<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1997.
REGISTRATION NO. 333-38027
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
CENTOCOR DIAGNOSTICS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 2835 23-2918699
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Identification
incorporation Code Number) No.)
or
organization)
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. [_]
---------------
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 December 11, 1997
2,900,000 Shares
[LOGO OF CENTOCOR APPEARS HERE]
CLASS A COMMON STOCK
-----------
ALL OF THE 2,900,000 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
71.0% OF THE OUTSTANDING COMMON STOCK OF THE COMPANY (APPROXIMATELY 68.0% 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 96.1% OF THE COMBINED VOTING POWER OF THE COMPANY'S COMMON STOCK
(APPROXIMATELY 95.5% 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 $13 AND $15. 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 6 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 $727,000.
(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 435,000
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>
Centocor Diagnostics develops, manufactures and sells diagnostic human
health care products based primarily upon monoclonal antibody technologies.
The products presently sold by the Company are in vitro (outside the body)
diagnostic ("IVD") tests, components and reagents to monitor the efficacy of
cancer therapies, primarily in patients with ovarian (CA 125 II), breast (CA
15-3) or pancreatic (CA 19-9*) cancer.
(PICTURE OF CA 125II (PICTURE OF CA 15-3 (PICTURE OF CA 19-9
PRODUCTS APPEARS HERE) PRODUCTS APPEARS HERE) PRODUCTS APPEARS HERE)
The Company is currently developing a point-of care ("POC") cardiovascular
diagnostic test system, 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 P-
selectin Profile 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.
The Company has entered into a collaborative arrangement with Biometric
Imaging, Inc. to modify an existing instrument platform, pictured to the left
below, for use as a POC instrument system designed to deliver the full utility
of the P-selectin Profile.
(GRAPHIC OF NORMAL ARTERY
APPEARS HERE)
(PICTURE OF INSTRUMENT
APPEARS HERE)
(GRAPHIC OF INJURED CORONARY
ARTERY - OCCLUSION APPEARS HERE)
BIOMETRIC IMAGING, INC.
IMAGN (R) 2000 INSTRUMENT
- --------
* The Company's CA 19-9 kit and the P-selectin Profile have not yet received
marketing clearance by the U.S. Food and Drug Administration.
<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.................. 2
Risk Factors........................ 6
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 16
Selected Consolidated Financial Da-
ta................................. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................ 23
Relationship with Centocor, Inc..... 36
Management.......................... 39
Principal Shareholder............... 44
Description of Capital Stock........ 45
Shares Eligible for Future Sale..... 47
Underwriters........................ 48
Legal Matters....................... 50
Experts............................. 50
Additional Information.............. 50
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. IMAGN is a trademark of Biometric
Imaging, Inc.
----------------
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."
1
<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.
Based on information contained in published industry reports, 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 part of a division of Centocor, a biopharmaceutical company
with a primary focus in monoclonal antibody technology. Upon completion of this
offering, Centocor will own 7,100,000 shares of the Company's capital stock,
and will hold approximately 96.1% 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
2
<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 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, approximately 51% of the Company's IVD tests were sold
in Europe, while approximately 30% and 19% 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) may be 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.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Class A Common Stock offered...................... 2,900,000 shares
Common Stock to be outstanding after the offering:
Class A Common Stock............................. 2,900,000 shares(1)
Class B Common Stock............................. 7,100,000 shares(2)
Total.......................................... 10,000,000 shares(1)(2)(3)
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 435,000 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.
(3) Does not include an aggregate of 1,500,000 shares of Class A Common Stock
reserved for issuance under the Employee Plan (as defined) and the
Directors' Plan (as defined).
RISK FACTORS
Prospective investors should consider the risks involved in purchasing shares
of Class A Common Stock. See "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR 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...... $ 0.53 $ 0.29
======= ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED(5)
------- --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $13,343 $51,186
Total assets............................................ 34,860 72,703
Shareholders' equity.................................... 28,665 66,508
</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. The provision for income
taxes has been determined on the basis that, for the periods presented, the
Company filed tax returns as a separate company rather than as a member of
Centocor's consolidated tax group. See "Relationship with Centocor, Inc.--
Tax Sharing Agreement."
(4) Calculated on a pro forma basis for this offering based on 2,900,000 shares
of Class A Common Stock and 7,100,000 shares of Class B Common Stock
outstanding.
(5) As adjusted to give effect to the sale of 2,900,000 shares of Class A
Common Stock offered by the Company in this offering at an assumed public
offering price of $14.00 per share (the midpoint of the range set forth on
the cover of this Prospectus), after deducting estimated underwriting
discounts and commissions and estimated offering expenses. See "Use of
Proceeds."
5
<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 in excess of volume growth. See
"Business--Oncology Diagnostics Business." 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
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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.
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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.
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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,
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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 hospital
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 71.0% of the
outstanding Common Stock of the Company (approximately 68.0% if the
Underwriters' over-allotment option is exercised in full) and approximately
96.1% of the combined voting power of the Company's outstanding Common Stock
(approximately 95.5% 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 section 355 of 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."
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. Upon completion of this offering, Centocor
will own less than 80% of the value of the outstanding stock of the Company,
and, therefore, the Company will no longer be included as a member of the
consolidated group for federal income tax purposes. For periods beginning
after the offering, the Company will be required to file separate tax returns
for federal income tax purposes and will no longer be able to use the net
operating losses of Centocor to offset its federal income tax liabilities. The
Company entered into a tax sharing agreement ("Tax Sharing Agreement") with
Centocor effective as of August 22, 1997, which provides the methodology of
determining the financial consequences between the two parties and their
subsidiaries resulting from the filing by Centocor of a consolidated federal
income tax return and state consolidated, combined and unitary returns. For
the period of time that the Company is a member of Centocor's consolidated
group for federal income tax purposes or is a member of Centocor's
consolidated, combined or unitary group for state or local tax purposes and
with respect to returns in which the Company and Centocor file jointly,
Centocor will effectively control virtually all of the Company's tax decisions
by virtue of the terms of the Tax Sharing Agreement. With respect to such time
period, 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.
Additionally, with respect to such time period and returns, Centocor may
choose to
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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 Tax Sharing Agreement also provides for
additional rights and responsibilities of Centocor and the Company after the
Company ceases to be a member of the Centocor consolidated group as a result
of the offering. Centocor has the right to require the Company to join
Centocor in making certain tax elections that may be beneficial to Centocor
but detrimental to the Company, provided that Centocor pays the Company an
amount to be agreed to by Centocor and the Company at the time of any such
election. In addition, the Company covenants that it will not change any tax
election or accounting method, amend any tax return or take any tax position
that may be detrimental to Centocor without Centocor's consent.
Each company that is a member of a consolidated group for federal income tax
purposes in any year is severally liable for the entire federal income tax
liability of each other member of the consolidated group for such year.
Accordingly, during the period in which the Company is included as a member of
Centocor's consolidated group, the Company could be liable for the entire
amount of the group's tax liability if such liability or tax is incurred, and
not discharged, by any other members of Centocor's consolidated group. Since
its formation, the Company has been included as a member of Centocor's
consolidated group for federal income tax purposes. Upon completion of the
offering, the Company will no longer be included as a member of Centocor's
consolidated group. See "Relationship with Centocor, Inc.--Tax Sharing
Agreement."
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 part of 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 pursuant to certain intercompany
agreements as described in "Relationship with Centocor, Inc." Significant
management assumptions were made in allocating costs from Centocor in order to
present the Company's financial statements. Although management of the Company
believes that such costs have been reasonably allocated, 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."
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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, if a license is required, it would be available at all or on terms
acceptable to the Company or its licensees.
Other entities may have filed applications for or have been issued patents
and may obtain additional patents to which the Company may need to acquire
rights. The Company is not aware, however, of any such patent applications or
issued patents. 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 of
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 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, and there can be no assurance that the Company would be successful in
any such litigation.
