in their capacity as such, or redeem or otherwise acquire any of
its securities or any securities of its respective Subsidiaries and
partnerships;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of Insmed
(other than the Exchange);
(e) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the settlement
or compromise of which could have a Material Adverse Effect on Insmed;
(f) take, or agree in writing or otherwise to take, or have any affiliate,
director, officer, employee, agent, consultant or other third party take or
otherwise agree to take, any of the actions described in Sections 7.2(a) through
---------------
7.2(e) or any action which would make any of the representations or warranties
- ------
of the Insmed contained in this Agreement untrue or incorrect.
Section 7.3. Conduct of Elan Joint Venture. Except as otherwise expressly
-----------------------------
provided in this Agreement or as described in Schedule 7.3 of the Celtrix
------------
Disclosure Letter, during the period from November 30, 1999 to the Effective
Time, Celtrix on behalf of the Elan Joint Venture will not, without the prior
written consent of Insmed:
(a) amend the Elan Joint Venture Agreement or other similar governing
instruments;
(b) adopt or agree to a budget for the Elan Joint Venture;
(c) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
shares of Celtrix Series B Preferred Stock to provide capital to the Elan Joint
Venture;
(d) engage in any material undertakings with respect to the Elan Joint
Venture;
(e) consent to, or enter into on behalf of the Elan Joint Venture any
agreement or commitment as to clinical trials with respect to drugs under
development by the Elan Joint Venture;
(f) consent to, or enter into on behalf of the Elan Joint Venture, any
agreement, commitment or understanding that could reasonably be expected to
impose a liability on any of the Celtrix Companies of $25,000 or more;
(g) take, or agree in writing or otherwise to take, or have any affiliate,
director, officer, employee, agent, consultant or other third party take or
otherwise agree to take, any of the actions described in Sections 7.3(a) through
---------------
7.3(f) or any action which would make any of the representations or warranties
- ------
of Celtrix contained in this Agreement untrue or incorrect.
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<PAGE>
Section 7.4. No Solicitation.
---------------
(a) In consideration of Celtrix's due diligence review of Insmed and
negotiation of this Agreement, which the parties acknowledge has cost Celtrix
material time and expense, from November 30, 1999 through the earlier to occur
of (i) consummation of the Merger and Exchange or (ii) the date this Agreement
is terminated in accordance with Section 9.1 below, no shareholder controlled by
-----------
a director, officer or employee of Insmed, and no director, officer or employee
of Insmed, or any representative of such person or entity, shall institute,
pursue, encourage or continue any discussions, negotiations or agreements
(whether preliminary or definitive), including providing any information, with
any person or entity other than Celtrix contemplating or providing for any
public or private offering of equity, merger, share exchange, acquisition,
purchase or sale of a significant amount of shares (including without limitation
by way of a tender or exchange offer) or assets or other business combination or
change in control of Insmed or similar transaction involving Insmed or any of
its Subsidiaries, other than the transactions contemplated by this Agreement
(each a "Insmed Third Party Acquisition Offer"); provided, however, that nothing
contained in this Agreement shall prevent Insmed, or its Board of Directors,
from (A) the issuance and sale of securities to the extent permitted pursuant to
Section 7.2 hereof or (B) furnishing non-public information to, or entering into
- -----------
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Insmed Third Party Acquisition Offer by such
person or entity or modifying or withdrawing its recommendation with respect to
the transactions contemplated hereby or recommending an unsolicited bona fide
written Insmed Third Party Acquisition Offer to the shareholders of Insmed, if
and only to the extent that (1) the Insmed Board of Directors believes in good
faith (after consultation with its financial advisor) that such Insmed Third
Party Acquisition Offer is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to be
derived from the Merger and Exchange and the prospects of Celtrix and Insmed as
a combined company, would, if consummated, result in a transaction more
favorable to the shareholders of Insmed over the long term than the transaction
contemplated by this Agreement (an "Insmed Superior Proposal") and the Insmed
Board of Directors determines in good faith after consultation with outside
legal counsel that such action is required for the Insmed Board of Directors to
comply with its fiduciary duties to shareholders under applicable Law and (2)
prior to furnishing such non-public information to, or entering into discussions
or negotiations with, such person or entity, the Insmed Board of Directors
receives from such person or entity an executed confidentiality and standstill
agreement. Insmed shall notify Celtrix within 24 hours after receipt by Insmed
(or any of its advisors) of any Insmed Third Party Acquisition Offer or any
request for nonpublic information in connection with an Insmed Third Party
Acquisition Offer or for access to the properties, books or records of Insmed by
any person or entity that informs Insmed that it is considering making, or has
made, an Insmed Third Party Acquisition Offer. Such notice shall be made orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact.
Insmed shall continue to keep Celtrix informed, on a current basis, of the
status of any such discussions or negotiations and the terms being discussed or
negotiated.
(b) In consideration of Insmed's due diligence review of Celtrix and
negotiation of the Agreement, which the parties acknowledge will cost Insmed
material time and expense, from
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November 30, 1999 through the earlier to occur of (i) consummation of the Merger
and Exchange, or (ii) the date this Agreement is terminated in accordance with
Section 9.1 below no shareholder controlled by a director, officer or employee
- -----------
of Celtrix, and no director, officer or employee of Celtrix, or any
representative of such person or entity, shall institute, pursue, encourage or
continue any discussions, negotiations or agreements (whether preliminary or
definitive), including providing any information, with any person or entity
other than Insmed contemplating or providing for any public or private offering
of equity, merger, share exchange, acquisition, purchase or sale of a
significant amount of shares (including without limitation by way of a tender or
exchange offer) or assets or other business combination or change in control of
Celtrix or similar transaction involving Celtrix or any of its Subsidiaries,
other than the transactions contemplated by this Agreement (each a "Celtrix
Third Party Acquisition Offer"); provided, however, that nothing contained in
this Agreement shall prevent Celtrix, or its Board of Directors, from (A) the
issuance and sale of securities to the extent permitted pursuant to Sections 7.1
------------
and 7.3 and (B) furnishing non-public information to, or entering into
- -------
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Celtrix Third Party Acquisition Offer by such
person or entity or modifying or withdrawing its recommendation with respect to
the transactions contemplated hereby or recommending an unsolicited bona fide
written Celtrix Third Party Acquisition Offer to the shareholders of Celtrix, if
and only to the extent that (1) the Celtrix Board of Directors believes in good
faith (after consultation with its financial advisor) that such Celtrix Third
Party Acquisition Offer is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to be
derived from the Merger and Exchange and the prospects of Insmed and Celtrix as
a combined company, would, if consummated, result in a transaction more
favorable to the shareholders of Celtrix over the long term than the transaction
contemplated by this Agreement (an "Celtrix Superior Proposal") and the Celtrix
Board of Directors determines in good faith after consultation with outside
legal counsel that such action is required for the Celtrix Board of Directors to
comply with its fiduciary duties to shareholders under applicable Law and (2)
prior to furnishing such non-public information to, or entering into discussions
or negotiations with, such person or entity, the Celtrix Board of Directors
receives from such person or entity an executed confidentiality and standstill
agreement. Celtrix shall notify Insmed within 24 hours after receipt by Celtrix
(or any of its advisors) of any Celtrix Third Party Acquisition Offer or any
request for nonpublic information in connection with a Celtrix Third Party
Acquisition Offer or for access to the properties, books or records of Celtrix
by any person or entity that informs Celtrix that it is considering making, or
has made, a Celtrix Third Party Acquisition Offer. Such notice shall be made
orally and in writing and shall indicate in reasonable detail the identity of
the offeror and the terms and conditions of such proposal, inquiry or contact.
Celtrix shall continue to keep Insmed informed, on a current basis, of the
status of any such discussions or negotiations and the terms being discussed or
negotiated.
Section 7.5. Meetings of Shareholders. Each of Insmed and Celtrix shall
------------------------
take all action necessary, in accordance with the DGCL and VSCA, and each of
their respective charters and bylaws, to duly call, give notice of, convene and
hold the Special Meeting of their respective shareholders as promptly as
practicable, to consider and vote upon the adoption and approval of this
Agreement and the transactions contemplated hereby. The shareholder votes
required for the adoption and approval of the transactions contemplated by this
Agreement shall be the vote
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required by the DGCL and VSCA and each of Celtrix's and Insmed's respective
charter and bylaws. Celtrix and Insmed will, through their respective Boards of
Directors, recommend to their respective shareholders approval of such matters.
Celtrix and Insmed shall coordinate and cooperate with respect to the timing of
the Special Meetings and shall use their best efforts to hold the Special
Meetings on the same day and as soon as practicable after the date hereof.
Section 7.6. Nasdaq Listing. The parties shall use all reasonable efforts
--------------
to cause the shares of Parent Common Stock to be issued in the Merger and
Exchange and the shares of Parent Common Stock to be reserved for issuance upon
exercise of Celtrix Stock Options, Celtrix Warrants or Insmed Stock Options, and
Insmed Warrants to be approved for listing on Nasdaq National Market, or if such
shares do not satisfy the necessary listing requirements, then on Nasdaq
SmallCap, subject to, in either case, official notice of issuance, prior to the
Effective Time.
Section 7.7. Employee Benefits; Stock Option and Employee Purchase Plans.
-----------------------------------------------------------
The parties agree to work together prior to the Effective Time to cause
Parent to develop and adopt an incentive plan authorizing the issuance of up to
[13 million shares] of Parent Common Stock pursuant to stock options or other
incentive awards to employees, consultants and nonemployee directors of Parent
and its subsidiaries.
Section 7.8. The Registration Statement.
--------------------------
(a) [Intentionally Deleted]
(b) Parent, Celtrix and Insmed shall, as soon as practicable following the
execution of this Agreement, prepare and file with the SEC a draft of the
Registration Statement.
Parent shall:
(i) after consultation with Celtrix and Insmed respond promptly to
any comments made by the SEC with respect thereto; provided, however, that
Parent will not file any amendment or supplement to the Registration Statement
without first furnishing to Celtrix and Insmed a copy thereof for its review and
will not file any such proposed amendment or supplement to which Celtrix or
Insmed reasonably and promptly objects;
(ii) use its best efforts to cause the Registration Statement to
become effective under the Securities Act as soon as practicable, and Celtrix
and Insmed shall cause the Joint Proxy Statement/Prospectus to be mailed to
their respective shareholders at the earliest practicable time after
effectiveness of the Registration Statement;
(iii) cause the registration or qualification of the Parent Common
Stock to be issued upon conversion of shares of (i) Celtrix Capital Stock in
accordance with this Agreement and the Certificate of Merger and (ii) Insmed
Capital Stock in accordance with the Plan of Exchange under the state securities
or "Blue Sky" laws of each state of residence of a record holder of Celtrix
Capital Stock and Insmed Capital Stock as reflected in its respective stock
transfer ledger;
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(iv) promptly advise Celtrix and Insmed (A) when the Registration
Statement becomes effective, (B) when, prior to the Effective Time, any
amendment to the Registration Statement shall be filed or become effective, (C)
of the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding for
that purpose and (D) of the receipt by Parent of any notification with respect
to the suspension of the registration or qualification of Parent Common Stock
for sale in any jurisdiction or the institution or threatening of any proceeding
for that purpose; and
(v) use its best efforts to prevent the issuance of any such stop
order and, if issued, to obtain as soon as possible the withdrawal thereof.
If, at any time when the Joint Proxy Statement/Prospectus is required
to be delivered under the Securities Act or the Exchange Act, any event occurs
as a result of which the Joint Proxy Statement/Prospectus as then amended or
supplemented would include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading, or if it
shall be necessary to amend the Registration Statement or supplement the Joint
Proxy Statement/Prospectus to comply with the Securities Act or the Exchange Act
or the respective rules thereunder, Celtrix and Insmed will cooperate to permit
Parent promptly to prepare and file with the SEC an amendment or supplement (in
a form mutually agreeable to Parent, Celtrix and Insmed) that will correct such
statement or omission or effect such compliance.
Section 7.9. Access to Information. Between the date of this Agreement and
---------------------
the Effective Time, the parties hereto will give one another and their
authorized representatives reasonable access during normal business hours to all
plants, offices, warehouses and other facilities and to all books and records of
one another, will permit one another to make such inspections as each may
reasonably require and will cause their officers and those of their Subsidiaries
and Partnerships to furnish such financial and operating data and other
information with respect to their businesses and properties as may from time to
time reasonably be requested. Subject to Section 7.12 hereof, all such
------------
information shall be kept confidential in accordance with Section 7.18.
------------
Section 7.10. Best Efforts. Subject to the terms and conditions herein
------------
provided and subject to fiduciary obligations under applicable Law as advised by
counsel, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper and advisable under applicable Law, to consummate and make
effective the transactions contemplated by this Agreement. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
party to this Agreement shall take all such necessary action. Celtrix and Insmed
will execute any additional instruments necessary to consummate the transactions
contemplated hereby.
Section 7.11. Consents. Celtrix and Insmed each will use its best efforts
--------
to obtain consents of all third parties and governmental authorities necessary
to the consummation of the transactions contemplated by this Agreement.
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<PAGE>
Section 7.12. Public Announcements. Celtrix and Insmed will consult with
--------------------
each other before issuing any press release or otherwise making any public
statement with respect to this Agreement, the Merger or the Exchange and shall
not issue any such press release or make any such public statement prior to such
consultation or as to which the other party promptly and reasonably objects,
except as may be required by Law in the written opinion of such party's counsel
or by obligations pursuant to any listing agreement with any national securities
exchange or inter-dealer quotation system, in which case the party proposing to
issue such press release or make such public announcement shall use its best
efforts to consult in good faith with the other party before issuing any such
press release or making any such public announcements.
Section 7.13. Certain Agreements. Parent hereby agrees that from and after
------------------
the Effective Time, Parent shall honor those contracts, agreements and
commitments of Celtrix and certain of its Subsidiaries, that are applicable to
certain current or former employees of Celtrix or its Subsidiaries, that are
specifically listed on Schedule 7.13 of the Celtrix Disclosure Letter.
-------------
Section 7.14. Letter of Celtrix's Accountants. Celtrix shall use its best
-------------------------------
efforts to cause to be delivered to Insmed a letter of Ernst & Young LLP, dated
a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Celtrix, in form and substance
reasonably satisfactory to Celtrix and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
Section 7.15. Letter of Insmed's Accountants. Insmed shall use its best
------------------------------
efforts to cause to be delivered to Celtrix a letter of Ernst & Young LLP, dated
a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Celtrix, in form and substance
reasonably satisfactory to Celtrix and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
Section 7.16. Indemnification.
---------------
(a) To the extent, if any, not provided by an existing right under one of
the parties' directors and officers liability insurance policies, from and after
the Effective Time, Parent shall, to the fullest extent permitted by applicable
Law, indemnify, defend and hold harmless each person who is now, or has been at
any time prior to the date hereof, or who becomes prior to the Effective Time, a
director, officer or employee of the parties hereto or any subsidiary thereof
(each an "Indemnified Party" and, collectively, the "Indemnified Parties")
against all losses, expenses (including reasonable attorneys' fees and
expenses), claims, damages or liabilities or, subject to the proviso of the next
succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time and whether asserted or
claimed prior to, at or after the Effective Time) that are in whole or in part
(i) based on, or arising out of the fact that such person is or was a director,
officer or employee of such party or a subsidiary of such party or (ii) based
on, arising out of or pertaining to the transactions contemplated by this
Agreement. In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time), (i) Parent shall pay the
reasonable fees and expenses of
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<PAGE>
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to Parent, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred, in either case to the extent not
prohibited by the VSCA or Parent's articles of incorporation or bylaws, (ii)
Parent will cooperate in the defense of any such matter and (iii) any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under the VSCA and Parent's
articles of incorporation or bylaws shall be made by independent counsel
mutually acceptable to Parent and the Indemnified Party; provided, however, that
Parent shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld). The Indemnified
Parties as a group may retain only one law firm with respect to each related
matter except to the extent there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of any two or more
Indemnified Parties.
(b) For a period of five years after the Effective Time, Parent shall
cause to be maintained in effect the policies of directors' and officers'
liability insurance maintained by Celtrix and Insmed for the benefit of those
persons who are covered by such policies at the Effective Time (or Parent may
substitute therefor policies of substantially equivalent coverage with respect
to matters occurring prior to the Effective Time).
(c) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity or such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then and in either such case, proper provision shall be made so that the
successors and assigns of Parent shall assume the obligations set forth in this
Section 7.16.
- ------------
(d) To the fullest extent permitted by Law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of Celtrix and Insmed and their subsidiaries with
respect to their activities as such prior to the Effective Time, as provided in
Celtrix's and Insmed's respective charters or bylaws, in effect on the date
thereof or otherwise in effect on the date hereof, shall survive the Merger and
Exchange and shall continue in full force and effect for a period of not less
than three years from the Effective Time.
(e) The provisions of this Section 7.16 are intended to be for the benefit
------------
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
Section 7.17. Affiliate Letters.
-----------------
(a) Attached hereto as Exhibit 7.17(a)(i) is a list of all Persons who, to
------------------
the best of Celtrix's Knowledge, may be deemed to be "affiliates" of Celtrix for
purposes of Rule 145(c) under the Securities Act. Celtrix shall use commercially
reasonable efforts to cause each such Person who is so identified to deliver to
Parent on or prior to the Effective Time a letter agreement to the effect that
such person will not offer to sell, sell or otherwise dispose of any shares of
Parent Common Stock issued in the Merger or the Exchange, except, in each case,
pursuant to an effective registration statement or in compliance with Rule 145,
as amended from
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<PAGE>
time to time, or in a transaction which, in the opinion of legal counsel
satisfactory to Parent, is exempt from the registration requirements of the
Securities Act and, in any case, not until after the results covering 30 days of
post-Merger and Exchange combined operations of Celtrix and Insmed have been
filed with the SEC, sent to shareholders of Parent or otherwise publicly issued,
substantially in the form of Exhibit 7.17(a)(ii) to this Agreement.
-------------------
(b) Attached hereto as Exhibit 7.17(b)(i) is a list of all Persons who, to
------------------
the best of Insmed's Knowledge, may be deemed to be "affiliates" of Insmed for
purposes of Rule 145(c) under the Securities Act. Insmed shall use commercially
reasonable efforts to cause each such Person who is so identified to deliver to
Parent on or prior to the Effective Time to the effect that such person will not
offer to sell, sell or otherwise dispose of any shares of Parent Common Stock
issued in the Merger or the Exchange, except, in each case, pursuant to an
effective registration statement or in compliance with Rule 145, as amended from
time to time, or in a transaction which, in the opinion of legal counsel
satisfactory to Parent, is exempt from the registration requirements of the
Securities Act and, in any case, not until after the results covering 30 days of
post-Merger and Exchange combined operations of Celtrix and Insmed have been
filed with the SEC, sent to shareholders of Parent or otherwise publicly issued,
substantially in the form of Exhibit 7.17(b)(ii) to this Agreement.
-------------------
Section 7.18. Confidentiality.
---------------
(a) Prior to the Effective Time and after any termination of this
Agreement each party hereto will hold, and will use its best efforts to cause
its officers, directors, employees, accountants, counsel, consultants, advisors,
affiliates (as such term is used in Rule 12b-2 under the Exchange Act) and
representatives (collectively, the "Representatives"), to hold, in confidence
all confidential documents and information concerning the other parties hereto
and the Subsidiaries furnished to such party in connection with the transactions
contemplated by this Agreement, including, without limitation, all analyses,
compilations, studies or records prepared by the party receiving the information
or by such party's Representatives, that contain or otherwise reflect or are
generated from such information (collectively, the "Confidential Material"). The
party furnishing any Confidential Material is herein referred to as the
"Delivering Company" and the party receiving any Confidential Material is herein
referred to as the "Receiving Company."
(b) The Receiving Company agrees that the Confidential Material will not
be used other than for the purpose of the transaction contemplated by this
Agreement, and that such information will be kept confidential by the Receiving
Company and its Representatives; provided, however, that (i) any of such
information may be disclosed to the Representatives who need to know such
information for the purpose described above (it being understood that (a) each
such Representative shall be informed by the Receiving Company of the
confidential nature of such information, shall be directed by the Receiving
Company to treat such information confidentially and not to use it other than
for the purpose described above and shall agree to be bound by the terms of this
Section 7.18 and (b) in any event, the Receiving Company shall be responsible
- ------------
for any breach of this Agreement by any of its Representatives), and (ii) any
other disclosure of such information may be made if the Delivering Company has,
in advance,
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<PAGE>
consented to such disclosure in writing. The Receiving Company will make all
reasonable, necessary and appropriate efforts to safeguard the Confidential
Material from disclosure to anyone other than as permitted hereby.
(c) Notwithstanding the foregoing, if the Receiving Company or any of its
Representatives is requested or required (by oral question or request for
information or documents in legal proceedings, interrogatories, subpoena, civil
investigative demand or similar process) to disclose any Confidential Material,
the Receiving Company will promptly notify the Delivering Company of such
request or requirement so that the Delivering Company may seek an appropriate
protective order and/or waive the Receiving Company's compliance with the
provisions of this Agreement. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Receiving Company or any of its
Representatives is nonetheless, in the reasonable written opinion of the
Receiving Company's counsel, compelled to disclose Confidential Material to any
tribunal, the Receiving Company or such Representative, after notice to the
Delivering Company, may disclose such information to such tribunal. The
Receiving Party shall exercise reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded the Confidential Material so
disclosed. The Receiving Company or such Representative shall not be liable for
the disclosure of Confidential Material hereunder to a tribunal compelling such
disclosure unless such disclosure to such tribunal was caused by or resulted
from a previous disclosure by the Receiving Company or any of its
Representatives not permitted by this Agreement.
(d) This Section 7.18 shall be inoperative as to particular portions of
------------
the Confidential Material if such information (i) is or becomes generally
available to the public other than as a result of a disclosure by the Receiving
Company or its Representatives, (ii) was available to the Receiving Company on a
non-confidential basis prior to its disclosure to the Receiving Company by the
Delivering Company or the Delivering Company's Representatives as demonstrated
by documents of the Receiving Company, or (iii) becomes available to the
Receiving Company on a non-confidential basis from a source other than the
Delivering Company or the Delivering Company's Representatives, provided that
such source is not known by the Receiving Company, after reasonable inquiry, to
be bound by a confidentiality agreement with the Delivering Company or the
Delivering Company's Representatives and is not otherwise prohibited from
transmitting the information to the Receiving Company by a contractual, legal or
fiduciary obligation. The fact that information included in the Confidential
Material is or becomes otherwise available to the Receiving Company or its
Representatives under clauses (i) through (iii) above shall not relieve the
Receiving Company or its Representatives of the prohibitions of the
confidentiality provisions of this Section 7.18 with respect to the balance of
------------
the Confidential Material.
(e) If this Agreement is terminated, each party hereto will, and will use
its best efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents to destroy or deliver to the party
from whom such Confidential Material was obtained, upon request, all documents
and other materials, and all copies thereof, obtained by such party or on its
behalf from any such other parties in connection with this Agreement that are
subject to such confidence.
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Section 7.19. Antitrust Matters.
-----------------
(a) To the extent required by the HSR Act, the parties hereto promptly
will complete all documents required to be filed with the Federal Trade
Commission and the Department of Justice in order to comply with the HSR Act
and, together with the Persons who are required to join in such filings, will
file the same with the appropriate Governmental Authorities. The parties hereto
promptly will furnish all materials thereafter required by any of the
Governmental Authorities having jurisdiction over such filings and will take all
reasonable actions and file and use all reasonable efforts to have declared
effective or approved all documents and notifications with any such Governmental
Authorities, as may be required under the HSR Act for the consummation of the
Merger and Exchange.
(b) The parties hereto will use their best efforts to resolve such
objections, if any, as may be asserted with respect to the transactions
contemplated by this Agreement under any antitrust, competition or trade
regulatory laws, rules or regulations of any domestic or foreign Governmental
Entity ("Antitrust Laws"). If any suit is threatened or instituted challenging
the Merger and Exchange as violating any Antitrust Law, the parties hereto will
take such action as may be required (i) by the applicable Governmental Entity in
order to resolve such objections as such Governmental Entity may have to such
transactions under such Antitrust Law or (ii) by any domestic or foreign court
or similar tribunal, in any suit brought by a private party or governmental
authority challenging the Merger and Exchange as violating any Antitrust Law, in
order to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order that has the effect of preventing the
consummation of the Merger and Exchange. The entry by a court, in any suit
brought by a private party or Governmental Entity challenging the Merger and
Exchange as violating any Antitrust Law, of an order or decree permitting the
Merger and Exchange but requiring that any of the businesses or assets of any
party hereto be divested or held separate by Parent, or that would otherwise
limit Parent's freedom of action with respect to, or its ability to retain, both
Insmed and Celtrix or any portion thereof, will not be deemed a failure to
satisfy the conditions specified in Section 8.1(d) herein below.
--------------
(c) Each party promptly will inform the others of any material
communication from the Federal Trade Commission, the Department of Justice, the
FCC or any other domestic or foreign Governmental Entity regarding any of the
transactions contemplated by this Agreement. If any party or any Affiliate
thereof receives a request for additional information or documentary material
from any such government or authority with respect to the transactions
contemplated by this Agreement, such party will endeavor in good faith to make,
as soon as reasonably practicable and after consultation with the other parties,
an appropriate response to such request. Each party hereto promptly will advise
the other parties hereto in respect of any understandings, undertakings or
agreements which the advising party proposes to make or enter into with the
Federal Trade Commission, the Department of Justice or any other domestic or
foreign Governmental Entity in connection with the transactions contemplated by
this Agreement.
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<PAGE>
Section 7.20. Voting Agreements.
-----------------
(a) On or before the filing of the Registration Statement, certain
shareholders of Celtrix shall have executed and delivered to Insmed a voting
agreement in the form of Exhibit 7.20A hereto with respect to, among other
-------------
things, such shareholder's agreement to vote all shares of Celtrix Capital Stock
over which such shareholder exercises voting control for approval of the
transactions contemplated in this Agreement at the Celtrix Special Meeting.
(b) On or before the filing of the Registration Statement, certain
shareholders of Insmed shall have executed and delivered to Celtrix a voting
agreement in the form of Exhibit 7.20B hereto with respect to, among other
-------------
things, such shareholder's agreement to vote all shares of Insmed Capital Stock
over which such shareholder exercises voting control for approval of the Plan of
Exchange at the Insmed Special Meeting.
ARTICLE VIII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER AND
EXCHANGE
Section 8.1. Conditions Precedent to Each Party's Obligation to
--------------------------------------------------
Consummate Merger and Exchange. The respective obligation of each party to
- ------------------------------
consummate the Merger and Exchange is subject to the satisfaction at or prior to
the Effective Time of the following conditions precedent:
(a) this Agreement shall have been adopted by the affirmative vote of the
shareholders of Celtrix and Merger Subsidiary by the requisite votes in
accordance with applicable Law and the Plan of Exchange shall have been approved
by the affirmative vote of the shareholders of Parent and Insmed by the requite
votes in accordance with applicable Law;
(b) no statue, rule, regulation, order, ruling, decree or injunction shall
have been enacted, entered, promulgated or enforced by any United States court
of competent jurisdiction or any United States governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the Merger and
Exchange; provided, however, that the parties hereto shall use their best
efforts to have any such statue, rule, regulation, order, ruling, decree or
injunction vacated or reversed;
(c) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order or proceedings
seeking a stop order suspending such effectiveness shall have been issued and
remain in effect;
(d) all applicable requirements of the Exchange Act shall have been
satisfied and any applicable filings under state securities, "Blue Sky" or
takeover laws shall have been made and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received;
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<PAGE>
(e) the receipt by the parties hereto of the respective tax opinions
described in Sections 8.2(d) and 8.3(d);
--------------- ------
(f) the shares of Parent Common Stock required to be issued hereunder
shall have been approved for inclusion on Nasdaq National or Nasdaq SmallCap,
subject to official notice of issuance;
(g) the receipt of all necessary and material governmental, regulatory,
shareholder and third party lender, customer or other clearances, consents,
licenses or approvals; and
(h) Celtrix and Insmed shall each have received from each person specified
in Section 7.17 hereof the written agreement referred to in such Section 7.17.
------------ ------------
Section 8.2. Conditions Precedent to Obligations of Celtrix. The
----------------------------------------------
obligations of Celtrix to consummate the Merger are subject to the satisfaction
or waiver at or prior to the Effective Time of the following conditions
precedent:
(a) the representations and warranties of Insmed contained in this
Agreement (other than any representations and warranties made as of a specific
date) shall be true in all material respects (except to the extent any
representation and warranty is already qualified by materiality, in which case
it shall be true in all respects) on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date, except as contemplated or permitted by this Agreement and except that
the capitalization of Insmed set forth in Section 6.2 of this Agreement may
-----------
change between the date hereof and the Effective Time to the extent permitted by
Section 7.2(b) hereof, and Celtrix shall have received a certificate to that
- --------------
effect dated the Closing Date and executed on behalf of Insmed by the chief
executive officer and chief financial officer.
(b) each of the covenants, agreements and obligations of Insmed and Parent
to be performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and at the Closing Insmed and Parent shall have delivered to
Celtrix a certificate to that effect;
(c) the shares of Parent Common Stock issuable to the Celtrix shareholders
pursuant to this Agreement and such other shares required to be reserved for
issuance in connection with the Merger and Exchange shall have been authorized
for listing on Nasdaq National or Nasdaq SmallCap upon official notice of
issuance;
(d) Celtrix shall have received the opinion of Venture Law Group, a
Professional Corporation, counsel to Celtrix, dated the Closing Date and
addressed to Celtrix, to the effect that (i) the merger of Merger Subsidiary
into Celtrix will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code or part of an exchange
described in Section 351 of the Code; and (ii) no gain or loss for Federal
income tax purposes will be recognized by Celtrix or Parent or a shareholder of
Celtrix as a result of the Merger (other than with respect to cash received by a
shareholder of Celtrix in lieu of a fractional share of Parent Common Stock),
and such opinion shall not have been withdrawn or modified in
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any material respect. No opinion will be expressed as to Parent Common Stock
received with respect to any accrued but unpaid dividends on shares of Celtrix
Preferred Stock. Such opinion may be conditioned upon the receipt of
representations of Insmed, Celtrix and Parent, all in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions set
forth therein, and clause (ii) above shall not apply to the extent a shareholder
of Celtrix receives property or rights (other than Parent Common Stock) in
exchange for Celtrix Capital Stock;
(e) there shall have been no events, changes or effects with respect to
Insmed or its Subsidiaries having or which could reasonably be expected to have
a Material Adverse Effect on Insmed; and
(f) all proceedings, corporate or other, to be taken by Insmed in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Celtrix and Celtrix's counsel, and Insmed shall have made available
to Celtrix for examination the originals or true and correct copies of all
documents that Celtrix may reasonably request in connection with the
transactions contemplated by this Agreement.
Section 8.3. Conditions Precedent to Obligations of Insmed. The
---------------------------------------------
obligations of Insmed to consummate the Exchange are subject to the satisfaction
or waiver at or prior to the Effective Time of the following conditions
precedent:
(a) the representations and warranties of Celtrix and Parent contained in
this Agreement (other than any representations and warranties made as of a
specific date) shall be true in all material respects (except to the extent any
representation and warranty is already qualified by materiality, in which case
it shall be true in all respects) on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date, except as contemplated or permitted by this Agreement and except that
the capitalization of Celtrix set forth in Section 5.2 of the Agreement may
-----------
change between the date hereof and the Effective Time to the extent permitted by
Section 7.1(b) hereof, and Insmed shall have received a certificate to that
- --------------
effect dated the Closing Date and executed on behalf of Celtrix and Parent by
the chief executive officer and chief financial officer;
(b) each of the covenants, agreements and obligations of Celtrix and
Parent to be performed at or before the Effective Time pursuant to the terms of
this Agreement shall have been duly performed in all material respects at or
before the Effective Time and at the Closing Celtrix and Parent shall have
delivered to Insmed a certificate to that effect;
(c) the shares of Parent Common Stock issuable to the Insmed shareholders
pursuant to this Agreement and such other shares to be reserved for issuance in
connection with the Exchange shall have been authorized for listing on Nasdaq
National or Nasdaq SmallCap upon official notice of issuance;
(d) Insmed shall have received the opinion of Hunton & Williams, counsel
to Insmed, dated the Closing Date and addressed to Insmed, to the effect that
(i) the Exchange will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a)
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of the Code or part of an exchange described in Section 351 of the Code; and
(ii) no gain or loss for Federal income tax purposes will be recognized by
Insmed or Parent or a shareholder of Insmed as a result of the Exchange (other
than with respect to cash received by a shareholder of Insmed in lieu of a
fractional share of Parent Common Stock), and such opinion shall not have been
withdrawn or modified in any material respect. Such opinion may be conditioned
upon the receipt of representations of Insmed, Celtrix and Parent, all in form
and substance reasonably satisfactory to such counsel and other reasonable
assumptions set forth therein;
(e) there shall have been no events, changes or effects with respect to
Celtrix having or which could reasonably be expected to have a Material Adverse
Effect on Celtrix; and
(f) all proceedings, corporate or other, to be taken by Celtrix in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Insmed and Insmed's counsel, and Celtrix shall have made available
to Insmed for examination the originals or true and correct copies of all
documents that Insmed may reasonably request in connection with the transactions
contemplated by this Agreement.
ARTICLE IX
TERMINATION; AMENDMENT; WAIVER
Section 9.1 Termination. This Agreement may be terminated and the Merger
-----------
and Exchange contemplated hereby may be abandoned at any time notwithstanding
approval thereof by the respective shareholders of Celtrix and Insmed, but prior
to the Effective Time:
(a) by mutual written consent of Celtrix and Insmed;
(b) by Celtrix or Insmed, if the Effective Time shall not have occurred on
or before May 31, 2000 (provided that the right to terminate this Agreement
under this Section 9.1(b) shall not be available to any party whose failure to
--------------
fulfill any obligation under this Agreement has been the cause of or has
resulted in the failure of the Effective Time to occur on or before such date);
(c) by Celtrix if (i) the transactions contemplated in this Agreement
shall have been voted on by holders of Insmed Capital Stock at a meeting duly
convened therefor, and the votes shall not have been sufficient to satisfy the
condition set forth in Section 8.1((a)) hereof, (ii) there has been a material
----------------
breach by Insmed or Parent of any representation, warranty, covenant or
agreement set forth in this Agreement, which breach has not been cured within
ten business days following receipt by the breaching party of notice of such
breach; or (iii) the Board of Directors of Insmed should fail to recommend to
its shareholders approval of the transactions contemplated by this Agreement or
such recommendation shall have been made and subsequently withdrawn;
(d) by Insmed if (i) the transactions contemplated in this Agreement shall
have been voted on by holders of Celtrix Capital Stock at a meeting duly
convened therefor and the votes
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shall not have been sufficient to satisfy the condition set forth in Section
-------
8.1((a)), (ii) there has been a material breach by Celtrix of any
- --------
representation, warranty, covenant or agreement set forth in this Agreement,
which breach has not been cured within ten business days following receipt by
the breaching party of notice of such breach; or (iii) the Board of Directors of
Celtrix should fail to recommend to its shareholders approval of the
transactions contemplated by this Agreement or such recommendation shall have
been made and subsequently withdrawn;
(e) by Celtrix if, prior to the Effective Time, (i) Celtrix, based on the
advice of outside legal counsel to Celtrix that such action is consistent with
the Board of Director's fiduciary duties under applicable Law and the
determination by the Board of Directors of Celtrix in good faith that such
action is in the best interests of Celtrix and its shareholders, subject to
complying with the terms of this Agreement, is fully prepared to enter into a
binding written agreement concerning a transaction that constitutes a Celtrix
Superior Proposal and Celtrix notifies Insmed in writing that it intends to
enter into such an agreement, attaching the most current version of such
agreement to such notice, (ii) Insmed does not make, within five business days
of receipt of Celtrix's written notification of its intention to enter into a
binding agreement for a Celtrix Superior Proposal, an offer to enter into an
amendment to this Agreement such that the Board of Directors of Celtrix
determines, in good faith after consultation with its financial advisors, that
this Agreement as so amended is at least as favorable, from a financial point of
view, to the shareholders of Celtrix as a Celtrix Superior Proposal, (iii)
Celtrix prior to such termination pays to Insmed in immediately available funds
any fees required to be paid pursuant to Section 9.3(a) and (iv) substantially
--------------
simultaneously with such termination, Celtrix enters into the binding written
agreement referred to in clause (i) above. Celtrix agrees (A) that it will not
enter into a binding agreement referred to in clause (i) above until at least
the sixth business day after it has provided the notice to Insmed required
thereby and (B) to notify Insmed promptly if its intention to enter into a
written agreement referred to in its notification shall change at any time after
giving such notification;
(f) by Insmed if, prior to the Effective Time, (i) Insmed, based on the
advice of outside legal counsel to Insmed that such action is consistent with
the Board of Director's fiduciary duties under applicable Law and the
determination by the Board of Directors of Insmed in good faith that such action
is in the best interests of Insmed and its shareholders, subject to complying
with the terms of this Agreement, is fully prepared to enter into a binding
written agreement concerning a transaction that constitutes an Insmed Superior
Proposal and Insmed notifies Celtrix in writing that it intends to enter into
such an agreement, attaching the most current version of such agreement to such
notice, (ii) Celtrix does not make, within five business days of receipt of
Insmed's written notification of its intention to enter into a binding agreement
for an Insmed Superior Proposal, an offer to enter into an amendment to this
Agreement such that the Board of Directors of Insmed determines, in good faith
after consultation with its financial advisors, that this Agreement as so
amended is at least as favorable, from a financial point of view, to the
shareholders of Insmed as an Insmed Superior Proposal, (iii) Insmed prior to
such termination pays to Celtrix in immediately available funds any fees
required to be paid pursuant to Section 9.3(b), and (iv) substantially
--------------
simultaneously with such termination, Insmed enters into the binding written
agreement referred to in clause (i) above. Insmed agrees (A) that it will not
enter into a binding agreement referred to in clause (a) above until at least
the sixth
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business day after it has provided the notice to Celtrix required thereby and
(B) to notify Celtrix promptly if its intention to enter into a written
agreement referred to in its notification shall change at any time after giving
such notification; or
(g) by Celtrix or Insmed, if any court of competent jurisdiction in the
United States or other United States Governmental Authority shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger or the Exchange and such order, decree, ruling
or other action shall have become final and nonappealable.
Section 9.2. Effect of Termination. If this Agreement is so
---------------------
terminated and the Merger and Exchange are not consummated, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party or its directors, officers or shareholders, other than the provisions
of this Section 9.2, Section 7.18, Section 9.3 and Section 10.10. Nothing
----------- ------------ ----------- -------------
contained in this Section 9.2 shall relieve any party from liability for any
breach of this Agreement.
Section 9.3. Termination Fee.
---------------
(a) If this Agreement is terminated pursuant to any subsection of Section
-------
9.1((d)) or Section 9.1((e)) hereof or if the condition contained in Section
- -------- ---------------- -------
8.1((h)) hereof is not satisfied prior to the Effective Time because of the
- --------
failure of any affiliate (as defined in Section 7.17 hereof) of Celtrix to
------------
deliver the written agreement specified in such Section and if Celtrix is not
entitled to terminate this Agreement by reason of Section 9.1((c)) hereof, then,
----------------
in addition to any other rights or remedies that may be available, Celtrix shall
promptly (and in any event within two days of receipt by Celtrix of written
notice from Insmed) pay to Insmed (by wire transfer of immediately available
funds to an account designated by Insmed) a termination fee of $2,500,000 and
shall reimburse Insmed for all out-of-pocket expenses not to exceed $250,000
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by Insmed or on its behalf in connection with the
transactions contemplated by this Agreement.
(b) If this Agreement is terminated pursuant to any subsection of Section
-------
9.1((c)) or Section 9.1((f)) hereof or if the condition contained in Section
- -------- ---------------- -------
8.1((h)) hereof is not satisfied prior to the Effective Time because of the
- --------
failure of any affiliate (as defined in Section 7.17 hereof) of Insmed to
------------
deliver the written agreement specified in such Section and if Insmed is not
entitled to terminate this Agreement by reason of Section 9.1((d)) hereof, then,
----------------
in addition to any other rights or remedies that may be available, Insmed shall
promptly (and in any event within two days of receipt by Insmed of written
notice from Celtrix) pay to Celtrix (by wire transfer of immediately available
funds to an account designated by Celtrix) a termination fee of $2,500,000 and
shall reimburse Celtrix for all out-of-pocket expenses not to exceed $250,000
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by Celtrix or on its behalf in connection with the
transactions contemplated by this Agreement.
Section 9.4. Amendment. This Agreement, the Certificate of Merger, the
---------
Articles of Exchange and the Plan of Exchange may be amended by action taken by
Parent, Merger Subsidiary, Celtrix and Insmed at any time before or after
adoption of this Agreement or Plan of Exchange by the respective shareholders of
Parent, Merger Subsidiary, Celtrix and Insmed but,
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after any such approval, no amendment shall be made which under applicable Law
requires the approval of such shareholders without the approval of the
shareholders affected thereby. This Agreement may not be amended except by an
instrument in writing signed on behalf of both of the parties hereto.
Section 9.5. Extension; Waiver. At any time prior to the Effective Time,
-----------------
either party hereto may to the extent legally allowed (i) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document, certificate or writing delivered pursuant
hereto by the other party hereto or (iii) waive compliance with any of the
agreements or conditions contained herein by the other party hereto. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE X
MISCELLANEOUS
Section 10.1 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations and warranties made herein shall not survive beyond the
Effective Time. This Section 10.1 shall not limit any covenant or agreement of
------------
the parties hereto which by its terms requires performance after the Effective
Time.
Section 10.2. Brokerage Fees and Commissions. No broker, finder or
------------------------------
investment banker (other than PGE whose fees shall be paid by Celtrix) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Celtrix; and no broker, finder or investment banker
(other than BancBoston, whose fees shall be paid by Insmed) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Insmed.
Section 10.3. Entire Agreement; Assignment. This Agreement (a) constitutes
----------------------------
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties or any of them with respect to the subject
matter hereof, and (b) shall not be assigned by operation of Law or otherwise.
Section 10.4. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex, overnight delivery service from a national carrier
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties as follows:
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if to Celtrix:
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place
Suite 600
San Jose, California 95110
Attention: Andreas Sommer, Ph.D.
President & Chief
Executive Officer
with a copy to:
Venture Law Group
2880 Sand Hill Road
Menlo Park, California
Attention: Edmund S. Ruffin, Jr., Esq.
if to Insmed:
Insmed Pharmaceuticals, Inc.
800 East Leigh Street
Suite 206
Richmond, Virginia 23219
Attention: Geoffrey Allan
President & Chief
Executive Officer
with a copy to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: T. Justin Moore, III, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 10.5. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Virginia regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 10.6. Descriptive Headings. The descriptive headings herein are
--------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
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Section 10.7. Parties in Interest. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
Section 10.8. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 10.9. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
Section 10.10. Fees and Expenses. All costs and expenses incurred in
-----------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, whether or not the Merger and
Exchange is consummated, except that the expenses incurred in connection with
printing and mailing the Joint Proxy Statement/Prospectus and printing the
Registration Statement, and the filing fees related to the Registration
Statement, shall be shared equally by the parties hereto.
Section 10.11. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
Section 10.12. Personal Liability. This Agreement shall not create or be
------------------
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect shareholder of Celtrix, Insmed, Parent or Merger
Subsidiary or any officer, director, employee, agent, representative or investor
of any party hereto.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed on its behalf by its officers thereunto duly authorized, all as
of the day and year first above written.
CELTRIX PHARMACEUTICALS, INC.
By: /s/ Andreas Sommer
---------------------------------------
Andreas Sommer
President and Chief Executive Officer
INSMED PHARMACEUTICALS, INC.
By: /s/ Geoffrey Allan
---------------------------------------
Geoffrey Allan
President and Chief Executive Officer
INSMED, INC.
By: /s/ Geoffrey Allan
---------------------------------------
Geoffrey Allan
President and Chief Executive Officer
CELTRIX MERGERSUB, INC.
By: /s/ Geoffrey Allan
---------------------------------------
Geoffrey Allan
President and Chief Executive Officer
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<PAGE>
ANNEX B
FAIRNESS OPINION OF CELTRIX'S INVESTMENT BANKER
February 9, 2000
Special Committee of the Board of Directors
Celtrix Pharmaceuticals, Inc.
3055 Patrick Henry Drive
Santa Clara, California 95054-1815
Members of the Special Committee of the Board of Directors:
You asked for our opinion as to the fairness, from a financial, point of
view, to the holders of common stock, par value $0.001 per share ("Celtrix
Common Stock") of Celtrix Pharmaceuticals, Inc. a Delaware corporation
("Celtrix" or the "Company") of certain transactions in which Celtrix is
considering participating, as set forth in the Agreement and Plan of
Reorganization dated as of November 30, 1999 (the "Original Agreement"). That
opinion was delivered to the Board on November 29, 1999. You have informed us
that the Original Agreement is to be amended and restated on the date hereof,
and you have provided us with a copy of the Amended and Restated Agreement and
Plan of Reorganization dated as of February 9, 2000 (the "Restated Agreement"),
which we have read. You have now requested our opinion as to the fairness as of
November 29, 1999, from a financial point of view, to the holders of the Celtrix
Common Stock of the transactions provided for in the Restated Agreement.
Background of Transactions
Celtrix Corporation entered into the Original Agreement with Insmed, Inc., a
Virginia corporation, Insmed Pharmaceuticals, Inc., a Virginia corporation
("Insmed"), and Celtrix Merger Sub, Inc., a Delaware corporation pursuant to
which the businesses and operations of Celtrix and Insmed would be combined into
a newly formed holding company, Insmed, Inc. (the "Reorganization"). That
combination (the "Combination") is to be accomplished through the exchange of
all of the outstanding shares of Insmed Capital Stock and all of the outstanding
shares of Celtrix Capital Stock for Insmed, Inc. Common Stock at conversion
ratios specified in the Agreement. The Restated Agreement provides that each
holder of Celtrix Common Stock will receive one (1) share of Insmed, Inc. common
stock for each outstanding share of Celtrix Common Stock and each shareholder of
Insmed Pharmaceuticals will receive 3.5 shares of Insmed, Inc. Common Stock for
each outstanding share of Insmed Pharmaceuticals Common Stock. Pursuant to the
Restated Agreement, the Reorganization is to be accounted for under purchase
accounting as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended.
B-1
<PAGE>
Special Committee of the Board of Directors
February 9, 2000
Page 2
Investigation and Analysis
In conducting our investigation and analysis and in arriving at the opinion set
forth below, we reviewed such information and took into account such financial
and economic factors, as we deemed relevant under the circumstances. In that
connection, we, among other things: (i) reviewed available information about
Insmed provided by Insmed, including but not limited to their Private Placement
Memorandum dated July 1, 1999; (ii) conducted interviews with various members of
Insmed's senior management, (iii) reviewed publicly available information about
Celtrix, including but not limited to Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, proxy and other information filed with the Securities and
Exchange Commission; (iv) analyzed information regarding the market price of
Celtrix over various periods; (v) analyzed information on publicly-traded
comparable companies; and (vi) analyzed information about the pricing of recent
Initial Public Offerings for Biotechnology companies in similar states of
development to Insmed.
We reviewed with senior management of Celtrix the state of Celtrix's business
and operations prepared and furnished to us by the Company. We held discussions
with certain members of Celtrix's and Insmed's senior management concerning
Celtrix's and Insmed's respective historical and current business condition and
operating results. We considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria that we
deemed relevant for the preparation of this opinion. We did not consider any
benefits that may inure to any stockholder of the Company as a result of the
Merger or any related transactions other than in such party's capacity as a
stockholder of the Company.
In arriving at our opinion, we assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to us by or
on behalf of Celtrix, and all of the publicly available financial and other
information referred to above, and did not attempt independently to verify any
such information. We also assumed, with your consent, that the Reorganization
would be consummated in accordance with the terms of the Restated Agreement
dated as of February 9, 2000, without any additional amendment thereto and
without waiver by Celtrix or Insmed of any of the conditions to their respective
obligations thereunder. We relied upon assurances of senior management of
Celtrix and Insmed that such management was unaware of any fact that would make
their respective information provided to us incomplete or misleading.
Our opinion necessarily was based upon economic, monetary and market conditions
as they existed and could be evaluated on the date hereof, and did not predict
or take into account any changes that could have occurred, or information that
could have become available, after the date of our opinion, including without
limitation changes in the terms of the Agreement. It should be understood that
subsequent developments may have affected this
B-2
<PAGE>
Special Committee of the Board of Directors
February 9, 2000
Page 3
opinion and we do not have any obligation to update, revise or reaffirm this
opinion. Except as noted above, this opinion did not address the relative merits
of the Reorganization and any other potential transactions or business
strategies considered by the Special Committee of the Board of Directors of
Celtrix (the "Special Committee").
Pacific Growth Equities, Inc. ("PGE") received a fee for rendering this written
opinion pursuant to the terms of an engagement letter. PGE and/or its employees
may from time to time trade the securities of the Company for its or their own
account/s or the accounts of PGE's customers and, accordingly, may at any time
hold long or short positions in such securities.
Opinion
Based upon and subject to the foregoing, we are of the opinion that, as of
November 29, 1999, the Reorganization as set forth in the Restated Agreement, is
fair, from a financial point of view, to the holders of Celtrix Common Stock.
B-3
<PAGE>
Special Committee of the Board of Directors
February 9, 2000
Page 4
Our opinion was prepared solely for the information of the Special Committee,
and may not be used for any other purpose or disclosed to or relied upon by any
other party without the prior written consent of PGE. Notwithstanding the
foregoing, we hereby consent to (i) the inclusion of this opinion letter as
Appendix B to the Joint Proxy Statement / Prospectus, forming part of a
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission, which Joint Proxy Statement / Prospectus is also to be delivered to
the respective stockholders of Celtrix and Insmed; and (ii) references made to
our firm and such opinion in such Joint Proxy Statement / Prospectus, including
but not limited to, the reference under the captions entitled "SUMMARY - Opinion
of Celtrix's Financial Advisors", "THE REORGANIZATIONS - Background and
Negotiations of the Reorganizations", "THE REORGANIZATIONS - Celtrix Reasons for
the Reorganizations", "THE REORGANIZATIONS - Recommendations of the Board of
Directors", "THE REORGANIZATIONS - Opinion of Celtrix's Financial Advisors."
In giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations promulgated thereunder,
and we do not admit that we are experts with respect to any part of the
Registration Statement on Form S-4 within the meaning of the term "expert" as
used in the Act, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ George J. Milstein
Pacific Growth Equities, Inc.
B-4
<PAGE>
Annex C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.
(a.) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the stockholder's shares of
stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the
depository.
(b.) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264
of this title:
(1.) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and
to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of (S)251 of this title.
(2.) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to (S)(S)251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
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a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts
in respect thereof) or depository receipts at the effective date
of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3.) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c.) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d.) Appraisal rights shall be perfected as follows:
(1.) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c)
hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand
for appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall
not constitute such a demand. A stockholder
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electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2.) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation
to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance
with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall
be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close
of business on the day next preceding the day on which the notice is
given.
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(e.) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof and
who is otherwise entitled to appraisal rights, may file a petition in
the Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his
demand for appraisal and to accept the terms offered upon the merger
or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days
after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration
of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f.) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the
office of the Register in Chancery in which the petition was filed a
duly verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed
by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed
for the hearing of such petition by registered or certified mail to
the surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall also be
given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City
of Wilmington, Delaware or such publication as the Court deems
advisable. The forms of the notices by mail and by publication shall
be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g.) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with
such direction, the Court may dismiss the proceedings as to such
stockholder.
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(h.) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of
the merger or consolidation, together with a fair rate of interest, if
any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest, the Court
may consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application
by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may, in
its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i.) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be
simple or compound, as the Court may direct. Payment shall be so made
to each such stockholder, in the case of holders of uncertificated
stock forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or
of any state.
(j.) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a
portion of the expenses incurred by any stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged
pro rata against the value of all the shares entitled to an appraisal.
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(k.) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock
for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions
payable to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided, however,
that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written
withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective
date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall
cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such
terms as the Court deems just.
(l.) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.
C-6
<PAGE>
ANNEX D
ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT
(S)(S) 13.1-729 - 740
Dissenters' Rights
(S) 13.1-729. Definitions.
In this article:
"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation or limited liability company by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from corporate action
under (S) 13.1-730 and who exercises that right when and in the manner required
by (S)(S) 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate action until
the date of payment, at the average rate currently paid by the corporation on
its principal bank loans or, if none, at a rate that is fair and equitable under
all the circumstances.
"Record shareholder" means the person in whose name shares are registered in the
records of a corporation or the beneficial owner of shares to the extent of the
rights granted by a nominee certificate on file with a corporation.
"Beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial shareholder.
(S) 13.1-730. Right to dissent.
A. A shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by (S) 13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on
the merger or (ii) if the corporation is a subsidiary that is merged with
its parent under (S) 13.1-719;
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2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation if the shareholder was entitled to vote on the
sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that
such dissenter's rights shall not apply in the case of (i) a sale or
exchange pursuant to court order, or (ii) a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares under
this article may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
C. Notwithstanding any other provision of this article, with respect to a plan
of merger or share exchange or a sale or exchange of property there shall be no
right of dissent in favor of holders of shares of any class or series which, at
the record date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting at which the plan of merger or share exchange or
the sale or exchange of property is to be acted on, were (i) listed on a
national securities exchange or on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) or (ii) held by at least 2,000
record shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership interests
and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any
other corporation or limited liability company which, at the record
date fixed to determine the shareholders entitled to receive notice of
and to vote at the meeting at which the plan of merger or share
exchange is to be acted on, were either listed subject to notice of
issuance on a national securities exchange or held of record by at
least 2,000 record shareholders or members; or
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c. A combination of cash and shares or membership interests as set
forth in subdivisions 2 a and 2 b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is not
approved by a majority of "disinterested directors" as such terms are
defined in (S) 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair value of
his shares shall terminate upon the occurrence of any one of the following
events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
E. Notwithstanding any other provision of this article, no shareholder of a
corporation located in a county having a county manager form of government and
which is exempt from income taxation under (S) 501 (c) or (S) 528 of the
Internal Revenue Code and no part of whose income inures or may inure to the
benefit of any private shareholder or individual shall be entitled to dissent
and obtain payment for his shares under this article.
(S) 13.1-731. Dissent by nominees and beneficial owners.
A. A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares held on
his behalf only if:
1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
(S) 13.1-732. Notice of dissenters' rights.
A. If proposed corporate action creating dissenters' rights under (S) 13.1-730
is submitted to a vote at a shareholders' meeting, the meeting notice shall
state that shareholders are or may be entitled to assert dissenters' rights
under this article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under (S) 13.1-730 is taken
without a vote of shareholders, the corporation, during the ten-day period after
the effectuation of such corporate
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action, shall notify in writing all record shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in (S) 13.1-734.
(S) 13.1-733. Notice of intent to demand payment.
A. If proposed corporate action creating dissenters' rights under (S) 13.1-730
is submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (i) shall deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated and (ii) shall not vote such shares in favor of
the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of this
section is not entitled to payment for his shares under this article.
(S) 13.1-734. Dissenters' notice.
A. If proposed corporate action creating dissenters' rights under (S) 13.1-730
is authorized at a shareholders' meeting, the corporation, during the ten-day
period after the effectuation of such corporate action, shall deliver a
dissenters' notice in writing to all shareholders who satisfied the requirements
of (S) 13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares
before or after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
(S) 13.1-735. Duty to demand payment.
A. A shareholder sent a dissenters' notice described in (S) 13.1-734 shall
demand payment, certify that he acquired beneficial ownership of the shares
before or after the date required to be set forth in the dissenters' notice
pursuant to subdivision 3 of subsection B of (S) 13.1-734, and, in the case of
certificated shares, deposit his certificates in accordance with the terms of
the notice.
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B. The shareholder who deposits his shares pursuant to subsection A of this
section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
(S) 13.1-736. Share restrictions.
A. The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that these
rights are canceled or modified by the taking of the proposed corporate action.
(S) 13.1-737. Payment.
A. Except as provided in (S) 13.1-738, within thirty days after receipt of a
payment demand made pursuant to (S) 13.1-735, the corporation shall pay the
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The obligation of the corporation under this
paragraph may be enforced (i) by the circuit court in the city or county where
the corporation's principal office is located, or, if none in this Commonwealth,
where its registered office is located or (ii) at the election of any dissenter
residing or having its principal office in the Commonwealth, by the circuit
court in the city or county where the dissenter resides or has its principal
office. The court shall dispose of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under (S) 13.1-
739; and
4. A copy of this article.
(S) 13.1-738. After-acquired shares.
A. A corporation may elect to withhold payment required by (S) 13.1-737 from a
dissenter unless he was the beneficial owner of the shares on the date of the
first publication by news media or the
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first announcement to shareholders generally, whichever is earlier, of the terms
of the proposed corporate action, as set forth in the dissenters' notice.
B. To the extent the corporation elects to withhold payment under subsection A
of this section, after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall offer to pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer an explanation of how it
estimated the fair value of the shares and of how the interest was calculated,
and a statement of the dissenter's right to demand payment under (S) 13.1-739.
(S) 13.1-739. Procedure if shareholder dissatisfied with payment or offer.
A. A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate (less any payment under (S) 13.1-737), or reject the corporation's
offer under (S) 13.1-738 and demand payment of the fair value of his shares and
interest due, if the dissenter believes that the amount paid under (S) 13.1-737
or offered under (S) 13.1-738 is less than the fair value of his shares or that
the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section unless he
notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for his
shares.
(S) 13.1-740. Court action.
A. If a demand for payment under (S) 13.1-739 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the circuit court in the city or county described in
subsection B of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within the
sixty-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
B. The corporation shall commence the proceeding in the city or county where
its principal office is located, or, if none in this Commonwealth, where its
registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents of this
Commonwealth, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
D. The corporation may join as a party to the proceeding any shareholder who
claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this
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article. If the court determines that such shareholder has not complied with the
provisions of this article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment (i)
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation or (ii) for the fair
value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under (S) 13.1-738.
(S) 13.1-741. Court costs and counsel fees.
A. The court in an appraisal proceeding commenced under (S) 13.1-740 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters did not act in good faith in demanding payment under
(S) 13.1-739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of (S)(S) 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed did not act in good faith with respect to the rights provided
by this article.
C. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, the court may award
to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
D. In a proceeding commenced under subsection A of (S) 13.1-737 the court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
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ANNEX E
================================================================================
STOCKHOLDER VOTING AGREEMENT
AMONG
INSMED, INC.
CELTRIX PHARMACEUTICALS, INC.
AND
CERTAIN HOLDERS OF SHARES
OF
INSMED PHARMACEUTICALS, INC.
------------------------------
Dated as of December 15, 1999
------------------------------
================================================================================
<PAGE>
STOCKHOLDER VOTING AGREEMENT
----------------------------
THIS STOCKHOLDER VOTING AGREEMENT, dated as of December 15, 1999 (this
"Agreement"), by and among the persons or entities designated as Stockholders on
the signature page hereto (the "Stockholders" and each a "Stockholder"), Insmed,
Inc., a Virginia corporation ("Parent"), and Celtrix Pharmaceuticals, Inc., a
Delaware corporation ("Celtrix"), recites and provides as follows.
WHEREAS, the Stockholders collectively own or will own of record and
beneficially certain shares of common stock, $.01 par value per share (the
"Company Common Stock") of Insmed Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), certain shares of the Company's Series A Convertible
Participating Preferred Stock, $.01 par value per share (the "Insmed Series A
Preferred Stock"), and/or certain shares of the Company's Series B Convertible
Preferred Stock, $.01 par value per share (the "Insmed Series B Preferred", and
together with the Insmed Series A Preferred Stock, the "Company Preferred
Stock"), each Stockholder, respectively, owning of record and/or beneficially
the number of shares of Company Common Stock and Company Preferred Stock, if
any, set forth next to its name on Annex A attached hereto and incorporated by
-------
reference herein (such Stockholder's shares of Company Common Stock and Company
Preferred Stock, together with any other voting or equity securities of the
Company hereafter acquired by such Stockholder prior to the termination of this
Agreement, being referred to collectively as the "Shares"); and
WHEREAS, Parent, Celtrix Mergersub, Inc., a Delaware Corporation ("Merger
Subsidiary"), Celtrix, and the Company, have entered into an Agreement and Plan
of Reorganization, dated as of November 30, 1999 (as amended from time to time,
the "Reorganization Agreement"), which provides, among other things, that, upon
the terms and subject to the conditions therein, all outstanding shares of
Insmed capital stock will be exchanged for shares of Parent capital stock (the
"Exchange"); and
WHEREAS, pursuant to Section 7.20(b) of the Reorganization Agreement, the
Stockholders have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and subject to the terms and conditions set forth herein,
the parties hereto hereby agree as follows:
1. Representations and Warranties of the Stockholders.
Each Stockholder represents and warrants to Parent and Celtrix severally as
to itself and with respect to its Shares, as follows:
(a) Such Stockholder's Shares constitute all of the shares of Company
Common Stock and Company Preferred Stock, if any, beneficially owned, directly
or indirectly, by such Stockholder as of the date hereof, except as otherwise
noted on Annex A hereto. Such Stockholder's Shares are owned of record and
-------
beneficially by such Stockholder with good and valid title thereto, free and
clear of any and all mortgages, liens, encumbrances, charges, claims,
restrictions, pledges, security interests, or impositions (collectively,
"Liens").
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<PAGE>
(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance by such Stockholder of its obligations hereunder will
not, constitute a violation of, conflict with, result in a default (or an event
which, with notice or lapse of time or both, would result in a default) under,
or result in the creation of any Lien on any of such Stockholder's Shares under
(i) any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Stockholder is a party or by which such
Stockholder is bound, (ii) any judgment, writ, decree, order or ruling
applicable to such Stockholder, or (iii) the organizational documents of such
Stockholder, if applicable.
(c) Such Stockholder has full power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized
and no other actions on the part of such Stockholder are required in order to
consummate the transaction contemplated hereby. This Agreement has been duly and
validly executed and delivered by such Stockholder and, assuming due
authorization, execution and delivery by Parent and Celtrix, constitutes a valid
and binding agreement of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except to the extent that enforceability may be
limited by applicable law.
(d) Neither the execution and delivery of this Agreement nor the
performance by such Stockholder of its obligations hereunder will (i) violate
any order, writ, injunction or judgment applicable to such Stockholder or (ii)
violate any law, decree, statute, rule or regulation applicable to such
Stockholder or require any consent, authorization or approval of, filing with or
notice to, any court, administrative agency or other governmental body or
authority, other than any required notices or filings pursuant to the federal
securities laws.
2. Representations and Warranties of Parent.
Parent represents and warrants to the Stockholders as follows:
(a) Parent is (i) duly organized and validly existing and in good standing
under the laws of the Commonwealth of Virginia, (ii) has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and (iii) has taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement.
This Agreement has been duly and validly executed and delivered by Parent and
constitutes the legal, valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, organization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Parent does not, and
the performance by Parent of its obligations hereunder will not, constitute a
violation of, conflict with, or result in a default (or an event which, with
notice or lapse of time or both, would result in a default) under, its charter
or bylaws or any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Parent is a party or by which Parent is bound
or any judgment, writ, decree, order or ruling applicable to Parent.
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<PAGE>
(c) Neither the execution and delivery of this Agreement nor the
performance by Parent of its obligations hereunder will violate any order, writ,
injunction, judgment, law, decree, statute, rule or regulation applicable to
Parent or require any consent, authorization or approval of, filing with, or
notice to, any court, administrative agency or other governmental body or
authority, other than any required notices or filings pursuant to the federal
securities laws.
3. Representations and Warranties of Celtrix.
Celtrix represents and warrants to the Stockholders as follows:
(a) Celtrix is (i) duly organized and validly existing and in good
standing under the laws of the State of Delaware, (ii) has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, and (iii) has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Agreement. This Agreement has been duly and validly executed and
delivered by and constitutes the legal, valid and binding obligation of Celtrix,
enforceable against Celtrix in accordance with its terms, except to the extent
that enforceability may be limited by applicable bankruptcy, organization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Celtrix does not, and
the performance by Celtrix of its obligations hereunder will not, constitute a
violation of, conflict with, or result in a default (or an event which, with
notice or lapse of time or both, would result in a default) under, its charter
or bylaws or any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Celtrix is a party or by which Celtrix is bound
or any judgment, writ, decree, order or ruling applicable to Celtrix.
(c) Neither the execution and delivery of this Agreement nor the
performance by Celtrix of its obligations hereunder will violate any order,
writ, injunction, judgment, law, decree, statute, rule or regulation applicable
to Celtrix or require any consent, authorization or approval of, filing with, or
notice to, any court, administrative agency or other governmental body or
authority, other than any required notices or filings pursuant to the federal
securities laws.
4. Transfer of the Shares.
During the term of this Agreement, except as otherwise provided herein, no
Stockholder shall (a) offer to sell, sell, pledge or otherwise dispose of or
transfer any interest in or encumber with any Lien any of such Stockholder's
Shares, except for transfer or sale to any affiliate of such Stockholder who
agrees to be bound by this Agreement, (b) deposit such Stockholder's Shares into
a voting trust, enter into a voting agreement or arrangement with respect to
such Shares or grant any proxy or power of attorney with respect to such Shares,
or (c) enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect acquisition or sale, assignment or other
disposition of or transfer of any interest in or the voting of any shares of
Company Common Stock or Company Preferred Stock or any other securities of the
Company.
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<PAGE>
5. No Solicitation.
Each Stockholder agrees that it will immediately cease and cause to be
terminated any existing activities, discussion or negotiations, if any, with any
parties conducted heretofore with respect to any Takeover Proposal (as defined
below). In addition, each Stockholder will not, directly or indirectly: (i)
initiate, solicit or encourage, or take any action to facilitate the making of,
any offer of proposal which constitutes or is reasonably likely to lead to any
Takeover Proposal, (ii) enter into any agreement with respect to any Takeover
Proposal, or (iii) in the event of an unsolicited written Takeover Proposal for
the Company, engage in negotiations or discussions with, or provide any
information or data to, any person (other than Parent and Celtrix and any of
their affiliates or representatives and except for information which has been
previously publicly disseminated by the Company) relating to any Takeover
Proposal. As used in this Agreement, "Takeover Proposal" shall mean any tender
or exchange offer involving the Company, any proposal for a merger,
consolidation or other business combination involving the Company, any proposal
or offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the business or assets of, the Company, or any proposal
or offer with respect to any other transaction similar to any of the foregoing
with respect to the Company, other than pursuant to the Exchange.
6. Waiver of Appraisal Rights.
Each Stockholder hereby irrevocably waives any rights of appraisal or
rights to dissent from the Exchange that such Stockholder may have.
7. Voting of Shares; Irrevocable Proxy.
(a) During the term of this Agreement, each Stockholder in its capacity as
such hereby agrees to vote each of its Shares at any annual, special or
adjourned meeting of the stockholders of the Company (1) in favor of the
Exchange, the execution and delivery by the Company of the Reorganization
Agreement and the approval and adoption of the terms thereof and hereof; and (2)
except as otherwise agreed to in writing in advance by Parent and Celtrix,
against the following actions (other than the Exchange and the other
transactions contemplated by the Reorganization Agreement): (i) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or its subsidiaries; (ii) a sale,
lease or transfer of a material amount of assets of the Company or one of its
subsidiaries, or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries; or (iii) (A) any change in a majority of the
persons who constitute the Board of Directors of the Company as of the date
hereof; (B) any change in the present capitalization of the Company or any
amendment of the Company's articles of incorporation or bylaws, as amended to
date; (C) any other material change in the Company's corporate structure or
business; or (D) any Takeover Proposal or any action that is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or adversely
affect the Exchange and the other transactions contemplated by this Agreement
and the Reorganization Agreement.
(b) Each Stockholder hereby irrevocably constitutes and appoints Andreas
Sommer, Ph.D. and Donald D. Huffman, and each of them as its sole and exclusive
and true and lawful agent and attorney-in-fact, with full power of substitution,
to vote all Company Common Stock
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<PAGE>
and Company Preferred Stock that the holder is entitled to vote as indicated in
Section 7(a) above, to the same extent and with the same effect as the
Stockholder might or could do under any applicable laws or regulations governing
the rights and powers of stockholders of a Virginia corporation. This proxy
shall become effective as of the date hereof and shall expire upon termination
of this Agreement. This proxy is coupled with an interest and shall be
irrevocable and binding upon any and all transferees of the Company Common Stock
and Company Preferred Stock so long as it remains in effect pursuant to the
terms hereof. This proxy/power of attorney shall not terminate on disability of
the principal. Each Stockholder will take such further action as may be
necessary to effect the foregoing and hereby revokes any proxy previously
granted by such Stockholder with respect to such Stockholder's Company Common
Stock and Company Preferred Stock.
8. Enforcement of the Agreement.
Each Stockholder acknowledges that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Parent and Celtrix will be entitled (i) to an injunction
or injunctions to prevent breaches of this Agreement and (ii) to specifically
enforce the terms and provisions hereof in any court of the United States or any
state having jurisdiction, this being in addition to any other remedy to which
it is entitled at law or in equity.
9. Adjustments.
The number and type of securities subject to this Agreement will be
appropriately adjusted in the event of any stock dividends, stock splits,
recapitalizations, combinations, exchanges of shares or the like or any other
action that would have the effect of changing any Stockholder's ownership of the
Company's capital stock or other securities.
10. Termination.
This Agreement will terminate on the earlier of (a) the effective time of
the Exchange or (b) the date on which the Reorganization Agreement is terminated
in accordance with its terms. Upon termination of this Agreement, all
obligations of the parties hereto shall terminate except to the extent that any
such party has committed a material breach of this Agreement prior to such
termination.
11. Expenses.
All fees and expenses incurred by any of the parties hereto shall be borne
by the party incurring such fees and expenses.
12. Brokerage.
Except as disclosed in the Reorganization Agreement (including the exhibits
and schedules thereto), each party represents and warrants to the others that
there are no claims for finder's fees or brokerage commissions or other like
payments in connection with this Agreement or the transactions contemplated
hereby, and each party agrees to indemnify and hold
E-6
<PAGE>
harmless the other parties from and against any and all claims or liabilities
for finder's fees or brokerage commissions or other like payments incurred in
connection with the transactions contemplated hereby.
13. Miscellaneous.
(a) All representations and warranties contained herein expire upon the
termination of this Agreement pursuant to Section 10 hereof.
(b) Any provision of this Agreement may be waived at any time by the party
that is entitled to the benefits thereof. No such waiver, amendment or
supplement shall be effective unless in writing signed by the party or parties
sought to be bound thereby. Any waiver by any party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement or one or more sections hereof shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(c) This Agreement contains the entire agreement among Parent, Celtrix and
the Stockholders with respect to the subject matter hereof, and supersedes all
prior agreements among Parent, Celtrix and the Stockholders with respect to such
matters. This Agreement may not be amended, changed, supplemented, waived or
otherwise modified, except upon the delivery of a written agreement executed by
the parties hereto.
(d) The descriptive headings contained herein are for convenience and
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
(e) Any notice provided for in this Agreement will be in writing and will
be either personally delivered, sent by reliable overnight courier, telecopied
or mailed by first class mail, return receipt requested, to the recipient at the
address below indicated, or if to a Stockholder, the address listed below such
Stockholder's name on Annex A hereto.
-------
Notices to the Parent:
- ----------------------
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attention: Geoffrey Allan, Ph.D.
Telephone Number: (804) 828-6893
Telecopy Number: (804) 828-6894
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<PAGE>
With a copy (which will not constitute Notice
to the Parent) to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: T. Justin Moore, III, Esq.
Telephone Number: (804) 788-8464
Telecopy Number: (804) 788-8218
Notices to Celtrix:
- ------------------
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, California 95110
Attention: Andreas Sommer, Ph.D.
Telephone Number: (408) 988-2500
Telecopy Number: (408) 573-6228
With a copy (which will not constitute
Notice to Celtrix) to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Edmund S. Ruffin, Jr., Esq.
Telephone Number: (650) 854-4488
Telecopy Number: (650) 233-8386
or to such other address or to the attention of such other party as any party
may have furnished to the other parties in writing in accordance herewith.
(f) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one agreement.
(g) This Agreement is binding upon and is solely for the benefit of the
parties hereto and their respective successors, legal representatives and
assigns. Except as provided herein, neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned by any of
the parties hereto without the prior written consent of the other parties.
(h) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any such right, power or remedy, by
either party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
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<PAGE>
(j) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(k) All questions concerning the construction, validity and interpretation
of this Agreement will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to any choice of law provision
or rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto as caused this Agreement to
be duly executed as of the date first written above.
INSMED, INC.
By: /s/ Geoffrey Allan, Ph.D.
-------------------------------------
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
CELTRIX PHARMACEUTICALS, INC.
By: /s/ Andreas Sommer
-------------------------------------
Name:
Title:
STOCKHOLDERS:
Boston University Nominee Partnership
By: /s/ Kenneth G. Condon
-------------------------------------
Kenneth G. Condon
Ticonderoga Associates, III, L.L.C.,
general partner of Ticonderoga Partners,
III, LP
By: /s/ Graham K. Crooke
-------------------------------------
Graham K. Crooke
Partner
Intersouth Associates III, LP, general
partner of Intersouth Partners, III, LP
By: /s/ Dennis J. Dougherty
-------------------------------------
Dennis J. Dougherty
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<PAGE>
General Partner
KS Teknoinvest V
By: /s/ Bjorn Bjor
--------------------------------------
Bjorn Bjor
General Manager
BioAsia Investments, LLC, general
partner for Biotechnology Development
Fund, L.P. and Biotechnology Development
Fund III, L.P.
By: /s/ Edgar G. Engleman
-------------------------------------
Edgar G. Engleman
General Partner
Warburg Dillon Read, LLC, as Agent
By: /s/ Stephen Chappra
-------------------------------------
Stephen Chrappa
Associate Director
/s/ Dr. Geoffrey Allan
-------------------------------------
Dr. Geoffrey Allan
E-11
<PAGE>
ANNEX A
-------
<TABLE>
<CAPTION>
Common Stock Owned Series A Preferred Stock Series B Preferred Stock
------------------ ------------------------ ------------------------
Name and Address Beneficially and of Record Owned Beneficially and of Owned Beneficially and of
- ---------------- -------------------------- ------------------------- -------------------------
Record Record
------ -------
<S> <C> <C> <C>
Boston University Nominee 356,038 466,343 25,000
Partnership
c/o Office of the Treasurer
881 Commonwealth Ave
Boston, MA 02215
Ticonderonga Associates, III, 2,296,035 128,250
L.L.C. Suite 4360
555 California Street
San Francisco, CA 94101
Intersouth Associates III, LP 866,355 48,250
1000 Park Forty Plaza
Suite 290
Durham, NC 27713
KS Teknoinvest V 1,000,000
Grev Wedels, Plass, 5
P.O. Box 556 Sentrum
Oslo, Norway 0105
BioAsia Investments, LLC 917,500
575 High Street
Suite 201
Palo Alto, CA 94301
Warburg Dillon Read, LLC, 386,143 17,411
As Agent
299 Park Avenue, 37th Floor
New York, NY 10171
Dr. Geoffrey Allan 285,384
800 E. Leigh Street
Richmond, Virginia 23219
</TABLE>
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<PAGE>
ANNEX G
================================================================================
STOCKHOLDER VOTING AGREEMENT
AMONG
INSMED, INC.
