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CATALYTICA, INC.
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 2000
A. August 2, 2000 Press Release
Catalytica to sell pharmaceutical operations to DSM
and spin-off remaining businesses to stockholders
MOUNTAIN VIEW, CA (August 2, 2000) -- Catalytica, Inc. (Nasdaq: CTAL) and
DSM announced today that DSM will acquire Catalytica's pharmaceuticals business
through the purchase of Catalytica, Inc. for approximately $750 million plus the
assumption of debt, for a total current value of approximately $800 million.
The transaction is structured as a merger of a wholly-owned U.S. subsidiary of
DSM with Catalytica and a taxable spin-off of the Catalytica Combustion Systems
and Catalytica Advanced Technologies businesses as a single entity to Catalytica
stockholders. As a result, Catalytica will operate as a subsidiary of DSM and
the Catalytica Combustion Systems and Catalytica Advanced Technologies
businesses will comprise a stand-alone company to be called Catalytica
Combustion Systems. Shares of the spin-off company will be distributed one day
prior to the effectiveness of the merger.
In addition to distribution of Catalytica Combustion Systems, stockholders
of Catalytica will receive proceeds from the sale of Catalytica, subject to
certain adjustments. Among the adjustments is the tax liability incurred by
Catalytica with respect to the spin-off. The merger is subject to customary
closing conditions, including the approval of Catalytica stockholders and
expiration or termination of the waiting period under the Hart-Scott Rodino
Antitrust Improvements Act. The parties expect the transaction to be completed
in the fourth quarter of 2000.
"This transaction brings value to our stockholders for our pharmaceuticals
business and will also enable us to bring them a new and separate entity focused
in the energy technology sector," stated Ricardo Levy, president and CEO of
Catalytica, Inc. "With dynamic changes happening in the power generation
market, we believe the Xonon Cool Combustion technology with its near zero
pollution solution is well positioned to address the needs of this rapidly
growing market."
Craig Kitchen, recently appointed president and CEO of Catalytica
Combustion Systems, will remain president and CEO of the newly created public
entity. Ricardo Levy, will become chairman of the board of directors of
Catalytica Combustion Systems, Inc.
The newly created division within DSM will be named DSM Catalytica
Pharmaceuticals. Michael Thomas, current president and CEO of Catalytica
Pharmaceuticals, will head the North American operations of DSM Catalytica
Pharmaceuticals.
Peter Elverding, chairman of the DSM Managing Board stated, "Through this
acquisition, DSM gains a major geographic presence in the United States and thus
enhances its worldwide leadership in the industry. Catalytica is a high quality
supplier that has several unique capabilities to serve this dynamic market. In
particular, Catalytica's state-of-the-art sterile facility and strong
formulation development capabilities will be a powerful complement to our
manufacturing."
Ricardo Levy also commented on the acquisition, "The combined company will
have the critical mass and capabilities to streamline all of the operations in
the pharmaceutical production cycle and provide excellent added value to its
pharmaceutical customers. The combined entity, which will have a broader
customer base and an international presence, should enable a smoother transition
for Catalytica as the Glaxo products from the original supply agreement
transition out of the Greenville facility."
On learning of the transaction, Robert A. Ingram, chief executive of Glaxo
Wellcome, plc said, "This transaction brings together two very reputable players
in the outsourcing market and provides a combination of capabilities that will
serve well the pharmaceutical industry and customers like Glaxo Wellcome."
The cash proceeds to the stockholders of Catalytica from this transaction
are subject to certain adjustments, including a reduction in proceeds for the
tax liability incurred by Catalytica with respect to the spin-off. The tax
liability, which is expected to be a material amount, will be based on the value
of Catalytica Combustion Systems as determined by the weighted average trading
price of the spin-off company on the first full day of trading. In addition,
the cash proceeds will be reduced by contributions by Catalytica to Catalytica
Combustion Systems to provide the company with adequate operating capital, which
are currently expected to be approximately $40 - $50 million. These reductions
are expected to be partially offset by proceeds from the exercise of options and
warrants to purchase Catalytica common stock prior to the merger.