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 subject to foreign
currency fluctuations as a result of conversion provisions set forth in the
respective agreements to determine payment amounts owed to the Company. The
conversion provisions generally provide that sales in foreign currencies are
converted to U.S. dollars periodically based upon an exchange rate which is
published or announced by a financial publication or institution, as set forth
in the respective agreement. 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 does not currently engage in
any foreign currency hedging activities.
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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 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.
Upon completion of the offering, Centocor will own 100.0% of the Company's
outstanding Class B Common Stock, which will represent 71.0% of the
outstanding Common Stock of the Company (approximately 68.0% if the
Underwriters' over-allotment option is exercised in full). Centocor and the
Company have agreed pursuant to an underwriting agreement, 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) 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
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Company and Centocor have entered into a registration rights agreement, which
requires the Company to effect registration under the Securities Act 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 1,500,000
shares of Class A Common Stock reserved for issuance under its Stock Option
Plans as soon as practicable following the date of this Prospectus. None of
such options are exerciseable prior to one year from the date of the grant of
such options. 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 15,000,000 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 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 $14.00 (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 $6.30. This represents an immediate increase in net
tangible book value of $2.75 per share to the existing shareholder and an
immediate dilution of $7.70 per share to purchasers of the Class A Common
Stock in the offering. See "Dilution."
14
<PAGE>
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 approximately $37.8 million
($43.6 million if the Underwriters' over-allotment option is exercised in
full), assuming a public offering price of $14.00 per share (the midpoint of
the range set forth on the cover page of this Prospectus) 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 principally to the purchase of instruments to be placed
in hospital emergency rooms in connection with the Company's P-selectin
Profile. The balance of the proceeds of this offering will be utilized 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. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, investment grade, interest-bearing
securities.
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.
15
<PAGE>
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 $14.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses) and the conversion
of all of the outstanding shares of Common Stock into 7,100,000 shares of
Class B Common Stock.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash....................................................... $ 3,670 $41,513
======= =======
Common Stock, $.01 par value, 50,000,000 shares authorized,
12,000,000 issued and outstanding, actual................. $ 120 $ --
Common Stock, no par value, 15,000,000 shares authorized,
none issued and outstanding, as adjusted.................. -- --
Class A Common Stock, $.01 par value, 25,000,000 shares
authorized, 2,900,000 issued and outstanding, as adjusted. -- 29
Class B Common Stock, $.01 par value, 10,000,000 shares
authorized, 7,100,000 issued and outstanding, as adjusted. -- 71
Additional paid in capital................................. 18,398 56,261
Unrealized gain on marketable security..................... 9,218 9,218
Retained earnings.......................................... 929 929
------- -------
Total shareholders' equity................................ $28,665 $66,508
------- -------
Total capitalization...................................... $28,665 $66,508
======= =======
</TABLE>
DILUTION
The net tangible book value of the Company at September 30, 1997 was
$25,189,000, or $3.55 per share of Common Stock (after giving effect to the
conversion of all of the outstanding shares of Common Stock into 7,100,000
shares of Class B 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 2,900,000 shares of Class A
Common Stock in this offering at an assumed offering price of $14.00 per share
(calculated after deduction of estimated underwriting discounts and
commissions and estimated offering expenses), the pro forma net tangible book
value of the Common Stock at September 30, 1997 would have been $63,032,000,
or $6.30 per share. This represents an immediate increase in net tangible book
value of $2.75 per share to existing shareholders and an immediate dilution in
net tangible book value of $7.70 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.................................. $14.00
Net tangible book value per share prior to the offering........... $3.55
Increase in net tangible book value per share attributable to new
investors........................................................ 2.75
-----
Pro forma net tangible book value per share after giving effect to
the offering..................................................... 6.30
------
Dilution per share to new investors in the offering(1)............ $ 7.70
======
</TABLE>
- --------
(1) Dilution per share to new investors is determined by subtracting pro forma
net tangible book value per share after giving effect to the offering from
the initial public offering price per share.
16
<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. Significant management assumptions were made in allocating
costs from Centocor in order to present the Company's financial statements.
Although management of the Company believes that such costs have been
reasonably allocated, the financial information included herein may not
necessarily reflect the results of operations and financial position of the
Company in the future or what the results of operations and financial position
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
YEAR 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...... $ 0.53 $ 0.29
======= ========
Shares outstanding...... 10,000 10,000
</TABLE>
17
<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 $13,343
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.
The provision for income taxes has been determined on the basis that, for
the periods presented, the Company filed tax returns as a separate company
rather than as a member of Centocor's consolidated tax group. See
"Relationship with Centocor, Inc.--Tax Sharing Agreement."
(3) Calculated on a pro forma basis for this offering based on 2,900,000
shares of Class A Common Stock and 7,100,000 shares of Class B Common
Stock outstanding.
18
<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 part of a division of Centocor, a
Pennsylvania corporation formed in 1979. Significant management assumptions
were made in allocating costs from Centocor in order to present the Company's
financial statements. Although management of the Company believes that such
costs have been reasonably allocated, 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 125 II, 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, at
least in part, 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 subject to foreign
currency fluctuations as a result of conversion provisions set forth in the
respective agreements to determine payment amounts owed to the Company. The
conversion provisions generally provide that sales in foreign currencies are
converted to U.S. dollars periodically based upon an exchange rate which is
published or announced by a financial publication or institution, as set forth
in the respective agreement. 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. Foreign currency fluctuations reduced
sales by approximately 3% for the nine-month period ending September 30, 1997
compared to the same period in 1996. The Company does not currently engage in
any foreign currency hedging activities.
19
<PAGE>
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 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.
Pursuant to its agreements with Biometric, the Company has made an equity
investment of $2,000,000 and will make additional equity investments of up to
$2,000,000 based on Biometric's successful completion of stated performance
milestones. See "Business--Arrangements with Biometric Imaging." The Company's
accounting treatment for this investment will consider the nature of assets
acquired and their respective values.
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 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
20
<PAGE>
consolidated tax return has been reflected as a contribution to capital. The
provision for income taxes has been determined on the basis that, for the
periods presented, the Company filed separate tax returns and was not a member
of Centocor's consolidated tax group. In the event the Company ceases to be a
member of the Centocor consolidated tax group, which is expected to occur upon
the completion of the offering, 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.
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 are
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.
21
<PAGE>
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 $14.00 per share), the
Company would have had cash and cash equivalents of approximately $41,513,000.
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 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.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. The Company plans to adopt this accounting standard in
the first quarter of fiscal 1998, as required. The adoption of this standard
will not impact the Company's earnings, financial condition, or liquidity, but
will require the Company to classify items of other comprehensive income in a
financial statement and display the accumulated balance of other comprehensive
income separately in the equity section of the balance sheet.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information. Statement No. 131 supersedes Statement of Financial Accounting
Standards No. 14, Financial Reporting for Segments of a Business Enterprise,
and establishes new standards for reporting information about operation
segments in annual financial statements and requires selected information
about operating segments in interim financial reports. Statement 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effective for periods
beginning after December 15, 1997. This statement affects reporting in
financial statements only and will not impact the Company's results of
operations, financial condition or long-term liquidity. The Company will adopt
the standards established by this statement as required.
22
<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, 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.
23
<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.
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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 irreversible 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,
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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. The Company continues to investigate
improvements to the individual assays that are used in the P-selectin Profile.
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 32 heart attack patients
enrolled to date, the P-selectin Profile was positive on 29 (91%). Of 80
normal control subjects tested, 76 (95%) were P-selectin Profile negative at
presentation. 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 or the final
equivalency study 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, the
Company 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 has entered into contracts with its distributors and
automated instrument partners that provide a commercial basis for the supply
of its IVD tests. These contracts generally provide for forecasts, lead time
for orders, pricing and quality standards and are generally terminable upon
notice of periods less than one year.
