<PAGE>
As filed with the Securities and Exchange Commission on November 20, 2000
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as Permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
CATALYTICA, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: (i)
common stock, $0.001 par value, (ii) Class A common stock, $0.001 par
value, and (iii) Class B common stock, $0.001 par value of Catalytica,
Inc.
(2) Aggregate number of securities to which transaction applies: (i)
33,220,093 shares of Catalytica common stock, (ii) 13,270,000 shares
of Class A common stock, (iii) 11,730,000 shares of non-voting Class B
common stock and (iv) options to purchase 4,377,549 shares of
Catalytica common stock.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------------
(4) Date Filed:
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================================================================================
<PAGE>
[CATALYTICA LOGO]
430 FERGUSON DRIVE
MOUNTAIN VIEW, CALIFORNIA 94043
Dear Stockholder:
We invite you to attend a special meeting of stockholders of Catalytica,
Inc. to be held at 10:00 a.m., local time, on Monday, December 11, 2000, at
our principal executive offices located at 430 Ferguson Drive, Mountain View,
California 94043.
At the special meeting, we will ask you to approve and adopt the merger
agreement that we entered into on August 2, 2000 with Synotex Company, Inc., a
U.S. subsidiary of DSM N.V. Under the agreement, our company will be merged
with a wholly-owned subsidiary of Synotex. The merger is conditioned upon,
among other things, the prior spin-off of the Catalytica Energy Systems
(formerly known as Catalytica Combustion Systems) and Catalytica Advanced
Technologies businesses as a single entity called Catalytica Energy Systems,
Inc., which we refer to as CESI, to the stockholders of Catalytica. As a
result of the merger and spin-off, CESI will be a stand-alone company and
Catalytica will become an indirect subsidiary of DSM. DSM is organized under
the laws of the Netherlands and its headquarters are located in the
Netherlands.
If we complete the merger and spin-off, our stockholders will receive, in
addition to the shares of CESI, an aggregate amount in cash equal to $750
million with specified adjustments. The cash merger consideration will be
reduced by, among other things, an amount calculated to approximate the tax
liability incurred by Catalytica as a result of the spin-off of CESI in
connection with the merger and increased by an amount equal to the proceeds
received, or deemed to be received, by the company from holders of options and
warrants to purchase Catalytica common stock exercised or otherwise receiving
payments with respect to the merger. The net cash payment to stockholders in
the merger will be significantly impacted by the value of CESI and the related
gain on the CESI spin-off in connection with the merger, which will depend on
the value of CESI. We currently estimate that the cash proceeds to
stockholders will be in the range of $9.26 to $10.44 per share, but could be
significantly higher or lower depending on the tax liability incurred. Of
course, to the extent that the gain on the spin-off increases and the cash
merger consideration is reduced as a result, the value of the CESI shares that
stockholders receive in the spin-off would be higher.
We cannot complete the merger unless all of the conditions to closing are
satisfied, including the approval and adoption of the merger agreement by
holders of a majority of the outstanding shares of Catalytica voting stock.
Assuming the merger agreement is approved and adopted by the holders of a
majority of the outstanding shares of Catalytica voting stock, the spin-off
and merger will be completed promptly following the special meeting.
As you know, we had previously announced that we were considering a public
offering of our combustion business. The spin-off and the merger are intended
to fulfill the same strategic goal: enabling our stockholders to realize the
value of our combustion business through a public market independent from the
pharmaceuticals business, and to separately realize the value of our
pharmaceuticals business through its sale. The board of directors of
Catalytica carefully reviewed and considered the terms and conditions of the
proposed merger. Based on its review, the board of directors has determined
that the merger and spin-off are the best way to achieve that goal and that
the terms of the merger agreement and the merger are advisable and are fair to
and in the best interests of Catalytica and its stockholders. In making this
determination, the board of directors considered, among other things, oral
opinions, subsequently confirmed in writing, dated August 2, 2000, of Morgan
Stanley & Co. Incorporated and Credit Suisse First Boston Corporation, the
company's financial advisors, to the effect that, as of that date and on the
basis of and subject to the matters reviewed with the board of directors and
contained in their respective written opinions, each attached to this document
as an appendix, the aggregate consideration to be received by the holders of
common stock of Catalytica in the merger is fair from a financial point of
view, except that the Credit Suisse First Boston Corporation opinion did not
address the fairness of the aggregate consideration to be received by Morgan
Stanley and its affiliates. The board recommends that you vote "FOR" the
approval and adoption of the merger agreement.
<PAGE>
Our largest stockholder and its affiliates and two of our directors, who
collectively hold approximately 39.5% of our voting stock, have expressed
their support for the merger and have agreed to vote their shares in favor of
the approval and adoption of the merger agreement.
The attached notice of special meeting and proxy statement explain the
proposed merger and merger agreement and provide detailed information
concerning the special meeting. Please carefully read these materials,
including the appendices.
Your vote is important. Whether or not you plan to attend the special
meeting, you should complete, sign, date and promptly return the enclosed
proxy card to ensure that your shares will be represented at the meeting. If
you attend the special meeting and wish to vote in person, you may withdraw
your proxy and do so.
If you have any questions regarding the proposed transaction, please call
our investor relations department at (650) 960-3000.
Very truly yours,
/s/ Ricardo B. Levy
RICARDO B. LEVY
President and Chief Executive
Officer
Proxy Statement dated and first mailed to stockholders on November 20 , 2000.
<PAGE>
[CATALYTICA LOGO]
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 11, 2000
----------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Catalytica,
Inc. will be held on Monday, December 11, 2000, at 10:00 a.m., local time, at
Catalytica's principal executive offices located at 430 Ferguson Drive,
Mountain View, California 94043 for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 2, 2000, by and among
Synotex Company, Inc., Synotex Acquisition Corporation and Catalytica, Inc.
2. To transact any other business that may properly come before the
special meeting or any adjournments of the special meeting.
Your board of directors has determined that the merger is in the best
interests of Catalytica and its stockholders and recommends that you vote to
approve and adopt the merger agreement. This item of business to be submitted
to a vote of the stockholders at the special meeting is more fully described in
this document, which we urge you to read carefully.
Stockholders of record at the close of business on November 13, 2000 are
entitled to notice of and to vote at the special meeting and any adjournment or
postponement of the meeting. All stockholders are cordially invited to attend
the special meeting in person. The proposal to be voted upon by Catalytica
stockholders will require the affirmative vote of the holders of a majority of
the Catalytica voting stock, which includes our common stock and Class A common
stock, and the separate affirmative vote of the holders of a majority of our
Class A common stock.
If you do not vote to adopt the merger agreement and you follow the
procedural requirements of the Delaware General Corporation Law, you may
receive the fair cash value of your shares as appraised by the Delaware Court
of Chancery. See "The Merger--Appraisal Rights of Stockholders" in the attached
document.
You should not send any certificates representing common stock with your
proxy card.
Your vote is very important. Whether or not you plan to attend the special
meeting, to ensure your representation, you are urged to mark, sign, date and
return the enclosed proxy as promptly as possible in the envelope enclosed for
that purpose. Any executed but unmarked proxy cards will be voted for approval
and adoption of the merger agreement. You may revoke your proxy in the manner
described in the attached document at any time before it has been voted at the
special meeting. Any stockholder attending the special meeting may vote in
person even if he or she has previously returned a proxy.
Sincerely,
/s/ LAWRENCE W. BRISCOE
LAWRENCE W. BRISCOE
Vice President, Finance and
Administration
Chief Financial Officer
Mountain View, California
November 20, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 1
SUMMARY.................................................................... 5
The Parties.............................................................. 5
The Special Meeting...................................................... 6
The Merger............................................................... 6
INFORMATION CONCERNING THE SPECIAL MEETING................................. 16
Date, Time and Place of the Special Meeting.............................. 16
Purpose of the Special Meeting........................................... 16
Record Date; Quorum; Outstanding Common Stock Entitled to Vote........... 16
Voting Rights; Vote Required............................................. 16
Voting and Revocation of Proxies......................................... 16
Solicitation of Proxies.................................................. 17
Other Matters............................................................ 17
THE MERGER................................................................. 18
Background of the Merger................................................. 18
Purpose of the Merger; Certain Effects of the Merger..................... 21
Recommendations of the Board of Directors; Reasons for the Merger........ 21
Opinion of Morgan Stanley & Co. Incorporated............................. 23
Opinion of Credit Suisse First Boston Corporation........................ 27
Interests of Certain Persons in the Merger............................... 32
Merger Financing; Source of Funds........................................ 33
Material United States Federal Income Tax Consequences................... 34
Accounting Treatment..................................................... 37
Appraisal Rights of Stockholders......................................... 37
THE MERGER AGREEMENT....................................................... 39
Structure of the Merger.................................................. 39
The Merger............................................................... 39
Representations and Warranties........................................... 44
Certain Covenants........................................................ 44
No Solicitation of Transactions.......................................... 46
Employee Benefit Matters................................................. 47
Conditions to the Merger................................................. 48
Termination of the Merger Agreement...................................... 48
Termination Fee.......................................................... 50
Expenses................................................................. 50
Amendment; Waiver........................................................ 50
The Voting Agreement..................................................... 50
DSM N.V. Guarantee....................................................... 51
Subsidiary Merger........................................................ 51
Amendment to Rights Plan................................................. 51
THE SPIN-OFF............................................................... 52
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION........................ 53
REGULATORY MATTERS......................................................... 59
Antitrust Considerations................................................. 59
Other Regulatory Matters................................................. 59
CERTAIN LITIGATION......................................................... 59
SECURITY OWNERSHIP OF CATALYTICA COMMON STOCK.............................. 60
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--Continued
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS.................................. 62
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................. 62
OTHER INFORMATION.......................................................... 63
Proposals by Stockholders of Catalytica.................................. 63
Where You Can Find More Information...................................... 63
Appendix A: Agreement and Plan of Merger................................... A-1
Appendix B: Voting Agreement............................................... B-1
Appendix C: DSM N.V. Guarantee............................................. C-1
Appendix D: Opinion of Morgan Stanley & Co. Incorporated................... D-1
Appendix E: Opinion of Credit Suisse First Boston Corporation.............. E-1
Appendix F: Section 262 of the Delaware General Corporation Law............ F-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What effect will the merger and spin-off have on Catalytica and its
stockholders?
A: A special merger subsidiary formed by Synotex Company, Inc., whose ultimate
parent company is DSM N.V., will be merged with and into Catalytica. The
merger is conditioned upon, among other things, the prior spin-off of the
company's Catalytica Energy Systems, Inc. subsidiary, which will also
include our Catalytica Advanced Technologies business, to our stockholders.
After the spin-off and the merger have been completed, Catalytica Energy
Systems, Inc., which we often refer to as CESI, will be a stand-alone
company owned by our stockholders. Catalytica will become a subsidiary of
DSM.
Q: When will the proposed distribution of CCSI occur?
A: If our stockholders vote to approve the merger, and the conditions to the
merger are satisfied or waived, the record date for the distribution will be
set immediately prior to the closing of the merger. If our stockholders do
not vote to approve the merger, or the merger is otherwise abandoned, the
proposed spin-off will not occur.
Q: What will I receive in the merger?
A: In the merger you will receive cash. We currently estimate that the cash
amount you will receive will be in the range of $9.26 to $10.44 per share,
but that number could be significantly higher or lower. The precise amount
of cash to be received in exchange for each share of Catalytica common stock
is based on a formula, calculated as follows:
. $750 million;
. less an amount intended to approximate the tax liability incurred by
Catalytica as a result of the spin-off in connection with the merger and
calculated using an assumed tax rate of 40.5% multiplied by the excess
of Catalytica's gain on the spin-off of CESI over the deductions
attributable to the acceleration, exercise or cancellation of
Catalytica's options during the period between August 2, 2000 and the
closing of the merger;
. less the amount of cash and the value of any property (excluding
property directly associated with the business of CESI as permitted by
the merger agreement) contributed after June 30, 2000 by Catalytica to
the businesses to be included in CESI;
. less any expenses associated with the merger in excess of $5 million;
. less the amount paid by us, if any, to eliminate minority interests; and
. plus the exercise price of options and warrants to purchase Catalytica
common stock exercised or cashed-out in connection with the merger
divided by:
. the number of outstanding shares of Catalytica common stock plus the
number of shares represented by unexercised options and warrants to
purchase shares of our common stock that are entitled to receive cash
payments pursuant to the terms of the merger agreement.
In addition, because the merger is conditioned on the completion of the spin-
off, please bear in mind that, if you own your stock on the closing date of the
merger, you will also receive shares of CESI.
The cash merger consideration to stockholders will be significantly impacted
by the reduction to the aggregate cash amount in respect of Catalytica's gain
on the CESI spin-off. The estimated gain will be based on
1
<PAGE>
the weighted average trading price of CESI on the first full day of trading.
Please see the table on pages 10 and 41 for a sense of the range of cash merger
consideration that you may receive using different assumed values for the
adjustments to the cash amount.
Q: How many shares of CESI will I receive in the spin-off?
A: In connection with the spin-off, you will also receive shares of CESI common
stock. We currently estimate that you will receive between 0.255 and 0.34 of
a share of CESI for each share of Catalytica common stock that you hold on
the record date for the spin-off. The exact number of shares of CESI that
you will receive for each share of Catalytica common stock has not yet been
determined. However, we will be distributing all of the shares of CESI that
we own, which will represent approximately 86.6% to 88.1% of the shares of
CESI after taking into account the minority interests and the planned
investment by Catalytica prior to the merger.
Q: What will I own as a result of the transaction?
A: If you own your stock on the closing date of the merger, you will own in
place of each share of Catalytica common stock a number of shares of CESI
stock and the cash merger consideration. The exact combined value of what
you will receive in the spin-off and merger cannot be determined until after
the closing of the merger. We currently estimate that the value of the CESI
shares will be in the range of $1.92 to $5.78 and the corresponding cash
merger consideration you will receive will be in the range of $10.44 to
$9.26, for a total value of $12.36 to $15.04 but these values could be
higher or lower. As you will note in the table on pages 10 and 41, as the
value of CESI increases, the cash merger consideration decreases, but the
combined value of the CESI shares and the cash merger consideration
increases in that situation.
Q: When will you know exactly what I receive in the spin-off and merger?
A: The exact number of shares cannot be determined until after the closing of
the merger, because the number of outstanding shares of Catalytica and CESI
will not be determined until the closing date. The exact per share amount
you will receive in the merger also cannot be determined until after the
closing of the merger, because the gain on the spin-off will be based on the
first full day of trading of CESI stock, which will occur one day after
closing.
Q: What do I need to do now?
A: After reading this document carefully, you should complete, date and sign
your proxy card and mail it in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting, even
if you plan to attend the meeting in person. Unless contrary instructions
are indicated on your proxy, all of your shares represented by valid proxies
will be voted FOR the approval and adoption of the merger agreement and the
merger.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote by delivering to our secretary at our
executive offices, 430 Ferguson Drive, Mountain View, California 94043, on
or before the business day prior to the special meeting, or at the special
meeting itself, a later-dated, signed proxy card or a written revocation or
by attending the special meeting and voting in person. Your attendance at
the meeting will not, by itself, revoke your proxy. If you have instructed a
broker to vote your shares, you must follow the directions received from
your broker to change those instructions.
Q: Should I send my stock certificates now?
A: No. If the merger is completed, we will send you written instructions for
exchanging your stock certificates for the merger consideration.
2
<PAGE>
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the procedures provided by your broker regarding the
voting of your shares.
Q: What happens if I do not send in my proxy or if I abstain from voting?
A: If you do not send in your proxy or do not instruct your broker to vote your
shares or if you abstain from voting, it will have the same effect as a vote
against the merger.
Q: What regulatory clearances are needed to complete the merger?
A: Before we complete the merger:
. the waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 must have expired or been terminated; and
. we must receive the approval of antitrust authorities of specific member
states of the European Union and, possibly, certain non-European
countries.
Q: When do you expect the transaction to be completed?
A: Assuming the merger agreement is approved and adopted by the holders of a
majority of our outstanding shares of common stock, we believe that the
transaction will be completed promptly following the special meeting.
However, we cannot assure you that all conditions to the merger will be
satisfied or, if satisfied, the date by which they will be satisfied.
Q: What are the United States federal income tax consequences of the merger?
A: The spin-off and merger should be treated as a single taxable transaction to
you for United States federal income tax purposes and possibly for state,
local and foreign income tax purposes as well. A brief summary of the United
States federal income tax consequences of the spin-off and merger appears
beginning on page 34 of this proxy statement. You are urged to consult your
tax advisor as to the tax consequences to you of the spin-off and merger in
your particular circumstances.
In addition, for U.S. federal income tax purposes, the spin-off in
connection with the merger will be treated by Catalytica as a taxable sale
by Catalytica of the shares of CESI. An estimate of the tax on the spin-off
will, as noted above, be taken into account as a reduction to the cash
amount to be paid to our stockholders.
Q: What rights do I have to dissent from the merger?
A: If you wish, you may dissent from the merger and seek an appraisal of the
fair value of your shares, but only if you comply with all requirements of
Delaware law which are summarized beginning on page 37 of this document. The
appraised fair value of your shares will be determined exclusive of any
accomplishment or expectation of value in connection with the merger, will
take into account the value of the CESI shares you receive in the spin-off
and may be more or less than the merger consideration.
Q: How can I find more information about CESI?
A: A separate prospectus with respect to the common stock of CESI is being
provided to you. The prospectus should provide you with adequate information
about CESI. We urge you to read the prospectus and this document carefully.
3
<PAGE>
Q: What happens to options to purchase Catalytica common stock in the merger?
A: Options to purchase shares of Catalytica common stock issued under our stock
plans will not be assumed by Synotex as a result of the merger. The vesting
restrictions will be eliminated on those options and the options will become
fully exercisable. Holders of the options will be permitted to exercise
immediately prior to the record date with respect to the spin-off of CESI or
after the record date but immediately prior to the effective time of the
merger.
If you exercise an option prior to the record date with respect to the
spin-off, you will receive the cash merger consideration as well as shares
of CESI to which you are entitled. If you exercise after the record date
with respect to the spin-off, but immediately prior to the effective time
of the merger, you would be entitled to receive only the cash merger
consideration. All other options outstanding as of the effective time of
the merger shall be terminated and cancelled and converted into a right to
receive cash to the extent the cash merger consideration exceeds the option
exercise price.
Q: Who can help answer my questions?
A: If you have additional questions about the merger or would like additional
copies of this document or the proxy card, you should call our investor
relations department at (650) 960-3000.
4
<PAGE>
SUMMARY
This summary, together with the Questions and Answers section, highlights
selected information discussed in greater detail elsewhere in this document and
may not contain all of the information that is important to you. We urge you to
carefully read this entire document and the other documents to which this
document refers to understand fully the merger and other related transactions.
See "Where You Can Find More Information" on page 63 for details of how you can
obtain additional information about Catalytica and the merger. Each item in
this summary includes a page reference directing you to the page on which a
more complete description of the item begins. This summary is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this document.
The Parties
Catalytica, Inc.
Catalytica, Inc. finds new pathways to improve processes--reducing time,
waste, and costs. We apply our innovative and patented catalytic technologies
and other scientific processes to the pharmaceutical and power generation
industries. For the pharmaceutical industry, we improve the steps for
manufacturing pharmaceutical products and also find better, more efficient ways
to produce them in commercial scale quantities. For the power generation
industry, our unique application of a catalyst and proprietary technology
enables gas turbines to produce essentially pollution-free power. In addition,
we explore other business opportunities that capitalize on our 25-year history
of discovery and effective application of catalysts. Projects include high
throughput screening of catalysts and processes for rapid analysis of optimum
production of products, unique applications of catalysts to enhance fuel
conversion for fuel cells and production of better catalysts for the
manufacture of plastics. Our common stock is traded on the Nasdaq National
Market under the symbol "CTAL."
We are incorporated under the laws of the State of Delaware. Our executive
offices are located at 430 Ferguson Drive, Mountain View, California 94043. Our
telephone number is (650) 960-3000.
DSM N.V.
DSM, a Dutch corporation, is a highly integrated international manufacturer
of life science products, performance materials and chemicals. The DSM group
has annual sales of approximately 6.3 billion euro and employs about 22,000
people at more than 200 sites worldwide. The executive offices of DSM are
located at Het Overloon 1, Heerlen, P.O. Box 6500, 6401 JH Heerlen, The
Netherlands. DSM's telephone number is 011-31-45-578-8111.
Synotex Company, Inc.
Synotex, an indirect wholly-owned subsidiary of DSM, is the holding company
for DSM's operations in the United States. The executive offices of Synotex are
located at One Columbia Nitrogen Road, Augusta, GA 30903. Synotex's phone
number is 706-849-6600.
Synotex Acquisition Corporation
Synotex Acquisition Corporation was formed as a Delaware corporation on July
31, 2000 by Synotex Company, Inc. for the purpose of entering into the merger
agreement. Synotex Acquisition Corporation has not engaged in any business
activity other than in connection with the merger and the related transactions.
5
<PAGE>
The Special Meeting
Date, Time and Place and Matters to be Considered (page 16)
The special meeting will be held at 10:00 a.m., local time, on Monday,
December 11, 2000, at our principal executive offices located at 430 Ferguson
Drive, Mountain View, California 94043. At the special meeting, you will be
asked to consider and vote upon a proposal to approve and adopt the merger
agreement, a copy of which is included as Appendix A to this document.
Vote Required (page 16)
In order for the merger to be completed, the merger agreement must be
approved and adopted by the affirmative vote of the holders of a majority of
the outstanding shares of our voting stock, which includes the shares of
Catalytica common stock as well as of Class A common stock. In addition, the
merger must be approved by the separate vote of the holders of a majority of
the Class A common stock. Holders of approximately 32% of our voting stock,
including all of the holders of Class A common stock, have signed a voting
agreement providing that they vote their shares in favor of the merger and the
merger agreement. A copy of the voting agreement is included as Appendix B to
this document.
Record Date for Voting (page 16)
The close of business on November 13, 2000 is the record date for determining
holders of shares of our voting stock entitled to vote at the special meeting.
Each share of common stock and Class A common stock will be entitled to one
vote. On the record date, there were 53,197,259 shares of common stock and
Class A common stock entitled to vote at the special meeting.
The Merger
Structure of the Merger
We currently have four direct subsidiaries: CESI, Catalytica Advanced
Technologies, Inc., Catalytica Pharmaceuticals, Inc. and Wyckoff, Inc. Prior to
the merger, we will merge our Catalytica Advanced Technologies subsidiary with
and into CESI. In addition, Catalytica will create another direct subsidiary to
merge with and into Catalytica Pharmaceuticals as a means of converting the
minority interests and options to purchase stock of Catalytica Pharmaceuticals
into interests in, and options to purchase, Catalytica common stock. As a
result of this subsidiary merger, the stockholders and option holders of
Catalytica Pharmaceuticals will become stockholders and option holders of
Catalytica.
Immediately prior to the closing of the merger and as part of the same
transaction, we will distribute all of the shares of CESI that we own to
Catalytica stockholders. The result will be that CESI will become a publicly
traded company, that we expect to be listed on the Nasdaq National Market. We
will own no shares of CESI after the spin-off.
The merger transaction will be effected by the merger of Synotex Acquisition
Corporation with and into Catalytica, resulting in Catalytica becoming a
wholly-owned subsidiary of Synotex, and indirectly a subsidiary of DSM.
6
<PAGE>
Figure 1: Current Structure
[GRAPHIC APPEARS HERE]
Figure 1 shows Catalytica along with its four direct subsidiaries: Catalytica
Energy Systems, Inc.; Catalytica Advanced Technologies, Inc.; Wyckoff, Inc. and
Catalytica Pharmaceuticals, Inc. Note that CESI and Catalytica Pharmaceuticals
are also partly held by certain minority stockholders.
Figure 2: Subsidiary Reorganizations
[GRAPHIC APPEARS HERE]
Figure 2 shows the subsidiary reorganizations that Catalytica will effect in
preparation for the spin-off and the merger. Catalytica Advanced Technologies
will be merged with and into CESI, with CESI surviving the merger. Catalytica
will also create another subsidiary that will merge with and into Catalytica
Pharmaceuticals. As a result, Catalytica Pharmaceuticals' minority stockholders
will receive shares of Catalytica common stock, and Catalytica Pharmaceuticals
will become a wholly-owned subsidiary of Catalytica.
7
<PAGE>
Figure 3: Spin-Off
[GRAPHIC APPEARS HERE]
Figure 3 shows the spin-off of CESI. Catalytica stockholders as of the record
date for the spin-off will receive the distribution of CESI common stock held
by Catalytica.
Figure 4: Merger
[GRAPHIC APPEARS HERE]
Figure 4 shows DSM N.V., its U.S. subsidiary Synotex Company, Inc. and a merger
subsidiary of Synotex. The merger sub will merge with and into Catalytica. Our
stockholders will receive the cash merger consideration in exchange for all of
the shares of Catalytica capital stock.
8
<PAGE>
Figure 5: Post-Merger
[GRAPHIC APPEARS HERE]
Figure 5 shows the effect of the transaction: CESI held by the former
Catalytica public stockholders and the CESI minority stockholder and Catalytica
will be a subsidiary of Synotex.
What You Will Receive in the Merger
In the merger you will receive cash. We currently estimate that the cash
amount you will receive will be in the range of $9.26 to $10.44 per share, but
that number could be significantly higher or lower. The precise amount of cash
to be received in exchange for each share of Catalytica common stock is based
on a formula, calculated as follows:
. $750 million;
. less an amount intended to approximate the tax liability incurred by
Catalytica as a result of the spin-off in connection with the merger and
calculated using an assumed tax rate of 40.5% multiplied by the excess
of Catalytica's gain on the spin-off of CESI over the deductions
attributable to the acceleration, exercise or cancellation of
Catalytica's options during the period between August 2, 2000 and the
closing of the merger;
. less the amount of cash and the value of any property (excluding
property directly associated with the business of CESI as permitted by
the merger agreement) contributed after June 30, 2000 by Catalytica to
the businesses to be included in CESI;
. less any expenses associated with the merger in excess of $5 million;
. less the amount paid by us, if any, to eliminate minority interests; and
. plus the exercise price of options and warrants to purchase Catalytica
common stock exercised or cashed-out in connection with the merger
divided by:
. the number of outstanding shares of Catalytica common stock plus the
number of shares represented by unexercised options and warrants that
are entitled to receive cash payments pursuant to the terms of the
merger agreement.
In addition, because the merger is conditioned on the completion of the spin-
off, please bear in mind that, if you own your stock on the closing date of the
merger, you will also receive shares of CESI.
The cash merger consideration to stockholders will be significantly impacted
by the reduction to the aggregate cash payment amount in respect of
Catalytica's gain on the CESI spin-off. The gain will be based on
9
<PAGE>
the weighted average trading price of CESI on the first full day of trading. In
order to give you a sense of the range of the cash merger consideration that
you may receive, we have prepared the following table using different assumed
values of CESI on the first full day of trading and estimated amounts for the
other adjustments to the cash amount to be paid in the merger. All amounts
listed below are estimates and the actual amounts may vary significantly from
the amounts shown. As noted in the table, the amount of cash to be paid in the
merger will decrease as the value CESI increases. Of course, in that situation,
the value of the CESI shares you receive (and the aggregate value of the cash
merger consideration and the CESI shares) would be higher.
<TABLE>
<CAPTION>
-----------------------------------------
Value of CESI
-----------------------------------------
<S> <C> <C> <C>
Assumed Total Value of CESI $150,000,000 $300,000,000 $ 450,000,000
Corresponding Value per CESI Share $ 5.66 $ 14.14 $ 22.63
-----------------------------------------
Initial Cash Payments in Merger.... $750,000,000 $750,000,000 $ 750,000,000
Adjustments
Net Transaction Tax
Liability(1).................... (12,084,087) (65,942,693) (119,801,300)
Investment in CESI............... (50,000,000) (50,000,000) (50,000,000)
Transaction Expenses(2).......... (1,000,000) (1,000,000) (1,000,000)
Option Exercise Proceeds(3)...... 44,657,270 44,657,270 44,657,270
------------ ------------ -------------
Total Proceeds of Merger(4).... $731,573,184 $677,714,577 $623,855,970
Total Catalytica Shares(5)......... 70,065,879 68,597,193 67,389,306
Merger Consideration per Share..... $ 10.44 $ 9.88 $ 9.26
Value of CESI shares distributed
per Catalytica Share.............. $ 1.92 $ 3.81 $ 5.78
------------ ------------ -------------
Total Value as Result of Spin-
off & Merger.................. $ 12.36 $ 13.70 $ 15.04
</TABLE>
--------
(1) Based on a composite tax rate of 40.5%, Catalytica's tax basis in CESI of
approximately $37 million after investment of $50 million, deductions for
compensation expenses associated with the exercise of options and losses in
CESI prior to the close.
(2) Assuming total transaction expenses of $6 million for Catalytica, of which
the amounts exceeding $5 million will reduce the cash payments to
stockholders in the merger.
(3) Assuming the exercise of all options to purchase Catalytica common stock
with exercise prices less than or equal to $12.00 per share and including
the purchase of 65,411 shares of common stock at $9.35 per share pursuant
to options under the ESPP.
(4) May be reduced for other additional amounts that affect the merger
consideration as described on page 40, which we do not expect to be
material.
(5) Includes shares of Catalytica to be issued upon the exercise of Catalytica
and Catalytica Pharmaceuticals options and upon the conversion of shares of
Catalytica Pharmaceuticals in the subsidiary merger. The exchange rate in
the Catalytica Pharmaceuticals subsidiary merger varies depending on the
relative values of Catalytica Pharmaceuticals and CESI.
Purpose of the Merger; Certain Effects of the Merger (page 21)
The principal purpose of the merger is to bring value to our stockholders by
selling our pharmaceuticals business for cash immediately following the spin-
off of our combustion systems business to our stockholders. The merger and
spin-off are intended to enable our stockholders to recognize the full value of
our pharmaceuticals and combustion systems businesses.
Upon completion of the merger, Catalytica's common stock will be delisted
from the Nasdaq National Market and will no longer be publicly traded. We
expect that CESI's stock will be listed on the Nasdaq National Market.
Recommendation of the Board (page 21)
The board, taking into account, among other things, the opinions of Morgan
Stanley & Co. Incorporated and Credit Suisse First Boston Corporation, has
determined that the merger agreement and the merger are advisable and are fair
to you and in your and our best interests and recommends that you vote FOR the
approval and adoption of the merger agreement.
10
<PAGE>
Opinion of Morgan Stanley & Co. Incorporated (page 23)
On August 2, 2000, Morgan Stanley & Co. Incorporated delivered an oral
opinion, subsequently confirmed in writing, to the board that, as of that date
and on the basis of and subject to the matters reviewed with the board, the
aggregate consideration to be received by the stockholders in the merger,
assuming completion of the spin-off, was fair from a financial point of view.
We have attached a copy of the opinion as Appendix D to this document. The
opinion of Morgan Stanley & Co. Incorporated is addressed to the board, does
not address any other aspect of the merger and does not constitute a
recommendation as to how you should vote at the special meeting.
Opinion of Credit Suisse First Boston Corporation (page 27)
On August 2, 2000, Credit Suisse First Boston Corporation delivered an oral
opinion, which was subsequently confirmed in writing, to the board that, as of
that date and on the basis of assumptions set forth in the opinion and subject
to the matters reviewed with the board, the aggregate consideration to be
received by the holders of common stock pursuant to the merger (assuming prior
completion of the spin-off) was fair to the holders of common stock, other than
Morgan Stanley & Co. Incorporated affiliated entities, from a financial point
of view. The Credit Suisse First Boston opinion is subject to the limitations
and qualifications described in the opinion, a copy of which is attached as
Appendix E to this proxy statement. We encourage you to carefully read the
Credit Suisse First Boston opinion in its entirety. The opinion of Credit
Suisse First Boston Corporation is addressed to the board, does not address any
other aspects of the merger or any related transactions, including the spin-off
of CESI as described below, and does not constitute a recommendation as to how
you should vote at the special meeting.
Interests of Certain Persons in the Merger (page 32)
In considering the recommendation of the board with respect to the merger,
stockholders should be aware that the executive officers and directors of
Catalytica have interests in the merger that may be different from, or in
addition to, the interests of stockholders generally. For example, several
officers of Catalytica are parties to change of control agreements that entitle
them to specified benefits upon an involuntary termination other than for cause
at any time during the two years following the merger. In addition, all
individuals who were officers and directors of Catalytica at or prior to the
effective time will be indemnified by Synotex, and Synotex will cause directors
and officers insurance to be provided on their behalf. Further, Ricardo B.
Levy, our President and Chief Executive Officer, will remain the Chairman of
the Board of CESI. All officers and directors of Catalytica, as well as all
holders of options to purchase shares of Catalytica common stock, will benefit
from the acceleration of all of their unvested options to the purchase shares
of Catalytica common stock in connection with the merger. Howard Hoffen and
Alan Goldberg, two of our directors, are managing directors of Morgan Stanley
Dean Witter & Co. Incorporated, the controlling affiliate of Morgan Stanley &
Co. Incorporated, one of our financial advisors, and Morgan Stanley Capital
Partners III, L.P. and its affiliates, our principal stockholders. In the event
that the merger is completed, Morgan Stanley & Co. Incorporated will be paid a
$3 million fee by Catalytica in connection with its financial advisory
services. In partial consideration of Morgan Stanley Capital Partners' support
for the transaction, CESI has agreed to grant Morgan Stanley Capital Partners
and certain of its affiliates contractual rights, including registration rights
and the right to nominate a member of CESI's board of directors so long as
Morgan Stanley affiliated entities continue to hold more than 5% of the
outstanding stock of CESI. The board was aware of these interests and
considered them, among other matters, in making its recommendation.
Certain United States Federal Income Tax Consequences (page 34)
The receipt of CESI common stock and cash for shares pursuant to the spin-off
and merger should be treated as a single taxable transaction for United States
federal income tax purposes and possibly for state, local and foreign income
tax purposes as well. In general, a stockholder who receives CESI common stock
and cash in exchange for shares, except for certain shares acquired through the
exercise of incentive stock options and certain
11
<PAGE>
shares purchased under our 1992 Employee Stock Purchase Plan, pursuant to the
proposed spin-off and merger should recognize gain or loss for United States
federal income tax purposes equal to the difference, if any, between the cash
and fair market value of the CESI common stock received and the stockholder's
adjusted tax basis in the shares exchanged for CESI common stock and cash
pursuant to the spin-off and merger. If the shares exchanged constitute capital
assets in the hands of the stockholder, such gain or loss would be capital gain
or loss. In general, capital gains recognized by an individual will be subject
to a maximum United States federal income tax rate of 20% if the shares were
held for more than one year, and if held for one year or less they will be
subject to tax at ordinary income tax rates. You are urged to consult your tax
advisor as to the consequences of the spin-off and merger in your particular
circumstances.
Conditions to the Merger (page 48)
Each party's obligation to complete the merger is subject to a number of
conditions, including the following:
. approval and adoption of the merger agreement by our stockholders;
. the expiration or termination of any applicable waiting period or
granting of required consents under the Hart-Scott-Rodino Act or any
other applicable non-U.S. antitrust law relating to the merger;
. the absence of any prohibition against the completion of the merger or
the other transactions contemplated by the merger agreement by any
applicable law or regulation, judgment, injunction, order or decree; and
. the completion of the spin-off of CESI.
Our obligation to complete the merger is subject to additional conditions,
including, generally, the accuracy of the representations and warranties of
Synotex and Synotex Acquisition Corporation, and the performance in all
material respects of their obligations under the merger agreement. The
obligations of Synotex and Synotex Acquisition Corporation to complete the
merger are subject to additional conditions, including, generally, the accuracy
of our representations and warranties, the performance in all material respects
of our obligations under the merger agreement, our owning 100% of the capital
stock of our pharmaceutical subsidiaries with no remaining rights outstanding
to acquire Catalytica equity or the equity of the pharmaceutical subsidiaries,
and holders of less than 10% of our outstanding shares of common stock having
demanded and perfected appraisal rights at the effective time of the merger.
The obligations of Synotex and Synotex Acquisition Corporation to complete the
merger are not subject to a financing condition.
Termination of the Merger Agreement (page 48)
The merger agreement may be terminated, whether before or after receiving
stockholder approval, without completing the merger, under certain
circumstances, including the following:
. by mutual written consent of the parties;
. by us or Synotex, if the merger is not completed by February 28, 2001,
or such other date as we and Synotex may agree upon;
. by us or Synotex, if there is any law or regulation that makes
completion of the transactions contemplated by the merger agreement
illegal or if there is a final and nonappealable judgment, injunction,
order or decree enjoining Synotex or us from completing the transactions
contemplated by the merger;
. by Synotex, if our board:
. withdraws, modifies or amends, in a manner adverse to Synotex, its
approval or recommendation or declaration of the advisability of the
merger agreement or the merger,
12
<PAGE>
. recommends an alternative transaction, or resolves or announces an
intention to do so, or
. in response to a tender offer or exchange offer, recommends
acceptance of that tender offer or exchange offer by the
stockholders, or fails to recommend against acceptance of that offer
by the stockholders within ten business days of the commencement of
that offer;
. by us or Synotex, if our stockholders do not approve and adopt the
merger agreement at the special meeting;
. by us, if prior to the special meeting, our board elects to terminate
the merger agreement in order to recommend or approve a superior
proposal or to enter into an agreement for a transaction that
constitutes a superior proposal; provided that we:
. provide proper notice to Synotex of our intention,
. determine 48 hours after giving notice that the alternate proposal is
and remains a superior proposal taking into account any modifications
to the transactions contemplated by the merger agreement that Synotex
has then proposed in writing and not withdrawn, and
. concurrently with the giving of notice of such termination, pay the
applicable termination fee and expense reimbursement amount to
Synotex;
. by a non-breaching party, if:
. the other party breaches its representations or warranties or those
representations or warranties become untrue in a way that could not
be cured by February 28, 2001, and such breach would have, in the
aggregate, a material adverse effect on the breaching party, or
. the other party breaches any of its covenants or agreements under the
merger agreement in a way that would have, in the aggregate, a
material adverse effect on the non-breaching party, or materially
adversely affects, or materially delays, the ability of Synotex or
Catalytica to complete the merger, and is unable to cure the breach
after receiving written notice and an opportunity to cure the breach.
In the event of termination of the merger agreement by either party, the
merger agreement shall become void and have no effect, provided, however that
this will not relieve a breaching party from liability for a prior willful
breach of the merger agreement or for the payment of the termination fee and
expenses as described below.
Termination Fee Payable to Synotex (page 50)
We have agreed to pay Synotex a termination fee of $20 million, plus up to $5
million for reimbursement of Synotex's expenses, if:
. the merger agreement is terminated by Synotex as a result of our board:
. withdrawing, modifying or amending, in a manner adverse to Synotex,
its recommendation or declaration of the advisability of the merger
agreement or the merger,
. recommending an alternative transaction, or resolving or announcing
an intention to do so, or
. in response to a tender offer or exchange offer, recommending
acceptance of that tender offer or exchange offer by the
stockholders, or failing to recommend against acceptance of that
offer by the stockholder within ten business days of the commencement
of the offer;
. (A) the merger agreement is terminated by Synotex or us after February
28, 2001, or because of our failure to obtain stockholder approval, each
as described above, (B) at or prior to the time of such
13
<PAGE>
termination, an acquisition proposal with respect to our company shall
have been made public, and (C) within twelve months after the
termination, we enter into a definitive agreement with respect to any
acquisition proposal or complete the transaction contemplated by any
acquisition proposal; or
. the merger agreement is terminated by us in order to recommend or
approve a superior proposal or to enter into an agreement for a
transaction that constitutes a superior proposal.
Appraisal Rights (page 37)
You are entitled to exercise appraisal rights in connection with the merger.
If you elect to exercise appraisal rights, you must comply with Section 262 of
the Delaware General Corporation Law, which requires you to deliver to us,
before the stockholder vote to approve and adopt the merger agreement is taken,
written notice of your intent to demand appraisal of your shares if the merger
is completed, and you must not vote to adopt the merger agreement. We have
included a copy of Section 262 as Exhibit F to this document. The appraisal
value of your shares will be determined exclusive of any accomplishment or
expectation of value in connection with the merger, will take into account the
value of the CESI shares you receive in the spin-off and may be more or less
than the merger consideration.
Voting Agreement (page 50)
As a condition to Synotex entering into the merger agreement, our principal
stockholder and its affiliates and two of our directors have entered into a
voting agreement with Synotex and Catalytica, providing that they will vote all
shares of Catalytica voting stock owned by them on the record date for the
approval of the merger agreement and the merger, and against any alternative
transaction or any action which would delay, prevent or frustrate the
transactions contemplated by the merger agreement. The stockholders who entered
into the voting agreement beneficially owned an aggregate of 14,928,019
outstanding shares of Catalytica voting stock, representing approximately 32.1%
of the combined voting power of Catalytica voting stock, including all of the
outstanding Class A common stock, outstanding as of July 31, 2000. Prior to the
record date, Morgan Stanley affiliated entities converted 6,344,598 shares of
non-voting Class B common stock into voting Class A common stock. As a result
the shares subject to the voting agreement as of the record date was 20,993,287
shares of Catalytica voting stock, representing approximately 39.5% of the
combined voting power of Catalytica voting stock as of the record date. We have
included a copy of the voting agreement as Appendix B to this document.
DSM N.V. Guarantee (page 51)
As a condition to Catalytica entering into the merger agreement, DSM has
irrevocably and unconditionally guaranteed the full and complete performance of
all obligations and liabilities of Synotex and Synotex Acquisition Corporation
under the merger agreement. We have included a copy of the DSM guarantee as
Appendix C to this document.
