<PAGE>
As filed with the Securities and Exchange Commission on March 24, 2000
Registration No. 333-30098
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INSMED INCORPORATED
(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 Incorporated
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. [ ]
--------------------------------------------------------------------
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
Incorporated. Because of the reorganizations, Insmed Pharmaceuticals and Celtrix
will become wholly-owned subsidiaries of Insmed Incorporated. 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 provide for:
. a tax-free merger in which Celtrix common stockholders will receive
one share of Insmed Incorporated common stock for each share of
Celtrix common stock and Celtrix preferred stockholders will receive
approximately ______ shares of Insmed Incorporated common stock for
each share of Celtrix preferred stock held, and
. a tax-free share exchange in which Insmed Pharmaceuticals common and
preferred shareholders will receive 3.5 shares of Insmed Incorporated
common stock for each Insmed Pharmaceuticals share held.
Insmed Incorporated applied to list its common stock on the Nasdaq National
Market under the ticker symbol "INSM."
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 in
accordance with the instructions on the proxy form. If you sign, date and mail
your proxy card without indicating how you want to vote, we will count your
proxy 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:
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
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 ___.
------------------------------------
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 March ____, 2000
and we will first mail it 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 Incorporated, a newly formed corporation and Celtrix MergerSub,
Inc., a wholly-owned subsidiary of Insmed Incorporated.
(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 Incorporated 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.
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[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 Incorporated, a
newly formed corporation and Celtrix MergerSub, Inc., a wholly-owned
subsidiary of Insmed Incorporated; and
(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 Incorporated and believes that the
reorganizations are advisable, fair to, and in the best interests of, Insmed
Pharmaceuticals and its shareholders. Other than one director who abstained
solely because of a potential conflict of interest as described on page __, 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
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QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION PROCESS.......................................................1
RECENT DEVELOPMENTS..........................................................................................3
SUMMARY......................................................................................................5
The Companies............................................................................................5
The Reorganizations......................................................................................6
The Meetings.............................................................................................7
Annual Meeting of Celtrix Stockholders...................................................................7
Special Meeting of Insmed Pharmaceuticals Shareholders...................................................7
Votes Required...........................................................................................7
Recommendation to Stockholders...........................................................................8
Interests of Common Stockholder and Director of Insmed Pharmaceuticals and Insmed
Incorporated.........................................................................................8
Interests of Officers and Directors in the Reorganizations...............................................9
Opinion of Celtrix's Financial Advisor..................................................................10
Conditions to the Reorganizations.......................................................................10
Termination of the Reorganization Agreement.............................................................11
Termination Fee.........................................................................................12
Certain Federal Income Tax Consequences.................................................................12
Accounting Treatment and Considerations.................................................................12
Comparison of Stockholders' Rights......................................................................13
Celtrix Market Price Information........................................................................13
Insmed Pharmaceuticals Market Price Information.........................................................13
Listing of Insmed Incorporated Common Stock.............................................................13
Where You Can Find More Information.....................................................................13
Comparative Per Share Data..............................................................................14
Celtrix Pharmaceuticals, Inc.-- Selected Historical Financial Data.....................................16
Insmed Pharmaceuticals, Inc.-- Selected Historical Financial Data.......................................17
Insmed Incorporated - Unaudited Selected Pro Forma Condensed Consolidated Financial
Information.........................................................................................18
RISK FACTORS................................................................................................20
Since the value of the consideration to be received in the reorganizations may fluctuate,
we cannot assure Celtrix stockholders and Insmed Pharmaceutical shareholders of
the value of the Insmed Incorporated common stock they will receive in the
reorganization......................................................................................20
The costs of the reorganizations and the costs of integrating the Celtrix and Insmed
Pharmaceuticals businesses are substantial..........................................................20
Our failure to successfully integrate the companies and transfer Celtrix's operations to
Richmond, Virginia may adversely impact our business, financial condition and
results of operations...............................................................................21
Failure to complete the reorganizations could negatively impact Celtrix's stock price and future
business and operations.............................................................................21
Failure to complete the reorganizations could negatively impact Insmed Pharmaceuticals'
business, financial condition and results of operations.............................................21
Risks Related to Insmed Incorporated....................................................................22
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Because our products are in an early stage of development, none has received regulatory
approval or been released for commercial sale and therefore we can give you no
assurances that we will succeed in commercializing our products.....................................22
Since we have a limited operating history, a history of operating losses and expect to
generate operating losses for the foreseeable future, we may not achieve profitability
for some time, if at all............................................................................23
If our proposed financing does not close, our existing cash reserves will only be
sufficient to fund our activities until September 2000. If our proposed financing
does close, however, it will result in significant dilution of your ownership of our
shares..............................................................................................23
We will need additional funds in the future to continue our operations, but we face
uncertainties with respect to our access to capital which could adversely impact our
business, financial condition and results of operations.............................................23
If our products fail in clinical trials or we cannot enroll enough patients to complete our
clinical trials there may be an adverse effect on our business, financial condition and
results of operations...............................................................................24
Our failure to obtain regulatory approvals for our products under development
may adversely affect our business, financial condition and results of operations....................24
Our business, financial condition and results of operations may be materially adversely
affected if our products do not receive market acceptance for any reason............................25
Uncertainty regarding third party reimbursement and healthcare cost containment
initiatives may negatively affect our business, financial condition and results of
operations..........................................................................................26
We currently have no manufacturing or marketing capability which may make the
commercialization of our products difficult.........................................................26
Materials necessary to manufacture SomatoKine(TM)may not be available which may
adversely affect our business, financial condition and results of operations........................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, financial
condition or results of operations..................................................................28
We intend to conduct proprietary research programs, and any conflicts with our
collaborators could harm our business, financial condition and results of operations................28
If we fail to make payments required under the license agreement with the University
of Virginia Patent Foundation, then the license agreement and our rights to the patents
licensed to us may be terminated which would have an adverse effect on our
business, financial condition and results of operations.............................................28
We face uncertainties related to patents and proprietary technology which may adversely
affect our business, financial condition and results of operations..................................29
Third parties may claim that our products infringe on their proprietary rights which may
adversely affect our business, financial condition and results of operations........................30
The inability to compete successfully will harm our business, financial condition and
results of operations...............................................................................30
Rapid technological change could make our products obsolete which could have a
material adverse effect on our business, financial condition and results of operations..............30
We are dependent upon key personnel and others the loss of which could have a material
adverse effect on our business, financial condition and results of operations.......................31
Our products involve the use of hazardous materials which could expose us to damages
which could have a material adverse effect on our business, financial condition and
results of operations...............................................................................31
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We are subject to product liability claims that may not be covered by our insurance
which could have a material adverse effect on our business, financial condition and
results of operations...............................................................................31
Our business may be negatively impacted by computer failures in the Year 2000...........................32
We expect that our stock price will be volatile.........................................................32
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..................................................................34
THE MEETINGS................................................................................................36
Times, Dates and Places.................................................................................36
Purpose of the Meetings.................................................................................36
Record Date; Voting Rights; Votes Required for Approval.................................................37
Proxies.................................................................................................40
Revocation of Proxies...................................................................................41
Solicitation of Proxies.................................................................................41
Availability of Accountants.............................................................................41
THE REORGANIZATIONS.........................................................................................43
Results of the Reorganizations..........................................................................43
Celtrix and Insmed Pharmaceuticals Stockholder Agreements...............................................44
What Celtrix Stockholders and Insmed Pharmaceuticals Shareholders Will Receive..........................45
Cash Payments for Fractional Shares of Insmed Incorporated Common Stock.................................45
Background and Negotiation of the Reorganizations.......................................................46
Celtrix's Reasons for the Reorganizations...............................................................53
Insmed Pharmaceuticals' Reasons for the Reorganizations.................................................56
Recommendations of the Boards of Directors..............................................................57
Opinion of Celtrix's Financial Advisors.................................................................58
Interests of Common Stockholders and Director of Insmed Pharmaceuticals and Insmed
Incorporated........................................................................................65
Interests of Certain Persons in the Reorganizations.....................................................65
Material Federal Income Tax Consequences................................................................67
Accounting Treatment....................................................................................69
Procedures for Exchange of Stock Certificates...........................................................69
Appraisal Rights........................................................................................71
Federal Securities Law Consequences; Resale Restrictions................................................76
CERTAIN TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT................................................77
The Reorganizations.....................................................................................77
Certain Representations and Warranties..................................................................78
Certain Covenants.......................................................................................79
Conditions to the Reorganizations.......................................................................84
Termination of the Reorganization Agreement.............................................................86
Effect of Termination...................................................................................88
Termination Fees; Expenses..............................................................................88
Amendments; No Waiver...................................................................................90
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DESCRIPTION OF INSMED INCORPORATED CAPITAL STOCK............................................................91
General.................................................................................................91
Common Stock............................................................................................91
Preferred Stock.........................................................................................92
Change of Control Provisions............................................................................92
Transfer Agent and Registrar............................................................................93
COMPARISON OF STOCKHOLDERS' RIGHTS..........................................................................93
Authorized Capital......................................................................................93
Special Meetings of Stockholders........................................................................94
Stockholder Meetings....................................................................................94
Advance Notice of Nominations of Directors..............................................................95
Merger, Share Exchanges and Sales of Assets.............................................................96
Anti-takeover Statutes..................................................................................96
Amendments to Charter...................................................................................97
Amendments to Bylaws....................................................................................98
Appraisal Rights........................................................................................98
Transfer Restrictions...................................................................................99
Stockholder Action by Written Consent...................................................................99
Board of Directors.....................................................................................100
Limitation of Director Liability.......................................................................101
Indemnification of Directors, Officers and Employees...................................................101
MANAGEMENT AND OPERATION OF INSMED INCORPORATED AFTER THE REORGANIZATIONS..................................103
Insmed Incorporated Board of Directors.................................................................103
Board Observer.........................................................................................105
Committees.............................................................................................105
Management.............................................................................................107
Headquarters...........................................................................................107
INSMED INCORPORATED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.............................................................................................108
MARKET PRICES AND DIVIDEND INFORMATION.....................................................................117
ELECTION OF DIRECTORS OF CELTRIX...........................................................................119
Nominees...............................................................................................119
Celtrix Board of Directors Meetings and Committees.....................................................120
Compensation of Celtrix Directors......................................................................121
Celtrix Compensation Committee Report On Executive Compensation........................................121
Compensation Committee Interlocks And Insider Participation............................................123
Section 16(a) Beneficial Ownership Reporting Compliance................................................123
Celtrix Performance Graph..............................................................................124
Deadline for Receipt of Stockholder Proposals for 2000 Annual Meeting..................................126
DESCRIPTION OF INSMED INCORPORATED.........................................................................127
Business Overview......................................................................................127
The Stock Incentive Plan...............................................................................127
Summary of the Stock Incentive Plan....................................................................127
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The Stock Purchase Plan................................................................................131
Financing Activity.....................................................................................132
Business Overview......................................................................................133
Background: Medical Need...............................................................................134
SomatoKine.............................................................................................134
Products Under Research And Development................................................................136
Clinical Development...................................................................................136
Corporate Collaborations...............................................................................139
Research And Development...............................................................................140
Manufacturing..........................................................................................141
Intellectual Property..................................................................................141
Government Regulation..................................................................................142
Insurance; Product Liability...........................................................................145
Competition............................................................................................145
Employees and Properties...............................................................................145
Legal Proceedings......................................................................................145
Selected Historical Financial Data.....................................................................146
Management's Discussion and Analysis of Financial Condition and Results of
Operations.........................................................................................147
Quantitative and Qualitative Disclosures About Market Risk.............................................154
Directors and Officers.................................................................................154
Executive Officer Compensation.........................................................................155
Stock Option Plans.....................................................................................156
Certain Transactions...................................................................................157
Security Ownership Of Certain Beneficial Owners And Management.........................................157
DESCRIPTION OF INSMED PHARMACEUTICALS......................................................................161
Business Overview......................................................................................161
Medical Background.....................................................................................161
Scientific Background..................................................................................162
Current Treatment and Market Opportunities.............................................................163
Clinical Development and Regulatory Program for INS-1..................................................164
Competition............................................................................................165
Patents................................................................................................166
Government Regulation..................................................................................167
Legal Proceedings......................................................................................169
Properties and Employees...............................................................................169
Selected Historical Financial Data.....................................................................170
Management's Discussion and Analysis of Financial Condition and Results of
Operations.........................................................................................170
Impact of Year 2000....................................................................................172
Quantitative and Qualitative Disclosures About Market Risk.............................................172
Directors and Officers.................................................................................172
Executive Officer Compensation.........................................................................173
Stock Option Plans.....................................................................................174
Certain Transactions...................................................................................175
Security Ownership of Certain Beneficial Owners and Management.........................................175
LEGAL MATTERS..............................................................................................178
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EXPERTS....................................................................................................179
WHERE YOU CAN FIND MORE INFORMATION........................................................................179
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
INCORPORATED...........................................................................................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 INCORPORATED,
AS AMENDED.............................................................................................H-1
ANNEX I -- AMENDED AND RESTATED BYLAWS OF INSMED INCORPORATED .............................................I-1
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QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION PROCESS
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 Incorporated.
Q: Who is Insmed Incorporated?
A: Insmed Incorporated is a holding company for Celtrix and Insmed
Pharmaceuticals. After the reorganizations Insmed Incorporated will own
100% of Celtrix and Insmed Pharmaceuticals. The board of directors and
officers of Insmed Incorporated will then manage the businesses of Insmed
Pharmaceuticals and Celtrix.
Q: What will happen to my Celtrix or Insmed Pharmaceuticals stock if the
reorganizations are completed?
A: Shareholders of Celtrix and Insmed Pharmaceuticals will become shareholders
of Insmed Incorporated and will no longer own shares of Celtrix or Insmed
Pharmaceuticals. The Insmed Incorporated common stock will trade on the
Nasdaq National Market under the symbol "INSM."
Q: Who must approve the reorganizations?
A: In addition to the approvals by the Celtrix, Insmed Pharmaceuticals and
Insmed Incorporated boards of directors, which have already been obtained,
the stockholders of Celtrix and Insmed Pharmaceuticals must approve and
adopt the reorganization proposal.
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, please 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 your proxy card without identifying how you want to
vote, your proxy will be counted "FOR" approval and adoption of the
reorganization proposal. Failing to return a signed proxy card or otherwise
vote at the meeting will have the same effect as a vote against the
reorganization proposal.
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:
1) send a written notice stating that you would like to revoke your proxy;
2) complete and submit a new proxy; or
3) attend the annual meeting of Celtrix stockholders or the special meeting
of Insmed Pharmaceuticals shareholders, as the case may be, and vote in
person.
1
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If you choose option 1) or 2) 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 ___.
Q: If my shares are held in "street name" by my stock broker, will the broker
vote these shares on the reorganization proposal on my behalf?
A: A broker will vote shares on the reorganization proposal 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 Incorporated will send written
instructions to you for exchanging your stock certificates.
Q. Are Celtrix or Insmed Pharmaceuticals shareholders entitled to appraisal
rights?
A: Yes. Under Delaware law, which governs the rights of stockholders of
Celtrix, Celtrix stockholders are entitled to appraisal rights for their
shares if they dissent from the merger. In addition, under Virginia law,
which governs the rights of shareholders of Insmed Pharmaceuticals, Insmed
Pharmaceuticals shareholders are entitled to appraisal rights for their
shares if they dissent from the share exchange. In order to exercise your
appraisal rights, you must generally:
. send the company a written statement of your desire to exercise
appraisal rights; and
. vote against the reorganization proposal.
Please read the more detailed description of your appraisal or dissenters'
rights on pages ___ to ____ and the pertinent provisions of Delaware and
Virginia law attached as Annex C and Annex D, respectively.
Q: When do Celtrix, Insmed Pharmaceuticals and Insmed Incorporated expect the
reorganizations to be complete?
A: Celtrix, Insmed Pharmaceuticals and Insmed Incorporated are working to
complete the reorganizations as quickly as possible. Celtrix's stockholders
meeting and Insmed Pharmaceuticals' shareholders meeting are on ______,
2000 and we expect to complete the reorganizations a few business days
later.
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:
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
Attn.: Donald D. Huffman
Telephone: (408) 988-2500
or
Insmed Pharmaceuticals, Inc.
800 E. Leigh St.
Richmond, VA 23219
Attn.: Michael D. Baer
Telephone: (804) 828-6893
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Recent developments
Financing
On January 13, 2000 Insmed Incorporated and Insmed Pharmaceuticals entered
into a purchase agreement with a group of investors led by Cooper Hill Partners,
LLC. Other members of the group included funds managed by Orbi Med Advisors,
Quantum Partners and Vector Fund Management. The agreement 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 Incorporated, with each warrant exercisable into one share of Insmed
Incorporated common stock at a price of $2.25 for aggregate consideration of
$34.5 million.
The purchase agreement provides that the financing will close 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
Incorporated common stock. Assuming we complete the financing and that the
investors exercise their warrants immediately following the reorganizations, the
investors, former holders of common and preferred stock of Insmed
Pharmaceuticals, excluding the new investors, and former holders of common and
preferred stock of Celtrix will collectively hold the following percentages of
Insmed Incorporated common stock on a fully diluted basis:
<TABLE>
<CAPTION>
Percentage Ownership Percentage Ownership of
of Insmed Incorporated Insmed Incorporated
Following the Following the Reorganizations
Reorganizations Assuming Completion of the
Shareholders Without the Financing Financing
- ------------ --------------------- ---------
<S> <C> <C>
New Investors -- 22.0%
Former Insmed
Pharmaceuticals Shareholders1 56.8% 44.3%
Former Celtrix Stockholders 43.2% 33.7%
</TABLE>
1. Excludes the proposed purchase of Insmed Pharmaceuticals common stock by
Taisho Pharmaceuticals described on page ____ under "License Agreement."
The obligation of the investors to complete the financing is subject to the
satisfaction of a number of conditions by Insmed Pharmaceuticals and Insmed
Incorporated, including:
. the receipt of certificates by the investors from Insmed
Pharmaceuticals and Insmed Incorporated certifying the truth of
representations and warranties made by Insmed Pharmaceuticals and
Insmed Incorporated in the purchase agreement governing the financing;
. the receipt of certificates by the investors from Insmed
Pharmaceuticals and Insmed Incorporated certifying that the conditions
to closing the reorganizations stated 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
Incorporated, Insmed Pharmaceuticals or Celtrix, taken as a whole;
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. the execution of a registration rights agreement among the investors,
Insmed Pharmaceuticals and Insmed Incorporated;
. 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 Incorporated.
License Agreement
On March 14, 2000, Insmed Pharmaceuticals signed a letter of intent with
Taisho Pharmaceuticals Co., Ltd., the leading Japanese over-the-counter
pharmaceutical company, regarding development and commercialization rights for
Insmed Pharmaceuticals lead compound, INS-1, for the treatment of polycystic
ovary syndrome and type 2 diabetes in Japan and other Asian countries. Insmed
Pharmaceuticals will retain all the rights to INS-1 in the rest of the world.
The letter of intent specifies that Taisho will make up-front, development,
milestone and royalty payments pursuant to a definitive license agreement to be
negotiated between the parties. In addition, Taisho has agreed to purchase
106,758 shares of Insmed Pharmaceuticals common stock at a price of $28.10 per
share. Assuming we complete the reorganizations, Taisho will receive 373,653
shares of Insmed Incorporated common stock at an effective price per share of
$8.03.
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SUMMARY
This summary highlights 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 Incorporated
800 East Leigh Street
Richmond, Virginia 23219
(804) 828-6893
Insmed Incorporated is a newly-formed corporation. The only actions taken
by Insmed Incorporated 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
Insmed Pharmaceuticals common stock and warrants to purchase shares of Insmed
Incorporated common stock, as described in "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 Incorporated capital
stock, such that Celtrix and Insmed Pharmaceuticals will become wholly-owned
subsidiaries of Insmed Incorporated.
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:
. gaining U.S. regulatory approvals for the use of INS-1 in the treatment of
PCOS;
. retaining U.S. marketing and distribution rights to INS-1 for PCOS;
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<PAGE>
. 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;
. acquiring and in-licensing additional products and technologies.
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
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.
Insmed Incorporated will issue approximately ____ shares to the Celtrix
stockholders upon completion of the reorganizations. As of November 30, 1999,
the original date of signing the reorganization agreement, this equals an
aggregate consideration of approximately $72 million. Upon completion of the
reorganizations, each of Celtrix and Insmed Pharmaceuticals will become
wholly-owned subsidiaries of Insmed Incorporated.
The Merger
. a wholly-owned subsidiary of Insmed Incorporated will merge with and into
Celtrix. Celtrix will be the surviving corporation, becoming a wholly-owned
subsidiary of Insmed Incorporated.
. each issued and outstanding share of Celtrix common stock converts into the
right to receive one (1) share of Insmed Incorporated common stock.
. each issued and outstanding share of Celtrix preferred stock converts into
the right to receive approximately _____ shares of Insmed Incorporated
common stock.
. each outstanding option, warrant or right to purchase shares of Celtrix
common stock will be converted into a new option warrant or other right, as
appropriate, to purchase the same number of shares of Insmed Incorporated
common stock at the same exercise price and on other terms substantially
similar to the old option.
. cash will be paid instead of issuing fractional shares or options, warrants
or other rights to purchase fractional shares.
The Share Exchange
. each issued and outstanding share of Insmed Pharmaceuticals common stock
will become exchangeable for 3.5 shares of Insmed Incorporated common
stock.
. each issued and outstanding share of Insmed Pharmaceuticals preferred stock
will become exchangeable for 3.5 shares of Insmed Incorporated common
stock.
. Insmed Pharmaceuticals will become a wholly-owned subsidiary of Insmed
Incorporated.
. 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 Incorporated to purchase
a number of shares of Insmed Incorporated common stock equal to the number
of shares of Insmed Pharmaceuticals common stock that were subject to the
option,
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<PAGE>
warrant or other right, multiplied by 3.5 at an exercise price per share
divided by 3.5 and rounded up to the nearest tenth of a cent, and on other
terms substantially similar to the old option.
. cash will be paid instead of issuing fractional shares or options, warrants
or other rights to purchase fractional shares.
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
Incorporated 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.
Stockholder Voting Agreements
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.
The Meetings
Annual Meeting of Celtrix Stockholders (See page __)
At the annual meeting of Celtrix stockholders, Celtrix stockholders will
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 will 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 annual meeting proposals require the following affirmative
votes for approval:
Reorganization Proposal
. majority of the outstanding shares of Celtrix common stock.
Election of Directors
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<PAGE>
. the five nominees receiving the greatest number of votes will become the
new directors of Celtrix.
Ratification of Accountants
. majority of the shares of Celtrix common stock present in person or by
proxy and entitled to vote.
Transaction of Most Other Business
. majority of the shares of Celtrix common stock present in person or by
proxy and entitled to vote.
Insmed Pharmaceuticals. The special meeting proposals require the following
affirmative votes for approval:
Reorganization Proposal
. majority of the outstanding shares of the Insmed Pharmaceuticals Series A
Preferred Stock and Series B Preferred Stock voting together as a single
voting group; and
. more than two-thirds of the outstanding shares of Insmed Pharmaceuticals
capital stock, voting as a single voting group.
Transaction of Most Other Business
. majority of common stock, Insmed Pharmaceuticals Series A Preferred Stock
and Series B Preferred Stock, voting as a single voting group, present in
person or by proxy at the meeting and entitled to vote.
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 related transactions, the Celtrix board of directors considered the
opportunities for Celtrix as a separate company and as combined with Insmed
Pharmaceuticals and Insmed Incorporated, 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, other than one
director who abstained solely because of a potential conflict of interest as
described on page __, 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 related transactions, the Insmed Pharmaceuticals board of directors
considered the opportunities for Insmed Pharmaceuticals as a separate company
and as combined with Celtrix and Insmed Incorporated, 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 Incorporated (See page __)
Edgar G. Engleman, a member of the Insmed Pharmaceuticals and Insmed
Incorporated boards 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:
. 917,500 shares of Insmed Pharmaceuticals Series B Preferred Stock;
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<PAGE>
. 4,530,516 shares of Celtrix common stock; and
. 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., under which he would receive $6,000 per month for a period of
eighteen months after the reorganizations;
. upon closing of the reorganizations, Celtrix will pay a $50,000
transaction bonus to each of the current officers (and one former
officer) of Celtrix;
. Insmed Incorporated has entered into an arrangement with Malcolm J.
McKay, Ph.D. under which he would receive from Insmed Incorporated
106.5% of the base salary he currently receives from Celtrix for a
period terminating on December 31, 2000, plus standard Insmed
Incorporated employee benefits;
. indemnification and limitation of liability provisions covering
Celtrix directors and officers will be substantially the same in all
material respects for Insmed Incorporated directors and officers after
the effective time of the reorganizations;
. immediately prior to 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
. the directors' and officers' outstanding and unexercised options to
purchase Celtrix common stock will convert into new Insmed
Incorporated options according to the reorganization exchange formula.
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 become President and Chief Executive Officer of Insmed
Incorporated;
. under the terms of the reorganization agreement, Michael D. Baer will
become Chief Financial Officer of Insmed Incorporated;
. upon completion of the reorganizations, Insmed Pharmaceuticals will
pay a bonus of $120,000 to Geoffrey Allan, Ph.D., its President, Chief
Executive Officer and Chairman of the Board, and $50,000 to Michael D.
Baer, its Chief Financial Officer;
. under the terms of the reorganization agreement, Celtrix and Insmed
Pharmaceuticals agree that Geoffrey Allan, Ph.D., Gustav A.
Christensen,
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Kenneth G. Condon, Graham K. Crooke, MB.BS, Dennis J. Dougherty,
Steinar J. Engelsen, M.D. and Edgar G. Engleman, M.D. will be the
initial directors of Insmed Incorporated;
. indemnification and limitation of liability provisions covering Insmed
Pharmaceuticals directors and officers will be substantially the same
in all material respects for Insmed Incorporated directors and
officers after the effective time of the reorganizations; and
. the directors' and officers' outstanding and unexercised options to
purchase Insmed Pharmaceuticals common stock will convert into new
Insmed Incorporated options according to the reorganization exchange
formula.
Opinion of Celtrix's Financial Advisor (See page __)
Celtrix. In deciding to approve the reorganization agreement and the
related transactions, 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 completion of
the reorganizations as of November 29, 1999, the date the board of directors of
Celtrix considered and approved the merger. On 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 stockholders is fair, from a financial point of view.
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.
Conditions to the Reorganizations (See page __)
Celtrix and Insmed Pharmaceuticals. The completion of the reorganizations
is subject to the satisfaction of a number of conditions by Celtrix and Insmed
Pharmaceuticals, including:
. effectiveness of the registration statement filed by Insmed
Incorporated;
. approval of the reorganization agreement by the Celtrix stockholders
and the Insmed Pharmaceuticals shareholders;
. the absence of any restraining order, injunction or other legal
restraint preventing the completion of the reorganization
transactions;
. receipt of all required governmental and other consents and approvals;
. approval of the Insmed Incorporated common stock 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 the Insmed Incorporated common stock that they receive
in the reorganizations.
Celtrix. The obligation of Celtrix to complete 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 its representations in the reorganization
agreement and certifying
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the performance of its covenants in the reorganization agreement;
. receipt of listing approval from the Nasdaq National Market or The
Nasdaq SmallCap Market, for the Insmed Incorporated shares that
Celtrix stockholders will receive in the reorganizations;
. receipt of a favorable tax opinion from Venture Law Group regarding
the treatment of the merger as a reorganization and other matters
related to the merger;
. the absence of any events that could have a material adverse effect on
Insmed Pharmaceuticals;
. receipt by Insmed Pharmaceuticals of all necessary consents,
approvals, actions, registrations and filings; and
. the reasonable satisfaction of Celtrix and Celtrix's counsel with the
proceedings and documents that Insmed Pharmaceuticals executes in
connection with the reorganizations.
Insmed Pharmaceuticals. The obligation of Insmed Pharmaceuticals to
complete 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 its representations and warranties in the
reorganization agreement and certifying the performance of its
covenants in the reorganization agreement;
. receipt of listing approval from the Nasdaq National Market or The
Nasdaq SmallCap Market for the Insmed Incorporated shares that Insmed
Pharmaceuticals shareholders will receive in the reorganizations;
. receipt of a favorable tax opinion from Hunton & Williams regarding
the treatment of the exchange as a reorganization and other matters
related to the exchange;
. the absence of any events that could have a material adverse effect on
Celtrix;
. receipt by Celtrix of all necessary consents, approvals, actions,
registrations and filings; and
. the reasonable satisfaction of Insmed Pharmaceuticals' and Insmed
Incorporated's counsel with the proceedings and documents that Celtrix
executes 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. If either party waives any condition relating to tax opinions
or any other material condition, we will amend this joint proxy
statement/prospectus and resolicit shareholder approval of 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.
Also, the parties may terminate the reorganization agreement in certain other
circumstances, including the following:
By Celtrix or Insmed Pharmaceuticals:
. if a court or government authority has prevented the reorganizations
or the reorganizations are not completed by May 31, 2000.
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By Celtrix:
. if the reorganization proposal does not receive the requisite
shareholder votes at the Insmed Pharmaceuticals special meeting;
. upon a material breach of a representation or warranty, covenant or
agreement by Insmed Pharmaceuticals or Insmed Incorporated if the
breach is not cured within 10 business days after notice of the
breach;
. 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 of the breach;
. 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 a party terminates the reorganization agreement, 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.
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
will be required with respect to any Insmed Incorporated 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
of the reorganizations to you.
Accounting Treatment and Considerations (See page __)
For accounting purposes Insmed Pharmaceuticals is the acquiring company.
