<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1997.
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
CENTOCOR DIAGNOSTICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
Pennsylvania 2835 23-2918699
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
244 Great Valley Parkway
Malvern, Pennsylvania 19355
(610) 651-6000
---------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-----------------------------
R. James Danehy, President
Centocor Diagnostics, Inc.
244 Great Valley Parkway
Malvern, Pennsylvania 19355
(610) 651-6000
-----------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------------
Copy to:
David C. Toner, Esquire Bruce K. Dallas, Esquire
Duane, Morris & Heckscher llp Davis Polk & Wardwell
One Liberty Place 450 Lexington Avenue
Philadelphia, PA 19103-7396 New York, NY 10017
-----------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Section 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Section 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-----------------------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
--------------------------- -------------------------- ----------------
<S> <C> <C>
Class A Common Stock, $.01 par $40,000,000 $12,121.21
value
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1)Includes shares which the Underwriters have the option to purchase from the
Registrant to cover over-allotments, if any.
(2)Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) of the Securities Act.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 1997
Shares
[Logo]
CENTOCOR DIAGNOSTICS, INC.
CLASS A COMMON STOCK
-----------
ALL OF THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
CENTOCOR DIAGNOSTICS, INC. ("CENTOCOR DIAGNOSTICS" OR THE "COMPANY"). THE
COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK, CLASS A COMMON STOCK
AND CLASS B COMMON STOCK. HOLDERS OF CLASS A COMMON STOCK GENERALLY HAVE
IDENTICAL RIGHTS TO HOLDERS OF CLASS B COMMON STOCK, EXCEPT THAT HOLDERS
OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE WHILE
HOLDERS OF CLASS B COMMON STOCK ARE ENTITLED TO TEN VOTES PER SHARE
ON ALL MATTERS SUBMITTED TO A VOTE OF SHAREHOLDERS. SEE
"RELATIONSHIP WITH CENTOCOR, INC." AND "DESCRIPTION OF CAPITAL
STOCK."
THE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF CENTOCOR, INC., A PENNSYLVANIA
CORPORATION ("CENTOCOR"). UPON COMPLETION OF THIS OFFERING, CENTOCOR WILL
OWN 100% OF THE COMPANY'S OUTSTANDING CLASS B COMMON STOCK, WHICH WILL
REPRESENT APPROXIMATELY % OF THE OUTSTANDING COMMON STOCK OF THE
COMPANY (APPROXIMATELY % IF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
EXERCISED IN FULL). UPON COMPLETION OF THIS OFFERING, THE CLASS B
COMMON STOCK HELD BY CENTOCOR WILL REPRESENT APPROXIMATELY % OF THE
COMBINED VOTING POWER OF THE COMPANY'S COMMON STOCK (APPROXIMATELY
% IF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS EXERCISED IN
FULL). SEE "PRINCIPAL SHAREHOLDER" AND "RELATIONSHIP WITH
CENTOCOR, INC."
-----------
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
-----------
APPLICATION HAS BEEN MADE TO LIST THE CLASS A COMMON STOCK FOR QUOTATION ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "CNDX".
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company and Centocor have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of
additional shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full, the
total price to public, underwriting discounts and commissions and proceeds
to Company will be $ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
, 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
Until , 1997 (25 days after commencement of the offering), all dealers
effecting transactions in the Class A Common Stock, whether or not
participating in this distribution, may be required to deliver a prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 1
Risk Factors............................................................ 5
Use of Proceeds......................................................... 14
Dividend Policy......................................................... 14
Capitalization.......................................................... 15
Dilution................................................................ 15
Selected Consolidated Financial Data.................................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................................. 18
Business................................................................ 22
Relationship with Centocor, Inc......................................... 35
Management.............................................................. 37
Principal Shareholder................................................... 41
Description of Capital Stock............................................ 42
Shares Eligible for Future Sale......................................... 44
Underwriters............................................................ 45
Legal Matters........................................................... 47
Experts................................................................. 47
Available Information................................................... 47
Index to Financial Statements........................................... F-1
</TABLE>
----------------
The Company was incorporated in Pennsylvania in August 1997. The Company's
corporate headquarters are located at 244 Great Valley Parkway, Malvern,
Pennsylvania 19355, and its telephone number is (610) 651-6000.
----------------
CA 125 II, CA 19-9, CA 15-3 and CA 72-4 are trademarks of Centocor
Diagnostics. ReoPro is a trademark of Eli Lilly and Company. CYFRA 21-1 is a
trademark of Boehringer Mannheim GmbH.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE CLASS A COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. All references herein, unless the context
otherwise requires, to the "Company" or "Centocor Diagnostics" refers to
Centocor Diagnostics, Inc. and its subsidiaries. References to the Company or
Centocor Diagnostics include the historical operating results and activities
of, and assets and liabilities assigned to, the business and operations that
comprise the oncology and cardiovascular diagnostic operations that were
previously operated as part of the Diagnostics Division of Centocor, Inc.
("Centocor"). Unless otherwise indicated, the information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Centocor Diagnostics develops, manufactures and sells diagnostic human health
care products based primarily upon monoclonal antibody technologies. The
Company's products and product candidates focus on disease categories with
large market potential, primarily in oncology and cardiovascular diseases. The
Company is a leading provider of in vitro (outside the body) diagnostic ("IVD")
tests, components and reagents to monitor the efficacy of cancer therapies,
primarily in patients with breast, ovarian or pancreatic cancer. Prior to the
formation of the Company, the business and operations currently conducted by
the Company were operated as a division of Centocor, a biopharmaceutical
company with a primary focus in monoclonal antibody technology. Upon completion
of this offering, Centocor will own shares of the Company's capital
stock, and will hold approximately % of the voting power of the Company's
outstanding capital stock.
The Company is currently developing a point-of-care ("POC") cardiovascular
diagnostic test, the P-selectin Profile, designed to allow emergency room
physicians to rapidly and accurately rule in for further treatment patients
suffering Acute Coronary Syndrome ("ACS") and rule out for non-cardiac
treatment or early discharge patients not suffering ACS. The test is further
designed to determine whether patients suffering ACS are suffering a myocardial
infarction ("heart attack"), for whom immediate treatment is critical to
survival, or unstable angina ("UA"), for whom immediate or longer term
treatment is warranted. Within two hours of the onset of a heart attack, more
than 50% of the clinical benefit possible from reperfusion (restoring blood
flow to the heart) is lost because permanent damage to the heart muscle tissue
has occurred. Current tests for a heart attack include electrocardiograms
("ECGs"), which initially fail to diagnose one-half of heart attack cases, and
cardiac enzymes, which begin to detect a heart attack only after irreversible
damage to the heart muscle has occurred. The Company believes that the P-
selectin Profile offers a unique opportunity to improve the quality of care for
ACS patients by complementing existing ECG and cardiac enzyme technologies and
to reduce the costs of unnecessary testing and admissions for patients not
suffering ACS.
Cardiovascular disease is the leading cause of death in the U.S. Heart
attacks alone accounted for approximately 21% of all deaths in the U.S. in
1994. In the U.S., approximately 6.0 million patients enter hospital emergency
departments each year complaining of chest pain. Of these, approximately
500,000 are immediately diagnosed as having a heart attack based on an ECG and
undergo emergency cardiac intervention. An additional 500,000 are ultimately
diagnosed as having had a heart attack based on tests that identify the
presence of cardiac enzymes and additional ECGs and undergo cardiac
intervention, although not before irreversible damage has occurred to the heart
muscle. Approximately 1.5 million are ultimately diagnosed with UA and usually
undergo long-term cardiac treatment and monitoring. The remaining 3.5 million
are diagnosed as not having had a cardiac event and are treated for non-cardiac
conditions or are discharged. Unfortunately, approximately 35,000 of these 3.5
million patients are sent home with an undiagnosed heart attack, and 6,000 of
these patients die within 48 hours. These misdiagnoses account for
approximately 20% of all malpractice settlements paid by emergency
1
<PAGE>
department doctors. In addition, approximately 2.1 million of these 3.5 million
patients are diagnosed as not having had a cardiac event only after extensive
testing and hospital stays. National statistics indicate that approximately
$4.0 billion of unnecessary medical costs are spent each year on these 2.1
million non-cardiac cases. Current IVD cardiovascular diagnostic tools,
including coagulation tests and cardiac enzyme markers, represented an
approximately $1.0 billion worldwide market in 1996.
After studying the predictive value of individual assays for P-selectin on
the platelet membrane and in blood plasma in more than 2,200 samples, the
Company developed its P-selectin Profile, which measures the status of the
protein P-selectin both on the platelet membrane and in blood plasma, as a
method of assessing platelet activation, an early indicator of ACS. In human
clinical proof-of-principle studies, preliminary data indicates that the P-
selectin Profile has a high predictive value for identifying patients with ACS.
The Company has entered into a collaborative arrangement with Biometric
Imaging, Inc. ("Biometric") to modify an existing FDA-cleared instrument
platform consisting of a computer-controlled, laser-based, static cytometry
imaging system, for use as a POC instrument system designed to deliver the full
utility of the P-selectin Profile.
The Company will seek regulatory clearance for the P-selectin Profile. The
Company will initially file for 510(k) clearance for the combination of the
membrane-bound and plasma-based P-selectin tests as a single diagnostic test.
The Company will also seek clearance for these assays performed on a modified
version of an existing Biometric instrument and for the POC instrument system
platform that it is developing with Biometric. The Company has already
initiated a prospective trial, MAPS (Management of Acute Coronary Syndromes
with P-selectin Profile), which consists of a three-site pilot study to be
followed by a ten-site trial with an aggregate of approximately 1,300 patients.
The Company anticipates enrolling patients in the MAPS trial in early 1998.
Cancer is the second leading cause of death in the U.S. The Company currently
manufactures and sells IVD tests, components and reagents, primarily for the
monitoring of the efficacy of cancer therapies. The Company's primary
technology for these tests is monoclonal antibodies. The Company's monoclonal
antibodies are unique, highly specific proteins that detect the presence, in a
blood sample drawn from a patient, of specific antigens that are produced by
cancer cells. The Company's revenues from the sales of these products were
approximately $40.2 million and $37.6 million, respectively, for the years
ended December 31, 1995 and 1996. During 1996, 64% of the Company's IVD tests
were sold in Europe, while 25% and 11% were sold in Japan and the U.S.,
respectively. The Company sells these products in three formats: (i) completed
kits for performing manual tests; (ii) components for use in automated
instruments that perform the tests; and (iii) supplies of bulk reagents for
inclusion in kits manufactured by third parties.
As a subsidiary of Centocor, the Company realizes significant strategic and
operating benefits from a shared base of technology in monoclonal antibodies
generally, and specifically in the cardiovascular and oncology areas, research
and development skills and procedures, clinical trial management techniques and
data, the ability to have its product candidates included in Centocor's
clinical trials and common marketing activities within the same disease area
that are targeted to the same decision makers and institutions. Centocor's
leading product is ReoPro, a therapeutic drug that is effective in preventing
blood clotting by inhibiting the aggregation of platelets. The Company believes
that the P-selectin Profile can be utilized as an indicator of situations where
ReoPro (and other platelet aggregation inhibitors to the extent they become
available) is effective as a therapeutic treatment. The Company also believes
that the opportunity for the P-selectin Profile to be included with ReoPro in a
cardiovascular disease management program offers significant clinical and
marketing benefits. The Company believes it is uniquely positioned to benefit
from the management systems and infrastructure in place at Centocor.
The Company's strategy is to (i) commercialize the P-selectin Profile, (ii)
maintain a leading position in the cancer IVD markets in which it sells
products and (iii) continue to leverage its unique relationship with Centocor.
The Company intends to focus significant resources towards the development of
the P-selectin Profile and other POC diagnostic tests for use in the rapid
diagnosis of chest pain patients.
2
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Class A Common Stock offered...................... shares
Common Stock to be outstanding after the offering:
Class A Common Stock............................. shares(1)
Class B Common Stock............................. shares(2)
Total.......................................... shares(1)(2)
Use of Proceeds................................... Capital expenditures,
related principally to the
cardiovascular diagnostic
program, working capital,
product research and
development and other
general corporate purposes
Proposed Nasdaq National Market symbol............ CNDX
</TABLE>
- --------
(1) Excludes up to shares of Class A Common Stock subject to the
Underwriters' over-allotment option.
(2) Upon completion of the offering, Centocor will own 100% of the Class B
Common Stock.
RISK FACTORS
Prospective investors should consider the risks involved in purchasing shares
of Class A Common Stock. See "Risk Factors."
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA(1):
Revenues:
Sales.................. $40,061 $42,386 $36,325 $40,208 $37,611 $ 28,574 $ 24,191
Contracts(2)........... 990 786 808 2,040 2,481 1,103 3,446
------- ------- ------- ------- ------- -------- --------
Total revenues......... 41,051 43,172 37,133 42,248 40,092 29,677 27,637
Costs and expenses:
Cost of sales.......... 14,266 12,369 12,505 13,479 13,458 10,329 8,221
Research and
development............ 5,409 5,354 6,531 5,336 7,758 5,446 5,737
Marketing, general and
administrative........ 11,710 12,213 9,961 10,356 10,162 7,506 8,773
------- ------- ------- ------- ------- -------- --------
Total costs and
expenses.............. 31,385 29,936 28,997 29,171 31,378 23,281 22,731
------- ------- ------- ------- ------- -------- --------
Income before income
taxes.................. 9,666 13,236 8,136 13,077 8,714 6,396 4,906
Provision for income
taxes(3)............... 4,070 5,688 3,487 5,392 3,464 2,635 2,031
------- ------- ------- ------- ------- -------- --------
Net income.............. $ 5,596 $ 7,548 $ 4,649 $ 7,685 $ 5,250 $ 3,761 $ 2,875
======= ======= ======= ======= ======= ======== ========
PRO FORMA DATA(4):
Earnings per share...... $ $ $ $ $ $ $
======= ======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED(5)
------- --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $14,333
Total assets............................................ 34,860
Shareholders' equity.................................... 28,665
</TABLE>
- --------
(1) Consolidated statement of operations data from the years ended December 31,
1992 and 1993 have been derived from unaudited financial statements of the
Company.
(2) Under various commercialization agreements, the Company has recognized
contract revenues from non-refundable fees or milestone payments in support
of its research and development efforts. The Company does not anticipate
significant contract revenues in future periods.
(3) Prior to this offering, the Company was included in Centocor's consolidated
federal income tax returns. As a result of the consolidated group's federal
net operating losses and tax credits, no taxes were payable. The benefit
derived by the Company from inclusion in Centocor's consolidated tax return
has been reflected as a contribution to capital. See "Relationship with
Centocor, Inc.--Tax Sharing Agreement."
(4) Calculated on a pro forma basis for this offering based on the aggregate of
shares of Class A Common Stock and Class B Common Stock outstanding.
(5) As adjusted to give effect to the sale of shares of Class A Common
Stock offered by the Company in this offering at an assumed public offering
price of $ per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds."
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Class A Common Stock offered hereby. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, statements regarding the Company's
business strategy, product development plans and objectives, future operations
and future industry conditions, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will be met. Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed below and elsewhere
in this Prospectus.
INITIAL DEPENDENCE OF THE COMPANY ON MATURE PRODUCTS
The Company's present business consists primarily of IVD tests, components
and reagents that were developed and commercialized in the 1980's. Three of
these products (CA 15-3 (breast cancer), CA 19-9 (pancreatic cancer), CA 125
II (ovarian cancer)) accounted for more than 85% of the Company's revenues in
1996. While these products have significant product market positions and enjoy
relatively high levels of profitability, the Company believes that any
expansion of product sales from these products will be modest. In recent
years, the Company has experienced a change in its IVD test product mix from
completed kits to components for automated systems and bulk reagent sales.
This product shift, which is expected to continue for the next few years, has
resulted in average unit price declines. See "Business--Oncology Diagnostics."
If this product shift continues, and is not offset by increases in volume
growth, revenues and net income for the Company's oncology products may be
reduced. In addition, there can be no assurance that competition will not
erode the Company's market position for oncology products in the future,
potentially reducing revenue and net income.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT FOR ENHANCED GROWTH AND PROFITABILITY
The Company is dependent on the successful development and commercialization
of new products, particularly the P-selectin Profile, in order for the Company
to realize future revenue growth and profitability. There can be no assurance
that any new products will be successfully developed and commercialized on a
timely basis, if at all. Even if successfully developed and commercialized,
there is no assurance that market penetration will be obtained at a level
necessary for the Company to maintain profitability. The successful
commercialization of the P-selectin Profile is dependent upon the modification
of existing diagnostic technologies by the Company and existing
instrumentation technologies by Biometric, which may not be successfully
completed. Because chest pain management is highly protocol driven, the
successful commercialization of the P-selectin Profile will also be highly
dependent upon its inclusion in the U.S. national "Best Practices" chest pain
management protocol promulgated by the American Heart Association ("AHA") and
the American College of Cardiology ("ACC"). This will require the Company to
demonstrate that the P-selectin Profile and the POC instrument system are
cost-effective, accurate and rapid diagnostic tests for chest pain patients.
There can be no assurance that the P-selectin Profile will be included in the
U.S. national "Best Practices" chest pain management protocol. In addition,
there can be no assurance that any regulatory approvals or clearances
necessary for the marketing of the P-selectin Profile will be obtained, or if
obtained, will be on the time schedule that the Company is currently
anticipating. Failure to receive regulatory approval or clearance, or
substantial delay in regulatory approval or clearance, will significantly
impact the Company's expected revenues from the P-selectin Profile and its
ability to maintain profitability. The Company's cost of conducting clinical
trials in connection with the development of the P-selectin Profile could
increase from the present estimated amounts if Centocor's Gusto IV Trial is
terminated early and the Company decides to continue its portion of the trial
or to begin a new trial completely at its own cost.
DEPENDENCE ON THIRD PARTIES
In connection with the development and commercialization of the P-selectin
Profile, the Company has entered into an agreement with Biometric pursuant to
which Biometric is developing a POC instrument system based on Biometric's
existing instrument platform. The successful development of the POC instrument
system is
5
<PAGE>
essential to the successful commercialization of the P-selectin Profile. There
can be no assurance that Biometric will successfully develop the POC
instrument system or that, in the event Biometric is unsuccessful, the Company
will be able to develop, either independently or with third parties, an
alternative POC instrument system.
The Company focuses its internal technical resources on the development of
new products, while outsourcing much of its basic research activities with
third parties, particularly from academic and medical research sources.
Historically, this has provided the Company with access to a variety of new
technology options, while allowing the Company to focus its limited resources
on those opportunities that the Company believes will have the highest
likelihood for success. The Company must compete with numerous other third
parties who seek access to these same research sources, many of whom have
significantly more resources to fund sponsored research and advisory
relationships with those institutions and individuals whose research is of
most interest to the Company. While the Company believes it has good
relationships with the individuals and centers of research who conduct
research on behalf of the Company, there can be no assurance that these
sources will continue to be available to it, or that competition will not make
the cost of access to these sources prohibitively expensive. Also, the Company
cannot be assured that new centers of important research capability with which
it has no relationships will not emerge that will result in the Company not
having access to innovative research that may be available to its competitors.
In either case, the result could have a materially adverse impact upon the
Company.
CUSTOMER CONCENTRATION
Substantially all of the Company's current revenues are generated by the
sale of the Company's IVD tests, components and reagents to a limited number
of distributors and automated instrument partners. Therefore, the level of the
Company's revenues is dependent, in part, upon the level of effort and success
of its distributors and automated instrument partners marketing and selling
the Company's IVD products to end users. The Company's distributors and
automated instrument partners may also compete with the Company. Although the
Company believes its distributors and automated instrument partners have an
economic incentive to succeed in performing their marketing and selling
activities, the amount and timing of resources that they devote to these
activities is not within the control of the Company. There can be no assurance
that such parties will perform as expected or that any revenue will be derived
from such arrangements. If any of the Company's distributors or automated
instrument partners fails to perform as expected, and the Company is unable to
distribute the products directly to end users, it is likely that revenues
would decline. Even if the Company is able to replace a distributor or adapt
its IVD tests for use on another automated instrument partner's instrument,
there is no assurance that such arrangement would be on terms and conditions
as advantageous to the Company as the prior arrangements. During 1996,
approximately 70% of the Company's sales were received from four distributors
or automated instrument partners as follows: 25% to TFB, Inc., 19% to
Boehringer Mannheim GmbH, 14% to Abbott Laboratories and 12% to Cis bio
International. During the first nine months of 1997, approximately 66% of the
Company's sales were received from four distributors or automated instrument
partners as follows: 25% to TFB, Inc., 18% to Boehringer Mannheim GmbH, 16% to
Abbott Laboratories and 7% to CIS bio International.
GOVERNMENT REGULATION; NO ASSURANCE OF OBTAINING REGULATORY APPROVALS
The testing, manufacture and sale of the Company's products are subject to
regulation by numerous governmental authorities, principally the U.S. Food and
Drug Administration (the "FDA") and corresponding state and foreign regulatory
agencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the
regulations promulgated thereunder, the FDA regulates the preclinical and
clinical testing, manufacture, labeling, distribution and promotion of medical
devices. The Company will not be able to commence marketing or commercial
sales in the U.S. of any new product under development until it receives
clearance or approval from the FDA, which can be a lengthy, expensive and
uncertain process. Noncompliance with applicable requirements can result in,
among other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or premarket approval for devices, withdrawal of
marketing clearances or approvals, and criminal prosecution. The FDA also has
the authority to request recall, repair, replacement or refund of the cost of
any device manufactured or distributed by the Company.
6
<PAGE>
Any device manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by
the FDA and certain state agencies. Before a new device can be introduced in
the market, the manufacturer must generally obtain FDA clearance of a 510(k)
notification or FDA approval of a pre-market approval ("PMA") application. The
PMA approval process is more expensive, uncertain and lengthy than the 510(k)
clearance process. The Company is uncertain of the regulatory path to market
that the FDA will ultimately apply to the Company's products currently in
development, including the P-selectin Profile and the related POC instrument
system. There can be no assurance that with respect to any of the Company's
products in development, the FDA will not determine that the Company must
adhere to the more costly, lengthy and uncertain PMA approval process.
Modifications to a device that is the subject of an approved PMA application,
its labeling or manufacturing process may require approval by the FDA of a PMA
supplement or a new PMA application. For any devices that are cleared through
the 510(k) process, modifications or enhancements that could significantly
affect safety or effectiveness, or constitute a major change in the intended
use of the device, will require new 510(k) submissions.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances for its products on a timely basis, if at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances,
limitations on intended use imposed as a condition of such approvals or
clearances, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on the Company.
Before the manufacturer of a device can submit the device for FDA clearance
or approval, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of IVD tests, such as all of the Company's oncology products and certain
products under development, including the P-selection Profile, are exempt from
the IDE requirements, including the need to obtain the FDA's prior approval,
provided the testing is noninvasive, does not require an invasive sampling
procedure that presents a significant risk, does not intentionally introduce
energy into the subject, and is not used as a diagnostic procedure without
confirmation by another medically established test or procedure. In addition,
the IVD tests must be labeled for research use only ("RUO") or investigational
use only ("IUO"), and distribution controls must be established to assure the
IVD tests distributed for research or clinical investigation are used only for
those purposes.
Manufacturers of medical devices for marketing in the U.S. are required to
adhere to applicable regulations setting forth detailed current Quality System
Regulation ("QSR") requirements, which include testing, control and
documentation requirements. Manufacturers must also comply with Medical Device
Reporting ("MDR") requirements that a manufacturer report to the FDA any
incident in which its product may have caused or contributed to a death or
serious injury, or in which its product malfunctioned and would be likely to
cause or contribute to a death or serious injury upon recurrence. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with QSR requirements and other applicable
regulations. There can be no assurance that the Company will not incur
significant costs to comply with laws and regulations in the future or that
such laws and regulations will not have a material adverse effect upon the
Company.
The use of the Company's products is also affected by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA") and related federal and
state regulations that provide for regulation of laboratory testing. The scope
of these regulations includes quality control, proficiency testing, personnel
standards and federal inspections. CLIA categorizes tests as "waived,"
"moderately complex" or "highly complex," on the basis of specific criteria.
There can be no assurance that any future amendment of CLIA or the
promulgation of additional regulations impacting laboratory testing would not
have a material adverse effect on the Company.
7
<PAGE>
UNCERTAINTY OF ADDITIONAL FUNDING REQUIREMENTS; OPERATING LOSSES
While the Company believes that its available cash, anticipated cash from
operations and funds from its existing credit agreements with Centocor,
together with the proceeds from this offering, will be sufficient to satisfy
its funding needs for the foreseeable future, there can be no assurance the
Company will not require additional capital. The Company anticipates that it
will incur operating losses in 1998 and 1999 as a result of increased spending
on research and development and the expected initiation of commercialization
expenditures related to the Company's P-selectin Profile. The Company's future
liquidity and capital requirements are dependent on several factors. These
include the financial performance of its existing IVD tests, components and
reagents, the cost and timing of the development, clinical trial, regulatory
approval and commercialization of its new products, in particular the P-
selectin Profile, and the terms and conditions of possible joint ventures and
technology licensing and development arrangements required for its new
products. If, for any reason, the Company's working capital and capital
expenditure requirements are greater than expected, additional financing may
be required by the Company. If the Company has insufficient funds to meet its
capital needs, it will be necessary to obtain funding from third parties,
which may not be available when needed or on terms acceptable to the Company.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
The Company's ability to commercialize products successfully may depend in
part on the extent to which reimbursement for the costs of such products will
be available from governmental health administration authorities, private
health insurers and other organizations. Significant uncertainty exists as to
the reimbursement status of newly approved health care products, and there can
be no assurance that adequate third party coverage will be available for the
Company to maintain price levels sufficient for realization of an appropriate
return on its investment in developing new products. Government and other
third party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new products, and by
refusing, in some cases, to provide any coverage for uses of approved products
for indications for which the FDA has not granted marketing approval or
clearance. Recent initiatives to reduce governmental deficits in the U.S. and
elsewhere and to reform health care delivery are increasing these cost
containment efforts. As managed care organizations continue to expand as a
means of containing health care costs, the Company believes there may be
attempts by such organizations to restrict the use of, or delay authorization
to use, new products, such as those being developed by the Company, pending
completion of cost/benefit analyses of such products by those managed care
organizations. If adequate coverage and reimbursement levels are not provided
by government and other third party payors for uses of the Company's products,
the market acceptance of these products would be adversely affected.
RAPID TECHNOLOGICAL CHANGE
A fundamental aspect of the market in which the Company competes is the
ability to develop and introduce new technology. The history of the IVD test
business has been one of rapid technological change. The Company believes that
this dynamic will continue to be a critical factor in future success, subject
to the new additional factors of disease management: health economics and
clinical outcome performance. The range of new technology applications is
becoming increasingly broad, encompassing new disease markers (immunoassay,
cellular and DNA-based), instrumentation, algorithms and information systems.
The Company cannot assure that new competitors, whether from academic
programs, other health care competitors, or from unrelated markets, will not
be successful in developing new technologies that will make the Company's
products obsolete or non-competitive in the future.
COMPETITION
The oncology IVD test market in which the Company competes is highly
competitive. The Company's competitors include a broad array of health care
companies that develop and manufacture diagnostic tests and instrumentation
for research, clinical and hospital-based laboratories. Many of these
competitors are multinational, multi-billion dollar companies, all of whom
have substantially greater financial, marketing,
8
<PAGE>
distribution, manufacturing and technical resources than the Company. There
can be no assurance that the activities of others will not render the
Company's products obsolete or uncompetitive. The cardiovascular IVD market,
likewise, is dominated by the same large diagnostic companies. While these
companies do not currently have a significant presence in the emergency
department segment of the market, they have the resources necessary to rapidly
develop and commercialize a product competitive with the P-selectin Profile
and enter this segment. See "Business--Competition."
RELATIONSHIP WITH CENTOCOR
Upon completion of this offering, Centocor will own 100% of the Company's
outstanding Class B Common Stock, which will represent approximately % of
the outstanding Common Stock of the Company (approximately % if the
Underwriters' over-allotment option is exercised in full) and approximately
% of the combined voting power of the Company's outstanding Common Stock
(approximately % if the Underwriters' over-allotment option is exercised in
full). As a result, Centocor will be able to effectively control all matters
requiring approval by the shareholders of the Company, including the election
of the Board of Directors and preventing a change in control of the Company.
The Class B Common Stock is convertible into Class A Common Stock, subject to
certain limitations set forth in the Company's Amended and Restated Articles
of Incorporation. See "Description of Capital Stock." Centocor has no
agreement with the Company not to sell or distribute its shares of the
Company's Common Stock and, except for the restrictions in the Underwriting
Agreement set forth below, there can be no assurance that Centocor will
maintain its ownership of the Company's Class B Common Stock. Pursuant to the
Underwriting Agreement, Centocor has agreed, subject to certain exceptions,
not to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock owned by it for a period of 180 days after the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. See "Underwriters."
Centocor must beneficially own at least 80% of the total combined voting
power of all classes of the Company's stock entitled to vote and at least 80%
of the total number of shares of each class of nonvoting stock in order to be
able to effect a tax-free spin-off of the Company under the Internal Revenue
Code of 1986, as amended (the "Code"). Because Centocor may seek to maintain
its beneficial ownership percentage of the Company for tax planning purposes
or otherwise and may not desire to acquire additional shares of Common Stock
in connection with a future issuance of shares by the Company, the Company may
be constrained in its ability to raise equity capital in the future or to
issue Common Stock or other equity securities in connection with acquisitions.
See "Relationship with Centocor, Inc."
By virtue of its controlling ownership and the terms of a tax sharing
agreement (the "Tax Sharing Agreement") to be entered into between the Company
and Centocor, Centocor will effectively control virtually all of the Company's
tax decisions for as long as the Company is a member of Centocor's
consolidated group for federal income tax purposes. In such event, Centocor
will have sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company, to file federal, certain state
and local returns on behalf of the Company and to calculate the amount of the
Company's liability to Centocor under the Tax Sharing Agreement. Centocor may
choose to contest, compromise or settle any adjustment or deficiency proposed
by the relevant taxing authority in a manner that may be beneficial to
Centocor and detrimental to the Company.
The Code generally requires beneficial ownership by Centocor of at least 80%
of the total voting power and value of the outstanding stock of the Company in
order to include the Company as a member of the Centocor consolidated group
for federal income tax purposes. Each member of a consolidated group for
federal income tax purposes is jointly and severally liable for the federal
income tax liability of each other member of the consolidated group.
Accordingly, during the period in which the Company is included in Centocor's
consolidated group, the Company could be liable if such liability or tax is
incurred, and not discharged, by any other member of Centocor's consolidated
group. The Company is, and after the offering may continue to be, included in
Centocor's consolidated group for federal income tax purposes. See
"Relationship with Centocor, Inc.--Tax Sharing Agreement."
9
<PAGE>
Prior to the completion of the offering, Centocor and the Company will enter
into certain intercompany agreements, including an agreement pursuant to which
Centocor will provide various corporate services to the Company that may be
material to the conduct of the Company's business (the "Services Agreement").
With respect to matters covered by the Services Agreement, the relationship
between Centocor and the Company is intended to continue in a manner generally
consistent with past practices. Because the Company is currently a wholly
owned subsidiary of Centocor, none of the intercompany agreements will result
from arm's-length negotiations. These agreements may include terms and
conditions that may be more or less favorable to the Company than terms
contained in similar agreements negotiated with third parties.
Various conflicts of interest between the Company and Centocor could arise
following the completion of this offering, and persons serving as directors,
officers and employees of both the Company and Centocor may have conflicting
duties to each. Dominic J. Caruso and George D. Hobbs, directors of the
Company, are also employees and officers of Centocor. Ownership interests of
directors or officers of the Company in the common stock of Centocor could
also create or appear to create potential conflicts of interest when directors
and officers are faced with decisions that could have different implications
for the Company and Centocor. In addition, for financial reporting purposes,
the Company's financial results will be included in Centocor's consolidated
financial statements. The members of the Board of Directors of the Company who
are affiliated with Centocor will consider not only the short-term and long-
term impact of financial and operating decisions on the Company, but also the
impact of such decisions on Centocor's consolidated financial results. In some
instances, the impact of such decisions could be disadvantageous to the
Company while advantageous to Centocor.
LIMITED HISTORY AS A STAND-ALONE CORPORATION; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
Prior to August 1997, the Company operated as a division of Centocor and has
a limited history operating as a stand-alone corporation. As a stand-alone
corporation, Centocor has no obligation to provide assistance to the Company
or any of its subsidiaries except as described in "Relationship with Centocor,
Inc." In addition, the financial information included herein may not
necessarily reflect the results of operations, financial position and cash
flows of the Company in the future or what the results of operations,
financial position and cash flows would have been had the Company been a
separate, stand-alone entity during the periods presented. The financial
information included herein does not reflect changes that may occur in the
funding and operations of the Company as a result of this offering, some of
which may be significant. See "Relationship with Centocor, Inc.," "Selected
Consolidated Financial Data," including the discussion of the assumptions
reflected therein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PATENTS AND LICENSING ARRANGEMENTS
Products currently being marketed, developed or considered for development
by the Company are in the area of biotechnology, an area in which there are
extensive patent filings. The patent position of biotechnology firms generally
is highly uncertain and involves complex legal and factual questions. To date,
no consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. Accordingly, there can be no assurance that patent
applications owned or licensed by the Company will result in patents being
issued or that, if issued, such patents will afford protection against
competitors with similar technology. In addition, there can be no assurance
that products covered by such patents, or any other products developed by the
Company or subject to licenses acquired by the Company, will not be covered by
third party patents, in which case continued development and marketing of such
products would require a license under such patents. There can be no assurance
that such required licenses will be available to the Company or its licensees
on acceptable terms.
Other entities have filed applications for or have been issued patents and
are expected to obtain additional patents to which the Company may need to
acquire rights. The extent to which Centocor Diagnostics may need to obtain
rights to any such patents or to contest their scope of validity will depend
on final product formulation and other factors. The ability to license any
such patents and the likelihood of successfully contesting the scope or
validity of such patents are uncertain and the costs associated therewith may
be significant. If the Company is required to acquire rights to valid and
enforceable patents but cannot do so at a reasonable cost, the Company's
10
<PAGE>
ability to manufacture or market its products in the country of issuance of
any such patent may be materially adversely affected.
There has been substantial litigation regarding patent and other intellec-
tual property rights in the biotechnology industry. Litigation may be neces-
sary to enforce certain intellectual property rights of the Company. Any such
litigation could result in substantial cost to and diversion of effort by the
Company.
POTENTIAL QUARTERLY FLUCTUATIONS IN FUTURE OPERATING RESULTS
The Company has not yet completed a full quarter as a stand-alone
corporation. There can be no assurance that the Company will achieve
profitability on a quarterly or annual basis in the future. The Company
believes that future operating results will be subject to quarterly
fluctuations due to a variety of factors, including whether and when new
products are successfully developed and introduced by the Company, market
acceptance of current or new products, regulatory delays, product recalls,
manufacturing delays, shipment problems, seasonal customer demand, the timing
of significant orders, the timing of contract revenues, changes in
reimbursement policies, competitive pressures on average selling prices,
currency fluctuations, changes in the mix of products sold and patent
conflicts. Operating results would also be adversely affected by a downturn in
the market for the Company's current and future products, if any, order
cancellations or order rescheduling. Because the Company is continuing to
increase its operating expenses for personnel and new product development, the
Company's operating results would be adversely affected if its sales did not
correspondingly increase or if its product development efforts are
unsuccessful or subject to delays.
EXPOSURE TO CURRENCY FLUCTUATIONS
In 1996, approximately 29% of the Company's sales were denominated in
foreign currencies and converted to U.S. dollars pursuant to conversion
provisions set forth in the respective agreements to determine payment amounts
owed to the Company. Currency fluctuations have in the past and may in the
future cause reported sales to fluctuate from period to period regardless of
the fluctuation in the volume of such sales in foreign currencies. As a
result, the Company's operating results are subject to currency fluctuations.
PRODUCT LIABILITY
The testing and marketing of diagnostic products entail an inherent risk of
product liability. In addition to its current product offerings, the Company
expects to market new cardiovascular diagnostic products, including the P-
selectin Profile, for use in the emergency department of hospitals, which may
increase the risk of product liability claims against the Company, as there
has been significant litigation in the area of emergency medicine. In
addition, there can be no assurance that the Company will not experience an
increase in product liability claims to the extent the Company's product mix
shifts from products that solely monitor the progression of disease to
products that screen for diseases. Centocor Diagnostics maintains limited
product liability insurance coverage. The Company may be materially adversely
affected by a successful product liability claim in excess of any insurance
coverage. There can be no assurance that product liability insurance coverage
will continue to be available to the Company in the future on reasonable terms
or at all.
SKILLED PERSONNEL
The Company's success will depend, in large part, on the Company's continued
ability to attract and retain highly qualified management, scientific,
manufacturing and sales and marketing personnel. Competition for such
personnel is intense. There can be no assurance that the Company will be able
to attract or retain such personnel in the future.
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE STOCK PRICE VOLATILITY
Prior to the offering, there has been no public market for the shares of
Class A Common Stock of the Company, and there can be no assurance that an
active public market for the shares of Class A Common Stock
11
<PAGE>
will develop or be sustained or that the market price for the Class A Common
Stock will not decline below the public offering price set forth on the cover
page of this Prospectus. Securities markets in general, and new public
offerings in particular, have from time to time experienced significant
fluctuations in price and traded volumes unrelated to the operating
performance of individual companies. Biotechnology companies have in the past
been, and may in the future be, especially susceptible to highly volatile
market price fluctuations. Announcements concerning the Company's or its
competitors' products, technical innovations, operating results, clinical
investigation results or regulatory developments, as well as reimbursement
policy changes, health care industry news and general economic conditions and
other external factors may have a significant impact on the market price of
the Class A Common Stock. See "Underwriters--Price of the Offering."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock in the public market,
whether by purchasers in the offering or other shareholders of the Company, or
the perception that such sales could occur, may materially and adversely
affect the market price of the Class A Common Stock. Upon completion of the
offering, the shares of Class A Common Stock offered hereby will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), by persons other than executive
officers and directors of Centocor or the Company (the "Restricted Persons").
Upon completion of the offering, Centocor will own 100.0% of the Company's
outstanding Class B Common Stock, which will represent approximately % of
the outstanding Common Stock of the Company (approximately % if the
Underwriters' over-allotment option is exercised in full). The shares of
Common Stock that are held by Centocor and certain Restricted Persons are
subject to a "lock-up" agreement, under which Centocor and such Restricted
Persons have agreed, subject to certain exceptions, not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, without
the prior written consent of Morgan Stanley & Co. Incorporated, for a period
of 180 days after the date of this Prospectus. Following such period, Centocor
(following conversion of the Class B Common Stock it owns to shares of Class A
Common Stock) and any such Restricted Person who is an affiliate of the
Company may sell such shares only pursuant to the requirements of Rule 144
under the Securities Act or pursuant to an effective registration statement
under the Securities Act. A decision by Centocor to sell such shares following
the 180-day lock-up period could materially and adversely affect the market
price of the Class A Common Stock. The Company and Centocor have entered into
a registration rights agreement, which requires the Company to effect a
registration statement covering some or all of the shares of Class A Common
Stock to be owned by Centocor upon conversion of the Class B Common Stock
owned by Centocor and any other shares of Class A Common Stock otherwise
acquired by Centocor, subject to certain terms and conditions. The Company
intends to register a total of shares of Class A Common Stock reserved
for issuance under its Stock Option Plans as soon as practicable following the
date of this Prospectus. See "Relationship with Centocor, Inc.," "Description
of Capital Stock," and "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECTS OF CERTAIN ARTICLES OF INCORPORATION AND BYLAW
PROVISIONS
The holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to 10 votes per share. Holders of
Class A Common Stock and Class B Common Stock generally vote together as a
single class. The Class B Common Stock held by Centocor is convertible into
Class A Common Stock under certain conditions set forth in the Company's
Amended and Restated Articles of Incorporation. See "Description of Capital
Stock."
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to shares of capital stock and to determine the
price, rights, preferences, privileges and restrictions, including voting
rights of such shares, without any further vote or action by the Company's
shareholders. Such charter provisions could have the effect of delaying or
preventing a change of control of the Company. The rights of the holders of
Common Stock may be subject to, and may be adversely affected by, the rights
of the holders of any capital stock that may be issued in the future. The
issuance of any such shares of capital stock, while
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<PAGE>
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue any shares of such capital
stock.
The Company's Articles of Incorporation, as amended and restated, or Bylaws,
as applicable, among other things (i) provide that the number of directors
will determined from time to time by the Board of Directors through a
resolution adopted by a majority of the Board of Directors, (ii) permit
vacancies on the Board of Directors that may occur between annual meetings and
newly created seats to be filled only by the Board of Directors and not by the
shareholders, (iii) do not permit the shareholders to call special meetings of
shareholders, (iv) provide that the Board of Directors, without action by the
shareholders, may issue and fix the rights and preferences of shares of new
classes or series of the Company's capital stock, and (v) permit shareholder
action, without a meeting, upon the written consent of shareholders who would
have been entitled to cast the minimum number of votes that would be necessary
to authorize the action at a meeting at which all shareholders entitled to
vote on such action were present and voting without prior notice to the
remaining shareholders. These provisions may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the shareholders, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock and may adversely affect the
market price of, and the voting or other rights of the holders of, the Common
Stock. See "Description of Capital Stock."
DILUTION
Based upon the initial public offering price per share of $ (and assuming
no exercise of the Underwriters' over-allotment option), the Company's net
tangible book value per share of Common Stock as of September 30, 1997, would
have been $ . This represents an immediate increase in net tangible book
value of $ per share to the existing shareholder and an immediate dilution
of $ per share to purchasers of the Class A Common Stock in the offering.
See "Dilution."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class A
Common Stock offered hereby are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company. Approximately $20.0 million of the net proceeds from this offering
will be utilized through 2002 for capital expenditures related primarily to
the cardiovascular diagnostic program, with the balance used for working
capital, product research and development and other corporate purposes, which
may include expenses associated with the expansion of sales and marketing
activities, property, plant and equipment and for general corporate purposes.
DIVIDEND POLICY
The Company does not anticipate declaring or paying any cash dividends in
the foreseeable future and intends to retain its earnings, if any, for the
development and expansion of its business operations. In 1994, 1995 and 1996,
and in the first nine months of 1997, the Company distributed to Centocor
$12.4 million, $11.0 million, $12.8 million and $1.0 million, respectively.
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CAPITALIZATION
The following table sets forth the consolidated cash balance and
capitalization of the Company at September 30, 1997 and as adjusted to give
effect to the sale of the shares of Class A Common Stock in this offering (at
an assumed offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses).
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash....................................................... $ 3,670 $
======= ====
Common Stock, $.01 par value, 50,000,000 shares authorized,
12,000,000 issued and outstanding at September 30, 1997... $ 120 $--
Class A Common Stock, $.01 par value, shares
authorized, issued and outstanding, as adjusted...... --
Class B Common Stock, $.01 par value, shares
authorized, issued and outstanding, as adjusted....... --
Additional paid in capital................................. 18,398
Unrealized gain on marketable security.................... 9,218
Retained earnings......................................... 929
------- ----
Total shareholders' equity................................ $28,665 $
------- ----
Total capitalization...................................... $28,665 $
======= ====
</TABLE>
DILUTION
The net tangible book value of the Company at September 30, 1997 was $ ,
or $ per share of Common Stock. Net tangible book value per share
represents the amount of total tangible assets less total liabilities of the
Company, divided by the number of shares of Common Stock outstanding. After
giving effect to the proposed sale by the Company of shares of Class A
Common Stock in this offering at an assumed offering price of $ per share
(calculated after deduction of estimated underwriting discounts and
commissions and estimated expenses associated with the offering), the pro
forma net tangible book value of the Common Stock at September 30, 1997 would
have been $ , or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing shareholders and an
immediate dilution in net tangible book value of $ per share to the
purchasers of the Class A Common Stock in the offering.
The following table illustrates the calculation of the per share dilution
described above:
<TABLE>
<S> <C> <C>
Assumed offering price per share..................................... $
Net tangible book value per share prior to the offering.............. $
Increase in net tangible book value per share attributable to new in-
vestors.............................................................
----
Pro forma net tangible book value per share after giving effect to
the offering........................................................
Dilution per share to new investors in the offering..................
----
$
====
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Consolidated Statement of Operations Data for each of the years ended
December 31, 1992 and 1993 and for each of the nine-month periods ended
September 30, 1996 and 1997, and the Consolidated Balance Sheet Data as of
December 31, 1992, 1993 and 1994 and September 30, 1997 have been derived from
unaudited consolidated financial statements and include all adjustments the
Company considers necessary for a fair presentation of such financial
information for these periods. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results that
may be expected for any other interim period or for the full year. The
Consolidated Statement of Operations Data for each of the years in the three-
year period ended December 31, 1996 and the Consolidated Balance Sheet Data as
of December 31, 1995 and 1996 are derived from the consolidated financial
statements of the Company, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, and which are included elsewhere in
this Prospectus. The financial information included herein may not necessarily
reflect the results of operations, financial position and cash flows of the
Company in the future or what the results of operations, financial position
and cash flows would have been had the Company been a separate, stand-alone
entity during the periods presented. The selected consolidated financial data
presented below should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues:
Sales.................. $40,061 $42,386 $36,325 $40,208 $37,611 $ 28,574 $ 24,191
Contracts(1)........... 990 786 808 2,040 2,481 1,103 3,446
------- ------- ------- ------- ------- -------- --------
Total revenues......... 41,051 43,172 37,133 42,248 40,092 29,677 27,637
Costs and expenses:
Cost of sales.......... 14,266 12,369 12,505 13,479 13,458 10,329 8,221
Research and
development........... 5,409 5,354 6,531 5,336 7,758 5,446 5,737
Marketing, general and
administrative........ 11,710 12,213 9,961 10,356 10,162 7,506 8,773
------- ------- ------- ------- ------- -------- --------
Total costs and
expenses............... 31,385 29,936 28,997 29,171 31,378 23,281 22,731
------- ------- ------- ------- ------- -------- --------
Income before income
taxes.................. 9,666 13,236 8,136 13,077 8,714 6,396 4,906
Provision for income
taxes(2)............... 4,070 5,688 3,487 5,392 3,464 2,635 2,031
------- ------- ------- ------- ------- -------- --------
Net income.............. $ 5,596 $ 7,548 $ 4,649 $ 7,685 $ 5,250 $ 3,761 $ 2,875
======= ======= ======= ======= ======= ======== ========
PRO FORMA DATA(3):
Earnings per share...... $ $ $ $ $ $ $
======= ======= ======= ======= ======= ======== ========
Shares outstanding......
======= ======= ======= ======= ======= ======== ========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------ ------- ------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital........... $11,854 $11,740 $9,160 $10,750 $7,684 $14,333
Total assets.............. 18,976 21,375 16,805 19,102 17,295 34,860
Shareholders' equity...... 16,311 17,647 13,388 15,379 13,064 28,665
</TABLE>
- --------
(1) Under various commercialization agreements, the Company has recognized
contract revenues from non-refundable fees or milestone payments in
support of its research and development efforts. The Company does not
anticipate significant contract revenues in future periods.
(2) Prior to this offering, the Company was included in Centocor's
consolidated federal income tax returns. As a result of the consolidated
group's federal net operating losses and tax credits, no taxes were
payable. The benefit derived by the Company from inclusion in Centocor's
consolidated tax return has been reflected as a contribution to capital.
See "Relationship with Centocor, Inc.--Tax Sharing Agreement."
