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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NO. 0-12798
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CHIRON CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 94-2754624
(State of Incorporation) (IRS Employer Identification No.)
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4560 HORTON STREET
EMERYVILLE, CALIFORNIA 94608
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 655-8730
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK, $.01 PAR VALUE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.____
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 1, 1995, was $1,058,210,000.
The number of shares outstanding of each of the Registrant's classes of common
stock as of March 1, 1995:
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TITLE OF CLASS NUMBER OF SHARES
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Common Stock, $.01 par value 40,025,293
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DOCUMENTS INCORPORATED BY REFERENCE
The Company's Consolidated Financial Statements for the fiscal year ended
December 31, 1994, are incorporated by reference into Parts II and IV of this
Form 10-K Report and are filed as Exhibit 13 to this Form 10-K Report.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on May 18, 1995, are incorporated by reference into Part III of this
Report.
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PART I
ITEM 1. BUSINESS
Chiron Corporation ("Chiron" or "the Company") applies biotechnology and
other techniques of modern biology and chemistry to develop products intended to
improve the quality of life by diagnosing, preventing and treating human disease
with a goal of reducing overall healthcare costs. Chiron participates in the
global healthcare industry in: (i) diagnostics, including blood screening tests,
automated immunodiagnostic systems, critical blood analytes and quantitative
branched DNA ("bDNA") probe tests for human immunodeficiency virus ("HIV"),
hepatitis C virus ("HCV") and hepatitis B virus ("HBV"); (ii) therapeutics, with
an emphasis on oncology, serious infectious diseases and cardiovascular
diseases, including the products Betaseron-Registered Trademark- (interferon
beta-1b) for relapsing-remitting multiple sclerosis and
Proleukin-Registered Trademark- (aldesleukin) (or "IL-2") for metastatic kidney
cancer; (iii) novel adult and pediatric vaccines including vaccines under
development for genital herpes ("HSV-2"), HCV, HIV, cytomegalovirus ("CMV") and
a genetically engineered acellular pertussis vaccine on the market in Italy and
in clinical trials in the United States and Europe; and (iv) ophthalmic surgical
products including instruments and devices used for the surgical correction of
vision and an intraocular implant to deliver drugs into the eye. A fifth
business, Chiron Technologies, manages development of new technologies from the
Company's research including a new generation of chemical therapeutics being
developed through advanced techniques of drug design and discovery and a program
in gene therapy.
In 1994, Chiron, which has a history of entering into research,
manufacturing and marketing collaborations with universities and other companies
to commercialize technology, entered into a series of new collaborations. The
most important of these new collaborations was a new partnership with Ciba-Geigy
Limited of Basel, Switzerland ("Ciba"), under which Chiron and Ciba may agree to
discover, develop, manufacture and market biotechnology and other healthcare
products on a global scale. Chiron and Ciba will be preferred partners to
augment their respective capabilities through cooperative approaches on arms'
length terms to be agreed upon, but remain independent to pursue where
appropriate projects outside the partnership. Under the agreement, effective
January 1, 1995, Ciba acquired a 49.9 percent ownership interest in Chiron
common stock through the purchase of approximately 38 percent of Chiron's
then-outstanding common stock for $117 per share and the exchange of Ciba's Ciba
Corning Diagnostics Corp. ("CCD") business and Ciba's interests in The Biocine
Company and Biocine SpA (collectively "Biocine") for 6.6 million new shares of
Chiron common stock and cash of $24 million. Also, Chiron may issue to Ciba up
to $500 million of new equity, Ciba has agreed to guarantee $425 million of new
debt for Chiron, and Ciba has agreed to provide at least $250 million and up to
$300 million over five years in support of research at Chiron.
The partnership with Ciba should strengthen Chiron's position as a leader in
the research, development and manufacturing of biotechnology products. Chiron
and its affiliate businesses and collaborators market three therapeutic
biologicals, more than 50 immunodiagnostic and critical care diagnostics, and
both immunodiagnostic instruments and critical blood analyzers, seven vaccines,
nine generic cancer therapeutics and five ophthalmic product lines.
Chiron was incorporated in California in 1981 and reincorporated in Delaware
in 1987. Its corporate headquarters are located at 4560 Horton Street,
Emeryville, California, 94608-2916, and its telephone number at that address is
(510) 655-8730.
DIAGNOSTICS
Chiron has built a joint business with a significant worldwide presence in
the immunodiagnostic market with Ortho Diagnostic Systems, Inc. ("Ortho"), a
Johnson & Johnson company, based largely on sales of tests used to screen blood
for the potential presence of HCV, which has been identified as a major cause of
serious liver disease throughout the world. This business sells the full line of
tests required to screen blood for hepatitis viruses and retroviruses,
confirmatory tests, and microplate-
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based instrument systems to automate the performance of tests and collection of
data. Chiron and Ortho share equally in the pretax operating earnings generated
by their joint business, including royalty payments made for the sale of HCV
tests by Abbott Laboratories ("Abbott") and Pasteur Sanofi Diagnostics
("Pasteur"), which they have licensed. Chiron also has an option to share
equally in the pretax operating earnings generated by Johnson & Johnson's home
HIV test, which is in review at the United States Food and Drug Administration
("FDA").
CCD, acquired by Chiron effective January 1, 1995, is the world's largest
seller of systems to measure blood gases, blood electrolytes and metabolytes,
which are used by hospitals to diagnose and monitor patients in critical care
settings. CCD also has developed and introduced the ACS:180 and ACS:180 Plus,
which are automated random access immunodiagnostic instrument systems for use by
hospital and reference laboratories to detect and measure thyroid, anemia,
fertility, cancer and STAT cardiac indicators.
Chiron also is developing bDNA probe tests to quantify virus levels.
Clinical evidence suggests that Chiron's bDNA probes may have utility in
predicting disease progression and response to therapy. Chiron is selling bDNA
probe tests for HIV, HCV and HBV for research use only in the United States and
Europe, and plans to submit applications to market these tests for commercial
use in measuring virus. Chiron retains the rights to commercialize these tests
in the United States and Europe, but for Japan and Taiwan, has licensed
marketing rights to Daiichi Pure Chemicals Co. Ltd., which received approval in
1994 to market Chiron's Quantiplex-TM- bDNA probe test for HCV in Japan.
THERAPEUTICS
Chiron Therapeutics is Chiron's hospital and large clinic-based
direct-selling business in the United States and Europe, and markets products
for use principally by oncologists. Its leading product is
Proleukin-Registered Trademark-, the first treatment approved for metastatic
kidney cancer. In the United States, Chiron Therapeutics also markets generic
chemotherapy drugs as part of a joint venture with Ben Venue Laboratories, Inc.,
and promotes Aredia-Registered Trademark- (pamidronate disordium for injection),
a drug to treat hypercalcimia of malignancy and Paget's disease, licensed from
Ciba. In Europe, Chiron Therapeutics also markets Salagen-Registered Trademark-
for chronic dry mouth associated with radio-therapy of cancer, licensed from MGI
Pharma, and Cardioxane, a cardioprotectant used in conjunction with chemotherapy
for cancer.
Chiron manufactures Betaseron-Registered Trademark- for Berlex Laboratories,
Inc. ("Berlex"), a United States affiliate of Schering AG, Germany ("Schering
AG"), which markets the product in the United States. Berlex Canada also plans
to market in Canada product manufactured by Chiron. In Europe, Schering AG plans
to market the product under the trade name Beneseron-Registered Trademark-,
either manufactured by Boehringer Ingelheim, for which Chiron will receive a
royalty, or by Chiron. During 1994, Chiron completed and had licensed a
significant expansion of its facility in Emeryville, and has completed a new
facility in Puerto Rico.
VACCINES
The Biocine Company and Biocine SpA are Chiron's businesses to develop and
market new vaccines, and as of January 1995 are wholly owned and managed by
Chiron (Prior to January 1, 1995, Chiron and Ciba each owned 50 percent of The
Biocine Company and Biocine SpA). Biocine SpA's business is based primarily on
the sale of non-recombinant pediatric and flu vaccines in Italy and to a lesser
extent in Southern Europe, the Middle East, the Far East, Africa and South
America, and to international health services such as the World Health
Organization. Among its products is a new genetically engineered acellular
pertussis vaccine which began sales in Italy in late 1993 and is in the final
stages of clinical trials in the United States and Northern Europe.
The Biocine Company is developing a new generation of vaccines for serious
adult infections such as HSV-2, CMV and HCV. These vaccines utilize genetically
engineered antigens that are displayed in a manner that mimics the appearance of
the actual agent, combined in an optimal formulation with
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adjuvants that stimulate the immune response. Biocine is conducting a series of
Phase 3 trials of an HSV-2 vaccine to prevent or treat genital herpes. Phase 1
trials have been completed in the United States for a CMV vaccine. Biocine is in
discussions with the U.S. Department of the Army and the government of Thailand
regarding potential trials to study the effectiveness of a vaccine to prevent
and treat HIV infection. A vaccine for HCV is in preclinical studies.
In addition to and separate from its Biocine activities, Chiron has received
royalty payments since 1986 from the sales of Recombivax-Registered Trademark-
HB, a vaccine against HBV infection developed, manufactured and marketed by
Merck & Co., Inc. ("Merck"), using technology developed by Chiron.
Recombivax-Registered Trademark- HB was the first vaccine using recombinant
technology to be licensed by the FDA for human use.
OPHTHALMICS
Chiron Vision is Chiron's direct-selling business in ophthalmic surgical
products. Chiron Vision's comprehensive line of products for the surgical
correction of vision includes both hard and foldable intraocular lenses ("IOLs")
for cataract replacement surgeries, phacoemulsification instruments for
small-incision cataract surgeries, instruments for corneal and refractive
surgeries and excimer lasers. Chiron Vision markets its excimer lasers in Europe
and Canada, and in 1993 began clinical trials in the United States. Interim
results of phase 3 clinical trials of Chiron Vision's ganciclovir implant showed
a clinically important improvement over intravenously administered ganciclovir
in delaying the progression of CMV retinitis in AIDS patients. Chiron Vision is
preparing its submission to the FDA based on final results from the trials,
which were completed in late 1994. Phase 2 trials have begun for an implantable
lens to correct presbyopia, or farsightedness. Chiron Vision sells its products
in the United States and 15 other countries and in May 1994 acquired
Laboratoires Domilens S.A., a major supplier of IOLs in France.
On March 6, 1995, the Company's Chiron Vision subsidiary announced that an
agreement had been reached to purchase the ophthalmic surgical division of
IOLAB, a Johnson & Johnson company, for approximately $95 million. IOLAB is a
supplier of intraocular lenses and related products for ophthalmic surgeries.
Following the proposed acquisition, Chiron Vision will begin a global
restructuring of the combined operations to enhance manufacturing, marketing and
management efficiencies.
CHIRON TECHNOLOGIES
Chiron's drug design and discovery group combines its own proprietary
technologies in combinatorial chemistry, robotic screening and selection and
molecular biology with the knowledge and participation of a select group of
leading academic scientists in the fields of structural biology and bio-organic
chemistry, and engages in collaborations with other pharmaceutical companies
including: Syntex Laboratories, Inc., Houghten Pharmaceuticals, Inc., and, since
1994, Janssen Pharmaceutica, a Johnson & Johnson company, to create libraries of
compounds for characterization and screening.
Chiron is developing a series of growth factors to treat topical wounds in
collaboration with Johnson & Johnson. Johnson & Johnson has underway
multi-center Phase 3 clinical trials studying the use of platelet-derived growth
factor manufactured in bulk by Chiron and formulated into a gel for treatment of
diabetic skin ulcers.
In the field of gene therapy, Chiron is collaborating with Viagene, Inc.
("Viagene"), to develop gene transfer products, for the prevention and treatment
of cancer, and drug activation technology, for the prevention and treatment of a
broad range of human diseases, and with Ribozyme Pharmaceuticals Inc. to develop
ribozyme-based therapies for HIV and other infectious diseases, cardiovascular
conditions and cancer. Chiron and Viagene have begun a Phase 1 clinical trial of
Viagene's gamma interferon gene therapy product used in tandem with Chiron's
recombinant interleukin-2 for the treatment of malignant melanoma.
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In the area of cardiovascular disease, Chiron has begun a collaboration with
G.D. Searle & Co. ("Searle") to develop tissue factor pathway inhibitor
("TFPI"), a coagulation inhibitor with potential applications in thrombotic and
inflammatory diseases, trauma and critical care. Chiron and Searle have begun a
Phase 1 clinical trial to prepare for further trials studying the use of TFPI in
microvascular surgery. Other collaborations include: Cephalon, Inc. ("Cephalon")
for the research, development and marketing of products for the treatment of
neurological disorders, including insulin-like growth factor, which Cephalon has
in Phase 2/3 clinical trials for treatment of amyotrophic lateral sclerosis
("ALS" or "Lou Gehrig's Disease"); Lynx Therapeutics, Inc., in the field of
anti-sense for antiviral drugs aimed at three viral targets, HIV, HCV and HBV;
Onyx Pharmaceuticals, Inc., for the discovery and development of cancer
therapeutics and diagnostics through research into the mechanisms of molecular
oncology.
COMPETITION
Chiron competes against a large number of other biotechnology and
pharmaceutical companies in the United States and internationally, and although
no single company competes in every area of Chiron's interests, the competition
is intense and expected to increase. Biotechnology and drug discovery are
rapidly evolving fields in which new developments frequently result in product
obsolescence and price competition. To compete effectively, Chiron's direct and
joint businesses invest heavily in research, maintain multiple sales forces that
concentrate efforts on individual classes of customers, and spend significant
amounts on advertising, promotion and selling. Substantial consolidation is
underway in the global healthcare industry, and is expected to produce greater
efficiencies and even more intense competition.
In the diagnostic market, the major competitor to both the Chiron-Ortho
joint business and to CCD is Abbott. In addition, although initial patents for
the Chiron HCV invention have issued and are being upheld through litigation
that has removed certain unlicensed sellers from some markets, the joint
business faces continued competition from a number of unlicensed sellers of HCV
tests, including: Organon Teknika, N.V., a subsidiary of Akzo, N.V.; Murex
Diagnostics, Ltd., a subsidiary of International Murex Technologies Corp.; and
United Biomedical, Inc. Other companies in Japan and Europe have introduced, or
may be preparing to introduce, competing HCV tests. In addition to Abbott, CCD
faces competition in the immunoassay market from Boehringer Mannheim and Johnson
& Johnson, which purchased the diagnostic and clinical chemistry business of
Kodak. Chiron's bDNA probe tests compete with products from affiliates of F.
Hoffmann-La Roche, Ltd., ("Roche") (which is developing tests based on
polymerase chain reaction ("PCR")), Abbott and Digene and may compete with
Gene-Trak Systems and Gen-Probe Incorporated.
In the therapeutics market, Proleukin-Registered Trademark- competes with
alpha interferon sold by Schering Plough Corporation and by Roche as a treatment
for metastatic kidney cancer. Several other biotechnology companies are
developing IL-2 or other interferons as immune-system-based therapies for
cancers and infectious diseases, including Roche, Genentech, Inc. ("Genentech"),
and Amgen Inc. Approximately 30 companies compete in the United States market
for anticancer chemotherapies, including Bristol-Myers Squibb Company, which
accounts for nearly half the market. Chiron's therapeutic products in
development for cancer, infectious diseases and cardiovascular disease face
competition from companies such as Genetics Institute, Immunex Corporation,
Genentech and many other biotechnology companies.
Four large companies hold the greatest share of the worldwide vaccine
market: Merck and SmithKline Beecham ("SmithKline"), both of which market
pediatric vaccines and the only widely sold recombinant vaccines for hepatitis B
infection; Lederle Praxis Biologics ("Lederle"), a division of American Home
Products; and the combination of Connaught Laboratories, Inc., and Pasteur
Merieux Serums et Vaccins (which separately has a strategic alliance with Merck)
both of which sell
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pediatric vaccines. SmithKline and Lederle are developing vaccines for genital
herpes, and a number of other companies have HIV vaccines in clinical trials,
including Genentech and Immune Response Corp.
Chiron Vision competes against numerous healthcare, pharmaceutical and
biotechnology companies in the research, development and marketing of devices
and therapeutic products for the ophthalmic surgery market. Chiron Vision's
competition in its largest product line, intraocular lenses, includes Alcon
Laboratories, Inc., a division of Nestle SA, Allergan, Inc., IOLAB, a division
of Johnson & Johnson (See Part I, Item 1. Business -- Ophthalmics), Pharmacia
AB, Staar Surgical Co. and Storz Instrument Company, a subsidiary of American
Home Products. Gilead Sciences, Inc., a biotechnology company, has in the final
stages of clinical trials a systematically injectable pharmaceutical that may
compete against Chiron Vision's ganciclovir implant.
Betaseron-Registered Trademark-, the only product licensed in the United
States to treat relapsing-remitting multiple sclerosis, began usage by patients
in October 1993. Potential competing products to Betaseron-Registered Trademark-
in the United States and Europe include two products that have completed
clinical trials and which their manufacturers plan to make regulatory
applications to market: recombinant beta interferon from Biogen, Inc.
("Biogen"), and Copolymer 1 from Teva Pharmaceuticals. Other companies have
entered, or are preparing to enter, products into clinical trials for multiple
sclerosis. In Europe, Schering's product Beneseron-Registered Trademark- is not
yet licensed, and Ares Serono sells in Italy and Spain an extracted form of beta
interferon as a treatment for, among other indications, multiple sclerosis, and
holds licenses for other indications in several countries, including Germany.
A significant amount of research in biotechnology is performed in
universities and nonprofit research organizations. These entities are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing revenues. The competition
among large pharmaceutical companies and smaller biotechnology companies to
acquire technologies from these entities also is intensifying. While Chiron
actively collaborates with such entities in research and has and will continue
to license their technologies for further development, these institutions also
compete with Chiron to recruit scientific personnel and to establish proprietary
technology positions.
MANUFACTURING
Chiron currently has licensed manufacturing facilities in Emeryville,
California for the production of biologicals and Chiron Vision has manufacturing
operations in Huntington, West Virginia, Irvine, California, Rapid City, South
Dakota, Sydney, Australia, Lyon, France, Munich, Germany and Amsterdam, The
Netherlands. Chiron began a major manufacturing expansion in early 1993 designed
to meet the projected demand for Betaseron-Registered Trademark- and other
products that are in the late stage of development. Chiron spent $106 million on
capital expenditures in 1994, primarily on manufacturing expansion. In 1994, the
Company completed upgrades to the St. Louis, Missouri and Puerto Rico
facilities. The next phase will be obtaining regulatory approvals for these
facilities. In addition, the Company has a facility in Vacaville, California
currently under construction, with completion expected in 1995. Substantial
additional capital investment will be required in connection with preparation
for large scale clinical trials and commercialization of vaccine products, bDNA
probes, therapeutic products and other products as they approach commercial
introduction. Facilities for the production of these products must be approved
by the FDA as complying with GMP requirements before products produced in them
can be sold. In addition, Chiron must obtain various approvals and permits from
local regulatory authorities. Failure to obtain all necessary approvals and
permits and to complete such facilities on a timely basis would materially and
adversely affect the continued development and introduction of Chiron products.
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MAJOR CUSTOMERS
Ciba and its affiliates are related parties and collectively contributed 11
percent, 13 percent and 6 percent of total revenues in 1994, 1993, and 1992,
respectively. Johnson & Johnson and its affiliates are related parties and
collectively contributed 22 percent, 32 percent and 38 percent of total revenues
during 1994, 1993, and 1992, respectively. During 1994, sales of
Betaseron-Registered Trademark- to Chiron's marketing partner accounted for 23
percent of total revenues (4 percent in 1993).
For a discussion of revenues by geographic areas, see Note 10 to the 1994
Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT
The Company's two primary sources of new product candidates are internal
research and development and collaboration and licensing with other healthcare
companies. Research and development expense, which includes payments to
collaborative partners, for the years ended December 31, 1994, 1993 and 1992 was
$166.2 million, $140.0 million and $142.3 million, respectively. Under contracts
where reimbursement is based upon work performed, the related research and
development expenses were $72.4 million, $61.5 million and $47.3 million in
1994, 1993 and 1992, respectively.
RAW MATERIALS
Raw materials and laboratory supplies utilized in the Company's research are
generally available from several commercial sources. In certain projects, sample
tissues and cell strains used for the Company's research and development may be
difficult to obtain. The Company relies upon its good relations with other
researchers and institutions to obtain the majority of such strains and samples.
Sources include blood banks, hospitals, universities and national laboratories.
Most raw materials necessary for process development, production scale-up and
commercial manufacturing are generally available from multiple commercial
sources. However, certain processes require materials from sole sources or
materials that are difficult for suppliers to produce and certify to the
Company's specifications or for which the raw materials may be in short supply.
Although Chiron maintains an awareness of the condition of these suppliers,
their ability to supply the Company's needs and the market conditions for these
materials, there is a risk that material shortages could impact production
efforts. The Company believes that its relationships with its commercial
suppliers are good.
GOVERNMENT REGULATION
Regulation by governmental agencies in the United States and other countries
is a significant and changing factor in Chiron's research and development
effort, and in the Company's plans to produce and market both approved products
and those nearing approval. Intent to market products in Europe brings an added
regulatory burden, as the role of the European Economic Community has increased
significantly in recent years.
The Company's products (both marketed and investigational) in the United
States are primarily biologicals, but also include generic anticancer drugs,
diagnostic tests and instruments and ophthalmic devices. All are regulated under
the Food, Drug, and Cosmetic Act and supporting regulations. The biological
products are additionally regulated under the Public Health Service Act and
supporting regulations. Licensing of a biological product in the United States
is accompanied by a requirement to simultaneously license the manufacturing
establishment.
Licensing of the establishment includes a requirement that all facilities
used to manufacture, fill, test and distribute the product in interstate
commerce be inspected and approved by the FDA's Center for Biologics Evaluation
and Research. The review and inspection process includes a review of all
labeling, including the vial, carton, box, and packers, as well as promotional
and advertising materials.
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Since every FDA decision requires submission of documentation (such as a Product
License Application, or Establishment License Application), the preparation of
the documentation, its submission and audit review determines the speed with
which a research program is translated into a marketed product.
European regulations are being harmonized, with a major transition in review
authority and procedures scheduled for 1995. It remains to be seen what effect,
if any, the proposed change in review process will have on the overall approval
process.
PATENTS AND PROPRIETARY RIGHTS
Intellectual property (e.g., patents, trade secrets and trademarks) is
important to the business of the Company. Chiron and its subsidiaries have a
substantial number of pending patent applications and granted patents in the
United States and in foreign countries. It is not known how many of these
pending patent applications will be granted as patents and at least some of the
pending applications will be abandoned. A number of patents and patent
applications owned by third parties have been licensed exclusively,
semiexclusively or nonexclusively to Chiron and its subsidiaries for one or more
fields of use. Chiron and its subsidiaries also own a number of trademarks in
the United States and foreign countries.
Due to unresolved issues regarding the scope of protection provided by such
patents, as well as the possibility of patents being granted to others, there
can be no assurance that the patents owned or licensed to Chiron and its
subsidiaries will provide substantial protection or commercial benefit. The
rapid rate of development and the intense research efforts throughout the world
in biotechnology, the significant time lag between the filing of a patent
application and its review by appropriate authorities and the lack of
significant legal precedent involving biotechnology inventions make it difficult
to predict accurately the breadth or degree of protection that patents will
afford Chiron's or its subsidiaries' biotechnology products or their underlying
technology. It is also difficult to predict whether valid patents will be
granted based on biotechnology patent applications or, if such patents are
granted, to predict the nature and scope of the claims of such patents or the
extent to which they may be enforceable.
Important legal questions remain to be resolved as to the extent and scope
of available patent protection in the United States and abroad. Under United
States law, although a patent has a statutory presumption of validity, the
issuance of a patent is not conclusive as to validity or as to the enforceable
scope of its claims. Accordingly, there can be no assurance that Chiron's
patents will afford legal protection against competitors with similar
inventions, nor can there be any assurance that the patents will not be
infringed or designed around by others or that others will not obtain patents
that Chiron would need to license or design around.
Trade secrets and confidential information are likely to be important to
Chiron's commercial success. Although Chiron and its subsidiaries seek to
protect trade secrets and confidential information they believe to be
significant, there can be no assurance that others will not either develop
independently the same or similar trade secrets or confidential information or
obtain access to such trade secrets or confidential information. Furthermore,
there can be no assurance others have not obtained or will not obtain patent
protection that will preclude Chiron or its subsidiaries from using their trade
secrets or confidential information.
Most countries limit the enforceability of patents against government
agencies or government contractors. Generally, the patent owner may be limited
to monetary relief and may be unable to enjoin infringement. This can be of
particular importance in countries where a major customer of Chiron or its
licensees is a governmental agency. The inability to enjoin such infringement
and the necessity of relying exclusively on monetary compensation could
materially diminish the value of a particular patent. Furthermore, many
countries (including European countries) have compulsory
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licensing laws under which third parties may compel the grant of non-exclusive
licenses under certain circumstances (for example, failure to "work" the
invention in the country, patenting of improvements by a third party or failure
to supply a product related to health and safety). The mere existence of such
limits on injunctive relief and compulsory licensing systems could force Chiron
to grant a license it would not have otherwise granted.
Chiron is aware that others, including various competitors, educational
institutions and governmental organizations have intellectual property,
particularly patents and pending patent applications, in the United States and
other countries potentially useful or necessary to Chiron's and its
subsidiaries' businesses including vaccines, diagnostics, therapeutics, oncology
and ophthalmics. Some of these patents and applications claim only specific
products or methods of making such products, while others claim more general
processes or techniques. There may be similar third-party intellectual property
important to the business of Chiron or its subsidiaries of which the Company is
not currently aware. It is likely that in the future others will obtain patents
or develop proprietary rights that might be necessary or useful for the
manufacture, use or sale of some products by Chiron or its subsidiaries. Certain
of these patents or rights may be sufficiently broad to prevent or delay Chiron
or its subsidiaries from practicing necessary technology, including the
manufacture and/or marketing of products important to Chiron's current and
future business. The scope, validity and enforceability of such patents, if
granted, the extent to which Chiron or its subsidiaries may wish or need to
obtain licenses thereunder and the cost and availability of such licenses are
not susceptible to accurate prediction. If Chiron or its subsidiaries do not
obtain such licenses, products may be withdrawn from the market, or delays could
be encountered in market introduction while an attempt is made to design around
such patents. Alternatively, Chiron or its subsidiaries could find that the
development, manufacture or sale of such products is foreclosed. Chiron or its
subsidiaries could incur substantial costs in challenging the validity or scope
of such patents.
Chiron is currently involved in legal proceedings involving patents and
expects that litigation relating to the validity and scope of certain patents
and its proprietary rights and those of third parties will continue to arise in
the future. (See Part I, Item 3. Legal Proceedings). Substantial costs could be
incurred in defending the validity or scope of patents owned by or licensed to
Chiron or its subsidiaries. If Chiron and its subsidiaries are unable to obtain
strong proprietary rights to protect a product after the expenditure of funds to
obtain regulatory approval, competitors may be able to market competing products
without being required to undertake the same lengthy and expensive development
efforts that Chiron and its subsidiaries already have completed. In these cases,
it is possible that price competition could become a principal competitive
factor in the marketing of such products. If Chiron or any of its subsidiaries
should lose litigation with respect to third party intellectual property rights,
Chiron and its subsidiaries could be precluded from manufacturing or marketing
certain products and incur substantial liability for damages and attorney fees.
EMPLOYEES
At December 31, 1994, Chiron and its subsidiaries employed 2,668 people on a
full-time and part-time basis in ten principal locations on three continents. Of
Chiron's employees, 1,729 were involved in research, development and
manufacturing efforts and 939 were involved in operations, administration, sales
and marketing and finance.
8
<PAGE>
ITEM 2. PROPERTIES
At December 31, 1994, Chiron owned and leased approximately 1.6 million
square feet of building space on three continents. Following is a summary of the
Company's properties:
<TABLE>
<CAPTION>
BUILDINGS (SQ. FT.)
---------------------- LAND
LEASED OWNED (ACRES)
---------- ---------- -------
<S> <C> <C> <C>
Location:
Emeryville, California.......................... 811,877 45,525 7
Other United States (including Puerto Rico)..... 223,161 202,496 63
Europe.......................................... 163,369 105,448 --
Rest of world................................... 23,559 21,500 1
---------- ---------- -------
1,221,966 374,969 71
---------- ---------- -------
---------- ---------- -------
</TABLE>
Chiron's principal facilities are located in Emeryville, California, and are
used for research and development, manufacturing and administrative activities.
Currently, several of these buildings are undergoing general construction
upgrades and expansion.
Included in the chart above is a location of 30,000 square feet on 51 acres
in Vacaville, California, which is currently under construction. This facility
will expand the Company's manufacturing capacity and is expected to become
operational within one year. During 1994, Chiron completed construction of
facilities in St. Louis, Missouri and Puerto Rico for the manufacture of
Betaseron-Registered Trademark- and other products in the late stage of
development. These facilities are currently manufacturing clinical materials or
awaiting FDA approval.
Elsewhere in the United States, the Company leases facilities in three
locations: Irvine, California, Huntington, West Virginia, and Rapid City, South
Dakota, for manufacturing, research and development, and administration. No
additional expansion of these facilities is planned in the near future.
As of December 31, 1994, Chiron had operations in eight foreign countries:
Australia, Canada, France, Germany, Italy, the Netherlands, Spain and the United
Kingdom. These facilities are primarily sales offices, with manufacturing
operations in Australia, Germany, France and The Netherlands.
Upon completion of the expansion of manufacturing capacity mentioned above,
Chiron believes that it will have sufficient manufacturing facilities to meet
its needs for the foreseeable future. Chiron is currently in the planning stage
for a large-scale expansion of its research and administration facilities in
Emeryville, California.
ITEM 3. LEGAL PROCEEDINGS
MUREX DIAGNOSTICS, LTD. 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. While the relevant patent claims were found valid and
infringed, the court denied any damages or injunctive relief because it found
Murex had a defense under Section44 of the U.K. Patents Act. On October 28,
1993, Chiron and Ortho began new infringement proceedings against Murex
requesting unspecified damages and injunctive relief. 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. Murex
has appealed. Chiron's and Ortho's request for an injunction was granted on
November 29, 1994. 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,
9
<PAGE>
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. Murex has brought an
action in Australia seeking the revocation of the Australian counterpart of the
'511 patent. Chiron has counterclaimed for infringement.
ORGANON TEKNIKA, LTD. On May 4, 1994, Chiron instituted summary legal
proceedings against Organon Teknika, B.V., Akzo Pharma, B.V., Akzo Pharma
International, B.V., Organon Teknika, N.V (all subsidiaries of Akzo N.V.
(collectively referred to as "Organon")), and United Biomedical, Inc. ("UBI"),
the supplier of Organon's HCV antigens and kits, in the District Court of the
Hague, The Netherlands, alleging infringement of European Patent No. 318,216
("the '216 patent") as a result of the defendants' manufacture and sale of HCV
immunoassay kits. On July 22, 1994, Chiron was granted a cross-border
preliminary injunction against further infringement, including sale of the UBI
kit, by Organon in Austria, Belgium, Switzerland, Germany, Spain, France, Italy,
Liechtenstein, Luxembourg, The Netherlands and Sweden. Organon and UBI have
appealed the injunction. The '216 patent is a counterpart of the British '511
patent. Infringement proceedings brought by Chiron and Ortho are also pending
against Organon in Italy and Belgium, (based on the '216 patent), and in the
U.K., (based on the British '511 patent), in proceedings consolidated with the
actions against Murex, described above.