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 51% of the Company's IVD tests were sold in
Europe, while approximately 30% and 19% were sold in Japan and the U.S.,
respectively. The Company's completed kits may not be marketed by the Company
in the U.S. without the FDA's prior authorization. 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
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the U.S. The Company has not yet sought marketing clearance in the U.S. for
its completed CA 72-4 kits or CYFRA 21-1 kits. 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 125 II, CA 15-3 and CA 19-9.
In 1996, the Company's IVD tests accounted for approximately $38 million in
sales for the Company. Peak revenue for these products was approximately $42
million in 1993. Since then, revenues have ranged 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, at least in part, 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, if a license is required, it would be available at
all or on terms acceptable to the Company or its licensees.
Other entities may have filed applications for or have been issued patents
and may obtain additional patents to which the Company may need to acquire
rights. The Company, however, is not aware of any such patent applications or
issued patents. 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, and there can be no assurance that the Company would be
successful in any such litigation.
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 in 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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<PAGE>
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
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<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 QSR requirements, 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 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. 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.
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FACILITIES AND MANUFACTURING
The Company occupies approximately 75,000 square feet of space in three
buildings in Malvern, Pennsylvania that it leases or subleases from Centocor,
Inc. or its affiliates. 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.
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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 (7,100,000 shares), which will represent
71.0% of the outstanding Common Stock of the Company (approximately 68.0% if
the Underwriters' over-allotment option is exercised in full) and
approximately 96.1% of the combined voting power of the Company's outstanding
Common Stock (approximately 95.5% 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. Upon completion of this offering, Centocor will
own less than 80% of the value of the outstanding stock of the Company, and,
therefore, the Company will no longer be included as a member of Centocor's
consolidated group for federal 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 section 355 of 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, Lease Agreements,
Sublease 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. The Company and Centocor have entered into the Services
Agreement relating to the provision of certain services by Centocor to the
Company. The services covered by the Services Agreement include: information
systems, telecommunication systems, payroll and benefits administration,
insurance, financial accounting, treasury services, library services,
regulatory services, human resources services and research and development.
The Services Agreement provides that either party shall have the right, upon
90
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days prior written notice to the other party, to reduce the level of, or
terminate, any services provided by Centocor under the Services Agreement,
provided, however, that one year's prior written notice must be provided to
the other party in the case of the reduction or termination of any information
systems or telecommunications system services. 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.
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 will
accrue interest at an annual rate equal to the good faith estimate by Centocor
and the Company of the rate that would be charged by a third party financial
institution extending a loan to the Company at the time of the initial loan
under the Revolving Credit Agreement. The initial term of the Revolving Credit
Agreement will expire on August 21, 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 have entered into a
Registration Rights Agreement to be effective upon the consummation of this
offering. The Registration Rights Agreement provides, 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 also has 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 has agreed
to pay all out-of-pocket costs and expenses in connection with the first three
"demand" registrations that Centocor requests and all other registrations 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 currently included as a member of
Centocor's consolidated group for federal income tax purposes and, for certain
state and local tax purposes, is included as a member of a consolidated,
combined or unitary group where Centocor files a consolidated, combined or
unitary state or local return. Following completion of this offering the
Company is expected to no longer be included as a member of Centocor's
consolidated tax group for federal income tax purposes. Centocor and the
Company have entered into a Tax Sharing Agreement that was effective as of
August 22, 1997. Pursuant to the Tax Sharing Agreement for the periods in
which the Company is included as a member of Centocor's consolidated, combined
or unitary tax group, Centocor and the Company make payments between them such
that, with respect to any period, the amount of taxes to be paid by the
Company is 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 is
allowed to use a pro rata portion of Centocor's NOLs in determining the
Company's taxable income on a stand-alone basis. The Company is not required
to make payments to Centocor to the extent that Centocor NOLs are available to
reduce the Company's income. Additionally, with respect to periods during
which the Company is included in Centocor's consolidated, combined or unitary
tax group and to returns in which Centocor and the Company file jointly,
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 such consolidated or combined federal and state returns, will
have the sole and exclusive responsibility for the preparation and filing of
such 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
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adjustment or deficiency and to file, litigate or compromise any claim for
refund on behalf of the Company. Each company that is a member of a
consolidated group for federal income tax purposes in any year is severally
liable for the entire income tax liability of the consolidated group for such
year. The Tax Sharing Agreement also provides for additional rights and
responsibilities of Centocor and the Company after the Company ceases to be a
member with the Centocor consolidated group as a result of the offering.
Centocor has the right to require the Company to join Centocor in making
certain tax elections that may be beneficial to Centocor but detrimental to
the Company, provided that Centocor pays the Company an amount to be agreed to
by Centocor and the Company at the time of any such election. In addition, the
Company covenants that it will not change any tax election, accounting method,
amend any tax return or take any tax position that may be detrimental to
Centocor without Centocor's consent. 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 in any year,
including, for the year that includes this offering, the Company, to the
Internal Revenue Service for all federal income taxes due with respect to
Centocor's consolidated federal tax returns for such year.
Lease Agreements and Sublease Agreement. The Company and two affiliates of
Centocor have entered into Lease Agreements (the "Leases") and the Company and
Centocor expect to enter into a Sublease (the "Sublease"), all relating to the
lease of those facilities utilized by the Company at Centocor's Malvern,
Pennsylvania complex. The Leases and Sublease require the Company to pay rent
monthly in an amount equal to one-twelfth of the product of $30 and the total
amount of the square feet leased by the Company. The monthly rent includes
charges for certain facilities expenses and services, including, but not
limited to, property taxes, utilities, building maintenance, repairs and
contractors' expenses, housekeeping and grounds maintenance, security,
cafeteria, waste removal, furniture and moving expenses, postage and copy
center usage. The Company will initially lease approximately 40,108 rentable
square feet under the Leases and 34,758 rentable square feet under the
Sublease. The Company has the right to increase or decrease the amount of
space leased and subleased upon prior notice of 60 days and approval of the
expansion or contraction by Centocor, which may not be unreasonably withheld
or delayed. The Leases and Sublease also include provisions relating to the
condition of the premises and compliance by the Company with environmental and
other governmental regulations. The Sublease contains provisions relating to
the applicability of and compliance with the lease pursuant to which Centocor
leases the subleased facilities. The Leases commenced as of August 22, 1997
and will expire on October 31, 2000. The Sublease shall commence upon the
consent of the landlord for the facilities that will be the subject of the
Sublease and will also expire on October 31, 2000. The Company has the right
to extend the term of the Leases and Sublease on a month-to-month basis upon
at least 90 days' prior written notice, in which event the term will continue
until termination by either party upon at least 90 days' written notice. Until
commencement of the Sublease, Centocor, under the Services Agreement
previously entered into with the Company, provides the Company the right to
use facilities that will be the subject of the Sublease in exchange for the
Company's obligation to pay Centocor's costs associated with the facilities
allocated on the same basis as the rent payable under Sublease.
Indemnification Agreement. The Company and Centocor have entered into an
Indemnification Agreement, pursuant to which Centocor, for claims made by the
Company on or before August 21, 2002, 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.
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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
Richard A. Bierly....... 42 Vice President, Chief Financial Officer,
Secretary and Treasurer
Larry D. McClain Ph.D... 51 Vice President-Research and Development
Aris Petropoulos........ 60 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.
Mr. Bierly has served as Vice President, Chief Financial Officer, Secretary
and Treasurer since October 1997. Mr. Bierly served as Vice President and
Treasurer of Centeon LLC from October 1995 to October 1997 and as Director,
Corporate Accounting and External Reporting of Rhone-Poulenc Rorer Inc. from
June 1991 to October 1995.
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.
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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 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)...... $ -- -- $ --
President and Chief
Executive Officer
Larry D. McClain........ $134,416 -- $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 -- $3,330
Vice President-
Operations
</TABLE>
- --------
(1) All of such amounts constitute contributions made by Centocor to the
Centocor Qualified Savings and Retirement Plan for the accounts of the
Named Executives.