Catalytica estimates that the cash proceeds to stockholders may be in the
range of $9.00 - $10.00 per share but could be significantly higher or lower
depending upon the tax liability that Catalytica incurs for the spin-off of
Catalytica Combustion Systems. Catalytica currently owns 85% of Catalytica
Combustion Systems, of which all shares will be distributed ratably to
Catalytica stockholders. Catalytica stockholders will be required to pay taxes
on the net gain of proceeds from this transaction.
Options to purchase Catalytica stock will not be assumed by DSM. All
unexercisable options shall become exercisable in connection with the merger,
but will be cancelled and terminated upon the effectiveness of the merger.
Catalytica was advised by Morgan Stanley & Co. Incorporated and Credit
Suisse First Boston Corporation in this transaction.
Morgan Stanley Capital Partners III, L.P. and certain affiliates of
Catalytica own approximately 32% of the voting stock of Catalytica, and have
signed agreements to vote in favor of this transaction.
Catalytica has agreed to pay a fee of $20 million plus up to $5 million in
expenses to DSM under certain circumstances, including the termination of the
agreement to enter into an agreement in connection with another offer to
purchase the company.
Catalytica, Inc. has scheduled a conference call to be held on Thursday,
August 3, 2000 at 9:30 AM (PDT). This call will be accessible live via the
internet at http://www.catalytica-inc.com or via telephone at 1-888-850-2534
-----------------------------
(719-457-2633 for international callers). A replay of the call will also be
available via the internet or via telephone 24 hours / day for 72 hours
beginning at 12:30 PM (PDT) on August 3, 2000 and ending at 12:00 AM (PDT) on
August 7, 2000. To connect to the replay via telephone, simply dial 1-888-203-
1112 (719-457-0820 for international callers), reference pass code 921731.
DSM (www.DSM.nl) is a highly integrated international group of companies
----------
headquartered in Heerlen, the Netherlands that is active worldwide in the field
of life science products, performance materials and chemicals. The group has
annual sales of EUR 6.3 billion ($5.9 billion USD) and employs about 21,800
people at more than 200 sites worldwide.
Catalytica, Inc. (www.Catalytica-inc.com) finds new pathways to improve
----------------------
processes--reducing time, waste, and costs. It operates through its
subsidiaries: Catalytica Pharmaceuticals, Catalytica Combustion Systems, and
Catalytica Advanced Technologies. Catalytica Pharmaceuticals applies innovative
and patented catalytic technologies and other chemical processes to improve the
steps for manufacturing pharmaceuticals and finds better and more efficient ways
to produce products in commercial scale quantities; Catalytica Combustion
Systems' unique Xonon Cool Combustion technology enables gas turbines to produce
essentially pollution-free power; Catalytica Advanced Technologies serves as the
incubator for new catalytic technologies for industrial applications.
This press release contains "forward-looking statements" (as defined under
federal securities law) regarding the spin-off and the planned merger of DSM and
Catalytica. The actual events, including the ability of the companies to obtain
the approval of Catalytica's stockholders, to close the spin-off and the merger
transaction, may differ materially and adversely from those discussed in this
press release. Factors that may cause such a difference include, without
limitation, inability to obtain Catalytica stockholder approval of the
transaction, failure to satisfy the closing conditions set forth in the merger
agreement, potential litigation, and other risks associated with acquisitions.
There can be no assurance that the spin-off and the merger will be completed on
the intended schedule. For additional information about factors that could
affect the business of Catalytica, see the documents filed by Catalytica with
the United States Securities and Exchange Commission.
B. Memorandum to Catalytica Employees
To: Catalytica Employees
From: Ricardo Levy
Date: August 2, 2000
Re: Company Announcement
I know that most of you attended our Company Meeting, during which I discussed
in greater detail the content of the attached press release issued this
afternoon and what it will mean for us. If you were not able to attend, I have
noted below some of the key points that were discussed during the meeting. I
know you may have further questions regarding this news. If so, please don't
hesitate to ask. We will share with you as much information as we can right
now, and will continue to provide additional information as it becomes available
so that you will be kept informed as the events described in the news release
unfold over the next few months.