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 government.
The basis of the suit is that 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 as to Chiron. 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 this suit is without merit
and that substantial defenses exist. In 1990, Bradley and the CDC entered into a
settlement agreement regarding his claims of inventorship in which any rights
either Bradley or the CDC 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.
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 Oncology 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 contractual relations, 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 has
appealed the summary
10
<PAGE>
judgment to the Ninth Circuit Court of Appeals in a notice filed April 5, 1993.
In August 1993, Sicor dismissed its claims against Erbamont. A hearing before
the Ninth Circuit was held July 12, 1994, but no decision has yet been issued.
In the event that the summary judgment is overturned and the case is remanded
for trial, the Company believes that it has substantial defenses to the 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. Internal investigation of the claim is under way,
and there has been no action in this suit.
ADVANCED CHEMTECH. On August 11, 1994, Advanced ChemTech, Inc. brought a
lawsuit against Chiron in the United States District Court for the Western
District of Kentucky, Louisville Division, asserting that certain Chiron patents
relating to peptide mixtures are invalid and unenforceable and that Chiron had
engaged in unfair competition and unfair business practices in asserting its
patent rights. Advanced ChemTech is asking the court to find: (1) that the
patent at issue is invalid and unenforceable; (2) that Advanced ChemTech does
not infringe the patents; and (3) damages according to proof. Chiron has
answered and counterclaimed for infringement of its patents. Chiron believes
that it has substantial defenses against the claims asserted by Advanced
ChemTech.
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 judgement on Abbott's
defenses of inequitable conduct and prior invention are currently pending.
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 intends to
defend this suit vigorously.
CARNEGIE-MELLON UNIVERSITY. On August 20, 1994, Carnegie Mellon University
and Three Rivers Biologicals, Inc. brought a lawsuit in the United States
District Court for the Western District of Pennsylvania against Hoffmann-La
Roche, Inc., Roche Molecular Systems, Inc., the Perkin-Elmer Corporation, Chiron
and Cetus Oncology Corporation claiming that the defendants infringed certain
United States patents relating to plasmids for the expression of an enzyme which
may be useful in connection with polymerase chain reaction ("PCR") processes and
products. Cetus sold its PCR business to F. Hoffmann-La Roche Ltd. and
Hoffmann-LaRoche, Inc. ("Roche") in 1991. Carnegie Mellon and Three Rivers
Biologicals are seeking a finding that the defendants willfully infringed the
patents at issue, injunctive relief and damages according to proof. All
defendants have answered the complaint. Discovery has only recently begun. The
facts of the case, including any indemnification rights or obligations among the
defendants, are currently under review. However, Chiron believes that it, and
its wholly owned subsidiary, Cetus Oncology, have significant defenses.
SUMMIT. On September 29, 1994, Summit Technology Ireland B.V., a subsidiary
of Summit Technology, Inc., a manufacturer of ophthalmic excimer lasers, filed a
patent infringement action in the Regional Court of Dusseldorf, Germany, against
two German companies affiliated with Chiron Vision and their respective managing
directors. The suit alleges that the manufacture and sale in
11
<PAGE>
Germany of Chiron Vision's ophthalmic excimer laser infringes certain European
patents held by plaintiff. The plaintiff is seeking injunctive relief and
damages which it currently estimates at DM 2 million. The Company intends to
vigorously defend this lawsuit, and believes it has substantial defenses. 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 plaintiff
prevails. Chiron Technolas is currently Chiron Vision's sole source of
ophthalmic excimer lasers and an injunction, if it were to issue, could preclude
the Company from serving its market for the product.
STOCKHOLDER LITIGATION. In November 1994, Chiron, its directors, and
certain of its officers were sued in three essentially identical actions filed
as class actions on behalf of Chiron stockholders, alleging that the directors
had violated their fiduciary duty by failing to maximize stockholder value in
connection with the series of transactions affected with Ciba-Geigy which were
announced on November 20, 1994, by, among other things, not taking all possible
steps to seek out and encourage the best offer for the Company once the Company
had been put in play. Two of the actions filed respectively on November 14, 1994
and November 22, 1994 (HANNA V. CHIRON CORP, ET AL., C.A. No. 13874, and DEZUBE
V. CHIRON CORPORATION ET AL., C.A. No. 13896) were filed in the Court of
Chancery of the State of Delaware in and for New Castle County. The complaints
in both cases ask for injunctive relief, rescission and attorneys' fees.
Plaintiff in the HANNA action additionally seeks damages in an unspecified
amount. Plaintiff in the DEZUBE action additionally seeks an accounting. The
complaints have been answered by all defendants, who deny the material
allegations of the complaints. The third action was filed in the Superior Court
of California, Alameda County, Northern Division on December 1, 1994 (PERERA ET
AL. V. CHIRON CORPORATION ET AL., Case Action No. 744522-2). Plaintiff seeks
injunctive and declaratory relief, an accounting, costs and disbursements,
including attorneys' and experts' fees, and other relief. The defendants intend
to defend vigorously these matters.
SCRIPPS CLINIC ET AL. V. CHIRON CORPORATION. The Company is defending a
lawsuit filed on November 8, 1983, by the Scripps Clinic and Research Foundation
and Revlon, Inc., in the United States District Court for the Northern District
of California alleging that Chiron's research program to synthesize a protein
associated with human blood clotting ("Factor VIII:C") through genetic
engineering techniques infringes plaintiff's rights under a patent for purified
Factor VIII:C. The suit seeks an injunction against further infringement, an
accounting, compensatory damages of at least $10 million and punitive damages in
the same amount. After the trial court granted summary judgment in favor of
Chiron, the plaintiffs appealed. The United States Court of Appeals for the
Federal Circuit reversed the trial court, finding that summary judgment was not
appropriate and directing that a number of issues be tried, including the issues
of inequitable conduct on the part of Scripps, patent validity and patent
infringement. No trial date has yet been set and it is unclear when a date will
be set. Chiron intends to vigorously assert its defenses at trial.
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. A
bifurcated trial is expected to begin in 1995, trying first certain issues of
ownership and rights under license from Allergan to Starr Surgical Co. and
through Starr to Chiron, and then issues of infringement and invalidity. The
Company believes it has rights of indemnity from Starr with respect to certain
damages that may be awarded against it.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were brought to a vote of Chiron's stockholders in the quarter
ended December 31, 1994.
EXECUTIVE OFFICERS
The executive officers of the Company, who serve at the discretion of the
Board of Directors, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- -------------------------------- --- -----------------------------------------
<S> <C> <C>
William J. Rutter, Ph.D. 66 Chairman of the Board
Edward E. Penhoet, Ph.D. 54 President and Chief Executive Officer
Renato Fuchs, Ph.D. 52 Senior Vice President, Manufacturing and
Development Operations
William G. Green, Esq. 50 Senior Vice President, Secretary and
General Counsel
David W. Martin, M.D. 54 Senior Vice President; President, Chiron
Therapeutics
Pablo D.T. Valenzuela, Ph.D. 53 Senior Vice President, Biologicals
Research and Development
Lewis T. Williams, M.D., Ph.D. 46 Senior Vice President, Research and
Development; President, Chiron
Technologies
Dennis L. Winger 47 Senior Vice President, Finance and
Administration and Chief Financial
Officer
Robert P. Blackburn, Esq. 38 Vice President and Chief Patent Counsel
Rajen K. Dalal 41 Vice President, Corporate Planning
Dino Dina, M.D. 48 Vice President, Virology and Vaccine
Development; President, The Biocine
Company
William G. Gerber, M.D. 48 Vice President; President, Chiron
Diagnostics
Alain Herrera, M.D. 44 Vice President; President, Chiron
Therapeutics Europe
William J. Link, Ph.D. 48 Vice President; Chief Executive Officer,
Chiron Vision
Mario Lorenzoni 53 Vice President; Chief Executive Officer,
Biocine SpA
Bernardita Mendez, Ph.D. 42 Vice President, Regulatory and Quality
Affairs
Walter H. Moos, Ph.D. 40 Vice President, Chemical Therapeutics
Research and Development
Mickey S. Urdea, Ph.D. 42 Vice President, Nucleic Acid Systems
Research and Development
C. William Zadel 51 Vice President; President, Ciba Corning
Diagnostics Corp.
</TABLE>
13
<PAGE>
DR. RUTTER was a co-founder of the Company and has served as its Chairman of
the Board since the Company's inception in 1981. He was Director of the Hormone
Research Institute at the University of California, San Francisco Medical
Center, from 1983 to May 1989 and has been on the faculty at the University of
California, San Francisco, since 1969, becoming Professor Emeritus in 1991.
DR. PENHOET, a co-founder of the Company, has been Chief Executive Officer
and a Director since the Company's inception in 1981, and was President from
1981 to 1989 and Vice Chairman from 1989 until 1993. Dr. Penhoet reassumed the
title of President effective April 1, 1993. He has been a faculty member at the
University of California, Berkeley, for 21 years.
DR. FUCHS joined the Company as Senior Vice President, Manufacturing and
Development Operations in 1993. From 1988 until joining Chiron, he was with
Centocor, Inc., most recently as Senior Vice President of Pharmaceutical
Development.
MR. GREEN joined the Company as Vice President and General Counsel in
October 1990, having served as Secretary or Assistant Secretary since the
Company's inception in 1981. In February 1992, he became Senior Vice President,
Secretary and General Counsel. From 1981 to 1990, he was a partner in the San
Francisco law firm of Brobeck, Phleger & Harrison.
DR. MARTIN joined the Company as Senior Vice President and President of
Chiron Therapeutics in January 1994. From 1990 to 1993, he was Executive Vice
President, Research and Development, for Dupont Merck. From 1983 to 1990, he was
with Genentech, Inc., most recently as Senior Vice President, Research and
Development.
DR. VALENZUELA, a co-founder of the Company, became Senior Vice President in
March 1989 having served as Vice President and Director of Research since the
Company's inception in 1981. He was associated with the University of
California, San Francisco, and also has held adjunct faculty positions at
Catholic University in Santiago, Chile.
DR. WILLIAMS joined the Company in August 1994 as Senior Vice President of
Research and Development and President of Chiron Technologies. From 1988 until
joining the Company, he was a professor of medicine at the University of
California, San Francisco. Prior to joining USCF, he was on the faculty of
Harvard Medical School. In addition, he was a co-founder and Director of COR
Therapeutics, Inc. from 1988 until joining the Company.
MR. WINGER joined the Company in August 1989 as Vice President, Finance and
Administration, and Chief Financial Officer. He became Senior Vice President,
Finance and Administration, and Chief Financial Officer, in February 1992. He
was Vice President and Chief Financial Officer of The Cooper Companies from 1987
to 1989.
MR. BLACKBURN joined the Company in April 1989 as Director of Intellectual
Property. He became Vice President and Chief Patent Counsel in February 1992.
Prior to joining the Company, he was a partner in the law firm of Ciotti &
Murashige, Irell & Manella.
MR. DALAL joined Chiron in December 1991 as Vice President, Corporate
Planning. From 1983 until joining Chiron, he was with the international
consulting firm of McKinsey & Company in the firm's pharmaceuticals, medical
devices and diagnostics industries practice.
DR. DINA joined the Company as Director of Virology in 1982. In November
1990, he became Vice President, Virology and Vaccine Development, and in
February 1993, Vice President, Virology and Vaccine Development and President,
The Biocine Company.
DR. GERBER joined Cetus in 1987 as Senior Director of Corporate Ventures,
becoming Vice President and General Manager, PCR Division, in 1988 and Senior
Vice President in September 1990. In December 1991, Dr. Gerber became Vice
President, and President, Chiron Diagnostics.
14
<PAGE>
DR. HERRERA was promoted to Vice President and President of Chiron
Therapeutics Europe in 1993. From 1991 until 1993, he was Managing Director of
the Company's EuroCetus office in France. From 1987 until joining Chiron, he was
Managing Director of Pierre Fabre Oncologie Laboratories.
DR. LINK joined the Company as President of Chiron Ophthalmics, Inc. in
February 1986. In November 1990, he became Vice President and in January 1992,
also became Chief Executive Officer, Chiron Vision.
MR. LORENZONI joined the Company in January 1995 as Vice President; and
Chief Executive Officer of Biocine SpA. Prior to joining the Company, he was
Chief Executive Officer of Biocine SpA since 1994 and Managing Director of
Biocine SpA since 1992. Prior to 1992, he was Vice Director of Ciba Italy.
DR. MENDEZ joined the Company in 1984 in Scientific Affairs following
post-doctoral studies at the University of California, Berkeley. She became
Director of Regulatory and Patent Affairs in 1987, Vice President, Regulatory
Affairs, in February 1992, and in February 1993 became Vice President,
Regulatory and Quality Affairs.
DR. MOOS joined Chiron in October 1991 as a Vice President of Research and
Development and Director of Chemical Therapeutics. He became Vice President,
Chemical Therapeutics Research and Development, in February 1992. From 1982
until joining Chiron, he was with the Parke-Davis Pharmaceutical Research
Division of the Warner-Lambert Company, where he last held the position of Vice
President, Neuroscience and Biological Chemistry. Dr. Moos has been an Adjunct
Professor of Pharmaceutical Chemistry at the University of California, San
Francisco since 1992.
DR. URDEA joined the Company in 1981 after a post-doctoral fellowship at the
University of California, San Francisco, and has directed nucleic acid
diagnostic efforts at Chiron since that time. He became Vice President, Nucleic
Acid Systems Research and Development, in February 1992.
MR. ZADEL joined the Company in January 1995 as Vice President and President
of Ciba Corning Diagnostics Corp. Prior to joining the Company he was President
and Chief Executive Officer of Ciba Corning Diagnostics Corp. since 1986.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information under the caption "Market Price of Common Stock" on page 38
of the 1994 Consolidated Financial Statements, which is included as Exhibit 13
to this Form 10-K Report, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
------------- ------------ ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Total revenues............................ $ 453,979 $ 317,535 $ 246,260 $ 141,498 $ 99,087
Other income (expense), net............... (10,403) 7,949 6,973 12,997 5,305
Income (loss) before extraordinary item... 18,325 18,384 (92,595) (444,650) 4,536
Net income (loss)......................... 18,325 18,384 (99,252) (444,650) 7,911
Income (loss) per share before
extraordinary item....................... 0.53 0.55 (3.07) (22.54) .26
Net income (loss) per share............... 0.53 0.55 (3.29) (22.54) .45
Weighted average shares outstanding....... 34,293 33,681 30,200 19,724 17,675
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
------------- ------------ ------------ ------------ -----------
(IN THOUSANDS, EXCEPT EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital........................... $ 314,174 $ 256,419 $ 250,874 $ 486,826 $ 156,279
Total assets.............................. 1,049,742 968,597 701,115 907,162 277,535
Long-term debt, excluding current
portion.................................. 338,061 332,991 110,681 247,466 126,116
Accumulated deficit....................... (575,236) (593,561) (611,945) (511,783) (67,133)
Stockholders' equity...................... 572,631 522,289 478,681 505,617 121,186
Number of employees......................... 2,668 2,179 1,867 1,706 733
</TABLE>
On January 8, 1992, Chiron combined with IntraOptics, Inc. in a transaction
accounted for as a pooling-of-interests. All periods have been restated for the
effects of this combination. On December 12, 1991, Chiron acquired Cetus in a
merger accounted for by the purchase method; therefore, the operating results of
Cetus are included from the date of the merger.
On May 10, 1994, Chiron acquired Laboratoires Domilens, S.A., in a
transaction accounted for by the purchase method; therefore, the operating
results of Domilens are included from the date of the transaction.
The Company has paid no cash dividends and does not expect to pay dividends
in the foreseeable future.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 1-11 of the 1994
Consolidated Financial Statements which is included as Exhibit 13 to this Form
10-K Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data on pages 12-37 of the 1994
Consolidated Financial Statements which is included as Exhibit 13 to this Form
10-K Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company's current reports on Form 8-K dated March 7, 1994 and March 25,
1994, are incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Election of Directors" and "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" in the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 18,
1995, is incorporated herein by reference.
Information as to Chiron's executive officers appears at the end of Part I
of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" in the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 18, 1995, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Principal Stockholders" and "Security
Ownership of Management" in the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 18, 1995, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions "Related Transactions" and "Compensation
Committee Interlocks and Insider Participation" in the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 18, 1995, is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements appearing on pages 12-37 of the 1994 Consolidated Financial
Statements, which is included as Exhibit 13 to this Form 10-K Report and the
Reports of Independent Auditors appearing on pages 26 and 27 of this Form 10-K,
are incorporated herein by reference.
17
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted, since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
(b) REPORTS ON FORM 8-K
Chiron filed a current report on Form 8-K dated November 10, 1994, reporting
under Item 5:
(1) the issuance of a press release announcing that the Company
confirmed that it is in discussions with another company regarding a
potential strategic alliance that would include the other company acquiring
a very substantial minority equity investment in the Company; and
(2) the issuance of a press release announcing that the Company, on
behalf of its vaccine joint businesses with Ciba, entered into a letter
agreement, subject to Federal Trade Commission approval, with American Home
Products Corporation ("AHP") to purchase AHP's tetanus and diphtheria
vaccine products.
Chiron filed a current report on Form 8-K dated November 20, 1994, reporting
under Item 5 that the Company and Ciba-Geigy Ltd. announced the signing of
definitive agreements to form a strategic biotechnology collaboration that
includes the acquisition by Ciba of a 49.9 percent interest in the Company.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
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.
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.
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 Registrants 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 Registrant's
report on Form 8-K dated August 25, 1994.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 Registrant's
report on Form 8-K, dated November 20, 1994.
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 Office Sublease between Sybase, Inc., a California corporation, and Registrant, dated July 18, 1991,
incorporated by reference to Exhibit 10.03 of the Registrant's Form 10-K report for fiscal year 1992.
10.04 Lease between Registrant and Bay Center Associates, a California limited partnership, dated as of June
5, 1987, incorporated by reference to Exhibit 10.33 of Registrant's Form 10-K report for fiscal year
1987.
10.05 Amendment to lease between Registrant and Bay Center Associates, a California limited partnership, dated
February 4, 1988, incorporated by reference to Exhibit 10.05 of the Registrant's Form 10-Q report for
the period ended September 30, 1994.
10.06 Amendment to lease between Registrant and J S Bay Center Associates, a California limited partnership,
dated December 1, 1994.
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 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.
10.09 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.
10.10 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.
10.11 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.
10.12 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.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 Chiron 1991 Stock Option Plan, as amended.*
10.18 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.*
10.19 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.*
10.20 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.*
10.21 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 report on Form 8-K dated October 14, 1991.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.27 Shareholders Agreement, dated as of February 28, 1992, by and among Chiron Corporation, CIBA-GEIGY
Limited and JV VAX B.V., incorporated by reference to Exhibit 10.40 of Registrant's Form 10-K report
for fiscal year 1991.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.
10.36 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.*
10.37 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.*
10.38 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.
10.39 Amendment to Lease, dated as of March 20, 1990, amending Lease dated as of July 1, 1983, incorporated by
reference to Exhibit 10(b) of Cetus Corporation's Form 10-K report for its fiscal year 1990.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.40 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).
10.41 Agreement commencing January 1, 1991, between Euro Cetus B.V. and the Municipal Development Corporation
(Translation).
10.42 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.
10.43 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.
10.44 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.
10.45 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.
10.46 Lease entered into as of November 15, 1993 between Hollis R&D Associates, a California General
Partnership, and Registrant, incorporated by reference to Exhibit 10.35 of the Registrant's Form 10-K
report for fiscal year 1993.
10.47 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.
10.48 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.
10.49 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.
10.50 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.*
10.51 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.*
10.52 Letter Agreement dated May 7, 1992 between Registrant and Donald A. Glaser, incorporated by reference to
Exhibit 10.43 of the Registrant's Form 10-K report for fiscal year 1992.*
10.53 Letter Agreement dated March 12, 1993 between the Registrant and William G. Gerber, incorporated by
reference to Exhibit 10.46 of the Registrant's Form 10-K report for fiscal year 1992.*
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.54 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.*
10.55 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.*
10.56 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.*
10.57 Letter Agreement between Registrant and David Martin, dated December 2, 1993, incorporated by reference
to Exhibit 10.48 of the Registrant's Form 10-K report for fiscal year 1993.*
10.58 Description of Executive Variable Compensation Program.*
10.59 Chiron Corporation Executive Bonus Plan.*
10.60 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 Form 8-K report dated February 9, 1994.
10.61 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.
10.62 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.
10.63 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.
10.64 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.*
10.65 Letter dated January 4, 1995 to C. William Zadel.*
10.66 Letter to Dino Dina dated April 24, 1984.*
11 Statement of Computation of Earnings per Share.
13 Consolidated Financial Statements.
21 List of Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors. Reference is made to page 28 of this Form 10-K
report.
23.2 Consent of Ernst & Young LLP, Independent Auditors. Reference is made to page 29 of this Form 10-K
report.
24 Power of Attorney. Reference is made to pages 24-25 of this Form 10-K report.
<FN>
- ------------------------
* Management contract, compensatory plan or arrangement.
</TABLE>
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 17, 1995
CHIRON CORPORATION
By /s/ EDWARD E. PENHOET
-----------------------------------
Edward E. Penhoet, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Chiron Corporation do hereby
constitute and appoint Edward E. Penhoet, Ph.D., and William J. Rutter, Ph.D.,
and each of them, the lawful attorney and agent or attorneys and agents with
power and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, determine may be
necessary or advisable or required to enable Chiron Corporation to comply with
the Securities Exchange Act of 1934, as amended, and any rules or regulations or
requirements of the Securities and Exchange Commission in connection with this
Form 10-K Report. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
this Form 10-K report or amendments or supplements thereto, and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents or
either of them, shall do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
24
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his name.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
<C> <S> <C>
/s/ EDWARD E. PENHOET
- ----------------------------------- President and Chief March 17, 1995
Edward E. Penhoet, Ph.D. Executive Officer
Senior Vice President,
Finance and
/s/ DENNIS L. WINGER Administration, Chief
- ----------------------------------- Financial Officer, and March 17, 1995
Dennis L. Winger Principal Accounting
Officer
/s/ WILLIAM J. RUTTER
- ----------------------------------- Chairman of the Board of March 17, 1995
William J. Rutter, Ph.D. Directors
/s/ GILBERT AMELIO
- ----------------------------------- Director March 17, 1995
Gilbert Amelio, Ph.D.
/s/ LEWIS W. COLEMAN
- ----------------------------------- Director March 17, 1995
Lewis W. Coleman
/s/ PIERRE DOUAZE
- ----------------------------------- Director March 17, 1995
Pierre Douaze
/s/ DONALD A. GLASER
- ----------------------------------- Director March 17, 1995
Donald A. Glaser, Ph.D.
/s/ ALEX KRAUER
- ----------------------------------- Director March 17, 1995
Alex Krauer, Ph.D.
/s/ FRANCOIS L'EPLATTENIER
- ----------------------------------- Director March 17, 1995
Francois L'Eplattenier, Ph.D.
/s/ HENRI SCHRAMEK
- ----------------------------------- Director March 17, 1995
Henri Schramek, Ph.D.
/s/ JACK W. SCHULER
- ----------------------------------- Director March 17, 1995
Jack W. Schuler
/s/ PIETER J. STRIJKERT
- ----------------------------------- Director March 17, 1995
Pieter J. Strijkert, Ph.D.
</TABLE>
25
<PAGE>
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Chiron Corporation:
We have audited the accompanying consolidated balance sheet of Chiron
Corporation and subsidiaries as of December 31, 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chiron
Corporation and subsidiaries as of December 31, 1994, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Francisco, California
February 17, 1995
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Chiron Corporation:
We have audited the consolidated balance sheet of Chiron Corporation as of
December 31, 1993, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1993 and
1992, included in the 1994 Consolidated Financial Statements of Chiron
Corporation included as Exhibit 13. Our audits also included the financial
statement schedule of Chiron Corporation for the years ended December 31, 1993
and 1992, listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Chiron Corporation at December 31, 1993, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1993 and 1992, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
San Francisco, California
February 25, 1994
27
<PAGE>
CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(File Numbers 33-20181, 33-35182, 2-90595, 33-44477, 33-65024, 33-23899, and
33-45822 on Form S-8 and File Number 33-43574 on Form S-3) of Chiron and in the
related prospectuses of our report dated February 17, 1995, relating to the
consolidated balance sheet of Chiron Corporation and subsidiaries as of December
31, 1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended and the related schedule, which
report appears in the December 31, 1994 annual report on Form 10-K of Chiron
Corporation.
KPMG Peat Marwick LLP
San Francisco, California
March 14, 1995
28
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8, File Numbers 33-20181, 33-35182, 2-90595, 33-44477, 33-23899,
33-65024, 33-45822 and Form S-3 File Number 33-43574) pertaining to the Chiron
Corporation 1991 Stock Option Plan, the 1988 Employee Stock Purchase Plan, The
IntraOptics, Inc. 1986 Incentive Stock Option Plan, as amended, the 1982 Stock
Option Plan and the shares issuable to certain warrant holders and in the
related prospectuses of our report dated February 25, 1994, with respect to the
1993 and 1992 consolidated financial statements and schedule of Chiron
Corporation included and incorporated herein by reference in this Annual Report
(Form 10-K) of Chiron Corporation for the year ended December 31, 1994.
ERNST & YOUNG LLP
San Francisco, California
March 13, 1995
29
<PAGE>
CHIRON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGES OF 1994
CONSOLIDATED
FINANCIAL
STATEMENTS
INCORPORATED FORM 10-K
BY REFERENCE PAGE
------------- -----------
<S> <C> <C>
Financial Statements and Notes............................................. 1-37 --
Report of KPMG Peat Marwick LLP............................................ -- 26
Report of Ernst & Young LLP................................................ -- 27
Schedule II -- Valuation and Qualifying Accounts........................... -- 31
</TABLE>
30
<PAGE>
CHIRON CORPORATION
SCHEDULE II VALUATION AND
QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES OTHER DEDUCTIONS RECLASSIFICATIONS YEAR
- --------------------------------- ----------- ----------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1994:
Accounts receivable............ $ 5,194 $ 5,880 $ 2,424(1) $ (4,880 ) $ (1,408)(2) $ 7,210
1993:
Accounts receivable............ 2,525 4,012 -- (1,343 ) -- 5,194
1992:
Accounts receivable............ 1,602 2,296 -- (1,373 ) -- 2,525
<FN>
- ------------------------
(1) Represents accounts receivable allowances as of the acquisition date
related to an acquired business.
(2) Represents amounts reclassified to other current liabilities.
</TABLE>
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
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
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
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 Registrants 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 Registrant's
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 Registrant's
report on Form 8-K, dated November 20, 1994
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 Office Sublease between Sybase, Inc., a California corporation, and Registrant, dated July 18, 1991,
incorporated by reference to Exhibit 10.03 of the Registrant's Form 10-K report for fiscal year 1992
10.04 Lease between Registrant and Bay Center Associates, a California limited partnership, dated as of June
5, 1987, incorporated by reference to Exhibit 10.33 of Registrant's Form 10-K report for fiscal year
1987
10.05 Amendment to lease between Registrant and Bay Center Associates, a California limited partnership, dated
February 4, 1988, incorporated by reference to Exhibit 10.05 of the Registrant's Form 10-Q report for
the period ended September 30, 1994
10.06 Amendment to lease between Registrant and J S Bay Center Associates, a California limited partnership,
dated December 1, 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 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
10.09 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
10.10 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
10.11 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
10.12 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
10.13 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
10.14 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
10.15 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
10.16 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
10.17 Chiron 1991 Stock Option Plan, as amended*
10.18 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*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.19 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*
10.20 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*
10.21 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 report on Form 8-K dated October 14, 1991
10.22 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
10.23 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
10.24 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
10.25 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
10.26 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
10.27 Shareholders Agreement, dated as of February 28, 1992, by and among Chiron Corporation, CIBA-GEIGY
Limited and JV VAX B.V., incorporated by reference to Exhibit 10.40 of Registrant's Form 10-K report
for fiscal year 1991
10.28 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
10.29 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
10.30 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
10.31 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.32 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
10.33 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
10.34 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
10.35 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
10.36 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*
10.37 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*
10.38 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
10.39 Amendment to Lease, dated as of March 20, 1990, amending Lease dated as of July 1, 1983, incorporated by
reference to Exhibit 10(b) of Cetus Corporation's Form 10-K report for its fiscal year 1990
10.40 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)
10.41 Agreement commencing January 1, 1991, between Euro Cetus B.V. and the Municipal Development Corporation
(Translation)
10.42 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
10.43 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
10.44 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.45 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
10.46 Lease entered into as of November 15, 1993 between Hollis R&D Associates, a California General
Partnership, and Registrant, incorporated by reference to Exhibit 10.35 of the Registrant's Form 10-K
report for fiscal year 1993
10.47 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
10.48 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
10.49 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
10.50 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*
10.51 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*
10.52 Letter Agreement dated May 7, 1992 between Registrant and Donald A. Glaser, incorporated by reference to
Exhibit 10.43 of the Registrant's Form 10-K report for fiscal year 1992*
10.53 Letter Agreement dated March 12, 1993 between the Registrant and William G. Gerber, incorporated by
reference to Exhibit 10.46 of the Registrant's Form 10-K report for fiscal year 1992*
10.54 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*
10.55 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*
10.56 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*
10.57 Letter Agreement between Registrant and David Martin, dated December 2, 1993, incorporated by reference
to Exhibit 10.48 of the Registrant's Form 10-K report for fiscal year 1993*
10.58 Description of Executive Variable Compensation Program*
10.59 Chiron Corporation Executive Bonus Plan*
10.60 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 Form 8-K report dated February 9, 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.61 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
10.62 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
10.63 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
10.64 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*
10.65 Letter dated January 4, 1995 to C. William Zadel*
10.66 Letter to Dino Dina dated April 24, 1984*
11 Statement of Computation of Earnings per Share
13 Consolidated Financial Statements
21 List of Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors. Reference is made to page 28 of this Form 10-K
report
23.2 Consent of Ernst & Young LLP, Independent Auditors. Reference is made to page 29 of this Form 10-K
report
24 Power of Attorney. Reference is made to pages 24-25 of this Form 10-K report
<FN>
- ------------------------
* Management contract, compensatory plan or arrangement.
