<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
September 29, 1995
------------------
CHIRON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-12798 94-2754624
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
4560 HORTON STREET,
EMERYVILLE, CALIFORNIA 94608-2916
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(510) 655-8730
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NOT APPLICABLE
(Former name or former address, if changed since last report.)
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<PAGE>
AMENDMENT NO. 1
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The undersigned registrant hereby amends the following portion of its
Current Report on Form 8-K dated September 29, 1995, as set forth below:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Chiron Corporation ("Chiron" or the "Company") is filing with this
amendment the financial statements required by Item 7 (a) of this Form. The
following financial statements are included in Exhibit 13.1 and 13.2 and
incorporated herein by reference:
1. Audited Balance Sheets, Statements of Operations, Stockholders'
Equity and Cash Flows as of December 31, 1994 and December 31, 1993, and
for each of the years in the three-year period ended December 31, 1994, of
Viagene, Inc. (Viagene), together with the report thereon by Ernst & Young
LLP, independent auditors for Viagene.
2. Unaudited Condensed Balance Sheets as of June 30, 1995 and
December 31, 1994, Condensed Statements of Operations for the three months
and six months ended June 30, 1995 and June 30, 1994, respectively, and the
Condensed Statements of Cash Flows for the six months ended June 30, 1995
and June 30, 1994, of Viagene.
(b) PRO FORMA FINANCIAL INFORMATION
Pro forma financial information for the transaction described in Item 2,
consisting of an Unaudited Pro Forma Combined Condensed Balance Sheet as of June
30, 1995, and Unaudited Pro Forma Combined Condensed Statements of Operations
for the year ended December 31, 1994, and for the six months ended June 30,
1995, together with notes thereto, are attached hereto and incorporated herein
by reference.
The following unaudited pro forma combined condensed financial statements
have been prepared to illustrate the effect of the acquisition of Viagene and
include an Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,
1995, and Unaudited Pro Forma Combined Condensed Statements of Operations for
the six months ended June 30, 1995, and for the year ended December 31, 1994.
The pro forma financial statements are based on the historical consolidated
financial statements of Chiron and historical financial statements of Viagene
as well as the historical statements of operations for the year ended December
31, 1994, of Ciba Corning Diagnostics Corp. ("CCD"), JV Vax B.V. and The
Biocine Company (subsequently renamed "Chiron Biocine Company") along with the
pro forma adjustments and elimination entries in the Unaudited Pro Forma
Combined Condensed Statement of Operations reported by Chiron on Form 8-K/A
dated March 17, 1995 (the "Form 8-K/A"), in connection with Chiron's
acquisition from Ciba-Geigy, Limited ("Ciba") of CCD and Ciba's interests in
The Biocine Company and JV Vax B.V. which was effective as of January 1, 1995.
The financial positions and results of operations of CCD, The Biocine Company
and JV Vax B.V. are included in Chiron's historical consolidated balance sheet
and statement of operations as of and for the six months ended June 30, 1995.
The Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,
1995, assumes that the acquisition of Viagene was consummated on June 30, 1995,
and the Unaudited Pro Forma Combined Condensed Statements of Operations for the
six months ended June 30 ,1995, and for the year ended December 31, 1994,
assume that the acquisition had been consummated as of the first day of the
periods presented.
The pro forma adjustments are based on the Agreement and Plan of Merger,
dated as of April 23, 1995 (the "Merger Agreement") between Chiron and Viagene,
and related agreements, which provide for Viagene stockholders to receive newly
issued Chiron common stock consideration and/or cash consideration in exchange
for Viagene common stock. Viagene stockholders received approximately 916,000
shares of newly issued Chiron common stock and cash of approximately $35.5
million. For purposes of preparing the Unaudited Pro Forma Combined Condensed
Balance Sheet, the value of the Chiron common stock is based upon a per share
price of
1
<PAGE>
$90.50. In addition, Viagene optionholders received approximately 131,000
options to purchase Chiron common stock in exchange for options to purchase
Viagene common stock. The value assigned to these options to purchase Chiron
common stock is based upon estimates at the time of the acquisition using an
option pricing model. The aggregate amount to be allocated to the assets
acquired and liabilities assumed consists of (in thousands):
<TABLE>
<S> <C>
Chiron common stock issued to Viagene stockholders $ 82,859
Cash paid to Viagene stockholders 35,500
Options to purchase Chiron common stock 8,543
Carrying value of Chiron's initial investment in Viagene 14,130
Estimated costs and expenses of the merger 2,696
--------
$143,728
--------
--------
</TABLE>
The actual allocation will be based on the estimated fair values of the
tangible and intangible assets and liabilities of Viagene on September 29, 1995.
For purposes of the pro forma financial statements, such allocation has been
estimated as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 25,434
Property, plant and equipment 7,515
Liabilities (12,905)
Other assets 149
In-process technology 123,535
--------
$143,728
--------
--------
</TABLE>
The pro forma adjustments are based on preliminary estimates, which are
derived from available information and certain assumptions. In accordance with
generally accepted accounting principles, the amount allocated to in-process
technology will be charged to expense during the third quarter ending October 1,
1995. This adjustment has been excluded from the Unaudited Pro Forma Combined
Condensed Statements of Operations as it is a nonrecurring item.
The unaudited Pro Forma Combined Condensed Statements of Operations exclude
any potential benefits that might result from the acquisition due to synergies
that may be derived and from the elimination of any duplicate efforts. The
unaudited pro forma combined condensed financial statements do not purport to be
indicative of the results that actually would have occurred if the merger
occurred on the dates indicated or indicative of results which may be obtained
in the future. The unaudited pro forma combined condensed financial statements
should be read in conjunction with the historical consolidated financial
statements and accompanying notes for Chiron, Viagene, CCD, The Biocine Company
and JV Vax B.V.
(c) EXHIBITS
13.1 Financial statements of Viagene, Inc. as of December 31, 1994 and 1993, and
for each of the years in the three-year period ended December 31, 1994.
13.2 Financial statements of Viagene, Inc. as of June 30, 1995 and December 31,
1994, and for the three-month and six-month periods ending June 30, 1995
and June 30, 1994, respectively.
23.1 Consent of Ernst & Young LLP, Independent Auditors
2
<PAGE>
CHIRON AND VIAGENE COMBINED
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Chiron Viagene, Pro Forma Pro Forma
Corporation (a) Inc. Adjustments Combined
--------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 82,147 $ 6,617 $ (35,500) (e) $ 54,605
1,341 (g)
Short-term investments in marketable debt
securities 71,436 14,359 - 85,795
--------------- ----------- ------------- -------------
Total cash and short-term investments 153,583 20,976 (34,159) 140,400
Accounts receivable 265,631 2,483 (995) (b) 267,119
Inventories 163,781 - - 163,781
Other current assets 43,711 634 - 44,345
--------------- ----------- ------------- -------------
Total current assets 626,706 24,093 (35,154) 615,645
Noncurrent investments in marketable debt
securities 115,017 - - 115,017
Property, equipment and leasehold
improvements, net 484,208 7,515 - 491,723
Intangible assets, net 164,271 - 123,535 (c) 164,271
(123,535) (d)
Investments in equity securities and affiliated
companies 49,800 - (20,733) (f) 29,067
Other assets 51,834 149 - 51,983
--------------- ----------- ------------- -------------
$ 1,491,836 $ 31,757 $ (55,887) $ 1,467,706
--------------- ----------- ------------- -------------
--------------- ----------- ------------- -------------
Current liabilities:
Accounts payable $ 65,140 $ 1,632 $ (995) (b) $ 65,777
Accrued compensation and related expenses 48,355 - 1,218 (c) 49,573
Short-term borrowings 97,956 - - 97,956
Current portion of unearned revenue 19,978 1,172 - 21,150
Current portion of long-term debt 3,265 1,821 - 5,086
Taxes payable 26,678 - - 26,678
Other current liabilities 126,662 567 102 (c) 130,027
2,696 (e)
--------------- ----------- ------------- -------------
Total current liabilities 388,034 5,192 3,021 396,247
Long-term debt 406,548 4,200 - 410,748
Other noncurrent liabilities 37,101 2,193 - 39,294
Stockholders' equity:
Common stock and additional paid-in
capital 1,604,294 61,205 122,215 (c) 1,695,696
91,402 (e)
(143,728) (f)
(41,033) (f)
1,341 (g)
Accumulated deficit (962,502) (41,033) 41,033 (f) (1,086,037)
(123,535) (d)
Cumulative foreign currency translation
adjustment 4,010 - - 4,010
Unrealized gain (loss) from investments 14,351 - (6,603) (f) 7,748
--------------- ----------- ------------- -------------
Total stockholders' equity 660,153 20,172 (58,908) 621,417
--------------- ----------- ------------- -------------
$ 1,491,836 $ 31,757 $ (55,887) $ 1,467,706
--------------- ----------- ------------- -------------
--------------- ----------- ------------- -------------
</TABLE>
See accompanying notes.