Spin-off (page 53)
Immediately prior to the closing of the merger, we will distribute all of the
shares of CESI owned by us to holders of record of Catalytica common stock as
of the record date for the spin-off. We currently estimate that you will
receive between 0.255 and 0.34 of a share of CESI for each share of Catalytica
common stock that you hold on the record date for the spin-off. Catalytica will
not effect the spin-off unless Catalytica's stockholders approve and adopt the
merger and the merger agreement and all other conditions to the closing of the
merger have been satisfied or waived.
14
<PAGE>
Summary Unaudited Pro Forma Condensed Financial Data
(in thousands, except per share data)
The following table sets forth a summary of the unaudited pro forma condensed
statement of operations data of Catalytica, Inc. after giving effect to the
spin-off and immediately prior to the merger with Synotex Acquisition for the
periods presented.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1999 2000
------------ -------------
(unaudited)
<S> <C> <C>
Pro Forma Condensed Consolidated Statement of
Operations Data:
Total revenues................................. $420,645 $269,288
Total costs and expenses....................... 369,295 238,669
Operating Income............................... 51,350 30,619
Net Income..................................... 36,611 16,181
======== ========
Pro forma basic net income per share........... $ 0.54 $ 0.24
======== ========
Shares used to compute pro forma basic net
income per share.............................. 68,045 68,580
======== ========
</TABLE>
The following table sets forth a summary of the unaudited pro forma condensed
balance sheet as of September 30, 2000 to reflect the effects of:
. the spin-off of CESI to Catalytica stockholders,
. the resulting calculation of tax liability incurred by Catalytica, and
. other transactions that have or will occur prior to the merger.
<TABLE>
<CAPTION>
As of September 30, 2000
------------------------
(unaudited)
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet
Data:
Cash and cash equivalents........................ $ --
Working Capital.................................. (3,616)
Total assets..................................... 401,489
Long-term debt, less current portion............. 36,000
Total stockholders' equity....................... 180,952
</TABLE>
15
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
Date, Time and Place of the Special Meeting
This document is furnished to you in connection with the solicitation of
proxies by our board for the special meeting of stockholders to be held at
10:00 a.m., local time, on Monday, December 11, 2000, at our principal
executive offices located at 430 Ferguson Drive, Mountain View, California
94043, or any postponement or adjournment of the meeting. This document, the
notice of special meeting and the accompanying form of proxy card are first
being mailed to stockholders on or about November 20, 2000.
Purpose of the Special Meeting
At the special meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the merger agreement.
Record Date; Quorum; Outstanding Common Stock Entitled to Vote
All stockholders of record at the close of business on November 13, 2000 are
entitled to notice of, and to vote at, the special meeting. The presence, in
person or by proxy, of holders of a majority of the outstanding shares of
voting stock is required to constitute a quorum for the transaction of
business. The outstanding voting stock of Catalytica as of November 13, 2000,
consisted of 33,582,661 shares of common stock, and 19,614,598 shares of Class
A common stock. As of that date, there were also 5,385,402 shares of non-
voting Class B common stock, which have the right to convert to Class A common
stock to the extent that the holders of Class A common stock do not hold more
than 40% of our total outstanding voting stock.
Voting Rights; Vote Required
You are entitled to one vote for each share of common stock that you held as
of the close of business on the record date. The affirmative vote of the
holders of a majority of the outstanding shares of our voting stock is
required to approve and adopt the merger agreement. In addition, the separate
affirmative vote of the holders of a majority of the outstanding shares of our
Class A common stock is required to approve the merger. In determining whether
the approval and adoption of the merger agreement has received the requisite
number of affirmative votes, abstentions and broker non-votes will have the
same effect as a vote against adoption of the merger agreement. Holders of
approximately 39.5% of our voting stock, as of the record date, including 100%
of our Class A common stock and the non-voting Class B common stock have
agreed to vote in favor of the merger and the merger agreement.
Voting and Revocation of Proxies
A form of proxy card for your use at the special meeting accompanies this
document. Subject to the following sentence, all properly executed proxies
that are received prior to or at the special meeting and not revoked will be
voted at the special meeting in the manner specified. If you execute and
return a proxy and do not specify otherwise, the shares represented by your
proxy will be voted "FOR" approval and adoption of the merger agreement in
accordance with the recommendation of our board. In that event, you will not
have the right to dissent from the merger and seek an appraisal of the fair
value of your shares.
If you have given a proxy pursuant to this solicitation, you may nonetheless
revoke it by attending the special meeting and voting in person. In addition,
you may revoke any proxy you give at any time before the special meeting by
delivering to our secretary at our executive offices at 430 Ferguson Drive,
Mountain View, California 94043, on or before the business day prior to the
special meeting, or at the special meeting itself, a written statement
revoking it or a duly executed proxy bearing a later date. If you have
executed and delivered a proxy to us, your attendance at the special meeting
will not in and of itself constitute a revocation of your proxy. If you vote
in favor of approving and adopting the merger agreement, you will not have the
right to dissent and
16
<PAGE>
to seek appraisal of the fair value of your shares. If you do not send in your
proxy or do not instruct your broker to vote your shares or if you abstain
from voting, it will have the same effect as a vote against the approval and
adoption of the merger agreement.
Your vote is important. Please return your marked proxy card promptly so
your shares can be represented at the meeting, even if you plan to attend the
meeting in person.
Solicitation of Proxies
We will bear the cost of the solicitation of proxies. We will solicit
proxies initially by mail. Further solicitation may be made by our directors,
officers and employees personally, by telephone or otherwise, but they will
not be specifically compensated for these services. Upon request, we will
reimburse brokers, dealers, banks or similar entities acting as nominees for
their reasonable expenses incurred in forwarding copies of the proxy materials
to the beneficial owners of the shares of common stock they hold of record.
Other Matters
Except for the vote on the merger agreement, no other matter is expected to
come before the special meeting.
You should not send any certificates representing common stock with your
proxy card. If we complete the merger, the procedure for the exchange of
certificates representing common stock will be as described beginning on
page 41 of this document.
17
<PAGE>
THE MERGER
Background of the Merger
Our management and board has believed for some time that the value of our
combined businesses was not, and would not be, adequately reflected in the
market price of our shares because of the differences between the combustion
business and the pharmaceuticals business. As a result, from time to time, we
have considered separating the two principal businesses to unlock their value
for the stockholders. In March 2000, we announced our intention to proceed
with an initial public offering of shares of our combustion business.
In order to explore opportunities that might provide value for our
stockholders, our management engaged from time to time in the ordinary course
of business in discussions with representatives of other companies regarding
possible business partnerships, strategic relationships and other
transactions. However, none of these discussions resulted in any attractive
proposals for a business combination transaction of this nature. In early
2000, representatives of DSM contacted a representative of our principal
stockholder to explore its interest in discussing a strategic transaction
between DSM or Synotex and Catalytica. The representative of our stockholder
told DSM's representative that it was not the appropriate party to engage in
discussions on the subject and suggested that DSM contact Catalytica directly.
On April 11, 2000, Jan Zuidam, a member of DSM's Managing Board of Directors,
initiated contact by telephone with Ricardo B. Levy, our President and Chief
Executive Officer, to request a meeting initially to discuss a possible
strategic transaction.
On April 13, 2000, Mr. Levy and Lawrence W. Briscoe, our Vice President of
Finance and Administration and Chief Financial Officer, met with Mr. Zuidam
and Jan Wolters, DSM's Director of Merger & Acquisitions, over dinner in Los
Altos, California. At this meeting, the representatives exchanged their views
of the companies' strategic goals and of the general developments in the
pharmaceuticals industry, including the consolidation ongoing in that
industry. The representatives discussed their perception that suppliers to the
pharmaceuticals industry, like DSM and Catalytica, would need to grow to
achieve critical mass to be able to service the changing pharmaceuticals
industry.
On April 14, 2000, Messrs. Zuidam and Wolters of DSM met again with our
senior management at our headquarters in Mountain View, California. At this
meeting, Messrs. Zuidam and Wolters expressed DSM's interest in commencing
discussions of a possible acquisition of Catalytica's pharmaceuticals
business. The parties discussed the synergies available to the combined
businesses. DSM made clear in these discussions that it wanted to acquire only
the pharmaceuticals business and that it had no interest in acquiring the
combustion business or Catalytica as a whole.
On April 19, 2000, Mr. Levy and Mr. Zuidam had a telephone conversation
during which Mr. Levy confirmed Catalytica's interest in continuing
discussions about a possible business combination.
On April 27, 2000, DSM and Catalytica executed a confidentiality agreement.
On May 3 and 4, 2000, meetings of the boards of directors of Catalytica and
Catalytica Pharmaceuticals were held at The Princeton Club in New York, New
York, during which the boards were informed by our senior management of the
discussions with DSM and their interest in a possible transaction with
Catalytica or Catalytica Pharmaceuticals. After extensive discussion, the
boards directed management to continue the discussions.
On May 11, 2000, Peter Elverding, Chairman of the DSM's Managing Board of
Directors, met with Mr. Levy in Atlanta, Georgia, over dinner. The parties
discussed, in general terms, some of the advantages of a DSM acquisition of
Catalytica's pharmaceuticals business.
Our management team continued discussions with DSM. On May 15 and 16, 2000,
our senior management met with Mr. Wolters and Arnold Gratama van Andel, DSM's
Corporate Vice President--Finance and Economics and Chairman and President of
Synotex, at Catalytica's headquarters in Mountain View, California. Catalytica
18
<PAGE>
provided non-public information about its business to the DSM representatives.
At this point, DSM commenced its due diligence review of Catalytica and
continued the review process through the end of July 2000.
On May 24, 2000, Messrs. Levy and Zuidam had a telephone conversation during
which they discussed a process for the negotiations of a possible business
combination, including timing and due diligence issues. The parties also
discussed possible structures for the transaction as well as potential
valuation ranges, but no agreement was reached.
During the course of these discussions, we reviewed alternative structures
for the possible sale of the pharmaceuticals business to DSM or Synotex. These
structures included a possible sale of the assets of the business or of the
shares of the subsidiaries comprising the business and included the structure
of the proposed transactions, involving a spin-off of the businesses not
desired by DSM coupled with the acquisition by DSM or Synotex of the remaining
company. In each case, we believed there would be significant transaction
costs, including taxes payable upon the sale. We determined that, assuming we
were to proceed with any sale of the pharmaceuticals business, the ultimate
structure of the proposed transactions would have to minimize those costs.
On May 31, 2000, senior management and other representatives of Catalytica
and Catalytica Pharmaceuticals met with representatives of DSM in Chicago,
Illinois. The parties discussed non-public information, including an overview
of the Catalytica pharmaceutical business, its customers, financial condition
and prospects.
On June 14, 2000, Messrs. Levy and Briscoe of Catalytica met with Messrs.
Wolters and Gratama van Andel of DSM. They had detailed discussions and
negotiations over the terms of a possible business combination, including
structure and valuation ranges, but no agreements were reached. Messrs.
Wolters and Gratama van Andel reiterated the desire of DSM and Synotex to
acquire only the pharmaceuticals business. They expressed a willingness to
consider an acquisition of Catalytica in the form of the proposed transactions
if all assets and liabilities that were not related to the pharmaceuticals
business were excluded without cost to DSM or Synotex. In that regard, DSM
insisted that the purchase price be reduced by the amount of any tax to be
borne by Catalytica relating to the disposition or spin-off of the non-
pharmaceuticals businesses. The parties discussed the best way to estimate the
amount of those taxes given the uncertain value of CESI. We considered using a
fixed estimate of the amount of the taxes and reducing the purchase price by
that estimate, but that alternative would leave the parties at risk of error--
Catalytica's stockholders would be forced to bear the risk of an overestimate
of the tax, while DSM would be forced to bear the risk of an underestimate.
The parties also considered using a formula price like the one ultimately
agreed upon in the merger agreement, in which the amount of the cash price
reduction would be calculated as of the first trading day of CESI shares in
order to minimize that risk. Although the parties generally favored a formula
price, no agreement on structure was reached.
We engaged Morgan Stanley & Co. Incorporated as our financial advisors on
June 19, 2000 at which time a team from Morgan Stanley briefed senior
management on the valuation of Catalytica, the competitive landscape and the
potential interest of other bidders.
Throughout June and July 2000, we held a number of meetings and conference
calls with DSM and Synotex, our respective financial advisors and our
respective counsel to discuss the terms of the proposed transaction and
exchanged various drafts and redrafts of the proposed merger agreement. During
this period, Synotex presented its draft of the voting agreement. The
negotiations during this period highlighted significant issues for both
parties. In particular, the following issues were among those discussed and,
in some cases, were unresolved until the merger agreement was signed:
. the structure of the transaction, including the spin-off;
. the base aggregate consideration to be paid by Synotex;
. the adjustments to the base aggregate consideration to be paid;
. restrictions on our ability to solicit or entertain competing proposals
and the fiduciary exceptions applicable to such restrictions;
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. the amount of the termination fee to be paid to Synotex in the event the
transaction is not consummated under specified circumstances, and the
circumstances in which the fee would be payable;
. the pre-merger operating covenants applicable to us;
. the date after which either party may terminate the merger agreement if
the merger is not completed;
. provisions relating to the treatment of our employees during the period
prior to, and following, the merger; and
. the terms of the voting agreement.
A joint meeting of the boards of directors of Catalytica and Catalytica
Pharmaceuticals was held by telephonic conference call on June 30, 2000,
during which the boards were informed by our senior management of the status
of negotiations with DSM. The boards directed management to continue
discussions and negotiate appropriate terms.
We delivered, through our counsel, an initial draft of the merger agreement
to DSM and its counsel on July 11, 2000.
On July 13, 2000, representatives of DSM and its counsel and representatives
of Catalytica and its counsel met in the offices of Cleary Gottlieb Steen &
Hamilton in New York, New York. The parties discussed the status of due
diligence, the principal terms of the merger agreement, and the likely timing
and process necessary to complete the negotiation of the transaction.
On July 18, 2000, Messrs. Levy and Zuidam spoke over the telephone about the
progress of the negotiations. The parties also discussed the principal terms
of the merger agreement, including valuation ranges, but no agreements were
reached.
On July 26, 2000, Mr. Levy from Catalytica and Mr. Zuidam from DSM met with
Robert Ingram, Chief Executive Officer of GlaxoWellcome, Inc. in London,
England. Messrs. Levy and Zuidam informed Mr. Ingram of the nature of the
proposed transaction and discussed, in general terms, the possibility of
working together after the completion of an acquisition of Catalytica by DSM.
A joint meeting of the boards of directors of Catalytica and Catalytica
Pharmaceuticals was held at our Mountain View, California headquarters on July
27, 2000. The boards were informed by management of the status of negotiations
with DSM and the open issues that remained to be resolved between the parties
and our board was apprised by its legal counsel of its fiduciary duties with
respect to its review of the proposed transaction. In addition, Morgan
Stanley, one of our financial advisors, gave a presentation on the
transaction, based on materials previously provided to the boards, including a
preliminary analysis of the potential negotiation with DSM and a review of
recent transactions in the contract pharmaceutical manufacturing sector.
From July 29, 2000 through August 2, 2000, members of management of DSM and
Catalytica and their respective counsel met in the offices of Wilson Sonsini
Goodrich & Rosati in San Francisco, California to negotiate the remaining
terms of the merger agreement. During this period, the remaining terms of the
voting agreement were also negotiated.
A joint meeting of the boards of directors of Catalytica and Catalytica
Pharmaceuticals was held via telephonic conference call at 7:00 am, Pacific
Time on Tuesday, August 2, 2000, to review the terms of the proposed
transaction. At the meeting, the boards were informed by management of the
status of negotiations with DSM and the open issues that remained to be
resolved between the parties. The boards also received presentations from
management regarding the transaction and its effects on us, our stockholders,
our employees and the communities and customers we serve, the advice of legal
counsel regarding the structure of the transaction and the Catalytica board's
fiduciary duties, and the analysis of the transaction, assuming the prior
completion of the spin-off, from a financial point of view from our financial
advisors.
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At approximately 1:00 pm, Pacific Time on Tuesday, August 2, 2000, a meeting
of our board of directors was held by telephonic conference call to review the
final terms of the proposed transaction. The board received the oral opinion,
subsequently confirmed in writing, of Morgan Stanley & Co. Incorporated, one
of our financial advisors, that, as of that date and on the basis of and
subject to the matters reviewed with the Catalytica board, the aggregate
consideration was fair from a financial point of view to our stockholders. In
addition, the board received the oral opinion of Credit Suisse First Boston
Corporation, our other financial advisor, which was subsequently confirmed in
writing, that, as of that date and on the basis of the assumptions set forth
in the opinion and subject to the matters reviewed with the Catalytica board
(as described in more detail below in "The Merger--Opinion of Credit Suisse
First Boston Corporation"), the aggregate consideration to be received by the
holders of common stock pursuant to the merger (assuming prior consummation of
the spin-off) was fair to the holders of common stock, other than Morgan
Stanley affiliated entities, from a financial point of view. The Credit Suisse
First Boston opinion did not address any other aspects of the merger or any
related transactions, including the spin-off of CESI. The Catalytica board,
with the benefit of these presentations and advice, having deliberated
regarding the terms of the proposed transaction, determined that the merger
agreement and the merger are advisable and are fair to and in the best
interest of us and our stockholders and approved the merger agreement, the
merger and the transactions contemplated thereby, including the spin-off.
The parties executed the merger agreement shortly after 1:30 pm, Pacific
Time on August 2, 2000. Shortly thereafter, Catalytica issued a press release
announcing the signing of the agreement.
Prior to the open of trading on the Amsterdam Exchange on the following
morning, DSM issued a press release announcing the signing of the agreement.
Purpose of the Merger; Certain Effects of the Merger
The principal purpose of the merger is to bring value to our stockholders by
selling the company for cash immediately following the spin-off of our
combustion systems business to our stockholders. The merger and spin-off are
intended to enable stockholders of Catalytica to recognize the full value of
our pharmaceuticals and energy systems businesses. The merger will be
accomplished by a merger of Synotex Acquisition Corp., a corporation formed by
Synotex, with and into Catalytica, with Catalytica as the surviving
corporation, immediately following the distribution to our stockholders of all
shares of CESI stock owned by us. In the merger, all of the shares of
Catalytica common stock held by our stockholders, other than dissenting
stockholders who perfect their appraisal rights, will be converted into the
right to receive the cash merger consideration, which will determined
according to the formula described under "The Merger Agreement--The Merger."
The merger will terminate all equity interests in Catalytica held by
stockholders and Synotex will be the sole beneficiary of any earnings and
growth of Catalytica following the merger. Our common stock is currently
registered under the Securities Exchange Act of 1934 and is traded on the
Nasdaq Stock Market under the symbol "CTAL." Upon the completion of the
merger, our common stock will be delisted from the Nasdaq Stock Market and
registration of our common stock under the Exchange Act will be terminated.
Recommendation of the Board of Directors; Reasons for the Merger
Recommendation of the Board of Directors
On August 2, 2000, our board determined that the terms of the merger
agreement and the merger are advisable and are fair to and in the best
interests of us and our stockholders and approved the merger agreement and the
merger. Accordingly, our board unanimously recommends that our stockholders
vote "FOR" the approval and adoption of the merger agreement.
Reasons for the Merger
In determining to approve and recommend the merger agreement and the merger,
and in reaching its determination that the merger agreement and the merger are
advisable and are fair to and in the best interests of
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us and our stockholders, the board consulted with our executive officers and
our financial and legal advisors, and considered, among others, the following
factors:
. historical information concerning our pharmaceuticals and combustion
businesses, their respective financial performances and conditions,
operations, technologies, managements and competitive positions;
. the financial condition, results of operations, businesses and prospects
of our pharmaceuticals and combustion businesses, before and after
giving effect to the merger and the spin-off;
. current financial market conditions and historical market prices,
volatility and trading information with respect to our common stock;
. the consideration to be received by our stockholders in the merger and
the value that may be expected to accrue to our stockholders in
connection with the spin-off;
. the belief that the terms of the merger agreement, including the
parties' representations, warranties and covenants, the conditions to
their respective obligations, and the other terms described under "The
Merger Agreement" beginning on page 39, are reasonable;
. our prospects as an independent company, with and without the spin-off;
. detailed financial analysis presented by our financial advisors to the
board;
. the Morgan Stanley opinion that the aggregate consideration to be
received by our stockholders in the merger, assuming the completion of
the spin-off, is fair from a financial point of view;
. the Credit Suisse First Boston opinion that the aggregate consideration
to be received by the holders of common stock pursuant to the merger
(assuming the prior completion of the spin-off) was fair to the holders
of common stock, from a financial point of view, except that Credit
Suisse First Boston did not opine as to the fairness of the aggregate
consideration with respect to Morgan Stanley affiliated entities;
. the impact of the merger on our customers and employees;
. the support for the transactions expressed by our principal stockholder
and its affiliates and by two of our directors as evidenced by the
voting agreement;
. the terms of the voting agreement and of the merger agreement relating
to other potential bids, including the ability of Catalytica to
terminate the merger agreement, which would have the effect of
terminating the voting agreement, and to pay a termination fee believed
to be reasonable under the circumstances, in order for us to accept a
superior proposal;
. the guarantee by DSM of all of the obligations of Synotex and Synotex
Acquisition Corporation;
. the status and impending expiration of some of our key pharmaceuticals
supply contracts, including the uncertainty over our ability to
negotiate extensions of the contracts or otherwise to replace the
business assured under those contracts;
. the reaction of strategic partners with whom we had conversations
concerning the transaction; and
. the interests of our directors and executive officers that are different
from, or in addition to, the interests of our stockholders generally as
described under "Interests of Certain Persons in the Merger" on page 32.
The above discussion concerning the information and factors considered by
the board includes many of the factors considered by the board in making its
determination. In view of the variety of factors considered in connection with
its evaluation of the merger agreement and the proposed merger, the board did
not quantify or otherwise attempt to assign relative weights to the specific
factors it considered in reaching its determination. In addition, individual
members of the board may have given different weight to different factors.
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Opinion of Morgan Stanley & Co. Incorporated
Pursuant to an oral agreement on June 19, 2000, subsequently confirmed in
writing in an engagement letter agreement dated August 1, 2000, Morgan Stanley
& Co. Incorporated was engaged to provide financial advisory services and a
financial fairness opinion in connection with the merger. Morgan Stanley was
selected by the Catalytica board of directors to act as Catalytica's financial
advisor based on Morgan Stanley's qualifications, expertise, reputation and
its knowledge of the business and affairs of Catalytica. At the meeting of the
board of directors of Catalytica on August 2, 2000, Morgan Stanley rendered
its oral opinion, subsequently confirmed in writing, that as of August 2,
2000, and based upon and subject to the various considerations set forth in
the opinion, the merger consideration to be received by the holders of shares
of the common stock of Catalytica in the aggregate pursuant to the merger
agreement is fair from a financial point of view to such holders.
The full text of the written opinion of Morgan Stanley dated August 2, 2000,
which sets forth, among other things, assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by
Morgan Stanley in rendering its opinion, is attached as Appendix D to this
proxy statement. Catalytica stockholders are urged to, and should, read the
opinion carefully and in its entirety. Morgan Stanley's opinion is directed to
the Catalytica board of directors and addresses only the fairness of the
merger consideration to be received by the holders of shares of the common
stock of Catalytica in the aggregate pursuant to the merger agreement as of
the date of the opinion, and does not address any other aspect of the merger
and does not constitute a recommendation to any holder of Catalytica common
stock as to how to vote at the Catalytica special meeting. The Morgan Stanley
opinion does not address the fairness of the consideration paid in the form of
a distribution of capital stock of CESI. The summary of the opinion of Morgan
Stanley set forth in this proxy statement is qualified in its entirety by
reference to the full text of such opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
. discussed the rationale for the merger and the distribution of the
capital stock of CESI, including information regarding their anticipated
costs,
. reviewed certain publicly available financial statements and other
information of Catalytica;
. reviewed certain internal financial statements and other financial and
operating data concerning Catalytica (after giving effect to the spin-
off) prepared by the management of Catalytica;
. reviewed certain financial projections for Catalytica (after giving
effect to the spin-off) prepared by the management of Catalytica;
. discussed the past and current operations and financial condition and
the prospects of Catalytica (after giving effect to the spin-off) with
senior executives of Catalytica;
. reviewed the reported prices and trading activity for Catalytica's
publicly traded common stock;
. compared the financial performance of Catalytica (after giving effect to
the spin-off) with that of certain other comparable publicly-traded
companies and reviewed the prices and trading activity of the securities
of such comparable publicly-traded companies;
. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
. participated in discussions and negotiations among representatives of
Catalytica and DSM and their financial and legal advisors;
. reviewed the merger agreement and certain related documents; and
. considered such other factors and performed such other analyses, as
Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the
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financial projections, Morgan Stanley assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Catalytica (after giving
effect to the spin-off). In addition, Morgan Stanley assumed that the merger
and the distribution of the capital stock of CESI would be consummated in
accordance with the terms set forth in the merger agreement. Morgan Stanley
also assumed and relied upon without independent verification the assessment
by management of the Company of options proceeds, the anticipated costs
associated with the merger and the distribution of the capital stock of CESI
including, among other things, costs associated with the capitalization of and
tax liabilities associated with the distribution of CESI, and costs associated
with minority interests in Catalytica Pharmaceuticals Inc. and CESI.
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities or technology of Catalytica, nor was it furnished with
any such appraisals. Morgan Stanley's opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to it as of, August 2, 2000.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion letter dated August 2, 2000. These summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Peer Group Comparison. Using publicly available information, Morgan Stanley
compared selected historical and estimated stock price and financial ratios
for a group of selected publicly traded companies in the contract
pharmaceuticals industry considered by Morgan Stanley to be reasonably
comparable to Catalytica for the purposes of this analysis. The companies
comparable to Catalytica included:
Cambrex Corp.
Chirex Inc.
Lonza Group AG
Morgan Stanley calculated the price of each of the comparable companies'
common stock as a multiple of estimated calendar year 2001 earnings per share.
Morgan Stanley also calculated the aggregate value, defined as market
capitalization plus total debt less cash and cash equivalents, as a multiple
of estimated calendar year 2001 EBITDA, defined as earnings before interest,
taxes, depreciation and amortization. The results of this analysis were as
follows:
<TABLE>
<CAPTION>
Aggregate Value to Price to Estimated
Estimated Calendar Calendar Year 2001
Year 2001 EBITDA EPS
------------------ ------------------
<S> <C> <C>
Low.................................... 7.8x 17.6x
High................................... 9.1 25.7
</TABLE>
No company utilized in the peer group comparison analysis is identical to
Catalytica. In evaluating the peer groups, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of Catalytica, such as the impact of competition on the business
of Catalytica (after giving effect to the spin-off) or the industry generally,
industry growth and the absence of any adverse material change in the
financial condition and prospects of Catalytica (after giving effect to the
spin-off) or the industry or in the financial markets in general. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using peer group data.
Analysis of Selected Precedent Transactions. Using publicly available
information, Morgan Stanley reviewed nine transactions which involved
acquisitions of companies in the contract pharmaceuticals industry. These
transactions are:
. the acquisition of Chirex Inc. by Rhodia;
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. the acquisition of Dexter Corporation by Invitrogen Corporation;
. the acquisition of Mallinckrodt Inc. by Tyco International;
. the acquisition of BTP plc by Clariant Ltd.;
. the acquisition of Wyckoff, Inc. by Catalytica Inc.;
. the acquisition of BioWhittaker, Inc. by Cambrex Corp.;
. the acquisition of Glaxo Wellcome plc's cGMP pharmaceutical production
facility (Annan, Scotland) by Chirex;
. the acquisition of Akzo-Nobel N.V.'s cGMP pharmaceutical division by
Cambrex; and
. the acquisition of ChemDesign Corporation by Bayer AG.
For each of these transactions Morgan Stanley calculated the aggregate value
of the transaction as a multiple of the target's last twelve months' EBITDA.
Morgan Stanley noted that for two of the transactions, the acquisition of
Chirex by Rhodia and the acquisition of BTP plc by Clariant AG, the
performance of the target company was uncharacteristic during the last twelve
months preceding the announcement of the acquisition and, therefore, excluded
the multiples of aggregate value to last twelve months' EBITDA from the
results of the analysis. The results of this analysis were as follows:
<TABLE>
<CAPTION>
Aggregate Value to
Last Twelve
Months' EBITDA
------------------
<S> <C>
Low...................................................... 7.2x
Median................................................... 10.1
High..................................................... 12.9
</TABLE>
Morgan Stanley noted that the multiple of aggregate value to last twelve
months' EBITDA for Catalytica (after giving effect to the spin-off), based on
an aggregate merger consideration of $750 million plus assumed indebtedness is
approximately 11.3x.
No transaction utilized as a comparison in the precedent transactions
analysis is identical to the merger. In evaluating the transactions listed
above, Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Catalytica such as the
impact of competition on Catalytica (after giving effect to the spin-off) or
the industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of Catalytica (after
giving effect to the spin-off) or the industry or in the financial markets in
general. Mathematical analysis, such as determining the average or median, is
not in itself a meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis of the present aggregate value of Catalytica (after giving
effect to the spin-off) using projections provided to Morgan Stanley by the
management of Catalytica, with certain adjustments associated with the
acquisition of new business.
Nominal discount rates ranging from 10.5% to 11.5% were applied to
Catalytica's projected free cash flows (after giving effect to the spin-off)
for the years 2000 through 2008 and terminal value in 2008 based on a
perpetual growth rate for the free cash flow of Catalytica (after giving
effect to the spin-off) of 6.0%. Based on these assumptions, the stand-alone
present aggregate value of Catalytica (after giving effect to the spin-off)
ranged from $700 million to $880 million, depending on the discount rate
applied. Morgan Stanley noted that the aggregate merger consideration is
approximately $750 million plus approximately $50 million of assumed
indebtedness.
In connection with the review of the merger by the Catalytica board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The
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preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Morgan Stanley's view of the actual value of Catalytica (after giving
effect to the spin-off).
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Catalytica. Any
estimates contained in Morgan Stanley's analysis are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses
performed were prepared solely as part of Morgan Stanley's analysis of the
fairness of the consideration to be received by the holders of shares of the
common stock of Catalytica in the aggregate pursuant to the merger agreement
and were conducted in connection with the delivery of the Morgan Stanley
opinion to the board of directors of Catalytica. The analyses do not purport
to be appraisals or to reflect the prices at which Catalytica stock might
actually trade. The merger consideration pursuant to the merger agreement and
other terms of the merger agreement were determined through arm's-length
negotiations between Catalytica and DSM and were approved by the Catalytica
board of directors. Morgan Stanley provided advice to Catalytica during such
negotiations; however, Morgan Stanley did not recommend any specific
consideration to Catalytica or that any specific consideration constituted the
only appropriate consideration for the merger. In arriving at its opinion,
Morgan Stanley was not authorized to solicit the interest of any party with
respect to the acquisition of Catalytica or any of its assets. Morgan Stanley
did not negotiate with any party, other than DSM, which expressed interest to
us in the possible acquisition of Catalytica or certain of its constituent
businesses. In addition, as described above, Morgan Stanley's opinion and
presentation to the Catalytica board of directors was one of many factors
taken into consideration by Catalytica's board of directors in making its
decision to approve the merger. Consequently, the Morgan Stanley analyses as
described above should not be viewed as determinative of the opinion of the
Catalytica board of directors with respect to the value of Catalytica (after
giving effect to the spin-off) or of whether the Catalytica board of directors
would have been willing to agree to a different consideration.
The Catalytica board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or
short positions, trade or otherwise effect transactions, for its own account
or for the account of customers, in the equity or debt securities or senior
loans of Catalytica or DSM.
Specifically, an affiliate of Morgan Stanley, Morgan Stanley Capital
Partners III, L.P. and certain of its affiliates, own 19,614,598 shares of
Class A common stock, representing approximately 36.9% of the outstanding
voting stock of Catalytica, and 5,385,402 shares of non-voting Class B common
stock, which may be converted into Class A common stock to the extent that
Morgan Stanley Capital Partners' and its affiliates' ownership of voting stock
does not exceed 40% of the outstanding voting stock of Catalytica. Morgan
Stanley Capital Partners and its affiliates that own Catalytica common stock
presently have the right to nominate three members of Catalytica's board, but
have nominated only two members of Catalytica's board.
Pursuant to an engagement letter dated August 1, 2000, Morgan Stanley
provided financial advisory services and a financial fairness opinion in
connection with the merger, and Catalytica agreed to pay Morgan Stanley a
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$3 million fee in connection therewith in the event that the merger is
completed. Catalytica has also agreed to reimburse Morgan Stanley for its
expenses incurred in performing its services. In addition, Catalytica has
agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement and any related
transactions. In the past, Morgan Stanley has provided financial advisory and
financing services for DSM and has received fees for the rendering of these
services.
Opinion of Credit Suisse First Boston Corporation
On August 2, 2000, Credit Suisse First Boston Corporation rendered its oral
opinion, which it subsequently confirmed in writing as of August 2, 2000,
that, as of that date, based upon and subject to the various considerations
and assumptions set forth in the Credit Suisse First Boston opinion, the
aggregate consideration to be received by the holders of common stock pursuant
to the merger (assuming prior consummation of the spin-off) was fair to the
holders of common stock, other than Morgan Stanley affiliated entities, from a
financial point of view. The aggregate consideration to be received pursuant
to the merger was determined through negotiations between the managements of
Catalytica Inc. and DSM N.V. Credit Suisse First Boston Corporation did not
recommend that any specific aggregate consideration constituted the
appropriate consideration for the merger.
The full text of the Credit Suisse First Boston opinion sets forth, among
other things, assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken by Credit Suisse First
Boston Corporation in rendering its opinion. The full text of the opinion is
attached as Appendix E to this document and is incorporated by reference in
its entirety. Catalytica stockholders are urged to, and should, read the
Credit Suisse First Boston opinion carefully and in its entirety. The Credit
Suisse First Boston opinion addresses only the fairness of the aggregate
consideration to be received by the holders of common stock pursuant to the
merger (assuming prior consummation of the spin-off) from a financial point of
view as of the date of the Credit Suisse First Boston opinion, does not
address any other aspects of the proposed merger or any related transactions,
including the spin-off of Catalytica's energy businesses, and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote at the Calatytica special meeting. The summary of the Credit
Suisse First Boston opinion in this document is qualified in its entirety by
reference to the full text of the Credit Suisse First Boston opinion.
In arriving at its opinion, Credit Suisse First Boston Corporation reviewed
certain publicly available business and financial information relating to
Catalytica, as well as the merger agreement and certain related documents.
Credit Suisse First Boston Corporation also reviewed certain other historical
and forward-looking information relating to Catalytica that were prepared on a
pro forma basis after giving effect to the spin-off, which Catalytica provided
to or discussed with it as well as estimates of the adjustments to the
consideration prepared by Catalytica. Furthermore, Credit Suisse First Boston
Corporation spoke several times by telephone with the management of Catalytica
to discuss the business and prospects of Catalytica, after giving effect to
the spin-off. Credit Suisse First Boston Corporation also considered certain
financial and stock market data of Catalytica and compared those data with
similar data for other publicly held companies in businesses it considered
similar to Catalytica's principal business after giving effect to the spin-
off, and Credit Suisse First Boston Corporation considered the financial terms
of certain other business combination and other transactions which had
recently been effected. Credit Suisse First Boston Corporation also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which it deemed relevant.
In connection with its review, Credit Suisse First Boston Corporation did
not assume any responsibility for independent verification of any of the
foregoing information and relied on its being complete and accurate in all
material respects. With respect to financial forecasts and estimates of the
adjustments, Credit Suisse First Boston Corporation assumed that such
forecasts and estimates had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of Catalytica management as
to the future financial performance of Catalytica and the amounts of the
adjustments and that, in the case of the estimates of the adjustments, that
the
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actual amounts of such adjustments will not exceed such estimates by amounts
that would materially affect its analyses and that the adjustments fairly
represent amounts of transaction expenses, liabilities or obligations of
Catalytica except as would not materially affect its analyses. In addition,
Credit Suisse First Boston Corporation did not make an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of
Catalytica, nor was Credit Suisse First Boston Corporation furnished with any
such evaluations or appraisals. The Credit Suisse First Boston opinion is
necessarily based upon financial, economic, market and other conditions as
they existed and could be evaluated on the date of the Credit Suisse First
Boston opinion. Credit Suisse First Boston Corporation did not express any
opinion as to Catalytica's underlying business decision to effect the spin-off
and/or the merger, any aspect or implication of the spin-off or the allocation
or distribution of the aggregate consideration among Catalytica's
stockholders.
In preparing the Credit Suisse First Boston opinion, Credit Suisse First
Boston Corporation performed a variety of financial and comparative analyses.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Credit
Suisse First Boston Corporation believes that its analyses must be considered
as a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors, could create a
misleading view of the processes underlying the Credit Suisse First Boston
opinion. In addition, Credit Suisse First Boston Corporation may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
range of valuation resulting from any particular analysis described below
should not be taken to be Credit Suisse First Boston Corporation's view of the
actual value of Catalytica on a pro forma basis after giving effect to the
spin-off.
In performing its analyses, Credit Suisse First Boston Corporation made
numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the
control of Catalytica. No company, transaction or business used in Credit
Suisse First Boston Corporation's analyses as a comparison is identical to
Catalytica or the proposed merger, and an evaluation of the results of those
analyses is not entirely mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. The analyses performed by Credit Suisse First Boston
Corporation are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. In addition, analyses relating to the value of businesses or
assets do not purport to be appraisals or to necessarily reflect the prices at
which businesses or assets may actually be sold. Accordingly, Credit Suisse
First Boston Corporation's analyses and estimates are inherently subject to
substantial uncertainty. The analyses performed were prepared solely as part
of Credit Suisse First Boston Corporation's analysis of the fairness of the
aggregate consideration to be received by holders of common stock, other than
Morgan Stanley affiliated entities, from a financial point of view and were
provided to the Catalytica board of directors in connection with the delivery
of the Credit Suisse First Boston opinion.
Credit Suisse First Boston Corporation's opinion and financial analyses were
only one of many factors considered by the Catalytica board of directors in
its evaluation of the proposed merger and should not be viewed as
determinative of the views of the Catalytica board of directors or management
with respect to the merger or the aggregate consideration to be received in
the merger.
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston Corporation in connection with the preparation of
its opinion, and reviewed with Catalytica's board of directors at meetings of
the Catalytica board of directors culminating in a meeting held on August 2,
2000. CERTAIN OF THE SUMMARIES OF THOSE FINANCIAL ANALYSES INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO UNDERSTAND FULLY THE MATERIAL
FINANCIAL ANALYSES USED BY CREDIT SUISSE FIRST BOSTON CORPORATION, THE TABLES
SHOULD BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT
CONSTITUTE A COMPLETE DESCRIPTION OF THE MATERIAL FINANCIAL ANALYSES AND COULD
CREATE A MISLEADING OR INCOMPLETE VIEW OF CREDIT SUISSE FIRST BOSTON
CORPORATION'S FINANCIAL ANALYSIS.
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Financial Projections
Credit Suisse First Boston Corporation discussed three sets of projections
for Catalytica after giving effect to the spin-off which were analyzed based
upon projections provided to Credit Suisse First Boston Corporation by
Catalytica's management. Credit Suisse First Boston Corporation presented
graphical descriptions of
historical and projected revenues, earnings before interest, taxes,
depreciation and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT") under each of the three scenarios.
Upside Case: Extrapolation case based on historical revenues and
margins that provides for a linear increase following
2003.
Base Case: Based on management projections that included
contemplated loss of a portion of contract revenue in
2004 and 2009 and downward adjustments to the sales
and margins of certain business operations.
Downside Case: Modified version of the Base Case that included
contemplated adjustments reflecting a general slowing
in chemical and pharmaceutical production.
Each case described is only a portion of the overall analysis performed by
Credit Suisse First Boston Corporation, and Credit Suisse First Boston
Corporation expressed no judgment on the appropriateness or accuracy of the
assumptions underlying each case.
Methodologies Employed in Analysis
In valuing Catalytica, Credit Suisse First Boston Corporation utilized a
number of methodologies: a discounted cash flow analysis, a comparable
companies analysis and a comparable acquisition analysis. In performing the
discounted cash flow analysis, which produces an intrinsic, long-term
theoretical value based upon projected cash flows, Credit Suisse First Boston
Corporation discounted ten years of cash flows developed from forecasts
provided by the management of Catalytica and added an amount based on
multiples of year-ten EBITDA on a present value basis to recognize the value
of the projected cash flows beyond year ten. In performing its comparable
companies analysis, Credit Suisse First Boston Corporation applied trading
multiples of businesses reasonably similar to Catalytica to the latest 12
months, 2000 and 2001 operating estimates provided to Credit Suisse First
Boston Corporation by Catalytica's management. Credit Suisse First Boston
Corporation's comparable acquisition analysis required application of
multiples paid by acquirors for businesses reasonably similar to Catalytica to
the latest 12 months revenues, EBITDA and EBIT provided to Credit Suisse First
Boston Corporation by Catalytica's management.
For purposes of its analysis, Credit Suisse First Boston Corporation
calculated an estimate of the net enterprise consideration to be received in
the merger by the holders of Catalytica common stock with respect to
Catalytica after giving effect to the spin-off by (A) adding (1) the total
cash consideration to be received pursuant to the merger agreement of $750
million and (2) the amount of debt for borrowed money minus cash (estimated by
Catalytica's management for purposes of Credit Suisse First Boston
Corporation's analysis at $54 million) and (B) subtracting the tax liability
incurred in connection with the spin-off (estimated by Catalytica's management
for purposes of Credit Suisse First Boston Corporation's analysis at $92
million). This calculation resulted in an estimate of the net enterprise
consideration to be received in the merger by the holders of Catalytica common
stock of $712 million.
