<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[X] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
CATALYTICA, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 2000.
A. INITIAL OPTION INFORMATION PACKET
Initial Option Information Packet
Includes the following:
. Questions and Answers Regarding Catalytica, Inc. and Catalytica
Pharmaceuticals, Inc. Stock Options in Connection with the Merger and Spin-
off
. Key Dates (page 9)
. Summary Tax Information (page 10)
. Sample Election Form (page 11)
. Sample Payment Worksheet (page 12)
. Sample Explanatory Exhibit (page 13)
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QUESTIONS AND ANSWERS REGARDING
CATALYTICA, INC. AND CATALYTICA PHARMACEUTICALS, INC. STOCK OPTIONS
IN CONNECTION WITH THE MERGER AND SPIN-OFF
The following list of frequently asked questions is being provided to give
optionees summary information about the treatment of options in connection
with the proposed sale of Catalytica, Inc. ("Catalytica") to Synotex, Inc., a
wholly-owned subsidiary of DSM, N.V. (the "Merger") and the spin off of
Catalytica Energy Systems, Inc. (the combined businesses of the former
Catalytica Combustion Systems and Catalytica Advanced Technologies) (the
"Spin-off").
SOME OF THESE PROCEDURES MAY CHANGE PRIOR TO THE CONSUMMATION OF THE
TRANSACTION.
Q1.What are the basic decisions that I will have to make about my stock
options?
A.All of your stock options will become vested in connection with the closing
of the Merger (except with respect to terminated optionees). You must decide
among the following alternatives that are available with respect to all of
your stock options. You can elect a different alternative for different
portions of your stock options. These alternatives are explained in more
detail in the subsequent questions and answers set forth below. You will be
receiving shortly additional information about how to make your election.
To the extent that your stock options are already vested, you can also
exercise them in the normal way until approximately five (5) days prior to the
closing date for the Merger, in which case you will receive, for the
Catalytica common stock that you receive upon exercise and that you hold until
the Spin-Off and Merger, the same treatment in connection with the Spin-Off
and Merger as other shareholders of Catalytica.
As used below, the term "Cash Merger Consideration" refers to the cash to be
received by shareholders in the Merger. The Cash Merger Consideration is
currently estimated to be between $9.36 to $10.54 per share of Catalytica
Common Stock. As used below, the term "CESI Shares" means the shares of
Catalytica Energy Systems, Inc. common stock to be distributed in the Spin-
Off. The number of CESI Shares that will be distributed in the Spin-Off is
currently estimated to be between .25 and .34 CESI Shares per share of
Catalytica Common Stock.
Alternative 1. You can choose to receive an amount in cash equal to the
excess of the Cash Merger Consideration over the exercise price of your
options. Under this alternative, you do not have to exercise your options and
you do not receive any CESI Shares. You also will not be obligated to pay any
money out of pocket in connection with the cash-out of your stock options. If
the Cash Merger Consideration is less than the exercise price of any of your
stock options, then those stock options are cancelled without any payment to
you. You will be subject to tax withholding and will have to pay income and
employment taxes with respect to the cash payable to you, as described below.
Alternative 2. You can exercise your stock options in order to receive both
the Cash Merger Consideration and CESI Shares. Under this alternative, you
will be responsible for the exercise price of the stock options. You can
choose to pay the exercise price in cash or by check, or you can choose to
have Catalytica withhold the exercise price out of the Cash Merger
Consideration. If you choose withholding, then you may be required to pay cash
to Catalytica out of pocket, if the Cash Merger Consideration is less than the
aggregate exercise price of your stock options. This payment will be required
to be made prior to the Merger, and an adjustment may be made later on when
the actual Cash Merger Consideration is finalized. You may be subject to tax
withholding and will have to pay income and employment taxes with respect to
the cash and CESI Shares payable to you, as described below. You should also
only choose this alternative after consulting with your tax advisor to
determine that you might be better off by receiving the CESI Shares. As noted
below, there may not be a market for the CESI Shares immediately after the
Spin-Off, and the value of the CESI Shares could drop following the Spin-Off.