Insmed Incorporated is a holding company formed by Insmed Pharmaceuticals in
order to facilitate the exchange of shares in accordance with the reorganization
agreement. The historical basis of Insmed Pharmaceuticals assets and liabilities
will
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carry over to Insmed Incorporated. We expect to account for the acquisition of
Celtrix by Insmed Incorporated under the purchase method of accounting in
accordance with generally accepted accounting principles. 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 Incorporated 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. Virginia law, the Insmed Pharmaceuticals Articles of
Incorporation and the Insmed Pharmaceuticals Bylaws currently govern the rights
of Insmed Pharmaceuticals shareholders. Upon completion of the share exchange,
Insmed Pharmaceuticals shareholders become shareholders of Insmed Incorporated
and Virginia law, Insmed Incorporated's Articles of Incorporation and Insmed
Incorporated's Amended and Restated Bylaws will govern their rights as
shareholders. Delaware law and the Celtrix Certificate of Incorporation and
Celtrix Bylaws currently govern the rights of Celtrix stockholders. Upon
completion of the merger, Celtrix stockholders become shareholders of Insmed
Incorporated, and Virginia law, the Insmed Incorporated Articles of
Incorporation and Insmed Incorporated Amended and Restated Bylaws will govern
their rights as shareholders. See "Comparison of Stockholders' Rights" on pages
__ to __.
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
Incorporated 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 Incorporated Common Stock (See page __)
Insmed Incorporated 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. These
documents are identified on pages ___, and instructions on how you can obtain
copies of these documents are found on page ___. If you would like more
information about Insmed Pharmaceuticals, it can be found in documents on file
at Insmed Pharmaceuticals' headquarters.
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Comparative Per Share Data
The following table states 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 Incorporated and accounting for that transaction under the purchase
method of accounting. The Insmed Incorporated 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 Incorporated. 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 Incorporated 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 Incorporated would have achieved if the acquisition of Celtrix by Insmed
Incorporated had taken place earlier or as an indication of the results of
Insmed Incorporated after the acquisition of Celtrix by Insmed Incorporated
Year Ended
December 31, 1999
-------------------------
Insmed Pharmaceuticals -- Historical
Basic and diluted net loss per share $ (2.16)
Book value per common share(1) $ (4.80)
<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>
Year Ended
December 31, 1999
-------------------------
Pro Forma Consolidated -- Insmed Incorporated
Basic and diluted net loss per share $ (0.18)
Book value per common share(2) $ 0.36
Year Ended
December 31, 1999
-------------------------
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
14
<PAGE>
(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.
(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.
15
<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>
16
<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
</TABLE>
<TABLE>
<CAPTION>
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>
17
<PAGE>
Insmed Incorporated - Unaudited Selected Pro Forma Condensed Consolidated
Financial Information
The following Pro Forma Condensed Consolidated Financial Statements reflect
the reorganization of Insmed Pharmaceuticals and Celtrix into Insmed
Incorporated in accordance with the reorganization agreement. The unaudited pro
forma condensed consolidated financial information we provide you with below
gives effect to the purchase of Celtrix and integration of Insmed
Pharmaceuticals by and into Insmed Incorporated, assuming that each share of
Insmed Pharmaceuticals' stock outstanding is exchanged for 3.5 shares of Insmed
Incorporated common stock and each share of Celtrix common stock is exchanged
for 1.0 share of Insmed Incorporated common stock and each share of Celtrix
Series A Preferred Stock is exchanged for __ shares of Insmed Incorporated
common stock. The historical basis of Insmed Pharmaceuticals' assets and
liabilities will carry over to Insmed Incorporated because Insmed
Pharmaceuticals is considered the acquiror for accounting purposes. The assets
and liabilities of Celtrix will be recorded at their estimated fair values. 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 Incorporated. The unaudited pro forma
condensed consolidated balance sheet data as of December 31, 1999 gives effect
to the reorganizations 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 preliminary allocation of the purchase price to the
Celtrix assets acquired, including in-process research and development, and
liabilities assumed based upon a valuation preformed by an independent third
party which has not yet been finalized. 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 on pages __ to __.
18
<PAGE>
Insmed Incorporated - 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 7,376
General and administrative 2,445 1,953 4,398
-------------- ------------ ---------- --------------------------------
8,794 (2,217) 11,774
-------------- ------------ ---------- --------------------------------
Operating loss (8,131) (2,217) (10,348)
Equity in loss of joint -- (8,973) (8,973)
venture
Amortization of goodwill -- -- $(798) (798)
Interest income, net 338 85 423
Proceeds from settlement
agreement -- 600 600
-------------- ------------ ---------- --------------------------------
Net loss $ (7,793) $ (10,505) $(798) $ (19,096)
============== ============ ========== ================================
Net loss per share-- basic $ (2.16) $ (0.40) $ (0.19)
and diluted
============== ============ ========== ================================
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 Financing Insmed as Historical Reorganization Pro Forma
Insmed Pro Forma Adjusted Celtrix Adjustments
Adjustments
-------------- ------------ ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and $4,635 $ 32,600 $ 37,235 $ 1,243 -- $38,478
investments
Total assets 5,296 32,600 37,896 4,407 12,199 $54,502
Convertible/exchangeable -- 7,948 (7,948) --
preferred stock
Total stockholders' equity
(deficiency) 4,462 32,600 37,062 (4,234) 18,523 51,351
</TABLE>
19
<PAGE>
RISK FACTORS
An investment in the Insmed Incorporated common stock offered by this joint
proxy statement/prospectus involves a high degree of risk. Before you decide to
invest in the Insmed Incorporated 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.
The risks and uncertainties described below are not the only ones facing
Insmed Incorporated. Additional risks and uncertainties not presently known to
Insmed Incorporated or that Insmed Incorporated currently deems immaterial may
also impair Insmed Incorporated's business operations.
If any of the following risks actually occur, Insmed Incorporated's
business, financial condition, or results of operations could be materially
adversely affected. In such case, the trading price of Insmed Incorporated's
common stock could decline and you could lose all or part of your investment.
Risks Related to the Reorganizations
Since the value of the consideration to be received in the reorganizations may
fluctuate, we cannot assure Celtrix stockholders and Insmed Pharmaceutical
shareholders of the value of the Insmed Incorporated common stock they will
receive in the reorganization.
Celtrix common stock is subject to substantial price volatility and,
therefore, the value of the consideration to be received by Celtrix stockholders
and Insmed Pharmaceuticals shareholders is subject to the same volatility. At
the effective time of the reorganizations, each outstanding share of Celtrix
common stock will be converted into one share of Insmed Incorporated common
stock, and each outstanding share of Celtrix Series A Preferred Stock will be
converted into approximately ____ shares of Insmed Incorporated common stock and
each outstanding share of common stock and preferred stock of Insmed
Pharmaceuticals will be converted into 3.5 shares of Insmed Incorporated 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 Incorporated 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
reorganizations, which may be greater or less than the value at the time the
Celtrix stockholders vote on the merger and the Insmed Pharmaceuticals
shareholders vote on the share exchange. Recent market prices of Celtrix common
stock are listed 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 complete 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.
20
<PAGE>
Our failure to successfully integrate the companies and transfer Celtrix's
operations to Richmond, Virginia may adversely impact our business, financial
condition and results of operations.
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 headquarters in San Jose, California to Insmed
Incorporated's headquarters in Richmond, Virginia. Our failure to effectively
accomplish the integration of Celtrix's and Insmed Pharmaceuticals' operations
could have an adverse effect on our business, results of operations and
financial condition.
It is possible that this move will be neither smooth nor successful. The
difficulties of moving may be increased by the necessity of coordinating between
Richmond, Virginia and San Jose, California. Moving the operations following the
reorganizations requires the dedication of management resources that may
temporarily distract attention from the day-to-day business of the combined
companies.
Failure to complete the reorganizations could negatively impact Celtrix's stock
price and future business and operations.
If Celtrix and Insmed Pharmaceuticals do not complete the reorganizations
for any reason, Celtrix may be subject to a number of material risks, including
the following:
. Celtrix may be required to pay Insmed Pharmaceuticals a termination
fee of $2.5 million which would reduce Celtrix's available cash by
approximately 33%. Under those circumstances, Celtrix would be able to
fund its operations for approximately the next 12 months;
. the price of Celtrix common stock may decline to the extent that the
current market price of Celtrix common stock reflects a market
assumption that the reorganizations will be completed;
. costs related to the reorganization, such as legal and accounting
fees, must be paid even if the reorganizations are not completed; and
. current and prospective Celtrix employees may experience uncertainty
about their future role with Celtrix. This may adversely affect
Celtrix's ability to attract and retain key management and technical
personnel.
Further, if the reorganizations are terminated and Celtrix's board of
directors determines to seek another reorganization or business combination,
Celtrix may not be able to find a partner willing to pay an equivalent or more
attractive price than that which would be paid in the merger. In addition, while
the reorganization agreement is in effect and subject to certain limited
exceptions, Celtrix is prohibited from soliciting a reorganization, sale of
assets or other business combination, with any party other than Insmed
Pharmaceuticals.
Failure to complete the reorganizations could negatively impact Insmed
Pharmaceuticals' business, financial condition and results of operations.
If Celtrix and Insmed Pharmaceuticals do not complete the reorganizations
for any reason, Insmed Pharmaceuticals may be subject to a number of material
risks, including the following:
. Insmed Pharmaceuticals may be required to pay Celtrix a termination
fee of $2.5 million which would reduce Insmed Pharmaceuticals'
available cash by approximately one-third;
21
<PAGE>
. the financing described under "Recent Developments" on page __ would
not be completed;
. without the financing and after accounting for the termination fee,
Insmed Pharmaceuticals only would be able to fund its operations until
September 2000;
. Insmed Pharmaceuticals will remain a private corporation with no
public market for the sale of its shares and therefore shareholders of
Insmed Pharmaceuticals may be unable to liquidate their investment in
Insmed Pharmaceuticals;
. costs related to the reorganizations, such as legal and accounting
fees, must be paid even if the reorganizations are not completed; and
. current and prospective Insmed Pharmaceuticals employees may
experience uncertainty about their future role with Insmed
Pharmaceuticals. This may adversely affect Insmed Pharmaceuticals'
ability to attract and retain key management, marketing and technical
personnel.
Further, if the share exchange is terminated and Insmed Pharmaceuticals'
board of directors determines to seek another reorganization or business
combination, Insmed Pharmaceuticals may not be able to find a partner willing to
combine on terms similar to the share exchange. In addition, while the
reorganization agreement is in effect and subject to certain limited exceptions,
Insmed Pharmaceuticals is prohibited from soliciting a merger, sale of assets or
other business combination, with any party other than Celtrix.
Risks Related to Insmed Incorporated
Because our products are in an early stage of development, none has received
regulatory approval or been released for commercial sale and therefore we can
give you no assurances that we will succeed in commercializing our products.
Our long-term viability and growth will depend on successful
commercialization of products resulting from our research activities. All of our
potential products and production technologies are in the research or
development stages and we have generated no revenues from product sales. Our
potential products will require significant additional development, laboratory
and clinical testing and investment before their commercialization. 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.
The failure to commercialize our potential products will have an adverse effect
on our business, financial condition and results of operations. 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. In addition,
potential products that appear promising at early stages of development may fail
for a number of reasons, including, the possibility that the products:
. may be found to be ineffective;
. may cause harmful side effects; or
. may be too expensive to manufacture.
22
<PAGE>
Our products may also fail to receive regulatory approval. In addition, our
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.
Since we have a limited operating history, a history of operating losses and
expect to generate operating losses for the foreseeable future, we may not
achieve profitability for some time, if at all.
We are at an early stage of development and we currently have no marketed
products. 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 are devoted to the development and testing of our 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. As of December 31, 1999, the
accumulated deficit for Insmed 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.
If our proposed financing does not close, our existing cash reserves will only
be sufficient to fund our activities until September 2000. If our proposed
financing does close, however, it will result in significant dilution of your
ownership of our shares.
As discussed in "Recent Developments" on page __, we entered into a
purchase agreement with a number of investors which provides for Insmed
Pharmaceuticals to issue 5,632,678 shares of its common stock and for Insmed
Incorporated to issue warrants to purchase up to 6,901,344 shares of Insmed
Incorporated common stock at any exercise price of $2.25 per share for an
aggregate consideration of $34.5 million. This financing is subject to approval
of the share exchange by the shareholders of Insmed Pharmaceuticals and the
merger by the stockholders of Celtrix, as well as those conditions normal and
customary to a stock purchase agreement and no assurance can be given that the
financing will actually occur. If we do not complete the proposed financing, our
existing cash reserves will be sufficient to fund our activities only until
September 2000. If the financing does occur, however, shareholders of Insmed
Incorporated at the time of the reorganizations may suffer significant dilution
if the value of the Insmed Incorporated common stock is substantially higher at
the time of the reorganizations than the price paid by the investors in this
financing.
We will need additional funds in the future to continue our operations, but we
face uncertainties with respect to our access to capital which could adversely
impact our business, financial condition and results of operations.
Our future capital requirements will be substantial in order to continue to
conduct the time consuming research and development, clinical studies and
regulatory activities necessary to bring our potential therapeutic products to
market and to establish production, marketing and sales capabilities. There can
be no assurance that our cash reserves together with any funding subsequently
received will be sufficient to satisfy our capital requirements. The failure to
satisfy our capital requirements will result in an adverse effect on our
business, financial condition and results of operations. 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
23
<PAGE>
required for product commercialization. Including the funds received in
connection with the financing discussed in "Recent Developments" 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 completed, our existing cash reserves will be
sufficient to fund our activities only until September 2000.
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 shareholders 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.
If our products fail in clinical trials or we cannot enroll enough patients to
complete our clinical trials there may be an adverse effect on our business,
financial condition and results of operations.
In order to sell our products, we must receive regulatory approval for our
products. 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. If any of our products fail in clinical trials, we
cannot obtain FDA approval for such products. Therefore, if our products fail in
clinical trials there will be an adverse effect on our business, financial
condition and results of operations. In addition, the results from preclinical
testing and early clinical trials may not be predictive of results obtained in
later clinical trials. There can be no assurance that clinical trials we
conduct, by contract research organizations we retain or by corporate partners
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.
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.
We believe our planned procedures for enrolling patients are appropriate.
However, delays in patient enrollment will result in increased costs and delays,
which could have a material adverse effect on our business, financial condition
and results of operations.
Our failure to obtain regulatory approvals for our products under development
may adversely affect our business, financial condition and results of
operations.
Because our products are in an early stage of development, none has
received regulatory approval or been released for commercial sale. The
preclinical testing and clinical trials of any compounds we or our collaborative
partners develop and the manufacturing and marketing of any drugs
24
<PAGE>
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. 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 takes 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. Delays or rejections also 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.
If the FDA grants approval for a drug, however, 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 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 and the future to obtain such approvals may have material adverse
effect on our business, financial condition and results of operations. 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 detailed above. Approval by the FDA does not ensure
approval by the regulatory authorities of other countries.
Our business, financial condition and results of operations may be materially
adversely affected if our products do not receive market acceptance for any
reason.
There can be no assurance that any products we successfully develop, if
approved for marketing, will achieve market acceptance. Our business, financial
condition and results of operations may be materially adversely affected if our
products do not receive market acceptance for any reason. 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;
25
<PAGE>
. their potential advantage over existing treatment methods; and
. reimbursement policies of government and third-party payers, including
insurance companies.
For example, even if we obtain regulatory approval to sell our products,
physicians and health care payers could conclude that our products are not safe
and effective and not use them to treat patients. 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.
Uncertainty regarding third party reimbursement and healthcare cost containment
initiatives may negatively affect our business, financial condition and results
of operations.
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. 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. Therefore, third-party payers may not approve our products
for reimbursement.
If third-party payers do not approve our products 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.
Moreover, 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 which could have
an adverse effect on our business, financial condition and results of
operations.
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 which may make the
commercialization of our products difficult.
We have no manufacturing experience. Our failure to successfully
manufacture and market our products could have a material adverse effect on our
business, financial conditions and results of operations. 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.
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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 SomatoKine(TM) may not be available which may
adversely affect our business, financial condition and results of operations.
The recombinant proteins which are the components of SomatoKine are made at
only a few facilities. We believe we currently have sufficient quantities to
conduct two clinical trials. We will need to contract with an outside contractor
in order to pursue additional clinical trials. 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
business, financial condition and results of operations.
We need corporate partners for success.
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 the following:
. 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;
. 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.
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Our growth strategy includes the acquisition of complementary
businesses that may not be available to acquire or, if acquired, might not
improve our business, financial condition or results of operations.
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, financial condition and results of
operations.
An important part of our strategy involves conducting proprietary research
programs. 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 and have an adverse
effect on our business, financial condition and results of operations. For
example, 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.
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.
If we fail to make payments required under the license agreement with the
University of Virginia Patent Foundation, then the license agreement and our
rights to the patents licensed to us may be terminated which would have an
adverse effect on our business, financial condition and results of operations.
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
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 agreement, then the license agreement and our rights to the patents
licensed to us may be terminated which would have an adverse effect on our
business, financial condition and results of operations.
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We face uncertainties related to patents and proprietary technology which may
adversely affect our business, financial condition and results of operations.
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.
Our patent positions are highly uncertain, and any patents that may be issued
for our potential products will be subject to this uncertainty which may have an
adverse effect on our business, financial condition and results of operations.
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. 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.
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.
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
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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.
Third parties may claim that our products infringe on their proprietary rights
which may adversely affect our business, financial condition and results of
operations.
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. Such a result may have an adverse effect on our business,
financial condition and results of operations. 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.
The inability to compete successfully will harm our business, financial
condition and results of operations.
We are engaged in a business characterized by extensive research efforts,
rapid developments and intense competition. 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. Our failure to compete
effectively would have a material adverse effect on our business, financial
condition and results of operations. We expect that competition will be based,
among other things, on product efficacy, safety, reliability, availability,
timing and scope of regulatory approval and price. 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. 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. Many of our competitors may
achieve product commercialization or patent protection earlier than we will.
Furthermore, we believe that our competitors have used, and may continue to use,
litigation to gain a competitive advantage. Finally, our competitors may use
different technologies or approaches to the development of products similar to
the products we are seeking to develop.
Rapid technological change could make our products obsolete which could have a
material adverse effect on our business, financial condition and results of
operations.
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
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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.
Rapid technological change could make our products obsolete which could have a
material adverse effect on our business, financial condition and results of
operations.
We are dependent upon key personnel and others the loss of which could have a
material adverse effect on our business, financial condition and results of
operations.
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 and
would have a material adverse effect on our business, financial condition and
results of operations. 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.
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.
Our products involve the use of hazardous materials which could expose us to
damages which could have a material adverse effect on our business, financial
condition and results of operations.
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. This could have a
material adverse effect on our business, financial condition and results of
operations.
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 which could have a
material adverse effect on our business, financial condition and results of
operations.
We are subject to product liability claims that may not be covered by our
insurance which could have a material adverse effect on our business, financial
condition and results of operations.
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
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all. If we cannot obtain sufficient insurance coverage on reasonable terms, or
otherwise protect ourselves against potential product liability claims in excess
of our insurance coverage, if any, our business, financial condition and results
of operations could be materially adversely effected.
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:
. 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
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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 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
thus 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 Incorporated, 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 Incorporated,
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 Incorporated. 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 Incorporated.
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 Incorporated
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 proposal to approve and adopt the
reorganization agreement;
. to elect directors of the board of directors to serve until the
earlier of the expiration of their term or completion of the
reorganizations;
. to ratify the appointment of Ernst & Young LLP as Celtrix's
independent public accountants for the fiscal year ending March 31,
2000; and
. to transact such other matters as may properly come before the
meeting.
The Celtrix stockholders also might be asked to vote upon a proposal
to adjourn or postpone the annual meeting for the purpose, among others, of
allowing additional time for the solicitation of additional votes to
approve the merger.
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.
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The Insmed Pharmaceuticals shareholders also might be asked to vote upon a
proposal to adjourn or postpone the special meeting for the purpose, among
others, of allowing additional time for the solicitation of additional votes to
approve the reorganization.
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. 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 regard to the following proposals:
. adoption of the reorganization agreement;
. ratification of the appointment of Ernst & Young LLP as Celtrix's
independent public accountants; and
. each other matter that may properly come before the Celtrix annual
meeting.
A different voting structure applies to the election of directors. 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. 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. On all other matters, each share has one vote.
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 constitutes a quorum at the annual meeting. The reorganization proposal
requires the affirmative vote of the holders of a majority of the outstanding
shares of Celtrix common stock, voting as a single voting group for approval.
Each nominee for election to the board of directors receiving the greatest
number of votes, up to five directors, will be elected directors. Ratification
of the selection of Ernst & Young LLP as the independent public accountants of
Celtrix requires 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.
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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. Insmed Incorporated and Celtrix MergerSub have entered into a stockholder
agreement with the holders of approximately 13,447,001 shares or [43.7%] of
Celtrix's outstanding common stock requiring such persons to vote their Celtrix
common stock "FOR" adoption of the reorganization proposal. One of the Celtrix
directors who is affiliated with a holder of 4.9% of the outstanding Celtrix
common stock 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 reorganization proposal. 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 __ and for more information
on the parties to and terms of the Celtrix stockholder agreement, see "Celtrix
and Insmed Pharmaceuticals Stockholder Agreements" on page __ and the Celtrix
Stockholder Agreement which is attached as Annex G hereto.
- --------------------------------------------------------------------------------
Celtrix Common Stock Beneficial Ownership
(as of Record Date)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------ -------------------
Directors, Officers and Affiliates 14,955,752
- ------------------------------------------------------------ -------------------
Total 30,790,372
- ------------------------------------------------------------ -------------------
Percentage Ownership by Directors, Officers and Affiliates 48.62%
============================================================ ===================
Shares Subject to Voting Agreement 13,447,001
- ------------------------------------------------------------ -------------------
Percentage of Stock Subject to Voting Agreement 43.7%*
- ------------------------------------------------------------ -------------------
*An additional stockholder, who owns approximately 4.9% of the outstanding
Celtrix stock, has agreed to vote its shares in the same manner as the majority
of the remaining shares of Celtrix common stock.
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, 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 the
following proposals:
. adoption of the reorganization agreement; and
. any other matter properly brought before the 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
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<PAGE>
shares of Insmed Pharmaceuticals Series A Preferred Stock and Insmed
Pharmaceuticals Series B Preferred Stock, as separate voting groups, constitutes
a quorum at the special meeting. Approval of the reorganization proposal
requires the affirmative vote of the holders:
. 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 Insmed Pharmaceuticals Series B Preferred Stock,
voting together as a single voting group.
With some exceptions, the transaction of other business properly brought before
the meeting requires 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.
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. Celtrix has
entered into a stockholder agreement with the holders of 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 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 __
and for more information on the parties to and terms of the Insmed
Pharmaceuticals stockholder agreement, see "Celtrix and Insmed Pharmaceuticals
Stockholder Agreements" on page __ and the Insmed Pharmaceuticals Stockholder
Agreement which is attached as Annex E hereto.
-------
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Insmed Pharmaceuticals Stock Beneficial Ownership (as of Record Date)
- -------------------------------------------------- ------------------------- -------------------------
Capital Stock Preferred Stock
(Common Stock, Series A (Series A and Series B)
Preferred Stock and
Series B Preferred
Stock)
- -------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Directors, Officers and Affiliates 7,162,876 6,195,979
- -------------------------------------------------- ------------------------- -------------------------
Total 13,659,750 9,726,360
- -------------------------------------------------- ------------------------- -------------------------
Percentage Ownership by Directors, Officers and 52.4% 63.7%
Affiliates
================================================== ========================= =========================
Shares Subject to Voting Agreement 6,012,709 5,371,287
- -------------------------------------------------- ------------------------- -------------------------
Percentage of Stock Subject to Voting Agreement 44.0% 55.2%
- -------------------------------------------------- ------------------------- -------------------------
</TABLE>
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 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. 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.
Broker Voting. 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. 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
40
<PAGE>
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.
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 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 completion of the reorganizations, a transmittal form
will be sent to you with instructions for receiving Insmed Incorporated 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
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.
41
<PAGE>
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.
42
<PAGE>
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 Incorporated. In the reorganizations,
Celtrix MergerSub, a wholly-owned subsidiary of Insmed Incorporated, will be
merged with and into Celtrix with Celtrix as the surviving corporation and the
separate corporate existence of MergerSub will end. Celtrix will become a
wholly-owned subsidiary of Insmed Incorporated. In whole, Insmed Incorporated
will issue stock with an aggregate consideration of approximately $72 million
for Celtrix. Throughout this document, the merger of Celtrix MergerSub into
Celtrix will be referred to as the merger. In addition, Insmed Pharmaceuticals
and Insmed Incorporated will conduct a share exchange by which non-dissenting
Insmed Pharmaceuticals shareholders will exchange their shares of capital stock
of Insmed Pharmaceuticals for shares of Insmed Incorporated capital stock.
Following the share exchange, Insmed Pharmaceuticals will be a wholly-owned
subsidiary of Insmed Incorporated. Throughout this document, the exchange of
Insmed Pharmaceuticals capital stock for Insmed Incorporated 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 Incorporated;
. 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
Incorporated and Elan Corporation, plc will appoint an observer to the
Insmed Incorporated board of directors as described on page __;
. officers of Insmed Incorporated 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 Incorporated common stock
or [33.7%] of Insmed Incorporated on a fully diluted basis;
43
<PAGE>
. former Insmed Pharmaceuticals common and preferred shareholders will
collectively own approximately [53,593,215] shares of Insmed
Incorporated common stock or [44.3%] of Insmed Incorporated on a fully
diluted basis;
. the investors who purchase Insmed Pharmaceuticals common stock and
Insmed Incorporated warrants in connection with the financing
described on page __ just before the closing, will collectively own
approximately [26,615,717] shares of Insmed Incorporated common stock
or [22.0%] of Insmed Incorporated on a fully diluted basis;
. approximately 1,410,722 shares of Insmed Incorporated common stock
will be issuable upon the exercise of converted Celtrix options; and
. approximately 5,962,369 shares of Insmed Incorporated 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 by it 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.
44
<PAGE>
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
Common and Preferred Stockholders. In connection with the reorganizations:
. each holder of Celtrix common stock will receive one (1) share of
Insmed Incorporated common stock for each outstanding share of Celtrix
common stock;
. each holder of Celtrix Series A Preferred Stock will receive
__________ shares of Insmed Incorporated common stock for each
outstanding share of Celtrix Series A Preferred Stock held;
. each shareholder of Insmed Pharmaceuticals will receive 3.5 shares of
Insmed Incorporated 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; and
. cash will be paid instead of issuing fractional shares of Insmed
Incorporated common stock.
Holders of Options, Warrants or Other Rights. At the effective time of the
reorganizations, each outstanding option 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 convert
automatically into a new option, warrant or other right to purchase the number
of shares of Insmed Incorporated 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 Incorporated. 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 Incorporated stock
options, see "Insmed Incorporated 2000 Stock Option Plan" on page ___.
Cash Payments for Fractional Shares of Insmed Incorporated Common Stock
If any fractional shares of Insmed Incorporated result from the conversion
of Insmed Pharmaceuticals and Celtrix shares of common stock and preferred
stock, no fraction of a share of Insmed Incorporated 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
Incorporated common stock as reported on [the Nasdaq National
45
<PAGE>
Market], on the first full day on which the Insmed Incorporated common stock is
traded on [the Nasdaq National Market].
Similarly, if rights to purchase fractional shares of Insmed Incorporated
result from the conversion of Insmed Pharmaceuticals options, warrants or other
rights, 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 Incorporated 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:
. the fractional share multiplied by the mean of the high and low sales
price of Insmed Incorporated common stock on the first full day of
trading on [the Nasdaq National Market] after completion of the
reorganizations; and
. 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. After completing preliminary due diligence on that other company,
Insmed Pharmaceuticals determined that the companies' technology and business
strategies were not complementary and discontinued discussions with that
company.
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.
46
<PAGE>
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.
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.
47
<PAGE>
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.
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 nonbinding, general letters of intent
from Insmed Pharmaceuticals and Company B regarding their desire to merge with
Celtrix. Company B proposed to merge with Celtrix based on an unspecified price.
In addition, Company B's proposal was contingent on satisfactory completion of
due diligence by Company B, negotiation of a merger agreement and Celtix not
licensing out any rights to SomatoKine. Company B indicated 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, because Company B wanted to retain full ownership of all of Celtrix's
indications for SomatoKine.
48
<PAGE>
On March 30, 1999, Celtrix also received a detailed and very specific
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.
On March 31, 1999, the board of directors of Celtrix held a special meeting
to evaluate the letters of intent from Insmed Pharmaceuticals and Company B 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.
In reaching this decision, the board assessed the financial resources of
Celtrix in terms of its ability to fund the company's development programs and
continue operations in both the short and long term, the likelihood of raising
additional funds on acceptable terms and the probability of completing a
merger transaction with Company B or Insmed Pharmaceuticals in the near term.
The board considered that Elan was willing to execute a binding letter agreement
on March 31, 1999, and that the proposed transaction had a high probability of
being completed. In addition, the transaction would meet the company's objective
of obtaining funding to advance a key clinical program and for ongoing
operations. Further, it considered that the letters of intent from Company B and
Insmed Pharmaceuticals were very uncertain, were not specific, did not have
specific pricing, would require lengthy negotiations, had numerous conditions,
and therefore had a lower likelihood of resulting in a completed transaction.
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. We describe the material terms of the Elan
joint venture under "Business of Celtrix -- Corporate Collaborations" on page
___.
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.
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 through Mr.
Milstein but again expressed concern that the partnership completed with Elan
diminished their desire to merge with Celtrix. Despite Company B's expression of
interest Company B did not follow up with any proposal or definitive terms.
Celtrix did not have any further discussions with Company B.
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.
