<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1997.
REGISTRATION NO. 333-38027
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
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 Code Number) Identification No.)
incorporation
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. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF
EACH CLASS
OF
SECURITIES PROPOSED MAXIMUM PROPOSED MAXIMUM
TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE REGISTRATION FEE
---------- ------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Class A 3,335,000 $15.00 $50,025,000.00 $15,159.09(3)
Common
Stock, $.01
par value
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1)Includes 435,000 shares which the Underwriters have the option to purchase
from the Registrant to cover over-allotments, if any.
(2)Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) of the Securities Act.
(3)Of this amount, $3,037.88 is being paid upon filing of this amendment. A
filing fee of $12,121.21 was paid in connection with the initial filing of
this Registration Statement on October 16, 1997.
---------------
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 November 24, 1997
2,900,000 Shares
LOGO
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 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 ovarian (CA 125 II), breast (CA 15-3) or
pancreatic (CA 19-9) cancer.
(THREE PICTURES OF ONCOLOGY PRODUCTS APPEAR 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.
(PICTURE OF INSTRUMENT APPEARS HERE)
BIOMETRIC IMAGING, INC.
IMAGN (R) 2000
INSTRUMENT
<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
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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. 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 primarily to the cardiovascular diagnostic program, with
the balance used for working capital, product research and development and
other corporate purposes, which may include expenses associated with the
expansion of sales and marketing activities, property, plant and equipment and
for general corporate purposes. 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 1999, 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.
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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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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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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, prior to the
completion of this offering, 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.
39
<PAGE>
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.
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 and accordingly, Centocor does not
recognize compensation cost for options granted. As such, the accompanying
financial statements of Centocor Diagnostics reflect no allocation of
compensation costs for its employees.
The Company will adopt 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-15
<PAGE>
LOGO
[Centocor diagnostics inc.]
<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
, 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. (Included on the signature page hereto.)
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
(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 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MALVERN,
PENNSYLVANIA, ON THE 24TH DAY OF NOVEMBER, 1997.
Centocor Diagnostics, Inc.
/s/ R. James Danehy
By: _____________________________
R. JAMES DANEHY PRESIDENT
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints R. James Danehy and Dominic J. Caruso, and each
or either of them, as such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him, and in his
name, place and stead, and in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration
Statement, (or any other Registration Statement for the same offering, or
amendment thereto, filed pursuant to Rule 462(b) promulgated under the
Securities Act of 1933) and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them or
their substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT 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 November 24, 1997
- ------------------------------------ Executive Officer
R. JAMES DANEHY and Director (principal
executive officer)
/s/ Richard A. Bierly Vice President and November 24, 1997
- ------------------------------------ Chief Financial
RICHARD A. BIERLY Officer (principal
financial and
accounting officer)
/s/ Dominic J. Caruso Chairman of the November 24, 1997
- ------------------------------------ Board and Director
DOMINIC J. CARUSO
/s/ Dr. Philip P. Gerbino Director November 24, 1997
- ------------------------------------
DR. PHILIP P. GERBINO
/s/ George D. Hobbs Director November 24, 1997
- ------------------------------------
GEORGE D. HOBBS
/s/ Thomas A. Myers Director November 24, 1997
- ------------------------------------
THOMAS A. MYERS
</TABLE>
II-6
<PAGE>
SCHEDULE II
CENTOCOR DIAGNOSTICS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGE TO BALANCE CHARGE TO BALANCE CHARGE TO BALANCE CHARGE TO
AT COSTS AND AT COSTS AND AT COSTS AND AT COSTS AND
CLASSIFICATION 12/31/93 EXPENSES DEDUCTIONS 12/31/94 EXPENSES DEDUCTIONS 12/31/95 EXPENSES DEDUCTIONS 12/31/96 EXPENSES
-------------- -------- --------- ---------- -------- --------- ---------- -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inventory
Reserve......... $377 $725 $(655) $447 $1,053 $(1,115) $385 $1,352 $(977) $760 $411
<CAPTION>
BALANCE
AT
CLASSIFICATION DEDUCTIONS 9/30/97
-------------- ---------- -------
<S> <C> <C>
Inventory
Reserve......... $(924) $247
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Articles of Incorporation of the Company.
*3.2 Form of Bylaws of the Company.
**4.1 Form of the Company's Class A Common Stock certificate.
**4.2 Form of the Company's Class B Common Stock certificate.
5.1 Opinion of Duane, Morris & Heckscher LLP.
10.1 Letter of Employment dated July 21, 1997, between Centocor, Inc. and
R. James Danehy, as amended.
10.2 Centocor Diagnostics, Inc. 1997 Non-Qualified Stock Option Plan.
10.3 Centocor Diagnostics, Inc. 1997 Non-Employee Directors' Non-Qualified
Stock Option Plan.
10.4 Services Agreement between Centocor Diagnostics, Inc. and Centocor,
Inc., dated 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. (Included on the signature page hereto.)
27.1 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
II-8
<PAGE>
Exhibit 3.1
Microfilm Number _____________ Filed with the Department of State on _______
Entity Number ________________
---------------------------------------------
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 91)
In compliance with the requirements of 15 Pa.C.S. (S) 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: Centocor Diagnostics, Inc.
----------------------------------------------
- --------------------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a) 244 Great Valley Parkway Malvern PA 19355 Chester
--------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o:
---------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.
3. The statute by or under which it was incorporated is:
PA Business Corporation Law of 1988
-----------------------------------------------------------------------------
4. The date of its incorporation is: August 14, 1997
--------------------------------------------
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of Amendment
--- in the Department of State.
The amendment shall be effective on: _______________ at ________________
--- Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant to 15
--- Pa.C.S. (S) 1914(a) and (b).
The amendment was adopted by the board of directors pursuant to 15
--- Pa.C.S. (S) 1914(c).
7. (Check, and if appropriate complete, one of the following):
The amendment adopted by the corporation, set forth in full, is as
--- follows:
X The amendment adopted by the corporation is set forth in full in Exhibit
--- A attached hereto and made a part hereof.
<PAGE>
8. (Check if the amendment restates the Articles):
X The restated Articles of Incorporation supersede the original Articles
--- and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this __________
day of November, 1997.
CENTOCOR DIAGNOSTICS, INC.
---------------------------------------
(Name of Corporation)
BY:
------------------------------------
(Signature) R. James Danehy
TITLE: President
---------------------------------
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CENTOCOR DIAGNOSTICS, INC.
1. The name of the Corporation is Centocor Diagnostics, Inc.
2. The address of the Corporation's registered office in the Commonwealth of
Pennsylvania is 244 Great Valley Parkway, Malvern, PA 19355.
3. The Corporation shall have unlimited power to engage in and do any lawful act
concerning any or all lawful business for which corporations may be
incorporated under the Pennsylvania Business Corporation Law of 1988, as
amended.
4. The Corporation shall have perpetual existence.
5. The aggregate number of shares which the Corporation shall have authority to
issue is 50,000,000 shares, of which 25,000,000 shares shall be designated as
Class A Common Stock, par value $.01 per share and of which 10,000,000 shall
be designated as Class B Common Stock, par value $.01 per share. The Class A
Common Stock and the Class B Common Stock are hereinafter collectively
referred to as the "Common Stock."
A. The powers, preferences, qualifications, limitations and other rights
of the Class A Common Stock and the Class B Common Stock,
respectively, shall be as follows:
(i) Rights. Except as otherwise required by law or as otherwise
------
provided in these Articles of Incorporation, each share of Class
A Common Stock and each share of Class B Common Stock shall have
identical powers, preferences, qualifications, limitations and
other rights, including rights in liquidation and rights upon a
merger or consolidation of the Corporation.
(ii) Voting. Except as otherwise expressly required by law or as
------
otherwise provided in these Articles of Incorporation, with
respect to all matters upon which shareholders of the
Corporation are entitled to vote, the holders of Class A Common
Stock and Class B Common Stock shall vote together as a single
class, with: (i) each holder of Class A Common Stock entitled to
one vote for each share of Class A Common Stock held; and (ii)
each holder of Class B Common Stock entitled to ten votes for
each share of Class B Common Stock held.
(iii) Dividends. Each share of Class A Common Stock and each share of
---------
Class B Common Stock shall be equal in respect of rights to
dividends and distributions, except that in the case of
dividends or other distributions payable in shares of Common
Stock, including distributions pursuant to stock splits or
divisions:
A-1
<PAGE>
(i) only shares of Class A Common Stock shall be distributed
with respect to the Class A Common Stock and (ii) only shares of
Class B Common Stock shall be distributed with respect to the
Class B Common Stock. The number of shares of Class A Common
Stock and Class B Common Stock so distributed shall be equal in
number on a per share basis.
(iv) Stock Splits. The Corporation shall not split, divide,
------------
reclassify or combine either the shares of Class A Common Stock
or the shares of Class B Common Stock unless, at the same time,
the Corporation splits, divides, reclassifies or combines, as
the case may be, the shares of the other class of Common Stock
in the same proportion and manner.
The Board of Directors shall have the full authority permitted by law to
make divisions of the authorized shares into classes and into series
within any class and to make determinations of the designation and the
number of shares of any class or series and determinations of the voting
rights, preferences, limitations and special rights, if any, of the shares
of any class or series, including the power to increase the previously
determined number of shares of any class or series, including, but not
limited to, shares of Class A Common Stock, and shares of Class B Common
Stock, to a number not greater than the aggregate number of shares of all
classes and series that the Corporation is authorized to issue and to
decrease the previously determined number of shares of any class or
series, including, but not limited to, shares of Class A Common Stock, and
shares of Class B Common Stock, to a number not less than that then
outstanding. Additionally, the number of shares designated as Class A
Common Stock and Class B Common Stock may be decreased in accordance with
paragraph C(iv) below without the consent of any holders of any
outstanding shares of the Corporation.
B. Without any other action on the part of the Corporation or any other
person, immediately upon the effectiveness of these Amended and Restated
Articles of Incorporation (the "Effective Time"), each share of the
Corporation's common stock, par value $.01 per share, (the "Old Common
Stock") issued and outstanding immediately prior to the Effective Time
shall be changed into and reclassified as .5916667 shares of the
Corporation's Class B Common Stock; provided, however, that no fractional
-------- -------
shares of Class B Common Stock shall be issued or outstanding as a result
of such reclassification.
C. Conversion.
(i) Prior to the earliest to occur of (A) the date on which shares of
Class B Common Stock are distributed to the shareholders of Centocor,
Inc. or its successors ("Centocor") as a dividend intended to be on a
tax-free basis under the Internal Revenue Code of 1986, as amended
from time to time (the "Code") (a "Tax-Free Spin-Off") and (B) the
date on which the number of shares of Class B Common Stock outstanding
is less than a majority of the aggregate number of shares of Common
Stock outstanding and a Tax-Free Spin-Off has not occurred, each share
of Class B Common Stock shall be
A-2
<PAGE>
convertible, at the option of the holder thereof, into one share of
Class A Common Stock. At the time of a voluntary conversion, the
holder of shares of Class B Common Stock shall deliver to the office
of the Corporation or any transfer agent for the Class B Common Stock
(i) the certificate or certificates representing the shares of Class B
Common Stock to be converted, duly endorsed in blank or accompanied by
proper instruments of transfer and (ii) written notice to the
Corporation stating that such holder elects to convert such share or
shares and stating the name and address in which each certificate for
shares of Class A Common Stock issued upon such conversion is to be
issued. Such voluntary conversion shall be deemed to have been
effected at the close of business on the date when such delivery is
made to the Corporation or such transfer agent of the shares of Class
B Common Stock to be converted, and the person exercising such
voluntary conversion shall be deemed to be the holder of record of the
number of shares of Class A Common Stock issuable upon such conversion
at such time. The Corporation shall promptly deliver certificates
evidencing the appropriate number of shares of Class A Common Stock to
such person.
(ii) Each share of Class B Common Stock shall automatically convert into
one share of Class A Common Stock upon the transfer of such share if,
after such transfer, such share is not beneficially owned by Centocor,
unless such transfer is effected in connection with a Tax-Free Spin-
Off. For purposes of this paragraph (C)(ii), the term "beneficially
owned" with respect to shares of Class B Common Stock means ownership
by a person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise controls the
voting power (which includes the power to vote or to direct the voting
of) of such Class B Common Stock.
In the event of a Tax-Free Spin-Off, the shares of Class B Common
Stock distributed, shall automatically convert into shares of Class A
Common Stock, on a share-for-share basis, without any other action on
the part of the Corporation or any other person, into shares of Class
A Common Stock (the "Conversion") on the fifth anniversary of the Tax-
Free Spin-Off, unless prior to such Tax-Free Spin-Off, Centocor
delivers to the Corporation, an opinion of counsel (which counsel
shall be reasonably satisfactory to the Corporation) 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.
Each share of Class B Common Stock shall automatically convert into
one share of Class A Common Stock on the date on which the number of
shares of Class B Common Stock outstanding is less than a majority of
the aggregate number of shares of Common Stock outstanding and a Tax-
Free Spin-Off has not occurred.
The Corporation shall at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but
unissued Common Stock and its issued Common Stock held in its treasury
for the purpose of effecting any conversion of the Class B Common
Stock pursuant to this paragraph C(ii), the full number of
A-3
<PAGE>
shares of Class A Common Stock then deliverable upon any such
conversion of all outstanding shares of Class B Common Stock.
The Corporation will provide notice of any automatic conversion of
shares of Class B Common Stock to holders of record of the Common
Stock not less than 30 nor more than 60 days prior to the date fixed
for such conversion; provided, however, that if the timing or nature
-------- -------
of the effectiveness of an automatic conversion makes it impracticable
to provide at least 30 days' notice, the Corporation shall provide
such notice as soon as practicable. Notice of such conversion shall be
provided by first class mail, postage prepaid, to each holder of
record of the Common Stock, at such holder's address as it appears on
the transfer books of the Corporation; provided, however, that no
-------- -------
failure to give such notice nor any defect therein shall affect the
validity of the automatic conversion of any shares of Class B Common
Stock. Each such notice shall state, as appropriate, the following:
(a) the automatic conversion date;
(b) that all outstanding shares of Class B Common Stock are
automatically converted;
(c) the place or places where certificates for such shares are to
be surrendered for conversion; and
(d) that no dividends will be declared on the shares of Class B
Common Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of shares
of Class B Common Stock as such shall cease and such holders shall be
treated for all purposes as having become the record owners of the
shares of Class A Common Stock issuable upon such conversion; provided,
--------
however, that such persons shall be entitled to receive when paid any
-------
dividends declared on the Class B Common Stock as of a record date
preceding the time of such conversion and unpaid as of the time of such
conversion.
As promptly as practicable after the time of conversion, upon the
delivery to the Corporation of certificates formerly representing
shares of Class B Common Stock, the Corporation shall deliver or cause
to be delivered, to or upon the written order of the record holder of
the surrendered certificates formerly representing shares of Class B
Common Stock, a certificate or certificates representing the number of
fully paid and nonassessable shares of Class A Common Stock into which
the shares of Class B Common Stock formerly represented by such
certificates have been converted in accordance with the provisions of
this paragraph C(ii).
(iii) Subject to the provisions of this paragraph C(iii) following a Tax-Free
Spin-Off, (A)
A-4
<PAGE>
each share of Class A Common Stock shall be convertible at the option
of the holder thereof into one share of Class B Common Stock on the
date on which any person (other than Centocor or any of its affiliates)
or any group of persons (other than a group composed of Centocor and/or
one or more of its affiliates) (a "Group") agreeing to act together for
the purpose of acquiring, holding, voting or disposing of shares of
Class B Common Stock, shall make an offer, which the Board of Directors
of the Corporation determines in its sole discretion to be "bona fide",
to holders of Class B Common Stock to purchase 5% or more of the issued
and outstanding shares of such Class B Common Stock for cash or a
combination of cash and other securities or property and (B) each share
of Class B Common Stock shall be convertible at the option of the
holder thereof into one share of Class A Common Stock on the date on
which any person (other than Centocor or any of its affiliates) or any
Group agreeing to act together for the purpose of acquiring, holding,
voting or disposing of shares of Class A Common Stock, shall make an
offer, which the Board of Directors of the Corporation determines in
its sole discretion to be "bona fide", to holders of Class A Common
Stock to purchase 5% or more of the issued and outstanding shares of
Class A Common Stock for cash or a combination of cash and other
securities or property. The Corporation will provide notice in writing,
by first class mail, postage prepaid, to each holder of the class of
Common Stock entitled to be converted, by reason of any offer referred
to in the foregoing clauses (A) and (B), at such holder's address as it
appears on the transfer books of the Corporation. The Common Stock
shall be convertible under this paragraph C(iii) as long as such offer
shall remain in effect. Notwithstanding the foregoing, each share of
Common Stock converted into a share of the other class of Common Stock
pursuant to this paragraph (C)(iii) and not purchased pursuant to such
offer prior to the termination, rescission or completion thereof, as
determined by the Board of Directors of the Corporation in its sole
discretion, shall automatically be reconverted into a share of Common
Stock of the class from which it was converted pursuant to this
paragraph (C)(iii) upon the earliest to occur of the termination,
recession or completion of such offer, as so determined by the Board of
Directors of the Corporation.
Any conversion pursuant to this paragraph (C)(iii) may be effected at
the office of the Corporation or any transfer agent for the Common
Stock and at such other place or places, if any, as the Board of
Directors of the Corporation may designate. Upon conversion pursuant to
this paragraph (C)(iii), the Corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on Common
Stock surrendered for conversion or on account of any dividends on
Common Stock issuable on such conversion. Before any holder of Common
Stock shall be entitled to convert such Common Stock into the other
class of Common Stock pursuant to this paragraph (C)(iii), such holder
shall surrender the certificate or certificates for such Common Stock
at the office of said transfer agent (or other place as provided
above). Such certificate(s), if the Corporation shall so request, shall
be duly endorsed to the Corporation or in blank or accompanied by
proper instruments of transfer to the Corporation or in blank (such
endorsements or instruments of transfer to be in form
A-5
<PAGE>
satisfactory to the Corporation). Such certificate(s) shall be
accompanied by a written notice to the Corporation at said office
stating that such holder elects to convert all or a specified number of
Common Stock represented by such certificate(s) in accordance with this
paragraph (C)(iii) and stating the name(s) in which such holder desires
the certificate(s) representing the shares of stock to be issued. The
Corporation will, as soon as practicable after deposit of the
certificate(s) for the class of Common Stock to be converted,
accompanied by the written notice and the statements prescribed above,
issue and deliver at the office of said transfer agent (or other place
as provided above) to the person for whose account such Common Stock
was so surrendered, or to such person's nominee or nominees, a
certificate or certificates for the number of shares of such other
series of Common Stock to which such holder shall be entitled as
aforesaid.
Any certificate of Common Stock issued in connection with a conversion
pursuant to this paragraph (C)(iii) shall bear a legend substantially
to the effect of the last sentence of the first subparagraph of this
paragraph (C)(iii), until such certificate shall be transferred to the
person(s) making the offer, entitling a holder of Common Stock to
reconvert such Common Stock pursuant to this paragraph (C)(iii).
Any conversion pursuant to this paragraph (C)(iii) shall be deemed to
have been made as of the date of surrender of the Common Stock to be
converted; and the person or persons entitled to receive the Common
Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Stock on such date.
(iv) Concurrently with any conversion of any share of one class of Common
Stock into the other class of Common Stock effected pursuant to
paragraphs C(i) and C(ii) above, and in the case of a conversion
pursuant to paragraph (C)(iii) above, concurrently with the purchase of
shares so converted, each share of a class of Common Stock that is
converted (i) shall be retired and canceled and shall not be reissued
and (ii) shall proportionally decrease the number of shares of Common
Stock of such class designated hereby.
6. Subchapters E, F, G, H, I and J of Chapter 25 and Sections 2538 and 2539 of
Subchapter D of Chapter 25 of the Pennsylvania Business Corporation Law of
1988, as amended, shall not be applicable to the Corporation.
7. Cumulative voting shall not be applicable in the election of Directors of the
Corporation.
8. Any action required or permitted to be taken at a meeting of the shareholders
or a class of shareholders of the Corporation may be taken without a meeting
upon the written consent of the 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 thereon were
present and voting. Any such action may be effective immediately upon its
A-6
<PAGE>
authorization, as set forth in the consent. Prompt notice of the action
taken shall be given to those shareholders entitled to vote thereon who have
not consented. The consent shall be filed with the secretary of the
Corporation.
A-7
<PAGE>
Duane, Morris & Heckscher LLP
ATTORNEYS AT LAW
ONE LIBERTY PLACE
PHILADELPHIA, PA 19103-7396
(215) 979-1000
FAX
(215) 979-1020
122 E. 42nd STREET, SUITE 3300
NEW YORK, NY 10168
305 NORTH FRONT STREET, 5th FLOOR
HARRISBURG, PA 17108-1003
735 CHESTERBROOK BOULEVARD
WAYNE, PA 19087-5638
968 POSTAL ROAD, SUITE 200
ALLENTOWN, PA 18109-0400
777 SOUTH FLAGLER DRIVE, SUITE 800W
WEST PALM BEACH, FL 33401
1667 K STREET N.W., SUITE 700
WASHINGTON, D.C. 20006-1608
1201 MARKET STREET, SUITE 1500
WILMINGTON, DE 19801-0195
314 S. STATE STREET
DOVER, DE 19901
51 HADDONFIELD ROAD, SUITE 340
CHERRY HILL, NJ 08002-4810
ONE GATEWAY CENTER, SUITE 1210
NEWARK, NJ 07102
November ____, 1997
The Board of Directors of
Centocor Diagnostics, Inc.
244 Great Valley Parkway
Malvern, PA 19044
Re: Centocor Diagnostics, Inc.
--------------------------
Gentlemen:
We have acted as counsel to Centocor Diagnostics, Inc. (the "Company") in
connection with the preparation and filing with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, of a registration
statement on Form S-1 (the "Registration Statement") relating to the offer and
sale by the Company of up to 3,335,000 shares (the "Shares") of Class A Common
Stock, $.01 par value per share, of the Company.