CELTRIX MERGERSUB, INC.
AND
CERTAIN HOLDERS OF SHARES
OF
CELTRIX PHARMACEUTICALS, INC.
_________________________________
Dated as of December 15, 1999
_________________________________
================================================================================
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<PAGE>
STOCKHOLDER VOTING AGREEMENT
----------------------------
THIS STOCKHOLDER VOTING AGREEMENT, dated as of December 15, 1999 (this
"Agreement"), by and among the persons or entities designated as Stockholders on
the signature page hereto (the "Stockholders" and each a "Stockholder"), Insmed,
Inc., a Virginia corporation ("Parent"), and Celtrix Mergersub, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent ("Merger Subsidiary"), recites
and provides as follows.
WHEREAS, the Stockholders collectively own or will own of record and
beneficially certain shares of common stock, $.01 par value per share (the
"Company Common Stock") of Celtrix Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), certain shares of the Company's Series A Preferred Stock, $.01
par value per share (the "Celtrix Series A Preferred Stock") and/or certain
shares of the Company's Series B Preferred Stock, $.01 par value per share (the
"Celtrix Series B Preferred Stock," and together with the Celtrix Series A
Preferred Stock, the "Company Preferred Stock"), each Stockholder,
respectively, owning of record and/or beneficially the number of shares of
Company Common Stock and Company Preferred Stock, if any, set forth next to its
name on Annex A attached hereto and incorporated by reference herein (such
-------
Stockholder's shares of Company Common Stock and Company Preferred Stock,
together with any other voting or equity securities of the Company hereafter
acquired by such Stockholder prior to the termination of this Agreement, being
referred to collectively as the "Shares");
WHEREAS, Parent, Merger Subsidiary, Insmed Pharmaceuticals, Inc., a
Virginia corporation ("Insmed") and the Company, have entered into an Agreement
and Plan of Reorganization, dated as of November 30, 1999 (as amended from time
to time, the "Reorganization Agreement"), which provides, among other things,
that, upon the terms and subject to the conditions therein, Merger Subsidiary
shall merge with and into the Company, whereupon the separate existence of
Merger Subsidiary shall cease, and the Company shall be the surviving
corporation and shall become a wholly-owned subsidiary of Parent (the "Merger");
and
WHEREAS, as a condition to the willingness of Parent, Insmed and Merger
Subsidiary to enter into the Reorganization Agreement, Parent, Insmed and Merger
Subsidiary have requested that the Stockholders agree, and in order to induce
Parent, Insmed and Merger Subsidiary to enter into the Reorganization Agreement,
the Stockholders have agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and subject to the terms and conditions set forth herein,
the parties hereto hereby agree as follows:
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<PAGE>
1. Representations and Warranties of the Stockholders.
Each Stockholder represents and warrants to Parent, Insmed and Merger
Subsidiary, severally as to itself and with respect to its Shares, as follows:
(a) Such Stockholder's Shares constitute all of the shares of Company
Common Stock and Company Preferred Stock, if any, beneficially owned, directly
or indirectly, by such Stockholder as of the date hereof, except as otherwise
noted on Annex A hereto. Such Stockholder's Shares are owned of record and
-------
beneficially by such Stockholder with good and valid title thereto, free and
clear of any and all mortgages, liens, encumbrances, charges, claims,
restrictions, pledges, security interests, or impositions (collectively,
"Liens").
(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance by such Stockholder of its obligations hereunder will
not, constitute a violation of, conflict with, result in a default (or an event
which, with notice or lapse of time or both, would result in a default) under,
or result in the creation of any Lien on any of such Stockholder's Shares under
(i) any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Stockholder is a party or by which such
Stockholder is bound, (ii) any judgment, writ, decree, order or ruling
applicable to such Stockholder, or (iii) the organizational documents of such
Stockholder, if applicable.
(c) Such Stockholder has full power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized
and no other actions on the part of such Stockholder are required in order to
consummate the transaction contemplated hereby. This Agreement has been duly
and validly executed and delivered by such Stockholder and, assuming due
authorization, execution and delivery by Parent and Merger Subsidiary,
constitutes a valid and binding agreement of such Stockholder, enforceable
against such Stockholder in accordance with its terms, except to the extent that
enforceability may be limited by applicable law.
(d) Neither the execution and delivery of this Agreement nor the
performance by such Stockholder of its obligations hereunder will (i) violate
any order, writ, injunction or judgment applicable to such Stockholder or (ii)
violate any law, decree, statute, rule or regulation applicable to such
Stockholder or require any consent, authorization or approval of, filing with or
notice to, any court, administrative agency or other governmental body or
authority, other than any required notices or filings pursuant to the federal
securities laws.
2. Representations and Warranties of Parent.
Parent represents and warrants to the Stockholders as follows:
(a) Parent is (i) duly organized and validly existing and in good standing
under the laws of the Commonwealth of Virginia, (ii) has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and (iii) has taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement.
This Agreement has been duly and validly executed and
G-3
<PAGE>
delivered by Parent and constitutes the legal, valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy,
organization, insolvency, moratorium or other laws affecting the enforcement of
creditors' rights generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Parent does not, and
the performance by Parent of its obligations hereunder will not, constitute a
violation of, conflict with, or result in a default (or an event which, with
notice or lapse of time or both, would result in a default) under, its charter
or bylaws or any contract, commitment, agreement, understanding, arrangement or
restriction of any kind to which Parent is a party or by which Parent is bound
or any judgment, writ, decree, order or ruling applicable to Parent.
(c) Neither the execution and delivery of this Agreement nor the
performance by Parent of its obligations hereunder will violate any order, writ,
injunction, judgment, law, decree, statute, rule or regulation applicable to
Parent or require any consent, authorization or approval of, filing with, or
notice to, any court, administrative agency or other governmental body or
authority, other than any required notices or filings pursuant to the federal
securities laws.
3. Representations and Warranties of Merger Subsidiary.
Merger Subsidiary represents and warrants to the Stockholders as follows:
(a) Merger Subsidiary is (i) duly organized and validly existing and in
good standing under the laws of the State of Delaware, (ii) has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, and (iii) has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Agreement. This Agreement has been duly and validly executed and
delivered by Merger Subsidiary and constitutes the legal, valid and binding
obligation of Merger Subsidiary, enforceable against Merger Subsidiary in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, organization, insolvency, moratorium or other
laws affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
(b) The execution and delivery of this Agreement by Merger Subsidiary does
not, and the performance by Merger Subsidiary of its obligations hereunder will
not, constitute a violation of, conflict with, or result in a default (or an
event which, with notice or lapse of time or both, would result in a default)
under, its charter or bylaws or any contract, commitment, agreement,
understanding, arrangement or restriction of any kind to which Merger Subsidiary
is a party or by which Merger Subsidiary is bound or any judgment, writ, decree,
order or ruling applicable to Merger Subsidiary.
(c) Neither the execution and delivery of this Agreement nor the
performance by Merger Subsidiary of its obligations hereunder will violate any
order, writ, injunction, judgment, law, decree, statute, rule or regulation
applicable to Merger Subsidiary or require any consent, authorization or
approval of, filing with, or notice to, any court, administrative agency or
other
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<PAGE>
governmental body or authority, other than any required notices or filings
pursuant to the federal securities laws.
4. Transfer of the Shares.
During the term of this Agreement, except as otherwise provided herein, no
Stockholder shall (a) offer to sell, sell, pledge or otherwise dispose of or
transfer any interest in or encumber with any Lien any of such Stockholder's
Shares, except for transfer or sale to any affiliate of such Stockholder who
agrees to be bound by this Agreement, (b) deposit such Stockholder's Shares into
a voting trust, enter into a voting agreement or arrangement with respect to
such Shares or grant any proxy or power of attorney with respect to such Shares,
or (c) enter into any contract, option or other arrangement or undertaking with
respect to the direct or indirect acquisition or sale, assignment or other
disposition of or transfer of any interest in or the voting of any shares of
Company Common Stock or Company Preferred Stock or any other securities of the
Company.
5. No Solicitation.
Each Stockholder agrees that it will immediately cease and cause to be
terminated any existing activities, discussion or negotiations, if any, with any
parties conducted heretofore with respect to any Takeover Proposal (as defined
below). In addition, each Stockholder will not, directly or indirectly: (i)
initiate, solicit or encourage, or take any action to facilitate the making of,
any offer of proposal which constitutes or is reasonably likely to lead to any
Takeover Proposal, (ii) enter into any agreement with respect to any Takeover
Proposal, or (iii) in the event of an unsolicited written Takeover Proposal for
the Company, engage in negotiations or discussions with, or provide any
information or data to, any person (other than Parent, Insmed and Merger
Subsidiary and any of their affiliates or representatives and except for
information which has been previously publicly disseminated by the Company)
relating to any Takeover Proposal. As used in this Agreement, "Takeover
Proposal" shall mean any tender or exchange offer involving the Company, any
proposal for a merger, consolidation or other business combination involving the
Company, any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the business or assets of, the Company,
or any proposal or offer with respect to any other transaction similar to any of
the foregoing with respect to the Company, other than pursuant to the Merger.
6. Waiver of Appraisal Rights.
Each Stockholder hereby irrevocably waives any rights of appraisal or
rights to dissent from the Merger that such Stockholder may have.
7. Voting of Shares; Irrevocable Proxy.
(a) During the term of this Agreement, each Stockholder in its capacity as
such hereby agrees to vote each of its Shares at any annual, special or
adjourned meeting of the stockholders of the Company (1) in favor of the Merger,
the execution and delivery by the Company of the Reorganization Agreement and
the approval and adoption of the terms thereof and hereof; and (2) except as
otherwise agreed to in writing in advance by Parent, against the
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<PAGE>
following actions (other than the Merger and the other transactions contemplated
by the Reorganization Agreement): (i) any extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving the
Company or its subsidiaries; (ii) a sale, lease or transfer of a material amount
of assets of the Company or one of its subsidiaries, or a reorganization,
recapitalization, dissolution or liquidation of the Company or its subsidiaries;
or (iii) (A) any change in a majority of the persons who constitute the Board of
Directors of the Company as of the date hereof; (B) any change in the present
capitalization of the Company or any amendment of the Company's certificate of
incorporation or bylaws, as amended to date; (C) any other material change in
the Company's corporate structure or business; or (D) any Takeover Proposal or
any action that is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, or adversely affect the Merger and the other
transactions contemplated by this Agreement and the Reorganization Agreement.
(b) Each Stockholder hereby irrevocably constitutes and appoints Geoffrey
Allan, Ph.D. and Michael D. Baer, and each of them as its sole and exclusive and
true and lawful agent and attorney-in-fact, with full power of substitution, to
vote all Company Common Stock and Company Preferred Stock that the holder is
entitled to vote as indicated in Section 7(a) above, to the same extent and with
the same effect as the Stockholder might or could do under any applicable laws
or regulations governing the rights and powers of stockholders of a Delaware
corporation. This proxy shall become effective as of the date hereof and shall
expire upon termination of this Agreement. This proxy is coupled with an
interest and shall be irrevocable and binding upon any and all transferees of
the Company Common Stock and Company Preferred Stock so long as it remains in
effect pursuant to the terms hereof. This proxy/power of attorney shall not
terminate on disability of the principal. Each Stockholder will take such
further action as may be necessary to effect the foregoing and hereby revokes
any proxy previously granted by such Stockholder with respect to such
Stockholder's Company Common Stock and Company Preferred Stock.
8. Enforcement of the Agreement.
Each Stockholder acknowledges that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Parent and Merger Subsidiary will be entitled (i) to an
injunction or injunctions to prevent breaches of this Agreement and (ii) to
specifically enforce the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which it is entitled at law or in equity.
9. Adjustments.
The number and type of securities subject to this Agreement will be
appropriately adjusted in the event of any stock dividends, stock splits,
recapitalizations, combinations, exchanges of shares or the like or any other
action that would have the effect of changing any Stockholder's ownership of the
Company's capital stock or other securities.
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<PAGE>
10. Termination.
This Agreement will terminate on the earlier of (a) the effective time of
the Merger or (b) the date on which the Reorganization Agreement is terminated
in accordance with its terms. Upon termination of this Agreement, all
obligations of the parties hereto shall terminate except to the extent that any
such party has committed a material breach of this Agreement prior to such
termination.
11. Expenses.
All fees and expenses incurred by any of the parties hereto shall be borne
by the party incurring such fees and expenses.
12. Brokerage.
Except as disclosed in the Reorganization Agreement (including the exhibits
and schedules thereto), each party represents and warrants to the others that
there are no claims for finder's fees or brokerage commissions or other like
payments in connection with this Agreement or the transactions contemplated
hereby, and each party agrees to indemnify and hold harmless the other parties
from and against any and all claims or liabilities for finder's fees or
brokerage commissions or other like payments incurred in connection with the
transactions contemplated hereby.
13. Miscellaneous.
(a) All representations and warranties contained herein expire upon the
termination of this Agreement pursuant to Section 10 hereof.
(b) Any provision of this Agreement may be waived at any time by the party
that is entitled to the benefits thereof. No such waiver, amendment or
supplement shall be effective unless in writing signed by the party or parties
sought to be bound thereby. Any waiver by any party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement or one or more sections hereof shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(c) This Agreement contains the entire agreement among Parent, Merger
Subsidiary and the Stockholders with respect to the subject matter hereof, and
supersedes all prior agreements among Parent, Merger Subsidiary and the
Stockholders with respect to such matters. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified, except upon the delivery of
a written agreement executed by the parties hereto.
(d) The descriptive headings contained herein are for convenience and
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
(e) Any notice provided for in this Agreement will be in writing and will
be either personally delivered, sent by reliable overnight courier, telecopied
or mailed by first class mail,
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<PAGE>
return receipt requested, to the recipient at the address below indicated, or if
to a Stockholder, the address listed below such Stockholder's name on Annex A
-------
hereto.
Notices to the Parent or Merger Subsidiary:
- -------------------------------------------
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Attention: Geoffrey Allan, Ph.D.
Telephone Number: (804) 828-6893
Telecopy Number: (804) 828-6894
With a copy (which will not constitute Notice
to the Parent or Merger Subsidiary) to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Attention: T. Justin Moore, III, Esq.
Telephone Number: (804) 788-8464
Telecopy Number: (804) 788-8218
or to such other address or to the attention of such other party as any party
may have furnished to the other parties in writing in accordance herewith.
(f) This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one agreement.
(g) This Agreement is binding upon and is solely for the benefit of the
parties hereto and their respective successors, legal representatives and
assigns. Except as provided herein, neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned by any of
the parties hereto without the prior written consent of the other parties,
except that Merger Subsidiary shall have the right to assign to Parent or any
other direct or indirect wholly-owned Subsidiary of Parent any and all rights
and obligations of Merger Subsidiary under this Agreement, provided that any
such assignment shall not relieve Merger Subsidiary from any of its obligations
hereunder.
(h) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any such right, power or remedy, by
either party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal, or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision
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<PAGE>
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
(k) All questions concerning the construction, validity and interpretation
of this Agreement will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to any choice of law provision
or rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto as caused this Agreement to
be duly executed as of the date first written above.
INSMED, INC.
By: /s/ Geoffrey Allan, Ph.D.
-------------------------------------------
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
CELTRIX MERGERSUB, INC.
By: /s/ Geoffrey Allan, Ph.D.
-------------------------------------------
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
STOCKHOLDERS:
Warburg Pincus Investors, LP
By: Its General Partner, Warburg Pincus and Co.
By: /s/ James E. Thomas
-------------------------------------------
Name: James E. Thomas
Vernon International Limited
By: /s/ Joseph W.K. Leung
-------------------------------------------
Name: Joseph W. K. Leung, Director
Biotechnology Development Fund, L.P.
By: /s/ Frank Kung, Ph.D.
-------------------------------------------
Name: Frank Kung, Ph.D.
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<PAGE>
Biotechnology Development Fund, III
By: /s/ Frank Kung, Ph.D.
-------------------------------------------
Name: Frank Kung, Ph.D.
Genzyme Corporation
By: /s/ Peter Wirth
-------------------------------------------
Name: Peter Wirth
Title: Executive Vice President
Elan Pharmaceuticals Investments, Ltd.
By: /s/ Kevin Insley
-------------------------------------------
Name: Kevin Insley
By: /s/ Andreas Sommer, Ph.D.
-------------------------------------------
Name: Andreas Sommer
By: /s/ Henry E. Blair
-------------------------------------------
Name: Henry E. Blair
By: /s/ Malcolm J. McKay, Ph.D.
-------------------------------------------
Name: Malcolm J. McKay, Ph.D.
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<PAGE>
ANNEX A
<TABLE>
<CAPTION>
Number of Shares of Company Common Number of Shares of Company Preferred
Stockholder Name and Address Stock Owned Beneficially and of Record Stock Owned Beneficially and of Record
--------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Warburg Pincus Investors, L.P. 3,181,732
Attention: James E. Thomas
466 Lexington Avenue
10th Floor
New York, NY 10017
Veron International Limited 1,555,258
Chinachem Golden Plaza
77 Mody Road
Tsiu Sha Tsui East
Kowloon Hong Kong
Biotechnology Development Fund, L.P. 1,730,516
575 High Street, Suite 201
Palo Alto, CA 94301
1,000,000
Biotechnology Development Fund, III
575 High Street, Suite 201
Palo Alto, CA 94301
Genzyme Corporation 3,023,217
One Kendall Square
Cambridge, MA 02139
Elan Pharmaceuticals Investments, Ltd. 1,508,751 8,010
102 St. James Court
Flatts, Smith Parish
Bermuda, FL 04
Andreas Sommer, Ph.D. 21,461
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
Henry E. Blair 5,000
2580 Main Street
Box 648
Barnstoble, MA 02630
Malcolm J. McKay, Ph.D. 1,817
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
</TABLE>
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<PAGE>
ANNEX H
ARTICLES OF INCORPORATION
of
INSMED, INC.
ARTICLE I
The name of the Corporation shall be Insmed, Inc.
ARTICLE II
The purpose for which the Corporation is formed is to transact any or all
lawful business, not required to be specifically stated in these Articles of
Incorporation, for which corporations may be incorporated under the Virginia
Stock Corporation Act, as amended from time to time, and any legislation
succeeding thereto (the "VSCA").
ARTICLE III
The aggregate number of shares that the Corporation shall have authority to
issue shall be 200,000,000 shares of Preferred Stock, par value $.01 per share
(hereinafter called "Preferred Stock"), and 500,000,000 shares of Common Stock,
par value $.01 per share (hereinafter called "Common Stock"). The following is a
description of each of such classes of stock, and a statement of the
preferences, limitations, voting rights and relative rights in respect of the
shares of each such class:
1. Authority to Fix Rights of Preferred Stock. The Board of Directors
------------------------------------------
shall have authority, by resolution or resolutions, at any time and from time to
time to divide and establish any or all of the unissued shares of Preferred
Stock not then allocated to any series of Preferred Stock into one or more
series, and, without limiting the generality of the foregoing, to fix and
determine the designation of each such series, the number of shares that shall
constitute such series and the following relative rights and preferences of the
shares of each series so established:
(a) The annual or other periodic dividend rate payable on shares of
such series, the time of payment thereof, whether such dividends shall be
cumulative or non-cumulative, and the date or dates from which any
cumulative dividends shall commence to accrue;
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(b) the price or prices at which and the terms and conditions, if
any, on which shares of such series may be redeemed;
(c) the amounts payable upon shares of such series in the event of
the voluntary or involuntary dissolution, liquidation or winding-up of the
affairs of the Corporation;
(d) the sinking fund provisions, if any, for the redemption or
purchase of shares of such series;
(e) the extent of the voting powers, if any, of the shares of such
series;
(f) the terms and conditions, if any, on which shares of such series
may be converted into shares of stock of the Corporation of any other class
or classes or into shares of any other series of the same or any other
class or classes;
(g) whether, and if so the extent to which, shares of such series may
participate with the Common Stock in any dividends in excess of the
preferential dividend fixed for shares of such series or in any
distribution of the assets of the Corporation, upon a liquidation,
dissolution or winding-up thereof, in excess of the preferential amount
fixed for shares of such series; and
(h) any other preferences and relative, optional or other special
rights, and qualifications, limitations or restrictions of such preferences
or rights, of shares of such series not fixed and determined by law or in
this Article III.
2. Distinctive Designations of Series. Each series of Preferred Stock
----------------------------------
shall be so designated as to distinguish the shares thereof from the shares of
all other series. Different series of Preferred Stock shall not be considered to
constitute different voting groups of shares for the purpose of voting by voting
groups except as required by the VSCA or as otherwise specified by the Board of
Directors with respect to any series at the time of the creation thereof.
3. Restrictions on Certain Distributions. So long as any shares of
-------------------------------------
Preferred Stock are outstanding, the Corporation shall not declare and pay or
set apart for payment any dividends (other than dividends payable in Common
Stock or other stock of the Corporation ranking junior to the Preferred Stock as
to dividends) or make any other distribution on such junior stock if, at the
time of making such declaration, payment or distribution, the Corporation shall
be in default
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<PAGE>
with respect to any dividend payable on, or any obligation to redeem, any shares
of Preferred Stock.
4. Redeemed or Reacquired Shares. Shares of any series of Preferred
-----------------------------
Stock that have been redeemed or otherwise reacquired by the Corporation
(whether through the operation of a sinking fund, upon conversion or otherwise)
shall have the status of authorized and unissued shares of Preferred Stock and
may be redesignated and reissued as a part of such series (unless prohibited by
the articles of amendment creating such series) or of any other series of
Preferred Stock. Shares of Common Stock that have been reacquired by the
Corporation shall have the status of authorized and unissued shares of Common
Stock and may be reissued.
5. Voting Rights. Subject to the provisions of the VSCA or of the Bylaws
-------------
of the Corporation as from time to time in effect with respect to the closing of
the transfer books or the fixing of a record date for the determination of
shareholders entitled to vote, and except as otherwise provided by the VSCA or
in resolutions of the Board of Directors establishing any series of Preferred
Stock pursuant to the provisions of paragraph 1 of this Article III, the holders
of outstanding shares of Common Stock of the Corporation shall exclusively
possess voting power for the election of directors and for all other purposes,
with each holder of record of shares of Common Stock of the Corporation being
entitled to one vote for each share of such stock standing in his name on the
books of the Corporation.
6. No Preemptive Rights. No holder of shares of stock of any class of
--------------------
the Corporation shall, as such holder, have any right to subscribe for or
purchase (a) any shares of stock of any class of the Corporation, or any
warrants, options or other instruments that shall confer upon the holder thereof
the right to subscribe for or purchase or receive from the Corporation any
shares of stock of any class, whether or not such shares of stock, warrants,
options or other instruments are issued for cash or services or property or by
way of dividend or otherwise, or (b) any other security of the Corporation that
shall be convertible into, or exchangeable for, any shares of stock of the
Corporation of any class or classes, or to which shall be attached or
appurtenant any warrant, option or other instrument that shall confer upon the
holder of such security the right to subscribe for or purchase or receive from
the Corporation any shares of its stock of any class or classes, whether or not
such securities are issued for cash or services or property or by way of
dividend or otherwise, other than such right, if any, as the Board of Directors,
in its sole discretion, may from time to time determine. If the Board of
Directors shall offer to the holders of shares of stock of any class of the
Corporation, or any of them, any such shares of stock, options, warrants,
instruments or other securities of the Corporation, such offer shall not, in any
way, constitute a waiver or release of the right of the Board of Directors
subsequently to dispose of other securities of the Corporation without offering
the same to said holders.
7. Control Share Acquisition Statute. The provisions of Article 14.1 of
---------------------------------
the VSCA shall not apply to acquisitions of shares of any class of capital stock
of the Corporation.
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<PAGE>
ARTICLE IV
1. The number of directors shall be as specified in the By-laws of the
Corporation but such number may be increased or decreased from time to time in
such manner as may be prescribed in the By-laws, provided that in no event shall
the number of directors exceed twelve. In the absence of a By-law specifying the
number of directors, the number shall be seven. Commencing with the 2000 annual
meeting of shareholders (or by unanimous written consent in lieu thereof), the
Board of Directors shall be divided into three classes, Class I, Class II, and
Class III, as nearly equal in number as possible. The initial term of each class
of directors shall expire at the annual meeting of shareholders to be held in
the following years: Class I - 2001; Class II -2002; and Class III - 2003. At
each annual meeting of shareholders after the 2000 annual meeting of
shareholders, the successors to the class of directors whose term shall then
expire shall be identified as being of the same class of directors they succeed
and shall be elected to hold office for a term expiring at the third succeeding
annual meeting of shareholders. When the number of directors is changed, any
newly-created directorships or any decrease in directorships shall be so
apportioned among the classes by the Board of Directors as to make all classes
as nearly equal in number as possible; provided, however, that no decrease in
the number of directors shall shorten or terminate the term of any incumbent
director.
2. Subject to the rights of the holders of any Preferred Stock then
outstanding, directors may be removed only with cause and only by the
affirmative vote of at least 75 percent of the voting power of the then
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors ("Voting Stock"), voting together as a
single voting group.
3. Subject to the rights of the holders of any Preferred Stock then
outstanding and to any limitations set forth in the VSCA, newly-created
directorships resulting from any increase in the number of directors and any
vacancies in the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely (i) by the Board
of Directors or (ii) at an annual meeting of shareholders by the shareholders
entitled to vote on the election of directors. If the directors remaining in
office constitute fewer than a quorum of the Board, they may fill the vacancy by
the affirmative vote of a majority of the directors remaining in office.
4. Notwithstanding any other provision of the Articles of Incorporation
or any provision of law that might otherwise permit a lesser vote, but in
addition to any affirmative vote of the holders of any particular voting group
required by the VSCA, the Articles of Incorporation or the terms of any
Preferred Stock outstanding, the affirmative vote of at least 75 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
voting group shall be required to alter, amend, repeal or adopt any provision
inconsistent with any provision of this Article IV.
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<PAGE>
ARTICLE V
Except as expressly otherwise required in the Articles of Incorporation, an
amendment or restatement of the Articles of Incorporation requiring shareholder
approval shall be approved by a majority of the votes entitled to be cast by
each voting group that is entitled to vote on the matter, unless in submitting
any such amendment or restatement to the shareholders the Board of Directors
shall require a greater vote.
ARTICLE VI
1. Every person who is or was a director, officer or employee of the
Corporation, or who, at the request of the Corporation, serves or has served in
any such capacity with another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise shall be indemnified by the
Corporation against any and all liability and reasonable expense that may be
incurred by him in connection with or resulting from any claim, action or
proceeding (whether brought in the right of the Corporation or any such other
corporation, entity, plan or otherwise), in which he may become involved, as a
party or otherwise, by reason of his being or having been a director, officer or
employee of the Corporation, or such other corporation, entity or plan while
serving at the request of the Corporation, whether or not he continues to be
such at the time such liability or expense is incurred, unless such person
engaged in willful misconduct or a knowing violation of the criminal law.
As used in this Article VI: (a) the terms "liability" and "expense" shall
include, but shall not be limited to, counsel fees and disbursements and amounts
of judgments, fines or penalties against, and amounts paid in settlement by, a
director, officer or employee; (b) the terms "director," "officer" and
employee," unless the context otherwise requires, include the estate or personal
representative of any such person; (c) a person is considered to be serving an
employee benefit plan as a director, officer or employee of the plan at the
Corporation's request if his duties to the Corporation also impose duties on, or
otherwise involve services by, him to the plan or, in connection with the plan,
to participants in or beneficiaries of the plan; (d) the term "occurrence" means
any act or failure to act, actual or alleged, giving rise to a claim, action or
proceeding; and (e) service as a trustee or as a member of a management or
similar committee of a partnership, joint venture or limited liability company
shall be considered service as a director, officer or employee of the trust,
partnership, joint venture or limited liability company.
The termination of any claim, action or proceeding, civil or criminal, by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that a director, officer or employee
did not meet the standards of conduct set forth in this paragraph 1. The burden
of proof shall be on the Corporation to establish, by a preponderance of the
evidence, that the relevant standards of conduct set forth in this paragraph 1
have not been met.
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<PAGE>
2. Any indemnification under paragraph 1 of this Article VI shall be made
unless (a) the Board, acting by a majority vote of those directors who were
directors at the time of the occurrence giving rise to the claim, action or
proceeding involved and who are not at the time parties to such claim, action or
proceeding (provided there are at least five such directors), finds that the
director, officer or employee has not met the relevant standards of conduct set
forth in such paragraph 1, or (b) if there are not at least five such directors,
the Corporation's principal Virginia legal counsel, as last designated by the
Board as such prior to the time of the occurrence giving rise to the claim,
action or proceeding involved, or in the event for any reason such Virginia
counsel is unwilling to so serve, then Virginia legal counsel mutually
acceptable to the Corporation and the person seeking indemnification, deliver to
the Corporation their written advice that, in their opinion, such standards have
not been met.
3. Expenses incurred with respect to any claim, action or proceeding of
the character described in paragraph 1 shall, except as otherwise set forth in
this paragraph 3, be advanced by the Corporation prior to the final disposition
thereof upon receipt of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to
indemnification under this Article VI. No security shall be required for such
undertaking and such undertaking shall be accepted without reference to the
recipient's final ability to make repayment. Notwithstanding the foregoing, the
Corporation may refrain from, or suspend, payment of expenses in advance if at
any time before delivery of the final finding described in paragraph 2, the
Board or Virginia legal counsel, as the case may be, acting in accordance with
the procedures set forth in paragraph 2, find by a preponderance of the evidence
then available that the officer, director or employee has not met the relevant
standards of conduct set forth in paragraph 1.
4. No amendment or repeal of this Article VI shall adversely affect or
deny to any director, officer or employee the rights of indemnification provided
in this Article VI with respect to any liability or expense arising out of a
claim, action or proceeding based in whole or substantial part on an occurrence
the inception of which takes place before or while this Article VI, as set forth
in these Articles of Incorporation, is in effect. The provisions of this
paragraph 4 shall apply to any such claim, action or proceeding whenever
commenced, including any such claim, action or proceeding commenced after any
amendment or repeal to this Article VI.
5. The rights of indemnification provided in this Article VI shall be in
addition to any rights to which any such director, officer or employee may
otherwise be entitled by contract or as a matter of law.
6. In any proceeding brought by or in the right of the Corporation or
brought by or on behalf of shareholders of the Corporation, no director or
officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction, occurrence or
course of conduct, whether prior or subsequent to the effective date of
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<PAGE>
this Article VI, except for liability resulting from such person's having
engaged in willful misconduct or a knowing violation of the criminal law or any
federal or state securities law.
ARTICLE VII
In furtherance of, and not in limitation of, the powers conferred by the
VSCA, the Board of Directors is expressly authorized and empowered to adopt,
amend or repeal the Bylaws of the Corporation; provided, however, that the
Bylaws adopted by the Board of Directors under the powers hereby conferred may
be altered, amended or repealed by the Board of Directors or by the shareholders
having voting power with respect thereto, provided further that, in the case of
any such action by shareholders, the affirmative vote of the holders of at least
75 percent of the voting power of the then outstanding Voting Stock, voting
together as a single voting group, shall be required in order for the
shareholders to alter, amend or repeal any provision of the Bylaws or to adopt
any additional Bylaw. Notwithstanding any other provision of the Articles of
Incorporation or any provision of law that might otherwise permit a lesser vote,
but in addition to any affirmative vote of the holders of any particular voting
group required by the VSCA, the Articles of Incorporation or the terms of any
Preferred Stock outstanding, the affirmative vote of at least 75 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
voting group, shall be required to alter, amend, repeal or adopt any provision
inconsistent with any of the provisions of this Article VII.
ARTICLE VIII
The initial registered office shall be located at 951 E. Byrd Street,
Riverfront Plaza, East Tower, in the City of Richmond, Virginia, and the initial
registered agent shall be T. Justin Moore, III, who is a resident of Virginia
and a member of the Virginia State Bar, and whose business address is the same
as the address of the initial registered office.
/s/ T. Justin Moore, III
----------------------------------
T. Justin Moore, III
Incorporator
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<PAGE>
ANNEX I
AMENDED AND RESTATED BYLAWS
of
INSMED, INC.
(Effective as of February 4, 2000)
__________________________________
ARTICLE I.
MEETINGS OF SHAREHOLDERS.
SECTION 1. Place of Meetings. All meetings of the shareholders of Insmed,
------------------
Inc. (hereinafter called the "Corporation") shall be held at such place, either
within or without the Commonwealth of Virginia, as may from time to time be
fixed by the Board of Directors of the Corporation (hereinafter called the
"Board").
SECTION 2. Annual Meetings. The annual meeting of the shareholders of the
----------------
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on the second
Monday in May in each year (or, if that day shall be a legal holiday, then on
the next succeeding business day), or on such other day and/or in such other
month as may be fixed by the Board, at such hour as may be specified in the
notice thereof.
SECTION 3. Special Meetings. A special meeting of the shareholders for any
-----------------
purpose or purposes, unless otherwise provided by law or in the Articles of
Incorporation of the Corporation as from time to time amended (hereinafter
called the "Articles"), may be held at any time upon the call of the Board, the
Chairman of the Board or the President. No other person shall be authorized or
entitled to call a special meeting of the shareholders.
SECTION 4. Notice of Meetings. Except as otherwise provided by law or the
-------------------
Articles, not less than ten nor more than sixty days' notice in writing of the
place, day, hour and purpose or purposes of each meeting of the shareholders,
whether annual or special, shall be given to each shareholder of record of the
Corporation entitled to vote at such meeting, either by the delivery thereof to
such shareholder personally or by the mailing thereof to such shareholder in a
postage prepaid envelope addressed to such shareholder at his address as it
appears on the stock transfer books of the Corporation. Notice of any meeting of
shareholders shall not be required to be given to any shareholder who shall
attend the meeting in person or by proxy, unless attendance is for the express
purpose of objecting to the transaction of any business because the meeting was
not !awfully called or convened, or who shall waive notice thereof in writing
signed by the shareholder before, at or after such meeting. Notice of any
adjourned meeting need not be given, except when expressly required by law. Any
previously scheduled annual meeting of the shareholders may be postponed, and
any special meeting of the shareholders may be canceled, by resolution of the
Board of Directors upon public announcement given prior to the time previously
scheduled for such annual or special meeting of the shareholders.
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SECTION 5. Quorum. Shares representing a majority of the votes entitled to
-------
be cast on a matter by all classes or series which are entitled to vote thereon
and be counted together collectively, represented in person or by proxy at any
meeting of the shareholders, shall constitute a quorum for the transaction of
business thereat with respect to such matter, unless otherwise provided by law
or the Articles. In the absence of a quorum at any such meeting or any
adjournment or adjournments thereof, shares representing a majority of the votes
cast on the matter of adjournment, either in person or by proxy, may adjourn
such meeting from time to time until a quorum is obtained. At any such adjourned
meeting at which a quorum has been obtained, any business may be transacted
which might have been transacted at the meeting as originally called.
SECTION 6. Voting. Unless otherwise provided by law or the Articles, at
-------
each meeting of the shareholders each shareholder entitled to vote at such
meeting shall be entitled to one vote for each share of stock standing in his
name on the books of the Corporation upon any date fixed as hereinafter
provided, and may vote either in person or by proxy in writing. Unless demanded
by a shareholder present in person or represented by proxy at any meeting of the
shareholders and entitled to vote thereon or so directed by the Chairman of the
Board, the vote on any matter need not be by ballot. On a vote by ballot, each
ballot shall be signed by the shareholder voting or his proxy, and it shall show
the number of shares voted.
SECTION 7. Judges. One or more judges or inspectors of election for any
-------
meeting of shareholders may be appointed by the Chairman of the Board, for the
purpose of receiving and taking charge of proxies and ballots and deciding all
questions as to the qualification of voters, the validity of proxies and ballots
and the number of votes properly cast.
SECTION 8. Conduct of Meeting. At each meeting of shareholders, the
-------------------
Chairman of the Board shall have all the powers and authority vested in
presiding officers by law or practice, without restriction, as well as the
authority to conduct an orderly meeting and to impose reasonable limits on the
amount of time taken up in remarks by any one shareholder.
SECTION 9. Business Proposed by a Shareholder. At each meeting of the
-----------------------------------
shareholders, the Chairman of the Board shall act as chairman and preside. In
his absence, the Chairman of the Board may designate another officer of the
Corporation who need not be a director to preside. The Secretary of the
Corporation or an Assistant Secretary, or in their absence, a person whom the
chairman of such meeting shall appoint, shall act as secretary of such meeting.
At any annual or special meeting of the shareholders, only such business shall
be conducted as shall have been properly brought before such meeting. To be
properly brought before an annual or special meeting of shareholders, business
must be (i) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
(iii) in the case of an annual meeting of shareholders, properly brought before
the meeting by a shareholder. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
given, either by personal delivery or by United States registered or certified
mail,
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postage prepaid, to the Secretary of the Corporation not later than 90 days nor
more than 120 days before the anniversary of the date of the first mailing of
the Corporation's proxy statement for the immediately preceding year's annual
meeting. In no event shall the public announcement of an adjournment or
postponement of an annual meeting or the fact that an annual meeting is held
before or after the anniversary of the preceding annual meeting commence a new
time period for the giving of a shareholder's notice as described above. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, including the
complete text of any resolutions to be presented at the annual meeting with
respect to such business, and the reasons for conducting such business at the
annual meeting, (ii) the name and address of record of the shareholder proposing
such business and any other person on whose behalf the proposal is being made,
(iii) the class and number of shares of the Corporation that are beneficially
owned by the shareholder and any other person on whose behalf the proposal is
made, (iv) a representation that the shareholder is a holder of record of shares
of the Corporation entitled to vote at such annual meeting and intends to appear
in person or by proxy at the annual meeting to propose such business and (v) any
material interest of the shareholder and any other person on whose behalf the
proposal is made, in such business. In the event that a shareholder attempts to
bring business before a meeting without complying with the procedures set forth
in this Article I, Section 9, such business shall not be transacted at such
meeting. The Chairman of the Board of Directors shall have the power and duty to
determine whether any business proposed to be brought before the meeting was
made in accordance with the procedures set forth in this Article I, Section 9
and, if any business is not proposed in compliance with this Article 1, Section
9, to declare that such defective proposal shall be disregarded and that such
proposed business shall not be transacted at such meeting. For purposes of these
Bylaws, "public announcement" shall mean disclosure in a press release reported
by the Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended.
SECTION 10. Nominations by Shareholders. Subject to the rights of holders
----------------------------
of any Preferred Stock outstanding, nominations for the election of directors
may be made by the Board or a committee appointed by the Board or by any
shareholder entitled to vote in the election of directors generally. Any such
shareholder may nominate one or more persons for election as directors at a
meeting only if it is an annual meeting and such shareholder has given timely
written notice of such shareholder's intent to make such nomination or
nominations. To be timely, a shareholder's notice must be delivered either by
personal delivery or by United States registered or certified mail, postage
prepaid, to the Secretary of the Corporation not later than 90 days nor more
than 120 days before the anniversary of the date of the first mailing of the
Corporation's proxy statement for the immediately preceding year's annual
meeting. In no event shall the public announcement of an adjournment or
postponement of an annual meeting or the fact that an annual meeting is held
before or after the anniversary of the preceding annual meeting commence a new
time period for the giving of a shareholder's notice as described above. Each
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the nomination and any other person on whose behalf the
nomination is being made, and of the person or persons to be nominated; (b) the
class and number of shares of the Corporation
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that are owned by the shareholder and any other person on whose behalf the
nomination is being made, (c) a representation that the shareholder is a holder
of record of shares of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (d) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; and (e) such other information
regarding each nominee proposed by such shareholder as would be required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required to be disclosed, pursuant to the proxy rules
of the Securities and Exchange Commission had the nominee been nominated or
intended to be nominated by the Board of Directors, and shall include a consent
signed by each such nominee to being named in the Proxy Statement as a nominee
and to serve as a director of the Corporation if so elected. In the event that a
shareholder attempts to nominate any person without complying with the
procedures set forth in this Article I, Section 10, such person shall not be
nominated and shall not stand for election at such meeting. The Chairman of the
Board of Directors shall have the power and duty to determine whether a
nomination proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Article I, Section 10 and, if any proposed
nomination is not in compliance with this Article I. Section 10, to declare that
such defective proposal shall be disregarded.
ARTICLE II.
BOARD OF DIRECTORS.
SECTION 1. Number, Classification, Term, Election. The property, business
--------------------------------------
and affairs of the Corporation shall be managed under the direction of the Board
as from time to time constituted. The Board shall be divided into three classes
having staggered terms of office as specified in the Articles of Incorporation.
The Board shall consist of seven directors. No director need be a shareholder.
Directors shall be elected at the 2000 annual meeting of shareholders (or by
unanimous written consent in lieu thereof) to fill each of the three classes of
directors for the terms of office specified in the Articles of Incorporation.
Commencing with the 2001 annual meeting of shareholders, directors shall be
elected at each annual meeting to succeed those directors whose terms have
expired and to fill any vacancies then existing. Each director who is re-
elected or elected to succeed a director whose term has expired shall hold
office for the term of three years as specified in the Articles of Incorporation
and until his successor is elected.
SECTION 2. Compensation. Each director, in consideration of his serving as
------------
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at Board and Committee meetings, or both, in cash or
other property, including securities of the Corporation, as the Board shall from
time to time determine, together with reimbursements for the reasonable expenses
incurred by him in connection with the performance of his duties. Nothing
contained herein shall preclude any director from serving the Corporation, or
any subsidiary or affiliated corporation, in any other capacity and receiving
proper compensation therefor. If the Board adopts a resolution to that effect,
any director may elect to
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defer all or any part of the annual and other fees hereinabove referred to for
such period and on such terms and conditions as shall be permitted by such
resolution.
SECTION 3. Place of Meetings. The Board may hold its meetings at such
-----------------
place or places within or without the Commonwealth of Virginia as it may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 4. Organization Meeting. After each annual election of directors,
--------------------
as soon as conveniently may be, the newly constituted Board shall meet for the
purposes of organization. At such organization meeting, the newly constituted
Board shall elect officers of the Corporation and transact such other business
as shall come before the meeting. Notice of organization meetings of the Board
need not be given. Any organization meeting may be held at any other time or
place which shall be specified in a notice given as hereinafter provided for
special meetings of the Board, or in a waiver of notice thereof signed by all
the directors.
SECTION 5. Regular Meetings. Regular meetings of the Board may be held at
----------------
such time and place as may from time to time be specified in a resolution
adopted by the Board then in effect; and, unless otherwise required by such
resolution, or by law, notice of any such regular meeting need not be given.
SECTION 6. Special Meetings. Special meetings of the Board shall be held
----------------
whenever called by the Chief Executive Officer, or by the Secretary at the
request of any three directors. Notice of a special meeting shall be mailed to
each director, addressed to him at his residence or usual place of business, not
later than twenty-four hours before such meeting is to be held, or shall be sent
addressed to him at such place by e-mail or facsimile, or be delivered
personally or by telephone, not later than twenty-four hours before such meeting
is to be held. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice of such
meeting, unless required by the Articles.
SECTION 7. Quorum. At each meeting of the Board the presence of a majority
------
of the number of directors fixed by these Bylaws shall be necessary to
constitute a quorum. The act of a majority of the directors present at a meeting
at which a quorum shall be present shall be the act of the Board, except as may
be otherwise provided by law or by these Bylaws. Any meeting of the Board may be
adjourned by a majority vote of the directors present at such meeting. Notice of
any adjourned meeting need not be given.
SECTION 8. Waivers of Notice of Meetings. Notwithstanding anything in
-----------------------------
these Bylaws or in any resolution adopted by the Board to the contrary, notice
of any meeting of the Board need not be given to any director if such notice
shall be waived in writing signed by such director before, at or after the
meeting, or if such director shall be present at the meeting. Any meeting of
the Board shall be a legal meeting without any notice having been given or
regardless of the giving of any notice or the adoption of any resolution in
reference thereto, if every member of the Board shall be present thereat.
Except as otherwise provided by law or these Bylaws, waivers of notice of any
meeting of the Board need not contain any statement of the purpose of the
meeting.
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SECTION 9. Telephone Meetings. Members of the Board or any committee may
------------------
participate in a meeting of the Board or such committee by means of a conference
telephone or other means of communications whereby all directors participating
may simultaneously hear each other during the meeting, and participation by such
means shall constitute presence in person at such meeting.
SECTION 10. Actions Without Meetings. Any action that may be taken at a
------------------------
meeting of the Board or of a committee may be taken without a meeting if a
consent in writing, setting forth the action, shall be signed, either before or
after such action, by all of the directors or all of the members of the
committee, as the case may be. Such consent shall have the same force and
effect as a unanimous vote.
ARTICLE III.
COMMITTEES.
SECTION 1. Standing Committees.
-------------------
(a) Number. There shall be four standing Committees of the Board which
------
shall be comprised only of directors. The standing committees are as follows:
Executive, Audit, Compensation and Governance.
Upon recommendation by the Chairman of the Board as to the membership of
each Committee, the Board, by resolution adopted by a majority of the number of
directors fixed by these By-laws, shall elect the membership of each committee,
who shall serve at the pleasure of the Board.
(b) Quorum and Manner of Acting. A majority of the members of any
---------------------------
Committee serving at the time of any meeting thereof shall constitute a quorum
for the transaction of business at such meeting. The action of a majority of
those members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.
(c) Conduct of Meetings. Any action required or permitted to be taken by
-------------------
any Committee may be taken without a meeting if all members of the Committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and written consents of the members shall be filed with the minutes
of the proceedings of the Committee.
(d) Meetings and Minutes. Subject to the foregoing, and unless the Board
--------------------
shall otherwise decide, each Committee shall fix its rules of procedure,
determine its action and fix the time and place of its meetings. Special
meetings of a Committee may be held at anytime and any place upon the call of
the Chairman of the Board, the Chairman of the Committee, or any two members of
the Committee. Each Committee shall keep minutes of all meetings which shall be
at all times available to Directors. Action taken by a Committee shall be
reported promptly to the Board but not less frequently than quarterly.
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(e) Term of Office. Members of any Committee shall be elected as above
--------------
provided and shall hold office until their successors are elected by the Board
or until such Committee is dissolved by the Board.
(f) Resignation and Removal. Any member of a Committee may resign at any
-----------------------
time by giving written notice of his intention to do so to the Chairman of the
Board or the Secretary of the Corporation, or may be removed, with or without
cause, at any time by such vote of the Board as would suffice for his election.
(g) Vacancies. Any vacancy occurring in a Committee resulting from any
---------
cause whatever may be filled by a majority of the number of directors fixed by
these By-laws.
SECTION 2. Executive Committee.
-------------------
(a) How Constituted. The Executive Committee shall consist of not less
---------------
than three directors, including the Chairman of the Board. Except for the
Chairman of the Board, all members of the Executive Committee shall be outside
directors. An outside director shall be a non-management director free of any
material business or professional relationship with the Corporation or its
management. The Chairman of the Board shall be Chairman of the Committee. If
the Chairman of the Committee will not be present at a meeting, he or she may
designate any member of the Committee to preside at the meeting.
(b) Primary Responsibilities. When the Board is not in session, the
------------------------
Executive Committee shall have all power vested in the Board of Directors by
law, by the Articles of Incorporation, or by these By-laws, provided that the
Executive Committee shall not have power to (i) approve or recommend to
shareholders action that the Virginia Stock Corporation Act requires to be
approved by shareholders; (ii) fill vacancies on the Board or on any of its
committees; (iii) amend the Articles of Incorporation pursuant to Section 13.1-
706 of the Virginia Stock Corporation Act; (iv) adopt, amend, or repeal the By-
laws; (v) approve a plan of merger not requiring shareholder approval; (vi)
authorize or approve a distribution, except according to a general formula or
method prescribed by the Board; or (vii) authorize or approve the issuance or
sale or contract for sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of shares, except that
the Board may authorize a committee, or a senior executive officer of the
Corporation, to do so within limits specifically prescribed by the Board. The
Executive Committee shall report at the next regular or special meeting of the
Board all action which the Executive Committee may have taken on behalf of the
Board since the last regular or special meeting of the Board.
SECTION 3. Audit Committee.
---------------
(a) How Constituted. The Audit Committee shall consist of not less than
---------------
three outside Directors, as defined in Article III, Section 2 above, all of whom
shall have requisite working familiarity with basic finance and accounting
practices. The Chairman of the Committee shall be appointed by the Board. If
the Chairman of the Committee will not be
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present at a meeting, he or she may designate any member of the Committee to
preside at the meeting. The Chairman of the Board, who shall not be a member of
the Committee, may attend Committee meetings upon the invitation of the Chairman
of the Committee.
(b) Primary Responsibilities. The primary responsibilities of the Audit
------------------------
Committee shall consist of: recommending the selection of independent
accountants and auditors; reviewing the scope of the accountant's audit and
approval of any non-audit services to be performed by the independent
accountants; and reviewing annual audits and accounting practices. The Board
shall approve a Charter of the Audit Committee setting forth in detail the
purposes, objectives and duties of the Audit Committee
SECTION 4. Compensation Committee.
----------------------
(a) How Constituted. The Compensation Committee shall consist of not less
---------------
than two outside Directors, as defined in Article III, Section 2 above. The
Chairman shall be appointed by the Board. If the Chairman of the Committee will
not be present at a meeting, he or she may designate any member of the Committee
to preside at the meeting. The Chairman of the Board, who shall not be a member
of the Committee, may attend Committee meetings upon the invitation of the
Chairman of the Committee.
(b) Primary Responsibilities. The primary responsibilities of the
------------------------
Compensation Committee shall consist of: reviewing Board compensation policies
and evaluating the compensation of the CEO and senior management based on
criteria as set forth below; evaluating annually the performance of the CEO and
reviewing senior management performance evaluations, using such criteria as
performance of the business, accomplishments of long-term strategic objectives
and management development and any other criteria the Committee deems
appropriate; reviewing and reporting to the Board the recommended compensation
of all officers of the Corporation; reviewing total compensation and benefit
designs and practices for all Corporation employees; and reviewing stock option
programs.
SECTION 5. Governance Committee.
--------------------
(a) How Constituted. The Governance Committee shall consist of not less
---------------
than three outside Directors, as defined in Article III, Section 2 above, and
the Chairman of the Board. The Chairman of the Committee shall be appointed by
the Board of Directors. If the Chairman of the Committee will not be present at
a meeting, he or she may designate any member of the Committee to preside at the
meeting.
(b) Primary Responsibilities. The primary responsibilities of the
------------------------
Governance Committee shall include: reviewing the composition of the Board of
Directors to insure that there is a balance of appropriate skills and
characteristics reflected on the Board including age, diversity and experience;
developing criteria for Director searches and making recommendations to the
Board for the addition of any new Board members after proper search and
investigation; reviewing, in consultation with the Chairman of the Board, each
Director's continuation on the
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Board every three years prior to their standing for re-election; monitoring
procedures for corporate decision-making; evaluating shareholder proposals;
reviewing public policy issues which affect the image of the Corporation within
the Corporation's customer service areas; recommending actions to increase the
Board's effectiveness; and reviewing annually the format used by the
Corporation's management to report to the Board.
SECTION 6. Other Committees.
----------------
The Board, by resolution adopted by a majority of the number of directors
fixed by these By-laws, may establish such other standing or special committees
of the Board as it may deem advisable, consisting of not less than two
directors; and the members, terms and authority of such committees shall be as
set forth in the resolutions establishing the same.
The Chairman of the Board may establish such other special committees of
the Board as he deems advisable, and may appoint the members of such committees.
Any such committees shall have the authority to consider, review, advise and
recommend to the Chairman of the Board with respect to such matters as may be
referred to it by the Chairman of the Board, but shall have no authority to act
for the Corporation except with the prior approval of the Board.
ARTICLE IV.
OFFICERS.
SECTION 1. Number, Term, Election. The officers of the Corporation shall
----------------------
be a Chief Executive Officer, a Chairman of the Board, a President, one or more
Vice Presidents, a Treasurer, a Controller and a Secretary. The Board may
appoint such other officers and such assistant officers and agents with such
powers and duties as the Board may find necessary or convenient to carry on the
business of the Corporation. Such officers and assistant officers shall serve
until their successors shall be chosen, or as otherwise provided in these
Bylaws. Any two or more offices may be held by the same person.
SECTION 2. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
subject to the control of the Board and the Executive and Finance Committee,
have full authority and responsibility for directing the conduct of the
business, affairs and operations of the Corporation. In addition to acting as
Chief Executive Officer of the Corporation, he or she shall perform such other
duties and exercise such other powers as may from time to time be prescribed by
the Board and shall see that all orders and resolutions of the Board and the
Executive Committee are carried into effect. In the event of the inability of
the Chief Executive Officer to act, the Board will designate an officer of the
Corporation to perform the duties of that office.
SECTION 3. Chairman of the Board. The Chairman of the Board shall preside
---------------------
at all meetings of the Board and of the shareholders and, in the absence of the
Chairman of the Executive Committee, at all meetings of the Executive Committee.
He or she shall perform such other duties and exercise such other powers as may
from time to time be prescribed by the Board or, if he or she shall not be the
Chief Executive Officer, by the Chief Executive Officer.
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SECTION 4. President. The President shall have such powers and perform
---------
such duties as may from time to time be prescribed by the Board or, if he or she
shall not be the Chief Executive Officer, by the Chief Executive Officer.
SECTION 5. Vice-Presidents. Each Vice President shall have such powers and
---------------
perform such duties as may from time to time be prescribed by the Board, the
Chief Executive Officer or any officer to whom the Chief Executive Officer may
have delegated such authority.
SECTION 6. Treasurer. The Treasurer shall have the general care and
---------
custody of the funds and securities of the Corporation. He or she shall perform
such other duties and exercise such other powers as may from time to time be
prescribed by the Board, the Chief Executive Officer or any officer to whom the
Chief Executive Officer may have delegated such authority. If the Board shall so
determine, he or she shall give a bond for the faithful performance of his or
her duties, in such sum as the Board may determine to be proper, the expense of
which shall be borne by the Corporation. To such extent as the Board shall deem
proper, the duties of the Treasurer may be performed by one or more assistants,
to be appointed by the Board.
SECTION 7. Controller. The Controller shall be the accounting officer of
----------
the Corporation. He or she shall keep full and accurate accounts of all assets,
liabilities, receipts and disbursements and other transactions of the
Corporation and cause regular audits of the books and records of the Corporation
to be made. He or she shall also perform such other duties and exercise such
other powers as may from time to time be prescribed by the Board, the Chief
Executive Officer or any officer to whom the Chief Executive Officer may have
delegated such authority. If the Board shall so determine, he or she shall give
a bond for the faithful performance of his duties, in such sum as the Board may
determine to be proper, the expense of which shall be borne by the Corporation.
To such extent as the Board shall deem proper, the duties of the Controller may
be performed by one or more assistants, to be appointed by the Board.
SECTION 8. Secretary. The Secretary shall keep the minutes of meetings of
---------
shareholders, of the Board, and, when requested, of Committees of the Board; and
he or she shall attend to the giving and sending of notices of all meetings
thereof. He or she shall keep or cause to be kept such stock and other books,
showing the names of the shareholders of the Corporation, and all other
particulars regarding them, as may be required by law. He or she shall also
perform such other duties and exercise such other powers as may from time to
time be prescribed by the Board, the Chief Executive Officer or any officer to
whom the Chief Executive Officer may have delegated such authority. To such
extent as the Board shall deem proper, the duties of the Secretary may be
performed by one or more assistants, to be appointed by the Board.
SECTION 9. Powers and Duties of Other Officers. The powers and duties of
-----------------------------------
all other officers of the Corporation shall be those usually pertaining to their
respective offices, subject to the direction and control of the Board and as
otherwise provided in these Bylaws, or as prescribed by the Chairman of the
Board.
ARTICLE V.
REMOVALS AND RESIGNATIONS.
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SECTION 1. Removal of Officers. Any officer, assistant officer or agent of
-------------------
the Corporation may be removed at any time, either with or without cause, by the
Board in its absolute discretion. Any such removal shall be without prejudice to
the recovery of damages for breach of the contract rights, if any, of the
officer, assistant officer or agent removed. Election or appointment of an
officer, assistant officer or agent shall not of itself create contract rights.
SECTION 2. Resignation. Any director, officer or assistant officer of the
-----------
Corporation may resign as such at any time by giving written notice of his
resignation to the Board, the Chief Executive Officer or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein
or, if no time is specified therein, at the time of delivery thereof, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3. Vacancies. Any vacancy in the office of any officer or
---------
assistant officer caused by death, resignation, removal or any other cause, may
be filled by the Board for the unexpired portion of the term.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS, DRAFTS, DEPOSITS, ETC.
SECTION 1. Execution of Contracts. Except as otherwise provided by law
----------------------
or by these Bylaws, the Board (i) may authorize any officer, employee or agent
of the Corporation to execute and deliver any contract, agreement or other
instrument in writing in the name and on behalf of the Corporation, and (ii) may
authorize any officer, employee or agent of the Corporation so authorized by the
Board to delegate such authority by written instrument to other officers,
employees or agents of the Corporation. Any such authorization by the Board may
be general or specific and shall be subject to such limitations and restrictions
as may be imposed by the Board. Any such delegation of authority by an officer,
employee or agent may be general or specific, may authorize re-delegation, and
shall be subject to such limitations and restrictions as may be imposed in the
written instrument of delegation by the person making such delegation.
SECTION 2. Loans. No loans shall be contracted on behalf of the
-----
Corporation and no negotiable paper shall be issued in its name unless
authorized by the Board. When authorized by the Board, any officer, employee or
agent of the Corporation may effect loans and advances at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual, and for such loans and advances may make, execute and
deliver promissory notes, bonds or other certificates or evidences of
indebtedness of the Corporation and when so authorized may pledge, hypothecate
or transfer any securities or other property of the Corporation as security for
any such loans or advances. Such authority may be general or confined to
specific instances.
SECTION 3. Checks, Drafts, etc. All checks, drafts and other orders for
-------------------
the payment of money out of the funds of the Corporation and all notes of other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by the
Board.
I-11
<PAGE>
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select or as may
be selected by the Treasurer or any other officer, employee or agent of the
Corporation to whom such power may from time to time be delegated by the Board.
SECTION 5. Voting of Securities. Unless otherwise provided by the Board,
--------------------
the Chief Executive Officer may from time to time appoint an attorney or
attorneys, or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal, or otherwise, all such written proxies or other instruments
as such officer may deem necessary or proper in the premises.
ARTICLE VII.
CAPITAL STOCK.
SECTION 1. Shares. Shares of the Corporation may but need not be
------
represented by certificates. When shares are represented by certificates, the
Corporation shall issue such certificates in such form as shall be required by
the Virginia Stock Corporation Act (the "VSCA") and as determined by the Board
of Directors, to every shareholder for the fully paid shares owned by such
shareholder. Each certificate shall be signed by, or shall bear the facsimile
signature of, the Chairman of the Board, the President or a Vice President and
the Secretary or an Assistant Secretary of the Corporation and may bear the
corporate seal of the Corporation or its facsimile. All certificates for the
Corporation's shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom shares (whether or not
represented by a certificate) are issued, with the number of shares and date of
issue, shall be entered on the share transfer books of the Corporation. Such
information may be stored or retained on discs, tapes, cards or any other
approved storage device relating to data processing equipment; provided that
such device is capable of reproducing all information contained therein in
legible and understandable form, for inspection by shareholders or for any other
corporate purpose.
When shares are not represented by certificates, then within a reasonable
time after the issuance or transfer of such shares, the Corporation shall send
the shareholder to whom such shares have been issued or transferred a written
statement of the information required by the VSCA to be included on
certificates.
SECTION 2. Stock Transfer Books and Transfer of Shares. The Corporation,
-------------------------------------------
or its designated transfer agent or other agent, shall keep a book or set of
books to be known as the
I-12
<PAGE>
stock transfer books of the Corporation, containing the name of each shareholder
of record, together with such shareholder's address and the number and class or
series of shares held by such shareholder. Shares of stock of the Corporation
shall be transferable on the stock books of the Corporation by the holder in
person or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary or the transfer agent, but, except as
hereinafter provided in the case of loss, destruction or mutilation of
certificates, no transfer of stock shall be entered until the previous
certificate, if any, given for the same shall have been surrendered and
canceled. Transfer of shares of the Corporation represented by certificates
shall be made on the stock transfer books of the Corporation only upon surrender
of the certificates for the shares sought to be transferred by the holder of
record thereof or by such holder's duly authorized agent, transferee or legal
representative, who shall furnish proper evidence of authority to transfer with
the Secretary of the Corporation or its designated transfer agent or other
agent. All certificates surrendered for transfer shall be canceled before new
certificates for the transferred shares shall be issued. Except as otherwise
provided by law, no transfer of shares shall be valid as against the
Corporation, its shareholders or creditors, for any purpose, until it shall have
been entered in the stock records of the Corporation by an entry showing from
and to whom transferred.
SECTION 3. Holder of Record. Except as otherwise required by the VSCA,
----------------
the Corporation may treat the person in whose name shares of stock of the
Corporation (whether or not represented by a certificate) stand of record on its
books or the books of any transfer agent or other agent designated by the Board
of Directors as the absolute owner of the shares and the person exclusively
entitled to receive notification and distributions, to vote, and to otherwise
exercise the rights, powers and privileges of ownership of such shares.
SECTION 4. Record Date. For the purpose of determining shareholders
-----------
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof unless the Board fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
SECTION 5. Lost, Destroyed or Mutilated Certificates. In case of loss,
-----------------------------------------
destruction or mutilation of any certificate of stock, another may be issued in
its place upon proof of such loss, destruction or mutilation and upon the giving
of a bond of indemnity to the Corporation in such form and in such sum as the
Board may direct; provided that a new certificate may be issued without
requiring any bond when, in the judgment of the Board, it is proper so to do.
SECTION 6. Transfer Agent and Registrar; Regulations. The Corporation
-----------------------------------------
may, if and whenever the Board of Directors so determines, maintain in the
Commonwealth of Virginia or any other state of the United States, one or more
transfer offices or agencies and also one or
I-13
<PAGE>
more registry offices which offices and agencies may establish rules and
regulations for the issue, transfer and registration of certificates. No
certificates for shares of stock of the Corporation in respect of which a
transfer agent and registrar shall have been designated shall be valid unless
countersigned by such transfer agent and registered by such registrar. The Board
of Directors may also make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of shares represented
by certificates and shares without certificates.
ARTICLE VIII.
INSPECTION OF RECORDS.
The Board from time to time shall determine whether, to what extent, at
what times and places, and under what conditions and regulations the accounts
and books and papers of the Corporation, or any of them, shall be open for the
inspection of the shareholders, and no shareholder shall have any right to
inspect any account or book or paper of the Corporation except as expressly
conferred by statute or by these Bylaws or authorized by the Board.
ARTICLE IX.
AUDITOR.
The Board shall annually appoint an independent accountant who shall
carefully examine the books of the Corporation. One such examination shall be
made immediately after the close of the fiscal year and be ready for
presentation at the annual meeting of shareholders of the Corporation, and such
other examinations shall be made as the Board may direct.
ARTICLE X.
SEAL.
The seal of the Corporation shall be circular in form and shall bear the
name of the Corporation and the year "1999."
ARTICLE XI.
FISCAL YEAR.
The fiscal year of the Corporation shall end on the 31st day of December in
each
year.
I-14
<PAGE>
EMERGENCY BYLAWS.
SECTION 1. Definitions. As used in these Emergency Bylaws,
-----------
(a) the term "period of emergency" shall mean any period during which a
quorum of the Board cannot readily be assembled because of some catastrophic
event.
(b) the term "incapacitated" shall mean that the individual to whom such
term is applied shall not have been determined to be dead but shall be missing
or unable to discharge the responsibilities of his office; and
(c) the term "senior officer'' shall mean the Chairman of the Board, the
Chief Executive Officer, the President, any corporate Vice President, the
Treasurer, the Controller and the Secretary, and any other person who may have
been so designated by the Board before the emergency.
SECTION 2. Applicability. These Emergency Bylaws, as from time to time
-------------
amended, shall be operative only during any period of emergency. To the extent
not inconsistent with these Emergency Bylaws, all provisions of the regular
Bylaws of the Corporation shall remain in effect during any period of emergency.
No officer, director or employee shall be liable for actions taken in good faith
in accordance with these Emergency Bylaws.
SECTION 3. Board of Directors. (a) A meeting of the Board may be
------------------
called by any director or senior officer of the Corporation. Notice of any
meeting of the Board need be given only to such of the directors as it may be
feasible to reach at the time and by such means as may be feasible at the time,
including publication or radio, and at a time less than twenty-four hours before
the meeting if deemed necessary by the person giving notice.
(b) At any meeting of the Board, three directors (or such lesser number as
may be fixed by these Bylaws as the number of members of the Board of Directors)
in attendance shall constitute a quorum. Any act of a majority of the directors
present at a meeting at which a quorum shall be present shall be the act of the
Board. If less than three directors (or such lesser number as specified above)
should be present at a meeting of the Board, any senior officer of the
Corporation in attendance at such meeting shall serve as a director for such
meeting, selected in order of rank and within the same rank in order of
seniority.
(c) In addition to the Board's powers under the regular Bylaws of the
Corporation to fill vacancies on the Board, the Board may elect any individual
as a director to replace any director who may be incapacitated and to serve
until the latter ceases to be incapacitated or until the termination of the
period of emergency, whichever first occurs. In considering officers of the
Corporation for election to the Board, the rank and seniority of individual
officers shall not be pertinent.
(d) The Board, during as well as before any such emergency, may change the
principal office or designate several alternative offices or authorize the
officers to do so.
I-15
<PAGE>
SECTION 4. Appointment of Officers. In addition to the Board's powers
-----------------------
under the regular Bylaws of the Corporation with respect to the election of
officers, the Board may elect any individual as an officer to replace any
officer who may be incapacitated and to serve until the latter ceases to be
incapacitated.
SECTION 5. Amendments. These Emergency Bylaws shall be subject to
----------
repeal or change by further action of the Board of Directors or by action of the
shareholders, except that no such repeal or change shall modify the provisions
of the last sentence of Section 2 with regard to action or inaction prior to the
time of such repeal or change. Any such amendment of these Emergency Bylaws may
make any further or different provision that may be practical and necessary for
the circumstances of the emergency.
I-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Virginia Stock Corporation Act permits, and the registrant's Articles
of Incorporation require, indemnification of the registrant's directors and
officers in a variety of circumstances, which may include indemnification for
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
Under Sections 13.1 697 and 13.1-702 of the Virginia Stock Corporation Act, a
Virginia corporation generally is authorized to indemnify its directors and
officers in civil or criminal actions if they acted in good faith and believed
their conduct to be in the best interests of the corporation and, in the case of
criminal actions, had no reasonable cause to believe that the conduct was
unlawful. Insmed Inc.'s Articles of Incorporation require indemnification of
directors and officers with respect to certain liabilities, expenses and other
amounts imposed upon them because of having been a director or officer, except
in the case of willful misconduct or a knowing violation of criminal law.
In addition, Insmed Inc. carries insurance on behalf of directors,
officers, employees or agents that may cover liabilities under the Securities
Act. Insmed Inc.'s Articles of Incorporation also provide that, to the full
extent the Virginia Stock Corporation Act (as it presently exists or may
hereafter be amended) permits the limitation or elimination of the liability of
directors and officers, no director or officer of Insmed, Inc. shall be liable
to Insmed, Inc. or its shareholders for monetary damages with respect to any
transaction, occurrence or course of conduct. Section 13.1-692.1 of the
Virginia Stock Corporation Act presently permits the elimination of liability of
directors and officers in any proceeding brought by or in the right of a company
or brought by or on behalf of shareholders of a company, except for liability
resulting from such person's having engaged in willful misconduct or a knowing
violation of the criminal law or any federal or state securities law, including,
without limitation, any unlawful insider trading or manipulation of the market
for any security. Sections 13.1-692.1 and 13.1-696 to -704 of the Virginia
Stock Corporation Act are hereby incorporated by reference herein.
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ------------------------------------------------------------------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Reorganization, by and
among Insmed, Inc., Insmed Pharmaceuticals, Inc., Celtrix
Pharmaceuticals, Inc. and Celtrix MergerSub, Inc., dated as of
February 9, 2000 (Included as Annex A to the accompanying Joint
Proxy Statement/Prospectus).
3.1 Articles of Incorporation of Insmed, Inc. (Included as Annex H to
the accompanying Joint Proxy Statement/Prospectus).
3.2 Amended and Restated Bylaws of Insmed, Inc. (Included as Annex I
to the accompanying Joint Proxy Statement/Prospectus).
4.1 Article VI of the Articles of Incorporation of Insmed, Inc.
(Included as part of Exhibit 3.1 to this Registration Statement).
4.2* Specimen stock certificate representing common stock, $.01 par
value per share, of the Registrant.
5.1* Opinion of Hunton & Williams as to the validity of the shares of
Insmed, Inc. Common Stock.
8.1* Opinion of Hunton & Williams as to certain tax matters.
8.2* Opinion of Venture Law Group, a Professional Corporation, as to
certain tax matters.
10.1* Insmed, Inc. 2000 Stock Purchase Plan.
10.2* Insmed, Inc. 2000 Stock Incentive Plan.
10.3* Amended and Restated License Agreement between Insmed
Pharmaceuticals, Inc. and the University of Virginia Patent
Foundation.
10.4 Form of Indemnification Agreement between Celtrix
Pharmaceuticals, Inc. and each of its executive officers and
directors.
10.5 License and Development Agreement dated June 22, 1994, between
Celtrix Pharmaceuticals, Inc. and Genzyme Corporation as amended
by Amendment No. 1 dated December 31, 1997.
10.6 Employment Agreement dated January 7, 1997 between Celtrix
Pharmaceuticals, Inc. and Dr. Andreas Sommer as amended by an
Extension dated December 16, 1998 and an Extension dated November
2, 1999.
10.7 License Agreement dated December 18, 1997, between Celtrix
Pharmaceuticals, Inc. and Genzyme Corporation.
10.8+ Subscription, Joint Development and Operating Agreement by and
among Celtrix Pharmaceuticals, Inc., Elan Corporation, plc, Elan
International Services, Ltd., and Celtrix Newco Ltd. dated as of
April 21, 1999.
10.9+ License Agreement by and between Celtrix Newco Ltd. and Celtrix
Pharmaceuticals, Inc. dated as of April 21, 1999.
10.10+ License Agreement by and between Celtrix Newco Ltd. and Elan
Pharmaceutical Technologies, a division of Elan Corporation, plc,
dated as of April 21, 1999.
10.11 License Agreement, dated as of April 1, 1993, between Genentech,
Inc. and Celtrix Pharmaceuticals, Inc.
10.12 Purchase Agreement among Insmed, Inc., Insmed Pharmaceuticals,
Inc. and certain investors named therein dated January 13, 2000.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.13 Form of Warrant of Insmed to be issued pursuant to Purchase
Agreement among Insmed, Inc., Insmed Pharmaceuticals, Inc. and
certain investors dated January 13, 2000 and included as Exhibit
10.12 to this Registration Statement.
10.14 Form of Registration Rights Agreement among Insmed, Inc., Insmed
Pharmaceuticals, Inc. and certain investors party to the Purchase
Agreement among Insmed, Inc., Insmed Pharmaceuticals, Inc. and
certain investors dated January 13, 2000 and included as Exhibit
10.12 to this Registration Statement.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Hunton & Williams (Included as part of Exhibit 5.1 and
Exhibit 8.1 to this Registration Statement).
23.2* Consent of Venture Law Group, a Professional Corporation
(Included as part of Exhibit 8.2 to this Registration Statement).
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Pacific Growth Equities (Included as part of Exhibit
99.4 to this Registration Statement).
24.1 Power of Attorney (Included on the signature page of this
Registration Statement).
27.1 Financial Data Schedule of Insmed Pharmaceuticals, Inc.
27.2 Financial Data Schedule of Celtrix Pharmaceuticals, Inc.
99.1 Shareholders Agreement, dated as of December 15, 1999, between
Insmed, Inc., Celtrix Pharmaceuticals, Inc. and certain
shareholders of Insmed Pharmaceuticals, Inc. (Included as Annex E
to the accompanying Joint Proxy Statement/Prospectus).
99.2 Stockholders Agreement, dated as of December 15, 1999, between
Insmed Inc., Celtrix MergerSub, Inc. and certain stockholders of
Celtrix Pharmaceuticals, Inc. (Included as Annex G to the
accompanying Joint Proxy Statement/Prospectus).
99.3 Letter Agreement dated November 30, 1999 between Celtrix
Pharmaceuticals, Inc. and Elan Pharmaceutical Investments Ltd.
99.4 Opinion of Pacific Growth Equities, Inc. (Included as Annex B to
the accompanying Joint Proxy Statement/Prospectus).
99.5* Form of Proxy for Special Meeting of Shareholders of Insmed
Pharmaceuticals, Inc.
99.6* Form of Proxy for Annual Meeting of Stockholders of Celtrix
Pharmaceuticals, Inc.
99.7 Consent of Director Designees of Insmed, Inc.
</TABLE>
______________________________
* To be filed by amendment.
+ Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain information in these exhibits.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes attached
thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
II-3
<PAGE>
includes information contained in documents filed after the effective date of
the registration statement through the date of responding to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
(3) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(4) That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(6) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Richmond, Commonwealth of
Virginia, on the ninth day of February, 2000.
INSMED, INC.
a Virginia corporation
(Registrant)
By: /s/ Geoffrey Allan
-----------------------------------
Geoffrey Allan, Ph.D.
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
II-5
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Geoffrey Allan and Michael D. Baer, or any of them, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to cause the same to be filed, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to said attorney-in-fact and agent, or any of them,
full power and authority to do and perform each and every act and thing
whatsoever requisite or desirable to be done in and about the premises, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorney-in-fact
and agent, or any of them, or his or their substitute, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the ninth day
of February, 2000 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Geoffrey Allan Chairman of the Board, February 9, 2000
- --------------------------------------------- President and Chief Executive
Geoffrey Allan, Ph.D. Officer
(Principal Executive Officer)
/s/ Michael D. Baer Chief Financial Officer February 9, 2000
- --------------------------------------------- (Principal Financial and
Michael D. Baer Accounting Officer)
/s/ Kenneth G. Condon Director February 9, 2000
- ---------------------------------------------
Kenneth G. Condon
/s/ Gustav A. Christensen Director February 9, 2000
- ---------------------------------------------
Gustav A. Christensen
/s/ Graham K. Crooke Director February 9, 2000
- ---------------------------------------------
Graham K. Crooke, MB.BS
/s/ Dennis J. Dougherty Director February 9, 2000
- ---------------------------------------------
Dennis J. Dougherty
/s/ Steinar J. Engelsen Director February 9, 2000
- ---------------------------------------------
Steinar J. Engelsen, M.D.
/s/ Edgar G. Engleman Director February 9, 2000
- ---------------------------------------------
Edgar G. Engleman, M.D.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Reorganization, by and
among Insmed, Inc., Insmed Pharmaceuticals, Inc., Celtrix
Pharmaceuticals, Inc. and Celtrix MergerSub, Inc., dated as of
February 9, 2000 (Included as Annex A to the accompanying Joint
Proxy Statement/Prospectus).
3.1 Articles of Incorporation of Insmed, Inc. (Included as Annex H to
the accompanying Joint Proxy Statement/Prospectus).
