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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Check One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended July 2, 1995 Commission File Number: 0-12798
CHIRON CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 94-2754624
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4560 Horton Street, Emeryville, California 94608
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(Address of principal executive offices) (Zip code)
(510) 655-8730
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 2, 1995
----- ---------------------------
Common Stock, $0.01 par value 40,213,578
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CHIRON CORPORATION
TABLE OF CONTENTS
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<TABLE>
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PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheet as of
June 30, 1995 and December 31, 1994 ........................ 3
Consolidated Statement of Operations for the
three months and six months ended June 30, 1995 and 1994 ... 4
Consolidated Statement of Cash Flows for the
six months ended June 30, 1995 and 1994 .................... 5
Notes to Consolidated Financial Statements ................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ....... 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .................................... 25
ITEM 2. CHANGES IN SECURITIES ................................ 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ...................... 27
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS ... 27
ITEM 5. OTHER INFORMATION .................................... 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................... 28
SIGNATURES ...................................................... 43
</TABLE>
2
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CHIRON CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(IN THOUSANDS)
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<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 82,147 $ 84,876
Short-term investments in marketable debt securities 71,436 137,619
---------- ----------
Total cash and short-term investments 153,583 222,495
Accounts receivable 265,631 140,476
Inventories 163,781 47,592
Other current assets 43,711 23,252
---------- ----------
Total current assets 626,706 433,815
Noncurrent investments in marketable debt securities 115,017 171,328
Property, equipment and leasehold improvements, at cost:
Land and buildings 200,472 60,930
Laboratory, production and office equipment 256,151 140,438
Leasehold improvements 90,649 82,145
Construction in progress 48,122 78,998
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595,394 362,511
Less: accumulated depreciation and amortization 112,440 76,337
---------- ----------
Net property, equipment and leasehold improvements 482,954 286,174
Intangible assets, net 163,950 85,803
Investments in equity securities and affiliated companies 49,800 51,425
Other assets 51,626 21,197
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$1,490,053 $1,049,742
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---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65,140 $ 27,778
Accrued compensation and related expenses 48,355 24,010
Short-term borrowings 97,956 --
Current portion of long-term debt 3,265 3,461
Taxes payable 26,678 10,060
Other current liabilities 142,540 54,332
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Total current liabilities 383,934 119,641
Long-term debt 406,548 338,061
Other noncurrent liabilities 37,101 19,409
Commitments and contingencies
Stockholders' equity:
Common stock 402 334
Additional paid-in capital 1,603,892 1,161,942
Accumulated deficit (960,185) (575,236)
Cumulative foreign currency translation adjustment 4,010 (1,719)
Unrealized gain (loss) from investments 14,351 (12,690)
---------- ----------
Total stockholders' equity 662,470 572,631
---------- ----------
$1,490,053 $1,049,742
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
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CHIRON CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- ------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $248,333 $ 60,332 $ 432,242 $105,816
Equity in earnings of unconsolidated joint businesses 21,360 15,621 39,538 31,108
Collaborative agreement revenues 4,956 18,373 10,522 40,835
Other revenues 7,103 5,785 17,695 13,733
-------- -------- --------- --------
Total revenues 281,752 100,111 499,997 191,492
Expenses:
Research and development 71,904 37,090 170,959 75,499
Cost of sales 108,547 28,729 198,829 50,453
Selling, general and administrative 88,364 26,057 173,259 49,575
Write-off of purchased in-process technologies 1,759 -- 232,415 --
Costs related to Ciba transaction (43) -- 49,478 --
Restructuring and reorganization costs 1,414 -- 39,055 --
Other operating expenses 3,512 1,109 5,791 2,015
-------- -------- --------- --------
Total expenses 275,457 92,985 869,786 177,542
-------- -------- --------- --------
Income (loss) from operations 6,295 7,126 (369,789) 13,950
Other income (expense), net (2,110) 427 (3,499) 709
-------- -------- --------- --------
Income (loss) before income taxes 4,185 7,553 (373,288) 14,659
Provision for income taxes 3,355 2,443 11,661 4,732
-------- -------- --------- --------
Net income (loss) $ 830 $ 5,110 $(384,949) $ 9,927
-------- -------- --------- --------
-------- -------- --------- --------
Net income (loss) per share $ 0.02 $ 0.15 $ (9.60) $ 0.29
-------- -------- --------- --------
-------- -------- --------- --------
Weighted average number of shares
used in computing per share amounts 40,895 34,068 40,086 34,334
-------- -------- --------- --------
-------- -------- --------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
4
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CHIRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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<TABLE>
<CAPTION>
Six Months Ended
---------------------
June 30, June 30,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(384,949) $ 9,927
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Write-off of purchased in-process technologies 232,415 --
Reserves and other adjustments 30,638 6,037
Depreciation and amortization 46,223 20,388
Undistributed earnings of affiliates (1,090) (622)
Changes to:
Accounts receivable 25,165 (3,131)
Inventories (34,291) (7,143)
Other current assets (4,245) (9,915)
Accounts payable (8,342) (2,479)
Current portion of unearned revenue 6,388 (7,463)
Accrued compensation and related expenses (1,707) (6,029)
Taxes payable 8,771 4,098
Other current liabilities 28,174 (12,323)
Other noncurrent liabilities (16,974) 2,461
--------- ---------
Net cash used in operating activities (73,824) (6,194)
Cash flows from investing activities:
Purchase of investments in marketable debt securities (74,332) (128,433)
Sale of investments in marketable debt securities 203,094 142,449
Capital expenditures (49,142) (57,843)
Acquisition of IOLAB, net of cash acquired (96,013) --
Cash acquired from the Ciba acquisitions, net of cash paid 14,225 --
Acquisition of Technolas, net of cash acquired (2,255) --
Acquisition of Domilens, net of cash acquired -- (17,407)
Investments in equity securities and affiliates (5,150) (18,602)
Distributions from affiliates -- 821
Increase in other assets (4,450) (9,578)
--------- ---------
Net cash used in investing activities (14,023) (88,593)
Cash flows from financing activities:
Borrowings under line of credit arrangements 53,747 --
Repayment of notes payable and capital leases (3,887) (237)
Proceeds from capital contribution from Ciba 24,845 --
Proceeds from issuance of common stock 9,426 10,485
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Net cash provided by financing activities 84,131 10,248
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 987 --
--------- ---------
Net decrease in cash and cash equivalents (2,729) (84,539)
Cash and cash equivalents at beginning of the period 84,876 156,516
--------- ---------
Cash and cash equivalents at end of period $ 82,147 $ 71,977
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
5
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CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information at June 30, 1995, and for the periods ended June 30, 1995
and 1994, is unaudited, but includes all adjustments which Chiron's
management believes to be necessary for fair presentation of the periods
presented. The consolidated balance sheet amounts at December 31, 1994 have
been derived from audited financial statements. Certain 1994 balances have
been reclassified to conform to the 1995 presentation. Interim results are
not necessarily indicative of results for a full year. The consolidated
financial statements should be read in conjunction with Chiron's audited
consolidated financial statements for the year ended December 31, 1994, and
with Amendment No. 1 to the Company's filing on Form 8-K dated January 4,
1995.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Investments in joint ventures, partnerships and
interests in other companies in which Chiron has an equity interest of 50
percent or less are accounted for by the equity method, cost method or in
accordance with Statement of Financial Accounting Standards No. 115, as
appropriate. All significant intercompany transactions and balances have
been eliminated.
FISCAL YEAR
Effective for fiscal year 1995, the Company adjusted its fiscal year end
from December 31 to the 52 or 53-week period that ends on the Sunday nearest
December 31. As a result, the second quarter of 1995 represents the
thirteen-week period ended July 2, 1995. For presentation purposes, dates
used in the consolidated financial statements and notes refer to the calendar
month end.
INVENTORIES
Pharmaceutical inventories are stated at the lower of cost or market using
the average cost method or, in the case of vaccine products, using the
last-in, first-out ("LIFO") method. Diagnostic and ophthalmic products are
valued at cost using the first-in, first-out ("FIFO") method which is less
than fair value. Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
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(IN MILLIONS)
<S> <C> <C>
Finished goods $ 95 $24
Work in process 28 9
Raw materials 41 15
---- ---
$164 $48
---- ---
---- ---
</TABLE>
INCOME TAXES
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Income tax expense for the quarters ended June 30, 1995 and 1994 includes a
provision for federal, state and foreign taxes based on the annual estimated
effective rates applicable to certain of the Company's subsidiaries.
PER SHARE DATA
Per share information is based on the weighted average number of common
shares and dilutive common share equivalents outstanding. Shares issuable
upon the exercise of stock options and certain warrants are included in the
calculations, utilizing the treasury stock method, to the extent they are
dilutive. Shares assumed to be issued upon conversion of the Company's
convertible debentures and certain warrants are not included since their
inclusion would be antidilutive. Fully diluted per share data has not been
presented as the amount would not differ materially from primary per share
data.
REVENUE RECOGNITION
Revenue from product sales consists of shipments of ophthalmic products,
therapeutics, diagnostic materials and instruments and other biologicals and
is generally recognized upon shipment. Revenue from service contracts is
recognized ratably over the life of the contract. Revenue from the sale of
equipment under sales-type leases is recognized at the inception of the
lease. All of the above revenues are included in "Product sales, net" in the
Consolidated Statement of Operations.
2. BUSINESS COMBINATIONS
TRANSACTION WITH CIBA-GEIGY LTD. AND AFFILIATES ("CIBA")
Effective January 1, 1995, Chiron entered into a series of agreements with
Ciba, including an investment agreement, a cooperation and collaboration
agreement and a governance agreement (collectively "agreements"). Ciba now
holds approximately a 49 percent ownership interest in Chiron Common Stock,
partially through a tender offer for approximately 38 percent of Chiron's
outstanding common stock for $117 per share. At the same time, Chiron
acquired all of the outstanding common stock of Ciba Corning Diagnostics
Corp. ("CCD") and Ciba's interests in The Biocine Company and JV Vax B.V. (a
Netherlands company which owns Biocine S.p.A.) in exchange for 6.6 million
newly-issued Chiron common shares and a cash payment of $24 million. These
two acquisitions of Chiron Common Stock by Ciba, together with Ciba's prior
holdings of approximately 1.4 million shares, result in the aforementioned 49
percent ownership of the Company's Common Stock.
Under the terms of the agreements, Ciba is entitled to name three new
members to Chiron's Board of Directors and has limited rights to review and
approve certain Chiron transactions. In connection with these agreements,
Ciba has agreed to guarantee $425 million of new debt for Chiron and has
agreed to provide $250 million (which may be increased up to $300 million
subject to certain reductions in the debt guarantee) over five years in
support of research at Chiron, and Chiron has the option of issuing up to
$500 million of new equity to Ciba. In the event Chiron utilizes this
research
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funding, Chiron will be obligated to offer to Ciba the opportunity to share
in the market opportunities of any resulting products, subject to certain
repurchase rights held by Chiron.
The acquisitions of CCD and Ciba's interests in The Biocine Company and JV
Vax B.V. (the "Acquisitions") were accounted for by the purchase method.
The purchase price of approximately $433 million was allocated to the
acquired assets and assumed liabilities based upon their estimated fair value
on the acquisition date. The fair value of the net assets acquired in the
Acquisitions, including in-process technology, was estimated based on an
independent valuation of the acquired net assets. The aggregate purchase
price of approximately $433 million was less than the fair value of the net
assets acquired by approximately $62 million. This amount was ratably
allocated as a reduction of the noncurrent assets of the acquired companies.
The Acquisitions include the following components:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired $ 692
Common stock issued (408)
Cash paid (24)
Acquisition costs (1)
-----
Liabilities assumed $ 259
-----
-----
</TABLE>
As required under generally accepted accounting principles, Chiron
recognized as an expense the amount allocated to in-process technology in the
first quarter of 1995. This resulted in a noncash charge against earnings of
$220 million. Other transaction-related charges totaling $50 million related
to employee payments and the related taxes, and legal and investment advisor
fees were also recognized as expenses in the first quarter of 1995. Ciba
agreed to reimburse the Company $25 million for a portion of the employee
payments and such reimbursement has been recorded as a capital contribution.
Other purchased intangible assets of approximately $33 million consisting of
a customer list and base technology are being amortized over their estimated
useful lives of 10 to 15 years, using the straight-line method.
The results of operations of CCD, JV Vax B.V. and The Biocine Company are
included in Chiron's consolidated operating results from January 1, 1995,
forward. Chiron's interest in the operating results of JV Vax B.V. and The
Biocine Company were included in the Company's 1994 operating results under
the equity method of accounting. The following unaudited pro forma
consolidated financial information for the three and six months ended June
30, 1994 gives effect to the terms of the agreements as if such transactions
had been consummated on January 1, 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1994 JUNE 30, 1994
------------------ ----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
Total revenues $220 $424
Income before nonrecurring charges 8 11
Income before nonrecurring charges per share 0.19 0.26
</TABLE>
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The above pro forma financial information does not purport to be
indicative of actual financial results which would have been obtained had
the acquisitions occurred on January 1, 1994 and should not be construed as
representative of future results of operations. Also, the pro forma
financial information does not include the write-off of purchased in-process
technology of $220 million or other transaction-related costs totaling $50
million (related to employee payments and the related taxes, and investment
advisor and legal fees) which were recognized as expense in the first quarter
of 1995.
ACQUISITION OF IOLAB
Effective March 31, 1995, Chiron Vision acquired the surgical division of
IOLAB from Johnson & Johnson. The purchase price of approximately $96
million was allocated to the acquired assets and assumed liabilities based
upon their estimated fair value on the acquisition date. The fair value of
the net assets acquired, including in-process technology, was estimated based
on independent valuations of the acquired net assets.
The acquisition includes the following components:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Fair value of assets acquired $ 109
Cash paid (95)
Acquisition costs (1)
-----
Liabilities assumed $ 13
-----
-----
</TABLE>
The acquisition was accounted for by the purchase method, and the amount
allocated to in-process technology of $10 million was charged against
earnings in the first quarter of 1995. Other purchased intangible assets of
approximately $46 million consisting of base technology, goodwill, trade name
and a customer list are being amortized over their estimated useful lives of
10 to 15 years using the straight-line method. IOLAB's results of operations
are included in Chiron's results of operations from March 31, 1995, forward.
Also, the Company recorded additional charges for restructuring and
integration-related expenses totaling $17 million in the first quarter of
1995. Of this amount, approximately $8 million was related to write-downs of
assets. The remaining $9 million consists primarily of $6 million in
employee costs and $3 million for the cost of lease terminations. The
majority of the accrued costs are expected to be paid over the next two
years.
3. RESTRUCTURING AND REORGANIZATION COSTS
Costs totaling $39 million related to restructuring and reorganization
plans, including $17 million arising from the acquisition and integration of
IOLAB (Note 2), represent the expected costs of integrating the acquired
businesses (Note 2) with Chiron's existing businesses, as well as costs
related to the idling of the Company's Puerto Rico manufacturing facility and
the scale-back of manufacturing operations at the Company's Amsterdam
facility, the write-down of duplicate
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facilities and the postponement of plans to expand the Company's research
and administrative facilities.
Of the approximately $22 million in charges for actions other than the
integration of IOLAB, approximately $15 million related to write-downs of
assets. The remaining costs of approximately $7 million consist primarily of
employee costs of $1 million and $6 million related to additional tax
obligations, lease termination costs and the costs of postponement of the
Company's research and administrative facility expansion plans . The
majority of the accrued costs are expected to be paid over the next two
years. The current status of the accrued restructuring charges is summarized
below:
<TABLE>
<CAPTION>
AMOUNT AMOUNT TO
TOTAL UTILIZED BE UTILIZED IN
RESTRUCTURING THROUGH FUTURE
CHARGE JUNE 30, 1995 PERIODS
------------- ------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Chiron Vision restructuring charges:
Employee-related costs $ 6 $ (2) $ 4
Facility and lease termination costs 6 -- 6
Duplicate and excess inventory 3 -- 3
Other 2 -- 2
--- ---- ---
17 (2) 15
Puerto Rico manufacturing facility 8 (4) 4
Postponement of Emeryville facility expansion 8 (7) 1
Amsterdam manufacturing facilities 1 (1) --
Other facility related 3 (3) --
Other 2 (1) 1
--- --- ---
$39 $(18) $21
--- ---- ---
--- --- ---
</TABLE>
4. COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS
GENERAL
The Company has entered into a number of collaborative arrangements with
other pharmaceutical and biotechnology companies for the development and
marketing of certain technologies and products. The majority of these
collaborations are in the development or clinical trial phase. Chiron and
its collaborative partners generally contribute certain technologies and
research efforts to the collaboration. In addition, Chiron and its
collaborative partners commit, subject to certain limitations and
cancellation clauses, to share in the funding of the collaborations' ongoing
research and clinical trial costs. Chiron, under certain of the
arrangements, has purchased equity securities, including common and preferred
stock and warrants to purchase common and preferred stock, of the
collaborative partner. Among the new collaborations entered into by the
Company during the first six months of 1995 are the following:
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PROGENITOR, INC.
In March 1995, the Company reached an agreement with Progenitor, Inc.
("Progenitor"), a subsidiary of Interneuron Pharmaceuticals, Inc., to
collaborate in the development and commercialization of therapeutic and
vaccine products incorporating Progenitor's proprietary gene therapy
technology. Under the agreement, Chiron received a license to Progenitor's
nonviral gene expression system for use in the development of products for
the treatment of certain cancers and cardiovascular disorders, development of
infectious disease vaccines and for development of certain other gene therapy
products. Chiron will have the right to manufacture and market any resulting
products of the collaboration. In return for the license and other rights,
Chiron made an initial license payment of $2.5 million to Progenitor, which
was expensed in the first quarter of 1995, and agreed to make an additional
funding payment of $0.5 million and make additional license payments totaling
$1 million to retain certain rights to development of infectious disease
vaccines. Also, Chiron has agreed to pay to Progenitor various product
development milestone payments which could total approximately $3 million per
product plus certain other milestone payments which would be treated as
prepaid royalties. In addition, Progenitor will receive a royalty from any
commercial sales of products resulting from the collaboration.
GENELABS TECHNOLOGIES, INC.,
In March 1995, the Company reached an agreement with Genelabs
Technologies, Inc. ("Genelabs"), whereby Chiron and Genelabs cross-licensed
certain rights to hepatitis C virus ("HCV"), hepatitis G virus ("HGV"), a
novel hepatitis virus discovered by Genelabs, human T-cell leukemia virus - I
("HTLV-I") and human T-cell leukemia virus - II ("HTLV-II") diagnostic tests.
Under the agreement, Chiron acquired certain rights to develop and market
diagnostic products for the detection of HGV, HTLV-I and HTLV-II. In return,
Genelabs acquired development and marketing rights in Asia, except Japan, for
certain products incorporating Chiron's HCV technology. Ortho, Chiron's
joint diagnostic business partner, has agreed to participate as Chiron's
equal partner in the collaboration with Genelabs and therefore will share
equally in all payments under the agreement, including equity investments.
Chiron and Ortho agreed to pay $5 million in up front license fees and up to
$9 million in HGV development milestones. Chiron and Ortho also agreed to
invest a total of $10 million in equity securities of Genelabs at the
closing. Also, under the terms of the Agreement, Chiron and Ortho have the
option to acquire substantially all of the diagnostics business of Genelabs
in the year 2000 through the conversion of the $10 million equity investment
for approximately one-half the business and an additional payment equal to
the then fair market value of the remaining half. Of an initial payment of $5
million made in the first quarter of 1995, approximately $4.2 million was
expensed while the remainder was recorded as an investment in securities of
Genelabs. In the second quarter of 1995, an additional payment of $2.5
million was made of which $1.2 million was expensed and the remainder was
recorded as an investment in securities of Genelabs. Under a separate
agreement, Chiron agreed to pay Genelabs $1 million in cash in exchange for a
right of first refusal to obtain an exclusive license to Genelabs' HCV
technology for use in vaccines. This payment was expensed in the second
quarter of 1995.
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NEW YORK UNIVERSITY
In March 1995, the Company reached an agreement with New York University
("NYU"), for the license of optical mapping technology for use by Chiron and
its sublicensee, Ciba, in development of diagnostics, therapeutics and
vaccines, and Chiron also acquired the right to commercialize a potential
optical mapping instrument. Under the terms of the agreement, Chiron made a
$5 million initial payment to NYU, which was expensed in the first quarter of
1995, for the license and for funding certain research facilities at NYU. If
Chiron decides to continue development of the instrument, Chiron will be
obligated to make a $4 million milestone payment to NYU and will make royalty
payments to NYU based upon any future product sales of the instrument,
subject to certain minimum royalties. In addition, Ciba has agreed to make
certain further research payments to NYU in connection with development of
the instrument in exchange for the sublicense and in exchange for royalty
payments by Chiron to Ciba based upon sales of the instrument.
5. DEBT OBLIGATIONS
ACQUIRED DEBT OF CCD
As part of the Acquisitions, the Company assumed approximately $96 million
in debt of CCD. This debt consists primarily of short-term borrowings under
revolving foreign line of credit arrangements totaling $44 million at June
30, 1995, and a note payable to Ciba in the amount of $52 million which is
due in the year 2000. The foreign line of credit arrangements bear interest
at local interest rates ranging from 3 percent to 17 percent. The note
payable to Ciba bears interest at a variable rate (6.08 percent at June 30,
1995).
LINE OF CREDIT ARRANGEMENT
On March 24, 1995, the Company entered into a revolving, unsecured line of
credit arrangement with an international bank under which the Company may
borrow up to $50 million. This credit facility is guaranteed by Ciba and
bears interest at a rate based on LIBOR (6.08 percent on the $40 million
outstanding at June 30, 1995).
6. CONTINGENCIES
See Item 1, Legal Proceedings, on page 25 of this Form 10-Q for a
discussion of certain lawsuits filed against the Company.