2
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Alternative 3. You can exercise your stock options in order to receive only
the Cash Merger Consideration. Under this alternative, you will also be
responsible for the exercise price of the stock options. You can pay the
exercise price in the same ways as under alternative 2, and if you choose to
pay through withholding you will be obligated to make up any shortfall out of
your own funds, as described under alternative 2. You may be subject to tax
withholding and will have to pay income and employment taxes with respect to
the cash payable to you, as described below. The principal difference between
this alternative and alternative 2 is that you will not be subject to tax with
respect to the CESI Shares, because you will not be entitled to receive any
CESI Shares. You should only choose this alternative for any of your stock
options if you are confident that the exercise price of that stock option will
be less than the Cash Merger Consideration, because otherwise you will incur a
loss resulting from the exercise. You should also only choose this alternative
after consulting with your tax advisor to determine that you might be better
off by foregoing your right to the CESI Shares in order to avoid any tax
consequences with respect to the CESI Shares. As noted below, there may not be
a market for the CESI Shares immediately after the Spin-Off, and the value of
the CESI Shares could drop following the Spin-Off.
Q2.What happens to my stock options at the time of the closing of the Merger?
A.As stated above, all of your stock options, whether exercisable for
Catalytica, Inc. Common Stock or Catalytica Pharmaceuticals, Inc. Common
Stock, will become fully vested on the closing date of the Merger. Please note
that if the Merger does not occur, you will only be entitled to vest in your
options as provided in your option agreement(s).
Q3.Can I exercise any portion of my options now?
A.Yes. As stated above, the vested portion of your options, if any, may be
exercised now (this does not include currently unvested options which will
vest on the closing date). For administrative reasons, you will not be able to
exercise your vested options and sell the shares after the Election Deadline.
The Election Deadline will be the date which is approximately five (5) days
prior to the closing date (please see Key Date section below).
All employees may access E-Trade/OptionsLink to view their existing option
grants and vesting history. However, please note that you must activate an
account with E-Trade to actually perform a same-day-sale on vested options
(Catalytica Options only) prior to the Election Deadline.
Q4.When is the closing date?
A. The closing date has not been determined. We believe that the closing date
will occur shortly after the special meeting of the Catalytica stockholders in
December.
Q5.When will I receive specific instructions regarding the exercisability of
my options?
A.Approximately twenty (20) days prior to the estimated closing date, you
shall receive a notice which will describe the treatment of your options in
the Merger and the actions, if any, that you must take to participate in the
Merger (the "Option Notification").
Q6.What, if anything, am I eligible to receive in the Merger for my stock
options?
A.As a holder of stock options, you are eligible to receive the "Cash Merger
Consideration" and the CESI Shares in the Spin-off.
As an optionholder you are only eligible to receive both the Cash Merger
Consideration and the CESI Shares if you (i) make an election to exercise your
options prior to the Election Deadline, and (ii) elect to exercise your
options prior to the Record Date for the Spin-off.
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<PAGE>
If you do not elect to exercise your options prior to the Election Deadline
or elect to exercise your options after the Record Date for the Spin-off then
you are only eligible to receive the Cash Merger Consideration, not the CESI
Shares.
Cash Merger Consideration
While the final value of the Cash Merger Consideration is likely to change,
the Cash Merger Consideration is estimated to be between $9.36 to $10.54 per
share of Catalytica Common Stock. Generally, unless you exercise your option
with cash or check, the Cash Merger Consideration you will be eligible to
receive, if any, will be the difference between the actual Cash Merger
Consideration and the exercise price of your option(s). If your exercise price
exceeds the Cash Merger Consideration you will not receive a portion of the
Cash Merger Consideration.
CESI Shares
While the following exchange ratios are likely to change, the distribution
is estimated to equal .25 to .34 CESI Shares for each share of Catalytica
Common Stock that you will receive pursuant to the exercise of your option(s).
You will only be eligible to receive the CESI Shares if you hand in your
election form prior to the Election Deadline and elect to exercise your
options prior to the Record Date for the Spin-off.
The actual value of the Cash Merger Consideration and the actual exchange
ratio for the CESI Shares, will not be finalized until closing.
Q7.When and how can I exercise my unvested shares that will be fully
exercisable upon completion of the Merger?
A.Catalytica, Inc. will provide you with an "Option Notification" letter which
will provide you with additional information about your options. This letter
will include specific guidelines on the various alternatives available to you
regarding the exercise of your options.