As counsel to the Company, we have supervised all corporate proceedings in
connection with the preparation and filing of the Registration Statement. We
have also examined the Company's Articles of Incorporation and Bylaws, as
amended to date, the corporate minutes and other proceedings and the records
relating to the authorization, sale and issuance of the Shares, and such other
documents and matters of law as we have deemed necessary or appropriate in order
to render this opinion.
Based upon the foregoing, it is our opinion that each of the Shares, when
paid for, will be duly authorized, legally and validly issued and outstanding,
fully paid and nonassessable.
We hereby consent to the use of this opinion in the Registration Statement,
and we further consent to the reference to our name in the Prospectus under the
caption "Legal Matters."
Sincerely,
DCT/hjr
<PAGE>
Exhibit 10.1
[LETTERHEAD OF CENTOCOR APPEARS HERE]
July 21, 1997
[Offer of Employment]
R. James Danehy
922 Sandstone Drive
Libertyville, IL 60048
Dear Jim:
Centocor, Inc., ("Centocor", "The Company") is pleased to offer you employment
on the following terms and conditions:
1) The title of your position will be President and CEO, Centocor
Diagnostics, Inc. ("Diagnostics"). You will initially report directly
to David P. Holveck, President and CEO of Centocor, Inc., and
subsequent to the planned initial public offering of Centocor
Diagnostics, Inc. you will report to the Board of Directors of
Centocor Diagnostics, Inc.
2) Salary: You will be paid a salary at an annual rate of $275,000.00
------
payable biweekly. Your performance and salary will be reviewed
annually.
3) Bonus: You will be eligible to participate in Centocor's Diagnostic,
-----
Inc. Bonus program. The amount of your bonus, if any, may vary from
year to year based upon the overall performance of Diagnostics and
individual objectives mutually agreed upon by yourself and the Board
of Directors of Diagnostics. The incentive plan targets at your level
will be based upon the following:
1st year (1998) - 0 to 20% (Bonus payable in first quarter 1999)
2nd year (1999) - 0 to 30% (Bonus payable in first quarter 2000)
3rd year (2000) - 0 to 40% (Bonus payable in first quarter 2001)
4th year (2001) - 0 to 50% (Bonus payable in first quarter 2002)
These bonus payouts would be payable in cash as a percentage of base
salary provided you are a Diagnostics employee at the time of
distribution.
4) Stock Options: Subject to approval by the Centocor's Diagnostics,
-------------
Inc. Board of Directors you will be granted options to purchase 5% of
Diagnostics common stock outstanding after the IPO, at the IPO price.
Your right to exercise these options will vest according to the
following schedule, provided you continue as a Diagnostics employee
until the indicated time after the Award date: 25% after 1 year, 50%
after 2 years, 75% after 3 years and 100% after 4 years.
<PAGE>
[LETTERHEAD OF CENTOCOR APPEARS HERE]
- --------------------------------------------------------------------------------
R. James Danehy
Offer of Employment
Page Two
a) In the event that the planned initial public offering of Centocor
Diagnostics, Inc. is delayed by 12 months from your start date,
you will be eligible with Board approval to participate in
Centocor's Stock Options Program. The basis and amount of the
equity participation will be comparable to other senior Centocor
executives at your level for such period. You will continue to be
eligible with Board approval to participate in Centocor's Stock
Options Program until completion of the IPO.
5) Benefits: You will be eligible to participate in Centocor's
--------
comprehensive benefits package. These benefits, described in the
enclosed employee benefits summary, include:
- Executive Benefits (See Attached Summary)
- Medical
- Dental
- Life Insurance
- Disability
- 401(k) Savings Plan
- Dependant Care Reimbursement Account
- Vacation
- Holiday
- Tuition Reimbursement
You should be aware that the Company's PPO medical plan provider has a
coverage exclusion for medical conditions existing at the time of your
hire.
These benefits are subject to change from time to time at the
Company's discretion. You may direct any questions regarding these
benefit programs to the Employee Benefits Department.
6) Termination Provisions: If the Company or Diagnostics terminates your
----------------------
employment because of willful failure to perform, or dishonest
conduct, the Company or Diagnostics shall have no further obligation.
If the Company or Diagnostics terminates your employment for any
reason other than those specified above (i.e., not for cause), the
Company or Diagnostics shall be obligated to pay you (at the same
level as your total compensation was during the previous twelve
months) on a bi-weekly basis for up to 12 months, or until such time
that you have comparable employment, whichever time period is shorter.
7) Car Allowance: You will receive a standard monthly car allowance of
-------------
$750 plus $142 per month maintenance costs. If you choose to lease a
car through
<PAGE>
[LETTERHEAD OF CENTOCOR APPEARS HERE]
- --------------------------------------------------------------------------------
R. James Danehy
Offer of Employment
Page Three
the Company, the actual Company paid lease cost, if any, and $200 per
month toward the Company's auto insurance policy, if you choose to be
insured under this policy, will be deducted from the allowance. You
will be taxed on the full value of this benefit. You may however, file
an IRS form 2106 to deduct the business use of the car.
8) Vacation: During any calendar year of your employment you will be
--------
entitled to three (3) weeks of paid vacation during that year.
Vacation shall be prorated for any calendar year in which you were an
employee for less than the full year.
9) Temporary Living and Commuting Expenses: You will be provided with
---------------------------------------
temporary living and commuting expenses up to a maximum of
$3,500/month up to a maximum of 30 months from your initial date of
employment. We shall rent or purchase furniture with regard to your
housing needs.
10) Relocation: Centocor relocation policy will be made available to you
----------
subsequent to the expiration of the Temporary Living and Commuting
Expenses agreement.
11) Acceptance of Employment: In order to accept this offer of employment
------------------------
with Centocor and to accept the conditions of the offer as described
in this letter, you must complete and sign a copy of this letter and
deliver it to Human Resources in advance of your start date. If you
accept this offer of employment, we would like your effective date of
employment with Centocor to be on or before July 28, 1997.
12) Nature of Employment: Your employment with Centocor or Diagnostics is
--------------------
on an at-will basis which means that either you or Centocor (or
Diagnostics) may terminate the employment relationship at any time
with or without cause.
13) Orientation: New employee orientation is held every Monday. The
-----------
orientation consists of four parts: Welcome to Centocor, a benefits
overview, a safety seminar and an automated systems overview.
Materials essential to your employment at Centocor are provided during
this meeting. It is imperative that all new employees attend the
orientation on the first Monday after beginning employment.
<PAGE>
[LETTERHEAD OF CENTOCOR APPEARS HERE]
- --------------------------------------------------------------------------------
R. James Danehy
Offer of Employment
Page Four
Also, as a condition of your employment, you must agree to and sign
the following documents:
a. The Centocor Agreement with Respect to Inventions and
Confidential Information
b. The Employment Eligibility Verification Form I-9.
c. The Code of Legal and Ethical Conduct.
d. Agreement to Reimburse Relocation Expenses (attachment J).
Please bring these forms with you to the Human Resources Department
(Building #3-200 Great Valley Parkway) at 8:30 a.m. on the first Monday
after beginning employment. You will be required to present appropriate
documentation to verify your identity and employment eligibility as
indicated on "The Employment Eligibility Verification Form I-9" enclosed
with this letter. The orientation session will take approximately 3 hours.
This offer of employment will remain in effect until July 25, 1997 and is
contingent upon the satisfactory completion of a pre-employment reference
check(s). Upon acceptance, please sign and return a copy of this letter to me.
We are all very excited about the possibility of your joining Centocor and
Centocor Diagnostics Inc.
Sincerely yours,
/s/ Dominic J. Caruso
Dominic J. Caruso
VP, Finance and Chief Financial Officer
Enclosures
AGREED TO AND ACCEPTED THIS 22ND DAY OF JULY, 1997.
/s/ R. James Danehy
- ---------------------
NAME
<PAGE>
Exhibit 10.2
CENTOCOR DIAGNOSTICS, INC.
1997 NON-QUALIFIED STOCK OPTION PLAN
1. OBJECTIVES
----------
The objectives of this Plan are to assist Centocor Diagnostics, Inc.
(the "Company") in attracting and retaining qualified employees and to promote
the identification of such employees' interests with those of the Company's
shareholders.
2. DEFINITIONS
-----------
"Board" shall mean the Board of Directors of the Company.
"Corporate Event" shall mean an occurrence in which the Company is
succeeded by another corporation in a reorganization, merger, consolidation,
acquisition of property or stock, separation or liquidation.
"Date of Grant" in relation to an Option granted under the Plan shall
mean the date on which the Board or the Committee grants that Option.
"Eligible Employee" shall mean an officer (who may also be a director)
or an employee regularly employed on a salaried basis by the Company or any
Subsidiary of the Company.
"Exercise" in respect of any Option shall mean the delivery by the
Optionee to the Company of (a) a written notice of exercise of Options as to a
specified number of Shares; and (b) the payment of the option exercise price for
such Shares.
"Option" shall mean a right to purchase Shares, granted pursuant to
the Plan.
"Optionee" shall mean a person holding an Option which has not been
exercised or surrendered and has not expired or terminated.
<PAGE>
"Plan" means this 1997 Non-Qualified Stock Option Plan, as it may be
amended from time to time.
"Shares" shall mean shares of Class A Common Stock, par value $.01 per
share, of the Company.
"Subsidiary" shall mean any corporation in which, at the time in
question, the Company or Centocor, Inc., as the case may be, directly or
indirectly owns at least 50% of the voting power of the outstanding capital
stock.
3. MAXIMUM NUMBER OF SHARES FOR WHICH OPTIONS MAY BE GRANTED AND ADJUSTMENTS
-------------------------------------------------------------------------
IN OPTIONED SHARES
------------------
The maximum number of Shares for which Options may be granted
hereunder is 1,400,000 Notwithstanding any other provisions of the Plan to the
contrary, the number of Shares subject to Option, the number of Shares
previously optioned and not theretofore delivered, and the option price per
Share shall be appropriately adjusted if the number of outstanding Shares of the
Company is increased or reduced by split-up, reclassification, stock dividend or
the like. Shares for which Options have expired or terminated or have been
surrendered or canceled prior to exercise may again be available under the Plan.
4. ADMINISTRATION AND INTERPRETATION
---------------------------------
This Plan shall be administered by the Board or a committee of the
Board (the "Committee"), which shall be composed solely of that number of "non-
employee" members of the Board, designated by the Board, required by applicable
federal tax and securities regulations. The Board and the Committee may each
make such rules and establish such procedures as each deems appropriate for the
administration of this Plan. Notwithstanding anything to the contrary set forth
-2-
<PAGE>
in the Plan; any authority granted to the Committee may be exercised at any time
and from time to time by the Board at its election. In the event of any
disagreement as to the interpretation of the Plan or any rule or procedure
thereunder, the decision of the Board shall be final and binding upon all
persons in interest.
5. GRANTING OF OPTIONS
-------------------
The Committee is authorized to grant Options to selected Eligible Employees
pursuant to this Plan. The number of Shares subject to Options, if any, granted
in each year, the Eligible Employees to whom Options are granted, the vesting of
the Options granted and the number of Shares subject to Options granted to each
Eligible Employee shall be wholly within the discretion of the Committee,
subject to the limitation that no Options shall be granted (notwithstanding any
other provisions of this Plan to the contrary) later than ten years after the
date this Plan is adopted by the Board, or the date this Plan is approved by the
shareholders of the Company, whichever is earlier.
6. TERMS OF OPTIONS
----------------
Subject to the limitation prescribed in Section 5 above, the Options
granted under this Plan shall be on the terms stated in Subsections 6(a) through
6(h) below. The Committee may specify additional terms not inconsistent with
this Plan by rules of general application or by specific direction in connection
with a particular group of Options.
(a) The option exercise price shall be fixed by the Board or the
Committee but shall not be less than 100% of the fair market value of the
underlying Shares on the Date of Grant.
(b) The option exercise price shall be payable in cash, obligations,
services performed whether or not contracted for, services to be performed or
any other tangible or intangible
-3-
<PAGE>
property (which, if shares of stock of the Company, shall have a fair market
value on the date of exercise equal to the option exercise price and, if the
Optionee is an "officer" of the Company, as such term is defined in Rule 16a-
1(f) of Securities Exchange Act of 1934 (hereinafter, an "Officer"), the
surrender of the shares of stock of the Company in connection with the exercise
shall have been approved in advance by the Committee or the Board) or any
combination thereof, to the extent permitted by Pennsylvania law. If the option
exercise price shall be payable other than in cash and/or shares, or the
Committee shall approve such consideration prior to exercise and reasonably
determine the value of such consideration, which determination shall be
conclusive.
(c) The Options shall not be transferable otherwise than by will or
the laws of descent and distribution and shall be exercisable, during the
Optionee's lifetime, only by him.
(d) The Options shall expire ten years after the date of grant, unless
an earlier date is fixed by the Committee.
(e) The Options shall terminate and may not be exercised if the
Optionee ceases to be an employee of the Company, a Subsidiary of the Company,
Centocor, Inc. or any Subsidiary of Centocor, Inc., except to the extent
provided in Section 8 below.
(f) If the Company is succeeded by another company because of a
Corporate Event, the surviving or resulting company shall substitute new options
for the outstanding Options. In determining the substitution of options, the
Optionee shall be regarded as if the Optionee had been the holder of record of
the number of Shares that were subject to Options immediately prior to the
Corporate Event. The Optionee shall be entitled upon the exercise of such new
options to receive such securities of the surviving or resulting corporation as
the Board of Directors of such corporation shall determine to be equivalent, as
nearly as practicable, to the nearest whole number
-4-
<PAGE>
and class of shares of stock or other securities to which the Optionee would
have been entitled under the terms of the agreement governing the Corporate
Event.
(g) All Options granted to Officers of the Company shall provide that
such Options will become fully exercisable, notwithstanding any vesting schedule
for such Options, upon (i) shareholder approval of any reorganization, merger
or consolidation of the Company, (ii) the sale by the Company of substantially
all of its assets or (iii) the acquisition of in excess of 50% of the voting
power represented by the issued and outstanding shares of the Company's capital
stock by a single purchaser or group of related purchasers, in any case other
than in a transaction in which the surviving corporation or the purchaser is the
Company, a Subsidiary of the Company, Centocor, Inc. or a Subsidiary of
Centocor, Inc.
(h) The granting of any Option or Limited Stock Appreciation Right
("LSAR") (as described in Section 7) shall impose no obligation upon the
Optionee to exercise such Option or LSAR.
7. LIMITED STOCK APPRECIATION RIGHTS
---------------------------------
Simultaneously with the grant of any Options hereunder to an Officer, LSARs
with respect to all of the Shares covered by such Options shall automatically be
granted. In the event of any acceleration of the exercisability of any Options
pursuant to Subsection 6(g) of the Plan, the Optionee shall have the right, for
a period commencing on acceleration of the Options and terminating thirty days
thereafter, to exercise the LSAR. Upon the exercise of any LSAR, the Optionee
shall receive from the Company for each Share for which a LSAR is exercised, an
amount in cash equal to the difference between the option exercise price per
Share of the Options to which the LSAR relates and the per share fair market
value of the Shares issuable upon exercise of such
-5-
<PAGE>
Options on the date the LSAR is exercised. When a LSAR is exercised, the Option
to which it relates will cease to be exercisable to the extent of the number of
Shares with respect to which the LSAR is exercised, but will be deemed to have
been exercised for purposes of determining the number of Shares for which
Options may be granted hereunder.
8. EXERCISE RIGHTS UPON TERMINATION OF EMPLOYMENT
----------------------------------------------
(a) If an Optionee becomes disabled, as defined below, he may exercise
his Options within one year after the date of disability, but in no event later
than the date on which the Options would have expired if the Optionee had not
become disabled. During such period the Options may be exercised only to the
extent that the Optionee was entitled to do so at the date of disability. To
the extent the Options are not so exercised, the Options shall expire at the end
of such period. For purposes of this Subsection 8(a), an Optionee shall be
deemed to be "disabled" if he is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of more than twelve months. The Company reserves
the right to require the Optionee to provide medical evidence of such
disability.
(b) If an Optionee dies during a period in which he is entitled to
exercise any Options (including the period referred to in Subsection 8(a)
above), the Options shall terminate one year after the date of death, but in no
event later than the date on which any Options would have expired if the
Optionee had lived. During such period the Options may be exercised by the
Optionee's executor or administrator or by any person or persons who shall have
acquired the Options directly from the Optionee by bequest or inheritance. The
Options may only be exercised
-6-
<PAGE>
to the extent that the Optionee was entitled to do so at the date of death and,
to the extent the Options are not so exercised, the Options shall expire at the
end of such period.
(c) If an Officer of the Company ceases to be an employee of the
Company, a Subsidiary of the Company, Centocor, Inc. or a Subsidiary of
Centocor, Inc., he or she may exercise Options granted hereunder for a period
not to exceed six months after the date of such termination, but in no event
later than the date on which any Options would have expired if the Optionee had
remained an employee of the Company, a Subsidiary of the Company, Centocor, Inc.
or a Subsidiary of Centocor, Inc. During such period the Options may be
exercised only to the extent that the Optionee was entitled to do so on the date
of termination of employment and, to the extent the Options are not so
exercised, the Options shall expire at the end of such six-month period. The
Optionee shall not have the right to exercise any Options, and any Options held
by the Optionee shall terminate immediately, if the Optionee's employment was
terminated for "cause." Termination for "cause" shall include theft;
falsification of records; fraud; embezzlement; gross negligence or willful
misconduct; causing the Company to violate any federal, state or local law, or
administrative regulation or ruling having the force and effect of law;
insubordination; conflict of interest; diversion of corporate opportunity; or
conduct that results in publicity that reflects unfavorably on the Company.
9. ADDITIONAL REQUIREMENTS
-----------------------
Upon the exercise of any Options granted hereunder the Committee may
require the Optionee to deliver the following:
(a) A written statement that the Optionee (or such other person) is
purchasing the Shares for investment and not with a view toward their
distribution or sale and will not sell or
-7-
<PAGE>
transfer any shares received upon the exercise of the Options except in
accordance with the Securities Act of 1933, as amended, and applicable state
securities laws;
(b) Evidence reasonably satisfactory to the Company that at the time
of exercise the Optionee (or such other person) meets such other requirements as
the Committee may determine; including but not limited to compliance with the
provisions of Section 15 of the Plan; and
(c) Evidence reasonably satisfactory to the Company that at the time
of exercise, the exercise of the Options by the Optionee (or such other person)
and the delivery of Shares upon exercise by the Company comply with all
applicable federal and state securities laws.
10. COMMON STOCK SUBJECT TO OPTIONS
-------------------------------
The Shares issuable upon exercise of Options granted hereunder may be
unissued shares or treasury shares, including shares bought on the open market.
The Company at all times during the term of this Plan shall reserve for issuance
the number of Shares issuable upon exercise of Options granted hereunder.
11. COMPLIANCE WITH GOVERNMENTAL AND OTHER REGULATIONS
--------------------------------------------------
The Company will not be obligated to issue and sell the Shares issued
pursuant to Options granted hereunder if, in the opinion of its counsel, such
issuance and sale would violate any applicable federal or state securities laws.
The Company will seek to obtain from each regulatory commission or agency having
jurisdiction such authority as may be required to issue and sell Shares issuable
upon exercise of any Options granted hereunder. Inability of the Company to
obtain from any such regulatory commission or agency authority that counsel for
the Company deems necessary for the lawful issuance and sale of Shares upon
exercise of any Options granted hereunder shall
-8-
<PAGE>
relieve the Company from any liability for failure to issue and sell such Shares
until the time when such authority is obtained or is obtainable.
12. NONASSIGNMENT OF OPTIONS
------------------------
Except as otherwise provided in Subsection 6(c) above, any Options granted
hereunder and the rights and privileges conferred hereby shall not be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of such Options, rights or privileges contrary to the
provisions hereof, or upon the levy of any attachment or similar process upon
such Options, rights or privileges, such Options and the rights and privileges
conferred hereby shall immediately terminate.
13. RIGHTS OF OPTIONEE IN STOCK
---------------------------
Neither any Optionee nor the legal representatives, heirs, legatees or
distributees of any Optionee, shall be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any Shares issuable upon exercise
of any Options granted hereunder unless and until such Shares are issued to him
or them.
14. DELIVERY OF SHARES ISSUED PURSUANT TO OPTIONS
---------------------------------------------
Subject to the other terms and conditions of this Plan, upon the exercise
of any Options granted hereunder, the Company shall sell to the Optionee the
Shares with respect to which the Options have been exercised.
15. WITHHOLDING OF APPLICABLE TAXES
-------------------------------
The Company shall have the right to reduce the number of Shares otherwise
required to be issued upon exercise of any Options granted hereunder by an
amount that would have a fair market
-9-
<PAGE>
value on the date of such exercise equal to all federal, state, city or other
taxes as shall be required to be withheld by the Company pursuant to any statute
or other governmental regulation or ruling. In connection with such withholding,
the Company may make any such arrangements as are consistent with this Plan as
it may deem appropriate.
16. PLAN AND OPTIONS NOT TO AFFECT EMPLOYMENT
-----------------------------------------
Neither this Plan nor any Options granted hereunder shall confer upon any
Eligible Employee any right to continue in the employ of the Company, a
Subsidiary of the Company, Centocor, Inc. or a Subsidiary of Centocor, Inc.
17. AMENDMENT OF PLAN
-----------------
The Board may make any amendments to the Plan that it deems necessary or
advisable, provided that the Board may seek shareholder approval of an amendment
if it is determined to be required by or advisable under regulations of the
Securities and Exchange Commission or the Internal Revenue Service, the rules of
any stock exchange or system on which the Company's stock is listed or quoted or
other applicable law or regulation.
18. NOTICE
------
Any notice required or permitted hereunder shall be sufficiently given only
if hand delivered, sent by registered or certified mail or by overnight delivery
service, postage prepaid, addressed to the Company, 244 Great Valley Parkway,
Malvern, Pennsylvania 19355, and to the Optionee at the address on file with the
Company at the time of grant hereunder, or to such other address as either party
may hereafter designate in writing by notice similarly given by one party to the
other.