(3) Calculated on a pro forma basis for this offering based on the aggregate
of shares of Class A Common Stock and Class B Common Stock
outstanding.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investors are cautioned that forward-looking statements involve risks and
uncertainties including economic, competitive, governmental, technological and
other factors that may affect the Company's business prospects.
OVERVIEW
Centocor Diagnostics develops, manufactures and sells diagnostic human
health care products based primarily upon monoclonal antibody technologies.
The Company's products and product candidates focus on disease categories with
large market potential, primarily in oncology and cardiovascular diseases. The
Company is a leading provider of in vitro (outside the body) diagnostic
("IVD") tests, components and reagents to monitor the efficacy of cancer
therapies, primarily in patients with breast, ovarian and pancreatic cancer.
The Company sells its IVD products in three formats: (i) completed kits
("Kits"), (ii) components for automated systems ("Components") and (iii) bulk
reagents for kits ("Reagents").
Prior to the formation of the Company, the business and operations currently
conducted by the Company were operated as a division of Centocor, a
Pennsylvania corporation formed in 1979. The financial information included
herein may not necessarily reflect the results of operations, financial
position and cash flows of the Company in the future or what the results of
operations, financial positions and cash flows would have been had the Company
been a separate, stand-alone entity during the periods presented.
The Company recently received marketing clearance for its CA 15-3 (breast
cancer) Kits in the U.S. and anticipates seeking marketing clearance of its CA
19-9 (pancreatic cancer) Kits in the U.S. Additional marketing clearance will
be necessary prior to commercialization in the U.S. by the Company's automated
instrument partners of IVD tests incorporating the Company's Components or
Reagents, including CA 15-3 and CA 19-9.
The Company's sales and gross profits are impacted by the mix of products
sold, pricing levels and foreign currency fluctuations. The Company's sales
and gross profit declined in 1996 compared to 1995, principally due to lower
average unit sales prices from a shift in the Company's product mix from Kits
to Components and Reagents. In 1996, more than 50% of the Company's sales
revenues were generated by sales of Kits. The Company receives higher average
unit sales prices on Kits as compared to Components and Reagents. Furthermore,
while the gross margin percentage for Kits are slightly higher than for
Components, they are significantly lower than for Reagents. The Company
expects that this shift in product mix will continue over the next few years.
However, the Company believes that the shift in product mix will be offset by
increases in volume growth for these products, especially as products
incorporating the Company's IVD tests receive further regulatory approval
worldwide.
In 1996, approximately 29% of the Company's sales were denominated in
foreign currencies and converted to U.S. dollars pursuant to conversion
provisions set forth in the respective agreements to determine payment amounts
owed to the Company. Currency fluctuations may cause reported sales to
fluctuate from period to period regardless of the fluctuation in the volume of
such sales in foreign currencies. As a result, the Company's operating results
are subject to currency fluctuations.
The Company intends to pursue growth through the introduction of novel
diagnostic products that address large markets with unmet clinical and
economic needs. The Company believes that the P-selectin Profile fulfills
these criteria. See "Business--Cardiovascular Diagnostics." The level of
future sales of diagnostic products, particularly the P-selectin Profile, will
be dependent upon several factors including, but not limited to, the
development of instrumentation technology by Biometric, the timing and extent
of future regulatory approvals of the Company's products, approval and
commercialization of competitive products and ultimately the degree of
acceptance of the Company's products in the marketplace. The level of oncology
diagnostic sales is also dependent upon the extent of and timing of Reagent
sales to partners developing new automated instruments, as well as the mix
between sales of Kits and sales of Reagents and Components to collaborative
partners. The
18
<PAGE>
Company is currently attempting to expand its diagnostic distribution channels
to include additional distributors of Kits on a non-exclusive basis, and the
Company further expects that current distributors of its Kits may increase
sales of their respective diagnostic tests incorporating the Company's
Reagents and Components.
The Company's operating results have been impacted by the level of contract
revenues. The Company has recognized contract revenue from non-refundable fees
or milestone payments in support of its research and development efforts. The
level of contract revenues in future periods will depend primarily upon the
extent to which the Company enters into other collaborative contractual
arrangements, if any, and its achievement of milestones under current
arrangements. The Company does not anticipate significant contract revenues in
future periods.
The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses
and/or options to license certain technology resulting from the research,
generally require the Company to pay royalties to such institutions on the
sales of any products that utilize the licensed technology. Further, the
Company has licenses under certain patents, patent applications and technology
and pays the licensors or their licensees royalties under such agreements.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of cost of sales. The Company expects cash
outflows related to such royalty arrangements to increase in future periods.
The Company expects to invest significant amounts in future periods for the
purchase of instruments and expansion of facilities. The Company's expenses
related to depreciation of such equipment and facilities is expected to
significantly increase in future periods. In addition, a significant amount of
the Company's expenditures are paid to Centocor pursuant to the Services
Agreement. See "Relationship with Centocor, Inc."
The Company expects its research and development and sales and marketing
expenses to increase significantly related to the development and
commercialization of the P-selectin Profile. As a result of increased spending
on research and development and the expected initiation of commercialization
expenditures related to the Company's P-selectin Profile, the Company
anticipates incurring operating losses in 1998 and 1999.
The Company's effective tax rate for the years ended December 31, 1994, 1995
and 1996 was 43%, 41% and 40%, respectively. For the nine-month periods ended
September 30, 1996 and 1997, the Company's effective tax rate was 41%.
Pursuant a Tax Sharing Agreement expected to be entered into with Centocor,
for as long as the Company is a member of Centocor's consolidated group for
federal income tax purposes, the Company will make no payments for its share
of the consolidated group's federal income tax liability to the extent that
the consolidated group's federal net operating loss and tax credit
carryforwards are available to offset consolidated taxable income. To the
extent that Centocor's net operating loss and tax credit carryforwards are no
longer available to shelter its consolidated group's taxable income, the
Company will then be required to make payments to Centocor for its portion of
the consolidated group's tax liability. Although the Company has reported a
provision for income taxes in all the periods presented, no tax payments were
payable because Centocor's consolidated group did not generate taxable income.
The benefit derived by the Company from inclusion in Centocor's consolidated
tax return has been reflected as a contribution to capital. In the event the
Company ceases to be a member of the Centocor consolidated tax group, the
Company will be subject to the payment of income taxes as a stand-alone
corporation.
Nine months ended September 30, 1997 compared to nine months ended September
30, 1996
Sales for the nine-month period ended September 30, 1997 were $24,191,000 as
compared to $28,574,000 for the same period in 1996. This decrease was due
primarily to a reduction in Reagent sales, lower Kit unit volumes and, to a
lesser extent, the unfavorable impact of foreign currency fluctuations.
Costs of sales for the nine-month period ended September 30, 1997 was
$8,221,000 as compared to $10,329,000 for the same period in 1996. This
decrease was due primarily to lower sales during the period. The Company's
gross margins on sales was approximately 66% for the nine-month period ended
September 30, 1997 as compared to approximately 64% for the same period in
1996.
19
<PAGE>
Marketing, general and administrative expenses were $8,773,000 for the nine-
month period ended September 30, 1997 as compared to $7,506,000 for the same
period in 1996. This increase was due primarily to increased market
development expenses related to the Company's cardiovascular program. The
levels of the Company's marketing, general and administrative expenses were
expected to increase in future periods as compared to 1997 levels as the
Company expands its market development activities in connection with new
cardiovascular products and directly undertakes the promotion, marketing and
sales of cardiovascular products.
Year ended December 31, 1996 compared to year ended December 31, 1995
Sales for the year ended December 31, 1996 were $37,611,000 as compared to
$40,208,000 for the same period in 1995. This decrease was due primarily to a
one-time $2,176,000 1995 stocking order of Reagents to a new customer and the
reduction in the percentage of end-user sales that the Company received from
the sale of Reagents in 1996 due to a change in certain exclusive arrangements
to non-exclusive in an effort to allow the Company to increase its market
penetration.
Cost of sales for the year ended December 31, 1996 was $13,458,000 as
compared to $13,479,000 for the same period in 1995. The Company's gross
margin on sales for the year ended December 31, 1996 was approximately 64% as
compared to approximately 66% for the same period in 1995.
Research and development expenses for the year ended December 31, 1996 were
$7,758,000 as compared to $5,336,000 for the same period in 1995. This
increase was due primarily to increased expenditures in the clinical area for
CA 15-3 (breast cancer). In addition, headcount-related expenses increased to
support development of new cardiovascular products and development of the
Company's cancer products on automated instruments partners' instrumentation
platforms.
Marketing, general and administrative expenses for the year ended December
31, 1996 were $10,162,000 as compared $10,356,000 for the same period in 1995.
This decrease was due to lower allocations of administrative and facility
expenses to the Company, as Centocor increased its pharmaceutical-related
activities.
Year ended December 31, 1995 compared to year ended December 31, 1994
Sales for the year ended December 31, 1995 were $40,208,000 as compared to
$36,325,000 for the same period in 1994. This increase in sales was primarily
due to a one-time stocking order of Reagents to a new customer and an increase
in CA 15-3 sales resulting from the launch of the product on a new automated
instrument with one of the Company's automated instrument partners.
Cost of sales for the year ended December 31, 1995 was $13,479,000 as
compared to $12,505,000 for the same period in 1994. This increase was
primarily due to increased unit volumes sold. The Company's gross margin on
sales for the years ended December 31, 1995 and 1994 was approximately 66%.
Research and development expenses for the year ended December 31, 1995 were
$5,336,000 as compared to $6,531,000 for the same period in 1994. This
decrease was due primarily to lower clinical expenses for CA 15-3.
Marketing, general and administrative expenses for the year ended December
31, 1995 were $10,356,000 as compared to $9,961,000 for the same period in
1994. This increase was primarily due to increased market development expenses
for the Company's oncology products line.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, after giving pro forma effect to completion of the
offering (at an assumed public offering price of $ per share), the Company
would have had cash, cash equivalents and investments of approximately $ .
For the years ended December 31, 1994, 1995 and 1996, the Company generated
positive cash flow of, and distributed, $12,395,000, $10,959,000 and
$12,787,000, respectively, to Centocor. For
20
<PAGE>
the nine months ended September 30, 1996, the Company generated positive cash
flow of, and distributed, $10,105,000 to Centocor. For the nine months ended
September 30, 1997, the Company distributed $1,036,000 to and received a
$2,000,000 capital infusion from Centocor. The Company expects to
significantly increase the level of capital expenditures for the purchase of
instruments and facility expansion in connection with the development of its
cardiovascular program. The Company expects that its cash reserves, including
the proceeds of this offering, will be sufficient to fund operations and such
capital expenditures for the foreseeable future.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share ("SFAS No. 128"). The statement replaces the
presentation of primary earnings per share ("EPS") with a presentation of
basic EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. SFAS No. 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement and
other reconciliations and disclosures. The Company is required to adopt SFAS
No. 128 in its fiscal year ending December 31, 1997. Accordingly, the EPS
presentation herein does not reflect the presentation requirements of SFAS No.
128. There is no difference between the earnings per share calculated under
SFAS No. 128 and the earnings per share presented in the Company's
consolidated financial statements.
21
<PAGE>
BUSINESS
BACKGROUND
Centocor Diagnostics develops, manufactures and sells diagnostic human
health care products based primarily upon monoclonal antibody technologies.
The Company's products and product candidates focus on disease categories with
large market potential, primarily in oncology and cardiovascular diseases. The
Company is a leading provider of in vitro (outside the body) diagnostic
("IVD") tests, components and reagents to monitor the efficacy of cancer
therapies, primarily in patients with breast, ovarian or pancreatic cancer.
The Company is currently developing a point-of-care ("POC") cardiovascular
diagnostic test, the P-selectin Profile, designed to allow emergency room
physicians to rapidly and accurately rule in for further treatment patients
suffering Acute Coronary Syndrome ("ACS") and rule out for non-cardiac
treatment or early discharge patients not suffering ACS. The test is further
designed to determine whether patients suffering ACS are suffering a
myocardial infarction ("heart attack"), for whom immediate treatment is
critical to survival, or unstable angina ("UA"), for whom immediate or longer
term treatment is warranted. A heart attack is a condition where the heart
muscle is deprived of oxygen, usually due to the blockage of an artery,
resulting in irreversible heart muscle damage or potentially death. UA is
severe and constant pain and constriction about the heart caused by an
insufficient supply of blood to the heart. Current tests for a heart attack
include electrocardiograms ("ECGs"), which initially fail to diagnose one-half
of heart attack cases, and cardiac enzymes, which begin to detect a heart
attack only after irreversible damage to the heart muscle has occurred. Based
on patient trials conducted to date, the Company believes that the P-selectin
Profile offers a unique opportunity to improve the quality of care for ACS
patients by complementing existing ECG and cardiac enzyme technologies and to
reduce the costs of unnecessary testing and admissions for patients not
suffering ACS.
Prior to the offering, the Company was a wholly owned subsidiary of
Centocor, a biopharmaceutical company with a primary focus in monoclonal
antibody technology. Centocor's leading product is ReoPro, a therapeutic drug
that is effective in preventing blood clotting by inhibiting the aggregation
of platelets. Anticoagulation agents such as ReoPro are used in the treatment
of cardiovascular diseases to prevent blood clots. The three main markets for
these agents are angioplasty, UA and heart attack. ReoPro is marketed and sold
in the U.S. and Europe for the reduction of acute ischemic cardiac
complications in patients who are at high risk for such events following
angioplasty. Centocor has filed for marketing approval of ReoPro for all
angioplasty patients and for UA patients who are not responding to current
treatment. Centocor is currently performing clinical trials to expand the
indications for use of ReoPro in heart attack patients.
In connection with its development of the P-selectin Profile, the Company
benefits from extensive research, development and clinical data in the
cardiovascular field developed by Centocor in connection with its development
of ReoPro. The Company believes that the P-selectin Profile can be utilized as
an indicator of situations where ReoPro (and other platelet aggregation
inhibitors to the extent they become available) and thrombolytic (clot-
busting) drugs are effective as a therapeutic treatment.
INDUSTRY OVERVIEW
IVD tests are primarily used to test patient blood samples to detect or
monitor disease. There are four basic technologies that are widely used
throughout the IVD industry: cell counting, clinical chemistry, microbiology
and immunoassay. All of the Company's existing products, and the P-selectin
Profile, are immunoassay-based tests. Such tests are performed primarily in
hospital and commercial laboratories.
Immunoassay tests, which utilize antibodies for the detection of a
substance, were first developed based on technology developed in the 1960s.
Although early immunoassay tests offered unprecedented levels of sensitivity,
they suffered from relatively short shelf-lives, long reaction times, a need
for radioactive labels to detect completed reactions and lack of consistent
results among products from different suppliers. Over time, technological
advancements such as the introduction of monoclonal antibodies, enzyme and
fluorescent labels and various solid-phase mechanisms shortened immunoassay
test reaction times, provided higher specificity and allowed development of
tests with longer shelf-lives and greater consistency.
22
<PAGE>
Cardiovascular disease is the leading cause of death in the U.S. Heart
attacks alone accounted for approximately 21% of all deaths in the U.S. in
1994. Current IVD cardiovascular diagnostic tools, including coagulation tests
and cardiac enzyme markers, represented an approximately $1.0 billion
worldwide market in 1996. The Company believes there is significant potential
for growth in this area because current cardiovascular diagnostic tools are
unable to diagnose the occurrence of cardiac events in a large number of
patients in time for these patients to receive clinical benefit from
therapeutic interventions.
Cancer is the second leading cause of death in the U.S., accounting for
approximately 24% of all deaths in 1996. The cancer segment of the worldwide
IVD market was approximately $780 million in 1995. The Company does not expect
this segment to grow significantly in the forseeable future. The Company's IVD
products were incorporated into tests that generated approximately $150
million of sales to hospitals and laboratories in 1996. In the Company's
target areas of breast, ovarian and pancreatic cancers, tests incorporating
the Company's products maintained a worldwide market share ranging from 80% to
90% during 1996.
Factors that are critical to success in the IVD industry are a company's
ability to demonstrate the clinical efficacy of the diagnostic information
produced by, and the cost effectiveness of utilizing, its tests. The Company
believes that there is significant market potential for POC diagnostic tests,
such as the P-selectin Profile, which allows for rapid, accurate results. POC
testing can reduce the overall costs of health care delivery and improve
patient outcomes by ensuring correct and timely decision making and avoiding
unnecessary medical testing and admissions.
COMPANY STRATEGY
The Company's strategy is to:
Commercialize the P-selectin Profile. The Company intends to pursue growth
through the introduction of novel diagnostic products that address large
markets with unmet clinical and economic needs. The Company believes that the
P-selectin Profile fulfills these criteria. The Company's strategy for
successful introduction of the P-selectin Profile includes: (i) developing a
POC instrument system to perform the P-selectin Profile in the emergency room
that will allow ACS clinicians to receive rapid and accurate test results,
(ii) building a significant clinical database through a number of prospective
clinical trials staged over the next three years, including Centocor's Gusto
IV clinical trial of ReoPro scheduled to be initiated in 1998, to confirm the
performance of the P-selectin Profile and to obtain timely regulatory approval
from the FDA, (iii) utilizing clinical trial results and strong relationships
with leading ACS physicians to facilitate the P-selectin Profile's
incorporation into the U.S. national "Best Practices" chest pain management
protocol and (iv) developing a direct sales force to market the P-selectin
Profile and the POC instrument system in the U.S. The Company currently
expects to market the P-Selectin Profile in Europe and Japan through
partnering arrangements.
Maintain a leading position in the cancer IVD test market. The Company's
existing IVD tests for monitoring the efficacy of cancer therapies, especially
those targeted for breast, ovarian and pancreatic cancers, enjoy strong market
positions and generate positive cash flow, which the Company expects to
utilize to support new initiatives such as the P-selectin Profile. The Company
intends to undertake initiatives to support these products to maximize their
market position and cash flow potential, including continuing to support the
evolution of automated IVD systems and expanding current geographic marketing
approvals.
Continue to leverage unique relationship with Centocor. As a subsidiary of
Centocor, the Company realizes significant strategic and operating benefits
from a shared base of technology in monoclonal antibodies generally, and
specifically in the cardiovascular and oncology areas, research and
development skills and procedures, clinical trial management techniques and
data, the ability to have its product candidates included in Centocor's
clinical trials and common marketing activities within the same disease area
that are targeted to the same decision makers and institutions. In particular,
the Company believes that the opportunity for the P-selectin Profile to be
included with ReoPro in a cardiovascular disease management program offers
significant clinical and marketing benefits. Centocor Diagnostics is uniquely
positioned to benefit from the management systems and infrastructure in place
at Centocor.
23
<PAGE>
CARDIOVASCULAR DIAGNOSTICS
The Company is developing the P-selectin Profile, which it intends to
incorporate into a POC instrument system designed to provide rapid, accurate
test results to enable treating physicians to determine the appropriate
cardiovascular care for chest pain patients.
In the U.S., approximately 6.0 million patients enter hospital emergency
departments each year complaining of chest pain. Of these, approximately
500,000 are immediately diagnosed as having a heart attack based on an ECG and
undergo emergency cardiac intervention. An additional 500,000 are ultimately
diagnosed as having had a heart attack based on tests that identify the
presence of cardiac enzymes and additional ECGs and undergo cardiac
intervention, although not before irreversible damage has occurred to the
heart muscle. Approximately 1.5 million are ultimately diagnosed with UA and
usually undergo long-term cardiac treatment and monitoring. The remaining 3.5
million are diagnosed as not having had a cardiac event and are treated for
non-cardiac conditions or are discharged. Unfortunately, approximately 35,000
of these 3.5 million patients are sent home with an undiagnosed heart attack,
and 6,000 of these patients die within 48 hours. These misdiagnoses account
for approximately 20% of all malpractice settlements paid by emergency
department doctors. In addition, approximately 2.1 million of these 3.5
million patients are diagnosed as not having had a cardiac event only after
extensive testing and hospital stays. National statistics indicate that
approximately $4.0 billion of unnecessary medical costs are spent each year on
these 2.1 million non-cardiac cases.
The U.S. national "Best Practices" chest pain management protocol
promulgated by the AHA and the ACC strives to rule in chest pain patients
suffering ACS and, if necessary, to initiate reperfusion efforts (restoring
blood flow to the heart, whether by thrombolytic or other therapeutic drugs,
balloon angioplasty, by-pass surgery or other technique) within 30 minutes of
presentation to the emergency room. Under this protocol an ECG should be
performed within ten minutes of presentation. Unfortunately, only 50% of
patients actually suffering a heart attack are accurately diagnosed by the
initial ECG screen. Suspected heart attack patients whose ECG results are
inconclusive are given diagnostic tests to identify the presence of cardiac
enzymes, including CK, CK-MB, myoglobin, troponin-I and troponin-T. Cardiac
enzymes are markers of heart tissue death, confirming that cardiac damage has
taken place. Because cardiac enzymes do not elevate to detectable levels until
several hours after a heart attack, these tests are administered at three-hour
intervals following initial presentation, resulting in an average of four
tests being administered per patient. Although these tests cannot diagnose a
heart attack until irreversable damage has occurred, approximately $250
million of these cardiac enzyme tests are ordered annually in the U.S. by
physicians treating chest pain patients.
Time is a critical factor in the treatment of heart attack patients. Within
two hours of the onset of a heart attack, more than 50% of the clinical
benefit possible from reperfusion is lost because permanent damage to the
heart muscle tissue has occurred. Reducing the time necessary to diagnose
accurately a patient suffering from a heart attack provides a significant
opportunity to improve the standard of care and outcomes of those patients.
Even if a patient is not suffering a heart attack, it is important to
determine whether chest pain patients are suffering from another
cardiovascular disease, such as UA or angina. UA patients have wide degrees of
risk, with high-risk UA patients having the same morbidity and mortality rates
after three and six months as heart attack patients. There is no test
currently available to emergency room physicians that can quickly identify UA
or angina patients or risk-stratify these patients to appropriate levels of
care.
To significantly improve ACS patient quality of care and outcomes, while
reducing the cost to manage chest pain patients, clinicians need diagnostic
information that will enable them to rapidly rule in heart attack and UA
patients not identified by ECGs, rapidly rule out non-cardiac patients and
avoid discharging high-risk patients.
P-selectin Profile
Most cardiac events result from years of plaque buildup. A rupture of this
plaque exposes subendothelial cells of the blood vessels to platelets, which
initiates platelet activation. As more platelets activate,
24
<PAGE>
they begin to aggregate, forming a hemostatic plug, or clot. As this clot
grows, the heart is deprived of needed oxygen and blood flow, frequently
resulting in a heart attack or UA.
P-selectin is a protein that is exposed on the platelet membrane when
platelets become activated and the expression of this protein remains elevated
for up to two hours after activation. P-selectin is also shed from the
platelet and becomes elevated in the blood plasma for up to twelve hours after
platelet activation. After studying the predictive value of individual assays
for platelet-bound and plasma-based P-selectin in more than 2,200 samples, the
Company developed the P-selectin Profile, which measures the status of
platelet-bound and plasma-based P-selectin, as a method of assessing platelet
activation, an early indicator of ACS. In human clinical proof-of-principle
studies, preliminary data indicates that the P-selectin Profile has a high
predictive value for identifying patients with ACS. For the heart attack
cases, the P-selectin Profile was performed when the patients presented at the
emergency department and the results were compared to the eventual clinical
diagnosis. Of the 30 heart attack patients enrolled to date, the P-selectin
Profile was positive on 28 (93%). Of 60 normal control subjects tested, 57
(95%) were P-selectin Profile negative. The results of cardiac enzyme tests
were negative on all of these patients upon presentation.
Initially, the Company believes that the P-selectin Profile will
significantly improve patient quality of care and outcomes, while reducing the
cost to manage chest pain patients. Because the P-selectin Profile is designed
to provide treating physicians with rapid, accurate diagnostics results to
permit appropriate cardiovascular care for chest pain patients, the Company
believes that the P-selectin Profile, if successfully developed, could be
administered to each of the approximately 6.0 million chest pain patients who
enter U.S. hospital emergency rooms each year. By providing accurate and
timely diagnostic results, the P-selectin Profile will enable clinicians to
(i) rapidly rule in for treatment the 500,000 patients who are suffering a
heart attack but whose initial ECG was inconclusive, and those patients who
are suffering a heart attack but, because of the present lack of a reliable
cardiovascular diagnostic test, are sent home, (ii) rapidly rule in for
treatment the 1.5 million patients that are suffering from UA and (iii)
rapidly rule out the 3.5 million patients who do not have a cardiac condition.
The Company believes that the P-selectin Profile can be further developed in
other areas, such as assisting clinicians in properly risk-stratifying UA
patients and monitoring the utility of thrombolytic or platelet-blocking
therapeutic treatments and interventions.
The Company will concentrate on four areas for the commercialization of the
P-selectin Profile: (i) development of a POC instrument system, (ii) execution
of a regulatory strategy, utilizing well-designed clinical trials, for
obtaining timely FDA regulatory approval, (iii) incorporation of the P-
selectin Profile into the U.S. national "Best Practices" chest pain management
protocol and (iv) development of a direct sales force to market the P-selectin
Profile and the POC instrument system in the U.S.
Point-of-Care Instrument System. The U.S. national "Best Practices" chest
pain management protocol specifies 30 minutes from patient presentation to
therapy initiation. To meet this specified time frame, the P-selectin Profile
must be performed on an instrument system that is able to perform both the
membrane-bound and plasma-based P-selectin tests in the emergency room rather
than in a hospital's central laboratory. Existing diagnostic instruments are
not able to perform these tests simultaneously, in an emergency room setting
or within the required 30-minute time frame. Currently, performing the
membrane-bound and plasma-based P-selectin tests requires approximately three
hours on conventional flow cytometry and enzyme immunoassay equipment. The
Company has entered into a collaborative arrangement with Biometric Imaging,
Inc. ("Biometric") to modify an existing instrument platform, consisting of a
computer-controlled, laser-based, static cytometry imaging system, for use as
a POC instrument system designed to deliver the full utility of the P-selectin
Profile. Biometric's existing instrument has received FDA clearance and is
used in measuring CD-4 and CD-8 cell counts in HIV patients. Collaborative
research performed with Biometric has preliminarily shown that the instrument
is capable of being adapted to perform both the membrane-bound and plasma-
based P-selectin tests simultaneously within 30 minutes. The Company has
exclusive rights to the Biometric instrument for use in in vitro
cardiovascular diagnostics applications.
Clinical Trials and Regulatory Approval. The development of an extensive
database of clinical trial information to confirm the performance of the P-
selectin Profile and to assist in obtaining prompt regulatory
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clearance is key to the Company's P-selectin Profile strategy. The Company
will seek regulatory clearance for the P-selectin Profile in three steps. It
will first seek 510(k) clearance for clinical laboratory versions of the
membrane-bound and plasma-based P-selectin Profile assays by comparing the
results from these tests with the results from conventional cardiovascular
diagnostics such as ECGs and cardiac enzyme tests. Next, it will seek
clearance for these assays performed on the Biometric instrument modified to
read the membrane-bound and plasma-based P-selectin tests simultaneously.
Finally, it will seek 510(k) clearance for the POC instrument being developed
by Biometric.
The Company has initiated a prospective trial, MAPS (Management of Acute
Coronary Syndromes with P-selectin Profile), which consists of a three-site
pilot to be followed by a ten-site trial with an aggregate of approximately
1,300 patients. The Company anticipates enrolling patients in the MAPS trial
in early 1998. The MAPS trial will be the first large-scale study on all chest
pain patients to determine the performance of the P-selectin Profile. Patients
presenting to the emergency department with chest pain will be evaluated at
zero, three, six, nine and twelve hours following onset of chest pain. The
results from the P-selectin Profile will be compared to the results from
conventional cardiovascular diagnostics such as ECGs and cardiac enzyme tests
as well as the clinical diagnosis of heart attack, UA, and non-cardiac events.
Outcomes will be captured at discharge, at 30 days and six months. Pilot phase
data, which will consist of data through discharge from 300 patients at three
sites, is expected to be available in 1998. The MAPS pilot phase will use
clinical laboratory versions of the assays for the membrane-bound and plasma-
based tests to develop data to be submitted to FDA seeking initial 510(k)
clearance of the P-selectin Profile.
In addition, the P-selectin Profile will be included in a substudy of
Centocor's Gusto IV clinical trials for ReoPro for expanded indications in
heart attacks and UA. The Company believes that its ability to include the P-
selectin Profile in Centocor's ReoPro clinical trials provides the Company
with a distinct advantage over competitors who may be developing products that
may compete with the P-selectin Profile. This trial will include an additional
2,000 patients. The MAPS trial, and the ReoPro Gusto IV substudy will use a
version of the Biometric instrument system that will be modified to read the
membrane-bound and plasma-based P-selectin tests simultaneously. The Company
expects that data from these studies will result in a 510(k) filing to the FDA
for the P-selectin Profile on the Biometric instrument, as modified.
Finally, the Company expects to perform an equivalency study on 1,000
patients at ten sites to demonstrate that the P-selectin Profile as performed
on the final POC instrument system is equivalent to the performance of the
instrument system utilized in the MAPS and Gusto IV substudy. No assurances
can be given that data from the MAPS or Gusto IV substudy will be available on
the Company's anticipated schedule, that such data will support the
sensitivity or specificity of the P-selectin Profile or the Biometric
instrument system or that such data will support 510(k) filings with the FDA.
Incorporation into "Best Practices" Chest Pain Management Protocol. Chest
pain patient management is highly protocol driven. A small group of
influential decision makers impact a large portion of the market by setting
the national "Best Practices" chest pain management protocol for patients with
chest pain promulgated by the AHA and the ACC. Through Centocor's experience
with ReoPro in the cardiovascular field, the Company has developed strong
relationships with many of these protocol developers, and certain of these
persons are scientific advisors to the Company or among the lead investigators
for the Company's P-selectin Profile clinical trials. The Company believes
that these established relationships will help position the Company to
communicate its findings and supporting data from the clinical trials of the
P-selectin Profile and the POC instrument system to those most influential in
setting national "Best Practices" chest pain management protocol.
Marketing of the P-selectin Profile. The Company intends to position the P-
selectin Profile for use as a complement to the ECGs and cardiac enzyme tests
that are administered to chest pain patients presenting themselves to hospital
emergency rooms. Existing chest pain management protocol provides for an
initial ECG test to be performed within ten minutes after presentation and for
cardiac enzyme tests to be administered every three hours, resulting in an
average of four tests being administered per patient. In addition, chest pain
patient activity is highly concentrated, with approximately 20% of the
hospitals in the U.S. treating more than 50% of heart attack patients. This
concentration will allow the Company to focus its cardiovascular marketing
resources.
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The Company currently expects to market the P-selectin Profile and the POC
instrument system in the U.S. through its own direct sales force. The
Company's direct sales force will market and provide support for the P-
selectin Profile and the POC instrument system to substantially all of the 20%
of hospitals treating the majority of chest pain patients. The Company may
also supplement its direct sales force in the U.S. and market the P-selectin
Profile outside the U.S. through marketing arrangements with one or more large
pharmaceutical companies that have extensive experience marketing products for
use in emergency rooms.
The Company believes that the P-selectin Profile can be utilized as an
indicator of situations where ReoPro (and other platelet aggregation
inhibitors to the extent they become available) is effective as a therapeutic
treatment. ReoPro is currently approved for patients who are at high-risk for
abrupt artery closure following angioplasty and is currently being marketed by
Eli Lilly and Company. Centocor has filed two amendments to its ReoPro Product
License Application ("PLA") to include the treatment of all angioplasty and UA
patients who are not responding to current treatment.
While the initial focus for the P-selectin Profile is to provide timely
diagnostic information to clinicians treating chest pain patients, the Company
intends to expand the uses of the P-selectin Profile in other areas, such as
the need for diagnostic information to support ACS therapeutic treatment.
There are currently two categories of drugs that are used to treat ACS,
platelet aggregation inhibitors such as ReoPro and thrombolytics, which are
clot-busting drugs that break up fibrin accumulation. Current clinical trials
by Centocor are focused on managing ACS patients through a combination of both
types of therapeutics. The Company believes that the P-selectin Profile, which
has preliminarily been found to measure platelet activation accurately, in
conjunction with fibrin markers under development by the Company, may provide
important complementary information to clinicians managing patients with such
a drug combination.
In addition, the Company believes that the P-selectin Profile may be
modified for use as a diagnostic tool to measure platelet function management
that may allow the P-selectin Profile to become integrated into the protocol
of hospital departments, in addition to the emergency room, where patients
undergo ACS care including the chest pain emergency room, cardiac care unit,
catheterization lab and cardiovascular operating room. To facilitate
acceptance of the P-selectin Profile outside of the emergency room, the
Company expects to partner with leading manufacturers of instruments used in
these other hospital departments, with the goal of incorporating the
P-selectin Profile into existing instrument platforms.
The Company also believes that the P-selectin Profile can be refined to
assist emergency room doctors risk stratify UA patients. Approximately 1.5
million of the 6.0 million patients who present themselves to emergency rooms
with chest pain annually in the U.S. are eventually diagnosed with UA and
undergo some type of therapy. These UA patients have wide degrees of risk,
with high-risk UA patients having the same morbidity and mortality rate after
three and six months as heart attack patients. Since there is no diagnostic
tool currently available to clinicians to properly risk-stratify UA patients
to appropriate levels of care, further development of the P-selectin Profile
to perform this function would satisfy an unmet need in the management of UA
patients.
ARRANGEMENTS WITH BIOMETRIC IMAGING
The Company has entered into an agreement with Biometric dated October 9,
1997, (the "Development Agreement"), pursuant to which Biometric is obligated
to complete the tasks necessary to develop the POC instrument system by
modifying its existing IMAGN 2000 instrument system so that it performs both
the membrane-bound and plasma-based P-selectin tests simultaneously. Pursuant
to the Development Agreement and a related Stock Purchase Agreement, Centocor
has made an equity investment of $2,000,000 in Biometric and will make
additional equity investments of up to $2,000,000 based on Biometric's
successful completion of stated performance milestones. Under the Development
Agreement, the Company is obligated to perform certain development of the
existing assays that will be incorporated into the P-selectin Profile. Under
the Development Agreement, Biometric has granted the Company an exclusive,
worldwide license to use Biometric's technology and intellectual property to
make POC instrument systems and the related tests for in vitro diagnostic
procedures for the detection of cardiovascular events. Biometric holds five
U.S. patents covering Biometric's instrument
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platform and has one U.S. patent pending. Upon commercialization, the Company
will pay Biometric a percentage of the Company's cumulative net sales of the
P-selectin Profile, which percentage will decline as net sales increase.
ONCOLOGY DIAGNOSTICS BUSINESS
Approximately 7.4 million people in the U.S. presently have a history of
invasive cancer and 1.4 million new cases are diagnosed each year. Early
detection and assessment of the stage of the cancer offers the greatest
potential for diagnostic information to affect the long-term survival and
reduced cost of treating cancer patients.
IVD TESTS
From their initial commercialization in 1982, the Company has built strong
product franchises in the area of IVD tests for monitoring of the efficacy of
cancer therapies. The Company's monoclonal antibodies that are utilized in
these tests are unique, highly specific proteins that detect the presence of
specific antigens, which are produced by cancer cells.
The Company presently makes its IVD tests available to its distributors and
automated instrument partners in three basic forms:
Bulk reagents for kits. These are the key raw materials, including the
Company's antibodies, which are used by kit and automated systems
manufacturers who purchase the raw materials for inclusion in their own
finished test.
Components for automated systems. These are components for automated
systems that include the Company's antibodies and other reagents. These are
integrated by the customer with other components to produce a finished test
for use on the automated system.
Completed kits. These are finished test kits in a form that is ready to
be used by a testing lab.
The following table summarizes the IVD tests currently marketed by the
Company:
<TABLE>
<CAPTION>
PRODUCT INDICATION MARKETING STATUS
------- ---------- ----------------
<S> <C> <C>
CA 125 II Ovarian cancer U.S., Europe, Japan
CA 15-3 Breast cancer U.S., Europe, Japan
CA 19-9 Pancreatic cancer Europe, Japan
CA 72-4 Gastrointestinal cancer Europe, Japan
CYFRA 21-1 Non-small cell lung cancer Europe, Japan
</TABLE>
The Company has distribution agreements with global and regional
distributors with established networks who sell the Company's completed kits
to hospitals and clinical and research testing laboratories. The Company's
completed kits are marketed and sold by the Company's distributors. The
Company's components for automated systems are sold by the Company's automated
instrument partners. The Company's tests are compatible with more than 90% of
all diagnostic automated systems instruments, including those of Abbott
Laboratories, Roche Diagnostic Systems, Inc., Ortho Clinical Diagnostics, Inc.
(a division of Johnson & Johnson, Inc.), Bayer Corporation and Pasteur Sanofi
Diagnostics.
The Company's IVD tests are well-positioned within each of the areas of
cancer targeted by the tests. In the Company's target areas of breast, ovarian
and pancreatic cancers, tests incorporating the Company's products maintained
a worldwide market share ranging from 80% to 90% during 1996.
During 1996, approximately 64% of the Company's IVD tests were sold in
Europe, while approximately 25% and 11% were sold in Japan and the U.S.,
respectively. The Company's CA 125 II kit has been cleared for marketing in
the U.S. since 1987. The Company recently received marketing clearance for its
completed CA 15-3 kits in the U.S. and anticipates seeking marketing clearance
of its completed CA 19-9 kits in the U.S. Additional marketing clearance will
be necessary prior to commercialization in the U.S. by the Company's automated
instrument partners of IVD tests incorporating the Company's components or
bulk reagents, including CA 15-3 and CA 19-9.
In 1996, the Company's IVD tests accounted for approximately $38 million in
revenues for the Company. Peak revenue for these products was approximately
$42 million in 1993. Since then, revenues have ranged
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between $37 and $40 million annually. A shift in the product mix from
completed kits to components for automated systems and bulk reagent sales have
resulted in average unit price declines in excess of volume growth. The
Company expects that this shift in product mix will continue over the next few
years. However, the Company believes that the decrease in revenues from the
shift in product mix will be offset by increases in volume growth for these
products, especially as products incorporating the Company's IVD tests receive
further regulatory approval worldwide.
PROPRIETARY TECHNOLOGY, PATENTS AND LICENSES
Products currently being marketed, developed or considered for development
by the Company are in the area of biotechnology, an area in which there are
extensive patent filings. The patent position of biotechnology companies
generally is highly uncertain and involves complex legal and factual
questions. To date, no consistent policy has emerged regarding the breadth of
claims allowed in biotechnology patents. Accordingly, there can be no
assurance that patent applications owned or licensed by the Company will
result in patents being issued or that, if issued, such patents will afford
protection against competitors with similar technology. In addition, there can
be no assurance that products covered by such patents, or any other products
developed by the Company or subject to licenses acquired by the Company, will
not be covered by third party patents, in which case continued development and
marketing of such products would require a license under such patents. There
can be no assurance that such required licenses will be available to the
Company or its licensees on acceptable terms.
Other entities have filed applications for or have been issued patents and
are expected to obtain additional patents to which the Company may need to
acquire rights. The extent to which the Company may need to obtain rights to
any such patents or to contest their scope or validity will depend on final
product formulation and other factors. The ability to license any such patents
and the likelihood of successfully contesting the scope or validity of such
patents are uncertain and the costs associated therewith may be significant.
If the Company is required to acquire rights to valid and enforceable patents
but cannot do so at a reasonable cost, the Company's ability to manufacture or
market its products in the country of issuance of any such patent may be
materially adversely affected.
There has been substantial litigation regarding patent and other
intellectual property rights in the biotechnology industry. Litigation may be
necessary to enforce certain intellectual property rights of the Company. Any
such litigation could result in substantial cost to and diversion of effort by
the Company.
Centocor Diagnostics currently licenses the majority of the cell lines used
to produce its monoclonal antibodies from research institutions pursuant to
long-term licenses for which it is generally obligated to pay royalties based
upon sales of products incorporating such antibodies. There can be no
assurance that others will not acquire rights to such cell lines in the
future.
The Company has filed a U.S. patent application relating to certain methods
of determining endogenous platelet activation state and for determining the
effects of an anti-platelet agent, such as a glycoprotien IIb/IIIa antagonist,
on platelet activation state by assessing the levels of membrane-bound and/or
plasma-based P-selectin in a sample from an individual. The Company has also
filed a U.S. patent application directed to a method of diagnosing whether a
symptomatic patient has or does not have a thrombotic event, such as a heart
attack or stroke, employing a dual assay that yields a P-selectin profile. The
Company intends to seek international patent protection for these inventions
as well.
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COMPETITION
The health care industry is intensely competitive, and the Company expects
it to remain so for the foreseeable future. This level of competition is
reinforced at each stage of the IVD business: research, analyte developers,
instrumentation/system companies, distributors, hospital/clinical laboratories
and healthcare providers.
Currently the majority of diagnostic tests are performed in hospital and
clinical laboratories. The impetus to move these tests to new, POC testing, or
to shift the mix between a hospital and clinical site, will be fiercely
resisted by these laboratories. There can be no assurance that the Company's
new products that require a change in testing site (POC, home testing) will be
able to compete against these entrenched competitors.
The diagnostic industry is currently dominated by large, automated systems
suppliers with a broad product offering and significant market presence,
including Abbott Laboratories, Roche Diagnostic Systems, Inc. and Ortho
Clinical Diagnostics, Inc. These companies are vigorously competing for market
position, which results in strong price pressure and increasing consolidation
through mergers. These competitors all have substantially greater financial
resources, technical and research facilities, marketing and sales departments,
distribution and service organizations than the Company. In addition, these
competitors have broader product lines, established brand positions and
stronger customer relationships than the Company. While the Company's strategy
of partnering with these companies to incorporate the Company's products on
automated instruments presently utilizes these dominant market positions to
the Company's advantage, there can be no assurance that these competitors will
not be able to improve the performance of their existing product offerings to
effectively compete, or will not succeed in developing new technology and
products that will make the Company's products obsolete. In addition, there
can be no assurance that these competitors will not be able to use their
financial and market presence to limit or interfere with the ability of the
Company to sell its products.
The Company believes that its strong competitive position in these cancer
areas is due to the IVD tests' proven historic product performance and the
cumulative supporting clinical utility data. Many peer-reviewed articles have
been published on the performance of the antibodies, and competitors would
face a significant barrier to entering into attempting to replicate the
supporting data available regarding the Company's IVD tests. In addition,
clinicians are resistant to adopt a new baseline standard for a diagnostic
test, creating a further barrier to competitive entry.
The diagnostics industry is also characterized by a large number of small,
technology-based enterprises that are seeking to develop and exploit novel
technologies. While many of these companies have fewer financial and technical
resources than the Company, and do not have established positions in the
market, the sheer number of them and the broad array of technologies that they
are attempting to develop present a potential threat. The Company cannot
assure that these companies will not be able to develop breakthrough
technology whose performance capabilities will make the Company's products
obsolete.
GOVERNMENT REGULATION
The preclinical and clinical testing, manufacturing, labeling, sale,
distribution and promotion of the Company's products are subject to extensive
and rigorous government regulation in the U.S. and other countries.
Noncompliance with applicable requirements can result in enforcement action by
the FDA including fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or approval for devices, withdrawal of marketing
clearance or approval, and criminal prosecution.
Most medical devices may be marketed in the U.S. only with the FDA's prior
authorization. Devices classified by the FDA as posing less risk are placed
either in Class I or II and require the manufacturer to seek 510(k) clearance
from the FDA prior to marketing. Such clearance generally is granted when
submitted information establishes that a proposed device is "substantially
equivalent" in intended use and safety and effectiveness to a "predicate
device," which is either a Class I or II device already legally on the market
or a "preamendment" Class III device (i.e., one that has been in commercial
distribution since before May 28, 1976)
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for which the FDA has not called for PMA applications. The Company believes
that it usually takes from four to twelve months from the date of submission
to obtain 510(k) clearance, but it may take longer, and there can be no
assurance that any 510(k) submission will ever receive clearance. During this
process, the FDA may determine that it needs additional information or that a
proposed device is precluded from receiving clearance because it is not
substantially equivalent to a predicate device. After a device receives
clearance, any modification that could significantly affect its safety or
effectiveness, or would constitute a major change in the intended use of the
device, will require a new 510(k) submission.
A device that does not qualify for 510(k) clearance is placed in Class III,
which is reserved for devices classified by the FDA as posing the greatest
risk (e.g., life-sustaining, life-supporting or implantable devices, or
devices that are not substantially equivalent to a predicate device). A Class
III device generally must obtain PMA approval, which requires proving the
safety and effectiveness of the device to the FDA. A PMA application must
provide extensive preclinical and clinical trial data and also information
about the device and its components regarding, among other things,
manufacturing, labeling and promotion. As part of the PMA review, the FDA will
inspect the manufacturer's facilities for compliance with the QSR.
Upon submission the FDA determines if the PMA application is sufficiently
complete to permit a substantive review, and, if so, the application is
accepted for filing. The FDA then commences an in-depth review of the PMA
application, which the Company believes typically takes 1 to 3 years, but may
take longer. The review time is often significantly extended as a result of
the FDA asking for more information or clarification of information already
provided. The FDA also may respond with a "not approvable" determination based
on deficiencies in the application and require additional clinical trials that
are often expensive and time consuming and can delay approval for months or
even years. During the review period, an FDA advisory committee, typically a
panel of clinicians, likely will be convened to review the application and
recommend to the FDA whether, or upon what conditions, the device should be
approved. Although the FDA is not bound by the advisory panel decision, the
panel's recommendation is important to the FDA's overall decision making
process.
If the FDA's evaluation of the PMA application is favorable, the FDA
typically issues an "approvable letter" requiring the applicant's agreement to
specific conditions (e.g., changes in labeling) or specific additional
information (e.g., submission of final labeling) in order to secure final
approval of the PMA application. Once the approvable letter is satisfied, the
FDA will issue a PMA for the approved indications, which can be more limited
than those originally sought by the manufacturer. The PMA approval can include
postapproval conditions that the FDA believes necessary to ensure the safety
and effectiveness of the device including, among other things, restrictions on
labeling, promotion, sale and distribution. Failure to comply with the
conditions of approval can result in material adverse enforcement action,
including the loss or withdrawal of the approval. The PMA process can be
expensive and lengthy, and no assurance can be given that any PMA application
will ever be approved for marketing. Even after approval of a PMA, a new PMA
or PMA supplement is required in the event of a modification to the device,
its labeling or its manufacturing process.
The PDP process is an alternative to the PMA process for Class III devices.
It consists of two major steps. First, a proposed PDP is submitted to the FDA
providing extensive information about how the device would be developed,
tested and marketed. Among other things, the proposed PDP must provide
information describing: the device and modifications that may be made to it,
preclinical testing, clinical testing, manufacturing methods, facilities and
controls, any applicable performance standards and proposed labeling. The FDA
is required to seek advisory panel review of the proposed PDP. Approval of the
PDP requires the FDA to determine that the PDP is appropriate to determine
safety and effectiveness in lieu of the PMA process. If the FDA approves the
PDP, the second step requires submission of a notice of completion of the PDP
by the device sponsor, explaining how the PDP has been fulfilled and setting
forth the results of the testing and trials required by the PDP. If the FDA
finds that the PDP has been complied with and the device has been shown safe
and effective as labeled, the agency will issue an order declaring the PDP
completed. An order of completion permits the device to be marketed.
The PDP process has been dormant during the past twenty years. The FDA only
recently has sought to revive it as an alternative to the PMA process that
could shorten the time to approval without reducing the overall
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<PAGE>
assurance of safety and effectiveness. In light of the FDA's lack of
experience with the PDP process, there can be no assurance that the PDP
process will reduce the time to approval as compared to the PMA process, and
no assurance can be given that any PDP will be approved or, if approved, that
a notice of completion will be obtained.