49
<PAGE>
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, assuming that
Insmed Pharmaceuticals would complete 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
50
<PAGE>
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 reorganizations at the exchange ratio proposed by
Celtrix on November 24, 1999. After consideration and discussions, other than
one director who abstained solely because of a potential conflict of interest as
described on page __, the Insmed Pharmaceuticals board unanimously:
. determined that the terms of the reorganizations were desirable to
Insmed Pharmaceuticals;
. approved the terms of the reorganization agreement;
. authorized Insmed Pharmaceuticals' officers to undertake all acts
necessary or desirable to effectuate the reorganizations;
. ratified and approved all actions taken previously by any officer or
director of Insmed Pharmaceuticals in connection with the
reorganizations; and
. 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:
. 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;
. approved the terms of the reorganization agreement;
51
<PAGE>
. authorized Celtrix's officers to undertake all acts necessary or
desirable to effectuate the reorganizations;
. ratified and approved all actions taken previously by any officer or
director of Celtrix in connection with the reorganizations; and
. 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, other than one
director who abstained solely because of a potential conflict of interest as
described on page __, the Insmed Pharmaceuticals board unanimously:
. determined that the terms of the reorganizations were desirable to
Insmed Pharmaceuticals;
. approved the terms of the amended and restated reorganization
agreement;
. authorized Insmed Pharmaceuticals' officers to undertake all acts
necessary or desirable to effectuate the reorganizations;
. ratified and approved all actions taken previously by any officer or
director of Insmed Pharmaceuticals in connection with the
reorganizations; and
. 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:
. 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;
. approved the terms of the amended and restated reorganization
agreement;
. authorized Celtrix's officers to undertake all acts necessary or
desirable to effectuate the reorganizations;
. ratified and approved all actions taken previously by any officer or
director of Celtrix in connection with the reorganizations; and
52
<PAGE>
. 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:
. the legal duties of the Celtrix board of directors;
. regulatory, tax and accounting matters;
. the terms of the reorganization agreement;
. the other definitive agreements contemplated by that agreement; and
. other relevant matters.
The board's primary motivation for the reorganizations is the risk
associated with Celtrix's singular focus. Celtrix is a single product company
with a valuation in early 1999 of less than $50 million. If Celtrix had chosen
not to merge, the risk associated with a single product company would remain and
would potentially have adverse effects on raising enough capital for further
development of SomatoKine. Celtrix would have to solicit corporate partnerships
for essentially all SomatoKine indications and in the process give up large
parts of the potential upside. Celtrix stockholders expect more upside than what
could be realized based on royalties. The market capitalization of less than $50
million with a share price of approximately $1.00 leads to a degree of
illiquidity and prevents larger funds from investing. A merger of the right
companies can solve the problems illustrated above. Multiple product companies
are more diverse with respect to risk. Increased capitalization with increased
share price enhances access to capital so as to allow for development of
potential products without having to give up major rights.
The proposed merger of Celtrix with Insmed Pharmaceuticals would fulfill
the desired objectives as illustrated in the following table.
- ---------------- ---------------------------------- ----------------------------
Celtrix Prior to Merger Announcement Projected Post-Merger
- --------------------------------------------------------------------------------
Cash Greater than $2 million Less than $45 million
- --------------------------------------------------------------------------------
Products 1 2
- --------------------------------------------------------------------------------
Indications 3 4
- --------------------------------------------------------------------------------
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, the following were
some of the more important factors considered by Celtrix's board of directors in
approving the reorganization agreement:
53
<PAGE>
. 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 Incorporated 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 Celtrix stockholders
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:
.. that the reorganizations offered a strategic fit between
Celtrix's and Insmed Pharmaceuticals' core businesses; and
.. that the reorganizations would afford Celtrix stockholders the
chance, as equity holders of Insmed Incorporated, 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;
54
<PAGE>
. the potential to pursue additional indications for Celtrix's main
product;
. the reduction of strategic risk inherent in an expanded product
portfolio;
. 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 Incorporated compared to
Celtrix and the corresponding increase in trading liquidity of the
Insmed Incorporated common stock compared to the Celtrix common stock;
. 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 completed 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
Incorporated; 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.
55
<PAGE>
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
Other than one director who abstained solely because of a potential
conflict of interest as described on page __, the 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 therefore 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;
56
<PAGE>
. 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 described 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, fair
to 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 proposal. In approving and adopting the
reorganization proposal, 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 Incorporated as
well as other interests that may be different from, or in addition to, their
rights as Celtrix stockholders. 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 listed above, other than one director who abstained solely because of a
potential conflict of interest as described on page __, 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
advisable, fair to and in the best interests of Insmed Pharmaceuticals and the
Insmed Pharmaceuticals shareholders, and, other than one director who abstained
solely because of a potential conflict of interest as described on page __, 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 Incorporated as well as other interests that may
be
57
<PAGE>
different from, or in addition to, their rights as Insmed Pharmaceuticals'
shareholders. See "Interests of Certain Persons in the Reorganizations" on page
__.
Opinion of Celtrix's Financial Advisors
Celtrix retained Pacific Growth Equities, Inc. to evaluate the terms of the
merger, as stated 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 Incorporated 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. Pacific Growth has consented to the
use of its fairness opinion in connection with this joint proxy
statement/prospectus. 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 its 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;
. compared certain stock market information and valuations for Celtrix
and Insmed Pharmaceuticals with similar information for certain
companies whose securities are publicly traded;
58
<PAGE>
. 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 completed 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:
. an assessment of each of Celtrix's and Insmed Pharmaceuticals' recent
financial statements;
. an analysis of each of Celtrix's and Insmed Pharmaceuticals' revenue,
growth and operating performance trends; and
. 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.
59
<PAGE>
[GRAPH]
Date QX INDEX CTRX BTK INDEX IXBT
11/2/98 100.00 100.00 100.00 100.00
11/9/98 98.66 90.00 97.00 99.45
11/16/98 101.98 140.00 96.07 99.62
11/23/98 104.50 160.00 99.98 99.49
11/30/98 103.13 246.67 99.22 101.14
12/7/98 102.23 186.67 97.45 103.85
12/14/98 104.12 186.67 97.46 105.84
12/21/98 107.47 173.33 101.26 112.45
12/28/98 107.73 180.00 109.21 119.77
1/4/99 111.75 180.00 110.62 120.91
1/11/99 108.96 193.33 114.80 123.60
1/18/99 107.38 173.33 109.12 122.81
1/25/99 112.15 173.33 115.90 132.02
2/1/99 108.62 133.33 110.41 123.64
2/8/99 107.81 140.00 106.01 122.38
2/15/99 108.61 160.00 105.71 123.99
2/22/99 108.53 160.00 104.30 124.29
3/1/99 111.78 146.67 109.54 129.46
3/8/99 113.46 113.33 112.92 138.59
3/15/99 113.87 120.00 116.40 141.02
3/22/99 112.43 106.67 111.23 136.83
3/29/99 113.38 120.00 112.28 138.67
4/5/99 118.17 103.33 113.36 138.19
4/12/99 115.60 146.67 109.07 126.59
4/19/99 118.92 126.67 111.47 128.56
4/26/99 117.02 106.67 112.75 124.50
5/3/99 117.88 100.00 116.56 129.13
5/10/99 117.25 106.67 120.95 132.54
5/17/99 116.59 110.00 118.10 132.53
5/24/99 114.10 106.67 118.63 134.08
5/31/99 116.37 103.33 123.90 134.69
6/7/99 113.38 106.67 116.53 124.63
6/14/99 117.69 106.67 122.18 129.98
6/21/99 115.28 106.67 122.52 131.72
6/28/99 121.93 130.00 130.86 142.09
7/5/99 122.99 120.00 132.89 148.20
7/12/99 124.34 183.33 143.26 159.56
7/19/99 118.92 166.67 138.96 153.62
7/26/99 116.45 153.33 147.76 156.87
8/2/99 113.96 153.33 144.20 154.54
8/9/99 116.36 150.00 152.98 167.54
8/16/99 117.14 180.00 158.64 167.62
8/23/99 118.16 166.67 162.08 172.15
8/30/99 118.95 146.67 167.97 179.37
9/6/99 118.46 150.00 171.08 182.56
9/13/99 117.04 153.33 166.46 174.23
9/20/99 111.95 133.33 153.85 162.67
9/27/99 112.43 130.00 151.22 166.45
10/4/99 117.09 143.33 157.18 172.23
10/11/99 109.33 140.00 143.43 157.50
10/18/99 114.08 166.67 151.88 160.19
10/25/99 119.45 140.00 155.00 164.17
11/1/99 120.09 160.00 156.13 168.64
11/8/99 122.35 160.00 156.39 174.39
11/15/99 124.63 153.33 162.52 182.80
Analysis of Comparable Publicly Traded Companies at the time of Initial
Public Offering. This analysis examines a company's valuation in the public
market as compared to the valuation in the public market of other comparable
publicly traded companies at the time of their respective initial public
offering. Pacific Growth compared the financial information, as described below,
relating to Insmed Pharmaceuticals to certain corresponding information for a
group of comparable publicly traded companies. 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 included, among other things:
. share price at time of initial public offering; and
. common equity market capitalization at time of initial public
offering.
60
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Insmed Pharmaceuticals
Public Company Comparables
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Shares
Share Outstanding Market
Stock Price at IPO Capitalization
Company Ticker at IPO (mm) ($ in mm)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Biomarin Pharmaceutical, Inc. BMRN $13.00 34.1 $444
Biopure Corporation BPUR $12.00 22.3 $267
Collateral Therapeutics, Inc. CLTX $7.25 10.5 $76
Combichem, Inc. CCHM $8.00 13.2 $106
Curagen Corporation CRGN $11.50 12.8 $148
Immtech International, Inc. IMMT $10.00 4.9 $49
Iomed, Inc. IOX $7.50 7.2 $54
Vaxgen, Inc. VXGN $13.00 10.8 $140
--------------------------------------------------------------
Mean $160
Mean excluding high and low $132
--------------------------------------------------------------
</TABLE>
Pacific Growth noted that, based on the reported financial information, the mean
market capitalization of selected companies comparable to Insmed Pharmaceuticals
was $160 million, and the mean for those same companies, excluding those
comparable companies with the highest and lowest market capitalizations, was
$132 million. Pacific Growth concluded that this analysis supports the view that
the terms of the merger are fair from a financial point of view to the
stockholders of Celtrix.
Analysis of Comparable 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 comparable publicly traded companies. Pacific Growth
compared certain financial information and commonly used valuation measurements
described below relating to Celtrix to certain corresponding information for a
group of comparable publicly traded companies. Pacific Growth chose the
comparable companies on the following basis:
. the companies were publicly traded;
. the companies were in a similar stage of product development; and/or
. the companies focused on novel therapeutics for a variety of
conditions including age related disorders, autoimmune disorders,
cardiovascular and inflammatory diseases as well as diseases related
to the skin and tissue.
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);
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. 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).
Financial information for the comparable companies included, among other things:
. common equity market capitalization;
. cash position;
. ratios adjusted for cash or technology value;
. ratios of market capitalization to cash;
. ratios of market capitalization to technology value; and
. discount of common stock market price relative to 52-week high per
share market price.
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<PAGE>
Celtrix Pharmaceuticals, Inc.
Selected Public Company Comparables
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
------------------
Market Market Market
Price Primary Capitalization Cash Net Cash/ Technology Capitalization/
Ticker 11/29/99 Shares (mm) (mm) Share Value Cash
- -------------------------------------------------------------------------------------------------------------------------
------------------
- -------------------------------------------------------------------------------------------------------------------------
Celtrix Pharmaceutical CTRX 1 3/4 26.6 $46 $2 $0.08 $44 22.4
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Advanced Tissue Sciences ATIS 3 3/16 52.7 $168 $18 $0.33 $151 9.6
Alexion Pharmaceuticals ALXN 17 11.3 $192 $28 $2.51 $163 6.8
Alteon, Inc. ALTNC 31/32 19.2 $19 $24 $1.26 ($6) 0.8
Amylin Pharmaceuticals AMLN 8 1/2 38.5 $327 $38 $1.00 $288 8.5
Anika Therapeutics ANIK 6 1/16 9.8 $59 $15 $1.53 $44 4.0
AutoImmune, Inc. AIMM 1 16.7 $17 $8 $0.50 $8 2.0
Connetics Corporation CNCT 6 3/4 21.6 $146 $14 $0.63 $132 10.7
Corixa Corporation CRXA 17 1/8 14.9 $256 $55 $3.71 $200 4.6
Cubist Pharmaceuticals CBST 10 17.7 $177 $10 $0.55 $167 18.1
Ergo Science Corporation ERGO 1 1/4 14.3 $18 $30 $2.13 ($13) 0.6
Geltex Pharmaceuticals GELX 11 16.9 $186 $62 $3.69 $123 3.0
Ligand Pharmaceuticals LGND 11 47.7 $525 $46 $0.96 $479 11.4
Medarex, Inc. MEDX 11 7/16 31.6 $361 $20 $0.64 $341 17.8
Neurocrine Biosciences NBIX 14 7/16 19.1 $275 $49 $2.54 $227 5.7
Noven Pharmaceuticals NOVN 13 21.5 $280 $10 $0.45 $270 29.0
Regeneron REGN 7 11/16 27.7 $213 $64 $2.31 $149 3.3
Scios SCIO 3 3/4 38.5 $144 $22 $0.57 $122 6.5
----------------------------------------------------------------------------------------------
Mean $198 $30 $1.49 $168 8.4
Mean excluding high and low $188 $29 $1.42 $159 7.5
----------------------------------------------------------------------------------------------
<CAPTION>
---------------------------------
---------------------------------
Market
Capitalization/ Discount
Technology to 52
Value Week High
<S> <C> <C>
- ------------------------------------------------------------
---------------------------------
- ------------------------------------------------------------
Celtrix Pharmaceutical 1.0 -41.1%
- ------------------------------------------------------------
------------
Advanced Tissue Sciences 1.1 -46.9%
Alexion Pharmaceuticals 1.2 -4.2%
Alteon, Inc. -3.4 -76.0%
Amylin Pharmaceuticals 1.1 -11.7%
Anika Therapeutics 1.3 -32.6%
AutoImmune, Inc. 2.0 -76.5%
Connetics Corporation 1.1 -34.1%
Corixa Corporation 1.3 -5.5%
Cubist Pharmaceuticals 1.1 -10.1%
Ergo Science Corporation -1.4 -70.6%
Geltex Pharmaceuticals 1.5 -62.1%
Ligand Pharmaceuticals 1.1 -25.4%
Medarex, Inc. 1.1 -0.5%
Neurocrine Biosciences 1.2 -9.8%
Noven Pharmaceuticals 1.0 -8.4%
Regeneron 1.4 -24.1%
Scios 1.2 -70.0%
----------------------------------
Mean 0.8 -33.4%
Mean excluding high and low 1.1 -32.2%
----------------------------------
</TABLE>
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 publicly traded company comparables listed above the financial
information used in connection with the analysis provided below was based on the
most recent, as of November 29, 1999, 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 those comparable companies with the
highest and lowest multiple, of 7.5x for companies selected as
comparable to Celtrix;
. the multiple of market capitalization to technology value was 1.0x for
Celtrix compared to the mean, excluding those comparable companies
with the highest and lowest multiple, of 1.1x for companies selected
as comparable to Celtrix; and
. the discount to 52-week high was 41.1% for Celtrix compared to a mean,
excluding those comparable companies with the highest and lowest
discount, of 32.2% for companies comparable to Celtrix.
Analysis of Discounted Forward Revenues. Pacific Growth analyzed the
discounted forward revenues for Insmed Pharmaceuticals using financial and
operating data made available from the internal records of Insmed
Pharmaceuticals for projections of Insmed Pharmaceuticals for the fiscal 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 based on this
valuation method was $92.2 million. Pacific Growth noted that this analysis
further supports the position that the terms of the merger are fair from a
financial point of view to the Celtrix stockholders.
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<PAGE>
Insmed - Discounted Revenue Multiple Analysis
- --------------------------------------------------------------------------------
($ in 000s)
2008 Projected Revenue x Revenue Multiple
= Non-Discounted Terminal Value
$231,652 x 8 = $1,853,216
Discount Rate Present Value
----------------------------- ------------------------------
30.0% $134,429
35.0% $92,170
40.0% $64,069
----- -------
Mean 35.0% $92,170
- --------------------------------------------------------------------------------
No company used in the above analysis as a comparable company is identical
to Celtrix or Insmed Pharmaceuticals. Accordingly, our analyses take into
account differences in the financial and operating characteristics of the
selected comparable companies and other factors that would affect the public
trading value and acquisition value of those comparable 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 or Insmed 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 completed, 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 completion 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
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<PAGE>
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 Incorporated
Edgar G. Engleman, a member of the Insmed Pharmaceuticals and Insmed
Incorporated 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:
. 917,500 shares of Insmed Pharmaceuticals Series B Preferred Stock;
. 4,530,516 shares of Celtrix common stock; and
. 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.
Dr. Engleman participated in a number of Celtrix board meetings in an "observer"
status, with no voting rights. Further, he acknowledged his position as a
director of Insmed Pharmaceuticals and any possible conflict of interest as
described on page __, arising out of his association with both companies by
absenting himself from the process and discussions concerning the proposed
merger with Insmed Pharmaceuticals. At board meetings of Insmed Pharmaceuticals
and Insmed Incorporated, Dr. Engleman abstained on all voting matters related to
the reorganizations.
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 Incorporated" immediately preceding this section.
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<PAGE>
Considerations of the Celtrix Board of Directors and Officers
. Celtrix has entered into a consulting agreement with Andreas Sommer,
Ph.D. under which Dr. Sommer would receive a monthly retainer of
$6,000 for a period of eighteen months after the reorganizations;
. Insmed Incorporated has entered into an arrangement with Malcolm J.
McKay, Ph.D. under which he would receive 106.5% of the base salary he
currently receives from Celtrix for a period terminating on December
31, 2000, plus standard Insmed Incorporated 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 Incorporated directors and officers after
the effective time of the reorganizations;
. immediately prior to 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
. 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 Incorporated common stock equal
to the number of Celtrix shares covered by the option immediately
prior to the reorganizations.
The board provided for the $50,000 transaction bonuses to current officers (and
one former officer, as additional severance) shortly after the company had
completed a major restructuring in the fall of 1998. The restructuring included
a 90% reduction in workforce. In providing for these bonuses, the board
considered the need to provide sufficient incentives to retain management
capable of accomplishing the company's primary objectives of advancing its
SomatoKine programs by either corporate collaboration and/or merger with an
entity to form an entity more able to advance the programs. From the time of the
implementation of the bonuses until the announcement of the proposed merger with
Insmed, Celtrix officers pursued more than 15 possible corporate collaborations.
The board considers the consulting and employment agreements with several key
Celtrix employees and severance packages and accelerated vesting of options with
all Celtrix employees to be necessary incentives for employees to remain with
the company through the transition period from the announcement of the merger
until effectiveness. Further, the board recognized the need to provide an
acquiring company with access to several key employees after the merger is
completed. As such, the board deemed these measures essential to a successful
transaction and essential in protecting the interests of Celtrix stockholders.
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
Incorporated
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<PAGE>
. under the terms of the reorganization agreement, Michael D. Baer will
be named Chief Financial Officer of Insmed Incorporated;
. upon completion of the reorganizations, Insmed Pharmaceuticals will
pay a transaction bonus of $120,000 to Geoffrey Allan, Ph.D., its
President, Chief Executive Officer and Chairman of the Board, and
$50,000 to Michael D. Baer, its Chief Financial Officer;
. 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 Incorporated board of directors;
. Insmed Incorporated has entered into an arrangement with Malcolm J.
McKay, Ph.D. under which he would receive 106.5% of the base salary he
currently receives from Celtrix for a period terminating on December
31, 2000, plus standard Insmed Incorporated 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 Incorporated officers and
directors after the effective time of the reorganizations;
. the directors' and officers' outstanding and unexercised options to
purchase Insmed Pharmaceuticals common stock will convert into new
options or new warrants, as the case may be, to purchase Insmed
Incorporated common stock according to the reorganization exchange
formula; and
. 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.
The compensation committee concluded that the transaction bonuses to Messrs.
Allan and Baer were essential to a successful transaction. In determining these
bonuses, the compensation committee considered the need to provide sufficient
incentives to retain these officers through the closing of the reorganizations
and the need for the diligent efforts of Messrs. Allan and Baer in completing
the reorganizations. The compensation committee consists solely of independent
outside directors of Insmed Pharmaceuticals.
Material Federal Income Tax Consequences
The following discusses the material federal income tax consequences of the
merger to Celtrix stockholders or the share exchange to Insmed Pharmaceuticals
shareholders. This discussion and the legal opinions described below are based
on current law, which is subject to change at any time, possibly with
retroactive effect. This discussion 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 Incorporated common stock in exchange for accrued but unpaid dividends.
In addition, this discussion and the legal opinions do not address the tax
consequences of the reorganizations under applicable state, local or foreign
laws. You should consult with your own tax advisor about the tax consequences of
the merger or the share exchange,
67
<PAGE>
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 Incorporated will not recognize gain or loss on
completion of the merger;
. a Celtrix stockholder will not recognize gain or loss on the exchange
of Celtrix stock for Insmed Incorporated common stock, except for the
receipt of cash for a fractional share;
. the aggregate basis of the Insmed Incorporated common stock received
by a Celtrix stockholder, including any fractional share will be the
same as the stockholder's aggregate basis in the Celtrix stock
surrendered;
. the holding period of the Insmed Incorporated common stock received by
a Celtrix stockholder will include the stockholder's holding period
for the Celtrix stock surrendered, if the Celtrix stock is held as a
capital asset; and
. a Celtrix stockholder who receives cash for a fractional share of
Insmed Incorporated common stock will recognize gain or loss equal to
the difference between the cash received and his or her basis in the
fractional share.
In the opinion of Hunton & Williams, counsel to Insmed Pharmaceuticals, the
Insmed Pharmaceuticals shareholders' exchange of Insmed Pharmaceuticals stock
for Insmed Incorporated 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 Incorporated will not recognize gain
or loss on completion of the share exchange;
. an Insmed Pharmaceuticals shareholder will not recognize gain or loss
on the exchange of Insmed Pharmaceuticals stock for Insmed
Incorporated common stock, except for to the receipt of cash for a
fractional share;
. the aggregate basis of the Insmed Incorporated common stock received
by an Insmed Pharmaceuticals shareholder, including any fractional
share, will be the same as the shareholder's aggregate basis in the
Insmed Pharmaceuticals stock surrendered;
. the holding period of Insmed Incorporated common stock received by an
Insmed Pharmaceuticals shareholder will include the shareholder's
holding period for the Insmed Pharmaceuticals stock surrendered, if
the Insmed Pharmaceuticals stock is held as a capital asset; and
. an Insmed Pharmaceuticals shareholder who receives cash for a
fractional share of Insmed Incorporated common stock will recognize
gain or loss equal to the difference between the cash received and his
or her basis in the fractional share.
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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 Incorporated, 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 Incorporated 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 completion 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
For accounting purposes Insmed Pharmaceuticals, Inc. is the acquiring
company. Insmed Incorporated is a holding company formed by Insmed
Pharmaceuticals in order to facilitate the exchange of shares in accordance with
the reorganization agreement. The historical basis of Insmed Pharmaceuticals
assets and liabilities will carry over to Insmed Incorporated. We expect to
account for the acquisition of Celtrix by Insmed Incorporated 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.
Procedures for Exchange of Stock Certificates
Insmed Incorporated has appointed First Union National Bank as exchange
agent in connection with the reorganizations. Immediately prior to the effective
time of the reorganizations, Insmed Incorporated 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 Incorporated 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 completed, First Union National Bank
will send to each former stockholder of Celtrix and Insmed Pharmaceuticals a
letter and instructions for exchanging the
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<PAGE>
stockholder's Celtrix or Insmed Pharmaceuticals stock certificates for the stock
certificates of Insmed Incorporated. 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 Incorporated 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 Incorporated 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 Incorporated
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 Incorporated 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 Incorporated 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 exchanged for certificates of Insmed Incorporated common stock and
cash representing fractional shares. In addition, when Insmed Incorporated stock
certificates are issued to former common and preferred stockholders of Celtrix
and Insmed Pharmaceuticals, any dividend declared by Insmed Incorporated with a
record date for common shareholders entitled to receive the dividend on or after
the reorganizations become 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
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<PAGE>
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
completion 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 value" of his shares must follow the
specific procedural requirements 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
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
stated in this discussion and in the statute will result in the loss of
appraisal rights.
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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 Incorporated, 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
Incorporated 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 Incorporated 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 of such shares. Insmed Incorporated 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 Incorporated. Within 20 days of receiving service, Insmed
Incorporated will file a list of names and addresses of all Celtrix stockholders
seeking appraisal rights who have not settled with Insmed Incorporated on a fair
price for their shares.
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If Insmed Incorporated, rather than a stockholder, files the petition with
the Court of Chancery of the State of Delaware, Insmed Incorporated 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 Incorporated 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 Incorporated 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 completion 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).
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
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
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
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dissent, or preserve their right to dissent because failure to comply with the
procedures described 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 Incorporated, 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 Incorporated will:
. 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;
. 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;
. set a date by which Insmed Incorporated 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
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. 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 completion of the share
exchange. A shareholder who does not demand payment and deposit his share
certificates where required, each by the date stated 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 Incorporated shall pay the
dissenter the amount that Insmed Incorporated estimates to be the fair value of
the dissenter's shares, plus accrued interest. The obligation of Insmed
Incorporated to make such payment may be enforced:
. by the Circuit Court for the City of Richmond, Virginia; or
. 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 Incorporated will be accompanied by:
. 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;
. an explanation of how Insmed Incorporated estimated the fair value of
the shares and of how the interest was calculated;
. a statement of the dissenter's right to demand payment as described
below; and
. a copy of Article 15 of the Virginia Stock Corporation Act.
Insmed Incorporated 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 Incorporated 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 Incorporated 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 Incorporated makes or offers payment as
described above, a dissenter may notify Insmed Incorporated 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
Incorporated) or reject Insmed Incorporated'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 Incorporated will petition the Circuit
Court for the City of Richmond, Virginia to
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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:
. the amount, if any, by which the court finds that the fair value of
the shares, plus interest, exceeds the amount paid by Insmed
Incorporated; or
. the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which Insmed Incorporated 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 Insmed Incorporated, 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 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 stated 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."
Federal Securities Law Consequences; Resale Restrictions
All shares of Insmed Incorporated 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
Incorporated 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 Incorporated
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.
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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.
The Reorganizations
Structure. In the reorganizations, Celtrix MergerSub, a wholly-owned
subsidiary of Insmed Incorporated, will be merged with and into Celtrix with
Celtrix as the surviving corporation and the separate corporate existence of
MergerSub will end. As a result, Celtrix will become a wholly-owned subsidiary
of Insmed Incorporated. In addition, Insmed Pharmaceuticals and Insmed
Incorporated will conduct a share exchange by which non-dissenting Insmed
Pharmaceuticals shareholders will exchange their shares of Insmed
Pharmaceuticals capital stock for shares of Insmed Incorporated capital stock.
Following the share exchange, Insmed Pharmaceuticals will also be a wholly-owned
subsidiary of Insmed Incorporated
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 listed
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 Incorporated 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 Incorporated common stock in exchange for each
share of Celtrix preferred stock held. Each Insmed Pharmaceuticals shareholder
will receive 3.5 shares of Insmed Incorporated 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 Incorporated 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 Incorporated 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
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will become a new option or warrant, as the case may be, to acquire a number of
shares of Insmed Incorporated 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
Incorporated 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 Incorporated stock options, see "Insmed Incorporated
2000 Stock Option Plan" on page __.
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;
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. accounting and tax treatment of the reorganizations;
. certain business practices;
. no existing discussions;
. transactions with affiliates;
. vote required to approve the reorganizations;
. board approval;
. 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 interests may
not, subject to certain limited exceptions, take certain other actions during
this period, including the following:
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. 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;
. 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);
. incur or assume any debt or issue any debt securities;
. assume, guarantee, endorse or otherwise become liable or responsible
for the obligations of any other person;
. make any loans, advances or capital contributions to, or investments
in, any other person;
. pledge or otherwise encumber shares of capital stock of Celtrix;
. 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 employee benefit or similar plan, 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;
.. acquire any interest in any corporation, partnership or other
business organization;
.. enter into any contract or agreement which would be material to
Celtrix;
.. authorize any new capital expenditure or expenditures;
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. 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 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 interests 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
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. 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 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;
. 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
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Pharmaceuticals as a combined company, would, if completed, 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;
. 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 Incorporated 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.
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Nasdaq Listing. Insmed Incorporated will apply to be listed on
the Nasdaq National Market under the trading symbol "INSM." Insmed Incorporated,
Celtrix and Insmed Pharmaceuticals have agreed to use all reasonable efforts to
have the Insmed Incorporated 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.
Certain Other Covenants. Celtrix and Insmed Pharmaceuticals have agreed to
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 Incorporated;
. 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 complete the reorganizations are subject to the
satisfaction of the conditions stated 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 completion of
the reorganizations;
. receipt of all required governmental and other consents and approvals;
. effectiveness of the registration statement filed by Insmed
Incorporated of which this document is a part and obtaining all
necessary state securities and blue sky law authorizations;
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. approval for listing of the Insmed Incorporated 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 Incorporated common stock to be received
in the reorganizations.
Additional Conditions to Obligations of Celtrix. The obligations of Celtrix
to complete 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 Incorporated 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
.. 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 Revenue Code, and
.. Celtrix, Insmed Incorporated 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 Incorporated stock except that no
opinion needs to be expressed with respect to any Insmed
Incorporated shares received by the Celtrix Series A Preferred
stockholder with respect to accrued but unpaid dividends on such
preferred stock;
. receipt by Insmed Pharmaceuticals of all necessary consents,
approvals, actions, registrations and filings;
. 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.
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Additional Conditions to Obligations of Insmed Pharmaceuticals. The
obligations of Insmed Pharmaceuticals to complete 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 Incorporated 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
.. 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
.. Insmed Pharmaceuticals, Insmed Incorporated 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 Incorporated stock;
. receipt by Celtrix of 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. If either party waives any condition relating to tax opinions
or any other material condition, we will amend this joint proxy
statement/prospectus and resolicit shareholder approval of the reorganizations.