-10-
<PAGE>
19. SUCCESSORS
----------
The Plan shall be binding upon and inure to the benefit of any successor or
successors of the Company.
20. SEVERABILITY
------------
If any part of this Plan shall be determined to be invalid or void in any
respect, such determination shall not affect, impair, invalidate or nullify the
remaining provisions of this Plan which shall continue in full force and effect.
21. TERMINATION OF THE PLAN
-----------------------
The Board may terminate this Plan at any time; otherwise this Plan shall
terminate ten years after it is approved by the Board. Termination of the Plan
shall not deprive Optionees of their rights under previously granted Options.
22. GOVERNING LAW
-------------
This Plan shall be governed by the internal laws of the Commonwealth of
Pennsylvania without regard to conflicts of laws principles, except to the
extent superseded by federal law.
23. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective when it is approved by the Board, but the
grant of any Options hereunder is subject to the express condition that within
twelve months after the date on which the Plan is adopted by the Board, the Plan
is approved by the shareholders of the Company.
-11-
<PAGE>
Exhibit 10.3
CENTOCOR DIAGNOSTICS, INC.
1997 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
1. OBJECTIVES
----------
The objectives of this Plan are to assist Centocor Diagnostics, Inc.
(the "Company") in attracting and retaining experienced and knowledgeable non-
employee Directors and to further promote the identification of such Directors'
interests with those of the Company's shareholders.
2. DEFINITIONS
-----------
"Board" shall mean the Board of Directors of the Company.
"Corporate Event" shall mean an occurrence in which the Company is
succeeded by another corporation in a reorganization, merger, consolidation,
acquisition of property or stock, separation, or liquidation.
"Date of Grant" in relation to an Option granted under the Plan shall
mean the date as of which such Option is granted pursuant to Section 5 of the
Plan.
"Director" shall mean a member of the Board who is not otherwise an
employee of the Company or a Subsidiary of the Company and who has not been an
employee of the Company or a Subsidiary of the Company for a period of at least
one year prior to the Date of Grant of any Options under the Plan.
"Exercise" in respect of an Option shall mean the delivery by the
Optionee to the Company of (a) a written notice of exercise of Options as to a
specified number of Shares; and (b) the payment of the option exercise price for
such Shares.
"Initial Exercise Date" shall mean with respect to each grant of
Options, the first anniversary of the Date of Grant of such Options.
<PAGE>
"Option" shall mean a right to purchase Shares, granted pursuant to
the Plan.
"Optionee" shall mean a person or entity holding an Option which has
not been exercised or surrendered and has not expired or terminated.
"Plan" means this 1997 Non-Employee Directors' Non-Qualified Stock
Option Plan, as it may be amended from time to time.
"Shares" shall mean shares of Class A Common Stock, par value $.01 per
share, of the Company.
"Subsidiary" shall mean any corporation, of which, at the time in
question, the Company or Centocor, Inc. owns, directly or indirectly at least
50% of the voting power of the outstanding capital stock.
3. MAXIMUM NUMBER OF SHARES FOR WHICH OPTIONS MAY BE GRANTED AND ADJUSTMENTS IN
----------------------------------------------------------------------------
SHARES UNDER THE OPTIONS
- ------------------------
The maximum number of Shares for which Options may be granted
hereunder is 100,000. Notwithstanding any other provisions of the Plan to the
contrary, the number of Shares subject to Option, the number of Shares
previously optioned and not theretofore delivered, and the option price per
Share shall be appropriately adjusted if the number of outstanding Shares of the
Company is increased or reduced by split-up, reclassification, stock dividend or
the like. Shares for which Options have expired or terminated or have been
surrendered or canceled prior to exercise may again be available under the Plan.
4. ADMINISTRATION AND INTERPRETATION
---------------------------------
The Plan shall be administered by the Board. Subject to the express
provisions of the Plan, the Board may make such rules and establish such
procedures as it deems appropriate for
-2-
<PAGE>
the administration of the Plan. In the event of any disagreement as to the
interpretation of the Plan or any rule or procedure thereunder, the decisions of
the Board shall be final and binding upon all persons in interest.
5. GRANTING OF OPTION
------------------
(a) Each Director shall automatically be granted an Option to purchase
15,000 Shares (subject to adjustment as provided in Section 3 above) upon the
consummation of the initial public offering of the Company's Class A Common
Stock ("IPO"). After the consummation of the IPO, each person who is elected a
Director for the first time (including any such person who is first elected a
Director at an annual meeting of shareholders) shall automatically upon such
election as a Director be granted an Option to purchase 15,000 Shares (subject
to adjustment as provided in Section 3 above). The initial grant of Options to
a Director, upon the consummation of the IPO or upon such person's election as a
Director for the first time following the IPO, is hereinafter referred to as the
"Initial Grant".
(b) Five business days after the date of each annual meeting of
shareholders of the Company at which Directors are elected, an Option to
purchase 5,000 Shares (subject to adjustments provided in Section 3 above) shall
automatically be granted to each Director elected at such meeting who has
previously received an Initial Grant. Any Director who is first elected at an
annual meeting of shareholders shall receive his or her Initial Grant pursuant
to Section 5(a) above, but shall not receive any additional Options, as a result
of his or her initial election. Notwithstanding any other provisions of the
Plan to the contrary, no Options shall be granted later than ten years after the
date the Plan is adopted by the Board.
-3-
<PAGE>
6. TERMS OF OPTIONS
----------------
Subject to the limitation prescribed in Section 5 above, the Options
granted under the Plan shall be on the terms stated in Subsections 6(a) through
6(h) below. The Board may specify additional terms not inconsistent with the
Plan by rules of general application or by specific direction in connection with
a particular group of Options.
(a) The option exercise price per Share shall be 100% of the per
share fair market value of the underlying Shares on the Date of Grant. For
Options granted upon the consummation of the IPO pursuant to Section 5(a), the
per share fair market value of the underlying Shares shall be the price per
share at which Shares are sold initially to the public pursuant to the IPO. For
all other Options granted, the fair market value of the underlying Shares shall
be the closing price per share of the Shares on the principal national
securities exchange on which the Shares are listed or admitted to trading, or,
if not listed or traded on any such exchange, on the National Market System of
the National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or if not listed or traded on any such exchange or system, the fair
market value as reasonably determined by the Board, which determination shall be
conclusive.
(b) Subject to the provisions herein regarding expiration or
termination of Options, on the Initial Exercise Date of each Option, the Option
shall become exercisable as to 25% of the Shares subject thereto, and thereafter
on each monthly anniversary of the applicable Initial Exercise Date, the Option
shall become exercisable as to an additional 2.1% of the Shares subject thereto;
provided however, that no Option shall become exercisable prior to the approval
of the Plan by the shareholders of the Company ("Shareholder Approval"). All
Options that would otherwise be exercisable prior to the date of Shareholder
Approval shall become exercisable on the
-4-
<PAGE>
first monthly anniversary of the Initial Exercise Date after Shareholder
Approval. No exercise of Options may be for less than ten full Shares. In no
event shall the Company be required to issue fractional Shares.
(c) The option exercise price shall be payable in cash,
obligations, services performed whether or not contracted for, services to be
performed or any other tangible or intangible property (which, if shares of
stock of the Company, shall have a fair market value on the date of exercise
equal to the option exercise price and shall have been approved in advance by
the Board), or any combination thereof, to the extent permitted by Pennsylvania
law. If the option exercise price shall be payable other than in cash and/or
Shares, the Board shall approve such consideration prior to exercise and
reasonably determine the value of such consideration, which determination shall
be conclusive.
(d) Options granted to Directors shall not be transferable
otherwise than by will or the laws of descent and distribution and shall be
exercisable, during the Optionee's lifetime, only by the Optionee.
(e) The Option shall expire ten years after the Date of Grant.
(f) If the Company is succeeded by another company because of a
Corporate Event, the surviving or resulting corporation shall substitute new
options for the outstanding Options. In determining the substitution of
options, the Optionee shall be regarded as if the Optionee had been the holder
of record of the number of Shares that were subject to Options immediately prior
to the Corporate Event. The Optionee shall be entitled, upon the exercise of
such new options, to receive such securities of the surviving or resulting
corporation as the Board of Directors of such corporation shall determine to be
equivalent, as nearly as practicable, to the nearest
-5-
<PAGE>
whole number and class of shares of stock or other securities to which the
Optionee would have been entitled under the terms of the agreement governing the
Corporate Event.
(g) If (i) the Company enters into an agreement or
reorganization, merger or consolidation pursuant to which it is not the
surviving corporation, (ii) the Company sells substantially all of its assets or
(iii) in excess of 50% of the voting power represented by the issued and
outstanding shares of the Company's capital stock is acquired by a single
purchaser or group of related purchasers, in any case other than in a
transaction in which the surviving corporation or the purchaser is the Company,
a Subsidiary of the Company, Centocor, Inc. or a Subsidiary of Centocor, Inc.,
then upon shareholder approval of any such reorganization, merger, consolidation
or sale of assets or consummation of any such acquisition of shares, all
outstanding Options granted under the Plan will automatically become fully
exercisable, subject to the proviso to the first sentence of Subsection 6(b)
above related to Shareholder Approval.
(h) The granting of any Option or Limited Stock Appreciation
Right ("LSAR") (as described in Section 7) shall impose no obligation upon the
Optionee to exercise such Option or LSAR.
7. LIMITED STOCK APPRECIATION RIGHTS
---------------------------------
Simultaneously with the grant of any Options hereunder, LSARs with
respect to all of the Shares covered by such Options shall automatically be
granted. In the event of any acceleration of the exercisability of any Options
pursuant to Subsection 6(g) of the Plan, the Optionee shall have the right, for
a period commencing on acceleration of the Options and terminating thirty days
thereafter, to exercise the LSAR. Upon the exercise of any LSAR, the Optionee
shall receive from the Company for each Share for which a LSAR is exercised, an
amount
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<PAGE>
in cash equal to the difference between the option exercise price per Share of
the Options to which the LSAR relates and the per share fair market value of the
Shares issuable upon exercise of such Options on the date the LSAR is exercised.
When a LSAR is exercised, the Option to which it relates will cease to be
exercisable to the extent of the number of Shares with respect to which the LSAR
is exercised, but will be deemed to have been exercised for purposes of
determining the number of Shares for which Options may be granted hereunder.
8. EXERCISE RIGHTS UPON CEASING TO BE A DIRECTOR
---------------------------------------------
All Options held by an Optionee who is a Director shall terminate and
may not be exercised if the Optionee ceases to be a Director of the Company,
except that (i) if the Optionee dies while a Director of the Company, his
Options may be exercised at any time within twelve months following his death
(subject to the limitation prescribed in Subsection 6(e) above and to the
proviso to the first sentence of Subsection 6(b) above) by the person or persons
to whom his rights under the Options shall pass by will or by the laws of
descent or distribution, but only to the extent that the Options were
exercisable by the Optionee on the date of his death without regard to the
proviso to the first sentence of Subsection 6(b) above and, (ii) if the Optionee
ceases to be a Director for any reason other than death or removal for cause,
subject to the terms and conditions hereof, the Optionee may exercise any
Options granted hereunder for a period not to exceed six months after the date
on which he ceases to be a Director (subject to the limitation prescribed in
Subsection 6(e) above and to the proviso to the first sentence of Subsection
6(b) above), but only to the extent that the Options were exercisable by the
Optionee on the date on which he ceased to be a Director without regard to the
proviso to the first sentence to Subsection 6(b) above. To the extent Options
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<PAGE>
are not exercised during such twelve-month or six-month period (as the case may
be), they shall expire at the end of such period.
9. ADDITIONAL REQUIREMENTS
-----------------------
Upon the exercise of any Options granted hereunder, the Board may
require the Optionee or such other person exercising any Options to deliver the
following:
(a) A written statement that the Optionee (or such other person)
is purchasing the Shares for investment and not with a view toward their
distribution or sale and will not sell or transfer any Shares received upon the
exercise of any Options except in accordance with the Securities Act of 1933, as
amended, and applicable state securities laws;
(b) Evidence reasonably satisfactory to the Company that, at the
time of exercise, the Optionee (or such other person) meets such other
requirements as the Board may determine; including but not limited to the
requirements of Section 15 of the Plan; and
(c) Evidence reasonably satisfactory to the Company that, at the
time of exercise, the exercise of any Options by the Optionee (or such other
person) and the delivery of Shares upon exercise by the Company comply with all
applicable federal and state securities laws.
10. COMMON STOCK SUBJECT TO OPTIONS
-------------------------------
The Shares issuable upon exercise of any Options granted hereunder may
be unissued shares or treasury shares, including shares bought on the open
market. The Company at all times during the term of the Plan shall reserve for
issuance the number of Shares issuable upon exercise of Options granted
hereunder.
-8-
<PAGE>
11. COMPLIANCE WITH GOVERNMENTAL AND OTHER REGULATIONS
--------------------------------------------------
The Company will not be obligated to issue and sell the Shares issued
pursuant to Options granted hereunder if, in the opinion of its counsel, such
issuance and sale would violate any applicable federal or state securities laws.
The Company will seek to obtain from each regulatory commission or agency having
jurisdiction such authority as may be required to issue and sell Shares issuable
upon exercise of any Options granted hereunder. Inability of the Company to
obtain from any such regulatory commission or agency authority that counsel for
the Company deems necessary for the lawful issuance and sale of Shares upon
exercise of any Options granted hereunder shall relieve the Company from any
liability for failure to issue and sell such Shares until the time when such
authority is obtained or is obtainable.
12. NONASSIGNMENT OF OPTIONS
------------------------
Except as otherwise provided in Subsection 6(d) above, any Options
granted hereunder and the rights and privileges conferred hereby shall not be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any such Options, rights or privileges contrary to
provisions hereof, or upon the levy of any attachment or similar process upon
such Options, rights or privileges such Options, and the rights and privileges
conferred hereby shall immediately terminate.
13. RIGHTS OF OPTIONEE IN STOCK
---------------------------
Neither any Optionee nor the legal representatives, heirs, legatees,
distributes, successors or permitted assigns of any Optionee, shall be deemed to
be the holder of, or to have any of the rights
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<PAGE>
of a holder with respect to, any Shares issuable upon exercise of an Option
granted hereunder unless and until such Shares are issued to it, him or them.
14. SALE OF SHARES ISSUED PURSUANT TO OPTIONS
-----------------------------------------
Subject to the other terms and conditions of the Plan, upon the
exercise of any Options granted hereunder, the Company shall sell to the
Optionee the Shares with respect to which the Options have been exercised.
15. WITHHOLDING OF APPLICABLE TAXES
-------------------------------
The Company shall have the right to reduce the number of Shares
otherwise required to be issued upon exercise of any Options granted hereunder
by an amount which would have a fair market value on the date of such exercise
equal to all federal, state, city or other taxes as shall be required to be
withheld by the Company pursuant to any statute or other governmental regulation
or ruling. In connection with such withholding, the Company may make any such
arrangements as are consistent with the Plan as it may deem appropriate.
16. PLAN AND OPTIONS NOT TO AFFECT DIRECTORSHIP
-------------------------------------------
Neither the Plan nor any Options granted hereunder shall confer upon
any individual any right to continue as a Director.
17. AMENDMENT OF PLAN
-----------------
The Board may make any amendments to the Plan that it deems necessary
or advisable, provided that the Board may seek shareholder approval of an
amendment if it is determined to be required by or advisable under regulations
of the Securities and Exchange Commission or the Internal Revenue Service, the
rules of any stock exchange or system on which the Company's stock is listed or
quoted or other applicable law or regulation.
-10-
<PAGE>
18. NOTICES
-------
Any notice required or permitted hereunder shall be sufficiently given
only if hand delivered , or sent by registered or certified mail or by overnight
delivery service, postage prepaid, addressed to the Company, 244 Great Valley
Parkway, Malvern, Pennsylvania 19355, and to the Optionee at the address on file
with the Company at the time of grant hereunder, or to such other address as
either party may hereafter designate in writing by notice similarly given by one
party to the other.
19. SUCCESSORS
----------
The Plan shall be binding upon and inure to the benefit of any
successor or successors of the Company.
20. SEVERABILITY
------------
If any part of the Plan shall be determined to be invalid or void in
any respect, such determination shall not affect, impair, invalidate or nullify
the remaining provisions of the Plan which shall continue in full force and
effect.
21. TERMINATION OF THE PLAN
-----------------------
The Board may terminate the Plan at any time; otherwise the Plan shall
terminate ten years after it is adopted by the Board. Termination of the Plan
shall not deprive Optionees of their rights under previously granted Options.
22. GOVERNING LAW
-------------
This Plan shall be governed by the internal laws of the Commonwealth
of Pennsylvania, without regard to conflicts of laws principles, except to the
extent superseded by federal law.
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<PAGE>
23. EFFECTIVE DATE OF PLAN
----------------------
The Plan shall become effective when it is approved by the Board, but
the grant of any Options hereunder is subject to the express condition that
Shareholder Approval occurs within twelve months after the date on which the
Plan is approved by the Board.
-12-
<PAGE>
Exhibit 10.4
SERVICES AGREEMENT
------------------
This SERVICES AGREEMENT dated as of August 22, 1997 ("Effective Date"), is
entered into between CENTOCOR, INC., a Pennsylvania corporation with its place
of business at 200 Great Valley Parkway, Malvern, PA 19355 (together with its
subsidiaries except the Company (as defined), collectively, "Contractor") and
CENTOCOR DIAGNOSTICS, INC., a Pennsylvania corporation with its place of
business at 244 Great Valley Parkway, Malvern, PA 19355 (together with its
subsidiaries, collectively, the "Company").
WITNESSETH:
----------
WHEREAS, Contractor has facilities and personnel capable of providing
certain services to Company; and
WHEREAS, Company desires to contract with Contractor for the performance of
such services by Contractor on behalf of Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
obligations herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Schedule I hereto contains a list of services ("Services") being
provided by Contractor to Company as of the Effective Date. It is understood
that Schedule I shall be deemed to include any other services being provided by
Contractor to Company as of the Effective Date that were omitted in error from
Schedule I. Contractor shall provide to Company the Services under and subject
to the terms and conditions of this Agreement through the departments of
Contractor ("Departments") listed on Schedule I. It is understood that Company
may request additional services not listed on Schedule I. Contractor shall,
upon its consent, perform such additional services on behalf of Company under
and subject to the terms and conditions of this Agreement, and Schedule I shall
be amended to include such additional services. Either party to this Agreement
shall have the right, upon ninety (90) days prior written notice to the other
party, to reduce the level of, or terminate, any Services provided by Contractor
hereunder; provided, however, that one (1) year prior written notice must be
provided to the other party in the case of the reduction or termination of any
of the IMS and telecommunications services listed on Schedule I and the
facilities services listed on Schedule I shall terminate immediately upon the
execution of a Sublease Agreement between Contractor and the Company relating to
certain space occupied by the Company in Contractor's facilities.
2. Company shall be billed for Services rendered from the Effective Date
through September 30, 1997, on October 15, 1997, and thereafter, Company shall
be billed for Services on a quarterly basis on or before the fifteenth business
day of the month following the end of each calendar quarter for Services
performed in the prior calendar quarter. Payment shall be
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<PAGE>
made by Company to Contractor by check or wire transfer within forty five (45)
days after the receipt of each invoice for Services performed.
3. In consideration for the Services, with respect to each applicable
period hereunder, the Company shall be charged as follows:
(a) For Services provided by Contractor's IMS and Telecommunications
Departments, the Company shall be charged an amount equal to 1.025 multiplied by
(X), where (X) is equal to (i) the total of such Departments' Costs (as
hereinafter defined) for such period, multiplied by (ii) the percentage
determined by dividing the number of the Company's non-manufacturing Employees
(as hereinafter defined) by the sum of (A) the number of the Company's non-
manufacturing Employees plus the total number of the Contractor's Employees.
(b) For Services provided by Contractor's Facilities Departments, the
Company shall be charged an amount equal to $30.00 per square foot occupied by
the Company in the Contractor's facilities, such determination to be made on the
last day of each period for which an allocation of Costs is calculated under
this Agreement and shall be based on the Contractor's space management system.
Contractor additionally will charge the Company directly for any services
provided by Contractor's Facilities Department pursuant to a work order properly
authorized by the Company. Such charges will include labor and reasonable and
ordinary direct out of pocket costs or such other costs as agreed upon by
Contractor and the Company and specified in the work order. All work orders
shall be prepared using Contractor's standard format and procedures.
(c) For Services provided by the Contractor's Corporate Departments
and Research and Development Departments, the Company shall be charged an amount
equal to 1.025 multiplied by (Y), where (Y) is equal to (i) the total of such
Departments' Costs for such period, including all IMS, Telecommunications and
Facilities Costs allocated to the Corporate Departments and the Research and
Development Departments for such period, multiplied by (ii) a percentage,
determined by the head of each Corporate Department and each Research and
Development Department, equal to the percentage of each such Department's total
effort and activity during such period which was conducted on behalf of the
Company. For each applicable period, the head of each Corporate Department and
each Research and Development Department shall provide such percentage
determination in writing to the Contractor's accounting department.
(d) For the purposes of this Agreement, (i) the term "Costs," with
respect to any Department, shall mean the total costs and expenses of such
Department during each applicable period, including, without limitation, all
overhead costs and general and administrative costs, whether direct or indirect,
as determined in accordance with generally accepted accounting principles,
provided, however, that "Costs" shall not include any amounts of bonus
compensation paid or payable to Contractor's employees pursuant to Contractor's
bonus program or otherwise and (ii) the term "Employees" shall mean full time
employees of the Company or the Contractor, as applicable, who are based in
Malvern, Pennsylvania, determined
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<PAGE>
on the last day of each period for which an allocation of Costs is calculated
under this Agreement.
(d) On or prior to November 15 of each year, Contractor shall provide
to the Company an estimate of the charges for Services that Contractor estimates
will be performed during the subsequent year. Furthermore, as soon as
practicable following the approval by the Board of Directors of Centocor, Inc.
of its annual budget and three-year plan, Contractor shall provide to the
Company a revised estimate of the charges for Services that Contractor estimates
will be performed during the subsequent year.