The Company intends to pursue 510(k) clearance for its cardiovascular
products, which are intended for the measurement of the P-selectin antigen.
Tests for P-selectin have not been formally classified by the FDA and the
Company is not aware of any other P-selectin tests that have received 510(k)
clearance upon which to base a claim of substantial equivalence. The Company
will therefore seek to compare its tests for new analytes by demonstrating
substantial equivalence to other legally marketed Class I or II tests. In
discussions with the FDA representatives, the Company has been told that
510(k) review for the P-selectin assays is likely. However, no assurance can
be given that the FDA will not determine that the Company's cardiovascular
products must adhere to the PMA or PDP approval processes. Furthermore, no
assurance can be given that any of the cardiovascular products will receive
510(k) clearance in a timely fashion, or at all. Delays in market introduction
resulting from the 510(k) clearance process could have a material adverse
impact on the Company.
The majority of the Company's oncology products are intended for use to
monitor treatment and disease progression in cancer patients. In September of
1996, the FDA reclassified the Company's monitoring tests from class III to
Class II, which makes them eligible for the 510(k) clearance process. Products
used for diagnosis, screening or detection of cancer have not been
reclassified and remain in Class III, which requires PMA approval or PDP
completion. Some of the Company's oncology products are or could be intended
for diagnosis or detection of cancer and would, therefore, remain in Class
III. There can be no assurance that a PMA application will be submitted for
any of these products or that, once submitted, the PMA application will be
accepted for filing, found approvable, or, if found approvable, will not take
longer than expected to obtain or include unfavorable restrictions. The
Company intends to submit a PDP rather than a PMA for its CA 19-9 oncology
product for diagnosis of pancreatic cancer. The submission would be among the
first to undergo the newly revived PDP procedure. There can be no assurance
that this PDP will be approved or that, if approved, the Company will be able
to complete it in a timely fashion or at all.
The Company has made modifications to its cleared products which the Company
believes do not require the submission of new 510(k) notices. There can be no
assurance, however, that the FDA would agree with any of the Company's
determinations not to submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice for any of the
changes made to the product. If the FDA requires the Company to submit a new
510(k) notice for any product modification, the Company may be prohibited from
marketing the modified product until the 510(k) notice is cleared by the FDA.
A clinical trial in support of a 510(k) submission or PMA application
generally requires an IDE application approved in advance by the FDA for a
limited number of patients and supported by appropriate data, such as animal
and laboratory testing results. However, clinical investigations of in IVD
tests are exempt from the IDE requirements, including the need to obtain the
FDA's prior approval, provided the testing is noninvasive, does not require an
invasive sampling procedure that presents a significant risk, does not
intentionally introduce energy into the subject, and is not used as a
diagnostic procedure without confirmation by another medically established
test or procedure. In addition, the IVD must be labeled for research use only
("RUO") or investigational use only ("IUO"), and distribution controls must be
established to assure that IVDs distributed for research or clinical
investigation are used only for those purposes. The FDA's current policy
encourages manufacturers who distribute IVDs on an RUO or IUO basis
voluntarily to establish a certification program under which the recipients
provide written certification that the IUO or RUO product will be restricted
in use and also that the recipient will comply with the other FDA requirements
(such as obtaining institutional review board approval and the informed
consent of patients).
The Company is conducting investigations of its cardiovascular, ovarian
cancer detection and some of its oncology products, which involves
distributing them in the U.S. on an IUO or RUO basis. The Company has not
established a voluntary certification program. There can be no assurance that
the FDA would agree that the
32
<PAGE>
Company's IUO/RUO distribution of these products meets IDE requirements.
Failure by the Company or the recipients of these products to maintain
compliance with these requirements could result in enforcement action by the
FDA, including, among other things, the loss of the IDE exemption or other
restrictions on distribution of these investigational products that could
adversely affect the Company's ability to conduct the clinical investigations
necessary to support marketing clearance or approval.
Purchasers of the Company's clinical diagnostic products in the U.S. may be
regulated under CLIA and related federal and state regulations, which provide
for regulation of laboratory testing. These regulations impose quality
control, proficiency testing, personnel standards and federal inspections
requirements. Diagnostic tests are categorized under CLIA as "waived,"
"moderately complex," or "highly complex," on the basis of specific criteria.
If a product is placed in the "high complexity" category under CLIA
regulations, its use generally is limited to larger hospital and clinical
reference laboratories. The majority of the company's cardiovascular, ovarian
and oncology products have or likely will be categorized as high complexity
assays under CLIA. There can be no assurance that future CLIA regulations and
administrative interpretations will not further limit the potential market for
the Company's products, which could have a material adverse impact on the
Company.
Some clinical laboratories purchase individual reagents intended for
specific analytes, which they use to develop and prepare their own finished
diagnostic tests (sometimes called "home brews"). The FDA generally has not
exercised regulatory authority over these individual reagents or the finished
tests prepared from them by clinical laboratories. In March 1996, however, the
FDA proposed new rules for analyte specific reagents ("ASRs") that would apply
a regulatory framework to them, including restrictions on promotional claims
that could be made about these products and restrictions on sales to clinical
laboratories certified under CLIA as high complexity testing laboratories. The
Company sells a number of individual reagents that would fall within the ASR
regulatory framework including antibodies and antigens for all of its oncology
products.
Any devices manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA and certain state agencies. The Company is subject to routine
inspection by the FDA and must comply with the host of regulatory requirements
that usually apply to medical devices marketed in the U.S., including labeling
regulations, the QS Reg., MDR regulations, and the FDA's prohibitions against
promoting products for unapproved or "off-label" uses. In addition, Class II
devices can be subject to additional special controls (e.g., performance
standards, postmarket surveillance, patient registries, and FDA guidelines)
that do not apply to Class I devices. The Company's failure to comply with
applicable regulatory requirements could result in enforcement action by the
FDA, which could have a material adverse effect on the Company.
Unanticipated changes in existing regulatory requirements, failure of the
Company to comply with such requirements or adoption of new requirements could
have a material adverse effect on the Company. The Company also is subject to
numerous federal, state and local laws relating to such matters as safe
working conditions, manufacturing practices, environmental protection, fire
hazard control and hazardous substance disposal. There can be no assurance the
Company will not be required to incur significant costs to comply with such
laws and regulations in the future or that such laws or regulations will not
have a material adverse effect upon the Company's business, financial
condition and results of operations.
EMPLOYEES
As of September 30, 1997, the Company had approximately 130 full-time
employees engaged in administration, operations, research and development and
sales and marketing. To complement its own expertise in various fields,
Centocor Diagnostics utilizes scientific consultants and other advisors, many
of whom have formal consulting agreements with the Company.
33
<PAGE>
FACILITIES AND MANUFACTURING
The Company occupies approximately 50,000 square feet of space in three
buildings in Malvern, Pennsylvania that it leases from Centocor, Inc. These
buildings contain the Company's corporate offices, research and development
laboratories, marketing offices, and manufacturing facilities. The
manufacturing facility for the production and filling of monoclonal antibody-
based products is subject to inspection by the FDA, complies with QSR
requirements and is ISO 9001 certified. In addition to its own products, the
Company also provides contract manufacturing services to diagnostic and
pharmaceutical companies in need of this specialized capability. The Company
has approximately 60 people engaged in these manufacturing operations at
Malvern.
LEGAL PROCEEDINGS
The Company is not currently a party to any litigation that it believes
would materially affect the Company's business, financial condition or results
of operations.
34
<PAGE>
RELATIONSHIP WITH CENTOCOR, INC.
The Company is currently a wholly owned subsidiary of Centocor. Upon
completion of the offering, Centocor will own 100% of the Company's
outstanding Class B Common Stock ( shares), which will represent
approximately % of the outstanding Common Stock of the Company
(approximately % if the Underwriters' over-allotment option is exercised in
full) and approximately % of the combined voting power of the Company's
outstanding Common Stock (approximately % if the Underwriters' over-
allotment option is exercised in full) and thus will continue to have the
ability to elect all of the directors of the Company and otherwise exercise a
controlling influence over the business and affairs of the Company.
For as long as Centocor continues to own shares of Class B Common Stock
representing more than 50% of the voting power of the Common Stock of the
Company, Centocor will be able, among other things, to determine the outcome
of any corporate action requiring approval of holders of Common Stock
representing a majority of the voting power of the Common Stock, without the
consent of the other shareholders of the Company. In addition, through its
control of the Board of Directors and ownership of Class B Common Stock,
Centocor will be able to control certain decisions, including decisions with
respect to the Company's dividend policy, the Company's access to capital
(including borrowing from third party lenders and the issuance of additional
equity securities), mergers or other business combinations involving the
Company, the acquisition or disposition of assets by the Company and any
change in control of the Company.
Centocor has advised the Company that its current intent is to continue to
hold all of its outstanding shares of Class B Common Stock. Further, pursuant
to the Underwriting Agreement, Centocor has agreed, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock (or
any security convertible into or exchangeable or exercisable for Common Stock)
owned by it for a period of 180 days following the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated.
However, after such 180 day period, there can be no assurance concerning the
period of time during which time Centocor will maintain its ownership of Class
B Common Stock. Beneficial ownership of at least 80% of the total voting power
and value of the Company's outstanding stock is generally required in order
for Centocor to continue to include the Company in its consolidated group for
federal income tax purposes. Additionally, ownership of at least 80% of the
total combined voting power of all classes of the Company's outstanding voting
stock and at least 80% of the total number of shares of each class of
nonvoting stock is required in order for Centocor to be able to effect a tax-
free spin-off of the Company under the Code. See "Description of Capital
Stock--Common Stock--Conversion Rights."
The Company's relationship with Centocor will also be governed by the
following agreements which have been, or will be, entered into prior to
completion of the offering: Services Agreement, Revolving Credit Agreement,
Registration Rights Agreement, Tax Sharing Agreement and Indemnification
Agreement, the material terms of which are summarized below. Because the
Company is a wholly owned subsidiary of Centocor, none of these arrangements
will result from arm's length negotiations and, therefore, the prices charged
to the Company for services provided thereunder may be higher or lower than
prices that may be charged by third parties.
The descriptions of agreements set forth below are intended to be summaries
and, while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety by reference to the relevant
agreements filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
Services Agreement. Prior to the completion of the offering, the Company and
Centocor will enter into a Services Agreement (the "Services Agreement")
relating to the provision of certain services by Centocor to the Company. The
services covered by the Services Agreement include: facilities, information
systems, telecommunication systems, payroll and benefits administration,
insurance, financial accounting, treasury services, library services,
regulatory services and human resources services. The Services Agreement
provides that the Company shall have the right, upon sixty days prior written
notice to Centocor, to reduce the level of, or terminate, any services
provided by Centocor under the Services Agreement. This reduction or
termination right will permit the Company to seek alternative, competitive
third party sources of the services presently provided by Centocor. The
Company anticipates that in 1998 it will pay approximately $8.0 million to
Centocor for such services.
35
<PAGE>
Revolving Credit Agreement. Centocor and the Company have entered into a
Revolving Credit Agreement pursuant to which Centocor has made available to
the Company a revolving credit facility in the maximum principal amount of
$5.0 million. Outstanding principal amounts under the credit facility accrue
interest at the annual rate equal to a stated, floating prime rate plus one
percent. The initial term of the Revolving Credit Agreement expires on August
23, 1998, and is subject to extension by the mutual agreement of Centocor and
the Company, provided, however, that Centocor must provide at least sixty days
prior written notice in the event that it does not intend to extend the term
of the Revolving Credit Agreement beyond such date. The Revolving Credit
Agreement includes affirmative and negative covenants of the Company which are
customary in revolving credit facilities. As of the date of this Prospectus,
the Company has not made any borrowings under the Revolving Credit Agreement.
Registration Rights Agreement. The Company and Centocor intend to enter into
a Registration Rights Agreement to be effective upon the consummation of this
offering. The Registration Rights Agreement will provide that, upon the
request of Centocor, the Company will use its best efforts to effect the
registration under applicable federal and state securities laws of any of the
shares of Company Common Stock which Centocor intends to sell, and the Company
is required to take such other action necessary to permit the sale thereof
subject to certain limitations specified in the Registration Rights Agreement.
Centocor will also have the right, which it may exercise at any time and from
time to time, to include shares of Company Common Stock held by it in certain
other registrations of equity securities of the Company initiated by the
Company on its own behalf or on behalf of its other shareholders. The Company
will agree to pay all out-of-pocket costs and expenses in connection with each
such registration that Centocor requests or in which Centocor participates.
Subject to certain limitations specified in the Registration Rights Agreement,
such registration rights would be assignable by Centocor and its assigns.
Tax Sharing Agreement. The Company is, and after the offering may continue
to be, included in Centocor's consolidated tax group and may be included in
the consolidated, combined or unitary federal income tax return, and any state
income tax return where Centocor files a consolidated, combined or unitary
state return. Centocor and the Company intend to enter into a Tax Sharing
Agreement that will be effective upon completion of the offering. Pursuant to
the Tax Sharing Agreement for the periods in which the Company is included in
Centocor's consolidated, combined or unitary tax group, Centocor and the
Company will make payments between them such that, with respect to any period,
the amount of taxes to paid by the Company will be determined as though the
Company were to file separate federal, state and local income tax returns
(including, except as provided below, any amounts determined to be due as a
result of a redetermination of the tax liability of Centocor arising from an
audit or otherwise). The Company shall not be liable however, to make payments
to Centocor on account of federal taxable income to the extent that Centocor
has remaining NOL's to offset its tax liability. Centocor will continue to
have all the rights of a common parent of a consolidated group, will be the
sole and exclusive agent for the Company in any and all matters relating to
the income tax liability of the Company in connection with consolidated or
combined federal and state returns, will have the sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined state income tax returns and will have the power and
sole discretion to contest or compromise any asserted tax adjustment or
deficiency and to file, litigate or compromise any claim for refund on behalf
of the Company. Each member of a consolidated group for federal income tax
purposes is jointly and severally liable for the income tax liability of each
of the members of its consolidated group. Though valid as between the Company
and Centocor, the Tax Sharing Agreement is not binding on the Internal Revenue
Service and does not affect the several liability of Centocor and its
subsidiaries that are included in Centocor's consolidated group including the
Company, to the Internal Revenue Service for all federal income taxes due with
respect to Centocor's consolidated federal tax returns.
Indemnification Agreement. The Company and Centocor have entered into an
Indemnification Agreement, pursuant to which Centocor will defend, indemnify
and hold harmless the Company, its affiliates and their respective directors,
officers, employees, agents and representatives, in connection with any
claims, losses, damages, suits, actions, costs and expenses, (including
reasonable attorneys' fees and expenses) which arise out of or result from the
activities of the business presently conducted by the Company, which occurred
on or before August 22, 1997, the date on which the business was transferred
from Centocor to the Company.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company, their principal
occupations for the past five years and certain additional information are set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. James Danehy......... 52 President, Chief Executive Officer and Director
Dominic J. Caruso(2).... 40 Director and Chairman
Dr. Philip P.
Gerbino(1)(2).......... 50 Director
George D. Hobbs,
Esq.(1)................ 40 Director
Thomas A. Myers,
Esq.(1)(2)............. 45 Director
Larry D. McClain Ph.D... 51 Vice President-Research and Development
Aris Petropoulos........ 59 Vice President-Business Development and International
Paul T. Touhey.......... 40 Vice President-Operations
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Danehy has served as President and Chief Executive Officer and a
director of the Company since its formation in August 1997. From September
1994 to March 1997, Mr. Danehy served as President and Chief Executive Officer
of Ventana Medical Systems, Inc., and has served as a director of that
corporation since September 1994. From June 1994 to September 1994, Mr. Danehy
served as a consultant to Ventana Medical Systems, Inc. From November 1993 to
June 1994, Mr. Danehy served as an interim Chief Executive Officer and
consultant for BioStar Diagnostics, where he also served as a director from
January 1994 to March 1995. From 1972 to 1993, Mr. Danehy worked in a variety
of capacities for Abbott Laboratories.
Mr. Caruso has served as a director of the Company since its formation in
August 1997 and as Chairman since September 1997. Mr. Caruso has been
associated with Centocor since November 1985. Mr. Caruso has served as Vice
President-Finance and Chief Financial Officer of Centocor since December 1994.
Previously, Mr. Caruso held the position of Vice President and Corporate
Controller of Centocor from January 1991 to November 1994.
Dr. Gerbino has served as a director of the Company since September 1997.
Dr. Gerbino has served as President of Philadelphia College of Pharmacy and
Sciences since February 1995, and as a member of the faculty since 1969.
Mr. Hobbs has served as a director of the Company since its formation in
August 1997. Mr. Hobbs has been associated with Centocor since April 1987. Mr.
Hobbs has served as Vice President-Human Resources, Corporate Counsel and
Secretary of Centocor since January 1996. Previously, Mr. Hobbs held the
positions of Vice President, Corporate Counsel and Secretary from March 1993
to January 1996 and Patent Counsel from 1987 to March 1993.
Mr. Myers has served as a director of the Company since September 1997. Mr.
Myers is a partner in the law firm of Godfrey & Kahn, S.C. and has been
associated with the firm since 1980.
Dr. McClain has served as Vice President-Research and Development of the
Company since September 1997. From January 1994 to September 1997, Dr. McClain
served as Senior Director of Scientific Affairs for the Diagnostics Division
of Centocor. From January 1990 to December 1993, Dr. McClain served as
Director of Scientific Affairs for Behring Diagnostics, Inc.
Mr. Petropoulos has served as Vice President-Business Development and
International since September 1997. From August 1992 to September 1997, Mr.
Petropoulos has served in a variety of capacities for Centocor, most recently
as Vice President-Marketing and Business Development from July 1996 to
September 1997, Vice President-Diagnostic Marketing and Sales from January
1996 to June 1996, Vice President-In-Vivo
37
<PAGE>
Diagnostics from April 1994 to December 1996, Vice President-Diagnostic
Partnerships and Strategic Planning from June 1993 to April 1994 and Vice
President-Diagnostics Acting Head from August 1992 to June 1993.
Mr. Touhey has served as Vice President-Operations of the Company since
September 1997. From January 1985 to September 1997, Mr. Touhey served in a
variety of capacities for Centocor, most recently as Senior Director of
Operations for the Diagnostics Division from February 1994 to September 1997
and Director of Operations for the Diagnostics Division from September 1990 to
February 1994.
COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Audit Committee is responsible for
determining the adequacy of the Company's internal accounting and financial
controls. The Compensation Committee is responsible for reviewing matters
pertaining to the compensation of the executive officers of the Company.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company or Centocor is
compensated in the amount of $2,000 for each meeting of the Board of Directors
attended in person and $1,000 for each meeting of the Board of Directors
attended through a telephone conference call. Effective upon the consummation
of this offering, each director who is not an employee of the Company will be
granted options to purchase 15,000 shares of the Company's Class A Common
Stock with an exercise price equal to price at which shares of Class A Common
Stock are sold in this offering. Subsequently each director who is not an
employee of the Company will be granted options to purchase 15,000 shares of
the Company's Class A Common Stock upon initial election and options to
purchase 5,000 shares of the Company's Class A Common Stock upon each
subsequent election. Options are granted to the Company's directors with an
exercise price equal to the closing price of the Company's Class A Common
Stock on the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by Centocor during the
fiscal year ended December 31, 1996 to the Chief Executive Officer and to each
other executive officer of the Company whose salary and bonus exceeded
$100,000 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ----------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#) COMPENSATION ($)(1)
- --------------------------- ------------------- ---------------------- -------------------
<S> <C> <C> <C>
R. James Danehy(2)...... $ 0 0 $ 0
President and Chief
Executive Officer
Larry D. McClain........ $134,416 0 $3,764
Vice President-
Research and
Development
Aris Petropoulos........ $151,442 12,000 $4,497
Vice President-
Business Development
and International
Paul T. Touhey.......... $118,962 0 $3,330
Vice President-
Operations
</TABLE>
- --------
(1) All of such amounts constitute contributions made by Centocor to the
Centocor Qualified Savings and Retirement Plan for the accounts of the
Named Executives.
(2) Mr. Danehy became President and Chief Executive Officer of the Company in
August 1997. The Company did not have a Chief Executive Officer prior to
Mr. Danehy's appointment.
38
<PAGE>
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options during the fiscal year ended December 31, 1996 by the persons named in
the Summary Compensation Table under Centocor's 1987 Non-Qualified Stock
Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH)(/3/) DATE(/4/) 5%($) 10%($)
---- ---------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. James Danehy......... 0 -- -- -- -- --
Larry D. McClain........ 0 -- -- -- -- --
Aris Petropoulos........ 10,000(1) 1.34% $14.125 12/1/05 $ 403,652 $ 686,778
2,000(2) 0.27% $34.375 3/17/06 $ 43,236 $ 109,569
Paul T. Touhey.......... 0 -- -- -- -- --
</TABLE>
- --------
(1) Such options first become exercisable as to one-quarter of the option
shares on December 31, 1996 and on each anniversary thereafter. The
exercisability of all of the options will accelerate upon the occurrence
of certain events constituting a change in control of Centocor.
(2) Such options first become exercisable as to one-quarter of the option
shares on March 17, 1997 and on each anniversary thereafter. The
exercisability of all the options will accelerate upon the occurrence of
certain events constituting a change in control of Centocor.
(3) The price payable upon exercise of options may be paid in cash, property,
services rendered, or, under certain circumstances, in shares of
Centocor's Common Stock having a fair market value equal on the date of
exercise to the exercise price, or any combination thereof.
(4) Each of the options generally expires upon the earlier of six months after
the employee's termination of employment or the expiration date noted
above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides certain information with respect to options
exercised during the fiscal year ended December 31, 1996 by the persons named
in the Summary Compensation Table under the Centocor 1987 Non-Qualified Stock
Option Plan. The table also represents information as to the number of options
outstanding as of December 31, 1996 with respect to options granted pursuant
to the Centocor 1987 Non-Qualified Stock Option Plan.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS OF YEAR-END(#) OPTIONS AT YEAR-END ($)
------------------------- -------------------------
NUMBER
OF SHARES VALUE
NAME EXERCISED (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. James Danehy(1)...... -- -- -- -- -- --
Larry D. McClain........ 1,750 $ 44,188 2,000 5,750 $ 50,250 $ 137,969
Aris Petropoulos........ 40,000 $1,125,813 28,024 14,875 $777,935 $ 296,295
Paul T. Touhey.......... 7,796 $ 96,695 0 5,813 0 $ 127,335
</TABLE>
- --------
(1) Mr. Danehy became President and Chief Executive Officer of the Company in
August 1997. The Company did not have a Chief Executive Officer prior to
Mr. Danehy's appointment.
39
<PAGE>
EMPLOYMENT AGREEMENTS
Pursuant to a Letter Agreement dated July 21, 1997, and accepted July 22,
1997, Mr. Danehy is entitled to receive an annual base salary of $275,000,
subject to annual review. Mr. Danehy is also eligible to receive a cash bonus
in the first quarter of 1999 equal to no more than 20% of his base salary in
1998 with the maximum allowable bonus payable in the first quarter of each
subsequent year increasing by 10% annually for three years. The amount of the
bonus will vary from year to year based upon the overall performance of the
Company and individual objectives mutually agreed upon by Mr. Danehy and the
Company's Board of Directors. Mr. Danehy is entitled to be reimbursed for
temporary living and commuting expenses up to a maximum of $3,500 per month
for a period of no more than 30 months from his initial date of employment.
Under the Letter Agreement, Mr. Danehy will also be awarded stock options
under the Company's Employee Non-Qualified Stock Option Plan to purchase the
number of shares of Class A Common Stock equal to 5% of the outstanding
capital stock of the Company following this offering. In the event of
termination by the Company of his employment for any reason, except willful
failure to perform or dishonest conduct, the Company will be obligated to pay
Mr. Danehy's base salary on a bi-weekly basis for up to twelve months or until
such time that Mr. Danehy obtains similar employment, whichever time period is
shorter.
EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN
Under the Company's Employee Non-Qualified Stock Option Plan (the "Employee
Plan"), options to purchase shares of Common Stock of the Company may be
granted to employees of the Company as determined by the Compensation
Committee of the Company's Board of Directors. Under the Employee Plan, the
Company may grant options for up to an aggregate of shares of Class A
Common Stock at an exercise price of not less than 100% of the fair market
value per share of the Company's Class A Common Stock on the date of grant.
Under the Employee Plan, the options vest with respect to 25% of the options
granted on the anniversary of the date of grant and the remaining options vest
at the rate of 2.1% per month provided the employee continues to be employed
by the Company. Options generally will expire ten years from the date of grant
if not exercised. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation will cause
each outstanding option to terminate, provided that each optionee, in such
event, will have the right immediately prior to said dissolution or
liquidation or merger or consolidation to exercise his option in whole or in
part without regard to any installment vesting provisions with respect to such
options. All options granted to executive officers will be granted in tandem
with limited stock appreciation rights ("LSARs"). LSARs may be exercised only
upon the occurrence of certain events constituting a change in control of
Centocor, only during the 30-day period following shareholder approval of any
such event (but may not in any event be exercised for six months after the
date of grant of the LSAR), and will be exercisable only if and to the extent
that the options to which they relate are exercisable. For each share for
which an LSAR is exercised, the optionee will receive an amount in cash equal
to the difference between (1) the exercise price per share of the option to
which the LSAR relates and (2) the fair market value per share of the Common
Stock issuable upon exercise of the option on the date the LSAR is exercised.
NON-EMPLOYEE DIRECTORS NON-QUALIFIED STOCK OPTION PLAN
Under the Company's Directors' Non-Qualified Stock Option Plan (the
"Directors' Plan"), options to purchase shares of Common Stock of the Company
may be granted to directors who are not employees of the Company for a period
of at least one year prior to the date of grant. Under the Directors' Plan,
the Company may grant options for up to an aggregate of shares of Class A
Common Stock at an exercise price of not less than 100% of the fair market
value per share of the Company's Class A Common Stock on the date of grant.
Under the Directors' Plan, the options vest with respect to 25% of the options
granted on the anniversary of the date of grant and the remaining options vest
at the rate of 2.1% per month provided the director continues to be a director
of the Company. Options generally will expire ten years from the date of grant
if not exercised. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation will cause
each outstanding option to terminate, provided that each optionee, in such
event, will have the right immediately prior to said dissolution or
liquidation or merger or consolidation to exercise his option in whole or in
part without regard to any installment vesting provisions with respect to such
options.
40
<PAGE>
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS
The following table sets forth, as of October 13, 1997, the number of shares
and percentage of Centocor's Common Stock beneficially owned by each Named
Executive and all Named Executives as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED(/1/)
-----------------------
<S> <C>
R. James Danehy......................................... 0
Larry D. McClain........................................ 1,909
Aris Petropoulos........................................ 36,837
Paul T. Touhey.......................................... 131
All Named Executives as a group......................... 38,877
</TABLE>
- --------
(1) Includes shares which the individual named in the table has the right to
acquire, on or before December 12, 1997, through the vesting of awards
under Centocor's 1983 Restricted Common Stock Award Plan (the "1983 Award
Plan") or the exercise of stock options pursuant to individual agreements
under Centocor's 1987 Non-Qualified Stock Option Plan or 1989 Non-Employee
Directors' Non-Qualified Stock Option Plan, as follows: Larry D. McClain--
1,000; Aris Petropoulos--34,399; Paul T. Touhey--0; and all Named
Executives as a group--35,399.
PRINCIPAL SHAREHOLDER
Prior to this offering, the only shareholder of the Company is Centocor. As
of the date of this Prospectus, Centocor owns beneficially and of record
shares of Class B Common Stock, representing all of the shares of Common Stock
Outstanding prior to this offering. Upon completion of this offering, Centocor
will own beneficially and of record shares, or approximately % of the
outstanding Common Stock ( % if the Underwriters exercise their over-
allotment option in full). Centocor will therefore be able, acting alone, to
elect the entire Board of Directors of the Company and to control the vote on
matters submitted to a vote of the Company's shareholders. Except as described
above, the Company is not aware of any person or group that will beneficially
own more than 5% of the outstanding shares of Common Stock following this
offering.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of shares of Common
Stock, par value $.01 per share, of which (i) shares are designated as
Class A Common Stock, (ii) shares are designated as Class B Common Stock
and (iii) shares are not designated by the Company's Articles of
Incorporation but are subject to designation as to class, series, rights,
limitations, and special rights, if any, by the Company's Board of Directors
prior to issuance. Of the shares of Common Stock designated as Class A
Common Stock, shares are being offered hereby. Of the shares of Common
Stock designated as Class B Common Stock, shares are outstanding and are
held by Centocor. A description of the material terms and provisions of the
Company's Articles of Incorporation, as amended and restated, affecting the
relative rights of the Class A Common Stock and the Class B Common Stock is
set forth below. This description is intended as a summary and is qualified in
its entirety by reference to the form of the Company's Amended and Restated
Articles of Incorporation filed with the Registration Statement of which this
Prospectus forms a part.
COMMON STOCK
Voting rights. The holders of Class A Common Stock and Class B Common Stock
generally have identical rights except that holders of Class A Common Stock
are entitled to one vote per share while holders of Class B Common Stock are
entitled to 10 votes per share on all matters to be voted on by shareholders.
Holders of shares of Class A Common Stock and Class B Common Stock are not
entitled to cumulate their votes in the election of directors and have no
preemptive rights. Generally, all matters to be voted on by shareholders must
be approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of Class A Common
Stock and Class B Common Stock present in person or represented by proxy,
voting together as a single class.
Dividends and Stock Splits. Holders of Class A Common Stock and Class B
Common Stock will share ratably in any dividend declared by the Board of
Directors. Dividends consisting of shares of Class A Common Stock and Class B
Common Stock may be paid only as follows: shares of Class A Common Stock may
be paid only to holders of shares of Class A Common Stock, and shares of Class
B Common Stock may be paid only to holders of Class B Common Stock. The
Company may not split, divide or combine the shares of either class of Common
Stock without at the same time splitting, dividing or combining the shares of
the other Class of Common Stock in the same proportion and manner.
Conversion. Each share of Class B Common Stock is convertible while held by
Centocor or any of its subsidiaries at such holder's option into one share of
Class A Common Stock. Any shares of Class B Common Stock transferred to a
person other than Centocor or any of its subsidiaries shall automatically
convert to shares of Class A Common Stock, on a one-for-one basis, upon such
disposition, except for a disposition effected in connection with a transfer
of Class B Common Stock to shareholders of Centocor as a dividend intended to
be on a tax-free basis under the Code (a "Tax-Free Spin-Off"). In the event of
a Tax-Free Spin-Off, shares of Class B Common Stock shall automatically
convert into shares of Class A Common Stock on the fifth anniversary of the
Tax-Free Spin-Off unless prior to such Tax-Free Spin-Off Centocor delivers to
the Company an opinion of counsel (which counsel shall be reasonably
satisfactory to the Company) to the effect that such conversion would preclude
Centocor from obtaining a favorable ruling from the Internal Revenue Service
that the distribution would be a Tax-Free Spin-Off under the Code. If such an
opinion is received, approval of such conversion shall be submitted to a vote
of the holders of the Common Stock as soon as practicable after the fifth
anniversary of the Tax-Free Spin-Off unless Centocor delivers to the Company
an opinion of Centocor's counsel (which counsel shall be reasonably
satisfactory to the Company) prior to such anniversary that such vote would
adversely effect the status of the Tax-Free Spin-Off. Approval of such
conversion will require the affirmative vote of the holders of a majority of
the shares of both the Class A Common Stock and Class B Common Stock present
and voting, voting together as a single class with each share entitled to one
vote for such purpose.
All shares of Class B Common Stock shall automatically convert into Class A
Common Stock if a Tax-Free Spin-Off has not occurred and the number of
outstanding shares of Class B Common Stock falls below a majority
42
<PAGE>
of the aggregate number of outstanding shares of Common Stock. This will
prevent Centocor from decreasing its economic interest in the Company to less
than a majority while still retaining voting control. Such conversion will be
effected on a share-for-share basis. In addition, in order to give any holder
of the Class A Common Stock or Class B Common Stock the right to participate
in any offer for a significant amount of the shares of the other class that is
not similarly offered for the shares of such holder's class, following a Tax-
Free Spin-Off, shares of Common Stock of each class will be convertible, at
the option of the holder thereof, on a share-for-share basis, into shares of
the other class if any person (other than Centocor or any of its
subsidiaries), agreeing to act together for the purpose of acquiring, holding,
voting or disposing of shares of Common Stock, makes an offer, which the board
of directors deems to be a bona fide offer, to purchase 5% or more of other
class of Common Stock for cash and/or other securities or property without
making a similar offer for the shares of such class. The shares of Common
Stock of a class may only be so converted during the period in which the bona
fide offer is in effect. Any share of Common Stock so converted and not
acquired by the offeror prior to the termination of the offer will
automatically reconvert to a share of the class from which it was converted
upon such termination.
Other Rights. In the event of any merger or consolidation of the Company
with or into another company, all holders of Common Stock, regardless of
class, will be entitled to receive the same kind and amount of shares of stock
and other securities and property (including cash). On liquidation,
dissolution or winding up of the Corporation, all holders of Common Stock,
regardless of class, are entitled to share ratably in any assets available for
distribution to holders of shares of Common Stock. No shares of either class
of Common Stock are subject to redemption or subscription rights.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is BankBoston, N.A.
c/o Boston Equiserve. Its address for such purposes is Shareholder Services,
P.O. Box 8040, Boston, Massachusetts 02266-8040, and its telephone number at
that address is (617) 575-3120.
CERTAIN ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
The Articles of Incorporation and Bylaws of the Company contain certain
provisions that may enhance the likelihood of continuity and stability in the
composition of the Board of Directors and may discourage a future unsolicited
takeover of the Company. These provisions could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management, including incumbent members of the Board of Directors, even if
some or a majority of the Company's shareholders deem such an attempt to be in
their best interests.
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to shares of capital stock and to determine the
price, rights, preferences, privileges and restrictions, including voting
rights of such shares, without any further vote or action by the Company's
shareholders. Such charter provisions could have the effect of delaying or
preventing a change of control of the Company. The rights of the holders of
Common Stock may be subject to, and may be adversely affected by, the rights
of the holders of any capital stock that may be issued in the future. The
issuance of any such shares of capital stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of the outstanding voting stock of the Company. The
Company has no current plans to issue any shares of such capital stock.
The Company's Articles of Incorporation, as amended and restated, or Bylaws,
as applicable, among other things (i) provide that the number of directors
will determined from time to time by the Board of Directors through a
resolution adopted by a majority of the Board of Directors, (ii) permit
vacancies on the Board of Directors that may occur between annual meetings and
newly created seats to be filled only by the Board of Directors and not by the
shareholders, (iii) do not permit the shareholders to call special meetings of
shareholders, (iv) provide that the Board of Directors, without action by the
shareholders, may issue and fix the rights and preferences of shares of new
classes or series of the Company's capital stock, and (v) permit
43
<PAGE>
shareholder action, without a meeting, upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote on such action were present and voting without
prior notice to the remaining shareholders. These provisions may have the
effect of delaying, deferring or preventing a change of control of the Company
without further action by the shareholders, may discourage bids for the Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of, and the voting or other rights of the holders of,
the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The shares of Class A Common Stock sold in the offering ( shares if
the Underwriters exercise their over-allotment option in full) will be freely
tradable without restriction under the Securities Act, except for any such
shares which may be acquired by an affiliate of the Company (an "Affiliate"),
as that term is defined in Rule 144 promulgated under the Securities Act
("Rule 144"). Persons who may be deemed to be Affiliates generally include
individuals or entities that control, are controlled by, or are under common
control with, the Company and may include directors and certain officers of
the Company as well as significant shareholders of the Company, if any.
Persons who are Affiliates will be permitted to sell the shares of Class A
Common Stock that are issued in this offering only pursuant to an effective
registration statement under the Act or an exemption from the registration
requirements of the Securities Act, including exemptions provided by Rule 144.
The shares of Class A Common Stock held by Centocor are deemed "restricted
securities" as defined in Rule 144, and may not be sold other than through
registration under the Securities Act or pursuant to an exemption from the
regulations thereunder, including exceptions provided by Rule 144. The
Company, Centocor and certain other persons have agreed not to offer or sell
any shares of Common Stock, subject to certain exceptions, for a period of 180
days after the date of this Prospectus, without the prior written consent of
Morgan Stanley & Co. Incorporated. See "Underwriters."
44
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below have severally agreed to purchase, and the Company
has agreed to sell to them, severally, the respective numbers of shares of
Class A Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated................................
Credit Suisse First Boston Corporation...........................
----
Total........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the Underwriters' over-allotment option described
below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price which represents
a concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to other Underwriters or to certain dealers. After
the initial offering of the shares of Class A Common Stock, the offering price
and other selling terms may from time to time be varied by the Underwriters.
Application has been made to list the Class A Common Stock for quotation on
the Nasdaq National Market System under the symbol "CNDX."
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to additional
shares of Class A Common Stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The
Underwriters may exercise such option to purchase solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of Class A Common Stock offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Class A Common Stock
offered by the Underwriters in the offering.
Centocor, the Company and the Company's executive officers, directors and
shareholders have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, they will not (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer
or dispose of, directly or indirectly, any shares of Class A Common Stock or
any securities convertible into or exercisable or exchangeable for Class A
Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of Class A Common Stock, whether any such transaction described in clause (i)
or (ii) of above is to be settled by delivery of Class A Common Stock or other
securities, in cash or otherwise, for a
45
<PAGE>
period of 180 days after the date of this Prospectus, other than the shares of
Class A Common Stock offered hereby.
At the request of the Company, the Underwriters have reserved for sale at
the initial offering price up to shares of Class A Common Stock offered
hereby for officers, directors, employees and certain other persons associated
with the Company. The number of shares available for sale to the general
public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A Common Stock offered by them.
The Company, Centocor and the Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
In order to facilitate the offering of the Class A Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Common Stock. Specifically, the Underwriters
may overallot in connection with the offering, creating a short position in
the Class A Common Stock for their own account. In addition, to cover
overallotments or to stabilize the price of the Common Stock, the Underwriters
may bid for, and purchase, shares of Class A Common Stock in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to
an underwriter or a dealer for distributing the Class A Common Stock in the
offering, if the syndicate repurchases previously distributed Class A Common
Stock in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Class A Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
any of these activities at any time.
From time to time, each of Morgan Stanley & Co. Incorporated and Credit
Suisse First Boston Corporation have provided certain financial advisory
services to Centocor.
PRICE OF THE OFFERING
Prior to this offering, there has been no public market for the Class A
Common Stock. The initial public offering price for the Class A Common Stock
was determined by negotiations between the Company and the Underwriters. Among
the factors considered in determining the initial public offering price were
the revenues, earnings and certain other pro forma financial and operating
information of the Company in recent periods, the future prospects of the
Company and its industry in general, and certain ratios and market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of the Company.
46
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for the Company by Duane, Morris & Heckscher LLP, One Liberty Place,
Philadelphia, Pennsylvania 19103-7396. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017. Richard D.
Spizzirri, a director of Centocor, is Senior Counsel to the firm of Davis Polk
& Wardwell and owns 92,444 shares of Common Stock of Centocor.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement") under the Securities Act with respect
to the Class A Common Stock offered hereby. This Prospectus, which forms a
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement, certain parts of which have been omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Class A Common Stock offered
hereby, reference is made to the Registration Statement. Statements contained
in this Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete, and, in each instance, reference is
made to the copy of the document filed as an exhibit to the Registration
Statement. The Registration Statement can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549; and at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, NY
10048 and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Commission at prescribed
rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, copies of such material may be accessed
electronically by means of the SEC's home page on the Internet at
http://www.sec.gov.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934 (the "1934 Act"). As a result of the
Offering, the Company will become subject to the informational requirements of
the 1934 Act. The Company will fulfill its obligations with respect to such
requirements by filing periodic reports and other information with the
Commission. In addition, the Company intends to furnish to its shareholders
annual reports containing consolidated financial statements examined by an
independent public accounting firm.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CENTOCOR DIAGNOSTICS, INC.
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and Septem-
ber 30, 1997 (unaudited)................................................ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996 and the Nine-Month Periods Ended September 30, 1996
and 1997 (unaudited).................................................... F-4
Consolidated Statements of Shareholder's Equity for the Years Ended De-
cember 31, 1994, 1995 and 1996 and the Nine-Month Period Ended September
30, 1997 (unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and the Nine-Month Periods Ended September 30, 1996
and 1997 (unaudited).................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
When the events referred to in Note 12 of the Notes to the consolidated
financial statements have been consummated, we will be in a position to render
the following report.
/s/ KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Centocor Diagnostics, Inc.:
We have audited the accompanying consolidated balance sheets of Centocor
Diagnostics, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, cash flows and shareholder's
equity for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Centocor
Diagnostics, Inc., and subsidiaries as of December 31, 1995 and 1996 and the
results of their operations and cash flows for each of the years in the three-
year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Philadelphia, Pennsylvania
October 13, 1997, except for
Note 12 which is as of
, 1997
F-2
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ -- $ -- $ 3,670
Accounts and contracts receivable............. 9,234 7,907 10,184
Inventory (Note 4)............................ 5,049 3,846 5,420
Prepaid expenses.............................. 63 62 66
Deferred offering costs....................... -- -- 198
------- ------- -------
Total current assets......................... 14,346 11,815 19,538
Equipment and furniture:
Equipment, furniture, and fixtures............ 5,285 5,214 5,840
Less accumulated depreciation................. (3,008) (3,666) (4,055)
------- ------- -------
Net equipment and furniture.................. 2,277 1,548 1,785
Long-term investments (Note 6)................. -- 820 10,061
Intangible and other assets, net (Note 5)...... 2,479 1,481 1,332
Deferred income taxes, net (Note 10)........... -- 1,631 2,144
------- ------- -------
Total assets................................. $19,102 $17,295 $34,860
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable.............................. $ 882 $ 601 $ 631
Accrued expenses (Note 7)..................... 2,714 3,530 4,574
------- ------- -------
Total current liabilities.................... 3,596 4,131 5,205
------- ------- -------
Other long-term liabilities.................... 127 100 --
Due to Parent.................................. -- -- 990
------- ------- -------
Total liabilities............................ 3,723 4,231 6,195
------- ------- -------
Shareholder's Equity (Note 1):
Common stock, par value $.01 per share.
Authorized 50,000,000 shares; 12,000,000
issued and outstanding at September 30, 1997. -- -- 120
Additional paid-in capital.................... 8,752 13,974 18,398
Unrealized gain on marketable security........ -- -- 9,218
Retained earnings (deficit)................... 6,627 (910) 929
------- ------- -------
Total shareholder's equity................... 15,379 13,064 28,665
------- ------- -------
Total liabilities and shareholder's equity... $19,102 $17,295 $34,860
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ---------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales.............................. $ 36,325 $ 40,208 $ 37,611 $28,574 $24,191
Contracts.......................... 808 2,040 2,481 1,103 3,446
-------- -------- -------- ------- -------
37,133 42,248 40,092 29,677 27,637
-------- -------- -------- ------- -------
Costs and expenses:
Cost of sales...................... 12,505 13,479 13,458 10,329 8,221
Research and development........... 6,531 5,336 7,758 5,446 5,737
Marketing, general and
administrative.................... 9,961 10,356 10,162 7,506 8,773
-------- -------- -------- ------- -------
28,997 29,171 31,378 23,281 22,731
-------- -------- -------- ------- -------
Income before income taxes.......... 8,136 13,077 8,714 6,396 4,906
Provision for income taxes.......... 3,487 5,392 3,464 2,635 2,031
-------- -------- -------- ------- -------
Net income.......................... $ 4,649 $ 7,685 $ 5,250 $ 3,761 $ 2,875
======== ======== ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL GAIN ON TOTAL
COMMON PAID IN MARKETABLE RETAINED SHAREHOLDER'S
STOCK CAPITAL SECURITIES EARNINGS EQUITY
------ ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993..................... $-- $ -- $ -- $ 17,647 $ 17,647
Net income................ -- -- -- 4,649 4,649
Income tax forgiven by
Parent................... -- 3,475 -- -- 3,475
Distribution to Parent.... -- -- -- (12,395) (12,395)
---- ------- ------ -------- --------
Balance at December 31,
1994..................... -- 3,475 -- 9,901 13,376
Net income................ -- -- -- 7,685 7,685
Income tax forgiven by
Parent................... -- 5,277 -- -- 5,277
Distribution to Parent.... -- -- -- (10,959) (10,959)
---- ------- ------ -------- --------
Balance at December 31,
1995..................... -- 8,752 -- 6,627 15,379
Net income................ -- -- -- 5,250 5,250
Income tax forgiven by
Parent................... -- 5,222 -- -- 5,222
Distribution to Parent.... -- -- -- (12,787) (12,787)
---- ------- ------ -------- --------
Balance at December 31,
1996..................... -- 13,974 -- (910) 13,064
Net income (unaudited).... -- -- -- 2,875 2,875
Issuance of common stock
to Parent (unaudited).... 120 -- -- -- 120
Capital contribution by
Parent (unaudited)....... -- 1,880 -- -- 1,880
Income tax forgiven by
Parent (unaudited)....... -- 2,544 -- -- 2,544
Unrealized gain on market-
able securities
(unaudited).............. -- -- 9,218 -- 9,218
Distribution to Parent
(unaudited).............. -- -- -- (1,036) (1,036)
---- ------- ------ -------- --------
Balance at September 30,
1997 (unaudited)......... $120 $18,398 $9,218 $ 929 $ 28,665
==== ======= ====== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ---------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 4,649 $ 7,685 $ 5,250 $ 3,761 $2,875
Adjustments to reconcile net
income to net cash provided by
operating activities:
Net loss on disposal of fixed
assets....................... -- 219 21 -- --
Write off of intangibles -- -- 307 -- --
Depreciation and amortization. 879 1,002 902 674 542
Deferred income taxes......... 12 115 (1,758) (1,487) (513)
Changes in assets and
liabilities:
Accounts and contracts re-
ceivable.................... 3,768 (3,210) 1,327 2,240 (2,277)
Inventory.................... (882) 1,264 1,203 978 (1,574)
Prepaid expenses............. 2 3 1 1 (4)
Deferred offering costs...... 1 -- -- -- (198)
Intangible and other assets.. 1,072 (233) 482 745 (27)
Accounts payable............. (675) 90 (281) (306) 30
Accrued expenses............. 366 88 816 375 1,044
Due to Parent................ -- -- -- -- 990
Other long-term liabilities.. -- -- 100 -- (100)
-------- -------- -------- ------- ------
Net cash provided by operating
activities................... 9,192 7,023 8,370 6,981 788
-------- -------- -------- ------- ------
Cash flows from investing
activities:
Purchases of fixed assets...... (272) (1,341) 15 (228) (626)
Purchase of long-term
investments................... -- -- (820) (770) --
-------- -------- -------- ------- ------
Net cash used for investing
activities.................... (272) (1,341) (805) (998) (626)
-------- -------- -------- ------- ------
Cash flows from financing
activities:
Distribution to Parent......... (12,395) (10,959) (12,787) (10,105) (1,036)
Income tax forgiven by Parent.. 3,475 5,277 5,222 4,122 2,544
Issuance of common stock to
Parent........................ -- -- -- -- 120
Investments by Parent.......... -- -- -- -- 1,880
-------- -------- -------- ------- ------
Net cash provided by (used for)
financing activities........... (8,920) (5,682) (7,565) (5,983) 3,508
-------- -------- -------- ------- ------
Net increase in cash and cash
equivalents.................... -- -- -- -- 3,670
Beginning cash and cash
equivalents.................... -- -- -- -- --
-------- -------- -------- ------- ------
Ending cash and cash
equivalents.................... $ -- $ -- $ -- $ -- $3,670
======== ======== ======== ======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Centocor Diagnostics develops, manufactures and sells diagnostic human
health care products based primarily upon monoclonal antibody technologies.