</TABLE>
<PAGE>
EXHIBIT 3.03
CHIRON CORPORATION
AMENDED BYLAWS INDEX
<TABLE>
<S> <C> <C> <C>
ARTICLE I OFFICES.............................................................................. 1
1.1 Registered Office......................................................... 1
1.2 Other Offices............................................................. 1
1.3 Governance Agreement...................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS............................................................ 1
2.1 Place..................................................................... 1
2.2 Annual Meetings........................................................... 1
2.3 Annual Meeting Notice..................................................... 1
2.4 List of Stockholders Entitled to Vote..................................... 1
2.5 Special Meetings.......................................................... 1
2.6 Special Meeting Notice.................................................... 2
2.7 Special Meeting Business.................................................. 2
2.8 Quorum and Adjourned Meetings............................................. 2
2.9 Votes Required............................................................ 2
2.10 Voting.................................................................... 2
2.11 Consent to Shareholder Action............................................. 2
2.12 Nomination of Directors................................................... 2
2.13 Stockholder Proposal...................................................... 3
ARTICLE III BOARD OF DIRECTORS................................................................. 3
3.1 Number, Tenure and Qualification.......................................... 3
3.2 Vacancies................................................................. 3
3.3 Powers.................................................................... 3
3.4 Place of Meetings......................................................... 3
3.5 First Meeting............................................................. 3
3.6 Regular Meetings.......................................................... 4
3.7 Special Meetings.......................................................... 4
3.8 Quorum.................................................................... 4
3.9 Action without Meeting.................................................... 4
3.10 Participation by Telephone................................................ 4
3.11 Committees................................................................ 4
3.12 Committee Minutes......................................................... 4
3.13 Compensation of Directors................................................. 4
3.14 Removal of Directors...................................................... 5
3.15 Approval Required for Certain Actions..................................... 5
3.16 Strategic Planning Process................................................ 5
3.17 Operating Planning Process................................................ 5
3.18 Measurement Standards..................................................... 5
ARTICLE IV NOTICES............................................................................. 5
4.1 Delivery.................................................................. 5
4.2 Waiver.................................................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
ARTICLE V OFFICERS............................................................................. 5
5.1 Number.................................................................... 5
5.2 Appointment............................................................... 6
5.3 Other Officers............................................................ 6
5.4 Salaries.................................................................. 6
5.5 Term; Vacancies........................................................... 6
5.6 Chairman.................................................................. 6
5.7 Vice Chairman............................................................. 6
5.8 President................................................................. 6
5.9 Execution of Documents.................................................... 6
5.10 Vice President............................................................ 6
5.11 Secretary................................................................. 6
5.12 Assistant Secretary....................................................... 7
5.13 Treasurer................................................................. 7
5.14 Disbursement of Funds; Reports............................................ 7
5.15 Bond...................................................................... 7
5.16 Assistant Treasurer....................................................... 7
ARTICLE VI CERTIFICATES OF STOCK............................................................... 7
6.1 Certificate of Stock...................................................... 7
6.2 Facsimile Signatures...................................................... 8
6.3 Lost Certificates......................................................... 8
6.4 Transfer of Stock......................................................... 8
6.5 Fixing Record Date........................................................ 8
6.6 Registered Stockholders................................................... 8
ARTICLE VII GENERAL PROVISIONS................................................................. 8
7.1 Dividends................................................................. 8
7.2 Reserves.................................................................. 9
7.3 Checks.................................................................... 9
7.4 Fiscal Year............................................................... 9
7.5 Seal...................................................................... 9
7.6 Indemnification........................................................... 9
7.7 Books and Records......................................................... 9
ARTICLE VIII AMENDMENTS........................................................................ 9
</TABLE>
ii
<PAGE>
AMENDED BYLAWS
OF
CHIRON CORPORATION
ARTICLE I
OFFICES AND OTHER ARRANGEMENT
1.1 REGISTERED OFFICE. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
1.3 GOVERNANCE AGREEMENT. The Corporation is party to that certain
Governance Agreement dated as of November 20, 1994 (as the same shall be amended
from time to time, the "Governance Agreement") among CIBA-GEIGY Limited, a
corporation organized under the laws of Switzerland, Ciba-Geigy Corporation, a
New York corporation, and the Corporation. The Governance Agreement contains
certain provisions regarding the ongoing governance and operations of the
Corporation, which are incorporated in these Bylaws as provided below. All
capitalized terms used in these Bylaws and not otherwise defined herein shall
have the meanings assigned to them in the Governance Agreement.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1. PLACE. All meetings of the stockholders for the election of directors
shall be held in the City of Emeryville, State of California, at such place as
may be fixed from time to time by the Board of Directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
2.2 ANNUAL MEETINGS. Annual meetings of stockholders shall be held on the
third Thursday in May if not a legal holiday, and, if a legal holiday, then on
the next secular day following, at 10:00 A.M., or such other date and time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, at which the stockholders shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
2.3 ANNUAL MEETING NOTICE. Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting.
2.4 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.5 SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors. Such request shall state the purpose or purposes of the
proposed meeting.
<PAGE>
2.6 SPECIAL MEETING NOTICE. Written notice of a special meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
2.7 SPECIAL MEETING BUSINESS. Business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
2.8 QUORUM AND ADJOURNED MEETINGS. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat who are present in person or represented
by proxy shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.9 VOTES REQUIRED. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
provided, however, that the vote of the holders of a majority of the stock
having voting power present in person or represented by proxy and actually
voting on the merits of the question and not abstaining or withholding authority
to vote shall decide the election of any director and any question submitted for
a vote by act of the Board of Directors, pursuant to Section 3.8 of the By-laws
provided, further, however, that if the question is one upon which by express
provision of law or of the Certificate of Incorporation or these By-laws, a
different vote is required, such express provision shall govern and control the
decision of such question.
2.10 VOTING. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
2.11 CONSENT TO SHAREHOLDER ACTION. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
2.12 NOMINATION OF DIRECTORS. Nominations for election to the Board of
Directors must be made by the Board of Directors or by any stockholder of any
outstanding class of capital stock of the Corporation entitled to vote for the
election of directors. Nominations, other than those made by the Board of
Directors of the Corporation, must be preceded by notification in writing in
fact received by the Secretary of the Corporation not less than twenty (20) days
prior to any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the following information as to each proposed
nominee and as to each person, acting alone or in conjunction with one or more
other persons as a partnership,
2
<PAGE>
limited partnership, syndicate or other group, who participates or is expected
to participate in making such nomination or in organizing, directing or
financing such nomination or solicitation of proxies to vote for the nominee.
2.13 STOCKHOLDER PROPOSALS. Proposals regarding matters other than
nomination of directors and other than those made by the Board of Directors of
the Corporation, must be preceded by notification in writing in fact received by
the Secretary of the Corporation not less than twenty (20) days prior to any
annual meeting of stockholders. Such notification shall contain the following
information as to the proposed action:
(a) a description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting,
(b) the name and address as they appear on the corporation's books of
the stockholder proposing such business,
(c) the class and number of shares of the corporation which are
beneficially owned by such stockholder, and
(d) any material interest of such stockholder in such business.
The presiding officer of the meeting shall have the authority to determine
and declare to the meeting that a matter not preceded by notification made in
accordance with the foregoing procedure shall be disregarded.
ARTICLE III
BOARD OF DIRECTORS
3.1 NUMBER, TENURE AND QUALIFICATION. The number of directors which shall
constitute the whole board shall be eleven (11). Section 2.01 of the Governance
Agreement sets forth certain provisions regarding the number, tenure and
qualification of directors, which provisions are incorporated herein and made a
part of these Bylaws. Subject to said Section 2.01 and except as otherwise
provided in Section 3.2 of this Article III, the number of directors shall be
determined by resolution of the Board of Directors or by the stockholders at the
annual meeting of the stockholders, and each director elected shall hold office
until his or her successor is elected and qualified or until his earlier
resignation, removal from office, death or incapacity. Directors need not be
stockholders.
3.2 VACANCIES. Section 2.01 of the Governance Agreement sets forth certain
provisions regarding filling vacancies and newly created directorships on the
Board of Directors, which provisions are incorporated herein and made a part of
these Bylaws. All vacancies and newly created directorships shall be filled in
accordance with the terms of said Section 2.01.
3.3 POWERS. The business of the Corporation shall be managed by or under
the direction of its Board of Directors, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these Bylaws directed or required to
be exercised or done by the stockholders.
3.4 PLACE OF MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
3.5 FIRST MEETING. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
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3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board.
3.7 SPECIAL MEETINGS. Special meetings of the Board may be called by the
President on four (4) days' notice to each director by mail or forty-eight (48)
hours' notice to each director either personally or by telegram; special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of two (2) directors unless the Board
consists of only one director, in which case special meetings shall be called by
the President or Secretary in like manner and on like notice on the written
request of the sole director.
3.8 QUORUM. At all meetings of the Board a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
3.9 ACTION WITHOUT MEETING.
(a) Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
(b) Section 2.03(d) of the Governance Agreement sets forth certain
provisions regarding the requirement that action by the committees of the
Board of Directors be taken at a meeting thereof, which provisions are
incorporated herein and made a part of these Bylaws.
3.10 PARTICIPATION BY TELEPHONE. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
3.11 COMMITTEES. Section 2.03 of the Governance Agreement provides that
the following committees of the Board of Directors shall be formed and
administered: (i) an Audit Committee; (ii) a Nominating Committee; (iii) a
Strategic Planning Committee; (iv) a Compensation Committee; and (v) a Stock
Option Plan Administration Committee. Such committees of the Board of Directors
shall be formed, maintained and administered in accordance with the terms of
said Section 2.03 of the Governance Agreement, which provisions are incorporated
herein and made a part of these Bylaws. All committees of the Board of Directors
not specifically provided for in said Section 2.03 shall be constituted in
accordance with Section 2.03(c) of the Governance Agreement.
3.12 COMMITTEE MINUTES. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
3.13 COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
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3.14 REMOVAL OF DIRECTORS. Section 2.01 of the Governance Agreement sets
forth certain provisions regarding the number, tenure and qualification of
directors, which provisions are incorporated herein and made a part of these
Bylaws. Subject to said Section 2.01 and unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any director or the entire Board
of Directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors.
3.15 APPROVAL REQUIRED FOR CERTAIN ACTIONS. Section 2.04 of the Governance
Agreement sets forth certain approval rights for Ciba and the Investor Directors
with respect to certain actions proposed to be taken or affected by the
Corporation or any of its Subsidiaries. Neither the Corporation nor any of its
Subsidiaries shall take or effect any of such actions without having first
obtained such approvals.
3.16 STRATEGIC PLANNING PROCESS. Section 2.10 of the Governance Agreement
sets forth certain provisions regarding the preparation from time to time of a
three-year Strategic Plan by the management of the Corporation and the
consideration and approval of such Strategic Plan by the Board of Directors,
which provisions are incorporated herein and made a part of these Bylaws.
3.17 OPERATING PLANNING PROCESS. Section 2.11 of the Governance Agreement
sets forth certain provisions regarding the preparation from time to time of an
Operating Plan by the management of the Corporation and the consideration and
approval of such Operating Plan by the Board of Directors, which provisions are
incorporated herein and made a part of these Bylaws.
3.18 MEASUREMENT STANDARDS. Section 2.12 of the Governance Agreement sets
forth certain provisions regarding the adoption of Measurement Standards by the
Board of Directors for each fiscal year. In addition, such Section 2.12 sets
forth certain provisions regarding approval rights and procedures to be followed
in the event that Measurement Standards shall not have been approved by the
Board of Directors in a timely manner or in the event that the Management
Standards shall not have been met at any time by the Corporation. Said
provisions are incorporated herein and made a part of these Bylaws.
ARTICLE IV
NOTICES
4.1 DELIVERY. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail addressed to such
director or stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
4.2 WAIVER. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
5.1 NUMBER. The officers of the Corporation shall be chosen by the Board
of Directors and shall be a President and a Secretary. The Board of Directors
may elect from among its members a Chairman of the Board and a Vice Chairman of
the Board. The Board of Directors may also choose one or more Vice Presidents,
Assistant Secretaries, Treasurers, and Assistant Treasurers. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these Bylaws otherwise provide.
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5.2 APPOINTMENT. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a President and a Secretary and may
choose a Vice President and a Treasurer. Nothing in these Bylaws shall limit the
authority of the Board of Directors to determine from time to time the powers
and duties of any officer, employee or agent of the Corporation.
5.3 OTHER OFFICERS. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.4 SALARIES. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
5.5 TERM; VACANCIES. The officers of the Corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation may only be filled by the Board of Directors.
5.6 CHAIRMAN. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors at which the Chairman shall be present. The
Chairman shall have and may exercise such powers as are, from time to time,
assigned to the Chairman by the Board of Directors and as may be provided by
law.
5.7 VICE CHAIRMAN. The Vice Chairman shall be the Chief Executive Officer
of the Corporation and shall have and may exercise such powers as are from time
to time assigned to the Vice Chairman by the Board of Directors and as may be
provided by law. In the absence of the Chairman of the Board, the Vice Chairman
of the Board shall preside at all meetings of the Board of Directors at which
the Vice Chairman shall be present.
5.8 PRESIDENT. The President shall be the Chief Operating Officer of the
Corporation and may exercise such powers as are, from time to time, assigned to
the President by the Vice Chairman. In the absence of the Vice Chairman or in
the event of the Vice Chairman's inability or refusal to act, the President
shall perform the duties of the Vice Chairman, and when so acting, shall have
all the powers of and be subject to all of the restrictions upon the Vice
Chairman.
5.9 EXECUTION OF DOCUMENTS. The Vice Chairman shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
5.10 VICE PRESIDENT. In the absence of the Vice Chairman and the President
or in the event that both of them are unable or refuse to act, the Vice
President, if any (or in the event there be more than one Vice President, the
Vice Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election), shall perform
the duties of the Vice Chairman, and when so acting, shall have all of the
powers of and be subject to all of the restrictions upon the Vice Chairman. The
Vice President shall perform such other duties and shall have such other powers
as the Vice Chairman may from time to time prescribe.
5.11 SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision the Secretary shall be. The Secretary
shall have custody of the corporate seal of the Corporation and the
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Secretary, or an Assistant Secretary, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by the
Secretary's signature or by the signature of such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by such officer's signature.
5.12 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Vice Chairman may from time to time prescribe.
5.13 TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
5.14 DISBURSEMENT OF FUNDS; REPORTS. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
the Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation.
5.15 BOND. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of that office and for the
restoration to the Corporation, in case of the Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in possession or under control of the Treasurer
belonging to the Corporation.
5.16 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Vice Chairman may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
6.1 CERTIFICATE OF STOCK. Every holder of stock in the Corporation shall
be entitled to have a certificate, signed by, or in the name of the Corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President or
a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the Corporation shall be authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the
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foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
6.2 FACSIMILE SIGNATURES. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
6.3 LOST CERTIFICATES. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or such
owner's legal representative, to advertise the same in such manner as it shall
require and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
6.4 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.5 FIXING RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
The record date for determining stockholders entitled to give consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which the first written consent
is given. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting:
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
6.6 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as the owner of shares
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE VII
GENERAL PROVISIONS
7.1 DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation.
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7.2 RESERVES. Before payments of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
7.3 CHECKS. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
7.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
7.5 SEAL. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the Corporation and the year of its organization.
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
7.6 INDEMNIFICATION. The Corporation shall indemnify to the full extent
permitted by, and in the manner permissible under, the laws of the State of
Delaware any person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person, his testator or intestate is or was a director of
the Corporation or any predecessor of the Corporation, or served any other
enterprise as a director or officer at the request of the corporation or any
predecessor of the Corporation. Expenses incurred by a director of the
Corporation in defending a civil or criminal action, suit or proceeding by
reason of the fact that such director is or was a director of the Corporation
(or was serving at the Corporation's request as a director or officer of another
corporation) shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director to repay such amount if it shall ultimately be
determined that such director is not entitled to be indemnified by the
Corporation as authorized by relevant sections of the General Corporation Law of
Delaware.
The foregoing provisions of this Article VII shall be deemed to be a
contract between the Corporation and each director who serves in such capacity
at any time while this Bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of the
Corporation to indemnify any person, other than a director, made a party to any
action, suit or proceeding by reason of the fact that such person, his testator
or intestate, is or was an officer or employee of the Corporation.
The foregoing rights of indemnification shall not be deemed exclusive of any
other rights to which any director or officer may be entitled apart from the
provisions of this Article VII.
7.7 BOOKS AND RECORDS. Any stockholder or any director shall have the
right to inspect the books and records of the Corporation to the full extent
permitted by, and subject to the terms and conditions of, the General
Corporation Law of Delaware.
ARTICLE VIII
AMENDMENTS
8.1 These Bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such
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alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the Certificate of Incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws. Notwithstanding any provision in these Bylaws to the contrary, in
no event so long as the Governance Agreement shall be in effect shall any
provision of these Bylaws be altered, amended or repealed or new bylaws adopted
by the stockholders or by the Board of Directors in a manner that would be
inconsistent with the terms and conditions of the Governance Agreement.
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EXHIBIT 10.06
THIRD AMENDMENT TO STANDARD OFFICE LEASE
THIS THIRD AMENDMENT TO STANDARD OFFICE LEASE (the "Amendment") is entered
into as of this 1st day of December 1994, by and between JS BAY CENTER
ASSOCIATES, a California limited partnership, successor to Bay Center
Associates, a California limited partnership ("Landlord") and CHIRON
CORPORATION, a Delaware corporation ("Tenant").
R E C I T A L S:
This Amendment is made and delivered upon the following facts,
understandings and intentions of the parties. Terms used in these Recitals are
defined elsewhere in this Amendment.
A. Landlord and Tenant are the Landlord and Tenant, respectively, under that
certain Standard Office Lease, dated June 5, 1987, as amended by that certain
First Amendment to Standard Office Lease (the "First Amendment"), dated February
4, 1988, and as further amended by that certain Second Amendment to Standard
Office Lease (the "Second Amendment"), dated September 18, 1992, by which
Landlord demises to Tenant that certain building commonly known as 6455 Christie
Avenue, Emeryville, California, more particularly described therein. Said
Standard Office Lease, as so amended, shall hereinafter be referred to as the
"Lease".
B. Landlord and Tenant now agree to further modify the Lease in order to
extend the Term, establish a new rental rate (and provide for a future
adjustment thereto), and make certain changes with respect to Operating Expenses
and the payment by Tenant of Tenant's Share thereof, all as more particularly
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in the Lease and hereinbelow in this Amendment, and for other good and
valuable consideration, receipt of which is hereby acknowledged, Landlord and
Tenant do hereby agree as follows:
1. DEFINITIONS. Terms defined in the Lease, when used in this Amendment,
shall have the same meaning as set forth in the Lease.
2. MODIFICATION OF BASIC LEASE INFORMATION. The Basic Lease Information
attached to and incorporated into the Lease is hereby amended in certain
respects as follows:
2.1 TERM. The Term is hereby changed to a period of thirteen (13) years
and sixteen (16) days ending on September 30, 2000.
2.2 ANNUAL BASE RENT AND MONTHLY BASE RENT. The provision specifying the
Annual Base Rent and the Monthly Base Rent are hereby modified by the addition
thereto of the following:
"The Annual Base Rent for each lease year beginning on September 15, 1992
and continuing through December 31, 1994 shall be One Million Seven Hundred
Seventy-Eight Thousand Nine Hundred Thirty-Eight and 20/100 Dollars
($1,778,938.20) (prorated for partial years); the Monthly Base Rent for each
month during said period shall be One Hundred Forty-Eight Thousand Two
Hundred Forty-Four and 85/100 Dollars ($148,244.85).
The Annual Base Rent for each lease year beginning on January 1, 1995 and
continuing through December 31, 1997 shall be One Million Four Hundred Forty
Thousand Dollars $1,440,000.00); the Monthly Base Rent for each month during
said period shall be One Hundred Twenty Thousand Dollars ($120,000.00)."
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2.3 RENT ESCALATIONS. The reference specified therein is hereby modified
so as to read in its entirety as follows:
"as set forth in Lease Rider 32 (and in Article 4.01 of the Lease (each as
modified by the Third Amendment to Standard Office Lease)"
2.4 OPTION TO RENEW. The option to renew specified therein is hereby
nullified and deleted and replaced with the word "None".
3. MODIFICATION OF ARTICLE 3.01 (COMMENCEMENT OF TERM). Article 3.01 of
the Lease is hereby amended so as to read in its entirety as follows:
"The Term shall be for a period equal to thirteen (13) years and sixteen
(16) days commencing on the Term Commencement Date as defined in Rider 29."
4. MODIFICATION OF ARTICLE 4.01 (BASE RENT). Article 4.01 of the Lease is
hereby amended by adding thereto between the first and second grammatical
sentences thereof of the following:
"Notwithstanding the foregoing, the Base Rent for each lease year beginning
on September 15, 1992 and continuing through December 31, 1994 shall be One
Million Seven Hundred Seventy-Eight Thousand Nine Hundred Thirty-Eight and
20/100 Dollars ($1,778,938.20) (prorated for partial years) payable in equal
monthly installments of One Hundred Forth-Eight Thousand Two Hundred
Forty-Four and 85/100 Dollars ($148,244.85). The Base Rent for each lease
year beginning on January 1, 1995 and continuing through December 31, 1997
shall be the sum of One Million Four Hundred Forty Thousand Dollars
($1,400,000.00) payable in equal monthly installments of One Hundred Twenty
Thousand Dollars ($120,000.00). The Base Rent for each lease year during the
period January 1, 1998 through September 30, 2000 shall be determined as
follows: the Consumer Price Index (All Urban Consumers) (Base Year 1982-1984
= 100) for the San Francisco-Oakland-San Jose CMSA published by the United
States Department of Labor, Bureau of Labor Statistics (the "Index") which
is published most immediately preceding January 1, 1998 (the "Extension
Index") shall be compared with the Index published most immediately
preceding January 1, 1995 (the "Beginning Index"). If the Extension Index
has increased over the Beginning Index, the Base Rent payable during each
lease year during the period January 1, 1998 through September 30, 2000
shall be determined by multiplying the Base Rent payable for each lease year
during the period January 1, 1995 through December 31, 1997 by a fraction,
the numerator of which is the Extension Index and the denominator of which
is the Beginning Index; provided, however, that in no event will the Base
Rent for each lease year during the period January 1, 1998 through September
30, 2000 be less than one hundred nine percent (109%) nor greater than one
hundred fifteen percent (115%) of the Base Rent for each lease year during
the period January 1, 1995 through December 31, 1997. If the Extension Index
is smaller than the Beginning Index, the Base Rent for each lease year
during the period January 1, 1998 through September 30, 2000 shall be an
amount equal to one hundred nine percent (109%) of the Base Rent for each
lease year during the period January 1, 1995 through December 31, 1997. As
soon as the Base Rent for each lease year during the period January 1, 1998
through September 30, 2000 is determined, Landlord shall give Tenant written
notice of the amount thereof. The Base Rent for each lease year during the
period January 1, 1998 through September 30, 2000 shall be payable in equal
monthly installments each in the amount of one-twelfth (1/12) of the Base
Rent.
If the Index is changed so that the Base Year differs from that used as of
October 1, 1994, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau
of Labor Statistics. If the Index is discontinued or revised prior to
January 1, 1998, such other government index or computation with which it is
replaced shall be used in order to obtain substantially the same result as
would be obtained if the Index had not been discontinued or revised. In no
event, however, will the Base Rent for each lease year during
<PAGE>
the period January 1, 1998 through September 30, 2000 be increased by less
than nine percent (9%) or more than fifteen percent (15%) over the Base Year
for each lease year during the period January 1, 1995 through December 31,
1997."
5. NULLIFICATION OF LEASE RIDER 2 (EXTENSION OPTION). Paragraph 2 of the
Lease Rider (i.e., Lease Rider 2) is hereby nullified and deleted. Tenant shall
have no option to extend the Term.
6. MODIFICATION OF LEASE RIDER 11 (LIMITATIONS ON OPERATING EXPENSES).
Paragraph 11 of the Lease Rider (i.e., Lease Rider 11) is hereby modified by
modifying Subparagraph (x) thereof so as to read in its entirety as follows:
"(x.) The cost of utilities which, at Landlord's election, are separately
metered and which Tenant pays directly to the utility provider (including,
without limitation, gas, electricity and the water furnished to Tenant for
use in its laboratories in the Premises, but not including domestic water
furnished to the Premises the cost of which shall be included in Operating
Expenses); and, from and after January 1, 1995, any cost for maintenance,
repair or replacement of the heating, ventilation and air conditioning
equipment and any cost of janitorial services or janitorial supplies for the
Premises (other than the periodic washing of the exterior windows of the
Premises)."
7. MODIFICATION OF LEASE RIDER 16 (UTILITIES). Paragraph 16 of the Lease
Rider (i.e., Lease Rider 16) is hereby amended by the addition thereto of the
following at the end of the existing text:
"Notwithstanding the foregoing, commencing on January 1, 1995 and continuing
thereafter through the balance of the Term, Landlord shall not be required
to pay to Tenant the Landlord's Portion or any other amount whatsoever of or
toward the charges for gas and electricity furnished to and used by Tenant
in the Premises; and Tenant shall be solely responsible for payment of all
such charges when due. Water furnished to Tenant for use in its laboratories
in the Premises (but not water furnished to Tenant for domestic purposes)
shall also be separately metered and put in Tenant's name and Tenant agrees
to pay when due all costs for such water directly to the water provider."
8. MODIFICATION OF LEASE RIDER 23 (TENANT'S RIGHT TO PROVIDE JANITORIAL
SERVICE). Paragraph 23 of the Lease Rider (i.e., Lease Rider 23) is hereby
amended by the addition thereto of the following at the end of the existing
text:
"Notwithstanding the foregoing, commencing on January 1 1995 and continuing
thereafter through the balance of the Term, Tenant shall, at its sole cost
and expense, provide its own janitorial services and janitorial supplies for
the Premises; and Landlord shall have no obligation to pay or reimburse any
sum or amount to Tenant as compensation for Tenant's taking over the
janitorial services responsibility for the Premises."
9. MODIFICATION OF LEASE RIDER 30 (ADJUSTMENTS). Paragraph 30 of the Lease
Rider (i.e., Lease Rider 30) is hereby amended by the addition thereto of the
following at the end of the existing text:
"Notwithstanding the foregoing, for purposes of computing Tenant's Share of
Operating Expenses for and during the period commencing on January 1, 1995
and continuing thereafter through September 30, 1995, the Base Year
Operating Expenses shall be deemed to be Two Hundred Twenty-Five Thousand
Seven Hundred Eighty-Eight Dollars ($225,788.00) reflect the fact that the
period January 1, 1995 through September 30, 1995 is a partial calendar
year]. For the purpose of computing Tenant's Share of Operating Expenses
from and after October 1, 1995 and continuing thereafter through the balance
of the Term, the Base Year shall be the twelve (12) month period commencing
on October 1, 1994 and ending on September 30, 1995."
<PAGE>
10. MODIFICATION OF PARAGRAPH 9 OF FIRST AMENDMENT (HVAC
MAINTENANCE). Paragraph 9 of the First Amendment is hereby amended by the
addition thereto of the following at the end of the existing text:
"Notwithstanding the foregoing, commencing on January 1, 1995 and continuing
thereafter through the balance of the Term, Landlord shall not be required
to pay to Tenant the Landlord's Portion or any other amount whatsoever of or
toward the HVAC maintenance charges (or any charges for the repair or
replacement of the HVAC equipment; and Tenant shall be solely responsible
for payment of all of the HVAC maintenance charges and of any charges for
the repair and/or replacement of the HVAC equipment."
11. EFFECTIVE DATE. The effective date of this Amendment shall be the date
first hereinabove set forth.
12. RATIFICATION; RESOLUTION OF CONFLICT. Except as expressly modified
hereinabove, the Lease is hereby ratified and confirmed in all respects. In the
event of any conflict or inconsistency between any provision contained in this
Amendment and any provision or provisions contained in the Lease, the provision
contained in this Amendment shall govern and prevail.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first hereinabove set forth.
LANDLORD: JS BAY CENTER ASSOCIATES,
a California limited partnership
By: Martin/Bay Center Associates,
a California limited partnership,
its General Partner
By:/s/_EDMUND B. TAYLOR, JR.
Edmund B. Taylor, Jr.
Its General Partner
TENANT: CHIRON CORPORATION,
a Delaware corporation
By:/s/_DENNIS L. WINGER
Dennis L. Winger
Its Sr. Vice President &
Chief Financial Officer
<PAGE>
EXHIBIT 10.17
CHIRON 1991 STOCK OPTION PLAN
[AS AMENDED AUGUST 14, 1993, APRIL 11, 1994 AND FEBRUARY 24, 1995]
I. PURPOSES
This Chiron 1991 Stock Option Plan ("Plan") is intended to enable Chiron
Corporation ("Corporation") to attract and retain the following individuals by
offering them incentives and rewards, in the form of options, restricted shares,
share rights, and share units ("awards") which will encourage them to acquire a
proprietary interest in the Corporation and to continue in the service of the
Corporation or its subsidiaries: (a) employees (including officers and
directors) of the Corporation and its subsidiaries, (b) non-employee members of
the Board of Directors of the Corporation ("Board"), and (c) consultants and
independent contractors who perform valuable services for the Corporation and
its subsidiaries.
In addition, the Plan is intended to permit the Corporation to satisfy its
obligations in connection with options it will assume pursuant to the terms of
the Agreement and Plan of Merger dated as of July 21, 1991 by and among the
Corporation, Chiron Acquisition Subsidiary, Inc., and Cetus Corporation
("Agreement"). Upon consummation of the transactions described in the Agreement
("Merger"), the Plan will supersede Cetus Corporation's Amended and Restated
Common Stock Option Plan and Cetus Corporation's Non-Employee Directors' Stock
Option Plan ("Cetus Prior Plans"). Upon stockholder approval, this Plan will
also supersede the following Chiron prior plans: the Protos Corporation 1988
Stock Option Plan (upon the merger of Protos into Chiron), the Chiron
Ophthalmics, Inc. 1986 Stock Option Plan (upon the merger of Chiron Ophthalmics
into a wholly owned subsidiary of Chiron), the Corporation's 1982 Stock Option
Plan and the Corporation's 1984 Non-Qualified Stock Option Plan (collectively,
"Chiron Prior Plans").
II. ADMINISTRATION
The Plan will be administered by a committee or committees appointed by the
Board and consisting of one or more members of the Board. The Board may delegate
the responsibility for administration of the Plan with respect to designated
classes of award holders to different committees, subject to such limitations as
the Board deems appropriate. With respect to any matter, the term "Committee,"
when used in this Plan, will refer to the committee that has been delegated
authority with respect to such matter. Members of a committee will serve for
such term as the Board may determine, and will be subject to removal by the
Board at any time.
(a) 16(B). The composition of any committee responsible for administration
of the Plan with respect to award holders who are subject to the trading
restrictions of Section 16(b) of the Securities Exchange Act of 1934 ("1934
Act") with respect to securities of the Corporation will comply with the
applicable requirements of Rule 16b-3 of the Securities and Exchange Commission.
(b) AUTHORITY. Any committee appointed by the Board will have full
authority to administer the Plan within the scope of its delegated
responsibilities, including authority to interpret and construe any relevant
provision of the Plan, to adopt such rules and regulations as it may deem
necessary, and to determine the terms and conditions of awards made under the
Plan (which need not be identical). Decisions of a committee made within the
discretion delegated to it by the Board will be final and binding on all persons
who have an interest in the Plan.
III. ELIGIBILITY FOR AWARDS
(a) DISCRETIONARY AWARDS. From time to time the Committee may, in its
discretion, select individuals from among the following categories to receive
awards under the Plan:
(1) EMPLOYEES. The Committee may select employees of the Corporation
or its subsidiaries (including officers, whether or not they are also
members of the Board).
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(2) CONSULTANTS AND INDEPENDENT CONTRACTORS. The Committee may select
consultants and independent contractors whose services tend to contribute
materially to the success of the Corporation or its subsidiaries or whose
services may reasonably be anticipated to so contribute.