3.2 Amended and Restated Bylaws of Insmed, Inc. (Included as Annex I
to the accompanying Joint Proxy Statement/Prospectus).
4.1 Article VI of the Articles of Incorporation of Insmed, Inc.
(Included as part of Exhibit 3.1 to this Registration Statement).
4.2* Specimen stock certificate representing common stock, $.01 par
value per share, of the Registrant.
5.1* Opinion of Hunton & Williams as to the validity of the shares of
Insmed, Inc. Common Stock.
8.1* Opinion of Hunton & Williams as to certain tax matters.
8.2* Opinion of Venture Law Group, a Professional Corporation, as to
certain tax matters.
10.1* Insmed, Inc. 2000 Stock Purchase Plan.
10.2* Insmed, Inc. 2000 Stock Incentive Plan.
10.3* Amended and Restated License Agreement between Insmed
Pharmaceuticals, Inc. and the University of Virginia Patent
Foundation.
10.4 Form of Indemnification Agreement between Celtrix
Pharmaceuticals, Inc. and each of its executive officers and
directors.
10.5 License and Development Agreement dated June 22, 1994, between
Celtrix Pharmaceuticals, Inc. and Genzyme Corporation as amended
by Amendment No. 1 dated December 31, 1997.
10.6 Employment Agreement dated January 7, 1997 between Celtrix
Pharmaceuticals, Inc. and Dr. Andreas Sommer as amended by an
Extension dated December 16, 1998 and an Extension dated November
2, 1999.
10.7 License Agreement dated December 18, 1997, between Celtrix
Pharmaceuticals, Inc. and Genzyme Corporation.
10.8+ Subscription, Joint Development and Operating Agreement by and
among Celtrix Pharmaceuticals, Inc., Elan Corporation, plc, Elan
International Services, Ltd., and Celtrix Newco Ltd. dated as of
April 21, 1999.
10.9+ License Agreement by and between Celtrix Newco Ltd. and Celtrix
Pharmaceuticals, Inc. dated as of April 21, 1999.
10.10+ License Agreement by and between Celtrix Newco Ltd. and Elan
Pharmaceutical Technologies, a division of Elan Corporation, plc,
dated as of April 21, 1999.
10.11 License Agreement, dated as of April 1, 1993, between Genentech,
Inc. and Celtrix Pharmaceuticals, Inc.
10.12 Purchase Agreement among Insmed, Inc., Insmed Pharmaceuticals,
Inc. and certain investors named therein dated January 13, 2000.
10.13 Form of Warrant of Insmed to be issued pursuant to Purchase
Agreement among Insmed, Inc., Insmed Pharmaceuticals, Inc. and
certain investors dated January 13, 2000 and included as Exhibit
10.12 to this Registration Statement.
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C>
10.14 Form of Registration Rights Agreement among Insmed, Inc., Insmed
Pharmaceuticals, Inc. and certain investors party to the Purchase
Agreement among Insmed, Inc., Insmed Pharmaceuticals, Inc. and
certain investors dated January 13, 2000 and included as Exhibit
10.12 to this Registration Statement.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Hunton & Williams (Included as part of Exhibit 5.1 and
Exhibit 8.1 to this Registration Statement).
23.2* Consent of Venture Law Group, a Professional Corporation
(Included as part of Exhibit 8.2 to this Registration Statement).
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Pacific Growth Equities (Included as part of Exhibit
99.4 to this Registration Statement).
24.1 Power of Attorney (Included on the signature page of this
Registration Statement).
27.1 Financial Data Schedule of Insmed Pharmaceuticals, Inc.
27.2 Financial Data Schedule of Celtrix Pharmaceuticals, Inc.
99.1 Shareholders Agreement, dated as of December 15, 1999, between
Insmed, Inc., Celtrix Pharmaceuticals, Inc. and certain
shareholders of Insmed Pharmaceuticals, Inc. (Included as Annex E
to the accompanying Joint Proxy Statement/Prospectus).
99.2 Stockholders Agreement, dated as of December 15, 1999, between
Insmed, Inc., Celtrix MergerSub, Inc. and certain stockholders of
Celtrix Pharmaceuticals, Inc. (Included as Annex G to the
accompanying Joint Proxy Statement/Prospectus).
99.3 Letter Agreement dated November 30, 1999 between Celtrix
Pharmaceuticals, Inc. and Elan Pharmaceutical Investments Ltd.
99.4 Opinion of Pacific Growth Equities, Inc. (Included as Annex B to
the accompanying Joint Proxy Statement/Prospectus).
99.5* Form of Proxy for Special Meeting of Shareholders of Insmed
Pharmaceuticals, Inc.
99.6* Form of Proxy for Annual Meeting of Stockholders of Celtrix
Pharmaceuticals, Inc.
99.7 Consent of Director Designees of Insmed, Inc.
</TABLE>
_________________________________
* To be filed by amendment.
+ Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain information in these exhibits.
II-8
<PAGE>
Exhibit 10.4
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of ((Date)), by
---------
and between Celtrix Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), and ((IndemniteeName)) (the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, or, with respect
<PAGE>
to any criminal action or proceeding, that Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the
-2-
<PAGE>
Chief Executive Officer of the Company and shall be given in accordance with the
provisions of Section 12(d) below. In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been
-3-
<PAGE>
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit
-4-
<PAGE>
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
-5-
<PAGE>
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
-6-
<PAGE>
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or fax, or forty-eight (48) hours
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, and addressed to the party to be notified at such party's
address as set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
-7-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
CELTRIX PHARMACEUTICALS, INC.
By: _________________________________________
Title: _________________________________________
Address: 2033 Gateway Place, Suite 600
San Jose, CA 95110
AGREED TO AND ACCEPTED:
((IndemniteeName))
_____________________________
(Signature)
Address: ((IndemniteeAddress1))
((IndemniteeAddress2))
-8-
<PAGE>
EXHIBIT 10.5
LICENSE AND DEVELOPMENT AGREEMENT
BETWEEN
CELTRIX PHARMACEUTICALS, INC.
AND
GENZYME CORPORATION
<PAGE>
Table of Contents
-----------------
<TABLE>
<S> <C>
1 DEFINITIONS.......................................................... 1
1.1. "Additional Indications"...................................... 1
1.2. "Affiliate"................................................... 1
1.3. "Business Representative"..................................... 1
1.4. "Competing Product"........................................... 2
1.5. "Confidential Information".................................... 2
1.6. "Development Costs"........................................... 2
1.7. "Development Program"......................................... 2
1.8. "FDA"......................................................... 2
1.9. "First Commercial Sale"....................................... 2
1.10. "Field"....................................................... 2
1.11. "Initial Indications"......................................... 2
1.12. "IND"......................................................... 2
1.13. "Improvements"................................................ 2
1.14. "Licensed Technology"......................................... 2
1.15. "Major Market"................................................ 2
1.16. "Manufacturing Costs"......................................... 3
1.17. "NDA"......................................................... 3
1.18. "Net Sales"................................................... 3
1.19. "Patents"..................................................... 3
1.20. "Phase II Clinical Trials..................................... 3
1.21. "Pivotal Clinical Trials"..................................... 3
1.22. "Product"..................................................... 3
1.23. "Project Representative"...................................... 3
1.24. "Royalty Bearing Sales"....................................... 3
1.25. "Technology".................................................. 4
1.26. "Territory"................................................... 4
1.27. "TGF-B"....................................................... 4
1.28. "TGF-B2"...................................................... 4
1.29. "Third Party"................................................. 4
1.30. "Third Party Royalties"....................................... 4
1.31. "Valid Claim"................................................. 4
1.32. "Work Plan"................................................... 4
2 LICENSE TO GENZYME................................................... 4
2.1. Exclusive License............................................. 4
2.2. Acquisition of Third Party Rights............................. 5
3 DEVELOPMENT PROGRAM.................................................. 5
3.1. Goals......................................................... 5
3.2. Program Administration........................................ 5
3.3. Performance of Services....................................... 6
3.4. Records and Data.............................................. 7
3.5. Visit of Facilities........................................... 7
3.6. Exclusivity................................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.7. Subcontracts.................................................. 7
4 PAYMENTS AND REPORTS................................................. 7
4.1. Milestone Payments............................................ 7
4.2. Development Funding........................................... 8
4.3. Royalty Payments.............................................. 9
4.4. Audit Rights.................................................. 10
4.5. Payment Currency.............................................. 10
4.6. Payment Mechanics............................................. 10
5 MANUFACTURING AND MARKETING.......................................... 10
5.1. Pre-Clinical and Clinical Manufacture by Celtrix.............. 10
5.2. Commercial Manufacture by Genzyme............................. 10
5.3. Genzyme to Sell............................................... 11
6 CELTRIX REPRESENTATIONS AND WARRANTIES............................... 11
6.1. Third-Party Agreements........................................ 11
6.2. No Third Party Rights......................................... 11
7 PROPRIETARY RIGHTS................................................... 11
7.1. Improvements.................................................. 11
7.2. Patent Prosecution and Maintenance............................ 12
7.3. Third Party Claim of Infringement............................. 12
7.4. Infringement by Third Parties................................. 12
8 CONFIDENTIALITY...................................................... 13
8.1. General....................................................... 13
8.2. Disclosure of Agreement....................................... 13
9 INDEMNIFICATION...................................................... 13
9.1. Mutual Right to Indemnification............................... 13
9.2. Celtrix Right to Indemnification.............................. 13
9.3. Procedure..................................................... 14
9.4. Product Liability Insurance................................... 14
10 TERM AND TERMINATION................................................. 14
10.1. License Term.................................................. 14
10.2. Termination for Breach........................................ 14
10.3. Survival of Obligations....................................... 15
11 OTHER ARRANGEMENTS BETWEEN THE PARTIES............................... 15
11.1. Genzyme Right to Negotiate.................................... 15
12 MISCELLANEOUS........................................................ 15
12.1. Force Majeure................................................. 15
12.2. No Warranty of Success........................................ 15
12.3. Relationship of the Parties................................... 15
12.4. Notices....................................................... 16
12.5. Successors and Assigns........................................ 16
12.6. Amendments and Waivers........................................ 16
12.7. Governing Law................................................. 16
12.8. Dispute Resolution............................................ 17
12.9. Severability.................................................. 17
12.10. Headings...................................................... 17
</TABLE>
ii
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<TABLE>
<S> <C>
12.11. Execution in Counterparts..................................... 17
12.12. Entire Agreement.............................................. 17
SCHEDULE 1
Patents/Patent Applications Owned/Licensed by Celtrix................ 19
</TABLE>
iii
<PAGE>
LICENSE AND DEVELOPMENT AGREEMENT
This Agreement dated as of June 24, 1994 is between Celtrix
Pharmaceuticals, Inc., a Delaware corporation ("Celtrix"), and Genzyme
Corporation, a Massachusetts corporation ("Genzyme").
RECITALS
A. Celtrix and Genzyme desire to engage in a joint program to develop and
commercialize Transforming Growth Factor Beta, in particular TGF-B2, for use in
tissue repair (for both hard and soft tissues) and clinical systemic indications
excluding mucositis and ophthalmic indications and certain soft tissue
augmentation indications previously licensed to Collagen Corp.; initially
focusing on wound repair and multiple sclerosis. TGF-B2 is a cytokine developed
by Celtrix.
B. Genzyme is willing to (i) undertake certain development activities
assigned to it hereunder, (ii) provide funding for the development of TGF-B2,
(iii) undertake commercially reasonable efforts, based upon the progress of
development work on the product and the size of the potential markets, to obtain
at its expense regulatory approvals of TGF-B2, and (iv) make certain milestone
payments and royalty payments to Celtrix in exchange for commercialization
rights with respect to TGF-B2.
C. Celtrix is willing to (i) undertake certain development activities
assigned to it hereunder, and (ii) grant commercialization rights to Genzyme in
exchange for the right to receive certain milestone payments and royalty
payments on future sales of TGF-B2.
D. Genzyme has agreed to purchase shares of Common Stock of Celtrix as set
forth in the Common Stock Purchase Agreement dated as of the date hereof by and
between Celtrix and Genzyme (the "Investment Agreement").
In consideration of the foregoing and the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1 DEFINITIONS. The following capitalized terms used herein shall have the
-----------
respective meanings set forth below. Certain other capitalized terms are
defined elsewhere in this Agreement.
1.1. "Additional Indications" means indications for the use of TGF-B in
----------------------
applications other than wound care management, multiple sclerosis, mucositis,
ophthalmic indications, soft tissue augmentation and includes for example (and
without limitation) cancer, hard tissue repair and other auto-immune
applications; "Additional Products" shall mean Products for Additional
-------------------
Indications.
1.2. "Affiliate" means a person or entity that directly or indirectly
---------
controls, is controlled by or is under common control with, a party to this
Agreement. "Control" (and, with correlative meanings, the terms "controlled by"
and "under common control with") means, in the
<PAGE>
case of a corporation, the ownership of more than 50% of the outstanding voting
securities thereof or the right to acquire such securities within 60 days and,
in the case of any other type of entity, an interest that results in the ability
to direct or cause the direction of the management and policies of such entity
or the power to appoint 50% or more of the members of the governing body of the
entity or the right to financially consolidate for reporting and/or tax purposes
the financial performance of such entity.
1.3. "Business Representative" means a senior level business executive
-----------------------
designated by a party for purposes of identifying and planning the strategy of
selecting, financing and developing Additional Indications.
1.4. "Competing Product" means any product containing TGF-B sold by a
-----------------
party other than Genzyme or its Affiliates or sublicensees that provides
essentially the same clinical functions as the Product in the same clinical
situations in which the Product is used.
1.5. "Confidential Information" means all proprietary information
------------------------
communicated to, learned of, developed or otherwise acquired by either party
under this Agreement.
1.6. "Development Costs" means (a) the direct costs, fees and out-of-
-----------------
pocket or other expenses incurred in the course of performing the work under the
Development Program (excluding capital expenditures) plus (b) an allocation of
overhead costs on internal research and development but excluding (x) Celtrix's
overhead on external costs and (y) actual capital investment but including
depreciation expenses. Development Costs incurred by a party shall be
determined on a reasonable basis consistent with such party's internal cost
accounting system.
1.7. "Development Program" means the research and development and other
-------------------
work on the Products to be conducted by the parties hereunder, including
clinical testing, regulatory submissions and ongoing Product research and
development performed in accordance with the Work Plan following receipt of
marketing approval of the Products for any indication and feasibility research
in pursuit of Additional Indications.
1.8. "FDA" means the United States Food and Drug Administration.
---
1.9. "First Commercial Sale" means the first arms-length sale pursuant to
---------------------
this Agreement to one or more Third Parties of any Product following receipt of
approval to commence manufacturing and selling such Product from the applicable
regulatory agency in the applicable country, including any compassionate use
outside the United States following regulatory approval from the FDA.
1.10. "Field" means any therapeutic uses of TGF-B for any clinical
-----
indication excluding soft tissue augmentation previously licensed to Collagen
Corporation, vascular prostheses including stents and grafts previously licensed
to Prograft Medical Inc. and all ophthalmic and mucositis indications and uses.
1.11. "Initial Indications" means the indications for wound repair and
-------------------
multiple sclerosis; "Initial Products" shall mean Products for the Initial
----------------
Indications.
2
<PAGE>
1.12. "IND" means an investigational new drug application filed with the
---
FDA prior to beginning clinical trials in humans.
1.13. "Improvements" means any Technology that is discovered, developed or
------------
otherwise acquired in the course of the Development Program hereunder that may
be useful in the manufacture or use of Product.
1.14. "Licensed Technology" means all Technology owned or controlled by
-------------------
Celtrix as of the date hereof or owned or controlled by Celtrix hereafter during
the term of this Agreement, but only to the extent that such Technology relates
to the use, delivery, including but not limited to the collagen/heparin sponge,
manufacture or sale of the Product in the Field. Technology "owned or
controlled" includes Technology as to which Celtrix has the right to grant or
cause to be granted sublicenses and/or immunity from suit.
1.15. "Major Market" means any one of the United States, the E.C., United
------------
Kingdom, France, Germany or Italy.
1.16. "Manufacturing Costs" means (a) the direct material and labor costs
-------------------
associated with manufacturing the Product, (b) overhead allocable to manufacture
of the Product and (c) the amount paid to Third Parties to acquire manufactured
Products, whether or not such Product is in final form. Direct material costs
include the costs of purchasing raw materials and packaging components. Direct
labor includes the cost of employees directly employed in Product manufacturing,
quality control or packaging. Overhead allocated to manufacture of the Product
shall be limited to (i) a reasonable allocation of the cost of employees who
have a direct relationship with Product manufacturing, quality control or
packaging, but who are not classified as direct labor, which allocation shall be
based on each such employee's time spent in Product manufacturing, quality
control or packaging as compared to time spent on all such employee's work, (ii)
non-labor indirect costs normally associated with manufacturing, (iii) a
reasonable allocation of facilities' costs allocable to Product manufacturing,
quality control and packaging and (iv) a reasonable allocation of general and
administrative costs. Manufacturing Costs shall be determined on a reasonable
basis consistent with the manufacturing party's internal cost accounting system.
1.17. "NDA" or "PLA" means a new drug application or product license
--- ---
application, respectively filed with the FDA to obtain marketing approval for a
Product. An "ELA" means an Establishment License Application.
---
1.18. "Net Sales" means Royalty Bearing Sales less Third Party Royalties
---------
except those payable to Genentech, Inc. and Hercules, Inc.
1.19. "Patents" means (a) the patents and patent applications listed on
-------
Schedule 1 hereto and all patent applications hereafter filed that are owned by
or licensed to Celtrix in the Territory and which have one or more claims
covering Licensed Technology or Improvements, (b) any patent application
constituting an equivalent, reissue, extension, continuation-in-part or a
division of any of the foregoing, including foreign counterparts, and (c) any
patents issued upon any of the foregoing applications.
3
<PAGE>
1.20. "Phase II Clinical Trials" means the second phase of human clinical
------------------------
trials of a drug or biologic product required by the FDA in which the product is
tested in patients afflicted with a particular disease in order to gain
preliminary evidence of effectiveness, determine optimal dosage and obtain
expanded evidence of safety.
1.21. "Pivotal Clinical Trials" means the final or pivotal phase of human
-----------------------
clinical trials of a drug or biologic product required by the FDA and intended
to serve as the basis for an NDA or PLA filing.
1.22. "Product" means any pharmaceutical composition in the Field
-------
incorporating TGF-B and further including appropriate delivery vehicles
including without limitation heparin and collagen.
1.23. "Project Representative" means an individual designated by a party
----------------------
pursuant to Section 3.2(a). The Project Representative of a party may be
changed at any time by written notice to the other party.
1.24. "Royalty Bearing Sales" means the gross amount billed for Product
---------------------
sold by Genzyme, its Affiliates and sublicensees pursuant to this Agreement to a
Third Party, less discounts, rebates, returns, credits, contractual allowances,
distributor fees (provided such do not exceed 4% of the gross amount), sales
deemed uncollectible, shipping and insurance charges, sales taxes, duties, and
other governmental charges.
In the event a Product is sold in a combination product with other
pharmacologically active components, Net Sales, for purposes of royalty payments
on the combination product, shall be calculated by multiplying the Net Sales of
that combination product by the fraction A/B, where A is the gross selling price
of the Product sold separately and B is the gross selling price of the
combination product. In the event that no such separate sales are made by
Genzyme or its Affiliates or sublicensees, the parties shall negotiate in good
faith the meaning of Net Sales for purposes of royalty payments on the
combination product. It is to be understood that compounds included for the
purpose of effecting drug delivery (such as for example, collagen) shall not be
deemed a pharmacologically active component.
1.25. "Technology" means all (a) ideas, methods, inventions, techniques,
----------
processes, know-how, trade secrets and other information and all (b) compounds,
formulations, and other natural and man-made materials.
1.26. "Territory" means worldwide except Japan, China, Korea and Taiwan
---------
(the "excluded countries") which are currently under negotiation with a Third
Party. If that negotiation should not lead to an agreement, Celtrix agrees to
discuss in good faith with Genzyme the terms for adding such excluded countries
to the Territory.
1.27. "TGF-B" means any and all transforming growth factor Betas (1,2,3,
-----
etc) and any fragments, analogs, derivatives or modifications thereof which
provides essentially the same biological function as transforming growth factor
Betas, including all uses of the foregoing owned, licensed and/or developed by
Celtrix.
4
<PAGE>
1.28. "TGF-B2" means transforming growth factor Beta 2 as described in
------
U.S. Patent # 4,774,322.
1.29. "Third Party" means any entity other than Celtrix, Genzyme or their
-----------
Affiliates.
1.30. "Third Party Royalties" means royalties calculated on Royalty
---------------------
Bearing Sales and payable to Third Parties.
1.31. "Valid Claim" means a claim of an issued patent included within the
-----------
Patents that has not expired or been withdrawn, canceled, disclaimed or held
invalid by a court or governmental agency of competent jurisdiction in an
unappealed or unappealable decision.
1.32. "Work Plan" means a written summary of the tasks to be undertaken by
---------
each party during a particular calendar year in connection with the development
of Product, together with a budget of the anticipated Development Costs
associated therewith, adopted by the parties in accordance with Section 3.2(c).
Each Work Plan will include reasonably detailed descriptions of the tasks and
work to be performed, the resources required to accomplish the work, the costs
associated with the planned work and whether Celtrix or Genzyme will be
responsible for accomplishing each task.
2 LICENSE TO GENZYME.
------------------
2.1. Exclusive License. Subject to the terms and conditions of this
-----------------
Agreement, Celtrix hereby grants to Genzyme an exclusive (against Celtrix and
all others) right and license (including the right to grant sublicenses) in the
Territory to make, have made (including by Celtrix hereunder), use and sell any
Product in the Field (a) the use, manufacture or sale of which is covered by one
or more claims of the Patents or (b) incorporating or manufactured using
Licensed Technology. Any Celtrix rights not specifically licensed hereunder
shall continue to be vested exclusively in Celtrix, and Celtrix shall have the
sole authority and discretion to exercise or refrain from exercising such
rights.
2.2. Acquisition of Third Party Rights. Genzyme shall use all
---------------------------------
commercially reasonable efforts to obtain any rights (excluding those from
Genentech), at its cost, from any Third Party that are necessary for the
manufacture, use or sale of the Product in accordance with this Agreement.
Celtrix shall bear all costs associated with any reduction pursuant to Section
3.2(b) of the License Agreement effective as of April 1, 1993 between Celtrix
and Genentech, Inc. (the "Genentech Agreement") of the royalty rate governing
the payments due Genentech whereupon the royalty rate due Celtrix under Section
4.3 shall be increased by forty percent (40%) of the amount of the reduction of
the Genentech royalty rate.
3 DEVELOPMENT PROGRAM.
-------------------
3.1. Goals. Commencing upon completion of the initial Work Plan as set
-----
forth in Section 3.2(c), Celtrix and Genzyme agree to continue the research and
development begun by Celtrix on the Products according to the Work Plans, with
the goal of developing commercially marketable Products in the shortest feasible
period of time consistent with the level of funding
5
<PAGE>
hereunder. Specifically, the initial goals of the Development Program will be to
develop the Products for (i) wound repair and (ii) multiple sclerosis and
thereafter, (iii) Additional Indications.
3.2. Program Administration.
----------------------
(a) Project Representatives. The parties shall each designate a
-----------------------
Project Representative to facilitate liaison between it and the other party,
oversee and review the progress of the Development Program, determine the
allocation of responsibilities between the parties for conducting the
Development Program, develop clinical trial protocols, manage the
clinical/regulatory process and discuss potential competition and other relevant
matters to assure rapid development and commercialization of the Products.
(b) Disagreements. All material decisions made hereunder relating to
-------------
the Development Program during 1994, 1995 and 1996 shall require the approval of
both Project Representatives, not to be unreasonably withheld or delayed. The
Project Representatives shall attempt in good faith to reach consensus on all
matters. Disagreements shall be resolved as follows. The Project
Representatives shall promptly present the disagreement to the Business
Representatives of the parties or their designees, who shall attempt resolution
of the matter. If such Business Representatives cannot resolve such
disagreement after forty-five (45) days, then the dispute shall be promptly
presented to the chief executive officers of the Parties. If such executives
cannot promptly resolve such disagreement, then the dispute shall be resolved
under the arbitration provisions of Section 12.8.
(c) Work Plans. Promptly after the date hereof, the Project
----------
Representatives shall prepare and recommend an initial Work Plan for the
remainder of 1994. Prior to October 1, 1994 and October 1, 1995, the Project
Representatives shall prepare and recommend a proposed Work Plan for 1995 and
1996, respectively. Each Work Plan adopted shall be signed by both parties.
The Project Representatives shall actively consult with one another during 1994,
1995 and 1996 so as to adjust the specific work performed under the Work Plan to
conform to evolving developments in technology, clinical testing and the results
of the development work performed. Thereafter and throughout the term of the
Development Program, the Genzyme Project Representative shall actively inform
the Celtrix Project Representative of the results of the development work
performed by Genzyme. Work Plans for subsequent years shall involve at least
similar levels of activity by Genzyme as undertaken during 1994, 1995 and 1996
and shall be provided to Celtrix at the beginning of each calendar year during
the Development Program. While not subject to clear projection at this early
stage, the parties expect that Genzyme will commit approximately two to five
million dollars per year per Initial Indication over the next several years and
such expenditures shall be satisfactory evidence of the parties' expectations of
commercially reasonable due diligent efforts required under this Agreement.
Celtrix shall provide to Genzyme or its Affiliates without charge (i) during
1994, two million dollars worth of services and (ii) during 1995, one-half
million dollars worth of services. If Celtrix exercises its call option
pursuant to the Investment Agreement of even date herewith and Genzyme makes a
requisite equity investment, Celtrix shall provide to Genzyme or its Affiliates
without charge (i) during 1996, one million dollars worth of services and (ii)
during
6
<PAGE>
1997, one-half million dollars worth of services. Services to be provided shall
be determined at Celtrix's cost and set forth in applicable Work Plans and may
comprise Manufacturing Costs incurred pursuant to Section 5.1 or Development
Costs incurred pursuant to Section 3.0 as applicable. If services are not
provided in the specified calender years, they will carry over to the subsequent
years.
(d) Progress Reports. Within 45 days following the end of each
----------------
calendar quarter during 1994, 1995 and 1996, each Project Representative shall
deliver to the other a reasonably detailed written report which shall (1)
describe the work performed by the representative's party during the quarter on
the Development Program and (2) if appropriate, recommend any revisions to the
Work Plan that would improve the progress of the Development Program.
Thereafter or upon such time as Genzyme undertakes substantially all development
activity, the Genzyme Project Representative shall deliver to the Celtrix
Project Representative at mid year and with the annual Work Plan a written
report summarizing the work performed and the progress made in the intervening
period from the last such report.
(e) Meetings. The Genzyme Project Representatives and other employees
--------
or consultants of Genzyme responsible for management of the Development Program
shall meet at least once during each calendar quarter during the term of the
Development Program for the purpose of reviewing the status of the Development
Program including (i) relevant data, (ii) technical issues that have arisen,
(iii) issues of priority and (iv) the design and conduct of clinical trials and
anticipated regulatory filings, (v) budgets and expenditures, (vi) competition
and (vii) any other matters relevant to the development of the Products. The
Celtrix Project Representative shall have a standing invitation to the Genzyme
quarterly project review meetings. Such meetings shall be held at Genzyme
facilities, unless otherwise agreed by the parties. Each party shall be
responsible for its own costs incurred in connection with such meetings. The
Project Representatives shall jointly prepare minutes summarizing the matters
reviewed and any actions taken at such meetings and shall distribute such
minutes to the parties within 14 days following each meeting.
(f) Celtrix Development Opportunities. If Celtrix should identify an
---------------------------------
Additional Indication for which it would like to develop a Product, it may
approach Genzyme regarding its plans with respect to such indication. If
Genzyme determines that it is not interested in pursuing that indication at that
time, at its option not to be unreasonably withheld, it may give Celtrix the
right to develop such indication on its own. If Celtrix should subsequently
decide that it wishes to get a partner to assist Celtrix in such development, it
shall first provide Genzyme with an opportunity to become involved. If Genzyme
again determines within a reasonable time that it is not interested, then
Celtrix shall have the right to go to a Third Party provided however, that any
Product developed by Celtrix by itself or with such Third Party shall be subject
to the payment of royalties to Genzyme pursuant to the royalty provisions of
this Agreement, mutatis mutandis. In addition, if Genzyme determines not to
pursue commercialization of a Product in any geographic market in the Territory
or any clinical indication, it will negotiate in good faith with Celtrix the
terms for the license of such rights to Celtrix.
7
<PAGE>
3.3. Performance of Services. Each party shall use all commercially
-----------------------
reasonable efforts to perform the development work assigned to it in a prudent
and skillful manner in accordance, in all material respects, with the Work Plan
then in effect and applicable laws. Each party shall furnish all labor,
supervision, facilities, supplies and materials necessary to perform the
development work assigned to it in accordance with the Work Plan then in effect.
The party assigned responsibility for any regulatory filings or portions thereof
with the FDA or any comparable foreign regulatory body shall make available to
the other party any materials it proposes to file for such party's review and
approval, which approval may not be unreasonably withheld or delayed. Such
materials shall be made available to the other party sufficiently in advance of
the anticipated filing date so as to give such party a reasonable opportunity to
review and comment. All responses by regulatory bodies shall also be promptly
disclosed to the other party.
3.4. Records and Data. Each party shall maintain records in sufficient
----------------
detail and in good scientific manner appropriate for patent and FDA purposes and
so as to properly reflect all work done and results achieved in the performance
of the Development Program. Such records shall include books, records, reports,
research notes, charts, graphs, comments, computations, analyses, recordings,
photographs, computer programs and documentation thereof, computer information
storage means, samples of materials and other graphic or written data generated
in connection with the Development Program, including any data required to be
maintained pursuant to applicable governmental regulations. Each party shall
provide the other the right to inspect records, and shall provide copies of all
requested records, to the extent reasonably related to the performance of the
other's obligations under this Agreement.
3.5. Visit of Facilities. Representatives of each party may, upon
-------------------
reasonable notice and at times reasonably acceptable to the other party, (a)
visit the facilities where the Development Program is being conducted and/or the
facilities where the other party manufactures any Product or active compound
contained therein (or has a Product or such a compound manufactured by a Third
Party), (b) consult informally, during such visits and by telephone, with
personnel of the other party performing work on the Development Program and (c)
with the other party's prior approval, which approval shall not be unreasonably
withheld, visit the sites of any clinical trials or other experiments being
conducted by such other party in connection with the Development Program, but
only to the extent in each case as such trials or other experiments relate to
the Development Program. If requested by the other party, Celtrix and Genzyme
shall cause appropriate individuals working on the Development Program to be
available for meetings at the location of the facilities where such individuals
are employed at times reasonably convenient to the party responding to such
request.
3.6. Exclusivity. During the term of this Agreement, each party agrees
-----------
that it will not engage in research and development within the Field and the
Territory relating to, or manufacture, use or sell, the Product, a Competing
Product or any other TGF-B formulation on its own behalf, with the exception of
product rights returned to Celtrix pursuant to Section 3.2(f). Except as set
forth herein, this Agreement is not intended and should not be construed to
prevent or limit Celtrix's right to use its technology and patent rights in
areas outside the Field.
8
<PAGE>
3.7. Subcontracts. Prior to December 31, 1996, neither party may
------------
subcontract any portion of the development work to be performed by it hereunder
unless such subcontract is contemplated by the Work Plan or otherwise approved
in writing by the other party, which approval shall not be unreasonably withheld
or delayed. In the case of any such approved subcontract, the payments to such
subcontractor shall be included in the calculation of Development Costs
hereunder.
4 PAYMENTS AND REPORTS.
--------------------
4.1. Milestone Payments.
------------------
(a) Milestones. Genzyme shall make the following payments to Celtrix
----------
within 30 days following achievement of the applicable milestone:
For the first Product for a wound repair indication:
(i) $250,000 upon initiation of the Pivotal Clinical Trial;
(ii) $750,000 upon the first filing of a PLA (or equivalent) in
a Major Market; and
(iii) $1,500,000 upon receipt of final marketing approval from
the FDA (or equivalent) in a Major Market to manufacture
and sell.
For the first Product for multiple sclerosis indication:
(i) $750,000 upon initiation of the Pivotal Clinical Trial;
(ii) $1,000,000 upon the first filing of a PLA (or equivalent)
in a Major Market; and
(iii) $2,000,000 upon receipt of final marketing approval from
the FDA (or equivalent) in a Major Market to manufacture
and sell.
For any and all other Products: no milestone payments will be due.
(b) Credit. One-half of the milestones paid under Section 4.1(a)
------
shall be fully creditable against the royalty payments payable by Genzyme to
Celtrix under Section 4.3 provided that no more than fifty percent (50%) of such
royalty payments may be credited in any given year.
4.2. Development Funding. All Development Costs shall be borne by the
-------------------
Genzyme as follows.
(a) Initial Indications. Genzyme shall be responsible for funding all
-------------------
commercially reasonable Development Costs for the Initial Products pursuant to
Section 3.2(c).
9
<PAGE>
(b) Additional Indications. For a period of five years beginning
----------------------
January 1, 1995, Genzyme agrees that it shall spend at least Five Hundred
Thousand Dollars ($500,000) per year in feasibility, evaluation testing and
development of Additional Products.
(c) International Approval. Genzyme shall use commercially reasonable
----------------------
efforts, based upon the progress of the Development Program and the size of the
potential foreign markets, to obtain approval to market the Products for wound
healing and multiple sclerosis outside the United States and shall be
responsible for all costs associated therewith. Notwithstanding the foregoing,
Genzyme is not obligated to pursue simultaneous filings for regulatory approval
in more than one country at a time. The parties agree that the first filings
that Genzyme shall consider making in foreign countries shall be with the
Committee for Proprietary Medicinal Products or other European agency
responsible for approval of drug products sold in the European Economic
Community.
(d) Reports and Payment. Genzyme shall pay Celtrix quarterly in
-------------------
arrears, the estimated Development Costs to be incurred by Celtrix pursuant to
the Work Plan during such quarter. Within 60 days after the end of each two
quarters, Celtrix shall provide Genzyme with a reasonably detailed itemized
invoice of the Development Costs actually incurred by Celtrix during the
previous two quarters. These actual Development Costs shall be reconciled
against the estimated payments made for such two quarters and any overpayment or
underpayment shall be appropriately reflected in the next quarter's estimated
Development Cost payment provided however, that Genzyme shall not be required to
pay more Development Costs during the year than that set forth in the applicable
Work Plan.
4.3. Royalty Payments.
----------------
(a) Royalty Rates. On a per Product (e.g. all wound repair Products
-------------
regardless of dosage or formulation comprise a Product) and annual basis and
subject to increase pursuant to Section 2.2 and decrease pursuant to Section
4.3(b), Genzyme shall pay Celtrix royalties based on one of the following
percentages of Net Sales of Products sold by Genzyme and its Affiliates in a
country where the respective Product is covered by any Valid Claim, beginning
with the First Commercial Sale in such country and continuing until all such
Valid Claims have expired:
For Initial Products:
(x) Five percent (5%) on the first $200,000,000 of Net Sales,
then
(y) Seven percent (7%) on the next $200,000,000 of Net Sales;
and then
(z) Nine percent (9%) on Net Sales in excess of $400,000,000.
For Additional Products:
The royalty structure above shall apply except that the royalty
rate in each case shall be four, six and eight percent (4%, 6%,
and 8%), respectively.
10
<PAGE>
(b) Absence of Valid Claims. In the event that the sale of a
-----------------------
particular Product is not covered by a Valid Claim, then the applicable Royalty
Rates set forth in Section 4.3(a) shall be reduced by fifty percent (50%) and
shall be payable for a period beginning with the First Commercial Sale and
ending ten (10) years thereafter. If a Valid Claim should issue after the First
Commercial Sale in the country in question, then from that point on, the royalty
rates and time periods set forth in Section 4.3(a) shall apply.
(c) Single Royalty and Rights Following Termination of Royalty
----------------------------------------------------------
Obligations. Only one royalty shall be payable per sale of Product regardless
- -----------
of the number of Valid Claims or Patents that cover the Product. Following
termination of Genzyme's royalty obligation with respect to Product sales in any
country, Genzyme's license granted pursuant to Article 2 shall be a fully paid
up license in such country.
(d) Sublicense Royalties. In the event that Genzyme grants any
--------------------
sublicense hereunder to any Third Party and in connection therewith receives
royalties from such sublicensee based on such sublicensee's sales of Product,
Genzyme shall pay Celtrix royalties on such sublicensee's sales at the rate
specified in Section 4.3 unless Genzyme receives approval from Celtrix to pay at
a lower rate.
(e) Third Party Royalties. If any Third Party is entitled to receive
---------------------
royalties based on Product sales by Genzyme or its Affiliates or sublicensees,
such royalty obligations shall be allocated to Genzyme and paid directly by
Genzyme except with respect to royalties payable to Genentech and to Hercules.
In those events, Celtrix shall be responsible for paying all royalties due
Genentech and Hercules. Genzyme shall provide Celtrix with the information
concerning the calculation of Genentech's royalties and payment therefor to
enable Celtrix to pay Genentech. Genzyme shall also provide Celtrix with the
information concerning the calculation of Hercules' royalties to enable Celtrix
to pay Hercules from its royalties.
(f) Reports and Payment. Genzyme shall keep, and shall require all
-------------------
Affiliates and sublicensees to keep, accurate records in sufficient detail to
enable the amounts due to Celtrix to be determined. Genzyme shall deliver to
Celtrix within 45 days after the end of each calendar quarter a written
accounting, including quantities and monetary amounts of sales of each Product
by Genzyme and its Affiliates and sublicensees, on a country-by-country basis,
and the amount of the royalty payments, if any, due to Celtrix for such quarter.
Genzyme, simultaneously with the delivery of each such accounting, shall tender
payment of all royalties shown to be due thereon.
4.4. Audit Rights. Each party shall permit the other party or its
------------
representatives to have access, at its own expense, no more than once in each
calendar year during the term of this Agreement and twice-during the three (3)
calendar years following the termination hereof, during regular business hours
and upon reasonable notice, to its records and books for the sole purpose of
determining the appropriateness of Development Costs charged by such party
hereunder or verifying the royalties payable hereunder. If such examination
reveals that such Development Costs have been overstated or such royalties have
been understated for any calendar year, such overpayment shall be promptly
refunded or added to the remaining funding obligation of such
11
<PAGE>
party hereunder or in the case of an underpayment of royalties, Genzyme shall
promptly pay to Celtrix the amount of any underpayment; provided that if such
--------
examination was not conducted by an independent accountant, the party whose
records were examined shall have the right to engage an independent accountant
reasonably acceptable to the examining party to verify the results of such
examination. The fees and expenses of such accountant shall be paid by the party
alleging that the amounts charged or paid were incorrect, unless the error is
more than 10% of the actual amount due, in which case the party who made the
error shall pay all reasonable costs and expenses incurred by the investigating
party in the course of making such determination. Any sublicense granted by
Genzyme hereunder shall contain audit provisions as set forth in this Section
4.4, mutatis mutandis.
4.5. Payment Currency. All payments to be made under this Agreement shall
----------------
be made in United States dollars. In the case of sales in foreign currencies,
the rate of exchange to be used in computing the amount of currency equivalent
in United States dollars due Celtrix shall be made at the rate of exchange
prevailing on the last day of the calendar quarter published by a New York money
center bank designated by Genzyme which Genzyme uses for currency conversion in
the preparation of Genzyme's public financial reports.
4.6. Payment Mechanics. All payments under this Agreement shall be made
-----------------
by wire transfer of immediately available funds to such account as the receiving
party shall specify or by other payment method acceptable to the parties.
5 MANUFACTURING AND MARKETING.
---------------------------
5.1. Pre-Clinical and Clinical Manufacture by Celtrix. Subject to
------------------------------------------------
Genzyme's rights under Section 5.3, Celtrix shall be responsible for
manufacturing all of Genzyme's requirements for Product for the conduct of pre-
clinical and Phase I/II clinical testing of the Initial Products provided that
Celtrix possesses the capability to perform such manufacturing under applicable
regulatory standards and that it shall have adequate capacity to provide the
necessary quality and quantity of Product in the time frames required by
Genzyme. The parties shall agree to and implement customary forecast and order
procedures with respect to such Product to be manufactured by Celtrix.
Celtrix's responsibilities shall include all aspects of the manufacturing
process, including maintenance of manufacturing inventory, quality control and
shipment of Product in accordance with orders placed by Genzyme. As
compensation for such manufacturing services, Celtrix shall be entitled to
receive payment of its Manufacturing Costs, subject to reduction pursuant to
Section 3.2(c).
5.2. Commercial Manufacture by Genzyme. At any time after it has
---------------------------------
established the capability to do so, Genzyme shall have the right to manufacture
Product under the relevant manufacturing Technology included in the Licensed
Technology. In the event that Genzyme exercises its manufacturing right,
Celtrix shall cooperate with Genzyme to effect the transfer of enabling
manufacturing Technology to Genzyme; provided that Genzyme shall have no right
to use such Technology outside the Field unless it receives a license from
Celtrix to do so. Following any such transfer of manufacturing responsibility,
Genzyme shall be responsible for maintenance of inventory, quality control and
shipment of Product.
12
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5.3. Genzyme to Sell. Following full regulatory approval in any given
---------------
country, Genzyme shall use commercially reasonable efforts to market and sell
the Product in such country. All terms of sale, including pricing policies,
credit terms, cash discounts and returns and allowances, shall be set by
Genzyme. Genzyme shall be responsible for invoicing the customers for Product
and collecting payment therefor. The Product shall be sold under a trademark
selected and owned by Genzyme. Genzyme shall retain management responsibility
for sales and marketing of the Product. All marketing decisions will be made by
Genzyme, including but not limited to pricing and other terms of sale,
distribution channels, sales personnel, advertising, promotion and marketing
programs. All customer orders will be received, executed and invoiced by
Genzyme. If Celtrix receives any orders, it will refer the customer to Genzyme
or appropriate drug wholesalers as designated by Genzyme.
6 CELTRIX REPRESENTATIONS AND WARRANTIES. Celtrix represents and warrants to
--------------------------------------
Genzyme as follows:
6.1. Third Party Agreements. Celtrix has delivered to Genzyme true and
----------------------
complete copies of all agreements with Third Parties relating to the Product.
Celtrix shall use all commercially reasonable efforts to maintain such
agreements in full force and effect and to comply in all material respects with
its obligations thereunder, including any obligations to pay royalties, and will
not modify or amend the same without Genzyme's prior written consent, which
shall not be unreasonably withheld or delayed. Promptly after discovery or
notice of any event of default under any such agreement, or any condition that
would, upon notice, lapse of time or both become an event of default, Celtrix
shall provide notice thereof to Genzyme.
6.2. No Third Party Rights. Except as otherwise set forth in the
---------------------
Statement of Existing Third Party Rights delivered by Celtrix to Genzyme on the
effective date hereof, Celtrix owns or possesses adequate licenses or other
rights to use all patents, patent rights, inventions and know-how necessary for
the manufacture, use and sale of TGF-B2 separately and with a collagen vehicle
and to grant the licenses granted herein. To the best knowledge of Celtrix, the
manufacture, use or sale of Product pursuant to this Agreement will not infringe
or conflict with any Third Party right or patent and Celtrix is not aware of any
pending patent application that if issued would be infringed by the manufacture,
use or sale of Product pursuant to this Agreement.
7 PROPRIETARY RIGHTS.
------------------
7.1. Improvements. Improvements conceived or made solely by the employees
------------
of either party during the term of this Agreement shall be the sole property of
such party. Improvements made jointly by employees of both parties during the
term of this Agreement shall be jointly owned whenever legally possible, or held
according to the mutual agreement of the parties. In the case of any
Improvements owned by Celtrix or jointly owned ("Joint Improvements") by the
parties, such Improvements shall be subject to the license granted to Genzyme
under Section 2. Celtrix shall have the right without any accounting to Genzyme
to use Joint Improvements outside the Field. However, Celtrix shall not have
the right, without entering into a mutually agreeable license agreement with
Genzyme to use such Joint Improvements in the Field outside the Territory.
Celtrix shall promptly disclose to Genzyme any
13
<PAGE>
Improvements developed by Celtrix employees or others acting on its behalf.
Celtrix agrees that all employees and other persons acting on its behalf under
this Agreement shall be obligated under a binding written agreement to assign
(or exclusively license in the case of academics) to Celtrix all Improvements
made or conceived by such employee or other person. Genzyme shall promptly
disclose to Celtrix any Improvements developed by Genzyme employees or others
acting on its behalf and Genzyme shall be willing to discuss with Celtrix the
right to use outside the Field such Improvements.
7.2. Patent Prosecution and Maintenance. Celtrix shall be responsible for
----------------------------------
filing, prosecuting and maintaining the Patents in the United States and foreign
countries on all inventions licensed to Genzyme as of the date of this Agreement
and on Improvements made solely by Celtrix under the Development Program and
shall bear all costs associated therewith. Celtrix shall furnish Genzyme with
copies of any patent application concerning Licensed Technology or Improvements
sufficiently in advance of the anticipated filing date so as to give Genzyme a
reasonable opportunity to review and comment. Celtrix shall also furnish copies
to Genzyme of all substantive communications to and from United States and
foreign patent offices regarding patents or patent applications relating to this
Agreement within a reasonable time prior to filing such communication or
promptly following the receipt thereof. Celtrix shall reasonably consider any
comments Genzyme may have related to such patent applications or communications.
Genzyme shall have the right at its expense to file, prosecute and maintain
patents in the United States and all foreign countries on Improvements owned
solely by it or jointly with Celtrix. In the case of any such filing by Genzyme
relating to Joint Improvements, Celtrix shall have the right to review and
comment on such filings and all patent office communications related thereto to
the same extent as Genzyme is permitted by this Section 7.2 with respect to
Celtrix filings. If Genzyme choses not to file on Joint Improvements, Celtrix
shall have the right, at its expense, to file thereon provided that Genzyme has
no reasonable objection thereto such as an alternative method of intellectual
property protection. Notwithstanding the foregoing, beyond reasonable efforts,
neither party assumes liability to the other for the successful prosecution of
any patent application. However, neither party shall fail to pay any annuity,
tax or other maintenance fee with respect to a patent or patent application
without giving the other party timely notice and opportunity to make such
payment and assume at least joint (if not already the case) ownership rights to
such patent or patent application.
7.3. Third Party Claim of Infringement. Each party shall give the other
---------------------------------
prompt notice of each claim or allegation that the exercise of rights hereunder
constitutes an infringement of one or more patents or other rights of a Third
Party. Genzyme shall use all reasonable efforts to defend the parties against
any such claim or allegation with counsel of its own choice reasonably
acceptable to Celtrix. The costs of such defense and any costs of settling or
otherwise satisfying such claim shall be shared 75% Genzyme, 25% Celtrix. Each
party agrees to cooperate with the other in the defense of any such claim or
allegation, including, to the extent able, furnishing testimony by its employees
and providing technical support and information as requested. Neither party
shall settle or discontinue defense of any such case without the other's prior
written consent, which shall not be unreasonably withheld. In the case of any
proposed settlement involving a cross-license with a Third Party, neither party
may unreasonably refuse to enter into
14
<PAGE>
such a cross-license. The provisions of this Section 7.3 shall also apply to
actions for declaratory relief which raise or are in response to an issue of
infringement of a Third Party patent.
7.4. Infringement by Third Parties. Each party shall give the other party
-----------------------------
prompt notice of any incident of infringement of Patents that comes to its
attention. The parties shall thereupon confer as to what steps are to be taken
to stop or prevent such infringement. Celtrix agrees to use reasonable efforts
to stop any such infringement, but shall not be obligated to commence
proceedings against the infringer. If Celtrix decides to commence proceedings,
however, Celtrix shall be responsible for any legal costs incurred and will be
entitled to retain any settlement or damage award received, and Genzyme agrees
to cooperate with Celtrix in such proceeding. Genzyme shall have the right at
its expense to engage its own counsel in connection with such proceedings.
Should Celtrix decide not to commence proceedings, Genzyme shall be entitled
(but not obligated) to do so in its own name and/or in Celtrix's name against
the infringer, in which event Genzyme shall be responsible for all legal costs
incurred, and will be entitled to retain any settlement or damage award
received, and Celtrix agrees to cooperate with Genzyme in such proceedings and
Celtrix shall have the right at its expense to engage its own counsel in
connection with such proceedings.
8 CONFIDENTIALITY.
---------------
8.1. General. Any party receiving Confidential Information pursuant to
-------
this Agreement shall maintain the confidential and proprietary status of such
Confidential Information, keep such Confidential Information and each part
thereof within its possession or under its control sufficient to prevent any
activity with respect to the Confidential Information that is not specifically
authorized by this Agreement and prevent the disclosure of any Confidential
Information to any Third Party using the same degree of care it would use with
respect to its own information of like importance; provided, however, that such
-------- -------
restrictions shall not apply to any Confidential Information that is (a)
independently developed outside the scope of this Agreement by employees of the
receiving party having no access to or knowledge of the Confidential Information
disclosed hereunder, (b) in the public domain at the time of its receipt or
thereafter becomes part of the public domain through no fault of the receiving
party, (c) lawfully received without an obligation of confidentiality from a
Third Party having the right to disclose such information without an obligation
to disclosing party, (d) released from the restrictions of this Section 8 by the
express written consent of the disclosing party, (e) disclosed to any permitted
assignee, sublicensee or subcontractor or customer of Genzyme or Celtrix,
provided that such assignee, sublicensee, subcontractor or customer is subject
to the provisions of this Section 8 or substantially similar provisions, (f)
required to he disclosed as part of activities to secure financing for the
development of Products hereunder, or (g) required by law, statute, rule or
court order to be disclosed, including requirements of the Securities and
Exchange Commission, the FDA and other regulatory authorities, provided that the
disclosing party uses commercially reasonable efforts to obtain confidential
treatment of any such disclosure. Without limiting the generality of the
foregoing, Genzyme and Celtrix each shall use all commercially reasonable
efforts to obtain, if not already in place, confidentiality agreements from its
respective relevant employees and agents, to protect the Confidential
Information as herein provided.
15
<PAGE>
8.2. Disclosure of Agreement. Neither party shall disclose the terms of
-----------------------
this Agreement to any Third Party without the prior written consent of the other
except that the parties may without such consent disclose (a) the existence of
this Agreement, (b) the identity of the other party and (c) the general subject
matter of this Agreement. Each party shall also be permitted to make such
disclosure of the terms of this Agreement as its counsel reasonably determines
is necessary to comply with law, provided that such party shall use commercially
reasonable efforts to obtain confidential treatment of any such disclosure.
9 INDEMNIFICATION.
---------------
9.1. Mutual Right to Indemnification. Each party shall defend, indemnify
-------------------------------
and hold harmless the other and its directors, officers, employees and agents
from and against any and all claims, liabilities, losses and expenses, including
attorneys' fees, incurred by or asserted against it or any of the foregoing
arising out of (i) the failure of any Product manufactured by such party to
conform to Product specifications, including without limitation any actual or
alleged bodily injury, death or property damage resulting from such failure,
(ii) any actual or alleged violation of law applicable to the manufacture,
handling or storage of the Product by such party, (iii) any product recall of
Product manufactured by such party that is ordered by a governmental agency or
required by a confirmed Product failure as reasonably determined by the parties
and (iv) negligent, reckless or intentional acts or omissions of such party or
its directors, officers, employees and agents in the course of performing work
in accordance with the Work Plans.
9.2. Celtrix Right to Indemnification. Genzyme shall defend, indemnify
--------------------------------
and hold harmless Celtrix and its directors, officers, employees and agents from
and against any and all claims, liabilities, losses and expenses, including
attorneys' fees, incurred by or asserted against Celtrix or any of the foregoing
arising out of a misrepresentation regarding any Product by Genzyme, its
Affiliates or sublicensees which is not in accordance with approved Product
claims or prior Celtrix approval.
9.3. Procedure. Any person that intends to claim indemnification under
---------
this Section 9 (an "Indemnitee") shall promptly notify the other party (the
"Indemnitor") of any claim, in respect of which the Indemnitee intends to claim
such indemnification, and the Indemnitor shall assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The indemnity agreement in
this Section 9 shall not apply to amounts paid in settlement of any loss, claim,
liability or action if such settlement is effected without the consent of the
Indemnitor, which consent shall not be withheld unreasonably. The failure to
deliver notice to the Indemnitor within a reasonable time after the commencement
of any such action, if prejudicial to its ability to defend such action, shall
relieve such Indemnitor of any liability to the Indemnitee under this Section 9,
but not any liability that it may have to any Indemnitee otherwise than under
this Section 9. The Indemnitee and its employees and agents shall cooperate
fully with the Indemnitor and its legal representatives in the investigation of
any action, claim or liability
16
<PAGE>
covered by this indemnification. In the event that each party claims indemnity
from the other and one party is finally held liable to indemnify the other, the
Indemnitor shall additionally be liable to pay the reasonable legal costs and
attorneys' fees incurred by the Indemnitee in establishing its claim for
indemnity.
9.4. Product Liability Insurance. Each party shall use all commercially
---------------------------
reasonable efforts to maintain product liability insurance with respect to its
manufacture of the Product hereunder. In the case of Celtrix, such insurance
shall be in such amounts and subject to such deductibles as the parties may
agree based upon standards prevailing in the industry at the time such
manufacturing occurs. In the case of Genzyme, such insurance shall be in such
amounts and subject to such deductibles as Genzyme maintains with respect to
sales of its other products. Alternatively, Genzyme may satisfy its obligations
under this Section 9.4 through self-insurance to the same extent as it self-
insures with respect to sales of its other Products. At such time as the
Product is being manufactured by a party for commercial sale, each party shall
name the other party as an additional insured on any such policies. Celtrix
shall maintain such insurance for so long as Genzyme continues to sell any
Product manufactured by Celtrix, and thereafter for so long as Celtrix maintains
insurance for itself covering such manufacture or sales. Genzyme shall maintain
such insurance for as long as Genzyme continues to sell any Product pursuant to
this agreement manufactured by it, and thereafter for so long as Genzyme
maintains insurance for itself covering such manufacture or sales.
10 TERM AND TERMINATION.
--------------------
10.1. License Term. The license granted in Article 2 shall remain in
------------
effect on a country-by-country basis until the later of (i) expiration of the
last patent included in the Patents in such country or (ii) the date 10 years
after the First Commercial Sale in such country. Thereafter, Genzyme shall have
a fully paid up royalty free license to such Patents and Licensed Technology in
such country.
10.2. Termination for Breach. Either party may terminate this Agreement
----------------------
by written notice to the other in the event that (i) the other party fails to
perform any material obligation hereunder and such failure is not cured within
60 days following prompt notice thereof from the non-defaulting party, or (ii)
any bankruptcy, receivership, insolvency or reorganization proceedings are
instituted by the other party or any such proceedings are instituted against the
other party and not dismissed within 60 days; provided, however, that if Genzyme
-------- -------
is the terminating party, the license granted in Article 2 shall continue for
the term set forth in Section 10.1 subject to payment of the amounts due under
Section 4.1 (Milestones) and Section 4.3 (Royalties). If Celtrix is the
terminating party all rights granted hereunder to Genzyme shall revert to
Celtrix effective upon the date of termination of this Agreement. The
bankruptcy of a party shall not give rise to the right of the bankrupt party to
terminate any license granted herein. In the event a claim of infringement by a
Third Party of its patent or other rights is made against Celtrix and/or Genzyme
by virtue of the manufacture, use or sale of Product, Genzyme shall have the
immediate option to terminate this Agreement as to such Product; provided that,
--------
notwithstanding such termination, the license granted in Article 2 shall
continue for the term set forth in Section 10.1, subject to payment of the
amounts due under Section 4.3 (Royalties).
17
<PAGE>
10.3. Survival of Obligations. No termination of this Agreement shall
-----------------------
eliminate any rights and obligations accrued prior to such termination.
Promptly following any termination of this Agreement, each party shall return
all written materials containing Confidential Information, except one copy that
may be retained by counsel for each of the parties for record keeping purposes
only. The provisions of Sections 8, 9, 10.3, 12.4, 12.7 and 12.8 shall survive
any termination of this Agreement.
11 OTHER ARRANGEMENTS BETWEEN THE PARTIES.
--------------------------------------
11.1. Genzyme Right to Negotiate. Celtrix agrees that Genzyme may
--------------------------
negotiate in its stead or in addition to any efforts made by Celtrix to reduce
any royalty payments which may be owed to Genentech under the Genentech
Agreement. Genzyme shall have the right to enjoy fully the results of any such
reduction which it independently obtains without any requirement to share same
with Celtrix.
12 MISCELLANEOUS.
-------------
12.1. Force Majeure. Each party shall be excused for any failure or delay
-------------
in performing any of its obligations under this Agreement, if such failure or
delay is caused by Force Majeure. For purposes of this Agreement, "Force
Majeure" shall mean any act of God, accident, explosion, fire, storm,
earthquake, flood, drought, riot, embargo, civil commotion, war, act of war or
any other circumstances or event beyond the reasonable control of the party
relying upon such circumstance or event. In addition, each party's obligations
hereunder with respect to the development or marketing of the Product are
expressly conditioned upon the continuing absence of any material adverse
conditions relating to the safety or efficacy of the Product, the absence of a
reasonable likelihood of the infringement of unlicensed patent or other
proprietary rights of third parties and the absence of any other condition or
event beyond such party's control that would reasonably justify such party,
after consulting with the other, concluding that the development or marketing of
the Product should be delayed, suspended or stopped, and the parties'
obligations to develop or market any such Product shall be delayed or suspended
for so long as any such condition or event exists.
12.2. No Warranty of Success. While the parties agree to use reasonable
----------------------
efforts to achieve the goals of the Development Program and this Agreement,
neither Celtrix nor Genzyme warrants or guarantees that the goals specified in
any Work Plan will be achieved within the time and financial parameters set
forth therein, that their efforts will result in an approvable Product or that
if approved, that any Product developed hereunder will be successful in the
marketplace.
12.3. Relationship of the Parties. The parties agree that each is acting
---------------------------
as an independent contractor with respect to the other and nothing contained in
this Agreement is intended, or is to be construed, to constitute Genzyme and
Celtrix as partners or joint venturers or Celtrix as an agent of Genzyme.
Neither party hereto shall have any express or implied right or authority to
assume or create any obligations on behalf of or in the name of the other party
or to bind the other party to any contract, agreement or undertaking.
18
<PAGE>
12.4. Notices. Any notice or other communication hereunder shall be in
-------
writing and shall be deemed given when so delivered in person, by overnight
courier (with receipt confirmed) or by facsimile transmission (with receipt
confirmed by telephone or by automatic transmission report) or on the third
business day after being sent by registered or certified mail (postage prepaid,
return receipt requested), as follows (or to such other persons address as may
be specified in writing to the other party hereto):
Celtrix Pharmaceuticals, Inc.
3055 Patrick Henry Drive
Santa Clara, California 93054
Attention: R. Ray Cummings (for general notices)
Attention: Debera Brown (for Development Program notices)
Attention: Sandra McNamara (for financial notices)
Telephone: (408) 988-2500
Facsimile: (408) 450-5440
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139
Attention: General Counsel (for general notices)
Attention: Jean George (for Development Program notices)
Attention: Chief Financial Officer (for financial notices)
Telephone: (617) 252-7500
Facsimile: (617) 252-7600
12.5. Successors and Assigns. The terms and provisions of this Agreement
----------------------
shall inure to the benefit of, and be binding upon, Genzyme, Celtrix, and their
respective successors and assigns; provided, however, that neither Genzyme nor
-------- -------
Celtrix may transfer or assign any of its rights and obligations hereunder
without the prior written consent of the other, except that either party may,
upon 30 days prior written notice to the other party, transfer or assign any of
its rights and obligations hereunder (i) to an Affiliate provided the party
remains liable for the performance of the Affiliate hereunder or (ii) pursuant
to a sale or transfer of all or substantially all of its assets and technology
to which this Agreement pertains, provided that the assignee or transferee first
furnishes to the other party a written undertaking to be bound by all of the
obligations of the assignor or transferor hereunder.
12.6. Amendments and Waivers. No amendment, modification, waiver,
----------------------
termination or discharge of any provision of this Agreement, nor consent to any
departure by Genzyme or Celtrix therefrom, shall in any event be effective
unless the same shall be in writing specifically identifying this Agreement and
the provision intended to be amended, modified, waived, terminated or discharged
and signed by the party against whom enforcement of such amendment is sought,
and each amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or
19
<PAGE>
performance or any other matter not set forth in an agreement in writing and
signed by the party against whom enforcement of such variance, contradiction or
explanation is sought.
12.7. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts.
12.8. Dispute Resolution. All disputes under this Agreement shall be
------------------
settled, if possible, through good faith negotiations between the parties and
ultimately presented to the parties' CEOs for resolution. In the event such
good faith negotiations are unsuccessful, either party may, after 30 days
written notice to the other, submit the matter in dispute to the American
Arbitration Association ("AAA") to be settled by arbitration by a panel of three
arbitrators in Boston, Massachusetts if Celtrix is the initiating party and in
Santa Clara, California if Genzyme is the initiating party in accordance with
the commercial arbitration rules of the AAA. Each party shall appoint one
arbitrator and the two arbitrators so named will select the third, who shall act
as chair of the arbitration panel. If one party fails to appoint its arbitrator
or if the parties' arbitrators cannot agree on the selection of the third, the
AAA shall make the necessary appointments. The arbitrators shall have the
authority to grant specific performance and to allocate between the parties the
costs of arbitration in such equitable manner as they may determine. Upon
reasonable notice and prior to any hearing, the parties will allow document
discovery and will disclose all materials relevant to the subject matter of the
dispute within 60 days following selection of the arbitrators. The arbitrators
shall make final determinations as to any discovery disputes. A hearing on the
matter in dispute shall commence within 90 days following selection of the
arbitrators and the decision of the arbitrators shall be rendered no later than
60 days after commencement of such hearing. The determination of the
arbitrators shall be conclusive and binding upon the parties and judgment may be
entered thereon and enforced by any court of competent jurisdiction, including
the courts of the Commonwealth of Massachusetts or the United States District
Court for the District of Massachusetts and the courts of the State of
California or the United States District Court for the Northern District of
California, and each party hereby irrevocably consents to the jurisdiction of
such courts for such purpose.
12.9. Severability. If any provision hereof should be held invalid,
------------
illegal or unenforceable in any respect in any jurisdiction, then, to the
fullest extent permitted by law, (a) all other provisions hereof shall remain in
full force and effect in such jurisdiction and shall be liberally construed in
order to carry out the intentions of the parties hereto as nearly as may be
possible and (b) such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of such provision in any other
jurisdiction.
12.10. Headings. Headings used herein are for convenience only and shall
--------
not in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
12.11. Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, and all of which counterparts,
taken together, shall constitute one and the same instrument.
20
<PAGE>
12.12. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding of the parties hereto, and supersedes any prior agreements or
understandings between the parties with respect to the subject matter hereof.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
CELTRIX PHARMACEUTICALS, INC.
/s/ Dale A. Stringfellow
--------------------------------
By: Dale A. Stringfellow, Ph.D.
Title: President and CEO
GENZYME CORPORATION
/s/ Gregory D. Phelps
--------------------------------
By: Gregory D. Phelps
Title: Senior Vice President
22
<PAGE>
AMENDMENT No. 1
TO LICENSE AND DEVELOPMENT AGREEMENT
BETWEEN CELTRIX PHARMACEUTICALS, INC.
AND GENZYME CORPORATION
As of June 24, 1994, Celtrix Pharmaceuticals, Inc. (hereinafter
"Celtrix") and Genzyme Corporation (hereinafter "Genzyme") entered into a
License and Development Agreement (hereinafter "the Agreement"). Subject to the
modifications contained in this Amendment No. 1, the Agreement shall continue in
full force and effect.
In order to resolve any issues outstanding between Celtrix and Genzyme
with respect to the Agreement and its subject matter, with the exception of
transfer of any rights in Licensed Technology as defined in the Agreement, and
in accordance with Section 12.6, Celtrix and Genzyme now wish to amend the
Agreement as follows. The effective date of this amendment shall be the latest
date of execution hereof by the parties, with all other terms of the Agreement
continuing in full force and effect.
I. Revision of Article 1, Section 1.26.
------------------------------------
Section 1.26 shall be deleted and replaced with the following:
1.26. "Territory" means worldwide including Japan, China, Korea and
---------
Taiwan (the "Asian countries").
II. Revision of Article 2, Sections 2.1 and 2.2.
--------------------------------------------
Section 2.1 shall be deleted and replaced with the following:
2.1 Exclusive License. Subject to the terms and conditions of this
-----------------
Agreement and rights granted to Genentech, Inc., pursuant to the License
Agreement dated April 1, 1993 between Celtrix and Genentech, Inc., Celtrix
hereby grants to Genzyme an exclusive (against Celtrix and all others) right and
license (including the right to grant sublicenses) to Celtrix's rights in the
Territory to make, have made, (including by Celtrix hereunder), use and sell any
Product in the Field (a) the use, manufacture or sale of which is covered by one
or more claims of the Patents or (b) incorporating or manufactured using
Licensed Technology. Any Celtrix rights not specifically licensed hereunder
shall continue to be vested exclusively in Celtrix, and
23
<PAGE>
Amendment No. 1
Page 2
Celtrix shall have the sole authority and discretion to exercise or refrain from
exercising such rights.
Section 2.2 shall be deleted and replaced with the following:
2.2. Acquisition of Third Party Rights. Genzyme shall use all
---------------------------------
commercially reasonable efforts to obtain any rights, at its cost, from any
Third Party that are necessary for the manufacture, use or sale of the Product
in accordance with this Agreement. Genzyme shall bear and pay all costs and
royalties due by Celtrix under Sections 3.2, 3.3, 3.4, and 3.5 of the License
Agreement effective as of April 1, 1993 between Celtrix and Genentech, Inc.
(the "Genentech Agreement"), in accordance with the provisions contained in
Section 7.0 of the Genentech Agreement, and Genzyme shall further have the right
to seek and obtain reduction of such royalty provisions, to its sole benefit.
III. Addition to Article 3, Section 3.2.(c)
--------------------------------------
Section 3.2(c) shall be amended to add the following at the end of
that Section 3.2:
Genzyme hereby waives and releases Celtrix from any obligation to
provide, or pay the dollar equivalent of, any services required to be provided
pursuant to this Section 3.2(c), including without limitation, all services
required to be provided by Celtrix for the years 1994 through 1997 that are
undelivered as of the effective date of this Amendment No. 1.
IV. Revision of Article 4, Section 4.3(a)
-------------------------------------
Section 4.3(a) shall be deleted and replaced with the following:
(a) Royalty Rates. On a per Product (e.g., all wound repair
-------------
Products regardless of dosage or formulation comprise a Product) and annual
basis and subject to decrease pursuant to Section 4.3(b), Genzyme shall pay
Celtrix royalties based on one of the following percentages of Net Sales of
Products sold by Genzyme and its Affiliates in a country where the respective
Product is covered by any Valid Claim, beginning with the First Commercial Sale
in such country and continuing until all such Valid Claims have expired:
For Initial and Additional Products:
(x) Two percent (2%) on Net Sales in the Asian countries; and
24
<PAGE>
Amendment No. 1
Page 3
(y) One percent (1%) on Net Sales in worldwide countries other than
the Asian countries.
V. Revision of Article 4, Section 4.3(e):
-------------------------------------
Section 4.3(e) shall be deleted and replaced with the following:
(e) Third Party Royalties. If any Third Party is entitled to receive
---------------------
royalties based on Product sales by Genzyme or its Affiliates or sublicensees,
such royalty obligations shall be allocated to Genzyme and shall be paid
directly by Genzyme.
VI. Revision of Article 5, Section 5.1:
----------------------------------
Section 5.1 shall be deleted and replaced with the following:
5.1 Pre-Clinical and Clinical Manufacture. Subject to Genzyme's
-------------------------------------
rights under Section 5.3, Celtrix shall be responsible for the manufacturing of
all of Genzyme's requirements for Product for the conduct of pre-clinical and
Phase I/II clinical testing of Initial Products prior to June 1, 1997, provided
that Celtrix possesses the capability to perform such manufacturing under
applicable regulatory standards and that it shall have adequate capacity to
provide the necessary quality and quantity of Product in the time frames
required by Genzyme. The parties shall agree to and implement customary
forecast and order procedures with respect to such Product to be manufactured by
Celtrix. With regard to such Product manufacture, Celtrix's responsibilities
shall include all aspects of the manufacturing process, including maintenance of
manufactured inventory, quality control and shipment of Product in accordance
with orders placed by Genzyme. As compensation for such manufacturing services,
Celtrix shall be entitled to receive payments of its manufacturing costs,
subject to reduction pursuant to Section 3.2(c). Genzyme acknowledges that
Celtrix has fulfilled all of its manufacturing requirements for Product under
this Section 5.1.
ACCEPTED AND AGREED,
Celtrix Pharmaceuticals, Inc. Genzyme Corporation
By: /s/ Andreas Sommer By: /s/ Richard Douglas
----------------------------- ---------------------------------
Title: President & CEO Title: VP Corporate Development
-------------------------- ------------------------------
Date: 12/31/1997 Date: 12/18/97
-------------------------- ------------------------------
25
<PAGE>
EXHIBIT 10.6
CELTRIX PHARMACEUTICALS, INC.
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is dated as of January 7, 1997
---------
by and between Dr. Andreas Sommer ("Employee") and Celtrix Pharmaceuticals,
--------
Inc., a Delaware corporation (the "Company").
-------
RECITALS
Employee has served as the Company's President and Chief Executive Officer
since April 1995 and has served in various officer positions with the Company
since 1992. The Company's Board of Directors believes it is in the best
interests of the Company to retain Employee and incentivize Employee to continue
in the service of the Company. Accordingly, the Board of Directors of the
Company and Employee agree to enter into this Employment Agreement.
Now therefore, in consideration of the mutual promises, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and shall have a term of two (2) (the "Original Term"). This Agreement may be
-------------
extended for an additional one (1) year beyond the end of the Original Term if
the parties hereto mutually agree in writing to such extension. Subject to the
Company's severance payment obligations set forth in Section 5 below, this
Agreement may be terminated by either party, with or without cause, on thirty
(30) days' written notice to the other party.
2. Duties.
------
(a) Position. Employee shall be employed as President and Chief
--------
Executive Officer, and as such will have responsibility for the overall
operation of the Company and will report to the Company's Board of Directors
(the "Board").
-----
(b) Obligations to the Company. Employee agrees to the best of his
--------------------------
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote all of his business time
and attention to the business of the Company, the Company will be entitled to
all of the benefits and profits arising from or incident to all such work
services and advice, Employee will not render commercial or professional
services of any nature to any person or organization, whether or not for
compensation, without the prior written consent of the Company's Board of
Directors, and Employee will not directly or indirectly engage or participate in
any business that is competitive in any manner with the business of the Company.
Nothing in this Agreement will prevent Employee from accepting speaking or
presentation engagements in exchange for
-1-
<PAGE>
honoraria or from serving on boards of charitable organizations, or from owning
no more than one percent (1%) of the outstanding equity securities of a
corporation whose stock is listed on a national stock exchange. Employee will
comply with and be bound by the Company's operating policies, procedures and
practices from time to time in effect during the term of Employee's employment.
3. At-Will Employment. The Company and Employee acknowledge that
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by a written agreement executed by the Board.
4. Compensation. For the duties and services to be performed by
------------
Employee hereunder, the Company shall pay Employee, and Employee agrees to
accept, the salary, stock options, bonuses and other benefits described below in
this Section 4.
(a) Salary. Employee shall receive an annual salary of $215,000 per
------
year. Employee's salary will be payable pursuant to the Company's normal payroll
practices. In the event this Agreement is extended beyond the Original Term, the
then current base salary shall be reviewed at the time of such extension by the
Board or its Compensation Committee, and any increase will be effective as of
the date determined appropriate by the Board or its Compensation Committee.
Employee's salary shall be reviewed on at least an annual basis for possible
adjustment.
(b) Stock Options and Other Incentive Programs. Employee shall be
------------------------------------------
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
(c) Bonuses. Employee's entitlement to incentive bonuses from the
-------
Company is discretionary and shall be determined by the Board or its
Compensation Committee in good faith based upon the extent to which Employee's
individual performance objectives and the Company's profitability objectives and
other financial and nonfinancial objectives are achieved during the applicable
bonus period. In the event of Employee's death or disability during the term of
this Agreement, the Company shall pay to Employee or Employee's estate the bonus
Employee would have earned during the entire year in which death or disability
occurred.
(d) Additional Benefits. Employee will be eligible to participate in
-------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will be eligible for vacation and sick
leave in accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company generally provides
to its other employees of comparable position and experience.
-2-
<PAGE>
(e) Reimbursement of Expenses. Employee shall be authorized to incur
-------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.
5. Termination of Employment and Severance Benefits.
------------------------------------------------
(a) Termination of Employment. This Agreement may be terminated
-------------------------
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events:
(i) The Company's determination in good faith that it is
terminating Employee for Cause (as defined in Section 6 below) ("Termination for
---------------
Cause");
- -----
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any or no reason ("Termination Without Cause");
-------------------------
or
(iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his employment with
the Company ("Voluntary Termination").
---------------------
(b) Severance Benefits. Employee shall be entitled to receive
------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):
(i) Voluntary Termination. If Employee's employment terminates
---------------------
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.
(ii) Voluntary Termination with Cash Shortfall. If Employee's
-----------------------------------------
employment terminates by Voluntary Termination and a Cash Shortfall (as defined
below) exists, Employee (A) will be paid a lump sum payment on the date of
termination equal to twelve (12) months of Employee's then current base salary,
(B) the principal and interest owed to the Company by Employee pursuant to the
loan made to Employee in January 1992 (the "Loan") shall be forgiven and the
----
promissory note evidencing the Loan shall be canceled and (C) Employee shall be
retained as a consultant by the Company and receive consulting fees equal to
$18,000 per month for services performed for a period of six (6) months (the
"Consulting Period"). During the Consulting Period, Employee shall perform such
- ------------------
services for the Company as may be reasonably requested from time to time by the
Board or the Chief Executive Officer of the Company. The terms of the
consulting arrangement shall be more fully described in the Consulting Agreement
between Employee and the Company substantially in the form attached hereto as
Exhibit A. Such consulting payments shall be made ratably over the Consulting
- ---------
Period according to the Company's standard payroll schedule and invoices
submitted by Employee for the consulting services. Employee will also be
entitled to receive payment on the date of
-3-
<PAGE>
termination of any bonus payable under Section 4(c). Employee shall also be
entitled to continue to participate during the Consulting Period in all of the
Company's health insurance benefits (e.g. medical, dental, optical, mental
health, life) in the same manner and with the same coverage provided to Employee
prior to the date of termination and in all other respects significantly
comparable to those in place immediately prior to such termination. Any unvested
stock options held by Employee as of the date of Employee's termination of
employment shall continue to vest through the end of the Consulting Period
according to the vesting schedule set forth in any agreement between Employee
and the Company governing the issuance to Employee of such securities.