The Company's products and product candidates focus primarily on oncology and
cardiovascular diseases. The Company is a leading provider of IVD tests,
components and reagents to monitor the efficacy of cancer therapies, primarily
in patients with breast, ovarian or pancreatic cancer.
Prior to the Company's formation as a Pennsylvania corporation on August 22,
1997, it operated as a division of Centocor, Inc. ("Centocor"). On August 22,
1997, the assets and liabilities of the division were contributed to the
Company, which is a wholly-owned subsidiary of Centocor in exchange for all
common shares, par value $.01 per share. The transaction was accounted for as
a reorganization of entities under common control and, accordingly, the assets
and liabilities were recorded at their historical book value.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements include the accounts of Centocor
Diagnostics as a division of Centocor through August 22, 1997 and as Centocor
Diagnostics, Inc. and subsidiaries thereafter. All significant intercompany
balances and transactions have been eliminated in consolidation.
Significant management assumptions were made in allocating costs from
Centocor in order to present the balance sheets and statements of operations.
Management of the Company believes that such costs have been reasonably
allocated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventory
Inventory is stated at the lower of cost or market value using the first-in,
first-out method. Inventories have various expiration dates. Valuation
adjustments are provided for inventories which are likely to expire prior to
sales or likely to otherwise not be available for sale.
Equipment and Furniture
Equipment and furniture and fixtures are stated at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets, which range from 3 to 5 years.
Intangible and Other Assets
Intangible and other assets are stated at cost, net of accumulated
amortization. Amortization is provided using either the straight-line method
or more applicable methods over the estimated useful lives, generally 3 to 20
years. Licensing agreements and other assets are reviewed for impairment
whenever events or circumstances provide evidence that suggest that the
carrying amount of the asset may not be recoverable. Impairment is evaluated
by using undiscounted identified or expected cash flows.
Revenue Recognition
Sales revenues for completed kits and components are recognized when goods
are shipped. For certain bulk reagents, sale revenues are recognized upon
shipment of product to the final end user.
F-7
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenues associated with research and development or commercialization
agreements are recognized when they are earned in accordance with the
applicable performance requirements and other contractual terms. Payments
received which are related to the performance of future services are deferred
and recognized as revenue over the ensuing period in which the service is
rendered.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes ("SFAS
109"). The provision for Federal and State income taxes is calculated as if
the Company were a stand-alone corporation filing separate returns. Deferred
income taxes are recognized based upon future income tax effects (using
enacted tax laws and rates) of differences in the carrying amounts of assets
and liabilities for financial reporting and tax purposes. A valuation
allowance is recognized if it is more likely than not that some or all of a
deferred tax asset will not be realized.
Cash and Cash Equivalents
Cash and cash equivalents consist of amounts held as bank deposits and
marketable securities with a maturity of three months or less.
Fair Value of Financial Instruments
Cash and cash equivalents, accounts and contracts receivable, prepaid
expenses, other current assets, accounts payable, and accrued expenses
reported in the consolidated balance sheets equal or approximate fair value
due to their short maturities.
NOTE 3--COMMITMENTS AND CONTINGENCIES
Liquidity and Capital Resources
The Company has incurred significant operating expenses developing,
manufacturing and marketing diagnostic products.
The Company's future financial condition is dependent upon the Company's
rate of net cash outflows and levels of diagnostic product sales. For the year
ended December 31, 1996, sales of the Company's products generated sufficient
revenue to result in positive cash flow for the year. The level of future
sales of diagnostic products and services will be dependent upon several
factors, including, but not limited to, the development of instrumentation
technologies by a third party, the timing and extent of future regulatory
approvals of the Company's products, approval and commercialization of
competitive products and the degree of acceptance of the Company's products in
the marketplace. There can be no assurance that the U.S. Food and Drug
Administration (FDA) or other regulatory approvals expanding the authorized
use of, or permitting the commercial sale of any of the Company's product
candidates under development will be obtained. Failure to obtain additional
timely FDA or other regulatory approvals for the use of product candidates
will have a material adverse effect on the Company.
Royalties
The Company has entered into agreements to support research at certain
research institutions. These agreements, which grant the Company licenses
and/or options to license certain technology resulting from the research,
generally require the Company to pay royalties to such institutions on the
sales of any products that utilize the licensed technology. Further, the
Company has licenses under certain patents, patent applications and technology
and pays the licensors or their licensees royalties under such agreements.
All royalties are reflected in cost of sales as incurred. Royalty costs
represent a significant percentage of cost of sales.
F-8
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Product Liability
The testing and marketing of medical products entails an inherent risk of
product liability. The Company maintains limited product liability insurance
coverage through Centocor. Centocor Diagnostics' business may be materially
adversely affected by a successful product liability claim in excess of any
insurance coverage. There can be no assurance that product liability insurance
coverage will continue to be available to Centocor Diagnostics in the future
on reasonable terms or at all.
NOTE 4--INVENTORY
Inventory, net of valuation adjustments, consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................. $1,605 $1,373 $1,695
Work in process................................ 2,944 1,486 2,748
Finished goods................................. 500 987 977
------ ------ ------
$5,049 $3,846 $5,420
====== ====== ======
</TABLE>
Inventories have various expiration dates. The Company continually evaluates
the extent of inventory reserves considered necessary based upon the future
regulatory and commercial status of such products. There can be no assurance
that additional valuation adjustments for inventories will not be required in
the future.
NOTE 5--INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following, net of accumulated
amortization of $1,424,000 and $2,077,109 and $1,915,273 at December 31, 1995
and 1996, and September 30, 1997, respectively, (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid license fees........................... $1,436 $1,012 $1,171
Long term portion of contract receivables...... 925 333 --
Other.......................................... 118 136 161
------ ------ ------
$2,479 $1,481 $1,332
====== ====== ======
</TABLE>
NOTE 6--INVESTMENTS
In 1996, in compensation for its prior research and commercialization
efforts and the exchange of a commercialization license the Company received
an 8.8% ownership (7.8% on a fully diluted basis) interest in Chromavision.
The Company's historical basis in this investment is $770,000 and it is valued
at $9,988,000 as of September 30, 1997 (unaudited) and is classified as
available for sale with unrealized gains and losses recorded as a component of
shareholder's equity. Under an agreement with Chromavision's underwriters, the
Company has agreed that it will not sell or otherwise dispose of any
Chromavision stock until after a period of 180 days that commenced on August
5, 1997 (the effective date of the Chromavision offering), without the prior
consent of the Chromavision underwriters.
F-9
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Compensation................................... $ 469 $1,257 $2,093
Royalties...................................... 1,082 944 952
Clinical....................................... 148 260 570
Marketing...................................... 340 271 238
Reserve for customer claims.................... 552 629 655
Other.......................................... 123 169 66
------ ------ ------
$2,714 $3,530 $4,574
====== ====== ======
</TABLE>
Revolving Credit Agreement
On August 22, 1997 the Company entered into a revolving credit agreement
with Centocor, Inc., for a maximum principal amount of $5,000,000, which may
be used by the Company for working capital purposes. As of September 30, 1997
the Company has not utilized the revolving credit with Centocor, Inc. Interest
accrues on any outstanding loans under the revolving credit agreement at the
Prime Rate (as defined in the Revolving Credit Agreement) plus one percent.
The Company may make payments and prepayments in whole or in part without
penalty at any time.
F-10
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--GEOGRAPHIC AND CUSTOMER INFORMATION
GEOGRAPHIC INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, REVENUES
------------------------ --------
<S> <C>
1994
United States................................................... $ 6,026
Europe.......................................................... 21,188
Japan........................................................... 9,919
--------
$ 37,133
========
1995
United States................................................... $ 12,271
Europe.......................................................... 20,286
Japan........................................................... 9,691
--------
$ 42,248
========
1996
United States................................................... $ 6,847
Europe.......................................................... 23,941
Japan........................................................... 9,304
--------
$ 40,092
========
Nine months ended September 30, 1997 (unaudited)
United States................................................... $ 6,457
Europe.......................................................... 14,703
Japan........................................................... 6,477
--------
$ 27,637
========
</TABLE>
Revenues from unaffiliated customers is based on the location of the
customers. The Company's operations are conducted solely in the U.S.
Customer Information
During 1996, approximately 70% of the Company's total product sales were to
four customers, as follows: 25% to Toray-Fuji Bionics, 19% to Boehringer
Mannheim GmbH, 14% to Abbott Laboratories, and 12% to CIS bio International.
During 1995, approximately 65% of the Company's total product sales were to
four customers, as follows: 15% to Abbott Laboratories, 15% to Boehringer
Mannheim GmbH, 11% to CIS bio International and 24% Toray-Fuji Bionics, Inc.
During 1994, approximately 67% of the Company's total product sales were to
four customers, as follows: 12% to Abbott Laboratories, 14% to Boehringer
Mannheim GmbH, 14% to CIS bio International and 27% to Toray-Fuji Bionics,
Inc.
NOTE 9--CONTRACT REVENUES
The Company has entered into various commercialization agreements under
which it has recognized revenues from non-refundable fees or milestone
payments in support of its research and development efforts. Revenues recorded
under these agreements amounted to $808,000, $2,040,000 and $2,481,000 for the
years ended December 31, 1994, 1995 and 1996, respectively, and $1,103,000 and
$3,446,000 for the nine months ended September 30, 1996 and 1997,
respectively.
F-11
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES
The Company is a member of a consolidated group having significant Federal
net operating loss carryforwards. To the extent the Company generates taxable
book earnings on a separate company basis, if any, it will record a tax
provision in accordance with SFAS 109.
Under a tax sharing agreement to be entered into between Centocor and the
Company, the Company will make no payments to Centocor for its use, if any, of
the consolidated group's U.S. Federal income tax net operating loss and tax
credit carryforwards. (See Note 11--Related Party Transactions) The extent to
which the Company's future Federal income tax liability will continue to be
sheltered by Centocor's net operating loss carryforward is dependent upon the
rate at which Centocor's consolidated group generates future taxable earnings,
if any. To the extent that Centocor's net operating loss and tax credit
carryforwards are no longer available to shelter its consolidated group's
future taxable income, if any, the Company will then be required to make
payments to Centocor for its portion of the consolidated group's tax
liability. The provisions for income taxes in the accompanying financial
statements were calculated as if the expected tax sharing agreement had been
in effect for all periods presented. In the event the Company ceases to be a
member of the Centocor consolidated tax group, the Company will be subject to
payment of income taxes as a stand-alone corporation.
Had the Company been subject to SFAS 109, as a separate company for the
periods presented below, the Company's components of the provision for income
taxes, its statutory tax rate reconciliation and its components of deferred
tax assets would have been as follows (in thousands):
Components of the provision for income taxes:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------
1994 1995 1996 1996 1997
------ ------ ------ ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
Federal........................ $2,501 $4,003 $3,994 $ 3,157 $ 1,940
State.......................... 974 1,274 1,228 965 604
------ ------ ------ ---------- ---------
3,475 5,277 5,222 4,122 2,544
Deferred
Federal........................ 9 90 (1,367) (1,157) (399)
State.......................... 3 25 (391) (330) (114)
------ ------ ------ ---------- ---------
12 115 (1,758) (1,487) (513)
------ ------ ------ ---------- ---------
Total........................ $3,487 $5,392 $3,464 $ 2,635 $ 2,031
====== ====== ====== ========== =========
</TABLE>
Differences between the recorded income tax expense and that which would
result by applying statutory rates:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------- --------------------
1994 1995 1996 1996 1997
------ ------ ------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed expected tax expense..... $2,848 $4,577 $3,050 $ 2,239 $ 1,717
Inc. (decrease) in expected
expense from:
State income taxes, net of
federal benefit................ 635 844 544 413 318
Other, net...................... 4 (29) (130) (17) (4)
------ ------ ------ --------- ---------
Provision for income taxes.... $3,487 $5,392 $3,464 $ 2,635 $ 2,031
====== ====== ====== ========= =========
</TABLE>
F-12
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and (liabilities) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
----- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred research and development............... $ -- $1,721 $2,324
Other .......................................... (127) (90) (180)
----- ------ ------
Net deferred tax asset (liability).............. $(127) $1,631 $2,144
===== ====== ======
</TABLE>
NOTE 11--RELATED PARTY TRANSACTIONS
Service Charges from Centocor, Inc.
The Company has been charged for the use of certain facilities, and
management support services, including both research and administrative
support as provided by Centocor. These charges represent an allocation of the
Company's proportionate share of Centocor's overhead costs using formulas
which management believes are reasonable based upon the Company's use of the
facilities and services. All the costs for all periods presented, including
payroll costs, are directly attributable to the Company and have been paid by
Centocor and charged to the Company. For these services, the Company was
charged as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- ------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Administrative service................... $ 4,985 $5,020 $4,665 $4,328
Information management service........... 1,168 766 652 566
Insurance................................ 737 822 692 626
Facilities............................... 2,142 2,029 1,772 1,026
Research and development................. 1,888 1,084 480 446
------- ------ ------ ------
Total.................................. $10,920 $9,721 $8,261 $6,992
======= ====== ====== ======
</TABLE>
At September 30, 1997, the Company has recorded a liability of $990,000 to
Centocor for unpaid service charges.
Administrative services included finance, purchasing, legal, executive,
investor relations, quality assurance, regulatory, human resources,
engineering, telecommunications, radiation safety. Information management
service charge included a charge for the depreciation of hardware, computer
leases, software charges, telephone usage, computer support, business system
support, and system services. Insurance included allocations for product
liability, building, directors and officers, automobile, and worker's
compensation. Facilities charges include the use of certain laboratory,
research, manufacturing, warehouse and office space.
Centocor and the Company expect to enter into a formal services agreement
under which Centocor will provide various corporate services to the Company.
Asset and Technology Transfer Agreement
Under various agreements dated August 22, 1997, Centocor transferred its
relevant assets and liabilities to the Company, assigned its relevant
contracts and licenses to the Company and assigned or licensed technology
owned or controlled by it and relating to the production of the Company's
products and services. The license is worldwide and royalty-free as to
Centocor although the Company is obliged to Centocor licensors for royalties
due them.
F-13
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Personnel Related Benefits
The Company and Centocor have an arrangement in which the Company is charged
for stock compensation and employee health and life insurance benefits
expenses related to the employees of the Company. The employees of the Company
participate in Centocor's Qualified Savings and Retirement Plan (the "Plan").
Employee benefits are based solely on the employees' discretionary
contributions and Centocor's discretionary matching contribution. Centocor
generally makes its discretionary matching contribution in shares of its
common stock. Centocor Diagnostics share of the discretionary contribution
totaled $153,000, $215,000, and $216,000 in 1994, 1995, and 1996 respectively,
and $116,000 and $153,000 for the nine months ended September 30, 1996 and
1997, respectively. Employee contributions to the Plan may be invested in
various instruments, including Centocor's common stock, at the discretion of
the employee.
Centocor Diagnostics' Qualified Savings and Retirement Plan was established
on August 22, 1997, the provisions of which are substantially the same as the
Plan.
Stock Option and Restricted Stock Award Plans
The employees of Centocor Diagnostics participate in Centocor's stock option
plans pursuant to which options to purchase a total of approximately 9,050,000
Shares of Centocor Common Stock have been authorized for grant to Centocor's
employees and to its non-employee directors. Under the terms of these plans,
the option exercise price may not be less than the fair market value of the
underlying stock at the time the option is granted. The options granted under
these plans generally expire upon the earlier of the termination of the
optionee's employment or service or ten years from the date of the grant.
Centocor has adopted Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") which was issued in
October 1995 and is effective for transactions entered into in fiscal years
beginning after December 15, 1995. In accordance with the provisions of SFAS
123, which allow Centocor to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its stock option plans and accordingly, Centocor does not
recognize compensation cost for options granted. As such, the accompanying
financial statements of Centocor Diagnostics reflect no allocation of
compensation costs for its employees.
The Company will adopt a stock option plan (the "Stock Option Plan") under
which directors, officers and employees may be granted options to purchase
shares of Class A Common Stock. Options are granted at fair market value at
the date of grant. Options are exercisable under specified conditions for up
to 10 years from the date of grant. Under provisions of the Stock Option Plan,
participants may deliver to the Company stock in payment of the option price
and receive credit for the fair market value of the shares of Common Stock
delivered on the date of delivery.
Tax-Sharing Agreement
Pursuant to a tax sharing agreement expected to be entered into between
Centocor and the Company, the Company will make no payments to Centocor for
its use, if any, of the consolidated group's U.S. Federal income tax net
operating loss and tax credit carryforwards. The Company will treat any such
usage as a contribution of capital from Centocor. In future years, to the
extent that Centocor's net operating loss and tax credit carryforwards are no
longer available to shelter the consolidated group's taxable income, if any,
the Company will then be required to make payments to Centocor for its portion
of the consolidated group's tax liability.
F-14
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--SUBSEQUENT EVENT (UNAUDITED)
On October 2, 1997, the Company's Board of Directors authorized the filing
of a registration statement on Form S-1 which will result in the expected sale
of Class A common stock in a public offering. It is expected that the Board of
Directors of the Company will authorize the issuance of shares of Class A
common stock prior to the effective date of the registration statement. As of
September 30, 1997, offering costs capitalized totaled $198,000. Upon
completion of the proposed initial public offering, the offering costs will be
netted against proceeds raised in the offering. Should the offering not be
consummated, the offering costs will be expensed by the Company.
F-15
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts are estimated except the
Securities and Exchange Commission (the "Commission") registration fee, the
National Association of Securities Dealers, Inc. ("NASD") registration fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
PAYABLE BY
THE REGISTRANT
--------------
<S> <C>
SEC registration fee.......................................... $12,121.12
NASD registration fee......................................... $ 4,500.00
Nasdaq National Market listing fee............................ $ *
Blue Sky fees and expenses.................................... $ *
Accounting fees and expenses.................................. $ *
Legal fees and expenses....................................... $ *
Printing and engraving expenses............................... $ *
Miscellaneous fees and expenses............................... $ *
----------
Total........................................................ $ *
==========
</TABLE>
--------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The form of Underwriting Agreement filed as Exhibit 1.1 hereto contains
certain provisions relating to indemnification. The Pennsylvania Business
Corporation Law (the "BCL") authorizes the registrant to grant indemnities to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act.
Article 24 of the Company's Bylaws provides as follows:
"INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 24.1 The Corporation shall indemnify any director or officer, and
may indemnify any other employee or agent, who was or is a party to, or is
threatened to be made a party to, or who is called as a witness in connection
with, any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action
by or in the right of the Corporation, by reason of the fact that he is or was
a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another domestic or foreign corporation, for profit or not-for-
profit, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection with such
action, suit or proceeding unless the act or failure to act giving rise to the
claim for indemnification is determined by a court to have constituted willful
misconduct or recklessness.
SECTION 24.2 The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article 24 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of shareholders or
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. It is the policy of the
Corporation that indemnification of, and advancement of expenses to, directors
and officers of the Corporation shall be made to the fullest extent permitted
by law. To this end, the provisions of this Article 24 shall be deemed to have
been amended for the benefit of directors and officers of the Corporation
effective immediately upon any modification of the BCL or any modification or
adoption of any other law that
II-1
<PAGE>
expands or enlarges the power or obligation of corporations organized under
the BCL to indemnify, or advance expenses to, directors and officers of
corporations.
SECTION 24.3 The Corporation shall pay expenses incurred by an officer or
director, and may pay expenses incurred by any other employee or agent, in
defending an action, or proceeding referred to in this Article 24 in advance
of the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation.
SECTION 24.4 The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article 24 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
SECTION 24.5 The Corporation shall have the authority to create a fund of
any nature, which may, but need not, be under the control of a trustee, or
otherwise secure or insure in any manner, its indemnification obligations,
whether arising under these Bylaws or otherwise. This authority shall include,
without limitation, the authority to: (a) deposit funds in trust or in escrow;
(b) establish any form of self-insurance; (c) secure its indemnity obligation
by grant of a security interest, mortgage or other lien on the assets of the
Corporation; or (d) establish a letter of credit, guaranty or surety
arrangement for the benefit of such persons in connection with the anticipated
indemnification or advancement of expenses contemplated by this Article 24.
The provisions of this Article 24 shall not be deemed to preclude the
indemnification of, or advancement of expenses to, any person who is not
specified in Section 24.1 of this Article 24 but whom the Corporation has the
power or obligation to indemnify, or to advance expenses for, under the
provisions of the BCL or otherwise. The authority granted by this Section 24.5
shall be exercised by the Board of Directors of the Corporation.
SECTION 24.6 The Corporation shall have the authority to enter into a
separate indemnification agreement with any officer, director, employee or
agent of the Corporation or any subsidiary providing for such indemnification
of such person as the Board of Directors shall determine up to the fullest
extent permitted by law.
SECTION 24.7 As soon as practicable after receipt by any person specified in
Section 24.1 of this Article 24 of notice of the commencement of any action,
suit or proceeding specified in Section 24.1 of this Article 24, such person
shall, if a claim with respect thereto may be made against the Corporation
under Article 24 of these Bylaws, notify the Corporation in writing of the
commencement or threat thereof; however, the omission so to notify the
Corporation shall not relieve the Corporation from any liability under Article
24 of these Bylaws unless the Corporation shall have been prejudiced thereby
or from any other liability which it may have to such person other than under
Article 24 of these Bylaws. With respect to any such action as to which such
person notifies the Corporation of the commencement or threat thereof, the
Corporation may participate therein at its own expense and, except as
otherwise provided herein, to the extent that it desires, the Corporation,
jointly with any other indemnifying party similarly notified, shall be
entitled to assume the defense thereof, with counsel selected by the
Corporation to the reasonable satisfaction of such person. After notice from
the Corporation to such person of its election to assume the defense thereof,
the Corporation shall not be liable to such person under Article 24 of these
Bylaws for any legal or other expenses subsequently incurred by such person in
connection with the defense thereof other than as otherwise provided herein.
Such person shall have the right to employ his own counsel in such action, but
the fees and expenses of such counsel incurred after notice from the
Corporation of its assumption of the defense thereof shall be at the expense
of such person unless: (a) the employment of counsel by such person shall have
been authorized by the Corporation; (b) such person shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
such person in the conduct of the defense of such proceeding; or (c) the
Corporation shall not in fact have employed counsel to assume the defense of
such action. The Corporation shall not be entitled to assume the defense of
any proceeding brought by or on behalf of the Corporation or as to which such
person shall have reasonably concluded that there may be a conflict of
interest. If indemnification under Article 24 of these Bylaws or advancement
of expenses are not paid or made
II-2
<PAGE>
by the Corporation, or on its behalf, within 90 days after a written claim for
indemnification or a request for an advancement of expenses has been received
by the Corporation, such person may, at any time thereafter, bring suit
against the Corporation to recover the unpaid amount of the claim or the
advancement of expenses. The right to indemnification and advancements of
expenses provided hereunder shall be enforceable by such person in any court
of competent jurisdiction. The burden of proving that indemnification is not
appropriate shall be on the Corporation. Expenses reasonably incurred by such
person in connection with successfully establishing the right to
indemnification or advancement of expenses, in whole or in part, shall also be
indemnified by the Corporation.
SECTION 24.8 The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article 24.
SECTION 24.9 Notwithstanding any other provisions of these Bylaws, the
approval of shareholders shall be required to amend, repeal or adopt any
provision as part of these Bylaws that is inconsistent with the purpose or
intent of this Article 24, and, if such action shall be taken, it shall become
effective only on a prospective basis from and after the date of such
shareholder approval."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On August 22, 1997, in reliance upon the exemption contained in Section 4(2)
of the Securities Act, the Company issued 12,000,000 shares of Common Stock to
Centocor in exchange for all of the capital stock of the subsidiaries which
own all of the assets, subject to the liabilities, which comprised the
oncology and cardiovascular diagnostics business of Centocor. Effective on
, 1997, pursuant to an amendment and restatement of the Company's Articles
of Incorporation, the shares of the Company's Common Stock held by
Centocor were reclassified into shares of Class B Common Stock of the
Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Articles of Incorporation of the Company.
3.2 Form of Bylaws of the Company.
*4.1 Form of the Company's Class A Common Stock certificate.
*4.2 Form of the Company's Class B Common Stock certificate.
*5.1 Opinion of Duane, Morris & Heckscher LLP.
*10.1 Letter of Employment dated July 21, 1997, between Centocor, Inc. and
R. James Danehy, as amended.
*10.2 Centocor Diagnostics, Inc. 1997 Non-Qualified Stock Option Plan.
*10.3 Centocor Diagnostics, Inc. 1997 Non-Employee Directors' Non-Qualified
Stock Option Plan.
*10.4 Services Agreement between Centocor Diagnostics, Inc. and Centocor,
Inc., dated , 1997.
*10.5 Indemnification Agreement between Centocor, Inc. and Centocor
Diagnostics, Inc. dated as of August 22, 1997.
*10.6 Revolving Credit Agreement between Centocor, Inc. and Centocor
Diagnostics of Pennsylvania, Inc. dated , 1997.
*10.7 Registration Rights Agreement between Centocor, Inc. and Centocor
Diagnostics, Inc. dated , 1997.
*10.8 Tax Sharing Agreement between Centocor, Inc. and Centocor Diagnostics,
Inc. dated , 1997.
10.9 License Agreement between Dana-Farber Cancer Institute and Centocor
Europe, B.V. dated November 25, 1986. (Registrant has requested
confidential treatment with respect to portions of this agreement.)
10.10 Agreement between Dana-Farber Cancer Institute and Centocor, Inc.
dated February 15, 1984. (Registrant has requested confidential
treatment with respect to portions of this agreement.)
10.11 License Agreement between Antoni van Leeuwenhoekhuis and Centocor,
Inc. dated as of October 15, 1984. (Registrant has requested
confidential treatment with respect to portions of this agreement.)
10.12 Research and License Agreement between University of Arkansas and
Centocor, Inc. dated as of February 1, 1990. (Registrant has requested
confidential treatment with respect to portions of this agreement.)
10.13 Research and Licensing Agreement between University of Texas Health
Science Center and Centocor, Inc. dated as of October 1, 1986.
(Registrant has requested confidential treatment with respect to
portions of this agreement.)
10.14 Product Development and License Agreement between Centocor Diagnostics
of Pennsylvania, Inc. and Biometric Imaging, Inc., dated October 9,
1997. (Registrant has requested confidential treatment with respect to
portions of this agreement.)
*11.1 Computation of Per Share Earnings.
*15.1 Letter re: Unaudited Interim Financial Information.
21.1 Subsidiaries of Centocor Diagnostics, Inc.
*23.1 Consent of Duane, Morris & Heckscher LLP. (Included in their opinion
filed as Exhibit 5.1.)
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney. (Included on the signature page hereto.)
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-4
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts is included herein
immediately following the signature page to this Registration Statement. The
report of the independent auditors with respect to Schedule II is included
with their consent filed as Exhibit 23.2 to this Registration Statement.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing of the Offering specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MALVERN, PENNSYLVANIA, ON THE 16TH
DAY OF OCTOBER, 1997.
Centocor Diagnostics, Inc.
By: /s/ R. James Danehy
---------------------------------
R. JAMES DANEHY PRESIDENT
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY CONSTITUTES R. JAMES DANEHY AND DOMINIC J. CARUSO AND EACH OF
THEM SINGLY, SUCH PERSON'S TRUE AND LAWFUL ATTORNEYS, EACH WITH FULL POWER OF
SUBSTITUTION TO SIGN FOR SUCH PERSON AND IN SUCH PERSON'S NAME AND CAPACITY
INDICATED BELOW, ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT, AND TO
FILE THE SAME WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING
AND CONFIRMING SUCH PERSON'S SIGNATURE AS IT MAY BE SIGNED BY SAID ATTORNEYS
TO ANY AND ALL AMENDMENTS.
<TABLE>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ R. James Danehy President, Chief October 16, 1997
- ------------------------------------- Executive Officer
R. JAMES DANEHY and Director
(principal
executive officer)
/s/ Joseph B. Long Controller October 15, 1997
- ------------------------------------- (principal
JOSEPH B. LONG financial and
accounting officer)
/s/ Dominic J. Caruso Chairman of the October 16, 1997
- ------------------------------------- Board and Director
DOMINIC J. CARUSO
/s/ Dr. Philip P. Gerbino Director October 15, 1997
- -------------------------------------
DR. PHILIP P. GERBINO
/s/ George D. Hobbs Director October 16, 1997
- -------------------------------------
GEORGE D. HOBBS
/s/ Thomas A. Myers Director October 16, 1997
- -------------------------------------
THOMAS A. MYERS
</TABLE>
II-6
<PAGE>
SCHEDULE II
CENTOCOR DIAGNOSTICS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGE TO BALANCE CHARGE TO BALANCE CHARGE TO BALANCE CHARGE TO
AT COSTS AND AT COSTS AND AT COSTS AND AT COSTS AND
CLASSIFICATION 12/31/93 EXPENSES DEDUCTIONS 12/31/94 EXPENSES DEDUCTIONS 12/31/95 EXPENSES DEDUCTIONS 12/31/96 EXPENSES
-------------- -------- --------- ---------- -------- --------- ---------- -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inventory
Reserve......... $377 $725 $(655) $447 $1,053 $(1,115) $385 $1,352 $(977) $760 $411
<CAPTION>
BALANCE
AT
CLASSIFICATION DEDUCTIONS 9/30/97
-------------- ---------- -------
<S> <C> <C>
Inventory
Reserve......... $(924) $247
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Articles of Incorporation of the Company.
3.2 Form of Bylaws of the Company.
*4.1 Form of the Company's Class A Common Stock certificate.
*4.2 Form of the Company's Class B Common Stock certificate.
*5.1 Opinion of Duane, Morris & Heckscher LLP.
*10.1 Letter of Employment dated July 21, 1997, between Centocor, Inc. and
R. James Danehy, as amended.
*10.2 Centocor Diagnostics, Inc. 1997 Non-Qualified Stock Option Plan.
*10.3 Centocor Diagnostics, Inc. 1997 Non-Employee Directors' Non-Qualified
Stock Option Plan.
*10.4 Services Agreement between Centocor Diagnostics, Inc. and Centocor,
Inc., dated , 1997.
*10.5 Indemnification Agreement between Centocor, Inc. and Centocor
Diagnostics, Inc. dated as of August 22, 1997.
*10.6 Revolving Credit Agreement between Centocor, Inc. and Centocor
Diagnostics of Pennsylvania, Inc. dated , 1997.
*10.7 Registration Rights Agreement between Centocor, Inc. and Centocor
Diagnostics, Inc. dated , 1997.
*10.8 Tax Sharing Agreement between Centocor, Inc. and Centocor Diagnostics,
Inc. dated , 1997.
10.9 License Agreement between Dana-Farber Cancer Institute and Centocor
Europe, B.V. dated November 25, 1986. (Registrant has requested
confidential treatment with respect to portions of this agreement.)
10.10 Agreement between Dana-Farber Cancer Institute and Centocor, Inc.
dated February 15, 1984. (Registrant has requested confidential
treatment with respect to portions of this agreement.)
10.11 License Agreement between Antoni van Leeuwenhoekhuis and Centocor,
Inc. dated as of October 15, 1984. (Registrant has requested
confidential treatment with respect to portions of this agreement.)
10.12 Research and License Agreement between University of Arkansas and
Centocor, Inc. dated as of February 1, 1990. (Registrant has requested
confidential treatment with respect to portions of this agreement.)
10.13 Research and Licensing Agreement between University of Texas Health
Science Center and Centocor, Inc. dated as of October 1, 1986.
(Registrant has requested confidential treatment with respect to
portions of this agreement.)
10.14 Product Development and License Agreement between Centocor Diagnostics
of Pennsylvania, Inc. and Biometric Imaging, Inc., dated October 9,
1997. (Registrant has requested confidential treatment with respect to
portions of this agreement.)
*11.1 Computation of Per Share Earnings.
*15.1 Letter re: Unaudited Interim Financial Information.
21.1 Subsidiaries of Centocor Diagnostics, Inc.
*23.1 Consent of Duane, Morris & Heckscher LLP. (Included in their opinion
filed as Exhibit 5.1.)
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney. (Included on the signature page hereto.)
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-8
<PAGE>
Exhibit 3.2
BYLAWS
OF
CENTOCOR DIAGNOSTICS, INC.
<PAGE>
BYLAWS
OF
CENTOCOR DIAGNOSTICS, INC.
-------------------------
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article 1 Corporation Office..................... 1
Article 2 Shareholder Meetings................... 1
Article 3 Quorum of Shareholders................. 3
Article 4 Voting Rights.......................... 4
Article 5 Proxies................................ 5
Article 6 Record Date............................ 5
Article 7 Shareholder List....................... 6
Article 8 Judges of Election..................... 7
Article 9 Consent of Shareholders in Lieu
of Meeting............................. 8
Article 10 Directors.............................. 8
Article 11 Removal of Directors................... 9
Article 12 Vacancies on Board of Directors........ 9
Article 13 Powers of Board........................ 9
Article 14 Meetings of the Board of Directors..... 10
Article 15 Action by Written Consent.............. 11
Article 16 Compensation of Directors.............. 11
Article 17 Liability of Directors................. 11
Article 18 Officers............................... 13
Article 19 The President.......................... 14
Article 20 The Vice President..................... 14
Article 21 The Secretary.......................... 15
</TABLE>
(i)
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
Article 22 The Treasurer.......................... 15
Article 23 Assistant Officers..................... 15
Article 24 Indemnification of Officers, Directors,
Employees and Agents................... 16
Article 25 Shares; Share Certificates............. 19
Article 26 Transfer of Shares..................... 20
Article 27 Lost Certificates...................... 20
Article 28 Fiscal Year............................ 21
Article 29 Manner of Giving Written Notice; Waivers
of Notice.............................. 21
Article 30 Amendments............................. 22
</TABLE>
(ii)
<PAGE>
BYLAWS
OF
CENTOCOR DIAGNOSTICS, INC.
-------------------------
Article 1
---------
CORPORATION OFFICE
------------------
Section 1.1 The Corporation shall have and continuously maintain in the
-----------
Commonwealth of Pennsylvania a registered office at an address to be designated
from time to time by the Board of Directors, which may, but need not, be the
same as its place of business.
Section 1.2 The Corporation may also have offices at such other places
-----------
as the Board of Directors may from time to time designate or the business of the
Corporation may require.
Article 2
---------
SHAREHOLDER MEETINGS
--------------------
Section 2.1 All meetings of the shareholders shall be held at such time
-----------
and place, within or without the Commonwealth of Pennsylvania, as may be
determined from time to time by the Board of Directors and need not be held at
the registered office of the Corporation.
Section 2.2 An annual meeting of the shareholders for the election of
-----------
directors and the transaction of such other business as may properly be brought
before the meeting shall be held in each calendar year at such time and place as
may be determined by the Board of Directors.
Section 2.3 Special meetings of the shareholders may be called at any
-----------
time by resolution of the Board of Directors, which may fix the date, time and
place of the meeting. If the Board of Directors does not fix the date, time or
place of the meeting, it shall be the duty of the Secretary to do so. A date
fixed by the Secretary shall not be more than 60 days after the date of the
adoption of the resolution of the Board of Directors calling the special
meeting.
Section 2.4 Written notice of each meeting other than an adjourned
-----------
meeting of shareholders, stating the place and time, and, in the case of a
special meeting of shareholders, the general nature of the business to be
transacted, shall be provided to each shareholder of record entitled to vote at
the meeting at such address as appears on the books of the Corporation. Such
notice shall
-1-
<PAGE>
be given, in accordance with the provisions of Article 29 of these
Bylaws, at least (a) ten days prior to the day named for a meeting to consider a
fundamental change under Chapter 19 of the Pennsylvania Business Corporation Law
of 1988 (the "BCL") or (b) five days prior to the day named for the meeting in
any other case.
Section 2.5
-----------
(a) Whenever the Corporation has been unable to communicate with a
shareholder for more than 24 consecutive months because communications to the
shareholder are returned unclaimed or the shareholder has otherwise failed to
provide the Corporation with a current address, the giving of notice to such
shareholder pursuant to Section 2.4 of these Bylaws shall not be required. Any
action or meeting that is taken or held without notice or communication to that
shareholder shall have the same validity as if the notice or communication had
been duly given. Whenever a shareholder provides the Corporation with a current
address this Section 2.5(a) shall cease to be applicable to such shareholder
until such later time, if any, as the terms of this Section 2.5(a) shall again
become applicable.
(b) The Corporation shall not be required to give notice to any shareholder
pursuant to Section 2.4 hereof if and for as long as communication with such
shareholder shall be unlawful.
Section 2.6 The Board of Directors may provide by resolution with
-----------
respect to a specific meeting or with respect to a class of meetings that one or
more shareholders may participate in such meeting or meetings of shareholders by
means of conference telephone or other communications equipment by means of
which all persons participating in the meeting can hear one another.
Participation in the meeting by such means shall constitute presence in person
at the meeting. Any notice otherwise required to be given in connection with
any meeting at which participation by conference telephone or other
communications equipment is permitted shall so specify.
-2-
<PAGE>
Article 3
---------
QUORUM OF SHAREHOLDERS
----------------------
Section 3.1 A meeting of shareholders duly called shall not be organized
-----------
for the transaction of business unless a quorum is present.
Section 3.2 The presence, in person or by proxy, of shareholders
-----------
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter to be acted upon at the meeting shall
constitute a quorum for purposes of consideration and action on such matter.
Section 3.3 The shareholders present at a duly organized meeting may
-----------
continue to do business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Section 3.4 If a meeting of shareholders cannot be organized because a
-----------
quorum is not present, those present in person or by proxy, may, except as
otherwise provided by statute, adjourn the meeting to such time and place as
they may determine, without notice other than an announcement at the meeting,
until the requisite number of shareholders for a quorum shall be present in
person or by proxy.
Section 3.5 Notwithstanding the provisions of Sections 3.1, 3.2, 3.3 and
-----------
3.4 of these Bylaws:
(a) Any meeting of shareholders, including one at which directors are to be
elected, may be adjourned for such period as the shareholders present and
entitled to vote shall direct.
(b) Those shareholders entitled to vote who attend a meeting called for
election of directors that has been previously adjourned for lack of a quorum,
although less than a quorum as fixed in these Bylaws, shall nevertheless
constitute a quorum for the purpose of electing directors.
(c) Those shareholders entitled to vote who attend a meeting that has been
previously adjourned for one or more periods aggregating at least 15 days
because of an absence of a quorum, although less than a quorum as fixed in these
Bylaws, shall nevertheless constitute a quorum for the purpose of acting upon
any matter set forth in the notice of the meeting if the notice states that
those shareholders who attend the adjourned meeting shall nevertheless
constitute a quorum for the purpose
-3-
<PAGE>
of acting upon the matter.
Article 4
---------
VOTING RIGHTS
-------------
Section 4.1 Except as may be otherwise provided by the Corporation's
-----------
Articles of Incorporation, at every meeting of shareholders, every shareholder
entitled to vote thereat shall be entitled to one vote for every share having
voting power standing in his name on the books of the Corporation on the record
date fixed for the meeting.
Section 4.2 Except as otherwise provided by statute, at any duly
-----------
organized meeting of shareholders the vote of the holders of a majority of the
votes cast shall decide any question brought before such meeting.
Section 4.3 Unless demand is made before the voting begins by a
-----------
shareholder entitled to vote at any election for directors, the election of such
directors need not be by ballot.
Section 4.4 No shareholder shall be permitted to nominate a candidate
-----------
for election as a director unless such shareholder shall provide to the
Secretary of the Corporation (a) information about such candidate that is
equivalent to the information concerning the candidates nominated by the Board
of Directors that was contained in the Corporation's proxy statement for the
immediately preceding annual meeting of shareholders at which directors were
elected if the Corporation distributed a proxy statement to its shareholders in
connection with such election of directors or (b) if the Corporation did not
distribute such a proxy statement, the following information about such
candidate: name, age, any position or office held with the Corporation, a
description of any arrangement between the candidate and any other person(s)
(naming such person(s)) pursuant to which he was nominated as a director,
principal occupation for the five years prior to the election, the number of
shares of the Corporation's stock beneficially owned by the candidate and a
description of any material transaction or series of transactions to which the
Corporation or any of its affiliates is a party and in which the candidate or
any of his affiliates has a direct or indirect material interest, which
description shall specify the candidate's interest in the transaction, the
amount of the transaction and, where practicable, the amount of the candidate's
interest in the transaction. Such information shall be
-4-
<PAGE>
provided in writing not later than 120 days before the first anniversary of the
preceding annual meeting of shareholders.
Article 5
---------
PROXIES
-------
Section 5.1 Every shareholder entitled to vote at a meeting of
-----------
shareholders, or to express consent or dissent to corporate action in writing
without a meeting, may authorize another person or persons to act for him by
proxy. Every proxy shall be executed in writing by the shareholder or his duly
authorized attorney-in-fact and filed with the Secretary of the Corporation. A
proxy, unless coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until written
notice thereof has been given to the Secretary of the Corporation. An unrevoked
proxy shall not be valid after three years from the date of its execution unless
a longer time is expressly provided therein. A proxy shall not be revoked by
the death or incapacity of the maker, unless before the vote is counted or the
authority is exercised, written notice of such death or incapacity is given to
the Secretary of the Corporation.
Section 5.2 Where two or more proxies of a shareholder are present, the
-----------
Corporation shall, unless otherwise expressly provided in the proxy, accept as
the vote of all shares represented thereby the vote cast by a majority of them,
and, if a majority of the proxies cannot agree whether the shares represented
shall be voted or upon the manner of voting the shares, the voting of the shares
shall be divided equally among those persons.
Article 6
---------
RECORD DATE
-----------
Section 6.1 The Board of Directors may fix a time prior to the date of
-----------
any meeting of shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting, which time,
except in the case of an adjourned meeting, shall not be more than 90 days prior
to the date of the meeting of shareholders. Only shareholders of record on the
date so fixed shall be entitled to notice of, or to vote at, such meeting,
notwithstanding any transfer of shares on the
-5-
<PAGE>
books of the Corporation after any record date fixed as aforesaid. The Board of
Directors may similarly fix a record date for the determination of shareholders
of record for any other purpose, such as the payment of a distribution or a
conversion or exchange of shares.
Section 6.2 The Board of Directors may by resolution adopt a procedure
-----------
whereby a shareholder of the Corporation may certify in writing to the
Corporation that all or a portion of the shares registered in such shareholder's
name are held for the account of a specified person or persons. Such resolution
may set forth: (a) the classification of shareholder who may certify; (b) the
purpose or purposes for which the certification may be made; (c) the form of
certification and information to be contained therein; (d) if the certification
is with respect to a record date, the time after the record date within which
the certification must be received by the Corporation; and (e) such other
provisions with respect to the procedure as are deemed necessary or desirable.
Upon receipt by the Corporation of a certification complying with the procedure,
the persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
Article 7
---------
SHAREHOLDER LIST
----------------
Section 7.1 The officer or agent having charge of the share transfer
-----------
books of the Corporation shall compile a complete alphabetical list of the
shareholders entitled to vote at any meeting, showing their addresses and the
number of shares held by each. The list shall be produced and kept open at the
time and place of the meeting for inspection by any shareholder during the
entire meeting except that if the Corporation has 5,000 or more shareholders, in
lieu of compiling the list of shareholders, the Corporation may make the
information available at the meeting by other means.
Section 7.2 Failure to comply with the provisions of Section 7.1 of
-----------
these Bylaws shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote thereat to
examine the list.
Section 7.3 The original transfer books for shares of the Corporation,
-----------
or a duplicate thereof kept in the Commonwealth of Pennsylvania, shall be prima
facie evidence as to who are the
-6-
<PAGE>
shareholders entitled to examine the list or transfer books for shares or to
vote at any meeting.
Article 8
---------
JUDGES OF ELECTION
------------------
Section 8.1 Prior to any meeting of shareholders, the Board of Directors
-----------
may appoint judges of election, who may but need not be shareholders, to act at
such meeting or any adjournment thereof. If judges of election are not so
appointed, the presiding officer of any such meeting may, and on the request of
any shareholder or his proxy shall, make such appointment at the meeting. The
number of judges shall be one or three. No person who is a candidate for an
office to be filled at the meeting shall act as a judge of election.
Section 8.2 In case any person appointed as a judge of election fails to
-----------
appear or fails or refuses to act, the vacancy so created may be filled by
appointment made by the Board of Directors in advance of the convening of the
meeting or at the meeting by the presiding officer thereof.
Section 8.3 The judges of election shall determine the number of shares
-----------
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies.
The judges of election shall also receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result and do such other acts
as may be proper to con duct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as practicable.
If there are three judges of election, the decision, act or certificate of a
majority shall be the decision, act or certificate of all.
Section 8.4 On request of the presiding officer of the meeting or of any
-----------
shareholder, the judges of election shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts found by them.
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<PAGE>
Article 9
---------
CONSENT OF SHAREHOLDERS IN LIEU OF MEETING
------------------------------------------
Section 9.1 Any action required or permitted to be taken at a meeting of
-----------
the shareholders or a class of shareholders may be taken without a meeting upon
the written consent or consents of shareholders who would be entitled to cast
the minimum number of votes that would be necessary to authorize the action at a
meeting at which all shareholders entitled to vote thereon were present and
voting. The signed consents shall be filed with the Secretary of the
Corporation. Any action authorized by the written consent of the shareholders
may become effective immediately upon its authorization, but prompt notice of
the action shall be given to those shareholders entitled to vote thereon who
have not consented.
Article 10
----------
DIRECTORS
---------
Section 10.1 The number of directors shall be determined by the Board of
------------
Directors from time to time. Each director shall be a natural person of full
age and need not be a resident of the Commonwealth of Pennsylvania or a
shareholder of the Corporation.
Section 10.2 The Board of Directors may elect a Chairman of the Board.
------------
The Chairman of the Board shall preside at all meetings of shareholders and
directors. The Chairman, in such capacity, shall not be deemed to be an officer
of the Corporation.
Section 10.3 Except as otherwise provided in Article 12 of these Bylaws,
------------
directors shall be elected by the shareholders. The candidates receiving the
highest number of votes from the shareholders, or each class or group of
classes, if any, entitled to elect directors separately up to the number of
directors to be elected by the shareholders, or class or group of classes, if
any, shall be elected. Each director shall be elected for a term of one year
and until his successor has been elected or until his earlier death, resignation
or removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director.
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<PAGE>
Article 11
----------
REMOVAL OF DIRECTORS
--------------------
Section 11.1 The entire Board of Directors or any individual director may
------------
be removed from office without assigning any cause by the vote of the
shareholders entitled to elect directors. If any directors are so removed, new
directors may be elected at the same meeting.
Section 11.2 The Board of Directors may declare vacant the office of a
------------
director who has been judicially declared of unsound mind or who has been
convicted of an offense punishable by imprisonment for a term of more than one
year.
Article 12
----------
VACANCIES ON BOARD OF DIRECTORS
-------------------------------
Section 12.1 Vacancies on the Board of Directors, including vacancies
------------
resulting from an increase in the number of directors, shall be filled by a
majority vote of the remaining members of the Board of Directors, though less
than a quorum, or by a sole remaining director, and each person so elected shall
be a director to serve for the balance of the unexpired term.
Section 12.2 If one or more directors shall resign from the Board of
------------
Directors effective at a future date, the directors then in office, including
those who have so resigned, shall have the power by a majority vote to fill the
vacancies, to take effect when the resignations become effective.
Article 13
----------
POWERS OF BOARD
---------------
Section 13.1 The business and affairs of the Corporation shall be managed
------------
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things as are directed
or permitted to be exercised and done by statute, the Corporation's Articles of
Incorporation or these Bylaws.