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
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. 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 completed by May 31,
2000, unless the failure to close 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 Incorporated of any representation, warranty, covenant or
agreement listed 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,
... based on the advice of its outside legal counsel and
financial advisors;
... after notice to Insmed Pharmaceuticals; and
... 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 listed 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
stockholders approval of the transactions contemplated by the
reorganization agreement or such recommendation shall have been
made and subsequently withdrawn; or
.. Insmed Pharmaceuticals,
... based on the advice of its outside legal counsel and
financial advisors;
... after notice to Celtrix; and
... 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 completed, all
costs and expenses incurred in connection with the reorganization agreement and
the transactions contemplated by it 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 stated 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
stockholders 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 Incorporated of any representation, warranty, covenant or
agreement listed 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
Incorporated of any representation, warranty, covenant or agreement
stated 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 stockholders 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 listed in the
reorganization agreement, which breach has not been cured within
ten business days following receipt by Celtrix 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. If either party
waives any condition relating to tax opinions or any other material condition,
we will amend this joint proxy statement/prospectus. 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 INCORPORATED CAPITAL STOCK
This summary of the characteristics of Insmed Incorporated's capital stock
is qualified in all respects by reference to the Insmed Incorporated 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.
General
Presently the authorized capital stock of Insmed Incorporated consists of
500,000,000 shares of Insmed Incorporated common stock and 200,000,000 shares of
Insmed Incorporated preferred stock. There are 100 shares of Insmed Incorporated
common stock outstanding, all of which are owned by the sole shareholder of
Insmed Incorporated, Insmed Pharmaceuticals. No shares of Insmed Incorporated
preferred stock are outstanding. Assuming we close the proposed financing
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 Incorporated 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
Incorporated 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
Incorporated common stock on a fully diluted basis.
Assuming the proposed financing is completed, 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 Incorporated on a fully diluted basis.
Common Stock
Each share of Insmed Incorporated 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 Incorporated common stock have no conversion
or redemption rights and no preemptive or other rights to subscribe for
securities of Insmed Incorporated. Holders of Insmed Incorporated common stock
have no right to cumulate votes in the election of directors. Holders of Insmed
Incorporated common stock are entitled to receive dividends when, as and if
declared by the Insmed Incorporated board of directors out of funds legally
available for distribution. Upon the liquidation of Insmed Incorporated, holders
of Insmed Incorporated common stock will be entitled, subject to the rights of
the holders of any outstanding Insmed Incorporated preferred stock, to receive
pro rata all assets, if any, of Insmed Incorporated available for distribution
after payment of necessary expenses and all prior claims.
Insmed Incorporated has applied to have its common stock listed on the
Nasdaq National Market under the trading symbol "INSM."
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Preferred Stock
The preferred stock may be issued, from time to time in one or more series,
and the Insmed Incorporated board of directors, without further approval of the
shareholders, is authorized to fix the dividend rights 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 Incorporated issues a series of preferred stock in the future that has
voting rights or preferences over Insmed Incorporated common stock with respect
to the payment of dividends and upon Insmed Incorporated's liquidation,
dissolution or winding up, the rights of the holders of Insmed Incorporated
common stock offered hereby may be adversely affected. Insmed Incorporated may
amend from time to time the Insmed Incorporated 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 Incorporated, 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 Incorporated. As of the date of this joint proxy statement/prospectus,
Insmed Incorporated 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 Incorporated govern the rights of Insmed Incorporated
shareholders.
Board of Directors. Celtrix and Insmed Pharmaceuticals agreed in the
reorganization agreement to provide for three classes of directors of Insmed
Incorporated. 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
Incorporated Amended and Restated Bylaws require a shareholder desiring to bring
a proposal before an annual meeting of Insmed Incorporated shareholders to give
proper written notice to the Secretary of Insmed Incorporated. 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 Incorporated 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 Incorporated Amended and Restated Bylaws.
Advance Notice Requirements for Nomination of Directors. The Insmed
Incorporated Amended and Restated Bylaws require a shareholder desiring to
nominate a director for election at an annual meeting of Insmed Incorporated
shareholders to give proper written notice to the Secretary of Insmed
Incorporated. 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
Incorporated Amended and Restated Bylaws.
Meetings of Shareholders. The Insmed Incorporated Amended and Restated
Bylaws permit the President, a majority of the board of directors, or the
Chairman of the Board of Insmed Incorporated 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.
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Amendment of Articles of Incorporation or Bylaws. Subject to Virginia law,
the Insmed Incorporated 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 the holders of 75 percent of the outstanding votes
entitled to be cast by each voting group entitled to vote. The Insmed
Incorporated 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 Incorporated more difficult. See "Comparison of Stockholders'
Rights--Anti-takeover Statutes" on page __.
Transfer Agent and Registrar
The transfer agent and registrar for the Insmed Incorporated common stock
is First Union National Bank.
COMPARISON OF STOCKHOLDERS' RIGHTS
Insmed Incorporated 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, on the closing of the share exchange, become
shareholders of Insmed Incorporated, and their rights as such will be governed
by Virginia law and Insmed Incorporated'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, on the closing of the
share exchange, become shareholders of Insmed Incorporated, and their rights as
such will be governed by Virginia law, the Insmed Incorporated Articles of
Incorporation and Amended and Restated Bylaws.
Described 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 Incorporated
shareholders under their respective Articles of Incorporation, Bylaws and under
Virginia law. The description 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
Incorporated 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 Incorporated. Insmed Incorporated authorized capital is described
under "Description of Insmed Incorporated 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
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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 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 Incorporated. 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
Incorporated Amended and Restated Bylaws provide that a special meeting of
Insmed Incorporated 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 receives one vote for each share of common stock
owned by the stockholder, and each holder of preferred stock receives 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,
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 will
approve the director nominees, 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, other
actions requiring stockholder approval generally require the vote of a majority
of common shares represented at a meeting and entitled to vote at a meeting at
which a quorum exists.
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Insmed Pharmaceuticals. On any issue to be determined at any meeting of
shareholders, each Insmed Pharmaceuticals common shareholder receives one vote
for each share of common stock owned by such shareholder, and each holder of
preferred stock receives 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
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, other actions requiring shareholder approval, generally
need the vote of a majority of shares represented at a meeting and entitled to
vote at a meeting at which a quorum exists for approval.
Insmed Incorporated. Insmed Incorporated common shareholders have one vote
per share on all matters to be voted on by shareholders. Cumulative voting is
not permitted under the Insmed Incorporated Articles of Incorporation. Except as
specifically provided in the Insmed Incorporated Articles of Incorporation or
Virginia law, other actions requiring shareholder approval generally require the
vote of a majority of shares represented at a meeting and entitled to vote at a
meeting at which a quorum exists. 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 stockholder nominations 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 Secretary of the corporation must receive the stockholder
nomination 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
described in the Bylaws. If a stockholder nomination of a candidate for director
does not comply with the applicable provisions of 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 Incorporated. Insmed Incorporated shareholders can nominate
candidates at an annual meeting for the Insmed Incorporated board of directors
if the shareholder follows the advance notice provisions contained in the Insmed
Incorporated Amended and Restated Bylaws. The Insmed Incorporated Amended and
Restated Bylaws require a shareholder nominations in writing and delivered to
the Secretary of Insmed Incorporated not later than 90 days nor more than 120
days before the anniversary of the date of the first mailing of Insmed
Incorporated'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 described in the Bylaws. If a shareholder
nomination of a
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candidate for director does not comply with the applicable provisions described
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
Incorporated Amended and Restated Bylaws and that such defective proposal shall
be disregarded.
Merger, Share Exchanges and Sales of Assets
Celtrix. Delaware law generally requires approval 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, for any merger, share exchange or sale of all or
substantially all the assets of a corporation not in the ordinary course of
business. The Certificate of Incorporation of Celtrix does not specifically
address mergers, share exchanges or sales of assets; therefore, the merger
requires an affirmative vote of the majority of the issued and outstanding
shares of common stock, which is the only class of voting stock.
Insmed Pharmaceuticals and Insmed Incorporated. 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 the Articles of Incorporation requires a
different vote; provided, however, that shareholder action by the acquiring
corporation in a share exchange is normally not required. The Articles of
Incorporation of Insmed Incorporated do not specifically address mergers and
share exchanges; therefore, the Insmed Incorporated sole shareholder need not
vote. The Insmed Pharmaceuticals Articles of Incorporation provide for separate
class voting in the event of a merger or consolidation. Accordingly, the share
exchange with Insmed Pharmaceuticals requires 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 for approval.
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:
. 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;
. 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
. 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).
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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 Incorporated. 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 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 Incorporated 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 completing
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 Incorporated Articles
of Incorporation, however, provide that this second statutory provision does not
apply to Insmed Incorporated; therefore, Insmed Incorporated 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
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Pharmaceutical Articles of Incorporation an amendment to the Articles requires
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. 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 Incorporated. 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 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 Incorporated 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
for amendment 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 Incorporated. The Insmed Incorporated Articles of Incorporation and
Amended and Restated Bylaws provide generally that the Insmed Incorporated
Bylaws may be amended by the Insmed Incorporated board; provided, however, that
any provision of the Insmed Incorporated Bylaws adopted or required to be
adopted pursuant to Virginia law by the shareholders of Insmed Incorporated, may
only be amended by the affirmative vote of at least 75 percent of the holders of
the outstanding capital stock of Insmed Incorporated 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 under Delaware law as
described under "Dissenters' Rights" on page ___.
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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 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
under Virginia Law as described under "Dissenters' Rights" on page ___.
Transfer Restrictions
Insmed Incorporated, Celtrix and Insmed Pharmaceuticals. Each of the Insmed
Incorporated 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
Incorporated 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 Incorporated common stock to 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
Incorporated 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 Incorporated
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,
conforms 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
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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.
Insmed Incorporated. Pursuant to Virginia law, any action required to be
taken or that may be taken at any annual or special meeting of Insmed
Incorporated, 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, even if 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 even if 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 Incorporated. Under the Insmed Incorporated Articles of
Incorporation and Amended and Restated Bylaws, the board will consist of seven
directors. Insmed Incorporated 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
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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.
Limitation of Director Liability
Insmed Incorporated and Insmed Pharmaceuticals. The Articles of
Incorporation of Insmed Incorporated and Insmed Pharmaceuticals contain
provisions that limit the liability of the directors and officers of Insmed
Incorporated and Insmed Pharmaceuticals as permitted under Virginia law. The
provisions eliminate the liability of the Insmed Incorporated directors and
officers to Insmed Incorporated 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 Incorporated 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 Incorporated and Insmed
Pharmaceuticals, any amendment or repeal of the applicable provisions in the
Articles of Incorporation of Insmed Incorporated or Insmed Pharmaceuticals, as
the case may be, will not affect the limitation of liability of directors and
officers.
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, any amendment of the
Certificate of Incorporation will not limit or eliminate the directors'
exculpation from liability.
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:
. breach of a director's duty of loyalty to a corporation or its
stockholders;
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. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
. unlawful distributions; and
. transactions from which a director received an improper personal
benefit.
Insmed Incorporated 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 Incorporated 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 Incorporated, 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:
. proceedings by and in the right of the corporation, in which the
director is determined to be liable to the corporation; and
. transactions from which a director received an improper personal
benefit.
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MANAGEMENT AND OPERATION OF INSMED INCORPORATED AFTER THE REORGANIZATIONS
Insmed Incorporated Board of Directors
It is expected that the Insmed Incorporated board, at the effective time
of the reorganizations, will consist of the seven individuals listed below. The
Insmed Incorporated 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 Incorporated,
respectively. The three classes of directors will be as nearly equal in number
as possible.
<TABLE>
<CAPTION>
Name Age Class (expiration of Position
------ --- -------------------- --------
of term
-------
<S> <C> <C> <C>
Geoffrey Allan, Ph.D 46 III (2003) President, Chief Executive Officer, and
Chairman, board of directors
Kenneth G. Condon 52 I (2001) Member, board of directors
Gustav A. Christensen 52 III (2003) Member, board of directors
Graham K. Crooke, MB.BS 41 II (2002) Member, board of directors
Dennis J. Dougherty 51 III (2003) Member, board of directors
Steinar J. Engelsen, M.D 49 I (2001) Member, board of directors
Edgar G. Engleman, M.D 54 II (2002) Member, board of directors
</TABLE>
Geoffrey Allan, Ph.D., will be President, Chief Executive Officer and
Chairman of the board of directors of Insmed Incorporated. 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 Incorporated. 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 Incorporated. 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 Incorporated 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 Incorporated. 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
Incorporated 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 Incorporated. 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
Incorporated 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 Incorporated 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:
. approve or recommend shareholder action;
. fill vacancies on the board of directors or committees;
. amend the Articles of Incorporation;
. amend or repeal the Bylaws;
. approve a plan of merger;
. approve a distribution; or
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. 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:
. recommend the selection of independent accountants and auditors;
. review the scope of the accountants' audit and approval of any
non-audit services to be performed by the independent accountants;
and
. review annual audits and accounting practices.
The initial members of the audit committee will be Messrs. Condon
(Chair), Christensen and Dougherty.
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
Incorporated and will review policy matters relating to compensation and
benefits of employees of Insmed Incorporated. 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:
. 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;
. 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;
. 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;
. monitor procedures for corporate decision-making;
. evaluate shareholder proposals;
. review public policy issues which affect the image of Insmed
Incorporated within its customer service areas;
. recommend actions to increase the board's effectiveness; and
. review annually the format used by the corporation's management to
report to the board of directors.
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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 Incorporated 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 Incorporated.
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 Incorporated board may elect other officers after completion
of the reorganizations.
Headquarters
Insmed Incorporated's corporate offices are located at 800 East Leigh
Street, Richmond, Virginia 23219 and main telephone number is (804) 828-6893.
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INSMED INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Pro Forma Condensed Consolidated Financial Statements
reflect the accounting for the acquisition of Celtrix by Insmed Pharmaceuticals
in accordance with generally accepted accounting principles. Insmed Incorporated
is a holding company formed by Insmed Pharmaceuticals in order to facilitate the
reorganizations in accordance with the reorganization agreement. The
reorganization agreement provides that:
. each share of issued and outstanding common and preferred stock of
Insmed Pharmaceuticals will be exchanged for 3.5 shares of Insmed
Incorporated common stock;
. each outstanding share of common stock of Celtrix will be
exchanged for one share of Insmed Incorporated common stock; and
. each share of Celtrix Series A Preferred Stock, including accrued
dividends, will be exchanged on an as converted basis, by applying
the conversion ratio of $2.006 specified in the Celtrix
Certificate of Incorporation into one share of Insmed Incorporated
common stock.
The 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 Balance Sheet as of
December 31, 1999, gives effect to the acquisition of Celtrix by Insmed
Pharmaceuticals and related transactions as if they occurred on December 31,
1999. The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect
to the exchange of shares described above and in note 1, reflects the expected
allocation of the purchase price described in note 2, the formation of Insmed
Incorporated and the $34.5 million equity financing described in "Recent
Developments" on page ___.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1999 gives effect to the acquisition of Celtrix by
Insmed Pharmaceuticals 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 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 Pharmaceuticals
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 historical basis of Insmed Pharmaceuticals assets and liabilities
will carry over to Insmed Incorporated. 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 preliminary
purchase price allocation is based on an independent third-party valuation. This
valuation has not yet been finalized. Therefore the preliminary purchase price
allocation is subject to change. Upon completion of the reorganization the
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<PAGE>
amount of purchase price allocated to tangible assets acquired, in process
research and development and liabilities assumed, could differ from the amounts
and allocation discussed in Note 2. 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.
In addition, Insmed Pharmaceuticals and Celtrix expect to incur
approximately $2.0 million and $1.5 million, respectively, in costs directly
attributable to the reorganizations. The $2.0 million of transaction costs
Insmed Pharmaceuticals expects to incur have been included in the determination
of the preliminary purchase price. The $1.5 million Celtrix expects to incur
will be expensed as incurred and have not been reflected in the Unaudited Pro
Forma Condensed Statement of Operations as they are nonrecurring charges.
We expect that Insmed Incorporated 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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<PAGE>
Insmed Incorporated
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Financing Reorgani-
Historical Pro Forma References Insmed Historical zation References Pro
Insmed Adjustments (Note 2) as Adjusted Celtrix Adjustments (Note 2) Forma
---------- ----------- ---------- ----------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 317 $ 32,600 (G) $ 32,917 $ 1,243 $ 34,160
Investments 4,318 4,318 -- 4,318
Prepaids and other current assets 43 43 159 202
--------- --------- --------- --------- --------- ---------
Total current assets 4,678 32,600 37,278 1,402 -- 38,680
Property and equipment, net 242 242 75 317
Assets held for sale -- -- 349 349
Goodwill, net 15,156 (J) 15,156
Other assets 376 376 2,581 1,624 (A)
(2,581) (H)
(2,000) (I) --
--------- --------- --------- --------- --------- ---------
Total assets $ 5,296 $ 32,600 $ 37,896 $ 4,407 $ 12,199 $ 54,502
========= ========= ========= ========= ========= =========
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable and other $ 834 $ 834 $ 693 $ 1,624 (A) $ 3,151
liabilities --------- --------- --------- --------- --------- ---------
Total current liabilities 834 -- 834 693 1,624 3,151
Exchangable preferred stock -- -- 7,948 (7,948) (B) --
Stockholders' equity:
Preferred Stocks 97 97 -- (97) (C) --
Common Stocks 39 56 (G) 95 272 41 (B)
(99,305,641 pro forma shares 340 ___
outstanding) 245 (D) 993
Additional capital 27,181 32,544 (G) 59,725 136,141 8,188 (B)
(243) (C)
(245) (D)
(140,928) (E)
54,433 (F)
(2,581) (H)
(2,000) (I) 127,646
15,156 (J)
Cumulative preferred stock dividend -- -- 281 (281) (B) --
Notes receivable from stock sale (64) (64) -- -- (64)
Accumulated deficit (22,780) (22,780) (140,928) 140,928 (E)
-- (54,433) (F) (77,213)
Accumulated other comprehensive (11) (11) -- -- (11)
loss
Total stockholders' equity 4,462 32,600 37,062 (4,234) 18,523 51,351
(deficiency) --------- --------- --------- --------- --------- ---------
Total liabilities and $ 5,296 $ 32,600 $ 37,896 $ 4,407 $ 12,199 $ 54,502
stockholders' equity ========= ========= ========= ========= ========= =========
</TABLE>
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<PAGE>
Insmed Incorporated
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 References Pro Forma
--------------------------
Insmed Celtrix Adjustments (Note 2) Combined
------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Total revenues $ 663 $ 763 $ -- $ 1,426
Costs and expenses:
Research and development 6,349 1,027 7,376
General and administrative 2,445 1,953 4,398
------------ ----------- -----------
8,794 2,980 11,774
------------ ----------- ------------- -----------
Operating loss (8,131) (2,217) -- (10,348)
Equity in loss from joint venture (8,973) (8,973)
Amortization of goodwill -- -- (798) (J) (798)
Interest income, net 338 85 423
Proceeds from settlement agreement -- 600 600
------------ ----------- -----------
Net loss $(7,793) $(10,505) $(798) $(19,096)
============ =========== ============= ===========
Net loss per share -- basic and diluted $(2.16) $(0.40) $(0.19)
============ =========== ===========
Shares used in computing basic
and diluted net loss per share 3,606 26,176 99,306
============ =========== ===========
</TABLE>
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<PAGE>
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 Insmed Incorporated common stock
as follows:
<TABLE>
<CAPTION>
Shares of Insmed
Number of Conversion Incorporated to
Company Stock Type Shares Ratio be Issued
- ----------------------- ------------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Insmed Pharmaceuticals Series A Preferred 6,144,599 3.5 21,506,097
Insmed Pharmaceuticals Series B Preferred 3,581,761 3.5 12,536,164
Insmed Pharmaceuticals Common Stock 3,872,453 3.5 13,553,586
Celtrix Pharmaceuticals Series A Preferred 8,010 1.0(1) 4,133,050
Celtrix Pharmaceuticals Common Stock 27,862,372 1.0 27,862,372
Insmed Pharmaceuticals Common Stock 5,632,678(2) 3.5 19,714,373
-----------
Number of Pro Forma Shares Outstanding at December 31, 1999 99,305,641
===========
</TABLE>
________________________________________
1. As of December 31, 1999, there are 8,010 shares of Series A Preferred Stock
outstanding. These shares have a par value of $1,000 per share. Dividends
accreted and unpaid related to this stock were $280,899 at December 31, 1999.
The aggregate par value and dividends are convertible into Celtrix common stock
at a price of $2.006 per share, which would provide for the issuance of
4,133,050 shares of Insmed Incorporated common stock if the transaction occurred
on December 31, 1999.
2. These shares represent common stock of Insmed Pharmaceuticals issuable upon
closing the $34.5 million equity financing. This transaction is fully described
in "Recent Developments" on page ___.
The above table is based on the respective companies' capitalization at
December 31, 1999, using the conversion ratio of 1 share of Insmed Incorporated
common stock for each share of Celtrix common stock and 3.5 shares of Insmed
Incorporated common stock for each share of Insmed Pharmaceuticals stock. No
exercise of options or warrants outstanding at December 31, 1999 was assumed.
In connection with the purchase of Celtrix, Insmed Incorporated expects
approximately $54.4 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 Incorporated 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
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<PAGE>
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 Incorporated
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 Incorporated management has reviewed and
challenged the forecast data and related assumptions and utilized the
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 Incorporated 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 Incorporated's financial condition and results of operations.
In the allocation of purchase price to the IPR&D, the concept of alternative
future use was specifically considered for each the programs under development.
The acquired IPR&D consists of Celtrix's work to complete each of the identified
programs. The programs are very specific to the disease and market for which
they are intended. There are no alternative uses for the in-process programs in
the event that the programs fail in clinical trials or are otherwise not
feasible. The development effort for the acquired IPR&D does not possess an
alternative future use for Insmed Incorporated as defined by generally accepted
accounting principles.
Below is a brief description of in-process research and development projects
including an estimation of when management believes Insmed Incorporated may
realize revenues from the sale of these products in the respective application.
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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, thus avoiding the
complications which ultimately accompany the disease. Several additional studies
will be required to develop the product for this indication. We expect to resume
Phase II trials immediately.
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. We expect to
begin a second Phase II study later this year.
A discount rate of 34% was utilized in discounting these estimated cash flows.
SomatoKine: Protein Wasting and Severe Burns
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.
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.
The value of protein wasting and severe burn indications is low in relation to
diabetes and severe osteoporosis. We will defer further trials in these
indications until we obtain additional data from the planned studies for the
more valuable indications.
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.
Management has budgeted approximately $5.0 million in 2000 to continue the
development and clinical trial studies of SomatoKine for its applications in
diabetes and severe osteoporosis. The results of these trials will dictate the
amount of future funds and company resources that may be ultimately dedicated to
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<PAGE>
these projects. These results may lead management to conclude to continue
development, revise or postpone development plans, or possibly terminate the
pursuit of SomatoKine commercialization for one or both of these applications.
The total acquisition cost is estimated to be approximately $71.5 million,
determined as follows (in thousands):
Fair value of Insmed Incorporated shares(1) $59,823
Fair value of Insmed Incorporated Stock Options(2) 9,697
Insmed Pharmaceuticals transaction costs, consisting
primarily of financial advisory, legal and accounting 2,000
fees(3)
-----------
$71,520
===========
1. The fair value per share was calculated by averaging the Celtrix closing
price for the five days prior to and subsequent to the signing of the definitive
reorganization agreement on November 30, 1999. The result of this calculation is
$1.94886 which was multiplied by the shares outstanding on an as converted basis
as of November 30, 1999 of 30,646,461.
2. Options and warrants outstanding at November 30, 1999 of 10,244,113 were
multiplied by the fair value of each grant. The fair value of these options and
warrants were estimated as of November 30, 1999 using the Black-Scholes pricing
method assuming a risk free interest rate of 6.0%, no dividends, a volatility
factor of .801, and a weighted average exercise price of .33 to .50 years. The
application of this method resulted in a fair value per option and warrant
between $0.01 and $1.41.
3. Under purchase accounting the $2.0 million in transaction costs Insmed
Pharmaceuticals expects to incur are included in the determination of the
purchase price. The $1.5 million in transaction costs Celtrix expects to incur
will be expensed as incurred.
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:
Cash $ 1,243
Receivables and other current assets 159
Property and Equipment 75
Assets held for sale 349
In-process research and development 54,433
Goodwill 15,954
-----------
Liabilities assumed (693)
-----------
$71,520
===========
<CAPTION>
The Celtrix research and development programs currently in process were valued
as follows:
<S> <C>
SomatoKine: Diabetes $36,122
SomatoKine: Osteoporosis 12,650
SomatoKine: Severe Burns 1,224
SomatoKine: Protein Wasting 3,169
TGF-beta-2: Dermal Ulcer 1,268
------------
$54,433
============
</TABLE>
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<PAGE>
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 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 $2,000,000 principally for investment banking, legal and
accounting services. Approximately $376,000 has been incurred through
12/31/99.
(B) The exchange of Celtrix preferred stock and cumulative dividends on an as
converted basis into 4,133,050 shares of Insmed Incorporated 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 Incorporated common stock.
(D) Conversion of Insmed Pharmaceuticals and Celtrix common stock into
61,130,331 shares of Insmed Incorporated common stock.
(E) Elimination of Celtrix accumulated deficit.
(F) Charge to operations for in-process research and development of $54,433.
(G) Sale of 5,632,678 shares of Insmed Pharmaceuticals common stock, before
the merger, and sale of warrants to purchase 6,901,344 shares of common
stock of Insmed Incorporated. Proceeds, net of estimated transaction
costs of $1.9 million, are expected to approximate $32.6 million.
(H) Adjustment of net assets based upon purchase price allocation.
(I) Reclassification of the estimated transaction costs incurred by Insmed
Pharmaceuticals to reflect their inclusion in the determination of the
preliminary purchase price.
(J) Record amount allocated to goodwill of $15,954 and amortization expense
in the Unaudited Pro Forma Condensed Consolidated Statement of Operations
based on an amortization period of twenty years.
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
determination of the pro-forma weighted-average shares outstanding used in the
calculation of pro forma basic and diluted net loss per share is included in the
table in Note 1 on page __. 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 lists 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
Fiscal Year 2000 High Low
Fourth Quarter $12.25 $2.50
(through March 22)
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
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 Incorporated 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
Incorporated will depend upon the results of operations, financial condition and
capital expenditure plans of Insmed Incorporated, as well as such other factors
as the Insmed Incorporated 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 Incorporated 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
Incorporated will depend upon the results of operations, financial condition and
capital expenditure plans of Insmed
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<PAGE>
Incorporated, as well as such other factors as the Insmed Incorporated board of
directors, in its sole discretion, may consider relevant.
Insmed Incorporated. There is not yet a public market for Insmed
Incorporated common stock. However, following the reorganizations, Insmed
Incorporated 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 no longer trade on The Nasdaq SmallCap Market and will
represent only the right to receive Insmed Incorporated common stock under the
reorganization agreement. Insmed Incorporated has applied with the Nasdaq
National Market to be traded on the Nasdaq National Market under the symbol
"INSM."
Insmed Incorporated 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 Incorporated
will depend upon the results of operations, financial condition and capital
expenditure plans of Insmed Incorporated, as well as such other factors as the
Insmed Incorporated board of directors, in its sole discretion, may consider
relevant.
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<PAGE>
ELECTION OF DIRECTORS OF CELTRIX
Nominees
At the Celtrix annual meeting, five directors are up for election to
serve until the earlier of the expiration of their term or the completion of
the reorganizations. 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 proxy holders will vote for any nominee who the Celtrix
board of directors has designated to fill the vacancy. The proxy holders intend
to vote all proxies received by them in accordance with cumulative voting as
will assure the election of as many of the nominees listed below as possible. If
cumulative voting is necessary, the proxy holders will determine for which
nominees to vote. Celtrix expects that each nominee will 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 nominees' names and ages as of December 31, 1999, and certain
information about them are:
<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>
There are no family relationships among the directors or executive
officers of Celtrix.
Henry E. Blair. Since April 1997, Mr. Blair 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.
119
<PAGE>
Stuart D. Sedlack. Mr. Sedlack 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 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 approves
the services performed by Celtrix's independent auditors and reviews and
evaluates 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 sets and administers 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.
120
<PAGE>
Compensation of Celtrix Directors
Celtrix reimburses directors for out-of-pocket travel expenses associated
with their attendance at board meetings. During fiscal 1999, Celtrix paid
independent non-employee directors Blair and Sherman a fee of $1,500 for each
meeting of the board of directors attended.
Independent non-employee directors holding less than 2% of Celtrix's
common stock participate in Celtrix's 1991 Directors' Option Plan. Celtrix
automatically grants these directors options to purchase shares of common stock
on the terms and conditions stated in the Celtrix directors' plan. Additionally,
the board may grant non-employee directors option grants under the Celtrix 1991
Stock Option Plan. During the year ended March 31, 1999, Celtrix granted the
following:
Name Options Granted Exercise Price
- --------------------- --------------------- --------------------
Harry E. Blair 3,333 $2.875
40,000 $1.688
10,001 $2.875
Barry M. Sherman 40,000 $1.688
5,000 $2.875
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' 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.
Immediately prior to 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, will be fully vested and
exercisable. Officers and directors hold options to purchase 1,130,000 shares of
Celtrix common stock, 603,199 shares 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 a successor is elected and qualified or (ii) the completion of
the reorganizations.
Celtrix Compensation Committee Report On Executive Compensation
The Celtrix compensation committee of the board of directors sets and
administers 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.
121
<PAGE>
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. The Celtrix board identified
corporate objectives for fiscal 1999 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:
. base salary,
. long-term equity incentives,
. 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 described 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 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 1998 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
122
<PAGE>
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 this 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.
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
123
<PAGE>
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>
<CAPTION>
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>
<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>
124
<PAGE>
<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>
<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>
125
<PAGE>
<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
Any proposal that a stockholder intends to present at Celtrix's 2000
Annual Meeting. of Stockholders must be received by Celtrix no later than June
15, 2000, in order for it to be included in the proxy statement and form of
proxy relating to that meeting.