(2) Mr. Danehy became President and Chief Executive Officer of the Company in
August 1997. The Company did not have a Chief Executive Officer prior to
Mr. Danehy's appointment.
40
<PAGE>
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options during the fiscal year ended December 31, 1996 by the persons named in
the Summary Compensation Table under Centocor's 1987 Non-Qualified Stock
Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- -------------------------------------------------------------------------- VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH)/(3)/ DATE/(4)/ 5%($) 10%($)
---- ---------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. James Danehy......... -- -- -- -- -- --
Larry D. McClain........ -- -- -- -- -- --
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.......... -- -- -- -- -- --
</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 $ 196,695 -- 5,813 -- $ 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.
41
<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 1997 Non-Qualified Stock Option Plan (the "Employee Plan")
to purchase the number of shares of Class A Common Stock equal to 5% of the
outstanding capital stock of the Company upon completion of this offering with
an exercise price equal to price at which shares of Class A Common Stock are
sold to the public in 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.
Pursuant to a Letter Agreement dated October 9, 1997, and accepted October
10, 1997, Mr. Bierly is entitled to receive an annual base salary of $170,000,
subject to annual review. Mr. Bierly is also eligible to receive an annual
cash bonus targeted at 25% of base salary. The amount of the annual bonus is
expected to vary from year to year based upon the overall performance of
Centocor and the Company and Mr. Bierly's individual performance. Mr. Bierly
is entitled to receive, during the first quarter of 1998, a cash payment of
$45,000 in connection with his employment by the Company. Under the Letter
Agreement, Mr. Bierly will also be awarded stock options upon completion of
this offering under the Employee Plan to purchase 55,000 shares of the Class A
Common Stock following this offering, with an exercise price equal to price at
which shares of Class A Common Stock are sold to the public in 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. Bierly's base salary on a bi-weekly basis for up to six
months or until such time that Mr. Bierly obtains similar employment,
whichever time period is shorter.
EMPLOYEE NON-QUALIFIED STOCK OPTION PLAN
Under 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
Company's Board of Directors or a committee of the Board of Directors. Under
the Employee Plan, the Company may grant options for up to an aggregate of
1,400,000 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. Options generally will expire ten years from the date of
grant if not exercised.
If the Company is succeeded by another company because of a reorganization,
merger, consolidation, acquisition of property or stock, separation or
liquidation, the surviving or resulting company must substitute new options
for outstanding options. Furthermore, upon the occurrence of a merger or
consolidation in which the Company is not the surviving corporation, a sale of
substantially all of the Company's assets or the acquisition by a single
purchaser or group of in excess of 50% of the voting power represented by the
Company's capital stock, in each case other than in a transaction in which the
surviving corporation or purchaser is Centocor or the Company (a "Change of
Control"), each optionee, in such event, will have the right immediately prior
to said event 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 a Change of Control of the Company, only during the 30-day
period following shareholder approval of any such event, 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
42
<PAGE>
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 Class A 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 1997 Directors' Non-Qualified Stock Option Plan (the
"Directors' Plan"), which is administered by the Company's Board of Directors,
options to purchase shares of Common Stock of the Company in the amounts
described under "--Director Compensation" will 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 100,000 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
thereafter, 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.
If the Company is succeeded by another company because of a reorganization,
merger, consolidation, acquisition of property or stock, separation or
liquidation, the surviving or resulting company must substitute new options
for outstanding options. Furthermore, upon the occurrence of a Change of
Control, each optionee, in such event, will have the right immediately prior
to said event 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 directors will be granted in tandem with LSARs. LSARs
may be exercised only upon the occurrence of a Change of Control of the
Company, only during the 30-day period following shareholder approval of any
such event, 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 Class A Common Stock
issuable upon exercise of the option on the date the LSAR is exercised.
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS
The following table sets forth, as of November 17, 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......................................... --
Larry D. McClain........................................ 1,929
Aris Petropoulos........................................ 36,963
Paul T. Touhey.......................................... 1,086
All Named Executives as a group......................... 39,978
</TABLE>
- --------
(1) Includes shares which the individual named in the table has the right to
acquire, on or before January 16, 1998, 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--35,019; Paul T. Touhey--955; and all Named
Executives as a group--36,974.
43
<PAGE>
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
7,100,000 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 7,100,000 shares, or
71.0% of the outstanding Common Stock (approximately 68.0% 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.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.01 per share, of which (i) 25,000,000 shares are
designated as Class A Common Stock, (ii) 10,000,000 shares are designated as
Class B Common Stock and (iii) 15,000,000 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 25,000,000 shares of
Common Stock designated as Class A Common Stock, 2,900,000 shares are being
offered hereby. Of the 10,000,000 shares of Common Stock designated as Class B
Common Stock, 7,100,000 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 cast by all shares of Class A Common Stock and Class B
Common Stock, 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. Until the occurrence of certain events described below, each
share of Class B Common Stock is convertible at such holder's option into one
share of Class A Common Stock. Any shares of Class B Common Stock transferred
to a person with the result that Centocor is no longer the beneficial owner of
such shares 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 a tax-free distribution under section
355 of 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 a share-for-share basis 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.
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 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,
45
<PAGE>
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 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 15,000,000 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 be 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.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The 2,900,000 shares of Class A Common Stock sold in the offering (3,335,000
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 B 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
and Centocor 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." The Registration Rights Agreement provides
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 Class A 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 also has the right, which it may
exercise at any time and from time to time, to include shares of Company Class
A 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.
47
<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........................................................ 2,900,000
=========
</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 435,000 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 and the Company 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
48
<PAGE>
Stock or other securities, in cash or otherwise, for a period of 180 days
after the date of this Prospectus, other than the shares of Class A Common
Stock offered hereby. The foregoing sentence shall not apply to (A) the shares
of Class A Common Stock to be sold in this offering, (B) the issuance by the
Company of shares of Common Stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date of this offering of which
the Underwriters have been advised in writing or (C) the issuance by the
Company of options under its Directors' Plan and Employee Plan provided that
such options are not exerciseable until expiration of such 180 day period.
At the request of the Company, the Underwriters have reserved for sale at
the initial offering price up to 145,000 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.
49
<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. In addition, as
of December 1, 1997, Mr. Spizzirri held options to purchase 50,000 shares of
the Common Stock of Centocor, 20,700 of which were exercisable.
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.
50
<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>
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.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
October 13, 1997
F-2
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT 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
Due to Parent................................. -- -- 990
------- ------- -------
Total current liabilities.................... 3,596 4,131 6,195
------- ------- -------
Other long-term liabilities.................... 127 100 --
------- ------- -------
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
shares 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
======== ======== ======== ======= =======
Pro Forma Data (Note 2):
Earnings per share................. $ 0.53 $ 0.29
======== =======
Shares outstanding................. 10,000 10,000
</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)
Income tax forgiven by Parent. 3,475 5,277 5,222 4,122 2,544
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................... 12,667 12,300 13,592 11,103 3,332
-------- -------- -------- ------- ------
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)
Issuance of common stock to
Parent........................ -- -- -- -- 120
Investments by Parent.......... -- -- -- -- 1,880
-------- -------- -------- ------- ------
Net cash provided by (used for)
financing activities........... (12,395) (10,959) (12,787) (10,105) 964
-------- -------- -------- ------- ------
Net increase in cash and cash
equivalents.................... -- -- -- -- 3,670
Beginning cash and cash
equivalents.................... -- -- -- -- --
-------- -------- -------- ------- ------
Ending cash and cash
equivalents.................... $ -- $ -- $ -- $ -- $3,670
======== ======== ======== ======= ======
Supplemental disclosure of
noncash financing activity:
Income tax forgiven by Parent. $ 3,475 $ 5,277 $ 5,222 $ 4,122 $2,544
</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 part of a division of Centocor, Inc. ("Centocor"). On
August 22, 1997, certain 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 part of 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
confirmation from the Company's customers that the product has been shipped to
the final end user.
