[CHIRON CORPORATION LOGO] [PATHOGENESIS CORPORATION LOGO]
MEMORANDUM
To: PathoGenesis Employee Stock Optionees
From: Chiron and PathoGenesis Human Resources Departments
Date: September 7, 2000
Re: Election Form
--------------------------------------------------------------------------------
Attached to this e-mail is the Election Form that you should complete and return
to PathoGenesis Human Resources, Attn: Pam Timberman, either in person, by mail
or by fax to (206) 270-3343 by 1:00 p.m. Pacific Daylight Time, Monday September
18, 2000. You may change your election by completing and delivering a new
Election Form up until the consummation of the merger in which PathoGenesis
becomes a wholly owned subsidiary of Chiron, but that could be as soon as the
morning of September 19, 2000. This document contains important information
regarding your PathoGenesis stock options and the decision you need to make
regarding treatment of these options. You are being asked to indicate on the
Election Form which of the two alternatives you decide to elect:
1) The Cash Out Right, or
2) The Conversion Alternative
Although we have communicated that the default treatment (if you do nothing) of
your options will be the Cash Out Right as defined in the Merger Agreement, we
believe the decision as to the disposition of your PathoGenesis options is an
important one. We would prefer therefore that you communicate specifically your
decision by completing the Election Form. However, if you do nothing, your
options will be treated as if you had elected the Cash Out Right.
You will be receiving a cover memo and spreadsheet under separate cover this
week that are designed to help you understand the economic impact of the
alternatives and to determine what the best alternative is for you. PathoGenesis
Human Resources recently provided you a summary statement of your current stock
options and this information is also contained within the spreadsheet (the
spreadsheet does not reflect any option exercises you may have done on or about
Friday August 25, 2000 or thereafter). We urge you to take some time to evaluate
various scenarios and also discuss the alternatives with your tax or financial
advisor. We want to ensure that whatever your election, you have had the
opportunity to evaluate the alternatives based on your personal financial
situation.
Please contact Pam Timberman, Iain Duncan or Kent DeLucenay in PathoGenesis
Human Resources if you have any questions.
<PAGE>
[CHIRON CORPORATION LOGO] [PATHOGENESIS CORPORATION LOGO]
MEMORANDUM
To: PathoGenesis non-Employee Stock Optionees
From: Chiron and PathoGenesis Human Resources Departments
Date: September 7, 2000
Re: Election Form
--------------------------------------------------------------------------------
Attached is the Election Form that you should complete and return to
PathoGenesis Human Resources, Attn: Pam Timberman, either in person, by mail
or by fax to (206) 270-3343 by 1:00 p.m. Pacific Daylight Time, Monday September
18, 2000. You may change your election by completing and delivering a new
Election Form up until the consummation of the merger in which PathoGenesis
becomes a wholly owned subsidiary of Chiron, but that could be as soon as the
morning of September 19, 2000. This document contains important information
regarding your PathoGenesis stock options and the decision you need to make
regarding treatment of these options. You are being asked to indicate on the
Election Form which of the two alternatives you decide to elect:
1) The Cash Out Right, or
2) The Conversion Alternative
We believe the decision as to the disposition of your PathoGenesis options is an
important one. We would prefer therefore that you communicate specifically your
decision by completing the Election Form. However, if you do nothing, your
options will be treated as if you had elected the Cash Out Right. Attached is an
Options Summary detailing your stock option holdings as of September 6, 2000.
Please note that if your status as a non-employee optionee should change after
the merger (i.e. you no longer are a member of the Board of Directors or
Scientific Advisory Board, your consulting agreement ends or other action occurs
that causes your relationship with PathoGenesis or Chiron to end), you should
keep in mind if you elect the Conversion Alternative that some options you
receive may not vest and would expire unvested.
Please contact Pam Timberman, Iain Duncan or Kent DeLucenay in PathoGenesis
Human Resources if you have any questions.