3
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
The Unaudited Pro Forma Combined Condensed Balance Sheet has been prepared
to reflect the acquisition of Viagene as if it occurred on June 30, 1995. The
acquisition has been accounted for under the purchase method of accounting.
The following is a summary of reclassifications and adjustments reflected
in the Unaudited Pro Forma Combined Condensed Balance Sheet:
(a) Chiron's historical balances for June 30, 1995, have been
modified to reflect revised estimates related to the Ciba transaction
purchase accounting which were recognized by Chiron in the third quarter
ending September 30, 1995.
(b) Represents the elimination of intercompany receivables and
payables as of June 30, 1995.
(c) Represents the adjustments of Viagene's assets and liabilities to
their estimated fair values at the date of the acquisition and the accrual
of acquisition-related liabilities.
(d) Represents the write-off of acquired in-process technology as of
the date of the merger. This adjustment is excluded from the Unaudited Pro
Forma Combined Condensed Statements of Operations as it is a nonrecurring
item. Approximately $130.3 million related to the write-off in-process
technology related to the Viagene acquisition was recorded by Chiron
during the third quarter ending September 30, 1995. The difference between
the approximately $123.5 million write-off of in-process technology per
the Pro Forma Combined Condensed Balance Sheet at June 30, 1995 and the
actual write-off of in-process technology at September 30, 1995 results
from reductions in actual net assets acquired due to operating activities
of Viagene from June 30, 1995 to September 30, 1995.
(e) Represents the issuance of approximately 916,000 shares of Chiron
common stock at a fair market value of approximately $82.9 million based on
$90.50 per share (the closing price of Chiron common stock on September
29, 1995), the payment of approximately $35.5 million in cash to Viagene
stockholders, the issuance of options (valued at $8.5 million) to purchase
Chiron common stock to Viagene optionholders in exchange for unexercised
Viagene options and the accrual of $2.7 million in costs and expenses
associated with the transaction.
(f) Represents the elimination of Chiron's initial investment in
Viagene under the cost method and the elimination of Viagene's historical
equity and accumulated deficit.
(g) Represents the cash receipts from exercise of Viagene stock
options at the time of the merger.
4
<PAGE>
CHIRON, CIBA CORNING DIAGNOSTICS CORP., JV VAX B.V.
AND THE BIOCINE COMPANY COMBINED
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Ciba
Corning The
Chiron Diagnostics JV Vax Biocine
Corporation Corp. B.V. Company
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 275,966 $ 447,125 $ 56,676 $ -
Equity in earnings of
joint businesses 82,395 - - -
Collaborative agreement
revenues 67,501 - - -
Other revenues 28,117 8,550 2,578 -
-------------- -------------- -------------- --------------
Total revenues 453,979 455,675 59,254 -
-------------- -------------- -------------- --------------
Expenses:
Research and development 166,175 61,484 9,233 54,875
Cost of sales 128,209 208,916 24,105 -
Selling, general and
administrative 112,107 157,811 21,789 1,937
Other operating expenses 5,088 12,627 - -
Loss on divestiture - (3,757) - -
-------------- -------------- -------------- --------------
Total expenses 411,579 437,081 55,127 56,812
-------------- -------------- -------------- --------------
Income (loss) from operations 42,400 18,594 4,127 (56,812)
Other income (expense), net (10,403) (12,482) 10,868 683
-------------- -------------- -------------- --------------
Income (loss) before income
taxes 31,997 6,112 14,995 (56,129)
Provision for income taxes 13,672 4,006 3,103 -
-------------- -------------- -------------- --------------
Income (loss) before
nonrecurring charges $ 18,325 $ 2,106 $ 11,892 $ (56,129)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Income (loss) before
nonrecurring charges per
share $ 0.53
--------------
--------------
Nonrecurring charges (not
included above) $ -
--------------
--------------
Nonrecurring charges per
share $ -
--------------
--------------
Shares used in calculation of
per share amounts 34,293
--------------
--------------
<CAPTION>
Adjustments
and
Elimination Pro forma
Total Entries Combined
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Product sales $ 779,767 $ - $ 779,767
Equity in earnings of
joint businesses 82,395 (7,144) (d) 75,251
Collaborative agreement
revenues 67,501 - 67,501
Other revenues 39,245 (1,937) (h) 34,608
(2,700) (e)
-------------- -------------- --------------
Total revenues 968,908 (11,781) 957,127
-------------- -------------- --------------
Expenses:
Research and development 291,767 (54,875) (d) 236,837
(55) (a)
Cost of sales 361,230 (11,747) (a) 349,483
Selling, general and
administrative 293,644 (1,937) (h) 291,574
(133) (a)
Other operating expenses 17,715 1,533 (b) 19,248
Loss on divestiture (3,757) - (3,757)
-------------- -------------- --------------
Total expenses 960,599 (67,214) 893,385
-------------- -------------- --------------
Income (loss) from operations 8,309 55,433 63,742
Other income (expense), net (11,334) 3,971 (c) (7,363)
-------------- -------------- --------------
Income (loss) before income
taxes (3,025) 59,404 56,379
Provision for income taxes 20,781 4,030 (f) 24,811
-------------- -------------- --------------
Income (loss) before
nonrecurring charges $ (23,806) $ 55,374 $ 31,568
-------------- -------------- --------------
-------------- -------------- --------------
Income (loss) before
nonrecurring charges per
share $ 0.77 (g)
--------------
--------------
Nonrecurring charges (not
included above) $ - $(222,600) (i) $(222,600)
-------------- -------------- --------------
-------------- -------------- --------------
Nonrecurring charges per
share $ - $ - $ (5.44) (g)
-------------- -------------- --------------
-------------- -------------- --------------
Shares used in calculation of
per share amounts 40,893 (g)
--------------
--------------
</TABLE>
See accompanying notes.
5
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
The Unaudited Pro Forma Combined Condensed Statement of Operations related
to the Ciba-Geigy Limited ("Ciba") transaction gives effect to Chiron's
acquisitions from Ciba of Ciba Corning Diagnostics Corp. ("CCD") and Ciba's
interests in The Biocine Company and JV Vax B.V. (the "acquisitions"), as
discussed in the Registrant's Current Report on Form 8-K/A dated March 17,
1995.