4. In addition to charges for the Services as provided in Section 3
hereof, Contractor shall be reimbursed by Company for all reasonable and
ordinary direct out-of-pocket expenses incurred by Contractor on behalf of
Company in connection with the furnishing of the Services to Company that are
not included in the determination of Costs.
5. 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.
6. Neither party shall be liable to the other on account of any failure
to perform or on account of delay in the performance of any obligation under
this Agreement if and to the extent that such failure or delay shall be due to a
cause beyond the control of such party and which, by the exercise of reasonable
diligence such party could not reasonably have been expected to avoid. In no
event shall Contractor be liable to Company for any delay in performance
occasioned by strikes or other labor or personnel difficulties.
7. In the event Contractor or Company commits a substantial breach hereof
or fails to carry out its obligations hereunder, Contractor or Company, as the
case may be, shall have the right to terminate this Agreement by written notice
to the defaulting party, specifying such breach or failure. Said termination
shall become effective thirty (30) days from the date of receipt of such notice
by the defaulting party unless such breach or failure is corrected within such
thirty (30) day period to the satisfaction, expressed in writing, of the party
first sending such notice.
8. This Agreement shall be terminated automatically in the event that
either party is ordered or adjudged bankrupt; is placed in the hands of a
receiver; compounds or enters into any arrangement with its creditors; or goes
into voluntary or compulsory liquidation.
9. Termination of this Agreement shall be without prejudice to the
existing rights of the parties at the date of such termination, and any covenant
herein which is expressly or impliedly intended to survive such termination
shall remain binding upon the parties hereto subsequent to such termination.
10. The term of this Agreement shall be effective from the date of this
Agreement, and shall continue in force for a period of five (5) years from said
date, unless sooner terminated as provided herein, and shall automatically renew
for successive periods of one (1) year each, unless either party provides notice
of termination to the other party at least ninety (90) days prior to the end of
the initial term, or the then current renewal term.
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<PAGE>
11. This Agreement may not be altered, modified or amended except by a
writing signed by duly authorized representatives of Company and Contractor.
This Agreement may be amended at any time upon the mutual consent of the Company
and the Contractor.
12. No failure or delay on the part of a party in exercising any right
hereunder shall operate as a waiver of, or impair, any such right. No single or
partial exercise of any such right shall preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right shall
be deemed a waiver of any other right hereunder.
13. This Agreement shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Pennsylvania without regard to
principles of conflict of laws.
14. 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.
15. This Agreement contains the entire understanding of the parties hereto
with respect of the subject matter hereof. This Agreement supersedes all prior
oral or written agreements or understandings between the parties with regard to
the subject matter hereof.
16. Neither party shall assign this Agreement or any part hereof or any
right or obligation hereunder to any third party without the prior written
consent of the other party hereto.
17. Attached as Appendix A hereto is a statement setting forth the total
charges by Department for the Services provided by Contractor to Company for the
nine-month period ended September 30, 1997.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
CENTOCOR, INC.
By: /s/ Dominic J. Caruso
-----------------------------------
Name: Dominic J. Caruso
Title: Vice President, Finance and Chief
Financial Officer
CENTOCOR DIAGNOSTICS, INC.
By: /s/ R. James Danehy
-----------------------------------
Name: R. James Danehy
Title: President and Chief Executive Officer
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<PAGE>
SCHEDULE I
----------
DEPARTMENTS
A) IMS & TELECOMMUNICATIONS:
Department # Department Name
------------ ---------------
290 Telecommunications
293 Business & Office Systems
295 Systems Services
B) FACILITIES:
Department # Department Name
------------ ---------------
300 Facilities
320 Engineering
300 CPMC Facilities CPMC
300 CPMC II Facilities CPMC II
C) CORPORATE SERVICES:
Department # Department Name
------------ ---------------
100 Executive Administration
106 Corporate Library
165 Corporate Services Administration
107 Accounting
103 Purchasing
109 Treasury
021 Investor Relations
292 Government Relations
130 Regulatory
105 Corporate QA
133 Equipment Validation
132 QA Compliance
163 Radiation Safety
101 Legal
020 Human Resources
100 Nippon
080 External Research
D) RESEARCH AND DEVELOPMENT:
Departments shall be determined as research and development services are
requested by the Company.
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<PAGE>
SERVICES
TO BE PROVIDED TO CENTOCOR DIAGNOSTICS
(Listed by Functional Area)
CORPORATE:
- ---------
LIBRARY
.Book/journal purchases
.Interlibrary loan activity
.Online literature searches
.Professional society memberships
.Audio/video tape purchase
ACCOUNTING
.Payroll services:
Payment of payroll taxes
Filing of related tax returns and forms
Maintain employee files
Create and input payroll journal entries
Issue payroll reports
Reconcile payroll bank account
Payroll account analysis
Annual workmen's compensation audit
Income calculation, letter issuance and income input into
payroll system for restricted stock vestings and stock
option exercises
Payment of annual bonus
.Fixed assets:
Maintain separate database for Diagnostics fixed assets
Tag, input and create journal entries for additions
Monthly depreciation journal entries
Annual audit of fixed assets
Quarterly roll-forward schedules and other reports as
requested and account analysis
.Tax advice
.Tax return preparation
.General accounting function
Administrative assistance to Diagnostics accounting employees
Record-keeping of Pierce/Leahy file retention services for
correspondence/documents/etc.
Oracle Financial Analyzer closing procedures
Oracle Financial Analyzer maintenance
Depositing of checks to the Centocor Diagnostics of PA account.
.Accounts payable services
Vouchering in the Cincom system of invoices, drafts and wires
Issuance of manual checks as requested
Issuance of bi-weekly system checks
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<PAGE>
Issuance of foreign exchange drafts
Vendor information maintenance
Opening of accounting related mail
Filing of invoices
Account/department coding of freight invoices
Record-keeping of Pierce/Leahy file retention services for
invoices/expense reports
Accounts payable distribution/journal entry
TREASURY
.General treasury services
Cash management
Short term cash management--operating cash and disbursements
Asset management --strategic fixed income and equity investments
Intercompany loans
Transfer agent services
Shares issuance
Financial Reporting
Shares analysis --FASB 123 and Treasury Method, etc.
.Corporate finance
Centocor value management (shareholder value)
Peer Group Analysis
Bench marking of performance on a quarterly basis
Financial analysis --investment decisions
Cost of capital analysis and capital structure
Risk management
Annual insurance review
Federal, state and international regulatory compliance
Alternative risk management programs
Currency risk management
Interest rate management
.Employee benefits:
401(k)
Financial Management
Fiduciary activities
K&M testing
Compliance
Stock Option and Restricted Stock Plans
Issuance of Shares and grants
Semiannual statements
Plan management
Financial Reporting - provide required information for
Proxy, annual report, etc.
-3-
<PAGE>
CORPORATE COMMUNICATION
.General support to be provided (Diagnostics to perform investor relations,
annual meeting and public relations activities)
.Government affairs
Federal and state
Provide lobbying support at all levels
REGULATORY
.General regulatory affairs
.In vitro diagnostics activities
.External consultants
.Related secretarial, submissions and CDC staff services
CORPORATE QUALITY
.General support
New employee orientation safety, lab practices
Provide regulatory and safety advice on contract activities at Centocor
Ad hoc support as needed in any area of Corporate expertise
Administration of alcohol and controlled substance permits
Review of labeling and advertising materials
.Participation in Quality Steering Committee
.Involvement in development and review of SOPs
.Supplier certification
.Radiation support
Training --new employee and refresher training
Personnel monitoring --film badge program and thyroid scan program
Facility monitoring --air and sink monitoring, periodic lab surveys
Survey meter calibration program
Radioactive waste management
Storage for decay program
Inventory, tracking and disposal
Inventory assessment --every 6 months
Licensing --maintain state(1) and federal(3) licenses
Accident and incident investigations
Coordinate and respond to NRC and consultant inspections
.Environmental support
Medical waste --coordination and tracking
Chemical waste --coordination and tracking
Maintain compliance with environmental regulations
Clean Water Act Valley Forge Sewer Authority Permits
Emergency Planning and Community Right to Know
Pennsylvania Municipal Waste Regulations (residual and infectious
wastes)
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Underground storage tank regulations
East Whiteland Hazardous Operations Permit
Maintain chemical inventory system for SARA and PA Hazardous Substance
forms
.Safety Support
Maintain compliance with regulations
Bloodborne Pathogens Standard
Laboratory Standard
HAZCOM
Fire Protection and drills
PPE Standard
OSHA 200 Log (accident and injury log)
Forklift Standard
Respirator Standard
HAZWOPER (spill team)
Consult on all environmental issues related to wastes
Hazard assessments and compliance audits for lab safety
Investigate accidents and injuries
Maintain Chemical Hygiene Plan (and training) and Exposure Control Plan
Coordinate medical follow-up to work place injuries
Monthly safety committee meetings
Coordinate safety shoe and eyeglass programs
Coordinate fire and evacuation teams
Coordinate ergonomics program (equipment, work station evaluations)
Maintain Intranet Safety Site and bulletin boards
Develop and maintain MSDS database
Develop MSDSs for Centocor products
Coordinate Biosafety Committee and Biological Agent Registration (BAR)
program
Coordinate hepatitis immunization program for employees
Coordinate monthly safety program for Diagnostics
Maintain safety training database
.GMP Support
Perform ISO 9001 compliance audits
Perform GMP audits
Vendor audits
Participate in team meetings
.GLP/GCP Support
Audit protocols
Audit study reports
Audit analytical plans
Audit 510K submissions
.Calibrations Services --calibrate instruments for compliance to GMPs, GLPs,
ISO, etc.
Calibrate instruments
Send calibration standards out for re-calibration
Calibrate balances and scales, provide for repair and replacement of
balances
Maintain electronic database for all Diag instruments
-5-
<PAGE>
Arrange for contractors to assist in performing some of the
calibrations, schedule and monitor contractor's work
Write and maintain calibration SOPs needed for GMP compliance
Maintain hard copy calibration records needed for GMP compliance
Provide instrument trouble shooting (when problem can be addressed by
in-house technical expertise)
Participate in audits by compliance groups, respond to audit findings,
correct deficiencies
Audit and qualify contractors to perform calibrations
.Cleanroom certification and testing
Cleanroom certifications
Laminar airflow bench certifications
Fume hood certifications
Maintain database for all Diagnostics equipment
Write and maintain SOPs needed for GMP Compliance
Maintain hard copy certification records needed for GMP compliance
Provide equipment trouble shooting (when problem can be addressed by
in-house technical expertise)
Arrange for contractors to perform cleanroom certifications, schedule
and monitor contractor's work
Participate in audits by compliance groups, respond to audit findings,
correct deficiencies
Audit and qualify contractors to perform cleanroom certifications
Purchase and maintain instruments needed for the calibration program
.Validation and qualification services
Perform revalidations on production equipment
Write protocols and final reports for the validation studies, includes
installation and operational qualification, and performance
qualification studies
Provide validation support on new manufacturing processes (in-house or
contract services)
Provide estimates for validation work and resources; prepare
validation project schedules
Participate in audits by compliance groups, respond to audit findings,
correct deficiencies
Arrange for contractors to perform validations, schedule and monitor
contractor's work
Audit and qualify contractors to perform validations
Maintain database for tracking Diagnostic validation studies
Submit validation documents to CDC for storage
Write and maintain SOPs needed for GMP compliance
Provide advice on facility design to meet cGMPs
Review validation documents written by Diagnostic personnel
Purchase, validate and maintain equipment needed to perform validation
studies
Prepare validation master plans as required
HUMAN RESOURCES
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.Medical (CHA PPO & U.S. Healthcare HMO) Delta Dental, UNUM Life, UNUM Long Term
Disability, Intracorp Short Term Disability, ACORN Employee Assistance Program
and UNUM Dependent Care Reimbursement Account
Daily: claims resolution
Weekly: Enrollments; payroll deduction authorizations; status changes;
terminations
Monthly: Invoice audits; COBRA Administration
Annually: Contract renewal; open enrollment; payroll deduction updates
for medical, life long term disability, dependent care account;
Business Travel Accident census
As required: Short term disability; long term disability; FMLA;
worker's compensation
.401(k) Savings Plan
Weekly: Enrollment of new hires; status changes
Quarterly: Open enrollment for payroll deduction changes
.LifeBalance Resources & Vitality Magazine
Monthly: Communication; invoice audits
.Company sponsored events
Annually: Picnic; United Way Campaign; Holiday Event; Corporate
Wellness Program
.New Hire Orientation
Weekly: Preparation of materials and 1.5 hour preparation
.Citadel Credit Union, CoreStates Direct Financial Benefits, Time Saving
Services
As needed: Communication, maintenance of promotional materials
.Affirmative Action Plan
Annually: Run reports off the system and with applicant tracking forms forward
to outside consultant for plan preparation
.HRIS
Daily: Data entry, status changes, reporting
EXTERNAL RESEARCH
.Serve as the principal medical consultants to Diagnostics
.Evaluate clinical utility and disease management potential of Diagnostic
business unit proposals
.Review and approve all clinical trial protocols.
.Provide project management design and assistance to Diagnostic business units.
.Implement the program priorities of the Pharmaceutical-Diagnostics synergy team
for P-selectin and cA2.
.Develop a process with Diagnostics to identify and develop future synergy
products.
.Survey literature and evaluate potential analytes in context of health
economics and clinical utility.
NIPPON
.Promotion and execution of contract revenue (i.e. Free PSA kit, Mitsubishi
contract, Eiken, etc.)
-7-
<PAGE>
.Provision of managerial support for planning and development of new business
(i.e. contact with key operators in business related with REED, etc.)
.Monitoring and reporting of sales activities of TFB, market trend, partner
issues on monthly basis.
.Maintenance of business partners (i.e. Fujirebio, TFB, BM, etc.) Through daily
communication on business issues and assisting trouble shootings.
.Arrangement and participation of meetings between Diagnostics and partners
(i.e. 3-4 times a year)
.Attendance to business meeting between Diagnostics and TFB twice a year to
support kit price negotiation
.Provide information on changes of regulatory systems and regulations, market
trend, new competitive products, etc. through attendance to the industry
meetings, ACCJ meetings, industry exhibit, etc.
.Developing oncology kit business in China through participating in meetings for
planning and setting annual target with the distributor and arranging exhibit
and lecture meetings for sales promotion.
RESEARCH AND DEVELOPMENT
.Research and development services to be provided shall be determined upon
request for such services by the Company.
IMS AND TELECOMMUNICATIONS
.Telecommunication; purchase, installation and maintenance of:
Telephones
PBX
Wiring
Local and long distance
800 service
Phone credit cards
Pagers
Cell Phones
FAX machines
Voicemail
.Desktop; purchase, installation and maintenance of:
Desktop PCS
Home PCS
Laptops
Printers
Standard and point solution software
E-mail
Internet Access
Laptop Pool
Dial-in from Home
Training
General HELPDESK support
Moves
-8-
<PAGE>
.Business Systems; on-going maintenance and licensing of:
Cincom
OFA
DSA
Goldmine
Gaps Support
TMS Support
.Systems and Networks; on going purchase, installation and maintenance of:
Central computers and networking equipment
Remote access computers
Backup of Data and offsite storage of Data
Nightly Operations
Disaster recovery
FACILITIES:
.Occupancy Costs:
Rent
Property taxes
Utilities
Leasehold Depreciation
Building Depreciation
Building 1 Water System Depreciation
Building Maintenance
Repairs - Contractors
Equipment Depreciation
Housekeeping
Grounds
.Facility Services:
Security
Cafeteria
Waste Removal
Furniture - Moving
Postage
Copy Center
-9-
<PAGE>
Exhibit 10.5
INDEMNIFICATION AGREEMENT
-------------------------
This INDEMNIFICATION AGREEMENT dated as of August 22, 1997, is entered into
between CENTOCOR, INC., a Pennsylvania corporation ("Centocor") and CENTOCOR
DIAGNOSTICS, INC., a Pennsylvania corporation ("Company").
WITNESSETH:
----------
WHEREAS, prior to August 22, 1997, the Company operated as the Diagnostics
Division of Centocor; and
WHEREAS, on August 22, 1997 (the "Transfer Date"), the Company was formed
as a separate corporate entity, and a subsidiary of Centocor, and the assets and
business of the Diagnostics Division of Centocor (the "Business"), subject to
the liabilities of the Business, were transferred to the Company (the
"Transfer"); and
WHEREAS, in connection with the Transfer, Centocor has agreed to indemnify
the Company with respect to the liabilities which may arise out of or result
from the conduct of the Business by Centocor on or before the Transfer Date;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
obligations herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Centocor shall indemnify, defend and hold harmless the Company, its
affiliates and their respective officers, directors, employees, agents and
representatives or any of them (each, an "Indemnified Party" and collectively,
the "Indemnified Parties") from and against all suits, actions, claims,
judgments, demands, liabilities, losses, damages, costs and expenses (including,
but not limited to, court costs and experts' and attorneys' fees and expenses)
which arise out of or result from the activities of the Business as conducted by
Centocor on or before the Transfer Date; provided, however, that with regard to
any individual Indemnified Party, Centocor's obligations under this Section 1
shall not exceed the indemnification that Centocor is entitled to provide to its
own officers or directors under Centocor's Bylaws and the Pennsylvania Business
Corporation Law of 1988, each as amended from time to time.
2. Centocor shall not be liable to the Indemnified Parties for the
indemnity provided herein unless the applicable Indemnified Party, promptly and
in any event within 10 days after receipt of notice of a claim for which an
Indemnified Party is entitled to indemnification hereunder, shall notify
Centocor in writing of such claim, enclosing a copy of all papers served, if
any. However, the omission to so notify or delay in notifying Centocor of any
such claim shall not relieve Centocor from any liability that it may have under
Section 1 of this Agreement, except to the extent that the ability of Centocor
to defend against such claim is materially adversely affected by such omission
or delay. The foregoing notice requirement shall be deemed to have been
satisfied if Centocor shall have received actual notice of any such claim, from
any source whatsoever.
<PAGE>
3. In case any such claim for which indemnity is payable hereunder shall
be made against any Indemnified Party, Centocor shall be entitled to participate
in, and to the extent that it shall wish, to assume the defense thereof, with
counsel reasonably satisfactory to such Indemnified Party, subject to the
provisions of this Section 3. After written notice from Centocor to such
Indemnified Party of its election to so assume the defense thereof, Centocor
shall not be liable to such Indemnified Party for any additional attorneys' fees
or other expenses of litigation, other than reasonable costs of investigation
subsequently incurred by such Indemnified Party in connection with the defense
thereof, unless:
(a) the employment of counsel by the Indemnified Party has been
authorized in writing by Centocor, such authorization not to be unreasonably
withheld or delayed;
(b) the Indemnified Party shall have obtained a written opinion of
counsel reasonably acceptable to Centocor that there exists a conflict of
interest between such Indemnified Party and Centocor in the conduct of the
defense of such action or that there are one or more defenses available to the
Indemnified Party that are unavailable to Centocor (in which case Centocor shall
not have the right to direct the defense of such claim on behalf of the
Indemnified Party); or
(c) Centocor shall not in fact have employed counsel reasonably
satisfactory to the Indemnified Party to assume the defense of such claim, in
each of which cases the reasonable fees and expenses of counsel utilized by the
Indemnified Party shall be at the expense of Centocor, it being understood,
however, that Centocor shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
of the Indemnified Parties. Notwithstanding the foregoing, under the
circumstances described in Section 3(b), an Indemnified Party shall be entitled
to retain an additional law firm, in any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, provided that the Indemnified
Party has obtained a written opinion of counsel reasonably acceptable to
Centocor that a conflict of interest exists that would preclude the use of a
single law firm, in which case Centocor shall be liable for the reasonable fees
and expenses of counsel designated by the Indemnified Party in writing. All such
fees and expenses which are at the expense of Centocor hereunder shall be
promptly paid by Centocor.
Nothing in this Section 3 shall be construed as limiting an Indemnified
Party's rights to employ counsel at its own expense. Centocor shall not settle
or compromise any claim, if such settlement or compromise provides for an
admission of liability on the part of an Indemnified Party without the written
consent of the Indemnified Party.
4. Centocor's obligations under this Agreement shall terminate on the
fifth anniversary of the date of this Agreement; provided, however, that
Centocor's obligations shall not so terminate with respect to any claim for
indemnification for which notice pursuant to Section 2 hereof has been
provided to Centocor prior to the fifth anniversary of the date of this
Agreement.
-2-
<PAGE>
5. This Agreement may not be altered, modified or amended except by
writing signed by duly authorized representatives of Centocor and the Company.
.
6. No failure or delay on the part of a party in exercising any right
hereunder shall operate as a waiver of, or impair, any such right. No single or
partial exercise of any such right shall preclude any other or further exercise
thereof or the exercise of any other right. No waiver of any such right shall
be deemed a waiver of any other right hereunder.
7. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania without regard to
principles of conflicts of laws.
8. 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.
9. This Agreement contains the entire understanding of the parties hereto
with respect of the subject matter hereof. This Agreement supersedes all prior
oral or written agreements or understandings between the parties with regard to
the subject matter hereof.
10. Nither party shall assign this Agreement or any part hereof or
any right or obligation hereunder to any third party without the prior written
consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
CENTOCOR, INC.
BY: /s/ David P. Holvack
------------------------------------
Name: David P. Holvack
Title: President
CENTOCOR DIAGNOSTICS, INC.
By: /s/ R. James Danehy
------------------------------------
Name: R. James Danehy
Title: President
-3-
<PAGE>
Exhibit 10.6
REVOLVING CREDIT AGREEMENT
between
CENTOCOR, INC.
and
CENTOCOR DIAGNOSTICS, INC.