<PAGE>
[CHIRON CORPORATION LOGO] [PATHOGENESIS CORPORATION LOGO]
MEMORANDUM
To: PathoGenesis Employee Stock Optionees Whose Employment Has Terminated
From: Chiron and PathoGenesis Human Resources Departments
Date: September 7, 2000
Re: Election Form
--------------------------------------------------------------------------------
Attached is the Election Form that you should complete and return to
PathoGenesis Human Resources, Attn: Pam Timberman, either in person, by mail
or by fax to (206) 270-3343 by 1:00 p.m. Pacific Daylight Time, Monday September
18, 2000. You may change your election by completing and delivering a new
Election Form up until the consummation of the merger in which PathoGenesis
becomes a wholly owned subsidiary of Chiron, but that could be as soon as the
morning of September 19, 2000. This document contains important information
regarding your PathoGenesis stock options and the decision you need to make
regarding treatment of these options. You are being asked to indicate on the
Election Form which of the two alternatives you decide to elect:
1) The Cash Out Right, or
2) The Conversion Alternative
We believe the decision as to the disposition of your PathoGenesis options is an
important one. We would prefer that you communicate specifically your decision
by completing the Election Form. However, if you do nothing, your options will
be treated as if you had elected the Cash Out Right. You were provided a copy of
your Options Summary that specifies the last date on which you are able to
exercise your vested options at your exit interview or in the benefits package
delivered to you on or after your termination.
As a terminated employee with only ninety (90) days post termination to exercise
vested options:
1. Your unvested options at the time of your termination expired on your
termination date,
2. If you elect the Conversion Alternative, this will not extend the date
by which you must exercise your vested options,
3. If you elect the Conversion Alternative and do not exercise your
conversion options by the end of the 90-day period post termination,
they will be cancelled.
Please contact Pam Timberman, Iain Duncan or Kent DeLucenay in PathoGenesis
Human Resources if you have any questions.
<PAGE>
ELECTION FORM
Dear :
---------------------
The agreement by which PathoGenesis is to be acquired by Chiron
Corporation (the "Merger Agreement") provides you with an election as to how
your outstanding options to acquire PathoGenesis common stock will be handled in
the acquisition. Under the Merger Agreement, you may choose either the Cash Out
Right or the Conversion Alternative. Each alternative is described briefly
below, and is described more completely in the document entitled Employee
Questions and Answers Regarding PathoGenesis Employee Stock Options, which has
already been distributed. Please complete this election form and deliver it to
Pam Timberman, PathoGenesis Corporation, 201 Elliott Avenue West, Seattle, WA
98119 on or before Monday, September 18, 2000 at 1:00 p.m. Pacific Daylight
Time. You may change your election by completing and delivering a new election
form up until the consummation of the merger in which PathoGenesis becomes a
wholly owned subsidiary of Chiron (the "Merger"), but that could be as soon as
the morning of September 19, 2000.
ELECTION
Subject to the terms and conditions of the Merger Agreement as described
in the Q&A and the instructions below and effective upon the consummation of the
Merger, I hereby elect as follows by checking the appropriate box:
CASH OUT RIGHT
[ ] I elect the Cash Out Right. I hereby elect to have all my option(s)
--------------------------
outstanding as of the Effective Time, as defined in the Merger Agreement,
cancelled in return for a cash payment. At that time, each option that
I hold will terminate and cease to be outstanding. In exchange, I will
receive a cash amount, less applicable withholding taxes, for each
outstanding option equal to the excess, if any, of $38.50 over the
exercise price for such option multiplied by the number of shares of
PathoGenesis stock subject to that option.
or
CONVERSION ALTERNATIVE
[ ] I elect the Conversion Alternative. I hereby elect to have all my
----------------------------------
option(s) outstanding as of the Effective Time converted into an option(s)
to purchase Chiron common stock. By making this election, I waive (1) any
right to acceleration of vesting of my option(s) by reason of Chiron's
acquisition of PathoGenesis common stock, the Merger or any other
transaction contemplated by the Merger Agreement and (2) any right to a
cash payment in exchange for my option(s) as described under the heading
Cash Out Right. The converted option(s) will have the same life and
vesting schedule as my PathoGenesis option(s) but they will all be
non-statutory options and the exercise price and number of shares will be
adjusted to reflect the merger and the terms of the Merger Agreement.