126
<PAGE>
DESCRIPTION OF INSMED INCORPORATED
Business Overview
Insmed Incorporated 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
Incorporated 2000 Stock Incentive Plan and the Insmed Incorporated 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 Incorporated will become a holding company for Celtrix
and Insmed Pharmaceuticals such that Celtrix and Insmed Pharmaceuticals will
become wholly-owned subsidiaries of Insmed Incorporated and each of Celtrix and
Insmed Pharmaceuticals will continue to conduct the businesses that they are
currently conducting. Insmed Incorporated'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 Incorporated has adopted and the sole
shareholder of Insmed Incorporated has approved the Insmed Incorporated 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 Incorporated 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 Insmed Incorporated board of directors and the Insmed
Incorporated compensation committee (or such other committee of the Insmed
Incorporated 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) administers the Stock
Incentive Plan. The Insmed Incorporated board of directors, the Insmed
Incorporated compensation committee or such other committee may delegate its
authority and responsibilities under the Stock Incentive Plan to one or more
officers of Insmed Incorporated, but the Insmed Incorporated board of directors,
the Insmed Incorporated 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 Incorporated board of directors, the Insmed
Incorporated 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:
. to establish rules and policies concerning the Stock
Incentive Plan;
. to determine the persons to whom stock options, awards of
Insmed Incorporated common stock and performance shares may
be granted;
127
<PAGE>
. to fix the number of shares of Insmed Incorporated common
stock to be covered by each award;
. to set the terms of each award; and
. to accelerate, upon a change of control or at such other
time as the administrator determines in its discretion, the
time at which any option may be exercised, the time at
which a stock award may become transferable or
nonforfeitable, or the time at which an award of
performance shares may be settled.
Each type of award is described below.
Eligibility. Each employee of Insmed Incorporated or a subsidiary
corporation of Insmed Incorporated, including an employee who is a member of
Insmed Incorporated's board of directors, each non-employee member of the Insmed
Incorporated board of directors, and each other non-employee advisor or service
provider of Insmed Incorporated 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 Incorporated
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 Incorporated
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 Incorporated common stock from Insmed Incorporated at
the option price. The option price may be paid in cash, with shares of Insmed
Incorporated common stock, with a combination of cash and shares of Insmed
Incorporated common stock, or by instructing a broker to deliver the exercise
price to Insmed Incorporated through the sale of shares of Insmed Incorporated
common stock purchased under the option. The option price is fixed by the
Administrator at the time the company grants the option, 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 Incorporated 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:
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. continued employment or service with Insmed Incorporated or a
subsidiary corporation for a specified period;
. achievement by Insmed Incorporated or a subsidiary corporation of
performance-related objectives such as those measured with respect
to:
.. fair market value of Insmed Incorporated common stock;
.. Insmed Incorporated common stock price appreciation;
.. gross revenues, operating profit or 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 Incorporated common stock if certain
standards are met. The Administrator prescribes the requirements that must be
satisfied before a participant earns a performance share award. Those
requirements may be based on:
. the fair market value of Insmed Incorporated common stock;
. Insmed Incorporated common stock price appreciation;
. gross revenues, operating profit, or net earnings before or after
taxes;
. return on equity;
. earnings per share;
. total earnings;
. earnings growth;
. return on capital;
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. 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 as the Administrator may select.
To the extent an individual earns performance shares, the obligation may be
settled:
. in cash;
. in shares of Insmed Incorporated common stock; or
. 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."
Share Authorization. All awards made under the Stock Incentive Plan are
evidenced by written agreements between Insmed Incorporated and the Stock
Incentive Plan participant. The maximum number of shares of Insmed Incorporated
common stock that may be issued under the Stock Incentive Plan upon its adoption
by the board of directors of Insmed Incorporated 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
Incorporated 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 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 Incorporated's board of directors or the
date that it was approved by Insmed Incorporated's sole
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shareholder. Insmed Incorporated'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 Incorporated 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 Incorporated'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 are exercisable for Insmed Incorporated 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
Incorporated common stock may be issued on the exercise of former Insmed
Pharmaceuticals and Celtrix options.
Federal Income Taxes. A Stock Incentive Plan participant does not
recognize income at the time an option is granted. If the option is an ISO, the
participant will not recognize income upon exercise of the option. A Stock
Incentive Plan participant recognizes income when he disposes of shares acquired
under an ISO. ISOs may be granted only to employees of Insmed Incorporated 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 equals the fair market value of the shares
of Insmed Incorporated 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 Incorporated 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 Incorporated or a subsidiary corporation, may
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 equals the ordinary income
recognized by the Stock Incentive Plan participant. The employer may not claim a
federal income tax deduction on account of the grant or the exercise of an ISO.
The employer may not claim a federal income tax deduction on account of certain
dispositions of shares of Insmed Incorporated common stock acquired upon the
exercise of an ISO.
The Stock Purchase Plan
The board of directors of Insmed Incorporated has adopted and the sole
shareholder of Insmed Incorporated has approved the Insmed Incorporated 2000
Stock Purchase Plan. Under the Stock Purchase Plan, eligible employees of Insmed
Incorporated and its subsidiary corporations, other than certain employees who
are also shareholders, may purchase Insmed Incorporated common stock directly
from the company. Purchases may be made through payroll deduction, with an
annual limit on purchases
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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
Incorporated common stock at the beginning of each annual offering period, or
85% of the fair market value on the date the purchase is made. Employees will
not recognize income at the time Insmed Incorporated 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 Incorporated common stock may be
purchased under the Stock Purchase Plan.
Financing Activity
On January 13, 2000 Insmed Incorporated and Insmed Pharmaceuticals
entered into a purchase agreement with certain investors which provides that
subject to certain conditions the investors will purchase 5,632,678 shares of
Insmed Pharmaceuticals common stock and 6,901,344 warrants, with each warrant
exercisable into one share of Insmed Incorporated common stock at a price of
$2.25 per share. The aggregate consideration to be received by Insmed
Incorporated and Insmed Pharmaceuticals pursuant to this financing is $34.5
million. See "Recent Developments" on page _____ for more information on the
financing.
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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 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.
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 plays 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. 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 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.
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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 guarantees 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 significantly and these patients'
average daily glucose levels declined. Based on such findings, Celtrix believes
that SomatoKine has potential to improve insulin sensitivity and help diabetics
manage their disease, and 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 amount of drug substance already on
hand, can be met by third parties through contract manufacturing. Celtrix can
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, such as 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, also called 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, including:
. Bone formation;
. Muscle formation;
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. Prevention of muscle degradation;
. Tissue and organ repair;
. Nutrient utilization;
. Hormonal regulation of insulin and growth hormone;
. Immune system stimulation; and
. 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, known as 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 focuses on elevating
the circulating reservoir of IGF-I thus 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 occurs 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,
SomatoKine demonstrates a variety of biological effects that could not be
demonstrated upon the administration of IGF-I alone. Celtrix believes this is
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.
Although pursued by several companies over the past years, a number of
limitations mainly associated with the administration of IGF-I in its free form
have hampered realization of the therapeutic potential of IGF-I. 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
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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 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 matrix Stimulate local tissue repair; Phase II -- Clinical Trial
(Genzyme Corporation) (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
are 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 show 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
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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.
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 such as:
. bone;
. lean mass and fat mass;
. muscle function as measured by grip strength;
. trends in measures of daily activity such as ADL (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
because 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. A positive trend in
parameters indicative of functional independence was also noted.
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 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 as 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
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have lost a substantial quantity of bone and are at high risk of fractures of
the hip, wrist or spine. In fact, studies estimate 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.
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.
IGF-I treatment also 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 (BP3), 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
decreased by 23%. Serum growth hormone decreased by 77% and cholesterol levels
decreased by 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, thus 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. Traumatic burns is another treatment target. 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.
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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. The shift towards
protein degradation also increases 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.
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. This is evidenced by 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. The agreement is effective through the expiration
of the licensed patents. Currently, the longest patent term extends to
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October 2014, and may extend beyond that date due to ongoing prosecution of
additional patents which, if issued, will be included in the agreement. The
agreement includes a "termination for breach" provision. Each party agrees to
undertake development activities and assume patent prosecution costs assigned to
it under the agreement. Celtrix licenses TGF-beta technology to Genzyme. Genzyme
agrees to make milestone payments plus royalties based on product sales to
Celtrix. Genzyme agrees to fund development activities. As part of the
agreement, Celtrix sold to Genzyme 1,550,388 shares of Celtrix common stock in
June 1994 for $9.9 million 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 Celtrix.
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 research and service obligations and
royalties which Celtrix would owe a third party. 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. This amendment is effective until the
expiration of the term of the related licensed patents. Currently, the longest
related patent term extends to July 2015, and may extend beyond that date due to
ongoing prosecution of additional patents which, if issued, will be included in
the agreement. Termination provisions in the event of bankruptcy, insolvency or
breach, are included. Genzyme agrees to pay royalties and bear patent
prosecution costs.
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 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. Genzyme has assumed Celtrix's obligations to make
these royalty payments pursuant to the 1997 license agreement discussed in the
immediately preceding paragraph. The term of the longest related patent is July
2015, and may extend beyond that date due to ongoing prosecution of additional
patents which, if issued, will be included in the agreement.
Celtrix granted Genentech patent rights to TGF-beta for use in any
pharmaceutical formulation or product in exchange 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
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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 has 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. Celtrix currently holds a total of 29
United States and 42 worldwide issued or allowed patents related to 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 (1) a BP3 composition-of-matter, (2) certain therapeutic uses of that
BP3, and (3) 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.
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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. The appeal could be
successful, and if it is successful, 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.
Celtrix expects that each of these companies will vigorously defend their patent
positions.
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 another
person or company will not assert a contrary position. A large number of other
companies have pending patent applications and/or issued patents that claim
certain methods of use of IGF.
Government Regulation
Numerous governmental authorities in the United States and other
countries substantially regulate the research and development, production and
marketing of Celtrix's products. 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.
In the United States, the Food and Drug Administration rigorously
regulates pharmaceutical products. The Federal Food, Drug and Cosmetic Act and
the underlying regulations, 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:
. Preclinical laboratory and animal tests;
. The submission to the FDA of an investigational new drug
application, which must become effective before human clinical
trials may commence;
. The conduct of adequate and well-controlled human clinical trials
to establish the safety and efficacy of the drug product for its
intended indications;
. The submission to the FDA of a new drug application for
pharmaceuticals; and
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. FDA approval of the new drug application 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 FDA assigned this review to the Division of Endocrine
and Metabolism Products, Center for Drug Evaluation and Research. Before
marketing, FDA approval of products containing SomatoKine will be based on
submission of an new drug application containing the results of preclinical and
clinical studies, and complete manufacturing and controls information.
Furthermore, new drug application approval requires preapproval inspection by
the FDA of the proposed commercial manufacturing facilities to assess compliance
with manufacturing regulations.
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. Celtrix
must conduct the preclinical safety tests in compliance with FDA regulations
regarding good laboratory practices. Celtrix must submit the results of
preclinical tests to the FDA as part of the investigational new drug
application. The FDA then reviews the tests and determines whether the clinical
trials described in the investigational new drug application may commence. There
is no certainty that submission of an investigational new drug 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. Celtrix must
submit each protocol to the FDA as part of the investigational new drug
application. Further, Celtrix must conduct each clinical study under the
auspices of an independent Institutional Review Board at the institution at
which Celtrix conducts the study. Celtrix must obtain an informed consent 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:
. determine the efficacy of the product for specific, targeted
indications;
. determine dosage tolerance and optimal dosage; and
. identify possible adverse effects and safety risks.
If a pharmaceutical company determines that a compound is effective and
has an acceptable safety profile in Phase II evaluations, the company will
generally undertake Phase III trials to further confirm clinical efficacy and to
further test for safety within an expanded patient population at geographically
dispersed clinical study sites. Clinical studies can take several years to
complete and are often abandoned when results indicate low efficacy or poor
safety. Celtrix may not be able to successfully complete Phase I, Phase II or
Phase III testing within any specified time period or at all. 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 or if
the results indicate low efficacy.
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Celtrix would then submit the results of the product development efforts,
preclinical studies and clinical studies to the FDA in the form of a new drug
application 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. The FDA may not grant approval on a timely
basis, or at all. The FDA may deny a new drug application if applicable
regulatory criteria are not satisfied, require additional testing or information
if it does not view the new drug application 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. Even if a company
attempts to comply with all of the FDA requirements and requests, the FDA may
ultimately decide that the application does not satisfy its regulatory criteria
for approval. Finally, the FDA may withdraw product approvals if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
The manufacturer's manufacturing procedures and quality control must
comply with the FDA regulations as published in the current good manufacturing
practices 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 new drug application 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 described above also apply to European clinical trials. For
example, Celtrix must conduct clinical trials in several phases. Celtrix may not
be able to successfully complete testing in Europe within any specified time
period, if at all. 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. However, an approval could take a longer
time or may never be obtained.
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 new drug application, to the
European Medicines Evaluation Authority. The authority 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 authority
is typically applicable to the entire European Community.
Because Celtrix intends to have its products marketed in certain foreign
countries in the future, Celtrix will likely need to obtain approval by these
countries' regulatory authorities. 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 Celtrix obtains foreign approvals Celtrix
could encounter further delays before it could market products. For example,
many countries require additional
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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
Celtrix faces competition from larger pharmaceutical companies,
biotechnology companies, universities and other research institutions in all
areas in which Celtrix is targeting. 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 than Celtrix.
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. Celtrix may not 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. Celtrix or any other
party may not be able to arrange to manufacture any of its current or future
products on a commercial scale, or at a cost or in quantities to make
commercially viable products.
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
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
-------- -------- -------- -------- -------- -------- --------
(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
<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>
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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 exchangeable for an incremental 30.1% ownership in
the joint venture to a total of 50.0%. If the
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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
Incorporated 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 diabetes.
This 12-patient study investigated SomatoKine's potential to increase
sensitivity to insulin and improve blood glucose control. In a cross-over study,
patients served as their own control group. All patients reacted positively to
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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 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
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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 reimbursement at cost
of SomatoKine drug substance to provide 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.
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.
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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 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
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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.
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.
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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.
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
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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 describes information with respect to the current directors
and executive officers of Celtrix and their ages as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
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
</TABLE>
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. The Celtrix board appointed Mr. Huffman Vice President
of Finance and Administration and Chief Financial Officer of Celtrix in October
1997. Previously, he was Vice 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. The Celtrix board appointed Dr. McKay Vice
President of Regulatory Affairs and Quality Assurance in August 1996. 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
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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.
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
Fiscal Compensation (1) Compensation Awards(1) Compensation(1)
--------------------- ---------------------- ---------------
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.
(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.
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<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-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 1991 Stock
Option Plan, the Celtrix compensation committee may grant options to officers,
key employees, non-employee directors and consultants of Celtrix. The Celtrix
compensation committee administers the 1991 Stock Option Plan to satisfy the
requirements of section 162(m) of the Internal Revenue Code and Rule 16b-3 under
the Securities Exchange Act of 1934. The compensation committee establishes the
terms of option grants made under the 1991 Stock Option Plan, subject to the
provisions of the Plan. No participant in the Celtrix 1991 Stock Option 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).
The compensation committee may grant be either options intended to qualify
as ISOs under section 422 of the Code, or options not intended to qualify. No
income is recognized by a Celtrix Stock Option Plan participant at the time an
option is granted. If the option is an ISO, no income will be recognized on
exercise of the option. Income is recognized on disposition of shares acquired
under an ISO. The exercise of a nonqualified option generally is a taxable event
that requires the 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.
The exercise price of an ISO may not be less than the fair market value of
a share of Celtrix common stock on the date of grant of the option. The exercise
price of nonqualified options 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 holder may pay the exercise price in the form of consideration determined
by the compensation committee, which may vary for each option. An option holder
must exercise the option within ten years after the date the option is granted
and may not transfer the option other than by will or the laws of descent and
distribution.
The compensation committee will adjust the number of shares available for
issuance and the number, class, and price of shares subject to outstanding
options 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. The
Celtrix board of directors voted to have all outstanding options vest
immediately prior to the effective time of the reorganizations. The
Reorganization Agreement provides that all unexercised Celtrix options will be
converted into options to purchase Insmed Incorporated common stock. The 1991
Stock Option Plan will terminate in 2001 or on any earlier date determined by
the board of directors of Celtrix.
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<PAGE>
The 1991 Directors' Stock Option Plan. Under the Celtrix Pharmaceuticals,
Inc. 1991 Directors' Stock Option 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. Celtrix secured the loan by Dr. Sommer's Celtrix stock and the
loan bore interest at the rate of 5.12% per annum. In September 1998, the
Celtrix board forgave the loan principal and accrued interest totaling $81,277.
In December 1998, Celtrix paid withholding taxes of $28,813 due from Dr. Sommer
upon forgiveness of the loan and Celtrix established a receivable 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 described 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:
. each person who is known by Celtrix to beneficially own more than five
percent of Celtrix's common stock,
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. each of Celtrix's current directors,
. each of the executive officers of Celtrix named in the Summary
Compensation Table on page ____,
. 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
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, 10th Floor
New York, NY 10017
</TABLE>
158
<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>
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 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.
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<PAGE>
(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.
160
<PAGE>
DESCRIPTION OF INSMED PHARMACEUTICALS
Business Overview
Insmed Pharmaceuticals develops drugs to treat metabolic and endocrine
diseases. Its current programs address treatments for type 2 diabetes and
polycystic ovary syndrome (PCOS). The Company was incorporated in Virginia in
September 1988. As of December 31, 1999:
. Insmed Pharmaceuticals has raised $25,828,000 from the sale of
its equity and $1,634,000 from sponsored research and other
operating revenues; and
. Insmed Pharmaceuticals has spent $17,478,000 for research and
development expenses, $7,800,000 for general and administrative
expenses and $608,000 to purchase equipment.
The Company's lead product is INS-1, a naturally occurring insulin
sensitizer. Unlike insulin, INS-1 achieves significant concentrations in the
bloodstream following oral administration. The Company has conducted more than
twenty pre-clinical studies of INS-1 and, as of December 31, 1999, has completed
seven clinical trials with five additional clinical trials in progress. In Phase
II clinical trials, INS-1 has demonstrated efficacy both in patients with type 2
diabetes and in women suffering from PCOS. In both pre-clinical and clinical
studies, it has been tolerated well and shown no evidence of organ toxicity.
Seven new trials are expected to begin in 2000.
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.
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. This can cause 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.
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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. 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.
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<PAGE>
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 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.
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<PAGE>
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.
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 Design Number of 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 profile.
late-adolescent males and
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>
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<PAGE>
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 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.
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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 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(TM). 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) and Actos(R) are proprietary products sold by 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. Rezulin(R), another glitazone manufactured by Parke-Davis, a
Warner Lambert Company division, was withdrawn from the market on
March 22, 2000, after being linked to liver poisoning.
. 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.
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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. The license extends for the full term of the patents.
In consideration for the license agreement, Insmed Pharmaceuticals is
obligated to pay minimum annual licensing fees of $100,000 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. Under the license agreement, Insmed Pharmaceuticals 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 Insmed Pharmaceuticals. 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 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.
Our patents expire at various times between May 2001 and January 2018. Our
most significant patent "Dietary supplement for Insulin Resistant Diabetics"
does not expire until 2009. 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. The
following is a table which lists each of Insmed Pharmaceuticals patents and
their expiration date.
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<PAGE>
<TABLE>
<CAPTION>
PATENTS
<S> <C>
Insulin Mediator Substance Method for Detecting Insulin Resistance
Patent Number 4,446,064 Patent Number 5,750,348
Expiration Date 05/01/01 Expiration Date 07/08/11
- --------------------------------------------------------------------------------------------------------
Purified Insulin Mediatiors and Purification Immunoassay for Inositols
Process for Same Patent Number 5,525,526
Patent Number 5,122,603 Expiration Date 02/02/14
Expiration Date 03/08/06
- --------------------------------------------------------------------------------------------------------
Dietary supplement for Insulin Resistant Diabetics Method of Producing D-Chiroinositol
Patent Number 5,124,360 Patent Number 5,406,005
Expiration Date 06/23/09 Expiration Date 04/15/14
- --------------------------------------------------------------------------------------------------------
Method of Reducing Elevated Method of Producing D-Chiroinositol
Blood Sugar in Humans Patent Number 5,516,950
Patent Number 5,428,066 Expiration Date 04/15/14
Expiration Date 06/23/09
- --------------------------------------------------------------------------------------------------------
Screening Method for Diabetic Condition Method for Treating Defective Glucose Metabolism
Patent Number 5,427,956 Using Synthetic Insulin Substances
Expiration Date 02/02/10 Patent Number 5,652,221
Expiration Date 07/29/14
- --------------------------------------------------------------------------------------------------------
Quantitative Analysis for Diabetic Compositions and Methods for Treating Metabolic
Condition Predictor Involving Chiro-Inositol Diseases Characterized by Hyperandrogenism, and/or
Patent Number 5,183,764 Anovulation
Expiration Date 02/02/10 Patent Number 5,906,979
Expiration Date 01/27/18
- --------------------------------------------------------------------------------------------------------
Method of Producing Chiro-Inositol
Patent Number 5,091,596
Expiration Date 12/20/10
- --------------------------------------------------------------------------------------------------------
</TABLE>
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;
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<PAGE>
. Adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication;
. 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.
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<PAGE>
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 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 described 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. During 2000,
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<PAGE>
Insmed Pharmaceuticals plans to hire 23 additional people and lease another
5,500 square feet of office space.
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 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
---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
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 $(1,206) $(2,088) $(3,480) $(4,809) $(7,793)
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
<CAPTION>
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>
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
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<PAGE>
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 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.
The acquisition of Celtrix will result in increased costs associated with
the development of the acquired in process research and development. In
addition, general and administrative expenses will increase as a result of costs
associated with operating as a publicly-held company.
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 Incorporated 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 the needs of the combined companies 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
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<PAGE>
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.
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. Insmed Pharmaceuticals'
investments in fixed rate securities are subject to interest rate and credit
risk. Based on Insmed Pharmaceuticals' policy of investing in highly rated
securities whose maturities at December 31, 1999 are all less than one year
minimizes the risk associated with Insmed Pharmaceuticals' investment in fixed
rate securities. 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. The names, ages and positions and a brief
description of the business experience of Insmed Pharmaceuticals' directors and
executive officers are listed below. All directors hold office until the next
annual meeting of shareholders and until their successors are duly elected and
qualified.
<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
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
</TABLE>
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 Incorporated After the Reorganizations - Insmed Incorporated Board of
Directors" on page ___, and for a description of the business experience of
Michael D. Baer, see "Management and Operation of Insmed Incorporated After the
Reorganizations - Management" on page ___.
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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.
<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 $90,000(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 $30,000(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) In addition to the amounts indicated, the board of directors has agreed to
pay $120,000 to Dr. Allan, and $50,000 to Mr. Baer if and when the
reorganizations close.
(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
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<PAGE>
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.
<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) the company may select
officers, key employees, non-employee directors and consultants of Insmed
Pharmaceuticals to receive options to purchase common stock of Insmed
Pharmaceuticals. The board of directors of Insmed Pharmaceuticals administers
the Insmed Pharmaceuticals 1994 Plan but it may delegate some of its authority
to a compensation committee appointed by the Insmed Pharmaceuticals board of
directors. 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.
Under the Insmed Pharmaceuticals 1994 Plan the company may grant either
options intended to qualify as "incentive stock options" under section 422 of
the Internal Revenue Code, or options not intended to so qualify. At the time
an option is granted the recipient recognizes no income. If the option is an
ISO, no income will be recognized upon exercise of the option. An Insmed
Pharmaceuticals 1994 Plan participant recognizes gain 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 may claim a federal income
tax deduction on account of the exercise of a nonqualified option. Insmed
Pharmaceuticals may not claim 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
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<PAGE>
a stock dividend, recapitalization, merger, consolidation, split-up, share
exchange, or similar event. 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>
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<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 persons) 7,579,118(12) 55.7%
</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 listed
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
listed 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
listed 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 listed 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 listed 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
listed 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.
(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,
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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).
178
<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 Incorporated
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 Incorporated has filed the Insmed Incorporated registration
statement on Form S-4 with the Securities and Exchange Commission to register
the Insmed Incorporated common stock to be issued in the reorganizations. This
joint proxy statement/prospectus will be a part of the Insmed Incorporated
registration statement and will constitute a prospectus of Insmed Incorporated
in addition to being a proxy statement of Celtrix for the annual meeting and a
proxy statement of Insmed Pharmaceuticals for the special meeting.
179
<PAGE>
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 Incorporated registration statement or the exhibits to the Insmed
Incorporated registration statement.
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 Incorporated 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
180
<PAGE>
than such date, and neither the mailing of this joint proxy statement/prospectus
to stockholders nor the issuance of Insmed Incorporated common stock in the
reorganizations shall create any implication to the contrary.
181
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Insmed Pharmaceuticals, Inc.