As described in the attached press release, DSM plans to purchase
Catalytica. In order for Catalytica Pharmaceuticals to become a combined entity
with the pharmaceutical portion of DSM's business, we will simultaneously
conduct a transaction to spin out Catalytica Combustion Systems and Catalytica
Advanced Technologies to existing Catalytica shareholders as a single new public
entity. As it stands today, this new entity will be named Catalytica Combustion
Systems.
As many of you know, the business strategy of Catalytica has been to create
valuable companies on the basis of our discoveries and technological innovations
that could eventually stand on their own. The subject of much discussion for
quite some time has been to determine when would be the right time for our
subsidiaries to become their own entities.
Clearly, our pharmaceutical operation is already essentially a self-contained
entity, with relatively few critical services provided by corporate. To
continue to meet today's demands for critical mass in the pharmaceutical
outsourcing market, it is necessary to grow. By joining forces with DSM, we
will create the highest quality company that offers both comprehensive services
and a worldwide presence to our customers in the pharmaceutical industry. The
combined companies will benefit from a global presence, with plants in both
North America and Europe along with a number of other locations worldwide. The
combination will also expand our chemical operations significantly and add
biologicals capabilities to complement our sterile development and manufacturing
operations, enabling us to serve the pharmaceutical and biotech industry like no
one else can.
At the same time, we felt that Combustion Systems had progressed to the point
that it could stand on its own and receive its own recognition as a public
company now that Xonon is well on its way to commercialization. As part of the
transaction, Catalytica Advanced Technologies will now become a part of
Catalytica Combustion Systems. Catalytica NovoTec, which was recently formed as
a new subsidiary within Advanced Technologies, will become a subsidiary of CCSI.
The result of this transaction will be two corporations: DSM Catalytica
Pharmaceuticals and CCSI, each company now able to focus on its specific
markets. It will take a little time to fully understand the impact that this
transaction will have on some of the functions and activities of our company,
but I want to assure you that we will try to provide an indication of how this
will affect each of you individually as soon as we possibly can.
In the meantime, the following link has been provided on the intranet for
additional information about DSM: http://intranet.catalytica-inc.com/dsm/
---------------------------------------
Thank you for your attention.
C. DSM Fact Sheet
Overview
Founded in 1902, DSM (www.dsm.nl) is a highly integrated international group of
companies headquartered in Heerlen in the Netherlands with annual sales of $5.9
billion (USD). DSM is active worldwide in the field of life science products,
performance materials, and chemicals. In 1999, DSM's life science products
division represented 26% of Company revenues, 15% of which were derived from
sales to the pharmaceutical industry. DSM employs approximately 22,000 people
at more than 200 sites and ranks among the top three players in terms of market
share in 80% of its activities.
[Pie Chart]
Polymers & Industrial Chemicals: 43%
Performance Materials: 29%
Life Science Products: 26 %
Other: 2%
[Organizational Chart]
DSM Fine Chemicals
DSM Fine Chemicals Netherlands
DSM Fine Chemicals Austria
DSM Fine Chemicals Germany
DSM Minera
DSM Biologics
New Business Development
Chemicals
DSM Fine Chemicals, a business group within the Life Science Products division,
employs 2700 people worldwide and is a major developer and supplier of key
intermediates for pharmaceuticals produced on an exclusive basis in close
cooperation with its customers. In 1999, DSM Fine Chemicals represented over
$600 million in annual sales for DSM, 50% of which were derived from
pharmaceutical sales. Many of the top-selling medicines around the world are
based on raw materials supplied by DSM including:
- Antibiotics
- Cardiovascular drugs
- Anti-depressants
- Drugs for the treatment of AIDS
cGMP Capacity: Custom synthesis 106,000 gallons
Fermentors (non-penicillin applications) 340,000 gallons
Reactors for anti-infectives 93,000 gallons
Fermentors for anti-infectives 1,600,000 gallons
Pharmaceutical Customers: AstraZeneca Hoffmann-La Roche Inc.