(b) AUTOMATIC GRANTS. Members of the Board who are not employees of the
Corporation or its subsidiaries will receive options in accordance with, and
only in accordance with, the Plan's automatic grant provisions.
(c) SUBSTITUTE OPTIONS. Upon consummation of the Merger, outstanding
options under the Cetus Prior Plans (including related Limited Stock
Appreciation Rights) will be converted, in the manner and at the exchange ratio
specified in the Agreement, into substitute options under this Plan to acquire
Common Stock (as defined below). Upon stockholder approval and, with regard to
the Protos prior plan options and the Chiron Ophthalmics prior plan options,
consummation of the relevant mergers, outstanding options under the Chiron Prior
Plans will be converted into options under this Plan. These options will
preserve the exercise price of the outstanding options as adjusted, in the case
of options under the Protos Corporation 1988 Stock Option Plan and the Chiron
Ophthalmics, Inc. 1986 Stock Option Plan, to reflect the substitution of Common
Stock. These options will also preserve the other terms and conditions of the
outstanding options; provided, however, that on the Effective Date of this Plan,
outstanding automatic option grants under the Corporation's 1982 Stock Option
Plan will be conformed, other than to extend the term, to the Automatic Option
Grants under this Plan. Collectively, these options will be known as "Substitute
Options."
IV. STOCK SUBJECT TO THE PLAN
(a) CLASS. The stock subject to awards under the Plan is (i) the
Corporation's authorized but unissued or reacquired Common Stock ("Common
Stock"), or (ii) shares of one or more series of the Corporation's authorized
but unissued or reacquired Restricted Common Stock, in the aggregate, "Company
Stock." In connection with the grant of awards under the Plan, the Corporation
may repurchase shares in the open market or otherwise.
(b) AGGREGATE AMOUNT
(1) SHARES. Subject to adjustment under Sections IV(c) and IV(b)(3),
the aggregate maximum number of shares of Company Stock that may be subject
to awards under the Plan is 4,500,000 plus the number of shares of Company
Stock remaining for issuance on the Effective Date of this Plan under the
Corporation's 1982 Stock Option Plan and the Corporation's 1984
Non-Qualified Stock Option Plan. Notwithstanding the foregoing, as of
January 1 of each fiscal year after 1991, the aggregate number of shares of
Company Stock that may be subject to awards under the Plan will be increased
by 1.50% of the number of Chiron Common Equivalent Shares outstanding as of
December 31 of the preceding fiscal year. The maximum number of shares of
Company Stock with respect to which options may be granted to any employee
during the term of the Plan is 1,000,000 shares. Subject to adjustment under
Sections IV(c) and IV(b)(3), not more than 4,500,000 shares of Company Stock
plus the number of shares of Company Stock remaining for issuance on the
Effective Date of this Plan under the Corporation's 1982 Stock Option Plan
and the Corporation's 1984 Non-Qualified Stock Option Plan may be subject to
Incentive Options (as defined below) granted under the Plan after the
Effective Date. "Chiron Common Equivalent Shares" are the total number of
outstanding shares of Common Stock plus the total number of shares of Common
Stock issuable upon conversion or exercise of outstanding warrants, options
and convertible securities. In no event will more than 500,000 shares of
Restricted Common Stock, whether in a single series or in multiple series,
be subject to award under the Plan.
(2) RESTRICTED COMMON STOCK. Shares of Restricted Common Stock may be
issued under the Plan in one or more separate series. The rights,
preferences and privileges, together with the restrictions and limitations
and the number of shares, of each series of Restricted Common Stock
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<PAGE>
issuable under the Plan will be set forth in the Corporation's Certificate
of Determination of Preferences of Common Stock ("Certificate") as in effect
from time to time during the term of the Plan. Shares of each series of
Restricted Common Stock will be convertible or exchangeable into shares of
Common Stock in accordance with the terms and provisions of the Certificate
applicable to that series.
(3) REUSE OF SHARES. If any outstanding option under the Chiron Prior
Plans, the Cetus Prior Plans or this Plan (including the Substitute Options)
expires or is terminated or cancelled for any reason (including pursuant to
Section X of the Plan but other than pursuant to surrender of the option for
a cash payment in accordance with Section VIII of the Plan) before being
exercised for the full number of shares to which it applies, then the shares
allocable to the unexercised portion of such option will not be charged
against the limitations of Section IV(b)(1) and will become available for
subsequent grants under the Plan. To the extent that a share right or share
unit expires or is terminated, or is canceled or forfeited for any reason
without being paid in cash or shares of Company Stock, any remaining shares
allocable to the unpaid portion of such share right or share unit shall not
be charged against the limitations of Section IV(b)(1) and will become
available again for subsequent grants under the Plan. Shares subject to any
option or portion of an option surrendered in accordance with the "Surrender
of Options for Cash or Stock" provisions of this Plan, shares for which a
cash payment is made in lieu thereof under a restricted share, share unit or
share right, and shares forfeited to or repurchased by the Corporation
pursuant to its forfeiture and repurchase rights under this Plan will not be
available for subsequent awards under the Plan.
(c) ADJUSTMENTS. In the event any change is made to the Company Stock
subject to the Plan (whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change in corporate or capital structure of the Corporation)
then, unless such change results in the termination of all awards, the Committee
will make appropriate adjustments to the kind and maximum number of shares
subject to the Plan, the kind and maximum number of shares for which options are
to be granted to non-employee directors, and the kind and number of shares and,
where applicable, price per share of stock subject to outstanding awards.
V. TERMS AND CONDITIONS OF OPTIONS
Stock options granted under the Plan may, in the Committee's discretion, be
either incentive stock options ("Incentive Options") qualifying under Section
422 of the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"),
or nonstatutory options. Individuals who are not employees of the Corporation or
its subsidiaries may only be granted nonstatutory options. Options will be
evidenced by instruments in such form as the Committee may from time to time
approve. These instruments will conform to the following terms and conditions
and, in the discretion of the Committee, may contain such other terms,
conditions and restrictions as are not inconsistent with the following:
(a) OPTION PRICE. The option price per share will be fixed by the
Committee, but in no event will the option price per share be less than
eighty-five percent (85%) of the Fair Market Value of the option shares on the
date of the option grant; provided, however, that in no event will the option
price per share of an Incentive Option be less than one-hundred percent (100%)
of the Fair Market Value of the option shares on the date of the option grant.
Notwithstanding the foregoing, Substitute Options will have an option price per
share determined pursuant to Section III(c) of this Plan and interim Automatic
Option Grants will have an option price per share determined pursuant to Section
VII(a)(3) of the Plan.
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<PAGE>
(b) NUMBER OF SHARES, TERM AND EXERCISE
(1) TERM AND NUMBER. Each option granted under the Plan will be
exercisable on such date or dates, during such period, and for such number
of shares of Company Stock as the Committee determines and sets forth in the
instrument evidencing the option. No option granted under the Plan will have
an expiration date that is more than 10 years after the date of the option
grant.
(2) EXERCISE. After any option granted under the Plan becomes
exercisable, it may be exercised by notice to the Corporation at any time
prior to the termination of such option. Except as authorized by the
Committee in accordance with Section VIII, the option price for the number
of shares for which the option is exercised will become due and payable upon
exercise.
(3) PAYMENT. The option price will be payable in full in cash
(including cash equivalents); provided, however, that the Committee may,
either at the time the option is granted or at the time it is exercised and
subject to such limitations as it may determine, authorize payment of all or
a portion of the option price in one or a combination of the following
alternative forms:
(i) a promissory note authorized pursuant to Section VIII;
(ii) full payment in shares of Common Stock valued as of the exercise
date and held for the requisite period to avoid a charge to the
Corporation's earnings; or
(iii) by delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the
Corporation the amount of sale or loan proceeds to pay the option price.
(c) TERMINATION OF SERVICES. The Committee will determine and set forth in
each option whether the option will continue to be exercisable, and the terms
and conditions of such exercise, on and after the date that an optionee ceases
to be employed by, or to provide services to, the Corporation or its
subsidiaries. The date of termination of an optionee's employment or services
will be determined by the Committee, which determination will be final.
(d) INCENTIVE OPTIONS. Options granted under the Plan that are intended to
be Incentive Options will be subject to the following additional terms and
conditions:
(1) DOLLAR LIMITATION. To the extent that the aggregate Fair Market
Value (determined as of the respective date or dates of grant) of shares
with respect to which options that are granted after 1986 and that would
otherwise be Incentive Options are exercisable for the first time by any
individual during any calendar year under the Plan (or any other plan of the
Corporation, a parent or subsidiary corporation or predecessor thereof)
exceeds the sum of $100,000 (or such greater amount as may be permitted
under the Internal Revenue Code), whether by reason of acceleration or
otherwise, such options will not be treated as Incentive Options. In making
such a determination, options will be taken into account in the order in
which they were granted. The aggregate fair market value (as of the
respective date or dates of grant) of shares of the Company (or parent or
subsidiary corporation) for which Incentive Options could be granted to any
one individual in a single calendar year before 1987 could not exceed
$100,000 at the time of grant, plus unused carryovers from the immediately
preceding three calendar years.
(2) 10% STOCKHOLDER. If any employee to whom an Incentive Option is to
be granted pursuant to the provisions of the Plan is, on the date of grant,
the owner of stock (determined with application of the ownership attribution
rules of Section 424(d) of the Internal Revenue
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<PAGE>
Code) possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of his or her employer corporation or of its
parent or subsidiary corporation ("10% Stockholder"), then the following
special provisions will apply to the option granted to such individual:
(i) The option price per share of the stock subject to such Incentive
Option will not be less than one hundred ten percent (110%) of the Fair
Market Value of the option shares on the date of grant; and
(ii) The option will not have a term in excess of five (5) years from
the date of grant.
(3) SEQUENTIAL EXERCISE. No Incentive Option granted before January 1,
1987 may be exercised while there remains outstanding any other Incentive
Option to purchase shares of the Company (or its parent or subsidiary
corporation) which was granted at an earlier date to the optionee.
(4) PARENT AND SUBSIDIARY. For purposes of this Section V(d) "parent
corporation" and "subsidiary corporation" will have the meaning attributed
to those terms, as they are used in Section 422(b) of the Internal Revenue
Code.
(e) WITHHOLDING
(1) OBLIGATION. The Corporation's obligation to deliver stock
certificates upon the exercise of an option will be subject to the option
holder's satisfaction of all applicable federal, state and local income and
employment tax withholding requirements.
(2) PAYMENT. In the event that an option holder is required to pay to
the Corporation an amount with respect to income and employment tax
withholding obligations in connection with exercise of an option, the
Committee may, in its discretion and subject to such limitations and rules
as it may adopt, permit the option holder to satisfy the obligation, in
whole or in part, by delivering shares of Common Stock already held by the
option holder or by making an irrevocable election that a portion of the
total value of the shares subject to the option be paid in the form of cash
in lieu of the issuance of Company Stock, and that such cash payment be
applied to the satisfaction of the withholding obligations.
VI. RESTRICTED SHARES, SHARE RIGHTS AND SHARE UNITS
(a) NATURE OF AWARDS
(1) RESTRICTED SHARES. A restricted share granted under the Plan shall
consist of shares of Company Stock, the retention and transfer of which is
subject to such terms, conditions and restrictions (whether based on
performance standards or periods of service or otherwise and including
repurchase and/or forfeiture rights in favor of the Corporation) as the
Committee shall determine. The terms, conditions and restrictions to which
restricted shares are subject shall be evidenced by instruments in such form
as the Committee may from time to time approve and may vary from grant to
grant. The Committee shall have the absolute discretion to determine whether
any consideration (other than the services of the potential award holder) is
to be received by the Corporation or its subsidiaries as a condition
precedent to the issuance of restricted shares.
(2) SHARE RIGHTS. A share right granted under the Plan shall consist
of the right, subject to such terms, conditions and restrictions (whether
based on performance standards or periods of service or otherwise), to
receive a share of Company Stock (together with cash dividend equivalents if
so determined by the Committee) as the Committee shall determine and shall
be evidenced by instruments in such form as the Committee may from time to
time approve. The Committee shall have the absolute discretion to determine
whether any consideration (other than
5
<PAGE>
the services of the potential award holder) is to be received by the
Corporation or its subsidiaries as a condition precedent to the issuance of
shares pursuant to share rights. The terms, conditions and restrictions to
which share rights are subject may vary from grant to grant.
(3) SHARE UNITS. A share unit granted under the Plan shall consist of
the right to receive an amount in cash equal to the fair market value of one
share of Company Stock on the date of valuation of the unit (together with
cash dividend equivalents if so determined by the Committee) less such
amount, if any, as the Committee shall specify. The date of valuation and
payment of cash under a share unit and the conditions, if any, to which such
payment will be subject (whether based on performance standards or periods
of service or otherwise) shall be determined by the Committee. The terms,
conditions and restrictions to which share units are subject may vary from
grant to grant.
(b) WITHHOLDING. The Committee may require, or permit an award holder to
elect, that a portion of the total value of the shares of Common Stock subject
to restricted shares or share rights held by one or more award holders be paid
in the form of cash in lieu of the issuance of Company Stock and that such cash
payment be applied to the satisfaction of the federal, state and local income
and employment tax withholding obligations that arise at the time the restricted
shares and share rights become free of all restrictions under the Plan.
(c) CASH PAYMENTS. The Committee may provide award holders with an
election to receive a percentage of the total value of the Company Stock subject
to restricted shares or share rights in the form of a cash payment, subject to
such terms, conditions and restrictions as the Committee shall specify.
(d) ELECTIVE AND TANDEM AWARDS. The Committee may award restricted shares,
share rights and share units independently of other compensation or in lieu of
compensation that would otherwise be paid in cash or stock options, whether at
the election of the potential award holder or otherwise. The number of
restricted shares, share rights or share units to be awarded in lieu of any cash
compensation amount or number of stock options shall be determined by the
Committee in its sole discretion and need not be equal to such foregone
compensation in fair market value. In addition, restricted shares, share rights
and share units may be awarded in tandem with stock options, so that a portion
of such award becomes payable or becomes free of restrictions only if and to the
extent that the tandem options are not exercised or are forfeited, subject to
such terms and conditions as the Committee may specify.
(e) MODIFICATION OF AWARDS. The Committee may, in its sole discretion,
modify or waive any or all of the terms, conditions or restrictions applicable
to any outstanding restricted share, share right or share unit; provided,
however, that no such modification or waiver shall, without the consent of the
holder of an outstanding award, adversely affect the holder's rights thereunder.
VII. AUTOMATIC OPTION GRANTS TO DIRECTORS.
(a) GRANTS. Non-employee members of the Board will automatically be
granted nonstatutory options ("Automatic Option Grants") to purchase the number
of shares of Common Stock set forth below (subject to adjustment under Section
IV(c) hereof) on the dates and terms set forth below:
(1) CONTINUING DIRECTORS. On the last business day of the second
quarter of each fiscal year of the Corporation after the Effective Date of
this Plan ("Automatic Grant Date"), each continuing non-employee member of
the Board will receive an Automatic Option Grant to purchase 3,000 shares of
Common Stock.
(2) NEW DIRECTORS. Each person who is newly elected or appointed as a
non-employee member of the Board after the Effective Date of this Plan
(other than on an Automatic Grant Date) will receive, on the date of such
election or appointment, an Automatic Option Grant to
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purchase a pro rata number of shares of Common Stock. The pro rata number
will be determined by multiplying 250 by the number of whole calendar months
between the date of the non-employee director's election or appointment and
the next Automatic Grant Date.
(3) INTERIM GRANTS. Non-employee members of the Board who were newly
elected or appointed between July 1, 1990 and the Effective Date of this
Plan received grants under this Section VII(a) on the Effective Date of this
Plan for a pro rata number of shares calculated as though the grant were
made on the date that the non-employee member of the Board was newly elected
or appointed ("Interim Grants"). The terms and conditions of these Interim
Grants will be determined under Section VII(b) below, as though the date
that the non-employee member was elected or appointed was the grant date and
as though the date that the non-employee member of the Board received an
automatic grant (if any) under the Corporation's 1982 Stock Option Plan was
an Automatic Grant Date under this Plan.
(4) ADVISORY COUNSELLORS. Advisory Counsellors of Cetus will not
qualify for Automatic Option Grants.
(b) TERMS AND CONDITIONS. The terms and conditions applicable to each
Automatic Option Grant will be as follows:
(1) PRICE. The option price per share will be equal to one hundred
percent (100%) of the Fair Market Value of one share of Common Stock on the
date of grant;
(2) TERM. The options will have terms of (10) years, measured from the
date of grant, and will be exercisable at any time during their term for all
or any part of the covered shares; provided, however, that no options may be
exercised prior to approval of the Plan by the Corporation's stockholders.
(3) REPURCHASE. The shares purchased under the options will be subject
to repurchase by the Corporation at the original exercise price in the event
an optionee ceases to provide services to the Corporation or its
subsidiaries as a director, an employee, a consultant or an independent
contractor. The Corporation's repurchase rights will lapse, and the
optionee's interest in the purchased shares will vest, in a series of equal
annual installments over the five-year period measured from the date of
grant; provided the optionee continues to provide such services. In
addition, the Corporation's repurchase right will lapse in its entirety, and
full vesting will occur, should one or more of the following events occur
while the optionee is providing such services: (A) the optionee's death, or
(B) the optionee's permanent disability.
(4) PAYMENT. Upon exercise of the option, the option price for the
purchased shares will become payable immediately in cash or in shares of
Common Stock that the optionee has held for at least six (6) months. Payment
may also be made by delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the
Corporation the amount of sale or loan proceeds to pay the option price.
(5) CESSATION. In the event the optionee ceases to provide services to
the Corporation or its subsidiaries as a director, an employee, a consultant
or an independent contractor, the option may be exercised, within the term
of the option, for a period of three (3) months after the date of such
cessation (twelve (12) months in the case of cessation by reason of
disability or death). In the case of death, the option may be exercised
within such period by the estate or heirs of the optionee.
VIII. LOANS AND INSTALLMENT PAYMENTS
In order to assist an award holder (including an employee who is an officer
or director of the Corporation) in the acquisition of shares of Company Stock
pursuant to an award granted under the Plan (other than pursuant to the
Automatic Option Grant provisions of this Plan), the Committee may authorize, at
either the time of the grant of an award or the time of the acquisition of
Company
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Stock pursuant to the award (i) the extension of a loan to the award holder by
the Corporation, (ii) the payment by the award holder of the purchase price, if
any, of the Company Stock in installments, or (iii) the guarantee by the
Corporation of a loan obtained by the award holder from a third party. The terms
of any loans, guarantees or installment payments, including the interest rate
and terms of repayment, will be subject to the discretion of the Committee.
Loans, installment payments and guarantees may be granted without security, the
maximum credit available being the purchase price, if any, of the Company Stock
acquired plus the maximum federal and state income and employment tax liability
that may be incurred in connection with the acquisition.
IX. ASSIGNABILITY
No award granted under the Plan is assignable or transferable by the award
holder other than by Will or by the laws of descent and distribution, and during
the lifetime of the award holder, only the award holder may exercise options or
exercise the rights provided under awards granted under the Plan.
X. CANCELLATION AND NEW GRANT OF OPTIONS
The Committee will have the authority to effect, at any time and from time
to time, with the consent of the affected option holders, the cancellation of
any or all outstanding options under the Plan, a Cetus Prior Plan or a Chiron
Prior Plan (other than options granted under automatic option grant provisions
of these plans) and to grant in substitution therefor new options under the Plan
covering the same or different numbers of shares, but having an option price per
share not less than eighty-five percent (85%) of the Fair Market Value on the
new grant date or, in the case of an Incentive Option, one hundred percent
(100%) of the Fair Market Value on the new grant date (or, in the case of an
Incentive Option granted to a 10% Stockholder, one hundred ten percent (110%) of
such Fair Market Value). If one or more of the cancelled options is an Incentive
Option granted before 1987 under a Cetus Prior Plan or a Chiron Prior Plan, then
such option will, solely for purposes of the "sequential exercise" rule
applicable to outstanding Incentive Options granted before 1987, be considered
to be outstanding until the expiration date initially specified for the option
term of such option.
XI. ACCELERATION AND TERMINATION OF AWARDS
(a) ACCELERATION. In the event of an agreement to dispose of all or
substantially all of the assets or outstanding capital stock of the Corporation
by means of a sale, merger, reorganization, or liquidation, each award will be
automatically accelerated so that (1) options become fully exercisable with
respect to the total number of shares purchasable under the options, provided,
however, that the exercise of accelerated Incentive Options granted prior to
1987 will remain subject to any limitations imposed by the Internal Revenue
Code's sequential exercise rule, (2) restrictions on restricted shares will be
eliminated, and the shares will immediately vest, and (3) share rights and share
units will immediately vest and become payable. The Committee may also provide
for the automatic termination of repurchase rights upon the occurrence of such
an event.
(b) NO ACCELERATION. No acceleration of awards will occur if the terms of
the agreement require as a prerequisite to the consummation of any such sale,
merger, reorganization or liquidation that each such award will be either
assumed by the successor corporation or parent thereof or be replaced with a
comparable award subject to shares of the successor corporation or parent
thereof. The determination of such comparability will be made by the Committee,
and its determination will be final, binding and conclusive. Upon consummation
of the sale, merger, reorganization or liquidation contemplated by the
agreement, all awards, whether or not accelerated, will terminate unless assumed
pursuant to a written agreement by the successor corporation or parent thereof.
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(c) CORPORATE STRUCTURE. The grant of awards under this Plan will in no
way affect the right of the Corporation to adjust, reclassify, reorganize, or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
XII. VALUATION
With regard to all Substitute Options, Fair Market Value will be determined
in accordance with the relevant option plan documents on the date that the
outstanding options were granted. With regard to awards granted under this Plan,
for all valuation purposes under the Plan, the Fair Market Value of a share of
Common Stock or Restricted Common Stock (as the case may be) on any relevant
date will be determined in accordance with the following provisions:
(a) If the Common Stock or Restricted Common Stock is not at the time listed or
admitted to trading on any stock exchange, but is traded in the
over-the-counter market, the Fair Market Value will be the average between
the reported high price and the reported low price of one share of Common
Stock or Restricted Common Stock (as the case may be) on the date in
question in the over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system or any
successor system.
(b) If the Common Stock or Restricted Common Stock is at the time listed or
admitted to trading on any stock exchange, then the Fair Market Value will
be the average between the reported high price and the reported low price of
one share of Common Stock or Restricted Common Stock (as the case may be) on
the date in question on the stock exchange that is the primary market for
the stock, as such prices are officially quoted on such exchange.
(c) If the Common Stock or Restricted Common Stock (as the case may be) is at
the time neither listed nor admitted to trading on any stock exchange nor
traded in the over-the-counter market, or if the Committee determines that
neither subparagraph (a) nor subparagraph (b) above reflects Fair Market
Value of the stock and the award was not granted pursuant to the Plan's
Automatic Option Grant provisions, then the Fair Market Value will be
determined by the Committee after taking into account such factors as the
Committee deems appropriate, or in the case of Automatic Option Grants, by
an independent third party valuation.
XIII. SURRENDER OF OPTIONS FOR CASH OR STOCK
(a) STOCK APPRECIATION RIGHTS. If, and only if the Committee, in its
discretion, elects to implement an option surrender program under the Plan, one
or more option holders may, upon such terms and conditions as the Committee may
establish at the time of the option grant or at any time thereafter, be granted
the right to surrender all or part of an unexercised option in exchange for a
distribution equal in amount to the difference between (i) the Fair Market Value
(at date of surrender) of the shares for which the surrendered option or portion
thereof is at the time exercisable and (ii) the aggregate option price payable
for such shares. The distribution to which an option holder becomes entitled
under this Section may be made in shares of Common Stock or Restricted Common
Stock, valued at Fair Market Value at the date of surrender, in cash, or partly
in shares and partly in cash, as the Committee, in its sole discretion, deems
appropriate. The option surrender provisions of this Section will not apply to
options granted pursuant to the Automatic Option Grant provisions of this Plan.
(b) LIMITED STOCK APPRECIATION RIGHTS. If outstanding options of Cetus for
which Substitute Options are issued pursuant to Section III(c) have Limited
Stock Appreciation Rights ("LSARs") attached thereto, then each such LSAR shall
be honored by the Corporation in accordance with its terms and remain
exercisable for a period of 60 days following the date that stockholders of
Cetus approve the Merger; provided, however, that if the LSAR was originally
granted within 6 months of the date that Cetus stockholders approve the Merger,
then the LSAR will be exercisable for a period of 60 days following expiration
of such 6-month period. Upon expiration of the applicable 60 day period,
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each such LSAR not previously exercised shall expire. Upon exercise of an LSAR,
the related option will be cancelled, and Chiron will pay to the LSAR holder an
amount in cash for each share with respect to which the LSAR is exercised
determined in accordance with the terms of the Cetus Prior Plans.
XIV. REPURCHASE RIGHTS
The Committee may, in its discretion, establish as a term of one or more
awards granted under the Plan that the Corporation (or its assigns) will have
the right, exercisable upon the award holder's termination of employment with,
or cessation of services for, the Corporation and its subsidiaries, to
repurchase at the original price paid, if any, for such shares of (1) Company
Stock acquired by the award holder pursuant to the granted award, or (2) Common
Stock into which acquired Restricted Common Stock may have been converted or for
which Restricted Common Stock may have been exchanged. Any such repurchase right
will be exercisable by the Corporation (or its assigns) upon such terms and
conditions (including provisions for the expiration of such right in one or more
installments) as the Committee may specify in the instrument evidencing such
right. The Committee will also have full power and authority to provide for the
automatic termination of the Corporation's repurchase rights, in whole or in
part, thereby accelerating the vesting of any or all of the purchased shares
(other than purchased shares obtained pursuant to the Automatic Option Grant
provisions of this Plan) upon the occurrence of any change in control specified
in Article XI.
XV. RIGHT OF FIRST REFUSAL
The Committee may, in its discretion, establish as a term of one or more
awards granted under the Plan that the Corporation has a right of first refusal
with respect to the proposed disposition by the award holder (or any successor
in interest by reason of purchase, gift or other mode of transfer) of any shares
of (1) Company Stock acquired by the award holder pursuant to the granted award,
or (2) Common Stock into which purchased Restricted Common Stock may have been
converted or for which acquired Restricted Common Stock may have been exchanged.
Any such right of first refusal will be exercisable by the Corporation or its
assigns in accordance with the terms and conditions specified in the instrument
evidencing such right.
XVI. EFFECTIVE DATE AND TERM OF PLAN
(a) EFFECTIVE DATE. The Plan is effective on the date that it is approved
by the Corporation's stockholders.
(b) TERM. Incentive Options may be granted under the Plan only within ten
years of the Effective Date of the Plan. Subject to this limitation, the
Committee may grant awards under the Plan at any time after the Effective Date
of the Plan and before the Plan is terminated by the Board.
XVII. AMENDMENT OR DISCONTINUANCE
(a) BOARD. The Board may amend, suspend or discontinue the Plan in whole
or in part at any time; provided, however, that (a) except to the extent
necessary to qualify as Incentive Options any or all options granted under the
Plan that are intended to so qualify, such action may not, without the consent
of the award holder, adversely affect rights and obligations with respect to
awards outstanding under the Plan; (b) the provisions of the Plan concerning the
eligibility of non-employee members of the Board for awards and the amount,
price and timing of Automatic Option Grants under this Plan may not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code or rules thereunder; and (c) the Board may not, without
the approval of the Corporation's stockholders (1) materially increase the
number of shares of Company Stock subject to awards under the Plan (unless
necessary to effect the adjustments required under Section IV(c)), (2)
materially modify the eligibility requirements for awards under the Plan, or (3)
make any other change with respect to which the Board determines that
stockholder approval is required by applicable law or regulatory standards.
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(b) COMMITTEE. The Committee will have full power and authority to modify
or waive any or all of the terms, conditions or restrictions applicable to any
outstanding award (other than Automatic Option Grants), to the extent not
inconsistent with the Plan.
(c) SUBSTITUTE OPTIONS. Substitute Options will be subject to amendment in
accordance with the terms of this Plan.
XVIII. NO OBLIGATION
Nothing contained in the Plan (or in any award granted under this Plan, a
Chiron Prior Plan or a Cetus Prior Plan) shall confer upon any employee,
consultant, or independent contractor any right to continue in the employ of, or
to provide services to, the Corporation or any affiliate or constitute a
contract or agreement of employment or for the provision of services, or
interfere in any way with the right of the Corporation or an affiliate to reduce
such employee's, consultant's or independent contractor's compensation from the
rate in existence at the time of the granting of an award or to terminate such
employee's, consultant's or independent contractor's employment or services at
any time, with or without cause; but nothing contained in the Plan or in any
award granted under this Plan shall affect any contractual rights of an employee
pursuant to a written employment agreement.
XIX. USE OF PROCEEDS
The cash proceeds received by the Corporation pursuant to awards granted
under the Plan will be used for general corporate purposes.
XX. COMPLIANCE
(a) FEDERAL AND STATE LAWS. No option may be exercised, and the
Corporation will not be obligated to issue stock under any award unless, in the
opinion of counsel for the Corporation, such exercise and issuance is in
compliance with all applicable federal and state securities laws. As a condition
to the grant of any award, or to the issuance of stock under any award, the
Committee may require that the award holder agree to comply with such provisions
of federal and state securities laws as may be applicable to such grant, or to
the sale of stock acquired pursuant to the Plan, and that the award holder
deliver to the Corporation a written agreement, in form and substance
satisfactory to the Corporation and its counsel, implementing such agreement.
(b) INFORMATION. The Corporation will furnish to each award holder
participating in the Plan (other than a key employee or a director) a copy of
the Corporation's Annual Report to Stockholders for the most recent fiscal year,
and additional copies will be furnished, without charge, to such award holders
upon request to the Secretary of the Corporation.
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APPENDIX A
SPECIAL PROVISIONS RELATED TO 1995 CIBA-GEIGY TRANSACTION
Those persons holding options to acquire shares of Common Stock under the
Corporation's 1991 Stock Option Plan on November 20, 1994 are granted the
following rights ("Rights") with respect to each such option:
(i) the right to receive upon the closing of the tender offer contemplated
under the Investment Agreement entered into on such date among the Corporation
and Ciba-Geigy Limited, Ciba-Geigy Corporation and Ciba Biotech Partnership,
Inc. (the "Closing") a cash payment equal to (A) 37.33% of the number of shares
of Common Stock with respect to which each such option would first become
exercisable in calendar year 1995 multiplied by (B) the difference between $117
per share and the exercise price per share of such option with respect to such
shares and
(ii) with respect to the remaining shares of Common Stock subject to each
such option, the right, exercisable at any time after the later of the Closing
or the date that such an option first becomes exercisable with respect to such
shares, to surrender that portion of such option relating to 37.33% of such
shares in return for a cash payment equal (A) to the difference between $117 per
share and the exercise price per share of such option multiplied by (B) the
number of shares with respect to which such option is so surrendered.
However, the grant and exercise of any such right with respect to any
officer or director subject to Section 16 of the Securities Exchange Act of 1934
shall be subject to stockholder approval of the grant of such rights at the
Corporation's 1995 stockholder meeting.
The grant of such rights, which are made with respect to 1,858,776 optioned
shares shall be in addition to, and shall not count against, the aggregate and
annual limits on the number of shares with respect to which other awards under
the Plan may be made to all individuals and/or a single individual.