Discounted Cash Flow Analysis
Credit Suisse First Boston Corporation presented the results of discounted
cash flow analyses for Catalytica using a range of terminal multiples and
discount rate ranges that it deemed appropriate. Credit Suisse First Boston
Corporation estimated the present value of the unlevered, after-tax free cash
flows that Catalytica could produce over fiscal years from 2001 to 2010 based
upon the financial projections discussed above. The terminal value was based
on an EBITDA multiple range of 7x to 9x trailing (year 10) EBITDA. Terminal
value multiples
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<PAGE>
were chosen based on comparable companies and comparable acquisition analyses
as well as Catalytica's historical and projected performance. The discount
rate range of 10% to 12% was based on a weighted average cost of capital
analysis. Credit Suisse First Boston Corporation performed its discounted cash
flow analyses for each of the three cases discussed above. The enterprise
value implied by these analyses were as follows:
<TABLE>
<CAPTION>
Implied
Case Enterprise Value
---- ---------------------
(Dollars in millions)
<S> <C>
Base Case.............................................. $670-$780
Upside Case............................................ 840- 970
Downside Case.......................................... 640- 750
---------
Enterprise Value Reference Range....................... $675-$775
</TABLE>
Comparable Companies Analysis
Credit Suisse First Boston Corporation presented the results of a comparable
companies analysis in which it compared financial information of the following
selected companies in the industry that were considered by Credit Suisse First
Boston Corporation to be reasonably comparable to Catalytica (after giving
effect to the spin-off):
COMPARABLE COMPANIES
. Cambrex Corp.
. ChiRex (pre-Rhodia merger announcement)
. Laporte
. Mallinckrodt (pre-Tyco merger announcement)
. Sigma Aldrich
In performing its comparable companies analysis, Credit Suisse First Boston
Corporation examined the valuation multiples of the comparable companies to
establish a range of 2000 and 2001 estimated EBITDA and EBIT trading multiples
and revenue multiples that it deemed appropriate. Credit Suisse First Boston
applied these ranges to the operating estimates provided to it by Catalytica's
management for each of the three cases discussed above. The enterprise value
implied by these analyses were as follows:
<TABLE>
<CAPTION>
Implied
Case Enterprise Value
---- ---------------------
(Dollars in millions)
<S> <C>
Base Case.............................................. $530-$650
Upside Case............................................ 550- 675
Downside Case.......................................... 510- 630
---------
Enterprise Value Reference Range....................... $530-$650
</TABLE>
Comparable Acquisition Analysis
Credit Suisse First Boston Corporation reviewed and compared selected
precedent transactions in the business segments in which Catalytica operates
(after giving effect to the spin-off) that it deemed relevant to its analysis
in order to compare the publicly available financial terms of those
transactions with the terms provided for in the merger agreement.
Credit Suisse First Boston Corporation reviewed the following announced
transactions:
. Rhodia/ChiRex
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. Tyco/Mallinckrodt
. Clariant/BTP plc
. Catalytica/Wyckoff
. Seprichem (Sepracor Inc.)/Sterling Organics
. Cambrex Corp./Pharma Chemistry Div. (Akzo Nobel)
. Miles Inc./ChemDesign Corp.
In performing its comparable acquisitions analysis, Credit Suisse First
Boston Corporation examined the valuation multiples to establish a range of
the latest 12 months' revenue, EBITDA and EBIT trading multiples that it
deemed appropriate. Credit Suisse First Boston applied these ranges to the
latest 12 months' revenues, EBITDA and EBIT provided to it by Catalytica's
management. The enterprise values implied by these comparisons were as
follows:
<TABLE>
<CAPTION>
Implied
Valuation Parameter Enterprise Value
------------------- --------------------
(Dollars in millions)
<S> <C>
LTM Revenue............................................ $560-$800
LTM EBITDA............................................. 650- 790
LTM EBIT............................................... 640- 860
---------
Enterprise Value Reference Range....................... $650-$800
</TABLE>
Summary Valuation Analysis
Utilizing the methodologies described above, Credit Suisse First Boston
Corporation derived a reference range of value for Catalytica as an enterprise
(assuming prior consummation of the spin-off) equal to $650-$750 and compared
it to the estimated net enterprise consideration of $712 million and the
estimated aggregate consideration of $666 million. Based upon Credit Suisse
First Boston Corporation's assessment of the valuation ranges indicated by its
various valuation methodologies (as described above), Credit Suisse First
Boston Corporation concluded that, as of August 2, 2000, the aggregate
consideration to be received by holders of Catalytica common stock, other than
Morgan Stanley affiliated entities, was fair to such holders from a financial
point of view.
Miscellaneous
Catalytica retained Credit Suisse First Boston Corporation to provide the
Catalytica board of directors with an opinion as to the fairness to the
holders of the common stock of Catalytica, other than Morgan Stanley
affiliated entities, of the aggregate consideration to be received by such
holders pursuant to the merger from a financial point of view. Credit Suisse
First Boston Corporation was selected by Catalytica based on Credit Suisse
First Boston Corporation's qualifications, expertise and reputation, as well
as its familiarity with Catalytica. Credit Suisse First Boston Corporation is
an internationally recognized investment banking and advisory firm. Credit
Suisse First Boston Corporation, as part of its investment banking business,
is continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. In the past Credit Suisse First Boston Corporation has provided and
it is currently providing certain investment banking services for Catalytica
and DSM and has received and expects to receive customary fees for such
services. In the ordinary course of its business, Credit Suisse First Boston
Corporation and its affiliates may actively trade the debt and equity
securities of Catalytica and DSM for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position
in such securities.
Pursuant to an engagement letter dated July 27, 2000, Catalytica engaged
Credit Suisse First Boston Corporation to undertake an analysis to enable
Credit Suisse First Boston Corporation to render its opinion and
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<PAGE>
make the presentation referred to above. Pursuant to the terms of the
engagement letter, Catalytica has agreed to pay Credit Suisse First Boston
Corporation a fee of $750,000 upon the rendering of the Credit Suisse First
Boston opinion to Catalytica's board of directors. In addition, Catalytica has
agreed to reimburse Credit Suisse First Boston Corporation for its out-of-
pocket expenses, including attorneys' fees, incurred in connection with its
engagement and to indemnify Credit Suisse First Boston Corporation and certain
related persons against certain liabilities and expenses arising out of or in
conjunction with its rendering of services under its engagement, including
liabilities arising under the federal securities laws.
Interests of Certain Persons in the Merger
In considering the recommendation of our board with respect to the merger,
stockholders should be aware that the executive officers and directors have
some interests in the merger that may be different from, or in addition to,
the interests of stockholders generally. The board was aware of these
interests and considered them, among other matters, in making its
recommendation.
Change of Control Agreements
Certain of our officers are parties to change of control agreements with us
which provide for specified benefits upon an "involuntary termination" other
than for "cause" (each as defined in the executive officer's change of control
agreement) during the period beginning on the date the merger was announced
and ending on the second anniversary of the date of completion of the merger.
Each agreement provides for
. a severance payment equal to two times the greater of: (A) the executive
officer's salary for the 12 months prior to the change of control plus
the executive officer's target bonus for the same period or (B) the
executive officer's salary on an annualized basis and target bonus as of
the date of termination;
. a pro rata payment of the current year bonus award based on the target
bonus for the executive officer;
. continued health, dental and life insurance coverage for the executive
officer and such executive officer's dependents at the same level of
coverage as was provided immediately prior to the termination until the
earlier of two years from the date of the termination or the date that
the executive officer and his/her dependents become covered under
comparable plans of another employer; and
. one hundred percent accelerated vesting for any options or restricted
stock held by the executive officer.
Assuming current salary and bonus information remain in effect, if:
. the merger with Synotex is completed, and
. the employment of any of the officers is terminated without cause or is
constructively terminated,
the approximate value of the severance payments due under the employment and
severance agreements to Ricardo B. Levy (President and Chief Executive
Officer), Michael Thomas (President and Chief Executive Officer of Catalytica
Pharmaceuticals), Lawrence W. Briscoe (Vice President, Finance and
Administration, and Chief Financial Officer), Ralph A. Dalla Betta (Vice
President and Chief Scientist), John M. Hart (Vice President, Human
Resources), Jacqueline Cossmon (Vice President, Investor Relations) and Norman
Smith (President and Chief Executive Officer of Catalytica Advanced
Technologies), would be approximately $1,565,000; $1,211,000; $1,058,000;
$564,000; $564,000; $458,000 and $400,000, respectively.
Director and Officer Indemnification
Some of the directors and executive officers of Catalytica participate in
arrangements and have continuing indemnification against liabilities that
provide them with interests in the merger that are different from, or are in
addition to, your interests.
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Under the merger agreement, Synotex has agreed to honor all rights to
indemnification and all limitations on liability in favor of any of our
directors, officers, employees or agents existing prior to the completion of
the merger under our certificate of incorporation and bylaws and any agreement
between us and those individually. Synotex has also agreed for six years after
the completion of the merger to provide officers' and directors' liability
insurance in respect of acts or omissions of each person covered by our
current policy occurring prior to the completion of the merger on terms with
respect to coverage and amount no less favorable than under our existing
insurance policy. Synotex will not, however, be required to pay more than 150%
of the current premiums to maintain this insurance.
Officer and Director Options to Purchase Shares of Catalytica Common Stock
Under the merger agreement, all options to purchase shares of Catalytica
common stock granted to our employees, including officers and directors, will
become vested and exercisable immediately prior to the completion of the
merger.
Officers of CESI
Ricardo B. Levy, our President and Chief Executive Officer, will remain the
Chairman of the Board of CESI.
Interests of Morgan Stanley
As discussed elsewhere in this document, as of July 31, 2000, Morgan Stanley
Capital Partners and its affiliates owned 13,270,000 shares of Class A common
stock, which represented approximately 28.6% of the voting stock of
Catalytica, and 11,730,000 non-voting shares of Class B common stock. Prior to
the record date, Morgan Stanley affiliated entities converted 6,344,598 shares
of non-voting Class B common stock into voting Class A common stock. As a
result the shares subject to the voting agreement as of the record date was
20,993,287 shares of Catalytica voting stock, representing approximately 39.5%
of the combined voting power of Catalytica voting stock as of the record date.
Morgan Stanley & Co. Incorporated, an affiliate of Morgan Stanley Capital
Partners, served as a financial advisor to Catalytica in connection with the
merger. Pursuant to an engagement letter dated August 1, 2000, Catalytica
agreed to pay Morgan Stanley & Co. Incorporated a $3 million fee in the event
that the merger is completed.
Howard Hoffen and Alan Goldberg, are the two directors nominated by Morgan
Stanley Capital Partners, pursuant to the terms of an investment agreement,
dated June 25, 1997, by and among Morgan Stanley Capital Partners III, L.P. ,
Morgan Stanley Capital Investors, L.P., MSCP III 892 Investors, L.P. and
Catalytica. Messrs. Hoffen and Goldberg are both managing directors of Morgan
Stanley Dean Witter & Co. Inc. Messrs. Hoffen and Goldberg both voted in favor
of the merger and the merger agreement in the Catalytica board meeting on
August 2, 2000. Messrs. Hoffen and Goldberg did not participate or consult
with representatives of Morgan Stanley & Co. Incorporated in connection with
their provision of the financial advisory services or the financial fairness
opinion to Catalytica.
CESI has agreed to grant Morgan Stanley Capital Partners and certain of its
affiliates contractual rights substantially similar to the rights they held
with respect to Catalytica, including registration rights and the right to
nominate a member of CESI's board of directors, so long as Morgan Stanley
Capital Partners and its affiliates continue to hold more than 5% of the
outstanding stock of CESI.
As a result of these interests, these directors, officers and other persons
might be more likely to vote to approve the merger agreement than if they did
not hold these interests. Our stockholders should consider whether these
interests may have influenced these parties to support or recommend the
merger.
Merger Financing; Source of Funds
Synotex has informed us that the aggregate merger consideration of
approximately $750 million, together with adjustments, to be paid to our
stockholders will be financed through existing and new debt facilities and
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<PAGE>
cash on hand. DSM has irrevocably and unconditionally guaranteed all of the
obligations of Synotex and Synotex Acquisition Corporation under the merger
agreement.
Material United States Federal Income Tax Consequences
The following discussion summarizes the material United States federal
income tax consequences of the distribution to Catalytica stockholders of CESI
common stock in the spin-off concurrent with the exchange of shares of
Catalytica common stock for cash in the merger. We will refer to the spin-off
and merger, collectively, as the "transaction." This discussion is based on
currently operative provisions of the Internal Revenue Code of 1986 (the
"Code"), Treasury regulations under the Code and administrative rulings and
court decisions, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to Catalytica,
CESI or the Catalytica stockholders as described herein.
Catalytica stockholders should be aware that this discussion does not
address all federal income tax considerations that may be relevant to
particular stockholders of Catalytica in light of their particular
circumstances, such as stockholders who are banks, insurance companies, tax-
exempt organizations, dealers in securities, or foreign persons, stockholders
who acquired their shares in connection with stock option or stock purchase
plans or in other compensatory transactions, stockholders who hold Catalytica
common stock as part of an integrated investment (including a "straddle")
comprising shares of Catalytica common stock and one or more other positions,
or stockholders who have previously entered into a constructive sale of
Catalytica common stock. In addition, the following discussion does not
address the tax consequences of the transaction under foreign, state or local
tax laws or the tax consequences of transactions effectuated prior or
subsequent to or concurrently with the transaction (whether or not such
transactions are in connection with the transaction), including, without
limitation, transactions in which Catalytica common stock is acquired or CESI
common stock is disposed of.
ACCORDINGLY, CATALYTICA STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE TRANSACTIONS,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE TRANSACTIONS IN THEIR PARTICULAR CIRCUMSTANCES.
A distribution by a corporation to its stockholders may be taxed in either
of two different ways, as a dividend or as a payment in exchange for stock. A
dividend generally produces ordinary income, and an exchange generally
produces capital gains. A distribution will be taxable to a stockholder as an
"exchange" only if the distribution is treated as a redemption that meets one
of the alternative tests set forth in Section 302(b) of the Code. For example,
a redemption will be taxable as an exchange if the redemption terminates the
stockholder's interest in the distributing corporation, or if the redemption
"is not essentially equivalent to a dividend".
The parties to the merger agreement intend that for United States federal
income tax purposes the transaction will constitute a single integrated
transaction with respect to Catalytica and its stockholders in which the spin-
off will be treated as a redemption of outstanding common stock of Catalytica
in connection with the complete termination of the Catalytica stockholders'
interest in Catalytica. Catalytica believes that the foregoing description
correctly characterizes the transaction for United States federal income tax
purposes and, therefore, that the transaction should qualify under Section
302(b) of the Code, either because the integrated combination of the spin-off
and the merger results in a complete termination of the Catalytica
stockholders' interests in Catalytica or because the spin-off, in conjunction
with the merger, is not essentially equivalent to a dividend.
Assuming the transaction qualifies as an exchange within the meaning of
section 302(b) of the Code and that the shares of Catalytica common stock
surrendered in the transaction were held as capital assets, then, subject to
the assumptions, limitations and qualifications referred to in this document,
the transaction would result in the following federal income tax consequences:
. Except as described below, generally, each holder of Catalytica common
stock will recognize gain, if any, only to the extent of the excess of
the sum of the amount of cash received in the merger plus the
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fair market value of the CESI common stock received by such holder at
the time of the spin-off, over the holder's adjusted basis in the
Catalytica common stock immediately prior to the transaction. Such gain
generally should be capital gain, and generally should be long-term
capital gain if the Catalytica common stock exchanged in the
transactions has been held for more than one year. In the event that a
holder's adjusted basis in the Catalytica common stock exceeds the sum
of the amount of cash and the fair market of the CESI stock received by
the holder in the transactions, the holder will recognize a loss. Such
loss generally should be capital loss, and generally should be long term
capital loss if the Catalytica common stock exchanged in the
transactions has been held for more than one year.
. The tax basis of the CESI common stock received by Catalytica
stockholders in the transactions will be equal to the fair market value
of such stock at the time of the spin-off. One reasonable method of
determining this is by using the weighted average trading price of CESI
common stock on the first full day of trading; however you are urged to
consult with your own tax advisor for your particular circumstances.
. The holding period of the CESI common stock received in the spin-off
will commence on the day after the spin-off.
. Each individual who acquired shares of Catalytica common stock through
the exercise of incentive stock options will incur a disqualifying
disposition of those shares upon receipt of the cash in the merger and
the CESI common stock at the time of the spin-off if the shares have not
been held for more than two years from the grant date of the incentive
stock option and more than one year after the exercise date of the
incentive stock option for those shares. Upon the disqualifying
disposition, each individual will recognize ordinary income equal to the
excess, if any, of the fair market value of the shares of Catalytica
common stock at the time the incentive stock option was exercised over
the aggregate exercise price paid for those shares. Any additional gain
or any loss recognized upon the exchange of Catalytica common stock for
the cash in the merger and the CESI common stock at the time of the
spin-off will be capital gain or loss, which will be long term if the
shares of Catalytica common stock were held more than one year from the
date of exercise. However, if the aggregate value of the cash and the
CESI common stock received per share of Catalytica common stock is less
than the exercise price paid per share of Catalytica common stock upon
the exercise of the incentive stock option, then the individual will not
recognize any ordinary income upon the disqualifying disposition of
those shares and will recognize a capital loss per share equal to the
excess of such exercise price per share over the cash and CESI common
stock paid per share of Catalytica common stock. The capital loss will
be short term unless the shares of Catalytica common stock involved in
the disqualifying disposition have been held for more than one year.
. Each individual who holds an option to purchase Catalytica common stock
and does not exercise such option prior to the merger will recognize
ordinary income in the amount of the cash consideration received, if
any, upon the automatic cash-out of such option. Such income will
constitute wages subject to applicable federal and state income and
employment withholding taxes.
. Each individual who acquired shares of Catalytica common stock through
the purchase of shares under the Catalytica 1992 ESPP will incur a
disqualifying disposition of those shares upon receipt of the cash in
the merger and the CESI common stock at the time of the spin-off if the
shares have not been held for more than two years from the beginning of
the applicable offering period, and more than one year after purchase of
those shares under the ESPP. Upon the disqualifying disposition, each
individual will recognize ordinary income equal to the excess, if any,
of the fair market value of the shares of Catalytica common stock at the
time of the purchase over the aggregate price paid for those shares. Any
additional gain or any loss recognized upon the exchange of Catalytica
common stock for cash in the merger and CESI common stock at the time of
the spin-off will be capital gain or loss, which will be long term if
the shares of Catalytica common stock were held more than one year from
the date of purchase. However, if the aggregate value of the cash and
the CESI common stock received per share of Catalytica common stock is
less than the purchase price paid per share of Catalytica common stock
upon
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<PAGE>
the purchase under the employee stock purchase plan, then the individual
will not recognize any ordinary income upon the disqualifying
disposition of those shares and will recognize a capital loss per share
equal to the excess of such purchase price per share over the cash and
CESI common stock paid per share of Catalytica common stock. The capital
loss will be short term unless the shares of Catalytica common stock
involved in the disqualifying disposition have been held for more than
one year.
No ruling has been or will be sought from the Internal Revenue Service in
connection with the transaction, and the Internal Revenue Service could
challenge the status of the transaction as a single integrated transaction for
United States federal income tax purposes. Such a challenge, if successful,
would result in Catalytica stockholders being treated as receiving a
"dividend" distribution of CESI common stock in respect of their Catalytica
common stock in the spin-off and as selling, in a separate transaction, their
Catalytica common stock to Synotex immediately after the spin-off. The amount
treated as distributed in the spin-off would be equal to the fair market value
of the CESI common stock on the date of the spin-off and generally would be
(1) treated as a dividend taxable as ordinary income to the Catalytica
stockholders to the extent of Catalytica's earnings and profits on the date of
the spin-off, (2) to the extent such amount exceeded Catalytica's earnings and
profits, applied to reduce, but not below zero, each Catalytica stockholder's
adjusted basis in such stockholder's Catalytica stock, and (3) taxable as
capital gain to each Catalytica stockholder to the extent the amount treated
as received by such stockholder in the spin-off exceeded the amount described
in clause (2). Catalytica stockholders would have a basis in the CESI common
stock equal to its fair market value on the date of the spin-off, and the
holding period of such stock would commence on the day after the spin-off.
Catalytica stockholders generally would recognize gain on the sale of their
Catalytica common stock to Synotex in the merger in an amount equal to the
excess, if any, of the amount of cash received from Synotex in the merger over
their adjusted basis in the Catalytica common stock immediately prior to the
merger, taking into account the effect of the spin-off of CESI common stock on
such adjusted basis as described above. Such gain generally would be capital
gain and generally would be long term capital gain if the Catalytica common
stock exchanged in the merger had been held for more than one year. In the
event that a holder's adjusted basis in the Catalytica common stock, taking
into account the effect of the spin-off of CESI common stock on such adjusted
basis as described above, exceeded the amount of cash received from Synotex in
the merger, the holder would recognize a loss. Such loss generally would be a
capital loss and generally would be long term capital loss if the Catalytica
common stock exchanged in the merger had been held for more than one year.
You may be subject to "backup withholding" at a rate of 31% on payments
(including the distribution of CESI common stock) received in connection with
the transaction unless you (1) provide a correct taxpayer identification
number (which, if you are an individual, is your social security number) and
any other required information to the paying agent, or (2) are a corporation
or come within certain exempt categories and, when required, demonstrate this
fact, all in accordance with the requirements of the backup withholding rules.
If you do not provide a correct taxpayer identification number, you may be
subject to penalties imposed by the Internal Revenue Service. Any amount paid
as backup withholding does not constitute an additional tax and will be
creditable against your United States federal income tax liability. You should
consult with your own tax advisor as to your qualification for exemption from
backup withholding and the procedure for obtaining such exemption. You may
prevent backup withholding by completing a W-9 or substitute W-9 and
submitting it to the paying agent for the merger when you submit your stock
certificate(s) following the effective time of the merger.
In addition, for U.S. federal income tax purposes, the spin-off will be
treated as a taxable sale by Catalytica of the shares of CESI, regardless of
whether the spin-off is taxable as a capital gain or as a dividend to the
stockholders of Catalytica. As noted above, an estimate of the tax liability
to Catalytica on the spin-off will be taken into account as a reduction to the
cash merger consideration to be paid to stockholders.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES INCOME TAX CONSEQUENCES OF THE TRANSACTION AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO.
THUS, CATALYTICA STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
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TRANSACTION, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY
AND EFFECT OF FOREIGN, FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS,
AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
Accounting Treatment
The merger will be accounted for using the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the
fair value of the net assets acquired. The excess purchase price over the fair
value of the assets acquired will be allocated to goodwill.
Appraisal Rights of Stockholders
You have the right to dissent from the merger and to demand and obtain a
cash payment for the appraised value of your shares of common stock under the
circumstances described below. The appraised value may be less than, equal to
or greater than the per share cash merger consideration provided for in the
merger agreement, will be determined exclusive of any accomplishment or
expectation of value in connection with the merger and will take into account
the value of the CESI shares you receive in the spin-off. If you fail to
comply with the procedural requirements of Section 262 of the Delaware General
Corporation Law, you will lose your right to dissent and seek payment of the
appraised value of your shares.
Synotex's obligations to close the merger are conditioned upon holders of
less than 10% of the Catalytica common stock exercising these appraisal
rights.
The following is a summary of Section 262, which specifies the procedures
applicable to dissenting stockholders. This summary is not a complete
statement of the law regarding your right to dissent under Delaware law, and
if you are considering dissenting, we urge you to review the provisions of
Section 262 carefully. The text of Section 262 is attached to this document as
Appendix F, and we incorporate that text into this document by reference.
Among other matters, you should be aware of the following:
. to be entitled to dissent and seek appraisal, you must hold shares of
our common stock on the date you make the demand required under Delaware
law, you must continuously hold those shares until the merger has been
completed, you must not vote in favor of the merger and you must
otherwise comply with the requirements of Section 262;
. before the special meeting, you must deliver a written notice that
states your identity and your intent to demand appraisal to Catalytica,
Inc., 430 Ferguson Drive, Mountain View, California 94043,
Attention: Secretary; simply voting against the merger is not a demand
for appraisal rights;
. the surviving corporation will notify all of the dissenting stockholders
who have complied with Section 262 and who have not voted in favor of
the merger that the merger has been completed;
. within 120 days after the effective time of the merger, the surviving
corporation or any stockholder who has complied with the requirements of
Section 262 may file a petition in the Delaware Court of Chancery
demanding a determination of the value of the stock of the dissenting
stockholders;
. if a petition is made, the Delaware Court of Chancery will determine
which dissenting stockholders complied with the requirements of Section
262 and are entitled to appraisal rights;
. the Delaware Court of Chancery may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their stock certificates to the Register in
Chancery for notation; and the Delaware Court of Chancery may dismiss
the proceedings as to any stockholder that fails to comply with this
requirement;
. the Delaware Court of Chancery will then appraise the shares,
determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a
fair rate of interest, if any, to be paid on the appraised fair value;
the Delaware Court of Chancery will consider all relevant factors in
determining the fair value and the fair interest rate, if any;
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. the Delaware Court of Chancery will then direct the surviving
corporation to pay the fair value of the dissenting shares, together
with any interest, to the stockholders entitled to payment; payment will
be made when the stockholder surrenders the certificates to the
surviving corporation;
. the costs of the proceeding for appraising the fair value may be
determined by the court and the court may require the parties to bear
the costs in any manner that the court believes to be equitable;
. if you dissent from the merger, you will not be entitled to vote your
shares of common stock for any purpose or to receive dividends or other
distributions following the merger, other than dividends or other
distributions payable to stockholders of record at a date prior to the
effective time of the merger (you will, however, receive the
distribution of CESI common stock in the spin-off);
. you may withdraw your demand for appraisal and accept the per share cash
merger consideration provided for in the merger agreement at any time
within 60 days after the effective date of the merger; and
. the exchange of shares for cash pursuant to the exercise of appraisal
rights will be a taxable transaction for United States federal income
tax purposes and possibly state, local and foreign income tax purposes
as well. See "Principal United States Federal Income Tax Consequences."
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. The following summary is qualified in its entirety by reference to
the merger agreement, which we have attached as Appendix A to this document
and which we incorporate by reference into this document. We encourage you to
read the merger agreement in its entirety.
Structure of the Merger
Catalytica Inc. currently has four direct subsidiaries: Catalytica Energy
Systems, Inc., which we often refer to as CESI, Catalytica Advanced
Technologies, Inc., Catalytica Pharmaceuticals, Inc. and Wyckoff, Inc. Prior
to the merger, Catalytica will merge its Catalytica Advanced Technologies
subsidiary with and into CESI. In addition, Catalytica will create another
direct subsidiary to merge with and into Catalytica Pharmaceuticals as a means
of converting the minority interests and options to purchase stock of
Catalytica Pharmaceuticals into interests in, and options to purchase,
Catalytica common stock. As a result of this subsidiary merger, the
stockholders and option holders of Catalytica Pharmaceuticals will become
stockholders and option holders of Catalytica.
Immediately prior to the closing of the merger and as part of the same
transaction, Catalytica will distribute all of the shares of CESI that it owns
to Catalytica stockholders. The result will be that CESI will become a
publicly traded company, that we expect to be listed on the Nasdaq National
Market. Catalytica will own no shares of CESI after the spin-off.
The merger transaction will be effected by the merger of Synotex Acquisition
Corporation with and into Catalytica, resulting in Catalytica becoming a
wholly-owned subsidiary of Synotex, and indirectly a subsidiary of DSM.
There are graphical depictions of the steps to be taken in connection with
the spin-off and merger beginning on page 7.
The Merger
The merger agreement provides that, following the approval and adoption of
the merger agreement by our stockholders and the satisfaction or waiver of the
other conditions to the merger, including the distribution of CESI common
stock to our stockholders, Synotex Acquisition Corporation will be merged with
and into us, and Catalytica will continue as the surviving corporation under
the name "DSM Catalytica Pharmaceuticals, Inc." The merger shall become
effective at 9:00 a.m. Eastern Standard Time on the day following the closing
date or at any other date and time as is agreed by the parties.
When the merger becomes effective, the certificate of incorporation of
Synotex Acquisition Corporation, as in effect immediately prior to the
effective time of the merger, will be Catalytica's certificate of
incorporation as the surviving corporation, until thereafter amended as
provided by applicable law or in the certificate of incorporation. The by-laws
of Synotex Acquisition Corporation in effect immediately prior to the
effective time of the merger will be the by-laws of the surviving corporation
until thereafter changed or amended as provided by applicable law or by the
certificate of incorporation or by-laws of that entity.
Conversion of Capital Stock. At the effective time of the merger, pursuant
to the merger agreement and the Delaware General Corporation Law, each issued
and outstanding share of our common stock, other than any shares (1) owned by
Catalytica, Synotex or Synotex Acquisition Corporation or any of their
subsidiaries, all of which will be canceled without consideration, or (2) held
by a dissenting stockholder that has exercised and perfected appraisal rights,
will be converted into the right to receive the cash merger consideration,
without interest. DSM and Synotex have advised us that they do not hold any
shares of Catalytica common stock as of the date of this document.
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The cash merger consideration to be received in exchange for each share of
common stock of Catalytica owned is based on a formula, calculated as follows:
. $750 million (without regard to our indebtedness, which was
approximately $50 million when the merger agreement was signed and will
be paid by Synotex on or after the closing of the merger)
. less an amount calculated using an assumed tax rate of 40.5% multiplied
by the excess of an estimate of Catalytica's gain on the spin-off of
CESI over the deductions attributable to the acceleration, exercise or
cancellation of Catalytica's options and warrants during the period
between August 2, 2000 and the closing of the merger;
. less the aggregate amount of cash and the fair market value of any
property contributed after June 30, 2000 by us or any of our
pharmaceuticals subsidiaries to the businesses that comprise CESI
excluding property directly associated with the business of CESI and the
cancellation of any outstanding intercompany accounts, notes or
payables;
. less any transaction fees, costs or expenses incurred in excess of $5
million as a result of the sale of the company to Synotex;
. less the aggregate amount of cash and the fair market value of any
property, other than our common stock, paid or payable by us or any of
our pharmaceutical subsidiaries, if any, in order to ensure that 100% of
the fully-diluted equity of Catalytica Pharmaceuticals, Inc. or any of
our pharmaceuticals subsidiaries is owned by us at the effective time of
the merger;
. less the aggregate amount of cash and the fair market value of any
property, other than our common stock, paid or payable, if any, by us or
any of our pharmaceuticals subsidiaries in order to ensure that there
are no remaining rights outstanding to acquire Catalytica equity or the
equity of our pharmaceuticals subsidiaries on the closing date of the
merger;
. plus proceeds from the aggregate exercise price of all options and
warrants to purchase Catalytica common stock, including those in-the-
money options and warrants to purchase Catalytica common stock that will
be converted into a right to the excess of the cash merger consideration
less the aggregate exercise price of those options and warrants to
purchase Catalytica common stock under the merger agreement, and
proceeds from purchases of our common stock under our ESPP;
divided by:
. the number of shares outstanding, including any unexercised options and
warrants to purchase Catalytica common stock that are entitled to
receive cash payments under the terms of the merger agreement.
In addition, because the merger is conditioned on the completion of the
spin-off, please bear in mind that, if the merger is completed, you will also
have received shares of CESI in the spin-off.
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The cash merger consideration to stockholders will be significantly impacted
by the reduction to the aggregate cash payment amount in respect of
Catalytica's gain on the CESI spin-off. The gain will be based on the weighted
average trading price of CESI on the first full day of trading. In order to
give you a sense of the range of the cash merger consideration that you may
receive, we have prepared the following table using different assumed values
of CESI on the first full day of trading and estimated amounts for the other
adjustments to the cash amount to be paid in the merger. All amounts listed
below are estimates and the actual amounts may vary significantly from the
amounts shown. As noted in the table, the amount of cash to be paid in the
merger will decrease as the value CESI increases. Of course, in that
situation, the value of the CESI shares you receive (and the aggregate value
of the cash merger consideration and the CESI shares) would be higher.
<TABLE>
<CAPTION>
----------------------------------------
Value of CESI
----------------------------------------
<S> <C> <C> <C>
Assumed Total Value of CESI $150,000,000 $300,000,000 $450,000,000
Corresponding Value per CESI Share $ 5.66 $ 14.14 $ 22.63
----------------------------------------
Initial Cash Payments in Merger..... $750,000,000 $750,000,000 $750,000,000
Adjustments
Net Transaction Tax Liability(1).. (12,084,087) (65,942,693) (119,801,300)
Investment in CESI................ (50,000,000) (50,000,000) (50,000,000)
Transaction Expenses(2)........... (1,000,000) (1,000,000) (1,000,000)
Option Exercise Proceeds(3)....... 44,657,270 44,657,270 44,657,270
------------ ------------ ------------
Total Proceeds of Merger(4)..... $731,573,184 $677,714,577 $623,855,970
Total Catalytica Shares(5).......... 70,065,879 68,597,193 67,389,306
Merger Consideration per Share...... $ 10.44 $ 9.88 $ 9.26
Value of CESI shares distributed per
Catalytica Share................... $ 1.92 $ 3.81 $ 5.78
------------ ------------ ------------
Total Value as Result of Spin-
off & Merger................... $ 12.36 $ 13.70 $ 15.04
</TABLE>
--------
(1) Based on a composite tax rate of 40.5%, Catalytica's tax basis in CESI of
approximately $37 million after investment of $50 million, deductions for
compensation expenses associated with the exercise of options and losses
in CESI prior to the close.
(2) Assuming total transaction expenses of $6 million for Catalytica, of which
the amounts exceeding $5 million will reduce the cash payments to
stockholders in the merger.
(3) Assuming the exercise of all options to purchase Catalytica common stock
with exercise prices less than or equal to $12.00 per share and including
the purchase of 65,411 shares of common stock at $9.35 per share pursuant
to options under the ESPP.
(4) May be reduced for other additional amounts that affect the merger
consideration as described on page 40, which we do not expect to be
material.
(5) Includes shares of Catalytica to be issued upon the exercise of Catalytica
and Catalytica Pharmaceuticals options and upon the conversion of shares
of Catalytica Pharmaceuticals in the subsidiary merger. The exchange rate
in the Catalytica Pharmaceuticals subsidiary merger varies depending on
the relative values of Catalytica Pharmaceuticals and CESI.
Exchange of Common Stock Certificates. At the effective time, each
certificate representing shares of our common stock then outstanding, other
than any shares owned by us, Synotex, Synotex Acquisition Corporation or held
by a dissenting stockholder exercising appraisal rights, will represent the
right to receive the cash into which such issued and outstanding shares may be
converted. At the effective time, all such shares of our common stock will be
canceled and cease to exist, and each holder of a certificate representing any
such shares will cease to have any voting or other rights with respect to such
shares, except the right to receive upon the surrender of such certificate the
cash consideration payable under the merger agreement, without interest.
Synotex will designate a bank or trust company to act as paying agent and
will, from time to time, deposit with the paying agent sufficient funds to pay
portions of the cash merger consideration for the benefit of our stockholders
who surrender their stock certificates. Synotex will direct the paying agent
to mail a letter of transmittal to you as soon as possible after the effective
time of the merger. The letter of transmittal will tell you how to surrender
your Catalytica common stock certificates in exchange for the per share cash
merger consideration. You should not send
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in your Catalytica common stock certificates until you receive a transmittal
form. You should send your certificates only as instructed in the letter of
transmittal. In all cases, the merger consideration will be provided only in
accordance with the procedures set forth in the merger agreement and such
letters of transmittal.
We strongly recommend that certificates for common stock and letters of
transmittal be transmitted only by registered United States mail, return
receipt requested, appropriately insured. Holders of common stock whose
certificates are lost will be required to make an affidavit identifying such
certificate or certificates as lost, stolen or destroyed and, if required by
us, to post a bond in such amount as we may reasonably require to indemnify
against any claim that may be made against us with respect to such
certificate.
Any merger consideration payable in respect of certificates for our common
stock that have not been surrendered prior to one year after the effective
time of the merger, or immediately prior to any earlier date on which any
merger consideration would otherwise escheat to or become the property of any
governmental entity, shall, to the extent permitted by applicable law, become
the property of Synotex, free and clear of all claims or interest of any
person previously entitled thereto. In addition, none of Synotex Corporation,
Catalytica or the paying agent will be liable to any person in respect of any
merger consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Treatment of Stock Options to Purchase Shares of Catalytica Common Stock. At
least fifteen days prior to the effective time of the merger, we will send a
notice to all holders of options to purchase our common stock that will:
. specify that the options to purchase our common stock will not be
assumed by Synotex in connection with the merger;
. specify that the vesting restrictions applicable to all options to
purchase our common stock outstanding at the time of the notice will be
eliminated so that no vesting restrictions remain on the options,
effective on the date the notice is given;
. specify that any options to purchase our common stock outstanding as of
the effective time of the merger will terminate and be cancelled at such
time and represent only the right to receive the excess, if any, of the
aggregate merger consideration to which the underlying shares of the
option are entitled over the aggregate exercise price of the option;
. provide an estimate of the per share merger consideration;
. provide how to determine an estimate of the excess, if any, of the
exercise price per share of the options over the estimated per share
merger consideration, which we will refer to as the "estimated excess
exercise payment;" and
. except as otherwise expressly provided in the merger agreement, we will
not adjust the terms of any options to purchase our common stock as a
result of the spin-off of CESI.
We will permit each holder of an option to purchase our common stock who
desires to exercise all or any portion of that option following receipt of the
option notice to exercise that option, effective either:
. immediately prior to the record date with respect to the spin-off of
CESI;
. after the record date with respect to the spin-off but immediately prior
to the effective time of the merger; or
. at any other time permitted under the applicable option on our shares.
In the event any holder exercises all or any portion of an option to purchase
our common stock effective either immediately prior to the record date with
respect to the spin-off of CESI or after the record date with respect to the
spin-off but immediately prior to the effective time of the merger:
. that holder will be permitted to cause us to withhold the exercise price
with respect to such exercise out of the merger consideration to be
received by that holder in respect of the shares of our common stock
acquired by exercising that option; and
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. that holder will be obligated to pay in cash to us, at the time of
exercise, the estimated excess exercise payment for the option.
Common stock issuable upon the exercise of options to purchase our common
stock at those times will
. by virtue of the merger, and without any action on the part of the
holder, be converted into the right to receive the per share merger
consideration payable (net of any exercise price withholding obligation,
as provided in the merger agreement), without the issuance of
certificates representing issued and outstanding shares of our common
stock; and
. be deemed to be issued and outstanding as of the effective time of the
merger.
Only common stock issuable upon the exercise of options to purchase our
common stock immediately prior to the record date with respect to the spin-off
of CESI will be deemed issued and outstanding on the record date with respect
to the distribution of CESI common stock.
After the effective time of the merger, we will determine the actual amount
of the excess, if any, of the aggregate exercise price of each option to
purchase our common stock over the actual aggregate merger consideration,
which will be referred to as the "actual excess exercise payment," with
respect to options to purchase our common stock exercised either immediately
prior to the record date with respect to the spin-off of CESI or after the
record date with respect to the spin-off but immediately prior to the
effective time of the merger.
To the extent that the actual excess exercise payment exceeds the estimated
excess exercise payment made by any holder of an option to purchase our common
stock with respect to the shares of our common stock deemed issued pursuant to
exercise, we will notify that party that a payment is due from that holder to
us in the amount of the excess of the actual excess exercise payment over the
estimated excess exercise payment. We will retain any distribution of CESI
stock to be made to a holder of options to purchase our common stock who must
make a payment to us in accordance with the immediately preceding sentence of
this paragraph as security for such payment. To the extent that the estimated
excess exercise payment made by a holder of an option exceeds the actual
excess exercise payment, we will, or will cause the paying agent to, pay the
holder the difference between the estimated excess exercise payment and actual
excess exercise payment, on or about the time of the payment of the per share
merger consideration.
All options to purchase our common stock outstanding as of the effective
time of the merger shall by virtue of the merger, and without any action on
the part of the holder thereof, be terminated and cancelled as of the
effective time of the merger and converted into, and represent only, the right
to receive an amount in cash equal to the excess if any, of (i) the aggregate
merger consideration for that number of shares of common stock subject to the
options to purchase our common stock immediately prior to the effective time
of the merger over (ii) the aggregate exercise price of all those shares of
our common stock subject to the options to purchase our common stock; that
excess, which we will also refer to as the "option cash-out amount."
GlaxoWellcome Warrant. Notwithstanding the terms of the merger agreement, we
expect that GlaxoWellcome, Inc. will agree to receive a warrant to purchase
approximately 540,000 shares of CESI common stock as of the distribution to
effect the conversion of the Stock Purchase Warrant, dated July 31, 1997, to
purchase 2,000,000 shares of Catalytica common stock. The aggregate exercise
price of this CESI warrant would be equal to the difference between the
aggregate exercise price of the Catalytica warrant and the cash merger
consideration that would be payable in respect of 2,000,000 shares of
Catalytica common stock in the merger. GlaxoWellcome would not receive any
cash in the merger in respect of the Catalytica warrant that it holds.
Exchange Procedures for Options to Purchase Shares of Catalytica Common
Stock. Promptly following the effective time of the merger, Synotex will cause
the paying agent to mail to each holder (as of the effective
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time of the merger) of an option that was converted into the right to receive
the option cash-out amount, a letter of transmittal and instructions for use
in receiving cash payable in respect of the options to purchase shares of our
common stock. Upon the delivery of the completed letter of transmittal in
accordance with the directions included in the letter, to the paying agent,
the holders of options to purchase shares of our common stock will be entitled
to receive the option cash-out amount.