Bristol-Myers Squibb Merck
Cell Tech Novartis
GelTex Pharmaceuticals SmithKline Beecham
Production Sites: Geleen, Venlo, Maarssen, Groningen (NL); Linz (Au);
Regensburg (BRD); Capua (I); Iquique (Ch); Montreal
(Can)
D. Catalytica, Inc. Second Quarter 2000 Earnings Release
CATALYTICA REPORTS SECOND QUARTER FINANCIAL RESULTS
MOUNTAIN VIEW, CA (August 3, 2000) - Catalytica, Inc. (Nasdaq: CTAL) today
reported financial results for the second quarter and six months ended June 30,
2000. The financial results have been restated for all periods presented to
reflect the acquisition of Wyckoff Chemical Company, which has been accounted
for as a pooling of interests and was completed on September 20, 1999.
For the second quarter, total revenues were $97,260,000, compared with
$118,106,000 in the same period a year ago. Operating income in the second
quarter of 2000 was $10,123,000, compared with $14,311,000 during the second
quarter of 1999. The anticipated decline in revenues and thus operating income
was the result of a scheduled step-down of Glaxo Wellcome business as part of a
five-year supply agreement that was signed upon Catalytica's purchase of its
Greenville, North Carolina facility in July 1997. This decline in product
revenues was partially offset by a significant growth in research revenues in
the second quarter which were $9,017,000, an 80% increase over research revenues
of $5,001,000 reported during the same period last year. Net income during the
second quarter of $5,516,000, or $0.08 per diluted share, reflected an expected
increase in Catalytica's tax rate from 23% in the second quarter of 1999, to 39%
in the second quarter of 2000, when compared with net income of $9,526,000, or
$0.14 per diluted share, reported in the second quarter last year.
During the quarter, Catalytica received a $2.5 million settlement through
its business interruption insurance to cover a portion of the lost production
incurred following Hurricane Floyd during the third quarter last year. This
payment was included as a reduction in cost of goods sold. It also incurred a
$1 million non-cash compensation charge related to the retirement of a senior
executive.
For the first half of 2000, revenues were $195,954,000, compared with
$214,030,000 reported in the corresponding period last year. This decline in
product revenues was again partially offset by a continued increase in demand
for Catalytica's pharmaceutical development services which resulted in a near
doubling of research revenues for the first half of 2000 to $20,247,000,
compared with $10,314,000 reported during the first six months of 1999.
Operating income of $21,773,000 and net income of $11,755,000, or $0.17 per
diluted share, for the six months ended June 30, 2000, reflected a slight
decrease, compared with operating income of $23,725,000 and net income of
$15,898,000, or $0.23 per diluted share, in the first six months of 1999.
Catalytica also announced in a separate release yesterday that it plans to
merge Catalytica, Inc. with DSM, a major supplier of key intermediate products
to the pharmaceutical industry. At or about the same time, it will spin out the
Catalytica Combustion Systems and Catalytica Advanced Technologies divisions as
a single entity to Catalytica shareholders.
Ricardo B. Levy, president and chief executive officer of Catalytica, Inc.,
commented, "Despite the decrease in total revenues during the first half of
2000, the continued increase in research revenues is a positive indication that
we are building a good product pipeline for future business to offset the
transition of original Glaxo business from our facility. This transition will
also be helped by a global presence and broadened customer base that will result
from combining Catalytica and DSM. Together, we will become one of the largest
fully integrated supplier of development and manufacturing services to the
pharmaceutical industry."
Levy continued, "As our pharmaceutical division will soon be acquired, we
look now to spin out our Catalytica Combustion Systems subsidiary by combining
it with Catalytica Advanced Technologies as a new entity. Both subsidiaries
made notable progress during the second quarter and the first half of the year.
With the announcement of two new orders for Xonon-equipped gas turbines for
distributed generation projects, we feel that Xonon is progressing nicely along
its commercialization path as an enabling technology for ultra-low emissions
power production in urban and suburban areas. We plan to pursue the adaptation
of Xonon to additional gas turbines for the growing distributed generation
market through a program funded by the U.S. Department of Energy and through
collaborations with additional original equipment manufacturers (OEMs). In our
Advanced Technologies division, we announced the creation of Catalytica NovoTec
which is focused on improving manufacturing processes for the chemical and
petrochemical industries. This new subsidiary presents exciting new
opportunities for Catalytica's expertise in catalysis."