Section 13.2 The Board of Directors may, by resolution adopted by a
------------
majority of the directors in office, establish one or more committees consisting
of one or more directors as may be deemed appropriate or desirable by the Board
of Directors to serve at the pleasure of the Board. Any
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<PAGE>
committee, to the extent provided in the resolution of the Board of Directors
pursuant to which it was created, shall have and may exercise all of the powers
and authority of the Board of Directors, except that no committee shall have any
power or authority as to the following:
(a) The submission to shareholders of any action requiring approval of
shareholders;
(b) The creation or filling of vacancies in the Board of Directors;
(c) The adoption, amendment or repeal of these Bylaws;
(d) The amendment or repeal of any resolution of the Board of Directors
that by its terms is amendable or repealable only by the Board of Directors; and
(e) Action on matters committed by these Bylaws or resolution of the Board
of Directors to another committee of the Board of Directors.
Article 14
----------
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 14.1 A meeting of the Board of Directors may be held immediately
------------
following the annual meeting of shareholders at which directors have been
elected without the necessity of notice to the directors.
Section 14.2 Meetings of the Board of Directors shall be held at such
------------
times and places within or without the Commonwealth of Pennsylvania as the Board
of Directors may from time to time appoint or as may be designated in the notice
of the meeting.
Section 14.3 Special meetings of the Board of Directors may be called by
------------
the Chairman of the Board, if there shall be one, or the President of the
Corporation on one day's notice to each director, either by telephone, or if in
writing, in accordance with the provisions of Article 29 of these Bylaws.
Special meetings shall be called by the Chairman of the Board, the President or
Secretary in like manner and on like notice upon the written request of a
majority of the directors in office.
Section 14.4 At all meetings of the Board of Directors a majority of the
------------
directors in office shall constitute a quorum for the transaction of business,
and the acts of a majority of the directors present and voting at a meeting at
which a quorum is present shall be the acts of the Board of
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<PAGE>
Directors, except as may be otherwise specifically provided by statute or by the
Articles of Incorporation or by these Bylaws. One or more directors may
participate in any meeting of the Board of Directors, or of any committee
thereof, by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear one another.
Participation in a meeting by such means shall constitute presence in person at
the meeting.
Article 15
----------
ACTION BY WRITTEN CONSENT
-------------------------
Section 15.1 Any action required or permitted to be taken at a meeting of
------------
the Board of Directors may be taken without a meeting if, prior or subsequent to
the action, a consent or consents thereto signed by all of the directors is
filed with the Secretary of the Corporation.
Article 16
----------
COMPENSATION OF DIRECTORS
-------------------------
Section 16.1 Directors, as such, may receive a stated salary for their
------------
services or a fixed sum and expenses for attendance at regular and special
meetings or any combination of the foregoing as may be determined from time to
time by resolution of the Board of Directors, and nothing contained herein shall
be construed to preclude any director from receiving compensation for services
rendered to the Corporation in any other capacity.
Article 17
----------
LIABILITY OF DIRECTORS
----------------------
Section 17.1 A director of the Corporation shall stand in a fiduciary
------------
relation to the Corporation and shall perform his duties as a director,
including his duties as a member of any committee of the Board of Directors upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the Corporation, and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In performing his duties, a director shall be entitled
to rely in good faith on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by any of the following: (a) one or more officers or employees of the
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<PAGE>
Corporation whom the director reasonably believes to be reliable and competent
in the matters presented; (b) legal counsel, public accountants or other
persons as to matters which the director reasonably believes to be within the
professional or expert competence of such persons; or (c) a committee of the
Board of Directors upon which he does not serve, duly designated in accordance
with law, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence. A director shall not be
considered to be acting in good faith if he has knowledge concerning the matter
in question that would cause his reliance to be unwarranted.
Section 17.2 In discharging the duties of their respective positions, the
------------
Board of Directors, committees of the Board of Directors and individual
directors may, in considering the best interests of the Corporation, consider to
the extent they deem appropriate:
(a) The effects of any action upon any or all groups affected by such
action, including shareholders, employees, suppliers, customers and creditors of
the Corporation, and upon communities in which offices or other establishments
of the Corporation are located;
(b) The short-term and long-term interests of the Corporation,
including benefits that may accrue to the Corporation from its long-term plans
and the possibility that these interests may be best served by the continued
independence of the Corporation;
(c) The resources, intent and conduct (past, stated and potential) of
any person seeking to acquire control of the Corporation; and
(d) All other pertinent factors.
The Board of Directors, committees of the Board and individual
directors shall not be required, in considering the best interests of the
Corporation or the effects of any action, to regard any corporate interest or
the interests of any particular group affected by such action as a dominant or
controlling interest or factor. The consideration of these factors shall not
constitute a violation of Section 17.1 hereof.
Section 17.3 Absent breach of fiduciary duty, lack of good faith or self-
------------
dealing, actions taken as a director or any failure to take any action shall be
presumed to be in the best interests of the Corporation.
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<PAGE>
Section 17.4 A director of the Corporation shall not be personally
------------
liable, as such, for monetary damages for any action taken, or any failure to
take any action, unless: (a) the director has breached or failed to perform the
duties of his office under Sections 17.1 through 17.3 hereof; and (b) the breach
or failure to perform constitutes self-dealing, willful misconduct or
recklessness.
Section 17.5 The provisions of Section 17.4 hereof shall not apply to:
------------
(a) the responsibility or liability of a director pursuant to any criminal
statute; or (b) the liability of a director for the payment of taxes pursuant to
local, state or federal law.
Section 17.6 Notwithstanding any other provisions of these Bylaws, the
------------
approval of shareholders shall be required to amend, repeal or adopt any
provision as part of these Bylaws that is inconsistent with the purpose or
intent of Sections 17.1, 17.2, 17.3, 17.4, 17.5 or 17.6 of this Article 17, and,
if any such action shall be taken, it shall become effective only on a
prospective basis from and after the date of such shareholder approval.
Article 18
----------
OFFICERS
--------
Section 18.1 The Corporation shall have a President, a Secretary and a
------------
Treasurer, or persons who shall act as such, regardless of the name or title by
which they may be designated, elected or appointed and may have such other
officers and assistant officers as the Board of Directors may authorize from
time to time. The President and Secretary shall be natural persons of full age.
The Treasurer may be a corporation, but, if the Treasurer shall be a natural
person, he shall be of full age. It shall not be necessary for the officers to
be directors. Any number of offices may be held by the same person. Each
officer shall hold office at the pleasure of the Board of Directors and until
his successor shall have been elected or until his earlier death, resignation or
removal. Any officer may resign at any time. The resignation shall be
effective upon receipt of notice thereof by the Corporation or at such
subsequent time as may be specified in the notice of resignation. The
Corporation may secure the fidelity of any or all of the officers by bond or
otherwise.
Section 18.2 Except as otherwise provided in the Articles of
------------
Incorporation, an officer shall perform his duties as an officer in good faith,
in a manner he reasonably believes to be in the
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<PAGE>
best interests of the Corporation and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. A person who so performs his duties shall not be liable
by reason of having been an officer of the Corporation.
Section 18.3 Any officer or agent of the Corporation may be removed by
------------
the Board of Directors with or without cause. The removal shall be without
prejudice to the contract rights, if any, of any person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
Article 19
----------
THE PRESIDENT
-------------
Section 19.1 In the absence of the Chairman of the Board of Directors,
------------
the President shall preside at all meetings of shareholders and directors. He
shall be the chief executive officer of the Corporation; shall be responsible
for the general and active management of the business of the Corporation; shall
see that all orders and resolutions of the Board of Directors are put into
effect, subject, however, to the right of the Board of Directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the Corporation; and shall have
the authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
Article 20
----------
THE VICE PRESIDENT
------------------
Section 20.1 The Vice President or, if more than one, the Vice Presidents
------------
in the order, if any, established by the Board of Directors shall, in the
absence or incapacity of the President, have the authority to exercise all the
powers and perform the duties of the President. The Vice Presidents,
respectively, shall also have such other authority and perform such other duties
as may be provided in these Bylaws or as shall be determined by the Board of
Directors or the President. Any Vice
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<PAGE>
President may, in the discretion of the Board of Directors, be designated as
"executive," "senior" or by departmental or functional classification.
Article 21
----------
THE SECRETARY
-------------
Section 21.1 The Secretary shall attend all meetings of the Board of
------------
Directors and of the shareholders and keep accurate records thereof in one or
more minute books kept for that purpose and shall perform the duties customarily
performed by the secretary of a corporation and such other duties as may be
assigned to him by the Board of Directors or the President.
Article 22
----------
THE TREASURER
-------------
Section 22.1 The Treasurer shall be responsible for the custody of the
------------
corporate funds and securities; shall be responsible for full and accurate
accounts of receipts and disbursements in books belonging to the Corporation;
and shall perform such other duties as may be assigned to him by the Board of
Directors or the President. He shall give bond in such sum and with such surety
as the Board of Directors may from time to time direct.
Article 23
----------
ASSISTANT OFFICERS
------------------
Section 23.1 Each assistant officer shall assist in the performance of
------------
the duties of the officer to whom he is assistant and shall perform such duties
in the absence of the officer. He shall perform such additional duties as the
Board of Directors, the President or the officer to whom he is assistant may
from time to time assign him. Such officers may be given such functional titles
as the Board of Directors shall from time to time determine.
Article 24
----------
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
------------------------------------------------------------
Section 24.1 The Corporation shall indemnify any director or officer, and
------------
may indemnify any other employee or agent, who was or is a party to, or is
threatened to be made a party to, or who is called as a witness in connection
with, any threatened, pending, or completed action, suit
-15-
<PAGE>
or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the Corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another domestic or foreign corporation, for profit or not-
for-profit, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection with such
action, suit or proceeding unless the act or failure to act giving rise to the
claim for indemnification is determined by a court to have constituted willful
misconduct or recklessness.
Section 24.2 The indemnification and advancement of expenses provided by,
------------
or granted pursuant to, this Article 24 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any Bylaw, agreement, contract, vote of shareholders or
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. It is the policy of the
Corporation that indemnification of, and advancement of expenses to, directors
and officers of the Corporation shall be made to the fullest extent permitted by
law. To this end, the provisions of this Article 24 shall be deemed to have
been amended for the benefit of directors and officers of the Corporation
effective immediately upon any modification of the BCL or any modification or
adoption of any other law that expands or enlarges the power or obligation of
corporations organized under the BCL to indemnify, or advance expenses to,
directors and officers of corporations.
Section 24.3 The Corporation shall pay expenses incurred by an officer or
------------
director, and may pay expenses incurred by any other employee or agent, in
defending an action, or proceeding referred to in this Article 24 in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation.
Section 24.4 The indemnification and advancement of expenses provided by,
------------
or granted pursuant to, this Article 24 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to
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<PAGE>
the benefit of the heirs, executors and administrators of such person.
Section 24.5 The Corporation shall have the authority to create a fund of
------------
any nature, which may, but need not, be under the control of a trustee, or
otherwise secure or insure in any manner, its indemnification obligations,
whether arising under these Bylaws or otherwise. This authority shall include,
without limitation, the authority to: (a) deposit funds in trust or in escrow;
(b) establish any form of self-insurance; (c) secure its indemnity obligation by
grant of a security interest, mortgage or other lien on the assets of the
Corporation; or (d) establish a letter of credit, guaranty or surety arrangement
for the benefit of such persons in connection with the anticipated
indemnification or advancement of expenses contemplated by this Article 24. The
provisions of this Article 24 shall not be deemed to preclude the
indemnification of, or advancement of expenses to, any person who is not
specified in Section 24.1 of this Article 24 but whom the Corporation has the
power or obligation to indemnify, or to advance expenses for, under the
provisions of the BCL or otherwise. The authority granted by this Section 24.5
shall be exercised by the Board of Directors of the Corporation.
Section 24.6 The Corporation shall have the authority to enter into a
------------
separate indemnification agreement with any officer, director, employee or agent
of the Corporation or any subsidiary providing for such indemnification of such
person as the Board of Directors shall determine up to the fullest extent
permitted by law.
Section 24.7 As soon as practicable after receipt by any person specified
------------
in Section 24.1 of this Article 24 of notice of the commencement of any action,
suit or proceeding specified in Section 24.1 of this Article 24, such person
shall, if a claim with respect thereto may be made against the Corporation under
Article 24 of these Bylaws, notify the Corporation in writing of the
commencement or threat thereof; however, the omission so to notify the
Corporation shall not relieve the Corporation from any liability under Article
24 of these Bylaws unless the Corporation shall have been prejudiced thereby or
from any other liability which it may have to such person other than under
Article 24 of these Bylaws. With respect to any such action as to which such
person notifies the Corporation of the commencement or threat thereof, the
Corporation may participate therein at its own expense and, except as otherwise
provided herein, to the extent that it desires, the Corporation,
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<PAGE>
jointly with any other indemnifying party similarly notified, shall be entitled
to assume the defense thereof, with counsel selected by the Corporation to the
reasonable satisfaction of such person. After notice from the Corporation to
such person of its election to assume the defense thereof, the Corporation shall
not be liable to such person under Article 24 of these Bylaws for any legal or
other expenses subsequently incurred by such person in connection with the
defense thereof other than as otherwise provided herein. Such person shall have
the right to employ his own counsel in such action, but the fees and expenses of
such counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of such person unless: (a) the
employment of counsel by such person shall have been authorized by the
Corporation; (b) such person shall have reasonably concluded that there may be a
conflict of interest between the Corporation and such person in the conduct of
the defense of such proceeding; or (c) the Corporation shall not in fact have
employed counsel to assume the defense of such action. The Corporation shall not
be entitled to assume the defense of any proceeding brought by or on behalf of
the Corporation or as to which such person shall have reasonably concluded that
there may be a conflict of interest. If indemnification under Article 24 of
these Bylaws or advancement of expenses are not paid or made by the Corporation,
or on its behalf, within 90 days after a written claim for indemnification or a
request for an advancement of expenses has been received by the Corporation,
such person may, at any time thereafter, bring suit against the Corporation to
recover the unpaid amount of the claim or the advancement of expenses. The right
to indemnification and advancements of expenses provided hereunder shall be
enforceable by such person in any court of competent jurisdiction. The burden of
proving that indemnification is not appropriate shall be on the Corporation.
Expenses reasonably incurred by such person in connection with successfully
establishing the right to indemnification or advancement of expenses, in whole
or in part, shall also be indemnified by the Corporation.
Section 24.8 The Corporation shall have the power to purchase and
------------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
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<PAGE>
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article 24.
Section 24.9 Notwithstanding any other provisions of these Bylaws, the
------------
approval of shareholders shall be required to amend, repeal or adopt any
provision as part of these Bylaws that is inconsistent with the purpose or
intent of this Article 24, and, if any such action shall be taken, it shall
become effective only on a prospective basis from and after the date of such
shareholder approval.
Article 25
----------
SHARES; SHARE CERTIFICATES
--------------------------
Section 25.1 All shares issued by the Corporation shall be represented by
------------
certificates. The share certificates of the Corporation shall be numbered and
registered in a share register as they are issued; shall state that the
Corporation is incorporated under the laws of the Commonwealth of Pennsylvania;
shall bear the name of the registered holder, the number and class of shares and
the designation of the series, if any, represented thereby, the par value, if
any, of each share or a statement that the shares are without par value, as the
case may be; shall be signed by the President or a Vice President, and the
Secretary or the Treasurer or any other person properly authorized by the Board
of Directors; and shall bear the corporate seal, which seal may be a facsimile
engraved or printed. Where the certificate is signed by a transfer agent or a
registrar, the signature of any corporate officer on such certificate may be a
facsimile engraved or printed. In case any officer who has signed, or whose
facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or otherwise before the
certificate is issued, such share certificate may be issued by the Corporation
with the same effect as if the officer had not ceased to be such at the date of
its issue.
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<PAGE>
Article 26
----------
TRANSFER OF SHARES
------------------
Section 26.1 Upon surrender to the Corporation of a share certificate
------------
duly endorsed by the person named in the certificate or by attorney duly
appointed in writing and accompanied where necessary by proper evidence of
succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto and the old certificate canceled and the
transfer recorded on the share register of the Corporation. Except as otherwise
provided pursuant to Section 6.2 hereof, a transferee of shares of the
Corporation shall not become a record holder of such shares entitled to the
rights and benefits associated therewith unless and until the share transfer has
been recorded on the share transfer books of the Corporation. No transfer shall
be made if it would be inconsistent with the provisions of Article 8 of the
Uniform Commercial Code as then in effect in the Commonwealth of Pennsylvania.
Article 27
----------
LOST CERTIFICATES
-----------------
Section 27.1 Where a shareholder of the Corporation alleges the loss,
------------
theft or destruction of one or more certificates for shares of the Corporation
and requests the issuance of a substitute certificate therefor, the Corporation
may direct a new certificate of the same tenor and for the same number of shares
to be issued to such person upon such person's making of an affidavit in form
satisfactory to the Board of Directors setting forth the facts in connection
therewith, provided that prior to the receipt of such request the Corporation
shall not have either registered a transfer of such certificate or received
notice that such certificate has been acquired by a bona fide purchaser. When
authorizing such an issuance of a new certificate the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his heirs or legal
representatives, as the case may be, to advertise the same in such manner as it
shall require and/or give the Corporation a bond in such form and sum and with
surety or sureties, with fixed or open penalty, as shall be satisfactory to the
Board of Directors, as indemnity for any liability or expense which it may incur
by reason of the original certificate
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<PAGE>
remaining outstanding.
Article 28
----------
FISCAL YEAR
-----------
Section 28.1 The fiscal year of the Corporation shall be as determined by
------------
the Board of Directors.
Article 29
----------
MANNER OF GIVING WRITTEN NOTICE; WAIVERS OF NOTICE
--------------------------------------------------
Section 29.1 Whenever written notice is required to be given to any
------------
person under the provisions of these Bylaws, it may be given to the person
either personally or by sending a copy thereof by first class or express mail,
postage prepaid, or by telegram (with messenger service specified), telex or TWX
(with answerback received) or courier service, charges prepaid, or by
telecopier, to his address (or to his telex, TWX, telecopier or telephone
number) appearing on the books of the Corporation or, in the case of written
notice to directors, the address supplied by each director to the Corporation
for the purpose of the notice. If the notice is sent by mail, telegraph or
courier service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
courier service for delivery to that person. If the notice is sent by telex or
TWX, it shall be deemed to have been given when dispatched. If the notice is
sent by telecopier, it shall be deemed to have been given upon confirmation of
transmission of the telecopy.
Section 29.2 Any written notice required to be given to any person under
------------
the provisions of statute, the Corporation's Articles of Incorporation or these
Bylaws may be waived in a writing signed by the person entitled to such notice
whether before or after the time stated therein. Except as otherwise required by
statute, and except in the case of a special meeting, neither the business to be
transacted at, nor the purpose of, a meeting need be specified in the waiver of
notice. In the case of a special meeting of shareholders, the waiver of notice
shall specify the general nature of the business to be transacted. Attendance
of any person, whether in person or by proxy, at any meeting shall constitute a
waiver of notice of such meeting, except where a person attends a meeting
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for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened.
Article 30
----------
AMENDMENTS
----------
Section 30.1 Subject to the provisions of Sections 17.6 and 24.9 hereof,
------------
these Bylaws may be amended or repealed, and new Bylaws may be adopted, by the
affirmative vote of a majority of the votes cast by the shareholders at any
regular or special meeting of shareholders duly convened after written notice to
the shareholders that the purpose, or one of the purposes, of the meeting is to
consider the amendment or repeal of these Bylaws and the adoption of new Bylaws.
There shall be included in, or enclosed with, the notice, a copy of the proposed
amendment or a summary of the changes to be effected thereby.
Section 30.2 Except as provided in Sections 17.6 and 24.9 hereof, and
------------
except as provided in Section 1504(b) of the BCL, these Bylaws may be amended or
repealed, and new Bylaws may be adopted, by the affirmative vote of a majority
of the members of the Board of Directors at any regular or special meeting of
the Board of Directors duly convened, subject to the power of the shareholders
to change such action of the Board of Directors.
-22-
<PAGE>
Exhibit 10.9
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS
AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT
THE PLACES INDICATED BY DOUBLE ASTERISKS (**) AND HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
A2724 [DF-3]
LICENSE AGREEMENT
-----------------
This Agreement is entered into as of this 25th day of November, 1986, by
and between DANA-FARBER CANCER INSTITUTE, a Massachusetts corporation having its
principal place of business at 44 Binney Street, Boston, Massachusetts 02115
("DANA-FARBER"), and CENTOCOR EUROPE B.V., a corporation organized under the
laws of The Netherlands having its principal place of business at Einsteinweig
101, NL-2333 CB Leiden, The Netherlands ("CENTOCOR EUROPE").
RECITALS
WHEREAS, DANA-FARBER has developed, under the direction of Dr. Donald W.
Kufe, a hybridoma which secretes monoclonal antibodies preferentially reactive
with human breast carcinoma, which hybridoma is designated by DANA-FARBER as
DF-3 (the "Cell Line"). All technical information, whether tangible or
intangible, including any and all data, pre-clinical and clinical results,
techniques, discoveries, inventions, ideas, processes, know-how, trade secrets
and other proprietary information and all physical, chemical and biological
material relating to the Cell Line is hereinafter referred to as the
"Technology";
WHEREAS, CENTOCOR, INC., a Pennsylvania corporation ("CENTOCOR") assigned
to CENTOCOR EUROPE certain rights received
<PAGE>
from DANA-FARBER under a research agreement dated March 1, 1984 (the "Research
Agreement"), which funded research related to the Cell Line in the laboratory of
Dr. Donald W. Kufe, and delegated to CENTOCOR EUROPE certain obligations
relating to the Cell Line pursuant to a Consent to Assignment effective January
30, 1985 which Consent to Assignment has been accepted by DANA-FARBER;
WHEREAS, in a letter dated February 12, 1986 (the "Letter"), CENTOCOR
EUROPE exercised its option pursuant to Section 6.01 of the Research Agreement
to convert its non-exclusive license to an exclusive, worldwide, royalty bearing
license to the Cell Line and the monoclonal antibodies which it secretes under
any and all of DANA-FARBER's rights and know-how to make, have made, use or sell
products and to practice methods developed pursuant to the Research Agreement
insofar as the same relates to the Cell Line;
WHEREAS, DANA-FARBER wishes to have the products utilizing the Cell
Line or monoclonal antibodies which it secretes perfected and marketed at the
earliest Possible time in order that products resulting therefrom might be
available for public use and benefit; and
WHEREAS, DANA-FARBER desires to grant to CENTOCOR EUROPE, and CENTOCOR
EUROPE desires to acquire from DANA-FARBER an exclusive world-wide right and
license to develop, manufacture and market certain products utilizing the Cell
Line and the monoclonal antibodies which it secretes on the terms and conditions
set forth herein.
2
<PAGE>
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged and intending to be legally bound, and
notwithstanding any provision in the Research Agreement or the Letter to the
contrary, the parties hereto agree as follows:
1. DEFINITIONS
---------------
1.1 -- "Antibody" means any antibody produced from the Cell Line.
1.2 -- "Licensed Products" means any product which has research, in vivo
-------
or in vitro diagnostic or therapeutic applications in humans or animals and
-- -----
which cannot be developed, manufactured, used or sold without utilizing Cell
Line or Antibody.
1.3 -- "Net Sales" means the gross amount of revenues recognized on all
sales of Licensed Products by CENTOCOR EUROPE commencing upon the first
commercial sale of any Licensed Product, less (i) discounts actually allowed,
(ii) credit for claims, allowances, retroactive price reductions or returned
Licensed Products, (iii) packing, insurance and freight, and (iv) taxes or other
governmental charges. The first commercial sale of any Licensed Product shall
mean the sale of such Licensed Product in the marketplace on a commercial scale.
There shall be no imputed revenues for samples, free goods, or other marketing
programs whereby Licensed Products are given away to induce sales of the
Licensed Products, if customary in the industry.
3
<PAGE>
1.4 -- "Field" means the field of research in vivo and in vitro
-- ---- -- -----
diagnostic and therapeutic applications of antibodies developed under the March
1, 1984 Agreement.
1.5 -- "Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an estate, an unincorporated organization or any other
entity or a government or any department or agency thereof.
2. GRANT
---------
2.1 -- DANA-FARBER hereby grants to CENTOCOR EUROPE, and CENTOCOR EUROPE
hereby accepts, a worldwide exclusive license to make, have made, use and sell
Licensed Products, to use and improve the Technology, the Cell Line and the
Antibody and to practice methods arising from the Research Agreement related to
the Antibody, the Technology, the Licensed Products and studies or procedures
performed or to be performed in the Field under the direction of Dr. Kufe (or
his successor) pursuant to the Agreement, such license and rights to be for the
term specified in Section 2.3 hereof.
2.2 -- Notwithstanding the rights granted to CENTOCOR EUROPE hereunder,
DANA-FARBER reserves the rights (a) to make and use the Cell Line, Technology
and Antibody for DANA-FARBER'S own education and research purposes and (b) to
make Antibody and to furnish Antibody to other research organization for such
organizations' own education and research purposes, pursuant to DANA-FARBER's
written agreement with such organization which shall specify that the Antibody
will not be used or made
4
<PAGE>
available for commercial purposes by any such organization and will further
specify that such organization shall agree to be bound by the terms of Article
6.1 herein provided that CENTOCOR EUROPE shall not be obligated to pay any
royalties or other compensation related to (a) or (b) above. DANA-FARBER agrees
to promptly notify CENTOCOR EUROPE of the name of any organization to which
Antibody is supplied.
2.3 -- CENTOCOR EUROPE'S exclusive license granted in Section 2.1 hereof
shall continue for as long as Centocor Europe is engaged in developing or
marketing Licensed Products in any country unless the license is terminated
sooner in accordance with the terms of this Agreement.
3. GOVERNMENT RIGHTS
---------------------
3.1 -- DANA-FARBER and CENTOCOR EUROPE acknowledge that DANA-FARBER has
received and expects to continue to receive funding from the United States
Government in support of DANA-FARBER research activities; including, in part,
research from which the Cell Line and Technology were developed. DANA-FARBER and
CENTOCOR EUROPE acknowledge and agree that their respective rights and
obligations pursuant to this Agreement, with respect to the Cell Line, the
Antibody and Technology, shall be subject to DANA-FARBER's obligations and the
rights of the United States Government, if any, which arise or result under
applicable statutes or regulations, from DANA-FARBER's receipt of
5
<PAGE>
research support from the United States Government. DANA-FARBER shall take all
actions necessary to satisfy any of its obligations to the United States
Government relating to its grant of the license in Article 2 hereof. Upon
request by DANA-FARBER, CENTOCOR EUROPE shall take any action necessary in its
capacity as licensee to enable DANA-FARBER to satisfy its obligations to the
United States Government.
4. ROYALTIES
-------------
4.1 -- (a) As compensation to DANA-FARBER for the exclusive licenses
granted herein, CENTOCOR EUROPE agrees to pay to DANA-FARBER royalties on Net
Sales on a country-by-country basis, in an amount equal to [**] percent [**]
of Net Sales for the term of such exclusive license subject to such adjustments
as provided herein.
(b) If CENTOCOR EUROPE has to pay royalties to a third party or
parties due to know-how or proprietary information or a valid patent that
CENTOCOR EUROPE reasonably believes the Licensed Products or Technology
infringe, royalties due under Section 4.1 hereof will be reduced by the
royalties payable to said third party or parties, but in no event shall the
royalties due under Section 4.1 hereof be reduced by more than [**] percent [**]
in any payment period. The return of any payments to CENTOCOR EUROPE because any
such patent is invalidated or such know-how is determined to be in the public
domain
6
<PAGE>
shall be paid to DANA-FARBER to the extent necessary to restore the reduced
royalty payment.
(c) In the event that two or more antibodies, the rights to
which have been licensed from different institutions, are employed by CENTOCOR
EUROPE in a Licensed Product, royalties payable to DANA-FARBER on sales of such
Licensed Products shall be [**] percent [**] of Net Sales multiplied by a
fraction, the denominator of which is the number of antibodies incorporated in
said product and the numerator of which is 1 (one). but in no event shall
royalties payable to DANA-FARBER be less than [**] and in such case, 4.1(b)
shall not be applicable
4.2 -- Royalty on Net Sales shall be paid quarterly in arrears, on or
before the ninetieth (90th) day of each and every calendar quarter during the
term of this License Agreement, calculated upon Net Sales of Licensed Products
during the immediately preceding quarter.
4.3 -- The remittance of royalties payable on Net Sales outside the
United States other than those denominated in U.S. dollars will be payable to
DANA-FARBER in United States Dollar equivalents at the official rate of exchange
of the currency of the country from which the royalties are payable (determined
by the same method used by CENTOCOR for reporting foreign sales to its
shareholders and governmental agencies). If the transfer of or the conversion
into the United States Dollar equivalent of any such remittance in any such
instance is not lawful or possible, CENTOCOR EUROPE shall cause the payment of
such part of the royalties as is necessary to be made by the deposit thereof, in
7
<PAGE>
the currency of the country where the sale was made on which the royalty was
based, to the credit and account of DANA-FARBER or its nominee in any commercial
bank or trust company of DANA-FARBER's choice located in that country, prompt
notice of which shall be given by CENTOCOR EUROPE to DANA-FARBER.
4.4 -- Any tax required to be withheld by CENTOCOR EUROPE under the laws
of a foreign country for the account of DANA-FARBER shall be promptly paid by
CENTOCOR EUROPE for and on behalf of DANA-FARBER to the appropriate governmental
authority, and CENTOCOR EUROPE shall furnish DANA-FARBER with proof of payment
of such tax together with official or other appropriate evidence issued by the
appropriate government authority sufficient to enable DANA-FARBER to support a
claim for federal income tax credit in respect of any sum so withheld.
4.5 -- CENTOCOR EUROPE agrees to make written reports to DANA-FARBER
within ninety (90) days after the end of each calendar quarter commencing in the
quarter in which the first commercial sale occurs. Each report shall state the
Net Sales of Licensed Products sold during such completed calendar quarter and
resulting calculation of earned royalty payment due DANA-FARBER pursuant to this
License Agreement for such completed calendar quarter.
4.6 -- CENTOCOR EUROPE also agrees to make a written report to DANA-
FARBER within ninety (90) days after the date of termination of this License
Agreement, stating in such report the Net Sales of all Licensed Products sold
and upon which royalties
8
<PAGE>
are payable hereunder but which were not previously reported to DANA-FARBER.
4.7 -- CENTOCOR EUROPE agrees to keep records for a period of three (3)
years showing the Net Sales of Licensed Products in sufficient detail to enable
the royalties payable hereunder by CENTOCOR EUROPE to be determined, and further
agrees to permit its books and records to be examined by DANA-FARBER from time
to time to the extent necessary, but not more than once a year, to verify
reports provided for in Section 4.5 of this License Agreement. Such examination
is to be made in accordance with generally accepted auditing standards by a firm
of independent certified public accountants of nationally recognized standing
and acceptable to CENTOCOR EUROPE, at the expense of DANA-FARBER.
5. COMMERCIAL APPLICATION
--------------------------
5.1 -- CENTOCOR EUROPE shall use all reasonable efforts, including such
efforts of any or all of its affiliates and licensees, commercially to develop,
manufacture and distribute products throughout the world.
5.2 -- On or before September 1 of each year, beginning September 1,
1987, until CENTOCOR EUROPE first markets any Licensed Product, CENTOCOR EUROPE
shall make a written annual report to DANA-FARBER covering the preceding twelve
months ended June 30, regarding the progress of CENTOCOR EUROPE toward
commercial use of Licensed Products.
9
<PAGE>
6. CONFIDENTIALITY
-------------------
6.1 -- All proprietary information relevant to Licensed Products
disclosed by either party to the other shall be held by such other party in
confidence and is to be accorded the same degree of security that the receiving
party holds its own most confidential information of a similar character and is
not to be disclosed to any Persons other than employees and agents of such party
who have reasonable need for access and who are bound to such party by a written
agreement of confidentiality or in the case of CENTOCOR EUROPE, to Nihon Medi-
Physics Co., Ltd. Information shall not be deemed to be proprietary information
and such restrictions shall not apply to any such information (i) which, at the
time of the disclosure, is in the public domain, or (ii) which, after the
disclosure, becomes part of the public domain by publication or otherwise
(excluding disclosures by DANA-FARBER or CENTOCOR EUROPE, their agents or
employees), or (iii) information which was received by one of the parties
without a binder of confidentiality from a third party having a legal right to
transmit the same to such party and others. Notwithstanding any provision of
this Section 6.1 to the contrary, CENTOCOR EUROPE may disclose such
confidential information to regulatory agencies as necessary and required to
obtain regulatory approval for Licensed Products.
6.2 -- Information disclosed by one party hereto to the other shall not
be deemed proprietary information unless it is
10
<PAGE>
identified as such in writing within thirty (30) days after its transmittal by
one party to another.
6.3 -- If either party hereto contends that any such information subject
to this Article 6 is no longer entitled to be considered proprietary information
as a result of its having become part of the public domain without the fault of
such party, or having become known to such party as a result of its having been
received from a third party not subject to a binder of confidentiality, then
such circumstances shall be documented to such other party prior to any
disclosure of the information to third parties, and in timely manner to allow
the party who provided such information to object to such proposed disclosure.
6.4 -- Nothing herein shall prevent CENTOCOR EUROPE or DANA-FARBER from
using its own proprietary information for their own purposes.
7. PUBLICITY
-------------
Except as provided in this Article 7 or as required by law, neither party
will originate any publicity, news release or other public announcement, written
or oral, whether to the public press, or stockholders, or otherwise, relating to
this License Agreement, to any amendment hereto or to performance hereunder or
the existence of an arrangement between the parties without the prior written
approval of the other party.
11
<PAGE>
8. REPRESENTATIONS AND COVENANTS
---------------------------------
8.1 -- DANA-FARBER represents and warrants to CENTOCOR EUROPE that:
(a) this License Agreement is a legal, valid and binding
obligation of DANA-FARBER, enforceable in accordance with its terms;
(b) it is the owner of and has title to end the exclusive right
to grant a license in and to the Cell Line, the Antibody and the Technology,
subject only to any non-exclusive rights of the United States, resulting from
the funding by it, for the United States to use the Cell Line, the Antibody or
the Technology for certain purposes; and
(c) it has the full right and power to grant the license set
forth in this License Agreement, and there are no outstanding agreements,
assignments or encumbrances inconsistent with the provisions of this License
Agreement, and that there are no limiting commitments other than as set forth in
this License Agreement.
8.2 -- DANA-FARBER covenants and agrees for the benefit of CENTOCOR
EUROPE as follows:
(a) to use all reasonable efforts not to take, suffer or permit
any action, or fail to act, if such action or failure to act would cause
CENTOCOR EUROPE to suffer the loss or impairment of all or any portion of any
right or license conveyed to it by or pursuant to this License Agreement;
12
<PAGE>
(b) to use all reasonable efforts to take all action necessary
on its part as licensor to satisfy its obligations to the United States relating
to the Cell Line, the Antibody or the Technology and to protect and preserve its
title thereto, including obtaining any necessary approvals of the United States
relating to this License Agreement;
(c) to use its best efforts to prevent any action or failure to
act (including any failure to approve any extension of any right or license
granted hereby) by any United States or foreign governmental body, agency or
authority which could result in the loss or impairment of any right or license
granted hereby;
(d) to disclose fully to CENTOCOR EUROPE all of the Technology
that is in the possession of, or hereafter acquired or developed by, DANA-
FARBER or any of its affiliates, and to make available to CENTOCOR EUROPE the
Cell Line, the Antibody and other materials and specimens relating to the
Technology that shall be in the possession of or available to DANA-FARBER all
pursuant to the Agreement dated March 1, 1984.
9. TERMINATION
---------------
9.1 -- CENTOCOR EUROPE may terminate this License Agreement by giving
DANA-FARBER notice in writing at least ninety (90) days in advance of the
effective date of termination selected by CENTOCOR EUROPE.
9.2 -- Notwithstanding anything in the Research Agreement to the
contrary, this License Agreement may be terminated, by notice from DANA-FARBER,
only if CENTOCOR EUROPE:
13
<PAGE>
(a) Is in default in payment of royalty or making of reports
under Article 4 of this License Agreement; or
(b) Is in breach of any other material provision of this License
Agreement; and CENTOCOR EUROPE fails to remedy any such default or breach within
ninety (90) days after written notice thereof by DANA-FARBER to CENTOCOR EUROPE.
9.3 -- Surviving any termination are:
(a) CENTOCOR EUROPE's obligation under Section 4.6 to make the
termination report;
(b) CENTOCOR EUROPE's obligation to pay royalties accrued to the
date of termination and accrued thereafter.
(c) CENTOCOR EUROPE's obligation under Section
4.7 to keep records and to allow a final audit; and
(d) Any cause of action or claim of CENTOCOR EUROPE or DANA-
FARBER, accrued or to accrue, because of any breach or default by the other
party.
10. ASSIGNMENT AND SUBLICENSE
------------------------------
This License Agreement and the licenses and other rights granted hereunder
may not be assigned, sublicensed or otherwise transferred.
14
<PAGE>
11. APPLICABLE LAW
-------------------
This License Agreement shall be construed, interpreted, and applied in
accordance with the laws of the Commonwealth of Massachusetts.
12. ARBITRATION
----------------
12.1 -- Any controversy arising under or related to this License
Agreement, or any disputed claim by either party hereto against the other under
this License Agreement, shall be referred to a panel of three arbitrators, one
chosen by each of the parties and the third selected by the two arbitrators
chosen by the parties and shall be settled by arbitration by such panel in
accordance with the Licensing Agreement Arbitration Rules of the American
Arbitration Association.
Judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereover.
12.2 -- Any arbitration under Section 12.1 shall be held at Boston,
Massachusetts or such other place as may be mutually agreed upon in writing
between the parties hereto.
13. NOTICES
------------
All notices, demands, or other writings in this License Agreement provided
to be given or made or sent, or which may be given or made or sent, in
connection with the Agreement, shall be in writing and deemed to have been fully
given or made when delivered or, if sent by certified mail,
15
<PAGE>
first class, postage prepaid, and addressed as follows:
To CENTOCOR EUROPE: Centocor Europe B.V.
Einsteinweg 101
NL-2333 CB Leiden
The Netherlands
Attention: Jacques E. Fonteyne
Managing Director
To DANA-FARBER: Dana-Farber Cancer Institute
44 Binney Street
Boston, Massachusetts 02115
Attention: Dr. David Kiszkiss
Director for Research
The address to which any notice, demand, or other writing may be given, made or
sent to any party hereto may be changed by written notice given by such Person
to the parties hereto and all Rights Holders as above provided.
14. WAIVER
-----------
The parties covenant and agree that if either party hereunder fails or
neglects for any reason to take advantage of any of the terms hereof provided
for the termination of this License Agreement heretofore or if a party, having
the right to declare this License Agreement terminated, shall fail to do so, any
such failure or neglect by such party shall not be or be deemed or be construed
to be a waiver of any cause for the termination of this License Agreement
heretofore or subsequently arising, or as a waiver of any of the terms,
covenants or conditions of this License Agreement or of the performance
thereof. None of the terms, covenants, and conditions of this License
16
<PAGE>
Agreement can be amended or waived except by the written consent of the parties
hereto or the party waiving compliance, respectively.
15. SCOPE OF AGREEMENT
-----------------------
This License Agreement constitutes the entire agreement between the parties
pertaining to the subject matter hereof. No representative of DANA-FARBER or
CENTOCOR EUROPE has been authorized to make any representation, warranty, or
promise not contained herein. The provisions of this License Agreement govern
in case of a conflict or inconsistency with the Research Agreement dated March
1, 1984 or the Letter dated February 12, 1986. The rights and licenses granted
pursuant to, and other provisions of, this License Agreement are and shall be
independent of the terms and provisions of the Research Agreement, and no
failure by CENTOCOR EUROPE or DANA-FARBER to perform any of its respective
obligations under, or any other breach, or default under, or termination of, the
Research Agreement shall in any way affect the rights, licenses or obligations
hereunder of the parties or of any of the Rights Holders or Permitted Third
Parties. The Partnership, the Joint Venture and Permitted Third Parties shall
have no obligations under or with respect to the Research Agreement.
16. SUCCESSORS AND ASSIGNS
---------------------------
This License Agreement shall be binding upon the parties hereto and shall
inure to the benefit of the parties
17
<PAGE>
hereto and their respective successors and permitted assigns of any of the
foregoing and reference to any of them in this License Agreement shall be deemed
to include their respective successors and permitted assigns.
In the event that CENTOCOR's assignment of its rights to the Cell Line (and
any other rights described herein) to CENTOCOR EUROPE shall be ineffective or
invalid in any respect, then DANA-FARBER hereby acknowledges that the provisions
of this License Agreement shall apply, mutatis mutandis, to all such rights
------- --------
retained by CENTOCOR and that DANA-FARBER shall, upon the request of CENTOCOR,
enter into an appropriate amendment to this License Agreement to assign such
rights retained by CENTOCOR to CENTOCOR EUROPE.
17. HEADINGS
-------------
It is agreed that headings appearing at the beginning of the numbered
Articles hereof have been inserted for convenience only and do not constitute
any part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly
18
<PAGE>
executed this License Agreement as of the date first above written.
DANA-FARBER CANCER INSTITUTE
By: /s/ David F. Kiszkiss
-------------------------
Title: Director for Research
----------------------
Date: 12/11/86
-----------------------
CENTOCOR EUROPE B.V.
By: /s/ Jacques Fonteyne
-------------------------
Jacques Fonteyne
Title: Managing Director
----------------------
Date: 12/29/86
-----------------------
19
<PAGE>
DANA-FARBER
Cancer Institute
44 Birney Street, Boston, MA 02115 THE JIMMY FUND
David F. Kiszkiss, Ph.D.
Director of Research
February 4, 1987
Ms. Sara Shoaf Friel
Manager: Technology Administration
Centocor
244 Great Valley Parkway
Malvern, PA 19355
Dear Sarah:
I am writing to document our mutual agreement with respect to the licenses from
the Dana-Farber to Centocor for the DF3, CA 125, and SM1 antibodies.
With respect to DF3, we agree that Centocor now possesses an exclusive license
to the DF3 antibody for application in research, in vivo and in vitro-
-- ---- -- -----
diagnostics, and in therapy. This license is world-wide. While at the present
time there are no patents pertaining to DF3, your attorney will consider
preparation on an application on the assay or on the antigen recognized by DF3.
While this application may have investigators from the Dana-Farber as inventors
who will assign their rights in the invention to the Dana-Farber, Centocor shall
-----
have an exclusive license to DF 3 rights under that patent under terms of the
---------------------------------------------------
present agreement.
- ------------------
With respect to the OC 125 antibody, we agree that Centocor holds an exclusive
license for use of this antibody in research applications, in applications of in
--
vitro and in vivo diagnosis, and for therapy in a non-conjugated form. However,
- ----- -- ----
Centocor's license to the OC 125 antibody for use in human therapy in conjugated
form is non-exclusive, with immunoGen being the only other licensee with rights
to the OC 125 antibody inconjugates developed by ImmunoGen for human therapy.
With respect to the SM1 antibody I am pleased to confirm that the Dana-Farber
accepts the exercise by Centocor of its option to an exclusive license for SM1.
This exclusive license shall be for applications in research, in vitro and in
-- ----- --
vivo diagnostics, and for therapy in non-conjugated form. The license to
- ----
Centocor for use in human therapy in conjugated form shall be non-exclusive with
ImmunoGen holding a non-exclusive license for that particular purpose also.
For the use of the OC 125 and SM1 monocional antibodies in conjugated form for
human therapy, the Dana-Farber shall not grant to any parties other than
Centocor and ImmunoGen a license for commercial purposes. That is, your
licensee and that given to ImmunoGen shall be semi-exclusive.
<PAGE>
Centocor/2
Finally I am pleased to indicate that the licenses for all three antibodies
provided by the Dana-Farber to Centocor shall be for the maximum period
permissible by law and regulation.
Thank you and best wishes.
Sincerely,
/s/ David Kiszkiss
<PAGE>
Exhibit 10.10
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS
AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT
THE PLACES INDICATED BY DOUBLE ASTERISKS (**) AND HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
AGREEMENT
This Agreement is made as of the 15th of February, 1984, between CENTOCOR,
244 Great Valley Parkway, Great Valley Corporate Center, Malvern, Pennsylvania
(hereinafter "CENTOCOR") and DANA-FARBER CANCER INSTITUTE (hereinafter "DANA-
FARBER") on behalf of the Laboratory of Dr. Robert Bast, Jr. (hereinafter
"BAST"), 44 Binney Street, Boston, Massachusetts 02115, a corporation of
Massachusetts.
WHEREAS, CENTOCOR, INC. and the DANA-FARBER CANCER INSTITUTE desire to
expand the Field of an Agreement dated October 18, 1981 and expand the time
period of research funding; and
WHEREAS, both CENTOCOR and the DANA-FARBER CANCER INSTITUTE desire to
terminate the 1981 Agreement and to enter into a new agreement.
WHEREAS, the DANA-FARBER presently possesses certain know-how in the Field
of the development of monoclonal antibodies reactive with antigens
characteristic of ovarian carcinoma as conducted in the Laboratory of Dr. Robert
Bast, Jr. and the Laboratory of Dr. Robert C. Knapp, including the development
of antibodies against ovarian carcinoma oncogene products, the use of such
Antibodies for in vivo and in vitro medical diagnostics and the use of
-- ---- -- -----
such antibodies for medical therapeutics; and
WHEREAS, DANA-FARBER, on behalf of BAST, is desirous of and prepared to
conduct further research in said Field which may lead to the development of
commercial applications; and
WHEREAS, CENTOCOR is prepared to provide financial support to DANA-FARBER
for such research by Dr. Robert Bast, Jr. and Dr. Robert C. Knapp at DANA-
FARBER, providing it receives
<PAGE>
-2-
certain license and/or option rights under inventions and/or know-how in said
Field and;
WHEREAS, DANA-FARBER represents and warrants to CENTOCOR that, (i) it has
full right and authority to enter into this Agreement without consent or
approval of any third person, and (ii) it is not subject to any restrictions
which would prevent or impair the grant to CENTOCOR of the licenses granted
hereby, the exercise by CENTOCOR of the option to obtain licenses or the
exercise by CENTOCOR of such licenses, other than those imposed upon DANA-FARBER
by its grantee and/or contractor status under federal, philanthropic or non-
profit sponsorship.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, CENTOCOR and DANA-FARBER agree as
follows:
ARTICLE I - PLAN FOR RESEARCH AND BUDGET
----------------------------------------
1.01 CENTOCOR agrees to pay to DANA-FARBER funds to support research
relating to the above-mentioned Field and DANA-FARBER agrees to supply the
services of requisite personnel and to furnish the necessary facilities and to
carry out such research all according to an Annual Plan for Research and Budget
agreed upon by CENTOCOR and DANA-FARBER.
1.02 DANA-FARBER, shall annually submit to CENTOCOR a proposed plan for
research and budget. The Plan for Research for the first (lst) year of five (5)
years and the budget for the first year of this Agreement and projected budgets
for four subsequent years are set forth in Attachment A hereto. The Plan for
Research for the second (2nd), third (3rd), fourth (4th) and fifth (5th) years
of this Agreement will be submitted ninety (90) days prior to the commencement
of each year. The parties will negotiate in good faith and use their best
effort to agree upon the Plan for Research and CENTOCOR shall notify
<PAGE>
-3-
DANA-FARBER in writing of its acceptance of the Plan for Research submitted by
DANA-FARBER.
1.03 For as long as they remain at DANA-FARBER, such research by DANA-
FARBER shall be under the direction of Dr. Robert Bast, Jr. and Dr. Robert C.