7. PROPOSED ACQUISITION OF VIAGENE, INC.
On April 23, 1995, the Company entered into an agreement to acquire by
merger Viagene, Inc. ("Viagene") by making a payment of 0.155 share of Chiron
Common Stock or a cash payment of $9.00 for each share of Viagene Common
Stock. The total consideration is estimated at
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approximately $129 million (based on the closing price of Chiron Common Stock
on August 10, 1995, and the assumption that all Viagene options and warrants
are exercised prior to the transaction exclusive of those held by Chiron, as
well as options held by Viagene officers, the vesting of which has been
accelerated as a result of the merger). The agreement stipulates that 40
percent of the aggregate consideration will be in cash and the remaining 60
percent will be in Chiron Common Stock. The Company anticipates that the
aggregate consideration will not exceed approximately $38 million in cash and
will result in the issuance of approximately 1 million shares of Chiron
Common Stock. The Company has an ongoing collaboration with Viagene in the
area of gene therapy and, due to an earlier investment as part of the
collaboration arrangement, currently holds approximately 17 percent of the
outstanding voting stock of Viagene (which had a carrying value, net of an
unrealized gain, of approximately $14 million on Chiron's books at June 30,
1995). The proposed merger is subject to approval by Viagene stockholders
and is expected to close in the third quarter of 1995. If the proposed
merger is completed, the Company will account for the merger using the
purchase method, and accordingly will record an expense for the amount of the
purchase price allocated to in-process technology.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Chiron Corporation (the "Company" or "Chiron") is a diversified,
science-driven healthcare company that combines diagnostic, vaccine and
therapeutic strategies for managing disease. Chiron participates in four
global healthcare markets: diagnostics, including immunodiagnostics,
critical care diagnostics and new quantitative probe tests; therapeutics,
with an emphasis on oncology and infectious disease; pediatric and adult
vaccines; and ophthalmic surgical products for the correction of vision. The
Company's marketed products include tests for hepatitis C virus ("HCV"),
blood gas analyzer systems and random access immunoassay instrument systems
and related reagants, Betaseron-Registered Trademark- (Interferon beta-1b)
for multiple sclerosis, Proleukin-Registered Trademark- (Aldesleukin) for
metastatic kidney cancer, Acelluvax-TM- genetically engineered acellular
pertussis vaccine and intraocular lenses for cataract replacement surgeries.
Products in development include Myotrophin-TM- (insulin-like growth factor)
for the treatment of amyotrophic lateral sclerosis, platelet-derived growth
factor for the treatment of diabetic skin ulcers, Vitrasert-TM- intravitreal
ganciclovir implant for the treatment of cytomegalovirus ("CMV") retinitis,
and vaccines for the treatment and prevention of genital herpes. Beyond
genetic engineering approaches, Chiron has research programs underway in
combinatorial chemistry and gene therapy.
Effective January 1, 1995, Chiron entered into a series of agreements with
Ciba-Geigy Limited of Basel, Switzerland ("Ciba"), including an investment
agreement, a cooperation and collaboration agreement and a governance
agreement (collectively the "agreements"). Ciba now holds approximately a 49
percent ownership interest in Chiron Common Stock, partially through a tender
offer for approximately 38 percent of Chiron's outstanding Common Stock for
$117 per share. At the same time, Chiron acquired all of the outstanding
common stock of Ciba Corning Diagnostics Corp. ("CCD") and Ciba's interests
in The Biocine Company and JV Vax B.V. (a Netherlands company which owns
Biocine S.p.A.) in exchange for 6.6 million newly-issued Chiron common shares
and a cash payment of $24 million.
Under the terms of the agreements, Ciba is entitled to name three new members
to Chiron's Board of Directors and has limited rights to review and approve
certain Chiron transactions. In connection with these agreements, Ciba has
agreed to guarantee $425 million of new debt for Chiron and has agreed to
provide $250 million (which may be increased up to $300 million subject to
certain reductions in the debt guarantee) over five years in support of
research at Chiron, and Chiron has the option of issuing up to $500 million
of new equity to Ciba. In the event Chiron utilizes this research funding,
Chiron will be obligated to offer to Ciba the opportunity to share in the
market opportunities of any resulting products, subject to certain repurchase
rights held by Chiron.
The acquisitions of CCD and Ciba's interests' in The Biocine Company and JV
Vax B.V. ("the Acquisitions") were accounted for by the purchase method in
the first quarter of 1995. The purchase price of approximately $433 million
was allocated to the acquired assets and assumed liabilities based upon their
estimated fair value on the acquisition date. As required under generally
accepted accounting principles, Chiron recognized as an expense the amount
allocated to in-process technology in the first quarter of 1995. This
resulted in a noncash charge against earnings of $220 million. Other
transaction-related charges
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totaling $50 million (related to legal and investment advisor fees, as well
as employee payments and related tax liabilities) were also recognized as
expenses in the first quarter of 1995. The results of operations of CCD,
Biocine S.p.A. and The Biocine Company are included in Chiron's consolidated
operating results from January 1, 1995, forward. Chiron's share of the
operating results of Biocine S.p.A. and The Biocine Company were included in
the Company's 1994 operating results under the equity method of accounting.
Effective March 31, 1995, Chiron Vision acquired the surgical division of
IOLAB from Johnson & Johnson for approximately $96 million. The acquisition
was accounted for by the purchase method, and resulted in a $10 million
charge to earnings in the first quarter of 1995 to expense purchased
in-process technology. Chiron Vision plans to consolidate its intraocular
lens manufacturing in Lyon, France, and at IOLAB's plant in Claremont,
California. The Company recorded additional charges for restructuring and
integration-related expenses totaling $17 million. IOLAB's results of
operations are included in Chiron's consolidated operating results from March
31, 1995, forward.
On April 23, 1995, the Company entered into an agreement to acquire by merger
Viagene, Inc. ("Viagene") by making a payment of 0.155 share of Chiron Common
Stock or a cash payment of $9.00 for each share of Viagene Common Stock. The
total consideration is estimated at approximately $129 million (based on the
closing price of Chiron Common Stock on August 10, 1995, and the assumption
that all Viagene options and warrants are exercised prior to the transaction
exclusive of those held by Chiron, as well as options held by Viagene
officers, the vesting of which has been accelerated as a result of the
merger). The agreement stipulates that 40 percent of the aggregate
consideration will be in cash and the remaining 60 percent will be in Chiron
Common Stock. The Company anticipates that the aggregate consideration will
not exceed approximately $38 million in cash and will result in the issuance
of approximately 1 million shares of Chiron Common Stock. The Company has an
ongoing collaboration with Viagene in the area of gene therapy and, due to an
earlier investment as part of the collaboration arrangement, currently holds
approximately 17 percent of the outstanding voting stock of Viagene (which
had a carrying value, net of an unrealized gain, of approximately $14 million
on Chiron's books at June 30, 1995). The proposed merger is subject to
approval by Viagene stockholders and is expected to close in the third
quarter of 1995. If the proposed merger is completed, the Company will
account for the merger using the purchase method, and accordingly will record
an expense for the amount of the purchase price allocated to in-process
technology.
RESULTS OF OPERATIONS
REVENUES
PRODUCT SALES
The Company's revenues are derived from a variety of sources, including
product sales, collaborative agreements, product royalty agreements and joint
business arrangements. Product sales, Chiron's largest revenue category,
consists of the following product lines in the human healthcare industry for
the three-month and six-month periods ended June 30:
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<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1995 1994 1995 1994
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Diagnostic products $137.8 $ 5.4 $265.3 $ 9.3
Ophthalmic products 52.4 24.8 76.8 46.7
Betaseron-Registered Trademark- sales 22.4 17.5 24.2 28.2
Oncology products 15.2 11.4 27.9 19.5
Vaccine products 19.6 -- 35.4 --
Other products 0.9 1.2 2.6 2.1
------- ----- ------ ------
$248.3 $60.3 $432.2 $105.8
------- ----- ------ ------
------- ----- ------ ------
</TABLE>
As a result of the January 1995 acquisition of CCD, diagnostic product sales
now represent the largest component of product sales. CCD product sales
include direct sales and sales-type leases of CCD's fully-automated
random-access immunodiagnostic testing systems and reagents for these
systems, as well as sales of critical blood analyte systems, clinical
chemistry products and manual immunodiagnostic systems. Both of CCD's major
product lines (ACS diagnostic systems and critical blood analyte systems)
experienced increased sales when compared to the prior year, particularly as
favorable foreign currency rates added to reported revenues. Sales of
diagnostic systems often include the sale of service and maintenance
contracts. Revenue from these service contracts is included in product sales
revenue and is recognized ratably over the life of the contracts.
Diagnostic product sales also include sales of nucleic acid probe products
and instrumentation and sales of antigens and RIBA-Registered Trademark- HCV
tests. Nucleic acid probe products are sold at cost to Daiichi Pure Chemical
Co., Ltd. ("Daiichi"), which markets the product in Japan and pays Chiron a
royalty based upon its sales of the product. Nucleic acid probe products are
also sold by Chiron on a research-use only basis in the United States and
Europe. Antigens and RIBA-Registered Trademark- HCV test kits are sold at cost
to Ortho Diagnostic Systems, Inc. ("Ortho"), Chiron's partner in a joint
diagnostic business.
Sales of ophthalmic surgical products increased between years largely due to
the impact of the May 1994 acquisition of Laboratoires Domilens S.A.
("Domilens") and the March 1995 acquisition of the surgical division of
IOLAB. As a result of these acquisitions, intraocular lens sales have nearly
doubled over the prior quarter and six-month periods, while new viscoelastic
and phacoemulsification products have added significant incremental revenues
in those product lines.
Betaseron-Registered Trademark- sales increased slightly between years for
the second quarters of 1994 and 1995, but decreased on a year-to-date basis.
These fluctuations occurred in part due to a change in the supply agreement
between Chiron and its marketing partner, Berlex Laboratories, Inc.
("Berlex"). During 1994, Chiron operated under an amended
Betaseron-Registered Trademark- supply agreement whereby Chiron recognized
substantially all of its Betaseron-Registered Trademark- revenue at the
time of shipment to Berlex. Chiron exercised its option to revert to the
terms of an original Betaseron-Registered Trademark- supply agreement
effective January 1, 1995. Under those original terms, Chiron earns a
partial payment for Betaseron-Registered Trademark- upon shipment to
Berlex and a subsequent final payment based upon Berlex's net sales of the
product. As a result of this change, revenues from Betaseron-Registered
Trademark- for the second quarter of 1995 are only slightly higher than those
of 1994, even though the actual volumes shipped
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to Berlex during the quarter doubled over the prior year. On a year-to-date
basis, total vials sold to Berlex in 1995 increased by 28 percent over the
prior year; however, reported revenues declined due to the change in the
supply agreement with Berlex. Chiron anticipates that total 1995 shipments
of Betaseron-Registered Trademark- to Berlex will be roughly comparable
to, or slightly below 1994 levels, but reported Betaseron-Registered
Trademark- revenues will be approximately $30 million lower than 1994 due to
the reversion to the original supply agreement terms.
Sales of oncology products, principally Proleukin-Registered Trademark-,
increased between 1994 and 1995 for both the three-month and six-month
periods due to an increase in vials sold as well as a change in mix in the
European market resulting in increased sales in markets with higher selling
prices.
Vaccine product sales consist of sales of pediatric and adult vaccines
primarily in Italy and to public health organizations by the Company's
Biocine S.p.A. subsidiary. Biocine S.p.A.'s vaccine products include
Acelluvax-Registered Trademark-, a recombinant acellular pertussis vaccine,
Agrippal-Registered Trademark-, a flu vaccine, and Polioral-Registered
Trademark-, an oral polio vaccine. Sales of Biocine S.p.A.'s flu vaccine are
seasonal, with strong sales generally occurring during the pre-flu season at
the beginning of the fourth quarter of the year.
The Company markets many of its commercial products internationally. As a
result, product revenues in almost all product lines are affected by
fluctuating foreign currency exchange rates. Foreign product sales were
approximately $130 million and $247 million for the three-month and six-month
periods ended June 30, 1995, versus $14 million and $26 million for the
three-month and six-month periods ended June 30, 1994. International sales
of diagnostic products by CCD and vaccine sales by Biocine S.p.A. accounted
for substantially all of the increase in foreign product sales. Product
sales would have been approximately seven percent lower in 1995 for both the
three-month and six-month periods if currency exchange rates had remained the
same as the comparable periods of 1994. The Company's other revenues,
discussed below, are largely denominated in U.S. dollars.
EQUITY IN EARNINGS OF JOINT BUSINESSES
As of June 30, 1995, Chiron holds a 50 percent interest in two joint
businesses: a joint diagnostic business with Ortho and a generic cancer
chemotherapeutics business with Ben Venue Laboratories, Inc. Chiron's
one-half interest in the pretax operating earnings of its joint diagnostic
business with Ortho represents the largest component of joint business
revenues. Approximately 80 percent of the sales of the Chiron-Ortho joint
business arise from sales of HCV blood screening tests. The joint business
also receives a royalty from Abbott Laboratories ("Abbott") for Abbott's
sales of HCV tests which use the Chiron technology and which compete directly
with tests marketed by Ortho. Chiron's share of the profits of the joint
business increased over the prior year on both a quarterly and year-to-date
basis as lower margins on domestic sales of diagnostic kits by the joint
business were more than offset by increased profits from sales to Ortho's
foreign affiliates and lower research and development spending by the joint
business.
COLLABORATIVE AGREEMENT REVENUES
Collaborative agreement revenues consist of fees received for research
services as they are performed, fees received for completed research or
technology, fees received upon attainment of benchmarks specified in the
related research agreements, and proceeds of sales of biological materials to
research partners for
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clinical and preclinical testing. Collaborative agreement revenues decreased
from the prior year periods due to the January 1995 acquisition of Ciba's
interest in The Biocine Company, Chiron's joint vaccine venture with Ciba.
Prior to the acquisition, Chiron received reimbursement for its vaccine
research expenses from The Biocine Company and recorded such reimbursement as
collaborative agreement revenue. After the acquisition, The Biocine Company
became a wholly owned subsidiary of Chiron and thus no longer provides
research revenues to Chiron. In the three-month and six-month periods ended
June 30, 1994, Chiron recognized revenues of $12.9 million and $24.0 million,
respectively, from The Biocine Company. Further contributing to the decrease
in collaborative agreement revenues was the completion of a nucleic acid
probe development program with Daiichi, which had provided first quarter 1994
revenues of $3 million.
In connection with the agreements with Ciba, Ciba has agreed to provide $250
million (which may be increased up to $300 million subject to certain
reductions in the debt guarantee) over five years in support of research at
Chiron. In the event Chiron utilizes this research funding, Chiron will be
obligated to offer to Ciba the opportunity to share in the market
opportunities of any resulting products, subject to certain repurchase rights
held by Chiron. During the first six months of 1995, no research funding was
earned from Ciba under this arrangement.
OTHER REVENUES
Other revenues consist principally of product royalties, government grants
and sales fees earned by the Company for sales and marketing services
rendered on behalf of its generic chemotherapeutics joint venture and on
behalf of Ciba. Increased royalty revenues for the sale of hepatitis B
vaccine, recombinant human insulin and Japanese nucleic probe products
accounted for most of the increase in other revenues for the second quarter
of 1995. For the six-month period of 1995, the remainder of the increase was
accounted for by sales fees received from Ciba for sales of Aredia-Registered
Trademark-, for which Chiron began earning sales fee revenue in late 1994, and
nucleic probes reference laboratory service revenues.
COST AND EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased significantly between 1994 and
1995, largely due to the acquisitions of CCD and Biocine S.p.A. On a
combined basis, CCD and Biocine S.p.A. added $21 million and $42 million
respectively in incremental research and development expenses for the
three-month and six-month periods ended June 30, 1995. In addition, during
the first half of 1995, the Company entered into several new collaboration
arrangements and funded development expenses in a number of its existing
collaborative arrangements with other pharmaceutical and biotechnology
companies for the research, development and marketing of certain technologies
and products. As part of these collaborative arrangements, Chiron has made
various investments in the equity securities of the collaborative partners
and, in some cases, agreed to provide specified levels of funding to the
collaboration. During the first six months of 1995, new collaborative
arrangements include the following:
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<PAGE>
- In March 1995, the Company reached an agreement with Genelabs Technologies,
Inc. ("Genelabs"), whereby Chiron and Genelabs cross-licensed certain rights
to hepatitis C virus ("HCV"), hepatitis G virus ("HGV"), a novel hepatitis
virus discovered by Genelabs, human T-cell leukemia virus - I ("HTLV-I") and
human T-cell leukemia virus - II ("HTLV-II") diagnostic tests. Under the
agreement, Chiron acquired certain rights to develop and market diagnostic
products for the detection of HGV, HTLV-I and HTLV-II. In return, Genelabs
acquired development and marketing rights in Asia, except Japan, for certain
products incorporating Chiron's HCV technology. Ortho, Chiron's joint
diagnostic business partner, has agreed to participate as Chiron's equal
partner in the collaboration with Genelabs and therefore will share equally in
all payments under the agreement, including equity investments. Chiron and
Ortho agreed to pay $5 million in up front license fees and up to $9 million
in HGV development milestones. Chiron and Ortho also agreed to invest a total
of $10 million in equity securities of Genelabs at the closing. Also, under
the terms of the Agreement, Chiron and Ortho have the option to acquire
substantially all of the diagnostics business of Genelabs in the year 2000
through the conversion of the $10 million equity investment for approximately
one-half the business and an additional payment equal to the then fair market
value of the remaining half. Of an initial payment of $5 million made in the
first quarter of 1995, approximately $4.2 million was expensed while the
remainder was recorded as an investment in securities of Genelabs. In the
second quarter of 1995, an additional payment of $2.5 million was made of
which $1.2 million was expensed and the remainder was recorded as an
investment in securities of Genelabs. Under a separate agreement, Chiron
agreed to pay Genelabs $1 million in cash in exchange for a right of first
refusal to obtain an exclusive license to Genelabs' HCV technology for use in
vaccines.
- An agreement with Progenitor, Inc. ("Progenitor"), a subsidiary of Interneuron
Pharmaceuticals, Inc., to collaborate in the development and commercialization
of therapeutic and vaccine products incorporating Progenitor's proprietary
gene therapy technology. Under the agreement, Chiron received a license to
Progenitor's nonviral gene expression system for use in the development of
products for the treatment of certain cancers, cardiovascular disorders,
development of infectious disease vaccines and for development of certain
other gene therapy products. Chiron will have the right to manufacture and
market any resulting products of the collaboration. In return for the license
and other rights, Chiron made an initial payment of $2.5 million to
Progenitor, agreed to make an additional funding payment of $0.5 million,
agreed to make additional license payments totaling $1 million to retain
certain rights to development of infectious disease vaccines and agreed to
make additional product development milestone payments which could total
approximately $3 million for each of the resulting products plus certain
other milestone payments which are treated as prepaid royalties. In addition,
Progenitor will receive a royalty from any commercial sales of products
resulting from the collaboration.
- An agreement with New York University ("NYU") under which Chiron acquired
rights to optical mapping technology for use by Chiron and its sublicensee,
Ciba, in development of diagnostics, therapeutics and vaccines. Chiron also
acquired the right to commercialize a potential optical mapping instrument.
Chiron made a $5 million payment to NYU for the license and for funding of
certain research facilities at NYU. If Chiron decides to continue development
of the instrument, Chiron will be obligated to make a $4 million milestone
payment to NYU and will make royalty payments based on a percentage of sales
of the instrument, subject to certain minimum amounts. In addition, Ciba has
agreed to make certain further research payments to NYU in connection with
development of the
19
<PAGE>
instrument in exchange for the sublicense and in exchange for royalty payments
by Chiron to Ciba based upon sales of the instrument.
In addition to these new collaborative arrangements, the Company made
payments to and/or began funding an increased share of expenses for a number
of its existing collaborative partners during the first half of 1995.
Incremental research and development expense recognized as a result of the
Company's funding of all of its third party collaborations, including the new
agreements with Genelabs, Progenitor and NYU, during the first and second
quarters of 1995 totaled $31 million and $5 million, respectively.
With respect to Chiron's in-house research and development programs, Chiron
continued to devote substantial resources to its vaccine programs, growth
factor and nucleic acid therapeutics programs and internal biological and
chemical therapeutics programs. During the remainder of 1995, the Company
expects that research and development expense will remain significantly
higher than prior years due to the impact of the acquisitions and continued
expenses in all of its collaborations. Product development, manufacturing
start-up, and regulatory expenses may also increase in future periods as
Chiron's products in development advance towards commercialization.
COST OF SALES
Cost of sales increased consistent with the increase in product sales between
years. For both the three months and six months ended June 30, 1995, gross
profit margins increased slightly from the prior periods due to the changing
mix of the Company's product sales. Margins on existing product sales
decreased from the prior year due to the change in the Betaseron-Registered
Trademark- supply agreement and operating expenses associated with the idled
Puerto Rico facility. Partially offsetting these decreases in gross profit
margins was the addition of CCD's and Biocine S.p.A.'s high-margin product
sales. Gross profit margin percentages may fluctuate significantly in future
periods as the Company's product mix continues to evolve and as the increased
costs of new manufacturing facilities are included in cost of goods sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A expenses") increased
between 1994 and 1995 for both the three-month and six-month periods ended
June 30, 1995, largely due to the impact of the acquisitions of CCD and
Biocine S.p.A., which together added $50 million and $97 million in SG&A
expenses for the three-month and six-month periods, respectively. SG&A
expenses were also significantly higher in the ophthalmic business due to the
acquisitions of Domilens and IOLAB and increased costs related to the
ophthalmic sales force arising from the integration of Chiron Vision's
operations with IOLAB. SG&A expenses also increased due to increased selling
costs for the Company's therapeutic product lines and due to increased
professional fees arising from ongoing patent litigation.
OTHER EXPENSES
In the second quarter of 1995, the write-off of purchased technology consists
of approximately $2 million from an increase in Chiron's ownership of
Technolas GmbH, a German laser business. In the first half of 1995, the
write-off of purchased in-process technology also includes $220 million for
the acquisitions of
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CCD, Biocine S.p.A. and The Biocine Company and $10 million for the
acquisition of IOLAB. The fair value of the net assets acquired in these
acquisitions, including in-process technology, was estimated based on
valuations of the acquired net assets.
Other costs related to the Ciba transaction consist primarily of employee
payments and related tax liabilities and legal and investment advisor fees.
Under the agreements reached with Ciba, Ciba has reimbursed the Company $25
million for a portion of the employee payments and such reimbursement has
been recorded as a capital contribution.
Restructuring and reorganization costs in the first six months of 1995
represent certain accrued costs of integrating the acquired businesses with
Chiron's existing businesses, costs related to the idling of the company's
Puerto Rico manufacturing facility and the scaling-back of manufacturing
operations at the Company's Amsterdam facility, and costs related to the
write-down of duplicate facilities at the Company's Emeryville, California,
headquarters. Also included is a charge related to the postponement of plans
to expand the Company's Emeryville research and administrative facilities.
Of the $39 million in total charges in the first six months of 1995,
approximately $23 million related to write-downs of assets. The remaining
charges of $16 million consist of employee costs of $7 million and other
accrued costs of $9 million primarily for lease termination costs, additional
tax obligations and the costs of the postponement of the Company's research
and administrative facility expansion plans. The majority of the accrued
costs are expected to be paid over the next two years.