Thus, my conversion options will be unvested to the same extent that my
PathoGenesis option(s) was (were) unvested and they will continue to vest
based on employment after the merger. However, if my employment is
terminated without cause by Chiron in the 12
1
<PAGE>
months following the date that PathoGenesis becomes a wholly owned
subsidiary of Chiron (the "Merger Date")(or if I voluntarily terminate
employment within 13 months following that Merger Date for "good reason"
as defined in any employment agreement or severance agreement to which I
am a party), all of my converted options will become immediately vested
and exercisable and I will receive a cash payment for each converted
option. The cash payment will be calculated as follows:
Cash Payment = (1) Number of Chiron shares under my converted option
(excluding any shares acquired and/or disposed of upon exercise or
cashless exercise prior to such time of termination) x (2) the amount, if
any, by which the average of the closing price per share of Chiron Common
Stock on the NASDAQ National Market for the 5 consecutive trading days
immediately before the Merger Date exceeds the adjusted exercise price per
share.
Whether or not vesting of my converted options accelerates upon a
subsequent merger or change in control will be determined under the same
terms as the acceleration provisions generally applicable under the Chiron
1991 Stock Option Plan. Under those provisions, the conversion options
would accelerate upon a merger or change in control of Chiron unless the
options are either assumed or replaced with a comparable award subject to
shares of the successor corporation or its parent.
Finally, if I elect the Conversion Alternative, I will be granted a new
Chiron option to purchase a number of Chiron shares equal to 30% of the
number of unvested shares subject to my converted option(s) on the Merger
Date. The exercise price per share of the new Chiron option will be equal
to the fair market value, as determined pursuant to the Chiron 1991 Stock
Option Plan, of one share of Chiron common stock on the grant date. The
vesting and remaining provisions of my new Chiron option will be
determined in accordance with the terms of the Chiron 1991 Stock Option
Plan. I will not be entitled to this new Chiron Option if I do not elect
the Conversion Alternative.
Dated: , 2000. ---------------------------------------------
--------- Signature
---------------------------------------------
Name
Address:
---------------------------------------------
---------------------------------------------
2
<PAGE>
Subject to the terms and conditions hereof, upon execution and delivery of
this election form by you, this election form will constitute the agreement
between you and Chiron Corporation with respect to the subject matter herein.
Chiron Corporation
By: /s/ William G. Green
-----------------------------------------
Name: William G. Green
Title: Senior Vice President and
General Counsel
3
<PAGE>
INSTRUCTIONS
1. General. This Election Form should be properly filled in, dated and signed
-------
and should be delivered to the address set forth on the first page of this
Election Form. If sent by mail, then it is suggested the Election Form be sent
registered mail, return receipt requested or overnight express or mail. You may
also send the form by facsimile to the attention of Pam Timberman at (206)
270-3343 but you must also send the signed original of your form by mail.
2. Time in Which to Elect. The Election Form must be received no later than
----------------------
Monday, September 18, 2000 at 1:00 p.m. Pacific Daylight Time. You may change
your election by completing and delivering a new election form up until the
consummation of the merger in which PathoGenesis becomes a wholly owned
subsidiary of Chiron, but that could be as soon as the morning of September 19,
2000.
3. Signatures. The signature (or signatures) on the Election Form should
----------
correspond exactly with the name as written on your option agreement(s).
4. Questions. All questions should be directed to Pam Timberman at
---------
(206) 674-6663 or Iain Duncan at (206) 664-6044.