Required Withholding. The paying agent may deduct and withhold from the per
share merger consideration or any other consideration or amount deliverable or
otherwise payable pursuant to the merger and the merger agreement to any
holder or former holder of our common stock or option to purchase our common
stock any amounts as may be required to be deducted or withheld therefrom
under the Internal Revenue Code or under any applicable provision of state,
local or foreign tax law or under any other applicable legal requirement. To
the extent those amounts are so deducted or withheld, those amounts will be
treated for all purposes under the merger agreement as having been delivered
or otherwise paid to the person to whom those amounts would otherwise have
been delivered or otherwise paid pursuant to the merger and the merger
agreement.
Employee Stock Purchase Plan. Immediately prior to the record date with
respect to the spin-off of CESI, in accordance with the terms of our 1992
Employee Stock Purchase Plan, all rights to purchase shares of our common
stock outstanding under our ESPP immediately prior to the record date will be
exercised and each share of our common stock purchased pursuant to the
exercise will by virtue of the merger, and without any action on the part of
the holder thereof, be converted into the right to receive the merger
consideration payable in respect thereof, without the issuance of certificates
representing issued and outstanding shares of our common stock. Any of our
common stock issued pursuant to our ESPP will be deemed issued and outstanding
at the effective time of the merger and on the record date with respect to the
spin-off of CESI. Our ESPP will be terminated immediately following such
exercises. Under our ESPP, a participant may withdraw all but not less than
all the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the ESPP prior to its termination by giving
notice to us in the form provided in the ESPP.
Representations and Warranties
The merger agreement contains representations and warranties customary for a
transaction of this nature.
Certain Covenants
Under the merger agreement, we have agreed that from August 2, 2000 until
the effective time of the merger, we and the pharmaceuticals subsidiaries will
conduct our businesses in the ordinary course consistent with past practice
and will use commercially reasonable efforts to preserve intact our business
organizations and relationships with third parties and to keep available the
services of our present officers and employees. In addition we have agreed
that from August 2, 2000 until the effective time of the merger, except as
expressly contemplated or allowed by the merger agreement, including the spin-
off of CESI, we will not, and will not permit any of our pharmaceuticals
subsidiaries to, take any action or knowingly omit to take any action that
would make any of our representations and warranties contained in the merger
agreement false.
In addition, except as expressly contemplated or allowed by the terms of the
merger agreement and except as we have previously expressly disclosed to
Synotex, during the period from August 2, 2000 and continuing until the
earlier of the termination of the merger agreement pursuant to its terms or
the effective time of the merger, we will not do, and will not permit our
pharmaceuticals subsidiaries to do, any of the following without the prior
written consent of Synotex:
. declare, set aside or pay any dividends on, or make any other
distributions in respect of capital stock of us or our subsidiaries or
split, combine, or reclassify any capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock of us or our non-pharmaceuticals
subsidiaries, other than
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. the spin-off of CESI to our stockholders;
. any merger of a subsidiary of ours undertaken to ensure that 100% of
the fully-diluted equity of our pharmaceuticals subsidiaries is
owned by us; or
. the share exchange agreements to which we are a party.
. other than in connection with the capitalization of CESI or the
elimination of equity interests in our subsidiaries, purchase, redeem or
otherwise acquire, directly or indirectly, any shares of capital stock
of us or of our subsidiaries, or make any capital contribution to any of
our subsidiaries, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on
August 2, 2000, except under specified circumstances;
. issue, deliver, sell, authorize, pledge or otherwise encumber any shares
of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible
securities other than under certain circumstances;
. incur any indebtedness for borrowed money, or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities
of ours or enter into any arrangement having the economic effect of any
of the foregoing, other than in the ordinary course of business
consistent with past practice and in an aggregate amount not in excess
of $20,000,000;
. make any capital expenditures or otherwise acquire, whether pursuant to
merger, stock or asset purchase or otherwise, in one transaction or
series of related transactions (i) any assets having a fair market value
in excess of $5,000,000 or (ii) all or substantially all of the equity
interests of any person or any business or division of any person,
except, in the case of capital expenditures, in accordance with our
current annual budget and plan as of July 31, 2000 as previously
disclosed to Parent;
. amend the certificate of incorporation or bylaws of our company or those
of any of our pharmaceuticals subsidiaries;
. sell, lease, encumber or otherwise dispose of any assets of ours or
those of any of our pharmaceuticals subsidiaries, other than
. sales in the ordinary course of business consistent with past
practice,
. equipment and property no longer used in the operation of our
business, and
. assets related to discontinued operations;
. except in the ordinary course of business, amend, modify or terminate
any material contract, agreement or arrangement of ours or our
subsidiaries, assuming the consummation of the spin-off of CESI, or
otherwise waive, release or assign any material rights, claims or
benefits thereunder;
. except as required by law or the current terms of an existing agreement
or other authorization previously disclosed to Synotex:
. increase the amount of compensation of any current or former
director, officer or employee, other than in the case of non-
executive employees, ordinary periodic increases consistent with
past practices, or make any increase in or commitment to increase
any employee benefits or vest, fund or pay any pension or retirement
allowance other than as required by the current terms of any plan,
. grant any severance or termination pay to any director, officer or
employee of our company or any of our pharmaceutical subsidiaries,
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<PAGE>
. adopt, amend, modify, except as may be required by law, enter into
or commit to any additional employee benefit plan or, except in the
ordinary course of business, make any contribution to any existing
plan,
. increase the benefits payable under any existing severance or
termination pay policies or employment agreements, or
. take any affirmative action to accelerate the vesting of any stock-
based compensation;
. change our methods of accounting in effect at December 31, 1999, except
as required by changes in GAAP or Regulation S-X of the Exchange Act;
. enter into any agreement or arrangement that limits or otherwise
restricts us, any pharmaceuticals subsidiary or any of their respective
affiliates or any successor thereto from engaging or competing in any
line of business or in any location, which agreement or arrangement
would be material to the business of our company and our subsidiaries
taken as a whole, assuming consummation of the spin-off of CESI;
. settle, or propose to settle, any litigation, investigation,
arbitration, proceeding or other claim that is material to the business
of our company and our subsidiaries taken as a whole, assuming
consummation of the spin-off of CESI, other than the payment, discharge
or satisfaction of liabilities, in the ordinary course of business
consistent with past practice;
. create or incur any material lien on any material asset of our company
and our subsidiaries taken as a whole, assuming consummation of the
spin-off of CESI, other than in the ordinary course of business
consistent with past practice or other than in connection with the
purchase of such asset;
. make any material loan, advance or capital contribution to or investment
in any person or entity, other than loans, advances or capital
contributions to, or investments in, wholly owned pharmaceuticals
subsidiaries, or pursuant to our ordinary cash management practices,
made in the ordinary course of business consistent with past practice,
with certain exceptions;
. other than in the ordinary course of business consistent with past
practice:
. make any tax election or take any position on any tax return filed
on or after August 2, 2000 or adopt any method thereof that is
inconsistent with elections made, positions taken or methods used in
preparing or filing similar returns in prior periods, or
. enter into any settlement or compromise of any tax liability that in
either case is material to the business of our company and our
subsidiaries taken as a whole, assuming consummation of the spin-off
of CESI; or
. agree in writing or otherwise to take any of the actions described
above.
No Solicitation of Transactions
We have agreed that we will not, and will cause our subsidiaries not to,
solicit, initiate or encourage any offers or proposals for a merger,
consolidation, recapitalization, liquidation or other business combination
involving our company or the acquisition or purchase of over 50% or more of
any class of our equity securities, or any tender offer, including self-
tenders, or exchange offer, that if consummated would result in any person
beneficially owning 50% or more of any class of equity securities of our
company, or a substantial portion of the assets of, our company and our
subsidiaries taken as a whole, other than the transactions contemplated by the
merger agreement, including the spin-off of CESI. We refer to any proposal or
offer of this nature as an "Acquisition Proposal."
We have also agreed that we will not, and will cause our subsidiaries not
to, engage in negotiations with, or disclose any non-public information
relating to our company or our subsidiaries or afford access to our, or our
subsidiaries', properties, books or records to, any person or group, other
than Synotex or any designees of
46
<PAGE>
Synotex, concerning any Acquisition Proposal or enter into any agreement with
respect to any Acquisition Proposal, other than in the manner contemplated in
the merger agreement.
However, if our board of directors determines in good faith, acting only
after consultation with our outside counsel, that it is necessary to comply
with its fiduciary duties to our stockholders, we may, in response to a bona
fide Acquisition Proposal that was not solicited or encouraged by us, or our
subsidiaries, and that the board determines in good faith, after consultation
with our financial advisor, constitutes a superior proposal to you:
. furnish information to the person or group who made that Acquisition
Proposal upon that party executing a confidentiality agreement,
substantially similar to the confidentiality agreement with DSM and only
if copies of any information (to the extent not previously supplied) are
concurrently provided to Synotex, and
. participate in discussions and negotiations regarding that Acquisition
Proposal.
We must also promptly:
. notify Synotex of receipt of any Acquisition Proposal, including the
material terms and conditions thereof and the identity of the party
submitting the proposal, and any request for non-public information in
connection with an Acquisition Proposal,
. provide Synotex a copy of any written agreements, proposals or other
materials that we receive from any such person or group, and
. notify Synotex of any material changes or developments with respect to
those proposals, written agreements or other materials.
Notwithstanding the foregoing, the board shall not be prohibited from taking
or disclosing a position contemplated by Rules 14d-9 and 14e-2(a) of the
Exchange Act, or making any disclosure to you if required by applicable law.
Employee Benefit Matters
With respect to our employees and the employees of any of our
pharmaceuticals subsidiaries, Synotex has agreed:
. for a period of one full year following the effective time of the
merger, in its sole discretion, to either:
. continue our employee benefit plans, programs and arrangements on
substantially similar terms in the aggregate as in effect
immediately prior to the merger, or
. arrange for each participant in our employee benefit plans, programs
and arrangements employed at Catalytica or a pharmaceuticals
subsidiary to participate in any similar plans of Synotex on terms
in the aggregate no less favorable than those offered to similarly
situated employees of Synotex, or
. a combination of the foregoing.
. that each participant in our employee benefit plans, programs and
arrangements who continues to be employed by DSM Catalytica
Pharmaceuticals or any of its subsidiaries immediately following the
merger shall receive credit for purposes of eligibility to participate
and vesting under Synotex's welfare benefit plans, programs and
arrangements for years of service with Catalytica or our subsidiaries
prior to the merger, to the extent permitted by law, tax qualification
requirements and any generally applicable break in service or similar
rule; and
. to waive all pre-existing condition limitations, eligibility waiting
periods and evidence of insurability requirements under any group health
plans with respect to our employees and the employees of any of our
pharmaceuticals subsidiaries and their eligible dependents, and provide
them with credit for any co-payments and deductibles prior to the merger
for purposes of satisfying any applicable deductible,
47
<PAGE>
out-of-pocket, or similar requirements under any of Synotex's welfare
benefit plans, programs and arrangements in which they are eligible to
participate after the merger.
Synotex has agreed that prior to the closing date of the merger, we may
adopt additional retention and severance programs not exceeding $1,150,000,
excluding any ordinary course payments provided to other employees under our
general severance plans, for specified non-executive employees of ours or a
pharmaceuticals subsidiary previously identified to Synotex.
Conditions to the Merger
Each party's obligation to complete the merger is subject to a number of
conditions, including the following:
. approval and adoption by our stockholders of the merger agreement in
accordance with applicable law;
. the expiration, termination or granting of any applicable waiting period
or consents under the Hart-Scott-Rodino Act or any other applicable
antitrust law relating to the merger;
. the absence of any prohibition against the completion of the merger or
the other transactions contemplated by the merger agreement by any
applicable law or regulation, judgment, injunction, order or decree; and
. the completion of the spin-off of CESI.
Our obligation to complete the merger is subject to additional conditions,
including the accuracy of the representations and warranties of Synotex and
Synotex Acquisition Corporation to the extent that such inaccuracies would
have, in the aggregate, a material adverse effect on the performance of
Synotex's obligations under the merger agreement. The obligations of Synotex
and Synotex Acquisition Corporation to complete the merger are subject to
additional conditions, including the following:
. the accuracy of our representations and warranties to the extent that
such inaccuracies would have, in the aggregate, a material adverse
effect on us, and the performance in all material respects of our
obligations under the merger agreement,
. that all of the issued and outstanding capital stock of any of our
pharmaceuticals subsidiaries is owned by us and no rights remain
outstanding to purchase or otherwise receive capital stock of any of our
pharmaceuticals subsidiaries and the Company, and
. that holders of less than 10% of our outstanding shares of common stock
have demanded and perfected appraisal rights in accordance with Section
262 of the Delaware General Corporation Law, and have not effectively
withdrawn or lost such appraisal rights, at the effective time of the
merger.
The obligations of Synotex and Synotex Acquisition Corporation to complete
the merger are not subject to a financing condition.
Termination of the Merger Agreement
The merger agreement may be terminated, whether before or after receiving
stockholder approval, without completing the merger, under the following
circumstances:
. by mutual written consent of the parties;
. by either us or Synotex, if the merger is not completed by February 28,
2001, or such other date, if any, as we and Synotex may agree upon,
provided, that the party seeking to terminate by this method will not
have breached in any material respect its obligations under the merger
agreement;
. by either us or Synotex, if there is any law or regulation that makes
completion of the transactions contemplated by the merger agreement
illegal or if there is a final and nonappealable judgment, injunction,
order or decree enjoining Synotex or us from completing the transactions
contemplated by the merger;
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<PAGE>
. by Synotex, if our board:
. withdraws, modifies or amends, in a manner adverse to Synotex, its
approval or recommendation of the merger agreement or the merger,
. recommends an alternative transaction, or resolves or announces an
intention to do so, or
. in response to a tender offer or exchange offer, recommends
acceptance of that tender offer or exchange offer by the
stockholders, or fails to recommend against acceptance of that offer
by the stockholders,
. by either us or Synotex, if our stockholders do not adopt the merger
agreement at a duly convened stockholder meeting;
. by us, if prior to the special meeting, our board elects to terminate
the merger agreement in order to recommend or approve a superior
proposal or to enter into an agreement for a transaction that
constitutes a superior proposal, provided that we:
. provide proper notice to Synotex of our intention,
. determine 48 hours after giving notice that the alternate proposal
is and remains a superior proposal taking into account any
modifications to the transactions contemplated by the merger
agreement that Synotex has then proposed in writing and not
withdrawn and
. concurrently with the giving of notice of such termination, pay the
applicable termination fee and expense reimbursement amount to
Synotex;
. by us, if
. Synotex breaches its representations or warranties or Synotex's
representations or warranties become untrue in a way that could not
be cured by February 28, 2001, and such breaches would have a
material adverse effect on the performance of Synotex's obligations
under the merger agreement, or
. Synotex breaches any of its covenants or agreements under the merger
agreement in a way that materially adversely affects, or materially
delays, the ability of Synotex or Catalytica to complete the merger
DSM and Synotex have advised us that they do not hold any shares of
Catalytica common stock as of the date of this document. and Synotex
is unable to cure the breach within 30 days after receiving written
notice from Synotex of the breach;
provided that, in either case, we have not breached any of our
obligations under the merger agreement in any material respect; or
. by Synotex, if
. we or any of our subsidiaries breach our representations or if those
warranties or representations or warranties become untrue in a way
that could not be cured by February 28, 2001, and such breaches
would have, in the aggregate, a material adverse effect on us, or
. we or our subsidiaries breach any of our covenants or agreements
under the merger agreement in a way that materially adversely
affects, or materially delays, the ability of Synotex or Catalytica
to complete the merger, and are unable to cure the breach within 30
days after receiving written notice from us and an opportunity to
cure the breach;
provided that, in either case, Synotex has not breached any of our
obligations under the merger agreement in any material respect.
In the event of termination of the merger agreement by either party under
the circumstances described above, the merger agreement will become void and
have no effect; provided, however that this will not relieve a
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<PAGE>
breaching party from liability for a prior willful breach of the merger
agreement or for the payment of the termination fee and expenses as described
below.
Termination Fee
We have agreed to pay to Synotex a termination fee of $20 million, plus up
to a maximum of $5 million for reimbursement of Synotex's expenses, if:
. the merger agreement is terminated by Synotex as a result of our board:
. withdrawing, modifying or amending, in a manner adverse to Synotex,
its approval or recommendation or declaration of the advisability of
the merger agreement or the merger,
. recommending an alternative transaction, or resolving or announcing
an intention to do so, or
. in response to a tender offer or exchange offer, recommending
acceptance of that tender offer or exchange offer by the
stockholders, or failing to recommend against acceptance of that
offer by the stockholders within ten business days of the
commencement of that offer.
. each of the following occurs (1) the merger agreement is terminated by
Synotex or us after February 28, 2001, or because of our failure to
obtain stockholder approval, each as described above, (2) at or prior to
the time of such termination, an Acquisition Proposal with respect to
our company shall have been made public, and (3) within twelve months
after the termination, we enter into a definitive agreement with respect
to any Acquisition Proposal or complete the transaction contemplated by
any Acquisition Proposal;
. the merger agreement is terminated by us in order to recommend or
approve a superior proposal or to enter into an agreement for a
transaction that constitutes a superior proposal.
We are required to pay the termination fee and reimbursement of expenses at
or prior to the termination of the agreement by us, no later than one business
day after termination by Synotex or in the case the merger agreement is
terminated by Synotex or us after February 28, 2001, or because of our failure
to obtain stockholder approval, at the earlier of execution of a definitive
agreement with respect to, or the completion, of the transaction contemplated
by the Acquisition Proposal.
Expenses
Except as described above, regardless of whether the merger is completed,
all fees and expenses in connection with the merger agreement and the merger
will be paid by the party incurring such expense.
Amendment; Waiver
The merger agreement may be amended by the parties at any time; provided,
however, that after stockholder approval has been obtained, there shall be
made no amendment that by law requires further approval by stockholders of the
parties without the further approval of those stockholders. At any time prior
to the effective time of the merger, any party may extend the time for the
performance of any of the obligations or other acts of the other party, waive
any inaccuracies in the other party's representations and warranties or waive
the other party's compliance with any of the agreements or conditions
contained in the merger agreement; provided, however, that after stockholder
approval has been obtained, there shall be made no waiver that by law requires
further approval by stockholders of the parties without the further approval
of those stockholders.
The Voting Agreement
As an inducement and a condition to its entering into the merger agreement
and incurring the obligations set forth therein, Synotex required each of
Morgan Stanley Capital Partners III, L.P., Morgan Stanley Capital
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<PAGE>
Investors, L.P., MSCP III 892 Investors, L.P., James A. Cusumano and Ricardo
B. Levy to enter into a voting agreement with Synotex and Catalytica. Pursuant
to the voting agreement, these stockholders agreed that they will vote all
shares of Catalytica voting stock owned by them at the time of the record date
for the special meeting:
. for the approval of the merger agreement and the merger, and
. against any alternative transaction or any action which would delay,
prevent or frustrate the transactions contemplated by the merger
agreement.
The stockholders who entered into the voting agreement held an aggregate of
20,993,287 outstanding shares of Catalytica voting stock (representing
approximately 39.5% of the combined voting power of Catalytica voting stock)
as of the record date.
In addition, these stockholders have agreed not to dispose of any shares of
Catalytica common stock without Synotex's prior written consent on or prior to
the record date of the special meeting, or grant any proxy or power of
attorney with respect to their shares of Catalytica common stock. After the
record date of the special meeting, those stockholders are permitted to
transfer their shares as long as the transfer does not include a proxy or a
right to vote the shares at the special meeting. The voting agreement will
terminate on the earlier of the effective time of the merger, or the date upon
which the merger agreement is terminated. The voting agreement is attached to
this proxy statement as Appendix B.
DSM N.V. Guarantee
As a condition to Catalytica entering into the merger agreement, DSM has
irrevocably and unconditionally guaranteed the full and complete performance
of all obligations and liabilities of Synotex and Synotex Acquisition
Corporation under the merger agreement. We have included a copy of the DSM
guarantee as Appendix C to this document.
Subsidiary Merger
In order to comply with the condition to the merger that we own all of the
issued and outstanding capital stock of any of our pharmaceuticals
subsidiaries, we will do the following:
. create a new, direct wholly-owned subsidiary of Catalytica, Inc.;
. merge that wholly-owned subsidiary with and into Catalytica
Pharmaceuticals, Inc. with Catalytica Pharmaceuticals being the
surviving corporation;
. exchange shares of Catalytica common stock for all of the outstanding
shares of Catalytica Pharmaceuticals capital stock at an exchange rate
that provides the equivalent value in Catalytica common stock; and
. assume the options to purchase Catalytica Pharmaceuticals common stock
so that those options will be exercisable for a number of shares of
Catalytica common stock at an exercise price to provide the equivalent
economic value of the original option.
The shares of our common stock issued in exchange for shares of Catalytica
Pharmaceuticals common stock and the Catalytica Pharmaceuticals options that
we assume will be treated the same as our common stock and options to purchase
Catalytica common stock for purposes of the merger and spin-off.
Amendment to Rights Plan
In connection with the execution of the merger agreement, we amended our
stockholder rights plan so that the merger agreement and the merger would not
trigger any adverse consequences under the rights plan.
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THE SPIN-OFF
We had previously announced the possible public offering of shares of the
Energy Systems subsidiary to unlock some of the value of our different
businesses. Rather than proceed with that offering, we determined that we
should proceed with the sale of the pharmaceuticals business effected through
the merger. Because Synotex wished to acquire only our pharmaceuticals
business, Catalytica and Synotex determined to effect the spin-off in
connection with but immediately prior to the merger. This will enable Synotex
to acquire only Catalytica's pharmaceuticals business and will leave
Catalytica's Energy Systems and Advanced Technologies businesses as a separate
publicly held company. Although the spin-off will not be effected unless the
merger and merger agreement are approved and adopted by Catalytica's
stockholders and all conditions to the closing, other than the spin-off, have
been satisfied or waived, the spin-off is a separate step from the merger, and
holders of Catalytica common stock will not receive the CESI common stock from
Synotex.
Prior to the spin-off, Catalytica will merge its Advanced Technologies
subsidiary with and into CESI, with CESI surviving the merger. Catalytica
currently plans to purchase $50 million of CESI common stock, prior to the
spin-off, such that CESI will have consolidated assets, net of consolidated
liabilities, of at least $50,000,000 immediately prior to the spin-off. In
addition, CESI and Catalytica will enter into several agreements as of or
prior to the spin-off providing for mutual obligations relating to their
relationship after the spin-off and the merger. In order to see the financial
effect of the spin-off, please see the section of this document entitled
"Unaudited Pro Forma Financial Information."
We expect that the directors and executive officers of Catalytica Energy
Systems, Inc. will continue to serve CESI in their current capacities. In
addition, Ricardo Levy, our President and Chief Executive Officer, will serve
as CESI's Chairman of the Board of Directors.
Assuming the other conditions to the closing of the merger have been
satisfied or waived, the spin-off will be effected by the declaration of a
dividend of all of the shares of CESI owned by Catalytica to holders of record
of Catalytica common stock as of the record date for the spin-off. The record
date for the spin-off is . The effective date of the merger will be the
following day, prior to the opening of trading on The Nasdaq National Market.
Cash will be distributed by CESI to Catalytica stockholders in lieu of
fractional shares of CESI. The CESI common stock will be deemed to be issued
to such stockholders as of the closing of the merger. Certificates
representing shares of CESI common stock will be distributed approximately at
the same time as the merger consideration. Therefore, Catalytica stockholders
will generally not receive certificates for shares of CESI common stock until
they deliver their certificates evidencing their Catalytica common stock. As a
result of the spin-off, the stockholders of record of Catalytica at the close
of business on the record date for the spin-off will own approximately 86.6%-
88.1% of the outstanding shares of CESI common stock. We currently estimate
that you will receive between 0.255 and 0.34 of a share of CESI for each share
of Catalytica common stock that you hold on the record date for the spin-off.
Catalytica will not effect the spin-off unless Catalytica's stockholders
approve and adopt the merger and the merger agreement and all other conditions
to the closing of the merger have been satisfied or waived.
In order to obtain additional information about the spin-off, please refer
to the CESI prospectus which is enclosed with this document.
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UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The unaudited pro forma condensed financial statements include: (1)
unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1999; (2) unaudited pro forma condensed consolidated
statement of operations for the nine-month period ended September 30, 2000;
(3) unaudited pro forma condensed consolidated balance sheet as of September
30, 2000; and (4) the accompanying notes to unaudited pro forma condensed
financial statements.
The unaudited pro forma condensed statements of operations have been
prepared to illustrate Catalytica, Inc. after giving effect to the spin-off
and immediately prior to its merger with Synotex Acquisition Corporation
(Acquisition Corp.). Acquisition Corp. is a wholly-owned subsidiary of DSM
N.V. Accordingly, for all periods presented, Catalytica, Inc.'s historical
results of operations have been prepared to reflect the effects of the spin-
off of Catalytica Energy Systems (the Energy Systems and the Advanced
Technologies businesses or "CESI") to stockholders of Catalytica, Inc. The
unaudited pro forma condensed balance sheet has been prepared to reflect the
effects of the spin-off of CESI to stockholders of Catalytica, Inc., the
resulting tax liability incurred by Catalytica, Inc. and other transactions
that have or will occur prior to the merger with Acquisition Corp. The balance
sheet shows the estimated tax costs assuming a $300 million valuation of CESI.
Catalytica, Inc. estimates that each additional $100 million in valuation will
reduce cash and retained earnings by approximately $40 million.
Prior to the merger, Catalytica will cause Catalytica Pharmaceuticals, Inc.
to merge with a wholly-owned subsidiary of Catalytica in order to exchange the
minority interests held by third parties in Catalytica Pharmaceuticals for
interests in Catalytica. As a result of the Catalytica Pharmaceuticals merger,
holders of stock and options of Catalytica Pharmaceuticals will become holders
of stock and options of Catalytica. The exchange ratio is expected to be 2.30,
which was determined to provide economically equivalent interests in
Catalytica to holders of stock and options of Catalytica Pharmaceuticals.
The pro forma adjustments are preliminary and based on management's
estimates. In addition, management is in the process of assessing and
formulating its business plans. Management does not know the exact amount of
related spin-off or other reorganization costs but does not believe actual
amounts will differ significantly from their estimates. Based on the timing of
the closing of the proposed transaction, the finalization of the integration
plans and other factors, final pro forma adjustments may differ materially
from those presented in these pro forma condensed financial statements.
If the merger is completed, Catalytica's stockholders will be entitled to
receive a total of $750 million in cash. This amount will be reduced by an
amount calculated using an assumed tax rate of 40.5% multiplied by the excess
of Catalytica's gain on the spin-off of CESI less the deductions attributable
to the acceleration, exercise or cancellation of Catalytica's options and
certain other adjustments. The amount of the adjustment in respect of
Catalytica's gain on the spin-off will be based on the value of CESI as
determined by the weighted average trading price of CESI on the first full day
of trading.
In addition, the merger agreement specifies that immediately prior to the
spin-off, CESI will have a minimum of $40 million of cash and cash equivalents
on its balance sheet. This amount is required to fund its operating
requirements for the near term, and certain transaction related expenses. To
the extent that Catalytica contributes capital to CESI to meet this condition,
proceeds from the merger transaction otherwise available to stockholders will
also be reduced. There is no assurance the merger will be completed.
The unaudited pro forma condensed financial statements are not necessarily
indicative of what the actual financial results would have been had the
transaction described above taken place on December 31, 1999 or September 30,
2000. In addition, they do not purport to indicate the future results of
operations or financial position of CESI or Catalytica. Also, these unaudited
pro forma condensed financial statements do not reflect any adjustments that
may result from the new accounting basis in the assets and liabilities that
may result from the merger of Catalytica with Acquisition Corp. The
transactions described in this document and the pro forma financial statements
are the subject of stockholder litigation described on page 59 of the
document.
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CATALYTICA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Catalytica, Inc.
Catalytica (after giving
Catalytica, Inc. Energy effect to the
Historical Systems(1) Adjustments Spin-off)
---------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Product sales......... $398,098 -- -- $398,098
Research and
development
contracts............ 25,600 $ (3,053) -- 22,547
-------- -------- ------- --------
Total revenues...... 423,698 (3,053) -- 420,645
Costs and expenses:
Cost of product
sales................ 312,533 -- -- 312,533
Research and
development.......... 42,573 (9,627) -- 32,946
Selling, general and
administrative....... 28,602 (4,786) -- 23,816
-------- -------- ------- --------
Total costs and
expenses........... 383,708 (14,413) 369,295
-------- -------- ------- --------
Operating income........ 39,990 11,360 -- 51,350
Interest income......... 3,081 (1,041) -- 2,040
Interest expense........ (8,363) 279 -- (8,084)
Loss on joint ventures.. (1,132) 1,132 -- --
-------- -------- ------- --------
Income before income
taxes.................. 33,576 11,730 -- 45,306
Provision for income
taxes.................. (6,445) -- $(2,250)(7) (8,695)
-------- -------- ------- --------
Net income.......... $ 27,131 11,730 $(2,250) $ 36,611
======== ======== ======= ========
Net income per share:
Basic................. $ 0.47 $ 0.54
======== ========
Diluted............... $ 0.39 $ 0.54
======== ========
Number of shares used in
computing net income
per share:
Basic................. 57,554 68,045
======== ========
Diluted............... 63,789 68,045
======== ========
</TABLE>
See Accompanying Notes to Unaudited Condensed Financial Statements.
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CATALYTICA, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2000
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Catalytica, Inc.
Catalytica (after giving
Catalytica, Inc. Energy effect to the
Historical Systems(1) Adjustments Spin-off)
---------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Product sales......... $243,315 -- -- $243,315
Research and
development
contracts............ 29,863 $(3,890) -- 25,973
-------- ------- ------- --------
Total revenues...... 273,178 (3,890) -- 269,288
Costs and expenses:
Cost of product
sales................ 195,686 -- -- 195,686
Research and
development.......... 36,024 (7,304) -- 28,720
Selling, general and
administrative....... 19,629 (5,366) -- 14,263
-------- ------- ------- --------
Total costs and
expenses........... 251,339 (12,670) -- 238,669
-------- ------- ------- --------
Operating income........ 21,839 8,780 -- 30,619
Interest income......... 1,731 (596) -- 1,135
Interest expense........ (5,362) 106 -- (5,256)
Loss on joint ventures.. (236) 236 -- --
-------- ------- ------- --------
Income before income
taxes.................. 17,972 8,526 -- 26,498
Provision for income
taxes.................. (6,992) -- $(3,325)(7) (10,317)
-------- ------- ------- --------
Net income.......... $ 10,980 $ 8,526 $(3,325) $ 16,181
======== ======= ======= ========
Net income per share:
Basic................. $ 0.19 $ 0.24
======== ========
Diluted............... $ 0.15 $ 0.24
======== ========
Number of shares used in
computing net income
per share:
Basic................. 58,089 68,580
======== ========
Diluted............... 64,269 68,580
======== ========
</TABLE>
See Accompanying Notes to Unaudited Condensed Financial Statements.
55
<PAGE>
CATALYTICA, INC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Catalytica,
Inc.
Catalytica (after giving
Catalytica, Inc. Energy effect to the
Historical Systems(1) Adjustments Spin-off)
---------------- ---------- -------------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash
equivalents.......... $ 14,774 $ (5,315) $ (9,459) (2)(4) --
Short-term
investments.......... 4,980 (4,980) -- --
Accounts receivable,
net:
Trade................ 32,164 (1,002) -- 31,162
Joint venture and
employees........... 229 (375) -- (146)
-------- -------- --------- --------- --------
Total Accounts
Receivable........ 32,393 (1,377) -- 31,016
Inventory............ 110,754 (98) -- 110,656
Deferred taxes....... 12,951 -- -- 12,951
Prepaid expenses and
other assets........ 2,990 (19) -- 2,971
-------- -------- --------- --------- --------
Total current
assets............ 178,842 (11,789) (9,459) 157,594
Property, plant and
equipment, net:........ 248,589 (1,789) (3,500) (2) 243,300
Notes receivable from
employees.............. 470 (470) -- --
Other assets............ 595 -- -- 595
-------- -------- --------- --------- --------
Total Assets............ $428,496 $(14,048) $ (12,959) $401,489
======== ======== ========= ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 29,051 -- -- $ 29,051
Accrued payroll and
related expenses..... 14,496 (1,045) $ (1,279) (2) 12,172
Note payable to CESI.. -- -- 8,578 (2) 8,578
Deferred revenue...... 10,091 (195) -- 9,896
Other accrued
liabilities.......... 8,897 (1,637) 2,137 (2) 9,397
Income taxes payable.. 4,737 -- 65,943 (6) 70,680
Intercompany debt..... -- (6,126) 7,812 (5) 1,686
Current portion of
long-term debt....... 19,750 -- -- 19,750
-------- -------- --------- --------- --------
Total current
liabilities....... 87,022 (9,003) 83,191 161,210
Long-term debt.......... 36,000 -- -- 36,000
Intercompany debt....... -- (730) 730 (5) --
Deferred taxes.......... 16,031 -- -- 16,031
Deferred revenue and
other.................. 7,296 -- -- 7,296
Minority interest....... 41,000 -- (41,000) (3) --
Class A and B common
stock.................. 97,079 -- (97,079) (3) --
Stockholders' equity:
Common stock.......... 33 -- 26 (2)(3) 59
CESI Common and
Preferred............ -- (13) 16 3
Additional paid-in
capital.............. 116,267 (57,255) 169,224 (2)(3)(5) 228,236
Accumulated earnings
(deficit) and
deferred
compensation......... 27,768 52,953 (128,067) (2)(4)(6) (47,346)
-------- -------- --------- --------- --------
Total stockholders'
equity............ 144,068 (4,315) 41,199 180,952
-------- -------- --------- --------- --------
Total Liabilities.. $428,496 $(14,048) $ (12,959) $401,489
======== ======== ========= ========= ========
</TABLE>
See Accompanying Notes to Unaudited Condensed Financial Statements
56
<PAGE>
CATALYTICA, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited pro forma condensed statements of operations have been
prepared to illustrate Catalytica, Inc, immediately prior to its merger with
Synotex Acquisition Corporation (Acquisition Corp.). Acquisition Corp. is a
wholly-owned subsidiary of DSM N.V. Accordingly, for all periods presented,
Catalytica, Inc.'s historical results of operations have been prepared to
reflect the effects of the spin-off of Catalytica Energy Systems (the Energy
Systems and the Advanced Technologies businesses or "CESI") to stockholders of
Catalytica, Inc. The unaudited pro forma condensed balance sheet has been
prepared to reflect the effects of the spin-off of CESI to stockholders of
Catalytica, Inc., the resulting tax liability incurred by Catalytica, Inc. and
other transactions that have or will occur prior to the merger with
Acquisition Corp. The balance sheet shows the estimated tax costs assuming a
$300 million valuation of CESI.
The unaudited pro forma condensed financial statements are not necessarily
indicative of what the actual financial results would have been had the
transaction described above taken place on December 31, 1999 or September 30,
2000. In addition, they do not purport to indicate the future results of
operations or financial position of CESI or Catalytica, Inc. Also, these
unaudited pro forma condensed financial statements do not reflect any
adjustments that may result from the new accounting basis in the assets and
liabilities that may result from the merger of Catalytica, Inc. with
Acquisition Corp.
Weighted Average Shares Outstanding
Weighted average common shares outstanding were calculated as follows:
<TABLE>
<CAPTION>
Year ended Nine months
December 31, ended September 30,
Description 1999 2000
----------- ------------ -------------------
<S> <C> <C>
Weighted average shares outstanding........ 57,554 58,089
Incremental common shares attributable to:
Exchange of Catalytica Pharmaceutical, Inc.
options for Catalytica options immediately
prior to the merger and other convertible
securities................................ 7,528 7,528
Exercise of outstanding options............ 2,963 2,963
------ ------
Total pro forma shares assumed
outstanding............................. 68,045 68,580
====== ======
</TABLE>
Adjustments
The unaudited pro forma condensed statements give effect to the following
pro forma adjustments:
1. To carve out CESI.
2. To record compensation costs relating to the conversion of Catalytica
Pharmaceuticals, Inc. options into Catalytica options immediately prior to
the merger ($42.2 million); to record proceeds for exercise of options
($44.2 million); to record addition of capitalization of CESI resulting
from cash contribution and issuance of note by Catalytica, Inc. totalling
$50 million; and to record asset contribution of $3.5 million and transfer
of $1.3 million of liabilities.
3. Conversion of holders of minority interest ($41 million) and conversion of
Catalytica Class A and B common stock into Catalytica common stock ($97
million).
57
<PAGE>
4. To record estimated merger costs.
5. To record forgiveness of intercompany debt.
6. To record estimated income taxes resulting from the spin-off of CESI. The
taxable gain was calculated based on the company's effective tax rate,
multiplied by the difference between the projected total assumed market
capitalization of CESI ($300 million) and the sum of the estimated tax
basis of CESI, certain projected capital expenses and other deductions.
Each additional $100 million in valuation will reduce cash and retained
earnings by approximately $40 million.
7. To eliminate related tax benefits resulting from the exclusion of CESI's
taxable loss from Catalytica, Inc. consolidated tax filings.
58
<PAGE>
REGULATORY MATTERS
Set forth below is a summary of the regulatory requirements affecting
completion of the merger.
Antitrust Considerations
The HSR Act provides that transactions such as the merger may not be
completed until specified information has been submitted to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and the
specified waiting period has expired or been terminated. We and Synotex will
make all necessary and/or material merger filings.
The expiration or termination of the waiting period under the HSR Act would
not preclude the Antitrust Division, the Federal Trade Commission, state
authorities or private parties from challenging the merger on antitrust
grounds. We and Synotex believe that the merger, after giving effect to the
transactions contemplated by the merger agreement, will not violate antitrust
laws.
The parties also may be required to notify and secure antitrust clearance from
certain member states of the European Union and possibly non-European
countries before the merger can be completed.
Other Regulatory Matters
We and our subsidiaries have obtained from various regulatory authorities
franchises, permits and licenses which may need to be renewed, replaced or
transferred as a result of the merger. Approvals, consents or notifications
may be required in connection with these renewals, replacements or transfers.
We are not aware of any material governmental or regulatory approvals or
actions that may be required for completion of the merger other than as
described above. If any other governmental or regulatory approval or action is
or becomes required, we currently contemplate that we would seek that
additional approval or action.
CERTAIN LITIGATION
On August 4, 2000, a purported class action complaint Sims et al. v.
Cusumano et al., Civil Action 18197NC, was filed in the Chancery Court of the
State of Delaware against Catalytica, Morgan Stanley & Co. Incorporated and
Morgan Stanley Capital Partners III, L.P. and each of our directors by two of
our stockholders on behalf of themselves and of all of our other stockholders.
The plaintiffs contend that the proposed merger is unfair and they seek to,
among other things, enjoin the transaction. The complaint further alleges
conflicts of interest and breaches of fiduciary duties by our directors. The
plaintiffs claim to be seeking preliminary and permanent injunctions against
the merger and unspecified damages and costs. We have not yet responded to the
complaint. Based on the facts known to date, we believe this complaint is
without merit and intend to vigorously defend ourselves.
On August 14, 2000, the City of Glendale filed a complaint against
Catalytica, CESI and Genxon Power Systems, Inc. in Los Angeles County Superior
Court, Case No. EC029841. The complaint asserts claims against all defendants
for breach of contract, breach of the covenant of good faith and fair dealing,
fraud and negligent misrepresentation arising out of defendants' failure to
complete its performance under a Technical Services Agreement between the City
of Glendale and Catalytica providing for the retrofit of the FT4 engine with
the FT4 Xonon Combustion System. The City of Glendale seeks compensation
damages in excess of $7,500,000 and punitive damages. The defendants believe
they have meritorious defenses to the claims asserted and intend to defend the
action vigorously. While it is not possible to predict with certainty the
outcome of this matter, and while we do not believe an adverse result would
have a material effect on our consolidated financial position, it could be
material to the results of operations and cash flows for a fiscal year.
59
<PAGE>
SECURITY OWNERSHIP OF CATALYTICA COMMON STOCK
The following table sets forth, as of September 30, 2000, certain
information with respect to the beneficial ownership of our common stock by
. each person we know to own beneficially more than five percent of the
outstanding shares of our common stock,
. each of our directors,
. each of the executive officers named in the table under "Executive
Compensation--Summary Compensation Table,"
. all directors and executive officers as a group; and
. percentage beneficial ownership is based on 46,561,831 shares of common
stock, which includes 13,270,000 shares of Class A common stock, that
are outstanding as of September 30, 2000.
Except as otherwise indicated in the footnotes to this table, the persons
and entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property laws,
where applicable.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially
Owned
---------------------
Percentage
Name of Person or Identity of Group Number Ownership
----------------------------------- ---------- ----------
<S> <C> <C>
5% Owners:
Franklin Resources, Inc. ................................ 2,945,000 6.32%
777 Mariners Island Blvd.
San Mateo, California 94404
Morgan Stanley Capital Partners III, L.P.(1)............. 13,270,000 28.50%
1221 Avenue of the Americas
New York, New York 10020
Officers and Directors:
Alan Goldberg(1)......................................... 13,270,000 28.50%
Howard Hoffen(1)......................................... 13,270,000 28.50%
Ricardo B. Levy(2)....................................... 1,244,801 2.65%
James A. Cusumano(3)..................................... 1,296,521 2.75%
Richard Fleming(4)....................................... 182,712 *
Ralph Dalla Betta(5)..................................... 444,762 *
Lawrence W. Briscoe(6)................................... 282,580 *
Ernest Mario(7).......................................... 102,300 *
John A. Urquhart(8)...................................... 36,000 *
John M. Hart(9).......................................... 85,830 *
Jackie Cossmon(10)....................................... 25,830 *
All officers and directors as a group (11 persons)(11)... 16,970,673 35.02%
</TABLE>
--------
(1) Represents 13,270,000 voting shares of Class A stock held by Morgan
Stanley Capital Partners III, L.P. and two affiliated funds. Excludes
11,730,000 non-voting shares of Class B stock also held by Morgan Stanley
that may be converted into Class A stock to the extent that Morgan
Stanley Capital Partners and its affiliates own no more than 40% of the
outstanding voting stock of Catalytica. Mr. Goldberg and Mr. Hoffen are
Managing Directors of Morgan Stanley Dean Witter. Mr. Goldberg and Mr.