Other income (expense) consists primarily of investment income on the
Company's cash and investment balances and interest expense accrued on debt
and capital leases. Other income (expense) decreased between 1994 and 1995
on both a quarterly and year-to-date basis due to increased interest expense
resulting from the acquired debt of CCD and Biocine S.p.A., lower balances of
the Company's investment portfolio and the cessation of interest
capitalization on the Company's larger capital projects.
The provision for income taxes in the second quarter of 1995 and the first
half of 1995 consists primarily of foreign taxes on certain foreign
operations of the Company. Substantially all of the write-off of purchased
in-process technologies is not deductible for income tax purposes and thus
does not create a tax benefit in 1995. The provision for income taxes in
1994 was based on the estimated annual effective income tax rate. The income
tax provision increased between periods primarily due to the acquisition of
foreign operations which were not included in 1994 results.
OUTLOOK
Chiron expects to incur a loss in the third quarter of 1995 primarily due to
significant charges associated with the planned acquisition of Viagene.
Profitability of the Company beyond the third quarter of 1995 depends upon a
number of factors. These factors include: successful integration of newly
acquired businesses with Chiron; continued profit contribution from CCD and
the newly integrated ophthalmic business; continuation of substantial profit
contribution from the Chiron-Ortho joint business; continued product sales of
Betaseron-Registered Trademark- in the United States and
Proleukin-Registered Trademark- worldwide; and the successful completion of
clinical trials and subsequent FDA approval for commercialization of
additional vaccines, diagnostics and pharmaceuticals under development.
There can be no assurance whether any combination of these
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factors can be achieved, or that any such combination will result in
profitability of the Company. The integration of CCD, The Biocine Company,
Biocine S.p.A. and IOLAB will have a material impact on the results of
operations of the Company going forward. Although the Company has recorded
the majority of the expected cost of these integrations in the first quarter
of 1995, the Company expects to incur additional charges in subsequent
quarters as these integrations are completed. Profitability of the Company
is also dependent on utilization of research funding available from Ciba. As
part of the agreements with Ciba, Ciba agreed to provide the Company with
funding totaling $250 million (which may be increased up to $300 million
subject to certain reductions in the debt guarantee) over five years in
support of the Company's research programs.
Achievement and maintenance of profitability are substantially dependent upon
the success of Chiron's collaborations with others. Under the joint business
agreement with Ortho, Chiron and Ortho together determine strategy and
budgets for their joint diagnostics business, but Ortho conducts all
commercial activities, except research and antigen manufacturing, and
exercises broad control over the conduct of day-to-day operations. The
Company is also dependent upon Schering AG, Germany, and its U.S. affiliate,
Berlex, for development, marketing and distribution of Betaseron-Registered
Trademark-. There can be no assurance that the corporate interests of Berlex
and Ortho, or any other corporate partners, are or will remain consistent with
those of Chiron or that any collaborator will succeed in developing new markets
or retaining and expanding the markets served by the commercial collaborations.
In addition, Chiron's 50 percent share of the operating earnings of the
Chiron-Ortho joint business has been a significant source of Chiron's
revenues. The market for immunodiagnostic viral screening tests has evolved
rapidly since the introduction of HCV tests by the Chiron-Ortho joint
business and by Abbott. The joint business may be adversely affected in
future periods by increasing margin pressures, the overall demand for current
tests and new diagnostic products, and by the introduction of competing tests
by unlicensed third parties.
Furthermore, other Chiron programs will require substantial additional
investment including the cost of funding collaborative research arrangements
with third parties, the cost of clinical trials, the completion of commercial
scale manufacturing facilities, and marketing and sales expenses associated
with product introductions. Chiron began funding 100 percent of the joint
expenses of its collaboration with Cephalon in the first quarter of 1995 for
U.S. based trials and expects these expenses to increase as the parties
accelerate efforts to gain regulatory approval and prepare to commercialize
Myotrophin-TM- in the United States. The Company also will incur a
further charge to earnings in the future if it elects to exercise its option
to reacquire European rights to Myotrophin-TM-. If such rights were
exercised at the present time, it would be approximately $8.5 million. Also,
the planned merger with Viagene will result in a significant charge for the
expensing of purchased in-process technology and will also result in increased
research and development expenses in future periods. Chiron has significantly
expanded its manufacturing capability to support both approved products and
products in development which has resulted in higher levels of operating
expenses and depreciation, and may result in even higher levels of operating
expenses in future periods. The research, development and market introduction
of new products will require the application of considerable technical and
financial resources by Chiron, while revenues generated from such products,
assuming they are successfully developed, may not be realized for several
years. Other material and unpredictable factors which could affect operating
results include the uncertainty, timing and costs associated with product
approvals and commercialization; the issuance and use of patents and
proprietary technology by Chiron or its competitors; the effect of technology
and other business acquisitions or transactions; the increasing emphasis on
controlling healthcare costs and potential legislation or regulation of
healthcare pricing; and actions by collaborators, customers and competitors.
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Chiron exercised its option to revert to the terms of the original
Betaseron-Registered Trademark- supply agreement effective January 1, 1995.
Under those original terms, Chiron earns a partial payment for
Betaseron-Registered Trademark- upon shipment to Berlex and a subsequent
final payment based upon Berlex's net sales of the product. Total 1995
shipments of Betaseron-Registered Trademark- are expected to be roughly
comparable to, or slightly below 1994 levels. Assuming comparable
1994 and 1995 annual vial shipments to Berlex, total 1995 revenues from
Betaseron-Registered Trademark- shipments will be lower than 1994 revenues
by approximately $30 million as a result of the reversion to the original
supply agreement. Due to issues of inventory management, it is anticipated
that vials shipped by Chiron to Berlex may decrease between 1995 and 1996.
There may also be royalties from European sales during 1996.
In March 1995, the Company decided to idle its Puerto Rico facility and
scale-back the manufacturing operations at the Company's Amsterdam facility.
This decision was based on the belief that current demand for
Betaseron-Registered Trademark- can be adequately supplied with the expanded
manufacturing capacity at the Company's Emeryville, California, facility.
Utilization of this idled manufacturing capacity will require a significant
increase in Betaseron-Registered Trademark- demand and/or the introduction of
new products which would require significant similar manufacturing capacity.
The market price of the Company's common stock is subject to significant
volatility, particularly on a quarterly basis. Any shortfall in revenue or
earnings from levels expected by securities analysts could have an immediate
and significant adverse effect on the trading price of the Company's stock in
any given period. Additionally, announcements of technological innovations by
the Company or its competitors, developments concerning proprietary rights,
public concern as to the safety of biotechnology and economic or other
external factors may have a significant impact on the market price of the
Company's common stock. The Company does not currently believe that
inflation has a significant impact upon its business.
LIQUIDITY AND CAPITAL RESOURCES
Chiron has financed product development, operations and capital expenditures
primarily from public and private sales of equity and convertible debt,
product sales, collaborative research revenues and from the earnings of the
Chiron-Ortho joint business. In addition to these sources of capital, future
cash requirements, including possible operating deficits, will be financed
through a combination of debt, mortgage, leases, possible off-balance-sheet
financing (such as R&D limited partnerships), and the use of existing cash
and investment balances. In addition, Ciba has agreed to guarantee $425
million of new debt for Chiron and has agreed to provide $250 million (which
may be increased up to $300 million subject to certain reductions in the debt
guarantee) over five years in support of research programs at Chiron, and
Chiron has the option of issuing up to $500 million of new equity to Ciba.
Until required for operations, Chiron's policy is to keep its cash and
investments in a diversified portfolio of investment grade financial
instruments, including money market instruments, corporate notes and bonds,
government or government agency securities, or other debt securities. By
policy, the amount of credit exposure to any one institution is limited.
These investments are generally not collateralized and primarily mature
within three years. Investments with original maturities in excess of one
year are presented on the balance sheet as noncurrent investments.
Chiron's liquidity may be impacted in future periods by its decision to fund
its share of expenses in certain of its joint ventures and collaboration
arrangements. Over the next several years, Chiron anticipates funding
collaborations with a number of its research partners, and may make
additional equity investments in collaborative partners. During the first
six months of 1995, the Company funded $39 million to third
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party collaborations structured in the form of both additional equity
investments and/or development expenses. Also, Chiron has agreed to provide
one of its collaborative partners, Cephalon Inc., with an $18 million credit
facility through 1999. The amount due from Cephalon Inc. under this facility
is $10 million at June 30, 1995.
During the six months ended June 30, 1995, cash and cash equivalents
decreased by approximately $3 million. Approximately $74 million was used in
the Company's operating activities, compared to $6 million used in operating
activities in the first six months of 1994.
Investing activities consumed cash of $14 million in the first two quarters
of 1995, versus $89 million in 1994. The first six months of 1995 included
the acquisition of IOLAB for $96 million in cash and net sales of marketable
debt securities of $129 million, compared to net sales of marketable debt
securities of $14 million in the first six months of 1994. Capital
expenditures on plant and equipment were $49 million during 1995 versus $58
million in 1994. The Company also made investments in the equity securities
of collaborative partners totaling $5 million in the first six months of 1995
and $19 million in the corresponding period of 1994.
Cash provided by financing activities in the first six months of 1995 of $84
million includes a $25 million capital contribution by Ciba to fund certain
payments to employees which resulted from the agreements with Ciba and $9
million from the issuance of common stock under the Company's employee
benefit plans. Also, in March 1995, the Company borrowed $40 million under a
line of credit arrangement, representing the first utilization of the debt
guarantee provided by Ciba. In addition, as part of the acquisitions, Chiron
assumed approximately $96 million in debt of CCD. This debt consists
primarily of short-term borrowings under foreign line of credit arrangements
and a long-term loan with Ciba.
The proposed acquisition of Viagene will require approximately $38 million in
cash and result in the issuance of approximately 1 million new shares of
Chiron Common Stock.
Approximately 52 percent of the Company's product sales in the second quarter
of 1995 were made in foreign countries, primarily Western European countries
and Japan. Foreign product sales are typically denominated in the currency
of the country in which the sale occurs. To the extent that the Company has
balance sheet exposures, primarily receivable and payable balances resulting
from completed transactions denominated in foreign currency, the Company's
policy is to mitigate exposure to exchange rate changes by entering into
forward currency contracts. These contracts are settled quarterly. At June
30, 1995, the Company had outstanding forward foreign currency contracts
totaling approximately $56.8 million.
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ITEM 1. LEGAL PROCEEDINGS
SICOR. In April 1991, Alco Chemicals, Ltd. ("Alco") and Sicor, SpA
("Sicor"), Cetus Ben Venue Therapeutics' ("CBVT") former suppliers of bulk
doxorubicin, filed suit in the United States District Court for the Northern
District of California against Cetus Corporation ("Cetus"), Ben Venue
Laboratories, Inc. ("Ben Venue"), CBVT and Erbamont, Inc. ("Erbamont") and
its affiliates. Sicor had been prevented from manufacturing product for CBVT
since September 1990, when Sicor's facilities in Italy were ordered closed by
the government in connection with trade secret litigation in Italy. In March
1991, CBVT entered into an agreement with Erbamont which provided for, among
other things, the settlement of several legal proceedings then pending
relating to Erbamont's alleged doxorubicin proprietary rights, and the
exclusive supply of doxorubicin to CBVT by Erbamont. The Sicor complaint
alleges breach of the CBVT contract to purchase bulk doxorubicin from Sicor,
as well as antitrust violations and interference with contract and
prospective advantage, and seeks unspecified damages. Cetus has denied any
entitlement to recovery in this lawsuit and has filed a counterclaim against
the plaintiffs for fraud and breach of contract based on Sicor's failure to
deliver the bulk product. In an order filed on January 11, 1993, the judge
granted summary judgment motions in favor of the Cetus parties and Erbamont
with respect to the Sicor and Alco claims. Sicor appealed the summary
judgment and, in August 1993, dismissed its claims against Erbamont. In an
opinion issued April 3, 1995, the Ninth Circuit Court of Appeals affirmed the
summary judgment on the antitrust claims, but reversed and remanded to the
District Court for further proceedings the claims of breach of contract and
interference with prospective advantage. The Cetus parties filed a motion
for rehearing by the Ninth Circuit Court of Appeals, which was denied on July
10, 1995. Sicor has filed a petition for writ of certiorari to the United
States Supreme Court which the Cetus parties have opposed. The Company
believes it has substantial defenses to the remanded claims. A related
arbitration before the International Chamber of Commerce in Paris brought by
Sicor against Chiron, Cetus and Ben Venue has been stayed pending the
resolution of the Cetus parties' counterclaims in the above described
litigation.
In February 1995, Sicor and Alco filed a further action in the United States
District Court for the Northern District of California against CBVT for
amounts allegedly owed by CBVT to Sicor and Alco for the supply of
doxorubicin, plus interest and attorneys' fees. This case has been assigned
to the same judge as the above referenced District Court case. Internal
investigation of the claim is under way, and there has been no further action
in this suit.
SUMMIT. On September 29, 1994, Summit Technology Ireland B.V., a subsidiary
of Summit Technology, Inc., a manufacturer of ophthalmic lasers, filed a patent
infringement action in the Regional Court of Dusseldorf Germany, against two
German subsidiaries of Chiron Vision, Chiron Technolas and Chiron Adatomed,
and their respective managing directors. The suit alleged that the
manufacture and sale in Germany of the Technolas-TM- Keracor-TM- 116 excimer
laser infringe the class of a patent held by Summit. Summit sought
injunctive relief and damages which it estimated at DM 2 million. On August 3,
1995, the German court granted judgment in favor of Summit, granted an
injunction against defendants' further infringement and awarded damages for
past infringement in an amount to be determined. The injunction may be
enforced by Summit if it posts security in the amount of DM 2 million. To the
Company's knowledge, Summit has not posted such security. There can be no
assurance that Summit will not seek to cause the injunction to be enforced. The
Company believes it has substantial grounds to overturn the Regional Court's
decision and intends to appeal. The Company has also initiated a separate
judicial action in Germany seeking to invalidate Summit's patent. Chiron
Technolas continues to manufacture ophthalmic excimer lasers which are
distributed by Chiron Vision and its subsidiaries, thereby exposing the Company
to damages with respect to its continuing activities in the event Summit
ultimately prevails. Chiron Technolas is currently Chiron Vision's sole
source of ophthalmic excimer lasers and the injunction issued by the German
Regional Court, if enforced by Summit, could preclude the Company from serving
its market for the product. The Company does not believe that this litigation
will have a material adverse effect upon the financial condition or operations
of Chiron and its consolidated subsidiaries taken as a whole.
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ALLERGAN MEDICAL OPTICS V. CHIRON CORPORATION. On December 8, 1992,
Allergan Medical Optics filed a lawsuit in the United States District Court
for the Central District of California against Chiron and Chiron IntraOptics
(now Chiron Vision). The complaint alleges that Chiron Vision's mechanical
inserter used to place the Chiron foldable intraocular lens in the eye during
cataract surgery infringes a patent licensed exclusively to Allergan.
Allergan is seeking an injunction against sales of the inserter, damages in
an unspecified amount, and attorneys' fees. Discovery in the case has
commenced. The Company believes that it has substantial defenses based,
among other things, upon invalidity of the patent in suit. The Company
continues to distribute the allegedly infringing inserter and therefore
continues to be exposed to damages in the event that Allergan prevails.
Cross motions for summary judgments have been denied. The first phase of
this case was tried in May and June 1995, resulting in a partial judgment
that determined that Allergan's assignor, the patentee, is the owner of the
subject patent, and that certain equitable defenses raised by Chiron do not
apply. Issues of infringement, invalidity, and damages are scheduled to be
tried beginning on April 2, 1996. The Company believes it has rights of
indemnity from Starr with respect to certain damages that may be awarded
against it.
MUREX DIAGNOSTICS, LTD. In a series of actions, the first of which was
brought on March 2, 1992, Chiron together with Ortho Diagnostic Systems, Inc.
("Ortho") and Ortho Diagnostic Systems, Ltd., filed suit in the High Court
for England and Wales against Murex Diagnostics, Ltd. ("Murex"), alleging
infringement of Chiron's U.K. Patent No. 2,212,511 ("the '511 patent") as a
result of Murex's manufacture and sale of HCV immunoassay kits in the U.K.
Murex is a subsidiary of International Murex Technologies Corp., a Canadian
company. Chiron and Ortho sought injunctive relief and unspecified damages.
On May 27, 1994, the court granted judgment for Chiron and Ortho, holding the
'511 patent valid and infringed, and ordered Murex to pay damages in an
amount to be determined. Chiron's and Ortho's request for an injunction was
granted on November 30, 1994. A damages inquiry is scheduled for July 1996.
Murex has appealed. Chiron is informed that officials within the British
Ministry of Health have in the past raised the possibility of authorizing
Murex's infringement of the `511 patent under the "Crown use" provisions of
British law, with respect to the sale of HCV immunoassay kits to the British
National Health Service. Further, Murex has stated that it will apply for a
compulsory license under the '511 patent. Infringement proceedings against
Murex on German and European patents corresponding to the '511 patent have
also been filed by Chiron and Ortho in Germany, Italy, The Netherlands and
Belgium. On January 23, 1995, Chiron and Ortho were granted an injunction in
Germany. On May 8, 1995, Chiron was granted a cross-border preliminary
injunction by the Dutch court preventing infringement by Murex and certain of
its affiliates covering The Netherlands, Belgium, France, Spain and
Luxembourg. Murex has brought an action in Australia seeking the revocation
of the Australian counterpart of the '511 patent. Chiron has counterclaimed
for infringement.
DANIEL W. BRADLEY. On December 20, 1994, Dr. Daniel W. Bradley, a former
scientist at the U.S. Centers for Disease Control (the "CDC") brought suit in
the United States District Court for the Northern District of California
against Chiron, Ortho, certain employees of Chiron, and the United States
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government. Subsequently, Bradley dismissed the United States as a
defendant. Bradley, who collaborated with Chiron scientists on the research
that led to the discovery of HCV, alleges he has been wrongly excluded as an
inventor of HCV. He requests various forms of relief, including declarations
that he is an inventor of Chiron's patents related to HCV and that these
patents are unenforceable. Bradley further seeks monetary damages and a
constructive trust on all past and future profits derived from Chiron's HCV
invention, which are estimated by Bradley to be in excess of $1 billion, as
well as penalties under federal and state Racketeering and Corrupt
Organization (RICO) statutes. Chiron believes that Bradley's claims to
inventorship and his suit are without merit, and that substantial defenses
exist. In 1990, Bradley and the CDC entered into a settlement agreement
regarding inventorship in which any rights either might have were assigned to
Chiron. Chiron believes that the settlement agreement is valid and bars
nearly all of the claims in the subject litigation. Chiron and the other
defendants have filed a motion to dismiss.
ABBOTT LABORATORIES. On December 13, 1993, Chiron filed a patent
infringement action against Abbott Laboratories ("Abbott") in the United
States District Court for the Northern District of California. The suit,
which alleges infringement of Chiron's U.S. Patent No. 5,156,949, claiming
the use of recombinant envelope antigens in immunoassays for HIV antibodies,
is based on Abbott's sale of unlicensed HIV immunoassay tests which are
believed to fall within the scope of one or more patent claims. Abbott is
defending this suit on the basis of invalidity and non-infringement. Chiron
is requesting unspecified damages and injunctive relief. Cross motions for
summary judgment on Abbott's defenses of inequitable conduct and prior
invention are currently pending. The court had issued a tentative decision
granting Abbott's motion for summary judgment on invalidity due to prior
invention. Subsequently, the court heard further arguments on this issue and
has not yet indicated whether it will adopt the tentative ruling.
On April 26, 1994, Abbott filed suit against Chiron in the United States
District Court for the Northern District of Illinois, Eastern Division,
alleging that the Company has, by making, using and selling nucleic acid
hybridization assays, infringed three U.S. patents owned by third parties and
licensed to Abbott. Abbott is seeking injunctive relief and damages in an
unspecified amount. The Company believes that it has substantial defenses
and is defending this suit vigorously.
The Company is party to certain other lawsuits, each of which is described in
Item 3, Legal Proceedings, on page 9 of the Company's report on Form 10-K for
the period ended December 31, 1994, and in Item 1, Legal Proceedings, on page
24 of the Company's report on Form 10-Q for the period ended April 2, 1995,
and as to which lawsuits there have been no material developments since such
Form 10-K and Form 10-Q were filed.
ITEM 2. CHANGES IN SECURITIES. NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of Chiron Corporation was held on
May 18, 1995. The following items were voted upon by the stockholders:
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(a) The following persons, who were the only nominees, were elected as
Class II directors to hold office for three years until 1998 and
received the following number of votes:
For Withheld
Gilbert F. Amelio 35,598,811 126,913
Pierre Douaze 35,597,103 128,621
Edward E. Penhoet 35,599,676 126,048
Henri Schramek 35,596,397 129,327
The terms of office of Lewis Coleman, Donald Glaser, Alex Krauer,
Francois L'Eplattenier, William Rutter, Jack Schuler and Pieter
Strijkert continued after the meeting.
(b) A proposal to approve the Company's amended 1991 Stock Option
Proposal as set forth in the Chiron Corporation Proxy Statement
dated April 18, 1995, was approved by the stockholders. The
following votes were cast as to such proposal: For: 33,119,268;
Against: 1,420,505; Abstain: 68,873; Broker Non-Votes: 1,117,078.
(c) A proposal to adopt the Chiron Corporation 1995 Executive Officer
Variable Cash Compensation Proposal as set forth in the Chiron
Corporation Proxy Statement dated April 18, 1995, was approved by
the stockholders. The following votes were cast as to such
proposal: For: 28,546,074; Against: 844,322; Abstain: 93,019;
Broker Non-Votes: 6,242,309.
(d) A proposal to ratify the selection of KPMG Peat Marwick as
independent public accountants for the Company for the fiscal year
ending December 31, 1995, was approved by the stockholders. The
following votes were cast as to such proposal: For: 35,673,573;
Against: 27,659; Abstain: 24,492.
ITEM 5. OTHER INFORMATION. NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
2.01 Agreement and Plan of Merger, made as of February 6,
1987, incorporated by reference to Exhibit 2.01 of the
Registrant's Form 10-Q report for the period ended September
30, 1994.
3.01 Restated Certificate of Incorporation of the Registrant,
dated August 18, 1987, incorporated by reference to Exhibit
3.01 of the Registrant's Form 10-K report for fiscal year
1991.
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3.02 Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant, dated December 12, 1991,
incorporated by reference to Exhibit 3.01 of the Registrant's
Form 10-K report for fiscal year 1991.