Dated as of August 22, 1997
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
THIS REVOLVING CREDIT AGREEMENT ("Agreement"), dated as of August 22,
1997 ("Effective Date")is between CENTOCOR, INC., a Pennsylvania corporation
with an address of 200 Great Valley Parkway, Malvern, PA 19355 (the "Lender"),
and CENTOCOR DIAGNOSTICS, INC., a Pennsylvania corporation with an address of
244 Great Valley Parkway, Malvern, PA 19355 (the "Borrower").
BACKGROUND
----------
The Lender and the Borrower desire to set forth the terms and
conditions under which the Lender, either directly or through one of its wholly
owned subsidiaries, will make available to the Borrower certain credit
facilities to be used for the purposes specified in this Agreement. Accordingly,
the Lender and the Borrower, each intending to be legally bound hereby, agree as
follows:
ARTICLE I
---------
DEFINITIONS
-----------
Terms used herein without definition that are defined in the Uniform
Commercial Code shall have the meanings ascribed to them therein, unless the
context requires otherwise. The following terms shall have the following
meanings in this Agreement:
"Agreement" shall mean this agreement, together with all exhibits,
amendments, modifications and supplements hereto as may be in effect from time
to time.
"Borrower" shall have the meaning specified in the initial paragraph
of this Agreement, together with its successors and assigns.
"Business Day" shall mean any day upon which the Lender is open for
business at its main office in Malvern, PA.
"Diagnostics Group" shall mean collectively, (i) the Borrower, (ii)
Centocor Diagnostics of Pennsylvania, Inc., a Pennsylvania corporation and the
indirect subsidiary of the Borrower, (iii) CDP Investments, Inc., a Delaware
corporation and the direct subsidiary of the Borrower and (iv) CDP Holdings,
Inc., a Delaware corporation and a wholly owned subsidiary of CDP Investments,
Inc.
"Encumbrance" shall mean, as to any Person, any mortgage, lien,
pledge, adverse claim, charge, security interest or other encumbrance in or on,
or any interest or title of any
1
<PAGE>
vendor, lessor, lender to, or other secured party of the Person under any
conditional sale or other title retention agreement or capital lease with
respect to, any property or asset of the Person.
"Event of Default" shall have the meaning set forth in Article VIII of
this Agreement.
"GAAP" shall mean generally accepted accounting principles, as in
effect at the time of application to the provisions hereof, and consistently
applied.
"Guarantor" shall mean any Person who guarantees the payment and
performance of all or any part of the Obligations.
"Guaranty" shall mean any guaranty or agreement to be a surety or
other contingent liability (other than any endorsement for collection or deposit
in the ordinary course of business), direct or indirect, with respect to any
obligation of another Person.
"Indebtedness" shall mean any obligation for borrowed money,
including, without limitation:
(a) any obligation owed for all or any part of the purchase
price of property or other assets or for the cost of property or other assets
constructed or of improvements thereto, other than accounts payable and accrued
expenses included in current liabilities and incurred in respect of property or
services purchased in the ordinary course of business; and
(b) any reimbursement obligations and other obligations under
any letter of credit, currency swap agreement, interest rate swap, cap, collar
or floor agreement or other interest rate management devise, or any forward sale
or purchase agreement for foreign currencies.
"Lender" shall have the meaning specified in the initial paragraph of
this Agreement, together with its successors and assigns.
"Loan Documents" shall mean this Agreement, the Note and all
agreements, amendments, certificates, schedules, reports, notices, and exhibits
now or hereafter executed or delivered in connection with any of the foregoing,
as may be in effect from time to time.
"Loans" shall mean the Revolving Credit Loans.
"Note" shall mean the Revolving Credit Note, and all replacements,
amendments, extensions and renewals thereof.
2
<PAGE>
"Obligations" shall mean the obligations of the Borrower:
(a) To pay the principal, interest, commitment fees and any
other liabilities of the Borrower to the Lender under this Agreement and the
other Loan Documents in accordance with the terms thereof; and
(b) To reimburse the Lender, on demand, for all of the Lender's
expenses and costs, including the reasonable fees and expenses of its counsel,
in connection with the negotiation, preparation, administration, amendment,
modification, or enforcement of this Agreement and the documents required
hereunder.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or governmental or political subdivision or agency thereof.
"Prime Rate" shall mean, for any Business Day, the annual rate of
interest published in the Wall Street Journal and designated as the "Prime Rate"
on such Business Day.
"Revolving Credit" shall mean the revolving credit made available by
the Lender, either directly or through a wholly owned subsidiary of the Lender,
to the Borrower established pursuant to Section 2.1 of this Agreement.
"Revolving Credit Commitment" shall have the meaning set forth in
Section 2.1 of this Agreement.
"Revolving Credit Loans" shall mean the loans made by the Lender,
either directly or through a wholly owned subsidiary of the Lender, to the
Borrower pursuant to the Revolving Credit.
"Revolving Credit Note" shall have the meaning set forth in Section
2.1 of this Agreement, together with all replacements, amendments and renewals
thereof.
"Termination Date" shall have the meaning set forth in Section 2.1 of
this Agreement.
3
<PAGE>
ARTICLE II
----------
CREDIT ACCOMMODATIONS
---------------------
2.1 The Revolving Credit. The Lender shall make available to the
--------------------
Borrower, commencing on the Effective Date, a Revolving Credit in the maximum
principal amount of $5,000,000 (the "Revolving Credit Commitment"), upon the
terms and conditions set forth herein.
(a) Generally. At any time and from time to time during the
---------
period commencing on the Effective Date and ending on August 21, 1998 (the
"Termination Date"), upon the request of the Borrower, the Lender shall provide
to the Borrower, either directly or through a wholly owned subsidiary of the
Lender, a loan or loans in multiples of One Hundred Thousand Dollars ($100,000),
which shall be used by the Borrower for working capital purposes. The Borrower
may use the Revolving Credit during the period referred to in the preceding
sentence by borrowing, repaying and reborrowing in accordance with the terms of
this Agreement. The aggregate outstanding principal under the Revolving Credit
at any time shall not exceed the Revolving Credit Commitment. If, at any time,
the aggregate outstanding principal under the Revolving Credit exceeds the
Revolving Credit Commitment, the Borrower shall immediately pay to, or as
directed by, the Lender the amount of such excess. Upon the Termination Date,
unless the same has been extended by written agreement between the Lender and
the Borrower, the Lender's commitment to make Revolving Credit Loans shall
terminate, all Revolving Credit Loans shall immediately mature and all
Obligations under the Revolving Credit Loans shall be immediately due and
payable in full. The Lender agrees to notify the Borrower at least sixty (60)
days prior to the Termination Date in the event that it does not intend to
extend the Revolving Credit beyond the Termination Date.
(b) Interest. Interest shall accrue on all loans outstanding
--------
under the Revolving Credit at an annual rate to be determined by the Lender and
the Borrower at the time of the initial loan; such rate to be equal to the
parties' good faith estimate of the rate that would be charged by a third party
financial institution extending the loan to Borrower. Interest on the aggregate
outstanding principal under the Revolving Credit shall be payable quarterly, in
arrears, on the fifteenth day of the month following the end of each calendar
quarter commencing with the month immediately following the calendar quarter in
which the first advance under the Revolving Credit is made. The interest rate
applicable to the outstanding Revolving Credit Loans shall be set on the date of
the first advance under the Revolving Credit, and shall be adjusted on the first
Business Day of each calendar quarter based upon any change in the Prime Rate
4
<PAGE>
as of the close of business on the immediately preceding Business Day.
(c) Revolving Credit Note. The obligations of the Borrower to
---------------------
repay the aggregate outstanding principal under the Revolving Credit and to pay
accrued interest thereon shall be evidenced by a promissory note, in form and
substance satisfactory to the Lender, to be executed and delivered to the Lender
concurrently with the execution and delivery of this Agreement (the "Revolving
Credit Note").
ARTICLE III
-----------
BORROWING
---------
3.1 Requests for Loans. The Borrower shall notify the Lender of each
------------------
proposed borrowing under the Revolving Credit not later than 11:00 a.m.,
Philadelphia, Pennsylvania time on the fifth Business Day prior to the date of
the proposed borrowing.
3.2 Payments and Computations. All amounts payable by the Borrower
-------------------------
to the Lender under this Agreement or the Note shall be paid directly to, or as
directed by, the Lender in immediately available funds at the address of the
Lender set forth in the initial paragraph of this Agreement or at such other
address of which the Lender shall give notice to the Borrower pursuant to
Section 10.2 hereof. All computations of interest hereunder shall be made by
the Lender on the basis of a year of 360 days for the actual number of days
elapsed. All payments under the Note shall be applied first to the payment of
interest due and payable thereunder and then to the reduction of the outstanding
principal balance thereof.
3.3 Prepayment and Repayment. The Borrower may make payments and
------------------------
prepayments of the Loans in whole or in part at any time and from time to time
without penalty or premium upon notification to the Lender not later than 1:00
p.m. Malvern, Pennsylvania time on the date of the proposed payment or
prepayment.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
In order to induce the Lender to execute and deliver this Agreement
and to make the Loans available to the Borrower, the Borrower represents and
warrants to the Lender that, as of the date hereof:
4.1 Good Standing of the Borrower; Authorization. The Borrower is
--------------------------------------------
duly incorporated, organized and existing and in good standing in the
Commonwealth of Pennsylvania and is duly
5
<PAGE>
qualified as a foreign corporation and authorized to do business in all other
jurisdictions wherein the nature of its business or property makes such
qualification necessary, and has the corporate power to own its properties and
to carry on its business as now conducted. The execution, delivery and
performance of this Agreement, and the Loan Documents have been duly authorized
by all necessary corporate proceedings on the part of the Borrower.
4.2 Compliance with Laws and Other Agreements. The Borrower is in
-----------------------------------------
compliance with all laws, rules, regulations, judgments, decrees, orders,
agreements and requirements which affect in any material way the Borrower, its
assets or the operation of its business and has not received, and has no
knowledge of, any order or notice of any governmental investigation or of any
violation or claim of violation of any law, regulation, judgment, decree, order,
agreement, or other governmental requirement.
4.3 No Conflict; Governmental Approvals. The execution, delivery,
-----------------------------------
and performance of this Agreement and each of the Loan Documents will not (i)
conflict with, violate, constitute a material default under, or result in a
material breach of any provision of any applicable law, rule, regulation,
judgment, decree, order, instrument or other agreement, or (ii) conflict with or
result in a breach of any provision of the certificate of incorporation or by-
laws of the Borrower. No authorization, permit, consent or approval of or other
action by, and no filing, registration or declaration with, any governmental
authority or regulatory body is required to be obtained or made by the Borrower
for the due execution, delivery and performance of this Agreement or any of the
Loan Documents, except such as have been duly obtained or made prior to the
Effective Date and are in full force and effect as of the Effective Date (copies
of which have been delivered to the Lender on or before the Effective Date).
4.4 Taxes. The Borrower is not delinquent in payment of any income,
-----
property or other tax, except for any delinquency in the payment of a tax which
is contested in good faith by the Borrower and for which appropriate reserves
have been established in accordance with GAAP.
4.5 Encumbrances and Guaranties.
---------------------------
(a) All properties and assets of the Borrower are owned by the
Borrower free and clear of all Encumbrances except (i) those for taxes or other
government charges either not yet delinquent or the nonpayment of which is
permitted by Section 4.4 of this Agreement; (ii) those not arising in connection
with Indebtedness that do not materially impair the use or value of
6
<PAGE>
the properties or assets of the Borrower in the conduct of its businesses; and
(iii) Encumbrances described on Schedule 4.5.
(b) The Borrower is not obligated under any Guaranty.
4.6 Pending Litigation. There are no actions, suits, proceedings or
------------------
investigations pending, or, to the knowledge of the Borrower, threatened against
or affecting the Borrower, before any court, arbitrator or administrative or
governmental body which, in the aggregate, might adversely affect any action
taken or to be taken by the Borrower under this Agreement and the other Loan
Documents or which, in the aggregate, might materially adversely affect the
business, operations, properties or financial position of the Borrower, or the
ability of the Borrower to perform its obligations under this Agreement and the
other Loan Documents.
4.7 Valid, Binding and Enforceable. This Agreement and the Loan
------------------------------
Documents have been duly and validly executed and delivered by the Borrower and
constitute the valid and legally binding obligations of the Borrower enforceable
in accordance with their respective terms, except as enforcement of this
Agreement and the other Loan Documents may be limited by bankruptcy, insolvency
or other laws of general application relating to or affecting the enforcement of
creditors' rights and except as enforcement is subject to general equitable
principles.
4.8 No Untrue Statements. Neither this Agreement, the Loan Documents
--------------------
nor any other document, certificate or statement furnished or to be furnished by
the Borrower to the Lender in connection herewith contains, or at the time of
delivery will contain, any untrue statement of a material fact or omits or will
omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading.
ARTICLE V
---------
CONDITIONS PRECEDENT
--------------------
5.1 Conditions Precedent to Making Revolving Credit Loans. The
-----------------------------------------------------
Lender shall not be obligated to make any Revolving Credit Loans hereunder
unless:
(a) As of the date of the proposed advance, no Event of Default
has occurred and is continuing and no event has occurred and is continuing
which, with the giving of notice or lapse of time, or both, would constitute an
Event of Default;
(b) The representations and warranties contained in Article IV
are true and correct on the date of the proposed advance; and
7
<PAGE>
(c) No material adverse change has occurred in the financial
condition of the Borrower since the date hereof; and
(d) The Borrower has delivered to the Lender, upon the Lender's
request, a certificate executed by the chief executive officer or the chief
financial officer of the Borrower confirming the statements made in paragraphs
(a), (b), and (c) above.
ARTICLE VI
----------
AFFIRMATIVE COVENANTS OF THE BORROWER
-------------------------------------
The Borrower hereby covenants and agrees that from the date hereof and
until satisfaction in full of the Obligations, unless the Lender shall otherwise
consent in writing, the Borrower shall do the following:
6.1 Use of Proceeds. Use the proceeds of the borrowings hereunder
---------------
only for the purposes specified in Section 2.1 of this Agreement.
6.2 Ordinary Course of Business; Records. Conduct its business only
------------------------------------
in the ordinary course and keep accurate and complete books and records of its
assets, liabilities and operations consistent with sound business practices and
in accordance with GAAP.
6.3 Information for the Lender. Make available during normal
--------------------------
business hours for inspection by the Lender or its designated representatives
any of its books and records when reasonably requested by the Lender to do so,
and furnish the Lender any information reasonably requested regarding its
operations, business affairs and financial condition within a reasonable time
after the Lender gives notice of its request therefor. In particular, and
without limiting the foregoing, the Borrower shall permit, during normal
business hours, representatives of the Lender to make such periodic inspections
of the Borrower's books, records and assets as such representatives deem
necessary and proper.
6.4 Insurance. Carry at all times in financially sound and reputable
---------
insurers such insurance as is normally carried by business entities of
established reputation engaged in like businesses and similarly situated.
6.5 Maintenance. Maintain its equipment, real property and other
-----------
properties in good condition and repair (normal wear and tear excepted) and pay
and discharge the cost of repairs thereto or maintenance thereof.
8
<PAGE>
6.6 Taxes. Pay all taxes, assessments, charges and levies imposed
-----
upon it or on any of its property, or which it is required to withhold and pay
over, and provide evidence of payment thereto to the Lender if the Lender so
requests, except where contested in good faith by lawful and appropriate
proceedings and where adequate reserves therefor have been set aside on its
books; provided, however, that the Borrower shall pay all such taxes,
assessments, charges and levies forthwith whenever foreclosure on any lien which
attaches or security therefor appears imminent.
6.7 Leases. Pay all rent or other sums required by every lease to
------
which the Borrower is a party as the same becomes due and payable, perform all
its obligations as tenant or lessee thereunder except where contested in good
faith by lawful and appropriate proceedings and where adequate reserves therefor
have been set aside; and keep all such leases at all times in full force and
effect during the terms thereof.
6.8 Corporate Existence; Certain Rights; Laws. Do all things
-----------------------------------------
necessary to preserve and keep in full force and effect in each jurisdiction in
which it conducts business the business existence, licenses, permits, rights,
patents, trademarks, trade names and franchises of the Borrower and comply with
all present and future laws, ordinances, rules, regulations judgments, orders
and decrees which affect in any material way the Borrower, its assets or the
operation of its business.
6.9 Notice of Litigation or Other Proceedings. Give immediate notice
-----------------------------------------
to the Lender of (i) the existence of any dispute, (ii) the institution of any
litigation, administrative proceeding or governmental investigation involving
the Borrower or any other member of the Diagnostics Group, (iii) the entry of
any judgment, decree or order against or involving the Borrower or any other
member of the Diagnostics Group, (iv) a default in the payment of the principal
of, or interest with respect to, any indebtedness for money borrowed or which is
evidenced by a bond, debenture, note or similar instrument or agreement, but
excluding trade accounts payable and other accrued liabilities arising in the
ordinary course of business ("Indebtedness") any of which might materially and
adversely affect the operations, financial condition, property or business of
the Borrower or affect the enforceability of this Agreement or any of the other
Loan Documents.
6.10 Indebtedness. Pay or cause to be paid when due (or within
------------
applicable grace periods) all Indebtedness of the Borrower.
6.11 Notice of Events of Default. Give immediate notice to the
---------------------------
Lender if the Borrower becomes aware of the occurrence of any Event of Default,
or of any fact, condition or
9
<PAGE>
event which with the giving of notice or lapse of time, or both, would be an
Event of Default, or of the failure of the Borrower to observe or perform any of
the conditions or covenants to be observed or performed by it under this
Agreement or any of the other Loan Documents.
6.12 Shareholder's Equity. Maintain its shareholders' equity account,
--------------------
determined in accordance with GAAP, at an amount no less than $5,000,000.
ARTICLE VII
-----------
NEGATIVE COVENANTS
------------------
The Borrower hereby covenants and agrees that from the Effective Date
until satisfaction in full of the Obligations, it will not do any one or more of
the following without first obtaining the written consent of the Lender:
7.1 Fundamental Corporate Changes.
-----------------------------
(a) Change its name, enter into or effect any merger,
consolidation, share exchange, division, conversion, reclassification,
recapitalization, reorganization or other transaction of like effect, or
dissolve; or
(b) Sell, transfer, lease or otherwise dispose of all or (except
in the ordinary course of business) any material part of its assets or any
significant product line or process.
7.2 Change in Business. Discontinue any substantial part, or change
------------------
the nature of, the business of the Borrower, or enter into any new business
unrelated to the present business conducted by the Borrower.
ARTICLE VIII
------------
EVENTS OF DEFAULT
-----------------
An event of default ("Event of Default") under this Agreement shall be
deemed to exist if any one or more of the following events occurs and is
continuing, whatever the reason therefor:
8.1 Borrower's Failure to Pay. The Borrower fails to pay any amount
-------------------------
of principal interest, fees or other sums as and when due under this Agreement
or any of the Loan Documents, or any other Obligations, whether upon stated
maturity, acceleration, or otherwise and has not remedied and fully cured such
failure to pay within five (5) Business Days after the date such payment is so
due.
10
<PAGE>
8.2 Breach of Covenants or Conditions. The Borrower fails to perform
---------------------------------
or observe any term, covenant, agreement or condition in this Agreement or any
of the other Loan Documents or is in violation of or non-compliance with any
provision of this Agreement or any of the Loan Documents, and has not remedied
and fully cured such non-performance, non-observance, violation of or non-
compliance within fifteen (15) days after the Lender has given written notice
thereof to the Borrower; provided, however, that during such fifteen (15) day
period the Lender's obligations to make further Loans to the Borrower shall be
suspended.
8.3 Defaults in Other Agreements. The Borrower fails to perform or
----------------------------
observe any term, covenant, agreement or condition contained in, or there shall
occur any default under or as defined in, any other agreement applicable to the
Borrower, including agreements relating to any Indebtedness, or by which it is
bound involving a material liability of the Borrower which shall not be remedied
within the period of time (if any) within which such other agreement permits
such default to be remedied, unless such default is waived by the other party
thereto or excused as a matter of law.
8.4 Agreements Invalid. The validity, binding nature of, or
------------------
enforceability of any material term or provision of any of the Loan Documents is
disputed by, on behalf of, or in the right or name of the Borrower or any
material term or provision of any such Loan Document is found or declared to be
invalid, avoidable, or non-enforceable by any court of competent jurisdiction.
8.5 False Warranties; Breach of Representations. Any warranty or
-------------------------------------------
representation made by the Borrower in this Agreement or any other Loan Document
or in any certificate or other writing delivered under or pursuant to this
Agreement or any other Loan Document, or in connection with any provision of
this Agreement or related to the transactions contemplated hereby shall prove to
have been false or incorrect or breached in any material respect on the date as
of which made.
8.6 Judgments. A final judgment or judgments is entered, or an order
---------
or orders of any judicial authority or governmental entity is issued against the
Borrower or any member of the Diagnostics Group, (i) for payment of money, which
judgment, in the aggregate, exceeds One Hundred Thousand Dollars ($100,000.00)
outstanding at any one time; or (ii) for injunctive or declaratory relief which
would have a material adverse effect on the ability of the Borrower, or any
member of the Diagnostics Group, to conduct its business, and such judgment is
not discharged or execution thereon or enforcement thereof stayed pending
appeal, within thirty days after entry or issuance thereof, or, in the event of
such a stay, such judgment is not discharged within thirty days after such stay
expires.
11
<PAGE>
8.7 Bankruptcy or Insolvency of the Borrower.
----------------------------------------
(a) The Borrower becomes insolvent, or generally fails to pay,
or is generally unable to pay, or admits in writing its inability to pay, its
debts as they become due or applies for, consents to, or acquiesces in, the
appointment of a trustee, receiver or other custodian for the Borrower, or a
substantial part of its property, or makes a general assignment for the benefit
of creditors.
(b) The Borrower commences any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any state or federal bankruptcy
or insolvency law, or any dissolution or liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or other
case or proceeding under any state or federal bankruptcy or insolvency law, or
any dissolution or liquidation proceeding, is involuntarily commenced against or
in respect of the Borrower, or an order for relief is entered in any such
proceeding.
(d) A trustee, receiver, or other custodian is appointed for the
Borrower or a substantial part of such Person's property.