Q8.Can you give me a summary of the alternatives provided in the "Option
Notification" so I can start doing some preliminary planning?
A.The Option Notification will provide you with information about the Merger
and will provide you with the following two election choices:
X Election to Exercise Prior to the Record Date for the Spin-off--You will
have the ability to elect to exercise your unvested and vested options
immediately prior to the Record Date for the Spin-off. This will give you
the opportunity to receive both the Cash Merger Consideration and the CESI
Shares. PLEASE NOTE, you must make this election if you want to be
eligible for the CESI Shares. This election will not be made for you.
PLEASE NOTE, this payment does not automatically entitle you to receive a
portion of the CESI Shares. If the actual Cash Merger Consideration is
less than the Estimated Cash Merger Consideration then you will need to
pay an additional amount to Catalytica, Inc., plus any applicable tax
withholding, in order to receive the CESI Shares.
X Election to Exercise After the Record Date for the Spin-off--You will
have the ability to elect to exercise your unvested and vested options
immediately after the Record Date for the Spin-off. This will give you the
opportunity to receive only the Cash Merger Consideration and you will not
receive the CESI Shares.
Q9.How do I pay the exercise price of my option?
A. You may pay the exercise price of your options through a cash exercise or
cashless exercise, as described below.
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<PAGE>
Cash Exercise
You can elect to exercise your options with cash or a check. In the event
the Merger is not finalized, your cash or check, as the case may be, will be
returned to you and your options will not be exercised. You may choose this
method to exercise your options either prior to or after the Record Date for
the Spin-off.
<TABLE>
<C> <S> <C>
Example: Exercise Price: ............................................ $10.50
Number of Options: ......................................... 100
Total due to Catalytica PRIOR to Election Deadline: ........ $1,050
</TABLE>
After closing you will be eligible for the following:
Cash Merger Consideration (may be subject to tax withholding) = 100 shares
* $9.00 to $10.50 per share (this number will be determined at closing)
PLUS:
CESI Shares =.25 to .34 CESI Shares for each Catalytica, Inc share
exercised (if you did not elect to exercise your options prior to the
Record Date for the Spin-off then you will not receive the CESI Shares).
In this case = 25 to 34 CESI Shares (may be subject to tax withholding)
An option exercise form will need to be submitted to Catalytica, Inc. with a
check for the amount due prior to the Election Deadline. This form is already
available on your Option Grant package and will also be included in the
"Option Notification" letter, which will be sent to your attention within the
next couple of weeks.
Cashless Exercise
You can elect to exercise your options through a "cashless exercise." In the
event the Merger is not finalized, the "cashless exercise" will not occur and
your options will not be exercised. You may choose this method to exercise
your options either prior to or after the Record Date for the Spin-off.
<TABLE>
<C> <S> <C>
Example 1: No Exercise Election or Election to Exercise After
the Record Date for the Spin-off (only eligible
for Cash Merger Consideration):
Exercise Price:................................... $10.50/share
Number of Options:................................ 100
</TABLE>
If value of the final Cash Merger Consideration is GREATER THAN the exercise
price (in this example, above $10.50), the transfer agent will issue Cash
Merger Consideration to optionee for the difference between the Cash Merger
Consideration (assume $10.54) and the exercise price of $10.50. In other
words, optionee will receive from transfer agent approximately $4 ($0.04 * 100
shares). This amount will be taxable to the optionee and may be subject to tax
withholding. The optionee will not be eligible for the CESI Shares.
<TABLE>
<C> <S> <C>
Election to Exercise Prior to the Record Date for
Example 2: the Spin-off:
Estimated Cash
Merger Consideration:............................. $10.00/share
Exercise Price:................................... $10.50/share
Number of Options:................................ 100
</TABLE>
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<PAGE>
No amount is immediately due to Catalytica, Inc. unless, as in this case,
the Estimated Cash Merger Consideration is less than the optionee's Exercise
Price. If the Estimated Cash Merger Consideration is less than the optionee's
Exercise Price then the optionee must pay the difference prior to the Election
Deadline in order to receive the CESI Shares.
Estimated Cash Merger Consideration--determined approximately twenty (20)
days prior to Closing and subject to change.
Step 1: Since the value of the Estimated Cash Merger Consideration is
less than the optionee's Exercise Price, the optionee must pay the
difference, $50 ($0.50 * 100 shares), to Catalytica, Inc. prior to the
Election Deadline.