The Unaudited Pro Forma Combined Condensed Statement of Operations
related to the Ciba transaction has been prepared to reflect the acquisitions
as if they occurred on January 1, 1994. In the case of JV Vax B.V., the
amounts included herein are for the year ended November 30, 1994. The
acquisitions have been accounted for under the purchase method of accounting.
The amount of the purchase price allocated to base technology has been
recorded as an intangible asset and is being amortized on a straight-line
basis over 10-15 years.
The following is a summary of reclassifications and adjustments
reflected in the Unaudited Pro Forma Combined Condensed Statement of
Operations:
(a) Represents adjustments to depreciation and amortization
resulting from the fair market value adjustments to fixed assets,
intangible assets, and other assets recorded in connection with the
acquisitions.
(b) Represents the amortization of identifiable intangible assets
primarily over 10 to 15 years.
(c) Represents the adjustments to interest income and interest
expense resulting from (a) a reduction in CCD's debt to amounts specified
in the acquisition agreements at a weighted average interest rate of 6.8%,
and (b) a reduction in interest income earned due to the $23.5 million
payment made to Ciba in connection with the acquisition.
(d) Represents the elimination of Chiron's share of the net income
of JV Vax B.V. and research expense billed by Chiron to The Biocine
Company. Revenues of $40.9 million earned by Chiron from The Biocine
Company were not eliminated as Ciba has agreed to provide research
funding of at least $250 million over five years in support of research
at Chiron. However, the specific programs to be funded are subject to
Ciba's approval. In the event Chiron utilizes this research funding
arrangement, 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 certain rights to any resulting products by
paying to Ciba, in cash or common stock, an amount equal to the funding
plus an agreed-upon return and certain residual rights.
(e) Represents the elimination of revenues recorded by CCD in
connection with research collaboration arrangements with Ciba.
(f) Represents the tax effect, where applicable, of the Unaudited
Pro Forma Combined Condensed Statement of Operations adjustments based on
the statutory rate in effect for the period shown.
(g) Pro forma combined net income per share amounts as presented
in the accompanying Unaudited Pro Forma Combined Condensed Statement of
Operations are based on the weighted average number of Chiron shares used
in the calculation of historical net income per share, adjusted to
reflect the issuance of 6.6 million new shares of Chiron common stock to
Ciba.
(h) Represents the elimination of intercompany transactions.
(i) As required under generally accepted accounting principles,
amounts allocated to acquired in-process technology have been expensed.
This $222.6 million charge has been excluded from the Unaudited Pro Forma
Combined Condensed Statement of Operations as it represents a material,
nonrecurring item. Additionally, the Company incurred charges of
approximately $50 million related to legal and investment advisory fees
and employee payments and the related taxes in connection with this
transaction. These charges have also been excluded from the Unaudited Pro
Forma Combined Condensed Statement of Operations as they represent
material, nonrecurring items.
6
<PAGE>
CHIRON AND VIAGENE COMBINED
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
--------------------------------------------------------------
Pro Forma Pro Forma Pro Forma
Chiron (a) Viagene Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 779,767 $ - $ - $ 779,767
Equity in earnings of
unconsolidated joint
businesses 75,251 - - 75,251
Collaborative agreement
revenues 67,501 12,895 (1,454) (d) 78,942
Other revenues 34,608 - - 34,608
----------- ----------- ----------- -----------
Total revenues 957,127 12,895 (1,454) 968,568
----------- ----------- ----------- -----------
Expenses:
Research and development 236,837 21,549 (1,454) (d) 256,932
Cost of sales 349,483 - - 349,483
Selling, general and
administrative 291,574 3,398 - 294,972
Write-off of purchased in-
process technologies - - - -
Costs related to Ciba
transaction - - - -
Restructuring and
reorganization costs - - - -
Other operating expenses 19,248 - - 19,248
Loss on divestiture (3,757) - - (3,757)
----------- ----------- ----------- -----------
Total expenses 893,385 24,947 (1,454) 916,878
----------- ----------- ----------- -----------
Income (loss) from operations 63,742 (12,052) - 51,690
Other income (expense), net (7,363) 1,140 (1,408) (c) (7,631)
----------- ----------- ----------- -----------
Income (loss) before income
taxes 56,379 (10,912) (1,408) 44,059
Provision for income taxes 24,811 - (493) (e) 24,318
----------- ----------- ----------- -----------
Income (loss) before
nonrecurring charges $ 31,568 $ (10,912) $ (915) $ 19,741
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (loss) before
nonrecurring charges per
share: $ 0.77 $ 0.47 (f)
----------- -----------
----------- -----------
Nonrecurring charges (not
included above) $(222,600) $(123,535) (g) $(346,135)
----------- ----------- -----------
----------- ----------- -----------
Nonrecurring charges per
share $ (5.44) $ (8.28) (f)
----------- -----------
----------- -----------
Shares used in calculation
of per share amounts 40,893 41,809 (f)
----------- -----------
----------- -----------
<CAPTION>
Six Months Ended June 30, 1995
--------------------------------------------------------------
Pro Forma Pro Forma
Chiron (b) Viagene Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 432,242 $ - $ - $ 432,242
Equity in earnings of
unconsolidated joint
businesses 39,538 - - 39,538
Collaborative agreement
revenues 10,522 5,762 (1,046) (d) 15,238
Other revenues 17,695 - - 17,695
----------- ----------- ----------- -----------
Total revenues 499,997 5,762 (1,046) 504,713
----------- ----------- ----------- -----------
Expenses:
Research and development 170,989 13,174 (1,046) (d) 183,117
Cost of sales 198,873 - - 198,873
Selling, general and
administrative 173,281 2,267 - 175,548
Write-off of purchased in-
process technologies 234,623 - - 234,623
Costs related to Ciba
transaction 49,478 - - 49,478
Restructuring and
reorganization costs 39,055 - - 39,055
Other operating expenses 5,804 - - 5,804
Loss on divestiture - - - -
----------- ----------- ----------- -----------
Total expenses 872,103 15,441 (1,046) 886,498
----------- ----------- ----------- -----------
Income (loss) from operations (372,106) (9,679) - (381,785)
Other income (expense), net (3,499) 321 (596) (c) (3,774)
----------- ----------- ----------- -----------
Income (loss) before income
taxes (375,605) (9,358) (596) (385,559)
Provision for income taxes 11,661 - (208) (e) 11,453
----------- ----------- ----------- -----------
Income (loss) before
nonrecurring charges $(387,266) $ (9,358) $ (388) $(397,012)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (loss) before
nonrecurring charges per
share: $ (9.66) $ (9.68) (f)
----------- -----------
----------- -----------
Nonrecurring charges (not
included above) - - $(123,535) (g) $(123,535)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Nonrecurring charges per
share - - $ (3.01) (f)
----------- ----------- -----------
----------- ----------- -----------
Shares used in calculation
of per share amounts 40,086 41,002 (f)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
7
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENTS OF OPERATIONS
The Unaudited Pro Forma Combined Condensed Statements of Operations have
been prepared to reflect the acquisition of Viagene as if it occurred on January
1, 1994, for the pro forma statement of operations for the year ended December
31, 1994, and on January 1, 1995, for the pro forma statement of operations for
the six months ended June 30, 1995. The acquisition has been accounted for
under the purchase method of accounting.