(iii) Involuntary Termination Post Change of Control. If Employee's
----------------------------------------------
employment is terminated after a Change of Control (as defined below) has
occurred for any reason (including a Constructive Termination (as defined
below)) other than by reason of Employee's Voluntary Termination and other than
by reason of a Termination for Cause (an "Involuntary Termination"), Employee
-----------------------
(A) will be paid a lump sum payment on the date of termination equal to twelve
(12) months of Employee's then current base salary, (B) the principal and
interest owed to the Company by Employee pursuant to the Loan shall be forgiven
and the promissory note evidencing the Loan shall be canceled and (C) Employee
shall be retained as a consultant by the Company and receive consulting fees
equal to $6,000 per month for services performed for a period of eighteen (18)
months (the "Consulting Period"). During the Consulting Period, Employee shall
-----------------
perform such services for the Company as may be reasonably requested from time
to time by the Board or the Chief Executive Officer of the Company. The terms
of the consulting arrangement shall be more fully described in the Consulting
Agreement between Employee and the Company substantially in the form attached
hereto as Exhibit A. Such consulting payments shall be made ratably over the
---------
Consulting Period according to the Company's standard payroll schedule and
invoices submitted by Employee for the consulting services. Employee will also
be entitled to receive payment on the date of termination of any bonus payable
under Section 4(c). Employee shall also be entitled to continue to participate
during the Consulting Period in all of the Company's health insurance benefits
(e.g. medical, dental, optical, mental health, life) in the same manner and with
the same coverage provided to Employee prior to the date of termination and in
all other respects significantly comparable to those in place immediately prior
to such termination. Any unvested stock options held by Employee as of the date
of Employee's termination of employment shall continue to vest through the end
of the Consulting Period according to the vesting schedule set forth in any
agreement between Employee and the Company governing the issuance to Employee of
such securities.
(iv) Involuntary Termination Pre Change of Control. If Employee's
---------------------------------------------
employment is terminated before a Change of Control has occurred for any reason
(including a Constructive Termination) other than by reason of Employee's
Voluntary Termination and other than by reason of a Termination for Cause,
Employee (A) will be paid a lump sum payment on the date of termination equal to
twelve (12) months of Employee's then current base salary, (B) the principal and
interest owed to the Company by Employee pursuant to the Loan shall be forgiven
and the promissory note evidencing the Loan shall be canceled and (C) Employee
shall be retained as a consultant by the Company and receive consulting fees
equal to $6,000 per month (up to an aggregate of $108,000 (the Aggregate
---------
Consulting Payment")) for
- ------------------
-4-
<PAGE>
services performed for a period of time equal to eighteen (18) months (the
"Consulting Period"); provided, however, that the Aggregate Consulting Payment
-----------------
shall be reduced on a dollar-for-dollar basis for each dollar Employee receives
during the Consulting Period from other employment and/or consulting sources in
excess of an aggregate of $214,500. To the extent Employee secures other
employment or consulting work during the Consulting Period that pays Employee
cash compensation in excess of an aggregate of $322,500, and as a result,
Employee's consulting fees from the Company are reduced to zero, Employee and
the Company shall either mutually agree to terminate Employee's consulting
relationship or negotiate an alternative consulting arrangement. During the
Consulting Period, Employee shall perform such services for the Company as may
be reasonably requested from time to time by the Board or the Chief Executive
Officer of the Company. The terms of the consulting arrangement shall be more
fully described in the Consulting Agreement between Employee and the Company
substantially in the form attached hereto as Exhibit A. Such consulting payments
---------
shall be made ratably over the Consulting Period according to the Company's
standard payroll schedule and invoices submitted by Employee for the consulting
services. Employee will also be entitled to receive payment on the date of
termination of any bonus payable under Section 4(c). Employee shall also be
entitled to continue to participate during the Consulting Period in all of the
Company's health insurance benefits (e.g. medical, dental, optical, mental
health, life) in the same manner and with the same coverage provided to Employee
prior to the date of termination and in all other respects significantly
comparable to those in place immediately prior to such termination. Any unvested
stock options held by Employee as of the date of Employee's termination of
employment shall continue to vest through the end of the Consulting Period
according to the vesting schedule set forth in any agreement between Employee
and the Company governing the issuance to Employee of such securities.
(v) Termination for Cause. If Employee's employment is
---------------------
terminated for Cause, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law. In addition,
the principal and interest owed to the Company by Employee pursuant to the Loan
shall be forgiven and the promissory note evidencing the Loan shall be canceled.
6. Definitions.
-----------
(a) "Cash Shortfall" shall mean a reduction in the Company's cash and
--------------
cash equivalents to an amount less than that necessary to continue the Company's
operations for a period of three (3) months based on the Company's average
monthly "burn rate" for the six (6) months prior to the date hereof.
(b) "Cause" shall mean (i) Employee's dishonest or fraudulent
-----
conduct, deliberate attempt to do an injury to the Company, or Employee's
conduct that materially discredits the Company or is materially detrimental to
the reputation of the Company, including conviction of a felony; or (ii)
Employee's incurable material breach of any element of the
-5-
<PAGE>
Company's Confidential Information and Invention Assignment Agreement, including
without limitation, Employee's theft or other misappropriation of the Company's
proprietary information.
(c) "Change of Control" shall mean the acquisition of the Company by
-----------------
means of merger, reorganization or other transaction in which the stockholders
of the Company do not own a majority of the outstanding shares of the surviving
corporation or a sale of all or substantially all of the assets of the Company.
(d) "Constructive Termination" shall be deemed to occur if (A)(1)
------------------------
there is a material adverse change in Employee's position causing such position
to be of less stature or of less responsibility than President and Chief
Executive Officer, (2) a reduction of more than 10% of Employee's base
compensation unless in connection with similar decreases of other similarly
situated employees of the Company, or (3) Employee's refusal to relocate to a
facility or location more than fifty (50) miles from the Company's current
location; and (B) within the ninety (90) day period immediately following such
material change or reduction Employee elects to terminate his employment
voluntarily.
7. Confidentiality Agreement. Employee has signed a Confidential
-------------------------
Information and Invention Assignment Agreement (the "Confidentiality Agreement")
-------------------------
substantially in the form attached hereto as Exhibit B. Employee hereby
---------
represents and warrants to the Company that he has complied with all obligations
under the Confidentiality Agreement and agrees to continue to abide by the terms
of the Confidentiality Agreement and further agrees that the provisions of the
Confidentiality Agreement shall survive any termination of this Agreement or of
Employee's employment relationship with the Company.
8. Nonsolicitation Covenant. Employee hereby agrees that he shall
------------------------
not, during the term of his employment pursuant to this Agreement or the
Consulting Period, without the prior written consent of the Board, solicit or
influence or attempt to influence any person employed by the Company to
terminate or otherwise cease his or her employment with the Company or become an
employee of any competitor of the Company. This Section 8 is to be read in
conjunction with the Confidential Information and Invention Assignment Agreement
executed by Employee.
9. Conflicts. Employee represents that his performance of all the
---------
terms of this Agreement will not breach any other agreement to which Employee is
a party. Employee has not, and will not during the term of this Agreement,
enter into any oral or written agreement in conflict with any of the provisions
of this Agreement. Employee further represents that he is entering into or has
entered into an employment relationship with the Company of his own free will
and that he has not been solicited as an employee in any way by the Company.
10. Successors. Any successor to the Company (whether direct or
----------
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agrees expressly to
perform the obligations under this Agreement and the Consulting Agreement in the
same manner and to the same extent as the Company would be required to
-6-
<PAGE>
perform such obligations in the absence of a succession. The terms of this
Agreement, the Consulting Agreement and all of Employee's rights hereunder and
thereunder shall inure to the benefit of, and be enforceable by, Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. Except as specifically provided in Section
-------------------
5(b)(iv) of this Agreement, Employee shall not be required to mitigate the
amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(b) Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the parties.
(c) Sole Agreement. This Agreement, including any Exhibits hereto,
--------------
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or forty-eight (48) hours after being deposited in the U.S.
mail as certified or registered mail with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth below
or as subsequently modified by written notice.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(g) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(h) Arbitration. Any dispute or claim arising out of or in
-----------
connection with this Agreement will be finally settled by binding arbitration in
San Jose, California in accordance with the rules of the American Arbitration
Association by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply California law, without reference to rules of conflicts
-7-
<PAGE>
of law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision. This Section 11(h) shall not apply
to the Confidentiality Agreement.
(i) ADVICE OF COUNSEL. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
-----------------
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
-8-
<PAGE>
The parties have executed this Agreement the date first written above.
CELTRIX PHARMACEUTICALS, INC.
By: /s/ James E. Thomas
-----------------------------------
James E. Thomas, Chairman
Address: 3055 Patrick Henry Drive
Santa Clara, California 95054
DR. ANDREAS SOMMER
Signature: /s/ Andreas Sommer
-----------------------------
Address: 100 CIMARRON COURT
-----------------------------
DANVILLE, CA 94506
-----------------------------
-9-
<PAGE>
EXTENSION TO
EMPLOYMENT AGREEMENT
This Extension to Employment Agreement dated December 16, 1998 (this
--
"Extension") is by and between Dr. Andreas Sommer ("Employee") and Celtrix
- ---------- --------
Pharmaceuticals, Inc. a Delaware corporation (the "Company"). Employee and the
-------
Company are also referred to herein below as the "Parties".
-------
WHEREAS, the Company and Employee entered into that certain Employment
Agreement dated as of January 7, 1997 (the "Agreement") pursuant to which the
---------
Parties agreed that Employee would serve as President and Chief Executive
Officer of the Company for an Original Term of two years;
WHEREAS, pursuant to Section 1 of the Agreement, the Parties have the right
to mutually agree to extend the Original Term for an additional year beyond the
end of the Original Term; and
WHEREAS, the Parties desire to extend the Original Term for one additional
year beyond the end of the Original Term;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged and agreed, the Parties hereto agree as follows:
1. Definitions. Unless specifically designated otherwise, capitalized
-----------
terms used herein shall have the same meanings given them in the Agreement.
2. Extension of Term. The Parties hereby agree that the Original Term of
-----------------
the Agreement shall be and hereby is extended for one additional year beyond the
end of the Original Term, which extended term shall end on January 7, 2000 (the
"Extended Term").
-------------
3. Continuing Effect of Agreement. Except as specifically set forth
------------------------------
herein, the terms and conditions contained in the Agreement shall continue in
full force and effect throughout the duration of the Extended Term.
4. Miscellaneous.
-------------
4.1 Choice of Law. The validity, interpretation, construction and
-------------
performance of this Extension shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
4.2 Counterparts. This Extension may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-10-
<PAGE>
4.3 Severability. If one or more provisions of this Extension are
------------
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Extension, and the balance of this Extension shall be enforceable in
accordance with its terms.
4.4 ADVICE OF COUNSEL. EACH PARTY TO THIS EXTENSION ACKNOWLEDGES
-----------------
THAT, IN EXECUTING THIS EXTENSION, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS EXTENSION. THIS EXTENSION SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Extension as of the
date first written above.
CELTRIX PHARMACEUTICALS, INC.
By: /s/ James E. Thomas
-------------------------------------
James E. Thomas, Chairman
Address: 3055 Patrick Henry Drive
Santa Clara, California 95054
DR. ANDREAS SOMMER
Signature: /s/ Andreas Sommer
-------------------------------
Address: _______________________________
_______________________________
-12-
<PAGE>
CELTRIX PHARMACEUTICALS, INC.
EMPLOYMENT AGREEMENT
--------------------
Amendment and Extension
WHEREAS, Dr. Andreas Sommer ("Employee") and Celtrix Pharmaceuticals, Inc.,
a Delaware corporation (the "Company") entered into an Employment Agreement
dated as of January 7, 1997 (the "Employment Agreement");
WHEREAS, the Employment Agreement provides, at Section 1, that its term
shall be for two years commencing January 7, 1997 and that the Employment
Agreement may be extended for an additional one year by written agreement of the
parties;
WHEREAS, by written agreement dated December 16, 1998, Employee and the
Company previously agreed to a one-year extension of the term of the Employment
Agreement, to January 7, 2000; and
WHEREAS, Employee and the Company now desire to amend the Employment
Agreement to permit additional one-year extensions and to agree to an additional
extension of the term of the Employment Agreement, to January 7, 2001;
THEREFORE, Employee and the Company agree as follows:
A. Section 1 of the Employment Agreement shall be amended in its entirety
to read as follows:
1. Term of the Agreement. This Agreement shall commence on the date
---------------------
hereof and shall have a term of two (2) years (the "Original Term"). This
Agreement may be extended additional one (1) year periods beyond the end of
the Original Term if the parties hereto mutually agree in writing to such
extension. Subject to the Company's severance payment obligations set
forth in Section 5 below, this Agreement may be terminated by either party,
with or without cause, on thirty (30) days' written notice to the other
party.
B. Pursuant to Section 1, as amended hereby, the term of the Employment
Agreement shall be extended to January 7, 2001.
DATED: 11/02/99
----------------------
CELTRIX PHARMACEUTICALS, INC. DR. ANDREAS SOMMER
By: /s/ James E. Thomas Signature: /s/ Andreas Sommer
-------------------------- --------------------------
James E. Thomas
Chairman of the Board
Address: 2033 Gateway Place, Suite 600 Address: 2033 Gateway Place, Suite 600
San Jose, CA 95110 San Jose, CA 95110
-13-
<PAGE>
EXHIBIT 10.7
-------------
LICENSE AGREEMENT
-----------------
This Agreement is made and entered into this 18th day of December, 1997
(the "EFFECTIVE DATE") by and between Celtrix Pharmaceuticals, Inc. ("CELTRIX"),
a Delaware corporation having offices at 3055 Patrick Henry Drive, Santa Clara,
CA 95054, and Genzyme Corporation, a Massachusetts corporation ("GENZYME")
having its offices at One Kendall Square, Cambridge, MA 02139.
RECITALS
--------
WHEREAS, CELTRIX is a biopharmaceutical company that is the owner of a
certain patent and patent applications and know how relating to monoclonal
antibodies that bind Transforming Growth Factor B ("TGF-B"), specifically TGF-B1
and TGF-B2, wherein such patents and patent applications have previously been
non-exclusively licensed to Genentech, Inc. in settlement of an interference
with respect to such antibodies between the parties. Further, CELTRIX is the
owner of certain patent applications and know how that relate to methods
employing monoclonal antibodies that bind TGF-B and employing TGF-B receptors,
and fragments thereof. CELTRIX still further has acquired an exclusive worldwide
license with right of sublicense from Massachusetts Institute of Technology with
respect to certain patents and patent applications relating to TGF-B receptors,
including TGF-B type II and TGF-B type III receptors, cDNA of the respective
receptors, and methods of use, which license, dated December 4, 199l, continues
in full force and effect. CELTRIX has also developed know how related to said
TGF-B receptor patents and patent applications;
WHEREAS, GENZYME is a biopharmaceutical company having experience in TGF-B
related technology, and desires to develop and market products and methods
employing that technology;
WHEREAS, CELTRIX is willing to grant and GENZYME desires to receive, for
itself and its affiliates, a worldwide exclusive license with right of
sublicense to the non-exclusive
<PAGE>
License Agreement
Page 2
patent rights held by CELTRIX with respect to the TGF-B binding monoclonal
antibodies, and to the related know how, and a worldwide exclusive license with
right of sublicense to the patent rights held by CELTRIX with respect to TGF-B
receptors, fragments thereof, and to the related know how. CELTRIX is further
willing to grant and GENZYME desires to receive, for itself and its affiliates,
a worldwide sublicense with right of further sublicense with respect to the
licensed patents and patent applications obtained by CELTRIX with respect to the
licensed TGF-B receptor technology, together with a worldwide license to related
know how developed by CELTRIX, so that GENZYME may be able to make, have made,
use and sell TGF-B antibodies and receptors in accordance with the terms and
conditions set forth in this Agreement.
WHEREAS, GENZYME and CELTRIX entered into a License and Development
Agreement as of June 24, 1994 relating to therapeutic uses of TGF-B2, which
agreement has been amended as of the date of execution hereof, and, as amended,
continues in full force and effect. As further grant of license rights with
respect to the TGF-B2 related rights, CELTRIX is willing to grant, and GENZYME
desires to receive, for itself and its affiliates, a worldwide exclusive license
with right of sublicense to the patent rights held by CELTRIX with respect to
the TGF-B2 protein for laboratory research and assay uses.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt of which
is acknowledged, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
-----------------------
1.1 Affiliates or Subsidiaries of a party shall mean any present or future
---------- ------------
companies organized under the laws of the United States with respect to which
(i) at least fifty percent (50%) in value or (ii) at least fifty percent (50%)
of the total combined voting power of all classes of shares entitled to vote is
directly or indirectly under the control of, or under common control with, such
<PAGE>
License Agreement
Page 3
party. Reference to CELTRIX and GENZYME herein shall be understood to include
any Subsidiaries and Affiliates of CELTRIX and GENZYME, respectively.
1.2 Biological Property shall mean any DNA materials, derivatives of such DNA
-------------------
materials, cell lines and peptides containing the DNA materials or derivatives
thereof, that are related to the TGF-B Antibody Patent Rights, and to the TGF-B
Receptor Patent Rights, respectively, except for Biological Property received by
CELTRIX under the R&D Systems Agreement.
1.3 Field shall mean uses for any and all purposes with the following
-----
exceptions: (i) opthamology, (ii) the TGF-B Antibody Rights previously licensed
to Genentech, Inc., and (iii) with respect to the TGF-B Receptor Patent Rights
Licensed from MIT only, those rights previously exclusively sublicensed by
CELTRIX to R&D Systems ("the R&D Systems Agreement").
1.4 First Commercial Sale shall mean the first sale by GENZYME and/or its
---------------------
sublicensee(s) in an arms length transaction to a third party (not connected
with GENZYME or CELTRIX, its Affiliates and/or sublicensee(s)) of a Licensed
Product or use of a Licensed Method, and wherein, as applicable, the
manufacture, sale and use of which has been approved by the applicable
regulatory agency in the country in question.
1.5 Know-How shall mean all information, data, specifications, techniques,
--------
software, procedures, methods of manufacture, technical data and clinical, as
well as diagnostic, information relating to the Patent Rights owned by or
licensed to CELTRIX which is known to CELTRIX (other than from (GENZYME or from
R&D Systems) and which CELTRIX is free to disseminate without accounting to
others.
1.6 Licensed Product(s) shall mean any product or part thereof that embodies an
-------------------
invention covered by a Valid Claim or which is specifically intended to be used
to practice a method or
<PAGE>
License Agreement
Page 4
process covered by a Valid Claim and which is manufactured by or for, and sold
by or for, GENZYME or its sublicensee(s).
1.7 Licensed Method(s) shall mean a method of use that is covered in whole or
------------------
in part by a Valid Claim of the Patent Rights.
1.8 Net Sales shall mean the gross amount billed, invoiced or received on sales
---------
of Licensed Products, or TGF-B2 Protein as set forth in Section 1.18 below, to
or the practice of Licensed Methods or any other revenue producing use of Patent
Rights by an independent third party less (a) customary trade, quantity or cash
discounts and rebates actually allowed and taken; (b) amounts repaid or credited
by reason of rejections or returns, contractual allowances, distributor fees
(provided such do not exceed 4% of the gross amount), sales deemed
uncollectable; and (c) freight, insurance, duties, taxes and other governmental
charges directly related to sales. Net Sales shall further include such sales or
any other revenue producing use of Patent Rights by Genzyme and/or its
sublicensee(s).
1.9 Patent Rights shall mean and include any subject matter claimed in or
-------------
covered by the patents or pending patent applications listed in Appendix A, and
further including any patents that issue on the applications for said patents,
improvements, reissues, reexaminations, renewals, extensions, divisions,
continuations, and continuations-in-part of the foregoing and any foreign
counterparts and any other form of patent coverage directed to the inventions
covered by said patents and applications.
1.10 Territory shall mean all countries of the world.
---------
1.11 TGF-B Antibody Patent Rights shall mean the Patent Rights that relate to
----------------------------
monoclonal antibodies that bind Transforming Growth Factor ("TGF-B"),
specifically TGF-B1 and TGF-B2.
<PAGE>
License Agreement
Page 5
1.12 TGF-B Antibody Know How shall mean Know How that relates to the TGF-B
-----------------------
Antibody Patent Rights.
1.13 TGF-B Receptor Know How shall mean the Know How that relates to the TGF-B
-----------------------
Receptor Patent Rights of CELTRIX or the TGF-B Receptor Patent Rights Licensed
from MIT.
1.14 TGF-B Receptor Patent Rights of CELTRIX shall mean the Patent Rights that
---------------------------------------
relate to TGF-B receptors that are owned by CELTRIX.
1.15 TGF-B Receptor Patent Rights Licensed from MIT shall mean the Patent
----------------------------------------------
Rights that relate to TGF-B receptors, including TGF-B type II and TGF-B type
III receptors, cDNA of the respective receptors, and methods of use that CELTRIX
licensed from Massachusetts Institute of Technology (MIT).
1.16 Therapeutic Use shall mean any use of a Licensed Product or Licensed
---------------
Method in vivo, in humans and animals, for the prevention, cure, amelioration or
modification of any disease, symptom, syndrome, or other medical condition.
1.17 Valid Claim shall mean an issued, unexpired claim included within the
-----------
Patent Rights, or within in the rights covering the TGF-B2 Protein as set forth
in Section 1.18 below, which has not been held invalid by a decision from a
tribunal having jurisdiction thereover and from which no further appeal has or
can be taken.
1.18 TGF-B2 Protein shall mean the TGF-B2 composition otherwise designated as
--------------
"CIF-B" that is disclosed and claimed in U.S. Patent No. 4,774,322 (the `322
Patent), together with any improvements, reissues, reexaminations, renewals,
extensions, divisions, continuations, and continuations-in-part of the foregoing
and any foreign counterparts or any other form of patent coverage directed to
the TGF-B2 composition disclosed in the `322 Patent.
<PAGE>
License Agreement
Page 6
ARTICLE II - GRANT
------------------
2.1 Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide exclusive royalty bearing license in the Field to the
non-exclusive rights held by CELTRIX with respect to the TGF-B Antibody Patent
Rights to (i) use the TGF-B Antibody Know How, and (ii) to make, have made, use,
offer to sell, sell or import into the United States Licensed Product(s) or use
Licensed Method(s) in the Territory in which the TGF-B Antibody Patent Rights
are effective until the end of the full term(s) for which these Patent Rights
are issued, unless sooner terminated as hereinafter provided.
2.2 Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide exclusive royalty bearing license in the Field (i) to use
the TGF-B Receptor Know How (as applicable to the TGF-B Receptor Patent Rights
of CELTRIX), and (ii) to make, have made, use, offer to sell, sell or import
into the United States Licensed Product(s) or use Licensed Method(s) in the
Territory in which the TGF-B Receptor Patent Rights of CELTRIX are effective
until the end of the full term(s) for which these Patent Rights are issued,
unless sooner terminated as hereinafter provided.
2.3 Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide exclusive royalty bearing sublicense in the Field to (i)
use the TGF-B Receptor Know How, and (ii) to make, have made, use, offer to
sell, sell or import into the United States Licensed Product(s) or use Licensed
Method(s) in the Territory in which the TGF-B Receptor Patent Rights Licensed
from MIT are effective until the end of the full term(s) for which the Patent
Rights are issued, unless sooner terminated as hereinafter provided. Pursuant to
Section 2.3 of the License Agreement between Massachusetts Institute of
Technology and CELTRIX dated December 4, 1991 (the "MIT Agreement"), the period
of exclusivity granted to CELTRIX terminates with the farst to occur of:
<PAGE>
License Agreement
Page 7
"(a) the expiration of Twelve (12) years after the first commercial sale
of a Licensed Product or first commercial use of a Licensed Process; or
(b) the expiration of Fifteen (15) years after the Effective Date
[December 4, 1991 ] of this Agreement; provided, however, that times spent
by pending applications before the FDA for permission for clinical tests
and for premarket approval of the first Licensed Product shall be added to
this fifteen year period."
It is understood and acknowledged that the sublicense rights granted by CELTRIX
to GENZYME under this Section 2.3 may extend after the expiration of the period
of exclusivity, but that the exclusivity to GENZYME expires upon the expiration
of CELTRIX's exclusivity. In compliance with Section 2.8 of the MIT Agreement, a
copy of Articles II, V, VII, VIII, IX, X, XII, XIII, and XV of the MIT Agreement
are appended hereto. It is further agreed that, in exchange for the sublicense
rights granted herein, GENZYME shall assume the obligations, including all
current obligations, of CELTRIX as licensee under the MIT Agreement, including,
without limitation, any and all patent prosecution costs, royalties or license
fees that have been invoiced to Celtfix, copies of such invoices having been
timely provided to Genzyme in advance of the execution date of this Agreement.
2.4 CELTRIX hereby agrees to promptly grant to GENZYME an exclusive sublicense
to any and all rights CELTRIX obtains as a result of termination or modification
of the R&D Systems Agreement, including those rights excluded from the Field as
set forth in Section 1.3 herein by virtue of the R&D Systems Agreement.
2.5 If after the date of this Agreement CELTRIX files patent applications or
otherwise obtains rights to patents, patent applications, or know how that
relate to the TGF-B Antibody Patent Rights and Know How, to the TGF-B Receptor
Patent Rights of CELTRIX and Know How, and to the TGF-B Receptor Patent Rights
Licensed from MIT and Know How, in the Field, such patents, patent applications
or know how shall be included in this Agreement, and
<PAGE>
License Agreement
Page 8
GENZYME shall have an exclusive worldwide license or sublicense, as appropriate,
under the terms and conditions as set forth in this Agreement.
2.6 GENZYME shall have the right to enter into sublicensing agreements with
respect to the rights, privileges and licenses granted hereunder, provided such
sublicenses are within the scope of and under the terms and conditions set forth
herein. Any sublicenses granted by GENZYME shall expire upon the expiration of
GENZYME's rights granted herein. GENZYME shall give written notice to CELTRIX
of the granting of sublicense rights, shall forward to CELTRIX a copy of any and
all fully executed sublicense agreement, including any amendments and
modifications thereof, and shall forward annually a copy of any reports received
by GENZYME from any sublicensee during the preceding twelve (12) month period
under the sublicense as shall be pertinent to an accounting of payments under
such sublicense agreement.
2.7 CELTRIX further grants to GENZYME the right and license to use the
Biological Property for all purposes in the Field, subject to the terms of this
Agreement. CELTRIX shall, within a commercially reasonable period following
execution of this Agreement, and on such occasions as additional Biological
Property becomes available, deliver to GENZYME samples of the Biological
Property in reasonable quantities as requested by GENZYME that are in CELTRIX's
possession as of the execution date of this Agreement.
2.8 Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide non-exclusive royalty bearing license, with right to
grant sublicenses, (i) to use the TGF-B2 Protein for GENZYME's internal use in
laboratory research and assay uses only, and (ii) to make, have made, offer to
sell or sell TGF-B2 Protein for use in laboratory research and assay uses only.
2.9 If GENZYME determines not to pursue commercialization, whether itself or
through a sublicensee(s), of a Licensed Product or Licensed Method in any
geographic market within the
<PAGE>
License Agreement
Page 9
Territory or any clinical indication, it will negotiate in good faith with
CELTRIX the terms of the license of such rights to CELTRIX.
ARTICLE III - ROYALTIES AND PAYMENTS
------------------------------------
3.1 In consideration of the license and Sublicense rights herein granted,
GENZYME shall pay to CELTRIX an earned royalty on Net Sales according to the
following schedule:
A. With respect to Licensed Products or Licensed Methods for Therapeutic
Use employing TGF-B Antibody Patent Rights:
(a) Four percent (4%) on the first $200,000,000 annual Net Sales;
then
(b) Five percent (5%) on the next $200,000,000 to $400,000,000 annual
Net Sales; then
(c) Six percent (6%) on the annual Net Sales of greater than
$400,000,000.
B. With respect to Licensed Products or Licensed Methods for diagnostic
or research uses employing TGF-B Antibody Patent Rights:
(a) Three percent (3%) on annual Net Sales.
C. With respect to Licensed Products or Licensed Methods for Therapeutic
Uses employing TGF-B Receptor Patent Rights of CELTRIX or TGF-B Receptor Patent
Rights Licensed from MIT:
(a) Two percent (2%) on annual Net Sales.
<PAGE>
License Agreement
Page 10
D. With respect to Licensed Products or Licensed Methods for other than
Therapeutic Uses employing TGF-B Receptor Patent Rights of CELTRIX or TGF-B
Receptor Patent Rights Licensed from MIT:
(a) One percent (1%) on annual Net Sales.
E. With respect to commercial sales in an arm's length transaction to a
third party (not connected with GENZYME or CELTRIX, its Affiliates and/or
sublicensee(s)) of TGF-B2 Protein covered by a Valid Claim for laboratory
research and assay uses:
(a) Three percent (3%) on annual Net Sales.
3.2 Royalty payments in accordance with this Article shall be paid for a period
beginning with the First Commercial Sale of the applicable Licensed Product or
Licensed Method or commercial sale of TGF-B2 Protein pursuant to this agreement
and ending upon the later of (i) ten years thereafter, or (ii) expiration of the
last to expire patent within the Patent Rights or patent rights as set forth in
Section 1.18. Royalty payments shall cease if this Agreement is terminated as
hereinafter specified and provided.
3.3 GENZYME will pay to CELTRIX the same royalties due to sales by sublicensees
of Licensed Products or Licensed Methods or TGF-B2 Protein that GENZYME would
have owed pursuant to Section 3.1 had it engaged in the same licensed conduct as
said sublicensees.
3.4 Only one royalty shall be payable per Licensed Product or use of Licensed
Method or use of TGF-B2 Protein, regardless of the number of patents or patent
applications under which, or the number of countries in which, such Licensed
Product or TGF-B2 Protein has been manufactured, used or sold, or the Licensed
Method has been used. In those cases where a Licensed Product or TGF-B2 Protein
is sold as a part of an article that includes additional materials or
components, the production of which does not use the inventions, processes or
methods of the licensed Patent
<PAGE>
License Agreement
Page 11
Rights or rights as set forth in Section 1.18, the Net Sales shall be based on
the sales price at which GENZYME or its sublicensee(s) would sell the Licensed
Product or TGF-B2 Protein independently of such other materials or components in
an arm's length transaction.
3.5 GENZYME shall not be entitled to a reduction in royalty owing under this
Article due to royalties paid to any third party that is infringed by the
manufacture, use or sale of a Licensed Product or Licensed Method or TGF-B2
Protein, except that GENZYME shall have the right to deduct from the royalty
rates specified in 3.1 above with respect to sales of such Licensed Product or
use of such Licensed Method in such country, one percent (1%) of the royalty
rate used (after all rate reductions) when a non-infringing TGF-B antibody
product or non-infringing method of use of such antibody with respect to the
TGF-B Antibody Patent Rights is sold in such country in competition with a TGF-B
antibody product or method of use employing the TGF-B Antibody Patent Rights by
GENZYME.
3.6 GENZYME shall notify CELTRIX of the First Commercial Sale of a given
Licensed Product or Licensed Method, in writing, within thirty (30) days
thereafter. GENZYME agrees that beginning with the date of the First Commercial
Sale of such Licensed Product or Licensed Method, and as relevant to commercial
sales of TGF-B2 Protein, CELTRIX shall receive within thirty (30) days after the
end of each of the first three calendar quarters and within sixty (60) days
after the calendar year end: (a) payment of earned royalties; and (b) a report
showing the information and basis on which the earned royalties have been
calculated.
3.7 GENZYME shall keep (or cause to be kept) and maintain complete and accurate
records of its sales of the Licensed Product(s), TGF-B2 Protein, and/or uses of
Licensed Method(s) in accordance with generally accepted accounting procedures.
Such records shall be accessible to an authorized representative selected and
paid for by CELTRIX and acceptable to GENZYME, not more than once a year at any
reasonable time during business hours within one (1) year after the end of the
royalty period to which such records relate, for the purpose of verifying Net
Sales and any royalty due thereon. Such representative shall disclose to
CELTRIX only information
<PAGE>
License Agreement
Page 12
relating to the accuracy of the records kept and the payments made, and shall be
under a duty to keep confidential any other information gleaned from such
records. Any adjustment in the amount of royalties due CELTRIX on account of
overpayment or underpayment of royalties shall be made at the next date when
royalty payments are to be made to CELTRIX under Section 3.6 hereinabove. If the
verification on behalf of CELTRIX results in an upward adjustment of greater
than ten percent (10%) of royalties due to CELTRIX for the period of time in
question, GENZYME shall pay the out-of-pocket expenses of CELTRIX relating to
such verification and a five percent (5%) surcharge on amount of royalties
underpaid.
3.8 All moneys to be paid to CELTRIX shall be made and computed in United
States Dollars.
3.9 Earned royalties on Net Sales of Licensed Products employing TGF-B Antibody
Patent Rights, as described in Section 3.1.A herein and on Net Sales of TGF-B2
Protein shall be payable on all sales made after July 16, 1996 for materials
that, as of the effective date of this agreement, had not otherwise been
purchased or obtained from or manufactured on behalf of CELTRIX by GENZYME.
ARTICLE IV - WARRANTIES, LIMITATIONS, AND REGULATIONS
-----------------------------------------------------
4.1 CELTRIX represents and warrants that it owns the rights to the TGF-B2
Protein, as described in Section 1.18 (subject to those preexisting rights
granted to R&D Systems), that it owns the TGF-B Antibody Patent Rights, subject
to the preexisting non-exclusive license granted to Genentech, Inc., that it
owns the TGF-B Receptor Patent Rights of CELTRIX, that (i) to the best of its
knowledge, it holds an exclusive license to the TGF-B Receptor Patent Rights
Dcensed from MIT (subject to the preexisting non-exclusive license granted to
R&D Systems and to the outcome of the interference proceeding with Sloan
Kettering Institute for Cancer Research), and (ii) that all the aforementioned
rights and licenses continue in full force and effect. CELTRIX
<PAGE>
License Agreement
Page 13
further represents and warrants that it has not made any commitments or offers
inconsistent or in derogation of the rights created by this Agreement.
4.2 Nothing herein contained shall be construed as:
(a) a warranty or representation by CELTRIX as to the validity or scope of
any licensed Patent Rights;
(b) a warranty or representation that anything sold, used, produced or
otherwise disposed of under any license granted in this Agreement is or
will be free from infringement of patents, copyrights, and/or trademarks of
third parties;
(c) an express or implied warranty of merchantability or fitness for a
particular purpose; or
(d) an express or implied license to any of Celtrix' patents, trademarks,
trade secrets, or other intellectual property not explicitly licensed
herein.
4.3 CELTRIX shall not be obligated to defend or hold harmless GENZYME or any
other person against any suit, damage, claim, or demand based on actual or
alleged infringement of any patent or other rights owned by a third party, or
any unfair trade practice resulting from the exercise or use of any right or
license granted hereunder.
4.4 CELTRIX MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESSED OR IMPLIED, AND ASSUMES NO RESPONSIBILITIES WHATEVER WITH RESPECT TO
THE USE, SALE OR OTHER DISPOSITION BY GENZYME OF LICENSED PRODUCT(S) or LICENSED
METHOD(S).
4.5 GENZYME shall defend, indemnify and hold harmless CELTRIX, and its
trustees, directors, officers, employees and agents and their respective
successors, heirs and assigns (the
<PAGE>
License Agreement
Page 14
"Indemnitees"), against any and all liability, damage, loss or expense
(including reasonable attorneys' fees and expenses of litigation)(together,
"losses") that may be incurred by or imposed upon the Indemnitees, or any of
them, in connection with any claim, suit, demand, action or judgment arising out
of the following:
(a) the design, production, manufacture, testing, sale, use in commerce,
lease or promotion by GENZYME or by an Affiliate (other than CELTRIX)
or sublicensee of GENZYME of any product, process or service that
employs the licensed Patent Rights pursuant to this Agreement,
including without limitation the licensing, sale or other distribution
of Licensed Product(s) and/or use of Licensed Method(s) including,
without limitation, any actual or alleged bodily injury, death or
property damage as a result of any of the foregoing; or
(b) any other activities of GENZYME or by an Affiliate or sublicensee(s)
to be carried out employing the Patent Rights pursuant to this
Agreement.
GENZYME's indemnity under this Section shall not apply to any liability, damage,
loss or expense that is attributable to the gross negligent activities or
willful misconduct of the Indemnitees. GENZYME agrees to require its
sublicensee(s) to provide identical indemnification protection, as is set forth
in this Section, to CELTRIX, and to the extent such indemnification is not
identical, GENZYME shall provide identical indemnification for any losses
attributable to its licensees.
4.6 GENZYME agrees to comply, and to require its Affiliates and sublicensee(s)
to comply, with all applicable laws, regulations, and safety standards relative
to the manufacture, use or sale of Licensed Product(s) and Licensed Method(s)
and TGF-B2 Protein.
4.7 In the event CELTRIX intends to claim indemnification under this Article
IV, CELTRIX shall promptly notify GENZYME of any claim, in respect of which
CELTRIX intends to claim
<PAGE>
License Agreement
Page 15
such indemnification, and GENZYME shall assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that CELTRIX shall have
the right to retain its own counsel, at GENZYME's expense, provided such expense
is reasonable, if representation of CELTRIX by the counsel retained by GENZYME
would be inappropriate to actual or potential differing interests between
CELTRIX and any other party represented by such counsel in such proceedings. The
indemnity agreement in this Article IV shall not apply to amounts paid in
settlement of any loss, claim, liability or action if such settlement is
effected without the consent of GENZYME, which consent shall not be withheld
unreasonably. The failure to deliver notice to GENZYME within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve GENZYME of any liability to CELTRIX under this
Article IV, but not any liability that it may have to CELTRIX other than under
this Article IV. CELTRIX and its employees and agents shall cooperate fully with
GENZYME and its legal representatives in the investigation of any action, claim
or liability covered by this indemnification.
ARTICLE V - PATENT RIGHTS MAINTENANCE
-------------------------------------
5.1 CELTRIX will file, prosecute and maintain the Patent Rights, and its
licenses to Patent Rights, as applicable to the Patent Rights as enumerated
herein, and the rights covering the TGF-B2 Protein as described in Section 1.18,
at its sole discretion, and shall bear all costs associated therewith, subject
to Section 2.3. Celtrix shall furnish Genzyme with copies of any patent
application concerning Patent Rights and such TGF-B2 Protein rights as described
in Section 1.18, sufficiently in advance of the anticipated filing date so as to
give GENZYME a reasonable opportunity to review and comment. CELTRIX shall also
furnish copies to GENZYME of all substantive communications to and from the
United States and foreign patent offices regarding patents or patent
applications relating to this Agreement within a reasonable time prior to filing
such communication or promptly following the receipt thereof. CELTRIX shall
reasonably consider any comments GENZYME may have related to such patent
applications or communications. In the event CELTRIX decides to no longer
maintain all or a portion of its
<PAGE>
License Agreement
Page 16
license rights to the Patent Rights, or to maintain the Patent Rights, or the
TGF-B2 Protein rights as described in Section 1.18, including failure to pay any
annuity, tax or other maintenance fee with respect to a patent or patent
application owned by or licensed to CELTRIX, GENZYME shall be given timely
notice and opportunity to make such payment and to assume ownership or license
rights to such patent or patent application.
ARTICLE VI - PATENT INFRINGEMENT
--------------------------------
6.1 In the event that any of GENZYME, its Affiliates or sublicensee(s) learns
of the infringement of a third party of any patent licensed under this
Agreement, GENZYME shall promptly advise CELTRIX in writing and shall provide
CELTRIX with reasonable evidence of such infringement. In such circumstances,
GENZYME shall have at all times the right to immediately cease commercialization
and the right either to:
(a) Request that CELTRIX itself (if owner of the patent rights) undertake
reasonable efforts, or that CELTRIX notify the owner of the Patent Rights
and request that such owner use reasonable efforts, to end such
infringement; or
(b) Request whether the owner of the Patent Rights will defend such suit
or action at its expense, or whether CELTRIX will defend such suit or
action on behalf of the owner of the Patent Rights, if such owner notifies
CELTRIX of its intent not to or fails to take action against such third
party within ninety (90) days of receipt of such notice, provided GENZYME
shall be entitled but not obligated to undertake, at its own expense, and
control the defense of such suit or action (including control of and
entitlement to retain any settlement or damage award received) in its own
name and/or in CELTRIX's name, and CELTRIX shall reasonably cooperate with
GENZYME in such defense, if neither the owner of the Patent Rights nor
CELTRIX undertake to defend such suit or action; or
<PAGE>
License Agreement
Page 17
(c) Terminate this Agreement, but only after GENZYME has reasonably
exhausted its remedies under (a) and (b) above.
6.2 CELTRIX is neither obligated to enter into negotiations with a third party
to obtain rights for GENZYME under the third party patent nor obligated to
defend any suit or action. If CELTRIX, at its sole discretion, elects to enter
into negotiations with such third party to obtain rights for GENZYME under the
third party patent, or if CELTRIX, at its sole discretion, elects to undertake
at its own expense the defense of any such suit or action to the extent that the
alleged infringement is based on such use hereunder of the Patent Rights,
GENZYME shall render CELTRIX all reasonable assistance that may be required by
CELTRIX in the negotiations or in the defense of such suit or action. CELTRIX
has the primary right to control the defense of any such suit or action by
counsel of its choice, and GENZYME shall have the right, at its own expense, to
be represented in any such suit or action in respect of which GENZYME is a
defendant by counsel of its own choice. The parties agree to cooperate
reasonably in any such defense.
ARTICLE VII - TERM AND TERMINATION
----------------------------------
7.1 The term of this Agreement shall be for a period beginning with the
Effective Date and ending upon the later of (i) ten (10) years after the First
Commercial Sale of the last Licensed Product or Licensed Method to achieve a
first Commercial Sale or (ii) expiration of the last to expire patent within the
Patent Rights or patent rights as set forth in Section 1.18, unless sooner
terminated as herein provided. It is understood and acknowledged that any of
the license rights granted in each of the Sections of Article II with respect to
the Patent Rights and Know How may be terminated independently of the other
Sections, and that the license rights granted with respect to the remaining non-
terminated Sections shall continue in full force and effect for the term defined
in this Section 7.1 or until earlier terminated in accordance with this Article.
7.2 If GENZYME shall determine that it intends to declare itself insolvent or
file for bankruptcy or reorganization it shall give ten (10) days written notice
to CELTRIX.
<PAGE>
License Agreement
Page 18
Notwithstanding the above, if GENZYME shall become bankrupt or insolvent, if the
business or any assets or property of GENZYME shall be placed in the hands of a
receiver, assignee or trustee, whether by the voluntary act of GENZYME or
otherwise, if GENZYME institutes or suffers to be instituted any procedure in
bankruptcy court for reorganization or rearrangement of its financial affairs;
or if GENZYME makes a general assignment for the benefit of creditors, this
license and sublicense shall immediately terminate unless such bankruptcy,
insolvency, receivership or assignment for the benefit of creditors shall have
been cured within thirty (30) days of such event occurring. Upon occurrence of
any foregoing events, GENZYME shall give immediate written notice thereof to
CELTRIX.
7.3 Upon any breach or default under this Agreement by GENZYME, CELTRIX may
give written notice thereof to GENZYME, and GENZYME shall have sixty (60) days
thereafter to cure such breach or default. If such breach or default is not so
cured, CELTRIX may then in its sole discretion and option (i) terminate this
Agreement and the licenses granted by it, and/or (ii) seek such other relief as
may be provided by law in such circumstances by giving written notice thereof to
GENZYME.
7.4 Upon termination of this Agreement for any cause, nothing herein shall be
construed to release either party of any obligation matured prior to the
effective date of such termination, including payments of accrued royalties, and
GENZYME and, as applicable, its Affiliates and/or sublicensee(s), may after the
effective date of such termination sell all Licensed Product(s) that it may have
on hand at the date of termination provided that it pays earned royalties
therein as provided in this Agreement. Upon termination hereof for any reason,
all license rights to Patent Rights shall immediately terminate. The provisions
of Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 8.1, and Articles X and XI shall
survive any termination of this Agreement.
7.5 Upon ninety (90) days written notice, GENZYME shall have the right to
terminate this Agreement. Under such termination, GENZYME shall owe to CELTRIX
any third party obligation costs that have become due up to the date of
termination including, without limitation, such third party obligations relating
to the MIT license.
<PAGE>
License Agreement
Page 19
ARTICLE VIII - NOTICE
---------------------
8.1 Any notice or communication authorized or required to be given hereunder
shall be in writing and be served by depositing the same in the United States
mail, postage prepaid, addressed to the parties, respectively, at the following
addresses:
To Celtrix Pharmaceuticals, Inc.:
3055 Patrick Henry Drive
Santa Clara, CA 95054-1815
ATTN: President
To Genzyme Corporation:
One Kendall Square
Cambridge, MA 02139
ATTN: General Counsel
ARTICLE IX - FORCE MAJEURE
--------------------------
9.1 The parties to this Agreement shall be excused from any performance
required hereunder if such performance is rendered impossible or unfeasible due
to any catastrophes or other major events beyond their reasonable control,
including, without limitation, war, riot, and insurrection; laws, proclamations,
edicts, ordinances or regulations; strikes, lock-outs or other serious labor
disputes; and floods, fires, explosions, or other natural disasters. When such
events have abated, the parties' respective obligation hereunder shall resume.
ARTICLE X - NONDISCLOSURE OF CONFIDENTIAL INFORMATION
-----------------------------------------------------
<PAGE>
License Agreement
Page 20
10.1 All confidential scientific and technical information communicated by one
party to the other party under this Agreement, including information contained
in patent applications, shall be kept confidential by such other party. All
obligations of confidentiality hereunder shall be equally applicable to the
Affiliates and any sublicensee(s) of GENZYME. Notwithstanding the foregoing,
either party shall be relieved of the confidentiality obligations herein and not
be prevented by this Agreement from utilizing any such information if:
(a) The information was previously known to such party as may be
demonstrated by its prior written records;
(b) The information is or becomes generally available to the public
through no fault of the receiving party, including as a result of
publications and/or laying open to inspection of any patent
applications that may be filed other than by such receiving party
corresponding to such U.S. or foreign patent applications;
(c) The information is acquired in good faith in the future by such party
from a third party who is not under an obligation of confidence to the
disclosing party in respect to such information;
(d) The disclosure of such information by GENZYME is essential for the
commercialization by GENZYME of the Patent Rights under this
Agreement, provided prior notice is given and consent is obtained from
CELTRIX to such disclosure, said consent not to be unreasonably
withheld; and
(e) The information (which is not confidential information of GENZYME) is
outside the Field.
10.2 The obligations of confidentiality under this Article shall survive
termination of this Agreement for a period of five (5) years, regardless of the
reason for its termination.
<PAGE>
License Agreement
Page 21
ARTICLE XI- MISCELLANEOUS
-------------------------
11.1 This Agreement, in whole or part, shall not be assignable by GENZYME
without the written consent of CELTRIX which consent shall not be unreasonably
withheld; provided, however, that GENZYME, without such consent, may assign or
sell the same in connection with the transfer or sale of all of substantially
all of its business or in the event of its merger, consolidation, or joint
venture with another company. Each assignee shall assume all obligations of its
assignor under this Agreement. No assignment shall relieve GENZYME of
responsibility for the performance of any accrued obligations which such party
then has hereunder. CELTRIX may assign this Agreement at any time upon written
notice to GENZYME prior to such assignment. Subject to the foregoing, this
Agreement shall inure to the benefit of and be binding upon GENZYME, CELTRIX,
and their respective successors and assigns.
11.2 This Agreement embodies the entire understanding between the parties and
may not be varied except by a document in writing signed by an officer of
GENZYME and an officer of CELTRIX.
11.3 This Agreement shall be construed, governed, interpreted, and applied in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
its conflict of laws provisions, except that questions affecting the validity,
construction, and effect of any patent shall be determined by the laws of the
country in which the patents were granted.
11.4 The provisions of this Agreement are severable, and in the event that any
of the provisions of this Agreement are determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof, provided the remaining provisions conform with
the spirit and purposes of this Agreement.
11.5 GENZYME shall mark, or shall require its Affiliate and/or sublicensee(s)to
mark, the Licensed Product(s) sold in the United States with all applicable
patent numbers, and to indicate
<PAGE>
License Agreement
Page 22
to users, as appropriate, the patent numbers for relevant Licensed Method(s).
All Licensed Product(s) shipped and/or sold in other countries shall be marked
in such a manner as to conform with all of the laws of the country where the
Licensed Product(s) are shipped to and/or sold.
11.6 The captions herein are for convenience only and shall not be deemed to
limit or otherwise affect the construction hereof.
11.7 The failure of either party to enforce at any time the provisions of this
Agreement, or any rights in respect thereto, or to exercise any election herein
provided, shall in no way be considered to be a waiver of such provisions,
rights, or elections, or in any way to affect the validity of this Agreement.
The exercise by either party of any of its rights herein or any of its elections
under the terms or covenants herein shall not preclude either party from
exercising the same or any other rights it may have under this Agreement,
irrespective of any previous action or proceeding taken by either party
hereunder.
11.8 All disputes under this Agreement shall be settled, if possible, through
good faith negotiations between the parties and ultimately presented to the
parties' Chief Executive Officers for resolution. In the event such good faith
negotiations are unsuccessful, either party may, after thirty (30) days written
notice to the other, submit the matter in dispute to the American Arbitration
Association ("AAA") to be settled by arbitration before a single arbitrator
appointed by the AAA in Boston, Massachusetts, if CELTRIX is the initiating
party, and in Santa Clara, California, if GENZYME is the initiating party, in
accordance with the commercial arbitration rules of the AAA. The arbitrator
shall have authority to grant specific performance and to allocate between the
parties the costs of arbitration in such equitable manner as the arbitrator may
determine. Upon reasonable notice and prior to any hearing, the parties will
allow document discovery and will disclose all material relevant to the subject
matter of the dispute within sixty (60) days following appointment of the
arbitrator. The arbitrator shall make final determinations as to any discovery
disputes. A hearing on the matter in dispute shall commence within ninety (90)
days following appointment of the arbitrator and the decision of the arbitrator
shall be rendered no later than sixty (60) days after commencement of such
hearing. The determination
<PAGE>
License Agreement
Page 23
of the arbitrator shall be conclusive and binding upon the parties and judgment
may be entered thereon and enforced by any court of competent jurisdiction, and
each party hereby irrevocably consents to the jurisdiction of such courts for
such purpose.
IN WITNESS WHEREOF, the parties hereto hereunder set their hands and seals
and duly executed this License Agreement the day and year first written above.
CELTRIX PHARMACEUTICALS, INC. GENZYME CORPORATION
By: /s/ Andreas Sommer By: /s/ Richard Douglas
------------------------ --------------------------------
Title: President and CEO Title: V.P. Corporate Development
---------------------- -----------------------------
Date: 12/31/97 Date: 12/18/97
---------------------- -----------------------------
<PAGE>
EXHIBIT 10.8
EXECUTION COPY
SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT
ELAN CORPORATION, PLC
ELAN INTERNATIONAL SERVICES, LTD.
AND
CELTRIX PHARMACEUTICALS INC.
AND
CELTRIX NEWCO LTD.
<PAGE>
INDEX
CLAUSE 1 DEFINITIONS
CLAUSE 2 NEWCO'S BUSINESS
CLAUSE 3 REPRESENTATIONS AND WARRANTIES
CLAUSE 4 AUTHORIZATION AND CLOSING
CLAUSE 5 DEVELOPMENT FUNDING
CLAUSE 6 SUBLICENSE AND ASSIGNMENT RIGHTS
CLAUSE 7 OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS/NONCOMPETITION
CLAUSE 8 TRADEMARKS
CLAUSE 9 DIRECTORS; MANAGEMENT AND R&D COMMITTEES
CLAUSE 10 THE BUSINESS PLAN AND REVIEWS
CLAUSE 11 RESEARCH AND DEVELOPMENT
CLAUSE 12 INTELLECTUAL PROPERTY RIGHTS
CLAUSE 13 COMMERCIALIZATION
CLAUSE 14 MANUFACTURING
CLAUSE 15 TECHNICAL SERVICES AND ASSISTANCE
CLAUSE 16 AUDITORS, BANKERS, REGISTERED OFFICE,
ACCOUNTING REFERENCE DATE; SECRETARY; COUNSEL
CLAUSE 17 REGULATORY
CLAUSE 18 TRANSFER OF SHARES; RIGHTS OF FIRST OFFER; TAG ALONG RIGHTS
CLAUSE 19 MATTERS REQUIRING PARTICIPANTS' APPROVAL
CLAUSE 20 DISPUTES
-i-
<PAGE>
CLAUSE 21 TERMINATION
CLAUSE 22 INTENTIONALLY OMITTED
CLAUSE 23 CONFIDENTIALITY
CLAUSE 24 COSTS
CLAUSE 25 GENERAL
-ii-
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
THIS SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT made this 21st day
of April, 1999
among:
(1) ELAN CORPORATION, PLC, a public limited company incorporated under the laws
of Ireland, and having its registered office at Lincoln House, Lincoln
Place, Dublin 2, Ireland ("ELAN");
(2) ELAN INTERNATIONAL SERVICES, LTD., an exempted company incorporated under
the laws of Bermuda, and having its registered office at Clarendon House, 2
Church St., Hamilton, Bermuda ("EIS");
(3) CELTRIX PHARMACEUTICALS INC. a corporation duly incorporated and validly
existing under the laws of Delaware, and having its principal place of
business at 2033 Gateway Place, Suite 600, San Jose, California 95110,
United States of America ("CELTRIX"); and
(4) CELTRIX NEWCO LTD. an exempted company incorporated under the laws of
Bermuda, and having its registered office at Clarendon House, 2 Church St.,
Hamilton, Bermuda ("NEWCO").
RECITALS:
A. Newco desires to issue and sell to the Participants (as defined below), and
the Participants desire to purchase from Newco, for aggregate consideration
of [*****], apportioned between them as set forth herein, [*****] ordinary
shares (the "SHARES") of Newco's common stock, par value $1.00 per share
(the "COMMON STOCK"), allocated [*****] shares to Celtrix and [*****]
shares to EIS.
B. Elan owns all right, title and interest in and to certain patents which
have been granted or are pending in relation to the MEDIPAD(R) Drug
Delivery System.
C. Celtrix owns all right, title and interest in and to certain patents that
have been granted or are pending in relation to SomatoKine(R).
D. As of the date hereof, Elan has entered into a license agreement with
Newco, and Celtrix has entered into a license agreement with Newco, in
connection with the license to Newco of the Elan Intellectual Property and
the Celtrix Intellectual Property, respectively (each as defined below).
E. Elan and Celtrix have agreed to co-operate in the establishment and
management of a business for the research, development and
commercialization of the Products (as defined below) based on the Licensed
Technologies (as defined below).
<PAGE>
F. Elan and Celtrix have agreed to enter into this Agreement for the purpose
of recording the terms and conditions of the joint venture and of
regulating their relationship with each other and certain aspects of the
affairs of and their dealings with Newco.
NOW IT IS HEREBY AGREED AS FOLLOWS:
CLAUSE 1
DEFINITIONS
1.1 In this Agreement, the following terms shall, where not inconsistent with
the context, have the following meanings respectively.
"AFFILIATE" of any Person (in the case of a legal entity) shall mean any
other Person controlling, controlled by or under the common control with
such first Person, as the case may be. For the purposes of this definition,
"control" shall mean direct or indirect ownership of 50% or more of the
stock or shares entitled to vote for the election of directors or capital
interests representing at least 50% of the equity thereof and "controlling"
and "controlled" shall be construed accordingly. Notwithstanding the
foregoing, Newco shall not be construed to be an Affiliate, as defined
herein, of Elan or EIS.
"AGREEMENT" means this agreement (which expression shall be deemed to
include the Recitals and the Schedules hereto).
"BUSINESS" means the business of Newco as described in Clause 2 and as more
particularly specified in the Business Plan and such other business as the
Participants may agree from time to time in writing (each in its sole
discretion) should be carried on by Newco.
"BUSINESS PLAN" shall mean the business plan and program of development to
be agreed to by Elan and Celtrix within 60 days of the Closing Date, with
respect to the research, development, and commercialization of the
Products, which shall be reviewed and updated by Elan and Celtrix on an
annual basis, upon mutual written agreement.
"CELTRIX DIRECTORS" has the meaning set forth in Clause 7.
"CELTRIX IMPROVEMENTS" has the meaning assigned thereto in the Celtrix
License Agreement.
"CELTRIX INTELLECTUAL PROPERTY" has the meaning assigned thereto in the
Celtrix License Agreement.
2
<PAGE>
"CELTRIX KNOW-HOW" shall mean any and all rights owned or licensed by
Celtrix with respect to any knowledge, information, discovery, invention,
trade secret, technique, process, system, formulation, design, data and
expertise relating to SomatoKine(R) whether or not covered by any patent,
copyright, design, trademark, trade secret or other industrial or
intellectual property right.
"CELTRIX LICENSE AGREEMENT" means the license agreement between Celtrix and
Newco, of even date herewith, attached hereto in Schedule 2.
"CELTRIX PATENT RIGHTS" shall mean the patents and patent applications
(including provisional applications) relating to SomatoKine(R) that are
forth in Schedule 1 of the Celtrix License Agreement, that are owned or
licensed by or on behalf of Celtrix. Celtrix Patent Rights shall also
include all extensions, continuations, continuations-in-part, divisionals,
patents-of-addition, re-examinations, re-issues, supplementary protection
certificates and foreign counterparts of such patents and patent
applications and any patents issuing thereon and extensions of any patents
licensed under the Celtrix License Agreement.
"CELTRIX SECURITIES PURCHASE AGREEMENT" means that certain securities
purchase agreement, of even date herewith, by and between Celtrix and EIS.
"CLOSING DATE" shall mean the date upon which the Transaction Documents are
executed and delivered by the Parties and the transactions effected thereby
are closed.
"COMMON STOCK EQUIVALENTS" means any options, warrants, rights or any other
securities convertible, exercisable or exchangeable, in whole or in part,
for or into Common Stock.
"DIRECTORS" means, at any time, the directors of Newco.
"EIS DIRECTOR" has the meaning set forth in Clause 9.
"ELAN IMPROVEMENTS" has the meaning assigned thereto in the Elan License
Agreement.
"ELAN INTELLECTUAL PROPERTY" has the meaning assigned thereto in the Elan
License Agreement.
3
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
"ELAN KNOW-HOW" shall mean any and all rights owned or licensed by Elan
relating to any knowledge, information, discovery, invention, trade
secret, technique, process, system, formulation, design, data and
expertise with respect to the MEDIPAD(R) Drug Delivery System whether
or not covered by any patent, copyright, design, trademark, trade
secret or other industrial or intellectual property right.
"ELAN LICENSE AGREEMENT" means the license agreement between Elan and
Newco, of even date herewith, attached hereto in Schedule 1.
"ELAN PATENT RIGHTS" shall mean the patents and patent applications
(including provisional applications) relating to the MEDIPAD(R) Drug
Delivery System as set forth in Schedule 1 of the Elan License
Agreement, and that are owned or licensed by or on behalf of Elan. Elan
Patent Rights shall also include all extensions, continuations,
continuations-in-part, divisionals, patents-of-addition,
re-examinations, re-issues, supplementary protection certificates and
foreign counterparts of such patents and patent applications and any
patents issuing thereon and extensions of any patents licensed under
the Elan License Agreement.
"ENCUMBRANCE" means any liens, charges, encumbrances, equities, claims,
options, proxies, pledges, security interests, or other similar rights
of any nature.
"EPT" shall mean Elan Pharmaceutical Technologies, a division of Elan.
"EXCHANGE RIGHT" has the meaning assigned to such term in the Amended
and Restated Certificate of Incorporation of Celtrix in effect on the
date hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE RIGHT TERM" shall mean the period commencing on the Effective
Date and ending on the exercise by Elan of the Exchange Right.
"FIELD" shall mean [*****]
"FINANCIAL YEAR" means each year commencing on January 1 (or in the
case of the first Financial Year, the date hereof) and expiring on
December 31 of each year.
"FULLY DILUTED COMMON STOCK" means all of the issued and outstanding Common
Stock, assuming the conversion, exercise or exchange of all outstanding
Common Stock Equivalents.
4
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
"FUNDING AGREEMENT" shall mean the Funding Agreement, dated as of the
date hereof, between EIS and Celtrix.
"LICENSE AGREEMENTS" means the Elan License Agreement and the Celtrix
License Agreement.
"LICENSED TECHNOLOGIES" means, collectively, the Elan Intellectual
Property and the Celtrix Intellectual Property.
"MEDIPAD(R) DRUG DELIVERY SYSTEM" shall mean the [*****] as disclosed
in the Elan Patent Rights set forth in Schedule 1 of the Elan License
Agreement.
"NEWCO INTELLECTUAL PROPERTY" shall mean all rights to technology,
patents and know-how belonging to Newco, other than the Elan
Intellectual Property and the Celtrix Intellectual Property, including
any technology acquired by or licensed to Newco from or by a third
party and any newly developed technology that is not Elan Intellectual
Property or Celtrix Intellectual Property.
"NEWCO MEMORANDUM OF ASSOCIATION AND BYE-LAWS" shall mean the
Memorandum of Association and Bye-Laws of Newco.
"OSTEOPOROSIS" shall mean a skeletal condition characterized by
decreased density of normal mineralized bone, which bone density, as
measured by dual-energy x-ray absorptiometry (DXA), is more than 2.5
standard deviations below the mean for the young adult reference range.
"PARTICIPANT" means Celtrix or Elan, as the case may be, and
"PARTICIPANTS" means both Celtrix and Elan together;
"PARTY" means Elan, Celtrix, or Newco, as the case may be, and
"PARTIES" means all three together;
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental entity or
authority or other entity of whatever nature.
"PERMITTED TRANSFEREE" means any Affiliate or subsidiary of Elan, EIS
or Celtrix, to whom this Agreement may be assigned, in whole or in
part, pursuant to
5
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
the terms hereof or, in the case of Elan/EIS, an off-balance sheet
special purpose entity created by Elan or EIS.
"PRODUCTS" shall mean the MEDIPAD(R) Drug Delivery System incorporating
SomatoKine(R) as its primary active ingredient.
"PROJECT" shall mean all activity as undertaken by or on behalf of
Newco in order to develop the Products in accordance with the Business
Plan.
"REGISTRATION RIGHTS AGREEMENTS" means the Registration Rights
Agreements of even date herewith relating to Newco and Celtrix,
respectively.
"REGULATORY APPLICATION" means any regulatory application or any other
application for marketing approval for a Product, which Newco will file
in any country of the Territory, including any supplements or
amendments thereto.
"REGULATORY APPROVAL" means the final regulatory approval to market a
Product in any country of the Territory, and any other approval which
is required to launch the Product in the normal course of business.
"RHA" means any relevant government health authority (or successor
agency thereof) in any country of the Territory whose approval is
necessary to market a Product in the relevant country of the Territory.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Common Stock of Newco.
"SOMATOKINE"(R) shall mean [*****]
"STOCKHOLDER" means any of EIS, Celtrix, any Permitted Transferee or
any other Person who subsequently becomes bound by this Agreement as a
holder of the Shares, and "STOCKHOLDERS" means all of the Stockholders
together.
"SUBSIDIARY" means any company that is a subsidiary of Newco within the
meaning of applicable laws.
"TECHNOLOGICAL COMPETITOR OF ELAN" shall mean [*****]
6
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
"TECHNOLOGICAL COMPETITOR OF CELTRIX" shall mean [*****]
"TERM" means the term of this Agreement.
"TERRITORY" means [*****]
"TRANSACTION DOCUMENTS" means this Agreement, the Funding Agreement,
the Elan License Agreement, the Celtrix License Agreement, the Celtrix
Securities Purchase Agreement, the Registration Rights Agreements and
associated documentation of even date herewith, by and between Celtrix,
Elan, EIS and Newco, as applicable.
"UNITED STATES DOLLAR" and "US$" and "$" means the lawful currency of
the United States of America.
1.2 In addition, the following definitions have the meanings in the Clauses
corresponding thereto, as set forth below.
DEFINITION CLAUSE
---------- ------
"Buyout Option" 21.4
"Closing" 4.2
"Common Stock" Recital
"Confidential Information" 23.1
"Co-sale Notice" 18.3
"Elan/Newco Option" 13.2
"Expert" 20.3
"Management Committee" 9.2.1
"Notice of Exercise" 18.2
"Notice of Intention" 18.2
"Offered Shares" 18.2
"Offering Price" 18.2
"Presiding Justice" 20.3
"Proposing Participant" 21.4
"Proposing Participant Price" 21.6
"Purchase Price" 21.6
"R&D Committee" 9.2.2
"Recipient Participant" 21.4
"Recipient Participant Price" 21.6
"Remaining Stockholders" 18.3
7
<PAGE>
<TABLE>
<CAPTION>
DEFINITION CLAUSE
---------- ------
<S> <C>
"Relevant Event" 21.2
"Selling Stockholder" 18.2
"Tag-Along Right" 18.3
"Transaction Proposal" 18.2
"Transfer" 18.1
"Transferee Terms" 18.3
"Transferring Stockholders" 18.3
</TABLE>
1.3 Words importing the singular shall include the plural and vice versa.
1.4 Unless the context otherwise requires, reference to a recital, article,
paragraph, provision, clause or schedule is to a recital, article,
paragraph, provision, clause or schedule of or to this Agreement.
1.5 Reference to a statute or statutory provision includes a reference to it as
from time to time amended, extended or re-enacted.
1.6 The headings in this Agreement are inserted for convenience only and do
not affect its construction.
1.7 Unless the context or subject otherwise requires, references to words in
one gender include references to the other genders.
1.8 Capitalized terms used but not defined herein shall have the meanings
ascribed in the Transaction Documents, if defined therein.
CLAUSE 2
NEWCO'S BUSINESS
2.1 The primary objective of Newco and any Subsidiaries is to carry on the
business of the development, testing, registration, manufacture,
commercialization and licensing of Products in the Territory and to achieve
the objectives set out in this Agreement. The focus of the collaborative
venture will be to develop the Products using the Elan Intellectual
Property, the Celtrix Intellectual Property and the Newco Intellectual
Property in accordance with agreed-upon specifications and timelines.
2.2 Except as the Participants otherwise agree in writing and except as may be
provided in this Agreement, the Business Plan or the License Agreements,
the Participants shall exercise their respective powers in relation to
Newco so as to ensure that the Business is carried on in a proper and
prudent manner.
8
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
2.3 Each Participant shall use all commercially reasonable and proper means at
its disposal and within its power to maintain, extend and improve the
Business of Newco, within the limits of this Agreement, and to further the
reputation and interests of Newco.
2.4 The central management and control of Newco shall be exercised in Bermuda
and shall be vested in the Directors and such Persons as such Directors may
delegate the exercise of their powers in accordance with the Newco
Memorandum of Association and Bye-Laws. The Participants shall use their
best efforts to ensure that to the extent required pursuant to the laws of
Bermuda, and to ensure the sole residence of Newco in Bermuda, all meetings
of the Directors are held in Bermuda or other jurisdictions outside the
United States and generally to ensure that Newco is treated as resident for
taxation purposes in Bermuda.
CLAUSE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF NEWCO: Newco hereby represents and
warrants to each of the Stockholders as follows, as of the date hereof:
3.1.1 ORGANIZATION: Newco is an exempted company duly organized,
validly existing and in good standing under the laws of Bermuda,
and has all the requisite corporate power and authority to own
and lease its properties, to carry on its business as presently
conducted and as proposed to be conducted, to execute this
Agreement, which has been duly authorized and is enforceable
against Newco in accordance with its terms, and to carry out the
transactions contemplated hereby.
3.1.2 CAPITALIZATION: As of the date hereof, the authorized capital
stock of Newco consists of [*****] shares of Common Stock. Prior
to the date hereof, no shares of capital stock of Newco have been
issued.
3.1.3 AUTHORIZATION: The execution, delivery and performance by Newco
of this Agreement, including the issuance of the Shares, have
been duly authorized by all requisite corporate actions; this
Agreement has been duly executed and delivered by Newco and is
the valid and binding obligation of Newco, enforceable against it
in accordance with its terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the enforcement of creditors'
rights generally, and except as enforcement of rights to
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indemnity and contribution hereunder may be limited by United
States federal or state securities laws or principles of public
policy. The Shares, when issued as contemplated hereby, will be
validly issued and outstanding, fully paid and non-assessable and
not subject to preemptive or any other similar rights of the
Stockholders or others.
3.1.4 NO CONFLICTS: The execution, delivery and performance by Newco of
this Agreement, the issuance, sale and delivery of the Shares,
and compliance with the provisions hereof by Newco, will not:
(i) violate any provision of applicable law, statute, rule or
regulation applicable to Newco or any ruling, writ,
injunction, order, judgment or decree of any court,
arbitrator, administrative agency or other governmental
body applicable to Newco or any of its properties or
assets;
(ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with notice or
lapse of time or both) a default (or give rise to any right
of termination, cancellation or acceleration) under its
charter or organizational documents or any material
contract to which Newco is a party, except where such
violation, conflict or breach would not, individually or in
the aggregate, have a material adverse effect on Newco; or
(iii) result in the creation of, any Encumbrance upon any of the
properties or assets of Newco.
3.1.5 APPROVALS: As of the date hereof, no permit, authorization,
consent or approval of or by, or any notification of or filing
with, any Person is required in connection with the execution,
delivery or performance of this Agreement by Newco. Newco has
full authority to conduct its business as contemplated in the
Business Plan and the Transaction Documents.
3.1.6 DISCLOSURE: This Agreement does not contain any untrue statement
of a material fact or omit to state any material fact necessary
to make the statements contained herein not misleading. Newco is
not aware of any material contingency, event or circumstance
relating to its business or prospects, which could have a
material adverse effect thereon, in order for the disclosure
herein relating to Newco not to be misleading in any material
respect.
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3.1.7 NO BUSINESS; NO LIABILITIES: Newco has not conducted any business
or incurred any liabilities or obligations prior to the date
hereof, except solely in connection with its organization and
formation.
3.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS: Each of the
Stockholders hereby severally represents and warrants to Newco as follows
as of the date hereof:
3.2.1 ORGANIZATION: Such Stockholder is a corporation duly organized
and validly existing under the laws of its jurisdiction of
organization and has all the requisite corporate power and
authority to own and lease its respective properties, to carry on
its respective business as presently conducted and as proposed to
be conducted and to carry out the transactions contemplated
hereby.
3.2.2 AUTHORITY: Such Stockholder has full legal right, power and
authority to enter into this Agreement and to perform its
obligations hereunder, which have been duly authorized by all
requisite corporate action. This Agreement is the valid and
binding obligation of such Stockholder, enforceable against it in
accordance with its terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the enforcement of creditors'
rights generally, and except as enforcement of rights to
indemnity and contribution hereunder may be limited by United
States federal or state securities laws or principles of public
policy.
3.2.3 NO CONFLICTS: The execution, delivery and performance by such
Stockholder of this Agreement, purchase of the Shares, and
compliance with the provisions hereof by such Stockholder will
not:
(i) violate any provision of applicable law, statute, rule or
regulation known by and applicable to such Stockholder or
any ruling, writ, injunction, order, judgment or decree of
any court, arbitrator, administrative agency or other
governmental body applicable to such Stockholder or any of
its properties or assets;
(ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with notice or
lapse of time or both) a default (or give rise to any right
of termination, cancellation or acceleration) under the
charter or organizational documents of such Stockholder or
any material contract to which such Stockholder is a party,
except where such violation, conflict or breach would not,
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individually or in the aggregate, have a material adverse
effect on such Stockholder; or
(iii) result in the creation of, any Encumbrance upon any of the
properties or assets of such Stockholder.
3.2.4 APPROVALS: As of the date hereof, no permit, authorization,
consent or approval of or by, or any notification of or filing
with, any Person is required in connection with the execution,
delivery or performance of this Agreement by such Stockholder.
3.2.5 INVESTMENT REPRESENTATIONS: Such Stockholder is capable of
evaluating the merits and risks of its investment in Newco. Such
Stockholder has not been formed solely for the purpose of making
this investment and such Stockholder is acquiring the Common
Stock and Preferred Stock for investment for its own account, not
as a nominee or agent, and not with the view to, or for resale in
connection with, any distribution of any part thereof. Such
Stockholder understands that the Shares have not been registered
under the Securities Act or applicable state and foreign
securities laws by reason of a specific exemption from the
registration provisions of the Securities Act and applicable
state and foreign securities laws, the availability of which
depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of such Stockholders'
representations as expressed herein. Such Stockholder understands
that no public market now exists for any of the Shares and that
there is no assurance that a public market will ever exist for
such Shares.
CLAUSE 4
AUTHORIZATION AND CLOSING
4.1 Newco has authorized the issuance to (i) EIS of [*****] shares of Common
Stock and (ii) Celtrix of [*****] shares of Common Stock, issuable as
provided in Clause 4.3 hereof.
4.2 The closing (the "CLOSING") shall take place at the offices of Brock
Silverstein LLC at 153 East 53rd Street, New York, New York 10022 on the
date hereof or such other places if any, as the Parties may agree and shall
occur contemporaneously with the closing under the Celtrix Securities
Purchase Agreement.
4.3 At the Closing:
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4.3.1 Newco shall issue and sell to EIS, and EIS shall purchase from
Newco, upon the terms and subject to the conditions set forth
herein, [*****] shares of Common Stock for an aggregate purchase
price of [*****] Newco shall issue and sell to Celtrix, and
Celtrix shall purchase from Newco, upon the terms and conditions
set forth herein, [*****] shares of Common Stock for an aggregate
purchase price of [*****]
4.3.2 The Parties shall execute and deliver to each other, as
applicable, certificates in respect of the Common Stock described
above and any other certificates, resolutions or documents which
the Parties shall reasonably require.
4.4 EXEMPTION FROM REGISTRATION:
The Shares will be issued under an exemption or exemptions from
registration under the Securities Act. Accordingly, the certificates
evidencing the Shares shall, upon issuance, contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY SECURITIES LAWS OF A STATE OR
OTHER JURISDICTION AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF (OTHER THAN TO AN AFFILIATE OF THE
ORIGINAL HOLDER OR AS OTHERWISE PERMITTED IN THE AGREEMENT PURSUANT TO
WHICH THEY WERE ISSUED) EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR
BLUE SKY LAWS, OR (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE
SECURITIES ACT (OR ANY SIMILAR RULE UNDER THE SECURITIES ACT RELATING TO
THE DISPOSITION OF SECURITIES) TOGETHER WITH AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
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CLAUSE 5
DEVELOPMENT FUNDING
It is estimated that Newco will require approximately an additional [*****] (the
"DEVELOPMENT FUNDING") within the first [*****] of the date hereof, to commence
development of the first Product or Products based upon the Elan Technology, the
Celtrix Technology and/or Newco Technology. The funds necessary for such
development shall be provided in accordance with the Participants' respective
ownership in Newco at such time or times as shall be reasonably determined in
good faith by decision of Newco's board of directors with the affirmative vote
of at least the EIS Director and one Celtrix Director, pursuant to the terms and
conditions of the Funding Agreement.
CLAUSE 6
SUBLICENSE AND ASSIGNMENT RIGHTS
6.1 Newco shall not assign or, except as set forth in Section 6.2 below,
otherwise transfer any of its rights under the Licenses for the Licensed
Technologies and/or the Newco Intellectual Property without the prior
written consent of Elan and Celtrix.
6.2 Newco shall not sublicense any of its rights under the Licenses for the
Licensed Technologies and/or the Newco Intellectual Property without the
prior written consent of Elan and Celtrix, which consent shall not be
unreasonably withheld or delayed; provided, that the consent of Elan and/or
Celtrix may be withheld in Elan's or Celtrix's sole discretion in the case
of a proposed sublicense of such rights to a Technological Competitor of
Elan or a Technological Competitor of Celtrix, as the case may be.