Actual Cash Merger Consideration--determined on the Closing date.
Step 2(a): If the value of the actual Cash Merger Consideration is LESS
THAN the Estimated Cash Merger Consideration (in this example, below
$10.00), the optionee will need to issue another check to Catalytica for
the difference between the actual Cash Merger Consideration (assume $9.36)
and the Estimated Cash Merger Consideration of $10.00. In other words, the
optionee will owe Catalytica, Inc. an additional $64 ($0.64 * 100 shares),
plus any applicable tax withholding, in order to receive the CESI Shares.
While we are still uncertain about the timing, it may take over two weeks
after Catalytica, Inc. receives the additional payment for optionee to
receive the distribution of CESI shares. The amount of the CESI Shares will
be taxable to the optionee and may be subject to tax withholding.
Step 2(b): If value of the actual Cash Merger Consideration is GREATER
THAN the Estimated Cash Merger Consideration (in this example, above
$10.00), the transfer agent will issue the applicable Cash Merger
Consideration to optionee for the difference between the actual Cash Merger
Consideration (assume $10.54) and the Estimated Cash Merger Consideration
of $10.00. In other words, optionee will receive from transfer agent $54
($0.54 * 100 shares), less any applicable tax withholding, PLUS optionee
will receive the distribution of CESI shares. The amount of the excess Cash
Merger Consideration and the CESI Shares will be taxable to the optionee
and may be subject to tax withholding.
An option exercise form will need to be submitted to Catalytica, Inc. with
the acknowledgement by the optionee that in order to receive the CESI Shares
the additional amounts due, if any, have to be paid prior to receiving the
CESI Shares. The option exercise form is already available and will also be
included in the "Option Notification" letter, which will be sent to your
attention within the next couple of weeks.
As described above, your election to exercise your options will not
automatically entitle you to the Cash Merger Consideration or the CESI Shares.
The amount of Cash Merger Consideration received, if any, and the amount of
the CESI Shares will depend on the Estimated Cash Merger Consideration, your
exercise price and the timely payment of any additional amount owed to
Catalytica, Inc. We strongly encourage you to seek the advice of a tax and/or
a financial advisor prior to making an exercise decision.
Q10. Why would I elect to pay an additional amount to receive the CESI Shares?
A.You may want to pay an additional amount if you believe that the value of
the CESI Shares is worth the additional amount paid to Catalytica, Inc.
(taking taxes into account). As stated above, if your exercise price is more
than the Estimated Cash Merger Consideration then you must (i) pay an
additional amount to Catalytica, Inc. prior to the Election Deadline and (ii)
you may be required to make another payment to Catalytica, Inc. in order to
receive a piece of the CESI Shares.
<TABLE>
<C> <S> <C>
Example: Estimated Cash Merger Consideration................... $9.00/share
Exercise Price:....................................... $10.00/share
</TABLE>
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In this scenario you would need to pay to Catalytica, Inc. an additional
$1.00/share, plus any applicable tax withholding, to receive the CESI Shares.
It is estimated that you will receive 25% to 34% of a CESI Share for each
share of Catalytica, Inc. Common Stock.
You will have taxable income upon the receipt of the CESI Shares and you
will not be able to sell the CESI Shares immediately after the Merger. There
is a substantial risk that the CESI Shares will go down in value after the
Merger. We recommend that you consult with your tax advisor before making the
decision to receive the CESI Shares.
. If the Actual Merger Consideration is MORE THAN the Estimated Merger
Consideration you will be eligible to receive a refund of the extra
money you paid, subject to any applicable tax withholding.
. If the Actual Merger Consideration is LESS THAN the Estimated Merger
Consideration you will need to pay an additional amount in order to
receive the CESI Shares, plus any applicable tax withholding.
Q11. Do I have to choose to exercise PRIOR to the Election Deadline?
A.Yes. You must choose to exercise prior to the Election Deadline in order to
be eligible for the CESI Shares. However, even if you do not choose to
exercise, you will still be eligible to receive the Cash Merger Consideration
if the value of the Cash Merger Consideration exceeds your exercise price.
Q12. If I have Catalytica Pharmaceutical stock options ("Pharmaceuticals
Options"), what is the conversion rate of the number of Catalytica, Inc.