Hoffen disclaim beneficial ownership of the shares owned by Morgan
Stanley.
(2) Includes shares held by the following trusts, of which Dr. Levy serves as
trustee: (i) 668,877 shares held by the Levy Family Trust; (ii) 40,520
shares held by the Polly Jean Cusumano Trust; and (iii) 38,971 shares
60
<PAGE>
held by the Doreen Ann Nelson Trust. Dr. Levy disclaims beneficial
ownership for the shares owned by the Polly Jean Cusumano Trust and the
Doreen Ann Nelson Trust. Also includes (i) 261,833 shares of the common
stock issuable pursuant to options which are exercisable within 60 days of
September 30, 2000, or in connection with the merger, and (ii) 234,600
shares of common stock issuable upon conversion of options to purchase
Catalytica Pharmaceuticals common stock that are exercisable within 60 days
of September 30, 2000, or in connection with the merger.
(3) Includes shares held by the following trusts, of which Dr. Cusumano serves
as trustee: (i) 431,606 shares held by the Cusumano Family Trust; (ii)
114,028 shares held by the Brian K. Levy Trust; and (iii) 94,687 shares
held by the Tamara Levy Trust. Dr. Cusumano disclaims beneficial ownership
of the shares owned by the Brian K. Levy Trust and the Tamara Levy Trust.
Also includes (i) 118,000 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 538,200 shares of common stock
issuable upon conversion of options to purchase Catalytica Pharmaceuticals
common stock that are exercisable within 60 days of September 30, 2000, or
in connection with the merger.
(4) Also includes (i) 16,000 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 164,450 shares of common stock
issuable upon conversion of options to purchase Catalytica Pharmaceuticals
common stock that are exercisable within 60 days of September 30, 2000, or
in connection with the merger.
(5) Also includes (i) 28,476 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 1,610 shares of common stock issuable
upon conversion of options to purchase Catalytica Pharmaceuticals common
stock that are exercisable within 60 days of September 30, 2000, or in
connection with the merger.
(6) Also includes (i) 175,400 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 107,180 shares of common stock
issuable upon conversion of options to purchase Catalytica Pharmaceuticals
common stock that are exercisable within 60 days of September 30, 2000, or
in connection with the merger.
(7) Also includes (i) 31,000 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 71,300 shares of common stock
issuable upon conversion of options to purchase Catalytica Pharmaceuticals
common stock that are exercisable within 60 days of September 30, 2000, or
in connection with the merger.
(8) Also includes (i) 36,000 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger.
(9) Also includes (i) 49,900 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 34,500 shares of common stock
issuable upon conversion of options to purchase Catalytica Pharmaceuticals
common stock that are exercisable within 60 days of September 30, 2000, or
in connection with the merger.
(10) Also includes (i) 17,300 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 5,750 shares of common stock issuable
upon conversion of options to purchase Catalytica Pharmaceuticals common
stock that are exercisable within 60 days of September 30, 2000, or in
connection with the merger.
(11) Also includes (i) 733,909 shares of common stock issuable pursuant to
options which are exercisable within 60 days of September 30, 2000, or in
connection with the merger, and (ii) 1,157,590 shares of common stock
issuable upon conversion of options to purchase Catalytica Pharmaceuticals
common stock that are exercisable within 60 days of September 30, 2000, or
in connection with the merger.
61
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed on the Nasdaq National Market under the symbol
"CTAL." The following table sets forth, for the fiscal quarters indicated, the
high and low trading prices per share of our common stock as quoted on the
Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
1998:
First Quarter............................................. $13 15/32 $10 3/4
Second Quarter............................................ $19 5/8 $12 13/16
Third Quarter............................................. $20 3/16 $10 3/16
Fourth Quarter............................................ $18 7/8 $13 3/4
1999:
First Quarter............................................. $18 1/6 $11
Second Quarter............................................ $14 $10 7/8
Third Quarter............................................. $18 1/8 $11 1/2
Fourth Quarter............................................ $15 $ 9 3/8
2000:
First Quarter............................................. $16 1/4 $10 1/2
Second Quarter............................................ $15 1/8 $ 7 1/2
Third Quarter............................................. $13 13/16 $ 9 5/8
Fourth Quarter (through November 17, 2000)................ $13 13/16 $12 3/8
</TABLE>
We have never paid dividends on our common stock.
On August 1, 2000, the last full trading day prior to the public
announcement of the signing of the merger agreement, the closing sale price of
our common stock reported on the Nasdaq Stock Market was $12 3/8 per share. On
November 17, 2000, the most recent practicable date prior to the printing of
this proxy statement, the closing price of our common stock reported on the
Nasdaq National Market was $12 9/16. You are urged to obtain current market
quotations for our common stock prior to making any decision with respect to
the proposed merger.
As of November 13, 2000, there were approximately 762 holders of record of
our common stock, as shown on the records of our transfer agent. The number of
record holders does not include shares held in "street name" through brokers.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained herein should be considered "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 which is subject to a number of risks and uncertainties. The
preparation of forward-looking statements requires the use of estimates of
future revenues, expenses, activity levels and economic and market conditions,
many of which are outside our control. Specific factors that could cause
actual results to differ materially from those set forth in the forward-
looking statements include: economic conditions; labor costs; cost of
supplies; competitive pressures on pricing, particularly from lower-cost
competitors; government legislation; customer perceptions of our products;
demand for our products; and other operational matters and risks and
uncertainties listed from time to time in our reports to the SEC. Other
factors and assumptions not identified above are also involved in the
preparation of forward-looking statements, and the failure of such other
factors and assumptions to be realized may also cause actual results to differ
materially from those discussed. We assume no obligation to update such
estimates to reflect actual results, changes in assumptions or changes in
other factors affecting such estimates.
62
<PAGE>
OTHER INFORMATION
Proposals by Stockholders of Catalytica
If we complete the merger, we will no longer have public stockholders or any
public participation in our stockholder meetings. If we do not complete the
merger, we intend to hold our next annual stockholder meeting in 2001. In that
case, if you are still a stockholder as of the record date of that meeting,
you would continue to be entitled to attend and participate in our stockholder
meetings. Proposals by our stockholders that are intended to be presented at
our 2001 annual meeting must be received by us no later than February 9, 2001
in order that they may be considered for inclusion in the proxy statement and
form of proxy relating to that meeting.
Pursuant to our bylaws, stockholders who wish to bring matters or propose
nominees for Director at the our 2001 annual meeting of stockholders must
provide specified information in writing to our secretary not less than 90
days nor more than 120 days prior to June 8, 2001, the first anniversary of
the 2000 annual meeting, unless those matters are included in our proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act, as
amended. If a stockholder fails to comply with the foregoing notice provision,
then the proxy holders will be allowed to use their voting discretionary
authority when the proposal is raised at the 2001 annual meeting.
Where You Can Find More Information
As required by law, we file reports, proxy statements and other information
with the SEC. You may read and copy this information at the following offices
of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
For further information concerning the SEC's public reference rooms, you may
call the SEC at 1-800-SEC-0330. You may obtain copies of this information by
mail from the public reference section of the SEC, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. You may also access
some of this information via the World Wide Web through the SEC's Internet
address at http://www.sec.gov.
63
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SYNOTEX COMPANY, INC.,
SYNOTEX ACQUISITION CORPORATION
AND
CATALYTICA, INC.
Dated as of August 2, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Article I The Merger............................................. A-2
Section 1.1 The Merger............................................. A-2
Section 1.2 Effect on Company Common Stock......................... A-2
Section 1.3 Exchange of Certificates............................... A-5
Section 1.4 Company Options: Company Warrants...................... A-5
Section 1.5 Employee Stock Purchase Plan........................... A-7
Section 1.6 Distribution of the Energy Business.................... A-7
Section 1.7 Lost Certificates...................................... A-8
Section 1.8 Merger Closing......................................... A-8
Section 1.9 Dispute Resolution..................................... A-8
Article II The Surviving Corporation.............................. A-9
Section 2.1 Certificate of Incorporation........................... A-9
Section 2.2 By-Laws................................................ A-9
Section 2.3 Officers And Directors................................. A-9
Article III Representations and Warranties of the Company.......... A-10
Section 3.1 Corporate Existence and Power.......................... A-10
Section 3.2 Corporate Authorization................................ A-10
Section 3.3 Consents and Approvals; No Violations.................. A-11
Section 3.4 Capitalization......................................... A-11
Section 3.5 Subsidiaries........................................... A-12
Section 3.6 SEC Documents.......................................... A-12
Section 3.7 Financial Statements................................... A-12
Section 3.8 Absence Of Undisclosed Liabilities..................... A-13
Section 3.9 Proxy Statement, Registration Statement................ A-13
Section 3.10 Absence Of Material Adverse Changes, Etc. ............. A-13
Section 3.11 Taxes.................................................. A-14
Section 3.12 Employee Benefit Plans................................. A-15
Section 3.13 Litigation; Compliance With Laws....................... A-17
Section 3.14 Labor Matters.......................................... A-17
Section 3.15 Certain Contracts And Arrangements..................... A-17
Section 3.16 Environmental Matters.................................. A-18
Section 3.17 Intellectual Property.................................. A-19
Section 3.18 Opinions of Financial Advisors......................... A-20
Section 3.19 Board Recommendation................................... A-20
Section 3.20 Finders' Fees.......................................... A-20
Section 3.21 Section 203 of the Delaware General Corporation Law.... A-21
Section 3.22 Control of Pharma...................................... A-21
Section 3.23 Rights Plan............................................ A-21
Section 3.24 Energy Contributions................................... A-21
Article IV Representations and Warranties of Parent and Merger
Sub.................................................... A-22
Section 4.1 Corporate Existence and Power.......................... A-22
Section 4.2 Authorization.......................................... A-22
Section 4.3 Consents and Approvals; No Violations.................. A-22
Section 4.4 Proxy Statement........................................ A-23
Section 4.5 Litigation; Compliance With Laws....................... A-23
Section 4.6 Board Approval......................................... A-23
Section 4.7 Absence of Material Adverse Change..................... A-23
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.8 Financing.............................................. A-23
Section 4.9 Finders' Fees.......................................... A-23
Article V Covenants of the Parties............................... A-24
Section 5.1 Conduct of the Business of the Company................. A-24
Section 5.2 Conduct of the Business of Parent...................... A-26
Section 5.3 Stockholders' Meeting; Proxy Material.................. A-26
Section 5.4 Access to Information; Confidentiality Agreement....... A-26
Section 5.5 No Solicitation........................................ A-27
Section 5.6 Director and Officer Liability......................... A-27
Section 5.7 Commercially Reasonable Efforts........................ A-28
Section 5.8 Certain Filings........................................ A-28
Section 5.9 Public Announcements................................... A-29
Section 5.10 Further Assurances..................................... A-29
Section 5.11 Employee Matters....................................... A-29
Section 5.12 Disposition of Energy Business......................... A-30
Section 5.13 Capitalization of Pharma............................... A-30
Section 5.14 State Takeover Laws.................................... A-30
Section 5.15 Certain Notifications.................................. A-30
Section 5.16 Minority Interest of CCSI.............................. A-30
Article VI Conditions to the Merger............................... A-31
Section 6.1 Conditions to Each Party's Obligations................. A-31
Conditions to the Company's Obligation to Consummate
Section 6.2 the Merger............................................. A-31
Conditions to Parent's Obligations to Consummate the
Section 6.3 Merger................................................. A-31
Conditions to Company's Obligation to Consummate the
Section 6.4 Distribution........................................... A-32
Article VII Termination............................................ A-33
Section 7.1 Termination............................................ A-33
Section 7.2 Effect of Termination.................................. A-34
Section 7.3 Fees................................................... A-34
Article VIII Miscellaneous.......................................... A-35
Section 8.1 Notices................................................ A-35
Section 8.2 Survival of Representations and Warranties............. A-36
Section 8.3 Interpretation......................................... A-36
Section 8.4 Amendments, Modification and Waiver.................... A-36
Section 8.5 Successors and Assigns................................. A-36
Section 8.6 Expenses............................................... A-36
Section 8.7 Specific Performance................................... A-36
Section 8.8 Governing Law.......................................... A-37
Section 8.9 Forum Selection; Consent to Jurisdiction............... A-37
Section 8.10 Severability........................................... A-37
Section 8.11 Third Party Beneficiaries.............................. A-37
Section 8.12 Entire Agreement....................................... A-37
Section 8.13 Counterparts; Effectiveness............................ A-37
Schedule 1.6 Terms of Distribution.................................. A-39
</TABLE>
ii
<PAGE>
DEFINED TERMS
<TABLE>
<S> <C>
Actual Exercise Payment.................................... Section 1.4(b)
Acquisition Proposal....................................... Section 5.5
Acquisition Transaction.................................... Section 7.3(a)(ii)
Affiliate.................................................. Section 8.3
Agreement.................................................. Introduction
Antitrust Law.............................................. Section 5.8(d)
Applicable Tax Rate........................................ Section 1.2(b)
Capitalization Amount...................................... Section 1.2(b)
CAT........................................................ Section 1.2(b)
Cash Amount................................................ Section 1.2(b)
CCSI....................................................... Section 1.2(b)
Certificates............................................... Section 1.3(b)
Chargeable Gain............................................ Section 1.2(b)
Cleanup.................................................... Section 3.16(a)
Closing.................................................... Section 1.8
Closing Date............................................... Section 1.8
Code....................................................... Section 3.11(a)
Company.................................................... Introduction
Company Approval Matters................................... Section 5.3(a)
Company Common Stock....................................... Section 3.4
Company Disclosure Schedule................................ Article III
Company ESPP............................................... Section 1.5
Company Group Members...................................... Section 3.11(a)
Company Material Adverse Effect............................ Section 3.1
Company Options............................................ Section 1.4(a)
Company Participants....................................... Section 5.11(a)
Company SEC Documents...................................... Section 3.6
Company Securities......................................... Section 3.4
Company Warrant............................................ Section 1.4(d)
Confidentiality Agreement.................................. Section 5.4
CSFB....................................................... Section 3.18
DGCL....................................................... Recitals
Dissenting Shares.......................................... Section 1.2(c)(i)
Distribution............................................... Section 1.6
Distribution Gain.......................................... Section 1.2(b)
Distribution Statement..................................... Section 3.9(b)
Dutch Parent............................................... Recitals
Effective Time............................................. Section 1.1(b)
Energy Business............................................ Section 1.6
Enron...................................................... Section 1.2(b)
Environmental Claim........................................ Section 3.16(a)(ii)
Environmental Costs and Liabilities........................ Section 3.16(a)(iii)
Environmental Laws......................................... Section 3.16(a)(iv)
ERISA...................................................... Section 3.12(a)
ERISA Affiliate............................................ Section 3.12(a)
ERISA Pension Plan......................................... Section 3.12(m)
Estimated Exercise Payment................................. Section 1.4(a)
Exchange Act............................................... Section 3.3(b)
Exchange Fund.............................................. Section 1.3(a)
Fair Market Value of Spinco Stock.......................... Section 1.2(b)
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
GAAP........................................................ Section 3.7(a)
Glaxo....................................................... Section 1.2(b)
Governmental Entity......................................... Section 3.3(b)
Guarantee................................................... Recitals
Hazardous Materials......................................... Section 3.16(a)(v)
HRS Act..................................................... Section 3.3(b)
Include, Includes or Including.............................. Section 8.3
Indemnitees................................................. Section 5.6(a)
Intellectual Property....................................... Section 3.17(c)
Knowledge................................................... Section 8.3
Licenses.................................................... Section 3.1
Lien........................................................ Section 3.5(b)
Maximum Amount.............................................. Section 5.6(b)
Merger...................................................... Recitals
Merger Consideration........................................ Section 1.2(b)
Merger Sub.................................................. Introduction
Morgan Stanley.............................................. Section 3.18
Net Transaction Tax Liability............................... Section 1.2(b)
Non-Energy Subsidiary....................................... Section 1.2(b)
Option Cash-Out Amount...................................... Section 1.4(c)
Option Notice............................................... Section 1.4(a)
Option Proceeds............................................. Section 1.2(b)
Outside Date................................................ Section 7.1(b)
Parent...................................................... Introduction
Parent Disclosure Schedule.................................. Article IV
Parent Material Adverse Effect.............................. Section 4.1
Parent Plans................................................ Section 5.11(a)
Paying Agent................................................ Section 1.3(a)
Permits..................................................... Section 3.13(b)
Person...................................................... Section 1.3(a)
Pharma...................................................... Section 1.2(b)
Pharma Costs................................................ Section 1.2(b)
Pharma Merger............................................... Section 1.2(b)
Pharma Rights............................................... Section 1.2(b)
Plans....................................................... Section 3.12(a)
Preferred Stock............................................. Section 3.4
Proxy Statement............................................. Section 5.3(b)
Release..................................................... Section 3.16(a)(vi)
Representatives............................................. Section 5.4
Repurchase Rights........................................... Section 1.2(b)
Rights Agreement............................................ Section 3.4
Secretary of State.......................................... Section 1.1(b)
Securities Act.............................................. Section 3.3(b)
Separation Date............................................. Section 1.2(b)
Share Exchange Agreements................................... Section 1.2(b)
Special Meeting............................................. Section 5.3(a)
Spinco...................................................... Section 1.6
Stockholder................................................. Recitals
Stockholder Parties......................................... Recitals
Subsidiary.................................................. Section 1.2(b)
Superior Proposal........................................... Section 5.5
Surviving Corporation....................................... Section 1.1(a)
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Taxes........................................................... Section 3.11(b)
Tax Return...................................................... Section 3.11(b)
Termination Fee................................................. Section 7.3(a)
Transaction Expenses............................................ Section 1.2(b)
Voting Agreement................................................ Recitals
Warrant Cash-Out Amount......................................... Section 1.4(d)
Without Limitation.............................................. Section 8.3
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of August 2, 2000 (this "Agreement"),
by and among Synotex Company, Inc., a Delaware corporation ("Parent"), Synotex
Acquisition Corporation, a Delaware corporation ("Merger Sub"), and
Catalytica, Inc., a Delaware corporation (the "Company").
WITNESSETH
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Parent, Merger Sub and the Company have agreed to enter into a
business combination transaction pursuant to which Merger Sub will merge with
and into the Company (the "Merger").
WHEREAS, the Boards of Directors of Parent and Merger Sub (i) have
determined that the Merger is fair to, advisable and in the best interests of
Parent, Merger Sub and their stockholders, and (ii) have approved this
Agreement, the Merger and the other transactions contemplated by this
Agreement.
WHEREAS, in connection with, and as a condition to, the Merger, the Company
shall distribute to its stockholders its entire ownership interest in the
Energy Business subject to, and in accordance with, the terms and conditions
of this Agreement.
WHEREAS, Parent is a wholly-owned subsidiary of DSM, N.V., a corporation
organized under the laws of the Netherlands ("Dutch Parent").
WHEREAS, as a condition to, and concurrently with, the execution of this
Agreement, Dutch Parent is entering into a Guarantee Agreement (the
"Guarantee") with the Company.
WHEREAS, as a condition to, and concurrently with, the execution of this
Agreement, Parent and the Company are entering into a Voting Agreement (the
"Voting Agreement") with Morgan Stanley Capital Partners III, L.P., Morgan
Stanley Capital Investors, L.P., MSCP III 892 Investors, L.P., James A.
Cusumano and Ricardo B. Levy (each a "Stockholder" and, together, the
"Stockholder Parties") pursuant to which the Stockholder Parties have agreed,
inter alia, to vote in favor of the approval and adoption of this Agreement.
WHEREAS, for United States federal income tax purposes, it is intended that
the Distribution (as defined below) and the Merger will be treated with
respect to the Company stockholders as an integrated transaction and that the
Distribution will be treated as a redemption of outstanding Company Common
Stock (as defined below) in connection with the complete termination of the
Company stockholders' interest in the Company.
WHEREAS, the Board of Directors of the Company (i) has determined that the
Merger Agreement and the Merger are advisable, fair to, and in the best
interests of, the Company and its stockholders, (ii) has approved this
Agreement, the Voting Agreement, the Merger and the other transactions
contemplated by this Agreement and the Voting Agreement, and (iii) has
determined to recommend the approval and adoption of this Agreement and the
Merger by the stockholders of the Company.
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<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises, and the
covenants, promises and representations set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and accepted, the parties hereto hereby agree as follows:
Article I
The Merger
Section 1.1 The Merger
(a) Upon the terms and subject to the conditions of this Agreement, and
in accordance with the DGCL, at the Effective Time, Merger Sub shall be
merged with and into the Company, whereupon the separate existence of
Merger Sub shall cease, and the Company shall continue as the surviving
corporation (sometimes referred to herein as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Delaware and
shall continue under the name "DSM Catalytica Pharmaceuticals, Inc."
(b) Concurrently with the Closing (as defined in Section 1.8 hereof), the
Company and Merger Sub shall cause a certificate of merger with respect to
the Merger to be executed and filed with the Secretary of State of the
State of Delaware (the "Secretary of State") as provided in the DGCL. The
Merger shall become effective at 9:00 a.m. Eastern Standard Time on the day
following the Closing Date or at such other date and time as is agreed by
the parties, and such date and time is hereinafter referred to as the
"Effective Time."
(c) The Merger shall have the effects set forth in the DGCL. Without
limiting the generality of the foregoing and subject thereto, from and
after the Effective Time, the Surviving Corporation shall possess all
properties, rights, privileges, immunities, powers and franchises and be
subject to all of the obligations, restrictions, disabilities, liabilities,
debts and duties of the Company and Merger Sub.
Section 1.2 Effect on Company Common Stock. At the Effective Time:
(a) Cancellation of Shares of Company Common Stock. Each share of Company
Common Stock held by the Company as treasury stock and each share of
Company Common Stock owned by Spinco (as defined in Section 1.6), Parent,
Merger Sub or any direct or indirect wholly-owned subsidiary of Spinco,
Parent or the Company immediately prior to the Effective Time shall
automatically be cancelled and retired and cease to exist, and no
consideration or payment shall be delivered therefor or in respect thereto.
All shares of Company Common Stock to be converted into Merger
Consideration pursuant to this Section 1.2 shall, by virtue of the Merger
and without any action on the part of the holders thereof, cease to be
outstanding, be cancelled and retired and cease to exist, and each holder
of a Certificate (as defined in Section 1.3(b)) shall thereafter cease to
have any rights with respect to such shares of Company Common Stock, except
the right to receive the Merger Consideration into which such shares of
Company Common Stock have been converted.
(b) Conversion of Shares of Company Common Stock. Subject to Section
1.3(d) hereof, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Company
Common Stock referred to in the first sentence of Section 1.2(a) hereof and
Dissenting Shares (as defined in Section 1.2(c)) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive an amount of cash, without interest,
equal to the Merger Consideration. "Merger Consideration" shall mean the
quotient obtained by dividing (x) the Cash Amount (as defined below) by (y)
the sum of (A) the number of shares of Company Common Stock outstanding as
of the Effective Time (including shares deemed outstanding pursuant to
Sections 1.4(b) and 1.5 hereof), (B) the number of shares of Company Common
Stock subject to Company Options for which the Option Cash-Out Amount has
or will be paid pursuant to Section 1.4(c), and (C) the number of shares of
Company Common Stock subject to the Company Warrant for which the Warrant
Cash-Out Amount has or will be paid. The "Cash Amount" shall equal
$750,000,000, plus Option Proceeds, less the
A-2
<PAGE>
Capitalization Amount, less Net Transaction Tax Liability, less Pharma
Costs, less Repurchase Costs, less Transaction Expenses (each, without
duplication). "Option Proceeds" shall mean the aggregate exercise price of
(aa) all Company Options deemed to be exercised pursuant to Section 1.4(b),
(bb) the Company Warrant, if and to the extent exercised after the date
hereof, (cc) all shares of Company Common Stock subject to Company Options
for which the Option Cash-Out Amount has or will be paid pursuant to
Section 1.4(c), (dd) the Company Warrant, if the Warrant Cash-Out Amount
has or will be paid pursuant to Section 1.4(d) and (ee) the aggregate
purchase price of shares of Company Common Stock purchased pursuant to
Section 1.5. "Capitalization Amount" shall mean the amount of cash and the
fair market value of any property contributed by the Company or any
Subsidiary of the Company other than Catalytica Combustion Systems, Inc.
("CCSI") or Catalytica Advanced Technologies, Inc. ("CAT") to the Energy
Business (as defined in Section 1.6) after June 30, 2000, excluding the
cancellation of any outstanding intercompany accounts, notes or payables;
provided, however, that for purposes of determining the Cash Amount: (i) no
capital contribution of cash or property shall be deemed to have occurred
in connection with the exercise of any option to purchase capital stock of
the Company or any Subsidiary as a result of the application of Treas. Reg.
(S)1.1032-3 or any similar state law and (ii) any deduction allowable for
federal, state, or local income tax purposes to Spinco in connection with
the exercise of any option to purchase stock of the Company or any
Subsidiary shall not be taken into account to the extent such amounts have
been taken into account in determining Net Transaction Tax Liability.
"Pharma Costs" shall mean the aggregate amount of cash and the fair market
value of property (other than Company Common Stock) paid or payable by the
Company, Pharma (as hereinafter defined) or any Subsidiary of the Company
other than CCSI or CAT (a "Non-Energy Subsidiary") in order to assure that
100% of the fully-diluted equity of Pharma shall be owned by the Company as
of the Effective Time, free and clear of all liens, charges and
encumbrances and that, immediately prior to, and at, the Effective Time,
there are no issued or outstanding (i) securities of any person convertible
into or exchangeable for shares of capital stock or voting securities of
any entity comprising Pharma, (ii) options, warrants, preemptive or other
rights to acquire from any entity comprising Pharma, and no obligation of
any such entity to issue, any capital stock or voting securities of any
such entity, or (iii) equity equivalent interests in the ownership or
earnings of any entity comprising Pharma or other similar rights (the items
in clauses (i), (ii), and (iii) being referred to collectively as "Pharma
Rights"). "Repurchase Costs" shall mean the aggregate amount of cash and
the fair market value of property (other than Company Common Stock), if
any, paid or payable by the Company or any Non-Energy Subsidiary (xx) to
Enron Ventures Corp. or any of its affiliates ("Enron") in order to perform
the covenants set forth in Section 5.16 and (yy) to repurchase any shares
of capital stock of the Company or any Non-Energy Subsidiary in accordance
with Section 5.1(b); provided, however, that no such amount set forth in
this clause (yy) shall be duplicated with other amounts deducted in the
calculation of the Cash Amount. "Transaction Expenses" shall mean the
amount in excess of $5,000,000 of aggregate fees, costs or other expenses
(including attorneys' fees, investment banking fees, finder's fees,
breakage or prepayment fees or penalties) paid or incurred by the Company
or any Non-Energy Subsidiary, in connection with the negotiation, execution
or delivery of this Agreement, or the Voting Agreement or compliance by the
Company or any Non-Energy Subsidiary herewith. "Pharma" shall mean
Catalytica Pharmaceuticals, Inc. and Wyckoff, Inc. and their direct and
indirect subsidiaries. "Net Transaction Tax Liability" shall mean the
product derived by multiplying the Applicable Tax Rate by the Chargeable
Gain. The "Applicable Tax Rate" shall be 0.405. "Chargeable Gain" shall
mean the algebraic sum of the following items (without duplication): (I)
the Distribution Gain; less (II) any deductible items of the Company
attributable to the Distribution, treating expenses related to the
Distribution incurred or accrued on the date of the Distribution (the
"Separation Date") as not allocable to Spinco's tax period beginning on the
date after the Closing Date under Treas. Reg. (S)1.1502-76(b)(1)(ii)(B);
less (III) any net operating losses of Spinco for its tax year ended on the
Separation Date available for application against income of the
consolidated group of which the Company is the common parent for the
Company's tax year ending on the Closing Date; less (IV) the amount of any
allowable deductions accrued on or prior to the Closing Date attributable
to the acceleration, exercise or cancellation of the Company Options after
the date hereof and on or prior to the Closing Date (assuming for the
purposes of this subsection that a disqualifying disposition occurs with
respect to all Company Options that are "incentive stock options" under
Section 422 of the Code (as defined in
A-3
<PAGE>
Section 3.11(a)) that are exercised or cashed-out pursuant to Section
1.4(c) on or prior to the Closing Date); plus (V) the amount, if any, of
the positive taxable income of Spinco required to be included for U.S.
federal income tax purposes in the taxable income of the consolidated group
of which the Company is the common parent for the Company's tax year ending
on the Closing Date . "Distribution Gain" shall mean the excess, if any, of
the Fair Market Value of the Spinco Stock distributed in the Distribution,
over the Company's tax basis for U.S. federal income tax purpose in such
Spinco Stock. The "Fair Market Value of Spinco Stock" shall be determined
by multiplying the weighted average trading price of a share of Spinco
stock on the first full day of trading after the Distribution by the number
of shares of Spinco stock distributed. For purposes of this Agreement,
"Subsidiary" means with respect to any person, any corporation or other
legal entity of which such person owns, directly or indirectly, more than
50% of the outstanding stock or other equity interests, the holders of
which are entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity. "Pharma
Merger" shall be a merger of a Subsidiary of the Company with undertaken in
order to assure that 100% of the fully-diluted equity of Pharma shall be
owned by the Company. The "Share Exchange Agreements" shall mean (a) the
Share Exchange Agreement, dated as of July 31, 1997, by and among the
Company, Catalytica Pharmaceuticals, Inc. and GlaxoWellcome Inc.
(collectively with its affiliates, "Glaxo"), (b) the Share Exchange
Agreement, dated as of May 6, 1996, by and between the Company and Pfizer
Inc., and (c) the Stockholders Agreement, dated as of January 14, 1998, by
and among the Company, CCSI and Enron.
(c) Dissenting Shares.
(i) Any shares of Company Common Stock held by a holder who has
demanded and perfected appraisal rights for such shares in accordance
with Section 262 of the DGCL and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal rights ("Dissenting
Shares") shall not be converted into or represent a right to receive
Merger Consideration pursuant to Section 1.2(b), but the holder thereof
shall only be entitled to such rights as are granted by the DGCL.
(ii) Notwithstanding the provisions of subsection (i) above, if any
holder of shares of Company Common Stock who demands appraisal of such
shares under the DGCL shall effectively withdraw or lose (through
failure to perfect or otherwise) such holder's appraisal rights, then,
as of the later of (A) the Effective Time or (B) the occurrence of such
event, such holder's shares of Company Common Stock shall automatically
be converted into and represent only the right to receive Merger
Consideration as provided in Section 1.2(b), without interest thereon,
upon surrender of the Certificate representing such shares.
(iii) The Company shall give Parent (A) prompt notice of its receipt
of any written demands for appraisal of any shares of Company Common
Stock, withdrawals of such demands, and any other instruments relating
to the Merger served pursuant to the DGCL and received by the Company
and (B) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal of any shares of Company Common Stock
under the DGCL. The Company shall not, except with the prior written
consent of Parent or as may be required under applicable law (in which
case Parent shall be consulted), voluntarily make any payment with
respect to any demands for the appraisal of Company Common Stock or
offer to settle or settle any such demands or approve any withdrawal of
such demands.
(d) Closing of the Company's Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of
Company Common Stock shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall
be cancelled and exchanged for Merger Consideration as provided in this
Article I, subject to applicable law in the case of Dissenting Shares.
(e) Conversion of Common Stock of Merger Sub. Each share of common stock,
$0.01 par value, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall remain issued and outstanding and shall constitute
a share of common stock of the Surviving Corporation.
A-4
<PAGE>
Section 1.3 Exchange of Certificates
(a) Prior to the mailing of the Proxy Statement (as defined in Section
5.3(b) hereof) a bank, trust company or other person, reasonably acceptable
to the Company, shall be designated by Parent to act as the depositary and
paying agent for the delivery of the Merger Consideration in exchange for
shares of Company Common Stock (the "Paying Agent") in connection with the
Merger. From time to time, as necessary, at or following the Effective
Time, Parent shall deposit, or cause to be deposited, with the Paying Agent
the amount needed to pay the portion of the aggregate Merger Consideration
for the benefit of the holders of shares of Company Common Stock which are
converted into the right to receive Merger Consideration pursuant to
Section 1.2(b) hereof for which Certificates have been surrendered or
payment is otherwise due (the "Exchange Fund"). For purposes of this
Agreement, "person" means any natural person, firm, individual,
corporation, limited liability company, partnership, association, joint
venture, company, business trust, trust or any other entity or
organization, whether incorporated or unincorporated, including a
government or political subdivision or any agency or instrumentality
thereof.
(b) As of or promptly following the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each holder of record
of a certificate or certificates, which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (other than
Dissenting Shares) (the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent and which shall be in the form and have
such other provisions as Parent and the Company may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration into which the number of shares of
Company Common Stock previously represented by such Certificate shall have
been converted into the right to receive pursuant to this Agreement (which
instructions shall provide that, at the election of the surrendering
holder, Certificates may be surrendered, and the Merger Consideration in
exchange therefor collected, by hand delivery). Upon surrender of a
Certificate for cancellation to the Paying Agent, together with a letter of
transmittal duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant
to such instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration for each share of
Company Common Stock formerly represented by such Certificate, to be mailed
(or made available for collection by hand if so elected by the surrendering
holder) within three business days of receipt thereof (but in no case prior
to the Effective Time), and the Certificate so surrendered shall be
forthwith cancelled. The Paying Agent shall accept such Certificates upon
compliance with such reasonable terms and conditions as the Paying Agent
may impose to effect an orderly exchange thereof in accordance with normal
exchange practices.
(c) Any portion of the Exchange Fund which remains undistributed to the
holders of Certificates for six months after the Effective Time shall be
delivered to Parent, upon demand, and any holders of shares of Company
Common Stock prior to the Merger who have not theretofore complied with
this Article I shall thereafter look for payment of their claim, as general
creditors thereof, only to Parent for their claim for Merger Consideration,
without interest.
(d) None of Parent, the Company or the Paying Agent shall be liable to
any person in respect of any Merger Consideration held in the Exchange Fund
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificates shall not have been
surrendered prior to one year after the Effective Time (or immediately
prior to such earlier date on which Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.3(b) hereof)), any such Merger
Consideration in respect of such Certificate shall, to the extent permitted
by applicable law, become the property of Parent, free and clear of all
claims or interest of any person previously entitled thereto.
Section 1.4 Company Options; Company Warrants
(a) Not later than fifteen days (15) prior to the Effective Time, the
Company shall send a notice (the "Option Notice") to all holders of options
to purchase Company Common Stock (the "Company
A-5
<PAGE>
Options"): (i) specifying that such options shall not be assumed in
connection with the Merger, (ii) specifying that the vesting restrictions
applicable to all options to purchase Company Common Stock outstanding at
the time of such notice shall be eliminated such that no vesting
restrictions remain thereon effective as of the date such notice is given,
(iii) specifying that any Company Options outstanding as of the Effective
Time shall terminate and be cancelled at such time and represent only the
right to receive the consideration, if any, specified in Section 1.4(c) in
accordance with this Agreement, (iv) setting forth an estimate of the
Merger Consideration and (v) setting forth a description of how to
determine an estimate of the excess, if any, of the exercise price per
share of such Company Options over the estimated Merger Consideration (the
"Estimated Exercise Payment"). Except as expressly provided herein, the
Company shall not adjust the terms of any Company Option as a result of the
Distribution.
(b) The Company shall permit each holder of a Company Option who desires
to exercise all or any portion of such Company Option following receipt of
the Option Notice to exercise such Company Option (A) immediately prior to
the record date with respect to the Distribution or (B) after the record
date with respect to the Distribution but immediately prior to the
Effective Time or (C) at any other time permitted under the applicable
Company Option. In the event any such holder exercises all or any portion
of a Company Option as provided in clause (A) or (B) of the immediately
preceding sentence, (i) the holder shall be permitted to cause the Company
to withhold the exercise price with respect to such exercise out of the
Merger Consideration (to the extent thereof) to be received by such holder
in respect of the shares of Common Stock acquired pursuant to such exercise
and (ii) the holder shall be obligated to pay in cash to the Company, at
the time of exercise, the Estimated Exercise Payment. Any Company Common
Stock issuable upon the exercise of Company Options as provided in clause
(A) or (B) of the first sentence of this paragraph shall by virtue of the
Merger, and without any action on the part of the holder thereof, be
converted into the right to receive the Merger Consideration payable in
respect thereof (net of any exercise price withholding obligation, as
herein provided), without the issuance of certificates representing issued
and outstanding shares of Company Common Stock; provided, that any Company
Common Stock issuable upon the exercise of Company Options as provided in
clause (A) of the first sentence of this paragraph shall be deemed issued
and outstanding on the record date with respect to the Distribution; and
provided, further that any Company Common Stock issuable upon the exercise
of Company Options as provided in clause (A) or (B) of the first sentence
of this paragraph shall be deemed to be issued and outstanding as of the
Effective Time. After the Effective Time, the Company shall determine the
actual amount of the excess, if any, of the exercise price of each Company
Option over the actual Merger Consideration (the "Actual Exercise
Payment"), with respect to the Company Options exercised pursuant to
clauses (A) or (B) of the first sentence of this paragraph. To the extent
that the Actual Exercise Payment exceeds the Estimated Exercise Payment
made by any holder of a Company Option with respect to the shares of
Company Common Stock deemed issued pursuant to exercise, the Company shall
notify such party that a payment is due from such holder to the Company in
the amount of the excess of the Actual Exercise Payment over the Estimated
Exercise Payment. The Company shall retain any Distribution to be made to a
holder of Company Options who must make a payment to the Company in
accordance with the immediately preceding sentence of this paragraph as
security for such payment. To the extent that the Estimated Exercise
Payment made by a holder of a Company Option exceeds the Actual Exercise
Payment, the Company shall, or shall cause the Paying Agent to, pay such
holder the excess of the Estimated Exercise Payment over the Actual
Exercise Payment, on or about the time of the payment of the Merger
Consideration.
(c) All Company Options outstanding as of the Effective Time shall by
virtue of the Merger, and without any action on the part of the holder
thereof, be terminated and cancelled as of the Effective Time and converted
into, and represent only, the right to receive an amount in cash equal to
the excess, if any, of (i) the product of the Merger Consideration
multiplied by the number of shares of Company Common Stock subject to such
Company Options immediately prior to the Effective Time over (ii) the
aggregate exercise price of all such shares of Company Common Stock subject
to such Company Option. The aggregate amount payable pursuant to this
paragraph (c) shall hereinafter be referred to as the "Option Cash-Out
Amount."
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(d) Not later than fifteen days (15) prior to the record date for the
Distribution, the Company shall, in accordance with Section 5 thereof,
deliver a notice to the holder of the Stock Purchase Warrant, dated
July 31, 1997, between Glaxo and the Company (the "Company Warrant"). The
Company shall permit the holder of the Company Warrant to exercise all or
any portion of such Company Warrant at any time permitted thereunder. At
the Effective Time, the Company Warrant shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into,
and represent only, the right to receive, upon delivery thereof to the
Company, an amount in cash equal to the excess, if any, of (i) the product
of the Merger Consideration multiplied by the number of shares of Company
Common Stock subject to such Company Warrant immediately prior to the
Effective Time over (ii) the aggregate exercise price of all such shares of
Company Common Stock subject to such Company Warrant. The aggregate amount
payable pursuant to this paragraph (d) shall hereinafter be referred to as
the "Warrant Cash-Out Amount."
(e) Exchange Procedures for Company Options or Company Warrant. Promptly
following the Effective Time, Parent shall cause the Paying Agent to mail
to each holder (as of the Effective Time) of a Company Option which was
converted into the right to receive the Option Cash-Out Amount pursuant to
Section 1.4(c) hereof or the Company Warrant if converted into the right to
receive the Warrant Cash-Out Amount pursuant to Section 1.4(d), (i) a
letter of transmittal (which shall be in such form and have such other
provisions as Parent may reasonably specify), and (ii) instructions for use
in receiving cash payable in respect of such Company Options or Company
Warrant. Upon the delivery of such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, together
with the documentation representing the Company Options or Company Warrant
surrendered thereby, to the Paying Agent, the holders of Company Options or
Company Warrant shall be entitled to receive the Option Cash-Out Amount or
Warrant Cash-Out Amount payable to them in respect of such Company Options
pursuant to Section 1.4(c) or Company Warrant pursuant to Section 1.4(d).
(f) Required Withholding. The Paying Agent shall be entitled to deduct
and withhold from the Merger Consideration or any other consideration or
amount deliverable or otherwise payable pursuant to the Merger and this
Agreement to any holder or former holder of Company Common Stock or Company
Options such amounts as may be required to be deducted or withheld
therefrom under the Code or under any applicable provision of state, local
or foreign tax law or under any other applicable legal requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been delivered or
otherwise paid to the person to whom such amounts would otherwise have been
delivered or otherwise paid pursuant to the Merger and this Agreement.