During the second quarter, Catalytica Pharmaceuticals completed an
expansion of its chemical manufacturing facility in South Haven, Michigan. The
new facility provides for 11,000 additional reactor gallons to the Company's
existing chemical manufacturing capacity. The additional reactor gallon
capacity enables Catalytica to expand its early-stage manufacturing production
work with customers and strengthens the Company's position as a leading supplier
of
advanced intermediates and active pharmaceutical ingredients (APIs) in the
pharmaceutical outsourcing market. Catalytica Pharmaceuticals now has a total
of 120,000 gallons of reactor capacity across its three production sites, making
it one of the largest chemical manufacturing suppliers that services the
pharmaceutical industry. Expansions of the South Haven and Greenville pilot
plants are also underway along with plans for an expansion of the sterile
manufacturing facility in Greenville.
Catalytica, Inc. has scheduled a conference call to be held today at 9:30
AM (PDT). This call will be accessible live via the internet at
http://www.catalytica-inc.com or via telephone at 1-888-850-2534 (719-457-2633
- -----------------------------
for international callers). A replay of the call will also be available via the
internet or via telephone 24 hours / day for 72 hours beginning at 12:30 PM
(PDT) today and ending at 12:00 AM (PDT) on August 7, 2000. To connect to the
replay via telephone, simply dial 1-888-203-1112 (719-457-0820 for international
callers), reference pass code 921731.
Catalytica, Inc. (http://www.catalytica-inc.com) finds new pathways to
-----------------------------
improve processes -- reducing time, waste and costs. It operates through three
subsidiaries: Catalytica Pharmaceuticals, Catalytica Combustion Systems, and
Catalytica Advanced Technologies. Catalytica Pharmaceuticals applies innovative
and patented catalytic technologies and other chemical processes to improve the
steps for manufacturing pharmaceuticals and finds better and more efficient ways
to produce products in commercial scale quantities. Catalytica Combustion
Systems' unique Xonon Cool Combustion technology enables gas turbines to produce
essentially pollution-free power. Catalytica Advanced Technologies serves as
the incubator for new catalytic technologies for industrial applications.
Catalytica employs over 1600 people.
This news release contains forward-looking statements regarding
Catalytica's future performance and Catalytica's competitive position in its
markets. Such forward-looking statements include the prospects for our
business, the market demand of our products, the benefits from our agreements,
obtaining additional XONON orders, securing additional manufacturing business
through our research and development associations with our customers, our future
ability to obtain new Catalytica Pharmaceuticals' customers, the future
performance of the Xonon system, the proposed spin- off of Catalytica Combustion
Systems and Catalytica Advanced Technologies, and the merger of DSM. Actual
results may differ and such differences may be material from those anticipated
in such forward-looking statements. These statements involve risks and
uncertainties, including without limitation the ability to complete the spin-off
and merger with DSM, the ability of Catalytica Pharmaceuticals and Catalytica
Combustion Systems to perform cost-effectively and in a timely manner, the
impact of product development delays at both Catalytica Pharmaceuticals and
Catalytica Combustion Systems, the impact of market demand, the ability to
continue to increase revenue from new customers and research services and offset
declines in revenue from Glaxo Wellcome and Warner Lambert, the ability to
operate the manufacturing, research and development facilities efficiently,
changes in market conditions, changes in the Companies' competitive positions,
changes in the pharmaceutical and energy production industries and the impact of
the FDA on the pharmaceutical market, the EPA on the energy market, and other
regulations on pharmaceutical and biotech manufacturing, as well as the impact
of environmental regulations on the demand for ultra-low NOx emissions. Readers
are cautioned not to place undo reliance on these forward-looking statements,
which speak only as of the date of this release. The Company undertakes no
obligation to update publicly any forward-looking statements to reflect new
information, events or circumstances after the date of this release or to
reflect the incurrence of unanticipated events. Investors are encouraged to
review Catalytica's Form 10K for the year ending December 31, 1999, Form 10Q for
the period ending March 31, 2000, filed with the Securities and Exchange
Commission for a discussion of additional factors that could affect Catalytica's
future performance.
Editors' Note: Xonon and Cool Combustion are trademarks of Catalytica.