Common Stock shares to be received for each share of Catalytica
Pharmaceutical Common Stock?
A.The conversion rate is currently estimated to be 2.00 to 2.30 (please note
that this number is subject to change). In other words, for each
Pharmaceuticals Option you will "receive" 2.00 to 2.30 options to purchase
shares of Catalytica Common Stock (the "Catalytica Options"). In addition, the
exercise price of each Pharmaceuticals Option will be divided by the
conversion rate and the result will approximate the per share exercise price
of your as converted Catalytica Options (this will assist you in determining
whether the Estimated Cash Merger Consideration exceeds the exercise price of
your converted Catalytica Options). You will not actually receive the
Catalytica Options in connection with the Merger, instead, the conversion will
automatically occur and your eligibility for Cash Merger Consideration and the
CESI Shares will be based on your converted Catalytica Options.
All Catalytica Pharmaceuticals, Inc. option holders will have the same
choices as Catalytica, Inc. option holders as described in Questions 6 through
11 above. The conversion of Pharmaceuticals Options to Catalytica Options will
occur immediately prior to the Merger and depending on whether you have
elected to exercise prior to or after the Record Date for the Spin-off, you
may receive shares of CESI in the Spin-off. You will not have the opportunity
to sell shares you "receive" pursuant to the exercise of your Pharmaceutical
Options prior to the Closing Date.
Q13.What are the tax liabilities associated with a stock option exercise?
A. Please see the "Tax Information" Section below.
Q14.How can I find out how many stock options I was offered?
A.You should have received a stock option status report at the time your last
stock option was granted. You can also review your on-line E*Trade/Optionslink
account which sets forth your Catalytica, Inc. options. PLEASE NOTE, your
Pharmaceuticals Option grant history cannot be viewed on-line.
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Please contact Myra Rich at x6314 or contact your local Compensation and
Benefits department for additional information about your Catalytica Options
and/or Pharmaceuticals Options.
Q15.How long do I have to exercise my Catalytica, Inc. options if I terminate
my service to Catalytica?
A.Generally, optionees holding Catalytica, Inc. vested options must exercise
their options before the earlier of (i) 90 days from date of termination (or
the post-termination time period stated in your option agreement) but in no
event longer than the term of your option (as stated in your option
agreement), or (ii) the Election Deadline.
Q16. What happens to my options if I leave the company before the acquisition
is finalized and how will I be notified? How will employees recently
terminated in the "90-day window to exercise options" be handled?
A.If you terminate more than 90 days before closing your unexercised and
vested options will automatically cancel, unless you exercise them, before the
earlier of the (i) 91st day after your termination date (or the post-
termination time period stated in your option agreement) but in no event
longer than the term of your option (as stated in your option agreement), or
(ii) the Election Deadline. If you terminate within 90 days of the closing
date, you will receive an Option Notice providing you with details of your
vested options as if you were an active employee.
Q17. How will we communicate personnel changes affecting plan administration
(name or address changes, terminations) and to whom?
A.Please continue to use the same process to communicate any information
changes via Angie Piner for Pharmaceutical employees, Mike Annett for Wyckoff
employees and Myra Rich for Catalytica, Inc. employees.
Q18. How quickly can I sell any Catalytica Energy Systems, Inc. shares (the
"CESI Shares") I receive from the CESI Shares?
A.It is unclear when you will be able to sell you CESI Shares. It may take
more than two (2) weeks following the Merger before you are able to sell.
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Key Dates
(the timing of these events is subject to change)
<TABLE>
<CAPTION>
Option
Notification Election Deadline* Spin-off/Closing**
------------ ---------------------------------------------- --------------------
<S> <C> <C>
Approximately
20 Days
Prior to
Spin-
off/Closing Approximately 5 Days Prior to Spin-off/Closing Sometime in December
</TABLE>
--------
* If you want to exercise your options, you must make an election to exercise
and turn in your election prior to this date.
** The Record Date for the Spin-off, the Spin-off and the actual closing are
expected to occur on the same date.
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<PAGE>
Summary Tax Information
The following discussion summarizes the principal federal income tax
consequences with respect to your options. This discussion is based on
currently existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations thereunder and
current 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 stockholders and optionholders, as described herein.