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EXHIBIT 10.25
DEBENTURE PURCHASE AGREEMENT
DEBENTURE PURCHASE AGREEMENT dated as of June 22, 1990 by and between CHIRON
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware ("Seller"), and CIBA-GEIGY, LIMITED, a corporation organized and
existing under the laws of Switzerland ("Purchaser").
WITNESSETH:
WHEREAS, Seller has filed a Registration Statement on Form S-3 (File No.
33-34918) with the Securities and Exchange Commission to register $121,500,000
aggregate principal amount of convertible subordinated debentures due 2015 (as
amended at the time it becomes effective, including any information deemed to be
a part thereof pursuant to Rule 430A, the "Registration Statement");
WHEREAS, Seller has entered into an Underwriting Agreement of even date
herewith (the "Underwriting Agreement") with Morgan Stanley & Co. Incorporated,
Robertson, Stephens & Company and Montgomery Securities (collectively, the
"Underwriters") providing for an underwritten public offering of $100,000,000
aggregate principal amount of convertible subordinated debentures due 2015
($115,000,000 if the Underwriters' overallotment option is exercised in full);
and
WHEREAS, Purchaser wishes to purchase, and Seller wishes to sell, $6,500,000
aggregate principal amount of debentures covered by the Registration Statement
(the "Debentures"), subject to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Purchaser and Seller hereby agree as follows:
I. SALE OF DEBENTURES
1.1 DEBENTURES TO BE SOLD. Subject to the terms and conditions of this
Agreement, at the Closing (as hereinafter defined), Seller will sell, issue and
deliver the Debentures to Purchaser.
1.2 CONSIDERATION. Subject to the terms and conditions of this Agreement,
at the Closing Purchaser will deliver to Seller the aggregate purchase price for
the Debentures of $6,500,000 (the "Purchase Price") which price represents 100%
of the price at which the debentures to be sold concurrently by the Seller to
the Underwriters pursuant to the Underwriting Agreement will be sold to the
public. The Purchase Price will be paid by wire transfer to an account
designated by Seller.
1.3 CLOSING. The Closing of the transactions contemplated by this
Agreement (the "Closing") will be contingent upon and will take place at the
same time and the same place as the closing referred to in Section III of the
Underwriting Agreement. At the Closing:
(a) Purchaser shall deliver to Seller the following:
(i) the Purchase Price; and
(ii) the certificate(s) described in Paragraph 6.4.
(b) Seller shall deliver to Purchaser the following:
(i) a debenture certificate representing the Debentures;
(ii) a copy of the prospectus in the form first used to confirm sales of
the debentures by the Underwriters (the "Prospectus");
(iii) the certificates described in Paragraph 5.4;
(iv) the opinions of counsel described in Paragraph 5.5; and
(v) the accountant's comfort letter described in Paragraph 5.6.
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II. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents, covenants and warrants to Seller as follows:
2.1 AUTHORIZATION. Purchaser has taken all action required by law to
authorize the execution and delivery of this Agreement and the transactions
contemplated hereby. Upon execution, this Agreement is a valid and binding
obligation of Purchaser enforceable in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights, and (ii) the remedies of specific performance and injunctive
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding may be brought.
2.2 NO VIOLATION. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will violate or
conflict with, or constitute a default under, or cause the acceleration of the
maturity of any debt obligation pursuant to, any agreement or commitment to
which Purchaser is a party or by which Purchaser is bound.
2.3 INFORMATION. Purchaser acknowledges that Purchaser (i) received a copy
of Seller's prospectus (subject to completion) issued May 16, 1990, and (ii) has
had the opportunity to obtain any additional information necessary to verify the
information received. Purchaser understands the speculative nature of the
Debentures and the financial risks with respect thereto.
2.4 LITIGATION. There is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the best of Purchaser's
knowledge, threatened against Purchaser, that questions or challenges the
validity of this Agreement.
2.5 CONSENTS AND GOVERNMENTAL APPROVALS. No consent, approval, or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required in connection with Purchaser's execution and
delivery of this Agreement and consummation of the transactions contemplated
hereby.
2.6 INVESTMENT INTENT. Purchaser is acquiring the Debentures for its own
account for investment and not with a present view to, or for sale in connection
with, any distribution of the Debentures or of the Common Stock issuable upon
conversion thereof.
III. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents, covenants and warrants to Purchaser as follows:
3.1 AUTHORIZATION. Seller has taken all action required by law to
authorize the execution and delivery of this Agreement and consummation of the
transactions contemplated hereby. Upon execution, this Agreement will be a valid
and binding obligation of Seller enforceable in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) the remedies of specific performance and
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding may be brought.
3.2 NO VIOLATION. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will violate or
conflict with, or constitute a default under, or cause the acceleration of the
maturity of any debt obligation pursuant to, any agreement or commitment to
which Seller is a party or by which Seller is bound.
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3.3 DEBENTURES. Upon issuance the Debentures will be entitled to the
benefits of the Indenture dated as of July 2, 1990 between Seller and
Manufacturers Hanover Trust Company of California. Except for this Agreement,
there are no outstanding options, rights, or agreements of any kind relating to
the issuance, sale or transfer of the Debentures.
3.4 LITIGATION. There is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the best of Seller's
knowledge, threatened against Seller that questions or challenges the validity
of this Agreement.
3.5 CONSENTS AND GOVERNMENTAL APPROVALS. No consent, approval, or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required in connection with Seller's execution and
delivery of this Agreement and consummation of the transactions contemplated
hereby.
IV. COVENANTS
4.1 COVENANTS OF PURCHASER. Purchaser hereby covenants and agrees with
Seller that it will use its best efforts to insure that the conditions set forth
in Article VI hereof are satisfied prior to the Closing insofar as such matters
are within Purchaser's control.
4.2 COVENANTS OF SELLER. Seller hereby covenants and agrees with Purchaser
that (i) it will use its best efforts to insure that the conditions set forth in
Article V hereof are satisfied insofar as such matters are within Seller's
control, and (ii) after the Closing, Seller shall from time to time, at the
request of Purchaser, execute and deliver such other instruments and documents
and take such other actions as Purchaser may reasonably request to more
effectively consummate the transactions contemplated by this Agreement.
V. CONDITIONS TO PURCHASER'S OBLIGATIONS
Each and every obligation of Purchaser under this Agreement on or before the
Closing shall be subject to the satisfaction, on or before the Closing, of each
of the following conditions, unless waived in writing by Purchaser:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Seller contained herein shall be true and accurate in all material respects at
and as of the date when made and at and as of the Closing as though such
representations and warranties were made at and as of such date.
5.2 PERFORMANCE. Seller shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be
performed or complied with on or prior to the Closing.
5.3 PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry,
appeal or other proceeding by any governmental body or other person or legal or
administrative proceeding shall have been instituted or threatened that
questions the validity or legality of the transactions contemplated hereby.
5.4 CERTIFICATES. Seller shall have furnished Purchaser with such
certificates of officers of Seller dated the Closing date (i) evidencing
compliance with the conditions set forth in this Article V as may be reasonably
requested by Purchaser, and (ii) stating that no stop order suspending the
effectiveness of the Registration Statement is in effect, and no proceedings for
such purpose are pending before or threatened by the Securities and Exchange
Commission, and that there has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
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condition, financial or otherwise, or in the earnings, business or operations,
of the Seller and its subsidiaries, taken as a whole, from that set forth in the
Registration Statement and the Prospectus, as amended or supplemented.
The officer signing and delivering such certificates may rely upon the best
of his knowledge as to proceedings threatened.
5.5 OPINIONS OF COUNSEL.
(a) Seller shall have furnished Purchaser with an opinion of Brobeck,
Phleger & Harrison dated the date of the Closing to the effect set forth in
Section IV(b) (i)-(vii) and (x)-(xiv) of the Underwriting Agreement. In
addition, such opinion will state:
(i) that this Agreement has been duly authorized, executed and delivered
by Seller and is a valid and binding agreement of Seller; and
(ii) that the execution and delivery by Seller of, and the performance
of its obligations under, this Agreement, the Debentures and the Indenture
will not contravene any provision of applicable law or the certificate of
incorporation or by-laws of Seller, or, to the best knowledge of such
counsel, any material agreement or other instrument binding upon Seller or
any of its subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over Seller or any of its property
or any of its subsidiaries or any of their property, and no consent,
approval, authorization or order of or qualification with any governmental
body or agency is required for the performance by Seller of its obligations
under this Agreement, the Debentures and the Indenture, except such as are
specified and have been obtained.
(b) Seller shall have furnished Purchaser with an opinion of Robert
Blackburn, Esq., counsel to the Company, and an opinion of Jane L. Stratton,
Esq., counsel to the Company, each dated the date of Closing, to the effect set
forth in Section IV(d) and Section IV(e), respectively, of the Underwriting
Agreement.
5.6 COMFORT LETTER. Seller shall have furnished Purchaser with a letter
dated the date of Closing from Ernst & Young, independent public accountants,
containing the same statements and information with respect to the financial
statements and certain financial information contained in or incorporated by
reference into the Prospectus as are contained in the letter delivered by Ernst
& Young to the Underwriters pursuant to Section IV(f) of the Underwriting
Agreement.
VI. CONDITIONS TO SELLER'S OBLIGATIONS
Each and every obligation of Seller under this Agreement on or before the
Closing shall be subject to the satisfaction, on or before the Closing, of each
of the following conditions, unless waived in writing by Seller:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Purchaser contained herein shall be true and accurate in all material respects
at and as of the date when made at and as of the Closing as though such
representations and warranties were made at and as of such date.
6.2 PERFORMANCE. Purchaser shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be
performed or complied with on or prior to the Closing.
6.3 PROCEEDING OR LITIGATION. No suit, action, investigation, inquiry,
appeal or other proceeding by any governmental body or other person or legal or
administrative proceedings shall have been instituted or threatened that
questions the validity or legality of the transactions contemplated hereby.
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6.4 CERTIFICATES. Purchaser shall have furnished Seller with such
certificates of officers of Purchaser dated the Closing date evidencing
compliance with the conditions set forth in this Article VI as may be reasonably
requested by Seller.
VII. HOLDBACK
7.1 RESTRICTIONS ON PUBLIC SALE BY THE PURCHASER. In connection with any
public offering by Seller of its securities, Purchaser agrees not to effect any
public sale of the Debentures or shares of Common Stock issued upon conversion
of the Debentures during the ten (10) business days prior to, and during the
90-day period beginning on (i) the effective date of the registration statement
filed in connection with such public offering, or (ii) if applicable, the
commencement of public distribution of the securities of Seller pursuant to such
registration statement, whichever is later, if and to the extent requested by
Seller in the case of a nonunderwritten public offering or if and to the extent
requested by Seller's underwriter in the case of an underwritten public
offering.
VIII. MISCELLANEOUS
8.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth the entire
understanding of the parties with respect to the transactions contemplated
hereby. This Agreement may be amended, modified and supplemented only by the
written agreement of Purchaser and Seller.
8.2 WAIVER OF COMPLIANCE. Any failure of Purchaser on the one hand, or
Seller, on the other hand, to comply with any obligation, covenant, agreement or
condition herein may be expressly waived in writing by Seller or Purchaser, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
8.3 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if (i) delivered by hand, (ii) sent by certified or registered
mail, return receipt requested, with postage prepaid, or (iii) transmitted by
telefax:
(a) If to Purchaser, to:
CIBA-GEIGY, Limited
CH 4002
Basel, Switzerland
Attn: Head of Pharma Division
Telefax: 41-61-696-7487
with a copy to:
CIBA-GEIGY, Limited
Legal Department
Pharma Counsel CH 4002
Basel, Switzerland
Telefax: 41-61-696-5419
or to such other person or address as Purchaser shall furnish to Seller in
writing.
5
<PAGE>
(b) If to Seller, to:
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
Attn: Chief Financial Officer
Telefax: (415) 655-3282
with a copy to:
William G. Green, Esq.
Brobeck, Phleger & Harrison
One Market Plaza, Spear Street Tower
San Francisco, CA 94105
Telefax: (415) 442-1010
or to such other person or address as Seller shall furnish to Purchaser in
writing.
8.4 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either of the
parties hereto without the prior written consent of the other party.
8.5 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings of the articles and paragraphs of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
Purchaser:
CIBA-GEIGY, LIMITED
By /s/ F. R. BOCHUD
-----------------------------------
Name: Dr. F. Bochud
Title: DEPUTY DIRECTOR
By /s/ H. GUT
-----------------------------------
Name: Dr. H. Gut
Title: VICE DIRECTOR
Seller:
CHIRON CORPORATION
By
-----------------------------------
Name:
Title:
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
Purchaser:
CIBA-GEIGY, LIMITED
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
Seller:
CHIRON CORPORATION
By /s/ DENNIS L. WINGER
-----------------------------------
Name: Dennis L. Winger
Title: VICE PRESIDENT, FINANCE AND
ADMINISTRATION
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
Purchaser:
CIBA-GEIGY, LIMITED
By /s/ F. R. BOCHUD
-----------------------------------
Name: Dr. F. Bochud
Title: DEPUTY DIRECTOR
By /s/ H. GUT
-----------------------------------
Name: Dr. H. Gut
Title: VICE DIRECTOR
Seller:
CHIRON CORPORATION
By
-----------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT 10.41
To Eurocetus BV my ref.:87/1011/17
Paasheuvelweg 30 file no.:Z4905/1
1105 BJ AMSTERDAM plan no.:503.01
Attention: Mr. G. Hersbach
enclosures:
rent bill no.:210086
drawing no.:12/90
- ---------------------------------------------
responsible for follow-up: H. de Boer phone: 396-2203
subject: start of ground rent lease on Paasheuvelweg property.
- ---------------------------------------------
Amsterdam, February 13, 1991
Dear Mr. Hersbach:
On the parcel of land located on the Paasheuvelweg, offered in my letter,
ref. no. 87/1011/8, dated March 31, 1988, indicated with crosshatching on
drawing 12/90, the ground rental agreement took effect on January 1, 1991. This
implies that from this effective date of the ground rent lease, all owner and
user obligations associated with the lease, as well as all other relevant
obligations, are your responsibility.
Considering that you began making use of the land with my consent but in
anticipation of formal authorization by the City Council, I will pay the
administrative settlement fee and propose that the municipal authorities grant
you the lease on the parcel indicated by crosshatching on the accompanying
drawing no. 12/90 at an initial rental rate of 118,268.-- guilders, as an
extension of the parcel on which you have already been granted a lease under
City Council authorization no. 1288, dated October 5, 1988, which took effect on
March 1, 1987, indicated on the above-mentioned drawing by simple shading.
The lease on the parcel indicated by simple shading, with an area of 5650
square meters, on which the rent amounts to 226,000.-- guilders, will be
combined with the lease to be granted on the parcel indicated by crosshatching.
The total land area will amount to 8098 square meters, for which the rent will
be set at 344,268.-- guilders.
The effective date for the lease on the parcel indicated by crosshatching
will be set as January 1, 1991, and the installment due dates are March 1 and
September 1. The first five-year indexation will be set for March 1, 1992, and
the expiration of the first fifty-year long-lease period is March 1, 2037.
The parcel must be accepted under the same general and specific terms and
conditions as the parcel indicated by simple shading was granted to you, which
are set forth in the municipal authorization cited above, with the exception of
article 1 of the specific terms and conditions, in which it is stated that the
maximum gross floor area to be built is set at 11,300 square meters; this figure
must be changed to 13,748 square meters.
RELATED OBLIGATIONS
Pursuant to article 31 of the General Conditions, you will assume all
expenses related to the granting of the long lease (e.g., legal fees, land
registration duties, taxes).
FINANCIAL INFORMATION
The above-mentioned initial rent for the parcel indicated by crosshatching
is 118,268.-- guilders. This is based on a land valuation of
1,343,952.--guilders, a rental percentage of 8.8%, and a maximum gross floor
area to be constructed of 2448 square meters, of which no more than 70% may be
office space. For determination of the gross floor area to be constructed, the
NEN 2630 norm will apply. The amount of the valuation of the land to be leased
is subject to value-added tax at the rate in effect on the date when the lease
contract is signed.
<PAGE>
REDEMPTION
If you wish to pay off in advance the entire combined lease for the ground
rent period remaining until March 1, 2037, the redemption value amounts to
4,338,587.-- guilders. This redemption amount must be in our possession by March
1, 1991, the so-called due date. If the redemption funds have not appeared in my
account by the due date, the redemption amount will be subject to interest
calculated at the prevailing legal rate for each day beyond the due date until
it is paid; the redemption value is specifically based on an interest
calculation to an exact date, the due date. Any increase in the redemption
amount for missing the so-called due date will be billed to you separately. I
should point out to you that the debit of funds from your account and their
crediting to ours ordinarily takes from two to four days.
I request that you pay the enclosed invoice no. 210086 for rent for the
period from January 1, 1991, to September 1, 1991, into Postal Bank Account no.
450006Z, to the attention of the Gemeentelijk Grondbedrijf Development
Corporation], indicating invoice no. 210086. As of September 1, 1991, the
semiannual rent on the entire parcel can be paid using a preprinted transfer
payment slip.
Since the ground rent has already gone into effect, upon payment of this
invoice, you will be sent a rental invoice for the period from the effective
date to the date of receipt of the amount due.
For further information, you may contact the employee identified in the
letterhead.
Sincerely,
/signature/
J.M. Gerson,
managing director
<PAGE>
*********************************************************
Affidavit
State of California )
City and County of San Francisco) SS: March 6, 1995
This is to certify that the foregoing translation is a true and correct
rendition into English of the Dutch-language letter regarding ground rent on
property on Paasheuvelweg in Amsterdam, to the best of my knowledge and belief.
/s/ ISA GUCCIARDI
BENEMANN TRANSLATION CENTER - Isa Gucciardi
*********************************************************
<PAGE>
EXHIBIT 10.58
DESCRIPTION OF CHIRON'S 1994
EXECUTIVE VARIABLE COMPENSATION PROGRAM
Decisions on compensation (base salary and variable compensation) of Chiron
Corporation's ("Chiron" or the "Company") executive officers are made by the
four-member Compensation Committee of the Board of Directors. The Compensation
Committee has based its decisions regarding compensation in fiscal year 1994 for
executive officers as a group, on (i) a qualitative evaluation of the Company's
overall performance in 1994, including the strategic partnership with Ciba-
Geigy, Ltd., the value realized by stockholders in the related tender offer, the
enhanced prospects for realizing sustainable long-term appreciation in
stockholder value through further investment in the Company's research and
development and through partnership with and support of Ciba-Geigy; (ii)
analysis of compensation programs and amounts paid for comparable benchmark
positions in other biotechnology and pharmaceutical companies; and (iii)
subjective assessment of each executive officer's individual performance and,
where relevant, the performance of the officer's business unit or functional
area of responsibility.
For 1994, the Compensation Committee continued the Company's approach that
base salaries for executive officers should be measured by reference to the
median (50th percentile) of salaries for benchmark positions in comparator
companies. Further, the Compensation Committee provided that a significant
portion of total cash compensation (salary plus variable cash compensation) in
the form of annual variable cash compensation potential should be "at risk",
dependent on individual, business unit, and overall Company performance.
Variable cash compensation for executive officers overall was targeted to yield
total cash compensation at the 50% percentile, but with the opportunity up to
the 75% percentile, of total cash compensation as shown by comparative data.
<PAGE>
EXHIBIT 10.59
CHIRON CORPORATION
EXECUTIVE BONUS PLAN
This Executive Bonus Plan (the "Plan") is established by Chiron Corporation
(the "Company") effective for fiscal years beginning after December 31, 1994.
1. PURPOSE
The purposes of the Plan are to:
(A) Promote the interests of the Company.
(B) Provide incentives and rewards to senior executives, as a group and
individually, who are largely responsible for the management, growth and
profitability of the Company.
(C) Focus incentives upon building value for stockholders by linking senior
executive compensation to the Company's performance as measured by net
income and the market value of the Company's stock.
2. ADMINISTRATION
The Plan will be administered by the Company's Compensation Committee (the
"Committee") or a subcommittee thereof that satisfies the requirements of
Section 162(m) of the Internal Revenue Code of 1986 or successor provision
("Section 162(m)"). The Committee will have full authority to administer the
Plan, including authority to interpret and construe any relevant provision of
the Plan, determine eligibility for an award and to adopt such rules and
regulations as it may deem necessary. Decisions of the Committee are final and
binding on all persons who have an interest in the Plan. Should any further
limitation on bonuses payable under the Plan be necessary to satisfy the
requirements of Section 162(m) under final regulations thereunder in order that
compensation paid under the Plan be performance-based, such limitations shall
apply.
3. ELIGIBILITY AND PARTICIPATION
(A) The executives eligible to participate in the Plan for any fiscal year
shall be each officer of the Company at the level of Vice President or
above.
(B) Participants are approved for each fiscal year by the Committee by name
or position and will not be eligible for an award for any fiscal year
unless explicitly approved for such fiscal year. Participants may, at the
discretion of the Committee, be approved for participation for part of a
fiscal year on a pro-rata basis.
(C) No executive shall participate in the Plan for any fiscal year if he/she
participates in any other Company-sponsored incentive, sales or bonus
plan for that fiscal year, unless such participation is approved by the
Committee.
(D) If an executive's employment is terminated during a fiscal year, the
Committee may, in its sole discretion, reduce or cancel the participation
of such executive for that year. Absent special circumstances, no
participant may receive any award under the Plan for any fiscal year if
he/she terminates employment before the end of that fiscal year for any
reason other than Company-approved retirement after attaining age 65,
death, disability or involuntary termination without cause.
4. DETERMINATION OF BONUSES
(A) The Committee shall establish a target bonus for each eligible
participant, either by name or position, for such fiscal year, payable if
a specified Company performance goal is satisfied for such fiscal year.
The target bonus payable to any Participant for any fiscal year shall be
a specified percentage (not to exceed 150%) of that participant's salary
for the fiscal year, but in no event shall exceed $1,000,000. Both the
specified percentage and the Company performance goal for a fiscal year
shall be determined by the Committee within the first ninety (90) days of
such fiscal year of the Company (or within such earlier period as shall
be required under Section 162(m)).
<PAGE>
(B) The performance goal for each fiscal year shall be based on one of the
following measures of the Company's performance: (i) the achievement of a
specified closing or average closing price of Company common stock, (ii)
the absolute or percentage increase in the closing or average closing
price of Company common stock and/or one or more of the following
measures of the Company's net income for such fiscal year determined in
accordance with generally accepted accounting principles as consistently
applied by the Company: absolute net income or a percentage or absolute
dollar increase in net income, earnings per share or a percentage or
absolute dollar increase in earnings per share, or return on equity or a
percentage or absolute dollar increase in return on equity. The Committee
may provide for alternative levels of bonus depending on relative
performance toward a performance goal. The Committee may establish a goal
based on one or more measures of net income or may establish multiple
goals based on more than one measure, but any bonus payable must be based
on the satisfaction of at least one goal.
(C) For purposes of this Plan, net income shall be net income of the Company
and its consolidated subsidiaries as reported by the Company and
certified by its independent public accountants, but the Committee in
fixing any goal may exclude any or all of the following if they have a
material effect on annual net income: events or transactions that are
either unusual in nature or infrequent in occurrence (such as
restructuring\reorganization charges, the sale or discontinuance of a
business segment, the sale of investment securities, losses from
litigation, the cumulative effect of changes in accounting principles,
and natural disasters), depreciation, interest or taxes.
(D) Final payouts are subject to the approval of the Committee and shall
occur as soon as practical after the close of the Company's financial
books for the fiscal year. The Committee reserves the right to reduce or
cancel any payout that would otherwise be due to a participant if, in its
sole discretion, the Committee deems such action warranted based on other
circumstances relating to the performance of the Company or the
participant.
5. DEFERRAL OF BONUSES
(A) The Committee may, subject to such limits as the Committee may specify,
permit a participant in the Plan to defer all or part of the bonus
awarded to him/her with respect to any fiscal year by executing and
delivering to the Company a deferral election form provided by the
Committee no later than the date specified in the notification to the
participant of his/her participation for such fiscal year.
(B) The deferred bonus will be credited to a special book account maintained
for each participant and will accrue earnings based on a reasonable rate
of interest or on one or more predetermined actual investments (whether
or not assets associated with the amount originally owed are actually
invested therein) such that the amount payable by the employer at the
later date will be based on the actual rate of return of a specific
investment (including any decrease as well as any increase in the value
of an investment). Distribution of the deferred bonus plus accrued
interest will be made at such time or times and in such manner as the
participant shall specify at the time he/she files the deferral election
forms, subject, however, to such restrictions and limitations as the
Committee may from time to time impose.
(C) The obligation to pay a deferred bonus plus earnings shall at all times
be an unfunded and unsecured obligation of the Company. The participant
and his/her beneficiary(ies) shall look exclusively to the general assets
of the Company, as general creditors of the Company. The Plan is intended
to be unfunded for purposes of the Employee Retirement Income Security
Act of 1974 and the Internal Revenue Code of 1986. The participant shall
have no right to assign, pledge or encumber his/her interest in the
amount credited to the deferred bonus account. The participant may,
however, designate one or more beneficiaries to receive the account
balance in the event of his/her death.
2
<PAGE>
6. AMENDMENT/TERMINATION
The Company hereby reserves the right, exercisable by the Committee, to
amend the Plan at any time and in any respect or to discontinue and terminate
the Plan in whole or in part at any time, subject to Section 7. Amendment or
termination may be effective with respect to any amount which has not yet been
paid out, except that amounts which have been credited to a deferred bonus
account shall be paid out in accordance with the applicable deferral election
or, if the Committee so determines upon termination of the Plan, distributed to
such participant as soon as practicable after termination of the Plan. In no
event shall any award be increased, other than pursuant to Section 4(C), after
the last day that an award must be specified for qualification as
performance-based compensation under Section 162(m).
No provision of the Plan shall be deemed to constitute a commitment of the
Company to pay, or to confer any contractual or other rights upon a participant
to receive a bonus award for any one or more fiscal years or to confer upon any
participant any right to continue in the employ of the Company or to constitute
any contract or agreement of employment or to interfere in any way with the
right of the Company to terminate a participant's employment at any time, with
or without cause, but nothing contained herein shall affect any contractual
right of a participant pursuant to a written employment agreement.
7. TERM AND SHAREHOLDER APPROVAL
In no event shall any award be made under the Plan for any fiscal after the
fiscal year beginning in calendar year 1999. The Plan, awards under the Plan,
and any amendment to the Plan which would change the class of executives who are
eligible to receive awards under the Plan or the permissible amount of such
awards shall be subject to approval of the Company's shareholders in such manner
and with such frequency as shall be required under Section 162(m).
3
<PAGE>
EXHIBIT 10.65
[CHIRON LOGO]
CONFIDENTIAL
January 4, 1995
C. William Zadel
President and CEO
Ciba Corning Diagnostics Corp.
63 North Street
Medfield, MA 02052-1688
Re: Employment Arrangements
Dear Bill:
I am writing to confirm the employment arrangements that we had discussed.
Chiron will continue your employment in an executive capacity by Ciba
Corning Diagnostics Corp. ("CCD") or an affiliate for not less than five years
from January 1, 1995. The present terms of your employment, including
compensation and benefits, will continue until changed by mutual agreement or
otherwise in accordance with such terms. For at least the first year, you will
be in charge of all operations of CCD. Chiron will consider your candidacy to be
the head of the business unit that may be formed by combining Chiron's
diagnostic business unit and related activities with CCD.
In the event that Chiron terminates your employment within the five year
period, other than for good cause, we will pay you a severance payment equal to
the lesser of three times your aggregate cash compensation in the twelve months
immediately preceding such termination or the amount of the aggregate cash
compensation expected to be paid to you over the remainder of the five year term
of this commitment.
Subject to Chiron Board approval, which we expect to obtain in February, you
will also be appointed Vice President of Chiron Corporation and a member of its
Strategy Committee. As such, you will become subject to the requirements of
Section 16 of the Securities and Exchange Act of 1934.
As you have questions, please call me.
Very truly yours,
Edward E. Penhoet
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT 10.66
[CHIRON LOGO]
CONFIDENTIAL
April 24, 1984
Dino Dina, M.D.
Director of Virology
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
Dear Dino:
I am writing to confirm that before you joined Chiron I agreed that you
would be given a minimum of one year's notice if the company decided to
terminate your employment for any normal business reason.
Sincerely,
Edward E. Penhoet
PRESIDENT
EEP/cs
<PAGE>
EXHIBIT 11
CHIRON CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
-------------- -------------- ---------------
<S> <C> <C> <C>
Net income (loss)............................................... $ 18,325,000 $ 18,384,000 $ (99,252,000)
-------------- -------------- ---------------
-------------- -------------- ---------------
Primary computation:
Weighted average number of common shares outstanding.......... 32,972,000 32,094,000 30,200,000
Weighted average dilutive incremental common shares issuable
from exercise of warrants.................................... 68,000 45,000 --
Weighted average dilutive incremental common shares issuable
under employee stock option programs......................... 1,253,000 1,542,000 --
-------------- -------------- ---------------
Total weighted average primary common shares.................... 34,293,000 33,681,000 30,200,000
-------------- -------------- ---------------
-------------- -------------- ---------------
Net income (loss) per share..................................... $ 0.53 $ 0.55 $ (3.29)
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
Chiron Corporation (the "Company" or "Chiron"), a human healthcare company,
applies biotechnology and other techniques of modern biology and chemistry to
develop, produce and sell products intended to improve the quality of life by
diagnosing, preventing and treating human disease. Chiron participates in the
global healthcare industry in four markets: diagnostics, including
immunodiagnostics and new quantitative probe diagnostics; therapeutics,
including Betaseron-Registered Trademark- (interferon beta 1-b) for multiple
sclerosis and Proleukin-Registered Trademark- (aldesleukin) for metastatic
kidney cancer; vaccines, including vaccines under development for genital
herpes, cytomegalovirus ("CMV"), hepatitis C virus ("HCV"), human
immunodeficiency virus ("HIV") and pertussis; and ophthalmic surgical products.
Effective May 10, 1994, Chiron acquired all of the outstanding common stock
of Laboratoires Domilens S.A. ("Domilens"), a manufacturer and distributor of
intraocular lenses headquartered in Lyon, France, in exchange for a cash payment
of $19 million. The acquisition of Domilens has been recorded as a purchase, and
the financial statements reflect the inclusion of Domilens from May 10, 1994,
forward. At the purchase date, Domilens' liabilities exceeded its net tangible
assets by approximately $5 million. Therefore, the $24 million excess purchase
price has been recorded as an intangible asset and is being amortized over ten
years, using the straight line method.
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 a 49.9 percent ownership
interest in Chiron common stock, partially through the purchase of 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 SpA) in exchange for 6.6 million
newly-issued Chiron common shares and a cash payment of $24 million. In
connection with these agreements, Ciba has agreed to guarantee $425 million of
new debt for Chiron and has agreed to provide at least $250 million (and 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. Alternatively,
Chiron is entitled to reacquire all rights to any resulting products by repaying
to Ciba, in cash or common stock, an amount equal to the funding plus interest.
The acquisitions of CCD and Ciba's interests in The Biocine Company and JV Vax
B.V. will be accounted for by the purchase method in the first quarter of 1995.