Report of Ernst & Young LLP, Independent Auditors ....................... F-1
Consolidated Balance Sheets as of
December 31, 1999 and 1998 ............................................. F-2
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-6
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
<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-1
<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 $ 746,682 $ 186,133
Other current liabilities 87,259 65,352
Notes Payable -- 25,919
-----------------------------
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-2
<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-3
<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 $ -- $ -- $ -- $ -- $ 4,300 $ 791 $ -- $ --
shares of common
stock for cash
Issuance of 55,000 -- -- -- -- 550 10,450 -- --
shares of common
stock in exchange
for services
Issuance of 15,000 -- -- -- -- 150 2,850 -- --
shares of common
stock to licensor
Net loss for the
period from -- -- -- -- -- -- -- (36,036)
September 21, 1988
(inception) to
December 31, 1988
---------------------------------------------------------------------------------------------------------
Balance at December -- -- -- -- 5,000 14,091 -- (36,036)
31, 1988
Issuance of 68,230 -- -- -- -- 682 38,464 -- --
shares of common
stock for cash
Issuance of 40,000 -- -- -- -- 400 400 -- --
shares of common
stock in exchange
for services
Net loss for 1989 -- -- -- -- -- -- -- (81,124)
---------------------------------------------------------------------------------------------------------
Balance at December -- -- -- -- 6,082 52,955 -- (117,160)
31, 1989
Issuance of 120,195 -- -- -- -- 1,202 155,180 -- --
shares of common
stock for cash
Issuance of 22,685 -- -- -- -- 227 28,582 -- --
shares of common
stock in exchange
for notes payable
Issuance of 1,000 -- -- -- -- 10 1,490 -- --
shares of common
stock in exchange
for services
Net loss for 1990 -- -- -- -- -- -- -- (323,006)
---------------------------------------------------------------------------------------------------------
Balance at December -- -- -- -- 7,521 238,207 -- (440,166)
31, 1990
Issuance of 256,470 -- -- -- -- 2,565 214,938 -- --
shares of common
stock for cash
Issuance of 51,485 -- -- -- -- 515 50,283 -- --
shares of common
stock in exchange
for notes payable
Issuance of 14,740 -- -- -- -- 147 8,213 -- --
shares of common
stock in exchange
for services
Issuance of 17,775 -- -- -- -- 178 26,485 -- --
shares of common
stock to licensor
Net loss for 1991 -- -- -- -- -- -- -- (303,083)
---------------------------------------------------------------------------------------------------------
Balance at December -- -- -- -- 10,926 538,126 -- (743,249)
31, 1991
Issuance of 303,794 -- -- -- -- 3,038 644,962 -- --
shares of common
stock for cash
Issuance of 9,398 -- -- -- -- 94 22,038 -- --
shares of common
stock to licensor
Net loss for 1992 -- -- -- -- -- -- -- (689,794)
---------------------------------------------------------------------------------------------------------
Balance at December -- -- -- -- 14,058 1,205,126 -- (1,433,043)
31, 1992
Issuance of 327,159
shares of -- -- -- 3,272 -- 923,169 -- --
preferred stock
for cash, net of
offering costs of
$54,969
Issuance of 13,333 -- -- -- 133 -- 39,867 -- --
shares of
preferred stock in
exchange for notes
payable
Issuance of 10,530 -- -- -- -- 105 31,485 -- --
shares of common
stock to licensor
Net loss for 1993 -- -- -- -- -- -- -- (721,478)
---------------------------------------------------------------------------------------------------------
Balance at December -- -- -- 3,405 14,163 2,199,647 -- (2,154,521)
31, 1993
<CAPTION>
Accumulated Other
Comprehensive
Loss Total
--------------------------------
<S> <C> <C>
Issuance of 430,000 $ 5,091
shares of common
stock for cash
Issuance of 55,000 11,000
shares of common
stock in exchange
for services
Issuance of 15,000 3,000
shares of common
stock to licensor
Net loss for the
period from (36,036)
September 21, 1988
(inception) to
December 31, 1988
--------------------------------
Balance at December (16,945)
31, 1988
Issuance of 68,230 39,146
shares of common
stock for cash
Issuance of 40,000 800
shares of common
stock in exchange
for services
Net loss for 1989 (81,124)
--------------------------------
Balance at December (58,123)
31, 1989
Issuance of 120,195 156,382
shares of common
stock for cash
Issuance of 22,685 28,809
shares of common
stock in exchange
for notes payable
Issuance of 1,000 1,500
shares of common
stock in exchange
for services
Net loss for 1990 (323,006)
--------------------------------
Balance at December (194,438)
31, 1990
Issuance of 256,470 217,503
shares of common
stock for cash
Issuance of 51,485 50,798
shares of common
stock in exchange
for notes payable
Issuance of 14,740 8,360
shares of common
stock in exchange
for services
Issuance of 17,775 26,663
shares of common
stock to licensor
Net loss for 1991 (303,083)
--------------------------------
Balance at December (194,197)
31, 1991
Issuance of 303,794 648,000
shares of common
stock for cash
Issuance of 9,398 22,132
shares of common
stock to licensor
Net loss for 1992 (689,794)
--------------------------------
Balance at December (213,859)
31, 1992
Issuance of 327,159
shares of 926,441
preferred stock
for cash, net of
offering costs of
$54,969
Issuance of 13,333 40,000
shares of
preferred stock in
exchange for notes
payable
Issuance of 10,530 31,590
shares of common
stock to licensor
Net loss for 1993 (721,478)
--------------------------------
Balance at December 62,694
31, 1993
</TABLE>
F-4
<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 Convertible Notes Accumulated
Participating Convertible Preferred Stock Receivable During the
Preferred Preferred --------------------- 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 $ -- $ -- $ -- $ -- $ 1,549 $ 230,777 $ -- $ --
of 154,885
shares of
common
stock for
cash upon
exercise of
warrants
Issuance
of 68,331 -- -- -- -- 683 162,191 -- --
shares of
common
stock for
cash, net
of offering
costs of
$42,119
Issuance -- -- -- -- 69 20,640 -- --
of 6,093
shares of
common
stock to
licensor
Net loss -- -- -- -- -- -- -- (1,250,081)
for 1994
----------------------------------------------------------------------------------------------------------------------
Balance -- -- -- 3,405 16,464 2,613,255 -- (3,404,602)
at
December
31, 1994
Issuance of -- -- 1,194 -- -- 222,094 -- --
119,353
shares of
preferred
stock for
cash, net
of offering
costs of
$134,861
Issuance -- -- 893 -- -- 222,435 -- --
of 89,331
shares of
preferred
stock for
cash upon
exercise
of warrants
Issuance -- -- 683 -- (683) -- -- --
of 68,331
shares of
preferred
stock upon
exchange
of common
stock
Issuance -- -- -- -- 64 19,304 -- --
of 6,456
shares of
common
stock to
licensor
Net loss -- -- -- -- -- -- -- (1,206,131)
for 1995
----------------------------------------------------------------------------------------------------------------------
Balance -- -- 2,770 3,405 15,845 3,077,088 -- (4,610,733)
at
December
31, 1995
Issuance
of -- -- -- (3,405) 4,086 (681) -- --
408,582
shares of
common
stock for
340,492
shares of
Series A,
Convertible
Preferred
Stock
Issuance
of -- -- (2,770) -- 3,324 (554) -- --
332,446
shares of
common
stock for
277,045
shares of
Series B,
Convertible
preferred
Stock
Issuance
of -- -- -- -- 2,858 582,222 -- --
285,758
shares of
common
stock in
exchange for
shares of
preferred and
common
stock of
subsidiary
Issuance 5,294,255 -- -- -- -- (101,275) -- --
of
4,072,504
shares of
redeemable
preferred stock
Issuance -- -- -- -- 1,259 17,633 -- --
of
125,953
shares of
common
stock to
licensor
Issuance -- -- -- -- 248 3,466 -- --
of 24,757
shares of
common
stock for
services
Net loss -- -- -- -- -- -- -- (2,088,250)
for 1996
----------------------------------------------------------------------------------------------------------------------
Balance 5,294,255 -- -- -- 27,620 3,577,899 -- (6,698,983)
at
December
31, 1996
<CAPTION>
Accumulated
Other
Comprehensive
Loss Total
-------------------------------------
<S> <C> <C>
Issuance $ -- $ 232,326
of 154,885
shares of
common
stock for
cash upon
exercise of
warrants
Issuance
of 68,331 -- 162,874
shares of
common
stock for
cash, net
of offering
costs of
$42,119
Issuance -- 20,709
of 6,093
shares of
common
stock to
licensor
Net loss -- (1,250,081)
for 1994
-------------------------------------
Balance -- (771,478)
at
December
31, 1994
Issuance of -- 223,288
119,353
shares of
preferred
stock for
cash, net
of offering
costs of
$134,861
Issuance -- 223,328
of 89,331
shares of
preferred
stock for
cash upon
exercise
of warrants
Issuance -- --
of 68,331
shares of
preferred
stock upon
exchange
of common
stock
Issuance -- 19,368
of 6,456
shares of
common
stock to
licensor
Net loss -- (1,206,131)
for 1995
-------------------------------------
Balance -- (1,511,625)
at
December
31, 1995
Issuance
of -- --
408,582
shares of
common
stock for
340,492
shares of
Series A,
Convertible
Preferred
Stock
Issuance
of -- --
332,446
shares of
common
stock for
277,045
shares of
Series B,
Convertible
preferred
Stock
Issuance
of -- 585,080
285,758
shares of
common
stock in
exchange for
shares of
preferred and
common
stock of
subsidiary
Issuance -- 5,192,980
of
4,072,504
shares of
redeemable
preferred stock
Issuance -- 18,892
of
125,953
shares of
common
stock to
licensor
Issuance -- 3,714
of 24,757
shares of
common
stock for
services
Net loss -- (2,088,250)
for 1996
-------------------------------------
Balance -- 2,200,791
at
December
31, 1996
</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>
Deficit
Series A Accumulated
Convertible Series B Convertible Development
Participating Convertible Preferred Stock Notes Receivable During the
Preferred Preferred -------------------- 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 $ -- $ -- $ -- $ -- $ 2,958 $ 41,417 $ (44,375) $ --
of 295,834
shares
of common
stock
upon
exercise
of stock
options
Issuance 3,418,957 -- -- -- -- (19,552) -- --
of 2,072,095
shares
of redeemable
preferred stock
Elimination of (8,651,766) -- -- -- -- 8,651,766 -- --
redemption rights
Issuance -- -- -- -- 641 12,176 -- --
of 64,085
shares of
common
stock to
licensor
Issuance -- -- -- -- 139 17,861 -- --
of 13,846
shares of
common stock
for services
Net loss -- -- -- -- -- -- -- (3,479,948)
for 1997
------------------------------------------------------------------------------------------------------------------
Balance 61,446 -- -- -- 31,358 12,281,567 (44,375) (10,178,931)
at December
31, 1997
Issuance -- -- -- -- 1,026 16,190 -- --
of 102,590
shares of common
stock upon
exercise
of stock
options
Issuance -- -- -- -- 1,030 258,470 -- --
of 103,000
shares of common
stock upon
exercise
of stock
warrants
Issuance of -- 35,818 -- -- 1,163 13,942,215 -- --
3,581,761 shares
of Series B,
Convertible
Preferred Stock
and related
issuance of
116,270 shares of
common stock to
underwriter
Issuance -- -- -- -- 1,300 63,716 -- --
of 130,032 shares
of common stock
to licensor
Accrued -- -- -- -- -- -- (2,764) --
interest
on note
receivable
Net loss -- -- -- -- -- -- -- (4,808,694)
for 1998
------------------------------------------------------------------------------------------------------------------
Balance 61,446 35,818 -- -- 35,877 26,562,158 (47,139) (14,987,625)
at December
31, 1998
Issuance -- -- -- -- 1,887 185,754 -- --
of 188,642
shares of common
stock upon
exercise
of stock
options
Issuance -- -- -- -- 120 15,480 (15,600) --
of 12,000 shares
of common stock
upon exercise
of stock
warrants
Issuance -- -- -- -- 750 122,250 -- --
of 75,000 shares
of common stock
upon exercise
of stock warrants
Issuance -- -- -- -- 91 10,830 -- --
of 9,112 shares
of common stock
to licensor
Principal payment -- -- -- -- -- -- 1,500 --
on note
receivable
Accrued -- -- -- -- -- -- (2,840) --
interest on notes
receivable
Recognition -- -- -- -- -- 284,855 -- --
of stock
compensation
expense
Comprehensive
Earnings:
Unrealized -- -- -- -- -- -- -- --
loss on
investments
Net loss -- -- -- -- -- -- -- (7,792,684)
for 1999
Comprehensive
(loss)
------------------------------------------------------------------------------------------------------------------
Balance $ 61,446 $ 35,818 $ -- $ -- $ 38,725 $ 27,181,327 $ (64,079) $(22,780,309)
at December
31, 1999
------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other
Comprehensive
Loss Total
-------------------------------------
<S> <C> <C>
Issuance $ -- $ --
of 295,834
shares
of common
stock
upon
exercise
of stock
options
Issuance -- 3,399,405
of 2,072,095
shares
of redeemable
preferred stock
Elimination of -- --
redemption rights
Issuance -- 12,817
of 64,085
shares of
common
stock to
licensor
Issuance -- 18,000
of 13,846
shares of
common stock
for services
Net loss -- (3,479,948)
for 1997
-------------------------------------
Balance -- 2,151,065
at December
31, 1997
Issuance -- 17,216
of 102,590
shares of common
stock upon
exercise
of stock
options
Issuance -- 259,500
of 103,000
shares of common
stock upon
exercise
of stock
warrants
Issuance of -- 13,979,196
3,581,761 shares
of Series B,
Convertible
Preferred Stock
and related
issuance of
116,270 shares of
common stock to
underwriter
Issuance -- 65,016
of 130,032 shares
of common stock
to licensor
Accrued -- (2,764)
interest
on note
receivable
Net loss -- (4,808,694)
for 1998
-------------------------------------
Balance -- 11,660,535
at December
31, 1998
Issuance -- 187,641
of 188,642
shares of common
stock upon
exercise
of stock
options
Issuance -- --
of 12,000 shares
of common stock
upon exercise
of stock
warrants
Issuance -- 123,000
of 75,000 shares
of common stock
upon exercise
of stock warrants
Issuance -- 10,921
of 9,112 shares
of common stock
to licensor
Principal payment -- 1,500
on note
receivable
Accrued -- (2,840)
interest on notes
receivable
Recognition -- 284,855
on of stock
compensation
expense
Comprehensive
Earnings:
Unrealized (11,377) (11,377)
loss on
investments
Net loss -- (7,792,684)
for 1999
Comprehensive
(loss) (7,804,061)
-------------------------------------
Balance $ (11,377) $ 4,461,551
at December
31, 1999
-------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Sept. 21,
Year Ended December 31, 1988 (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-7
<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 - 15,537,179
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 at 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 lease $ - $ - $ - $ 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-8
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statements of Cash Flows (continued)
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.
Stock options granted to non-employees are accounted for in accordance with
EITF 96-18, Accounting for Equity Instruments that are issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services.
Accordingly, the estimated fair value of the equity instrument is recorded on
the earlier of the performance commitment date or the date the services required
are completed.
F-9
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Consolidated Statements of Cash Flows (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. Revenue from achievement of milestone events is recognized when the
results stipulated in the related agreement have been met and there are no
remaining performance obligations. Grant revenues, including payments
irrevocably received, 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.
Recent Accounting Pronouncements
There have been no recently issued accounting pronouncements that would have a
material impact on the company's financial position or results of operations.
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 common share of Celtrix
will be exchanged for one share of common stock in a newly formed holding
company (Insmed Incorporated). The aggregate par value and related dividends of
Celtrix Series A Preferred Stock are convertible into Celtrix common stock at a
price per share of $2.006. The holders of Celtrix Series A Preferred Stock will
receive one share of common stock of Insmed Incorporated on an as converted
basis. Each preferred and common share of the Company will be exchanged for
three and one-half shares of common stock of Insmed Incorporated. 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-10
<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
Incorporated for $34.5 million. The warrants are exercisable for five years at a
price of $2.25. Such sale is contingent upon approval of the merger with Celtrix
by the shareholders of both companies.
The proceeds of the issuance of the shares and warrants are expected to fund
Insmed Incorporated'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.
In 1997, the holders of the Series A shares agreed to eliminate their redemption
rights to enable additional financing for the Company.
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 or netted against additional capital. The
estimated fair values used in recording these transactions were based upon
recent issuances of equity for cash, principally the sale of preferred stock,
taking into consideration the aggregate liquidation preferences of the preferred
stock.
F-11
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
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.
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):
Weighted
Average
Shares Exercise Price
-------------------------
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
F-12
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
4. Stockholders' Equity (continued)
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
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-13
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated Financial Statements (continued)
4. Stockholders' Equity (continued)
Outstanding Contractual Exercisable
Exercise Price Options Life Options
-------------- ----------- ----------- -----------
$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
========= ========= =========
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 weighted average volatility
rate of 0.25, 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-14
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated 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-15
<PAGE>
Insmed Pharmaceuticals, Inc.
(a development stage company)
Notes to Consolidated 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.
In consideration for the license agreement, Insmed Pharmaceuticals is obligated
to pay minimum annual licensing fees of $100,000 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.
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.
9. Related Party Transactions
The Company retained one of its directors as general counsel until June 1996 and
subsequently retained him as corporate secretary. Payments for these services
amounted to $38,806 in 1999, $18,060 in 1998, $12,952 in 1997 and $266,865 on a
cumulative basis since inception.
On October 15, 1997, the Company loaned $44,375 to its chief executive officer
which he used to purchase 295,834 shares of the Company's common stock pursuant
to a stock option agreement. The note is collateralized by the shares purchased
and is payable on September 30, 2002. Interest accrues at 6.23% per annum. The
principal and accrued interest are presented as a separate component of
stockholders' equity.
F-16
<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-17
<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-18
<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-19
<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 Plan 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-20
<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-21
<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 Company operates in the business segment.
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-22
<PAGE>
Licensing revenues are recorded when contractually earned with consideration
given to future performance obligations, if any. Celtrix has no licensing
revenues that are refundable if the research effort is not successful. Revenue
from product sales is recognized at time of shipment.
Licensing revenues from a single customer in 1999, 1998, and 1997 were 86%, 75%
and 75%, of the company's total licensing revenues, respectively. Licensing
revenues from a Japanese company were 75% of total licensing revenues in 1998
and 1997.
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 employee stock option grants in accordance with APB
Opinion No. 25, and, accordingly, recognizes no compensation expense for the
stock option grants.
Stock options granted to non-employees for services rendered are accounted
for at fair value.
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-23
<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 the lower of
carrying values or fair value, less costs to sell.
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-24
<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-25
<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
------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C>
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
-------------- ------------------------ ---------------------------------
<C> <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-26
<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-27
<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):
Deferred tax assets: 1999 1998
----- ----
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 $ -- $ --
========= =========
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 (Celtrix Newco Ltd), a company incorporated in
Bermuda 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
F-28
<PAGE>
Preferred Stock will be cancelled. The Series A Convertible/Exchangeable
Preferred Stock pays a 5% annual in-kind dividend.
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-29
<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-30
<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 revenue 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-31
<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.
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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 6,901,344 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 (Celtrix Newco, Ltd.), a company
incorporated in Bermuda, 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 accounting,
F-33
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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. The obligation of Elan to purchase
Series B Convertible Preferred Stock will terminate at the time of the merger
with Insmed. See Note 2.
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).
The following summarizes financial information of Celtrix Newco, Ltd.
Condensed Statement of Operations
Three Months Ended Nine Months Ended
December 31, 1999 December 31, 1999
------------------- ------------------
(in thousands)
Costs and Expenses:
Research and development $ 840 $ 11,075
General and Administrative 60 127
------------- -------------
Net Loss $(900) $(11,202)
============= =============
Company's Share of Net Loss $ 963(1) $ 8,973
============= =============
(1) Includes an adjustment for advances to the joint venture by Celtrix.
Condensed Balance Sheet
December 31, 1999
(in thousands)
---------------------------
Current liabilities $ 1,202
Stockholders' equity $(1,202)
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
--------------
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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.
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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
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TABLE OF CONTENTS
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Page
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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
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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
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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
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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
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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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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>
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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
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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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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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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.
-----------
A-14
<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.
A-16
<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
A-24
<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.
A-25
<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.
A-34
<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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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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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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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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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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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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(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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<PAGE>
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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<PAGE>
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
A-82
<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.
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<PAGE>
Special Committee of the Board of Directors
February 9, 2000
Page 4
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:
C-1
<PAGE>
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.
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<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
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<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
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<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
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<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
G-4
<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>
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
INSMED, INC.
These Articles of Amendment are filed in accordance with Section 13.1-710
of the Virginia Stock Corporation Act:
A. The name of the corporation (which is hereinafter referred to as the
"Corporation") is Insmed, Inc.
B. The amendment to the Corporation's Articles of Incorporation adopted
on March 13, 2000 by written consent of the Corporation's sole shareholder is as
follows:
1. "Article I" of said Articles of Incorporation is deleted and is
replaced by the following to change the name of the Corporation to Insmed
Incorporated:
"ARTICLE I
The name of the Corporation shall be Insmed Incorporated."
C. The amendment was adopted by the written consent of the Corporation's
sole shareholder.
INSMED, INC.
By: /s/ Michael D. Baer
-----------------------
Michael D. Baer
Chief Financial Officer
Dated: March 13, 2000
H-8
<PAGE>
ANNEX I
AMENDED AND RESTATED BYLAWS
of
INSMED, INC.
(Effective as of February 4, 2000)
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ARTICLE I.
MEETINGS OF SHAREHOLDERS.
SECTION 1. Place of Meetings. All meetings of the shareholders of Insmed,
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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,
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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
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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
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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
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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
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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
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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
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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.
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(a) Number. There shall be four standing Committees of the Board which
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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
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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
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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
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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
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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
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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
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cause whatever may be filled by a majority of the number of directors fixed by
these By-laws.
SECTION 2. Executive Committee.
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(a) How Constituted. The Executive Committee shall consist of not less
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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
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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.
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(a) How Constituted. The Audit Committee shall consist of not less than
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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
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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.
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(a) How Constituted. The Compensation Committee shall consist of not less
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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
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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.
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(a) How Constituted. The Governance Committee shall consist of not less
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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
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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.
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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
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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,
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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 Incorporated'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 Incorporated carries insurance on behalf of directors,
officers, employees or agents that may cover liabilities under the Securities
Act. Insmed Incorporated'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 Incorporated shall be
liable to Insmed Incorporated 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 Incorporated, 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 Incorporated, as amended (Included
as Annex H to the accompanying Joint Proxy Statement/Prospectus).
3.2 Amended and Restated Bylaws of Insmed Incorporated (Included as Annex
I to the accompanying Joint Proxy Statement/Prospectus).
4.1 Article VI of the Articles of Incorporation of Insmed Incorporated
(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 Incorporated 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 Incorporated 2000 Stock Purchase Plan.
10.2* Insmed Incorporated 2000 Stock Incentive Plan.
10.3 Amended and Restated License Agreement between Insmed Pharmaceuticals,
Inc. and the University of Virginia Patent Foundation, dated June 11,
1991, as amended by a First Amendment dated February 29, 1996 and a
Second Amendment dated November 23, 1999.
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 24, 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.
10.8t# 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.
10.9t# License Agreement by and between Celtrix Newco Ltd. and Celtrix
Pharmaceuticals, Inc. dated as of April 21, 1999.
10.10t# 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 Incorporated, 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 Incorporated, 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 Incorporated,
Insmed Pharmaceuticals, Inc. and certain investors party to the
Purchase Agreement among Insmed Incorporated, 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
Incorporated, 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
Incorporated, 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 Incorporated
</TABLE>
_________________________________
* To be filed by amendment.
t Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain information in these exhibits.
# Previously filed with the initial Registration Statement on Form S-4 on
February 10, 2000.
(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 Amendment No.1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Richmond, Commonwealth of Virginia, on the twenty-third day of March, 2000.
INSMED INCORPORATED
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
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No.1 to the Registration Statement has been signed by the following persons on
the twenty-third day of March, 2000 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
----------- ---------- --------
<S> <C> <C>
- ------------------------ Chairman of the Board, March 23, 2000
/s/ Geoffrey Allan President and Chief Executive
- ------------------------ Officer
Geoffrey Allan, Ph.D. (Principal Executive Officer)
- ------------------------ Chief Financial Officer March 23, 2000
/s/ Michael D. Baer (Principal Financial and
- ------------------------ Accounting Officer)
Michael D. Baer
* Director March 23, 2000
- ------------------------
Kenneth G. Condon
* Director March 23, 2000
- ------------------------
Gustav A. Christensen
* Director March 23, 2000
- ------------------------
Graham K. Crooke, MB.BS
* Director March 23, 2000
- ------------------------
Dennis J. Dougherty
* Director March 23, 2000
- ------------------------
Steinar J. Engelsen, M.D.
* Director March 23, 2000
- ------------------------
Edgar G. Engleman, M.D.
By: /s/ Michael D. Baer
----------------------
Michael D. Baer
Attorney-In-Fact
</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 Incorporated, 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 Incorporated, as amended (Included
as Annex H to the accompanying Joint Proxy Statement/Prospectus).
3.2 Amended and Restated Bylaws of Insmed Incorporated (Included as Annex
I to the accompanying Joint Proxy Statement/Prospectus).
4.1 Article VI of the Articles of Incorporation of Insmed Incorporated
(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 Incorporated 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 Incorporated 2000 Stock Purchase Plan.
10.2* Insmed Incorporated 2000 Stock Incentive Plan.
10.3 Amended and Restated License Agreement between Insmed Pharmaceuticals,
Inc. and the University of Virginia Patent Foundation dated June 11,
1991, as amended by a First Amendment dated February 29, 1996 and a
Second Amendment dated November 23, 1999.
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 24, 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.
10.8t# 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.
10.9t# License Agreement by and between Celtrix Newco Ltd. and Celtrix
Pharmaceuticals, Inc. dated as of April 21, 1999.
10.10t# 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 Incorporated, 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 Incorporated, 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 Incorporated,
Insmed Pharmaceuticals, Inc. and certain investors party to the
Purchase Agreement among Insmed Incorporated, 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
Incorporated, 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
Incorporated, Celtrix MergerSub 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 Incorporated
</TABLE>
_________________________________
* To be filed by amendment.
t Confidential treatment has been granted by the Securities and Exchange
Commission with respect to certain information in these exhibits.
# Previously filed with the initial Registration Statement on Form S-4 on
February 10, 2000.
II-8
<PAGE>
Exhibit 4.2
Incorporated Under the Laws of the Commonwealth of Virginia
0 0
INSMED INCORPORATED
Common Stock (.01 par value)
SEE LEGENDS ON REVERSE SIDE
SPECIMEN
------ Zero (0) ------
Insmed Incorporated, a Virginia corporation, fully-paid and nonassessable
------------------------ ----------------------------
Geoffrey Allan, Ph.D. W. McIlwaine Thompson, Jr.
President and Chief Executive Officer Secretary
$.01
par value
<PAGE>
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE COMPANY AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE COMPANY.
<PAGE>
Exhibit 5.1
-----------
[LETTERHEAD OF HUNTON & WILLIAMS]
March 24, 2000
Board of Directors
Insmed Incorporated
800 East Leigh Street
Richmond, Virginia 23219
Re: Insmed Incorporated Registration Statement on Form S-4, as amended, for
-----------------------------------------------------------------------
Issuance of Shares of Common Stock
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Insmed Incorporated, a Virginia
corporation (the "Company") in connection with the proposed public offering of
the Company's Common Stock (the "Shares"), as described in the Company's
Registration Statement on Form S-4, as amended (the "Registration Statement")
originally filed on February 10, 2000 with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 21(a) of Form S-4 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's articles of incorporation, the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares and such other instruments, documents or other information as
we deemed necessary or appropriate in rendering our opinion. Based on such
review, we are of the opinion that the Shares have been duly authorized and if,
as and when issued in accordance with the Registration Statement and the related
joint proxy statement/prospectus (as amended and supplemented through the date
of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first above
written and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
/s/ Hunton & Williams
<PAGE>
Exhibit 8.1
March 22, 2000
Insmed Pharmaceuticals, Inc.
800 East Leigh Street, Suite 206
Richmond, Virginia 23219
Share Exchange With Insmed Incorporated
Certain Federal Income Tax Consequences
---------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Insmed Pharmaceuticals, Inc. ("Insmed"), a
Virginia corporation, in connection with the Amended and Restated Agreement and
Plan of Reorganization by and among Insmed; Insmed Incorporated ("Holdings"), a
newly-formed Virginia corporation; Celtrix Pharmaceuticals, Inc. ("Celtrix"), a
Delaware corporation; and Celtrix MergerSub, Inc. ("MergerSub"), a Delaware
corporation and wholly-owned subsidiary of Holdings; dated as of February 9,
2000 (the "Agreement"). The Agreement provides for Holdings to acquire all the
outstanding stock of Insmed through a share exchange (the "Exchange") whereby
Insmed shareholders (except for any shareholders who exercise dissenter's
rights) will exchange each of their shares of Insmed stock for 3.5 shares of
Holdings common stock. The Agreement also provides for Holdings to acquire all
the outstanding stock of Celtrix through the merger of MergerSub into Celtrix
(the "Merger), with Celtrix shareholders (except for any shareholders who
exercise dissenter's rights) receiving one share of Holdings common stock for
each of their shares of Celtrix common stock and a number of shares of Holdings
common stock based on a formula for each of their shares of Celtrix preferred
stock. This opinion is delivered to you in connection with a Form S-4
Registration Statement (the "S-4") relating to the Exchange and the Merger filed
under the Securities Act of 1933. Any capitalized term used but not defined in
this letter has the meaning given that term in the Agreement.
The Exchange and the Merger are to occur simultaneously. Immediately
before the Exchange and the Merger and as part of a single plan for the
capitalization of Holdings, Insmed will issue for cash up to 5,632,678 shares of
common stock, and Holdings will issue for cash warrants to purchase up to
6,901,344 shares of Holdings common stock, to certain investors pursuant to a
Purchase Agreement dated as of January 13, 2000 (the "Purchase Agreement"). Upon
consummation of the Exchange and the Merger, each of Insmed and Celtrix will be
wholly-owned subsidiaries of Holdings, and the former shareholders of Insmed
(including the
<PAGE>
Insmed Pharmaceuticals, Inc.
March 22, 2000
Page 2
investors who purchase shares of Insmed common stock pursuant to the Purchase
Agreement) and of Celtrix will own all the outstanding stock of Holdings.
Insmed has three outstanding classes of stock: common stock, series A
preferred stock, and series B preferred stock. Celtrix has two outstanding
classes of stock: common stock and series A preferred stock. In the Exchange and
the Merger, all the shares of preferred stock of Insmed and of Celtrix, as well
as all the common stock of each company, are to be exchanged for Holdings common
stock. Any Insmed shareholder or Celtrix shareholder who becomes entitled to a
fractional share of Holdings common stock as a result of the Exchange or the
Merger, after aggregating all the shareholder's shares of Insmed stock or
Celtrix stock, will receive cash from Holdings in lieu of the fractional share.
Insmed shareholders and Celtrix shareholders are entitled to exercise
dissenter's rights with respect to the Exchange and the Merger, respectively.
In connection with the Exchange, each outstanding option and warrant to
purchase shares of Insmed common stock will be converted into a new option or
warrant to purchase a number of shares of Holdings common stock equal to the
number of shares of Insmed common stock that were subject to the option or
warrant, multiplied by 3.5. Similarly, in connection with the Merger, each
outstanding option and warrant to purchase shares of Celtrix common stock will
be converted into a new option or warrant to purchase a number of shares of
Holdings common stock equal to the number of shares of Celtrix common stock that
were subject to the option or warrant. Holdings will not issue any option or
warrant to purchase a fractional share of Holdings common stock. Instead of
receiving an option or warrant to purchase a fractional share of Holdings common
stock, an option or warrant holder otherwise entitled to a fractional share
option or warrant will receive cash from Holdings for the value of such
fractional share option or warrant. All other material terms of the former
Insmed and Celtrix options and warrants will remain substantially unchanged.
You have requested our opinion concerning certain federal income tax
consequences of the Exchange. In giving this opinion, we have reviewed the
Agreement, the S-4, and such other documents as we have considered necessary. In
addition, we have been advised by appropriate officers of Insmed, Holdings, and
Celtrix as follows:
1. The fair market value of the Holdings common stock received by an
Insmed shareholder in the Exchange will be approximately equal to the fair
market value of the Insmed stock surrendered in the Exchange.
2. No share of Holdings common stock issued in connection with the
Exchange or the Merger will be issued for services rendered to or for the
benefit of Holdings; none of the compensation received by any
shareholder-employee of Insmed will be separate consideration
<PAGE>
Insmed Pharmaceuticals, Inc.
March 22, 2000
Page 3
for, or allocable to, any shares of Insmed stock; none of the shares of Holdings
common stock received by any shareholder-employee of Insmed in the Exchange will
be separate consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employee of Insmed will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
3. No share of Insmed stock has been or will be redeemed directly or
indirectly (including, without limitation, through a partnership) by Insmed or
acquired directly or indirectly (including, without limitation, through a
partnership) by any subsidiary of Insmed in anticipation of the Exchange, and
Insmed has not made and will not make any extraordinary distribution with
respect to its stock in anticipation of the Exchange.
4. There is no plan or intention for Holdings or any subsidiary of
Holdings to acquire directly or indirectly (including, without limitation,
through a partnership) or to make any extraordinary distribution with respect to
any of the Holdings common stock issued in the Exchange or the Merger.
5. No liability of any Insmed shareholder will be assumed by Holdings
or any other person in the Exchange, nor will any of the Insmed stock be
acquired by Holdings subject to any liability.
6. In the Exchange, Holdings will acquire 100 percent of (a) the total
combined voting power of all classes of Insmed voting stock, (b) each class of
Insmed nonvoting stock, and (c) the total fair market value of all the
outstanding stock of Insmed.
7. After the Exchange, Insmed will not issue additional shares of its
stock that would result in Holdings owning less than 80 percent of (a) the total
combined voting power of all classes of Insmed voting stock, (b) each class of
Insmed nonvoting stock, and (c) the total fair market value of all the
outstanding stock of Insmed.
8. Immediately after the Exchange, Insmed will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Insmed that would result in Holdings
owning less than 80 percent of (a) the total combined voting power of all
classes of Insmed voting stock, (b) each class of Insmed nonvoting stock, and
(c) the total fair market value of all the outstanding stock of Insmed.
9. There is no plan or intention for Holdings to issue additional
shares of its stock after the Exchange and the Merger that would result in the
former shareholders of Insmed (including the investors who purchase shares of
Insmed common stock pursuant to the Purchase
<PAGE>
Insmed Pharmaceuticals, Inc.
March 22, 2000
Page 4
Agreement) and Celtrix in the aggregate owning less than 80 percent of (a) the
total combined voting power of all classes of Holdings voting stock, (b) each
class of Holdings nonvoting stock, and (c) the total fair market value of all
the outstanding stock of Holdings.
10. At and immediately after the effective time of the Exchange and the
Merger, there will not be outstanding any warrants, options, convertible
securities, or any other type of rights or agreements pursuant to which any
person could acquire stock in Holdings that would result in the former
shareholders of Insmed (including the investors who purchase shares of Insmed
common stock pursuant to the Purchase Agreement) and Celtrix in the aggregate
owning less than 80 percent of (a) the total combined voting power of all
classes of Holdings voting stock, (b) each class of Holdings nonvoting stock,
and (c) the total fair market value of all the outstanding stock of Holdings.