Q: What happens if I do not exercise my options?
A:If you do not elect to exercise your options, this includes both incentive
stock options and non-statutory stock options, you will recognize ordinary
income in the amount of Cash Merger Consideration received, if any, with
respect to your option. Such income will constitute wages subject to the
Company's collection of applicable federal and state income and employment
withholding taxes. Any excess between the exercise price and the value of the
Cash Merger Consideration will be forwarded to a paying agent who will mail
you the remaining Cash Merger Consideration.
Q: What will happen if I elect to exercise my options PRIOR TO the Record Date
for the Spin-off?
A:The shares purchased through the exercise of options will be exchanged for
the CESI Shares and the Cash Merger Consideration. If you acquire your
Catalytica Common Stock through the exercise of incentive stock options then
the receipt of the Cash Merger Consideration and the CESI Shares will trigger
a disqualifying disposition of those shares 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, you will recognize ordinary
income equal to the excess, if any, of (i) the fair market value of the shares
of Catalytica, Inc. Common Stock at the time the incentive stock option was
exercised over (ii) the aggregate exercise price paid for those shares. Any
additional gain or any loss recognized upon the exchange of those shares for
Cash Merger Consideration and the CESI Shares will be capital gain or loss,
which will be long-term if the shares of Catalytica Common Stock have been
held for more than one year from the date of exercise.
If you acquire your Catalytica, Inc. Common Stock through the exercise of
non-statutory stock options then you will recognize ordinary income equal to
the excess, if any, of (i) the Cash Merger Consideration and the CESI Shares
over (ii) the aggregate exercise price paid for those shares. The ordinary
income may be subject to tax withholding by Catalytica, Inc.
Q:What will happen if I elect to exercise my options AFTER the Record Date for
the Spin-off?
A:The shares purchased through the exercise of options will be exchanged for
the Cash Merger Consideration. If you acquire your Catalytica, Inc. Common
Stock through the exercise of incentive stock options then the receipt of the
Cash Merger Consideration will trigger a disqualifying disposition of those
shares. Upon the disqualifying disposition, you will recognize ordinary income
equal to the excess, if any, of (i) the Cash Merger Consideration over (ii)
the aggregate exercise price paid for those shares.
If you acquire your Catalytica, Inc. Common Stock through the exercise of
non-statutory stock options then you will recognize ordinary income equal to
the excess, if any, of (i) the Cash Merger Consideration over (ii) the
aggregate exercise price paid for those shares. The ordinary income will be
subject to tax withholding by Catalytica, Inc.
Important Note: If you have incentive stock options, the acceleration of the
options may cause some portion of your incentive stock options to be treated
as non-statutory stock options. Under the Code if the aggregate fair market
value (determined as of the date of grant) of the shares granted to any
employee under an incentive stock option that becomes exercisable for the
first time in any calendar year exceeds $100,000, the options in excess of
such limitation will be treated as non-statutory stock options. If this
$100,000 threshold is exceeded, the determination of which options will
continue to qualify as incentive stock options is made based on the date on
which the options were granted.
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Sample Election Form--THIS IS ONLY AN EXAMPLE (your actual Election Form may
differ)--
Election to Exercise Prior to the Record Date for the Spin-off
If you would like to exercise your options prior to the Merger, we must
receive, ON or BEFORE [DATE], 2000,:
. this election form,
. your option exercise notice (attached hereto), and
. any required payments
If we do not receive this election form, your option exercise notice
(attached hereto) and any required payments by [DATE], 2000, you will be
deemed not to have elected to exercise your options.
If you would like to exercise your options, please return this election
form, your option exercise notice and any amount due to . Please
call with any questions regarding the completion of this form
and all other documents.
THE ESTIMATED MERGER CONSIDERATION IS $ .
Please select one of the four choices below:
^X I elect to exercise my option(s) (under Grant #'s: )
prior to the Record Date for the Spin-off through a cashless exercise. If
your per share exercise price is less than the Cash Merger Consideration
then please see Worksheet A to determine whether or not you owe an
additional payment to receive a portion of the CESI Shares. Please see
Exhibit to learn more about this selection option. This will make you
eligible to participate in the Cash Merger Consideration and the
distribution of CESI Shares.