The estimated purchase price of approximately $433 million will be 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 will expense the amount allocated to in-process technology in
the first quarter of 1995. This will result in a noncash charge against
earnings, currently estimated to be approximately $219 million. Other
transaction-related charges totaling approximately $50 million (related to legal
and investment advisor fees, as well as employee payments and the related taxes)
also will be charged against earnings in the first quarter of 1995.
Chiron is studying the integration of its diagnostics business with CCD and
expects to combine aspects of its business and CCD into a single global
diagnostics business. However, as the transaction was not completed until
January 1995, CCD's results of operations are not consolidated with those of the
Company until after the acquisition date and the following discussion of the
results of operations
1
<PAGE>
does not include CCD. With respect to The Biocine Company and Biocine SpA, the
following discussion of the results of operations includes Chiron's interests in
those companies using the equity method of accounting.
In March 1995, Chiron Vision reached an agreement to acquire the surgical
division of IOLAB from Johnson & Johnson for approximately $95 million.
Following the acquisition, Chiron Vision expects to consolidate its intraocular
lens manufacturing in Lyon, France and at IOLAB's plant in Claremont,
California. The proposed acquisition will be accounted for as a purchase, and
will result in a charge to earnings for purchased in-process technology. Also,
the Company expects to record additional charges for restructuring and
integration-related expenses. IOLAB's results of operations will be consolidated
with those of the Company upon the close of the transaction (currently expected
to be March 31, 1995) and, accordingly, the following discussion of the results
of operations does not include IOLAB.
RESULTS OF OPERATIONS
REVENUES
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
each of the three years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Ophthalmic products.............................................. $ 106 $ 82 $ 65
Betaseron-Registered Trademark-.................................. 100 12 --
Oncology products................................................ 43 38 28
Diagnostic products.............................................. 22 14 12
Other products................................................... 5 2 7
--------- --------- ---------
$ 276 $ 148 $ 112
--------- --------- ---------
--------- --------- ---------
</TABLE>
Sales of ophthalmic products, the largest component of product sales, have
continued to increase between years due to an expanded product line, as well as
the impact of the Domilens acquisition. For the year ended December 31, 1994,
sales of intraocular lenses by Domilens contributed $13 million in new revenues.
Increased sales of excimer lasers and corneal shapers (new products introduced
in mid-1993) accounted for the remainder of the increase in 1994 and offset
declining sales of refractive surgery products.
Product sales in 1994 include the first full year of commercial shipments of
Betaseron-Registered Trademark- as Chiron received Food and Drug Administration
("FDA") approval in July 1993 to manufacture Betaseron-Registered Trademark- for
use in treating ambulatory patients with relapsing-remitting multiple sclerosis
("MS"). Under the terms of an amended development and supply agreement with
Schering AG, Germany, and its U.S. affiliate, Berlex Laboratories, Inc.
("Berlex"), Chiron manufactures Betaseron-Registered Trademark- for Berlex and
receives payment for the product upon shipment to Berlex. Chiron is required to
revert back to the terms of the original supply agreement with Berlex no later
than June 30, 1996. Chiron is considering the possibility of reverting back to
the terms of the original supply agreement in the first quarter of 1995. Under
those original terms, Chiron will receive 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. Assuming comparable 1994
and 1995 sales volumes, and if the reversion is made in 1995, total 1995
revenues from Betaseron-Registered Trademark- shipments will be lower than 1994
revenues by approximately $20 million to $25 million, as recognition of a
portion of the revenue will be deferred until the product is sold by Berlex.
Shipments of Betaseron-Registered Trademark- increased steadily throughout
1994 as the Company completed expansion of its manufacturing capacity and as
Berlex built product inventories sufficient to supply all of the
2
<PAGE>
patients on the initial enrollment waiting list. During the third quarter of
1994, Berlex announced that it would be able to provide sufficient supply of
Betaseron-Registered Trademark- to meet demand of MS patients in the United
States and that there no longer will be a waiting period for new patient
enrollments. Future levels of Chiron's Betaseron-Registered Trademark- shipments
will depend on the rate at which new patients are enrolled from existing and
future markets and the extent to which patients, once enrolled, remain compliant
with the prescribed treatment regimen and continue to regularly receive
Betaseron-Registered Trademark-. Chiron anticipates not shipping any commercial
vials of Betaseron-Registered Trademark- to Berlex in the first quarter of 1995
as Berlex holds sufficient inventory to meet first quarter patient demand
without additional shipments from Chiron. Total 1995 shipments of
Betaseron-Registered Trademark-, however, are expected to be roughly comparable
to, or slightly above or below 1994 levels.
Sales of oncology products, principally Proleukin-Registered Trademark-,
increased between 1993 and 1994 as quantities shipped increased in both the
European and domestic markets. Average selling prices increased slightly in
Europe, but remained comparable between periods in the domestic market. Between
1993 and 1992, oncology sales increased as 1993 results include the first full
year of Proleukin-Registered Trademark- sales in the United States market
(Proleukin-Registered Trademark- was introduced in the United States in June
1992.)
Diagnostic product sales consist of sales of antigens and
RIBA-Registered Trademark- HCV tests and sales of nucleic acid probe products
and instrumentation. Nucleic acid probe products have accounted for
substantially all of the increase in this category of revenue since Chiron began
marketing these products in early 1993. Currently, nucleic acid probe products
are sold at cost to Daiichi Pure Chemicals Co. Ltd. ("Daiichi"), who 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.
The Company markets many of its commercial products in Europe, Australia and
Canada. As a result, product revenues are affected by changing currency exchange
rates. Foreign product sales were approximately $72 million, $47 million, and
$42 million for the years ended December 31, 1994, 1993 and 1992, respectively.
Product sales would have been approximately $1 million lower in 1994 if currency
exchange rates had remained the same as in 1993. In 1993, product sales would
have been higher by approximately $3 million if currency exchange rates had
remained the same as in 1992. The Company's other revenues, discussed below, are
largely denominated in the U.S. dollar.
An important source of Chiron's revenues arises from its equity in the
earnings of unconsolidated joint businesses. Through December 31, 1994, Chiron
had a 50 percent equity interest in four joint businesses: a joint diagnostic
business with Ortho, a generic cancer chemotherapeutics business with Ben Venue
Laboratories, Inc., Biocine SpA (an Italian vaccine business with Ciba), and
Technolas GmbH, a German ophthalmic excimer laser business.
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. These revenues are recorded by Chiron on a one-month lag
based on estimates supplied by Ortho and are subject to a final annual
accounting during the first quarter of the subsequent year. While Chiron and
Ortho believe that these estimates reasonably portray the results of the joint
business, there can be no assurance that subsequent adjustment will not be
required. Chiron management believes that any subsequent adjustment will not
have a material adverse effect on the amounts previously recorded. Chiron
recorded joint diagnostic business revenues of $74 million, $77 million, and $74
million for the years ended December 31, 1994, 1993 and 1992, respectively.
Revenue amounts include a nominal amount recognized in 1994 as a result of the
final 1993 accounting, $7 million recognized in 1993 as a result of the final
1992 accounting and $7 million recognized in 1992 as a result of the final 1991
accounting. The Company
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anticipates that the adjustments arising from the final 1994 accounting will not
be significant. Without the impact of these prior adjustments, Chiron's share of
the profits of the joint business has remained steady throughout the three year
period ended December 31, 1994.
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.
In the United States, approximately 80-90 percent of the blood screening
market is divided between the American Red Cross ("Red Cross") and independent
blood centers that are members of the Council of Community Blood Centers
purchasing commission ("CCBC"). During 1994, the Red Cross renegotiated a
contract with the Chiron-Ortho joint business for HCV screening and confirmatory
tests and added a screening test for hepatitis B core antibody. The renegotiated
contract provides a lower selling price on HCV tests than previously and joint
business profits have been adversely affected by the impact of these lower
profit margins. During 1994, the revenues of the joint business have also been
negatively impacted by expiring supply contracts with individual CCBC centers --
these centers now have the option of purchasing their screening tests from
Abbott under the pricing terms of a three-year master contract between Abbott
and the CCBC. While certain of these centers continue to purchase from
Chiron-Ortho, sales volumes are lower when compared with the prior year. The
impact on joint business profits from these lower sales volumes has been
partially offset by increased royalties from Abbott.
Joint business results also include Chiron's share of the profits from
Biocine SpA. In 1994, Chiron and Ciba entered into a settlement agreement with
the former owner of Biocine SpA regarding a dispute over representations made in
connection with the acquisition of Biocine SpA. Under the terms of the
settlement, Chiron and Ciba together received a $9 million cash payment, as well
as certain concessions from the former owner concerning product distribution
rights. Chiron has included its 50 percent interest in the settlement in 1994
joint business results. Without the impact of this settlement, Chiron's share of
Biocine SpA's earnings was income of $3 million for the year ended December 31,
1994, versus income of $0.5 million and a loss of $0.1 million in 1993 and 1992,
respectively. Most of this improved performance can be attributed to higher
revenues from a new pertussis vaccine and reduced reserves for the return of
unused flu vaccine.
Results for Chiron's equity interest in the generic cancer chemotherapeutics
business and the German ophthalmic excimer laser business were not significant
in any of the years in the three-year period ended December 31, 1994.
A significant portion of the Company's revenues is derived from
collaborative agreements. Such 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 clinical and preclinical testing. Revenues earned under
collaborative research agreements decreased slightly between 1993 and 1994, but
increased substantially over 1992 due to both an increase in reimbursable
vaccine research and development activities and a change in the funding
arrangement between Chiron and Ciba relating to their vaccine joint venture, The
Biocine Company. During 1993 and 1994, Ciba funded a portion of Chiron's share
of the operating loss of The Biocine Company in exchange for a preferred
interest in any future profits and cash flows of the venture. Without this
funding arrangement, Chiron's collaborative research revenue in 1994 and 1993
would have been offset by a larger share of The Biocine Company's losses ($15
million in 1994 and $14 million in 1993). As discussed previously, Chiron
acquired Ciba's interest in The Biocine Company in 1995 and therefore will not
be required to repay the excess Biocine funding made by Ciba on Chiron's behalf.
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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-Geigy. Royalty revenue, the largest component of other revenues, increased
from $10 million and $15 million in 1992 and 1993, to $17 million in 1994. In
both years, this increase was largely due to increased sales of recombinant
human insulin by Novo Nordisk A/S and hepatitis B vaccine by Merck & Co., Inc.
COST AND EXPENSES
Research and development expenses increased significantly between 1993 and
1994 as the Company's products in development continue to move towards
commercialization and as the Company entered into a number of 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 1994, new
collaborative arrangements include the following:
- In January 1994, Chiron entered into a collaboration with Cephalon, Inc.
("Cephalon") for the research, development and marketing of products for
the treatment of neurological disorders. Under the terms of the agreement,
both Chiron and Cephalon agreed to be responsible for and fund their own
collaboration-related expenses until the later of December 31, 1994, or
until such time as one party has spent $20 million. Thereafter, the other
party will be responsible for bearing all of the costs of the
collaboration until the funding is equalized or the products have reached
commercialization. Beginning in the first quarter of 1995, Chiron will
fund all collaboration expenses until cumulative funding by Chiron and
Cephalon is equalized, and thereafter, funding will be shared equally.
Chiron also invested $15 million in Cephalon's common stock and in a
warrant to purchase additional Cephalon common stock. Chiron has also
agreed to provide Cephalon with an $18 million credit facility through
1999 and had advanced a total of $8.9 million to Cephalon under this
facility at December 31, 1994.
- In March 1994, Chiron entered into an agreement with DepoTech Corporation
("DepoTech") for the research, development and marketing of products
incorporating certain drug delivery technologies developed by DepoTech,
and in some cases, certain of Chiron's therapeutic compounds. Under the
terms of the agreement, Chiron agreed to make specified payments to
DepoTech upon the attainment of certain product development milestones,
and agreed to fund all or a portion of the development costs of the
collaboration in exchange for the marketing rights to any resulting
commercial products, and the parties will share in the revenues of any
resulting commercial products. Chiron also invested $3.5 million in
DepoTech preferred stock and in a warrant to purchase additional DepoTech
preferred stock. In January 1995, DepoTech reached the first milestone,
and accordingly, the warrant was converted into a technology license fee
and Chiron commenced funding its portion of development costs, resulting
in a $3.5 million charge to research and development expense. If certain
regulatory milestones are attained for products incorporating DepoTech's
drug-delivery technology in connection with generic compounds, Chiron is
required to make milestone payments to DepoTech of up to $2 million per
product. Also, in the event that Chiron attains certain regulatory
milestones with respect to products incorporating Chiron's proprietary
therapeutic compounds in connection with DepoTech's drug-delivery
technology, Chiron will be required to make additional milestone payments
to DepoTech of up to $1.5 million per product.
- In April 1994, Chiron entered into a collaboration agreement with CytoMed,
Inc. ("CytoMed") for the research, development and marketing of complement
inhibitors with therapeutic and diagnostic applications. Under the terms
of the agreement, Chiron agreed to make specified payments to CytoMed upon
the attainment of certain product development milestones by
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CytoMed and to reimburse CytoMed for a specified portion of its research
and development expenses during 1995 and 1996. Also, Chiron has invested
$1.3 million in CytoMed capital stock and warrants to purchase additional
CytoMed capital stock and has agreed, subject to certain conditions, to
invest an additional $3.6 million in CytoMed equity securities ($2.3
million in 1995 and $1.3 million in 1996). If CytoMed successfully
achieves all development milestones, the agreement calls for Chiron to pay
to CytoMed a total of $9 million for milestone payments and reimbursement
of research and development costs incurred by CytoMed.
- In July 1994, Chiron entered into a collaboration agreement with Ribozyme
Pharmaceuticals, Inc. ("RPI") for the research, development and marketing
of gene transfer and gene therapy products. Under the terms of the
agreement, each party has agreed to fund its own preclinical research
expenses relating to the collaboration and share equally in the funding of
clinical research and development expenses. Additionally, Chiron has
invested approximately $4.6 million in capital stock and warrants to
purchase additional RPI common stock, and has agreed, subject to certain
conditions, to invest an additional $4.4 million in RPI equity securities.
- In October 1994, Chiron entered into a collaboration agreement with G.D.
Searle & Co. ("Searle") for the research, development and marketing of
Tissue Factor Pathway Inhibitor ("TFPI") products. Under the terms of the
agreement, Chiron made a $3.5 million payment to Searle, which was
expensed in 1994, and, except for this payment, each party has agreed to
fund its own collaboration-related expenses through 1994. Thereafter,
subject to certain conditions, Chiron is obligated to reimburse research
and development expenses of Searle (totaling up to $2.5 million in 1995
and $6.3 million in 1996), and the parties have agreed to fund other
development expenses equally. Chiron has the option to accelerate these
payments at any time. In 1994, Chiron's research and development expenses
related to this collaboration (including payments made to Searle) totaled
approximately $7 million.
These new collaborations discussed above contributed an additional $9
million in research and development expense in 1994. Additionally, spending in
the vaccines program increased by approximately $11 million over the prior year
due to clinical trial and manufacturing expenses for herpes simplex type 2, HIV
and other vaccines currently in development. The Company also purchased an
option from Johnson & Johnson to participate in a home HIV testing business. Of
the total $12 million option payment, $6 million was expensed in 1994; the
remainder will be expensed in 1995. In 1995, the Company expects that research
and development expense will increase significantly over prior years, as Chiron
incurs expenses in all of its collaborations (including those discussed above),
and as Chiron expands its vaccine, ophthalmics and therapeutics clinical trials.
Product development, manufacturing start-up, and regulatory expenses will also
increase in future periods as Chiron anticipates manufacturing and marketing
additional products.
Between 1992 and 1993, research and development expenses declined slightly
as 1992 results included a number of charges associated with collaborative
research programs. These 1992 charges included the following:
- Chiron and Lynx Therapeutics, Inc. ("Lynx"), formerly a subsidiary of
Applied Biosystems, Inc., entered into a drug development collaboration
agreement focused on the development of antisense therapeutic drugs for
several viral disease targets. The Company made an investment in the
equity securities of Lynx and expensed a $2 million payment to Lynx under
the terms of a collaborative agreement for research support and marketing
rights.
- Chiron Vision, a subsidiary of Chiron (formerly named Chiron IntraOptics),
licensed worldwide rights for ophthalmic applications of drug delivery
technology from Control Delivery Systems, Inc. ("CDS"). The CDS system,
currently in clinical trials, is designed to deliver, among other drugs,
anti-virals into the eye for the treatment of retinitis caused by
cytomegalovirus, a late
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stage infection that leads to blindness in AIDS patients. In connection
with the technology license, Chiron Vision purchased a 30 percent equity
interest in CDS and a $2 million license fee was expensed.
- Chiron Vision purchased certain marketing rights for excimer lasers used
in refractive surgery produced by Technolas GmbH of Germany, and, in 1993,
acquired a 50 percent interest in that company. Charges to research and
development expense associated with this transaction totaled $3 million in
1992.
Independent of these specific transactions, research and development expense
in 1993 would have been slightly higher than the prior year. Funding for vaccine
programs increased by approximately $11 million in 1993 as the Company continued
vaccine clinical trials for herpes, HIV and flu vaccines. Funding for
Betaseron-Registered Trademark- product development and manufacturing start-up
costs increased by approximately $7 million in 1993, as significant costs were
incurred in readying Betaseron-Registered Trademark- manufacturing facilities
for commercial production. Decreases in spending for oncology product
development and the cessation in 1992 of polymerase chain reaction ("PCR")
manufacturing activities partially offset this higher vaccine and
Betaseron-Registered Trademark- spending.
Cost of sales increased consistent with the increase in product sales
between years. Gross profit margins increased from 51 percent in 1992 to 54
percent in both 1993 and 1994, as expenses associated with the expansion of
manufacturing capacity were more than offset by improved margins realized as
sales volumes of Betaseron-Registered Trademark- increased. Gross 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 increased between 1993 and
1994, largely due to increased spending associated with the growth in the
ophthalmics business. In particular, the acquisition of Domilens added $6
million to selling, general and administrative expenses in 1994. Selling and
marketing expenses represent the largest portion of total selling, general and
administrative expenses in all periods as the Company has continued to devote
significant resources to support increasing sales volumes in the oncology,
ophthalmic and nucleic acid probe product lines. Higher legal costs associated
with Chiron's defense of HCV patents and costs associated with the Ciba
agreements contributed further to the increase in administrative expenses.
Selling, general and administrative expenses dropped slightly between 1992 and
1993, largely due to $7 million accrued in 1992 for expenses associated with the
consolidation of certain foreign operations, litigation reserves and
reorganization charges. Without these charges, selling, general and
administrative expense in 1993 would have been comparable with the prior year.
In 1992, the write-off of in-process technologies resulted primarily from a
charge to expense associated with the purchase of Biocine SpA. Also included was
$2 million related to the acquisition of the minority interest in CDS described
earlier. These amounts were partially offset by a $5 million adjustment to the
1991 purchase accounting for Cetus Oncology Corporation ("Cetus"). Chiron's 50
percent share of the acquisition cost of Biocine SpA exceeded its share of the
underlying net tangible assets by $46 million. Such excess was allocated to
Biocine SpA's intangible assets based upon independent appraisals and included
$40 million of in-process technology and $6 million of base technology. As
required by generally accepted accounting principles, amounts allocable to
in-process technology were expensed in 1992 resulting in a charge to expense.
The amount allocable to base technology was capitalized as an intangible asset
and is being amortized, using the straight-line method, over ten years.
Other operating expenses consist primarily of the amortization of purchased
technologies, primarily those of Cetus which are being amortized over 15 years.
Other purchased technologies are being amortized over periods ranging from 8 to
15 years. Other operating expenses in 1993 also include a credit of $6 million
arising from an agreement with Eastman Kodak Company and
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F. Hoffmann-LaRoche Ltd. and Hoffmann-LaRoche, Inc. ("Roche") which settled
disputes relating to the sale of Cetus' PCR technology business to Roche. Prior
to Chiron's acquisition of Cetus in 1991, Cetus had established an accrual for
the settlement of these disputes. Upon settling the disputes in the second
quarter of 1993, Chiron reversed the remaining accrual of $6 million. Other
operating expenses in 1992 also include an accrual of $3 million for major
seismic repairs to a research facility. Since these repairs were made solely to
ensure the safety of employees and did not extend the useful life of the
building, the costs were expensed.
OTHER ITEMS
Net other income consists primarily of investment income on the Company's
cash and investment balances and interest expense accrued on convertible
subordinated debentures and capital leases. Net other income decreased
significantly between 1993 and 1994, largely as a result of increased interest
expense associated with the Company's convertible subordinated debentures issued
in November 1993 and the write-down of marketable investments discussed below.
Capitalized interest related to the Company's manufacturing expansion partially
offset the increased interest expense in 1994. Between 1992 and 1993, net other
income increased, as lower investment earnings resulting from lower cash
balances and interest rates were more than offset by lower interest expense
resulting from the retirement of Chiron's 7 1/4 percent debentures in late 1992.
In late 1994, the Company determined that fluctuations in the fair value of
marketable investments in Viagene, Inc. ("Viagene") and Cephalon were "other
than temporary" and, in accordance with Statement of Financial Accounting
Standards No. 115, recorded a $12 million charge to earnings. This charge did
not create a corresponding current income tax benefit and therefore increased
the effective tax rate for the year ended December 31, 1994. The effective tax
rate increased further in 1994 due to federal net operating loss benefits which
were substantially depleted in 1993. The effective tax rate for the year ended
December 31, 1993 is different from the effective tax rate for 1992, principally
due to the effect of the write-off of in-process technology, the effect of net
operating loss carryforwards and the accounting for certain tax benefits related
to the acquisition of Cetus.
OUTLOOK
Chiron expects to report a significant loss in the first quarter of 1995,
due to the effects of the acquisitions discussed earlier and the impact of a
number of unusual transactions that are expected during the first quarter of
1995:
- The acquisition of CCD and Ciba's interests in The Biocine Company and JV
Vax B.V. will result in a charge to earnings currently estimated to be
approximately $219 million for in-process technology and an additional $50
million for other expenses associated with the transaction.
- The proposed acquisition of the surgical division of IOLAB will result in
charges for the expensing of in-process technology and restructuring and
other related expenses.
- As discussed earlier, Chiron anticipates not shipping any commercial vials
of Betaseron-Registered Trademark- to Berlex in the first quarter of 1995.
Total 1995 shipments of Betaseron-Registered Trademark- are expected to be
approximately comparable to, or slightly above or below 1994 levels. However,
Chiron is required to revert back to the terms of the original supply agreement
with Berlex sometime in 1995 or no later than June of 1996. Chiron has under
consideration the possibility of reverting back to the terms of the original
supply agreement in the first quarter of 1995. Under those original terms,
Chiron will receive 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. Although total sales volumes may be comparable between 1994 and
1995, revenues from Betaseron-Registered Trademark- shipments will be lower than
1994 by approximately $20 million to $25 million as recognition of a portion of
the revenue will be deferred until the product is sold by Berlex.
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Profitability of the Company beyond the first half of 1995 depends upon a
number of factors. These factors include: successful integration of newly
acquired businesses with Chiron; 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; the successful completion of clinical
trials and subsequent FDA approval for commercialization of additional vaccines,
diagnostics and pharmaceuticals under development; and expense reduction in
several of the Company's businesses. There can be no assurance whether any
combination of these factors can be achieved, or that any such combination will
result in profitability of the Company. In some instances, achievement of these
factors is 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 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 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 clinical trials, the completion of commercial
scale manufacturing facilities, and marketing and sales expenses associated with
product introductions. Chiron has embarked on a significant expansion of its
manufacturing capability to support Betaseron-Registered Trademark- production
and vaccine and growth factor development which will result in higher levels of
operating expenses and depreciation in future years. 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.
In addition, Chiron's revenues from collaborative research agreements
generally can be terminated by the sponsor upon notice not exceeding nine months
or if Chiron fails to perform. Future collaborative research revenues will
depend in part upon achievement of development objectives under the operative
research agreements. The achievement of these objectives and the time it may
take to achieve them cannot be predicted accurately. Chiron's agreements to
manufacture and supply bulk materials are also subject to termination by the
licensee or contract sponsor in the event of breach by Chiron and in certain
other events. In addition, Chiron has established collaborative arrangements
with third parties for certain of its other products which are dependent upon
the third party's success in performing clinical testing, obtaining regulatory
approvals and marketing. Chiron's operating results over the near term will be
adversely affected as a result of funding its share of
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expenses in connection with these collaborative research projects. Additionally,
Chiron may enter into new collaborative research projects which would further
impact the Company's operating results in future periods.
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.
Finally, the integration of CCD, The Biocine Company, JV Vax B.V. and the
surgical division of IOLAB will have a material impact on the results of
operations of the Company going forward. The Company is currently studying the
integration of its diagnostics business with CCD, its vaccine business with The
Biocine Company and JV Vax B.V., and its ophthalmic business with IOLAB;
however, there can be no assurance that such integration will be successful. The
Company expects to incur significant charges in the first quarter of 1995
associated with restructuring the ophthalmic business (assuming the acquisition
of IOLAB is completed) and may incur additional charges in subsequent quarters
as the integration is completed. Additionally, in prior periods, Ciba has funded
its one-half share of the losses of The Biocine Company, as well as a
significant portion of Chiron's one-half share. As a result, Chiron has
recognized collaborative research revenues equal to Ciba's total Biocine Company
funding. Beginning in 1995, Chiron will be required to consolidate The Biocine
Company losses. However, under the terms of the agreements with Ciba, Ciba has
agreed to provide at least $250 million over five years in support of research
at Chiron; this funding arrangement may be used in future periods to provide
collaborative research revenues which fund all or a portion of Biocine expenses.
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. Alternatively, Chiron is entitled to reacquire all rights to
any resulting products by repaying to Ciba, in cash or common stock, an amount
equal to the funding plus interest.
LIQUIDITY AND CAPITAL RESOURCES
Chiron has financed product development, operations and capital expenditures
primarily from public and private sales of equity and convertible debt,
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 at least $250 million (and up to $300 million subject to
certain reductions in the debt guarantee) over five years in support of research
programs at Chiron. Chiron also 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 maturities in excess of one year are presented on the
balance sheet as noncurrent investments.
In early 1993, Chiron began a major manufacturing expansion designed to meet
the projected demand for products recently approved or that are in the late
stages of development. The Company has expanded its capacity to produce
Betaseron-Registered Trademark- by increasing production capacity in Emeryville,
California, Amsterdam, The Netherlands, and through the purchase of and
subsequent investments
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in a pharmaceutical fill and finishing facility in Puerto Rico. The Company is
remodeling a facility in St. Louis, Missouri, for use in vaccine production and
is building a facility in Vacaville, California, for use in growth factor
production. Substantially all of Chiron's total capital expenditures of $106
million in 1994 related to this manufacturing expansion.
A large component of the capacity created with the manufacturing expansion
became available in 1994, while the remainder will become available when the
appropriate regulatory approvals are obtained. The current demand for
Betaseron-Registered Trademark- can be adequately supplied with current approved
and on-line manufacturing capacity. Significant additional manufacturing
capacity for Betaseron-Registered Trademark- will become available when
regulatory approval is sought and obtained for the Amsterdam and Puerto Rico
facilities. Full utilization of this additional manufacturing capacity will
require a significant increase in Betaseron-Registered Trademark- demand. If
this substantial increase does not occur, a significant portion of
Betaseron-Registered Trademark- manufacturing capacity will be underutilized.
Chiron is currently considering alternative options concerning the Amsterdam and
Puerto Rico facilities, including manufacturing other products in those
locations or reducing the costs associated with the operations of those
facilities in the near-term.
In future periods, Chiron expects that substantial capital spending will
continue as the Company begins expansion of its administrative, research and
development facilities in Emeryville. The expansion of administrative, research
and development facilities is projected to occur in stages and the Company
anticipates entering into leasing arrangements which will provide third-party
funding for a significant portion of the expansion.
Chiron's liquidity may be further 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. Chiron has also agreed to provide
Cephalon with an $18 million credit facility through 1999 and has made advances
to Cephalon under such facility totaling $8.9 million through December 31, 1994.
During the year ended December 31, 1994, cash and cash equivalents decreased
by approximately $72 million. Of this amount, approximately $15 million was
provided by the Company's operating activities, compared to $15 million provided
by operating activities in 1993. In 1992, operating activities consumed cash of
approximately $71 million, reflecting that year's net loss of $99 million.
Investing activities consumed cash of $107 million in 1994, versus $140
million and $113 million in 1993 and 1992, respectively, largely in support of
continued capital expansion. Capital expenditures on plant and equipment were
$106 million during 1994, versus $115 million and $26 million in 1993 and 1992,
and were consistent with the Company's commitment to expanding manufacturing
capacity. In 1994, the Company also made equity investments totaling $42 million
in the capital stock of Cephalon, DepoTech, CytoMed, RPI and in the acquisition
of Domilens. Cash provided by financing activities of $21 million in 1994
largely reflects the cash proceeds received from the exercise of stock options.
The Company does not have significant unhedged monetary assets or
liabilities which are denominated in foreign currencies. Certain receivables
arising from Chiron's foreign operations are hedged, generally through foreign
currency contracts which expire quarterly.