ARTICLE IX
----------
REMEDIES
--------
9.1 Further Advances; Acceleration; Setoff.
--------------------------------------
(a) Upon the occurrence of any one or more Events of Default,
the Lender may, in its sole discretion, refuse to make any further advances or
Loans to the Borrower;
(b) Automatically upon the occurrence of any Event of Default
described in Section 8.7 of this Agreement, and in the sole discretion of the
Lender upon the occurrence of any other Event of Default, the unpaid principal
balance of all Loans, all interest and fees accrued and unpaid thereon, and all
other amounts and Obligations payable by the Borrower under this Agreement and
the other Loan Documents shall immediately become due and payable in full, all
without protest, presentment, demand, or further notice of any kind to the
Borrower, all of which are expressly waived by the Borrower;
(c) If any of the Obligations shall be due and payable or any
one or more Events of Default shall have occurred, the Lender shall have the
right, in addition to all other rights and remedies available to it, without
notice to the Borrower, to apply toward and set-off against and apply to the
then unpaid
12
<PAGE>
balance of the Note and the other Obligations any indebtedness at any time held
or owing by the Lender to or for the credit or the account of the Borrower.
9.2 Further Remedies. Upon the occurrence of any one or more Events
----------------
of Default, the Lender may proceed to protect and enforce its rights under this
Agreement and the other Loan Documents by exercising such remedies as are
available to the Lender in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
provision contained in this Agreement or any of the other Loan Documents or in
aid of the exercise of any power granted in this Agreement or any of the other
Loan Documents.
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Remedies Cumulative; No Waiver. The rights, powers and remedies
------------------------------
of the Lender provided in this Agreement and the other Loan Documents are
cumulative and not exclusive of any right, power or remedy provided by law or
equity, and no failure or delay on the part of the Lender in the exercise of any
right, power, or remedy shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power, or remedy preclude other or further
exercise thereof, or the exercise of any other right, power or remedy.
10.2 Notices. Every notice and communication under this Agreement or
-------
any of the other Loan Documents shall be in writing and shall be given by
authorized representatives of the respective parties by either (i) hand-
delivery, (ii) first class mail (postage prepaid), (iii) reliable overnight
commercial courier (charges prepaid), or (iv) telecopy or other means of
electronic transmission, if confirmed promptly by any of the methods specified
in clauses (i), (ii) and (iii) of this sentence, to the address of each party
set forth in the initial paragraph of this Agreement.
Notice given by telecopy or other means of electronic transmission
shall be deemed to have been given and received when sent. Notice by overnight
courier shall be deemed to have been given and received on the date scheduled
for delivery. Notice by mail shall be deemed to have been given and received
three (3) calendar days after the date first deposited in the United States
Mail. Notice by hand delivery shall be deemed to have been given and received
upon delivery.
A party may change its address by giving written notice to the other
party as specified herein.
13
<PAGE>
10.3 Survival of Covenants. This Agreement and all covenants,
---------------------
agreements, representations and warranties made herein and in any certificates
delivered pursuant hereto shall survive the making of the Loans and the
execution and delivery of the Note and shall continue in full force and effect
until all of the Obligations have been fully paid, performed, satisfied and
discharged.
10.4 Counterparts; Effectiveness. This Agreement may be executed in
---------------------------
any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed to be an original, but all
such counterparts shall together constitute one and the same Agreement. This
Agreement shall be deemed to have been executed and delivered when the Lender
has received counterparts hereof executed by all parties listed on the signature
page(s) hereto.
10.5 Headings. The headings of sections have been included herein
--------
for convenience only and shall not be considered in interpreting this Agreement.
10.6 Payment Due On A Day Other Than A Business Day. If any payment
----------------------------------------------
due or action to be taken under this Agreement or any Loan Document falls due or
is required to be taken on a day which is not a Business Day, such payment or
action shall be made or taken on the next succeeding Business Day and such
extended time shall be included in the computation of interest.
10.7 Judicial Proceedings. Each party to this Agreement agrees that
--------------------
any suit, action or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party, on or
with respect to this Agreement or any of the other Loan Documents or the
dealings of the parties with respect hereto, or thereto, shall be tried only by
a court and not by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. Further, each party waives any right it may have to claim or
recover, in any such suit, action or proceeding, any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A
SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE Lender WOULD NOT
EXTEND CREDIT TO THE BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT
A PART OF THIS AGREEMENT.
10.8 Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the internal laws of the Commonwealth of Pennsylvania,
without regard to conflicts of laws principles.
14
<PAGE>
10.9 Integration. This Agreement and the other Loan Documents
-----------
constitute the sole agreement of the parties with respect to the subject matter
hereof and thereof and supersede all oral negotiations and prior writings with
respect to the subject matter hereof and thereof.
10.10 Amendment and Waiver. No amendment of this Agreement, and no
--------------------
waiver of any one or more of the provisions hereof shall be effective unless set
forth in writing and signed by the parties hereto.
10.11 Severability of Provisions. Any provision in this Agreement
--------------------------
that is held to be inoperative, unenforceable, voidable, or invalid in any
jurisdiction shall, as to that jurisdiction, be ineffective, unenforceable, void
or invalid without affecting the remaining provisions, and to this end the
provisions of this Agreement are declared to be severable.
10.12 Consent to Jurisdiction and Service of Process. The Borrower
----------------------------------------------
irrevocably appoints each and every officer of the Borrower as its attorneys
upon whom may be served, by regular or certified mail at its address set forth
in the initial paragraph of this Agreement, any notice, process or pleading in
any action or proceeding against it arising out of or in connection with this
Agreement or any of the other Loan Documents; and the Borrower hereby (i)
consents that any action or proceeding against it be commenced and maintained in
any court within the Commonwealth of Pennsylvania or in the United States
District Court for the Eastern District of Pennsylvania by service of process on
any such officer; (ii) agrees that the courts of the Commonwealth of
Pennsylvania and the United States District Court for the Eastern District of
Pennsylvania shall have jurisdiction with respect to the subject matter hereof
and the person of the Borrower and the Collateral, and (iii) waives any
objection that such Borrower may now or hereafter have as to the venue of any
such suit, action or proceeding brought in such a court or that such court is an
inconvenient forum. Notwithstanding the foregoing, the Lender, in its absolute
discretion may also initiate proceedings in the courts of any other jurisdiction
in which the Borrower may be found or in which any of its properties or the
Collateral may be located.
15
<PAGE>
IN WITNESS WHEREOF, each party has caused its duly authorized
representative to execute this Agreement as of the day and year first above
written.
CENTOCOR, INC.
By: /s/ Dominic J. Caruso
-------------------------
Name: Dominic J. Caruso
Title: Vice President, Finance
and Chief Financial
Officer
CENTOCOR DIAGNOSTICS, INC.
By: /s/ Richard A. Bierly
--------------------------
Name: Richard A. Bierly
Title: Chief Financial
Officer
16
<PAGE>
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of August 22, 1997 by
and between Centocor, Inc., a Pennsylvania corporation ("Centocor" or the
"Holder") and Centocor Diagnostics, Inc., a Pennsylvania corporation (the
"Company").
RECITALS:
Centocor is a corporation duly organized under the laws of the Commonwealth
of Pennsylvania, with its principal executive offices located in Malvern,
Pennsylvania. The Company is a corporation, formed under the laws of the
Commonwealth of Pennsylvania, with its principal executive offices located in
Malvern, Pennsylvania.
Centocor currently owns all of the outstanding shares of common stock of
the Company. The Company is contemplating the issuance of shares of the
Company's Class A Common Stock in an initial public offering pursuant to a
Registration Statement on Form S-1. After such offering, Centocor will be the
beneficial and record owner of 7,100,000 shares of the Company's Class B Common
Stock, which are convertible into 7,100,000 shares of the Class A Common Stock.
In conjunction with the offering, Centocor and the Company desire to enter
into this Agreement to provide Centocor with certain registration rights as
provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. As used herein, each of the following terms shall have
the respective meaning assigned to it below:
"Affiliate" shall mean any Person that directly or indirectly controls, is
con trolled by, or is under common control with such Person. A Person shall be
deemed to control another Person if such Person owns 50% or more of the equity
interests in the "controlled" Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock or partnership interests,
by contract, agreement or understanding (whether oral or written), or otherwise.
"Class A Common Stock" shall mean the Company's $.01 par value Class A
Common Stock.
"Class B Common Stock" shall mean the Company's $.01 par value Class B
Common Stock.
<PAGE>
"Designated Transferee" shall have the meaning set forth in Section 10
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor act then in effect.
"Holders" shall mean Centocor, any Affiliate of Centocor (other than the
Company) and any Designated Transferees who are holders of record of any
Registrable Shares, and any combination of one or more such Holders.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Person" shall mean any individual, corporation, association, partnership,
group (as defined in Section 13(d)(3) of the Exchange Act), limited liability
company, joint venture, business trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Registrable Shares" shall mean (i) the 7,100,000 shares of Class A Common
Stock that would result upon the conversion of the 7,100,000 shares of Class B
Common Stock owned by Centocor on the date of this Agreement, and (ii) any
shares of Class A Common Stock acquired by a Holder directly or upon exercise of
conversion of any equity securities of the Company issued or distributed after
the date of this Agreement to a Holder in respect of Registrable Shares by way
of any stock dividend, stock split or other distribution or any recapitalization
or reclassification. As to any particular Registrable Share, such Registrable
Share shall cease to be a Registrable Share when (x) it shall have been sold,
transferred or otherwise disposed of or exchanged pursuant to a registration
statement under the Securities Act; (y) it shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act; or (z) it shall have been sold or transferred to a Person other than a
Designated Transferee in a private transaction effected other than pursuant to a
registration statement.
"Registration Expenses" shall have the meaning set forth in Section 7(a)
hereof.
"SEC" shall mean the United States Securities and Exchange Commission or
any successor agency thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor act then in effect.
2. REGISTRATION ON REQUEST.
(A) REQUEST BY HOLDERS. Upon the written request of the Holders of at
least 10% of the Registrable Shares then outstanding that the Company effect the
registration under the Securities Act of all or part of such Holders'
Registrable Shares, and specifying the amount (which shall not be less than 10%
of the Registrable Shares
-2-
<PAGE>
then outstanding in the aggregate) and the intended method of disposition
thereof, the Company shall, as expeditiously as possible, use its best efforts
to effect the registration under the Securities Act of: (i) the Registrable
Shares that the Company has been so requested to register by Holders of at least
10% of the Registrable Shares; and (ii) all other Registrable Shares that the
Company has been requested to register by any other Holder thereof by written
request received by the Company within 30 days after the giving of such written
notice by the Company (which request shall specify the intended method of
disposition of such Registrable Shares); provided, however, that the Company
shall not be obligated to file a registration statement relating to a
registration request under this Section 2(a) if the registration request is
delivered (x) after delivery of a notice by the Company of an intended
registration and prior to the effective date of the registration statement
referred to in such notice, or (y) within a period of 90 days after the
effective date of any other registration statement of the Company requested by a
Holder pursuant to this Section 2 or pursuant to which the Holders included
Registrable Shares.
(B) PRIORITY IN REQUESTED REGISTRATIONS. If a requested registration
pursuant to this Section 2 involves an underwritten offering and the managing
underwriter in good faith advises the Company in writing that, in its opinion,
the number of securities requested to be included in such registration
(including securities of the Company that are not Registrable Shares) exceeds
the largest number of securities that can be sold in such offering without
having an adverse effect on such offering (including the price at which such
securities can be sold), then the Company shall include in such registration (i)
first, 100% of the Registrable Shares requested to be registered pursuant to
Section 2(a) hereof (provided that if the number of Registrable Shares requested
to be registered pursuant to Section 2(a) hereof exceeds the number that the
Company has been advised can be sold in such offering without having the adverse
effect referred to above, the number of such Registrable Shares to be included
in such registration by the Holders shall be allocated pro rata among such
Holders on the basis of the relative number of Registrable Shares each such
Holder has requested to be included in such registration); (ii) second, to the
extent that the number of Registrable Shares requested to be registered pursuant
to Section 2(a) hereof is less than the number of securities that the Company
has been advised can be sold in such offering without having the adverse effect
referred to above, such number of shares of equity securities the Company
requests to be included in such registration; and (iii) third, to the extent
that the number of Registrable Shares requested to be included in such
registration pursuant to Section 2(a) hereof and the number of securities that
the Company proposes to sell for its own account are, in the aggregate, less
than the number of equity securities that the Company has been advised can be
sold in such offering without having the adverse effect referred to above, such
number of other securities proposed to be sold by any other Person that, in the
opinion of such managing underwriter, can be sold without having the adverse
effect referred to above (provided that if the number of such securities of such
other Person requested to be registered exceeds the number that the Company has
been advised can be sold in such offering without having the adverse effect
referred to
-3-
<PAGE>
above, the number of such securities to be included in such registration
pursuant to this Section 2(c) shall be allocated pro rata among all such other
Persons on the basis of the relative number of securities each such other Person
has requested to be included in such registration).
(C) ADDITIONAL RIGHTS. If the Company shall at any time grant to any other
holder of equity securities of the Company any rights to request the Company to
effect the registration of any such shares of equity securities on terms more
favorable to such other Person than the terms set forth in this Section 2 and in
Section 5 hereof, the terms of this Section 2 and of Section 5 hereof shall be
deemed amended or supplemented to the extent necessary to provide the Holders
such more favorable rights and benefits. In no event shall the Company grant to
any person any rights to request the Company to effect the registration of any
shares of equity securities of the Company on terms that are adverse to rights
of the Holders set forth in this Section 2 and in Section 3 hereof.
3. INCIDENTAL REGISTRATIONS.
(A) RIGHT TO INCLUDE REGISTRABLE SHARES. Each time the Company shall
determine to file a registration statement under the Securities Act in
connection with a proposed offer and sale for cash of any equity securities
(other than an offering of debt securities that are convertible into equity
securities or an offering of equity securities pursuant to a benefit plan
established for employees, directors or consultants of the Company) either by
it or by any holders of its outstanding equity securities, the Company shall
give prompt written notice of its determination to each Holder and of such
Holder's rights under this Section 3, at least 60 days prior to the anticipated
filing date of such registration statement. Upon the written request of any
Holder made within 30 days after the receipt of any such notice from the
Company (which request shall specify the number of Registrable Shares intended
to be disposed of by such Holder), the Company shall use its best efforts to
effect the registration under the Securities Act of all Registrable Shares that
the Company has been so requested to register by the Holders thereof, to the
extent required to permit the disposition of the Registrable Shares so to be
registered; provided, however, that (i) if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to proceed with the proposed
registration of the securities to be sold by it, the Company may, at its
election, give written notice of such determination to each Holder of
Registrable Shares and thereupon shall be relieved of its obligation to register
any Registrable Shares in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith); and (ii)
if such registration involves an underwritten offering, all Holders of
Registrable Shares requesting to be included in the Company's registration must
sell their Registrable Shares to the underwriters on the same terms and
conditions as apply to the Company, with such differences, including any with
respect to indemnification and liability insurance, as may be
-4-
<PAGE>
customary or appropriate in combined primary and secondary offerings. If a
registration requested pursuant to this Section 3(a) involves an underwritten
public offering, any Holder of Registrable Shares requesting to be included in
such registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. No registration
effected under this Section 3 shall relieve the Company of its obligations to
effect registrations upon request under Section 2 hereof.
(B) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant to
this Section 3 involves an underwritten offering and the managing underwriter in
good faith advises the Company in writing that, in its opinion, the number of
securities that the Company, the Holders and any other Persons intend to include
in such registration exceeds the largest number of securities that can be sold
in such offering without having an adverse effect on such offering (including
the price at which such securities can be sold), then the Company shall include
in such registration (i) first, 100% of the securities the Company proposes to
sell for its own account; (ii) second, to the extent that the number of
securities that the Company proposes to sell is less than the number of
securities that the Company has been advised can be sold in such offering
without having the adverse effect referred to above, such number of Registrable
Shares that the Holders have requested to be included in such registration
pursuant to Section 3(a) hereof and that, in the opinion of such managing
underwriter, can be sold without having the adverse effect referred to above;
and (iii) third, to the extent that the number of securities that are to be
included in such registration pursuant to clauses (i) and (ii) is, in the
aggregate, less than the number of securities that the Company has been advised
can be sold in such offering without having the adverse effect referred to
above, such number of other securities requested to be included in the offering
for the account of any other Persons that, in the opinion of such managing
underwriter, can be sold without having the adverse effect referred to above.
4. HOLDBACK AGREEMENTS.
(A) AGREEMENTS OF THE HOLDERS. If any registration of Registrable Shares
shall be in connection with an underwritten public offering, the Holders shall
not effect any public sale or distribution (except in connection with such
public offering) of any equity securities of the Company, or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (in each case, other than as part of such underwritten public offering),
during the 180-day period (or such lesser period as the managing underwriter may
permit) beginning on the effective date of such registration, if, and to the
extent, the managing underwriter of any such offering determines such action is
necessary or desirable to effect such offering; provided, however, that each
Holder has received the written notice required by Section 3(a) hereof;
provided, however, that each Holder shall not be obligated to comply with such
restrictions arising as a result of an underwritten public offering subject to
Section 4 hereof more than once in any 12-month period.
-5-
<PAGE>
(B) AGREEMENT OF THE COMPANY. If any registration of Registrable Shares
shall be in connection with any underwritten public offering, the Company shall
not effect any public sale or distribution (except in connection with such
public offering) of any of its equity securities or of any security convertible
into or exchangeable or exercisable for any of its equity securities (in each
case other than as part of such underwritten public offering) during the 180-day
period (or such lesser period as the managing underwriter may permit) beginning
on the effective date of such registration, and the Company shall use its best
efforts to cause each member of the management of the Company who holds any
equity security and each other holder of 5% or more of the outstanding shares of
any equity security, or of any security convertible into or exchangeable or
exercisable for any equity security, of the Company purchased from the Company
(at any time other than in a public offering) to so agree.
5. REGISTRATION PROCEDURES.
(A) REGISTRATION. If and whenever the Company is required by the
provisions of Sections 2 or 3 hereof to use its best efforts to effect or cause
the registration of Registrable Shares, the Company shall as expeditiously as
possible:
(i) prepare and, in any event within 60 days after the end of the 30-day
period within which a request for registration may be given to the Company as
specified in Sections 2(a) and 3(a) hereof, file with the SEC a registration
statement with respect to such Registrable Shares and use its best efforts to
cause such registration statement to become effective;
(ii) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period not in
excess of 270 days and to comply with the provisions of the Securities Act, the
Exchange Act, and the rules and regulations promulgated thereunder with respect
to the disposition of all the securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
Holders thereof set forth in such registration statement; provided, however,
that (A) before filing a registration statement (including an initial filing) or
prospectus, or any amendments or supplements thereto, the Company shall furnish
to one counsel selected by the Holders of a majority of the Registrable Shares
covered by such registration statement copies of all documents proposed to be
filed, which documents shall be subject to the review and comment of such
counsel, and (B) the Company shall notify each Holder of Registrable Shares
covered by such registration statement of any stop order issued or threatened by
the SEC, any other order suspending the use of any preliminary prospectus or of
the suspension of the qualification of the registration statement for offering
or sale in any jurisdiction, and take all reasonable actions required to prevent
the entry of such stop order, other order or suspension or to remove it if
entered;
-6-
<PAGE>
(iii) furnish to each Holder and each underwriter, if applicable, of
Registrable Shares covered by such registration statement such number of copies
of the registration statement and of each amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and summary prospectus), in conformity with the requirements of the Securities
Act, and such other documents as each Holder of Registrable Shares covered by
such registration statement may reasonably request in order to facilitate the
disposition of the Registrable Shares by such Holder;
(iv) use its best efforts to register or qualify such Registrable Shares
covered by such registration statement under the state securities or blue sky
laws of such jurisdictions as each Holder of Registrable Shares covered by such
registration statement and, if applicable, each underwriter, may reasonably
request, and do any and all other acts and things which may be reasonably
necessary to consummate the disposition in such jurisdictions of the Registrable
Shares owned by such Holder, except that the Company shall not for any purpose
be required to qualify generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this clause (iv), it would not
be obligated to be so qualified;
(v) use its best efforts to cause such Registrable Shares covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holders
thereof to consummate the disposition of such Registrable Shares;
(vi) if at any time when a prospectus relating to the Registrable Shares
is required to be delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, immediately give written notice thereof to each Holder and the
managing underwriter or underwriters, if any, of such Registrable Shares and
prepare and furnish to each such Holder a reasonable number of copies of an
amended or supplemental prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not include an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(vii) use its best efforts to list any portion of such Registrable Shares
not already listed on any securities exchange on which similar securities of the
Company are then listed, and enter into customary agreements including a listing
application and indemnification agreement in customary form, provided that the
applicable listing requirements are satisfied, and provide a transfer agent and
registrar for such Registrable Shares covered by such registration statement not
later than the effective date of such registration statement;
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(viii) enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as each Holder of
Registrable Shares being sold or the underwriter or underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Shares, including customary indemnification and opinions;
(ix) use its best efforts to obtain a "cold comfort" letter or letters
from the Company's independent public accountants in customary form and covering
matters of the type customarily covered by "cold comfort" letters as the Holders
of the Registrable Shares being sold or the underwriters retained by such
Holders shall reasonably request;
(x) make available for inspection by representatives of any Holder of
Registrable Shares covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by such
Holders or any such underwriter, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries'
officers, directors and employees to supply all information and respond to all
inquiries reasonably requested by such Holders or any such representative,
underwriter, attorney, accountant or agent in connection with such registration
statement;
(xi) promptly prior to the filing of any document that is to be
incorporated by reference into the registration statement or the prospectus
(after initial filing of the registration statement), provide copies of such
document to counsel to the Holders of Registrable Shares covered by such
registration statement and to the managing underwriter, if any, make the
Company's representatives available for discussion of such document and make
such changes in such document prior to the filing thereof as counsel for such
Holders or underwriter may reasonably request;
(xii) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable after the effective date of the registration
statement, an earnings statement which shall satisfy the provisions of Section
11(a) of the Securities Act and the rules and regulations promulgated
thereunder;
(xiii) not later than the effective date of the applicable registration
statement, use its best efforts to provide a CUSIP number for any portion of
such Registrable Shares not already included in a CUSIP number for similar
securities of the Company, and provide the applicable transfer agents with
printed certificates for the Registrable Shares which are in a form eligible for
deposit with the Depository Trust Company;
(xiv) notify counsel for the Holders of Registrable Shares included
in such registration statement and the managing underwriter or underwriters, if
any, immedi-
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ately and confirm the notice in writing (A) when the registration statement, or
any post-effective amendment to the registration statement, shall have become
effective, or any supplement or amendment to the prospectus shall have been
filed, (B) of the receipt of any comments from the SEC and (C) of any request of
the SEC to amend the registration statement or amend or supplement the
prospectus or for additional information; and
(xv) cooperate with each seller of Registrable Shares and each underwriter,
if any, participating in the disposition of such Registrable Shares and their
respective counsel in connection with any filings required to be made with the
NASD.