The following is a summary of reclassifications and adjustments reflected
in the Unaudited Pro Forma Combined Condensed Statements of Operations:
(a) Included in Chiron's December 31, 1994, pro forma results are the
historical statements of operations of CCD, JV Vax B.V. and The Biocine
Company as presented in the Unaudited Pro Forma Combined Condensed
Statement of Operations reported by Chiron on Form 8-K/A dated March 17,
1995, in connection with Chiron's acquisition from Ciba of CCD and Ciba's
interests in The Biocine Company and Biocine S.p.A. The adjustments and
elimination entries as presented in the Unaudited Pro Forma Combined
Condensed Statement of Operations on Form 8-K/A have been modified to
reflect revised estimates to the purchase accounting related to the Ciba
transaction. A revised Unaudited Pro Forma Combined Condensed Statement
of Operations along with the notes thereto relating to the Ciba transaction
are shown on pages 5 and 6.
(b) Chiron's historical amounts for the six months ended June 30,
1995, have been modified to reflect revised estimates related to the Ciba
transaction purchase accounting which were recognized by Chiron in the
third quarter ending September 30, 1995.
(c) Represents the reduction in interest income earned due to the
$35.5 million cash payment made to Viagene stockholders in connection with
the merger less cash received from exercise of Viagene stock options.
(d) Represents the elimination of revenues recorded by Chiron and
expenses recorded by Viagene in connection with research collaboration
arrangements between Viagene and Chiron.
(e) Represents the tax effect, where applicable, of the Unaudited Pro
Forma Combined Condensed Statements of Operations adjustments based on the
statutory rate in effect for the periods shown.
(f) Pro forma combined income (loss) before nonrecurring charges per
share amounts as presented in the accompanying Unaudited Pro Forma Combined
Condensed Statements of Operations are based on the weighted average number
of shares of Chiron common stock used in the calculation of income (loss)
before nonrecurring charges per share, adjusted to reflect the issuance of
approximately 916,000 new shares of Chiron common stock to Viagene
stockholders.
(g) As required under generally accepted accounting principles,
amounts allocated to acquired in-process technology have been written off
in the accompanying Unaudited Pro Forma Combined Condensed Balance Sheet.
This $123.5 million charge has been excluded from the Unaudited Pro Forma
Combined Condensed Statements of Operations as it represents a nonrecurring
item. Approximately $130.3 million related to the write-off of in-process
technology related to the Viagene acquisition was recorded by Chiron
during the third quarter ending September 30, 1995. The difference between
the approximately $123.5 million write-off of in-process technology per
the Pro Forma Combined Condensed Statements of Operations for the year
ending December 31, 1994, and the six months ending June 30, 1995,
respectively, and the actual write-off of in-process technology at
September 30, 1995 results from reductions in actual net assets acquired
due to operating activities of Viagene from June 30, 1995 to September 30,
1995.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHIRON CORPORATION
By /s/ DENNIS L. WINGER
------------------------------------
Dennis L. Winger
SENIOR VICE PRESIDENT,
FINANCE AND ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
Dated: November 13, 1995
9
<PAGE>
EXHIBIT INDEX
Page
----
Exhibit 13.1 Viagene, Inc. F-2
Exhibit 13.2 Viagene, Inc. F-15
Exhibit 23.1 Consent of Ernst & Young, LLP, Independent Auditors
F-1
<PAGE>
EXHIBIT 13.1
VIAGENE, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 31, 1993,
AND DECEMBER 31, 1992
F-2
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Viagene, Inc.
We have audited the accompanying balance sheets of Viagene, Inc. as of
December 31, 1994 and 1993, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Viagene, Inc. at
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 8, 1995
except for Note 7, as to which the date is
April 26, 1995
F-3
<PAGE>
VIAGENE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------- -------------
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 13,156,460 $ 38,349,525
Short term investments, (Note 3)............................. 15,931,958 -
Accounts receivable from a related party (Note 2)............ 2,833,332 1,706,308
Other current assets......................................... 1,008,493 313,302
------------- -------------
Total current assets....................................... 32,930,243 40,369,135
Property and equipment, net (Note 3)......................... 7,762,802 2,102,647
Deposits and other assets (Note 4)........................... 556,966 177,473
------------- -------------
$ 41,250,011 $ 42,649,255
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 2,804,885 $ 1,534,910
Accrued liabilities.......................................... 360,995 213,042
Deferred revenue (Note 2).................................... - 209,319
Current portion of obligation under capital leases (Note 4).. 1,658,575 368,911
------------- -------------
Total current liabilities.................................. 4,824,455 2,326,182
Obligation under capital leases (Note 4)..................... 4,965,036 942,536
Deferred rent (Note 4)....................................... 244,149 257,624
Deferred revenue (Note 2).................................... 2,000,000 2,000,000
Commitments (Note 4).........................................
Stockholders' equity (Note 5):
Convertible preferred stock, $.001 par value
10,000,000 shares authorized at December 1994 and 1993... - -
Common stock, $.001 par value
30,000,000 shares authorized, 11,121,228 shares and
10,620,538 shares issued and outstanding at December 31,
1994 and 1993, respectively.............................. 11,121 10,620
Additionally paid-in capital................................. 60,880,549 57,875,612
Accumulated deficit.......................................... (31,675,299) (20,763,319)
------------- -------------
Total stockholders' equity................................. 29,216,371 37,122,913
------------- -------------
$ 41,250,011 $ 42,649,255
------------- -------------
------------- -------------
</TABLE>
See accompanying notes
F-4
<PAGE>
VIAGENE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
---------------- ------------- ------------
<S> <C> <C> <C>
RESEARCH AND DEVELOPMENT REVENUE
Related party (Note 2)............ $ 10,800,000 $ 8,000,000 $ 8,400,000
Unrelated party................... 2,094,888 1,447,581 -
---------------- ------------- ------------
12,894,888 9,447,581 8,400,000
OPERATING EXPENSES (NOTES 2 AND 4)
Research and development............ 21,548,652 12,240,835 9,353,298
General and administrative.......... 3,397,884 2,945,220 2,227,450
---------------- ------------- ------------
24,946,536 15,186,055 11,580,748
Interest and other income........... 1,441,318 202,358 120,195
Interest expense.................... (301,650) (149,013) (32,420)
---------------- -------------- ------------
Net loss............................... $ (10,911,980) $ (5,685,129) $ (3,092,973)
---------------- -------------- ------------
---------------- -------------- ------------
Net loss per share.................... $ (0.99) $ (0.80) $ (0.49)
---------------- ------------- ------------
---------------- ------------- ------------
Shares used in computing
net loss per share................. $ 10,979,242 $ 7,136,377 $ 6,271,713
---------------- ------------- ------------
---------------- ------------- ------------
</TABLE>
See accompanying notes
F-5
<PAGE>
VIAGENE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
PREFERRED COMMON ADDITIONAL ACCUMULATED STOCKHOLDERS'
STOCK STOCK PAID-IN CAPITAL DEFICIT EQUITY
--------- --------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 $ 49,106 $ 8,100 $ 17,776,570 $ (11,985,217) $ 5,848,559
Issuance of common stock. . . . . . . . . . . . . - 89 4,249 - 4,338
Issuance of preferred stock . . . . . . . . . . . 7,224 - 3,943,211 - 3,950,435
Amortization of deferred compensation . . . . . . - - 151,820 - 151,820
Net loss. . . . . . . . . . . . . . . . . . . . . - - - (3,092,973) (3,092,973)
--------- --------- ------------- --------------- ---------------
BALANCE AT DECEMBER 31, 1992 56,330 8,189 21,875,850 (15,078,190) 6,862,179
Restatement of par value to $0.001 per
share. . . . . . . . . . . . . . . . . . . . . . (45,064) (7,370) 52,434 - -
Issuance of common stock. . . . . . . . . . . . . - 451 62,379 - 62,830