6.3 Newco shall not enter into any agreement with any third party for
development or exploitation of the Elan Intellectual Property and/or the
Celtrix Intellectual Property without the prior written consent of Elan or
Celtrix, respectively, which consent may be withheld in Elan's or Celtrix's
sole discretion, as the case may be. Any agreement between Newco and any
permitted third party for the development or exploitation of the Elan
Intellectual Property and/or the Celtrix Intellectual Property shall
require such third party to maintain the confidentiality of all information
concerning the Elan Intellectual Property and/or the Celtrix Intellectual
Property, as applicable, provided that such obligation of confidentiality
shall be no less stringent than that set forth in Clause 23 and shall
provide that all right, title and interest in and to any [*****] shall be
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owned by [*****] and all right, title and interest in and to any [*****]
shall be owned by [*****]
6.4 Newco shall not enter into any agreement with any third party for
development of Newco Intellectual Property without the approval of the
Management Committee.
6.5 Upon 30 days' prior notice in writing from Elan to Newco and Celtrix, Newco
shall assign the Newco Intellectual Property including without limitation,
all rights and obligations related thereto, from Newco to a wholly-owned
subsidiary of Newco to be incorporated in Ireland, which company shall be
newly incorporated by Elan and Celtrix to facilitate such assignment.
CLAUSE 7
OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS/NON-COMPETITION
The Parties acknowledge and agree to be bound by:
7.1 the provisions of Clause 2 of the Elan License Agreement (as supplemented
by the provision of relevant definitions in the Elan License Agreement) and
Clause 2 of the Celtrix License Agreement (as supplemented by the provision
of relevant definitions in the Celtrix License Agreement) which set forth
the agreement between the parties thereto in relation to the ownership of
intellectual property rights; and
7.2 the provisions of Clause 5 of the Elan License Agreement and the provisions
of Clause 5 of the Celtrix License Agreement which set forth the agreement
between the parties thereto in relation to the non-competition obligations
of Elan and Celtrix, respectively.
CLAUSE 8
TRADEMARKS
8.1 Elan shall grant to Newco [*****] in accordance with the terms and
conditions of the Elan License Agreement. Elan shall at all times be and
remain the owner of such trademark licensed to Newco.
8.2 Celtrix shall grant to Newco [*****]
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in accordance with the terms and conditions of the Celtrix License
Agreement. Celtrix shall at all times be and remain the owner of such
trademark licensed to Newco.
CLAUSE 9
DIRECTORS; MANAGEMENT AND R&D COMMITTEES
9.1. DIRECTORS:
The Board of Directors of Newco shall be composed of [*****] Directors.
Celtrix shall have the right to nominate [*****] directors of Newco
("CELTRIX DIRECTORS") and EIS shall have the right to nominate [*****]
Director of Newco ("EIS DIRECTOR"). Celtrix may appoint [*****] of the
Celtrix Directors to be the chairman of Newco.
9.1.1. If the chairman is unable to attend any meeting of the Board,
[*****] shall be entitled to appoint another Director to act as
chairman in his place at the meeting.
9.1.2. If EIS removes the [*****], or Celtrix removes [*****] EIS or
Celtrix, as the case may be, shall indemnify the other
Stockholder against any claim by such removed Director arising
from such removal.
9.1.3. The Directors shall meet not less than [*****] in each Financial
Year and all Directors' meetings shall be held in [*****] to the
extent required pursuant to the laws of [*****]
9.1.4. At any such meeting, the presence [*****] shall be required to
constitute a quorum and, subject to Clause 19 hereof, the
affirmative vote of a majority of the Directors present at a
meeting at which such a quorum is present shall constitute an
action of the Directors. In the event of any meeting being
inquorate, the meeting shall be adjourned for a period of seven
days. A notice shall be sent to the EIS Director and the Celtrix
Directors specifying the date, time and place where such
adjourned meeting is to be held and reconvened.
9.1.5. The chairman of Newco, or his duly appointed successor, shall
hold office until the first meeting of the Directors after the
[*****] by [*****] of [*****]
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In the event that [*****] is exercised at any time by [*****],
each of [*****] and [*****] shall cause the board of directors of
Newco to be reconfigured so that an [*****] of Directors are
designated by [*****] and [*****.] Thereafter, (a) a quorum shall
require an [*****] and (b) each of [*****] and [*****] beginning
with EIS, shall have the right, exercisable [*****] to be [*****]
of Newco for a term of [*****] If the chairman of Newco is unable
to attend any meeting of the Directors, the Directors shall be
entitled to appoint another Director to act as chairman of Newco
in his place at the meeting.
9.1.6. In case of an equality of votes at a meeting of the board of
directors of Newco, the chairman of Newco shall not be entitled
to a second or casting vote. In the event of continued deadlock,
the board of directors shall resolve the deadlock pursuant to the
provisions set forth in Clause 20,
9.2. MANAGEMENT AND R&D COMMITTEES:
9.2.1. The Directors shall appoint a management committee (the
"MANAGEMENT COMMITTEE") to perform certain operational functions,
such delegation to be consistent with the directors' right to
delegate powers pursuant to the Newco Memorandum of Association
of Bye-Laws. The Management Committee shall initially consist of
[*****] members, [*****] of whom will be nominated by EIS and
[*****] of whom will be nominated by Celtrix, and each of whom
shall be entitled to [*****] vote, whether or not present at any
Management Committee meeting during which such operational
functions are discussed. Decisions of the Management Committee
shall require approval by at least [*****] and [*****] Each of
EIS and Celtrix shall be entitled to remove any of their nominees
to the Management Committee and appoint a replacement in place of
any nominees so removed. The number of members of the Management
Committee may be altered if agreed to by a majority of the
directors of Newco; provided that, each of Elan and Celtrix shall
be entitled to appoint [*****] number of members to the
Management Committee.
9.2.2. The Management Committee shall appoint a research and development
committee (the "R&D COMMITTEE") which shall initially be
comprised of [*****] members, [*****] of whom will be nominated
by Elan and [*****] of whom will be nominated by Celtrix, and
each of whom shall have [*****] vote, whether or not present at
an R&D Committee meeting during which research and development
issues are discussed. Decisions of the R&D
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Committee shall require approval by at least [*****] and
[*****] Each of Elan and Celtrix shall be entitled to remove
any of their nominees to the R&D Committee and appoint a
replacement in place of any nominees so removed. The number of
members of the R&D Committee may be altered if agreed to by a
majority of the Directors; provided that, each of Elan and
Celtrix shall be entitled to appoint an [*****] of members to
the R&D Committee. The R & D Committee shall meet at least
[*****] each calendar quarter alternately at the offices of
Elan and Celtrix (except where otherwise agreed) to monitor the
progress of that portion of the Business Plan that relates to
the Project and to report on their progress to the Management
Committee.
9.2.3 The Management Committee shall be responsible for, inter alia,
devising, implementing and reviewing strategy for the business
of Newco, and the operation of Newco, and in particular,
devising Newco's strategy for research and development and to
monitor and supervise the implementation of Newco's strategy
for research and development. The Management Committee shall
report all significant developments to the Directors on the
occurrence thereof, and in addition, shall report at quarterly
intervals to the Directors in accordance with Clause 10.2 of
this Agreement.
9.2.4. The R&D Committee shall be responsible for:
9.2.4.1. designing that portion of the Business Plan that
relates to the Project for consideration by the
Management Committee;
9.2.4.2. establishing a joint Project team consisting of an
[*****] of team members from Elan and Celtrix,
including [*****] from each of Elan and Celtrix; and
9.2.4.3. implementing such portion of the Business Plan that
relates to the Project, as approved by the Management
Committee.
9.2.4 In the event of any dispute amongst the R&D Committee, the R&D
Committee shall refer such dispute to the Management Committee
whose decision on the dispute shall be binding on the R&D
Committee.
If the Management Committee cannot resolve such matter or any
other matter under consideration by the Management Committee,
then the dispute will be referred to the [*****] and the
[*****]
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and thereafter, in the event of continued deadlock, pursuant to
the deadlock provisions to be set forth in Clause 20, involving
inter alia, the referral of the dispute to an expert, whose
decision, however, will ultimately be non-binding on the
Participants.
9.2.6. [*****] Elan and Celtrix shall permit Newco or its duly
authorized representative on reasonable notice and at any
reasonable time during normal business hours to have access to
inspect and audit the accounts and records of Elan or Celtrix
and any other book, record, voucher, receipt or invoice
relating to the calculation or the cost of the Project and to
the accuracy of the reports which accompanied them. Any such
inspection of Elan's or Celtrix's records, as the case may be,
shall be at the expense of Newco, except that if such
inspection reveals an overpayment in the amount paid to Elan or
Celtrix, as the case may be, for the Project hereunder in any
Financial Year of [*****] or more of the amount due to Elan or
Celtrix, as the case may be, then the expense of such
inspection shall be borne solely by Elan or Celtrix, as the
case may be, instead of by Newco. Any surplus over the sum
properly payable by Newco to Elan or Celtrix, as the case may
be, shall be paid promptly by Elan or Celtrix, as the case may
be, to Newco. If such inspection reveals a deficit in the
amount of the sum properly payable to Elan or Celtrix, as the
case may be, by Newco, Newco shall pay the deficit to Elan or
Celtrix, as the case may be.
CLAUSE 10
THE BUSINESS PLAN AND REVIEWS
10.1 The Directors shall meet together as soon as reasonably practicable
after the Closing Date hereof and shall agree upon and approve the
Business Plan for the current Financial Year within 60 days of the date
hereof. In subsequent Financial Years, the Directors shall meet
together prior to the accounting reference date specified in Clause 16
and agree upon and approve the Business Plan for the following
Financial Year, or any amendment or modification to the Business Plan.
10.2 The Participants agree that the Management Committee shall submit to
the Directors on [*****] or as soon as reasonably practicable
thereafter in each Financial Year a report on the performance of the
Business and research and development activities of Newco, and the
Directors shall hold such meeting as may be necessary to review the
performance of Newco against the Business Plan for the relevant year.
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CLAUSE 11
RESEARCH AND DEVELOPMENT WORK
11.1 Research and development work related to the Products and the Newco
Intellectual Property may include but shall not be limited to,
screening, in-vitro pharmacology, toxicology, stability, prototype
dosage form development, formulation, optimization, clinical and
regulatory activities. Such work shall be agreed to and jointly
conducted by Elan and Celtrix as provided in the Business Plan.
11.2 Elan (or an Affiliate of Elan nominated by Elan, including, without
limitation, Elan Pharmaceutical International, Ltd., an Irish company)
and Celtrix shall undertake for a period of thirty (30) months from the
Effective Date, pursuant to the Business Plan and in accordance with
the terms of the Funding Agreement, certain research and development
work (a) with respect to the development and commercialization of the
Products, and (b) in furtherance of the development of patent rights
and know-how related to the Elan Intellectual Property, Celtrix
Intellectual Property and Newco Intellectual Property. Newco shall pay
Celtrix and Elan or Elan's Affiliate nominated by Elan hereunder for
any research and development work carried out by them on behalf of
Newco at the end of each month during the Project, subject to the
proper vouching of research and development work and expenses. An
invoice shall be issued to Newco by Celtrix or Elan or Elan's Affiliate
nominated by Elan hereunder, as applicable, by the [*****] of the month
following the month in which work was performed. The payments by Newco
to Celtrix or Elan or Elan's Affiliate nominated by Elan hereunder
shall be calculated by reference to [*****] in carrying out such
research and development work, [*****] Research and development
activities that are [*****] shall be charged to Newco at [*****]
CLAUSE 12
INTELLECTUAL PROPERTY RIGHTS
12.1 Newco shall permanently mark or otherwise use reasonable efforts to
cause any third party to permanently mark all Products and/or the
packaging therefor with such license or patent notices to comply with
the laws of the country of sale or otherwise to generally communicate
the existence of any Elan Patents Rights or Celtrix Patent Rights for
the countries of the Territory and in such manner as Elan
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or Celtrix, as the case may be, may reasonably request in writing prior
to the sale or commercial use thereof.
12.2 The Participants shall discuss in good faith all material issues
relating to filing, prosecution and maintenance of Elan Patent Rights
and Celtrix Patent Rights insofar as such patent rights are of
relevance to the License Agreements and any patentable inventions and
discoveries within the Elan Intellectual Property, Celtrix Intellectual
Property and Newco Intellectual Property that relate to the License
Agreements and any patentable improvements thereto. Subject to mutual
agreement to the contrary by Celtrix and Elan the following provisions
shall apply:
12.2.1 Elan, [*****], shall make a good faith effort (a) to secure the
grant of any patent applications within the Elan Patent Rights
that relate to the Field; (b) to file and prosecute patent
applications covering the Elan Improvements that relate to the
Field; (c) to defend all such applications against third party
oppositions; and (d) to maintain in force any issued patent or
letters patent within the Elan Patent Rights that relate to the
Field (including any such patents that may issue covering any
such Elan Improvements that relate to the Field). Elan shall
have the sole right in its reasonable business discretion to
control such filing, prosecution, defense and maintenance;
provided, however, that Newco, at its request, shall be
provided with copies of all documents relating to such filing,
prosecution, defense, and maintenance in sufficient time to
review such documents and comment thereon prior to filing.
12.2.2 Celtrix, [*****], shall make a good faith effort (a) to secure
the grant of any patent applications within the Celtrix Patent
Rights that relate to the Field; (b) to file and prosecute
patent applications covering the Celtrix Improvements that
relate to the Field; (c) to defend all such applications
against third party oppositions; and (d) to maintain in force
any issued patent or letters patent within the Celtrix Patent
Rights that relate to the Field (including any such patents
that may issue covering any such Celtrix Improvements that
relate to the Field). Celtrix shall have the sole right in its
reasonable business discretion to control such filing,
prosecution, defense and maintenance; provided, however, that
Newco shall have the right to inspect copies of all documents
relating to such filing, prosecution, defense, and maintenance,
and to make copies thereof, upon reasonable prior notice to
Celtrix.
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12.2.3 In the event that a Participant informs Newco that it does not
intend to file patent applications on patentable inventions and
discoveries within its respective Intellectual Property that
relate to the Field or patentable Improvements that relate to
the Field in one or more countries in the Territory or fails to
file such an application within a reasonable period of time,
Newco shall have the right, but not the obligation, at Newco's
[*****] to file and prosecute such patent application(s) in the
joint names of Newco and the relevant Participant. Upon written
request from Newco, the relevant Participant shall execute all
documents, forms and declarations and do all things as shall be
reasonably necessary to enable Newco to exercise such option
and right.
12.2.4 Newco shall have responsibility and shall bear [*****]
necessary (a) to file and prosecute patent applications on
patentable inventions and discoveries within the Newco
Intellectual Property (b) to defend all such applications
against third party oppositions; and (c) to maintain in force
any issued patent, letters patent within the Newco Intellectual
Property (including any patents that issue on patentable
inventions and discoveries within the Newco Intellectual
Property).
12.3 The Participants and Newco shall promptly inform each other in writing
of any infringement or alleged infringement of any patents within the
Elan Patent Rights, Celtrix Patent Rights or Newco Intellectual
Property or any misappropriation or alleged misappropriation of trade
secrets within the Elan Intellectual Property, Celtrix Intellectual
Property or the Newco Intellectual Property by a third party of which
it becomes aware and provide the other with any available evidence of
such infringement or misappropriation.
12.3.1
12.3.1.1 Subject to Clauses 12.3.1.2 and 12.3.1.3 below and
during the term of the License Agreements, Newco shall
have the right to pursue legal action at [*****] to
protect against any such alleged infringements of the
Elan Patent Rights and Celtrix Patent Rights or
misappropriation of the Elan Intellectual Property and
Celtrix Intellectual Property; provided, however, that
such infringements or misappropriation must relate
solely to the Field. In the event that Newco takes
such action, Newco shall do so at [*****] At Newco's
request, the relevant Participant will co-operate with
such
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SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
action insofar as the said action relates to the
Field at Newco's [*****] [*****]
12.3.1.2 In the event that (i) Newco decides, by unanimous vote
of the Management Committee, not to pursue such
infringers, within a reasonable period but in any
event within [*****] after receiving written notice of
such alleged infringement or misappropriation, or (ii)
if such alleged infringement or misappropriation does
not relate [*****] then either Elan, where the
infringement or misappropriation relates [*****] to
the [*****] or Celtrix, where the infringement or
misappropriate relates [*****] to the [*****] (in
either case, the [*****]), may in its discretion
initiate such proceedings in its own name, at [*****]
At the Affected Participant's request, Newco will
cooperate with such action at the [*****] At the
option and in the sole discretion of such Affected
Participant, the Affected Participant may request the
cooperation of the other Participant in such action;
in such case, the Participants may agree to institute
such proceedings in [*****] and shall reach agreement
[*****] to the third party.
12.2.1.3 In the event that the infringement of either the Elan
Patent Rights or Celtrix Patent Rights affects both
the Field as well as other products being developed or
commercialized by the Affected Participant or its
commercial partners outside the Field, then the
[*****] may in its discretion initiate such
proceedings in [*****] At the Affected Participant's
request, Newco will cooperate with such action at the
[*****] [*****]
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
the [*****] may request the cooperation of the other
Participant in such action; in such case, the
Participants may agree to institute such proceedings
in [*****] and shall reach agreement [*****] to the
third party.
12.3.2 During the term of the License Agreements, Newco shall have the
first right but not the obligation to bring suit or otherwise
take action against any alleged infringement of the Newco
Intellectual Property or alleged misappropriation of the Newco
Intellectual Property. If any such alleged infringement or
misappropriation occurs which gives rise to a cause of action
both [*****] Newco shall negotiate, together with Elan and
Celtrix, in good faith to determine the cause of action to be
taken. In the event that Newco takes such action, Newco shall
do so solely [*****] and all damages and monetary awards
recovered in or with respect to such action shall be the
property of Newco. At Newco's request, Elan and Celtrix will
cooperate with any such action at Newco's [*****]
12.3.3 In the event that Newco does not bring suit or otherwise take
action against any alleged infringement of the Newco
Intellectual Property or alleged misappropriation of the Newco
Intellectual Property and so notifies the Participants in
writing within [*****] of receiving notice of such
infringement, (i) if only [*****] desires to and does pursue
such suit or take such action [*****], it shall be entitled
[*****] recovered in or with respect to such action, and (ii)
if both Participants want to pursue such suit or action outside
of Newco, they will negotiate in good faith an appropriate
allocation of costs, expenses and recovery amounts.
12.4 In the event that a claim is or proceedings are brought against Newco
by a third party alleging that the sale, distribution or use of a
Product in the Territory solely because of Newco's use of either the
Elan Intellectual Property or the Celtrix Intellectual Property, as the
case may be, infringes the intellectual property rights of such party,
Newco shall promptly advise either Elan or Celtrix, as the case may be,
of such threat or suit.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
12.5 Newco shall indemnify, defend and hold Elan or Celtrix, as the case may
be, harmless against all actions, losses, claims, demands, damages,
costs and liabilities (including reasonable attorneys fees) relating
directly or indirectly to all such claims or proceedings referred to in
Clause 12.3 provided that Elan or Celtrix, as the case may be, shall
not acknowledge to the third party or to any other person the validity
of any claims of such a third party, and shall not compromise or settle
any claim or proceedings relating thereto without the prior written
consent of Newco, not to be unreasonably withheld or delayed. At its
option, Elan or Celtrix, as the case may be, may elect to take over the
conduct of such proceedings from Newco; provided that Newco's
indemnification obligations shall continue; the costs of defending such
claim shall be borne by Elan or Celtrix, as the case may be; and such
Participant shall not compromise or settle any such claim or proceeding
without the prior written consent of Newco, such consent not to be
unreasonably withheld or delayed.
CLAUSE 13
COMMERCIALIZATION
13.1 Newco will diligently pursue the research, development, prosecution and
commercialization of the Products in accordance with the Business Plan.
The Participants shall reasonably assist and cooperate with Newco in
such research, development, prosecution and commercialization of the
Products.
13.2 Notwithstanding anything contained in this Agreement to the contrary,
[*****] shall have the right [*****] to enter into any agreement with
Newco [*****] Such right of [*****] shall be exercised as follows:
13.2.1 If Newco intends to commercialize or enter into an agreement
with a third party to commercialize the Products, then Newco
immediately shall notify [*****] in writing that [*****] may
elect to enter into negotiations referred to in this Clause
13.2. [*****] shall indicate its desire to enter into such
negotiations pursuant to this Clause 13.2 by delivering
written notice to Newco within [*****] of Elan's receipt of
the written notification from Newco to Elan (the "ELAN/NEWCO
OPTION"). If [*****] elects to enter into such negotiations,
the Parties shall negotiate in good faith the terms of an
applicable agreement.
13.2.2 If, despite such good faith negotiations, [*****] and Newco do
not reach agreement on the terms of such an agreement within
[*****]
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
from [*****] exercise of the [*****] then Newco shall be free
to offer a third party[*****] terms to commercialize in the
Territory the Product that is subject to [*****]
CLAUSE 14
MANUFACTURING
14.1 If Newco elects to finance, develop and/or exploit the commercial
production of a Product, it is the expectation of the Participants that
Newco shall enter into a supply agreement with Elan or Celtrix, as the
case may be, to allow for the commercial production of such Product on
behalf of Newco, subject to the following: (a) Celtrix shall
manufacture and supply, and/or subcontract the manufacture and supply,
of SomatoKine(R) with respect to the Products, (b) Elan shall
manufacture and supply, and/or subcontract the manufacture and supply,
of the MEDIPAD(R) Drug Delivery System with respect to the Products,
and (c) Elan shall have the [*****] The supply agreements shall be
negotiated and agreed to by the Parties not later than the date of
completion of Phase III (as such term is commonly used in connection
with FDA applications) of the Project. The terms of the said supply
agreements shall be on normal commercial terms, and shall be negotiated
in good faith by the Parties thereto; provided that the Management
Committee shall have the authority to approve the cost to Newco of such
manufacture and supply of SomatoKine(R) and MEDIPAD(R) Drug Delivery
System to Newco.
CLAUSE 15
TECHNICAL SERVICES AND ASSISTANCE
15.1 Whenever commercially and technically feasible, Newco shall contract
with Celtrix or Elan, as the case may be, to perform such other
services as Newco may require, other than those specifically dealt with
hereunder or in the License Agreements. In determining which Party
should provide such services, the Management Committee shall take into
account the respective infrastructure, capabilities and experience of
Elan and Celtrix.
15.2 Newco shall, if appropriate, conclude an administrative support
agreement with Elan and/or Celtrix on such terms as the Parties thereto
shall in good faith negotiate. The administrative services shall
include one or more of the following administrative services as
requested by Newco:
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION
15.2.1 accounting, financial and other services;
15.2.2 tax services;
15.2.3 insurance services;
15.2.4 human resources services;
15.2.5 legal and company secretarial services;
15.2.6 patent and related intellectual property services; and
15.2.7 all such other services consistent with and of the same type
as those services to be provided pursuant to this Agreement,
as may be required.
The foregoing list of services shall not be deemed exhaustive and may
be changed from time to time upon written request by Newco.
15.3. The Parties agree that each Party shall effect and maintain [*****]
insurance in respect of all clinical trials and other activities
performed by them on behalf of Newco. The Stockholders and Newco shall
ensure that the industry standard insurance policies shall be in place
for all activities to be carried out by Newco.
15.4 If Elan or Celtrix so requires, Celtrix or Elan, as the case may be,
shall receive, at times and for periods mutually acceptable to the
Parties, employees of the other Party (such employees to be acceptable
to the receiving Party in the matter of qualification and competence)
for instruction in respect of the Elan Intellectual Property or the
Celtrix Intellectual Property, as the case may be, as necessary to
further the Project.
15.5 The employees received by Elan or Celtrix, as the case may be, shall be
subject to obligations of confidentiality no less stringent than those
set out in Clause 23 and such employees shall observe the rules,
regulations and systems adopted by the Party receiving the said
employees for its own employees or visitors.
CLAUSE 16
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
AUDITORS, BANKERS, REGISTERED OFFICE,
ACCOUNTING REFERENCE DATE; SECRETARY; COUNSEL
Unless otherwise agreed by the Stockholders and save as may be provided to the
contrary herein:
16.1 the auditors of Newco shall be [*****]
16.2 the bankers of Newco shall be [*****] or such other bank as may be
mutually agreed from time to time;
16.3 the accounting reference date of Newco shall be December 31st in each
Financial Year; and
16.4 the secretary of Newco shall be [*****] or such other Person as may be
appointed by the Directors from time to time.
CLAUSE 17
REGULATORY
17.1 Newco shall keep the other Parties promptly and fully advised of
Newco's regulatory activities, progress and procedures. Newco shall
inform the other Parties of any dealings it shall have with an RHA, and
shall furnish the other Parties with copies of all correspondence
relating to the Products. The Parties shall collaborate to obtain any
required regulatory approval of the RHA to market the Products.
17.2 Newco shall, at its own cost, file, prosecute and maintain any and all
Regulatory Applications for the Products in the Territory in accordance
with the Business Plan.
17.3 Any and all Regulatory Approvals obtained hereunder for any Product
shall remain the property of Newco, provided that Newco shall allow
Elan and Celtrix access thereto to enable Elan and Celtrix to fulfill
their respective obligations and exercise their respective rights under
this Agreement. Newco shall maintain such Regulatory Approvals at its
own cost.
17.4 It is hereby acknowledged that there are inherent uncertainties
involved in the registration of pharmaceutical products with the RHA's
insofar as obtaining approval is concerned and such uncertainties form
part of the business risk
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involved in undertaking the form of commercial collaboration as set
forth in this Agreement. Therefore, except for liabilities resulting
from failure to use reasonable efforts, none of Elan, EIS or Celtrix
shall have any liability to Newco solely as a result of any failure of
a Product to achieve the approval of any RHA.
CLAUSE 18
TRANSFERS OF SHARES;
RIGHT OF FIRST OFFER; TAG ALONG RIGHTS
18.1 GENERAL:
No Stockholder shall, directly or indirectly, sell or otherwise
transfer (each, a "TRANSFER") any Shares held by it except in
accordance with this Agreement. Newco shall not, and shall not permit
any transfer agent or registrar for any Shares to, transfer upon the
books of Newco any Shares from any Stockholder to any transferee, in
any manner, except in accordance with this Agreement, and any purported
transfer not in compliance with this Agreement shall be void.
18.2 RIGHTS OF FIRST OFFER:
If at any time after the end of the Term, a Stockholder shall desire to
Transfer any Shares owned by it (a "SELLING STOCKHOLDER"), in any
transaction or series of related transactions other than a Transfer to
an Affiliate or subsidiary or to an off-balance sheet special purpose
entity established by EIS or Celtrix, as the case may be, then such
Selling Stockholder shall deliver prior written notice of its desire to
Transfer (a "NOTICE OF INTENTION") (i) to Newco and (ii) to the
Stockholders who are not the Selling Stockholder (and any transferee
thereof permitted hereunder, if any), as applicable, setting forth such
Selling Stockholder's desire to make such Transfer, the number of
Shares proposed to be transferred (the "OFFERED SHARES") and the
proposed form of transaction (the "TRANSACTION PROPOSAL"), together
with any available documentation relating thereto and the price at
which such Selling Stockholder proposes to Transfer the Offered Shares
(the "OFFER PRICE"). The "Right of First Offer" provided for in this
Clause 18 shall be subject to any "Tag Along Right" benefiting a
Stockholder which may be provided for by Clause 18.3, subject to the
exceptions set forth therein.
Upon receipt of the Notice of Intention, the Stockholders who are not
the Selling Stockholder shall have the right to purchase at the Offer
Price the Offered Shares, exercisable by the delivery of notice to the
Selling Stockholder (the "NOTICE OF EXERCISE"), with a copy to Newco,
within 10 business days from the date of receipt of the Notice of
Intention. If no such Notice of Exercise has been delivered by the
Stockholders who are not the Selling Stockholder within such 10-
business day period, or such Notice of Exercise does not relate to all
of the
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Offered Shares covered by the Notice of Intention, then the Selling
Stockholder shall be entitled to Transfer all of the Offered Shares to
the intended transferee. In the event that all of the Offered Shares
are not purchased by the non-selling Stockholders, the Selling
Stockholder shall sell the available Offered Shares within 30 days
after the delivery of such Notice of Intention on terms no more
favorable to a third party than those presented to the non-selling
Stockholders. If such sale does not occur, the Offered Shares shall
again be subject to the Right of First Refusal set forth in Clause
18.2.
In the event that any of the Stockholders who are not the Selling
Stockholder exercises their right to purchase all of the Offered
Shares (in accordance with this Clause 18.2), then the Selling
Stockholder shall sell all of the Offered Shares to such
Stockholder(s), in the amounts set forth in the Notice of Intention,
after not less than 10 business days and not more than 25 business
days from the date of the delivery of the Notice of Exercise. In the
event that more than one of the Stockholders who are not the Selling
Stockholders wish to purchase the Offered Shares, the Offered Shares
shall be allocated to such Stockholders on the basis of their pro rata
equity interests in Newco.
The rights and obligations of each of the Stockholders pursuant to the
Right of First Offer provided herein shall terminate upon the date
that the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act.
At the closing of the purchase of all of the Offered Shares by the
Stockholders who are not the Selling Stockholder (scheduled in
accordance with Clause 18.2), the Selling Stockholder shall deliver
certificates evidencing the Offered Shares being sold, duly endorsed,
or accompanied by written instruments of transfer in form reasonably
satisfactory to the Stockholders who are not the Selling Stockholder,
duly executed by the Selling Stockholder, free and clear of any
adverse claims, against payment of the purchase price therefor in
cash, and such other customary documents as shall be necessary in
connection therewith.
18.3 TAG ALONG RIGHTS:
Subject to Clause 18.2, a Stockholder (the "TRANSFERRING STOCKHOLDER")
shall not Transfer (either directly or indirectly), in any one
transaction or series of related transactions, to any Person or group
of Persons, any Shares, unless the terms and conditions of such
Transfer shall include an offer to the other Stockholders who have not
exercised the Right of First Offer set forth above in Clause 18.2 (the
"REMAINING STOCKHOLDERS"), to sell Shares at the same price and on the
same terms and conditions as the Transferring Stockholder has agreed
to sell its Shares (the "TAG ALONG RIGHT").
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In the event a Transferring Stockholder proposes to Transfer any
Shares in a transaction subject to this Clause 18.3, it shall notify,
or cause to be notified, the Remaining Stockholders in writing of each
such proposed Transfer. Such notice shall set forth: (i) the name of
the transferee and the amount of Shares proposed to be transferred,
(ii) the proposed amount and form of consideration and terms and
conditions of payment offered by the transferee (the "TRANSFEREE
TERMS") and (iii) that the transferee has been informed of the Tag
Along Right provided for in this Clause 18.3, if such right is
applicable, and the total number of Shares the transferee has agreed
to purchase from the Stockholders in accordance with the terms hereof.
The Tag Along Right may be exercised by each of the Remaining
Stockholders by delivery of a written notice to the Transferring
Stockholder (the "CO-SALE NOTICE") within 10 business days following
receipt of the notice specified in the preceding subsection. The Co-
sale Notice shall state the number of Shares owned by such Remaining
Stockholder which the Remaining Stockholder wishes to include in such
Transfer; provided, however, that without the written consent of the
Transferring Stockholder, the amount of such securities belonging to
the Remaining Stockholder included in such Transfer may not be greater
than such Remaining Stockholder's percentage beneficial ownership of
Fully Diluted Common Stock multiplied by the total number of shares of
Fully Diluted Common Stock to be sold by both the Transferring
Stockholder and all Remaining Stockholders. Upon receipt of a Co-sale
Notice, the Transferring Stockholder shall be obligated to transfer at
least the entire number of Shares set forth in the Co-sale Notice to
the transferee on the Transferee Terms; provided, however, that the
Transferring Stockholder shall not consummate the purchase and sale of
any Shares hereunder if the transferee does not agree to purchase all
such Shares specified in all Co-sale Notices. If no Co-sale Notice has
been delivered to the Transferring Stockholder prior to the expiration
of the 10 business day period referred to above and if the provisions
of this Section have been complied with in all respects, the
Transferring Stockholder shall have the right for a 45 day calendar
day period to Transfer Shares to the transferee on the Transferee
Terms without further notice to any other party, but after such 45-day
period, no such Transfer may be made without again giving notice to
the Remaining Stockholders of the proposed Transfer and complying with
the requirements of this Clause 18.3.
At the closing of any Transfer of Shares subject to this Clause 18.3,
the Transferring Stockholder, and the Remaining Stockholder, in the
event such Tag
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
Along Right is exercised, shall deliver certificates evidencing such
securities as have been transferred by each, duly endorsed, or
accompanied by written instruments of transfer in form reasonably
satisfactory to the transferee, free and clear of any adverse claim,
against payment of the purchase price therefor.
The rights and obligations of each of the Stockholders pursuant to the
Tag Along Rights provided herein shall terminate upon the date that
the Common Stock of Newco is registered under Section 12(b) or 12(g)
of the Exchange Act.
Notwithstanding the foregoing, this Clause 18 shall not apply to any
sale of Common Stock pursuant to an effective registration statement
under the Securities Act in a bona fide public offering.
CLAUSE 19
MATTERS REQUIRING PARTICIPANTS' APPROVAL
19.1 Subject to the provisions of Clause 19.2, in consideration of Celtrix
and Elan agreeing to enter into the License Agreements, the Parties
hereby agree that Newco shall not without the prior approval of all of
the EIS Directors and all of the Celtrix Directors:
19.1.1. engage in any activity other than the Business;
19.1.2. acquire or dispose of assets of a value in excess of [*****]
or sell the principal assets, undertaking or Business of
Newco;
19.1.2. create any fixed or floating charge, lien (other than a lien
arising by operation of law) or other encumbrance over the
whole or any part of the undertaking, property or assets of
Newco or of any Subsidiary;
19.1.4. borrow any sum in excess of a maximum aggregate sum
outstanding at any time of [*****];
19.1.5. make any loan or advance or give any credit (other than
normal trade credit) in excess of [*****] to any Person;
19.1.6. give any guarantee or indemnity to secure the liabilities or
obligations of any Party other than those which it is usual
to give in the ordinary course of a business similar to the
Business;
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
19.1.7. enter into any contract, arrangement or commitment involving
expenditure on capital account or the realization of capital
assets if the amount or the aggregate amount of such expenditure
or realization by Newco would exceed [*****] in any one year or in
relation to any one project, and for the purpose of this paragraph
the aggregate amount payable under any agreement for hire, hire
purchase or purchase on credit sale or conditional sale terms
shall be deemed to be capital expenditure incurred in the year in
which such agreement is entered into;
19.1.8. issue any unissued Shares or create or issue any new shares
(including a split of the Shares), except as expressly permitted
by the Newco Memorandum of Association and Bye-Laws;
19.1.9. alter any rights attaching to any class of share in the capital of
Newco or alter the Newco Memorandum of Association and Bye-Laws;
19.1.10. consolidate, sub-divide or convert any of Newco's share capital or
in any way alter the rights attaching thereto;
19.1.11. dispose of Newco or of any shares in Newco;
19.1.12. enter into any partnership or profit sharing agreement with any
Person other than arrangements with trade representatives and
similar Persons in the ordinary course of business;
19.1.13. do or permit or suffer to be done any act or thing whereby Newco
may be wound up (whether voluntarily or compulsorily), save as
otherwise expressly provided for in this Agreement;
19.1.14. issue any debentures or other securities convertible into shares
or debentures or any share warrants or any options in respect of
shares in Newco;
19.1.15. enter into any contract or transaction except in the ordinary and
proper course of the Business on arm's length terms;
19.1.16. acquire, purchase or subscribe for any shares, debentures,
mortgages or securities (or any interest therein) in any company,
trust or other Person;
19.1.17. adopt any employee benefit program or incentive schemes;
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
19.1.18. engage any new employee at remuneration of greater than
[*****] per annum;
19.1.19. pay any remuneration to the Directors by virtue of holding such
office other than Directors who hold executive office;
19.1.20. licence or sub-licence any of the Elan Intellectual Property,
Celtrix Intellectual Property or Newco Intellectual Property;
19.1.21. amend or vary the terms of the Celtrix License Agreement or the
Elan License Agreement;
19.1.22. permit a person other than Newco to own a regulatory approval
relating to the Product(s);
19.1.23. change the authorized signatories on Newco bank accounts;
19.1.24. amend or vary the Business Plan;
19.1.25. alter the number of Directors;
19.1.26. pay dividends or distributions in respect of, or redeem or
repurchase, the equity of Newco;
19.1.27. enter into joint venture agreements or any similar arrangements
with any Person; or
19.1.28. create, acquire or dispose of any Subsidiary or of any shares in
any Subsidiary.
19.3 Notwithstanding any provision in this Agreement to the contrary, any
decision regarding U.S. tax elections to be made by Newco, such as whether
[*****], shall be made by unanimous vote of the Board of Directors.
CLAUSE 20
DISPUTES
20.1 Should any dispute or difference arise between Elan and Celtrix, or between
Elan or Celtrix and Newco, during the period that this Agreement is in
force, other than a dispute or difference relating to (i) the
interpretation of any provision of this
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Agreement, (ii) the interpretation or application of law, or (iii) the
ownership of any intellectual property, then any Party may forthwith
give notice to the other Parties that it wishes such dispute or
difference to be referred to the chief executive officer of Celtrix
and the President of EPT.
20.2 In any event of a notice being served in accordance with Clause 20.1,
each of the Participants shall within 14 days of the service of such
notice prepare and circulate to the chief executive officer of Celtrix
and the President of EPT a memorandum or other form of statement
setting out its position on the matter in dispute and its reasons for
adopting that position. Each memorandum or statement shall be
considered by the chief executive officer of Celtrix and the President
of EPT who shall endeavor to resolve the dispute. If the chief
executive officer of Celtrix and the President of EPT agree upon a
resolution or disposition of the matter, they shall each sign a
statement which sets out the terms of their agreement. The
Participants agree that they shall exercise the voting rights and
other powers available to them in relation to Newco to assure that the
agreed terms are fully and promptly carried into effect.
20.3 The chief executive officer of Celtrix and the President of EPT shall,
if they are unable to resolve a dispute or difference when it is
referred to them under Clause 20.2, refer the matter to an independent
expert in pharmaceutical product development and marketing (including
clinical development and regulatory affairs) (the "EXPERT"). The
Expert shall be selected by the presiding justice of the Supreme Court
of the State of New York sitting in the County, City and State of New
York (the "PRESIDING JUSTICE") or, if the Expert should have a
conflict of interest, by such other Person as such justice shall
select, having assured himself as to such Person's independence. In
each case, the Expert shall be selected having regard to his
suitability to determine the particular dispute or difference on which
the Expert is being requested to determine. Unless otherwise agreed
between the chief executive officer of Celtrix and the President of
EPT, the following rules shall apply to the appointment of the Expert.
The fees of the Expert shall be shared equally between the Parties in
dispute. The Expert shall be entitled to inspect and examine all
documentation and any other material which the Expert may consider to
be relevant to the dispute. The Expert shall afford each Party a
reasonable opportunity (in writing or orally) of stating reasons in
support of such contentions as each Party may wish to make relative to
the matters under consideration. The Expert shall give notice in
writing of his determination to the Parties within such time as may be
stipulated in his terms of appointment or in the absence of such
stipulation as soon as practicable but in any event within four weeks
from the reference of the dispute or difference to him.
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20.4 Any determination by the Expert of a dispute or difference shall not
be final and binding on the Parties; provided, however, that any
determination by the Expert of a dispute or difference referred by the
Parties pursuant to Clause 21.6. shall be final and binding on the
Parties.
CLAUSE 21
TERMINATION
21.1 This Agreement shall govern the operation and existence of Newco until
(i) terminated by written agreement of all Parties hereto or (ii)
otherwise terminated in accordance with this Clause 21.
21.2 For the purpose of this Clause 21, a "RELEVANT EVENT" is committed or
suffered by a Participant if:
21.2.1 it commits a material breach of its obligations under this
Agreement or the applicable License and fails to remedy it
within 60 days of being specifically required in writing to
do so by the other Participant; provided, however, that if
the breaching Participant has proposed a course of action to
rectify the breach and is acting in good faith to rectify
same but has not cured the breach by the 60th day, such
period shall be extended by such period as is reasonably
necessary to permit the breach to be rectified;
21.2.2 a distress, execution, sequestration or other process is
levied or enforced upon or sued out against a material part
of its property which is not discharged or challenged within
30 days;
21.2.3 it is unable to pay its debts in the normal course of
business;
21.2.4 it ceases wholly or substantially to carry on its business,
otherwise than for the purpose of a reconstruction or
amalgamation, without the prior written consent of the other
Participant (such consent not to be unreasonably withheld);
21.2.5 the appointment of a liquidator, receiver, administrator,
examiner, trustee or similar officer of such Participant or
over all or substantially all of its assets under the law of
any applicable jurisdiction, including without limitation,
the United States of America, Bermuda or Ireland;
21.2.6 an application or petition for bankruptcy, corporate re-
organization, composition, administration, examination,
arrangement or any other procedure similar to any of the
foregoing under the law of any applicable jurisdiction,
including without limitation, the United States of America,
Bermuda or Ireland, is filed, and is not discharged within 60
days, or a Participant applies for or consents to the
appointment of a receiver, administrator, examiner or similar
officer of it or of all or a material part
36
<PAGE>
of its assets, rights or revenues or the assets and/or the
business of a Participant are for any reason seized,
confiscated or condemned.
21.4 If either Participant commits or suffers a Relevant Event, the other
Participant shall be entitled, within three months of the occurrence
of the Relevant Event, to require the defaulting Participant (the
"RECIPIENT PARTICIPANT") to sell on reasonable terms of payment to the
non-defaulting Participant (the "PROPOSING PARTICIPANT") all (but not
some only) of the Shares, held or beneficially owned by the Recipient
Participant for an amount equal to the fair market value of the Shares
of the Recipient Participant (the "BUYOUT OPTION").
21.5 The Proposing Participant shall notify the Recipient Participant of
the exercise of the Buyout Option, no later than 30 business days
prior to the proposed exercise thereof, by delivering written notice
to the Recipient Participant stating that the Buyout Option is
exercised and the price at which the Proposing Participant is willing
to purchase the Shares of the Recipient Participant.
21.6 In the event that the Participants do not agree upon a purchase price
for the Shares within five Business Days following the receipt by the
Recipient Participant of written notice from the Proposing Participant
pursuant to Clause 21.5 above, the Proposing Participant may contact
the Presiding Justice and request that an independent US-based
arbitrator who is knowledgeable of the pharmaceutical/biotechnology
industry be appointed within 10 Business Days. The Presiding Justice
shall endeavor to select an arbitrator who is technically
knowledgeable in the pharmaceutical/biotechnology industry (and who
directly and through his affiliates, has no business relationship
with, or shareholding in, either the Proposing Participant or the
Recipient Participant). Promptly upon being notified of the
arbitrator's appointment, the Proposing Participant and the Recipient
Participant shall submit to the arbitrator details of their assessment
of the fair market value for the Shares of the Recipient Participant
together with such information as they think necessary to validate
their assessment. The arbitrator shall notify the Recipient
Participant of the fair market value assessed by the Proposing
Participant (the "PROPOSING PARTICIPANT PRICE") and shall notify the
Proposing Participant of the fair market value assessed by the
Recipient Participant (the "RECIPIENT PARTICIPANT PRICE"). The
Proposing Participant and the Recipient Participant shall then be
entitled to make further submissions to the arbitrator within five
Business Days explaining why the Recipient Participant
37
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
Price or the Proposing Participant Price, as the case may be, is
unjustified. The arbitrator shall thereafter meet with the Proposing
Participant and the Recipient Participant and shall thereafter choose
either the Recipient Participant Price or the Proposing Participant
Price (but not any other price) as the purchase price for the Shares
(the "PURCHASE PRICE") on the basis of which price the Expert
determines to be closer to the fair market value for the Shares of the
Recipient Participant. The arbitrator shall use his best efforts to
determine the Purchase Price within 30 Business Days of his
appointment. The Proposing Participant and the Recipient Participant
shall bear the costs of the arbitrator equally provided that the
arbitrator may, in his discretion, allocate all or a portion of such
costs to one Party. Any decision of the arbitrator shall be final and
binding.
21.7 The Proposing Participant shall purchase the Shares of the Recipient
Participant by delivery of the Purchase Price in cash no later than
the 15th Business Day following determination of the Purchase Price by
the Expert.
21.8 The Shares of the Recipient Participant so transferred shall be sold
by the transferor as beneficial owner with effect from the date of
such transfer free from any lien, charge or encumbrance with all
rights and restrictions attaching thereto.
21.9 If the Proposing Participant exercises the Buyout Option, both parties
will negotiate in good faith to agree to additional reasonable
provisions and/or amendments to the License Agreements to protect the
intellectual property rights of the Recipient Party.
21.10 If either Participant commits a Relevant Event, the other Stockholder
shall have in addition to all other legal and equitable rights and
remedies hereunder, the right to terminate this Agreement upon 30
days' written notice.
21.11 In the event of a termination of the Elan License Agreement and/or the
Celtrix License Agreement, both parties will negotiate in good faith
to determine whether this Agreement should be terminated and if so,
which provisions should survive termination.
21.12 The provisions of Clauses [*****] shall survive the termination of
this Agreement under this Clause 21 in accordance with their terms;
all other terms and provisions of this Agreement shall cease to have
effect and be null and void upon the termination of this Agreement
under this Clause 21.
38
<PAGE>
CLAUSE 22
[INTENTIONALLY OMITTED]
CLAUSE 23
CONFIDENTIALITY
23.1 The Parties and/or Newco acknowledge and agree that it may be
necessary, from time to time, to disclose to each other confidential
and/or proprietary information, including without limitation,
inventions, works of authorship, trade secrets, specifications,
designs, data, know-how and other information, relating to the Field,
the Products, present or future products, the Newco Intellectual
Property, the Elan Intellectual Property or the Celtrix Intellectual
Property, as the case may be, methods, compounds, research projects,
work in process, services, sales suppliers, customers, employees
and/or business of the disclosing Party, whether in oral, written,
graphic or electronic form (collectively "CONFIDENTIAL INFORMATION").
23.2 Any Confidential Information revealed by a Party to another Party
shall be maintained as confidential and shall be used by the receiving
Party exclusively for the purposes of fulfilling the receiving Party's
rights and obligations under this Agreement, and for no other purpose.
Confidential Information shall not include:
23.2.1 information that is generally available to the public;
23.2.2 information that is made public by the disclosing Party;
23.2.3 information that is independently developed by the receiving
Party, as evidenced by such Party's records, without the aid,
application or use of the disclosing Party's Confidential
Information;
23.2.4 information that is published or otherwise becomes part of the
public domain without any disclosure by the receiving Party,
or on the part of the receiving Party's directors, officers,
agents, representatives or employees;
23.2.5 information that becomes available to the receiving Party on a
non-confidential basis, whether directly or indirectly, from a
source other than the disclosing Party, which source did not
acquire this information on a confidential basis; or
39
<PAGE>
23.2.6 information which the receiving Party is required to disclose
pursuant to:
(i) a valid order of a court or other governmental body or
any political subdivision thereof or as otherwise
required by law, rule or regulation; or
(ii) other requirement of law; provided, however, that if the
receiving Party becomes legally required to disclose any
Confidential Information, the receiving Party shall give
the disclosing Party prompt notice of such fact so that
the disclosing Party may obtain a protective order or
confidential treatment or other appropriate remedy
concerning any such disclosure. The receiving Party
shall fully co-operate with the disclosing Party in
connection with the disclosing Party's efforts to obtain
any such order or other remedy. If any such order or
other remedy does not fully preclude disclosure, the
receiving Party shall make such disclosure only to the
extent that such disclosure is legally required; or
23.2.7 information which was already in the possession of the
receiving Party at the time of receiving such information, as
evidenced by its records, provided such information was not
previously provided to the receiving party from a source which
was under an obligation to keep such information confidential;
or
23.2.8 information that is the subject of a written permission to
disclose, without restriction or limitation, by the disclosing
Party.
23.3 Each Party agrees to disclose Confidential Information of another
Party only to those employees, representatives and agents requiring
knowledge thereof in connection with their duties directly related to
the fulfilling of the Party's obligations under this Agreement, so
long as such persons are under an obligation of confidentiality no
less stringent than as set forth herein. Each Party further agrees to
inform all such employees, representatives and agents of the terms and
provisions of this Agreement and their duties hereunder and to obtain
their written consent hereto as a condition of receiving Confidential
Information. Each Party agrees that it will exercise the same degree
of care and protection to preserve the proprietary and confidential
nature of the Confidential Information disclosed by a Party, as the
receiving Party would exercise to preserve its own Confidential
Information. Each Party agrees that it will, upon request of another
Party, return all documents and any copies thereof containing
Confidential Information belonging to or disclosed by such other
Party. Each Party shall promptly notify
40
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
the other Parties upon discovery of any unauthorized use or disclosure
of the other Parties' Confidential Information.
23.4 Notwithstanding the above, each Party may use or disclose Confidential
Information disclosed to it by another Party to the extent such use or
disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with patent
applications, prosecuting or defending litigation, complying with
applicable governmental regulations or otherwise submitting information
to tax or other governmental authorities, conducting clinical trials, or
granting a permitted sub-license or otherwise exercising its rights
hereunder; provided, that if a Party is required to make any such
disclosure of the other Party's Confidential Information, other than
pursuant to a confidentiality agreement, such Party shall inform the
third party recipient of the terms and provisions of this Agreement and
their duties hereunder and shall obtain their consent hereto as a
condition of releasing to the third party recipient the Confidential
Information.
23.5 Any breach of this Clause 23 by any employee, representative or agent of
a Party is considered a breach by the Party itself.
23.6 The provisions relating to confidentiality in this Clause 23 shall
remain in effect during the Term and for a period of [*****] following
the termination of this Agreement.
23.7 The Parties agree that the obligations of this Clause 23 are necessary
and reasonable in order to protect the Parties' respective businesses,
and each Party expressly agrees that monetary damages would be
inadequate to compensate a Party for any breach by the other Party of
its covenants and agreements set forth herein. Accordingly, the Parties
agree and acknowledge that any such violation or threatened violation
will cause irreparable injury to a Party and that, in addition to any
other remedies that may be available, in law or in equity or otherwise,
any Party shall be entitled to obtain injunctive relief against the
threatened breach of the provisions of this Clause 23, or a continuation
of any such breach by the other Party, specific performance and other
equitable relief to redress such breach together with its damages and
reasonable counsel fees and expenses to enforce its rights hereunder,
without the necessity of proving actual or express damages.
23.8 If it is necessary for Celtrix to file a copy of this Agreement with the
Securities and Exchange Commission pursuant to applicable law, then (a)
Celtrix shall consult with Elan, and keep Elan fully informed, with
respect thereto, and (b) Celtrix shall use its best efforts to obtain
confidential treatment to the maximum extent possible with respect to
such filing of this Agreement.
41
<PAGE>
CLAUSE 24
COSTS
24.1 Each Stockholder shall bear its own legal and other costs incurred in
relation to preparing and concluding this Agreement and the Transaction
Documents.
24.2 All other costs, legal fees, registration fees and other expenses
relating to the transactions contemplated hereby, including the costs
and expenses incurred in relation to the incorporation of Newco, shall
be borne by Newco.
CLAUSE 25
GENERAL
25.1 GOOD FAITH:
Each of the Parties hereto undertakes with the others to do all things
reasonably within its power that are necessary or desirable to give
effect to the spirit and intent of this Agreement.
25.2 FURTHER ASSURANCE:
At the request of any of the Parties, the other Party or Parties shall
(and shall use reasonable efforts to procure that any other necessary
parties shall) execute and perform all such documents, acts and things
as may reasonably be required subsequent to the signing of this
Agreement for assuring to or vesting in the requesting Party the full
benefit of the terms hereof.
25.3 NO REPRESENTATION:
Each of the Parties hereto hereby acknowledges that in entering into
this Agreement it has not relied on any representation or warranty
except as expressly set forth herein or in any document referred to
herein.
25.4 FORCE MAJEURE:
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay is caused
by or results from causes beyond its reasonable control, including
without limitation, acts of God, fires, strikes, acts of war (whether
war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances or intervention of any
relevant government authority, but any such delay or failure shall be
remedied by such Party as soon as practicable.
42
<PAGE>
25.5 RELATIONSHIP OF THE PARTIES:
Nothing contained in this Agreement is intended or is to be construed to
constitute Elan/EIS and Celtrix as partners, or Elan/EIS as an employee
or agent of Celtrix, or Celtrix as an employee or agent of Elan/EIS.
No Party hereto shall have any express or implied right or authority to
assume or create any obligations on behalf of or in the name of another
Party or to bind another Party to any contract, agreement or undertaking
with any third Party.
25.6 COUNTERPARTS:
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of
which when taken together shall constitute this Agreement.
25.7 NOTICES:
Any notice to be given under this Agreement shall be sent in writing by
registered or recorded delivery post or reputable overnight courier such
as Federal Express or telecopied to:
Elan/EIS at:
Lincoln House, Lincoln Place, Dublin 2, Ireland
Attention: Vice President & General Counsel
Elan Pharmaceutical Technologies,
a division of Elan Corporation, plc
Telephone: 353-1-709-4000
Fax: 353-1-709-4124
and
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: President
Telephone: 441-292-9169
Fax: 441-292-2224
43
<PAGE>
with a copy to:
Brock Silverstein LLC
One Citicorp Center, 56th Floor
New York, NY 10022 United States of America
Attention: David Robbins, Esq.
Telephone 212-371-2000
Fax: 212-371-5500
Celtrix at:
2033 Gateway Place, Suite 600
San Jose, CA 95110 United States of America
Attention: President
Telephone: 408-573-6263
Fax: 408-573-6228
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025 United States of America
Attention: Ned Ruffin
Telephone: 650-854-4488
Fax: 650-233-8386
Newco at:
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: Secretary
Telephone: 441-292-9169
Fax: 441-292-2224
or to such other address(es) as may from time to time be notified by
any Party to the others hereunder.
Any notice sent by mail shall be deemed to have been delivered within
three Business Days after dispatch or delivery to the relevant courier
and any notice sent by telecopy shall be deemed to have been delivered
upon confirmation of receipt. Notices of change of address shall be
effective upon receipt. Notices by telecopy shall also be sent by
another method permitted hereunder.
44
<PAGE>
25.8 GOVERNING LAW;
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to any choice
or conflict or law provision or rule. For the purpose of this Agreement
the Parties submit to the personal jurisdiction of the United States
District Court for the State of New York. The Parties each further
irrevocably consent to the service of any complaint, summons, notice or
other process by delivery thereof to it by any manner in which notices
may be given pursuant to this Agreement.
25.9.1 SEVERABILITY.
If any provision in this Agreement is agreed in writing by the
Parties to be, or is deemed to be, or becomes invalid,
illegal, void or unenforceable under any law that is
applicable hereto, (i) such provision will be deemed amended
to conform to applicable laws so as to be valid and
enforceable without materially altering the intention of the
Parties, and (ii) the validity, legality and enforceability of
the remaining provisions of this Agreement shall not be
impaired or affected in any way.
25.10 AMENDMENTS:
No amendment, modification or addition hereto shall be effective or
binding on any Party unless set forth in writing and executed by a duly
authorized representative of all Parties.
25.11 WAIVER:
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of
any other right arising under this Agreement.
45
<PAGE>
25.12 ASSIGNMENT:
None of the Parties shall be permitted to assign its rights or
obligations hereunder without the prior written consent of the other
Parties except as follows:
25.12.1 Elan, EIS and/or Celtrix shall have the right to assign their
rights and obligations hereunder to their Affiliates provided,
however, that such assignment does not result in adverse tax
consequences for any other Parties.
25.12.2 Elan, EIS and/or Celtrix shall have the right to assign their
rights and obligations hereunder to an off-balance sheet
special purpose entity established by Elan, EIS and/or
Celtrix.
25.13 WHOLE AGREEMENT/NO EFFECT ON OTHER AGREEMENTS:
This Agreement (including the Schedules attached hereto) and the
Transaction Documents set forth all of the agreements and
understandings between the Parties with respect to the subject matter
hereof, and supersedes and terminates all prior agreements and
understandings between the Parties with respect to the subject matter
hereof. There are no agreements or understandings with respect to the
subject matter hereof, either oral or written, between the Parties
other than as set forth in this Agreement and the Transaction
Documents.
In the event of any ambiguity or conflict arising between the terms of
this Agreement and those of the Newco Memorandum of Association and
Bye-Laws, the terms of this Agreement shall prevail.
No provision of this Agreement shall be construed so as to negate,
modify or affect in any way the provisions of any other agreement
between any of the Parties unless specifically referred to, and solely
to the extent provided herein. In the event of a conflict between the
provisions of this Agreement and the provisions of the License
Agreements, the terms of this Agreement shall prevail unless this
Agreement specifically provide otherwise.
25.14 SUCCESSORS:
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto, their successors and permitted assigns.
46
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement on the day first set forth above.
<TABLE>
<S> <C>
SIGNED
BY: /s/ Kevin Insley
-------------------------
for and on behalf of
ELAN CORPORATION, PLC
in the presence of: /s/ [Illegible]
------------------
SIGNED
BY: /s/ Kevin Insley
----------------------------
for and on behalf of
ELAN INTERNATIONAL SERVICES, LTD.
in the presence of: /s/ [Illegible]
------------------
SIGNED
BY: /s/ Andreas Sommer
----------------------------
for and on behalf of
CELTRIX PHARMACEUTICALS INC.
in the presence of: /s/ Kia P. Royal-Barrett SIGNED
-------------------------
BY: /s/ Andreas Sommer
----------------------------
for and on behalf of
CELTRIX NEWCO LTD.
in the presence of:/s/ Kia P. Royal-Barrett
-------------------------
</TABLE>
47
<PAGE>
SCHEDULE 1
ELAN LICENSE AGREEMENT
<PAGE>
SCHEDULE 2
CELTRIX LICENSE AGREEMENT
<PAGE>
EXHIBIT 10.9
Execution Copy
LICENSE AGREEMENT
BY AND BETWEEN
CELTRIX NEWCO LTD.
A BERMUDA COMPANY
AND
CELTRIX PHARMACEUTICALS, INC.
A DELAWARE COMPANY
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. DEFINITIONS....................................................... 1
2. GRANT OF RIGHTS................................................... 7
3. SUBLICENSE AND ASSIGNMENT RIGHTS.................................. 8
4. TRADEMARKS........................................................ 9
5. NON-COMPETITION................................................... 11
6. FINANCIAL PROVISIONS.............................................. 11
7. CONFIDENTIAL INFORMATION.......................................... 13
8. WARRANTIES/INDEMNITIES............................................ 16
9. INTELLECTUAL PROPERTY OWNERSHIP RIGHTS............................ 18
10. TERM AND TERMINATION OF AGREEMENT................................. 18
11. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE...................... 20
12. SETTLEMENT OF DISPUTES; PROPER LAW................................ 20
13. ASSIGNMENT........................................................ 21
14. NOTICES........................................................... 21
15. MISCELLANEOUS CLAUSES............................................. 22
<PAGE>
LICENSE AGREEMENT dated April 21, 1999 between CELTRIX NEWCO LTD., a Bermuda
limited company, and CELTRIX PHARMACEUTICALS, INC., a Delaware corporation.
WHEREAS
A. Contemporaneously herewith, Celtrix, Elan, EIS and Newco (capitalized terms
used herein are defined below) are entering into the Development Agreement
for the purpose of recording the terms and conditions of a joint venture
and of regulating their relationship with each other and certain aspects of
the affairs of and their dealings with Newco.
B. Celtrix owns all right, title and interest in and to certain patents that
have been granted or are pending in relation to SomatoKine(R).
C. Newco desires to obtain from Celtrix, and Celtrix desires to grant to
Newco, an exclusive license under the Celtrix Intellectual Property to
develop, use, import, sell, offer for sale and otherwise distribute
Products in the Field and in the Territory on the terms and subject to the
conditions set forth herein.
D. The Parties entered into a letter agreement dated March 31, 1999, pursuant
to which the Parties agreed to enter into the Definitive Documents.
NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS.
1.1. In this Agreement, the following definitions shall apply:
"Affiliate" shall mean any corporation or entity other than Newco
controlling, controlled by or under the common control with Elan or Celtrix, as
the case may be. For the purposes of this definition, "control" shall mean
direct or indirect ownership of fifty percent (50%) or more of the outstanding
stock or shares of a corporation entitled to vote for the election of directors
or comparable equity interest in any other type of entity and "controlling" and
"controlled" shall be construed accordingly.
"Agreement" shall mean this agreement (which expression shall be
deemed to include the Recitals and the Schedules hereto).
"Business Plan" shall mean the business plan and program of
development to be agreed to by Elan and Celtrix within sixty (60) days of the
Effective Date with respect to the research, development, prosecution and
commercialization of the Products, which Business Plan shall be reviewed and
mutually agreed to in writing by Elan and Celtrix on an annual basis.
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
"Celtrix" shall mean Celtrix Pharmaceuticals, Inc., a Delaware
corporation, its successors and permitted assigns.
"Celtrix Improvements" shall mean any improvements to the Celtrix
Patent Rights and/or Celtrix Know-How developed (a) [*****] whether or not
pursuant to the Project, (b) [*****] pursuant to the Project, [*****] pursuant
to the Project, except as limited by agreements with third parties. Celtrix
Improvements shall be deemed, immediately upon development, to be included in
the license of the Celtrix Intellectual Property granted to Newco under the
hereunder. The Celtrix License shall specifically exclude any right to use
Celtrix Improvements outside of the Field. If the inclusion of a Celtrix
Improvement in the license of Celtrix Intellectual Property granted to Newco
hereunder is restricted or limited by a third party agreement, then Celtrix
shall use reasonable commercial efforts to exclude or where applicable to
minimize any such restriction or limitation. All rights, title, and interest to
any Celtrix Improvements [*****] Newco, Elan and any such third party shall
execute and deliver documents, and take such other actions as Celtrix may
reasonably request, to effect or evidence such ownership.
"Celtrix Intellectual Property" shall mean the Celtrix Know-How,
the Celtrix Patent Rights and/or the Celtrix Improvements. Notwithstanding
anything contained in this Agreement to the contrary, Celtrix Intellectual
Property shall exclude (a) inventions, patents and know-how [*****] and (b)
inventions, patents and know-how that are subject to contractual obligations of
Celtrix to Independent Third Parties as of the Effective Date; provided,
however, that if the inclusion of inventions, patent rights and know-how in the
license of Celtrix Intellectual Property granted to Newco hereunder is
restricted or limited by such contractual obligations of Celtrix to Independent
Third Parties, then Celtrix shall use reasonable commercial efforts to exclude
or, where applicable, to minimize any such restriction or limitation.
"Celtrix Know-How" shall mean any and all rights owned or licensed by
Celtrix with respect to any knowledge, information, discovery, invention, trade
secret, technique, process, system, formulation, design, data and expertise
relating to SomatoKine whether or not covered by any patent, copyright, design,
trademark, trade secret or other industrial or intellectual property right.
"Celtrix License" shall have the meaning set forth in Clause 2.1
hereof.
"Celtrix Patent Rights" shall mean the patents and patent applications
(including provisional applications) relating to SomatoKine(R) that are set
forth in Schedule 1 attached hereto, and that are owned or licensed by or on
behalf of Celtrix. Celtrix Patent Rights shall also include all extensions,
continuations, continuations-in-part, divisionals, patents-of-addition, re-
examinations, re-issues, supplementary protection certificates and foreign
counterparts of such patents and patent applications and any patents issuing
thereon and extensions of any patents licensed hereunder.
"Celtrix Securities Purchase Agreement" shall mean that certain
securities purchase agreement, of even date herewith, by and between Celtrix and
EIS.
-2-
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
"Celtrix Trademark(s)" shall mean one or more trademarks, trade
names, or service marks that are owned or licensed by or on behalf of Celtrix
that Celtrix may nominate and approve in writing from time to time for use in
connection with the sale or promotion of the Product by Newco. For the purposes
of this Agreement, the trademark "SomatoKine(R)" is deemed to be a Celtrix
Trademark hereunder.
"cGCP", "cGLP" and "cGMP" shall mean current Good Clinical Practices,
current Good Laboratory Practices and current Good Manufacturing Practices
respectively.
"Change of Control Event" shall mean the occurrence of the following:
a Technological Competitor of Elan shall, directly or indirectly, (a) acquire
[*****] or more of the capital stock of Celtrix or Newco, or (b) otherwise
control or influence in any material respect their management or business, or
(c) otherwise merge, consolidate or enter into any similar transaction (or
binding agreement in respect thereof) with either of such entities, or (d)
otherwise have entered into any joint venture, collaboration, license or other
arrangement with Celtrix or Newco to such an extent that such Technological
Competitor of Elan is materially engaged or involved with the business or
development of Celtrix or Newco.
"Definitive Documents" shall mean this Agreement, the Elan License
Agreement, the Development Agreement, the Celtrix Securities Purchase Agreement,
the Funding Agreement, the Registration Rights Agreements and associated
documentation of even date herewith, by and among Newco, Elan, Celtrix and EIS,
as applicable.
"Development Agreement" shall mean the Subscription, Joint Development
and Operating Agreement of even date herewith entered into among Celtrix, Elan,
EIS and Newco.
"Effective Date" shall mean the date upon which the Definitive
Documents are executed and delivered by Celtrix, Elan, and Newco and the
transactions effected thereby are closed.
"EIS" shall mean Elan International Services, Ltd., a Bermuda company.
"Elan" shall mean Elan Pharmaceutical Technologies, a division of Elan
Corporation, plc, a public limited company incorporated under the laws of
Ireland, its successors and permitted assigns.
"Elan Improvements" shall mean any improvements to the Elan Patent
Rights and Elan Know-How developed (a) [*****] whether or not pursuant to the
Project, (b) [*****] pursuant to the Project, and/or (c) [*****] pursuant to the
Project, except as limited by agreements with third parties. Elan Improvements
shall be deemed, immediately upon development, to be included in the license of
the Elan Intellectual Property granted to Newco under the Elan License
Agreement. The Elan License specifically excludes
-3-
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
any right to use Elan Improvements outside of the Field. If the inclusion of an
Elan Improvement in the license of Elan Intellectual Property granted to Newco
under the Elan License Agreement is restricted or limited by a third party
agreement, then Elan shall use reasonable commercial efforts to exclude or where
applicable to minimize any such restriction or limitation. All rights, title,
and interest to any Elan Improvements [*****] Newco, Celtrix and any such third
party shall execute and deliver documents, and take such other actions as Elan
may reasonably request, to effect or evidence such ownership.
"Elan Intellectual Property" shall mean the Elan Know-How, the Elan
Patent Rights and/or the Elan Improvements. Notwithstanding anything contained
in this Agreement to the contrary, Elan Intellectual Property shall consist of
Elan Know-How, Elan Patent Rights and/or Elan Improvements controlled by Elan
Corporation plc doing business as Elan Pharmaceutical Technologies, and shall
exclude (a) inventions, patents and know-how [*****] and [*****] including,
without limitation, [*****] and (b) inventions, patents and know-how that are
subject to contractual obligations of Elan to third parties as of the Effective
Date; provided, however, that if the inclusion of inventions, patent rights and
know-how in the license of Elan Intellectual Property granted to Newco under the
Elan License Agreement is restricted or limited by such contractual obligations
of Elan to third parties, then Elan shall use reasonable commercial efforts to
exclude or, where applicable, to minimize any such restriction or limitation.
"Elan Know-How" shall mean any and all rights owned or licensed by
Elan with respect to any knowledge, information, discovery, invention, trade
secret, technique, process, system, formulation, design, data and expertise
relating to the MEDIPAD(R) Drug Delivery System whether or not covered by any
patent, copyright, design, trademark, trade secret or other industrial or
intellectual property right.
"Elan License" shall have the meaning set forth in Clause 2.1 of the
Elan License Agreement.
"Elan License Agreement" shall mean that certain license agreement, of
even date herewith, entered into between Elan and Newco.
"Elan Patent Rights" shall mean the patents and patent applications
(including provisional applications) relating to the MEDIPAD(R) Drug Delivery
System that are set forth in Schedule 1 of the Elan License Agreement, and that
are owned or licensed by or on behalf of Elan. Elan Patent Rights shall also
include all extensions, continuations, continuations-in-part, divisionals,
patents-of-addition, re-examinations, re-issues, supplementary protection
certificates and foreign counterparts of such patents and patent applications
and any patents issuing thereon and extensions of any patents licensed under the
Elan License Agreement.
"Elan Trademark(s)" shall have the meaning given to such term in the
Elan License Agreement.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
"Exchange Right" shall have the meaning set forth in the Amended and
Restated Certificate of Incorporation of Celtrix in effect on the date hereof.
"Exchange Right Term" shall mean the period commencing on the
Effective Date and ending on the exercise by Elan of the Exchange Right.
"FDA" shall mean the United States Food and Drug Administration or any
successors or agency the approval of which is necessary to commercially market a
product in the United States of America.
"Field" shall mean [*****]
"First Commercial Sale" shall mean the first commercial sale for use
or consumption of a Product. A sale to an Affiliate or sublicensee shall not
constitute a "First Commercial Sale," unless the Affiliate or sublicensee is the
end user of the Product.
"Funding Agreement" shall mean the Funding Agreement, dated as of the
date hereof, between EIS and Celtrix.
"Independent Third Party" shall mean any person other than Newco,
Elan, Celtrix or any of their respective Affiliates.
"In Market" shall mean [*****] or where applicable by a sublicensee or
a distributor, [*****] such as [*****]
"Licensed Technologies" shall mean the Elan Intellectual Property and
the Celtrix Intellectual Property.
"Licenses" shall mean the Elan License and the Celtrix License.
"Lien" shall mean any and all liens, security interests, restrictions,
claims, encumbrances or rights of third parties of every kind and nature.
"Management Committee" shall have the meaning set forth in the
Development Agreement.
"Marketing Authorization" shall mean the procurement of registrations
and permits required by applicable government authorities in a country in the
Territory for the marketing, sale, and distribution of a Product in such
country.
"MEDIPAD(R) Drug Delivery System" shall mean the [*****]
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
as disclosed in the Elan Patent Rights set forth in Schedule 1 of the Elan
License Agreement.
"Net Sales" shall mean [*****]
"Newco" shall mean Celtrix Newco Ltd., a Bermuda limited company.
"Newco Intellectual Property" shall mean all rights to technology,
patents and know-how belonging to Newco, other than the Elan Intellectual
Property and the Celtrix Intellectual Property, including any technology
acquired by or licensed to Newco from or by a third party and any newly
developed technology that is not Elan Intellectual Property or Celtrix
Intellectual Property.
"Osteoporosis" shall mean a skeletal condition characterized by
decreased density of normally mineralized bone, which bone density, as measured
by dual-energy x-ray absorptiometry (DXA), is more than 2.5 standard deviations
below the mean for the young adult reference range.
"Parties" shall mean Celtrix and Newco.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
"Project" shall mean all activity as undertaken by Elan, Celtrix and
Newco in order to develop the Products in accordance with the Business Plan.
"Products" shall mean the MEDIPAD(R) Drug Delivery System
incorporating SomatoKine(R) as its primary active ingredient.
"Registration Rights Agreements" shall mean the Registration Rights
Agreements of even date herewith relating to Newco and Celtrix respectively.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
"Regulatory Authority" shall mean any regulatory authority outside the
United States of America, the approval of which is necessary to market a
Product.
"SomatoKine(R)" shall mean [*****]
"Technological Competitor of Celtrix" shall mean [*****]
"Technological Competitor of Elan" shall mean [*****]
"Term" shall have the meaning set forth in Section 10 hereof.
"Territory" shall mean [*****]; and
"United States Dollar" and "US$" shall mean the lawful currency for
the time being of the United States of America.
1.2. Interpretation. In this Agreement the following shall apply:
1.2.1 The singular includes the plural and vice versa, the masculine
includes the feminine and vice versa.
1.2.2. Any reference to a Clause or Schedule shall, unless otherwise
specifically provided, be to a Clause or Schedule of this Agreement.
1.2.3. The headings of this Agreement are for ease of reference only
and shall not affect its construction or interpretation.
2. GRANT OF RIGHTS.
2.1. Celtrix hereby grants to Newco an exclusive license for the Term in
the Territory under the Celtrix Intellectual Property to develop, import, use,
offer for sale, sell and otherwise distribute Products, and [*****] practice any
process or method covered by the Celtrix Patent Rights, in the Field, subject to
any contractual obligations of Celtrix to third parties as of the Effective Date
and, unless prohibited by Clause 5 hereof ("Non-Competition"), contractual
obligations that Celtrix may enter into after the Effective Date (the "Celtrix
License"). Except as expressly provided herein, [*****] with respect to the
[*****] shall at all times remain solely with [*****]
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
2.2. To the extent royalty or other compensation obligations to third
parties that are payable with respect to Celtrix Intellectual Property would be
triggered by a proposed use of such Celtrix Intellectual Property in connection
with the Project, Celtrix will inform Newco and Elan of such royalty or
compensation obligation promptly upon Celtrix becoming aware that such proposed
use may trigger such royalty or compensation obligation. [*****]
2.3. If [*****]. If the Elan representatives on the Management Committee
determine that Newco should not [*****] shall be free to fully exploit [*****]
with respect thereto.
2.4. Elan shall be a third party beneficiary to this Agreement and shall
have the right to cause Newco to enforce Newco's rights against Celtrix
hereunder.
2.5. Notwithstanding anything contained in this Agreement to the
contrary and except as otherwise provided in Section 5.1 hereof, Celtrix shall
have the right, outside of the Field, to fully exploit and grant licenses and
sublicenses with respect to the Celtrix Intellectual Property.
3. SUBLICENSE AND ASSIGNMENT RIGHTS
3.1. Newco shall not assign any of its rights under the Celtrix
License and/or the Newco Intellectual Property without the prior written consent
of Celtrix.
3.2. Newco shall not sublicense any of its rights under the Celtrix
License and/or the Newco Intellectual Property without the prior written consent
of Celtrix, which consent shall not be unreasonably withheld or delayed;
provided, however, that the consent of Celtrix may be withheld in Celtrix's sole
discretion in the case of a proposed sublicense of such rights to a
Technological Competitor of Celtrix.
3.3. Newco shall not enter into any agreement with any third party
for development or exploitation of the Celtrix Intellectual Property without the
prior written consent of Celtrix, which consent may be withheld in Celtrix's
sole discretion. Any agreement between Newco and any permitted third party for
the development or exploitation of the Celtrix Intellectual Property shall
require: (i) such third party to maintain the confidentiality of all information
concerning the Celtrix Intellectual Property provided that such obligation of
confidentiality shall be no less stringent than that set forth in Clause 7
herein, (ii) shall provide that all right, title and interest in and to any
Celtrix Improvements shall be owned by Celtrix, and (iii) shall
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
permit an assignment of rights by Newco to Celtrix in accordance with the terms
of Clause 3.1 hereof.
3.4. Newco shall not enter into any agreement with any third party for
development of the Newco Intellectual Property without the prior approval of the
Management Committee.
3.5. Notwithstanding anything to the contrary herein, upon thirty (30)
days prior notice in writing from Elan to Newco and Celtrix, Newco shall assign
the Newco Intellectual Property, including, without limitation, all rights and
obligations related thereto, from Newco to a wholly-owned subsidiary of Newco to
be incorporated in Ireland, which company shall be newly incorporated by Elan
and Celtrix to facilitate such assignment.