Knapp. In addition, Dr. Robert Bast, Jr. and Dr. Robert C. Knapp will not
conduct research in the Field for other commercial organizations during the term
of this Agreement.
1.04 In the event that the services of Dr. Robert Bast, Jr. become for any
reason unavailable during the course of this Agreement, the DANA-FARBER shall
have ninety (90) days within which to provide a replacement who shall be
acceptable to CENTOCOR. Said replacement shall be upon the joint agreement of
the DANA-FARBER CANCER INSTITUTE and the Chiefs of Gynecology and Tumor
Immunology at DANA-FARBER. CENTOCOR shall not unreasonably withhold acceptance
of such replacement. In the event that no such replacement is provided, the
obligations of CENTOCOR to fund the Agreement shall cease.
ARTICLE II - INVOLVEMENT OF HUMAN SUBJECT
-----------------------------------------
2.01 Before arranging for any clinical trial(s) involving medical
diagnostics and therapeutics of any development within the Field, CENTOCOR shall
first invite DANA-FARBER in writing to conduct such trial(s) during the period
of this Agreement and thereafter. If DANA-FARBER agrees to conduct the
trial(s), DANA-FARBER will respond to CENTOCOR in writing by the thirtieth day
next following its receipt of the invitation; but nothing in the Agreement shall
be construed to require DANA-FARBER, if DANA-FARBER declines the invitation, to
conduct any clinical trial. All direct and indirect expenses of every clinical
trial of any Product shall be paid by CENTOCOR.
2.02 If the clinical trials require multi-institutional participation,
prior written approval from the DANA-FARBER must
<PAGE>
-4-
be obtained by CENTOCOR before any invitation or overture to another Institution
to participate in the clinical trials is extended and CENTOCOR will notify and
discuss with DANA-FARBER and Drs. Bast and Knapp the shipment of antibody to
other investigators.
2.03 At the time the Plan for Research involves the use of medical
therapeutics on human subjects, the budget for the time period involved will be
supplemented over and above that described in Appendix A to cover all patient
costs incurred due to this use.
2.04 When human studies are directly sponsored by CENTOCOR in the Field,
CENTOCOR assumes any and all liability for injury to any human subject or
another person or persons or any other liability resulting from an in vivo use
--
conducted at the DANA-FARBER or otherwise, and CENTOCOR further agrees to
indemnify DANA-FARBER investigators and professional personnel for loss incurred
as a result of said in vitro and in vivo use conducted at DANA-FARBER or
-- ----- --
otherwise provided that all in vitro and in vivo use when conducted at DANA-
-- ----- -- ----
FARBER will be conducted in accordance with the National Institute of Health
Guidelines in regard to the Rights and Protection of Human Subjects and where
appropriate, the Food and Drug Administration rules, regulations and guidelines
and the rules, regulations and guidelines of the Human Subjects Protection
Committee of the DANA-FARBER. In connection with human studies, DANA-FARBER
agrees to assume any and all liability for injury to any human subjects
resulting from any act of omission of DANA-FARBER in conducting human studies.
ARTICLE III - REPORTS BY DANA-FARBER
------------------------------------
3.01 DANA-FARBER, through the efforts of BAST, shall provide annual
reports in writing to CENTOCOR, presenting a brief summary of the research
conducted and the results obtained during the preceding twelve (12) months
regarding its
<PAGE>
-5-
work in the Field. At the conclusion of each annual period or in the event of
termination of the Agreement, CENTOCOR shall receive a complete detailed report
of the work carried out and funded by this Agreement.
ARTICLE IV - PAYMENTS BY CENTOCOR
---------------------------------
4.01 CENTOCOR shall pay to DANA-FARBER [**]
Dollars [**] in the first year of this Agreement in support of
the research to be conducted. [**] Dollars and
[**] Cents [**] shall be paid upon the signing of this Agreement
and at quarterly intervals thereafter.
4.02 The second year of the Agreement shall be paid at quarterly intervals
at a funding level of [**] , assuming reasonable progress and provided
CENTOCOR shall approve the Plan for Research for such year.
4.03 The third year of the Agreement shall be paid in the same manner as
the second year and the funding level will be [**] , assuming reasonable
progress and provided CENTOCOR shall approve the Plan for Research for such
year.
4.04 The fourth year of the Agreement shall be paid in the same manner as
the third year and the funding level will be [**] , assuming reasonable
progress and provided CENTOCOR shall approve the Plan for Research for such
year.
4.05 The fifth year of the Agreement shall be paid in the same manner as
the fourth year and the funding level will be [**] , assuming reasonable
progress and provided CENTOCOR shall approve the Plan for Research for such
year.
4.06 At each yearly anniversary of the Agreement, the parties shall
determine whether DANA-FARBER has made reasonable progress in the Field. In the
event it is established that
<PAGE>
-6-
reasonable progress has not been made, CENTOCOR, upon their option, may cease
the funding of the research upon ninety (90) days notice. However, if the
parties disagree as to whether reasonable progress has been made, this issue
will be settled in accordance with Article XV, Arbitration. During the period
of arbitration, CENTOCOR shall continue to fund the research on a monthly basis
prorating the yearly funding to a monthly amount up to a period of twelve (12)
months following the initiation of arbitration.
ARTICLE V - ESTABLISHMENT OF DANA-FARBER PROPRIETARY POSITION
-------------------------------------------------------------
5.01 DANA-FARBER agrees to establish a proprietary position in the Field to
the extent possible by (i) applying, when appropriate, for patents in the United
States and abroad on inventions conceived and/or reduced to practice covering
the results of this research; (ii) maintaining information which is generated as
confidential know-how except to the extent that rights are reserved under
section 5.04 (ii) and (iii) obtaining title to inventions funded by Government
or third party support, whenever possible. CENTOCOR agrees that it shall bear
the cost of applying for any and all patents under section 5.01 and these costs
shall be deducted from future royalties. The choice of counsel shall be
agreeable to both CENTOCOR and DANA-FARBER.
5.02 For inventions which are jointly conceived by DANA-FARBER and CENTOCOR
inventors, DANA-FARBER inventors shall assign their rights to DANA-FARBER and
CENTOCOR inventors shall assign their rights to CENTOCOR.
5.03 CENTOCOR shall have the right to have all of the research conducted
and funded hereunder reviewed by patent counsel of its choice subject to the
provisions of paragraph 5.01 and shall have the right to apply for patent
protection throughout the world for any invention conceived solely or
<PAGE>
-7-
jointly by CENTOCOR personnel. All expenses incurred by CENTOCOR in applying for
patent protection relating to inventions conceived solely or jointly by CENTOCOR
personnel shall be borne totally by CENTOCOR and none of the expenses shall be
creditable against any future royalty payments due DANA-FARBER by CENTOCOR. At
DANA-FARBER's request, CENTOCOR shall also apply for patent protection on behalf
of DANA-FARBER for inventions conceived entirely by DANA-FARBER employees. If
CENTOCOR so applies for patent protection on behalf of DANA-FARBER, all expenses
incurred by CENTOCOR shall be creditable against future royalty payments due
DANA-FARBER from CENTOCOR.
5.04 The DANA-FARBER recognizes that during the course of this Agreement it
may, on behalf of BAST, acquire from CENTOCOR trade secrets or information which
is confidential to CENTOCOR. CENTOCOR has a period of thirty (30) days after the
exchange of information to notify DANA-FARBER as to whether said information
given to DANA-FARBER is to be considered confidential. Accordingly, the DANA-
FARBER agrees as follows: (i) except in furtherance of the Agreement, DANA-
FARBER will not at any time, during or subsequent to this Agreement, disclose
any information or knowledge received from CENTOCOR which has been so designated
as being secret and confidential, except to the extent that such information was
previously known to the DANA-FARBER as shown by its written records or except to
the extent that such information is or becomes available to the public without
fault on the part of the DANA-FARBER; (ii) the DANA-FARBER and its employees
shall have the rights to publish or otherwise publicly disclose information
gained in the course of the Agreement subject to the provisions of 5.4 (i)
hereof provided it gives CENTOCOR draft of the disclosure (manuscript or
abstract) at least sixty (60) days in advance of such publication.
5.05 DANA-FARBER retains the right to (i) use any of the cell lines,
antibodies or their improvements derived in part or
<PAGE>
-8-
total from this Agreement free of cost for its own research; (ii) distribute the
antibodies, antibody compositions, cell lines, or somatic cell hybrids to others
engaged in non-commercial research, free of cost, under a written agreement that
the use will be restricted to non-commercial research and that provided
materials shall not be transferred or communicated to any third person for any
reason.
ARTICLE VI - OPTION TO CENTOCOR
-------------------------------
6.01 In view of CENTOCOR's support for research hereunder and for research
which was subject to the October 18, 1981 Agreement, DANA-FARBER grants to
CENTOCOR a non-exclusive, world-wide, irrevocable royalty-bearing license under
all DANA-FARBER rights including patent rights (rights arising from patent
applications and/or issued patents) in this Field and funded under this
Agreement or the October 18, 1981 Agreement and DANA-FARBER know-how covering
products and/or methods arising out of this research. The royalty shall be [**]
of the NET selling price. The NET selling price shall mean the sales price of
products actually charged by CENTOCOR, its affiliates, or licensees in the Field
of this Agreement. In the event DANA-FARBER grants a license to any third party
with respect to the Field of interest which provides for a lower rate of
royalties with respect to the practice of such DANA-FARBER invention, the
royalty payable by CENTOCOR shall be reduced to the rate paid by the third
party. The DANA-FARBER further grants to CENTOCOR an option based on an
agreement negotiated in good faith by the parties to obtain, whenever possible
and desired by CENTOCOR, an exclusive, world-wide, royalty-bearing license in
the Field for a maximum period possible under any or all of said DANA-FARBER
patent rights and know-how to make, have made, use and/or sell products and to
practice methods developed in this research. If such option is exercised, the
royalty shall be [**] of the NET selling price, defined as previously noted.
Royalties shall be paid to the DANA-FARBER as long as the product is marketed by
CENTOCOR and/or by
<PAGE>
-9-
another corporation as noted in other areas of this Agreement CENTOCOR shall not
have the right to sublicense or assign its rights or delegate its obligations
under licenses resulting from this Agreement, without DANA-FARBER's prior
approval, except that CENTOCOR may assign this Agreement to an entity with which
it merges or consolidates or to a corporation of which it owns at least 50% of
the equity.
6.02 If DANA-FARBER and CENTOCOR are unable to agree upon suitable terms
for any particular license, and DANA-FARBER has a bona fide offer of license
from a third party, CENTOCOR shall have the right to match this offer within one
(1) month from the date of notification of such offer from a third party and to
thereby receive the license upon the same terms in lieu of said third party.
6.03 The DANA-FARBER further agrees, in view of CENTOCOR's support, to make
any somatic cell hybrids developed under this research program available for use
in medical diagnostics and therapeutics to CENTOCOR upon request or if to a
CENTOCOR's designee, then upon the agreement of the parties. If DANA-FARBER has
patent protection for such somatic cell hybrids, CENTOCOR shall have the right
to receive an exclusive, world-wide license to use each of said somatic cell
hybrids in the Field for a licensing fee of [**] Dollars [**]
per somatic cell hybrid line. Such license shall include the right to sublicense
these rights within the Field upon approval of DANA-FARBER which shall not be
unreasonably withheld.
6.04 If CENTOCOR makes payment to one or more third parties under patents
and/or know-how which CENTOCOR reasonably believes covers a product or process
licensed hereunder, the payments due under this Agreement shall be reduced by
the amount of payments actually made to said third parties by CENTOCOR;
providing, however, that the payments from CENTOCOR to the DANA-FARBER due under
this Agreement shall not be
<PAGE>
-10-
reduced, in any event, to less than [**] of the NET selling price due to such
payments to said third parties. The return of any payments to CENTOCOR because
of an invalidated patent or know-how in the public domain shall be paid to the
DANA-FARBER in an amount necessary to restore the reduced royalty payment.
6.05 The option previously exercised by CENTOCOR pursuant to the October
18, 1981 Agreement and incorporated therein as Appendix C shall remain effective
and is therefore incorporated herein as Appendix B.
ARTICLE VII - COMMERCIAL DEVELOPMENT
------------------------------------
7.01 CENTOCOR shall use its best efforts, including such efforts of any or
all of its affiliates and licensees, commercially to develop, manufacture and
distribute products throughout the world.
7.02 At intervals no longer than every twelve (12) months, CENTOCOR shall
report in writing to DANA-FARBER on progress made toward commercialization,
manufacturing and distribution of the products and royalties earned thereon, and
if at any time progress is not considered reasonable, DANA-FARBER may terminate
this agreement upon notice to CENTOCOR and according to provisions of section
10.02.
7.03 CENTOCOR agrees to use nomenclature specified by Dr. Robert Bast, Jr.
and Dr. Robert C. Knapp, unless otherwise authorized in writing by DANA-FARBER,
to identify the hybridomas for the purposes of publication, promotion and
commercial development of the hybridomas, but shall not identify either DANA-
FARBER, nor Dr. Robert Bast, Jr., nor Dr. Robert C. Knapp, nor their DANA-FARBER
collaborators as being the source of the antibodies and/or hybridomas; except
that any publication may refer to the published record. CENTOCOR will allow Drs.
Bast and Knapp to comment on any
<PAGE>
-11-
advertising as it relates to the DANA-FARBER prior to publication by CENTOCOR.
ARTICLE VII - EFFECTIVE AND TERM
--------------------------------
8.01 This Agreement shall become effective on the day and year first above
written, and unless previously terminated in accordance with any provisions
hereof, shall remain in full force and effect for a period of five (5) years
from such date.
ARTICLE IX - CENTOCOR'S RIGHT OF FIRST REFUSAL
----------------------------------------------
9.01 Prior to Dr. Robert Bast, Jr. initiating, renewing or extending any
other commercial program involving in vitro and in vivo medical diagnostic and
-- ----- -- ----
therapeutics employing ovarian monoclonal antibodies, CENTOCOR shall have a
right of first refusal to support said other program on terms to be determined
by good faith negotiations between the parties or upon the same terms and
conditions that any third party has agreed to and to thereby receive the same
benefits as DANA-FARBER had agreed to provide in return for said third party's
support. CENTOCOR shall provide written notice to DANA-FARBER within one (1)
month of such notification stating whether CENTOCOR wishes to exercise this
right of first refusal.
ARTICLE X - TERMINATION
-----------------------
10.01 DANA-FARBER, shall have the right to terminate this Agreement by
giving at least thirty (30) days notice thereof in writing to CENTOCOR, and upon
the giving of such notice, this Agreement shall terminate as of such date. In
the event of such termination by DANA-FARBER: (i) CENTOCOR's obligation to fund
in whole or in part the terminated research shall be limited to so much thereof
as shall have been conducted prior to such termination; (ii) Upon CENTOCOR's
written request thirty (30) days next following the date of the termination,
<PAGE>
-12-
DANA-FARBER, shall disclose to CENTOCOR all research information funded by this
Agreement which shall be in its possession at such date which relates to the
terminated research and, (iii) shall grant to CENTOCOR the right of first
refusal for license for each hybridoma or actual or expected patent resulting
from the terminated research.
10.02 Failure by DANA-FARBER or CENTOCOR to comply with any of the
respective obligations and conditions contained in this Agreement shall entitle
the other party to give to the party in default notice requiring it to make good
such default. If such default is not made good within ninety (90) days after
receipt of such notice, the notifying party shall be entitled (without prejudice
to any of the other rights conferred on it by this Agreement) to terminate this
Agreement by giving notice to take effect immediately. The right of either
party to terminate this Agreement as hereinabove provided shall not be affected
in any way by its waiver of, or failure to take action with respect to, any
previous default.
10.03 In the event that one of the parties shall go into liquidation, or
a receiver, custodian or trustee be appointed for the property or estate of that
party, or the party makes an assignment for the benefit of creditors, and
whether any of the aforesaid events be the outcome of the voluntary act of that
party, or otherwise, the other party shall be entitled to terminate this
Agreement forthwith by giving written notice to the first party.
10.04 Termination or expiration of the Agreement, other than under
paragraph 10.02 and 10.03, shall not affect rights and obligations of either
party and licenses granted under Article VI.
ARTICLE XI - ASSIGNMENT
-----------------------
11.01 The rights of CENTOCOR, under this Agreement, may not be assigned
and the duties of CENTOCOR under this Agreement
<PAGE>
-13-
may not be delegated without the prior written consent of DANA-FARBER, except
that CENTOCOR may assign this Agreement to an entity with which it merges or
consolidates, or to which substantially all of its assets relating to the Field
of the Agreement are sold or otherwise transferred, then DANA-FARBER shall have
the right to terminate this Agreement at its option.
ARTICLE XII - NOTICES
---------------------
12.01 Any notice, report or demand required to be given by either party
under the terms of this Agreement shall be given in writing by letter properly
addressed and containing sufficient postage to the party for whom it is
intended. Those to be sent to DANA-FARBER shall be addressed to DANA-FARBER
CANCER INSTITUTE, 44 Binney Street, Boston, Massachusetts 02115, Attention:
Director for Research or to such other address as DANA-FARBER shall designate
from time to time. Those to be sent to CENTOCOR shall be addressed to: Dr.
Hubert J.P. Schoemaker, President, CENTOCOR, 244 Great Valley Parkway, Malvern,
Pennsylvania 19355 or to such other address as CENTOCOR shall designate from
time to time. Each notice so mailed as hereinabove provided shall be deemed to
have been given when mailed.
ARTICLE XII - TITLES
--------------------
13.01 It is agreed that marginal headings appearing at the beginning of
the numbered articles hereof have been inserted for convenience only and do not
constitute any part
of this Agreement.
ARTICLE XIV - STATUS OF PARTIES
-------------------------------
14.01 DANA-FARBER and CENTOCOR agree that each party to this Agreement is
operating as an independent contractor and not as an agent of the other. This
Agreement shall not constitute a partnership or joint venture, and neither party
<PAGE>
-14-
may be bound by the other to any contract, arrangement or understanding except
as specifically stated herein.
14.02 No publicity, news release, or other public announcement, written or
oral, whether to the public press, to stockholders, or otherwise relating to the
Agreement, to any amendment hereto or to performance hereunder or the existence
of the arrangement between the parties shall be originated by either CENTOCOR,
DANA-FARBER or their employees without written approval of the other party to
this Agreement except as required by law. CENTOCOR shall not knowingly disclose
the name of any DANA-FARBER investigator or project relating to this Agreement.
However, CENTOCOR may use descriptive scientific terminology in accordance with
section 7.03 in marketing a product.
ARTICLE XV - ARBITRATION
------------------------
15.01 Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Licensing Agreement Arbitration Rules of the American Arbitration
Association. The arbitration panel shall be composed of three (3) arbitrators,
one of whom shall be chosen by DANA-FARBER, one by CENTOCOR and the third by the
two (2) so chosen. If both or either of DANA-FARBER or CENTOCOR fail to choose a
third arbitrator or arbitrators within fourteen (14) days after their
appointment, the President of the Licensing Executives Society (U.S.A.) shall,
upon the request of both or either of the parties to the arbitration, appoint
the arbitrator or arbitrators required to complete the board or, if he shall
decline or fail to do so, such arbitrators shall be appointed by the American
Arbitration Association. Unless the parties to the Arbitration shall otherwise
agree to a place of arbitration, the place of arbitration shall be Boston,
Massachusetts. The Arbitration award shall be final and binding upon the parties
to such
<PAGE>
-15-
arbitration and may be entered in any court having jurisdiction.
15.02 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
ARTICLE XVI - INVALIDITY OR UNENFORCEABILITY
--------------------------------------------
If and to the extent that any court of competent jurisdiction holds any
provision (or any part thereof) of this Agreement to be invalid or
unenforceable, said invalid section shall be severable herefrom and shall in no
way effect the validity of the remainder of this Agreement.
<PAGE>
-16-
ARTICLE XVI - ENTIRE AGREEMENT
------------------------------
16.01 This Agreement constitutes the entire Agreement between the
parties, and no variation of modification of this Agreement or waiver of any of
its terms or provisions shall be deemed valid unless in writing and signed by
both parties.
IN WITNESS WHEREOF, and for making this Agreement come into force from the
date first above written, both parties cause this Agreement to be duly signed by
their respective authorized representatives.
ACKNOWLEDGEMENT
DANA-FARBER CANCER INSTITUTE
WITNESS
/s/ Ericha Jacobson /s/ David F. Kiszkiss
- ------------------- ------------------------------
David F. Kiszkiss Ph.D.
Director for Research
1/12/84
------------------------------
Date
/s/ Robert C. Bast, Jr.
------------------------------
Robert C. Bast, Jr., M.D.
/s/ Robert C. Knapp
------------------------------
Robert C. Knapp M.D.
CENTOCOR
WITNESS
/s/ Hubert J.P. Schoemaker
- ------------------- ------------------------------
Hubert J. P. Schoemaker, Ph.D.
President
1/24/84
------------------------------
Date
<PAGE>
Exhibit 10.11
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS
AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT
THE PLACES INDICATED BY DOUBLE ASTERISKS (**) AND HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
CENTOCOR
244 GREAT VALLEY PARKWAY, MALVERN, PA 19355 (215) 296-4488
ANTONI VAN LEEUWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT
-----------------------------------------------------
AGREEMENT dated as of October 15, 1984, between Antoni van Leeuwenhoekhuis,
Het Nederlands Kankerinstituut, a corporation of the Netherlands ("Licensor")
and Centocor, Incorporated, a Pennsylvania corporation ("Licensee");
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-2
ARTICLE I - DEFINITIONS
-----------------------
A. "Principle Investigator" shall mean Dr. Jo Hilgers and Dr. John Hilkens,
employees of Licensor.
B. "Licensed Cell Lines" shall mean hybrid cell lines developed by the
Principal Investigator that produce monoclonal antibodies directed against
specific antigens as designated by Licensor in Appendix I hereto.
C. "Licensed Technical Information" shall mean information relating to
development and growth of the Licensed Cell Lines and to production and
recovery from the Licensed Cell Lines of monoclonal antibodies, including,
inter alia, technical data, practice, plans, specifications, and patent
----------
applications.
D. "Licensed Patents" shall mean any patent application owned by Licensor or
any patent, domestic or foreign, which issues to Licensor concerning any
Licensed Cell Lines or any process, method, or composition involving same,
or monoclonal antibodies produced by using same or any other invention
embodied in the Licensed Cell Lines or disclosed by the Licensed Technical
Information.
E. "Licensed Products" shall mean any product containing the Licensed Cell
Lines or produced by use of the Licensed Cell Lines or the Licensed
Technical Information or coming within the scope of any claim of the
Licensed Patents and shall further mean any process employing the Licensed
Cell Lines or the Licensed Technical Information or coming within the
- 2 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-3
scope of any claim of the Licensed Patents. Licensed Products specifically
include any product containing a monoclonal antibody produced by use of the
Licensed Cell Lines or the Licensed Technical Information.
F. "Field" shall mean the use of monoclonal antibodies produced from Licensed
Cell Lines in diagnostic and therapeutic applications excluding (a) use of
antibody in-vivo diagnostic radioimaging applications and (b) therapeutic
applications using monoclonal antibodies coupled to toxins.
G. "Affiliate" shall mean any corporation or other business entity which
directly or indirectly controls, is controlled by, or is under common
control with, Licensee. Control means ownership of or other beneficial
interest in 50 percent or more of the voting stock or other voting interest
of a corporation or other business entity.
H. "Net Sales" shall mean the total invoice price charged by Licensee for the
sale of Licensed Products, less the cost of customary trade discounts,
broker's or agent's commissions, credits given for rejected or returned
products, freight, value added, sales or use taxes and customs duties. In
the case of transfers or sale of Licensed Products by Licensee to an
Affiliate for sales by the Affiliate, Net Sales shall be based upon the
greater of the total invoice price charged by Licensee to the Affiliate or
the total invoice price charged by the Affiliate to its customers.
- 3 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-4
ARTICLE II - LICENSE GRANT
--------------------------
A. Licensor hereby grants to Licensee, upon and subject to all the terms and
conditions of this Agreement, an exclusive license in the Field to
manufacture, use and sell monoclonal antibodies produced by using the
Licensed Cell Lines and Licensed Products, which exclusive license is non-
transferable and worldwide.
B. Licensor hereby grants to Licensee, upon and subject to all the terms and
conditions of this Agreement, a license to possess and use the Licensed
Technical Information prior to publication or other distribution thereof by
Licensor.
C. In the event that Licensee shall require a license under Licensed Patents,
Licensor hereby grants to Licensee, upon and subject to all the terms and
conditions of this Agreement, license of limited term as defined by Article
III, C under the Licensed Patents to possess, culture and employ the
Licensed Cell Lines and to manufacture and sell monoclonal antibodies
produced by using the Licensed Cell Lines and products containing such
antibodies, in all countries where the Licensed Patents are effective,
which license is non-transferable.
D. Licensor further grants to Licensee the right to sublicense third parties,
provided that the terms and provisions of this Agreement are met where
applicable, and that Licensee notifies Licensor of any proposed
sublicensing agreement prior to execution.
- 4 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-5
ARTICLE III - TERMS OF AGREEMENT
--------------------------------
A. The terms, conditions, and obligations of this Agreement become effective
as of the date of signing by both parties.
B. The term of the licenses granted under this Agreement for the Licensed Cell
Lines and the Licensed Technical Information shall continue until this
Agreement is terminated as provided in Article IX.
C. The term of the license granted under this Agreement for the Licensed
Patents shall be for the duration of any such Licensed Patents or for such
period as is allowed.
- 5 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-6
ARTICLE IV - PROSECUTION
------------------------
Licensor has the sole right to determine whether it shall make application for
domestic or foreign patent for any invention embodied in the Licensed Cell Lines
or disclosed by the Licensed Technical Information.
- 6 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-7
ARTICLE V - ROYALTIES
---------------------
A. In consideration of the licenses granted under this Agreement concerning
the Licensed Cell Lines and the Licensed Technical Information, Licensee
agrees to pay to Licensor a percentage of Net Sales of Licensed Products
such payment to be used to fund further research on cancer immunology in
Het Nederlands Kankerinstituut as follows:
(i) [**] with respect to the sale of Licensed Products produced from
Licensed Cell Line or;
(ii) With respect to Net Sales of Licensed Products coming within the scope
of any claim of a Licensed Patent which has issued to Licensor, the
amounts which Licensee shall pay to Licensor, [**] of Net Sales of
such Licensed Products.
B. In consideration of the right to sublicense third parties granted by
Licensor to Licensee, Licensee agrees to pay Licensor an amount equal to
[**] percent [**] of all amounts received from each sublicensee under a
sublicensing agreement.
C. If Centocor has to pay royalties to a third party due to a valid patent
that Licensed Products infringe, Centocor may reduce royalties due under
Article V by half of the royalties paid to said third party, but in no
event shall the royalties under this Agreement be reduced by more than
[**].
- 7 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-8
ARTICLE VI - PAYMENT AND REPORTS
--------------------------------
A. On or before the last business day of January, April, July, and October of
each year of this Agreement, Licensee shall submit to Licensor a written
report stating:
(i) A calculation of the amounts due under Article V, A and;
(ii) A calculation of the amounts due to Licensor based on monies due
Licensee under Section V, B.
The written report shall also include, with respect to each Licensed
Cell Line, the quantity of Licensed Products sold, the Net Sales price
charged, the names of any sublicensees, the quantity of Licensed
Products sold by sublicensees, and the amount of money due Licensee
from sublicensees, and shall be accompanied by payment of the
calculated royalty. In the case of transfers or sales of Licensed
Products by Licensee to an Affiliate for sale by the Affiliate, the
written report shall further include the quantity of Licensed Products
transferred or sold to the Affiliate and the total invoice price
charged by Licensee to the Affiliate and by the Affiliate to its
customers.
B. Licensee shall maintain at its principal office usual books of account and
records showing its actions under this Agreement. Such books and records
shall be open to inspection and copying, during usual business hours by an
independent certified public accountant for two (2) years after the
calendar quarter to which they pertain, for purposes of verifying the
accuracy of the royalties paid by Licensee under this Agreement.
- 8 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-9
ARTICLE VII - BEST EFFORTS
--------------------------
A. Licensee shall employ its best efforts to perfect and market the Licensed
Products. Best efforts shall be judged by Licensor using an objective
standard and the reports and records provided by Licensee as well as other
resources and literature available to or developable by Licensor.
B. Marketing shall, where reasonably required to meet marketing objectives,
include sales, offers for sale, sales development, technical consultation
pursuant to sales, manufacture, production or processing, detailing to
suitable buyers, advertisement, publication of technical reports,
sponsorship of scientific meetings pursuant to or directed to the Licensed
Cell Lines, the Licensed Technical Information and the Licensed Patents,
and further activities of similar types.
C. From time to time, upon Licensor's reasonable request, Licensee shall
consult with Licensor on a confidential basis to advise Licensor of the
state of development of Licensed Products.
D. Licensee recognizes that Drs. Hilkens and Hilgers will perform further
research studies utilizing 115DB in animal models (nude mice) to determine
efficiency in diagnostic imaging and therapy experiments and Licensee will
not perform similar research studies unless mutually agreed upon between
Drs. Hilkens/Hilgers and Centocor representatives.
E. Licensee shall invite Licensor to participate in in vivo diagnostic and
therapeutic clinical trial studies and all human trials shall be performed
after mutual agreement has been reached between Drs. Hilkens/Hilgers and
Centocor representatives.
- 9 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-10
ARTICLE VIII - TECHNICAL CORRESPONDENT; CONFIDENTIAL INFORMATION
----------------------------------------------------------------
A. Licensor and Licensee shall each select an employee who shall act as its
technical correspondent in transmitting technical information and in
arranging for other assistance necessary to fully exploit the Licensed Cell
Lines. Each party shall indicate promptly to the other in writing the name
of its technical correspondent.
B. For a period of 18 months, Licensor's technical correspondent shall answer
all reasonable technical inquiries received from Licensee's technical
correspondent relating to the Licensed Cell Lines, Licensed Technical
Information and Licensed Products.
C. Licensor may, but is not obligated to, receive confidential information
from Licensee. Licensor will not disclose or make available confidential
information received from Licensee to third parties without Licensee's
written permission. Licensor's obligations under this paragraph apply only
to information which Licensee has designated in writing as "Confidential".
Any such confidential information shall be submitted by Licensee to
Licensor's Office of Science and Technology Development. The obligations
of confidence under this Article VIII do not apply to any information
which:
(i) was known to Licensor prior to receipt thereof from Licensee;
(ii) was or becomes a matter of public information or publicly
available through no act or failure to act on the part of
Licensor;
(iii) is acquired by Licensor form a third party entitled to disclose
the information to it; or
(iv) was developed independently by Licensor.
- 10 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-11
ARTICLE IX - TERMINATION
------------------------
A. This Agreement and the licenses granted under it may be terminated by
Licensor (i) upon sixty (60) days written notice to Licensee for Licensee's
material breach of the Agreement and failure to cure in accordance with
Article X, B or (ii) should Licensee commit any act of bankruptcy, become
insolvent, file a petition under any bankruptcy or insolvency act, or have
any such petition filed against it, or offer any general compostion to its
creditors, because of the happening of such act, event or offer.
B. Upon any termination of this Agreement and any license granted under it,
for any reason other than a failure to cure a material breach of the
Agreement, Licensee shall have the right for one (1) year to dispose of all
Licensed Products or substantially completed Licensed Products then on
hand, and to complete all orders for such Licensed Products then on hand,
and royalties shall be paid to Licensor with respect to such Licensed
Products as though this Agreement had not terminated.
C. Upon any termination of this Agreement all licenses granted by Licensor and
all sublicenses granted by Licensee under it shall terminate
simultaneously, subject nevertheless to Article IX, B.
D. Termination of this Agreement shall not terminate Licensee's obligation to
pay all royalties which shall have accrued hereunder.
- 11 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-12
ARTICLE X - BREACH AND CURE
---------------------------
A. In addition to the applicable legal standards and as provided
herein, Licensee shall be in material breach of this Agreement for the
following reasons:
(i) Failure to use best efforts pursuant to Article VII;
(ii) Failure to pay royalties pursuant to Article V;
B. Licensee shall have the right to cure its material breach. The cure shall
be effected within a reasonable time but in no event later than sixty (60)
days after notice of breach given by Licensor.
- 12 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-13
ARTICLE XI - INFRINGEMENT
-------------------------
A. Licensor will protect its Licensed Patents from infringement and prosecute
infringers when in its sole judgement such action may be reasonably
necessary, proper and justified.
B. If Licensee shall have supplied Licensor with written evidence
demonstrating to Licensor's satisfaction prima facie infringement of claim
----- -----
of a Licensed Patent by a third party selling products in competition with
Licensee, Licensee may by notice request Licensor to take steps to protect
the Licensed Patent, and unless Licensor shall within three months of the
receipt of such notice either (i) cause such infringement to terminate
or (ii) initiate legal proceedings against the infringer, Licensee may upon
notice to Licensor initiate legal proceedings against the infringer at
Licensee's expense. In such event, Licensee may deduct from royalties
payable hereunder reasonable costs and legal fees incurred to conduct such
proceedings, but in no event shall such royalties be reduced by more than
[**] percent of the amount due to Licensor in the absence of such
proceedings. Any recovery by licensee in such proceedings shall first be
used to pay Licensee any amounts withheld during the pendency of the
proceedings. The balance shall be divided [**] percent to Licensee and
[**] percent to Licensor.
C. In the event one party shall initiate or carry on legal proceedings to
enforce any Licensed Patent against an alleged infringer, the other party
shall fully cooperate with and supply all assistance reasonably requested
- 13 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-14
by the party initiating or carrying on such proceedings. The party
which institutes any suit to protect or enforce a Licensed Patent
shall have sole control of that suit, and shall bear the reasonable
expenses incurred by the remaining party in providing such assistance
and cooperation as is requested.
- 14 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-15
ARTICLE XII - WARRANTY
----------------------
Nothing in this Agreement shall be construed as a warranty or
representation by either party as to the validity of any Licensed Patent.
Further, nothing in this Agreement shall be construed as a warranty or
representation by either party that anything made, used, sold, or otherwise
disposed of under any license granted under this Agreement is or will be free
from infringement of domestic or foreign patents of third parties.
- 15 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-16
ARTICLE XIII - PROHIBITION AGAINST USE OF LEEUWENHOEKHUIS NAME
--------------------------------------------------------------
The use by Licensee or any sublicensee of Licensee of the name, or any
variation or combination thereof, or the name of any faculty member, other
employee or student of Leeuwenhoekhuis, for any purpose whatsoever is prohibited
unless Licensor gives written consent.
- 16 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-17
ARTICLE XIV - COMPLIANCE WITH GOVERNMENTAL OBLIGATIONS
------------------------------------------------------
Licensee shall comply with all governmental requests directed to either
Licensor or Licensee and provide all information and assistance necessary to
comply with the governmental requests. Failure to take necessary action and to
comply with said requests will be considered a material breach of this
Agreement. Notwithstanding any provisions in this Agreement, Licensor disclaims
any obligations or liabilities arising under the license provisions of this
Agreement if Licensee is charged in a governmental action for not complying with
or fails to comply with any governmental regulations.
- 17 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-18
ARTICLE XV - INDEMNITY
----------------------
Licensee will indemnify and hold harmless Licensor against any and all
actions, suits, claims, demands, or prosecutions that may be brought or
instituted against Licensor based on or arising out of this Agreement on the
following basis:
a. the manufacture, packaging, use or sale of Licensed Products by Licensee
or any sublicensee of Licensee;
b. any representation made or warranty given by Licensee or any
sublicensee of Licensee with respect to any Licensed Product; or
c. the use by Licensee or any sublicensee or Licensee of Licensed Cell
Lines, or Licensed Technical Information, or Licensed Products.
- 18 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-19
ARTICLE XVI - NOTICE
--------------------
Any notice, report, payment, or statement required or permitted under this
Agreement shall be considered to be given when sent by certified mail (return
receipt requested), postage prepaid and addressed to the party for whom it is
intended at its address of record. The record addresses of the parties are as
follows:
Licensor: Dr P. Borst, scientific director
Antoni van Leeuwenhoekhuis
Het Nederlands Kankerinstituut
Plesmanlaan 121
1066 CX Amsterdam
The Netherlands
Licensee: Hubert J.P. Schoemaker, Ph.D.
President
Centocor, Incorporated
244 Great Valley Parkway
Great Valley Corporate Center
Malvern, Pennsylvania 19355
U.S.A.
- 19 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-20
ARTICLE XVII - MISCELLANEOUS
----------------------------
This Agreement shall be governed by Dutch law applicable to agreements made
and to be performed in Holland.
The Agreement shall be binding on the parties hereto and upon their
repective heirs, administrators, successors and assigns. This Agreement may not
be assigned by either party without the written consent of the other party. No
change will be effective unless in writing and agreed to in writing by both
parties.
IN WITNESS WHEREOF, Licensor and Licensee have executed this Agreement as
of the date set forth.
Licensor
- --------
Date: Nov. 8, 1984
By: /s/ P. Borst
Title: Director of Research
For: Antoni van Leeuwenhoekhuis
Licensee
- --------
Date: Sept. 30, 1984
By: /s/ Hubert J.P. Schoemaker
Title: President
For: Centocor, Inc.
- 20 -
<PAGE>
LEEWENHOEKHUIS/CENTOCOR LICENSE AGREEMENT 0076C.092784.FOD Page-21
APPENDIX I
----------
Centocor obtains the rights pursuant to the agreement for a license in the
Field to use:
Hybridoma Cell Line 115D8 prepared against human milk fat membranes.
- 21 -
<PAGE>
Exhibit 10.12
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS
AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT
THE PLACES INDICATED BY DOUBLE ASTERISKS (**) AND HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
CENTOCOR
244 GREAT VALLEY PARKWAY, MALVERN, PA 19355 (215) 296-4488
TELEX: 173-190
FAX: (215) 644-7558
UNIVERSITY OF ARKANSAS - CENTOCOR
RESEARCH AND LICENSE AGREEMENT
------------------------------
This agreement is made as of the 1st of February 1990 (hereinafter
--- --------
"Effective Date") between
Centocor, Inc.
244 Great Valley Parkway
Malvern, Pennsylvania 19355,
a corporation of Pennsylvania,
(hereinafter "CENTOCOR")
AND
University of Arkansas
Suite 601
1123 South University Avenue
Little Rock, Arkansas 77204
(hereinafter "UA")
on behalf of the Laboratory of Dr. Timothy J. O'Brien
(hereinafter "Dr. O'Brien").
W I T N E S S E T H :
WHEREAS, UA presently possesses certain know-how in the field of antibodies
preferentially reactive with antigens having the epitope recognized by OC 125
and the use of such antibodies for in vitro diagnostic, prophylactic and
-- -----
therapeutic purposes (hereinafter "Field"); and
<PAGE>
WHEREAS, UA on behalf of Dr. O'Brien, is desirous of and prepared to
continue research in said Field (hereinafter "research") which may lead to the
development of commercial applications; and
WHEREAS, CENTOCOR is prepared to provide financial support to UA for such
Research by Dr. O'Brien at UA, providing it receives certain license and/or
option rights under inventions, patents and/or know-how in said Field; and
WHEREAS, UA represents that it has full rights by assignment to inventions,
patents and know-how in the Field and wishes to have such inventions and know-
how perfected and marketed at the earliest possible time in order that products
resulting therefrom might be available for public use and benefit; and
WHEREAS, UA represents and warrants to CENTOCOR that, (i) it has full right
and authority to enter into this Agreement without consent or approval of any
third person, and (ii) it is not subject to any restrictions other than those
set forth in Exhibit B attached hereto which would prevent or impair the grant
to CENTOCOR of the licenses granted hereby, the exercise by CENTOCOR of any
options to obtain licenses or the exercise by CENTOCOR of such licenses, other
than those imposed upon UA by its grantee and/or contractor status under
government, philanthropic or non-profit sponsorship.
E.AGR.ARKANSAS.R&L - 2 -
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, CENTOCOR and UA agree as follows:
ARTICLE I - PLAN FOR RESEARCH AND BUDGET
----------------------------------------
1.01 For the year ending January 31, 1991, CENTOCOR agrees, as set forth
---------- -
below, to pay to UA funds to support the Research relating to the above-
mentioned Field and UA agrees to supply the services of requisite personnel and
to furnish the necessary facilities and to carry out such Research all according
to a Plan for Research and Budget agreed upon by CENTOCOR and UA as set forth in
Article 1.02.
1.02 The Plan for Research and the Budget for the first (1st) Agreement
Year is set forth in Appendix A hereto. At its sole option, UA shall submit to
CENTOCOR a proposed Plan for Research and Budget for the Agreement Year
following the first anniversary of the Effective Date of this Agreement (an
Agreement Year being defined to mean the twelve-month period commencing with the
Effective Date or anniversary thereof). The proposed Plan for Research and
Budget for the second (2nd) Agreement Year shall be submitted by UA to CENTOCOR
ninety (90) days prior to the first anniversary of the Effective Date. The
parties will negotiate in good faith and use their best efforts to finalize the
proposed Plan for Research. CENTOCOR shall notify UA in writing thirty (30)
days prior to the beginning of the subsequent Agreement Year if it shall accept
the Plan for Research submitted by UA. If CENTOCOR and UA
E.AGR.ARKANSAS.R&L - 3 -
<PAGE>
are not able to agree upon the Research Plan, CENTOCOR shall be able to
terminate, at Centocor's sole discretion, the Research hereunder by providing
notice to UA thirty (30) days prior to the beginning of the subsequent Agreement
Year that it will not provide any further support for the Research, and the
Agreement shall be terminated pursuant to Article IX.
1.03 For as long as Dr. O'Brien remains at UA pursuant to the provisions of
this Agreement, such Research by UA as funded under this Agreement shall be
under the direction of Dr. O'Brien. In addition, Dr. O'Brien will not conduct
research in the Field for other commercial organizations during the term of this
Agreement for so long as Centocor is funding Research hereunder without prior
written notice to CENTOCOR pursuant to Article 8.01 hereof.
1.04 In the event that the services of Dr. O'Brien, become for any reason
unavailable during the course of this Agreement, UA shall have ninety (90) days
within which to provide a replacement principal investigator who shall be
acceptable to CENTOCOR. CENTOCOR shall not unreasonably withhold acceptance of
such replacement. In the event that no such replacement is provided, the
obligations of CENTOCOR to fund the Agreement shall cease.
ARTICLE II - REPORTS BY UA
--------------------------
2.01 UA shall, upon each anniversary of the Effective Date, provide a
written report, prepared by Dr. O'Brien, which presents a brief summary of the
Research conducted and the results obtained during the preceding twelve (12)
E.AGR.ARKANSAS.R&L - 4 -
<PAGE>
months regarding its work in the Field. In the event of termination of the
Agreement, CENTOCOR shall receive a complete detailed report of the work carried
out and funded by this Agreement.
2.02 If rights to any of UA's inventions and/or know-how in the Field are
partially or wholly owned or restricted by governments, government agencies, or
any institutions under government control, UA hereby agrees to comply with all
applicable statutes and regulations pertaining to such government rights. Such
restrictions to the disposition of rights by UA, if any, are specified in
Appendix B herein. UA further agrees to promptly notify CENTOCOR of any
reports, communications, or actions undertaken with regard to such government
rights pertaining to this Agreement.
ARTICLE III - PAYMENTS BY CENTOCOR
----------------------------------
3.01 In consideration of the rights granted hereunder, CENTOCOR shall pay
to UA [**] dollars [**] in the first Agreement Year in
support of the Research to be conducted in such year, payable at quarterly
intervals. Centocor shall also pay to UA [**] dollars [**]
within thirty (30) days of Effective Date as an upfront license fee.
3.02 Subject to the provisions of Article 1.02, the second and third
Agreement Years shall be funded at levels specified in the approved Research
Plan and Budget for each Agreement Year, and payments shall be made quarterly.
E.AGR.ARKANSAS.R&L - 5 -
<PAGE>
ARTICLE IV ---ESTABLISHMENT OF UA PROPRIETARY POSITION
------------------------------------------------------
4.01 UA agrees to establish a proprietary position in the Field to the
extent possible by (i) applying, as required by Article 4.03, for patents in the
United States and abroad on inventions conceived and/or reduced to practice
arising from this Research; (ii) maintaining information which is generated as
confidential know-how except to the extent that rights are reserved under
Article 4.09 (ii), (iii) obtaining title to inventions funded by Government or
third party support, whenever possible and (iv) diligently protecting its patent
rights from infringement. The choice of patent counsel shall be agreeable to
both UA and CENTOCOR.
4.02 During the term of this Agreement, for inventions in the Field which
are conceived by UA inventors, UA inventors shall assign their rights to UA.
For inventions in the Field which are conceived by CENTOCOR inventors, CENTOCOR
inventors shall assign their rights to CENTOCOR. For inventions in the Field
which are jointly conceived by UA and CENTOCOR inventors, UA inventors shall
assign their rights to UA and CENTOCOR inventors shall assign their rights to
CENTOCOR.
4.03 UA shall promptly advise CENTOCOR, in writing, of each invention
conceived and/or reduced to practice arising from this Research.
Representatives of UA and CENTOCOR shall then discuss whether a patent
application or applications, pertaining to such invention, should be filed
E.AGR.ARKANSAS.R&L - 6 -
<PAGE>
and in which countries such application or applications should be filed.
Applications assigned solely to UA shall be filed by UA; applications assigned
solely to CENTOCOR shall be filed by CENTOCOR, and jointly assigned applications
shall be filed as mutually agreed upon by the parties.
4.04 All patent costs incurred by UA, including, without limitation, the
costs of preparing, filing, prosecuting (including mutually agreed upon
interferences or oppositions), issuing or maintaining patent rights claiming an
invention filed by mutual agreement of the parties after the Effective Date
shall be reimbursed by CENTOCOR upon the receipt of UA's notice of payment of
such costs. Such reimbursement shall be [**] percent [**] creditable
against future royalty payments due UA from CENTOCOR, however, such credit shall
not exceed [**] percent [**] of the royalties payable in any one payment
period. Such credits may be accrued and carried forward by Centocor until such
time as they may be taken in accordance with the foregoing sentence.
4.05 With respect to any patent application filed by mutual agreement of
the parties, each patent application, office action, response to office action,
request for terminal disclaimer, and request for reissue or reexamination of any
patent issuing from such application shall be provided to CENTOCOR sufficiently
prior to the filing of such application, response or request to allow for review
and comment by CENTOCOR.
4.06 In the event CENTOCOR is not interested in having a patent application
filed with respect to a particular
E.AGR.ARKANSAS.R&L - 7 -
<PAGE>
invention in a particular country, CENTOCOR shall advise UA of such fact within
ninety (90) days from the date on which the invention was disclosed to CENTOCOR
by UA or sooner if necessary to avoid the loss of patent rights. UA, at its own
expense, may then file and prosecute such patent application in any country
where CENTOCOR elects not to file.
4.07 In the event that UA does not wish to file a patent application with
respect to a particular invention or does not wish to file patent applications
with respect to specific countries, it shall without delay notify CENTOCOR, and
CENTOCOR shall be free, where not contrary to United States law, to file at its
expense, patent applications in the name of UA, if necessary, and UA shall
render CENTOCOR, at CENTOCOR's expense, all necessary assistance in order to
facilitate such filing.
4.08 CENTOCOR shall have the right to have all of the Research
conducted and funded hereunder reviewed by patent counsel of its choice subject
to the provisions of Articles 4.01 and 4.03.