(B) SUSPENSION OF SALES OF REGISTRABLE SHARES. Each Holder of Registrable
Shares hereby agrees that, upon receipt of any notice from the Company of the
happening of any event of the type described in Section 5(a)(vi) hereof, such
Holder shall forthwith discontinue disposition of such Registrable Shares
covered by such registration statement or related prospectus until such Holder's
receipt of the copies of the supplemental or amended prospectus contemplated by
Section 5(a)(vi) hereof, and, if so directed by the Company, such Holder shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Shares at the time of receipt of such notice. In the
event that the Company shall give any such notice, the period mentioned in
Section 5(a)(ii) hereof shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 5(a)(vi) hereof and including the date when such Holder shall have
received the copies of the supplemental or amended prospectus contemplated by
Section 5(a)(vi) hereof. If for any other reason the effectiveness of any
registration statement filed pursuant to Section 2 hereof is suspended or
interrupted prior to the expiration of the time period regarding the maintenance
of the effectiveness of such registration statement required by Section 5(a)(ii)
hereof so that Registrable Shares may not be sold pursuant thereto, the
applicable time period shall be extended by the number of days equal to the
number of days during the period beginning with the date of such suspension or
interruption to and ending with the date when the sale of Registrable Shares
pursuant to such registration statement may be recommenced.
(C) INFORMATION REGARDING THE HOLDERS. Each Holder hereby agrees to
provide the Company, upon receipt of its request, with such information about
such Holder to enable the Company to comply with the requirements of the
Securities Act and to execute such certificates as the Company may reasonably
request in connection with such information and otherwise to satisfy any
requirements of law.
6. UNDERWRITTEN REGISTRATIONS. Subject to the provisions of Sections
2 and 3 hereof, any of the Registrable Shares covered by a registration
statement may be sold in an underwritten offering at the discretion of the
Holder thereof. In the case of an underwritten offering pursuant to Section 3
hereof, the managing underwriter that will administer the offering shall be
selected by the Company; provided, however,
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that such managing underwriter shall be reasonably satisfactory to the Holders
of a majority of the Registrable Shares to be registered. In the case of any
underwritten offering pursuant to Section 2 hereof, the managing underwriter
that will administer the offering shall be selected by the Holders of a majority
of the Registrable Shares to be registered; provided, however, that such
underwriter shall be reasonably satisfactory to the Company.
7. EXPENSES.
(A) EXPENSES PAYABLE BY THE COMPANY. Subject to Section 7(b) hereof, the
Company shall pay all fees, costs and expenses of the first three registrations
pursuant to Section 2 hereof, and of all registrations pursuant to Section 3
hereof, including all SEC and stock exchange or NASD registration and filing
fees and expenses, reasonable fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules of the NASD, fees
and expenses of compliance with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters, if any, in
connection with blue sky qualifications of the Registrable Shares), rating
agency fees, printing expenses (including expenses of printing certificates for
Registrable Shares and prospectuses), messenger, telephone and delivery
expenses, the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange or national market
system on which similar securities issued by the Company are then listed, fees
and disbursements of counsel for the Company and not more than one counsel for
the Holders whose shares are included in the respective registration statement
and all independent certified public accountants (including the expenses of any
annual audit, special audit and "cold comfort" letters required by or incident
to such performance and compliance), the fees and disbursements of the
underwriters customarily paid by issuers or sellers of securities (including
expenses relating to "road shows" and other marketing activities), the
reasonable fees and expenses of special experts required to be retained by the
Company in connection with such registration, and the reasonable fees and
expenses of other Persons required to be retained by the Company (collectively,
"Registration Expenses"); provided, however, that Registration Expenses shall
not include (i) any allocation of the overhead of the Company, including any
allocation of the compensation or benefits of employees of the Company that
assist in a registration, (ii) any other expense to the extent it would have
been incurred by the Company in the absence of any sale of securities in
connection with a registration pursuant to this Agreement (including the cost of
the Company's annual audit), or (iii) any expenses for any registration
proceeding begun pursuant to Section 2 hereof and subsequently withdrawn by the
Holder requesting such registration.
(B) FEES AND EXPENSES PAYABLE BY THE HOLDERS. The Holders shall pay the
following: (i) any underwriting discounts or commissions or transfer taxes, if
any, attributable to the sale of Registrable Shares by the Holders pursuant to
this Agreement, (ii) all fees, costs and expenses of counsel to the Holders in
connection with any registration pursuant to this Agreement except as provided
in Section 7(a) hereof, (iii)
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all fees, costs and expenses for any registration proceeding begun pursuant to
Section 2 hereto and subsequently withdrawn by the Holders requesting such
registration and (iv) all Registration Expenses for any registrations in excess
of three pursuant to Section 2 hereof.
8. INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. In the event of any registration of
any securities of the Company under the Securities Act pursuant to Sections 2 or
3 hereof, the Company shall, and it hereby does, indemnify and hold harmless, to
the extent permitted by law, each of the Holders of any Registrable Shares
covered by such registration statement, each Affiliate of such Holder (other
than the Company) and their respective directors and officers, each other Person
who participates as an underwriter in the offering or sale of such securities
and each other Person, if any, who controls such Holder or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint or
several, and expenses (including any amounts paid in any settlement effected
with the Company's consent, which consent shall not be unreasonably withheld) to
which any Indemnified Party may become subject under the Securities Act, state
securities or blue sky laws, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof,
whether or not such Indemnified Party is a party thereto) or expenses arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereof,
(ii) 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
or (iii) any violation by the Company of any federal, state or common law rule
or regulation applicable to the Company and relating to action required of or
inaction by the Company in connection with any such registration, and the
Company shall reimburse such Indemnified Party for any legal or any other
expenses reasonably incurred by it in connection with investigating or defending
any such loss, claim, liability, action or proceeding; provided, however, that
the Company shall not be liable to any Indemnified Party in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereof or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information with respect to such Holder furnished to the Company by such
Holder specifically for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Holder or any Indemnified Party and shall survive the transfer of
such securities by such Holder.
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(B) INDEMNIFICATION BY THE HOLDERS AND THE UNDERWRITERS. The Company
may require, as a condition to including any Registrable Shares in any
registration statement filed in accordance with Section 2 or 3 hereof, that the
Company shall have received an undertaking reasonably satisfactory to it from
the Holders of such Registrable Shares or any underwriter to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section 8(a)
hereof) the Company with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary,
final or summary prospectus contained therein, or any amendment or supplement,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information with respect to the
Holders of the Registrable Shares being registered or such underwriter furnished
to the Company by such Holders or such underwriter specifically for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing; provided, however, that no such Holder shall be
liable for any indemnity claims in excess of the amount of the net proceeds
received by such Holder from the sale of Registrable Shares. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any of the Holders, or any of their respective
Affiliates (other than the Company), directors, officers or controlling Persons,
and shall survive the transfer of such securities by such Holder.
(C) NOTICES OF CLAIMS, ETC. Promptly after receipt by an Indemnified
Party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 8, such Indemnified Party shall, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the failure
of the Indemnified Party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 8, except to the extent
that the indemnifying party is actually materially prejudiced by such failure to
give notice. In case any such action is brought against an Indemnified Party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, with counsel satisfactory to such Indemnified Party, and after
notice from the indemnifying party to such Indemnified Party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such Indemnified Party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that the Indemnified Party shall have the
right, at the sole cost and expense of the indemnifying party, to employ counsel
to represent the Indemnified Party and its respective controlling persons,
directors, officers, employees or agents who may be subject to liability arising
out of any claim in respect of which indemnity may be sought by the Indemnified
Party against such indemnifying party under this Section 8 if (i) the employment
of such counsel shall have been authorized in writing by such indemnifying party
in connection with the defense of such action, (ii) the indemnifying party shall
not have promptly employed counsel reasonably satisfactory
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<PAGE>
to the Indemnified Party to assume the defense of such action or counsel, or
(iii) any Indemnified Party shall have reasonably concluded that there may be
defenses available to such Indemnified Party or its respective controlling
persons, directors, officers, employees or agents which are in conflict with or
in addition to those available to an indemnifying party; provided, further,
that the indemnifying party shall not be obligated to pay for more than the
expenses of one firm of separate counsel for the Indemnified Party (in addition
to the reasonable fees and expenses of one firm serving as local counsel). No
indemnifying party shall consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(D) CONTRIBUTION. If the indemnification provided for in this Section
8 shall for any reason be unavailable to any Indemnified Party under Section
8(a) or 8(b) hereof or is insufficient to hold it harmless in respect of any
loss, claim, damage or liability, or any action in respect of any loss, claim,
damage or liability, or any action in respect thereof referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claim, damage or liability, or
action in respect thereof (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Indemnified Party and indemnifying
party or (ii) if the allocation provided by clause (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 (i) but also the relative fault of the
Indemnified Party and indemnifying party with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations.
Notwithstanding any other provision of this Section 8(d), no Holder of
Registrable Shares shall be required to contribute an amount greater than the
dollar amount of the proceeds received by such Holder with respect to the sale
of any such Registrable Shares. 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.
(E) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section 8 (with appropriate modifications)
shall be given by the Company and each Holder of Registrable Shares with respect
to any required registration or other qualification of securities under any
federal or state law or regulation other than the Securities Act.
(F) NON-EXCLUSIVITY. The obligations of the parties under this
Section 8 shall be in addition to any liability that any party may otherwise
have to any other party.
9. RULE 144. The Company covenants that it will file in a timely
manner the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder (or, if the
Company is not
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required to file such reports, it will, upon the request of any Holder of
Registrable Shares, make publicly available such information), and it will take
such further action as any Holder of Registrable Shares may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable Shares without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Shares, the Company shall deliver to such Holder a written statement
as to whether it has complied with such requirements.
10. ASSIGNABILITY. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Except as provided herein, neither party may assign any of its rights
or delegate any of its duties under this Agreement without the express consent
of the other party hereto. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement that are for
the benefit of the Holder hereto other than the Company shall also be for the
benefit of and enforceable by any of the subsequent Holders of any Registrable
Shares, subject to the provisions contained herein. Any of the Holders may
assign any of its rights or delegate any of its duties under this Agreement, in
whole or in part, without any prior consent of the Company only to a Person (a
"Designated Transferee") who is either (a) an Affiliate of Centocor or (b) is a
transferee of Registrable Shares (whether through purchase, share exchange,
bequest or otherwise) and who agrees to be bound by the terms of this Agreement.
11. NOTICES. Any and all notices, designations, consents, offers,
acceptances or any other communications shall be given in writing by either (a)
personal delivery to and receipted for by the addressee or by (b) telecopy or
registered or certified mail which shall be addressed, in the case of the
Company, to: 244 Great Valley Parkway, Malvern, Pennsylvania 19355-1307,
attention: Chief Financial Officer; in the case of Holders, to the address or
addresses thereof appearing on the books of the Company or of the transfer agent
and registrar for its Class A Common Stock or Class B Common Stock, as the case
may be. All such notices and communications shall be deemed to have been duly
given and effective (x) when delivered by hand, if personally delivered; (y) two
business days after being deposited in the mail, postage prepaid, if mailed; and
(z) when receipt is confirmed, if telecopied.
12. NO INCONSISTENT AGREEMENTS. The Company shall not hereafter enter into
any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
13. SPECIFIC PERFORMANCE. The Company acknowledges that the rights granted
to the Holders in this Agreement are of a special, unique and extraordinary
character, and that any breach of this Agreement by the Company could not be
compensated for by damages. Accordingly, if the Company breaches its obligations
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under this Agreement, the Holders shall be entitled, in addition to any other
remedies that they may have, to enforcement of this Agreement by a decree of
specific performance requiring the Company to fulfill its obligations under
this Agreement.
14. SEVERABILITY. If any provision of this Agreement or any portion
thereof is finally determined by a court of competent jurisdiction to be
unlawful or unenforceable, such provision or portion thereof shall in no way
affect any other provision of this Agreement, the application of any such
provision and any other circumstances, and any portion of such invalidated
provision that is not invalidated by such a determination shall remain in full
force and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.
16. DEFAULTS. A default by any party to this Agreement in such party's
compliance with any of the conditions or covenants hereof or performance of any
of the obligations of such party hereunder shall not constitute a default by any
other party.
17. AMENDMENTS, WAIVERS. This Agreement may not be amended, modified
or supplemented and no waivers of or consents to or departures from the
provisions hereof may be given unless consented to in writing by the Company and
the holders of a majority of the Registrable Shares; provided, however, that no
such amendment, supplement, modification or waiver shall deprive any Holder of
any rights under Section 2 or 3 hereof without the consent of such Holder.
18. CONSTRUCTION. The captions contained in this Agreement are for
reference purposes only and shall not constitute a part of this Agreement.
Unless the context requires otherwise, the use of the masculine shall include
the feminine, and the use of the singular shall include the plural.
19. THIRD PARTY BENEFICIARIES. Except as expressly provided in this
Agreement, the parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto.
20. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties hereto with respect to the transactions contemplated herein
and understandings among the parties relating to the subject matter hereof.
Any and all previous agreements and understandings between or among the parties
hereto regarding the subject matter hereof are, whether written or oral,
superseded by this Agreement.
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21. GOVERNING LAW. This Agreement is made pursuant to and shall be
construed in accordance with the laws of the Commonwealth of Pennsylvania
without regard to that state's conflicts of laws principles. The parties hereto
submit to the non-exclusive jurisdiction of the Courts of the Commonwealth of
Pennsylvania in any action or proceeding arising out of or relating to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective authorized officers as of the date first written
above.
CENTOCOR DIAGNOSTICS, INC.
By: /s/ R. James Danehy
-------------------------------
Title: President
-------------------------
CENTOCOR, INC.
By: /s/ Dominic J. Caruso
-------------------------------
Title: Vice President - Finance
and Chief Financial Officer
----------------------------
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Exhibit 10.8
TAX SHARING AGREEMENT
---------------------
THIS TAX SHARING AGREEMENT ("Agreement") is entered into as of November
__, 1997 by and between Centocor Diagnostics, Inc., a Pennsylvania corporation
("Diagnostics"), and Centocor, Inc., a Pennsylvania corporation ("Centocor").
RECITALS
WHEREAS, Centocor is the common parent corporation of an affiliated group
of corporations within the meaning of Section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "Code");
WHEREAS, Centocor beneficially owns all of the issued and outstanding
shares of Diagnostics' Class B Common Stock, par value $.01 per share and
Diagnostics is a member of the Centocor consolidated group for federal income
tax purposes;
WHEREAS, the parties are contemplating the possibility that Diagnostics
will issue shares of Class A Common Stock, $.01 par value per share, to the
public in an offering (the "Initial Public Offering") registered under the
Securities Act of 1933, as amended;
WHEREAS, the Centocor Group (as defined below) has filed and intends to
file consolidated federal income tax returns as permitted by Section 1501 of the
Code and certain members of the Diagnostics Group (as defined below) and certain
members of the Centocor Sub-Group (as defined below), have filed and intend to
file returns relating to Combined State Taxes (as defined below);
WHEREAS, Centocor and Diagnostics desire to agree upon a method for
determining the financial consequences to each party and their subsidiaries
resulting from the filing of a consolidated federal income tax return and the
filing of returns relating to Combined State Taxes.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Centocor and Diagnostics, for
themselves, their successors, and assigns, hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the terms set forth below
-----------
shall have the following meanings.
"Diagnostics Combined State Tax Liability" shall mean, with respect to
any taxable year and any jurisdiction, an amount of Combined State Taxes
determined in accordance with the principles set forth in the definition of
Diagnostics Federal Tax Liability.
"Diagnostics Federal Tax Liability" shall mean, with respect to any
taxable year, the sum of the Diagnostics Group's Federal Tax liability and any
interest, penalties and other additions to such taxes for such taxable year,
computed as if the Diagnostics Group were not and never were part of the
Centocor Group, but rather were a separate affiliated group of corporations
filing a consolidated federal income tax return pursuant to Section 1501 of the
Code, provided, however, that transactions with members of the Centocor Sub-
-------- -------
Group shall be reflected according to the provisions of the consolidated return
regulations promulgated under the Code governing intercompany transactions, and
that Deconsolidation will trigger any deferred amounts, excess loss accounts or
similar items. Such computation shall be made (A) with negative adjustments for
any net operating losses, net capital losses and credits of any member of the
Centocor Sub-Group that are utilizable in such taxable year, as if the
Diagnostics Group incurred such losses or credits but only to the extent
allocated to Diagnostics Group based on the proportion of the Diagnostics
Group's total income to the Centocor Group's total income (each total income
determined without regard to such losses and credits), provided however, that
appropriate adjustments shall be made for the use of losses and credits in prior
years, (B) by taking account of any Tax Asset of the Diagnostics Group in
accordance with Section 2.1(c)(iii) hereof, (C) as though the highest rate of
tax specified in subsection (b) of Section 11 of the Code (or any other similar
rates applicable to specific types of income) were the only rates set forth in
that subsection, and with other similar adjustments as described in Section 1561
of the Code, and (D) reflecting the positions, elections and accounting methods
used by Centocor in preparing the consolidated federal income tax return for the
Centocor Group. The Diagnostics Group shall not be obligated to make any
payment to Centocor for the use by the Diagnostics Group of any net operating
losses, net capital losses and credits of any member of the Centocor Sub-Group.
"Diagnostics Group" shall mean, at any time, Diagnostics and any direct
or indirect corporate subsidiaries of Diagnostics that would be eligible to join
with Diagnostics, with respect to Federal Taxes, in the filing of a consolidated
federal income tax return and, with respect to Combined State Taxes, in the
filing of a consolidated, combined or unitary income or franchise tax return if
Diagnostics were not consolidated, combined or filing on a unitary basis with
any member of the Centocor Sub-Group.
"Combined State Tax" means, with respect to each state or local taxing
jurisdiction, any income, franchise or similar tax payable to such state or
local taxing jurisdiction in which a member of the Diagnostics Group files tax
returns with a member of the Centocor Sub-Group, on a consolidated, combined or
unitary basis for purposes of such income or franchise tax.
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"Deconsolidation" means any event pursuant to which Diagnostics ceases to
be a subsidiary corporation includible in a consolidated tax return of the
Centocor Group for Federal Tax purposes.
"Federal Tax" means any tax imposed under Subtitle A of the Code.
"Final Determination" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313 (a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, (ii) any final disposition of a tax issue by
reason of the expiration of a statute of limitations or (iii) the payment of tax
by Centocor with respect to any item disallowed or adjusted by any taxing
authority where Centocor determines in good faith that no action should be taken
to recoup such payment.
"Post-Deconsolidation Tax Period" means (i) any tax period beginning and
ending after the date of Deconsolidation and (ii) with respect to a tax period
that begins before and ends after the date of Deconsolidation, such portion of
the tax period that commences on the day immediately after the date of
Deconsolidation.
"Pre-Deconsolidation Tax Period" means (i) any tax period beginning and
ending before or on the date of Deconsolidation and (ii) with respect to a
period that begins before and ends after the date of Deconsolidation, such
portion of the tax period ending on and including the date of Deconsolidation.
"Tax Asset" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction or any other deduction,
credit or tax attribute which could reduce taxes (including, without limitation,
deductions and credits related to alternative minimum taxes).
"Centocor Group" shall mean, at any time, Centocor and each direct and
indirect corporate subsidiary eligible to join with Centocor in the filing of a
consolidated federal income tax return.
"Centocor Sub-Group" shall mean, at any time, Centocor and each of its
direct and indirect corporate subsidiaries other than those subsidiaries that
are members of the Diagnostics Group.
1.2. Internal References. Unless the context indicates otherwise, references
-------------------
to Articles, Sections and paragraphs shall refer to the corresponding articles,
sections and paragraphs in this Agreement and references to the parties shall
mean the parties to this Agreement.
-3-
<PAGE>
ARTICLE II
TAX SHARING
2.1. Tax Sharing. (a) General. For each taxable year of the Centocor Group
----------- -------
during which income, loss, or credit against tax of the Diagnostics Group are
includible in the consolidated Federal Tax return of the Centocor Group,
Diagnostics shall pay to Centocor an amount equal to the Diagnostics Federal Tax
Liability and for each taxable period during which income, loss or credit
against tax of any member of the Diagnostics Group are includible in a return
relating to a Combined State Tax, Diagnostics shall pay Centocor an amount equal
to the Diagnostics Combined State Tax Liability for such taxable period, each as
shown on the Pro Forma Returns (as defined in paragraph (c) below).
(b) Estimated Payments. Centocor shall determine the amount of the estimated
------------------
tax installment of the Diagnostics Federal Tax Liability (corresponding to
Centocor's estimated Federal Tax installment), as determined under the
principles of Section 2.1(a) of this Agreement. Diagnostics shall, within 5
days of receipt of such determination (but in no event earlier than 5 days prior
to the due date of Centocor's corresponding estimated tax payment), pay to
Centocor the amount so determined. Centocor shall determine under provisions of
applicable law the amount of the estimated tax installment of the Diagnostics
Combined State Tax Liability (corresponding to the relevant estimated Combined
State Tax installment), as determined under the principles of Section 2.1(a) of
this Agreement. Diagnostics shall, within 5 days of receipt of such
determination (but in no event earlier than 5 days prior to the due date of
Centocor's corresponding estimated tax payment), pay to Centocor the amount so
determined.