3.03 Bylaws of the Registrant, as amended, incorporated by
reference to Exhibit 3.03 of the Registrant's Form 10-K report
for fiscal year 1994.
4.01 Indenture, dated as of May 21, 1987, between Cetus
Corporation and Bankers Trust Company, Trustee,
incorporated by reference to Exhibit 4.01 of the Registrant's
Form 10-Q report for the period ended September 30, 1994.
4.02 First Supplemental Indenture, dated as of December 12, 1991,
by and among Registrant, Cetus Corporation, and Bankers
Trust Company, incorporated by reference to Exhibit 4.02 of
the Registrant's Form 10-K report for fiscal year 1992.
4.03 Indenture, dated as of November 15, 1993, between Registrant
and The First National Bank of Boston, as Trustee,
incorporated by reference to Exhibit 4.03 of the Registrant's
Form 10-K report for fiscal year 1993.
4.04 Rights Agreement, dated as of August 25, 1994, between the
Company and Continental Stock Transfer & Trust Company,
which includes the Certificate of Designations for the Series
A Junior Participating Preferred Stock as Exhibit A, the form
of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C, incorporated by
reference to Exhibit 4.04 of the Registrant's current report on
Form 8-K dated August 25, 1994.
4.05 Amendment No. 1 to Rights Agreement dated as of
November 20, 1994, between Chiron Corporation and
Continental Stock Transfer & Trust Company, incorporated by
reference to Exhibit 4.05 of the Registrant's current report on
Form 8-K, dated November 20, 1994.
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4.06 $1,000,000 County of Lorain, Ohio Variable Rate Industrial
Revenue Bonds dated as of July 1, 1984, due July 1, 2014,
incorporated by reference to Exhibit 4.06 of the Registrant's
Form 10-Q report for the period ended April 2, 1995. The
Registrant agrees to furnish to the Commission upon request a
copy of such agreement which it has elected not to file under
the provisions of Regulation 601(b)(4)(iii).
4.07 $1,000,000 Walpole Industrial Development Authority 6.75%
Industrial Revenue Bonds dated as of July 1, 1979, due July 1,
2004, incorporated by reference to Exhibit 4.07 of the
Registrant's Form 10-Q report for the period ended April 2,
1995. The Registrant agrees to furnish to the Commission upon
request a copy of such agreement which it has elected not to
file under the provisions of Regulation 601(b)(4)(iii).
10.01 Lease between Registrant and BGR Associates, a California
limited partnership, dated May 26, 1989, incorporated by
reference to Exhibit 10.01 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
10.02 Lease between Registrant and BGR Associates II, a California
limited partnership, dated May 26, 1989, incorporated by
reference to Exhibit 10.02 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
10.03 Agreement and Plan of Merger dated as of April 23, 1995
between Viagene, Inc., a Delaware corporation, and Chiron
Corporation, incorporated by reference to Exhibit 10.67 of
the Registrant's current report on Form 8-K dated April 24,
1995.
10.04 Stockholders' Agreement dated as of April 23, 1995 among
certain stockholders of Viagene, Inc., a Delaware
corporation, and Chiron Corporation, incorporated by
reference to Exhibit 10.68 of the Registrant's current
report on Form 8-K dated April 24, 1995.
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10.05 Stock and Asset Purchase Agreement dated as of March 6,
1995, by and among Johnson & Johnson, a New Jersey
corporation, Site Microsurgical Systems, Inc., a Pennsylvania
corporation, and Chiron Corporation and Amendment No. 1 to
Stock and Asset Purchase Agreement, entered into March 31,
1995 by and among Johnson & Johnson, Site Microsurgical
Systems, Inc. and Chiron Corporation, incorporated by
reference to Exhibit 10.05 of the Registrant's Form 10-Q
report for the period ended April 2, 1995.
10.06 Revolving Credit Facility dated as of March 24, 1995,
between Chiron Corporation and Swiss Bank Corporation, San
Francisco Branch, incorporated by reference to Exhibit 10.06
of the Registrant's Form 10-Q report for the period ended
April 2, 1995.
10.07 Lease between Acorn Development, Inc., a West Virginia
corporation, and IntraOptics, Inc., a Delaware corporation,
dated September 12, 1991, incorporated by reference to Exhibit
10.06 of the Registrant's Form 10-K report for fiscal year
1992.
10.08 Joint Venture Agreement by and between Chiron Biocine
Corporation, a California corporation, and CIBA-GEIGY
Biocine Corporation, a Delaware corporation, dated April
15, 1987 (with certain confidential information deleted),
incorporated by reference to Exhibit 10.23 of the
Registrant's Form 8 filed with the Commission on February
14, 1992.
10.09 Amendment to Biocine Joint Venture Agreement by and
between Chiron Biocine Corporation, a California corporation,
and CIBA-GEIGY Biocine Corporation, a Delaware
corporation, effective as of January 1, 1992, incorporated by
reference to Exhibit 10.63 to Registrant's Form 10-Q report
for the period ended June 30, 1992.
10.10 Research and License Agreement by and between Registrant
and The Biocine Company, a Delaware partnership, dated April
15, 1987 (with certain confidential information deleted),
incorporated by reference to Exhibit 10.24 of the Registrant's
Form 8 filed with the Commission on February 14, 1992.
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10.11 License Agreement by and between CIBA-GEIGY Biocine
Corporation, a Delaware corporation, and The Biocine
Company, a Delaware partnership, dated April 15, 1987 (with
certain confidential information deleted), incorporated by
reference to Exhibit 10.25 of the Registrant's Form 8 filed
with the Commission on February 14, 1992.
10.12 License Agreement by and between Chiron Biocine
Corporation, a California corporation, and The Biocine
Company, a Delaware partnership, dated April 15, 1987 (with
certain confidential information deleted), incorporated by
reference to Exhibit 10.26 of the Registrant's Form 8 filed
with the Commission on February 14, 1992.
10.13 Letter Agreement signed by CIBA-GEIGY Corporation, dated
April 15, 1987, incorporated by reference to Exhibit 10.13 of
the Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.14 Agreement between the Registrant and Ortho Diagnostic
Systems, Inc., a New Jersey corporation, dated August 17,
1989, and Amendment to Collaboration Agreement between
Ortho Diagnostic Systems, Inc. and Registrant, dated
December 22, 1989 (with certain confidential information
deleted), incorporated by reference to Exhibit 10.14 of
the Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.15 License and Supply Agreement between Ortho Diagnostic
Systems, Inc., a New Jersey corporation, the Registrant and
Abbott Laboratories, an Illinois corporation, dated August
17, 1989 (with certain confidential information deleted),
incorporated by reference to Exhibit 10.15 of the
Registrant's Form 10-Q report for the quarter ended June
30, 1994.
10.16 Chiron Corporation 1991 Stock Option Plan, as amended,
incorporated by reference to Annex 1 of the Registrant's
Proxy Statement dated April 18, 1995.*
10.17 Forms of Option Agreements, Chiron 1991 Stock Option Plan,
as amended, incorporated by reference to Exhibit 10.17 of the
Registrant's Form 10-K report for fiscal year 1993.*
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10.18 Forms of Option Agreements, Cetus Corporation Amended and
Restated Common Stock Option Plan, incorporated by
reference to Exhibit 10.33 of Registrant's Form 10-K report
for fiscal year 1991.*
10.19 Forms of Supplemental Letter concerning the assumption of
Cetus Corporation options by Chiron, incorporated by
reference to Exhibit 10.34 of Registrant's Form 10-K report
for fiscal year 1991.*
10.20 Agreement and Plan of Reorganization dated as of October 11,
1991 by and among the Registrant, Chiron Ophthalmics, Inc.,
COI Acquisition Corp., IntraOptics, Inc. and James R. Cook,
M.D., incorporated by reference to Exhibit 28.2 of
Registrant's current report on Form 8-K dated October 14,
1991.
10.21 Indemnification Agreement between the Registrant and
Dr. William J. Rutter, dated as of February 12, 1987 (which
form of agreement is used for each member of Registrant's
Board of Directors), incorporated by reference to Exhibit
10.21 of the Registrant's Form 10-Q report for the period
ended September 30, 1994.
10.22 Stock Purchase Agreement by and between the Registrant and
Johnson & Johnson Development Corporation, a corporation
organized and existing under the laws of the State of New
Jersey, dated as of October 3, 1986, incorporated by
reference to Exhibit 10.22 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
10.23 Stock Purchase Agreement between the Registrant and CIBA-
GEIGY, Limited, a corporation organized and existing under
the laws of Switzerland, dated November 14, 1988,
incorporated by reference to Exhibit 10.23 of the Registrant's
Form 10-Q report for the period ended September 30, 1994.
10.24 Form of Debenture Purchase Agreement between the Registrant
and CIBA-GEIGY, Limited, a corporation organized and
existing under the laws of Switzerland, dated June 22, 1990,
incorporated by reference to Exhibit 10.25 of the Registrant's
Form 10-K report for fiscal year 1994.
10.25 Chiron Corporation 1.90% Convertible Subordinated Note due
2000, Series B, incorporated by reference to Exhibit 10.25 of
the Registrant's Form 10-K report for fiscal year 1993.
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10.26 Investment Agreement dated as of November 20, 1994 among
Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
Partnership, Inc. and Chiron Corporation, incorporated by
reference to Exhibit 10.54 of the Registrant's current report
on Form 8-K dated November 20, 1994.
10.27 Governance Agreement dated as of November 20, 1994 among
Ciba-Geigy Limited, Ciba-Geigy Corporation and Chiron
Corporation, incorporated by reference to Exhibit 10.55 of the
Registrant's current report on Form 8-K dated November 20,
1994.
10.28 Subscription Agreement dated as of November 20, 1994 among
Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
Partnership, Inc. and Chiron Corporation, incorporated by
reference to Exhibit 10.56 of the Registrant's current report
on Form 8-K dated November 20, 1994.
10.29 Cooperation and Collaboration Agreement dated as of
November 20, 1994, between Ciba-Geigy Limited and Chiron
Corporation, incorporated by reference to Exhibit 10.57 of the
Registrant's current report on Form 8-K dated November 20,
1994.
10.30 Registration Rights Agreement dated as of November 20, 1994
between Ciba Biotech Partnership, Inc. and Chiron
Corporation, incorporated by reference to Exhibit 10.58 of the
Registrant's current report on Form 8-K dated November 20,
1994.
10.31 Market Price Option Agreement dated as of November 20,
1994 among Ciba-Geigy Limited, Ciba-Geigy Corporation,
Ciba Biotech Partnership, Inc. and Chiron Corporation,
incorporated by reference to Exhibit 10.59 of the Registrant's
current report on Form 8-K dated November 20, 1994.
10.32 Amendment dated as of January 3, 1995 among Ciba-Geigy
Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership,
Inc. and Chiron Corporation, incorporated by reference to
Exhibit 10.60 of the Registrant's current report on Form 8-K
dated January 4, 1995.
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10.33 Supplemental Agreement dated as of January 3, 1995 among
Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
Partnership, Inc. and Chiron Corporation, incorporated by
reference to Exhibit 10.61 of the Registrant's current report
on Form 8-K dated January 4, 1995.
10.34 Amendment with Respect to Employee Stock Option
Arrangements dated as of January 3, 1995 among Ciba-Geigy
Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership,
Inc. and Chiron Corporation, incorporated by reference to
Exhibit 10.62 of the Registrant's current report on Form 8-K
dated January 4, 1995.*
10.35 Supplemental Benefits Agreement, dated July 21, 1989,
between the Registrant and Dr. William J. Rutter, incorporated
by reference to Exhibit 10.27 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.*
10.36 Lease dated as of July 1, 1983 between Cetus Corporation and
H.B. Chapman, Jr., incorporated by reference to Exhibit 10.28
of the Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.37 Amendment to Lease, made as of March 20, 1990, amending
Lease dated July 1, 1983, between Harold B. Chapman, Jr. and
Cetus Corporation, incorporated by reference to Exhibit 10.37
of the Registrant's Form 10-Q report for the period ended April
2, 1995.
10.38 Lease commencing March 1, 1987, between EuroCetus B.V.
and the Municipal Land Company of the City of Amsterdam
(Translation), incorporated by reference to Exhibit 10(k) of
Cetus Corporation's Form 10-K report for its fiscal year 1987
(Commission File No. 0-10003).
10.39 Form of Option Agreement (with Purchase Agreements
attached thereto) between Cetus Corporation and each former
limited partner of Cetus Healthcare Limited Partnership, a
California limited partnership, incorporated by reference to
Exhibit 10.31 of the Registrant's Form 10-Q report for the
period ended September 30, 1994.
35
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10.40 Form of Option Agreement (with forms of Purchase
Agreements attached thereto), dated December 30, 1986,
between Cetus Corporation and each former limited partner of
Cetus Healthcare Limited Partnership II, a California limited
partnership, incorporated by reference to Exhibit 10.32 of the
Registrant's Form 10-Q report for the period ended September
30, 1994.
10.41 Big-O Property Purchase and Leaseback Agreement, dated as
of October 31, 1988, between Cetus Corporation and Richard
K. Robbins, incorporated by reference to Exhibit 10.33 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.42 Triple Net Lease dated as of January 20, 1989, between Cetus
Corporation and BGR Associates III, a California limited
partnership, and Marin County Exchange Corporation,
incorporated by reference to Exhibit 10.34 of the Registrant's
Form 10-Q report for the period ended September 30, 1994.
10.43 License Agreement between the Registrant and the Board of
Trustees of the Leland Stanford Junior University, dated
December 15, 1981, incorporated by reference to Exhibit 10.07
of the Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.44 Stock Purchase and Warrant Agreement dated May 9, 1989,
between Cetus Corporation and Hoffmann-La Roche Inc.,
incorporated by reference to Exhibit 10.36 of the Registrant's
Form 10-Q report for the period ended September 30, 1994.
10.45 Letter Agreement, dated as of December 12, 1991, relating to
Stock Purchase and Warrant Agreement between Registrant
and Hoffmann-La Roche Inc., incorporated by reference to
Exhibit 10.59 of Registrant's Form 10-K report for fiscal year
1991.
10.46 Agreement and Plan of Merger dated as of July 21, 1991, by
and among Registrant, Chiron Acquisition Subsidiary, Inc. and
Cetus Corporation, incorporated by reference to Exhibit 28.2 of
Registrant's Form 8-K report dated July 22, 1991.
36
<PAGE>
10.47 Letter Agreement dated September 26, 1990 between the
Registrant and William G. Green, incorporated by reference to
Exhibit 10.41 of the Registrant's Form 10-K report for fiscal
year 1992.*
10.48 Letter Agreement dated December 18, 1991 between Registrant
and Jack Schuler, incorporated by reference to Exhibit 10.42
of the Registrant's Form 10-K report for fiscal year 1992.*
10.49 Lease between Sclavo S.p.A. and Biocine Sclavo S.p.A., dated
January 7, 1992, incorporated by reference to Exhibit 10.49
of the Registrant's Form 10-Q report for the period ended
April 2, 1995.
10.50 Agreement made as of November 11, 1993 by and between
Kodak Clinical Diagnostics Limited, a company registered in
England, and Ciba Corning Diagnostics Corp., a Delaware
corporation, and Letter dated October 7, 1994 from Kodak
Clinical Diagnostics Limited to Ciba Corning Diagnostics
Corp., incorporated by reference to Exhibit 10.50 of
Amendment No. 1 to the Registrant's Form 10-Q report for the
period ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by
Registrant for confidential treatment pursuant to Rule
24b-2.]
10.51 Letter Agreement dated September 9, 1991 between the
Registrant and Walter Moos, incorporated by reference to
Exhibit 10.47 of the Registrant's Form 10-K report for fiscal
year 1992.*
10.52 Letter Agreement between the Registrant and Walter Moos,
dated February 1, 1993, incorporated by reference to Exhibit
10.48 of the Registrant's Form 10-K report for fiscal year
1992.*
10.53 Letter Agreement between Registrant and Renato Fuchs, dated
May 13, 1993, incorporated by reference to Exhibit 10.47 of
the Registrant's Form 10-K report for fiscal year 1993.*
37
<PAGE>
10.54 Agreement made as of December 6, 1984, by and between
Corning Glass Works, a New York corporation, and
Bioanalysis Limited, a company incorporated in England and
Wales, and Letter dated July 26, 1985 from Bioanalysis
Limited to Corning Glass Works, incorporated by reference to
Exhibit 10.54 of the Registrant's Form 10-Q report for the
period ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by Registrant
for confidential treatment pursuant to Rule 24b-2.]
10.55 Description of Executive Variable Compensation Program,
incorporated by reference to Exhibit 10.58 of the Registrant's
Form 10-K report for fiscal year 1994.*
10.56 Chiron Corporation Executive Bonus Plan, incorporated by
reference to Annex 2 of the Registrant's Proxy Statement dated
April 18, 1995.*
10.57 Regulatory Filing, Development and Supply Agreement
between the Registrant, Cetus Oncology Corporation, a wholly
owned subsidiary of the Registrant, and Schering AG, a
German company, dated as of May 10, 1993 (with certain
confidential information deleted), incorporated by reference
to Exhibit 10.50 of the Registrant's current report on
Form 8-K dated February 9, 1994.
10.58 Letter Agreement dated December 30, 1993 by and between
Registrant and Schering AG, a German company (with certain
confidential information deleted), incorporated by reference
to Exhibit 10.51 of the Registrant's Form 10-K report for
fiscal year 1993.
10.59 Guaranty, dated as of September 29, 1994, made by Registrant,
in favor of Bankers Trust Company, as trustee, incorporated by
reference to Exhibit 10.52 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
10.60 Guaranty, dated as of September 29, 1994, made by Cetus
Corporation, in favor of The First National Bank of Boston, as
trustee, incorporated by reference to Exhibit 10.53 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.
38
<PAGE>
10.61 Letter Agreements dated September 11, 1992, July 15, 1994
and September 14, 1994 between the Registrant and Lewis T.
Williams, incorporated by reference to Exhibit 10.54 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.*
10.62 Letter dated January 4, 1995 to C. William Zadel, incorporated
by reference to Exhibit 10.65 of the Registrant's Form 10-K
report for fiscal year 1994.*
10.63 Letter to Dino Dina dated April 24, 1984, incorporated by
reference to Exhibit 10.66 of the Registrant's Form 10-K
report for fiscal year 1994.*
10.64 Research Agreement, dated as of July 15, 1985, between Ciba-
Geigy Limited, a Swiss corporation, and Ciba Corning
Diagnostics Corp., a Delaware corporation, incorporated by
reference to Exhibit 10.64 of the Registrant's Form 10-Q
report for the period ended April 2, 1995.
10.65 Licensing Agreement, effective December 18, 1986, by and
between Miles Laboratories, Inc., a Delaware corporation, and
Ciba Corning Diagnostics Corp., a Delaware corporation, and
Letter dated December 18, 1992 from Ciba Corning
Diagnostics Corp. to Miles Laboratories, Inc., incorporated
by reference to Exhibit 10.65 of Amendment No. 1 to the
Registrant's Form 10-Q report for the period ended April 2,
1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2].
10.66 Magnetocluster Binding Assay Technology Agreement, dated
as of January 21, 1983, by and between Bioclinical Group,
Inc., a Delaware corporation, and Corning Glass Works, a New
York corporation, incorporated by reference to Exhibit 10.66
of Amendment No. 1 to the Registrant's Form 10-Q report for
the period ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by
Registrant for confidential treatment pursuant to
Rule 24b-2].
39
<PAGE>
10.67 Turn-back License Agreement, dated as of May 30, 1986, by
and between Ciba Corning Diagnostics Corp., a Delaware
corporation, and Advanced Magnetics, Inc., a Delaware
corporation, incorporated by reference to Exhibit 10.67 of
the Registrant's Form 10-Q report for the period ended
April 2, 1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2].
10.68 Settlement Agreement, dated August 30, 1989, between Ciba
Corning Diagnostics Corp. and Advanced Magnetics, Inc.,
incorporated by reference to Exhibit 10.68 of the
Registrant's Form 10-Q report for the period ended April 2,
1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2].
10.69 Lease made and entered into December 17, 1984 between BGR
Associates, a California limited partnership, and Cetus
Corporation and Amendment to Lease dated December 17,
1984 entered into effective February 1, 1986, incorporated
by reference to Exhibit 10.69 of the Registrant's Form 10-Q
report for the period ended April 2, 1995.
10.70 Agreement, effective as of December 21, 1988, by and between
Hoffmann-La Roche Inc., a New Jersey corporation, and Cetus
Corporation, incorporated by reference to Exhibit 10.70 of
the Registrant's Form 10-Q report for the period ended
April 2, 1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2].
10.71 Agreement, effective as of December 21, 1988, by and among
F. Hoffmann-La Roche Ltd., a Swiss corporation, Cetus
Corporation, and EuroCetus International, B.V., a Netherlands
Antilles corporation, incorporated by reference to Exhibit
10.71 of the Registrant's Form 10-Q report for the period
ended April 2, 1995. [Certain information has been omitted
from the Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2].
40
<PAGE>
10.72 Agreement, by and between Cetus Oncology Corporation,
EuroCetus International, N.V., and F. Hoffmann-La Roche
Ltd., incorporated by reference to Exhibit 10.72 of the
Registrant's Form 10-Q report for the period ended April 2,
1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2].
10.73 Agreement commencing January 1, 1991, between EuroCetus
B.V. and the Municipal Development Corporation
(Translation), incorporated by reference to Exhibit 10.41 of
the Registrant's Form 10-K report for fiscal year 1994.
10.74 Settlement Agreement on Purified IL-2, made as of April 14,
1995, by and between Cetus Oncology Corporation, dba Chiron
Therapeutics, a Delaware corporation, and Takeda Chemical
Industries, Ltd., a Japanese corporation. [Certain
information has been omitted from the Agreement pursuant to a
request by Registrant for confidential treatment pursuant to
Rule 24b-2.]
10.75 License Agreement made and entered into December 1, 1987,
by and between Sloan Kettering Institute for Cancer Research,
a not-for-profit New York corporation, and Cetus Corporation.
[Certain information has been omitted from the Agreement
pursuant to a request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.76 Reimbursement Agreement dated as of March 24, 1995,
between Ciba-Geigy Limited, a Swiss corporation, and the
Registrant.
10.77 Promissory Note dated January 1, 1995 by Ciba Corning
Diagnostics Corp.
11 Statement of Computation of Earnings per Share.
27 Financial Data Schedule.
--------
*Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K
Chiron filed a current report on Form 8-K, dated April 24, 1995, reporting
under Item 5 that, on April 24, 1995, Chiron and Viagene, Inc. issued a
press release announcing that they have signed a definitive agreement to
effect a strategic merger
41
<PAGE>
that would enable Chiron to achieve synergies of the gene therapy research,
development and manufacturing capabilities of the two companies.