Issuance of preferred stock and common
stock warrants . . . . . . . . . . . . . . . . . 3,200 - 19,429,297 - 19,432,497
Conversion of preferred stock to
common stock . . . . . . . . . . . . . . . . . . (14,466) 7,350 7,116 - -
Issuance of common stock in initial
public offering. . . . . . . . . . . . . . . . . - 2,000 16,303,875 16,305,875
Amortization of deferred compensation . . . . . . - - 144,661 - 144,661
Net loss. . . . . . . . . . . . . . . . . . . . . - - - (5,685,129) (5,685,129)
--------- --------- ------------- --------------- ---------------
BALANCE AT DECEMBER 31, 1993 - 10,620 57,875,612 (20,763,319) 37,122,913
Issuance of common stock. . . . . . . . . . . . . - 501 2,712,939 - 2,713,440
Amortization of deferred compensation . . . . . . - - 291,998 - 291,998
Net loss. . . . . . . . . . . . . . . . . . . . . - - - (10,911,980) (10,911,980)
--------- --------- ------------- --------------- ---------------
BALANCE AT DECEMBER 31, 1994 $ - $ 11,121 $ 60,880,549 $ (31,675,299) $ 29,216,371
--------- --------- ------------- --------------- ---------------
--------- --------- ------------- --------------- ---------------
</TABLE>
See accompanying notes
F-6
<PAGE>
VIAGENE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1993 1992
---------------- --------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . $ (10,911,980) $ (5,685,129) $ (3,092,973)
Items reflected in net loss not requiring cash:
Depreciation and amortization . . . . . . . . . . . . 1,207,871 637,308 282,746
Amortization of premium on investments. . . . . . . . 548,428 - -
Amortization of deferred compensation . . . . . . . . 291,998 144,661 151,820
Deferred offering costs . . . . . . . . . . . . . . . - 479,969 -
Deferred rent expense . . . . . . . . . . . . . . . . (13,475) 215,530 (22,802)
Deferred revenue. . . . . . . . . . . . . . . . . . . (209,319) 2,209,319 -
Changes in operating assets and liabilities:
Accounts receivable from a related party. . . . . (1,127,024) (309,769) 212,055
Other current assets. . . . . . . . . . . . . . . (695,191) (80,811) 376,052
Accounts payable and accrued liabilities. . . . . 1,417,928 1,277,077 (141,335)
---------------- --------------- -----------------
Net cash used for operating activities. . . . . . (9,490,764) (1,111,845) (2,234,437)
INVESTING ACTIVITIES
Purchase of property and equipment . . . . . . . . . . . (791,851) (698,700) (179,859)
Purchase of investments. . . . . . . . . . . . . . . . . (63,982,469) - -
Proceeds from maturing investments . . . . . . . . . . . 47,502,083 - -
Deposits and other assets. . . . . . . . . . . . . . . . (379,493) (112,565) (414,951)
---------------- --------------- -----------------
Net cash used for investing activities . . . . . . . . . (17,651,730) (811,265) (594,810)
FINANCING ACTIVITIES
Payments under capital lease obligations . . . . . . . . (764,011) (279,235) (35,856)
Issuance of common in initial public offering. . . . . . 2,463,176 16,305,875 -
Issuance of common stock, preferred stock and
warrant to purchase common stock, net. . . . . . . . . 250,264 19,495,327 3,954,773
---------------- --------------- -----------------
Net cash provided by financing activities. . . . . . . . 1,949,429 35,521,967 3,918,917
---------------- --------------- -----------------
(Decrease) increase in cash and cash equivalents . . . . (25,193,065) 33,598,857 1,089,670
Cash and cash equivalents at beginning of period . . . . 38,349,525 4,750,668 3,660,998
---------------- --------------- -----------------
Cash and cash equivalents at end of the period . . . . . $ 13,156,460 $ 38,349,525 $ 4,750,668
---------------- --------------- -----------------
---------------- --------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . $ 301,650 $ 149,013 $ 32,420
---------------- --------------- -----------------
---------------- --------------- -----------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations for purchase of property
and equipment . . . . . . . . . . . . . . . . . . . . $ 6,076,175 $ 794,440 $ 832,098
---------------- --------------- -----------------
---------------- --------------- -----------------
</TABLE>
See accompanying notes
F-7
<PAGE>
Notes to the Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITIES
Viagene, Inc. (the "Company"), a Delaware corporation, was incorporated
on February 3, 1987. The Company is a biotechnology company pursuing the
discovery, development and commercialization of gene transfer drugs for the
treatment of severe viral infections, cancers and other diseases.
RESEARCH AND DEVELOPMENT REVENUES AND EXPENSES
Research and development revenue is recorded as earned when research and
development activities are performed under the terms of the contract. Research
and development costs are expensed as incurred.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of less than three months to be cash equivalents. The Company
invests its excess cash in money market funds, commercial paper, U.S.
Government securities, certificates of deposit and debt instruments of
financial institutions and corporations with strong credit ratings. The
Company has established guidelines relative to diversification and maturities
to limit the amount of credit exposure to any one financial institution and
to any one class of investment. The Company has not experienced any losses
on its short-term investments. Effective January 1, 1994, the Company
adopted Statement of Accounting Standards No. 115. "Accounting for Certain
Investments in Debt and Equity Securities." As permitted by the Statement,
prior periods' financial statements have not been restated to reflect the
change in accounting principle. There was no cumulative effect as a result of
the adoption of the Statement.
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designations as of
each balance sheet date. Debt securities are classified as held-to-maturity
when the Company has both the positive intent and the ability to hold the
securities to maturity. Held-to-maturity securities are stated at cost,
adjusted for amortization of premiums and accretion of discounts. Interest
and amortization on the securities classified as held-to maturity are
included in investment and other income.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, generally
five years. Leasehold improvements are stated at cost and amortized using the
straight-line method over the shorter of the estimated useful life of the assets
or the lease term.
NET LOSS PER SHARE
Net loss per share is computed using weighted average number of common
shares outstanding during the periods, as adjusted for the effects of certain
rules of the Securities and Exchange Commission for the periods prior to the
Company's initial public offering.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of January 1, 1993. Statement 109 is an asset
and liability approach that requires the recognition of deferred assets and
liabilities for expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. As permitted
under the new rules, prior years' financial statements have not been restated.
The adoption of Statement 109 had no impact on 1993 results.
F-8
<PAGE>
Notes to the Financial Statements (continued)
2. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
THE GREEN CROSS CORPORATION OF OSAKA, JAPAN
In April 1991, the Company entered into a Technology and License
Agreement ("Agreement") with The Green Cross Corporation of Osaka, Japan
("Green Cross") for the purpose of developing, manufacturing and marketing
immunotherapeutic products for the treatment of the HIV infection. Under the
Agreement, Green Cross has agreed to fund an HIV ImmunoTherapeutic Research
and Development Program (the "R&D Program") through January 1997. In
addition, Green Cross is obligated to make milestone payments when the
Company achieves certain objectives specified in the Agreement. The Company
granted Green Cross an exclusive, worldwide license to use and sell HIV
ImmunoTherapeutic products and certain related processes developed under the
R&D Program funded by Green Cross and the Company will be paid a royalty on
all product sales made by Green Cross and its sublicensees. In addition, the
Company retained the exclusive worldwide right to manufacture and supply all
products sold by Green Cross and any of its sublicensees under the Agreement.
The term of the R&D program will continue until February 1997 or may be
terminated earlier by Green Cross upon 120 days notice. Green Cross owns
1,198,702 shares of the Company's stock which it acquired in 1990, 1991 and
1992 for a total of $5,450,000.