Pro Forma Earnings Per Share
Pro forma earnings per share is computed as if the conversion of the 12.0
million shares of the Company's Common Stock to 7.1 million shares of Class B
Common Stock and the issuance of 2.9 million shares of Class A Common Stock in
the proposed initial public offering ("Offering"), as described in Note 12--
Subsequent Event, had occurred and been outstanding as of the beginning of
each period presented.
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 prior research and commercialization efforts
performed by the Company on behalf of Chromavision the Company received an
8.8% ownership (7.8% on a fully diluted basis) interest in Chromavision. The
Company recorded this investment at $770,000 representing the fair value of
the investment determined based on prices paid by third parties for the
purchase of Chromavision shares during the relevant time period. Subsequent to
the Company's investment, Chromavision completed an initial public offering of
its common stock resulting in a market value of the Company's investment of
$9,988,000 as of September 30, 1997 (unaudited) based on the closing price of
Chromavision common stock on such date. The Chromavision investment 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 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
will accrue on any outstanding loans under the revolving credit agreement at
an annual rate equal to the good faith estimate by Centocor and the Company of
the rate that would be charged by a third party financial institution
extending a loan to the Company at the time of the initial loan under the
revolving credit agreement. The Company may make payments and prepayments in
whole or in part without penalty at any time prior to the termination date of
the agreement, August 21, 1998, at which time any outstanding balance is due
to Centocor.
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.................................................... $ 7,368
France........................................................... 5,471
Germany.......................................................... 7,417
Italy............................................................ 3,173
Japan............................................................ 11,154
Other............................................................ 2,550
-------
$37,133
=======
1995
United States.................................................... $11,122
France........................................................... 4,988
Germany.......................................................... 8,403
Italy............................................................ 2,872
Japan............................................................ 11,961
Other............................................................ 2,902
-------
$42,248
=======
1996
United States.................................................... $ 9,525
France........................................................... 5,157
Germany.......................................................... 8,108
Italy............................................................ 2,640
Japan............................................................ 11,286
Other............................................................ 3,376
-------
$40,092
=======
Nine months ended September 30, 1997 (unaudited)
United States.................................................... $ 8,195
France........................................................... 2,364
Germany.......................................................... 5,546
Italy............................................................ 1,808
Japan............................................................ 7,416
Other............................................................ 2,308
-------
$27,637
=======
</TABLE>
Revenues related to sales from unaffiliated customers are based on the
location of the customers. Revenues related to contracts (see Note 9) from
unaffiliated customers are included in the United States. The Company's
operations are conducted solely in the United States.
Customer Information
During the first nine months of 1997, approximately 66% of the Company's
total product sales were to four customers, as follows: 25% to TFB, Inc., 18%
to Boehringer Mannheim GmbH, 16% to Abbott Laboratories and
F-11
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7% to CIS bio International. During 1996, approximately 70% of the Company's
total product sales were to four customers, as follows: 25% to TFB, Inc., 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: 14% to Abbott Laboratories, 15% to
Boehringer Mannheim GmbH, 11% to CIS bio International and 25% TFB, Inc., Inc.
During 1994, approximately 64% of the Company's total product sales were to
four customers, as follows: 12% to Abbott Laboratories, 14% to Boehringer
Mannheim GmbH, 13% to CIS bio International and 25% to TFB, Inc.
Certain of the Company's sales are subject to foreign currency fluctuations
as a result of conversion provisions set forth in respective agreements to
determine payment amounts owed to the Company. The conversion provisions
generally provide that sales in foreign currencies are converted to U.S.
dollars periodically based upon an exchange rate that is published or
announced by a financial publication or institution as set forth in the
respective agreement.
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.
NOTE 10--INCOME TAXES
During the periods presented in the accompanying financial statements, the
Company is a member of a consolidated group having significant net operating
loss carryforwards. Under a tax sharing agreement 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 during the period prior to the
offering in which the Company is a member of the Centocor consolidated group
(see Note 11-Related Party Transactions). 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. As a result of
the Offering contemplated by the prospectus, the Company will cease being a
member of the Centocor consolidated tax group for all periods after the
Offering and will be subject to payment of income taxes as a stand-alone
corporation.
F-12
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED 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>
YEARS ENDED 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>
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>
F-13
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.................. 437 395 241 317
------ ------ ------ ------
Total................................... $9,469 $9,032 $8,022 $6,863
====== ====== ====== ======
</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 have entered 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.
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
F-14
<PAGE>
CENTOCOR DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 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.
If Centocor had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS 123 and such
compensation costs were allocated to the Company, net income would have been
reduced to the pro forma amounts indicated in the table below (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net income--as reported....................................... $7,685 $5,250
Net income--pro forma......................................... $7,507 $4,977
</TABLE>
The per share weighted-average fair value of stock options granted to
Company employees by Centocor during 1995 and 1996 was $11.35 and $22.62,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted average assumptions: 1995--expected dividend
yield 0%, risk-free interest rate of 7.8%, expected life of 9.2 years, and
expected volatility of 70.3%; 1996--expected dividend yield 0%, risk-free
interest rate of 5.6%, expected life of 9.2 years, and expected volatility of
70.3%.
The following table summarizes the activity and value with respect to
Centocor's options for the Company's employees:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
-------- ---------------
<S> <C> <C>
Balance at December 31, 1993...................... 548,944 $ 6.500-$34.375
Granted......................................... 50,750 $ 9.125-$17.875
Lapsed or Cancelled............................. (75,460) $ 6.875-$34.375
Exercised....................................... (103,613) $ 7.125-$10.500
-------- ---------------
Balance at December 31, 1994...................... 420,621 $ 6.500-$14.250
Granted......................................... 60,950 $11.187-$20.375
Lapsed or Cancelled............................. (44,351) $ 6.500-$16.750
Exercised....................................... (73,991) $ 6.500-$14.125
-------- ---------------
Balance at December 31, 1995...................... 363,229 $ 6.875-$20.375
Granted......................................... 40,600 $14.125-$39.375
Lapsed or Cancelled............................. (5,271) $ 7.125-$16.750
Exercised....................................... (165,832) $ 6.875-$16.375
-------- ---------------
Balance at December 31, 1996...................... 232,726 $ 6.875-$39.375
======== ===============
</TABLE>
F-15
<PAGE>
The Company will adopt stock option plans (the "Stock Option Plans") 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
Plans, 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 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 during the period prior to the Offering in which the Company is
a member of Centocor's consolidated group. The Company will treat any such
usage as a contribution of capital from Centocor. As a result of the Offering,
the Company will no longer be a member of Centocor's consolidated group for
Federal tax purposes.
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. On November 24, 1997 the
Company's Articles of Incorporation were amended, resulting in the
authorization of 25 million shares of $.01 par value Class A Common Stock, 10
million shares of $.01 par value Class B Common Stock, and 15 million
undesignated common shares. The 12 million shares of the Company's Common
Stock outstanding immediately prior to the amendment automatically converted
into 7.1 million shares of Class B Common Stock. On November 24, 1997 the
Board of Directors of the Company authorized the issuance of 2,900,000 shares
of Class A common stock. As of September 30, 1997, capitalized offering costs
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-16
<PAGE>
[LOGO OF CENTOCOR APPEARS HERE]
<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.......................................... $ 15,159.09
NASD registration fee......................................... $ 4,500.00
Nasdaq National Market listing fee............................ $ 20,000.00*
Blue Sky fees and expenses.................................... $ 20,000.00*
Accounting fees and expenses.................................. $150,000.00*
Legal fees and expenses....................................... $175,000.00*
Printing and engraving expenses............................... $200,000.00*
Miscellaneous fees and expenses............................... $142,340.91*
-----------
Total........................................................ $727,000.00*
===========
</TABLE>
--------
* Estimated.