Section 1.5 Employee Stock Purchase Plan. Immediately prior to the record
date with respect to the Distribution, in accordance with the terms of the
Company's 1992 Employee Stock Purchase Plan (the "Company ESPP"), all rights
to purchase shares of Company Common Stock outstanding under the Company ESPP
immediately prior to such record date shall be exercised and each share of
Company Common Stock purchased pursuant to such exercise shall by virtue of
the Merger, and without any action on the part of the holder thereof, be
converted into the right to receive the Merger Consideration payable in
respect thereof, without the issuance of certificates representing issued and
outstanding shares of Company Common Stock. Any Company Common Stock issued
pursuant to the Company ESPP shall be deemed issued and outstanding at the
Effective Time and on the record date with respect to the Distribution. The
Company ESPP shall be terminated immediately following such exercises.
Section 1.6 Distribution of the Energy Business. It is a condition to each
party's obligation to consummate the Merger that, on the Closing Date and
after the satisfaction and waiver of all conditions to the Merger other than
the condition set forth in Section 6.1(d), the capital stock of Spinco held by
the Company shall, subject to the penultimate sentence in Section 1.4(b), be
distributed in its entirety to the stockholders of the Company (the
"Distribution"). The terms of the Distribution will be determined by the
Company; provided, however, that Parent's consent, which shall not be
unreasonably withheld, shall be required in connection with any material
deviation from the terms and conditions of the Distribution described in
Schedule 1.6 and shall be
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required as to the final form of each of the specific agreements identified in
Schedule 1.6. "Spinco" shall mean the corporation whose assets include the
Energy Business. The "Energy Business" shall consist of CCSI and CAT and any
direct or indirect subsidiaries of either of them on the date hereof.
Section 1.7 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond,
in such reasonable amount as the Surviving Corporation may direct, as
indemnity against any claim that may be made against it with respect to such
Certificate, the Paying Agent will pay the Merger Consideration to which the
holder thereof is entitled pursuant to this Article I in exchange for such
lost, stolen or destroyed Certificate.
Section 1.8 Merger Closing. Subject to the satisfaction or waiver of the
conditions set forth in Article VI hereof, the closing of the Merger (the
"Closing") will take place at 10:00 a.m., California time, on a date to be
specified by the parties hereto, and no later than the second business day
after the satisfaction or waiver of the conditions set forth in Article VI
hereof, at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, One Market, Spear Tower, Suite 3300, San Francisco, California,
unless another time, date or place is agreed to in writing by the parties
hereto (such date, the "Closing Date").
Section 1.9 Dispute Resolution
(a) In the event Parent and the Company disagree, prior to the Effective
Time, as to: (i) the calculation of the Cash Amount in Section 1.2(b), (ii)
whether the terms of the Distribution materially deviate from Schedule 1.6
or (iii) whether Parent's consent has been unreasonably withheld with
respect to such material deviation or the final form of any of the specific
agreements identified in Schedule 1.6, either of them may submit such
dispute or disagreement for final and binding determination to a mutually
acceptable third party arbitrator, such determination to be made within 10
days of the submission to such arbitration by either of them. If Parent and
the Company are unable to mutually agree upon an arbitrator within one week
of a party's notification to the other of its desire to arbitrate, then
each of them shall have one week to select an arbitrator and such two
arbitrators shall have one week to select a third arbitrator, who shall
have final authority to resolve such dispute within 10 days of the
selection of such arbitrator. The parties shall share equally in the fees
and expenses of such arbitrators, and such fees and expenses shall be paid
by Spinco and Parent prior to the Effective Time.
(b) At least 15 days prior to the Closing Date, the Company will provide
to Parent the Company's latest estimate of the calculation of the Cash
Amount. Parent may, within 5 days of receipt of such calculation, object to
the determination of any component of the Cash Amount. In the event that
Parent and the Company cannot reach agreement on the disputed components of
the calculation, either party may seek to resolve such dispute through the
mechanism set forth in Section 1.9(a).
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Article II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Certificate
of Incorporation of the Surviving Corporation.
Section 2.2 By-Laws. The by-laws of Merger Sub in effect at the Effective
Time shall be the by-laws of the Surviving Corporation until thereafter
amended in accordance with applicable law, the certificate of incorporation of
such entity and the by-laws of such entity.
Section 2.3 Officers and Directors
(a) From and after the Effective Time, the officers of Merger Sub at the
Effective Time shall be the officers of the Surviving Corporation.
(b) The Board of Directors of the Surviving Corporation effective as of,
and immediately following, the Effective Time shall consist of the
directors of Merger Sub immediately prior to the Effective Time.
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Article III
Representations and Warranties of the Company
The Company represents and warrants to Parent, subject to such exceptions as
are disclosed (i) in any of the Company SEC Documents (as defined below) filed
prior to the date hereof or (ii) in writing in the disclosure letter supplied
by the Company to Parent, which disclosure shall provide an exception to or
otherwise qualify the representations or warranties of Company specifically
referred to in such disclosure and such other representations and warranties
to the extent such disclosure shall reasonably appear to be applicable to such
other representations or warranties (the "Company Disclosure Schedule") as
follows:
Section 3.1 Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals (collectively, "Licenses") required to
carry on its business as now conducted or presently proposed to be conducted
except for failures to have any such License which would not, in the
aggregate, have a Company Material Adverse Effect (as defined below). The
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned,
leased or operated by it or the nature of its activities makes such
qualification necessary, except in such jurisdictions where failures to be so
qualified would not reasonably be expected to, in the aggregate, have a
Company Material Adverse Effect. As used herein, the term "Company Material
Adverse Effect" means a material adverse effect on the condition (financial or
otherwise), business, assets or results of operations of the Company and its
Subsidiaries (as defined in Section 1.2(b), taken as a whole (assuming
consummation of the Distribution in accordance with the terms of this
Agreement and Schedule 1.6), provided, however, that in no event shall any
effect that results from (a) the public announcement or pendency of the
transactions contemplated hereby or any actions taken in compliance with this
Agreement, (b) changes affecting the pharmaceuticals industry generally unless
such changes adversely affect the Company or its Subsidiaries (assuming the
consummation of the Distribution) in a materially disproportionate manner, (c)
changes affecting the United States economy generally, (d) changes in the
trading price of the Company Common Stock, or (e) stockholders class action
litigation arising from allegations of a breach of fiduciary duty relating to
this Agreement, the transactions contemplated hereby or any actions taken in
compliance with this Agreement , constitute a Company Material Adverse Effect.
The Company has heretofore made available to Parent true and complete copies
of the Certificate of Incorporation and the by-laws of the Company as
currently in effect.
Section 3.2 Corporate Authorization.
(a) The Company has the requisite corporate power and authority to
execute and deliver this Agreement and, subject to approval of the
Company's stockholders, as set forth in Section 3.2(b) hereof and as
contemplated by Section 5.3 hereof, to perform its obligations hereunder.
The execution and delivery of this Agreement and the performance of its
obligations hereunder have been duly and validly authorized, and this
Agreement and the Voting Agreement have been approved, by the Board of
Directors of the Company and no other corporate proceedings on the part of
the Company, other than the approval and adoption of this Agreement by the
Company's stockholders, are necessary to authorize the execution, delivery
and performance of this Agreement. This Agreement has been duly executed
and delivered by the Company and constitutes, assuming due authorization,
execution and delivery of this Agreement by Parent, a valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms.
(b) Under applicable law, the Certificate of Incorporation and the rules
of the NASDAQ, the affirmative vote of the holders of a majority of the
shares of Common Stock and Class A Common Stock, voting together as a
single class, and the consent of the holders of a majority of the
outstanding shares of Class A Common Stock, voting as a separate class,
outstanding on the record date established by the Board of Directors of the
Company in accordance with the by-laws of the Company, applicable law and
this Agreement, are the only votes required to adopt this Agreement and, if
applicable, approve the Distribution.
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Section 3.3 Consents and Approvals; No Violations.
(a) Neither the execution and delivery of this Agreement nor the
performance by the Company of its obligations hereunder will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or the by-laws of the Company; (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, cancellation or
acceleration or obligation to repurchase, repay, redeem or acquire or any
similar right or obligation) under any of the terms, conditions or
provisions of any note, mortgage, letter of credit, other evidence of
indebtedness, guarantee, license, permit, lease or agreement or similar
instrument or obligation to which the Company or any of its Subsidiaries is
a party or by which any of them or any of their assets may be bound or
(iii) assuming that the filings, registrations, notifications,
authorizations, consents and approvals referred to in subsection (b) below
have been obtained or made, as the case may be, violate any order,
injunction, decree, statute, rule or regulation of any Governmental Entity
to which the Company or any of its Subsidiaries is subject, excluding from
the foregoing clauses (ii) and (iii) such requirements, defaults, breaches,
rights or violations that would not, in the aggregate, reasonably be
expected to have a Company Material Adverse Effect and/or would not have a
material adverse effect on the ability of the Company to perform its
obligations hereunder.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any government or any agency, court, tribunal,
commission, board, bureau, department, political subdivision or other
instrumentality of any government (including any regulatory or
administrative agency), whether federal, state, multinational (including,
but not limited to, the European Community), provincial, municipal,
domestic or foreign (each, a "Governmental Entity") is required in
connection with the execution and delivery of this Agreement by the Company
or the performance by the Company of its obligations hereunder, except (i)
the filing of the Certificate of Merger in accordance with the DGCL; (ii)
compliance with any applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR Act") or any foreign laws regulating
competition, antitrust, investment or exchange controls; (iii) compliance
with any applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act") and
of the Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "Securities Act"); (iv) compliance with any applicable
requirements of state blue sky or takeover laws and (v) such other
consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings the failure of which to be obtained or made would
not, in the aggregate, reasonably be expected to have a Company Material
Adverse Effect and/or would not have a material adverse effect on the
ability of the Company to perform its obligations hereunder.
Section 3.4 Capitalization. The authorized capital stock of the Company
consists of 120,000,000 shares of common stock par value $0.001 per share (the
"Company Common Stock"), of which 73,000,000 shares are designated as "Common
Stock," 30,000,000 shares are designated as "Class A Common Stock" and
17,000,000 are designated as "Class B Common Stock" and 5,000,000 shares of
preferred stock, par value $0.001 per share, of the Company (the "Preferred
Stock"). As of July 28, 2000, there were (i) 33,163,543 shares of Common Stock
issued and outstanding, (ii) 13,270,000 shares of Class A Common Stock issued
and outstanding, (iii) 11,730,000 shares of Class B Common Stock issued and
outstanding and (iii) no shares of Preferred Stock issued and outstanding. All
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable and were not issued in violation
of any preemptive rights. As of July 28, 2000, there were outstanding Company
Options to purchase 4,394,086 shares of Company Common Stock. Except (v) as
set forth on Schedule 3.4, (w) for changes since July 28, 2000, resulting from
the exercise of Company Options outstanding on such date, (x) for the Company
Warrant, (y) for the rights under the Share Exchange Agreements, and (z) for
preferred share purchase rights issued pursuant to the Rights Agreement, dated
as of October 23, 1996 and as amended as of July 28, 1997 and August 2, 2000,
between the Company and ChaseMellon Shareholder Services, L.L.P., a New Jersey
limited liability company (the "Rights Agreement"), there are outstanding (i)
no shares of capital stock or other voting securities of the Company, (ii) no
securities of the Company or any Subsidiary of the Company convertible into or
exchangeable
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for shares of capital stock or voting securities of the Company, (iii) no
options, preemptive or other rights to acquire from the Company or any of its
Subsidiaries, and no obligation of the Company or any of its Subsidiaries to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company and (iv) no
equity equivalent interest in the ownership or earnings of the Company or the
Non-Energy Subsidiaries or other similar rights (the items in clauses (i),
(ii), (iii) and (iv) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any Company
Securities. No Subsidiary of the Company owns any capital stock or other
voting securities of the Company.
Section 3.5 Subsidiaries.
(a) Each Non-Energy Subsidiary (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, (ii) has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as
now conducted and (iii) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for failures of this
representation and warranty to be true which would not, in the aggregate,
have a Company Material Adverse Effect. All Non-Energy Subsidiaries and
their respective jurisdictions of incorporation are identified in Schedule
3.5 of the Company Disclosure Schedule.
(b) All of the outstanding shares of capital stock of each Non-Energy
Subsidiary of the Company are duly authorized, validly issued, fully paid
and nonassessable, and, except as set forth in Schedule 3.5(b) of the
Company Disclosure Schedule, such shares are owned by the Company or by a
Non-Energy Subsidiary of the Company free and clear of any Liens (as
defined hereafter) or limitations on voting rights. There are no
subscriptions, options, warrants, calls, preemptive rights, rights,
convertible securities or other agreements or commitments of any character
relating to the issuance, transfer, sale, delivery, voting or redemption
(including any rights of conversion or exchange under any outstanding
security or other instrument) of any of the capital stock or other equity
interests of any of such Non-Energy Subsidiaries. There are no agreements
requiring the Company or any of the Non-Energy Subsidiaries to make
contributions to the capital of, or lend or advance funds to, any
Subsidiaries of the Company. For purposes of this Agreement, "Lien" means,
with respect to any asset, any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind in respect of such asset.
(c) Except as set forth on Schedule 3.5(c), the Company does not own
beneficially, directly or indirectly, any equity securities or similar
interests of any person, or any interest in a partnership or joint venture
of any kind other than in the Non-Energy Subsidiaries (assuming the
consummation of the Distribution).
Section 3.6 SEC Documents. The Company has filed timely all required
reports, proxy statements, registration statements, forms and other documents
with the SEC on or after January 1, 1998 (the "Company SEC Documents"). As of
their respective dates, and giving effect to any amendments thereto, (a) the
Company SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and the
applicable rules and regulations of the SEC promulgated thereunder and
(b) none of the Company SEC Documents at the time filed (or if amended or
superceded by a filing prior to the date of this Agreement, then on the date
of such filing) contained any untrue statement of a material fact or omitted
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
were made, not misleading. No Non-Energy Subsidiary is required to file any
form, report, registration statement or prospectus or other document with the
SEC.
Section 3.7 Financial Statements
(a) The financial statements of the Company (including, in each case, any
notes and schedules thereto) included in the Company SEC Documents (a) were
prepared from the books and records of the Company and its Subsidiaries,
(b) complied as to form in all material respects with all applicable
accounting
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requirements and the rules and regulations of the SEC with respect thereto,
(c) are in conformity with United States generally accepted accounting
principles ("GAAP"), applied on a consistent basis (except in the case of
unaudited statements, as otherwise permitted by the rules and regulations
of the SEC and described in the Notes included therewith) during the
periods involved and (d) fairly present, in all material respects, the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments which are not
expected to be, individually or in the aggregate, material in amount).
(b) The unaudited consolidating income statement of the Company for the
six-month period ended June 30, 2000 and balance sheet as of such date that
are attached as Schedule 3.7(b) of the Company Disclosure Schedule
(including any notes and schedules thereto): (i) were prepared from the
books and records of the Company and its Subsidiaries, (ii) are in
conformity with GAAP, applied on a consistent basis (except for the absence
of explanatory footnotes) during the period involved, and (iii) fairly
present, in all material respects, the financial position of the Company
and its Subsidiaries as of the date thereof and the results of their
operations for the periods then ended (subject to normal year-end audit
adjustments which are not expected to be, individually or in the aggregate,
material in amount).
Section 3.8 Absence Of Undisclosed Liabilities. Except as set forth in the
Company SEC Documents filed prior to the date of this Agreement, and except
for liabilities and obligations incurred in the ordinary course of business
since June 30, 2000, neither the Company nor any of the Non-Energy
Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) except for those that would not,
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
Section 3.9 Proxy Statement, Registration Statement.
(a) None of the information contained in the Proxy Statement (as defined
in Section 5.3(b)) (and any amendments thereof or supplements thereto) will
at the time of the mailing of the Proxy Statement to the stockholders of
the Company and at the time of the Special Meeting (as defined in Section
5.3(a)), 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
were made, not misleading, except that no representation is made by the
Company with respect to statements made or omitted in the Proxy Statement
based on information supplied by Parent for inclusion in the Proxy
Statement. The Proxy Statement 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 the Company with respect to the statements made or omitted in the Proxy
Statement relating to Parent based on information supplied by Parent for
inclusion in the Proxy Statement.
(b) No registration statement filed by the Company or any Subsidiary
pursuant to the Exchange Act or, if necessary, the Securities Act, in
connection with the Distribution (together with any amendments thereof and
any supplements thereto, the "Distribution Statement") will, at the time
the Distribution Statement and each amendment or supplement thereto, if
any, becomes effective under the Securities Act or the Exchange Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
Section 3.10 Absence Of Material Adverse Changes, Etc. Since December 31,
1999, there has not been a Company Material Adverse Effect. Without limiting
the foregoing, except as disclosed in the Company SEC Documents filed by the
Company or as contemplated by this Agreement, since June 30, 2000, (i) other
than in connection with the negotiation of this Agreement, the Company and the
Non-Energy Subsidiaries have conducted their business in the ordinary course
consistent with past practice and (ii) there has not been:
(a) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or
any Company Subsidiary (other than a wholly-owned Subsidiary), or any
repurchase, redemption or other acquisition by the Company or any
Subsidiary of the Company
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(other than any wholly-owned Subsidiary) of any outstanding shares of
capital stock or other equity securities of, or other ownership interests
in, the Company, any Company Subsidiary or of any Company Securities;
(b) any amendment of any provision of the Certificate of Incorporation or
by-laws of, or of any material term of any outstanding security issued by,
the Company or any Non-Energy Subsidiary (other than any wholly-owned
Subsidiary) of the Company;
(c) any incurrence, assumption or guarantee by the Company or any Non-
Energy Subsidiary of any indebtedness for borrowed money other than
borrowings under existing credit facilities in the ordinary course of
business;
(d) any change in any method of accounting or accounting practice by the
Company or any Non-Energy Subsidiary, except for any such change required
by reason of a change in GAAP;
(e) any (i) grant of any severance or termination pay to any director,
officer, consultant, independent contractor or employee of the Company or
any Non-Energy Subsidiary, (ii) employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with
any director, officer, consultant, independent contractor or employee of
the Company or any Non-Energy Subsidiary entered into, (iii) increase in
benefits payable under any existing severance or termination pay policies
or employment agreements or (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of the Company or any
Non-Energy Subsidiary, in each case other than in the ordinary course of
business with respect to Persons other than directors or executive officers
of the Company or any Non-Energy Subsidiary;
(f) issuance of Company Securities other than pursuant to Company Options
outstanding as of June 30, 2000 and the issuance of Options after such date
in the ordinary course of business (and the issuance of Company Securities
pursuant thereto);
(g) acquisition or disposition of assets material to the Company and its
Subsidiaries (assuming consummation of the Distribution), except for sales
of inventory in the ordinary course of business, or any acquisition or
disposition of capital stock of any third party, or any merger or
consolidation with any third party, by the Company or any Non-Energy
Subsidiary;
(h) entry by the Company or any Non-Energy Subsidiary into any joint
venture, partnership or similar agreement with any person other than a
wholly-owned Subsidiary; or
(i) any authorization of, or commitment or agreement to take any of, the
foregoing actions except as otherwise permitted by this Agreement.
Section 3.11 Taxes.
(a) Except as set forth in Schedule 3.11 of the Company Disclosure Letter
and for any such failures or events that could not reasonably be expected
to have a Company Material Adverse Effect: (1) all Tax Returns (as defined
below) required to be filed by or on behalf of the Company, each of its
Subsidiaries, and each affiliated, combined, consolidated or unitary group
of which the Company or any of its Subsidiaries is or has been a member
("Company Group Members") have been timely filed, and all returns filed are
complete and accurate and correctly reflect the tax liabilities required to
be reported therein; (2) the Company, its Subsidiaries, and Company Group
Members have timely paid all Taxes (as defined below) that have become due
or payable and have adequately reserved for in accordance with GAAP all
Taxes (whether or not shown on any Tax Return) that have accrued but are
not yet due or payable; (3) there is no presently pending audit
examination, deficiency, refund claim or litigation, proposed adjustment or
matter in controversy with respect to any Taxes due and owing by the
Company, any Subsidiary of the Company or any Company Group Member and none
of the above have knowledge that any such action or proceeding is being
contemplated; (4) neither the Company, any Subsidiary of the Company nor
any Company Group Member has filed any waiver of the statute of limitations
applicable to the assessment or collection of any Tax; (5) all assessments
for Taxes due and owing by the Company, any Subsidiary of the
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Company or any Company Group Member with respect to completed and settled
examinations or concluded litigation have been paid; (6) neither the
Company, any Subsidiary of the Company nor any Company Group Member is a
party to any express or implied tax indemnity agreement, tax sharing
agreement or other agreement under which it could become liable to another
person as a result of the imposition of a Tax upon any person, or the
assessment or collection of a Tax; (7) the Company, each of its
Subsidiaries, and each Company Group Member has complied in all material
respects with all rules and regulations relating to the withholding of
Taxes; (8) neither the Company, any Subsidiary, nor any Company Group
Member is a party to any agreement, contract, arrangement or plan that has
resulted or would result, individually or in the aggregate, in connection
with this Agreement or any change of control of the Company, any
Subsidiary, or any Company Group Member in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), and (9) neither the Company,
any Subsidiary, nor any Company Group Member has made any payments since
December 31, 1999, and is not a party to an agreement that could require it
to make any payments (including any deemed payment of compensation upon
exercise of an option), that would not be fully deductible by reason of
Section 162(m) of the Code.
(b) For purposes of this Agreement, (i) "Taxes" means (A) all taxes,
levies or other like assessments, charges or fees (including estimated
taxes, charges and fees), including, without limitation, income, franchise,
corporation, advance corporation, windfall or other profits, gross
receipts, transfer, capital stock, excise, property, sales, use, value-
added, ad valorem, license, payroll, employment, withholding, social
security, workers' compensation, unemployment compensation, net worth, and
other governmental taxes or charges, imposed by the United States or any
state, county, local or foreign government or subdivision or agency
thereof, and such term shall include any interest, penalties, additions to
tax or additional amounts imposed attributable to such taxes, and (B) any
liability for payment of amounts described in clause (A) whether as a
result of transferee liability, of being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise
through operation of law, and (ii) "Tax Return" means any report, return,
statement or other written information required to be filed with or
supplied to a taxing authority in connection with any Taxes, including any
information return, claim for refund, amended return or declaration of
estimated tax.
Section 3.12 Employee Benefit Plans.
(a) Except for any plan, fund, program, agreement or arrangement that is
subject to the laws of any jurisdiction outside the United States, Schedule
3.12(a) of the Company Disclosure Schedule contains a true and complete
list of each material deferred compensation, incentive compensation, and
equity compensation plan; material "welfare" plan, fund or program (within
the meaning of section 3(1) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")); material "pension" plan, fund or program
(within the meaning of section 3(2) of ERISA); each material employment,
termination or severance agreement; and each other material employee
benefit plan, fund, program, agreement or arrangement, in each case, that
is in writing and sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (each, an "ERISA Affiliate"), that together with the Company
would be deemed a "single employer" within the meaning of section 4001(b)
of ERISA, or to which the Company or an ERISA Affiliate is party, whether
written or oral, for the benefit of any employee, consultant, director or
former employee, consultant or director of the Company or any Subsidiary of
the Company. The plans, funds, programs, agreements and arrangements listed
on Schedule 3.12(a) of the Company Disclosure Schedule are referred to
herein collectively as the "Plans".
(b) With respect to each Plan, the Company has heretofore delivered or
made available to Parent true and complete copies of the Plan and any
amendments thereto (or if the Plan is not a written Plan, a description
thereof), any related trust or other funding vehicle, the most recent
reports or summaries required under ERISA or the Code and the most recent
determination letter received from the Internal Revenue Service with
respect to each Plan intended to qualify under section 401 of the Code.
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(c) No liability under Title IV or section 302 of ERISA has been incurred
by the Company or any ERISA Affiliate that has not been satisfied in full,
other than liability for premiums due the Pension Benefit Guaranty
Corporation (which premiums have been paid when due).
(d) Each Plan has been operated and administered in all material respects
in accordance with its terms and applicable law, including, but not limited
to, ERISA and the Code.
(e) Each Plan intended to be "qualified" within the meaning of section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service, or in the case of such a Plan for which a
favorable determination letter has not yet been received, the applicable
remedial amendment period under Section 401(b) of the Code has not expired.
(f) Except as set forth on Schedule 3.12(f) of the Company Disclosure
Letter, no Plan provides medical, surgical or hospitalization benefits
(whether or not insured) for employees or former employees of the Company
or any Subsidiary for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable law,
or (ii) benefits the full cost of which is borne by the current or former
employee (or his or her beneficiary), dependant or other covered person.
(g) There are no pending, or to the knowledge of the Company, threatened
or anticipated, claims that would reasonably be expected, in the aggregate,
to have a Company Material Adverse Effect by or on behalf of any Plan, by
any employee or beneficiary covered under any such Plan, or otherwise
involving any such Plan (other than routine claims for benefits).
(h) Except as set forth on Schedule 3.12(h) of the Company Disclosure
Letter, the consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (i) entitle
any current or former employee or officer of the Company or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment,
except as expressly provided in this Agreement, or (ii) accelerate the time
of payment or vesting (other than as a result of a full or partial plan
termination resulting from the transactions contemplated by this
Agreement), or increase the amount of compensation due any such employee or
officer, other than payments, accelerations or increases (x) under any
employee benefit plan that is subject to the laws of a jurisdiction outside
of the United States or (y) mandated by applicable law.
(i) To the knowledge of the Company, all employee benefit plans that are
subject to the laws of any jurisdiction outside the United States are in
material compliance with such applicable laws, including relevant Tax laws,
and the requirements of any trust deed under which they were established,
except for such exceptions to the foregoing which, in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
Schedule 3.12(k) lists all material employee pension benefit plans that are
subject to the laws of any jurisdiction outside the United States except
for such plans that are governmental or statutory plans.
(j) Each Plan can be amended prospectively or terminated at any time,
without advance notice, and without any liability other than for benefits
accrued prior to such amendment or termination (other than administrative
charges normally incurred in a plan termination).
(k) No agreement, commitment, or obligation exists to increase any
benefits under any Plan or to adopt any new Plan, other than in the
ordinary course of business.
(l) No Plan has any unfunded accrued benefits that are not fully
reflected in the Financial Statements in accordance with the Company's
ordinary accounting procedures.
(m) No pension plan subject to Title IV of ERISA (an "ERISA Pension
Plan") has incurred any "accumulated funding deficiency" or "waived funding
deficiency" within the meaning of Section 302 of ERISA or Section 412 of
the Code and the Company has never sought to obtain any variance from the
minimum funding standards pursuant to Section 412(d) of the Code. The
funding method used in connection with each ERISA Pension Plan meets the
requirements of ERISA and the Code and the actuarial assumptions used in
connection with each such plan are reasonable, given the experience of such
ERISA Pension Plan and reasonable expectations.
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(n) The fair market value of the plan assets of each ERISA Pension Plan
are at least equal to (i) the present value of its benefit liabilities (as
defined in ERISA Section 4001(a)(16) , including any unpredictable
contingent event benefits within the meaning of Code Section 412(l)(7), and
determined on the basis of assumptions prescribed by the PBGC for purposes
of ERISA Section 4044), and (ii) the Projected Benefit Obligations
thereunder, as defined in Statement of Financial Accounting Standards No.
87, including any allowance for indexation and ad hoc increases. No ERISA
Pension Plan has been completely or partially terminated or been the
subject of a Reportable Event under ERISA Section 4043. No proceeding by
the PBGC to terminate any ERISA Pension Plan has been instituted, and the
Company has not incurred any liability to the PBGC (other than the PBGC
premiums, all of which have been timely paid) or otherwise under Title IV
of ERISA with respect to any ERISA Pension Plan.
(o) Neither the Company nor any Subsidiary maintains or participates in
any Voluntary Employees' Beneficiary Association, under Code Sections 419
and 419A, which is intended to be exempt from taxation under section
501(c)(9) of the Code.
(p) Neither the Company nor any ERISA Affiliate maintains, participates
in, contributes to, or has any obligation to contribute or any liability
with respect to any multiple employer or multiemployer plan, or has had any
obligation with respect to such a plan during the six years immediately
preceding the date of this Agreement.
Section 3.13 Litigation; Compliance With Laws.
(a) Except as set forth on Schedule 3.13 of the Company Disclosure Letter
or in the Company SEC Documents filed prior to the date of this Agreement
or otherwise fully covered by insurance, there is no action, suit or
proceeding pending against, or to the knowledge of the Company threatened
against, the Company or any Non-Energy Subsidiary or any of their
respective properties before any court or arbitrator or any Governmental
Entity which, individually or in the aggregate, would reasonably be
expected to have a Company Material Adverse Effect.
(b) The Company and the Non-Energy Subsidiaries are in compliance with
all applicable laws, ordinances, rules and regulations of any federal,
state, local or foreign governmental authority applicable to their
respective businesses and operations, except for such violations, if any,
which, in the aggregate, would not reasonably be expected to have a Company
Material Adverse Effect. All governmental approvals, permits and licenses
(collectively, "Permits") required to conduct the business of the Company
and the Non-Energy Subsidiaries have been obtained, are in full force and
effect and are being complied with except for such violations and failures
to have Permits in full force and effect, if any, which, individually or in
the aggregate, would not reasonably be expected to have a Company Material
Adverse Effect.
Section 3.14 Labor Matters. (i) Since June 30, 2000, there has been no labor
strike, dispute, slowdown, stoppage or lockout actually pending or, to the
knowledge of the Company, threatened against the Company or any Non-Energy
Subsidiary; (ii) to the knowledge of the Company, no union organizing campaign
with respect to the Company's employees is underway; (iii) there is no unfair
labor practice charge or complaint against the Company or any Non-Energy
Subsidiary pending or, to the knowledge of the Company, threatened before the
National Labor Relations Board or any similar state or foreign agency; (iv)
there is no written grievance pending relating to any collective bargaining
agreement or other grievance procedure; (v) to the knowledge of the Company,
no charges with respect to or relating to the Company or any Non-Energy
Subsidiary are pending before the Equal Employment Opportunity Commission or
any other agency responsible for the prevention of unlawful employment
practices; and (vi) there are no collective bargaining agreements with any
union covering employees of the Company or any Non-Energy Subsidiary.
Section 3.15 Certain Contracts And Arrangements. Each material contract or
agreement to which the Company or any Non-Energy Subsidiary is a party or by
which any of them is bound is in full force and effect, and neither the
Company nor any Non-Energy Subsidiary, nor, to the knowledge of the Company,
any other party thereto, is in breach of, or default under, any material
contract or material agreement to which the Company
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or any Non-Energy Subsidiary is a party or by which any of them is bound, and
no event has occurred that with notice or passage of time or both would
constitute such a breach or default thereunder by the Company or any Non-
Energy Subsidiary, or, to the knowledge of the Company, any other party
thereto, except for such breaches and defaults which, in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
Section 3.16 Environmental Matters.
(a) (i) "Cleanup" means all actions required to: (A) cleanup, remove,
treat or remediate Hazardous Materials (as defined hereafter) in the indoor
or outdoor environment; (B) prevent the Release (as defined hereafter) of
Hazardous Materials so that they do not migrate, endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; (C)
perform pre-remedial studies and investigations and post-remedial
monitoring and care; or (D) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment
or remediation or potential cleanup, removal, treatment or remediation of
Hazardous Materials in the indoor or outdoor environment.
(ii) "Environmental Claim" means any claim, action, cause of action,
investigation or written notice by any person alleging potential liability
(including, without limitation, potential liability for investigatory
costs, Cleanup costs, governmental response costs, natural resources
damages, property damages, personal injuries, or penalties) (A) pursuant to
Environmental Law or (B) arising out of, based on or resulting from the
presence or Release of any Hazardous Materials at any location, whether or
not owned or operated by the Company or any Non-Energy Subsidiary.
(iii) "Environmental Costs and Liabilities" mean any and all losses,
liabilities, obligations, damages (including compensatory, punitive and
consequential damages), fines, penalties, judgments, actions, claims, costs
and expenses (including, without limitation, fees, disbursements and
expenses of legal counsel, experts, engineers and consultants and the costs
of investigation, monitoring, remediation or other response action)
pursuant to any Environmental Law or arising from the presence or Release
of any Hazardous Materials.
(iv) "Environmental Laws" means all federal, state, local and foreign
laws, statutes, decisions, orders, decrees, rules, regulations or
requirements relating to pollution or protection of the environment or
human health or safety, including, without limitation, laws relating to the
presence, Release or threatened Release of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, transport or handling of Hazardous Materials.
(v) "Hazardous Materials" means all substances defined as a "Hazardous
Substance," "Oil," or "Pollutant or contaminant" in 40 C.F.R. Section
300.5, or defined, regulated or subject to liability as a hazardous
substance, material, waste or agent pursuant to any Environmental Law.
(vi) "Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration
into the environment (including, without limitation, ambient air, surface
water, groundwater and surface or subsurface strata) or into or out of any
property, including the movement of Hazardous Materials through or in the
air, soil, surface water, groundwater or property.
(b) (i) The Company and the Non-Energy Subsidiaries have been at all
times and are in compliance with all applicable Environmental Laws (which
compliance includes, but is not limited to, the possession by the Company
and the Non-Energy Subsidiaries of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance
with the terms and conditions thereof), except where failures to be in
compliance would not, in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. Since January 1, 1999 and prior to the
date of this Agreement, neither the Company nor any Non-Energy Subsidiary
has received any communication (written or oral), whether from a
Governmental Entity, citizens' group, employee or otherwise, alleging that
the Company or any Non-Energy Subsidiary is not in such compliance, except
where failures to be in compliance would not, in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.
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(ii) There is no Environmental Claim pending or, to the knowledge of the
Company, threatened against the Company or any Non-Energy Subsidiary or, to
the knowledge of the Company, against any person whose liability for any
Environmental Claim the Company or any Non-Energy Subsidiary has or may
have retained or assumed either contractually or by operation of law that
would reasonably be expected to have a Company Material Adverse Effect.
(iii) There are no present or past actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the Release
or presence of any Hazardous Material, that could (A) subject the Company
or any Non-Energy Subsidiary to Environmental Costs and Liabilities, or (B)
form the basis of any Environmental Claim against the Company or any Non-
Energy Subsidiary or, to the knowledge of the Company, against any person
whose liability for any Environmental Claim the Company or any Non-Energy
Subsidiary has or may have retained or assumed either contractually or by
operation of law; that, in either case, would, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(iv) The Company agrees to cooperate with Parent to effect the retention
of any permits or other governmental authorizations under Environmental
Laws that will be required to permit the Company to conduct the business as
conducted by the Company and the Non-Energy Subsidiaries immediately prior
to the Closing Date. The Company and the Non-Energy Subsidiaries also agree
to take all commercially reasonable actions and to cooperate with Parent to
ensure that the Company and the Non-Energy Subsidiaries shall continue to
benefit from the provisions of any indemnity relating to Environmental
Claims following the Effective Time.
(v) The Company has made available to Parent all assessments, audits,
investigations, and sampling or similar reports in the possession of the
Company or its Subsidiaries relating to health and safety, the environment,
any Release of Hazardous Materials, or Environmental Costs and Liabilities.
Section 3.17 Intellectual Property
(a) The Company and the Non-Energy Subsidiaries own or have the right to
use all material Intellectual Property (as defined hereafter) reasonably
necessary for the Company and the Subsidiaries to conduct their business as
it is currently conducted (assuming consummation of the Distribution). All
Intellectual Property registered by the Company has been identified on
Schedule 3.17(a) of the Company Disclosure Letter, which includes a list of
United States, international and foreign (i) patents and patent
applications, (ii) registered trademarks and trademark applications, and
(iii) registered copyright applications, in each case, owned by the Company
and the Non-Energy Subsidiaries (assuming consummation of the
Distribution).
(b) To the knowledge of the Company: (i) all of the registrations,
including patents, relating to material Intellectual Property owned by the
Company and its Subsidiaries (assuming consummation of the Distribution)
are subsisting and unexpired, free of all liens or encumbrances, and have
not been abandoned; (ii) the Company and the Non-Energy Subsidiaries do not
infringe the intellectual property rights of any third party in any respect
that would reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect; (iii) no judgment, decree,
injunction, rule or order has been rendered by Governmental Entity which
would limit, cancel or question the validity of, the Company's or its
Subsidiaries' rights (assuming consummation of the Distribution) in and to,
any Intellectual Property owned by the Company (assuming consummation of
the Distribution) in any respect that would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect; and
(iv) the Company and the Non-Energy Subsidiaries have not received notice
of any pending or threatened suit, action or adversarial proceeding that
seeks to limit, cancel or question the validity of, or the Company's or its
Subsidiaries' rights (assuming consummation of the Distribution) in and to,
any Intellectual Property, which would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
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(c) For purposes of this Agreement "Intellectual Property" shall mean all
rights, privileges and priorities provided under U.S., state and foreign
law relating to intellectual property, including without limitation all (w)
(1) proprietary inventions, discoveries, processes, formulae, designs,
methods, techniques, procedures, concepts, developments, technology, new
and useful improvements thereof and proprietary know-how relating thereto,
whether or not patented or eligible for patent protection; (2) copyrights
and copyrightable works, including, but not limited to, computer
applications, programs, software, databases and related items; (3)
trademarks, service marks, trade names, and trade dress, the goodwill of
any business symbolized thereby, and all common-law rights relating
thereto; (4) trade secrets and other confidential information; (x) patents
and invention disclosures; (y) all registrations, applications and
recordings for any of the foregoing and (z) licenses or other similar
agreements granting to the Company or any of the Non-Energy Subsidiaries
the rights to use any of the foregoing.
(d) To the knowledge of the Company, the Company and the Non-Energy
Subsidiaries have not used and are not making use of any confidential or
proprietary information or trade secrets of any other person in breach of
any agreement to which the Company or any the Non-Energy Subsidiaries is
subject or in violation of any civil or criminal law.
(e) The Company and the Non-Energy Subsidiaries have taken commercially
reasonable security measures to protect the secrecy, confidentiality and
value of their trade secrets.
(f) To the knowledge of the Company, all employees of the Company and the
Non-Energy Subsidiaries have executed written agreements with the Company
or the Non-Energy Subsidiaries that assign to the Company or the Non-Energy
Subsidiaries all rights to inventions improvements, discoveries or
information relating to the business of the Company and the Non-Energy
Subsidiaries. To the Company's knowledge, no employee of the Company or any
Non-Energy Subsidiary has entered into any agreement that restricts or
limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign or disclose any
Intellectual Property or information concerning the employee's work to
anyone other than the Company or the Non-Energy Subsidiaries.
Section 3.18 Opinions of Financial Advisors. The Company has received the
opinion of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), dated as of
the date of this Agreement, to the effect that, as of the date of such
opinion, and based upon and subject to the matters stated therein, the
aggregate merger consideration (assuming consummation of the Distribution) is
fair from a financial point of view to the holders of Company Common Stock.
The Company has also received the opinion of Credit Suisse First Boston
Corporation ("CSFB"), dated as of the date of this Agreement, to the effect
that, as of the date of such opinion, and based upon and subject to the
matters stated therein, the aggregate merger consideration (assuming
consummation of the Distribution) is fair from a financial point of view to
the holders of Company Common Stock, other than Morgan Stanley Capital
Partners III, Inc. and various other investment funds affiliated therewith and
their respective affiliates. True and complete copies of such opinions will be
delivered to Parent as soon as practicable.
Section 3.19 Board Recommendation. The Board of Directors of the Company, at
a meeting duly called and held, has approved the Distribution, this Agreement
and the Voting Agreement and (i) determined that this Agreement and the
transactions contemplated hereby, including the Merger and the Distribution,
taken together are advisable and in the best interests of the stockholders of
the Company; and (ii) resolved to recommend that the stockholders of the
Company adopt this Agreement.
Section 3.20 Finders' Fees. Except for Morgan Stanley and CSFB (true and
correct copies of whose engagement agreements have been provided to Parent),
whose fees will be paid by the Company, there is no investment banker, broker,
finder or other intermediary which has been retained by, or is authorized to
act on behalf of, the Company or any Non-Energy Subsidiary that would be
entitled to any fee or commission from the Company, any Non-Energy Subsidiary,
Parent or any of Parent's affiliates upon consummation of the Merger. Any fees
to be paid with respect to the Distribution to investment bankers, brokers,
finders or other intermediaries shall be paid by Spinco.
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Section 3.21 Section 203 of the Delaware General Corporation Law. The Board
of Directors of the Company has taken all actions so that (a) the restrictions
contained in Section 203 of the DGCL applicable to a "business combination"
(as defined in such Section 203) will not apply to the execution, delivery or
performance of this Agreement or the Voting Agreement or to the consummation
of the Merger or the other transactions contemplated by this Agreement. No
other "control share acquisition," "fair price" or other anti-takeover laws or
regulations enacted under state or federal laws in the United States apply to
this Agreement, the Voting Agreement or any of the transactions contemplated
hereby.
Section 3.22 Control of Pharma. The Company is the record and beneficial
owner of shares of capital stock in Pharma sufficient to take the actions
necessary (i) to own all of the issued and outstanding capital stock of Pharma
at the Effective Time and (ii) to eliminate any outstanding options or
warrants to purchase shares of capital stock of Pharma at the Effective Time.
Section 3.23 Rights Plan. The Company has taken all action (including, if
required, redeeming all of the outstanding preferred share purchase rights
issued pursuant to the Rights Agreement) so that the entering into of this
Agreement, the Guarantee and the Voting Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not result in the
grant of any rights to any person under the Rights Agreement or enable the
rights to purchase the Company's Series A Participating Preferred Stock to be
exercised, or require that they be separated, distributed or triggered. The
Company has furnished Parent with true and correct copies of all such actions.