11
<PAGE>
CHIRON CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 84,876 $ 156,516
Short-term investments in marketable debt securities................................ 137,619 81,565
------------ ------------
Total cash and short-term investments in marketable debt securities............. 222,495 238,081
Accounts receivable, net of allowances of $7,210 in 1994 and $5,194 in 1993:
Related parties................................................................... 42,694 35,833
Unrelated parties................................................................. 97,782 40,583
------------ ------------
140,476 76,416
Inventories......................................................................... 47,592 35,453
Other current assets................................................................ 23,252 12,075
------------ ------------
Total current assets............................................................ 433,815 362,025
Noncurrent investments in marketable debt securities.................................. 171,328 286,975
Property, equipment and leasehold improvements, at cost:
Land and buildings.................................................................. 60,930 25,145
Laboratory, production and office equipment......................................... 140,438 75,640
Leasehold improvements.............................................................. 82,145 49,007
Construction in progress............................................................ 78,998 109,287
------------ ------------
362,511 259,079
Less accumulated depreciation and amortization...................................... 76,337 55,122
------------ ------------
Net property, equipment and leasehold improvements................................ 286,174 203,957
Intangible assets, net of accumulated amortization of $33,585 in 1994 and $23,948 in
1993................................................................................. 85,803 62,034
Investments in equity securities and affiliated companies............................. 51,425 44,530
Other assets.......................................................................... 21,197 9,076
------------ ------------
$ 1,049,742 $ 968,597
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 27,778 $ 28,372
Accrued compensation and related expenses........................................... 24,010 23,294
Current portion of unearned revenue................................................. 1,544 11,676
Current portion of long-term debt................................................... 3,461 864
Taxes payable....................................................................... 10,060 8,252
Payable to The Biocine Company...................................................... 8,645 6,987
Other current liabilities........................................................... 44,143 26,161
------------ ------------
Total current liabilities....................................................... 119,641 105,606
Long-term debt........................................................................ 338,061 332,991
Other noncurrent liabilities.......................................................... 19,409 7,711
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none outstanding...... -- --
Common stock, $.01 par value; 99,500,000 shares authorized; 33,378,937 outstanding
(32,677,164 outstanding at December 31, 1993)...................................... 334 327
Restricted common stock, $.01 par value; 500,000 shares authorized; none
outstanding........................................................................ -- --
Additional paid-in capital.......................................................... 1,161,942 1,124,743
Accumulated deficit................................................................. (575,236) (593,561)
Cumulative foreign currency translation adjustment.................................. (1,719) (9,220)
Unrealized loss from investments.................................................... (12,690) --
------------ ------------
Total stockholders' equity...................................................... 572,631 522,289
------------ ------------
$ 1,049,742 $ 968,597
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
12
<PAGE>
CHIRON CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product sales:
Related parties........................................................ $ 11,787 $ 11,382 $ 11,801
Unrelated parties...................................................... 264,179 136,511 99,779
----------- ----------- -----------
275,966 147,893 111,580
Equity in earnings of unconsolidated joint businesses.................... 82,395 77,739 74,238
Collaborative agreement revenues:
Related parties........................................................ 53,970 51,226 24,486
Unrelated parties...................................................... 13,531 17,717 16,017
----------- ----------- -----------
67,501 68,943 40,503
Other revenues:
Related parties........................................................ 5,439 2,831 4,391
Unrelated parties...................................................... 22,678 20,129 15,548
----------- ----------- -----------
28,117 22,960 19,939
----------- ----------- -----------
Total revenues....................................................... 453,979 317,535 246,260
Expenses:
Research and development................................................. 166,175 140,030 142,265
Cost of sales............................................................ 128,209 68,484 54,692
Selling, general and administrative...................................... 112,107 95,790 99,707
Write-off of in-process technologies..................................... -- -- 37,641
Other operating expenses................................................. 5,088 (1,907) 7,499
----------- ----------- -----------
Total expenses....................................................... 411,579 302,397 341,804
----------- ----------- -----------
Income (loss) from operations.............................................. 42,400 15,138 (95,544)
Other income (expense), net................................................ (10,403) 7,949 6,973
----------- ----------- -----------
Income (loss) before income taxes and extraordinary item................... 31,997 23,087 (88,571)
Provision for income taxes................................................. 13,672 4,703 4,024
----------- ----------- -----------
Income (loss) before extraordinary item.................................... 18,325 18,384 (92,595)
Extraordinary item -- loss on early retirement of debt, net of income
taxes..................................................................... -- -- (6,657)
----------- ----------- -----------
Net income (loss).......................................................... $ 18,325 $ 18,384 $ (99,252)
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per share
Before extraordinary item................................................ $ 0.53 $ 0.55 $ (3.07)
Extraordinary item....................................................... -- -- (0.22)
----------- ----------- -----------
Net income (loss) per share................................................ $ 0.53 $ 0.55 $ (3.29)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of shares used in calculating per share amounts.... 34,293 33,681 30,200
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
13
<PAGE>
CHIRON CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY UNREALIZED TOTAL
---------------------- PAID-IN ACCUMULATED TRANSLATION LOSS FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT INVESTMENTS EQUITY
--------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991..... 29,839 $ 298 $ 1,017,584 $ (511,783) $ (482) $ -- $ 505,617
Conversion of subordinated
debentures, including accrued
interest......................... 1,053 11 50,572 -- -- -- 50,583
Exercise of stock options,
including tax effect............. 613 6 19,389 -- -- -- 19,395
Employee stock purchase plan...... 185 2 5,170 -- -- -- 5,172
Foreign currency translation
adjustment....................... -- -- -- -- (3,060) -- (3,060)
Preferred stock dividend, related
to IntraOptics, Inc. issued in
shares of common stock........... 23 -- 910 (910) -- -- --
Other various..................... -- -- 226 -- -- -- 226
Net loss.......................... -- -- -- (99,252) -- -- (99,252)
--------- ----- ------------ ------------ ----------- ----------- ------------
Balances at December 31, 1992..... 31,713 317 1,093,851 (611,945) (3,542) -- 478,681
Exercise of stock options......... 842 9 25,467 -- -- -- 25,476
Employee stock purchase plan...... 122 1 5,425 -- -- -- 5,426
Foreign currency translation
adjustment....................... -- -- -- -- (5,678) -- (5,678)
Net income........................ -- -- -- 18,384 -- -- 18,384
--------- ----- ------------ ------------ ----------- ----------- ------------
Balances at December 31, 1993..... 32,677 327 1,124,743 (593,561) (9,220) -- 522,289
Exercise of stock options,
including tax effect............. 394 4 21,943 -- -- -- 21,947
Exercise of warrants.............. 150 1 7,874 -- -- -- 7,875
Employee stock purchase plan...... 158 2 7,382 -- -- -- 7,384
Foreign currency translation
adjustment....................... -- -- -- -- 7,501 -- 7,501
Unrealized loss from
investments...................... -- -- -- -- -- (12,690) (12,690)
Net income........................ -- -- -- 18,325 -- -- 18,325
--------- ----- ------------ ------------ ----------- ----------- ------------
Balances at December 31, 1994..... 33,379 $ 334 $ 1,161,942 $ (575,236) $ (1,719) $ (12,690) $ 572,631
--------- ----- ------------ ------------ ----------- ----------- ------------
--------- ----- ------------ ------------ ----------- ----------- ------------
</TABLE>
See accompanying notes.
14
<PAGE>
CHIRON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ 18,325 $ 18,384 $ (99,252)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 49,429 25,040 23,951
Reserves and expensing of purchased technologies.................... 15,892 6,217 43,392
Deferred income taxes............................................... -- 4,680 1,722
Settlement of Cetus acquisition contingencies....................... -- (13,387) --
Loss on early retirement of debt.................................... -- -- 7,519
Write-down of investments in equity securities...................... 11,607 -- --
Undistributed (earnings) loss of affiliates......................... (5,666) 112 137
Changes, excluding effect of Domilens acquisition, to:
Accounts receivable............................................... (58,019) (18,086) (24,715)
Inventories....................................................... (7,394) (18,302) (7,080)
Other current assets.............................................. (13,692) 201 2,685
Accounts payable.................................................. (4,069) 384 4,266
Accrued compensation and related expenses......................... 901 7,150 (3,088)
Taxes payable..................................................... 11,703 (2,004) (14,954)
Payable to The Biocine Company.................................... 1,658 6,049 (1,788)
Other current liabilities......................................... 2,542 (6,687) 2,644
Current portion of unearned revenue............................... (10,132) 9,294 (3,729)
Other noncurrent liabilities...................................... 2,086 (3,596) (2,819)
------------ ------------ ------------
Net cash provided by (used in) operating activities............. 15,171 15,449 (71,109)
Cash flows from investing activities:
Purchase of investments in marketable debt securities................. (180,365) (680,657) (750,996)
Sale of investments in marketable debt securities..................... 232,900 686,006 735,887
Acquisition of Domilens, net of cash acquired......................... (17,726) -- --
Capital expenditures.................................................. (105,691) (115,185) (25,663)
Investments in equity securities and affiliates....................... (24,010) (20,385) (62,527)
Increase in other assets.............................................. (12,525) (10,103) (10,082)
------------ ------------ ------------
Net cash used in investing activities........................... (107,417) (140,324) (113,381)
Cash flows from financing activities:
Proceeds from issuance of convertible debentures...................... -- 209,363 --
Proceeds from issuance of common stock................................ 27,126 28,598 18,893
Early extinguishment of subordinated debt............................. -- -- (76,192)
Repayment of notes payable and capital leases......................... (6,520) (2,319) (24,640)
------------ ------------ ------------
Net cash provided by (used in) financing activities............. 20,606 235,642 (81,939)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................................... (71,640) 110,767 (266,429)
Cash and cash equivalents at beginning of the period.................... 156,516 45,749 312,178
------------ ------------ ------------
Cash and cash equivalents at end of period.............................. $ 84,876 $ 156,516 $ 45,749
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
15
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Chiron Corporation ("Chiron" or the "Company") applies biotechnology and
other techniques of modern biology and chemistry to develop products intended to
improve the quality of life by diagnosing, preventing and treating human disease
with a goal of reducing overall healthcare costs.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. 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 using the equity or cost method, or in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115"), as appropriate. Certain
foreign subsidiaries are accounted for on a one-month lag. Certain prior year
amounts have been reclassified to conform with the 1994 presentation.
CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents and short-term investments consist principally of money
market instruments which include: corporate notes, corporate bonds, time
deposits, Eurodollar certificates of deposits, commercial paper, and government
or government agency securities. Noncurrent investments consist principally of
corporate notes, corporate bonds and government or government agency securities.
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
The Company adopted the provisions of FAS 115 as of January 1, 1994. This
new standard requires certain reclassifications of, and related changes in
accounting for, certain debt and equity investments (Note 4).
INVENTORIES
Pharmaceutical products are stated at the lower of cost or market using the
average cost method. Ophthalmic products are valued at cost (first-in, first-out
basis) which is less than fair value. Inventories consist of the following at
December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................................................... $ 24,402 $ 21,475
Work in process.................................................................. 8,650 7,088
Raw materials.................................................................... 14,540 6,890
--------- ---------
$ 47,592 $ 35,453
--------- ---------
--------- ---------
</TABLE>
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at cost.
Depreciation on property and equipment, including assets held under capital
leases, is computed by the straight-line method over the estimated useful lives
of the assets (3 to 10 years for equipment and 15 to 40 years for buildings).
Capitalized start-up costs for recently completed manufacturing facilities are
amortized over 3 years. Leasehold improvements are amortized on a straight-line
basis over the remaining fixed lease term or asset life, whichever is shorter.
16
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist primarily of purchased technologies, goodwill and
patents and are amortized on a straight-line basis over their estimated useful
lives ranging from 8 to 17 years. Amortization expense for the years ended
December 31, 1994, 1993 and 1992, was $9.5 million, $6.1 million and $8.6
million respectively. Amortization of purchased technologies and goodwill are
primarily included in "Other operating expenses" and amortization of patents is
primarily included in "Research and development expense" in the Consolidated
Statement of Operations.
On May 10, 1994, Chiron acquired Laboratoires Domilens S.A. ("Domilens"), a
French manufacturer and distributor of intraocular lenses, for approximately
$18.7 million in cash. The acquisition was accounted for as a purchase, and
accordingly, Domilens' financial results have been included in Chiron's
consolidated results of operations from the date of purchase. The $18.7 million
purchase price was allocated to the acquired assets and liabilities based on
their estimated fair value. The excess acquisition cost over the fair value of
the net tangible assets and liabilities assumed was recorded as an intangible
asset in the amount of $23.8 million. The intangible asset is being amortized
using the straight-line method over a ten-year life.
REVENUES
Revenue from product sales consists of shipments of ophthalmic products,
therapeutics, diagnostic materials and instruments and other biologicals and is
generally recognized upon shipment. During 1993 and 1994, Chiron recognized
Betaseron-Registered Trademark- revenues under the terms of an amended supply
agreement whereby Chiron recognized the majority of its
Betaseron-Registered Trademark- revenues upon shipment of the product to the
marketing partner. The Company is required to revert back to the terms of the
original supply agreement no later than June 30, 1996. Under the terms of the
original supply agreement, Chiron will recognize a partial share of
Betaseron-Registered Trademark- revenues upon shipment and an additional share
upon subsequent sale of the product to patients.
Equity in earnings of unconsolidated joint businesses represents the
Company's share of the pretax operating results generated by its commercial
joint businesses. Collaborative agreement revenue is earned and recognized based
upon work performed, upon the sale of product rights, upon shipment of product
for use in preclinical and clinical testing or upon the attainment of benchmarks
specified in the related agreements. Amounts presented are net of the Company's
share of the losses of The Biocine Company (Note 2). Under contracts where
reimbursement is based upon work performed, the related research and development
expenses were $72.4 million, $61.5 million and $47.3 million in 1994, 1993 and
1992, respectively. Other revenues consist primarily of royalty payments under
license agreements, sales fees, service revenue and grants from federal or state
governments and are recognized when earned.
RESEARCH AND DEVELOPMENT EXPENSES
All costs of research and development are expensed in the period incurred.
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). In adopting FAS 109, the Company restated its financial statements prior
to 1993.
17
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PER SHARE DATA
Per share information is based on the weighted average number of common and
dilutive common equivalent shares outstanding. Shares issuable upon the exercise
of stock options and warrants are not included in the 1992 calculation since
their inclusion would be antidilutive; however, they are included as appropriate
in the calculations for 1993 and 1994. Shares assumed to be issued upon
conversion of the Company's convertible debentures are not included for any of
the periods presented since their inclusion would be antidilutive. Fully diluted
per share data has not been presented, as the amounts would not differ
materially from primary per share data.
STATEMENT OF CASH FLOWS DATA
Supplemental disclosure to the Consolidated Statement of Cash Flows for the
years ended December 31, 1994, 1993 and 1992, is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Conversion of debentures to equity.................................... $ -- $ -- $ 49,483
Tax effect of stock option deductions................................. 9,895 -- 3,451
Cash paid for interest................................................ 12,866 8,518 19,230
Cash paid for income taxes............................................ 1,263 2,393 22,836
</TABLE>
During 1994, Chiron acquired all of the common stock of Domilens for
approximately $18.7 million in cash. In connection with the acquisition, the
fair value of assets acquired (including goodwill) was $42.8 million, and
liabilities of $24.1 million were assumed by the Company.
FOREIGN CURRENCY
The assets and liabilities of subsidiaries and equity investments
denominated in foreign currencies are translated at the exchange rates in effect
at the appropriate year-end. The revenues and expenses of such subsidiaries and
investments are translated at the average exchange rates for the period of
operation. Adjustments resulting from such translations are included in
cumulative foreign currency translation adjustment, a separate component of
stockholders' equity. Local foreign currencies are generally considered to be
the functional currency.
The Company enters into various foreign currency hedging contracts to
provide an economic hedge against fluctuations in foreign currency exchange
rates that may affect certain transactions. In general, the use of such
contracts is limited to the hedging of foreign receivables and payables. The
hedging contracts are generally settled at the end of each quarter with gains or
losses recorded in "Other income (expense), net" to offset losses or gains on
foreign currency receivables and payables. Foreign currency transaction gains
and losses, net of the impact of hedging, were not significant for the years
ended December 31, 1994, 1993 and 1992. As of December 31, 1994, the Company had
$12.9 million in foreign currency contracts outstanding.
CONCENTRATION OF CREDIT AND MARKET RISK
The Company invests cash which is not required for immediate operating needs
principally in a diversified portfolio of financial instruments issued by
institutions (including United States government securities) with
investment-grade credit ratings. 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. The Company has not experienced any
significant realized losses on these investments.
18
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has not experienced any credit losses from its accounts
receivable from joint business partners or collaborative research agreements,
and none are currently expected. Other accounts receivable arise from sales to
customers of ophthalmic, therapeutic and diagnostic products. The Company
performs ongoing credit evaluations of these customers and generally does not
require collateral. Reserves are maintained for potential trade receivable
credit losses, and such losses have been within management's expectations.
RETIREMENT SAVINGS PLAN
The Company maintains a defined-contribution savings plan under section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
U.S. employees. The Company matches employee contributions according to a
specified formula. The Company's matching contributions totaled $1.8 million,
$1.3 million and $1.2 million in 1994, 1993 and 1992, respectively.
MAJOR CUSTOMERS
As discussed in Note 2, Ciba-Geigy Ltd. ("Ciba") and its affiliates are
related parties and collectively contributed 11 percent, 13 percent and 6
percent of total revenues in 1994, 1993, and 1992, respectively. As discussed in
Note 3, Johnson & Johnson and its affiliates are related parties and
collectively contributed 22 percent, 32 percent and 38 percent of total revenues
during 1994, 1993, and 1992, respectively. Sales of
Betaseron-Registered Trademark- to Chiron's marketing partner accounted for 23
percent, 4 percent and none of total revenues in 1994, 1993 and 1992,
respectively.
NOTE 2 -- RELATIONSHIP WITH CIBA-GEIGY LTD. AND AFFILIATES
SUBSEQUENT EVENT
Effective January 1, 1995, the Company and Ciba entered into a series of
agreements, including a cooperation and collaboration agreement, an option
agreement, a governance agreement and an investment agreement (collectively the
"agreements"). Under the terms of the agreements, Ciba purchased approximately
38 percent of the Company's outstanding common stock for $117 per share in
connection with a tender offer. In addition, the Company issued to Ciba 6.6
million new common shares and made a cash payment of $24 million in exchange for
Ciba's Ciba Corning Diagnostics Corp. ("CCD") and Ciba's interests in The
Biocine Company and JV Vax B.V. (a Netherlands company which owns Biocine SpA).
As a result of these transactions, Ciba owns approximately 49.9 percent of
Chiron's common stock. Under 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.
Chiron's acquisition of CCD and Ciba's interests in The Biocine Company and
JV Vax B.V. will be accounted for as a purchase. Accordingly, the approximate
$433 million purchase price will be allocated to the net assets of the acquired
companies. In accordance with generally accepted accounting principles, the
amount of the purchase price allocated to in-process technology will be expensed
in the first quarter of 1995. The Company currently estimates this charge will
be approximately $219 million. Other transaction-related charges totaling
approximately $50 million (related to legal and investment advisor fees, as well
as employee payments and related taxes) will also be charged against earnings in
the first quarter of 1995.
Under the terms of the agreements, Ciba has agreed to guarantee $425 million
of new debt for Chiron, and to provide research funding of at least $250 million
(and 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
19
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 2 -- RELATIONSHIP WITH CIBA-GEIGY LTD. AND AFFILIATES (CONTINUED)
research funding, Chiron will be obligated to offer to Ciba the opportunity to
share in the market opportunities of any resulting products. Alternatively,
Chiron is entitled to reacquire all rights to any resulting products by repaying
to Ciba, in cash or common stock, an amount equal to the funding plus interest.
The financial results of CCD, The Biocine Company and JV Vax B.V. will be
included in Chiron's consolidated results from January 1, 1995, forward. The
following unaudited proforma consolidated financial information for the year
ended December 31, 1994, gives effect to the terms of the agreements as if such
transactions had been consummated on January 1, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
(UNAUDITED)
<S> <C>
Total revenues........................................................ $ 957
Net income............................................................ 32
Net income per share.................................................. 0.77
</TABLE>
The above proforma financial information does not purport to be indicative
of actual financial results which would have been obtained had the acquisition
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 currently estimated to
be approxomately $219 million or other transaction-related expenses totaling
approximately $50 million (related to legal and investment advisor fees, as well
as employee payments and related taxes) which will be recognized in the first
quarter of 1995.
BIOCINE SPA
Effective as of January 23, 1992, Ciba, on behalf of itself and Chiron,
completed the acquisition of the vaccine business of Sclavo SpA of Siena, Italy.
Chiron paid $63 million to Ciba for its 50 percent share of the purchase price.
The business has been renamed Biocine SpA and is being held by JV Vax B.V., a
Netherlands company, in which Chiron and Ciba each owned a 50 percent equity
interest through December 31, 1994. Chiron's 50 percent share of the purchase
price exceeded its share of the underlying net tangible assets of Biocine SpA by
approximately $46 million. Such excess was allocated to identifiable intangible
assets based upon independent appraisals and included approximately $40 million
of in-process technology and approximately $6 million of base technology. The
in-process technology of $40 million was charged to operations in the first
quarter of 1992. The base technology of $6 million is being amortized to
operating expense over ten years, using the straight line method.
In 1994, Chiron and Ciba entered into an agreement with the former owner of
Biocine SpA which settled disputes concerning representations made in connection
with the acquisition of Biocine SpA. Under the terms of the settlement
agreement, Chiron and Ciba together received an $8.8 million cash payment, as
well as certain concessions concerning product distribution rights. Chiron has
included its 50 percent interest in the settlement as "Equity in earnings of
unconsolidated joint businesses" in the 1994 Consolidated Statement of
Operations. Chiron's 50 percent share of Biocine SpA's operations and the
settlement were a profit of $7.3 million in 1994, $0.5 million in 1993, and a
loss of $0.1 million in 1992.
20
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 2 -- RELATIONSHIP WITH CIBA-GEIGY LTD. AND AFFILIATES (CONTINUED)
THE BIOCINE COMPANY
Through December 31, 1994, Chiron and an affiliate of Ciba each owned a 50
percent equity interest in The Biocine Company, a joint venture partnership
formed for vaccine research. The joint venture agreement provided that Chiron
and Ciba each contribute certain technology and licenses to the joint venture
and that Chiron perform certain reimbursable research activities for the
venture. Collaborative agreement revenues included in the Consolidated Statement
of Operations represent amounts earned from The Biocine Company for these
research activities, less Chiron's share of The Biocine Company's losses. Chiron
recognized $40.9 million, $35.4 million and $15.0 million in revenue from the
joint venture in 1994, 1993 and 1992, respectively. Chiron's share of The
Biocine Company's loss was $13.7 million in 1994, $5.5 million in 1993, and
$15.1 million in 1992. At December 31, 1994, amounts due from The Biocine
Company totaled $17.2 million ($13.5 million at December 31, 1993), and amounts
due to The Biocine Company for 1994 capital funding totaled $8.6 million ($7.0
million at December 31, 1993).
In a special allocation agreement reached in December 1991, Ciba agreed to
fund, through December 31, 1995, its 50 percent share of the expenses of the
venture as well as up to $45 million of Chiron's share. In exchange, Ciba
received a preferred interest in the future profits, if any, and cash flows of
The Biocine Company. Chiron began to exercise this funding mechanism in the
first quarter of 1993. Chiron had an option to restore its 50 percent interest
in the earnings and cash flows of The Biocine Company by paying an amount equal
to Ciba's excess contribution plus interest. As discussed above, Chiron acquired
Ciba's interest in The Biocine Company in 1995 and therefore will not be
required to repay Ciba's excess contributions. Excess contributions made by Ciba
on behalf of Chiron were $15.0 million in 1994 and $13.9 million in 1993.
NOTE 3 -- COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS
DIAGNOSTIC JOINT BUSINESS
In 1989, Chiron entered into an agreement with Ortho Diagnostic Systems,
Inc. ("Ortho"), a Johnson & Johnson company, to jointly develop, manufacture and
market certain immunoassay diagnostic products. Under the terms of the
agreement, Chiron receives 50 percent of the pretax operating profits generated
by the joint business and is reimbursed for its continuing research, development
and manufacturing costs. Ortho and Chiron also licensed Abbott Laboratories and
Pasteur Sanofi Diagnostics to sell their own immunoassay diagnostic tests for
hepatitis C using certain technology from the joint business.
Chiron records its share of profits of the Chiron-Ortho diagnostic business
on a one-month lag using estimates provided by Ortho. These estimates are
subject to a final adjustment 90 days after the end of each calendar year, and
profit sharing distributions are payable to Chiron within 90 days after the end
of each quarter. At December 31, 1994, $18.7 million was due from Ortho for
profit sharing and reimbursement of costs ($16.0 million at December 31, 1993).
Chiron's 50 percent share of the profits from the joint business was $74.3
million in 1994, including a negligible adjustment for the final 1993
accounting. In 1993, Chiron recognized $77.1 million as its share of the
profits, of which $6.6 million was a result of the final 1992 accounting. In
1992, Chiron recognized $73.6 million as its share of the profit, of which $6.9
million was a result of the final 1991 accounting. Revenues recognized under the
cost reimbursement portion of the agreement with Ortho for collaborative
research
21
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 3 -- COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS (CONTINUED)
were $8.5 million, $9.8 million, and $8.0 million in 1994, 1993 and 1992,
respectively. Revenues recognized under the cost reimbursement portion of the
agreement with Ortho for product sales were $11.8 million, $11.4 million and
$11.8 million in 1994, 1993 and 1992, respectively.
VIAGENE, INC.
In November 1993, Chiron entered into an agreement with Viagene, Inc.
("Viagene") to collaborate on the research, development and marketing of
products for the prevention and treatment of cancer and certain other infectious
diseases. Under the terms of the agreement, Chiron and Viagene will contribute
certain technology and licenses and will share in the revenues from any future
product sales. Under the terms of the agreement, Viagene will contribute the
first $12 million in funding to the joint business, and Chiron will contribute
the next $12 million, after which time, funding will be shared equally. If,
however, Chiron terminates the agreement prior to its funding the aforementioned
$12 million, Chiron must pay Viagene a royalty based on any future sales of
products covered by the agreement. Based upon current program spending, Chiron
expects to begin funding the collaboration's expenses in late 1995. As part of
the agreement, Chiron purchased equity securities of Viagene for $20 million.
This investment is accounted for in accordance with FAS 115 and in late 1994 was
written down to fair value (Note 4).
CEPHALON, INC.
In January 1994, Chiron and Cephalon, Inc. ("Cephalon") established a
collaboration for the research, development and marketing of products for the
treatment of neurological disorders. Under the terms of the agreement, Chiron
and Cephalon will each contribute certain technology and licenses and will share
profits equally. Under the terms of the agreement, each party is responsible for
its own collaboration-related expenses through the later of December 31, 1994 or
until such time as one party has spent $20 million. Thereafter, the other party
will be responsible for bearing all costs of the collaboration until the funding
is equalized or until the products reach commercialization. In the event that
collaboration expense is still not equal as of the commercialization date of the
collaborative products, the party which funded a greater share shall be entitled
to receive a special allocation of collaborative profits until that party has
been reimbursed for all unequal funding. Beginning in the first quarter of 1995,
Chiron will be responsible for all collaboration expenses until cumulative
funding by Chiron and Cephalon is equalized, and thereafter, funding will be
shared equally. As part of the agreement, Chiron purchased equity securities
from Cephalon for $15 million. This investment is accounted for in accordance
with FAS 115 and in late 1994 was written down to fair value (Note 4). Chiron
has agreed to provide Cephalon with a revolving credit facility and will make
quarterly advances to Cephalon through 1999. Such advances shall not exceed an
aggregate of $18 million and bear interest at prime ($8.9 million was
outstanding at December 31, 1994).
DEPOTECH CORPORATION
In March 1994, Chiron entered into an agreement with DepoTech Corporation
("DepoTech") for the research, development and marketing of products
incorporating certain drug delivery technologies developed by DepoTech, and in
some cases, certain of Chiron's therapeutic compounds. Under the terms of the
agreement, Chiron agreed to make specified payments to DepoTech upon the
attainment of product development milestones, and agreed to fund all or a
portion of the development costs of the collaboration in exchange for the
marketing rights to the resulting commercial products, and the parties agreed to
share in the revenues of any resulting commercial products. Chiron also invested
$3.5 million in equity securities of DepoTech. In January 1995, DepoTech reached
the first milestone,
22
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 3 -- COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS (CONTINUED)
and accordingly in the first quarter of 1995, a warrant to purchase capital
stock of DepoTech was converted into a technology license fee and Chiron
commenced funding its portion of development costs, resulting in a $3.5 million
charge to research and development expense. If certain regulatory milestones are
attained for products incorporating DepoTech's drug-delivery technology in
connection with generic compounds, Chiron is required to make milestone payments
to DepoTech of up to $2.0 million. Also, in the event that Chiron attains
certain regulatory milestones with respect to products incorporating Chiron's
proprietary therapeutic compounds in connection with DepoTech's drug-delivery
technology, Chiron will be required to make additional milestone payments to
DepoTech of up to $1.5 million per product.
CYTOMED, INC.
In April 1994, Chiron entered into a collaboration agreement with CytoMed,
Inc. ("CytoMed") for the research, development and marketing of complement
inhibitors with therapeutic and diagnostic applications. Under the terms of the
agreement, Chiron agreed to make specified payments to CytoMed upon the
attainment of certain product development milestones by CytoMed and to
reimburse CytoMed for a specified portion of its research and development
expenses during 1995 and 1996. Chiron has invested $1.3 million in equity
securities of CytoMed and has agreed, subject to certain conditions, to invest
an additional $2.3 million and $1.3 million in 1995 and 1996, respectively. If
CytoMed successfully achieves all development milestones, the agreement calls
for Chiron to pay to CytoMed a total of $9.0 million for milestone payments and
reimbursement of research and development costs incurred by CytoMed.
RIBOZYME PHARMACEUTICALS, INC.
In July 1994, Chiron entered into a collaboration agreement with Ribozyme
Pharmaceuticals, Inc. ("RPI") for the research, development and marketing of
gene transfer and gene therapy products. Under the terms of the agreement, each
party has agreed to be responsible for its own preclinical research expenses
relating to the collaboration and to share equally in the cost and funding of
clinical development expenses. Additionally, Chiron has, subject to certain
conditions, agreed to invest a total of $10 million in RPI equity securities.
Through December 31, 1994, Chiron had purchased $4.6 million of such
investments.
G.D. SEARLE & CO.
In October 1994, Chiron entered into a collaboration agreement with G.D.
Searle & Co. ("Searle") for the research, development and marketing of Tissue
Factor Pathway Inhibitor ("TFPI"). Under the terms of the agreement, Chiron made
a $3.5 million payment, which was expensed in 1994, to Searle and, except for
this payment, each party agreed to fund its own collaboration-related expenses
through 1994. Thereafter, subject to certain conditions, Chiron is obligated to
reimburse research and development expenses of Searle of up to $2.5 million in
1995 and up to $6.3 million in 1996 and the parties have agreed to fund other
development expenses equally. Chiron has the option to accelerate the payment of
these future research and development expenses at any time.
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
MARKETABLE SECURITIES
The Company adopted the provisions of FAS 115 for investments held as of or
acquired after January 1, 1994. In accordance with FAS 115, the Company has
classified its investments in certain debt and equity securities as
"available-for-sale". Such investments are recorded at fair value, with
23
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
unrealized gains and losses reported as a separate component of stockholders'
equity. The cumulative effect as of January 1, 1994, of adopting FAS 115 was to
decrease the opening balance of stockholders' equity by $0.3 million to reflect
the net unrealized loss on investments classified as "available for sale" which
were previously recorded at cost. In accordance with the provisions of FAS 115,
prior period financial statements have not been restated to reflect the change
in accounting principle.
At December 31, 1994, available-for-sale securities consisted of the
following:
<TABLE>
<CAPTION>
ADJUSTED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government securities..................................... $ 126,971 $ 137 $ (3,124) $ 123,984
Mortgage-backed securities..................................... 2,029 -- (710) 1,319
Corporate debt securities...................................... 269,559 302 (3,663) 266,198
----------- ----- ---------- -----------
398,559 439 (7,497) 391,501
Marketable equity securities................................... 23,392 -- (5,632) 17,760
----------- ----- ---------- -----------
$ 421,951 $ 439 $ (13,129) $ 409,261
----------- ----- ---------- -----------
----------- ----- ---------- -----------
</TABLE>
At December 31, 1994, these securities were classified in the Consolidated
Balance Sheet as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash equivalents........................................................................ $ 82,554
Short-term investments in marketable debt securities.................................... 137,619
Noncurrent investments in marketable debt securities.................................... 171,328
Investments in equity securities and affiliated companies............................... 17,760
--------------
$ 409,261
--------------
--------------
</TABLE>
The cost and estimated fair value of available-for-sale debt securities as
of December 31, 1994, by contractual maturity, consisted of the following:
<TABLE>
<CAPTION>
ADJUSTED
COST FAIR VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less....................................................... $ 221,310 $ 220,173
Due in one to three years..................................................... 123,887 119,840
Due thereafter................................................................ 51,333 50,169
----------- -----------
396,530 390,182
Mortgage-backed securities.................................................... 2,029 1,319
----------- -----------
$ 398,559 $ 391,501
----------- -----------
----------- -----------
</TABLE>
Under the provisions of FAS 115, interest income received from securities is
recorded using an effective interest rate, with the associated premium or
discount amortized to "Other income (expense), net" on the Consolidated
Statement of Operations, and the cost of securities sold is based upon the
specific identification method.