3.6. Newco shall remain responsible for all acts and omissions of any
sublicensee, including Elan, as if such acts and omissions were those of Newco.
3.7. Rights of permitted third party sublicensees in and to the Celtrix
Intellectual Property granted by Newco in accordance with Clause 3.2 above shall
survive the termination of the Celtrix License granting said intellectual
property rights to Newco; and Newco and Celtrix shall in good faith agree upon
the form most advantageous to Celtrix in which the rights of the sublicensor
under any such sublicenses are to be held (which form may include continuation
of Newco solely as the holder of such licenses or assignment of such rights to a
third party or parties, including an assignment to Celtrix). Upon any such
assignment, Elan and Celtrix shall enter into good faith negotiations with
respect to additional reasonable confidentiality protections which Elan or
Celtrix shall reasonably require.
4. TRADEMARKS
4.1. Celtrix hereby grants to Newco for the Term a [*****] in the
Territory to use the Celtrix Trademarks solely to research, develop, import,
use, offer for sale and sell the Products in the Field in the Territory, in
accordance with the terms and conditions of this Agreement including, without
limitation, the following:
4.1.1 Newco shall ensure that each reference to and use of a
Celtrix Trademark by Newco is in a manner approved by Celtrix and accompanied by
an acknowledgement, in a form approved by Celtrix, that the same is a trademark
of Celtrix.
4.1.2 From time to time, upon the reasonable request of Celtrix,
Newco shall submit samples of the Product to Celtrix or its duly appointed agent
to ensure compliance with quality standards and specifications. Celtrix, or its
duly appointed agent, shall have the right to inspect the premises of Newco
where the Product is held or stored, and Newco shall permit such inspection,
upon advance notice at any reasonable time, of the methods and procedures used
in the storage and sale of the Product. Newco shall not sell or otherwise
dispose of any Product under the Celtrix Trademarks that fails to comply with
the quality standards and specifications referred to in this Clause 4, as
determined by Celtrix.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
4.1.3 Newco shall not use any Celtrix Trademark in any way that
might materially prejudice its distinctiveness or validity or the goodwill of
Celtrix therein.
4.1.4 The Parties recognize that the Celtrix Trademarks have
considerable goodwill associated therewith. Newco shall not use in relation to
the Products any trademarks other than the Celtrix Trademarks (except for the
Elan Trademarks) without obtaining the prior consent in writing of Celtrix with
respect to such use and display, which consent may not be unreasonably withheld
or delayed. However, such use and display that has been so approved by Celtrix
must not conflict with the use and display of any Celtrix Trademark.
4.1.5 Newco shall not use in the Territory any trademarks or trade
names so resembling any Celtrix Trademark as to be likely to cause confusion,
dilution or deception.
4.1.6 Newco shall promptly notify Celtrix in writing of any alleged
infringement or unauthorized use of which it becomes aware by a third party of
the Celtrix Trademarks and provide Celtrix with any applicable evidence of
infringement or unauthorized use.
4.1.7 Newco shall favorably consider promoting and using the Celtrix
Trademarks in each country of the Territory and provide proof of such use upon
request by Celtrix.
4.2. Newco shall not be permitted to assign or sublicense any of its rights
under the Celtrix Trademarks without the prior written consent of Celtrix, which
consent shall not be unreasonably withheld or delayed.
4.3. Celtrix shall, [*****] file and prosecute applications to register and
maintain registrations of the Celtrix Trademarks in the Territory. Newco shall
reasonably co-operate with Celtrix in such efforts.
4.4. Celtrix will be entitled to conduct all enforcement proceedings
relating to the Celtrix Trademarks and shall at its sole discretion decide what
action, if any, to take in respect to any enforcement proceedings related to the
Celtrix Trademarks or any other claim or counter-claim brought in respect to the
use or registration of the Celtrix Trademarks. Any such proceedings shall be
conducted [*****] and for its own benefit. Newco and Celtrix shall reasonably
cooperate with Celtrix in such efforts, [*****].
4.5. Newco shall promptly notify Celtrix in writing in the event that Newco
becomes aware that any Celtrix Trademark has been challenged by a third party in
a judicial or administrative proceeding in a country in the Territory as
infringing on the rights of a third party and Celtrix shall have the first right
to decide whether or not to defend against such allegations, or to adopt an
alternative mark. If Celtrix decides not to defend the Celtrix Trademark, then
Newco may request Celtrix to defend the Celtrix Trademark, [*****]
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
provided, however, that if Celtrix believes that such requested defense is
unsubstantiated and without merit, then Celtrix may elect not to initiate
defense proceedings.
4.6. Newco will have no ownership rights in or to the Celtrix
Trademarks or of the goodwill associated therewith, and Newco hereby
acknowledges that, except as expressly provided in this Agreement, it shall not
acquire any rights in respect thereof and that all such rights and goodwill are,
and will remain, vested in Celtrix.
4.7. Nothing in this Agreement shall be construed as a warranty on
the part of Celtrix regarding the Celtrix Trademarks, including without
limitation, that use of the Celtrix Trademarks in the Territory will not
infringe the rights of any third parties. Accordingly, Newco acknowledges and
agrees that Celtrix makes no warranty regarding the Celtrix Trademarks.
4.8. Celtrix assumes no liability to Newco or to any third parties
with respect to the quality, performance or characteristics of any of the goods
manufactured or sold by Newco under the Celtrix Trademarks pursuant to this
Agreement.
5. NON-COMPETITION
5.1. [*****]
6. FINANCIAL PROVISIONS.
6.1. In consideration of the license to the Celtrix Patent Rights,
Newco shall pay to Celtrix the following amounts:
(i) [*****]
Notwithstanding anything contained herein to the contrary,
payments to Newco by Independent Third Parties with respect to development work
performed on
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behalf of Newco by Elan or Celtrix, as the case may be, shall be paid to the
party that performed such development work.
6.2. Payment of royalties pursuant to Clause 6.1(i), if any, shall be
made quarterly within thirty (30) days after the end of the calendar quarter in
which payments from Net Sales are received by Newco. The method of payment shall
be by wire transfer to an account specified by Celtrix and shall be
nonrefundable to Newco. Each payment made to Celtrix shall be accompanied by a
written report showing a true accounting of all Products sold by Newco, its
Affiliates and its sublicensees, if any, during such quarter. Such accounting
shall include, on a country-by-country and Product-by-Product basis, Net Sales
(and the calculation thereof) and each calculation of royalties with respect
thereto, including the calculation of all adjustments and currency conversions.
6.3. Newco shall maintain and keep clear, detailed, complete, accurate and
separate records for a period of three (3) years after a calendar quarter in
sufficient detail to permit Celtrix to confirm the accuracy of any royalties on
Net Sales due hereunder, including, without limitation, any deductions made in
determining Net Sales.
6.4. All payments due hereunder shall be made in United States Dollars.
Payments due on Net Sales of any Product for each calendar quarter made in a
currency other than United States Dollars shall first be calculated in the
foreign currency for the country of origin of such payment and then converted to
United States Dollars on the basis of the average exchange rate in effect for
such quarter for the purchase of United States Dollars with such foreign
currency quoted in The Wall Street Journal (or comparable publication if not
quoted in The Wall Street Journal) with respect to the currency of the country
of origin of such payment, determined by averaging the rates so quoted on each
business day of such quarter.
6.5. If, at any time, legal restrictions in the Territory prevent the
prompt payment when due of royalties or any portion thereof to Celtrix, the
Parties shall meet to discuss suitable and reasonable alternative methods of
reimbursing Celtrix the amount of such royalties. In the event that Newco is
prevented from making any payment under this Agreement to Celtrix by virtue of
the statutes, laws, codes or government regulations of the country from which
the payment is to be made, then such payments may be paid by depositing them in
the currency in which they accrue to Celtrix's account in a bank acceptable to
Celtrix in the country the currency of which is involved or as otherwise agreed
by the Parties.
6.6. Celtrix and Newco agree to cooperate in all respects necessary to
take advantage of any double taxation agreements or similar agreements as may,
from time to time, be available.
6.7. Any taxes payable by Celtrix on any payment made to Celtrix pursuant
to this Agreement shall be paid by Celtrix for its own account. If so required
by applicable law, any payment made pursuant to this Agreement shall be made by
Newco after deduction of the appropriate withholding tax, in which event the
Parties shall cooperate to obtain the
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
appropriate tax clearance as soon as is practicable. On receipt of such
clearance and a refund of any such amount, Newco shall ensure that the amount so
withheld is promptly paid to Celtrix.
6.8. Newco shall, [*****], permit Celtrix or its duly authorized
representatives upon reasonable notice and at any reasonable time during normal
business hours to inspect and audit the accounts and records of Newco and any
other book, record, voucher, receipt or invoice relating to the calculation of
the royalty payments on Net Sales or any other payments made by Newco to Celtrix
hereunder. Any such inspection of Newco's records shall be at the expense of
Celtrix, except that if any such inspection reveals a deficiency in the amount
of the royalty actually paid to Celtrix hereunder in any calendar quarter of
[*****] or more of the amount of any royalty actually due to Celtrix hereunder,
then the expense of such inspection shall be borne solely by Newco. Any amount
of deficiency shall be paid promptly to Celtrix by Newco. If such inspection
reveals a surplus in the amount of royalties actually paid to Celtrix by Newco,
Celtrix shall reimburse Newco the surplus within fifteen (15) days after
determination.
6.9. In the event of any unresolved dispute regarding any alleged
deficiency or overpayment of royalty payments hereunder, the matter will be
referred to mutually agreeable independent firm of accountants for a resolution
of such dispute. Any decision by the said independent firm of accountants shall
be binding on the Parties.
6.10. The parties acknowledge and agree that the methods for calculating
the royalties and fees hereunder are for the purposes of the convenience of the
parties, are freely chosen and not coerced.
7. CONFIDENTIAL INFORMATION.
7.1. The Parties acknowledge that it may be necessary, from time to
time, to disclose to each other confidential and/or proprietary information,
including, without limitation, inventions, works of authorship, trade secrets,
specifications, designs, data, know-how and other information relating to the
Field, the Products, the Celtrix Intellectual Property, the Newco Intellectual
Property or this Agreement, as the case may be, whether in oral, written,
graphic or electronic form (collectively, "Confidential Information"). Any
Confidential Information revealed by either Party to the other Party shall be
maintained confidential in accordance with this Clause 7 and shall be used by
the receiving Party exclusively for the purposes of fulfilling the receiving
Party's obligations under this Agreement and the Development Agreement and for
no other purpose.
7.2. Each Party agrees to disclose Confidential Information of the other
Party only to those employees, representatives and agents requiring knowledge
thereof in connection with their duties directly related to the fulfilling of
the Party's obligations under this Agreement, so long as such persons are
parties to appropriate written agreements that contain an obligation of
confidentiality no less stringent than as set forth herein. Each Party further
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agrees to inform all such employees, representatives and agents of the terms and
provisions of this Agreement and their duties hereunder and to obtain their
consent hereto as a condition of receiving Confidential Information. Each Party
agrees that it will exercise the same degree of care, but in no event less than
a reasonable degree of care to preserve the proprietary and confidential nature
of the Confidential Information disclosed by the other Party, as the receiving
Party would exercise to preserve its own Confidential Information. Each Party
agrees that it will, upon request of the other Party, return all documents and
any copies thereof containing Confidential Information belonging to or disclosed
by such Party. Each Party shall promptly notify the other Party upon discovery
of any unauthorized use or disclosure of the other Party's Confidential
Information.
7.3. Notwithstanding the foregoing, each Party may use or disclose
Confidential Information disclosed to it by the other Party to the extent such
use or disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with patent
applications, complying with applicable governmental regulations or otherwise
submitting information to tax or other governmental authorities, conducting
clinical trials, or granting a permitted sublicense or otherwise exercising its
rights hereunder, provided that if a Party is required to make any such
disclosure of the other Party's Confidential Information, other than pursuant to
a confidentiality agreement, such Party shall inform the recipient of the terms
and provisions of this Agreement and such recipient's duties hereunder and
obtain such recipient's written consent hereto as a condition to receiving such
Confidential Information.
7.4. Any breach of this Clause 7 by any employee, representative or
agent of a Party is considered a breach by the Party itself.
7.5. Confidential Information shall not include:
(i) information that becomes publicly available, except through a
breach of this Agreement by the receiving Party;
(ii) information which is made public by the disclosing Party or
with such Party's prior written consent;
(iii) information which is independently developed by the receiving
Party as evidenced by such Party's records, without the aid,
application, use of or reference to the disclosing Party's
Confidential Information;
(iv) information that is published or otherwise becomes part of the
public domain without any disclosure by the receiving Party,
or on the part of the receiving Party's directors, officers,
agents, representatives or employees;
(v) information that becomes available to the receiving Party on a
non-confidential basis, whether directly or indirectly, from a
source other
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
than the disclosing Party, which source did not acquire this
information on a confidential basis; or
(vi) information which the receiving Party is required to disclose
pursuant to:
(A) a valid order of a court or other governmental body or any
political subdivision thereof having competent
jurisdiction or otherwise as required by law, rule or
regulation; or
(B) any other requirement of law or the rules of any
applicable securities exchange;
(vii) information which was already in the possession of the receiving
Party at the time of receiving such information, as evidenced by
its records, provided such information was not previously
provided to the receiving party from a source which was under an
obligation to keep such information confidential; or
(viii) information that is the subject of a written permission to
disclose, without restriction or limitation, by the disclosing
Party;
7.6. If the receiving Party becomes legally required to disclose any
Confidential Information, the receiving Party shall give the disclosing Party
prompt notice of such fact so that the disclosing Party may obtain a protective
order or confidential treatment or other appropriate remedy concerning any such
disclosure. The receiving Party shall fully cooperate with the disclosing Party
in connection with the disclosing Party's efforts to obtain any such order or
other remedy. If any such order or other remedy does not fully preclude
disclosure, the receiving Party shall make such disclosure only to the extent
that such disclosure is legally required.
7.7. The provisions relating to confidentiality in this Clause 7 shall remain
in effect during the Term, and for a period of [*****] following the expiration
or earlier termination of this Agreement.
7.8. The Parties agree that the obligations of this Clause 7 are necessary
and reasonable in order to protect the Parties' respective businesses, and each
Party expressly agrees that monetary damages would be inadequate to compensate a
Party for any breach by the other Party of its covenants and agreements set
forth in this Clause 7. Accordingly, the Parties agree and acknowledge that any
such violation or threatened violation will cause irreparable injury to a Party
and that, in addition to any other remedies that may be available, in law or in
equity or otherwise, any Party shall be entitled to obtain injunctive relief
against the threatened breach of the provisions of this Clause 7, or a
continuation of any such breach by the other Party, specific performance and
other equitable relief to redress such breach together with its damages and
reasonable counsel fees and expenses to enforce its rights
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
hereunder, without the necessity of proving actual or express damages.
8. WARRANTIES/INDEMNITIES
8.1. Celtrix represents and warrants to Elan and Newco that, as of
the Effective Date, except for the European Opposition Proceedings between
Genentech Inc. and Celtrix relating to their IGFBP-3 patents (EP 0 451 194 and
EP 0 406 272):
8.1.1 to Celtrix's best knowledge, Celtrix has the right to grant
the Celtrix License and any other rights granted herein;
8.1.2 Schedule 1 contains the Celtrix Patent Rights existing as
of the Effective Date;
8.1.3 to Celtrix's best knowledge, [*****]
8.1.4 Celtrix is the owner or exclusive licensee of all rights,
title and interest in the Celtrix Intellectual Property
free and clear of all Liens, and Celtrix has the right to
use the Celtrix Intellectual Property, in the Territory;
8.1.5 to Celtrix's best knowledge, there is no infringement by
third parties of any Celtrix Intellectual Property;
8.1.6 there is not pending, or to Celtrix's best knowledge,
threatened action, suit, proceeding or claim by others
challenging Celtrix' rights in or to such Celtrix
Intellectual Property, or the validity or scope of such
Celtrix Intellectual Property;
8.1.7 there is not pending, or to Celtrix's best knowledge,
threatened action, suit, proceeding or claim by others that
Celtrix Intellectual Property, infringe or otherwise
violate any patent, or intellectual property rights of
others; and
8.1.8 to Celtrix's best knowledge, there is no patent or patent
application of others which contains claims that dominate
Celtrix Intellectual Property.
8.2. During the Term, Celtrix shall not grant, or suffer to exist, a
Lien in or to the Celtrix Intellectual Property that would have a material
adverse effect, individually or in the aggregate, on the financial condition,
results of operation, business, and/or assets (including the Licensed
Technologies and/or the Newco Intellectual Property) of Newco.
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8.3. Newco represents and warrants to Celtrix that the execution of this
Agreement by Newco and the full performance and enjoyment of the rights of Newco
under this Agreement will not breach the terms and conditions of any license,
contract, understanding or agreement, whether express, implied, written or oral
between Newco and any third party.
8.4. Newco represents and warrants to Celtrix that the Products shall be
developed, transported, stored, handled, packaged, marketed, promoted,
distributed, offered for sale and sold in accordance with all regulations and
requirements of the FDA and Regulatory Authorities including, without
limitation, cGCP, cGLP, cGMP regulations. The Products shall not be adulterated
or misbranded as defined by the United States Federal Food, Drug and Cosmetic
Act (or applicable foreign law) and shall not violate any section of such Act if
introduced in interstate commerce.
8.5. In addition to any other indemnifications provided for herein,
Celtrix shall indemnify and hold harmless Newco and its Affiliates and their
respective employees, agents, partners, officers and directors from and against
any claims, losses, liabilities or damages (including reasonable attorney's fees
and expenses) incurred or sustained by Newco arising out of any (a) breach of
any representation, covenant, warranty or obligation by Celtrix hereunder, or
(b) any act or omission on the part of Celtrix or any of its agents or employees
in the performance of this Agreement.
8.6. In addition to any other indemnifications provided for herein,
Newco shall indemnify and hold harmless Celtrix and its Affiliates and their
respective employees, agents, partners, officers and directors from and against
any claims, losses, liabilities or damages (including reasonable attorney's fees
and expenses) incurred or sustained by Celtrix arising out of or in connection
with any (a) breach of any representation, covenant, warranty or obligation by
Newco hereunder, or (b) any act or omission on the part of Newco or any of its
agents or employees in the performance of this Agreement.
8.7. The Party seeking an indemnity shall:
8.7.1 fully notify the other Party of any claim or proceeding, or
threatened claim or proceeding within thirty (30) days of becoming aware of such
claim or threatened claim;
8.7.2 permit the indemnifying Party to take sole control of the
defense and/or settlement of such claim or proceeding;
8.7.3 cooperate in the investigation, defense and/or settlement
of such claim or proceeding;
8.7.4 not compromise or otherwise settle any such claim or
proceeding without the prior written consent of the other Party, which consent
shall not be unreasonably withheld, conditioned or delayed; and
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
8.7.5 take all reasonable steps to mitigate any loss or liability
in respect of any such claim or proceeding.
8.8. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO
EVENT SHALL CELTRIX OR NEWCO BE LIABLE TO THE OTHER BY REASON OF ANY
REPRESENTATION OR WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW,
OR UNDER THE EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, INCIDENTAL,
SPECIAL, PUNITIVE OR INDIRECT LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFIT OR
OTHERWISE) AND WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES,
THEIR EMPLOYEES OR AGENTS OR OTHERWISE.
8.9. [*****] CELTRIX IS GRANTING THE LICENSES HEREUNDER ON AN "AS IS"
BASIS WITHOUT RECOURSE, REPRESENTATION OR WARRANTY WHETHER EXPRESS OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR
INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL SUCH WARRANTIES ARE EXPRESSLY
DISCLAIMED.
9. INTELLECTUAL PROPERTY OWNERSHIP RIGHTS
9.1. Subject to the terms and conditions of this Agreement, [*****] shall
own all legal and equitable right, title and interest in and to the [*****]
9.2. Subject to the terms and conditions of this Agreement, [*****] shall
own all legal and equitable right, title and interest in and to the [*****].
9.3. Newco hereby grants to Celtrix a [*****] license, with the right to
sublicense, to the [*****] the Field on an as-is basis to make, use, offer for
sale and sell [*****]
9.4. Newco represents and warrants that it has the sole, exclusive and
unencumbered right to grant the licenses and rights herein granted to Celtrix
and that it has not granted any option, license, right or interest in or to the
Celtrix Intellectual Property, the Newco Intellectual Property, or other
property to any third party which would conflict with the rights granted by this
Agreement and the Definitive Documents.
10. TERM AND TERMINATION OF AGREEMENT.
10.1. The term of this Agreement (the "Term") shall commence as of the
Effective Date and expire on a Product-by-Product basis and on a country-by-
country basis on the last to occur of:
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10.1.1 fifteen (15) years from the date of the First Commercial
Sale of a Product in a particular country in the Territory; or
10.1.2 the last to expire of the patents covering the Product
in such particular country in the Territory or a method of making or using the
Product included in the Celtrix Patent Rights and/or patents resulting from the
Newco Intellectual Property in such particular country in the Territory.
10.2. If either party breaches any material provision of this
Agreement and if such breach not cured within sixty (60) days after the
non-breaching party gives written notice of the breach to the breaching party,
the non-breaching party may terminate this Agreement immediately by giving
notice of the termination, effective on the date of the notice, provided,
however, that if any such breach is not capable of being cured within such sixty
(60) day period, so long as the breaching party commences to cure the breach
promptly after receiving notice of the breach from the non-breaching party and
thereafter diligently prosecutes the cure to completion as soon as is
practicable, the non-breaching Party may not terminate this Agreement unless the
breaching party, notwithstanding such efforts, is unable to cure the breach
within ninety (90) days after the other party gives notice of the default, in
which case the non-breaching party may terminate this Agreement immediately by
giving notice of the termination, effective on the date of the notice.
10.3. Either Party may terminate this Agreement prior to the
expiration of the Term in the event that (a) an application or petition for
bankruptcy, corporate re-organization, composition, administration, examination,
arrangement or any other procedure similar to any of the foregoing under the law
of any applicable jurisdiction, including, without limitation, the United States
of America or Bermuda (other than as part of a bona fide restructuring or
reorganization), is filed by or against the other Party and is not discharged
within forty-five (45) days, or (b) if the other Party applies for or consents
to the appointment of a liquidator, receiver, administrator, examiner, trustee
or similar officer over such Party or over all or a material part of its assets,
rights or revenues, or (c) the assets and/or the business of the other Party are
for any reason seized, confiscated or condemned.
10.4. Upon exercise of those rights of termination as specified in
Clause 10.1 to Clause 10.3 inclusive or elsewhere within this Agreement, or the
wind-up of Newco's business, this Agreement shall, subject to the other
provisions of this Agreement that survive termination as set forth in this
Agreement, automatically terminate forthwith and be of no further legal force or
effect.
10.5. Upon expiration or termination of the Agreement:
10.5.1 any sums that were due from Newco to Celtrix with
respect to the license granted hereunder, including without limitation royalties
on Net Sales, in the Territory or in such particular country or countries in the
Territory (as the case may be) prior to the expiration or termination of this
Agreement as set forth herein shall be paid in full within
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
sixty (60) days after the expiration or termination of this Agreement for the
Territory or for such particular country or countries in the Territory (as the
case may be);
10.5.2 Clauses [*****] shall survive termination or expiration
of this Agreement and shall remain in full force and effect;
10.5.3 all representations, warranties and indemnities shall
insofar as are appropriate remain in full force and effect;
10.5.4 expiration or termination of this Agreement for any
reason shall not release any Party hereto from any liability which, at the time
of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude either Party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement;
10.5.5 except as provided in Clause 3.7, the Celtrix Intellectual
Property and all rights and licenses granted in and pursuant to this Agreement
shall cease for the Territory or for such particular country or countries in the
Territory (as the case may be) and shall immediately revert to Celtrix.
Following such expiration or termination, Newco may not thereafter use in the
Territory or in such particular country or countries in the Territory (as the
case may be) (a) any valid and unexpired Celtrix Patent Rights, (b) any Celtrix
Intellectual Property and/or (c) any Celtrix Trademarks;
10.5.6 all rights to Newco Intellectual Property shall be
transferred to and jointly owned by Elan and Celtrix and may be utilized by one
party with the consent of the other pursuant to a written agreement to be
negotiated in good faith.
11. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE.
11.1. Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results from
causes beyond its reasonable control, including, without limitation, acts of
God, fires, strikes, acts of war, or intervention of a government authority,
non-availability of raw materials, provided that any such delay or failure shall
be remedied by such Party as soon as practicable.
12. SETTLEMENT OF DISPUTES; PROPER LAW.
12.1. The Parties will attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between
executives of the Parties. In the event that such negotiations do not result in
a mutually acceptable resolution, the Parties agree to consider other dispute
resolution mechanisms including mediation. In the event that
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the Parties fail to agree on a mutually acceptable dispute resolution mechanism,
any such dispute shall be finally settled by the courts of competent
jurisdiction.
12.2. This Agreement is construed under and governed by the laws of
the State of New York without giving effect to any choice conflict of law
provision or rule. For the purpose of this Agreement the Parties submit to the
personal jurisdiction of the United States District Court for the State of New
York. The Parties each further irrevocably consent to the service of any
complaint, summons, notice or other process by delivery thereof to it by any
manner in which notices may be given pursuant to this Agreement.
13. ASSIGNMENT.
13.1. This Agreement may not be assigned by either Party without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld, conditioned or delayed; subject to the following (a) that
either Party may, without such consent, assign this Agreement to its respective
Affiliates, provided that such assignment does not have any material adverse tax
consequence on the other Party; and (b) that either Party may, without such
consent, assign its rights and obligations hereunder in connection with a sale
of all or substantially all its assets to an Independent Third Party or merger,
combination or reorganization of either Party such that the stockholders of such
Party hold less than fifty percent (50%) of the capital stock of the successor
following completion of such transaction, unless such action shall constitute a
Change of Control Event. Celtrix and Newco will discuss any assignment by either
Party to an Affiliate prior to its implementation in order to avoid or reduce
any additional tax liability to the other Party resulting solely from different
tax law provisions applying after such assignment to an Affiliate. For the
purpose hereof, an additional tax liability shall be deemed to have occurred if
either Party would be subject to a higher net tax on payments made hereunder
after taking into account any applicable tax treaty and available tax credits
than such Party was subject to before the proposed assignment. Notwithstanding
any assignment hereof, each Party will remain fully liable hereunder.
14. NOTICES.
14.1. Any notice to be given under this Agreement shall be sent in
writing in English by registered airmail or telefaxed to the following
addresses:
If to Newco at: Newco
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: Secretary
Telephone: 441-292-9169
Telefax: 441-292-2224
with a copy to: Elan Corporation plc
Lincoln House, Lincoln Place, Dublin 2, Ireland
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Attention: Vice President, General Counsel,
Elan Pharmaceutical Technologies,
a division of Elan Corporation, plc
Telephone: + 353 1 709 4000
Telefax: + 353 1 662 4960
If to Celtrix at: Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
Attention: Andreas Sommer, Ph.D.
Telephone: (408) 573-6263
Telefax: (408) 573-6228
with a copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Ned Ruffin, Esq.
Telephone: (650) 854-4488
Telefax: (650) 233-8386
or to such other address(es) and telefax numbers as may from time to
time be notified by either Party to the other hereunder.
14.2. Any notice sent by mail shall be deemed to have been delivered
within seven (7) working days after dispatch and any notice sent by telex or
telefax shall be deemed to have been delivered within twenty four (24) hours of
the time of the dispatch. Notice of change of address shall be effective upon
receipt.
15. MISCELLANEOUS CLAUSES.
15.1. No waiver of any right under this Agreement shall be deemed
effective unless contained in a written document signed by the Party charged
with such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any other breach or failure to perform or of any other
right arising under this Agreement.
15.2. If any provision in this Agreement is agreed in writing by the
Parties to be, or is deemed to be, or becomes invalid, illegal, void or
unenforceable under any law that is applicable hereto, (i) such provision will
be deemed amended to conform to applicable laws so as to be valid and
enforceable without materially altering the intention of the Parties, and (ii)
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be impaired or affected in any way.
15.3. The Parties shall use reasonable efforts to ensure that the
Parties and any necessary third party shall execute and perform all such further
deeds, documents, assurances,
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acts and things as any of the Parties hereto may reasonably require by notice in
writing to the other Party or such third party to carry out the provisions of
this Agreement.
15.4. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto, their successors and permitted assigns and sub-licenses.
15.5. This Agreement (including the Schedules attached hereto), and
the other Definitive Documents set forth all of the agreements and
understandings between Parties hereto with respect to the subject matter hereof,
and supersedes and terminates all prior agreements and understandings between
the Parties with respect to the subject matter hereof, either oral or written,
between the Parties other than as set forth in this Agreement and the other
Definitive Documents. No provision of this Agreement shall be construed so as to
negate, modify or affect in any way the provisions of any other agreement
between the Parties unless specifically referred to, and solely to the extent
provided, in any such other agreement. In the event of a conflict between the
provisions of this Agreement and the provisions of the Development Agreement,
the terms of the Development Agreement shall prevail unless this Agreement
specifically provides otherwise.
15.6. No amendment, modification or addition hereto shall be effective
or binding on either Party unless set forth in writing and executed by a duly
authorized representative of each Party. Amendments hereto shall be subject to
the prior written approval of Elan, which approval shall not be unreasonably
withheld or delayed.
15.7. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute this Agreement.
15.8. Each of the Parties undertakes to do all things reasonably
within its power which are necessary or desirable to give effect to the spirit
and intent of this Agreement.
15.9. Each of the Parties hereby acknowledges that in entering into
this Agreement it has not relied on any representation or warranty except as
expressly set out herein or in any document referred to herein.
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15.10. Nothing contained in this Agreement is intended or is to be
construed to constitute Celtrix, Elan, and Newco as partners, or Celtrix as an
employee or agent of Newco or Elan, or Newco and Elan as an employee or agent of
Celtrix. Neither Party hereto shall have any express or implied right or
authority to assume or create any obligations on behalf of or in the name of the
other Party or to bind the other Party to any contract, agreement or undertaking
with any third party without the prior written consent of the other Party.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement in duplicate.
CELTRIX PHARMACEUTICALS, INC.
By: /s/ Andreas Sommer
-----------------------------------------
Name: Andreas Sommer
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
CELTRIX NEWCO LTD.
By: /s/ Andreas Sommer
-----------------------------------------
Name: Andreas Sommer
---------------------------------------
Title: President
--------------------------------------
AGREED TO:
ELAN PHARMACEUTICAL TECHNOLOGIES,
A DIVISION OF ELAN CORPORATION, PLC
By: /s/ Kevin Insley
-----------------------------------------
Name: Kevin Insley
---------------------------------------
Title: Authorized Signatory
--------------------------------------
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
SCHEDULE 1
CELTRIX PATENT RIGHTS
<TABLE>
<CAPTION>
IGF-I/IGFBP-3 ISSUED/ALLOWED PATENTS US STATUS: FOREIGN #
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An Insulin-like growth factor-binding protein-3 composition 5,200,509 EP 308500
JP 2648951
AU 627423
CA 1340295
2. IGF-I/IGFBP-3 for systemic treatment of tissue injury 5,407,913 Foreign filed in
WO 94/04030
3. IGF-I/IGFBP-3 for the treatment of anemia 5,527,776 AU 688793
Foreign filed in
WO 95/08567
4. A method for use of IGFBP-3 antibodies 5,624,805 Foreign filed in
WO 90/06950
5. IGF/IGFBP-3 for the treatment of catabolic conditions 5,643,867 Foreign filed in
WO 94/04030
6. A method for recombinant production of IGFBP-3 5,670,341 Foreign filed in
WO 90/06950
7. Therapeutic uses of IGF/IGFBP-3 and IGFBP-3 5,681,818 Foreign filed in
(including osteoporosis) WO 90/06950
8. IGFBP-3 composition and methods for production; therapeutic uses see # 4,6,7 EP 0 451 194*
of IGF/IGFBP-3 and IGFBP-3 (including osteoporosis) HK 1000826
9. IGF/IGFBP-3 for the treatment of renal disorders 5,723,441 AU 690941
10. Methods for predicting drug response 5,824,467 Foreign filed in
WO 98/37423
[*****] [*****] [*****] [*****]
[*****] [*****] [*****] [*****]
[*****] [*****] [*****] [*****]
[*****]
</TABLE>
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
<TABLE>
<CAPTION>
IGF-I/IGFBP-3 PATENT APPLICATIONS FOREIGN #/STATUS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Therapeutic uses of IGFBP-3 and IGF-I/IGFBP-3 (including WO 90/06950
osteoporosis) Granted in EP*
[*****]
[*****] [*****] [*****]
[*****] [*****] [*****]
4. IGF-I/IGFBP-3 for wasting diseases and tissue repair WO 94/04030
[*****]
5. IGF-I/IGFBP-3 for the treatment of renal diseases WO 95/13824
[*****]
6. IGF-I/IGFBP-3 for the treatment of reproductive diseases WO 95/03817
[*****]
7. IGF-I/IGFBP-3 for the treatment of neurological disorders WO 95/13823
[*****]
8. IGF-I/IGFBP-3 for the treatment of immunologic and hematologic disorders WO 95/08567
[*****]
9. IGF-1/IGFBP-3 for promoting bone formation and for regulating bone WO 96/02565
remodeling [*****]
10. IGF or IGF/IGFBP-3 for the treatment of psychological and metabolic WO 98/36764
disorders
[*****] [*****] [*****]
[*****] [*****] [*****]
[*****] [*****] [*****]
[*****] [*****] [*****]
</TABLE>
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
<TABLE>
<CAPTION>
EXPRESSION TECHNOLOGY ISSUED/ALLOWED PATENTS U.S. STATUS FOREIGN #
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Methods and DNA expression systems for over-expression of proteins 5,459,051 AU 674741
in host cells
2. Chromosomal expression of heterologous genes in bacterial cells 5,470,727 AU 695886
WO 95/17499
3. Fusion polypeptides and proteins 5,563,046 AU 688363
[*****]
4. Expression of fusion polypeptides transported out of the cytoplasm 5,629,172 WO 95/04076
without leader sequences
5. Chromosomal expression of heterologous genes in bacterial cells 5,861,273 WO 96/40722
(CIP of 5,470,727 )
6. Method of producing IGF-I and IGF-BP3 with correct folding and 5,789,547 WO 96/40736
disulfide bonding
7. Polypeptide fusions to polypeptides of the beta trefoil fold 5,830,706 WO 95/04076
structural family (continuation of 5,563,046)
[*****] [*****] [*****] [*****]
9. Method for increasing yields of recombinant proteins ALLOWED Filed via PCT
</TABLE>
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EXHIBIT 10.10
EXECUTION COPY
LICENSE AGREEMENT
BY AND BETWEEN
CELTRIX NEWCO LTD.
A BERMUDA COMPANY
AND
ELAN PHARMACEUTICAL TECHNOLOGIES,
A DIVISION OF ELAN CORPORATION, PLC
AN IRISH COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. DEFINITIONS........................................................ 1
2. GRANT OF RIGHTS.................................................... 7
3. SUBLICENSE AND ASSIGNMENT RIGHTS................................... 8
4. TRADEMARKS......................................................... 9
5. NON-COMPETITION.................................................... 11
6. FINANCIAL PROVISIONS.............................................. 11
7. CONFIDENTIAL INFORMATION.......................................... 13
8. WARRANTIES/INDEMNITIES............................................ 16
9. INTELLECTUAL PROPERTY OWNERSHIP RIGHTS............................ 17
10. TERM AND TERMINATION OF AGREEMENT................................. 18
11. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE...................... 20
12. SETTLEMENT OF DISPUTES; PROPER LAW................................ 20
13. ASSIGNMENT........................................................ 20
14. NOTICES........................................................... 21
15. MISCELLANEOUS CLAUSES............................................. 22
</TABLE>
<PAGE>
LICENSE AGREEMENT dated April 21, 1999 between Celtrix Newco Ltd., a Bermuda
limited company, and Elan Pharmaceutical Technologies, a division of Elan
Corporation, plc, an Irish limited company.
WHEREAS
A. Contemporaneously herewith, Elan, Celtrix, EIS and Newco (capitalized
terms used herein are defined below) are entering into the Development Agreement
for the purpose of recording the terms and conditions of a joint venture and of
regulating their relationship with each other and certain aspects of the affairs
of and their dealings with Newco.
B. Elan owns all right, title and interest in and to certain patents that
have been granted or are pending in relation to the development and production
of various drug delivery technologies.
C. Newco desires to obtain from Elan, and Elan desires to grant to Newco,
an exclusive license under the Elan Intellectual Property to develop, use,
import, sell, offer for sale and otherwise distribute Products in the Field and
in the Territory on the terms and subject to the conditions set forth herein.
D. The Parties entered into a letter agreement dated March 31, 1999,
pursuant to which the Parties agreed to enter into the Definitive Documents.
NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS:
1. DEFINITIONS.
1.1 In this Agreement, the following definitions shall apply:
"Affiliate" shall mean any corporation or entity other than Newco
controlling, controlled by or under the common control with Elan or Celtrix, as
the case may be. For the purposes of this definition, "control" shall mean
direct or indirect ownership of fifty percent (50%) or more of the outstanding
stock or shares of a corporation entitled to vote for the election of directors
or comparable equity interest in any other type of entity and "controlling" and
"controlled" shall be construed accordingly.
"Agreement" shall mean this agreement (which expression shall be
deemed to include the Recitals and the Schedule hereto).
"Business Plan" shall mean the business plan and program of
development to be agreed to by Elan and Celtrix within sixty (60) days of the
Effective Date with respect to the research, development, prosecution and
commercialization of the Products, which Business Plan shall be reviewed and
mutually agreed to in writing by Elan and Celtrix on an annual basis.
"Celtrix" shall mean Celtrix Pharmaceuticals, Inc. a Delaware
corporation, its successors and permitted assigns.
<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
"Celtrix Improvements" shall mean any improvements to the Celtrix
Patent Rights and/or Celtrix Know-How developed (a) [*****] whether or not
pursuant to the Project, (b) [*****] pursuant to the Project, [*****] pursuant
to the Project, except as limited by agreements with third parties. Celtrix
Improvements shall be deemed, immediately upon development, to be included in
the license of the Celtrix Intellectual Property granted to Newco under the
Celtrix License Agreement. The Celtrix License shall specifically exclude any
right to use Celtrix Improvements outside of the Field. If the inclusion of a
Celtrix Improvement in the license of Celtrix Intellectual Property granted to
Newco under the Celtrix License Agreement is restricted or limited by a third
party agreement, then Celtrix shall use reasonable commercial efforts to exclude
or where applicable to minimize any such restriction or limitation. All rights,
title, and interest to any Celtrix Improvements [*****] Newco, Elan and any such
third party shall execute and deliver documents, and take such other actions as
Celtrix may reasonably request, to effect or evidence such ownership.
"Celtrix Intellectual Property" shall mean the Celtrix Know-How, the
Celtrix Patent Rights and/or the Celtrix Improvements. Notwithstanding anything
contained in this Agreement to the contrary, Celtrix Intellectual Property shall
exclude (a) inventions, patents and know-how [*****], and (b) inventions,
patents and know-how that are subject to contractual obligations of Celtrix to
Independent Third Parties as of the Effective Date; provided, however, that if
the inclusion of inventions, patent rights and know-how in the license of
Celtrix Intellectual Property granted to Newco under the Celtrix License
Agreement is restricted or limited by such contractual obligations of Celtrix to
Independent Third Parties, then Celtrix shall use reasonable commercial efforts
to exclude or, where applicable, to minimize any such restriction or limitation.
"Celtrix Know-How" shall mean any and all rights owned or licensed by
Celtrix with respect to any knowledge, information, discovery, invention, trade
secret, technique, process, system, formulation, design, data and expertise
relating to SomatoKine whether or not covered by any patent, copyright, design,
trademark, trade secret or other industrial or intellectual property right.
"Celtrix License" shall have the meaning set forth in Clause 2.1 of
the Celtrix License Agreement.
"Celtrix License Agreement" shall mean that certain license agreement,
of even date herewith, entered into between Celtrix and Newco.
"Celtrix Patent Rights" shall mean the patents and patent applications
(including provisional applications) relating to SomatoKine(R) that are set
forth in Schedule 1 of the Celtrix License Agreement, and that are owned or
licensed by or on behalf of Celtrix. Celtrix Patent Rights shall also include
all extensions, continuations, continuations-in-part,
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
divisionals, patents-of-addition, re-examinations, re-issues, supplementary
protection certificates and foreign counterparts of such patents and patent
applications and any patents issuing thereon and extensions of any patents
licensed under the Celtrix License Agreement.
"Celtrix Securities Purchase Agreement" shall mean that certain
securities purchase agreement, of even date herewith, by and between Celtrix and
EIS.
"Celtrix Trademark" shall have the meaning ascribed to such term in
the Celtrix License Agreement.
"cGCP", "cGLP" and "cGMP" shall mean current Good Clinical Practices,
current Good Laboratory Practices and current Good Manufacturing Practices
respectively.
"Change of Control Event" shall mean the occurrence of the following:
a Technological Competitor of Elan shall, directly or indirectly, (a) acquire
[*****] or more of the capital stock of Celtrix or Newco, or (b) otherwise
control or influence in any material respect their management or business, or
(c) otherwise merge, consolidate or enter into any similar transaction (or
binding agreement in respect thereof) with either of such entities, or (d)
otherwise have entered into any joint venture, collaboration, license or other
arrangement with Celtrix or Newco to such an extent that such Technological
Competitor of Elan is materially engaged or involved with the business or
development of Celtrix or Newco.
"Definitive Documents" shall mean this Agreement, the Celtrix License
Agreement, the Development Agreement, the Celtrix Securities Purchase Agreement,
the Funding Agreement, the Registration Rights Agreements and associated
documentation of even date herewith, by and among Newco, Elan, Celtrix and EIS,
as applicable.
"Development Agreement" shall mean the Subscription, Joint Development
and Operating Agreement of even date herewith entered into among Celtrix, Elan,
EIS and Newco.
"Effective Date" shall mean the date upon which the Definitive
Documents are executed and delivered by Elan, Celtrix and Newco and the
transactions effected thereby are closed.
"EIS" shall mean Elan International Services, Ltd., a Bermuda company.
"Elan" shall mean Elan Pharmaceutical Technologies, a division of Elan
Corporation, plc, a public limited company incorporated under the laws of
Ireland, its successors and permitted assigns.
"Elan Improvements" shall mean any improvements to the Elan Patent
Rights and Elan Know-How developed (a) [*****] whether or not pursuant to the
Project, (b) [*****] pursuant to the Project, and/or (c) [*****] pursuant to the
Project,
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
except as limited by agreements with third parties. Elan Improvements shall be
deemed, immediately upon development, to be included in the license of the Elan
Intellectual Property granted to Newco hereunder. The Elan License specifically
excludes any right to use Elan Improvements outside of the Field. If the
inclusion of an Elan Improvement in the license of Elan Intellectual Property
granted to Newco hereunder is restricted or limited by a third party agreement,
then Elan shall use reasonable commercial efforts to exclude or where applicable
to minimize any such restriction or limitation. All rights, title, and interest
to any Elan Improvements [*****] Newco, Celtrix and any such third party shall
execute and deliver documents, and take such other actions as Elan may
reasonably request, to effect or evidence such ownership.
"Elan Intellectual Property" shall mean the Elan Know-How, the Elan
Patent Rights and/or the Elan Improvements. Notwithstanding anything contained
in this Agreement to the contrary, Elan Intellectual Property shall consist of
Elan Know-How, Elan Patent Rights and/or Elan Improvements controlled by Elan
Corporation plc doing business as Elan Pharmaceutical Technologies, and shall
exclude (a) inventions, patents and know-how [*****] and [*****] including,
without limitation, [*****] and (b) inventions, patents and know-how that are
subject to contractual obligations of Elan to third parties as of the Effective
Date; provided, however, that if the inclusion of inventions, patent rights and
know-how in the license of Elan Intellectual Property granted to Newco hereunder
is restricted or limited by such contractual obligations of Elan to third
parties, then Elan shall use reasonable commercial efforts to exclude or, where
applicable, to minimize any such restriction or limitation.
"Elan Know-How" shall mean any and all rights owned or licensed by
Elan with respect to any knowledge, information, discovery, invention, trade
secret, technique, process, system, formulation, design, data and expertise
relating to the MEDIPAD(R) Drug Delivery System whether or not covered by any
patent, copyright, design, trademark, trade secret or other industrial or
intellectual property right.
"Elan License" shall have the meaning set forth in Clause 2.1 hereof.
"Elan Patent Rights" shall mean the patents and patent applications
(including provisional applications) relating to the MEDIPAD(R) Drug Delivery
System that are set forth in Schedule 1 attached hereto, and that are owned or
licensed by or on behalf of Elan. Elan Patent Rights shall also include all
extensions, continuations, continuations-in-part, divisionals, patents-of-
addition, re-examinations, re-issues, supplementary protection certificates and
foreign counterparts of such patents and patent applications and any patents
issuing thereon and extensions of any patents licensed hereunder.
"Elan Trademark(s)" shall mean one or more trademarks, trade names, or
service marks that are owned or licensed by or on behalf of Elan that Elan may
nominate and approve in writing from time to time for use in connection with the
sale or promotion of the
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
Product by Newco. For the purposes of this Agreement, the trademark [*****] is
deemed to be an Elan Trademark hereunder.
"Exchange Right" shall have the meaning set forth in the Amended and
Restated Certificate of Incorporation of Celtrix in effect on the date hereof.
"Exchange Right Term" shall mean the period commencing on the
Effective Date and ending on the exercise by Elan of the Exchange Right.
"FDA" shall mean the United States Food and Drug Administration or any
successors or agency the approval of which is necessary to commercially market a
product in the United States of America.
"Field" shall mean the [*****]
"First Commercial Sale" shall mean the first commercial sale for use
or consumption of a Product. A sale to an Affiliate or sublicensee shall not
constitute a "First Commercial Sale," unless the Affiliate or sublicensee is the
end user of the Product.
"Funding Agreement" shall mean the Funding Agreement, dated as of the
date hereof, between EIS and Celtrix.
"Independent Third Party" shall mean any person other than Newco,
Elan, Celtrix or any of their respective Affiliates.
"In Market" shall mean [*****] or where applicable by a sublicensee or
a distributor, [*****] such as a [*****].
"Licensed Technologies" shall mean the Elan Intellectual Property and
the Celtrix Intellectual Property.
"Licenses" shall mean the Elan License and the Celtrix License.
"Lien" shall mean any and all liens, security interests, restrictions,
claims, encumbrances or rights of third parties of every kind and nature.
"Management Committee" shall have the meaning set forth in the
Development Agreement.
"Marketing Authorization" shall mean the procurement of registrations
and permits required by applicable government authorities in a country in the
Territory for the marketing, sale, and distribution of a Product in such
country.
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<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
"MEDIPAD(R) Drug Delivery System" shall mean the [*****] as disclosed
in the Elan Patent Rights set forth in Schedule 1 attached hereto.
"Net Sales" shall mean [*****]
"Newco" shall mean Celtrix Newco Ltd., a Bermuda limited company.
"Newco Intellectual Property" shall mean all rights to technology,
patents and know-how belonging to Newco, other than the Elan Intellectual
Property and the Celtrix Intellectual Property, including any technology
acquired by or licensed to Newco from or by a third party and any newly
developed technology that is not Elan Intellectual Property or Celtrix
Intellectual Property.
"Osteoporosis" shall mean a skeletal condition characterized by
decreased density of normally mineralized bone, which bone density, as measured
by dual-energy x-ray absorptiometry (DXA), is more than 2.5 standard deviations
below the mean for the young adult reference range.
"Parties" shall mean Elan and Newco.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
"Project" shall mean all activity as undertaken by Elan, Celtrix and
Newco in order to develop the Products in accordance with the Business Plan.
"Products" shall mean the MEDIPAD(R) Drug Delivery System
incorporating SomatoKine(R) as its primary active ingredient.
"Registration Rights Agreements" shall mean the Registration Rights
Agreements of even date herewith relating to Newco and Celtrix respectively.
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<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
"Regulatory Authority" shall mean any regulatory authority outside the
United States of America, the approval of which is necessary to market a
Product.
"SomatoKine(R)" shall mean [*****]
"Technological Competitor of Elan" shall mean [*****]
"Term" shall have the meaning set forth in Section 10 hereof.
"Territory" shall mean [*****] and
"United States Dollar" and "US$" shall mean the lawful currency for
the time being of the United States of America.
1.2. Interpretation. In this Agreement the following shall apply:
1.2.1 The singular includes the plural and vice versa, the
masculine includes the feminine and vice versa.
1.2.2. Any reference to a Clause or Schedule shall, unless
otherwise specifically provided, be to a Clause or Schedule of this Agreement.
1.2.3. The headings of this Agreement are for ease of reference
only and shall not affect its construction or interpretation.
2. GRANT OF RIGHTS.
2.1. Elan hereby grants to Newco an exclusive license for the Term in the
Territory under the Elan Intellectual Property to develop, import, use, offer
for sale, sell and otherwise distribute Products, and [*****] practice any
process or method covered by the Elan Patent Rights, in the Field, subject to
any contractual obligations of Elan to third parties as of the Effective Date
and, unless prohibited by Clause 5 hereof ("Non-Competition"), contractual
obligations that Elan may enter into after the Effective Date (the "Elan
License"). Except as expressly provided herein, [*****] with respect to [*****]
shall at all times remain solely with [*****]
2.2. To the extent royalty or other compensation obligations to third
parties that are payable with respect to Elan Intellectual Property would be
triggered by a proposed use of such Elan Intellectual Property in connection
with the Project, Elan will inform Newco and Celtrix of such royalty or
compensation obligation promptly upon Elan becoming aware that
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
such proposed use may trigger such royalty or compensation obligation. [*****]
2.3. If [*****] on such terms [*****] If the Celtrix representatives on the
Management Committee determine that Newco should not [*****] shall be free to
fully exploit [*****] with respect thereto.
2.4. Celtrix shall be a third party beneficiary to this Agreement and shall
have the right to cause Newco to enforce Newco's rights against Elan hereunder.
2.5. Notwithstanding anything contained in this Agreement to the contrary,
Elan shall have the right and except as otherwise provided in Section 5.1
hereof, outside of the Field, to fully exploit and grant licenses and
sublicenses with respect to the Elan Intellectual Property.
3. SUBLICENSE AND ASSIGNMENT RIGHTS
3.1. Newco shall not assign any of its rights under the Elan License and/or
the Newco Intellectual Property without the prior written consent of Elan.
3.2. Newco shall not sublicense any of its rights under the Elan License
and/or the Newco Intellectual Property without the prior written consent of
Elan, which consent shall not be unreasonably withheld or delayed; provided,
however, that the consent of Elan may be withheld in Elan's sole discretion in
the case of a proposed sublicense of such rights to a Technological Competitor
of Elan.
3.3. Newco shall not enter into any agreement with any third party for
development or exploitation of the Elan Intellectual Property without the prior
written consent of Elan, which consent may be withheld in Elan's sole
discretion. Any agreement between Newco and any permitted third party for the
development or exploitation of the Elan Intellectual Property shall require: (i)
such third party to maintain the confidentiality of all information concerning
the Elan Intellectual Property provided that such obligation of confidentiality
shall be no less stringent than that set forth in Clause 7 herein, (ii) shall
provide that all right, title and interest in and to any Elan Improvements shall
be owned by Elan, and (iii) shall permit an assignment of rights by Newco to
Elan in accordance with the terms of Clause 3.7 hereof.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
3.4. Newco shall not enter into any agreement with any third party for
development of the Newco Intellectual Property without the prior approval of the
Management Committee.
3.5. Notwithstanding anything to the contrary herein, upon thirty (30) days
prior notice in writing from Elan to Newco and Celtrix, Newco shall assign the
Newco Intellectual Property, including, without limitation, all rights and
obligations related thereto, from Newco to a wholly-owned subsidiary of Newco to
be incorporated in Ireland, which company shall be newly incorporated by Elan
and Celtrix to facilitate such assignment.
3.6. Newco shall remain responsible for all acts and omissions of any
sublicensee, including Celtrix, as if such acts and omissions were those of
Newco.
3.7. Rights of permitted third party sublicensees in and to the Elan
Intellectual Property granted by Newco in accordance with Clause 3.2 above shall
survive the termination of the Elan License granting said intellectual property
rights to Newco; and Newco and Elan shall in good faith agree upon the form most
advantageous to Elan in which the rights of the sublicensor under any such
sublicenses are to be held (which form may include continuation of Newco solely
as the holder of such licenses or assignment of such rights to a third party or
parties, including an assignment to Elan). Upon any such assignment, Elan and
Celtrix shall enter into good faith negotiations with respect to additional
reasonable confidentiality protections which Elan or Celtrix shall reasonably
require.
4. TRADEMARKS
4.1. Elan hereby grants to Newco for the Term a [*****] in the Territory to
use the Elan Trademarks solely to research, develop, import, use, offer for sale
and sell the Products in the Field in the Territory, in accordance with the
terms and conditions of this Agreement including, without limitation, the
following:
4.1.1 Newco shall ensure that each reference to and use of an Elan
Trademark by Newco is in a manner approved by Elan and accompanied by an
acknowledgement, in a form approved by Elan, that the same is a trademark of
Elan.
4.1.2 From time to time, upon the reasonable request of Elan, Newco
shall submit samples of the Product to Elan or its duly appointed agent to
ensure compliance with quality standards and specifications. Elan, or its duly
appointed agent, shall have the right to inspect the premises of Newco where the
Product is held or stored, and Newco shall permit such inspection, upon advance
notice at any reasonable time, of the methods and procedures used in the storage
and sale of the Product. Newco shall not sell or otherwise dispose of any
Product under the Elan Trademarks that fails to comply with the quality
standards and specifications referred to in this Clause 4, as determined by
Elan.
4.1.3 Newco shall not use any Elan Trademark in any way that might
materially prejudice its distinctiveness or validity or the goodwill of Elan
therein.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
4.1.4 The Parties recognize that the Elan Trademarks have
considerable goodwill associated therewith. Newco shall not use in relation to
the Products any trademarks other than the Elan Trademarks (except for the
Celtrix Trademarks) without obtaining the prior consent in writing of Elan with
respect to such use and display, which consent may not be unreasonably withheld
or delayed. However, such use and display that has been so approved by Elan must
not conflict with the use and display of any Elan Trademark.
4.1.5 Newco shall not use in the Territory any trademarks or trade
names so resembling any Elan Trademark as to be likely to cause confusion,
dilution or deception.
4.1.6 Newco shall promptly notify Elan in writing of any alleged
infringement or unauthorized use of which it becomes aware by a third party of
the Elan Trademarks and provide Elan with any applicable evidence of
infringement or unauthorized use.
4.1.7 Newco shall favorably consider promoting and using the Elan
Trademarks in each country of the Territory and provide proof of such use upon
request by Elan.
4.2. Newco shall not be permitted to assign or sublicense any of its rights
under the Elan Trademarks without the prior written consent of Elan, which
consent shall not be unreasonably withheld or delayed.
4.3. Elan shall, [*****], file and prosecute applications to register and
maintain registrations of the Elan Trademarks in the Territory. Newco shall
reasonably co-operate with Elan in such efforts.
4.4. Elan will be entitled to conduct all enforcement proceedings relating
to the Elan Trademarks and shall at its sole discretion decide what action, if
any, to take in respect to any enforcement proceedings related to the Elan
Trademarks or any other claim or counter-claim brought in respect to the use or
registration of the Elan Trademarks. Any such proceedings shall be conducted
[*****] and for its own benefit. Newco and Celtrix shall reasonably cooperate
with Elan in such efforts, [*****].
4.5. Newco shall promptly notify Elan in writing in the event that Newco
becomes aware that any Elan Trademark has been challenged by a third party in a
judicial or administrative proceeding in a country in the Territory as
infringing on the rights of a third party and Elan shall have the first right to
decide whether or not to defend against such allegations, or to adopt an
alternative mark. If Elan decides not to defend the Elan Trademark, then Newco
may request Elan to defend the Elan Trademark[*****]; provided, however, that if
Elan believes that such requested defense is unsubstantiated and without merit,
then Elan may elect not to initiate defense proceedings.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
4.6. Newco will have no ownership rights in or to the Elan Trademarks or of
the goodwill associated therewith, and Newco hereby acknowledges that, except as
expressly provided in this Agreement, it shall not acquire any rights in respect
thereof and that all such rights and goodwill are, and will remain, vested in
Elan.
4.7. Nothing in this Agreement shall be construed as a warranty on the part
of Elan regarding the Elan Trademarks, including without limitation, that use of
the Elan Trademarks in the Territory will not infringe the rights of any third
parties. Accordingly, Newco acknowledges and agrees that Elan makes no warranty
regarding the Elan Trademarks.
4.8. Elan assumes no liability to Newco or to any third parties with
respect to the quality, performance or characteristics of any of the goods
manufactured or sold by Newco under the Elan Trademarks pursuant to this
Agreement.
5. NON-COMPETITION
5.1. [*****]
5.2. [*****]
6. FINANCIAL PROVISIONS.
6.1. In consideration of the license to the Elan Patent Rights, Newco shall
pay to Elan the following amounts:
(i) [*****]
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
[*****]
Notwithstanding anything contained herein to the
contrary, payments to Newco by Independent Third Parties with respect to
development work performed on behalf of Newco by Elan or Celtrix, as the case
may be, shall be paid to the party that performed such development work.
6.2. Payment of royalties pursuant to Clause 6.1(ii), if any, shall be made
quarterly within thirty (30) days after the end of the calendar quarter in which
payments from Net Sales are received by Newco. The method of payment shall be by
wire transfer to an account specified by Elan and shall be nonrefundable to
Newco. Each payment made to Elan shall be accompanied by a written report
showing a true accounting of all Products sold by Newco, its Affiliates and its
sublicensees, if any, during such quarter. Such accounting shall include, on a
country-by-country and Product-by-Product basis, Net Sales (and the calculation
thereof) and each calculation of royalties with respect thereto, including the
calculation of all adjustments and currency conversions.
6.3. Newco shall maintain and keep clear, detailed, complete, accurate and
separate records for a period of three (3) years after a calendar quarter in
sufficient detail to permit Elan to confirm the accuracy of any royalties on Net
Sales due hereunder, including, without limitation, any deductions made in
determining Net Sales.
6.4. All payments due hereunder shall be made in United States Dollars.
Payments due on Net Sales of any Product for each calendar quarter made in a
currency other than United States Dollars shall first be calculated in the
foreign currency for the country of origin of such payment and then converted to
United States Dollars on the basis of the average exchange rate in effect for
such quarter for the purchase of United States Dollars with such foreign
currency quoted in The Wall Street Journal (or comparable publication if not
quoted in The Wall Street Journal) with respect to the currency of the country
of origin of such payment, determined by averaging the rates so quoted on each
business day of such quarter.
6.5. If, at any time, legal restrictions in the Territory prevent the
prompt payment when due of royalties or any portion thereof to Elan, the Parties
shall meet to discuss suitable and reasonable alternative methods of reimbursing
Elan the amount of such royalties. In the event that Newco is prevented from
making any payment under this Agreement to Elan by virtue of the statutes, laws,
codes or government regulations of the country from which the payment is to be
made, then such payments may be paid by depositing them in the currency
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
in which they accrue to Elan's account in a bank acceptable to Elan in the
country the currency of which is involved or as otherwise agreed by the Parties.
6.6. Elan and Newco agree to cooperate in all respects necessary to take
advantage of any double taxation agreements or similar agreements as may, from
time to time, be available.
6.7. Any taxes payable by Elan on any payment made to Elan pursuant to
this Agreement shall be paid by Elan for its own account. If so required by
applicable law, any payment made pursuant to this Agreement shall be made by
Newco after deduction of the appropriate withholding tax, in which event the
Parties shall cooperate to obtain the appropriate tax clearance as soon as is
practicable. On receipt of such clearance and a refund of any such amount, Newco
shall ensure that the amount so withheld is promptly paid to Elan.
6.8. Newco shall [*****], permit Elan or its duly authorized
representatives upon reasonable notice and at any reasonable time during normal
business hours to inspect and audit the accounts and records of Newco and any
other book, record, voucher, receipt or invoice relating to the calculation of
the royalty payments on Net Sales or any other payments made by Newco to Elan
hereunder. Any such inspection of Newco's records shall be at the expense of
Elan, except that if any such inspection reveals a deficiency in the amount of
the royalty actually paid to Elan hereunder in any calendar quarter of [*****]
or more of the amount of any royalty actually due to Elan hereunder, then the
expense of such inspection shall be borne solely by Newco. Any amount of
deficiency shall be paid promptly to Elan by Newco. If such inspection reveals a
surplus in the amount of royalties actually paid to Elan by Newco, Elan shall
reimburse Newco the surplus within fifteen (15) days after determination.
6.9. In the event of any unresolved dispute regarding any alleged
deficiency or overpayment of royalty payments hereunder, the matter will be
referred to mutually agreeable independent firm of accountants for a resolution
of such dispute. Any decision by the said independent firm of accountants shall
be binding on the Parties.
6.10. The parties acknowledge and agree that the methods for calculating
the royalties and fees hereunder are for the purposes of the convenience of the
parties, are freely chosen and not coerced.
7. CONFIDENTIAL INFORMATION.
7.1. The Parties acknowledge that it may be necessary, from time to time,
to disclose to each other confidential and/or proprietary information,
including, without limitation, inventions, works of authorship, trade secrets,
specifications, designs, data, know-how and other information relating to the
Field, the Products, the Elan Intellectual Property, the Newco Intellectual
Property or this Agreement, as the case may be, whether in oral,
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<PAGE>
written, graphic or electronic form (collectively, "Confidential Information").
Any Confidential Information revealed by either Party to the other Party shall
be maintained confidential in accordance with this Clause 7 and shall be used by
the receiving Party exclusively for the purposes of fulfilling the receiving
Party's obligations under this Agreement and the Development Agreement and for
no other purpose.
7.2. Each Party agrees to disclose Confidential Information of the other
Party only to those employees, representatives and agents requiring knowledge
thereof in connection with their duties directly related to the fulfilling of
the Party's obligations under this Agreement, so long as such persons are
parties to appropriate written agreements that contain an obligation of
confidentiality no less stringent than as set forth herein. Each Party further
agrees to inform all such employees, representatives and agents of the terms and
provisions of this Agreement and their duties hereunder and to obtain their
consent hereto as a condition of receiving Confidential Information. Each Party
agrees that it will exercise the same degree of care, but in no event less than
a reasonable degree of care to preserve the proprietary and confidential nature
of the Confidential Information disclosed by the other Party, as the receiving
Party would exercise to preserve its own Confidential Information. Each Party
agrees that it will, upon request of the other Party, return all documents and
any copies thereof containing Confidential Information belonging to or disclosed
by such Party. Each Party shall promptly notify the other Party upon discovery
of any unauthorized use or disclosure of the other Party's Confidential
Information.
7.3. Notwithstanding the foregoing, each Party may use or disclose
Confidential Information disclosed to it by the other Party to the extent such
use or disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with patent
applications, complying with applicable governmental regulations or otherwise
submitting information to tax or other governmental authorities, conducting
clinical trials, or granting a permitted sublicense or otherwise exercising its
rights hereunder, provided that if a Party is required to make any such
disclosure of the other Party's Confidential Information, other than pursuant to
a confidentiality agreement, such Party shall inform the recipient of the terms
and provisions of this Agreement and such recipient's duties hereunder and
obtain such recipient's written consent hereto as a condition to receiving such
Confidential Information.
7.4. Any breach of this Clause 7 by any employee, representative or agent
of a Party is considered a breach by the Party itself.
7.5. Confidential Information shall not include:
(i) information that becomes publicly available, except through a
breach of this Agreement by the receiving Party ;
(ii) information which is made public by the disclosing Party or with
such Party's prior written consent;
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
(iii) information which is independently developed by the receiving
Party as evidenced by such Party's records, without the aid,
application, use of or reference to the disclosing Party's
Confidential Information;
(iv) information that is published or otherwise becomes part of the
public domain without any disclosure by the receiving Party, or
on the part of the receiving Party's directors, officers,
agents, representatives or employees;
(v) information that becomes available to the receiving Party on a
non-confidential basis, whether directly or indirectly, from a
source other than the disclosing Party, which source did not
acquire this information on a confidential basis; or
(vi) information which the receiving Party is required to disclose
pursuant to:
(A) a valid order of a court or other governmental body or
any political subdivision thereof having competent
jurisdiction or otherwise as required by law, rule or
regulation; or
(B) any other requirement of law or the rules of any
applicable securities exchange;
(vii) information which was already in the possession of the
receiving Party at the time of receiving such information, as
evidenced by its records, provided such information was not
previously provided to the receiving party from a source which
was under an obligation to keep such information confidential;
or
(viii) information that is the subject of a written permission to
disclose, without restriction or limitation, by the disclosing
Party;
7.6. if the receiving Party becomes legally required to disclose any
Confidential Information, the receiving Party shall give the disclosing Party
prompt notice of such fact so that the disclosing Party may obtain a protective
order or confidential treatment or other appropriate remedy concerning any such
disclosure. The receiving Party shall fully cooperate with the disclosing Party
in connection with the disclosing Party's efforts to obtain any such order or
other remedy. If any such order or other remedy does not fully preclude
disclosure, the receiving Party shall make such disclosure only to the extent
that such disclosure is legally required.
7.7. The provisions relating to confidentiality in this Clause 7 shall
remain in effect during the Term, and for a period of [*****] following the
expiration or earlier termination of this Agreement.
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
7.8. The Parties agree that the obligations of this Clause 7 are necessary
and reasonable in order to protect the Parties' respective businesses, and each
Party expressly agrees that monetary damages would be inadequate to compensate a
Party for any breach by the other Party of its covenants and agreements set
forth in this Clause 7. Accordingly, the Parties agree and acknowledge that any
such violation or threatened violation will cause irreparable injury to a Party
and that, in addition to any other remedies that may be available, in law or in
equity or otherwise, any Party shall be entitled to obtain injunctive relief
against the threatened breach of the provisions of this Clause 7, or a
continuation of any such breach by the other Party, specific performance and
other equitable relief to redress such breach together with its damages and
reasonable counsel fees and expenses to enforce its rights hereunder, without
the necessity of proving actual or express damages.
8. WARRANTIES/INDEMNITIES
8.1. Elan represents and warrants to Newco and Celtrix that, as of the
Effective Date, to Elan's best knowledge (a) Elan has the right to grant the
Elan License and any other rights granted herein, (b) Schedule 1 contains the
Elan Patent Rights existing as of the Effective Date, and (c) [*****]
8.2. Newco represents and warrants to Elan that the execution of this
Agreement by Newco and the full performance and enjoyment of the rights of Newco
under this Agreement will not breach the terms and conditions of any license,
contract, understanding or agreement, whether express, implied, written or oral
between Newco and any third party.
8.3. Newco represents and warrants to Elan that the Products shall be
developed, transported, stored, handled, packaged, marketed, promoted,
distributed, offered for sale and sold in accordance with all regulations and
requirements of the FDA and Regulatory Authorities including, without
limitation, cGCP, cGLP, cGMP regulations. The Products shall not be adulterated
or misbranded as defined by the United States Federal Food, Drug and Cosmetic
Act (or applicable foreign law) and shall not violate any section of such Act if
introduced in interstate commerce.
8.4. In addition to any other indemnifications provided for herein, Elan
shall indemnify and hold harmless Newco and its Affiliates and their respective
employees, agents, partners, officers and directors from and against any claims,
losses, liabilities or damages (including reasonable attorney's fees and
expenses) incurred or sustained by Newco arising out of any (a) breach of any
representation, covenant, warranty or obligation by Elan hereunder, or (b) any
act or omission on the part of Elan or any of its agents or employees in the
performance of this Agreement.
8.5. In addition to any other indemnifications provided for herein, Newco
shall indemnify and hold harmless Elan and its Affiliates and their respective
employees, agents, partners, officers and directors from and against any claims,
losses, liabilities or damages
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<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
(including reasonable attorney's fees and expenses) incurred or sustained by
Elan arising out of or in connection with any (a) breach of any representation,
covenant, warranty or obligation by Newco hereunder, or (b) any act or omission
on the part of Newco or any of its agents or employees in the performance of
this Agreement .
8.6. The Party seeking an indemnity shall:
8.6.1 fully notify the other Party of any claim or proceeding, or
threatened claim or proceeding within thirty (30) days of becoming aware of such
claim or threatened claim;
8.6.2 permit the indemnifying Party to take sole control of the
defense and/or settlement of such claim or proceeding;
8.6.3 cooperate in the investigation, defense and/or settlement of
such claim or proceeding;
8.6.4 not compromise or otherwise settle any such claim or proceeding
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld, conditioned or delayed; and
8.6.5 take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceeding.
8.7. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO
EVENT SHALL ELAN OR NEWCO BE LIABLE TO THE OTHER BY REASON OF ANY REPRESENTATION
OR WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER THE
EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL,
PUNITIVE OR INDIRECT LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFIT OR OTHERWISE)
AND WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR
EMPLOYEES OR AGENTS OR OTHERWISE.
8.8. [*****] ELAN IS GRANTING THE LICENSES HEREUNDER ON AN "AS IS" BASIS
WITHOUT RECOURSE, REPRESENTATION OR WARRANTY WHETHER EXPRESS OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR
INFRINGEMENT OF THIRD PARTY RIGHTS, AND ALL SUCH WARRANTIES ARE EXPRESSLY
DISCLAIMED.
9. INTELLECTUAL PROPERTY OWNERSHIP RIGHTS
9.1. Subject to the terms and conditions of this Agreement, [*****] shall
own all legal and equitable right, title and interest in and to the [*****]
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
9.2. Subject to the terms and conditions of this Agreement, [*****] shall
own all legal and equitable right, title and interest in and to the [*****]
9.3. Newco hereby grants to Elan a [*****] license, with the right to
sublicense, to the [*****] on an as-is basis to make, use, offer for sale and
sell the [*****]
9.4. Newco represents and warrants that it has the sole, exclusive and
unencumbered right to grant the licenses and rights herein granted to Elan and
that it has not granted any option, license, right or interest in or to the Elan
Intellectual Property, the Newco Intellectual Property, or other property to any
third party which would conflict with the rights granted by this Agreement and
the Definitive Documents.
10. TERM AND TERMINATION OF AGREEMENT.
10.1. The term of this Agreement (the "Term") shall commence as of the
Effective Date and expire on a Product-by-Product basis and on a country-by-
country basis on the last to occur of:
10.1.1 [*****] years from the date of the First Commercial Sale of a
Product in a particular country in the Territory; or
10.1.2 the last to expire of the patents covering the Product in
such particular country in the Territory or a method of making or using the
Product included in the Elan Patent Rights and/or patents resulting from the
Newco Intellectual Property in such particular country in the Territory.
10.2. If either party breaches any material provision of this Agreement and
if such breach not cured within sixty (60) days after the non-breaching party
gives written notice of the breach to the breaching party, the non-breaching
party may terminate this Agreement immediately by giving notice of the
termination, effective on the date of the notice, provided, however, that if any
such breach is not capable of being cured within such sixty (60) day period, so
long as the breaching party commences to cure the breach promptly after
receiving notice of the breach from the non-breaching party and thereafter
diligently prosecutes the cure to completion as soon as is practicable, the non-
breaching Party may not terminate this Agreement unless the breaching party,
notwithstanding such efforts, is unable to cure the breach within ninety (90)
days after the other party gives notice of the default, in which case the non-
breaching party may terminate this Agreement immediately by giving notice of the
termination, effective on the date of the notice.
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<PAGE>
[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
10.3. In the event that a Change of Control Event shall occur, at the sole
option of Elan and upon written notice to Celtrix and Newco, Elan shall have the
right to terminate the Elan License immediately.
10.4. Either Party may terminate this Agreement prior to the expiration of
the Term in the event that (a) an application or petition for bankruptcy,
corporate re-organization, composition, administration, examination, arrangement
or any other procedure similar to any of the foregoing under the law of any
applicable jurisdiction, including, without limitation, the United States of
America or Bermuda (other than as part of a bona fide restructuring or
reorganization), is filed by or against the other Party and is not discharged
within forty-five (45) days, or (b) if the other Party applies for or consents
to the appointment of a liquidator, receiver, administrator, examiner, trustee
or similar officer over such Party or over all or a material part of its assets,
rights or revenues, or (c) the assets and/or the business of the other Party are
for any reason seized, confiscated or condemned.
10.5. Upon exercise of those rights of termination as specified in Clause
10.1 to Clause 10.4 inclusive or elsewhere within this Agreement, or the wind-up
of Newco's business, this Agreement shall, subject to the provisions of this
Agreement that survive termination as set forth in this Agreement, automatically
terminate forthwith and be of no further legal force or effect.
10.6. Upon expiration or termination of the Agreement:
10.6.1 any sums that were due from Newco to Elan with respect to the
license granted hereunder, including without limitation royalties on Net Sales,
in the Territory or in such particular country or countries in the Territory (as
the case may be) prior to the expiration or termination of this Agreement as set
forth herein shall be paid in full within sixty (60) days after the expiration
or termination of this Agreement for the Territory or for such particular
country or countries in the Territory (as the case may be);
10.6.2 Clauses [*****] shall survive termination or expiration of
this Agreement and shall remain in full force and effect;
10.6.3 all representations, warranties and indemnities shall
insofar as are appropriate remain in full force and effect;
10.6.4 expiration or termination of this Agreement for any reason
shall not release any Party hereto from any liability which, at the time of such
termination, has already accrued to the other Party or which is attributable to
a period prior to such termination nor preclude either Party from pursuing all
rights and remedies it may have hereunder or at law or in equity with respect to
any breach of this Agreement;
10.6.5 except as provided in Clause 3.7, the Elan Intellectual
Property and all rights and licenses granted in and pursuant to this Agreement
shall cease for the Territory or
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<PAGE>
for such particular country or countries in the Territory (as the case may be)
and shall immediately revert to Elan. Following such expiration or termination,
Newco may not thereafter use in the Territory or in such particular country or
countries in the Territory (as the case may be) (a) any valid and unexpired Elan
Patent Rights, (b) any Elan Intellectual Property and/or (c) any Elan
Trademarks;
10.6.6 all rights to Newco Intellectual Property shall be
transferred to and jointly owned by Elan and Celtrix and may be utilized by one
party with the consent of the other pursuant to a written agreement to be
negotiated in good faith.
11. IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE.
11.1. Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results from
causes beyond its reasonable control, including, without limitation, acts of
God, fires, strikes, acts of war, or intervention of a government authority,
non-availability of raw materials, provided that any such delay or failure shall
be remedied by such Party as soon as practicable.
12. SETTLEMENT OF DISPUTES; PROPER LAW.
12.1. The Parties will attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation between
executives of the Parties. In the event that such negotiations do not result in
a mutually acceptable resolution, the Parties agree to consider other dispute
resolution mechanisms including mediation. In the event that the Parties fail to
agree on a mutually acceptable dispute resolution mechanism, any such dispute
shall be finally settled by the courts of competent jurisdiction.
12.2. This Agreement is construed under and governed by the laws of
the State of New York without giving effect to any choice conflict of law
provision or rule. For the purpose of this Agreement the Parties submit to the
personal jurisdiction of the United States District Court for the State of New
York. The Parties each further irrevocably consent to the service of any
complaint, summons, notice or other process by delivery thereof to it by any
manner in which notices may be given pursuant to this Agreement.