Section 3.24 Energy Contributions. Except as reflected in the financial
statements attached as Schedule 3.7(b), since December 31, 1999, neither the
Company nor any Non-Energy Subsidiary has made any equity contribution, or
otherwise transferred any cash or property, to, or assumed any liability on
behalf of, the Energy Business.
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Article IV
Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub represent and warrant to the Company subject to such
exceptions as are disclosed in writing in the disclosure letter supplied by
Parent to the Company, which disclosure shall provide an exception to or
otherwise qualify the representations or warranties of Parent and Merger Sub
specifically referred to in such disclosure and such other representations and
warranties to the extent such disclosure shall reasonably appear to be
applicable to such other representations or warranties (the "Parent Disclosure
Schedule"), as follows:
Section 4.1 Corporate Existence and Power. Each of Parent and Merger Sub is
a corporation duly incorporated (or other entity duly organized), validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate or other power, as the case may be, and all
Licenses required to carry on its business as now conducted or presently
proposed to be conducted except for failures to have any such License which
would not, in the aggregate, have a Parent Material Adverse Effect (as defined
below). Each of Parent and Merger Sub is duly qualified to do business and is
in good standing in each jurisdiction where the character of the property
owned, leased or operated by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where failures to be
so qualified would not reasonably be expected to, in the aggregate, have a
Parent Material Adverse Effect. As used herein, the term "Parent Material
Adverse Effect" means a material adverse effect on the ability of Parent and
Merger Sub to consummate the transactions contemplated hereby.
Section 4.2 Authorization. Each of Parent and Merger Sub has the requisite
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and the
performance by Parent and Merger Sub of their obligations hereunder have been
duly and validly authorized by the Board of Directors of Parent and Merger
Sub, and no other proceedings on the part of Parent (or its stockholders) or
Merger Sub are necessary to authorize the execution, delivery and performance
of this Agreement. This Agreement has been duly executed and delivered by
Parent and Merger Sub and constitutes, assuming due authorization, execution
and delivery of this Agreement by the Company, a valid and binding obligation
of Parent and Merger Sub, enforceable against them in accordance with its
terms.
Section 4.3 Consents and Approvals; No Violations.
(a) Neither the execution and delivery of this Agreement nor the
performance by Parent or Merger Sub of their obligations hereunder will (i)
conflict with or result in any breach of any provision of the certificate
of incorporation or by-laws (or other governing or organizational
documents) of Parent or Merger Sub, or (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, cancellation or
acceleration or obligation to repurchase, repay, redeem or acquire or any
similar right or obligation) under any of the terms, conditions or
provisions of any note, mortgage, letter of credit, other evidence of
indebtedness, guarantee, license, lease or agreement or similar instrument
or obligation to which Parent or Merger Sub is a party or by which any of
them or any of the respective assets used or held for use by any of them
may be bound or (iii) assuming that the filings, registrations,
notifications, authorizations, consents and approvals referred to in
subsection (b) below have been obtained or made, as the case may be,
violate any order, injunction, decree, statute, rule or regulation of any
Governmental Entity to which Parent or Merger Sub is subject, excluding
from the foregoing clauses (ii) and (iii) such requirements, defaults,
breaches, rights or violations that would not, in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
(b) No filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity is required in connection
with the execution and delivery of this Agreement by Parent or Merger Sub
or the performance by them of their obligations hereunder, except (i) the
filing of the Certificate of Merger in accordance with the DGCL; (ii)
compliance with any applicable requirements of the HSR Act or any non-U.S.
laws regulating competition, antitrust, investment or exchange controls;
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(iii) compliance with any applicable requirements of the Exchange Act; (iv)
compliance with any applicable requirements of state blue sky or takeover
laws and (v) such other consents, approvals, orders, authorizations,
notifications, registrations, declarations and filings the failure of which
to be obtained or made would not reasonably be expected to have a Parent
Material Adverse Effect.
Section 4.4 Proxy Statement.
None of the information provided by Parent or Merger Sub to the Company in
writing for inclusion in the Proxy Statement will at the time of the mailing
of the Proxy Statement to the stockholders of the Company and at the time of
the Special Meeting, 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
were made, not misleading.
Section 4.5 Litigation; Compliance With Laws.
(a) There is no action, suit or proceeding pending against, or to the
knowledge of Parent threatened against, Parent or any Subsidiary of Parent
or any of their respective properties before any court or arbitrator or any
Governmental Entity which would reasonably be expected to have a Parent
Material Adverse Effect.
(b) Parent and its Subsidiaries are in compliance with all applicable
laws, ordinances, rules and regulations of any federal, state, local or
foreign governmental authority applicable to their respective businesses
and operations, except for such violations, if any, which, in the
aggregate, would not reasonably be expected to have a Parent Material
Adverse Effect.
Section 4.6 Board Approval. The Board of Directors of Parent, at a meeting
duly called and held (or by written consent in accordance with the DGCL), has
approved this Agreement and determined that this Agreement and the
transactions contemplated hereby, including the Merger, taken together are
fair to and in the best interests of Parent and its shareholders.
Section 4.7 Absence of Material Adverse Change. Since June 30, 2000, there
has not been a Parent Material Adverse Effect.
Section 4.8 Financing. The Parent has or will have sufficient funds
available (through existing credit arrangements or otherwise) to pay the
Merger Consideration, to satisfy any obligation of Parent or Merger Sub in
connection with the transactions contemplated by this Agreement and to pay all
fees and expenses related to the transactions contemplated by this Agreement
to be paid by Parent or Merger Sub.
Section 4.9 Finders' Fees. Except for Chase Manhattan plc., whose fees will
be paid by Parent or one of its affiliates, there is no investment banker,
broker, finder or other intermediary that might be entitled to any fee or
commission in connection with or upon consummation of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent.
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Article V
Covenants of the Parties
Section 5.1 Conduct of the Business of the Company. From the date hereof
until the Effective Time, except as expressly contemplated or allowed by this
Agreement (including the Distribution), the Company and the Non-Energy
Subsidiaries shall conduct their businesses in the ordinary course consistent
with past practice and shall use commercially reasonable efforts to preserve
intact their business organizations and relationships with third parties and
to keep available the services of their present officers and employees.
Without limiting the generality of the foregoing, from the date hereof until
the Effective Time, except as expressly contemplated or allowed by this
Agreement (including the Distribution), the Company will not (and will not
permit any of its Non-Energy Subsidiaries to) take any action or knowingly
omit to take any action that would make any of its representations and
warranties contained herein false to an extent that would cause the condition
set forth in Section 6.3(b) not to be satisfied.
In addition, except as expressly contemplated or allowed by the terms of
this Agreement, and except as expressly provided in Schedule 5.1 of the
Company Disclosure Letter, without the prior written consent of Parent, which,
in the case of clause (d), shall not be unreasonably withheld, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time, the
Company shall not do any of the following and shall not permit its Non-Energy
Subsidiaries to do any of the following:
(a) Other than the Distribution or pursuant to the Pharma Merger or the
Share Exchange Agreements, declare, set aside or pay any dividends on or
make any other distributions (whether in cash, stock, equity securities of
property) in respect of any capital stock of the Company or any Company
Subsidiary or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock of the Company or any Non-Energy
Subsidiary;
(b) Other than (i) pursuant to the Pharma Merger or the Share Exchange
Agreements or (ii) in connection with the contribution of the
Capitalization Amount or the conversion of the intercompany accounts to
equity of CAT, purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of the Company or its Subsidiaries,
or make any capital contribution to any Subsidiary of the Company, except
repurchases of unvested shares at cost in connection with the termination
of the employment relationship with any employee pursuant to stock option
or purchase agreements in effect on the date hereof;
(c) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of capital stock or any securities convertible into shares of
capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any
character obligating it to issue any such shares or convertible securities
other than the issuance, delivery and/or sale of (i) shares of Company
Common Stock pursuant to the exercise of Company Options outstanding on the
date hereof, (ii) shares of Company Common Stock issuable to participants
in the Company ESPP, in the case of (i) and (ii), consistent with the terms
thereof, (iii) Company Options to newly-hired non-executive employees in
the ordinary course of business, (iv) Company Options pursuant to periodic
grants to non-executive employees in the ordinary course of business, (v)
Company Common Stock pursuant to the Pharma Merger or (vi) Company Common
Stock in fulfillment of obligations pursuant to the Share Exchange
Agreements;
(d) Incur any indebtedness for borrowed money, or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company or enter into any arrangement having the economic effect of any of
the foregoing, other than in the ordinary course of business consistent
with past practice and in an aggregate amount not in excess of $20,000,000;
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(e) Make any capital expenditures or otherwise acquire (whether pursuant
to merger, stock or asset purchase or otherwise) in one transaction or
series of related transactions (i) any assets having a fair market value in
excess of $5,000,000 or (ii) all or substantially all of the equity
interests of any person or any business or division of any person, except,
in the case of capital expenditures, in accordance with the current Company
annual budget and plan (as of July 31, 2000) as previously disclosed to
Parent;
(f) Amend the Company's or any Non-Energy Subsidiary's Certificate of
Incorporation or by-laws or equivalent documents;
(g) Sell, lease, encumber or otherwise dispose of any assets of the
Company or any Non-Energy Subsidiary, other than (i) sales in the ordinary
course of business consistent with past practice, (ii) equipment and
property no longer used in the operation of the Company's business and
(iii) assets related to discontinued operations;
(h) Except in the ordinary course of business, amend, modify or terminate
any material contract, agreement or arrangement of the Company or its
Subsidiaries (assuming the consummation of the Distribution) or otherwise
waive, release or assign any material rights, claims or benefits
thereunder;
(i) Except as required by law or the current terms of an existing
agreement or other authorization disclosed in Schedule 5.1 of the Company
Disclosure Letter, (v) increase the amount of compensation of any current
or former director, officer or employee (other than in the case of non-
executive employees, ordinary periodic increases consistent with past
practices) or make any increase in or commitment to increase any employee
benefits or vest, fund or pay any pension or retirement allowance other
than as required by the current terms of any Plan, (w) grant any severance
or termination pay to any director, officer or employee of the Company or
any Non-Energy Subsidiary, (x) adopt, amend, modify (except as may be
required by law), enter into or commit to any additional employee benefit
plan or, except in the ordinary course of business, make any contribution
to any existing Plan, (y) increase the benefits payable under any existing
severance or termination pay policies or employment agreements or (z) take
any affirmative action to accelerate the vesting of any stock-based
compensation;
(j) Change the Company's methods of accounting in effect at December 31,
1999, except as required by changes in GAAP or by Regulation S-X of the
Exchange Act, as concurred in by its independent public accountants;
(k) Enter into any agreement or arrangement that limits or otherwise
restricts the Company, any Non-Energy Subsidiary or any of their respective
affiliates or any successor thereto from engaging or competing in any line
of business or in any location, which agreement or arrangement would be
material to the business of the Company and its Subsidiaries taken as a
whole (assuming consummation of the Distribution);
(l) Settle, or propose to settle, any litigation, investigation,
arbitration, proceeding or other claim that is material to the business of
the Company and its Subsidiaries, taken as a whole (assuming consummation
of the Distribution), other than the payment, discharge or satisfaction of
liabilities, in the ordinary course of business consistent with past
practice;
(m) Create or incur any material Lien on any material asset of the
Company and its Subsidiaries (assuming consummation of the Distribution),
other than in the ordinary course of business consistent with past practice
or other than in connection with the purchase of such asset;
(n) Other than the contribution of the Capitalization Amount, make any
material loan, advance or capital contribution to or investment in any
Person, other than loans, advances or capital contributions to, or
investments in, wholly owned Non-Energy Subsidiaries (or pursuant to the
ordinary cash management practices of the Company) made in the ordinary
course of business consistent with past practice;
(o) Other than in the ordinary course of business consistent with past
practice, (i) make any tax election with respect to Taxes or take any
position on any tax return filed on or after the date of this Agreement or
adopt any method thereof that is inconsistent with elections made,
positions taken or methods used in preparing or filing similar returns in
prior periods or (ii) enter into any settlement or compromise of
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any tax liability that in either case is material to the business of the
Company and its Subsidiaries, taken as a whole (assuming consummation of
the Distribution); or
(p) Agree in writing or otherwise to take any of the actions described in
Section 5.1(a) through (o) above.
Section 5.2 Conduct of the Business of Parent. From the date hereof until
the Closing Date, except as expressly contemplated or allowed by this
Agreement, Parent will not (and will not permit any of its Subsidiaries to)
take any action or knowingly omit to take any action that would make any of
its representations and warranties contained herein false to an extent that
would cause the condition set forth in Section 6.2(b) not to be satisfied.
Section 5.3 Stockholders' Meeting; Proxy Material.
(a) Subject to the last sentence of this Section 5.3(a), the Company
shall, in accordance with applicable law and the Certificate of
Incorporation and the by-laws of the Company duly call, give notice of,
convene and hold a special meeting of its stockholders (the "Special
Meeting") as promptly as practicable after the date hereof for the purpose
of considering and taking action upon the adoption of this Agreement and,
to the extent required by applicable law, the Distribution (the "Company
Approval Matters"). The Board of Directors of the Company shall recommend
approval and adoption of the Company Approval Matters by the Company's
stockholders; provided that the Board of Directors of the Company may
withdraw, modify or change such recommendation if (i) it believes in good
faith that a Superior Proposal (as defined in Section 5.5) has been made
and (ii) it has determined in good faith, after consultation with the
Company's outside counsel, that the withdrawal, modification or change of
such recommendation is necessary to comply with the fiduciary duties of the
Board of Directors of the Company under applicable law.
(b) Promptly following the date of this Agreement, the Company shall
prepare and file with the SEC a proxy statement relating to the Company
Approval Matters (together with any amendments thereof and any supplements
thereto, the "Proxy Statement"). Promptly following the date of this
Agreement, the Company shall also prepare and file with the SEC the
Distribution Statement. Parent and the Company shall cooperate with each
other in connection with the preparation of the foregoing documents. The
Company will use commercially reasonable efforts to cause the Proxy
Statement and the Distribution Statement to be mailed to the Company's
stockholders as promptly as practicable after the Distribution Statement is
declared effective by the SEC.
(c) The Company shall as promptly as practicable notify (and provide
copies to) Parent of the receipt of any comments from the SEC relating to
the Proxy Statement and the Distribution Statement. All filings by the
Company with the SEC in connection with the transactions contemplated
hereby, including the Proxy Statement and any amendment or supplement
thereto, shall be subject to the prior review of Parent, and all mailings
to the Company's stockholders in connection with the transactions
contemplated by this Agreement shall be subject to the prior review of
Parent.
Section 5.4 Access to Information; Confidentiality Agreement. Upon
reasonable advance notice, between the date hereof and the Closing Date, the
Company shall (i) give Parent, its counsel, financial advisors, auditors and
other's authorized representatives (collectively, "Representatives")
reasonable access during normal business hours to the offices, properties,
books and records of the Company and the Non-Energy Subsidiaries (including to
conduct environmental testing, if desired), (ii) furnish to Parent's
Representatives such financial and operating data and other information
relating to such party, its Subsidiaries and their respective operations as
such persons may reasonably request and (iii) instruct the Company's and its
Non-Energy Subsidiaries' employees, counsel and financial advisors to
cooperate with Parent in its investigation of the business of the Company and
its Subsidiaries; provided that any information and documents received by
Parent or its Representatives (whether furnished before or after the date of
this Agreement) shall be held in accordance with the Confidentiality Agreement
dated April 27, 2000 between Dutch Parent and the Company (the
"Confidentiality Agreement"), which shall remain in full force and effect
pursuant to the terms thereof, notwithstanding the execution and delivery of
this Agreement or the termination hereof until the Effective Time.
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Section 5.5 No Solicitation. From the date hereof until the Effective Time
or, if earlier, the termination of this Agreement, the Company and its
Subsidiaries shall not (whether directly or indirectly through advisors,
agents or other intermediaries), and the Company shall cause its and its
Subsidiaries' respective officers, directors, advisors, representatives or
other agents not to, directly or indirectly, (a) solicit, initiate or
encourage any Acquisition Proposal (as defined hereafter), (b) engage in
negotiations with, or disclose any non-public information relating to the
Company or its Subsidiaries or afford access to the properties, books or
records of the Company or its Subsidiaries to, any person or group (other than
Parent or any designees of Parent) concerning any Acquisition Proposal or (c)
enter into any agreement with respect to any Acquisition Proposal, other than
in the manner contemplated by Section 7.1(f) provided, however, that if the
Board of Directors of the Company determines in good faith, based on such
matters as it deems relevant, acting only after consultation with the
Company's outside counsel that it is necessary to comply with its fiduciary
duties to the Company's stockholders under the DGCL, the Company may, in
response to a bona fide Acquisition Proposal that was not solicited or
encouraged in breach of this Section 5.5 and that the Board of Directors of
the Company determines in good faith, after consultation with the Company's
financial advisor, constitutes a Superior Proposal, (i) furnish information to
the person or group who made such Acquisition Proposal, but only pursuant to a
confidentiality agreement substantially in the same form as was executed by
Parent prior to the execution of this Agreement and only if copies of such
information (to the extent not previously supplied) are concurrently provided
to Parent, and (ii) participate in discussions and negotiations regarding such
proposal or offer. The Company shall promptly (and in any event within one
business day after any of the Company's officers and directors becoming aware
thereof) (i) notify Parent in the event the Company or any of its Subsidiaries
or other affiliates or any of their respective officers, directors, employees
and agents receives any Acquisition Proposal, including the material terms and
conditions thereof and the identity of the party submitting such proposal, and
any request for non-public information in connection with an Acquisition
Proposal, (ii) provide a copy of any written agreements, proposals or other
materials that the Company receives from any such person or group, and (iii)
notify Parent of any material changes or developments with respect to any of
the matters described in clauses (i) and (ii). The Company shall immediately
cease and cause to be terminated any activities, discussions or negotiations
commenced or conducted prior to the date of this Agreement with any party
other than Parent or its affiliates with respect to any Acquisition Proposal.
For purposes of this Agreement, "Acquisition Proposal" means any offer or
proposal for a merger, consolidation, recapitalization, liquidation or other
business combination involving the Company or the acquisition or purchase of
over 50% or more of any class of equity securities of the Company, or any
tender offer (including self-tenders) or exchange offer that if consummated
would result in any person beneficially owning 50% or more of any class of
equity securities of the Company, or a substantial portion of the assets of,
the Company and its Subsidiaries taken as a whole, other than the transactions
contemplated by this Agreement (including the Distribution). As used herein, a
"Superior Proposal" shall mean a bona fide Acquisition Proposal which in the
good faith judgment of the Company's Board of Directors, based on such matters
as it deems relevant, after consultation with the Company's financial advisor,
(i) provides greater benefits to the Company's stockholders than those
provided pursuant to this Agreement and (ii) provides that any financing
required to consummate the transaction contemplated by the offer is committed
and in the good faith determination of the Board of Directors of the Company,
after consultation with the Company's financial advisor, is likely to be
obtained by such person on a timely basis. Nothing contained in this Section
5.5 shall prohibit the Company or the Company's Board of Directors from taking
and disclosing to the Company's stockholders a position with respect to a
tender or exchange offer by a third party pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act or from making any disclosure required by
applicable law.
Section 5.6 Director and Officer Liability.
(a) Parent shall cause all rights to indemnification and all limitations
on liability existing in favor of any individuals who on or prior to the
Effective Time were officers, directors, employees or agents of the Company
and any of its Non-Energy Subsidiaries (the "Indemnitees") as provided in
the Certificate of Incorporation or by-laws of the Company or an agreement
between an Indemnitee and the Company or a Subsidiary of the Company as in
effect as of the date hereof to continue in full force and effect in
accordance with its terms and to be satisfied by the Surviving Corporation
or Parent.
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(b) Subject to the terms and conditions set forth on Schedule 1.5(a), for
six years after the Effective Time, Parent shall cause the Surviving
Corporation to provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering
each such person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date
hereof; provided, however, that in no event shall the Surviving Corporation
be required to expend more than an amount per year equal to 150% of current
annual premiums paid by the Company for such insurance (the "Maximum
Amount") to maintain or procure insurance coverage pursuant hereto;
provided, further, that if the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount, the
Surviving Corporation shall maintain or procure, for such six-year period,
the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Amount. The Company
represents that the current annual premium for such insurance equals
approximately $165,000.
(c) The obligations of Parent and the Surviving Corporation under this
Section 5.6 shall not be terminated or modified in such a manner as to
adversely affect any Indemnitee to whom this Section 5.6 applies without
the consent of such affected Indemnitee (it being expressly agreed that the
Indemnitees to whom this Section 5.6 applies shall be third party
beneficiaries of this Section 5.6).
Section 5.7 Commercially Reasonable Efforts. Upon the terms and subject to
the conditions of this Agreement and those set forth on Schedule 1.6, each
party hereto shall use commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement.
Section 5.8 Certain Filings.
(a) The Company and Parent shall cooperate with one another (i) in
connection with the preparation of the Proxy Statement, (ii) in determining
whether any action by or in respect of, or filing with, any Governmental
Entity is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and (iii) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith or with the Proxy Statement or Distribution Statement
and seeking timely to obtain any such actions, consents, approvals or
waivers. Without limiting the provisions of this Section 5.8, each party
hereto shall file with the Department of Justice and the Federal Trade
Commission a Pre-Merger Notification and Report Form pursuant to the HSR
Act in respect of the transactions contemplated hereby as soon as
reasonably practicable, and each party will use commercially reasonable
efforts to take or cause to be taken all actions necessary, including to
promptly and fully comply with any requests for information from regulatory
Governmental Entities, to obtain any clearance, waiver, approval or
authorization relating to the HSR Act that is necessary to enable the
parties to consummate the transactions contemplated by this Agreement.
Without limiting the provisions of this Section 5.8, each party hereto
shall use commercially reasonable efforts to promptly make the filings
required to be made by it with all foreign Governmental Entities in any
jurisdiction in which the parties believe it is necessary or advisable.
(b) The Company and Parent shall each use commercially reasonable efforts
to resolve such objections, if any, as may be asserted with respect to the
Merger or any other transaction contemplated by this Agreement under any
Antitrust Law (as defined below). If any administrative, judicial or
legislative action or proceeding is instituted (or threatened to be
instituted) challenging the Merger or any other transaction contemplated by
this Agreement as violative of any Antitrust Law, the Company and Parent
shall each cooperate to contest and resist any such action or proceeding,
and to have vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order (whether temporary, preliminary or permanent)
that is in effect and that restricts, prevents or prohibits consummation of
the Merger or any other transaction contemplated by this Agreement,
including, without limitation, by pursuing all reasonable avenues of
administrative and judicial appeal. Notwithstanding anything to the
contrary in this Agreement,
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none of Parent, any of its Subsidiaries or the Surviving Corporation, shall
be required (and the Company shall not, without the prior written consent
of Parent, agree, but shall, if so directed by Parent, agree) to hold
separate or divest any of their respective assets or operations or enter
into any consent decree or licensing or other arrangement with respect to
any of their assets or operations.
(c) Each of the Company and Parent shall promptly inform the other party
of any material communication received by such party from the Federal Trade
Commission, the Antitrust Division of the Department of Justice or any
other governmental or regulatory authority regarding any of the
transactions contemplated hereby.
(d) "Antitrust Law" means the Sherman Act, as amended, the Clayton Act,
as amended, and all other federal, state and foreign statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines, and
other laws that are designed or intended to prohibit, restrict or regulate
competition or actions having the purpose or effect of monopolization or
restraint of trade.
Section 5.9 Public Announcements. The parties shall issue press releases in
agreed upon form announcing the execution of this Agreement as soon as
practicable on or after the date hereof. Neither the Company, Parent nor any
of their respective affiliates shall issue or cause the publication of any
press release or other public announcement with respect to the Merger, this
Agreement or the other transactions contemplated hereby without the prior
written consent of the other party, except as may be required by law or by any
listing agreement with, or the policies of, a national securities exchange in
which circumstance reasonable efforts to consult will still be required to the
extent practicable.
Section 5.10 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger Sub,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name and on behalf of the Company or Merger Sub, any other actions to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties
or assets of the Company acquired or to be acquired by the Surviving
Corporation, as a result of, or in connection with, the Merger.
Section 5.11 Employee Matters.
(a) Following the Effective Time and for a period of one (1) full year
thereafter, the Parent, in its sole discretion, shall either: (i) continue
(or cause the Company to continue) to maintain the Plans on substantially
similar terms in the aggregate as in effect immediately prior to the
Effective Time, or (ii) arrange for each participant in the Plans employed
at the Company or a Non-Energy Subsidiary ("Company Participants") to
participate in any similar plans of the Parent ("Parent Plans") on terms in
the aggregate no less favorable than those offered to similarly situated
employees of Parent, or (iii) a combination of clauses (i) and (ii). Each
Company Participant who continues to be employed by the Company or any of
its subsidiaries immediately following the Effective Time shall, to the
extent permitted by law and applicable tax qualification requirements, and
subject to any generally applicable break in service or similar rule,
receive credit for purposes of eligibility to participate and vesting under
the Parent Plans for years of service with the Company or its subsidiaries
prior to the Effective Time. Parent shall cause any and all pre-existing
condition limitations, eligibility waiting periods and evidence of
insurability requirements under any group health plans to be waived with
respect to such Company Participants and their eligible dependents and
shall provide them with credit for any co-payments and deductibles prior to
the Effective Time for purposes of satisfying any applicable deductible,
out-of-pocket, or similar requirements under any Parent Plans in which they
are eligible to participate immediately after the Effective Time. The
provisions of this Section 5.11 shall not create in any employee or former
employee of the Company or any Subsidiary of the Company any rights to
employment or continued employment with Parent, the Surviving Corporation
or any Subsidiary or affiliate thereof or infringe upon the right of any
such entity to terminate the employment of any such employee for any reason
or no reason.
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(b) Prior to the Closing Date, the Company may adopt additional retention
and severance programs for specified non-executive employees of the Company
or a Non-Energy Subsidiary previously identified to Parent; provided that
such programs shall create aggregate obligations for the Company of no
greater than $1,150,000, excluding any ordinary course payments provided to
other employees under the Company's general severance plans.
Section 5.12 Disposition of Energy Business. The Company will use its
commercially reasonable efforts to consummate the Distribution in accordance
with Schedule 1.6 and will inform Parent promptly, and in no event later than
three business days after, material developments relating thereto. Parent will
cooperate with the Company in its efforts to consummate the Distribution
including by (i) providing assistance with respect to any proxy or information
statement required in connection with the Distribution and (ii) cooperating in
the filing of any tax election or Tax Returns required or deemed advisable by
the Company and after consummation of the Distribution, Spinco in connection
with the Distribution.
Section 5.13 Capitalization of Pharma. The Company shall take any necessary
actions (i) to own all of the issued and outstanding capital stock of Pharma
at the Effective Time and (ii) to eliminate any outstanding Pharma Rights at
the Effective Time.
Section 5.14 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute
or regulation is or may become applicable to the Merger, the Company shall
take such actions as are necessary so that the transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise to eliminate or minimize the effects of any
such statute or regulation on the Merger.
Section 5.15 Certain Notifications. Between the date hereof and the
Effective Time, each party shall promptly notify the other in writing after
becoming aware of the occurrence of any event which will, or is reasonably
likely to, result in the failure of any of the conditions to the Merger
specified in Article VI to be satisfied.
Section 5.16 Minority Interest of CCSI. The Company shall take all steps
necessary to cause the rights of Enron to exchange shares of stock of CCSI
for, or otherwise to acquire, shares of Company Common Stock under the
Stockholders' Agreement, dated January 14, 1998, among the Company, CCSI and
Enron to be (A) exercised and satisfied in full (including, if applicable, the
resolution of any disagreement as to the number of shares of Company Common
Stock to which Enron is entitled in respect of such exchange and delivery of
such number) or (B) waived and terminated, in each case on or prior to the
Closing Date. The Company shall deliver to Parent at or prior to the Closing
evidence reasonably satisfactory to Parent of the satisfaction in full or
waiver and termination of all such rights. Notwithstanding any other provision
of this Agreement, this covenant must be performed in all respects prior to
the Closing Date.
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Article VI
Conditions to the Merger
Section 6.1 Conditions to Each Party's Obligations. The respective
obligations of the Parent, Merger Sub and the Company to consummate the Merger
are subject to the satisfaction or, to the extent permitted by applicable law,
the waiver on or prior to the Closing Date of each of the following
conditions:
(a) The Company Approval Matters shall have been approved and adopted by
the stockholders of the Company in accordance with applicable law;
(b) Any applicable waiting periods or consents under the HSR Act or any
other applicable Antitrust Law relating to the Merger shall have expired,
been terminated or been granted, as applicable;
(c) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger
or the other transactions contemplated by this Agreement; and
(d) The Distribution shall have been consummated.
Section 6.2 Conditions to the Company's Obligation to Consummate the
Merger. The obligation of the Company to consummate the Merger shall be
further subject to the satisfaction or, to the extent permitted by applicable
law, the waiver on or prior to the Closing Date of each of the following
conditions:
(a) Parent shall have performed in all material respects its agreements
and covenants contained in or contemplated by this Agreement that are
required to be performed by it at or prior to the Closing Date pursuant to
the terms hereof;
(b) The representations and warranties of Parent contained in Article IV
hereof shall be true and correct in all respects on the date hereof and as
of the Closing Date (or, to the extent such representations and warranties
speak as of an earlier date, they shall be true in all respects as of such
earlier date), disregarding, for these purposes, the phrases "material,"
"materially," "in all material respects," "Parent Material Adverse Effect"
and any similar phrase, except (i) as otherwise expressly contemplated by
this Agreement and (ii) for such failures to be true and correct which in
the aggregate do not constitute a Parent Material Adverse Effect; and
(c) The Company shall have received certificates signed by the Chief
Executive Officer of Parent, dated the Closing Date, to the effect that, to
such officer's knowledge, the conditions set forth in Sections 6.2(a) and
6.2(b) hereof have been satisfied or waived.
Section 6.3 Conditions to Parent's Obligations to Consummate the Merger. The
obligations of Parent to effect the Merger shall be further subject to the
satisfaction, or to the extent permitted by applicable law, the waiver on or
prior to the Closing Date of each of the following conditions:
(a) The Company shall have performed in all material respects each of its
agreements and covenants contained in or contemplated by this Agreement
that are required to be performed by it at or prior to the Closing Date
pursuant to the terms hereof;
(b) The representations and warranties of the Company contained in
Article III hereof shall be true and correct in all respects on the date
hereof and as of the Closing Date (or, to the extent such representations
and warranties speak as of an earlier date, they shall be true in all
respects as of such earlier date), disregarding, for these purposes, the
phrases "material," "materially," "in all material respects," "Company
Material Adverse Effect" and any similar phrase, except (i) as otherwise
contemplated by this Agreement and (ii) for such failures to be true and
correct which in the aggregate do not constitute a Company Material Adverse
Effect.
(c) Parent shall have received a certificate signed by the chief
executive officer of the Company, dated the Closing Date, to the effect
that, to such officer's knowledge, the conditions set forth in Sections
6.3(a) and 6.3(b) hereof have been satisfied or waived;
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(d) The Company shall own all of the issued and outstanding capital stock
of Pharma and no Pharma Rights remain outstanding and the Company shall
have delivered evidence reasonably satisfactory to Parent demonstrating
that this condition has been satisfied.
(e) The aggregate number of Dissenting Shares of Company Common Stock as
of the Effective Time shall be less than 10% of the number of shares of
Company Common Stock outstanding as of the Effective Time.
Section 6.4 Conditions to Company's Obligation to Consummate the
Distribution. The Company's obligation to consummate the Distribution shall be
subject to the condition that the conditions of Sections 6.1(a)-(c), 6.2 and
6.3 shall have been satisfied or waived.
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Article VII
Termination
Section 7.1 Termination. Notwithstanding anything herein to the contrary,
this Agreement may be terminated and the transactions contemplated by this
Agreement may be abandoned at any time prior to the Closing Date, whether
before or after the Company has obtained stockholder approval:
(a) by the mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if the Merger has not been
consummated by February 28, 2001, or such other date, if any, as the
Company and Parent shall agree upon (the "Outside Date"); provided, that
the party seeking to terminate this Agreement pursuant to this Section
7.1(b) shall not have breached in any material respect its obligations
under this Agreement;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the transactions contemplated by this
Agreement illegal or if any judgment, injunction, order or decree enjoining
Parent or the Company from consummating the transactions contemplated by
this Agreement is entered and such judgment, injunction, order or decree
shall have become final and nonappealable;
(d) by Parent, if (i) the Board of Directors of the Company shall have
withdrawn or modified or amended in any respect adverse to Parent its
approval or recommendation of the Company Approval Matters, (ii) the Board
of Directors of the Company shall have recommended to the stockholders of
the Company any Acquisition Proposal or shall have resolved or announced an
intention to do so, or (iii) a tender offer or exchange offer for 50% or
more of the outstanding shares of the Company Common Stock is announced or
commenced and, either (A) the Board of Directors of the Company recommends
acceptance of such tender offer or exchange offer by its stockholders or
(B) within ten business days of such commencement, the Board of Directors
of the Company shall have failed to recommend against acceptance of such
tender offer or exchange offer by its stockholders;
(e) by either the Company or Parent, if the approval of the stockholders
of the Company of the Company Approval Matters shall not have been obtained
at a duly held meeting of stockholders of the Company or any adjournment
thereof;
(f) by the Company, if the Board of Directors of the Company, prior to
the Special Meeting, shall elect to terminate this Agreement in order to
recommend or approve a Superior Proposal or to enter into an agreement for
a transaction that constitutes a Superior Proposal; provided that (x) the
Company has notified Parent in writing that it intends to recommend or
approve a Superior Proposal or to enter into such an agreement, attaching
the most current version of such proposal or agreement to such notice at
least 48 hours prior to such termination, and (y) at any time at least 48
hours following written notification by the Company to Parent, after taking
into account any modifications to the transactions contemplated by this
Agreement that Parent has then proposed in writing and not withdrawn, the
Board of Directors of the Company has determined that such proposal is and
continues to be a Superior Proposal, and (z) concurrently with the giving
of notice of such termination, pays to Parent the Termination Fee due under
Section 7.3(a);
(g) by the Company if (i) there shall have been a breach of any
representations or warranties on the part of Parent set forth in this
Agreement or if any representations or warranties of Parent shall have
become untrue, such that the conditions set forth in Section 6.2(b) would
be incapable of being satisfied by the Outside Date, provided that the
Company has not breached any of its obligations hereunder in any material
respect; or (ii) there shall have been a breach by Parent of any of its
covenants or agreements hereunder having, in the aggregate, a Parent
Material Adverse Effect or materially adversely affecting (or materially
delaying) the ability of Parent or the Company to consummate the Merger,
and Parent has not cured such breach within thirty (30) business days after
notice by the Company thereof, provided that the Company has not breached
any of its obligations hereunder in any material respect; or
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(h) by Parent if (i) there shall have been a breach of any
representations or warranties on the part of the Company or any of its
Subsidiaries set forth in this Agreement or if any representations or
warranties of the Company or any of its Subsidiaries shall have become
untrue, such that the conditions set forth in Section 6.3(b) would be
incapable of being satisfied by the Outside Date, provided that Parent has
not breached any of its obligations hereunder in any material respect; or
(ii) there shall have been a breach by the Company or any of its
Subsidiaries of one or more of its respective covenants or agreements
hereunder having, in the aggregate, a Company Material Adverse Effect or
materially adversely affecting (or materially delaying) the ability of
Parent or the Company to consummate the Merger, and the Company has not
cured such breach within thirty (30) business days after notice by Parent
thereof, provided that Parent has not breached any of its obligations
hereunder in any material respect.
The party desiring to terminate this Agreement shall give written notice of
such termination to the other party.
Section 7.2 Effect of Termination. Except for any willful breach of this
Agreement by any party hereto (which willful breach and liability therefor
shall not be affected by the termination of this Agreement or the payment of
any fee pursuant to Section 7.3 hereof), if this Agreement is terminated
pursuant to Section 7.1 hereof, then this Agreement shall become void and of
no effect with no liability on the part of any party hereto; provided,
however, that notwithstanding such termination the agreements contained in
Sections 7.2, 7.3 and 8.7 hereof and the provision to Section 5.4 hereof shall
survive the termination hereof.
Section 7.3 Fees.
(a) The Company agrees to pay Parent in immediately available funds by
wire transfer an amount equal to $20 million (the "Termination Fee") plus
up to $5 million in expenses, if:
(i) this Agreement is terminated by Parent pursuant to Section 7.1(d)
hereof;
(ii) (A) this Agreement is terminated by Parent or the Company pursuant
to Section 7.1(b) or 7.1(e) hereof, (B) at or prior to the time of such
termination, an Acquisition Proposal with respect to the Company shall have
been made public, and (C) within twelve months after such termination, the
Company shall enter into a definitive agreement with respect to any
Acquisition Proposal or the transaction contemplated by any Acquisition
Proposal (an "Acquisition Transaction") relating to the Company shall be
consummated; or
(iii) this Agreement is terminated by the Company pursuant to Section
7.1(f) hereof.
(b) If the Company is required to pay the Termination Fee plus expenses
pursuant to this Section 7.3, then the Company shall pay the Termination
Fee plus expenses, as applicable, (i) at or prior to the termination of
this Agreement by the Company, (ii) not later than one business day after
the termination of this Agreement by Parent or (iii) in the case of a fee
payable pursuant to Section 7.3(a)(ii), at or prior to the earlier of the
execution of the definitive agreement with respect to, and the consummation
of, the applicable Acquisition Transaction.
(c) Parent's right to receive such fee and expenses, and ability to
enforce the provisions of this Section 7.3, shall not be subject to
approval by the stockholders of the Company.
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Article VIII
Miscellaneous
Section 8.1 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement to any
party hereunder shall be in writing and deemed given upon (a) personal
delivery, (b) transmitter's confirmation of a receipt of a facsimile
transmission, (c) confirmed delivery by a standard overnight carrier or when
delivered by hand or (d) when mailed in the United States by certified or
registered mail, postage prepaid, addressed at the following addresses (or at
such other address for a party as shall be specified by notice given
hereunder):
If to the Company, to:
Catalytica, Inc.
430 Ferguson Drive
Mountain View, California 94043
Fax: (650) 960-8754
Attention: Chief Financial Officer
with copies to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
One Market, Spear Tower
San Francisco, California 94105
Fax: (415) 947-2099
Attention: Michael J. Kennedy, Esq.
and
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Fax: (650) 493-6811
Attention: Barry E. Taylor, Esq.
If to Parent or Merger Sub, to:
Synotex Company, Inc.
One Columbia Nitrogen Road
Augusta, GA 30903
Fax: (706) 849-6999
Attention: William P. Bivins, Jr., Esq.
with copies to:
DSM, N.V.
Legal Department
Het Overloon 1, Heerlen
P.O. Box 6500, 6401 JH Heerlen
The Netherlands
Fax: 011-31-45-5787087
Attention: Ton C.M. van der Put, Esq.
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and to
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Fax: (212) 225-3999
Attention: William A. Groll, Esq.
Section 8.2 Survival of Representations and Warranties. Except as otherwise
provided herein or in any document contemplated hereby, the representations
and warranties contained herein and in any certificate or other writing
delivered pursuant hereto shall not survive the Effective Time. All other
covenants and agreements contained herein which by their terms are to be
performed in whole or in part, or which prohibit actions, subsequent to the
Effective Time, shall survive the Merger in accordance with their terms.
Section 8.3 Interpretation. References herein to the "knowledge" (and all
variants and derivatives thereof) of a party shall mean the actual knowledge,
after reasonable inquiry, of the executive officers of such party. Whenever
the words "include," "includes" or "including" are used in this Agreement they
shall be deemed to be followed by the words "without limitation." As used in
this Agreement, the term "affiliate" shall have the meaning set forth in Rule
12b-2 promulgated under the Exchange Act.
The article and section headings contained in this Agreement are solely for
the purpose of reference, are not part of the agreement of the parties hereto
and shall not in any way affect the meaning or interpretation of this
Agreement. Any matter disclosed pursuant to any Schedule of the Company
Disclosure Schedule or the Parent Disclosure Schedule shall not be deemed to
be an admission or representation as to the materiality of the item so
disclosed.
Section 8.4 Amendments, Modification and Waiver (a) Except as may otherwise
be provided herein, any provision of this Agreement may be amended, modified
or waived by the parties hereto, by action taken by or authorized by their
respective Board of Directors, prior to the Closing Date if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and Parent or, in the case of a waiver, by the party against whom
the waiver is to be effective; provided that after the adoption of this
Agreement by the stockholders of the Company, no such amendment shall be made
except as allowed under applicable law.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 8.5 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that neither the Company nor
Parent may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other party
hereto.
Section 8.6 Expenses. Except as provided in Sections 1.2(b) and 7.3, whether
or not the Merger shall be consummated, each party shall pay its own expenses
incident to preparing for, entering into and carrying out this Agreement and
the consummation of the transactions contemplated hereby.
Section 8.7 Specific Performance. The parties acknowledge and agree that any
breach of the terms of this Agreement would give rise to irreparable harm for
which money damages would not be an adequate remedy and accordingly the
parties agree that, in addition to any other remedies, each shall be entitled
to enforce the terms of this Agreement by a decree of specific performance
without the necessity of proving the inadequacy of money damages as a remedy.
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Section 8.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof) as to all matters, including, but not limited to, matters of
validity, construction, effect, performance and remedies.