The Company bills Green Cross at the conclusion of each quarter for costs
and expenses incurred during that quarter. Such billings are due and payable
within 30 days of the invoice date. Amounts receivable from Green Cross were
$2,833,332 and $1,706,309 at December 31, 1994, and 1993, respectively. Costs
and expenses of $11,054,792, $9,173,354 and $8,340,486 were incurred under this
Agreement for the years ended December 31, 1994, 1993 and 1992, respectively.
Green Cross reimbursed Viagene $10,800,000, $8,000,000 and $8,400,000 under this
Agreement for the years ended December 31, 1994, 1993 and 1992, respectively,
including a milestone payment in 1992. Green Cross has agreed to reimburse the
Company up to $9.5 million for costs incurred under the agreement in 1995.
BAYER AG OF GERMANY
In January 1993, the Company entered into a development and license
agreement (the "Bayer Agreement") with Bayer AG of Germany ("Bayer") to develop
a gene therapy product for the treatment of hemophilia A. Bayer has agreed to
provide the Company over a three-year period, up to $9 million in up-front
license fee, research funding and milestone payments. Under the terms of the
Bayer Agreement, Bayer funds the research program in advance in six month
increments, based upon budgeted expenditures. Costs and expenses of $2,094,900
and $1,447,600 were incurred under this agreement in 1994 and 1993,
respectively. The Company received $1,775,500 and $1,656,900 for the years
ended December 31, 1994 and 1993, respectively, for research under this
agreement. At December 31, 1994, $110,100 was due from Bayer for costs incurred
under the Bayer Agreement during 1994. Under the terms of the Bayer Agreement,
Bayer paid the Company $2 million in up-front licensing fee, which has been
recorded as deferred revenue as the Company has the option to return the fee
through January 1998 in exchange for certain other considerations. Bayer has
the option to terminate the Bayer Agreement upon 180 days prior written notice.
CHIRON CORPORATION
In November 1993, the Company and Chiron Corporation ("Chiron") entered
into an agreement to collaborate on the development of gene transfer products
for the prevention and treatment of cancer and to develop gene therapy drug
activation technology for prevention and treatment of a broad range of human
diseases. The agreement provides that of the initial $24 million of
collaborative funding approved by a joint management committee, Viagene will
contribute the first $12 million and Chiron will contribute the second $12
million. If spending in excess of $24 million is approved, such amounts will be
funded equally by both parties. The Company incurred costs and expenses of
$5,760,000 and $74,000 under this agreement in 1994 and 1993, respectively. The
agreement may be terminated on 180 days written notice by Chiron. Upon
termination, Chiron's obligation to make ongoing funding payments would cease.
F-9
<PAGE>
Notes to the Financial Statements (continued)
In connection with the research and development agreement, Chiron
purchased 1,955,556 shares of common stock and warrants to purchase 2,750,000
shares of common stock at an exercise price of $11 per share for aggregate
proceeds of $19.4 million. The warrant vest daily over a four year period
subject to 100% acceleration of all unvested warrants upon Chiron's funding
of $12 million under the research collaboration. As a condition of the equity
sale, Chiron has agreed, except under limited circumstances, not to purchase
additional Viagene stock without approval of Viagene's Board of Directors for
a period of five years. Chiron has agreed not to exercise its warrants at any
time if it would increase its direct ownership in the Company above 19.9%
prior to November 1995 and above 30% prior to November 1998. The warrants
will expire in November 1998 subject to extension if Chiron is not able to
exercise the warrants because of the above ownership limitation.
3. BALANCE SHEET INFORMATION
INVESTMENTS
All investments of the Company are classified as held-to-maturity. The
following summary of held-to-maturity investments at December 31, 1994:
<TABLE>
<CAPTION>
GROSS
AMORTIZED UNREALIZED ESTIMATED
COST LOSSES FAIR VALUE
----------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund $ 3,614,414 $ - $ 3,614,414
Commercial Paper 9,423,898 - 9,423,898
Corporate Debt Securities 15,931,958 13,858 15,918,100
----------- ------- -----------
$28,970,270 $13,858 $28,956,412
----------- ------- -----------
----------- ------- -----------
</TABLE>
Of the above reference investments, $13,038,312 is included in cash and
cash equivalents. The above securities mature at various dates through April
1995.
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
----------- -----------
<S> <C> <C>
Laboratory and manufacturing equipment $ 4,431,502 $ 1,743,730
Office furniture and equipment 733,267 362,406
Leasehold improvements 2,263,847 1,377,778
Construction in progress 2,876,470 -
----------- -----------
10,305,086 3,483,914
Less accumulated depreciation and
amortization (2,542,284) (1,381,267)
----------- -----------
$ 7,762,802 $ 2,102,647
----------- -----------
----------- -----------
</TABLE>
F-10
<PAGE>
Notes to the Financial Statements (continued)
4. COMMITMENTS
The Company leases its office and research facilities and certain
equipment under operating and capital lease agreements. The minimum annual
facilities rents are subject to increases based on changes in the Consumer
Price Index, taxes, insurance and operating costs. Rent is recorded on a
straight-line basis over the term of the lease. Accordingly, deferred rent,
as reflected in the accompanying balance sheets, represents the difference
between rent expenses accrued and amounts paid under the terms of the lease
agreement. Included in deposits and other assets at December 31, 1994 and
1993 are $557,000 and $292,000, respectively, deposited under these
agreements. Rent expense for the years ended December 31, 1994, 1993 and
1992, was $1,096,000, $838,000 and $1,077,000, respectively.
Annual future minimum lease payments as of December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASES LEASES
--------------------------------------------------------------
<S> <C> <C>
1995 $1,125,787 $ 2,317,422
1996 788,262 2,216,307
1997 367,333 1,903,872
1998 208,158 1,533,109
1999 97,577 296,184
---------- -----------
Total minimum lease payments $2,587,117 8,266,894
----------
----------
Less amount representing interest (1,643,283)
-----------
Present value of remaining minimum
capital lease payments 6,623,611
Less amount due in one year (1,658,575)
-----------
Long-term, portion of obligations
under capital leases $ 4,965,036
-----------
-----------
</TABLE>
Cost and accumulated depreciation of equipment and leasehold improvements
under capital leases were $7,624,607 and $1,144,568, respectively, at
December 31, 1994, and were $1,626,538 and $419,392, respectively, at
December 31, 1993.
5. STOCKHOLDERS' EQUITY
Information with respect to stock transactions is as follows:
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK SHARES STOCK SHARES
------------ ------------
<S> <C> <C>
Balance at December 31, 1991 9,821,167 810,006
Issuance of stock 1,444,865 8,912
----------- ----------
Balance at December 31, 1992 11,266,032 818,918
Issuance of stock 3,200,000 451,179
Conversion of preferred stock (14,466,032) 7,350,441
Issuance of common stock from initial
public offering - 2,000,000
----------- ----------
Balance at December 31, 1993 - 10,620,538
Issuance of common stock - 200,690
Issuance of common stock from exercise of
underwriters over allotment option - 300,000
----------- ----------
Balance at December 31, 1994 - 11,121,228
----------- ----------
----------- ----------
</TABLE>
F-11
<PAGE>
Notes to the Financial Statements (continued)
COMMON STOCK
In December 1993, the Company completed its initial public offering of
2,000,000 shares of common stock. In January 1994, the Company's underwriters
exercised their over allotment option to purchase an additional 300,000
shares of common stock. Aggregate net proceeds from both transactions was
$18.8 million.
WARRANTS
In December 1991, the Company obtained equipment lease financing which
included the issuance of warrants to purchase shares of Series C preferred
stock convertible into 22,222 shares of common stock at $4.50 per share. The
warrants are exercisable through December 16, 1998. At December 31, 1994 all
of the warrants were outstanding.