Chiron filed a current report on Form 8-K, dated May 5, 1995, reporting
under Item 6, that, effective for fiscal year 1995, the Company determined
to adjust its fiscal year from the calendar year to the 52 or 53-week period
that ends on the Sunday nearest December 31.
42
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CHIRON CORPORATION
June 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
CHIRON CORPORATION
DATE: AUGUST 11, 1995 BY: /s/Edward E. Penhoet
------------------ ---------------------------------
Edward E. Penhoet
President and Chief
Executive Officer
DATE: AUGUST 11, 1995 BY: /s/Dennis L. Winger
------------------ ---------------------------------
Dennis L. Winger
Senior Vice President, Finance
and Administration
43
<PAGE>
EXHIBIT 10.74
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
SETTLEMENT AGREEMENT ON PURIFIED IL-2
THIS AGREEMENT, made as of the 4th day of April, 1995 (the "Effective Date"), is
made by and between Cetus Oncology Corporation, dba Chiron Therapeutics, a
corporation of the State of Delaware with its principal office at 4560 Horton
Street, Emeryville, California 94608-2916, U.S.A. (hereinafter called "Chiron")
and Takeda Chemical Industries, Ltd., a Japanese corporation with its principal
office at 1-1, Doshomachi 4-chome, Chuo-ku, Osaka 541, Japan (hereinafter called
"Takeda").
WITNESSETH THAT:
WHEREAS, Chiron is the owner of the entire right, title and interest in and to
United States patent No. 4,569,790 filed by Kirston Koths et al. (Koths);
WHEREAS, Takeda is the owner of the entire right, title and interest in and to
United States patent application Serial No. [CONFIDENTIAL TREATMENT REQUESTED]
filed by Koichi Kato et al (Kato) on [CONFIDENTIAL TREATMENT REQUESTED] and the
corresponding patents and patent applications in certain countries of the world;
WHEREAS, the United States Patent and Trademark Office declared Interference No.
[CONFIDENTIAL TREATMENT REQUESTED] between the above-mentioned Koths patent and
the Kato application involving the subject matter of purified, recombinant
interleukin-2 compositions;
WHEREAS, Chiron and Takeda wish to settle Interference No. [CONFIDENTIAL
TREATMENT REQUESTED];
WHEREAS, Chiron desires to obtain a license under the above-mentioned patents
and patent applications for the production, sale, and use of purified,
recombinant interleukin-2 compositions;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows:
1
<PAGE>
1 DEFINITIONS
For purposes of this Agreement:
1.1 "Takeda's U.S. Patent" means United States patent application Serial
No. [CONFIDENTIAL TREATMENT REQUESTED], any patent derived therefrom, and any
continuations, divisionals, patent term extensions, continuations-in-part
thereof and any re-examined or re-issued patents derived therefrom.
1.2. "Takeda's Patents" means European patent application No. 91105904.6
filed on April 13, 1991, any divisional or continuation patents derived
therefrom, any patent term extensions, and all national patents derived
therefrom in EPC member countries as well as the other patents and patent
applications indicated in EXHIBIT A attached hereto.
1.3 "Licensed Product" means any product containing recombinant
interleukin-2 or its mutein as an active ingredient in a final packaged form
suitable for distribution to physicians or other end users, the manufacture,
use, or sale of which would, but for this license, infringe a claim or claims of
Takeda's U.S. Patents or Takeda's Patents.
1.4 "Chiron's Subsidiary or Subsidiaries" means any business entity or
entities now existing or hereafter organized and selected by Chiron for the
purpose of this Agreement, in which Chiron owns, directly or indirectly, more
than fifty percent (50%) of the voting stock, such entity being deemed as a
Subsidiary only so long as such ownership of voting stock continues.
1.5 "Chiron Territory" means [CONFIDENTIAL TREATMENT REQUESTED], in
which the manufacture, use, or sale of Licensed Product would, but for this
license, infringe any claim or claims of the Takeda's U.S. Patent or Takeda's
Patents. The Chiron Territory shall [CONFIDENTIAL TREATMENT REQUESTED].
1.6 "Chiron Co-Exclusive Territory" shall mean [CONFIDENTIAL TREATMENT
REQUESTED]
2
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
1.7 "Net Sales" shall mean the gross amount billed or invoiced for
Licensed Products sold by Chiron, Chiron's Subsidiaries, or Chiron's
sublicensees, directly to third parties in arms' length commercial transactions
in the Chiron Territory less:
(i) Customary trade, quantity or cash discounts;
(ii) Amounts repaid or credited by reason of rejection or return;
and/or
(iii) To the extent separately stated on purchase
orders, invoices or other documents of sale,
customs and export duties, taxes levied on and/or
other governmental charges made as to production,
or transportation or insurance charges.
(iv) sales and value-added taxes separately stated on invoices.
Licensed Products shall be considered sold when shipped.
In the event that Licensed Products are sold in combination with
another product or active component (a "Combination Product") for a single
price, Net Sales from sales of Combination Product for purposes of calculating
royalties due under this Agreement shall be calculated by multiplying the Net
Sales of that Combination Product by the fraction A/(A+B), where A is the gross
selling price of the Licensed Product sold separately in the country of sale and
B is the gross selling price of the other product(s) sold separately in the
country of sale. In the event that no such separate sales are made, Net Sales,
for purposes of determining royalty payments on such Combination Products, shall
be a commercially reasonable apportionment of the gross amount invoiced therefor
based upon the relative contribution of the Licensed Products to the price of
the Combination Product. Such apportionment shall be negotiated in good faith
between the parties and such apportionment shall be established prior to the
sale of any such Combination Products.
2 SETTLEMENT OF INTERFERENCE
3
<PAGE>
2.1 [CONFIDENTIAL TREATMENT REQUESTED]
2.2 [CONFIDENTIAL TREATMENT REQUESTED]
3 LICENSE GRANT TO CHIRON
3.1 LICENSE GRANT UNDER TAKEDA'S U.S. PATENT AND TAKEDA'S PATENTS.
Takeda hereby grants to Chiron an exclusive license, with the right to
sublicense, to make, have made, use, sell and/or import Licensed Product in the
Chiron Territory under Takeda's U.S. Patent and Takeda's Patents.
3.2 LICENSE FOR CHIRON CO-EXCLUSIVE TERRITORIES. Takeda further grants
Chiron a license, co-exclusive with Takeda, to make, have made, use, sell and/or
import Licensed Product in the Chiron Co-Exclusive Territories under Takeda's
Patents in those countries.
4 ROYALTY
4.1 ROYALTY FOR LICENSE TO TAKEDA'S U.S. PATENT. In consideration of the
license granted Chiron under Takeda's U.S. Patent in Section 3.1 of this
Agreement, Chiron shall pay a royalty to Takeda as follows:
4.1.1 Chiron shall pay [CONFIDENTIAL TREATMENT REQUESTED], which
date is the [CONFIDENTIAL TREATMENT REQUESTED].
4.1.2 Thereafter, Chiron shall pay to Takeda a royalty of
[CONFIDENTIAL TREATMENT REQUESTED] percent [CONFIDENTIAL TREATMENT REQUESTED]
of Net Sales in the U.S.A. in the event that the manufacture, use or sale
of Licensed Product would, without a license, infringe an issued claim of
Takeda's U.S. Patent, until the expiration date of Takeda's U.S. Patent.
4
<PAGE>
4.2 ROYALTY FOR LICENSE TO TAKEDA'S PATENTS. In consideration of the
license granted Chiron under Takeda's Patents in Section 3.1 of this Agreement,
Chiron shall pay to Takeda a royalty of [CONFIDENTIAL TREATMENT REQUESTED]
percent [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales in the Chiron
Territory, except the U.S.A., in the event that the manufacture, use or sale of
Licensed Product would, without a license, infringe a claim of Takeda's
Patents. In any given country within the Chiron Territory, Chiron's royalty
obligations under this Section 4.2 shall continue until the expiration date
of Takeda's Patent(s) in that country.
4.3 ROYALTY FOR LICENSE IN CO-EXCLUSIVE TERRITORY. In consideration of
the license granted Chiron under Takeda's Patents in Section 3.2 of this
Agreement, Chiron shall pay to Takeda a royalty of [CONFIDENTIAL TREATMENT
REQUESTED] percent [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales in the
Chiron Co-Exclusive Territory referenced in Section 3.2, in the event that the
manufacture, use or sale of Licensed Product would, without a license, infringe
a claim of Takeda's Patents, until such time as Takeda markets a competing IL-2
product with the same general class of indications as Chiron's Licensed Product
(the "Competing IL-2 Product"). Examples of such general classes of
indications would include, without limitation, Oncology, Viral Diseases, and/or
Adjuvant Use. At such time as Takeda markets such a Competing IL-2 Product in
any country within the Chiron Co-Exclusive Territory, Chiron's royalty
obligation in that country(s) shall be reduced to [CONFIDENTIAL TREATMENT
REQUESTED] of Net Sales in the given country(s). In any given country
within the Chiron Co-Exclusive Territory, Chiron's royalty obligations under
this Section 4.3 shall continue until the expiration date of Takeda's Patent(s)
in that country.
4.4 SALES AMONG CHIRON AND SUBLICENSEES. Net Sales shall be calculated
on the basis of the gross invoice price on the final transfer of Licensed
Products to unaffiliated third parties. Sales among Chiron, Chiron's
Subsidiaries and its sublicensees shall not be subject to royalty, and in such
case, the royalty shall become due upon resale to third parties.
4.5 ROYALTIES PRIOR TO ISSUANCE UNDER TAKEDA'S PATENTS. As to the
countries where Takeda's Patents have not
5
<PAGE>
issued, Chiron may withhold the royalty payment under Section 4.2 until issuance
of Takeda's Patents. Chiron shall make the royalty payment for its prior sales
(sales of Licensed Product from the Effective Date of this Agreement until
issuance of Takeda's Patents) within sixty (60) days after issuance of Takeda's
Patents in that country concerned.
5 PAYMENTS
5.1 ROYALTY PAYMENTS. Chiron's royalty payments to Takeda shall be
made in U.S. dollars into a bank account designated by Takeda. Such payments
shall be made within ninety (90) days after the close of each calendar half
year. Chiron shall withhold any mandatory withholding taxes as provided below
in Section 5.3. Each royalty payment submitted by Chiron to Takeda shall be
accompanied by a report setting forth Net Sales, calculation of the royalty and
calculation of foreign currency conversions, which calculations shall be made in
accordance with the provisions of this Agreement.
5.2 FOREIGN CURRENCY CONVERSION. Where calculations are made with
respect to sales of Licensed Products invoiced in a currency other than United
States dollars, all invoiced prices and other component charges, allowances,
credits, costs, taxes and duties used to determine such Net Sales shall first be
determined in the currency in which the Licensed Products were invoiced and then
converted into the equivalent in United States dollars at the exchange rate for
such foreign currency as published in THE WALL STREET JOURNAL on the last
business day of the calendar half year in which such sales were made.
5.3 WITHHOLDING TAXES. Where required to do so by applicable law,
Chiron shall withhold and pay any and all taxes required to be paid to a taxing
authority on account of any payments to Takeda hereunder, and Chiron shall
furnish Takeda with satisfactory evidence of such withholding and payment to
assist Takeda in obtaining a tax credit or other relief as may be available
under the applicable law or treaty. Chiron shall cooperate with Takeda in
obtaining exemption from withholding taxes where available under applicable laws
and treaties.
6
<PAGE>
5.4 INTEREST ON OVERDUE PAYMENTS. If any sum due hereunder is not paid
in full on the due date, interest at the average prime rate published by the
Wall Street Journal on the date following the due date, or the maximum
permitted by law, whichever is lower, shall accrue and be payable on any unpaid
balance from the date such payment was due until the date paid.
5.5 NON-REFUNDABLE ROYALTY. Royalties once received by Takeda shall not
be refundable for any reason.
6 STATEMENTS, RECORDS AND INSPECTION
6.1 STATEMENTS. All payments made to Takeda hereunder shall be
accompanied by a written statement setting forth in reasonable detail the
calculation thereof, including, in the case of royalties paid on Licensed
Products, the gross amount invoiced therefor, the aggregate deductions permitted
under the definition of Net Sales, aggregate Net Sales, the amount of royalties
due to Takeda in respect of such Net Sales.
6.2 RECORD KEEPING. Chiron shall keep and maintain complete and accurate
books of account and adequate records of all sales of Licensed Products and
shall retain such books and records for a period of three years from the last
day of the calendar year in which such sales were made. Chiron shall require
Chiron's Subsidiaries and Chiron's sublicensees to comply with the provisions of
this Section 6.2.
6.3 INSPECTION. At Takeda's request, Chiron shall make such books of
account and records available for Takeda's inspection during normal business
hours for the sole purpose of determining whether appropriate accounting and
payments have been made by Chiron hereunder. An independent accounting firm
appointed by Takeda and acceptable to Chiron shall conduct such inspection.
Takeda shall bear the cost of any such inspection; provided, that in the event
the inspection discloses that any payments made to Takeda hereunder for any
accounting period were deficient by more than ten percent, Chiron shall promptly
reimburse Takeda for the cost of such independent audit and shall pay to Takeda
the amount of such deficiency together with
7
<PAGE>
interest thereon at the rate specified above.
7 NO WARRANTIES AND HOLD-HARMLESS
7.1 DISCLAIMER OF WARRANTY. The license granted hereunder by Takeda is
provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. TAKEDA MAKES NO WARRANTY THAT
CHIRON'S ACTIVITIES UNDER SUCH LICENSES WILL NOT INFRINGE ANY PATENT(S) OR OTHER
PROPRIETARY RIGHT(S) OF THIRD PARTIES. Takeda shall not be liable for any such
infringement or allegation thereof.
TAKEDA MAKES NO WARRANTIES WHATSOEVER AS TO THE MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF LICENSED PRODUCT MADE, USED AND/OR SOLD BY CHIRON,
CHIRON'S SUBSIDIARIES, OR ITS SUBLICENSEES.
7.2 HOLD-HARMLESS. Chiron shall be solely liable for, and shall defend,
indemnify and hold harmless, Takeda, its affiliates, officers, directors,
employees, agents and shareholders harmless against any and all losses,
liabilities, damages, claims, judgments, demands, and expenses (including
reasonable attorneys' fees) and costs (together or individually, a "Loss")
arising out of or in connection with any claim for injuries or damages arising
from claims asserted by third parties against Chiron, Takeda, Chiron's
Subsidiaries, or Chiron's sublicensees, caused by or related to the design,
manufacture, rental, exploitation, production, distribution, advertising, use or
sale of Licensed Product by Chiron, Chiron's Subsidiaries or sublicensees
hereunder, including, but not limited to, claims of patent infringement or
product liability, subject to the provisions of Section 10.1 of this Agreement,
relating to Takeda's right to assume the defense of a third party's patent
infringement claim. The provisions of this Paragraph shall survive expiration
or termination of this Agreement.
8 LICENSE TO TAKEDA FOR [CONFIDENTIAL TREATMENT REQUESTED]
Chiron shall grant to Takeda [CONFIDENTIAL TREATMENT REQUESTED]
8
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED] pursuant to a license agreement to be
concluded by the parties hereto separately from this Agreement.
9 PATENT MARKING IN THE U.S.A.
Chiron shall properly mark Licensed Product sold in the U.S.A. with the patent
number of Takeda's U.S. Patent.
10 PATENT INFRINGEMENT
10.1 INFRINGEMENT ACTION BY A THIRD PARTY.
(a) DEFENSE OF CLAIM. Chiron shall promptly notify Takeda if any
legal proceedings are commenced or threatened against Chiron or any purchaser of
Licensed Product on the ground that the manufacture, use or sale of Licensed
Product is an infringement of a third party's patent or other intellectual
property rights. Chiron shall assume and solely manage the defense of any such
action or claim, at its own cost and expense. Upon Chiron's request, and at
Chiron's expense, Takeda shall give Chiron all reasonable assistance and
cooperation in the defense of such action or claim.
10.2 INFRINGEMENT ACTION AGAINST A THIRD PARTY.
(a) MAINTENANCE OF CLAIMS. Each party shall promptly notify the
other if it becomes aware of any infringement of Takeda's U.S. Patent or
Takeda's Patents by a third party. Both parties shall consult with each other
on any action to be taken against such infringement, provided that Takeda shall,
in its sole discretion and at its expense, subject to the provisions of
subsection (b) below, have the sole right to file and maintain lawsuits for
infringement of any of Takeda's U.S. Patents or Takeda's Patents by any third
party. Upon Takeda's request, and at Takeda's expense, Chiron shall give Takeda
all reasonable assistance and cooperation in any such proceedings.
In the event that Takeda institutes suit or other legal proceedings to
protect or enforce Takeda's U.S. Patents or Takeda's Patents as provided herein,
Chiron shall have the option to join in such proceedings and shall be entitled
to be represented by counsel of its own choosing.
9
<PAGE>
From any recovery awarded as a result of such suit or legal proceedings
instituted by Takeda, Takeda may (i) deduct the full amount of its expenses of
prosecuting the same (including attorney's fees and court costs); (ii) shall pay
to Chiron, to the extent possible after full payment of (i) above, the full
amount of Chiron's costs of participating in the same; (iii) shall pay to
Chiron, after full payment of (i) and (ii) above, all damages attributable to
Chiron's lost profits and any other damages awarded Chiron in the action, and
(iv) may retain any remaining balance.
(b) If Takeda should not take any action to stop substantial
infringement of any of Takeda's U.S. Patent or Takeda's Patents, Chiron may take
itself, or may have any Chiron Subsidiary or any Chiron sublicensee take, the
action at its own expense, provided that Chiron has first obtained the written
authorization of Takeda, which authorization shall not be unreasonably withheld.
Takeda agrees to cooperate in taking such action as may be necessary to enable
Chiron or its subsidiaries or sublicensees to conduct a litigation hereunder.
In such case, any monetary recovery in connection with such infringement action
shall be retained by Chiron.
(c) Payments Pending Resolution. The failure of Takeda to take any
action against an infringing party shall not relieve Chiron of its obligations
under this Agreement. Chiron shall continue to make any and all payments due
hereunder on account of sales of Licensed Product during the continuance of any
such infringement action and all appeals thereof.
11 TERM AND TERMINATION
11.1 TERM. Unless sooner terminated as hereinafter provided, this
Agreement shall become effective as of the date set forth above and shall
continue in effect until the expiration of the last to expire Takeda's U.S.
Patent or Takeda's Patents.
11.2 TERMINATION FOR CAUSE. Either party may terminate this Agreement
upon the occurrence of any of the following by giving the other party sixty (60)
days' written notice:
a) Upon or after the bankruptcy, insolvency, or dissolution of the
other party;
b) Upon or after the breach of any material provision of this
Agreement by the other party if the breach is not cured within sixty
(60) days after notice thereof
10
<PAGE>
to the party in default. Termination of this Agreement shall not relieve
Chiron of its obligation to pay the royalties accrued prior to the
effective date of termination.
11.3 PAID-UP LICENSE. In the event that this Agreement is terminated
pursuant to Section 11.2 by Chiron due to Takeda's breach of this Agreement, the
license granted to Chiron under Article 3 shall become an irrevocable, fully
paid-up license thereafter.
12 MISCELLANEOUS PROVISIONS
12.1 ASSIGNABILITY. Neither party shall assign this Agreement or any of
its rights or obligations to a third party without prior written consent of the
other party, except to the successor or assignee of all or substantially all of
its pharmaceutical business, which consent will not be unreasonably withheld.
When duly assigned, this Agreement shall be binding upon and inure to the
benefit of such successor or assignee.
12.2 NOTICES. Any notice between the parties hereto concerning this
Agreement shall be given in the English language by prepaid airmail or facsimile
letter addressed to the other party as set forth below unless changed by notice
so given:
For Chiron:
Dr. David Martin
President
Cetus Oncology Corporation /dba/ Chiron
Therapeutics
4560 Horton Street
Emeryville, California 94608
U.S.A.
With a copy to:
General Counsel
Chiron Corporation
4560 Horton Street
11
<PAGE>
Emeryville, California 94608
U.S.A.
For Takeda:
General Manager
Patent & Licensing Department
Takeda Chemical Industries, Ltd.
1-1, Doshomachi 4-chome
Chuo-ku
Osaka 541
Japan
Any notice or other communication required or permitted to be given by either
party under this Agreement shall be effective when delivered, if delivered by
hand or by electronic facsimile, or upon receipt if mailed by registered or
certified mail, postage prepaid and return receipt requested, addressed to each
party at the preceding addresses or such other address as may be designated by
notice pursuant to this Section.
12.3 PROVISIONS CONTRARY TO LAW. In performing this Agreement, the
parties shall comply with all applicable laws. Nothing in this Agreement shall
be construed so as to require the violation of any law, and wherever there is
any conflict between any provision of this Agreement and any law, the law shall
prevail, but in such event the affected provision of this Agreement shall be
affected only to the extent necessary to bring it within the applicable law.
12.4 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of Japan, except that questions affecting the
construction and effect of any patent shall be determined by the laws of the
country in which the patent is issued.
12.5 USE OF NAMES. Neither party shall use the name of the other in any
promotional materials or advertising without the prior written consent of the
other.
12.6 WAIVERS AND MODIFICATIONS. The failure of any party to insist on
the performance
12
<PAGE>
of any obligation hereunder shall not be deemed to be a waiver of such
obligation. Waiver of any breach of any provision hereof shall not be deemed to
be a waiver of any other breach of such provision or any other provision. No
waiver, modification, release or amendment of any obligation under or provision
of this Agreement shall be valid or effective unless in writing and signed by
both parties hereto.
12.7 SETTLEMENT OF DISPUTES. In the event of any controversy or claim
arising out of or relating to any provision of this Agreement, the parties
hereto shall try to settle it amicably between themselves. Should they fail to
agree, the matter in dispute shall be finally settled by arbitration under the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
by one or more arbitrators appointed in accordance with the Rules. The
arbitration shall be conducted in English and Japanese, and held in Osaka, Japan
if initiated by Chiron and in Alameda or San Francisco Counties, California,
U.S.A. if initiated by Takeda. The award rendered shall be final and binding on
both parties.
12.8 FORCE MAJEURE. The failure by either party to perform any provision
of this Agreement when caused by or resulting from fire, floods, embargoes,
government regulations, war, insurrections, riots, civil commotions, strikes,
lockouts, acts of God or any other cause beyond the control of such party shall
not constitute a breach of such provision.
12.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties as to the subject matter hereof, and all prior negotiations,
representations, agreements and understandings are merged into, extinguished by,
and completely expressed by this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement in duplicate
as of the date set forth above.