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
November 24, 1997, pursuant to an amendment and restatement of the Company's
Articles of Incorporation, the 12,000,000 shares of the Company's Common Stock
held by Centocor were reclassified into 7,100,000 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 as of
August 22, 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 as of August 22, 1997.
*10.7 Registration Rights Agreement between Centocor, Inc. and Centocor
Diagnostics, Inc. dated as of August 22, 1997.
*10.8 Tax Sharing Agreement between Centocor, Inc. and Centocor Diagnostics,
Inc. dated as of November 24, 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.)
*10.15 Letter of Employment dated October 9, 1997, between Centocor
Diagnostics, Inc. and Richard A. Bierly.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
*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.
*27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
(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 AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
MALVERN, PENNSYLVANIA, ON THE 10TH DAY OF DECEMBER, 1997.
Centocor Diagnostics, Inc.
By: /s/ R. James Danehy
---------------------------------
R. JAMES DANEHY PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ R. James Danehy President, Chief December 10, 1997
- ------------------------------------- Executive Officer
R. JAMES DANEHY and Director
(principal
executive officer)
/s/ Richard A. Bierly Vice President and December 10, 1997
- ------------------------------------- Chief Financial
RICHARD A. BIERLY Officer (principal
financial and
accounting officer)
* Chairman of the December 10, 1997
- ------------------------------------- Board and Director
DOMINIC J. CARUSO
* Director December 10, 1997
- -------------------------------------
DR. PHILIP P. GERBINO
* Director December 10, 1997
- -------------------------------------
GEORGE D. HOBBS
* Director December 10, 1997
- -------------------------------------
THOMAS A. MYERS
</TABLE>
*By: /s/ R. James Danehy
------------------------------
R. JAMES DANEHY
Attorney-in-Fact
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 as of August 22, 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 as of August 22, 1997.
*10.7 Registration Rights Agreement between Centocor, Inc. and Centocor
Diagnostics, Inc. dated as of August 22, 1997.
*10.8 Tax Sharing Agreement between Centocor, Inc. and Centocor Diagnostics,
Inc. dated as of November 24, 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.)
*10.15 Letter of Employment dated October 9, 1997 between Centocor
Diagnostics, Inc. and Richard A. Bierly
*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.
*27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
II-8
<PAGE>
Exhibit 1.1
2,900,000 SHARES
CENTOCOR DIAGNOSTICS, INC.
CLASS A COMMON STOCK, $.01 PAR VALUE
UNDERWRITING AGREEMENT
_______________, 1997
<PAGE>
_______________, 1997
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Centocor Diagnostics, Inc., a Pennsylvania corporation (the "COMPANY"), a
wholly-owned subsidiary of Centocor, Inc., a Pennsylvania corporation (the
"PARENT") proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "UNDERWRITERS") 2,900,000 shares of its Class A Common
Stock, par value $.01 per share (the "FIRM SHARES"). The Company also proposes
to issue and sell to the several Underwriters not more than an additional
435,000 shares of its Class A Common Stock, par value $.01 per share (the
"ADDITIONAL SHARES") if and to the extent that you, as Managers of the offering,
shall have determined to exercise, on behalf of the Underwriters, the right to
purchase such shares of common stock granted to the Underwriters in Section 3
hereof. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "SHARES." The shares of Class A Common Stock, par value $.01
per share, of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "COMMON STOCK." As part
of the offering contemplated by this Agreement, Morgan Stanley & Co.
Incorporated ("MORGAN STANLEY") have agreed to reserve out of the Shares, up to
______ shares, for sale to the Company's employees, officers, and directors and
other parties associated with the Company (collectively, "PARTICIPANTS"), as set
forth in the Prospectus under the heading "UNDERWRITERS" (the "DIRECTED SHARE
PROGRAM"). The Shares to be sold by Morgan Stanley pursuant to the Directed
Share Program (the "DIRECTED SHARES") will be sold by the Underwriters pursuant
to this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the business day on the
date on which this Agreement is executed will be offered to the public by the
Underwriters as set forth in the Prospectus.
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
2
<PAGE>
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.
1. Representations and Warranties of the Company and the Parent. The
Company and the Parent represent and warrant to and agree with each of the
Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
3
<PAGE>
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its property and
to conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered by the
Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and non-
assessable.
(h) The Shares have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the articles of incorporation or bylaws of the
Company or any agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the Company and its subsidiaries, taken as
a whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be
4
<PAGE>
required by the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement).
(k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is a party or to which any of
the properties of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus and are
not so described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not described or
filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
5
<PAGE>
(o) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by them in
connection with the business now operated by them. To the knowledge of the
Company and the Parent, all such material patents, patent rights, licenses,
trademarks, service marks and copyrights are (i) valid and enforceable and (ii)
not being infringed by any third parties which infringement could, whether
singly or in the aggregate, materially and adversely affect the Company and its
subsidiaries, taken as a whole. Neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(p) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(q) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
to the extent that the failure to so obtain would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole, and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(r) The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance
6
<PAGE>
that (i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2. Additional Representations and Warranties of the Parent. The Parent
represents and warrants to and agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by or
on behalf of the Parent.
(b) The execution and delivery by the Parent of, and the performance by
the Parent of its obligations under, this Agreement will not contravene any
provision of applicable law, or the articles of incorporation or bylaws of the
Parent, or any agreement or other instrument binding upon the Parent or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Parent, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required for the
performance by the Parent of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
3. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "PURCHASE PRICE").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 435,000 Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
7
<PAGE>
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 5 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company and the Parent hereby agree that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, they
will not, during the period ending 180 days after the date of the Prospectus,
(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, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for 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 the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder, (B) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof of
which the Underwriters have been advised in writing or (C) the issuance by the
Company of options under its 1997 Non-Employee Directors' Non-Qualified Stock
Option Plan and 1997 Non-Qualified Stock Option Plan provided that such options
are not exercisable until expiration of such 180 day period.
4. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares shall be made to the
Company in Federal or other funds immediately available in New York City
8
<PAGE>
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ____________, 19__,/1/ or at
such other time on the same or such other date, not later than _________,
19__,/2/ as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 3 or at such other time on the same or on such other date, in any event
not later than _______, 19__,/3/ as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "OPTION CLOSING
DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 2 P.M. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date:
- ---------------
/1/ Insert date 3 business days or, in the event the offering is priced after
4:30 p.m. Eastern Time, 4 business days after date of Underwriting Agreement.
/2/ Insert date 5 business days after the date inserted in accordance with
note 6 above.
/3/ Insert date 10 business days after the expiration of the green shoe
option.
9
<PAGE>
(i) there shall not have occurred any downgrading, nor shall any notice
have been given of any intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the possible change, in
the rating accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development involving
a prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date and that
the Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before the
Closing Date.