4.09 UA recognizes that during the course of this Agreement it may, on
behalf of Dr. O'Brien, acquire from CENTOCOR trade secrets or information which
is confidential to CENTOCOR. CENTOCOR has a period of thirty (30) days after
the exchange of information: to notify Dr. O'Brien as to whether said
information given to UA is to be considered confidential. Accordingly, UA
agrees as follows: (i) UA will not, for a period of five (5) years from the
receipt of such information, disclose any information or knowledge received from
CENTOCOR which has been so designated as being secret and confidential,
E.AGR.ARKANSAS.R&L - 8 -
<PAGE>
except to the extent that such information was previously known to UA as shown
by its written records or except to the extent that such information is or
becomes available to the public without fault on the part of UA; (ii) UA and its
employees shall have the rights to publish or otherwise publicly disclose
information gained in the course of the Agreement subject to the provisions of
Article 4.09 (i) hereof, provided it gives CENTOCOR a draft of the disclosure
(manuscript or abstract) at least sixty (60) days in advance of such
publication.
4.10 UA retains the right to use any of the cell lines, antibodies or their
improvements licensed to CENTOCOR hereunder, free of cost, for its own research
and to distribute the antibodies to other institutions engaged in noncommercial
research, free of cost, under a written agreement that the use will be
restricted to non-commercial research and that materials provided will not be
transferred or communicated to any third person for any reason.
ARTICLE V - LICENSE TO CENTOCOR
-------------------------------
5.01 In view of CENTOCOR's support for research hereunder, UA hereby grants
to CENTOCOR and CENTOCOR hereby accepts an exclusive, world-wide, royalty-
bearing license with the right to grant sublicenses, under any and all patent
rights and know-how owned by UA relating to cell lines or hybridomas developed
by or under the direction of or in collaboration with Dr. Timothy O'Brien which
produce antibodies directed against antigens having the epitope recognized by OC
125 (the "Licensed Field") and the exclusive right to use said cell lines or
hybridomas for the purpose of
E.AGR.ARKANSAS.R&L - 9 -
<PAGE>
making, having made, using and/or selling products for in-vitro diagnostic
application. Such exclusive license and right shall be for a period fifteen
(15) years or the life of any and all UA-owned rights in the Licensed Field,
whichever is greater. The royalty rate shall be [**] percent [**] of the
NET selling price of products utilizing any UA rights licensed to Centocor
herein. NET selling price shall be defined to mean the sales price of products
actually charged by CENTOCOR, its affiliates, or licensees for sales of products
on which a royalty is owed to UA hereunder, after deduction of customary trade
and quantity discounts actually allowed, credits or refunds actually allowed for
spoiled, damaged, outdated, or returned goods, sales and other excise taxes
imposed and paid directly with respect to the sales, and transportation costs to
the extent separately invoiced.
5.02 UA further grants to CENTOCOR hereunder a right of first refusal to
obtain an exclusive worldwide royalty bearing license in the Field to make, have
made, use and/or sell products for in-vivo diagnostic or therapeutic
applications. Said option shall be exercisable at Centocor's sole discretion
during the [**] period commencing with the date of receipt by CENTOCOR from
UA of a viable cell line in Licensed Field upon payment to UA of [**] . The
royalty rate for such in-vivo products shall be [**] percent [**] of the NET
selling price.
5.03 If CENTOCOR makes payment to one or more third parties under patents
and/or know-how which CENTOCOR reasonably believes covers a product or process
licensed hereunder, the payments due under this Agreement shall be reduced by
the amount of payments actually owed to said third parties by
E.AGR.ARKANSAS.R&L - 10 -
<PAGE>
CENTOCOR; providing, however, that the payments from CENTOCOR to UA due under
this Agreement shall not be reduced, in any event, to less than [**] percent
[**] of the royalties that would have been due in any period except for such
payments to said third parties. The return by any such third parties of any
payments to CENTOCOR because of an invalidated third-party patent shall be paid
to UA in an amount necessary to restore any such reduced royalty payments.
5.04 In the event CENTOCOR or a sublicensee of CENTOCOR incurs attorney fees and
related legal expenses in judicial or administrative proceedings based upon
allegations of infringement of third party patents or know-how as a result of
the exercise of rights hereunder, or in the enforcement or defense of patents or
technology licenses hereunder, all such expenses will be offset against future
royalties due from CENTOCOR under this Agreement provided that such offsets do
not exceed [**] percent [**] of the royalties due in any period.
ARTICLE VI - COMMERCIAL DEVELOPMENT
-----------------------------------
6.01 CENTOCOR shall use all reasonable efforts, including such efforts of
any or all of its affiliates and licensees, to develop, manufacture and
distribute commercially feasible products utilizing rights licensed to Centocor
hereunder throughout the world.
6.02 At intervals no longer than every twelve (12) months, CENTOCOR shall
report in writing to UA on progress made toward commercialization,
E.AGR.ARKANSAS.R&L - 11 -
<PAGE>
manufacturing and distribution of the products and royalties earned thereon, and
if at any time progress is not considered reasonable, UA may give notice to
CENTOCOR that CENTOCOR is in default and according to the provisions of Article
9.02, CENTOCOR shall formulate a plan and notify UA of such plan within thirty
(30) days of receipt of such notice to cure such default. Approval of such plan
by UA shall be deemed to cure any such default pursuant to Article 9.02.
6.03 CENTOCOR agrees to use nomenclature specified by Dr. O'Brien, unless
otherwise authorized in writing by UA, to identify the hybridomas for the
purposes of publication, promotion and commercial development of the hybridomas,
but shall not identify either UA, nor Dr. 0'Brien, nor his UA collaborators as
being the source of the antibodies and/or hybridomas; except that any
publication may refer to the published record.
ARTICLE VII - EFFECTIVE AND TERM
--------------------------------
7.01 This Agreement shall become effective on the day and year first above
written and, unless previously terminated in accordance with any provisions
hereof, shall remain in full force and effect for the term set forth in Article
V hereof.
ARTICLE VIII - CENTOCOR'S RIGHT OF FIRST REFUSAL
------------------------------------------------
8.01 Prior to Dr. O'Brien initiating any other commercial program involving
research in the Field, CENTOCOR shall have a right of first
E.AGR.ARKANSAS.R&L - 12 -
<PAGE>
refusal to support said other program on terms to be determined by good faith
negotiations between the parties or upon the same terms and conditions that any
third party has agreed to and to thereby receive the same benefits as UA had
agreed to provide in return for said third party's support. CENTOCOR shall
provide written notice to UA within one (1) month of such notification stating
whether CENTOCOR wishes to exercise this right of first refusal.
ARTICLE IX - TERMINATION
------------------------
9.01 UA, shall have the right to terminate the obligation to perform
Research under this Agreement by giving at least thirty (30) days notice thereof
in writing to CENTOCOR, and upon the giving of such notice, UA's obligation to
perform Research hereunder shall terminate as of such date. In the event of
such termination by UA or in the event of termination by CENTOCOR under Article
1.02 or 1.04 hereof: (i) CENTOCOR's obligation to fund in whole or in part the
terminated Research shall be limited to so much thereof as shall have been
conducted prior to such termination; (ii) Upon CENTOCOR's written request thirty
(30) days next following the date of the termination, UA, shall disclose to
CENTOCOR all research information funded by this Agreement which shall be in its
possession at such date which relates to the terminated Research and, (iii) UA
shall grant to CENTOCOR the right of first refusal to license each hybridoma,
issued patent or patent application resulting from the Research, subsequent to
the date of notice of termination as set forth in (ii) above.
E.AGR.ARKANSAS.R&L - 13 -
<PAGE>
9.02 Failure by UA or CENTOCOR to comply with any of the respective
obligations and conditions contained in this Agreement shall entitle the other
party to give to the party in default notice requiring it to cure such default.
If such default is not cured or a plan for cure has not been approved, such
approval to not be unreasonably withheld, within ninety (90) days after receipt
of such notice, the notifying party shall be entitled (without prejudice to any
of the other rights conferred on it by this Agreement) to terminate this
Agreement by giving notice to take effect immediately. The right of either
party to terminate this Agreement as herein above provided shall not be affected
in any way by its waiver of, or failure to take action with respect to, any
previous default.
9.03 In the event that one of the parties shall go into liquidation, or a
receiver, custodian or trustee be appointed for the property or estate of that
party, or the party makes an assignment for the benefit of creditors, and
whether any of the aforesaid events be the outcome of the voluntary act of that
party, or otherwise, the other party shall be entitled to terminate this
Agreement forthwith by giving written notice to the first party.
9.04 Termination or expiration of the Agreement, other than under Articles
9.02 and 9.03, shall not affect rights and obligations of either party or the
licenses granted under Article V.
9.05 If either party shall be delayed, interrupted in or prevented from the
performance of any obligation hereunder by reason of Force Majeure
E.AGR.ARKANSAS.R&L - 14 -
<PAGE>
including an act of God, fire, flood, war (declared or undeclared), public
disaster, strike or labor differences, governmental enactment, rule or
regulation, or any other cause beyond such party's control, such party shall not
be liable to the other therefor; and the time for performance of such obligation
shall be extended for a period equal to the duration of the contingency which
occasioned the delay, interruption or prevention. The party invoking such Force
Majeure rights under this Article must notify the other party by registered
letter within a period of fifteen (15) days, from the first and the last day of
the Force Majeure unless the Force Majeure renders such notification impossible
in which case notification will be made as soon as possible. If the delay
resulting from the Force Majeure exceeds six (6) months, the injured party may
terminate this Agreement as per the conditions stipulated herein.
ARTICLE X - INDEMNIFICATION
---------------------------
10.01 CENTOCOR shall indemnify UA from and against any claims, demands,
or causes of action on account of any injury or death of persons or damage to
property caused by, or arising out of, or resulting from Centocor's exercise or
practice of the license granted hereunder; provided, however, that such
obligation to indemnify UA shall not extend to any claim, demand, or cause of
action arising in favor of any person or entity, growing out of, incident to, or
resulting directly or indirectly from negligence (whether sole, joint, or
otherwise), of UA or its officers, agents, representatives, or employees.
E.AGR.ARKANSAS.R&L - 15 -
<PAGE>
ARTICLE XI - ASSIGNMENT
-----------------------
11.01 The rights of CENTOCOR, under this Agreement, may not be assigned
and the duties of CENTOCOR under this Agreement may not be delegated without the
prior written consent of UA, except that CENTOCOR may assign this Agreement to
an entity with which it merges or consolidates or which CENTOCOR controls, or to
which substantially all of its assets relating to the Field of the Agreement are
sold or otherwise transferred, or to a partnership of which CENTOCOR or any of
its affiliates is the general partner.
ARTICLE XII - NOTICES
---------------------
12.01 Any notice, report or demand required to be given by either party
under the terms of this Agreement shall be given in writing by letter properly
addressed and containing sufficient postage to the party for whom it is
intended. Those to be sent to UA shall be addressed to UA, at the address set
forth in the beginning of this Agreement, to the attention of the Director for
Research or to such other address as UA shall designate from time to time.
Those to be sent to CENTOCOR shall be addressed to Dr. Vincent R. Zurawski,
Senior Vice President, Chief Scientific Officer, CENTOCOR, Inc., 244 Great
Valley Parkway, Malvern, Pennsylvania, 19355 or to such other address as
CENTOCOR shall designate from time to time. Each notice so mailed as
hereinabove provided shall be deemed to have been given when mailed.
E.AGR.ARKANSAS.R&L - 16 -
<PAGE>
ARTICLE XIII - TITLES
---------------------
13.01 It is agreed that marginal headings appearing at the beginning of
the numbered articles hereof have been inserted for convenience only and do not
constitute any part of this Agreement.
ARTICLE XIV - STATUS OF PARTIES
-------------------------------
14.01 UA and CENTOCOR agree that each party to this Agreement is
operating as an independent contractor and not as an agent of the other. This
Agreement shall not constitute a partnership or joint venture, and neither party
may be bound by the other to any contract, arrangement or understanding except
as specifically stated herein.
14.02 No publicity, news release, or other public announcement, written
or oral, whether to the public press, to stockholders, or otherwise relating to
the Agreement, to any amendment hereto or to performance hereunder or the
existence of the arrangement between the parties shall be originated by either
CENTOCOR, UA or their employees without written approval of the other party to
this Agreement except as required by the law. However, CENTOCOR may use
descriptive scientific terminology in accordance with Article 6.03 in marketing
a product.
E.AGR.ARKANSAS.R&L - 17 -
<PAGE>
ARTICLE XV - GOVERNING LAW
--------------------------
15.01 This Agreement shall be governed by and construed in accordance
with the laws of the State of Arkansas and the United States of America.
ARTICLE XVI - INVALIDITY OR UNENFORCEABILITY
--------------------------------------------
16.01 If and to the extent that any court of competent jurisdiction
holds any provision (or any part thereof) of this Agreement to be invalid or
unenforceable, said invalid provision or part thereof shall be severable here
from and shall in no way affect the validity of the remainder of this Agreement.
ARTICLE XVII - ENTIRE AGREEMENT
-------------------------------
17.01 This Agreement constitutes the entire Agreement between the
parties, and no variation of modification of this Agreement or waiver of any of
its terms or provisions shall be deemed valid unless in writing and signed by
both parties.
E.AGR.ARKANSAS.R&L - 18 -
<PAGE>
IN WITNESS WHEREOF, and for making this Agreement come into force from the
date first above written, both parties cause this Agreement to be duly signed by
their respective authorized representatives.
ACKNOWLEDGED BY:
WITNESS UNIVERSITY OF ARKANSAS
/s/ Harold S. Green /s/ Gary D'Chamberlin
- ------------------- ---------------------
Dr. Gary D'Chamberlin
Interim President
1-3-90
---------------------
Date
/s/ Timothy J. O'Brien
-----------------------------
Professor Timothy J. O'Brien
2/01/90
-----------------------------
Date
WITNESS CENTOCOR, INC.
/s/ Vincent R. Zurawski, Ph.D.
------------------------------
Vincent R. Zurawski, Ph.D.
Senior Vice President
Chief Scientific Officer
01/16/90
-------------------------------
- 19 -
<PAGE>
APPENDIX A
Budget - Agreement Year One
February 1, 1990 to January 31, 1991
----------- -----------
<TABLE>
<CAPTION>
DIRECT COSTS
------------
<S> <C>
Post-Doctoral Research Associate [**]
(Salary + 18% Fringe)
Research Technician [**]
(Salary + Fringe)
Supplies [**]
SUBTOTAL [**]
INDIRECT COSTS AT 10% [**]
---------------------
TOTAL [**]
</TABLE>
- 20 -
<PAGE>
APPENDIX B
Government Restrictions to the Disposition of UA Rights
- 21 -
<PAGE>
EXHIBIT B
The patent rights to the below-described invention have been assigned to
Research Corporation pursuant to the Invention Administration Agreement between
the University of Arkansas and Research Corporation:
The invention relates to a sub-unit of CA125 antigen having a molecular
weight of about 40,000 daltons and found only in tumor-associated CA 125
antigen. It also relates to a monoclonal antibody having a specificity for
the 40,000 daltons sub-unit of tumor-associated CA125. In addition, the
invention relates to a method of detection or monitoring of ovarian cancer
which comprises assaying serum of an individual suspected of having ovarian
cancer with an antibody having specificity for the 40,000 dalton sub-unit
of tumor-associated CA125.
<PAGE>
Exhibit 10.13
THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS
AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT
THE PLACES INDICATED BY DOUBLE ASTERISKS (**) AND HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
CENTOCOR
244 GREAT VALLEY PARKWAY, MALVERN, PA 19355 (215) 296-4488
TELEX: 173-190
FAX: (215) 644-7558
UNIVERSITY OF TEXAS HEALTH SCIENCE
CENTER AT SAN ANTONIO - CENTOCOR
RESEARCH AND LICENSING AGREEMENT
--------------------------------
This Agreement is made as of the 1st of October, 1986 (hereinafter
"Effective Date") between
Centocor, Inc.
244 Great Valley Parkway
Malvern, Pennsylvania 19355,
a corporation of Pennsylvania,
(hereinafter "CENTOCOR")
and
University of Texas
Health Science Center at San Antonio
Hematology Division, Department of Medicine
7703 Floyd Curl Drive
San Antonio, TX 78284,**
(hereinafter "UTHSC")
on behalf of the Laboratory of Rodger McEver, M.D.
(hereinafter "Dr. McEver").
W I T N E S S E T H :
WHEREAS, UTHSC presently possesses certain know-how, as developed in the
laboratory of Dr. McEver, in the field of anti-platelet antibodies, and the use
of such antibodies for in vivo and in vitro medical diagnostic, prophylactic and
------- --------
therapeutic purposes (hereinafter "Field"); and
WHEREAS, UTHSC on behalf of Dr. McEver, is desirous of and prepared to
conduct further research in said Field
_____________
*an agency of the State of Texas which is governed by the Board
of Regents for the University of Texas System, hereinafter collectively referred
to as "UTHSC"
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -2
hereinafter "Research") which may lead to the development of commercial
applications; and
WHEREAS, CENTOCOR is prepared to provide financial support to UTHSC for
such Research by Dr. McEver at UTHSC, providing it receives certain license
and/or option rights under inventions and/or know-how in said Field; and
WHEREAS, UTHSC represents that it has full rights by assignment to
inventions and know-how in the Field and wishes to have such inventions and
know-how perfected and marketed at the earliest possible time in order that
products resulting therefrom might be available for public use and benefit; and
WHEREAS, UTHSC represents and warrants to CENTOCOR that, (i) it has full
right and authority to enter into this Agreement without consent or approval of
any third person, and (ii) it is not subject to any restrictions which would
prevent or impair the grant to CENTOCOR of the licenses granted hereby, the
exercise by CENTOCOR of any options to obtain licenses or the exercise by
CENTOCOR of such licenses, other than those imposed upon UTHSC by its grantee
and/or contractor status under government, philanthropic or non-profit
sponsorship.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, CENTOCOR and UTHSC agree as follows:
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -3
ARTICLE I - PLAN FOR RESEARCH AND BUDGET
----------------------------------------
1.01 For the three years ending September 30, 1989, CENTOCOR agrees, as set
forth below, to pay to UTHSC funds to support the Research relating to the
above-mentioned Field and UTHSC agrees to supply the services of requisite
personnel and to furnish the necessary facilities and to carry out such Research
all according to a Plan for Research and Budget agreed upon by CENTOCOR and
UTHSC as set forth in Article 1.02.
1.02 UTHSC shall annually submit to CENTOCOR a proposed Plan for Research
and Budget for each of three (3) Agreement years following the Effective date of
this Agreement (each Agreement Year being defined to mean the twelve-month
period commencing with the Effective Date or anniversary thereof). The Plan for
Research and the Budget for the first (1st) Agreement Year is set forth in
Appendix A hereto. Proposed Plans for Research and Budgets for the second (2nd)
and third (3rd) Agreement Years will be submitted by UTHSC to CENTOCOR ninety
(90) days prior to the first and second anniversaries of the Effective Date,
respectively. The parties will negotiate in good faith and use their best
efforts to finalize the proposed Plans for Research. CENTOCOR shall notify UTHSC
in writing 30 days prior to the beginning of the subsequent Agreement Year if it
shall accept the Plan for Research submitted by UTHSC. If CENTOCOR and UTHSC
are not
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -4
able to agree upon the Research Plan, CENTOCOR shall notify UTHSC thirty (30)
days prior to the beginning of the subsequent Agreement Year that it will not
provide any further support for the Research, and the Agreement shall be
terminated pursuant to Article IX.
1.03 For as long as Dr. McEver remains at UTHSC pursuant to the provisions
of this Agreement, such Research by UTHSC shall be under the direction of Dr.
McEver. In addition, Dr. McEver will not conduct research in the Field for
other commercial organizations during the term of this Agreement.
1.04 In the event that the services of Dr. McEver, become for any reason
unavailable during the course of this Agreement, UTHSC shall have ninety (90)
days within which to provide a replacement who shall be acceptable to CENTOCOR.
CENTOCOR shall not unreasonably withhold acceptance of such replacement. In the
event that no such replacement is provided, the obligations of CENTOCOR to fund
the Agreement shall cease.
ARTICLE II - REPORTS BY UTHSC
-----------------------------
2.01 UTHSC shall, upon each anniversary of the Effective Date, provide a
written report, prepared by
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -5
Dr. McEver, which presents a brief summary of the Research conducted and the
results obtained during the preceding twelve (12) months regarding its work in
the Field. At the conclusion of each Agreement Year, or in the event of
termination of the Agreement, CENTOCOR shall receive a complete detailed report
of the work carried out and funded by this Agreement.
2.02 If rights to any of UTHSC's inventions and/or know-how in the Field
are partially or wholly owned or restricted by governments, government agencies,
or any institutions under government control, UTHSC hereby agrees to comply with
all applicable statutes and regulations pertaining to such government rights.
Such restrictions to the disposition of rights by UTHSC are specified in
Appendix B herein. UTHSC further agrees to promptly notify CENTOCOR of any
reports, communications, or actions undertaken with regard to such government
rights pertaining to this Agreement.
ARTICLE III - PAYMENTS BY CENTOCOR
----------------------------------
3.01 CENTOCOR shall pay to UTHSC [**]
dollars [**] in the first year of this Agreement in support of the
Research to be conducted in such year payable at quarterly intervals.
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -6
3.02 Subject to the provisions of Article 1.02, the second and third
Agreement years shall be funded at levels specified in the approved Research
Plan and Budget for each Agreement year, and payments shall be made quarterly.
ARTICLE IV - ESTABLISHMENT OF UTSA PROPRIETARY POSITION
-------------------------------------------------------
4.01 UTHSC agrees to establish a proprietary position in the Field to the
extent possible by (i) applying, as required by Article 4.03, for patents in the
United States and abroad on inventions conceived and/or reduced to practice
arising from this Research; (ii) maintaining information which is generated as
confidential know-how except to the extent that rights are reserved under
Article 4.09 (ii), (iii) obtaining title to inventions funded by Government or
third party support, whenever possible and (iv) diligently protecting its patent
rights from infringement. The choice of patent counsel shall be agreeable to
both UTHSC and CENTOCOR. Should UTHSC select the firm of Arnold, White, and
Durkee; this firm shall be acceptable to CENTOCOR.
4.02 For inventions in the Field which are conceived by UTHSC inventors,
UTHSC inventors shall assign their rights to UTHSC. For inventions in the Field
which are conceived by CENTOCOR inventors, CENTOCOR inventors shall assign their
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -7
rights to CENTOCOR. For inventions in the Field which are jointly conceived by
UTHSC and CENTOCOR inventors, UTHSC inventors shall assign their rights to UTHSC
and CENTOCOR inventors shall assign their rights to CENTOCOR.
4.03 UTHSC shall promptly advise CENTOCOR, in writing, of each invention
conceived and/or reduced to practice arising from this Research.
Representatives of UTHSC and CENTOCOR shall then discuss whether a patent
application or applications, pertaining to such invention, should be filed and
in which countries such application or applications should be filed.
Applications assigned solely to UTHSC shall be filed by UTHSC; applications
assigned solely to CENTOCOR shall be filed by CENTOCOR, and jointly assigned
applications shall be filed as mutually agreed upon by the parties.
4.04 The patent costs incurred by UTHSC, including, without limitation, the
costs of preparing, filing, prosecuting (including mutually agreed upon
interferences or oppositions), issuing or maintaining for patent rights claiming
an invention filed by mutual agreement of the parties after the Effective Date
shall be reimbursed by CENTOCOR upon the receipt of UTHSC's notice of payment of
such costs. Such reimbursement shall be fully creditable against future royalty
payments due UTHSC from CENTOCOR, provided that such credit does not exceed
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -8
[**] percent [**] of the royalties payable in any one payment period.
4.05 With respect to any patent application filed by mutual agreement of
the parties, each patent application, office action, response to office action,
request for terminal disclaimer, and request for reissue or reexamination of any
patent issuing from such application shall be provided to CENTOCOR sufficiently
prior to the filing of such application, response or request to allow for review
and comment by CENTOCOR.
4.06 In the event CENTOCOR is not interested in having a patent application
filed with respect to a particular invention in a particular country, CENTOCOR
shall advise UTHSC of such fact within ninety (90) days from the date on which
the invention was disclosed to CENTOCOR by UTHSC or sooner if necessary to avoid
the loss of patent rights. UTHSC, at its own expense, may then file and
prosecute such patent application in any country where CENTOCOR elects not to
file, and such patent applications and patents in any such country shall not be
included within the option for an exclusive license granted to CENTOCOR pursuant
to Article 5.01 of this Agreement.
4.07 In the event that UTHSC does not wish to file a patent application
with respect to a particular invention or
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -9
does not wish to file patent applications with respect to specific countries, it
shall without delay notify CENTOCOR, and CENTOCOR shall be free, where not
contrary to United States law, to file at its expense, patent applications in
the name of UTHSC, if necessary, and UTHSC shall render CENTOCOR, at CENTOCOR's
expense, all necessary assistance in order to facilitate such filing.
4.08 CENTOCOR shall have the right to have all of the Research conducted
and funded hereunder reviewed by patent counsel of its choice subject to the
provisions of Articles 4.01 and 4.03.
4.09 UTHSC recognizes that during the course of this Agreement it may, on
behalf of Dr. McEver, acquire from CENTOCOR trade secrets or information which
is confidential to CENTOCOR. CENTOCOR has a period of thirty (30) days after the
exchange of information to notify Dr. McEver as to whether said information
given to UTHSC is to be considered confidential. Accordingly, UTHSC agrees as
follows: (i) except in furtherance of the Agreement, UTHSC will not, for a
period of twenty (20) years from the receipt of such information, disclose any
information or knowledge received from CENTOCOR which has been so designated as
being secret and confidential, except to the extent that such information was
previously known to UTHSC as
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -10
shown by its written records or except to the extent that such information is or
becomes available to the public without fault on the part of UTHSC; (ii) UTHSC
and its employees shall have the rights to publish or otherwise publicly
disclose information gained in the course of the Agreement subject to the
provisions of Article 4.09(i) hereof, provided it gives CENTOCOR a draft of the
disclosure (manuscript or abstract) at least sixty (60) days in advance of such
publication.
4.10 UTHSC retains the right to use any of the cell lines, antibodies or
their improvements derived in part or total from this Agreement, free of cost,
for its own research and to distribute the antibodies to other institutions
engaged in non-commercial research, free of cost, under a written agreement that
the use will be restricted to non-commercial research and that materials
provided will not be transferred or communicated to any third person for any
reason.
ARTICLE V - LICENSE TO CENTOCOR
-------------------------------
5.01 In view of CENTOCOR's support for research hereunder, UTHSC grants to
CENTOCOR a non-exclusive, world-wide, royalty-bearing license under any and all
UTHSC patent rights and know-how in the Field, arising out of the Research, to
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -11
make, have made, use and/or sell products and to practice methods developed in
this Research. Such license shall be for a period of twenty-five (25) years or
the life of any and all UTHSC rights in the Field, whichever is greater,
including patent rights (rights arising from patent applications and/or issued
patents), rights to use and possess the cell lines developed by UTHSC in the
Field, rights to inventions funded under this Agreement and UTHSC know-how
covering products and/or methods arising out of the Research. The non-exclusive
royalty shall be [**] percent [**] of the NET selling price of products
utilizing any UTHSC rights granted herein, which is defined to mean the sales
price of products actually charged by CENTOCOR, its affiliates, or licensees in
the Field of this Agreement less ten percent to allow for customary trade
discounts, commissions, freight, sales or use taxes and customs duties. UTHSC
hereby further grants to CENTOCOR an option to obtain, whenever desired by
CENTOCOR, an exclusive, world-wide, royalty-bearing license under all UTHSC
rights for such inventions and for such term as above. If such option is
exercised, the royalty shall be X% ("X" percent) of the NET selling price. X
is defined as follows: X equals [**] percent [**] for therapeutic
products, X equals [**] percent [**] for imaging products, and X equals
[**] percent [**] for other diagnostic products. In addition, if such option
is exercised, CENTOCOR shall reimburse UTHSC for all patent
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -12
expenses, if any, not covered under Article 4.04 related to such exclusive
option within 90 days of such event. Under the exclusive license option,
CENTOCOR shall also be obligated to pay, to UTHSC, minimum annual royalties for
each Agreement Year in which CENTOCOR does not provide research support in the
Field. CENTOCOR will pay [**] for the first Agreement Year in which there is
no such research support, [**] for the second Agreement Year, and [**]
for each Agreement Year thereafter, subject to the provisions of Section 5.03.
Such payments shall be due within 90 days of the commencement of said Agreement
Year and shall be fully creditable against all earned royalties payable under
Article V herein.
5.02 The license and option described in Article 5.01 is also granted on
the same terms as specified in Article 5.01 with respect to rights to use and
possess cell lines previously developed by Dr. McEver in the Field and any
concordant patent rights, specifically including cell lines that produce
monoclonal antibodies [**] or any cell lines developed
by Dr. McEver producing antibodies which are functionally equivalent or related
to said antibodies.
5.03 CENTOCOR reserves the right to convert any exclusive license to non-
exclusive, at the non-exclusive royalty terms specified, by giving ninety (90)
days' notice of said conversion to UTHSC.
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -13
5.04 Prior to granting any additional, non-exclusive license to any third
party in the Field, UTHSC hereby agrees to promptly notify CENTOCOR of such
impending event. CENTOCOR shall then have the right to exercise its option to
obtain an exclusive, worldwide, royalty-bearing license in the Field. If
CENTOCOR fails to respond to UTHSC's notice within sixty (60) days, then UTHSC
may grant additional, non-exclusive licenses to one or more third parties in the
Field.
5.05 If pursuant to Article 5.04, UTHSC shall grant a non-exclusive license
to any third party in the Field which provides for a lower rate of royalties
with respect to the practice of such UTHSC invention, the royalty payable by
CENTOCOR shall be reduced to the rate paid by the third party. In the event
that two or more antibodies, the rights to which have been licensed from
different institutions, are employed by CENTOCOR in a final product, royalties
payable to UTHSC shall be determined as the product of total royalties payable
by the fraction of the number of antibodies employed from the institution to the
total number of antibodies incorporated in the product.
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -14
5.06 CENTOCOR shall not have the right to assign its rights or delegate its
obligations under licenses resulting from this Agreement, without UTHSC prior
approval, except that CENTOCOR may assign this Agreement to an entity with which
it merges or consolidates or to a corporation of which it owns at least 50% of
the equity or a partnership of which CENTOCOR or any of its affiliates is the
general partner.
5.07 In the event that CENTOCOR exercises its option to obtain an exclusive
license pursuant to Article 5.01, CENTOCOR shall be obligated to diligently
consider applications presented to CENTOCOR, in writing, for sub-licenses for
products in the Field. The terms of such sub-licenses shall. be negotiated to
be mutually acceptable to both UTHSC and CENTOCOR. Such acceptance shall not be
unreasonably withheld, and CENTOCOR and UTHSC shall divide any and all proceeds
from said sub-licenses on an equal basis.
5.08 If CENTOCOR makes payment to one or more third parties under patents
and/or know-how which CENTOCOR reasonably believes covers a product or process
licensed hereunder, the payments due under this Agreement shall be reduced by
the amount of payments actually made to said third parties by CENTOCOR;
providing, however, that the payments from CENTOCOR to UTHSC due under this
Agreement shall not be reduced, in any
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -15
event, to less than [**] percent [**] of the royalties that would have
been due in any period except for such payments to said third parties. The
return by any such third parties of any payments to CENTOCOR because of an
invalidated third-party patent shall be paid to UTHSC in an amount necessary to
restore any such reduced royalty payments.
5.09 In the event CENTOCOR or a sublicensee of CENTOCOR incurs expenses in
judicial or administrative proceedings based upon allegations of infringement of
third party patents or know-how as a result of the exercise of rights hereunder,
or in the enforcement or defense of patents or technology licenses hereunder,
all such expenses will be offset against future royalties due from CENTOCOR
under this Agreement provided that such offsets do not exceed [**] percent
[**] of the royalties due in any period.
ARTICLE VI - COMMERCIAL DEVELOPMENT
-----------------------------------
6.01 CENTOCOR shall use its best efforts, including such efforts of any or
all of its affiliates and licensees, commercially to develop, manufacture and
distribute products throughout the world.
6.02 At intervals no longer than every twelve (12)
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -16
months, CENTOCOR shall report in writing to UTHSC on progress made toward
commercialization, manufacturing and distribution of the products and royalties
earned thereon, and if at any time progress is not considered reasonable, UTHSC
may give notice to CENTOCOR that CENTOCOR is in default and according to the
provisions of Article 9.02, CENTOCOR shall formulate a plan and notify UTHSC of
such plan within 30 days of receipt of such notice to cure such default.
Approval of such plan by UTHSC shall be deemed to cure any such default pursuant
to 9.02.
6.03 CENTOCOR agrees to use nomenclature specified by Dr. McEver, unless
otherwise authorized in writing by UTHSC, to identify the hybridomas for the
purposes of publication, promo tion and commercial development of the
hybridomas, but shall not identify either UTHSC, nor Dr. McEver, nor his UTHSC
collaborators as being the source of the antibodies and/or hybridomas; except
that any publication may refer to the published record.
ARTICLE VII - EFFECTIVE AND TERM
--------------------------------
7.01 This Agreement shall become effective on the day and year first above
written, and unless previously terminated in accordance with any provisions
hereof, shall remain in full force and effect for a period of three (3) years
from such
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -17
date, except for the provisions of Article V, which shall be for the term set
forth in Article V.
ARTICLE VIII - CENTOCOR'S RIGHT OF FIRST REFUSAL
------------------------------------------------
8.01 Prior to Dr. McEver initiating any other commercial program involving
research in the Field, CENTOCOR shall have a right of first refusal to support
said other program on terms to be determined by good faith negotiations between
the parties or upon the same terms and conditions that any third party has
agreed to and to thereby receive the same benefits as UTHSC had agreed to
provide in return for said third party's support. CENTOCOR shall provide written
notice to UTHSC within one (1) month of such notification stating whether
CENTOCOR wishes to exercise this right of first refusal.
ARTICLE IX - TERMINATION
------------------------
9.01 UTHSC, shall have the right to terminate this Agreement by giving at
least thirty (30) days notice thereof in writing to CENTOCOR, and upon the
giving of such notice, this Agreement shall terminate as of such date. In the
event of such termination by UTHSC: (i) CENTOCOR's obligation to fund in whole
or in part the terminated Research shall be limited to so much thereof as shall
have been conducted prior to such
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -18
termination; (ii) Upon CENTOCOR's written request thirty (30) days next
following the date of the termination, UTHSC, shall disclose to CENTOCOR all
research information funded by this Agreement which shall be in its possession
at such date which relates to the terminated Research and, (iii) shall grant to
CENTOCOR the right of first refusal to license each hybridoma, issued patent or
patent application resulting from the Research, subsequent to the date of notice
of termination as set forth in (ii) above.
9.02 Failure by UTHSC or CENTOCOR to comply with any of the respective
obligations and conditions contained in this Agreement shall entitle the other
party to give to the party in default notice requiring it to cure such default.
If such default is not cured or a plan for cure has not been approved, such
approval to not be unreasonably withheld, within ninety (90) days after receipt
of such notice, the notifying party shall be entitled (without prejudice to any
of the other rights conferred on it by this Agreement) to terminate this
Agreement by giving notice to take effect immediately. The right of either
party to terminate this Agreement as hereinabove provided shall not be affected
in any way by its waiver of, or failure to take action with respect to, any
previous default.
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -19
9.03 In the event that one of the parties shall go into liquidation, or a
receiver, custodian or trustee be appointed for the property or estate of that
party, or the party makes an assignment for the benefit of creditors, and
whether any of the aforesaid events be the outcome of the voluntary act of that
party, or otherwise, the other party shall be entitled to terminate this
Agreement forthwith by giving written notice to the first party.
9.04 Termination or expiration of the Agreement, other than under Articles
9.02 and 9.03, shall not affect rights and obligations of either party or the
licenses and option granted under Article V.
9.05 If either party shall be delayed, interrupted in or prevented from the
performance of any obligation hereunder by reason of Force Majeure including an
act of God, fire, flood, war (declared or undeclared), public disaster, strike
or labor differences, governmental enactment, rule or regulation, or any other
cause beyond such party's control, such party shall not be liable to the other
therefor; and the time for performance of such obligation shall be extended for
a period equal to the duration of the contingency which occasioned the delay,
interruption or prevention. The party invoking such Force Majeure rights under
this Article must notify the other
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -20
party by registered letter within a period of fifteen (15) days, from the first
and the last day of the Force Majeure unless the Force Majeure renders such
notification impossible in which case notification will be made as soon as
possible. If the delay resulting from the Force Majeure exceeds six (6) months,
the injured party may terminate this Agreement as per the conditions stipulated
herein.
ARTICLE X - INDEMNIFICATION
---------------------------
10.01 CENTOCOR shall indemnify UTHSC from and against any claims,
demands, or causes of action on account of any injury or death of persons or
damage to property caused by, or arising out of, or resulting from, exercise or
practice of the license granted hereunder; provided, however, that such
obligation to indemnify UTHSC shall not extend to any claim, demand, or cause of
action arising in favor of any person or entity, growing out of, incident to, or
resulting directly or indirectly from negligence (whether sole, joint, or
otherwise), of UTHSC or its officers, agents, representatives, or employees.
ARTICLE XI - ASSIGNMENT
-----------------------
11.01 The rights of CENTOCOR, under this Agreement, may not be assigned
and the duties of CENTOCOR under this
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -21
Agreement may not be delegated without the prior written consent of UTHSC,
except that CENTOCOR may assign this Agreement to an entity with which it merges
or consolidates or which CENTOCOR controls, or to which substantially all of its
assets relating to the Field of the Agreement are sold or otherwise transferred,
or to a partnership of which CENTOCOR or any of its affiliates is the general
partner.
ARTICLE XII - NOTICES
---------------------
12.01 Any notice, report or demand required to be given by either party
under the terms of this Agreement shall be given in writing by letter properly
addressed and containing sufficient postage to the party for whom it is
intended. Those to be sent to UTHSC shall be addressed to UTHSC, at the address
set forth in the beginning of this Agreement, to the attention of the Director
for Research or to such other address as UTHSC shall designate from time to
time. Those to be sent to CENTOCOR shall be addressed to Dr. Hubert J. P.
Schoemaker, President, CENTOCOR, 244 Great Valley Parkway, Malvern,
Pennsylvania, 19355 or to such other address as CENTOCOR shall designate from
time to time. Each notice so mailed as hereinabove provided shall be deemed to
have been given when mailed.
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -22
ARTICLE XIII - TITLES
---------------------
13.01 It is agreed that marginal headings appearing at the beginning of
the numbered articles hereof have been inserted for convenience only and do not
constitute any part of this Agreement.
ARTICLE XIV - STATUS OF PARTIES
-------------------------------
14.01 UTHSC and CENTOCOR agree that each party to this Agreement is
operating as an independent contractor and not as an agent of the other. This
Agreement shall not constitute a partnership or joint venture, and neither party
may be bound by the other to any contract, arrangement or understanding except
as specifically stated herein.
14.02 No publicity, news release, or other public announcement, written
or oral, whether to the public press, to stockholders, or otherwise relating to
the Agreement, to any amendment hereto or to performance hereunder or the
existence of the arrangement between the parties shall be originated by either
CENTOCOR, UTHSC or their employees without written approval of the other party
to this Agreement except as required by the law. CENTOCOR shall not knowingly
disclose the name of any UTHSC investigator or project relating to this
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -23
Agreement. However, CENTOCOR may use descriptive scientific terminology in
accordance with Article 6.03 in marketing a product.
ARTICLE XV - GOVERNING LAW
--------------------------
15.01 This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas.
ARTICLE XVI - INVALIDITY OR UNENFORCEABILITY
--------------------------------------------
16.01 If and to the extent that any court of competent jurisdiction
holds any provision (or any part thereof) of this Agreement to be invalid or
unenforceable, said invalid provision or part thereof shall be severable here
from and shall in no way affect the validity of the remainder of this Agreement.
ARTICLE XVII - ENTIRE AGREEMENT
-------------------------------
17.01 This Agreement constitutes the entire Agreement between the
parties, and no variation of modification of this Agreement or waiver of any of
its terms or provisions shall be deemed valid unless in writing and signed by
both parties.
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -24
IN WITNESS WHEREOF, and for making this Agreement come into force from the
date first above written, both parties cause this Agreement to be duly signed by
their respective authorized representatives.
ACKNOWLEDGMENT UNIVERSITY OF TEXAS
HEALTH SCIENCE CENTOCOR
WITNESS
/s/E.G. Piebold /s/ R. B. Price
- ---------------------------- -------------------------------
President for Administration and
Business Affairs
October 1, 1986
--------------------------------
Date
/s/ Rodger McEver
--------------------------------
Rodger McEver, M.D.
WITNESS CENTOCOR, INC.
/s/ Sarah Shoaf Friel /s/ Hubert J.P. Schoemaker
- --------------------------- --------------------------------
Hubert J.P. Schoemaker, Ph. D.
President
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -25
<TABLE>
<CAPTION>
APPENDIX A
Proposed Research Budget
Agreement Year One
------------------
<S> <C> <C>
Research Associate [**]
Lab Tech IV [**]
Supplies [**]
Equipment [**]
Total Direct Costs [**]
Indirect Costs at 10% [**]
Total Costs [**]
</TABLE>
- ------------------------
The following letter outlines the proposed Research Plan for the first
Agreement Year.
<PAGE>
University of Texas Health Science Center - Centocor, Inc. Agreement
0399D/Sep 9/25/86 -26
APPENDIX B
There are no institutions other than UTHSC with any rights to inventions to be
licensed to CENTOCOR under this Agreement.
<PAGE>
CENTOCOR
244 Great Valley Parkway, Malvern, PA 19355 (215) 296-4488
TELEX: 173-190
FAX: (215) 644-7558
June 23, 1988
Jack C. Park, Esquire
Office of the Executive Vice President
for Administration and Business Affairs
University of Texas Health Science Center
7703 Floyd Curl Drive
San Antonio, TX 78284-7862
Dear Jack:
As our work with Dr. McEver's antibodies progresses, particularly with S-
12, we would like to hereby exercise the option under Article 5.01 of the
October 1, 1986 University of Texas Health Science Center at San Antonio -
Centocor Research and Licensing Agreement (the "Agreement") to convert our
License thereunder to exclusive. Accordingly, the higher exclusive royalty
rates and other obligations related to the exclusive license as specified in
said Agreement shall become effective as of the date of this letter.
As a clarification of further terms of Article 5.01, given that Dr. McEver
has left your institution and that we are continuing to fund him at the
University of Oklahoma, Centocor would like to propose that the minimum royalty
payments discussed in Article 5.01 commence on October 1, 1989, the third
anniversary of the Agreement. This is in line with the expected three years of
funding originally envisioned under Article I of the Agreement. Dr. McEver's
departure was obviously not foreseen when said Article was drafted.
If this above modifications/clarifications to the Agreement are acceptable,
please have both copies of this letter signed by your institution and return one
to me.
Feel free to call all with any questions.
Very truly yours,
/s/ Sarah A. Shoaf
Sarah A. Shoaf
Director of Corporate Technology Affairs
RESEARCH AND DEVELOPMENT
Agreed to and Accepted By:
/s/ Jack Park
- ------------------------------
University of Texas Medical Science
Center at San Antonio
<PAGE>
Exhibit 10.14
PRODUCT DEVELOPMENT AND LICENSE AGREEMENT
-----------------------------------------
THIS PRODUCT DEVELOPMENT AND LICENSE AGREEMENT (this "Agreement") is
entered into as of the 9th day of October, 1997, by and between BIOMETRIC
IMAGING, INC., a California corporation, with an address of 1025 Terra Bella
Avenue, Mountain View CA 94043-1829 ("Biometric") and CENTOCOR DIAGNOSTICS OF
PENNSYLVANIA, INC., a Pennsylvania corporation, with an address of 244 Great
Valley Parkway, Malvern PA 19355 ("Centocor").
WITNESSETH:
----------
WHEREAS, Biometric owns or has the rights to use the Biometric Technology
for the development of Instruments for use in the Field;
WHEREAS, Centocor owns or has the rights to use the Centocor Technology for
the development of Antibodies for use in connection with Instruments in the
Field; and
WHEREAS, Biometric and Centocor desire to collaborate in the further
development, manufacture and sale of Instruments for use in the Field.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound, Centocor and Biometric agree as follows:
1. DEFINITIONS.
-----------
1.1 "Accounting Period" shall mean each calendar quarter.
1.2 "Affiliate" shall mean any entity or person which controls, is
controlled by, or is under common control with, a party hereto. For purposes of
this Section 1.2, "control" shall mean the direct or indirect ownership of at
least fifty percent (50%) of the shares of stock or participating shares
entitled to vote for the election of directors, or the possession of the power
to direct or cause the direction of the management and policies of such entity
or person.
1.3 "Antibodies" shall mean the monoclonal antibodies described on Exhibit
-------
A hereto, as the same may be modified in accordance with this Agreement.
- -
1.4 "Assays" shall mean the soluble and membrane bound P-selection and
total platelet count assays more particularly described on Exhibit A hereto, as
---------
the same may be modified in accordance with this Agreement.
1.5 "ATP" shall mean the Acceptance Testing Procedures for the Modified
Instrument or the New Instrument, as applicable, to be set forth on Exhibit B
---------
hereto, and any revisions thereto in accordance with this Agreement.
<PAGE>
1.6 "Biometric Technology" shall mean all Intellectual Property, together
with all Improvements thereto, owned by Biometric or its Affiliates, or licensed
to Biometric or its Affiliates with the right of sublicense, relating to the
development, manufacture, use, marketing or sale of Instruments and related
Cartridges.
1.7 "Cartridge" shall mean the Cartridge as developed by Biometric in
accordance with the provisions of Section 3.4 hereof.
1.8 "Centocor Authorized Distributor" shall mean a third party, other than
an Affiliate of Biometric or Centocor, appointed by Centocor to sell Cartridges
and New Instruments to end-users.
1.9 "Change of Control" shall mean (i) any consolidation of a party hereto
with, or merger of a party with or into, another person (including any
individual, partnership, joint venture, corporation, trust or group thereof)
(other than in consolidation or merger with a subsidiary of a party in which the
party is the continuing corporation), (ii) any sale, lease, transfer or
conveyance of all or substantially all of the property and assets of a party, or
(iii) the acquisition by any person or group of securities of a party
representing 50% or more of the combined voting power of a party's then
outstanding securities having power to vote in the election of directors.
1.10 "Centocor Technology" shall mean all Intellectual Property, together
with all Improvements thereto, owned by Centocor or its Affiliates, or licensed
to Centocor or its Affiliates relating to the development, manufacture, use,
marketing and sale of Antibodies.
1.11 "Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
1.12 "Developed Technology" shall mean any and all technical information,
including, without limitation, designs, reports, data, presentations,
inventions, documents, hardware, ideas, Know-how, Improvements, models,
specifications and developments relating to Instruments or Cartridges, developed
by Biometric and/or Centocor following the Effective Date of this Agreement.
1.13 "Development Committee" shall have the meaning given such term in
Section 3.1 hereof.
1.14 "Effective Date" shall have the meaning given such term in Section 8.1
hereof.
1.15 "Field" means in vitro diagnostic procedures for the detection of
--------
cardiovascular events.
1.16 "First Commercial Sale" shall mean the date of the first sale of a
Cartridge to an independent third party by Centocor.
1.17 "Improvements" with respect to a technology, means those modifications
to such technology which confer an improvement to the design, technology,
process or product as measured by its cost, quality, reliability or
acceptability.
-2-
<PAGE>
1.18 "Initial Instrument" shall mean Biometric's existing IMAGN 2000
Instrument.
1.19 "Instrument" shall mean any instrument based on microvolume
flourimetry for use in in vitro diagnostic procedures in the Field, together
--------
with any and all disposable attachments thereto, including, without limitation,
Cartridges.