13. ASSIGNMENT.
13.1. This Agreement may not be assigned by either Party without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld, conditioned or delayed; subject to the following (a) that
either Party may, without such consent, assign this Agreement to its respective
Affiliates, provided that such assignment does not have any material adverse tax
consequence on the other Party; and (b) that either Party may, without such
consent, assign its rights and obligations hereunder in connection with a sale
of all or substantially all its assets to an Independent Third Party or merger,
combination or reorganization of either Party such that the stockholders of such
Party hold less than fifty percent (50%) of the capital stock of the successor
following completion of such transaction, unless such action shall constitute a
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<PAGE>
Change of Control Event. Elan and Newco will discuss any assignment by either
Party to an Affiliate prior to its implementation in order to avoid or reduce
any additional tax liability to the other Party resulting solely from different
tax law provisions applying after such assignment to an Affiliate. For the
purpose hereof, an additional tax liability shall be deemed to have occurred if
either Party would be subject to a higher net tax on payments made hereunder
after taking into account any applicable tax treaty and available tax credits
than such Party was subject to before the proposed assignment. Notwithstanding
any assignment hereof, each Party will remain fully liable hereunder.
14. NOTICES.
14.1. Any notice to be given under this Agreement shall be sent in
writing in English by registered airmail or telefaxed to the following
addresses:
If to Newco at: Newco
102 St. James Court
Flatts, Smiths FL04
Bermuda
Attention: Secretary
Telephone: 441-292-9169
Telefax: 441-292-2224
with a copy to: Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
Attention: Andreas Sommer, Ph.D.
Telephone: (408) 573-6263
Telefax: (408) 573-6228
with a copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Ned Ruffin, Esq.
Telephone: (650) 854-4488
Telefax: (650) 233-8386
If to Elan at: Elan Corporation plc
Lincoln House, Lincoln Place, Dublin 2, Ireland
Attention: Vice President, General Counsel,
Elan Pharmaceutical Technologies,
a division of Elan Corporation, plc
Telephone: + 353 1 709 4000
Telefax: + 353 1 662 4960
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<PAGE>
or to such other address(es) and telefax numbers as may from time to time
be notified by either Party to the other hereunder.
14.2. Any notice sent by mail shall be deemed to have been delivered
within seven (7) working days after dispatch and any notice sent by telex or
telefax shall be deemed to have been delivered within twenty four (24) hours of
the time of the dispatch. Notice of change of address shall be effective upon
receipt.
15. MISCELLANEOUS CLAUSES.
15.1. No waiver of any right under this Agreement shall be deemed
effective unless contained in a written document signed by the Party charged
with such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any other breach or failure to perform or of any other
right arising under this Agreement.
15.2. If any provision in this Agreement is agreed in writing by the
Parties to be, or is deemed to be, or becomes invalid, illegal, void or
unenforceable under any law that is applicable hereto, (i) such provision will
be deemed amended to conform to applicable laws so as to be valid and
enforceable without materially altering the intention of the Parties, and (ii)
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be impaired or affected in any way.
15.3. The Parties shall use reasonable efforts to ensure that the Parties
and any necessary third party shall execute and perform all such further deeds,
documents, assurances, acts and things as any of the Parties hereto may
reasonably require by notice in writing to the other Party or such third party
to carry out the provisions of this Agreement.
15.4. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto, their successors and permitted assigns and sub-licenses.
15.5. This Agreement (including the Schedules attached hereto), and the
other Definitive Documents set forth all of the agreements and understandings
between Parties hereto with respect to the subject matter hereof, and supersedes
and terminates all prior agreements and understandings between the Parties with
respect to the subject matter hereof, either oral or written, between the
Parties other than as set forth in this Agreement and the other Definitive
Documents. No provision of this Agreement shall be construed so as to negate,
modify or affect in any way the provisions of any other agreement between the
Parties unless specifically referred to, and solely to the extent provided, in
any such other agreement. In the event of a conflict between the provisions of
this Agreement and the provisions of the Development Agreement, the terms of the
Development Agreement shall prevail unless this Agreement specifically provides
otherwise.
15.6. No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a duly
authorized representative of each
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<PAGE>
Party. Amendments hereto shall be subject to the prior written approval of
Celtrix, which approval shall not be unreasonably withheld or delayed.
15.7. This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original and all of which
when taken together shall constitute this Agreement.
15.8. Each of the Parties undertakes to do all things reasonably within
its power which are necessary or desirable to give effect to the spirit and
intent of this Agreement.
15.9. Each of the Parties hereby acknowledges that in entering into this
Agreement it has not relied on any representation or warranty except as
expressly set out herein or in any document referred to herein.
15.10. Nothing contained in this Agreement is intended or is to be
construed to constitute Elan, Celtrix and Newco as partners, or Elan as an
employee or agent of Newco or Celtrix, or Newco and Celtrix as an employee or
agent of Elan. Neither Party hereto shall have any express or implied right or
authority to assume or create any obligations on behalf of or in the name of the
other Party or to bind the other Party to any contract, agreement or undertaking
with any third party without the prior written consent of the other Party.
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<PAGE>
IN WITNESS WHEREOF the Parties hereto have executed this Agreement in duplicate.
ELAN PHARMACEUTICAL TECHNOLOGIES,
A DIVISION OF ELAN CORPORATION, PLC
By: /s/ Kevin Insley
-----------------------------------------
Name: Kevin Insley
---------------------------------------
Title: Authorized Signatory
--------------------------------------
CELTRIX NEWCO LTD.
By: /s/ Andreas Sommer
-----------------------------------------
Name: Andreas Sommer
---------------------------------------
Title: President
--------------------------------------
AGREED TO:
CELTRIX PHARMACEUTICALS, INC.
By: /s/ Andreas Sommer
-----------------------------------------
Name: Andreas Sommer
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
SCHEDULE 1
ELAN PATENT RIGHTS
- --------------------------------------------------------------------------------
File Number Brief Description Country Status
- --------------------------------------------------------------------------------
[*****] [*****] Medipad Australia Granted (693136)
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
New Zealand Granted (276485)
Taiwan Granted (079227)
United States 2 Granted (5,527,288;
5,848,991); [*****]
South Africa Granted (94/9185)
- --------------------------------------------------------------------------------
[*****] Medipad-[*****] [*****] [*****]
[*****] [*****]
[*****] [*****]
Ireland Granted (77523)
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
United States Granted (5,814,020)
[*****] [*****]
South Africa Granted (96/7502)
- --------------------------------------------------------------------------------
[*****] [*****] Medipad [*****] [*****]
[*****] [*****]
<PAGE>
[*****] [*****]
[*****] [*****]
Taiwan Granted (090339)
[*****] [*****]
South Africa Granted (96/10374)
- --------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
[*****] [*****]
South Africa Granted (97/5065)
Taiwan Published
[*****] [*****]
- --------------------------------------------------------------------------------
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[*****] INDICATES THAT CONFIDENTIAL MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY IN A REQUEST FOR CONFIDENTIAL TREATMENT WITH THE SECURITIES AND
EXCHANGE COMMISSION.
- --------------------------------------------------------------------------------
File Number Brief Description Country Status
- --------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
- --------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
- --------------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
- ----------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
- ----------------------------------------------------------------------------
[*****] Design of Medipad Housing (3ml) United States Granted (D404482)
- ----------------------------------------------------------------------------
[*****] Design of Bolus Medipad Housing United States Granted (D405524)
- ----------------------------------------------------------------------------
[*****] [*****] [*****] [*****]
- ----------------------------------------------------------------------------
All countries are initially designated when filing in the European Patent Office
or the Patent Cooperation Treaty, and are then selected during the regional or
national phase.
<PAGE>
EXHIBIT 10.11
License Agreement
This Agreement is entered into effective as of April 1, 1993 ("Effective
Date") between Celtrix Pharmaceuticals, Inc., a Delaware corporation, with its
principal offices at 3055 Patrick Henry Drive, Santa Clara, California 95054-
1815, ("Celtrix") and Genentech, Inc., a Delaware corporation, with its
principal offices at 460 Point San Bruno Boulevard, South San Francisco,
California 94080-4990 ("Genentech").
Genentech has certain patent rights relating to TGF-beta and the TGF-beta
receptor that Celtrix desires to license from Genentech, and Genentech is
willing to grant such licenses to Celtrix. Celtrix has certain patent rights
relating to TGF-beta that Genentech wishes to license from Celtrix, and Celtrix
is willing to grant such licenses to Genentech. Concurrently with entering into
this Agreement, Genentech will purchase from Celtrix under a separate Stock
Purchase Agreement, shares of Celtrix common stock having a fair market value of
$4.0 million. Therefore, Genentech and Celtrix agree as follows:
1.0 Definitions. As used in this Agreement, the following words will have
-----------
the following meanings:
1.1 "Celtrix Common Stock" shall mean shares of that class of Celtrix
--------------------
stock referred to in Celtrix's Certificate of Incorporation as common stock.
1.2 "Celtrix Licensed Product" shall mean any pharmaceutical
------------------------
formulation or product or method or system which contains the protein TGF-beta
2, TGF-beta Heterodimer or TGF-beta Receptor and which, but for the licenses
granted hereunder, would infringe a Valid Claim of a Genentech Patent in the
country in which such formulation, product, method or system is made, used
1
<PAGE>
or sold. Specifically excluded from this definition shall be gene therapy or
similar biological techniques aimed at establishing endogenous TGF-beta 2, TGF-
beta Heterodimer or TGF-beta Receptor production. "Endogenous" for purposes of
this Agreement shall mean that the protein or product is produced in the person
for whom it is intended to have its therapeutic effect.
1.3 "Celtrix Net Sales" shall mean the gross invoice sales price
-----------------
charged by Celtrix or its sublicensees hereunder for all Celtrix Licensed
Products in arm's length sales to third parties (excluding sales for clinical
trial purposes), after deduction of the following items, to the extent that such
items were incurred during such calendar quarter with respect to sales of
Celtrix Licensed Products hereunder regardless of the calendar quarter in which
such sales were made, are included in the price charged, and do not exceed
reasonable and customary amounts in the market in which such sale occurred:
(i) trade and quantity discounts or rebates;
(ii) credits or allowances given or made for rejection or return
of and for uncollectible amounts on previously sold Celtrix Licensed Products or
for retroactive price reductions;
(iii) any tax or government charge (other than an income tax)
levied on the sale, transportation or delivery of a Celtrix Licensed Product and
borne by the seller thereof; and
(iv) any charges for freight or insurance in a CIF (cost,
insurance, freight) sale.
2
<PAGE>
1.4 "Celtrix Patents" shall mean the reissue of U.S. Patent 4,843,063
---------------
comprising any patent that issues from reissue application USSN 07/664,766 filed
March 5, 1991.
1.5 "Closing" shall mean the closing, to be held on April 2, 1993, of
-------
the purchase and sale of Celtrix Common Stock to Genentech under the Stock
Purchase Agreement.
1.6 "Closing Price" shall mean the price, as reported in the Wall
-------------
Street Journal, on the applicable exchange or in over-the-counter market at the
close of trading on that day.
1.7 "Combination Product" shall mean any pharmaceutical formulation
-------------------
or method or system for use in humans which contains (i) TGF-beta, TGF-beta 2,
TGF-beta Heterodimer or TGF-beta Receptor and (ii) at least one other ingredient
or substance which is also Therapeutically Active. "Therapeutically Active"
----------------------
shall mean biologically active but shall not include diluent, vehicles or
specific adjuvants or any other ingredient or substance which does not have any,
or has only incidental, therapeutic properties when present alone and is
included to aid or enhance the activity of TGF-beta, TGF-beta 2, TGF-beta
Heterodimer or TGF-beta Receptor.
1.8 "Genentech Licensed Product" shall mean any pharmaceutical
--------------------------
formulation or product or method or system which contains the protein TGF-beta
and which, but for the licenses granted hereunder, would infringe a Valid Claim
of a Celtrix Patent in the country in which such formulation, method or system
is made, used or sold. Specifically excluded from this definition shall be gene
therapy or similar biological techniques aimed at establishing endogenous TGF-
beta production.
3
<PAGE>
1.9 "Genentech Net Sales" shall mean the gross invoice sales price
-------------------
charged by Genentech or its sublicensees hereunder for all Genentech Licensed
Products in arm's length sales to third parties (excluding sales for clinical
trial purposes), after deduction of the following items, to the extent that such
items were incurred during such calendar quarter with respect to sales of
Genentech Licensed Products hereunder regardless of the calendar quarter in
which such sales were made, are included in the price charged, and do not exceed
reasonable and customary amounts in the market in which such sale occurred:
(i) trade and quantity discounts or rebates;
(ii) credits or allowances given or made for rejection or return
of and for uncollectible amounts on previously sold Genentech Licensed Products
or for retroactive price reductions;
(iii) any tax or government charge (other than an income tax)
levied on the sale, transportation or delivery of a Genentech Licensed Product
and borne by the seller thereof; and
(iv) any charges for freight or insurance in a CIF (cost,
insurance, freight) sale.
1.10 "Genentech Patents" shall mean those patents listed on Exhibit A
-----------------
hereto and any other patents owned or licensed by Genentech as of the Effective
Date (to the extent Genentech is permitted to grant sublicenses to Celtrix and
to the extent Celtrix agrees to pay to the licensor, royalties or licensing fees
that arise out of, and as a result of, the sublicense granted hereunder) which
are necessary to make, use or
4
<PAGE>
sell TGF-beta 2, TGF-beta Heterodimer or the TGF-beta Receptor pursuant to the
licenses granted by Genentech herein.
1.11 "Licensed Product" shall mean either a Genentech Licensed
----------------
Product or Celtrix Licensed Product, as appropriate.
1.12 "Major Market Country" shall include the United States, Canada,
--------------------
United Kingdom, Germany, France, Italy, Spain, Japan and Australia.
1.13 "Net Sales" shall mean either Celtrix Net Sales or Genentech Net
---------
Sales, as appropriate.
1.14 "Party" shall mean, when used in the singular, either Celtrix or
-----
Genentech, as appropriate, and "Parties" shall mean Celtrix and Genentech.
1.15 "Phase I/II Clinical Trial" shall mean a controlled study in
-------------------------
humans of the safety and efficacy of a Celtrix Licensed Product for a particular
indication or indications in subjects having the disease or condition under
investigation and which is sufficient in both the number of subjects evaluated
and design to permit a reasonable decision as to whether to undertake a clinical
trial designed to be sufficient to serve as the basis for regulatory approval of
the sale of that Celtrix Licensed Product (e.g., sufficient to support the
approval of a Product License Application by the U.S. Food and Drug
Administration).
1.16 "PHS Patents" shall mean those patents licensed by Genentech
-----------
from the Public Health Service ("PHS") pursuant to a License Agreement between
the PHS and Genentech dated March 2, 1993 (the "PHS License Agreement").
5
<PAGE>
1.17 "Stock Purchase Agreement" shall mean that agreement between
------------------------
Celtrix and Genentech for the sale to Genentech of shares of Celtrix Common
Stock having an aggregate market value of $4.0 million.
1.18 "TGF-beta" shall mean any protein which is a member of that
--------
class of proteins designated as TGF-beta or transforming growth factor-beta (but
excluding TGF-beta 2 or TGF-beta Heterodimer), and/or (i) fragments, fusions or
precursors of the foregoing, and/or (ii) any derivative protein which results
from making deletions, substitutions and/or additions of one or more amino acids
to the structure of a TGF-beta (but excluding TGF-beta 2 or TGF-beta
Heterodimer), provided that such derivative protein is more similar in structure
to the TGF-beta from which it was derived than it is to TGF-beta 2 or TGF-beta
Heterodimer and provided that the primary biological activity of the derivative
protein is substantially the same as the primary biological activity of the TGF-
beta from which it was derived.
1.19 "TGF-beta 2" shall mean a protein comprising the amino acid
----------
sequence set forth on Exhibit B hereto, and/or (i) fragments, fusions or
precursors of the foregoing, and/or (ii) any derivative protein which results
from making deletions, substitutions or additions of one or more amino acids to
the structure identified on Exhibit B, provided that such derivative protein is
more similar in structure to the protein identified on Exhibit B than it is to
the structure of any other TGF-beta and provided that the primary biological
activity of the derivative protein is substantially the same as the primary
biological activity of the protein set forth on Exhibit B.
6
<PAGE>
1.20 "TGF-beta Heterodimer" shall mean the TGF-beta 2.3 heterodimer
--------------------
generally described on Exhibit B.
1.21 "TGF-beta Receptor" shall mean a protein, including a
-----------------
lipoprotein or glycoprotein, that interacts with TGF-beta so as to modulate its
activity and that binds TGF-beta with high affinity (Kd 1000nM or less). Such
TGF-beta Receptor may be cell associated or in soluble form.
1.22 "Valid Claim" shall mean a subsisting claim of an issued and
-----------
unexpired patent that has not been held invalid, unpatentable or unenforceable
by a decision of a governmental body or court of competent jurisdiction, that is
unappealable or unappealed within the time allowed for appeal, and that has not
been rendered unenforceable through disclaimer or otherwise.
2.0 License Fee. In consideration of the licenses under the Genentech
-----------
Patents granted in Sections 3.0 and 6.0 below, Celtrix will pay Genentech in
cash the nonrefundable sum of $4.0 million at the Closing.
3.0 Licenses to Celtrix Under Genentech Patents. Effective commencing upon
-------------------------------------------
the Closing, Genentech grants to Celtrix the following licenses, expressly
limited as stated, under the Genentech Patents, and Celtrix agrees to observe
all stated limitations in the licenses:
3.1 Ophthalmological Uses. Genentech grants a nonexclusive, worldwide
---------------------
license to Celtrix to make, have made, use and sell TGF-beta 2 and TGF-beta
Heterodimer as part of a Celtrix Licensed Product solely for the treatment or
prophylaxis of diseases and conditions of the eye ("Ophthalmological Uses").
Celtrix may grant sublicenses under this license only to one
7
<PAGE>
other party in any country for each indication of an Ophthalmological Use at any
one time. Celtrix shall pay Genentech a royalty of 5% of Net Sales of all
Celtrix Licensed Products sold for Ophthalmological Uses.
3.2 Local Dermal Wound Healing Use.
------------------------------
(a) Genentech grants to Celtrix an exclusive, worldwide license
to make, have made, use and sell TGF-beta 2 and a nonexclusive, worldwide
license to make, have made, use and sell TGF-beta Heterodimer, in either case as
part of a Celtrix Licensed Product solely for the local treatment or prophylaxis
of wounds, diseases or conditions primarily affecting the dermis, including,
without limitation, chronic and acute wounds and burns ("Local Dermal Uses").
Except as set forth below, Celtrix may grant one sublicense under this license
only to one other party in any country for all indications of Local Dermal Use
at any one time. Celtrix shall pay Genentech a royalty of 10% of Net Sales of
all Celtrix Licensed Products sold for Local Dermal Uses (excluding from Net
Sales the actual cost of the portion of any such product consisting of a
collagen delivery matrix).
(b) Celtrix shall have an option ("Royalty Reduction Option"),
exercisable once at any time on or before December 31, 1995 that the average
Closing Price of Celtrix Common Stock has been equal to or greater than $15 per
share for the ten (10) consecutive trading days preceding the exercise of the
Royalty Reduction Option, to issue 250,000 shares of Celtrix Common Stock to
Genentech and receive one of the following reductions of royalties payable on
Net Sales of Celtrix Licensed Products sold for Local Dermal Uses:
8
<PAGE>
(i) If at the time of the exercise of the Royalty Reduction
Option, the average Closing Price of Celtrix Common Stock has been at least $15
per share but less than $30 per share for the ten (10) consecutive trading days
preceding the exercise of the Royalty Reduction Option, the royalty rate for Net
Sales of Celtrix Licensed Products for Local Dermal Uses shall thereafter be
reduced from 10% to 7.5%.
(ii) If at the time of the exercise of the Royalty Reduction
Option, the average Closing Price of Celtrix Common Stock has been at least $30
per share for the ten (10) consecutive trading days preceding the exercise of
the Royalty Reduction Option, the royalty rate for Net Sales of Celtrix Licensed
Products for Local Dermal Uses shall thereafter be reduced from 10% to 5%.
If Celtrix decides to exercise the Royalty Reduction option, it shall promptly
provide written notice of such to Genentech and within ten (10) days of the date
of exercise issue and deliver to Genentech 250,000 shares of Celtrix Common
Stock. Those shares shall be subject to the registration rights and other
provisions contained in the Stock Purchase Agreement. References to stock prices
and number of shares in this Section 3.2 shall be appropriately adjusted for
stock splits and stock dividends occurring after the date of this Agreement.
3.3 Systemic, Local or Regional Administration.
------------------------------------------
(a) Subject to Genentech's rights hereunder, Genentech grants a
nonexclusive, worldwide license to Celtrix to make, have made, use and sell TGF-
beta 2 and TGF-beta Heterodimer as part of a Celtrix Licensed Product (i) for
systemic administration for the treatment or prophylaxis of autoimmune
9
<PAGE>
diseases or conditions ("Autoimmune Use"), osteoporosis ("Osteoporosis Use"),
and soft tissue wound healing (other than the healing of soft tissue wounds
caused principally by vascular ischemia or reperfusion injury) ("Wound Healing
Uses") and for bone marrow and stem cell protection allowing high dose cytotoxic
chemotherapy in cancer patients ("Chemotherapy Use"), and (ii) for systemic or
local or regional administration for direct anti-proliferative effects on solid
cancerous tumors and lymphomas ("Cancer Use") and for the treatment or
prophylaxis of prostatic hypertrophy ("Prostate Use") (collectively these six
Uses are referred to as "Systemic Uses"). Celtrix may grant one sublicense under
this license only to one other party in any country for each Systemic Use at any
one time. Celtrix shall pay Genentech a royalty of 5% of all Net Sales of
Celtrix Licensed Products sold for Systemic uses except for those sold as part
of a codevelopment arrangement with Genentech concluded pursuant to Sections
3.3(b) and 3.3(c).
(b) In December of each year appropriate Celtrix personnel will
prepare and deliver to Genentech a written report summarizing in reasonable
detail, subject to the confidentiality provisions set forth in Section 8.0,
below, all material preclinical and clinical data which Celtrix has developed or
has had developed for Systemic Uses. Upon completion of a Phase I/II Clinical
Trial for any Systemic Use, Celtrix shall provide to Genentech in writing all
material information with respect to the conduct and results of such Clinical
Trial. If Celtrix decides to enter into a license or other arrangement with a
third party in which that third party will receive rights with respect to
marketing or selling a Celtrix Licensed Product for a Systemic Use in a Major
Market Country, Celtrix shall provide written notice of such to Genentech. At
the earlier of such time as (i) Celtrix has completed and provided in writing to
Genentech
10
<PAGE>
all material information with respect to the conduct and results of a Phase I/II
Clinical Trial for a Systemic Use, or (ii) Celtrix notifies Genentech in writing
that it has determined to enter into a license or other arrangement with a third
party in which that third party will receive rights with respect to marketing or
selling a Celtrix Licensed Product for a Systemic Use in a Major Market Country
and provides Genentech all important information and data developed by Celtrix
relating to the rights to be licensed, Genentech shall have the option to
negotiate in good faith with Celtrix an agreement for the codevelopment of
Celtrix Licensed Products for that relevant Systemic Use in all (in the case of
(i) above) or the involved (in the case of (ii) above) Major Market Countries
(the "Right of First Discussion"), Genentech shall notify Celtrix whether it
desires to enter into such discussions within (15) days after its receipt of
notice from Celtrix under (i) or (ii) above.
(c) Genentech shall have sixty (60) days from the day it
exercises its Right of First Discussion as set forth in Section 3.3(b) above to
discuss exclusively and in good faith with Celtrix an agreement for the
codevelopment of Celtrix Licensed Products for the relevant Systemic Use (i) for
all Major Market Countries in the event the CoDevelopment Option arises as a
result of the completion of a Phase I/II Clinical Trial for that Systemic Use or
(ii) only for the Major Market Countries for which Celtrix has determined to
enter into an arrangement with a third party. During such sixty (60) day period
Genentech shall deliver to Celtrix a specific written proposal on all material
business topics related to such codevelopment (including any payments to be made
to Celtrix), which shall be subject to the confidentiality provisions in Section
8.0 below. If after good faith negotiations the Parties do not conclude an
agreement within such sixty (60) day period or any mutually agreeable
11
<PAGE>
extension thereof, Celtrix shall have no further obligation to negotiate
exclusively with Genentech or to disclose preclinical or clinical information to
Genentech for that Systemic Use. However, Celtrix shall continue to discuss such
codevelopment with Genentech for an additional sixty (60) day period if
Genentech desires to do so on a nonexclusive basis and shall not enter into an
arrangement with a third party before the expiration of such second sixty (60)
day period or thereafter on terms less favorable, when viewed in the aggregate,
to Celtrix than those last offered to Celtrix by Genentech, as determined by a
good faith, written opinion of the investment banking firm advised Celtrix in
the transaction. If the Right of First Discussion arose because Celtrix
determined to enter in an arrangement with a third party, and Celtrix does not
enter into such an arrangement within twelve (12) months of the initial
notification of Genentech by Celtrix, Celtrix shall notify Genentech of such,
and Genentech shall again have a Right of First Discussion for sixty (60) days
from the date of such notice, to exclusively discuss a codevelopment agreement
with Celtrix for the relevant Systemic Use in the relevant Major Market
Countries. Celtrix shall again disclose to Genentech at each inception of such
discussions all relevant preclinical and clinical data relating to such Systemic
Use.
3.4 Research, Diagnostic and Veterinary Uses. Genentech grants a
----------------------------------------
nonexclusive, worldwide, license to Celtrix to make, have made, use and sell
TGF-beta 2 and TGF-beta Heterodimer as part of a Celtrix Licensed Product solely
for research, diagnostic reagents or veterinary uses ("Research, Diagnostic and
Veterinary Uses"). Celtrix may grant sublicenses under this license only to one
other party in any country for each indication of a Research, Diagnostic and
Veterinary Use at any one time. Celtrix will pay Genentech a royalty of 2% of
Net Sales
12
<PAGE>
of Celtrix Licensed Products (i) which are sold solely for Research, Diagnostic
and Veterinary Uses and (ii) to the extent that such Net Sales in any calendar
year exceed $250,000 and in that case royalties shall be payable on all Net
Sales in that calendar year of Celtrix Licensed Products which are sold solely
for Research, Diagnostic and Veterinary uses.
3.5 TGF-beta Receptor. Genentech grants a nonexclusive, worldwide
-----------------
license to Celtrix to make, have made, use and sell TGF-beta Receptor as a part
of a Celtrix Licensed Product solely for the treatment or prophylaxis of disease
("TGF-beta Receptor Uses") or solely to be used as part of a process used to
identify compounds useful in the treatment or prophylaxis of disease ("TGF-beta
Receptor Process"). Celtrix may grant one sublicense under this license only to
one other party in any country for each indication or research application at
any one time. Celtrix will pay Genentech a royalty on Net Sales of Celtrix
Licensed Products sold for TGF- beta Receptor Uses or developed using the TGF-
beta Receptor Process. Such royalty shall be 2% of Net Sales where Net Sales of
Celtrix Licensed Products covered by the license granted under this Section 3.4
do not exceed $100 million per annum and 5% of Net Sales to the extent Net Sales
of Celtrix Licensed Products covered by the license granted under this Section
3.4 exceed $100 million per annum.
4.0 Sublicense Option to Celtrix Under PHS Patents. Effective commencing
----------------------------------------------
upon the Closing, Genentech grants to Celtrix an option to acquire a
nonexclusive, nonsublicenseable sublicense under the PHS Patents to make, have
made, use and sell TGF-beta 2 or TGF-beta Heterodimer as part of a Celtrix
Licensed Product only for Ophthalmological Uses, Local Dermal Uses and Systemic
Uses. The option set forth in the preceding sentence may only be exercised once,
whether it is exercised for all Uses or
13
<PAGE>
for any particular Use or Uses. Upon notice from Celtrix that it is considering
in good faith the exercise of such option, Genentech shall provide a copy of the
PHS License Agreement to Celtrix for the sole purpose of evaluating whether to
exercise such option, and Celtrix shall have sixty (60) days after receipt of
the PHS License Agreement to decide whether to exercise such option. If Celtrix
exercises such option (which it may do at any time during the term of this
Agreement upon written notice to Genentech), Celtrix shall be responsible for,
and the sublicense granted hereunder shall be subject to its performance with
respect to TGF-beta 2 or TGF-beta Heterodimer, of those obligations set forth in
the PHS License Agreement relating to Licensed Products, including the
performance of those obligations set forth in Article VIII of the PHS License
Agreement and the payment to Genentech of those royalty obligations set forth in
Paragraph 4.3 of the PHS License Agreement. If Celtrix exercises such option,
pursuant to Paragraph 2.4 of the PHS License Agreement, Celtrix agrees that the
obligations to PHS of Paragraphs 3.1, 3.2, 5.1, 6.2, 11.2 and 11.3 of the PHS
License Agreement shall be binding upon Celtrix as if at were a party to the PHS
License Agreement. Celtrix acknowledges that the grant of this sublicense will
be subject to the approval of the PHS pursuant to Paragraph 2.4 of the PHS
License Agreement.
5.0 Licenses to Genentech. As additional consideration for the granting of
---------------------
the licenses under Sections 3.0 and 6.0 by Genentech, effective commencing upon
the Closing, Celtrix grants a nonexclusive, worldwide license to Genentech under
the Celtrix Patents to make, have made, use and sell TGF-beta as part of a
Genentech Licensed Product for any use. Genentech may grant sublicenses under
this license only to one other party in any country for a particular use at any
one time. Genentech will pay
14
<PAGE>
Celtrix a royalty of 5% of Net Sales of Genentech Licensed Products.
6.0 Future Patents.
--------------
6.1 Genentech Patents. If after the Effective Date and prior to
-----------------
December 31, 2002, Genentech is granted a patent or issued a notice of allowance
with respect to a patent application in any country (i) in which the licenses
granted above to Celtrix with respect to TGF-beta 2 or TGF-beta Heterodimer for
Ophthalmological Uses, Local Dermal Uses, Systemic Uses or Research, Diagnostic
and Veterinary Uses or (ii) in which the licenses granted above to Celtrix with
respect to TGF-beta Receptor for TGF-beta Receptor Uses or the TGF-beta Receptor
Process, could not be practiced in that country without infringing such patent,
Celtrix shall automatically receive a royalty-free, nonexclusive license for
such Use or Process in such country. If after the Effective Date and prior to
December 31, 2002, Genentech is granted a license by a third party under a
patent of that party in any country (iii) in which the licenses granted above to
Celtrix with respect to TGF-beta 2 or TGF-beta Heterodimer for Ophthalmological
Uses, Local Dermal Uses, Systemic Uses or Research, Diagnostic and Veterinary
Uses (but not including any future license to Genentech from the Public Health
Service) or (iv) in which the licenses granted above to Celtrix with respect to
TGF-beta Receptor for TGF-beta Receptor Uses or the TGF-beta Receptor Process,
could not be practiced in that country without infringing such third party
patent, Genentech shall grant Celtrix a sublicense under such license for such
Uses or Process to the fullest extent it is permitted to do so under the terms
of such license, provided that Celtrix agrees to pay and does pay any applicable
royalties, licensing fees and the like required by such license to Genentech and
otherwise
15
<PAGE>
agrees to all appropriate terms of such license. Except as set forth above, no
license, express or implied, is granted under any other Genentech patent.
6.2 Celtrix Patents. If after the Effective Date and prior to
---------------
December 31, 2002, Celtrix is granted a patent or issued a notice of allowance
with respect to a patent application in any country (i) in which the license
granted above to Genentech with respect to TGF-beta for any use in that country
could not be practiced without infringing such patent or (ii) with respect to
TGF-beta Receptor for TGF-beta Receptor Uses or the TGF-beta Receptor Process,
Genentech shall automatically receive a royalty-free, nonexclusive license for
such use or Process in such country. If after the Effective Date and prior to
December 31, 2002, Celtrix is granted a license by a third party under a patent
of that party in any country (iii) in which the license granted to Genentech
with respect to TGF-beta for any use could not be practiced without infringing
such patent or (iv) with respect to TGF-beta Receptor for TGF-beta Receptor Uses
or the TGF-beta Receptor Process, Celtrix shall grant Genentech a sublicense
under such license for such use or Process, to the fullest extent it is
permitted to do so under the terms of such license, provided that Genentech
agrees to pay and does pay any applicable royalties, licensing fees and the like
required by such license to Celtrix and otherwise agrees to all appropriate
terms of such license. Except as set forth above, no license, express or
implied, is granted under any other Celtrix patent.
7.0 Royalty Payments.
----------------
7.1 Payment Dates. Royalties payable hereunder shall be paid within
-------------
forty five (45) days of the end of each calendar quarter for Net Sales for that
calendar quarter. Such payment
16
<PAGE>
shall be accompanied by a statement showing the amount of each Licensed Product
sold in each country, the Net Sales of each Licensed Product in that country's
currency in each country in which Net Sales occurred, the royalties payable in
local currency, the applicable exchange rate as set forth in Section 7.3 below
for that currency, and the royalties payable in U.S. Dollars.
7.2 Records and Accounting. A Party shall keep and require its
----------------------
sublicensees to keep complete and accurate records of the latest three (3)
calendar years of Net Sales with respect to which a royalty is payable under
this Agreement. The Party receiving royalties shall have the right at its own
expense to have an independent, certified public accountant, reasonably
acceptable to the Party paying royalties, review the paying Party's records upon
reasonable notice and during reasonable business hours for the purpose of
verifying the payments provided for in this Agreement. This right may not be
exercised more than once for any calendar year with respect to the records of
the paying Party and each of its sublicensees. Should such review lead to the
discovery of a underreporting of royalties due hereunder of greater than five
percent (5%), the Party underreporting such royalties, in addition to promptly
paying the unpaid royalties, shall pay the full cost and expense of such review.
7.3 Currency of Payments. All payments under this Agreement shall be
--------------------
made in United States Dollars by wire transfer (or such other reasonable means
as the receiving Party may direct) to such bank account as the receiving Party
may designate from time to time. If a wire transfer is to be made, the remitting
Party shall provide notice at least five (5) days prior to the date of transfer
of the amount of payment and the date it
17
<PAGE>
is to be made. Such notice should be given to the Treasurer of the receiving
Party at the address set forth at the beginning of this Agreement or such other
address as the receiving Party may subsequently direct. Any payments due
hereunder on sales outside of the United States shall first be calculated in the
currency in which sales took place and then converted to United States Dollars
at the average of the rate published in the Wall Street Journal for the last
business day of each of the three (3) months of the calendar quarter for which
royalties are payable. If by law, regulation or fiscal policy of a particular
country, remittance of royalties in United States Dollars is restricted or
forbidden, notice thereof will be promptly given to the receiving Party, and
payment of the royalty shall be made by the deposit thereof in local currency to
the credit of the receiving Party in a recognized banking institution designated
by the receiving Party. When in any country the law or regulations prohibit both
the transmittal and deposit of royalties on sales in such a country, royalty
payments shall be suspended for as long as such a prohibition is in effect and
as soon as such prohibition ceases to be in effect, all royalties which the
paying Party would have been under obligation to transmit or deposit but for the
prohibition, shall forthwith be deposited or transmitted promptly to the extent
allowable.
7.4 Combination Product Net Sales. In determining the Net Sales of
-----------------------------
Combination Products, Net Sales shall first be calculated in accordance with the
definition of Net Sales and then multiplied by the percentage value of the
Licensed Product contained in the Combination Product, such percentage value
being the quotient obtained by dividing the current market price of the Licensed
Product by the sum of the separate current market price of the Licensed Product
and other ingredients which are Therapeutically Active contained in the
Combination Product. The
18
<PAGE>
current market price of each Therapeutically Active ingredient and of the
Licensed Product shall be for a quantity comparable to that contained in the
Combination Product and of the same class, purity and potency. When no current
market price is available for a Therapeutically Active ingredient or Licensed
Product in a Combination Product, the Parties shall calculate a hypothetical
market price for such ingredient or Licensed Product, allocating the same
proportions of costs, overhead and profit as are then allocated to all similar
substances then being made and marketed by the Party marketing the Combination
Product and having an ascertainable market price.
8.0 Confidentiality. In the course of performance of this Agreement, one
---------------
Party may disclose to the other or receive written information from the other
relating to the subject matter of this Agreement which information, if so
identified in writing either pursuant to this Section 8.0 or otherwise upon
disclosure, shall be considered to be the disclosing Party's Confidential
Information. Each Party agrees that it will take the same steps to protect the
confidentiality of the other Party's Confidential Information as it takes to
protect its own proprietary and confidential information. Each Party shall
protect and keep confidential and shall not use, publish or otherwise disclose
to any third party, except as permitted by this Agreement or with the other
Party's written consent, the other Party's Confidential Information for a period
of five (5) years from the date of termination of this Agreement. For the
purposes of this Agreement, Confidential Information shall not include such
information that:
(i) was known to the receiving Party at the time of disclosure;
19
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(ii) was generally available to the public or was otherwise part of
the public domain at the time of disclosure or became generally available to the
public or otherwise part of the public domain after disclosure other than
through any act or omission of the receiving Party in breach of this Agreement;
(iii) became known to the receiving Party after disclosure from a
source that had a lawful right to disclose such information to others; or
(iv) is required to be disclosed by the receiving Party to comply
with applicable laws, to defend or prosecute litigation or to comply with
governmental regulations, provided that the receiving Party provides prior
written notice of such disclosure to the other Party and takes reasonable and
lawful actions to avoid and/or minimize the degree of such disclosure.
9.0 Default; Bankruptcy; Survival.
-----------------------------
9.1 Default. Failure by either Party (the "defaulting Party") to
-------
comply with any of the material obligations contained in this Agreement shall
entitle the other Party (the "nondefaulting Party") to give the defaulting Party
notice specifying the nature of the default and requiring it to cure such
default. If such default is not cured within the sixty (60) day period after the
receipt of such notice, the nondefaulting Party shall be entitled, except as
otherwise specifically provided in this Agreement and without prejudice to any
of its other rights conferred on it by this Agreement, to terminate all or part
of this Agreement or the licenses granted herein.
9.2 Termination for Bankruptcy or Insolvency. Either Party may, in
----------------------------------------
addition to any other remedies available to it by
20
<PAGE>
law or in equity, terminate this Agreement, in whole or in part as the
terminating Party may determine, by written notice to the other Party in the
event the other Party shall have become insolvent or bankrupt, or shall have
made an assignment for the benefit of its creditors, or there shall have been
appointed a trustee or receiver for the other Party or for all or a substantial
part of its property, or any case or proceeding shall have been commenced or
other action taken by or against the other Party in bankruptcy or seeking
reorganization, liquidation, dissolution, winding-up, arrangement, composition
or readjustment of its debts or any other relief under any bankruptcy,
insolvency, reorganization or other similar act or law of any jurisdiction now
or hereafter in effect, or there shall have been issued a warrant of attachment,
execution, distraint or similar process against any substantial part of the
property of the other Party, and any such event shall have continued for sixty
(60) days undismissed, unbonded and undischarged; except that the terminating
Party shall retain the rights granted to it as a licensee under Section 365(n)
of the United States Bankruptcy Code in case of the bankruptcy, insolvency or
winding-up of the other Party.
9.3 Survival of Provisions. The obligations of the Parties under
----------------------
Section 8 shall survive any termination of this Agreement.
10.0 General Provisions.
------------------
10.1 Notices. All notices which may be required pursuant to this
-------
Agreement (i) shall be in writing, (ii) shall be addressed, in the case of
Genentech (except as otherwise specified herein), to the Corporate Secretary at
the address set forth at the beginning of this Agreement, and in the case of
21
<PAGE>
Celtrix to the President at the address set forth at the beginning of this
Agreement, (or to such other person or address as either Party may so designate
from time to time), (iii) shall be mailed, postage-prepaid, by registered mail
or certified mail, return receipt requested, or transmitted by courier for hand
delivery or by telegram and (iv) shall be deemed to have been given on the date
of receipt if sent by mail or on the date of delivery if transmitted by courier
or telegram.
10.2 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
10.3 Entire Agreement. This Agreement is the entire Agreement between
----------------
the Parties regarding the subject matter hereof, and there are no prior written
or oral promises or representations not incorporated herein. No amendment or
modification of the terms of this Agreement shall be binding on either Party
unless reduced to writing and signed by an authorized officer of the Party to be
bound.
10.4 Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the Parties hereto and their respective successors and
permitted assigns. This Agreement shall not be assignable by either Party
without the other's prior written consent except to a successor to all or
substantially all of a Party's business by merger, sale of assets, sale of stock
or otherwise.
10.5 Waiver. The waiver by a Party hereto of any breach of or default
------
under any of the provisions of this Agreement or the failure of a Party to
enforce any of the provisions of this Agreement or to exercise any right
thereunder
22
<PAGE>
shall not be construed as a waiver of any other breach or default or as a waiver
of any such rights or provisions hereunder.
10.6 Severability. If any part of this Agreement shall be invalid or
------------
unenforceable under applicable law, such part shall be ineffective only to the
extent of such invalidity or unenforceability, without in any way affecting the
remaining parts of this Agreement. In addition, the part that is ineffective
shall be reformed in such a manner as to as nearly approximate the intent of the
Parties as possible.
10.7 Publicity. Genentech and Celtrix shall not issue any public
---------
statement concerning the transactions contemplated by this Agreement or the
Stock Purchase Agreement without the other party's reasonable prior written
consent; provided, however, that either party may disclose the transaction or
-------- -------
the terms hereof or thereof from time to time without the other party's approval
(i) if such approval has been requested and not received and such party
concludes (after consulting with counsel) that it is required by law to disclose
the transaction or the terms thereof or (ii) to the extent that similar
disclosure has been previously approved pursuant to this Section 10.7.
10.8 No Partnership. Nothing in this Agreement is intended or shall
--------------
be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the Parties. No Party shall incur any debts or make
any commitments for the other.
10.9 Counterparts. This Agreement may be executed in counterparts,
------------
and each such counterpart shall be deemed an original for all purposes.
23
<PAGE>
10.10 Patent Representations. Neither Party makes any representation
----------------------
or warranty to the other Party concerning the validity or absence of third party
infringement of any Genentech Patent or Celtrix Patent licensed hereunder.
GENENTECH, INC. CELTRIX PHARMACEUTICALS, INC.
By: /s/ John P. McLaughlin By: /s/ Sandra McNamara
---------------------------- ------------------------------
Title: VP and General Counsel Title: VP and CFO
------------------------ --------------------------
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Exhibit 10.12
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into as
---------
of January 13, 2000, by and among INSMED PHARMACEUTICALS, INC., a Virginia
corporation (the "Company"), INSMED, INC., a Virginia corporation ("Parent") and
------- ------
each of the several purchasers identified on Exhibit A attached hereto
---------
(individually an "Investor" and collectively the "Investors").
-------- ---------
RECITALS
--------
WHEREAS, the Company desires to sell to the Investors, and the
Investors desire to purchase from the Company that number of shares set forth
shares set forth on Exhibit A attached hereto (collectively, the "Shares") of
--------- ------
the Company's common stock, $.01 par value per share (the "Common Stock") and
------------
Parent desires to sell to the Investors, and the Investors desire to purchase
from Parent, warrants (each warrant, a "Warrant" and collectively the
-------
"Warrants"), in the form of Exhibit B attached hereto, to purchase that number
-------- ---------
of shares of Parent Common Stock set forth on Exhibit A attached hereto (the
---------
"Warrant Shares") on the terms and conditions set forth in this Agreement;
- ---------------
WHEREAS, the Company has entered into an Agreement and Plan of
Reorganization, dated November 30, 1999 (the "Reorganization Agreement"), among
------------------------
the Company, Celtrix Pharmaceuticals, Inc., a Delaware corporation ("Celtrix"),
-------
Parent and Celtrix Mergersub, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Subsidiary"); and
-----------------
WHEREAS, pursuant to the Reorganization Agreement (i) Celtrix will
merge with and into Merger Subsidiary, with Celtrix to be the surviving
corporation, (ii) the outstanding capital stock of the Company will be exchanged
for shares of capital stock of Parent in accordance with the Plan of Exchange
(as defined in the Reorganization Agreement) and (iii) each Celtrix Stock
Option, Celtrix Warrant, Insmed Stock Option and Insmed Warrant which are
outstanding at the Effective Time, shall be assumed by Parent and replaced with
stock options and warrants to purchase capital stock of Parent as adjusted
pursuant to the terms of the Reorganization Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
The following defined terms used herein and not otherwise defined
shall have the meaning set forth below:
"1933 Act" shall have the meaning set forth in Section 4.10 hereof.
-------- ------------
"Action" shall have the meaning set forth in Section 4.6 hereof.
------ -----------
"Affiliate" shall mean any Person who is an "affiliate" (as defined in
---------
Rule 12b-2 of the General Rules and Regulations under the Exchange Act) of, and
any Person controlling, controlled by, or under common control with, any Person.
For the purposes of this Agreement, "control" includes the ability to have
investment discretion through contractual means or by operation of law.
"Agreement" shall have the meaning set forth in the Preamble hereof.
---------
"Articles" shall have the meaning set forth in Section 4.2((a))(i)
-------- -------------------
hereof.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock.
"Celtrix" shall have the meaning set forth in the Recitals hereof.
-------
"Celtrix Common Stock" shall have the meaning set forth in the
--------------------
Reorganization Agreement.
"Celtrix Disclosure Letter" shall have the meaning set forth in the
-------------------------
Reorganization Agreement.
"Celtrix Series A Preferred Stock" shall have the meaning set forth in
--------------------------------
the Reorganization Agreement.
"Celtrix Series B Preferred Stock" shall have the meaning set forth in
--------------------------------
the Reorganization Agreement.
"Celtrix Stock Options" shall have the meaning set forth in Section
--------------------- -------
4.2((c)) hereof.
- --------
"Celtrix Warrant" shall have the meaning set forth in Section 4.2((c))
--------------- ----------------
hereof.
"Closing" shall have the meaning set forth in Article III hereof.
------- -----------
"Closing Date" shall mean the date on which the Closing occurs.
------------
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Common Stock" shall have the meaning set forth in the Recitals
------------
hereof.
"Company" shall have the meaning set forth in the Preamble hereof.
-------
"Confidential Material" shall have the meaning set forth in Section
--------------------- -------
11.2((a)) hereof.
- ---------
"Contractual Obligations" means as to any Person, any provision of any
-----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Delivering Company" shall have the meaning set forth in Section
------------------ -------
11.2((a)) hereof.
- ---------
"Effective Time" shall have the meaning set forth in the
--------------
Reorganization Agreement.
"Exchange" shall have the meaning set forth in the Reorganization
--------
Agreement.
"FDA" means the United States Food and Drug Administration.
---
"Financial Statements" shall have the meaning set forth in Section 4.8
-------------------- -----------
hereof.
"GAAP" shall have the meaning set forth in Section 4.8 hereof.
---- -----------
"Governmental Authority" shall mean any federal, state, provincial,
----------------------
municipal or other government department, commission, bureau, agency or
instrumentality, or any court, in each case whether of the United States, any of
its possessions or territories, or of any foreign nation.
"IND" shall have the meaning set forth in Section 4.15 hereof.
--- ------------
"Indemnified Party" shall have the meaning set forth in Section 10.1
----------------- ------------
hereof.
"Insmed Companies" shall have the meaning set forth in the
----------------
Reorganization Agreement.
"Insmed Contracts" shall have the meaning set forth in Section 4.13
---------------- ------------
hereof.
"Insmed Disclosure Letter" shall have the meaning set forth in the
------------------------
Reorganization Agreement.
3
<PAGE>
"Insmed Stock Options" shall have the meaning set forth in Section
-------------------- -------
4.2((b)) hereof.
- --------
"Insmed Warrant" shall have the meaning set forth in Section 4.2((b))
-------------- ----------------
hereof.
"Investor" shall have the meaning set forth in the Preamble hereof.
--------
"Investor Rights Agreement" shall have the meaning set forth in
-------------------------
Section 6.7 hereof.
- -----------
"Laws" means all applicable statutes, laws, ordinances, regulations,
----
rules, orders, judgments, writs, injunctions or decrees of any state,
commonwealth, nation, territory, possession, province, county, parish, township,
village or municipality.
"Liens" shall mean any mortgages, liens, pledges, charges, security
-----
interests or encumbrances of any kind.
"Losses" shall have the meaning set forth in Section 10.1 hereof.
------ ------------
"Material Adverse Effect" means, with respect to any Person, a
-----------------------
material adverse effect (or any development which, insofar as reasonably can be
foreseen, is reasonably likely to have a material adverse effect) on (i) the
business, assets, financial or other condition, or results of operations of such
Person or (ii) the ability of such Person to consummate the transactions
contemplated by this Agreement or any of the Transaction Documents.
"Merger Subsidiary" shall have the meaning set forth in the Recitals
-----------------
hereof.
"Nasdaq" shall mean The Nasdaq SmallCap Market.
------
"Parent" shall have the meaning set forth in the Preamble hereof.
------
"Parent Common Stock" shall have the meaning set forth in the
-------------------
Reorganization Agreement.
"Permits" shall have the meaning set forth in Section 4.7((b)) hereof.
------- ----------------
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Plan of Exchange" shall have the meaning set forth in the
----------------
Reorganization Agreement.
"Preferred Stock" shall have the meaning set forth in Section
--------------- -------
4.2((a))(i) hereof.
- -----------
"QIB" shall have the meaning set forth in Section 5.4 hereof.
--- -----------
4
<PAGE>
"Receiving Company" shall have the meaning set forth in Section
----------------- -------
11.2((a)) hereof.
- ---------
"Registration Rights Agreement" shall have the meaning set forth in
-----------------------------
Section 6.3 hereof.
- -----------
"Registration Statement" shall have the meaning set forth in the
----------------------
Reorganization Agreement.
"Reorganization Agreement" shall have the meaning set forth in the
------------------------
Recitals hereof.
"Representatives" shall have the meaning set forth in Section
--------------- -------
11.2((a)) hereof.
- ---------
"Shares" shall have the meaning set forth in the Recitals hereof.
------
"Subsidiary" shall have the meaning set forth in the Reorganization
----------
Agreement.
"Taxes" shall have the meaning set forth in the Reorganization
-----
Agreement.
"Tax Return" shall have the meaning set forth in the Reorganization
----------
Agreement.
"Transaction Documents" means collectively, this Agreement, the
---------------------
Warrants, the Registration Rights Agreement and the Reorganization Agreement.
"Warrant" shall have the meaning set forth in the Recitals hereof.
-------
"Warrant Shares" shall have the meaning set forth in the Recitals
--------------
hereof.
ARTICLE II
AGREEMENT TO PURCHASE AND SELL STOCK AND WARRANTS
Section 2.1. Agreement to Purchase and Sell.
------------------------------
Subject to the terms and conditions set forth herein, the Company
agrees to sell to each Investor at the Closing, and each Investor agrees to
purchase from the Company at the Closing, the number of shares of Common Stock
set forth opposite the name of such Investor under the heading "Number of Shares
to be Issued" on Exhibit A attached hereto, and Parent agrees to sell to each
---------
Investor at the Closing, and each Investor agrees to purchase from Parent,
Warrants for the number of Warrant Shares set forth opposite the name of such
Investor under the heading "Number of Warrant Shares to be Issued" on Exhibit A
---------
attached hereto. The purchaser price per Share shall equal $6.00. The
aggregate purchase price for the Shares to be purchased by each Investor shall
be equal to the amount opposite the name of such Investor under the heading
"Purchase Price for Shares" on Exhibit A attached hereto. The purchase price
---------
for each Warrant shall be an amount equal to the number of Warrant Shares
covered by such Warrant multiplied by $.102. The aggregate purchase price for
the Warrants to be purchased by
5
<PAGE>
each Investor shall be equal to the amount opposite the name of such Investor
under the heading "Purchase Price for Warrants" on Exhibit A attached hereto.
---------
The aggregate purchase price for the Shares and Warrants to be sold to all
Investors shall not exceed $40,000,000.
Section 2.2. Authorization.
-------------
As of the Closing, (as defined below) the Company and Parent will have
authorized the sale and issuance, pursuant to the terms and conditions of this
Agreement, of the Shares and the Warrants, respectively, and Parent will have
authorized the Exchange, including the exchange of the Shares, and the other
transactions contemplated by the Reorganization Agreement.
ARTICLE III
CLOSING
The purchase and sale of the Shares and the Warrants will take place
at the offices of Hunton & Williams, counsel to the Company and Parent, at
Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia 23219 on
the same day, but prior to, the closing of the transactions contemplated by the
Reorganization Agreement, as hereinafter defined, or such time and on such date
that the Company, Parent and the Investors may agree in writing (which time and
place are referred to in this Agreement as the "Closing").
-------
At the Closing, (a) the Company will deliver to each Investor a stock
certificate or certificates in definitive form, registered in the name of such
Investor, representing the number of Shares set forth opposite the name of such
Investor under the heading "Number of Shares to be Issued" on Exhibit A
---------
attached hereto, and (b) Parent will deliver to each Investor a Warrant
registered in the name of such Investor, representing the number of Warrant
Shares set forth opposite the name of such Investor under the heading "Number of
Warrant Shares to be Issued" on Exhibit A attached hereto. As payment in full
---------
for the Shares and Warrants, respectively, being purchased by it at the Closing,
and against delivery of the stock certificate or certificates and Warrant or
Warrants, at the Closing, subject to the terms and conditions set forth herein,
each Investor shall deliver to the Company by wire transfer of immediately
available funds the amount shown opposite such Investor's name under the heading
"Purchase Price for Shares" on Exhibit A attached hereto and shall deliver to
---------
Parent by wire transfer of immediately available funds the amount shown opposite
such Investor's name under the heading "Purchase Price for Warrants."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Parent and the Company each hereby represents and warrants to each
Investor as of the date hereof as follows:
6
<PAGE>
Section 4.1. Organization, Good Standing and Qualification.
---------------------------------------------
(a) Each of the Parent and the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has all requisite corporate power and authority to
own, operate and hold under lease its properties and assets and to carry on its
business as now conducted and as presently proposed to be conducted. Each of the
Parent and the Company is duly qualified and in good standing to do business as
a foreign corporation in each jurisdiction where failure to be so qualified
would not have a Material Adverse Effect on the Company or Parent, as the case
may be.
(b) The copies of the articles of incorporation and bylaws of each of
the Company and Parent provided to the Investors are complete and true and in
full force and effect on the date hereof.
(c) Except as set forth on Schedule 4.1((c)) attached hereto, neither
-----------------
the Company nor Parent directly or indirectly owns any interest in any other
Person. None of the Persons listed on Schedule 4.1((c)) is engaged in any active
-----------------
trade or business nor owns any material assets.
Section 4.2. Capitalization.
--------------
(a) As of November 30, 1999, the capitalization of the Company
consists of the following:
(i) Preferred Stock. A total of 17,000,000 authorized shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), consisting of
7,000,000 shares designated as Series A Convertible Participating Preferred
Stock, 6,144,599 of which are issued and outstanding, and 5,000,000 shares
designated as Series B Convertible Preferred Stock, 3,581,761 of which are
issued and outstanding. The rights, preferences and privileges of the Preferred
Stock are as stated in the Amended and Restated Articles of Incorporation
attached hereto as Exhibit C (the "Articles"), and as provided by law .
--------- --------
(ii) Common Stock. A total of 20,000,000 authorized shares of
------------
Common Stock, of which 3,648,346 shares of Common Stock are issued and
outstanding.
(b) Schedule 4.2((b)) sets forth all outstanding options ("Insmed
-----------------
Options"), warrants ("Insmed Warrants"), subscriptions or other rights to
purchase or acquire any Capital Stock of Insmed. Except for the Shares and as
set forth in Schedule 4.2((b)), there are no options, warrants or other rights
-----------------
to purchase shares of Capital Stock or other securities of the Company or
Parent, or securities convertible into or exchangeable for shares of Capital
Stock or other securities of the Company or Parent, nor, except as required by
this Agreement and the Reorganization Agreement, is the Company or Parent
obligated in any manner to issue shares of its Capital Stock or other
securities, pursuant to any preemptive rights or otherwise. Except as
contemplated hereby and for relevant state and federal securities laws, there
are no restrictions on any Investor's ability to transfer shares of Capital
Stock of the Company or Parent upon consummation of the transactions
contemplated by the Reorganization Agreement.
7
<PAGE>
(c) Celtrix's authorized equity capitalization consists of 60,000,000
shares of common stock, $.01 par value, and 10,000,000 shares of preferred
stock, $.01 par value, 10,000 shares of which have been designated Series A
Preferred Stock and 9,000 shares of which have been designated Series B
Preferred Stock. As of the close of business on October 31, 1999, 26,569,804
shares of Celtrix Common Stock, 8,010 shares of Celtrix Series A Preferred Stock
and 0 shares of Celtrix Series B Preferred Stock were issued and outstanding.
Schedule 4.2((c)) sets forth all outstanding options ("Celtrix Options"),
- -----------------
warrants ("Celtrix Warrants"), subscriptions or other rights to purchase or
acquire any Capital Stock of Celtrix.
(d) There has been no change in the authorized, issued and
outstanding capital stock of the Company, Parent or, to the knowledge of the
Company, Celtrix in the interval between (i) November 30, 1999 (with respect to
the Company) and October 31, 1999 (with respect to Celtrix) and (ii) the date
hereof and the Closing Date, except for shares of common stock of the Company or
Celtrix, as the case may be, issued upon exercise of the Celtrix Stock Options,
Insmed Stock Options, Celtrix Warrants or Insmed Warrants, shares of Celtrix
Series B Preferred Stock that may be issued between the date hereof and the
Closing Date, or up to 750,000 shares of Insmed's Capital Stock that may be
issued to a licensee of Insmed's products.
(e) Parent is the owner of all of the issued and outstanding shares
of Capital Stock of Merger Subsidiary and the Company is the owner of all of the
issued and outstanding shares of Capital Stock of Insmed Diagnostics, Inc.
(f) As of the date hereof, the Company is the owner of all of the
issued and outstanding shares of Capital Stock of Parent.
(g) Assuming the transactions contemplated by the Reorganization
Agreement were consummated on November 30, 1999, but without giving effect to
the transactions contemplated hereby, Parent's capitalization on a fully-diluted
basis would consist of 77,496,822 shares of issued and outstanding Parent Common
Stock, options exercisable into 7,973,609 shares of Parent Common Stock and
warrants exercisable into 9,172,891 shares of Parent Common Stock.
Section 4.3. Due Authorization.
-----------------
All corporate action on the part of the Company and Parent, and their
respective officers, directors and shareholders necessary for the authorization,
execution, delivery of, and the performance of all obligations of the Company
and Parent under the Transaction Documents, and the authorization, issuance,
reservation for issuance and delivery of all of the Shares and Warrants being
sold under this Agreement or the Warrant Shares to be issued upon exercise of
the Warrants has been taken or will be taken prior to the Closing, and this
Agreement constitutes, a valid and legally binding obligation of the Company and
the Parent, and the Registration Rights Agreement and Warrants, when executed,
will constitute a valid and legally binding obligation of the Company and Parent
enforceable in accordance with their respective terms, except as may be limited
by (i) applicable bankruptcy, insolvency, reorganization, fraudulent conveyance
or transfer, moratorium or similar laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the effect of
rules of law governing the
8
<PAGE>
availability of equitable remedies. The Company and the Parent have the
requisite corporate power and authority to execute, deliver and perform their
respective obligations under this Agreement and each of the other Transaction
Documents.
Section 4.4. Valid Issuance of Shares and Warrant Shares.
-------------------------------------------
The Shares, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration provided for herein, will be duly
and validly issued, fully paid and nonassessable shares of Common Stock and will
be delivered free and clear of all claims, liens, encumbrances and security
interests of any nature whatsoever and not subject to any preemptive rights.
Upon issuance of the Warrants, the Warrant Shares will have been duly and
validly reserved for issuance and, upon exercise of the Warrants (in the case of
the Warrant Shares), will be duly and validly issued, fully paid and
nonassessable and will be delivered free and clear of all claims, liens,
encumbrances and security interests of any nature whatsoever and not subject to
any preemptive rights that have not been waived. At the Closing, the Company
and Parent will have each reserved out of its authorized Capital Stock the
number of shares of Common Stock or Parent Common Stock, as the case may be,
solely for the purpose of issue and delivery upon the Exchange, as provided in
the Reorganization Agreement, and the exercise of the Warrants. The issued and
outstanding shares of Common Stock are all, and the Parent Common Stock when
issued will be, duly authorized, validly issued, fully paid and nonassessable by
the Company, and were or will be with respect to the Parent Common Stock, issued
in compliance with the registration and qualification requirements of all
applicable federal securities laws.
Section 4.5. Governmental Consents.
---------------------
No consents, approvals, orders or authorizations of, or registrations,
qualifications, designations, declarations, filings with, or other action by, or
notice to, any Governmental Authority (including under the "blue sky laws" of
any such state governmental authority) or any other Person, including without
limitation, any party to a contract to which the Company or Parent is bound or
any other third party, on the part of the Company or Parent, is required in
connection with the consummation of the transactions contemplated by this
Agreement or any other Transaction Document and no lapse of a waiting period
under any Law, is necessary or required in connection with the execution,
delivery or performance (including, without limitation, the sale, issuance and
delivery of the Shares or the Warrants) by the Company or Parent of this
Agreement, each of the other Transaction Documents and the transactions
contemplated hereby or thereby.
Section 4.6. Litigation.
----------
There is no action, suit, proceeding, claim, arbitration, complaint or
dispute or investigation ("Action") pending (or, to the best of the Company's
------
knowledge, currently threatened) against the Company or Parent, its activities,
properties or assets or, to the best of the Company's knowledge, against any
officer, director or employee of the Company or Parent in connection with such
officer's, director's or employee's relationship with, or actions taken on
9
<PAGE>
behalf of, the Company or Parent which would have a Material Adverse Effect on
the Company or Parent.
Section 4.7. Compliance with Law and Charter Documents.
-----------------------------------------
(a) Except for any violations that would not have a Material Adverse
Effect on the Company or Parent, the Company and the Parent are each in
compliance with all applicable Laws. The Company has not received any notice of
any such violation of such Laws, which has not been remedied prior to the date
hereof. The execution, delivery and performance by the Company and the Parent of
each of the Transaction Documents and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or default,
or be in conflict with or constitute, with or without the passage of time or the
giving of notice or both, either a default under the Company's or Parent's
articles or bylaws, or any such default of any agreement or contract of the
Company or Parent, or, to the best of the Company's knowledge, any such
violation of any Laws, against or binding upon the Company or Parent or an event
which results in the creation of any lien, charge or encumbrance upon any asset
of the Company or Parent. Neither the Company nor Parent has previously entered
into any agreement which is currently in effect or by which the Company or
Parent is currently bound, granting any rights to any Person which are
inconsistent with the rights to be granted by the Company or Parent in this
Agreement and each of the other Transaction Documents, other than preemptive
rights granted to the holders of the Company's Series A Participating
Convertible Preferred Stock.
(b) (i) Each of the Company, Parent and their respective Subsidiaries
has all permits, licenses, variances, exemptions, orders, registrations and
approvals and governmental authorizations of any Governmental Authority
(collectively, "Permits") that are material to or necessary for the conduct of
-------
the business of the Company, Parent and their respective Subsidiaries in the
manner presently conducted, and as proposed to be conducted, except to the
extent that the failure to have such Permits would not have a Material Adverse
Effect on the Company or Parent; (ii) such Permits are in full force and effect;
and (iii) no violations are or have been recorded in respect of any Permit,
other than any such violations as would not have a Material Adverse Effect on
the Company or Parent.
Section 4.8. Financial Statements.
--------------------
The unaudited balance sheet of the Company as of September 30, 1999,
and the related unaudited income statement and cash flow statement for the nine
months then ended, and the audited balance sheet of the Company as of December
31, 1998, and the related audited income statement and cash flow statement for
the year then ended, each of which is attached to this Agreement as Schedule 4.8
------------
(the "Financial Statements"), present fairly in all material respects the
--------------------
financial condition of the Company at that date, the results of operations and
cash flows of Company at that date and for the periods therein indicated and
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis, subject to normal year-end adjustments
----
and the absence of footnotes in the case of the unaudited financial statements.
10
<PAGE>
Section 4.9. Investment Company.
------------------
The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 4.10. Private Offering.
----------------
No form of general solicitation or general advertising was used by the
Company or Parent or either of its representatives in connection with the offer
or sale of the Shares or the Warrants. No registration of the Shares or the
Warrants, pursuant to the provisions of the Securities Act of 1933, as amended
(the "1933 Act") or any state securities or "blue sky" laws, is required on the
--------
date hereof or on the Closing Date by the offer, sale or issuance of the Shares
and the Warrants. The Company and Parent hereby agree that neither it nor
anyone acting on its behalf, will offer to sell the Shares or the Warrants or
any other security so as to require the registration of the Shares or the
Warrants, pursuant to the provisions of the 1933 Act or any state securities or
"blue sky" laws, unless such securities are so registered.
Section 4.11. Title to Assets.
---------------
Except as set forth in Schedule 4.11, each of Company and Parent has
-------------
good title to all of its properties and assets used in the business as currently
conducted and reflected as owned on the Financial Statements, in each case free
and clear of any Lien, except for (a) Liens specifically described on the notes
to the Financial Statements and (b) Liens that would not have a Material Adverse
Effect on the Company or Parent, as the case may be.
Section 4.12. Liabilities.
-----------
As at December 31, 1998, the Company did not have any direct or
indirect obligation or liability required by GAAP to be set forth in the
Financial Statements or the footnotes thereto that were not fully and adequately
reflected or reserved against in the Financial Statements.
Section 4.13. Contracts and Other Agreements.
------------------------------
Schedule 6.26 of the Insmed Disclosure Letter contains a true, correct
-------------
and complete list of all contracts, agreements, leases, licenses, arrangements,
relationships and commitments, whether written or oral (and all amendments, side
letters, modifications and supplements thereto) to which the Company is a party
or by which any of its properties or assets are bound that are material to the
business, properties or assets of the Company and its Subsidiaries, taken as a
whole (the "Insmed Contracts"). All Insmed Contracts are valid, subsisting, in
full force and effect and binding upon the Company, as the case may be, and, to
the knowledge of the Company, the other parties thereto, in accordance with
their terms. Except as set forth on Schedule 4.13, the Company has paid in full
-------------
or accrued all material amounts currently due thereunder and has satisfied in
full or provided for all of its currently matured liabilities and obligations
thereunder, and is not in default under any of them. Except as set forth on
Schedule 4.13, to the knowledge of the Company, no other party to any such
- -------------
Insmed Contract
11
<PAGE>
is in breach thereof or in default thereunder nor does any condition exist that
with notice or lapse of time or both will constitute a breach thereof or default
thereunder by such other party, except for such breaches or defaults that would
not have a Material Adverse Effect on the Company or Parent.
Section 4.14. No Default or Breach.
--------------------
Except as set forth in Schedule 4.14, neither the Company nor Parent
-------------
has received notice of, and is not in, default under or with respect to any,
Contractual Obligation in any respect, which, individually or together with all
such defaults, would be likely to have a Material Adverse Effect on the Company
or Parent.
Section 4.15. FDA Requirements.
----------------
Except as set forth on Schedule 4.15, the Company and to the knowledge
-------------
of the Company, Celtrix are in compliance in all material respects with all
applicable FDA requirements. With respect to any Investigational New Drug
Application ("IND") filed by the Company, or to the knowledge of the Company, by
---
Celtrix with respect to all drugs currently under development neither the
Company nor Celtrix has been advised by the FDA that such IND was or may in the
future be (i) terminated, or (ii) subject to indefinite clinical hold, nor is
the Company aware of the occurrence of any event that would result in such
termination or indefinite clinical hold.
Section 4.16. Disclosure; Agreement and Other Documents.
-----------------------------------------
This Agreement, each of the other Transaction Documents and each of
the certificates furnished to the Investors by the Company and Parent in
connection with the purchase and sale of the Shares and the Warrants at or prior
to the Closing, taken as a whole, do not contain any untrue statement of a
material fact.
Section 4.17. Reorganization Agreement.
------------------------
(a) The Company has delivered to the Investors a true, complete and
correct copy of the Reorganization Agreement, together with all amendments and
modifications thereto. Except as set forth on Schedule 4.17, such agreement
-------------
(including the schedules and exhibits thereto) comprises a full and complete
copy of all agreements between the parties thereto with respect to the subject
matter thereof or among the Company, Parent and Celtrix and any other party with
respect to the merger of Celtrix into Parent, the Exchange and all transactions
related thereto, and there are no agreements or understandings, written or oral,
or side arrangements not contained therein that relate to or modify the
substance thereof. The Reorganization Agreement is in full force and effect and
has not been amended or modified, except for any amendments between the date
hereof and the Closing Date that would not have an adverse effect on the
Investors with respect to the purchase of or ownership of the Shares and the
Warrants. The Company shall give each Investor three (3) business days' notice
prior to effecting any amendments to the Reorganization Agreement and shall
consult with the Investors prior to amending the Reorganization Agreement. For
purposes of this Agreement, any cross references
12
<PAGE>
to the Reorganization Agreement, including any schedules or exhibits thereto,
shall refer to the Reorganization Agreement as in effect on the date hereof, but
with respect to the Closing Certificate contemplated by Section 6.6((e)) hereof,
shall refer to the Reorganization Agreement, together with any amendments
effected between the date hereof and Closing as contemplated by this Section
-------
4.17((a)).
- ---------
(b) The Company and Parent hereby represent and warrant to the
Investors that the representations and warranties contained in Section 6.9,
Section 6.18, Section 6.19, Section 6.20, the last sentence of Section 6.26(a),
Section 6.27 and Section 6.28 of the Reorganization Agreement as in effect on
the date of this Agreement are hereby confirmed and restated, each such
representation and warranty, together with all related definitions (other than
those terms otherwise defined herein) and ancillary provisions, being hereby
incorporated into this Agreement by reference as though specifically set forth
in this section.
(c) To the best knowledge of the Company, each of the representations
and warranties of Celtrix set forth in the Reorganization Agreement is as of the
date hereof, and shall as of the Closing Date be, true and correct in all
material respects.
Section 4.18. Tax Matters.
-----------
(a) Except as set forth on Schedule 4.18 hereof:
-------------
(i) Insmed and each of its Subsidiaries that is incorporated
under the laws of the United States or of any of the United States are members
of the affiliated group, within the meaning of Section 1504(a) of the Code, of
which Insmed is the common parent, such affiliated group does not file a
consolidated federal income tax return and neither Insmed nor any of its
Subsidiaries has ever filed a consolidated federal income tax return with (or
been included in a consolidated return of) a different affiliated group;
(ii) each of the Insmed Companies has timely filed or caused to
be filed all material Tax Returns required to have been filed by or for it, and
all information set forth in such Tax Returns is accurate and complete in all
material respects;
(iii) each of the Insmed Companies has paid or made adequate
provision on its books and records in accordance with GAAP for all material
Taxes covered by such Tax Returns;
(iv) each of the Insmed Companies has collected or withheld all
material Taxes required to be collected or withheld by it, and all such Taxes
have been paid to the appropriate Governmental Authority or set aside in
appropriate accounts for future payment when due;
(v) there are no unpaid Taxes due and payable by any of the
Insmed Companies or by any other person that are or may become a lien on any
asset of, or otherwise may reasonably be expected to have a Material Adverse
Effect on, Insmed;
13
<PAGE>
(vi) none of the Insmed Companies has granted (or is subject
to) any waiver, which is currently in effect, of the period of limitations for
the assessment of any Tax; no unpaid Tax deficiency has been assessed or
asserted against or with respect to any of the Insmed Companies by any
Governmental Authority; there are no currently pending administrative or
judicial proceedings, or any deficiency or refund litigation, with respect to
Taxes of any of the Insmed Companies, the adverse outcome of which may
reasonably be expected to have a Material Adverse Effect on Insmed; and any such
assertion, assessment, proceeding or litigation disclosed in Schedule 4.18 is
-------------
being contested in good faith through appropriate measures, and its status is
described in Schedule 4.18; and
-------------
(vii) the most recent audited consolidated balance sheet
included in the Financial Statements fully and properly reflects, as of the date
thereof, the liabilities of Insmed and its Subsidiaries for all accrued Taxes
and deferred liability for Taxes and, for periods ending after such date, the
books and records of each such corporation fully and properly reflect its
liability for all accrued Taxes.
(viii) neither Parent nor Company is a "United States real
property holding company" as that term is defined in Section 897(c)(2) of the
Code and the treasury regulations promulgated thereunder.
Section 4.19. No Material Adverse Change, Ordinary Course of Business.
-------------------------------------------------------
Since September 30, 1999, there has not been any material adverse
change in the business, properties, or operations of the Company or Parent.
Section 4.20. Absence of Undisclosed Liabilities.
----------------------------------
Neither the Company nor Parent has any liabilities or obligations of
any kind, whether absolute, accrued, asserted or unasserted, contingent or
otherwise, except liabilities, obligations or contingencies that are accrued or
reserved against in the consolidated balance sheet of the Company as of December
31, 1998 or reflected in the notes thereto, or that were incurred after the date
of such balance sheet in the ordinary course of business and consistent with
past practices, and except for any such liabilities or obligations which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company or Parent.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND
CERTAIN AGREEMENTS OF THE INVESTORS
Each Investor hereby represents and warrants to the Company and Parent
as of the date hereof as follows:
Section 5.1. Authorization.
-------------
This Agreement and the Registration Rights Agreement each constitute
the Investor's valid and legally binding obligation, enforceable in accordance
with its terms except
14
<PAGE>
as may be limited by (i) applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies. The Investor represents that it has full power and authority
to enter into this Agreement and the Registration Rights Agreement.
Section 5.2. Purchase for Own Account.
------------------------
The Shares and Warrants to be purchased by the Investor hereunder will
be acquired for investment for the Investor's own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof within
the meaning of the 1933 Act, and the Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
Investor also represents that it has not been formed for the specific purpose of
acquiring the Shares or the Warrants.
Section 5.3. Investment Experience.
---------------------
The Investor understands that the purchase of the Shares and the
Warrants involves substantial risk. The Investor: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that the Investor is able to fend for itself, can bear the economic risk of the
Investor's investment in the Shares and the Warrants and has such knowledge and
experience in financial or business matters that the Investor is capable of
evaluating the merits and risks of this investment in the Shares and the
Warrants and protecting its own interests in connection with this investment
and/or (ii) has had an opportunity to discuss the Company's and Parent's
business, management and financial affairs with the Company's and Parent's
management.
Section 5.4. QIB Status.
----------
The Investor is an "accredited investor" as defined under Regulation D
of the 1933 Act or is a "qualified institutional buyer" ("QIB") within the
---
meaning of Rule 144A promulgated under the 1933 Act and such status is indicated
on Exhibit A attached hereto, and the Investor has received a copy of all such
---------
documents and agreements that it has requested and has read and understands the
respective contents thereof. The Investor has had the opportunity to ask
questions of the Company and Parent and has received answers to such questions
from the Company and Parent. The Investor has carefully reviewed and evaluated
these documents and understands the risks and other considerations relating to
the investment.
Section 5.5. Restricted Securities.