11. The Insmed shareholders will not retain any rights in the Insmed
stock after the Exchange, nor will the Celtrix shareholders retain any rights in
the Celtrix stock after the Merger.
12. For each of Insmed and Celtrix, on the effective date of the
Exchange and the Merger, the fair market value of its assets will exceed the sum
of its liabilities plus the amount of liabilities, if any, to which its assets
are subject.
13. Following the Exchange, Insmed will continue its historic business
or use a significant portion of its historic business assets in a business.
14. There is no indebtedness existing between (a) Insmed or any
subsidiary of Insmed and (b) Holdings.
15. There is no indebtedness between Holdings and any Insmed
shareholder or any Celtrix shareholder. No indebtedness will be created in favor
of any Insmed shareholder as a result of the Exchange, nor will any indebtedness
be created in favor of any Celtrix shareholder as a result of the Merger.
16. Holdings, Insmed, and the Insmed shareholders have paid or will pay
their respective expenses, if any, incurred in connection with the Exchange.
17. There is no plan or intention (a) to liquidate Insmed, (b) to merge
Insmed into another entity, (c) for Holdings to sell or otherwise dispose of any
stock of Insmed, or (d) for Insmed to sell or otherwise dispose of any of its
assets except for dispositions made in the ordinary course of business.
<PAGE>
Insmed Pharmaceuticals, Inc.
March 22, 2000
Page 5
18. There is no plan or intention (a) to liquidate Celtrix, (b) to
merge Celtrix into another entity, (c) for Holdings to sell or otherwise dispose
of any stock of Celtrix, or (d) for Celtrix to sell or otherwise dispose of any
of its assets except for dispositions made in the ordinary course of business.
19. There is no plan or intention to liquidate Holdings, to merge it
with any other entity, or to dispose of its assets other than in the ordinary
course of business.
20. After the Exchange and the Merger, (a) less than 50 percent of the
fair market value of Holdings' assets (excluding cash, cash items and
equivalents, accounts receivable, and United States government securities) will
consist of stock and securities and (b) less than 80 percent of the fair market
value of Holdings' assets will consist of: stocks, securities, other equity
interests in corporations, money, evidences of indebtedness, options, forward or
futures contracts, notional principal contracts and derivatives, foreign
currency, interests in common trust funds or publicly traded partnerships,
precious metals, interests in regulated investment companies or real estate
investment trusts, equity interests (other than in a corporation) that are
readily convertible into or exchangeable for any of the preceding assets, and
interests in an entity substantially all of the assets of which consist of any
of the preceding assets. For purposes of the preceding sentence, a corporation's
assets exclude stock and securities issued by any subsidiary at least 50 percent
of the voting power or 50 percent of the total fair market value of the stock of
which is owned by the corporation, but the corporation is treated as owning
directly a ratable share (based on the percentage of the fair market value of
the subsidiary's stock owned by the corporation) of the assets owned by any such
subsidiary.
21. At all times during the five-year period ending on the effective
date of the Exchange, the fair market value of all of Insmed's United States
real property interests was and will have been less than 50 percent of the total
fair market value of (a) its United States real property interests, (b) its
interests in real property located outside the United States, and (c) its other
assets used or held for use in a trade or business. For purposes of the
preceding sentence, (x) United States real property interests include all
interests (other than an interest solely as a creditor) in real property and
associated personal property (such as movable walls and furnishings) located in
the United States or the Virgin Islands and interests in any corporation (other
than a controlled corporation) owning any United States real property interest,
(y) Insmed is treated as owning its proportionate share (based on the relative
fair market value of its ownership interest to all ownership interests) of the
assets owned by any controlled corporation or any partnership, trust, or estate
in which Insmed is a partner or beneficiary, and (z) any such entity in turn is
treated as owning its proportionate share of the assets owned by any controlled
corporation or any partnership, trust, or estate in which the entity is a
partner or beneficiary. As used in this paragraph, "controlled corporation"
means any corporation at least 50 percent of the
<PAGE>
Insmed Pharmaceuticals, Inc.
March 22, 2000
Page 6
fair market value of the stock of which is owned by Insmed, in the case of a
first-tier subsidiary of Insmed, or by a controlled corporation, in the case of
a lower-tier subsidiary.
22. Any shares of Holdings common stock received in exchange for shares
of Insmed stock that were acquired in connection with the performance of
services and are subject to a substantial risk of forfeiture within the meaning
of section 83(c) of the Internal Revenue Code (the "Code") will be subject to
substantially the same risk of forfeiture after the Exchange.
23. With respect to each outstanding option or warrant to acquire
Insmed stock or Celtrix stock, either (a) at the time of issuance, the exercise
price of each such option or warrant was not less than the fair market value of
the stock for which such option or warrant is exercisable or (b) if, at the time
of issuance, the exercise price for such option or warrant was less than the
fair market value of the stock for which the option or warrant is exercisable,
the holder of such option or warrant owns stock of Insmed or Celtrix, as the
case may be, that will be exchanged for Holdings common stock in the Exchange or
the Merger.
24. If dissenter's rights are exercised with respect to any shares of
Insmed stock, Insmed will pay or provide the funds for payment to, and Holdings
will not directly or indirectly pay or provide the funds for payment to, any
Insmed shareholder who exercises dissenter's rights.
On the basis of the foregoing, and assuming that (a) the Exchange and
the Merger will be consummated in accordance with the Agreement and (b) the
facts and representations set forth herein and in the officers' certificates
provided to us by Holdings, Insmed, and Celtrix are and will remain true and
accurate, we are of the opinion that (under existing law) for federal income tax
purposes:
1. The Exchange will be a reorganization within the meaning of section
368(a)(1)(B) of the Code or will, in conjunction with the Merger and the
transactions provided for in the Purchase Agreement, be part of a transaction
described in section 351(a) of the Code.
2. Holdings will not recognize any gain or loss on the issuance of
Holdings common stock or the acquisition of Insmed stock in the Exchange.
3. Insmed will not recognize any gain or loss on Holdings' acquisition
of Insmed stock in exchange for shares of Holdings common stock in the Exchange.
4. An Insmed shareholder will not recognize gain or loss on the
exchange of shares of Insmed stock solely for shares of Holdings common stock
(including any fractional share interest) in the Exchange.
<PAGE>
Insmed Pharmaceuticals, Inc.
March 22, 2000
Page 7
5. The aggregate basis of the shares of Holdings common stock
(including any fractional share interest) received by an Insmed shareholder in
the Exchange will be the same as the shareholder's aggregate basis in the shares
of Insmed stock exchanged therefor.
6. The holding period for shares of Holdings common stock (including
any fractional share interest) received by an Insmed shareholder in the Exchange
will include the holding period for the shares of Insmed stock exchanged
therefor, if such shares of Insmed stock are held as a capital asset on the
effective date of the Exchange.
7. Cash received by an Insmed shareholder in lieu of a fractional share
of Holdings common stock will be treated as having been received as full payment
in exchange for such fractional share pursuant to section 302(a) of the Code.
Accordingly, an Insmed shareholder who receives cash in lieu of a fractional
share of Holdings common stock will recognize gain or loss equal to the
difference between the amount of cash received and the shareholder's basis in
the fractional share interest.
We are also of the opinion that the material federal income tax
consequences of the Exchange to Insmed shareholders are fairly summarized in the
S-4 under the headings "Summary--Certain Federal Income Tax Consequences" and
"The Reorganizations--Material Federal Income Tax Consequences."
Except as set forth above, we express no opinion regarding any tax
consequences of the Exchange. This opinion may not be distributed, quoted in
whole or in part or otherwise reproduced in any document, or filed with any
governmental agency without our prior written consent. We consent to the use of
this opinion as an exhibit to the S-4 and to references to this firm in the S-4
under the aforementioned headings. In giving this consent, we do not admit that
we are within the category of persons whose consent is required by Section 7 of
the Securities Act of 1933 or the rules and regulations promulgated thereunder
by the Securities and Exchange Commission.
Very truly yours,
/s/ Hunton & Williams
<PAGE>
Exhibit 8.2
March 22, 2000
Celtrix Pharmaceuticals, Inc.
2033 Gateway Place, Suite 600
San Jose, CA 95110
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Amended
and Restated Agreement and Plan of Reorganization dated as of November 30, 1999,
and amended as of February 9, 2000 (including all amendments thereto, the
"Agreement") by and among Insmed Incorporated, a Virginia corporation
---------
("Parent"), Celtrix Pharmaceuticals, Inc., a Delaware corporation ("Celtrix"),
------ -------
Celtrix Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub"), and Insmed Pharmaceuticals, Inc., a Virginia corporation
----
("Insmed"). Pursuant to the Agreement, (i) Sub will merge with and into Celtrix
------
and Celtrix will become a wholly owned subsidiary of Parent (the "Merger"), and
------
(ii) shareholders of Insmed will exchange all of their Insmed Shares for Parent
Common Stock and Insmed will also become a wholly owned subsidiary of Parent
(the "Capital Contribution" and collectively with the Merger, the
--------------------
"Transaction").
-----------
Except as otherwise provided, capitalized terms referred to herein
have the meanings set forth in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
----
We have acted as legal counsel to Celtrix in connection with the
Merger and the Transaction. As such, and for the purpose of rendering this
opinion, we have examined and are relying upon (without any independent
investigation or review thereof) the truth and accuracy, at all relevant times,
of the statements, covenants, representations and warranties contained in the
following documents (including all exhibits and schedules attached thereto):
1. The Agreement (including exhibits);
2. Representations made to us by Celtrix, Sub, Insmed and Parent in
certificates of even date herewith delivered to us by authorized officers of
those corporations ("Officer's Tax Certificates");
--------------------------
<PAGE>
Celtrix Pharmaceuticals, Inc.
March 22, 2000
Page 2
3. The Registration Statement filed by Insmed Incorporated with the
Securities Exchange Commission (which includes a proxy statement-prospectus
relating to the Merger) (the "Registration Statement").
----------------------
4. Such other instruments and documents related to the operation of
Celtrix, Sub, Insmed and Parent, or to the consummation of the Merger, the
Transaction, and the transactions contemplated thereby, as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
2. Any representation or statement made "to the best knowledge of" or
otherwise similarly qualified is correct without such qualification. As to all
matters in which a person or entity making a representation has represented that
such person or entity either is not a party to, does not have, or is not aware
of any present plan, intention, understanding or agreement to take an action,
there is in fact no plan, intention, understanding or agreement and such action
will not be taken;
3. All statements, descriptions and representations contained in any
of the documents referred to herein or otherwise made to us by Celtrix, Sub,
Insmed or Parent, their managements, employees, officers, directors and
stockholders in connection with the Merger and the Transaction, including
without limitation the Agreement and the Officer's Tax Certificates, are true
and correct in all material respects and will continue to be true and correct in
all material respects as of the Effective Time and all other relevant times, and
no actions have been (or will be) taken which are inconsistent with such
statements, descriptions and representations;
4. The Merger will be reported by Parent, Insmed and Celtrix on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
5. The Merger and Transaction will be consummated in accordance with
the Agreement (and without any waiver, breach or amendment of any of the
provisions thereof) and will be effective under the applicable state law;
6. In the Merger, shares of Celtrix capital stock possessing at least
80% of the total combined voting power of all classes of stock entitled to vote
and at least 80% of the
<PAGE>
Celtrix Pharmaceuticals, Inc.
March 22, 2000
Page 3
total number of shares of all other classes of Celtrix capital stock will be
exchanged solely for Parent voting stock (taking into account as Celtrix capital
stock outstanding at the Effective Time of the Merger shares of Celtrix capital
stock exchanged, or redeemed by Celtrix, including without limitation shares of
Celtrix's Series A and Series B Preferred Stock, for cash or other property
originating with, or reimbursed to Celtrix by, Parent, Insmed or any other
person other than Celtrix); and
7. The opinion of counsel to be issued by Hunton & Williams to Insmed
and Parent has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that:
(a) for federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code, and
(b) the opinion ascribed to us in the Registration Statement under
the caption "Material Federal Income Tax Consequences," except as otherwise
indicated, represents our opinion as to the principal U.S. federal income tax
consequences of the Merger under applicable law.
This opinion does not apply to, and no conclusion is expressed regarding, the
treatment of Celtrix shareholders to the extent that they receive (i) Parent
Common Stock with respect to accrued but unpaid dividends, or (ii) property or
rights (other than Parent common stock) with respect to Celtrix capital stock.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger and the Transaction). In particular, we express no
opinion regarding the tax consequences of the exchange of shares of Insmed
capital stock for shares of Parent capital stock in the capital contribution.
<PAGE>
Celtrix Pharmaceuticals, Inc.
March 22, 2000
Page 4
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any transaction whatsoever, including the
Merger and the capital contribution, if all the transactions described in the
Agreement are not consummated in accordance with the terms of such Agreement and
without waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
We consent to the use of this opinion as an exhibit to the
Registration Statement, to references to this opinion in the Registration
Statement and to the use of our name in the Registration Statement under the
heading "Material Federal Income Tax Consequences" therein. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules or regulations promulgated thereunder. The filing of this opinion
as an exhibit to the Registration Statement and the references to the opinion
and our firm therein are not intended to create liability under the applicable
state law to any person other than Celtrix, our client.
This opinion has been delivered to you for the purpose of satisfying
the conditions of the Agreement and is intended solely for your benefit; it may
not be relied upon for any other purpose or by any other person or entity, and
may not be made available to any other person or entity without our prior
written consent.
Very truly yours,
VENTURE LAW GROUP
A PROFESSIONAL CORPORATION
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT TO AMENDED
AND RESTATED LICENSE AGREEMENT
------------------------------
THIS SECOND AMENDMENT is made and entered into this 23rd day of
November, 1999, by and between the University of Virginia Patent Foundation
(formerly the University of Virginia Alumni Patents Foundation), a corporation
duly organized under the laws of the Commonwealth of Virginia (hereinafter
called the "Licensor"), and Insmed Pharmaceuticals, Inc., a corporation duly
organized and existing under the laws of the Commonwealth of Virginia
(hereinafter called the "Licensee"),
W I T N E S S E T H T H A T:
WHEREAS, Licensor and Licensee entered into an Amended and Restated
License Agreement on June 11, 1991, as amended by the First Amendment To Amended
And Restated License Agreement, dated February 29, 1996 (the "License
Agreement"); and
WHEREAS, Licensee anticipates entering into a definitive Agreement and
Plan of Reorganization (the "Agreement") pursuant to which shares of Insmed
capital stock will be exchanged for shares of a newly-formed holding company
that will be registered under the Securities Act of 1933, as amended (the
"Exchange"); and
WHEREAS, Licensee intends to expand its research and development
activities in the area of diabetes beyond the field covered by the Licensed
Products; and
WHEREAS, Licensor will receive considerable benefits from the Exchange
and the development of new products by the Licensee;
NOW THEREFORE, the parties, in consideration of the premises and
covenants herein contained, agree as follows:
<PAGE>
1. Defined terms used herein and not otherwise defined shall have the
meaning set forth in the License Agreement.
2. Section 4.1(iii) shall be amended and restated to read as follows:
LICENSEE will issue common stock to LICENSOR representing an
undiluted three percent (3%) of the total issued stock of all
classes of stock issued and to be issued by the LICENSEE and
maintain LICENSOR's three percent (3%) equity interest in LICENSEE
by issuing additional stock from time to time, as necessary to
maintain such interest; PROVIDED THAT, this Section 4.1(iii) shall
terminate and be of no further force or effect on the day prior to
the effective date of a registration statement effecting the public
registration under the Securities Act of 1933 of any securities of
the Licensee or of any securities to be issued to the stockholders
of Licensee in connection with a merger, exchange, recapitalization
or similar transaction. It is understood and agreed that LICENSOR
shall not be entitled under this Section 4.1(iii) to receive
additional common stock for any options or warrants issued by
LICENSEE unless and until such options or warrants are actually
exercised by the optionee or warrantholder prior to the termination
of this Section 4.1(iii). It is further understood and agreed that
the three percent (3%) equity interest referred to herein shall be
calculated as though any convertible preferred stock issued by the
Company had been fully converted into the Company's Common Stock.
3. Section 16.4 of the License Agreement is hereby deleted and shall
not be binding in any way on Licensee or any sublicensee.
4. The terms and conditions of this Second Amendment To Amended And
Restated License Agreement shall be effective as of the date set forth above.
5. Except as expressly amended by the provisions set forth herein, all
of the terms and conditions of the License Agreement shall remain in full force
and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date and year first above written.
UNIVERSITY OF VIRGINIA
PATENT FOUNDATION (LICENSOR)
/s/ Robert S. MacWright
---------------------------------------
Robert S. MacWright, Executive Director
INSMED PHARMACEUTICALS, INC.(LICENSEE)
/s/ Geoffrey Allan
---------------------------------------
Geoffrey Allan, President
3
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
LICENSE AGREEMENT
THIS FIRST AMENDMENT is made and entered into this 29th day of
February, 1996, by and between the UNIVERSITY OF VIRGINIA PATENT FOUNDATION
(formerly the University of Virginia Alumni Patents Foundation), a corporation
duly organized under the laws of the Commonwealth of Virginia (hereinafter
called the "LICENSOR"), and INSMED PHARMACEUTICALS, INC., a corporation duly
organized and existing under the laws of the Commonwealth of Virginia
(hereinafter called the "LICENSEE"),
W I T N E S S E T H T H A T:
WHEREAS, LICENSOR and LICENSEE entered into an Amended and Restated
License Agreement ("License Agreement") on June 11, 1991; and
WHEREAS, LICENSEE desires to enter into a stock purchase agreement with
certain proposed investors whereby such investors and others will make an
investment in LICENSEE of up to approximately $6,000,000 in three separate
traunches (the "Proposed Financing"); and
WHEREAS, it is a condition of such investment that Section 4.1(iii) of
the License Agreement providing for the issuance of additional common stock to
LICENSOR to enable it to maintain its three percent (3%) interest in LICENSEE be
eliminated prior to a public offering of the stock of the LICENSEE;
NOW THEREFORE, the parties hereto, in consideration of the premises and
covenants herein contained, agree as follows:
1. Effective upon the initial closing of the Proposed Financing,
Section 4.1(iii) of the License Agreement is hereby deleted in its entirety and
the following new Section 4.1(iii) inserted in its stead:
LICENSEE will issue common stock to LICENSOR representing an undiluted
three percent (3%) of the total issued stock of all classes of stock
issued and to be issued by the LICENSEE and maintain LICENSOR's three
percent (3%) equity interest in LICENSEE by issuing additional stock
from time to time, as necessary to maintain such interest; PROVIDED
THAT, this Section 4.1(iii) shall terminate and be of no further force
or effect on the day prior to the effective date of the registration
statement of the LICENSEE effecting the public registration of any
1
<PAGE>
- 2 -
securities of the LICENSEE under the Securities Act of 1933. It is
understood and agreed that LICENSOR shall not be entitled under this
Section 4.1(iii) to receive additional common stock for any options or
warrants issued by LICENSEE unless and until such options or warrants
are actually exercised by the optionee or warrantholder prior to the
termination of this Section 4.1(iii). It is further understood and
agreed that the three percent (3%) equity interest referred to herein
shall be calculated as though any convertible preferred stock issued by
the Company had been fully converted into the Company's Common Stock.
2. The LICENSEE agrees that at or immediately after the initial closing
of the Proposed Financing LICENSEE will deliver to LICENSOR a check for $71,472,
consisting of $12,500 for the December 31, 1995, minimum license payment, $8,972
for reimbursement of patent costs, and $50,000 for minimum license payments for
the first and second quarters of 1996. This amendment shall not be effective
until such payments are made by LICENSEE.
3. Except as expressly amended by the provision hereinabove, all of the
terms and conditions of the License Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the day and year first above written.
UNIVERSITY OF VIRGINIA
PATENT FOUNDATION (LICENSOR)
By /s/ Ralph D. Pinto
------------------
Ralph D. Pinto
Executive Director
INSMED PHARMACEUTICALS, INC.
(LICENSEE)
By /s/ Geoffrey Allan
------------------
Geoffrey Allan
President
<PAGE>
AMENDED AND
RESTATED LICENSE AGREEMENT
THIS AGREEMENT is made and entered into this 11th day of June, 1991, by
and between the UNIVERSITY OF VIRGINIA ALUMNI PATENTS FOUNDATION, a corporation
duly organized under the laws of the Commonwealth of Virginia (hereinafter
called the "LICENSOR"), having a principal office at Charlottesville, Virginia
22903, and INSMED PHARMACEUTICALS, INC., a corporation duly organized and
existing under the laws of the Commonwealth of Virginia (hereinafter called the
"LICENSEE"), whose address is 105 West High Street, Charlottesville, Virginia,
22901.
W I T N E S S E T H T H A T:
WHEREAS, LICENSOR and LICENSEE entered into a License Agreement on
September 23, 1988, covering certain patents issued and applied for by LICENSOR;
and
WHEREAS, LICENSEE and LICENSOR have agreed upon certain alterations and
modifications of that License Agreement dated September 23, 1988, as set forth
in this Amended and Restated License Agreement;
IT IS AGREED, in consideration of the premises and the faithful
performance of the covenants herein contained, THAT:
ARTICLE I - DEFINITIONS
For the purpose of this Agreement, and solely for that purpose, the
terms set forth hereinafter shall be defined as follows:
1.1 "EFFECTIVE DATE" shall mean September 23, 1988.
1
<PAGE>
- 2 -
1.2 "EXISTING PATENT" shall mean the letters patent described on
Schedule A hereto.
1.3 "FIELD" shall mean human health care and animal health care and
husbandry, including diagnostic and therapeutic applications.
1.4 "INVENTION DISCLOSURE" shall mean the form of disclosure used by
scientists at the University of Virginia to describe new inventions.
1.5 "LICENSED PRODUCTS" shall mean any commercially marketed product
which is manufactured or sold by LICENSEE, or any sublicensee of LICENSEE
hereunder, under a license or sublicense granted pursuant to Article II hereof
1.6. "NET SALES" shall mean monies received by LICENSEE, or any
sublicensee of LICENSEE hereunder, from the sale of LICENSED PRODUCTS less the
sum of the following:
(a) Discounts or other allowances in amounts customary to the
trade;
(b) Sales taxes, tariffs, duties and/or use taxes directly
imposed upon and with reference to particular sales;
(c) Outbound transportation, prepaid or allowed; and
(d) Amounts allowed or credited on returns.
1.7 "NEW INVENTIONS" shall mean any new inventions, modifications or
improvements which are related to the Patent Rights and Subject Products within
the Field as set forth in this
<PAGE>
- 3 -
Agreement and which are not covered under Section 1.9(a) through (g), as amended
and added to from time to time.
1.8 "PATENT RIGHTS" shall mean any patents or patent applications
issued or filed in any jurisdiction, relating to SUBJECT PRODUCTS or the
manufacturing or processing thereof, now or hereafter owned by LICENSOR or for
which LICENSOR now has or hereafter acquires the right to grant a license or
sublicense to LICENSEE. A patent shall cease to be part of the PATENT RIGHTS in
the event of any of the following:
(a) the patent expires:
(b) the patent is canceled and cannot be revived; or
(c) all pertinent claims in the patent have been held to be
invalid by an unappealable decision of a court of competent
jurisdiction.
1.9 "SUBJECT PRODUCTS" shall mean:
(a) an insulin mediator substance, as described in the EXISTING
PATENT;
(b) an insulin mediator purification process developed by Drs.
Larner and Huang for which patent application number
320,484 was filed on March 8, 1989;
(c) a dietary supplement for insulin resistant diabetics for
which U.S. Patent Application Number 320,482 was filed on
March 8, 1989;
<PAGE>
- 4 -
(d) screening method for diabetic condition for which U.S.
Patent Application Number 320,485 was filed on March 8,
1989;
(e) a method for producing chiro-inositol for which U. S.
Patent Application Number 631,374 was filed on December 20,
1990;
(f) Demonstration that insulin mediators are active in vivo for
-- ----
which U. S. Letters Patent are now being prepared.
(g) all processes, techniques, modifications, improvements,
enhancements, variations, and alterations, including
continuations-in-part to the inventions described in (a)
through (f) above, for use in the FIELD, which have been or
are conceived and/or reduced to practice by employees,
faculty members or students of the University of Virginia
and the rights to which accrue or are assigned to the
LICENSOR.
ARTICLE II - GRANT OF LICENSE
-----------------------------
2.1 LICENSOR hereby grants to LICENSEE a worldwide, exclusive right
and exclusive license (even as to LICENSOR), including the right to grant
sublicenses, to use and practice the PATENT RIGHTS for all purposes (including
but not limited to research, testing, development and innovation) and to make,
have made, sell, distribute and have sold and distributed, products based upon
the SUBJECT PRODUCTS and/or PATENT RIGHTS and to use
<PAGE>
- 5 -
and sublicense any and all processes and techniques embodied in the PATENT
RIGHTS, for the full term for which the PATENT RIGHTS are issued, unless this
Agreement is sooner terminated as hereinafter provided.
2.2 LICENSOR hereby grants LICENSEE an option to acquire a license to
any New Inventions which have been assigned to it by the University of Virginia
and which are related to the inventions described in Section 1.9(a) through (g)
above at an additional license issue fee of $20,000 per New Invention. Such
option period shall commence upon notification from LICENSOR that it has
received an Invention Disclosure related to the inventions described in Section
1.9(a) through (g) and terminate thirty (30) days after such notification
("Termination Date"). Such notification shall include a copy of the Invention
Disclosure and any other information necessary for LICENSEE to make a decision
as to whether to acquire the New Invention. Prior to the Termination Date,
LICENSEE may acquire a license to such additional invention by delivering to the
LICENSOR a certified or cashier's check in the amount of $20,000 and a letter
identifying the invention being acquired. Upon such payment said New Invention
shall be added to Schedule A of this agreement and included within the
definition of "SUBJECT PRODUCT". If said New Invention is not acquired by the
Termination Date, then LICENSEE shall have no further rights to such New
Invention. Pursuant to Section 1.9(g), continuations-in-part shall not be
considered New Inventions for purposes hereunder.
<PAGE>
- 6 -
2.3 LICENSOR hereby further grants LICENSEE an option to acquire a
license (i) to an invention known as "Anti-insulin Mediator Substances and
Antagonists" for which application for U. S. Letters Patent is now being
prepared and which substances and antagonists were invented by Drs. Galasko,
Larner, and Huang and (ii) to an invention known as "Preparation and Use of
Antibodies against Oligosaccharides Derived from the
Glycosylphosphatidylinositols for which U. S. Patent Application Number 324,744
was filed on March 17, 1989. Such option period as to each invention shall
commence as of the date of this agreement and terminate June 30, 1993. Prior to
the termination date, LICENSEE may acquire a license to each such additional
invention by delivering to the LICENSOR a certified or cashier's check in the
amount of Seven Thousand Five Hundred Dollars ($7,500) with a letter identifying
which invention is being acquired. Upon such payment said new invention shall be
added to schedule A of this agreement and included within the definition of
"Subject Product". During the option period LICENSEE shall bear all patenting
costs and expenses. If at any time LICENSEE notifies LICENSOR that LICENSEE is
unwilling to bear such costs as to one of the inventions, then the option as to
that invention will terminate.
2.4 It is understood and agreed that insofar as LICENSOR may now own or
hereafter acquire rights under letters patent owned or controlled by another,
with claims conveying a SUBJECT PRODUCT, and as to which LICENSOR has the right
to grant licenses
<PAGE>
- 7 -
or sublicenses, LICENSOR shall extend to LICENSEE, insofar as LICENSOR is able,
the same rights as set forth in Article 2.1 with respect to such letters patent.
2.5 To assist and enable LICENSEE to utilize the rights granted
hereunder to the fullest possible extent, LICENSOR shall provide to LICENSEE,
promptly following the EFFECTIVE DATE, all data and information in LICENSOR'S
possession relating to the SUBJECT PRODUCTS and the PATENT RIGHTS.
2.6 LICENSEE agrees that any sublicense granted by LICENSEE hereunder
shall provide for privity of contract between LICENSOR and the sublicensee, such
that the obligations of this Agreement shall be binding upon the sublicensee as
if the sublicensee were in the place of the LICENSEE.
2.7 LICENSEE agrees to attach copies of the provisions of this
Agreement pertaining to the Grant of License, Records and Reports, Termination,
Improvements and Grant Backs, U. S. Export Control Regulations and Payment,
Notice or Other Communication to all sublicense agreements hereunder.
2.8 LICENSEE agrees to forward to LICENSOR a copy of any fully executed
sublicense agreement hereunder.
2.9 LICENSOR hereby represents and warrants to LICENSEE that LICENSOR
is the sole owner of the entire right, title and interest in and to the SUBJECT
PRODUCTS and the PATENT RIGHTS and that LICENSOR has the requisite right and
authority to grant the rights and licenses to the SUBJECT PRODUCTS and under the
PATENT RIGHTS granted hereunder and to perform all of its obligations
<PAGE>
- 8 -
under this Agreement. This representation and warranty shall survive any
termination of this Agreement whether by expiration or otherwise.
ARTICLE III- DUE DILIGENCE
--------------------------
To induce LICENSOR to enter into this Agreement, LICENSEE has
represented to LICENSOR that LICENSEE will commit itself to a thorough, vigorous
and diligent program of developing the PATENT RIGHTS, so that utilization of the
PATENT RIGHTS will result and substantial royalties will be paid to LICENSOR.