Catalytica, Inc.
Condensed Consolidated Statements of Operations*
(in thousands, except per share amounts)
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Product sales $88,243 $113,105 $175,707 $203,716
Research revenues 9,017 5,001 20,247 10,314
------- -------- -------- --------
Total revenues 97,260 118,106 195,954 214,030
Costs and expenses:
Cost of product sales 68,574 85,540 139,228 157,864
Research and development 12,236 10,491 22,747 18,934
Selling, general and administrative 6,327 7,764 12,206 13,507
------- -------- -------- --------
Total costs and expenses 87,137 103,795 174,181 190,305
Operating income 10,123 14,311 21,773 23,725
Interest expense, net (1,086) (1,418) (2,502) (2,837)
Loss on joint venture (0) (462) (0) (974)
Income taxes (3,521) (2,905) (7,516) (4,016)
------- -------- -------- --------
Net income $ 5,516 $ 9,526 $ 11,755 $ 15,898
======= ======== ======== ========
Net income per share:
Basic $ 0.09 $ 0.17 $ 0.20 $ 0.28
======= ======== ======== ========
Diluted $ 0.08 $ 0.14 $ 0.17 $ 0.23
======= ======== ======== ========
Shares used in computing
net income per share:
Basic 58,070 57,543 58,017 57,507
======= ======== ======== ========
Diluted 64,191 63,553 64,186 63,836
======= ======== ======== ========
*Note: The results for all periods presented have been restated to reflect the
acquisition of Wyckoff Chemical Company which has been accounted for as a
pooling of interests and was completed on September 20, 1999.
Catalytica, Inc.
Condensed Consolidated Balance Sheet*
(in thousands)
June 30, 2000 December 31, 1999
-------------- -----------------
(unaudited)
Assets:
Cash and short-term investments $ 19,811 $ 40,346
Accounts and notes receivable, net 47,211 42,320
Inventory 100,041 105,519
Other current assets 15,482 17,011
-------- --------
Total current assets 182,545 205,196
Property and equipment, net 241,344 221,131
Other assets 1,701 2,181
-------- --------
$425,590 $428,508
======== ========
Liabilities and Stockholders' Equity:
Current liabilities $ 60,731 $ 73,751
Current portion of long-term debt 18,498 12,948
-------- --------
Total current liabilities 79,229 86,699
Long-term debt 41,000 51,000
Other long-term liabilities 23,457 23,982
Minority interest 41,000 41,000
Class A and B common stock 97,079 97,079
Stockholders' equity 143,825 128,748
-------- --------
$425,590 $428,508
======== ========
*Note: The results for all periods presented have been restated to reflect the
acquisition of Wyckoff Chemical Company which has been accounted for as a
pooling of interests and was completed on September 20, 1999.
In connection with the acquisition, Catalytica will be filing a proxy statement
with the Securities and Exchange Commission. STOCKHOLDERS OF CATALYTICA ARE
URGED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE BECAUSE IT WILL
CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain a free
copy of the proxy statement when it becomes available and other documents filed
by Catalytica with the Securities and Exchange Commission in connection with the
merger at the Securities and Exchange Commission's web site at www.sec.gov.
Stockholders of Catalytica may also obtain for free the proxy statement and
other documents filed by Catalytica in connection with the merger by directing a
request to: Catalytica, Inc., 430 Ferguson Drive, Mountain View, California
94043, Attention: Jackie Cossmon, VP of Investor Relations, Telephone: 650-960-
3000, ext. 6204.
Catalytica and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from Catalytica stockholders in
favor of the acquisition. These directors and executive officers include the
following: James Cusumano, Richard Fleming, Alan Goldberg, Howard Hoffen,
Ricardo Levy, Ernest Mario, John Urquhart, Lawrence Briscoe, Jackie Cossmon,
Ralph Dalla Betta and John Hart. Collectively, as of April 14, 2000, the
directors and executive officers of Catalytica may be deemed to beneficially own
approximately 34.6% of the outstanding shares of Catalytica common stock.
Stockholders of Catlytica may obtain additional information regarding the
interests of the participants by reading the proxy statement when it becomes
available.