CETUS ONCOLOGY CORPORATION, DBA CHIRON THERAPEUTICS
By: /s/ D. W. Martin, Jr.
--------------------------------------
Name D. W. Martin, Jr.
--------------------------------------
Title: President, Chiron Therapuetics
--------------------------------------
Date: March 29, 1995
--------------------------------------
TAKEDA CHEMICAL INDUSTRIES, LTD.
By: /s/ Tai Matsuzawa
--------------------------------------
Name Tai Matsuzawa Ph.D.
--------------------------------------
Title: Executive Director
--------------------------------------
Date: April 4, 1995
--------------------------------------
14
<PAGE>
EXHIBIT A
TAKEDA'S PATENTS
<TABLE>
<CAPTION>
Country Serial No. Filing Date Patent No. Expiration Date
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[CONFIDENTIAL 35756-84 Nov. 21, 1984
TREATMENT [CONFIDENTIAL Nov. 27, 1984
REQUESTED] TREATMENT
REQUESTED]
5607-84 Nov. 27, 1984 164174 Nov. 27, 2004
81040-A Nov. 26, 1984 81040 Nov. 26, 1999
[CONFIDENTIAL Nov. 27, 1984
TREATMENT
REQUESTED]
PI8702002 Sep. 28, 1987 MY103892A Oct. 30, 2008
210352 Nov. 27, 1984 210352 Nov. 27, 2000
[CONFIDENTIAL Nov. 26, 1984
TREATMENT
REQUESTED]
84-9221 Nov. 26, 1984 84-9221 Nov. 26, 2004
91105904.6 Apr. 13, 1991
<FN>
[CONFIDENTIAL TREATMENT REQUESTED]
</TABLE>
15
<PAGE>
EXHIBIT 10.75
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
LICENSE AGREEMENT
This License Agreement ("LICENSE AGREEMENT"), made and entered into as of
the 1st day of December 1987, by and between Sloan Kettering Institute for
Cancer Research, a not-for-profit corporation duly organized and existing under
the laws of the State of New York and having its principal office at 1275 York
Avenue, New York, New York 10021 (hereinafter referred to as "SKI") and Cetus
Corporation, a corporation duly organized and existing under the laws of the
State of Delaware, having its principal office at 1400 Fifty-Third Street,
Emeryville, California 94608 U.S.A., (hereinafter referred to as CETUS).
WITNESSETH
WHEREAS SKI is the owner by assignment of US patent applications
Serial Numbers 370,223 filed 20 April 1982 and 603,580 filed 25 April, 1984,
and European Patent Application 83 103 589.2 filed 14 April 1983, and Japanese
patent application 69880/1983, filed 20 April 1983, which patent applications
claim INTER ALIA highly purified human Interleukin-2 (IL-2) and methods for
production thereof.
WHEREAS CETUS is engaged in the development of recombinant human
IL-2, has extensive scientific and patent experience relating thereto and is
willing to use its experience to assist SKI in the procurement of patents based
on the above-mentioned SKI patent applications; and
WHEREAS CETUS desires an exclusive license to the above mentioned SKI
patent applications, to any divisional, continuation or continuation-in
part-applications that may be hereafter filed and are entitled to claim the
filing date of the above-mentioned SKI patent applications and to such patents
that may issue from the above-mentioned SKI patent applications that have claims
that dominate human native IL-2, human recombinant IL-2 or human recombinant
IL-2 muteins;
WHEREAS SKI is willing to grant to CETUS and CETUS is willing to
accept from SKI such an exclusive license or licenses;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
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<PAGE>
ARTICLE 1 - DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
1.1 "CETUS" shall mean Cetus Corporation, a corporation duly organized
under the laws of the State of Delaware having its principal office at 1400
Fifty-Third Street, Emeryville, California 94608.
1.2 "SKI" shall mean Sloan Kettering Institute for Cancer Research, a
not for profit corporation duly organized and existing under the laws of the
State of New York having its principal office at 1275 York Avenue, New York, New
York 10021.
1.3 "AFFILIATE" shall mean any corporation, company or other entity
controlling, controlled by or in common control with CETUS or a subsidiary of
CETUS, and any partnership of which CETUS is a general partner.
1.4 "PATENT APPLICATIONS" shall mean the U.S. Patent Application
Serial 370,223 filed 20 April 1982 and 603,580 filed 25 April 1984 including
reissues, divisionals, continuations, continuation-in-part applications or any
foreign counterpart of the PATENT APPLICATIONS including but not limited to
European Patent Application 83103589.2 filed 14 April 1983 and Japanese Patent
Application 69880/1983, filed 20 April 1983.
1.5 "PATENT RIGHTS" shall mean rights granted under any United States
or foreign patents that may result from the PATENT APPLICATIONS.
1.6 "LICENSED PRODUCTS" shall mean any product covered by the claims
of the PATENT RIGHTS as defined above or produced by LICENSED PROCESSES.
1.7 "LICENSED PROCESSES" shall mean any process covered in whole or in
part by any of the claims contained in PATENT RIGHTS.
1.8 The phrase "covered by" shall mean that the LICENSED PRODUCTS,
when made, used, or sold, or LICENSED PROCESS when practiced would constitute,
but for the license granted to CETUS pursuant to this Agreement, an infringement
of any
- 2 -
<PAGE>
granted unexpired claim or claims included within SKI's PATENT RIGHTS that have
not been invalidated by a court or governmental agency.
1.9 As used herein, the phrase "NET SALES" shall mean arm's length
billings for LICENSED PRODUCTS, whether sold as research products, formulated
product or in the form of a kit, produced hereunder, less the following:
(a) Discounts allowed and taken in amounts customary in the trade,
(b) Sales, use taxes, tariffs or duties directly imposed and with
reference to particular sales,
(c) Outbound transportation prepaid or allowed,
(d) Amounts allowed or credited on return or retroactive price
reduction,
(e) Royalties paid in arms-length transactions to third parties for a
license under DOMINATING PATENTS hereinafter defined, not to exceed in the
aggregate fifteen percent of the seller's actual billing of the LICENSED
PRODUCT. By way of example, if seller's billing for a given LICENSED PRODUCT is
$100.00, and if CETUS shall have paid royalties of $16.00 on such LICENSED
PRODUCT to a third party or parties for a license under one or more DOMINATING
PATENTS, in computing the NET SALES VALUE of the LICENSED PRODUCT, CETUS shall
be entitled under this clause (e) to deduct up to a maximum of $15.00 from the
$100.00 in computing the NET SALES VALUE of the LICENSED PRODUCT under this
ARTICLE 1.
If the LICENSED PRODUCT is sold in conjunction with another active
component or components, Net Sales for purposes of determining royalties on the
combination shall be calculated by multiplying NET SALES of the combination by
the fraction A/(A+B), where A is the invoice price of the LICENSED PRODUCT if
sold separately and B is the total invoice price of any other active component
or components in combination if sold separately. If the LICENSED PRODUCT and the
other active component or components in the combination are not sold separately,
NET SALES for purposes of determining royalties on the combination shall be
calculated by multiplying NET SALES of the combination by the fraction C/(C+D),
where C is the direct cost of
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<PAGE>
manufacturing the LICENSED PRODUCT and D is the direct cost of manufacturing the
other active component or components in the combination. Forthwith, after the
sale of LICENSED PRODUCT and another active component or components requiring a
determination of the values of C and D, CETUS shall notify SKI of such sale and,
within 30 days of receipt of such notice by SKI, CETUS and SKI shall determine
and agree upon the values of C and D.
1.10 "DOMINATING PATENT" shall mean a patent that has not been
invalidated by a court or governmental agency, which is owned by a third party
neither controlled by nor controlling nor under common control with CETUS,
covering essential features of LICENSED PRODUCTS made and sold by CETUS or a
LICENSED PROCESS employed by CETUS in the manufacture of such LICENSED PRODUCTS,
under circumstances such that CETUS has no commercially reasonable alternative
to obtaining a royalty-bearing license under such dominating patent in order to
commercialize LICENSED PRODUCTS under this LICENSE AGREEMENT.
1.11 "Native Human IL-2" shall mean a protein, whether or not
glycosylated, produced from a human cell line or fused human cell or recovered
from tissues or fluids of a human being, provided that such protein has T-cell
growth and immunostimulatory activity. For the purpose of this definition, a
substance that has "T-cell growth and immunostimulatory activity" shall mean a
substance that (a) stimulates proliferation of antigen or mitogen stimulated
T-cells, (b) activates mononuclear cells to kill natural killer cell-resistant
human tumor cell lines, and (c) augments natural killer cell activity. "Native
human IL-2" shall not include any polypeptide or protein produced by a
recombinant organism.
1.12 "Recombinant Human IL-2" shall mean any protein or polypeptide,
whether or not glycosylated, with the amino acid sequence set forth in Figure 3b
of Taniguchi et al.," structure and expression of a cloned cDNA for human
interleukin-2", Nature Volume 302, pp.305-310 (24 March 1983) produced from a
cell or cell line that has been transformed to express such protein or
polypeptide by recombinant DNA methods, provided that such protein has T-cell
growth and immunostimulatory activity. For the purpose of this definition, a
substance that has "T-cell growth and immunostimulatory activity" shall mean a
substance that (a) stimulates proliferation of antigen or mitogen stimulated
T-cells, (b) activates mononuclear cells to kill natural killer cell-resistant
human tumor cell lines, and (c) augments natural killer cell activity.
- 4 -
<PAGE>
1.13 "Recombinant Human IL-2 Mutein" shall mean any protein or
polypeptide, whether or not glycosylated, with the amino acid sequence set forth
in Figure 15 b of U.S. Patent Number 4,518,584 entitled "Human Recombinant
Interleukin-2 Muteins" and granted May 21, 1985 to D. Mark et al., and analogs
or derivatives thereof, provided that such protein has T-cell growth and
immunostimulatory activity. For the purpose of this definition, a substance that
has "T-cell growth and immunostimulatory activity" shall mean a substance that
(a) stimulates proliferation of antigen or mitogen stimulated T-cells, (b)
activates mononuclear cells to kill natural killer cell-resistant human tumor
cell lines, and (c) augments natural killer cell activity.
ARTICLE 2 - GRANT
2.1 SKI hereby grants to CETUS upon the terms and conditions herein
specified, an exclusive, royalty-bearing and non-assignable, except as
hereinafter specified, license under the PATENT RIGHTS to make, use and sell
LICENSED PRODUCTS or practice LICENSED PROCESSES in each country and
its territories and possessions in which the PATENT RIGHTS are or shall be in
effect, to the full end of the respective term or terms for which the PATENT
RIGHTS are or shall be issued or extended under applicable law, unless such
license is sooner terminated as hereinafter provided, reserving only the right
of SKI to use PATENT RIGHTS for non-commercial research and, only to the extent
required by law pursuant to Section 35 USC Section 203, the rights of the U.S.
Government.
2.2 SKI hereby grants to CETUS, upon the terms and conditions herein
specified, the right to extend to its AFFILIATES the license granted pursuant to
ARTICLE 2.1 hereof or any portion thereof, provided that CETUS promptly notifies
SKI in writing after each such extension to an AFFILIATE.
2.3 CETUS agrees to be responsible for the performance hereunder by
its AFFILIATES to which the license shall have been extended pursuant to ARTICLE
2.2 hereof.
2.4 Except as hereinafter provided for AFFILIATES operating outside of
the United States, for the purposes of reporting and making payments of earned
royalties under this License Agreement, the manufacture, sale or use of LICENSED
PRODUCTS by any AFFILIATE to which the license shall have been extended pursuant
to ARTICLE 2.2
- 5 -
<PAGE>
hereof shall be considered the manufacture, sale or use of such LICENSED PRODUCT
by CETUS; however provided CETUS shall so notify SKI in advance thereof in
writing, any such AFFILIATE may make the pertinent reports and royalty payments
specified in ARTICLE 5 hereof directly to SKI on behalf of CETUS.
ARTICLE 3 - SUBLICENSING PROVISIONS
3.1 SKI hereby grants to CETUS, upon the terms and conditions herein
specified, a nonassignable (except with this License Agreement as provided in
ARTICLE 9 hereof) right and power to grant to others ("SUBLICENSEES"), only
while the herein-granted license under the PATENT RIGHTS shall be exclusive to
CETUS in the pertinent country under ARTICLE 2 hereof, upon reasonable terms and
conditions, nonassignable royalty-bearing sublicenses under the PATENT RIGHTS to
make, have made, use and sell LICENSED PRODUCTS, in each country and its
territories and possessions in which the PATENT RIGHTS are or shall be in effect
to the full end of the respective term or terms for which the PATENT RIGHTS are
or shall be issued, and if applicable extended, unless this Agreement is sooner
terminated as herein provided.
3.2 For the sublicensing rights and privileges granted under this
License Agreement, CETUS shall pay to SKI in the manner herein provided, earned
royalties pursuant to ARTICLE 5 hereof on all LICENSED PRODUCTS made, used or
sold by each SUBLICENSEE hereunder.
3.3 The requirements of ARTICLE 11 hereof shall apply to SUBLICENSEES
and CETUS shall require SUBLICENSEES to comply therewith to the same extent that
CETUS is required to do so.
3.4 CETUS shall notify SKI of the issuance of all sublicenses
hereunder, each such sublicense shall be in writing and within sixty (60) days
of the execution thereof CETUS shall provide SKI with a copy of each
sublicensing agreement entered into pursuant hereto.
ARTICLE 4 - FEES AND MINIMUM ROYALTIES
4.1 CETUS shall pay to SKI within 30 days of the execution and
delivery of this License Agreement, a license issue fee of [CONFIDENTIAL
TREATMENT REQUESTED] United States Dollars
- 6 -
<PAGE>
([CONFIDENTIAL TREATMENT REQUESTED]), no part of which shall be refundable or
creditable against any other amount payable under this License Agreement.
4.2 CETUS shall pay the following fees to SKI within 180 days of
receipt by CETUS in writing of notice of the achievement of the following patent
prosecution benchmarks:
i. [CONFIDENTIAL TREATMENT REQUESTED] if a notice of allowance
of claims in a United States patent application based on the PATENT
APPLICATIONS that dominate Native Human IL-2, Recombinant Human IL-2 or
Recombinant Human IL-2 Mutein issues.
ii. [CONFIDENTIAL TREATMENT REQUESTED] if a United States
patent within the PATENT RIGHTS that has claims that dominate Native Human
IL-2, Recombinant Human IL-2 or Recombinant Human IL-2 Mutein issues.
iii. [CONFIDENTIAL TREATMENT REQUESTED] if the European Patent
Office issues a notice of grant of claims in a European patent application
based on the PATENT APPLICATIONS that dominate Native Human IL-2, Recombinant
Human IL-2 or Recombinant Human IL-2 Muteins.
iv. [CONFIDENTIAL TREATMENT REQUESTED] if the opposition period
for a European Patent within the PATENT RIGHTS that has claims that dominate
Native Human IL-2, Recombinant Human IL-2 or Recombinant Human IL-2 Mutein
expires without the filing of an opposition, or if an opposition is filed, the
opposition proceedings result in the final grant of a European Patent within
the PATENT RIGHTS that has claims that dominate Native Human IL-2, Recombinant
Human IL-2 or Recombinant Human IL-2 Mutein.
v. [CONFIDENTIAL TREATMENT REQUESTED] if a notice of grant of
claims in a Japanese patent application based on the PATENT APPLICATIONS that
has claims that dominate Native Human IL-2, Recombinant Human IL-2 or
Recombinant Human IL-2 Mutein issues.
vi. [CONFIDENTIAL TREATMENT REQUESTED] if the opposition period
for a Japanese Patent within the PATENT RIGHTS that has claims that dominate
Native Human IL-2, Recombinant Human IL-2 or Recombinant Human IL-2 Mutein
expires without the filing of an opposition or, if an opposition is filed, the
opposition proceedings result in the final grant of a Japanese Patent within
the PATENT RIGHTS having claims that dominate Native
- 7 -
<PAGE>
Human IL-2, Recombinant Human IL-2 or Recombinant Human IL-2 Mutein.
4.3 CETUS shall pay to SKI postpaid Minimum Annual Royalty Payments
for each group of countries within the PATENT RIGHTS as set forth in Schedule A
hereof. CETUS' obligation to pay the postpaid Minimum Annual Royalty as to a
group of countries, as set out in Schedule A hereof, shall be effective as of
the calendar year during which occurs the issuance, or final grant after any
opposition period has expired of the first patent within the PATENT RIGHTS in
that group of countries that has claims that dominate Native Human IL-2,
Recombinant Human IL-2, or Recombinant Human IL-2 Mutein, however only one
postpaid Minimum Annual Royalty Payment shall be paid per year per group of
countries irrespective of subsequently issued patents within the PATENT RIGHTS
in that group of countries that dominate Native Human IL-2, Recombinant Human
IL-2 or Recombinant Human IL-2 Mutein.
In calculating payment of the Minimum Annual Royalty Payment for
the year in which the first such patent issues is granted, the postpaid Minimum
Annual Royalty Payment shall be prorated from the date of issue, expiration of
the opposition period or final grant after opposition proceedings have concluded
as the case may be.
In calculating payment of the Minimum Annual Royalty Payments in
any calendar year, CETUS may take as a credit (against the Minimum Annual
Royalty Payment payable as to the pertinent group of countries for any such
year) all earned royalties paid on LICENSED PRODUCTS sold in the same group of
countries under this License Agreement for that calendar year. To the extent
that Minimum Annual Royalty Payments payable in any calendar year as to the
pertinent group of countries exceed earned royalties, the excess of the Minimum
Annual Royalty Payment shall be carried over as a credit against that amount of
earned royalties that exceeds the Minimum Annual Royalty Payment that would be
due in the pertinent group of countries (but not against Minimum Annual Royalty
Payments) in any succeeding year. No earned royalties, or any portion thereof,
shall be carried over as a credit against Minimum Annual Royalty Payments in any
succeeding year.
All amounts needed in addition to creditable earned royalties to
satisfy the requirements of such Minimum Annual Royalty Payments for any
calendar year shall be paid by CETUS with its report to SKI for the last three
month period of such calendar year.
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<PAGE>
4.4 A claim or claims in a PATENT APPLICATION pursuant to
ARTICLE 4.2(i), (iii), and (v) or in an issued or finally granted patent within
the PATENT RIGHTS pursuant to ARTICLE 4.2(ii), (iv), and (vi) shall be
considered to dominate if a product made, used or sold by CETUS, its AFFILIATES
or competitors, but for a license granted pursuant to ARTICLE 2 hereof or a
sublicense pursuant to ARTICLE 3 hereof, would infringe any such claim or claims
that have not expired or been invalidated by a court or governmental agency.
4.5 It is agreed between the parties that Cetus shall have no
obligation to pay any of the fees enumerated in ARTICLE 4.2(i), (ii), (iii),
(iv), (v), (vi) and 4.3 with respect to LICENSED PRODUCTS or LICENSED PROCESSES
falling within the scope of claims allowed in the notice of allowance sent by
the United States Patent and Trademark office on U.S. Patent Application Serial
Number 603,580 filed 25 april 1984, a copy of which claim is attached hereto as
Appendix A.
ARTICLE 5 - ROYALTIES, RECORDS AND REPORTS
5.1 For the rights and privileges granted under this License
Agreement, CETUS shall pay to SKI in the manner hereinafter provided, to the end
of the term or terms of the PATENT RIGHTS and any extensions thereof as provided
by statute, or until the License Agreement is terminated as hereinafter
provided, earned royalties in the amounts specified below:
i. [CONFIDENTIAL TREATMENT REQUESTED] percent ([CONFIDENTIAL
TREATMENT REQUESTED]) of the first [CONFIDENTIAL TREATMENT REQUESTED] dollars
([CONFIDENTIAL TREATMENT REQUESTED]) of Net Sales in any calendar year and
[CONFIDENTIAL TREATMENT REQUESTED] percent ([CONFIDENTIAL TREATMENT REQUESTED])
of the Net Sales in any calendar year in excess of the first [CONFIDENTIAL
TREATMENT REQUESTED] dollars Net Sales in any calendar year of LICENSED
PRODUCTS made, used, or sold by or for CETUS; and
ii. [CONFIDENTIAL TREATMENT REQUESTED] percent ([CONFIDENTIAL
TREATMENT REQUESTED]) of the first [CONFIDENTIAL TREATMENT REQUESTED] dollars
([CONFIDENTIAL TREATMENT REQUESTED]) of Net Sales in any calendar year and
[CONFIDENTIAL TREATMENT REQUESTED] percent ([CONFIDENTIAL TREATMENT REQUESTED])
of the Net Sales in any calendar year in excess of the first [CONFIDENTIAL
TREATMENT REQUESTED] dollars Net Sales in any calendar year of all LICENSED
PRODUCTS made, used, or sold in the United States by or for AFFILIATES or
SUBLICENSEES; and
iii. Either [CONFIDENTIAL TREATMENT REQUESTED] percent
([CONFIDENTIAL TREATMENT REQUESTED]) of any earned royalties payable to CETUS
in respect of all LICENSED PRODUCTS made, used or sold entirely outside the
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<PAGE>
United States by or for each SUBLICENSEE or AFFILIATE provided that the amount
paid to SKI shall not exceed [CONFIDENTIAL TREATMENT REQUESTED] percent
([CONFIDENTIAL TREATMENT REQUESTED]) of the net sales of such LICENSED
PRODUCTS, or the amount of [CONFIDENTIAL TREATMENT REQUESTED] percent
([CONFIDENTIAL TREATMENT REQUESTED]) of the Net Sales of all such LICENSED
PRODUCTS made, used or sold entirely outside the United States by or for any
such SUBLICENSEE or AFFILIATE, whichever is greater in each case.
5.2 Earned royalty shall be paid pursuant to ARTICLE 5.1 hereof on
all LICENSED PRODUCTS made or sold or used under this License Agreement;
however, earned royalty shall be payable hereunder as to a given LICENSED
PRODUCT only when a license granted under ARTICLE 2 hereof or a sublicense
granted under ARTICLE 3 (a) hereof is utilized either in the manufacture or sale
or use thereof, provided that one, and only one, earned royalty shall be payable
on a given LICENSED PRODUCT made, sold or used under this License Agreement even
though such LICENSED PRODUCT is made in one country within the PATENT RIGHTS and
sold or used in another country within the PATENT RIGHTS. The earned royalty
payable on a given LICENSED PRODUCT made hereunder shall not become due until
such LICENSED PRODUCT is sold or used and the rate at which such earned royalty
shall be charged shall be determined by the location of such sale or use and the
identity of the seller or user.