---------------------
The Investor understands that the Shares and the Warrants are
characterized as "restricted securities" under the 1933 Act inasmuch as they are
being acquired from the Company or Parent, as the case may be, in a transaction
not involving a public offering and that under the 1933 Act and applicable rules
and regulations thereunder such securities may be resold without registration
under the 1933 Act only in certain limited circumstances. In this connection,
the Investor represents that the Investor is familiar with Rule 144 and Rule
144A of the U.S. Securities
15
<PAGE>
and Exchange Commission, as presently in effect, and understands the resale
limitations imposed thereby and by the 1933 Act. The Investor understands that
neither the Company nor Parent is under any obligation to register any of the
securities sold hereunder other than as contemplated by the Reorganization
Agreement. The Investor understands that no public market now exists for any of
the Shares or the Warrants and that it is uncertain whether a public market will
ever exist for the Shares or the Warrants unless the transactions contemplated
by the Reorganization Agreement are consummated.
Section 5.6. Further Limitations on Disposition.
----------------------------------
Without in any way limiting the representations set forth above, the
Investor further agrees not to make any disposition of all or any portion of the
Shares, the Warrants or the Warrant Shares unless and until:
(a) there is then in effect a registration statement under the 1933
Act and all applicable state securities laws covering such proposed disposition
and such disposition is made in accordance with such registration statement; or
(b) (i) the Investor shall have notified the Company or Parent, as
the case may be, of the proposed disposition and shall have furnished the
Company or Parent, as the case may be, with a statement of the circumstances
surrounding the proposed disposition, and (ii) the Investor shall have furnished
the Company or Parent, as the case may be, at the expense of the Investor or its
transferee, with an opinion of counsel, reasonably satisfactory to the Company
or Parent, as the case may be, that such disposition will not require
registration of such securities under the 1933 Act or under any applicable state
securities laws.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer in compliance with Rule 144 or Rule 144A of the 1933 Act, (ii) to an
affiliate of the Investor, or (iii) as to any exchange of the Shares pursuant to
the Reorganization Agreement; provided, however, the provisions of Article V
---------
hereof shall continue to apply to the shares of common stock and warrants of
Parent to be exchanged for the Shares and the Warrants to the extent such newly
issued securities are not registered by the Parent pursuant to the Registration
Statement.
Section 5.7. Legends.
-------
It is understood that the certificates evidencing the Shares, the
Warrants and the Warrant Shares will bear the legends set forth below:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF
---
ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
16
<PAGE>
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
The legend set forth above shall be removed by the Company or Parent, as the
case may be, from any certificate evidencing the Shares, the Warrants and the
Warrant Shares upon delivery to the Company or Parent, as the case may be, of an
opinion by counsel, reasonably satisfactory to the Company or Parent, as the
case may be, that a registration statement under the 1933 Act is at that time in
effect with respect to the legended security or that such security can be freely
transferred in a public sale without such a registration statement being in
effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company or Parent, as the case may be,
issued the Shares, the Warrants and the Warrant Shares.
ARTICLE VI
CONDITIONS TO INVESTORS' OBLIGATIONS AT THE CLOSING
The obligation of each Investor under Article III of this Agreement is
-----------
subject to the fulfillment or waiver, on or before the Closing of each of the
following conditions, the waiver of which shall not be effective against such
Investor if it does not consent to such waiver, which consent may be given by
written, oral or telephone communication to the Company, its counsel or to
counsel to such Investor:
Section 6.1. Representations and Warranties True.
-----------------------------------
Each of the representations and warranties of the Company and Parent
contained and incorporated in Article IV shall be true and correct on and as of
----------
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing (except to the extent that
any representation and warranty expressly speaks as of an earlier date, in which
case such representation is true and correct as of such date and except that the
representations and warranties set forth in Section 4.2 shall be modified to
-----------
reflect changes in capitalization permitted by Section 8.3).
-----------
Section 6.2. Satisfaction of Conditions to Closing of Reorganization.
-------------------------------------------------------
The Company shall have delivered to the Investors a certificate,
signed by a duly authorized officer of each of the Company, Parent and Celtrix,
certifying that the conditions to closing contained in Article VIII of the
Reorganization Agreement have been satisfied (and not waived, except for any
waiver which would not have a material effect on the assets, business or
operations of the Parent, the Company and Celtrix, taken as a whole), except for
the delivery of certain closing certificates or opinions required pursuant
thereto, the forms of which have been agreed to by the party receiving such
certificates and opinions.
17
<PAGE>
Section 6.3. Registration Rights Agreement.
-----------------------------
The Company, Parent and the Investors shall have entered into the
Registration Rights Agreement in the form of Exhibit D attached hereto (the
---------
"Registration Rights Agreement").
-----------------------------
Section 6.4. Performance.
-----------
The Company and Parent shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
Section 6.5. Securities Exemptions.
---------------------
The offer and sale of the Shares and the Warrants to the Investors
pursuant to this Agreement shall be exempt from the registration requirements of
the 1933 Act and the registration and/or qualification requirements of all
applicable state securities laws.
Section 6.6. Proceedings and Documents.
-------------------------
All corporate and other proceedings in connection with the
transactions contemplated at the Closing, and all documents incident thereto
shall be reasonably satisfactory in form and substance to each Investor and to
each Investor's counsel, and each Investor shall have received all such
counterpart originals and certified or other true, complete and correct copies
of such documents as they may reasonably request. Such documents shall include
(but not be limited to) the following:
(a) Certified Charter Documents. A copy of the articles of
---------------------------
incorporation and the bylaws of the Company and Parent (as amended through the
date of the Closing), certified by the Secretary of the Company and Parent as
true, complete and correct copies thereof, as of the Closing.
(b) Secretary's Incumbency Certificate. A certificate of the
----------------------------------
Secretary or an Assistant Secretary or other officer of each of the Company and
Parent in form and substance satisfactory to the Investors dated the Closing
Date certifying the names of the officers of each of the Company and Parent
authorized to sign this Agreement, the certificates for the Shares and the
Warrants and the other documents, instruments or certificates to be delivered
pursuant to this Agreement by each of the Company and Parent or any of its
officers, together with the true signatures of such officers.
(c) Corporate Actions. A copy of the resolutions of the Board of
-----------------
Directors of each of Parent and the Company evidencing the approval of this
Agreement and each of the Transaction Documents, the issuance of the Shares, the
Warrants, the Warrant Shares and the other matters contemplated hereby and by
the Reorganization Agreement, certified by the Secretary of each of the Company
and Parent to be true, complete and correct, which remain unamended and in full
force and effect.
18
<PAGE>
(d) Good Standing Certificate. Good standing certificate for the
-------------------------
Company, Parent and Celtrix issued by the Virginia State Corporation Commission
or the Secretary of State of the State of Delaware, as the case may be, dated
within ten (10) days of the Closing.
(e) Officers' Certificate. The Investors shall have received a
---------------------
certificate from each of the Company and Parent, in form and substance
satisfactory to the Investors, dated the Closing Date, and signed by an officer
of each of Parent and the Company, certifying as to the matters contained in
Sections 6.1 and 6.4.
- ------------ ---
Section 6.7. Miscellaneous.
-------------
(a) Preemptive Rights. Other than the Amended and Restated Investor
-----------------
Rights Agreement, dated September 1, 1999, as amended by a First Amendment dated
June 16, 1998, and a Second Amendment dated January 15, 1999 (the "Investor
--------
Rights Agreement"), neither Parent nor the Company has granted any preemptive,
- ----------------
first refusal or other rights with respect to the issuance of the Shares, the
Warrants or the Warrant Shares. The Investor Rights Agreement shall be amended
prior to the Closing to eliminate any preemptive rights granted to the parties
to such agreement. In addition, the Company shall amend its License Agreement
with the University of Virginia Patent Foundation and its Option Agreement with
Dr. Joseph Larner to clarify that the University of Virginia Patent Foundation's
right to receive Common Stock to enable it to maintain a 3% interest in the
Company and Dr. Larner's right to receive options to enable him to maintain a 3%
ownership interest in the Company will each terminate on the day immediately
prior to the Effective Time.
(b) Opinion of Counsel. The Investors shall have received an opinion
------------------
or opinions of counsel to the Company and Parent in form and substance
reasonably acceptable to the Company and the Investors. In addition, the
Investors shall be named as addressees on the tax opinion to be delivered by
Hunton & Williams pursuant to Section 8.3(d) of the Reorganization Agreement.
ARTICLE VII
CONDITIONS TO THE COMPANY'S AND PARENT'S OBLIGATIONS
AT THE CLOSINGS
The obligations of the Company and Parent to the Investors under this
Agreement are subject to the fulfillment or waiver on or before the Closing:
Section 7.1. Representations and Warranties.
------------------------------
The representations and warranties of each Investor contained in
Article V shall be true and correct in all material respect on the date of the
- ---------
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing (except to the extent that any representation
and warranty expressly speaks as of an earlier date, in which case such
representation is true and correct as of such date).
19
<PAGE>
Section 7.2. Payment of Purchase Price.
-------------------------
The Investors shall have delivered to the Company and Parent their
respective portion of the purchase price as set forth on Exhibit A hereto and in
---------
accordance with the provisions of Article III.
-----------
Section 7.3. Securities Exemptions.
---------------------
The offer and sale of the Shares and the Warrants to the Investors
pursuant to this Agreement shall be exempt from the registration requirements of
the 1933 Act and the registration and/or qualification requirements of all other
applicable state securities laws.
Section 7.4. Proceedings and Documents.
-------------------------
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Company and to the
Company's legal counsel, and the Company shall have received all such
counterpart originals and certified or other copies of such documents as it may
reasonably request.
ARTICLE VIII
COVENANTS
Section 8.1. Conduct of Business.
-------------------
(a) Except as contemplated by this Agreement and the Reorganization
Agreement, during the period from the date hereof to the Closing Date, each of
the Company and Parent will conduct its operations in the ordinary and usual
course of business consistent with past practice. The Company and Parent shall
not amend their respective articles of incorporation or bylaws in any manner
that would result in a material adverse effect to the Investors, with respect to
the ownership of the Shares and the Warrants. The Company and Parent shall give
each Investor three (3) business days' notice prior to effecting any amendments
to their respective articles of incorporation or bylaws.
Section 8.2. Registration of Shares.
----------------------
Parent:
(i) shall cause the Parent Common Stock to be issued upon
conversion of the Shares to be included in the Registration Statement and shall
comply with its obligations under Section 7.6 and Section 7.8 of the
Reorganization Agreement;
(ii) shall promptly advise each of the Investors (A) when
the Registration Statement becomes effective, (B) when, prior to the Closing
Date, any amendment to the Registration Statement shall be filed or become
effective, (C) of the issuance by the Securities and Exchange Commission of any
stop order suspending the effectiveness of the
20
<PAGE>
Registration Statement or the institution or threatening of any proceeding for
that purpose and (D) of the receipt by Parent of any notification with respect
to the suspension of the registration or qualification of Parent Common Stock
for sale in any jurisdiction or the institution or threatening of any proceeding
for that purpose; and
(iii) shall cause the registration or qualification of the
Parent Common Stock to be issued upon conversion of the Shares in accordance
with the Plan of Exchange under state securities or "Blue Sky" laws of each
state of residence of a record holder of the Company's Capital Stock as
reflected in its stock transfer ledgers between the date hereof and the Closing
Date;
Section 8.3. No Issuance.
-----------
Except as permitted by Section 4.2((d)) hereof prior to the Closing,
----------------
the Company and Parent shall not issue any Capital Stock without the prior
consent of the Investors.
Section 8.4. Rule 145.
--------
Each Investor agrees to comply, and will cause any Affiliate to
comply, with the 1933 Act and the Securities and Exchange Commission's rules and
regulations thereunder, and will not offer to sell, sell or otherwise dispose of
any shares of Parent Common Stock that such Investor or any Affiliate will
receive pursuant to the transactions contemplated by the Reorganization
Agreement except, in each case, in compliance with Rule 145 under the 1933 Act,
or following receipt of an opinion of counsel satisfactory to Parent that the
provisions of such rule need not be observed. Each Investor acknowledges that
the certificates for shares of Parent Common Stock such Investor or any
Affiliate will receive pursuant to the transactions contemplated by the
Reorganization Agreement may bear the following legend:
"Shares represented by this certificate are subject to restrictions
as to transfer by virtue of provisions of the Securities Act of 1933
and the General Rules and Regulations of the Securities and Exchange
Commission thereunder. Such shares may not be transferred except upon
compliance with 17 CFR 230.145(d) or the favorable opinion of counsel
for Insmed, Inc. that such transfer will not constitute or result in
a violation of the Securities Act of 1933."
Section 8.5. Board Observation Rights.
------------------------
Between the date of Closing and for so long as the Investors or their
Affiliates collectively hold at least 50% of their aggregate initial investment
in the Shares, or upon conversion, the Parent Common Stock and the Warrants, the
Investors may designate one person who shall be entitled to attend all meetings
of the board of directors of the Company and, upon consummation of the
transactions contemplated by the Reorganization Agreement, of the Parent.
Investors holding not less than fifty-one percent (51%) of the outstanding
Shares and Warrants (held by the Investors on the date of determination) shall
provide the Company and Parent with written notice of their designee. Such
designee shall not be entitled to voting rights as a member of the board of
directors. Such designee shall not be entitled to voting rights as a member of
the
21
<PAGE>
board of directors and may be excluded from meetings, or portions thereof if the
Company's Board of Directors makes a good faith determination that such
designee's presence would create a conflict of interest or in the opinion of
counsel to the Company or Parent may violate an attorney-client privilege. The
Company or Parent, as the case may be, shall reimburse the Investors or their
designee for all reasonable travel and accommodation expenses incurred by the
designee.
ARTICLE IX
TERMINATION
Section 9.1. Termination.
-----------
This Agreement may be terminated prior to the Closing as follows:
(a) at any time on or prior to the Closing Date, by mutual written
consent of the Company, Parent and the Investors; or
(b) at the election of the Company, Parent or the Investors by written
notice to the other parties hereto after 5:00 p.m., New York City time on May
31, 2000, if the transactions contemplated by this Agreement shall not have been
consummated pursuant hereto, unless such date is extended by the mutual written
consent of the Company, Parent and the Investors; or
(c) at the election of the Investors, if the Reorganization Agreement
shall have been terminated by any of the parties to such agreement or shall have
terminated in accordance with its terms.
If this Agreement so terminates, it shall become null and void and
have no further force or effect, except as provided in Section 9.2.
-----------
Section 9.2. Survival.
--------
If this Agreement is terminated and the transactions contemplated
hereby are not consummated as described above, this Agreement shall become void
and of no further force and effect with no liability on the part of any party
hereto or its respective directors, officers, stockholders, partners or members,
except that nothing herein shall relieve any party from liability for any breach
of this Agreement.
ARTICLE X
INDEMNIFICATION
Section 10.1. Indemnification.
---------------
Except as otherwise provided in this Article X, the Company and Parent
---------
jointly and severally agree to indemnify, defend and hold harmless each of the
Investors and their Affiliates and their respective officers, directors, agents,
employees, advisors, subsidiaries, members, partners and controlling persons
(each, an "Indemnified Party") to the fullest extent
-----------------
22
<PAGE>
permitted by law from and against any and all Losses (as hereinafter defined)
resulting from, arising out of or relating to any inaccuracy or breach of any
representation, warranty, covenant or agreement by the Company or Parent, as the
case may be, in this Agreement, the Registration Rights Agreement or Warrant,
provided, however, that if and to the extent that such indemnification is
- -------- -------
unenforceable for any reason, then the Company or Parent shall make the maximum
contribution to the payment and satisfaction of such Losses which shall be
permissible under applicable laws. "Losses" means all losses, claims (including
any claim by a third party), damages, deficiencies, judgments, assessments,
fines, settlements, expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Company and/or Parent and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) or other liabilities.
Section 10.2. Notification.
------------
Each Indemnified Party under this Article X will, promptly after the
---------
receipt of notice of the commencement of any action, investigation, claim or
other proceeding against such Indemnified Party in respect of which indemnity
may be sought from the Company or Parent under this Article X, notify the
---------
Company and Parent in writing of the commencement thereof. The failure of any
Indemnified Party to so notify the Company or Parent of any such action shall
not relieve the Company or Parent from any liability which either the Company or
Parent may have to such Indemnified Party, except to the extent the Company or
Parent is materially prejudiced by such failure and then only to the extent of
such prejudice. In case any such action, claim or other proceeding shall be
brought against any Indemnified Party and it shall notify the Company and Parent
of the commencement thereof, the Company or Parent shall be entitled to assume
the defense thereof at its own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that any
-------- -------
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense at its own expense. Notwithstanding the foregoing,
in any action, claim or proceeding in which the Company and Parent, on the one
hand, and an Indemnified Party, on the other hand, are, or are reasonably likely
to become, a party, such Indemnified Party shall have the right to employ
separate counsel at the expense of the Company and Parent and to control its own
defense of such action, claim or proceeding if, in the reasonable opinion of
counsel to such Indemnified Party, a conflict or potential conflict exists
between the Company and/or Parent, on the one hand, and such Indemnified Party,
on the other hand, that would make such separate representation advisable. Each
of the Company and Parent agrees that it will not, without the prior written
consent of the Investors, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Investors and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding and imposes no obligations upon such
Indemnified Party. Neither the Company nor Parent shall be liable for any
settlement of any claim, action or proceeding effected against an Indemnified
Party without its written consent, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing or anything to the contrary contained
in
23
<PAGE>
this Agreement, nothing in this Article X shall restrict or limit any rights
---------
that any Indemnified Party may have to seek equitable relief.
Section 10.3. Registration Rights Agreement.
-----------------------------
Notwithstanding anything to the contrary contained in this Article X,
---------
the indemnification and contribution provisions of the Registration Rights
Agreement shall govern any claim made with respect to registration statements
filed pursuant thereto or sales made thereunder.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Public Announcements.
--------------------
The parties hereto will consult with each other before issuing any
press release or otherwise making any public statement with respect to this
Agreement, the Investors or any of their respective Affiliates and shall not
issue any such press release or make any such public statement prior to such
consultation or as to which the other party promptly and reasonably objects,
except as may be required by law in the written opinion of such party's counsel
or by obligations pursuant to any listing agreement with any national securities
exchange or inter-dealer quotation system, in which case the party proposing to
issue such press release or make such public announcement shall use its best
efforts to provide in good faith the other parties the reasonable opportunity to
comment on such press release or announcement before issuing any such press
release or making any such public announcements.
Section 11.2. Confidentiality.
---------------
(a) Each party hereto will hold, and will use its best efforts to
cause its officers, members, partners, directors, employees, accountants,
counsel, consultants, advisors, affiliates (as such term is defined herein or is
used in Rule 12b-2 under the Exchange Act) and representatives (collectively,
the "Representatives"), to hold, in confidence all confidential documents and
---------------
information concerning the other parties hereto furnished to such party in
connection with the transactions contemplated by this Agreement, including,
without limitation, all analyses, compilations, studies or records prepared by
the party receiving the information or by such party's Representatives, that
contain or otherwise reflect or are generated from such information
(collectively, the "Confidential Material"). The party furnishing any
---------------------
Confidential Material is herein referred to as the "Delivering Company" and the
party receiving any Confidential Material is herein referred to as the
"Receiving Company."
(b) The Receiving Company agrees that the Confidential Material will
not be used other than for the purpose of the transaction contemplated by this
Agreement, and that such information will be kept confidential by the Receiving
Company and its Representatives; provided, however, that (i) any of such
information may be disclosed to the Representatives who need to know such
information for the purpose described above (it being understood that (a) each
24
<PAGE>
such Representative shall be informed by the Receiving Company of the
confidential nature of such information, shall be directed by the Receiving
Company to treat such information confidentially and not to use it other than
for the purpose described above and shall agree to be bound by the terms of this
Section 11.2 and (b) in any event, the Receiving Company shall be responsible
- ------------
for any breach of this Agreement by any of its Representatives), and (ii) any
other disclosure of such information may be made if the Delivering Company has,
in advance, consented to such disclosure in writing. The Receiving Company will
make all reasonable, necessary and appropriate efforts to safeguard the
Confidential Material from disclosure to anyone other than as permitted hereby.
(c) Notwithstanding the foregoing, if the Receiving Company or any of
its Representatives is requested or required (by oral question or request for
information or documents in legal proceedings, interrogatories, subpoena, civil
investigative demand or similar process) to disclose any Confidential Material,
the Receiving Company will promptly notify the Delivering Company of such
request or requirement so that the Delivering Company may seek an appropriate
protective order and/or waive the Receiving Company's compliance with the
provisions of this Agreement. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Receiving Company or any of its
Representatives is nonetheless, in the reasonable written opinion of the
Receiving Company's counsel, compelled to disclose Confidential Material to any
tribunal, the Receiving Company or such Representative, after notice to the
Delivering Company, may disclose such information to such tribunal. The
Receiving Party shall exercise reasonable efforts to obtain reliable assurance
that confidential treatment will be accorded the Confidential Material so
disclosed. The Receiving Company or such Representative shall not be liable for
the disclosure of Confidential Material hereunder to a tribunal compelling such
disclosure unless such disclosure to such tribunal was caused by or resulted
from a previous disclosure by the Receiving Company or any of its
Representatives not permitted by this Agreement.
(d) This Section 11.2 shall be inoperative as to particular portions
------------
of the Confidential Material if such information (i) is or becomes generally
available to the public other than as a result of a disclosure by the Receiving
Company or its Representatives, (ii) was available to the Receiving Company on a
non-confidential basis prior to its disclosure to the Receiving Company by the
Delivering Company or the Delivering Company's Representatives as demonstrated
by documents of the Receiving Company, or (iii) becomes available to the
Receiving Company on a non-confidential basis from a source other than the
Delivering Company or the Delivering Company's Representatives, provided that
such source is not known by the Receiving Company, after reasonable inquiry, to
be bound by a confidentiality agreement with the Delivering Company or the
Delivering Company's Representatives and is not otherwise prohibited from
transmitting the information to the Receiving Company by a contractual, legal or
fiduciary obligation. The fact that information included in the Confidential
Material is or becomes otherwise available to the Receiving Company or its
Representatives under clauses (i) through (iii) above shall not relieve the
Receiving Company or its Representatives of the prohibitions of the
confidentiality provisions of this Section 11.2 with respect to the balance of
------------
the Confidential Material.
25
<PAGE>
(e) If this Agreement is terminated, each party hereto will, and will
use its best efforts to cause its officers, directors, members, partners,
employees, accountants, counsel, consultants, advisors and agents to destroy or
deliver to the party from whom such Confidential Material was obtained, upon
request, all documents and other materials, and all copies thereof, obtained by
such party or on its behalf from any such other parties in connection with this
Agreement that are subject to such confidence.
Section 11.3. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
The representations and warranties, covenants and agreements contained
herein shall survive until the date that is 30 days after the receipt by the
Investors of audited consolidated financial statements of Parent for the fiscal
year ending December 31, 2000 (or, if such fiscal year changes and no such
audited consolidated financial statements are available, then the first fiscal
year ending after December 31, 2000), except for Section 4.4, which
representations and warranties shall survive without any expiration, and Section
4.18, which representations and warranties shall survive until two years
following the date hereof. The agreements set forth in Article XI shall survive
----------
termination of this Agreement.
Section 11.4. Successors and Assigns.
----------------------
The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties.
None of the parties hereto may assign any of its rights under this Agreement to
any of its Affiliates without the written consent of the other parties hereto,
which consent shall not be unreasonably withheld; provided, however, that an
Investor may assign its entire rights hereunder to a single assignee who is both
an Affiliate of such Investor and a QIB. No Person other than the parties
hereto and their successors and permitted assigns is intended to be a
beneficiary of this Agreement.
Section 11.5. Governing Law.
-------------
This Agreement shall be governed by and construed under the internal
laws of the Commonwealth of Virginia as applied to agreements among Virginia
residents entered into and to be performed entirely within Virginia, without
reference to principles of conflict of laws or choice of laws.
Section 11.6. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Section 11.7. Headings.
--------
The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement. All references in this Agreement to sections, paragraphs, exhibits
and schedules shall, unless otherwise provided, refer to
26
<PAGE>
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
Section 11.8. Notices.
-------
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing or by facsimile and shall be deemed
effectively given upon personal delivery to the party to be notified or one day
after deposit with a national overnight delivery service or three days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid in the case of the Investors to the address or facsimile number
set forth under such Investor's name on Exhibit A attached hereto or, in the
---------
case of the Company or Parent, to 800 East Leigh Street, Richmond, Virginia
23219, facsimile number (804) 828-6894, or at such other address as such party
may designate by giving ten (10) days advance written notice to the other
parties.
Section 11.9. No Finder's Fees.
----------------
Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' or broker's fee (and any asserted liability) for which such Investor or
any of its officers, partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's or
broker's fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
Section 11.10. Costs, Expenses.
---------------
Each party shall pay its own expenses and legal fees incurred on its
behalf with respect to this Agreement and the transactions contemplated hereby;
provided, however, in the event the transactions contemplated herein are
consummated the Company shall reimburse the Investors for the legal fees and
expenses of one law firm representing all such Investors subject to a maximum
liability to the Company of $50,000.
Section 11.11. Amendments and Waivers.
----------------------
(a) Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors holding or who have agreed to purchase not
less than fifty percent (50%) of the Shares and Warrants. Any amendment or
waiver effected in accordance with this Section shall be binding upon the
Investors, each future holder of such securities, and the Company.
(b) No failure or delay on the part of the Company, Parent or the
Investors in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
27
<PAGE>
Section 11.12. Severability.
------------
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms unless the provisions held unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
Section 11.13. Entire Agreement.
----------------
This Agreement, together with all exhibits and schedules hereto,
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof and supersedes any and all prior negotiations,
correspondence, agreements, understandings, duties or obligations between the
parties with respect to the subject matter hereof.
Section 11.14. Further Assurances.
------------------
From and after the date of this Agreement, upon the request of any
Investor, the Company or Parent, the Company, Parent and such Investor shall
execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
[SIGNATURE PAGE FOLLOWS]
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE PARENT: INSMED, INC.,
- ---------- a Virginia corporation
By: ______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
THE COMPANY: INSMED PHARMACEUTICALS, INC.,
- ----------- a Virginia corporation
By: ______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
VERON INTERNATIONAL LTD.
By: ______________________________________
Name:
Title:
VECTOR LATER-STAGE EQUITY FUND II (QP), L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By: ______________________________________
Name: Barclay A. Phillips
Its: Managing Director
VECTOR LATER-STAGE EQUITY FUND II, L.P.
By: ______________________________________
Name: Barclay A. Phillips
Its: Managing Director
CADUCEUS CAPITAL TRUST
By: ______________________________________
Name:
Title:
CADUCEUS CAPITAL II, L.P.
By: ______________________________________
Name:
Title:
PAINE WEBBER EUCALYPTUS FUND
By: ______________________________________
Name:
Title:
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
By: ______________________________________
Name:
Title:
GREENLINE HEALTH SCIENCES FUND
By: ______________________________________
Name:
Title:
CLSP, L.P.
By: ______________________________________
Name:
Title:
CLSP-SBS I, L.P.
By: ______________________________________
Name:
Title:
CLSP-SBS II, L.P.
By: ______________________________________
Name:
Title:
QUANTUM PARTNERS, LDC
By: ______________________________________
Name:
Title:
PEQUOT PARTNERS FUND, L.P.
By: PEQUOT CAPITAL MANAGEMENT, INC.
Its: Investment Manager
By: ______________________________________
Name
Title:
PEQUOT INTERNATIONAL FUND, INC.
By: PEQUOT CAPITAL MANAGEMENT, INC.
Its: Investment Advisor
By: ______________________________________
Name
Title:
29
<PAGE>
EXHIBIT 10.13
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
BE SOLD, OFFERED FOR SALE OR TRANSFERRED ONLY IN ACCORDANCE
WITH THE PROVISIONS OF THIS WARRANT AND PURSUANT TO A
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE CORPORATION AS TO THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION.
No._____ ________Shares
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
INSMED, INC.
1. Common Stock and Warrant Purchase Agreement. This Warrant is issued
-------------------------------------------
to [ ] ("Purchaser") pursuant to that certain Purchase Agreement dated
---------
as of January ___, 2000 between Insmed Pharmaceuticals, Inc., a Virginia
corporation (the "Company"), Insmed, Inc., a Virginia Corporation ("Insmed"),
------- ------
Purchaser and the other purchasers identified therein (the "Agreement").
---------
2. Number and Price of Shares Subject to Warrant; Automatic Exercise.
-----------------------------------------------------------------
Subject to the terms and conditions herein set forth Purchaser is entitled to
purchase from Insmed, at any time in whole or from time to time in part
commencing upon the Effective Time (as defined in the Agreement and Plan of
Reorganization by and among Insmed, the Company, Celtrix Pharmaceuticals, Inc.,
a Delaware corporation and Celtrix MergerSub, Inc., a Delaware corporation,
dated November 30, 1999 (the "Reorganization Agreement")) and continuing until
------------------------
termination of this Warrant in accordance with Section 13 hereof, [ ]
(______) shares (which number of shares is subject to adjustment as described
below) of fully paid and nonassessable Common Stock, $.01 par value, of Insmed
("Warrant Shares"), upon surrender of this Warrant at the principal office of
--------------
Insmed and upon payment of the purchase price by wire transfer to Insmed or
cashiers check drawn on a United States bank made to the order of Insmed.
Subject to adjustment as hereinafter provided, the purchase price of one Warrant
Share (or such securities as may be substituted for one Warrant Share pursuant
to the provisions hereinafter set forth) shall be $2.25. The purchase price of
one Warrant Share (or such securities as may be substituted for one Warrant
Share pursuant to the provisions hereinafter set forth) payable from time to
time upon the exercise of this Warrant (whether such price be the price
specified above or an adjusted price determined as hereinafter provided) is
referred to herein as the "Warrant Price."
-------------
3. Adjustment of Warrant Price and Number of Shares. The number and kind
------------------------------------------------
of securities issuable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) Adjustment for Dividends in Stock or Other Securities or Property.
-----------------------------------------------------------------
In case at any time or from time to time on or after the date hereof the holders
of the Common Stock of Insmed (or any shares of other stock or other securities
of Insmed at the time issued and
<PAGE>
outstanding) shall have received, or, on or after the record date fixed for the
determination of eligible stockholders, shall have become entitled to receive,
without payment therefor, (i) other or additional stock or other securities or
property (other than cash in connection with regular or ordinary dividends) of
Insmed by way of dividend, or (ii) other or additional stock or other securities
or property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares, or similar corporate rearrangement,
then and in each case, the holder of this Warrant shall, upon the exercise
hereof, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (including cash in the case referred to in clause (ii) above) of Insmed
which such holder would hold on the date of such exercise had it been the holder
of record of such Common Stock on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by paragraphs (b), (c) and (d) of this Section 3.
(b) Adjustment for Reclassification, Reorganization or Merger. In
---------------------------------------------------------
case of any reclassification or change of the outstanding securities of Insmed
or of any reorganization of Insmed (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) or any similar corporate reorganization on or after the date hereof, or
any merger or consolidation of Insmed, or any transfer of all or substantially
all of Insmed's properties or assets to any other person or entity then and in
each such case, subject to Section 13 below, Insmed, or such successor
corporation, as the case may be, shall, without payment of any additional
consideration therefor, execute new Warrants providing that the holders of the
Warrants shall have the right to exercise such new Warrants (upon terms not less
favorable to the holders than those then applicable to the Warrants) and to
receive upon such exercise, in lieu of each share of Common Stock or other
security theretofore issuable upon exercise of the Warrants, the kind and amount
of shares of stock, other securities, money or property receivable upon such
reclassification, change, reorganization, merger or conveyance by the holder of
one share of Common Stock or other security issuable upon exercise of the
Warrants had the Warrants been exercised immediately prior to such
reclassification, change, reorganization, merger or conveyance and such new
Warrants shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 3, all
subject to further adjustment as provided in this Section 3; and in each such
case, the terms of this Section 3 shall be applicable to the shares of stock or
other securities properly receivable upon the exercise of this Warrant after
such consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on or after
-------------------------------------
the date hereof Insmed shall subdivide its outstanding shares of Common Stock
into a greater number of shares, the Warrant Price in effect immediately prior
to such subdivision shall thereby be proportionately reduced and the number of
shares receivable upon exercise of the Warrant shall thereby be proportionately
increased as of the effective date of such subdivision, or, if Insmed shall take
a record of holders of its Common Stock for the purpose of so subdividing, as of
such record date whichever is earlier; and, conversely, if at any time on or
after the date hereof the outstanding number of shares of Common Stock shall be
combined into a smaller number of
-2-
<PAGE>
shares, the Warrant Price in effect immediately prior to such combination shall
thereby be proportionately increased and the number of shares receivable upon
exercise of Warrant shall thereby be proportionately decreased as of the
effective date of such combination, or, if Insmed shall take a record of holders
of its Common Stock for the purpose of so combining, as of such record date,
whichever is earlier.
4. No Fractional Shares. No fractional shares of Warrant Shares will be
--------------------
issued in connection with any exercise of this Warrant. In lieu of any
fractional shares which would otherwise be issuable, Insmed shall pay cash equal
to the product of such fraction multiplied by the closing price (or average of
the bid and ask price if a closing price is not available) of one Warrant Share
as reported on the Nasdaq National Market, the Nasdaq SmallCap Market or such
other securities exchange as the Insmed Common Stock may be listed on the date
of exercise.
5. No Stockholder Rights. This Warrant shall not entitle its holder to
---------------------
any of the rights of a stockholder of Insmed nor shall it impose any liabilities
on the holder to purchase any securities whether such liabilities are asserted
by the Company or by creditors or stockholders of the Company or otherwise.
6. Reservation of Stock. Insmed covenants and agrees that all shares
--------------------
which may be issued upon the exercise of this Warrant will, upon issuance, be
duly authorized and validly issued, fully paid and nonassessable and free and
clear of any liens or encumbrances whatsoever. Insmed covenants and agrees that
none of the shares which may be issued upon the exercise of this Warrant will,
upon issuance, be in violation of or subject to any preemptive rights of any
person. Insmed covenants that during the period this Warrant is exercisable,
Insmed will reserve at all times from its authorized and unissued Common Stock a
sufficient number of shares of Common Stock (or other securities, if applicable)
to provide for the issuance of Warrant Shares (or other securities) upon the
exercise of this Warrant. Insmed agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of this Warrant.
7. Exercise of Warrant. This Warrant may be exercised by the holder
-------------------
hereof, in whole or in part, by the surrender of this Warrant and the Notice of
Exercise attached hereto as Exhibit A duly completed and executed on behalf of
---------
the holder hereof, manually or by facsimile transmission at the principal office
of Insmed at 800 East Leigh Street, Richmond, Virginia 23219, facsimile number
(804) 828-6894, or such other location which shall at that time be the principal
office of the Company together with payment in full of the Warrant Price then in
effect with respect to the number of Warrant Shares as to which the Warrant is
being exercised. The Warrant Price shall be paid by wire transfer to Insmed or
cashiers check drawn on a United States bank made to the order of Insmed. This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the
person entitled to receive the Warrant Shares issuable upon such exercise shall
be treated for all purposes as the holder of such shares of record as of the
close of business on such date. As promptly as practicable on or after such
date and in any event within ten (10) days thereafter, Insmed at its expense
shall cause to be issued and delivered to the person or persons
-3-
<PAGE>
entitled to receive the same a certificate or certificates for the number of
full Warrant Shares issuable upon such exercise, together with cash in lieu of
any fraction of a share as provided above. The Warrant Shares issuable upon
exercise hereof shall, upon their issuance, be fully paid and nonassessable. In
the event that this Warrant is exercised in part, Insmed at its expense will
execute and deliver a new Warrant of like tenor exercisable for the number of
shares for which this Warrant may then be exercised.
8. Certificate of Adjustment. Whenever the Warrant Price or number or
-------------------------
type of securities issuable upon exercise of this Warrant is adjusted, as herein
provided, Insmed shall, at its expense, promptly deliver to the record holder of
this Warrant a certificate of an officer of Insmed setting forth the nature of
such adjustment and showing in detail the facts upon which such adjustment is
based, the method by which such adjustment was calculated (including a
description of the basis on which the Insmed's Board of Directors made any
determination hereunder), and the Warrant Price and number of shares of Common
Stock purchasable at that Warrant Price after giving effect to such adjustment,
and shall promptly cause copies of such certificate to be mailed (by first class
and postage prepaid) to the registered holder of this Warrant.
9. Transferability.
---------------
(a) Unregistered Security. Each holder of this Warrant acknowledges
---------------------
that this Warrant and the Warrant Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and agrees not to
--------------
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Shares issued upon its exercise in the absence of (i) an
effective registration statement under the Securities Act as to this Warrant or
such Warrant Shares and registration or qualification of this Warrant or such
Warrant Shares under any applicable U.S. federal or state securities law then in
effect or (ii) an opinion of counsel, satisfactory to Insmed, that such
registration and qualification are not required. Each certificate or other
instrument for Warrant Shares issued upon the exercise of this Warrant shall
bear a legend substantially to the foregoing effect.
(b) Transferability. Subject to the provisions of Section 9((a))
---------------
hereof, this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of the Warrant with a properly executed assignment (in the
form of Exhibit B hereto) at the principal office of Insmed.
---------
(c) Warrant Register. Insmed will maintain a register containing the
----------------
name and address of Purchaser or its registered assign (the "Registered Holder")
-----------------
of this Warrant. Until any transfer of this Warrant is made in the warrant
register, Insmed may treat the Registered Holder of this Warrant as the absolute
owner hereof for all purposes; provided, however, that if this Warrant is
-------- -------
properly assigned in blank, Insmed may (but shall not be required to) treat the
bearer hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary. Any Registered Holder may change such Registered
Holder's address as shown on the warrant register by written notice to Insmed
requesting such change.
-4-
<PAGE>
(d) Exchange. This Warrant is exchangeable, upon the surrender hereof
--------
by the holder hereof at the principal office of Insmed, for new Warrants of like
tenor registered in such holder's name and representing in the aggregate the
right to purchase the same number of shares purchasable under the Warrant being
exchanged, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder at the time
of such surrender.
10. Notices of Record Date. In the event of:
----------------------
(a) any taking by Insmed of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend payable out of earned
surplus of Insmed) or other distribution, or any right or warrants to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(b) any capital reorganization of Insmed, any reclassification or
recapitalization of the capital stock of Insmed or any transfer of all or
substantially all the assets of Insmed to or consolidation or merger of Insmed
with or into any other person; or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of Insmed, then and in each such event Insmed will mail or cause to be mailed
to each holder of a Warrant a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution, right or
warrant or, if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution, right or
warrant are to be determined, and (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any, as of which the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be mailed as promptly
as practicable, but in any event at least 20 days prior to the date therein
specified.
11. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to Insmed of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft, destruction or mutilation of
any Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to Insmed or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, Insmed at its expense
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
12. Miscellaneous. This Warrant shall be governed by the laws of the
-------------
Commonwealth of Virginia. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
Insmed and the registered holder of this Warrant. All notices and other
communications from Insmed to the holder of this Warrant shall be sufficient if
in writing and
-5-
<PAGE>
sent by registered or certified mail, domestic or international courier, or
facsimile, return receipt requested, postage or courier charges prepaid, to the
address furnished to Insmed in writing by Purchaser. All such notices and
communications shall be effective one (1) trading day after being sent by
courier or by facsimile with confirmation of receipt or five (5) trading days
after being sent by the other approved methods. Any party may by notice given in
accordance with this Section 12 designate another address or person for receipt
of notices hereunder. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provisions.
This Warrant shall inure to the benefit of and shall be binding upon Insmed and
the holder and their respective successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any person other than
Insmed and the holder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
13. Termination. This Warrant (and the right to purchase securities upon
-----------
exercise hereof) shall terminate on the earlier of (i) ________, 2005, or (ii)
the sale, conveyance, disposal, or encumbrance of all or substantially all of
Insmed's property or business or Insmed's merger into or consolidation with any
other corporation (other than a wholly-owned subsidiary corporation) or any
other transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of Insmed is disposed of; provided that this
--------
Section 13(ii) shall not apply to (x) a merger effected exclusively for the
purpose of changing the domicile of Insmed, (y) with respect to the transactions
contemplated by the Reorganization Agreement, or (z) with respect to any
transaction described above if after giving effect to such transaction the
shareholders of Insmed immediately prior to such transaction will own, as a
result of their ownership in Insmed prior to the transaction, more than 20% of
the surviving entity in such transaction immediately after the closing thereof.
14. Remedies. Insmed stipulates that the remedies at law of the holder of
--------
this Warrant in the event of any default or threatened default by Insmed in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
15. Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the holder for any stock transfer or other
issuance tax in respect thereto; provided, however, that the holder shall be
-------- -------
required to pay any and all taxes that may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the then holder of this Warrant as reflected on the books of Insmed.
16. Negotiability. This Warrant is issued upon the following terms, to
-------------
all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) title to this Warrant may be transferred only in accordance with
the provisions of Section 9 hereunder; and
(b) subject to the terms of Section 9, any person in possession of
this Warrant properly endorsed is authorized to represent himself as absolute
owner hereof and is empowered
-6-
<PAGE>
to transfer absolute title hereto by endorsement and delivery hereof to a bona
fide purchaser hereof for value; each prior taker or owner waives and renounces
all of his right, title and interest in this Warrant in favor of each such bona
fide purchaser and each such bona fide purchaser shall acquire absolute title
hereto and to all rights represented hereby.
17. Assignability. This Warrant may be assigned only in accordance with
-------------
the provisions set forth in Section 9.
ISSUED this __ day of ________, 2000.
INSMED, INC.
By: ______________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
-7-
<PAGE>
EXHIBIT A
---------
NOTICE OF INTENT TO EXERCISE
(To be signed only upon exercise of Warrant)
To: INSMED, INC.
The undersigned, the Holder of the within Warrant, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, ________________ (____) shares of Common Stock of Insmed, Inc. and
herewith makes payment of ________ Dollars ($_________) thereof and requests
that the certificates for such shares be issued in the name of, and delivered to
___________________________, whose address is __________________________________
________________________________________________________________________________
________________________________________.
DATED: _____________________
_______________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
_______________________________________
_______________________________________
(Address)
<PAGE>
EXHIBIT B
---------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers all
of the rights of the undersigned under the attached Warrant with respect to the
number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee Address/Fax Number No. of Shares
---------------- ------------------ -------------
Dated: Signature: _______________________
_______________________
Witness: _______________________
<PAGE>
EXHIBIT 10.14
INSMED PHARMACEUTICALS, INC.
_______________________
REGISTRATION RIGHTS AGREEMENT
_______________________
___________ __, 2000
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHT AGREEMENT is made as of the ____ day of
_______________ 2000, by and among INSMED PHARMACEUTICALS, INC., a Virginia
corporation ("Insmed"), INSMED, INC., a Virginia corporation (the "Parent") and
the investors listed on Schedule A attached hereto (individually, an "Investor"
----------
and collectively, the "Investors").
WHEREAS, the Investors have agreed to purchase from Insmed, and Insmed
has agreed to sell to the Investors, shares of Insmed Common Stock, and the
Investors have agreed to purchase from Parent, and Parent has agreed to sell to
the Investors, warrants to purchase Parent Common Stock, as set forth in
Schedule A, pursuant to a Purchase Agreement dated as of January __, 2000
- ----------
between the Company and the Investors (the "Stock Purchase Agreement"); and
WHEREAS, it is a condition precedent to the obligation of the
Investors to close the transactions contemplated by the Stock Purchase Agreement
that Insmed and the Parent execute this Registration Rights Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, Insmed, the Parent and the Investors
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
-----------
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Common Stock" shall mean the Company's Common Stock, $0.01
par value.
(c) "Company" shall mean Insmed until shares of the Parent have
been issued to the shareholders of Insmed and Celtrix Pharmaceuticals, Inc.,
pursuant to the Reorganization Agreement at which time Company shall mean
Parent.
(d) "Conversion Shares" means the Common Stock issued or issuable
upon exercise of the Warrants.
(e) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
1
<PAGE>
(f) "Holder" or "Holders" shall mean any person or persons owning
or having the right to acquire Registrable Securities or any permitted
transferee or assignee thereof in accordance with Article II hereof, other than
----------
a transferee to whom such securities have been transferred pursuant to a
registration statement under the Securities Act or Rule 144 or Regulation S
under the Securities Act.
(g) "Initiating Holders" shall mean Holders who in the aggregate
are Holders of not less than fifty percent (50%) of the Registrable Securities
outstanding at such time.
(h) "Parent Registration Statement" shall mean the registration
statement on Form S-4 to be filed by the Parent in connection with the
Reorganization Agreement.
(i) The terms "Register", "Registered" and "Registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement but shall specifically exclude the
Parent Registration Statement.
(j) "Registrable Securities" shall mean (i) the shares of Common
Stock issued pursuant to the Purchase Agreement, (ii) Conversion Shares and
(iii) any Common Stock issued in respect of, in exchange for or in replacement
of the Conversion Shares or any other securities issued pursuant to the exercise
of the Warrants upon any stock split, stock combination, stock dividend,
recapitalization, consolidation or similar event. Securities previously sold to
the public pursuant to a registered public offering shall cease to be
Registrable Securities and all shares of Common Stock included in the Parent
Registration Statement shall cease to be Registrable Securities upon closing of
the transactions contemplated by the Reorganization Agreement.
(k) "Registration Expenses" shall mean all expenses incurred in
complying with registrations, filings or qualifications under Sections 2.1 and
----------------
2.2 hereof, including all registration, qualification and filing fees,
- ---
accounting fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company and Selling Expenses), and the
fees of one special counsel for the Holders, as reasonably acceptable to the
Company ("Legal Fees").
(l) "Reorganization Agreement" shall mean the Agreement and Plan
of Reorganization, dated November 30, 1999, by and among Insmed, Parent, Celtrix
Pharmaceuticals, Inc. and Celtrix MergerSub, Inc.
(m) "Restricted Securities" shall mean the securities of the
Company required to bear the legend set forth in Section 5.7 of the Purchase
Agreement (or any similar legend).
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
2
<PAGE>
(o) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale and all fees and disbursements of
counsel for any Holder (except for Legal Fees as provided in Section 1.1((k))).
-----------------
(p) "Warrants" shall mean warrants issued by Parent to purchase
shares of Common Stock at $2.25 per share issued to the Investors pursuant to
the Stock Purchase Agreement.
Section 1.2. Certain Words.
-------------
Certain other words and phrases are defined or described elsewhere
in this Agreement and/or the Exhibit hereto.
ARTICLE II
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH
SECURITIES ACT
Section 2.1. Company Registration.
--------------------
(a) Registration. If at any time or from time to time, the
------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders exercising their
respective demand registration rights, other than (i) a registration on Form S-8
(or a similar or successor form) relating solely to employee stock option, stock
purchase or other benefit plans, or (ii) a registration on Form S-4 (or similar
or successor form) relating solely to a Securities and Exchange Commission Rule
145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof
which shall describe in reasonable detail the proposed registration and method
of distribution; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after mailing of written notice by the
Company, by any Holder or Holders, except as set forth in Section 2.1((b))
----------------
below. Such written request may specify inclusion of all or a part of a Holder's
Registrable Securities.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.1((a))((i)). In such event, the right of any Holder to
---------------------
registration pursuant to Section 2.1 shall be conditioned upon such Holder's
-----------
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder with respect to
such participation and inclusion) to the extent provided herein. The Company
shall use reasonable efforts to cause the managing underwriter or underwriters
of a proposed underwritten offering to permit the Holders who have requested in
3
<PAGE>
writing to participate in the registration for such offering to include such
Registrable Securities in such offering on the same terms and conditions as the
securities of the Company included therein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the representatives of the underwriter or underwriters
(the "Underwriter's Representative") selected for such underwriting by the
Company and reasonably acceptable to a majority in interest of such Holders.
Notwithstanding any other provision of this Section 2.1, if the Underwriter's
-----------
Representative determines that marketing factors require a limitation of the
number of shares to be underwritten, the Underwriter's Representative may limit
the number of Registrable Securities to be included in the registration and
underwriting, first by excluding the securities of the Company held by
employees, officers, directors and consultants of the Company (other than
Registrable Securities) and if a limitation on the number of shares is still
required, the Holders of Registrable Securities who have requested registration
together with other holders of the Company's common stock who have been granted
registration rights comparable to the rights provided to the Holders pursuant to
this Agreement ("Participating Shareholders") shall participate in the
underwriting pro rata based upon their total ownership of the Registrable
Securities and of the Common Stock owned by the Participating Shareholders. If
any Holder would thus be entitled to include more shares than such holder
requested to be registered, the excess shall be allocated among other requesting
Holders and Participating Shareholders pro rata based upon their total ownership
of Registrable Securities and Common Stock, in the case of Participating
Shareholders. The number of securities includable by any Holder or other person
may, in the discretion of the Underwriter's Representative, be rounded to the
nearest one hundred (100) shares. No securities excluded from the underwriting
by reason of the Underwriter's Representative's marketing limitation shall be
included in such registration.
If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
Underwriter's Representative. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If the Underwriter's Representative has not limited the number of
shares to be underwritten for the Company's account and the account of the
Holders, the Company may include securities for the account of employees,
officers, directors and consultants.
Section 2.2. S-3 Registrations.
-----------------
(a) If at any time the Company qualifies under applicable SEC
rules to file a registration statement on Form S-3 (or any successor form) or
equivalent short-form registration, regardless of its designation, the
Initiating Holders may make a written request for registration of Registrable
Securities under the Securities Act, and under the securities or "blue sky" laws
of a reasonable number of jurisdictions designated by such holder or holders (a
"Demand Registration") provided that such offering is estimated to result in
aggregate offering proceeds of
4
<PAGE>
at least Three Million dollars ($3,000,000), net of allowances, discounts, and
underwriting expenses. Upon a request for a Demand Registration, the Company
shall promptly give notice of such proposed registration to all Holders of
Registrable Securities and the Company shall, as expeditiously as possible, use
its best efforts to effect the registration on Form S-3 of the Registrable
Securities which the Company has been requested to register (i) in each request
and (ii) in any response given within thirty (30) days to a notice from the
Company pursuant to this Section 2.2.
-----------
Upon a request for a Demand Registration, the Company shall promptly
take such steps as are necessary or appropriate to prepare for the registration
of the Registrable Securities to be registered.
(b) Effective Demand Registration. The Company shall use
-----------------------------
commercially reasonable efforts to cause any such Demand Registration to become
effective not later than sixty (60) days after it receives a request under
Section 2.2((a)) hereof.
- ----------------
(c) Underwriting Procedures. If the Initiating Holders holding a
-----------------------
majority of the Registrable Securities held by all of the Initiating Holders to
which the requested Demand Registration relates so elect, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter (as
hereinafter defined) selected as follows: the Initiating Holders holding a
majority of the Registrable Securities held by all such Initiating Holders shall
select and obtain an investment banking firm of national reputation to act as
the managing underwriter of the offering (the "Approved Underwriter"); provided,
--------
however, that the Approved Underwriter shall, in any case, be approved by the
- -------
Company in its reasonable discretion.
(d) The Company may include in the registration under this Section
-------
2.2 any other shares of Common Stock (including issued and outstanding shares of
- ---
Common Stock as to which the holders thereof have contracted with the Company
for "piggyback" registration rights) so long as the inclusion in such
registration of such shares will not, in the opinion of the Approved Underwriter
(or in the reasonable opinion of the Company in the event that the offering is
not underwritten), interfere with the successful marketing in accordance with
the intended method of sale or other disposition of all the shares of
Registrable Securities sought to be registered by the Holder or Holders of
Registrable Securities pursuant to this Section 2.2. If it is determined, as
-----------
provided above, that there will be such interference, the other shares of Common
Stock sought to be included by the Company shall be excluded to the extent
deemed necessary by the Underwriter's Representative (or the Company if the
offering is not underwritten), and all other shares of Common Stock held by
other parties shall be excluded before the exclusion of any shares of
Registrable Securities held by the Holders requesting the Demand Registration.
If, as contemplated above, and after excluding all other shares of Common Stock
held by other parties, shares of the Common Stock of the Holders requesting the
Demand Registration are to be excluded, the number of shares of Common Stock of
each participating Holder which are to be excluded shall be proportionate to the
number of shares which such party is seeking to register.
5
<PAGE>
Section 2.3. Expenses of Registration.
------------------------
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Article II shall be
----------
borne by the Company; and, unless otherwise stated, all Selling Expenses
relating to securities registered by the Holders shall be borne by the Holders
of such securities pro rata on the basis of the number of shares so registered.
Section 2.4. Registration Procedures.
-----------------------
In the case of each registration, qualification or compliance effected
by the Company pursuant to this Article II, the Company will keep each Holder
----------
advised in writing as to the initiation of each registration, qualification and
compliance and as to the completion thereof. At its expense the Company will:
(a) before filing a registration statement or prospectus or any
amendments or supplements thereto pursuant to this Article II, provide counsel
----------
selected by the Holders holding a majority of the Registrable Securities being
registered in such registration ("Holders' Counsel") and any other Inspector (as
hereinafter defined) with an adequate and appropriate opportunity to review and
comment on such registration statement and each prospectus included therein (and
each amendment or supplement thereto) to be filed with the SEC;
(b) notify the Holders' Counsel and each seller of Registrable
Securities of any stop order issued or threatened by the SEC and take all
reasonable action required to prevent the entry of such stop order or to remove
it if entered;
(c) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for the lesser of
(x) 180 days and (y) such shorter period which will terminate when all
Registrable Securities covered by such registration statement have been sold,
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(d) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of such
registration statement as is proposed to be filed, and thereafter such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(e) use its best efforts to register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any seller of Registrable Securities may reasonably request, and to continue
such qualification in effect in such
6
<PAGE>
jurisdiction for the lesser of (x) 180 days and (y) such shorter period as all
of such Registrable Securities are sold, and do any and all other acts and
things which may be reasonably necessary or advisable to enable any such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, however, that the Company shall not
-------- -------
be required to (x) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 2.2((c)), (y)
----------------
subject itself to taxation in any such jurisdiction or (z) consent to general
service of process in any such jurisdiction;
(f) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers of
Registrable Securities to consummate the disposition of such Registrable
Securities;
(g) notify each seller of Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, after delivery to the purchasers of
such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(h) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Approved Underwriter in the
case of a Demand Registration as provided in Section 2.2) and take such other
-----------
actions as are prudent and reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(i) make available for inspection by any seller of Registrable
Securities, any managing underwriter participating in any disposition pursuant
to such registration statement, Holders' Counsel and any attorney, accountant or
other agent retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's and its subsidiaries' officers, directors and employees, and the
independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such registration
statement. Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (x) the disclosure of
7
<PAGE>
such Records is necessary to avoid or correct a misstatement or omission in the
registration statement, (y) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or is requested
by any regulatory body or (z) the information in such Records was known to the
Inspectors on a non-confidential basis prior to its disclosure by the Company or
has been made generally available to the public. Each seller of Registrable
Securities agrees that it shall, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
(j) if such sale is pursuant to an underwritten offering, use its best
efforts to obtain a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by "cold comfort" letters as Holders' Counsel or the managing
underwriter reasonably request;
(k) use its best efforts to furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities are
not being sold through underwriters, on the date the registration statement with
respect to such securities becomes effective, an opinion, dated such date, of
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the seller making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as such seller may reasonably request and are
customarily included in such opinions;
(l) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable but no later than fifteen (15) months after the
effective date of the registration statement, an earnings statement covering a
period of twelve (12) months beginning after the effective date of the
registration statement, in a manner which satisfies the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(m) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed, provided, that the applicable listing requirements are satisfied;
--------
(n) keep Holders' Counsel advised in writing as to the initiation of
any registration under Section 2.1 or 2.2 hereunder and provide Holders' Counsel
------------------
with copies of any SEC filings made in connection therewith;
(o) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD"); and
(p) use commercially reasonable efforts to take all other steps
necessary to effect the registration of the Registrable Securities contemplated
hereby.
8
<PAGE>
Section 2.5. Indemnification.
---------------
(a) The Company will, and does hereby undertake, to indemnify and hold
harmless each Holder, each of its officers, directors, members, trustees,
employees, advisors, agents and partners, and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Article II, and each underwriter, if any, and each person who controls any
----------
underwriter within the meaning of Section 15 of the Securities Act against all
expenses, claims, losses, damages and liabilities (or actions in respect thereof
to which they may become subject), including settlement of any litigation,
commenced or threatened, to which they may become subject under the Securities
Act, the Exchange Act, or other federal or state law, arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact contained
in any registration statement, prospectus, offering circular or other document
or amendments thereto, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of any federal, state or common law
rule or regulation applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors, members, trustees, employees, advisors, agents and partners, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company expressly for use
in connection with such registration by an instrument executed by such Holder or
underwriter.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify and hold harmless (severally, but not
jointly) the Company, each of its directors and officers, agents and employees,
each underwriter, if any, of the Company's securities covered by such
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers, directors and partners and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof to which
they may become subject) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or amendments
thereto, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, and will
reimburse the Company, such other Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue
9
<PAGE>
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company expressly for
use in connection with such registration by an instrument executed by such
Holder; provided, however, that the obligations of such Holders hereunder shall
be limited to an amount equal to the proceeds to each such Holder of Registrable
Securities from the sale of such Registrable Securities as contemplated herein.
(c) Each party entitled to indemnification under this Section 2.5 (the
-----------
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
deliver written notice to the Indemnifying Party of commencement thereof. The
Indemnifying Party, at its sole option, may participate in or assume the defense
of any such claim or any litigation resulting therefrom with counsel reasonably
satisfactory to the Indemnified Party and the Indemnified Party may participate
in such defense at such party's expense. The failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2.5 except to the extent that such failure to
-----------
give notice shall materially adversely affect the Indemnifying Party in the
defense of any such litigation.
The Indemnified Party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be paid by the Indemnified Party unless (i) the
Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to
assume the defense of such action with counsel satisfactory to the Indemnified
Party in its reasonable judgment or (iii) the named parties to any such action
(including any impleaded parties) have been advised by such counsel that
representation of such Indemnified Party and the Indemnifying Party by the same
counsel would be inappropriate under applicable standards of professional
conduct, in which case the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of such Indemnified Party.
(d) Contribution. If the indemnification provided for in this Section
------------ -------
2.5 from the Indemnifying Party is unavailable to an Indemnified Party hereunder
- ---
in respect of any expenses, claims, losses, damages and liabilities referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such expenses, claims, losses, damages and liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Sections 2.5((a)), 2.5((b)) and 2.5((c)), any
----------------------------------------
reasonable legal or other fees, charges or
10
<PAGE>
expenses reasonably incurred by such party in connection with any investigation
or proceeding; provided that the total amount to be indemnified by such Holder
--------
shall be limited to the net proceeds received by such Holder in the offering.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.5((d)) were determined by pro rata
----------------
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person.
No Indemnifying Party, in the defense of any such claim or litigation
shall, except with the consent of each Indemnified Party, consent to the entry
of any judgment or enter into any settlement which does not include as an
unconditional term the delivery of a release from all liability with respect to
such claim or litigation by the claimant or plaintiff to such Indemnified Party.
No Indemnifying Party shall be liable for any settlement entered into without
its written consent, which consent shall not be unreasonably withheld.
Section 2.6. Information by Holder.
---------------------
Each Holder of Registrable Securities included in any registration
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Article II.
----------
Section 2.7. Rule 144 Reporting.
------------------
With a view toward making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Restricted Securities to the public without registration, the Company agrees:
(a) To register its Common Stock under Section 12(g) of the Exchange
Act, as amended, as soon as practicable, but in any event not later than ninety
(90) days after the close of the Company's first fiscal year following the
earlier of effective date of the Parent Registration Statement and the first
registration statement filed by the Company relating to a public offering, other
than to employees of the Company under an employee option plan or employee stock
purchase plan;
(b) To make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the earlier of the effective date of the Parent Registration Statement and of
the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;
(c) To use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
11
<PAGE>
(d) To furnish to each Holder, so long as such Holder owns any
Restricted Securities, written notice of the Company's qualification as a
registrant, as soon as practicable after such qualification; the Company further
shall furnish forthwith upon request a written statement as to its compliance
with the reporting requirements of said Rule 144 (at any time after ninety (90)
days after the earlier of the effective date of the Parent Registration
Statement and the first registration statement filed by the Company for an
offering of its securities to the general public), and of its compliance with
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements); the Company shall provide forthwith upon
written request a copy of the most recent annual or quarterly report of the
Company, and take such further action and provide such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration under the Securities Act.
Section 2.8. Transfer or Assignment of Registration Rights.
---------------------------------------------
The rights to cause the Company to register securities and related
rights granted the Investors under this Article II may be transferred or
----------
assigned by any Investor to any transferee or assignee of any shares of Common
Stock, Warrants or Conversion Shares, or any combination thereof if (x) the
transferee is a direct or indirect wholly-owned subsidiary of the transferring
Investor, or is a partnership or limited liability company controlled by, or
under common control, with such Investor and such Investor remains liable for
all of the transferee's obligations hereof or (y) the transferee acquires not
less than 114,250 Registrable Securities or Warrants exercisable into
Registrable Securities, and the Company receives written notice of such transfer
or assignment. For purposes of this Section 2.8, "control" includes the ability
-----------
to have investment discretion through contractual means or otherwise.
Section 2.9. "Market Stand-Off" Agreement.
---------------------------
(a) Any Holder of more than one percent (1%) of the outstanding
Common Stock of the Company (after giving effect to the conversion of all
outstanding warrants and convertible securities), if required by the Company and
an underwriter of Common Stock (or other securities) of the Company, shall agree
not to sell or otherwise to transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder during the period not to exceed
one hundred and twenty (120) days as requested by the Underwriter's
Representative following the effective date of the first registration statement
(and only such first registration statement but specifically excluding the
Parent Registration Statement) of the Company filed under the Securities Act,
provided that all officers and directors of the Company and holders of one
percent (1%) or more of the Company's outstanding shares enter into similar
agreements. Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose a stop-transfer instruction
with respect to the shares (or other securities) subject to the foregoing
restriction until the end of such period.
(b) Restrictions on Public Sale by the Company. The Company
------------------------------------------
agrees not to effect any public sale or distribution of any of its securities
for its own account, or any securities convertible into or exchangeable or
exercisable for such securities (except pursuant to
12
<PAGE>
registrations on Form S-4 or S-8 or any successor forms thereto), during the
period beginning on the effective date of any Demand Registration in which the
Holders of Registrable Securities are participating and ending on the earlier of
(i) the date on which all shares of Common Stock registered on such registration
statement are sold and (ii) the date thirty (30) days after the effective date
of such registration statement.
ARTICLE III
MISCELLANEOUS
Section 3.1. Governing Law.
-------------
This Agreement shall be governed in all respects by the laws of the
Commonwealth of Virginia without giving effect to principles of conflicts of law
thereunder.
Section 3.2. Survival.
--------
The representations, warranties, covenants and agreements made herein
shall survive any investigation made by the Investors and the closing of the
transactions contemplated hereby.
Section 3.3. Successors and Assigns Third Party Beneficiaries.
------------------------------------------------
Except as otherwise expressly provided in Section 2.8 or otherwise
-----------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, further, the Company may not assign its rights
-------- -------
hereunder. No person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of any of the rights granted
hereunder.
Section 3.4. Entire Agreement.
----------------
This Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof.
Section 3.5. Amendment; Waiver; Termination.
------------------------------
This Agreement may be amended, modified or terminated upon the written
consent of the Company and the holders in interest of not less than fifty
percent (50%) of the Warrants held by Holders (treated as if converted and
including any Conversion Shares that have not been sold) voting as a single
class; provided, however, that the effect of such amendment, modification or
-------- -------
termination will be such that all of the Holder will be treated equally. Any
provision of this Agreement may be waived with respect to rights of any Holder
by a written instrument executed by the holders in the interest of not less than
fifty percent (50%) of the Warrants held by Holders (treated as if converted and
including any Conversion Shares that have not been sold) voting as a single
class; provided, however, that the effect of such waiver will be such that all
-------- -------
of the Holders will be treated equally.
13
<PAGE>
Section 3.6. Notices.
-------
All notices and other communications required or permitted under this
Agreement shall be in writing and shall be deemed effectively given upon
personal delivery, upon delivery by a nationally recognized overnight courier
service or upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the Company at 800 East Leigh
Street, Richmond, Virginia 23219 or telecopied to the Company at (804) 828-6894
and to the Investors at the addresses or telecopy numbers set forth on Schedule
--------
A or at such other address or telecopy number as any party may designate by ten
- -
days prior written notice to the other party.
Section 3.7. Delay or Omissions.
------------------
No delay or omission to exercise any right, power or remedy accruing
to any holder of any Restricted Securities upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or in any similar breach or default
occurring thereafter; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any holder, shall be cumulative
and not alternative.
Section 3.8. Miscellaneous.
-------------
(a) Recapitalizations, Exchanges, etc. The provisions of this
---------------------------------
Agreement shall apply, to the full extent set forth herein, with respect to any
and all equity securities of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in conversion of, in exchange for or in
substitution of, the Registrable Securities.
(b) No Inconsistent Agreements. The Company shall not enter
--------------------------
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or grant any additional
registration rights to any Person or with respect to any securities which are
not Registrable Securities which are prior in right to or inconsistent with the
rights granted in this Agreement; provided, however, the foregoing shall not
-------- -------
restrict the Company in any way from granting registration rights comparable to
the rights set forth herein provided such new registration rights include,
without limitation, the provisions of Section 2.1 hereof.
------------
(c) Remedies. The Holders, in addition to being entitled to
--------
exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this
14
<PAGE>
Agreement and hereby agrees to waive in any action for specific performance the
defense that a remedy at law would be adequate.
Section 3.9. Separability.
------------
In the event any provision of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 3.10. Expenses.
--------
Except as provided in Article II, the Company and each Investor shall
----------
bear its own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby.
Section 3.11. Titles.
------
The titles of the Sections of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.
Section 3.12. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
Section 3.13. Further Assurances.
------------------
Each of the parties shall execute such documents and perform such
further acts as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Registration Rights
Agreement as of this ____ day of ___________, 2000.
INSMED PHARMACEUTICALS, INC.
By:______________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
INSMED, INC.
By:______________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
VERON INTERNATIONAL LTD.
By:______________________________
Name
Title:
16
<PAGE>
INSMED PHARMACEUTICALS, INC.
By:________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
INSMED, INC.
By:________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
VECTOR LATER-STAGE EQUITY FUND II (QP), L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By:________________________________
Name: Barclay A. Phillips
Its: Managing Director
VECTOR LATER-STAGE EQUITY FUND II, L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By:________________________________
Name: Barclay A. Phillips
Its: Managing Director
17
<PAGE>
INSMED PHARMACEUTICALS, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
INSMED, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
CADUCEUS CAPITAL TRUST
By:______________________________________
Name
Title:
CADUCEUS CAPITAL II, L.P.
By:______________________________________
Name
Title:
PAINE WEBBER EUCALYPTUS FUND
By:______________________________________
Name
Title:
18
<PAGE>
INSMED PHARMACEUTICALS, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
INSMED, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
T. ROWE PRICE HEALTH SCIENCES FUND, INC.
By:______________________________________
Name
Title:
GREENLINE HEALTH SCIENCES FUND
By:______________________________________
Name
Title:
19
<PAGE>
INSMED PHARMACEUTICALS, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
INSMED, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
CLSP, L.P.
By: CASDIN CAPITAL PARTNERS, LLC
Its: General Partner
By:______________________________________
Name
Title:
CLSP-SBS I, L.P.
By: CASDIN CAPITAL PARTNERS, LLC
Its: General Partner
By:______________________________________
Name
Title:
CLSP-SBS II, L.P.
By: CASDIN CAPITAL PARTNERS, LLC
Its: General Partner
By:______________________________________
Name
Title:
20
<PAGE>
INSMED PHARMACEUTICALS, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
INSMED, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
QUANTUM PARTNERS, LDC
By:______________________________________
Name
Title:
21
<PAGE>
INSMED PHARMACEUTICALS, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
INSMED, INC.
By:______________________________________
Geoffrey Allan, Ph.D.
President and Chief Executive Officer
PEQUOT PARTNERS FUND, L.P.
By: PEQUOT CAPITAL MANAGEMENT, INC.
Its: Investment Manager
By:______________________________________
Name
Title:
PEQUOT INTERNATIONAL FUND, INC.
By: PEQUOT CAPITAL MANAGEMENT, INC.
Its: Investment Advisor
By:______________________________________
Name
Title:
22
<PAGE>
Schedule A
Name and Address and Shares of Common Stock
Telecopy Number of Investor Purchased Warrants Purchased
- --------------------------- --------- ------------------
[To be Completed]
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
We consent to the references to our firm under the captions "Experts" and
"Insmed Pharmaceuticals, Inc. - Selected Historical Financial Data", and to the
use of our report dated January 13, 2000, with respect to the consolidated
financial statements of Insmed Pharmaceuticals, Inc., included in the Joint
Proxy Statement of Insmed, Inc. that is made a part of the Registration
Statement and Prospectus of Insmed, Inc. for the registration of 116,500,000
shares of its common stock.
Ernst & Young LLP
Richmond, Virginia
February 5, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Celtrix
Pharmaceuticals, Inc. -- Selected Historical Financial Data" and "Experts" and
to the use of our report dated May 28, 1999, with respect to the consolidated
financial statements of Celtrix Pharmaceuticals, Inc. included in the Joint
Proxy Statement of Celtrix Pharmaceuticals, Inc. and Insmed Pharmaceuticals,
Inc., which is referenced to, and made a part of, the Registration Statement
(Form S-4) and related Prospectus of Insmed, Inc. for the registration of
116,500,000 shares of its common stock.
Ernst & Young LLP
Palo Alto, California
February 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM INSMED
PHARMACEUTICALS' FINANCIAL STATEMENTS INCLUDED IN THIS REGISTRATION STATEMENT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001104506
<NAME> INSMED PHARMACEUTICALS, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 317 11,677
<SECURITIES> 4,318 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,678 11,693
<PP&E> 504 424
<DEPRECIATION> 262 179
<TOTAL-ASSETS> 5,296 11,938
<CURRENT-LIABILITIES> 834 277
<BONDS> 0 0
0 0
97 97
<COMMON> 39 36
<OTHER-SE> 4,326 11,527
<TOTAL-LIABILITY-AND-EQUITY> 5,296 11,938
<SALES> 0 0
<TOTAL-REVENUES> 663 100
<CGS> 0 0
<TOTAL-COSTS> 8,793 5,395
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (7,793) (4,809)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,793) (4,809)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,793) (4,809)
<EPS-BASIC> (2.16) (1.47)
<EPS-DILUTED> (2.16) (1.47)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CELTRIX
PHARMACEUTICALS FINANCIAL STATEMENTS INCLUDED IN THIS REGISTRATION STATEMENT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001104506
<NAME> INSMED INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> DEC-31-1999 MAR-31-1999
<CASH> 1,243 1,258
<SECURITIES> 0 0
<RECEIVABLES> 32 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,402 1,430
<PP&E> 167 164
<DEPRECIATION> 92 63
<TOTAL-ASSETS> 4,407 4,501
<CURRENT-LIABILITIES> 693 1,221
<BONDS> 0 0
7,948 0
0 0
<COMMON> 272 251
<OTHER-SE> (4,506) 3,029
<TOTAL-LIABILITY-AND-EQUITY> 4,407 4,501
<SALES> 0 10
<TOTAL-REVENUES> 712 131
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 629 6,830
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 1
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,240) (13,399)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,240) (13,399)
<EPS-BASIC> (0.39) (0.58)
<EPS-DILUTED> (0.39) (0.58)
</TABLE>
<PAGE>
Exhibit 99.3
Elan Pharmaceutical Investments Ltd.
102 St. James Court
Flatts, Smiths Parrish
Bermuda, FL 04
November 30, 1999
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place
Suite 600
San Jose, CA 95110
Attention: Chief Executive Officer
Gentlemen:
Attached to this letter is counterpart of the Stockholders Voting Agreement
dated as of the date hereof (the "Agreement") among Insmed, Inc., Celtrix
Mergersub, Inc., and certain holders of shares of Celtrix Pharmaceuticals, Inc.,
which has been signed on behalf of Elan Pharmaceutical Investments Ltd. You are
authorized to release the attached document and it shall be deemed to be
delivered and effective at such time that you have provided written notice to us
that stockholders whose shares constitute a majority of the issued and
outstanding shares of common stock of Celtrix Pharmaceuticals, Inc., excluding
shares of Celtrix common stock held by Elan and its affiliates, on the date
hereof have voted, or have agreed to vote, in favor of the merger (as defined in
the Agreement) and the other items described in Section 5 of the Agreement. If
such notice shall not have been provided to us on or prior to the date that is
180 days after the date hereof, you shall no longer be authorized to release our
signed counterpart of the Agreement and our signature thereto shall be deemed to
have been rescinded.
Very truly yours,
Elan Pharmaceutical Investments Ltd.
By: /s/ Kevin Insley
-------------------------------
Kevin Insley
Vice President
<PAGE>
Exhibit 99.7
Consent of Geoffrey Allan to be Named as Director
February 9, 2000
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Insmed, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I, Geoffrey Allan, hereby consent to be named as a director of Insmed,
Inc., a Virginia corporation (the "Company"), in the Company's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and hereby agree to serve as a
director of the Company.
Very truly yours,
/s/ Geoffrey Allan
Geoffrey Allan
<PAGE>
Consent of Kenneth G. Condon to be Named as Director
February 9, 2000
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Insmed, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I, Kenneth G. Condon, hereby consent to be named as a director of Insmed,
Inc., a Virginia corporation (the "Company"), in the Company's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and hereby agree to serve as a
director of the Company.
Very truly yours,
/s/ Kenneth G. Condon
Kenneth G. Condon
<PAGE>
Consent of Gustav A. Christensen to be Named as Director
February 9, 2000
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Insmed, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I, Gustav A. Christensen, hereby consent to be named as a director of
Insmed, Inc., a Virginia corporation (the "Company"), in the Company's
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and hereby agree to
serve as a director of the Company.
Very truly yours,
/s/ Gustav A. Christensen
Gustav A. Christensen
<PAGE>
Consent of Graham K. Crooke to be Named as Director
February 9, 2000
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Insmed, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I, Graham K. Crooke, hereby consent to be named as a director of Insmed,
Inc., a Virginia corporation (the "Company"), in the Company's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and hereby agree to serve as a
director of the Company.
Very truly yours,
/s/ Graham K. Crooke
Graham K. Crooke
<PAGE>
Consent of Dennis J. Dougherty to be Named as Director
February 9, 2000
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Insmed, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I, Dennis J. Dougherty, hereby consent to be named as a director of Insmed,
Inc., a Virginia corporation (the "Company"), in the Company's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and hereby agree to serve as a
director of the Company.
Very truly yours,
/s/ Dennis J. Dougherty
Dennis J. Dougherty
<PAGE>
Consent of Steinar J. Engelsen to be Named as Director
February 9, 2000
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Insmed, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I, Steinar J. Engelsen, hereby consent to be named as a director of Insmed,
Inc., a Virginia corporation (the "Company"), in the Company's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and hereby agree to serve as a
director of the Company.
Very truly yours,
/s/ Steinar J. Engelsen
Steinar J. Engelsen
<PAGE>
Consent of Edgar G. Engleman to be Named as Director
February 9, 2000
Insmed, Inc.
800 East Leigh Street
Richmond, Virginia 23219
Insmed, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
I, Edgar G. Engleman, hereby consent to be named as a director of Insmed,
Inc., a Virginia corporation (the "Company"), in the Company's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and hereby agree to serve as a
director of the Company.
Very truly yours,
/s/ Edgar G. Engleman
Edgar G. Engleman