Section 8.9 Forum Selection; Consent to Jurisdiction. All disputes arising
out of or in connection with this Agreement shall be solely and exclusively
resolved by a court of competent jurisdiction in the State of Delaware. The
parties hereby consent to the jurisdiction of the courts of the State of
Delaware and the United States District Court of the District of Delaware and
waive any objections or rights as to forum nonconveniens, lack of personal
jurisdiction or similar grounds with respect to any dispute relating to this
Agreement
Section 8.10 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 herein are not affected in any
manner materially adverse to any party hereto. 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 a mutually acceptable manner.
Section 8.11 Third Party Beneficiaries. This Agreement is solely for the
benefit of the Company and its successors and permitted assigns, with respect
to the obligations of Parent under this Agreement, and for the benefit of
Parent and its successors and permitted assigns, with respect to the
obligations of the Company under this Agreement, and this Agreement shall not,
except to the extent necessary to enforce the provisions of Article I and
Section 5.6 hereof be deemed to confer upon or give to any other third party
any remedy, claim, liability, reimbursement, cause of action or other right.
Section 8.12 Entire Agreement. This Agreement, including any exhibits or
schedules hereto and the Confidentiality Agreement constitute the entire
agreement among the parties hereto with respect to the subject matter hereof
and supersedes all other prior agreements or understandings, both written and
oral, between the parties or any of them with respect to the subject matter
hereof.
Section 8.13 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts and by facsimile, each of which shall be deemed an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each
party hereto shall have received counterparts hereof signed by all of the
other parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
SYNOTEX COMPANY, INC.
/s/ Arnold Gratama van Andel
By: _________________________________
Arnold Gratama van Andel
Chairman and President
SYNOTEX ACQUISITION CORPORATION
/s/ Arnold Gratama van Andel
By: _________________________________
Arnold Gratama van Andel
President
CATALYTICA, INC.
/s/ Ricardo B. Levy
By: _________________________________
Ricardo B. Levy
President & Chief Executive
Officer
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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SCHEDULE 1.6
TERMS OF DISTRIBUTION
(Capitalized terms not otherwise defined herein have the meanings ascribed to
such terms in the Merger Agreement)
Formation of Spinco
The Company will either contribute CCSI and CAT to a new subsidiary or
otherwise combine CCSI and CAT in one company (such new holding company or
combined company, "Spinco").
No assets used in the Pharma business will be contributed to Spinco. Spinco
will assume all liabilities related to the Energy Business. To the extent the
Company or any Non-Energy subsidiary is a party to any contract relating to
the Energy Business, Spinco will use its commercially reasonable best efforts
to obtain, prior to the Closing Date, an unconditional release of the Company
and/or such Non-Energy Subsidiary from all obligations and liabilities
thereunder.
Minimum Net Worth
Immediately prior to the distribution, Spinco will have consolidated assets
(net of consolidated liabilities other than liabilities under the following
agreements) of at least $50,000,000. In addition, Spinco will have at least
$40,000,000 in cash and cash equivalents on the balance sheet immediately
prior to the Distribution.
Survival of Agreements
Each of the following agreements shall provide that the agreements and
obligations of each party shall be binding on successors and assigns and
contain a covenant of each party that it shall not consummate any transaction
in which another entity becomes the owner of 50% or more of the equity
securities of such party unless the acquiror and any ultimate parent entity
shall have executed and delivered to the other party an agreement confirming
that such acquiror and/or ultimate parent entity shall, upon consummation of
such transaction, cause the relevant party to continue to perform under the
terms of such agreement.
Employee Matters Agreement
At or prior to the time of the Distribution, the Company and Spinco will
enter into an Employee Matters Agreement, which will provide for the
allocation of assets, liabilities and responsibilities relating to current and
former employees of Spinco and their participation in the benefit plans that
the Company currently sponsors and maintains.
Tax Sharing Agreement
At or prior to the time of the Distribution, Parent, the Company and Spinco
will enter into a Tax Sharing Agreement, which will provide as follows:
1. (a) For 1999 and 2000, Parent shall, on a timely basis, file or cause to
be filed (i) such consolidated federal income tax returns and estimated
tax returns for the consolidated group of which the Company is the
common parent (the "Group") as are required to be filed, and (ii) such
state, local and foreign tax returns for the Group and/or any of its
members on a combined, consolidated, unitary or other method as
determined by Parent in its sole discretion.
(b) Parent shall have the right to determine the manner in which all
such returns shall be filed; make any elections in connection with any
such returns; contest, compromise and settle any adjustment or
deficiency proposed, asserted or assessed in connection with any such
returns; file, pursue, compromise or settle any claim for refund; and
determine whether any refunds to which the Group is entitled shall
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be paid by way of refund or credit. Notwithstanding the foregoing,
returns relating to the Group shall be filed in a manner consistent with
an allocation of items of income, gain or loss, based on a "closing of
the books" and to the extent an election or return position relates
solely to Spinco taxable years commencing after the Separation Date,
such elections or return positions shall be determined by Spinco.
(c) Spinco shall execute and file such consents, elections and other
documents as may be required or appropriate in connection with the
proper filing of such returns, and shall provide to Parent such
information as Parent may request in connection with the matters
contemplated by such tax sharing agreement.
2. Parent shall pay or cause to be paid the consolidated federal income tax
liability of the Group for all periods through and including the Closing
Date, and shall indemnify and hold harmless Spinco against any such
liability, including any liability for penalties, interest and additions
to the tax relating to such taxes, where such liability arises solely by
reason of Spinco, CCSI or CAT being severally liable for such amounts
pursuant to Treas. Reg. (S)1.1502-6.
3. Spinco shall be solely responsible for (a) filing its federal, state,
local, foreign or other tax returns for periods after the Separation
Date, and (b) paying its federal, state, local, foreign or other taxes
attributable to tax periods commencing after the Separation Date, and
shall indemnify and hold harmless Parent and the Company against any
such liability, including any liability for penalties, interest and
additions to the tax relating to such taxes.
4. Spinco shall fully cooperate with Parent in respect of any federal,
state, local, foreign or other tax audit, examination or claim for
refund or credit (each a "Tax Proceeding") relating to a tax year in
which Spinco, CCSI or CAT was a member of the Group and, without
limiting the generality of the foregoing, shall promptly make available
to Parent such information as Parent may request in connection with any
Tax Proceeding. The provisions of paragraph 1(b) above shall apply to
any such Tax Proceeding.
5. This tax sharing agreement shall supersede any existing tax sharing
agreement between the Company and any of Spinco, CCSI and/or CAT,
including the agreements dated March 4, 1999 among the Company,
Catalytica Bayview, Inc., CCSI and CAT.
Master Confidentiality and Non-Disclosure Agreement
At or prior to the time of the Distribution, the Company and Spinco will
enter into a Master Confidentiality and Non-Disclosure Agreement, which will
provide as follows:
1. Spinco and its Subsidiaries will, and will cause their respective
directors, officers, employees, consultants and advisors to, keep
confidential any proprietary information of the Company and its
Subsidiaries.
2. The Company and its Subsidiaries will, and will cause their respective
directors, officers, employees, consultants and advisors to, keep
confidential any proprietary information of Spinco and its Subsidiaries.
3. The confidentiality obligations will contain customary exceptions for
disclosures required by law.
Indemnification Agreement
At or prior to the time of the Distribution, the Company and Spinco will
enter into an Indemnification Agreement, which will provide as follows:
1. Spinco will indemnify, defend and hold the Company and its Subsidiaries
harmless against any and all liabilities, in perpetuity, relating to or
arising out of (a) the Energy Business and the Distribution whether
occurring before, at or after the Effective Time, except as otherwise
contemplated by the Merger Agreement, (b) the Company (excluding for
these purposes any Non-Energy Subsidiary) prior to the Effective Time,
(c) any severance, termination, change of control or similar payments or
benefits paid or payable to (x) (i) Ralph A. Dalla Betta, (ii) Craig N.
Kitchen and (iii) Dennis Orwig or (y) any other executive employee of
the Company or any Subsidiary, other than Michael H. Thomas and
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James B. Friederichsen, to the extent that aggregate payments to such
individuals in the case of this clause (c)(y), exceed $4,200,000, or (z)
the specified non-executive employees referred to in Section 5.11(b) to
the extent that aggregate payments to such individuals in the case of
this clause (c)(z) exceed $1,150,000, (d) any Transaction Expenses not
deducted in the calculation of the Cash Amount and (e) any arbitration
costs to be paid by Spinco pursuant to Section 1.9 of the Merger
Agreement. For these purposes, if a liability is properly characterized
as relating to the Energy Business, Spinco will be obligated to
indemnify, defend and hold the Company and its Subsidiaries harmless
without regard to the entity at which the liability is incurred.
2. The Company will indemnify, defend and hold Spinco and its Subsidiaries
harmless against any and all liabilities, in perpetuity, relating to or
arising out of (a) the business of the Company at or after the Effective
Time and/or (b) and the Non-Energy Subsidiaries, whether occurring
before, at or after the Effective Time.
3. If, and to the extent, the Company or any Non-Energy Subsidiary is or
becomes obligated to deliver any Spinco shares to any person after the
Effective Time as a result of any agreement, right, document, obligation
or other instrument of the Company or any of its Subsidiaries
outstanding at any time prior to the Effective Time (other than the
Company Options), Spinco shall provide the required number of shares to
the Company so that it may satisfy such obligation.
4. The indemnifying party will be required to reimburse the indemnified
party for all of its actual costs and expenses of investigating,
defending any claim, lawsuit or arbitration related to a covered
liability.
Transition Services Agreement
At or prior to the time of the Distribution, the Company and Spinco will
enter into a Transition Services Agreement, which will provide as follows:
1. The Company and Spinco will each provide the other and its respective
Subsidiaries specified transition services for a period not to exceed
six months following the Effective Time;
2. Each of Spinco and the Company will reimburse the other for its actual
expenses in providing such services, including allocated time costs for
employees responsible for providing or administering such services.
License Agreement
At or prior to the time of the Distribution, the Company and Spinco will
enter into a License Agreement, which will provide for the royalty-free,
perpetual license of the tradename "Catalytica" and any trademarks which
include the word "Catalytica" in connection with any uses of the names
"Catalytica Combustion Systems, Inc." and "Catalytica Advanced Technologies,
Inc."
Real Estate Matters
At or prior to the time of the Distribution, the Company and Spinco will
enter into a Real Estate Matters Agreement which will provide for:
1. The assignment to Spinco of all of the rights and obligations of the
Lease Agreement, dated January 1, 1993, between the Company and Jack
Dymond Associates or, if an assignment is not feasible, the sublease of
such rights and obligations, in each case to the extent the Company
retains any rights thereunder, effective on the Separation Date.
2. The transfer to Spinco of all buildings, fixtures, improvements and
furnishings on the leased property listed above.
3. The transfer of all other assets used primarily in the Energy Business.
For the purposes of the preceding sentence, "primarily" means at least
75%.
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Appendix B
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of August 2, 2000, is
entered into by and among Morgan Stanley Capital Partners III, L.P., Morgan
Stanley Capital Investors, L.P., MSCP III 892 Investors, L.P., James A.
Cusumano and Ricardo B. Levy (each a "Stockholder Party"), Synotex Company,
Inc. a Delaware corporation ("Parent"), and Catalytica, Inc., a Delaware
corporation (the "Company").
WHEREAS, simultaneously with the execution of this Agreement, Parent,
Synotex Acquisition Corporation, a wholly owned subsidiary of Parent ("Sub"),
and the Company are entering into an Agreement and Plan of Merger, dated as of
the date hereof (as the same may be amended or supplemented, the "Merger
Agreement"), providing, among other things, for Sub to merge with and into the
Company (the "Merger"); and
WHEREAS, as of the date hereof, each Stockholder Party is the Beneficial
Owner (as defined below) of, and has the sole right to vote and dispose of,
(a) the shares of common stock, par value $0.001 per share ("Ordinary Common
Stock"), of the Company, (b) the shares of Class A common stock, par value
$0.001 per share ("Class A Common Stock"), of the Company and/or (c) the
shares of Class B common stock, par value $0.001 per share ("Class B Common
Stock" and, together with the Ordinary Common Stock and the Class A Common
Stock, "Common Stock"), of the Company set forth in Schedule A (the "Owned
Shares"), in each case together with the associated preferred stock purchase
rights issued pursuant to that certain Rights Agreement, dated as of October
23, 1996, as amended as of July 28, 1997 and as amended as of the date hereof,
between the Company and ChaseMellon Shareholder Services, L.L.P., a New Jersey
limited liability company; and
WHEREAS, as an inducement and a condition to its entering into the Merger
Agreement and incurring the obligations set forth therein, Parent has required
that each Stockholder Party enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Certain Definitions. Capitalized terms used but not defined in this
Agreement are used in this Agreement with the meanings given to such terms in
the Merger Agreement. In addition, for purposes of this Agreement:
"Affiliate" means, with respect to any specified Person, any Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified. For
purposes of this Agreement, with respect to any Stockholder Party, "Affiliate"
shall not include the Company and the Persons that directly, or indirectly
through one or more intermediaries, are controlled by the Company.
"Alternative Transaction" has the meaning set forth in Section 2(b) hereof.
"Beneficially Owned" or "Beneficial Ownership" with respect to any
securities means having beneficial ownership of such securities (as determined
pursuant to Rule 13d-3 under the Exchange Act, disregarding the phrase "within
60 days" in paragraph (d)(1)(i) thereof), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all
Affiliates of such Person and all other Persons with whom such Person would
constitute a "Group" within the meaning of Section 13(d) of the Exchange Act
and the rules promulgated thereunder.
"Beneficial Owner" with respect to any securities means a Person who has
Beneficial Ownership of such securities.
"Company Meeting" has the meaning set forth in Section 3 hereof.
B-1
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Proposed Business Combination" means the transactions contemplated by the
Merger Agreement.
"Transfer" means, with respect to a security, the sale, transfer, pledge,
hypothecation, encumbrance, assignment or disposition of such security or the
Beneficial Ownership thereof, the offer to make such a sale, transfer or other
disposition, and each option, agreement, arrangement or understanding, whether
or not in writing, to effect any of the foregoing. As a verb, "Transfer" shall
have a correlative meaning.
2. No Disposition or Solicitation.
(a) Each Stockholder Party agrees that from and after the date hereof
through the record date with respect to the Company Meeting (as defined
below), except as contemplated by this Agreement, such Stockholder Party
will not Transfer or agree to Transfer any Common Stock Beneficially Owned
by such Stockholder Party other than with Parent's prior written consent,
or grant any proxy or power-of-attorney with respect to any such Common
Stock other than pursuant to this Agreement; provided, however, that any
Transfer after the record date with respect to the Company Meeting shall
not include a proxy or other ability of the transferee to vote such shares.
(b) Each Stockholder Party agrees that from and after the date hereof,
except as contemplated by Section 12 of this Agreement, such Stockholder
Party and its Affiliates and representatives, will not directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, or provide any non-public information to, any
Person relating to, or otherwise facilitate any tender or exchange offer,
proposal for a merger, consolidation or other business combination
involving the Company or any of its subsidiaries or any proposal or offer
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or any of its subsidiaries other than
the Proposed Business Combination (an "Alternative Transaction").
(c) Each Stockholder Party agrees that unless required by applicable law,
neither such Stockholder Party nor any of such Stockholder Party's
Affiliates shall make any press release, public announcement or other
communication with respect to Parent or the business or affairs of the
Company or its subsidiaries, including this Agreement and the Merger
Agreement and the transactions contemplated hereby and thereby, without the
prior written consent of Parent. Each Stockholder Party acknowledges and
agrees that the terms of this Agreement shall be disclosed in connection
with the announcement of the Merger Agreement.
3. Stockholder Vote. Each Stockholder Party agrees that (i) at such time as
the Company conducts a meeting of or otherwise seeks a vote or consent of its
stockholders for the purpose of approving and/or adopting the Merger Agreement
and the Merger (such meeting or any adjournment thereof, or such consent
process, the "Company Meeting"), such Stockholder Party will vote, or provide
a consent with respect to, all Common Stock having voting rights (including
the Owned Shares) then Beneficially Owned by such Stockholder Party in favor
of the Merger Agreement and the Merger and (ii) such Stockholder Party will
(at any meeting of stockholders or in connection with any consent
solicitation) vote its shares of Common Stock (including the Owned Shares)
against, and it will not consent to, any Alternative Transaction or any action
that would delay, prevent or frustrate the transactions contemplated by the
Merger Agreement.
Without limiting the foregoing, it is understood that the obligations under
clause (i) above shall remain applicable in respect of each meeting of
stockholders of the Company duly called for the purpose of approving the
Merger Agreement and the Merger regardless of the position of the Company's
board of directors as to the Merger or the Proposed Business Combination at
the time of such meeting, and that the obligations under clause (ii) above
shall continue to the extent set forth in Section 10.
B-2
<PAGE>
4. Reasonable Efforts to Cooperate. Each Stockholder Party will (a) use all
reasonable efforts to cooperate with the Company in connection with the
transactions contemplated by the Merger Agreement, (b) promptly take such
reasonable actions as are necessary or appropriate to consummate such
transactions, and (c) provide any information reasonably requested by the
Company, Parent or Sub for any regulatory application or filing made or
approval sought for such transactions (including filings with the Securities
and Exchange Commission).
5. Additional Stock. Each Stockholder Party agrees that any additional
shares of Common Stock acquired by such Stockholder Party or over which it
acquires Beneficial Ownership, whether pursuant to existing stock option
agreements, warrants or otherwise, shall be subject to the provisions of this
Agreement.
6. Proxy Matters. Each Stockholder Party represents and warrants to Parent
that any proxies heretofore given in respect of its shares of Common Stock are
not irrevocable, and that any such proxies are hereby revoked.
7. Covenant of Stockholder Parties. Each Stockholder Party agrees that it
will take all action necessary to (i) permit (a) such Stockholder Party's
Owned Shares to be acquired in the Merger and (b) the voting of such
Stockholder Party's Owned Shares in accordance with the terms of this
Agreement and (ii) prevent creditors in respect of any pledge of such
Stockholder Party's Owned Shares from exercising their rights under such
pledge.
8. Representations, Warranties and Covenants of Stockholder Parties. Each
Stockholder Party hereby represents and warrants to, and agrees with, Parent
as follows:
(a) Such Stockholder Party has all necessary power and authority and
legal capacity to execute and deliver this Agreement and perform its
obligations hereunder. In the case of each Stockholder Party who is not a
natural person, no other proceedings or actions on the part of such
Stockholder Party are necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by
such Stockholder Party and constitutes the valid and binding agreement of
such Stockholder Party, enforceable against such Stockholder Party in
accordance with its terms except to the extent limited by (i) applicable
bankruptcy, insolvency or similar laws affecting creditors' rights or (ii)
general equity principles, whether at law or in equity.
(c) Each Stockholder Party is the sole Beneficial Owner of such
Stockholder Party's Owned Shares. Each Stockholder Party has good and
marketable title (which may include holding in nominee or "street" name) to
all of such Stockholder Party's Owned Shares, free and clear of all liens,
claims, options, proxies, voting agreements and security interests (other
than as created by this Agreement and the restrictions on Transfer under
applicable securities laws). The Owned Shares constitute all of the capital
stock of the Company Beneficially Owned by such Stockholder Party and
neither such Stockholder Party nor any of such Stockholder Party's
Affiliates is the Beneficial Owner of, or has any right to acquire (whether
currently upon lapse of time, following the satisfaction of any conditions,
upon the occurrence of any event or any combination of the foregoing) any
Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock.
(d) Neither the execution and delivery of this Agreement by such
Stockholder Party nor the consummation of the transactions contemplated
hereby will (i) conflict with, result in any violation of, require any
consent under or constitute a default (whether with notice or lapse of time
or both) by such Stockholder Party under any mortgage, bond, indenture,
agreement, instrument or obligation to which such Stockholder Party is a
party or by which such Stockholder Party or any of the Owned Shares is
bound (or, in the case of each Stockholder Party that is not a natural
person, such Stockholder Party's constituent documents); (ii) violate any
judgment, order, injunction, decree or award of any court, administrative
agency or governmental body that is binding on such Stockholder Party; or
(iii) constitute a violation by such Stockholder Party of any law or
regulation of any jurisdiction.
B-3
<PAGE>
(e) Each Stockholder Party understands and acknowledges that Parent and
Sub are entering into the Merger Agreement in reliance upon such
Stockholder Party's execution, delivery and performance of this Agreement.
9. Representations and Warranties of Parent. Parent represents and warrants
to the Stockholder Parties that Parent has full corporate power and authority
to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by Parent
will not constitute a violation of, conflict with or result in a default
under, (i) any contract, understanding or arrangement to which Parent is a
party or by which it is bound or requires the consent of any other Person or
any party pursuant thereto, (ii) any judgment, decree or order applicable to
Parent, or (iii) any law, rule or regulation of any governmental body, in each
case except for violations, conflicts or defaults that would not have a
material adverse effect on the ability of the Parent to perform its
obligations under this Agreement; and this Agreement constitutes a legal,
valid and binding agreement on the part of Parent, enforceable against Parent
in accordance with its terms, except as such enforceability may be limited by
principles applicable to creditors' rights generally or governing the
availability of equitable relief. The execution and delivery by Parent of this
Agreement and the consummation by Parent of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of
Parent and no other corporate proceedings on the part of Parent are necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Parent.
10. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate on the earliest of (a) the Effective Time
and (b) the date upon which the Merger Agreement is terminated.
11. Miscellaneous.
(a) This Agreement represents the entire understanding of the parties
hereto with reference to the subject matter hereof and supersedes any and
all other oral or written agreements and understandings among the parties
heretofore made.
(b) Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
(c) Except with respect to a Transfer permitted by this Agreement after
the record date with respect to the Company Meeting, this Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of
the parties and their respective successors, personal or legal
representatives, executors, administrators, heirs, distributees, devisees,
legatees and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party
(whether by operation of law or otherwise) without the prior written
consent of the other parties; provided, that Parent may assign any or all
rights under this Agreement to Sub or any other subsidiary of Parent.
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.
(d) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of
a written agreement executed by the parties hereto; provided, that Parent
may waive compliance by any other party with any representation, agreement
or condition otherwise required to be complied with by any other party
under this Agreement or release any other party from its obligations under
this Agreement, but any such waiver or release shall be effective only if
in writing executed by Parent.
(e) All notices and other communications hereunder shall be in writing
and shall be deemed given upon (a) transmitter's confirmation of a receipt
of a facsimile transmission, (b) confirmed delivery by a standard overnight
carrier or when delivered by hand or (c) the expiration of five business
days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the address for such party set forth below.
B-4
<PAGE>
(i) If to a Stockholder Party, to such Stockholder Party at the
address set forth beside its name on Schedule A hereto with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, N.Y. 10017
Fax: (212) 450-3800
Attention: John Bick, Esq.
and to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
One Market, Spear Tower
San Francisco, California 94105
Fax: (415) 947-2099
Attention: Michael J. Kennedy, Esq.
(ii) If to Parent, to:
Synotex Company, Inc.
One Columbia Nitrogen Road
Augusta, GA 30903
Fax: (706) 849-6999
Attention: Corporate Secretary
(iii) With a copy to:
DSM, N.V.
Legal Department
Het Overloon 1, Heerlen
P.O. Box 6500, 6401 JH Heerlen
The Netherlands
Fax: 011-31-45-5787087
Attention: Ton C. M. van der Put, Esq.
and
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Fax: (212) 225-3999
Attention: William A. Groll, Esq.
(iv) if to the Company:
Catalytica, Inc.
430 Ferguson Drive
Mountain View, California 94043
Fax: (650) 960-8754
Attention: Chief Financial Officer
B-5
<PAGE>
with a copy to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
One Market, Spear Tower
San Francisco, California 94105
Fax: (415) 947-2099
Attention: Michael J. Kennedy, Esq.
or to such other address or facsimile number as the Person to whom notice
is given shall have previously furnished to the others in writing in the
manner set forth above.
(f) If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
(g) Each Stockholder Party acknowledges and agrees that in the event of
any breach of this Agreement, Parent would be irreparably and immediately
harmed and could not be made whole by monetary damages. It is accordingly
agreed that (a) each Stockholder Party will waive, in any action for
specific performance, the defense of adequacy of a remedy at law, and (b)
Parent shall be entitled, in addition to any other remedy to which it may
be entitled at law or in equity, to compel specific performance of this
Agreement.
(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 thereof by any
party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party. The failure of any party hereto
to exercise any right, power or remedy provided under this Agreement or
otherwise available in respect hereof at law or in equity, or to insist
upon compliance by any other party hereto with its obligations hereunder,
and any custom or practice of the parties at variance with the terms
hereof, shall not constitute a waiver by such party of its right to
exercise any such or other right, power or remedy or to demand such
compliance.
(i) This Agreement shall be governed by, and interpreted in accordance
with, the laws of the State of Delaware.
(j) The section and paragraph captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
(k) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original.
12. Stockholder Capacity. No Stockholder Party executing this Agreement who
is or becomes during the term hereof a director or officer of the Company
makes any agreement or understanding herein in his or her capacity as such a
director or officer. Each Stockholder Party executing this Agreement does so
solely in such Stockholder Party's capacity as the record and/or beneficial
owner of the Owned Shares and nothing herein shall limit or affect any actions
taken or omitted to be taken by a Stockholder Party in his or her capacity as
an officer or director of the Company; provided, that nothing in this Section
12 shall be deemed to permit any Stockholder Party to take any action
prohibited by the Merger Agreement.
B-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
MORGAN STANLEY CAPITAL PARTNERS III, L.P.
MORGAN STANLEY CAPITAL INVESTORS, L.P.
MSCP III 892 INVESTORS, L.P.
By: MSCP III, LLC, as General Partner of
each of the limited partnerships
named above
By: Morgan Stanley Capital Partners III,
Inc., as Member
By: /s/ Howard Hoffen
------------------
Howard Hoffen
Managing Director
JAMES A. CUSUMANO
/s/ James A. Cusumano
---------------------
RICARDO B. LEVY
/s/ Ricardo B. Levy
-------------------
SYNOTEX COMPANY, INC.
By: /s/ Arnold Gratama van Andel
-----------------------------
Arnold Gratama van Andel
Chairman and President
CATALYTICA, INC.
By: /s/ Ricardo B. Levy
--------------------
Ricardo B. Levy
President and Chief Executive Officer
B-7
<PAGE>
SCHEDULE A
STOCKHOLDER PARTIES
<TABLE>
<CAPTION>
Name and Address Shares
---------------- ------
<S> <C> <C>
Morgan Stanley Capital Partners
III, L.P. Class A Common Stock: 11,738,101
1221 Avenue of the Americas Class B Common Stock: 10,375,880
New York, New York 10020
Fax: (212) 762-7951
Attention: Howard Hoffen
Morgan Stanley Capital Investors,
L.P. Class A Common Stock: 1,201,776
1221 Avenue of the Americas Class B Common Stock: 1,062,308
New York, New York 10020
Fax: (212) 762-7951
Attention: Howard Hoffen
MSCP III 892 Investors, L.P. Class A Common Stock: 330,123
1221 Avenue of the Americas Class B Common Stock: 291,812
New York, New York 10020
Fax: (212) 762-7951
Attention: Howard Hoffen
James A. Cusumano Ordinary Common Stock: 660,984
430 Ferguson Drive Options exercisable in 60 days: 75,356
Mountain View, California 94043-
5272
Fax: (805) 646-2450
Ricardo B. Levy Ordinary Common Stock: 760,368
430 Ferguson Drive Options exercisable in 60 days: 161,312
Mountain View, California 94043-
5272
Fax: (650) 968-8754
</TABLE>
B-8
<PAGE>
Appendix C
August 2, 2000
Catalytica, Inc.
430 Ferguson Drive
Mountain View, CA 94043
Ladies and Gentlemen:
In consideration of Catalytica, Inc. (the "Company") agreeing to enter into
that certain Agreement and Plan of Merger, dated as of August 2, 2000 (the
"Merger Agreement"), among Synotex Company, Inc. ("Parent"), a Delaware
corporation and a wholly-owned subsidiary of DSM, N.V. (the "Guarantor") and
Synotex Acquisition Corporation ("Merger Sub" and, together with Parent, the
"Guaranteed Entities"), a Delaware corporation and a wholly-owned subsidiary
of Parent, the Guarantor does hereby guarantee irrevocably and unconditionally
the full and complete performance by the Guaranteed Entities of all
obligations and liabilities, whether now in existence or hereafter arising, of
the Guaranteed Entities under the Merger Agreement; provided, that nothing in
this guarantee shall be deemed a waiver of any condition precedent to any
obligation of the Guaranteed Entities pursuant to the Merger Agreement.
The guaranty shall continue in full force and effect until the earlier of
the full and complete performance by the Guaranteed Entities of all
obligations and liabilities under the Merger Agreement and the termination of
the Merger Agreement in accordance with its terms.
This guaranty shall be governed by and construed in conformity with the laws
of the State of Delaware. All disputes arising out of or in connection with
this guarantee shall be solely and exclusively resolved by a court of
competent jurisdiction in the State of Delaware. Guarantor hereby consents to
the jurisdiction of the courts of the State of Delaware. Guarantor hereby
consents to the jurisdiction of the courts of the State of Delaware and the
United States District Court of the District of Delaware and waives any
objections or rights as to forum nonconveniens, lack of personal jurisdiction
or similar grounds with respect to any dispute relating to this guarantee.
Very truly yours,
DSM, N.V.
/s/ Jan Zuidam
By: _________________________________
Name: Jan Zuidam
Title: Member of Managing Board
/s/ Arnold Gratama van Andel
By: _________________________________
Name: Arnold Gratama van Andel
Title: Corporate Vice
President--Finance and
Economics
C-1
<PAGE>
Appendix D
August 2, 2000
Board of Directors
Catalytica, Inc.
430 Ferguson Drive
Mountain View, California 94043
Members of the Board:
We understand that Catalytica Inc. (the "Company"), Synotex Company, Inc.
("Buyer"), a wholly owned subsidiary of DSM, N.V., and Synotex Acquisition
Corporation, a wholly owned subsidiary of Synotex Company, Inc. ("Acquisition
Sub"), propose to enter into an Agreement and Plan of Merger, substantially in
the form of the draft dated August 1, 2000 (the "Merger Agreement"), which
provides, among other things, for the distribution of the capital stock of a
newly formed entity consisting of the Company's energy business ("SpinCo"),
such that Catalytica Pharmaceuticals, Inc. ("CP Inc.") and Wyckoff, Inc.
(collectively, the "Catalytica Pharmaceuticals Business") will represent
substantially all of the remaining assets of the Company, and the subsequent
merger (the "Merger") of the Acquisition Sub with and into the Company.
Pursuant to the Merger, the Company will become a wholly-owned subsidiary of
Buyer and the outstanding shares of Common Stock of the Company, as defined in
the Merger Agreement and including the Class A and Class B common stock of the
Company (collectively, the "Common Stock"), will be converted into the right
to receive, in the aggregate, $750 million (the "Consideration"), with
adjustments to be made for, among other things, options proceeds, costs
associated with the capitalization of and tax liabilities associated with the
distribution of SpinCo, costs associated with minority interests in CP Inc.
and SpinCo and other transaction costs. The primary intent of the transaction
is for Buyer to acquire the Catalytica Pharmaceuticals Business. The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be
received by the holders of shares of Common Stock in the aggregate pursuant to
the Merger Agreement is fair from a financial point of view to such holders.
You have not asked us, nor have we addressed the fairness of the consideration
to be paid in the form of a distribution of capital stock of SpinCo.
For purposes of the opinion set forth herein, we have:
(i) discussed the rationale for the Merger and the distribution of the
capital stock of SpinCo, including information regarding their anticipated
costs;
(ii) reviewed certain publicly available financial statements and other
information of the Company;
(iii) reviewed certain internal financial statements and other financial and
operating data concerning the Catalytica Pharmaceuticals Business and the
Company prepared by the management of the Company;
(iv) reviewed certain financial projections for the Catalytica
Pharmaceuticals Business prepared by the management of the Company;
(v) discussed the past and current operations and financial condition and
the prospects of the Catalytica Pharmaceuticals Business with senior
executives of the Company;
(vi) reviewed the reported prices and trading activity for the Company's
publicly traded common stock;
(vii) compared the financial performance of the Catalytica Pharmaceuticals
Business with that of certain other comparable publicly-traded companies and
reviewed the prices and trading activity of the securities of such comparable
publicly-traded companies;
D-1
<PAGE>
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(ix) participated in discussions and negotiations among representatives of
the Company and Buyer and their financial and legal advisors;
(x) reviewed the Merger Agreement and certain related documents; and
(xi) considered such other factors and performed such other analyses as we
deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Catalytica Pharmaceuticals Business. In addition, we have assumed that the
Merger and the distribution of the capital stock of SpinCo will be consummated
in accordance with the terms set forth in the Merger Agreement. We have also
assumed and relied upon without independent verification the assessment by
management of the Company of options proceeds, the anticipated costs
associated with the Merger and the distribution of the capital stock of SpinCo
including, among other things, costs associated with the capitalization of and
tax liabilities associated with the distribution of SpinCo, and costs
associated with minority interests in CP Inc. and SpinCo. We have not made any
independent valuation or appraisal of the assets or liabilities of the
Company, nor have we been furnished with any such appraisals. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the
Company or any of its assets. We did not negotiate with any of the parties,
other than the Buyer, which expressed interest to us in the possible
acquisition of the Company or certain of its constituent businesses.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.
In the past, Morgan Stanley & Co. Incorporated and its affiliates have
provided financial advisory and financing services for Buyer and have received
fees for the rendering of these services.
An affiliate of Morgan Stanley, Morgan Stanley Capital Partners III, L.P.
and certain of its affiliates, own 13,270,000 shares of Class A common stock,
representing approximately 29% of the outstanding voting stock of Catalytica,
and 11,730,000 shares of non-voting Class B common stock, which may be
converted into Class A common stock to the extent that Morgan Stanley Capital
Partners' and its affiliates' ownership of voting stock does not exceed 40% of
the outstanding voting stock of Catalytica. Morgan Stanley Capital Partners
and its affiliates that own Catalytica common stock presently have the right
to nominate three members of Catalytica's board, but have nominated only two
members of Catalytica's board.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this letter may be included in its entirety
in any filing made by the Company in respect of the Merger with the United
States Securities and Exchange Commission. In addition, Morgan Stanley
expresses no opinion or recommendation as to how shareholders of the Company
should vote at the shareholders' meeting in connection with the Merger.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of shares of the
Common Stock in the aggregate pursuant to the Merger Agreement is fair from a
financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ William D. McCombe
By: _________________________________
William D. McCombe
Managing Director
D-2
<PAGE>
APPENDIX E
August 2, 2000
Board of Directors
Catalytica Inc.
430 Ferguson Drive
Mountain View, CA 94043
Dear Sirs and Mesdames:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to the holders of shares of common stock, par value $0.001 per
share ("Common Stock"), of Catalytica, Inc. (the "Company"), other than Morgan
Stanley Capital Partners III, Inc., any affiliated investment funds and their
respective affiliates (collectively, the "Morgan Stanley Affiliated
Entities"), of the Aggregate Consideration (as defined below) to be received
by the holders of Common Stock pursuant to the Merger (as defined below),
assuming prior consummation of the Spin-off (as defined below), as provided in
the Agreement and Plan of Merger, dated as of August 2, 2000 (the "Merger
Agreement"), among the Company, Synotex Company, Inc. (the "Acquiror"), a
Delaware corporation and a wholly owned subsidiary of DSM N.V., a Dutch
company, and Synotex Acquisition Corporation, a Delaware corporation ("Sub").
The Merger Agreement provides for, among other things (i) prior to the
consummation of the Merger, the distribution by the Company to its
stockholders of the Company's energy businesses and certain related
transactions, all as more fully described in the Merger Agreement (the "Spin-
off"), and (ii) subsequent to the Spin-off, the merger of the Company with Sub
pursuant to which the Company will become a wholly owned subsidiary of the
Acquiror (the "Merger") and all of the outstanding shares of Common Stock will
be converted into the right to receive an aggregate of $750 million in cash
subject to certain adjustments (the "Adjustments") relating to, among other
things, the amount of certain tax liabilities incurred by the Company in
connection with the Spin-off, the amount of capital contributed by the Company
to its energy business prior to the Spin-off, the amounts required to be paid
by the Company to terminate or otherwise extinguish certain minority interests
and other rights relating to certain of the Company's non-wholly owned
subsidiaries and certain other matters, all as more fully described in the
Merger Agreement (the "Aggregate Consideration").
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the
Merger Agreement and certain related documents. We have also reviewed certain
other historical and forward looking information, including financial
forecasts, provided to us by or discussed with the Company that were prepared
on a pro forma basis (after giving effect to the Spin-off) as well as
estimates of the Adjustments prepared by the Company and have spoken with the
Company's management to discuss the business and prospects of the Company
(after giving effect to the Spin-off).
We have also considered certain financial and stock market data of the
Company, and we have compared those data with similar data for other publicly
held companies in businesses similar to the Company's principal business after
giving effect to the Spin-off and we have considered the financial terms of
certain other business combinations and other transactions which have recently
been effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which
we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied
on its being complete and accurate in all material respects. With respect to
the financial forecasts and estimates of the Adjustments, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of the Company and the amounts of the Adjustments and
that, in the case of the estimates of the Adjustments, that the actual amounts
of such Adjustments will not exceed such estimates
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by amounts that would materially effect our analyses and that the Adjustments
fairly represent amounts of transaction expenses, liabilities or obligations
of the Company except as would not materially effect our analyses. In
addition, we have not been requested to make, and have not made, an
independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of the Company, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist and can be evaluated on
the date hereof.
We have been engaged solely to render an opinion with respect to the fairness
to the holders of Common Stock, other than the Morgan Stanley Affiliated
Entities, from a financial point of view of the Aggregate Consideration to be
received by the holders of Common Stock pursuant to the Merger and will
receive a fee for rendering this opinion. We were not requested to, and did
not, solicit third party indications of interest in acquiring all or any part
of the Company. In addition, we have not been requested to opine as to, and
our opinion does not in any manner address the Company's underlying business
decision to effect the Spin-off and/or the Merger, any aspect or implication
of the Spin-off or the allocation or distribution of the Aggregate
Consideration among the stockholders of the Company.
In the past we have provided, and we are currently providing, certain
investment banking and other financial services to Acquiror unrelated to the
Merger for which we have received and expect to receive customary
compensation. In addition, in the ordinary course of our business, we and our
affiliates may actively trade the debt and equity securities of both the
Company and Acquiror for our and such affiliates' own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder
should vote or act on any matter relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Aggregate Consideration to be received by the holders of
Common Stock pursuant to the Merger (assuming prior consummation of the Spin-
off) is fair to the holders of Common Stock, other than the Morgan Stanley
Affiliated Entities, from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
/s/ Randy L. Hazelton
By: _________________________
Randy L. Hazelton
Managing Director
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<PAGE>
Appendix F
DELAWARE CODE ANNOTATED
SECTION 262. APPRAISAL RIGHTS
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL.
SECTION 262. Appraisal Rights. 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 section 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 non-stock 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 non-stock 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.
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 section 251 (other than a merger effected pursuant to section
251(g) of this title), section 252, section 254, section 257, section 258,
section 263 or section 264 of this title:
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
section 251 of this title.
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 section 251, 252, 254,
257, 258, 263 and 264 of this title to accept for such stock anything except:
(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
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(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.
In the event all of the stock of a subsidiary Delaware corporation party to
a merger effected under section 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.
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.
Appraisal rights shall be perfected as follows:
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 subsection (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 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
If the merger or consolidation was approved pursuant to section 228 or
section 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 or 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
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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.
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.
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.
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.
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 his 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.
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<PAGE>
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.
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.
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.
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>
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P
R THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
O CATALYTICA, INC.
X SPECIAL MEETING OF STOCKHOLDERS
Y
December 11, 2000
The undersigned stockholder of Catalytica, Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and
Proxy Statement, each dated November 20, 2000, and hereby appoints Ricardo B.
Levy and Lawrence W. Briscoe, and each 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 Meeting of Stockholders of
Catalytica, Inc., to be held on December 11, 2000, at 10:00 a.m., Pacific Time,
at 430 Ferguson Drive, Mountain View, California 94043 and at any
continuation(s) or adjournment(s) thereof, and to vote all shares of common
stock that the undersigned would be entitled to vote if then and there
personally present, on the matters set forth on the reverse side and, in their
discretion, upon such other matter or matters that may properly come before the
meeting and any adjournment(s) thereof.
THIS PROXY WILL BE VOTED (1) FOR THE APPROVAL AND ADOPTION OF THE AGREEMENT
AND PLAN OF MERGER, DATED AS OF AUGUST 2, 2000, BY AND AMONG SYNOTEX COMPANY,
INC., SYNOTEX ACQUISITION CORPORATION AND CATALYTICA, INC. AND (2) AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
--------------------------------------------------------------------------------
(Continued and to be signed on reverse side)
--------------------------------------------------------------------------------
(FOLD AND DETACH HERE)
[LOGO OF CATALYTICA]
SPECIAL MEETING OF STOCKHOLDERS
Monday, December 11, 2000
10:00 a.m.
430 Ferguson Drive
Mountain View, California 94043
<PAGE>
--------------------------------------------------------------------------------
[LOGO]
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
THE FOLLOWING PROPOSALS.
Please Mark [X]
your votes as
indicated in
this example
FOR AGAINST ABSTAIN
1. Proposal to approve and adopt the [_] [_] [_]
Agreement and Plans of Merger,
dated as of August 2, 2000, by and
among Synotex Company, Inc.,
Synotex Acquisition Corporation
and Catalytica, Inc.
2. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting or any adjournment(s)
thereof.
Signature _______________ Signature________________ Date ________________
(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.)