5.3 Notwithstanding the provisions of ARTICLE 5.2 hereof, in the case
of transfers or sales of any LICENSED PRODUCT between CETUS and an AFFILIATE or
between AFFILIATES or between a SUBLICENSEE and its AFFILIATE or between a
SUBLICENSEE's AFFILIATES, one and only one royalty shall be payable thereon and
such royalty shall become payable at the rate determined by the location of the
final sale thereof to a third party or final use thereof by CETUS or such
AFFILIATE or by such SUBLICENSEE or its AFFILIATE. Use of a LICENSED PRODUCT by
CETUS, CETUS' AFFILIATES and the SUBLICENSEES of either, in clinical trials
required by any government or governmental agency for product registration to
permit commercial sale shall not be subject to earned royalty, unless such
LICENSED PRODUCT is sold.
5.4 CETUS shall keep full, true and accurate books of account
containing all information which may be necessary for the purpose of showing the
amount payable to SKI by way of royalty. Solely to the extent reasonably
necessary to allow verification of CETUS' royalty statements, said books and the
supporting data shall, upon reasonable advance notice, be made available at
CETUS' principal place of business for review on a confidential basis during
CETUS' regular business hours, for two (2) years following the
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<PAGE>
end of the calendar year to which they pertain, by an independent certified
public accountant retained by SKI at SKI's sole expense and reasonably
acceptable to CETUS.
5.5 CETUS shall include among the books of account specified in
ARTICLE 4 hereof such information as may be necessary for the purpose of showing
the amounts of royalty payable to SKI on account of the activities of
SUBLICENSEES hereunder, and CETUS shall require each SUBLICENSEE to keep
appropriate books of account to enable CETUS to comply with ARTICLE 5.1.
5.6 CETUS shall include in the reports specified in ARTICLE 4 hereof
the same information on SUBLICENSEES' business activities as is required on
CETUS' business activities, separately stated as to each SUBLICENSEE, and CETUS
shall require each SUBLICENSEE to make appropriate reports to CETUS to enable
CETUS to comply with ARTICLE 5.1.
5.7 CETUS shall pay to SKI with each such
report all royalties and other payments due hereunder on account of
SUBLICENSEES' activities for the period covered by such report. If no royalties
are due, it shall be so reported.
5.8 Subsequent to the first commercial sale or use of LICENSED
PRODUCTS, CETUS, within sixty (60) days after the first day of January, April,
July, and October of each year shall deliver to SKI a report containing such
information on sales of CETUS and AFFILIATES and SUBLICENSEES of LICENSED
PRODUCT during the preceding three (3) months under this License Agreement as
may be necessary to determine royalties payable under this License Agreement.
This information shall include the following:
i. The billings and the allowable deduction therefrom for
LICENSED PRODUCTS billed by CETUS and AFFILIATES and SUBLICENSEES during those
three (3) months;
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<PAGE>
ii. The calculation of royalties thereon, including the basis
for determining the Net Sales Value of any of said LICENSED PRODUCTS.
iii. The total royalties so computed.
Simultaneously with the delivery of each such report, CETUS shall
pay to SKI the royalty and any other payments due under this License Agreement
for the period covered by such report. If no royalties are due, it shall be so
reported. Royalties shall be paid to SKI in United States currency at SKI's
address for notice specified in ARTICLE 12 hereof.
5.9 All amounts payable hereunder by CETUS to SKI shall be payable in
United States currency collectible at par in New York, New York. In the event
any LICENSED PRODUCT shall be sold by CETUS or an AFFILIATE or a SUBLICENSEE for
currency other than United States currency, the earned royalty payable as to
such LICENSED PRODUCT under ARTICLE 5.1 hereof shall first be determined in such
currency for which the LICENSED PRODUCT was sold and then converted into its
equivalent in United States currency at the buying rate for such foreign
currency as published by leading New York, New York, banks for the last business
day of such accounting period.
If the law or regulations of any country shall at any time
operate to prohibit the transfer of funds therefrom to the United States, CETUS
shall have the right to pay or cause to be paid royalties hereunder on account
of its sales and the sales of its AFFILIATES and SUBLICENSEES in such country by
depositing local currency to the account of SKI in an interest bearing account
at the prevailing commercial interest rate in a bank in such country and
notifying SKI to such effect. CETUS shall thereafter cooperate with SKI in SKI's
efforts to obtain the lawful release of said funds to SKI but shall have no
further responsibility therefor.
5.10 It is agreed between the parties that Cetus shall have no
obligation to pay any of the royalties enumerated in ARTICLE 5.1(i) or (ii) with
respect to LICENSED PRODUCTS or LICENSED PROCESSES failing within the scope of
claims allowed in the notice of allowance sent by the United States Patent and
Trademark office on U.S. Patent Application Serial Number 603,580 filed 25 April
1984, a copy of which claim is attached hereto as Appendix A.
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<PAGE>
ARTICLE 6 - PATENT RIGHTS
6.1 SKI shall at all times during the pendency of the PATENT
APPLICATIONS advise CETUS in a timely manner as to the status of the PATENT
APPLICATIONS and patents comprised within the PATENT RIGHTS, provide CETUS with
copies of the complete patent prosecution files of PATENT APPLICATIONS and
patents issued therefrom, provide CETUS in a timely manner with copies of all
notices, tax and maintenance payments, and correspondence relating to PATENT
APPLICATIONS from the patent authorities before which the PATENT APPLICATIONS
are pending, provide CETUS with copies of drafts of all amendments, petitions,
motions, and responses sufficiently in advance of the submission thereof to the
patent authorities for CETUS to reasonably review the same, and openly consult
with CETUS in the formulation of the strategy for further prosecution of PATENT
APPLICATIONS.
6.2 SKI shall at all times during the life of patents comprised
within the PATENT RIGHTS provide CETUS in a timely manner with copies of all
notices and correspondence from governmental departments, agencies and courts
pertaining to such patents, including but not limited to notices of tax and
maintenance payments due.
6.3 SKI shall use reasonable efforts to prosecute PATENT
APPLICATIONS, to obtain patents therefrom and to maintain all such patents.
CETUS agrees to reimburse SKI for all expenses incurred by SKI for prosecution
and maintenance of such patents or PATENT APPLICATIONS. CETUS' payments therefor
in excess of [CONFIDENTIAL TREATMENT REQUESTED] dollars ([CONFIDENTIAL
TREATMENT REQUESTED]) shall be creditable against one-half of the earned
royalties payable in any year under ARTICLE 5.1 hereof solely as to LICENSED
PRODUCTS made, used or sold in the country of such patent or PATENT
APPLICATION. SKI shall not discontinue the prosecution of any such PATENT
APPLICATION or the maintenance of any such patent in a given country without
first advising CETUS and giving CETUS an opportunity to continue such
prosecution or maintenance on SKI's behalf.
6.4 Nothing contained in this License Agreement shall be construed
as a representation or warranty that any patent within the PATENT RIGHTS is
valid or that performance thereunder is not an infringement of any patent of
others.
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<PAGE>
6.5 In the event SKI shall at any time while this License Agreement
is in effect be compelled by applicable law to issue licenses to other licensees
under the PATENT RIGHTS, SKI shall inform CETUS of the order of compelling any
such licenses and shall renegotiate the terms of this agreement only with
respect to the license terms pertaining to the country or countries wherein such
compulsory licenses have been ordered; however such renegotiated license terms
shall be no worse than those granted to any third party under any such
compulsory license.
ARTICLE 7 - DILIGENCE
7.1 CETUS shall exercise reasonable diligence in developing, testing,
manufacturing, promoting, advertising and selling LICENSED PRODUCTS under this
License Agreement. In the course of such diligence CETUS shall, either directly
or through an AFFILIATE to which the license shall have been extended pursuant
to ARTICLE 2.2 hereof, take appropriate steps including the following:
(i) Diligently continue to conduct a program, reasonably
designed and funded to obtain information adequate to enable CETUS to prepare
and file a PLA or its equivalent with the Food and Drug Administration
("FDA") of the United States Government, and with the appropriate agency or
department of each other country within the PATENT RIGHTS, for the
manufacture and sale of LICENSED PRODUCTS in the United States and in all
other countries wherein the PATENT RIGHTS exist.
(ii) When approval of such a PLA is obtained in the United
States or its equivalent in any other country within the PATENT RIGHTS, proceed
diligently as follows:
(a) use reasonable efforts to produce and sell LICENSED
PRODUCTS in the United States and any other such country;
(b) advertise if permissible by law or regulation, promote
the sale of and otherwise employ marketing and sales techniques reasonably
designed to develop a demand for LICENSED PRODUCTS in the United States and any
other such country and satisfy such demand.
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<PAGE>
7.2 If CETUS shall fail to perform pursuant to this ARTICLE 7 or any
subparagraph thereof in a country within the PATENT RIGHTS, SKI shall notify
CETUS thereof. CETUS shall cure such default within 60 days of such
notification and if CETUS shall fail to cure such default, then CETUS' rights
under this License shall be non-exclusive in the country where such default has
occurred.
Notwithstanding the foregoing, CETUS shall have no obligation
under this ARTICLE 7 to develop, test, manufacture, promote, advertise or sell
Native Human IL-2 or Recombinant Human IL-2. Furthermore, CETUS' obligations
under this ARTICLE 7 may be discharged by granting sublicenses under ARTICLE 3
hereof to a third party who shall undertake in good faith to perform pursuant to
this ARTICLE 7 in connection with Native Human IL-2, Recombinant Human IL-2 or
Recombinant Human IL-2 Mutein.
ARTICLE 8 - TERMINATION
8.1 Subject to ARTICLE 12.4 hereof, if CETUS shall become bankrupt or
insolvent and/or if the business of CETUS shall be placed in the hands of a
receiver, assignee or trustee, whether by the voluntary act of CETUS or
otherwise, this License Agreement shall immediately terminate.
8.2 Upon any breach of or default under this License Agreement by
CETUS, SKI may terminate this License Agreement by sixty (60) days' written
notice to CETUS. Said notice shall become effective at the end of said period,
unless during said period CETUS shall cure such breach or default.
Notwithstanding the forgoing, acceptance by SKI of any report from CETUS
submitted after the end of the time period provided therefor by this License
Agreement, shall be deemed to cure any breach or default as to the report so
accepted.
8.3 CETUS may not terminate this License Agreement for a period of
six (6) months from the effective date of this Agreement. Thereafter, CETUS may
terminate this License Agreement either in its entirety or
(i) as to any pending application of the PATENT APPLICATIONS in
any country or group of countries on six (6) months notice to SKI; a PATENT
APPLICATION shall be considered pending in the United States if it has not
issued, or if issued becomes involved in an interference, and in the European
Patent Office and in
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<PAGE>
Japan until the end of the opposition period if no opposition is filed, or if an
opposition is filed, until the close of opposition proceedings;
(ii) as to any issued or finally granted patent within the PATENT
RIGHTS in any country or group of countries on sixty (60) days' notice.
8.4 Upon termination of this License Agreement in its entirety as
provided herein, for any reason, all licenses and rights granted hereunder shall
revert to SKI for the benefit of SKI.
8.5 In the event of termination of this License Agreement as to one
or more patent within the PATENT RIGHTS or PATENT APPLICATIONS in one or more
country or countries, all licenses and rights granted as to the terminated
PATENT APPLICATION or patent within the PATENT RIGHTS shall revert to SKI for
the benefit of SKI.
8.6 CETUS' obligations to report to SKI and to pay royalties to SKI
as to any LICENSED PRODUCT made, sold or used under the license or any
sublicense granted pursuant to this License Agreement prior to termination or
expiration of this License Agreement shall survive such termination or
expiration. Except for any amount thereof that has become due and payable on or
before the effective date of any such termination or expiration of this License
Agreement, CETUS' obligations to pay any Minimum Annual Royalty shall cease as
of the effective date of such termination or expiration.
ARTICLE 9 - ASSIGNMENT
This License Agreement shall not be assigned by CETUS, without
SKI's written consent, except as part of a sale or other transfer which includes
all of CETUS' human therapeutic business and, in such event, only in its
entirety and upon prior written notice to SKI, and the term "CETUS" where used
in this License Agreement shall thereafter mean such assignee of CETUS. SKI will
not unreasonably refuse to consent to assignment of this License Agreement in
its entirety as part of a sale or other transfer of all of CETUS' business
related to the LICENSED PRODUCTS.
ARTICLE 10 - INFRINGEMENT
10.1 If either party has knowledge of the infringement of any claim
included
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<PAGE>
within the PATENT RIGHTS the party having such knowledge shall promptly give
notice to the other of such infringement. The parties shall then consult
together regarding the legal and commercial significance of the infringement and
the course of action to be taken, the selection of counsel and the control of
any litigation and the costs thereof. CETUS agrees to protect patents within the
PATENT RIGHTS from infringement and prosecute infringers at CETUS' sole expense
when in its sole judgment such action may be commercially reasonable, proper and
justified.
10.2 Notwithstanding the provisions of ARTICLE 10.1, provided SKI
shall have supplied CETUS with evidence comprising a prima facie case of
infringement of the PATENT RIGHTS by a third party hereto selling significant
quantities of products in competition with CETUS' or an AFFILIATE'S or
SUBLICENSEE's sale of LICENSED PRODUCTS hereunder, SKI shall be entitled to
notify CETUS in writing requiring CETUS to take steps to protect the PATENT
RIGHTS. CETUS shall within three (3) months of the receipt of such written
request either: (i) cause said infringement to terminate; or (ii) initiate legal
proceedings against the infringer.
10.3 In the event that CETUS proceeds against an infringer or
infringers pursuant to ARTICLE 10.1, CETUS shall be entitled to credit legal
expenses incurred in attempting to obtain a termination of such infringement,
whether successful or not, against one-half of all royalty remaining to be paid
after application of any credit available pursuant to ARTICLE 6.3 hereof in the
country group where such third party is infringing the PATENT RIGHTS. In the
event that CETUS proceeds against an infringer or infringers pursuant to ARTICLE
10.2 CETUS shall be entitled to credit legal expenses and costs incurred in
attempting to obtain a termination of such infringement, whether successful or
not, against three-fourths of all royalty remaining to be paid after the
application of any credit available pursuant to ARTICLE 6.3 hereof (in the
country group) where such third party is infringing the PATENT RIGHTS. For the
purpose of ARTICLE 10.2, "significant quantities" of products shall mean such
products sold by the third party over a three (3) month period within the
immediately preceding six (6) months immediately prior to such notice having a
Net Sales of [CONFIDENTIAL TREATMENT REQUESTED] United States Dollars (or its
equivalent in the currency of the pertinent country), as determined by first
calculating the net sales value of LICENSED PRODUCTS sold in the currency of the
pertinent country and then converting into its equivalent in U.S. currency at
the buying rate for such currency as published by leading New York, New York
banks for the last business day for such six-month period.
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<PAGE>
10.4 In no event shall SKI be entitled to invoke ARTICLE 10.2 above
with respect to more than one alleged infringer in any one country that has
granted PATENT RIGHTS at any given time even though there be more than one such
infringer in such country and the provisions of ARTICLE 10.2 hereof shall not
come into effect or continue in effect as to such country while CETUS is
carrying on any such legal proceeding therein.
10.5 In the event either party hereto shall initiate or carry on
legal proceedings to enforce the PATENT RIGHTS against an alleged infringer, as
provided herein, the other party hereto shall cooperate with the party to the
extent legally required to initiate such legal proceedings and shall cooperate
with the other party hereto to the extent reasonably required to carry on such
proceedings.
10.6 In the event CETUS shall institute suit or other legal
proceedings to protect or enforce the PATENT RIGHTS, it shall have sole control
of such suit.
10.7 In the event CETUS or a SUBLICENSEE shall institute suit or
other legal proceedings under ARTICLE 10.2 above to protect or enforce the
PATENT RIGHTS, SKI shall be entitled to be represented by counsel of its
choosing, at its sole expense, and CETUS or such SUBLICENSEE shall be entitled
to retain for its own account the whole of any recovery awarded as damages.
CETUS or the pertinent SUBLICENSEE shall not discontinue or settle any such
proceedings brought by it without giving SKI a timely opportunity to continue
such proceedings in its own name, under its sole control, and at its sole
expense.
10.8 It is agreed between the parties that cetus shall have no
obligation to protect patents from infringement under ARTICLE 10.1, 10.2 and
10.3 with respect to LICENSED PRODUCTS or LICENSED PROCESSES falling within the
scope of claims allowed in the notice of allowance sent by the United States
Patent and trademark office on U.S. Patent Application Serial Number 603,580
filed 25 April, a copy of which claim is attached hereto as Appendix A.
ARTICLE 11 - NON-USE OF NAMES
CETUS shall not use the name of any inventor of the PATENT APPLICATIONS
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<PAGE>
or PATENT RIGHTS, or of any institution with which he has been or is connected,
or of SKI, or any adaptation of any of them, in any advertising, promotional or
sales literature or otherwise for commercial purposes, without prior written
consent obtained from SKI in each case. CETUS shall require its AFFILIATES or
its SUBLICENSEES to comply with this ARTICLE 11 to the same extent that it
applies to CETUS.
ARTICLE 12 - GENERAL
12.1 This License Agreement constitutes the entire agreement between
the parties as to the PATENT APPLICATIONS and PATENT RIGHTS, and all prior
negotiations, representations, agreements and understandings are merged into,
extinguished by and completely expressed by it.
12.2 Any notice required or permitted to be given by this License
Agreement shall be given by postpaid, first class, registered or certified mail
addressed to:
Mr. James E. Rurka
Senior Vice President, Marketing & Commercial Development
CETUS CORPORATION
1400 Fifty-Third Street
Emeryville, California 94608
Mr. James S. Quirk
Vice President, Research Resources Management
SLOAN KETTERING INSTITUTE FOR CANCER RESEARCH
1275 York Street
New York, New York 10021
Such addresses may be altered by notice so given. If no time
limit is specified for a notice required or permitted to be given by this
License Agreement, the time limit therefore shall be two (2) full business days,
not including the day of mailing.
12.3 This License Agreement and its effect are subject to and shall
be construed and enforced in accordance with the law of the State of California,
U.S.A., except as to any issue which by the law of California depends upon the
validity, scope or enforceability of any patent within the PATENT RIGHTS, which
issue shall be determined in accordance with the applicable patent laws of the
country of such patent.
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<PAGE>
12.4 Nothing in this License Agreement shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision of this License Agreement or concerning the legal
right of the parties to contract and any statute, law, ordinance or treaty, the
latter shall prevail, but in such event the affected provisions of this License
Agreement shall be curtailed and limited only to the extent necessary to bring
it within the applicable legal requirements.
12.5 CETUS agrees to take all reasonable and necessary steps to
register this License Agreement in any country, other than the United States of
America, where such is required to permit the transfer of funds and/or payment
of royalties to SKI hereunder or is otherwise required by the government or law
of such country to effectuate or carry out this License Agreement.
12.6 It shall be the full and sole responsibility of CETUS and its
AFFILIATES and SUBLICENSEES to use appropriate care in the practice of any
process and the manufacture and use of any product pursuant to any license or
immunity granted hereunder and SKI shall have no right to control the manner in
which or the material with which or upon which any process licensed hereunder is
practiced and SKI shall not be required to provide any know-how or operating
instructions or other information with respect to any such process or product
and SKI makes no representation or warranty whatsoever with respect to any such
process or product.
12.7 CETUS agrees to indemnify and hold harmless SKI and all
directors, officers, employees and agents of SKI from and against any and all
claims, damages and liabilities asserted by third parties (whether governmental
or private) arising from CETUS' and AFFILIATE's and SUBLICENSEE's practice of
any LICENSED PROCESS or manufacture, use or sale of any LICENSED PRODUCT or the
use thereof by any consumer or by any customer of CETUS or an AFFILIATE or a
SUBLICENSEE.
12.8 Neither party to this License Agreement shall be liable for
delay in the performance of any of its obligations hereunder if such delay is
due to causes beyond its reasonable control, including, without limitation, acts
of God, fires, earthquakes, strikes and labor disputes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as is reasonably possible.
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<PAGE>
ARTICLE 13 - EXTENSION OF PATENT RIGHTS
CETUS shall cooperate with SKI in seeking any extension that is
available or that becomes available in respect of the term of any patent within
the PATENT RIGHTS including any patent that may issue on a patent application
within the PATENT RIGHTS and CETUS shall diligently advise SKI in a timely
manner of approval by the Food and Drug Administration of the United States of
America to use or market LICENSED PRODUCTS or any other governmental approval
obtained by or on behalf of CETUS or an AFFILIATE or a SUBLICENSEE that is
pertinent to any such extension that it may seek and CETUS shall supply SKI in a
timely manner with any information and data and any supporting affidavits or
documents required to comply with 35 USC 156 Extension of Patent Term (and any
successor legislation) and any administrative rules or regulation thereunder and
any corresponding laws and regulations that are or shall be in effect in any
country within the PATENT RIGHTS, all without further consideration. CETUS shall
require its AFFILIATES and SUBLICENSEES to comply with this ARTICLE 13.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals and duly executed this License Agreement on the date(s) indicated
below, to be effective the day and year first above written.
SLOAN KETTERING INSTITUTE FOR CANCER RESEARCH
By /s/ James S. Quirk
--------------------------------------------------------
James S. Quirk
Vice President, Research Resources Management
Date 4/4/88
------------------------
CETUS CORPORATION
By /s/ James E. Rurka
--------------------------------------------------------
James E. Rurka
Senior Vice President for
Marketing & Commercial Development
Date 3/23/88
------------------------------
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<PAGE>
APPENDIX A
Claim of U.S. Patent Application Serial Number 603,580 filed 25 April
1984.
Native highly purified human IL-2 wherein said IL-2 is obtained from
normal peripheral lymphocytes is purified over 37,000 fold and exhibits
pharmacological activity in humans and has a specific activity of at least
10 to the 6th power +/- 10% U/mg and a threshold concentration for biological
activity no greater than 0.2 +/- 0.05 U/ml and wherein the IL-2:
1. has a relative molecular weight of 26,000 +/- 4000 KD with an
isoelectric point of pH 6.7 +/- 0.2 when produced in the absence
of daudi cells which IL-2 material when denatured exhibits a
relative molecular weight of 16,000 +/- 1,000 or 17,000 +/- 1,000
daltons,
2. has a relative molecular weight of 14,500 +/- 2000 daltons with
an isoelectric point of pH 8.1 +/- 0.2 when produced in the
presence of Daudi cells,
3. is pyrogen free,
4. is free of contaminants selected from the group consisting of
B-cell growth factor (BGF), B-cell inducing factor (BIF), alpha
or gamma interferon (IFN), granulocyte-macrophage
colony-stimulating factor (CSF) and thymocyte differentiating
activity, and
5. is free of proteinaceous contaminant when assayed by the silver
nitrate or I to the 125th power exolabeling methods.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
MINIMUM ANNUAL ROYALTY
PER COUNTRY GROUP YEAR
---------------------- ------------------
<C> <S>
$ [CONFIDENTIAL 1st Year after grant
TREATMENT 2nd year after grant
REQUESTED] 3rd year after grant
4th year after grant
5th year after grant
6th year after grant
7th year after grant
8th year after grant
9th year after grant
10th year after grant
</TABLE>
COUNTRY GROUP
1. U.S.A.
2. Countries designated in European Patent Applications.
3. Japan.
<PAGE>
EXHIBIT 10.76
EXECUTION COPY
REIMBURSEMENT AGREEMENT dated as of March 24, 1995, between
CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba") , and CHIRON
CORPORATION, a Delaware corporation ("Chiron").