The officer signing and delivering such certificate may rely upon the best
of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an opinion of
Duane, Morris & Heckscher LLP, outside counsel for the Company and for the
Parent, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
10
<PAGE>
(ii) each subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its property and
to conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and non-
assessable;
(v) all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned indirectly or directly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(vi) the Shares have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable, and the issuance of such Shares will not be subject to any
preemptive right or similar rights;
(vii) this Agreement has been duly authorized, executed and delivered by the
Company;
(viii) the execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement will not contravene any
provision of applicable law (other than the securities or Blue Sky laws of the
various states, as to which such counsel expresses no opinion) or the articles
of incorporation or by-laws of the Company or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the
11
<PAGE>
Company and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions, "Relationship
with Centocor, Inc.," "Description of Capital Stock" and "Underwriters" and (B)
in the Registration Statement in Items 14 and 15, in each case insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) to the best of such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(xi) the Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended;
(xii) Based solely on: (i) discussions with employees of the Company
identified to such counsel as being responsible for environmental matters; and
(ii) such counsel's review of the Company's files provided to such counsel by
those employees, to the best of such counsel's knowledge, the Company and its
subsidiaries (A) are in compliance with any and all applicable federal, state
and local laws and regulations relating to the protection of human health and
the environment, or to hazardous or
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toxic substances or wastes, pollutants or contaminants, other than laws and
regulations relating to occupational safety and health, as to which we express
no opinion, (the "Applicable Environmental Laws"), (B) have received all
permits, licenses or other approvals required of them under Applicable
Environmental Laws to conduct their respective businesses and (C) are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with applicable Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(xiii) such counsel (A) is of the opinion that the Registration Statement and
Prospectus (except for financial statements and schedules and other financial
and statistical data included therein as to which such counsel need not express
any opinion) comply as to form in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder, (B) has
no reason to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not express
any belief) the Registration Statement and the prospectus included therein at
the time the Registration Statement became effective contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(C) has no reason to believe that (except for financial statements and schedules
and other financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(xiv) this Agreement has been duly authorized, executed and delivered by the
Parent; and
(xv) the execution and delivery by the Parent of, and the performance by
the Parent of its obligations under, this Agreement will not contravene any
provision of applicable law, or the articles of incorporation or bylaws of the
Parent, or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon the Parent or, to the best of such counsel's knowledge,
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<PAGE>
any judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Parent, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required for the
performance by the Parent of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with offer and sale of the Shares.
(d) The Underwriters shall have received on the Closing Date an opinion of
George Hobbs, in-house counsel for the Company, dated the Closing Date, to the
effect that:
(i) there is a likelihood that the Company will obtain patents with
respect to the Company's P-selectin assays;
(ii) such counsel does not know of any pending or threatened legal or
government proceedings relating to patents or proprietary know-how owned or used
by the Company to which the Company is a party or to which the properties of the
Company are subject which, if adversely decided, would have a material adverse
effect on the business, financial condition or results of the operations of the
Company and its subsidiaries, taken as a whole;
(iii) such counsel has no knowledge of any infringement or alleged
infringement by the Company of patent rights of others which would have a
material adverse effect on the Company and its subsidiaries, taken as a whole;
(iv) the statements in the Prospectus under the captions "Risk Factors --
Government Regulation; No Assurance of Obtaining Regulatory Approvals,"
"Business -- Proprietary Technology, Patents and Licenses", "Business --
Governmental Regulation" and "Business -- Legal Proceedings", in each case
insofar as such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein.
(e) The Representatives shall have received on the Closing Date an opinion
of Hamilton, Brook, Smith & Reynolds P.C., patent counsel for the Company, dated
the Closing Date, to the effect that:
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<PAGE>
(i) the statements in the Prospectus under the heading "Risk Factors--
Patents and Licensing Arrangements" and under the heading "Business--Proprietary
Technology, Patents and Licenses", in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters referred to
therein;
(ii) except for pending patent applications by the Company, there are no
legal or governmental proceedings pending relating to patents or proprietary
information rights to which the Company is a party or to which any patents or
proprietary information rights of the Company is subject, and no such
proceedings are threatened or contemplated by governmental authorities or
others, except for such proceedings;
(ii) such counsel is unaware of any basis for a finding that the Company
does not have clear title or valid license rights to the patents or patent
applications referenced in the Prospectus, and such counsel has not identified
any basis for a finding of unenforceability or invalidity of any patents or
proprietary information rights of the Company;
(iv) based upon a review of the third party rights and discussions with
Company scientific personnel, such counsel is not aware of any valid United
States or foreign patent that is or would be infringed by the activities of the
Company in the manufacture, use or sale of P-selection Profile as described in
the Prospectus; and
(v) other than as disclosed in the Prospectus, based upon a review of the
third party rights made known to such counsel and discussions with Company
scientific personnel, such counsel is not aware of any valid United States or
foreign patent that is or would be infringed by the activities of the Company in
the manufacture, use or sale of any of the Company's CA 125II, CA 15-3, CA 19-9,
CA 72-4 products, as described in the Prospectus.
(f) The Underwriters shall have received on the Closing Date an opinion of
Davis Polk & Wardwell, counsel for the Underwriters, dated the Closing Date,
covering the matters referred to in Sections 6(c)(ix) (but only as to the
statements in the Prospectus under "Underwriters") and 6(c)(xiii) above.
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<PAGE>
With respect to Section 6(c)(xiii) above, Duane, Morris & Heckscher
LLP and Davis Polk & Wardwell may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification,
except as specified.
The opinions of Duane, Morris & Heckscher LLP, Mr. Hobbs and Hamilton,
Brook, Smith & Reynolds P.C. described in Section 6(c), Section 6(d) and Section
6(e) above shall be rendered to the Underwriters at the request of the Company
and shall so state therein.
(g) The Underwriters shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to the Underwriters, from KPMG
Peat Marwick, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus; provided
that the letter delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, three signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 10:00 a.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 7(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
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<PAGE>
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus required
to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering of
the Shares as in the opinion of counsel for the Underwriters the Prospectus is
required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to comply
with applicable law, forthwith to prepare, file with the Commission and furnish,
at its own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which Shares may have been sold by
you on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and to
you as soon as practicable an earning statement covering the twelve-month period
ending ________, 19__/4/ that satisfies the provisions of Section 11(a) of the
Securities Act and the rules and regulations of the Commission thereunder.
(f) In connection with the Directed Share Program, the Company will ensure
that the Directed Shares will be restricted to the extent required by the
National Association of Securities Dealers, Inc. (the "NASD") or
- ------------------
/4/ Insert date one year after the end of the Company's fiscal quarter in
which the closing will occur.
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the NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement, and Morgan Stanley will notify the Company as to which
Participants will need to be so restricted. At the request of Morgan Stanley,
the Company will direct the transfer agent to place stop transfer restrictions
upon such securities for such period of time.
(g) The Company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
8. Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, the Company and the Parent agree to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and the Parent's
counsel in connection with the registration and delivery of the Shares under the
Securities Act and all other fees or expenses in connection with the preparation
and filing of the Registration Statement, any preliminary prospectus, the
Prospectus and amendments and supplements to any of the foregoing, including all
printing costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery of
the Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the cost of printing or producing any Blue Sky or Legal
Investment memorandum in connection with the offer and sale of the Shares under
state securities laws and all expenses in connection with the qualification of
the Shares for offer and sale under state securities laws as provided in Section
7(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky or Legal Investment memorandum, (iv) all filing
fees and the reasonable fees and disbursements of counsel to the Underwriters
incurred in connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc., (v) all fees and
expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to quotation of the Shares on the Nasdaq National Market, (vi) the cost
of printing certificates representing the Shares, (vii) the costs and charges of
any transfer agent, registrar or depositary, (viii) the costs and expenses of
the Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the
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<PAGE>
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, (ix) all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program, and (x) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 9 entitled
"Indemnity and Contribution", and the last paragraph of Section 11 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of any of
the Shares by them and any advertising expenses connected with any offers they
may make.
The provisions of this Section shall not supersede or otherwise affect any
agreement that the Company and the Parent may otherwise have for the allocation
of such expenses among themselves.
9. Indemnity and Contribution. (a) The Company and the Parent, jointly
and severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter for use therein.
(b) The Company and the Parent, jointly and severally, agree to indemnify
and hold harmless Morgan Stanley and each person, if any, who controls Morgan
Stanley within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act (the "MORGAN STANLEY ENTITIES"), from and against any and
all losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (A) caused by the failure of any
Participant to pay for and
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<PAGE>
accept delivery of the Shares which, immediately following the effectiveness of
the Registration Statement, were subject to a properly confirmed agreement to
purchase; or (B) related to, arising out of, or in connection with the Directed
Share Program; provided that, the Company shall not be responsible under this
subparagraph (B) for any losses, claim, damages or liabilities (or expenses
relating thereto) that are finally judicially determined to have resulted from
the bad faith or gross negligence of Morgan Stanley Entities.