____ I elect to exercise my option(s) (under Grant #'s: )
prior to the Record Date for the Spin-off and have included $
which equals the exercise price of my options. This will
make you eligible to participate in the Cash Merger Consideration and the
distribution of CESI Shares.
____ I elect to exercise my option(s) (under Grant #'s: )
after the Record Date for the Spin-off through a cashless exercise. This
will only make you eligible to participate in the Cash Merger
Consideration.
____ I elect to exercise my option(s) (under Grant #'s: )
after the Record Date for the Spin-off and have included the exercise
price of my options. This will only make you eligible to participate in
the Cash Merger Consideration.
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<PAGE>
Sample Payment Worksheet--Worksheet A
<TABLE>
<S> <C>
A. Per Share Exercise Price.............................. $ 12.00
B. Estimated Cash Merger Consideration................... $ 10.00
C. A--B................................................ $ 2.00
D. Number of Shares Exercised............................ 100
E. C x D............................................... $ 200.00 ($2.00 x 100)
</TABLE>
The amount shown in E is the additional amount you must pay to Catalytica,
Inc. in order to be eligible to receive a portion of the distribution of CESI
Shares.
PLEASE NOTE, this payment does not automatically entitle you to receive a
portion of the CESI Shares. If the actual Cash Merger Consideration is less
than the Estimated Cash Merger Consideration then you will need to pay an
additional amount to Catalytica, Inc., plus any applicable tax withholding, in
order to receive the CESI Shares.
12
<PAGE>
Sample Explanatory Exhibit--Exhibit A
If you elect to exercise your option(s) prior to the Record Date for the
Spin-off through a cashless exercise then you are eligible to receive the Cash
Merger Consideration and the CESI Shares. The following examples are intended
to walk you through a few possible scenarios with respect to your options:
Example I: If your per share exercise price is greater than or equal to the
Estimated Cash Merger Consideration ($10.00/share) then you will probably not
receive the Cash Merger Consideration and will need to pay Catalytica, Inc. an
additional amount, plus any applicable tax withholding, in order to receive
the CESI Shares.
Step 1 (prior to the Merger, we will determine the Estimated Cash Merger
Consideration):
<TABLE>
<C> <S>
Estimated Cash
Merger Consideration: $10.00/share
Exercise Price: $11.00/share
Amount Due: $1.00/share (you will not receive the Cash Merger
Consideration unless the actual Cash Merger
Consideration exceeds $10.00/share and you will
need to pay $1.00 per share, plus any applicable
tax withholding, prior to the Election Deadline
in order to receive the CESI Shares)
</TABLE>
Step 2 (after the Merger the Actual Cash Merger Consideration will be
determined):
<TABLE>
<C> <S>
Actual Cash
Merger Consideration: $10.50/share
Estimated Cash
Merger Consideration: $10.00/share
Cash Merger
Consideration and
the CESI Shares: $0.50/share plus CESI Shares (you will receive
the $.50 difference between the Actual Merger
Consideration and the Estimated Cash Merger
Consideration, subject to any applicable tax
withholding, and you will receive a portion of
the CESI Shares, subject to any applicable tax
withholding)
</TABLE>
Example II: If your per share exercise price is less than the Estimated Cash
Merger Consideration ($10.00/share) then you may receive the Cash Merger
Consideration and the CESI Shares.
Step 1 (prior to the Merger, we will determine the Estimated Cash Merger
Consideration):
<TABLE>
<C> <S>
Estimated Cash $10.00/share
Merger Consideration
Exercise Price: $8.00/share
Amount Due: N/A (you would not currently owe an additional
amount)
</TABLE>
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<PAGE>
Step 2 (after the Merger the Actual Cash Merger Consideration will be
determined):
<TABLE>
<C> <S>
Actual Cash
Merger Consideration: $750/share
Exercise Price: $8.00/share
Cash Merger
Consideration and
the CESI Shares: $0.50/share (you must pay to Catalytica, Inc.
$.50, plus any applicable tax withholding in
order to receive the CESI Shares; you are not
entitled to receive the Cash Merger Consideration
because the Actual Cash Merger Consideration is
less than your exercise price. You will receive a
portion of the CESI Shares, subject to any
applicable tax withholding, after the payment in
full of the amount owed to Catalytica, Inc.)
</TABLE>
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