24
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
In the fourth quarter of 1994, the Company determined that fluctuations in
the fair value of marketable equity investments in Viagene and Cephalon were
"other than temporary" and in accordance with FAS 115 wrote-down the carrying
value of these investments by $11.6 million. This write-down is included in
"Other income (expense), net" in the Consolidated Statement of Operations.
OTHER FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
other than those accounted for in accordance with FAS 115 at December 31, are as
follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Nonmarketable equity investments (accounted for
under cost method)................................. $ 7,702 $ 7,702 $ -- $ --
Notes receivable.................................... 18,400 17,646 6,967 6,686
Long-term debt:
Convertible subordinated debentures............... 305,494 259,247 298,786 313,231
Notes payable..................................... 6,306 6,306 6,530 6,530
</TABLE>
Nonmarketable equity investments which are accounted for using the cost
method have carrying values which approximate fair values. Estimating the fair
value of the Company's interests in nonmarketable equity investments accounted
for under the equity method is not practicable because of the lack of quoted
market prices and the inability to estimate fair values without incurring
excessive costs. The carrying amounts of these investments reflected in the
accompanying consolidated financial statements at December 31, 1994 and 1993, of
$26.0 million and $24.5 million, respectively, represent the investments Chiron
has made to date as well as Chiron's share of the results of operations for the
time periods the investments were held, less distributions and dividends
received from the investee.
The fair value of the notes receivable is based on the discounted value of
future cash flows expected to be received. Convertible subordinated debentures
fair value is based on the market price at the close of business on December 31,
1994.
NOTE 5 -- DEBT OBLIGATIONS AND CAPITAL LEASES
At December 31, 1994, and 1993, long-term debt and capital lease obligations
consist of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
1.9 percent convertible subordinated debentures............................... $ 220,076 $ 215,164
5 1/4 percent convertible subordinated debentures............................. 85,418 83,622
Capital lease obligations..................................................... 29,722 28,539
Notes payable................................................................. 6,306 6,530
----------- -----------
341,522 333,855
Less current portion.......................................................... 3,461 864
----------- -----------
$ 338,061 $ 332,991
----------- -----------
----------- -----------
</TABLE>
25
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 5 -- DEBT OBLIGATIONS AND CAPITAL LEASES (CONTINUED)
In November 1993, Chiron issued 1.9 percent convertible subordinated
debentures with a face value of $253.9 million and a yield to maturity of 4.5
percent. The notes are convertible, at the holders' option, into common stock at
8.6 shares per $1,000 principal amount and are due in November 2000. Interest is
paid semiannually. The debentures may be redeemed by the Company at any time
after November 1996, at a redemption price starting at $905.78 per $1,000
principal amount increasing to a redemption price equal to 100 percent of the
principal amount at maturity. The debentures are carried net of an initial issue
discount of $39.3 million which is being amortized over the life of the
debentures using the interest method.
Cetus Oncology Corporation's ("Cetus") 5 1/4 percent convertible
subordinated debentures are due in 2002, have a face value of $100 million and
are convertible at the holders' option at any time into common stock at 8.1
shares per $1,000 principal amount. Interest is paid annually. At the option of
the Company, the debentures may be redeemed at any time at face value. These
debentures are carried at a discount and the difference between the face value
of the debentures and their present value is being accreted over the remaining
term of the debentures using the interest method. Chiron and Cetus have
cross-guaranteed their respective convertible subordinated debentures.
In September 1992, Chiron called for the redemption of all of its 7 1/4
percent convertible subordinated debentures. Under the terms of the debentures,
debenture holders could elect to either redeem the debentures for cash,
including a 5.8 percent redemption premium, or convert them into Chiron common
stock at 21.3 shares per $1,000 principal amount. Based on a final accounting
from the trustee, approximately $72 million of principal amount was retired
through cash payments of $77.8 million which included principal, accrued
interest and redemption premium. The remaining $49.5 million of principal amount
was retired through conversion into shares of common stock, resulting in the
issuance of approximately 1,053,000 new shares. Capitalized debenture issuance
costs of $3.3 million and a $4.2 million redemption premium paid to debenture
holders electing cash redemption were expensed in 1992. These amounts are
presented net of income taxes as an extraordinary item of $6.7 million.
At December 31, 1994, the Company had various notes payable with an average
interest rate of 8 percent and maturities ranging from 1995 through 1999.
Maturities of notes payable for years 1995 through 1999 are as follows: 1995 --
$3.2 million, 1996 -- $2.8 million, 1997 -- $0.1 million, 1998 -- $0.1 million,
1999 -- $0.1 million.
Capital lease obligations consist primarily of one lease bearing an interest
rate of 10.5 percent and maturing in 2004. Land, buildings and equipment leased
under noncancelable capital leases had a net book value of $10.1 million at
December 31, 1994, and $9.9 million at December 31, 1993. Future payments under
capital lease obligations (including interest of $36.7 million) are as follows:
1995 -- $3.2 million, 1996 -- $3.2 million, 1997 -- $3.0 million, 1998 -- $3.0
million, 1999 -- $3.3 million and $50.7 million thereafter.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
LEASES
Chiron leases laboratory, office and manufacturing facilities and equipment
under noncancelable operating leases which expire at various times through 2012.
Rent expense was $12.7 million in 1994, $9.0 million in 1993, and $10.3 million
in 1992.
26
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 6 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under these leases are as follows: 1995 --
$13.2 million, 1996 -- $10.9 million, 1997 -- $9.8 million, 1998 -- $8.3
million, 1999 -- $6.6 million and $10.3 million thereafter.
CETUS HEALTHCARE LIMITED PARTNERSHIPS
Pursuant to certain agreements between the Company and the former partners
of Cetus Healthcare Limited Partnership ("CHLP"), the Company is obligated to
fund development of certain CHLP products through regulatory approval if, based
on the Company's assessment, the products are believed to be technically
feasible and commercially viable. Because of the inherent uncertainties both as
to the likelihood of any particular product continuing to be viewed as
technically feasible and commercially viable and as to the cost of developing
any particular product through regulatory approval, the Company is unable to
estimate future costs of developing the products subject to this obligation.
In December 1990, Cetus exercised its purchase options to acquire all the
limited partners' interest in Cetus Healthcare Limited Partnership II ("CHLP
II"). The former partners are entitled to receive a fixed percentage of the net
sales of certain products in Europe (through December 31, 2005) and the United
States (until certain aggregate returns are realized).
CONSTRUCTION CONTRACTS
In connection with the expansion of its manufacturing capabilities, the
Company had various commitments under construction contracts totaling
approximately $15.4 million at December 31, 1994.
NOTE 7 -- STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
In December 1991, Chiron adopted a new stock option plan ("1991 Plan") to
replace and supersede the six separate plans maintained by Chiron, Cetus and
certain Chiron subsidiaries. The 1991 Plan provides for the grant to employees
of either nonqualified or incentive options and the grant to directors,
consultants and contractors of nonqualified options. Incentive options are to be
granted at not less than the fair market value of common stock at the date of
grant and nonqualified options at not less than 85 percent of such fair market
value. Options are exercisable as determined by the Board of Directors.
Initially, the 1991 Plan had reserved and available for issuance, options
for 4,500,000 shares of Chiron common stock and restricted common stock plus any
remaining shares of common stock and restricted stock remaining for issuance
under the Chiron 1982 Stock Option Plan and 1984 Nonqualified Stock Option Plan.
This amount is increased annually by a number of shares equal to 1.5 percent of
the number of shares of common stock outstanding plus shares issuable upon
conversion or exercise of outstanding warrants, options and convertible
securities. For 1994, this increase in shares available for grant was 608,728.
At December 31, 1994, a total of 3,640,879 shares were available for grant under
the 1991 Plan.
27
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 7 -- STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding options at January 1,........................................ 4,342,618 4,207,545 3,658,190
Granted................................................................ 1,166,982 1,175,834 1,456,295
Forfeited.............................................................. (168,834) (198,721) (308,032)
Exercised.............................................................. (393,882) (842,040) (598,908)
----------- ----------- -----------
Outstanding options at December 31,...................................... 4,946,884 4,342,618 4,207,545
----------- ----------- -----------
----------- ----------- -----------
Exercisable options at December 31,...................................... 2,566,805 1,972,065 2,036,058
Average price of outstanding options at December 31,..................... $ 51.28 $ 45.03 $ 36.61
Average price of options exercised during the year....................... $ 32.80 $ 26.22 $ 22.14
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
Chiron has a stock purchase plan in which eligible employees may participate
through payroll deductions. A total of 1,750,000 shares have been reserved for
issuance under the plan, of which 1,126,783 shares were available for purchase
at December 31, 1994. At the end of each quarter, funds deducted from
participating employees' salaries are used to purchase common stock at 85
percent of the lower of market value at the quarterly purchase date or the
employees' eligibility date for participation. Purchases of shares made under
the plan were 157,891 in 1994, 121,840 in 1993 and 185,485 in 1992.
COMMON STOCK WARRANTS
As a result of the acquisition of Cetus, the following warrants to purchase
Chiron common stock are outstanding at December 31, 1994:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE EXPIRATION DATE
- ----------- --------- -----------------------
<S> <C> <C>
292,815 $ 95.33 December 15, 1996
150,000 52.50 December 31, 1998
</TABLE>
The $95.33 warrants are currently exercisable. The $52.50 warrants become
exercisable upon reaching $50.0 million in annual worldwide sales of the
Company's Proleukin-Registered Trademark- product.
PREFERRED SHARE PURCHASE RIGHTS
On August 25, 1994, the Board of Directors of the Company declared a
dividend of one preferred share purchase right ("a right") for each outstanding
share of common stock of the Company. Each right entitles the holder, under
certain circumstances, to purchase from the Company one one-hundredth of a share
of Series A Junior Participating Preferred Stock of the Company at a price of
$325, subject to adjustment. The rights are to be distributed to holders of
Chiron common stock upon the acquisition by a third party of certain percentages
of Chiron common stock. As part of the agreements with Ciba, Chiron amended the
Rights Agreement such that Ciba would not be "an acquiring person" under the
Rights Agreement and therefore, the purchase of an approximately 49.9 percent
interest in Chiron common stock by Ciba did not result in distribution of the
rights.
28
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 8 -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and the tax effects of net
operating loss and credit carryforwards. Significant components of the Company's
deferred income tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Deferred income tax liabilities:
Basis differences -- purchase business combinations................................. $ 10,214 $ 10,970
Patent costs expensed for tax purposes.............................................. 5,981 4,706
------------ ------------
16,195 15,676
Deferred income tax assets:
Basis differences -- purchase business combinations................................. 18,294 18,675
Basis differences -- foreign intangibles............................................ 75,034 80,394
Basis differences -- equity investments............................................. 5,938 --
Inventory and other reserves........................................................ 8,888 7,694
Depreciation........................................................................ 6,566 5,306
Purchased technologies.............................................................. 1,589 4,157
Accrued compensation and severance.................................................. 7,175 7,286
Net operating loss carryovers....................................................... 22,659 35,431
Business credit carryforwards....................................................... 10,182 11,366
Other............................................................................... 7,580 7,018
------------ ------------
163,905 177,327
Less valuation allowance............................................................ (147,710) (161,651)
------------ ------------
16,195 15,676
------------ ------------
Net deferred income tax asset......................................................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The net change in the valuation allowance for the year ended December 31,
1994, was a decrease of $13.9 million.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1994, will be allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Income tax benefit...................................................................... $ 121,400
Goodwill and other noncurrent intangible assets......................................... 13,313
Additional paid-in capital.............................................................. 12,997
--------------
$ 147,710
--------------
--------------
</TABLE>
Included in the income tax benefit component of the valuation allowance is
$5.9 million which may be subject to limitations on the deductibility of capital
losses for federal and state income tax purposes.
29
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 8 -- INCOME TAXES (CONTINUED)
For financial reporting purposes, "Income (loss) before income taxes and
extraordinary item" includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
United States...................................................... $ 36,829 $ 33,331 $ (64,511)
Foreign............................................................ (4,832) (10,244) (24,060)
--------- ---------- ----------
$ 31,997 $ 23,087 $ (88,571)
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
Significant components of the provision for income taxes are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal............................................................... $ 10,741 $ (290) $ (6)
State................................................................. 2,227 (144) 1,421
Foreign............................................................... 266 457 1,790
--------- --------- ---------
13,234 23 3,205
--------- --------- ---------
Deferred:
Federal............................................................... -- 1,113 704
State................................................................. -- -- 115
Foreign............................................................... -- -- --
--------- --------- ---------
-- 1,113 819
Charge in lieu of taxes resulting from recognition of acquired tax
benefits that are allocated to reduce noncurrent intangible assets
related to the acquired entity......................................... 438 3,567 --
--------- --------- ---------
Total provision......................................................... $ 13,672 $ 4,703 $ 4,024
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax benefit related to tax deductions for the Company's stock option
plans is recorded when realized as an increase to paid-in capital instead of as
a reduction in current tax expense. Tax benefits of approximately $9.9 million
in 1994, none in 1993 and $3.5 million in 1992 were realized.
30
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 8 -- INCOME TAXES (CONTINUED)
The reconciliation of the provision for income taxes, computed at the
statutory United States income tax rate, to the reported amounts is as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal tax provision (benefit) at statutory rates (35% in 1994 and
1993, 34% in 1992).................................................. $ 11,199 $ 8,080 $ (30,114)
Tax effect of write-off of in-process technology..................... -- -- 13,430
State taxes, net of federal benefit.................................. 2,300 (144) 1,536
Foreign income taxes................................................. 266 457 1,790
Losses of foreign subsidiaries not providing benefit in current
year................................................................ 2,247 4,020 9,004
Amortization of intangible assets.................................... 927 1,006 1,411
Effect of net operating loss carryforward............................ -- (6,569) 6,315
Nontaxable earnings of joint business................................ (2,547) -- --
Nondeductible expenses related to Ciba transaction................... 875 -- --
Utilization of deferred tax assets not previously benefited.......... (2,246) (2,549) --
Other................................................................ 651 402 652
--------- --------- ----------
Provision for income taxes........................................... $ 13,672 $ 4,703 $ 4,024
--------- --------- ----------
--------- --------- ----------
</TABLE>
The following table presents the components of the net operating loss and
credit carryforwards as of December 31, 1994, which are available to offset
future income tax liabilities. Certain carryforwards were acquired as a result
of purchase business combinations. The benefit of such carryforwards, when
realized, will be allocated to reduce noncurrent intangible assets related to
the acquired entity. Certain carryforwards are attributable to deductions for
the Company's stock option plans. The benefit of such deductions, when realized,
will be recorded as an increase to additional paid-in capital. The amount of tax
benefit to be allocated for the loss carryforwards will be determined by
applying the applicable income tax rate to the carryforwards in the year in
which they are ultimately realized.
<TABLE>
<CAPTION>
ALLOCATION
------------------------------------------------------
ADDITIONAL NONCURRENT
PAID-IN INTANGIBLE
TAX EXPENSE CAPITAL ASSETS TOTAL
----------- ------------- ------------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Federal net operating loss carryforwards expiring from 2003
through 2008................................................. $ -- $ 7 $ -- $ 7
State net operating loss carryforwards expiring from 1995
through 1998................................................. -- 12 51 63
Foreign net operating loss carryforwards principally carried
forward indefinitely......................................... 38 -- 3 41
Federal tax credit carryforwards expiring from 1997 through
2008......................................................... -- 10 -- 10
</TABLE>
Due to certain tax laws regarding changes in ownership for tax purposes,
utilization of certain of the net operating loss and credit carryforwards to
offset future tax liabilities may be subject to an annual limitation in future
periods based upon certain events including changes in ownership of the
Company's stock. However, management does not believe that any limitation on use
of the Company's
31
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 8 -- INCOME TAXES (CONTINUED)
net operating loss and credit carryforwards has resulted from certain changes in
ownership, including the issuance, redemption, or conversion of convertible
subordinated debentures (Note 5) or as a result of the agreements with Ciba
(Note 2).
NOTE 9 -- OTHER INCOME (EXPENSE), NET
Other income (expense), net, for each of the three years ended December 31,
consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and dividend income................................... $ 20,343 $ 16,154 $ 25,479
Capitalized interest........................................... 4,405 1,857 --
Interest expense and related costs on convertible debentures... (16,782) (8,861) (14,175)
Write-downs of investments in Viagene and
Cephalon...................................................... (11,607) -- --
Other interest expense......................................... (3,404) (3,366) (3,990)
Net realized gain (loss) on sale of debt securities............ (2,234) 1,276 2,030
Realized/unrealized gain (loss) on foreign exchange
transactions.................................................. 156 (405) (1,655)
Other.......................................................... (1,280) 1,294 (716)
----------- ----------- -----------
$ (10,403) $ 7,949 $ 6,973
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 10 -- GEOGRAPHIC AREA INFORMATION
Results of foreign operations, which consist primarily of ophthalmic and
oncology product sales, and domestic operations, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------
FOREIGN DOMESTIC TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues....................................................... $ 74,063 $ 379,916 $ 453,979
Net income (loss).............................................. (2,225) 20,550 18,325
Identifiable assets............................................ 127,491 922,251 1,049,742
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------
FOREIGN DOMESTIC TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues....................................................... $ 55,059 $ 262,476 $ 317,535
Net income (loss).............................................. (8,073) 26,457 18,384
Identifiable assets............................................ 63,991 904,606 968,597
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
---------------------------------------
FOREIGN DOMESTIC TOTAL
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues....................................................... $ 45,095 $ 201,165 $ 246,260
Net income (loss).............................................. (24,684) (74,568) (99,252)
Identifiable assets............................................ 44,687 656,428 701,115
</TABLE>
32
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 10 -- GEOGRAPHIC AREA INFORMATION (CONTINUED)
Revenues by customer location, including both local revenues and exports
from other locations, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
North America.................................................... $ 344,569 $ 233,940 $ 188,019
Europe........................................................... 86,804 66,286 47,864
Asia and Pacific Basin........................................... 17,982 15,810 10,065
South America and Africa......................................... 4,624 1,499 312
----------- ----------- -----------
$ 453,979 $ 317,535 $ 246,260
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 11 -- LEGAL PROCEEDINGS
The Company is involved in litigation in the ordinary course of its
business. While the outcome of litigation cannot be accurately predicted, based
upon information presently known to management, the Company does not believe
that the ultimate resolution of any such litigation matter, including the
matters described below, should have a material adverse effect upon its
financial statements as presented herein.
MUREX DIAGNOSTICS, LTD. 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. While the relevant patent claims were found valid and
infringed, the court denied any damages or injunctive relief because it found
Murex had a defense under Section44 of the U.K. Patents Act. On October 28,
1993, Chiron and Ortho began new infringement proceedings against Murex
requesting unspecified damages and injunctive relief. 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. Murex
has appealed. Chiron's and Ortho's request for an injunction was granted on
November 29, 1994. 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. Murex has brought an
action in Australia seeking the revocation of the Australian counterpart of the
'511 patent. Chiron has counterclaimed for infringement.
ORGANON TEKNIKA, LTD. On May 4, 1994, Chiron instituted summary legal
proceedings against Organon Teknika, B.V., Akzo Pharma, B.V., Akzo Pharma
International, B.V., Organon Teknika, N.V. (all subsidiaries of Akzo N.V.
(collectively referred to as "Organon")), and United Biomedical, Inc. ("UBI"),
the supplier of Organon's HCV antigens and kits, in the District Court of the
Hague, The Netherlands, alleging infringement of European Patent No. 318,216
("the '216 patent") as a result of
33
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 11 -- LEGAL PROCEEDINGS (CONTINUED)
the defendants' manufacture and sale of HCV immunoassay kits. On July 22, 1994,
Chiron was granted a cross-border preliminary injunction against further
infringement, including sale of the UBI kit, by Organon in Austria, Belgium,
Switzerland, Germany, Spain, France, Italy, Liechtenstein, Luxembourg, The
Netherlands and Sweden. Organon and UBI have appealed the injunction. The '216
patent is a counterpart of the British '511 patent. Infringement proceedings
brought by Chiron and Ortho are also pending against Organon in Italy and
Belgium, (based on the '216 patent), and in the U.K., (based on the British '511
patent), in proceedings consolidated with the actions against Murex, described
above.
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 government.
The basis of the suit is that 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 as to Chiron. 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 this suit is without merit
and that substantial defenses exist. In 1990, Bradley and the CDC entered into a
settlement agreement regarding his claims of inventorship in which any rights
either Bradley or the CDC 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.
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, 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
contractual relations, 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 has appealed the summary judgment to the
Ninth Circuit Court of Appeals in a notice filed April 5, 1993. In August 1993,
Sicor dismissed its claims against Erbamont. A hearing before the Ninth Circuit
was held July 12, 1994, but no decision has yet been issued. In the event that
the summary judgment is overturned and the case is remanded for trial, the
Company believes that it has substantial defenses to the 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.
34
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 11 -- LEGAL PROCEEDINGS (CONTINUED)
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. Internal investigation of the claim is under way,
and there has been no action in this suit.
ADVANCED CHEMTECH. On August 11, 1994, Advanced ChemTech, Inc. brought a
lawsuit against Chiron in the United States District Court for the Western
District of Kentucky, Louisville Division, asserting that certain Chiron patents
relating to peptide mixtures are invalid and unenforceable and that Chiron had
engaged in unfair competition and unfair business practices in asserting its
patent rights. Advanced ChemTech is asking the court to find: (1) that the
patent at issue is invalid and unenforceable; (2) that Advanced ChemTech does
not infringe the patents; and (3) damages according to proof. Chiron has
answered and counterclaimed for infringement of its patents. Chiron believes
that it has substantial defenses against the claims asserted by Advanced
ChemTech.
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.
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 intends to
defend this suit vigorously.
CARNEGIE-MELLON UNIVERSITY. On August 20, 1994, Carnegie Mellon University
and Three Rivers Biologicals, Inc. brought a lawsuit in the United States
District Court for the Western District of Pennsylvania against Hoffmann-La
Roche, Inc., Roche Molecular Systems, Inc., the Perkin-Elmer Corporation, Chiron
and Cetus Oncology Corporation claiming that the defendants infringed certain
United States patents relating to plasmids for the expression of an enzyme which
may be useful in connection with polymerase chain reaction ("PCR") processes and
products. Cetus sold its PCR business to F. Hoffmann-La Roche Ltd. and
Hoffmann-LaRoche, Inc. ("Roche") in 1991. Carnegie Mellon and Three Rivers
Biologicals are seeking a finding that the defendants willfully infringed the
patents at issue, injunctive relief and damages according to proof. All
defendants have answered the complaint. Discovery has only recently begun. The
facts of the case, including any indemnification rights or obligations among the
defendants, are currently under review. However, Chiron believes that it, and
its wholly owned subsidiary, Cetus Oncology, have significant defenses.
SUMMIT. On September 29, 1994, Summit Technology Ireland B.V., a subsidiary
of Summit Technology, Inc., a manufacturer of ophthalmic excimer lasers, filed a
patent infringement action in the Regional Court of Dusseldorf, Germany, against
two German companies affiliated with Chiron Vision and their respective managing
directors. The suit alleges that the manufacture and sale in Germany of Chiron
Vision's ophthalmic excimer laser infringes certain European patents held by
plaintiff. The plaintiff is seeking injunctive relief and damages which it
currently estimates at
35
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 11 -- LEGAL PROCEEDINGS (CONTINUED)
DM 2 million. The Company intends to vigorously defend this lawsuit, and
believes it has substantial defenses. 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 plaintiff prevails. Chiron Technolas is
currently Chiron Vision's sole source of ophthalmic excimer lasers and an
injunction, if it were to issue, could preclude the Company from serving its
market for the product.
STOCKHOLDER LITIGATION. In November 1994, Chiron, its directors, and
certain of its officers were sued in three essentially identical actions filed
as class actions on behalf of Chiron stockholders, alleging that the directors
had violated their fiduciary duty by failing to maximize stockholder value in
connection with the series of transactions affected with Ciba-Geigy which were
announced on November 20, 1994, by, among other things, not taking all possible
steps to seek out and encourage the best offer for the Company once the Company
had been put in play. Two of the actions filed respectively on November 14, 1994
and November 22, 1994 (HANNA V. CHIRON CORP., ET AL., C.A. No. 13874, and DEZUBE
V. CHIRON CORPORATION ET AL., C.A. No. 13896) were filed in the Court of
Chancery of the State of Delaware in and for New Castle County. The complaints
in both cases ask for injunctive relief, rescission and attorneys' fees.
Plaintiff in the HANNA action additionally seeks damages in an unspecified
amount. Plaintiff in the DEZUBE action additionally seeks an accounting. The
complaints have been answered by all defendants, who deny the material
allegations of the complaints. The third action was filed in the Superior Court
of California, Alameda County, Northern Division on December 1, 1994 (PERERA ET
AL. V. CHIRON CORPORATION ET AL., Case Action No. 744522-2). Plaintiff seeks
injunctive and declaratory relief, an accounting, costs and disbursements,
including attorneys' and experts' fees, and other relief. The defendants intend
to defend vigorously these matters.
SCRIPPS CLINIC ET AL. V. CHIRON CORPORATION. The Company is defending a
lawsuit filed on November 8, 1983, by the Scripps Clinic and Research Foundation
and Revlon, Inc., in the United States District Court for the Northern District
of California alleging that Chiron's research program to synthesize a protein
associated with human blood clotting ("Factor VIII:C") through genetic
engineering techniques infringes plaintiff's rights under a patent for purified
Factor VIII:C. The suit seeks an injunction against further infringement, an
accounting, compensatory damages of at least $10 million and punitive damages in
the same amount. After the trial court granted summary judgment in favor of
Chiron, the plaintiffs appealed. The United States Court of Appeals for the
Federal Circuit reversed the trial court, finding that summary judgment was not
appropriate and directing that a number of issues be tried, including the issues
of inequitable conduct on the part of Scripps, patent validity and patent
infringement. No trial date has yet been set and it is unclear when a date will
be set. Chiron intends to vigorously assert its defenses at trial.
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. A
bifurcated trial is expected to begin in 1995, trying first
36
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 11 -- LEGAL PROCEEDINGS (CONTINUED)
certain issues of ownership and rights under license from Allergan to Staar
Surgical Co. and through Staar to Chiron, and then issues of infringement and
invalidity. The Company believes it has rights of indemnity from Staar with
respect to certain damages that may be awarded against it.
NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1994
------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31
----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues....................................................... $ 134,280 $ 128,207 $ 100,111 $ 91,381
Gross margin................................................... 46,918 45,476 31,603 23,760
Net income (loss).............................................. (4,169) 12,567 5,110 4,817
Net income (loss) per share.................................... (0.13) 0.37 0.15 0.14
1993
------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31
----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues....................................................... $ 93,331 $ 78,392 $ 76,767 $ 69,045
Gross margin................................................... 28,350 19,112 16,540 15,407
Net income..................................................... 5,538 4,946 5,383 2,517
Net income per share........................................... 0.16 0.15 0.16 0.08
</TABLE>
The Company believes that quarterly results are not necessarily indicative
of results for a full year; therefore, the Company should be evaluated on the
basis of annual financial information.
As discussed in Note 4, the fourth quarter of 1994 included a charge to
earnings of $11.6 million to write-down the carrying value of investments in
marketable equity securities of Viagene and Cephalon.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
In addition to the agreements reached with Ciba which became effective
January 1, 1995 (Note 2), on March 6, 1995, the Company's Chiron Vision
subsidiary reached an agreement to purchase the ophthalmic surgical division of
IOLAB, a Johnson & Johnson company. Chiron's acquisition of IOLAB will be
accounted for as a purchase. The acquisition is expected to be completed by
March 31, 1995. Accordingly, the approximate $95 million cash purchase price
will be allocated to the net assets of IOLAB. In accordance with generally
accepted accounting principles, the amount of the purchase price allocated to
in-process technology will be expensed in the first quarter of 1995. Also, the
Company expects to record additional charges for restructuring and
reorganization costs associated with the integration of Chiron Vision and IOLAB.
37
<PAGE>
CHIRON CORPORATION
MARKET PRICE OF COMMON STOCK
The common stock of Chiron Corporation is traded in the NASDAQ National
Market System under the symbol CHIR. As of December 31, 1994, there were 8,988
holders of record of Chiron common stock and 1,029 remaining holders of record
of Cetus Corporation common stock. The Company has declared no cash dividends
since its inception and does not expect to pay any dividends in the foreseeable
future. The quarterly high and low closing sales price of Chiron common stock
for 1994 and 1993 are shown below.
<TABLE>
<CAPTION>
1994 1993
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter............................................ $ 95 1/8 $ 65 3/4 $ 58 $ 45 5/8
Second Quarter........................................... 69 1/4 54 1/2 64 1/4 41 1/8
Third Quarter............................................ 73 5/16 51 7/8 74 7/8 58 3/8
Fourth Quarter........................................... 80 1/2 57 3/4 85 1/2 75 3/4
</TABLE>
38
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF CHIRON CORPORATION
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR
SUBSIDIARY ORGANIZATION
- ---------------------------------------------------------------------------------------- ------------------------
<S> <C>
Cetus Oncology Corporation.............................................................. Delaware, USA
Cetus Generic Corporation............................................................. Delaware, USA
Chiron BV............................................................................. Netherlands
Chiron Benelux BV................................................................... Netherlands
EuroCetus International NV.......................................................... Netherlands Antilles
EuroCetus Nederland BV.............................................................. Netherlands
Chiron GmbH........................................................................... Germany
Chiron France SARL.................................................................... France
Chiron Italia Srl..................................................................... Italy
Chiron UK Ltd......................................................................... United Kingdom
Chiron Iberia SA...................................................................... Spain
Cetus Trading A.G..................................................................... Switzerland
Cetus A.G............................................................................. Switzerland
Chiron Partners......................................................................... California, USA
Chiron Alpha Corporation................................................................ California, USA
Chiron Properties, Inc.................................................................. California, USA
Chiron Biocine Corporation.............................................................. California, USA
Chiron (Bermuda) Ltd.................................................................. Bermuda
Chiron Mimotopes Pty., Ltd.............................................................. Australia
Chiron Mimotopes U.S.................................................................... California, USA
Chiron Mimotopes Peptide Systems Limited Liability.................................... Delaware, USA
Chiron Beta Corporation................................................................. California, USA
Chiron Redevelopment Corporation........................................................ Missouri, USA
Chiron Diagnostics S.A.................................................................. France
Chiron Foreign Sales Corporation........................................................ U.S. Virgin Islands
Chiron Vision Corporation............................................................... Delaware, USA
Adatomed GmbH......................................................................... Germany
IOL Medical Distributorship......................................................... Germany
Hardlens Co., Inc..................................................................... California, USA
Softlens Co., Inc..................................................................... California, USA
Magnum Diamond Corporation............................................................ South Dakota, USA
New Gluco, Inc........................................................................ Delaware, USA
Chiron Vision Australia............................................................... Australia
Chiron Vision UK, Ltd................................................................. United Kingdom
Chiron Vision Canada, Inc............................................................. Canada
Chiron IntraOptics France, SA......................................................... France
Domilens.............................................................................. France
Domilens Iberica.................................................................... Spain
Domilens S.A........................................................................ Sweden
Domilens, Inc....................................................................... Delaware, USA
</TABLE>