In addition, warrants to purchase additional shares of Series C
preferred stock convertible into up to 22,222 shares of common stock at $4.50
per share may be issued contingent upon certain elections made by the Company
at the end of the initial lease term. Warrants which become issuable, if any,
will be accounted for upon the resolution of the contingency.
In November 1993 Chiron Corporation purchased for $2.4 million warrants
to purchase 2,750,000 shares of common stock at an exercise price of $11 per
share as described in Note 2.
STOCK PLAN
In November 1989, the Company adopted a Stock Plan under which options
to purchase common stock of the Company may be granted by the Board of
Directors. Options granted under the Plan are at prices not less than fair
market value on the date of grant. The Plan authorizes the Board of Directors
to grant options to purchase up to 1,350,000 shares of common stock. Upon the
completion of the initial public offering of the Company's stock, the Plan was
replaced by the 1993 Incentive Stock Plan. The 1993 Incentive Stock plan
authorizes the Board of Directors to grant up to 774,367 shares of common
stock plus any shares of common stock which are forfeited under the 1989
Stock Plan. At December 31, 1994, 949,178 and 573,896 shares were
outstanding under the 1989 Stock Plan and the 1993 Incentive Stock Plan,
respectively. At December 31, 1994, options exercisable and available for
future grant totaled 675,939 and 291,170, respectively.
Information with respect to the Company's Stock Plans is as follows:
<TABLE>
<CAPTION>
SHARES PRICE
-------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1991 638,532 $ .18 - 1.50
Granted 344,505 $2.00 - 3.00
Exercised (671) $ .18 - 1.50
Canceled (6,318) $ .18 - 3.00
-------------------------------------------------------------------
Balance at December 31, 1992 976,048 $ .18 - 3.00
Granted 315,620 $3.00 - 11.00
Exercised (53,885) $ .18 - 7.00
Canceled (27,668) $ .50 - 7.00
-------------------------------------------------------------------
Balance at December 31, 1993 1,210,115 $ .18 - 11.00
-------------------------------------------------------------------
Granted 578,375 $3.44 - 10.00
Exercised (166,283) $ .18 - 3.00
Canceled (116,633) $ .18 - 11.00
-------------------------------------------------------------------
Balance at December 31, 1994 1,505,574 $ .18 - 10.00
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
Notes to the Financial Statements (continued)
For certain options granted the Company recognized as compensation
expense the excess of the deemed value for accounting purposes of the common
stock issuable upon exercise of such options over the aggregate exercise
price of such options. This amount was amortized in full by September 1994.
EMPLOYEE STOCK PURCHASE PLAN
In June 1994, the Company adopted the Employee Stock Purchase Plan (the
Purchase Plan), under which 150,000 shares of common stock may be issued to
eligible employees including officers. The price of common stock under the
Purchase Plan will be equal to the lesser of 85% of the market price on the
day prior to the employee's participation in the Purchase Plan or 85% of the
fair market value of the common stock at the purchase date. At December 31,
1994, 34,407 shares had been issued under the Purchase Plan.
STOCKHOLDER RIGHTS PLAN
In November 1994, the Company adopted a Stockholder Rights Plan (the
"Rights Plan"). The Rights Plan provides for distribution of a preferred
stock purchase right (a "Right") as a dividend for each share of the
Company's common stock held of record at the close of business on December 9,
1994. Under certain circumstances involving an acquisition by any person or
group of 20% or more of the Company's common stock, the Rights permit the
holders (other than the 20% holder) to purchase the Company's common stock at
a 50% discount upon payment of an exercise price of $35.00 (subject to
adjustment) per Right. In addition, in the event of certain business
combinations, the Rights permit the purchase of the common stock of the
acquiring entity at a 50% discount. Under certain conditions, the Rights may
be redeemed by the Board of Directors in whole, but not in part, at a price
of $.001 per Right. The Rights expire in November 2004.
6. INCOME TAXES
At December 31, 1994, the Company has federal and California tax net
operating loss carryforwards of approximately $25,971,000 and $2,526,000,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to the capitalization of research and
development expenses for California franchise tax purposes and the fifty
percent limitation on California loss carryforwards. The federal and
California tax loss carryforwards will begin expiring in 2002 and 1995,
respectively, unless previously utilized. The Company also has federal and
California research and development tax credit carryforwards totaling
$2,379,000 and $824,000, respectively, which will begin expiring in 2002
unless previously utilized.
Pursuant to the Internal Revenue Code Sections 382 and 383, use of the
Company's net operating loss carryforwards may be limited if a cumulative
change in ownership of more than 50% occurs within any three year period.
Significant components of the Company's deferred tax assets as of
December 31, 1994 are shown below. A valuation allowance of $14,512,000, of
which $5,237,000 is related to 1994, has been recognized to offset the
deferred tax assets as realization is uncertain.
Deferred tax assets:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 9,242,000 $ 5,866,000
Research and development credits 3,203,000 1,956,000
Capitalized research and development
costs 916,000 287,000
Revenue recognition 820,000 820,000
Other - net 331,000 346,000
------------ -----------
Net deferred tax assets 14,512,000 9,275,000
Valuation allowance for deferred tax
assets (14,512,000) (9,275,000)
------------ -----------
Total deferred tax assets $ - $ -
------------ -----------
------------ -----------
</TABLE>
F-13
<PAGE>
Notes to the Financial Statements (continued)
7. SUBSEQUENT EVENTS
On April 23, 1995, Viagene and Chiron Corporation executed an Agreement
and Plan of Merger ("Merger Agreement"). Under the terms of the Merger
Agreement, Chiron will acquire the outstanding shares of common stock of
Viagene not already owned by Chiron through a combination of cash and common
stock of Chiron, resulting in 40% of the consideration constituting cash and
60% of the consideration constituting shares of common stock of Chiron.
Pursuant to the transaction, Viagene stockholders may elect between receiving
$9.00 of cash or 0.155 of a share of Chiron common stock for each share of
Viagene common stock, subject to proration. The transaction is intended to be
a tax-free exchange for Viagene stockholders to the extent of the Chiron
common stock received in the transaction. The consummation of the agreement
is subject to both stockholder and regulatory approval, as well as certain
other conditions precedent and, if approved, is expected to close in the
third quarter of 1995.
On April 26, 1995, a stockholder filed suit in the Court of Chancery of
Delaware against Chiron, Viagene and the Board of Directors of Viagene. The
plaintiff, which purports to represent a class of Viagene stockholders,
alleges that the consideration which Viagene stockholders would receive
pursuant to the merger is inadequate, and that the defendants have therefore
breached duties to Viagene stockholders. The complaint seeks an injunction
against the merger, unspecified damages, attorneys' fees and other relief.
The Company intends to vigorously defend the lawsuit. 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 this lawsuit will have a material adverse effect upon its
financial statements presented herein.
F-14
<PAGE>
EXHIBIT 13.2
VIAGENE, INC.