WHEREAS Ciba, Ciba-Geigy Corporation, a New York corporation, CIBA
Biotech Partnership, Inc., a Delaware corporation, and Chiron have entered into
the Investment Agreement dated as of November 20, 1994 (as amended, supplemented
and in effect from time to time, the "Investment Agreement");
WHEREAS Chiron has entered into the Revolving Credit Agreement dated
as of March 24, 1995 (as amended, supplemented and in effect from time to time,
the "Credit Agreement"), with Swiss Bank Corporation (the "Bank") as
contemplated by Section 5.12(b) of the Investment Agreement;
WHEREAS Ciba has issued to the Bank its Guarantee dated March 24, 1995
(the "Guarantee"), in respect of all of Chiron's obligations under the Credit
Agreement and the note issued thereunder (collectively, the "Guaranteed
Obligations"), in accordance with Section 5.12(a) of the Investment Agreement;
WHEREAS the Investment Agreement provides that Chiron shall enter into
a reimbursement agreement in respect of the Guarantee, as provided for in
Section 5.12(c) of the Investment Agreement.
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto and hereby
agree as follows:
SECTION 1. In the event that any amounts (including amounts paid as a
tax gross-up) are paid by Ciba to any holder of any Guaranteed Obligations in
respect of Ciba's Guarantee (a "Guarantee Payment"), Ciba shall have all rights
against Chiron arising as a result of such payment as it shall have under
applicable law, by way of right of subrogation or otherwise. Accordingly, and
in furtherance thereof, Chiron shall, on each date that Ciba makes any Guarantee
Payment, fully reimburse Ciba for such Guarantee Payment in immediately
available funds payable to such account as shall be specified by Ciba; PROVIDED
that,
<PAGE>
2
in the event that any Guaranteed Obligations that are payable and due on such
date have not been paid in full, such reimbursement shall be postponed until the
date that such Guaranteed Obligations shall have been paid in full; PROVIDED
FURTHER that interest on such postponed reimbursement amounts shall accrue
pursuant to Section 3 hereof from the date that Ciba makes the relevant
Guarantee Payment, notwithstanding the postponement of the date for such
reimbursement pursuant to the foregoing proviso.
SECTION 2. (a) Chiron agrees to pay all reasonable out-of-pocket
costs and expenses incurred by Ciba in connection with (i) the Guarantee and
(ii) the enforcement or protection of its rights in connection with this
Agreement and the Guarantee, including the fees, charges and disbursements of
counsel for Ciba.
(b) Chiron agrees to indemnify Ciba and each of its respective
directors, officers, employees and agents (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees, charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of the Credit Agreement, the Guarantee or this Agreement,
the performance by the parties thereto or their respective obligations
thereunder or the consummation of the transactions contemplated thereby and
hereby (ii) the use of the proceeds of the advances made under the Credit
Agreement (the "Advances") or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee; PROVIDED, FURTHER, that such indemnity shall not,
as to any Indemnitee, apply to losses, claims, damages, liabilities or related
expenses arising out of, in any way connected with, or as a result of the
execution or delivery of the Investment Agreement, the performance by the
parties thereto of their respective obligations thereunder or the consummation
of the transactions contemplated thereby (other than losses, claims, damages,
liabilities or related expenses incurred by or asserted against Ciba in its
capacity as the guarantor under the Guarantee).
<PAGE>
3
(c) The provisions of this Section 2 shall remain operative and in
full force and effect regardless of the expiration of the term of the Investment
Agreement or the Credit Agreement, the consummation of the transactions
contemplated thereby, the repayment of any of the Advances, the invalidity or
unenforceability of any term or provision of this Agreement, the Credit
Agreement, the Investment Agreement or the Guarantee or any investigation made
by or on behalf of Ciba. All amounts due under this Section 2 shall be payable
on written demand therefor.
SECTION 3. If Chiron shall default in the payment of any
reimbursement under Section 1 hereof or any other amount becoming due under
Section 2 hereof, Chiron shall on demand from time to time pay interest on such
defaulted amount up to the date of actual payment (after as well as before
judgment) at a rate per annum equal to 2-1/2% per annum in excess of the Bank's
Prime Rate (as defined in, and calculated in accordance with, the Credit
Agreement) in effect from time to time.
SECTION 4. Ciba reserves its right to require Chiron to, and promptly
after Ciba's request Chiron shall, fully collateralize Chiron's obligations
hereunder and agree to a negative pledge with respect to such collateral, all
as further described in Section 5.12(c) of the Investment Agreement.
SECTION 5. If any reimbursement payment in respect of a Guarantee
Payment received by Ciba is, on the subsequent liquidation or insolvency of
Chiron, avoided under any laws relating to liquidation or insolvency, such
payment will not be considered as having discharged or diminished the liability
of Chiron to Ciba and this Agreement will continue to apply as if such payment
had at all times remained owing by Chiron.
SECTION 6. All payments by Chiron under this Agreement shall be made
without deduction for any taxes or other withholdings; PROVIDED, HOWEVER, that,
if Chiron shall be required by law to deduct any such amounts from any sum
payable hereunder, the sum payable shall be increased by the amount necessary so
that after making all the required deductions, Ciba shall receive an amount
equal to the sum it would have received had no such deductions been made.
SECTION 7. Chiron hereby warrants, represents and covenants that it
has all corporate power, and has taken all necessary corporate or other steps,
to enable it to execute,
<PAGE>
4
deliver and perform this Agreement, and that this Agreement constitutes a legal,
valid and binding obligation of Chiron enforceable in accordance with its terms.
SECTION 8. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. This Agreement shall be
executed in two or more counterparts, each of which shall constitute an original
but all of which when taken together shall constitute but one contract.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
CIBA-GEIGY LIMITED,
by /s/ Peter Rupprecht
------------------------------
Name: Peter Rupprecht
Title: Corporate Counsel
by /s/ Werner Bassett
------------------------------
Name: Werner Bassett
Title: Head of Capital Markets
CHIRON CORPORATION,
by /s/ Dennis L. Winger
------------------------------
Name: Dennis L. Winger
Title: Senior Vice President
<PAGE>
EXHIBIT 10.77
PROMISSORY NOTE
$56,084,000 New York, New York
January 1, 1995
FOR VALUE RECEIVED, the undersigned, CIBA CORNING DIAGNOSTICS CORP., a
Delaware corporation ("DIAGNOSTICS"), hereby promises to pay to the order of
CIBA-GEIGY LIMITED, a Swiss Corporation ("CIBA"), an amount equal to Fifty
six million eighty four thousand Dollars ($56,084,000). The entire principal
amount outstanding on this Note shall be repaid on January 1, 2000 (or if such
date is not a Business Day on the next succeeding Business Day). Interest shall
be payable on the same date as the principal amount, as provided above, at an
interest rate determined in accordance with the next paragraph of this Note on
the outstanding balance of the Note (computed on the basis of the actual number
of days principal is outstanding from and including the date hereof, to but
excluding the date of repayment, in a year of 365 days) and compounded on a
semi-annual basis. All payments shall be made in lawful money of the United
States of America in immediately available funds to Ciba at Swiss Bank
Corporation, New York, NY, Account Number 0-452-702625-00 or such other account
as Ciba may designate in writing. Payments received for value after 3:00 p.m.,
New York City time, shall be treated as being received on the next succeeding
Business Day.
During the period that (i) there are loans outstanding under the
credit facility (the "CREDIT FACILITY") referred to in Section 5.12 of the
Investment Agreement dated as of November 20, 1994, among Ciba, Ciba-Geigy
Corporation, a New York corporation, CIBA Biotech Partnership Inc., a Delaware
corporation, and Chiron Corporation, a Delaware corporation ("CHIRON"), the
interest rate per annum on the outstanding balance of this Note shall be the
weighted average interest rate per annum for all outstanding loans to Chiron
under the Credit Facility and the interest rate hereunder shall be adjusted from
time to time simultaneously with any adjustment of such interest rate under the
Credit Facility and (ii) there are no loans outstanding under the Credit
Facility, the interest rate per annum on the outstanding balance of this Note
shall be a floating rate at all times during each calendar quarter during such
period equal to LIBOR plus 0.20%. During such times that the interest rate is
determined in accordance with clause (i) of the preceding sentence, Diagnostics
shall
<PAGE>
2
notify Ciba in writing within 30 Business Days of the end of each calendar
quarter (or, with respect to the last calendar quarter prior to the maturity of
this Note, by the end of such calendar quarter) of the information necessary to
determine such interest rate and, promptly thereafter, Ciba shall advise
Diagnostics in writing of its determination of such interest rate, and Ciba's
determination thereof shall be final absent manifest error. During such times
that the interest rate is determined in accordance with clause (ii) of the
preceding sentence, Ciba, on the first business Day of each calendar quarter,
shall advise Diagnostics in writing of its determination of such interest rate
(including any resetting thereof in accordance with the definition of LIBOR),
and Ciba's determination thereof shall be final absent manifest error.
Time shall be of the essence with regard to the repayment to Ciba of
all sums due and payable under this Note.
Diagnostics promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
date at the rate of 10% per annum, compounded quarterly (the "DEFAULT RATE").
Diagnostics also agrees to pay on demand all costs and expenses of collecting
and enforcing this Note incurred by Ciba or any assignee. Such costs and
expenses include, without limitation, reasonable costs of counsel. Interest
shall accrue on unpaid costs and expenses from the date of demand to the date of
payment at the Default Rate.
Anything herein to the contrary notwithstanding, if during any period
for which interest is computed hereunder, the amount of interest computed on the
basis provided for in this Note, together with all fees, charges and other
payments which are treated as interest under applicable law, as provided for
herein or in any other document executed in connection herewith, would exceed
the amount of such interest computed on the basis of the Highest Lawful Rate (as
defined below), Diagnostics shall not be obligated to pay, and Ciba shall not be
entitled to charge, collect, receive, reserve or take, interest in excess of the
Highest Lawful Rate, and during any such period the interest payable hereunder
shall be computed on the basis of the Highest Lawful Rate. As used herein,
"HIGHEST LAWFUL RATE" means the maximum non-usurious rate of interest, as in
effect from time to time, which
may be charged, contracted for, reserved,
received or collected by Ciba in connection with this Note under applicable law.
<PAGE>
3
Capitalized terms appearing in this Note if not defined in the
operative paragraph hereof are defined in the DEFINITIONS section appearing at
the end of this Note.
Diagnostics has the right at any time and from time to time to prepay
principal and any accrued unpaid interest thereon, in whole or in part, upon at
least five day's prior written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to Ciba with a copy to Swiss Bank
Corporation. Any such prepayments shall be applied, first, against any accrued
unpaid interest then outstanding under the Note and, second, against the
principal amount then outstanding under the Note as of the date of such
prepayment. Prepayment of any amount of the principal of or interest on this
Note shall in no way extend the date of maturity. Such amounts prepaid may not
be reborrowed.
Diagnostics hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the holder or assignee of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
The payment and any prepayments of the principal hereof and interest
hereon and the respective dates thereof shall be endorsed by the holder hereof
on the schedule attached hereto and made a part hereof or on a continuation
thereof which shall be attached hereto and made a part hereof, or otherwise
recorded by such holder in its internal records; PROVIDED, HOWEVER, that the
failure of the holder hereof to make such a notation or any error in such
notation shall not affect the obligations of Diagnostics under this Note.
COVENANTS
Diagnostics covenants and agrees with Ciba that, so long as any
principal or interest under this Note (or cost or expense of collecting or
enforcing this Note) shall be unpaid, unless (i) Chiron agrees to guarantee the
principal and interest payable under this Note pursuant to an agreement
satisfactory in form and substance to Ciba or (ii) Ciba shall otherwise consent
in writing, Diagnostics will not, and will not cause or permit any of its
subsidiaries to:
<PAGE>
4
(a) Create, incur, assume or permit to exist any Lien on any property
or assets (including stock or other securities of any person, including any
subsidiary) now owned or hereafter acquired by it or on any income or
revenues or rights in respect of any thereof, (x) except to the extent the
obligations of Diagnostics under this Note are equally and ratably secured
by such property or assets pursuant to documentation in form and substance
reasonably satisfactory to Ciba and (y) except:
(i) Liens on property or assets of Diagnostics and its
subsidiaries existing on the date hereof; PROVIDED that such Liens
shall secure only those obligations which they secure on the date
hereof;
(ii) any Lien existing on any property or asset prior to the
acquisition thereof by Diagnostics or any subsidiary; PROVIDED that
(x) such Lien is not created in contemplation of or in connection with
such acquisition and (y) such Lien does not apply to any other
property or assets of Diagnostics or any subsidiary;
(iii) Liens for taxes not yet due or which are being contested;
(iv) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due or which are being
contested;
(v) pledges and deposits made in the ordinary course of business
in compliance with workmen's compensation, unemployment insurance and
other social security laws or regulations;
(vi) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than capital lease
obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(vii) zoning restrictions, easements, rights-of-way, restrictions
on use of real
<PAGE>
5
property and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in
amount and do not materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the business
of Diagnostics or any of its subsidiaries;
(viii) purchase money security interests in real property,
improvements thereto or tangible personal property hereafter acquired
(or, in the case of improvements, constructed) by Diagnostics or any
subsidiary; PROVIDED that (A) such security interests are incurred,
and the Indebtedness secured thereby is created, within 90 days after
such acquisition (or construction), (B) the Indebtedness secured
thereby does not exceed 100% of the lesser of the cost or the fair
market value of such real property, improvements or equipment at the
time of such acquisition (or construction) and (C) such security
interests do not apply to any other property or assets of Diagnostics
or any of its subsidiaries;
(ix) Liens on any property or assets of Diagnostics' foreign
subsidiaries; PROVIDED, that Diagnostics and its U.S. subsidiaries
shall not transfer property or assets to Diagnostics' foreign
subsidiaries for the purpose of avoiding the prohibition of this
paragraph (a);
(x) judgment Liens, if, within 60 days after the entry thereof,
the judgment secured thereby shall have been discharged, vacated,
reversed or execution thereof shall have been stayed pending appeal,
or shall have been discharged, vacated or reversed within 60 days
after expiration of any such stay;
(xi) Liens to secure indebtedness from time to time outstanding;
PROVIDED, that any such indebtedness secured by Liens which are not
otherwise permitted by clauses (i) through (x) above or clause (xii)
below does not exceed $25 million in the aggregate; and
(xii) extensions, renewals and replacements of Liens permitted
under clauses (i) through (xi) above, PROVIDED, that any such
extension, renewal
<PAGE>
6
or replacement Lien shall be limited to the property encumbered by the
Lien extended, renewed or replaced and the principal amount of
indebtedness secured by any such extension, renewal or replacement
Lien shall not exceed the principal amount of the indebtedness secured
by the Lien extended, renewed or replaced which is outstanding at the
time of such extension, renewal or replacement.
(b) Cause, through any action or otherwise (including the declaration
or making of any dividend or distribution with respect to its capital stock
or through the transfer or disposition of any assets), other than through
the operation of their businesses in the ordinary course, the consolidated
shareholders' equity of Diagnostics and its consolidated subsidiaries at
any time to be less than the greater of (A) $84 million and (B) the sum of
X minus Y minus Z, where X equals $135 million, Y equals the amount of any
purchase accounting adjustments to Diagnostics' consolidated shareholders'
equity arising out of the transactions contemplated by the Investment
Agreement, and Z equals the amount of any reductions in Diagnostics'
consolidated shareholders' equity arising out of any agreement with Ciba by
Chiron to assume sponsorship of or any liability under any defined benefit
pension plan or any supplemental retirement plan covering employees of
Diagnostics or its subsidiaries (all as determined in accordance with U.S.
generally accepted accounting principles consistently applied).
EVENTS OF DEFAULT
In case of the happening of any of the following events ("EVENTS OF
DEFAULT"):
(a) Chiron or Diagnostics shall assert, or a court of competent
jurisdiction shall determine pursuant to a final, nonappealable judgment,
that this Note (subject to applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws affecting creditors'
rights generally) shall not be enforceable in accordance with its terms;
(b) a failure to perform or observe any term, covenant or agreement
contained above under the caption
<PAGE>
7
"COVENANTS" in this Note, which failure is not cured within 30 days of such
failure;
(c) a failure to perform or observe any term, covenant or agreement
contained in this Note (other than those referred to in the preceding
clause (b)), which failure is not cured within 30 days of receipt by
Diagnostics of notice of such default;
(d) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of Chiron, Diagnostics or any of their Significant U.S.
Subsidiaries, or of a substantial part of the property or assets of Chiron,
Diagnostics or any of their Significant U.S. Subsidiaries, under Title 11
of the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Chiron, Diagnostics or any of their
Significant U.S. Subsidiaries or for a substantial part of the property
or assets of Chiron, Diagnostics or any of their Significant U.S.
Subsidiaries or (iii) the winding-up or liquidation of Chiron, Diagnostics
or any of their Significant U.S. Subsidiaries, and such proceeding or
petition is not dismissed within 60 days or an order for relief is entered
against Diagnostics, Chiron or such Significant U.S. Subsidiary, as
applicable;
(e) Chiron or its subsidiaries (except Diagnostics and its
subsidiaries) shall fail collectively to own more than 50% of the voting
stock of Diagnostics or any successor entity; and
(f) Chiron, Diagnostics or any of their Significant U.S. Subsidiaries
shall (i) voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of
any petition described in (d) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Chiron, Diagnostics or any of their Significant U.S.
<PAGE>
8
Subsidiaries or for a substantial part of the property or assets of Chiron,
Diagnostics or any of their Significant U.S. Subsidiaries, (iv) file an
answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing;
then, and in every such event (other than an event with respect to Chiron,
Diagnostics or any of their Significant U.S. Subsidiaries described in paragraph
(d) or (f) above), and at any time thereafter during the continuance of such
event, Ciba may, by notice to Diagnostics, take the following action: declare
any and all principal or interest (and any other amounts) then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of this
Note so declared to be due and payable, together with accrued interest thereon
(and any other amounts), shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by Diagnostics, anything contained herein to the
contrary notwithstanding; and in any event with respect to Diagnostics described
in paragraph (d) or (f) above, the principal then outstanding, together with
accrued interest thereon (and any other amounts), shall automatically become due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are expressly waived by Diagnostics, anything contained
herein to the contrary notwithstanding.
DEFINITIONS
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City.
"LIBOR" shall mean, with respect to any calendar quarter, the
arithmetic mean of the offered rates for deposits in U.S. dollars for a
principal amount closest to the principal amount outstanding at such time under
this Note for a period of 90 days which appear on the Reuters Screen LIBO Page
(on the Reuter Monitor Money Rate Service) as of 11:00 a.m., London time, on the
day that is two London
<PAGE>
9
banking days prior to the commencement of such calendar quarter.
"LIEN" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Note, Diagnostics or any subsidiary of
Diagnostics shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"SIGNIFICANT U.S. SUBSIDIARY" shall mean, with respect to any person,
any subsidiary of such person that constitutes a significant subsidiary within
the meaning of Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange Commission and that is a U.S. subsidiary of such person.
<PAGE>
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
CIBA CORNING DIAGNOSTICS
CORP.,
by /s/ C. William Zadel
------------------------------
Name: C. William Zadel
Title President
<PAGE>
11
PAYMENTS
Payments Payments Name of Person
of of Making
Principal Interest Date Notation
--------- -------- ---- --------
<PAGE>
EXHIBIT 11
CHIRON CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended 3 Months Ended
------------------------------ --------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss) $(384,949,000) $ 9,927,000 $ 830,000 $ 5,110,000
------------- ------------- ------------ ------------
Primary Computation of:
Weighted average number
of common shares outstanding $ 40,086,000 32,890,000 40,150,000 32,956,000
Weighted average dilutive
incremental common shares
issuable from exercise of
warrants -- 77,000 9,000 49,000
Weighted average dilutive
incremental common shares
issuable under employee
stock option programs -- 1,367,000 736,000 1,063,000
------------- ------------- ------------ ------------
Total weighted average
primary common shares 40,086,000 34,334,000 40,895,000 34,068,000
------------- ------------- ------------ ------------
Net income (loss) per share $ (9.60) $ 0.29 $ 0.02 $ 0.15
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S CONSOLIDATED BALANCE SHEET DATED JUNE 30, 1995 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND NOTES THERETO
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 82,147
<SECURITIES> 186,453<F1>
<RECEIVABLES> 265,631
<ALLOWANCES> 0
<INVENTORY> 163,781
<CURRENT-ASSETS> 626,706
<PP&E> 595,394
<DEPRECIATION> 112,440
<TOTAL-ASSETS> 1,490,053
<CURRENT-LIABILITIES> 383,934
<BONDS> 507,769<F2>
<COMMON> 402
0
0
<OTHER-SE> 662,068<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,490,053
<SALES> 432,242
<TOTAL-REVENUES> 499,997
<CGS> 198,829
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 670,957<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,029
<INCOME-PRETAX> (373,288)
<INCOME-TAX> 11,661
<INCOME-CONTINUING> (384,949)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (384,949)
<EPS-PRIMARY> (9.60)
<EPS-DILUTED> (9.60)
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASES, NOTES PAYABLE
AND SHORT-TERM DEBT
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, CUMULATIVE FOREIGN
CURRENCY TRANSLATION ADJUSTMENT AND UNREALIZED GAIN ON INVESTMENTS
<F4>CONSISTS OF RESEARCH, DEVELOPMENT, SELLING, GENERAL, ADMINISTRATIVE, WRITE-OFF
OF PURCHASED IN-PROCESS TECHNOLOGY, COSTS RELATED TO CIBA TRANSACTION,
RESTRUCTURING AND REORGANIZATION COSTS, AND OTHER OPERATING EXPENSES.
</FN>
</TABLE>