1.20 "Intellectual Property" means collectively, all existing and future
Copyrights, Patents, Trademarks, trade names and applications for any of the
following, trade secrets, Know-how, technology, software algorithms, software
source code, formula, processes, research, technical and other data, and other
similar intangible assets and other tangible materials embodying any of the
foregoing.
1.21 "Interim Instrument" shall mean the New Instrument without the
automated Cartridge.
1.22 "Know-how" means all information, methods, technical directions, raw
material lists, product specifications, analytical know-how, show-how, formula,
procedures, designs, protocols, manufacturing instructions, validation reports,
standards, and other directions in any form.
1.23 "License" shall have the meaning given such term in Section 2.2
hereof.
1.24 "Modified Instrument" shall mean the Initial Instrument as modified
pursuant to Section 3.3 hereof.
1.25 "Modified Instrument Development Phase" shall have the meaning given
such term in Section 3.3 hereof.
1.26 "Modified Instrument Specifications" shall mean the performance
specifications for Biometric's Initial Instrument as modified during the
Modified Instrument Development Phase, as attached hereto as Exhibit C.
---------
1.27 "Net Sales" shall mean Direct Net Sales and Indirect Net Sales, as
follows:
"Direct Net Sales" with respect to Cartridges sold by Centocor or its
Affiliates shall mean, as to each Accounting Period, the gross
invoiced sales price charged for all Cartridges sold by Centocor and
its Affiliates in that Accounting Period (other than sales of
Cartridges to Centocor Authorized Distributors), after deduction of
the following items incurred during such Accounting Period with
respect to sales of Cartridges hereunder, regardless of the Accounting
Period in which such sales were made, provided that such items are
included in the price charged, and do not exceed reasonable and
customary amounts in the market in which such sale occurred:
(i) trade, quantity and cash discounts or rebates actually taken or
allowed;
-3-
<PAGE>
(ii) credits or allowances given or made for rejection or return of
previously sold Cartridges;
(iii) any tax or government charge (including any tax such as a
value-added or similar tax or government charge other than an
income tax) levied on the sale, transportation or delivery of
Cartridges and borne by Centocor or its Affiliates;
(iv) any charges for freight and insurance; and
(v) an amount equal to the actual royalty amount payable by
Centocor or its Affiliates to independent third parties other
than Centocor, Inc. on account of sales of the Cartridges up to
[**] percent [**] of the gross invoiced sales price of the
Cartridges.
"Indirect Net Sales" with respect to Cartridges sold by Centocor Authorized
------------------
Distributors shall mean, as to each Accounting Period, the amount determined by
the following equation:
R = [**]Q
where R is the Indirect Net Sales and Q is the gross invoiced sales price
charged or payment received through any other payment arrangement by Centocor
for all Cartridges sold by Centocor or its Affiliates to Centocor Authorized
Distributors, after deduction of the following items incurred during such
Accounting Period with respect to sales of Cartridges hereunder, regardless of
the Accounting Period in which such sales were made, provided that such items
are included in the price charged, and do not exceed reasonable and customary
amounts in the market in which such sale occurred:
(i) trade, quantity and cash discounts or rebates actually taken or
allowed;
(ii) credits or allowances given or made for rejection or return of
previously sold Cartridges;
(iii) any tax or government charge (including any tax such as a
value-added or similar tax or government charge other than an
income tax) levied on the sales, transportation or delivery of
a Cartridge borne by Centocor or its Affiliates;
(iv) any charges for freight and insurance; and
(v) an amount equal to the actual royalty amount payable by
Centocor or its Affiliates to independent third parties other
than Centocor, Inc. on account of sales of the Cartridges up to
[**] percent [**] of the gross invoiced sales price of the
Cartridges.
The transfer of a Cartridge between an Affiliate of Centocor and Centocor or
another Affiliate of Centocor shall not be considered a sale subject to the
payments pursuant to Article 4, and in the case
-4-
<PAGE>
of any such transfer, Net Sales shall be based on the gross invoiced sales price
charged to the customer (i.e., Centocor Authorized Distributors or other
persons) for the Cartridge by the Affiliate of Centocor or Centocor as further
described above.
1.28 "New Instrument" shall mean Biometric's IMAGN 800 Instrument, which
performs each of the Assays developed pursuant to the terms of this Agreement.
1.29 "New Instrument Development Phase" shall have the meaning given such
term in Section 3.4 hereof.
1.30 "New Instrument Specifications" shall mean the performance
specifications for the New Instrument as modified during the New Instrument
Development Phase, as attached hereto as Exhibit D.
---------
1.31 "Patents" means all letters patent and pending applications for
patents of the United States and all countries foreign thereto, including
regional patents, certificates of invention and utility models, certificates of
invention and utility models which have been opened for public inspection and
all reissues, divisions, continuations, continuations-in-part, extensions of
(including, without limitation, any extensions thereof under the United States
Patent Term Restoration Act or otherwise), substitutions, renewals,
confirmations, supplementary protection certificates, registrations,
revalidations or additions of any of the foregoing, as applicable.
1.32 "Regulatory Filing" shall mean the submission to the U.S. Food and
Drug Administration or an equivalent regulatory authority of any country in the
Territory of an appropriate application seeking approval of the sale of New
Instruments.
1.33 "Technical Data Package" shall have the meaning set forth in Section
3.4 of this Agreement. The final form of the Technical Data Package shall be
attached hereto as Exhibit E in accordance with Section 3.4 of this Agreement.
---------
1.34 "Territory" means the entire world.
1.35 "Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
-5-
<PAGE>
2. OWNERSHIP OF TECHNOLOGY; LICENSE.
--------------------------------
2.1 It is agreed and understood that, during and after the term of this
Agreement, all of the Biometric Technology is and shall remain the exclusive
property of Biometric without restriction whatsoever on its use except as
provided in Section 2.2 below, and that during the term of, and upon termination
of, this Agreement, Biometric shall retain all right, title and interest in and
to Biometric's Technology, and Biometric's interest in any Developed Technology,
except as provided in Section 2.2 below. It is agreed and understood that all
of the Centocor Technology is and shall remain the exclusive property of
Centocor without restriction whatsoever on its use and that during the term of,
and upon termination of, this Agreement, Centocor shall retain all right, title
and interest in and to Centocor's Technology and Centocor's interest in any
Developed Technology. Both parties shall comply with all appropriate patent
marking statutes or regulations.
2.2 (a) Subject to the terms and conditions of this Agreement, Biometric
hereby grants to Centocor an exclusive (even as to Biometric, except as
otherwise expressly provided in Section 2.2(b) below), non-transferable,
worldwide, fully-paid up right and license ("License") to use the Biometric
Technology and Biometric's interest in any Developed Technology, for the purpose
of making, having made, marketing, using and selling, including the right to
sell for resale, New Instruments and Cartridges for use in the Field and for the
purpose of developing the Assays and conjugating Antibodies for use on the
Instrument. During the period in which the License remains in effect, Biometric
shall not grant to any third party any license or other right to use any of
Biometric's Technology or Biometric's interest in any Developed Technology, for
the purpose of developing, making, having made, marketing, using or selling
Instruments and Cartridges for use in the Field. In connection with the
License, each party shall notify the other, in writing, of any Developed
Technology, and any related Intellectual Property, relating to Instruments for
use in the Field.
(b) Biometric shall retain the exclusive right during the term of
this Agreement: (i) to make, use, sell, offer for sale, import and otherwise
exploit any products or processes covered by Biometric's Technology and/or
Biometric's interest in any Developed Technology for all uses outside of the
Field; and (ii) to license any or all of the foregoing rights set forth in
subparagraph (b)(i). In addition, Biometric shall have the right to make and use
Instruments and develop Assays for use in the Field for the purposes of
performing its obligations hereunder. Notwithstanding the foregoing, Biometric
may not sell Instruments or Cartridges to third party customers for use in the
Field during the period in which the License is in effect.
3. PRODUCT DEVELOPMENT.
-------------------
3.1 Collaboration Development Committee.
-----------------------------------
(a) It is the intent of the parties to collaborate with respect to the
development of Assays and Instruments for use in the Field. In pursuance of
such collaboration, each party agrees to use good faith efforts to cooperate
with the other to facilitate the conduct of the activities described in this
Article 3.
-6-
<PAGE>
(b) Promptly following the Effective Date of this Agreement the
parties shall form a product development committee ("Development Committee"),
the basic purpose of which shall be to coordinate and direct the relevant
activities of the parties which are to be conducted by them pursuant to this
Agreement. The Development Committee shall be made up of four persons, two of
whom shall be appointed by Centocor and two of whom shall be appointed by
Biometric. The Development Committee shall meet at such times as are requested
by either of the parties hereto.
3.2 Instrument Development Plan. Attached as Exhibit F hereto is an
--------------------------- ---------
Instrument Development Plan ("Development Plan") which outlines the future
efforts to be undertaken by each of the parties with respect to the development
of the Instruments. The Development Plan is divided into two phases, as
follows: (i) Phase I, the Modified Instrument Development Phase, and (ii) Phase
II, the New Instrument Development Phase (which shall include the development of
the Interim Instrument). Biometric shall be responsible for its costs and
expenses incurred in connection with Phase I of the Development Plan. Centocor
shall reimburse Biometric for all fully burdened costs incurred by Biometric in
connection with Phase II of the Development Plan such reimbursement shall be
payable 30 days following receipt by Centocor of Biometric's invoice for such
reimbursement. During the term of this Agreement, each party hereto shall
proceed and work diligently to fulfill its respective obligations under the
Development Plan on a timely basis. Centocor shall supply Biometric with such
quantities of Antibodies, and such technical assistance, as Biometric shall
reasonably require in order to perform its duties under this Agreement.
3.3 Phase I - Modified Instrument Development Phase.
-----------------------------------------------
(a) Biometric shall modify the Existing Instrument to perform the
Assays, in accordance with the Modified Instrument Specifications and the
Development Plan.
(b) Centocor and Biometric shall complete their respective tasks as
set forth on Exhibit F.
---------
(c) Until the completion of the Modified Instrument Development
Phase, Biometric shall be responsible, without charge to Centocor, for all
Modified Instrument and software support and shall provide to Centocor such
assistance in the operations and use of the Modified Instruments and Cartridges
as is reasonably requested by Centocor, including, without limitation, direct
field support. Centocor shall employ a software engineer to assist Biometric in
the support of the Modified Instruments, provided that Biometric shall at all
times be responsible for all Modified Instrument and software support.
(d) Centocor shall choose three evaluation sites and Biometric shall
provide the Centocor Instruments (as hereinafter defined) and all necessary
Instrument and software support, as more fully described on Exhibit G.
---------
-7-
<PAGE>
3.4 Phase II - New Instrument Development Phase.
-------------------------------------------
(a) Biometric shall undertake the development of the Interim
Instrument and the New Instrument based upon the Modified Instrument and the New
Instrument Specifications, in accordance with the Development Plan. Biometric
shall also complete the tasks set forth in Exhibit F, including the development
---------
of the cartridge necessary to perform the Assay ("Cartridge). During Phase II
of the Development Plan, Biometric shall provide to Centocor such assistance and
support, including direct field support, in connection with the Instruments and
Cartridges, as reasonably requested by Centocor. Centocor shall reimburse
Biometric for all fully burdened costs incurred by Biometric in connection with
such assistance and support.
(b) Following the completion of Phase I of the Development Plan and
during the conduct of any Clinical Trials utilizing the Modified Instruments,
Interim Instruments or New Instruments, Centocor shall have the right to make
reasonable modifications to the Modified Instrument Specifications, the New
Instrument Specifications and the ATP, and Biometric shall be required to make
such modifications to the Modified Instrument, Interim Instruments or the New
Instrument, as applicable, and the corresponding operator's manual ("Operator's
Manual") so that the Modified Instrument, Interim Instrument and the New
Instrument, as applicable and the corresponding Operator's Manual conform with
the Modified Instrument Specifications, the New Instrument Specifications and
the ATP as so modified. The final New Instrument Specifications, Operator's
Manual and ATP shall collectively be referred to as the "Technical Data
Package."
3.5 Non-Compete Covenant. During the term of this Agreement, Biometric
--------------------
shall not commercially manufacture, market, sell or distribute, and shall not
permit any of its Affiliates to commercially manufacture, market, sell or
distribute, any product that competes with the Instruments or the Cartridges in
the Field. Biometric shall not be deemed to have breached the provisions of this
Section 3.5 to the extent that a customer of Biometric, or a customer of any of
Biometric's Affiliates, modifies a product which was non-competing when shipped
by Biometric or any of its Affiliates.
4. MANUFACTURE AND SUPPLY OF INSTRUMENTS.
-------------------------------------
4.1 Development Phases. During the Modified Instrument and New Instrument
------------------
Development Phases, Biometric shall supply instruments to Centocor (the
"Centocor Instruments") in accordance with the following schedule, for use in
the conduct of clinical trials and the production of clinical testing kits:
<TABLE>
<CAPTION>
Instrument Quantity Delivery Date
---------- -------- -------------
<S> <C> <C>
Initial [**] [**]
Modified [**] [**]
Modified or Interim* [**] [**]
Interim or New* [**] [**]
New [**] [**]
</TABLE>
-8-
<PAGE>
* whichever is ready
Centocor has paid Biometric the sum of [**] Dollars [**]
as payment in full for the [**] Initial Instruments delivered in September
1997. Such payment shall be credited against any payments owed by Centocor to
Biometric for reimbursement of Phase II development costs pursuant to Section
3.2 hereof.
4.2 Commercial Stage. Upon completion of the development of the New
----------------
Instrument, Biometric shall use commercially reasonable efforts to supply
Centocor with New Instruments in accordance with Centocor's reasonable requests.
Centocor shall provide Biometric with a rolling twelve-month forecast of
Centocor's requirements of New Instruments each January 1, April 1, July 1 and
October 1 during the term of this Agreement; only the first three months of each
such forecast shall be binding upon Biometric and Centocor. Centocor shall pay
to Biometric an amount equal to
[**] per New Instrument)
of manufacturing of a New Instrument for each New Instrument purchased by
Centocor pursuant to this Section 4.2. Shipping and delivery terms shall be
upon terms agreed to by the parties. Any New Instrument manufactured by
Biometric, its sublicensee or any other manufacturer under contract with
Biometric for commercial sale by Centocor shall be manufactured consistent with
Quality System Regulation, in accordance with the New Instrument Specifications
for the New Instrument and in a facility consistent with ISO 9000. The
provision of the New Instruments shall be subject to Biometric's standard terms
and conditions of sale therefore, including but not limited to warranty terms
and limitation of liability terms, a copy of which is attached hereto as Exhibit
-------
H. Centocor shall manufacture (or have manufactured) and sell the Cartridges
- -
for use with the New Instruments.
5. CLINICAL TRIALS. Centocor shall be solely responsible for performing all
---------------
clinical trials ("Clinical Trials") and Regulatory Filings and obtaining all
regulatory approvals necessary for the commercial development and sale of
Modified Instruments, Interim Instruments and New Instruments, as applicable.
Biometric agrees to reasonably cooperate with Centocor with respect to filings
to be made by Centocor with any regulatory agency having oversight of clinical
trials, manufacturing, marketing approval or other matters concerning the
Instruments. Biometric shall provide field support for the Instruments as may
be reasonably required by Centocor during the Clinical Trials and Centocor shall
reimburse Biometric's reasonable direct expenses associated with such field
support.
-9-
<PAGE>
6. EQUITY INVESTMENTS.
------------------
6.1 Stock Purchase Agreement. CDP Investments, Inc., an Affiliate of
------------------------
Centocor, shall purchase the shares of the stock of Biometric as set forth
below, pursuant to the terms of the Stock Purchase Agreement in the form of
Exhibit 6.2 attached hereto, to be entered into between CDP Investments, Inc.
and Biometric on even date herewith:
(a) Upon [**]
, CDP Investments, Inc. shall purchase
[**] shares of [**] Stock of Biometric at a purchase price of [**]
per share for an aggregate purchase price of approximately [**].
(b) Upon [**]
, CDP Investments, Inc. shall purchase [**] shares of Biometric
[**] Stock at a purchase price of [**] per share for an aggregate
purchase price of approximately [**] .
(c) Upon [**]
, CDP Investments,
Inc. shall purchase [**] shares of Biometric [**]
Stock at a purchase price of [**] per share for an aggregate purchase
price of approximately [**] .
7. PAYMENTS.
--------
7.1 Payments. Commencing with the First Commercial Sale of a Cartridge,
--------
Centocor shall pay to Biometric payments, calculated as a percentage of
cumulative Net Sales (the "Payment Amount"), as follows:
<TABLE>
<CAPTION>
Payment Rate as a
Cumulative Net Sales Percentage of Cumulative Net Sales
-------------------- ----------------------------------
<S> <C>
Up to and including [**] [**]
Greater than [**] and up to
and including [**] [**]
Greater than [**] and up to
and including [**] [**]
Greater than [**] and up to
and including [**] [**]
Greater than [**] and up to
and including [**] [**]
Greater than [**] [**]
</TABLE>
An example of the application of the Payment Rate as a percentage of cumulative
Net Sales is attached on Exhibit I attached hereto.
---------
-10-
<PAGE>
7.2 Minimum Payments.
----------------
(a) If the aggregate of the Payment Amounts paid by Centocor to
Biometric for the first [**] following the First Commercial Sale (the
"Aggregate Payments") do not equal at least [**] , Biometric shall
have the right, beginning [**] following the end of such [**]
period, to cause the License granted pursuant to Section 2.2 hereof to convert
from an exclusive to a non-exclusive License; provided, however, that Centocor
shall have the right, within [**] following the end of such
[**] period, to pay to Biometric an additional amount equal to the
amount by which [**] exceeds the Aggregate Payments in order to
maintain the exclusivity of the License. If the License is converted to a non-
exclusive License pursuant to this Section 7.2(a), the parties hereto shall meet
to discuss possible adjustments to the Payment Rate, which shall be adjusted
only upon the mutual agreement of the parties.
(b) If the aggregate of the Payment Amounts paid by Centocor to
Biometric in each year commencing with the [**] following the First
Commercial Sale (the "Yearly Aggregate Payments") do not equal at least [**]
, Biometric shall have the right, beginning [**] following the end of each
such year, to cause the License granted pursuant to Section 2.2 hereof to
convert from an exclusive to a non-exclusive License; provided however, that
Centocor shall have the right, within [**] following the end of
any such year, to pay to Biometric an additional amount equal to the amount by
which [**] exceeds that year's Yearly Aggregate Payment in order to
maintain the exclusivity of the License. If the License is converted to a
non-exclusive License pursuant to this Section 7.2(b), the parties hereto shall
meet to discuss possible adjustments to the Payment Rate, which shall be
adjusted only upon the mutual agreement of the parties.
7.3 New Instrument Price. Centocor shall pay to Biometric an amount equal
--------------------
to [**]
per New Instrument) of manufacturing of a New Instrument for each New Instrument
purchased by Centocor.
7.4 Payment Dates. Within forty-five (45) days following the end of each
-------------
Accounting Period in which any Net Sales occurred, Centocor shall provide to
Biometric with respect to such Accounting Period a statement showing (i) the
quantity of Cartridges sold in each country by Centocor, (ii) local currency and
U.S. Dollars gross sales and Net Sales in each country in which Net Sales
occurred, (iii) the exchange rate used to directly convert Net Sales to U.S.
Dollars, and (iv) a calculation of the Payment Amount. Centocor shall pay the
Payment Amount within forty-five (45) days following the end of the Accounting
Period. Centocor shall pay the New Instrument Price to Biometric within thirty
(30) days of the later of Centocor's receipt of any New Instrument or
Biometric's invoice for a New Instrument.
7.5 Records and Accounting.
----------------------
(a) Centocor shall keep complete and accurate records of the latest
three (3) years of Net Sales. Biometric shall have the right at its own expense
to have an independent certified public accountant, reasonably acceptable to
Centocor or its Affiliates, review Centocor's records upon reasonable notice and
during reasonable business hours for the purposes of verifying Net Sales and the
-11-
<PAGE>
Payment Amount payments to Biometric provided for in this Agreement. This right
may not be exercised more than twice in any calendar year. The results of any
such review shall be made available to both parties. If the review reflects an
underpayment or overpayment of the Payment Amount to Biometric, such
underpayment or overpayment, together with interest at the prime rate as
announced from time-to-time by Chase Manhattan Bank ("Prime Rate") shall be
promptly remitted to the appropriate party. If any such underpayment exceeds 5%
of the amount actually owed then Centocor shall reimburse Biometric for the
reasonable cost of such audit.
(b) Biometric shall keep complete and accurate records of the latest
three (3) years of its fully burdened costs of its manufacture of the
Instruments (the "Costs"). Centocor shall have the right at its own expense to
have an independent certified public accountant, reasonably acceptable to
Biometric or its Affiliates, review Biometric's records upon reasonable notice
and during reasonable business hours for the purposes of verifying the Costs.
This right may not be exercised more than twice in any calendar year. The
results of any such review shall be made available to both parties. If the
review reflects an underpayment or overpayment of the Costs to Biometric, such
underpayment or overpayment, together with interest at the Prime Rate, shall be
promptly remitted to the appropriate party. If any such underpayment exceeds 5%
of the amount actually owed then Biometric shall reimburse Centocor for the
reasonable cost of such audit.
7.6 Currency of Payment Amount. All payments due hereunder shall be made
--------------------------
in United States Dollars. Any Payment Amount payments due hereunder on Net
Sales outside of the United States shall be payable in United States Dollars at
the rate of exchange of the currency of the country in which the Net Sales are
made as quoted by The Wall Street Journal for the last business day of the
Accounting Period for which payments are payable.
8. EFFECTIVE DATE; TERM; TERMINATION.
---------------------------------
8.1 Notwithstanding any other provision set forth herein, this Agreement,
although signed and delivered by the parties, shall not become effective until
the consummation of the First Closing. Upon the consummation of the First
Closing, this Agreement shall automatically become effective and in full force
and effect without notice by either party. For the purposes of this Agreement,
the date of the First Closing is referred to herein as the "Effective Date". The
term of this Agreement shall commence on the Effective Date and continue for a
period of twenty (20) years (the "Initial Term"). This Agreement may be extended
for an additional period upon the mutual consent of the parties.
8.2 If either party shall default in a material manner with respect to any
material provision of this Agreement and the other party shall have given the
defaulting party written notice of such default, the defaulting party shall have
sixty (60) days to cure such default. If such default is not cured within such
sixty (60) day period, the nondefaulting party shall have the right, upon
written notice to the defaulting party and without prejudice to any other rights
the nondefaulting party may have, to terminate this Agreement unless the
defaulting party is in the process of attempting in good faith to remedy such
default, in which case the sixty (60) day cure period shall be extended by an
additional forty-five (45) days.
-12-
<PAGE>
8.3 In addition to any other rights of termination provided under this
Agreement, either party may terminate this Agreement immediately upon written
notice if the other party has not fulfilled its obligations under this Agreement
for more than one hundred twenty (120) days due to Force Majeure as described in
Section 17 of this Agreement.
8.4 Either party may, in addition to any other remedies available to it by
law or in equity, terminate this Agreement by written notice to the other party
in the event the other party shall have become insolvent (i.e., that party is
unable to pay its debts incurred in the ordinary course of business as they
become due) or shall have made an assignment for the benefit of its creditors,
or there shall have been appointed a trustee or receiver of the other party or
for all or a substantial part of its property, or any case or proceeding shall
have been voluntarily initiated by or commenced against or other action taken by
or against the other party in bankruptcy or seeking reorganization, liquidation,
dissolution, winding-up, arrangement, composition or readjustment of its debts
or any other relief under any bankruptcy, insolvency, reorganization or other
similar act or law of any jurisdiction now or hereafter in effect and, in the
event of any such involuntary proceeding, shall have continued for sixty (60)
days undismissed, unbonded and undischarged.
8.5 Each party shall provide notice to the other party of any Change of
Control of such party. The party receiving a Change of Control notice shall
have the right within thirty (30) days of receipt of such notice to terminate
this Agreement upon written notice to the party providing the Change of Control
notice; such termination shall be effective upon receipt of the termination
notice by the party undergoing a Change of Control. Absent a notice of
termination pursuant to this Section 8.5, a Change of Control shall have no
effect upon this Agreement. Notwithstanding the foregoing provisions of this
Section 8.5, Centocor shall not have the right to terminate this Agreement upon
a Change of Control of Biometric, if Biometric is entitled to assign this
Agreement pursuant to Section 14 hereof, in connection with such Change of
Control.
8.6 In the event of any termination of this Agreement by Biometric
pursuant to Sections 8.2, 8.3, 8.4 or 8.5 hereof, the licenses granted to
Centocor shall immediately terminate. In the event Centocor has the right to
terminate this Agreement pursuant to Sections 8.2, 8.3, 8.4 or 8.5 hereof,
Centocor shall have the option, following the expiration of any grace or cure
periods provided in such applicable Section, in lieu of such termination and
upon written notice to Biometric (the "Conversion Notice"), to terminate only
certain provisions of this Agreement. Upon delivery of the Conversion Notice
(i) Sections 3.1, 3.2, 3.3, 3.4, 4.1, 4.2 and 6.1 hereof and (ii) Biometric's
obligations under Section 5 hereof, shall terminate with no further force or
effect, except for the satisfaction of any obligations which accrued prior to
such termination, and the remaining provisions of this Agreement, including,
without limitation, Sections 2.1, 2.2, 3.5, 7.1, 7.2, 7.3, 7.4, 7.5 and 7.6
shall remain in full force and effect.
8.7 The following Sections and Articles shall survive any termination of
this Agreement: 2.1, 9, 10, 11 and 12.
8.8 Termination of this Agreement shall not relieve the parties hereto of
their respective obligations of confidentiality or of any other obligations or
liability accrued hereunder prior to such termination.
-13-
<PAGE>
9. REPRESENTATIONS AND WARRANTIES.
------------------------------
9.1 As a material inducement to Centocor to enter into this Agreement,
Biometric hereby represents and warrants to Centocor as of the Effective Date
that:
(a) The execution, delivery and performance of this Agreement by
Biometric does not, and the consummation of the transactions contemplated hereby
will not (i) violate, breach, conflict with, constitute a default under, cause
the acceleration of any payments pursuant to, or otherwise impair the good
standing, validity or effectiveness of any agreement, contract, indenture,
lease, license or mortgage to which Biometric is a party or by which Biometric
is bound; (ii) violate any provision of any law, permit or court order
applicable to Biometric; or (iii) require any permit or the consent of any third
party which has not been obtained;
(b) To the knowledge of Biometric, as of the date of this Agreement,
it owns, or has the unrestricted right to use the Biometric Technology and has
the unrestricted right to grant the License to Centocor;
(c) To the knowledge of Biometric, as of the date of this Agreement,
there is no third party using or infringing all or any portion of the Biometric
Technology in derogation of the rights granted to Centocor in this Agreement;
(d) To the knowledge of Biometric, as of the date of this Agreement,
there are no facts or circumstances which give rise to, or form the basis of,
any claim of invalidity, unenforceability or lack of priority of any of
Biometric's rights in the Biometric Technology;
(e) To the knowledge of Biometric, the inception, development and
reduction to practice of the Biometric Technology has not constituted or
involved, and does not constitute or involve, the misappropriation of trade
secrets or other rights of any third party;
(f) As of the date of this Agreement, there is no interference action
or other litigation pending or threatened before the United States Patent and
Trademark Office or any other governmental entity in any jurisdiction in regard
to any Intellectual Property forming a part of the Biometric Technology; and
(g) Exhibit J hereto contains a true and complete list of all Patents
---------
forming a part of the Biometric Technology.
9.2 As a material inducement to Biometric to enter into this Agreement,
Centocor hereby represents and warrants to Biometric that:
(a) The execution, delivery and performance of this Agreement does
not, and the consummation of the transactions contemplated hereby will not (i)
violate, breach, conflict with, constitute a default under, cause the
acceleration of any payments pursuant to, or otherwise impair the
-14-
<PAGE>
good standing, validity or effectiveness of any agreement, contract, indenture,
lease, license or mortgage to which Centocor is a party or by which Centocor is
bound; (ii) violate any provision of any law, permit or court order applicable
to Centocor; or (iii) require any permit or the consent of any third party which
has not been obtained; and
(b) It owns or has the unrestricted right to use the Centocor
Technology in the development, manufacture and sale of Instruments in the Field.
10. INDEMNIFICATION.
---------------
10.1 Biometric agrees to defend, indemnify and hold Centocor, its
Affiliates, and their respective officers, directors, shareholders, employees
and agents, harmless against all third party costs, claims, actions, suits,
losses, damages, liability and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) (collectively, "Losses") to the
extent arising out of or resulting from (i) a breach of Biometric's obligations,
representations and warranties hereunder, or (ii) arising out of defects in the
design, workmanship and materials in, and/or, subject, with respect to New
Instruments, to Biometric's warranty terms, a copy of which is attached hereto
as Exhibit H, the proper performance in accordance with the associated manuals
of, any of the Instruments, manufactured and supplied by Biometric hereunder.
10.2 Centocor agrees to defend, indemnify and hold Biometric, its
Affiliates, and their respective officers, directors, shareholders, employees
and agents, harmless against all third party Losses to the extent arising out of
or resulting from (i) a breach of Centocor's obligations, representations and
warranties hereunder, or (ii) any make or have made activities of Centocor
under the License, or (iii) any representations or warranties of Centocor to any
third party regarding any of the Instruments, that are beyond the scope of, or
vary from the warranties provided herein by Biometric.
10.3 A person that intends to claim indemnification under Section 10.1 or
Section 10.2 ("Indemnitee") shall promptly notify the other party (the
"Indemnitor") in writing of any claim in respect of which the Indemnitee intends
to claim such indemnification, and the Indemnitor shall have sole control of the
defense and/or settlement thereof, provided that the Indemnitee may participate
in any such proceeding with counsel of its choice at its own expense. The
indemnity agreement in this Section 10 shall not apply to amounts paid in
settlement of any claim if such settlement is effected without the consent of
the Indemnitor, which consent shall not be withheld unreasonably. The Indemnitee
under this Section 10, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives and provide full information in the
investigation of any claim covered by this indemnification.
11. CONFIDENTIALITY.
---------------
All proprietary and confidential information exchanged between Biometric
and Centocor in connection with the activities contemplated herein (including,
without limitation, technical information, marketing information and names of
vendors) shall be treated as confidential information of the
-15-
<PAGE>
disclosing party, and the receiving party shall not, during the term of this
Agreement, or for a period of five (5) years after termination of this
Agreement, use such information for any purpose other than in furtherance of
this Agreement or disclose such information to any third party without the prior
written approval of the other party unless such information: (i) has become
public knowledge through no fault of the party receiving such information; (ii)
comes to such party from a third party under no obligation of confidentiality
with respect to such information; (iii) was in the possession of the receiving
party prior to the date of disclosure; (iv) was independently developed by the
receiving party, without reference to any information or materials disclosed by
the disclosing party, as evidenced by the receiving party's written records; or
(v) is required by law to be disclosed, provided that if any of the information
--------
protected by this Section 11 becomes the subject of a court or governmental
agency order requiring the disclosure of such information, the party so required
to disclose such information shall give the other party sufficient notice of the
proposed disclosure to seek a protective order for such information. Upon
termination of this Agreement, at the request of the disclosing party, the
receiving party shall return all confidential information of the disclosing
party and all copies thereof.
12. PATENTS.
-------
12.1 Prosecution; Patent Infringement.
--------------------------------
(a) Biometric shall diligently prosecute and maintain all of its
Patents which are applicable to the Field ("Applicable Patent"). Biometric
shall provide Centocor with copies of all relevant documentation so that
Centocor may be informed and apprised of continuing prosecution.
(b) Each party shall promptly notify the other of any violation by a
third party of any Applicable Patent and shall provide the other with available
evidence of such violation. In the event of an alleged infringement by a third
party of an Applicable Patent, the parties shall discuss in good faith the
bringing of a suit or action jointly against such alleged infringer and the
costs of any action and any amount recovered whether by judgment, award, decree
or settlement will be borne and shared by both parties in such manner as they
may agree. Centocor shall not have the right to enforce any of Biometric's
Patents.
12.2 Ownership of Inventions. Title to all inventions and other
-----------------------
intellectual property made solely by employees or consultants of Biometric in
connection with the development performed hereunder shall be owned by Biometric.
Title to all inventions and other intellectual property made solely by employees
or consultants of Centocor in connection with the development performed
hereunder shall be owned by Centocor. Title to all inventions and other
intellectual property made jointly by employees or consultants of Centocor and
Biometric in connection with the development performed hereunder shall be owned
jointly by Centocor and Biometric (each a "Joint Invention"). Inventorship of
inventions and ownership rights with respect thereto shall be determined in
accordance with the patent and other intellectual property laws of the United
States.
-16-
<PAGE>
12.3 Patent Prosecution.
------------------
(a) Patent Rights. Each party shall be responsible, at its expense,
-------------
for the preparation, filing, prosecution and maintenance of the patent
applications and patents owned solely by it in countries selected by such party,
and for conducting any interferences, reexaminations, reissues, oppositions, or
request of patent term extension relating thereto.
(b) Joint Inventions.
----------------
(i) The parties will cooperate to file, prosecute and
maintain patent applications covering the Joint Invention(s) in the U.S., Japan,
the United Kingdom, Italy, Germany and France (in European countries through a
European Patent Convention application) (collectively, "Core Countries") and
other countries agreed by the parties, and unless otherwise mutually agreed,
Centocor shall assume responsibility for the preparation and filing of all
patent applications in connection therewith, and shall keep Biometric fully
informed as to the status of such patent matters, including, without limitation,
by providing Biometric the opportunity, at Biometric's expense, to review and
comment on any documents relating to the Joint Invention which will be filed in
any patent office at least thirty (30) days before such filing. The parties will
share equally all expenses and fees associated with the filing, prosection,
issuance and maintenance of any patent application and resulting patent for a
Joint Invention in the Core Countries and other agreed countries.
(ii) In the event that either party wishes to seek patent
protection with respect to any Joint Invention outside the Core Countries, it
shall notify the other party hereto. If both parties wish to seek patent
protection with respect to such Joint Invention in such country or countries,
they shall do so in accordance with Section 12.3(b)(i) above. If only one party
wishes to seek patent protection with respect to such Joint Invention in such
country or countries, it may file, prosecute and maintain patent applications
and patents with respect thereto, at its own expense. In any such case, the
party declining to participate in such activities shall not grant any third
party a license under its interest in the applicable Joint Invention without the
prior written consent of the other party.
(iii) Each of Centocor and Biometric shall keep the other
fully informed as to the status of patent matters described in this Article 12,
including without limitation, by providing the other the opportunity to fully
review and comment on any documents as far in advance of filing dates as
possible which will be filed in any patent office, and providing the other
copies of any substantive documents that such party receives from such patent
offices promptly after receipt, including notice of all interferences, reissues,
re-examinations, oppositions or requests for patent term extensions. Centocor
and Biometric shall each reasonably cooperate with and assist the other at its
own expense in connection with such activities, at the other party's request.
-17-
<PAGE>
13. COMPLIANCE WITH LAWS.
--------------------
Each party agrees to perform its respective obligations hereunder in
compliance with all applicable federal, state and local laws, rules and
regulations.
14. ASSIGNMENT.
----------
During the period beginning on the Effective Date and ending of the earlier
of: (i) thirty (30) months following the Effective Date or (ii) six (6) months
following the First Commercial Sale, Biometric shall not assign this Agreement,
or any of its rights or obligations hereunder, to any person or entity which has
a product, or a program for the development of a product, in the Field.
15. ENTIRE AGREEMENT.
----------------
This Agreement constitutes the entire agreement and understanding between
the parties with respect to the subject matter hereof, and there are no
promises, representations, conditions, provisions or terms related thereto other
than those set forth in this Agreement and this Agreement supersedes all
previous understandings, agreements and representations between the parties,
written or oral with respect to the subject matter hereof. This Agreement may
not be changed, modified, or amended except by a writing signed by both parties.
16. NOTICES.
-------
All notices which may be required pursuant to this Agreement shall be: (i)
in writing; (ii) addressed to the parties at their respective addresses set
forth at the beginning of this Agreement (or to such other person or address as
either party may so designate from time to time); (iii) mailed, postage prepaid,
by registered mail or certified mail, return receipt requested, or transmitted
by courier for hand delivery or by a nationally recognized overnight delivery
service or by telegram; and (iv) deemed to have been given on the date of
receipt if sent by mail or on the date of delivery if transmitted by courier,
overnight delivery service or telegram.
17. FORCE MAJEURE.
-------------
If the failure by one party to fulfill its obligations hereunder is due to
circumstances beyond the reasonable control of such party (which may include
strikes, governmental action and acts of God), such failure shall not be deemed
a breach of this Agreement by such party provided, such party uses diligent
--------
efforts to continue to perform hereunder; provided further that if such failure
----------------
shall not be remedied for one hundred twenty (120) days, the other party may
elect to terminate this Agreement effective upon notice of such election.
18. SECTION HEADINGS.
----------------
The Section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
-18-
<PAGE>
19. GOVERNING LAW.
-------------
This Agreement shall be governed and construed in accordance with the
internal laws of the Commonwealth of Pennsylvania, without regard to conflict of
laws principles.
20. WAIVER.
------
The failure of either party to enforce its rights under this Agreement at
any time for any period shall not be construed as a waiver of such rights.
21. RELATIONSHIP OF THE PARTIES.
---------------------------
Notwithstanding any provision hereof, for all purposes of this Agreement
each party shall be and act as an independent contractor and not as a partner,
joint venturer, or agent of the other and shall not bind nor attempt to bind the
other to any contract.
22. SEVERABILITY.
------------
In the event that any provision of this Agreement shall be determined to be
illegal or unenforceable, such provision will be limited or eliminated to the
minimum extent necessary and this Agreement shall otherwise remain in full force
and effect and enforceable.
23. REMEDIES.
--------
Except as otherwise expressly stated in this Agreement, the rights and
remedies of each party set forth herein with respect to the failure of the other
party to comply with the terms of this Agreement (including, without limitation,
the remedy of full termination of this Agreement) are not exclusive; the
exercise thereof shall not constitute an election of remedies and the aggrieved
party shall in all events be entitled to seek whatever additional remedies may
be available in law or in equity.
24. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same document.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first written above.
CENTOCOR DIAGNOSTICS OF PENNSYLVANIA, INC.
By: /s/ James Danehy
----------------------------------------------------
Title President & CEO
BIOMETRIC IMAGING, INC.
By: /s/ Bala S. Manian
----------------------------------------------------
Title: Chairman
-20-
<PAGE>
EXHIBIT A
---------
Antibodies
----------
Antibodies shall mean the antibodies reactive against all platelets (activated
or unactivated) and antibodies reactive against soluble and membrane bound p-
selectin.
Assays
------
Membrane P-selectin Assay refers to the method of detection of p-selectin
expression on cells using a labeled antibody which binds to membrane bound p-
selectin in a reproducible manner.
Soluble P-selectin refers to the method of quantitation of soluble p-selectin in
a sample through the detection of a labeled antibody which binds to soluble p-
selectin in a stoichiometrically characterized manner.
Total Platelet Count Assay refers to the method of enumeration of all platelets
in a sample through the detection of a labeled antibody which binds to an
antigen present on the surface of all platelet.
-21-
<PAGE>
EXHIBIT B
---------
Acceptance Testing Procedures
-----------------------------
Meet design goals as defined and modified during the development of the
instruments.
-22-
<PAGE>
EXHIBIT C
---------
Modified Instrument Specifications
----------------------------------
All necessary software and firmware modifications to provide quantitative output
for each assay to remove all data interpretation by the users.
-23-
<PAGE>
EXHIBIT D
---------
New Instrument Specifications
-----------------------------
IMAGN 800 - System Specification
[**]
-24-
<PAGE>
[**]
-25-
<PAGE>
[**]
-26-
<PAGE>
[**]
-27-
<PAGE>
EXHIBIT E
---------
Technical Data Package
----------------------
To be defined by Centocor and Biometric
-28-
<PAGE>
EXHIBIT F
---------
[**]
-29-
<PAGE>
[**]
-30-
<PAGE>
EXHIBIT G
---------
Instrument and Software Support
-------------------------------
Biometric will be responsible for installing systems at the three evaluation
sites, training the laboratory personnel and providing field support during the
time period of the trial. Biometric Imaging will set up capability at Centocor
to enable remote interrogation of the installed systems, downloading of data for
further analysis and work with the software engineer that Centocor has agreed to
hire.
-31-
<PAGE>
EXHIBIT H
---------
Biometric Standard Terms and Conditions of Sale
-----------------------------------------------
WARRANTY:
- --------
Standard Instrument Warranty. Biometric Imaging, Inc. ("Biometric") warrants
- ----------------------------
that, subject to the exclusions set forth in this Warranty, that the IMAGN(R)
2000 instrument ("IMAGN") shall substantially conform to the material functional
specifications contained in the IMAGN Operator's Guide for one (1) year from the
date of delivery to the original end user purchaser ("End User") as evidenced by
the End User's bill of lading. The foregoing warranty is contingent upon proper
use of the IMAGN in the applications for which it was intended as indicated in
the IMAGN Operator's Guide. The above limited warranty applies only to
reproducible defects reported to Biometric in accordance with Biometric's
standard reporting procedures described in the IMAGN Operator's Guide and do not
apply to (A) beta or preproduction versions of the IMAGN (including the software
contained therein), and (B) third party hardware or software not sold by
Biometric for use with the IMAGN, or (C) to any IMAGN which after shipment by
Biometric (i) has been altered, except by Biometric or under and in full
compliance with Biometric's direction, or (ii) has not been installed, operated,
repaired, or maintained in accordance with any installation, handling,
maintenance or operating instructions supplied by Biometric, or (iii) has been
damaged by unusual physical or electrical stress, negligence, or accident, or
(iv) has been damaged by acts of nature, vandalism, burglary, neglect, or
misuse, or (v) has not been updated with all error corrections and bugs fixes
provided by Biometric. In the event of any breach of the warranty set forth
above, the End User's exclusive remedy and Biometric's sole and exclusive
liability shall be, at Biometric's sole discretion, (x) with respect to hardware
portions of the IMAGN, to repair or replace the IMAGN at Biometric's expense
within thirty (30) days after the nonconformity is reported to Biometric, and
(y) with respect to software portions of the IMAGN, either (i) to use
commercially reasonable efforts to correct the conformity within thirty (30)
days after the nonconformity is reported to Biometric, provided that the End
User notifies Biometric in a timely manner in writing that such IMAGN failed to
conform and furnishes a detailed explanation of any alleged nonconformity, or
(ii) if such efforts fail to correct the nonconformity within such thirty (30)
day period, and such nonconformity materially affects the operation or
performance of the IMAGN, or if Biometric otherwise elects, to promptly (x)
replace the IMAGN with conforming software at Biometric's expense, or (y)
provide the End User with a refund of the invoice price of each IMAGN affected
by such nonconformity.
Return of an IMAGN. To return an IMAGN that fails to conform to the limited
- ------------------
warranty set forth above, the End User shall first obtain a Return Material
Authorization ("RMA") number from Biometric by calling Biometric's telephone
support number. If any IMAGN is returned without an RMA number, Biometric
-32-
reserves the right to refuse to accept such IMAGN. Within seven (7) days of
receipt of the RMA number, the End User shall return to Biometric the IMAGN,
freight prepaid, in its original shipping carton or other appropriate crating
with the RMA number displayed visibly on the outside of the carton F.O.B.
Biometric's address or such other location as Biometric may designate in
writing. Biometric will reimburse for shipment charges for return of a
nonconforming IMAGN.
Disclaimer of Other Warranties. EXCEPT FOR THE LIMITED WARRANTIES PROVIDED
- ------------------------------
ABOVE, BIOMETRIC AND ITS THIRD PARTY SUPPLIERS GRANT NO OTHER WARRANTIES OR
CONDITIONS, EXPRESS OR IMPLIED, BY STATUTE, OR OTHERWISE, REGARDING THE IMAGN
(INCLUDING THE SOFTWARE CONTAINED THEREIN) OR THE ASSAY CARTRIDGES, AND
BIOMETRIC AND ITS THIRD PARTY SUPPLIERS SPECIFICALLY DISCLAIM THE IMPLIED
WARRANTIES FOR FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, AND
NONINFRINGEMENT. BIOMETRIC DOES NOT WARRANT THAT OPERATION OF THE IMAGN WILL BE
UNINTERRUPTED OR ERROR-FREE. ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY
ANY PERSON OR ENTITY, INCLUDING EMPLOYEES OR REPRESENTATIVES OF BIOMETRIC, THAT
ARE INCONSISTENT HEREWITH SHALL BE DISREGARDED AND SHALL NOT BE BINDING UPON
BIOMETRIC OR ITS THIRD PARTY SUPPLIERS. IN NO EVENT SHALL BIOMETRIC BE LIABLE TO
THE END USER, OR ANY THIRD PARTY FOR LOST PROFITS, OR FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES FOR BREACH OF WARRANTY. THIS
LIMITATION SHALL APPLY EVEN WHERE BIOMETRIC HAS BEEN ADVISED OR THE POSSIBILITY
OF SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY STATED HEREIN.
TERMS AND CONDITIONS
- --------------------
Payment. Terms are net 30 days.
- -------
Installation. Initial site installation will be by a factory trained
- ------------
representative and includes instrument unpacking, assembly and adjustment to
factory specification. It does not include any site preparation. We anticipate
that training will be completed on site at the time of installation and will
take approximately one day.
Shipment. Delivery: Shipment is approximately thirty (30) days from receipt of
- --------
your purchase order. We reserve the right to partially ship a purchase order
with the understanding that we will invoice only that portion of the purchase
order that has been shipped.
Freight: Freight is F.O.B. (Mountain View, CA) prepaid to destination
and added to the invoice. Biometric Imaging retains the risk of loss until
delivery.
<PAGE>
EXHIBIT I
---------
Calculation of Payment Rate
---------------------------
<TABLE>
<CAPTION>
Sales Royalty Rate Dollar Rate Total Royalty
----- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Year 1 Sales [**] [**] [**]
[**] [**] [**]
Year 2 Sales [**] [**] [**]
[**] [**]
[**] [**] [**]
Year 3 Sales [**] [**] [**]
[**] [**]
[**] [**] [**]
Year 4 Sales [**] [**] [**] [**]
</TABLE>
-33-
<PAGE>
EXHIBIT J
---------
Intellectual Property
---------------------
The following US patents and patents pending represent the intellectual property
covered by this agreement:
US Issued Patents:
- ------------------
[**]
[**]
[**]
[**]
[**]
US Patent Pending Application:
- ------------------------------
Serial Number [**]
-34-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Subsidiary State of Incorporation
- ---------- ----------------------
CDP Investments, Inc. Delaware
CDP Holdings Corp. Delaware
Centocor Diagnostics of Pennsylvania
Pennsylvania, Inc.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Centocor Diagnostics, Inc.:
The audits referred to in our report dated October 13, 1997, included the
related financial statement Schedule II - Valuation and Qualifying Accounts as
of December 31, 1996, and for each of the years in the three-year period ended
December 31, 1996, included in the registration statement. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
October 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 7907
<ALLOWANCES> 0
<INVENTORY> 3846
<CURRENT-ASSETS> 11815
<PP&E> 5214
<DEPRECIATION> 3666
<TOTAL-ASSETS> 17295
<CURRENT-LIABILITIES> 4131
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17295
<SALES> 37611
<TOTAL-REVENUES> 40092
<CGS> 13458
<TOTAL-COSTS> 31378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8714
<INCOME-TAX> 3464
<INCOME-CONTINUING> 5250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5250
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