(c) Payment of Taxes at Year-End.
----------------------------
(i) At least 5 days prior to the due date (including all applicable and
valid extensions) for the Centocor Group's consolidated Federal Tax return,
Centocor shall make available to Diagnostics a pro forma Federal Tax return (a
"Pro Forma Federal Return") of the Diagnostics Group reflecting the Diagnostics
Federal Tax Liability. At least 5 days prior to the due date for each Combined
State Tax return, Centocor shall make available to Diagnostics the relevant pro
forma Combined State Tax return (each a "Pro Forma Combined State Return" and
together with the Pro Forma Federal Return, the "Pro Forma Returns") of the
Diagnostics Group reflecting the relevant Diagnostics Combined State Tax
Liability. The Pro Forma Returns shall be prepared in good faith in a manner
generally consistent with past practice.
(ii) On or before the date Centocor files its consolidated Federal Tax
return for any year for which payments are to be made under this Agreement,
Diagnostics shall pay to Centocor, or Centocor shall pay to Diagnostics, as
appropriate, an amount equal to the difference, if any, between the Diagnostics
Federal Tax Liability reflected on the Pro Forma Federal Return for such year
and the aggregate amount of the estimated installments of the Diagnostics
Federal Tax Liability for such year made pursuant to Section 2.1(b). On or
before the date Centocor files a Combined State Tax return for any year for
which payments are to be made under this Agreement, Diagnostics shall pay to
Centocor, or Centocor shall pay to Diagnostics, as appropriate, an amount equal
to the difference, if any, between the
-4-
<PAGE>
Diagnostics Combined State Tax Liability reflected on the relevant Pro Forma
Combined State Tax Return and the aggregate amount of the estimated installments
paid with respect to the corresponding Diagnostics Combined State Tax Liability
pursuant to Section 2.1(b).
(iii) If a Pro Forma Return reflects a Tax Asset (determined without
regard to any net operating losses, net capital losses or credits of any member
of the Centocor Sub-Group) that may under applicable law be used to reduce a
Federal Tax or Combined State Tax liability of the Centocor Group for any
taxable period, Centocor shall pay to Diagnostics an amount equal to the actual
tax saving (which would include refunds actually received) produced by such Tax
Asset at the time such tax saving is realized and the Pro Forma Returns of the
Diagnostic Group shall be adjusted to reflect such use. The amount of any such
tax saving for any taxable period shall be the amount of the reduction in taxes
payable by the Centocor Group to a taxing authority with respect to such tax
period as compared to the taxes that would have been payable to a taxing
authority with respect to such tax period in the absence of such Tax Asset.
(iv) In the event that Centocor makes a cash deposit with a taxing
authority in order to stop the running of interest or makes a payment of tax and
correspondingly takes action to recoup such payment (such as suing for a
refund), Diagnostics shall pay to Centocor an amount equal to Diagnostics' share
of the amount so deposited or paid (calculated in a manner consistent with the
determinations provided in this Article 2). Upon receipt by Centocor of a
refund of any amounts paid by it in respect of which Diagnostics shall have
advanced an amount hereunder, Centocor shall pay to Diagnostics the amount of
such refund, together with any interest received by it on such refund. If and
to the extent that any claim for refund or contest based thereupon shall be
unsuccessful, the payment by Diagnostics under Section 2.1(c)(iv) shall be
credited toward Diagnostics' obligations under this Section 2(c)(iv) and any
other payment obligation of Diagnostics under Section 2(d) below.
(d) Treatment of Adjustments. If any adjustment is made in a Federal Tax
------------------------
return of the Centocor Group or in a return relating to a Combined State Tax,
after the filing thereof, in which income or loss of the Diagnostics Group (or
any member thereof) is included, then at the time of a Final Determination of
the adjustment, Diagnostics shall pay to Centocor or Centocor shall pay to
Diagnostics, as the case may be, the difference between all payments actually
made under Section 2.1 with respect to the taxable year or period covered by
such tax return and all payments that would have been made under Section 2.1
taking such adjustment into account, together with any penalties actually paid
and interest for each day until the date of Final Determination calculated at
the rate determined, in the case of a payment by Diagnostics, under Section
6621(a)(2) of the Code and, in the case of a payment by Centocor, under Section
6621(a)(1) of the Code.
(e) Preparation of Returns and Contests. So long as (i) the Centocor Group
-----------------------------------
elects to file consolidated Federal Tax returns as permitted by Section 1501 of
the Code or (ii) any Combined State Tax return is filed, Centocor shall prepare
and file such returns and any other returns, documents or statements required to
be filed with the Internal Revenue Service with respect to the determination of
the Federal Tax liability of the Centocor Group and with the appropriate taxing
authorities with respect to the determination of a Combined State Tax liability.
With respect to such return preparation, Centocor shall act in good faith with
regard
-5-
<PAGE>
to all members included in an applicable return. Centocor shall have the right
with respect to any consolidated Federal Tax returns or returns relating to a
Combined State Tax that it has filed or will file to determine in good faith (i)
the manner in which such returns, documents or statements shall be prepared and
filed, including, without limitation, the manner in which any item of income,
gain, loss, deduction or credit shall be reported, (ii) whether any extensions
should be requested, and (iii) the elections that will be made by any member of
the Centocor Group. In addition, Centocor shall have the right, in good faith,
to (i) contest, compromise or settle any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any Federal Tax return or
return relating to a Combined State Tax, (ii) file, prosecute, compromise or
settle any claim for refund, and (iii) determine whether any refunds shall be
received by way of refund or credited against tax liabilities. In addition,
Centocor shall prepare and file ruling requests, and take all other actions on
behalf of any member of the Centocor Group that it deems appropriate in
providing tax services to the members of the Centocor Group. Centocor shall, to
the extent such information is available, advise Diagnostics of any significant
Diagnostics tax issue being contested by the federal, state, local or other
relevant taxing authorities, and shall keep Diagnostics informed with respect to
any contest, compromise or settlement thereof.
ARTICLE III
POST-DECONSOLIDATION
3.1. Additional Rights and Liabilities Post-Deconsolidation.
------------------------------------------------------
(a) Diagnostics covenants that on or after a Deconsolidation it will not, nor
will it cause or permit any member of the Diagnostics Group to make or change
any tax election, change any accounting method, amend any tax return or take any
tax position on any tax return, take any other action, omit to take any action
or enter into any transaction that results in any increased tax liability or
reduction of any Tax Asset of the Centocor Group or any member thereof
(immediately after the Deconsolidation) in respect of any Pre-Deconsolidation
Tax Period, without first obtaining the written consent of an authorized
representative of Centocor.
(b) In the event of a Deconsolidation, Centocor may, at its option, elect and
Diagnostics shall join Centocor in electing (if necessary), (i) to reattribute
to itself certain Tax Assets of the Diagnostics Group pursuant to Treasury
Regulations Section 1.1502-20(g) and, if Centocor makes such election,
Diagnostics shall comply with the requirements of Treasury Regulations Section
1.1502-20(g)(5)) and (ii) to ratably allocate items (other than extraordinary
items) of the Diagnostics Group in accordance with relevant provisions of the
Treasury Regulations Section 1.1502-76. If Centocor elects to reattribute to
itself any Tax Assets under clause (i) this Section 3.1(b), Centocor shall pay
Diagnostics an amount agreed to by Centocor and Diagnostics at the time of
Centocor's election based on the effect of such election on the tax liability of
Centocor and Diagnostics.
(c) Where permitted by applicable law, Diagnostics shall elect not to
carryback any Tax Asset of the Diagnostics Group from a Post-Deconsolidation Tax
Period to a Pre-Deconsolidation Tax Period, unless otherwise permitted or
requested by Centocor. In the event of such carryback, Centocor agrees to pay
to Diagnostics the actual tax benefit received
-6-
<PAGE>
by the Centocor Group from the use in any Pre-Deconsolidation Tax Period of a
carryback of any Tax Asset of the Diagnostics Group from a Post-Deconsolidation
Tax Period. Such benefit shall be considered equal to the excess of (i) the
amount of Federal Taxes or Combined State Taxes, as the case may be, that would
have been payable by the Centocor Group in the absence of such carryback over
(ii) the amount of Federal Taxes or Combined State Taxes, as the case may be,
actually payable by the Centocor Group. Payment of the amount of such benefit
shall be made within 90 days of the filing of the applicable tax return for the
taxable year in which the Tax Asset is utilized. If, subsequent to the payment
by Centocor to Diagnostics of any such amount, there shall be (A) a Final
Determination which results in a disallowance or a reduction of the Tax Asset so
carried back or (B) a reduction in the amount of the benefit realized by the
Centocor Group as a result of any other Tax Asset that arises in a Post-
Deconsolidation Tax Period, Diagnostics shall repay to Centocor, within 90 days
of such event described in (A) or (B) (an "Event" or, collectively, the
"Events") any amount which would not have been payable to Diagnostics pursuant
to this Section 3.1(c) had the amount of the benefit been determined in light of
the Events. Diagnostics shall hold Centocor harmless for any penalty or interest
payable by any member of the Centocor Group, as a result of any Event. Any such
amount shall be paid by Diagnostics to Centocor within 90 days of the payment by
Centocor or any member of the Centocor Group of any such interest or penalty.
Nothing in this Section 3.1(c) shall require Centocor to file a claim for refund
of Federal Taxes or Combined State Taxes which Centocor, in its sole discretion,
determines lacks substantial authority, as defined in the Code and the
regulations thereunder.
ARTICLE IV
MISCELLANEOUS
4.1. Limitation of Liability. Neither Centocor nor Diagnostics shall be
-----------------------
liable to the other for any special, indirect, incidental or consequential
damages of the other arising in connection with this Agreement; provided,
however that in the event that (i) the Internal Revenue Service (or other
competent taxing authority) asserts a tax liability directly against Diagnostics
or any member of the Diagnostics Group, pursuant to its authority under Treasury
Regulation Section 1.1502-6 (or other relevant statutory authority), (ii)
Diagnostics has made all payments and performed all of its obligations otherwise
required of it under this Agreement with respect to such liability or otherwise,
and (iii) Centocor was given the opportunity to contest, settle or compromise
such liability pursuant to Section 2.1(e) of this Agreement, then Centocor shall
indemnify Diagnostics for actual payments made after a Final Determination with
respect to such liability to the extent that such payments exceed Diagnostics'
share of such liability (calculated in a manner that avoids double-counting
under this Agreement), such share determined in accordance with Article II of
this Agreement.
4.2. Subsidiaries. (a) Performance. Centocor agrees and acknowledges that
------------ -----------
Centocor shall be responsible for the performance of the obligations of each
member of the Centocor Sub-Group hereunder applicable to such subsidiary.
Diagnostics agrees and acknowledges that Diagnostics shall be responsible for
the performance by each member of the Diagnostics Group of the obligations
hereunder applicable to such member.
-7-
<PAGE>
(b) Application to Present and Future Subsidiaries. This Agreement is being
----------------------------------------------
entered into by Centocor and Diagnostics on behalf of themselves and each member
of the Centocor Sub-Group and Diagnostics Group, respectively. This Agreement
shall constitute a direct obligation of each such member and shall be deemed to
have been readopted and affirmed on behalf of any corporation which becomes a
member of the Centocor Sub-Group or Diagnostics Group in the future.
4.3. Cooperation. Centocor and Diagnostics shall cooperate fully in the
-----------
implementation of this Agreement, including but not limited to, providing
promptly to the requesting party such assistance and documentation as may be
reasonably requested by such party in connection with any of the activities
described in Article II or Article III. In addition, Centocor and Diagnostics
shall retain all relevant tax records for relevant open periods in accordance
with past practice.
4.4. Agent. Each member of the Diagnostics Group hereby irrevocably appoints
-----
Centocor as its agent and attorney-in-fact to take any action as Centocor may
deem necessary or appropriate to effect Section 2.1 including, without
limitation, those actions specified in Treasury Regulation Section 1.1502-77(a).
4.5. Amendments. This Agreement may not be amended or terminated orally, but
----------
only by a writing duly executed by or on behalf of the parties hereto. Any such
amendment shall be validly and sufficiently authorized for purposes of this
Agreement if it is signed on behalf of Centocor and Diagnostics by any of their
respective presidents or vice presidents.
4.6. Term. Subject to Article III, this Agreement shall expire upon the date
----
of Deconsolidation with respect to all Post-Deconsolidation periods; provided,
--------
however, that all rights and obligations arising hereunder with respect to a
- -------
Pre-Deconsolidation Tax Period shall survive until they are fully effectuated or
performed and, provided, further, that notwithstanding anything in this
-------- -------
Agreement to the contrary, all rights and obligations arising hereunder with
respect to a Post-Deconsolidation Tax Period shall remain in effect and its
provisions shall survive for the full period of all applicable statutes of
limitation (giving effect to any extension, waiver or mitigation thereof).
4.7. Effective Date. This Agreement shall be effective as of August 22, 1997,
--------------
shall govern all open taxable periods and shall supersede all prior agreements
as to the allocation of federal income tax liability between the parties to this
Agreement for all such open taxable years and for all subsequent taxable years.
4.8. Severability. If any provision of this Agreement or the application of
------------
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid, illegal or unenforceable to any
extent, the remainder of this Agreement or such provision or the application of
such provision to such party or circumstances, other than those to which it is
so determined to be invalid, illegal or unenforceable, shall remain in full
force and effect to the fullest extent permitted by law and shall not be
affected thereby, unless such a construction would be unreasonable.
-8-
<PAGE>
4.9. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be deemed duly given upon actual receipt,
and shall be delivered (a) in person, (b) by registered or certified mail,
postage prepaid, return receipt requested, or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (b), addressed as follows:
(a) If to Diagnostics, to:
Chief Financial Officer
Centocor Diagnostics, Inc.
200 Great Valley Parkway
Malvern, PA 19355
Fax: (610) 889-4666
(b) If to Centocor, to:
Corporate Controller
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355
Fax: (610) 889-4769
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
4.10. Further Assurances. Centocor and Diagnostics shall execute,
------------------
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
such instruments and take such other action as may be necessary or advisable to
carry out their obligations under this Agreement and under any exhibit, document
or other instrument delivered pursuant hereto.
4.11. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the parties hereto with respect to the subject matter hereof.
4.12. Successors. This agreement shall be binding on and inure to the
----------
benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including but not limited to any successor of Centocor
and Diagnostics succeeding to the tax attributes of such party under Section 381
of the Code), to the same extent as if such successor had been an original party
hereto.
4.13. Authorization, etc. Each of the parties hereto hereby represents and
-------------------
warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party that this Agreement constitutes a
legal, valid and binding obligation of each such party and that the execution,
delivery and performance of this Agreement by such party does not contravene or
conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such party.
-9-
<PAGE>
4.14. Section Captions. Section captions used in this Agreement are for
----------------
convenience and reference only and shall not affect the construction of this
Agreement.
4.15. Governing Law. This agreement shall be governed by and construed in
-------------
accordance with the internal laws of the Commonwealth of Pennsylvania without
giving effect to laws and principles relating to conflicts of law.
4.16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this agreement
to be executed by a duly authorized officer as of the date first above written.
CENTOCOR DIAGNOSTICS, INC.
By: /s/ Richard A. Bierly
---------------------------
Name: Richard A. Bierly
Title: Vice President and
Chief Financial Officer
CENTOCOR, INC.
By: /s/ Dominic J. Caruso
---------------------------
Name: Dominic J. Caruso
Title: Vice President-Finance and
Chief Financial Officer
-11-
<PAGE>
[LETTERHEAD OF CENTOCOR APPEARS HERE]
Exhibit 10.15
October 9, 1997
[OFFER OF EMPLOYMENT]
Rick Bierly
3820 Terwood Drive
Doylestown, PA 18901
Dear Rick:
Centocor Diagnostics of PA, ("The Company") is pleased to offer you employment
on the following terms and conditions:
1) The title of your position will be Vice President and Chief Financial
Officer. You will report directly to me, as an officer of Centocor
Diagnostics of PA.
2) Salary: You will be paid a salary at an annual rate of $170,000.00,
------
payable biweekly. Your performance and salary will be reviewed
annually.
3) Bonus: You will be eligible to participate in Centocor Inc.'s 1997
-----
Annual Cash Bonus program, which is dependent on the discretion of
management. The amount of your bonus, which is targeted for 25% of
your grade midpoint, is based upon Centocor Inc.'s performance, the
overall performance of Centocor Diagnostics of PA, and your individual
performance. For 1997, any bonus will be prorated for that portion of
the period during which you were a Company employee. You must be a
Company employee at the time of distribution to receive a bonus. The
1998 Centocor Diagnostics of PA Annual Cash Bonus program and the
Stock Options program(s) will be developed and communicated at a later
date.
4) One Time Cash Bonus: To assist you with any inconveniences, you will
-------------------
be paid $45,000.00 no later than March 31, 1998. This amount is
subject to all income taxes.
5) Stock Options: Subject to approval by the Centocor Diagnostics of PA
-------------
Board of Directors, you will be granted options to purchase 55,000
shares of the Company's Common Stock at the price of the Initial
Public Offering (IPO). Your right to exercise these options will vest
according to the following schedule, provided you continue as a
Centocor Diagnostics of PA employee until the indicated time after the
Award date: 25% after 1 year, 1/48 for each subsequent month, to full
vesting at four years.
<PAGE>
[LETTERHEAD OF CENTOCOR APPEARS HERE]
________________________________________________________________________________
Rick Bierly
Offer of Employment
Page two
6) Benefits: You will be eligible to participate in Centocor Diagnostics
--------
of PA comprehensive benefits package. These benefits, described in the
enclosed employee benefits summary, include:
. Medical
. Dental
. Life Insurance
. Disability
. 401(k) Savings Plan
. Dependent Care Reimbursement Account
. Vacation
. Holiday
. Tuition Reimbursement
You should be aware that the Company's PPO medical plan provider has a
coverage exclusion for medical conditions existing at the time of your
hire.
These benefits are subject to change from time to time at the
Company's discretion. You may direct any questions regarding these
benefit programs to the Employee Benefits Department.
7) Termination Provisions: If Centocor Diagnostics of PA terminates your
----------------------
employment because of willful failure to perform, or dishonest
conduct, Centocor Diagnostics of PA shall have no further obligation.
If Centocor Diagnostics of PA terminates your employment for any
reason other than those specified above (i.e., not for cause),
Centocor Diagnostics of PA shall be obligated to pay you (at the same
level of your base salary) on a bi-weekly basis for up to 6 months, or
until such time that you have comparable employment, whichever time
period is shorter.
8) Vacation: During any calendar year of your employment you will be
--------
entitled to four (4) weeks of paid vacation during that year. Vacation
shall be prorated for any calendar year in which you were an employee
for less than the full year.
<PAGE>
[LETTERHEAD OF CENTOCOR APPEARS HERE]
________________________________________________________________________________
Rick Bierly
Offer of Employment
Page three
9) Acceptance of Employment: In order to accept this offer of employment
------------------------
with Centocor Diagnostics of PA and to accept the conditions of the
offer as described in this letter, you must complete and sign a copy
of this letter and deliver it to Human Resources in advance of your
start date. If you accept this offer of employment, your effective
date of employment with Centocor Diagnostics of PA will be determined
shortly thereafter.
10) Nature of Employment: Your employment with Centocor Diagnostics of PA
--------------------
is on an at-will basis which means that either you or Centocor
Diagnostics of PA may terminate the employment relationship at any
time with or without cause .
11) Orientation: New employee orientation is held every Monday. The
-----------
orientation consists of four parts: Welcome to Centocor, a benefits
overview, a safety seminar and an automated systems overview.
Materials essential to your employment at Centocor Diagnostics of PA
are provided during this meeting. It is imperative that all new
employees attend the orientation on the first Monday after beginning
employment.
Also, as a condition of your employment, you must agree to and sign the
following documents:
a. The Centocor Agreement with Respect to Inventions and Confidential
Information,
b. The Employment Eligibility Verification Form I-9,
c. The Code of Legal and Ethical Conduct.
PLEASE BRING THESE FORMS WITH YOU TO THE HUMAN RESOURCES DEPARTMENT (BUILDING
#3-200 GREAT VALLEY PARKWAY) AT 8:30 A.M. ON THE FIRST MONDAY AFTER BEGINNING
EMPLOYMENT. YOU WILL BE REQUIRED TO PRESENT APPROPRIATE DOCUMENTATION TO VERIFY
YOUR IDENTITY AND EMPLOYMENT ELIGIBILITY AS INDICATED ON "THE EMPLOYMENT
ELIGIBILITY VERIFICATION FORM I-9" ENCLOSED WITH THIS LETTER. THE ORIENTATION
SESSION WILL TAKE APPROXIMATELY 3 HOURS.
<PAGE>
[LETTERHEAD OF CENTOCOR APPEARS HERE]
________________________________________________________________________________
Rick Bierly
Offer of Employment
Page four
This offer of employment will remain in effect until October 10, 1997 and is
contingent upon the satisfactory completion of a pre-employment reference
check(s). Upon acceptance, please sign and return a copy of this letter to me.
We are all very excited about the possibility of your joining Centocor
Diagnostics of PA.
Sincerely yours,
/s/ R. James Danehy
R. James Danehy
President and Chief Executive Officer
Enclosures
AGREED TO AND ACCEPTED THIS 10th DAY OF OCTOBER, 1997.
/s/ Richard A. Bierly
- ---------------------
NAME
<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
November 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 7907
<ALLOWANCES> 0
<INVENTORY> 3846
<CURRENT-ASSETS> 11815
<PP&E> 5214
<DEPRECIATION> 3666
<TOTAL-ASSETS> 17295
<CURRENT-LIABILITIES> 4131
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17295
<SALES> 37611
<TOTAL-REVENUES> 40092
<CGS> 13458
<TOTAL-COSTS> 31378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8714
<INCOME-TAX> 3464
<INCOME-CONTINUING> 5250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5250
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