CONDENSED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994, AND JUNE 30, 1995,
AND FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1995 AND JUNE 30, 1994
F-15
<PAGE>
VIAGENE, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
ASSETS 1995 1994
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 6,617,061 $ 13,156,460
Short term investments..................... 14,359,295 15,931,958
Accounts receivable from a related party... 2,482,678 2,833,332
Other current assets....................... 634,035 1,008,493
------------ ------------
Total current assets..................... 24,093,069 32,930,243
Property and equipment, net................ 7,514,577 7,762,802
Deposits and other assets.................. 149,242 556,966
------------ ------------
$ 31,756,888 $ 41,250,011
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 1,631,611 $ 2,804,885
Accrued liabilities........................ 566,829 360,995
Deferred revenue........................... 1,172,112 -
Current portion of obligations under
capital leases............................ 1,821,312 1,658,575
------------ ------------
Total current liabilities................ 5,191,864 4,824,455
Obligations under capital leases............. 4,199,838 4,965,036
Deferred rent................................ 192,665 244,149
Deferred revenue............................. 2,000,000 2,000,000
Stockholders' equity:
Preferred Stock
$.001 par value: 10,000,000 shares
authorized, no shares issued and
outstanding at June 30, 1995 and
December 31, 1994........................ - -
Common stock
$.001 par value: 30,000,000 shares
authorized, 11,280,458 shares and
11,121,228 shares issued and outstanding
at June 30, 1995 and December 31, 1994,
respectively............................. 11,272 11,121
Additional paid-in capital................. 61,194,135 60,880,549
Accumulated deficit........................ (41,032,886) (31,675,299)
------------ ------------
Total stockholders' equity............... 20,172,521 29,216,371
------------ ------------
$ 31,756,888 $ 41,250,011
------------ ------------
------------ ------------
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. See notes to condensed
financial statements.
F-16
<PAGE>
VIAGENE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
RESEARCH AND DEVELOPMENT REVENUE:
Related party...................... $ 2,375,002 $ 2,589,346 $ 4,750,003 $ 5,109,257
Unrelated party.................... 490,553 434,701 1,011,965 930,424
----------- ----------- ----------- -----------
2,865,555 3,024,047 5,761,968 6,039,681
OPERATING EXPENSES:
Research and development........... 6,630,372 4,702,288 13,174,304 8,880,947
General and administrative......... 1,320,305 1,012,230 2,266,571 1,658,798
----------- ----------- ----------- -----------
7,950,677 5,714,518 15,440,875 10,539,745
Interest and other income............ 231,870 306,019 691,533 651,911
Interest expense..................... 181,908 44,603 370,213 86,087
----------- ----------- ----------- -----------
Net loss............................. $(5,035,160) $(2,429,055) $(9,357,587) $(3,934,240)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share................... $ (0.45) $ (0.22) $ (0.84) $ (0.36)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computing net loss
per share........................... 11,181,661 10,954,681 11,159,323 10,928,853
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to condensed financial statements.
F-17
<PAGE>
VIAGENE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash used for operating activities...... $ (7,673,705) $ (5,138,705)
INVESTING ACTIVITIES
Purchases of property and equipment......... (384,928) (1,678,073)
Purchases of marketable securities.......... (14,374,486) (58,503,077)
Proceeds from maturities of marketable
securities................................. 15,987,822 30,559,910
Other assets................................ 407,724 (562,017)
------------ ------------
Net cash provided by (used for) investing
activities................................. 1,636,132 (30,183,257)
FINANCING ACTIVITIES
Payments under capital lease obligations.... (815,563) (189,339)
Issuance of common stock.................... 313,737 2,524,858
------------ ------------
Net cash provided by (used for) financing
activities................................. (501,826) 2,335,519
Decrease in cash and cash equivalents....... (6,539,399) (32,986,443)
Cash and cash equivalents at the beginning
of the period.............................. 13,156,460 38,349,525
------------ ------------
Cash and cash equivalents at the end of the
period..................................... $ 6,617,061 $ 5,363,082
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations incurred for
purchase of property and equipment......... $ 213,102 $ 257,281
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements.
F-18
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim condensed financial statements contained herein have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, the condensed financial statements do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. In management's opinion, the
unaudited information includes all adjustments, consisting of normal
recurring adjustments, necessary for fair presentation of financial position,
results of operations and cash flows for the periods presented. Interim
results are not necessarily indicative of results to be expected for the full
year. The financial statements should be read in conjunction with the
Company's financial statements and footnotes thereto included in the
Company's annual report on Form 10-K, amended by Form 10-K/A, for the year
ended December 31, 1994.
ORGANIZATION AND BUSINESS ACTIVITIES
Viagene, Inc. (the "Company"), a Delaware corporation, was incorporated
on February 3, 1987. The Company is a biotechnology company pursuing the
discovery, development and commercialization of gene transfer drugs for the
treatment of severe viral infections, cancers and other diseases.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding during the periods.
2. MERGER AGREEMENT AND LITIGATION
On April 23, 1995, Viagene and Chiron Corporation executed an Agreement
and Plan of Merger ("Merger Agreement"). Under the terms of the Merger
Agreement, Chiron will acquire the outstanding shares of common stock of
Viagene not already owned by Chiron through a combination of cash and common
stock of Chiron, resulting in 40% of the consideration constituting cash and
60% of the consideration constituting shares of common stock of Chiron.
Pursuant to the transaction, Viagene stockholders may elect between receiving
$9.00 of cash or 0.155 of a share of Chiron common stock for each share of
Viagene common stock, subject to proration. The transaction is intended to
be a tax-free exchange for Viagene stockholders to the extent of the Chiron
common stock received in the transaction. The consummation of the agreement
is subject to both Viagene stockholder and regulatory approval, as well as
certain other conditions precedent and, if approved, is expected to close in
the third quarter of 1995.
F-19
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
On April 26, 1995, a stockholder filed suit in the Court of Chancery of
Delaware against Chiron, Viagene and the Board of Directors of Viagene. The
plaintiff, which purports to represent a class of Viagene stockholders,
alleges that the consideration which Viagene stockholders would receive
pursuant to the merger is inadequate, and that the defendants have therefore
breached duties to Viagene stockholders. The complaint seeks an injunction
against the merger, unspecified damages, attorneys' fees and other relief.
On May 1, 1995, a suit was filed in the Court of Chancery in the State
of Delaware against Viagene, the Board of Directors of Viagene and one former
director, the Green Cross Corporation, and Chiron, relating to the
acquisition of Viagene by Chiron. The plaintiffs who purport to represent a
class of all Viagene stockholders (except defendants and related parties) and
their successors-in-interest, allege, among other things, that they were
induced to purchase their stock for long term investment purposes but that
defendants used invested funds to make Viagene an attractive acquisition
candidate, that the consideration which Viagene stockholders would receive
pursuant to the merger agreement announced April 24, 1995, is inadequate, and
that defendants have therefore breached duties to the Viagene stockholders.
The complaint seeks an injunction against the merger, unspecified damages,
and attorneys' fees and other relief.
The Company intends to vigorously defend the lawsuits. 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 these lawsuits will have a material adverse effect upon its
financial statements presented herein.
F-20
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated February 8,
1995, except for Note 7, as to which the date is April 26, 1995, with respect
to the financial statements of Viagene, Inc. included in the Annual Report
(Form 10-K/A) of Viagene, Inc. for the year ended December 31, 1994, in the
Registration Statements (File Numbers 33-20181, 33-35182, 2-90595, 33-44477,
33-65024, 33-23899, 33-58305, 33-45822, and 33-63297 on Form S-8 and File
Number 33-43574 on Form S-3) pertaining to the Chiron 1991 Stock Option PLan,
the Chiron Corporation 1988 Employee Stock Purchase Plan, the Intra Optics,
Inc. 1986 Incentive Stock Option Plan, as amended; the Chiron Corporation
1982 Stock Option Plan, the Amended and Restated 1993 Incentive Stock Option
Plan and 1989 Stock Option Plan of Viagene, Inc. and the shares issuable to
certain warrant holders of Chiron.
ERNST & YOUNG LLP
San Diego, California
November 10, 1995