ARTICLE IV - ROYALTIES, PAYMENTS AND STOCK
------------------------------------------
4.1 In consideration of the rights and privileges granted hereunder and
the expenses incurred and services rendered by LICENSOR incidental to the
preparation of this Agreement and the issuance of the license hereunder,
LICENSEE has paid LICENSOR $46,750 and has committed substantial amounts to the
research costs. Upon execution of this agreement between Licensee and Licensor,
(i) LICENSEE will simultaneously pay LICENSOR a total of $119,448.62 in
cash (in addition to the $46,750 already paid to the LICENSOR) which includes
licensing fees, advance licensing fees, and patenting costs to date; and
(ii) LICENSEE hereby agrees to pay LICENSOR an additional Forty-Five
Thousand Dollars ($45,000) in cash on or before June 30, 1992; and
(iii) LICENSEE will issue common stock to LICENSOR representing an
undiluted three percent (3%) of the total issued
<PAGE>
- 9 -
stock of all classes of stock issued and to be issued by the LICENSEE and
maintain LICENSOR's three percent (3%) equity interest in LICENSEE by issuing
additional stock from time to time, as necessary to maintain such interest.
4.2 In addition to the fees provided in Article 4.1 and in
consideration of the rights and privileges granted hereunder, LICENSEE shall pay
to LICENSOR, until the earlier of the expiration or cancellation of the EXISTING
PATENT or the termination of this Agreement a royalty of four percent (4%) of
NET SALES of LICENSED PRODUCTS relating to a therapeutic drug and two and
three-quarters percent (2.75%) of NET SALES of LICENSED PRODUCTS relating to a
diagnostic test.
4.3 LICENSEE shall pay LICENSOR the following additional licensing fees
("ADDITIONAL LICENSING FEES"):
1993: $25,000
1994: $25,000
1995: $50,000
1996 and each year thereafter $100,000
The ADDITIONAL LICENSING FEE due in 1993 shall be due and payable in full on
December 31, 1993. All other ADDITIONAL LICENSING FEES shall be paid on a
quarterly basis at the end of each calendar quarter. Such Licensing Fees due
shall be reduced by any earned royalties received by LICENSOR attributable to
NET SALES for any calendar quarter under the terms of this Agreement.
4.4 Simultaneously with the delivery of each quarterly report required
to be rendered by LICENSEE pursuant to Article
<PAGE>
- 10 -
5.2, LICENSEE shall pay to LICENSOR, in accordance with the provisions of
Article 4.5 below, all royalties due pursuant to Article 4.2 with respect to NET
SALES described in such report.
4.5 Royalty payments hereunder shall be paid in United States dollars;
provided, however, that if the laws or regulations controlling in any foreign
country prevent a royalty payment from being made in United States dollars, or
in the United States or at another place designated by LICENSOR, LICENSOR agrees
to accept such royalty in a form and place permitted by such laws or
regulations, including deposits by LICENSEE in the applicable foreign currency
in a local foreign bank or banks designated by LICENSOR. Any withholding taxes
levied by government agencies which LICENSEE is required to withhold on
remittance of royalty payments hereunder shall be deducted from any royalty paid
to LICENSOR. LICENSEE shall furnish LICENSOR with copies of all official
receipts for such taxes. If any currency conversion is required in connection
with the payment of royalties hereunder, such conversion shall be made using the
exchange rate prevailing at The Chase Manhattan Bank, New York, New York, U.S.A.
on the last business day of the reporting period to which such royalty payment
relates.
ARTICLE V - RECORDS AND REPORTS
-------------------------------
5.1 LICENSEE shall keep full, true and accurate records of account
containing all particulars which may be necessary for the purpose of
ascertaining the amount of royalties payable to LICENSOR hereunder. To the
extent that LICENSEE must obtain such
<PAGE>
- 11 -
information from any sublicensee hereunder, LICENSEE shall use its reasonable
best efforts to obtain such information and shall reasonably believe such
information to be complete and accurate. Such records shall be kept at
LICENSEE'S principal place of business or the principal place of business of a
Division of LICENSEE which is marketing LICENSED PRODUCTS. Such records and
supporting data shall be open, at reasonable times, for three (3) years
following the end of the calendar year to which they pertain, to the inspection
of an independent certified accountant retained by LICENSOR for the purpose of
verifying LICENSEE'S royalty payments hereunder or compliance in other respects
with this Agreement.
5.2 For as long as LICENSEE is obligated to make royalty payments to
LICENSOR hereunder, LICENSEE or its affiliates shall render to LICENSOR, within
ninety (90) days after the end of each calendar quarter, a true and accurate
report, giving such particulars of the business conducted by LICENSEE during the
preceding quarter as are pertinent to the calculation of royalties hereunder.
Such particulars shall include at least the following:
(a) ALL LICENSED PRODUCTS manufactured and sold by LICENSEE and
LICENSEE'S sublicensees hereunder;
(b) All monies received by LICENSEE and LICENSEE'S sublicensees
hereunder from the sale of LICENSED PRODUCTS;
<PAGE>
- 12 -
(c) All deductions applicable to such sales as described in
Article 1.5;
(d) Total royalties due to LICENSOR for such quarter; and
(e) The names and addresses of all sublicensees of LICENSEE
hereunder.
If no royalties are due to LICENSOR for such quarter, the report shall so state.
ARTICLE VI - PATENT FILINGS
---------------------------
6.1 At any time during the continuation of this Agreement, LICENSEE
shall have the right to ask LICENSOR to apply for patent protection, in any
country designated by LICENSEE with respect to any invention owned or acquired
by LICENSOR relating to the SUBJECT PRODUCTS or LICENSED PRODUCTS which LICENSEE
reasonably believes is patentable. Upon receipt of such a request, LICENSOR
shall promptly prepare and file, and diligently prosecute, such patent
applications in LICENSOR's name. Upon the issuance of any patent pursuant to
such patent applications, LICENSOR shall make all administrative filings and
payments necessary to maintain such patents in force.
6.2 LICENSEE shall reimburse LICENSOR for all reasonable expenses
incurred by LICENSOR in connection with the filing, prosecution and maintenance
of all patents listed in Article 1.9 and Schedule A.
6.3 LICENSOR reserves the right to apply for patent protection with
respect to items described in Article 6.1 in any
<PAGE>
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country not theretofore requested by LICENSEE, at LICENSOR's sole expense and
without right of reimbursement from LICENSEE.
6.4 LICENSEE shall cooperate with LICENSOR to ensure that all patent
applications filed at LICENSEE's request will reflect, to the best of LICENSEE's
knowledge, all items of commercial interest and importance.
6.5 LICENSOR shall promptly advise LICENSEE as to all developments with
respect to patent applications requested by LICENSEE and shall provide copies of
all papers received and/or filed by LICENSOR or its patent counsel or agents
with respect to the prosecution thereof. LICENSEE shall have the right, either
directly or through its patent counsel and/or agent(s), to advise and cooperate
with LICENSOR in the prosecution of such applications.
6.6 LICENSEE agrees that all patents issued pursuant to applications
requested by LICENSEE shall be the sole property of LICENSOR; provided that such
patents shall be subject to the exclusive license granted hereunder. LICENSOR
shall, at LICENSEE's request, execute and deliver to LICENSEE such documents as
may be deemed necessary or advisable by LICENSEE to evidence LICENSEE's
exclusive license with respect to such patents.
ARTICLE VII - TERMINATION
-------------------------
7.1 If LICENSEE shall become bankrupt or insolvent and/or if the
business of LICENSEE shall be placed in the hands of a receiver, assignee or
trustee for the benefit of creditors,
<PAGE>
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whether by voluntary act of LICENSEE or otherwise, or if royalties due hereunder
remain unpaid for more than thirty (30) days, LICENSOR shall have the right to
serve notice upon LICENSEE, in accordance with Article XV, of LICENSOR's
intention to terminate this Agreement within thirty (30) days after LICENSEE's
receipt of such notice; provided that in such event and within 30 days after
LICENSEE's receipt of such notice the LICENSOR confirms that a sublicensee may
pay any royalties or other payments due directly to LICENSOR and that if such
royalty payments are made within the aforesaid 30 days then this agreement shall
not terminate. Such notice shall state the cause for LICENSOR's intention to
terminate this Agreement. If LICENSEE does not alleviate such cause within such
thirty (30) day period, this Agreement and all rights, privileges and licenses
granted hereunder shall terminate at the end of such thirty (30) day period and
neither party shall have any further rights, duties or obligations hereunder
except as may have then accrued under this Agreement before such termination or
as otherwise provided herein.
7.2 Upon any material breach or default of this Agreement by either
party (the "Breaching Party"), other than non-payment of royalties which is
provided for in Article 7.1, the other party (the "Non-Breaching Party") shall
have the right to serve notice upon the Breaching Party, in accordance with
Article XV, of the Non-Breaching Party's intention to terminate this Agreement
within ninety (90) days after the Breaching Party's
<PAGE>
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receipt of such notice. Such notice shall state the cause for the Non-Breaching
Party's intention to terminate this Agreement within ninety (90) days after the
Breaching Party's receipt of such notice. Such notice shall state the cause for
the Non-Breaching Party's intention to terminate this Agreement. If the
Breaching Party does not alleviate such cause within such ninety (90) day
period, this Agreement and all rights, privileges and licenses granted hereunder
shall terminate at the end of such ninety (90) day period and neither party
shall have any further rights, duties or obligations hereunder except as may
have then accrued under this Agreement before such termination or as otherwise
provided herein.
7.3 LICENSEE shall have the right to terminate this Agreement, without
cause, upon ninety (90) days notice to LICENSOR in accordance with Article XV.
Following such termination, neither party shall have any further rights, duties
or obligations hereunder except as may have then accrued under this Agreement
before such termination or as otherwise provided herein. On receiving such
notice, if LICENSEE so requested therein, LICENSOR shall negotiate with LICENSEE
a nonexclusive license, at a reasonable royalty rate, under those PATENT RIGHTS
licensed herein which are unexpired at the date of termination and under which
LICENSEE then desires a license.
7.4 Upon the termination of this Agreement for any reason, nothing
herein shall be construed to release either party from any obligation which
matured prior to the effective date of
<PAGE>
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termination. After the effective date of such termination, LICENSEE and its
sublicensees shall have the right to sell all LICENSED PRODUCTS manufactured
before such date, and to complete the manufacture of and sell all LICENSED
PRODUCTS in the process of manufacture on such date, provided that LICENSEE
shall pay royalties and render reports with respect to such sales to LICENSOR in
the manner required hereunder.
ARTICLE VIII - DISCLAIMER
-------------------------
INFORMATION DISCLOSED BY LICENSOR TO LICENSEE SHALL BE ACCURATE TO THE
BEST OF LICENSOR'S KNOWLEDGE AND BELIEF BUT LICENSOR MAKES NO WARRANTY OF ANY
KIND WHATSOEVER, EITHER EXPRESS OR IMPLIED, AS TO THE ACCURACY OF SUCH
INFORMATION RELATING TO ANY PATENTS OR ANY METHODS, TECHNIQUES, PROCESSES,
INFORMATION, KNOWLEDGE, KNOW-HOW, TRADE PRACTICES OR SECRET DATA COMMUNICATED TO
LICENSEE.
ARTICLE IX - IMPROVEMENTS
-------------------------
9.1 LICENSEE agrees to furnish to LICENSOR, without delay and free of
charge, technical information on improvements or inventions relating to PATENT
RIGHTS made by LICENSEE during the continuation of this Agreement; provided,
however, that such disclosure shall be for the sole use of LICENSOR and LICENSOR
agrees not to disclose any such information to any third party without the
express written consent of LICENSEE.
9.2 If a LICENSED PRODUCT is modified or improved as a result of a new
invention which is patentable and made by LICENSEE, LICENSOR shall be entitled
to obtain letters patent
<PAGE>
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with respect thereto in all countries without being required to make any payment
to LICENSEE, and LICENSEE shall assign its respective rights in such
modifications in such invention to LICENSOR as may be necessary to enable
LICENSOR to obtain such letters patent; provided that in such case any such
invention shall be included under Section 1.9 and Exhibit A without further
consideration.
ARTICLE X - UNLICENSED ACTIVITY AND INFRINGEMENT
------------------------------------------------
10.1 If LICENSEE or any sublicensee hereunder is required to pay any
royalty or damages to any person or entity other than LICENSOR (a "Third Party
Licensor"), as a result of a judgment, settlement or agreement relating to the
past or future exercise of the rights and licenses granted pursuant to Article
II, then the royalties payable to LICENSOR hereunder shall be reduced by an
amount equal to one-half of such payments to the Third Party Licensor(s), but
under any event such royalties payable to the Third Party Licensor and LICENSOR
shall not exceed in total the royalty rates agreed to pursuant to Section 4.2.
If LICENSEE avails itself of the provisions of this Article 10.1, LICENSEE shall
provide LICENSOR with proof of the payments to such Third Party Licensor(s).
10.2 LICENSOR and LICENSEE shall promptly inform each other of any
infringement of any PATENT RIGHT which comes to their attention and provide each
other with any evidence available to them regarding such infringement.
<PAGE>
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10.3 During the continuation of this Agreement, LICENSOR shall have the
right, but shall not be obligated, to prosecute at its own expense any
infringement of any PATENT RIGHT, and in furtherance of such right, LICENSEE
agrees that LICENSOR may join LICENSEE as a party plaintiff in any suit relating
to such an infringement, without expense to LICENSEE.
10.4 If within six (6) months after having been notified by LICENSEE of
any alleged infringement of any PATENT RIGHT, LICENSOR has been unsuccessful in
persuading the alleged infringer to desist in such infringement and has not
brought or is not diligently prosecuting a suit with respect to such
infringement, or if at any time LICENSOR notifies LICENSEE of LICENSOR's
intention not to bring suit against any alleged infringer, then, and in that
event only, LICENSEE may, but shall not be obligated to, prosecute at its own
expense (subject to Article 10.7 below) such infringement, and for such purposes
to join LICENSOR as a party plaintiff in such infringement suit without expense
to LICENSOR; provided that the right to bring such an infringement suit shall
remain in effect only during the continuation of this Agreement.
10.5 In the event a declaratory judgment action alleging the invalidity
or non-infringement of any of the PATENT RIGHTS is brought against LICENSEE,
LICENSOR at its option, shall have the right, within thirty (30) days after the
commencement of such action, to intervene and take over the sole defense of the
action at its own expense.
<PAGE>
- 19 -
10.6 In any infringement suit which either party may bring to enforce
any PATENT RIGHT pursuant to this Agreement, the other party agrees, at the
request and expense of the party initiating the suit, to cooperate in all
respects, to have its employees testify when requested to do so and to make
available all relevant records, papers, information, samples, specimens and the
like.
10.7 In the event that LICENSEE undertakes the enforcement or defense
of any PATENT RIGHT by litigation or settlement, LICENSEE may withhold up to
fifty percent (50%) of the royalties otherwise payable to LICENSOR hereunder and
apply the same toward reimbursement of LICENSEE's expenses, including reasonable
attorneys' fees, in connection therewith. Any damages or settlement proceeds
recovered by LICENSEE shall be applied (a) first in satisfaction of any
unreimbursed expenses and legal fees of LICENSEE relating to the suit and/or
settlement thereof, (b) second to LICENSOR any royalties withheld pursuant to
this Article, (c) third to LICENSEE an amount equal to LICENSEE's lost Net Sales
due to the subject infringement, (d) fourth to LICENSOR an amount equal to the
royalty on the amount calculated pursuant to (c) above and (e) fifth the balance
remaining, if any, shall be divided equally between LICENSEE and LICENSOR.
10.8 Except as hereinafter provided, no settlement or consent judgment
or other voluntary and final disposition of any suit relating to the enforcement
or defense of any PATENT RIGHT may be entered into without the consent of both
LICENSOR and
<PAGE>
- 20 -
LICENSEE, which consent shall not be unreasonably withheld. However, during the
continuation of this Agreement, LICENSEE shall have the sole right, in
accordance with the terms and conditions set forth herein, to grant any alleged
infringer a sublicense under any PATENT RIGHTS.
10.9 In the event that LICENSOR undertakes the enforcement or defense
of any PATENT RIGHT by litigation or settlement, any damages or settlement
proceeds recovered by LICENSOR shall be applied (a) first in satisfaction of any
unreimbursed expenses and legal fees of LICENSOR relating to the suit and/or
settlement thereof, (b) second to LICENSEE an amount equal to LICENSEE's lost
NET SALES due to the subject infringement, (c) third to LICENSOR an amount equal
to its royalty calculated pursuant to (b) above and (d) fourth the balance, if
any, shall be paid and divided equally between LICENSOR and LICENSEE.
10.10 In the event (a) of any infringement of any PATENT RIGHT in which
LICENSEE has an exclusive license at the time of the infringement, and pursuant
to which license LICENSEE at that time sells one or more LICENSED PRODUCT(S) on
a scale which would significantly affect LICENSEE's net income, and (b) neither
LICENSOR nor LICENSEE elects to bring an infringement suit against the alleged
infringer, the royalties payable by LICENSEE hereunder shall be reduced by
twenty percent (20%) of the sums otherwise payable hereunder; provided, however,
that LICENSEE shall present information to LICENSOR that such infringer has
refused to enter into a sublicense agreement with LICENSEE.
<PAGE>
ARTICLE XI - ASSIGNMENT
-----------------------
LICENSEE may assign or otherwise transfer this Agreement and the rights
and licenses granted hereunder to a third party, provided (a) such assignment or
transfer is accompanied by a sale of the LICENSEE'S entire business or of that
part of LICENSEE's business to which this Agreement relates, or by a merger,
acquisition, joint venture, exchange of shares, or other transfer relating to
LICENSEE's entire business or that part of LICENSEE's business to which this
Agreement relates, and (b) the assignee or transferee has agreed in writing to
be bound by the terms of this Agreement. LICENSEE shall give LICENSOR thirty
(30) days prior written notice of any such proposed assignment or transfer. If
LICENSEE proposes to make any such assignment or transfer to any person or
entity other than a privately-held or publicly traded stock company with annual
medically-related sales of more than fifty million dollars ($50,000,000), or a
company with liquid assets of more than twenty-five million dollars
($25,000,000) of which twenty-five million dollars ($25,000,000) has been
designated for medical research, LICENSOR shall have the right to invalidate and
void such assignment or transfer. If LICENSOR does not exercise such right to
invalidate or void such assignment or transfer in writing during such thirty
(30) day period, LICENSOR shall be deemed to have approved such assignment or
transfer. Following any assignment or transfer of this Agreement pursuant to
this Article, the assignee or transferee shall be substituted as the LICENSEE
hereunder and the former
<PAGE>
- 22 -
LICENSEE shall have no further right or obligations hereunder, except that the
former Licensee shall have the right to sell all LICENSED PRODUCTS manufactured
by LICENSEE before such date, and to complete the manufacture on such date, and
the former LICENSEE shall be obligated to pay royalties and render reports with
respect to such sales to LICENSOR in the manner required hereunder.
ARTICLE XII - INDEMNIFICATION
-----------------------------
LICENSEE shall indemnify and hold LICENSOR harmless from any and all
liability for personal inquiry, damage to property and the consequences thereof,
resulting from or arising out of LICENSEE's performance or nonperformance of
LICENSEE's obligations hereunder, or LICENSEE's exercise of the license granted
herein; provided, however, that LICENSEE shall not indemnify LICENSOR for any
liability attributable, in whole or in part, to LICENSOR's negligence or
misconduct.
ARTICLE XIII - NON-USE OF NAMES
-------------------------------
LICENSEE shall not use the name of LICENSOR, Joseph Larner, Kang Cheng,
Gail Galasko, Laura C. Huang or any other inventor employed by the University of
Virginia in any written advertisement or sales literature for any LICENSED
PRODUCT without the consent of LICENSOR and any other person to be named. Such
prohibition shall not prohibit LICENSEE from using such names in any offering
materials for the purpose of raising capital for LICENSEE, or any documents
prepared by LICENSEE in connection with a loan or financing or credit
arrangement for the
<PAGE>
- 23 -
benefit of LICENSEE, or in any filing with any governmental agency.
ARTICLE XIV - U.S. EXPORT CONTROL REGULATIONS
---------------------------------------------
14.1 The Export Control Regulations of the U.S. Department of Commerce
prohibit, except under a special validated license, the exportation from the
United States of technical data relating to certain commodities (listed in the
Regulations), unless the exporter has received certain written assurances from
the foreign importer. In order to facilitate the exchange of technical
information under this Agreement, LICENSEE hereby gives its assurance to
LICENSOR that it will not knowingly re-export directly or indirectly any
technical data received from LICENSOR under this Agreement, or export directly
any LICENSED PRODUCT(S), to any Communist Controlled Country unless prior
authorization is obtained from the U. S. Office of Export Control. Such
countries presently include: Albania, Bulgaria, Cuba, Czechoslovakia, East
Germany (Soviet Zone of Germany and the Soviet Sector Berlin), Estonia, Hungary,
Latvia, Lithuania, North Korea, Outer Mongolia, Poland (including Danzig),
Rumania and the Union of Soviet Socialist Republics.
14.2 LICENSOR does not represent that a license is not required or that
if required it will be issued by the U. S. Department of Commerce.
ARTICLE XV - PAYMENT, NOTICE OR OTHER COMMUNICATION
---------------------------------------------------
Any payment, notice or other communication pertaining to this license
shall be sufficiently made or given on the date of
<PAGE>
- 24 -
mailing if sent to a party by certified mail, postage prepaid, addressed as set
forth below or as set forth in a written notice given to the other party
pursuant to this Article.
In case of LICENSOR:
University of Virginia Alumni Patents Foundation
Towers Office Building, Suite 1-110
1224 West Main Street
Charlottesville, Virginia 22903
In case of LICENSEE:
Insmed Pharmaceuticals, Inc.
105 West High Street
Charlottesville, Virginia 22901
ARTICLE XVI - MISCELLANEOUS PROVISIONS
--------------------------------------
16.1 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the Commonwealth of Virginia, U.S.A.,
except that questions affecting the validity, construction and effect of any
patent shall be determined by the laws of the country in which the patent was
issued. The parties hereto acknowledge that this Agreement sets forth the entire
agreement and understanding of the parties as to the subject matter hereof; and
shall not be subject to any change or modification except by the execution of a
writing subscribed to by both parties.
16.2 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
<PAGE>
- 25 -
way affect the validity or enforceability of the remaining provisions thereof.
16.3 LICENSEE agrees to mark all LICENSED PRODUCTS sold in the United
States with all applicable U. S. patent numbers. All LICENSED PRODUCTS which
LICENSEE ships to or sells in other countries shall be marked in such manner as
to conform with the patent laws and practice of the country of manufacture and
sale.
16.4 LICENSEE shall not agree in any way either on its own behalf or on
behalf of others to engage in the manufacture, distribution or sale of any
products of such a nature as would or might be likely to compete with the
manufacture, distribution or sale of the LICENSED PRODUCTS.
16.5 LICENSEE is neither the agent nor legal representative of LICENSOR
and no authority or right is conferred upon LICENSEE by this Agreement to assume
any obligation of any kind expressed or implied on behalf of LICENSOR or to bind
LICENSOR in any way.
16.6 Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Rules of the American Arbitration Association in effect at the time
such arbitration is instituted, and any judgment upon the award rendered
pursuant to such arbitrations may be entered in any court having jurisdiction
thereof.
16.7 This agreement supersedes any and all other oral or written
agreements and correspondence between LICENSOR and LICENSEE and LICENSOR
confirms that as of the date of this
<PAGE>
- 26 -
agreement LICENSEE is not in default under any of the terms or conditions
hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
ATTEST: UNIVERSITY OF VIRGINIA ALUMNI
PATENTS FOUNDATION (LICENSOR)
By: /s/ Joyce J. Pattisin By /s/ Ralph D. Pinto
---------------------------- ------------------
Title: Business Manager Title: Executive Director
------------------------- ------------------
Date: June 11, 1991 Date: June 11, 1991
------------------------- -------------
ATTEST: INSMED PHARMACEUTICALS, INC.
(LICENSEE)
By:/s/ W. McIlwaine Thompson, Jr. By: /s/ John Hiram Ewald
------------------------------ --------------------
Title: Secretary Title: President
-------------------------- ---------
Date: 6/11/91 Date: June 11, 1991
-------------------------- -------------
<PAGE>
- 27 -
SCHEDULE A
----------
INSULIN MEDIATOR SUBSTANCE
--------------------------
U.S.A.
- ------
Appln. Ser. No.: 218,075 Patent No.: 4,446.064
Filing Date: December 19, 1980 Issued: May 1, 1984
INSULIN MEDIATOR SUBSTANCE PURIFICATION
---------------------------------------
U.S.A.
- ------
Appln. Ser. No.: 320,484 Patent No.:
Filing Date: March 8, 1989 Issued:
DIETARY SUPPLEMENT FOR INSULIN RESISTANT DIABETICS
--------------------------------------------------
U.S.A.
- ------
Appln. Ser. No.: 320,482 Patent No.:
Filing Date: March 8, 1989 Issued:
SCREENING METHOD FOR DIABETIC CONDITION
---------------------------------------
U.S.A.
- ------
Appln. Ser. No.: 320,485 Patent No.:
Filing Date: March 8, 1989 Issued:
<PAGE>
- 28 -
METHOD FOR PRODUCING CHIRO-INOSITOL
-----------------------------------
U.S.A.
- ------
Appln. Ser. No.: 631,374 Patent No.:
Filing Date: December 20, 1990 Issued:
DEMONSTRATION THAT INSULIN MEDIATORS ARE ACTIVE IN VIVO
-------------------------------------------------------
U.S.A.
- ------
Appln. Ser. No.: Patent No.:
Filing Date: Issued:
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
------------------------------
None.
<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 Incorporated that is made a part of Amendment No. 1 to
Form S-4 (No. 333-30098) and Prospectus of Insmed Incorporated for the
registration of 116,500,000 shares of its common stock.
/s/ Ernst & Young LLP
Richmond, Virginia
March 21, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "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 referred to, and made a part of, Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-30098) and related Prospectus of Insmed
Incorporated for the registration of 116,500,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 21, 2000
<PAGE>
EXHIBIT 99.5
[FORM OF INSMED PHARMACEUTICALS, INC. PROXY CARD]
INSMED PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR A SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON ___________ __, 2000
The undersigned hereby appoints Geoff Allan and Michael D. Baer and each of
them, proxies, with power of substitution and revocation, to vote all shares of
common stock and preferred stock of Insmed Pharmaceuticals, Inc. (the "Company")
standing in the name of the undersigned at the special meeting of shareholders
of said Company at the Company's headquarters, 800 East Leigh Street, Richmond,
Virginia 23219, on _______, _______ __, 2000, at 1:00 P.M., local time, and any
and all adjournments thereof, with all the powers which the undersigned would
possess if personally present, upon and in respect of the following matters and
in their discretion for the transaction of such other business as may properly
come before the meeting; all as set forth in the joint proxy
statement/prospectus dated ________ __, 2000.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS INSTRUCTED ON THE REVERSE
SIDE. IN THE ABSENCE OF ANY INSTRUCTIONS, SUCH SHARES WILL BE VOTED FOR THE
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION AND RELATED PLAN OF
EXCHANGE, AS DESCRIBED ON THE REVERSE SIDE.
(Continued, and to be SIGNED on the reverse side.)
INSMED PHARMACEUTICALS, INC.
800 EAST LEIGH STREET
RICHMOND, VIRGINIA 23219
1
<PAGE>
The Board of Directors of INSMED PHARMACEUTICALS, INC. recommends a vote FOR:
Approval of 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, Inc., Celtrix Pharmaceuticals, Inc.,
Insmed Incorporated, a newly formed corporation and Celtrix MergerSub,
Inc., a wholly-owned subsidiary of Insmed Incorporated.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AND MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENTS
THEREOF.
Please sign exactly as your name appears hereon. When shares are held by joint
tenants, only one of such persons need sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person. Please mark, sign, date and return the proxy card promptly,
using the enclosed envelope.
Dated: ________ __, 2000 ____________________________________
Signature
____________________________________
Signature
PLEASE DETACH HERE
You Must Detach This Portion of the Proxy Card
Before Returning It in the Enclosed Envelope
2
<PAGE>
Exhibit 99.6
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CELTRIX PHARMACEUTICALS, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Celtrix Pharmaceuticals, Inc., a
Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Joint Proxy Statement / Prospectus, each dated
___________, 2000, and hereby appoints Andreas Sommer and Donald D. Huffman or
either of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the 1999 Annual Meeting of Stockholders of Celtrix
Pharmaceuticals, Inc. to be held on _________, 2000 at 10:00 a.m., local time,
at the Company's principal executive offices, located at 2033 Gateway Place,
Suite 600, San Jose, California and at any adjournment(s) thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote if
then and there personally present, on the matters set forth below:
1. PROPOSAL TO APPROVE AND ADOPT THE AMENDED AND RESTATED AGREEMENT AND
PLAN OF REORGANIZATION DATED AS OF FEBRUARY 9, 2000, BY AND AMONG CELTRIX
PHARMACEUTICALS, INC. ("CELTRIX"), INSMED PHARMACEUTICALS, INC., INSMED
INCORPORATED, A NEWLY FORMED CORPORATION, AND CELTRIX MERGER SUB, INC., A
WHOLLY OWNED SUBSIDIARY OF INSMED INCORPORATED.
FOR __________________
AGAINST __________________
ABSTAIN __________________
2. ELECTION OF DIRECTORS:
___ FOR all nominees listed below (except as indicated).
___ WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual
nominee, strike a line through that nominee's name in the list below:
Henry E. Blair; Stuart D. Sedlack; Barry M. Sherman, M.D.; Andreas
Sommer, Ph.D.; James E. Thomas
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS CELTRIX'S
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE YEAR ENDING MARCH 31,
2000:
____FOR ____AGAINST ____ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any adjournment(s) thereof.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR APPROVAL AND ADOPTION OF THE AMENDED AND
RESTATED AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF FEBRUARY 9, 2000, BY
AND AMONG CELTRIX PHARMACEUTICALS, INC. ("CELTRIX"), INSMED PHARMACEUTICALS,
INC., INSMED INCORPORATED, AND CELTRIX MERGER SUB, INC., A WHOLLY OWNED
SUBSIDIARY OF INSMED INCORPORATED; (2) FOR THE ELECTION OF DIRECTORS; (3) FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS CELTRIX'S INDEPENDENT
PUBLIC ACCOUNTANTS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY COME BEFORE THE MEETING.
Dated:_________________________________
- ---------------------------------------
Signature
- ---------------------------------------
Signature
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