(c) The Parent agrees to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to the Parent furnished in writing by or on behalf of the Parent
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(d) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Parent, the directors of the Company, the
officers of the Company who sign the Registration Statement and each person, if
any, who controls the Company or the Parent within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you
20
<PAGE>
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(e) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to Section 9(a), 9(b), 9(c) or 9(d), such person (the "INDEMNIFIED
PARTY") shall promptly notify the person against whom such indemnity may be
sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Parent and all persons, if any, who control the Company
within the meaning of either such Section, and that all such fees and expenses
shall be reimbursed as they are incurred. In the case of any such separate firm
for the Underwriters and such control persons of any Underwriters, such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated. In the case
of any such separate firm for the Company, and such directors, officers and
control persons of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Parent and such control
persons of the Parent, such firm shall be designated in writing by the Parent.
The indemnifying party shall not be liable for any settlement of any proceeding
21
<PAGE>
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement.
Notwithstanding anything contained herein to the contrary, if indemnity may be
sought pursuant to Section 9(b) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of not
more than one separate firm (in addition to any local counsel) for Morgan
Stanley for the defense of any losses, claims, damages and liabilities arising
out of the Directed Share Program, and all persons, if any, who control Morgan
Stanley within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(f) To the extent the indemnification provided for in Section 9(a), 9(b),
9(c) or 9(d) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(f)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(f)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted
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<PAGE>
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Parent on the one hand and the Underwriters on the other hand in connection with
the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Company and the Parent on the one
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Parent or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective number of Shares they have purchased hereunder, and not joint.
(g) The Company, the Parent and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 9(f). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
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<PAGE>
(h) The indemnity and contribution provisions contained in this Section 9
and the representations, warranties and other statements of the Company and the
Parent contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its officers or directors, or any person
controlling the Company or the Parent or any person controlling the Parent and
(iii) acceptance of and payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without
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<PAGE>
the written consent of such Underwriter. If, on the Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the
aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on the
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall purchase not less than the number of Additional Shares that such non-
defaulting Underwriters would have been obligated to purchase in the absence of
such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
25
<PAGE>
Very truly yours,
Centocor Diagnostics, Inc.
By:
----------------------------
Name:
Title:
Centocor, Inc.
By:
----------------------------
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
Acting severally on behalf of themselves and the several Underwriters named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
---------------------------
Name:
Title:
26
<PAGE>
SCHEDULE I
- -------------------------------------------- ---------------------------
UNDERWRITER NUMBER OF FIRM SHARES
TO BE PURCHASED
Morgan Stanley & Co. Incorporated
------------
Credit Suisse First Boston Corporation.
------
[NAMES OF OTHER UNDERWRITERS].
---------------
-----------------------
-----------------------
Total: 2,900,000
-----------------------------------
27
<PAGE>
Exhibit 4.1
<TABLE>
<S> <C> <C>
NUMBER SHARES
- ------------- -------------
A [LOGO] Centocor diagnostics inc.
- ------------- -------------
CLASS A COMMON STOCK
SEE REVERSE FOR
THIS CERTIFICATE IS TRANSFERABLE IN CERTAIN DEFINITIONS
BOSTON, MA OR NEW YORK, NY INCORPORATED UNDER THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA CUSIP 152341 10 3
</TABLE>
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of ____________
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK, PAR VALUE
$.01 PER SHARE, OF CENTOCOR DIAGNOSTICS, INC., transferable on the books of the
Company by the holder hereof, in person or by his attorney, upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to the provisions of the Articles of
Incorporation and the amendments thereof, of the Company (copies of which are on
file with the Transfer Agent and Registrar), to all of which the holder by
acceptance hereof assents. A statement with respect thereto may be obtained as
stated on the back of this Certificate. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF the said Company has caused this Certificate to be signed
with the facsimile signatures of its duly authorized officers, and its facsimile
seal to be hereunto affixed.
Dated:
/s/ Richard A. Bierly CENTOCOR DIAGNOSTICS, INC. /s/ R. James Danehy
Secretary CORPORATE SEAL President
1997
PENNSYLVANIA
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT
AND REGISTRAR
BY /s/ Mary Penezic
<PAGE>
----------
The Company will furnish to any shareholder upon request and without charge a
full statement of the designations, preferences, limitations and relative rights
of the shares of each class of stock authorized to be issued. Such request may
be made to the Secretary of Centocor Diagnostics, Inc. or to the Transfer Agent
and Registrar.
----------
Keep this certificate in a safe place. If it is lost, stolen or destroyed the
Company will require a bond of indemnity as a condition to the issuance of a
replacement certificate.
----------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______ Custodian _______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act _________________________
not as tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated ________________________________
__________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
NOTICE: WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
NUMBER SHARES
CENTOCOR DIAGNOSTICS, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
CLASS B COMMON STOCK
(10 votes per share)
THIS CERTIFIES THAT ____________________________________________________ is the
owner of ____________________________________________ shares of the CLASS B
COMMON STOCK of CENTOCOR DIAGNOSTICS, INC., fully paid and non-assessable,
transferable only on the books of the Corporation in person or by Attorney upon
surrender of this Certificate properly endorsed.
The Corporation will furnish to any shareholder upon request and without
charge, a full or summary statement of the designations, voting rights,
preferences, limitations and special rights of the shares of each class
authorized to be issued.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ___________________________________________ day of
________________________ A.D. 19__.
___________________________________ __________________________
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common
TEN ENT-as tenants by the entireties
JT TEN -as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT-...........Custodian.........under
(Cust) (Minor)
Uniform Gifts to Minors Act...............
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received,_________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[_____] ________________________________________________________________________
________________________________________________________________________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and appoint _________________________________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated _____________________ 19__
In presence of
_________________________________________
______________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<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 One Hundred Seventy Three Thousand
and Twenty Five Dollars ($173,025.00) in the first year of this Agreement in
support of the research to be conducted. Forty Three Thousand Two Hundred Fifty
Six Dollars and twenty five Cents ($43,256.25) 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 $230,957, 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 $254,053, 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 $279,460, 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 $307,404, 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 10.12
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 seventy-one thousand seven hundren and twenty dollars ($71,720) 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 ten thousand
dollars ($10,000) 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 $27,140
(Salary + 18% Fringe)
Research Technician $20,060
(Salary + Fringe)
Supplies $18,000
-------
SUBTOTAL $65,200
INDIRECT COSTS AT 10% $ 6,520
---------------------
-------
TOTAL $71,720
</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 eighty-four thousand, nine hundred and
thirty-seven dollars ($84,937) 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 $19,800 + 27% fringe = $25,146
Lab Tech IV $13,400 + 27% fringe = 17,069
Supplies 25,000
Equipment 10,000
Total Direct Costs 77,215
Indirect Costs at 10% 7,722
-------
Total Costs $84,937
-------
</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 satisfaction of the conditions to the First Closing, as set
forth in Sections 6 and 7 of the Stock Purchase Agreement (the "First Closing"),
CDP Investments, Inc. shall purchase [**] shares of Series F Preferred Stock of
Biometric at a purchase price of [**] per share for an aggregate purchase price
of approximately $2,000,000.
(b) Upon completion of Phase I pursuant to Section 3.3 hereof, CDP
Investments, Inc. shall purchase [**] shares of Biometric Series F Preferred
Stock at a purchase price of [**] per share for an aggregate purchase price of
approximately $1,000,000.
(c) Upon delivery of three (3) New Instruments or Interim Instruments,
whichever is earlier, to the clinical sites specified by Centocor, CDP
Investments, Inc. shall purchase [**] shares of Biometric Series F Preferred
Stock at a purchase price of [**] per share for an aggregate purchase price of
approximately $1,000,000.
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.
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<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.
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<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.
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<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 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
December 10, 1997
